<PAGE>
REGISTRATION NO. 33-
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 1995
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CONSTELLATION ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MARYLAND 4931 APPLIED FOR
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER ID NO.)
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</TABLE>
CONSTELLATION ENERGY CORPORATION
ONE BATTERY PARK PLAZA
NEW YORK, NEW YORK 10004
(212) 858-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
STEPHEN R. RUSMISEL, ESQ.
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004
(212) 858-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------------
COPY TO:
DOUGLAS W. HAWES, ESQ.
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
(212) 424-8000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective and
all other conditions to the merger (the "Merger") of Baltimore Gas and Electric
Company ("BGE") and Potomac Electric Power Company ("PEPCO") with and into the
Registrant pursuant to the Merger Agreement described in the Joint Proxy
Statement/Prospectus contained herein have been satisfied or waived.
--------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE OFFERING PRICE REGISTRATION FEE
OF SECURITIES TO BE REGISTERED REGISTERED (1) PER UNIT (2) (2) (3)
<S> <C> <C> <C> <C>
Common Stock, no par value................... 284,127,415 $25.74 $7,312,909,476 $2,521,693
Class A Preferred Stock, $100 par value...... 591,849 $100.00 $59,184,900 $20,409
Class B Preferred Stock, $50 par value....... 5,376,465 $50.00 $268,823,250 $92,698
Preference Stock, $100 par value............. 5,520,000 $100.00 $552,000,000 $190,345
</TABLE>
(1) The amount of common stock, no par value, of the Registrant ("Company Common
Stock") to be registered has been determined on the basis of the conversion
ratios for such shares in the Merger (0.997 of a share of Company Common
Stock for each outstanding share of common stock, $1 par value, of PEPCO
("PEPCO Common Stock") and one (1) share of Company Common Stock for each
outstanding share of common stock, no par value, of BGE ("BGE Common
Stock")), and the maximum number of shares of PEPCO Common Stock
(127,994,736) and BGE Common Stock (156,516,663) to be converted in the
Merger. The amount of Class A Preferred Stock, $100 par value, Class B
Preferred Stock, $50 par value and Preference Stock, $100 par value, of the
Registrant (the "Company Class A Preferred Stock," the "Company Class B
Preferred Stock" and the "Company Preference Stock" respectively) to be
registered has been determined on the basis of the conversion ratios for
such shares in the Merger (such ratios being one (1) share of (a) Company
Class A Preferred Stock, $100 par value, (b) Company Class B Preferred
Stock, $50 par value or (c) Company Preference Stock, $100 par value, for
each outstanding share of (x) preferred stock, $100 par value of BGE (the
"BGE Preferred Stock"), (y) preferred stock, $50 par value, of PEPCO (the
"PEPCO Preferred Stock") or (z) preference stock, $100 par value of BGE (the
"BGE Preference Stock"), respectively), and the maximum number of shares of
BGE Preferred Stock (591,849), PEPCO Preferred Stock (5,376,465) and BGE
Preference Stock (5,520,000) to be converted in the Merger. Also includes
39,770 shares of Company Common Stock issuable upon conversion of the
Company Class B Preferred Stock, $2.44 Convertible Series of 1966.
(2) Estimated pursuant to Rule 457(f) of the Securities Act of 1933 (the
"Securities Act"), based upon the aggregate of (x) the market value of the
shares of PEPCO Common Stock and BGE Common Stock to be converted in the
Merger (based on the respective averages of the high and low sales prices of
a share of PEPCO Common Stock and BGE Common Stock on the New York Stock
Exchange, Inc. (the "NYSE") Composite Tape on December 1, 1995)and (y) the
book value of the BGE Preferred Stock, PEPCO Preferred Stock and BGE
Preference Stock to be converted in the Merger.
(3) The registration fee for all securities registered hereby, $2,825,145, has
been calculated pursuant to Rules 457(c) and 457(f)(2) under the Securities
Act, as one-twenty-ninth of one percent of proposed maximum aggregate
offering price.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
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<PAGE>
CONSTELLATION ENERGY CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-4 - ITEM NO. AND CAPTION
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<C> <C> <S> <C>
A. Information about the Transaction
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus........................... Outside Front Cover Page; Cross Reference Sheet;
Joint Proxy Statement/ Prospectus Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Available Information; Incorporation by
Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information.................................. Summary of Joint Proxy Statement/ Prospectus;
Selected Historical and Pro Forma Financial Data
4. Terms of the Transaction............................ Summary of Joint Proxy Statement/ Prospectus; The
Merger; Regulatory Matters; The Merger
Agreement; The Stock Option Agreements;
Description of Company Capital Stock; Comparison
of Shareholder Rights; Exhibit A; Exhibit D1;
Exhibit D2
5. Pro Forma Financial Information..................... Unaudited Pro Forma Combined Condensed Financial
Information; Constellation Energy Corporation
Notes to Unaudited Pro Forma Combined Condensed
Financial Statements
6. Material Contracts with the Company Being
Acquired........................................... Summary of Joint Proxy Statement/ Prospectus; The
Merger; The Merger Agreement; The Stock Option
Agreements; Selected Information Concerning BGE
and PEPCO
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters...... *
8. Interests of Named Experts and Counsel.............. Legal Matters
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities..................... *
B. Information about the Registrant
10. Information with Respect to S-3 Registrants......... *
11. Incorporation of Certain Information by Reference... *
12. Information with Respect to S-2 or S-3
Registrants........................................ *
13. Incorporation of Certain Information by Reference... *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM S-4 - ITEM NO. AND CAPTION
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14. Information with Respect to Registrants Other Than
S-3 or S-2 Registrants............................. Summary of Joint Proxy Statement/ Prospectus; The
Merger; Selected Historical and Pro Forma
Financial Data; Selected Information Concerning
BGE and PEPCO; The Company Following the Merger
<C> <C> <S> <C>
C. Information about the Company Being
Acquired
15. Information with Respect to S-3 Companies........... Incorporation by Reference
16. Information with Respect to S-2 or S-3 Companies.... *
17. Information with Respect to Companies Other than S-3
and S-2 Companies.................................. *
D. Voting and Management Information
18. Information if Proxies, Consents or Authorizations
are to be Solicited................................ Incorporation by Reference; Summary of Joint
Proxy Statement/Prospectus; Meetings, Voting and
Proxies; The Merger; The Merger Agreement;
Selected Information Concerning BGE and PEPCO;
The Company Following the Merger, Exhibit C1;
Exhibit C2; Exhibit C3; Exhibit C4
19. Information if Proxies, Consents or Authorizations
are not to be Solicited, or in an Exchange Offer... *
</TABLE>
- ------------------------
* Not Applicable
<PAGE>
[ON BGE LETTERHEAD]
Date
Dear Shareholder:
A special meeting of the shareholders of Baltimore Gas and Electric Company
(BGE) will be held on March 15, 1996, beginning at 10:00 a.m. at BGE's corporate
headquarters, 39 W. Lexington Street in downtown Baltimore.
At this meeting you will be asked to approve an agreement and plan of merger
allowing BGE and Potomac Electric Power Company (PEPCO) to merge and form a new
company. If approved by both BGE and PEPCO shareholders, the merger plan will
then be submitted to a number of regulatory agencies for their approvals later
this year and in 1996.
BGE's Board of Directors believes this strategic business combination will
bring added value to both companies' shareholders. Both BGE and PEPCO are
well-respected, financially sound, low-cost utilities. Our combined service
territory, the Baltimore-Washington corridor, is the fourth largest metropolitan
area in the nation. We expect to achieve substantial savings over the next
decade by eliminating duplicate functions, centralizing our purchasing
processes, and reducing corporte expenses. The new company will have an improved
generation mix as well as a good balance of industrial, commercial, government,
and residential customers. These factors will enable the new company to keep
prices lower than either BGE and PEPCO could as a stand-alone company, offering
a key advantage in a competitive industry.
The enclosed Joint Proxy Statement/Prospectus explains the terms of the
agreement and plan of merger. It also contains information on the new company's
common stock that will be issued in exchange for BGE's and PEPCO's common stock,
as well as information on other matters to be discussed at the meeting.
We've enclosed a proxy card listing the matters that require your vote.
PLEASE COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED PROXY FORM PROMPTLY. This
will allow your shares to be voted whether or not you attend the meeting. If you
plan to attend the meeting, check the box on the proxy card. Please DO NOT SEND
IN YOUR STOCK CERTIFICATES with your proxy cards.
(C.H. Poindexter signature)
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
<PAGE>
[ON MR. MITCHELL'S LETTERHEAD]
Dear Shareholder:
You are cordially invited to attend a special Meeting of Shareholders of
Potomac Electric Power Company ("PEPCO") which will be held on , 1996
at . The meeting will start at 10:00 a.m., local
time.
At this important meeting, the holders of PEPCO common and preferred stock
will be asked to approve a merger agreement whereby Baltimore Gas and Electric
Company and PEPCO will merge with and into Constellation Energy Corporation, a
newly-formed Maryland corporation which will also be incorporated in Virginia
(the "Company"). Upon the completion of the merger, you will receive 0.997 of a
share of Company common stock for each share of PEPCO common stock you own and
one share of Company Class B Preferred Stock for each share of PEPCO preferred
stock you own. Provisions will be made for common shareholders to obtain round
lots if they so desire. The accompanying Joint Proxy Statement/Prospectus
discusses the proposed merger in detail. Shareholders are urged to read the
Joint Proxy Statement/Prospectus.
The Board of Directors believes that this strategic business combination
will benefit the shareholders because (i) it will create a larger, stronger
company well positioned to grow, prosper and take advantage of future strategic
opportunities in an increasingly competitive environment, (ii) it will create
added shareholder value through increased efficiency and reduced or avoided
costs, resulting in a financially stronger company and (iii) the Company will
have a more diverse and growing base of industrial, commercial, governmental and
residential customers.
Approval of the Merger Agreement by shareholders of PEPCO and BGE entitled
to vote thereon is a condition to the consummation of the Merger. If the Merger
Agreement is approved by the shareholders of PEPCO and BGE, the Merger will be
consummated only after certain regulatory approvals are received and other
conditions are satisfied or waived. It is anticipated that this will occur in
early 1997.
For the Merger to be approved, the Merger Agreement must be approved by (i)
the holders of two-thirds of the outstanding shares of PEPCO common stock voting
as a single class and (ii) the holders of a majority of the PEPCO preferred
stock voting as a single class. Your vote is important no matter how many shares
you hold.
Even if you plan to attend the meeting, we urge you to mark, sign and date
the enclosed proxy and return it promptly. You have the option to revoke it at
any time, or to vote your shares personally on request if you attend the
meeting.
Sincerely,
EDWARD F. MITCHELL
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
, 1996
<PAGE>
BGE
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
, 1995
To the Holders of Common Stock,
Preferred Stock and Preference
Stock of Baltimore Gas and Electric
Company ("BGE"):
A Special Meeting of the Shareholders of BGE (the "Meeting") will be held at
the Gas and Electric Building at Charles Center, second floor, Lexington and
Liberty Streets, Baltimore, Maryland 21201 on March 15, 1996 at 10:00 a.m.,
local time, for the purpose of acting on the following matters:
1. To consider and vote upon a proposal to approve an Agreement and
Plan of Merger (the "Merger Agreement") among BGE, Potomac Electric Power
Company, a Virginia and District of Columbia corporation ("PEPCO") and
Constellation Energy Corporation (formerly named "RH Acquisition Corp."), a
Maryland corporation which will also be incorporated in Virginia (the
"Company"), which provides for the merger (the "Merger") of BGE and PEPCO
with and into the Company described in the accompanying Joint Proxy
Statement/Prospectus, and whereby the shares of BGE Common Stock and PEPCO
Common Stock will be converted into the right to receive shares of the
Company's Common Stock, shares of BGE Preferred Stock and PEPCO Preferred
Stock will be converted into the right to receive shares of the Company's
Preferred Stock, and shares of BGE Preference Stock will be converted into
the right to receive shares of the Company's Preference Stock.
2. To consider and vote upon a proposal to approve the Company
Long-Term Incentive Plan.
3. To transact such other business incident to the conduct of the
Meeting as may properly be brought before such Meeting.
The holders of BGE Common Stock, BGE Preferred Stock and BGE Preference
Stock at the close of business on December 29, 1995 will be entitled to vote on
Item 1 above. The holders of BGE Common Stock will be entitled to vote on Items
2 and 3 above. Please sign, date and return the accompanying proxy in the
enclosed addressed postage-paid envelope.
By order of the Board of Directors
SECRETARY
<PAGE>
[PEPCO LOGO]
POTOMAC ELECTRIC POWER COMPANY
1900 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20068
NOTICE OF SPECIAL MEETING OF COMMON AND PREFERRED SHAREHOLDERS
, 1996
NOTICE IS HEREBY GIVEN that a Special Meeting (the "Meeting") of the Common
and Preferred Shareholders of Potomac Electric Power Company ("PEPCO") will be
held at 10:00 a.m., local time, on , 1996 at for the
following purposes:
1. To consider and vote upon a proposal to approve an Agreement and
Plan of Merger (the "Merger Agreement") by and among PEPCO, Baltimore Gas
and Electric Company, a Maryland corporation ("BGE") and Constellation
Energy Corporation, a Maryland corporation which will also be incorporated
in Virginia (the "Company"), which provides for the merger (the "Merger") of
PEPCO and BGE with and into the Company, as described in the accompanying
Joint Proxy Statement/Prospectus, and whereby the shares of PEPCO Common
Stock and BGE Common Stock will be converted into the right to receive
shares of the Company's Common Stock, shares of PEPCO Preferred Stock and
BGE Preferred Stock will be converted into the right to receive shares of
the Company's Preferred Stock, and shares of BGE Preference Stock will be
converted into the right to receive shares of the Company's Preference
Stock.
2. To consider and vote upon a proposal to approve the Company
Long-Term Incentive Plan.
The holders of PEPCO Common Stock and PEPCO Preferred Stock at the close of
business on , 1996 will be entitled to vote on Item 1 above. The
holders of PEPCO Common Stock will also be entitled to vote on Item 2 above.
By order of the Board of Directors,
WILLIAM T. TORGERSON
SECRETARY
------------------------
IMPORTANT
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
EVEN IF YOU PLAN TO BE PRESENT, YOU ARE URGED TO SIGN, DATE AND MAIL THE
ENCLOSED PROXY PROMPTLY.
IF YOU ATTEND THE MEETING, YOU MAY VOTE EITHER IN PERSON OR BY YOUR PROXY.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
JOINT PROXY STATEMENT
OF
BALTIMORE GAS AND ELECTRIC COMPANY
AND
POTOMAC ELECTRIC POWER COMPANY
------------------
PROSPECTUS
CONSTELLATION ENERGY CORPORATION
COMMON STOCK, NO PAR VALUE,
CLASS A PREFERRED STOCK, $100 PAR VALUE,
CLASS B PREFERRED STOCK, $50 PAR VALUE, AND
PREFERENCE STOCK, $100 PAR VALUE
------------------------
SPECIAL MEETING OF SHAREHOLDERS OF BALTIMORE GAS AND
ELECTRIC COMPANY TO BE HELD ON MARCH 15, 1996
SPECIAL MEETING OF SHAREHOLDERS OF POTOMAC ELECTRIC
POWER COMPANY TO BE HELD ON , 1996
This Joint Proxy Statement/ Prospectus is first being mailed to the
shareholders of PEPCO and BGE on or about , 1996.
This Joint Proxy Statement/Prospectus relates to the proposed merger and
certain related transactions contemplated by the Agreement and Plan of Merger,
dated as of September 22, 1995 (the "Merger Agreement"), by and among Baltimore
Gas and Electric Company, a Maryland corporation ("BGE"), Potomac Electric Power
Company, a District of Columbia and Virginia corporation ("PEPCO"), and
Constellation Energy Corporation (formerly named "RH Acquisition Corp."), a
Maryland corporation which at the effective time of the Merger (as hereinafter
defined) also will be incorporated under the laws of Virginia (the "Company").
The Merger Agreement provides for the merger of BGE and PEPCO with and into
the Company (the "Merger"), pursuant to which (i) each outstanding share of
Common Stock, no par value, of BGE (the "BGE Common Stock") will be converted
into the right to receive one share of Common Stock, no par value, of the
Company (the "Company Common Stock"); (ii) each outstanding share of Common
Stock, $1 par value, of PEPCO (the "PEPCO Common Stock") will be converted into
the right to receive 0.997 of a share of Company Common Stock; (iii) each
outstanding share of each series of BGE Preferred Stock, $100 par value (the
"BGE Preferred Stock"), will be converted into the right to receive one share of
the corresponding series of preferred stock, $100 par value, of the Company (the
"Company Class A Preferred Stock"), with equal stated value and dividends and
like redemption provisions and other terms and conditions; (iv) each outstanding
share of each series of BGE Preference Stock, $100 par value (the "BGE
Preference Stock"), will be converted into the right to receive one share of the
corresponding series of preference stock, $100 par value, of the Company (the
"Company Preference Stock"), with equal stated value and dividends and like
redemption and other terms and conditions; and (v) each outstanding share of
PEPCO Preferred Stock, $50 par value (the "PEPCO Preferred Stock"), will be
converted into the right to receive one share of the corresponding series of
preferred stock, $50 par value, of the Company (the "Company Class B Preferred
Stock" and, together with the Company Class A Preferred Stock, the "Company
Preferred Stock"), with equal stated value and dividends and like redemption
provisions and other terms and conditions, except as
The date of this Joint Proxy Statement/Prospectus is , 1996.
ii
<PAGE>
otherwise described herein regarding current restrictions on PEPCO's issuance of
unsecured debt. (See "Comparison of Shareholder Rights -- Comparison of BGE,
PEPCO and Company Articles and By-laws.") Cash will be issued in lieu of
fractional shares. A copy of the Merger Agreement is attached hereto as Exhibit
A.
Based upon the capitalization of BGE and PEPCO on September 22, 1995, (i)
holders of BGE Common Stock would have held approximately 55.5% of the aggregate
number of shares of Company Common Stock that would have been outstanding if the
Merger had been consummated as of such date and (ii) holders of PEPCO Common
Stock would have held approximately 44.5% of the aggregate number of shares of
Company Common Stock that would have been outstanding if the Merger had been
consummated as of such date.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Joint Proxy Statement/Prospectus constitutes a prospectus of the
Company filed as part of the Registration Statement (as defined below) being
filed with the Securities and Exchange Commission (the "SEC") pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), with respect to (i)
up to 284,127,415 shares of Company Common Stock, 5,968,314 shares of Company
Preferred Stock and 5,520,000 shares of Company Preference Stock to be issued
pursuant to or as contemplated by the Merger Agreement and (ii) up to 39,770
shares of Company Common Stock issuable upon the conversion of the shares of
Company Class B Preferred Stock, $2.44 Convertible Series of 1966.
This Joint Proxy Statement/Prospectus is being furnished to the holders of
BGE Common Stock, BGE Preferred Stock and BGE Preference Stock in connection
with the solicitation of proxies by the Board of Directors of BGE (the "BGE
Board") for use at the special meeting (the "BGE Meeting") to be held at 10
a.m., local time, on March 15, 1996, at the Gas and Electric Building at Charles
Center, second floor, Lexington and Liberty Streets, Baltimore, Maryland 21201,
and at any adjournment or postponement thereof. The BGE Meeting is being held to
consider and vote upon (i) a proposal to approve the Merger among BGE, PEPCO and
the Company and (ii) a proposal to approve the Constellation Energy Corporation
Long-Term Incentive Plan (the "Company LTIP," a copy of which is attached hereto
as Exhibit H). Only the holders of BGE Common Stock shall be entitled to vote on
the Company LTIP at the BGE Meeting.
This Joint Proxy Statement/Prospectus is also being furnished to the holders
of PEPCO Common Stock and PEPCO Preferred Stock in connection with the
solicitation of proxies by the Board of Directors of PEPCO (the "PEPCO Board")
for use at the special meeting of the holders of PEPCO Common Stock and PEPCO
Preferred Stock (the "PEPCO Meeting") to be held at , a.m., local time, on
, at , and at any adjournment or postponement thereof. The PEPCO
Meeting is being held to consider and vote upon a (i) proposal to approve the
Merger Agreement among BGE, PEPCO and the Company and (ii) a proposal to approve
the Company LTIP. Only the holders of PEPCO Common Stock shall be entitled to
vote on the Company LTIP at the PEPCO Meeting.
All information herein with respect to BGE has been furnished by BGE. All
information herein with respect to PEPCO has been furnished by PEPCO. All
information herein with respect to the Company has been furnished by the
Company.
No person is authorized to give any information or to make any
representation other than those contained or incorporated by reference in this
Joint Proxy Statement/Prospectus and, if given or made, such information or
representation should not be relied upon as having been authorized. This Joint
Proxy Statement/Prospectus does not constitute an offer to sell, or a
solicitation of an offer to
iii
<PAGE>
purchase, the securities offered by this Joint Proxy Statement/Prospectus, or
the solicitation of a proxy, in any jurisdiction, to or from any person to whom
or from whom it is unlawful to make such offer, solicitation of an offer or
proxy solicitation in such jurisdiction. Neither the delivery of this Joint
Proxy Statement/Prospectus nor any distribution of securities pursuant to this
Joint Proxy Statement/Prospectus shall, under any circumstances, create an
implication that there has been no change in the affairs of BGE or PEPCO or in
the information set forth herein since the date of this Joint Proxy
Statement/Prospectus.
This Joint Proxy Statement/Prospectus does not cover any resale of the
securities to be received by the shareholders of BGE and PEPCO upon consummation
of the Merger, and no person is authorized to make any use of this Joint Proxy
Statement/Prospectus in connection with such resale.
AVAILABLE INFORMATION
Each of BGE and PEPCO is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
accordingly files reports, proxy statements and other information with the SEC.
Such reports, proxy statements and other information filed with the SEC are
available for inspection and copying at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the SEC's Regional Offices located at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois, 60661-2511 and
at 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such
documents may also be obtained from the Public Reference Room of the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, any such material and other information concerning BGE and
PEPCO can also be inspected at the New York Stock Exchange (the "NYSE"), 20
Broad Street, New York, New York 10005. Such material and additional information
concerning BGE can be inspected at the Chicago Stock Exchange, 440 South
LaSalle, Chicago, Illinois 60605 and the Pacific Stock Exchange, 301 Pine
Street, San Francisco, California 94104, on which exchanges the BGE Common Stock
is listed, and at the Philadelphia Stock Exchange, 1900 Market Street,
Philadelphia, Pennsylvania 19103, on which exchange certain series of BGE
Preferred and BGE Preference Stock are listed.
The Company has filed a registration statement on Form S-4 (together with
all amendments, schedules and exhibits thereto, the "Registration Statement")
with the SEC under the Securities Act, with respect to the shares of Company
Common Stock, Company Preferred Stock and Company Preference Stock issuable in
the Merger. This Joint Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. The
Registration Statement is available for inspection and copying as set forth
above. Statements contained in this Joint Proxy Statement/ Prospectus or in any
document incorporated by reference in this Joint Proxy Statement/Prospectus as
to the contents of any contract or other document referred to herein or therein
are not necessarily complete and, in each instance, reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified in all
respects by such reference.
INCORPORATION BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE
AVAILABLE UPON REQUEST FROM, IN THE CASE OF DOCUMENTS RELATING TO BGE, CHARLES
W. SHIVERY, VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND SECRETARY, BALTIMORE GAS
AND ELECTRIC COMPANY, P.O. BOX 1475, BALTIMORE, MARYLAND 21203 AND, IN THE CASE
OF DOCUMENTS RELATING TO PEPCO, ELLEN SHERIFF ROGERS, ASSOCIATE GENERAL COUNSEL,
ASSISTANT SECRETARY AND ASSISTANT TREASURER, POTOMAC ELECTRIC POWER COMPANY,
1900 PENNSYLVANIA AVENUE, N.W., WASHINGTON, D.C. 20068. TO ENSURE TIMELY
DELIVERY, SUCH REQUESTS SHOULD BE MADE BY , 1996.
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BGE and PEPCO hereby undertake to provide without charge to each person,
including any beneficial owner, to whom a copy of this Joint Proxy
Statement/Prospectus has been delivered, upon the written or oral request of
such person, a copy (without exhibits, except those specifically incorporated by
reference) of any and all of the documents referred to below which have been or
may be incorporated by reference in this Joint Proxy Statement/Prospectus.
Requests for such documents should be directed to the persons indicated above.
The following documents, previously filed with the SEC pursuant to the
Exchange Act, are hereby incorporated by reference:
1. BGE Annual Report on Form 10-K for the year ended December 31, 1994
(File No. 1-1910).
2. BGE Quarterly Reports on Form 10-Q for the quarters ended March 31,
June 30 and September 30, 1995 (File No. 1-1910).
3. BGE Amendments to Quarterly Reports on Form 10-Q/A for the quarters
ended March 31 and June 30, 1995 (File No. 1-1910).
4. BGE Current Report on Form 8-K dated September 27, 1995 (File No.
1-1910).
5. PEPCO Annual Report on Form 10-K for the year ended December 31,
1994 (File No. 1-1072).
6. PEPCO Quarterly Reports on Form 10-Q for the quarters ended March
31, June 30 and September 30, 1995 (File No. 1-1072).
7. PEPCO Current Reports on Form 8-K dated January 27, May 19 and
September 26, 1995 (File No. 1-1072).
The information relating to BGE and PEPCO contained in this Joint Proxy
Statement/Prospectus should be read together with the information in the
documents incorporated by reference herein.
All documents filed by BGE and PEPCO pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date hereof and prior to the date of the BGE
Meeting on March 15, 1996, and any adjournment thereof, or the PEPCO Meeting on
, 1996, and any adjournment thereof, shall be deemed to be incorporated
by reference herein and to be a part hereof from the date of filing of such
documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Joint Proxy Statement/ Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is, or is deemed to be, incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Joint Proxy Statement/Prospectus.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION..................................................... iii
INCORPORATION BY REFERENCE................................................ iii
TABLE OF CONTENTS......................................................... v
INDEX OF DEFINED TERMS.................................................... viii
SUMMARY OF JOINT PROXY STATEMENT/PROSPECTUS............................... 1
The Parties............................................................. 1
The Meetings............................................................ 1
Required Vote........................................................... 2
The Merger.............................................................. 3
Exchange of Stock Certificates; Treatment of Fractional Shares.......... 3
Dissenters' Rights...................................................... 4
Company LTIP............................................................ 4
Stock Option Agreements................................................. 4
Background.............................................................. 5
Reasons for the Merger.................................................. 5
Recommendations of the Boards of Directors.............................. 5
Opinions of Financial Advisors.......................................... 5
Interests of Certain Persons in the Merger.............................. 6
Directorships......................................................... 6
Employment Agreements for Management of the Company................... 6
BGE Severance Agreements and Employee Plans........................... 6
PEPCO Severance Agreements and Employee Plans......................... 7
PEPCO Employment Agreements........................................... 7
Indemnification....................................................... 7
Conditions to the Merger................................................ 8
Rights to Terminate, Amend or Waive Conditions.......................... 8
Certain Federal Income Tax Consequences of the Merger................... 8
Operations After the Merger............................................. 9
Regulatory Matters...................................................... 9
Accounting Treatment.................................................... 9
Company Articles........................................................ 9
Dividends............................................................... 10
BGE and PEPCO Dividends............................................... 10
Company Dividends..................................................... 10
CONSENT OF INDEPENDENT ACCOUNTANTS........................................ 11
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA.......................... 12
Selected Historical Financial Data...................................... 12
Selected Unaudited Pro Forma Financial Data............................. 15
Comparative Market Prices and Dividends................................. 18
MEETINGS, VOTING AND PROXIES.............................................. 18
BGE Meeting............................................................. 19
PEPCO Meeting........................................................... 20
THE MERGER................................................................ 22
Background of the Merger................................................ 22
Reasons for the Merger.................................................. 25
Recommendations of the BGE Board of Directors........................... 27
Recommendations of the PEPCO Board of Directors......................... 27
Opinions of Financial Advisors.......................................... 28
Interests of Certain Persons in the Merger.............................. 39
Company Employment Agreements........................................... 40
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BGE Severance Agreements and Employee Plans............................. 41
PEPCO Severance Agreements and Employee Plans........................... 42
PEPCO Employment Agreements............................................. 44
Dividend Reinvestment Plans............................................. 45
Certain Federal Income Tax Consequences of the Merger................... 45
Accounting Treatment.................................................... 46
Stock Exchange Listing of Company Capital Stock......................... 47
Federal Securities Law Consequences..................................... 47
Dissenters' Rights...................................................... 47
Company Long-Term Incentive Plan........................................ 50
Actions with Respect to Existing Plans.................................. 50
REGULATORY MATTERS........................................................ 51
State Approvals and Related Matters..................................... 51
Public Utility Holding Company Act of 1935.............................. 51
Federal Power Act....................................................... 52
Antitrust Considerations................................................ 52
Atomic Energy Act....................................................... 52
THE MERGER AGREEMENT...................................................... 53
The Merger.............................................................. 53
Representations and Warranties.......................................... 55
Certain Covenants....................................................... 56
No Solicitation of Transactions......................................... 58
Company Board of Directors.............................................. 58
Management of the Company............................................... 58
Corporate Offices....................................................... 59
Indemnification......................................................... 59
Conditions to the Merger................................................ 59
Termination; Termination Fees and Expenses.............................. 60
Expenses................................................................ 60
Amendment and Waiver.................................................... 61
THE STOCK OPTION AGREEMENTS............................................... 61
General................................................................. 61
Repurchases........................................................... 62
Purchase with Option Holder's Shares; Call............................ 62
Voting................................................................ 62
Restrictions on Transfer.............................................. 62
DESCRIPTION OF COMPANY CAPITAL STOCK...................................... 64
Company Common Stock.................................................... 64
Company Preferred Stock................................................. 65
Company Preference Stock................................................ 67
COMPARISON OF SHAREHOLDER RIGHTS.......................................... 69
Comparison of BGE, PEPCO and Company Articles and By-laws............... 69
Comparison of District of Columbia, Maryland and Virginia Law........... 74
APPROVAL OF THE COMPANY LONG-TERM INCENTIVE PLAN.......................... 78
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION.............. 83
CONSTELLATION ENERGY CORPORATION NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS........................................... 96
SELECTED INFORMATION CONCERNING BGE AND PEPCO............................. 97
Business of BGE......................................................... 97
Business of PEPCO....................................................... 97
Prior Relationships Between BGE and PEPCO............................... 98
THE COMPANY FOLLOWING THE MERGER.......................................... 98
Management of the Company............................................... 98
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Operations of the Company............................................... 99
EXPERTS................................................................... 99
LEGAL MATTERS............................................................. 100
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Exhibit A Agreement and Plan of Merger
Exhibit B1 BGE Stock Option Agreement
Exhibit B2 PEPCO Stock Option Agreement
Exhibit C1 Employment Agreement of Christian H. Poindexter
Exhibit C2 Employment Agreement of Edward F. Mitchell
Exhibit C3 Employment Agreement of John M. Derrick, Jr.
Exhibit C4 Employment Agreement of Edward A. Crooke
Exhibit D1 Opinion of Goldman Sachs & Co.
Exhibit D2 Opinion of Barr Devlin & Co. Incorporated
Form of Restated Articles of Incorporation of Constellation Energy
Exhibit E Corporation
Exhibit F Form of By-laws of Constellation Energy Corporation
Exhibit G1 Sections 3-202 to 3-213 of the Maryland General Corporation Law
Exhibit G2 Sections 13.1-729 to 13.1-741 of the Virginia Stock Corporation Act
Exhibit G3 Section 29-373 of the District of Columbia Business Corporation Act
Exhibit H Constellation Energy Corporation Long-Term Incentive Plan
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INDEX OF DEFINED TERMS
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Antitrust Division........................................................ 52
Articles of Merger........................................................ 3
Barr Devlin............................................................... 5
BGE....................................................................... i
BGE Articles.............................................................. 2
BGE Board................................................................. ii
BGE Common Stock.......................................................... i
BGE DRP................................................................... 20
BGE LTIP.................................................................. 4
BGE Meeting............................................................... ii
BGE Option................................................................ 4
BGE Record Date........................................................... 2
BGE Shareholders' Approval................................................ 2
BGE Shares................................................................ 2
Certificates.............................................................. 55
Closing Date.............................................................. 3
Code...................................................................... 8
Committee................................................................. 79
Common Stock Dividend..................................................... 64
Company................................................................... i
Company Articles.......................................................... 9
Company Board............................................................. 4
Company Class A Preferred Stock........................................... i
Company Class B Preferred Stock........................................... i
Company Common Stock...................................................... i
Company Employment Agreements............................................. 6
Company LTIP.............................................................. ii
Company Preference Stock.................................................. i
Company Preferred Stock................................................... i
Company Restricted Stock.................................................. 79
Constituent Certificates.................................................. 4
Converted Shares.......................................................... 55
D.C. Commission........................................................... 9
DCBCA..................................................................... 3
Effective Time............................................................ 3
Engagement Letter......................................................... 33
Exchange Act.............................................................. iii
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Exchange Agent............................................................ 3
FERC...................................................................... 9
FTC....................................................................... 52
Goldman Sachs............................................................. 5
HSR Act................................................................... 9
IBES...................................................................... 30
Indemnified Liabilities................................................... 8
Maryland Commission....................................................... 9
Merger.................................................................... i
Merger Agreement.......................................................... i
MGCL...................................................................... 2
1935 Act.................................................................. 51
Nonqualified Options...................................................... 79
NRC....................................................................... 9
NYSE...................................................................... iii
Options................................................................... 5
Pennsylvania Commission................................................... 51
PEPCO..................................................................... i
PEPCO Articles............................................................ 3
PEPCO Board............................................................... ii
PEPCO Common Stock........................................................ i
PEPCO DRP................................................................. 21
PEPCO Employment Agreements............................................... 7
PEPCO LTIP................................................................ 4
PEPCO Meeting............................................................. ii
PEPCO Option.............................................................. 4
PEPCO Preferred Stock..................................................... i
PEPCO Record Date......................................................... 2
PEPCO Severance Agreements................................................ 7
PEPCO Shareholders' Approval.............................................. 3
Power Act................................................................. 9
Registration Statement.................................................... iii
SEC....................................................................... ii
Securities Act............................................................ ii
Stock Option Agreements................................................... 4
Virginia Commission....................................................... 51
VSCA...................................................................... 3
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SUMMARY OF JOINT PROXY STATEMENT/PROSPECTUS
THE FOLLOWING IS A SUMMARY OF THE MATERIAL TERMS AND CONDITIONS OF THE
MERGER AND RELATED INFORMATION. THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION
APPEARING ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS, THE EXHIBITS AND
THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE. SHAREHOLDERS ARE URGED TO READ
THIS JOINT PROXY STATEMENT/PROSPECTUS AND THE EXHIBITS IN THEIR ENTIRETY.
THE PARTIES
COMPANY. The Company is a Maryland corporation which at the Effective Time
(as hereinafter defined) also will be incorporated under the laws of Virginia.
The Company currently is a subsidiary of BGE and PEPCO formed for the purpose of
consummating the Merger. At the Effective Time, BGE and PEPCO will be merged
with and into the Company, the separate corporate existences of BGE and PEPCO
will cease and the Company will be the surviving corporation. The Company will
succeed to the businesses of BGE and PEPCO. The temporary principal executive
offices of the Company are located at One Battery Park Plaza, New York, New
York, 10004, telephone number (212) 858-1000. As soon as reasonably possible
after the Effective Time, the corporate headquarters and principal executive
offices of the Company will be located in the Annapolis, Maryland area.
BGE. BGE is a Maryland corporation, primarily engaged in the business of
producing, purchasing and selling electricity, and purchasing, transporting and
selling natural gas within the State of Maryland. BGE primarily furnishes
electric and gas retail services in the City of Baltimore and in all or part of
10 counties in central Maryland. This electric service territory includes an
area of approximately 2,300 square miles with an estimated population of
2,625,000. The gas retail territory includes an area of approximately 627 square
miles with an estimated population of 1,980,000. BGE is also qualified to do
business in the District of Columbia and in the Commonwealth of Pennsylvania,
where it is participating in the ownership and operation of two electric
generating plants. BGE also owns two-thirds of the outstanding capital stock,
including one-half of the voting securities, of Safe Harbor Water Power
Corporation, a hydroelectric producer on the Susquehanna River at Safe Harbor,
Pennsylvania. BGE is also engaged in diversified businesses primarily through
three wholly owned subsidiaries: Constellation Holdings, Inc. and its
subsidiaries; BGE Home Products & Services, Inc. and its subsidiary Maryland
Environmental Systems, Inc.; and BGE Energy Projects & Services, Inc. The
principal executive offices of BGE are located at 39 W. Lexington Street,
Baltimore, Maryland 21201, telephone number (410) 783-5920. See "Selected
Information Concerning BGE and PEPCO -- Business of BGE."
PEPCO. PEPCO is a District of Columbia and Virginia corporation, engaged in
the generation, transmission, distribution and sale of electric energy in the
Washington, D.C. metropolitan area, including the District of Columbia and major
portions of Montgomery and Prince George's Counties in Maryland. This retail
service territory covers approximately 640 square miles and has a population of
approximately 1.9 million. PEPCO also supplies, at wholesale, electric energy to
the Southern Maryland Electric Cooperative, Inc., which distributes electricity
in Calvert, Charles, Prince George's and St. Mary's Counties in southern
Maryland. Potomac Capital Investment Corporation ("PCI"), a wholly owned,
nonutility subsidiary of PEPCO, has assets consisting of a portfolio of
securities and equipment leases and to a lesser extent real estate and other
investments. The executive offices of PEPCO are located at 1900 Pennsylvania
Avenue, N.W., Washington, D.C. 20068, telephone number (202) 872-2000. See
"Selected Information Concerning BGE and PEPCO -- Business of PEPCO."
THE MEETINGS
BGE. At the BGE Meeting, the holders of BGE Common Stock, BGE Preferred
Stock and BGE Preference Stock will be asked to consider and vote upon a
proposal to approve the Merger and the holders of BGE Common Stock will also be
asked to consider and vote upon a proposal to approve the
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Company LTIP. See "Meetings, Voting and Proxies -- BGE Meeting." Pursuant to the
Merger Agreement, consummation of the Merger is conditioned upon, among other
things, approval by the shareholders of BGE of the Merger.
The BGE Meeting is scheduled to be held at 10:00 a.m., local time, on March
15, 1996 at the Gas and Electric Building at Charles Center, second floor,
Lexington and Liberty Streets, Baltimore, Maryland 21201. The BGE Board has
fixed the close of business on December 29, 1995, as the record date (the "BGE
Record Date") for the determination of holders of BGE Common Stock, BGE
Preferred Stock and BGE Preference Stock entitled to notice of and to vote at
the BGE Meeting.
THE BGE BOARD, BY UNANIMOUS VOTE, HAS APPROVED AND ADOPTED THE MERGER
AGREEMENT, BELIEVES THAT THE TERMS OF THE MERGER ARE ADVISABLE AND ARE FAIR TO
BGE'S SHAREHOLDERS, AND RECOMMENDS THAT THE SHAREHOLDERS OF BGE VOTE FOR
APPROVAL OF THE MERGER.
PEPCO. At the PEPCO Meeting, the holders of PEPCO Common Stock and PEPCO
Preferred Stock will be asked to consider and vote upon a proposal to approve
the Merger Agreement and the holders of PEPCO Common Stock will also be asked to
consider and vote upon a proposal to approve the Company LTIP. See "Meetings,
Voting and Proxies -- PEPCO Meeting." Pursuant to the Merger Agreement,
consummation of the Merger is conditioned upon, among other things, approval by
the shareholders of PEPCO of the Merger Agreement.
The PEPCO Meeting is scheduled to be held at 10:00 a.m., local time, on
, 1996 at . The PEPCO Board has fixed the close of business on
, 1996, as the record date (the "PEPCO Record Date") for the
determination of holders of PEPCO Common Stock and PEPCO Preferred Stock
entitled to notice of and to vote at the PEPCO Meeting.
THE PEPCO BOARD, BY UNANIMOUS VOTE, HAS APPROVED AND ADOPTED THE MERGER
AGREEMENT, BELIEVES THAT THE TERMS OF THE MERGER ARE ADVISABLE AND ARE FAIR TO
PEPCO'S SHAREHOLDERS, AND RECOMMENDS THAT THE SHAREHOLDERS OF PEPCO VOTE FOR
APPROVAL OF THE MERGER AGREEMENT.
REQUIRED VOTE
BGE. Under Article 6 of the BGE Articles of Incorporation (the "BGE
Articles") and Sections 3-105(d) and 2-506(b) of the Maryland General
Corporation Law ("MGCL"), the affirmative vote of the holders of two-thirds of
the votes entitled to be cast by all holders of outstanding shares of (i) BGE
Common Stock, voting as a single class, (ii) BGE Preferred Stock, voting as a
single class, (iii) BGE Preference Stock, voting as a single class (collectively
the BGE Common Stock, BGE Preferred Stock and BGE Preference Stock are the "BGE
Shares") and (iv) the BGE Shares, voting together as a single class
(collectively, "BGE Shareholders' Approval"), is required for approval of the
Merger and the transactions contemplated thereby. The holders of BGE Preferred
Stock will have 24 votes for each share of BGE Preferred Stock. The holders of
BGE Common Stock and BGE Preference Stock have one vote per share.
The affirmative vote by a majority of the outstanding shares of BGE Common
Stock represented in person or by proxy and entitled to vote at the BGE Meeting
is required to approve the Company LTIP.
On the BGE Record Date, there were (i) shares of BGE Common Stock,
(ii) 591,849 shares of BGE Preferred Stock (consisting of Series B 4 1/2%,
Series C 4% and Series D 5.40%), and (iii) 4,780,000 shares of BGE Preference
Stock (consisting of 7.50% 1986 Series, 6.75% 1987 Series, 7.80% 1989 Series,
8.25% 1989 Series, 8.625% 1990 Series, 7.85% 1991 Series, 7.78% 1973 Series,
7.125% 1993 Series, 6.97% 1993 Series, 6.70% 1993 Series and 6.99% 1995 Series),
outstanding and entitled to vote. As of the BGE Record Date, directors,
executive officers and affiliates of BGE owned less than 1% (0.34%) of the
issued and outstanding shares of BGE capital stock. See "Meeting, Voting and
Proxies -- BGE Meeting."
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PEPCO. Under Article V of the PEPCO Articles of Incorporation (the "PEPCO
Articles") and under Section 29-367 of the District of Columbia Business
Corporation Act (the "DCBCA") and Section 13.1-718 of the Virginia Stock
Corporation Act (the "VSCA") the affirmative vote of the holders of two-thirds
of the outstanding shares of PEPCO Common Stock and the affirmative vote of the
holders of a majority of the outstanding shares of PEPCO Preferred Stock, each
voting separately as a class (together, the "PEPCO Shareholders' Approval"), is
required for approval of the Merger Agreement and the transactions contemplated
thereby.
The affirmative vote by a majority of the outstanding shares of PEPCO Common
Stock present in person or represented by proxy and entitled to vote at the
PEPCO Meeting is required to approve the Company LTIP.
On the PEPCO Record Date, there were (i) shares of PEPCO Common Stock
outstanding and entitled to vote and (ii) shares of PEPCO Preferred Stock
(consisting of $2.44 Series of 1957, $2.46 Series of 1958, $2.28 Series of 1965,
$2.44 Convertible Series of 1966, $3.82 Series of 1969, $3.37 Series of 1987,
$3.89 Series of 1991, $3.40 Series of 1992 and Auction Series A), outstanding
and entitled to vote. No shares of PEPCO Preference Stock were outstanding. As
of the PEPCO Record Date, directors, executive officers and affiliates of PEPCO
owned less than 1% ( %) of the issued and outstanding shares of PEPCO capital
stock. See "Meetings, Voting and Proxies -- PEPCO Meeting."
THE MERGER
The Merger Agreement provides that: (i) each outstanding share of BGE Common
Stock will be converted into the right to receive one share of Company Common
Stock (the "BGE Conversion Ratio"); (ii) each outstanding share of PEPCO Common
Stock will be converted into the right to receive 0.997 of a share of Company
Common Stock (the "PEPCO Conversion Ratio"); (iii) each outstanding share of
each series of BGE Preferred Stock will be converted into the right to receive
one share of the corresponding series of Company Class A Preferred Stock, with
equal stated value and dividends and like redemption provisions and other terms
and conditions; (iv) each outstanding share of each series of BGE Preference
Stock will be converted into the right to receive one share of the corresponding
series of Company Preference Stock, with equal stated value and dividends and
like redemption and other terms and conditions; and (v) each outstanding share
of PEPCO Preferred Stock will be converted into the right to receive one share
of the corresponding series of Company Class B Preferred Stock with equal stated
value and dividends and like redemption provisions and other terms and
conditions, except as otherwise described herein regarding current restrictions
on PEPCO's issuance of unsecured debt (see "Comparison of Shareholder Rights --
Comparison of BGE, PEPCO and Company Articles and By-laws"). However, any (i)
shares of BGE Common Stock, BGE Preferred Stock and BGE Preference Stock owned
by BGE or any subsidiary of BGE or by PEPCO or any subsidiary of PEPCO; (ii)
shares of PEPCO Common Stock and PEPCO Preferred Stock owned by PEPCO or any
subsidiary of PEPCO or by BGE or any subsidiary of BGE and (iii) shares of
Company Common Stock issued and outstanding immediately prior to the Merger,
will be canceled. Cash will be issued in lieu of fractional shares. See "The
Merger Agreement -- The Merger."
Pursuant to the Merger Agreement, on the date of the closing of the Merger
(the "Closing Date"), articles of merger (the "Articles of Merger") complying
with the requirements of the DCBCA, MGCL and VSCA will be executed by BGE, PEPCO
and the Company and will be filed with the Office of the Mayor of the District
of Columbia, the Secretary of State of the State of Maryland and the Secretary
of State of the Commonwealth of Virginia. The Merger will become effective at
such time as such Articles of Merger have been so filed (the "Effective Time").
See "The Merger Agreement -- The Merger."
EXCHANGE OF STOCK CERTIFICATES; TREATMENT OF FRACTIONAL SHARES
As soon as possible after the Effective Time, a bank, trust company or other
agent selected by BGE and PEPCO (the "Exchange Agent") will mail transmittal
instructions to each holder of record of shares of BGE Common Stock, BGE
Preferred Stock, BGE Preference Stock, PEPCO Common Stock or PEPCO Preferred
Stock advising such holder of the procedure for surrendering certificates
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(collectively, "Constituent Certificates") representing such shares in exchange
for certificates representing shares of Company Common Stock, Company Preferred
Stock or Company Preference Stock, as the case may be (collectively, "Company
Shares"). Holders of Constituent Certificates will not be entitled to receive
any payment of dividends or other distributions on or payment for any fractional
share with respect to shares represented by their Constituent Certificates until
such certificates have been surrendered for certificates representing Company
Shares. See "The Merger Agreement -- The Merger."
Cash will be issued in lieu of fractional shares. See "The Merger --
Consummation of the Merger."
PLEASE DO NOT SEND IN BGE OR PEPCO STOCK CERTIFICATES UNTIL INSTRUCTIONS ARE
SENT TO YOU BY AN EXCHANGE AGENT.
DISSENTERS' RIGHTS
Under Section 3-202 of the MGCL, holders of record of certain series of BGE
Preferred Stock and BGE Preference Stock (those series not listed on a national
securities exchange) as of the BGE Record Date have the right to dissent from
consummation of the Merger and, upon compliance with the procedural requirements
of the MGCL, to receive the "fair value" (as defined in the MGCL) of their
shares if the Merger is effected. Any such holders electing to exercise their
right to dissent must deliver to BGE before the vote is taken a written demand
for payment of the "fair value" of such holder's shares if the Merger is
effected, and not vote to approve the Merger. See "The Merger -- Dissenters'
Rights" and "Comparison of Shareholder Rights" and Exhibits G1, G2 and G3.
Under Section 29-373 of the DCBCA, the holders of record of PEPCO Common
Stock and PEPCO Preferred Stock and, under Section 13.1-730 of the VSCA, certain
record and beneficial holders of PEPCO Preferred Stock at the close of business
on the PEPCO Record Date have the right to dissent, and, upon compliance with
the procedural requirements of the DCBCA or VSCA, as applicable, to receive the
"fair value" (as defined in the DCBCA or VSCA) of their shares if the Merger is
effected. Any such holders electing to exercise their rights to dissent must
deliver to PEPCO before the vote is taken a written notice of objection to the
Merger and of their intent to demand payment of the "fair value" of their shares
if the Merger is consummated, and must not vote to approve the Merger Agreement.
See "The Merger -- Dissenters' Rights" and Exhibits G1, G2 and G3.
COMPANY LTIP
Subsequent to the execution of the Merger Agreement, BGE and PEPCO, as the
shareholders of the Company, determined that it would be in the best interests
of the Company for the Company to adopt the Company LTIP. The Board of Directors
of the Company (the "Company Board") approved the Company LTIP as of September
22, 1995, which by its terms is subject to the approval of the shareholders of
BGE and PEPCO. The Company LTIP, which will replace the BGE 1995 Long-Term
Incentive Plan (the "BGE LTIP") and the PEPCO Long-Term Incentive Plan (the
"PEPCO LTIP"), is a comprehensive stock compensation plan providing for the
grant of restricted stock, stock options, stock appreciation rights, performance
units and dividend equivalents. For a description of the Company LTIP, see "The
Merger -- Company Long-Term Incentive Plan" and "Approval of the Company
Long-Term Incentive Plan."
STOCK OPTION AGREEMENTS
Concurrently with entering into the Merger Agreement, BGE and PEPCO entered
into reciprocal stock option agreements (together, the "Stock Option
Agreements"), pursuant to which (i) PEPCO granted BGE an irrevocable option (the
"PEPCO Option") to purchase, under circumstances that could entitle BGE to a
termination payment under certain provisions of the Merger Agreement (see "The
Merger Agreement -- Termination; Termination Fees and Expenses"), up to
23,579,900 shares (subject to adjustment for changes in capitalization) of PEPCO
Common Stock at an exercise price of $21.225 per share, representing 19.9% of
the number of shares of PEPCO Common Stock outstanding on August 31, 1995, and
(ii) BGE granted PEPCO an irrevocable option (the "BGE Option" and,
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together with the PEPCO Option, the "Options") to purchase, under circumstances
that could entitle PEPCO to a termination payment under certain provisions of
the Merger Agreement, up to 29,357,896 shares (subject to adjustment for changes
in capitalization) of BGE Common Stock at an exercise price of $25.925 per
share, representing 19.9% of the number of shares of BGE Common Stock
outstanding on August 31, 1995. The exercise of each Stock Option is subject to
certain conditions described in the applicable Stock Option Agreement.
After the option granted thereunder becomes exercisable, each Stock Option
Agreement entitles the holder of the Option granted thereunder to require the
issuer thereof to repurchase from the holder all or any portion of the Option
(or, if the Option is exercised, to repurchase from the holder all or any
portion of the acquired shares) at the price specified in the Stock Option
Agreement. Each Stock Option Agreement entitles the holder of the Option granted
thereunder to purchase shares covered by the Option with shares of the Option
holder's own common stock and, thereafter, at any time or from time to time
prior to March 31, 1997 (extendible under certain circumstances to March 31,
1998), to require the grantor of the Option to sell its shares of common stock
back to it, in each case at the price specified in the Stock Option Agreement.
See "The Stock Option Agreements -- General" and "The Merger Agreement --
Termination; Termination Fees and Expenses."
BACKGROUND
For a description of the background of the Merger, see "The Merger --
Background of the Merger."
REASONS FOR THE MERGER
For a description of reasons for the Merger, see "The Merger -- Reasons for
the Merger."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
BGE. The BGE Board, by unanimous vote, has approved and adopted the Merger
Agreement, believes that the terms of the Merger are advisable and are fair to
BGE's shareholders, and recommends that the shareholders of BGE vote FOR
approval of the Merger. The BGE Board approved and adopted the Merger Agreement
after consideration of a number of factors described under the heading "The
Merger -- Reasons for the Merger" and "-- Recommendations of the BGE Board of
Directors."
PEPCO. The PEPCO Board, by unanimous vote, has approved and adopted the
Merger Agreement, believes that the terms of the Merger are advisable and are
fair to PEPCO's shareholders, and recommends that the shareholders of PEPCO vote
FOR approval of the Merger Agreement. The PEPCO Board approved and adopted the
Merger Agreement after consideration of a number of factors described under the
heading "The Merger -- Reasons for the Merger" and "-- Recommendations of the
PEPCO Board of Directors."
OPINIONS OF FINANCIAL ADVISORS
BGE. Goldman, Sachs & Co. ("Goldman Sachs") has delivered to the BGE Board
its oral opinion of September 22, 1995 and its written opinion dated the date
hereof, each to the effect that, as of the date of such opinions, and in light
of the PEPCO Conversion Ratio, the BGE Conversion Ratio is fair to the holders
of BGE Common Stock. The written opinion of Goldman Sachs, dated the date
hereof, which sets forth the assumptions made, matters considered and the limits
of the review undertaken in connection with the opinions, is attached to this
Joint Proxy Statement/Prospectus as Exhibit D1 and should be read in its
entirety. See "The Merger -- Opinions of Financial Advisors -- BGE's Financial
Advisors" and Exhibit D1.
PEPCO. Barr Devlin & Co. Incorporated ("Barr Devlin") has delivered to the
PEPCO Board its written opinions dated September 22, 1995 and the date hereof,
to the effect that, as of the date of such opinions and based upon the
procedures and subject to the assumptions described in such opinions, the PEPCO
Conversion Ratio is fair, from a financial point of view, to the holders of
PEPCO Common Stock. The written opinion of Barr Devlin dated the date hereof is
attached to this Joint Proxy Statement/Prospectus as Exhibit D2 and should be
read in its entirety. For a description of the matters
5
<PAGE>
considered and the assumptions made by Barr Devlin in reaching its opinion and
the fees received and to be received by Barr Devlin, see "The Merger -- Opinions
of Financial Advisors -- PEPCO's Financial Advisors" and Exhibit D2.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
DIRECTORSHIPS. The Merger Agreement provides that the Company Board will,
upon consummation of the Merger, consist of 16 persons, with nine persons
designated by BGE, including Christian H. Poindexter, Chairman of the Board and
Chief Executive Officer of BGE, and Edward A. Crooke, President and Chief
Operating Officer of BGE, and seven persons designated by PEPCO, including
Edward F. Mitchell, Chairman of Board and Chief Executive Officer of PEPCO and
John M. Derrick, Jr., President of PEPCO. If, prior to the Effective Time, any
of such designees decline or are unable to serve as directors, the party that
designated such person will designate another person to serve in such person's
stead in the role of director. A current provision of District of Columbia
public utility law states that any utility serving the District of Columbia may
have no more than 15 directors. The parties to the proposed Merger intend to
request that this law be amended or repealed prior to the Effective Time so as
to permit the Company to have 16 directors. Should such relief not be obtained,
the parties will reconsider and determine alternatives. See "The Merger --
Interests of Certain Persons in the Merger" and "The Company Following the
Merger."
EMPLOYMENT AGREEMENTS FOR MANAGEMENT OF THE COMPANY. Each of Messrs.
Mitchell, Poindexter, Crooke and Derrick entered into an employment agreement
dated as of September 22, 1995 with the Company to become effective upon
consummation of the Merger (the "Company Employment Agreements"). Pursuant to
the Merger Agreement and the Company Employment Agreements: (i) Mr. Mitchell
will serve as Chairman of the Board from and after the Effective Time until the
last day of the twelfth full month following the Effective Time; (ii) Mr.
Poindexter will serve as Chief Executive Officer from and after the Effective
Time until Mr. Mitchell ceases to be Chairman, and thereafter will serve as
Chairman and Chief Executive Officer until the last day of the sixtieth full
month following the Effective Time; (iii) Mr. Crooke will serve as Vice Chairman
from and after the Effective Time until the last day of the sixtieth full month
following the Effective Time; and (iv) Mr. Derrick will serve as President and
Chief Operating Officer from and after the Effective Time until the last day of
the sixtieth full month following the Effective Time. The Company Employment
Agreements of Messrs. Poindexter, Crooke and Derrick will automatically extend
on a year to year basis unless the Company provides notice otherwise. See "The
Merger -- Interests of Certain Persons in the Merger" and "-- Company Employment
Agreements" and "The Merger Agreement -- Management of the Company."
BGE SEVERANCE AGREEMENTS AND EMPLOYEE PLANS. Effective as of December 6,
1995, BGE entered into severance agreements with 14 key employees (the "BGE
Severance Agreements") which, upon the Effective Time, will be binding upon the
Company. The BGE Severance Agreements will expire on the last day of the 24th
calendar month following the Effective Time. Each of the BGE Severance
Agreements provides for the payment of severance benefits to the executive under
certain circumstances including, but not limited to, the following: (i) upon
termination of employment (other than for cause, death, disability or the
executive's voluntary termination of employment without "good reason") within
the two year period following the Effective Time or (ii) termination of the
executive's employment without cause on or after December 6, 1995, but prior to
the Effective Time (or the occurrence of certain events on or after December 6,
1995, but prior to the Effective Time, that constitute "good reason" followed by
the executive's voluntary termination after the Effective Time).
If the employment of all executives with BGE Severance Agreements had been
terminated as of December 31, 1995, under circumstances giving rise to an
entitlement to benefits thereunder, the aggregate value of such benefits would
have been approximately $8,735,583.
Certain BGE employee benefit plans contain provisions which accelerate the
vesting, exercise and/or payment of benefits in the event of termination of the
participant's employment under certain circumstances following a change in
control of BGE. For purposes of such plans, the Merger will not
6
<PAGE>
constitute a change in control of BGE. Accordingly the Merger will not result in
the acceleration of vesting, exercise or payment of benefits under the change in
control provisions of such plans. See "The Merger -- Interests of Certain
Persons in the Merger" and "-- BGE Severance Agreements and Employee Plans."
PEPCO SEVERANCE AGREEMENTS AND EMPLOYEE PLANS. Effective as of August 1,
1995, and November 1, 1995, PEPCO entered into severance agreements with four
key employees and nine key employees, respectively (the "PEPCO Severance
Agreements"), which, upon the Effective Time, will be binding upon the Company.
Each agreement has an initial three-year term, and automatically extends for
successive three-year periods thereafter, unless the Chief Executive Officer of
PEPCO (or a successor company) has given notice that it shall not be so
extended. Each of the PEPCO Severance Agreements provides for the payment of
severance benefits to the executive under certain circumstances including, but
not limited to, the following: (i) upon termination of employment (other than
for cause, death, disability or voluntary normal retirement) within the two-year
period following a change in control of PEPCO or (ii) termination of the
executive's employment without cause "in contemplation of," but prior to, a
change in control (or the occurrence of certain events "in contemplation of,"
but prior to, a change in control that constitute "good reason" followed by the
executive's voluntary termination of employment within two years after a change
in control). For purposes of the PEPCO Severance Agreements, (i) approval of the
Merger Agreement by the PEPCO Board constitutes an act "in contemplation of" a
change in control and (ii) the Merger would constitute a change in control. If
the employment of all executives with PEPCO Severance Agreements had been
terminated as of December 31, 1995, under circumstances giving rise to an
entitlement to benefits thereunder, the aggregate value of such benefits would
have been approximately $4,814,080.
Under the PEPCO LTIP, the PEPCO Executive Performance Supplemental
Retirement Plan, PEPCO Supplemental Executive Retirement Plan and PEPCO
Executive Split Dollar Plan, certain officers and other employees of PEPCO will
be entitled to accelerated vesting of restricted stock, the accelerated payment
of certain retirement benefits or the continuation of certain payments in the
event the participant's employment with PEPCO is terminated under certain
circumstances following a change in control. For purposes of the foregoing
plans, the Merger will constitute a change in control. See "The Merger --
Interests of Certain Persons in the Merger" and "-- PEPCO Severance Agreements
and Employee Plans."
PEPCO EMPLOYMENT AGREEMENTS. Effective August 1, 1995, PEPCO entered into
employment agreements with Dennis R. Wraase and William T. Torgerson (the "PEPCO
Employment Agreements") which will become binding upon the Company at the
Effective Time. Each of the PEPCO Employment Agreements provides for employment
of the individual through August 1, 2000 and, unless PEPCO (or a successor
company) or the executive has given notice that it shall not be so extended, for
successive five-year terms thereafter. The PEPCO Employment Agreements also
provide for certain payments and benefits in the event the executive is
terminated under certain circumstances prior to such time. At the same time, Mr.
Derrick entered into a similar agreement with PEPCO which will be superseded by
his Company Employment Agreement. Effective April 26, 1995, Mr. Mitchell entered
into an employment agreement with PEPCO which will be superseded by his Company
Employment Agreement. Effective August 1, 1995 PEPCO entered into an agreement
with H. Lowell Davis, Vice Chairman of PEPCO, which will be binding upon the
Company and provides for the payment of certain benefits during his employment
and upon his retirement at any time on or before May 1, 1997. See "The Merger --
Interests of Certain Persons in the Merger" and "-- PEPCO Employment
Agreements."
INDEMNIFICATION. The Merger Agreement provides that, to the extent, if any,
not provided by an existing right of indemnification or other agreement or
policy, from and after the Effective Time, the Company will, to the fullest
extent not prohibited by applicable law, indemnify, defend and hold harmless the
present and former directors, officers and employees of the parties to the
Merger Agreement and their respective subsidiaries against all losses, expenses
(including reasonable attorneys' fees and expenses), claims, damages, costs,
liabilities, judgments or amounts that are paid in
7
<PAGE>
settlement of or in connection with any claim, action, suit, proceeding or
investigation (collectively, "Indemnified Liabilities") (i) based in whole or in
part on or arising in whole or in part out of the fact that such person is or
was a director, officer or employee of such party or any subsidiary thereof and
(ii) pertaining to any matter existing or occurring at or prior to the Effective
Time, whether asserted or claimed prior to, at or after the Effective Time, and
all Indemnified Liabilities based in whole or in part on, or arising in whole or
in part out of, or pertaining to the Merger Agreement or the transactions
contemplated thereby. See "The Merger -- Interests of Certain Persons in the
Merger" and "The Merger Agreement -- Indemnification."
CONDITIONS TO THE MERGER
The obligations of PEPCO, on the one hand, and BGE, on the other hand, to
consummate the Merger are subject to the satisfaction of certain conditions,
including the approval of the Merger Agreement by the shareholders of each of
BGE and PEPCO, the receipt of all material governmental approvals, the absence
of any injunction that prevents the consummation of the Merger, the
effectiveness of the Registration Statement, approval of the listing on the NYSE
of the shares of Company Common Stock to be issued pursuant to the terms of the
Merger Agreement, the qualification of the Merger as a pooling of interests
transaction for accounting purposes, the absence of a BGE Material Adverse
Effect or a PEPCO Material Adverse Effect, respectively (each as defined in the
Merger Agreement), the performance in all material respects by each party of its
obligations under the Merger Agreement, the receipt of certain certificates from
affiliates of BGE and PEPCO, the receipt of tax opinions and the receipt of
certain third-party consents. See "The Merger Agreement -- Conditions to the
Merger."
RIGHTS TO TERMINATE, AMEND OR WAIVE CONDITIONS
The Merger Agreement may be terminated under certain circumstances. Where
indicated, termination results in the payment of expenses and termination fees
in the amounts set forth below as liquidated damages, provided that the amount
so payable by BGE and its affiliates, when added to the amount payable thereby
upon a repurchase of the BGE Option, may not exceed $125 million in the
aggregate, and the amount so payable by PEPCO and its affiliates, when added to
the amount payable thereby upon a repurchase of the PEPCO Option, may not exceed
$125 million in the aggregate. See "The Merger Agreement -- Termination;
Termination Fees and Expenses" and "The Stock Option Agreements."
The Merger Agreement may be amended by the Boards of Directors of BGE and
PEPCO at any time before or after its approval by their shareholders and prior
to the Effective Time, but after any such approval no amendment may be made
which alters or changes (i) the amount or kind of shares to be received or
exchanged for or on conversion of any class or series of capital stock of either
corporation, (ii) the terms or conditions of the Merger Agreement if such
alteration or change, alone or in the aggregate, would materially adversely
affect the rights of the holders of BGE Common Stock, BGE Preferred Stock, BGE
Preference Stock, PEPCO Common Stock or PEPCO Preferred Stock or (iii) any term
of the Company Articles, except for alterations or changes that could otherwise
be adopted by the Company Board, without the further approval of such
shareholders. See "The Merger Agreement -- Amendment and Waiver."
At any time prior to the Effective Time, to the extent permitted by
applicable law, BGE and PEPCO may (i) extend the time for performance of any
obligations or other acts by the other party and (ii) waive inaccuracies in the
representations and warranties contained in the Merger Agreement or any document
delivered pursuant thereto or conditions to the other party's obligation to
consummate the Merger. See "The Merger Agreement -- Amendment and Waiver."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The Merger is intended to qualify, for federal income tax purposes, as a
tax-free "reorganization" under Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code"). A condition to the obligation of BGE to effect
the Merger is the receipt by it of an opinion of Winthrop, Stimson, Putnam &
Roberts to the effect that, among other things, no gain or loss will be
recognized in the
8
<PAGE>
Merger by BGE or its shareholders. A condition to the obligation of PEPCO to
effect the Merger is the receipt by it of an opinion of counsel to the effect
that, among other things, no gain or loss will be recognized in the Merger by
PEPCO or its shareholders who exchange their PEPCO shares for Company shares
(except with respect to cash received by holders of PEPCO Common Stock in lieu
of fractional shares in Company Common Stock). See "The Merger -- Certain
Federal Income Tax Consequences of the Merger."
Each holder of capital stock of BGE or PEPCO is urged to consult his or her
own tax advisor to determine the specific tax consequences of the Merger to such
holder.
OPERATIONS AFTER THE MERGER
As soon as reasonably possible after the Effective Time, the corporate
headquarters and principal executive offices of the Company will be located in
the Annapolis, Maryland area. The Company will also maintain significant
operations in the District of Columbia and Baltimore, Maryland. The Company's
utility business will be operated on a fully integrated basis to achieve maximum
efficiency in serving approximately 1.8 million electric customers and over
530,000 natural gas customers. The Company will continue to play a strong role
in the economic development efforts of the communities which PEPCO and BGE now
serve. See "The Company Following the Merger."
REGULATORY MATTERS
The approval of the Nuclear Regulatory Commission (the "NRC") under the
Atomic Energy Act of 1954, as amended (the "Atomic Energy Act"), the Federal
Energy Regulatory Commission ("FERC") under the Federal Power Act (the "Power
Act"), as well as the approval of the District of Columbia Public Service
Commission (the "D.C. Commission"), the Public Service Commission of Maryland
(the "Maryland Commission"), the State Corporation Commission of Virginia and
the utility commission of Pennsylvania and the filing of the requisite
notification with the Federal Trade Commission and the Department of Justice
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), and the expiration or termination of the applicable waiting period,
are required in order to consummate the Merger. See "Regulatory Matters."
Under the Merger Agreement, BGE and PEPCO have agreed to use commercially
reasonable efforts to obtain all governmental authorization necessary or
advisable to consummate the Merger. Various parties may seek to intervene in
these proceedings to oppose the Merger or to have conditions imposed upon the
receipt of necessary approvals. While BGE and PEPCO believe that they will
receive the requisite regulatory approvals for the Merger, there can be no
assurance as to the timing of receipt of such approvals or the ability of such
parties to obtain such approvals on satisfactory terms or otherwise. It is a
condition to the consummation of the Merger that final orders approving the
Merger be obtained from the various federal and state governmental entities
described above on terms and conditions which would not have, or would not be
reasonably likely to have, a material adverse effect on the business,
operations, properties, assets, condition (financial or otherwise), prospects or
results of operations of the Company. There can be no assurance that any such
approvals will not contain terms or conditions that cause such approvals to fail
to satisfy such condition to the consummation of the Merger. See "Regulatory
Matters."
ACCOUNTING TREATMENT
BGE and PEPCO believe that the Merger will be treated as a "pooling of
interests" for accounting purposes. See "The Merger -- Accounting Treatment."
The receipt by each of BGE and PEPCO of a letter from their respective
independent public accountants, stating that the transaction will qualify as a
pooling of interests, is a condition to the consummation of the Merger. See "The
Merger Agreement -- Conditions to the Merger."
COMPANY ARTICLES
The Company's Articles of Incorporation (the "Company Articles") replicate
the current rights of the holders of BGE Preferred Stock, BGE Preference Stock
and PEPCO Preferred Stock, respectively, except that the Company Articles will
not contain restrictions on the issuance of unsecured debt
9
<PAGE>
similar to those specified in the PEPCO Articles. In addition, the Company
Articles will differ from the BGE Articles and the PEPCO Articles in certain
other respects, including the establishment of a staggered Board of Directors
(which is not present in the BGE Articles). See "Comparison of Shareholder
Rights -- Comparison of BGE, PEPCO and Company Articles and By-Laws."
DIVIDENDS
BGE AND PEPCO DIVIDENDS. The Merger Agreement places certain restrictions
on BGE and PEPCO's ability to declare or pay dividends, split, combine or
reclassify their capital stock or redeem, repurchase or otherwise acquire any
shares of their capital stock. The Merger Agreement does not restrict BGE and
PEPCO's ability to declare or pay stated dividends on their respective series of
BGE Preferred Stock, BGE Preference Stock and PEPCO Preferred Stock, or to
declare and pay regular quarterly dividends on PEPCO Common Stock with usual
record and payment dates not, during any calendar year, in excess of dividends
consistent with prior practice or increases that do not result in a dividend
rate in excess of $1.67, the projected annual dividend rate agreed to by BGE and
PEPCO for the Company following the Effective Time.
COMPANY DIVIDENDS. It is anticipated that, following the Merger, the
Company will adopt BGE's dividend policy. The annual dividend, at the Effective
Time, is expected to be $1.67 per share of Company Common Stock. However, the
dividend policy of the Company is and will be subject to evaluation from time to
time by the Board of Directors of the Company based on the Company's results of
operations, financial condition, capital requirements and other relevant
considerations, including regulatory considerations. See "The Company Following
the Merger" and "Description of Company Capital Stock -- Company Common Stock."
10
<PAGE>
COOPERS & LYBRAND, L.L.P.
CONSENT OF INDEPENDENT ACCOUNTANTS
------------------------
We consent to the incorporation by reference in the Registration Statement
of Constellation Energy Corporation (the "Company") on Form S-4 pursuant to the
proposed merger of Baltimore Gas and Electric Company, Potomac Electric Power
Company and the Company by the Agreement and Plan of Merger dated September 22,
1995 (the "Registration Statement") of our report, dated January 20, 1995, which
contains an explanatory paragraph related to the recoverability of replacement
energy costs, on our audits of the consolidated financial statements and
financial statement schedules of Baltimore Gas and Electric Company and its
subsidiaries ("BGE"), as of December 31, 1994 and 1993 and for the years ended
December 31, 1994, 1993 and 1992, which report, financial statements and
financial statement schedules are incorporated by reference in the Registration
Statement from the BGE's Annual Report on Form 10-K for the year ended December
31, 1994.
We also consent to the reference to our firm under the caption "Experts" in
the Registration Statement.
Baltimore, Maryland
November 14, 1995
11
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary below sets forth selected historical financial data and selected
unaudited pro forma financial data. This financial data should be read in
conjunction with the historical consolidated financial statements and related
notes thereto of BGE and PEPCO, which are incorporated by reference herein, and
in conjunction with the unaudited Pro Forma Combined Condensed Financial
Information and related notes thereto of the Company included elsewhere in this
Joint Proxy Statement/Prospectus.
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data of BGE and PEPCO for the five years
ended December 31, 1994, set forth below, have been derived from audited
financial statements. The selected historical financial data of BGE and PEPCO as
of and for the 12-month period ended September 30, 1995, set forth below, have
been derived from unaudited financial statements.
12
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
BALTIMORE GAS AND ELECTRIC COMPANY
<TABLE>
<CAPTION>
12 MONTHS YEAR ENDED DECEMBER 31,
ENDED -----------------------------------------------------
SEP 30-95 1994 1993 1992 1991 1990
----------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data
Total Revenue................................... $ 2,819 $ 2,783 $ 2,741 $ 2,559 $ 2,515 $ 2,249
Operating Expenses.............................. 2,147 2,148 2,125 2,024 2,027 1,923
----------- --------- --------- --------- --------- ---------
Income from Operations.......................... 672 635 616 535 488 326
Income before Cumulative Effect of Accounting
Changes........................................ 333 324 310 264 234 175
Cumulative Effect of Accounting Changes (a)..... -- -- -- -- 20 38
Preferred and Preference Stock Dividends........ 40 40 42 42 43 40
----------- --------- --------- --------- --------- ---------
Earnings Applicable to Common Stock............. $ 293 $ 284 $ 268 $ 222 $ 211 $ 173
Earnings per Share before Effect of Accounting
Changes........................................ $ 1.99 $ 1.93 $ 1.85 $ 1.63 $ 1.51 $ 1.09
Cumulative Effect of Accounting Changes (a)..... -- -- -- -- 0.16 0.31
----------- --------- --------- --------- --------- ---------
Earnings per Share after Effect of Accounting
Changes........................................ $ 1.99 $ 1.93 $ 1.85 $ 1.63 $ 1.67 $ 1.40
Dividends Declared Per Share of Common Stock.... $ 1.54 $ 1.51 $ 1.47 $ 1.43 $ 1.40 $ 1.40
Ratio of Earnings to Fixed Charges (b).......... 3.16 3.14 3.00 2.65 2.27 1.78
Ratio of Earnings to Fixed Charges and Preferred
and Preference Stock Dividends Combined (b).... 2.50 2.47 2.34 2.08 1.82 1.47
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
SEP 30-95 1994 1993 1992 1991 1990
----------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
Total Assets.................................... $ 8,124 $ 7,994 $ 7,830 $ 7,209 $ 6,964 $ 6,530
Capitalization..................................
Long-Term Debt................................ $ 2,509 $ 2,585 $ 2,823 $ 2,377 $ 2,390 $ 2,194
Preferred Stock............................... 59 59 59 59 59 59
Redeemable Preference Stock................... 253 279 342 395 399 365
Preference Stock Not Subject to Mandatory
Redemption................................... 210 150 150 110 110 110
Common Shareholders' Equity..................... 2,809 2,718 2,621 2,535 2,153 2,073
----------- --------- --------- --------- --------- ---------
Total Capitalization.............................. $ 5,840 $ 5,791 $ 5,995 $ 5,476 $ 5,111 $ 4,801
Book Value Per Share of Common Stock.............. $ 19.04 $ 18.42 $ 17.94 $ 17.63 $ 17.00 $ 16.58
</TABLE>
See Accompanying Notes to Selected Historical and Pro Forma Financial Data
13
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
POTOMAC ELECTRIC POWER COMPANY
<TABLE>
<CAPTION>
12 MONTHS YEAR ENDED DECEMBER 31,
ENDED -----------------------------------------------------
SEP 30-95 1994 1993 1992 1991 1990
----------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data (c)
Total Revenue................................... $ 1,973 $ 1,970 $ 1,865 $ 1,763 $ 1,764 $ 1,601
Operating Expenses.............................. 1,622 1,445 1,372 1,291 1,288 1,205
----------- --------- --------- --------- --------- ---------
Income from Operations (d)...................... 351 525 493 472 476 396
Income before Cumulative Effect of Accounting
Change......................................... 99 227 241 200 210 170
Cumulative Effect of Accounting Change (a)...... -- -- -- 16 -- --
Preferred Stock Dividends....................... 17 16 16 14 12 10
----------- --------- --------- --------- --------- ---------
Earnings Applicable to Common Stock (d)......... $ 82 $ 211 $ 225 $ 202 $ 198 $ 160
Earnings per Share before Effect of Accounting
Change......................................... $ 0.69 $ 1.79 $ 1.95 $ 1.66 $ 1.87 $ 1.62
Cumulative Effect of Accounting Change (a)...... -- -- -- 0.14 -- --
----------- --------- --------- --------- --------- ---------
Earnings per Share after Effect of Accounting
Changes (d).................................... $ 0.69 $ 1.79 $ 1.95 $ 1.80 $ 1.87 $ 1.62
Dividends Declared Per Share of Common Stock.... $ 1.66 $ 1.66 $ 1.64 $ 1.60 $ 1.56 $ 1.52
Ratio of Earnings to Fixed Charges (b).......... 1.54 2.37 2.31 2.19 2.23 2.14
Ratio of Earnings to Fixed Charges and Preferred
Stock Dividends Combined (b)................... 1.41 2.15 2.12 2.02 2.08 2.00
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
SEP 30-95 1994 1993 1992 1991 1990
----------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data (c)
Total Assets.................................... $ 7,080 $ 6,934 $ 6,630 $ 6,104 $ 5,812 $ 5,194
Capitalization..................................
Long-Term Debt................................ $ 2,599 $ 2,589 $ 2,443 $ 2,221 $ 2,208 $ 1,988
Preferred Stock Not Subject to Mandatory
Redemption................................... 125 125 125 125 126 126
Redeemable Preferred Stock.................... 144 144 147 149 100 50
Common Shareholders' Equity................... 1,913 1,955 1,955 1,823 1,716 1,435
----------- --------- --------- --------- --------- ---------
Total Capitalization.............................. $ 4,781 $ 4,813 $ 4,670 $ 4,318 $ 4,150 $ 3,599
Book Value Per Share of Common Stock.............. $ 16.15 $ 16.54 $ 16.60 $ 15.95 $ 15.45 $ 14.39
</TABLE>
See Accompanying Notes to Selected Historical and Pro Forma Financial Data
14
<PAGE>
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
The following selected unaudited pro forma financial data combines the
historical consolidated balance sheets and statements of income of BGE and
PEPCO, including their respective subsidiaries, after giving effect to the
Merger, assuming the Merger had been effective for all periods presented. These
data are prepared on the basis of accounting for the Merger as a pooling of
interests and are based on the assumptions set forth in the notes thereto. The
following information is not necessarily indicative of the financial position or
operating results that would have occurred had the Merger been consummated on
the date as of which, or at the beginning of the periods for which, the Merger
is being given effect, nor is it necessarily indicative of future operating
results or financial position. See "Unaudited Pro Forma Combined Condensed
Financial Information."
15
<PAGE>
CONSTELLATION ENERGY CORPORATION
SELECTED UNAUDITED FINANCIAL DATA
PRO FORMA
<TABLE>
<CAPTION>
12 MONTHS YEAR ENDED DECEMBER 31,
ENDED -----------------------------------------------------
SEP 30-95 1994 1993 1992 1991 1990
----------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data (c)
Total Revenue............................ $ 4,792 $ 4,753 $ 4,606 $ 4,322 $ 4,279 $ 3,850
Operating Expenses....................... 3,769 3,593 3,497 3,315 3,315 3,128
----------- --------- --------- --------- --------- ---------
Income from Operations (d)............... 1,023 1,160 1,109 1,007 964 722
Income before Cumulative Effect of
Accounting Changes...................... 432 551 551 464 444 345
Cumulative Effect of Accounting Changes
(a)..................................... -- -- -- 16 20 38
Preferred and Preference Stock
Dividends............................... 57 56 58 56 55 50
----------- --------- --------- --------- --------- ---------
Earnings Applicable to Common Stock
(d)..................................... $ 375 $ 495 $ 493 $ 424 $ 409 $ 333
Earnings per Share before Effect of
Accounting Changes...................... $ 1.41 $ 1.87 $ 1.89 $ 1.65 $ 1.67 $ 1.33
Cumulative Effect of Accounting Changes
(a)..................................... -- -- -- 0.06 0.09 0.17
----------- --------- --------- --------- --------- ---------
Earnings per Share after Effect of
Accounting Changes (d)(e)............... $ 1.41 $ 1.87 $ 1.89 $ 1.71 $ 1.76 $ 1.50
Dividends Declared Per Share of Common
Stock (e)(c)............................ $ 1.59 $ 1.58 $ 1.55 $ 1.51 $ 1.47 $ 1.45
Ratio of Earnings to Fixed Charges (b)... 2.29 2.74 2.64 2.41 2.25 1.95
Ratio of Earnings to Fixed Charges and
Preferred and Preference Stock Dividends
Combined (b)............................ 1.95 2.32 2.24 2.05 1.94 1.71
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
SEP 30-95 1994 1993 1992 1991 1990
----------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data (c)
Total Assets............................. $ 15,204 $ 14,928 $ 14,460 $ 13,313 $ 12,776 $ 11,724
Capitalization
Long-Term Debt......................... $ 5,108 $ 5,174 $ 5,266 $ 4,598 $ 4,598 $ 4,182
Preferred Stock........................ 184 184 184 184 185 185
Redeemable Preferred/ Preference
Stock................................. 397 423 489 544 499 415
Preference Stock Not Subject to
Mandatory Redemption.................. 210 150 150 110 110 110
Common Shareholders' Equity............ 4,722 4,673 4,576 4,358 3,869 3,508
----------- --------- --------- --------- --------- ---------
Total Capitalization..................... $ 10,621 $ 10,604 $ 10,665 $ 9,794 $ 9,261 $ 8,400
Book Value Per Share of Common Stock (e)... $ 17.77 $ 17.61 $ 17.37 $ 16.91 $ 16.29 $ 15.63
</TABLE>
See Accompanying Notes to Selected Historical and Pro Forma Financial Data
16
<PAGE>
NOTES TO SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(a) The 1992 amount of $16,022,000 ($.14 per share) represents PEPCO's
cumulative effect of a change in accounting to provide for the accrual of
revenue for service rendered but unbilled. The 1990 amount reflects this
same accounting change for BGE in the amount of $37,754,000 ($.31 per
share). The 1991 amount of $19,745,000 ($.16 per share) represents BGE's
cumulative effect of a change in the method of accounting for income taxes.
(b) For purposes of computing the ratios of earnings to fixed charges,
"earnings" consist of income before the cumulative effect of accounting
changes, income taxes and fixed charges other than capitalized interest.
"Fixed charges" consist of interest charges, including capitalized interest
and the estimated interest component of rentals. Preferred and preference
stock dividend requirements consist of an amount equal to the pre-tax
earnings which would be required to meet dividend requirements on preferred
stock and preference stock.
(c) The revenues, expenses, assets and liabilities of PEPCO's nonregulated
subsidiaries have been reclassified to conform with the presentation
utilized by BGE. The effects of accounting policy differences are immaterial
and have not been adjusted in the selected unaudited pro forma financial
data.
(d) Income/earnings for PEPCO for the 12 months ended September 30, 1995 include
a $110 million ($.93 per share) one-time non-cash, after-tax charge to
earnings recorded in the second quarter of 1995 in connection with the plan
to sell 13 aircraft owned by its subsidiary, Potomac Capital Investment
Corporation, as a part of the adoption of a plan to end investment in the
aircraft equipment leasing business. Income for the 12 months ended
September 30, 1995, also included a nonrecurring charge of $12 million
($0.11 per share) relating to valuation of two aircraft under a master lease
agreement which expired in September 1995.
(e) Pro forma per common share amounts give effect to the conversion of each
share of BGE and PEPCO Common Stock into 1 share and 0.997 of a share of
Company Common Stock, respectively. See "The Merger Agreement." Based on the
BGE Conversion Ratio, the per share data on an equivalent pro forma basis is
the same as on a pro forma basis. Based on the PEPCO Conversion Ratio, the
per share data on an equivalent pro forma basis is the same as on a pro
forma basis after giving effect to rounding.
17
<PAGE>
COMPARATIVE MARKET PRICES AND DIVIDENDS
The BGE Common Stock and the PEPCO Common Stock are traded on the NYSE. The
BGE Common Stock is also traded on the Chicago Stock Exchange and on the Pacific
Stock Exchange. The following table sets forth, for the periods indicated, the
high and low sales prices of BGE Common Stock and PEPCO Common Stock as reported
on the NYSE Composite Tape and dividends declared.
<TABLE>
<CAPTION>
BGE PEPCO
--------------------------------- ---------------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
--------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
1992
First Quarter........................................ $ 23 1/8 $ 19 3/4 $ 0.35 $ 25 1/8 $ 22 3/4 $ 0.40
Second Quarter....................................... 22 5/8 19 7/8 0.36 26 23 0.40
Third Quarter........................................ 24 3/8 21 1/2 0.36 27 1/2 25 1/8 0.40
Fourth Quarter....................................... 24 1/8 21 3/4 0.36 26 3/4 22 5/8 0.40
1993
First Quarter........................................ 26 3/8 22 3/8 0.36 26 1/2 23 7/8 0.41
Second Quarter....................................... 26 5/8 23 7/8 0.37 27 3/8 25 5/8 0.41
Third Quarter........................................ 27 1/2 25 1/8 0.37 28 7/8 27 1/8 0.41
Fourth Quarter....................................... 26 7/8 23 1/2 0.37 28 3/4 24 5/8 0.41
1994
First Quarter........................................ 25 1/2 22 3/8 0.37 26 5/8 21 3/4 0.415
Second Quarter....................................... 24 3/8 20 1/2 0.38 23 1/2 18 1/2 0.415
Third Quarter........................................ 23 3/4 20 3/4 0.38 21 1/2 18 3/8 0.415
Fourth Quarter....................................... 23 5/8 21 1/4 0.38 19 3/4 18 1/4 0.415
1995
First Quarter........................................ 25 22 0.38 20 1/8 18 3/8 0.415
Second Quarter....................................... 26 1/2 23 1/8 0.39 22 1/2 18 1/2 0.415
Third Quarter........................................ 26 5/8 24 3/8 0.39 24 5/8 20 1/2 0.415
Fourth Quarter....................................... 0.39 0.415
1996
First Quarter (through , 1996).
</TABLE>
On September 22, 1995, the last full trading day before the public
announcement of the execution and delivery of the Merger Agreement, the closing
sales price per share of (i) BGE Common Stock on the NYSE Composite Tape was
$26 1/8 and (ii) PEPCO Common Stock on the NYSE Composite Tape was $21 1/2. On
January , 1996, the most recent date for which it was practicable to obtain
market price data prior to the printing of this Joint Proxy
Statement/Prospectus, the closing sales price of the BGE Common Stock was
$ and the closing sales price of the PEPCO Common Stock was $ .
The market prices of BGE Common Stock and PEPCO Common Stock are subject to
fluctuation. BGE shareholders and PEPCO shareholders are urged to obtain current
market quotations for BGE Common Stock and PEPCO Common Stock.
MEETINGS, VOTING AND PROXIES
This Joint Proxy Statement/Prospectus is being furnished to (i) the holders
of BGE Common Stock in connection with the solicitation of proxies by the BGE
Board from such shareholders for use at the BGE Meeting to consider and vote on
proposals to approve the Merger and to adopt the Company LTIP and (ii) the
holders of PEPCO Common Stock in connection with the solicitation of proxies by
the PEPCO Board from such shareholders for use at the PEPCO Meeting, to consider
and vote on proposals to adopt and approve the Merger Agreement and the Company
LTIP.
This Joint Proxy Statement/Prospectus is also being furnished to (i) the
holders of BGE Preferred Stock and BGE Preference Stock in connection with the
solicitation of proxies by the BGE Board from such shareholders for use at the
BGE Meeting to consider and vote on a proposal to approve the Merger and (ii)
the holders of PEPCO Preferred Stock in connection with the solicitation of
proxies by the PEPCO Board from such shareholders for use at the PEPCO Meeting,
to consider and vote on a proposal to adopt and approve the Merger Agreement.
18
<PAGE>
BGE MEETING
PURPOSE OF BGE MEETING. The purpose of the BGE Meeting is to vote upon the
proposal to approve the Merger, which provides for the merger of BGE and PEPCO
with and into the Company, and to vote upon the Company LTIP, which will replace
the BGE LTIP and the PEPCO LTIP. The enclosed proxy card, upon due execution,
authorizes the voting of shares represented by the proxy on any other matter
incident to the meeting that may properly come before the BGE Meeting, and any
adjournment or postponement thereof, and it is the intention of the proxy
holders to take such action in connection therewith as is in accordance with
their best judgment. No other business will be considered at the BGE Meeting.
It is a condition of the obligation of BGE to hold the BGE Meeting that the
opinion of Goldman Sachs annexed to this Proxy Statement/Prospectus shall not
have been withdrawn.
The BGE Board, by unanimous vote, has approved and adopted the Merger
Agreement, believes that the terms of the Merger are advisable and are fair to
BGE's shareholders, and recommends that the shareholders of BGE vote FOR
approval of the Merger. The BGE Board approved and adopted the Merger Agreement
after consideration of a number of factors described under the heading "The
Merger -- Reasons for the Merger" and "-- Recommendations of the BGE Board of
Directors."
The Company has adopted the Company LTIP and the BGE Board recommends that
the shareholders of BGE approve the Company LTIP.
DATE, PLACE AND TIME; RECORD DATE. The BGE Meeting is scheduled to be held
on March 15, 1996, at 10:00 a.m., local time, at the Gas and Electric Building
at Charles Center, second floor, Lexington and Liberty Streets, Baltimore,
Maryland 21201. Holders of record of shares of BGE Common Stock, BGE Preferred
Stock and BGE Preference Stock at the close of business on the BGE Record Date
will be entitled to vote at the BGE Meeting on the proposal to approve the
Merger. At the close of business on the BGE Record Date, there were (i)
shares of BGE Common Stock, (ii) 591,849 shares of BGE Preferred Stock
(consisting of the Series B 4 1/2%, Series C 4% and Series D 5.40%) and (iii)
4,780,000 shares of BGE Preference Stock (consisting of the 7.50% 1986 Series,
6.75% 1987 Series, 7.80% 1989 Series, 8.25% 1989 Series, 8.625% 1990 Series,
7.85% 1991 Series, 7.78% 1973 Series, 7.125% 1993 Series, 6.97% 1993 Series,
6.70% 1993 Series and 6.99% 1995 Series), issued and outstanding and entitled to
vote. Holders of record of shares of BGE Common Stock at the close of business
on the BGE Record Date will also be entitled to vote at the BGE Meeting on the
proposal to adopt and approve the Company LTIP.
VOTING RIGHTS. Each share of BGE Common Stock entitles its holder to one
vote with respect to the proposed Merger and the Company LTIP. Each share of BGE
Preferred Stock entitles its holder to 24 votes for each share of BGE Preferred
Stock with respect to the proposed Merger. Each share of BGE Preference Stock
entitles its holder to one vote with respect to the proposed Merger.
A majority of the voting power of the shares issued and outstanding and
entitled to vote, present in person or by proxy, shall constitute a quorum for
the transaction of business at the BGE Meeting. Broker nonvotes, abstentions and
withhold authority votes all count for the purpose of establishing a quorum.
The affirmative votes of the holders of two-thirds of the votes entitled to
be voted by all holders of outstanding shares of (i) BGE Common Stock, voting as
a single class, (ii) BGE Preferred Stock, voting as a single class, (iii) BGE
Preference Stock, voting as a single class and (iv) BGE Common Stock, BGE
Preferred Stock and BGE Preference Stock, voting together as a class, are
required to approve the Merger. The affirmative vote of a majority of the
holders BGE Common Stock present in person or by proxy and entitled to vote is
needed to approve the Company LTIP.
The directors and executive officers of BGE, together with their affiliates,
collectively beneficially own less than 1% (0.34%) of the outstanding shares of
BGE capital stock.
19
<PAGE>
PROXIES. Holders of BGE Common Stock, BGE Preferred Stock and BGE
Preference Stock may vote either in person or by properly executed proxy. By
completing and returning the form of proxy, the BGE shareholder authorizes the
persons named therein to vote all the BGE shareholder's shares on his, her or
its behalf. Issued and outstanding shares of BGE Common Stock, BGE Preferred
Stock and BGE Preference Stock, the holders of which are entitled to vote at the
BGE Meeting, and which are represented by properly executed proxies will, unless
such proxies have been revoked, be voted in accordance with the directions
indicated in the proxies. If no contrary directions are indicated, such shares
will be voted FOR approval of the Merger and FOR the Company LTIP. A BGE
shareholder may revoke a proxy at any time prior to the BGE Meeting by
delivering to the Secretary of BGE a notice of revocation or a duly executed
proxy bearing a later date, or by attending such meeting and voting in person.
BGE will bear the cost of soliciting proxies for the BGE Meeting, except
that BGE and PEPCO will share equally expenses incurred in connection with
printing and filing this Joint Proxy Statement/ Prospectus. See "The Merger
Agreement -- Expenses." In addition to soliciting proxies by mail, officers and
employees of BGE, without receiving additional compensation therefor, may
solicit proxies by telephone, by telecopy, by telegram or in person. BGE has
retained Georgeson & Co. Inc., a proxy solicitation firm, to aid in the
solicitation of proxies. The fee of such firm is expected to be approximately
$32,500 plus reimbursement for out-of-pocket expenses.
If a BGE shareholder is a participant in the BGE Common Stock Dividend
Reinvestment and Stock Purchase Plan (the "BGE DRP"), the proxy card received by
such participant will include the shares held for the account of the participant
under the BGE DRP, and such shares will be voted, along with the other shares
represented by the proxy card, in accordance with the instructions given. If no
instructions are indicated on a properly signed and returned proxy, such shares
will be vote FOR approval of the Merger and FOR the Company LTIP. If a
participant in the BGE DRP does not return a duly executed proxy, the
participant's shares will not be voted.
The BGE Meeting may be adjourned to another date and/or place for any proper
purpose (including, without limitation, for the purpose of soliciting additional
proxies).
PEPCO MEETING
PURPOSE OF PEPCO MEETING. The purpose of the PEPCO Meeting is to vote upon
the proposal to approve the Merger Agreement, which provides for the merger of
BGE and PEPCO with and into the Company, and to vote upon the Company LTIP,
which will replace the BGE LTIP and the PEPCO LTIP. The enclosed proxy card,
upon due execution, authorizes the voting of shares represented by the proxy on
any other matter incident to the meeting that may properly come before the PEPCO
Meeting, and any adjournment or postponement thereof, and it is the intention of
the proxy holders to take such action in connection therewith as is in
accordance with their best judgment. No other business will be considered at the
PEPCO meeting.
The PEPCO Board, by unanimous vote, has approved and adopted the Merger
Agreement, believes that the terms of the Merger are advisable and are fair to
PEPCO's shareholders, and recommends that the shareholders of PEPCO vote FOR
approval of the Merger Agreement. The PEPCO Board approved and adopted the
Merger Agreement after consideration of a number of factors described under the
heading "The Merger -- Reasons for the Merger" and "-- Recommendations of the
PEPCO Board of Directors."
The Company has adopted the Company LTIP and the PEPCO Board recommends that
the shareholders of PEPCO approve the Company LTIP.
DATE, PLACE AND TIME; RECORD DATE. The PEPCO Meeting is scheduled to be
held on , 1996, at 10:00 a.m., local time, at
. Holders of record of shares of PEPCO Common Stock and PEPCO Preferred
Stock at the close of business on the PEPCO Record Date will be entitled to vote
at the PEPCO Meeting. At the close of business on the PEPCO Record Date, there
were (i) shares of PEPCO Common Stock and (ii) shares of PEPCO
Preferred Stock (consisting of $2.44 Series of 1957, $2.46 Series of
20
<PAGE>
1958, $2.28 Series of 1965, the $2.44 Convertible Series of 1966, $3.82 Series
of 1969, $3.37 Series of 1987, $3.89 Series of 1991, $3.40 Series of 1992 and
Auction Series A) issued and outstanding and entitled to vote. No shares of
PEPCO Preference Stock were outstanding.
VOTING RIGHTS. Each share of PEPCO Common Stock and each share of PEPCO
Preferred Stock entitles its holder to one vote.
A majority of the shares issued and outstanding and entitled to vote,
present in person or represented by proxy, shall constitute a quorum for the
transaction of business at the PEPCO Meeting.
The affirmative votes of (i) the holders of more than two-thirds of the
outstanding shares of PEPCO Common Stock voting as a class and (ii) the holders
of a majority of all the outstanding shares of PEPCO Preferred Stock voting as a
single class (without regard to series), are required to approve the Merger
Agreement. The affirmative vote of the holders of a majority of the PEPCO Common
Stock present in person or represented by proxy and entitled to vote is needed
to approved the Company LTIP. Under applicable District of Columbia and Virginia
law, in determining whether the Merger Agreement has received the requisite
number of affirmative votes, abstentions and broker nonvotes will have the same
effect as a vote against approval of the Merger Agreement and in determining
whether the Company LTIP has been approved, abstentions will have the same
effect as a no vote and broker nonvotes will not be counted as shares entitled
to vote.
The directors and executive officers of PEPCO, together with their
affiliates, collectively beneficially own less than 1% ( %) of the
outstanding shares of PEPCO capital stock.
PROXIES. Holders of PEPCO Common Stock and PEPCO Preferred Stock may vote
either in person or by properly executed proxy. By completing and returning the
proxy card, the PEPCO shareholder authorizes the persons named therein to vote
all the PEPCO shareholder's shares in accordance with the directions indicated
in the proxy. If no contrary directions are indicated, such shares will be voted
FOR approval of the Merger Agreement and FOR approval of the Company LTIP.
Properly executed proxies received prior to closing of the polls during the
PEPCO Meeting will be voted in the manner set forth on the proxy unless
specifically otherwise directed by the shareholder, in which case they will be
voted as directed. If the proxy is executed and returned, it may nevertheless be
revoked at any time by delivering notice of revocation or a duly executed proxy
bearing a later date to the Secretary of the PEPCO before the proxy is voted,
and shareholders who are present at the PEPCO Meeting may revoke their proxies
and vote in person. Attendance at the PEPCO Meeting will not in itself
constitute a revocation of a proxy.
If a PEPCO shareholder is a participant in the PEPCO Shareholder Dividend
Reinvestment Plan (the "PEPCO DRP"), the proxy card received by such participant
will include the shares held for the account of the participant under the PEPCO
DRP, and such shares will be voted, along with the other shares represented by
the proxy card, in accordance with the instructions given. If no instructions
are indicated on a properly signed and returned proxy, such shares will be voted
FOR the Merger and FOR the approval of the Company LTIP. If a participant in the
PEPCO DRP does not return a duly executed proxy card, the participant's shares
will not be voted.
PEPCO will bear the cost of soliciting proxies for the PEPCO Meeting, except
that BGE and PEPCO will share equally expenses incurred in connection with
printing and filing this Joint Proxy Statement/Prospectus. See "The Merger
Agreement -- Expenses." In addition to soliciting proxies by mail, officers and
employees of PEPCO, without receiving additional compensation therefor, may
solicit proxies by telephone, by telecopy, by telegram, or in person. PEPCO has
retained Georgeson & Co. Inc., a proxy solicitation firm, to aid in the
solicitation of proxies. The fee of such firm is expected to be approximately
$20,000 plus reimbursement for out-of-pocket expenses.
The PEPCO Meeting may be adjourned to another date and/or place for any
proper purpose (including, without limitation, for the purpose of soliciting
additional proxies).
21
<PAGE>
THE MERGER
BACKGROUND OF THE MERGER
BGE and PEPCO are neighboring utilities which have had a variety of working
relationships on a wide range of issues over many years. In recent years both
companies turned their strategic attention to developments in federal regulatory
policy which are designed to increase competition in the wholesale market for
bulk power and expand competition in the market for generation. Each company
independently reached the conclusion that key factors to success in this more
competitive environment will be maintaining low-cost production and achieving a
size that will enable them to continue to provide high quality customer service,
enhancing their competitive position and attaining a greater level of financial
strength. The accelerating pace of electric utility mergers attests to the
appropriateness of business combinations between electric utility companies to
address such needs. During 1993, one electric utility company merger was
announced. In 1994, the number was increased to two, and during 1995, including
those following the announcement of the Merger on September 25, 1995, six such
transactions were announced.
Each company's management has considered various strategies designed to
enhance its ability to respond to the changing conditions in the industry. In
1993 and early 1994, both companies increased their strategic planning
activities. In April 1993, the BGE Board formed the Long Range Strategy
Committee to provide an oversight role in the development of BGE's long range
strategic goals and to consider significant strategic initiatives which
Management wished to present to the Board for approval. BGE retained the
investment banking firm Goldman Sachs in early 1994 to advise it generally about
such matters. In November 1993 PEPCO retained a law firm, LeBoeuf, Lamb, Greene
& MacRae, L.L.P. ("LeBoeuf, Lamb"), to provide general strategic and specific
legal advice on strategic options. In June 1994 PEPCO held a Board of Directors
retreat during which PEPCO executives, assisted by outside consultants and
counsel, briefed the Board on developments in other regulated industries which
had undergone deregulatory changes, on strategic options considered to be
available in light of changes facing the electric utility industry and on the
fiduciary responsibilities of directors when dealing with such matters. Included
among the options discussed were mergers, acquisitions and strategic business
combinations. At the conclusion of the retreat the PEPCO Board encouraged the
company's executives to continue to pursue the various strategic possibilities
discussed during the retreat and move forward with a plan to engage a financial
advisor to assist in such activities. In August 1994 PEPCO engaged the
investment banking firm Barr Devlin as a financial advisor.
BGE and PEPCO's working relationship includes membership in the
Pennsylvania-New Jersey-Maryland Interconnection (the "PJM") and joint minority
participation in the ownership and operation of the Conemaugh electric
generating plant. In working together on such joint matters, the Chairman and
Chief Executive Officer of PEPCO, Mr. Mitchell, and the Chairman and Chief
Executive Officer of BGE, Mr. Poindexter, in late 1994 informally discussed the
potential benefits of a strategic business combination. As a result they agreed
to convene small groups from the two companies to analyze whether any "fatal
flaw" would prevent a merger of the companies and to consider what operational
synergies could be anticipated to result from such a merger. On December 5, 1994
these teams met with the two CEO's and commenced their review.
The teams pursued their joint review during December 1994 and January and
February 1995. During this time, Mr. Poindexter and Mr. Mitchell discussed key
financial and governance issues that would need to be addressed in any merger
consideration; BGE retained the law firm Winthrop, Stimson, Putnam & Roberts
("WSPR") to advise it concerning a possible strategic combination with PEPCO;
and PEPCO, through LeBoeuf, Lamb, engaged the services of Hawks, Giffels &
Pullin Inc. ("HGP") to assist it in a review of BGE's Calvert Cliffs Nuclear
Power Plant.
On January 26, 1995 at the PEPCO Board's regularly scheduled meeting, Mr.
Mitchell advised the Board of the discussions with BGE.
22
<PAGE>
On February 15, 1995, the companies executed a confidentiality agreement
related to their respective due diligence activities. The results of the initial
synergies analysis were presented by the joint employee team to Messrs. Mitchell
and Poindexter on February 16, 1995. They reported that no fatal flaw had been
discovered and that there appeared to be operational benefits and cost savings
which could be obtained through a merger. After concluding there was no "fatal
flaw" the employee teams continued to work on identifying the benefits,
including the savings, associated with a combination of BGE and PEPCO. They were
directed to explore these synergies in more detail through the retention of a
consultant expert in such matters. The companies jointly retained Deloitte &
Touche Consulting Group ("Deloitte & Touche") in March 1995 to assist management
in the conduct of a detailed study of possible synergies from a strategic
business combination. BGE discussed the initial synergies analysis in detail
with the Long Range Strategy Committee and more generally with its entire Board
of Directors at meetings held February 17, 1995. Goldman Sachs attended both
meetings.
During February, March, April and May 1995, numerous activities took place
in relation to the possible merger. Lawyers, executives, employees and
accountants met to identify and resolve legal, tax, accounting, capital
structure, regulatory and other issues. Expanded teams from both companies
undertook various "due diligence" activities and Messrs. Poindexter and Mitchell
engaged in several conversations to review the activities of the teams, discuss
key economic and corporate governance issues and provide information on
significant business developments. On February 25, 1995 BGE and Goldman Sachs
discussed the activities at a Long Range Strategy Committee meeting and a
regularly scheduled Board meeting, BGE also briefed the Board at regularly
scheduled meetings held on March 17, 1995 and April 18, 1995.
On March 23, 1995, at its regularly scheduled meeting, the PEPCO Board was
briefed on activities regarding the possible merger and established a Chairman's
Advisory Committee to advise Mr. Mitchell as needed on merger issues. The
Chairman's Advisory Committee met later on the same day and received briefings
by Barr Devlin, LeBoeuf, Lamb and HGP.
At the PEPCO Board's regularly scheduled meeting on April 26, 1995 Mr.
Mitchell reviewed merger discussion activities with the Board, and at a
Chairman's Advisory Committee meeting on May 3, 1995, the Committee was briefed
by Mr. Mitchell on the activities and further discussed a variety of issues
related to the possible transaction.
Deloitte & Touche presented the results of the joint synergies analysis to
Messrs. Mitchell and Poindexter on May 15, 1995, to a special meeting of the
PEPCO Board of Directors on May 18, 1995, and a regular meeting of the BGE Board
on May 19, 1995. Mr. Poindexter attended a portion of the May 18 PEPCO Board
meeting and Mr. Mitchell attended a portion of the May 19 BGE Board of Directors
meeting. Also at the May 19 BGE Board meeting, WSPR reviewed with the Board its
fiduciary duties in analyzing specific transactions and Goldman Sachs described
various financial considerations to be evaluated in analyzing specific
transactions.
At the May 18, 1995 PEPCO Board meeting, in addition to Deloitte & Touche,
representatives of Covington & Burling (which has been outside corporate counsel
to PEPCO for many years), LeBoeuf, Lamb, Barr Devlin and HGP were also in
attendance. Barr Devlin made a presentation to the PEPCO Board on financial
considerations involved in the merger discussions. HGP briefed the PEPCO Board
on matters relating to nuclear power, explaining the types of commercial nuclear
power plants, the major differences between fossil and nuclear management and
generation, the corporate governance implications of becoming a nuclear company
and the future of the commercial nuclear industry, and reported its due
diligence results with respect to the Calvert Cliffs Nuclear Power Plant.
During May and early June due diligence activities continued. Executives and
lawyers continued negotiations about the corporate structure and the substantive
provisions of transaction documents that would be entered into should a
transaction be agreed upon. Messrs. Mitchell and Poindexter continued to meet
regarding the potential combination. The investment bankers met to negotiate
23
<PAGE>
financial matters independently and together with executives from each company
to discuss financial matters. BGE briefed its Board on the status of
negotiations at a June 9, 1995 meeting which Goldman Sachs and WSPR attended.
On June 9, 1995 PEPCO's Chairman's Advisory Committee met with company
management as well as advisors from Barr Devlin and LeBoeuf, Lamb. During the
PEPCO committee's meeting, Mr. Poindexter called Mr. Mitchell to propose a
framework for a possible transaction. Mr. Mitchell, after consulting with the
PEPCO Chairman's Advisory Committee, concluded that the proposal was totally
unacceptable and negotiations broke down. Although the investment bankers
continued to discuss financial issues, there were no further merger discussions
between the BGE and PEPCO negotiating teams from mid-June until mid-August, when
Mr. Poindexter and Mr. Mitchell discussed a suggestion made by the investment
bankers that they meet with the two CEO's in September if further progress could
be made by the investment bankers on economic issues in the meantime.
In early September, financial executives from both companies and their
investment bankers met to review progress made by the investment bankers and to
conduct additional financial due diligence. This led to meetings among Mr.
Poindexter, Mr. Mitchell and the investment bankers to discuss remaining
economic and governance issues on September 14. Mr. Poindexter updated the BGE
Board of Directors on these developments at the regular meeting held September
15. At this meeting, Goldman Sachs reviewed with the BGE Board the relative
merits of certain strategic alternatives available to BGE, including a BGE-PEPCO
combination, compared to other alternatives that could be pursued by BGE. Mr.
Poindexter, Mr. Mitchell and the investment bankers met again to negotiate and
to discuss remaining economic and governance issues on September 18.
PEPCO's Chairman's Advisory Committee met on September 19 with members of
PEPCO's management and advisors from Barr Devlin, LeBoeuf, Lamb and Covington &
Burling to discuss the remaining open economic and governance issues. In a
telephone conversation on that day Mr. Mitchell and Mr. Poindexter agreed that
representatives of both companies should negotiate transaction documents while
the CEOs continued to attempt to come to agreement on financial and governance
terms.
In meetings on September 20 at WSPR's offices in New York and by telephone
on September 21, attorneys and executives representing the companies negotiated
transaction documents and conducted final due diligence activities. On September
21, Mr. Mitchell and Mr. Poindexter reached agreement on a transaction framework
that each would recommend to his Board at meetings to be held the next day.
On September 22, both the BGE Board and the PEPCO Board met to consider
recommendations from their respective managements that they approve the
execution of a definitive agreement to merge. At BGE's meeting, representatives
of Goldman Sachs made a presentation regarding the financial terms of the
transaction and the fairness of the BGE Conversion Ratio, in light of the PEPCO
Conversion Ratio, to BGE shareholders. Charles W. Shivery, BGE's Chief Financial
Officer, reviewed the valuation methodology and strategic benefits of the
combination. WSPR reviewed the transaction documents with the Board. WSPR and
BGE in-house counsel reviewed legal matters with the Board. The BGE Board
unanimously approved the Merger, the related transactions and the transaction
documents. At PEPCO's meeting, representatives of Barr Devlin reviewed various
financial and other information and rendered to the Board its opinion that the
proposed exchange ratio was fair from a financial point of view to the holders
of PEPCO Common Stock. Counsel to PEPCO reviewed in detail the transaction
terms. The Board discussed with Barr Devlin and with counsel the information and
advice they had received at this and previous meetings and the significant
potential strategic and economic benefits to PEPCO shareholders and customers
that would result from the proposed transaction. After such discussions, the
PEPCO Board unanimously approved the proposed transaction and authorized the
execution of the transaction documents.
Following the meetings on September 22, 1995, the Merger Agreement and the
reciprocal Stock Option Agreements were executed by BGE and PEPCO.
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BGE and PEPCO executives and employees met over the weekend to develop the
press release, communications plans and employee communications packages. On
Monday morning, September 25, 1995, the Merger was publicly announced.
REASONS FOR THE MERGER
BGE and PEPCO believe that the Merger will provide opportunities to achieve
benefits for their respective shareholders, customers, employees and communities
that would not be available if they were to remain separate companies. The
Company, as a result of the combination of BGE's and PEPCO's equity, management,
employees and technical expertise, will have increased financial stability and
strength and will be better able to take advantage of opportunities in both the
core utility and diversified businesses. Specifically, BGE and PEPCO believe
that the Merger offers the following significant strategic and financial
benefits:
- SIGNIFICANT REDUCTIONS IN OPERATING COSTS -- The combination of the core
utility businesses of BGE and PEPCO is expected to result in substantial
savings, estimated at approximately $1.3 billion, net of costs to achieve,
over a 10-year period. These savings come primarily from three areas:
LABOR: The Company anticipates that it will be able to downsize the
combined workforce by approximately 10%:
DISTRIBUTION: The Company should be able to provide service to
customers in the combined service territory with fewer facilities
than the two stand-alone companies have at the present time,
enabling greater economies of scale to be realized in the support
areas. Areas expected to be the most affected include engineering
and technical support, customer service and marketing and sales.
CORPORATE SUPPORT: Savings are expected in human resources,
accounting and finance, corporate affairs and communications,
information systems and legal. Reductions will occur primarily as
the result of eliminating duplicative functions.
GENERATION: Due to the compact nature of the Company's service
territory, one central generation support organization should be
able to support the entire service territory. Expected areas to be
the most affected by reductions include engineering and technical
services, administrative support and mobile maintenance.
NONFUEL PURCHASING: Economies of scale are expected to be achieved
through reduced reliance on contractors and overall inventory reductions.
CORPORATE AND ADMINISTRATIVE PROGRAMS: Savings are expected to be
achieved by consolidating vehicles, insurance, benefits administration,
shareholder services, information services and general and administrative
services. Fees for outside consultants, auditors, attorneys and
regulatory experts are also expected to decline as duplication is
eliminated.
- IMPROVED COMPETITIVE AND STRATEGIC POSITION WITHIN INDUSTRY -- It is
expected that the Company's competitive position will be stronger than
that of either BGE or PEPCO alone. More specifically, BGE and PEPCO
believe that the following factors affecting competitive position should
be enhanced as a result of the Merger:
MAINTENANCE OF COMPETITIVE RATES: BGE and PEPCO anticipate that
operating efficiencies resulting from the combination of two low-cost
energy producers will help the Company keep the cost of providing
electric service lower than either BGE or PEPCO could have achieved
alone. BGE and PEPCO believe that, from the standpoint of attracting new
customers and keeping customers satisfied, being a low-cost producer of
electricity is very important.
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MORE BALANCED CUSTOMER BASE: Industrial and wholesale customers are
considered most at-risk due to the increased competition in the industry.
The combination will create a larger company with reduced reliance on
industrial customers, from BGE's perspective and government customers,
from PEPCO's perspective, as a percent of total sales.
INCREASED SIZE AND STABILITY: As competition intensifies in the
industry, BGE and PEPCO believe size will be one parameter that will
contribute to overall business success. If the Merger were completed
today, it would create one of the nation's 10 largest utilities. As a
consequence, BGE and PEPCO believe the Company will be better positioned
to pursue future strategic opportunities within and outside its service
territory as the demands of a competitive market intensify. Bigger size
also should reduce the impact on the Company of changes in economic
conditions on any given segment of its businesses.
CREDIT QUALITY: BGE and PEPCO believe the synergies achieved by the
Company may allow it to maintain a credit quality that is above industry
averages over the long-term. This is relevant in the utility industry
since the cost of capital is one of the primary components of a utility's
cost structure.
- GENERATION MIX -- If BGE and PEPCO had been combined during 1994, BGE's
Calvert Cliffs Nuclear Power Plant would have accounted for 22% of the
total megawatt hours generated by the Company and would have represented
12% of the Company's generating capacity. Based on actual 1994 statistics,
Calvert Cliffs represented 39% of electricity produced by BGE and 25% of
BGE's generating capacity. Therefore, from BGE's perspective, the Merger
reduces nuclear generation while increasing coal generation and thus
lessens the financial risks associated with owning and operating a nuclear
power plant. PEPCO, on the other hand, will gain the benefit of additional
fuel diversity.
- FLEXIBILITY FOR COMPLIANCE WITH CLEAN AIR ACT -- Depending on the final
requirement of NOx reductions, there is the potential to save capital
expenditures associated with compliance.
- BEST PRACTICES -- The combination will allow for the sharing and
implementation of best practices from each of the areas in BGE and PEPCO.
Examples of such practices include cross training of operations and
maintenance personnel and predictive maintenance programs.
- COORDINATION OF DIVERSIFICATION PROGRAMS -- BGE and PEPCO each have
significant and complementary nonregulated subsidiary businesses.
Synergies from combining these businesses were not analyzed and are not
included in the $1.3 billion of estimated savings. The Company should be
able to manage and pursue the diversified businesses more effectively as
duplication is eliminated.
Preliminary estimates by the managements of PEPCO and BGE indicate that the
synergies resulting from the combination of their utility operations could
generate net cost savings of up to $1.3 billion over a period of 10 years
following the Merger. These estimates indicate that about two-thirds of the
savings will come from reduced labor costs, with the remaining savings split
between nonfuel purchasing and corporate and administrative programs. These
savings are expected to be allocated among shareholders and customers. This
allocation will depend upon the results of regulatory proceedings in the various
jurisdictions in which BGE and PEPCO operate their utility businesses. See
"Regulatory Matters."
The analyses employed in order to develop estimates of potential savings as
a result of the Merger were necessarily based upon various assumptions which
involve judgments with respect to, among other things, future national and
regional economic and competitive conditions, inflation rates, regulatory
treatment, weather conditions, financial market conditions, interest rates,
future business decisions and other uncertainties, all of which are difficult to
predict and many of which are beyond the control of BGE and PEPCO. Accordingly,
while BGE and PEPCO believe that such assumptions
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are reasonable for purposes of the development of estimates of potential
savings, there can be no assurance that such assumptions will approximate actual
experience or that all such savings will be realized.
RECOMMENDATIONS OF THE BGE BOARD OF DIRECTORS
The BGE Board believes that the terms of the Merger are advisable and are
fair to BGE's shareholders. Accordingly, the BGE Board, by unanimous vote, has
approved the Merger Agreement and recommends its approval and adoption by BGE's
shareholders.
The BGE Board believes that the Merger presents a unique opportunity for BGE
and PEPCO to combine; that BGE's shareholders will benefit by participation in
the combined economic growth of the BGE and PEPCO service territories and from
the inherent increase in scale economies, market diversification and the
resulting increased financial stability and strength; that the Merger will
result in cost savings from a reduction in operational and maintenance expense
and other factors discussed above; and that the combined enterprise can
participate in the increasingly competitive market for the generation of power.
All of these factors offer a financially stronger company.
In its deliberations concerning the Merger, the BGE Board considered (i)
BGE's and PEPCO's respective businesses, operations, assets, management,
geographic location and prospects, particularly the relative quality, capacity
and mix of electric generating facilities and the geographic proximity of the
BGE and PEPCO service territories; (ii) the financial condition and results of
operations of BGE and PEPCO, both on a historical and on a prospective basis;
(iii) the historical prices and trading information with respect to BGE Common
Stock and PEPCO Common Stock, particularly the movement of the two stocks in
relation to each other over time; (iv) the presentations of BGE's management,
including potential operating and financial synergies anticipated from the
Merger and discussed above under "-- Reasons for the Merger"; (v) the proposed
treatment of the Merger as a "pooling of interests" for accounting purposes,
which avoids the reduction in earnings that would be associated with
amortization of goodwill; (vi) the fact that the Merger will be tax-free (except
with respect to cash payments to dissenters and in lieu of fractional shares) to
BGE and its shareholders; (vii) the opinion of BGE's financial advisor, Goldman
Sachs; (viii) the synergies analysis which was prepared with the assistance of
Deloitte & Touche; (ix) the management succession and composition of the Company
Board as outlined in the Merger Agreement; (x) the plan for the transition of
BGE and PEPCO into the Company as specified in the Merger Agreement; (xi)
potential synergies for combining diversified business; and (xii) the terms of
the Merger Agreement, which provide for substantially reciprocal representations
and warranties, conditions to closing and rights relating to termination and
other issues such as management and operations of the Company. In determining
that the Merger is advisable and is fair to its shareholders, the BGE Board
considered the above factors as a whole and did not assign specific or relative
weights to them.
THE BGE BOARD, BY UNANIMOUS VOTE, HAS APPROVED AND ADOPTED THE MERGER AGREEMENT,
BELIEVES THAT THE TERMS OF THE MERGER ARE ADVISABLE AND ARE FAIR TO BGE'S
SHAREHOLDERS AND RECOMMENDS THAT THE SHAREHOLDERS OF BGE VOTE FOR APPROVAL OF
THE MERGER.
RECOMMENDATIONS OF THE PEPCO BOARD OF DIRECTORS
The PEPCO Board has determined that the terms of the proposed Merger are
fair to and in the best interests of the PEPCO shareholders, and offer the PEPCO
shareholders better prospects for the future than would be available if PEPCO
were to remain a stand-alone entity. Accordingly, the PEPCO Board, by a
unanimous vote, has approved the Merger Agreement and recommends its approval
and adoption by PEPCO's shareholders.
In its deliberations concerning the Merger Agreement, the PEPCO Board
considered PEPCO's and BGE's respective businesses, operations, assets,
management, geographic location and prospects. The PEPCO Board also considered
the financial condition and results of operations of PEPCO and BGE on a
historical and prospective basis. In its assessment of a potential business
combination with
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BGE, the PEPCO Board considered that BGE, but not PEPCO, generates a portion of
its electricity by means of nuclear power. In view of its lack of operating
experience with nuclear generation facilities, PEPCO retained a consultant, HGP,
and relied upon outside counsel to furnish assistance to the PEPCO Board and
management in performing the due diligence required to assess questions relating
to nuclear generation generally and BGE's two nuclear units at Calvert Cliffs in
particular. Through such efforts the PEPCO Board and management achieved a
sufficient level of comfort with the technical, economic, performance,
regulatory, legal and governance issues involved, both on a general level and
with respect to Calvert Cliffs, such that the combination of PEPCO with a
utility having significant nuclear generating capacity was not considered an
impediment to the Merger.
Other factors considered by the PEPCO Board include: (i) the importance of
size and economies of scale in the increasingly competitive energy sector, (ii)
the market diversification resulting from the combination of PEPCO's and BGE's
existing customer base, generation capacity, fuel mix requirements, natural gas
operations and nonutility businesses; (iii) the historical market prices and
trading information with respect to PEPCO Common Stock and BGE Common Stock,
particularly the movement of the two stocks in relation to each other over time
and the PEPCO Conversion Ratio which represents a premium of approximately 20%
over the average trading price of PEPCO Common Stock in the period immediately
prior to the announcement of the Merger; (iv) the Company, at the indicated
Company Common Stock dividend rate and assuming maintenance of historical
earnings following the Merger, would have a significantly lower dividend payout
ratio as compared to PEPCO's current payout ratio; (v) the presentations of
PEPCO's management, including the synergies analysis that was prepared with the
assistance of Deloitte & Touche; (vi) the proposed treatment of the Merger as a
"pooling of interests" for accounting purposes, which avoids the creation of any
goodwill on the balance sheet of the Company and thereby avoids the reductions
in earnings that would be associated with the amortization of goodwill under
purchase accounting; (vii) the fact that the Merger will be tax-free (except
with respect to cash payments made to dissenters and holders of fractional
shares) to PEPCO and its shareholders; (viii) the opinion of PEPCO's financial
advisor, Barr Devlin; (ix) the management succession plan and composition of the
Company Board specified in the Merger Agreement and the Company Employment
Agreements (as described under "-- Company Employment Agreements" and "The
Company Following the Merger -- Management of the Company") which provides for a
prudent plan for managing the integration of and transition in management; (x)
the impact of regulation under various state and federal laws (as described
under "Regulatory Matters"); and (xi) the terms of the Merger Agreement which
provide for substantially reciprocal representations and warranties, conditions
to closing and rights relating to termination. The PEPCO Board considered the
above factors as a whole and did not assign a specific or relative weight to any
such factor.
THE PEPCO BOARD, BY UNANIMOUS VOTE, HAS APPROVED AND ADOPTED THE MERGER
AGREEMENT, BELIEVES THAT THE TERMS OF THE MERGER ARE ADVISABLE AND ARE FAIR TO
PEPCO'S SHAREHOLDERS AND RECOMMENDS THAT THE SHAREHOLDERS OF PEPCO VOTE FOR
APPROVAL OF THE MERGER AGREEMENT.
OPINIONS OF FINANCIAL ADVISORS
BGE'S FINANCIAL ADVISOR. On September 22, 1995, Goldman Sachs delivered its
oral opinion to the BGE Board that, as of the date of such opinion, and in light
of the PEPCO Conversion Ratio, the BGE Conversion Ratio is fair to the holders
of shares of BGE Common Stock. Goldman, Sachs has delivered its written opinion
to the BGE Board that, as of the date hereof, in light of the PEPCO Conversion
Ratio, the BGE Conversion Ratio is fair to holders of BGE Common Stock.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED AS OF THE DATE
OF THIS JOINT PROXY STATEMENT/ PROSPECTUS, WHICH SETS FORTH ASSUMPTIONS MADE,
MATTERS CONSIDERED AND THE LIMITS OF THE REVIEW UNDERTAKEN IN CONNECTION WITH
THE OPINION, IS ATTACHED HERETO AS EXHIBIT D1 AND IS INCORPORATED HEREIN BY
REFERENCE. HOLDERS OF SHARES OF BGE COMMON STOCK ARE URGED TO, AND SHOULD, READ
SUCH OPINION IN ITS ENTIRETY. THE OPINION OF GOLDMAN SACHS IS DIRECTED ONLY TO
THE FAIRNESS OF THE BGE CONVERSION RATIO, IN LIGHT OF THE
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PEPCO CONVERSION RATIO, TO HOLDERS OF SHARES OF BGE COMMON STOCK AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF BGE COMMON STOCK AS TO HOW TO VOTE
AT THE BGE MEETING. THE SUMMARY OF THE MATERIAL ASPECTS OF THE OPINION OF
GOLDMAN SACHS SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF THE OPINION ATTACHED AS EXHIBIT D1 HERETO.
In connection with their opinion, Goldman Sachs reviewed, among other
things, the Merger Agreement; the Registration Statement, including this Joint
Proxy Statement/Prospectus relating to the BGE Meeting and the PEPCO Meeting;
Annual Reports to shareholders and Annual Reports on Form 10-K of BGE and PEPCO
for the five years ended December 31, 1994; certain interim reports to
shareholders and Quarterly Reports on Form 10-Q of BGE and PEPCO; FERC Forms 1
of BGE and PEPCO; certain other communications from BGE and PEPCO to their
respective shareholders; certain aircraft appraisals conducted by Avitas, Inc.
dated May 16, 1995 and by Air Cargo Management Group dated May 12, 1995 (the
"Aircraft Appraisals"); and certain internal financial analyses and forecasts
for BGE and PEPCO prepared by their respective managements, including analyses
and forecasts of certain operating efficiencies and financial synergies (the
"Synergies") expected to be achieved as a result of the Merger, which were
prepared jointly by the managements of BGE and PEPCO, with the assistance of a
third-party consultant. Goldman Sachs also held discussions with members of the
senior management of BGE and PEPCO regarding the past and current business
operations, financial condition and future prospects of their respective
companies and their analyses of the strategic benefits of the Merger, including,
without limitation, the amount and timing of realization of the Synergies. In
addition, Goldman Sachs reviewed the reported price and trading activity for BGE
Common Stock and PEPCO Common Stock, compared certain financial and stock market
information for BGE and PEPCO with similar information for certain other
companies the securities of which are publicly traded, reviewed the financial
terms of certain recent business combinations in the electric utility industry
and performed such other studies and analyses as Goldman Sachs considered
appropriate.
Goldman Sachs relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by them for
purposes of their opinion. In that regard, Goldman Sachs assumed that the
Synergies have been reasonably determined on a basis reflecting the best
currently available judgments and estimates of BGE and PEPCO and that such
Synergies will be realized in the amounts and at the times contemplated thereby.
In addition, Goldman Sachs has not made an independent evaluation or appraisal
of the assets and liabilities of BGE or PEPCO or any of their subsidiaries and
Goldman Sachs has not been furnished with any such evaluation or appraisal other
than the Aircraft Appraisals. Goldman Sachs has assumed that the consummation of
the transactions contemplated by the Merger Agreement will be accounted for as a
pooling of interests under generally accepted accounting principles. Goldman
Sachs also has assumed that the holders of shares of BGE Common Stock will not
recognize gain or loss for tax purposes in connection with the Merger. Goldman
Sachs further assumed that obtaining any necessary regulatory or third-party
approvals for the transactions contemplated by the Merger Agreement and any
possible divestitures which may be required in connection therewith will not
have an adverse effect on the Company, BGE or PEPCO. Goldman Sachs is not
expressing any opinion as to the prices at which Company Common Stock may trade
when the transaction is consummated.
The opinions of Goldman Sachs do not consider the relative merits of the
transactions contemplated by the Merger Agreement as compared to any other
business plan or opportunity that might be available to BGE or the effect of any
other arrangement in which BGE might engage.
In connection with their opinions, Goldman Sachs performed certain financial
analyses, which were reviewed with the BGE Board on September 22, 1995. The
following is a summary of these analyses.
HISTORICAL EXCHANGE RATIO ANALYSIS. Goldman Sachs reviewed the ratio of
daily trading prices of PEPCO Common Stock to the daily trading prices of BGE
Common Stock from September 21, 1990
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through September 8, 1995. This review indicated that for the one-, two-,
three-, four- and five-year periods ending September 8, 1995, the average ratio
of the trading price of PEPCO Common Stock to the trading price of BGE Common
Stock was .83, .90, .96, 1.00 and 1.02, respectively.
CONTRIBUTION ANALYSIS. Goldman Sachs analyzed and compared the prospective
respective contribution of each of BGE and PEPCO to the Company based on a
comparison of certain actual and estimated stock market and financial
information for each company as a separate entity on a stand-alone basis. This
analysis did not take into account any Synergies realizable as a result of, or
any other effects from, the Merger. This analysis indicated that BGE would
contribute to the Company approximately (i) 60.4% of aggregate market
capitalization based on their respective market prices as of September 21, 1995,
(ii) 58.8% of aggregate 1994 net income, (iii) 63.5% of aggregate estimated 1995
net income (based on the internal forecasts of managements of each of BGE and
PEPCO), (iv) 60.8% of aggregate estimated 1995 net income (based upon the median
of the earnings estimates of various securities research analysts as reported by
the Institutional Brokers' Estimates Services ("IBES")), (v) 59.0% of aggregate
1995 cash flow based on forecasts by managements of each of BGE and PEPCO, (vi)
59.9% of book value as of June 30, 1995, (vii) 54.1% of aggregate total assets
as of June 30, 1995 and (viii) 60.6% of aggregate revenues for 1994. Based on
the number of shares of BGE and PEPCO outstanding as of the date of the Merger
Agreement, the Ratios would result in holders of BGE Common Stock owning
approximately 55.5% of the Company Common Stock immediately after consummation
of the Merger on a pro forma basis.
SELECTED COMPANIES ANALYSIS. Goldman Sachs reviewed and compared certain
actual and estimated financial and stock market information of BGE and PEPCO
with that of a group of public utility companies comprised of Allegheny Power
System, Inc., Atlantic Energy, Inc., Delmarva Power & Light Company, Dominion
Resources, Inc., General Public Utilities Corporation, PECO Energy Company, PP&L
Resources, Inc. and Public Service Enterprise Group Incorporated (the "Selected
Utility Companies"). This analysis indicated that (i) return on equity for the
latest 12 months was approximately 9.9% and 9.5% for PEPCO and BGE,
respectively, as compared to a mean of 10.0% and a median of 10.1% for the
Selected Utility Companies (with a range of 7.1% to 12.5%); (ii) the ratio of
market value per share of common stock to book value per share was approximately
1.41 and 1.44 for PEPCO and BGE, respectively, as compared to a mean of 1.34 and
a median of 1.35 for the Selected Utility Companies (with a range of 1.25 to
1.47); (iii) price earnings multiples, based on IBES estimates of 1995 earnings,
were approximately 12.4 and 12.9 for PEPCO and BGE, respectively, as compared to
a mean of 11.4 and a median of 11.4 for the Selected Utility Companies (with a
range of 10.2 to 12.5); (iv) price earnings multiples, based on IBES estimates
of 1996 earnings, were approximately 12.0 and 12.2 for PEPCO and BGE,
respectively, as compared to a mean of 10.9 and a median of 10.9 for the
Selected Utility Companies (with a range of 9.8 to 12.2); (v) dividend yield was
approximately 7.7% and 5.9% for PEPCO and BGE, respectively, as compared to a
mean of 7.1% and a median of 7.1% for the Selected Utility Companies (with a
range of 5.9% to 8.2%); and (vi) the ratio of estimated dividends to be paid in
1995 to IBES median estimates of 1995 earnings was approximately 94.9% and 76.1%
for PEPCO and BGE, respectively, as compared to a mean of 81.2% and a median of
85.3% for the Selected Utility Companies (with a range of 62.1% to 93.3%).
DISCOUNTED CASH FLOW ANALYSIS. Based on projections prepared by the
managements of PEPCO and BGE, Goldman Sachs estimated the net present value of
PEPCO's and BGE's future cash flows (after deducting estimated capital
expenditures). In conducting this analysis, Goldman Sachs assumed discount rates
ranging from 11% to 13% and terminal value multiples of 11, 12 and 13 times
earnings to common. This analysis indicated a net present value per share of
PEPCO Common Stock of $25.61 to $30.79 (which amounts included a Synergy
retention value of $5.55 to $6.39 per share based upon an assumed retention of
50% of after-tax annual Synergies) and a net present value per share of BGE
Common Stock ranging from $22.78 to $27.82 per share (which amounts included no
Synergy retention value). The price ranges indicated by this analysis implied a
PEPCO Conversion Ratio ranging from 0.98 to 1.27, assuming a BGE Conversion
Ratio of 1.0. Goldman Sachs also compared the estimated net present value of
future cash flows of the Company against the estimated
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net present value of future cash flows of BGE on a stand-alone basis. In
conducting this analysis, Goldman Sachs assumed a 12% discount rate and terminal
value multiples of 11, 12 and 13 times earnings attributable to common stock.
This analysis indicated net present values, at terminal value multiples of 11,
12 and 13, of $22.45, $23.88 and $25.30 per share, respectively, for the
Company, assuming no synergies and of $24.03, $25.56 and $27.10 per share,
respectively, for the Company, assuming 50% of pretax synergies flow to
shareholders, compared with net present values of $23.68, $25.21 and $26.73 per
share for BGE on a stand-alone basis.
DIVIDEND DISCOUNT ANALYSIS. Goldman Sachs calculated the present value of
the estimated hypothetical future dividends payable on PEPCO Common Stock and on
BGE Common Stock. In conducting this analysis, Goldman Sachs applied discount
rates of 8%, 9% and 10% and considered potential annual growth rates of 1.0%,
1.5% and 2.0% on a dividend of $1.93 per share of PEPCO Common Stock
(representing PEPCO's current dividend of $1.66 per share plus an additional
dividend of $0.27 representing 50% retention of after-tax Synergies at a 70%
payout ratio) and annual growth rates of 2.0%, 2.5% and 3.0% on the current
dividend of $1.56 per share of BGE Common Stock. This analysis implied per share
values ranging from $21.49 to $32.24 per share of PEPCO Common Stock and from
$19.50 to $31.20 per share of BGE Common Stock. Assuming a BGE Conversion Ratio
of 1.0, these values implied a PEPCO Conversion Ratio of between .89 and 1.24.
SELECTED TRANSACTIONS ANALYSIS. Goldman Sachs reviewed and analyzed
selected financial, operating and stock market information relating to seven
business combinations involving electric utility companies. These transactions
were the combination of Southwestern Public Service Company and Public Service
Company of Colorado, the combination of CIPSCO Incorporated and Union Electric
Company, the combination of Sierra Pacific Resources and The Washington Water
Power Company, the combination of PSI Energy, Inc. and The Cincinnati Gas &
Electric Company, the combination of Iowa Southern Utilities Company and IE
Industries Inc., the combination of Iowa Resources, Inc. and Midwest Energy
Company and the combination of Utah Power & Light Company and PacifiCorp.
(together, the "Selected Transactions"). This analysis indicated that the
consideration received by shareholders of the smaller company (as determined by
market capitalization) in each of the Selected Transactions represented (i) a
multiple of latest 12 months earnings per share ranging from 12.2 to 16.3, with
a mean of 14.0 and, given a BGE Conversion Ratio of 1.0, implying a PEPCO
Conversion Ratio of 0.87 based on this mean; (ii) a multiple of gross cash flow
ranging from 5.6 to 7.6, with a mean of 6.7 and, given a BGE Conversion Ratio of
1.0, implying a PEPCO Conversion Ratio of 0.92 based on this mean; (iii) a
dividend pickup ranging from 1.0% to 59.4%, with a mean of 23.5% and, assuming a
BGE Conversion Ratio of 1.0, implying a PEPCO Conversion Ratio of 1.31, based on
such mean; (iv) a multiple of book value ranging from 1.3 to 2.5, with a mean of
1.8 and, given a BGE Conversion Ratio of 1.0, implying a PEPCO Conversion Ratio
of 1.04 based on this mean; and (v) a premium to market value per common share
ranging from 1.9% to 56.0%, with a mean of 25.9% and, given a BGE Conversion
Ratio of 1.0, implying a PEPCO Conversion Ratio of 1.05 based on this mean.
PRO FORMA COMBINATION ANALYSIS. Goldman Sachs analyzed the pro forma impact
of the Merger, assuming a BGE Conversion Ratio of 1.0 and a PEPCO Conversion
Ratio of 0.997, on the earnings per share of common stock of each of BGE and
PEPCO shareholders for 1997, 1998 and 1999. The analysis assumed that the Merger
was consummated in 1995 and that anticipated Synergies began to accrue at that
time. The analysis was based on earnings estimates for these years for BGE and
PEPCO prepared by their respective managements and assumes that 50% of the
pre-tax Synergies expected to result from the Merger will flow to the
shareholders of the Company. Based on these forecasts and estimates and assuming
the Merger will be accounted for as a pooling of interests, the Ratios would be
modestly dilutive to BGE shareholders in 1997 and modestly accretive to BGE
shareholders thereafter.
In connection with its opinion dated as of the date of this Joint Proxy
Statement/Prospectus, Goldman Sachs reviewed the analyses used to render their
September 22, 1995 oral opinion to the BGE Board by performing procedures to
update certain such analyses and by reviewing the assumptions upon which such
analyses were based and the factors considered in connection therewith.
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The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses and did not assign
relative weights to any of the analyses.
The analyses were prepared solely for the purpose of Goldman Sachs providing
their opinion to the BGE Board as to the fairness of the BGE Conversion Ratio,
in light of the PEPCO Conversion Ratio, to holders of BGE Common Stock and do
not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold, which are inherently subject to
uncertainty. Any estimates incorporated in the analyses performed by Goldman
Sachs are not necessarily indicative of actual past or future values or results,
which may be significantly more or less favorable than any such estimates. No
public company utilized as a comparison is identical to BGE, PEPCO or the
business segment for which a comparison is being made, and none of the
comparable acquisition transactions or other business combinations utilized as a
comparison is identical to the transactions contemplated by the Merger
Agreement. Accordingly, an analysis of publicly traded comparable companies and
comparable business combinations resulting from the transactions is not
mathematical; rather it involves complex considerations and judgments concerning
differences in financial and operating characteristics of the comparable
companies and other factors that could affect the public trading value of the
comparable companies or company to which they are being compared. In connection
with the analyses, Goldman Sachs made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of BGE and PEPCO. Similarly,
analyses based upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or less favorable than
suggested by such analyses. Because such analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control of
BGE and PEPCO or their respective advisors, none of the Company, BGE, PEPCO,
Goldman Sachs or any other person assumes responsibility if future results or
actual values are materially different from these forecasts or assumptions. The
foregoing summary does not purport to be a complete description of the analyses
performed by Goldman Sachs and is qualified by reference to the written opinion
of Goldman Sachs set forth in Exhibit D1 to this Joint Proxy
Statement/Prospectus.
As described above, the opinion and presentation of Goldman Sachs to the BGE
Board was only one of many factors taken into consideration by the BGE Board in
making its determination to approve the Merger Agreement. In addition, the terms
of the Merger were determined through negotiations between BGE and PEPCO and
were approved by the BGE Board. Although Goldman Sachs provided advice to BGE
during the course of these negotiations, the decision to enter into the Merger
Agreement and to accept the Ratios was solely that of the BGE Board.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with BGE, having provided certain investment banking services to BGE
from time to time, including acting as managing underwriter of certain
securities offerings of BGE, as one of the agents under BGE's medium-term note
program and as the remarketing agent under one of BGE's tax-exempt commercial
paper programs, and having acted as its financial advisor in connection with,
and having participated in certain of the negotiations leading to, the Merger
Agreement. Goldman Sachs provides certain investment banking services to PEPCO
from time to time, including acting as managing underwriter of certain
securities offerings of PEPCO, as one of the agents under PEPCO's medium-term
note program, and as a dealer in its commercial paper program. Goldman Sachs may
provide investment banking services to the Company in the future. BGE selected
Goldman Sachs as its financial advisor because Goldman Sachs is an
internationally recognized investment banking firm that has substantial
experience in transactions similar to the Merger and has familiarity with BGE
and the industry in which it operates.
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Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of their normal trading activities may from time to
time effect transactions and hold positions in the debt and equity securities of
BGE and PEPCO for their own account and for the account of customers;
consequently Goldman Sachs may, at any time, hold a long or short position in
such securities.
Pursuant to a letter agreement dated February 17, 1995 (the "Engagement
Letter"), BGE engaged Goldman Sachs to act as its financial advisor with respect
to a possible transaction with PEPCO. Pursuant to the terms of the Engagement
Letter, BGE has agreed to pay Goldman Sachs (i) monthly fees of $100,000 over a
period commencing March 1, 1995 through the execution of a merger agreement with
PEPCO but not to exceed five months, (ii) $1,000,000 upon execution of the
Merger Agreement, (iii) $1,500,000 upon approval of the Merger Agreement by
holders of BGE Common Stock and (iv) $6,000,000 upon consummation of the Merger.
The Engagement Letter also provides for the payment by BGE to Goldman Sachs of
10% of any payment BGE might receive from PEPCO or a third-party if the Merger
is not consummated, not to exceed $4,000,000 and not including payments received
by BGE as reimbursement for out-of-pocket expenses. In addition, BGE has agreed
to reimburse Goldman Sachs for their reasonable out-of-pocket expenses,
including the fees and disbursements of their attorneys, plus any sales, use or
similar taxes arising in connection with Goldman Sachs' engagement and to
indemnify Goldman Sachs and certain related persons against certain liabilities,
including certain liabilities under the federal securities laws, arising out of
its engagement.
Goldman Sachs has rendered from time to time various investment banking and
other financial advisory services to BGE. Since January 1, 1994, Goldman Sachs
has earned approximately $600,000 in compensation from BGE in connection with
routine securities transactions.
PEPCO'S FINANCIAL ADVISOR. On February 15, 1995, PEPCO entered into an
engagement letter with Barr Devlin pursuant to which Barr Devlin was retained to
act as PEPCO's financial advisor in connection with a potential business
combination with BGE. Barr Devlin has delivered its written opinions to the
PEPCO Board, dated September 22, 1995, and the date of this Joint Proxy
Statement/ Prospectus, to the effect that, on and as of the dates of such
opinions, and based upon assumptions made, matters considered, and limits of the
review, as set forth in the opinions, the PEPCO Conversion Ratio was and is
fair, from a financial point of view, to the holders of PEPCO Common Stock.
A COPY OF THE OPINION OF BARR DEVLIN DATED THE DATE HEREOF IS ATTACHED TO
THIS JOINT PROXY STATEMENT/ PROSPECTUS AS EXHIBIT D2 AND IS INCORPORATED HEREIN
BY REFERENCE. THE SEPTEMBER 22, 1995 OPINION IS SUBSTANTIALLY IDENTICAL TO THE
OPINION ATTACHED HERETO. PEPCO SHAREHOLDERS ARE URGED TO READ CAREFULLY THE
OPINION DATED THE DATE HEREOF IN ITS ENTIRETY FOR ASSUMPTIONS MADE, MATTERS
CONSIDERED AND THE LIMITS OF THE REVIEW UNDERTAKEN BY BARR DEVLIN. THE SUMMARY
OF THE MATERIAL ASPECTS OF BARR DEVLIN'S OPINION SET FORTH IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ATTACHED
OPINION.
In connection with rendering its opinion dated the date hereof, Barr Devlin
(i) reviewed the Annual Reports, Forms 10-K and the related financial
information for the three-year period ended December 31, 1994 and the Forms 10-Q
and the related unaudited financial information for the quarterly periods ended
March 31, 1995, June 30, 1995 and September 30, 1995, for PEPCO; (ii) reviewed
the Annual Reports, Forms 10-K and the related financial information for the
three-year period ended December 31, 1994; and the Forms 10-Q and the related
unaudited financial information for the quarterly periods ended March 31, 1995,
June 30, 1995 and September 30, 1995, for BGE; (iii) reviewed certain other
filings with the SEC and other regulatory authorities made by PEPCO and BGE
during the last three years, including proxy statements, FERC Forms 1, Forms 8-K
and registration statements; (iv) reviewed certain internal information,
including financial forecasts, relating to the business, earnings, capital
expenditures, cash flow, assets and prospects of PEPCO and BGE furnished to Barr
Devlin by PEPCO and BGE; (v) conducted discussions with members of senior
management of PEPCO and BGE concerning their respective businesses, regulatory
environments, prospects, strategic objectives and possible operating,
administrative and capital synergies which
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might be realized for the benefit of the Company following the Merger; (vi)
reviewed the historical market prices and trading activity for shares of PEPCO
Common Stock and BGE Common Stock and compared them with those of certain
publicly traded companies deemed by Barr Devlin to be relevant; (vii) compared
the results of operations of PEPCO and BGE with those of certain companies
deemed by Barr Devlin to be relevant; (viii) compared the proposed financial
terms of the Merger with the financial terms of certain utility industry
business combinations deemed by Barr Devlin to be relevant; (ix) analyzed the
respective contributions of earnings, cash flow, assets and shareholders equity
by PEPCO and BGE to the Company; (x) analyzed the valuation of shares of PEPCO
Common Stock and BGE Common Stock using various valuation methodologies deemed
by Barr Devlin to be appropriate; (xi) considered the pro forma capitalization,
earnings and cash flow of the Company; (xii) compared the pro forma
capitalization ratios, earnings per share, dividends per share, book value per
share, cash flow per share, return on equity and payout ratio of the Company
with each of the corresponding current and projected values for PEPCO and BGE on
a stand-alone basis; (xiii) reviewed the Merger Agreement; (xiv) reviewed the
Registration Statement, including this Joint Proxy Statement/Prospectus; and
(xv) reviewed such other studies, conducted such other analyses, considered such
other financial, economic and market criteria, performed such other
investigations and considered such other matters as Barr Devlin deemed necessary
or appropriate for purposes of its opinion.
In preparing its opinions, Barr Devlin relied, without independent
verification, on the accuracy and completeness of all financial and other
information publicly available or otherwise furnished or made available to it by
PEPCO and BGE, including the representations and warranties contained in the
Merger Agreement, and have further assumed that the conditions to consummation
of the Merger Agreement will be satisfied in all material respects. Barr Devlin
further relied upon the assurances of management of PEPCO and BGE that they were
not aware of any facts that would make such information inaccurate or
misleading. With respect to the financial projections of PEPCO and BGE
(including, without limitation, projected cost savings and operating synergies),
Barr Devlin relied upon assurances of management of PEPCO and BGE that such
projections were reasonably prepared and reflected the best currently available
estimates and judgments of the managements of PEPCO and BGE as to the future
financial performance of PEPCO and BGE, as the case may be and as to the
projected outcomes of legal, regulatory and other contingencies. Barr Devlin was
not provided with and did not undertake an independent evaluation or appraisal
of the assets or liabilities (contingent or otherwise) of PEPCO or BGE, nor did
Barr Devlin make any physical inspection of the properties or assets of PEPCO or
BGE. In addition, Barr Devlin was not requested to, and did not, solicit any
indications of interest from third parties with respect to the purchase of all
or a part of PEPCO.
In arriving at its opinions, Barr Devlin assumed that the Merger will be a
reorganization as described in Section 368(a) of the Code and the regulations
thereunder, and that PEPCO, BGE and holders of PEPCO Common Stock and BGE Common
Stock who exchange their shares solely for Company Common Stock will recognize
no gain or loss for federal income tax purposes as a result of the consummation
of the Merger. In addition, Barr Devlin has assumed that the Merger will qualify
as a pooling of interests for financial accounting purposes. Barr Devlin's
opinions are based upon general financial, stock market and other conditions and
circumstances as they existed and could be evaluated, and the information made
available to it, as of the respective dates of its opinions. Barr Devlin's
opinions are directed only to the PEPCO Board of Directors and to the fairness
of the PEPCO Conversion Ratio from a financial point of view, do not address any
other aspect of the Merger and do not constitute a recommendation to any PEPCO
shareholder as to how such shareholder should vote at the PEPCO Meeting.
Although Barr Devlin evaluated the fairness of the PEPCO Conversion Ratio from a
financial point of view to the holders of PEPCO Common Stock, the specific PEPCO
Conversion Ratio was determined by PEPCO and BGE through arm's length
negotiations. PEPCO did not place any limitations upon Barr Devlin with respect
to the procedures followed or factors considered by Barr Devlin in rendering its
opinions.
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Barr Devlin has advised PEPCO that, in its view, the preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of those methods to
the particular circumstances, and, therefore, such an opinion is not readily
susceptible to summary description. Furthermore, in arriving at its fairness
opinions, Barr Devlin did not attribute any particular weight to any analysis or
factor considered by it, nor did Barr Devlin ascribe a specific range of fair
values to PEPCO; rather, Barr Devlin made its determination as to the fairness
of the PEPCO Conversion Ratio on the basis of qualitative judgments as to the
significance and relevance of each of the financial and comparative analyses and
factors described below. Accordingly, notwithstanding the separate factors
summarized below, Barr Devlin believes that its analyses must be considered as a
whole and that considering any portions of these analyses and factors, without
considering all analyses and factors, could create a misleading or incomplete
view of the evaluation process underlying its opinion. In its analysis, Barr
Devlin made many assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond
PEPCO's and BGE's control. Any estimates in these analyses do not necessarily
indicate actual values or predict future results or values, which may be
significantly more or less favorable than as set forth therein. In addition,
analyses relating to the value of businesses do not purport to be appraisals or
to reflect the prices at which businesses actually may be sold.
In connection with rendering its opinions dated September 22, 1995, and the
date hereof, and preparing its various written and oral presentations to the
PEPCO Board, Barr Devlin performed a variety of financial and comparative
analyses and considered a variety of factors of which the material analyses and
factors are summarized below. This summary does not purport to be a complete
description of the analyses performed or factors considered by Barr Devlin. The
results of the analyses described in this summary were discussed with the PEPCO
Board at its meeting on September 22, 1995. Barr Devlin derived implied exchange
ratios for PEPCO Common Stock and BGE Common Stock based upon what these
analyses, when considered in light of the judgment and experience of Barr
Devlin, suggested about the relative values of their respective Common Stocks.
Barr Devlin's opinions are based upon its consideration of the collective
results of all such analyses, together with the other factors referred to in its
opinions. Because each share of BGE Common Stock is being converted into one
share of Company Common Stock, these implied exchange ratios can be compared to
the 0.997 shares of Company Common Stock that each share of PEPCO Common Stock
will be converted into pursuant to the Merger. In concluding that the PEPCO
Conversion Ratio is fair, from a financial point of view, to the holders of
PEPCO Common Stock and in its discussions with the PEPCO Board, Barr Devlin
noted that 0.997 was within each range of implied exchange ratios set forth
below, which were derived from the analyses performed by it. In connection with
its opinion dated the date hereof, Barr Devlin performed certain procedures to
update its analyses made for its September 22, 1995 opinion and reviewed with
the managements of PEPCO and BGE the assumptions upon which such analyses were
based. The results of such analyses were substantially the same as those for the
September 22, 1995 opinion of Barr Devlin.
COMPARABLE TRANSACTION ANALYSIS. To determine an implied exchange ratio
based upon a comparable transaction analysis, Barr Devlin reviewed certain
transactions involving mergers between regulated electric or electric and gas
utilities or holding companies for regulated electric or electric and gas
utilities (the "Comparable Transactions"). The Comparable Transactions were
selected because they were strategic combinations of electric, or electric and
gas, utility companies (or their holding companies) which resulted in the
creation of newly formed, newly named, publicly traded corporations with
meaningful senior executive officer representation from each of the merged
companies, and with boards of directors consisting of representatives from the
boards of directors of each of the merging companies prior to the transaction.
Barr Devlin calculated the implied equity consideration for each of the
Comparable Transactions as a multiple of each participating company's net income
and cash flow for the latest 12-month period preceding the announcement of such
transaction and book value of common equity for the most recently available
fiscal quarter preceding the transaction. In addition, Barr Devlin calculated
the
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"implied total consideration" (defined as the sum of the implied equity
consideration plus the liquidation value of preferred stock, the principal
amount of debt, capitalized lease obligations and minority interests minus cash
and option proceeds, if any) for each of the Comparable Transactions as a
multiple of each company's respective latest 12-month earnings before interest,
taxes ("EBIT") and earnings before interest, taxes and depreciation ("EBITDA").
The Comparable Transactions included in this analysis consisted of Public
Service Co. of Colorado/Southwestern Public Service, Union Electric
Company/CIPSCO Incorporated, Wisconsin Energy Corporation/Northern States Power
Company, Midwest Resources, Inc./Iowa-Illinois Gas & Electric Company/PSI
Resources and Midwest Energy Company/Iowa Resources. This analysis produced
reference values of $20.26 to $27.22 per share in the case of PEPCO and $20.67
to $27.11 per share in the case of BGE. The implied range of exchange ratios
resulting from these reference values was 0.75 to 1.32, with a midpoint value of
1.03.
Because the reasons for and circumstances surrounding each of the Comparable
Transactions analyzed were diverse and because of the inherent differences
between the operations of PEPCO, BGE and the companies in the selected
transactions, Barr Devlin believed that a purely quantitative comparable
transaction analysis would not be particularly meaningful in the context of the
Merger. Barr Devlin believed that an appropriate use of a comparable transaction
analysis in this instance would involve qualitative judgments concerning
differences between the characteristics of these transactions and the Merger
which would affect the relative values of the merged companies, PEPCO and BGE.
DISCOUNTED CASH FLOW ANALYSIS. To determine an implied exchange ratio based
upon a discounted cash flow ("DCF") analysis, Barr Devlin prepared and reviewed
the results of unleveraged DCF analyses for both PEPCO and BGE for the fiscal
year period 1995 through 1999 (the "Projection Period"). After receiving and
reviewing the five-year financial projections by the managements of PEPCO and
BGE, Barr Devlin made certain revisions to the projected earnings of BGE's
nonutility subsidiaries. These revisions produced an adjusted forecast (the
"Adjusted Forecast") with a lower rate of annual earnings growth than had been
assumed in BGE's financial forecast. Barr Devlin subsequently used the Adjusted
Forecast in all such analyses incorporating the financial forecasts.
The purpose of the DCF analysis was to determine the present value or worth
of the common shares of each of PEPCO and BGE. To calculate the present value of
a business using a DCF analysis, the projected unleveraged free cash flows for
each year, together with the estimated value of the business in the final year
of the Projection Period, are discounted to the present. Barr Devlin estimated
terminal values for PEPCO and BGE by applying multiples (described below) to (i)
the projected book value of PEPCO's and BGE's common equity as of fiscal
year-end 1999 and (ii) the projected net income of PEPCO and BGE for fiscal year
1999. The multiples applied were based on analyses of the corresponding
multiples of certain public companies comparable to PEPCO and BGE. For the
purposes of these analyses, the terminal multiple ranges used were 1.50x - 1.75x
and 1.45x - 1.70x for PEPCO and BGE, respectively, with respect to book value
and 12.5x - 14.0x and 12.5 - 13.5x for PEPCO and BGE, respectively, with respect
to net income. The cash flow streams and terminal values were then discounted to
present value using discount rates that ranged from 7.75% to 8.75% for PEPCO and
8.50% to 9.50% for BGE. This analysis produced reference values of $20.91 to
$28.06 per share in the case of PEPCO and $22.29 to $28.41 per share in the case
of BGE. The implied range of exchange ratios resulting from these reference
values was 0.74 to 1.28, with a midpoint value of 1.00.
STOCK TRADING HISTORY. Barr Devlin reviewed the performance of the per
share market prices and trading volumes of PEPCO Common Stock and BGE Common
Stock and compared such per share market price movements to movements in (i) the
Dow Jones Utility Index and (ii) the Standard and Poor's 500 Composite Index to
provide perspective on the current and historical stock price performance of
PEPCO and BGE relative to the Comparable Companies (as defined below) and
selected market indices. Barr Devlin also calculated the ratio of the per share
weekly closing market price of PEPCO to the per share weekly closing market
price of BGE for the periods September 18, 1992 to September 18, 1995. This
analysis showed that over this three-year period PEPCO Common Stock traded at a
price as high as 1.20 times, as low as 0.78 times and at an average of 0.99
times the then-
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current per share market price of BGE Common Stock. For the one-month and
12-month periods ending September 15, 1995, PEPCO Common Stock traded at an
average of 0.82 and 0.83 times, respectively, the then-current per share market
price of BGE Common Stock. This analysis was utilized to provide historical
background for the manner in which the public trading market had valued PEPCO
and BGE in absolute terms and relative to each other.
PUBLICLY TRADED COMPARABLE COMPANY ANALYSIS. Using publicly available
information, Barr Devlin compared selected financial information and ratios
(described below) for PEPCO and BGE with the corresponding financial information
and ratios for a group of electric or electric and gas utilities (or their
holding companies) situated in the mid-Atlantic region (the "Regional Comparable
Companies") and two groups of other selected electric or electric and gas
utilities (or their holding companies) deemed by Barr Devlin to be comparable to
PEPCO (the "PEPCO Comparable Companies") and BGE (the "BGE Comparable
Companies") (collectively, the "Comparable Companies"). The Regional Comparable
Companies were selected because they possessed general business, operating and
financial characteristics representative of companies in industries in which
PEPCO and BGE operate and whose principal geographic areas of operation are
located either: (i) in states in which PEPCO or BGE has electric or gas utility
operations or (ii) in states contiguous to those in which PEPCO or BGE has
electric or gas utility operations. The Regional Comparable Companies included
Allegheny Power System, Inc., American Electric Power Co. Inc., Atlantic Energy,
Inc., Delmarva Power & Light Co., Dominion Resources Inc., DQE, Inc., General
Public Utilities Corp., PECO Energy Co., PP&L Resources, Inc. and Public Service
Enterprise Group Inc. The PEPCO Comparable Companies and BGE Comparable
Companies possessed general business, operating and financial characteristics
representative of companies in industries in which PEPCO and BGE operate and
whose principal geographic areas of operation are not necessarily located in
states or contiguous states in which PEPCO or BGE, respectively, have electric
or gas utility operations. The PEPCO Comparable Companies included Allegheny
Power System, Inc., CINergy Corp., DPL Inc., IPALCO Enterprises, Inc., KU Energy
Corp., LG&E Energy Corp., NIPSCO Industries, Inc. and Public Service Co. of
Colorado. The BGE Comparable Companies included CMS Energy Corp., Illinova
Corporation, Northern States Power Co., PECO Energy Co., San Diego Gas &
Electric Co., Scana Corp., Union Electric Co. and Wisconsin Energy Corporation.
In evaluating the current market values of PEPCO Common Stock and BGE Common
Stock, Barr Devlin determined ranges of multiples for selected financial ratios
for the Comparable Companies, including: (i) the market value of outstanding
common stock as a multiple of (a) net income available to common stock for the
12-month period ending June 30, 1995 (the "LTM Period"), (b) projected net
income available to common stock for the 12-month period ending December 31,
1995 ("fiscal 1995"), (c) book value of common equity for the most recently
available fiscal quarter ended June 30, 1995 and (d) after-tax cash flow from
operations for the LTM Period and (ii) the "aggregate market value" (defined as
the sum of the market value of common stock, plus the liquidation value of
preferred stock, the principal amount of debt, capitalized lease obligations and
minority interests, minus cash and cash equivalents) as a multiple of (a) EBIT
for the LTM Period, (b) EBITDA for the LTM Period, (c) EBIT for fiscal 1995 and
(d) EBITDA for fiscal 1995. This analysis produced reference values of $19.41 to
$23.84 per share in the case of PEPCO and $21.35 to $26.61 per share in the case
of BGE. The implied range of exchange ratios resulting from these reference
values was 0.73 to 1.12, with a midpoint value of 0.92.
Barr Devlin also evaluated the projected fiscal year-end 1995 and 1996
market values of shares of outstanding PEPCO Common Stock and BGE Common Stock,
based on the operating and financial projections provided by PEPCO and the
Adjusted Forecast for BGE for the Projection Period. The projected year-end 1995
market values were based on selected ranges of multiples for the Comparable
Companies and (i) projected 1995 and 1996 net income available to common stock,
(ii) projected 1995 cash flow, (iii) projected book value of common stock as of
year-end 1995 and (iv) projected dividend yields as of year-end 1995. The
projected year-end 1996 market values were based on selected ranges of multiples
for the Comparable Companies and (i) projected 1996 and 1997 income available to
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common stock, (ii) projected 1996 cash flow, (iii) projected book value of
common stock as of year-end 1996 and (iv) projected dividend yields as of
year-end 1996. For fiscal 1995, this analysis produced reference values of
$22.67 to $26.34 per share in the case of PEPCO and $24.45 to $28.76 per share
in the case of BGE. The implied range of exchange ratios resulting from the 1995
reference values was 0.79 to 1.08 with a midpoint value of 0.93. For fiscal
1996, this analysis produced reference values of $23.38 to $27.19 per share in
the case of PEPCO and $25.65 to $30.21 per share in the case of BGE. The implied
range of exchange ratios resulting from the 1996 reference values was 0.77 to
1.08, with a midpoint value of 0.92.
CONTRIBUTION ANALYSIS. Barr Devlin calculated the relative contribution of
PEPCO and BGE to the pro forma combined Company with respect to (i) net income,
(ii) cash flow, (iii) book value of common equity and (iv) EBIT, in each case
for fiscal 1994 and for fiscal 1995 through fiscal 1998. Although Barr Devlin
considered each of the above-mentioned contribution measures, it attributed
relatively greater weight to three of these measures (net income, book value of
common equity and EBIT) because of its judgment that they are more appropriate
indicators of relative contribution to shareholder value. These contribution
indices yielded implied exchange ratios during the Projection Period ranging
from 0.81 to 1.04, with a midpoint value of 0.92.
DISCOUNTED DIVIDEND ANALYSIS. Barr Devlin prepared and reviewed the results
of discounted dividend analyses of PEPCO and BGE based on certain financial
assumptions relating to projected dividends per share for each year in the
Projection Period prepared by PEPCO's and BGE's managements. To calculate the
value of a stock using discounted dividend analysis, the projected dividend per
share for each fiscal year together with the estimated share price as of fiscal
year-end 1999 are discounted to the present at an estimated cost of equity
capital rate. Barr Devlin estimated the fiscal year-end 1999 share price by
dividing (x) the estimated annualized fiscal year-end dividend in 1999 by (y)
the estimated cost of equity capital rate less the estimated sustainable rate of
growth in the equity capital rates ranging from 8.25% to 10.75% and sustainable
dividend growth rates ranging from 1.75% to 3.25% for PEPCO and market-derived
cost of equity capital rates ranging from 8.25% to 10.50% and sustainable
dividend growth rates ranging from 2.75% to 3.50% for BGE. This analysis
produced reference values of $17.65 to $29.58 per share in the case of PEPCO and
$20.03 to $31.46 per share in the case of BGE. The implied range of exchange
ratios resulting from these reference values was 0.81 to 1.09, with a midpoint
value of 0.92.
PRO FORMA MERGER ANALYSIS. Barr Devlin analyzed certain pro forma effects
to the shareholders of PEPCO resulting from the Merger, based on the PEPCO
Conversion Ratio, for each year in the Projection Period. This analysis, based
on the financial forecast of PEPCO and BGE's Adjusted Forecast and assuming
retention of a significant portion of the synergies forecasted, showed
substantial accretion to holders of PEPCO Common Stock in earnings per share and
modest accretion in dividends per share.
Barr Devlin was selected as PEPCO's financial advisor because Barr Devlin
and principals of Barr Devlin have a long history of association in the
investment banking and electric and gas utility industries. Barr Devlin is a
privately held investment banking firm specializing in financial, strategic and
merger advisory services to the electric and gas utility industries, the energy
industry and selected other industries. In this capacity, Barr Devlin and
principals of Barr Devlin have been involved as advisors in numerous
transactions and advisory assignments in the electric, gas and energy industries
and are constantly engaged in the valuation of businesses and securities in
those industries.
Pursuant to the terms of Barr Devlin's engagement, PEPCO has agreed to pay
Barr Devlin for its services in connection with the Merger (i) a financial
advisory retainer fee of $50,000 per quarter (which is the same retainer fee
required by a 1994 letter agreement between PEPCO and Barr Devlin for ongoing
financial services), (ii) financial advisory progress payments of $500,000 per
quarter, commencing on execution of the Merger Agreement; and (iii) a
transaction fee based on the aggregate consideration to be received by PEPCO and
holders of PEPCO Common Stock in connection with the Merger on the Closing Date,
ranging from 0.41% of such aggregate consideration (for a transaction
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with an aggregate consideration of $2,000,000,000) to 0.35% of such aggregate
consideration (for a transaction with an aggregate consideration of
$4,000,000,000). All retainer fees payable during the term of the engagement,
all financial advisory progress fees and an additional $100,000 would be
credited against any transaction fee payable to Barr Devlin. PEPCO has agreed to
reimburse Barr Devlin for its out-of-pocket expenses, including fees and
expenses of legal counsel and other advisors engaged with the consent of PEPCO
and to indemnify Barr Devlin against certain liabilities, including liabilities
under the federal securities laws, relating to or arising out of its engagement.
Barr Devlin has rendered from time to time various investment banking and
other financial advisory services to PEPCO. Since January 1, 1994, pursuant to
the arrangements referred to in clause (i) of the preceding paragraph, Barr
Devlin has earned compensation from PEPCO with respect to such services of
approximately $100,000 (excluding compensation with respect to its services
related to the Merger).
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Boards of Directors of BGE and
PEPCO with respect to the Merger, shareholders should be aware that certain
members of the Boards of Directors and management of BGE and PEPCO have certain
interests in the Merger that are not shared by the shareholders of BGE and PEPCO
generally. The Boards of Directors of BGE and PEPCO were aware of these
respective interests when they approved the Merger Agreement.
BOARD OF DIRECTORS. As provided in the Merger Agreement, it is intended
that, at the Effective Time, the Company Board will consist of 16 directors,
composed of nine persons designated by BGE, including Christian H. Poindexter
and Edward A. Crooke and seven persons designated by PEPCO, including Edward F.
Mitchell and John M. Derrick, Jr. See "The Company Following the Merger --
Management of the Company". To date, neither BGE nor PEPCO has determined the
other individuals who will be designated to serve as directors of the Company at
the Effective Time.
COMPANY EMPLOYMENT AGREEMENTS. Pursuant to the Merger Agreement, each of
Messrs. Mitchell, Poindexter, Crooke and Derrick have entered into Company
Employment Agreements attached hereto as Exhibits C1, C2, C3 and C4,
respectively, pursuant to which they will serve as directors and officers of the
Company following the Effective Time. See "The Merger -- Company Employment
Agreements."
BGE SEVERANCE AGREEMENTS AND EMPLOYEE PLANS. Following the execution of the
Merger Agreement, BGE entered into severance agreements with 14 key employees.
Neither the execution of the Merger Agreement, nor the consummation of the
Merger, will cause the acceleration, vesting or payment of any benefits under
the employee benefit plans or agreements of BGE. See "The Merger -- BGE
Severance Agreements and Employee Plans."
PEPCO SEVERANCE AGREEMENTS AND EMPLOYEE PLANS. PEPCO has entered into
severance arrangements with 13 key employees. Under certain benefit plans
maintained by PEPCO, certain executive officers and other employees of PEPCO are
entitled to the accelerated vesting of restricted stock, to the accelerated
payment of certain retirement benefits or to the continuation of certain
payments in the event the participant's employment with PEPCO is terminated
under certain circumstances following a change in control. For purposes of these
PEPCO plans, the Merger will constitute a change in control. See "The Merger --
PEPCO Severance Agreements and Employee Plans."
PEPCO EMPLOYMENT AGREEMENTS. Messrs. Wraase and Torgerson of PEPCO have
employment agreements with PEPCO, effective August 1, 1995, which will become
obligations of the Company at the Effective Time. Also, PEPCO and H. Lowell
Davis entered into an agreement effective August 1, 1995 that will be binding on
the Company and provides for the payment of certain benefits during his
employment and upon his retirement at any time on or before May 1, 1997. See
"The Merger -- PEPCO Employment Agreements."
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INDEMNIFICATION. Pursuant to the Merger Agreement, to the extent, if any,
not provided by an existing right of indemnification or other agreement or
policy, from and after the Effective Time, the Company is required, to the
fullest extent not prohibited by applicable law, to indemnify, defend and hold
harmless any person who was a director, officer or employee of BGE and PEPCO or
any of their respective subsidiaries against (i) all losses, expenses (including
reasonable attorneys' fees and expenses), claims, damages, costs, liabilities,
judgments or amounts that are paid in settlement of or in connection with any
claim, action, suit, proceeding or investigation (collectively, "Indemnified
Liabilities") (a) based in whole or in part on or arising in whole or in part
out of the fact that such person is or was a director, officer or employee of
BGE or PEPCO or any subsidiary thereof and (b) pertaining to any matter existing
or occurring at or prior to the Effective Time, whether asserted or claimed
prior to, at or after the Effective Time and (ii) all Indemnified Liabilities
based in whole or in part on, or arising in whole or in part out of, or
pertaining to the Merger Agreement or the transactions contemplated thereby. See
"The Merger Agreement -- Indemnification."
COMPANY EMPLOYMENT AGREEMENTS
The Company Employment Agreements of Messrs. Mitchell, Poindexter, Crooke
and Derrick are attached hereto as Exhibits C1, C2, C3 and C4, respectively. The
Company Employment Agreements will become effective only at the Effective Time.
The provisions of the Company Employment Agreements that relate to the executive
continuing to serve as a director on the Company Board assume that the executive
is elected to the Company Board at future Annual Meetings of the Company's
shareholders. The following summary of the material terms of the Company
Employment Agreements is qualified in its entirety by reference to the Company
Employment Agreements.
From the Effective Time until the last day of the twelfth full month
following the Effective Time, Mr. Mitchell will serve as Chairman of the
Company. Mr. Mitchell's Company Employment Agreement expires on the last day of
the twelfth full month following the Effective Time. Mr. Poindexter will serve
as Chief Executive Officer from the Effective Time until Mr. Mitchell ceases to
serve as Chairman and thereafter will serve as Chairman and Chief Executive
Officer. Mr. Poindexter's Company Employment Agreement expires on the last day
of the sixtieth full month following the Effective Time. From and after the
Effective Time, Mr. Crooke will serve as Vice Chairman. Mr. Crooke's Company
Employment Agreement expires on the last day of the sixtieth full month
following the Effective Time. From and after the Effective Time, Mr. Derrick
will serve as President and Chief Operating Officer. Mr. Derrick's Company
Employment Agreement expires on the last day of the sixtieth full month
following the Effective Time.
The Company Employment Agreements for each of Messrs. Poindexter, Crooke and
Derrick will be extended for successive one-year periods beginning on the fifth
anniversary of the Effective Time, unless the Company provides written notice to
the executive that it shall not be so extended.
Each Company Employment Agreement provides that the executive will receive
an annual base salary no less than that which is in effect immediately prior to
the Effective Time and both short-term and long-term incentive compensation. The
executive will also be entitled to participate in all retirement, supplemental
retirement and welfare benefit plans of the Company on the same basis as other
senior executives of the Company; PROVIDED, HOWEVER, that Mr. Mitchell will have
the option to waive participation in such Company plans and instead participate
in the benefit plans he participated in immediately prior to the Merger (or
equivalent plans), if such group of plans are more favorable than the benefit
plans provided by the Company. Each executive is also entitled to receive fringe
benefits available to other senior executives of the Company.
If the Company terminates the employment of the executive without cause or
the executive terminates his employment for "good reason" (defined as (i) the
assignment of duties inconsistent with the executive's stated duties or
diminishment of stated duties, (ii) the Company's failure to provide the
compensation and benefits provided for under the Company Employment Agreement,
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(iii) termination of the executive's employment other than in accordance with
the Company Employment Agreement, (iv) the failure or refusal by a successor
company to assume the Company Employment Agreement or (v) a material, unremedied
breach of the Company Employment Agreement by the Company), the Company will
continue to be obligated to provide for the compensation and benefits (excluding
fringe benefits) called for by the Company Employment Agreement through the end
of the term of the Company Employment Agreement (with incentive compensation
based on the maximum potential awards) and all unvested stock compensation will
vest immediately. In addition, the executive will be deemed to retire with full
retiree welfare benefits.
If the executive's employment is terminated by the Company for cause or by
the executive without good reason, the executive will receive his annual base
salary earned, but unpaid, plus any deferred compensation through his
termination date. If the executive dies or becomes disabled during the term of
the Company Employment Agreement, the Company will pay to the executive or his
beneficiaries or estate any portion of compensation earned but unpaid through
the date of death or disability (including previously deferred compensation and
pro-rata incentive compensation based upon the maximum potential awards and
accrued but unused vacation pay).
In the event that any payments to the executive under the Company Employment
Agreement are subject to the excise tax on excess parachute payments, the
Company will pay an additional amount to the executive, such that after payment
of all income and excise taxes on the additional amount, the executive will
retain a sufficient amount to pay the excise tax.
Mr. Mitchell's Company Employment Agreement provides that, in the event of
the termination of his employment for any reason, benefits identical to the
retirement, death and continuing health benefits provided in and on the same
terms as set forth in his current employment agreement with PEPCO, will be
provided to Mr. Mitchell, his surviving spouse, or other beneficiary, as
applicable.
BGE SEVERANCE AGREEMENTS AND EMPLOYEE PLANS
Effective as of December 6, 1995, BGE entered into BGE Severance Agreements
with 14 key employees: Bruce M. Ambler, Thomas F. Brady, David A. Brune, Herbert
D. Coss, Jr., George C. Creel, Robert E. Denton, Carserlo Doyle, Jon M. Files,
Sharon S. Hostetter, Ronald W. Lowman, G. Dowell Schwartz, Jr., Charles W.
Shivery, Joseph A. Tiernan and Stephen F. Wood. At the Effective Time, the BGE
Severance Agreements will become binding obligations of the Company. The BGE
Severance Agreements expire on the last day of the 24th calendar month following
the Effective Time.
Each of the BGE Severance Agreements provides for the payment of severance
benefits to the executive if, within 24 calendar months following the Effective
Time, any of the following events occur: (i) termination of the employment of
the executive by BGE or a successor company, other than for cause, death,
disability or the executive's voluntary termination of employment without "good
reason," defined as the assignment of duties materially inconsistent with the
executive's duties prior to the Effective Time or a material reduction or
alteration of his duties, a reduction in the executive's salary or a relocation
of the executive by more than 50 miles; (ii) termination of employment by the
executive for "good reason"; (iii) the failure or refusal by a successor company
to assume BGE's obligations under the BGE Severance Agreement; or (iv) a
material breach of the BGE Severance Agreement by BGE (or a successor company).
In addition, the executive is entitled to severance benefits upon (i) the
termination of the executive's employment without cause after December 6, 1995,
but prior to the Effective Time or (ii) the occurrence of an event, after
December 6, 1995, but prior to the Effective Time, that constitutes "good
reason", followed by the executive's voluntary termination of employment within
24 months after the Effective Time.
The severance benefit provided under the BGE Severance Agreement depends on
the executive's age and years of service with BGE or a successor company at the
time he is entitled to severance benefits. For an executive who has not attained
either age 55 with 20 years of service or age 60 with one year of service, the
severance benefit consists of: (i) an amount in cash equal to 2.25 times the
executive's annual base salary and average annual incentive award (average of
the two highest annual
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incentive awards paid in the last five years) paid in 24 equal monthly
installments, (ii) medical and dental benefits for a 36 month period, as if the
executive remained an employee of BGE or a successor company and (iii) the event
giving rise to an entitlement to severance benefits will not constitute a
termination of the executive's Split Dollar Agreement with BGE (or a successor
split dollar agreement) and the executive shall be deemed to have retired upon
such termination of employment for purposes of the Split Dollar Agreement.
For an executive who has attained either age 55 with 20 years of service or
age 60 with one year of service, the severance benefit consists of: (i) an
amount in cash equal to two times the executive's annual base salary and average
annual incentive award (average of the two highest annual incentive awards paid
in the last five years), paid in 24 equal monthly installments, (ii) unreduced
supplemental retirement benefits under the BGE Executive Benefits Plan (or a
successor plan), (iii) medical and dental benefits on the same basis and on the
same terms as any retiree who has attained age 65 with the greater of 20 years
or actual years of service and (iv) the executive will be treated as having
retired at the request of BGE (or a successor company) for purposes of all of
the BGE benefit plans (or successor benefit plans).
If the foregoing benefits, when taken together with any other payments to
the executive, result in the imposition of the excise tax on parachute payments
and the loss of a tax deduction to BGE (or a successor company), and the net
after-tax benefits to the executive attributable to the severance payment would
not exceed by $10,000 or more the net after-tax benefits accruing to the
executive if he was paid the maximum amount that would not trigger the excise
tax, then the severance benefits and benefits payable under other plans will be
reduced to the maximum amount that would not trigger the excise tax.
If the employment of all executives with BGE Severance Agreements had been
terminated as of December 31, 1995 under circumstances giving rise to an
entitlement to benefits thereunder, the aggregate value of such benefits would
have been approximately $8,735,583 for BGE executives, including the following
approximate amounts for the participating executive officers of BGE: Bruce M.
Ambler -- $993,909; Thomas F. Brady -- $555,108; David A. Brune -- $693,527;
Herbert D. Cross, Jr. -- $584,808; George C. Creel -- $832,000; Robert E. Denton
- -- $633,838; Carserlo Doyle -- $483,866; Jon M. Files -- $633,981; Sharon S.
Hostetter -- $445,101; Ronald W. Lowman -- $503,034; G. Dowell Schwartz, Jr. --
$674,605; Charles W. Shivery -- $616,292; Joseph A. Tiernan -- $829,899; and
Stephen F. Wood -- $455,615.
Certain BGE employee benefit plans contain provisions which accelerate the
vesting, exercise and/or payment of benefits in the event of termination of the
participant's employment under certain circumstances following a change in
control of BGE. For purposes of such plans, the Merger will not constitute a
change in control of BGE. Accordingly the Merger will not result in the
acceleration of vesting, exercise or payment of benefits under the change in
control provisions of such plans.
PEPCO SEVERANCE AGREEMENTS AND EMPLOYEE PLANS
Effective as of either August 1, 1995 or November 1, 1995, PEPCO entered
into PEPCO Severance Agreements with 13 key employees: Iraline G. Barnes, Earl
K. Chism, Kirk J. Emge, Susann D. Felton, William R. Gee, Jr., Robert C.
Grantley, Anthony J. Kamerick, Anthony S. Macerollo, Eddie R. Mayberry, John D.
McCallum, James S. Potts, William J. Sim and Andrew W. Williams. At the
Effective Time, the PEPCO Severance Agreements will become binding obligations
of the Company. Each agreement has an initial three-year term, and automatically
extends for successive three-year periods thereafter, unless the Chief Executive
Officer of PEPCO (or a successor company) has given notice that it shall not be
so extended.
Each of the PEPCO Severance Agreements provides for the payment of severance
benefits to the executive if, within two years following a change in control of
PEPCO, any of the following events occur: (i) termination of the employment of
the executive by PEPCO (or a successor company), other than for cause, death,
disability or voluntary normal retirement; (ii) termination of employment by
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the executive for "good reason", defined as the assignment of duties materially
inconsistent with the executive's duties prior to a change in control or a
material reduction or alteration of his duties, a reduction in the executive's
salary or relocation of the executive by more than 50 miles; (iii) the failure
or refusal by a successor company to assume PEPCO's obligations under the
agreement; or (iv) a material breach of the agreement by PEPCO (or a successor
company). In addition, the executive is entitled to severance benefits upon (i)
the termination of the executive's employment without cause "in contemplation
of," but prior to, a change in control or (ii) the occurrence of an event, "in
contemplation of," but prior to a change in control, constituting "good reason"
followed by the executive's voluntary termination of employment within two years
after a change in control. For purposes of the PEPCO Severance Agreements, (i)
the approval of the Merger Agreement by the PEPCO Board constitutes an act "in
contemplation of" a change in control and (ii) the Merger would constitute a
change in control.
The severance benefits consist of: (i) an amount in cash equal to two times
the executive's annual base salary (in effect at the time of termination) and
annual bonus (average of annual target bonuses during the three years prior to
termination) paid in 24 equal monthly installments and (ii) certain welfare
benefits for a three year period after the date of termination. If the foregoing
benefits, when taken together with any other payments to the executive, result
in the imposition of the excise tax on excess parachute payments and the loss of
a tax deduction to PEPCO (or a successor company), and the net after-tax
benefits to the executive attributable to the severance payment would not exceed
by $10,000 or more the net after-tax benefits accruing to the executive if he
was paid the maximum amount that would not trigger the excise tax, then the
severance benefits and benefits payable under other plans will be reduced to the
maximum amount that would not trigger the excise tax.
If the employment of all executives with PEPCO Severance Agreements had been
terminated as of December 31, 1995 under circumstances giving rise to an
entitlement to benefits thereunder, the aggregate value of such benefits would
have been approximately $4,814,080 for PEPCO executives, including the following
approximate amounts for the participating executive officers of PEPCO: Iraline
G. Barnes -- $392,145; Earl K. Chism -- $358,623; Kirk J. Emge -- $386,753;
Susann D. Felton -- $309,284; William R. Gee, Jr. -- $334,943; Robert C.
Grantley -- $378,250; Anthony J. Kamerick --$346,625; Anthony S. Macerollo --
$403,753; Eddie R. Mayberry -- $334,794; John D. McCallum -- $384,528; James S.
Potts -- $323,361; William J. Sim -- $427,168; and Andrew W. Williams --
$433,848.
Under various employee benefit plans of PEPCO, the Merger will constitute a
change of control, which will entitle participating employees to the vesting of
certain benefits if their employment is terminated following the Merger. Under
the PEPCO LTIP certain executive officers and other executives will be entitled
to the accelerated vesting of shares of restricted stock. Under the PEPCO
Supplemental Executive Retirement Plan and the PEPCO Executive Performance
Supplemental Retirement Plan certain executive officers will be entitled to the
accelerated payment of certain retirement benefits. Under the PEPCO Executive
Split Dollar Program certain executive officers and other employees will be
entitled to the continuation of premium payments. If the employment of such
executive officers and other employees of PEPCO who are entitled to benefits
under such plans had been terminated on December 31, 1995, under circumstances
giving rise to an entitlement to benefits thereunder, the estimated aggregate
value of such benefits would have been approximately $1,498,628, including the
following approximate amounts that would be payable to the participating PEPCO
executive officers: Iraline G. Barnes -- $64,946; Earl K. Chism -- $55,633; Kirk
J. Emge -- $82,697; Susann D. Felton -- $72,586; William R. Gee, Jr. --
$101,135; Robert C. Grantley -- $108,337; Anthony J. Kamerick -- $90,457;
Anthony S. Macerollo -- $169,505; Eddie R. Mayberry -- $55,288; John D. McCallum
- -- $86,133; James S. Potts -- $76,184; William J. Sim -- $211,741; and Andrew W.
Williams -- $205,823. In addition, (i) the Merger will trigger the funding of a
trust established for the payment of benefits that are payable under the PEPCO
Supplemental Executive Retirement Plan, the PEPCO Director and Executive
Deferred Compensation Plan and (ii) a payment
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default following the Merger will trigger the funding of a second trust
established for the payment of benefits payable under the PEPCO Supplemental
Retirement Program, the PEPCO Executive Performance Supplemental Retirement Plan
and the PEPCO Executive Split Dollar Insurance Program.
PEPCO EMPLOYMENT AGREEMENTS
Effective August 1, 1995, PEPCO entered into PEPCO Employment Agreements
with Messrs. Wraase and Torgerson, which upon the Effective Time will be binding
upon the Company. Each of the agreements provides for the employment of the
individuals through August 1, 2000, and automatically extends for successive
periods of five years thereafter unless PEPCO (or a successor company) or the
executive has given one year's prior notice that it shall not be so extended. At
the same time, Mr. Derrick entered into a similar agreement which would be
superseded by his Company Employment Agreement.
Each of the PEPCO Employment Agreements provides that the executive will
receive an annual base salary in an amount not less than his salary in effect as
of August 1, 1995, and incentive compensation as determined by PEPCO's Board. In
addition, the executive will participate in retirement and welfare plans and
receive fringe benefits, on the same basis as other senior executives. The PEPCO
Employment Agreements provide also for certain payments and benefits to the
executive if the executive's employment is terminated prior to the expiration of
the agreement: (i) by PEPCO other than for cause, death or disability or (ii) by
the executive if his salary is reduced, the executive is not in good faith
considered for incentive awards, PEPCO fails to provide the executive with
retirement, welfare and fringe benefits provided to other similarly situated
executives, the executive is required to relocate by more than 50 miles from
Washington, D.C., or he is demoted from a senior management position.
If the executive's employment is terminated under circumstances described in
either (i) or (ii) above, the executive is entitled to receive a lump sum
payment equal to the greater of: (i) the present value of the executive's annual
base salary and annual cash incentive awards through the remainder of the
Agreement (not to exceed three years) or (ii) two times the executive's annual
salary and target annual incentive award as in effect at the time of
termination. Annual base salary will be calculated at the highest level in
effect, and annual cash incentive awards will be calculated at the highest
annual incentive target award in effect, during the three-year period preceding
termination. The lump sum payment will also include (i) any earned, but unpaid
annual cash incentive awards for the year prior to his termination of employment
and (ii) a pro-rated portion of any unearned, annual cash incentive award for
the year in which his employment terminates, based on the highest annual target
award in effect during the three-year period preceding termination, except as
otherwise determined by the PEPCO Board. In addition, any restricted stock that
would have vested through the term of the Agreement, will vest on the date of
termination. If PEPCO has agreed to award performance-based restricted stock at
the end of a performance period subject to the achievement performance goals,
and the date such restricted stock is to vest falls within the term of the
Agreement, the restricted stock will be awarded at the end of the performance
period if and to the extent the performance goals are met. The executive also
will receive the greater of (i) the supplemental retirement benefits provided
under the PEPCO Supplemental Executive Retirement Plan, PEPCO Executive
Performance Supplemental Retirement Plan and PEPCO Supplemental Benefit Plan and
(ii) the difference between (a) the amount the executive would have been
entitled to receive under the PEPCO General Retirement Plan and the PEPCO
Supplemental Benefit Plan determined as if the executive had attained 55 years
of age and completed 30 years of service immediately prior to termination and
(b) the actual benefit accrued under the PEPCO General Retirement Plan and the
PEPCO Supplemental Benefit Plan immediately prior to termination. PEPCO will
also continue to pay premiums under the executive's split dollar life insurance
policy for the lesser of 10 years from the termination date or until the
executive's roll-out qualification date and the executive will be entitled to
welfare benefits available to other employees of PEPCO who retire at age 55 with
at least 30 years of service.
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H. Lowell Davis, the Vice Chairman of PEPCO, entered into an agreement
effective August 1, 1995, pursuant to which he will continue to be employed
through April 30, 1997, in his current capacity until April 30, 1996 and
thereafter as a consultant to PEPCO and as a member of the PEPCO Board. The
agreement provides for certain benefits to be paid during his employment and
upon his retirement at any time on or before May 1, 1997. This agreement will
become binding on the Company at the Effective Time.
The agreement with Mr. Davis provides for an annual base salary no less than
that in effect on August 1, 1995. The agreement provides that Mr. Davis'
employment may be terminated prior to May 1, 1997 only (i) for cause or (ii)
upon a determination by the employer that he has become totally and permanently
disabled. In the event Mr. Davis retires on or before May 1, 1997, Mr. Davis is
entitled to receive retirement benefits determined by PEPCO pursuant to the
PEPCO General Retirement Plan, PEPCO Supplemental Benefit Plan, PEPCO Executive
Performance Supplemental Retirement Plan and the PEPCO Supplemental Executive
Retirement Plans based on amounts payable or paid to Mr. Davis without reduction
for deferrals under any deferred compensation arrangement and incentive awards
based on the greater of (i) the actual incentive award amounts payable to Mr.
Davis or (ii) the incentive award amounts which would be payable resulting from
application of the target annual award levels specified in the PEPCO Executive
Incentive Compensation Plan guidelines for the position of Vice Chairman. In
addition, payments to Mr. Davis under the PEPCO Director and Executive Deferred
Compensation Plan shall commence the month following his 65th birthday and the
rollout under the PEPCO Executive Split Dollar Insurance Plan will occur upon
Mr. Davis' attainment of age 65, notwithstanding his termination or retirement
prior to age 65.
DIVIDEND REINVESTMENT PLANS
At the Effective Time, outstanding shares of BGE Common Stock held by the
BGE Dividend Reinvestment and Stock Purchase Plan and outstanding shares of
PEPCO Common Stock held by the PEPCO Shareholder Dividend Reinvestment Plan will
be converted to shares of Company Common Stock at the BGE Conversion Ratio and
the PEPCO Conversion Ratio, respectively. After the Effective Time, the Company
expects to adopt a Dividend Reinvestment Plan for its shareholders.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The Merger is intended to qualify as a tax-free reorganization under Section
368(a) of the Code. A condition precedent to the obligation of BGE to effect the
Merger is the receipt from Winthrop, Stimson, Putnam & Roberts of an opinion of
counsel, which opinion may be based on appropriate representations of BGE, PEPCO
and the Company, in form and substance reasonably satisfactory to such counsel,
to the effect that the Merger will be a tax-free reorganization under Section
368(a) of the Code. A condition precedent to the obligation of PEPCO to effect
the Merger is the receipt from LeBoeuf, Lamb, Greene & MacRae, L.L.P., of an
opinion of counsel, which opinion may be based on appropriate representations of
BGE, PEPCO and the Company, in form and substance reasonably satisfactory to
such counsel, to the effect that the Merger will be a tax-free reorganization
under Section 368(a) of the Code. Accordingly, under current law, assuming that
the Merger and related transactions will take place as described in the Merger
Agreement:
(i) BGE, PEPCO and the Company will each be a party to a reorganization
within the meaning of Section 368(b) of the Code;
(ii) no gain or loss will be recognized by BGE, PEPCO or the Company in
the Merger;
(iii) no gain or loss will be recognized by the shareholders of BGE or
PEPCO upon their receipt of (a) Company Common Stock in exchange for BGE
Common Stock or PEPCO Common Stock, (b) Company Preferred Stock in exchange
for BGE Preferred Stock or PEPCO Preferred Stock or (c) Company Preference
Stock in exchange for BGE Preference Stock, except that a holder of PEPCO
Common Stock who receives cash in lieu of a fractional share of Company
Common Stock will be treated as having exchanged such fractional share for
cash and, therefore,
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will recognize gain or loss equal to the difference between the amount of
cash received and the tax basis allocated to such fractional share (which
gain or loss will be capital gain or loss if such share is held as a capital
asset at the Effective Time);
(iv) the tax basis of the shares of capital stock of the Company received
by the shareholders of BGE or PEPCO will be the same as the tax basis of
their shares of capital stock of BGE or PEPCO exchanged therefor (reduced by
any basis allocable to a fractional share of Company Common Stock for which
cash is received); and
(v) the holding period of the shares of capital stock of the Company in
the hands of the shareholders of BGE or PEPCO will include the holding
period of their shares of BGE or PEPCO capital stock exchanged therefor,
provided such shares of BGE or PEPCO capital stock are held as capital
assets at the Effective Time.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. IT
DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE MERGER. THE
DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING AND
PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND
COURT DECISIONS. THE OPINIONS OF COUNSEL DESCRIBED ABOVE ARE NOT BINDING UPON
THE INTERNAL REVENUE SERVICE AND NO RULINGS OF THE INTERNAL REVENUE SERVICE WILL
BE SOUGHT OR OBTAINED. THERE IS NO ASSURANCE THAT THE INTERNAL REVENUE SERVICE
WILL AGREE WITH THE OPINIONS DESCRIBED ABOVE. ALL OF THE FOREGOING IS SUBJECT TO
CHANGE AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS
DISCUSSION. THIS DISCUSSION ALSO DOES NOT APPLY TO BGE OR PEPCO SHAREHOLDERS WHO
EXERCISE DISSENTERS' RIGHTS. SUCH SHAREHOLDERS SHOULD BE AWARE THAT RECEIPT OF
CASH IN EXCHANGE FOR SHARES OF BGE OR PEPCO CAPITAL STOCK IS A TAXABLE EXCHANGE
THAT MAY RESULT IN RECOGNITION OF GAIN OR LOSS. EACH SHAREHOLDER SHOULD CONSULT
HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO HIM
OR HER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND
FOREIGN TAX LAWS.
ACCOUNTING TREATMENT
The Merger is designed to qualify as a "pooling of interests" for accounting
and financial reporting purposes. Under this method of accounting, the recorded
assets and liabilities of BGE, PEPCO and their respective subsidiaries will be
carried forward to the consolidated financial statements of the Company at their
recorded amounts; income of the Company will include consolidated income of BGE
and PEPCO for the entire fiscal year in which the Merger occurs; and the
reported income of the separate corporations for prior periods will be combined
and restated as income of the Company. Both parties have agreed not to take, or
permit any of their respective subsidiaries to take, any actions that would, or
would be reasonably likely to, prevent the Company from accounting for the
Merger as a pooling of interests in accordance with generally accepted
accounting principles and applicable SEC regulations. If any impediments to
accounting for the business combination as a pooling of interests are discovered
at any time, the parties have agreed to eliminate such impediments. The receipt
by PEPCO of a letter from Price Waterhouse LLP, independent public accountants
for PEPCO and by BGE of a letter from Coopers & Lybrand, LLP, independent public
accountants for BGE, in each case stating that the Merger will qualify as a
pooling of interests transaction under generally accepted accounting principles
and applicable SEC regulations, is a condition precedent to consummation of the
Merger. Representatives of Price Waterhouse LLP are expected to be present at
the PEPCO Meeting and representatives of Coopers & Lybrand, LLP are expected to
be present at the BGE Meeting and will be available to respond to appropriate
questions. See "The Merger Agreement -- Conditions to the Merger" and "Unaudited
Pro Forma Combined Financial Information."
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STOCK EXCHANGE LISTING OF COMPANY CAPITAL STOCK
The Company will apply for the listing of Company Common Stock on the NYSE,
the Chicago Stock Exchange and the Pacific Stock Exchange. The Company will also
apply to list the Class A Preferred Stock, Series B 4 1/2%, Cumulative, $100 par
value, the Class B Preferred Stock $3.37 Series of 1987, $50 par value and the
Class B Preferred Stock $3.89 Series of 1991, $50 par value on the NYSE. The
Company will apply to list the Class A Preferred Stock, $100 par value, Series C
4% and Series D 5.40% and the Preference Stock, $100 par value, 7.78%, 1973
Series, 7.50%, 1986 Series, 6.75%, 1987 Series, on the Philadelphia Stock
Exchange. Approval of the listing on the NYSE of the shares of Company Common
Stock, issuable in the Merger, upon official notice of issuance, is a condition
precedent to the consummation of the Merger. So long as BGE and PEPCO continue
to meet the requirements of the NYSE, PEPCO Common Stock and BGE Common Stock,
respectively, will continue to be listed on the NYSE until the Effective Time.
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of Company Common Stock, Company Preferred Stock and Company
Preference Stock received by BGE and PEPCO shareholders in the Merger will be
freely transferable, except that shares of Company capital stock received by
persons who are deemed to be "affiliates" (as such term is defined under the
Securities Act) of PEPCO or BGE prior to the Merger may be resold by them only
in transactions permitted by the resale provisions of Rule 145 promulgated under
the Securities Act (or Rule 144 in the case of such persons who become
affiliates of the Company upon consummation of the Merger) or as otherwise may
be permitted under the Securities Act. The Merger Agreement requires each of BGE
and PEPCO to use its best efforts to cause each of its affiliates to execute a
written agreement to the effect that such affiliate will not offer or sell or
otherwise dispose of any of the shares of Company Common Stock issued to such
affiliate in the Merger in violation of the Securities Act or the rules and
regulations promulgated by the SEC thereunder.
This Joint Proxy Statement/Prospectus does not cover any resales of the
securities to be received by persons who are affiliates of BGE and PEPCO prior
to the consummation of the Merger or affiliates of the Company after
consummation of the Merger.
DISSENTERS' RIGHTS
Maryland law entitles holders of certain series of BGE Preferred and
Preference Stock (those not listed on a national securities exchange) and
District of Columbia and Virginia law entitle holders of PEPCO Common Stock and
PEPCO Preferred Stock, who object to the Merger and who follow the procedures
prescribed by the applicable statute, to receive cash equal to the "fair value"
of such shareholder's shares in lieu of receiving the consideration provided for
in the Merger Agreement. Set forth below is a summary of the procedures relating
to the exercise of such dissenters' rights. This summary does not purport to be
a complete statement of dissenters' rights and is qualified in its entirety by
reference to Sections 3-202 to 3-213 of the MGCL, 29-373 of the DCBCA and
13.1-729 to 13.1-741 of the VSCA, which are reproduced in full as Exhibits G1,
G2 and G3, respectively, attached to this Joint Proxy Statement/Prospectus and
to any amendments to such provisions as may be adopted after the date of this
Joint Proxy Statement/Prospectus.
ANY BGE OR PEPCO SHAREHOLDER CONTEMPLATING THE POSSIBILITY OF DISSENTING
FROM THE MERGER SHOULD CAREFULLY REVIEW THE TEXT OF EXHIBIT G1, IN THE CASE OF
BGE SHAREHOLDERS AND G2 AND G3, IN THE CASE OF PEPCO SHAREHOLDERS (PARTICULARLY
THE SPECIFIED PROCEDURAL STEPS REQUIRED TO PERFECT DISSENTERS' RIGHTS, WHICH ARE
COMPLEX) AND SHOULD ALSO CONSULT SUCH SHAREHOLDER'S LEGAL COUNSEL. SUCH RIGHTS
WILL BE LOST IF THE PROCEDURAL REQUIREMENTS OF THE APPLICABLE STATUTE OR
STATUTES ARE NOT FULLY AND PRECISELY SATISFIED.
BGE SHAREHOLDERS. Sections 3-202 to 3-213 of the MGCL provide dissenters'
rights for holders of certain series of BGE Preferred Stock and BGE Preference
Stock (those not listed on a national stock exchange) who object to the Merger
and meet the requisite statutory requirements contained therein. Under the MGCL,
any holder of BGE Preferred Stock or BGE Preference Stock of a series not
47
<PAGE>
listed on a national securities exchange who (i) files with the corporation a
written objection to the Merger, at or before the shareholders' meeting at which
the transaction will be considered, (ii) does not vote in favor of the
transaction and (iii) within 20 days after the Maryland Department of State
accepts the Articles of Merger for record, makes a written demand on the Company
for payment for his stock, stating the number and class of shares for which he
demands payment, is entitled, if the Merger is approved and effected, to receive
a cash payment of the fair value of such shares.
The MGCL does not give holders of BGE Common Stock the right to dissent from
and obtain payment of the fair value of their shares in connection with the
matters to be acted upon at the BGE Meeting. The MGCL also does not give holders
of series of BGE Preferred Stock or BGE Preference Stock that are listed on
national securities exchanges such rights.
Any written notice by a holder of BGE Preferred Stock or BGE Preference
Stock of a series not listed on a national securities exchange of intent to
demand payment for such shareholder's shares must be filed with BGE at the BGE
Meeting or at Gas and Electric Building, Charles Center, Baltimore, Maryland
21201, attention: Charles W. Shivery, Vice President, Chief Financial Officer
and Corporate Secretary, prior to the vote on the Merger at the BGE Meeting. A
shareholder who votes for the Merger will have no dissenters' rights. A
shareholder who does not satisfy each of the requirements of Sections 3-202 to
3-213 of the MGCL is not entitled to payment for such shareholder's shares of
BGE Preferred Stock or BGE Preference Stock under the dissenters' rights
provisions of the MGCL and will be bound by the terms of the Merger Agreement.
Under MGCL Section 3-207, the Company promptly will notify each objecting
shareholder in writing of the date the Articles of Merger are accepted for
record by the Maryland Department of State. The Company also may send a written
offer to pay the objecting shareholder what it considers to be the fair value of
his stock. Each offer shall be accompanied by: a balance sheet as of a date not
more than six months before the date of the offer; a profit and loss statement
for the 12 months ending on the date of the balance sheet; and any other
information the Company considers pertinent.
The Company is obligated to deliver the notice and offer to each objecting
shareholder personally or mail the notice and offer to him by registered mail to
the address the objecting shareholder gives the Company in writing, or, if none,
at his address as it appears on the records of the corporation which issued the
stock.
Under MGCL Section 3-208, within 50 days after the Maryland Department of
State accepts the articles for record, the objecting shareholder who has not
received payment for his stock may petition a court in equity in Anne Arundel
County, the county where the principal office of the Company is located, for an
appraisal to determine the fair value of the stock.
PEPCO SHAREHOLDERS. Dissenters' rights are available to holders of PEPCO
Common Stock and PEPCO Preferred Stock under applicable District of Columbia and
Virginia law, as follows.
VIRGINIA. The VSCA provides dissenters' rights to holders of shares of
those series of PEPCO Preferred Stock that are not listed on the NYSE and are
held by fewer than 2,000 shareholders of record who object to the Merger and
follow the procedures required to perfect such rights set forth in Article 15 of
the VSCA, which governs dissenters' rights. A beneficial holder of such PEPCO
Preferred Stock as of the PEPCO Record Date may assert dissenters' rights with
respect to shares held on his or her behalf only if he or she submits to PEPCO
the recordholder's written consent to the dissent not later than the time the
beneficial holder asserts such rights. A recordholder of PEPCO Preferred Stock
as of the PEPCO Record Date may assert dissenters' rights with respect to fewer
than all shares registered in its name if it notifies PEPCO in writing of the
name and address of each beneficial owner of shares on whose behalf it is
asserting dissenters' rights and asserts such rights with respect to all shares
beneficially owned by such person.
In order to assert dissenters' rights, a shareholder must (i) deliver to
PEPCO prior to the vote on the Merger written notice of his intent to demand
payment for his shares if the Merger is effectuated and (ii) not vote in favor
of the Merger. Such notice of intent should be delivered to PEPCO at
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<PAGE>
1900 Pennsylvania Avenue, N.W., Washington, D.C. 20068, attention: Corporate
Secretary. A shareholder who votes for the Merger or who does not satisfy each
of these requirements is not entitled to payment for his shares under the
dissenters' rights provisions of the VSCA.
Within 10 days after the consummation of the Merger, the Company is required
to deliver to each shareholder who has asserted dissenters' rights a notice (the
"Notice") that (i) states where such shareholder's demand for payment should be
sent and where certificates for shares should be deposited, (ii) supplies a form
for demanding payment that includes the date of the first announcement to the
news media of the terms of the Merger (the "Announcement Date") and requires the
shareholder to certify whether he acquired beneficial ownership of the shares
before or after such date and (iii) sets a date by which the Company must
receive the demand for payment, which may not be more than 60 nor fewer than 30
days after the date of delivery of the Notice.
Upon receipt of the Notice, a shareholder must demand payment, certify that
he acquired his shares before or after the Announcement Date, and deposit his
shares in accordance with the terms of the Notice. A shareholder who does not
satisfy each of these requirements is not be entitled to payment for his shares
under the dissenters' rights provisions of the VSCA.
Section 13.1-737 of the VSCA provides that, except in the case of shares
acquired after the Announcement Date ("after-acquired shares"), within 30 days
after the receipt of a valid payment demand, the Company is obligated to pay the
dissenter the amount the Company estimates to be the fair value of his shares,
plus accrued interest from the Effective Time to the date of payment. "Fair
value" means the value of a dissenter's shares immediately before the
effectuation of the Merger, excluding any appreciation or depreciation in
anticipation of the Merger unless such exclusion would be inequitable. Interest
is calculated generally at the average rate then currently paid by the Company
on its principal bank loans. This payment obligation may be enforced (i) by the
circuit court in the city or county where the Company's registered office is
located or (ii) at the election of any dissenter residing or having its
principal office in Virginia, by the circuit court in the city or county where
the dissenter resides or has its principal office.
The Company may elect to withhold payment on after-acquired shares. To the
extent that the Company elects to so withhold payment, after consummating the
Merger, it is required to estimate the fair value of the shares, plus accrued
interest, and offer to pay this amount to each dissenter who agrees to accept it
in full satisfaction of his demand.
Section 13.1-738 of the VSCA provides that a dissenter may notify the
Company in writing of his own estimate of the fair value of his shares and
amount of interest due, and demand payment of his estimate less any payment made
by the Company under Section 13.1-737 or reject the Company's offer under
Section 13.1-738 and demand payment of the fair value of his shares and interest
due, if the dissenter believes that the amount paid under Section 13.1-737 or
offered under Section 13.1-738 is less than the fair value of his shares or that
the interest due is incorrectly calculated. A dissenter waives his right to
demand payment under Section 13.1-739 unless he notifies the Company of his
demand in writing within 30 days after the Company made or offered payment for
his shares. If any such demand for payment remains unsettled, the Company is
required to commence a proceeding within 60 days after receiving the payment
demand in the circuit court to determine the fair value of the shares and
accrued interest. If the Company does not commence the proceeding within the
60-day period, it is required to pay each dissenter whose demand remains
unsettled the amount demanded. In such proceeding, the dissenter is entitled to
judgment for (i) the amount, if any, by which the court finds that the fair
value of his shares plus interest, exceeds the amount paid by the Company under
Section 13.1-737 or (ii) the fair value, plus accrued interest, of his
after-acquired shares for which the Company elected to withhold payment under
Section 13.1-738.
DISTRICT OF COLUMBIA. Section 29-373 of the DCBCA provides dissenters'
rights for the holders of PEPCO Common Stock and PEPCO Preferred Stock who
object to the Merger and meet the statutory requirements contained therein. To
perfect such right, a record shareholder must (i) deliver to PEPCO written
objection to the Merger prior to or at the PEPCO meeting before the vote is
taken,
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<PAGE>
(ii) not vote in favor of the Merger and (iii) within 20 days after the
Effective Time, makes a written demand on the Company for payment of the fair
value of his or her shares as of the day prior to the date on which the vote was
taken approving the Merger. Any shareholder failing to make demand within the
20-day period will be bound by the terms of the Merger.
If within 30 days after the Effective Time the value of the shares is agreed
upon between the dissenting shareholder and the Company, payment therefor shall
be made upon surrender of the certificate or certificates representing the
shares. If within the 30-day period the dissenting shareholder and the Company
do not so agree, the dissenting shareholder may, within 60 days after the
expiration of the 30-day period, file a petition in any court of competent
jurisdiction within the District of Columbia, asking for a finding and
determination of the fair value of the shares. The dissenting shareholder shall
be entitled to judgment against the Company for the amount of the fair value as
of the day prior to the date on which the vote was taken approving the Merger,
together with interest thereon at the rate of 5% per annum to the date of the
judgment. Unless the dissenting shareholder shall file the petition within the
requisite period, the shareholder shall be bound by the terms of the Merger.
COMPANY LONG-TERM INCENTIVE PLAN
Subsequent to the execution of the Merger Agreement, BGE and PEPCO, as the
shareholders of the Company, determined that it would be in the best interests
of the Company for the Company to adopt the Company LTIP described below,
subject to shareholder approval thereof at the BGE Meeting and the PEPCO
Meeting. The Company LTIP will become effective as of the Effective Time.
COMPANY LTIP. This plan is a comprehensive stock compensation plan designed
to provide the Company with the ability to provide incentives directly linked to
the profitability of its businesses and increases in shareholder value. Like the
BGE LTIP and the PEPCO LTIP, the Company LTIP provides for the grant of
restricted stock, stock options, including incentive stock options ("ISOs") and
nonqualified stock options, stock appreciation rights ("SARs"), dividend
equivalents and performance units. The maximum number of shares of Company
common stock available for issuance under the plan is 5,500,000. The Committee
on Management of the Company Board will administer the plan and make awards
thereunder, and will have broad authority to fix the terms and conditions of
individual agreements with participants. This plan is being submitted to
shareholders of BGE and PEPCO for approval, and is described in greater detail
under "Approval of the Company Long-Term Incentive Plan" elsewhere in this Joint
Proxy Statement/Prospectus; a copy of the plan is attached as Exhibit H.
Following implementation of the Company LTIP, no further awards will be made
under the BGE LTIP or the PEPCO LTIP. Currently, no further awards can be made
under the BGE Long-Term Incentive Plan (the "BGE Pre-1995 LTIP").
ACTIONS WITH RESPECT TO EXISTING PLANS
BGE and PEPCO agreed subsequent to the execution of the Merger Agreement
that no additional awards will be made under the BGE LTIP and the PEPCO LTIP on
or after the Effective Time.
At the Effective Time, all shares of restricted stock outstanding under the
BGE LTIP and BGE Pre-1995 LTIP will be converted into shares of Company Common
Stock at the BGE Conversion Ratio. No other types of awards are outstanding
under the BGE LTIP or the BGE Pre-1995 LTIP, other than dividend equivalents on
certain restricted shares, nor does BGE have any intention to issue any type of
awards other than restricted stock and/or dividend equivalents prior to the
Effective Time. The Company will assume the obligation to honor any outstanding
awards of BGE restricted stock and the terms and conditions of such outstanding
awards will otherwise remain the same; PROVIDED, HOWEVER, that if an outstanding
restricted stock award is subject to performance based restrictions and the
performance cycle with respect to such award extends beyond the Effective Time,
the performance criteria be will be modified to take into consideration the
performance of the Company.
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The PEPCO LTIP will expire on June 30, 1996. PEPCO currently does not
contemplate the adoption of a replacement stock incentive plan prior to the
Merger. Under the PEPCO LTIP, all outstanding awards relate to shares of
restricted stock ("PEPCO Restricted Stock") and consist of (i) issued shares of
PEPCO Restricted Stock that vest on the basis of the continued employment of the
recipient or (ii) awards that entitle the participant to receive shares of PEPCO
Restricted Stock based on the achievement of preestablished performance criteria
over a three-year performance cycle (which shares upon receipt will vest over a
period of two years based on the continued employment of the recipient). In the
Merger, all outstanding shares of PEPCO Restricted Stock will convert into
shares of Company Common Stock having the same transfer restrictions, except
that, in accordance with the terms of the agreements evidencing such shares of
PEPCO Restricted Stock, if the employment of the recipient is terminated for any
reason such shares will become immediately vested. Under the Merger Agreement,
the Company will assume the obligations of PEPCO with respect to all awards that
entitle a participant to receive shares of PEPCO Restricted Stock following the
conclusion of a performance cycle that extends beyond the Effective Time, with
such modifications to the performance criteria as may be necessary to take into
account the Merger.
PEPCO maintains the PEPCO Directors Stock Compensation Plan for the Board of
Directors (the "PEPCO Directors Stock Plan") pursuant to which directors of
PEPCO may elect to receive all or a portion of the annual PEPCO Board retainer
fees in the form of either restricted or unrestricted shares of PEPCO Common
Stock. Restricted PEPCO Common Stock is subject to a three-year vesting period.
At the Effective Time, outstanding restricted PEPCO Common Stock under the PEPCO
Directors Stock Plan will be converted into shares of restricted Company Common
Stock at the PEPCO Conversion Ratio. The Company will assume all obligations
with respect to such restricted stock and the terms and conditions of such
restricted stock will otherwise remain the same.
REGULATORY MATTERS
As indicated below, consummation of the Merger is subject to numerous
regulatory approvals, which are currently anticipated to be received by the
first quarter of 1997. Set forth below is a summary of the material regulatory
requirements affecting the Merger.
STATE APPROVALS AND RELATED MATTERS
BGE is currently subject to the jurisdiction of the Maryland Commission and
the Pennsylvania Public Utility Commission (the "Pennsylvania Commission").
PEPCO is subject to the jurisdiction of the District of Columbia Public
Service Commission (the "DC Commission"), the Maryland Commission, the Virginia
State Corporation Commission (the "Virginia Commission") and the Pennsylvania
Commission.
Applications for approval of the Merger and related transactions, including
in the case of certain commissions, the issuance of the securities in connection
therewith, will be filed in the first quarter of 1996 in Maryland, the District
of Columbia, Pennsylvania and Virginia.
Assuming that the requisite regulatory approvals are obtained, the Company's
utility operations will remain subject to regulation in Maryland, the District
of Columbia, Virginia and Pennsylvania.
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
BGE is currently exempt from the registration and other requirements of the
Public Utility Holding Company Act of 1935, as amended (the "1935 Act") pursuant
to an order dated January 16, 1956 issued by the SEC, file number 31-631,
exempting BGE from the provisions of the 1935 Act applicable to BGE as a holding
company. PEPCO is not a holding company and therefore is not subject to the
registration and other requirements of the 1935 Act. The Company will be exempt
from the registration and other requirements of the 1935 Act pursuant to Section
3(a)(2) and Rule 15 of the 1935 Act.
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FEDERAL POWER ACT
Section 203 of the Federal Power Act provides that no public utility shall
sell or otherwise dispose of its jurisdictional facilities or directly or
indirectly merge or consolidate such facilities with those of any other person
or acquire any security of any other public utility without first having
obtained authorization from the FERC. The approval of the FERC is required in
order to consummate the Merger. Under Section 203 of the Federal Power Act, the
FERC will approve a merger if it finds the merger to be "consistent with the
public interest." In undertaking its review of a utility merger transaction, the
FERC normally focuses upon the competitive effects of the merger and the
benefits thereof. As promptly as practicable, the Company, BGE and PEPCO will
file a combined application with the FERC requesting that the FERC approve the
Merger under Section 203 of the Federal Power Act.
ANTITRUST CONSIDERATIONS
The HSR Act and the rules and regulations thereunder provide that certain
transactions (including the Merger) may not be consummated until certain
information has been submitted to the Antitrust Division of the Department of
Justice (the "Antitrust Division") and the Federal Trade Commission (the "FTC")
and specified HSR Act waiting period requirements have been satisfied. The
expiration or termination of the HSR Act waiting period would not preclude the
Antitrust Division or the FTC from challenging the Merger on antitrust grounds.
Neither BGE nor PEPCO believes that the Merger will violate federal antitrust
laws. If the Merger is not consummated within 12 months after the expiration or
termination of the HSR Act waiting period, BGE and PEPCO would be required to
submit new premerger notifications to the Antitrust Division and the FTC and a
new HSR Act waiting period would have to expire or be terminated before the
Merger could be consummated.
ATOMIC ENERGY ACT
BGE owns two nuclear generating units at the Calvert Cliffs Nuclear Power
Plant. As an owner, BGE has operating licenses from the NRC for the units. The
operating license for Unit One expires on July 31, 2014. The operating license
for Unit Two expires on November 30, 2016. The Atomic Energy Act provides that
such licenses or any rights thereunder may not be transferred or in any manner
disposed of, directly or indirectly, to any person through the transfer of
control unless the NRC finds that such transfer is in accordance with the Atomic
Energy Act and consents to the transfer. The Merger may constitute a transfer of
control of BGE's ownership interest in the operating licenses, which would
require approval by the NRC as an amendment to the facility operating licenses.
Pursuant to the Atomic Energy Act, BGE will seek approval for the Company from
the NRC to the full extent required for such a transfer.
Under the Merger Agreement, BGE, PEPCO and the Company have agreed to use
commercially reasonable efforts to obtain all necessary permits, consents,
approvals and governmental authorizations necessary or advisable to consummate
the transactions contemplated by the Merger Agreement. Various parties may seek
intervention in these proceedings to oppose the Merger or to have conditions
imposed upon the receipt of necessary approvals. While BGE and PEPCO believe
that they will receive the requisite regulatory approvals for the Merger, there
can be no assurance as to the timing of such approvals or the ability of such
parties to obtain such approvals on satisfactory terms or otherwise. It is a
condition to the consummation of the Merger that final orders approving the
Merger be obtained from the various federal and state governmental entities
described above on terms and conditions which would not have, or would not be
reasonably likely to have, a material adverse effect on the business,
operations, properties, assets, conditions (financial or otherwise), prospects
or results of operations of the Company. There can be no assurance that any such
approvals will not contain terms or conditions that cause such approvals to fail
to satisfy this condition to the consummation of the Merger.
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THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the Merger
Agreement, a copy of which is attached as Exhibit A and is incorporated herein
by reference. This summary is qualified in its entirety by reference to the
Merger Agreement.
THE MERGER
The Merger Agreement provides that, following the approval of the Merger
Agreement by the shareholders of BGE and PEPCO and the satisfaction or waiver of
the other conditions to the Merger, including obtaining the requisite statutory
approvals, BGE and PEPCO will be merged with and into the Company.
If the Merger Agreement is approved by the shareholders of BGE and PEPCO,
and the other conditions to the Merger are satisfied or waived, the closing of
the Merger will take place on the second business day immediately following the
date on which the last of the conditions referred to below under "The Merger
Agreement -- Conditions to the Merger" is fulfilled or waived (or, if such
second business day immediately falls on a record date for the payment of
dividends on the BGE Common Stock or PEPCO Common Stock, on the first business
day thereafter that is not a record date), or at such other time and date and
place as BGE and PEPCO shall mutually agree.
Articles of Merger shall be executed and filed by the Company with the
Secretary of State of the State of Maryland, the Office of the Mayor of the
District of Columbia and the Secretary of State of the Commonwealth of Virginia
on the date on which the Merger is closed. The Merger shall become effective at
such time as such Articles of Merger have all been so filed (the "Effective
Time").
CONSUMMATION OF THE MERGER. At the Effective Time, pursuant to the Merger
Agreement:
- Each issued and outstanding share of BGE Common Stock (except shares owned
by BGE or PEPCO or any of their respective subsidiaries, which will be
canceled and cease to exist) will be converted into the right to receive
one (the "BGE Conversion Ratio") duly authorized, validly issued, fully
paid and nonassessable share of Company Common Stock.
- Each issued and outstanding share of PEPCO Common Stock (except shares
owned by BGE or PEPCO or any of their respective subsidiaries, which will
be canceled and cease to exist, and shares of dissenting holders) will be
converted into the right to receive 0.997 (the "PEPCO Conversion Ratio")
of a duly authorized, validly issued, fully paid and nonassessable share
of Company Common Stock.
- Each issued and outstanding share of each series of BGE Preferred Stock
(other than shares owned by BGE or PEPCO or any of their respective
subsidiaries, which will be canceled and cease to exist, and shares of
dissenting holders) will be converted into the right to receive one duly
authorized, validly issued, fully paid and nonassessable share of Company
Class A Preferred Stock, of the respective series specified below, with
equal stated value and dividends and like redemption provisions and other
terms and conditions:
<TABLE>
<CAPTION>
BGE COMPANY CLASS A
PREFERRED STOCK PREFERRED STOCK
-------------------- --------------------
<S> <C>
Series B 4 1/2% Series B 4 1/2%
Series C 4% Series C 4%
Series D 5.40% Series D 5.40%
</TABLE>
- Each issued and outstanding share of each series of BGE Preference Stock
(other than shares owned by BGE or PEPCO or any of their respective
subsidiaries, which will be canceled and cease to exist, and shares of
dissenting holders) will be converted into the right to receive one
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<PAGE>
duly authorized, validly issued, fully paid and nonassessable share of
Company Preference Stock, of the respective series specified below, with
equal stated value and dividends and like redemption provisions and other
terms and conditions:
<TABLE>
<CAPTION>
BGE COMPANY CLASS A
PREFERENCE STOCK PREFERENCE STOCK
----------------------------------- ------------------------------
<S> <C>
7.50% 1986 Series 7.50% 1986 Series
6.75% 1987 Series 6.75% 1987 Series
7.80% 1989 Series 7.80% 1989 Series
8.25% 1989 Series 8.25% 1989 Series
8.625% 1990 Series 8.625% 1990 Series
7.85% 1991 Series 7.85% 1991 Series
7.78% 1973 Series 7.78% 1973 Series
7.125% 1993 Series 7.125% 1993 Series
6.97% 1993 Series 6.97% 1993 Series
6.70% 1993 Series 6.70% 1993 Series
6.99% 1995 Series 6.99% 1995 Series
</TABLE>
- Each issued and outstanding share of each series of PEPCO Preferred Stock
(other than shares owned by BGE or PEPCO or any of their respective
subsidiaries, which will be canceled and cease to exist, and shares of
dissenting holders) will be converted into the right to receive one duly
authorized, validly issued, fully paid and nonassessable share of Company
Class B Preferred Stock, of the respective series specified below, with
equal stated value and dividends, and like redemption provisions and other
terms and conditions, except as otherwise described herein regarding
current restrictions on the issuance of unsecured debt (see "Comparison of
Shareholder Rights -- Comparison of BGE, PEPCO and Company Articles and
By-Laws"):
<TABLE>
<CAPTION>
PEPCO COMPANY CLASS B
PREFERRED STOCK PREFERRED STOCK
----------------------------------- ------------------------------
<S> <C>
$2.44 Series of 1957 $2.44 Series of 1957
$2.46 Series of 1958 $2.46 Series of 1958
$2.28 Series of 1965 $2.28 Series of 1965
$2.44 Convertible Series of 1966 $2.44 Convertible Series of
1966
$3.82 Series of 1969 $3.82 Series of 1969
$3.37 Series of 1987 $3.37 Series of 1987
$3.89 Series of 1991 $3.89 Series of 1991
$3.40 Series of 1992 $3.40 Series of 1992
Auction Series A Auction Series A
</TABLE>
Each share of the capital stock of the Company issued and outstanding
immediately prior to the Effective Time will be canceled and cease to exist, and
no consideration will be delivered in exchange therefor.
Based on the capitalization of BGE and PEPCO on September 22, 1995, the BGE
Conversion Ratio and the PEPCO Conversion Ratio, holders of PEPCO Common Stock,
as a group, would have held approximately 44.5%, and holders of BGE Common
Stock, as a group, would have held approximately 55.5%, of the aggregate number
of shares of Company Common Stock that would have been outstanding if the Merger
had been consummated as of such date.
No certificates or scrip representing fractional shares of Company Common
Stock will be issued upon the delivery for exchange of certificates of PEPCO
Common Stock, and such fractional shares will not entitle the owner thereof to
vote or to any rights of a holder of Company Common Stock. As promptly as
practicable following the Effective Time, the Exchange Agent will determine the
excess of (x) the number of full shares of Company Common Stock delivered to the
Exchange Agent by the Company based on the PEPCO Conversion Ratio over (y) the
aggregate number of full shares of
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<PAGE>
Company Common Stock to be distributed to holders of PEPCO Common Stock (the
"Excess Shares"). As soon after the Effective Time as practicable, the Exchange
Agent, as agent for the holders of PEPCO Common Stock, will sell the Excess
Shares at then prevailing prices on the NYSE through one or more member firms of
the NYSE in round lots to the extent practicable. The Company will pay all
commissions, transfer taxes and other out-of-pocket transaction costs, including
the expenses and compensation of the Exchange Agent, incurred in connection with
such sale of the Excess Shares. The Exchange Agent will determine the portion of
such net proceeds to which each holder of PEPCO Common Stock is entitled, if
any.
As soon as practicable after the Effective Time, the Exchange Agent will
mail to each holder of record of a certificate or certificates that, immediately
prior to the Effective Time, represented outstanding shares of BGE Common Stock,
BGE Preferred Stock, BGE Preference Stock, PEPCO Common Stock or PEPCO Preferred
Stock (collectively, the "Certificates") that were converted (collectively, the
"Converted Shares") into the right to receive shares of Company Common Stock,
Company Preferred Stock or Company Preference Stock (collectively, the "Company
Shares") as described above, a form of letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to any
Certificate shall pass, only upon actual delivery of such Certificate to the
Exchange Agent) including instructions for effecting the surrender of
Certificates in exchange for certificates representing Company Shares.
SHAREHOLDERS OF BGE AND PEPCO SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE INSTRUCTIONS FROM THE EXCHANGE AGENT.
Upon surrender of a Certificate to the Exchange Agent (or to such other
agent or agents as may be appointed by agreement of BGE and PEPCO), together
with a duly executed letter of transmittal and such other documents as the
Exchange Agent shall require, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing the number of whole
Company Shares that such holder has the right to receive under the Merger
Agreement. Until surrendered, each Certificate shall be deemed at any time after
the Effective Time to represent only the right to receive upon such surrender a
certificate representing Company Shares and cash in lieu of any fractional
shares of Company Common Stock.
No dividends or other distributions declared or made after the Effective
Time with respect to shares of Company Common Stock with a record date after the
Effective Time will be paid to the holder of any unsurrendered Certificate with
respect to the Company Shares represented thereby, and no cash payment in lieu
of fractional shares shall be made to any such holder, until such Certificate
shall be surrendered. After such surrender, subject to applicable law, there
will be paid to such holder, without interest, the unpaid dividends and
distributions, and any cash payment in lieu of a fractional share, to which such
holder is entitled.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties by
each of BGE and PEPCO relating to, among other things: (i) their respective
organization and qualification, the organization and qualification of their
respective subsidiaries and similar corporate matters; (ii) their respective
capital structures; (iii) authorization, execution, delivery, performance and
enforceability of the Merger Agreement and related matters; (iv) required
regulatory and statutory approvals; (v) compliance with applicable laws and
agreements; (vi) their reports and financial statements filed with governmental
authorities and the accuracy of information contained therein; (vii) the absence
of material adverse changes and undisclosed liabilities; (viii) litigation
matters; (ix) the accuracy of information supplied thereby for use in the
Registration Statement, of which this Joint Proxy Statement/Prospectus forms a
part, filed by the Company in connection with the issuance of Company Shares;
(x) tax matters; (xi) employee matters; (xii) environmental, health and safety
matters; (xiii) the utility regulatory status of BGE and PEPCO and their
respective subsidiaries; (xiv) the votes of the shareholders thereof required to
approve the Merger Agreement; (xv) accounting matters;
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<PAGE>
(xvi) the applicability of certain provisions of Maryland, District of Columbia
and Virginia, law relating to changes in control; (xvii) fairness opinions of
Goldman Sachs and Barr Devlin; (xviii) insurance matters; and (xix) ownership
thereby of the other's common stock.
CERTAIN COVENANTS
BGE and PEPCO have each agreed that, except as permitted under the Merger
Agreement or as otherwise consented to in writing by the other, it will (and
will cause each of its subsidiaries to): (i) conduct its business in the
ordinary course substantially as previously conducted and use commercially
reasonable efforts to preserve specified arrangements and, subject to prudent
management of workforce needs and ongoing programs currently in force, keep
available the services of their present officers and employees; (ii) not declare
or pay any dividends on or make other distributions in respect of any of their
capital stock other than (a) to it or its subsidiaries, (b) stated dividends on
BGE Preferred Stock, BGE Preference Stock or PEPCO Preferred Stock and (c)
regular quarterly dividends on PEPCO Common Stock with usual record and payment
dates not, during any calendar year, in excess of dividends consistent with
prior practice subject to increases that do not result in a dividend rate in
excess of the indicated annual dividend rate agreed to by BGE and PEPCO for the
Company following the Effective Time; (iii) not effect certain changes in its
capital stock; (iv) not redeem, repurchase or otherwise acquire any shares of
their capital stock, other than (a) as required by the respective terms of any
series of PEPCO Preferred Stock, BGE Preferred Stock or BGE Preference Stock,
(b) in connection with a refunding of PEPCO Preferred Stock, BGE Preferred Stock
or BGE Preference Stock with lower-cost funds, (c) intercompany acquisitions or
(d) in connection with employee benefit and dividend reinvestment plans as in
effect on the date of the Merger Agreement in the ordinary course; (v) not issue
any shares of capital stock or any securities convertible or exchangeable for,
or any rights, warrants or options to acquire, any such shares or convertible or
exchangeable securities, except for (a) issuances of capital stock upon the
conversion of convertible securities outstanding on the date of the Merger
Agreement or permitted under the Merger Agreement, (b) the issuances of common
stock or other securities by BGE pursuant to the BGE Dividend Reinvestment and
Stock Purchase Plan and the BGE Continuous Offering Program for Common Stock or
by PEPCO pursuant to the PEPCO Shareholder Dividend Reinvestment Plan, the PEPCO
Savings Plan for Exempt Employees, the PEPCO Savings Plan for Bargaining Unit
Employees, the PEPCO Savings Plan for Non-Bargaining Unit, Non-Exempt Employees,
the PEPCO LTIP and the PEPCO Stock Compensation Plan for the Board of Directors,
in each case in the ordinary course in accordance with their present terms or
(c) issuances by a wholly owned subsidiary of its capital stock to a parent;
(vi) not amend its Articles of Incorporation or By-laws in any way adverse to
the other parties, except as contemplated by the Merger Agreement; (vii) not
acquire or agree to acquire any assets, in each case that are material, in the
aggregate, to it and its subsidiaries taken as a whole, except for acquisitions
by PEPCO and its subsidiaries on the one hand, and BGE and its subsidiaries on
the other, within existing lines of business, of less than $30 million in the
aggregate; (viii) not make any capital expenditures, except (a) as required by
law, (b) to repair or replace facilities destroyed or damaged due to casualty or
accident and (c) additional capital expenditures that in the aggregate do not
exceed $75 million; (ix) not incur or guarantee any indebtedness, other than (a)
short-term indebtedness in the ordinary course consistent with past practice,
(b) long-term indebtedness to refinance at maturity or with lower-cost funds and
(c) long-term indebtedness aggregating not more than $75 million for such party
and its subsidiaries; (x) dispose of material assets except for dispositions (a)
not exceeding $10 million in the aggregate, which dispositions do not have a
PEPCO Material Adverse Effect or a BGE Material Adverse Effect, as the case may
be, (b) as may be required by law to consummate the transactions contemplated by
the Merger Agreement or (c) in the ordinary course consistent with past
practice; (xi) except as required by law, not enter into, adopt or amend or
increase the amount of or accelerate the payment or vesting of any benefit or
amount payable under, any employee benefit plan or other contract, agreement,
commitment, arrangement, plan or policy maintained by, contributed to or entered
into by such party or any of its subsidiaries, or increase, or enter into any
contract, agreement, commitment or arrangement to increase in any manner, the
compensation or fringe benefits, or otherwise to extend, expand or enhance the
engagement, employment or any
56
<PAGE>
related rights, of any director, officer or other employee of such party or any
of its subsidiaries, except for normal increases in the ordinary course
consistent with past practice that, in the aggregate, do not result in a
material increase in benefits or compensation expense to such party or any of
its subsidiaries; (xii) not enter into or amend any employment, severance or
special pay arrangements with respect to termination of employment or similar
arrangements with any director, officer or other employee, other than in the
ordinary course of business consistent with past practice; (xiii) not engage in
any activities that would cause a change in its status under the 1935 Act, or in
any activities that, in the case of PEPCO, would cause PEPCO to become a
"holding company" under the 1935 Act, in the case of BGE, cause BGE to lose its
exemption from registration as a "holding company" under the 1935 Act, or, in
the case of either party, would require the approval of the SEC under Section
9(a)(2) of the 1935 Act for any transactions contemplated by the Merger
Agreement; (xiv) not make any changes in its accounting methods other than
required by law or in accordance with GAAP; (o) not take any action to prevent
the Company from accounting for the Merger as a pooling of interests under GAAP
and applicable SEC regulations; (xv) not take any action that would adversely
affect the status of the Merger as a reorganization under Section 368(a) of the
Code; (xvi) maintain with financially responsible insurance companies insurance
(or through self-insurance not inconsistent with past practices) in such amounts
and against such risks and losses as are customary for companies engaged in the
electric and gas utility industry and other businesses of it and its
subsidiaries; (xvii) confer with representatives of the other party, promptly
notify the other party of significant changes in its business, advise the other
party of any change or event that has had or, to the knowledge of such party,
would reasonably likely have a BGE Material Adverse Effect or a PEPCO Material
Adverse Effect, and consult prior to making any governmental filings in
connection with the Merger Agreement and the transactions contemplated thereby,
and promptly after each such filing provide the other with a copy thereof;
(xviii) not make any filing to change its or any of its utility subsidiaries'
rates on file with any governmental authority that could have a material adverse
effect on the benefits associated with the Merger; (xix) use commercially
reasonable efforts to obtain certain third-party consents to the Merger; (xx)
use commercially reasonable efforts to maintain in effect all existing permits
pursuant to which such party operates; (xxi) not use any non-public information
obtained from the other in connection with any solicitation, inquiry, proposal,
arrangement, understanding or agreement with any person relating to the
provisions of electric or gas utility service by such party to commercial and
industrial customers in the other party's service territory; and (xxii) not take
any action which could likely jeopardize the qualification of outstanding
revenue bonds issued for the benefit of BGE or PEPCO, as the case may be, as
"exempt facility bonds" or as tax-exempt industrial development bonds under
Section 103(b)(4) of the Internal Revenue Code of 1954, as amended prior to the
Tax Reform Act of 1986.
The Merger Agreement provides for the creation by BGE and PEPCO of a special
transition management task force (the "Task Force") comprised of representatives
from each of the primary business functions of each company and headed by Mr.
Edward A. Crooke (or an individual designated by him) and Mr. John M. Derrick,
Jr. (or an individual designated by him). The functions of the Task Force will
include serving as a conduit for the flow of information between the companies
pending the Merger, developing regulatory plans and proposals, corporate
organizational management plans, workforce combination proposals and such other
matters as they deem appropriate and evaluating and recommending the manner in
which best to organize and manage the business of the Company after the Merger.
The Merger Agreement provides that the co-heads of the Task Force will
together recommend to Messrs. Poindexter and Mitchell organizational matters and
candidates to serve as the officers of the Company who are not otherwise
designated by the Merger Agreement. All such organizational matters and
appointment of officers will be subject to final approval by a majority of the
members of the Company Board of Directors, upon the recommendation of Mr.
Poindexter.
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<PAGE>
NO SOLICITATION OF TRANSACTIONS
The Merger Agreement provides that neither BGE nor PEPCO, directly or
indirectly will initiate, solicit or encourage, or take any action to facilitate
the making of, any offer or proposal that constitutes or is reasonably likely to
lead to any Takeover Proposal (as defined below), or, in the event of any
unsolicited Takeover Proposal, engage in negotiations or provide any
confidential information or data to any person relating to any Takeover
Proposal. Under the Merger Agreement, BGE and PEPCO must notify the other orally
and in writing of any such inquiries, offers or proposals within 24 hours of the
receipt thereof and shall give the other 10 days advance notice of any agreement
to be entered into with or any information to be supplied to any person making
such inquiry, offer or proposal.
Notwithstanding the foregoing, unless the approval of the Merger Agreement
by the BGE shareholders and the PEPCO shareholders will have been obtained, BGE
or PEPCO may, to the extent its Board of Directors determines in good faith with
the written advice of outside counsel that a failure to do so could reasonably
be expected to result in a breach of its fiduciary duties under applicable law,
participate in discussions or negotiations with, furnish information to, and
afford access to the properties, books and records of such party and its
subsidiaries to any person in connection with a possible Takeover Proposal with
respect to such party by such person.
As used above, "Takeover Proposal" means any tender or exchange offer,
proposal for a merger, consolidation or other business combination involving
BGE, PEPCO or any of their respective material subsidiaries, or any proposal or
offer to acquire in any manner a substantial equity interest in, or a
substantial portion of the assets of, BGE, PEPCO or any of their respective
material subsidiaries, other than pursuant to the transactions contemplated by
the Merger Agreement.
COMPANY BOARD OF DIRECTORS
The Merger Agreement provides that the BGE Board and the PEPCO Board will
take such action as may be necessary to cause the number of directors comprising
the full Company Board at the Effective Time to be 16 persons, consisting of Mr.
Edward F. Mitchell, Mr. Christian H. Poindexter, Mr. Edward A. Crooke, Mr. John
M. Derrick, Jr., seven persons designated by BGE prior to the Effective Time and
five persons designated by PEPCO prior to the Effective Time; provided, however,
that if, prior to the Effective Time, any of such designees shall decline or be
unable to serve, the party that designated such person shall designate another
person to serve in such person's stead.
The initial designation of directors among the three classes of the Company
Board will be allocated among BGE and PEPCO designees as follows: Class I
(initial one-year term), three BGE designees and two PEPCO designees; Class II
(initial two-year term), three BGE designees, Mr. Mitchell and one additional
PEPCO designee; Class III (three-year term), Messrs. Poindexter and Crooke and
one additional BGE designee, Mr. Derrick and two additional PEPCO designees.
The initial Company Board committees and committee memberships will be
determined by the Company Board; PROVIDED that (i) there shall be six
committees, (ii) three committees will be chaired by a designee of the PEPCO
Board, (iii) three committees will be chaired by a designee of the BGE Board,
(iv) there shall be a Committee on Management (responsible for nominating,
compensation and major organizational changes) which will be chaired by a
designee of the BGE Board and (v) there will be an Executive Committee
(responsible for certain financing matters) which will be chaired by Mr.
Mitchell.
MANAGEMENT OF THE COMPANY
The Merger Agreement and the Company Employment Agreements provide for
certain senior management positions in the Company to be filled at the Effective
Time by designated current officers of BGE and PEPCO. See "The Merger -- Company
Employment Agreements" and "-- Interests of Certain Persons in the Merger."
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<PAGE>
CORPORATE OFFICES
As soon as reasonably possible after the Effective Time, the corporate
headquarters and principal executive offices of the Company will be located in
the Annapolis, Maryland area, and the Company shall maintain significant
operations in the District of Columbia and in Baltimore, Maryland.
INDEMNIFICATION
The Merger Agreement provides that, to the extent, if any, not provided by
an existing right of indemnification or other agreement or policy, from and
after the Effective Time, the Company shall, to the fullest extent not
prohibited by applicable law, indemnify, defend and hold harmless the present
and former directors, officers and employees of the parties to the Merger
Agreement and their respective subsidiaries against (i) all losses, expenses
(including reasonable attorneys' fees and expenses), claims, damages, costs,
liabilities, judgments or amounts that are paid in settlement of or in
connection with any claim, action, suit, proceeding or investigation (a) based
in whole or in part on or arising in whole or in part out of the fact that such
person is or was a director, officer or employee of such party or any subsidiary
thereof and (b) pertaining to any matter existing or occurring at or prior to
the Effective Time, whether asserted or claimed prior to, at or after the
Effective Time and (ii) all Indemnified Liabilities based in whole or in part
on, or arising in whole or in part out of, or pertaining to the Merger Agreement
or the transactions contemplated thereby; provided, HOWEVER, that in the case of
the provisions described in clauses (ii) and (ii), the Company shall not be
liable for any settlement effected without its written consent (which consent
shall not be unreasonably withheld).
In addition, the Merger Agreement requires that for a period of six years
after the Effective Time, the Company shall cause to be maintained in effect the
policies of directors' and officers' liability insurance maintained by BGE and
PEPCO; PROVIDED that the Company may substitute therefor policies of at least
the same coverage containing terms that are no less advantageous with respect to
matters occurring prior to the Effective Time to the extent such liability
insurance can be maintained annually at a cost to the Company not greater than
200% of the current aggregate annual premiums for the policies currently
maintained by BGE and PEPCO for their directors' and officers' liability
insurance; PROVIDED, FURTHER, that if such insurance cannot be so maintained or
obtained at such cost, the Company shall maintain or obtain as much of such
insurance for each of BGE and PEPCO as can be so maintained or obtained at a
cost equal to 200% of the respective current annual premiums of each of BGE and
PEPCO for their directors' and officers' liability insurance. Also, the Merger
Agreement provides that to the fullest extent not prohibited by law, from and
after the Effective Time, all rights to indemnification existing in favor of the
employees, agents, directors and officers of BGE, PEPCO and their respective
subsidiaries with respect to their activities as such prior to the Effective
Time, as provided in their respective Articles of Incorporation and By-laws in
effect on the date of the Merger or otherwise in effect as of the date of the
Merger, shall survive the Merger and shall continue in full force and effect for
a period of not less than six years from the Effective Time.
CONDITIONS TO THE MERGER
The respective obligations of BGE and PEPCO to effect the Merger are subject
to the following conditions, among others: (i) the approval of the Merger
Agreement by the shareholders of BGE and the shareholders of PEPCO shall have
been obtained; (ii) no temporary restraining order, preliminary or permanent
injunction or other order shall be in effect that prevents the consummation of
the Merger, and the Merger and the transactions contemplated by the Merger
Agreement shall not have been prohibited under any applicable federal or state
law or regulation; (iii) the Registration Statement shall have become effective
and shall not be the subject of a stop order suspending such effectiveness; (iv)
the shares of Company Common Stock issuable in connection with the Merger shall
have been approved for listing on the NYSE, upon official notice of issuance;
(v) the receipt by each of BGE and PEPCO of a letter of their respective
independent public accountants stating that the Merger will qualify as a pooling
of interests transaction under GAAP and applicable SEC regulations; (vi) all
required material governmental approvals shall have been received and such
approvals shall not impose terms or conditions that would have, or would be
reasonably likely to have a material adverse effect on the business, operations,
properties, assets, condition (financial or otherwise),
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<PAGE>
prospects or results of operations of the Company; (vii) the Company shall have
been incorporated under the laws of Virginia (in addition to Maryland); (viii)
the agreements and covenants required to be performed by BGE and PEPCO,
respectively, under the Merger Agreement shall have been performed in all
material respects; (ix) BGE or PEPCO, as the case may be, shall have received
officers' certificates from the other stating that the conditions set forth in
the Merger Agreement to the obligations of BGE or PEPCO, as the case may be, to
consummate the Merger have, to such officers' knowledge, been satisfied; (x) no
BGE Material Adverse Effect or PEPCO Material Adverse Effect (in such case as
defined in the Merger Agreement), as the case may be, shall have occurred and
there shall exist no fact or circumstance that would have, or would be
reasonably likely to have, a BGE Material Adverse Effect or PEPCO Material
Adverse Effect, as the case may be; (xi) each of BGE and PEPCO shall have
received from their respective special tax counsel opinions to the effect that
the Merger will be a tax-free reorganization under Internal Revenue Code Section
368(a) and that (in the case of BGE) BGE and its shareholders who exchange their
shares solely for stock of the Company and (in the case of PEPCO) PEPCO and its
shareholders who exchange their shares solely for stock of the Company will
recognize no gain or loss for federal income tax purposes as a result of the
consummation of the Merger; (xii) the other party shall have received certain
material third-party consents; and (xiii) the Company shall have received
certain certificates from each affiliate of BGE or PEPCO, as the case may be.
TERMINATION; TERMINATION FEES AND EXPENSES
The Merger Agreement may be terminated under certain circumstances, listed
below. Where indicated, termination results in the payment of expenses and
termination fees in the amounts listed below as liquidated damages; PROVIDED
that the amount payable by BGE and its affiliates pursuant to the provisions
described below, when added to the amount payable thereby upon a repurchase of
the BGE Option, may not exceed $125 million in the aggregate, and the amount
payable by PEPCO and its affiliates pursuant to the provisions described below,
when added to the amount payable thereby upon a repurchase of the PEPCO Option,
may not exceed $125 million in the aggregate. Such circumstances include (i) by
mutual consent of the parties (no payment); (ii) by either BGE or PEPCO if the
Merger is not consummated by March 31, 1997 PROVIDED, HOWEVER, that such
termination date shall be extended to March 31, 1998 if all conditions to
closing the Merger, other than the receipt of certain statutory approvals by any
of the parties, can be satisfied by March 31, 1997 (no payment); (iii) by either
BGE or PEPCO if the requisite approval of the Merger Agreement by either party's
shareholders shall not have been obtained at a duly held meeting of shareholders
($85 million payment by the target if the vote follows a third-party offer of
the type described below in clause (vii) that has not been rejected by such
target and its Board and withdrawn by the third-party; otherwise no payment);
(iv) by either BGE or PEPCO if any state or federal law or court order prohibits
the Merger (no payment); (v) by either BGE or PEPCO if there exists a material
breach of any material representation or warranty contained in the Merger
Agreement, or any material breach of any covenant or agreement by BGE or PEPCO,
as the case may be, and such breach is not cured within 20 days after notice
($10 million payment by the breaching party); (vi) by either BGE or PEPCO if the
Board of Directors of BGE or PEPCO, as the case may be, shall withdraw or
adversely modify its approval or recommendation of the Merger ($85 million
payment by the party withdrawing or adversely modifying its approval); or (vii)
by either party, under certain circumstances, as a result of a third-party
tender offer or business combination proposal which such party's Board of
Directors determines in good faith that their fiduciary duties requires be
accepted, after the other party has first been given an opportunity to make
adjustments in the terms of the Merger Agreement so as to enable the Merger to
proceed ($85 million payment by the party accepting such proposal).
EXPENSES
Except as set forth above, all fees and expenses incurred in connection with
the Merger Agreement and the transactions contemplated thereby will be paid by
the party incurring such expenses, except that those expenses incurred in
connection with printing this Joint Proxy Statement/Prospectus, as well as the
filing relating thereto, will be shared equally by BGE and PEPCO.
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AMENDMENT AND WAIVER
The Merger Agreement may be amended by the Boards of Directors of BGE and
PEPCO at any time before or after its approval by their shareholders and prior
to the Effective Time, but after any such approval no amendment may be made
which alters or changes (i) the amount or kind of shares, to be received or
exchanged for or on conversion of any class or series of capital stock of either
corporation in the Merger as provided in the Merger Agreement, (ii) any of the
terms or conditions of the Merger Agreement if such alteration or change, alone
or in the aggregate, would materially adversely affect the rights of the holders
of BGE Common Stock, BGE Preferred Stock, BGE Preference Stock, PEPCO Common
Stock or PEPCO Preferred Stock or (iii) any term of the Company Articles, except
for alterations or changes that could otherwise be adopted by the Board of
Directors of the Company, without the further approval of such shareholders.
At any time prior to the Effective Time, to the extent permitted by
applicable law, a party may (i) extend the time for performance of any
obligations or other acts by the other party and (ii) waive inaccuracies in the
representations and warranties contained in the Merger Agreement or any document
delivered pursuant thereto or conditions to the other party's obligation to
consummate the Merger.
THE STOCK OPTION AGREEMENTS
The following is a brief summary of the material terms of the Stock Option
Agreements, copies of which are attached as Exhibits B1 and B2 and which are
incorporated herein by reference. This summary is qualified in its entirety by
reference to the Stock Option Agreements.
The Stock Option Agreements are intended to increase the likelihood that the
Merger will be consummated in accordance with the terms of the Merger Agreement.
Consequently, certain aspects of the Stock Option Agreements may have the effect
of discouraging persons who might now or prior to the Effective Time be
interested in acquiring all of or a significant interest in, or otherwise
effecting a business combination with, BGE or PEPCO, or from considering or
proposing such a transaction, even if such persons were prepared to offer to pay
consideration to shareholders of BGE or PEPCO, as the case may be, which had a
higher value than the shares of Company Common Stock to be received per share of
BGE Common Stock or PEPCO Common Stock, as the case may be, pursuant to the
Merger Agreement.
GENERAL
Concurrently with entering into the Merger Agreement, BGE and PEPCO entered
into reciprocal Stock Option Agreements pursuant to which (i) PEPCO granted BGE
an irrevocable option (the "PEPCO Option") to purchase up to 23,579,900 shares
(subject to adjustment for changes in capitalization) of PEPCO Common Stock at
an exercise price of $21.225 per share, representing 19.9% of the number of
shares of PEPCO Common Stock outstanding on August 31, 1995, and (ii) BGE
granted PEPCO an irrevocable option (the "BGE Option" and, together with the
PEPCO Option, the "Options") to purchase up to 29,357,896 shares (subject to
adjustment for changes in capitalization) of BGE Common Stock at an exercise
price of $25.925 per share representing 19.9% of the number of shares of BGE
Common Stock outstanding on August 31, 1995. The respective Options become
exercisable only if the holder thereof could be entitled to a termination
payment under the Merger Agreement (see "The Merger Agreement -- Termination;
Termination Fees and Expenses") but without regard to whether the Merger
Agreement is actually terminated or whether a business combination is actually
closed with a third party (a "Trigger Event"). In no event, however, will the
issuer of an Option be required to issue shares upon exercise of such Option
unless all required regulatory approvals for the issuance of such shares are
obtained, all waiting periods under the HSR Act applicable to such issuance are
approved or been terminated and such shares (and any shares issued by the holder
of such Option in payment of the exercise price thereof) have been approved for
listing on the NYSE upon official notice of issuance.
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Each Option will terminate upon the earliest to occur of (i) the Effective
Time, (ii) the termination of the Merger Agreement other than due to a Trigger
Event and (iii) 180 days following any termination of the Merger Agreement upon
or during the continuance of a Trigger Event (of if, at the expiration of such
180 day period, such Option cannot be exercised by reason of any applicable
judgment, decree, order, law or regulation, ten business days after such
impediment to exercise shall have been removed or shall have become final and
not subject to appeal, but in no event later than March 31, 1998).
REPURCHASES. At any time during which the Option is exercisable, each Stock
Option Agreement entitles the holder of the Option to require the issuer thereof
to repurchase from the holder all or any portion of the Option (or if the Option
has been exercised, to repurchase from the holder all or any portion of the
acquired shares). The amount that the issuer of an Option will pay to the holder
of such Option to repurchase such Option is (i) the difference between (a) the
Market/Offer Price for shares of such issuer's common stock as of the date (the
"Notice Date") such holder gives notice of its intent to exercise its rights to
have such Option repurchased and (b) the exercise price for the Option
multiplied by (ii) the number of shares of such common stock purchasable
pursuant to such Option (or portion thereof with respect to which such holder is
exercising such rights). The amount that the issuer of an Option will pay to the
holder thereof to repurchase shares issued upon exercises of such Option is (i)
the exercise price paid by such holder for such shares plus the difference
between the Market/Offer Price and the exercise price paid by such holder for
such shares, multiplied by (ii) the number of such shares to be repurchased.
"Market/Offer Price" is defined as the higher of (x) the price per share offered
as of the Notice Date pursuant to any tender or exchange offer or other offer
with respect to a Business Combination (as defined in the Merger Agreement)
involving the issuer of such Option as the Target Party (as so defined) that was
made prior to such date and (y) the Fair Market Value of such issuer's common
stock as of such date. "Offer Price" is defined as the highest price per share
offered pursuant to a tender or exchange offer or other Business Combination
offer involving the issuer of such Option as the Target Party during the period
in which such Option is exercisable. The "Fair Market Value" of a share is
defined as the average of the daily closing sales price for such share on the
NYSE during the ten NYSE trading days prior to the fifth NYSE trading day
preceding the date such Fair Market Value is to be determined.
PURCHASE WITH OPTION HOLDER'S SHARES; CALL. Each Stock Option Agreement
entitles the holder of the Option granted thereunder to purchase shares covered
by the Option with shares of the Option holder's own common stock and
thereafter, at any time or from time to time prior to March 31, 1997 (extendible
under certain circumstances to March 31, 1998), to require the issuer of the
Option to sell such shares of common stock back to it. The value attributed to
shares of an Option holder's common stock used to purchase shares upon exercise
of such Option is the Fair Market Value of such shares as of the date
immediately preceding the date on which notice of such exercise is delivered to
the issuer of the Option. The price at which the issuer of an Option may be
required to sell back to the holder of such Option shares of such holder's stock
used to purchase shares on exercise of the Option is the value attributed to
such shares for such purchase plus interest at the rate of 8.75% per annum (from
the date of the delivery of such shares through the date of such repurchase)
less any dividends paid or declared and payable thereon.
VOTING. Each party to the Stock Option Agreements has agreed to vote, prior
to the fifth anniversary of the entry into the Stock Option Agreements (the
"Expiration Date"), any shares of capital stock of the other party acquired by
such party pursuant to the exercise of the Options or otherwise beneficially
owned by such party, on each matter submitted to a vote of shareholders of such
other party, for and against such matter in the same proportion as the vote of
all other shareholders of such other party is voted for and against such matter.
RESTRICTIONS ON TRANSFER. The Stock Option Agreements also provide that,
prior to the Expiration Date, neither BGE nor PEPCO will, directly or
indirectly, sell, assign, pledge or otherwise dispose of or transfer any of the
shares that it acquires pursuant to the exercise of the Options (the "Option
Shares"), except as otherwise provided in the Stock Option Agreements. In
addition to the repurchase
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rights described above, subsequent to the termination of the Merger Agreement, a
holder of Option Shares has the right to require the issuer of such shares to
register the Option Shares under the Securities Act for sale in a public
offering, unless the issuer of such shares elects to repurchase them at their
then market value. The Stock Option Agreements also provide that, following the
termination of the Merger Agreement, a holder of Option Shares may sell such
shares pursuant to a tender or exchange offer approved or recommended, or
otherwise determined to be fair and in the best interests of the shareholders,
by a majority of the Board of Directors of the issuer.
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DESCRIPTION OF COMPANY CAPITAL STOCK
Pursuant to the Merger Agreement, the Company's Articles of Incorporation
and By-laws will be amended and restated in the form attached hereto as Exhibits
E and F, respectively. The authorized capital stock of the Company as of the
Effective Time will consist of shares of Company Common Stock,
shares of Company Preferred Stock, and shares of Company Preference
Stock. The description of the Company's capital stock set forth herein does not
purport to be complete and is qualified in its entirety by reference to the
Company Articles and By-laws, respectively, as well as applicable statutory or
other law.
COMPANY COMMON STOCK
VOTING RIGHTS. For all purposes, each registered holder of Company Common
Stock will, at each meeting of shareholders, be entitled to one vote for each
share of Company Common Stock held, either in person or by proxy duly authorized
in writing. Except to the extent required by law or as permitted by the Company
Articles, as amended from time to time, the registered holders of the shares of
Company Common Stock shall have unlimited and exclusive voting rights.
The holders of Company Common Stock will not be entitled to cumulative votes
for the election of directors.
DIVIDENDS. Subject to the rights of the holders of Company Preferred Stock
and Company Preference Stock, the Company may pay dividends on Company Common
Stock and make distributions on, and purchase or otherwise acquire for value,
shares of Company Common Stock (each such payment, distribution, purchase and/or
acquisition being herein referred to as a "Common Stock Dividend"), EXCEPT THAT,
so long as any shares of Class B Preferred Stock are outstanding, (i) no Common
Stock Dividend shall be declared or paid in an amount which, together with all
other Common Stock Dividends declared in the year ending on (and including) the
date of the declaration of such Common Stock Dividends, would in the aggregate
exceed 50% of the net earnings of the Company for the period consisting of the
12 consecutive calendar months ending on the last day of the calendar month next
preceding the declaration of such Common Stock Dividend, after deducting from
such net earnings dividends accruing on any stock other than Company Common
Stock during such period, if at the end of such period, the ratio (herein
referred to as the "Capitalization Ratio") of the sum of (a) the capital
represented by the Company Common Stock (including premiums on Company Common
Stock) and (b) the surplus accounts of the Company, to the sum of (c) the total
capital and (d) the surplus accounts of the Company (after adjustment in each
case of the surplus accounts to reflect payment of such Common Stock Dividends)
would be less than 20%; (ii) if such Capitalization Ratio, determined as
aforesaid, shall be 20% or more, but less than 25%, no Common Stock Dividend
shall be declared or paid in an amount which, together with all other Common
Stock Dividends declared in the year ending on (and including) the date of the
declaration of such Common Stock Dividend, would in the aggregate exceed 75% of
the net earnings of the Company for the period consisting of the 12 consecutive
calendar months ending on the last day of the calendar month next preceding the
declaration of such Common Stock Dividend after deducting from such net earnings
dividends accruing on any stock other than the Company Common Stock during such
period; and (iii) if such Capitalization Ratio, determined as aforesaid, shall
be in excess of 25%, no Common Stock Dividend shall be declared or paid which
would reduce such Capitalization Ratio to less than 25% except to the extent
permitted by the next preceding clause (i) and (ii).
LIQUIDATION. In the event of a liquidation, dissolution or winding up of
the affairs of the Company, the holders of Company Common Stock will be entitled
to share ratably in any assets remaining after payment in full of all
liabilities of the Company and the aggregate liquidation preference of any
Company Preferred Stock and Company Preference Stock then outstanding.
PREEMPTIVE RIGHTS. The holders of Company Common Stock will have no
preemptive rights to acquire or subscribe to any shares, or securities
convertible into shares, of Company Common Stock. The holders of Company Common
Stock will have no redemption or conversion rights.
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It is a condition to the consummation of the Merger that the Company Common
Stock be approved for listing on the NYSE subject to official notification of
issuance.
COMPANY PREFERRED STOCK
The Company Preferred Stock will be issued in different series. The Company
Articles authorize several series as described below.
The Company Board also will be authorized, subject to any limitations
prescribed by law and the provisions of Article Eleventh of the Company
Articles, to provide for the issuance of authorized but unissued shares of
Company Class A Preferred Stock and Company Class B Preferred Stock, in
additional series, and by filing a certificate pursuant to applicable Maryland
and Virginia law, to establish from time to time the number of shares of Company
Class A Preferred Stock or Company Class B Preferred Stock to be included in
each such series, and to fix such designations, powers, preferences and rights
of the shares of Company Class A Preferred Stock or Company Class B Preferred
Stock of each such series and any qualifications, limitations, or restrictions
thereof as provided in the Company Articles.
The ability of the Company Board to issue classes and series of Company
Preferred Stock may have the effect of delaying, deferring or preventing a
future takeover or change in control of the Company, and could prevent
shareholders from tendering their shares in transactions which they might favor
by decreasing the likelihood that such offers would be made in the first
instance.
DESIGNATION. There will be designated in the Company Articles the following
series of Company Preferred Stock, aggregating 5,961,545 shares as follows:
<TABLE>
<CAPTION>
SERIES NUMBER
- ----------------------------------------------------------------------- -----------
<S> <C>
COMPANY CLASS A PREFERRED STOCK
Series B 4 1/2%........................................................ 222,921
Series C 4%............................................................ 68,928
Series D 5.40%......................................................... 300,000
COMPANY CLASS B PREFERRED STOCK
$2.44 Series of 1957................................................... 300,000
$2.46 Series of 1958................................................... 300,000
$2.28 Series of 1965................................................... 400,000
$2.44 Convertible Series of 1966....................................... 6,800
$3.82 Series of 1969................................................... 500,000
$3.37 Series of 1987................................................... 869,696
$3.89 Series of 1991................................................... 1,000,000
$3.40 Series of 1992................................................... 1,000,000
Auction Series A....................................................... 1,000,000
</TABLE>
At the Effective Time, each issued and outstanding share of each series of
BGE Preferred Stock (other than shares owned by BGE or PEPCO or any of their
respective subsidiaries, which will be canceled, and BGE Dissenting Preferred
Shares, as defined in the Merger Agreement) will be converted into the right to
receive one duly authorized, validly issued, fully paid and nonassessable share
of Company Class A Preferred Stock, of the respective series specified above,
with equal stated value and dividends and like redemption provisions and other
terms and conditions.
Each issued and outstanding share of each series of PEPCO Preferred Stock
(other than shares owned by BGE or PEPCO or any of their respective
subsidiaries, which will be canceled and PEPCO Dissenting Preferred Shares, as
defined in the Merger Agreement) will be converted into the right to receive one
duly authorized, validly issued, fully paid and nonassessable share of Company
Class B Preferred Stock, of the respective series specified above, with equal
stated value and dividends and like redemption provisions and other terms and
conditions, except as otherwise described herein regarding restrictions on
PEPCO's issuance of unsecured debt. See "Comparison of Shareholder Rights --
Comparison of BGE, PEPCO and Company Articles and By-laws."
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VOTING RIGHTS. The holders of Company Class A Preferred Stock will have no
voting power, except that the holders of Company Class A Preferred Stock will
have 24 votes for each share of Company Class A Preferred Stock with respect to
certain proposed amendments of the Company Articles, any proposed consolidation
with any other corporation or corporations, any proposed sale, lease or exchange
of all its property and assets as an entirety, including its goodwill and
franchises, to or with any other corporation or any proposed dissolution of the
Company, and no such amendment of the Company Articles, consolidation, sale,
lease, exchange or dissolution will be authorized, ratified, adopted or affected
without the affirmative vote of two-thirds of all the shares of Company Class A
Preferred Stock outstanding in favor of such amendment, consolidation, sale,
lease, exchange or dissolution, as the case may be. Should the Company fail to
pay full dividends on the Company Class A Preferred Stock and should such
failure continue for one year, the holders of Company Class A Preferred Stock
will have 24 votes for each share of Company Class A Preferred Stock with
respect to all matters, until and unless all such dividends shall have been paid
in full. However, the voting power of the holders of Company Class A Preferred
Stock will be reduced to four votes per share immediately upon the retirement of
the shares of Company Class A Preferred Stock issuable in exchange for the
shares of BGE's Preferred Stock outstanding as of November 27, 1961, consisting
of 222,921 shares of Series B 4 1/2% and 68,928 shares of Series C 4% Preferred
Stock.
The holders of Company Class B Preferred Stock will have no voting power,
except that whenever dividends payable on the shares of Company Class B
Preferred Stock are in default in an amount equal to four full quarter-yearly
dividends, until such default is remedied, the holders of Company Class B
Preferred Stock, voting separately, will become entitled to elect at a special
meeting 25% of the Company Board, or the smallest number of directors that
exceeds 25% of the Company Board, but in no event less than two directors. The
other shareholders then entitled to vote for the election of directors, voting
separately by class if so required by the provisions applicable to such classes,
will be entitled to elect the remaining directors of the Company. The terms of
all directors of the Company in office at the time will terminate upon the
election of directors by the holders of the Company Class B Preferred Stock.
Thereafter and during the continuance of such special right of the holders of
the Company Class B Preferred Stock, the Company Board will be divided into two
or more classes, one class consisting of the directors to be elected by the
holders of Company Class B Preferred Stock, and the other class or classes
consisting of directors to be elected by the other shareholders entitled to vote
for the election of directors. The directors of each such class elected at such
meeting and the directors of each such class elected at any subsequent annual
meeting for the election of directors, held during the continuance of such
special right, will hold office until the next succeeding annual election and
until their respective successors by classes are elected and qualified.
However, if and when all dividends then in default on Company Class B
Preferred Stock shall be paid (and such dividends must be declared and paid as
soon as reasonably practicable out of surplus or net profits, but without
diminishing the amount of capital of the Company), the holders of Company Class
B Preferred Stock will be divested of such special right, but subject always to
the same provisions for the revesting of such special right in the holders of
Company Class B Preferred Stock in the case of any similar future default or
defaults. Whenever the holders of Company Class B Preferred Stock shall be so
divested of such special right, the method of election of the Board of directors
by the vote of the other shareholders entitled to vote for the election of
directors exclusively will be restored, and the election of directors will take
place at the next succeeding annual meeting for the election of directors, or at
any adjournment thereof.
So long as any shares of Company Class B Preferred Stock are outstanding, no
amendment to the Company Articles which would (i) create, change any junior
stock into, or increase the rights and preferences of, any senior or parity
stock, (ii) increase the authorized amount of the Company Class B Preferred
Stock in excess of shares or the authorized amount of any senior or
parity stock or (iii) change the express terms of the outstanding shares of
Company Class B Preferred Stock in any manner substantially prejudicial to the
holders thereof, shall be made without the affirmative consent of the holders of
more than two-thirds of the aggregate number of shares of the Company Class B
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Preferred Stock then outstanding; but any such amendment may be made with such
affirmative consent, together with such additional vote or consent of
shareholders as from time to time may be required by law; PROVIDED, HOWEVER,
that if any such amendment would change the express terms of the outstanding
shares of Company Class B Preferred Stock of any particular series in a manner
substantially prejudicial to the holders thereof without correspondingly
affecting the holders of the outstanding shares of Company Class B Preferred
Stock of all series, then, in lieu of such consent of the holders of Company
Class B Preferred Stock (or, if such consent of the holders of the outstanding
shares of Company Class B Preferred Stock is required by law, in addition
thereto), the affirmative consent of the holders of more than two-thirds of the
Company Class B Preferred Stock of the affected series at the time outstanding
will be necessary for making such amendment.
So long as any shares of Company Class B Preferred Stock are outstanding,
the Company will not, without the affirmative consent of the holders of at least
a majority of the aggregate number of shares of Company Class B Preferred Stock
then outstanding: (i) issue any shares of Class B Preferred Stock, in excess of
300,000 shares thereof at any one time outstanding, or issue any shares of
senior or parity stock (either directly or by reclassification), unless for a
period of 12 consecutive calendar months within the 15 calendar months next
preceding the date on which such shares are to be issued net earnings (after
depreciation and taxes but before deducting interest) have been at least one and
one-half times the annual interest charges and dividend requirements on all
indebtedness of the Company and on all shares of Company Class B Preferred Stock
and senior and parity stock which shall then be outstanding; (ii) issue any
shares of Company Class B Preferred Stock, in excess of 300,000 shares thereof
at any one time outstanding, or issue any shares of senior and parity stock
(either directly or by reclassification), unless immediately after such proposed
issue the aggregate of (a) the capital of the Company applicable to its stock
ranking junior as to assets and dividends and (b) the surplus of the Company
shall be not less than the aggregate amount payable upon involuntary liquidation
to the holders of the Company Class B Preferred Stock and of senior and parity
stock then to be outstanding, excluding from such computation all stock to be
retired through such proposed issue; or (iii) merge or consolidate with or into
any other corporation or corporations or sell or lease all or substantially all
of its assets, unless such merger, consolidation, sale or lease, or the issue
and assumption of all securities to be issued or assumed in connection with any
such merger, consolidation, sale or lease shall have been ordered, approved or
permitted by the regulatory authority or authorities having jurisdiction in the
premises.
DIVIDENDS, REDEMPTION AND LIQUIDATION. The Company Preferred Stock will
have dividend, redemption, liquidation and other rights as designated in the
Company Articles. The Company Class A Preferred Stock and the Company Class B
Preferred Stock will rank in parity in respect of dividends and other
distributions and in liquidation. If upon any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the assets available for
distribution to holders of shares of Company Preferred Stock of all classes and
series shall be insufficient to pay such holders the full preferential amount to
which they are entitled, then such assets will be distributed ratably among the
shares of all classes and series of Company Preferred Stock in accordance with
the respective preferential amounts (including unpaid cumulative dividends, if
any) payable with respect thereto.
COMPANY PREFERENCE STOCK
The Company Preference Stock will be issued in different series. The Company
Articles authorize several series as described below.
The Company Board will also be authorized to approve the issuance of
authorized but unissued shares of Company Preference Stock in one or more
additional series without further authorization of its shareholders and to
determine the number of shares, rates of preferential dividends, designations,
preferences, limitations and relative rights of such series. Thus, any
additional series of Company Preference Stock may, if so determined by the
Company Board, be convertible into or exchangeable for
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Company Common Stock or another security, and have such other powers,
preferences and relative, participating optional and other special rights and
such qualifications, limitations and restrictions thereon, as the Company Board
shall determine.
The ability of the Company Board to issue series of Company Preference Stock
may have the effect of delaying, deferring or preventing a future takeover or
change in control of the Company, and could prevent shareholders from tendering
their shares in transactions which they might favor by decreasing the likelihood
that such offers would be made in the first instance.
DESIGNATED SERIES. There will be designated in the Company Articles 11
series of Company Preference Stock, aggregating 4,780,000 shares as follows:
<TABLE>
<CAPTION>
SERIES NUMBER
- ------------------------------------------------------------------------- ---------
<S> <C>
7.50% 1986 Series........................................................ 425,000
6.75% 1987 Series........................................................ 455,000
7.80% 1989 Series........................................................ 500,000
8.25% 1989 Series........................................................ 300,000
8.625% 1990 Series....................................................... 650,000
7.85% 1991 Series........................................................ 350,000
7.78% 1973 Series........................................................ 200,000
7.125% 1993 Series....................................................... 400,000
6.97% 1993 Series........................................................ 500,000
6.70% 1993 Series........................................................ 400,000
6.99% 1995 Series........................................................ 600,000
</TABLE>
VOTING RIGHTS. The Company Preference Stock will have no voting power,
except that the Company Preference Stock will have one vote for each share of
Company Preference Stock with respect to any proposed amendment of the Company
Articles which would create or authorize any shares of stock ranking prior to or
on a parity with the Company Preference Stock as to dividends or as to
distribution of assets, or which would substantially adversely affect the
contract rights, as expressly set forth in the Company Articles, of the Company
Preference Stock, and no such amendment of the Company Articles may be
authorized, ratified, accepted or effected without the affirmative vote of
two-thirds of all the shares of Company Preference Stock outstanding in favor of
such amendment.
Whenever the Company fails to pay full dividends on the Company Preference
Stock and such failure continues for one year, the holders of Company Preference
Stock will have one vote for each share of Company Preference Stock with respect
to all matters, until and unless such dividends shall have been paid in full.
DIVIDENDS. Holders of Company Preference Stock will be entitled to receive,
when and as declared, from the surplus or net profits of the Company remaining
after the preferential dividend requirements for the outstanding Company
Preferred Stock have been provided for, yearly dividends, payable at such times
and rates as provided in the Company Articles. The dividends on the Company
Preference Stock will be cumulative and payable before any dividend on the
Company Common Stock may be paid or set apart.
LIQUIDATION. In the event of any liquidation or dissolution or winding up,
whether voluntary or involuntary, of the Company, the holders of Company
Preference Stock will be entitled to be paid in full, from any assets and funds
of the Company remaining after payment to the holders of Company Preferred
Stock, both the par amount of their shares and an amount equal to the unpaid
dividends accrued thereon (whether earned or declared or not) adjusted to the
date of such payment before any amount may be paid to the holders of Company
Common Stock.
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COMPARISON OF SHAREHOLDER RIGHTS
If the Merger is consummated, the persons who were holders of BGE Preferred
Stock, BGE Preference Stock and BGE Common Stock will become holders of Company
Preferred Stock, Company Preference Stock and Company Common Stock,
respectively, whose rights as shareholders will be governed by the Company
Articles and Company By-laws (rather than the BGE Articles and BGE By-laws) and
by the MGCL and VSCA (rather than solely the MGCL). The material differences
between the rights of shareholders of the Company and shareholders of BGE are
set forth below.
If the Merger is consummated, the persons who were holders of PEPCO
Preferred Stock and PEPCO Common Stock, will become holders of Company Preferred
Stock and Company Common Stock, respectively, whose rights as shareholders will
be governed by the Company Articles and Company By-laws (rather than the PEPCO
Articles and PEPCO By-laws) and by the MGCL and VSCA (rather than the DCBCA and
VSCA). The material differences between the rights of shareholders of the
Company and shareholders of PEPCO are also set forth below.
The following discussion is not intended to be complete and is qualified in
its entirety by reference to the Company Articles and the Company By-laws, which
are attached to this Joint Proxy Statement/ Prospectus as Exhibits E and F,
respectively, and to the DCBCA, MGCL and VSCA.
COMPARISON OF BGE, PEPCO AND COMPANY ARTICLES AND BY-LAWS
BOARD OF DIRECTORS
BGE. Under the BGE By-laws, the BGE Board consists of 14 directors. They
shall hold their offices for one year until their successors are elected and
qualified.
PEPCO. Under the PEPCO By-laws, the PEPCO Board consists of 12 directors,
divided into three classes. The directors of one of the classes are elected
annually to serve for three-year terms.
THE COMPANY. Under the Company Articles, the Company Board consists of 16
directors. Such directors are divided into three classes designated Class I,
Class II and Class III. The initial Class I directors will be elected for
one-year terms, the initial Class II directors will be elected for two-year
terms and the initial Class III directors will be elected for three-year terms.
Upon expiration of the initial terms, directors of each class will be elected
for three-year terms.
REMOVAL OF DIRECTORS
BGE. Under Article II, Section 3 of BGE By-laws, the shareholders, at any
meeting duly called and at which a quorum is present, may remove any director
from office by the affirmative vote of a majority of the outstanding shares
entitled to vote thereon and may also elect a successor to fill any resulting
vacancy for the unexpired term of the removed director.
PEPCO. Under Article IX of the PEPCO Articles and Article II, Section 8 of
PEPCO's By-laws, a director elected by the holders of PEPCO Common Stock may be
removed only for cause, by a majority vote of the holders of PEPCO Common Stock
at a special meeting called for such purpose. Any director elected by the
holders of PEPCO Preferred Stock may be removed only for cause by a vote of the
holders of a majority of the PEPCO Preferred Stock, at a special meeting called
for that purpose.
THE COMPANY. Under Article Sixth of the Company Articles, directors of the
Company may only be removed for cause and only upon the affirmative vote of the
holders of two-thirds of the outstanding shares of capital stock of the Company
entitled to vote generally in the election of directors (considered for this
purpose as one class) cast at a meeting of the shareholders called for that
purpose; PROVIDED, HOWEVER, that no director who shall have been elected by the
holders of a separate class of stock shall be removed, except upon the
affirmative vote of the holders of a majority of the class whose holders elected
him, if such holders are then entitled to vote for the election of directors.
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AMENDMENTS TO ARTICLES OF INCORPORATION
BGE. Under Article II of the BGE Articles, BGE may exercise all the rights,
powers and privileges extended to corporations under the MGCL. Section 2-602 of
the MGCL provides that a corporation may amend its charter provided that the
amendments are lawful and that where contract rights are altered, an objecting
shareholder has the right to receive fair value for stock substantially
adversely affected.
Article IV, Section 5 of the BGE Articles gives the BGE Board the right to
amend the BGE Articles by classifying or sub-classifying all or any of the
authorized but unissued shares of BGE Preferred Stock into one or more series of
BGE Preferred Stock, which series may differ from each other and other series
already outstanding with respect to rate and payment terms, dividend
participation, convertibility and redemption terms. Article IV, Section 19, of
the BGE Articles reserves to the BGE Board similar designation rights with
respect to shares of BGE Preference Stock.
PEPCO. Under Article V(A)(g) of the PEPCO Articles, as long as any shares
of PEPCO Preferred Stock are outstanding, no amendments to the PEPCO Articles
may be effected which would (i) create, change junior stock into, or increase
the rights and preferences of any senior or parity stock, (ii) increase the
authorized amount of PEPCO Preferred Stock or any senior or parity stock, or
(iii) change the express terms of outstanding PEPCO Preferred Stock in a manner
substantially prejudicial to the holders thereof, without the affirmative
consent of the holders of more than two-thirds of the aggregate shares of
Preferred Stock then outstanding (or of any particular series thereof that is
disproportionately prejudiced by such amendment).
Article X of the PEPCO Articles also provides that the affirmative vote of
the holders of four-fifths of all the capital stock entitled to vote shall be
required to amend, alter or repeal the provisions of the PEPCO Articles relating
to the establishment of the classified board and removal of directors, and the
provisions of the PEPCO By-laws relating to the bringing of shareholder business
before meetings and the calling of special shareholder meetings.
THE COMPANY. The Company Articles may be amended in any manner permitted by
law, subject to certain voting requirements set forth in Article Ninth of the
Company Articles covering the rights of the holders of Company Preferred Stock
and Company Preference Stock. See "Description of Company Capital Stock."
AMENDMENTS TO BY-LAWS
BGE. Under Article VII of the BGE By-laws, the BGE By-laws may be amended
or repealed, and new By-laws adopted, at any meeting of the BGE Board, by the
vote of a majority of the directors, or by the shareholders at any annual
meeting, or at any special meeting called for that purpose.
PEPCO. Under Article VIII of the PEPCO By-laws, the PEPCO Board may amend
or repeal the PEPCO By-laws at any meeting of the PEPCO Board, by the
affirmative vote of not less than the number of directors necessary to
constitute a quorum.
THE COMPANY. Under Article Sixth of the Company Articles, the Company
By-laws may be altered, amended or repealed by the Company Board; provided that
for a period of two years following the Effective Time, a vote of 66 2/3% of the
entire Company Board is required to (i) change the number of directors, (ii)
approve a change in the Company's name, (iii) provide for the location of the
Company's headquarters or its principal executive offices other than in the
Annapolis, Maryland area, (iv) amend the Company Employment Agreements or to
otherwise change the titles or functions of such individuals from those set
forth in the respective Company Employment Agreements; (v) to change Committees
of the Company Board, or (vi) to amend the supermajority vote provision of the
Company By-laws.
CUMULATIVE VOTING
The BGE Articles, the PEPCO Articles and the Company Articles do not provide
for cumulative voting.
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VOTING
BGE. Each share of BGE Common Stock entitles its holder to one vote with
respect to the Merger. Each share of BGE Preferred Stock entitles its holder to
24 votes with respect to the Merger. However, the voting power of the BGE
Preferred Stock will be reduced to four votes per share immediately upon the
retirement of certain BGE Preferred Stock. Each share of BGE Preference Stock
entitles its holder to one vote with respect to the Merger.
A majority of the voting power of the shares issued and outstanding and
entitled to vote, present in person or by proxy, will constitute a quorum for
the transaction of business at the BGE Meeting.
The affirmative vote of the holders of two-thirds of the votes entitled to
be cast by all holders of outstanding shares of (i) BGE Common Stock, voting as
a single class, (ii) BGE Preferred Stock, voting as a single class, (iii) BGE
Preference Stock, voting as a single class and (iv) BGE Common Stock, BGE
Preferred Stock and BGE Preference Stock, voting together as a class, is
required to approve the Merger Agreement.
PEPCO. Holders of PEPCO Common Stock are entitled to one vote per share of
PEPCO Common Stock on all matters submitted generally to a vote of the
shareholders of PEPCO.
Holders of PEPCO Preferred Stock generally have no voting rights, except
that during periods when dividends payable on PEPCO Preferred Stock are in
default in an amount equal to four full quarter-yearly dividends, the holders of
PEPCO Preferred Stock are entitled to elect separately 25% of the PEPCO Board,
or the smallest number of directors that exceeds 25%, but in no event fewer than
two directors.
In addition, without the affirmative consent of the holders of a majority of
outstanding PEPCO Preferred Stock, PEPCO may not (i) issue any shares of PEPCO
Preferred Stock in excess of 300,000 shares, or issue any shares of senior or
parity stock, unless (a) for a period of 12 consecutive calendar months within
the 15 calendar months preceding the date on which such shares are to be issued,
PEPCO's net earnings have been at least one and one-half times the annual
interest charges and dividend requirements on all indebtedness of PEPCO and all
shares of PEPCO Preferred Stock, senior stock and parity stock outstanding and
(b) the capital applicable to junior stock and surplus of PEPCO is not less than
the aggregate amount payable upon involuntary liquidation to the holders of
PEPCO Preferred Stock, senior stock and parity stock outstanding, (ii) issue
securities representing unsecured indebtedness in certain circumstances (see "--
Restrictions on Issuance of Securities Representing Unsecured Indebtedness"),
and (iii) merge or consolidate with or into another entity or sell or lease all
or substantially all of its assets.
The consent of holders of more than two-thirds of the outstanding PEPCO
Preferred Stock also is required to effect certain amendments to the PEPCO
Articles. See "-- Amendments to Articles of Incorporation."
THE COMPANY. See "Description of Company Capital Stock."
RESTRICTIONS ON ISSUANCE OF SECURITIES REPRESENTING UNSECURED INDEBTEDNESS
BGE. The BGE Articles and By-laws do not restrict the issuance of
securities representing unsecured indebtedness.
PEPCO. Article V, Section (A)(h)(3), of the PEPCO Articles provides that so
long as any shares of PEPCO Preferred Stock are outstanding, PEPCO will not,
without the consent of the holders of at least a majority of the outstanding
shares of PEPCO Preferred Stock, issue any securities representing unsecured
indebtedness, or assume or guaranty any such unsecured securities (other than
for extension, renewal or refunding of outstanding debt securities or redemption
of outstanding shares of PEPCO Preferred Stock or senior or parity stock), if
after the issue or assumption of such securities the total principal amount of
such unsecured securities then outstanding would exceed 25% of the aggregate of
(i) the total principal amount of all securities representing secured
indebtedness of
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PEPCO then outstanding and (ii) the capital and surplus of PEPCO as then stated
on its books less any known excess of book value of PEPCO's physical property
devoted to public use over (a) the actual cost of such property of PEPCO and (b)
as to such property as was not acquired as the result of arm's length
negotiations, the actual cost of such property to the one first devoting the
same to public use.
THE COMPANY. Neither the Company Articles nor the Company By-laws will
restrict the issuance of securities representing unsecured indebtedness. BGE and
PEPCO believe that permitting the Company to issue unsecured debt without
restrictions comparable to those contained in the PEPCO Articles will provide
the Company with needed flexibility in an increasingly competitive environment.
Typically, unsecured short-term indebtedness is the lowest cost debt available
to companies. The growing number of unsecured debt products available in the
financial markets offer an increasingly accepted alternative to traditional
mortgage bond financings within the utility industry. The absence of a
constraint on the issuance of unsecured debt also should facilitate the prudent
management of the Company's capital structure which may contribute to cost
savings and efficiency in the financing by the Company of its capital
requirements. In addition, a restriction on unsecured debt eventually could
place the Company at a significant competitive disadvantage.
SPECIAL MEETINGS OF SHAREHOLDERS
BGE. Article I, Section 2, of the BGE By-laws grants to shareholders of BGE
the right to call a special meeting of shareholders by the request of the
holders of not less than 25% of all outstanding shares entitled to vote on the
matter for which the meeting is called.
PEPCO. Article I, Section 2, of the PEPCO By-laws provides that the PEPCO
Board, the Executive Committee or holders of record of not less than one-fifth
of all the outstanding shares entitled to vote at a meeting may call a special
meeting of shareholders.
THE COMPANY. Under Article II, Section 3, of the Company By-laws, special
meetings of shareholders may be called only by a majority of the Board of
Directors, the Chairman, the Chief Executive Officer or upon the written request
of the holders of shares entitled to cast not less than 25% of all votes
entitled to be cast at such meeting. No special meeting need be called upon the
request of the holders of shares entitled to cast less than a majority of all
votes entitled to be cast at such meeting, if the purpose for such meeting would
be to consider any matter that is substantially the same as a matter voted upon
at any special meeting of the shareholders held during the preceding 12 months.
NOTICE OF SHAREHOLDER PROPOSALS/NOMINATIONS
BGE. The BGE By-laws do not address the subject of shareholder proposals or
nominations.
PEPCO. Under Article I, Section 1, and Article 11, Section 1, of the PEPCO
By-laws, a shareholder proposal or nomination will be considered at an annual
meeting if the shareholder has given timely notice to the Secretary not less
than 50 days nor more than 75 days prior to the meeting; PROVIDED, HOWEVER, that
in the event that less than 65 days' notice or prior public disclosure of the
date of the meeting is given or made to shareholders, notice by the shareholder
to be timely must be received not later than the close of business on the 15th
day following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made, whichever first occurs.
THE COMPANY. Under Article II, Section 4(b), of the Company By-laws, in
order to have shareholder nominations and other business brought before an
annual meeting, such matters must be timely filed, in proper written form, with
the Secretary of the Company. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Company not less than 30 days or more than 60 days prior to the annual meeting;
PROVIDED, HOWEVER, that in the event that less than 40 days' notice of the date
of the annual meeting is given or made to shareholders, notice by the
shareholder, to be timely, must be received not later than the close of business
on the tenth day following the day on which such notice of the date of the
annual meeting was mailed.
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INDEMNIFICATION
BGE. Article IV of the BGE By-laws provides that with respect to BGE, each
person made or threatened to be made a party to an action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is or was a director or officer of BGE, or, at its request, is
or was a director or officer of another corporation, shall be indemnified by BGE
(to the extent indemnification is not otherwise provided by insurance) against
the liabilities, costs and expenses of every kind actually and reasonably
incurred by him as a result of such action, suit or proceeding, or any threat
thereof or any appeal thereon, but in each case only if and to the extent
permissible under applicable common or statutory law, state or federal. The
foregoing indemnity is not exclusive of other rights to which such person may be
entitled.
PEPCO. Article II, Section 9, of the PEPCO By-laws provides that, to the
maximum extent permitted by law, PEPCO shall indemnify any officer, director or
employee of PEPCO and may indemnify any other person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, arbitrative or
investigative (including an action by or in the right of PEPCO), by reason of
the fact that such person is or was a director, officer, employee or agent of
PEPCO, or is or was serving at the request of PEPCO as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with any such matter, except in relation to matters as to which
such person shall be finally adjudged to have knowingly violated the criminal
law or be liable for willful misconduct in the performance of his duty to PEPCO.
The termination of any action by judgment, order, settlement, conviction or upon
a plea of nolo contendere or its equivalent shall not of itself create a
presumption that the person was guilty of willful misconduct. The foregoing
right of indemnification is not exclusive of any other right to which such
persons may be entitled under any agreement, vote of shareholders or otherwise.
THE COMPANY. Article Seventh of the Company Articles provides that the
Company will indemnify its directors, officers and employees, whether serving
the Company or at its request any other entity, to the fullest extent required
or permitted by applicable law, including the General Laws of the State of
Maryland and the Code of Virginia, now or hereafter in force, including, without
limiting the generality of the foregoing, the advance of expenses, and other
individuals and entities, including agents, to such extent as shall be
authorized by the Board of Directors or the Company By-laws and is permitted by
applicable law now or hereafter in force. The foregoing rights of
indemnification will not be exclusive of any other rights to which those seeking
indemnification may be entitled.
LIMITATION ON LIABILITY OF DIRECTORS AND OFFICERS
BGE. Article V of the BGE Articles provides that a director or officer of
BGE will not be personally liable to BGE or its shareholders for monetary
damages except (i) to the extent that it is proved that the person actually
received an improper benefit or profit in money, property or services for the
amount of the benefit or profit in money, property or services actually received
or (ii) to the extent that a judgment or other final adjudication adverse to the
person is entered in a proceeding based on a finding in the proceeding that the
person's action or failure to act was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding. The Article states that its intent is that the liability of
directors and officers will be limited to the fullest extent permitted by the
MGCL.
PEPCO. Article II, Section 11, of the PEPCO By-laws provides that in any
proceeding brought by a shareholder in the right of PEPCO or on behalf of the
PEPCO shareholders, no director or officer shall be liable for any monetary
damages unless such director or officer engaged in willful misconduct or a
knowing violation of criminal law.
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THE COMPANY. Article Seventh of the Company Articles provides that to the
fullest extent permitted by applicable statutory or decisional law, as amended
or interpreted, no director or officer of the Company will be personally liable
to the Company or its shareholders for money damages.
COMPARISON OF DISTRICT OF COLUMBIA, MARYLAND AND VIRGINIA LAW
BGE is subject to the MGCL. PEPCO is subject to the DCBCA and VSCA. The
Company will be subject to the MGCL and VSCA.
CLASSIFIED BOARD OF DIRECTORS; REMOVAL OF DIRECTORS; VACANCIES
MGCL. Under the MGCL, the articles of incorporation may provide for the
division of directors into classes. Under the MGCL, unless the articles of
incorporation provide otherwise, directors may be removed with or without cause
upon the vote of a majority of votes entitled to be cast for the election of
directors; provided that: (i) a director elected separately by the holders of
any class or series of stock may not be removed without cause except by the
affirmative vote of a majority all of the votes of that class or series; and
(ii) if a corporation has cumulative voting for the election of directors and
less than the entire Board is to be removed, a director may not be removed
without cause if the votes cast against his removal would be sufficient to elect
him if then cumulatively voted at an election of the entire Board, or, if there
is more than one class of directors, at an election of the class of directors of
which he is member. Under the MGCL, a corporation's stockholders may fill any
vacancy on the board which results from the removal of a director, provided
that, if the stockholders of any class or series are entitled separately to
elect a director, the stockholders of that class or series fill a vacancy which
results from the removal of a director elected by that class or series. Unless
the charter or by-laws of the corporation provide otherwise, the majority of the
remaining directors, although less than a quorum, may fill a vacancy which
results from any cause other than an increase in the number of directors, and a
majority of the entire board may fill a vacancy which results from an increase,
provided that, if the stockholders of any class or series are entitled
separately to elect a director, a majority of the remaining directors or the
sole remaining director elected by that class or series may fill any vacancy
among the directors elected by that class or series.
DCBCA. The DCBCA allows a corporation's by-laws to classify the
corporation's directors into two or three classes. The DCBCA does not address
removal of directors. Under the DCBCA, any vacancy resulting from an increase in
the number of directors may be filled by shareholders. Unless the articles of
incorporation provide otherwise, any vacancy occurring in the board any cause
other than an increase may be filled by the vote of majority of the remaining
directors although less than a quorum.
VSCA. Under the VSCA, a corporation may stagger the terms of directors into
two or three groups. Unless the articles of incorporation provide that directors
may be removed only for cause, shareholders may remove any director with or
without cause, provided that if a director is elected by a voting group of
shareholders, only the shareholders who elected him may participate in the vote
to remove him. If cumulative voting is authorized, a director may not be removed
if the number of votes sufficient to elect him under cumulative voting is voted
against his removal. If cumulative voting is not authorized, unless the articles
of incorporation require a greater vote, a director may be removed by a majority
of the votes of the voting group that elected the director. Under the VSCA,
unless the articles of incorporation provide otherwise, a vacancy on the board,
including a vacancy resulting from an increase in the number of directors (i)
may be filled by the shareholders, (ii) the board or (iii) a majority of the
directors remaining in office if less than a quorum. Unless the articles of
incorporation provide otherwise, if the vacant office was held by a director
separately elected by a voting group of shareholders, only the members of that
voting group are entitled to vote to fill the vacancy if it is filled by the
shareholders.
INTERESTED DIRECTOR TRANSACTIONS
MGCL. Under the MGCL, a contract or other transaction of a corporation in
which a director has an interest is not void or voidable solely because of the
interest if (i) the interest is disclosed or
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known to the board or the committee which approves or ratifies such
transactions, and the contract or transaction is approved or ratified by a
majority of disinterested directors, (ii) the interest is disclosed or known to
corporation's shareholders, and the contract or transaction is approved or
ratified by a majority of votes entitled to vote thereon, excluding the votes of
shares beneficially owned by the interested director or (iii) such contract or
transaction is fair and reasonable to the corporation.
DCBCA. This subject is not addressed by the DCBCA.
VSCA. Under the VSCA, a transaction of a corporation in which a director
has an interest is not voidable by the corporation solely because of the such
interest if (i) the facts of the transaction and the director's interest therein
were disclosed or known to the board or committee that authorizes such
transactions and it was authorized, approved or ratified by a majority of
disinterested directors, (ii) the facts of the transaction and the director's
interest therein were disclosed to the shareholders entitled to vote thereon and
the transaction was authorized, approved or ratified by a majority of votes
entitled to vote thereon, excluding the votes of shares beneficially owned by
the interested director or (iii) the transaction was fair to the corporation.
INDEMNIFICATION
MGCL. Pursuant to the MGCL, a corporation may indemnify against certain
liabilities and expenses any director or officer who is made a party to a
proceeding by reason of his service in such capacity, unless the director or
officer (i) acted in bad faith or with deliberate dishonesty, (ii) actually
received an improper personal benefit, (iii) in the case of a criminal
proceeding, had reasonable cause to believe that such act was illegal or (iv) is
found liable to a corporation in a proceeding by or in the right of the
corporation. Unless limited by its charter, a corporation must indemnify against
reasonable expenses any director or officer who has been successful in defense
of any such proceeding or if a court determines that such indemnification is
fair and reasonable. A corporation may advance expenses to a director or officer
under certain conditions.
DCBCA. Under the DCBCA, a corporation may indemnify against expenses any
directors or officers made party to a proceeding by reason of his service as
such, except in relation to matters as to which any such director or officer
shall be adjudged to be liable for negligence or misconduct in the performance
of duty. Such indemnification is not exclusive of any other rights to which
those indemnified may be entitled under any by-law, agreement, vote of
shareholders or otherwise.
VSCA. The VSCA provides that a corporation may indemnify against certain
liabilities and expenses an officer or director made a party to a proceeding by
reason of his service in such capacity if the director or officer acted in good
faith and (i) he believed, in the case of conduct undertaken in his official
capacity, that such conduct was in the best interests of the corporation or, in
the case of other conduct, that the other conduct was not opposed to the best
interests of the corporation or (ii) in the case of a criminal proceeding, he
had no reasonable cause to believe his conduct was unlawful. However, a
corporation may not indemnify a director or officer if he was found liable to a
corporation in a proceeding by or in the right of the corporation or for
receiving improper personal benefit. Unless limited by its articles of
incorporation, a corporation must indemnify against reasonable expenses a
director or officer who prevails in defense of any proceeding. In addition, a
corporation must indemnify a director or officer if so ordered by a court. A
corporation may advance expenses to a director or officer under certain
conditions.
LIMITED LIABILITY OF DIRECTORS
MGCL. Under the MGCL, a corporation's articles of incorporation may include
any provisions expanding or limiting the liability of its directors and officers
to the corporation or its shareholders, provided that such liability may not be
limited if a director or officer received an improper personal benefit or acted
with active and deliberate dishonesty.
DCBCA. This subject is not addressed by the DCBCA.
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VSCA. Under the VSCA, in any proceeding brought by or in the name of a
corporation by or on behalf of shareholders, the damages assessed against an
officer or director shall not exceed the lesser of (i) the amount, including the
elimination of liability, specified in the corporation's articles of
incorporation, or if approved by the shareholders in the by-laws, as a
limitation on or elimination of the director's or officer's liability or (ii)
the greater of $100,000 or the compensation received by the director of officer
during the previous 12 months, provided that the liability of an officer or
director cannot be limited if the officer or director engaged in willful
misconduct or a knowing violation of criminal law or securities law.
AMENDMENT OF ARTICLES
MGCL. The MGCL provides that a proposed amendment must be approved by the
shareholders of a corporation by the affirmative vote of two-thirds of all the
votes entitled to be cast on the matter.
DCBCA. The DCBCA provides that unless the articles of incorporation provide
otherwise, an amendment must be adopted by the affirmative vote of the holders
of at least two-thirds of the outstanding shares entitled to vote as a class in
respect thereof and the total outstanding shares entitled to vote. In no event
may approval be reduced to lower than a majority of the shares entitled to vote.
VSCA. The VSCA provides that the board of directors may condition its
submission of a proposed charter amendment to the shareholders on any basis. To
be adopted, the amendment must be approved by a two-thirds vote of each voting
group entitled to vote thereon, provided that the directors may require a
greater vote or the articles of incorporation may provide for a greater or
lesser vote, so long as the vote provided for is not less than a majority.
AMENDMENT OF BY-LAWS
MGCL. The MGCL provides that the power to adopt, alter and repeal by-laws
is vested in the stockholders except to the extent that the charter or by-laws
vests such power in the board of directors.
DCBCA. The DCBCA provides that the power to make, alter, amend or repeal
by-laws shall be vested in the board of directors unless reserved to the
shareholders by the articles of incorporation.
VSCA. The VSCA provides that a corporation's board of directors may amend
or repeal by-laws except to the extent that (i) such right is reserved
exclusively to the shareholders in the articles of incorporation or by statute
or (ii) the shareholders, in adopting or amending a particular bylaw, provide
expressly that the board of directors may not amend or repeal that bylaw.
Shareholders may amend or repeal by-laws even though the by-laws also may be
amended or repealed by the board of directors.
VOTE REQUIRED FOR CERTAIN REORGANIZATIONS
MGCL. Under the MGCL, any proposed consolidation, merger, share exchange or
transfer of assets (except in the ordinary course) must be approved by the
affirmative vote of two-thirds of all of the votes entitled to be cast on the
matter.
DCBCA. Under the DCBCA, unless the articles of incorporation require
otherwise, a plan of merger or consolidation requires the affirmative vote of
the holders of two-thirds of the outstanding shares of each class of stock of
the corporation. The required shareholder vote cannot be reduced to less than a
majority of the outstanding shares.
VSCA. Under the VSCA, a plan of merger or share exchange must be approved
by two-thirds of all the votes entitled to be cast thereon by each voting group,
provided that the board of directors may require a greater vote and the articles
of incorporation may provide for a greater or lesser vote, so long as the vote
provided for is not less than a majority of all votes entitled to be cast by
each voting group.
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SHAREHOLDER ACTION BY CONSENT
MGCL. Under the MGCL, any action required or permitted to be taken at a
shareholders meeting may be taken without a meeting if the following are filed
with the records of shareholder meetings: (i) a unanimous written consent which
sets forth the actions and is signed by each shareholder entitled to vote
thereon and (ii) a written waiver of any right to dissent signed by each
shareholder entitled to notice of the meeting but not entitled to vote at it.
DCBCA. Under the DCBCA, any action required or permitted to be taken at a
shareholders meeting may be taken without a meeting if a consent in writing
setting forth the action so taken is signed by all shareholders entitled to vote
thereon and such written consent is filed with the minutes of shareholders'
meetings.
VSCA. Under the VSCA, any action required or permitted to be taken at a
shareholders meeting may be taken without a meeting and without action by the
board of directors if the action is taken by all the shareholders entitled to
vote thereon and is evidenced by a writing describing the action taken, signed
by all the shareholders and delivered to the secretary of the corporation for
inclusion in the and minutes of shareholder meetings.
STATUTORY SHAREHOLDER LIABILITY
MGCL. Under the MGCL, a corporation's shareholders are not obligated to the
corporation or its creditors, except to the extent that the subscription price
or other agreed consideration for the stock has not been paid or liability is
imposed under any other provision of the MGCL.
DCBCA. Under the DCBCA, a corporation's shareholders are under no
obligation to the corporation or its creditors with respect to such shares,
other than the obligation to pay to the corporation the full consideration for
which the shares were issued or to be issued.
VSCA. Under the VSCA, a shareholder is not liable to the corporation or its
creditors with respect to the shares except to pay the consideration for which
the shares were authorized to be issued.
DISTRIBUTIONS
MGCL AND VSCA. The MGCL and the VSCA each provides that, subject to any
restriction in its charter, a board of directors may authorize and the
corporation may make distributions to its shareholders, unless after such
distribution the corporation would not be able to pay its debts as they become
due or its total assets after the distribution would be less than the sum of its
total liabilities, plus (unless the charter permits otherwise) the amount that
would be needed, if the corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution.
DCBCA. The DCBCA provides that, subject to restrictions in its articles of
incorporation, a corporation may pay dividends in cash, property or its own
shares provided that no dividend may be declared or paid if after such payment
the corporation would be insolvent or its net assets would be less than its
stated capital.
SPECIAL MEETINGS OF SHAREHOLDERS
MGCL. Pursuant to the MGCL, a special meeting of shareholders may be called
by the president, the board of directors, or any other person specified in the
corporation's articles of incorporation or by-laws, or on the written request of
holders of not less than 25% of the votes entitled to be cast at the meeting.
DCBCA. The DCBCA provides that special meetings of shareholders may be
called by the president, the secretary, the board of directors, or the holders
of not less than one-fifth of all of the shares entitled to be cast at the
special meeting or by such other officers or persons as may be provided in the
corporation's articles of incorporation or by-laws.
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VSCA. The VSCA allows special shareholder meetings to be called by the
chairman of the board of directors, the president, the board of directors or
anyone authorized to do so by the corporation's charter or by-laws.
DISSENTERS' RIGHTS
See "The Merger -- Dissenters' Rights."
CERTAIN CONTROL SHARE ACQUISITIONS AND BUSINESS COMBINATIONS
MGCL. Certain provisions of the MGCL may have the effect of discouraging
persons from acquiring large blocks of a Maryland corporation's stock and/or
delaying or preventing a change of control of such a corporation. Under certain
circumstances, these provisions could have the effect of, among other things:
(i) reducing or eliminating the voting power of a 20% or more shareholder (MGCL
Sections 3-703 and 3-704) and (ii) prohibiting a 10% or more shareholder from
engaging in a business combination with a Maryland corporation for five years
following the acquisition of the 10% stake (a "freezeout" provision) (MGCL
Sections 3-601 through 3-604). In both instances, a Maryland corporation may opt
out of the statutes' provisions by so providing in its articles or by-laws.
However, an amendment adopted for the purpose of avoiding the MGCL's freeze-out
provision does not become effective until 18 months after its adoption. (MGCL
Sections 3-603(e)(1)(iii)). No such opt-out amendments have been adopted by BGE.
Provisions covering unequal two-tier tender offers and "greenmail" payments have
not been codified under the MGCL.
DCBCA. The District of Columbia has not enacted any takeover defense
provisions.
VSCA. The VSCA contains a provision which prohibits a corporation from
engaging in an "affiliated transaction" with a 10% shareholder for three years
following the acquisition of the 10% stake unless the transaction is approved by
a majority of the corporation's disinterested directors and the holders of
two-thirds of the shares not held by the 10% shareholder or the corporation has
elected not to be bound by this provision. The VSCA also contains a "control
share" provision whereby the voting rights of a shareholder are eliminated with
respect to shares, the acquisition of which causes the percentage of shares
beneficially owned by such shareholder to exceed one of several percentage
threshholds, unless a resolution granting voting power is approved by a majority
of all votes which could be cast in a directors' election, excluding certain
shares including those of the acquiring shareholder, or the corporation has
elected not to be bound by this provision. The VSCA also includes a provision
permitting a board of directors to adopt a "poison pill."
APPROVAL OF THE COMPANY LONG-TERM INCENTIVE PLAN
Subsequent to the execution of the Merger Agreement, BGE and PEPCO agreed
that the Company would adopt a stock compensation plan to replace the BGE LTIP
and the PEPCO LTIP (except with respect to obligations incurred or attributable
to employment prior to the Effective Time) subject to approval by shareholders.
Accordingly, the Company LTIP is submitted to shareholders of the common stock
of BGE and PEPCO for approval, as more fully described below. Conditioned upon
the Merger becoming effective, the Company LTIP will become effective only if
approved by shareholders as described below, in which event it will become
effective at the Effective Time and will terminate 10 years thereafter.
The affirmative vote of a majority of the outstanding shares of BGE Common
Stock present in person or by proxy at the BGE Meeting and the affirmative vote
of a majority of the outstanding shares of PEPCO Common Stock present in person
or by proxy at the PEPCO Meeting, respectively, is required to approve the
Company LTIP. This shareholder approval will meet the requirements of Section
422 of the Code and Rule 16b-3 under the Exchange Act ("Rule 16b-3").
THE BOARD OF DIRECTORS OF EACH OF BGE AND PEPCO UNANIMOUSLY RECOMMENDS A VOTE
FOR APPROVAL OF THE COMPANY LTIP.
78
<PAGE>
Set forth below is a summary of certain important features of the Company
LTIP, which summary is qualified in its entirety by reference to the actual plan
document attached as Exhibit H to this Joint Proxy Statement/Prospectus:
OBJECTIVE
The objective of the Company LTIP is to increase shareholder value by
providing a long-term incentive to reward officers and key employees of the
Company and its subsidiaries for the profitable performance of the Company and
its subsidiaries, and to increase the ownership of Company Common Stock by such
employees.
SHARES AVAILABLE UNDER THE PLAN
The number of shares of Company Common Stock that may be granted to
participants under the proposed Company LTIP is 5,500,000. If an award lapses or
the participant's rights with respect to such award otherwise terminate, any
shares of Company Common Stock subject to such award will again be available for
future awards under the Company LTIP.
ADMINISTRATION
The Company LTIP will be administered by the Committee on Management of the
Company Board (the "Committee"), unless such Committee fails to satisfy the
disinterested administration provisions under Rule 16b-3, in which case a
committee of directors of the Company Board who satisfy such requirements will
administer the Company LTIP. The Company LTIP gives the Committee broad
authority to determine the persons to whom, and the times at which, awards will
be granted or lapse under the Company LTIP, the types of awards to be granted,
the number of shares of Company Common Stock to be covered by each award, and
all other terms and conditions for awards granted under the Company LTIP.
PARTICIPATION
Each officer or key employee of the Company or its subsidiaries designated
by the Committee is eligible to participate in the Company LTIP. Non-employee
directors are not eligible to participate.
AWARDS
Under the Company LTIP, the following types of awards may be granted from
time to time by the Committee:
RESTRICTED STOCK. The Committee may grant awards of Company Common Stock
bearing restrictions ("Company Restricted Stock") prohibiting a participant's
transfer of the Company Restricted Stock until the lapse of a restriction
period. No consideration is payable by the participant as a result of the grant.
The Committee may establish the terms and conditions of each grant, including
the restriction period (which will be not less than one and not more than 10
years), whether dividends will be paid currently or accumulated and the form of
any dividend payment, and may also condition the awards on the completion of a
specified period of service or on attainment, during a performance period
established by the Committee, of one or more performance objectives established
by the Committee. Performance objectives, which may vary from participant to
participant, are determined by the Committee and may include, but are not
limited to, the performance of the participant, the Company, one or more of its
subsidiaries, or any combination thereof. On completion of the restriction
period and attainment of any performance objectives, the restrictions will
expire with respect to one or more shares of Company Restricted Stock. If target
performance objectives are exceeded, the Committee may award additional Company
Common Stock to a participant.
OPTIONS. The Committee may grant either ISOs that are qualified under
Section 422 of the Code or options not intended to qualify under Section 422 of
the Code ("Nonqualified Options"). No consideration is payable by the
participant as a result of the grant. The Committee may establish the terms and
conditions of each grant; PROVIDED, HOWEVER, that an option to purchase a share
of Company Common Stock may not be granted with an exercise price of less than
100% of the fair market value of
79
<PAGE>
a share of Company Common Stock on such date. Further, the period during which
the options are exercisable will not exceed 10 years from the date of grant. In
the Committee's discretion, the exercise price may be paid in cash, shares of
Company Common Stock, or both.
PERFORMANCE UNITS. The Committee may make performance awards payable in
cash, Company Common Stock or both, upon attainment during a performance period
established by the Committee, of one or more performance objectives established
by the Committee. Performance objectives, which may vary from participant to
participant, are determined by the Committee and may include, but are not
limited to, the performance of the participant, the Company, one or more of its
subsidiaries, or any combination thereof.
STOCK APPRECIATION RIGHTS. The Committee may grant awards of stock
appreciation rights in conjunction with an option or as a separate award. No
consideration is payable by the participant as a result of the grant. The
Committee may establish the terms and conditions of each grant; PROVIDED,
HOWEVER, the period during which the rights are exercisable will not exceed 10
years.
Stock appreciation rights provide the right to receive a payment in cash,
Company Common Stock, or both in the Committee's discretion. If a grant is in
conjunction with an option, the option must be surrendered, and the amount of
the payment will be determined, in the Committee's sole discretion, based on (i)
the excess of the fair market value of the Company Common Stock at the date of
exercise over the option price or (ii) the excess of the book value of the
Company Common Stock at the date of exercise over the book value of the Company
Common Stock at the date the underlying option was granted. If a grant is not in
conjunction with an option, the payment will be determined, in the Committee's
sole discretion, based on (i) the excess of the fair market value of the Company
Common Stock at the date of exercise over the fair market value of the Company
Common Stock at the date of grant of the stock appreciation right or (ii) the
excess of the book value of the Company Common Stock at the date of exercise
over the book value of the Company Common Stock at the date of grant of the
stock appreciation right.
DIVIDEND EQUIVALENTS. The Committee may grant awards of dividend
equivalents in conjunction with an option, a separately awarded stock
appreciation right, performance units or awards of additional Company Common
Stock if performance-based Company Restricted Stock target performance
objectives are exceeded. No consideration is payable by the participant as a
result of the grant. Each dividend equivalent entitles the participant to
receive an amount, at such times and in a form and manner in the Committee's
discretion, equal to the dividend actually paid with respect to a share of
Company Common Stock on each dividend payment date from the date of grant until
the dividend equivalent lapses. Dividend equivalents will lapse at a date no
later than the date the underlying award lapses or is exercised.
ACCELERATED AWARD
If a change in control of the Company occurs, a participant with an
outstanding restricted stock or performance unit award will be entitled to an
accelerated, prorated payout, and any outstanding option or stock appreciation
right award will be immediately exercisable. If the original award provided for
payment in Company Common Stock, any required payout will be made in Company
Common Stock.
TAX WITHHOLDING
The Company or its subsidiaries may withhold any applicable federal, state
or local taxes upon payment under an award. Subject to any applicable law, if
payment under an award is to be made in Company Common Stock, the Committee may
in its discretion permit or require a participant to satisfy any withholding or
other taxes payable through (i) the payment of cash by the participant to the
Company or its subsidiaries, (ii) the retention by the Company or its
subsidiaries of shares of Company Common Stock or (iii) the delivery by the
participant to the Company or its subsidiaries of Company Common Stock owned by
the participant. Special rules apply to participants subject to the reporting
requirements of Section 16(a) of the Exchange Act.
80
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax consequences of an award under the Company LTIP
depend on the type of award, as discussed below:
RESTRICTED STOCK. The grant of Company Restricted Stock does not result in
taxable income to a participant or a tax deduction for the Company. At the time
the restrictions expire, however, a participant will realize ordinary taxable
income in an amount equal to the fair market value of the Company Common Stock
on the date the restrictions expire, and the Company will be entitled to a
corresponding deduction. In addition, during or after the restriction period
(depending on whether the dividends are paid to the individuals or accumulated),
a participant will be taxed on the dividends paid with respect to Company
Restricted Stock as compensation, and the Company will be entitled to a
corresponding deduction.
INCENTIVE STOCK OPTIONS. ISOs under the Plan are intended to meet the
requirements of Section 422 of the Code. The grant of an ISO does not result in
taxable income to the participant or a tax deduction for the Company. The
exercise of an ISO will not result in ordinary taxable income to the participant
(although the difference between the exercise price and the fair market value of
the Company Common Stock subject to the option may result in alternative minimum
tax liability to the participant) and the Company will not be allowed a
deduction at any time in connection with such award, if the following conditions
are met: (i) at all times during the period beginning with the date of grant and
ending on the day three months before the date of exercise, the participant is
an employee of the Company or of a subsidiary; and (ii) the participant makes no
disposition of Company Common Stock within two years from the date of grant nor
within one year after the Company Common Stock is transferred to the
participant. The three-month period is extended to one year in the event of
disability and is waived in the event of death of the participant. If the
Company Common Stock is sold by the participant after meeting these conditions,
any gain realized over the exercise price ordinarily will be treated as
long-term capital gain, and any loss will be treated as long-term capital loss,
in the year of the sale.
If the participant fails to comply with the employment or holding period
requirements discussed above, the participant will recognize ordinary taxable
income in an amount equal to the lesser of (i) the excess of the fair market
value of the Company Common Stock on the date of exercise over the exercise
price or (ii) the excess of the amount realized upon such disposition over the
exercise price. If the participant realizes ordinary taxable income on account
of such a disqualifying disposition (described above), a corresponding deduction
will be allowed to the Company for the same year.
NONQUALIFIED STOCK OPTIONS. The grant of a Nonqualified Option does not
result in taxable income to the participant or a tax deduction for the Company.
Upon exercise of a nonqualified stock option, the participant will realize
compensation taxable as ordinary income in an amount equal to the difference
between the exercise price and the fair market value of the Company Common Stock
on the date of exercise, and the Company will be entitled to a corresponding
deduction for the same year. The participant's basis in such shares will be the
fair market value on the date income is realized, and when the participant
disposes of the shares he or she will recognize capital gain or loss, either
long-term or short-term, depending on the holding period of the shares, on any
gain realized in excess of the basis.
STOCK APPRECIATION RIGHTS. The grant of a stock appreciation right does not
result in taxable income to the participant or a tax deduction for the Company.
Upon exercise of a stock appreciation right, the participant will realize
ordinary taxable income in an amount equal to the excess of the fair market
value of the Company Common Stock or cash received over any amount paid by the
participant upon exercise, and the Company will be entitled to a corresponding
deduction for the same year.
PERFORMANCE UNITS. The grant of a performance unit does not result in
taxable income to the participant or a tax deduction for the Company. Upon the
expiration of the applicable award cycle and receipt of the Company Common Stock
distributed in payment of the award or an equivalent amount
81
<PAGE>
of cash, the participant will realize ordinary taxable income equal to the full
fair market value of the shares delivered or the amount of cash paid. At that
time, the Company generally will be allowed a corresponding tax deduction equal
to the compensation taxable to participant.
Accounting principles require that restricted share awards be charged
against earnings on a pro rata basis over the restriction period and will be
based on the value of the stock at the date of grant. Under the terms of the
Company LTIP, the granting of ISOs or Nonqualified Options, without accompanying
stock appreciation rights, will not require a charge against earnings. The
granting of stock appreciation rights, however, will require that earnings be
charged over the specified award period for any appreciation in the value of the
underlying stock subsequent to the date of grant.
NEW PLAN BENEFITS
It cannot be determined at this time what benefits or amounts, if any, will
be received by or allocated to any person or group of persons under the Company
LTIP if the Company LTIP is adopted or what benefits or amounts would have been
received by or allocated to any person or group of persons for the last fiscal
year if the Company LTIP had been in effect. Any such determinations will be
made by the Committee in its sole discretion.
82
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma condensed financial information combines
the historical consolidated balance sheets and statements of income of BGE and
PEPCO, including their respective subsidiaries, after giving effect to the
Merger. The unaudited pro forma combined condensed balance sheet at September
30, 1995, set forth below, gives effect to the Merger as if it had occurred at
September 30, 1995. The unaudited pro forma combined condensed statements of
income for each of the three years ended December 31, 1994, 1993 and 1992 and
the nine-month period ended September 30, 1995, give effect to the Merger as if
it had occurred at January 1, 1992. These statements are prepared on the basis
of accounting for the Merger as a pooling of interests and are based on the
assumptions set forth in the notes thereto.
The PEPCO income statement for the nine-month period ended September 30,
1995 includes a $110 million one-time, non-cash, after-tax charge to earnings
recorded in the second quarter of 1995 in connection with the plan to sell 13
aircraft owned by its subsidiary, Potomac Capital Investment Corporation, as
part of the adoption of a plan to end investment in the aircraft equipment
leasing business. Income for the 12 months ended September 30, 1995 also
included a nonrecurring charge of $12 million ($0.11 per share) relating to
valuation of two aircraft under a master lease agreement which expired in
September 1995.
The following pro forma financial information has been prepared from, and
should be read in conjunction with, the historical consolidated financial
statements and related notes thereto of BGE and PEPCO incorporated by reference
herein. The following information is not necessarily indicative of the financial
position or operating results that would have occurred had the Merger been
consummated on the dates, or at the beginning of the periods, for which the
Merger is being given effect, nor is it necessarily indicative of future
financial position or operating results.
83
<PAGE>
CONSTELLATION ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PEPCO
(AS
BGE RECLASSIFIED) PRO FORMA PRO FORMA
(AS REPORTED) (SEE NOTE 1) ADJUSTMENTS COMBINED
-------------- --------------- ----------------- --------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents....................... $ 28,080 $ 23,544 $ 51,624
Accounts receivable -- net...................... 388,821 353,562 742,383
Materials and supplies.......................... 148,501 137,956 286,457
Prepayments and other........................... 159,987 36,727 196,714
-------------- --------------- --------------
Total current assets.......................... 725,389 551,789 1,277,178
-------------- --------------- --------------
Investments and Other Assets
Notes receivable................................ -- 62,256 62,256
Real estate projects............................ 471,308 70,885 542,193
Power generation systems........................ 347,372 1,548 348,920
Financial investments........................... 146,653 -- 146,653
Marketable securities........................... 22,912 521,555 544,467
Investment in finance leases.................... 33,712 490,252 523,964
Operating lease equipment -- net................ -- 234,654 234,654
Assets held for disposal........................ -- 104,370 104,370
Other investments............................... 199,042 84,983 284,025
-------------- --------------- --------------
Total investments and other assets............ 1,220,999 1,570,503 2,791,502
-------------- --------------- --------------
Utility Plant
Plant in service
Electric...................................... 6,256,165 5,957,833 12,213,998
Gas........................................... 676,999 -- 676,999
Common........................................ 521,743 -- 521,743
-------------- --------------- --------------
Total plant in service...................... 7,454,907 5,957,833 13,412,740
Accumulated depreciation........................ (2,452,705) (1,724,198) (4,176,903)
Construction work in progress................... 303,093 134,167 437,260
Nuclear fuel -- net............................. 143,132 -- 143,132
Other plant -- net.............................. 25,295 26,130 51,425
-------------- --------------- --------------
Net utility plant........................... 5,473,722 4,393,932 9,867,654
-------------- --------------- --------------
Deferred Charges
Regulatory assets............................... 615,987 455,726 1,071,713
Other........................................... 87,488 108,206 195,694
-------------- --------------- --------------
Total deferred charges........................ 703,475 563,932 1,267,407
-------------- --------------- --------------
Total Assets...................................... $ 8,123,585 $ 7,080,156 $ 15,203,741
-------------- --------------- --------------
-------------- --------------- --------------
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
84
<PAGE>
CONSTELLATION ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PEPCO
(AS
BGE RECLASSIFIED) PRO FORMA PRO FORMA
(AS REPORTED) (SEE NOTE 1) ADJUSTMENTS COMBINED
------------- --------------- ----------------- --------------
<S> <C> <C> <C> <C>
LIABILITIES AND CAPITALIZATION
Current Liabilities
Short-term borrowings............................ $ 13,800 $ 289,950 $ 303,750
Current portion of long-term debt and preference
stock........................................... 416,546 397,873 814,419
Accounts payable................................. 126,644 298,125 424,769
Other............................................ 249,564 132,683 382,247
------------- --------------- --------------
Total current liabilities.................... 806,554 1,118,631 1,925,185
------------- --------------- --------------
Deferred Credits and Other Liabilities
Deferred income taxes............................ 1,241,712 982,571 2,224,283
Capital lease obligations........................ -- 165,771 165,771
Pension and post-employment benefits............. 135,420 -- 135,420
Other............................................ 99,485 32,248 131,733
------------- --------------- --------------
Total deferred credits and other
liabilities................................. 1,476,617 1,180,590 2,657,207
------------- --------------- --------------
Capitalization
Long-term debt................................... 2,509,119 2,599,034 5,108,153
Preferred stock.................................. 59,185 268,826 328,011
Preference stock................................. 463,500 -- 463,500
Common shareholders' equity...................... 2,808,610 1,913,075 4,721,685
------------- --------------- --------------
Total capitalization......................... 5,840,414 4,780,935 10,621,349
------------- --------------- --------------
Total Liabilities and Capitalization............... $ 8,123,585 $ 7,080,156 $ 15,203,741
------------- --------------- --------------
------------- --------------- --------------
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
85
<PAGE>
CONSTELLATION ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PEPCO
(AS
BGE RECLASSIFIED) PRO FORMA PRO FORMA
(AS REPORTED) (SEE NOTE 1) ADJUSTMENTS COMBINED
-------------- --------------- ----------------- --------------
<S> <C> <C> <C> <C>
Revenues
Electric........................................ $ 1,726,220 $ 1,473,852 $ 3,200,072
Gas............................................. 270,229 -- 270,229
Diversified businesses.......................... 212,638 100,185 312,823
-------------- --------------- --------------
Total revenues.............................. 2,209,087 1,574,037 3,783,124
-------------- --------------- --------------
Operating Expenses
Electric fuel and purchased energy.............. 435,667 503,551 939,218
Gas purchased for resale........................ 129,330 -- 129,330
Operations...................................... 401,184 164,725 565,909
Maintenance..................................... 122,720 65,803 188,523
Diversified businesses expenses................. 148,337 69,047 217,384
Loss on assets held for disposal................ -- 170,078 170,078
Depreciation and amortization................... 245,574 151,600 397,174
Taxes other than income taxes................... 157,389 157,560 314,949
-------------- --------------- --------------
Total operating expenses.................... 1,640,201 1,282,364 2,922,565
-------------- --------------- --------------
Income From Operations............................ 568,886 291,673 860,559
Total Other Income................................ 7,950 9,326 17,276
-------------- --------------- --------------
Income Before Interest and Income
Taxes............................................ 576,836 300,999 877,835
Net Interest Expense.............................. 148,455 172,321 320,776
-------------- --------------- --------------
Income Before Income Taxes........................ 428,381 128,678 557,059
Income Taxes...................................... 143,303 43,541 186,844
-------------- --------------- --------------
Net Income........................................ 285,078 85,137 370,215
Preferred and Preference Stock
Dividends........................................ 30,135 12,675 42,810
-------------- --------------- --------------
Earnings Applicable to Common Stock............... $ 254,943 $ 72,462 $ 327,405
-------------- --------------- --------------
-------------- --------------- --------------
Average Shares of Common Stock Outstanding (Note
2)............................................... 147,527 118,385 265,557
Earnings Per Share of Common Stock................ $1.73 $0.61 $1.23
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
86
<PAGE>
CONSTELLATION ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PEPCO
(AS
BGE RECLASSIFIED) PRO FORMA PRO FORMA
(AS REPORTED) (SEE NOTE 1) ADJUSTMENTS COMBINED
-------------- --------------- ----------------- --------------
<S> <C> <C> <C> <C>
Revenues
Electric........................................ $ 2,126,581 $ 1,823,074 $ 3,949,655
Gas............................................. 421,249 -- 421,249
Diversified businesses.......................... 235,155 146,951 382,106
-------------- --------------- --------------
Total revenues.............................. 2,782,985 1,970,025 4,753,010
-------------- --------------- --------------
Operating Expenses
Electric fuel and purchased energy.............. 542,314 693,936 1,236,250
Gas purchased for resale........................ 224,590 -- 224,590
Operations...................................... 545,413 206,106 751,519
Maintenance..................................... 164,892 92,614 257,506
Diversified businesses expenses................. 174,834 66,401 241,235
Depreciation and amortization................... 295,950 179,986 475,936
Taxes other than income taxes................... 199,733 206,080 405,813
-------------- --------------- --------------
Total operating expenses.................... 2,147,726 1,445,123 3,592,849
-------------- --------------- --------------
Income From Operations............................ 635,259 524,902 1,160,161
Total Other Income................................ 32,365 10,584 42,949
-------------- --------------- --------------
Income Before Interest and Income
Taxes............................................ 667,624 535,486 1,203,110
Net Interest Expense.............................. 190,154 214,371 404,525
-------------- --------------- --------------
Income Before Income Taxes........................ 477,470 321,115 798,585
Income Taxes...................................... 153,853 93,953 247,806
-------------- --------------- --------------
Net Income........................................ 323,617 227,162 550,779
Preferred and Preference Stock
Dividends........................................ 39,922 16,437 56,359
-------------- --------------- --------------
Earnings Applicable to Common Stock............... $ 283,695 $ 210,725 $ 494,420
-------------- --------------- --------------
-------------- --------------- --------------
Average Shares of Common Stock Outstanding (Note
2)............................................... 147,100 118,006 264,752
Earnings Per Share of Common Stock................ $1.93 $1.79 $1.87
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
87
<PAGE>
CONSTELLATION ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PEPCO
(AS
BGE RECLASSIFIED) PRO FORMA PRO FORMA
(AS REPORTED) (SEE NOTE 1) ADJUSTMENTS COMBINED
-------------- --------------- ----------------- --------------
<S> <C> <C> <C> <C>
Revenues
Electric........................................ $ 2,112,147 $ 1,725,205 $ 3,837,352
Gas............................................. 433,163 -- 433,163
Diversified businesses.......................... 196,075 139,341 335,416
-------------- --------------- --------------
Total revenues.............................. 2,741,385 1,864,546 4,605,931
-------------- --------------- --------------
Operating Expenses
Electric fuel and purchased energy.............. 534,628 624,026 1,158,654
Gas purchased for resale........................ 242,685 -- 242,685
Operations...................................... 574,073 207,814 781,887
Maintenance..................................... 181,208 93,668 274,876
Diversified businesses expenses................. 143,654 81,457 225,111
Depreciation and amortization................... 253,913 163,607 417,520
Taxes other than income taxes................... 194,832 201,252 396,084
-------------- --------------- --------------
Total operating expenses.................... 2,124,993 1,371,824 3,496,817
-------------- --------------- --------------
Income From Operations............................ 616,392 492,722 1,109,114
Total Other Income................................ 20,310 20,510 40,820
-------------- --------------- --------------
Income Before Interest and Income
Taxes............................................ 636,702 513,232 1,149,934
Net Interest Expense.............................. 188,764 209,508 398,272
-------------- --------------- --------------
Income Before Income Taxes........................ 447,938 303,724 751,662
Income Taxes...................................... 138,072 62,145 200,217
-------------- --------------- --------------
Net Income........................................ 309,866 241,579 551,445
Preferred and Preference Stock
Dividends........................................ 41,839 16,255 58,094
-------------- --------------- --------------
Earnings Applicable to Common Stock............... $ 268,027 $ 225,324 $ 493,351
-------------- --------------- --------------
-------------- --------------- --------------
Average Shares of Common Stock Outstanding (Note
2)............................................... 145,072 115,640 260,365
Earnings Per Share of Common Stock................ $1.85 $1.95 $1.89
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
88
<PAGE>
CONSTELLATION ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1992
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PEPCO
(AS
BGE RECLASSIFIED) PRO FORMA PRO FORMA
(AS REPORTED) (SEE NOTE 1) ADJUSTMENTS COMBINED
-------------- --------------- ----------------- --------------
<S> <C> <C> <C> <C>
Revenues..........................................
Electric........................................ $ 1,965,532 $ 1,601,558 $ 3,567,090
Gas............................................. 400,399 -- 400,399
Diversified businesses.......................... 193,605 161,154 354,759
-------------- --------------- --------------
Total revenues.............................. 2,559,536 1,762,712 4,322,248
-------------- --------------- --------------
Operating Expenses
Electric fuel and purchased energy.............. 556,184 607,631 1,163,815
Gas purchased for resale........................ 214,103 -- 214,103
Operations...................................... 537,593 204,481 742,074
Maintenance..................................... 172,248 90,756 263,004
Diversified businesses expenses................. 131,580 44,321 175,901
Depreciation and amortization................... 229,515 149,785 379,300
Taxes other than income taxes................... 183,004 194,180 377,184
-------------- --------------- --------------
Total operating expenses.................... 2,024,227 1,291,154 3,315,381
-------------- --------------- --------------
Income From Operations............................ 535,309 471,558 1,006,867
Total Other Income................................ 22,132 19,288 41,420
-------------- --------------- --------------
Income Before Interest and Income
Taxes............................................ 557,441 490,846 1,048,287
Net Interest Expense.............................. 189,747 210,605 400,352
-------------- --------------- --------------
Income Before Income Taxes........................ 367,694 280,241 647,935
Income Taxes...................................... 103,347 79,481 182,828
-------------- --------------- --------------
Income from Continuing Operations................. 264,347 200,760 465,107
Preferred and Preference Stock
Dividends........................................ 42,247 14,392 56,639
-------------- --------------- --------------
Earnings from Continuing Operations Applicable to
Common Stock (Note 3)............................ $ 222,100 $ 186,368 $ 408,468
-------------- --------------- --------------
-------------- --------------- --------------
Average Shares of Common Stock Outstanding (Note
2)............................................... 136,248 112,390 248,301
Earnings from Continuing Operations Per Share of
Common Stock (Note 3)............................ $1.63 $1.66 $1.65
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statement
89
<PAGE>
PEPCO
RECLASSIFYING STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PEPCO
PEPCO PEPCO (AS
(AS REPORTED) (RECLASSES) RECLASSIFIED)
------------- ------------ ---------------
<S> <C> <C> <C>
Revenues
Electric......................................................... $ 1,473,852 $ 1,473,852
Gas.............................................................. -- --
Diversified businesses........................................... -- 100,185 100,185
------------- ------------ ---------------
Total........................................................ 1,473,852 100,185 1,574,037
------------- ------------ ---------------
Operating Expenses
Electric fuel and purchased energy............................... -- 503,551 503,551
Fuel............................................................. 265,013 (265,013) --
Purchased energy................................................. 143,706 (143,706) --
Capacity purchase payments....................................... 94,832 (94,832) --
Gas purchased for resale......................................... -- --
Operations....................................................... 164,725 164,725
Maintenance...................................................... 65,803 65,803
Diversified businesses expenses.................................. -- 69,047 69,047
Loss on assets held for disposal................................. -- 170,078 170,078
Depreciation and amortization.................................... 151,600 151,600
Income taxes..................................................... 125,320 (125,320) --
Taxes other than income.......................................... 157,560 157,560
------------- ------------ ---------------
Total operating expenses..................................... 1,168,559 113,805 1,282,364
------------- ------------ ---------------
Income from Operations............................................. 305,293 (13,620) 291,673
------------- ------------ ---------------
Other (Loss) Income
Nonutility subsidiary income..................................... 101,298 (101,298) --
Loss on assets held for disposal................................. (170,078) 170,078 --
Expenses, including interest and income taxes.................... (55,173) 55,173 --
------------- ------------ ---------------
Net loss from nonutility subsidiary............................ (123,953) 123,953 --
Allowance for other funds used during construction............... 1,084 1,084
Other, net....................................................... 7,006 1,236 8,242
------------- ------------ ---------------
Total Other (Loss) Income.......................................... (115,863) 125,189 9,326
------------- ------------ ---------------
Income Before Interest and Income Taxes............................ 189,430 111,569 300,999
------------- ------------ ---------------
Interest Charges
Interest on debt................................................. 97,498 97,498
Other............................................................ 12,536 12,536
Subsidiary interest expense...................................... -- 68,028 68,028
Allowance for borrowed funds used during construction............ (5,741) (5,741)
------------- ------------ ---------------
Net Interest Expense........................................... 104,293 68,028 172,321
------------- ------------ ---------------
Income Before Income Taxes..................................... 85,137 43,541 128,678
------------- ------------ ---------------
Income taxes -- Utility............................................ -- 125,320 125,320
Income taxes -- Nonoperating....................................... -- (143) (143)
Income taxes -- Subsidiary......................................... -- (81,636) (81,636)
------------- ------------ ---------------
Total Income Taxes............................................. -- 43,541 43,541
------------- ------------ ---------------
Net Income......................................................... 85,137 -- 85,137
Preferred Dividends................................................ 12,675 12,675
------------- ---------------
Earnings Applicable to Common Stock................................ $ 72,462 $ 72,462
------------- ---------------
------------- ---------------
Average Shares of Common Stock Outstanding......................... 118,385 118,385
Earnings Per Share of Common Stock................................. $0.61 $0.61
</TABLE>
90
<PAGE>
PEPCO
RECLASSIFYING STATEMENT OF INCOME
TWELVE MONTHS ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PEPCO
PEPCO PEPCO (AS
(AS REPORTED) (RECLASSES) RECLASSIFIED)
------------- ------------ ---------------
<S> <C> <C> <C>
Revenues
Electric......................................................... $ 1,823,074 $ 1,823,074
Gas.............................................................. -- --
Diversified businesses........................................... -- 146,951 146,951
------------- ------------ ---------------
Total........................................................ 1,823,074 146,951 1,970,025
------------- ------------ ---------------
Operating Expenses
Electric fuel and purchased energy............................... -- 693,936 693,936
Fuel............................................................. 392,730 (392,730) --
Purchased energy................................................. 173,384 (173,384) --
Capacity purchase payments....................................... 127,822 (127,822) --
Gas purchased for resale......................................... -- --
Operations....................................................... 206,106 206,106
Maintenance...................................................... 92,614 92,614
Diversified businesses expenses.................................. -- 66,401 66,401
Depreciation and amortization.................................... 179,986 179,986
Income taxes..................................................... 119,859 (119,859) --
Taxes other than income.......................................... 206,080 206,080
------------- ------------ ---------------
Total Operating Expenses..................................... 1,498,581 (53,458) 1,445,123
------------- ------------ ---------------
Income from Operations............................................. 324,493 200,409 524,902
------------- ------------ ---------------
Other Income
Nonutility subsidiary income..................................... 147,006 (147,006) --
Expenses, including interest and income taxes.................... (127,918) 127,918 --
------------- ------------ ---------------
Net earnings from nonutility subsidiary........................ 19,088 (19,088) --
Allowance for other funds used during construction............... 9,123 9,123
Other, net....................................................... 4,046 (2,585) 1,461
------------- ------------ ---------------
Total Other Income................................................. 32,257 (21,673) 10,584
------------- ------------ ---------------
Income Before Interest and Income Taxes............................ 356,750 178,736 535,486
------------- ------------ ---------------
Interest Charges
Interest on debt................................................. 139,210 139,210
Subsidiary interest expense...................................... -- 84,783 84,783
Allowance for borrowed funds used during construction............ (9,622) (9,622)
------------- ------------ ---------------
Net Interest Expense........................................... 129,588 84,783 214,371
------------- ------------ ---------------
Income Before Income Taxes......................................... 227,162 93,953 321,115
------------- ------------ ---------------
Income taxes -- Utility............................................ -- 119,859 119,859
Income taxes -- Nonoperating....................................... -- (2,995) (2,995)
Income taxes -- Subsidiary......................................... -- (22,911) (22,911)
------------- ------------ ---------------
Total Income Taxes............................................. -- 93,953 93,953
------------- ------------ ---------------
Net Income......................................................... 227,162 -- 227,162
Preferred Dividends................................................ 16,437 16,437
------------- ---------------
Earnings Applicable to Common Stock................................ $ 210,725 $ 210,725
------------- ---------------
------------- ---------------
Average Shares of Common Stock Outstanding......................... 118,006 118,006
Earnings per Share of Common Stock................................. $1.79 $1.79
</TABLE>
91
<PAGE>
PEPCO
RECLASSIFYING STATEMENT OF INCOME
TWELVE MONTHS ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PEPCO
PEPCO PEPCO (AS
(AS REPORTED) (RECLASSES) RECLASSIFIED)
------------- ------------ ---------------
<S> <C> <C> <C>
Revenues
Electric......................................................... $ 1,725,205 $ 1,725,205
Gas.............................................................. -- --
Diversified businesses........................................... -- 139,341 139,341
------------- ------------ ---------------
Total........................................................ 1,725,205 139,341 1,864,546
------------- ------------ ---------------
Operating Expenses
Electric fuel and purchased energy............................... -- 624,026 624,026
Fuel............................................................. 354,282 (354,282) --
Purchased energy................................................. 173,456 (173,456) --
Capacity purchase payments....................................... 96,288 (96,288) --
Gas purchased for resale......................................... -- --
Operations....................................................... 207,814 207,814
Maintenance...................................................... 93,668 93,668
Diversified businesses expenses.................................. -- 81,457 81,457
Depreciation and amortization.................................... 163,607 163,607
Income taxes..................................................... 110,176 (110,176) --
Taxes other than income.......................................... 201,252 201,252
------------- ------------ ---------------
Total Operating Expenses..................................... 1,400,543 (28,719) 1,371,824
------------- ------------ ---------------
Income from Operations............................................. 324,662 168,060 492,722
------------- ------------ ---------------
Other Income
Nonutility subsidiary income..................................... 139,341 (139,341) --
Expenses, including interest and income taxes.................... (114,240) 114,240 --
------------- ------------ ---------------
Net earnings from nonutility subsidiary...................... 25,101 (25,101) --
Allowance for other funds used during construction............... 13,242 13,242
Other, net....................................................... 10,221 (2,953) 7,268
------------- ------------ ---------------
Total Other Income................................................. 48,564 (28,054) 20,510
------------- ------------ ---------------
Income Before Interest and Income Taxes............................ 373,226 140,006 513,232
------------- ------------ ---------------
Interest Charges
Interest on debt................................................. 141,393 141,393
Subsidiary interest expense...................................... -- 77,861 77,861
Allowance for borrowed funds used during construction............ (9,746) (9,746)
------------- ------------ ---------------
Net Interest Expense......................................... 131,647 77,861 209,508
------------- ------------ ---------------
Income Before Income Taxes......................................... 241,579 62,145 303,724
------------- ------------ ---------------
Income taxes -- Utility............................................ -- 110,176 110,176
Income taxes -- Nonoperating....................................... -- (2,953) (2,953)
Income taxes -- Subsidiary......................................... -- (45,078) (45,078)
------------- ------------ ---------------
Total Income Taxes........................................... -- 62,145 62,145
------------- ------------ ---------------
Net Income......................................................... 241,579 -- 241,579
Preferred Dividends................................................ 16,255 16,255
------------- ---------------
Earnings Applicable to Common Stock................................ $ 225,324 $ 225,324
------------- ---------------
------------- ---------------
Average Shares of Common Stock Outstanding......................... 115,640 115,640
Earnings per Share of Common Stock................................. $1.95 $1.95
</TABLE>
92
<PAGE>
PEPCO
RECLASSIFYING STATEMENT OF INCOME
TWELVE MONTHS ENDED DECEMBER 31, 1992
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PEPCO
PEPCO PEPCO (AS
(AS REPORTED) (RECLASSES) RECLASSIFIED)
------------- ------------ ---------------
<S> <C> <C> <C>
Revenues
Electric......................................................... $ 1,601,558 $ 1,601,558
Gas.............................................................. -- --
Diversified businesses........................................... -- 161,154 161,154
------------- ------------ ---------------
Total........................................................ 1,601,558 161,154 1,762,712
------------- ------------ ---------------
Operating Expenses
Electric fuel and purchased energy............................... -- 607,631 607,631
Fuel............................................................. 345,549 (345,549) --
Purchased energy................................................. 166,601 (166,601) --
Capacity purchase payments....................................... 95,481 (95,481) --
Gas purchased for resale......................................... -- --
Operations....................................................... 204,481 204,481
Maintenance...................................................... 90,756 90,756
Diversified businesses expenses.................................. -- 44,321 44,321
Depreciation and amortization.................................... 149,785 149,785
Income taxes..................................................... 75,272 (75,272) --
Taxes other than income.......................................... 194,180 194,180
------------- ------------ ---------------
Total Operating Expenses..................................... 1,322,105 (30,951) 1,291,154
------------- ------------ ---------------
Income from Operations............................................. 279,453 192,105 471,558
------------- ------------ ---------------
Other Income
Nonutility subsidiary income..................................... 161,154 (161,154) --
Expenses, including interest and income taxes.................... (132,993) 132,993 --
------------- ------------ ---------------
Net earnings from nonutility subsidiary...................... 28,161 (28,161) --
Allowance for other funds used during construction............... 16,089 16,089
Other, net....................................................... 1,506 1,693 3,199
------------- ------------ ---------------
Total Other Income................................................. 45,756 (26,468) 19,288
------------- ------------ ---------------
Income Before Interest and Income Taxes............................ 325,209 165,637 490,846
------------- ------------ ---------------
Interest Charges
Interest on debt................................................. 138,097 138,097
Subsidiary interest expense...................................... -- 86,156 86,156
Allowance for borrowed funds used during construction............ (13,648) (13,648)
------------- ------------ ---------------
Net Interest Expense......................................... 124,449 86,156 210,605
------------- ------------ ---------------
Income Before Income Taxes......................................... 200,760 79,481 280,241
------------- ------------ ---------------
Income taxes -- Utility............................................ -- 75,272 75,272
Income taxes -- Nonoperating....................................... -- 1,693 1,693
Income taxes -- Subsidiary......................................... -- 2,516 2,516
------------- ------------ ---------------
Total Income Taxes........................................... -- 79,481 79,481
------------- ------------ ---------------
Net Income from Continuing Operations.............................. 200,760 -- 200,760
Preferred Dividends................................................ 14,392 14,392
------------- ---------------
Earnings Applicable to Common Stock (a)............................ $ 186,368 $ 186,368
------------- ---------------
------------- ---------------
Average Shares of Common Stock Outstanding......................... 112,390 112,390
Earnings Per Share of Common Stock................................. $1.66 $1.66
</TABLE>
- ------------------------
(a) Excludes $16,022,000 ($.14 per share) related to PEPCO's cumulative effect
of a change in accounting to provide for the accrual of revenue for service
rendered but unbilled.
93
<PAGE>
PEPCO
RECLASSIFYING BALANCE SHEET
SEPTEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PEPCO
PEPCO PEPCO (AS
(AS REPORTED) (RECLASSES) RECLASSIFIED)
------------- ----------- ---------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents......................................... $ 21,866 $ 1,678 $ 23,544
Accounts Receivable -- net........................................ -- 353,562 353,562
Customer Accounts Receivable -- net............................... 190,932 (190,932) --
Other Accounts Receivable -- net.................................. 34,712 (34,712) --
Accrued Unbilled Revenue.......................................... 111,320 (111,320) --
Materials and Supplies............................................ -- 137,956 137,956
Fuel............................................................ 64,336 (64,336) --
Construction and Maintenance.................................... 73,620 (73,620) --
Prepayments and Other............................................. -- 36,727 36,727
Prepaid Taxes..................................................... 29,426 (29,426) --
Other Prepaid Expenses............................................ 7,301 (7,301) --
------------- ----------- ---------------
Total Current Assets.......................................... 533,513 18,276 551,789
------------- ----------- ---------------
Investments and Other Assets
Notes Receivable.................................................. -- 62,256 62,256
Real Estate Projects.............................................. -- 70,885 70,885
Power Generation Systems.......................................... -- 1,548 1,548
Marketable Securities............................................. -- 521,555 521,555
Investment in Finance Leases...................................... -- 490,252 490,252
Operating Lease Equipment -- net.................................. -- 234,654 234,654
Assets Held for Disposal.......................................... -- 104,370 104,370
Other Investments................................................. -- 84,983 84,983
------------- ----------- ---------------
Total Investments and Other Assets............................ -- 1,570,503 1,570,503
------------- ----------- ---------------
Utility Plant
Plant in Service
Electric........................................................ 5,957,833 5,957,833
Construction Work in Process.................................... 134,167 (134,167) --
Electric Plant Held for Future Use.............................. 4,061 (4,061) --
Nonoperating Property........................................... 22,770 (22,770) --
------------- ----------- ---------------
Total Plant in Service........................................ 6,118,831 (160,998) 5,957,833
Accumulated Depreciation.......................................... (1,724,899) 701 (1,724,198)
Construction Work in Process...................................... -- 134,167 134,167
Other Plant -- net................................................ -- 26,130 26,130
------------- ----------- ---------------
Net Utility Plant............................................. 4,393,932 -- 4,393,932
------------- ----------- ---------------
Deferred Charges
Regulatory Assets................................................. -- 455,726 455,726
Income Taxes Recoverable Through Future Rates, net................ 241,795 (241,795) --
Conservation Costs, net........................................... 221,552 (221,552) --
Unamortized Debt Reacquisition Costs.............................. 54,773 (54,773) --
Other............................................................. 122,664 (14,458) 108,206
------------- ----------- ---------------
Total Deferred Charges........................................ 640,784 (76,852) 563,932
------------- ----------- ---------------
Nonutility Subsidiary Assets
Cash and Cash Equivalents......................................... 1,678 (1,678) --
Marketable Securities............................................. 521,555 (521,555) --
Investment in Finance Leases...................................... 490,252 (490,252) --
Operating Lease Equipment -- net.................................. 234,654 (234,654) --
Assets Held For Disposal.......................................... 104,370 (104,370) --
Receivables -- net................................................ 78,854 (78,854) --
Other Investments................................................. 131,946 (131,946) --
Other Assets...................................................... 14,137 (14,137) --
------------- ----------- ---------------
Total Nonutility Subsidiary Assets.............................. 1,577,446 (1,577,446) --
------------- ----------- ---------------
Total Assets.................................................. $ 7,145,675 $ (65,519) $ 7,080,156
------------- ----------- ---------------
------------- ----------- ---------------
</TABLE>
94
<PAGE>
PEPCO
RECLASSIFYING BALANCE SHEET
SEPTEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PEPCO
PEPCO PEPCO (AS
(AS REPORTED) (RECLASSES) RECLASSIFIED)
------------- ----------- ---------------
<S> <C> <C> <C>
LIABILITIES AND CAPITALIZATION
Current Liabilities
Short-term Borrowings............................................. $ 68,750 $ 221,200 $ 289,950
Current Portion of Long-Term Debt................................. 124,800 273,073 397,873
Accounts Payable.................................................. 242,238 55,887 298,125
Capital Lease Obligations Due Within One Year..................... 20,772 (20,772) --
Other............................................................. 111,911 20,772 132,683
------------- ----------- ---------------
Total Current Liabilities..................................... 568,471 550,160 1,118,631
------------- ----------- ---------------
Deferred Credits and Other Liabilities
Deferred Income Taxes............................................. 880,093 102,478 982,571
Deferred Investment Tax Credits................................... 65,519 (65,519) --
Capital Lease Obligations......................................... -- 165,771 165,771
Pension and Post-Employment Benefits.............................. -- --
Other............................................................. 30,228 2,020 32,248
------------- ----------- ---------------
Total Deferred Credits and Other Liabilities.................. 975,840 204,750 1,180,590
------------- ----------- ---------------
Other Non-Current Liabilities
Capital Lease Obligation.......................................... 165,771 (165,771) --
------------- ----------- ---------------
Total Other Non-Current Liabilities........................... 165,771 (165,771) --
------------- ----------- ---------------
Capitalization
Long-Term Debt.................................................... 1,816,847 782,187 2,599,034
Preferred Stock................................................... -- 268,826 268,826
Serial Preferred Stock............................................ 125,341 (125,341) --
Redeemable Serial Preferred Stock................................. 143,485 (143,485) --
Common Shareholders' Equity....................................... -- 1,913,075 1,913,075
Common Stock...................................................... 118,493 (118,493) --
Other Common Equity............................................... 1,794,582 (1,794,582) --
------------- ----------- ---------------
Total Capitalization.......................................... 3,998,748 782,187 4,780,935
------------- ----------- ---------------
Nonutility Subsidiary Liabilities
Long-Term Debt.................................................... 1,055,260 (1,055,260) --
Short-Term Notes Payable.......................................... 221,200 (221,200) --
Deferred Taxes and Other.......................................... 160,385 (160,385) --
------------- ----------- ---------------
1,436,845 (1,436,845) --
------------- ----------- ---------------
Total Liabilities and Capitalization.......................... $ 7,145,675 $ (65,519) $ 7,080,156
------------- ----------- ---------------
------------- ----------- ---------------
</TABLE>
95
<PAGE>
CONSTELLATION ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. The revenues, expenses, assets and liabilities of PEPCO's nonregulated
subsidiaries have been reclassified to conform with the presentation
utilized by BGE. See PEPCO's Reclassifying Income Statements and Balance
Sheet. The effects of accounting policy differences are immaterial and have
not been adjusted in the pro forma combined condensed financial statements.
2. Pro forma per common share amounts give effect to the conversion of each
share of BGE and PEPCO Common Stock into 1 share and 0.997 of a share,
respectively of Constellation Energy Corporation Common Stock. See "The
Merger Agreement." The pro forma combined condensed financial statements are
presented as if the companies were combined during all periods included
therein.
3. The PEPCO and pro forma earnings from continuing operations applicable to
common stock and related per share amounts for the year ended December 31,
1992 exclude $16,022,000 ($.14 per share for PEPCO and $0.06 per share for
pro forma) relating to PEPCO's cumulative effect of a change in accounting
to provide for the accrual of revenue for service rendered but unbilled.
4. The allocation between BGE and PEPCO and their customers of the estimated
cost savings resulting from the Merger, net of the costs incurred to achieve
such savings, will be subject to regulatory review and approval. Transaction
costs are currently estimated to be approximately $35 million (including
fees for financial advisors, attorneys, accountants, consultants, filings
and printing). None of these estimated cost savings, the costs to achieve
such savings or transaction costs have been reflected in the pro forma
combined condensed financial statements.
5. Intercompany transactions between BGE and PEPCO during the periods presented
were not material and, accordingly, no pro forma adjustments were made to
eliminate such transactions.
6. The PEPCO Reclassifying Financial Information (unaudited) reflects the
reclassifying entries necessary to adjust PEPCO's consolidated balance sheet
and statement of income presentation to be consistent with the presentation
expected to be used by the Company.
96
<PAGE>
SELECTED INFORMATION CONCERNING BGE AND PEPCO
BUSINESS OF BGE
BGE was incorporated under the laws of the State of Maryland on June 20,
1906, and is primarily engaged in the business of producing, purchasing and
selling electricity and purchasing, transporting and selling natural gas within
the State of Maryland. BGE is qualified to do business in the District of
Columbia where its federal affairs office is located. BGE is qualified to do
business in the Commonwealth of Pennsylvania where it is participating in the
ownership and operation of two electric generating plants. BGE also owns
two-thirds of the outstanding capital stock, including one-half of the voting
securities, of Safe Harbor Water Power Corporation, a hydroelectric producer on
the Susquehanna River at Safe Harbor, Pennsylvania. BNG, Inc. is a wholly owned
subsidiary of BGE which engages in natural gas brokering. BGE is also engaged in
diversified businesses primarily through two wholly owned subsidiaries,
Constellation Holdings, Inc. and its subsidiaries and BGE Home Products &
Services, Inc. ("HPS") and its subsidiary Maryland Environmental Systems, Inc.
("MES"). The Constellation companies business include energy projects,
investments, real estate and senior living facilities while HPS and MES's
businesses include appliance and HVAC sales and service, home improvement and
plumbing. On November 1, 1995 BGE moved its energy services business to a new
subsidiary, BGE Energy Projects & Services, Inc. The energy services business
includes customer electrical system improvements, lighting and mechanical energy
services, campus and multi-building systems, brokering and associated financial
contracts and district chilled water systems. Its customers include industrial,
institutional and government customers in commercial office building, warehouse,
educational, health care and retail facilities. While most of these customers
are located in BGE's service territory, some are outside the territory in
Maryland and other states.
BGE furnishes electric and gas retail services in the City of Baltimore and
in all or part of ten counties in Central Maryland. The electric service
territory includes an area of approximately 2,300 square miles with an estimated
population of 2,625,000. The gas service territory includes an area of
approximately 627 square miles with an estimated population of 1,980,000. There
are no municipal or cooperative bulk power markets within BGE's service
territory.
The two electric generating units at BGE's Calvert Cliffs Nuclear Power
Plant are its principal generating facilities and have the lowest fuel cost in
BGE's system. An extended shutdown of either of these Units could have a
substantial adverse effect on the Company's business and financial condition.
The principal executive offices of BGE are located at 39 W. Lexington
Street, Baltimore, Maryland 21201.
Information regarding the names, ages, positions and business backgrounds of
the executive officers and directors of BGE, as well as additional information,
including executive compensation, security ownership of certain beneficial
owners and management and certain relationships and related transactions, is
incorporated by reference to the BGE Annual Report on Form 10-K for the year
ended December 31, 1994. Subsequent to that report, Stephen F. Wood, formerly
Vice President Marketing and Sales was elected President of EPS and Sharon
Hostetter was elected as Vice President Marketing and Sales.
BUSINESS OF PEPCO
PEPCO, which was incorporated in the District of Columbia in 1896 and in the
Commonwealth of Virginia in 1949, is engaged in the generation, transmission,
distribution and sale of electric energy in the Washington, D.C. metropolitan
area. PEPCO's retail service territory includes the District of Columbia and
major portions of Montgomery and Prince George's counties in suburban Maryland.
The area served at retail covers approximately 640 square miles and has a
population of approximately 1.9 million. PEPCO also sells electricity, at
wholesale, to Southern Maryland Electric Cooperative, Inc., which distributes
electricity in Calvert, Charles, Prince George's and St. Mary's counties in
southern Maryland. During 1994, approximately 59% of PEPCO's revenues were
derived from Maryland sales (including wholesale) and 41% from sales in the
District of Columbia. About 30% of
97
<PAGE>
PEPCO's revenues were derived from residential customers, 64% from sales to
commercial and government customers and 6% from sales at wholesale.
Approximately 14% and 3% of 1994 revenues were derived from sales to the U.S.
and D.C. governments, respectively.
PEPCO's wholly owned, nonutility subsidiary, Potomac Capital Investment
Corporation ("PCI"), was organized in late 1983 with the objective of
supplementing utility earnings and building long-term value. The principal
assets of PCI are portfolios of securities and equipment leases, and to a lesser
extent, real estate and other investments. In May 1995, PCI announced adoption
of a plan to end its investment in the aircraft equipment leasing business.
PEPCO had approximately 4,500 employees as of September 30, 1995. PEPCO's
principal executive offices are located at 1900 Pennsylvania Avenue, N.W.,
Washington, D.C. 20068 and its telephone number is (202) 872-2000.
Information regarding the names, ages, positions and business backgrounds of
the executive officers and directors of PEPCO, as well as additional
information, including executive compensation, security ownership of certain
beneficial owners and management and certain relationships and related
transactions, is incorporated by reference to the PEPCO Annual Report on Form
10-K for the year ended December 31, 1994.
PRIOR RELATIONSHIPS BETWEEN BGE AND PEPCO
As owners of adjacent electric utility systems, BGE and PEPCO have had a
long history of close operational coordination and participation in joint
projects. The first interconnection of the two electric systems was completed in
1933. Today, the two systems are also interconnected with those of neighboring
utility systems to form PJM. Under the PJM agreement, the interconnected
facilities are subject to common dispatch and are used by the members to
complete substantial energy and capacity transactions as well as for emergency
assistance. BGE and PEPCO have also previously entered into short-term
agreements to exchange capacity from their new generating facilities (BGE's
Calvert Cliffs Generating Facility and PEPCO's Morgantown Generating Facility)
and both BGE and PEPCO, along with several other companies, are joint owners
(tenants in common) of the Conemaugh coal-fired electric generating plant
located in Indiana County, Pennsylvania. Finally, BGE and PEPCO have
participated in joint construction projects from time to time, the most recent
of which was the construction of the 500 kv transmission line loop around
metropolitan Washington.
THE COMPANY FOLLOWING THE MERGER
MANAGEMENT OF THE COMPANY
BGE and PEPCO agreed in the Merger Agreement that at the Effective Time the
Company Board will consist of 16 persons, consisting of Mr. Edward F. Mitchell,
Mr. Christian H. Poindexter, Mr. Edward A. Crooke, Mr. John M. Derrick, Jr.,
seven persons designated by BGE prior to the Effective Time and five persons
designated by PEPCO prior to the Effective Time. A current provision of District
of Columbia public utility law states that any utility serving the District of
Columbia may have no more than 15 directors. The parties to the proposed Merger
intend to request that this law be amended or repealed prior to the Effective
Time so as to permit the Company to have 16 directors. Should such relief not be
obtained, the parties will reconsider and determine alternatives.
The initial designation of directors among the three classes of the Company
Board will be allocated among BGE and PEPCO designees as set forth in the Merger
Agreement.
The initial Company Board committees and committee memberships will be
determined by the Company Board, provided that (i) there will be six committees;
(ii) three committees will be chaired by a designee of the PEPCO Board; (iii)
three committees will be chaired by a designee of the BGE Board; (iv) there will
be a Committee on Management (responsible for nominating, compensation and major
organizational changes) which will be chaired by a designee of the BGE Board;
and (v) there will be an Executive Committee (responsible for certain financing
matters) which will be chaired by Mr. Mitchell.
98
<PAGE>
Pursuant to the Merger Agreement, from the Effective Time until one year
after the Closing Date, Mr. Mitchell will serve as Chairman of the Board. Mr.
Poindexter will serve as Chairman beginning at the earlier of one year from the
Closing Date or when Mr. Mitchell is not available to serve as Chairman. In
addition, Mr. Poindexter will be Chief Executive Officer from the Effective
Time. If Mr. Poindexter is not available at the Effective Time to serve as Chief
Executive Officer, the then-Chief Executive Officer of BGE will serve as Chief
Executive Officer of the Company, subject to confirmation by a majority of the
members of the Company Board.
Pursuant to the Merger Agreement, from the Effective Time, Mr. Derrick will
serve as President and Chief Operating Officer of the Company and Mr. Crooke
will serve as Vice Chairman. If Mr. Derrick is not available at the Effective
Time to serve as President and Chief Operating Officer of the Company, the
then-President of PEPCO will serve as President and Chief Operating Officer of
the Company, subject to confirmation by a majority of the members of the Company
Board. See "The Merger -- Company Employment Agreements."
OPERATIONS OF THE COMPANY
The Merger Agreement provides that, as soon as reasonably possible after the
Effective Time, the corporate headquarters and principal executive offices of
the Company will be located in the Annapolis, Maryland area. It also provides
that the Company will maintain significant operations in both the District of
Columbia and Baltimore, Maryland.
From the Effective Time until two years after the Closing Date, a vote of
66 2/3% of the members of the Company Board will be required to approve a change
in the Company's name or the location of its headquarters or principal executive
offices, to amend the employment contracts of Messrs. Mitchell, Poindexter,
Crooke and Derrick, or otherwise change their respective titles or functions set
forth in such employment contracts at the Effective Time to change the number of
directors to be other than 16, to change any of the committee matters mentioned
under "Management of the Company" or to amend any by-law provisions
corresponding to the foregoing matters.
The Company will adopt BGE's dividend policy. The annual dividend at the
expected 1997 closing date is expected to be $1.67 per share of Company Common
Stock. However, no assurance can be given that such dividend rate will be in
effect or will remain unchanged, and the Company reserves the right to increase
or decrease the dividend on Company Common Stock as may be required by law or
contract or as may be determined by the Company Board, in its discretion, to be
advisable.
On or as soon after the Effective Time as possible, the utility businesses
of BGE and PEPCO will be integrated and operated as one business. BGE and PEPCO
also intend to combine their nonregulated operations at some time after the
Effective Time, although no plans for such combination have been developed at
this time.
EXPERTS
The consolidated financial statements and the related schedules of BGE
included in its Annual Report on Form 10-K for the year ended December 31, 1994
have been audited by Coopers & Lybrand, LLP, independent auditors, as stated in
their report, which is incorporated herein by reference and has been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
The consolidated financial statements and the financial statement schedule
of PEPCO incorporated in this Joint Proxy Statement/Prospectus by reference to
the Annual Report on Form 10-K of PEPCO for the year ended December 31, 1994,
have been so incorporated in reliance on the reports of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
With respect to the unaudited consolidated financial information of PEPCO
for the three-month periods ended March 31, 1995 and 1994, the six-month periods
ended June 30, 1995 and 1994 and the
99
<PAGE>
nine-month periods ended September 30, 1995 and 1994 incorporated by reference
in this Joint Proxy Statement/Prospectus, Price Waterhouse LLP reported that
they have applied limited procedures in accordance with professional standards
for a review of such information. However, their separate reports dated May 1,
1995, July 28, 1995 and October 30, 1995 incorporated by reference herein, state
that they did not audit and they do not express opinions on that unaudited
consolidated financial information. Price Waterhouse LLP has not carried out any
significant or additional audit tests beyond those which would have been
necessary if such reports had not been incorporated by reference. Accordingly,
the degree of reliance on their reports on such information should be restricted
in light of the limited nature of the review procedures applied. Price
Waterhouse LLP is not subject to the liability provisions of Section 11 of the
Securities Act for their reports on the unaudited consolidated financial
information because each such report is not a "report" or a "part" of the
registration statement prepared or certified by Price Waterhouse LLP within the
meaning of Sections 7 and 11 of the Securities Act.
LEGAL MATTERS
will pass upon the legality of the shares of Company Common Stock,
Company Preferred Stock and Company Preference Stock issued in connection with
the Merger.
Winthrop, Stimson, Putnam & Roberts has for many years regularly provided
legal services to BGE and has served as counsel to the underwriters in
connection with securities offerings by PEPCO. With the consent of PEPCO,
Winthrop, Stimson, Putnam & Roberts is representing BGE in connection with the
Merger.
LeBoeuf, Lamb, Greene & MacRae, L.L.P., a limited liability partnership
including professional corporations, and Covington & Burling are representing
PEPCO in connection with the Merger.
100
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Seventh of the Company Articles and Article VI of the Company
By-laws will provide that to the fullest extent permitted by applicable
statutory or decisional law, as amended or interpreted, no director or officer
of the Company will be personally liable to the Company or its shareholders for
monetary damages.
Under Section 2-418 of the MGCL, a Maryland corporation may indemnify any
director who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative ("Proceeding") by reason of the fact
that he is a present or former director of the corporation and any person who,
while a director of the corporation, is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee, or agent of
another corporation, partnership, joint venture, trust, other enterprise, or
employee benefit plan ("Director"). Under Section 2-418(b)(1)(i) - (iii), a
corporation may indemnify any director made a party to any proceeding by reason
of service in that capacity, unless it is established that: (i) the act or
omission of the director was material to the matter giving rise to the
proceeding and (1) was committed in bad faith; or (2) was the result of active
and deliberate dishonesty; (ii) the director actually received an improper
personal benefit in money, property, or services; or (iii) in the case of any
criminal proceeding, the director had reasonable cause to believe that the act
or omission was unlawful.
A Maryland corporation may not indemnify any Director in connection with a
Proceeding by or in the right of the corporation if the Director has been
adjudged to be liable to the corporation. A Director or officer who has been
successful in the defense of any Proceeding described above shall be indemnified
against reasonable expenses incurred in connection with the Proceeding. The
corporation may not indemnify a Director in respect of any Proceeding charging
improper personal benefits to the Director in which the Director was adjudged to
be liable on the basis that personal benefit was improperly received.
Notwithstanding the above provisions, a court of appropriate jurisdiction, upon
application of the Director or officer, may order indemnification if it
determines that in view of all the relevant circumstances, the Director or
officer is fairly and reasonably entitled to indemnification; however,
indemnification with respect to any Proceeding by or in the right of the
corporation or in which liability was adjudged on the basis that personal
benefit was improperly received shall be limited to expenses. A corporation may
advance reasonable expenses to a Director under certain circumstances, including
a written undertaking by or on behalf of such Director to repay the amount if it
shall ultimately be determined that the standard of conduct necessary for
indemnification by the corporation has not been met. A corporation may indemnify
and advance expenses to an officer of the corporation to the same extent that it
may indemnify Directors under the statute. The indemnification and advancement
of expenses provided or authorized by this statute may not be deemed exclusive
of any other rights, by indemnification or otherwise, to which a Director or
officer may be entitled under the charter, by-laws, a resolution of shareholders
or directors, an agreement or otherwise.
Pursuant to Section 7.5 of the Merger Agreement, the parties thereto have
agreed that the Company will, to the fullest extent not prohibited by applicable
law, indemnify, defend and hold harmless the present and former directors,
officers and employees of each of the parties thereto and their respective
subsidiaries against (i) all losses, expenses (including reasonable attorneys'
fees and expenses), claims, damages, costs, liabilities, judgments or amounts
that are paid in settlement of or in connection with any claim, action, suit,
proceeding or investigation (collectively, "Indemnified Liabilities") (a) based
in whole or in part on or arising in whole or in part out of the fact that such
person is or was a director, officer or employee of such party or any subsidiary
thereof, and (b) pertaining to any matter existing or occurring at or prior to
the Effective Time, whether asserted or claimed prior to, at
II-1
<PAGE>
or after the Effective Time, and (ii) all Indemnified Liabilities based in whole
or in part on, or arising in whole or in part out of, or pertaining to the
Merger Agreement or the transactions contemplated thereby.
Further, the parties to the Merger Agreement have also agreed that for a
period of six years after the Effective Time, the Company will cause to be
maintained in effect the policies of directors' and officers' liability
insurance maintained by BGE and PEPCO; PROVIDED that the Company may substitute
therefor policies of at least the same coverage containing terms that are no
less advantageous with respect to matters occurring prior to the Effective Time
to the extent such liability insurance can be maintained annually at a cost to
the Company not greater than 200% of the current aggregate annual premiums for
the policies currently maintained by BGE and PEPCO for their directors' and
officers' liability insurance; PROVIDED, FURTHER, that if such insurance cannot
be so maintained or obtained at such cost, the Company will maintain or obtain
as much of such insurance for each of BGE and PEPCO as can be so maintained or
obtained at a cost equal to 200% of the respective current annual premiums of
each of BGE and PEPCO for their directors' and officers' liability insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following exhibits are filed with or incorporated by reference in this
Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ---------
<S> <C>
(2)-1 Agreement and Plan of Merger by and among Baltimore Gas and Electric Company ("BGE"), Potomac Electric
Power Company ("PEPCO") and Constellation Energy Corporation (the "Company"), dated as of September 22,
1995 (Exhibit A to the Joint Proxy Statement/Prospectus contained in this Registration Statement (the
"Joint Proxy Statement/Prospectus")).
(2)-2 BGE Stock Option Agreement by and between BGE and PEPCO, dated as of September 22, 1995 (Exhibit B1 to
the Joint Proxy Statement/Prospectus).
(2)-3 PEPCO Stock Option Agreement by and between BGE and PEPCO, dated as of September 22, 1995 (Exhibit B2 to
the Joint Proxy Statement/Prospectus).
(3)-1 Form of Amended and Restated Articles of Incorporation of the Company (Exhibit E to the Joint Proxy
Statement/Prospectus).
(3)-2 Form of By-laws of the Company (Exhibit F to the Joint Proxy Statement/Prospectus).
(4) Reference is made to Articles NINTH, TENTH and ELEVENTH of the Amended and Restated Articles of
Incorporation of the Company (Exhibit E to the Joint Proxy Statement/Prospectus).
(5) Opinion as to the legality of the shares of Company Common Stock, Company Preferred Stock and Company
Preference Stock being registered.*
(8)-1 Opinion of Winthrop, Stimson, Putnam & Roberts as to tax matters.*
(8)-2 Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P. as to tax matters.*
(10)-1 Employment Agreement of Christian H. Poindexter (Exhibit C1 to the Joint Proxy Statement/Prospectus).
(10)-2 Employment Agreement of Edward F. Mitchell (Exhibit C2 to the Joint Proxy Statement/ Prospectus).
(10)-3 Employment Agreement of John M. Derrick, Jr. (Exhibit C3 to the Joint Proxy Statement/Prospectus).
(10)-4 Employment Agreement of Edward A. Crooke (Exhibit C4 to the Joint Proxy Statement/ Prospectus).
(10)-5 Company Long-Term Incentive Plan (Exhibit H to the Joint Proxy Statement/ Prospectus).
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
(12)-1 BGE Statement of computation of ratios of earnings to fixed charges and ratios of earnings to fixed
charges and preferred and preference stock dividends combined.*
(12)-2 PEPCO Statement of computation of ratios of earnings to fixed charges and ratios of earnings to fixed
charges and preferred stock dividends combined.*
(12)-3 Company Statement of computation of pro forma ratios of earnings to fixed charges and pro forma ratios
of earnings to fixed charges and preferred and preference stock dividends combined.*
(15) Letter re unaudited interim financial information.
(23)-1 Consent of Coopers & Lybrand, LLP, independent accountants for BGE (included in body of Registration
Statement).
(23)-2 Consent of Price Waterhouse LLP, independent accountants for PEPCO.
(23)-3 Consent of the counsel referred to in Exhibit (5) herein, contained in their opinion filed as such
Exhibit (5).*
(27) Financial data schedule.
(99)-1 Form of proxy materials to be used in connection with the Special Meeting of Shareholders of BGE.
(99)-2 Form of proxy materials to be used in connection with the Special Meeting of Shareholders of PEPCO.
(99)-3 Consent of Christian H. Poindexter.
(99)-4 Consent of Edward F. Mitchell.
(99)-5 Consent of John M. Derrick, Jr.
(99)-6 Consent of Edward A. Crooke.
</TABLE>
- ------------------------
* To be filed by amendment
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes as follows:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8 or Form F-3, and the
information required to be included in a post-effective
II-3
<PAGE>
amendment by those paragraphs is contained in periodic reports filed by the
registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(6) That every prospectus: (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
(7) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions referred to in Item 20 of this
registration statement, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(8) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(9) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York on December 6, 1995.
CONSTELLATION ENERGY CORPORATION
By: ______/s/ STEPHEN R. RUSMISEL_____
Stephen R. Rusmisel,
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
------------------------
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.*
SIGNATURE AND TITLE
________/s/ STEPHEN R. RUSMISEL_______
Stephen R. Rusmisel,
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
(DIRECTOR AND PRINCIPAL EXECUTIVE
OFFICER)
_________/s/ DOUGLAS W. HAWES_________
Douglas W. Hawes,
PRESIDENT AND TREASURER
(DIRECTOR AND PRINCIPAL FINANCIAL
AND ACCOUNTING OFFICER)
_________/s/ MICHAEL F. CUSICK________
Michael F. Cusick,
DIRECTOR AND SECRETARY
- ------------------------
*Each of the above signatures is affixed as of December 6, 1995.
II-5
<PAGE>
CONSTELLATION ENERGY CORPORATION
EXHIBIT INDEX
REGISTRATION STATEMENT ON FORM S-4
The following exhibits are filed with or incorporated by reference in this
Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ---------
<S> <C>
(2)-1 Agreement and Plan of Merger by and among Baltimore Gas and Electric Company ("BGE"), Potomac Electric
Power Company ("PEPCO") and Constellation Energy Corporation (the "Company"), dated as of September 22,
1995 (Exhibit A to the Joint Proxy Statement/Prospectus contained in this Registration Statement (the
"Joint Proxy Statement/Prospectus")).
(2)-2 BGE Stock Option Agreement by and between BGE and PEPCO, dated as of September 22, 1995 (Exhibit B1 to
the Joint Proxy Statement/Prospectus).
(2)-3 PEPCO Stock Option Agreement by and between BGE and PEPCO, dated as of September 22, 1995 (Exhibit B2 to
the Joint Proxy Statement/Prospectus).
(3)-1 Form of Amended and Restated Articles of Incorporation of the Company (Exhibit E to the Joint Proxy
Statement/Prospectus).
(3)-2 Form of Bylaws of the Company (Exhibit F to the Joint Proxy Statement/Prospectus).
(4) Reference is made to Articles NINTH, TENTH and ELEVENTH of the Amended and Restated Articles of
Incorporation of the Company (Exhibit E to the Joint Proxy Statement/Prospectus).
(5) Opinion as to the legality of the shares of Company Common Stock, Company Preferred Stock and Company
Preference Stock being registered.*
(8)-1 Opinion of Winthrop, Stimson, Putnam & Roberts as to tax matters.*
(8)-2 Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P. as to tax matters.*
(10)-1 Employment Agreement of Christian H. Poindexter (Exhibit C1 to the Joint Proxy Statement/Prospectus).
(10)-2 Employment Agreement of Edward F. Mitchell (Exhibit C2 to the Joint Proxy Statement/ Prospectus).
(10)-3 Employment Agreement of John M. Derrick, Jr. (Exhibit C3 to the Joint Proxy Statement/Prospectus).
(10)-4 Employment Agreement of Edward A. Crooke (Exhibit C4 to the Joint Proxy Statement/ Prospectus).
(10)-5 Company Long-Term Incentive Plan (Exhibit H to the Joint Proxy Statement/ Prospectus).
(12)-1 BGE Statement of computation of ratios of earnings to fixed charges and ratios of earnings to fixed
charges and preferred and preference stock dividends combined.*
(12)-2 PEPCO Statement of computation of ratios of earnings to fixed charges and ratios of earnings to fixed
charges and preferred stock dividends combined.*
(12)-3 Company Statement of computation of pro forma ratios of earnings to fixed charges and pro forma ratios
of earnings to fixed charges and preferred and preference stock dividends combined.*
(15) Letter re unaudited interim financial information.
(23)-1 Consent of Coopers & Lybrand, LLP, independent accountants for BGE (included in body of Registration
Statement).
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(23)-2 Consent of Price Waterhouse LLP, independent accountants for PEPCO.
(23)-3 Consent of the counsel referred to in Exhibit (5) herein, contained in their opinion filed as such
Exhibit (5).*
(27) Financial data schedule.
(99)-1 Form of proxy materials to be used in connection with the Special Meeting of Shareholders of BGE.
(99)-2 Form of proxy materials to be used in connection with the Special Meeting of Shareholders of PEPCO.
(99)-3 Consent of Christian H. Poindexter.
(99)-4 Consent of Edward F. Mitchell.
(99)-5 Consent of John M. Derrick, Jr.
(99)-6 Consent of Edward A. Crooke.
</TABLE>
- ------------------------
* To be filed by amendment
<PAGE>
Exhibit A
AGREEMENT AND PLAN
OF MERGER
by and among
BALTIMORE GAS AND ELECTRIC COMPANY,
POTOMAC ELECTRIC POWER COMPANY,
and
CONSTELLATION ENERGY CORPORATION
Dated as of September 22, 1995
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I.
THE MERGER
Section 1.1 The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Effective Time of the Merger. . . . . . . . . . . . . . . . . . 2
Section 1.3 Articles of Incorporation . . . . . . . . . . . . . . . . . . . 2
Section 1.4 Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.5 Effects of Merger . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II.
CONVERSION OF SHARES
Section 2.1 Effect of Merger on Capital Stock . . . . . . . . . . . . . . . 2
Section 2.2 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.3 Exchange of Certificates. . . . . . . . . . . . . . . . . . . . 6
ARTICLE III.
THE CLOSING
Section 3.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PEPCO
Section 4.1 Organization and Qualification. . . . . . . . . . . . . . . . . 9
Section 4.2 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.3 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.4 Authority; Non-Contravention; Statutory Approvals;
Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.5 Reports and Financial Statements. . . . . . . . . . . . . . . . 13
Section 4.6 Absence of Certain Changes or Events; Absence of
Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . 14
Section 4.7 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.8 Registration Statement and Proxy Statement. . . . . . . . . . . 15
Section 4.9 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.10 Employee Matters; ERISA . . . . . . . . . . . . . . . . . . . 17
Section 4.11 Environmental Protection . . . . . . . . . . . . . . . . . . . 23
Section 4.12 Regulation as a Utility. . . . . . . . . . . . . . . . . . . . 26
Section 4.13 Vote Required. . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 4.14 Accounting Matters . . . . . . . . . . . . . . . . . . . . . . 26
Section 4.15 Applicability of Certain Virginia Law. . . . . . . . . . . . . 26
Section 4.16 Opinion of Financial Advisor . . . . . . . . . . . . . . . . . 27
Section 4.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.18 Ownership of BGE Common Stock. . . . . . . . . . . . . . . . . 27
<PAGE>
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF BGE
Section 5.1 Organization and Qualification. . . . . . . . . . . . . . . . . 27
Section 5.2 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.3 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.4 Authority; Non-Contravention; Statutory Approvals;
Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 5.5 Reports and Financial Statements. . . . . . . . . . . . . . . . 31
Section 5.6 Absence of Certain Changes or Events; Absence of
Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . 31
Section 5.7 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 5.8 Registration Statement and Proxy Statement. . . . . . . . . . . 32
Section 5.9 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 5.10 Employee Matters; ERISA . . . . . . . . . . . . . . . . . . . . 33
Section 5.11 Environmental Protection. . . . . . . . . . . . . . . . . . . . 39
Section 5.12 Regulation as a Utility . . . . . . . . . . . . . . . . . . . . 41
Section 5.13 Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 5.14 Accounting Matters. . . . . . . . . . . . . . . . . . . . . . . 41
Section 5.15 Applicability of Certain Maryland Law . . . . . . . . . . . . . 41
Section 5.16 Opinion of Financial Advisor. . . . . . . . . . . . . . . . . . 41
Section 5.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 5.18 Ownership of PEPCO Common Stock . . . . . . . . . . . . . . . . 42
Section 5.19 NRC Actions . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE VI.
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 Ordinary Course of Business . . . . . . . . . . . . . . . . . . 43
Section 6.2 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.3 Issuance of Securities. . . . . . . . . . . . . . . . . . . . . 44
Section 6.4 Charter Documents . . . . . . . . . . . . . . . . . . . . . . . 44
Section 6.5 No Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 6.6 Capital Expenditures. . . . . . . . . . . . . . . . . . . . . . 44
Section 6.7 No Dispositions . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 6.8 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 6.9 Compensation, Benefits. . . . . . . . . . . . . . . . . . . . . 45
Section 6.10 1935 Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 6.11 Accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 6.12 Pooling . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 6.13 Tax-Free Status . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 6.14 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 6.15 Cooperation, Notification . . . . . . . . . . . . . . . . . . . 47
Section 6.16 Rate Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 6.17 Third-Party Consents. . . . . . . . . . . . . . . . . . . . . . 47
Section 6.18 Tax-Exempt Status . . . . . . . . . . . . . . . . . . . . . . . 47
Section 6.19 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 6.20 Certain Information Relating to Customers . . . . . . . . . . . 48
<PAGE>
ARTICLE VII.
ADDITIONAL AGREEMENTS
Section 7.1 Access to Information . . . . . . . . . . . . . . . . . . . . . 48
Section 7.2 Joint Proxy Statement and Registration Statement. . . . . . . . 49
Section 7.3 Regulatory Matters. . . . . . . . . . . . . . . . . . . . . . . 50
Section 7.4 Shareholder Approvals . . . . . . . . . . . . . . . . . . . . . 51
Section 7.5 Directors' and Officers' Indemnification. . . . . . . . . . . . 52
Section 7.6 Disclosure Schedules. . . . . . . . . . . . . . . . . . . . . . 54
Section 7.7 Public Announcements. . . . . . . . . . . . . . . . . . . . . . 55
Section 7.8 Rule 145 Affiliates . . . . . . . . . . . . . . . . . . . . . . 55
Section 7.10 Incentive, Stock and Other Plans . . . . . . . . . . . . . . . 55
Section 7.11 No Solicitations . . . . . . . . . . . . . . . . . . . . . . . 56
Section 7.12 Company Board of Directors . . . . . . . . . . . . . . . . . . 57
Section 7.13 Company Officers . . . . . . . . . . . . . . . . . . . . . . . 58
Section 7.14 Employment Contracts . . . . . . . . . . . . . . . . . . . . . 58
Section 7.15 Corporate Offices and Name . . . . . . . . . . . . . . . . . . 59
Section 7.16 Transition Management. . . . . . . . . . . . . . . . . . . . . 59
Section 7.17 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 7.18 Covenant to Satisfy Conditions . . . . . . . . . . . . . . . . 60
ARTICLE VIII.
CONDITIONS
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger. . . 61
Section 8.2 Conditions to Obligation of PEPCO to Effect the Merger. . . . . 62
Section 8.3 Conditions to Obligation of BGE to Effect the Merger. . . . . . 63
ARTICLE IX.
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 9.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . 66
Section 9.3 Termination Damages . . . . . . . . . . . . . . . . . . . . . . 66
Section 9.4 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 9.5 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
ARTICLE X.
GENERAL PROVISIONS
Section 10.1 Non-Survival of Representations, Warranties, Covenants
and Agreements. . . . . . . . . . . . . . . . . . . . . . . . 69
Section 10.2 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 10.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
<PAGE>
Section 10.4 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 10.5 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 10.6 Counterparts; Effect . . . . . . . . . . . . . . . . . . . . . 72
Section 10.8 Specific Performance . . . . . . . . . . . . . . . . . . . . . 72
Section 10.9 Further Assurances . . . . . . . . . . . . . . . . . . . . . . 72
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of September 22, 1995 (this
"AGREEMENT"), by and among Baltimore Gas and Electric Company, a corporation
formed under the laws of the State of Maryland ("BGE"), Potomac Electric
Power Company, a corporation formed under the laws of the District of
Columbia and the Commonwealth of Virginia ("PEPCO"), and Constellation Energy
Corporation, a corporation formed under the laws of the State of Maryland,
50% of whose outstanding capital stock is owned by BGE and 50% of whose
outstanding capital stock is owned by PEPCO (the "COMPANY").
WHEREAS, BGE and PEPCO have determined to engage in a strategic
business combination and, accordingly, have formed the Company to participate in
such business combination;
WHEREAS, in furtherance thereof, the respective Boards of Directors of
BGE, PEPCO and the Company have approved the merger of BGE and PEPCO with and
into the Company, all pursuant to the terms and conditions set forth in this
Agreement and, in connection therewith, have approved the execution and delivery
of the PEPCO Stock Option Agreement dated as of the date hereof between PEPCO
and BGE (the "PEPCO OPTION") and the BGE Stock Option Agreement dated as of the
date hereof between BGE and PEPCO (the "BGE OPTION");
WHEREAS, for federal income tax purposes, it is intended that such
merger will be a reorganization described in Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "CODE"), and the regulations thereunder,
and that BGE, PEPCO, the Company and the shareholders of each of BGE and PEPCO
who exchange their shares solely for stock of the Company will recognize no gain
or loss for federal income tax purposes as a result of the consummation of the
merger; and
WHEREAS, for accounting purposes, it is intended that the merger will
be accounted for as a pooling of interests in accordance with generally accepted
accounting principals ("GAAP") and applicable regulations of the Securities and
Exchange Commission (the "SEC").
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I.
THE MERGER
Section 1.1 THE MERGER. Upon the terms and subject to the conditions
of this Agreement, at the Effective Time, each of BGE and PEPCO shall be merged
with and into
<PAGE>
the Company (the "MERGER") in accordance with the laws of the State of Maryland,
the Commonwealth of Virginia and the District of Columbia. The Company shall be
the surviving corporation in the Merger and shall continue its existence under
the laws of the State of Maryland and the Commonwealth of Virginia.
Section 1.2 EFFECTIVE TIME OF THE MERGER. On the Closing Date (as
defined in SECTION 3.1), articles of merger shall be executed and filed by the
Company with the Secretary of State of the State of Maryland pursuant to the
Maryland General Corporation Act ("MGCA"), the Secretary of State of the
Commonwealth of Virginia pursuant to the Virginia Stock Corporation Act ("VSCA")
and the Mayor of the District of Columbia pursuant to the District of Columbia
Business Corporation Act ("DCBCA"). The Merger shall become effective at such
time as such articles of merger have all been so filed, such time being herein
called the "EFFECTIVE TIME".
Section 1.3 ARTICLES OF INCORPORATION. The Articles of Incorporation
shall be amended prior to closing to provide for those matters set forth on
Exhibit 1.3, and such other matters generally covered in such Articles of
Incorporation and, as so amended, shall be the Articles of Incorporation of the
Company after the Effective Time until duly amended.
Section 1.4 BYLAWS. The Bylaws shall be amended prior to closing to
provide, for a period of two years after Closing, for those matters set forth on
Exhibit 1.4, and such other matters as are generally covered in such By-laws
and, as so amended, shall be the Bylaws of the Company after the Effective Time
until duly amended.
Section 1.5 EFFECTS OF MERGER. The Merger shall have the effects set
forth in Section 3-113 of the MGCA, Section 13.1-721 of the VSCA and Section 29-
370 of the DCBCA.
ARTICLE II.
CONVERSION OF SHARES
Section 2.1 EFFECT OF MERGER ON CAPITAL STOCK. At the Effective
Time, by virtue of the Merger and without any action on the part of any holder
of any capital stock of BGE, PEPCO or the Company:
(a) CANCELLATION OF COMPANY CAPITAL STOCK. Each share of the capital
stock of the Company issued and outstanding immediately prior to the Effective
Time shall be canceled and cease to exist, and no consideration shall be
delivered in exchange therefor.
(b) CANCELLATION OF CERTAIN COMMON STOCK. Each share of Common
Stock, no par value, of BGE (the "BGE COMMON STOCK") that is owned by BGE or any
of its subsidiaries (as defined in SECTION 4.1) or by PEPCO or any of its
subsidiaries shall be canceled and cease to exist. Each share of Common Stock,
$1.00 par value, of PEPCO (the "PEPCO COMMON STOCK") that is owned by PEPCO or
any of its subsidiaries or by BGE or any of its subsidiaries shall be canceled
and cease to exist.
<PAGE>
(c) CONVERSION OF CERTAIN COMMON STOCK. Each issued and outstanding
share of BGE Common Stock (other than shares canceled pursuant to SECTION
2.1(b)) shall be converted into the right to receive one (the "BGE RATIO") duly
authorized, validly issued, fully paid and nonassessable share of Common Stock,
no par value, of the Company (the "COMPANY COMMON STOCK"), and each issued and
outstanding share of PEPCO Common Stock (other than shares canceled pursuant to
SECTION 2.1(b) and PEPCO Dissenting Common Shares (as defined in SECTION
2.2(b))) shall be converted into the right to receive .997 (the "PEPCO RATIO")
duly authorized, validly issued, fully paid and nonassessable shares of Company
Common Stock. Upon such conversions, all such shares of BGE Common Stock and
PEPCO Common Stock shall be canceled and cease to exist, and each holder of a
certificate representing any such shares shall cease to have any rights with
respect thereto, except the right to receive the number of whole shares of
Company Common Stock to be issued in consideration therefor and any cash in lieu
of fractional shares of Company Common Stock upon the surrender of such
certificate in accordance with SECTION 2.3.
(d) CANCELLATION OF CERTAIN PREFERRED STOCK AND PREFERENCE STOCK.
Each share of BGE Preferred Stock, $100.00 par value ("BGE PREFERRED STOCK"),
each share of BGE Preference Stock, $100.00 par value ("BGE PREFERENCE STOCK"),
and each share of PEPCO Preferred Stock, $50.00 par value ("PEPCO PREFERRED
STOCK"), that is owned by BGE or any of its subsidiaries or by PEPCO or any of
its subsidiaries shall be canceled and cease to exist.
(e) CONVERSION OF BGE PREFERRED STOCK. Each issued and outstanding
share of each series of BGE Preferred Stock (other than shares canceled pursuant
to SECTION 2.1(d) and BGE Dissenting Preferred Shares (as defined in SECTION
2.2(a))) shall be converted into and become one duly authorized, validly issued,
fully paid and nonassessable share of preferred stock, $100 par value, of the
Company ("COMPANY CLASS A PREFERRED STOCK"), of the respective series specified
below, with equal stated value and dividends and like redemption provisions and
other terms and conditions:
BGE Company Class A
Preferred Stock Preferred Stock
--------------- ---------------
Series B 4 1/2% Series B 4 1/2%
Series C 4% Series C 4%
Series D 5.40% Series D 5.40%
Upon such conversion, all such shares of BGE Preferred Stock shall be canceled
and cease to exist, and each holder of a certificate representing any such
shares shall cease to have any rights with respect thereto, except the right to
receive the shares of Company Class A Preferred Stock to be issued in
consideration therefor upon surrender of such certificate in accordance with
SECTION 2.3.
(f) CONVERSION OF BGE PREFERENCE STOCK. (i) Each issued and
outstanding share of each series of BGE Preference Stock, other than shares
canceled pursuant to SECTION 2.1(d) and BGE Dissenting Preference Shares (as
defined in SECTION 2.2(a)) shall be converted into the right to receive one duly
authorized, validly issued, fully paid and
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<PAGE>
nonassessable share of preference stock, $100 par value, of the Company
("COMPANY PREFERENCE STOCK"), of the respective series specified below, with
equal stated value and dividends and like redemption provisions and other terms
and conditions:
BGE Company
Preference Stock Preference Stock
---------------- ----------------
7.50% 1986 Series 7.50% 1986 Series
6.75% 1987 Series 6.75% 1987 Series
6.95% 1987 Series 6.95% 1987 Series
7.80% 1989 Series 7.80% 1989 Series
8.25% 1989 Series 8.25% 1989 Series
8.625% 1990 Series 8.625% 1990 Series
7.85% 1991 Series 7.85% 1991 Series
7.78% 1973 Series 7.78% 1973 Series
7.125% 1993 Series 7.125% 1993 Series
6.97% 1993 Series 6.97% 1993 Series
6.70% 1993 Series 6.70% 1993 Series
6.99% 1995 Series 6.99% 1995 Series
(ii) Each share of a series of BGE Preference Stock (other than
shares canceled pursuant to SECTION 2.1(d) and BGE Dissenting Preference
Shares (as defined in SECTION 2.2(a))) that is issued in the period after
the date of this Agreement and before the Closing Date shall be converted
into the right to receive and become one duly authorized, validly issued,
fully paid and nonassessable share of an analogous series of Company
Preference Stock with equal stated value and dividends and like redemption
provisions and other terms and conditions.
(iii) Upon such conversion, all such shares of BGE Preference
Stock shall be canceled and cease to exist, and each holder of a
certificate representing any such shares shall cease to have any rights
with respect thereto, except the right to receive the shares of Company
Preference Stock to be issued in consideration therefor upon surrender of
such certificate in accordance with SECTION 2.3.
(g) CONVERSION OF PEPCO PREFERRED STOCK. (i) Each issued and
outstanding share of each series of PEPCO Preferred Stock, (other than shares
canceled pursuant to SECTION 2.1(d) and PEPCO Dissenting Preferred Shares (as
defined in SECTION 2.2(b))), shall be converted into and become one duly
authorized, validly issued, fully paid and nonassessable share of preferred
stock, $50 par value, of the Company ("COMPANY CLASS B PREFERRED STOCK")
(Company Class A Preferred Stock and Company Class B Preferred Stock being
hereinafter referred to collectively as "COMPANY PREFERRED STOCK"), of the
respective series specified below with equal stated value and dividends and like
redemption provisions and other terms and conditions:
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<PAGE>
PEPCO Company Class B
Preferred Stock Preferred Stock
--------------- ---------------
$2.44 Series of 1957 $2.44 Series of 1957
$2.46 Series of 1958 $2.46 Series of 1958
$2.28 Series of 1965 $2.28 Series of 1965
$2.44 Convertible Series $2.44 Convertible Series
of 1966 of 1966
$3.82 Series of 1969 $3.82 Series of 1969
$3.37 Series of 1987 $3.37 Series of 1987
Auction Series A Auction Series A
$3.89 Series of 1991 $3.89 Series of 1991
$3.40 Series of 1992 $3.40 Series of 1992
(ii) Each share of a series of PEPCO Preferred Stock (other than
shares canceled pursuant to SECTION 2.1(d) and PEPCO Dissenting Preferred
Shares (as defined in SECTION 2.2(b))), that is issued in the period after
the date of this Agreement and before the Closing Date shall be converted
into and become the right to receive one duly authorized, validly issued,
fully paid and nonassessable share of an analogous series of Company
Preferred Stock with equal stated value and dividends and like redemption
provisions and other terms and conditions as the canceled share of PEPCO
Preferred Stock.
(iii) Upon such conversion, all shares of PEPCO Preferred Stock
shall be canceled and cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the shares of Company Class B
Preferred Stock to be issued in consideration therefor upon surrender of
such certificate in accordance with SECTION 2.3.
Section 2.2 DISSENTING SHARES.
(a) BGE DISSENTING SHARES. All of the rights otherwise accruing from
shares of BGE Preferred Stock or shares of BGE Preference Stock held by any
holder entitled to and seeking relief as a dissenting shareholder with respect
to such shares (the "BGE DISSENTING PREFERRED SHARES" and the "BGE DISSENTING
PREFERENCE SHARES", respectively) including voting, dividend and distribution
rights, shall continue until the Merger shall have been consummated, at which
time all such rights shall be canceled and the BGE Dissenting Preferred Shares
and BGE Dissenting Preference Shares shall entitle the holder only to the right
to receive such consideration as may be due pursuant to the MGCA. If such right
to consideration is terminated other than by the purchase of such shares by the
Company, then such shares shall cease to be BGE Dissenting Preferred Shares or
BGE Dissenting Preference Shares, as the case may be, and shall be converted
into and represent the right to receive Company Class A Preferred Stock as
provided in SECTION 2.1(e), or Company Preference Stock as provided in
SECTION 2.1(f), as the case may be.
(b) PEPCO DISSENTING SHARES. (i) Shares of PEPCO Common Stock held
by any holder entitled to and seeking relief as a dissenting shareholder under
either
-5-
<PAGE>
Section 13.1-730 of the VSCA or Section 29-373 of the DCBCA (the "PEPCO
DISSENTING COMMON SHARES") shall not be converted into the right to receive
Company Common Stock but shall be converted into such consideration as may be
due with respect to such shares pursuant to the applicable provisions of the
VSCA and the DCBCA, unless and until the right of such holder to receive payment
of fair value for such PEPCO Dissenting Common Shares terminates in accordance
with Section 13.1-730 of the VSCA and Section 29-373 of the DCBCA. If such
right is terminated other than by the purchase of such shares by the Company,
then such shares shall cease to be PEPCO Dissenting Common Shares and shall be
converted into and represent the right to receive Company Common Stock as
provided in SECTION 2.1(c).
(ii) All of the rights otherwise accruing from shares of PEPCO
Preferred Stock held by any holder entitled to and seeking relief as a
dissenting shareholder with respect to such shares (the "PEPCO DISSENTING
PREFERRED SHARES"), including voting, dividend and distribution rights,
shall continue until the Merger shall have been consummated, at which time
all such rights shall be canceled and the PEPCO Dissenting Preferred Shares
shall entitle the holder only to the right to receive such consideration as
may be due pursuant to the VSCA and the DCBCA. If such right to
consideration is terminated other than by the purchase of such shares by
the Company, then such shares shall cease to be PEPCO Dissenting Preferred
Shares and shall be converted into and represent the right to receive
Company Class B Preferred Stock as provided in SECTION 2.1(g).
Section 2.3 EXCHANGE OF CERTIFICATES.
(a) DEPOSIT WITH EXCHANGE AGENT. As soon as practicable after the
Effective Time, the Company shall deposit with a bank or trust company mutually
agreeable to BGE and PEPCO (the "EXCHANGE AGENT") certificates representing
shares of Company Common Stock, Company Preferred Stock and Company Preference
Stock required to effect the exchanges referred to in SECTION 2.1, and shares
that would be issued to the holders of PEPCO Common Stock but for the provisions
of SECTION 2.3(d).
(b) EXCHANGE PROCEDURES. As soon as practicable after the Effective
Time, the Exchange Agent shall mail to each holder of record of a certificate or
certificates that, immediately prior to the Effective Time, represented
outstanding shares of BGE Common Stock, BGE Preferred Stock, BGE Preference
Stock, PEPCO Common Stock or PEPCO Preferred Stock (collectively, the
"CERTIFICATES") that were converted (collectively, the "CONVERTED SHARES") into
the right to receive shares of Company Common Stock, Company Preferred Stock or
Company Preference Stock (collectively, the "COMPANY SHARES") pursuant to
SECTION 2.1, (i) a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to any Certificate shall
pass, only upon actual delivery of such Certificate to the Exchange Agent) and
(ii) instructions for use in effecting the surrender of Certificates in exchange
for certificates representing Company Shares. Upon surrender of a Certificate
to the Exchange Agent (or to such other agent or agents as may be appointed by
agreement of BGE and PEPCO), together with a duly executed letter of transmittal
and such other documents as the Exchange Agent shall require, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing the number of whole
-6-
<PAGE>
Company Shares that such holder has the right to receive pursuant to the
provisions of this ARTICLE II. In the event of a transfer of ownership of
Converted Shares that is not registered in the transfer records of BGE or PEPCO,
as the case may be, a certificate representing the proper number of Company
Shares may be issued to the transferee if the Certificate representing such
Converted Shares is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence
satisfactory to the Exchange Agent that any applicable stock transfer taxes have
been paid. If any Certificate shall have been lost, stolen, mislaid or
destroyed, then upon receipt of (x) an affidavit of that fact from the holder
claiming such Certificate to be lost, mislaid, stolen or destroyed, (y) such
bond, security or indemnity as the Company or the Exchange Agent may reasonably
require, and (z) any other documentation necessary to evidence and effect the
bona fide exchange thereof, the Exchange Agent shall issue to such holder a
certificate representing the number of Company Shares into which the shares
represented by such lost, stolen, mislaid or destroyed Certificate shall have
been converted. Until surrendered as contemplated by this SECTION 2.3, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender a certificate representing Company
Shares and cash in lieu of any fractional shares of Company Common Stock as
contemplated by this SECTION 2.3.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends
or other distributions declared or made after the Effective Time with respect to
Company Shares with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the Company Shares
represented thereby, and no cash payment in lieu of fractional shares shall be
made to any such holder pursuant to SECTION 2.3(d), until the holder of record
of such Certificate shall surrender such Certificate as contemplated by
SECTION 2.3(b). Subject to the effect of unclaimed property, escheat and other
applicable laws, following surrender of any such Certificate there shall be paid
to the holder of the certificates representing whole Company Shares issued in
exchange therefor, without interest, (i) at the time of such surrender or as
soon thereafter as may be practicable, the amount of any cash payable in lieu of
a fractional Company Share to which such holder is entitled pursuant to SECTION
2.3(d) and the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole Company
Shares and (ii) at the appropriate payment date, the amount of dividends or
other distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such whole Company Shares.
(d) NO FRACTIONAL SECURITIES. (i) No certificates or scrip
representing fractional Company Shares shall be issued upon the surrender for
exchange of Certificates, and such fractional share interests will not entitle
the owner thereof to vote or to any rights of a stockholder of Company Shares.
(ii) As promptly as practicable following the Effective Time, the
Exchange Agent shall determine the excess of (x) the number of full shares
of Company Common Stock delivered to the Exchange Agent by the Company
pursuant to SECTION 2.3(a) over (y) the aggregate number of whole shares of
Company Common Stock to be issued pursuant to SECTION 2.1, such excess
being herein called the "EXCESS SHARES." As soon after the Effective Time
as practicable, the Exchange
-7-
<PAGE>
Agent, as agent for the holders of PEPCO Common Stock, shall sell the
Excess Shares at then prevailing prices on the New York Stock Exchange,
Inc. ("NYSE"), all in the manner provided in paragraph (iii) of this
SECTION 2.3(d).
(iii) The sale of the Excess Shares by the Exchange Agent shall be
executed on the NYSE through one or more member firms of the NYSE and shall
be executed in round lots to the extent practicable. Until the net
proceeds of such sale or sales have been distributed to the holders of
PEPCO Common Stock, the Exchange Agent shall hold such proceeds in trust
for the holders of PEPCO Common Stock (the "COMMON SHARES TRUST"). The
Company shall pay all commissions, transfer taxes and other out-of-pocket
transaction costs, including the expenses and compensation, of the Exchange
Agent incurred in connection with such sale of the Excess Shares. The
Exchange Agent shall determine the portion of the Common Shares Trust to
which each holder of PEPCO Common Stock is entitled.
(iv) As soon as practicable after the determination of the amount
of cash, if any, to be paid to holders of PEPCO Common Stock in lieu of any
fractional share interests, the Exchange Agent shall distribute such
amounts to such holders of PEPCO Common Stock in accordance with this
SECTION 2.3.
(e) CLOSING OF TRANSFER BOOKS. From and after the Effective Time,
the stock transfer books of BGE and PEPCO shall be closed and no transfer of any
capital stock of BGE or PEPCO shall thereafter be made. If after the Effective
Time Certificates are presented to the Company for registration of transfer,
they shall be canceled and exchanged for certificates representing the number of
whole Company Shares and the cash amount, if any, determined in accordance with
this ARTICLE II.
(f) TERMINATION OF DUTIES OF EXCHANGE AGENT. Any certificates
representing Company Shares deposited with the Exchange Agent pursuant to
SECTION 2.3(a) and not exchanged within one year after the Effective Time
pursuant to this SECTION 2.3 shall be returned by the Exchange Agent to the
Company, which shall thereafter act as Exchange Agent. All funds held by the
Exchange Agent for payment to the holders of unsurrendered Certificates and
unclaimed at the end of one year from the Effective Time shall be returned to
the Company, whereupon any holder of unsurrendered Certificates shall look as a
general unsecured creditor only to the Company for payment of any funds to which
such holder may be entitled, subject to applicable law. The Company shall not
be liable to any person for such shares or funds delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
ARTICLE III.
THE CLOSING
Section 3.1 CLOSING. The closing of the Merger (the "CLOSING") shall
take place at the offices of Winthrop, Stimson, Putnam & Roberts, One Battery
Park Plaza, New York, New York, 10004-1490 at 10:00 A.M., local time, on the
second business day
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immediately following the date on which the last of the conditions set forth in
ARTICLE VIII is fulfilled or waived (or, if such second business day immediately
falls on a record date for the payment of dividends on the PEPCO or BGE Common
Stock, on the first business day thereafter that is not such a record date), or
at such other time and date and place as PEPCO and BGE shall mutually agree (the
"CLOSING DATE").
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PEPCO
PEPCO represents and warrants to BGE as follows:
Section 4.1 ORGANIZATION AND QUALIFICATION.
(a) Except as set forth in Section 4.1 or 4.2 of the PEPCO Disclosure
Schedule (as defined in SECTION 7.6(a)(i)), (i) PEPCO is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdictions of incorporation and (ii) each of PEPCO's subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and each of PEPCO and its subsidiaries has
all requisite corporate power and authority, and is duly authorized by all
necessary regulatory approvals and orders, to own, lease and operate its assets
and properties and to carry on its business as it is now being conducted, and is
duly qualified and in good standing to do business in each jurisdiction in which
the nature of its business or the ownership or leasing of its assets and
properties makes such qualification necessary, other than, in the case of clause
(ii), such failures which, when taken together with all other such failures,
will not have a material adverse effect on the business, operations, properties,
assets, condition (financial or otherwise), prospects or results of operations
of PEPCO and its subsidiaries taken as a whole or on the consummation of the
transactions contemplated by this Agreement (any such material adverse effect
being hereinafter referred to as a "PEPCO MATERIAL ADVERSE EFFECT").
(b) As used in this Agreement the term "SUBSIDIARY" with respect to
any person shall mean any corporation or other entity (including partnerships
and other business associations) in which such person directly or indirectly
owns at least a majority of the outstanding voting securities or other equity
interests having the power, under ordinary circumstances, to elect a majority of
the directors, or otherwise to direct the management and policies, of such
corporation or other entity.
Section 4.2 SUBSIDIARIES.
(a) Section 4.2 of the PEPCO Disclosure Schedule sets forth a
description as of the date hereof of all subsidiaries and joint ventures of
PEPCO, including the name of each such entity, the state or jurisdiction of its
incorporation, a brief description of the principal line or lines of business
conducted by each such entity and PEPCO's interest therein.
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(b) Except as set forth in Section 4.2 of the PEPCO Disclosure
Schedule, none of the entities listed in such Section 4.2 is a "public utility
company", a "holding company", a "subsidiary company" or an "affiliate" of any
public utility company within the meaning of Section 2(a)(5), 2(a)(7), 2(a)(8)
or 2(a)(11) of the Public Utility Holding Company Act of 1935, as amended (the
"1935 ACT"), respectively.
(c) Except as set forth in Section 4.2 of the PEPCO Disclosure
Schedule, all of the issued and outstanding shares of capital stock of each
subsidiary of PEPCO are validly issued, fully paid, nonassessable and free of
preemptive rights and are owned directly or indirectly by PEPCO free and clear
of any liens, claims, encumbrances, security interests, equities, charges and
options of any nature whatsoever, and there are no outstanding subscriptions,
options, calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement, obligating any such subsidiary to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of its capital stock or
obligating it to grant, extend or enter into any such agreement or commitment.
(d) As used in this Agreement, the term "JOINT VENTURE" with respect
to any person shall mean any corporation or other entity (including partnerships
and other business associations and joint ventures) in which such person or one
or more of its subsidiaries owns an equity interest that is less than a majority
of any class of the outstanding voting securities or equity, other than equity
interests held for passive investment purposes that are less than 5% of any
class of the outstanding voting securities or equity.
Section 4.3 CAPITALIZATION.
(a) As of the date hereof, the authorized capital stock of PEPCO
consists of 200,000,000 shares of PEPCO Common Stock, 11,242,227 shares of
PEPCO Preferred Stock and 8,800,000 shares of PEPCO Preference Stock.
(b) As of the close of business on August 31, 1995,
(i) 118,491,960 shares of PEPCO Common Stock, (ii) 5,376,652 shares of
PEPCO Preferred Stock, and (iii) no shares of PEPCO Preference Stock were
issued and outstanding.
(c) All of the issued and outstanding shares of the capital
stock of PEPCO are validly issued, fully paid, nonassessable and free of
preemptive rights.
(d) Except for the PEPCO Option and as set forth in Section
4.3(a) of the PEPCO Disclosure Schedule, there are no outstanding
subscriptions, options, calls, contracts, voting trusts, proxies or other
commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement, obligating PEPCO or
any of its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of the capital stock of PEPCO or
obligating PEPCO or any of its subsidiaries to grant, extend or enter into
any such agreement or commitment.
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Section 4.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS;
COMPLIANCE.
(a) AUTHORITY.
(i) PEPCO has all requisite power and authority to enter into
this Agreement and the PEPCO Option and, subject in the case of this
Agreement to the PEPCO Shareholders' Approvals (as defined in SECTION 4.13)
and the PEPCO Required Statutory Approvals (as defined in SECTION 4.4(c)),
to consummate the transactions contemplated hereby and thereby.
(ii) The execution and delivery of this Agreement and the PEPCO
Option and, subject in the case of this Agreement to obtaining the PEPCO
Shareholders' Approvals, the consummation by PEPCO of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of PEPCO.
(iii) This Agreement and the PEPCO Option have been duly and
validly executed and delivered by PEPCO and, assuming the due
authorization, execution and delivery hereof and thereof by BGE and, in the
case of this Agreement, the Company, constitute the valid and binding
obligations of PEPCO, enforceable against PEPCO in accordance with their
respective terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance or other similar laws
affecting the enforcement of creditors' rights generally, and except that
the availability of equitable remedies, including specific performance, may
be subject to the discretion of any court before which any proceedings may
be brought.
(b) NON-CONTRAVENTION. Except as set forth in Section 4.4(b) of the
PEPCO Disclosure Schedule, the execution and delivery of this Agreement and the
PEPCO Option by PEPCO do not, and the consummation of the transactions
contemplated hereby and thereby will not, violate, conflict with or result in a
breach of any provision of, or constitute a default (with or without notice or
lapse of time or both) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination, cancelation or
acceleration of any obligation or the loss of a material benefit under, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets (any such violation, conflict, breach,
default, right of termination, cancelation or acceleration, loss or creation, a
"VIOLATION") of, PEPCO or any of its subsidiaries or, to the knowledge of PEPCO,
any of its joint ventures, under any provisions of
(i) the articles of incorporation, bylaws or similar governing
documents of PEPCO or any of its subsidiaries or joint ventures,
(ii) subject in the case of this Agreement to obtaining the PEPCO
Required Statutory Approvals and the receipt of the PEPCO Shareholders'
Approvals, any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any court, governmental or
regulatory body (including a stock exchange or other self-regulatory body)
or authority, domestic or foreign (each,
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a "GOVERNMENTAL AUTHORITY") applicable to PEPCO or any of its subsidiaries
or joint ventures or any of their respective properties or assets or
(iii) subject in the case of this Agreement to obtaining the
third-party consents or other approvals set forth in Section 4.4(b) of the
PEPCO Disclosure Schedule (the "PEPCO REQUIRED CONSENTS"), any note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind to
which PEPCO or any of its subsidiaries or joint ventures is now a party or
by which it or any of its properties or assets may be bound or affected,
excluding from the foregoing clauses (ii) and (iii) such Violations as would
not, in the aggregate, reasonably likely have a PEPCO Material Adverse Effect.
(c) STATUTORY APPROVALS. Except as set forth in Section 4.4(c) of
the PEPCO Disclosure Schedule, no declaration, filing or registration with, or
notice to or authorization, consent or approval of any Governmental Authority is
necessary for the execution and delivery of this Agreement or the PEPCO Option
by PEPCO or the consummation by PEPCO of the transactions contemplated hereby or
thereby, the failure to obtain, make or give which would reasonably likely have
a PEPCO Material Adverse Effect (the "PEPCO REQUIRED STATUTORY APPROVALS"), it
being understood that references in this Agreement to "obtaining" such PEPCO
Required Statutory Approvals shall mean making such declarations, filings or
registrations; giving such notice; obtaining such consents or approvals; and
having such waiting periods expire as are necessary to avoid a violation of law.
(d) COMPLIANCE.
(i) Except as set forth in Section 4.4(d) or 4.11 of the PEPCO
Disclosure Schedule, or as disclosed in the PEPCO SEC Reports (as defined
in SECTION 4.5), neither PEPCO nor any of its subsidiaries nor, to the
knowledge of PEPCO, any of its joint ventures is in violation of or under
investigation with respect to, or has been given notice or been charged
with any violation of, any law, statute, order, rule, regulation, ordinance
or judgment (including, without limitation, any applicable environmental
law, ordinance or regulation) of any Governmental Authority, except for
violations that do not have, and, would not reasonably likely have, a PEPCO
Material Adverse Effect.
(ii) Except as set forth in Section 4.4(d) or 4.11 of the PEPCO
Disclosure Schedule, PEPCO, its subsidiaries and, to the knowledge of
PEPCO, its joint ventures have all permits, licenses, franchises and other
governmental authorizations, consents and approvals necessary to conduct
their respective businesses as currently conducted, except those the
failure to obtain which would not reasonably likely have a PEPCO Material
Adverse Effect.
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Section 4.5 REPORTS AND FINANCIAL STATEMENTS.
(a) Since January 1, 1991, the filings required to be made by PEPCO
and its subsidiaries under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), applicable District of Columbia, Virginia, Maryland and
Pennsylvania laws and regulations, the Federal Power Act (the "POWER ACT") or
the 1935 Act have been filed with the SEC, the District of Columbia Public
Service Commission (the "D.C. COMMISSION"), the Maryland Public Service
Commission (the "MARYLAND COMMISSION") the Virginia State Corporation Commission
(the "VIRGINIA COMMISSION"), the Pennsylvania Public Utility Commission (the
"PENNSYLVANIA COMMISSION"), or the Federal Energy Regulatory Commission (the
"FERC"), as required by each such law or regulation, including all forms,
statements, reports, agreements and all documents, exhibits, amendments and
supplements appertaining thereto, and complied in all material respects with all
applicable requirements of the appropriate act and the rules and regulations
thereunder.
(b) PEPCO has made available to BGE a true and complete copy of each
report, schedule, registration statement and definitive proxy statement filed by
PEPCO with the SEC since January 1, 1992 (as such documents have since the time
of their filing been amended, the "PEPCO SEC REPORTS").
(c) The PEPCO SEC Reports, including without limitation any financial
statements or schedules included therein, at the time filed, and any forms,
reports or other documents filed by PEPCO with the SEC after the date hereof,
did not and will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(d) The audited consolidated financial statements and unaudited
interim financial statements of PEPCO included in the PEPCO SEC Reports
(collectively, the "PEPCO FINANCIAL STATEMENTS") have been prepared, and will be
prepared, in accordance with GAAP applied on a consistent basis (except as may
be indicated therein or in the notes thereto and except with respect to
unaudited statements as permitted by Form 10-Q) and fairly present in all
material respects the financial position of PEPCO as of the respective dates
thereof or the results of operations and cash flows for the respective periods
then ended, as the case may be, subject, in the case of the unaudited interim
financial statements, to normal, recurring audit adjustments.
(e) True, accurate and complete copies of the Articles of
Incorporation and Bylaws of PEPCO, as in effect on the date hereof, have been
delivered to BGE.
Section 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS; ABSENCE OF
UNDISCLOSED LIABILITIES.
(a) Except as set forth in the PEPCO SEC Reports or Section 4.6 of
the PEPCO Disclosure Schedule, from December 31, 1994 through the date hereof
each of PEPCO and each of its subsidiaries has conducted its business only in
the ordinary course of
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business consistent with past practice and there has not been, and no fact or
condition exists that would reasonably likely have, a PEPCO Material Adverse
Effect.
(b) Neither PEPCO nor any of its subsidiaries has any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of a nature
required by GAAP to be reflected in a consolidated corporate balance sheet,
except liabilities, obligations or contingencies that are accrued or reserved
against in the consolidated financial statements of PEPCO or reflected in the
notes thereto for the year ended December 31, 1994 or that were incurred after
December 31, 1994 in the ordinary course of business and would not reasonably
likely have a PEPCO Material Adverse Effect.
Section 4.7 LITIGATION. Except as set forth in the PEPCO SEC Reports
or as set forth in Section 4.7 or 4.11 of the PEPCO Disclosure Schedule, there
are no
(i) claims, suits, actions or proceedings, pending or, to the
knowledge of PEPCO, threatened, nor are there, to the knowledge of PEPCO,
any investigations or reviews pending or threatened against, relating to or
affecting PEPCO or any of its subsidiaries or joint ventures, or
(ii) judgments, decrees, injunctions, rules or orders of any
court, governmental department, commission, agency, instrumentality or
authority or any arbitrator applicable to PEPCO or any of its subsidiaries
or joint ventures, including any allegations of non-compliance with that
certain consent decree in effect pursuant to IN RE POTOMAC ELECTRIC POWER
COMPANY EMPLOYMENT LITIGATION, Civ. # 86-0603 (D.D.C. Mar. 1993) (R.C.L.)
that would reasonably likely have a PEPCO Material Adverse Effect.
Section 4.8 REGISTRATION STATEMENT AND PROXY STATEMENT.
(a) None of the information supplied or to be supplied by or on
behalf of PEPCO for inclusion or incorporation by reference in
(i) the registration statement on Form S-4 to be filed with the
SEC by the Company in connection with the issuance of shares of Company
Common Stock, Company Preferred Stock and Company Preference Stock in the
Merger (the "REGISTRATION STATEMENT") will, at the time the Registration
Statement becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading, and
(ii) the joint proxy statement in definitive form relating to the
meetings of the shareholders of BGE and PEPCO to be held in connection with
the Merger and the prospectus relating to the Company Common Stock, Company
Preferred Stock and Company Preference Stock to be issued in the Merger
(the "JOINT PROXY STATEMENT") will, at the date mailed to such shareholders
and, as the same may be amended or supplemented, at the times of such
meetings, contain any untrue statement
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of a material fact or omit to state any material fact necessary in order to
make the statements therein, in light of the circumstances under which they
are made, not misleading.
(b) Each of the Registration Statement and the Joint Proxy Statement,
as of such respective dates, will comply as to form in all material respects
with the applicable provisions of the Securities Act and the Exchange Act and
the rules and regulations thereunder.
Section 4.9 TAX MATTERS.
(a) Except as set forth on Schedule 4.9(a) of the PEPCO Disclosure
Schedule, PEPCO and each of its subsidiaries has
(i) filed all material Tax Returns required to be filed by it
within the time and in the manner prescribed by law,
(ii) paid all Taxes that are shown on such Tax Returns as due and
payable within the time and in the manner prescribed by law, and
(iii) paid all Taxes otherwise required to be paid.
(b) Except as set forth on Schedule 4.9(b) of the PEPCO Disclosure
Schedule, as of the date hereof,
(i) there are no claims, assessments, audits or administrative
or court proceedings pending against PEPCO or any of its subsidiaries for
any alleged deficiency in Tax, and
(ii) none of PEPCO or any of its subsidiaries has executed any
outstanding waivers or comparable consents regarding the application of the
statute of limitations with respect to any Taxes or Tax Returns.
(c) PEPCO has established adequate accruals for Taxes and for any
liability for deferred Taxes in the PEPCO Financial Statements in accordance
with GAAP.
(d) "TAXES", as used in this Agreement, means any federal, state,
county, local or foreign taxes, charges, fees, levies or other assessments,
including, without limitation, all net income, gross income, sales and use, ad
valorem, transfer, gains, profits, excise, franchise, real and personal
property, gross receipt, capital stock, production, business and occupation,
disability, employment, payroll, license, estimated, stamp, custom duties,
severance or withholding taxes or charges imposed by any governmental entity,
and includes any interest and penalties (civil or criminal) on or additions to
any such taxes, charges, fees, levies or other assessments, and any expenses
incurred in connection with the determination, settlement or litigation of any
liability for any of the foregoing.
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(e) "TAX RETURN", as used in this Agreement, means any report, return
or other information required to be supplied to a governmental entity with
respect to Taxes, including, where permitted or required, combined or
consolidated returns for any group of entities that includes PEPCO or any of its
subsidiaries on the one hand, or BGE or any of its subsidiaries on the other
hand.
Section 4.10 EMPLOYEE MATTERS; ERISA.
(a) BENEFIT PLANS. (i) Section 4.10(a) of the PEPCO Disclosure
Schedule contains a true and complete list, as of the date hereof, of:
(A) each benefit plan, program, policy or arrangement
providing for pension, profit sharing, supplemental death and
dismemberment, life and health insurance and benefits (including
medical, dental and hospitalization), savings, bonus, deferred
compensation, incentive compensation (including stock options,
restricted stock, stock appreciation rights, performance units,
dividend equivalents and each other plan, program, policy, or
arrangement under which shares of PEPCO Common Stock are required to
be transferred or could be transferred), holiday, vacation, severance
pay, sick pay, sick leave, short and long-term disability, tuition
assistance and relocation benefits plan which has been adopted,
approved or implemented by PEPCO or any of its subsidiaries in writing
covering a group or classification of current or former employees or
directors of PEPCO (or any of its subsidiaries) or any group or
classification of their dependents or beneficiaries, or providing
benefits to such persons in respect of services provided to any such
entity, including, but not limited to, any "employee benefit plan"
within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") (whether or not terminated,
if PEPCO or any of its subsidiaries could have statutory or
contractual liability with respect thereto on or after the date
hereof) but not including any individual contract, award or agreement;
(B) each employment or severance contract (including any
payment, right or benefit resulting from any transaction contemplated
by this Agreement) and all stock options, restricted stock,
performance units, stock appreciation rights or dividend equivalents,
bonus or other contract for personal services and each other contract
under which shares of PEPCO Common Stock are required to be
transferred or could be transferred and the amount of such shares (in
the aggregate) with or covering current or former officers or
directors; and
(1) there are no other employment or severance contracts
covering current or former employees of PEPCO below the level of
officer which have not been disclosed and made available to BGE
with respect to which PEPCO or any of its subsidiaries are
reasonably likely to have a PEPCO Material Adverse Effect; and
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(2) with respect to any officer of PEPCO there have been
no awards of stock options, restricted stock, performance units,
stock appreciation rights or dividend equivalents in respect of
shares of PEPCO Common Stock subsequent to the most recent PEPCO
proxy statement made outside of the ordinary course or
inconsistent with past practice, and with respect to all
employees of PEPCO below the level of officer there have been no
awards of stock options, restricted stock, performance units,
stock appreciation rights or dividend equivalents, with respect
to shares of PEPCO Common Stock, which, in the aggregate, have
been made outside of the ordinary course or inconsistent with
past practice; and
(C) each "employee pension benefit plan" (within the
meaning of ERISA Section 3(2)) subject to Title IV of ERISA or the
minimum funding requirements of ERISA Section 302 (whether or not
included in (A) above) maintained or contributed to by PEPCO or any
entity required to be aggregated therewith pursuant to Code Section
414(b) or (c) (a "PEPCO ERISA AFFILIATE") at any time during the six
calendar year period immediately preceding the date hereof
(collectively, the "PEPCO PENSION BENEFIT PLANS");
(ii) For purposes of this Agreement, "PEPCO BENEFIT PLAN" shall
mean each benefit plan, program, policy, contract and arrangement described
in subsections (i)(A) and (B) above (whether or not terminated) if PEPCO or
any of its subsidiaries could have statutory or contractual liability with
respect thereto on or after the date hereof.
(iii) With respect to each PEPCO Benefit Plan and PEPCO Pension
Benefit Plan, the source or sources of benefit payments under the plan
(including, where applicable, the identity of any trust (whether or not a
grantor trust), insurance contract, custodial account, agency agreement, or
other arrangement that holds the assets of, or serves as a funding vehicle
or source of benefits for such PEPCO Benefit Plan or PEPCO Pension Benefit
Plan).
(b) CONTRIBUTIONS. Except as set forth in Section 4.10(b) of the
PEPCO Disclosure Schedule, all material contributions and other material
payments required to have been made by PEPCO or any of its subsidiaries or any
PEPCO ERISA Affiliate pursuant to any PEPCO Benefit Plan or PEPCO Pension
Benefit Plan (or to any person pursuant to the terms thereof) have been timely
made or the amount of such payment or contribution obligation has been reflected
in the PEPCO Financial Statements.
(c) QUALIFICATION; COMPLIANCE. Except as set forth in Section
4.10(c) of the PEPCO Disclosure Schedule:
(i) Each PEPCO Benefit Plan and PEPCO Pension Benefit Plan that
is intended to be "qualified" within the meaning of Code Section 401(a) has
been determined by the IRS to be so qualified, or application for such a
determination has been made prior to the expiration of the applicable
remedial amendment period and PEPCO
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agrees to make such plan amendments as the IRS may require in order to
issue a favorable determination letter.
(ii) PEPCO and each of its subsidiaries are in compliance with,
and each PEPCO Benefit Plan is and has been operated in compliance with,
all applicable laws, rules and regulations governing such plan, including,
without limitation, ERISA and the Code, except for violations that would
not reasonably likely have a PEPCO Material Adverse Effect.
(iii) To the knowledge of PEPCO, no individual or entity has
engaged in any transaction with respect to any PEPCO Benefit Plan as a
result of which PEPCO or any of its subsidiaries could reasonably expect to
be subject to liability pursuant to ERISA Section 409 or Section 502, or
subject to an excise tax pursuant to Code Section 4975 which would
reasonably likely have a PEPCO Material Adverse Effect.
(iv) To the knowledge of PEPCO,
(A) no PEPCO Benefit Plan is subject to any ongoing audit,
investigation, or other administrative proceeding of the Internal
Revenue Service, the Department of Labor, or any other federal, state,
or local governmental entity, and
(B) no PEPCO Benefit Plan is the subject of any pending
application for administrative relief under any voluntary compliance
program of any governmental entity (including, without limitation, the
Internal Revenue Service's Voluntary Compliance Resolution Program or
Walk-in Closing Agreement Program, or the Department of Labor's
Delinquent Filer Voluntary Compliance Program).
(d) LIABILITIES. With respect to the PEPCO Pension Benefit Plans,
individually and in the aggregate, no termination or partial termination of any
PEPCO Pension Benefit Plan or other event has occurred, and, to the knowledge of
PEPCO, there exists no condition or set of circumstances, that could subject
PEPCO, any of its subsidiaries or any PEPCO ERISA Affiliate to any liability
arising under the Code, ERISA or any other applicable law (including, without
limitation, any liability to or under any such plan or to the Pension Benefit
Guaranty Corporation (the "PBGC")), or under any indemnity agreement to which
PEPCO, any of its subsidiaries or any PEPCO ERISA Affiliate is a party,
excluding liability for benefit claims and funding obligations payable in the
ordinary course and liability for PBGC insurance premiums payable in the
ordinary course, which liability would reasonably likely have a PEPCO Material
Adverse Effect.
(e) WELFARE PLANS. Except as set forth in Section 4.10(e) of the
PEPCO Disclosure Schedule, no PEPCO Benefit Plan that is a "welfare plan"
(within the meaning of ERISA Section 3(1)) provides benefits for any retired or
former employees (other than as required pursuant to ERISA Section 601).
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(f) DOCUMENTS MADE AVAILABLE. PEPCO has made available to BGE a true
and correct copy of each collective bargaining agreement to which PEPCO is a
party or under which PEPCO has obligations and, with respect to each PEPCO
Benefit Plan and each PEPCO Pension Benefit Plan (as of May 31, 1995), as
applicable:
(i) the current plan document (including all amendments adopted
since the most recent restatement) and its most recently prepared summary
plan description and all summaries of material modifications prepared since
the most recent summary plan description,
(ii) annual reports (IRS Form 5500 Series) including financial
statements for the last three years,
(iii) each related trust agreement, insurance contract, service
provider or investment management agreement (including all amendments to
each such document),
(iv) the most recent IRS determination letter with respect to the
qualified status under Code Section 401(a) of such plan, and
(v) actuarial reports or valuations for the last three years.
To the extent that documents referred to in clauses (i) through (v) of this
SECTION 4.10(f) have not been made available to BGE with respect to the period
following May 31, 1995, no information that is disclosed in such documents (and
that has not been disclosed previously in documents that have been made
available to BGE) is reasonably likely to have a PEPCO Material Adverse Effect.
(g) PAYMENTS RESULTING FROM MERGER. Other than as set forth in
Section 4.10(g) of the PEPCO Disclosure Schedule, the consummation or
announcement of any transaction contemplated by this Agreement will not (either
alone or upon the occurrence of any additional or further acts or events) result
in any
(i) payment (whether of severance pay or otherwise) becoming due
from the Company or PEPCO or any of its subsidiaries to any current or
former officer or director thereof or to the trustee under any "rabbi
trust" or other funding arrangement,
(ii) benefit under any PEPCO Benefit Plan being established or
becoming accelerated, vested or payable, except for a payment or benefit
that would have been payable under the same terms and conditions without
regard to the transactions contemplated by this Agreement, or
(iii) payment (whether of severance pay or otherwise) becoming due
from the Company or PEPCO or any of its subsidiaries to any current or
former employee of PEPCO below the level of officer which such payments
aggregated for such
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employees and former employees as a group would reasonably likely have a
PEPCO Material Adverse Effect.
(h) FUNDED STATUS OF PLANS. Except as set forth in Section 4.10(h)
of the PEPCO Disclosure Schedule, each PEPCO Pension Benefit Plan has assets
that, as of the date hereof, have a fair market value equal to or exceeding the
present value of the accrued benefit obligations thereunder on a termination
basis, as of the date hereof based on the actuarial methods, tables and
assumptions theretofore utilized by such plan's actuary in preparing such plan's
most recently prepared actuarial valuation report, except to the extent that
applicable law would require the use of different actuarial assumptions if such
plan was to be terminated as of the date hereof. No PEPCO Pension Benefit Plan
has incurred any "accumulated funding deficiency" (within the meaning of ERISA
Section 302).
(i) MULTIEMPLOYER PLANS.
(i) Except as set forth in Section 4.10(i) of the PEPCO
Disclosure Schedule, no PEPCO Benefit Plan is or was a "multiemployer plan"
(within the meaning of ERISA Section 4001(a)(3)), a multiple employer plan
described in Code Section 413(c), or a "multiple employer welfare
arrangement" (within the meaning of ERISA Section 3(40)); and none of
PEPCO, any subsidiary thereof or any PEPCO ERISA Affiliate has been
obligated to contribute to, or otherwise has or has had any liability with
respect to, any multiemployer plan, multiple employer plan, or multiple
employer welfare arrangement.
(ii) With respect to any PEPCO Benefit Plan that is listed in
Section 4.10(i) of the PEPCO Disclosure Schedule as a multiemployer plan,
none of PEPCO, any subsidiary thereof or any PEPCO ERISA Affiliate has made
or incurred a "complete withdrawal" or a "partial withdrawal," as such
terms are defined in ERISA Sections 4203 and 4205, therefrom at any time
during the six calendar year period immediately preceding the date of this
Agreement and the transactions contemplated by the Agreement will not, in
and of themselves, give rise to such a "complete withdrawal" or "partial
withdrawal."
(j) MODIFICATION OR TERMINATION OF PLANS. Except as set forth in
Section 4.10(j) of the PEPCO Disclosure Schedule or as permitted under SECTION
6.9:
(i) neither PEPCO nor any subsidiary of PEPCO is subject to any
legal, contractual, equitable or other obligation to establish as of any
date any employee benefit plan of any nature, including (without
limitation) any pension, profit sharing, welfare, post-retirement welfare,
stock option, stock or cash award, non-qualified deferred compensation or
executive compensation plan, policy or practice; and
(ii) the Company, PEPCO or one or more of its subsidiaries or any
PEPCO ERISA Affiliate have the right to, in any manner, and without the
consent of any employee, beneficiary or dependent, employees' organization
or other person, terminate, modify or amend any PEPCO Benefit Plan or PEPCO
Pension Benefit Plan (or its participation in any such PEPCO Benefit Plan
or PEPCO Pension Benefit Plan)
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at any time sponsored, maintained or contributed to by PEPCO or any of its
subsidiaries or any PEPCO ERISA Affiliate, effective as of any date before,
on or after the Effective Time except to the extent that any retroactive
amendment would be prohibited by ERISA Section 204(g) or would adversely
affect a vested accrued benefit or a previously granted award under any
such Plan not subject to ERISA Section 204(g).
(k) REPORTABLE EVENTS; CLAIMS. Except as set forth in
Section 4.10(k) of the PEPCO Disclosure Schedule:
(i) no event constituting a "reportable event" (within the
meaning of ERISA Section 4043(c)), for which the 30-day notice requirement
or penalty has not been waived by the PBGC, has occurred with respect to
any PEPCO Pension Benefit Plan, and
(ii) no liability, claim, action or litigation has been made,
commenced or, to the knowledge of PEPCO, threatened, by or against PEPCO or
any of its subsidiaries or any PEPCO ERISA Affiliate with respect to any
PEPCO Benefit Plan or any PEPCO Pension Benefit Plan (other than for
benefits or PBGC premiums payable in the ordinary course)
that would reasonably likely have a PEPCO Material Adverse Effect.
(l) LABOR AGREEMENTS. Except as set forth in the PEPCO SEC Reports
or as set forth in Section 4.10(l) of the PEPCO Disclosure Schedule:
(i) neither PEPCO nor any of its subsidiaries is a party to any
collective bargaining agreement or other current labor agreement with any
labor union or organization. There is no current union representation
question involving employees of PEPCO or any of its subsidiaries, nor does
PEPCO or any of its subsidiaries know of any activity or proceeding of any
labor organization (or representative thereof) or employee group (or
representative thereof) to organize any such employees;
(ii) there is no unfair labor practice charge or grievance
arising out of a collective bargaining agreement or other grievance
procedure against PEPCO or any of its subsidiaries pending, or to the
knowledge of PEPCO or any of its subsidiaries, threatened, that has, or
would reasonably likely have, a PEPCO Material Adverse Effect;
(iii) there is no complaint, lawsuit or proceeding in any forum by
or on behalf of any present or former employee, any applicant for
employment or classes of the foregoing alleging breach of any express or
implied contract of employment, any law or regulation governing employment
or the termination thereof or other discriminatory, wrongful or tortious
conduct in connection with the employment relationship against PEPCO or any
of its subsidiaries pending, or to the knowledge of PEPCO or any of its
subsidiaries, threatened, that has, or would reasonably likely have, a
PEPCO Material Adverse Effect;
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(iv) there is no strike, dispute, slowdown, work stoppage or
lockout pending, or to the knowledge of PEPCO or any of its subsidiaries,
threatened, against or involving PEPCO or any of its subsidiaries that has,
or would reasonably likely have, a PEPCO Material Adverse Effect;
(v) PEPCO and each of its subsidiaries are in compliance with
all applicable laws respecting employment and employment practices, terms
and conditions of employment, wages, hours of work and occupational safety
and health, except for non-compliance that does not have, and would not
reasonably likely have, a PEPCO Material Adverse Effect; and
(vi) there is no proceeding, claim, suit, action or governmental
investigation pending or, to the knowledge of PEPCO or any of its
subsidiaries, threatened, in respect to which any current or former
director, officer, employee or agent of PEPCO or any of its subsidiaries is
or may be entitled to claim indemnification from PEPCO or any of its
subsidiaries pursuant to their respective articles of incorporation or by-
laws or as provided in the indemnification agreements listed on Section
4.10(l) of the PEPCO Disclosure Schedule that has, or would reasonably
likely have, a PEPCO Material Adverse Effect.
Section 4.11 ENVIRONMENTAL PROTECTION.
(a) COMPLIANCE.
(i) Except as set forth in Section 4.11(a) of the PEPCO
Disclosure Schedule, each of PEPCO and each of its subsidiaries is in
compliance with all applicable Environmental Laws (as hereinafter defined),
except where the failure to be so in compliance would not reasonably likely
have a PEPCO Material Adverse Effect.
(ii) Except as set forth in Section 4.11(a) of the PEPCO
Disclosure Schedule, neither PEPCO nor any of its subsidiaries has received
any written communication from any person or Governmental Authority that
alleges that PEPCO or any of its subsidiaries is not in compliance with
applicable Environmental Laws, except where the failure to be so in
compliance would not reasonably likely have a PEPCO Material Adverse
Effect.
(b) ENVIRONMENTAL PERMITS. Except as set forth in Section 4.11(b) of
the PEPCO Disclosure Schedule, PEPCO and each of its subsidiaries has obtained
or applied for all environmental, health and safety permits and authorizations
(collectively, "ENVIRONMENTAL PERMITS") necessary for the construction of their
facilities and the conduct of their operations, and all such permits are in good
standing or, where applicable, a renewal application has been timely filed and
is pending agency approval, and PEPCO and its subsidiaries are in compliance
with all terms and conditions of all such Environmental Permits and are not
required to make any expenditure in order to obtain or renew any Environmental
Permits, except where the failure to obtain or be in such compliance and the
requirement to make such expenditures would not reasonably likely have a PEPCO
Material Adverse Effect.
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(c) ENVIRONMENTAL CLAIMS. Except as set forth in Section 4.11(c) of
the PEPCO Disclosure Schedule, there is no Environmental Claim (as hereinafter
defined) pending, or to the knowledge of PEPCO and its subsidiaries, threatened
(i) against PEPCO or any of its subsidiaries or joint ventures,
(ii) against any person or entity whose liability for any
Environmental Claim PEPCO or any of its subsidiaries or joint ventures has
or may have retained or assumed either contractually or by operation of
law, or
(iii) against any real or personal property or operations that
PEPCO or any of its subsidiaries or joint ventures owns, leases or manages,
in whole or in part,
that, if adversely determined, would reasonably likely have a PEPCO Material
Adverse Effect.
(d) RELEASES. Except as set forth in Section 4.11(c) or 4.11(d) of
the PEPCO Disclosure Schedule, PEPCO has no knowledge of any Release (as
hereinafter defined) of any Hazardous Material (as hereinafter defined) that
would be reasonably likely to form the basis of any Environmental Claim against
PEPCO or any subsidiaries or joint ventures of PEPCO, or against any person or
entity whose liability for any Environmental Claim PEPCO or any subsidiaries or
joint ventures of PEPCO has or may have retained or assumed either contractually
or by operation of law, except for Releases of Hazardous Materials the liability
for which would not reasonably likely have a PEPCO Material Adverse Effect.
(e) PREDECESSORS. Except as set forth in Section 4.11(e) of the
PEPCO Disclosure Schedule, PEPCO has no knowledge, with respect to any
predecessor of PEPCO or any subsidiary or joint venture of PEPCO, of any
Environmental Claims pending or threatened, or of any Release of Hazardous
Materials that would be reasonably likely to form the basis of any Environmental
Claims that would have, or that would reasonably likely have, a PEPCO Material
Adverse Effect.
(f) DISCLOSURE. To PEPCO's knowledge, PEPCO has disclosed to BGE all
material facts that PEPCO reasonably believes form the basis of a PEPCO Material
Adverse Effect arising from
(i) the cost of pollution control equipment currently required
or known to be required in the future,
(ii) current remediation costs or remediation costs known to be
required in the future, or
(iii) any other environmental matter affecting PEPCO or its
subsidiaries that would have, or that would reasonably likely have, a PEPCO
Material Adverse Effect.
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As used in this Agreement:
(iv) "ENVIRONMENTAL CLAIM" means
(A) any and all administrative, regulatory or judicial actions,
suits, demands, demand letters, directives, claims, liens,
investigations, proceedings or notices of noncompliance or violation
in writing by any person or entity (including any Governmental
Authority) or
(B) any oral information provided to PEPCO (or to BGE, for
purposes of SECTION 5.11) by a Governmental Authority that written
action of the type described in clause (A) above is in process,
alleging potential liability (including, without limitation, potential liability
for enforcement, investigatory costs, cleanup costs, governmental response
costs, removal costs, remedial costs, natural resources damages, property
damages, personal injuries, or penalties) arising out of, based on or resulting
from (a) the presence, or Release or threatened Release into the environment, of
any Hazardous Materials at any location, whether or not owned, operated, leased
or managed by PEPCO or any of its subsidiaries or joint ventures (for purposes
of this SECTION 4.11), or by BGE or any of its subsidiaries or joint ventures
(for purposes of SECTION 5.11), (b) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law or (c) any and all
claims by any third party seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from the presence or
Release of any Hazardous Materials.
(v) "ENVIRONMENTAL LAWS" means all federal, state and local
laws, rules and regulations relating to pollution or protection of human
health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws and regulations relating to Releases or threatened
Releases of Hazardous Materials or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials.
(vi) "HAZARDOUS MATERIALS" means (a) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation, and transformers or
other equipment that contain dielectric fluid containing polychlorinated
biphenyls, (b) any chemicals, materials or substances which are now defined
as or included in the definition of "hazardous substances", "hazardous
wastes", "hazardous materials", "extremely hazardous wastes", "restricted
hazardous wastes", "toxic substances", "toxic pollutants", or words, of
similar import, under any Environmental Law and (c) any other chemical,
material, substance or waste, exposure to which is now prohibited, limited
or regulated under Environmental Law in a jurisdiction in which PEPCO or
any of its subsidiaries or joint ventures operates (for purposes of this
SECTION 4.11) or in which BGE or any of its subsidiaries or joint ventures
operates (for purposes of SECTION 5.11).
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(vii) "RELEASE" means any release, spill, emission, leaking,
injection, deposit, disposal, discharge, dispersal, leaching or migration
into the atmosphere, soil, surface water, groundwater or property.
Section 4.12 REGULATION AS A UTILITY.
(a) PEPCO is regulated as a public utility in the State of Maryland
and in the District of Columbia and, to a limited extent, in the Commonwealths
of Pennsylvania and Virginia and in no other state.
(b) Except as set forth in Section 4.12 of the PEPCO Disclosure
Schedule, no subsidiary company or affiliate of PEPCO is subject to regulation
as a public utility or public service company (or similar designation) by any
other state in the United States or by any foreign country.
(c) As used in this SECTION 4.12 and in SECTION 5.12, the terms
"subsidiary company" and "affiliate" shall have the respective meanings ascribed
to them in the 1935 Act.
Section 4.13 VOTE REQUIRED. The approval of the Merger by (a) more
than two-thirds of all votes entitled to be cast by all holders of PEPCO Common
Stock and (b) a majority of all votes entitled to be cast by all holders of
PEPCO Preferred Stock, each voting separately as a class (the "PEPCO
SHAREHOLDERS' APPROVALS") are the only votes of the holders of any class or
series of the capital stock of PEPCO required to approve this Agreement, the
Merger and the other transactions contemplated hereby.
Section 4.14 ACCOUNTING MATTERS. PEPCO has not, through the date
hereof, taken or agreed to take any action that would prevent the Company from
accounting for the business combination to be effected by the Merger as a
pooling-of-interests in accordance with GAAP and applicable SEC regulations.
Section 4.15 APPLICABILITY OF CERTAIN VIRGINIA LAW. Assuming the
accuracy of the representation by BGE set forth in SECTION 5.18, neither the
control share acquisition provisions of Section 13.1-728.1 ET SEQ. of the VSCA,
the affiliated transactions provisions of Section 13.1-725 ET SEQ. of the VSCA
or any similar provisions of the VSCA, the Articles of Incorporation or Bylaws
of PEPCO are applicable to the transactions contemplated by this Agreement.
Section 4.16 OPINION OF FINANCIAL ADVISOR. PEPCO has received the
opinion of Barr Devlin & Co. Incorporated, dated the date hereof, to the effect
that, as of the date hereof, the PEPCO Ratio is fair from a financial point of
view to the holders of PEPCO Common Stock.
Section 4.17 INSURANCE.
(a) Except as set forth in Section 4.17 of the PEPCO Disclosure
Schedule, each of PEPCO and each of its subsidiaries is, and has been
continuously since January 1,
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1990, insured in such amounts and against such risks and losses as are customary
for companies conducting the respective businesses conducted by PEPCO and its
subsidiaries during such time period.
(b) Except as set forth in Section 4.17 of the PEPCO Disclosure
Schedule, neither PEPCO nor any of its subsidiaries has received any notice of
cancellation or termination with respect to any material insurance policy
thereof.
(c) All material insurance policies of PEPCO and its subsidiaries are
valid and enforceable policies.
Section 4.18 OWNERSHIP OF BGE COMMON STOCK. PEPCO does not
"beneficially own" (as such term is defined in Rule 13d-3 under the Exchange
Act) any shares of BGE Common Stock.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF BGE
BGE represents and warrants to PEPCO as follows:
Section 5.1 ORGANIZATION AND QUALIFICATION. Except as set forth in
Section 5.1 or 5.2 of the BGE Disclosure Schedule (as defined in SECTION
7.6(a)(ii)), (i) BGE is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdictions of incorporation and (ii) each
of BGE's subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdictions of incorporation and each of
BGE and its subsidiaries has requisite corporate power and authority, and is
duly authorized by all necessary regulatory approvals and orders, to own, lease
and operate its assets and properties and to carry on its business as it is now
being conducted, and is duly qualified and in good standing to do business in
each jurisdiction in which the nature of its business or the ownership or
leasing of its assets and properties makes such qualification necessary, other
than, in the case of clause (ii) such failures, which, when taken together with
all other such failures, will not have a material adverse effect on the
business, operations, properties, assets, condition (financial or otherwise),
prospects or results of operations of BGE and its subsidiaries taken as a whole
or on the consummation of the transactions contemplated by this Agreement (any
such material adverse effect being hereinafter referred to as a "BGE MATERIAL
ADVERSE EFFECT").
Section 5.2 SUBSIDIARIES.
(a) Section 5.2 of the BGE Disclosure Schedule sets forth a
description as of the date hereof of all subsidiaries and joint ventures of BGE,
including the name of each such entity, the state or jurisdiction of its
incorporation, a brief description of the principal line or lines of business
conducted by each such entity and BGE's interest therein.
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<PAGE>
(b) Except as set forth in Section 5.2 of the BGE Disclosure
Schedule, none of the entities listed in Section 5.2 is a "public utility
company", a "holding company", a "subsidiary company" or an "affiliate" of any
public utility company within the meaning of Section 2(a)(5), 2(a)(7), 2(a)(8)
or 2(a)(11) of the 1935 Act, respectively.
(c) Except as set forth in Section 5.2 of the BGE Disclosure
Schedule, all of the issued and outstanding shares of capital stock of each
subsidiary of BGE are validly issued, fully paid, nonassessable and free of
preemptive rights and are owned directly or indirectly by BGE free and clear of
any liens, claims, encumbrances, security interests, equities, charges and
options of any nature whatsoever, and there are no outstanding subscriptions,
options, calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement, obligating any such subsidiary to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of its capital stock or
obligating it to grant, extend or enter into any such agreement or commitment.
Section 5.3 CAPITALIZATION.
(a) As of the date hereof, the authorized capital stock of BGE
consists of 175,000,000 shares of BGE Common Stock, 1,000,000 shares of BGE
Preferred Stock and 6,500,000 shares of BGE Preference Stock.
(b) As of the close of business on August 31, 1995, (i)
147,527,114 shares of BGE Common Stock, (ii) 591,849 shares of BGE
Preferred Stock and (iii) 4,910,000 shares of BGE Preference Shares were
issued and outstanding.
(c) All of the issued and outstanding shares of the capital
stock of BGE are validly issued, fully paid, nonassessable and free of
preemptive rights.
(d) Except for the BGE Option and as set forth in Section 5.3(a)
of the BGE Disclosure Schedule, there are no outstanding subscriptions,
options, calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions, arrangements, rights or warrants, including
any right of conversion or exchange under any outstanding security,
instrument or other agreement, obligating BGE or any of its subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock of BGE or obligating BGE or any of
its subsidiaries to grant, extend or enter into any such agreement or
commitment.
Section 5.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS;
COMPLIANCE.
(a) AUTHORITY.
(i) BGE has all requisite power and authority to enter into this
Agreement and the BGE Option and, subject in the case of this Agreement to
the BGE Shareholders' Approvals (as defined in SECTION 5.13(c)) and the BGE
Required
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Statutory Approvals (as defined in SECTION 5.4(c), to consummate the
transactions contemplated hereby and thereby.
(ii) The execution and delivery of this Agreement and the BGE
Option and, subject in the case of this Agreement to obtaining the BGE
Shareholders' Approvals, the consummation by BGE of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of BGE.
(iii) This Agreement and the BGE Option have been duly and
validly executed and delivered by BGE and, assuming the due authorization,
execution and delivery hereof and thereof by PEPCO and, in the case of this
Agreement, the Company, constitute the valid and binding obligations of
BGE, enforceable against BGE in accordance with their respective terms,
except as would be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance or other similar laws affecting the
enforcement of creditors' rights generally and except that the availability
of equitable remedies, including specific performance, may be subject to
the discretion of any court before which any proceeding therefor may be
brought.
(b) NON-CONTRAVENTION. Except as set forth in Section 5.4(b) of the
BGE Disclosure Schedule, the execution and delivery of this Agreement and the
BGE Option by BGE do not, and the consummation of the transactions contemplated
hereby and thereby will not result in any Violation by BGE or any of its
subsidiaries or, to the knowledge of BGE, any of its joint ventures, under any
provisions of
(i) the articles of incorporation, bylaws or similar governing
documents of BGE or any of its subsidiaries or joint ventures,
(ii) subject in the case of this Agreement to obtaining the BGE
Required Statutory Approvals and the receipt of the BGE Shareholders'
Approvals, any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any Governmental Authority
applicable to BGE or any of its subsidiaries or joint ventures or any of
their respective properties or assets, or
(iii) subject in the case of this Agreement to obtaining the
third-party consents or other approvals set forth in Section 5.4(b) of the
BGE Disclosure Schedule (the "BGE REQUIRED CONSENTS"), any note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind to
which BGE or any of its subsidiaries or joint ventures is now a party or by
which it or any of its properties or assets may be bound or affected,
excluding from the foregoing clauses (ii) and (iii) such Violations as would
not, in the aggregate, reasonably likely have a BGE Material Adverse Effect.
(c) STATUTORY APPROVALS. Except as set forth in Section 5.4(c) of
the BGE Disclosure Schedule, no declaration, filing or registration with, or
notice to or authorization,
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consent or approval of any Governmental Authority is necessary for the execution
and delivery of this Agreement or the BGE Option by BGE or the consummation by
BGE of the transactions contemplated hereby or thereby, the failure to obtain,
make or give which would reasonably likely have a BGE Material Adverse Effect
(the "BGE REQUIRED STATUTORY APPROVALS"), it being understood that references in
this Agreement to "obtaining" such BGE Required Statutory Approvals shall mean
making such declarations, filings or registrations; giving such notice;
obtaining such consents or approvals; and having such waiting periods expire as
are necessary to avoid a violation of law.
(d) COMPLIANCE.
(i) Except as set forth in Section 5.4(d) or 5.11 of the BGE
Disclosure Schedule or as disclosed in the BGE SEC Reports (as defined in
SECTION 5.5), neither BGE nor any of its subsidiaries nor, to the knowledge
of BGE, any of its joint ventures, is in violation of or under
investigation with respect to, or has been given notice or been charged
with any violation of, any law, statute, order, rule, regulation, ordinance
or judgment (including, without limitation, any applicable environmental
law, ordinance or regulation) of any Governmental Authority, except for
violations that do not have, and, would not reasonably likely have, a BGE
Material Adverse Effect.
(ii) Except as set forth in Section 5.4(d) or 5.11 of the BGE
Disclosure Schedule, BGE, its subsidiaries and, to the knowledge of BGE,
its joint ventures have all permits, licenses, franchises and other
governmental authorizations, consents and approvals necessary to conduct
their respective businesses as currently conducted, except those the
failure to obtain which would not reasonably likely have a BGE Material
Adverse Effect.
Section 5.5 REPORTS AND FINANCIAL STATEMENTS.
(a) Since January 1, 1991, the filings required to be made by BGE and
its subsidiaries under the Securities Act, the Exchange Act, applicable Maryland
and Pennsylvania laws and regulations, the Power Act or the 1935 Act have been
filed with the SEC, the Maryland Commission, the Pennsylvania Commission, the
FERC or the Nuclear Regulatory Commission (the "NRC"), as required by each such
law or regulation, including all forms, statements, reports, agreements and all
documents, exhibits, amendments and supplements appertaining thereto, and
complied in all material respects with all applicable requirements of the
appropriate act and the rules and regulations thereunder.
(b) BGE has made available to PEPCO a true and complete copy of each
report, schedule, registration statement and definitive proxy statement filed by
BGE with the SEC since January 1, 1992 (as such documents have since the time of
their filing been amended, the "BGE SEC REPORTS").
(c) The BGE SEC Reports, including without limitation any financial
statements or schedules included therein, at the time filed, and any forms,
reports or other documents filed by BGE with the SEC after the date hereof, did
not and will not contain any
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untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The audited consolidated financial statements and unaudited
interim financial statements of BGE included in the BGE SEC Reports
(collectively, the "BGE FINANCIAL STATEMENTS") have been prepared, and will be
prepared in accordance with GAAP applied on a consistent basis (except as may be
indicated therein or in the notes thereto and except with respect to unaudited
statements as permitted by Form 10-Q) and fairly present in all material
respects the financial position of BGE as of the respective dates thereof or the
results of operations and cash flows for the respective periods then ended, as
the case may be, subject, in the case of the unaudited interim financial
statements, to normal, recurring audit adjustments.
(e) True, accurate and complete copies of the Articles of
Incorporation and Bylaws of BGE, as in effect on the date hereof, have been
delivered to PEPCO.
Section 5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS; ABSENCE OF
UNDISCLOSED LIABILITIES.
(a) Except as set forth in the BGE SEC Reports or Section 5.6 of the
BGE Disclosure Schedule, from December 31, 1994 through the date hereof each of
BGE and each of its subsidiaries has conducted its business only in the ordinary
course of business consistent with past practice and there has not been, and no
fact or condition exists that would reasonably likely have, a BGE Material
Adverse Effect.
(b) Neither BGE nor any of its subsidiaries has any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of a nature
required by GAAP to be reflected in a consolidated corporate balance sheet,
except liabilities, obligations or contingencies that are accrued or reserved
against in the consolidated financial statements of BGE or reflected in the
notes thereto for the year ended December 31, 1994, or that were incurred after
December 31, 1994, in the ordinary course of business and would not reasonably
likely have a BGE Material Adverse Effect.
Section 5.7 LITIGATION. Except as set forth in the BGE SEC Reports
or as set forth in Section 5.7 or 5.11 of the BGE Disclosure Schedule, there are
no
(i) claims, suits, actions or proceedings, pending or, to the
knowledge of BGE, threatened, nor are there, to the knowledge of BGE, any
investigations or reviews pending or threatened against, relating to or
affecting BGE or any of its subsidiaries or joint ventures,
(ii) judgments, decrees, injunctions, rules or orders of any
court, governmental department, commission, agency, instrumentality or
authority or any arbitrator applicable to BGE or any of its subsidiaries or
joint ventures,
that would have, or would reasonably likely have, a BGE Material Adverse Effect.
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Section 5.8 REGISTRATION STATEMENT AND PROXY STATEMENT.
(a) None of the information supplied or to be supplied by or on
behalf of BGE for inclusion or incorporation by reference in
(i) the Registration Statement will, at the time the
Registration Statement becomes effective under the Securities Act, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, and
(ii) the Joint Proxy Statement will, at the date mailed to the
shareholders of BGE and PEPCO and, as the same may be amended or
supplemented, at the times of the meetings of such shareholders to be held
in connection with the Merger, contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they are
made, not misleading.
(b) Each of the Registration Statement and the Joint Proxy Statement,
as of such respective dates, will comply as to form in all material respects
with the applicable provisions of the Securities Act and the Exchange Act and
the rules and regulations thereunder.
Section 5.9 TAX MATTERS.
(a) Except as set forth on Schedule 5.9(a) of the BGE Disclosure
Schedule, BGE and each of its subsidiaries has
(i) filed all material Tax Returns required to be filed by it
within the time and in the manner prescribed by law,
(ii) paid all Taxes that are shown on such Tax Returns as due and
payable within the time and in the manner prescribed by law, and
(iii) paid all Taxes otherwise required to be paid.
(b) Except as set forth on Schedule 5.9(b) of the BGE Disclosure
Schedule, as of the date hereof,
(i) there are no claims, assessments, audits or administrative
or court proceedings pending against BGE or any of its subsidiaries for any
alleged deficiency in Tax, and
(ii) none of BGE or any of its subsidiaries has executed any
outstanding waivers or comparable consents regarding the application of the
statute of limitations with respect to any Taxes or Tax Returns.
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(c) BGE has established adequate accruals for Taxes and for any
liability for deferred Taxes in the BGE Financial Statements in accordance with
GAAP.
Section 5.10 EMPLOYEE MATTERS; ERISA.
(a) BENEFIT PLANS. (i) Section 5.10(a) of the BGE Disclosure
Schedule contains a true and complete list, as of the date hereof, of:
(A) each benefit plan, program, policy or arrangement
providing for pension, profit sharing, supplemental death and
dismemberment, life and health insurance and benefits (including
medical, dental and hospitalization), savings, bonus, deferred
compensation, incentive compensation (including stock options,
restricted stock, stock appreciation rights, performance units,
dividend equivalents and each other plan, program, policy or
arrangement under which shares of BGE Common Stock are required
to be transferred or could be transferred), holiday, vacation,
severance pay, sick pay, sick leave, short and long-term
disability, tuition assistance and, relocation benefits plan
which has been adopted, approved or implemented by BGE or any of
its subsidiaries in writing covering a group or classification of
current or former employees or directors of BGE (or any of its
subsidiaries) or any group or classification of their dependents
or beneficiaries, or providing benefits to such persons in
respect of services provided to any such entity, including, but
not limited to, any "employee benefit plan" within the meaning of
ERISA Section 3(3) (whether or not terminated, if BGE or any of
its subsidiaries could have statutory or contractual liability
with respect thereto on or after the date hereof) but not
including any individual contract, award or agreement;
(B) each employment or severance contract (including any
payment, right or benefit resulting from any transaction
contemplated by this Agreement) and all stock options, restricted
stock, performance units, stock appreciation rights or dividend
equivalents, bonus or other contract for personal services and
each other contract under which shares of BGE Common Stock are
required to be transferred or could be transferred and the amount
of such shares (in the aggregate) with or covering current or
former officers or directors; and
(1) there are no other employment or severance contracts
covering current or former employees of BGE below the level of
officer which have not been disclosed and made available to PEPCO
with respect to which BGE or any of its subsidiaries are
reasonably likely to have a BGE Material Adverse Effect; and
(2) with respect to any officer of BGE there have been no
awards of stock options, restricted stock, performance units,
stock appreciation
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rights or dividend equivalents in respect of shares of BGE Common
Stock subsequent to the most recent BGE proxy statement made
outside of the ordinary course or inconsistent with past
practice, and with respect to all employees of BGE below the
level of officer there have been no awards of stock options,
restricted stock, performance units, stock appreciation rights or
dividend equivalents, with respect to shares of BGE Common Stock,
which, in the aggregate, have been made outside of the ordinary
course or inconsistent with past practice; and
(C) each "employee pension benefit plan" (within the
meaning of ERISA Section 3(2)) subject to Title IV of ERISA or
the minimum funding requirements of ERISA Section 302 (whether or
not included in (A) above) maintained or contributed to by BGE or
any entity required to be aggregated therewith pursuant to Code
Section 414(b) or (c) (a "BGE ERISA AFFILIATE") at any time
during the six calendar year period immediately preceding the
date hereof (collectively, the "BGE PENSION BENEFIT PLANS");
(ii) For purposes of this Agreement, "BGE BENEFIT PLAN" shall
mean each benefit plan, program, policy, contract and arrangement described
in subsections (i)(A) and (B) above (whether or not terminated), if BGE or
any of its subsidiaries could have statutory or contractual liability with
respect thereto on or after the date hereof.
(iii) With respect to each BGE Benefit Plan and BGE Pension
Benefit Plan, the source or sources of benefit payments under the plan
(including, where applicable, the identity of any trust (whether or not a
grantor trust), insurance contract, custodial account, agency agreement, or
other arrangement that holds the assets of, or serves as a funding vehicle
or source of benefits for such BGE Benefit Plan or BGE Pension Benefit
Plan).
(b) CONTRIBUTIONS. Except as set forth in Section 5.10(b) of the BGE
Disclosure Schedule, all material contributions and other material payments
required to have been made by BGE or any of its subsidiaries or any BGE ERISA
Affiliate pursuant to any BGE Benefit Plan or BGE Pension Benefit Plan (or to
any person pursuant to the terms thereof) have been timely made or the amount of
such payment or contribution obligation has been reflected in the BGE Financial
Statements.
(c) QUALIFICATION; COMPLIANCE. Except as set forth in Section
5.10(c) of the BGE Disclosure Schedule:
(i) Each BGE Benefit Plan and BGE Pension Benefit Plan that is
intended to be "qualified" within the meaning of Code Section 401(a) has been
determined by the IRS to be so qualified, or application for such a
determination has been made prior to the expiration of the applicable remedial
amendment period and BGE agrees to make such plan amendments as the IRS may
require in order to issue a favorable determination letter.
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(ii) BGE and each of its subsidiaries are in compliance with, and
each BGE Benefit Plan is and has been operated in compliance with all applicable
laws, rules and regulations governing such plan, including, without limitation,
ERISA and the Code, except for violations that would not reasonably likely have
a BGE Material Adverse Effect.
(iii) To the knowledge of BGE, no individual or entity has engaged
in any transaction with respect to any BGE Benefit Plan as a result of which BGE
or any of its subsidiaries could reasonably expect to be subject to liability
pursuant to ERISA Section 409 or Section 502, or subject to an excise tax
pursuant to Code Section 4975 which would reasonably likely have a BGE Material
Adverse Effect.
(iv) To the knowledge of BGE,
(A) no BGE Benefit Plan is subject to any ongoing audit,
investigation, or other administrative proceeding of the Internal
Revenue Service, the Department of Labor, or any other federal, state,
or local governmental entity, and
(B) no BGE Benefit Plan is the subject of any pending
application for administrative relief under any voluntary compliance
program of any governmental entity (including, without limitation, the
Internal Revenue Service's Voluntary Compliance Resolution Program or
Walk-in Closing Agreement Program, or the Department of Labor's
Delinquent Filer Voluntary Compliance Program).
(d) LIABILITIES. With respect to the BGE Pension Benefit Plans,
individually and in the aggregate, no termination or partial termination of any
BGE Pension Benefit Plan or other event has occurred, and, to the knowledge of
BGE, there exists no condition or set of circumstances, that could subject BGE,
any of its subsidiaries or any ERISA Affiliate to any liability arising under
the Code, ERISA or any other applicable law (including, without limitation, any
liability to or under any such plan or to the PBGC), or under any indemnity
agreement to which BGE, any of its subsidiaries or any BGE ERISA Affiliate is a
party, excluding liability for benefit claims and funding obligations payable in
the ordinary course and liability for PBGC insurance premiums payable in the
ordinary course, which liability would reasonably likely have a BGE Material
Adverse Effect.
(e) WELFARE PLANS. Except as set forth in Section 5.10(e) of the BGE
Disclosure Schedule, no BGE Benefit Plan that is a "welfare plan" (within the
meaning of ERISA Section 3(1)) provides benefits for any retired or former
employees (other than as required pursuant to ERISA Section 601).
(f) DOCUMENTS MADE AVAILABLE. BGE has made available to PEPCO a true
and correct copy of each collective bargaining agreement to which BGE is a party
or under which BGE has obligations and, with respect to each BGE Benefit Plan
and each BGE Pension Benefit Plan (as of May 31, 1995), as applicable:
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(i) the current plan document (including all amendments adopted
since the most recent restatement) and its most recently prepared summary
plan description and all summaries of material modifications prepared since
the most recent summary plan description,
(ii) annual reports (IRS Form 5500 Series) including financial
statements for the last three years,
(iii) each related trust agreement, insurance contract, service
provider or investment management agreement (including all amendments to
each such document),
(iv) the most recent IRS determination letter with respect to the
qualified status under Code Section 401(a) of such plan, and
(v) actuarial reports or valuations for the last three years.
To the extent that documents referred to in clauses (i) through (v) of this
Section 5.10(f) have not been made available to PEPCO with respect to the period
following May 31, 1995, no information that is disclosed in such documents (and
that has not been disclosed previously in documents that have been made
available to PEPCO) is reasonably likely to have a BGE Material Adverse Effect.
(g) PAYMENTS RESULTING FROM MERGER. Other than as set forth in
Section 5.10(g) of the BGE Disclosure Schedule, the consummation or announcement
of any transaction contemplated by this Agreement will not (either alone or upon
the occurrence of any additional or further acts or events) result in any
(i) payment (whether of severance pay or otherwise) becoming due
from the Company or BGE or any of its subsidiaries to any current or former
officer or director thereof or to the trustee under any "rabbi trust" or
other funding arrangement,
(ii) benefit under any BGE Benefit Plan being established or
becoming accelerated, vested or payable, except for a payment or benefit
that would have been payable under the same terms and conditions without
regard to the transactions contemplated by this Agreement, or
(iii) payment (whether of severance pay or otherwise) becoming due
from the Company or BGE or any of its subsidiaries to any current or former
employee of BGE below the level of officer which such payments aggregated
for such employees and former employees as a group would reasonably likely
have a BGE Material Adverse Effect.
(h) FUNDED STATUS OF PLANS. Except as set forth in Section 5.10(h)
of the BGE Disclosure Schedule, each BGE Pension Benefit Plan has assets that,
as of the date hereof, have a fair market value equal to or exceeding the
present value of the accrued
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benefit obligations thereunder on a termination basis, as of the date hereof
based on the actuarial methods, tables and assumptions theretofore utilized by
such plan's actuary in preparing such plan's most recently prepared actuarial
valuation report, except to the extent that applicable law would require the use
of different actuarial assumptions if such plan was to be terminated as of the
date hereof. No BGE Pension Benefit Plan has incurred any "accumulated funding
deficiency" (within the meaning of ERISA Section 302).
(i) MULTIEMPLOYER PLANS.
(i) Except as set forth in Section 5.10(i) of the BGE Disclosure
Schedule, no BGE Benefit Plan is or was a "multiemployer plan" (within the
meaning of ERISA Section 4001(a)(3)), a multiple employer plan described in
Code Section 413(c), or a "multiple employer welfare arrangement" (within
the meaning of ERISA Section 3(40)); and none of BGE, any subsidiary
thereof or any BGE ERISA Affiliate has been obligated to contribute to, or
otherwise has or has had any liability with respect to, any multiemployer
plan, multiple employer plan, or multiple employer welfare arrangement.
(ii) With respect to any BGE Benefit Plan that is listed in
Section 5.10(i) of the BGE Disclosure Schedule as a multiemployer plan,
none of BGE, any subsidiary thereof or any PEPCO ERISA Affiliate has made
or incurred a "complete withdrawal" or a "partial withdrawal," as such
terms are defined in ERISA Sections 4203 and 4205, therefrom at any time
during the six calendar year period immediately preceding the date of this
Agreement and the transactions contemplated by the Agreement will not, in
and of themselves, give rise to such a "complete withdrawal" or "partial
withdrawal."
(j) MODIFICATION OR TERMINATION OF PLANS. Except as set forth in
Section 5.10(j) of the BGE Disclosure Schedule or as permitted under SECTION
6.9:
(i) neither BGE nor any subsidiary of BGE is subject to any
legal, contractual, equitable or other obligation to establish as of any
date any employee benefit plan of any nature, including (without
limitation) any pension, profit sharing, welfare, post-retirement welfare,
stock option, stock or cash award, non-qualified deferred compensation or
executive compensation plan, policy or practice; and
(ii) the Company, BGE or one or more of its subsidiaries or any
BGE ERISA Affiliate have the right to, in any manner, and without the
consent of any employee, beneficiary or dependent, employees' organization
or other person, terminate, modify or amend any BGE Benefit Plan or BGE
Pension Benefit Plan (or its participation in any such BGE Benefit Plan or
BGE Pension Benefit Plan) at any time sponsored, maintained or contributed
to by BGE or any of its subsidiaries or any BGE ERISA Affiliate, effective
as of any date before, on or after the Effective Time except to the extent
that any retroactive amendment would be prohibited by ERISA Section 204(g)
or would adversely affect a vested accrued benefit or a previously granted
award under any such Plan not subject to ERISA Section 204(g).
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(k) REPORTABLE EVENTS; CLAIMS. Except as set forth in
Section 5.10(k) of the BGE Disclosure Schedule:
(i) no event constituting a "reportable event" (within the
meaning of ERISA Section 4043(c)), for which the 30-day notice requirement
or penalty has not been waived by the PBGC has occurred with respect to any
BGE Pension Benefit Plan, and
(ii) no liability, claim, action or litigation has been made,
commenced or, to the knowledge of BGE, threatened, by or against BGE or any
of its subsidiaries or any BGE ERISA Affiliate with respect to any BGE
Benefit Plan or any BGE Pension Benefit Plan (other than for benefits or
PBGC premiums payable in the ordinary course)
that would reasonably likely have a BGE Material Adverse Effect.
(l) LABOR AGREEMENTS. Except as set forth in the BGE SEC Reports or
as set forth in Section 5.10(l) of the BGE Disclosure Schedule:
(i) neither BGE nor any of its subsidiaries is a party to any
collective bargaining agreement or other current labor agreement with any
labor union or organization. There is no current union representation
question involving employees of BGE or any of its subsidiaries, nor does
BGE or any of its subsidiaries know of any activity or proceeding of any
labor organization (or representative thereof) or employee group (or
representative thereof) to organize any such employees;
(ii) there is no unfair labor practice charge or grievance
arising out of a collective bargaining agreement or other grievance
procedure against BGE or any of its subsidiaries pending, or to the
knowledge of BGE or any of its subsidiaries, threatened, that has, or would
reasonably likely have, a BGE Material Adverse Effect;
(iii) there is no complaint, lawsuit or proceeding in any forum by
or on behalf of any present or former employee, any applicant for
employment or classes of the foregoing alleging breach of any express or
implied contract of employment, any law or regulation governing employment
or the termination thereof or other discriminatory, wrongful or tortious
conduct in connection with the employment relationship against BGE or any
of its subsidiaries pending, or to the knowledge of BGE or any of its
subsidiaries, threatened, that has, or would reasonably likely have, a BGE
Material Adverse Effect;
(iv) there is no strike, dispute, slowdown, work stoppage or
lockout pending, or to the knowledge of BGE or any of its subsidiaries,
threatened, against or involving BGE or any of its subsidiaries that has
or, would reasonably likely have, a BGE Material Adverse Effect;
(v) BGE and each of its subsidiaries are in compliance with all
applicable laws respecting employment and employment practices, terms and
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conditions of employment, wages, hours of work and occupational safety and
health, except for non-compliance that does not have, and would not
reasonably likely have, a BGE Material Adverse Effect; and
(vi) there is no proceeding, claim, suit, action or governmental
investigation pending or, to the knowledge of BGE or any of its
subsidiaries, threatened, in respect to which any current or former
director, officer, employee or agent of BGE or any of its subsidiaries is
or may be entitled to claim indemnification from BGE or any of its
subsidiaries pursuant to their respective articles of incorporation or by-
laws or as provided in the indemnification agreements listed on Section
5.10(l) of the BGE Disclosure Schedule that has, or would reasonably likely
have, a BGE Material Adverse Effect.
Section 5.11 ENVIRONMENTAL PROTECTION.
(a) COMPLIANCE.
(i) Except as set forth in Section 5.11(a) of the BGE Disclosure
Schedule, each of BGE and each of its subsidiaries is in compliance with
all applicable Environmental Laws, except where the failure to be so in
compliance would not reasonably likely have a BGE Material Adverse Effect.
(ii) Except as set forth in Section 5.11(a) of the BGE Disclosure
Schedule, neither BGE nor any of its subsidiaries has received any written
communication from any person or Governmental Authority that alleges that
BGE or any of its subsidiaries is not in compliance with applicable
Environmental Laws, except where the failure to be so in compliance would
not reasonably likely have a BGE Material Adverse Effect.
(b) ENVIRONMENTAL PERMITS. Except as set forth in Section 5.11(b) of
the BGE Disclosure Schedule, BGE and each of its subsidiaries has obtained or
has applied for all Environmental Permits necessary for the construction of
their facilities and the conduct of their operations, and all such permits are
in good standing or, where applicable, a renewal application has been timely
filed and is pending agency approval, and BGE and its subsidiaries are in
compliance with all terms and conditions of all such Environmental Permits and
are not required to make any expenditure in order to obtain or renew any
Environmental Permits, except where the failure to obtain or be in such
compliance and the requirement to make such expenditures would not reasonably
likely have a BGE Material Adverse Effect.
(c) ENVIRONMENTAL CLAIMS. Except as set forth in Section 5.11(c) of
the BGE Disclosure Schedule, there is no Environmental Claim pending, or to the
knowledge of BGE and its subsidiaries, threatened
(i) against BGE or any of its subsidiaries or joint ventures,
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(ii) against any person or entity whose liability for any
Environmental Claim BGE or any of its subsidiaries or joint ventures has or
may have retained or assumed either contractually or by operation of law,
or
(iii) against any real or personal property or operations that BGE
or any of its subsidiaries or joint ventures owns, leases or manages, in
whole or in part,
that, if adversely determined, would reasonably likely have a BGE Material
Adverse Effect.
(d) RELEASES. Except as set forth in Section 5.11(c) or 5.11(d) of
the BGE Disclosure Schedule, BGE has no knowledge of any Release of any
Hazardous Material that would be reasonably likely to form the basis of any
Environmental Claim against BGE or any of its subsidiaries or joint ventures of
BGE, or against any person or entity whose liability for any Environmental Claim
BGE or any subsidiaries or joint ventures of BGE has or may have retained or
assumed either contractually or by operation of law, except for Releases of
Hazardous Materials the liability for which would not reasonably likely have a
BGE Material Adverse Effect.
(e) PREDECESSORS. Except as set forth in Section 5.11(e) of the BGE
Disclosure Schedule, BGE has no knowledge, with respect to any predecessor of
BGE or any subsidiary or joint venture of BGE, of any Environmental Claims
pending or threatened, or of any Release of Hazardous Materials that would be
reasonably likely to form the basis of any Environmental Claims that would have,
or that BGE reasonably believes would reasonably likely have a BGE Material
Adverse Effect.
(f) DISCLOSURE. To BGE's knowledge, BGE has disclosed to PEPCO all
material facts that BGE reasonably believes form the basis of a BGE Material
Adverse Effect arising from
(i) the cost of pollution control equipment currently
required or known to be required in the future,
(ii) current remediation costs or remediation costs known to
be required in the future, or
(iii) any other environmental matter affecting BGE or its
subsidiaries that would have, or that BGE reasonably believes would
reasonably likely have a BGE Material Adverse Effect.
Section 5.12 REGULATION AS A UTILITY.
(a) BGE is a public utility holding company as defined in the 1935
Act exempt from all provisions of the 1935 Act except section 9(a)(2), by order
of the SEC pursuant to section 3(a)(2) of the 1935 Act. BGE is regulated as a
public utility in the State of Maryland and, to a limited extent, in the
Commonwealth of Pennsylvania and in no other state.
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(b) Except as set forth in Section 5.12 of the BGE Disclosure
Schedule, no subsidiary company or affiliate of BGE is subject to regulation as
a public utility or public service company (or similar designation) by any other
state in the United States or by any foreign country.
Section 5.13 VOTE REQUIRED. The approval of the Merger by (i) two-
thirds of all votes entitled to be cast by all holders of BGE Common Stock,
voting separately as a class, (ii) two-thirds of all votes entitled to be cast
by all holders of BGE Preferred Stock, voting separately as a class, (iii) two-
thirds of all votes entitled to be cast by all holders of BGE Preference Stock,
voting separately as a class, and (iv) two-thirds of all votes entitled to be
cast by all holders of BGE Common Stock, BGE Preferred Stock, and BGE Preference
Stock, voting together as a class (collectively, the "BGE SHAREHOLDERS'
APPROVALS") are the only votes of the holders of any class or series of the
capital stock of BGE required to approve this Agreement, the Merger and the
other transactions contemplated hereby.
Section 5.14 ACCOUNTING MATTERS. BGE has not, through the date
hereof, taken or agreed to take any action that would prevent the Company from
accounting for the business combination to be effected by the Merger as a
pooling-of-interests in accordance with GAAP and applicable SEC regulations.
Section 5.15 APPLICABILITY OF CERTAIN MARYLAND LAW. Assuming the
accuracy of the representation by PEPCO set forth in SECTION 4.18, neither the
control share acquisition provisions of Section 3-701 ET SEQ. of the MGCA nor
the business combination provisions of Section 3-602 ET SEQ. of the MGCA or any
similar provisions of the MGCA, the Articles of Incorporation or Bylaws of BGE
are applicable to the transactions contemplated by this Agreement.
Section 5.16 OPINION OF FINANCIAL ADVISOR. BGE has received the
opinion of Goldman, Sachs & Co., as of the date hereof, to the effect that, as
of the date hereof, the BGE Ratio is fair to the holders of BGE Common Stock.
Section 5.17 INSURANCE.
(a) Except as set forth in Section 5.17 of the BGE Disclosure
Schedule, each of BGE and each of its subsidiaries is, and has been continuously
since January 1, 1990, insured in such amounts and against such risks and losses
as are customary for companies conducting the respective businesses conducted by
BGE and its subsidiaries during such time period.
(b) Except as set forth in Section 5.17 of the BGE Disclosure
Schedule, neither BGE nor any of its subsidiaries has received any notice of
cancellation or termination with respect to any material insurance policy
thereof.
(c) All material insurance policies of BGE and its subsidiaries are
valid and enforceable policies.
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Section 5.18 OWNERSHIP OF PEPCO COMMON STOCK. BGE does not
"beneficially own" (as such term is defined in Rule 13d-3 under the Exchange
Act) any shares of PEPCO Common Stock.
Section 5.19 NRC ACTIONS. Except as set forth in Section 5.19 of the
BGE Disclosure Schedule, BGE is not in violation of, is not under investigation
with respect to, has not been given notice of or been charged with actual or
potential violation of, and is not the subject of any ongoing proceeding,
inquiry, special inspection, diagnostic evaluation or other NRC action
(including rulemakings of general application that may affect the conduct of
BGE's business regarding the Calvert Cliffs Nuclear Power Plant) of which BGE
has actual knowledge, under the Atomic Energy Act, any applicable regulations
thereunder or the terms and conditions of any license granted to BGE regarding
the Calvert Cliffs Nuclear Power Plant (collectively, "NRC ACTIONS"), which NRC
Actions would have, or BGE reasonably believes would reasonably likely have a
BGE Material Adverse Effect.
ARTICLE VI.
CONDUCT OF BUSINESS PENDING THE MERGER
Prior to the date hereof, each of PEPCO and BGE had delivered to the
other a business plan (respectively, the "PEPCO Financial Plan" and the "BGE
Financial Plan"). After the date hereof and prior to the Effective Time or
earlier termination of this Agreement, each of BGE and PEPCO agrees, as to
itself and its subsidiaries, to comply with the provisions of this Article VI.
Notwithstanding the foregoing, SECTION 6.1 through SECTION 6.8 (inclusive except
for SECTION 6.2(a)) shall not apply in the case of actions by PEPCO or BGE that
are (i) in the case of PEPCO, contemplated by the PEPCO Financial Plan or
consented to in writing by BGE, or (ii) in the case of BGE, contemplated by the
BGE Financial Plan or consented to in writing by PEPCO.
Section 6.1 ORDINARY COURSE OF BUSINESS. Each of PEPCO and BGE
shall, and shall cause its subsidiaries to, conduct their respective businesses
in the usual, regular and ordinary course in substantially the same manner as
heretofore conducted and use all commercially reasonable efforts to preserve
their respective business organizations and goodwill, preserve the goodwill and
relationships with customers, suppliers, distributors and others having business
dealings with them and, subject to prudent management of workforce needs and
ongoing programs currently in force, keep available the services of their
present officers and employees.
Section 6.2 DIVIDENDS. Neither PEPCO nor BGE shall, nor shall either
permit any of its subsidiaries to:
(a) declare or pay any dividends or make other distributions in
respect of any of their capital stock other than to such party or its
subsidiaries and other than
(i) stated dividends on their respective series of PEPCO
Preferred Stock, BGE Preferred Stock and BGE Preference Stock and
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(ii) regular quarterly dividends on PEPCO Common Stock with usual
record and payment dates not, during any calendar year, in excess of
dividends consistent with prior practice subject to increases that do not
result in a dividend rate in excess of the indicated annual dividend rate
agreed to by PEPCO and BGE for the Company following the Effective Time.
(b) split, combine or reclassify any of their capital stock or issue
or authorize or propose the issuance of any other securities in respect of, in
lieu of, or in substitution for, shares of its capital stock; or
(c) redeem, repurchase or otherwise acquire any shares of their
capital stock, other than
(i) redemptions, purchases or acquisitions required by the
respective terms of any series of PEPCO Preferred Stock, BGE Preferred
Stock or BGE Preference Stock,
(ii) in connection with refunding of PEPCO Preferred Stock, BGE
Preferred Stock or BGE Preference Stock with preferred or preference stock
or debt at a lower cost of funds,
(iii) intercompany acquisitions of capital stock, or
(iv) in connection with the administration of employee benefit
and dividend reinvestment plans as in effect on the date hereof in the
ordinary course of the operation of such plans.
Section 6.3 ISSUANCE OF SECURITIES. Except as set forth on Schedule
6.3 of the PEPCO Disclosure Schedule or the BGE Disclosure Schedule, neither
PEPCO nor BGE shall, nor shall either permit any of its subsidiaries to, issue,
agree to issue, deliver or sell, or authorize or propose the issuance, delivery
or sale of, any shares of their capital stock or any class or any securities
convertible into or exchangeable for, or any rights, warrants or options to
acquire, any such shares or convertible or exchangeable securities except for:
(a) the issuance of capital stock upon the conversion of convertible
securities outstanding on the date hereof or permitted to be issued under the
terms hereof,
(b) the issuance of common stock or other securities by BGE pursuant
to the BGE Dividend Reinvestment and Stock Purchase Plan and the BGE Continuous
Offering Program for Common Stock or by PEPCO pursuant to the plans listed on
Schedule 6.3, in each case in the ordinary course of the operation of such
programs or plans in accordance with their present terms, or
(c) issuances by a wholly owned subsidiary of its capital stock to a
direct or indirect parent.
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Section 6.4 CHARTER DOCUMENTS. Except as set forth in Section 6.4 of
the PEPCO Disclosure Schedule or the BGE Disclosure Schedule or as required by
law, neither PEPCO nor BGE shall amend or propose to amend its respective
articles of incorporation or bylaws in any way adverse to the other party,
except as contemplated herein and except to the extent that any document setting
forth the terms of a series of preferred stock or preference stock permitted to
be issued in accordance with this Article VI constitutes an amendment to the
articles of incorporation.
Section 6.5 NO ACQUISITIONS. Except as set forth in Section 6.5 of
the PEPCO Disclosure Schedule or the BGE Disclosure Schedule, neither PEPCO nor
BGE shall, nor shall either permit any of its subsidiaries to, acquire, or
publicly propose to acquire, or agree to acquire, by merger or consolidation, by
purchase or otherwise, a substantial equity interest in or a substantial portion
of the assets of any business or any corporation, partnership, association or
other business organization or division thereof or otherwise acquire or agree to
acquire any assets, in each case that are material, in the aggregate, to such
party and its subsidiaries taken as a whole, except for acquisitions by PEPCO
and its subsidiaries on the one hand, and BGE and its subsidiaries on the other,
within existing lines of business, of less than $30 million in the aggregate
that are not set forth in Section 6.5 of the PEPCO Disclosure Schedule or
Section 6.5 of the BGE Disclosure Schedule, respectively.
Section 6.6 CAPITAL EXPENDITURES. Except as set forth in Section 6.6
of the PEPCO Disclosure Schedule or the BGE Disclosure Schedule or as required
by law, neither PEPCO nor BGE shall, nor shall either permit any of its
subsidiaries to, make any capital expenditures, except for:
(a) capital expenditures to repair or replace facilities destroyed or
damaged due to casualty or accident (whether or not covered by insurance), or
(b) additional capital expenditures that in the aggregate do not
exceed $75 million.
Section 6.7 NO DISPOSITIONS. Except as set forth on Schedule 6.7 of
the PEPCO Disclosure Schedule or the BGE Disclosure Schedule, neither PEPCO nor
BGE shall, nor shall either permit any of its subsidiaries to, sell, lease,
license, encumber or otherwise dispose of, assets that are material, in the
aggregate, to such party and its subsidiaries taken as a whole, except for:
(a) dispositions not exceeding $10 million in the aggregate, in the
case of PEPCO and its subsidiaries on the one hand, and BGE and its subsidiaries
on the other hand, which dispositions do not have a PEPCO Material Adverse
Effect or a BGE Material Adverse Effect, as the case may be,
(b) as may be required by law to consummate the transactions
contemplated hereby, or
(c) in the ordinary course of business consistent with prior
practice.
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Section 6.8 INDEBTEDNESS. Except as set forth in Section 6.8 of the
PEPCO Disclosure Schedule or the BGE Disclosure Schedule, no party shall, nor
shall any party permit any of its subsidiaries to, incur or guarantee any
indebtedness (including any debt borrowed or guaranteed or otherwise assumed,
including, without limitation, the issuance of debt securities), except for:
(a) short-term indebtedness in the ordinary course of business
consistent with past practice,
(b) long-term indebtedness in connection with the refinancing of
existing indebtedness either at its stated maturity or at a lower cost of funds,
(c) additional long-term indebtedness aggregating not more than $75
million in the case of PEPCO and its subsidiaries, on one hand, and in the case
of BGE and its subsidiaries, on the other hand, or
(d) in connection with the refunding of PEPCO Preferred Stock, BGE
Preferred Stock or BGE Preference Stock as permitted in SECTION 6.3.
Section 6.9 COMPENSATION, BENEFITS. Except as set forth on Schedule
6.9 of the PEPCO Disclosure Schedule or the BGE Disclosure Schedule, as may be
required by applicable law or as contemplated by this Agreement, no party shall,
nor shall any party permit any of its subsidiaries to, enter into, adopt or
amend or increase the amount of or accelerate the payment or vesting of any
benefit or amount payable under any employee benefit plan or any other contract,
agreement, commitment, arrangement, plan or policy maintained by, contributed to
or entered into by such party or any of its subsidiaries, or increase, or enter
into any contract, agreement, commitment or arrangement to increase in any
manner, the compensation or fringe benefits, or otherwise to extend, expand or
enhance the engagement, employment or any related rights, of any director,
officer or other employee of such party or any of its subsidiaries, except for
normal increases in the ordinary course of business consistent with past
practice that, in the aggregate, do not result in a material increase in
benefits or compensation expense to such party or any of its subsidiaries, or
enter into or amend any employment, severance, or special pay arrangement with
respect to the termination of employment or other similar contract, agreement or
arrangement with any director or officer or other employee other than in the
ordinary course of business consistent with past practice.
Section 6.10 1935 ACT. Except as required or contemplated by this
Agreement:
(a) PEPCO shall not, nor shall PEPCO permit any of its subsidiaries
to engage in any activities that cause it to become a "holding company" under
the 1935 Act;
(b) BGE shall not, nor shall BGE permit any of its subsidiaries to
engage in any activities that cause it to lose its exemption from registration
as a "holding company" under the 1935 Act; and
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(c) no party shall, nor shall any party permit any of its
subsidiaries to, engage in any activities that would require the approval of the
SEC under Section 9(a)(2) of the 1935 Act for any of the transactions
contemplated by this Agreement.
Section 6.11 ACCOUNTING. No party shall, nor shall any party permit
any of its subsidiaries to, make any changes in its or their accounting methods,
except as required by law, rule, regulation or GAAP.
Section 6.12 POOLING. No party shall, nor shall any party permit any
of its subsidiaries to, take any actions that would, or would be reasonably
likely to, prevent the Company from accounting for the business combination to
be effected by the Merger as a pooling-of-interests in accordance with GAAP and
applicable SEC regulations. If any impediments to accounting for the business
combination as a pooling-of-interests are discovered at any time, the parties
shall eliminate such impediments.
Section 6.13 TAX-FREE STATUS. No party shall, nor shall any party
permit any of its subsidiaries to, take any actions that would, or would be
reasonably likely to, adversely affect the status of the Merger as a tax-free
reorganization under Code Section 368(a) (except as to shareholders of BGE or
PEPCO who exercise dissenters' rights or who receive cash in lieu of fractional
shares).
Section 6.14 INSURANCE. Each of PEPCO and BGE shall, and shall cause
its respective subsidiaries to, maintain with financially responsible insurance
companies (or through self-insurance not inconsistent with such party's past
practice) insurance in such amounts and against such risks and losses as are
customary for companies engaged in the electric and gas utility industry and
such other businesses as conducted by such party and its subsidiaries and
employing methods of generating electric power and fuel sources similar to those
methods employed and fuels used by the respective party or such party's
subsidiaries.
Section 6.15 COOPERATION, NOTIFICATION. Each of PEPCO and BGE shall
and shall cause its subsidiaries (directly or acting through its parent company
representative) to:
(a) confer on a regular and frequent basis with one or more
representatives of the other party to discuss material operational matters and
the general status of its ongoing operations,
(b) promptly notify the other party of any significant changes in its
business, properties, assets, condition (financial or otherwise), prospects or
results of operations,
(c) advise the other party of any change or event that has had or, to
the knowledge of such party, would reasonably likely have a PEPCO Material
Adverse Effect or a BGE Material Adverse Effect, and
(d) consult with each other prior to making any filings with any
state or federal court, administrative agency, commission or other Governmental
Authority in
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connection with this Agreement and the transactions contemplated hereby, and
promptly after each such filing provide the other with a copy thereof.
Section 6.16 RATE MATTERS. No party shall make any filing to change
its or any of its utility subsidiaries' rates on file with any Governmental
Authority that could have a material adverse effect on the benefits associated
with the business combination provided herein.
Section 6.17 THIRD-PARTY CONSENTS. Each of PEPCO and BGE shall, and
shall cause its subsidiaries to, use all commercially reasonable efforts to
obtain all PEPCO Required Consents or BGE Required Consents, as the case may be.
Each party shall promptly notify the other party of any failure or prospective
failure to obtain any such consents and, if requested by the other party, shall
provide to the other party copies of all PEPCO Required Consents or BGE Required
Consents, as the case may be, obtained by such party.
Section 6.18 TAX-EXEMPT STATUS. No party shall, nor shall any party
permit any subsidiary to, take any action that would likely jeopardize the
exclusion from gross income, for purposes of federal income taxation, of the
interest on the outstanding revenue bonds issued for the benefit of PEPCO or
BGE, as the case may be, which qualify on the date hereof under Code Section
142(a) as "exempt facility bonds" or as tax-exempt industrial development bonds
under Section 103(b)(4) of the Internal Revenue Code of 1954, as amended prior
to the Tax Reform Act of 1986.
Section 6.19 PERMITS. Each of PEPCO and BGE shall use commercially
reasonable efforts to maintain in effect all existing material permits pursuant
to which such party operates.
Section 6.20 CERTAIN INFORMATION RELATING TO CUSTOMERS. Without
limiting the application of the Confidentiality Agreement, dated February 15,
1995, between PEPCO and BGE (the "CONFIDENTIALITY AGREEMENT") no party shall,
nor shall any party permit any of its subsidiaries to, use any Information (as
defined in the Confidentiality Agreement) in connection with any solicitation,
inquiry, proposal, arrangement, understanding or agreement with any person
relating to the provision of electric or gas utility service by PEPCO or any of
its subsidiaries, on the one hand, or BGE or any of its subsidiaries, on the
other hand, to commercial and industrial customers in the service territory of
the other party.
ARTICLE VII.
ADDITIONAL AGREEMENTS
Section 7.1 ACCESS TO INFORMATION.
(a) Upon reasonable notice and during normal business hours, each of
PEPCO and BGE shall, and shall cause its subsidiaries to, afford to the
officers, directors, employees, accountants, counsel, investment banker,
financial advisor and other
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representatives of the other (collectively, "REPRESENTATIVES") reasonable
access, during normal business hours throughout the period prior to the
Effective Time, to all of its properties, books, contracts, commitments and
records (including, but not limited to, Tax Returns) and, during such period,
each shall, and shall cause its subsidiaries to, furnish promptly to the other:
(i) a copy of each report, schedule and other document filed by
it or any of its subsidiaries with the SEC and any other document
pertaining to the transactions contemplated hereby filed with any
Governmental Authority that is not filed as an exhibit to an SEC filing or
described in an SEC filing, and
(ii) all information concerning themselves, their subsidiaries,
directors, officers and shareholders and such matters as may be reasonably
requested by the other party in connection with any filings, applications
or approvals required or contemplated by this Agreement.
(b) Without limiting the application of the Confidentiality
Agreement, all documents and information furnished pursuant to SECTION 7.1(a)
shall be subject to the Confidentiality Agreement.
Section 7.2 JOINT PROXY STATEMENT AND REGISTRATION STATEMENT.
(a) PREPARATION AND FILING.
(i) As promptly as reasonably practicable after the date hereof,
the parties shall prepare and file with the SEC the Registration Statement
and the Joint Proxy Statement (together the "JOINT PROXY/REGISTRATION
STATEMENT").
(ii) The parties shall take such actions as may be reasonably
required to cause the Registration Statement to be declared effective under
the Securities Act as promptly as practicable after such filing.
(iii) The parties shall also take such action as may be reasonably
required to cause the shares of Company Common Stock, Company Preferred
Stock and Company Preference Stock issuable in connection with the Merger
to be registered or to obtain an exemption from registration under
applicable state "blue sky" or securities laws; PROVIDED, HOWEVER, that
none of the Company, PEPCO or BGE shall be required to register or qualify
as a foreign corporation or to take any other action that would subject it
to general service of process in any jurisdiction in which it will not,
following the Merger, be so subject.
(iv) Each of the parties shall furnish all information concerning
itself that is required or customary for inclusion in the Joint
Proxy/Registration Statement.
(v) No representation, covenant or agreement contained in this
Agreement is made by any party hereto with respect to information supplied
by any other party hereto for inclusion in the Joint Proxy/Registration
Statement.
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(vi) The Joint Proxy/Registration Statement shall comply as to
form in all material respects with the Securities Act, the Exchange Act and
the rules and regulations thereunder.
(vii) The parties shall take such action as may be reasonably
required to cause the shares of Company Common Stock to be approved for
listing on the NYSE; and, unless PEPCO and BGE shall otherwise agree, to
cause shares of the respective series of Company Preferred Stock and
Company Preference Stock issued in the Merger to be approved for listing on
the national and international securities exchanges, if any, on which the
respective series of PEPCO Preferred Stock, BGE Preferred Stock and BGE
Preference Stock convertible into such series in the Merger are presently
listed, and, in each case, to cause such shares to be approved for listing
on such other national and international securities exchanges as the
parties may select upon official notice of issuance.
(b) LETTER OF BGE'S ACCOUNTANTS. Following receipt by Coopers &
Lybrand, L.L.P., BGE's independent auditors, of an appropriate request from
PEPCO pursuant to SAS No. 72, BGE shall use best efforts to cause to be
delivered to the Company and PEPCO a letter of Coopers & Lybrand, L.L.P., dated
a date within two business days before the effective date of the Registration
Statement, and addressed to the Company and PEPCO, in form and substance
reasonably satisfactory to the Company and PEPCO and customary in scope and
substance for "cold comfort" letters delivered by independent public accountants
in connection with registration statements and proxy statements similar to the
Joint Proxy/Registration Statement.
(c) LETTER OF PEPCO'S ACCOUNTANTS. Following receipt by Price
Waterhouse, L.L.P., PEPCO's independent auditors, of an appropriate request from
BGE pursuant to SAS No. 72, PEPCO shall use best efforts to cause to be
delivered to the Company and BGE a letter of Price Waterhouse, L.L.P., dated a
date within two business days before the effective date of the Registration
Statement, and addressed to the Company and BGE, in form and substance
reasonably satisfactory to the Company and BGE and customary in scope and
substance for "cold comfort" letters delivered by independent public accountants
in connection with registration statements and proxy statements similar to the
Joint Proxy/Registration Statement.
(d) FAIRNESS OPINIONS. It shall be a condition to the mailing of the
Joint Proxy Statement to the shareholders of PEPCO and BGE that
(i) BGE shall have received an opinion from Goldman, Sachs &
Co., dated as of the date of the Joint Proxy Statement, to the effect that,
as of the date thereof the BGE Ratio is fair to the holders of BGE Common
Stock, and
(ii) PEPCO shall have received an opinion from Barr Devlin & Co.
Incorporated, dated the date of the Joint Proxy Statement, to the effect
that, as of the date thereof, the PEPCO Ratio is fair from a financial
point of view to the holders of PEPCO Common Stock.
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Section 7.3 REGULATORY MATTERS.
(a) HSR FILINGS. Each party hereto shall file or cause to be filed
with the Federal Trade Commission and the Department of Justice any
notifications required to be filed by their respective "ultimate parent"
companies under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR ACT"), and the rules and regulations promulgated thereunder
with respect to the transactions contemplated hereby, and shall respond promptly
to any requests for additional information made by either of such agencies.
(b) OTHER REGULATORY APPROVALS.
(i) Each party hereto shall cooperate and use its best efforts
to promptly prepare and file all necessary documentation, to effect all
necessary applications, notices, petitions, filings and other documents,
and to use all commercially reasonable efforts to obtain all necessary
permits, consents, approvals and authorizations of all Governmental
Authorities and all other persons necessary or advisable to consummate the
transactions contemplated by this Agreement, including, without limitation,
the BGE Required Statutory Approvals and the PEPCO Required Statutory
Approvals.
(ii) PEPCO shall have the right to review and approve in advance
all characterizations of the information relating to PEPCO, on the one
hand, and BGE shall have the right to review and approve in advance all
characterizations of the information relating to BGE, on the other hand, in
either case, which appear in any filing made in connection with the
transactions contemplated by this Agreement or the Merger.
(iii) BGE and PEPCO shall each consult with the other with respect
to the obtaining of all such necessary or advisable permits, consents,
approvals and authorizations of Governmental Authorities.
Section 7.4 SHAREHOLDER APPROVALS.
(a) APPROVAL OF PEPCO SHAREHOLDERS. PEPCO shall, as promptly as
reasonably practicable after the date hereof
(i) take all steps reasonably necessary to duly call, give
notice of, convene and hold special meetings of its shareholders (the
"PEPCO SPECIAL MEETINGS") for the purpose of securing the PEPCO
Shareholders' Approvals,
(ii) distribute to its shareholders the Joint Proxy Statement in
accordance with applicable federal and state law and its Articles of
Incorporation and Bylaws,
(iii) recommend to its shareholders the approval of the Merger,
this Agreement and the transactions contemplated hereby, and
(iv) cooperate and consult with BGE with respect to each of the
foregoing matters,
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PROVIDED, that nothing contained in this SECTION 7.4(a) shall require the Board
of Directors of PEPCO to take any action or refrain from taking any action that
such Board determines in good faith with written advice of counsel could
reasonably be expected to result in a breach of its fiduciary duties under
applicable law.
(b) APPROVAL OF BGE SHAREHOLDERS. BGE shall, as promptly as
reasonably practicable after the date hereof
(i) take all steps reasonably necessary to duly call, give
notice of, convene and hold special meetings of its shareholders (the "BGE
SPECIAL MEETINGS") for the purpose of securing the BGE Shareholders'
Approvals,
(ii) distribute to its shareholders the Joint Proxy Statement in
accordance with applicable federal and state law and its Articles of
Incorporation and Bylaws,
(iii) recommend to its shareholders the approval of the Merger,
this Agreement and the transactions contemplated hereby, and
(iv) cooperate and consult with PEPCO with respect to each of the
foregoing matters,
PROVIDED that nothing contained in this SECTION 7.4(b) shall require the Board
of Directors of BGE to take any action or refrain from taking any action that
such Board determines in good faith with written advice of counsel could
reasonably be expected to result in a breach of its fiduciary duties under
applicable law.
(c) MEETING DATE. The BGE Special Meetings and the PEPCO Special
Meetings shall be held on the same day unless otherwise agreed by BGE and PEPCO.
(d) FAIRNESS OPINIONS NOT WITHDRAWN. It shall be a condition to the
obligation of PEPCO to hold the PEPCO Special Meetings that the opinion of Barr
Devlin & Co. Incorporated referred to in SECTION 7.2(d)(i) shall not have been
withdrawn, and it shall be a condition to the obligation of BGE to hold the BGE
Special Meetings that the opinion of Goldman, Sachs & Co. referred to in
SECTION 7.2(d)(ii) shall not have been withdrawn.
Section 7.5 DIRECTORS' AND OFFICERS' INDEMNIFICATION.
(a) INDEMNIFICATION.
(i) To the extent, if any, not provided by an existing right of
indemnification or other agreement or policy, from and after the Effective
Time, the Company shall, to the fullest extent not prohibited by applicable
law, indemnify, defend and hold harmless the present and former directors,
officers and employees of the parties hereto and their respective
subsidiaries (each an "INDEMNIFIED PARTY" and, collectively, the
"INDEMNIFIED PARTIES") against
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(A) all losses, expenses (including reasonable attorneys'
fees and expenses), claims, damages, costs, liabilities, judgments or
amounts that are paid in settlement of or in connection with any
claim, action, suit, proceeding or investigation (collectively,
"INDEMNIFIED LIABILITIES") (x) based in whole or in part on or arising
in whole or in part out of the fact that such person is or was a
director, officer or employee of such party or any subsidiary thereof,
and (y) pertaining to any matter existing or occurring at or prior to
the Effective Time, whether asserted or claimed prior to, at or after
the Effective Time, and
(B) all Indemnified Liabilities based in whole or in part
on, or arising in whole or in part out of, or pertaining to this
Agreement or the transactions contemplated hereby,
PROVIDED, HOWEVER, that the Company shall not be liable for any settlement
effected without its written consent (which consent shall not be
unreasonably withheld).
(ii) In the event of any such loss, expense, claim, damage, cost,
liability, judgment or settlement (whether or not arising before the
Effective Time),
(A) the Company shall pay the reasonable fees and expenses
of counsel selected by the Indemnified Parties, which counsel shall be
reasonably satisfactory to the Company, promptly after statements
therefor are received, and otherwise advance to the Indemnified
Parties upon request reimbursement of documented expenses reasonably
incurred, in either case to the extent not prohibited by applicable
law,
(B) the Company shall cooperate in the defense of any such
matter, and
(C) any determination required to be made with respect to
whether an Indemnified Party's conduct complies with the standards
under applicable law or as set forth in the Company's Articles of
Incorporation or Bylaws shall be made by independent counsel mutually
acceptable to the Company and the Indemnified Party,
PROVIDED, HOWEVER, that the Company shall not be liable for any settlement
effected without its written consent (which consent shall not be
unreasonably withheld).
(iii) The Indemnified Parties as a group may retain only one law
firm (other than local counsel) with respect to each related matter except
to the extent there is, in the sole opinion of counsel to an Indemnified
Party, under applicable standards of professional conduct, a conflict on
any significant issue between positions of any two or more Indemnified
Parties, in which case each Indemnified Party with a conflicting position
on a significant issue shall be entitled to separate counsel.
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(b) INSURANCE. For a period of six (6) years after the Effective
Time, the Company shall cause to be maintained in effect the policies of
directors' and officers' liability insurance maintained by BGE and PEPCO;
PROVIDED that the Company may substitute therefor policies of at least the same
coverage containing terms that are no less advantageous with respect to matters
occurring prior to the Effective Time to the extent such liability insurance can
be maintained annually at a cost to the Company not greater than 200 percent of
the current aggregate annual premiums for the policies currently maintained by
BGE and PEPCO for their directors' and officers' liability insurance; PROVIDED,
FURTHER, that if such insurance cannot be so maintained or obtained at such
cost, the Company shall maintain or obtain as much of such insurance for each of
BGE and PEPCO as can be so maintained or obtained at a cost equal to 200 percent
of the respective current annual premiums of each of BGE and PEPCO for their
directors' and officers' liability insurance.
(c) SUCCESSORS. In the event the Company or any of its successors or
assigns
(i) consolidates with or merges into any other person and shall
not be the continuing or surviving corporation or entity of such
consolidation or merger, or
(ii) transfers all or substantially all of its properties and
assets to any person,
then and in either such case, proper provision shall be made so that the
successors and assigns of the Company shall assume the obligations set forth in
this SECTION 7.5.
(d) SURVIVAL OF INDEMNIFICATION. To the fullest extent not
prohibited by law, from and after the Effective Time, all rights to
indemnification now existing in favor of the employees, agents, directors or
officers of BGE, PEPCO and their respective subsidiaries with respect to their
activities as such prior to the Effective Time, as provided in their respective
Articles of Incorporation or Bylaws in effect on the date of such activities or
otherwise in effect on the date hereof, shall survive the Merger and shall
continue in full force and effect for a period of six years from the Effective
Time.
(e) The provisions of this SECTION 7.5 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her representatives.
Section 7.6 DISCLOSURE SCHEDULES.
(a) On or before the date of this Agreement,
(i) PEPCO shall deliver to BGE a schedule (the "PEPCO DISCLOSURE
SCHEDULE"), which shall be accompanied by a certificate signed by the chief
financial officer of PEPCO stating the Disclosure Schedule is being
delivered pursuant to this SECTION 7.6(a)(i) and
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(ii) BGE shall deliver to PEPCO a schedule (the "BGE DISCLOSURE
SCHEDULE"), which shall be accompanied by a certificate signed by the chief
financial officer of BGE stating the BGE Disclosure Schedule is being
delivered pursuant to this SECTION 7.6(a)(ii).
(b) The Disclosure Schedules shall constitute an integral part of
this Agreement and shall modify or otherwise affect the respective
representations, warranties, covenants or agreements of the parties hereto
contained herein to the extent that such representations, warranties, covenants
or agreements expressly refer to the Disclosure Schedules.
(c) Any and all statements, representations warranties or disclosures
set forth in the Disclosure Schedules shall be deemed to have been made on and
as of the date of this Agreement.
(d) The PEPCO Disclosure Schedule and the BGE Disclosure Schedule are
collectively referred to herein as the "DISCLOSURE SCHEDULES".
(e) Without limiting the application of the Confidentiality
Agreement, the parties shall use their best efforts to keep the Disclosure
Schedules confidential.
Section 7.7 PUBLIC ANNOUNCEMENTS. BGE and PEPCO shall cooperate with
each other in the development and distribution of all news releases and other
public information disclosures with respect to this Agreement or any of the
transactions contemplated hereby and shall not issue any public announcement or
statement prior to consultation with the other party, however, each party
recognizes the other party's obligations imposed by law or any applicable
national securities exchange, and will endeavor to accommodate such obligations.
Section 7.8 RULE 145 AFFILIATES. PEPCO shall identify in a letter to
BGE, and BGE shall identify in a letter to PEPCO, all persons who are, at the
Closing Date, "affiliates" of PEPCO and BGE, respectively, as such term is used
in Rule 145 under the Securities Act. PEPCO and BGE shall use their respective
best efforts to cause their respective affiliates to deliver to the Company on
or prior to the Closing Date a written agreement as described in SECTION 8.2(f)
and SECTION 8.3(f), respectively.
Section 7.9 ASSUMPTION OF PEPCO AND BGE AGREEMENTS AND ARRANGEMENTS.
(a) The Company shall assume at the Effective Time each of the
individual employment agreements and arrangements of PEPCO and BGE in effect on
the Closing Date (or as amended in accordance with or as permitted by this
Agreement), subject to the right of the Company to thereafter amend, modify,
suspend, revoke or terminate such agreements and arrangements consistent with
the terms thereof and applicable law.
(b) PEPCO and BGE shall consult with each other prior to entering
into, or amending, any individual employment or severance agreements after the
date hereof as contemplated or permitted in accordance with SECTION 6.9. Each
of PEPCO and BGE shall
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promptly furnish to the other, upon reasonable request by the other, detailed
information, together with underlying documentation, with respect to all such
existing or proposed individual employment or severance agreements or amendments
thereto.
Section 7.10 INCENTIVE, STOCK AND OTHER PLANS.
With respect to each of the plans and programs of PEPCO and BGE
identified in Section 6.3 of the PEPCO and BGE Disclosure Schedules that the
parties later determine shall survive the Closing and each other employee
benefit plan, program or arrangement of the Company under which the delivery of
PEPCO Common Stock, BGE Common Stock or Company Common Stock, as the case may
be, is required to be used for purposes of the payment of benefits, grant of
awards or exercise of options (each a "STOCK PLAN"),
(i) BGE and PEPCO shall take such action as may be
necessary so that, after the Effective Time, such Stock Plan shall
provide for the issuance only of Company Common Stock, and
(ii) the Company shall
(A) take all corporate action necessary or appropriate
to obtain shareholder approval with respect to such Stock Plan to
the extent such approval is required for purposes of the Code or
other applicable law, or, to the extent the Company deems it
desirable, to enable such Stock Plan to comply with Rule 16b-3
promulgated under the Exchange Act,
(B) reserve for issuance under such Stock Plan or
otherwise provide a sufficient number of shares of Company Common
Stock for delivery upon payment of benefits, grants of awards or
exercise of options under such Stock Plan and
(C) as soon as practicable after the Effective Time,
file one or more registration statements under the Securities Act
with respect to the shares of Company Common Stock subject to
such Stock Plan to the extent such filing is required under
applicable law and use its best efforts to maintain the
effectiveness of such registration statement(s) (and the current
status of the prospectuses contained therein or related thereto)
so long as such benefits, grants or awards remain payable or such
options remain outstanding, as the case may be.
Section 7.11 NO SOLICITATIONS.
(a) No party hereto shall, and each such party shall cause its
subsidiaries not to, shall not permit any of its Representatives to, and shall
use its best efforts to cause such persons not to, directly or indirectly,
initiate, solicit or encourage, or take any action to facilitate the making of
any offer or proposal that constitutes or is reasonably likely to lead to any
Takeover Proposal (as defined below), or, in the event of any unsolicited
Takeover
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Proposal, engage in negotiations or provide any confidential information or data
to any person relating to any Takeover Proposal.
(b) PEPCO and BGE shall notify the other orally and in writing of any
such inquiries, offers or proposals (including, without limitation, the terms
and conditions of any such proposal and the identity of the person making it)
within 24 hours of the receipt thereof and shall give the other ten days'
advance notice of any agreement to be entered into with or any information to be
supplied to any person making such inquiry, offer or proposal.
(c) Each party hereto shall immediately cease and cause to be
terminated all existing discussions and negotiations, if any, with any other
persons conducted heretofore with respect to any Takeover Proposal.
(d) Notwithstanding anything in this SECTION 7.11 to the contrary,
unless the BGE Shareholders' Approvals and the PEPCO Shareholders' Approvals
have all been obtained, PEPCO or BGE may, to the extent that the Board of
Directors of such party determines in good faith with the written advice of
outside counsel that a failure to do so could reasonably be expected to result
in a breach of its fiduciary duties under applicable law, participate in
discussions or negotiations with, furnish information to, and afford access to
the properties, books and records of such party and its subsidiaries to any
person in connection with a possible Takeover Proposal with respect to such
party by such person.
(e) As used in this SECTION 7.11, "TAKEOVER PROPOSAL" shall mean any
tender or exchange offer, proposal for a merger, consolidation or other business
combination involving PEPCO, BGE or any of their respective material
subsidiaries, or any proposal or offer to acquire in any manner a substantial
equity interest in, or a substantial portion of the assets of, PEPCO, BGE or any
of their respective material subsidiaries, other than pursuant to the
transactions contemplated by this Agreement.
Section 7.12 COMPANY BOARD OF DIRECTORS.
(a) BGE's and PEPCO's Boards of Directors shall take such action as
may be necessary to cause the number of directors comprising the full Board of
Directors of the Company (the "COMPANY BOARD") at the Effective Time to be 16
persons, consisting of Mr. Edward F. Mitchell, Mr. John M. Derrick, Jr., Mr.
Christian H. Poindexter, Mr. Edward A. Crooke, seven persons designated by BGE
prior to the Effective Time and five persons designated by PEPCO prior to the
Effective Time; PROVIDED, HOWEVER, that if, prior to the Effective Time, any of
such designees shall decline or be unable to serve, the party that designated
such person shall designate another person to serve in such person's stead.
(b) The initial designation of directors among the three classes of
the Company Board shall be allocated among PEPCO and BGE designees as set forth
on EXHIBIT 7.12.
(c) The initial Company Board committees and committee memberships
shall be determined by the Company Board; PROVIDED that (i) there shall be six
committees;
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(ii) three committees shall be chaired by a designee of the PEPCO Board; (iii)
three committees shall be chaired by a designee of the BGE Board; (iv) there
shall be a Committee on Management (responsible for nominating, compensation and
major organizational changes) which shall be chaired by a designee of the BGE
Board; and (v) there shall be an Executive Committee (responsible for certain
financing matters) which shall be chaired by Mr. Edward F. Mitchell.
(d) From the Effective Time until two years after the Closing Date, a
vote of sixty six and two-thirds percent (66 2/3%) of the members of the Company
Board shall be required to approve a change in the Company's name or the
location of its headquarters or principal executive offices, to amend the
employment contracts identified in SECTION 7.14 or otherwise change any of the
titles or functions of the particular individuals referred to in SECTION 7.13 as
set forth in such employment contracts as in effect at the Effective Time, to
change any of the committee matters provided in SECTION 7.12(c) or to amend any
bylaw provisions corresponding to the provisions of this SECTION 7.12(d) adopted
pursuant to SECTION 1.4.
Section 7.13 COMPANY OFFICERS.
(a) From the Effective Time until one year after the Closing Date,
Mr. Edward F. Mitchell shall serve as Chairman of the Board. Mr. Christian H.
Poindexter shall serve as Chairman beginning at the earlier of one year from the
Closing Date or when Mr. Edward F. Mitchell is not available to serve as
Chairman. In addition, Mr. Christian H. Poindexter will be Chief Executive
Officer from the Effective Time. If Mr. Christian H. Poindexter is not
available at the Effective Time to serve as Chief Executive Officer, the then
Chief Executive Officer of BGE shall serve as Chief Executive Officer of the
Company, subject to confirmation by a majority of the members of the Company
Board.
(b) From the Effective Time Mr. John M. Derrick, Jr. shall serve as
President and Chief Operating Officer of the Company, and Mr. Edward A. Crooke
will serve as Vice Chairman. If Mr. John M. Derrick, Jr. is not available at
the Effective Time to serve as President and Chief Operating Officer of the
Company, the then President of PEPCO shall serve as President and Chief
Operating Officer of the Company, subject to confirmation by a majority of the
members of the Company Board.
(c) The provisions of this SECTION 7.13 are subject to the fiduciary
duties of the Company Board and to the specific terms of the employment
contracts referred to in SECTION 7.14, and the duties and responsibilities
attributable to the positions referred to in this SECTION 7.13 shall be as set
forth in such contracts.
Section 7.14 EMPLOYMENT CONTRACTS.
The Company shall, as of or prior to the Effective Time, enter into
employment contracts in the forms set forth in EXHIBIT 7.14.1, EXHIBIT 7.14.2,
EXHIBIT 7.14.3 and EXHIBIT 7.14.4.
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Section 7.15 CORPORATE OFFICES AND NAME.
(a) As soon as reasonably possible after the Effective Time, the
corporate headquarters and principal executive offices of the Company shall be
located in the Annapolis, Maryland area, and the Company shall maintain
significant operations in the District of Columbia and Baltimore, Maryland.
(b) At the Effective Time, the Company's name shall be as agreed upon
by the BGE Board of Directors and the PEPCO Board of Directors prior to the
Effective Time.
Section 7.16 TRANSITION MANAGEMENT.
(a) As promptly as practicable after the date hereof, BGE and PEPCO
shall create a special transition management task force (the "TASK FORCE") that
shall be comprised of representatives from each of the primary business
functions of each company and headed by Mr. Edward A. Crooke (or an individual
designated by him) and Mr. John M. Derrick, Jr. (or an individual designated by
him).
(b) The functions of the Task Force shall include (i) to serve as a
conduit for the flow of information and documents between the companies and
their subsidiaries as contemplated by SECTION 6.15, (ii) to review and evaluate
proposed exceptions to the restrictions on the conduct of business pending the
Merger set forth in ARTICLE VI, (iii) development of regulatory plans and
proposals, corporate organizational and management plans, workforce combination
proposals, and such other matters as they deem appropriate, and (iv) to evaluate
and recommend the manner in which best to organize and manage the business of
the Company after the Effective Time. A consent by either PEPCO or BGE to an
exception to the restrictions set forth in ARTICLE VI shall be effective only if
set forth in a writing that describes in reasonable detail the actions proposed
to be taken and that is signed by Mr. Edward A. Crooke (or his designee) or Mr.
John M. Derrick, Jr. (or his designee), as the case may be.
(c) From time to time, the Task Force shall report its findings to
Mr. Christian H. Poindexter and Mr. Edward F. Mitchell, each of whom shall
report on such matters as they deem appropriate to their respective board of
directors. After the date hereof and prior to the Effective Time, Mr. Edward F.
Mitchell shall frequently attend meetings of BGE's Board of Directors and Mr.
Christian H. Poindexter shall frequently attend meetings of PEPCO's Board of
Directors as appropriate in consultation with each other.
(d) In connection with their responsibilities as co-heads of the Task
Force, Messrs. John M. Derrick, Jr., and Edward A. Crooke shall together
recommend to Messrs. Christian H. Poindexter and Edward F. Mitchell
organizational matters and candidates to serve as the officers of the Company
who are not otherwise designated by this Agreement. All such organizational
matters and appointment of officers shall be subject to final approval by a
majority of the members of the Board of Directors of the Company, upon the
recommendation of Mr. Christian H. Poindexter.
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Section 7.17 EXPENSES. Subject to SECTION 9.3, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, except
that those expenses incurred in connection with printing the Joint
Proxy/Registration Statement, as well as the filing fee relating thereto, shall
be shared equally by BGE, on the one hand, and PEPCO, on the other.
Section 7.18 COVENANT TO SATISFY CONDITIONS.
(a) Each of PEPCO and BGE shall take all reasonable actions necessary
to comply promptly with all legal requirements that may be imposed on it with
respect to this Agreement.
(b) Subject to the terms and conditions hereof, and taking into
account the circumstances and giving due weight to the materiality of the matter
involved or the action required, PEPCO and BGE shall each use its best efforts
to take or cause to be taken all actions, and to do or cause to be done all
things, necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the Merger and the other transactions contemplated
hereby (subject to the votes of its shareholders described in SECTIONS 4.13 and
5.13, respectively), including fully cooperating with the other in obtaining the
PEPCO Required Statutory Approvals, the BGE Required Statutory Approvals and all
other approvals and authorizations of any Governmental Authorities necessary or
advisable to consummate the transactions contemplated hereby.
(c) In connection therewith, PEPCO and BGE agree that teams
consisting of members from both PEPCO and BGE will be designated to prepare the
regulatory filings listed below with the leaders of each team as noted:
FERC PEPCO
NRC BGE
1933 Act, 1934 Act, and
Blue Sky filing BGE
1935 Act, if any PEPCO
the Maryland Commission and BGE
the Pennsylvania Commission
the D.C. Commission and PEPCO
the Virginia Commission
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ARTICLE VIII.
CONDITIONS
Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction on or prior to the Closing Date of the following
conditions, except, to the extent permitted by applicable law, that such
conditions may be waived in writing pursuant to SECTION 9.5:
(a) SHAREHOLDER APPROVALS. The PEPCO Shareholders' Approvals and the
BGE Shareholders' Approvals shall have been obtained.
(b) NO INJUNCTION. No temporary restraining order or preliminary or
permanent injunction or other order by any federal or state court preventing
consummation of the Merger shall have been issued and continuing in effect, and
the Merger and the other transactions contemplated hereby shall not have been
prohibited under any applicable federal or state law or regulation.
(c) REGISTRATION STATEMENT. The Registration Statement shall have
become effective in accordance with the provisions of the Securities Act, and no
stop order suspending such effectiveness shall have been issued and remain in
effect.
(d) LISTING OF SHARES. The shares of Company Common Stock issuable
in the Merger pursuant to ARTICLE II shall have been approved for listing on the
NYSE upon official notice of issuance.
(e) POOLING. Each of BGE and PEPCO shall have received a letter of
its independent public accountants, dated the Closing Date, in form and
substance reasonably satisfactory to PEPCO and BGE, respectively, stating that
the Merger will qualify as a pooling-of-interests transaction under GAAP and
applicable SEC regulations.
(f) STATUTORY APPROVALS. The BGE Required Statutory Approvals and
the PEPCO Required Statutory Approvals shall have been obtained at or prior to
the Effective Time, such approvals shall have become Final Orders (as
hereinafter defined), and no Final Order shall impose terms or conditions that
would have, or would be reasonably likely to have, a material adverse effect on
the business, operations, properties, assets, condition (financial or
otherwise), prospects or results of operations of the Company (a "Company
Material Adverse Effect"). A "FINAL ORDER" means action by the relevant
regulatory authority that has not been reversed, stayed, enjoined, set aside,
annulled or suspended, with respect to which any waiting period prescribed by
law before the transactions contemplated hereby may be consummated has expired,
and as to which all conditions to the consummation of such transactions
prescribed by law, regulation or order have been satisfied, and as to which all
opportunities for rehearing are exhausted (whether or not any appeal thereof is
pending).
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(g) VIRGINIA INCORPORATION. The Company shall have become validly
existing as a domestic corporation of the Commonwealth of Virginia.
Section 8.2 CONDITIONS TO OBLIGATION OF PEPCO TO EFFECT THE MERGER.
The obligation of PEPCO to effect the Merger shall be further subject to the
satisfaction, on or prior to the Closing Date, of the following conditions,
except as may be waived by PEPCO in writing pursuant to SECTION 9.5:
(a) PERFORMANCE OF OBLIGATIONS OF BGE. BGE shall have performed in
all material respects its agreements and covenants contained in or contemplated
by this Agreement required to be performed by it at or prior to the Effective
Time.
(b) CLOSING CERTIFICATES. PEPCO shall have received a certificate
signed by the Chief Executive Officer and Chief Financial Officer of BGE, dated
the Closing Date, to the effect that, to each such officer's knowledge, the
conditions set forth in SECTION 8.2(a) have been satisfied.
(c) BGE MATERIAL ADVERSE EFFECT. No BGE Material Adverse Effect
shall have occurred and there shall exist no fact or circumstance that would
have, or would be reasonably likely to have, a BGE Material Adverse Effect.
(d) TAX OPINION. PEPCO shall have received an opinion of counsel, in
form and substance satisfactory to PEPCO, dated the Closing Date, which opinion
may be based on appropriate representations of BGE, PEPCO and the Company, in
form and substance reasonably satisfactory to such counsel, to the effect that
the Merger will be a tax-free reorganization under Code Section 368(a) and that
PEPCO, the Company and the shareholders of PEPCO who exchange their shares
solely for stock of the Company will recognize no gain or loss for federal
income tax purposes as a result of the consummation of the Merger.
(e) BGE REQUIRED CONSENTS. The BGE Required Consents shall have been
obtained, except those that in the aggregate would not result in and would not
reasonably likely result in a Company Material Adverse Effect.
(f) AFFILIATE CERTIFICATES. The Company shall have received written
agreement dated the Closing Date from each person who is an affiliate of BGE to
the effect that:
(i) such person has no present plan or intention to transfer,
sell or otherwise dispose of any Company Common Stock such person may
receive as a result of the Merger;
(ii) until such time as financial results covering at least
thirty (30) days of post-closing combined operations of PEPCO, BGE and the
Company have been published, such person shall not sell such Company Common
Stock in any transaction, private or public, or in any other way reduce
such person's risk relative to any Company Common Stock that such person
receives as a result of the Merger, except to the extent permitted pursuant
to SAB No. 76;
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(iii) any future disposition by such person of any Company Common
Stock such person receives as the result of the Merger will be accomplished
in accordance with Rule 145(d) under the Securities Act; and
(iv) such person agrees that appropriate legends shall be placed
upon the certificates evidencing ownership of the Company Common Stock that
such person receives as a result of the Merger.
Section 8.3 CONDITIONS TO OBLIGATION OF BGE TO EFFECT THE MERGER.
The obligation of BGE to effect the Merger shall be further subject to the
satisfaction, on or prior to the Closing Date, of the following conditions,
except as may be waived by BGE in writing pursuant to SECTION 9.5:
(a) PERFORMANCE OF OBLIGATIONS OF PEPCO. PEPCO shall have performed
in all material respects its agreements and covenants contained in or
contemplated by this Agreement required to be performed by it at or prior to the
Effective Time.
(b) CLOSING CERTIFICATES. BGE shall have received a certificate
signed by the Chief Executive Officer and Chief Financial Officer of PEPCO,
dated the Closing Date, to the effect that, to each such officer's knowledge,
the conditions set forth in SECTION 8.3(a) have been satisfied.
(c) PEPCO MATERIAL ADVERSE EFFECT. No PEPCO Material Adverse Effect
shall have occurred and there shall exist no fact or circumstance that would
have, or would be reasonably likely to have, a PEPCO Material Adverse Effect.
(d) TAX OPINION. BGE shall have received an opinion of counsel, in
form and substance satisfactory to BGE, dated the Closing Date, which opinion
may be based on appropriate representations of BGE, PEPCO and the Company, in
form and substance reasonably satisfactory to such counsel, to the effect that
the Merger will be a tax-free reorganization under Code Section 368(a) and that
BGE, the Company and the shareholders of BGE who exchange their shares solely
for stock of the Company will recognize no gain or loss for federal income tax
purposes as a result of the consummation of the Merger.
(e) PEPCO REQUIRED CONSENTS. The PEPCO Required Consents shall have
been obtained except those that in the aggregate would not result in and would
not reasonably likely result in a Company Material Adverse Effect.
(f) AFFILIATE CERTIFICATES. The Company shall have received a
written agreement dated the Closing Date from each person who is an affiliate of
PEPCO to the effect that:
(i) such person has no present plan or intention to transfer,
sell or otherwise dispose of any Company Common Stock such person may
receive as a result of the Merger;
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(ii) until such time as financial results covering at least
thirty (30) days of post-closing combined operations of PEPCO, BGE and the
Company have been published, such person shall not sell such Company Common
Stock in any transaction, private or public, or in any other way reduce
such person's risk relative to any Company Common Stock that such person
receives as a result of the Merger, except to the extent permitted pursuant
to SAB No. 76;
(iii) any future disposition by such person of any Company Common
Stock such person receives as the result of the Merger will be accomplished
in accordance with Rule 145(d) under the Securities Act; and
(iv) such person agrees that appropriate legends shall be placed
upon the certificates evidencing ownership of the Company Common Stock that
such person receives as a result of the Merger.
ARTICLE IX.
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 TERMINATION. This Agreement may be terminated and the
Merger abandoned at any time prior to the Closing Date, whether before or after
approval by the shareholders of the respective parties hereto contemplated by
this Agreement:
(a) by mutual written consent of the Boards of Directors of BGE and
PEPCO;
(b) by PEPCO or BGE, by written notice to the other, if the Effective
Time shall not have occurred on or before March 31, 1997; PROVIDED, HOWEVER,
that such date shall automatically be changed to March 31, 1998 if, on March 31,
1997:
(i) the condition set forth in SECTION 8.1(f) has not been
satisfied or waived;
(ii) the other conditions to the consummation of the transactions
contemplated hereby are then capable of being satisfied; and
(iii) any approvals required by SECTION 8.1(f) that have not yet
been obtained are being pursued with diligence; PROVIDED, FURTHER, that the
right to terminate this Agreement under this SECTION 9.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before the termination date;
(c) by PEPCO or BGE, by written notice to the other party if the BGE
Shareholders' Approvals shall not have been obtained at a duly held BGE Special
Meetings,
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including any adjournments thereof, or the PEPCO Shareholders' Approvals shall
not have been obtained at duly held PEPCO Special Meetings, including any
adjournments thereof;
(d) by PEPCO or BGE, if any state or federal law, order, rule or
regulation is adopted or issued, that has the effect, as supported by the
written opinion of outside counsel for such party, of prohibiting the Merger, or
by PEPCO or BGE, if any court of competent jurisdiction in the United States or
any State shall have issued an order, judgment or decree permanently
restraining, enjoining or otherwise prohibiting the Merger, and such order,
judgment or decree shall have become final and nonappealable;
(e) by PEPCO, upon two days' prior notice to BGE, if, as a result of
a tender offer or any written offer or proposal with respect to a merger, sale
of a material portion of its assets or other business combination (each, a
"BUSINESS COMBINATION"), in each case by a party other than BGE or any of its
affiliates, the Board of Directors of PEPCO determines in good faith that the
fiduciary obligations of such directors under applicable law require that such
tender offer or other written offer or proposal be accepted; PROVIDED, HOWEVER,
that
(i) the Board of Directors of PEPCO shall have been advised in
writing by outside counsel that, notwithstanding a binding commitment to
consummate an agreement of the nature of this Agreement entered into in the
proper exercise of their applicable fiduciary duties, such fiduciary duties
would also require the directors to reconsider such commitment as a result
of such tender offer or such written offer or proposal, and
(ii) prior to any such termination, PEPCO shall, and shall cause
its respective financial and legal advisors to, negotiate with BGE to make
such adjustments in the terms and conditions of this Agreement as would
enable PEPCO to proceed with the transactions contemplated herein;
(f) by BGE, upon two days' prior notice to PEPCO, if, as a result of
a tender offer or any written offer or proposal with respect to a Business
Combination, in each case by a party other than PEPCO or any of its affiliates,
the Board of Directors of BGE determines in good faith that the fiduciary
obligations of such directors under applicable law require that such tender
offer or other written offer or proposal be accepted; PROVIDED, HOWEVER, that
(i) the Board of Directors of BGE shall have been advised in
writing by outside counsel that, notwithstanding a binding commitment to
consummate an agreement of the nature of this Agreement entered into in the
proper exercise of their applicable fiduciary duties, such fiduciary duties
would also require the directors to reconsider such commitment as a result
of such tender offer or such written offer or proposal, and
(ii) prior to any such termination, BGE shall, and shall cause
its respective financial and legal advisors to, negotiate with PEPCO to
make such
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adjustments in the terms and conditions of this Agreement as would enable
BGE to proceed with the transactions contemplated herein;
(g) by PEPCO, by written notice to BGE, if
(i) there shall have been any material breach of any material
representation or warranty, or any material breach of any covenant or
agreement, of BGE hereunder, and such breach shall not have been remedied
within twenty days after receipt by BGE of notice in writing from PEPCO,
specifying the nature of such breach and requesting that it be remedied, or
(ii) the Board of Directors of BGE shall withdraw or modify in
any manner materially adverse to PEPCO its approval or recommendation of
this Agreement or the Merger or resolve to take such action; or
(h) by BGE, by written notice to PEPCO, if
(i) there shall have been any material breach of any material
representation or warranty, or any material breach of any covenant or
agreement, of PEPCO hereunder, and such breach shall not have been remedied
within twenty days after receipt by PEPCO of notice in writing from BGE,
specifying the nature of such breach and requesting that it be remedied, or
(ii) the Board of Directors of PEPCO shall withdraw or modify in
any manner materially adverse to BGE its approval or recommendation of this
Agreement or the Merger or resolve to take such action.
Section 9.2 EFFECT OF TERMINATION. In the event of termination of
this Agreement by either BGE or PEPCO pursuant to SECTION 9.1, there shall be no
liability on the part of either BGE or PEPCO or their respective officers or
directors hereunder, except that
(i) SECTION 6.20, SECTION 7.1(b), SECTION 7.6(e), SECTION 7.18,
SECTION 9.3 and SECTION 10.2 shall survive and
(ii) no such termination shall relieve any party from liability
by reason of any willful breach of any representation, warranty or covenant
contained in this Agreement.
Section 9.3 TERMINATION DAMAGES.
(a) DAMAGES PAYABLE UPON TERMINATION FOR BREACH. If this Agreement
is terminated pursuant to SECTION 9.1(g)(i) or SECTION 9.1(h)(i) (breach of
representation, warranty, covenant or agreement), then the breaching party shall
promptly (but not later than five business days after receipt of notice that the
amount is due from the other party) pay to the other party, as liquidated
damages, $10 million in cash in respect of out-of-pocket expenses and fees
incurred by the other party, including, without limitation, fees and
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expenses payable to all legal, accounting, financial, public relations and other
professional advisors arising out of, in connection with or related to the
Merger or the transactions contemplated by this Agreement (collectively, "OUT-
OF-POCKET EXPENSES").
(b) DAMAGES PAYABLE IN CERTAIN OTHER EVENTS. If this Agreement
(i) is terminated
(A) pursuant to SECTION 9.1(e) or SECTION 9.1(f) (fiduciary
out),
(B) pursuant to SECTION 9.1(c) (failure to obtain
shareholder approval), following a failure of the shareholders of
PEPCO or BGE to grant the necessary approvals described in SECTION
4.13 or SECTION 5.13, as the case may be (a "SHAREHOLDER
DISAPPROVAL"),
(C) as a result of a material breach of SECTION 7.4
(approval of shareholders), or
(D) pursuant to SECTION 9.1(g)(ii) or SECTION 9.1(h)(ii)
(board withdrawal or modification of approval or recommendation),
and
(ii) with respect to any termination referred to in clause
(i)(A), (B) or (C) above, at the time of such termination (or, in the case
of any termination following a Shareholder Disapproval, prior to the
shareholder meeting at which such Shareholder Disapproval occurred), there
shall have been a third-party tender offer for shares of, or a third-party
offer or proposal with respect to a Business Combination involving, PEPCO
or BGE (as the case may be, the "TARGET PARTY") or the affiliates thereof
which, at the time of such termination (or of the meeting of the Target
Party's shareholders, as the case may be) shall not have been (x) rejected
by the Target Party and its Board of Directors and (y) withdrawn by the
third-party,
then the Target Party shall pay the other party a termination fee equal to $75
million in cash and $10 million in cash in respect of Out-of-Pocket Expenses.
(c) EXPENSES.
(i) The parties agree that the agreements contained in this
SECTION 9.3 are an integral part of the transactions contemplated by this
Agreement and constitute liquidated damages and not a penalty.
(ii) If one party fails to promptly pay to the other any amounts
due under this SECTION 9.3, such defaulting party shall pay the costs and
expenses (including reasonable legal fees and expenses) in connection with
any action, including the filing of any lawsuit or other legal action,
taken to collect payment, together with interest
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on the amount of any unpaid fee at the publicly announced prime rate of
Citibank, N.A. in effect from time to time from the date such fee was
required to be paid.
(d) LIMITATION OF FEES. Notwithstanding anything herein to the
contrary, the aggregate amount payable by BGE and its affiliates pursuant to
SECTION 9.3(a), SECTION 9.3(b) and the terms of the BGE Stock Option Agreement
shall not exceed $125 million and the aggregate amount payable by PEPCO and its
affiliates pursuant to SECTION 9.3(a), SECTION 9.3(b) and the terms of the PEPCO
Stock Option Agreement shall not exceed $125 million. For purposes of this
SECTION 9.3(d), the amount payable pursuant to the terms of the PEPCO Option or
the BGE Option, as the case may be, shall be the amount paid pursuant to
Sections 7(a)(i) and 7(a)(ii) thereof.
Section 9.4 AMENDMENT.
(a) This Agreement may be amended by parties hereto pursuant to
action of their respective Boards of Directors, at any time before or after
approval hereof by the shareholders of BGE and PEPCO and prior to the Effective
Time, but after such approvals, no such amendment shall
(i) alter or change the amount or kind of shares, to be received
or exchanged for or on conversion of any class or series of capital stock
of either corporation as provided under ARTICLE II,
(ii) alter or change any of the terms and conditions of this
Agreement if any of the alterations or changes, alone or in the aggregate,
would materially and adversely affect the rights of holders of BGE Common
Stock, BGE Preferred Stock, BGE Preference Stock, PEPCO Common Stock or
PEPCO Preferred Stock, or
(iii) alter or change any term of the Articles of Incorporation of
the Company, except for alterations or changes that could otherwise be
adopted by the Board of Directors of the Company, without the further
approval of such shareholders, as applicable.
(b) This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
Section 9.5 WAIVER.
(a) At any time prior to the Effective Time, the parties hereto may
(i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and
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(iii) waive compliance with any of the agreements or conditions
contained herein.
(b) Any agreement on the part of a party hereto to any such extension
or wavier shall be valid only if set forth in an instrument in writing signed by
a duly authorized officer of such party.
ARTICLE X.
GENERAL PROVISIONS
Section 10.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS
AND AGREEMENTS. All representations, warranties, covenants and agreements in
this Agreement shall not survive the Merger, except the covenants and agreements
contained in this SECTION 10.1 and in ARTICLE II, SECTION 7.1(b) (Access to
Information), SECTION 7.5 (Directors' and Officers Indemnification), SECTION
7.6(e) (Disclosure Schedules), SECTION 7.10 (Incentive, Stock and Other Plans),
SECTION 7.12 (Company Board of Directors), SECTION 7.13 (Company Officers),
SECTION 7.14 (Employment Contracts), SECTION 7.15 (Corporate Offices and Name),
SECTION 9.3 (Termination Damages) and SECTION 10.7 (Parties In Interest), each
of which shall survive in accordance with its terms.
Section 10.2 BROKERS.
(a) BGE represents and warrants that, except for Goldman, Sachs &
Co., its investment banking firm, no broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of BGE.
(b) PEPCO represents and warrants that, except for Barr Devlin & Co.
Incorporated, its investment banking firm, no broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with the Merger or the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of PEPCO.
Section 10.3 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given (a) if delivered personally, or
(b) if sent by overnight courier service (receipt confirmed in writing), or (c)
if delivered by facsimile transmission (with receipt confirmed), or (d) five
days after being mailed by registered or
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certified mall (return receipt requested) to the parties, in each case to the
following addresses (or at such other address for a party as shall be specified
by like notice):
(i) If to BGE, two copies, one each to:
By Mail: P.O. Box 1475
Baltimore, MD 21203
By Hand: Liberty and Lexington Streets
Baltimore, MD 21201
Attention: Charles W. Shivery
Vice President and CFO
Fax: (410) 234-5690
David A. Brune, Esq.
General Counsel
Fax: (410) 234-5513
with a copy to:
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004-1490
Attention: Stephen R. Rusmisel, Esq.
Fax: (212) 858-1500
(ii) If to PEPCO, to:
By Mail 1900 Pennsylvania Avenue, NW
and Hand: Washington, DC 20063
Attention: Dennis R. Wraase
Senior Vice President-Finance and
Accounting
Fax: (202) 331-6314
William T. Torgerson
Senior Vice President-Law &
Governmental Relations,
General Counsel and Secretary
Fax: (202) 331-6314
with a copy to:
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LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
Attention: Douglas W. Hawes, Esq.
Fax: (212) 424-8500
and a copy to:
Covington & Burling
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20044
Attention: George B. Reid, Jr., Esq.
Fax: (202) 662-6291
Section 10.4 MISCELLANEOUS.
(a) This Agreement (including the documents and instruments referred
to herein):
(i) constitutes the entire agreement and supersedes all other
prior agreements and understandings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof other
than the Confidentiality Agreement;
(ii) shall not be assigned by operation of law or otherwise; and
(iii) shall be governed by and construed in accordance with the
laws of the State of Maryland applicable to contracts executed in and to be
fully performed in such State, without giving effect to its conflicts of
laws statutes, rules or principles.
(b)(i) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
(ii) The parties hereto shall negotiate in good faith to replace
any provision of this Agreement so held invalid or unenforceable with a
valid provision that is as similar as possible in substance to the invalid
or unenforceable provision.
Section 10.5 INTERPRETATION.
(a) When reference is made in this Agreement to Articles, Sections or
Exhibits, such reference shall be to an Article, Section or Exhibit of this
Agreement, as the case may be, unless otherwise indicated.
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(b) The table of contents and headings contained in this Agreement
are for reference purposes and shall not affect in any way the meaning or
interpretation of this Agreement.
(c) Whenever the words "include", "includes", or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation."
(d) Whenever "or" is used in this Agreement it shall be construed in
the nonexclusive sense.
Section 10.6 COUNTERPARTS; EFFECT. This Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement.
Section 10.7 PARTIES IN INTEREST.
This Agreement shall be binding upon and inure solely to the benefit
of each party hereto, and, except for rights of Indemnified Parties and their
heirs and representatives as set forth in SECTION 7.5, nothing in this
Agreement, express or implied, is intended to confer upon any person any rights
or remedies of any nature whatsoever under or by reason of this Agreement.
Section 10.8 SPECIFIC PERFORMANCE.
(a) The parties hereto agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached.
(b) It is accordingly agreed that the parties hereto shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
Section 10.9 FURTHER ASSURANCES. Each party hereto shall execute
such further documents and instruments and take such further actions as may
reasonably be requested by any other party hereto in order to consummate the
Merger in accordance with the terms hereof.
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IN WITNESS WHEREOF, BGE, PEPCO and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
BALTIMORE GAS AND ELECTRIC COMPANY
By:
----------------------------------------
Name:
Title:
POTOMAC ELECTRIC POWER COMPANY
By:
----------------------------------------
Name:
Title:
CONSTELLATION ENERGY CORPORATION
By:
----------------------------------------
Name:
Title:
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EXHIBIT 1.3
As of the Effective Time, the Articles of Incorporation of the Company
shall provide:
(a) that the corporate name shall be as determined in accordance with
Section 7.15(b);
(b) that the Company Class A Preferred Stock and the Company Class B
Preferred Stock are pari passu in respect of dividends and other
distribution and in liquidation;
(c) that the Company Class A Preferred Stock and the Company Class B
Preferred Stock are senior to the Company Preference Stock, and
the Company Preference Stock is senior to the Company Common
Stock, in each case, in respect of dividends and other
distributions and in liquidation;
(d) that Company Class A Preferred Stock and the Company Class B
Preferred Stock have the rights and privileges set forth in
Section 2.1(e) and 2.1(g), respectively, of the Agreement;
(e) that the Board of Directors of the Company is classified in
accordance with provisions of Section 7.12 of the Agreement;
(f) such other provisions as are required by law and such provisions
as may be agreed upon by PEPCO and BGE; and
(g) for indemnification of directors and officers.
<PAGE>
EXHIBIT 1.4
As of the Effective Time, the Bylaws of the Company shall include such
provisions as are required by law, the supermajority provisions set forth in
Section 7.12(d) of the Agreement, the provisions on committee matters provided
for in Section 7.12(c) of the Agreement, and such other provisions as shall be
agreed upon by PEPCO and BGE.
<PAGE>
EXHIBIT 7.12
CLASSES OF DIRECTORS
Class 3 Class 2 Class 1
(three year term) (two year term) (one year term)
- ----------------- --------------- ---------------
Mr. Christian H. Poindexter Mr. Edward F. Mitchell 3 BGE Directors
Mr. Edward A. Crooke 3 BGE Directors
Mr. John M. Derrick, Jr.
One BGE Director 1 PEPCO Director 2 PEPCO Directors
Two PEPCO Directors
<PAGE>
Exhibit B1
BGE STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT, dated as of September 22, 1995, (the
"AGREEMENT") by and between Baltimore Gas and Electric Company, a corporation
formed under the laws of the State of Maryland ("BGE") and Potomac Electric
Power Company, a corporation formed under the laws of the District of Columbia
and the Commonwealth of Virginia ("PEPCO"),
W I T N E S S E T H T H A T:
WHEREAS, concurrently with the execution and delivery of this
Agreement, BGE, PEPCO and Constellation Energy Corporation, a corporation
formed under the laws of the State of Maryland (the "COMPANY"), are entering
into an Agreement and Plan of Merger, dated as of September 22, 1995, (the
"MERGER AGREEMENT"), which provides, INTER ALIA, upon the terms and subject
to the conditions thereof, for the merger of BGE and PEPCO with and into the
Company (the "MERGER");
WHEREAS, in connection with the execution of the Merger Agreement, BGE
and PEPCO are entering into a certain stock option agreement dated as of the
date hereof whereby PEPCO grants to BGE an option with respect to certain shares
of PEPCO's common stock on the terms and subject to the conditions set forth
therein (the "PEPCO STOCK OPTION AGREEMENT"); and
WHEREAS, as a condition to PEPCO's willingness to enter into the
Merger Agreement, PEPCO has requested that BGE agree, and BGE has so agreed, to
grant to PEPCO an option with respect to certain shares of BGE's common stock,
on the terms and subject to the conditions set forth herein;
NOW, THEREFORE, to induce PEPCO to enter into the Merger Agreement and
the PEPCO Stock Option Agreement, and in consideration of the representations,
warranties, covenants and agreements contained herein, in the Merger Agreement
and in the PEPCO Stock Option Agreement, the parties hereto, intending to be
legally bound, hereby agree as follows:
(a) GRANT OF OPTION.
(a) BGE hereby grants PEPCO an irrevocable option (the "BGE OPTION")
to purchase up to 29,357,896 shares, subject to adjustment as provided in
Section 11 (the "BGE SHARES"), of common stock, without par value, of BGE (the
"BGE COMMON STOCK") (being 19.9% of the number of shares of BGE Common Stock
outstanding as of August 31, 1995) in the manner set forth below, at a price
(the "EXERCISE PRICE") per BGE Share of $25.925
<PAGE>
(which is equal to the Fair Market Value (as defined below) of a BGE Share as of
the date hereof).
(b) The Exercise Price shall be payable, at PEPCO's option, as
follows:
(i) in cash, or
(ii) subject to BGE's having obtained the approvals of any
Governmental Authority required for BGE to acquire the PEPCO Shares (as
defined below) from PEPCO, in shares of common stock, $1.00 par value, of
PEPCO ("PEPCO SHARES"),
in either case in accordance with Section 4 hereof.
(c) Notwithstanding the foregoing, in no event shall the number of
BGE Shares for which the BGE Option is exercisable exceed 19.9% of the number of
issued and outstanding shares of BGE Common Stock.
(d) As used herein, the "FAIR MARKET VALUE" of any share shall be the
average of the daily closing sales price for such share on the New York Stock
Exchange (the "NYSE") during the ten NYSE trading days prior to the fifth NYSE
trading day preceding the date such Fair Market Value is to be determined.
(e) Capitalized terms used herein but not defined herein shall have
the meanings set forth in the Merger Agreement.
(b) EXERCISE OF OPTION.
(a) The BGE Option may be exercised by PEPCO, in whole or in part, at
any time or from time to time after the Merger Agreement becomes terminable by
PEPCO under circumstances which could entitle PEPCO to a payment under Section
9.3(b) of the Merger Agreement, regardless of whether the Merger Agreement is
actually terminated or whether there occurs a closing of any Business
Combination involving a Target Party or a closing by which a Target Party
becomes a subsidiary (any such event by which the Merger Agreement becomes so
terminable by PEPCO being referred to herein as a "TRIGGER EVENT").
(b) (i) BGE shall notify PEPCO promptly in writing of the occurrence
of any Trigger Event, it being understood that the giving of such notice by
BGE shall not be a condition to the right of PEPCO to exercise the BGE
Option.
(ii) In the event PEPCO wishes to exercise the BGE Option, PEPCO
shall deliver to BGE written notice (an "EXERCISE NOTICE") specifying the
total number of BGE Shares it wishes to purchase.
(iii) Upon the giving by PEPCO to BGE of the Exercise Notice and
the tender of the applicable aggregate Exercise Price, PEPCO, to the extent
permitted by law and BGE's organizational documents, and provided that the
conditions to
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BGE's obligation to issue the BGE Shares to River hereunder set forth in
Section 3 have been satisfied or waived, shall be deemed to be the holder
of record of the BGE Shares issuable upon such exercise, notwithstanding
that the stock transfer books of BGE shall then be closed or that
certificates representing such BGE Shares shall not then be actually
delivered to PEPCO.
(iv) Each closing of a purchase of BGE Shares (a "CLOSING")
shall occur at a place, on a date, and at a time designated by PEPCO in an
Exercise Notice delivered at least two business days prior to the date of
the Closing.
(c) The BGE Option shall terminate upon the earliest to occur of:
(i) the Effective Time of the Merger;
(ii) the termination of the Merger Agreement pursuant to Section
9.1 thereof other than under circumstances which could entitle PEPCO to a
payment under Section 9.3(b) of the Merger Agreement; and
(iii) 180 days following any termination of the Merger Agreement
upon or during the continuance of a Trigger Event (or if, at the expiration
of such 180 day period, the BGE Option cannot be exercised by reason of any
applicable judgment, decree, order, law or regulation, ten business days
after such impediment to exercise shall have been removed or shall have
become final and not subject to appeal, but in no event under this clause
(iii) later than March 31, 1998).
(d) Notwithstanding the foregoing, the BGE Option may not be
exercised if PEPCO is in material breach of any of its representations or
warranties, or in material breach of any of its covenants or agreements,
contained in this Agreement or in the Merger Agreement.
(c) CONDITIONS TO CLOSING. The obligation of BGE to issue the BGE
Shares to PEPCO hereunder is subject to the conditions that
(a) all waiting periods, if any, under the HSR Act applicable to the
issuance of the BGE Shares hereunder shall have expired or have been terminated;
(b) the BGE Shares, and any PEPCO Shares which are issued in payment
of the Exercise Price, shall have been approved for listing on the NYSE upon
official notice of issuance;
(c) all consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, any federal, state or local
administrative agency or commission or other federal, state or local
Governmental Authority, if any, required in connection with the issuance of the
BGE Shares hereunder shall have been obtained or made, including, without
limitation, the approval of the SEC under Section 10 of the 1935 Act, the
approval of the Maryland Commission of the issuance of the BGE Shares by BGE
and, if applicable, the acquisition of BGE Shares by PEPCO, and the approval of
the Maryland Commission of
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<PAGE>
the acquisition of the BGE Shares by PEPCO and, if applicable, the acquisition
by BGE of the PEPCO Shares constituting the Exercise Price hereunder; and
(d) no preliminary or permanent injunction or other order by any
court of competent jurisdiction prohibiting or otherwise restraining such
issuance shall be in effect.
The condition set forth in paragraph (b) above may be waived by BGE, in the case
of PEPCO Shares, and by PEPCO, in the case of BGE Shares, in the sole discretion
of the waiving party.
(d) CLOSING. At any Closing,
(a) BGE shall deliver to PEPCO or its designee a single certificate
in definitive form representing the number of BGE Shares designated by PEPCO in
its Exercise Notice, such certificate to be registered in the name of PEPCO and
to bear the legend set forth in Section 12; and
(b) PEPCO shall deliver to BGE the aggregate price for the BGE Shares
so designated and being purchased by
(i) wire transfer of immediately available funds or certified
check or bank check, or
(ii) subject to the condition in Section 1(b)(ii), a certificate
or certificates representing the number of PEPCO Shares being issued by
PEPCO in consideration thereof, determined in accordance with Section 4(c).
(c) In the event that PEPCO issues PEPCO Shares to BGE in
consideration of BGE Shares pursuant to Section 4(b)(ii), the number of BGE
Shares to be so issued shall be equal to the quotient obtained by dividing:
(i) the product of (x) the number of BGE Shares with respect to
which the BGE Option is being exercised and (y) the Exercise Price, by
(ii) the Fair Market Value of the PEPCO Shares as of the date
immediately preceding the date the Exercise Notice is delivered to BGE.
(d) BGE shall pay all expenses, and any and all United States
Federal, state and local taxes, and other charges that may be payable in
connection with the preparation, issue and delivery of stock certificates under
this Section 4.
(e) REPRESENTATIONS AND WARRANTIES OF BGE. BGE represents and
warrants to PEPCO that
(a) Subject to any required regulatory approvals, BGE has the
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder, subject in the case of the repurchase of the BGE Shares
pursuant to Section 7(a) to applicable
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law and the provisions, BGE's Restated Articles of Incorporation, as amended
(the "BGE Articles");
(b) this Agreement has been duly and validly executed and delivered
by BGE, and, assuming the due authorization, execution and delivery hereof by
PEPCO, constitutes a valid and binding obligation of BGE, enforceable against
BGE in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization or other similar
laws affecting the enforcement of creditors' rights generally, and except that
the availability of equitable remedies, including specific performance, may be
subject to the discretion of any court before which any proceeding therefor may
be brought;
(c) BGE has taken all necessary corporate action to authorize and
reserve for issuance and to permit it to issue, upon exercise of the BGE Option,
and at all times from the date hereof through the expiration of the BGE Option
will have reserved, 29,357,896 authorized and unissued BGE Shares, such amount
being subject to adjustment as provided in Section 11, all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will be
validly issued, fully paid and nonassessable;
(d) upon delivery of the BGE Shares to PEPCO upon the exercise of the
BGE Option, PEPCO will acquire the BGE Shares free and clear of all claims,
liens, charges, encumbrances and security interests of any nature whatsoever;
(e) except as described in Section 5.4(b) of the Merger Agreement,
the execution and delivery of this Agreement by BGE does not, and, subject to
compliance with applicable law and the BGE Articles with respect to the
repurchase of the BGE Shares pursuant to Section 7(a), the consummation by BGE
of the transactions contemplated hereby will not, violate, conflict with, or
result in a breach of any provision of, or constitute a default (with or without
notice or a lapse of time, or both) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination,
cancellation, or acceleration of any obligation or the loss of a material
benefit under, or the creation of a lien, pledge, security interest or other
encumbrance on assets (any such conflict, violation, default, right of
termination, cancellation or acceleration, loss or creation, hereinafter a
"VIOLATION") of BGE or any of its subsidiaries, pursuant to
(i) any provision of the BGE Articles or the Bylaws of BGE,
(ii) any provisions of any material loan or credit agreement,
note, mortgage, indenture, lease, BGE benefit plan or other agreement,
obligation, instrument, permit, concession, franchise, license (any of the
foregoing in effect on the date hereof being referred to as a "MATERIAL
CONTRACT"), or
(iii) any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to BGE or its properties or assets,
which Violation, in the case of each of clauses (ii) and (iii), could reasonably
be expected to have a BGE Material Adverse Effect (except that no representation
or warranty is given
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concerning any Violation of a Material Contract with respect to the repurchase
of BGE Shares pursuant to Section 7(a));
(f) except as described in Section 5.4(c) of the Merger Agreement or
Section 3 hereof, the execution and delivery of this Agreement by BGE does not,
and the performance of this Agreement by BGE will not, require any consent,
approval, authorization or permit or filing with or notification to, any
Governmental Authority;
(g) none of BGE, any of its affiliates or anyone acting on its or
their behalf, has issued, sold or offered any security of BGE to any person
under circumstances that would cause the issuance and sale of BGE Shares, as
contemplated by this Agreement, to be subject to the registration requirements
of the Securities Act as in effect on the date hereof, and, assuming the
representations and warranties of PEPCO contained in Section 6(g) are true and
correct, the issuance, sale and delivery of the BGE Shares hereunder would be
exempt from the registration and prospectus delivery requirements of the
Securities Act, as in effect on the date hereof (and BGE shall not take any
action which would cause the issuance, sale, and delivery of BGE Shares
hereunder not to be exempt from such requirements); and
(h) any PEPCO Shares acquired pursuant to this Agreement will be
acquired for BGE's own account, for investment purposes only, and will not be
acquired by BGE with a view to the public distribution thereof in violation of
any applicable provision of the Securities Act.
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6. REPRESENTATIONS AND WARRANTIES OF PEPCO. PEPCO represents and
warrants to BGE that
(a) PEPCO has the corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder;
(b) this Agreement has been duly and validly executed and delivered
by PEPCO and, assuming the due authorization, execution and delivery hereof,
constitutes a valid and binding obligation of PEPCO, enforceable against PEPCO
in accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, or other similar laws
affecting the enforcement of creditors' rights generally, and except that the
availability of equitable remedies, including specific performance, may be
subject to the discretion of any court before which any proceeding may be
brought;
(c) prior to any delivery of PEPCO Shares in consideration of the
purchase of BGE Shares pursuant hereto, PEPCO will have taken all necessary
corporate action to authorize for issuance and to permit it to issue such PEPCO
Shares, all of which, upon their issuance and delivery in accordance with the
terms of this Agreement, will be validly issued, fully paid and nonassessable;
(d) upon any delivery of such PEPCO Shares to BGE in consideration of
the purchase of BGE Shares pursuant hereto, BGE will acquire the PEPCO Shares
free and clear of all claims, liens, charges, encumbrances and security
interests of an nature whatsoever;
(e) except as described in Section 4.4(b) of the Merger Agreement,
the execution and delivery of this Agreement by PEPCO does not, and the
consummation by PEPCO of the transactions contemplated hereby will not, violate,
conflict with, or result in the breach of any provision of, or constitute a
default (with or without notice or a lapse of time, or both) under, or result in
any Violation by PEPCO or any of its subsidiaries, pursuant to
(i) any provision of the Articles of Incorporation or Bylaws of
PEPCO,
(ii) any provisions of any loan or credit agreement, note,
mortgage, indenture, lease, PEPCO benefit plan or other agreement,
obligation, instrument, permit, concession, franchise, license, or
(iii) any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to PEPCO or its properties or assets,
which Violation, in the case of each of clauses (ii) or (iii), would have a
PEPCO Material Adverse Effect;
(f) except as described in Section 4.4(c) of the Merger Agreement or
Section 3 hereof, the execution and delivery of this Agreement by PEPCO does
not, and the
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consummation by PEPCO of the transactions contemplated hereby will not, require
any consent, approvals authorization or permit of, or filing with or
notification to, any Governmental Authority; and
(g) any BGE Shares acquired upon exercise of the BGE Option will be
acquired for PEPCO's own account, for investment purposes only and will not be,
and the BGE Option is not being, acquired by PEPCO with a view to the public
distribution thereof, in violation of any applicable provision of the Securities
Act.
7. CERTAIN REPURCHASES.
(a) PEPCO "PUT". At the request of PEPCO by written notice (x) at
any time during which the BGE Option is exercisable pursuant to Section 2 (the
"REPURCHASE PERIOD"), BGE (or any successor entity thereof) shall, if permitted
by applicable law, the BGE Articles and BGE's Material Contracts (but
notwithstanding any insufficiency in the number of BGE Shares authorized for
issuance upon the exercise of the BGE Option), repurchase from PEPCO all or any
portion of the BGE Option, at the price set forth in subparagraph (i) below, or
(y) at any time prior to March 31, 1997 (provided that such date shall be
extended to March 31, 1998 under the circumstances where the date after which
either party may terminate the Merger Agreement pursuant to Section 9.1(b) of
the Merger Agreement has been extended to March 31, 1998), BGE (or any successor
entity thereof) shall, if permitted by applicable law, the BGE Articles and
BGE's Material Contracts, repurchase from PEPCO all or any portion of the BGE
Shares purchased by PEPCO pursuant to the BGE Option, at the price set forth in
subparagraph (ii) below:
(i) the difference between the "Market/Offer Price" (as defined
below) for shares of BGE Common Stock as of the date PEPCO gives notice of
its intent to exercise its rights under this Section 7 and the Exercise
Price, multiplied by the number of BGE Shares purchasable pursuant to the
BGE Option (or portion thereof with respect to which PEPCO is exercising
its rights under this Section 7), but only if the Market/Offer Price is
greater than the Exercise Price. For purposes of this subparagraph (i),
"MARKET/OFFER PRICE" shall mean, as of any date, the higher of (x) the
price per share offered as of such date pursuant to any tender or exchange
offer or other offer with respect to a Business Combination involving BGE
as the Target Party, which was made prior to such date and not terminated
or withdrawn as of such date and (y) the Fair Market Value of BGE Common
Stock as of such date.
(ii) the product of (x) the sum of (A) the Exercise Price paid
by PEPCO per BGE Share acquired pursuant to the BGE Option, and (B) the
difference between the "OFFER PRICE" (as defined below) and the Exercise
Price, but only if the Offer Price is greater than the Exercise Price, and
(y) the number of BGE Shares so to be repurchased pursuant to this Section
7. For purposes of this clause (ii), the "OFFER PRICE" shall be the
highest price per share offered pursuant to a tender or exchange offer or
other Business Combination offer involving BGE as the Target Party during
the Repurchase Period prior to the delivery by PEPCO of a notice of
repurchase.
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(b) REDELIVERY OF PEPCO SHARES. If PEPCO shall have previously
elected to purchase BGE Shares pursuant to the exercise of the BGE Option by the
issuance and delivery of PEPCO Shares, then BGE shall, if so requested by PEPCO,
in fulfillment of its obligation pursuant to Section 7(a)(y) (that is, with
respect to the Exercise Price only and without limitation to its obligation to
pay additional consideration under clause (B) of Section 7(a)(ii)(x)), redeliver
the certificates for such PEPCO Shares to PEPCO, free and clear of all liens,
claims, charges and encumbrances of any kind or nature whatsoever; PROVIDED,
HOWEVER, that if at any time less than all of the BGE Shares so purchased by
PEPCO pursuant to the BGE Option are to be repurchased by BGE pursuant to
Section 7(a)(y), then (i) BGE shall be obligated to redeliver to PEPCO the same
proportion of such PEPCO Shares as the number of BGE shares that BGE is then
obligated to repurchase bears to the number of BGE Shares acquired by PEPCO upon
exercise of the BGE Option and (ii) PEPCO shall issue to BGE new certificates
representing those PEPCO Shares which are not due to be redelivered to PEPCO
pursuant to this Section 7(b) to the extent that excess PEPCO Shares are
included in the certificates redelivered to PEPCO by BGE.
(c) PAYMENT AND REDELIVERY OF BGE OPTIONS OR SHARES. In the event
PEPCO exercises its rights under this Section 7, BGE shall, within ten business
days thereafter, pay the required amount to PEPCO in immediately available funds
and PEPCO shall surrender to BGE the BGE Option or the certificate or
certificates evidencing the BGE Shares purchased by PEPCO pursuant hereto, and
PEPCO shall warrant that it owns the BGE Option or such shares and that the BGE
Option or such shares are then free and clear of all liens, claims, damages,
charges and encumbrances of any kind or nature whatsoever.
(d) PEPCO "CALL". If PEPCO has elected to purchase BGE Shares
pursuant to the exercise of the BGE Option by the issuance and delivery of PEPCO
Shares, notwithstanding that PEPCO may no longer hold any such BGE Shares or
that PEPCO elects not to exercise its other rights under this Section 7, PEPCO
may require, at any time or from time to time prior to March 31, 1997 (provided
that such date shall be extended to March 31, 1998 under the circumstances where
the date after which either party may terminate the Merger Agreement pursuant to
Section 9.1(b) of the Merger Agreement has been extended to March 31, 1998), BGE
to sell to PEPCO any such PEPCO Shares at the price attributed to such PEPCO
Shares pursuant to Section 4 plus interest at the rate of 8.75% per annum on
such amount from the Closing Date relating to the exchange of such PEPCO Shares
pursuant to Section 4 to the Closing Date under this Section 7(d) less any
dividends on such PEPCO Shares paid during such period or declared and payable
to stockholders of record on a date during such period.
(e) REPURCHASE PRICE REDUCED AT PEPCO'S OPTION. In the event the
repurchase price specified in Section 7(a) would subject the purchase of the BGE
Option or the BGE Shares purchased by PEPCO pursuant to the BGE Option to a vote
of the shareholders of BGE pursuant to applicable law or the BGE Articles, then
PEPCO may, at its election, reduce the repurchase price to an amount which would
permit such repurchase without the necessity for such a shareholder vote.
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8. VOTING OF SHARES. Following the date hereof and prior to the
fifth anniversary of the date hereof (the "EXPIRATION DATE"), each party shall
vote any shares of capital stock of the other party acquired by such party
pursuant to this Agreement ("RESTRICTED SHARES"), including any PEPCO Shares
issued pursuant to Section 1(b), or otherwise beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT")), by such party on each matter submitted to a vote
of shareholders of such other party for and against such matter in the same
proportion as the vote of all other shareholders of such other party are voted
(whether by proxy or otherwise) for and against such matter.
9. RESTRICTIONS ON TRANSFER.
(a) RESTRICTIONS ON TRANSFER. Prior to the Expiration Date, neither
party shall, directly or indirectly, by operation of law or otherwise, sell,
assign, pledge, or otherwise dispose of or transfer any Restricted Shares
beneficially owned by such party, other than (i) pursuant to Section 7, or (ii)
in accordance with Section 9(b) or Section 10.
(b) PERMITTED SALES. Following the termination of the Merger
Agreement, a party shall be permitted to sell any Restricted Shares beneficially
owned by it if such sale is made pursuant to a tender or exchange offer that has
been approved or recommended, or otherwise determined to be fair to and in the
best interests of the shareholders of the other party, by a majority of the
members of the Board of Directors of such other party, which majority shall
include a majority of directors who were directors prior to the announcement of
such tender or exchange offer.
10. REGISTRATION RIGHTS.
(a) Following the termination of the Merger Agreement, either party
hereto that owns Restricted Shares (a "DESIGNATED HOLDER") may by written notice
(the "REGISTRATION NOTICE") to the other party (the "REGISTRANT") request the
Registrant to register under the Securities Act all or any part of the
Restricted Shares beneficially owned by such Designated Holder (the "REGISTRABLE
SECURITIES") pursuant to a bona fide firm commitment underwritten public
offering, in which the Designated Holder and the underwriters shall effect as
wide a distribution of such Registrable Securities as is reasonably practicable
and shall use their best efforts to prevent any person (including any Group (as
used in Rule 13d-5 under the Exchange Act)) and its affiliates from purchasing
through such offering Restricted Shares representing more than 1% of the
outstanding shares of common stock of the Registrant on a fully diluted basis (a
"PERMITTED OFFERING").
(b) The Registration Notice shall include a certificate executed by
the Designated Holder and its proposed managing underwriter, which underwriter
shall be an investment banking firm of nationally recognized standing (the
"MANAGER"), stating that
(i) they have a good faith intention to commence promptly a
Permitted Offering, and
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(ii) the Manager in good faith believes that, based on the then-
prevailing market conditions, it will be able to sell the Registrable
Securities at a per share price equal to at least 80% of the then Fair
Market Value of such shares.
(c) The Registrant (and/or any person designated by the Registrant)
shall thereupon have the option exercisable by written notice delivered to the
Designated Holder within ten business days after the receipt of the Registration
Notice, irrevocably to agree to purchase all or any part of the Registrable
Securities proposed to be so sold for cash at a price (the "OPTION PRICE") equal
to the product of (i) the number of Registrable Securities to be so purchased by
the Registrant and (ii) the then Fair Market Value of such shares.
(d) Any purchase of Registrable Securities by the Registrant (or its
designee) under Section 10(c) shall take place at a closing to be held at the
principal executive offices of the Registrant or at the offices of its counsel
at any reasonable date and time designated by the Registrant and/or such
designee in such notice within twenty business days after delivery of such
notice, and any payment for the shares to be so purchased shall be made by
delivery at the time of such closing in immediately available funds.
(e) If the Registrant does not elect to exercise its option pursuant
to this Section 10 with respect to all Registrable Securities, it shall use its
best efforts to effect, as promptly as practicable, the registration under the
Securities Act of the unpurchased Registrable Securities proposed to be so sold;
PROVIDED, HOWEVER, that
(i) neither party shall be entitled to more than an aggregate of
two effective registration statements hereunder, and
(ii) the Registrant will not be required to file any such
registration statement during any period of time (not to exceed 40 days
after such request in the case of clause (A) below or 90 days in the case
of clauses (B) and (C) below) when
(A) the Registrant is in possession of material non-public information
which it reasonably believes would be detrimental to be disclosed at such time
and, in the opinion of counsel to the Registrant, such information would have to
be disclosed if a registration statement were filed at that time;
(B) the Registrant is required under the Securities Act to include
audited financial statements for any period in such registration statement and
such financial statements are not yet available for inclusion in such
registration statement; or
(C) the Registrant determines, in its reasonable judgment, that such
registration would interfere with any financing, acquisition or other material
transaction involving the Registrant or any of its affiliates.
(f) The Registrant shall use its reasonable best efforts to cause
any Registrable Securities registered pursuant to this Section 10 to be
qualified for sale under the securities or Blue Sky laws of such jurisdictions
as the Designated Holder may reasonably request and shall continue such
registration or qualification in effect in such jurisdiction;
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<PAGE>
PROVIDED, HOWEVER, that the Registrant shall not be required to qualify to do
business in, or consent to general service of process in, any jurisdiction by
reason of this provision.
(g) The registration rights set forth in this Section 10 are subject
to the condition that the Designated Holder shall provide the Registrant with
such information with respect to such holder's Registrable Securities, the plans
for the distribution thereof, and such other information with respect to such
holder as, in the reasonable judgment of counsel for the Registrant, is
necessary to enable the Registrant to include in such registration statement all
material facts required to be disclosed with respect to a registration
thereunder.
(h) A registration effected under this Section 10 shall be effected
at the Registrant's expense, except for underwriting discounts and commissions
and the fees and the expenses of counsel to the Designated Holder, and the
Registrant shall provide to the underwriters such documentation (including
certificates, opinions of counsel and "comfort" letters from auditors) as is
customary in connection with underwritten public offerings as such underwriters
may reasonably require.
(i) In connection with any registration effected under this Section
10, the parties agree
(i) to indemnify each other and the underwriters in the
customary manner,
(ii) to enter into an underwriting agreement in form and
substance customary for transactions of such type with the Manager and the
other underwriters participating in such offering, and
(iii) to take all further actions which shall be reasonably
necessary to effect such registration and sale (including if the Manager
deems it necessary, participating in road-show presentations).
(j) The Registrant shall be entitled to include (at its expense)
additional shares of its common stock in a registration effected pursuant to
this Section 10 only if and to the extent the Manager determines that such
inclusion will not adversely affect the prospects for success of such offering.
11. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. Without limitation to
any restriction on BGE contained in this Agreement or in the Merger Agreement,
in the event of any change in BGE Common Stock by reason of stock dividends,
splitups, mergers (other than the Merger), recapitalizations, combinations,
exchange of shares or the like, the type and number of shares or securities
subject to the BGE Option, and the purchase price per share provided in Section
1, shall be adjusted appropriately to restore to PEPCO its rights hereunder,
including the right to purchase from BGE (or its successors) shares of BGE
Common Stock representing 19.9% of the outstanding BGE Common Stock for the
aggregate Exercise Price calculated as of the date of this Agreement as provided
in Section 1.
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12. RESTRICTIVE LEGENDS. Each certificate representing shares of BGE
Common Stock issued to PEPCO hereunder, and PEPCO Shares, if any, delivered to
BGE at a Closing, shall include a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES OR BLUE SKY LAWS, AND MAY BE REOFFERED OR SOLD ONLY IF SO
REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER AS SET FORTH IN THE BGE STOCK OPTION AGREEMENT, DATED AS OF
SEPTEMBER 22, 1995, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER
UPON REQUEST.
It is understood and agreed that:
(i) the reference to the resale restrictions of the Securities
Act and state securities or Blue Sky laws in the above legend shall be
removed by delivery of substitute certificate(s) without such reference if
PEPCO or BGE, as the case may be, shall have delivered to the other party a
copy of a letter from the staff of the SEC, or an opinion of counsel, in
form and substance satisfactory to the other party, to the effect that such
legend is not required for purposes of the Securities Act or such laws;
(ii) the reference to the provisions to this Agreement in the
above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in
compliance with the provisions of this Agreement and under circumstances
that do not require the retention of such reference; and
(iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied.
In addition, such certificates shall bear any other legend as may be required by
law. Certificates representing shares sold in a registered public offering
pursuant to Section 10 shall not be required to bear the legend set forth in
this Section 12.
13. BINDING EFFECT; NO ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. (a)
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
(b) Except as expressly provided for in this Agreement, neither this
Agreement nor the rights or obligations of either party hereto are assignable,
except by operation of law, or with the written consent of the other party.
(c) Nothing contained in this Agreement, express or implied, is
intended to confer upon any person other than the parties hereto and their
respective permitted assigns any rights or remedies of any nature whatsoever by
reason of this Agreement.
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<PAGE>
(d) Any Restricted Shares sold by a party in compliance with the
provisions of Section 10 shall, upon consummation of such sale, be free of the
restrictions imposed with respect to such shares by this Agreement, unless and
until such party shall repurchase or otherwise become the beneficial owner of
such shares, and any transferee of such shares shall not be entitled to the
registration rights of such party.
14. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
harm would occur in the event that any of the provisions of this Agreement were
not performed in accordance with their specified terms or were otherwise
breached. It is accordingly agreed that the parties hereto shall be entitled to
an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or equity.
15. VALIDITY. (a) The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
the other provisions of this Agreement, which shall remain in full force and
effect.
(b) In the event any court or other competent authority holds any
provisions of this Agreement to be null, void or unenforceable, the parties
hereto shall negotiate in good faith the execution and delivery of an amendment
to this Agreement in order, as nearly as possible, to effectuate, to the extent
permitted by law, the intent of the parties hereto with respect to such
provision and the economic effects thereof.
(c) If for any reason any such court or regulatory agency determines
that PEPCO is not permitted to acquire, or BGE is not permitted to repurchase
pursuant to Section 7, the full number of shares of BGE Common Stock provided in
Section 1 hereof (as the same may be adjusted), it is the express intention of
BGE to allow PEPCO to acquire or to require BGE to repurchase such lesser number
of shares as may be permissible without any amendment or modification hereof.
(d) Each party agrees that, should any court or other competent
authority hold any provision of this Agreement or part hereof to be null, void
or unenforceable, or order any party to take any action inconsistent herewith,
or not take any action required herein, the other party shall not be entitled to
specific performance of such provision or part hereof or to any other remedy,
including but not limited to money damages, for breach hereof or of any other
provision of this Agreement or part hereof as the result of such holding or
order.
16. NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given if (a) delivered personally, or (b) if sent
by overnight courier service (receipt confirmed in writing), or (c) if delivered
by facsimile transmission with receipt confirmed), or (d) five days after being
mailed by registered or certified mail (return receipt requested) to the parties
in each case to the following addresses (or at such other address for a party as
shall be specified by like notice):
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<PAGE>
A. If to PEPCO, to:
By Mail
and Hand: 1900 Pennsylvania Avenue, NW
Washington, D.C. 20063
Attention: Dennis R. Wraase
Senior Vice President-
Finance and Accounting
Fax: (202) 331-6314
William T. Torgerson
Senior Vice President-
Law & Governmental Relations,
General Counsel and Secretary
Fax: (202) 331-6314
with a copy to:
LeBoeuf, Lamb, Greene, & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
Attention: Douglas W. Hawes, Esq.
Fax: (212) 424-5800
and a copy to:
Covington & Burling
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20044
Attention: George B. Reid, Jr
Fax: (202) 662-6291
B. If to BGE, to:
By Mail: P.O. Box 1475
Baltimore, MD 21203
By Hand: Liberty and Lexington Streets
Baltimore, MD 21201
Attention: Charles W. Shivery
Vice President and CFO
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<PAGE>
Fax: (410) 234-5690
David A. Brune, Esq.
General Counsel
Fax: (410) 234-5513
with a copy to:
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004-1490
Attention: Stephen R. Rusmisel, Esq.
Fax: (212) 858-1500
17. GOVERNING LAW; CHOICE OF FORUM. This Agreement shall be governed
by and construed in accordance with the laws of the State of Maryland applicable
to agreements made and to be performed entirely within such State and without
regard to its choice of law principles.
18. INTERPRETATION.
(a) When reference is made in this Agreement to Articles, Sections or
Exhibits, such reference shall be to an Article, Section or Exhibit of this
Agreement, as the case may be, unless otherwise indicated.
(b) The table of contents and headings contained in this Agreement
are for reference purposes and shall not affect in any way the meaning or
interpretation of the Agreement.
(c) Whenever the words "include," "includes," or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation."
(d) Whenever "or" is used in this Agreement it shall be construed in
the nonexclusive sense.
19. COUNTERPARTS; EFFECT. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
20. AMENDMENTS; WAIVER. This Agreement may be amended by the parties
hereto and the terms and conditions hereof may be waived only by an instrument
in writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
21. EXTENSION OF TIME PERIODS. The time periods for exercise of
certain rights under Sections 2, 6 and 7 shall be extended:
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(a) to the extent necessary to obtain all regulatory approvals for
the exercise of such rights, and for the expiration of all statutory waiting
periods; and
(b) to the extent necessary to avoid any liability under Section
16(b) of the Exchange Act by reason of such exercise.
THIS SPACE INTENTIONALLY LEFT BLANK.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the date first
above written.
POTOMAC ELECTRIC POWER COMPANY
By:________________________
Name:
Title:
BALTIMORE GAS AND ELECTRIC COMPANY
By:________________________
Name:
Title:
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Exhibit B2
PEPCO STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT, dated as of September 22, 1995, (the "AGREEMENT")
by and between Baltimore Gas and Electric Company, a corporation formed under
the laws of the State of Maryland ("BGE") and Potomac Electric Power Company, a
corporation formed under the laws of the District of Columbia and the
Commonwealth of Virginia ("PEPCO"),
W I T N E S S E T H T H A T:
WHEREAS, concurrently with the execution and delivery of this
Agreement, PEPCO, BGE and Constellation Energy Corporation, a corporation
formed under the laws of the State of Maryland ("COMPANY"), are entering into
an Agreement and Plan of Merger, dated as of September 22, 1995, (the "MERGER
AGREEMENT"), which provides, INTER ALIA, upon the terms and subject to the
conditions thereof, for the merger of PEPCO and BGE with and into Company
(the "MERGER");
WHEREAS, in connection with the execution of the Merger Agreement,
PEPCO and BGE are entering into a certain stock option agreement dated as of the
date hereof whereby BGE grants to PEPCO an option with respect to certain shares
of BGE's common stock on the terms and subject to the conditions set forth
therein (the "BGE STOCK OPTION AGREEMENT"); and
WHEREAS, as a condition to BGE's willingness to enter into the Merger
Agreement, BGE has requested that PEPCO agree, and PEPCO has so agreed, to grant
to BGE an option with respect to certain shares of PEPCO's common stock, on the
terms and subject to the conditions set forth herein;
NOW, THEREFORE, to induce BGE to enter into the Merger Agreement and
the BGE Stock Option Agreement, and in consideration of the representations,
warranties, covenants and agreements contained herein, in the Merger Agreement
and in the BGE Stock Option Agreement, the parties hereto, intending to be
legally bound, hereby agree as follows:
(f) GRANT OF OPTION.
(a) PEPCO hereby grants BGE an irrevocable option (the "PEPCO
OPTION") to purchase up to 23,579,900 shares, subject to adjustment as provided
in Section 11 (the "PEPCO SHARES"), of common stock, par value $1.00 per share,
of PEPCO (the "PEPCO COMMON STOCK") (being 19.9% of the number of shares of
PEPCO Common Stock outstanding as of August 31, 1995) in the manner set forth
below, at a price (the "EXERCISE PRICE") per PEPCO Share of $21.225 (which is
equal to the Fair Market Value (as defined below) of a PEPCO Share as of the
date hereof).
<PAGE>
(b) The Exercise Price shall be payable, at BGE's option, as follows:
(i) in cash, or
(ii) subject to PEPCO's having obtained the approvals of any
Governmental Authority required for PEPCO to acquire the BGE Shares (as
defined below) from BGE, in shares of common stock, without par value, of
BGE ("BGE SHARES"),
in either case in accordance with Section 4 hereof.
(c) Notwithstanding the foregoing, in no event shall the number of
PEPCO Shares for which the PEPCO Option is exercisable exceed 19.9% of the
number of issued and outstanding shares of PEPCO Common Stock.
(d) As used herein, the "FAIR MARKET VALUE" of any share shall be the
average of the daily closing sales price for such share on the New York Stock
Exchange (the "NYSE") during the ten NYSE trading days prior to the fifth NYSE
trading day preceding the date such Fair Market Value is to be determined.
(e) Capitalized terms used herein but not defined herein shall have
the meanings set forth in the Merger Agreement.
(g) EXERCISE OF OPTION.
(a) The PEPCO Option may be exercised by BGE, in whole or in part, at
any time or from time to time after the Merger Agreement becomes terminable by
BGE under circumstances which could entitle BGE to a payment under Section
9.3(b) of the Merger Agreement, regardless of whether the Merger Agreement is
actually terminated or whether there occurs a closing of any Business
Combination involving a Target Party or a closing by which a Target Party
becomes a subsidiary (any such event by which the Merger Agreement becomes so
terminable by BGE being referred to herein as a "TRIGGER EVENT").
(b) (i) PEPCO shall notify BGE promptly in writing of the occurrence
of any Trigger Event, it being understood that the giving of such notice by
PEPCO shall not be a condition to the right of BGE to exercise the PEPCO
Option.
(ii) In the event BGE wishes to exercise the PEPCO Option, BGE
shall deliver to PEPCO written notice (an "EXERCISE NOTICE") specifying the
total number of PEPCO Shares it wishes to purchase.
(iii) Upon the giving by BGE to PEPCO of the Exercise Notice and
the tender of the applicable aggregate Exercise Price, BGE, to the extent
permitted by law and PEPCO's organizational documents, and provided that
the conditions to PEPCO's obligation to issue the PEPCO Shares to BGE
hereunder set forth in Section 3 have been satisfied or waived, shall be
deemed to be the holder of record of the PEPCO Shares issuable upon such
exercise, notwithstanding that the stock transfer
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books of PEPCO shall then be closed or that certificates representing such
PEPCO Shares shall not then be actually delivered to BGE.
(iv) Each closing of a purchase of PEPCO Shares (a "CLOSING")
shall occur at a place, on a date, and at a time designated by BGE in an
Exercise Notice delivered at least two business days prior to the date of
the Closing.
(c) The PEPCO Option shall terminate upon the earliest to occur of:
(i) the Effective Time of the Merger;
(ii) the termination of the Merger Agreement pursuant to Section
9.1 thereof other than under circumstances which could entitle BGE to a
payment under Section 9.3(b) of the Merger Agreement; and
(iii) 180 days following any termination of the Merger Agreement
upon or during the continuance of a Trigger Event (or if, at the expiration
of such 180 day period, the PEPCO Option cannot be exercised by reason of
any applicable judgment, decree, order, law or regulation, ten business
days after such impediment to exercise shall have been removed or shall
have become final and not subject to appeal, but in no event under this
clause (iii) later than March 31, 1998).
(d) Notwithstanding the foregoing, the PEPCO Option may not be
exercised if BGE is in material breach of any of its representations or
warranties, or in material breach of any of its covenants or agreements,
contained in this Agreement or in the Merger Agreement.
(h) CONDITIONS TO CLOSING. The obligation of PEPCO to issue the
PEPCO Shares to BGE hereunder is subject to the conditions that
(a) all waiting periods, if any, under the HSR Act applicable to the
issuance of the PEPCO Shares hereunder shall have expired or have been
terminated;
(b) the PEPCO Shares, and any BGE Shares which are issued in payment
of the Exercise Price, shall have been approved for listing on the NYSE upon
official notice of issuance;
(c) all consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, any federal, state or local
administrative agency or commission or other federal, state or local
Governmental Authority, if any, required in connection with the issuance of the
PEPCO Shares hereunder shall have been obtained or made, including, without
limitation, the approval of the SEC under Section 10 of the 1935 Act, the
approval of the D.C. Commission of the issuance of the PEPCO Shares by PEPCO
and, if applicable, the acquisition of PEPCO Shares by BGE, and the approval of
the Maryland Commission of the acquisition of the PEPCO Shares by BGE and, if
applicable, the acquisition by PEPCO of the BGE Shares constituting the Exercise
Price hereunder; and
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<PAGE>
(d) no preliminary or permanent injunction or other order by any
court of competent jurisdiction prohibiting or otherwise restraining such
issuance shall be in effect.
The condition set forth in paragraph (b) above may be waived by PEPCO, in the
case of BGE Shares, and by BGE, in the case of PEPCO Shares, in the sole
discretion of the waiving party.
(i) CLOSING. At any Closing,
(a) PEPCO shall deliver to BGE or its designee a single certificate
in definitive form representing the number of PEPCO Shares designated by BGE in
its Exercise Notice, such certificate to be registered in the name of BGE and to
bear the legend set forth in Section 12; and
(b) BGE shall deliver to PEPCO the aggregate price for the PEPCO
Shares so designated and being purchased by
(i) wire transfer of immediately available funds or certified
check or bank check, or
(ii) subject to the condition in Section 1(b)(ii), a certificate
or certificates representing the number of BGE Shares being issued by BGE
in consideration thereof, determined in accordance with Section 4(c).
(c) In the event that BGE issues BGE Shares to PEPCO in consideration
of PEPCO Shares pursuant to Section 4(b)(ii), the number of BGE Shares to be so
issued shall be equal to the quotient obtained by dividing:
(i) the product of (x) the number of PEPCO Shares with respect
to which the PEPCO Option is being exercised and (y) the Exercise Price, by
(ii) the Fair Market Value of the BGE Shares as of the date
immediately preceding the date the Exercise Notice is delivered to PEPCO.
(d) PEPCO shall pay all expenses, and any and all United States
Federal, state and local taxes, and other charges that may be payable in
connection with the preparation, issue and delivery of stock certificates under
this Section 4.
(j) REPRESENTATIONS AND WARRANTIES OF PEPCO. PEPCO represents and
warrants to BGE that
(a) Subject to any required regulatory approvals, PEPCO has the
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder, subject in the case of the repurchase of the PEPCO Shares
pursuant to Section 7(a) to applicable law and the provisions of PEPCO's
Articles of Incorporation, as amended (the "PEPCO Articles");
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(b) this Agreement has been duly and validly executed and delivered
by PEPCO, and, assuming the due authorization, execution and delivery hereof by
BGE, constitutes a valid and binding obligation of PEPCO, enforceable against
PEPCO in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization or other similar
laws affecting the enforcement of creditors' rights generally, and except that
the availability of equitable remedies, including specific performance, may be
subject to the discretion of any court before which any proceeding therefor may
be brought;
(c) PEPCO has taken all necessary corporate action to authorize and
reserve for issuance and to permit it to issue, upon exercise of the PEPCO
Option, and at all times from the date hereof through the expiration of the
PEPCO Option will have reserved, 23,579,900 authorized and unissued PEPCO
Shares, such amount being subject to adjustment as provided in Section 11, all
of which, upon their issuance and delivery in accordance with the terms of this
Agreement, will be validly issued, fully paid and nonassessable;
(d) upon delivery of the PEPCO Shares to BGE upon the exercise of the
PEPCO Option, BGE will acquire the PEPCO Shares free and clear of all claims,
liens, charges, encumbrances and security interests of any nature whatsoever;
(e) except as described in Section 4.4(b) of the Merger Agreement,
the execution and delivery of this Agreement by PEPCO does not, and, subject to
compliance with applicable law and the PEPCO Articles with respect to the
repurchase of the PEPCO Shares pursuant to Section 7(a), the consummation by
PEPCO of the transactions contemplated hereby will not, violate, conflict with,
or result in a breach of any provision of, or constitute a default (with or
without notice or a lapse of time, or both) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination, cancellation, or acceleration of any obligation or the loss of a
material benefit under, or the creation of a lien, pledge, security interest or
other encumbrance on assets (any such conflict, violation, default, right of
termination, cancellation or acceleration, loss or creation, hereinafter a
"VIOLATION") of PEPCO or any of its subsidiaries, pursuant to
(i) any provision of the PEPCO Articles or the Bylaws of PEPCO,
(ii) any provisions of any material loan or credit agreement,
note, mortgage, indenture, lease, PEPCO benefit plan or other agreement,
obligation, instrument, permit, concession, franchise, license (any of the
foregoing in effect on the date hereof being referred to as a "MATERIAL
CONTRACT"), or
(iii) any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to PEPCO or its properties or assets,
which Violation, in the case of each of clauses (ii) and (iii), could reasonably
be expected to have a PEPCO Material Adverse Effect (except that no
representation or warranty is given concerning any Violation of a Material
Contract with respect to the repurchase of PEPCO Shares pursuant to Section
7(a));
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(f) except as described in Section 4.4(c) of the Merger Agreement or
Section 3 hereof, the execution and delivery of this Agreement by PEPCO does
not, and the performance of this Agreement by PEPCO will not, require any
consent, approval, authorization or permit or filing with or notification to,
any Governmental Authority;
(g) none of PEPCO, any of its affiliates or anyone acting on its or
their behalf, has issued, sold or offered any security of PEPCO to any person
under circumstances that would cause the issuance and sale of PEPCO Shares, as
contemplated by this Agreement, to be subject to the registration requirements
of the Securities Act as in effect on the date hereof, and, assuming the
representations and warranties of BGE contained in Section 6(g) are true and
correct, the issuance, sale and delivery of the PEPCO Shares hereunder would be
exempt from the registration and prospectus delivery requirements of the
Securities Act, as in effect on the date hereof (and PEPCO shall not take any
action which would cause the issuance, sale, and delivery of PEPCO Shares
hereunder not to be exempt from such requirements); and
(h) any BGE Shares acquired pursuant to this Agreement will be
acquired for PEPCO's own account, for investment purposes only, and will not be
acquired by PEPCO with a view to the public distribution thereof in violation of
any applicable provision of the Securities Act.
6. REPRESENTATIONS AND WARRANTIES OF BGE. BGE represents and
warrants to PEPCO that
(a) BGE has the corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder;
(b) this Agreement has been duly and validly executed and delivered
by BGE and, assuming the due authorization, execution and delivery hereof,
constitutes a valid and binding obligation of BGE, enforceable against BGE in
accordance with their respective terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, or other similar laws affecting the
enforcement of creditors' rights generally, and except that the availability of
equitable remedies, including specific performance, may be subject to the
discretion of any court before which any proceeding may be brought;
(c) prior to any delivery of BGE Shares in consideration of the
purchase of PEPCO Shares pursuant hereto, BGE will have taken all necessary
corporate action to authorize for issuance and to permit it to issue such BGE
Shares, all of which, upon their issuance and delivery in accordance with the
terms of this Agreement, will be validly issued, fully paid and nonassessable;
(d) upon any delivery of such BGE Shares to PEPCO in consideration of
the purchase of PEPCO Shares pursuant hereto, PEPCO will acquire the BGE Shares
free and clear of all claims, liens, charges, encumbrances and security
interests of an nature whatsoever;
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(e) except as described in Section 5.4(b) of the Merger Agreement,
the execution and delivery of this Agreement by BGE does not, and the
consummation by BGE of the transactions contemplated hereby will not, violate,
conflict with, or result in the breach of any provision of, or constitute a
default (with or without notice or a lapse of time, or both) under, or result in
any Violation by BGE or any of its subsidiaries, pursuant to
(i) any provision of the Articles of Incorporation or Bylaws of
BGE,
(ii) any provisions of any loan or credit agreement, note,
mortgage, indenture, lease, BGE benefit plan or other agreement,
obligation, instrument, permit, concession, franchise, license, or
(iii) any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to BGE or its properties or assets,
which Violation, in the case of each of clauses (ii) or (iii), would have a BGE
Material Adverse Effect;
(f) except as described in Section 5.4(c) of the Merger Agreement or
Section 3 hereof, the execution and delivery of this Agreement by BGE does not,
and the consummation by BGE of the transactions contemplated hereby will not,
require any consent, approvals authorization or permit of, or filing with or
notification to, any Governmental Authority; and
(g) any PEPCO Shares acquired upon exercise of the PEPCO Option will
be acquired for BGE's own account, for investment purposes only and will not be,
and the PEPCO Option is not being, acquired by BGE with a view to the public
distribution thereof, in violation of any applicable provision of the Securities
Act.
7. CERTAIN REPURCHASES.
(a) BGE "PUT". At the request of BGE by written notice (x) at any
time during which the PEPCO Option is exercisable pursuant to Section 2 (the
"REPURCHASE PERIOD"), PEPCO (or any successor entity thereof) shall, if
permitted by applicable law, the PEPCO Articles and PEPCO's Material Contracts
(but notwithstanding any insufficiency in the number of PEPCO Shares authorized
for issuance upon the exercise of the PEPCO Option), repurchase from BGE all or
any portion of the PEPCO Option, at the price set forth in subparagraph (i)
below, or, (y) at any time prior to March 31, 1997 (provided that such date
shall be extended to March 31, 1998 under the circumstances where the date after
which either party may terminate the Merger Agreement pursuant to Section 9.1(b)
of the Merger Agreement has been extended to March 31, 1998), PEPCO (or any
successor entity thereof) shall, if permitted by applicable law, the PEPCO
Articles and PEPCO's Material Contracts, repurchase from BGE all or any portion
of the PEPCO Shares purchased by BGE pursuant to the PEPCO Option, at the price
set forth in subparagraph (ii) below:
(i) the difference between the "Market/Offer Price" (as defined
below) for shares of PEPCO Common Stock as of the date BGE gives notice of
its intent to
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exercise its rights under this Section 7 and the Exercise Price, multiplied
by the number of PEPCO Shares purchasable pursuant to the PEPCO Option (or
portion thereof with respect to which BGE is exercising its rights under
this Section 7), but only if the Market/Offer Price is greater than the
Exercise Price. For purposes of this subparagraph (i), "MARKET/OFFER
PRICE" shall mean, as of any date, the higher of (x) the price per share
offered as of such date pursuant to any tender or exchange offer or other
offer with respect to a Business Combination involving PEPCO as the Target
Party which was made prior to such date and not terminated or withdrawn as
of such date and (y) the Fair Market Value of PEPCO Common Stock as of such
date.
(ii) the product of (x) the sum of (A) the Exercise Price paid
by BGE per PEPCO Share acquired pursuant to the PEPCO Option, and (B) the
difference between the "Offer Price" (as defined below) and the Exercise
Price, but only if the Offer Price is greater than the Exercise Price, and
(y) the number of PEPCO Shares so to be repurchased pursuant to this
Section 7. For purposes of this clause (ii), the "OFFER PRICE" shall be
the highest price per share offered pursuant to a tender or exchange offer
or other Business Combination offer involving PEPCO as the Target Party
during the Repurchase Period prior to the delivery by BGE of a notice of
repurchase.
(b) REDELIVERY OF BGE SHARES. If BGE shall have previously elected
to purchase PEPCO Shares pursuant to the exercise of the PEPCO Option by the
issuance and delivery of BGE Shares, then PEPCO shall, if so requested by BGE,
in fulfillment of its obligation pursuant to Section 7(a)(y) (that is, with
respect to the Exercise Price only and without limitation to its obligation to
pay additional consideration under clause (B) of Section 7(a)(ii)(x)), redeliver
the certificates for such BGE Shares to BGE, free and clear of all liens,
claims, charges and encumbrances of any kind or nature whatsoever; PROVIDED,
HOWEVER, that if at any time less than all of the PEPCO Shares so purchased by
BGE pursuant to the PEPCO Option are to be repurchased by PEPCO pursuant to
Section 7(a)(y), then (i) PEPCO shall be obligated to redeliver to BGE the same
proportion of such BGE Shares as the number of PEPCO Shares that PEPCO is then
obligated to repurchase bears to the number of PEPCO Shares acquired by BGE upon
exercise of the PEPCO Option and (ii) BGE shall issue to PEPCO new certificates
representing those BGE Shares which are not due to be redelivered to BGE
pursuant to this Section 7(b) to the extent that excess BGE Shares are included
in the certificates redelivered to BGE by PEPCO.
(c) PAYMENT AND REDELIVERY OF PEPCO OPTIONS OR SHARES. In the event
BGE exercises its rights under this Section 7, PEPCO shall, within ten business
days thereafter, pay the required amount to BGE in immediately available funds
and BGE shall surrender to PEPCO the PEPCO Option or the certificate or
certificates evidencing the PEPCO Shares purchased by BGE pursuant hereto, and
BGE shall warrant that it owns the PEPCO Option or such shares and that the
PEPCO Option or such shares are then free and clear of all liens, claims,
damages, charges and encumbrances of any kind or nature whatsoever.
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<PAGE>
(d) BGE "CALL". If BGE has elected to purchase PEPCO Shares pursuant
to the exercise of the PEPCO Option by the issuance and delivery of BGE Shares,
notwithstanding that BGE may no longer hold any such PEPCO Shares or that BGE
elects not to exercise its other rights under this Section 7, BGE may require,
at any time or from time to time prior to March 31, 1997 (provided that such
date shall be extended to March 31, 1998 under the circumstances where the date
after which either party may terminate the Merger Agreement pursuant to Section
9.1(b) of the Merger Agreement has been extended to March 31, 1998), PEPCO to
sell to BGE any such BGE Shares at the price attributed to such BGE Shares
pursuant to Section 4 plus interest at the rate of 8.75% per annum on such
amount from the Closing Date relating to the exchange of such BGE Shares
pursuant to Section 4 to the Closing Date under this Section 7(d) less any
dividends on such BGE Shares paid during such period or declared and payable to
stockholders of record on a date during such period.
(e) REPURCHASE PRICE REDUCED AT BGE'S OPTION. In the event the
repurchase price specified in Section 7(a) would subject the purchase of the
PEPCO Option or the PEPCO Shares purchased by BGE pursuant to the PEPCO Option
to a vote of the shareholders of PEPCO pursuant to applicable law or the PEPCO
Articles, then BGE may, at its election, reduce the repurchase price to an
amount which would permit such repurchase without the necessity for such a
shareholder vote.
8. VOTING OF SHARES. Following the date hereof and prior to the
fifth anniversary of the date hereof (the "EXPIRATION DATE"), each party shall
vote any shares of capital stock of the other party acquired by such party
pursuant to this Agreement ("RESTRICTED SHARES"), including any BGE Shares
issued pursuant to Section 1(b), or otherwise beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT")), by such party on each matter submitted to a vote
of shareholders of such other party for and against such matter in the same
proportion as the vote of all other shareholders of such other party are voted
(whether by proxy or otherwise) for and against such matter.
9. RESTRICTIONS ON TRANSFER.
(a) RESTRICTIONS ON TRANSFER. Prior to the Expiration Date, neither
party shall, directly or indirectly, by operation of law or otherwise, sell,
assign, pledge, or otherwise dispose of or transfer any Restricted Shares
beneficially owned by such party, other than (i) pursuant to Section 7, or (ii)
in accordance with Section 9(b) or Section 10.
(b) PERMITTED SALES. Following the termination of the Merger
Agreement, a party shall be permitted to sell any Restricted Shares beneficially
owned by it if such sale is made pursuant to a tender or exchange offer that has
been approved or recommended, or otherwise determined to be fair to and in the
best interests of the shareholders of the other party, by a majority of the
members of the Board of Directors of such other party, which majority shall
include a majority of directors who were directors prior to the announcement of
such tender or exchange offer.
10. REGISTRATION RIGHTS.
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(a) Following the termination of the Merger Agreement, either party
hereto that owns Restricted Shares (a "DESIGNATED HOLDER") may by written notice
(the "REGISTRATION NOTICE") to the other party (the "REGISTRANT") request the
Registrant to register under the Securities Act all or any part of the
Restricted Shares beneficially owned by such Designated Holder (the "REGISTRABLE
SECURITIES") pursuant to a bona fide firm commitment underwritten public
offering, in which the Designated Holder and the underwriters shall effect as
wide a distribution of such Registrable Securities as is reasonably practicable
and shall use their best efforts to prevent any person (including any Group (as
used in Rule 13d-5 under the Exchange Act)) and its affiliates from purchasing
through such offering Restricted Shares representing more than 1% of the
outstanding shares of common stock of the Registrant on a fully diluted basis (a
"PERMITTED OFFERING").
(b) The Registration Notice shall include a certificate executed by
the Designated Holder and its proposed managing underwriter, which underwriter
shall be an investment banking firm of nationally recognized standing (the
"MANAGER"), stating that
(i) they have a good faith intention to commence promptly a
Permitted Offering, and
(ii) the Manager in good faith believes that, based on the then-
prevailing market conditions, it will be able to sell the Registrable
Securities at a per share price equal to at least 80% of the then Fair
Market Value of such shares.
(c) The Registrant (and/or any person designated by the Registrant)
shall thereupon have the option exercisable by written notice delivered to the
Designated Holder within ten business days after the receipt of the Registration
Notice, irrevocably to agree to purchase all or any part of the Registrable
Securities proposed to be so sold for cash at a price (the "OPTION PRICE") equal
to the product of (i) the number of Registrable Securities to be so purchased by
the Registrant and (ii) the then Fair Market Value of such shares.
(d) Any purchase of Registrable Securities by the Registrant (or its
designee) under Section 10(c) shall take place at a closing to be held at the
principal executive offices of the Registrant or at the offices of its counsel
at any reasonable date and time designated by the Registrant and/or such
designee in such notice within twenty business days after delivery of such
notice, and any payment for the shares to be so purchased shall be made by
delivery at the time of such closing in immediately available funds.
(e) If the Registrant does not elect to exercise its option pursuant
to this Section 10 with respect to all Registrable Securities, it shall use its
best efforts to effect, as promptly as practicable, the registration under the
Securities Act of the unpurchased Registrable Securities proposed to be so sold;
PROVIDED, HOWEVER, that
(i) neither party shall be entitled to more than an aggregate of
two effective registration statements hereunder, and
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(ii) the Registrant will not be required to file any such
registration statement during any period of time (not to exceed 40 days
after such request in the case of clause (A) below or 90 days in the case
of clauses (B) and (C) below) when
(A) the Registrant is in possession of material non-public information
which it reasonably believes would be detrimental to be disclosed at such time
and, in the opinion of counsel to the Registrant, such information would have to
be disclosed if a registration statement were filed at that time;
(B) the Registrant is required under the Securities Act to include
audited financial statements for any period in such registration statement and
such financial statements are not yet available for inclusion in such
registration statement; or
(C) the Registrant determines, in its reasonable judgment, that such
registration would interfere with any financing, acquisition or other material
transaction involving the Registrant or any of its affiliates.
(f) The Registrant shall use its reasonable best efforts to cause
any Registrable Securities registered pursuant to this Section 10 to be
qualified for sale under the securities or Blue Sky laws of such jurisdictions
as the Designated Holder may reasonably request and shall continue such
registration or qualification in effect in such jurisdiction; PROVIDED, HOWEVER,
that the Registrant shall not be required to qualify to do business in, or
consent to general service of process in, any jurisdiction by reason of this
provision.
(g) The registration rights set forth in this Section 10 are subject
to the condition that the Designated Holder shall provide the Registrant with
such information with respect to such holder's Registrable Securities, the plans
for the distribution thereof, and such other information with respect to such
holder as, in the reasonable judgment of counsel for the Registrant, is
necessary to enable the Registrant to include in such registration statement all
material facts required to be disclosed with respect to a registration
thereunder.
(h) A registration effected under this Section 10 shall be effected
at the Registrant's expense, except for underwriting discounts and commissions
and the fees and the expenses of counsel to the Designated Holder, and the
Registrant shall provide to the underwriters such documentation (including
certificates, opinions of counsel and "comfort" letters from auditors) as is
customary in connection with underwritten public offerings as such underwriters
may reasonably require.
(i) In connection with any registration effected under this Section
10, the parties agree
(i) to indemnify each other and the underwriters in the
customary manner,
(ii) to enter into an underwriting agreement in form and
substance customary for transactions of such type with the Manager and the
other underwriters participating in such offering, and
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(iii) to take all further actions which shall be reasonably
necessary to effect such registration and sale (including if the Manager
deems it necessary, participating in road-show presentations).
(j) The Registrant shall be entitled to include (at its expense)
additional shares of its common stock in a registration effected pursuant to
this Section 10 only if and to the extent the Manager determines that such
inclusion will not adversely affect the prospects for success of such offering.
11. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. Without limitation to
any restriction on PEPCO contained in this Agreement or in the Merger Agreement,
in the event of any change in PEPCO Common Stock by reason of stock dividends,
splitups, mergers (other than the Merger), recapitalizations, combinations,
exchange of shares or the like, the type and number of shares or securities
subject to the PEPCO Option, and the purchase price per share provided in
Section 1, shall be adjusted appropriately to restore to BGE its rights
hereunder, including the right to purchase from PEPCO (or its successors) shares
of PEPCO Common Stock representing 19.9% of the outstanding PEPCO Common Stock
for the aggregate Exercise Price calculated as of the date of this Agreement as
provided in Section 1.
12. RESTRICTIVE LEGENDS. Each certificate representing shares of
PEPCO Common Stock issued to BGE hereunder, and BGE Shares, if any, delivered to
PEPCO at a Closing, shall include a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES OR BLUE SKY LAWS, AND MAY BE REOFFERED OR SOLD ONLY IF SO
REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER AS SET FORTH IN THE PEPCO STOCK OPTION AGREEMENT, DATED AS OF
SEPTEMBER 22, 1995, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER
UPON REQUEST.
It is understood and agreed that:
(i) the reference to the resale restrictions of the Securities
Act and state securities or Blue Sky laws in the above legend shall be
removed by delivery of substitute certificate(s) without such reference if
BGE or PEPCO, as the case may be, shall have delivered to the other party a
copy of a letter from the staff of the SEC, or an opinion of counsel, in
form and substance satisfactory to the other party, to the effect that such
legend is not required for purposes of the Securities Act or such laws;
(ii) the reference to the provisions to this Agreement in the
above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in
compliance with the provisions of this
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Agreement and under circumstances that do not require the retention of such
reference; and
(iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied.
In addition, such certificates shall bear any other legend as may be required by
law. Certificates representing shares sold in a registered public offering
pursuant to Section 10 shall not be required to bear the legend set forth in
this Section 12.
13. BINDING EFFECT; NO ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. (a)
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
(b) Except as expressly provided for in this Agreement, neither this
Agreement nor the rights or obligations of either party hereto are assignable,
except by operation of law, or with the written consent of the other party.
(c) Nothing contained in this Agreement, express or implied, is
intended to confer upon any person other than the parties hereto and their
respective permitted assigns any rights or remedies of any nature whatsoever by
reason of this Agreement.
(d) Any Restricted Shares sold by a party in compliance with the
provisions of Section 10 shall, upon consummation of such sale, be free of the
restrictions imposed with respect to such shares by this Agreement, unless and
until such party shall repurchase or otherwise become the beneficial owner of
such shares, and any transferee of such shares shall not be entitled to the
registration rights of such party.
14. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
harm would occur in the event that any of the provisions of this Agreement were
not performed in accordance with their specified terms or were otherwise
breached. It is accordingly agreed that the parties hereto shall be entitled to
an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or equity.
15. VALIDITY. (a) The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
the other provisions of this Agreement, which shall remain in full force and
effect.
(b) In the event any court or other competent authority holds any
provisions of this Agreement to be null, void or unenforceable, the parties
hereto shall negotiate in good faith the execution and delivery of an amendment
to this Agreement in order, as nearly as possible, to effectuate, to the extent
permitted by law, the intent of the parties hereto with respect to such
provision and the economic effects thereof.
(c) If for any reason any such court or regulatory agency determines
that BGE is not permitted to acquire, or PEPCO is not permitted to repurchase
pursuant to Section 7,
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the full number of shares of PEPCO Common Stock provided in Section 1 hereof (as
the same may be adjusted), it is the express intention of PEPCO to allow BGE to
acquire or to require PEPCO to repurchase such lesser number of shares as may be
permissible without any amendment or modification hereof.
(d) Each party agrees that, should any court or other competent
authority hold any provision of this Agreement or part hereof to be null, void
or unenforceable, or order any party to take any action inconsistent herewith,
or not take any action required herein, the other party shall not be entitled to
specific performance of such provision or part hereof or to any other remedy,
including but not limited to money damages, for breach hereof or of any other
provision of this Agreement or part hereof as the result of such holding or
order.
16. NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given if (a) delivered personally, or (b) if sent
by overnight courier service (receipt confirmed in writing), or (c) if delivered
by facsimile transmission with receipt confirmed), or (d) five days after being
mailed by registered or certified mail (return receipt requested) to the parties
in each case to the following addresses (or at such other address for a party as
shall be specified by like notice):
A. If to BGE, to:
By Mail: P.O. Box 1475
Baltimore, MD 21203
By Hand: Liberty and Lexington Streets
Baltimore, MD 21201
Attention: Charles W. Shivery
Vice President and CFO
Fax: (410) 234-5690
David A. Brune, Esq.
General Counsel
Fax: (410) 234-5513
with a copy to:
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004-1490
Attention: Stephen R. Rusmisel, Esq.
Fax: (212) 858-1500
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B. If to PEPCO, to:
By Mail 1900 Pennsylvania Avenue, NW
and Hand: Washington, D.C. 20063
Attention: Dennis R. Wraase
Senior Vice President-
Finance and Accounting
Fax: (202) 331-6314
William T. Torgerson
Senior Vice President-
Law & Governmental
Relations, General Counsel
and Secretary
Fax: (202) 331-6314
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
Attention: Douglas W. Hawes, Esq.
Fax: (212) 424-8500
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and a copy to:
Covington & Burling
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20044
Attention: George B. Reid, Jr., Esq.
Fax: (202)662-6291
17. GOVERNING LAW; CHOICE OF FORUM. This Agreement shall be governed
by and construed in accordance with the laws of the State of Maryland applicable
to agreements made and to be performed entirely within such State and without
regard to its choice of law principles.
18. INTERPRETATION.
(a) When reference is made in this Agreement to Articles, Sections or
Exhibits, such reference shall be to an Article, Section or Exhibit of this
Agreement, as the case may be, unless otherwise indicated.
(b) The table of contents and headings contained in this Agreement
are for reference purposes and shall not affect in any way the meaning or
interpretation of the Agreement.
(c) Whenever the words "include," "includes," or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation."
(d) Whenever "or" is used in this Agreement it shall be construed in
the nonexclusive sense.
19. COUNTERPARTS; EFFECT. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
20. AMENDMENTS; WAIVER. This Agreement may be amended by the parties
hereto and the terms and conditions hereof may be waived only by an instrument
in writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
21. EXTENSION OF TIME PERIODS. The time periods for exercise of
certain rights under Sections 2, 6 and 7 shall be extended:
(a) to the extent necessary to obtain all regulatory approvals for
the exercise of such rights, and for the expiration of all statutory waiting
periods; and
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(b) to the extent necessary to avoid any liability under Section
16(b) of the Exchange Act by reason of such exercise.
THIS SPACE INTENTIONALLY LEFT BLANK
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the date first
above written.
POTOMAC ELECTRIC POWER COMPANY
By:_______________________________
Name:
Title:
BALTIMORE GAS AND ELECTRIC COMPANY
By:_______________________________
Name:
Title:
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Exhibit C1
EMPLOYMENT AGREEMENT
THIS AGREEMENT by and between CONSTELLATION ENERGY CORPORATION, a
Maryland corporation (the "Company"), and Mr. Christian H. Poindexter (the
"Executive"), dated as of the 22nd day of September, 1995.
W I T N E S S E T H T H A T
WHEREAS, the Company, POTOMAC ELECTRIC POWER COMPANY ("PEPCO") and
BALTIMORE GAS AND ELECTRIC COMPANY ("BGE") have entered into an Agreement and
Plan of Merger dated as of September 22, 1995 (the "Merger Agreement"), whereby
the PEPCO and BGE organizations will merge into the Company, with the Company as
the surviving entity; and
WHEREAS, the Company, PEPCO and BGE wish to provide for the orderly
succession of management of the Company following the Effective Time (as defined
in the Merger Agreement); and
WHEREAS, the Company, PEPCO and BGE further wish to provide for the
employment by the Company of the Executive, and the Executive wishes to serve
the Company, in the capacities and on the terms and conditions set forth in this
Agreement:
NOW, THEREFORE, it is hereby agreed as follows:
1. EMPLOYMENT PERIOD. The Company shall employ the Executive, and
the Executive shall serve the Company, on the terms and conditions set forth in
this Agreement, for an initial period (the "Initial Period") and a further
period (the "Secondary Period") (the Initial Period and the Secondary Period are
hereinafter referred to in the aggregate as the "Employment Period"). The
Initial Period shall begin at the Effective Time (as defined in the Merger
Agreement), and end on the earlier of: (i) such date as Mr. Edward F. Mitchell
ceases to be Chairman of the Board of Directors of the Company (the "Board") for
any reason; or (ii) the last day of the twelfth (12th) full month following the
Effective Time. The Secondary Period shall begin at the end of the Initial
Period and end on that date which is the last day of the sixtieth (60th) full
month following the Effective Time and the Agreement shall automatically renew
for additional terms of one year, unless not later than the fourth anniversary
of the Agreement and each anniversary of the Agreement thereafter, the Company
shall have given notice in writing to the Executive that it does not intend to
renew the Agreement.
2. POSITION AND DUTIES. (a) During the Initial Period, the
Executive shall serve as Chief Executive Officer of the Company and the Vice
Chairman, President, Chief Financial Officer, chief legal officer, chief human
resources officer, and chief internal
<PAGE>
auditor shall all report to him; during the Secondary Period, the Executive
shall serve as Chairman of the Board and Chief Executive Officer of the Company;
in each case with such other duties and responsibilities as are customarily
assigned to such positions, and such other duties and responsibilities not
inconsistent therewith as may from time to time be assigned to him by the Board.
The Executive shall be a member of the Board on the first day of the Employment
Period, and the Board shall propose the Executive for re-election to the Board
throughout the Employment Period.
(b) During the Employment Period the Executive shall report to the
Board.
(c) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive shall
devote the whole of his attention and time during normal business hours (and
outside those hours when reasonably necessary to his duties hereunder) to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive under this Agreement, use the
Executive's reasonable best efforts to carry out such responsibilities
faithfully and efficiently. It shall not be considered a violation of the
foregoing for the Executive to serve on corporate, industry, civic or charitable
boards or committees, so long as such activities do not significantly interfere
with the performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement.
3. COMPENSATION. (a) BASE SALARY. The Executive's compensation
during the Employment Period shall be determined by the Board upon the
recommendation of the Committee on Management of the Board, subject to the next
sentence and Section 3(b). During the Employment Period, the Executive shall
receive an annual base salary ("Annual Base Salary") of not less than his annual
base salary from BGE as in effect immediately before the Effective Time. The
Annual Base Salary shall be payable in accordance with the Company's regular
payroll practice for its senior executives, as in effect from time to time.
During the Employment Period, the Annual Base Salary shall be reviewed for
possible increase at least annually. Any increase in the Annual Base Salary
shall not limit or reduce any other obligation of the Company under this
Agreement. The Annual Base Salary shall not be reduced after any such increase,
and the term "Annual Base Salary" shall thereafter refer to the Annual Base
Salary as so increased.
(b) INCENTIVE COMPENSATION. During the Employment Period, the
Executive shall participate in such short-term incentive compensation plans and
long-term incentive compensation plans as shall be decided upon in the
discretion of the Committee on Management of the Board (the "Incentive
Compensation").
(c) OTHER BENEFITS. In addition, and without limiting the
generality of the foregoing, during the Employment Period and thereafter: (A)
the Executive shall be entitled to participate in all applicable incentive,
savings and retirement plans, practices, policies and programs of the Company
to the same extent as other senior executives (or, where applicable, retired
senior executives) of the Company, and (B) the Executive and/or the Executive's
family, as the case may be, shall be eligible for participation in, and shall
receive all benefits under, all applicable welfare benefit plans, practices,
policies and programs provided by the Company, including, without limitation,
medical, prescription,
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dental, disability, sickness benefits, employee life insurance, accidental death
and travel insurance plans and programs, to the same extent as other senior
executives (or, where applicable, retired senior executives) of the Company.
(d) PERQUISITES. During the Employment Period, the Executive shall
be entitled to receive such perquisites as the Company may establish from time
to time which are commensurate with his position and at least comparable to
those received by other senior executives at the Company.
4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. The Company shall be entitled to terminate the
Executive's employment because of the Executive's Disability during the
Employment Period. "Disability" means that the Executive has been unable, for
a period of one hundred and eighty (180) consecutive days, to perform the
Executive's duties under this Agreement, as a result of physical or mental
illness or injury. A termination of the Executive's employment by the Company
for Disability shall be communicated to the Executive by written notice and
shall be effective on the thirtieth (30th) day after receipt of such notice by
the Executive (the "Disability Effective Date"), unless the Executive returns to
full-time performance of the Executive's duties before the Disability Effective
Date.
(b) BY THE COMPANY. (i) The Company may terminate the Executive's
employment during the Employment Period for Cause or without Cause. "Cause"
means:
A. the willful and continued failure of Executive substantially
to perform the Executive's duties under this Agreement (other than as
a result of physical or mental illness or injury), after the Board of
the Company delivers to the Executive a written demand for substantial
performance that specifically identifies the manner in which the Board
believes that the Executive has not substantially performed the
Executive's duties; or
B. illegal conduct or gross misconduct by the Executive, in
either case that is willful and results in material and demonstrable
damage to the business or reputation of the Company.
No act or failure to act on the part of the Executive shall be considered
"willful" unless it is done, or omitted to be done, by the Executive in bad
faith or without reasonable belief that the Executive's action or omission was
in the best interests of the Company. Any act or failure to act that is based
upon authority given pursuant to a resolution duly adopted by the Board, or the
advice of counsel for the Company, shall be conclusively presumed to be done, or
omitted to be done, by the Executive in good faith and in the best interests of
the Company.
(ii) A termination of the Executive's employment for Cause shall
be effected in accordance with the following procedures. The Company shall give
the Executive written notice ("Notice of Termination for Cause") of its
intention to terminate the Executive's employment for Cause, setting forth in
reasonable detail the specific conduct of
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the Executive that it considers to constitute Cause and the specific
provision(s) of this Agreement on which it relies, and stating the date, time
and place of the Board Meeting for Cause. The "Board Meeting for Cause" means a
meeting of the Board at which the Executive's termination for Cause will be
considered, that takes place not less than ten (10) and not more than twenty
(20) business days after the Executive receives the Notice of Termination for
Cause. The Executive shall be given an opportunity, together with counsel, to
be heard at the Board Meeting for Cause. The Executive's termination for Cause
shall be effective when and if a resolution is duly adopted at the Board Meeting
for Cause by a two-thirds vote of the entire membership of the Board, excluding
employee directors, stating that in the good faith opinion of the Board, the
Executive is guilty of the conduct described in the Notice of Termination for
Cause, and that conduct constitutes Cause under this Agreement.
(iii) The Board may terminate the Executive's employment without
Cause at any time to the extent permitted by the By-laws of the Company.
(c) GOOD REASON. (i) The Executive may terminate employment for
Good Reason or without Good Reason. "Good Reason" means:
A. the assignment to the Executive of any duties inconsistent
in any respect with paragraph (a) of Section 2 of this Agreement, or
any other action by the Company that results in a diminution in the
Executive's position, authority, duties or responsibilities, other
than an isolated, insubstantial and inadvertent action that is not
taken in bad faith and is remedied by the Company promptly after
receipt of notice thereof from the Executive;
B. any failure by the Company to comply with any provision of
Section 3 of this Agreement, other than an isolated, insubstantial and
inadvertent failure that is not taken in bad faith and is remedied by
the Company promptly after receipt of notice thereof from the
Executive;
C. any purported termination of the Executive's employment by
the Company for a reason or in a manner not expressly permitted by
this Agreement;
D. any failure by the Company to comply with paragraph (c) of
Section 11 of this Agreement; or
E. any other substantial breach of this Agreement by the
Company that either is not taken in good faith or is not remedied by
the Company promptly after receipt of notice thereof from the
Executive.
(ii) A termination of employment by the Executive for Good
Reason shall be effectuated by giving the Company written notice ("Notice of
Termination for Good Reason") of the termination within six (6) months of the
event constituting Good Reason, setting forth in reasonable detail the specific
conduct of the Company that constitutes Good Reason and the specific
provision(s) of this Agreement on which the Executive relies. A termination of
employment by the Executive for Good Reason shall be effective on the fifth
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<PAGE>
(5th) business day following the date when the Notice of Termination for Good
Reason is given, unless the notice sets forth a later date (which date shall in
no event be later than (thirty) 30 days after the notice is given).
(iii) A termination of the Executive's employment by the
Executive without Good Reason shall be effected by giving the Company written
notice of the termination.
(d) DATE OF TERMINATION. The "Date of Termination" means the date of
the Executive's death, the Disability Effective Date, the date on which the
termination of the Executive's employment by the Company for Cause or without
Cause or by the Executive for Good Reason is effective, or the date on which the
Executive gives the Company notice of a termination of employment without Good
Reason, as the case may be.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) BY THE COMPANY
OTHER THAN FOR CAUSE, DEATH OR DISABILITY; BY THE EXECUTIVE FOR GOOD REASON.
If, during the Employment Period, the Company terminates the Executive's
employment, other than for Cause, Death or Disability, or the Executive
terminates employment for Good Reason, the Company shall continue to provide the
Executive with the compensation and benefits set forth in paragraphs (a), (b)
and (c) of Section 3 as if he had remained employed by the Company pursuant to
this Agreement through the end of the Employment Period and then retired (at
which time he will be treated as eligible for all retiree welfare benefits and
other benefits provided to retired senior executives, as set forth in clause (B)
of Section 3(c); PROVIDED, that the Incentive Compensation for such period shall
be equal to the maximum Incentive Compensation that the Executive would have
been eligible to earn for such period; PROVIDED, further, that to the extent any
benefits described in paragraph (c) of Section 3 cannot be provided pursuant to
a plan or program maintained by the Company for its executives, the Company
shall provide such benefits outside such plan or program at no additional cost
(including without limitation tax cost) to the Executive and his family; and
PROVIDED, finally, that during any period when the Executive is eligible to
receive benefits of the type described in clause (B) of paragraph (c) of Section
3 under another employer-provided plan, the benefits provided by the Company
under this paragraph (a) of Section 5 may be made secondary to those provided
under such other plan. In addition to the foregoing, any restricted stock
outstanding on the Date of Termination shall be fully vested as of the Date of
Termination and all options outstanding on the Date of Termination shall be
fully vested and exercisable and shall remain in effect and exercisable through
the end of their respective terms, without regard to the termination of the
Executive's employment. The payments and benefits provided pursuant to this
paragraph (a) of Section 5 are intended as liquidated damages for a termination
of the Executive's employment by the Company other than for Cause or Disability
or for the actions of the Company leading to a termination of the Executive's
employment by the Executive for Good Reason, and shall be the sole and exclusive
remedy therefor.
(b) DEATH AND DISABILITY. If the Executive's employment is
terminated by reason of the Executive's death or Disability during the
Employment Period, the Company shall pay to the Executive or, in the case of the
Executive's death, to the Executive's designated beneficiaries (or, if there is
no such beneficiary, to the Executive's estate or legal
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<PAGE>
representative), in a lump sum in cash within thirty (30) days after the Date of
Termination, the sum of the following amounts (the "Accrued Obligations"): (1)
any portion of the Executive's Annual Base Salary through the Date of
Termination that has been earned but not yet been paid; (2) an amount
representing the Incentive Compensation for the period that includes the Date of
Termination, computed by assuming that the amount of all such Incentive
Compensation would be equal to the maximum amount of such Incentive Compensation
that the Executive would have been eligible to earn for such period, and
multiplying that amount by a fraction, the numerator of which is the number of
days in such period through the Date of Termination, and the denominator of
which is the total number of days in the relevant period; and (3) any accrued
but unpaid Incentive Compensation and vacation pay. Any compensation previously
deferred by the Executive (together with any accrued interest or earnings
thereon) that has not yet been paid, will be paid in accordance with the terms
and conditions under which such amounts were initially deferred.
(c) BY THE COMPANY FOR CAUSE; BY THE EXECUTIVE OTHER THAN FOR GOOD
REASON. If the Executive's employment is terminated by the Company for Cause
during the Employment Period, the Company shall pay the Executive the Annual
Base Salary through the Date of Termination to the extent earned but not yet
paid. If the Executive voluntarily terminates employment during the Employment
Period, other than for Good Reason, the Company shall pay the Executive the
Annual Base Salary through the Date of Termination to the extent earned but not
yet paid. The amount of any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon), will be paid under the
terms and conditions under which such amounts were initially deferred.
6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company for which the Executive may
qualify, nor, subject to paragraph (1) of Section 12, shall anything in this
Agreement limit or otherwise affect such rights as the Executive may have under
any contract or agreement with the Company. Vested benefits and other amounts
that the Executive is otherwise entitled to receive under the Incentive
Compensation, the deferred compensation and other benefit programs listed in
paragraph (c) of Section 3, the Life Insurance Coverage, or any other plan,
policy, practice or program of, or any contract or agreement with, the Company
on or after the Date of Termination shall be payable in accordance with the
terms of each such plan, policy, practice, program, contract or agreement, as
the case may be, except as explicitly modified by this Agreement.
7. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in, and otherwise to perform its obligations under, this Agreement
shall not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action that the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other employment
or take any other action by way of mitigation of the amounts payable to the
Executive under any of the provisions of this Agreement and, except as
specifically provided in paragraph (a) of Section 5 with respect to benefits
described in clause (B) of paragraph (c) of Section 3, such amounts shall not be
reduced, regardless of whether the Executive obtains other employment.
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8. CONFIDENTIAL INFORMATION. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies and their respective businesses that the Executive obtains during the
Executive's employment by the Company or any of its affiliated companies and
that is not public knowledge (other than as a result of the Executive's
violation of this Section 8) ("Confidential Information"). The Executive shall
not communicate, divulge or disseminate Confidential Information at any time
during or after the Executive's employment with the Company, except with the
prior written consent of the Company or as otherwise required by law or legal
process. In no event shall any asserted violation of the provisions of this
Section 8 constitute a basis for deferring or withholding any amounts otherwise
payable to the Executive under this Agreement, unless the Executive is
terminated for cause pursuant to paragraph (b)(i) of Section 4 hereof.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in
this Agreement to the contrary notwithstanding, in the event it shall be
determined that any payment or distribution by the Company to or for the benefit
of the Executive (other than a payment or distribution made in respect of any
program in which the Executive participated while employed by BGE, regardless
whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise, and determined without regard to any additional
payments required under this Section 9) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the Executive of all
taxes (including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereon) and Excise Tax imposed upon the Gross-up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of paragraph (c) of this Section 9, all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by one of the Big Six certified public accounting firms designated by the
Executive and approved by the Company (which approval shall not be unreasonably
withheld) (the "Accounting Firm"), which shall provide detailed supporting
calculations both to the Company and the Executive within fifteen (15) business
days of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group affecting the change of control, the Executive shall designate another
Big Six accounting firm (subject to the approval of the Company, which approval
shall not be unreasonably withheld) to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 9, shall be paid by the Company to the Executive within five (5) days of
the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be
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binding upon the Company and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment") consistent with the calculations required to be made hereunder.
In the event that the Company exhausts its remedies pursuant to paragraph (c) of
this Section 9 and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten (10) business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the thirty (30)
day period following the date on which he gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to
the expiration of such period that it desires to contest such claim, the
Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
PROVIDED, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this paragraph (c) of Section 9, the Company shall control all proceedings
taken in connection with such contest and, at its sole option, may pursue or
forego any and all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; PROVIDED, however, that if the Company directs the
Executive to pay
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such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and PROVIDED, further, that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to paragraph (c) of this Section 9, the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
promptly take all necessary action to obtain such refund and (subject to the
Company's complying with the requirements of paragraph (c) of this Section 9)
upon receipt of such refund shall promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If after the receipt by the Executive of an amount
advanced by the Company pursuant to paragraph (c) of this Section 9, a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of thirty (30) days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
10. ATTORNEYS' FEES. The Company agrees to pay, as incurred, to the
fullest extent permitted by law, all legal fees and expenses that the Executive
may reasonably incur as a result of any contest (provided that the Executive is
the prevailing party with respect to such contest) by the Company, the Executive
or others of the validity or enforceability of or liability under, or otherwise
involving, any provision of this Agreement, together with interest on any
delayed payment at the applicable federal rate provided for in Section
7872(f)(2)(A) of the Code.
11. SUCCESSORS. (a) This Agreement is personal to the Executive
and, without the prior written consent of the Company, shall not be assignable
by the Executive. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
both
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the Company as defined above and any such successor that assumes and agrees to
perform this Agreement, by operation of law or otherwise.
12. MISCELLANEOUS. (a) This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Maryland, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified except by a written agreement executed
by the parties hereto or their respective successors and legal representatives.
(b) All notices and other communications under this Agreement shall
be in writing and shall be given by hand delivery to the other party or by
facsimile, addressed as follows:
If to the Executive, to:
Liberty and Lexington Streets
Baltimore, Maryland 21201
Attention: Mr. Christian H. Poindexter
Fax: (410) 234-7800
If to the Company, to:
c/o Baltimore Gas and Electric Company
Liberty and Lexington Streets
Baltimore, Maryland 21201
Attention: David A. Brune, Esq.
General Counsel
Fax: (410) 234-5690
and, to: c/o Potomac Electric Power Company
1900 Pennsylvania Avenue, N.W.
Washington, D.C. 20063
Attention: William T. Torgerson, Esq.
Senior Vice President -- Law
& Government Relations,
General Counsel and Secretary
Fax: (202) 331-6314
with a copy
to: Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004-1490
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Attention: Stephen R. Rusmisel, Esq.
Fax: (212) 858-1500
and to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
Attention: Douglas W. Hawes, Esq.
Fax: (212) 424-8500
or to such other address as either party furnishes to the other in writing in
accordance with this paragraph (b) of Section 12. Notices and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement. If any provision of this Agreement shall be held invalid or
unenforceable in part, the remaining portion of such provision, together with
all other provisions of this Agreement, shall remain valid and enforceable and
continue in full force and effect to the fullest extent consistent with law.
(d) Notwithstanding any other provision of this Agreement, the
Company may withhold from amounts payable under this Agreement all federal,
state, local and foreign taxes that are required to be withheld by applicable
laws or regulations.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provisions of, or to assert any right under, this Agreement
(including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to paragraph (c) of Section 4 of this
Agreement) shall not be deemed to be a waiver of such provision or right or of
any other provision of or right under this Agreement.
(f) Unless otherwise specifically provided in this Agreement, the
Executive and the Company acknowledge that this Agreement supersedes any other
agreement between them or between him and BGE, concerning the subject matter
hereof.
(g) The rights and benefits of the Executive under this Agreement may
not be anticipated, alienated or subject to attachment, garnishment, levy,
execution or other legal or equitable process except as required by law. Any
attempt by the Executive to anticipate, alienate, assign, sell, transfer,
pledge, encumber or charge the same shall be void. Payments hereunder shall not
be considered assets of the Executive in the event of insolvency or bankruptcy.
(h) This Agreement may be executed in several counterparts, each of
which shall be deemed an original, and said counterparts shall constitute but
one and the same instrument.
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(i) The provisions of this Agreement shall take effect without any
further action required by the parties at the Effective Time, and if the Closing
(as defined in the Merger Agreement) of the proposed merger shall not occur,
this entire Agreement shall be of no legal effect.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization of this Board of Directors, the Company
has caused this Agreement to be executed in its name on its behalf, all as of
the day and year first above written.
/S/ CHRISTIAN H. POINDEXTER
---------------------------
Mr. Christian H. Poindexter
CONSTELLATION ENERGY CORPORATION
By /s/ STEPHEN R. RUSMISEL
-----------------------
Mr. Stephen R. Rusmisel
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Exhibit C2
EMPLOYMENT AGREEMENT
THIS AGREEMENT by and between CONSTELLATION ENERGY CORPORATION, a
Maryland corporation (the "Company"), and Mr. Edward F. Mitchell (the
"Executive"), dated as of the 22nd day of September, 1995.
W I T N E S S E T H T H A T
WHEREAS, the Company, POTOMAC ELECTRIC POWER COMPANY ("PEPCO") and
BALTIMORE GAS AND ELECTRIC COMPANY ("BGE") have entered into an Agreement and
Plan of Merger dated as of September 22, 1995 (the "Merger Agreement"), whereby
the PEPCO and BGE organizations will merge into the Company, with the Company as
the surviving entity; and
WHEREAS, the Company, PEPCO and BGE wish to provide for the orderly
succession of management of the Company following the Effective Time (as defined
in the Merger Agreement); and
WHEREAS, the Company, PEPCO and BGE further wish to provide for the
employment by the Company of the Executive, and the Executive wishes to serve
the Company, in the capacities and on the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, it is hereby agreed as follows:
(i) EMPLOYMENT PERIOD. The Company shall employ the Executive, and
the Executive shall serve the Company, on the terms and conditions set forth in
this Agreement, for the period beginning at the Effective Time (as defined in
the Merger Agreement), and ending on the last day of the twelfth (12th) full
month following the Effective Time (the "Employment Period").
(ii) POSITION AND DUTIES. (a) During the Employment Period, the
Executive shall serve as Chairman of the Board of Directors of the Company (the
"Board") and (i) preside over all meetings of the shareholders and Board of
Directors, (ii) provide advice and counsel to the Chief Executive Officer in
relation to strategic corporate decisions, personnel and other decisions
relating to the combination of the merging companies' workforces, (iii) be an ex
officio member of all Board committees (except the Audit, Committee on
Management and other committees which permit only outside directors pursuant to
applicable securities or stock exchange rules or regulations, whose meetings he
shall attend in a consultatory capacity except when such committees meet in
executive session), (iv) perform such other duties as the Board or Chief
Executive Officer reasonably request, and (v) see that all orders and
resolutions of the Board are carried into effect. The Executive shall be a
member of the Board on the first day of the Employment Period and may, at his
option, be a member of the Board of Directors of any of the Company's
subsidiaries during the Employment Period.
<PAGE>
(b) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive shall
devote the whole of his attention and time during normal business hours (and
outside those hours when reasonably necessary to his duties hereunder) to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive under this Agreement, use the
Executive's reasonable best efforts to carry out such responsibilities
faithfully and efficiently. It shall not be considered a violation of the
foregoing for the Executive to serve on corporate, industry, civic or charitable
boards or committees, so long as such activities do not significantly interfere
with the performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement.
(iii) COMPENSATION. (a) BASE SALARY. The Executive's
compensation during the Employment Period shall be determined by the Board upon
the recommendation of the Committee on Management of the Board, subject to the
next sentence and Section 3(b). During the Employment Period, the Executive
shall receive an annual base salary ("Annual Base Salary") of not less than his
annual base salary from PEPCO as in effect immediately before the Effective
Time. The Annual Base Salary shall be payable in accordance with the Company's
regular payroll practice for its senior executives, as in effect from time to
time.
(b) INCENTIVE COMPENSATION. During the Employment Period, the
Executive shall participate in such short-term incentive compensation plans and
long-term incentive compensation plans as shall be decided upon in the
discretion of the Committee on Management of the Board (the "Incentive
Compensation").
(c) OTHER BENEFITS. (i) In the event of the termination of
employment of the Executive for any reason, benefits identical to the
retirement, death and continuing health and other benefits provided in and on
the same terms as set forth in clauses 4 through and including 10 of the
Employment Agreement executed between PEPCO and the Executive and dated April
26, 1995 shall be provided to the Executive, his surviving spouse or other
beneficiary, as applicable. For purposes of determining "final average annual
pay" thereunder, target annual award shall be the last applicable to Executive's
position under PEPCO's Executive Incentive Compensation Plan guidelines as in
effect on the day prior to the Effective Time. At the existing time, the
Executive participates in the following benefit programs: (1) the PEPCO
Executive Performance Supplemental Retirement Plan; (2) the PEPCO Supplemental
Benefit Plan; (3) the PEPCO General Retirement Plan; (4) the PEPCO Revised and
Restated Executive and Director Deferred Compensation Plan; (5) the PEPCO
Executive Split Dollar Insurance Plan; and (6) the PEPCO Director and Executive
Deferred Compensation Plan (collectively the "Plans"). The Executive shall be
entitled to receive benefits from the Plans (or any successor arrangements),
upon his termination of employment from the Company, in an amount that is no
less than the level of benefits accrued by the Executive through the Effective
Time, increased to reflect the additional service and compensation earned by the
Executive during his period of employment with the Company. Should any of the
Plans be discontinued during the Employment Period, a separate arrangement shall
be established on behalf of the Executive to continue the accrual of benefits
attributable to such Plans to the extent such benefits would not otherwise be
provided under any replacement arrangement adopted by the Company.
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(ii) In addition, and without limiting the generality of the
foregoing, during the Employment Period and thereafter: (A) the Executive shall
be entitled to participate in all applicable incentive, savings and retirement
plans, practices, policies and programs of the Company to the same extent as
other senior executives (or, where applicable, retired senior executives) of the
Company, provided, however, that the Executive shall participate in the more
favorable group of benefit plans in paragraph (c)(i) or (c)(ii) of this Section
3, but not both groups of benefit plans; and (B) the Executive and/or the
Executive's family, as the case may be, shall be eligible for participation in,
and shall receive all benefits under, all applicable welfare benefit plans,
practices, policies and programs provided by the Company, including, without
limitation, medical, prescription, dental, disability, employee life insurance,
group life insurance, accidental death and travel accident insurance plans and
programs, to the same extent as other senior executives (or, where applicable,
retired senior executives) of the Company.
(d) PERQUISITES. During the Employment Period, the Executive shall
be entitled to receive such perquisites as the Company may establish from time
to time which are commensurate with his position and which are at least
comparable to those received by other senior executives at the Company.
(iv) TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. The Company shall be entitled to terminate the
Executive's employment because of the Executive's Disability during the
Employment Period. "Disability" means that the Executive has been unable, for a
period of one hundred and eighty (180) consecutive days, to perform the
Executive's duties under this Agreement, as a result of physical or mental
illness or injury. A termination of the Executive's employment by the Company
for Disability shall be communicated to the Executive by written notice, and
shall be effective on the thirtieth (30th) day after receipt of such notice by
the Executive (the "Disability Effective Date"), unless the Executive returns to
full-time performance of the Executive's duties before the Disability Effective
Date.
(b) BY THE COMPANY. (i) The Company may terminate the Executive's
employment during the Employment Period for Cause or without Cause. "Cause"
means:
A. the willful and continued failure of the Executive
substantially to perform the Executive's duties under this
Agreement (other than as a result of physical or mental illness
or injury), after the Board of the Company delivers to the
Executive a written demand for substantial performance that
specifically identified the manner in which the Board believes
that the Executive has not substantially performed the
Executive's duties; or
B. illegal conduct or gross misconduct by the Executive,
in either case that is willful and results in material and
demonstrable damage to the business or reputation of the Company.
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No act or failure on the part of the Executive shall be considered "willful"
unless it is done, or omitted to be done, by the Executive in bad faith or
without reasonable belief that the Executive's action or omission was in the
best interests of the Company. Any act or failure to act that is based upon
authority given pursuant to a resolution duly adopted by the Board, or the
advice of counsel for the Company, shall be conclusively presumed to be done, or
omitted to be done, by the Executive in good faith and in the best interests of
the Company.
(ii) A termination of the Executive's employment for Cause shall
be effected in accordance with the following procedures. The Company shall give
the Executive written notice ("Notice of Termination for Cause") of its
intention to terminate the Executive's employment for Cause, setting forth in
reasonable detail the specific conduct of the Executive that it considers to
constitute Cause and the specific provision(s) of this Agreement on which it
relies, and stating the date, time and place of the Board Meeting for Cause.
The "Board Meeting for Cause" means a meeting of the Board at which the
Executive's termination for Cause will be considered, that takes place not less
than ten (10) and not more than twenty (20) business days after the Executive
receives the Notice of Termination for Cause. The Executive shall be given an
opportunity, together with counsel, to be heard at the Board Meeting for Cause.
The Executive's termination for Cause shall be effective when and if a
resolution is duly adopted at the Board Meeting for Cause by a two-thirds vote
of the entire membership of the Board, excluding employee directors, stating
that in the good faith opinion of the Board, the Executive is guilty of the
conduct described in the Notice of Termination for Cause, and that conduct
constitutes Cause under this Agreement.
(iii) The Board may terminate the Executive's employment without
Cause at any time to the extent permitted by the By-laws of the Company.
(c) GOOD REASON. (i) The Executive may terminate employment for Good
Reason or without Good Reason. "Good Reason" means:
A. the assignment to the Executive of any duties
inconsistent in any respect with paragraph (a) of Section 2 of
this Agreement, or any other action by the Company that results
in a diminution in the Executive's position, authority, duties or
responsibilities, other than an isolated, insubstantial and
inadvertent action that is not taken in bad faith and is remedied
by the Company promptly after receipt of notice thereof from the
Executive;
B. any failure by the Company to comply with any provision
of Section 3 of this Agreement, other than an isolated,
insubstantial and inadvertent failure that is not taken in bad
faith and is remedied by the Company promptly after receipt of
notice thereof from the Executive;
C. any purported termination of the Executive's employment
by the Company for a reason or in a manner not expressly
permitted by this Agreement;
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D. any failure by the Company to comply with paragraph (c)
of Section 11 of this Agreement; or
E. any other substantial breach of this Agreement by the
Company that either is not taken in good faith or is not remedied
by the Company promptly after receipt of notice thereof from the
Executive.
(ii) A termination of employment by the Executive for Good
Reason shall be effectuated by giving the Company written notice ("Notice of
Termination for Good Reason") of the termination within six (6) months of the
event constituting Good Reason, setting forth in reasonable detail the specific
conduct of the Company that constitutes Good Reason and the specific
provision(s) of this Agreement on which the Executive relies. A termination of
employment by the Executive for Good Reason shall be effective on the fifth
(5th) business day following the date when the Notice of Termination for Good
Reason is given, unless the notice sets forth a later date (which date shall in
no event be later than thirty (30) days after the notice is given).
(iii) A termination of the Executive's employment by the
Executive without Good Reason shall be effected by giving the Company written
notice of the termination.
(d) DATE OF TERMINATION. The "Date of Termination" means the date of
the Executive's death, the Disability Effective Date, the date on which the
termination of the Executive's employment by the Company for Cause or without
Cause or by the Executive for Good Reason is effective, or the date on which the
Executive gives the Company notice of a termination of employment without Good
Reason, as the case may be.
(v) OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) BY THE COMPANY
OTHER THAN FOR CAUSE, DEATH OR DISABILITY; BY THE EXECUTIVE FOR GOOD REASON.
If, during the Employment Period, the Company terminates the Executive's
employment, other than for Cause, Death or Disability, or the Executive
terminates employment for Good Reason, the Company shall continue to provide the
Executive with the compensation and benefits set forth in paragraphs (a), (b)
and (c) of Section 3 as if he had remained employed by the Company pursuant to
this Agreement through the end of the Employment Period and then retired (at
which time he will be treated as eligible for all retiree welfare benefits and
other benefits provided to retired senior executives, as set forth in clause B
of Section 3(c)(ii)); PROVIDED, that the Incentive Compensation for such period
shall be equal to the maximum Incentive Compensation that the Executive would
have been eligible to earn for such period; PROVIDED, further, that to the
extent any benefits described in paragraph (c) of Section 3 cannot be provided
pursuant to a plan or program maintained by the Company for its executives, the
Company shall provide such benefits outside such plan or program at no
additional cost (including without limitation tax cost) to the Executive and his
family; and PROVIDED, finally, that during any period when the Executive is
eligible to receive benefits of the type described in clause (B) of paragraph
(c)(ii) of Section 3 under another employer-provided plan, the benefits provided
by the Company under this paragraph (a) of Section 5 may be made secondary to
those provided under such other plan. In addition to the foregoing, any benefit
referred to in paragraph (c)(i) of Section 3 shall be fully vested, any
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restricted stock outstanding on the Date of Termination shall be fully vested as
of the Date of Termination and all options outstanding on the Date of
Termination shall be fully vested and exercisable and shall remain in effect and
exercisable through the end of their respective terms, without regard to the
termination of the Executive's employment. The payments and benefits provided
pursuant to this paragraph (a) of Section 5 are intended as liquidated damages
for a termination of the Executive's employment by the Company other than for
Cause or Disability or for the actions of the Company leading to a termination
of the Executive's employment by the Executive for Good Reason, and shall be the
sole and exclusive remedy therefor.
(b) DEATH OR DISABILITY. If the Executive's employment is terminated
by reason of the Executive's death or Disability during the Employment Period,
the Company shall pay to the Executive or, in the case of the Executive's death,
to the Executive's designated beneficiaries (or, if there is no such
beneficiary, to the Executive's estate or legal representative), in a lump sum
in cash within thirty (30) days after the Date of Termination, the sum of the
following amounts (the "Accrued Obligations"): (1) any portion of the
Executive's Annual Base Salary through the Date of Termination that has been
earned but not yet been paid; (2) an amount representing the Incentive
Compensation for the period that includes the Date of Termination, computed by
assuming that the amount of all such Incentive Compensation would be equal to
the maximum amount of such Incentive Compensation that the Executive would have
been eligible to earn for such period, and multiplying that amount by a
fraction, the numerator of which is the number of days in such period through
the Date of Termination, and the denominator of which is the total number of
days in the relevant period; and (3) any accrued but unpaid Incentive
Compensation and vacation pay. Any compensation previously deferred by the
Executive (together with any accrued interest or earnings thereon) that has not
yet been paid will be paid in accordance with the terms and conditions under
which such amounts were initially deferred.
(c) BY THE COMPANY FOR CAUSE; BY THE EXECUTIVE OTHER THAN FOR GOOD
REASON. If the Executive's employment is terminated by the Company for Cause
during the Employment Period, the Company shall pay the Executive the Annual
Base Salary through the Date of Termination to the extent earned but not yet
paid. If the Executive voluntarily terminates employment during the Employment
Period, other than for Good Reason, the Company shall pay the Executive the
Annual Base Salary through the Date of Termination to the extent earned but not
yet paid. The amount of any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) will be paid under the
terms and conditions under which such amounts were initially deferred.
(vi) NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company for which the Executive may
qualify, nor, subject to paragraph (f) of Section 12, shall anything in this
Agreement limit or otherwise affect such rights as the Executive may have under
contract or agreement with the Company. Vested benefits and other amounts that
the Executive is otherwise entitled to receive under the Incentive Compensation,
the deferred compensation and other benefit programs listed in paragraph (c) of
Section 3, the Life Insurance Coverage, or any other plan, policy, practice or
program of, or any contract or agreement with, the Company on or after the Date
of
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Termination shall be payable in accordance with the terms of each such plan,
policy, practice, program, contract or agreement, as the case may be, except as
explicitly modified by this Agreement.
(vii) FULL SETTLEMENT. The Company's obligation to make the payments
provided for in, and otherwise to perform its obligations under, this Agreement
shall not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action that the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other employment
or take any other action by way of mitigation of the amounts payable to the
Executive under any of the provisions of this Agreement and, except as
specifically provided in paragraph (a) of Section 5 with respect to benefits
described in clause (B) of paragraph (c)(ii) of Section 3, such amounts shall
not be reduced, regardless of whether the Executive obtains other employment.
(viii) CONFIDENTIAL INFORMATION. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies and their respective businesses that the Executive obtains during the
Executive's employment by the Company or any of its affiliated companies and
that is not public knowledge (other than as a result of the Executive's
violation of this Section 8) ("Confidential Information"). The Executive shall
not communicate, divulge or disseminate Confidential Information at any time
during or after the Executive's employment with the Company, except with the
prior written consent of the Company or as otherwise required by law or legal
process. In no event shall any asserted violation of the provisions of this
Section 8 constitute a basis for deferring or withholding any amounts otherwise
payable to the Executive under this Agreement, unless the Executive is
terminated for Cause pursuant to paragraph (b)(i) of Section 4 hereof.
(ix) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in
this Agreement to the contrary notwithstanding, in the event it shall be
determined that any payment or distribution by the Company to or for the benefit
of the Executive (other than a payment or distribution made in respect of any
program in which the Executive participated while employed by PEPCO, unless paid
or payable or distributed or distributable pursuant to the terms of this
Agreement, and determined without regard to any additional payments required
under this Section 9) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of paragraph (c) of this Section 9, all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the
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assumptions to be utilized in arriving at such determination, shall be made by
one of the Big Six certified public accounting firms designated by the Executive
and approved by the Company (which approval shall not be unreasonably withheld)
(the "Accounting Firm"), which shall provide detailed supporting calculations
both to the Company and the Executive within fifteen (15) business days of the
receipt of notice from the Executive that there has been a Payment, or such
earlier time as is required by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the change of control, the Executive shall designate another Big Six
accounting firm (subject to the approval of the Company, which approval shall
not be unreasonably withheld) to make the determinations required hereunder
(which accounting firm shall then be referred to as the Accounting Firm
hereunder). All fees and expenses of the Accounting Firm shall be borne solely
by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9,
shall be paid by the Company to the Executive within five (5) days of the
receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to paragraph (c) of this Section 9 and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but not later than ten (10) days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the thirty (30) day period
following the date on which he gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
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(iv) permit the Company to participate in any proceedings
relating to such claim;
PROVIDED, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this paragraph (c) of Section 9, the Company shall control all proceedings
taken in connection with such contest and, at its sole option, may pursue or
forego any and all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; PROVIDED, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and PROVIDED, further, that any extension of the
statute of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to paragraph (c) of this Section 9, the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
promptly take all necessary actions to obtain such refund and (subject to the
Company's complying with the requirements of paragraph (c) of this Section 9)
upon receipt of such refund shall promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to paragraph (c) of this Section 9, a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of thirty (30) days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
(x) ATTORNEYS' FEES. The Company agrees to pay, as incurred, to the
fullest extent permitted by law, all legal fees and expenses that the Executive
may reasonably incur as a result of any contest (provided that the Executive is
the prevailing party with respect to such contest) by the Company, the Executive
or others of the validity or enforceability of or liability under, or otherwise
involving, any provision of this Agreement,
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together with interest on any delayed payment at the applicable federal rate
provided for in Section 7872(f)(2)(A) of the Code.
(xi) SUCCESSORS. (a) This Agreement is personal to the Executive
and, without the prior written consent of the Company, shall not be assignable
by the Executive. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
both the Company as defined above and any such successor that assumes and agrees
to perform this Agreement, by operation of law or otherwise.
(xii) MISCELLANEOUS. (a) This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Maryland, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified except by a written agreement executed
by the parties hereto or their respective successors and legal representatives.
(b) All notices and other communications under this Agreement shall
be in writing and shall be given by hand delivery to the other party or by
facsimile, addressed as follows:
If to the Executive, to:
1900 Pennsylvania Avenue, N.W.
Washington, D.C. 20063
Attention: Mr. Edward F. Mitchell
Fax: (202) 331-6314
If to the Company, to:
c/o Baltimore Gas and Electric Company
Liberty and Lexington Streets
Baltimore, Maryland 21201
Attention: David A. Brune, Esq.
General Counsel
Fax: (410) 234-5690
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and to: c/o Potomac Electric Power Company
1900 Pennsylvania Avenue, N.W.
Washington, D.C. 20063
Attention: William T. Torgerson, Esq.
Senior Vice President -- Law
& Government Relations,
General Counsel and Secretary
Fax: (202) 331-6314
with a
copy, to: Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004-1490
Attention: Stephen R. Rusmisel, Esq.
Fax: (212) 858-1500
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and to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
Attention: Douglas W. Hawes, Esq.
Fax: (212) 424-8500
or to such other address as either party furnishes to the other in writing in
accordance with this paragraph (b) of Section 12. Notices and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement. If any provision of this Agreement shall be held invalid or
unenforceable in part, the remaining portion of such provision, together with
all other provisions of this Agreement, shall remain valid and enforceable and
continue in full force and effect to the fullest extent consistent with law.
(d) Notwithstanding any other provision of this Agreement, the
Company may withhold from amounts payable under this Agreement all federal,
state, local and foreign taxes that are required to be withheld by applicable
laws or regulations.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of, or to assert any right under, this Agreement
(including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to paragraph (c) of Section 4 of this
Agreement) shall not be deemed to be a waiver of such provision or right or of
any other provision of or right under this Agreement.
(f) Unless otherwise specifically provided in this Agreement, the
Executive and the Company acknowledge that this Agreement supersedes any other
agreement between them or between him and PEPCO, concerning the subject matter
hereof.
(g) The rights and benefits of the Executive under this Agreement may
not be anticipated, assigned, alienated or subject to attachment, garnishment,
levy, execution or other legal or equitable process except as required by law.
Any attempt by the Executive to anticipate, alienate, assign, sell, transfer,
pledge, encumber or charge the same shall be void. Payments thereunder shall
not be considered assets of the Executive in the event of insolvency or
bankruptcy.
(h) This Agreement may be executed in several counterparts, each of
which shall be deemed an original, and said counterparts shall constitute but
one and the same instrument.
(i) The provisions of this Agreement shall take effect without any
further action required by the parties at the Effective Time, and if the Closing
(as defined in the Merger Agreement) of the proposed merger shall not occur,
this entire Agreement shall be of no legal effect.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization of its Board of Directors, the Company
has caused this Agreement to be executed in its name on its behalf, all as of
the day and year first above written.
/S/ EDWARD F. MITCHELL
----------------------
Mr. Edward F. Mitchell
CONSTELLATION ENERGY CORPORATION
By /s/ DOUGLAS W. HAWES
---------------------
Mr. Douglas W. Hawes
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Exhibit C3
EMPLOYMENT AGREEMENT
THIS AGREEMENT by and between CONSTELLATION ENERGY CORPORATION, a
Maryland corporation (the "Company"), and Mr. John M. Derrick, Jr. (the
"Executive"), dated as of the 22nd day of September, 1995.
W I T N E S S E T H T H A T
WHEREAS, the Company, POTOMAC ELECTRIC POWER COMPANY ("PEPCO") and
BALTIMORE GAS AND ELECTRIC COMPANY ("BGE") have entered into an Agreement and
Plan of Merger dated as of September 22, 1995 (the "Merger Agreement"), whereby
the PEPCO and BGE organizations will merge into the Company, with the Company as
the surviving entity; and
WHEREAS, the Company, PEPCO and BGE wish to provide for the orderly
succession of management of the Company following the Effective Time (as defined
in the Merger Agreement); and
WHEREAS, the Company, PEPCO and BGE further wish to provide for the
employment by the Company of the Executive, and the Executive wishes to serve
the Company, in the capacities and on the terms and conditions set forth in this
Agreement:
NOW, THEREFORE, it is hereby agreed as follows:
1. EMPLOYMENT PERIOD. The Company shall employ the Executive, and
the Executive shall serve the Company, on the terms and conditions set forth in
this Agreement, for a period beginning at the Effective Time (as defined in the
Merger Agreement) and ending on that date which is the last day of the sixtieth
(60th) full month following the Effective Time (the "Employment Period") and the
Agreement shall automatically renew for additional terms of one year unless, not
later than the fourth anniversary of the Agreement, and each anniversary of the
Agreement thereafter, the Company shall have given notice in writing to the
Executive that it does not intend to renew the Agreement.
2. POSITION AND DUTIES. (a) During the Employment Period the
Executive shall serve as President and Chief Operating Officer of the Company
with such other duties and responsibilities as are customarily assigned to such
positions, and such other duties and responsibilities not inconsistent therewith
as may from time to time be assigned to him by the Board. The Executive shall
be a member of the Board on the first day of the Employment Period, and the
Board shall propose the Executive for re-election to the Board throughout the
Employment Period.
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(b) During the Employment Period the President and Chief Operating
Officer shall report to the Chief Executive Officer with specific responsibility
for planning for, day to day operation of, and regulatory affairs related to,
the gas and electric utility businesses, including but not limited to generation
(including capacity planning), transmission, distribution, general services,
industrial relations (in conjunction with human resources), and relationships
with Southern Maryland Electric Cooperative.
(c) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive shall
devote the whole of his attention and time during normal business hours (and
outside those hours when reasonably necessary to his duties hereunder) to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive under this Agreement, use the
Executive's reasonable best efforts to carry out such responsibilities
faithfully and efficiently. It shall not be considered a violation of the
foregoing for the Executive to serve on corporate, industry, civic or charitable
boards or committees, so long as such activities do not significantly interfere
with the performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement.
3. COMPENSATION. (a) BASE SALARY. The Executive's compensation
during the Employment Period shall be determined by the Board upon the
recommendation of the Committee on Management of the Board, subject to the next
sentence and Section 3(b). During the Employment Period, the Executive shall
receive an annual base salary ("Annual Base Salary") of not less than his annual
base salary from BGE as in effect immediately before the Effective Time. The
Annual Base Salary shall be payable in accordance with the Company's regular
payroll practice for its senior executives, as in effect from time to time.
During the Employment Period, the Annual Base Salary shall be reviewed for
possible increase at least annually. Any increase in the Annual Base Salary
shall not limit or reduce any other obligation of the Company under this
Agreement. The Annual Base Salary shall not be reduced after any such increase,
and the term "Annual Base Salary" shall thereafter refer to the Annual Base
Salary as so increased.
(b) INCENTIVE COMPENSATION. During the Employment Period, the
Executive shall participate in such short-term incentive compensation plans and
long-term incentive compensation plans as shall be decided upon in the
discretion of the Committee on Management of the Board (the "Incentive
Compensation").
(c) OTHER BENEFITS. In addition, and without limiting the generality
of the foregoing, during the Employment Period and thereafter: (A) the
Executive shall be entitled to participate in all applicable incentive, savings
and retirement plans, practices, policies and programs of the Company to the
same extent as other senior executives (or, where applicable, retired senior
executives) of the Company, and (B) the Executive and/or the Executive's family,
as the case may be, shall be eligible for participation in, and shall receive
all benefits under, all applicable welfare benefit plans, practices, policies
and programs provided by the Company, including, without limitation, medical,
prescription, dental, disability, sickness benefits, employee life insurance,
accidental death and travel insurance plans and programs, to the same extent as
other senior executives (or, where applicable, retired senior executives) of the
Company.
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(d) PERQUISITES. During the Employment Period, the Executive shall
be entitled to receive such perquisites as the Company may establish from time
to time which are commensurate with his position and at least comparable to
those received by other senior executives at the Company.
4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. The Company shall be entitled to terminate the
Executive's employment because of the Executive's Disability during the
Employment Period. "Disability" means that the Executive has been unable, for
a period of one hundred and eighty (180) consecutive days, to perform the
Executive's duties under this Agreement, as a result of physical or mental
illness or injury. A termination of the Executive's employment by the Company
for Disability shall be communicated to the Executive by written notice and
shall be effective on the thirtieth (30th) day after receipt of such notice by
the Executive (the "Disability Effective Date"), unless the Executive returns to
full-time performance of the Executive's duties before the Disability Effective
Date.
(b) BY THE COMPANY. (i) The Company may terminate the Executive's
employment during the Employment Period for Cause or without Cause. "Cause"
means:
A. the willful and continued failure of Executive substantially
to perform the Executive's duties under this Agreement (other than as
a result of physical or mental illness or injury), after the Board of
the Company delivers to the Executive a written demand for substantial
performance that specifically identifies the manner in which the Board
believes that the Executive has not substantially performed the
Executive's duties; or
B. illegal conduct or gross misconduct by the Executive, in
either case that is willful and results in material and demonstrable
damage to the business or reputation of the Company.
No act or failure to act on the part of the Executive shall be considered
"willful" unless it is done, or omitted to be done, by the Executive in bad
faith or without reasonable belief that the Executive's action or omission was
in the best interests of the Company. Any act or failure to act that is based
upon authority given pursuant to a resolution duly adopted by the Board, or the
advice of counsel for the Company, shall be conclusively presumed to be done, or
omitted to be done, by the Executive in good faith and in the best interests of
the Company.
(ii) A termination of the Executive's employment for Cause shall
be effected in accordance with the following procedures. The Company shall give
the Executive written notice ("Notice of Termination for Cause") of its
intention to terminate the Executive's employment for Cause, setting forth in
reasonable detail the specific conduct of the Executive that it considers to
constitute Cause and the specific provision(s) of this Agreement on which it
relies, and stating the date, time and place of the Board Meeting for Cause.
The "Board Meeting for Cause" means a meeting of the Board at which the
Executive's termination for Cause will be considered, that takes place not less
than ten (10)
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and not more than twenty (20) business days after the Executive receives the
Notice of Termination for Cause. The Executive shall be given an opportunity,
together with counsel, to be heard at the Board Meeting for Cause. The
Executive's termination for Cause shall be effective when and if a resolution is
duly adopted at the Board Meeting for Cause by a two-thirds vote of the entire
membership of the Board, excluding employee directors, stating that in the good
faith opinion of the Board, the Executive is guilty of the conduct described in
the Notice of Termination for Cause, and that conduct constitutes Cause under
this Agreement.
(iii) The Chief Executive Officer may terminate the Executive's
employment without Cause at any time to the extent permitted by the By-laws of
the Company.
(c) GOOD REASON. (i) The Executive may terminate employment for
Good Reason or without Good Reason. "Good Reason" means:
A. the assignment to the Executive of any duties inconsistent
in any respect with paragraph (a) of Section 2 of this Agreement, or
any other action by the Company that results in a diminution in the
Executive's position, authority, duties or responsibilities, other
than an isolated, insubstantial and inadvertent action that is not
taken in bad faith and is remedied by the Company promptly after
receipt of notice thereof from the Executive;
B. any failure by the Company to comply with any provision of
Section 3 of this Agreement, other than an isolated, insubstantial and
inadvertent failure that is not taken in bad faith and is remedied by
the Company promptly after receipt of notice thereof from the
Executive;
C. any purported termination of the Executive's employment by
the Company for a reason or in a manner not expressly permitted by
this Agreement;
D. any failure by the Company to comply with paragraph (c) of
Section 11 of this Agreement; or
E. any other substantial breach of this Agreement by the
Company that either is not taken in good faith or is not remedied by
the Company promptly after receipt of notice thereof from the
Executive.
(ii) A termination of employment by the Executive for Good
Reason shall be effectuated by giving the Company written notice ("Notice of
Termination for Good Reason") of the termination within six (6) months of the
event constituting Good Reason, setting forth in reasonable detail the specific
conduct of the Company that constitutes Good Reason and the specific
provision(s) of this Agreement on which the Executive relies. A termination of
employment by the Executive for Good Reason shall be effective on the fifth
(5th) business day following the date when the Notice of Termination for Good
Reason is given, unless the notice sets forth a later date (which date shall in
no event be later than (thirty) 30 days after the notice is given).
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(iii) A termination of the Executive's employment by the
Executive without Good Reason shall be effected by giving the Company written
notice of the termination.
(d) DATE OF TERMINATION. The "Date of Termination" means the date of
the Executive's death, the Disability Effective Date, the date on which the
termination of the Executive's employment by the Company for Cause or without
Cause or by the Executive for Good Reason is effective, or the date on which the
Executive gives the Company notice of a termination of employment without Good
Reason, as the case may be.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) BY THE COMPANY
OTHER THAN FOR CAUSE, DEATH OR DISABILITY; BY THE EXECUTIVE FOR GOOD REASON.
If, during the Employment Period, the Company terminates the Executive's
employment, other than for Cause, Death or Disability, or the Executive
terminates employment for Good Reason, the Company shall continue to provide the
Executive with the compensation and benefits set forth in paragraphs (a), (b)
and (c) of Section 3 as if he had remained employed by the Company pursuant to
this Agreement through the end of the Employment Period and then retired (at
which time he will be treated as eligible for all retiree welfare benefits and
other benefits provided to retired senior executives, as set forth in clause (B)
of Section 3(c)); PROVIDED, that the Incentive Compensation for such period
shall be equal to the maximum Incentive Compensation that the Executive would
have been eligible to earn for such period; PROVIDED, further, that to the
extent any benefits described in paragraph (c) of Section 3 cannot be provided
pursuant to a plan or program maintained by the Company for its executives, the
Company shall provide such benefits outside such plan or program at no
additional cost (including without limitation tax cost) to the Executive and his
family; and PROVIDED, finally, that during any period when the Executive is
eligible to receive benefits of the type described in clause (B) of paragraph
(c) of Section 3 under another employer-provided plan, the benefits provided by
the Company under this paragraph (a) of Section 5 may be made secondary to those
provided under such other plan. In addition to the foregoing, any restricted
stock outstanding on the Date of Termination shall be fully vested as of the
Date of Termination and all options outstanding on the Date of Termination shall
be fully vested and exercisable and shall remain in effect and exercisable
through the end of their respective terms, without regard to the termination of
the Executive's employment. The payments and benefits provided pursuant to this
paragraph (a) of Section 5 are intended as liquidated damages for a termination
of the Executive's employment by the Company other than for Cause or Disability
or for the actions of the Company leading to a termination of the Executive's
employment by the Executive for Good Reason, and shall be the sole and exclusive
remedy therefor.
(b) DEATH AND DISABILITY. If the Executive's employment is
terminated by reason of the Executive's death or Disability during the
Employment Period, the Company shall pay to the Executive or, in the case of the
Executive's death, to the Executive's designated beneficiaries (or, if there is
no such beneficiary, to the Executive's estate or legal representative), in a
lump sum in cash within thirty (30) days after the Date of Termination, the sum
of the following amounts (the "Accrued Obligations"): (1) any portion of the
Executive's Annual Base Salary through the Date of Termination that has been
earned but not yet been paid; (2) an amount representing the Incentive
Compensation for the period that
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includes the Date of Termination, computed by assuming that the amount of all
such Incentive Compensation would be equal to the maximum amount of such
Incentive Compensation that the Executive would have been eligible to earn for
such period, and multiplying that amount by a fraction, the numerator of which
is the number of days in such period through the Date of Termination, and the
denominator of which is the total number of days in the relevant period; and (3)
any accrued but unpaid Incentive Compensation and vacation pay. Any
compensation previously deferred by the Executive (together with any accrued
interest or earnings thereon) that has not yet been paid, will be paid in
accordance with the terms and conditions under which such amounts were initially
deferred.
(c) BY THE COMPANY FOR CAUSE; BY THE EXECUTIVE OTHER THAN FOR GOOD
REASON. If the Executive's employment is terminated by the Company for Cause
during the Employment Period, the Company shall pay the Executive the Annual
Base Salary through the Date of Termination to the extent earned but not yet
paid. If the Executive voluntarily terminates employment during the Employment
Period, other than for Good Reason, the Company shall pay the Executive the
Annual Base Salary through the Date of Termination to the extent earned but not
yet paid. The amount of any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon), will be paid under the
terms and conditions under which such amounts were initially deferred.
6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company for which the Executive may
qualify, nor, subject to paragraph (1) of Section 12, shall anything in this
Agreement limit or otherwise affect such rights as the Executive may have under
any contract or agreement with the Company. Vested benefits and other amounts
that the Executive is otherwise entitled to receive under the Incentive
Compensation, the deferred compensation and other benefit programs listed in
paragraph (c) of Section 3, the Life Insurance Coverage, or any other plan,
policy, practice or program of, or any contract or agreement with, the Company
on or after the Date of Termination shall be payable in accordance with the
terms of each such plan, policy, practice, program, contract or agreement, as
the case may be, except as explicitly modified by this Agreement.
7. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in, and otherwise to perform its obligations under, this Agreement
shall not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action that the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other employment
or take any other action by way of mitigation of the amounts payable to the
Executive under any of the provisions of this Agreement and, except as
specifically provided in paragraph (a) of Section 5 with respect to benefits
described in clause (B) of paragraph (c) of Section 3, such amounts shall not be
reduced, regardless of whether the Executive obtains other employment.
8. CONFIDENTIAL INFORMATION. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies and their respective businesses that the Executive obtains during the
Executive's employment by the Company or
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any of its affiliated companies and that is not public knowledge (other than as
a result of the Executive's violation of this Section 8) ("Confidential
Information"). The Executive shall not communicate, divulge or disseminate
Confidential Information at any time during or after the Executive's employment
with the Company, except with the prior written consent of the Company or as
otherwise required by law or legal process. In no event shall any asserted
violation of the provisions of this Section 8 constitute a basis for deferring
or withholding any amounts otherwise payable to the Executive under this
Agreement, unless the Executive is terminated for cause pursuant to paragraph
(b)(i) of Section 4 hereof.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in
this Agreement to the contrary notwithstanding, in the event it shall be
determined that any payment or distribution by the Company to or for the benefit
of the Executive (other than a payment or distribution made in respect of any
program in which the Executive participated while employed by PEPCO, regardless
whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise, and determined without regard to any additional
payments required under this Section 9) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the Executive of all
taxes (including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereon) and Excise Tax imposed upon the Gross-up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of paragraph (c) of this Section 9, all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by one of the Big Six certified public accounting firms designated by the
Executive and approved by the Company (which approval shall not be unreasonably
withheld) (the "Accounting Firm"), which shall provide detailed supporting
calculations both to the Company and the Executive within fifteen (15) business
days of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group affecting the change of control, the Executive shall designate another
Big Six accounting firm (subject to the approval of the Company, which approval
shall not be unreasonably withheld) to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 9, shall be paid by the Company to the Executive within five (5) days of
the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment") consistent with the
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calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to paragraph (c) of this Section 9 and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten (10) business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the thirty (30)
day period following the date on which he gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to
the expiration of such period that it desires to contest such claim, the
Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
PROVIDED, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this paragraph (c) of Section 9, the Company shall control all proceedings
taken in connection with such contest and, at its sole option, may pursue or
forego any and all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; PROVIDED, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income
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with respect to such advance; and PROVIDED, further, that any extension of the
statute of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to paragraph (c) of this Section 9, the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
promptly take all necessary action to obtain such refund and (subject to the
Company's complying with the requirements of paragraph (c) of this Section 9)
upon receipt of such refund shall promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If after the receipt by the Executive of an amount
advanced by the Company pursuant to paragraph (c) of this Section 9, a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of thirty (30) days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
10. ATTORNEYS' FEES. The Company agrees to pay, as incurred, to the
fullest extent permitted by law, all legal fees and expenses that the Executive
may reasonably incur as a result of any contest (provided that the Executive is
the prevailing party with respect to such contest) by the Company, the Executive
or others of the validity or enforceability of or liability under, or otherwise
involving, any provision of this Agreement, together with interest on any
delayed payment at the applicable federal rate provided for in Section
7872(f)(2)(A) of the Code.
11. SUCCESSORS. (a) This Agreement is personal to the Executive
and, without the prior written consent of the Company, shall not be assignable
by the Executive. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
both the Company as defined above and any such successor that assumes and agrees
to perform this Agreement, by operation of law or otherwise.
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12. MISCELLANEOUS. (a) This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Maryland, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified except by a written agreement executed
by the parties hereto or their respective successors and legal representatives.
(b) All notices and other communications under this Agreement shall
be in writing and shall be given by hand delivery to the other party or by
facsimile, addressed as follows:
If to the Executive, to:
1900 Pennsylvania Avenue, N.W.
Washington, D.C. 20063
Attention: Mr. John M. Derrick, Jr.
Fax: (202) 331-6314
If to the Company, to:
c/o Baltimore Gas and Electric Company
Liberty and Lexington Streets
Baltimore, Maryland 21201
Attention: David A. Brune, Esq.
General Counsel
Fax: (410) 234-5690
and to: c/o Potomac Electric Power Company
1900 Pennsylvania Avenue, N.W.
Washington, D.C. 20063
Attention: William T. Torgerson, Esq.
Senior Vice President -- Law
& Government Relations,
General Counsel and Secretary
Fax: (202) 331-6314
with a
copy, to: Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004-1490
Attention: Stephen R. Rusmisel, Esq.
Fax: (212) 858-1500
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and to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
Attention: Douglas W. Hawes, Esq.
Fax: (212) 424-8500
or to such other address as either party furnishes to the other in writing in
accordance with this paragraph (b) of Section 12. Notices and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement. If any provision of this Agreement shall be held invalid or
unenforceable in part, the remaining portion of such provision, together with
all other provisions of this Agreement, shall remain valid and enforceable and
continue in full force and effect to the fullest extent consistent with law.
(d) Notwithstanding any other provision of this Agreement, the
Company may withhold from amounts payable under this Agreement all federal,
state, local and foreign taxes that are required to be withheld by applicable
laws or regulations.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provisions of, or to assert any right under, this Agreement
(including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to paragraph (c) of Section 4 of this
Agreement) shall not be deemed to be a waiver of such provision or right or of
any other provision of or right under this Agreement.
(f) Unless otherwise specifically provided in this Agreement, the
Executive and the Company acknowledge that this Agreement supersedes any other
agreement between them or between him and PEPCO, concerning the subject matter
hereof.
(g) The rights and benefits of the Executive under this Agreement may
not be anticipated, alienated or subject to attachment, garnishment, levy,
execution or other legal or equitable process except as required by law. Any
attempt by the Executive to anticipate, alienate, assign, sell, transfer,
pledge, encumber or charge the same shall be void. Payments hereunder shall not
be considered assets of the Executive in the event of insolvency or bankruptcy.
(h) This Agreement may be executed in several counterparts, each of
which shall be deemed an original, and said counterparts shall constitute but
one and the same instrument.
(i) The provisions of this Agreement shall take effect without any
further action required by the parties at the Effective Time, and if the Closing
(as defined in the Merger Agreement) of the proposed merger shall not occur,
this entire Agreement shall be of no legal effect.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization of this Board of Directors, the Company
has caused this Agreement to be executed in its name on its behalf, all as of
the day and year first above written.
/S/ JOHN M. DERRICK, JR.
------------------------
Mr. John M. Derrick, Jr.
CONSTELLATION ENERGY CORPORATION
By /s/ DOUGLAS W. HAWES
--------------------
Mr. Douglas W. Hawes
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Exhibit C4
EMPLOYMENT AGREEMENT
THIS AGREEMENT by and between CONSTELLATION ENERGY CORPORATION, a
Maryland corporation (the "Company"), and Mr. Edward A. Crooke (the
"Executive"), dated as of the 22nd day of September, 1995.
W I T N E S S E T H T H A T
WHEREAS, the Company, POTOMAC ELECTRIC POWER COMPANY ("PEPCO") and
BALTIMORE GAS AND ELECTRIC COMPANY ("BGE") have entered into an Agreement and
Plan of Merger dated as of September 22, 1995 (the "Merger Agreement"), whereby
the PEPCO and BGE organizations will merge into the Company, with the Company as
the surviving entity; and
WHEREAS, the Company, PEPCO and BGE wish to provide for the orderly
succession of management of the Company following the Effective Time (as defined
in the Merger Agreement); and
WHEREAS, the Company, PEPCO and BGE further wish to provide for the
employment by the Company of the Executive, and the Executive wishes to serve
the Company, in the capacities and on the terms and conditions set forth in this
Agreement:
NOW, THEREFORE, it is hereby agreed as follows:
1. EMPLOYMENT PERIOD. The Company shall employ the Executive, and
the Executive shall serve the Company, on the terms and conditions set forth in
this Agreement, for the period beginning at the Effective Time (as defined in
the Merger Agreement) and ending on that date which is the last day of the
sixtieth (60th) full month following the Effective Time (the "Employment
Period") and the Agreement shall automatically renew for additional terms of one
year, unless not later than the fourth anniversary of the Agreement and each
anniversary of the Agreement thereafter, the Company shall have given notice in
writing to the Executive that it does not intend to renew the Agreement.
2. POSITION AND DUTIES. (a) During the Employment Period, the
Executive shall serve as Vice Chairman of the Company with such other duties and
responsibilities as are customarily assigned to such position, and such other
duties and responsibilities not inconsistent therewith as may from time to time
be assigned to him by the Chief Executive Officer or by the Board of Directors
of the Company (the "Board"). The Executive shall be a member of the Board on
the first day of the Employment Period, and the Board shall propose the
Executive for re-election to the Board throughout the
<PAGE>
Employment Period. He shall also be named Chairman of the Board of all of the
Company's Diversified Activities (as defined below) and the Chief Executive
Officer of each subsidiary pursuing Diversified Activities shall report to him.
(b) During the Employment Period the Executive shall report to the
Chief Executive Officer. During the Employment Period the following areas of
the Company will report to the Executive:
(i) all Diversified Activities; and
(ii) all activities related to business development and strategic
planning.
For purposes of this Section 2(b) the term "Diversified Activities" means all
subsidiaries and divisions of the Company engaged in non-core services and the
unregulated energy services businesses.
(c) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive shall
devote the whole of his attention and time during normal business hours (and
outside those hours when reasonably necessary to his duties hereunder) to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive under this Agreement, use the
Executive's reasonable best efforts to carry out such responsibilities
faithfully and efficiently. It shall not be considered a violation of the
foregoing for the Executive to serve on corporate, industry, civic or charitable
boards or committees, so long as such activities do not significantly interfere
with the performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement.
3. COMPENSATION. (a) BASE SALARY. The Executive's compensation
during the Employment Period shall be determined by the Board upon the
recommendation of the Committee on Management of the Board, subject to the next
sentence and Section 3(b). During the Employment Period, the Executive shall
receive an annual base salary ("Annual Base Salary") of not less than his annual
base salary from BGE as in effect immediately before the Effective Time. The
Annual Base Salary shall be payable in accordance with the Company's regular
payroll practice for its senior executives, as in effect from time to time.
During the Employment Period, the Annual Base Salary shall be reviewed for
possible increase at least annually. Any increase in the Annual Base Salary
shall not limit or reduce any other obligation of the Company under this
Agreement. The Annual Base Salary shall not be reduced after any such increase,
and the term "Annual Base Salary" shall thereafter refer to the Annual Base
Salary as so increased.
(b) INCENTIVE COMPENSATION. During the Employment Period, the
Executive shall participate in such short-term incentive compensation plans and
long-term incentive compensation plans as shall be decided upon in the
discretion of the Committee on Management of the Board (the "Incentive
Compensation").
(c) OTHER BENEFITS In addition, and without limiting the generality
of the foregoing, during the Employment Period and thereafter: (A) the
Executive shall be entitled
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to participate in all applicable incentive, savings and retirement plans,
practices, policies and programs of the Company to the same extent as other
senior executives (or, where applicable, retired senior executives) of the
Company, and (B) the Executive and/or the Executive's family, as the case may
be, shall be eligible for participation in, and shall receive all benefits
under, all applicable welfare benefit plans, practices, policies and programs
provided by the Company, including, without limitation, medical, prescription,
dental, disability, sick benefits, employee life insurance, accidental death
and travel insurance plans and programs, to the same extent as other senior
executives (or, where applicable, retired senior executives) of the Company.
(d) PERQUISITES. During the Employment Period, the Executive shall
be entitled to receive such perquisites as the Company may establish from time
to time which are commensurate with his position and at least comparable to
those received by other senior executives at the Company.
4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. The Company shall be entitled to terminate the
Executive's employment because of the Executive's Disability during the
Employment Period. "Disability" means that the Executive has been unable, for
a period of one hundred and eighty (180) consecutive days, to perform the
Executive's duties under this Agreement, as a result of physical or mental
illness or injury. A termination of the Executive's employment by the Company
for Disability shall be communicated to the Executive by written notice and
shall be effective on the thirtieth (30th) day after receipt of such notice by
the Executive (the "Disability Effective Date"), unless the Executive returns to
full-time performance of the Executive's duties before the Disability Effective
Date.
(b) BY THE COMPANY. (i) The Company may terminate the Executive's
employment during the Employment Period for Cause or without Cause. "Cause"
means:
A. the willful and continued failure of Executive substantially
to perform the Executive's duties under this Agreement (other than as
a result of physical or mental illness or injury), after the Board of
the Company delivers to the Executive a written demand for substantial
performance that specifically identifies the manner in which the Board
believes that the Executive has not substantially performed the
Executive's duties; or
B. illegal conduct or gross misconduct by the Executive, in
either case that is willful and results in material and demonstrable
damage to the business or reputation of the Company.
No act or failure to act on the part of the Executive shall be considered
"willful" unless it is done, or omitted to be done, by the Executive in bad
faith or without reasonable belief that the Executive's action or omission was
in the best interests of the Company. Any act or failure to act that is based
upon authority given pursuant to a resolution duly adopted by the Board, or the
advice of counsel for the Company, shall be conclusively presumed to be done,
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or omitted to be done, by the Executive in good faith and in the best interests
of the Company.
(ii) A termination of the Executive's employment for Cause shall
be effected in accordance with the following procedures. The Company shall give
the Executive written notice ("Notice of Termination for Cause") of its
intention to terminate the Executive's employment for Cause, setting forth in
reasonable detail the specific conduct of the Executive that it considers to
constitute Cause and the specific provision(s) of this Agreement on which it
relies, and stating the date, time and place of the Board Meeting for Cause.
The "Board Meeting for Cause" means a meeting of the Board at which the
Executive's termination for Cause will be considered, that takes place not less
than ten (10) and not more than twenty (20) business days after the Executive
receives the Notice of Termination for Cause. The Executive shall be given an
opportunity, together with counsel, to be heard at the Board Meeting for Cause.
The Executive's termination for Cause shall be effective when and if a
resolution is duly adopted at the Board Meeting for Cause by a two-thirds vote
of the entire membership of the Board, excluding employee directors, stating
that in the good faith opinion of the Board, the Executive is guilty of the
conduct described in the Notice of Termination for Cause, and that conduct
constitutes Cause under this Agreement.
(iii) The Chief Executive Officer may terminate the Executive's
employment without Cause at any time to the extent permitted by the By-laws of
the Company.
(c) GOOD REASON. (i) The Executive may terminate employment for
Good Reason or without Good Reason. "Good Reason" means:
A. the assignment to the Executive of any duties inconsistent
in any respect with paragraph (a) of Section 2 of this Agreement, or
any other action by the Company that results in a diminution in the
Executive's position, authority, duties or responsibilities, other
than an isolated, insubstantial and inadvertent action that is not
taken in bad faith and is remedied by the Company promptly after
receipt of notice thereof from the Executive;
B. any failure by the Company to comply with any provision of
Section 3 of this Agreement, other than an isolated, insubstantial and
inadvertent failure that is not taken in bad faith and is remedied by
the Company promptly after receipt of notice thereof from the
Executive;
C. any purported termination of the Executive's employment by
the Company for a reason or in a manner not expressly permitted by
this Agreement;
D. any failure by the Company to comply with paragraph (c) of
Section 11 of this Agreement; or
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E. any other substantial breach of this Agreement by the
Company that either is not taken in good faith or is not remedied by
the Company promptly after receipt of notice thereof from the
Executive.
(ii) A termination of employment by the Executive for Good
Reason shall be effectuated by giving the Company written notice ("Notice of
Termination for Good Reason") of the termination within six (6) months of the
event constituting Good Reason, setting forth in reasonable detail the specific
conduct of the Company that constitutes Good Reason and the specific
provision(s) of this Agreement on which the Executive relies. A termination of
employment by the Executive for Good Reason shall be effective on the fifth
(5th) business day following the date when the Notice of Termination for Good
Reason is given, unless the notice sets forth a later date (which date shall in
no event be later than (thirty) 30 days after the notice is given).
(iii) A termination of the Executive's employment by the
Executive without Good Reason shall be effected by giving the Company written
notice of the termination.
(d) DATE OF TERMINATION. The "Date of Termination" means the date of
the Executive's death, the Disability Effective Date, the date on which the
termination of the Executive's employment by the Company for Cause or without
Cause or by the Executive for Good Reason is effective, or the date on which the
Executive gives the Company notice of a termination of employment without Good
Reason, as the case may be.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) BY THE COMPANY
OTHER THAN FOR CAUSE, DEATH OR DISABILITY; BY THE EXECUTIVE FOR GOOD REASON.
If, during the Employment Period, the Company terminates the Executive's
employment, other than for Cause, Death or Disability, or the Executive
terminates employment for Good Reason, the Company shall continue to provide the
Executive with the compensation and benefits set forth in paragraphs (a), (b)
and (c) of Section 3 as if he had remained employed by the Company pursuant to
this Agreement through the end of the Employment Period and then retired (at
which time he will be treated as eligible for all retiree welfare benefits and
other benefits provided to retired senior executives, as set forth in clause (B)
of Section 3(c); PROVIDED, that the Incentive Compensation for such period shall
be equal to the maximum Incentive Compensation that the Executive would have
been eligible to earn for such period; PROVIDED, further, that to the extent any
benefits described in paragraph (c) of Section 3 cannot be provided pursuant to
a plan or program maintained by the Company for its executives, the Company
shall provide such benefits outside such plan or program at no additional cost
(including without limitation tax cost) to the Executive and his family; and
PROVIDED, finally, that during any period when the Executive is eligible to
receive benefits of the type described in clause (B) of paragraph (c) of Section
3 under another employer-provided plan, the benefits provided by the Company
under this paragraph (a) of Section 5 may be made secondary to those provided
under such other plan. In addition to the foregoing, any restricted stock
outstanding on the Date of Termination shall be fully vested as of the Date of
Termination and all options outstanding on the Date of Termination shall be
fully vested and exercisable and shall remain in effect and exercisable through
the end of their respective terms, without regard to the termination of the
Executive's employment.
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The payments and benefits provided pursuant to this paragraph (a) of Section 5
are intended as liquidated damages for a termination of the Executive's
employment by the Company other than for Cause or Disability or for the actions
of the Company leading to a termination of the Executive's employment by the
Executive for Good Reason, and shall be the sole and exclusive remedy therefor.
(b) DEATH AND DISABILITY. If the Executive's employment is
terminated by reason of the Executive's death or Disability during the
Employment Period, the Company shall pay to the Executive or, in the case of the
Executive's death, to the Executive's designated beneficiaries (or, if there is
no such beneficiary, to the Executive's estate or legal representative), in a
lump sum in cash within thirty (30) days after the Date of Termination, the sum
of the following amounts (the "Accrued Obligations"): (1) any portion of the
Executive's Annual Base Salary through the Date of Termination that has been
earned but not yet been paid; (2) an amount representing the Incentive
Compensation for the period that includes the Date of Termination, computed by
assuming that the amount of all such Incentive Compensation would be equal to
the maximum amount of such Incentive Compensation that the Executive would have
been eligible to earn for such period, and multiplying that amount by a
fraction, the numerator of which is the number of days in such period through
the Date of Termination, and the denominator of which is the total number of
days in the relevant period; and (3) any accrued but unpaid Incentive
Compensation and vacation pay. Any compensation previously deferred by the
Executive (together with any accrued interest or earnings thereon) that has not
yet been paid, will be paid in accordance with the terms and conditions under
which such amounts were initially deferred.
(c) BY THE COMPANY FOR CAUSE; BY THE EXECUTIVE OTHER THAN FOR GOOD
REASON. If the Executive's employment is terminated by the Company for Cause
during the Employment Period, the Company shall pay the Executive the Annual
Base Salary through the Date of Termination to the extent earned but not yet
paid. If the Executive voluntarily terminates employment during the Employment
Period, other than for Good Reason, the Company shall pay the Executive the
Annual Base Salary through the Date of Termination to the extent earned but not
yet paid. The amount of any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon), will be paid under the
terms and conditions under which such amounts were initially deferred.
6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company for which the Executive may
qualify, nor, subject to paragraph (1) of Section 12, shall anything in this
Agreement limit or otherwise affect such rights as the Executive may have under
any contract or agreement with the Company. Vested benefits and other amounts
that the Executive is otherwise entitled to receive under the Incentive
Compensation, the deferred compensation and other benefit programs listed in
paragraph (c) of Section 3, the Life Insurance Coverage, or any other plan,
policy, practice or program of, or any contract or agreement with, the Company
on or after the Date of Termination shall be payable in accordance with the
terms of each such plan, policy, practice, program, contract or agreement, as
the case may be, except as explicitly modified by this Agreement.
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7. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in, and otherwise to perform its obligations under, this Agreement
shall not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action that the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other employment
or take any other action by way of mitigation of the amounts payable to the
Executive under any of the provisions of this Agreement and, except as
specifically provided in paragraph (a) of Section 5 with respect to benefits
described in clause (B) of paragraph (c) of Section 3, such amounts shall not be
reduced, regardless of whether the Executive obtains other employment.
8. CONFIDENTIAL INFORMATION. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies and their respective businesses that the Executive obtains during the
Executive's employment by the Company or any of its affiliated companies and
that is not public knowledge (other than as a result of the Executive's
violation of this Section 8) ("Confidential Information"). The Executive shall
not communicate, divulge or disseminate Confidential Information at any time
during or after the Executive's employment with the Company, except with the
prior written consent of the Company or as otherwise required by law or legal
process. In no event shall any asserted violation of the provisions of this
Section 8 constitute a basis for deferring or withholding any amounts otherwise
payable to the Executive under this Agreement, unless the Executive is
terminated for cause pursuant to paragraph (b)(i) of Section 4 hereof.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in
this Agreement to the contrary notwithstanding, in the event it shall be
determined that any payment or distribution by the Company to or for the benefit
of the Executive (other than a payment or distribution made in respect of any
program in which the Executive participated while employed by BGE, regardless
whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise, and determined without regard to any additional
payments required under this Section 9) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the Executive of all
taxes (including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereon) and Excise Tax imposed upon the Gross-up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of paragraph (c) of this Section 9, all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by one of the Big Six certified public accounting firms designated by the
Executive and approved by the Company (which approval shall not be unreasonably
withheld) (the "Accounting Firm"), which shall provide detailed supporting
calculations both to the Company and the Executive
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within fifteen (15) business days of the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group affecting the change of control, the
Executive shall designate another Big Six accounting firm (subject to the
approval of the Company, which approval shall not be unreasonably withheld) to
make the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five (5) days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made ("Underpayment")
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to paragraph (c) of this Section
9 and the Executive thereafter is required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company to or
for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten (10) business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the thirty (30)
day period following the date on which he gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to
the expiration of such period that it desires to contest such claim, the
Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
PROVIDED, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or
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income tax (including interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this paragraph (c) of Section 9, the
Company shall control all proceedings taken in connection with such contest and,
at its sole option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct the Executive to pay the
tax claimed and sue for a refund or contest the claim in any permissible manner,
and the Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; PROVIDED, however, that if the
Company directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and PROVIDED,
further, that any extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to paragraph (c) of this Section 9, the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
promptly take all necessary action to obtain such refund and (subject to the
Company's complying with the requirements of paragraph (c) of this Section 9)
upon receipt of such refund shall promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If after the receipt by the Executive of an amount
advanced by the Company pursuant to paragraph (c) of this Section 9, a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of thirty (30) days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
10. ATTORNEYS' FEES. The Company agrees to pay, as incurred, to the
fullest extent permitted by law, all legal fees and expenses that the Executive
may reasonably incur as a result of any contest (provided that the Executive is
the prevailing party with respect to such contest) by the Company, the Executive
or others of the validity or enforceability of or liability under, or otherwise
involving, any provision of this Agreement, together with interest on any
delayed payment at the applicable federal rate provided for in Section
7872(f)(2)(A) of the Code.
11. SUCCESSORS. (a) This Agreement is personal to the Executive
and, without the prior written consent of the Company, shall not be assignable
by the Executive.
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This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
both the Company as defined above and any such successor that assumes and agrees
to perform this Agreement, by operation of law or otherwise.
12. MISCELLANEOUS. (a) This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Maryland, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified except by a written agreement executed
by the parties hereto or their respective successors and legal representatives.
(b) All notices and other communications under this Agreement shall
be in writing and shall be given by hand delivery to the other party or by
facsimile, addressed as follows:
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If to the Executive, to:
Liberty and Lexington Streets
Baltimore, Maryland 21201
Attention: Mr. Edward A. Crooke
Fax: (410) 234-7800
If to the Company, to:
c/o Baltimore Gas and Electric Company
Liberty and Lexington Streets
Baltimore, Maryland 21201
Attention: David A. Brune, Esq.
General Counsel
Fax: (410) 234-5690
and to: c/o Potomac Electric Power Company
1900 Pennsylvania Avenue, N.W.
Washington, D.C. 20063
Attention: William T. Torgerson, Esq.
Senior Vice President -- Law
& Government Relations,
General Counsel and Secretary
Fax: (202) 331-6314
with a
copy to: Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004-1490
Attention: Stephen R. Rusmisel, Esq.
Fax: (212) 858-1500
and to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
Attention: Douglas W. Hawes, Esq.
Fax: (212) 424-8500
or to such other address as either party furnishes to the other in writing in
accordance with this paragraph (b) of Section 12. Notices and communications
shall be effective when actually received by the addressee.
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(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement. If any provision of this Agreement shall be held invalid or
unenforceable in part, the remaining portion of such provision, together with
all other provisions of this Agreement, shall remain valid and enforceable and
continue in full force and effect to the fullest extent consistent with law.
(d) Notwithstanding any other provision of this Agreement, the
Company may withhold from amounts payable under this Agreement all federal,
state, local and foreign taxes that are required to be withheld by applicable
laws or regulations.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provisions of, or to assert any right under, this Agreement
(including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to paragraph (c) of Section 4 of this
Agreement) shall not be deemed to be a waiver of such provision or right or of
any other provision of or right under this Agreement.
(f) Unless otherwise specifically provided in this Agreement, the
Executive and the Company acknowledge that this Agreement supersedes any other
agreement between them or between him and BGE, concerning the subject matter
hereof.
(g) The rights and benefits of the Executive under this Agreement may
not be anticipated, alienated or subject to attachment, garnishment, levy,
execution or other legal or equitable process except as required by law. Any
attempt by the Executive to anticipate, alienate, assign, sell, transfer,
pledge, encumber or charge the same shall be void. Payments hereunder shall not
be considered assets of the Executive in the event of insolvency or bankruptcy.
(h) This Agreement may be executed in several counterparts, each of
which shall be deemed an original, and said counterparts shall constitute but
one and the same instrument.
(i) The provisions of this Agreement shall take effect without any
further action required by the parties at the Effective Time, and if the Closing
(as defined in the Merger Agreement) of the proposed merger shall not occur,
this entire Agreement shall be of no legal effect.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization of this Board of Directors, the Company
has caused this Agreement to be executed in its name on its behalf, all as of
the day and year first above written.
/S/ EDWARD A. CROOKE
--------------------
Mr. Edward A. Crooke
CONSTELLATION ENERGY CORPORATION
By /s/ STEPHEN R. RUSMISEL
------------------------
Mr. Stephen R. Rusmisel
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AMENDED AND RESTATED
ARTICLES OF INCORPORATION
-of-
CONSTELLATION ENERGY CORPORATION
_______________________
The Amended and Restated Articles of Incorporation of [Michener] are
as follows:
FIRST: CORPORATE NAME AND PRINCIPAL OFFICE. The name of the
corporation (the "CORPORATION") is Constellation Energy Corporation. The
Corporation's principal office is located at [INSERT].
SECOND: REGISTERED AGENTS. The address of the Corporation's registered
office in the State of Maryland is [INSERT]. The name of its registered agent at
such address is [INSERT], who is a citizen and a resident of Maryland or a
Maryland Corporation. The address of the Corporation's registered office in the
Commonwealth of Virginia is [INSERT]. The name of its registered agent at such
address is [INSERT], who is a resident of Virginia and a member of the Virginia
State Bar.
THIRD: PURPOSES. The nature of the business or purposes to be
conducted or promoted are:
(a) To conduct or promote the energy business, including, but not
limited to, the gas and electric energy business; and
(b) To do any and all other things and exercise any and all other
powers which now or hereafter may be permitted by law,
PROVIDED, HOWEVER, that in the Commonwealth of Virginia the Corporation shall
restrict its business and purposes to those of a public service company engaged
in the electric energy business.
FOURTH: DURATION. The duration of the Corporation is perpetual.
FIFTH: INCORPORATOR. The name and mailing address of the incorporator
is Billie J. Swoboda, c/o The Corporation Trust Incorporated, 32 South Street,
Baltimore, Maryland 21202. The incorporator is at least 18 years old and
originally formed this Corporation under the general laws of the State of
Maryland.
<PAGE>
SIXTH: BOARD OF DIRECTORS.
(a) MANAGEMENT OF CORPORATION. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors.
(b) NUMBER. The Board of Directors shall consist of sixteen (16)
members unless otherwise provided in the By-Laws.
(c) CLASSIFIED BOARD.
(i) The directors of the Corporation shall be divided into
three classes: Class I, Class II and Class III.
(ii) Each class shall consist, as nearly as may be possible,
of one-third of the number of directors constituting the entire Board.
(iii) The initial Class I directors shall be elected to hold
office for a term to expire at the 199_ [INSERT YEAR OF FIRST ANNUAL
MEETING OCCURING AT LEAST ONE YEAR AFTER EFFECTIVE DATE] annual
meeting of the stockholders; the initial Class II directors shall be
elected to hold office for a term to expire at the 199_ [INSERT YEAR
OF FIRST ANNUAL MEETING OCCURING AT LEAST TWO YEARS AFTER EFFECTIVE
DATE] annual meeting of the stockholders; and the initial Class III
directors shall be elected to hold office for a term to expire at the
199_ [INSERT YEAR OF FIRST ANNUAL MEETING OCCURRING AT LEAST THREE
YEARS AFTER EFFECTIVE DATE] annual meeting of the stockholders; and,
in the case of each Class, until their respective successors are duly
elected and qualified, subject, however, to death, resignation,
retirement, such age and service limitations as may be set forth in
the By-Laws, disqualification and removal from office.
(iv) At each annual meeting of the stockholders, the
directors elected to succeed those whose terms expire shall be
identified as being of the same Class as the directors they succeed
and shall be elected to hold office for a term to expire at the third
annual meeting of the stockholders after their election, and until
their respective successors are duly elected and qualified, subject,
however, to death, resignation, retirement, such age and service
limitations as may be set forth in the By-Laws, disqualification and
removal from office.
(v) If the number of directors is changed, any increase or
decrease in directors shall be apportioned among the Classes so as to
maintain all Classes as equal in number as possible, and any
additional director elected to any Class shall hold office for a term
which shall coincide with the terms of the other directors in such
Class (subject to the provisions of applicable law).
(d) VACANCY.
(i) Any vacancy on the Board of Directors that results from
other than a removal or an increase in the number of directors may be
filled by a majority of the Board of Directors then in office even if
less than a quorum, or by a sole remaining director.
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(ii) Any vacancy on the Board of Directors that results from
an increase in the number of directors may be filled by a majority of
the entire Board of Directors.
(e) REMOVAL. Directors of the Corporation may be removed only for
cause and only upon the affirmative vote of the holders of two-thirds of
the outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as one
class) cast at a meeting of the stockholders called for that purpose.
(f) Notwithstanding any other provision of this Article SIXTH,
whenever the holders of any class or series of stock issued by the
Corporation shall have the right, voting separately by class or series, to
elect directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of the Articles of
Incorporation applicable thereto, and such directors so elected shall not
be divided into classes pursuant to Section (c) of this Article SIXTH
unless expressly provided by such terms.
(g) BY-LAWS. The Board of Directors shall have the power to
adopt, alter, amend or repeal the By-Laws of the Corporation.
(h) ISSUANCE OF STOCK. Subject to and upon compliance with all
of the provisions of these Articles of Incorporation, the capital stock of
the Corporation, Preferred, Preference and Common, may be issued and
disposed of as and when such issuance may, pursuant to the laws of Maryland
and Virginia, be authorized by the Board of Directors. The Board of
Directors is hereby empowered by resolution to authorize the issuance from
time to time of shares of Common Stock without par value and securities
convertible into shares of Common Stock without par value and rights to
purchase the same for such consideration as said Board of Directors may
deem advisable. The Board of Directors is hereby empowered by resolution
to authorize the issuance of any number of shares of Preferred or
Preference Stock of one or more classes or series and/or any amount of
convertible securities and/or rights to purchase the same from time to time
for such considerations as said Board of Directors may deem advisable. The
holders of shares of capital stock of the Corporation shall have no
preferential or preemptive right, as stockholders, to subscribe for,
purchase or receive any proportionate or other part of any issue of
additional capital stock of any class, now or hereafter authorized, which
may be issued by the Corporation, except such right, if any, as may be
conferred by the Board of Directors in authorizing such issuance. In
furtherance and not in limitation of the powers already vested in the
Corporation or the Board of Directors, the Corporation, through the Board
of Directors, may authorize from time to time the issuance and disposition,
pursuant to the laws of Maryland and Virginia, of shares of Common Stock to
any or all of its employees, including officers, or to trustees on behalf
of such employees for such considerations as said Board of Directors may
deem advisable. Notwithstanding any other provision contained in these
Articles of Incorporation, the Board of Directors of the Corporation may
authorize the issuance of some or all of the shares of Common Stock,
Preference Stock or Preferred Stock of any or all classes or series
authorized under these Articles of Incorporation without certificates.
This authorization shall not affect shares already represented by
certificates outstanding until they are surrendered to the Corporation.
SEVENTH: INDEMNIFICATION AND LIMITATION OF LIABILITY.
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(a) (i) The Corporation shall indemnify
(A) its directors, officers and employees, whether
serving the Corporation or at its request any other entity, to
the fullest extent required or permitted by applicable law,
including the General Laws of the State of Maryland and the Code
of Virginia, now or hereafter in force, including, without
limiting the generality of the foregoing, the advance of
expenses, and
(B) other individuals and entities, including agents,
to such extent as shall be authorized by the Board of Directors
or the Corporation's By-Laws and as shall be permitted by
applicable law now or hereafter in force.
(ii) The foregoing rights of indemnification shall not be
exclusive of any other rights to which those seeking indemnification
may be entitled.
(iii) The Board of Directors may take such action as is
necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time such
by-laws, resolutions or contracts implementing such provisions or such
further indemnification arrangements as may be permitted by law.
(b) To the fullest extent permitted by applicable statutory or
decisional law, as amended or interpreted, no director or officer of
this Corporation shall be personally liable to the Corporation or its
stockholders for money damages.
(c) No amendment of the Articles of Incorporation or repeal of
any of its provisions shall limit or eliminate either the limitation
on liability provided to directors and officers or the right to
indemnification provided hereunder with respect to any acts or
omissions occurring prior to such amendment or repeal.
EIGHTH: CAPITAL STOCK. The total number of shares of all classes of
capital stock which the Corporation shall have authority to issue is _________
shares of capital stock. Such capital stock shall be divided into four classes,
consisting of:
(a) __________ shares of Common Stock without par value,
(b) __________ shares of Class A Preferred Stock, with a par
value of $100 per share, having an aggregate par value of $__________,
including the series specified in Article ELEVENTH below,
(c) __________ shares of Class B Preferred Stock, with a par
value of $50 per share, having an aggregate par value of $__________,
including the series specified in Article ELEVENTH below, and
(d) [6,500,000] shares of Preference Stock, with a par value of
$100 per share, having an aggregate par value of $[650,000,000], including
the series specified in Article ELEVENTH below.
The aggregate par value of all such shares of capital stock having par value is
$__________.
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NINTH: VOTING RIGHTS.
(a) COMMON STOCK. Each holder of Common Stock shall have one vote
in respect of each share of Common Stock held by such holder on all matters
submitted generally to a vote of stockholders of the Corporation.
(b) CLASS A PREFERRED STOCK. Except as provided in Section
(a)(vi)(A)(II) of Article ELEVENTH, the Class A Preferred Stock shall have
no voting power, except that:
(i) the Class A Preferred Stock shall have twenty-four votes
for each share of Class A Preferred Stock with respect to any proposed
amendment of the Articles of Incorporation of the Corporation (other
than any such amendment as is specified in section (b)(i)(A) of
Article ELEVENTH hereof), any proposed consolidation with any other
corporation or corporations, any proposed sale, lease or exchange of
all its property and assets as an entirety, including its goodwill and
franchises, to or with any other corporation or any proposed
dissolution of the Corporation, and no such amendment of the
Corporation's Articles of Incorporation, consolidation, sale, lease,
exchange or dissolution shall be authorized, ratified, adopted or
effected without the affirmative vote of two-thirds of all the shares
of Class A Preferred Stock outstanding in favor of such amendment,
consolidation, sale, lease, exchange or dissolution, as the case may
be; and
(ii) whenever the Corporation shall fail to pay full
dividends on the Class A Preferred Stock and such failure shall
continue for one year, the Class A Preferred Stock shall then have
twenty-four votes for each share of Class A Preferred Stock with
respect to all matters, until and unless all such dividends shall have
been paid in full;
PROVIDED, HOWEVER, that immediately upon the retirement of the Class A
Preferred Stock issuable in exchange for the shares of Baltimore Gas and
Electric Company Preferred Stock outstanding as of November 27, 1961,
consisting as of the date of these Articles of Incorporation of [222,921]
shares of Series B 4 1/2% and [68,928] shares of Series C 4% Preferred
Stock and without further action by the officers, Board of Directors, or
stockholders of the Corporation, the foregoing provisions of subsections
(i) and (ii) above shall be deleted and of no further effect and the
following subsections (i) and (ii) in lieu thereof shall be fully operative
(and all Class A Preferred Stock issuable in exchange for shares of
Baltimore Gas and Electric Company Preferred Stock issued after November
27, 1961, or issued after the date of adoption of these Amended and
Restated Articles of Incorporation, but prior to the retirement of the
outstanding shares of Class A Preferred Stock specified above shall be
subject to such deletion and amendment):
(x) The Class A Preferred Stock shall have four votes for
each share of Class A Preferred Stock with respect to any proposed
amendment of the Articles of Incorporation of the Corporation (other
than any such amendment as is specified in section (b)(i)(A) of
Article ELEVENTH hereof), any proposed consolidation with any other
corporation or corporations, any proposed sale, lease, or exchange of
all its property and assets as an entirety, including its goodwill and
franchises, to or with any other corporation or any proposed
dissolution of the Corporation, and no such amendment of the
Corporation's Articles of Incorporation, consolidation, sale, lease,
exchange, or dissolution shall be authorized, ratified, adopted, or
effected without the
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affirmative vote of two-thirds of all the shares of Class A Preferred
Stock outstanding in favor of such amendment, consolidation, sale,
lease, exchange or dissolution, as the case may be; and
(y) whenever the Corporation shall fail to pay full
dividends on the Class A Preferred Stock and such failure shall
continue for one year, the Class A Preferred Stock shall then have
four votes for each share of Class A Preferred Stock with respect to
all matters, until and unless all such dividends shall have been paid
in full.
(c) CLASS B PREFERRED STOCK.
(i) DEFINITIONS. The following terms, as used in these
Articles of Incorporation, shall have the following meanings:
(A) (I) The term "senior stock" shall mean any class
of stock ranking in its claim to dividends or other
distributions or in liquidation prior to the __________
shares of Class B Preferred Stock created hereby;
(II) The term "parity stock" shall mean any class
of stock ranking in its claim to dividends or other
distributions or in liquidation on a parity with the Class B
Preferred Stock, but shall not include any of the __________
shares of Class B Preferred Stock created hereby, nor shall
it include any increase in the authorized amount of the
Class B Preferred Stock; and
(III) The term "junior stock" shall mean the
Preference Stock, the Common Stock and any other class of
stock ranking in its claim to dividends or other
distributions or in liquidation junior to the Class B
Preferred Stock.
(ii) The Class B Preferred Stock has no voting power, except
that:
(A) (I) Whenever dividends payable thereon are in
default in an amount equal to four full quarter-yearly
dividends, and until such default shall have been remedied
as hereinafter provided, the holders of Class B Preferred
Stock, voting separately, shall become entitled to elect
twenty-five percent of the Board of Directors, or the
smallest number of directors that exceeds twenty-five
percent of the Board, but in no event less than two
directors, and the other stockholders then entitled to vote
for the election of directors, voting separately by classes
if so required by the provisions applicable to such classes,
shall be entitled to elect the remaining directors of the
Corporation.
(II) Upon the accrual of such special right to the
holders of Class B Preferred Stock, a meeting of the
stockholders then entitled to vote for the election of
directors shall be held upon notice
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promptly given, as provided in the By-Laws for a special
meeting, by the President or the Chairman of the Board of
Directors of the Corporation.
(III) If within fifteen days after the accrual of
such special right to the holders of Class B Preferred
Stock, the President and the Chairman of the Board of the
Corporation shall fail to call such meeting, then such
meeting shall be held upon notice, as provided in the By-
Laws for a special meeting, given by the holders of not less
than five hundred shares of Class B Preferred Stock after
filing with the Corporation notice of their intention to do
so.
(IV) The terms of office of all persons who may be
directors of the Corporation at the time shall terminate
upon the election of directors by the holders of Class B
Preferred Stock, whether or not at the time of such
termination the remaining directors of the Corporation shall
have been elected; and thereafter and during the continuance
of such special right of the holders of the Class B
Preferred Stock, the Board of Directors shall be divided
into two or more classes, one class consisting of the
directors to be elected by the holders of Class B Preferred
Stock, and the other class or classes consisting of
directors to be elected by the other stockholders entitled
to vote for the election of directors, and the directors of
each such class elected at such meeting, or at any
adjournment thereof, and the directors of each such class
elected at any subsequent annual meeting for the election of
directors, held during the continuance of such special
right, shall hold office until the next succeeding annual
election and until their respective successors by classes
are elected and qualified.
(B) (I) However, if and when all dividends then in
default on the Class B Preferred Stock shall be paid (and
such dividends shall be declared and paid as soon as
reasonably practicable out of surplus or net profits, but
without diminishing the amount of capital of the
Corporation), the holders of Class B Preferred Stock shall
be divested of such special right referred to in Section
(c)(ii)(A), but subject always to the same provisions for
the revesting of such special right in the holders of Class
B Preferred Stock in the case of any similar future default
or defaults.
(II) Whenever the holders of Class B Preferred
Stock shall be so divested of such special right, the method
of election of the Board of Directors by the right of the
other stockholders entitled to vote for the election of
directors exclusively shall be restored, and the election of
directors shall take place at the next succeeding annual
meeting for the election of directors, or at any adjournment
thereof.
(C) (I) Except as hereinafter provided, during the
continuance of the special right of the holders of the Class
B Preferred
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Stock to elect directors as provided in Section (c)(ii)(A)
of this Article NINTH, at all meetings for the election of
directors the presence in person or by proxy of the holders
of record of a majority of the outstanding shares of the
Class B Preferred Stock shall be necessary to constitute a
quorum for the election of directors whom the holders of
such class are entitled to elect, and the presence in person
or by proxy of the holders of record of a majority of the
outstanding shares of each other class of stock then
entitled to vote for the election of directors shall be
necessary to constitute a quorum for the election of the
directors whom the holders of such class of stock are
entitled to elect.
(II) In the absence of such a quorum of the
holders of stock of any particular class then entitled to
vote for the election of directors, the holders of a
majority of the shares of the stock of such class so present
in person or represented by proxy may adjourn from time to
time the meeting for the election of directors to be elected
by such stock, without notice other than announcement at the
meeting, until the requisite quorum for the holders of such
stock shall be obtained. However, at the first meeting for
the election of directors after any accrual of the special
right of the holders of Class B Preferred Stock, and at any
subsequent annual meeting for the election of directors held
during the continuance of such special right, if there shall
not be such a quorum of the holders of Class B Preferred
Stock the meeting shall be adjourned from time to time as
above provided until such quorum shall have been obtained;
PROVIDED that, if such quorum shall not have been obtained
within 90 days from the date of such meeting as originally
called (or, in the case of any annual meeting held during
the continuance of such special right, from the date fixed
for such annual meeting), the presence in person or by proxy
of the holders of record of one third of the outstanding
shares of Class B Preferred Stock shall then be sufficient
to constitute a quorum for the election of the directors
whom the holders of Class B Preferred Stock are then
entitled to elect.
(III) The absence of a quorum of the holders of
any class of stock then entitled to vote for the election of
directors shall not, except as hereinafter provided, prevent
or invalidate the election by the other class or classes of
stockholders of the directors which they are entitled to
elect, if the necessary quorum of stockholders of such other
class or classes is present in person or represented by
proxy at any such meeting or any adjournment thereof.
However, at the first meeting for the election of directors
after the accrual of the special right of the holders of
Class B Preferred Stock to elect directors as provided in
Section (c)(ii)(A) of this Article NINTH, the absence of a
quorum of the holders of Class B Preferred Stock shall
prevent the election of directors by the holders of Common
Stock until the election of directors by the holders of
Class B Preferred Stock after a quorum of the holders of
Class B Preferred Stock shall have been obtained.
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(ii) So long as any shares of Class B Preferred Stock
are outstanding, no amendment to the Articles of
Incorporation of the Corporation which would
(A) create, change any junior stock into, or
increase the rights and preferences of, any senior or parity
stock,
(B) increase the authorized amount of the Class B
Preferred Stock in excess of the [ ] shares created
hereby or the authorized amount of any senior or parity stock, or
(C) change the express terms of the outstanding
shares of Class B Preferred Stock in any manner substantially
prejudicial to the holders thereof,
shall be made without the affirmative consent of the holders (given in
writing without a meeting or by a vote at a meeting duly called for
the purpose) of more than two-thirds of the aggregate number of shares
of the Class B Preferred Stock then outstanding; but any such
amendment may be made with such affirmative consent, together with
such additional vote or consent of stockholders as from time to time
may be required by law; PROVIDED, HOWEVER, that if any such amendment
would change the express terms of the outstanding shares of Class B
Preferred Stock of any particular series in a manner substantially
prejudicial to the holders thereof without correspondingly affecting
the holders of the outstanding shares of Class B Preferred Stock of
all series, then, in lieu of such consent of the holders of Class B
Preferred Stock (or, if such consent of the holders of the outstanding
shares of Class B Preferred Stock is required by law, in addition
thereto), a like affirmative consent of the holders of more than two-
thirds of the Class B Preferred Stock of the affected series at the
time outstanding shall be necessary for making such amendment.
(iv) So long as any shares of the Class B Preferred Stock
are outstanding, the Corporation shall not, without the affirmative
consent of the holders (given in writing without a meeting or by a
vote at a meeting duly called for the purpose) duly called for the
purpose) of at least a majority of the aggregate number of shares of
Class B Preferred Stock then outstanding:
(A) issue any shares of the Class B Preferred Stock, in
excess of 300,000 shares thereof at any one time outstanding, or
issue any shares of senior or parity stock (either directly or by
reclassification), unless for a period of twelve consecutive
calendar months within the fifteen calendar months next preceding
the date on which such shares are to be issued net earnings
(after depreciation and taxes but before deducting interest) have
been at least one and one-half times the annual interest charges
and dividend requirements on all indebtedness of the Corporation
and on all shares of Class B Preferred Stock and senior and
parity stock which shall then be outstanding; for the purpose of
such computation, the shares and any indebtedness proposed to be
issued in connection with such issue shall be included, but any
indebtedness or shares proposed to be retired in connection with
such issue shall be excluded, and in determining such net
earnings, the Board of Directors of the Corporation shall make
such adjustments, by way of increase or decrease in such net
earnings, as shall in their opinion be necessary to give
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effect, for the entire twelve months for which such net earnings
are determined, to any acquisition or disposition of property the
earnings of which can be separately ascertained, and to any
issue, sale, assumption or retirement of securities, which shall
have occurred after the commencement of such twelve months'
period and prior to or in connection with the issue of the shares
of the Class B Preferred Stock or senior and parity stock; or
(B) issue any shares of the Class B Preferred Stock,
in excess of 300,000 shares thereof at any one time outstanding,
or issue any shares of senior or parity stock (either directly or
by reclassification), unless immediately after such proposed
issue the aggregate of
(I) the capital of the Corporation applicable to
its stock ranking junior as to assets and dividends, and
(II) the surplus of the Corporation
shall be not less than the aggregate amount payable upon
involuntary liquidation to the holders of the Class B Preferred
Stock and of senior and parity stock then to be outstanding,
excluding from such computation all stock to be retired through
such proposed issue; or
(C) merge or consolidate with or into any other
Corporation or Corporations or sell or lease all or substantially
all of its assets, unless such merger, consolidation, sale or
lease, or the issue and assumption of all securities to be issued
or assumed in connection with any such merger, consolidation,
sale or lease shall have been ordered, approved or permitted by
the regulatory authority or authorities having jurisdiction in
the premises; PROVIDED that the provisions of this paragraph (C)
shall not apply to a purchase, lease or other acquisition by the
Corporation of the franchises or assets of another Corporation,
or otherwise apply in any manner which does not involve a merger
or consolidation or sale or lease by the Corporation of all or
substantially all of its assets.
(d) PREFERENCE STOCK. The Preference Stock shall have no voting
power, except that:
(i) The Preference Stock shall have one vote for each share
of Preference Stock with respect to any proposed amendment of the
Articles of Incorporation of the Corporation which would create or
authorize any shares of stock ranking prior to or on a parity with the
Preference Stock as to dividends or as to distribution of assets, or
which would substantially adversely affect the contract rights, as
expressly set forth in the Articles of Incorporation, of the
Preference Stock, and no such amendment of the Articles of
Incorporation of the Corporation may be authorized, ratified, accepted
or effected without the affirmative vote of two-thirds of all the
shares of Preference Stock outstanding in favor of such amendment; and
(ii) Whenever the Corporation shall fail to pay full
dividends on the Preference Stock and such failure shall continue for
one year, the Preference Stock
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shall then have one vote for each share of Preference Stock with
respect to all matters, until and unless such dividends shall have
been paid in full.
TENTH: COMMON STOCK. Subject to any limitations prescribed in Article
ELEVENTH and any prior rights conferred upon the holders of any class or series
of Preferred Stock or Preference Stock created herein or that may be conferred
upon the holders of any series of Preferred Stock or Preference Stock
established by the Board pursuant to authority herein provided, and except as
provided by law, the holders of shares of Common Stock shall be entitled to
receive
(a) when and as declared by the Board, out of the assets of the
Corporation which are by law available therefor, PRO RATA dividends payable
in cash, in property or in securities of the Corporation, and
(b) on a PRO RATA basis, all of the remaining assets of the
Corporation available for distribution to its stockholders in the event of
any liquidation, dissolution or winding up of the Corporation.
ELEVENTH: PREFERRED AND PREFERENCE STOCK.
(a) PREFERRED STOCK GENERALLY.
(i) RANK. All shares of Preferred Stock shall rank on a
parity with each other in respect of dividends or other distributions
and in liquidation regardless of class or series within a class. All
shares of Preferred Stock of any one series of any class shall be
identical to each other in all respects.
(ii) PAYMENT OF DIVIDENDS. Except as otherwise provided in
section (c)(i)(A)(V) of this Article ELEVENTH, unless dividends on all
outstanding shares of every series of every class of Preferred Stock,
at the annual dividend rate or rates fixed therefor, shall have been
paid or declared and set aside for payment for all past dividend
periods to which they are entitled, and the full dividend thereon at
said rate or rates for the dividend period current at the time shall
have been paid or declared and set apart for payment, but without
interest on accumulated dividends, and unless all sinking fund
payments, if any, required to have been made thereon shall have been
made or provided for, no dividend shall be declared and no other
distribution shall be made on any shares of any series of any class of
Preferred Stock or on any parity stock or junior stock. Except as
otherwise provided in Section (c)(i)(A)(V) of this Article ELEVENTH,
no dividend or other distribution shall be declared or made on the
shares of any series of any class of Preferred Stock unless there
shall be declared or made at the same time a like distribution on all
outstanding shares of every series of every class of Preferred Stock.
(iii) REDEMPTION. If and so long as the Corporation shall
be in default in the payment of any dividend on shares of any series
of any class of Preferred Stock, or shall be in default in the payment
of funds into or the setting aside of funds for any sinking fund
created for any series of any class of Preferred Stock, the
Corporation may not (other than by the use of unapplied funds, if any,
paid into or set aside for a sinking fund or funds prior to such
default)
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<PAGE>
(A) redeem any shares of any series of any class of
Preferred Stock unless all shares of all classes of Preferred
Stock are redeemed,
(B) purchase or otherwise acquire for a consideration
any shares of Preferred Stock except pursuant to offers of sale
made by holders of Preferred Stock in response to an invitation
for tenders given simultaneously by the Corporation by mail to
the holders of record of all shares of Preferred Stock then
outstanding, or
(C) redeem, retire, repurchase or otherwise acquire for
value any parity stock or any junior stock.
(iv) LIMITATION OF DECLARATION OF DIVIDENDS ON JUNIOR STOCK.
No dividend shall be declared on any junior stock payable more than
120 days after the date of declaration.
(v) LIQUIDATION. If upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the assets
available for distribution to holders of shares of Preferred Stock of
all classes and series shall be insufficient to pay such holders the
full preferential amount (including unpaid cumulative dividends, if
any) to which they are entitled, then such assets shall be distributed
ratably among the shares of all series of all classes of Preferred
Stock and parity stock in accordance with the respective preferential
amounts payable with respect thereto.
(b) CLASS A PREFERRED STOCK.
(i) GENERALLY.
(A) The right is hereby reserved to make from time to
time any amendments to the Articles of Incorporation of the
Corporation which change the terms of the Class A Preferred Stock
by classification or subclassification of all or any of the
authorized but unissued Class A Preferred Stock into one or more
series of the Class A Preferred Stock, which series may differ
from each other and other series already outstanding in any or
all of the following respects:
(I) the rate and/or payment periods of the fixed
preferential dividends payable thereon, which rate shall,
however, in no case exceed eight per cent per annum,
(II) whether or not, and if so to what extent and
on what terms and conditions, such series shall participate
in dividends in excess of the fixed preferential dividends
thereon, or in distribution of assets, upon liquidation,
dissolution or winding up, in excess of the fixed
preferential distribution thereof to the holders of the
Class A Preferred Stock,
(III) whether or not, and if so on what terms and
conditions, such series shall be convertible at the option
of the holders into other stock (Class A Preferred,
Preference, or Common), bonds or securities of the
Corporation, and
(IV) the prices and times, if any, of redemption
thereof.
All of the Class A Preferred Stock having identical
characteristics shall be given the same serial designation.
(B) All Class A Preferred Stock redeemed shall
forthwith be cancelled and retired but shall have the status of
authorized but unissued Class A Preferred Stock of the
Corporation.
(C) In the event of any liquidation or dissolution or
winding up, whether voluntary or involuntary, of the Corporation,
the holders of the Class A Preferred Stock shall be entitled to
be paid in full both the par
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<PAGE>
amount of their shares and an amount equal to the unpaid
dividends accrued thereon (whether earned or declared or not)
adjusted to date of such payment, before any amount shall be paid
to either the holders of the Preference Stock or the holders of
Common Stock.
(D) All payments to the holders of the Class A
Preferred Stock, whether payments of dividends or payments in the
event of redemption, liquidation, dissolution or winding up,
shall be made without deduction for any tax or taxes (other than
income taxes in excess of two per cent of any such dividend
payment with respect to shares of Class A Preferred Stock issued
in exchange for shares of Baltimore Gas and Electric Company
Preferred Stock issued on or prior to November 27, 1961 and then
outstanding, and other than any income taxes on any redemption
payments with respect to shares of Class A Preferred Stock issued
in exchange for shares of Preferred Stock issued after November
27, 1961) which the Corporation may be required or permitted to
pay thereon or to retain therefrom under any present or future
law of the United States of America or of any state, county or
municipality therein.
(E) Up to the fixed preferential dividends payable on
each series of Class A Preferred Stock, all series of Class A
Preferred Stock shall participate (not before the respective
dividend dates of each series of Class A Preferred Stock) at the
same rate per cent per annum in any payments for, or including
any period (whether a dividend period or part of such a period)
aggregating less than the full preferential dividends on all
series of Class A Preferred Stock for such period; if for any
period (whether a dividend period or part of such a period) full
preferential dividends shall not have been paid on any series of
Class A Preferred Stock when payable, the deficiency shall be
payable before any dividends for any subsequent dividend period,
or part of such a period, shall be paid upon or set apart for any
series of the Class A Preferred Stock.
(F) (I) At no time shall Preferred Stock be issued if,
after giving effect to such issuance, the aggregate amount
of Preferred Stock in number of shares, exceeds one twenty-
fourth of the total amount, in number of shares, of Common
Stock at the time being issued and outstanding and not held
or owned by the Corporation, PROVIDED, HOWEVER, that if
Preferred Stock is issued for the purpose of retiring
outstanding Preferred Stock then the Preferred Stock to be
retired shall not be counted as outstanding for purposes of
the foregoing limitation; nor shall the total amount, in
number of shares, of Common Stock issued and outstanding and
not held or owned by the Corporation be at any time reduced,
either by purchase of Common Stock by the Corporation or by
amendment of the Articles of Incorporation of the
Corporation, below twenty-four times the total amount, in
number of shares, of Preferred Stock at the time being
issued and outstanding; PROVIDED, HOWEVER, that immediately
upon the retirement of the Class A Preferred Stock issuable
in exchange for the shares of Baltimore Gas and Electric
Company Preferred Stock outstanding as of November 27, 1961,
consisting as of the date of these Articles of Incorporation
of [222,921] shares of Series B 4 1/2% and [68,928] shares
of Series C 4% Preferred Stock and without further action by
the officers, Board of Directors, or stockholders of the
Corporation, the foregoing provisions of the clause (I)
shall be deleted and of no further effect and the following
clause (II) in lieu thereof shall be fully operative (and
all Class A Preferred Stock issuable in exchange for
shares of
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<PAGE>
Baltimore Gas and Electric Company Preferred Stock issued
after November 27, 1961, or issued after the date of
adoption of these Amended and Restated Articles of
Incorporation, but prior to the retirement of the
outstanding shares of Preferred Stock specified above shall
be subject to such deletion and amendment).
(II) After the deletion and amendment of clause
(I) above pursuant to the terms thereof, while any shares of
Preferred Stock are outstanding, there shall not be issued
without the prior affirmative vote or written consent of the
holders of two-thirds of the total number of shares of Class
A Preferred Stock then outstanding, any additional Preferred
Stock if, at the time of issuance of such additional
Preferred Stock and after giving effect to such issuance,
the aggregate par value of the Preferred Stock to be
outstanding after such issuance, would exceed an amount
equal to the aggregate amount in dollars in the Common Stock
account of the Corporation plus any capital surplus
represented by consideration received for the issuance of
Common Stock, all as shown on the books of account of the
Corporation, PROVIDED, HOWEVER, that if Preferred Stock is
issued for the purpose of retiring outstanding Preferred
Stock then the Preferred Stock to be retired shall not be
counted as outstanding for purposes of the foregoing
limitation; nor, without like affirmative vote or written
consent, shall the outstanding Common Stock not held or
owned by the Corporation be reduced by purchase or
retirement by the Corporation or such capital surplus be
reduced by distribution, if and to the extent that, after
such reduction, the aggregate par value of the outstanding
Preferred Stock would exceed the sum of the dollars in the
Common Stock account of the Corporation plus any capital
surplus represented by consideration received for the
issuance of Common Stock, all as shown on the books of
account of the Corporation. For the purpose of determining
compliance with the limitations contained in this clause
(II), if the Corporation purchases Common Stock, the said
Common Stock and capital surplus accounts shall be deemed to
be thereby reduced by that portion of the total dollars in
said accounts which is equivalent to the ratio of the number
of shares of Common Stock purchased to the number
outstanding and not held or owned by the Corporation
immediately before such purchase, but in such a case if the
Common Stock so purchased is subsequently sold or retired
the said Common Stock and capital surplus accounts shall be
deemed to be reduced thereafter only by the actual charges
to said accounts.
(G) At no time shall any Preferred Stock be issued
unless at the time of such issuance the net earnings of the
Corporation, over and above operating expenses (including
allowance for depreciation and other reserves), fixed charges and
any other deductions from or charges against income ranking prior
to dividends on the Preferred Stock, for a period of twelve
successive calendar months ending within the sixty days
immediately preceding such issuance of Preferred Stock, shall
have been at least twice a sum equal to full preferential
dividends for one year on
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<PAGE>
(I) all Preferred Stock already outstanding at the
time of such issuance, and
(II) the Preferred Stock so to be issued,
PROVIDED that in the case of Preferred Stock being issued for the
purpose of retiring outstanding Preferred Stock, the Preferred
Stock to be retired shall not be counted as outstanding for
purposes of this limitation.
(ii) CLASS A PREFERRED STOCK, SERIES B.
(A) The Class A Preferred Stock, Series B, shall
entitle the holders thereof to receive, when and as declared,
from the surplus or net profits of the Corporation yearly
dividends at the rate of four and one-half per cent per annum and
no more payable quarterly on the first days of January, April,
July and October in each year. The dividends on the Class A
Preferred Stock, Series B, shall be cumulative and shall be
payable before any dividend on either the Preference Stock or on
the Common Stock shall be paid or set apart; so that if in any
year or years dividends amounting to four and one-half per cent
shall not have been paid thereon, the deficiency shall be payable
before any dividends shall be paid upon or set apart for either
the Preference Stock or the Common Stock.
(B) The Class A Preferred Stock, Series B, or any
portion thereof may, whenever the Board of Directors shall so
determine, be redeemed by the payment to the holders thereof of
the sum hereinafter specified as the redemption price at the time
of redemption, in cash, for each
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<PAGE>
share thereof, together with all accrued dividends. The
redemption price shall be one hundred and fifteen dollars ($115)
at any time prior to July 1, 1944, one hundred and fourteen
dollars ($114) after June 30, 1944, one hundred and thirteen
dollars ($113) after June 30, 1947, one hundred and twelve
dollars ($112) after June 30, 1950, one hundred and eleven
dollars ($111) after June 30, 1953, and one hundred and ten
dollars ($110) after June 30, 1956. In case less than all of the
Preferred Stock, Series B, at the time being outstanding is so
redeemed, the shares to be redeemed shall be, as nearly as is
reasonably practicable without creating fractional shares, a
proportionate part of the holdings of each holder of Class A
Preferred Stock, Series B, or shall be selected, in whole or in
part, by lot. At least sixty days' written notice of the election
of the Corporation to redeem the Class A Preferred Stock, Series
B, or any part thereof, and (in case less than all is to be
redeemed) of the shares thereof so to be redeemed, shall be given
to each holder of Class A Preferred Stock, Series B, so to be
redeemed by mailing the same, postage prepaid, and addressed to
him at his address as it appears upon the books of the
Corporation. When such notice shall have been so given and the
funds for payment thereof shall have been provided and set apart,
the dividends on the Preferred Stock so called for redemption and
all other rights of the holders thereof, except the right to
receive the redemption price, shall cease.
(iii) CLASS A PREFERRED STOCK, SERIES C.
(A) The Class A Preferred Stock, Series C, shall
entitle the holders thereof to receive, when and as declared,
from the surplus or net profits of the Corporation yearly
dividends at the rate of four per cent per annum and no more,
payable quarterly on the first days of January, April, July and
October in each year. The dividends on the Class A Preferred
Stock, Series C, shall be cumulative and shall be payable before
any dividend on either the Preference Stock or the Common Stock
shall be paid or set apart; so that, if in any year or years
dividends amounting to four per cent shall not have been paid
thereon, the deficiency shall be payable before any dividends
shall be paid upon or set apart for either the Preference Stock
or the Common Stock.
(B) The Class A Preferred Stock, Series C, or any
portion thereof may, whenever the Board of Directors shall so
determine, be redeemed by the payment to the holders thereof of
the sum hereinafter specified as the redemption price at the time
of redemption, in cash, for each share thereof, together with all
accrued dividends. The redemption price shall be one hundred and
seven dollars ($107) per share at any time prior to July 1, 1945,
one hundred and six dollars ($106) per share after June 30, 1945,
and one hundred and five dollars ($105) per share after June 30,
1950. In case less than all of the Class A Preferred Stock,
Series C, at the time being outstanding is so redeemed, the
shares to be redeemed shall be, as nearly as is reasonably
practicable without creating fractional shares, a proportionate
part of the holdings of each holder of Preferred Stock, Series C,
or shall be selected, in whole or in part, by lot. At least sixty
days' written notice of the election of the Corporation to redeem
the Class A Preferred Stock, Series C, or any part thereof, and
(in case less than all is to be redeemed) of the shares
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<PAGE>
thereof so to be redeemed, shall be given to each holder of Class
A Preferred Stock, Series C, so to be redeemed by mailing the
same, postage prepaid and addressed to him at his address as it
appears upon the books of the Corporation. When such notice shall
have been so given and the funds for payment thereof shall have
been provided and set apart, the dividends on the Preferred Stock
so called for redemption and all other rights of the holders
thereof, except the right to receive the redemption price, shall
cease.
(iv) CLASS A PREFERRED STOCK, SERIES D.
(A) The Class A Preferred Stock, Series D, shall
entitle the holders thereof to receive, when and as declared,
from the surplus or net profits of the Corporation yearly
dividends at the rate of five and forty hundredths per cent per
annum and no more, payable quarterly on the first days of
January, April, July, and October in each year. The dividends on
the Class A Preferred Stock, Series D, shall be cumulative and
shall be payable before any dividend on either the Preference
Stock or the Common Stock shall be paid or set apart; so that, if
in any year or years dividends amounting to five and forty
hundredths per cent shall not have been paid thereon, the
deficiency shall be payable before any dividends shall be paid
upon or set apart for either the Preference Stock or the Common
Stock. Dividends on Class A Preferred Stock, Series D, will
accrue from May 4, 1967 with respect to shares issued prior to
July 1, 1967, and from the first day of the quarterly dividend
period in which they are issued with respect to shares issued on
or after July 1, 1967.
(B) The Class A Preferred Stock, Series D, or any
portion thereof, may, whenever the Board of Directors shall so
determine, be redeemed by the payment to the holders thereof of
the sum hereinafter specified as the redemption price at the time
of redemption, in cash, for each share thereof, together with all
accrued dividends. The redemption price shall be one hundred and
five dollars and fifty cents ($105.50) per share at any time
prior to April 1, 1972, then one hundred and four dollars ($104)
per share prior to April 1, 1977, then one hundred and two
dollars and fifty cents ($102.50) per share prior to April 1,
1982, and one hundred and one dollars ($101) per share
thereafter; PROVIDED, HOWEVER, that the Corporation will not,
prior to April 1, 1972, redeem any shares of the Class A
Preferred Stock, Series D, if such redemption is a part of or in
anticipation of any refunding operation involving the
application, directly or indirectly, of borrowed funds or the
proceeds of an issue of any stock ranking prior to or on a parity
with the Class A Preferred Stock, Series D, if such borrowed
funds have an interest rate or cost to the Corporation
(calculated in accordance with generally accepted financial
practice), or such stock has a dividend rate or cost to the
Corporation (so calculated), less than the dividend rate per
annum of the Class A Preferred Stock, Series D. In case less than
all of the Class A Preferred Stock, Series D, at the time being
outstanding is so redeemed, the shares to be redeemed shall be,
as nearly as is reasonably practicable without creating
fractional shares, a proportionate part of the holdings of each
holder of Class A Preferred Stock, Series D, or shall be
selected, in whole or in part, by lot. At least sixty days'
written notice of the election of the
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<PAGE>
Corporation to redeem the Class A Preferred Stock, Series D, or
any part thereof, and (in case less than all is to be redeemed)
of the shares thereof so to be redeemed, shall be given to each
holder of Class A Preferred Stock, Series D, so to be redeemed by
mailing the same, postage prepaid, and addressed to him at his
address as it appears upon the books of the Corporation. When
such notice shall have been so given and the funds for payment of
the redemption price plus accrued dividends shall have been
provided and set apart, the dividends on the Preferred Stock so
called for redemption and all other rights of the holders
thereof, except the right to receive the redemption price plus
accrued dividends, shall cease.
(c) CLASS B PREFERRED STOCK.
(i) GENERALLY.
(A) (I) The holders of the Preferred Stock shall be
entitled to receive, but only when and as declared by the
Board of Directors, cumulative cash dividends in the case of
each series at the annual rate for such series theretofore
fixed as herein provided, payable quarter-yearly on the
first days of January, April, July and October in each year
to stockholders of record on the respective dates fixed for
the purpose by the Board of Directors as dividends are
declared.
(II) No dividend shall be declared on any shares
of the Class B Preferred Stock unless there shall likewise
be declared on all shares of the Class B Preferred Stock at
the time outstanding like dividends, ratably in proportion
to the respective annual dividend rates fixed therefor.
(III) The dividends on shares of the Class B
Preferred Stock shall be cumulative from the quarterly-
yearly dividend payment date next preceding the date of
issue of such shares, unless such shares shall have been
issued after the record date and before the payment date for
a particular dividend, in which case the dividends shall be
cumulative from the quarter-yearly dividend payment date
next ensuing after the date of issue of such shares.
(IV) The holders of the Class B Preferred Stock
shall not be entitled to receive any dividends thereon other
than the dividends referred to in this paragraph (A).
(V) Notwithstanding the dividend payment dates
specified in sub-paragraph (I) above, dividends shall,
subject to the terms and conditions hereof, be payable on
each series of Class B Preferred Stock that was converted
from a corresponding series of preferred stock of Potomac
Electric Power Company upon the merger (the "Merger") of
such company and Baltimore Gas and Electric Company with and
into the Corporation on the effective date of such Merger
(the "Effective Date") as follows:
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<PAGE>
(a) if the first dividend payment date for
such shares of preferred stock of Potomac Electric
Power Company that would have occurred after the
Effective Date but for the Merger (the "PEPCO Payment
Date") precedes the first dividend payment date for the
Class B Preferred Stock (the "First Dividend Payment
Date"), determined in accordance with subparagraph (I)
above, so to occur, then:
(1) a dividend shall be paid on each
such share of Class B Preferred Stock on the PEPCO
Payment Date in the regular quarterly amount, and
(2) a dividend shall be paid on each
such share of Class B Preferred Stock on the First
Dividend Payment Date, but only in an amount equal
to one-third of the regular quarterly amount of
such dividend; and
(b) if the First Dividend Payment Date occurs
before the PEPCO Payment Date, a dividend shall be paid
on each such share of Class B Preferred Stock on the
First Dividend Payment Date, but only in an amount
equal to one-third of the regular quarterly amount of
such dividend.
(B) (I) The Corporation, at the option of the Board of
Directors or by the operation of the sinking fund, if any,
provided for the Class B Preferred Stock of any series, may,
from time to time, subject to such terms and conditions, if
any, fixed herein or as may be fixed by the Board of
Directors with respect to any series as herein provided,
redeem the whole or any part of such series at any time
outstanding, by paying in cash the applicable redemption
price therefor fixed herein or fixed by the Board of
Directors as hereinbefore provided.
(II) Notice of every such redemption shall be
given by publication at least once in each of two calendar
weeks in each of two daily newspapers printed in the English
language, one published and of general circulation in the
City of Washington, District of Columbia, and the other in
the Borough of Manhattan, The City of New York, the first
publication to be at least thirty days and not more than
sixty days prior to the date fixed for such redemption. At
least thirty days' and not more than sixty days' previous
notice of every such redemption shall also be mailed to the
holders of record of the shares so to be redeemed, at their
respective addresses as the same shall appear on the books
of the Corporation; but failure to mail such notice or any
defect therein or in the mailing thereof shall not affect
the validity of the proceedings for the redemption of any
shares so to be redeemed.
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<PAGE>
(III) In case of the redemption of a part only of
any series of the Class B Preferred Stock at the time
outstanding, the Corporation or its duly authorized agent
shall select by lot the shares so to be redeemed. The Board
of Directors shall have full power and authority, subject to
the limitations and provisions herein contained, to
prescribe the manner in which the drawings by lot shall be
conducted and the terms and conditions upon which the Class
B Preferred Stock shall be redeemed from time to time.
(IV) If such notice of redemption shall have been
duly given by publication, and if on or before the
redemption date specified therein the funds necessary for
such redemption shall have been set aside by the
Corporation, separate and apart from its other funds, in
trust for the account of the holders of the shares so called
for redemption, so as to be and continue to be available
therefor, then, notwithstanding that any certificate for
shares so called for redemption shall not have been
surrendered for cancellation, the shares represented thereby
shall no longer be deemed to be outstanding on and after
such redemption date, and all rights with respect to such
shares shall forthwith on such redemption date cease and
terminate, except only the right of the holders thereof to
receive the amount payable upon redemption thereof, without
interest; PROVIDED, HOWEVER, in the alternative, that, after
giving notice by publication of any such redemption as
hereinbefore provided or after giving to the bank or trust
company referred to below irrevocable authorization to give
or complete such notice by publication, and prior to the
redemption date specified in such notice, the Corporation
may deposit in trust, for the account of the holders of the
shares of Class B Preferred Stock so to be redeemed, the
funds necessary for such redemption with a bank or trust
company in good standing, organized and doing business under
the laws of the United States or of any state or territory
or of the District of Columbia and having its principal
office in the City of Washington, District of Columbia, or
in the Borough of Manhattan, The City of New York, having
capital, surplus and undivided profits aggregating at least
Ten Million Dollars, designated in such notice of
redemption, and thereupon all shares of the Class B
Preferred Stock with respect to which such deposit shall
have been made shall no longer be deemed to be outstanding,
and all rights with respect to such shares of Class B
Preferred Stock shall forthwith upon such deposit in trust
cease and terminate, except only the right of the holders
thereof to receive from such bank or trust company at any
time after the time of such deposit the funds so deposited,
without interest and the right to exercise, on or before
such redemption date privileges of conversion or exchange,
if any, not theretofore expiring.
(V) Shares of Class B Preferred Stock purchased or
redeemed pursuant to any obligation of the Corporation to
purchase or redeem shares for a sinking fund, shares
redeemed pursuant to the provisions hereof or purchased and
for which credit shall have been taken against any sinking
fund obligation, and shares surrendered
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<PAGE>
pursuant to any conversion right, shall not be reissued or
otherwise disposed of and shall be canceled. Any other
shares of Class B Preferred Stock redeemed or otherwise
acquired by the Corporation shall continue to be part of the
authorized capital stock of the Corporation and may
thereafter, in the discretion of the Board of Directors and
to the extent permitted by law, be sold or reissued from
time to time, as part of the same or another series, subject
to the terms and conditions herein set forth.
(C) (I) In the event of any voluntary liquidation,
dissolution or winding up of the Corporation, then, before
any distribution or payment shall be made to the holders of
any junior stock, the holder of each share of the Class B
Preferred Stock shall be entitled to be paid in full in cash
the amount fixed as herein provided, together with an amount
computed at the annual dividend rate therefor from the date
upon which dividends thereon became cumulative to the date
fixed for the payment thereof, less the aggregate of the
dividends theretofore paid thereon.
(II) In the event of any involuntary liquidation,
dissolution or winding up of the Corporation, then, before
any distribution or payment shall be made to the holders of
any junior stock, the holder of each share of the Class B
Stock shall be entitled to be paid in full the par value
thereof in cash, together with an amount computed at the
annual dividend rate therefor from the date upon which
dividends thereon became cumulative to the date fixed for
the payment thereof, less the aggregate of the dividends
theretofore paid thereon.
(III) With respect to the payments to be made in
the event of voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, all series of
the Class B Preferred Stock shall rank ratably according to
their respective interests without preference of any series
thereof over any other series.
(D) Subject to the limitations herein specified,
whenever the full dividends on the Class B Preferred Stock at the
time outstanding for all past dividend periods shall have been
paid and the full dividend thereon for the dividend period then
current shall have been paid or declared and a sum sufficient for
the payment thereof set apart, then such dividends (payable in
cash, stock or otherwise) as may be determined by the Board of
Directors may be declared on the Common Stock and any other
junior stock, and the Class B Preferred Stock shall not be
entitled to participate in any such dividends.
(E) (I) So long as any shares of the Class B Preferred
Stock are outstanding, the Corporation shall not pay any
dividends on its Common Stock (other than dividends payable
in Common Stock) or make any distribution on, or purchase or
otherwise acquire for value, any of its Common Stock (each
such payment, distribution, purchase
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<PAGE>
and/or acquisition being herein referred to as a "Common
Stock dividend"), except to the extent permitted by the
following provisions:
(1) No Common Stock dividend shall be
declared or paid in an amount which, together with all
other Common Stock dividends declared in the year
ending on (and including) the date of the declaration
of such Common Stock dividend, would in the aggregate
exceed 50% of the net earnings of the Corporation for
the period consisting of the twelve consecutive
calendar months ending on the last day of the calendar
month next preceding the declaration of such Common
Stock dividend, after deducting from such net earnings
dividends accruing on any stock other than Common Stock
of the Corporation during such period, if at the end of
such period, the ratio (herein referred to as the
"capitalization ratio") of the sum of
(a) the capital represented by the
Common Stock (including premiums on Common Stock)
and
(b) the surplus accounts of the
Corporation,
to the sum of
(x) the total capital and
(y) the surplus accounts of the
Corporation (after adjustment in each case of the
surplus accounts to reflect payment of such Common
Stock dividend)
would be less than 20%.
(2) If such capitalization ratio, determined
as aforesaid, shall be 20% or more, but less than 25%,
no Common Stock dividend shall be declared or paid in
an amount which, together with all other Common Stock
dividends declared in the year ending on (and
including) the date of the declaration of such Common
Stock dividend, would in the aggregate exceed 75% of
the net earnings of the Corporation for the period
consisting of the twelve consecutive calendar months
ending on the last day of the calendar month next
preceding the declaration of such Common Stock dividend
after deducting from such net earnings dividends
accruing on any stock other than the Common Stock of
the Corporation during such period; and
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(3) If such capitalization ratio, determined
as aforesaid, shall be in excess of 25%, no Common
Stock dividend shall be declared or paid which would
reduce such capitalization ratio to less than 25%
except to the extent permitted by the next preceding
clauses (1) and (2).
(II) For the purposes of this paragraph (E) the
total capital of the Corporation shall be deemed to consist
of the aggregate of
(1) the principal amount of all outstanding
indebtedness of the Corporation represented by bonds,
notes or other evidences of indebtedness maturing by
their terms one year or more after the date of the
issue thereof; and
(2) the par or stated value of all
outstanding capital stock (including premiums on
capital stock) of all classes of the Corporation.
All indebtedness and shares of the Corporation acquired by
the Corporation and held in its treasury shall be excluded
in determining total capital.
(III) Purchases or other acquisitions of Common
Stock shall be deemed, for the purposes of the foregoing
provisions of this subdivision (E), to have been declared as
dividends as of the date on which such purchases or
acquisitions are consummated.
(F) No holder of Class B Preferred Stock shall be
entitled as such as a matter of right to subscribe for or
purchase any part of any new or additional issue of stock, or
securities convertible into, or carrying or evidencing any right
to purchase, stock, of any class whatever, whether now or
hereafter authorized, and whether issued for cash, property,
services or otherwise.
(G) ISSUANCE OF ADDITIONAL SERIES OF CLASS B PREFERRED
STOCK. Subject to the provisions hereof, authorized but unissued
Class B Preferred Stock may be divided into and issued, from time
to time, in one or more series as the Board of Directors may
determine, and the Board of Directors is hereby expressly
authorized to adopt from time to time resolutions, in respect of
any unissued shares of Class B Preferred Stock, to fix and
determine:
(I) The division of such shares into series and
the designation and authorized number of the shares of the
particular series;
(II) The rate of dividend for the particular
series;
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(III) The price or prices at and the terms and
conditions on which shares of the particular series may be
redeemed;
(IV) The amount payable upon shares of the
particular series in the event of voluntary liquidation;
(V) Sinking fund provisions (if any) for the
redemption or purchase of shares of the particular series;
and
(VI) The terms and conditions (if any) on which
the shares of the particular series may be converted into
other classes of stock of the Corporation.
All shares of Class B Preferred Stock shall be of equal rank with
each other, regardless of series, and all shares thereof shall be
identical except as to the above listed relative rights and
preferences, in respect of any and all of which there may be
variations between different series as fixed and determined by
the Board of Directors in said resolutions. All shares of the
Class B Preferred Stock of any one series shall be identical with
each other in all respects.
(H) The following series of Class B Preferred Stock are
created hereby:
(I) $2.44 SERIES OF 1957.
(1) The rate of dividend payable on the 1957
Series shall be $2.44 per annum per share.
(2) The shares of the 1957 Series shall be
redeemable, in whole or in part at $52.50 per share on
or before March 1, 1962, $52.00 per share thereafter
and on or before March 1, 1967, $51.50 per share
thereafter and on or before March 1, 1972 and $51.00
per share thereafter, in each case plus an amount in
the case of each share, computed at the rate of $2.44
per annum, from the date on which dividends on such
share became cumulative to the date fixed for such
redemption less the aggregate of the dividends paid
thereon prior to such redemption date.
(3) In the event of any voluntary
liquidation, dissolution or winding up of the
Corporation, the amount payable upon shares of the 1957
Series shall be $52.50 per share if paid on or before
March 1, 1962, $52.00 per share if paid thereafter and
on or before March 1, 1967, $51.50 per share if paid
thereafter and on or before March 1, 1972, and $51.00
per share if paid thereafter, in each case in addition
to the amount fixed herein in respect of accrued and
unpaid dividends.
(II) $2.46 SERIES OF 1958.
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(1) The rate of dividend payable on the 1958
Series shall be $2.46 per annum per share.
(2) The shares of the 1958 Series shall be
redeemable, in whole or in part, at $53.75 per share on
or before March 1, 1963, $52.50 per share thereafter
and on or before March 1, 1968, $51.50 per share
thereafter and on or before March 1, 1973 and $51.00
per share thereafter, in each case plus an amount in
the case of each share, computed at the rate of $2.46
per annum, from the date on which dividends on such
share became cumulative to the date fixed for such
redemption less the aggregate of the dividends paid
thereon prior to such redemption date.
(3) In the event of any voluntary
liquidation, dissolution or winding up of the
Corporation, the amount payable upon shares of the 1958
Series shall be $53.75 per share if paid on or before
March 1, 1963, $52.50 per share if paid thereafter and
on or before March 1, 1968, $51.50 per share if paid
thereafter and on or before March 1, 1973, and $51.00
per share if paid thereafter, in each case in addition
to the amount fixed herein in respect of accrued and
unpaid dividends.
(III) $2.28 SERIES OF 1965.
(1) The rate of dividend payable on the 1965
Series shall be $2.28 per annum per share.
(2) The shares of the 1965 Series shall be
redeemable, in whole or in part, at $53.00 per share on
or before March 1, 1970, $52.50 per share thereafter
and on or before March 1, 1975, $52.00 per share
thereafter and on or before March 1, 1980 and $51.00
per share thereafter, in each case plus an amount in
the case of each share, computed at the rate of $2.28
per annum, from the date on which dividends on such
share became cumulative to the date fixed for such
redemption less the aggregate of the dividends paid
thereon prior to such redemption date.
(3) In the event of any voluntary
liquidation, dissolution or winding up of the
Corporation, the amount payable upon shares of the 1965
Series shall be $53.00 per share if paid on or before
March 1, 1970, $52.50 per share if paid thereafter and
on or before March 1, 1975, $52.00 per share if paid
thereafter and on or before March 1, 1980, and $51.00
per share if paid thereafter, in each case in addition
to the amount fixed herein in respect of accrued and
unpaid dividends.
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(IV) $3.82 SERIES OF 1969.
(1) The rate of dividend payable on the 1969
Series shall be $3.82 per annum per share.
(2) The shares of the 1969 Series shall be
redeemable, in whole or in part, at $54.00 per share on
or before March 1, 1974, $53.00 per share thereafter
and on or before March 1, 1979, $52.00 per share
thereafter and on or before March 1, 1984 and $51.00
per share thereafter, in each case plus an amount, in
the case of each share, computed at the rate of $3.82
per annum, from the date on which dividends on such
share becomes cumulative to the date fixed for such
redemption less the aggregate of the dividends paid
thereon prior to such redemption date; PROVIDED,
HOWEVER, that the shares of the 1969 Series shall not
be redeemable prior to March 1, 1974, directly or
indirectly from or in anticipation of moneys borrowed,
or the proceeds of shares of Class B Preferred Stock
(or of any other stock ranking prior to or on a parity
with the Class B Preferred Stock) sold, by or for the
account of the Corporation at an interest or dividend
cost to it (calculated in accordance with generally
accepted financial practice) of less than 7.64% per
annum.
(3) In the event of any voluntary
liquidation, dissolution or winding up of the
Corporation, the amount payable upon shares of the 1969
Series shall be $54.00 per share if paid on or before
March 1, 1974, $53.00 per share if paid thereafter and
on or before March 1, 1979, $52.00 per share if paid
thereafter and on or before March 1, 1984, and $51.00
per share if paid thereafter, in each case in addition
to the amount fixed herein in respect of accrued and
unpaid dividends.
(V) $3.37 SERIES OF 1987.
(1) The rate of dividend payable on the 1987
Series shall be $3.37 per annum per share.
(2) The shares of the 1987 Series shall be
redeemable (other than through operation of the sinking
fund), in whole or in part at $53.37 per share prior to
June 1, 1992, $52.25 per share thereafter and prior to
June 1, 1997, $51.13 per share thereafter and prior to
June 1, 2002, and $50.00 per share thereafter, in each
case plus an amount, in the case of each share,
computed at the rate of $3.37 per annum, from the date
on which dividends on such share became cumulative to
the date fixed for such redemption less the aggregate
of the dividends paid thereon prior to such redemption
date; PROVIDED, HOWEVER, that the shares of the 1987
Series shall not
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<PAGE>
be redeemable prior to June 1, 1992, directly or
indirectly from or in anticipation of moneys borrowed,
or the proceeds of shares of Class B Preferred Stock
(or of any other stock ranking prior to or on a parity
with the Class B Preferred Stock) sold, by or for the
account of the Corporation, at an interest or dividend
cost to it (calculated in accordance with generally
accepted financial practice) of less than 6.74% per
annum.
(3) As a sinking fund, the Corporation will
redeem on June 1 of each year, beginning with 1993, not
less than 30,000 shares or more than 60,000 shares of
the 1987 Series, at a redemption price equal to $50 per
share plus an amount, in the case of each share,
computed at the rate of $3.37 per annum, from the date
on which dividends on such share became cumulative to
the date fixed for such redemption less the aggregate
of the dividends paid thereon prior to such redemption
date; the option to redeem in excess of 30,000 shares
of the 1987 Series on any June 1 will not be
cumulative; shares of the 1987 Series acquired or
redeemed by the Corporation otherwise than through
operation of the sinking fund may, at the option of the
Corporation, be credited against subsequent sinking
fund requirements; if the Corporation shall be
prevented, because of restriction or for any other
reason, from acquiring or redeeming during any twelve-
month period the number of shares of the 1987 Series
which in the absence of such restriction it would be
required to acquire or redeem during such period, the
deficit shall be made good in the first succeeding
twelve-month period in which the Corporation shall not
be prevented by such restriction from acquiring or
redeeming shares of the 1987 Series.
(4) In the event of any voluntary
liquidation, dissolution or winding up of the
Corporation, the amount payable upon shares of the 1987
Series shall be $53.37 per share if paid prior to June
1, 1992, $52.25 per share if paid thereafter and prior
to June 1, 1997, $51.13 per share if paid thereafter
and prior to June 1, 2002, and $50.00 per share if paid
thereafter, in each case in addition to the amount
fixed herein in respect of accrued and unpaid
dividends.
(VI) $3.89 SERIES OF 1991.
(1) The rate of dividend payable on the 1991
Series shall be $3.89 per annum per share.
(2) The shares of the 1991 Series shall be
redeemable (other than through operation of the sinking
fund), in whole or in part, at $53.89 per share prior
to June 1, 2001,
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<PAGE>
$51.95 per share thereafter and prior to June 1, 2003,
and $50.98 per share thereafter, in each case plus an
amount, in the case of each share, computed at the rate
of $3.89 per annum, from the date on which dividends on
such share became cumulative to the date fixed for such
redemption less the aggregate of the dividends paid
thereon prior to such redemption date; PROVIDED,
HOWEVER, that the shares of the 1991 Series shall not
be redeemable prior to June 1, 1996, directly or
indirectly from or in anticipation of moneys borrowed,
or the proceeds of shares of Class B Preferred Stock
(or of any other stock ranking prior to or on a parity
with the Class B Preferred Stock) sold, by or for the
account of the Corporation, at an interest or dividend
cost to it (calculated in accordance with generally
accepted financial practice) of less than 7.89% per
annum.
(3) As a sinking fund, the Corporation will
redeem on June 1 of each year, beginning with 2001, not
less than 165,000 shares or more than 330,000 shares,
and on June 1, 2006, 175,000 shares of the 1991 Series,
at a redemption price equal to $50 per share plus an
amount, in the case of each share, computed at the rate
of $3.89 per annum, from the date on which dividends on
such share became cumulative to the date fixed for such
redemption less the aggregate of the dividends paid
thereon prior to such redemption date; the option to
redeem in excess of 165,000 shares of the 1991 Series
on any June 1 will not be cumulative; shares of the
1991 Series acquired or redeemed by the Corporation
otherwise than through operation of the sinking fund
may, at the option of the Corporation, be credited
against subsequent sinking fund requirements; if the
Corporation shall be prevented, because of restriction
or for any other reason, from acquiring or redeeming
during any twelve-month period the number of shares of
the 1991 Series which in the absence of such
restriction it would be required to acquire or redeem
during such period, the deficit shall be made good in
the first succeeding twelve-month period in which the
Corporation shall not be prevented by such restriction
from acquiring or redeeming shares of the 1991 Series.
(4) In the event of any voluntary
liquidation, dissolution or winding up of the
Corporation, the amount payable upon shares of the 1991
Series shall be $53.89 per share if paid prior to June
1, 2001, $51.95 per share if paid thereafter and prior
to June 1, 2003, and $50.98 per share if paid
thereafter, in each case in addition to the amount
fixed herein in respect of accrued and unpaid
dividends.
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(VII) $3.40 SERIES OF 1992.
(1) The rate of dividend payable on the 1992
Series shall be $3.40 per annum per share.
(2) The shares of the 1992 Series are not
redeemable prior to September 1, 2002; thereafter, the
shares of the 1992 Series shall be redeemable (other
than through operation of the sinking fund), in whole
or in part, at $50 per share plus an amount, in the
case of each share, computed at the rate of $3.40 per
annum, from the date on which dividends on such share
became cumulative to the date fixed for such redemption
less the aggregate of the dividends paid thereon prior
to such redemption date.
(3) As a sinking fund, the Corporation shall
redeem on September 1 of each year, beginning with
2002, 50,000 shares, and on September 1, 2007, 750,000
shares of the 1992 Series, at a redemption price equal
to $50 per share plus an amount, in the case of each
share, computed at the rate of $3.40 per annum, from
the date on which dividends on such share became
cumulative to the date fixed for such redemption less
the aggregate of the dividends paid thereon prior to
such redemption date; shares of the 1992 Series
acquired or redeemed by the Corporation otherwise than
through operation of the sinking fund may, at the
option of the Corporation, be credited against
subsequent sinking fund requirements; if the
Corporation shall be prevented, because of restriction
or for any other reason, from acquiring or redeeming
during any twelve-month period the number of shares of
the 1992 Series which in the absence of such
restriction it would be required to acquire or redeem
during such period, the deficit shall be made good in
the first succeeding twelve-month period in which the
Corporation shall not be prevented by such restriction
from acquiring or redeeming shares of the 1992 Series.
(4) In the event of any voluntary
liquidation, dissolution or winding up of the
Corporation, the amount payable upon shares of the 1992
Series shall be $50 per share plus an amount equal to
the amount fixed herein in respect of accrued and
unpaid dividends.
(VIII) AUCTION SERIES A.
(1) AUTHORIZED SHARES; UNITS. The Auction
Series A Stock shall consist initially of 1,000,000
shares, which shall be purchased, sold, transferred and
redeemed only units of 2,000 shares per unit (a
"Unit"), except as provided in subsection (d) of
Section 5.
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<PAGE>
(2) DIVIDENDS.
(a) The Holders shall be entitled to
receive, when and as declared by the Board of
Directors of the Corporation, out of funds legally
available therefor, cumulative cash dividends at
the dividend rate per annum, determined as, and
payable on the respective dates, set forth below.
(b) The dividend rate on shares of
Auction Series A Stock shall be 6.60% per annum
during the period (the "Initial Dividend Period")
from June 1, 1990 (the "Date of Original Issue")
and ending on August 31, 1990 and shall be payable
on September 1, 1990 (the "Initial Dividend
Payment Date"). Subsequent dividends shall be
equal to the rate per annum that results from
implementation of the Auction Procedures, except
in the case of a Payment Failure. Dividends on
shares of Auction Series A Stock shall accrue from
June 1, 1990.
(c) As of the end of the Initial
Dividend Period and any subsequent Dividend Period
(as hereinafter defined), the Board of Directors
of the Corporation may designate either
(i) a Dividend Period of three
months which shall commence on the day
immediately following the last day of the
preceding Dividend Period and shall end on
the last day of the third month of such
Dividend Period (a "Quarterly Period") or
(ii) a Dividend Period of either 49
days or 13 weeks (in either case, subject to
adjustment for a change in the Minimum
Holding Period and for non-Business Days, as
provided in clause (2)(g)) (a "Short-Term
Period").
(The Initial Dividend Period, each subsequent
Quarterly Period and any Short-Term Period,
individually, is referred to herein as a "Dividend
Period".) If and when the Board of Directors
designates a Short-Term Period, each subsequent
Dividend Period shall be a Short-Term Period. In
the event of a change in law altering the minimum
holding period (currently found in Section 246(c)
of the Internal Revenue Code of 1986, as amended)
(the "Code")) (the "Minimum Holding Period")
required
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for taxpayers to be entitled to the Dividends-
Received Deduction, the length of each Short-Term
Period commencing after the effective date of such
change in law shall be adjusted so that the number
of days in such Short-Term Periods shall exceed
the then-current Minimum Holding Period; PROVIDED
that,
(x) the Short-Term Period that
originally was a 49-day Short-Term Period
shall not exceed by more than nine days the
length of the then-current Minimum Holding
Period,
(y) the number of days in any
Short-Term Period shall be evenly divisible
by seven, and
(z) the maximum number of days in
any Short Term Period shall in no event
exceed 98 days.
Upon any such change in the number of days in a
Short-Term Period, the Corporation shall give
notice of such change to the Trust Corporation,
the Securities Depository and each Existing
Holder. Notwithstanding the provisions of this
clause (2)(c), designation of a Short-Term Period
shall be permitted only after such amendments to
the Articles of Incorporation of the Corporation
as are necessary to accommodate the payment of
dividends for a Short-Term Period have been duly
adopted.
(d) The initial Short-Term Period shall
end on a Wednesday designated by the Board of
Directors of the Corporation which will be no
earlier than the 46th day and no later than the
98th day after the last day of the preceding
Quarterly Period (in any case, subject to
adjustment for a change in the Minimum Holding
Period and for non-Business Days, as provided in
clause (2)(g)). Each subsequent Short-Term Period
will commence on the day immediately following the
last day of the preceding Short-Term Period and
will end
(i) on the seventh Wednesday
thereafter, in the case of a 49-day Short-
Term Period or
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(ii) on the thirteenth Wednesday
thereafter, in the case of a 13-week Short-
Term Period
(in each case, subject to adjustment for a change
in the Minimum Holding Period and for non-Business
Days as provided in clause (2)(g)). In the absence
of a designation by the Board of Directors of the
Corporation to the contrary, each 49-day Short-
Term Period will be followed by a 49-day Short-
Term Period and each 13-week Short-Term Period
will be followed by a 13-week Short-Term Period.
(e) Following any amendment of the
Articles of Incorporation of the Corporation to
permit dividend payments other than quarterly, and
without regard to the designation by the Board of
Directors of the Corporation of the duration of
the next succeeding Dividend Period,
(i) if Sufficient Clearing Bids do
not result from an Auction, then the Dividend
Period to which such Auction relates will be
a 49-day Short-Term Period or
(ii) if a Payment Failure has
occurred, then the Dividend Period during
which such Payment Failure has occurred, and
each subsequent Dividend Period until such
Payment Failure has been cured, will be a 49-
day Short-Term Period
(in each case, subject to adjustment for a change
in the Minimum Holding Period and for non-Business
Days, as described in clause (2)(g)).
(f) Dividends with respect to any
Quarterly Period will be payable in arrears, when
and as declared, on the first day of January,
April, July and October (each a "Quarterly
Dividend Payment Date"). Dividends with respect to
any Short-Term Period shall be payable in arrears,
when and as declared, on the Thursday next
following the last day of the Short-Term Period (a
"Short-Term Dividend Payment Date"), except as
provided in clause (2)(g). (Each Quarterly
Dividend Payment Date and Short-Term Dividend
Payment Date, individually, is referred to herein
as a "Dividend Payment Date".)
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(g) Notwithstanding the provisions of
clauses (c), (d), (e) and (f), with respect to the
Short-Term Dividend Payment Date:
(i) If the Thursday is not a
Business Day, then the Short-Term Dividend
Payment Date shall be the preceding Tuesday
if both such Tuesday and the Wednesday
following such Tuesday are Business Days; or
(ii) If the Friday following such
Thursday is not a Business Day, then the
Short-Term Dividend Payment Date will be the
Wednesday preceding such Thursday if both
such Wednesday and such Thursday are Business
Days; or
(iii) If such Thursday is not a
Business Day and either
(A) the preceding Tuesday or
Wednesday is not a Business Day or
(B) the Friday following such
Thursday and such preceding Wednesday
are not Business Days,
then the Short-Term Dividend Payment Date
shall be the first Business Day preceding
such Thursday that is next succeeded by a
Business Day. Even though any particular
Short-Term Dividend Payment Date may not
occur on the originally scheduled Short-Term
Dividend Payment Date because of the
adjustments provided for in this clause
(2)(g), the next succeeding Short-Term
Dividend Payment Date shall occur, subject to
such adjustments, on the seventh or the
thirteenth Thursday, as applicable, following
the originally scheduled Short-Term Dividend
Payment Date. Notwithstanding the foregoing,
if any Short-Term Dividend Payment Date set
pursuant to this clause (2)(g) would occur in
a number of days after the immediately
preceding Short-Term Dividend Payment Date
that is less than the number of days in the
then-current Minimum Holding Period, the
Short-Term
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Dividend Payment Date shall instead be the
next Business Day that
(X) is at least a number of
days after the preceding Dividend
Payment Date as to include the then-
current Minimum Holding Period and
(Y) is next succeeded by a
Business Day.
(h) Any designation by the Board of
Directors of a Short-Term Period following a
Quarterly Period shall be effective upon written
notice thereof given by the Corporation to the
Trust Corporation and to the Securities Depository
prior to 1:00 P.M., New York City time, on the
fifth Business Day prior to the Auction Date. Any
designation by the Board of Directors of a change
in the duration of the Short-Term Period shall be
effective upon written notice thereof given by the
Corporation to the Trust Corporation and to the
Securities Depository prior to 1:00 P.M., New York
City time, on the third Business Day prior to the
Auction Date.
(i) Not later than 12:00 noon, New York
City time, on the Initial Dividend Payment Date
and on each subsequent Dividend Payment Date (or
on the next preceding Business Day if the Initial
Dividend Payment Date or such subsequent Dividend
Payment Date is not a Business Day), the
Corporation shall pay to the Paying Agent on each
such date an aggregate amount of funds available
on the same Business Day in The City of New York
equal to the dividends to be paid to all Holders
of shares of the Auction Series A Stock on such
date. All such moneys shall be held in trust for
the payment of such dividends by the Paying Agent
for the benefit of the Holders specified in clause
(2)(j).
(j) Dividends shall be payable to the
Holders as their names appear on the stock books
of the Corporation or of the registrar of the
Auction Series A Stock on the Business Day next
preceding the Dividend Payment Date; provided
that, if the Applicable Rate is 200% of the
Applicable AA Composite Commercial Paper Rate, as
a result of a Payment Failure, then such dividend
shall be paid to the Holders as their names appear
on the stock books on such date, not exceeding 15
days preceding the
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<PAGE>
payment date thereof, as may be fixed by the Board
of Directors.
(k) Dividend rates for the shares of
Auction Series A Stock for each Dividend Period
(other than the Initial Dividend Period) shall be
equal to the rate per annum that results from the
Auction with respect to such Dividend Period;
PROVIDED that,
(i) if a Payment Failure shall have
occurred the dividend rate for all Dividend
Periods commencing on or after such Dividend
Payment Date shall be a rate per annum equal
to 200% of the Applicable AA Composite
Commercial Paper Rate (notwithstanding the
results of any Auction for any such Dividend
Period); and
(ii) if a Payment Failure is
remedied by reason of the Corporation having
paid all dividends accrued and unpaid, and
all unpaid redemption payments, on all shares
of the Auction Series A Stock, the dividend
rate for each Dividend Period commencing
after the date on which the Payment Failure
is remedied shall again be determined by an
Auction.
(The rate per annum at which dividends are payable
on shares of Auction Series A Stock for any
Dividend Period (other than the Initial Dividend
Period) is hereinafter referred to as the
"Applicable Rate.")
(l) The dividend per share to accrue and
be payable on each share of Auction Series A Stock
for the Initial Dividend Period shall be computed
by dividing by four the product of 6.60 % (the
dividend rate for the Initial Dividend Period) and
$50. The dividend per share to accrue and be
payable on each share of Auction Series A Stock
for each Quarterly Period shall be computed by
dividing by four the product of the Applicable
Rate for such Dividend Period and $50. The
dividend per share to accrue and be payable on
each share of Auction Series A Stock for any
Short-Term Period shall be computed by multiplying
the Applicable Rate for such Short-Term Period by
a fraction (the numerator of which shall be the
number of days in such Short-Term Period,
including the first and last days of such
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<PAGE>
Dividend Period, and the denominator of which
shall be 360) and multiplying by $50 the rate so
obtained.
(3) DEFINITIONS. As used with respect to the
shares of Auction Series A Stock, the following terms
shall have the following meanings, unless the context
otherwise requires:
"AFFILIATE" shall mean any Person known to the
Trust Corporation to be controlled by, in control
of or under common control with the Corporation.
"AGENT MEMBER" shall mean a member of the
Securities Depository that will act on behalf of a
Bidder and is identified as such in such Bidder's
Master Purchaser's Letter.
"APPLICABLE AA COMPOSITE COMMERCIAL PAPER RATE,"
on any date, shall mean (i) with respect to a 49-
day Short-Term Period, (A) the Interest Equivalent
of the 60-day rate on commercial paper placed on
behalf of insurers whose corporate bonds are rated
"AA" by S&P, or the equivalent of such rating by
S&P or another rating agency, as such 60-day rate
is made available on a discount basis or otherwise
by the Federal Reserve Bank of New York for the
Business Day immediately preceding such date, or
(B) in the event that the Federal Reserve Bank of
New York does not make available such a rate, then
the arithmetic average of the Interest Equivalent
of the 60-day rate on commercial paper placed on
behalf of such issuers, and as quoted on a
discount basis or otherwise to the Trust
Corporation for the close of business on the
Business Day immediately preceding such date by
the Commercial Paper Dealers or (ii) with respect
to a Quarterly Period or a 13-week Short-Term
Period, the Interest Equivalent of the 90-day rate
on such commercial paper as so determined. In the
event that either of the Commercial Paper Dealers
does not quote a rate required to determine the
Applicable AA Composite Commercial Paper Rate, the
Applicable AA Composite Commercial Paper Rate
shall be determined on the basis of the quotations
furnished by the remaining Commercial Paper Dealer
and the Substitute Commercial Paper Dealer
selected by the Corporation to provide such rate
or, if the Corporation does not select any such
Substitute Commercial Paper Dealer, the remaining
Commercial Paper Dealer. If an adjustment is made
as provided in the fourth sentence of clause
(2)(c), then (i) if the resulting number of
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days in each subsequent Short-Term Period, before
any adjustment as shall be 70 or more days but
fewer than 85 days, such rate shall be the
arithmetic average of the Interest Equivalent of
the 60-day and 90-day rates on such commercial
paper, or (ii) if such resulting number of days
shall be 85 or more days but 98 or fewer days,
such rate shall be the Interest Equivalent of the
90-day rate on such commercial paper.
"APPLICABLE RATE" shall have the meaning specified
in clause (2)(k).
"AUCTION" shall mean periodic implementation of
the Auction Procedures set forth herein.
"AUCTION DATE" shall mean the Business Day
immediately preceding a Dividend Payment Date.
"AUCTION PROCEDURES" shall mean the procedures for
conducting Auctions set forth in clause (4).
"AVAILABLE UNITS" shall have the meaning specified
in clause (4)(c)(i)(A).
"BID" and "BIDS" shall have the respective
meanings specified in clause (4)(a)(iii).
"BIDDER" and "BIDDERS" shall have the respective
meanings specified in clause (4)(a)(iii).
"BOARD OF DIRECTORS" shall mean the Board of
Directors of the Corporation or any committee
authorized by the Board of directors to perform
any or all of the duties of the Board with respect
to the Auction Series A Stock.
"BROKER-DEALER" shall mean any broker-dealer or
other entity permitted by law to perform the
functions required of a Broker-Dealer in clauses
(4) and (5), that is a member of, or a participant
in, the Securities Depository and that has been
selected by the Corporation and has entered into a
Broker-Dealer Agreement with the Trust Corporation
that remains effective.
"BROKER-DEALER AGREEMENT" shall mean an agreement
between the Trust Corporation and a Broker-Dealer
pursuant to which such Broker-Dealer agrees to
follow the procedures specified in clauses (4) and
(5).
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"BUSINESS DAY" shall mean a day on which the New
York Stock Exchange, Inc. is open for trading and
which is not a day on which banks in New York City
are authorized by law to close.
"CODE" shall mean the Internal Revenue Code of
1986, as amended.
"COMMERCIAL PAPER DEALERS" shall mean Goldman,
Sachs & Co. and Merrill Lynch, Pierce, Fenner &
Smith Incorporated or, in lieu thereof, their
respective affiliates or successors that are
engaged in the business of buying and selling
commercial paper.
"DATE OF ORIGINAL ISSUE" shall have the meaning
specified in clause (2)(b).
"DIVIDEND PAYMENT DATE" shall have the meaning
specified in clause (2)(f).
"DIVIDEND PERIOD" shall have the meaning specified
in clause (2)(c).
"DIVIDENDS-RECEIVED DEDUCTION" shall mean the
dividends-received deduction on Preferred Stock
held by nonaffiliated Corporations (currently
found in section 243(a) of the Code).
"EXISTING HOLDER" shall mean a Person who has
executed a Master Purchaser's Letter and who is
listed as the beneficial owner of shares of
Auction Series A Stock in the records of the Trust
Corporation.
"HOLD ORDER" and "HOLD ORDERS" shall have the
respective meanings specified in clause
(4)(a)(iii).
"HOLDERS" shall mean the holders of shares of the
Auction Series A Stock as the same appear on the
stock books of the Corporation or the registrar of
the Auction Series A Stock.
"INITIAL DIVIDEND PAYMENT DATE" shall have the
meaning specified in clause (2)(b).
"INITIAL DIVIDEND PERIOD" shall have the meaning
specified in clause (2)(b).
"INTEREST EQUIVALENT" shall mean the equivalent
yield on a 360-day basis of a discount basis
security to an interest-bearing security.
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"MASTER PURCHASER'S LETTER" shall mean a letter
addressed to the Corporation, the Trust
Corporation , a Broker-Dealer and an Agent Member
in which the executing Person agrees, among other
things, to offer to purchase, to purchase, to
offer to sell and to sell shares of Auction Series
A Stock as set forth in clause (4).
"MAXIMUM RATE" shall mean the product of the
Applicable AA Composite Commercial Paper Rate and
the Rate Multiple.
"MINIMUM HOLDING PERIOD" shall have the meaning
specified in clause (2)(c).
"ORDER" and "ORDERS" shall have the respective
meanings specified in clause (4)(a)(iii).
"OUTSTANDING SHARES" shall mean, as of any date,
shares of Auction Series A Stock theretofore
issued by the Corporation except, without
duplication, (i) any shares theretofore cancelled
or delivered to the Trust Corporation for
cancellation or redeemed or deemed to have been
redeemed by the Corporation, (ii) any shares as to
which the Corporation or any Affiliate thereof
shall be an Existing Holder, and (iii) any shares
represented by any certificate in lieu of which a
new certificate has been executed and delivered by
the Corporation.
"OUTSTANDING UNITS" shall mean Units comprised of
Outstanding Shares.
"PAYING AGENT" shall mean a bank or trust company
duly appointed by the Board of Directors as such
for the shares of the Auction Series A Stock.
"PAYMENT FAILURE" shall mean a failure by the
Corporation to pay to the Trust Corporation on or
within three Business Days (i) after any Dividend
Payment Date, the full amount of any dividends to
be paid on such Dividend Payment Date on any share
of the Auction Series A Stock or (ii) after any
redemption date, the redemption price to be paid
on that redemption date on any share of the
Auction Series A Stock with respect to which a
notice of redemption has been given.
"PERSON" shall mean an individual, a partnership,
a Corporation, a trust, an unincorporated
association, a
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joint venture, or other entity or a government or
any agency or political subdivision thereof.
"POTENTIAL HOLDER" shall mean any Person,
including any Existing Holder, (i) who shall have
executed a Master Purchaser's Letter and (ii) who
may be a prospective purchaser of Units (or, in
the case of an Existing Holder, additional Units).
"QUARTERLY DIVIDEND PAYMENT DATE" shall have the
meaning specified in clause (2)(f).
"QUARTERLY PERIOD" shall have the meaning
specified in clause (2)(c).
"RATE MULTIPLE" on any date, shall mean the
percentage determined as set forth below based on
the Prevailing Rating (as defined below) of the
Auction Series A Stock in effect at the close of
business on the Business Day immediately preceding
such Auction Date:
Prevailing Rating Percentage
----------------- ----------
AA/aa or above . . . . . . . . . . . . . . . .110%
A/a. . . . . . . . . . . . . . . . . . . . . .125%
BBB/baa. . . . . . . . . . . . . . . . . . . .150%
Below BBB/baa. . . . . . . . . . . . . . . . .200%
For purposes of this definition, the "PREVAILING
RATING" of the Auction Series A Stock shall be
(a) AA/aa or above, if the Auction
Series A stock has a rating of AA- or better
by Standard & Poor's Corporation or its
successor ("S&P") and a rating of aa3 or
better by Moody's Investors Service, Inc. or
its successor ("Moody's"), or the equivalent
of both of such ratings by a substitute
rating agency or substitute ratings agencies
selected as provided below,
(b) if not AA/aa or above, then A/a
if the Auction Series A Stock has a rating of
A- or better by S&P and a rating of a3 or
better by Moody's, or the equivalent of both
of such ratings by a substitute rating agency
or substitute rating agencies selected as
provided below,
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<PAGE>
(c) if not AA/aa or above or A/a,
then BBB/baa if the Auction Series A Stock as
a rating of BBB- or better by S&P and a
rating of baa3 or better by Moody's, or the
equivalent of both of such ratings by a
substitute rating agency or substitute rating
agencies selected as provided below, and
(d) if not AA/aa or above A/a or
BBB/baa, then below BBB/baa.
If both S&P and Moody's fail to make such a rating
available, Goldman, Sachs & Co. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, or their
successors and assigns, will select one or two
nationally recognized securities rating agencies
to act as a substitute rating agency or agencies.
The Corporation will take all reasonable action
necessary to enable S&P and Moody's, or such
substitute rating agency or agencies, to provide a
rating for the Auction Series A Stock.
"REMAINING UNITS" shall have the meaning specified
in clause (4)(d)(i)(D).
"SECURITIES DEPOSITORY" shall mean The Depository
Trust Corporation and its successors and assigns
or any other securities depository selected by the
Corporation which agrees to follow the procedures
required to be followed by such securities
depository in connection with shares of the
Auction Series A Stock.
"SELL ORDER" and "SELL ORDERS" shall have the
respective meanings specified in clause
(4)(a)(iii).
"SHORT-TERM DIVIDEND PAYMENT DATE" shall have the
meaning specified in clause (2)(f).
"SHORT-TERM PERIOD" shall have the meaning
specified in clause (2)(c).
"SUBMISSION DEADLINE" shall mean 1:00 P.M., New
York City time, on any Auction Date or such other
time on any Auction Date by which Broker-Dealers
are required to submit Orders to the Trust
Corporation as specified by the Trust Corporation
from time to time.
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<PAGE>
"SUBMITTED BID" and "SUBMITTED BIDS" shall have
the respective meanings specified in clause
(4)(c)(i).
"SUBMITTED HOLD ORDER" and "SUBMITTED HOLD ORDERS"
shall have the respective meanings specified in
clause (4)(c)(i).
"SUBMITTED ORDER" shall have the meaning specified
in clause (4)(c)(i).
"SUBMITTED SELL ORDER" and "SUBMITTED SELL ORDERS"
shall have the respective meanings specified in
clause (4)(c)(i).
"SUBSTITUTE COMMERCIAL PAPER DEALER" shall mean
any commercial paper dealer that is a leading
dealer in the commercial paper market.
"SUFFICIENT CLEARING BIDS" shall have the meaning
specified in clause (4)(c)(i)(B).
"TRUST CORPORATION" shall mean a bank or trust
company duly appointed as such with respect to the
shares of the Auction Series A Stock.
"UNIT" shall have the meaning specified in clause
(1).
"WINNING BID RATE" shall have the meaning
specified in clause (4)(c)(i)(C).
(4) AUCTION PROCEDURES.
(a) ORDERS BY EXISTING HOLDERS AND
POTENTIAL HOLDERS. Prior to the Submission
Deadline on each Auction Date:
(i) Each Existing Holder may submit
to a Broker-Dealer by telephone information
as to:
(A) the number of Outstanding
Units, if any, held by such Existing
Holder that such Existing Holder desires
to continue to hold for the next
succeeding Dividend Period without
regard to the rate determined by the
Auction Procedures;
(B) the number of Outstanding
Units, if any, that such
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<PAGE>
Existing Holder desires to continue to
hold for the next succeeding Dividend
Period if the rate determined by the
Auction Procedures shall be not less
than the rate per annum specified by
such Existing Holder; and/or
(C) the number of Outstanding
Units, if any, held by such Existing
Holder that such Existing Holder offers
to sell without regard to the rate
determined by the Auction Procedures for
the next succeeding Dividend Period; and
(ii) Each Broker-Dealer, using
lists of Potential Holders, in good faith for
the purpose of conducting a competitive
Auction in a commercially reasonable manner,
shall contact Potential Holders, including
Persons that are not Existing Holders, on
such lists to determine the number of
Outstanding Units, if any, that each such
Potential Holder offers to purchase; provided
that, the rate determined by the Auction
Procedures for the next succeeding Dividend
Period shall not be less than the rate per
annum specified by such Potential Holder.
(iii) For the purposes hereof, the
communication to a Broker-Dealer of
information referred to in clause (4)(a)(i)
or clause (4)(a)(ii) is referred to
hereinafter as an "Order" and collectively as
"Orders," and each Existing Holder and each
Potential Holder placing an Order is referred
to hereinafter as a "Bidder" and collectively
as "Bidders"; an Order containing the
information referred to in clause
(4)(a)(i)(A) is referred to hereinafter as a
"Hold Order" and collectively as "Hold
Orders"; an Order containing the information
referred to in clause (4)(a)(i)(B) or clause
(4)(a)(ii) is referred to hereinafter as a
"Bid" and collectively as "Bids"; and an
Order containing the information referred to
in clause (4)(a)(i)(C) is referred to
hereinafter as a "Sell Order" and
collectively as "Sell Orders".
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<PAGE>
(iv) A Bid submitted by an Existing
Holder shall constitute an irrevocable offer
to sell:
(A) the number of Outstanding
Units specified in such Bid if the rate
determined by the Auction Procedures on
such Auction Date shall be less than the
rate specified in such Bid; or
(B) such number or a lesser
number of Outstanding Units to be
determined as set forth in clause
(4)(d)(i)(D) if the rate determined by
the Auction Procedures on such Auction
Date shall be equal to the rate
specified in such Bid; or
(C) a lesser number of
Outstanding Units than was specified in
such Bid to be determined as set forth
in clause (4)(d)(ii)(C) if the rate
specified therein shall be higher than
the Maximum Rate and Sufficient Clearing
Bids do not exist.
(v) A Sell Order by an Existing
Holder shall constitute an irrevocable offer
to sell:
(A) the number of Outstanding
Units specified in such Sell Order; or
(B) such number or a lesser
number of Outstanding Units as set forth
in clause (4)(d)(ii)(C) if Sufficient
Clearing Bids do not exist.
(vi) A Bid by a Potential Holder
shall constitute an irrevocable offer to
purchase:
(A) the number of Outstanding
Units specified in such Bid if the rate
determined by the Auction Procedures on
such Auction Date shall be higher than
the rate specified in such Bid; or
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<PAGE>
(B) such number or a lesser
number of Outstanding Units as set forth
in clause (4)(d)(i)(E) if the rate
determined by the Auction Procedures on
such Auction Date shall be equal to the
rate specified in such Bid.
(vii) The Trust Corporation shall
determine the Applicable AA Composite
Commercial Paper Rate and the Maximum Rate
and shall notify the Corporation and each
Broker-Dealer of each such rate not later
than 9:30 A.M. on such Auction Date or such
other time on such Auction Date as specified
by the Trust Corporation with the consent of
the Corporation (which consent shall not be
unreasonably withheld).
(b) SUBMISSION OF ORDERS BY BROKER-
DEALERS TO TRUST CORPORATION.
(i) Each Broker-Dealer shall submit
in writing to the Trust Corporation prior to
the Submission Deadline on each Auction Date
all Orders obtained by such Broker-Dealer and
specifying with respect to each Order:
(A) The name of the Bidder
placing such Order;
(B) The aggregate number of
Units that are the subject of such
Order;
(C) To the extent that such
Bidder is an Existing Holder:
(I) the number of Units,
if any, subject to any Hold Order
placed by such Existing Holder;
(II) the number of Units,
if any, subject to any Bid placed
by such Existing Holder and the
rate specified in such Bid; and
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<PAGE>
(III) the number of
Units, if any, subject to any Sell
Order placed by such Existing
Holder; and
(D) To the extent such Bidder
is a Potential Holder, the number of
Units and the rate specified in such
Potential Holder's Bid.
(ii) If any rate specified in any
Bid contains more than three figures to the
right of the decimal point, the Trust
Corporation shall round such rate up to the
next highest one thousandth (.001) of 1%.
(iii) If, for any reason, an Order
or Orders covering all of the Outstanding
Units held by any Existing Holder is not
submitted to the Trust Corporation prior to
the Submission Deadline, the Trust
Corporation shall deem a Hold Order to have
been submitted on behalf of such Existing
Holder covering the number of Outstanding
Units held by such Existing Holder and not
subject to Orders submitted to the Trust
Corporation.
(iv) If one or more Orders by an
Existing Holder covering in the aggregate
more than the number of Outstanding Units
held by such Existing Holder are submitted to
the Trust Corporation by one or more Broker-
Dealers on behalf of such Existing Holder,
such Orders shall be considered valid as
follows and in the following order of
priority:
(A) Any Hold Orders submitted
on behalf of such Existing Holder shall
be considered valid up to and including,
in the aggregate, the number of
Outstanding Units held by such Existing
Holder; provided that, if more than one
Hold Order is submitted on behalf of
such Existing Holder and the number of
Units subject to such Hold Orders
exceeds the number of Outstanding Units
held by such Existing Holder, the number
of Units
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<PAGE>
subject to such Hold Orders shall be
reduced pro rata so that such Hold
Orders shall cover only the number of
Outstanding Units held by such Existing
Holder;
(B) (I) Any Bid submitted on
behalf of an Existing Holder shall
be considered valid up to and
including the excess of the number
of Outstanding Units held by such
Existing Holder over the number of
Units subject to valid Hold Orders
of such Existing Holder referred to
in clause (iv)(A),
(II) subject to clause
(iv)(B)(I), if more than one Bid
with the same rate is submitted on
behalf of such Existing Holder and
the aggregate number of Outstanding
Units subject to such Bids is
greater than the excess referred to
in clause (iv) (A), such Bids shall
be considered valid up to the
amount of such excess and the
number of Units subject to such
Bids shall be reduced pro rata so
that such Bids shall cover only the
number of Units equal to such
excess,
(III) subject to clause
(iv)(B)(I), if more than one Bid
with different rates is submitted
on behalf of such Existing Holder,
such Bids shall be considered valid
in their entirety up to clause
(iv)(B)(I) in the ascending order
of their respective rates, and
(IV) in any such event
specified in this clause (iv)(B),
the number, if
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<PAGE>
any, of such Units subject to Bids
not valid under this clause (iv)(B)
shall be treated as the subject of
a Bid by a Potential Holder; and
(C) Any Sell Order shall be
considered valid but only up to and
including, in the aggregate, the excess
of the number of Outstanding Units held
by such Existing Holder over the sum of
the Units subject to valid Hold Orders
of such Existing Holder referred to in
clause (iv)(A) and valid Bids by such
Existing Holder referred to in clause
(iv)(B).
(v) If more than one Bid is
submitted on behalf of any Potential Holder,
each Bid submitted shall be a separate Bid
with the rate and number of Units therein
specified.
(vi) Orders by Existing Holders and
Potential Holders must specify a whole number
of Units. An Order that does not specify a
whole number of Units will not be considered
a Submitted Order for purposes of the
Auction.
(c) DETERMINATION OF SUFFICIENT CLEARING
BIDS, WINNING BID RATE AND APPLICABLE RATE.
(i) Not earlier than the Submission
Deadline on each Auction Date, the Trust
Corporation shall assemble all Orders
submitted or deemed submitted to it by
Broker-Dealers (each such Order as submitted
or deemed submitted by a Broker-Dealer being
referred to hereinafter individually as a
"Submitted Hold Order," a "Submitted Bid" or
a "Submitted Sell Order," as the case may be,
or as a "Submitted Order") and shall
determine:
(A) The excess of the total
number of Outstanding Units over the
number of Outstanding Units that are the
subject of Submitted Hold Orders (such
excess being hereinafter referred to as
the "Available Units");
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<PAGE>
(B) From the Submitted Orders,
whether the number of Outstanding Units
that are the subject of Submitted Bids
by Existing Holders and Potential
Holders specifying one or more rates
equal to or lower than the Maximum Rate
exceeds or is equal to the sum of:
(I) the number of
Outstanding Units that are the
subject of Submitted Bids by
Existing Holders specifying one or
more rates higher than the Maximum
Rate, and
(II) the number of
Outstanding Units that are subject
to Submitted Sell Orders
(in the event of such excess or of such
equality, other than because the number
of Units specified in each of clauses
(I) and (II) of this clause (B) is zero
because all of the Outstanding Units are
the subject of Submitted Hold Orders,
such Submitted Bids in this clause (B)
are hereinafter referred to collectively
as "Sufficient Clearing Bids"); and
(C) If Sufficient Clearing
Bids exist, the lowest rate specified in
the Submitted Bids (the "Winning Bid
Rate") which if:
(I) (1) Each Submitted
Bid from Existing Holders
specifying such Winning Bid
Rate and
(2) all other
Submitted Bids from Existing
Holders specifying lower rates
were accepted, thus entitling
such Existing Holders to
continue to
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<PAGE>
hold the Outstanding Units
that are the subject of such
Submitted Bids, and
(II) (1) Each Submitted
Bid from Potential Holders
specifying such Winning Bid
Rate and
(2) all other
Submitted Bids from Potential
Holders specifying lower rates
were accepted, thus requiring
the Potential Holders to
purchase the Outstanding Units
that are the subject to such
Submitted Bids,
would result in such Existing
Holders described in clause (c)(I)
continuing to hold an aggregate
number of Outstanding Units that,
when added to the number of
Outstanding Units to be purchased
by such Potential Holders described
in clause (c)(II), would equal not
less than the Available Units.
(ii) In connection with any Auction
and promptly after the Trust Corporation has
made the determinations pursuant to clause
(c)(i), the Trust Corporation shall advise
the Corporation of the Applicable AA
Composite Commercial Paper Rate and the
Maximum Rate and, based on such
determinations, of the Applicable Rate for
the next succeeding Dividend Period and such
other information as follows:
(A) If Sufficient Clearing
Bids exist, that the Applicable Rate for
the next succeeding Dividend Period
shall be equal to the Winning Bid Rate
so determined;
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<PAGE>
(B) If Sufficient Clearing
Bids do not exist (other than because
all of the Outstanding Units are the
subject of Submitted Hold Orders), that
the Applicable Rate for the next
succeeding Dividend Period shall be the
Maximum Rate; or
(C) If all of the Outstanding
Units are the subject of Submitted Hold
Orders, that the Applicable Rate for the
next succeeding Dividend Period shall be
equal to 58% of the Applicable AA
Composite Commercial Paper Rate in
effect on the date of such Auction.
(d) ACCEPTANCE AND REJECTION OF
SUBMITTED BIDS AND SUBMITTED SELL ORDERS AND
ALLOCATION OF UNITS. Based on the determinations
made pursuant to clause (4)(c)(i), the Submitted
Bids and Submitted Sell Orders shall be accepted
or rejected and the Trust Corporation shall take
such other action as set forth below:
(i) If Sufficient Clearing Bids
have been made, subject to the provisions
clauses (d)(iv) and (d)(v), Submitted Bids
and Submitted Sell Orders shall be accepted
or rejected in the following order of
priority and all other Submitted Bids shall
be rejected:
(A) The Submitted Sell Orders
of each Existing Holder shall be
accepted and the Submitted Bids of each
Existing Holder specifying any rate that
is higher than the Winning Bid Rate
shall be rejected, thus requiring each
such Existing Holder to sell the
Outstanding Units that are the subject
of such Sell Orders or Submitted Bids;
(B) The Submitted Bids of each
Existing Holder specifying any rate that
is lower than the Winning Bid Rate shall
be accepted, thus entitling each such
Existing Holder to continue to hold the
Outstanding Units that are the subject
of such Submitted Bids;
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<PAGE>
(C) The Submitted Bids of each
Potential Holder specifying any rate
that is lower than the Winning Bid Rate
shall be accepted, thus requiring such
Potential Holder to purchase the number
of Outstanding Units that are the
subject of such Submitted Bids;
(D) The Submitted Bids of each
Existing Holder specifying a rate that
is equal to the Winning Bide Rate shall
be accepted, thus entitling such
Existing Holder to continue to hold the
Outstanding Units that are the subject
of such Submitted Bid, unless the number
of Outstanding Units subject to all such
Submitted Bids of Existing Holders shall
be greater than the number of
Outstanding Units ("Remaining Units")
equal to the excess of the Available
Units over the number of Outstanding
Units subject to Submitted Bids
described in clauses (i)(B) and (i)(C),
in which event the Submitted Bids of
each such Existing Holder shall be
rejected, and each such Existing Holder
shall be required to sell Units, but
only in an amount equal to the
difference between (x) the number of
Outstanding Units then held by such
Existing Holder subject to such
Submitted Bid and (y) the number of
Outstanding Units obtained by
multiplying the number of Remaining
Units by a fraction (the numerator of
which shall be the number of Outstanding
Units held by such Existing Holder
subject to such Submitted Bid and the
denominator of which shall be the sum of
the number of Outstanding Units subject
to such Submitted Bids made by all such
Existing Holders that specified a rate
equal to the Winning Bid Rate); and
(E) The Submitted Bid of each
Potential Holder specifying a rate that
is equal to the Winning Bid Rate shall
be accepted, but only in an amount equal
to the number of
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Outstanding Units obtained by
multiplying the difference between the
Available Units and the number of
Outstanding Units subject to Submitted
Bids described in subclauses (B), (C),
and (D) of this clause (i) by a fraction
(the numerator of which shall be the
number of Outstanding Units subject to
such Submitted Bid of such Potential
Holder and the denominator of which
shall be the sum of the number of
Outstanding Units subject to Submitted
Bids that specified rates equal to the
Winning Bid Rate submitted by all such
Potential Holders).
(ii) If Sufficient Clearing Bids
have not been made (other than because all of
the Outstanding Units are subject to
Submitted Hold Orders), subject to the
provisions of clause (d)(iv), Submitted
Orders shall be accepted or rejected in the
following order of priority and all other
Submitted Bids shall be rejected:
(A) The Submitted Bids of each
Existing Holder specifying any rate that
is equal to or lower than the Maximum
Rate shall be accepted, thus entitling
such Existing Holder to continue to hold
the Outstanding Units that are the
subject of such Submitted Bids;
(B) The Submitted Bids of each
Potential Holder specifying any rate
that is equal to or lower than the
Maximum Rate shall be accepted, thus
requiring such Potential Holder to
purchase the Outstanding Units that are
the subject of such Submitted Bids; and
(C) The Submitted Bids of each
Existing Holder specifying any rate that
is higher than the Maximum Rate shall be
rejected, and each Submitted Sell Order
of each Existing Holder shall be
accepted, thus requiring such Existing
Holder to sell
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<PAGE>
the Outstanding Units that are the
subject or each such Submitted Bid or
Submitted Sell Order, in both cases only
in an amount equal to the difference
between (x) the number of Outstanding
Units then held by such Existing Holder
subject to such Submitted Bid or
Submitted Sell Order and (y) the number
of outstanding Units obtained by
multiplying the difference between the
Available Units and the aggregate number
of Outstanding Units subject to
Submitted Bids described in subclauses
(A) and (B) of this clause (ii) by a
fraction (the numerator of which shall
be the number of Outstanding Units held
by such Existing Holder subject to such
Submitted Bid or Submitted Sell Order
and the denominator of which shall be
the number of Outstanding Units subject
to all such Submitted Bids and Submitted
Sell Orders of Existing Holders).
(iii) If all of the Outstanding
Units are the subject of Submitted Hold
Orders, all Submitted Bids shall be rejected.
(iv) If, as a result of the
procedures described in clause (d)(i) or
(d)(ii), any Existing Holder would be
entitled to hold or required to sell, or any
Potential Holder would be required to
purchase, a fraction of a Unit on any Auction
Date, the Trust Corporation shall, in such
manner as, in its sole discretion, it shall
determine, round up or down the number of
Units to be held or sold by any Existing
Holder or purchased by any Potential Holder
on such Auction Date so that the number of
Units held or sold by each Existing Holder or
purchased by any Potential Holder on such
Auction Date shall be a whole number of
Units.
(v) If, as a result of the
procedures described in clause (d)(i), any
Potential Holder would be entitled or
required to purchase less than a whole Unit
on any Auction Date, the Trust Corporation
shall, in
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such manner as, in its sole discretion, it
shall determine, allocate Units for purchase
among Potential Holders so that only whole
Units are purchased on such Auction Date by
any Potential Holder, even if such allocation
results in one or more of such Potential
Holders not purchasing Units on such Auction
Date.
(vi) Based on the results of each
Auction, the Trust Corporation shall
determine the aggregate number of Outstanding
Units to be purchased and the aggregate
number of Outstanding Units to be sold by
Potential Holders and Existing Holders on
whose behalf each Broker-Dealer submitted
Bids or Sell Orders and, with respect to each
Broker-Dealer, to the extent that such
aggregate number of Units to be sold differ,
determine to which other Broker-Dealer or
Broker-Dealers acting for one or more
purchasers such Broker-Dealer shall deliver,
or from which other Broker-Dealer or Broker-
Dealers acting for one or more sellers such
Broker-Dealer shall receive, as the case may
be, Units.
(5) MISCELLANEOUS.
(a) So long as the Applicable Rate is
based on the results of an Auction, an Existing
Holder
(i) may sell, transfer or otherwise
dispose of shares of Auction Series A Stock
only in Units and only pursuant to a Bid or
Sell Order in accordance with the Auction
Procedures, or to or through a Broker-Dealer
or to a Person that has delivered a signed
copy of a Master Purchaser's Letter to the
Trust Corporation; provided that, in the case
of all transfers other than pursuant to
Auctions, such Existing Holder or its Broker-
Dealer or its Agent Member advises the Trust
Corporation of such transfer, and
(ii) shall have the ownership of
the shares of Auction Series A Stock held by
it maintained in book entry form by the
Securities Depository in the account of its
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Agent Member, which in turn will maintain
account records of such Existing Holder's
beneficial ownership.
(b) Neither the Corporation nor any
Affiliate thereof may submit an Order in any
Auction.
(c) All references to time of day refer
to New York City time.
(d) From and during the continuance of a
Payment Failure and during any period in which
there shall not be a Securities Depository, shares
of Auction Series A Stock may be registered for
transfer or exchange and new certificates issued
upon surrender of the old certificates properly
endorsed for transfer, with
(i) all necessary endorser's
signature guaranteed, in such manner and form
as the Trust Corporation (or such other
transfer agent or registrar) may require, by
a guarantor reasonably believed by the Trust
Corporation (or such other transfer agent or
registrar) to be responsible,
(ii) accompanied by such assurances
as the Trust Corporation (or such other
transfer agent or registrar) shall deem
necessary or appropriate to evidence the
genuineness and effectiveness of each
necessary endorsement and
(iii) satisfactory evidence of
compliance with all applicable laws relating
to the collection of taxes or funds necessary
for the payment of such taxes.
(e) Commencing on the first day of the
first Dividend Period for which the Applicable
Rate is equal to 200% of the Applicable AA
Composite Commercial Paper Rate as a result of a
Payment Failure, the Corporation of an Affiliate
thereof, at the option of the Corporation, may
perform any of the functions to be performed by
the Trust Corporation or the Securities Depository
set forth herein.
(f) The Board of Directors of the
Corporation may interpret the provisions of the
Auction Procedures as set forth herein to resolve
any
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inconsistency or ambiguity which may arise or be
revealed in connection therewith and, if such
inconsistency or ambiguity reflects an inaccurate
provision hereof, the Board of Directors of the
Corporation may, in appropriate circumstances,
authorize the filing of a corrected Statement of
Resolution.
(g) Shares of Auction Series A Stock
which have been redeemed or otherwise acquired by
the Corporation or any Affiliate are not subject
to reissuance as Auction Series A Stock.
(6) REDEMPTION. The shares of Auction Series
A Stock shall be subject to redemption, on any Dividend
Payment Date, as a whole or in part, at a redemption
price of $50 per share plus an amount equal to accrued
and unpaid dividends to the date fixed for redemption;
provided however, that, unless the shares of Auction
Series A Stock shall have been registered for transfer
and exchange as provided in clause (5)(d), redemptions
shall be made only in whole Units. Otherwise, the
shares of Auction Series A Stock shall be redeemed in
accordance with the provisions of Article ELEVENTH,
Section (c)(2)(B).
(7) VOLUNTARY LIQUIDATION. The amount fixed
for payment to the Holders of the shares of the Auction
Series A Stock upon the voluntary liquidation,
dissolution or winding up of the Corporation shall be
$50 per share plus an amount equal to accrued and
unpaid dividends to the date of payment thereof.
(IX) $2.44 CONVERTIBLE SERIES OF 1966.
(1) The rate of dividend payable on the 1966
Series shall be $2.44 per annum per share.
(2) The shares of the 1966 Series shall be
redeemable, in whole or in part, at $52.50 per share at
any time after May 31, 1967 and on or before June 1,
1968, $52.00 per share thereafter and on or before June
1, 1969, $51.50 per share thereafter and on or before
June 1, 1970, $51.00 per share thereafter and on or
before June 1, 1971, and $50.00 per share thereafter,
in each case plus an amount, in the case of each share,
computed at the rate of $2.44 per annum from the date
on which dividends on such share became cumulative to
the date fixed for such redemption less the aggregate
of the dividends paid thereon prior to such redemption
date.
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(3) In the event of any voluntary
liquidation, dissolution or winding up of the
Corporation, the amount payable upon shares of the 1966
Series shall be $52.50 per share if paid on or before
June 1, 1968, $52.00 per share if paid thereafter and
on or before June 1, 1969, $51.50 per share if paid
thereafter and on or before June 1, 1970, $51.00 per
share if paid thereafter and on or before June 1, 1971,
and $50.00 per share if paid thereafter, in each case
in addition to the amount fixed by the Articles of
Incorporation in respect of secured and unpaid
dividends.
(4) The holders of shares of the 1966 Series
shall have the right, at their option, to convert such
shares into shares of Common Stock of the Corporation
at any time, on and subject to the following terms and
conditions:
(a) The shares of the 1966 Series shall
be convertible at the office of any Transfer
Agent, and as such other office or offices, if
any, as the Board of Directors may designate, into
full paid and non-assessable shares (calculated as
to each conversion to the nearest 1/100th of a
share) of Common Stock of the Corporation, at the
conversion price, determined as hereinafter
provided, in effect at the time of conversion,
each share of the 1966 Series being taken at
$50.00 for the purpose of such conversion. The
price at which shares of Common Stock shall be
delivered upon conversion (herein called the
"conversion price") shall be initially $8.54 per
share of Common Stock. The conversion price shall
be reduced in certain instances as provided in
clauses (c), (i) and (j) below, and shall be
increased in certain instances as provided in
paragraph (j) below. No payment or adjustment
shall be made upon any conversion on account of
any dividends accrued on the shares of the 1966
Series surrendered for conversion or on account of
any dividends on the Common Stock issued upon such
conversion.
(b) In order to convert shares of the
1966 Series into Common Stock the holder thereof
shall surrender at any office hereinabove
mentioned the certificate or certificates
therefor, duly endorsed to the Corporation or in
blank, and give written notice to the Corporation
at said office that he elects to convert such
shares. Shares of the 1966 Series shall be deemed
to have been converted immediately prior to the
close of business on the day of the surrender of
such shares for conversion as provided above, and
the person or persons entitled to receive the
Common
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Stock issuable upon such conversion shall be
treated for all purposes as the record holder or
holders of such Common Stock at such time. As
promptly as practicable on or after the conversion
date, the Corporation shall issue and shall
deliver at said office a certificate or
certificates for the number of full shares of
Common Stock issuable upon such conversion,
together with a scrip certificate for, or cash in
lieu of, any fraction of a share, as hereinafter
provided, to the person or persons entitled to
receive the same. In case shares of the 1966
Series are called for redemption, the right to
convert such shares shall cease and terminate at
the close of business on the fifth day preceding
the date fixed for redemption, unless default
shall be made in payment of the redemption price.
(c) In case the conversion price in
effect immediately prior to the close of business
on any day shall exceed by twelve and one-half
cents or more the amount determined at the close
of business on such day by dividing:
(i) a sum equal to
(A) ______________ multiplied
by $8.54 (being the initial conversion
price), plus
(B) the aggregate of the
amounts of all consideration received by
the Corporation upon the issuance of
Additional Shares of Common Stock (as
hereinafter defined), minus
(C) the aggregate of the
amount of all dividends and other
distributions which have been paid or
made after _______________ on Common
Stock of the Corporation, other than in
cash out of its earned surplus or in
Common Stock of the Corporation, by
(ii) the sum of
(A) ____________ and
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(B) the number of Additional
Shares of Common Stock which shall have
been issued,
the conversion price shall be reduced, effective
immediately prior to the opening of business on
the next succeeding day, by an amount equal to the
amount by which such conversion price shall exceed
the amount so determined. The foregoing amount of
twelve and one-half cents (or such amount as
theretofore adjusted) shall be subject to
adjustment as provided in clauses (i) and (j)
below, and such amount (or such amount as
therefore adjusted) is referred to in such
paragraphs as the "Differential Amount."
(d) The term "Additional Shares of
Common Stock" as used herein shall mean all shares
of Common Stock issued by the Corporation after
______________ (including shares deemed to be
"Additional Shares of Common Stock" pursuant to
clause (j) below), whether or not subsequently
reacquired or retired by the Corporation, other
than:
(i) shares issued upon conversion
of shares of the 1966 Series;
(ii) shares issued pursuant to
options or rights granted to officers or
employees of the Corporation under stock
option plans, stock purchase plans or any
similar benefit plans approved by the
stockholders; and
(iii) shares issued by way of
dividend or other distribution on shares of
Common Stock excluded from the definition of
Additional Shares of Common Stock by the
foregoing clauses (i) or (ii) or this clause
(iii) or on shares of Common Stock resulting
from any subdivision or combination of shares
of Common Stock so excluded.
The sale or other disposition of any shares of
Common Stock or other securities held in the
treasury of the Corporation shall not be deemed an
issuance thereof.
(e) In the case of the issuance of
Additional Shares of Common Stock for a
consideration part or all of which shall be cash,
the amount of the cash consideration therefor
shall be
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<PAGE>
deemed to be the amount of cash received by the
Corporation for such shares (or, if such
Additional Shares of Common Stock are offered by
the Corporation for subscription, the subscription
price, or, if such Additional Shares of Common
Stock are sold to underwriters or dealers for
public offering without a subscription offering,
the initial public offering price), without
deducting therefrom any compensation or discount
in the sale, underwriting or purchase thereof by
underwriters or dealers or others performing
similar services or for any expenses incurred in
connection therewith.
(f) In case of the issuance (otherwise
than as a dividend or other distribution on any
stock of the Corporation or upon conversion or
exchange of other securities of the Corporation)
of Additional Shares of Common Stock for a
consideration part or all of which shall be other
than cash, the amount of the consideration
therefor other than cash shall be deemed to be the
value of such consideration as determined by the
Board of Directors, irrespective of the accounting
treatment thereof. The reclassification of
securities other than Common Stock into securities
including Common Stock shall be deemed to involve
the issuance for a consideration other than cash
of such Common Stock immediately prior to the
close of business on the date fixed for the
determination of stockholders entitled to receive
such Common Stock.
(g) Additional Shares of Common Stock
issuable by way of dividend or other distribution
on any class of capital stock of the Corporation
shall be deemed to have been issued without
consideration, and shall be deemed to have been
issued immediately prior to the close of business
on the date fixed for the determination of
stockholders entitled to receive such dividend or
other distribution, except that if the total
number of shares constituting such dividend or
other distribution exceeds five per cent of the
total number of shares of Common Stock outstanding
at the close of business on the date fixed for the
determination of stockholders entitled to receive
such dividend or other distribution such
Additional Shares of Common Stock shall be deemed
to have been issued immediately after the opening
of business on the day following the date fixed
for the determination of stockholders entitled to
receive such dividend or other distribution.
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A dividend or other distribution in cash
or in property (including any dividend or other
distribution in securities other than Common
Stock) shall be deemed to have been paid or made
immediately prior to the close of business on the
date fixed for the determination of stockholders
entitled to receive such dividend or other
distribution and the amount of such dividend or
other distribution in property shall be deemed to
be the value of such property as of the date of
the adoption of the resolution declaring such
dividend or other distribution, as determined by
the Board of Directors at or as of that date. In
the case of any such dividend or other
distribution on Common Stock which consists of
securities which are convertible into or
exchangeable for shares of Common Stock, such
securities shall be deemed to have been issued for
a consideration equal to the value thereof as so
determined.
If, upon the payment of any dividend or
other distribution in cash or in property
(excluding Common Stock but including all other
securities), outstanding shares of Common Stock
are cancelled or required to be surrendered for
cancellation on a PRO RATA basis, the excess of
the number of shares of Common Stock outstanding
immediately prior thereto over the number to be
outstanding immediately thereafter (less that
portion of such excess attributable to the
cancellation of shares excluded from the
definition of Additional Shares of Common Stock by
clauses (i), (ii) or (iii) of clause (d) above),
shall be deducted from the sum computed pursuant
to clause (ii) of clause (c) above for the
purposes of all determinations under such clause
(c) made immediately prior to the close of
business on the date fixed for the determination
of stockholders entitled to receive such dividend
or other distribution and at any time thereafter.
The reclassification (including any
reclassification upon a consolidation or merger in
which the Corporation is the continuing
corporation) of Common Stock into securities
including other than Common Stock shall be deemed
to involve
(i) a distribution on Common Stock
of such securities other than Common Stock
made immediately prior to the close of
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<PAGE>
business on the effective date of the
reclassification, and
(ii) a combination or subdivision
as the case may be, of the number of shares
of Common Stock outstanding immediately prior
to such reclassification into the number of
shares of Common Stock outstanding
immediately thereafter.
The issuance by the Corporation of
rights or warrants to subscribe for or purchase
securities of the Corporation shall not be deemed
to be a dividend or distribution of any kind.
(h) In case of the issuances of
Additional Shares of Common Stock upon conversion
or exchange of other securities of the
Corporation, the amount of the consideration
received by the Corporation for such Additional
Shares of Common Stock shall be deemed to be the
total of
(i) the amount of the
consideration, if any, received by the
Corporation upon the issuance of such other
securities, plus
(ii) the amount of the
consideration, if any, other than such other
securities, received by the Corporation
(except in adjustment of interest or
dividends)
upon such conversion or exchange. In determining
the amount of the consideration received by the
Corporation upon the issuance of such other
securities
(X) the amount of the consideration
in cash and other than cash shall be
determined pursuant to clauses (e), (f) and
(g) above, and
(Y) if securities of the same class
or series of a class as such other securities
were issued for different amounts of
consideration, or if some were issued for no
consideration, then the amount of the
consideration received by the Corporation
upon the issuance of each of the securities
of such class or series, as the case may be,
shall be deemed to be the average amount of
the
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consideration received by the Corporation
upon the issuance of all the securities of
such class or series, as the case may be.
(i) In case Additional Shares of Common
Stock are issued as a dividend or other
distribution on any class of capital stock of the
Corporation, and the total number of shares
constituting such dividend or other distribution
exceeds five per cent of the total number of
shares of Common Stock outstanding at the close of
business on the date fixed for the determination
of stockholders entitled to receive such dividend
or other distribution, the conversion price and
the Differential Amount in effect at the opening
of business on the day following the date fixed
for such determination shall be reduced by
multiplying each of them by a fraction of which
the numerator shall be the number of shares of
Common Stock outstanding at the close of business
on the date fixed for such determination and the
denominator shall be the sum of such number of
shares and the total number of shares constituting
such dividend or other distribution, such
reductions to become effective immediately after
the opening of business on the day following the
date fixed for such determination. For the
purposes of this clause (i), the number of shares
of Common Stock at any time outstanding shall not
include shares held in the treasury of the
Corporation but shall include shares issuable in
respect of scrip certificates issued in lieu of
fractions of shares of Common Stock (other than
shares of Common Stock which, upon issuance, would
not constitute Additional Shares of Common Stock).
The Corporation will not pay any dividend or make
any distribution on shares of Common Stock held in
the treasury of the Corporation.
(j) In case outstanding shares of
Common Stock shall be subdivided into a greater
number of shares of Common Stock, the conversion
price and the Differential Amount in effect at the
opening of business on the day following the day
upon which such subdivision becomes effective
shall each be proportionately reduced, and,
conversely, in case outstanding shares of Common
Stock shall each be combined into a smaller number
of shares of Common Stock, the conversion price
and the Differential Amount in effect at the
opening of business on the day following the day
upon which such combination becomes effective
shall each be proportionately
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increased, such reductions or increases as the
case may be, to become effective immediately after
the opening of business on the day following the
day upon which such subdivision or combination
becomes effective. In the event of any such
subdivision, the number of shares of Common Stock
outstanding immediately thereafter, to the extent
of the excess thereof over the number outstanding
immediately prior thereto (less that portion of
such excess attributable to the subdivision of
shares excluded from the definition of Additional
Shares of Common Stock by subclauses (i), (ii) or
(iii) of clause (d) above), shall be deemed to be
"Additional Shares of Common Stock" and to have
been issued immediately after the opening of
business on the day following the day upon which
such subdivision shall have become effective and
without consideration. In the event of any such
combination, the excess of the number of shares of
Common Stock outstanding immediately prior thereto
over the number outstanding immediately thereafter
(less that portion of such excess attributable to
the combination of shares excluded from the
definition of Additional Shares of Common Stock by
subclauses (i), (ii) or (iii) of clause (d)
above), shall be deducted from the amount computed
pursuant to clause (c)(ii) above for the purposes
of all determinations under such clause (c) made
on any day after the day upon which such
combination becomes effective. Shares of Common
Stock held in the treasury of the Corporation and
shares issuable in respect of scrip certificates
issued in lieu of fractions of shares of Common
Stock (other than shares of Common Stock which,
upon issuance, would not constitute Additional
Shares of Common Stock) shall be considered
outstanding for the purposes of this clause (j).
(k) Whenever the conversion price is
adjusted as herein provided:
(i) the Corporation shall compute
the adjusted conversion price in accordance
with this subparagraph (IX) and shall prepare
a certificate signed by the Treasurer of the
Corporation setting forth the adjusted
conversion price and showing in reasonable
detail the facts upon which such adjustment
is based, including a statement of the
consideration received or to be received by
the Corporation for, and the amount of, any
Additional Shares of Common Stock issued
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since the last such adjustment, and such
certificate shall forthwith be filed with the
Transfer Agent or Agents for the 1966 Series;
and
(ii) a notice stating that the
conversion price has been adjusted and
setting forth the adjusted conversion price
shall forthwith be required, and as soon as
practicable after it is required, such notice
shall be published at least once in a daily
newspaper in the City of Washington, D.C.,
and in The City of New York, N.Y. and shall
be mailed to the holders of record of the
outstanding shares of the 1966 Series;
provided, however, that if within ten days
after the completion of mailing of such a
notice, an additional notice is required,
such additional notice shall be deemed to be
required pursuant to this clause (ii) as of
the opening of business on the tenth day
after such completion of mailing and shall
set forth the conversion price as adjusted as
such opening of business, and upon the
publication and mailing of such additional
notice, no other notice need be given of any
adjustment in the conversion price occurring
at or prior to such opening of business and
after the time that the next preceding notice
given by publication and mail became
required.
(l) In case:
(i) the Corporation shall declare
a dividend (or any other distribution) on its
Common Stock payable otherwise than in cash
out of its earned surplus; or
(ii) the Corporation shall
authorize the granting to the holders of its
Common Stock of rights to subscribe for or
purchase any shares of capital stock of any
class or of any other rights; or
(iii) of any reclassification
of the capital stock of the Corporation
(other than a subdivision or combination of
its outstanding shares of Common Stock), or
of any consolidation or merger to which the
Corporation is a party and for which approval
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<PAGE>
of any stockholders of the Corporation is
required, or of the sale or transfer of all
or substantially all of the assets of the
Corporation; or
(iv) of the voluntary or
involuntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall cause to be mailed to
the Transfer Agent or Agents for the 1966 Series
and to the holders of record of the outstanding
shares of the 1966 Series, at least twenty days
(or ten days in any case specified in clause (i)
or (ii) above) prior to the applicable record date
hereinafter specified, a notice stating (x) the
date on which a record is to be taken for the
purpose of such dividend, distribution or rights,
or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be
entitled to such dividend, distribution or rights
are to be determined, or (y) the date on which
such reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation or
winding up is expected to become effective, and
the date as of which it is expected that holders
of Common Stock of record shall be entitled to
exchange their shares of Common Stock for
securities or other property deliverable upon such
reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up.
(m) The Corporation shall at all times
reserve and keep available, free from preemptive
rights, out of its authorized but unissued Common
Stock, for the purpose of effecting the conversion
of the shares of the 1966 Series, the full number
of shares of Common Stock then deliverable upon
the conversion of all shares of the 1966 Series
then outstanding.
(n) No fractional shares of Common
Stock shall be issued upon conversion, but,
instead of any fraction of a share which would
otherwise be issuable, the Corporation shall, at
its option, either
(i) issue non-dividend bearing and
non-voting scrip certificates for such
fraction, such certificates to be in such
form and to contain such terms and conditions
as the Board of Directors shall at any time
or
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from time to time in its discretion fix and
determine, provided that the certificates
shall be exchangeable, within such period
(which shall end not less than two years
following the date of issue thereof) as the
Board of Directors shall determine, together
with other scrip certificates issued upon
conversion of shares of the 1966 Series, for
stock certificates representing a full share
or shares, and upon the expiration of such
period shall be exchangeable for cash, as
provided in the scrip certificates, within
such further period (which shall end not less
than six years following the date of issue of
such certificates) as the Board of Directors
shall determine; or
(ii) pay a cash adjustment in
respect of such fraction in an amount equal
to the same fraction of the market price per
share of Common Stock (as determined by the
Board of Directors) at the close of business
on the day of conversion.
(o) The Corporation will pay any and
all taxes that may be payable in respect of the
issue or delivery of shares of Common Stock on
conversion of shares of the 1966 Series pursuant
hereto. The Corporation shall not, however, be
required to pay any tax which may be payable in
respect of any transfer involved in the issue and
delivery of shares of Common Stock in a name other
than that in which the shares of the 1966 Series
so converted were registered, and no such issue or
delivery shall be made unless and until the person
requesting such issue has paid to the Corporation
the amount of any such tax, or has established, to
the satisfaction of the Corporation, that such tax
has been paid.
(p) For the purpose of this paragraph
(IV), the term "Common Stock" shall include any
stock of any class of the Corporation which has no
preference in respect of dividends or of amounts
payable in the event of any voluntary or
involuntary liquidation, dissolution or winding up
of the Corporation, and which is not subject to
redemption by the Corporation. However, shares
issuable on conversion of shares of the 1966
Series shall include only shares of the class
designated as Common Stock of the Corporation as
of
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_______________, or shares of any class or classes
resulting from any reclassification or
reclassifications thereof and which have no
preference in respect of dividends or of amounts
payable in the event of any voluntary or
involuntary liquidation, dissolution or winding up
of the Corporation and which are not subject to
redemption by the Corporation; provided that if at
any time there shall be more than one such
resulting class, the shares of each such class
then so issuable shall be substantially in the
proportion which the total number of shares of
such class resulting from all such
reclassifications bears to the total number of
shares of all such classes resulting from all such
reclassifications.
(d) PREFERENCE STOCK.
(i) GENERALLY.
(A) The Preference Stock shall entitle the holders
thereof to receive, when and as declared, from the surplus or net
profits of the Corporation remaining after the preferential
dividend requirements for the outstanding Class A Preferred Stock
and Class B Preferred Stock have been provided for, yearly
dividends, payable at such times and at such rates as hereinafter
provided. The dividends on the Preference Stock shall be
cumulative and shall be payable before any dividend on the Common
Stock shall be paid or set apart.
(B) In the event of any liquidation or dissolution or
winding up, whether voluntary or involuntary, of the Corporation,
the holders of the Preference Stock shall be entitled to be paid
in full, from any assets and funds of the Corporation remaining
after payment to the holders of the Preferred Stock as provided
in Article ELEVENTH, Section (b)(i)(C) hereof, both the par
amount of their shares and an amount equal to the unpaid
dividends accrued thereon (whether earned or declared or not)
adjusted to the date of such payment before any amount shall be
paid to the holders of the Common Stock; and after the payment to
the holders of the Preference Stock of its par value and an
amount equal to the unpaid dividends accrued thereon, the
remaining assets and funds shall be divided and paid to the
holders of the Common Stock according to their respective shares.
(C) The Preference Stock redeemed shall forthwith be
canceled and retired but shall have the status of authorized but
unissued Preference Stock of the Corporation.
(D) The Board of Directors is hereby empowered from
time to time to classify or reclassify all or any of the
authorized but unissued Preference Stock into one or more series
of the Preference Stock, which series may differ from each other
and other series already outstanding in any or all of the
following respects:
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(I) the rate or rates of the preferential
dividends payable thereon, and, if applicable, the manner in
which such dividends are determined,
(II) whether or not, and if so on what terms and
conditions, such series shall be convertible at the option
of the holders into other stock, bonds or securities of the
Corporation,
(III) the prices and times, if any, of redemption
thereof,
(IV) the sinking fund provisions, if any,
applicable thereto, and
(V) the date(s), or the method of determining the
date(s), on which such dividends are payable thereon.
Up to the fixed preferential dividends payable on each series,
all series of Preference Stock shall participate at the same rate
per cent per annum in any payments for, or including, any period
(whether a dividend period or part of such a period) aggregating
less than the full preferential dividends on all series of
Preference Stock for such period; if for any period (whether a
dividend period or part of such a period) full preferential
dividends shall not have been paid on any series of Preference
Stock when payable, the deficiency shall be payable before any
dividends for any subsequent dividend period or part of such a
period, shall be paid upon or set apart for the Preference Stock.
All of the Preference Stock having identical characteristics
shall be given the same serial designation.
(E) The right is hereby reserved to make from time to
time amendments of the Articles of Incorporation of the
Corporation to provide that one or more series of the authorized
but unissued Preference Stock shall, and to what extent and on
what terms and conditions, participate in dividends in excess of
the fixed preferential dividends thereon, or in distribution of
assets, upon liquidation, dissolution, or winding up, in excess
of the fixed preferential distribution thereof to the holders of
Preference Stock. Except in the event of a failure to pay full
dividends on the Preference Stock, and the continuance of such
failure for one year, and as provided in Article NINTH hereof,
the Preference Stock shall have no voting power and the Common
Stock and, to the extent provided in Article NINTH hereof, the
Class B Preferred Stock shall have voting power with respect to
any such proposed amendment of the Articles of Incorporation of
the Corporation.
(F) At no time shall any Preference Stock be issued
unless at the time of such issuance the net earnings of the
Corporation, over and above operating expenses (including
allowance for depreciation and other reserves), fixed charges and
any other deductions from or charges against income (including
dividend requirements on stock ranking prior to Preference Stock)
which rank prior to dividends on the Preference Stock, for a
period of twelve successive calendar months ending within the
three calendar months
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immediately preceding the month in which such Preference Stock is
issued, shall have been at least twice a sum equal to full
preferential dividends for one year on
(I) all Preference Stock already outstanding at
the time of such issuance, and
(II) the Preference Stock so to be issued.
(ii) 7.78% CUMULATIVE PREFERENCE STOCK, 1973 SERIES ($100
PAR VALUE).
(A) The 7.78% Cumulative Preference Stock, 1973 Series
($100 par value), shall entitle the holders thereof to receive,
when and as declared, from the surplus or net profits of the
Corporation remaining after the preferential dividend
requirements for the outstanding Preferred Stock have been
provided for, yearly dividends at the rate of seven and seventy-
eight hundredths per cent per annum and no more, payable
quarterly on the first days of January, April, July, and October
in each year commencing January 1, 1974. The dividends on the
7.78% Cumulative Preference Stock, 1973 Series ($100 par value),
shall be cumulative and shall be payable before any dividend on
the Common Stock shall be paid or set apart; so that, if in any
year or years dividends amounting to seven and seventy-eight
hundredths per cent shall not have been paid thereon, the
deficiency shall be payable before any dividends shall be paid
upon or set apart for the Common Stock. Dividends on 7.78%
Cumulative Preference Stock, 1973 Series ($100 par value), will
accrue from November 28, 1973.
(B) The 7.78% Cumulative Preference Stock, 1973 Series
($100 par value), or any portion thereof, may, whenever the Board
of Directors shall so determine, be redeemed by the payment to
the holders thereof of the sum hereinafter specified as the
redemption price at the time of redemption, in cash, for each
share thereof, together with all accrued dividends. The
redemption price shall be one hundred eight dollars ($108) per
share at any time prior to December 1, 1978, then one hundred
five dollars and fifty cents ($105.50) per share prior to
December 1, 1983, then one hundred three dollars ($103) per share
prior to December 1, 1988, and one hundred one dollars ($101) per
share thereafter; PROVIDED, HOWEVER, that the Corporation will
not, prior to December 1, 1978, redeem any shares of the 7.78%
Cumulative Preference Stock, 1973 Series ($100 par value), if
such redemption is a part of or in anticipation of any refunding
operation involving the application, directly or indirectly, of
borrowed funds or the proceeds of an issue of any stock ranking
prior to or on a parity with 7.78% Cumulative Preference Stock,
1973 Series ($100 par value), if such borrowed funds have an
interest rate or cost to the Corporation (calculated in
accordance with generally accepted financial practice), or such
stock has a dividend rate or cost to the Corporation (so
calculated), less than the dividend rate per annum of the 7.78%
Cumulative Preference Stock, 1973 Series ($100 par value). In
case less than all of the Preference Stock of this series at the
time being outstanding is so redeemed, the shares to be redeemed
shall be, as nearly as is
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reasonably practicable without creating fractional shares, a
proportionate part of the holdings of each holder of Preference
Stock of this series, or shall be selected, in whole or in part,
by lot. At least thirty days' written notice of the election of
the Corporation to redeem the Preference Stock of this series, or
any part thereof, and (in case less than all is to be redeemed)
of the shares thereof so to be redeemed, shall be given to each
holder of Preference Stock of this series so to be redeemed by
mailing the same, postage prepaid, and addressed to him at his
address as it appears upon the books of the Corporation. When
such notice shall have been so given and the funds for payment of
the redemption price plus accrued dividends shall have been
provided and set apart, the dividends on the shares of Preference
Stock of this series so called for redemption and all other
rights of the holders thereof, except the right to receive the
redemption price plus accrued dividends, shall cease.
(iii) 7.50% CUMULATIVE PREFERENCE STOCK, 1986 SERIES ($100
PAR VALUE).
(A) The 7.50% Cumulative Preference Stock, 1986 Series
($100 par value), shall entitle the holders thereof to receive,
when and as declared, from the surplus or net profits of the
Corporation remaining after the preferential dividend
requirements for the outstanding Preferred Stock have been
provided for, yearly dividends at the rate of 7.50 per cent per
annum and no more, payable quarterly on the first days of
January, April, July, and October in each year commencing January
1, 1987. The dividends on the 7.50% Cumulative Preference Stock,
1986 Series ($100 par value), shall be cumulative and shall be
payable before any dividend on the Common Stock shall be paid or
set apart; so that, if in any year or years dividends amounting
to 7.50 per cent shall not have been paid thereon, the deficiency
shall be payable before any dividends shall be paid upon or set
apart for the Common Stock. Dividends on 7.50% Cumulative
Preference Stock, 1986 Series ($100 par value) will accrue from
and including the date of issuance.
(B) The 7.50% Cumulative Preference Stock, 1986 Series
($100 par value), or any portion thereof, may, whenever the Board
of Directors shall so determine, be redeemed by the payment to
the holders thereof of the sum hereinafter specified as the
redemption price at the time of redemption, in cash, for each
share thereof, together with all accrued dividends. The
redemption price shall be $107.50 per share at any time prior to
October 1, 1991, then $105 per share prior to October 1, 1996,
then $102.50 per share prior to October 1, 2001, and $100 per
share thereafter; PROVIDED, HOWEVER, that prior to October 1,
1991, the Corporation will not redeem any shares of the 7.50%
Cumulative Preference Stock, 1986 Series ($100 par value), if
such redemption is a part of or in anticipation of any refunding
operation involving the application, directly or indirectly, of
borrowed funds or the proceeds of an issue of any stock ranking
prior to or on a parity with 7.50% Cumulative Preference Stock,
1986 Series ($100 par value), if such borrowed funds have an
interest rate or cost to the Corporation (calculated in
accordance with generally accepted financial practice), or such
stock has a dividend rate or cost to the Corporation (so
calculated), less than
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the dividend rate per annum of the 7.50% Cumulative Preference
Stock, 1986 Series ($100 par value). In case less than all of the
Preference Stock of this series at the time being outstanding is
so redeemed, the shares to be redeemed shall be, as nearly as is
reasonably practicable without creating fractional shares, a
proportionate part of the holdings of each holder of Preference
Stock of this series, or shall be selected, in whole or in part,
by lot. At least thirty (30) days' written notice of the election
of the Corporation to redeem the Preference Stock of this series
(or any part thereof, in which case the notice shall specify the
particular shares to be redeemed) shall be given to each holder
of the Preference Stock of this series so to be redeemed by
mailing the same, postage prepaid, and addressed to him at his
address as it appears upon the books of the Corporation. When
such notice shall have been so given and the funds for payment of
the redemption price plus accrued dividends shall have been
provided and set apart, the dividends on the shares of Preference
Stock of this series so called for redemption and all other
rights of the holders thereof, except the right to receive the
redemption price plus accrued dividends, shall cease.
(C)(I) On or before October 1 of each year commencing
October 1, 1992 and continuing through October 1, 2025,
there shall be provided and set apart by the Corporation a
sum sufficient for the sinking fund redemption of 15,000
shares of 7.50% Cumulative Preference Stock, 1986 Series
($100 par value). On October 1 of each year commencing
October 1, 1992 and continuing through October 1, 2025, the
Corporation shall make sinking fund redemptions of 15,000
shares of the 7.50% Cumulative Preference Stock, 1986 Series
($100 par value) by the payment to the holders thereof, in
cash, of the sum of One Hundred Dollars and No Cents
($100.00) for each share thereof, together with all accrued
dividends. Shares shall be selected for sinking fund
redemption by lot. At least thirty (30) days' written notice
of the shares of the 7.50% Cumulative Preference Stock, 1986
Series ($100 par value) so to be redeemed shall be given to
the respective holders thereof by mailing the same, postage
prepaid, and addressed to such holder at the address as it
appears upon the books of the Corporation. When such notice
shall have been so given and funds for the payment of the
sinking fund redemption price, plus accrued dividends, shall
have been provided and set apart by the Corporation, the
dividends on the shares of the 7.50% Cumulative Preference
Stock, 1986 Series ($100 par value) so called for sinking
fund redemption and all other rights of the holders thereof,
except the right to receive the sinking fund redemption
price plus accrued dividends, shall cease.
(II) The Corporation may, at its option, in
connection with any sinking fund redemption, increase by not
more than 15,000 shares the number of shares of 7.50%
Cumulative Preference Stock, 1986 Series ($100 par value) to
be redeemed for the sinking fund, at such sinking fund
redemption price, on any such sinking fund redemption date,
together, in every case, with all accrued dividends;
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PROVIDED, HOWEVER, that the right to make such optional
increases shall not be cumulative.
(III) The Corporation may, at its option, satisfy
its obligation to make sinking fund redemptions provided for
in paragraph (iii)(C)(I) above by crediting shares of 7.50%
Cumulative Preference Stock, 1986 Series ($100 par value)
acquired by purchase in the open market, by redemption
(otherwise than by reason of the required sinking fund
redemption provided for by such paragraph (iii)(C)(I) or
otherwise. Notwithstanding the foregoing provisions of this
paragraph (iii)(C), the obligation to redeem shares of 7.50%
Cumulative Preference Stock, 1986 Series ($100 par value) by
reason of the sinking fund redemption (provided for in such
paragraph (iii)(C)(i)) annually commencing on October 1,
1992 shall be cumulative, and unless full cumulative
redemptions of shares of 7.50% Cumulative Preference Stock,
1986 Series ($100 par value) for the sinking fund required
hereby have been made, no dividends shall be declared nor
any distribution made on the Common Stock, except dividends
paid in stock of the Corporation ranking junior to the 7.50%
Cumulative Preference Stock, 1986 Series ($100 par value),
nor shall any purchase or other acquisition for value of
such Common Stock be made. The provisions of this paragraph
(iii)(C) shall apply so long as any shares of 7.50%
Cumulative Preference Stock, 1986 Series ($100 par value)
are outstanding.
(iv) 6.75% CUMULATIVE PREFERENCE STOCK, 1987 SERIES ($100
PAR VALUE).
(A) The 6.75% Cumulative Preference Stock, 1987 Series
($100 par value), shall entitle the holders thereof to receive,
when and as declared, from the surplus or net profits of the
Corporation remaining after the preferential dividend
requirements for the outstanding Preferred Stock have been
provided for, yearly dividends at the rate of six and seventy
five hundredths per cent per annum and no more, payable quarterly
on the first days of January, April, July, and October of each
year commencing April 1, 1987. The dividends on the 6.75%
Cumulative Preference Stock, 1987 Series ($100 par value), shall
be cumulative and shall be payable before any dividend on the
Common Stock shall be paid or set apart; so that, if in any year
or years dividends amounting to six and seventy five hundredths
per cent shall not have been paid thereon, the deficiency shall
be payable before any dividends shall be paid upon or set apart
for the Common Stock. Dividends on 6.75% Cumulative Preference
Stock 1987 Series ($100 par value), will accrue from and include
January 22, 1987.
(B) The 6.75% Cumulative Preference Stock, 1987 Series
($100 par value), or any portion thereof, may, whenever the Board
of Directors shall so determine, be redeemed by the payment to
the holders thereof of the sum hereinafter specified as the
redemption price at the time of redemption, in cash, for each
share thereof, together with all accrued dividends. The
redemption price shall be $106.75 per share at any time prior
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to April 1, 1992, then $104.50 per share prior to April 1, 1997,
then $102.25 per share prior to April 1, 2002, and $100 per share
thereafter; PROVIDED, HOWEVER, that prior to April 1, 1992, the
Corporation will not redeem any shares of the 6.75% Cumulative
Preference Stock, 1987 Series ($100 par value), if such
redemption is a part of or in anticipation of any refunding
operation involving the application, directly or indirectly, of
borrowed funds or the proceeds of an issue of any stock ranking
prior to or on a parity with 6.75% Cumulative Preference Stock,
1987 Series ($100 par value), if such borrowed funds have an
interest rate or cost to the Corporation (calculated in
accordance with generally accepted financial practice), or such
stock has a dividend rate or cost to the Corporation (so
calculated), less than the dividend rate per annum of the 6.75%
Cumulative Preference Stock, 1987 Series ($100 par value). In
case less than all of the Preference Stock of this series at the
time being outstanding is so redeemed, the shares to be redeemed
shall be, as nearly as is reasonably practicable without creating
fractional shares, a proportionate part of the holdings of each
holder of Preference Stock of this series, or shall be selected,
in whole or in part, by lot. At least thirty (30) days' written
notice of the election of the Corporation to redeem the
Preference Stock of this series (or any part thereof, in which
case the notice shall specify the particular shares to be
redeemed) shall be given to each holder of the Preference Stock
of this series so to be redeemed by mailing the same, postage
prepaid, and addressed to him at his address as it appears upon
the books of the Corporation. When such notice shall have been so
given and the funds for payment of the redemption price plus
accrued dividends shall have been provided and set apart, the
dividends on the shares of Preference Stock of this series so
called for redemption and all other rights of the holders
thereof, except the right to receive the redemption price plus
accrued dividends, shall cease.
(C)(I) On or before April 1 of each year commencing
April 1, 1993 and continuing through April 1, 2026, there
shall be provided and set apart by the Corporation a sum
sufficient for the sinking fund redemption of 15,000 shares
of 6.75% Cumulative Preference Stock, 1987 Series ($100 par
value). Thereafter, on April 1 of each year commencing April
1, 1993 and continuing through April 1, 2026, the
Corporation shall make sinking fund redemptions of 15,000
shares of the 6.75% Cumulative Preference Stock, 1987 Series
($100 par value) by the payment to the holders thereof, in
cash, of the sum of One Hundred Dollars and No Cents
($100.00) for each share thereof, together with all accrued
dividends. Shares shall be selected for sinking fund
redemption by lot. At least thirty (30) days' written notice
of the shares of the 6.75% Cumulative Preference Stock, 1987
Series ($100 par value) so to be redeemed shall be given to
the respective holders thereof by mailing the same, postage
prepaid, and addressed to such holder at the address as it
appears upon the books of the Corporation. When such notice
shall have been so given and funds for the payment of the
sinking fund redemption price, plus accrued dividends, shall
have been provided and set apart by the Corporation, the
dividends on the shares of the 6.75% Cumulative Preference
Stock, 1987 Series ($100 par value) so called for sinking
fund
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redemption and all other rights of the holders thereof,
except the right to receive the sinking fund redemption
price plus accrued dividends, shall cease.
(II) The Corporation may, at its option, in
connection with any sinking fund redemption, increase by not
more than 15,000 shares the number of shares of 6.75%
Cumulative Preference Stock, 1987 Series ($100 par value) to
be redeemed for the sinking fund, at such sinking fund
redemption priced on any such sinking fund redemption date,
together, in every case, with all accrued dividends;
PROVIDED, HOWEVER, that the right to make such optional
increases shall not be cumulative.
(III) The Corporation may, at its option, satisfy
its obligation to make sinking fund redemptions provided for
in subsection (iv)(C)(I) above by crediting shares of 6.75%
Cumulative Preference Stock, 1987 Series ($100 par value)
acquired by purchase in the open market, by redemption
(otherwise than by reason of the required sinking fund
redemption provided for by such subsection (iv)(C)(I)) or
otherwise. Notwithstanding the foregoing provisions of this
subsection (iv)(C), the obligation to redeem shares of 6.75%
Cumulative Preference Stock, 1987 Series ($100 par value) by
reason of the sinking fund redemption provided for in such
subsection (iv)(C)(I), annually commencing on April 1, 1993
shall be cumulative, and unless full cumulative redemptions
of shares of 6.75% Cumulative Preference Stock, 1987 Series
($100 par value) for the sinking fund required hereby have
been made, no dividends shall be declared nor any
distribution made on the Common Stock, except dividends paid
in stock of the Corporation ranking junior to the 6.75%
Cumulative Preference Stock, 1987 Series ($100 par value),
nor shall any purchase or other acquisition for value of
such Common Stock be made. The provisions of this subsection
(iv)(C) shall apply so long as any shares of 6.75%
Cumulative Preference Stock, 1987 Series ($100 par value)
are outstanding.
(v) 7.80% CUMULATIVE PREFERENCE STOCK, 1989 SERIES ($100 PAR
VALUE).
(A) The 7.80% Cumulative Preference Stock, 1989 Series
($100 par value), shall entitle the holders thereof to receive,
when and as declared, from the surplus or net profits of the
Corporation remaining after the preferential dividend
requirements for the outstanding Preferred Stock have been
provided for, yearly dividends at the rate of seven and eighty
hundredths per cent per annum and no more, payable quarterly on
the first days of January, April, July, and October in each year
commencing October 1, 1989. The dividends on the 7.80% Cumulative
Preference Stock, 1989 Series ($100 par value), shall be
cumulative and shall be payable before any dividend on the Common
Stock shall be paid or set apart so that, if in any year or years
dividends amounting to seven and eighty hundredths per cent,
shall not have been paid thereon, the deficiency shall be payable
before any
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dividends shall be paid upon or set apart for the Common Stock.
Dividends on 7.80% Cumulative Preference Stock, 1989 Series ($100
par value) will accrue from and include June 22, 1989.
(B) The 7.80% Cumulative Preference Stock, 1989 Series
($100 par value) shall be redeemed in whole on July 1, 1997 by
the payment to the holders thereof, in cash, of the sum of One
Hundred Dollars and No Cents ($100.00) for each share thereof,
together with all accrued dividends. At least thirty (30) days'
written notice shall be given to each holder of the Preference
Stock of this series so to be redeemed by mailing the same,
postage prepaid, and addressed to him at his address as it
appears upon the books of the Corporation. When such notice shall
have been so given and the funds for payment of the redemption
price plus accrued dividends shall have been provided and set
apart, the dividends on the shares of preference stock of this
series so called for redemption and all other rights of the
holders thereof, except the right to receive the redemption price
plus accrued dividends, shall cease.
(vi) 8.25% CUMULATIVE PREFERENCE STOCK, 1989 SERIES ($100
PAR VALUE).
(A) The 8.25% Cumulative Preference Stock, 1989 Series
($100 par value), shall entitle the holders thereof to receive,
when and as declared, from the surplus or net profits of the
Corporation remaining after the preferential dividend
requirements for the outstanding Preferred Stock have been
provided for, yearly dividends at the rate of eight and twenty-
five hundredths per cent per annum and no more, payable quarterly
on the first days of January, April, July, and October in each
year commencing January 1, 1990. The dividends on the 8.25%
Cumulative Preference Stock, 1989 Series ($100 par value), shall
be cumulative and shall be payable before any dividend on the
Common Stock shall be paid or set apart; so that, if in any year
or years dividends amounting to eight and twenty-five hundredths
per cent shall not have been paid thereon, the deficiency shall
be payable before any dividends shall be paid upon or set apart
for the Common Stock. Dividends on the 8.25% Cumulative
Preference Stock, 1989 Series ($100 par value) will accrue from
and include November 21, 1989.
(B) (I) On or before October 1 of each year commencing
October 1, 1995 and continuing through October 1, 1999 (or
such earlier October 1 on which there remain any shares of
8.25% Cumulative Preference Stock, 1989 Series ($100 par
value) outstanding), there shall be provided and set apart
by the Corporation a sum sufficient for the sinking fund
redemption of 100,000 shares of 8.25% Cumulative Preference
Stock, 1989 Series ($100 par value). Thereafter, on October
1 of each year commencing October 1, 1995 and continuing
through October 1, 1999 (or such earlier October 1 on which
there remain any shares of 8.25% Cumulative Preference
Stock, 1989 Series ($100 par value) outstanding), the
Corporation shall make sinking fund redemptions of 100,000
shares of the 8.25% Cumulative Preference Stock, 1989 Series
($100 par value) by the
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payment to the holders thereof, in cash, of the sum of One
Hundred Dollars and No Cents ($100.00) for each share
thereof, together with all accrued dividends. Shares shall
be selected for sinking fund redemption by lot. At least
thirty (30) days written notice of the shares of the 8.25%
Cumulative Preference Stock, 1989 Series ($100 par value) so
to be redeemed shall be given to the respective holders
thereof by mailing the same, postage prepaid, and addressed
to such holder at the address as it appears upon the books
of the Corporation. When such notice shall have been so
given and funds for the payment of the sinking fund
redemption price, plus accrued dividends, shall have been
provided and set apart by the Corporation, the dividends on
the shares of the 8.25% Cumulative Preference Stock, 1989
Series ($100 par value) so called for sinking fund
redemption and all other rights of the holders thereof,
except the right to receive the sinking fund redemption
price plus accrued dividends, shall cease.
(II) The Corporation may, at its option, in
connection with any sinking fund redemption, increase by not
more than 100,000 shares the number of shares of 8.25%
Cumulative Preference Stock, 1989 Series ($100 par value) to
be redeemed for the sinking fund, at the sinking fund
redemption price of One Hundred Dollars and No Cents
($100.00) for each share thereof, on any such sinking fund
redemption date, together, in every case, with all accrued
dividends; PROVIDED, HOWEVER, that the right to make such
optional increases shall not be cumulative.
(III) The Corporation may, at its option, satisfy
its obligation to make sinking fund redemptions provided for
in subsection (vi)(B)(I) above by crediting shares of 8.25%
Cumulative Preference Stock, 1989 Series ($100 par value)
acquired by purchase in the open market or otherwise.
Notwithstanding the foregoing provisions of this subsection
(vi)(B), the obligation to redeem shares of 8.25% Cumulative
Preference Stock, 1989 Series ($100 par value) by reason of
the sinking fund redemption (provided for in such subsection
(vi)(B)(I)), annually commencing on October 1, 1995 shall be
cumulative, and unless full cumulative redemptions of shares
of 8.25% Cumulative Preference Stock, 1989 Series ($100 par
value) for the sinking fund required hereby have been made,
no dividends shall be declared nor any distribution made on
the Common Stock, except dividends paid in stock of the
Corporation ranking junior to the 8.25% Cumulative
Preference Stock, 1989 Series ($100 par value), nor shall
any purchase or other acquisition for value of such Common
Stock be made. The provisions of this subsection (vi)(B)
shall apply so long as any shares of 8.25% Cumulative
Preference Stock, 1989 Series ($100 par value) are
outstanding.
(vii) 8.625% CUMULATIVE PREFERENCE STOCK, 1990 SERIES ($100
PAR VALUE).
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(A) The 8.625% Cumulative Preference Stock, 1990 Series
($100 par value) shall entitle the holders thereof to receive,
when and as declared, from the surplus or net profits of the
Corporation remaining after the preferential dividend
requirements for the outstanding Preferred Stock have been
provided for, yearly dividends at the rate of eight and six
hundred and twenty-five thousandths per cent per annum and no
more, payable quarterly on the first days of January, April,
July, and October in each year commencing July 1, 1990. The
dividends on the 8.625% Cumulative Preference Stock, 1990 Series
($100 par value) shall be cumulative and shall be payable before
any dividend on the Common Stock shall be paid or set apart; so
that, if in any year or years dividends amounting to eight and
six hundred and twenty-five thousandths per cent shall not have
been paid thereon, the deficiency shall be payable before any
dividends shall be paid upon or set apart for the Common Stock.
Dividends on the 8.625% Cumulative Preference Stock, 1990 Series
($100 par value) will accrue from and include June 7, 1990.
(B) (I) On or before July 1 of each year commencing on
July 1, 1996 and continuing through July 1, 2000, there
shall be provided and set apart by the Corporation a sum
sufficient for the sinking fund redemption of 130,000 shares
of 8.625% Cumulative Preference Stock, 1990 Series ($100 par
value). Thereafter, on July 1 of each year commencing July
1, 1996 and continuing through July 1, 2000, the Corporation
shall make sinking fund redemptions of 130,000 shares of the
8.625% Cumulative Preference Stock, 1990 Series ($100 par
value) by the payment to the holders thereof, in cash, of
the sum of One Hundred Dollars and No Cents ($100.00) for
each share thereof, together with all accrued dividends.
Shares shall be selected for sinking fund redemption by lot.
At least thirty (30) days' written notice of the shares of
the 8.625% Cumulative Preference Stock, 1990 Series ($100
par value) so to be redeemed shall be given to the
respective holders thereof by mailing the same, postage
prepaid, and addressed to such holder at the address as it
appears upon the books of the Corporation. When such notice
shall have been so given and funds for payment of the
sinking fund redemption price, plus accrued dividends, shall
have been provided and set apart by the Corporation, the
dividends on the shares of the 8.625% Cumulative Preference
Stock, 1990 Series ($100 par value) so called for sinking
fund redemption and all other rights of the holders thereof,
except the right to receive the sinking fund redemption
price plus accrued dividends, shall cease.
(II) The Corporation may, at its option, in
connection with any sinking fund redemption, increase by not
more than 130,000 shares the number of shares of 8.625%
Cumulative Preference Stock, 1990 Series ($100 par value) to
be redeemed for the sinking fund, at the sinking fund
redemption price of One Hundred Dollars and No Cents
($100.00) for each share thereof, on any such sinking fund
redemption date, together, in every case, with all accrued
dividends;
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PROVIDED, HOWEVER, that the right to make such optional
increases shall not be cumulative.
(III) The Corporation may, at its option, satisfy
its obligation to make sinking fund redemptions provided for
in subsection (vii)(B)(I) above by crediting shares of
8.625% Cumulative Preference Stock, 1990 Series ($100 par
value) acquired by purchase in the open market or otherwise.
Notwithstanding the foregoing provisions of this subsection
(vii)(B), the obligation to redeem shares of 8.625%
Cumulative Preference Stock, 1990 Series ($100 par value) by
reason of the sinking fund redemption provided for in such
subsection (vii)(B)(I), annually commencing on July 1, 1996
shall be cumulative, and unless full cumulative redemptions
of shares of 8.625% Cumulative Preference Stock, 1990 Series
($100 par value) for the sinking fund required hereby have
been made, no dividends shall be declared nor any
distribution made on the Common Stock, except dividends paid
in stock of the Corporation ranking junior to the 8.625%
Cumulative Preference Stock, 1990 Series ($100 par value),
nor shall any purchase or other acquisition for value of
such Common Stock be made. The provisions of this
subsection (vii)(B) shall apply so long as any shares of
8.625% Cumulative Preference Stock, 1990 Series ($100 par
value) are outstanding.
(viii) 7.85% CUMULATIVE PREFERENCE STOCK, 1991 SERIES ($100
PAR VALUE).
(A) The 7.85% Cumulative Preference Stock, 1991 Series
($100 par value) shall entitle the holders thereof to receive,
when and as declared, from the surplus or net profits of the
Corporation remaining after the preferential dividend
requirements for the outstanding Preferred Stock have been
provided for, yearly dividends at the rate of seven and eighty-
five hundredths per cent per annum and no more, payable quarterly
on the first days of January, April, July, and October in each
year commencing July 1, 1991. The dividends on the 7.85%
Cumulative Preference Stock, 1991 Series ($100 par value) shall
be cumulative and shall be payable before any dividend on the
Common Stock shall be paid or set apart; so that, if in any year
or years dividends amounting to seven and eighty-five hundredths
per cent shall not have been paid thereon, the deficiency shall
be payable before any dividends shall be paid upon or set apart
for the Common Stock. Dividends on the 7.85% Cumulative
Preference Stock, 1991 Series ($100 par value) will accrue from
and include May 1, 1991.
(B) (I) On or before July 1 of each year commencing on
July 1, 1997 and continuing through July 1, 2001, there
shall be provided and set apart by the Corporation a sum
sufficient for the sinking fund redemption of 70,000 shares
of 7.85% Cumulative Preference Stock, 1991 Series ($100 par
value). Thereafter, on July 1 of each year commencing July
1, 1997 and continuing through July 1, 2001, the Corporation
shall make sinking fund redemptions of 70,000 shares of the
7.85% Cumulative Preference Stock, 1991 Series ($100
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par value) by the payment to the holders thereof, in cash,
of the sum of One Hundred Dollars and No Cents ($100.00) for
each share thereof, together with all accrued dividends.
Shares shall be selected for sinking fund redemption by lot.
At least thirty (30) days' written notice of the shares of
the 7.85% Cumulative Preference Stock, 1991 Series ($100 par
value) so to be redeemed shall be given to the respective
holders thereof by mailing the same, postage prepaid, and
addressed to such holder at the address as it appears upon
the books of the Corporation. When such notice shall have
been so given and funds for payment of the sinking fund
redemption price, plus accrued dividends, shall have been
provided and set apart by the Corporation, the dividends on
the shares of the 7.85% Cumulative Preference Stock, 1991
Series ($100 par value) so called for sinking fund
redemption and all other rights of the holders thereof,
except the right to receive the sinking fund redemption
price plus accrued dividends, shall cease.
(II) The Corporation may, at its option, in
connection with any sinking fund redemption, increase by not
more than 70,000 shares the number of shares of 7.85%
Cumulative Preference Stock, 1991 Series ($100 par value) to
be redeemed for the sinking fund, at the sinking fund
redemption price of One Hundred Dollars and No Cents
($100.00) for each share thereof, on any such sinking fund
redemption date, together, in every case, with all accrued
dividends; PROVIDED, HOWEVER, that the right to make such
optional increases shall not be cumulative.
(III) The Corporation may, at its option, satisfy
its obligation to make sinking fund redemptions provided for
in subsection (viii)(B)(I) above by crediting shares of
7.85% Cumulative Preference Stock, 1991 Series ($100 par
value) acquired by purchase in the open market or otherwise.
Notwithstanding the foregoing provisions of this subsection
(viii)(B), the obligation to redeem shares of 7.85%
Cumulative Preference Stock, 1991 Series ($100 par value) by
reason of the sinking fund redemption provided for in
subsection (viii)(B)(I) annually commencing on July 1, 1997
shall be cumulative, and unless full cumulative redemptions
of shares of 7.85% Cumulative Preference Stock, 1991 Series
($100 par value) for the sinking fund required hereby have
been made, no dividends shall be declared nor any
distribution made on the Common Stock, except dividends paid
in stock of the Corporation ranking junior to the 7.85%
Cumulative Preference Stock, 1991 Series ($100 par value),
nor shall any purchase or other acquisition for value of
such Common Stock be made. The provisions of this subsection
(viii)(B) shall apply so long as any shares of 7.85%
Cumulative Preference Stock, 1991 Series ($100 par value)
are outstanding.
(ix) 7.125% CUMULATIVE PREFERENCE STOCK, 1993 SERIES ($100
PAR VALUE).
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(A) The 7.125% Cumulative Preference Stock, 1993 Series
($100 par value), shall entitle the holders thereof to receive,
when and as declared, from the surplus or net profits of the
Corporation remaining after the preferential dividend
requirements for the outstanding Preferred Stock have been
provided for, yearly dividends at the rate of seven and one
hundred twenty-five thousandths per cent per annum and no more,
payable quarterly on the first days of January, April, July, and
October in each year commencing October 1, 1993. The dividends on
the 7.125% Cumulative Preference Stock, 1993 Series ($100 par
value), shall be cumulative and shall be payable before any
dividend on the common stock shall be paid or set apart; so that,
if in any year or years dividends amounting to seven and one
hundred twenty-five thousandths per cent shall not have been paid
thereon, the deficiency shall be payable before any dividends
shall be paid upon or set apart for the common stock. Dividends
on the 7.125% Cumulative Preference Stock, 1993 Series ($100 par
value), will accrue from and include June 24, 1993.
(B) The 7.125% Cumulative Preference Stock, 1993 Series
($100 par value), or any portion thereof, may, whenever the Board
of Directors shall so determine, be redeemed by the payment to
the holders thereof of the sum hereinafter specified as the
redemption price at the time of redemption, in cash, for each
share thereof, together with all accrued dividends. The
applicable redemption prices shall be:
REDEMPTION PRICE TWELVE MONTH PERIOD
PER SHARE BEGINNING JULY 1,
---------------- -------------------
$103.56 2003
103.21 2004
102.85 2005
102.49 2006
102.14 2007
101.78 2008
101.42 2009
101.07 2010
100.71 2011
100.36 2012
100.00 2013 and thereafter
PROVIDED, HOWEVER, that prior to July 1, 2003, the Corporation
will not redeem any shares of the 7.125% Cumulative Preference
Stock, 1993 Series ($100 par value). In case less than all of the
preference stock of this series at the time being outstanding is
so redeemed, the shares to be redeemed shall be, as nearly as is
reasonably practicable without creating fractional shares, a
proportionate part of the holdings of each holder of preference
stock of this
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series, or shall be selected, in whole or in part, by lot. At
least thirty (30) days written notice of the election of the
Corporation to redeem the preference stock of this series (or any
part thereof, in which case the notice shall specify the
particular shares to be redeemed) shall be given to each holder
of the preference stock of this series so to be redeemed by
mailing the same, postage prepaid, and addressed to him at his
address as it appears upon the books of the Corporation. When
such notice shall have been so given and the funds for payment of
the redemption price plus accrued dividends shall have been
provided and set apart, the dividends on the shares of preference
stock of this series so called for redemption and all other
rights of the holders thereof, except the right to receive the
redemption price plus accrued dividends, shall cease.
(x) 6.97% CUMULATIVE PREFERENCE STOCK, 1993 SERIES ($100 PAR
VALUE).
(A) The 6.97% Cumulative Preference Stock, 1993 Series
($100 par value), shall entitle the holders thereof to receive,
when and as declared, from the surplus or net profits of the
Corporation remaining after the preferential dividend
requirements for the outstanding Preferred Stock have been
provided for, yearly dividends at the rate of six and ninety-
seven hundredths per cent per annum and no more, payable
quarterly on the first days of January, April, July, and October
in each year commencing October 1, 1993. The dividends on the
6.97% Cumulative Preference Stock, 1993 Series ($100 par value),
shall be cumulative and shall be payable before any dividend on
the common stock shall be paid or set apart; so that, if in any
year or years dividends amounting to six and ninety-seven
hundredths per cent shall not have been paid thereon, the
deficiency shall be payable before any dividends shall be paid
upon or set apart for the common stock. Dividends on the 6.97%
Cumulative Preference Stock, 1993 Series ($100 par value), will
accrue from and include August 5, 1993.
(B) The 6.97% Cumulative Preference Stock, 1993 Series
($100 par value), or any portion thereof, may whenever the Board
of Directors shall so determine, be redeemed by the payment to
the holders
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thereof of the sum hereinafter specified as the redemption price
at the time of redemption, in cash, for each share thereof,
together with all accrued dividends. The applicable redemption
prices shall be:
REDEMPTION PRICE TWELVE MONTH PERIOD
PER SHARE BEGINNING OCTOBER 1,
---------------- ---------------------
$103.49 2003
103.14 2004
102.79 2005
102.44 2006
102.09 2007
101.74 2008
101.39 2009
101.05 2010
100.70 2011
100.35 2012
100.00 2013 and thereafter
PROVIDED, HOWEVER, that prior to October 1, 2003, the Corporation
will not redeem any shares of the 6.97% Cumulative Preference
Stock, 1993 Series ($100 par value). In case less than all of the
preference stock of this series at the time being outstanding is
so redeemed, the shares to be redeemed shall be, as nearly as is
reasonably practicable without creating fractional shares, a
proportionate part of the holdings of each holder of preference
stock of this series, or shall be selected, in whole or in part,
by lot. At least thirty (30) days' written notice of the election
of the Corporation to redeem the preference stock of this series
(or any part thereof, in which case the notice shall specify the
particular shares to be redeemed) shall be given to each holder
of the preference stock of this series so to be redeemed by
mailing the same, postage prepaid, and addressed to him at his
address as it appears upon the books of the Corporation. When
such notice shall have been so given and the funds for payment of
the redemption price plus accrued dividends shall have been
provided and set apart, the dividends on the shares of preference
stock of this series so called for redemption and all other
rights of the holders thereof, except the right to receive the
redemption price plus accrued dividends, shall cease.
(xi) 6.70% CUMULATIVE PREFERENCE STOCK, 1993 SERIES ($100
PAR VALUE).
(A) The 6.70% Cumulative Preference Stock, 1993 Series
($100 par value), shall entitle the holders thereof to receive,
when and as declared, from the surplus or net profits of the
Corporation remaining after the preferential dividend
requirements for the outstanding Preferred Stock
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have been provided for, yearly dividends at the rate of six and
seventy hundredths per cent per annum and no more, payable
quarterly on the first days of January, April, July, and October
in each year commencing January 1, 1994. The dividends on the
6.70% Cumulative Preference Stock, 1993 Series ($100 par value),
shall be cumulative and shall be payable before any dividend on
the common stock shall be paid or set apart; so that, if in any
year or years dividends amounting to six and seventy hundredths
per cent shall not have been paid thereon, the deficiency shall
be payable before any dividends shall be paid upon or set apart
for the common stock. Dividends on the 6.70% Cumulative
Preference Stock, 1993 Series ($100 par value), will accrue from
and include October 14, 1993.
(B) The 6.70% Cumulative Preference Stock, 1993 Series
($100 par value), or any portion thereof, may whenever the Board
of Directors shall so determine, be redeemed by the payment to
the holders thereof of the sum hereinafter specified as the
redemption price at the time of redemption, in cash, for each
share thereof, together with all accrued dividends. The
applicable redemption prices shall be:
TWELVE MONTH PERIOD REDEMPTION PRICE
BEGINNING JANUARY 1, PER SHARE
-------------------- ----------------
2004 $103.35
2005 103.02
2006 102.68
2007 102.35
2008 102.01
2009 101.68
2010 101.34
2011 101.01
2012 100.67
2013 100.34
2014 and thereafter 100.00
PROVIDED, HOWEVER, that prior to January 1, 2004, the Corporation
will not redeem any shares of the 6.70% Cumulative Preference
Stock, 1993 Series ($100 par value). In case less than all of the
preference stock of this series at the time being outstanding is
so redeemed, the shares to be redeemed shall be, as nearly as is
reasonably practicable without creating fractional shares, a
proportionate part of the holdings of each holder of preference
stock of this series, or shall be selected, in whole or in part,
by lot. At least thirty (30) days' written notice of the election
of the Corporation to redeem the preference stock of this series
(or any part thereof, in which case the notice shall specify the
particular shares to be redeemed) shall be given to each holder
of the preference stock of this series so to be redeemed by
mailing the same, postage prepaid, and addressed to him at his
address as it appears upon the books of the Corporation. When
such notice shall have been so given and
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<PAGE>
the funds for payment of the redemption price plus accrued
dividends shall have been provided and set apart, the dividends
on the shares of Preference Stock of this series so called for
redemption and all other rights of the holders thereof, except
the right to receive the redemption price plus accrued dividends,
shall cease.
(xii) 6.99% CUMULATIVE PREFERENCE STOCK, 1995 SERIES ($100
PAR VALUE).
(A) The 6.99% Cumulative Preference Stock, 1995 Series
($100 par value), shall entitle the holders thereof to receive,
when and as declared, from the surplus or net profits of the
Corporation remaining after the preferential dividend
requirements for the outstanding Preferred Stock have been
provided for, yearly dividends at the rate of six and ninety-nine
hundredths per cent per annum and no more, payable quarterly on
the first days of January, April, July, and October in each year
commencing October 1, 1995. The dividends on the 6.99% Cumulative
Preference Stock, 1995 Series ($100 par value), shall be
cumulative and shall be payable before any dividend on the common
stock shall be paid or set apart; so that, if in any year or
years dividends amounting to six and ninety-nine hundredths per
cent shall not have been paid thereon, the deficiency shall be
payable before any dividends shall be paid upon or set apart for
the common stock. Dividends on the 6.99% Cumulative Preference
Stock, 1995 Series ($100 par value), will accrue from and include
September 7, 1995.
(B) The 6.99% Cumulative Preference Stock, 1995 Series
($100 par value), or any portion thereof, may, whenever the Board
of Directors shall so determine, be redeemed by the payment to
the holders thereof of the sum hereinafter specified as the
redemption price at the time of
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redemption, in cash, for each share thereof, together with all
accrued dividends. The applicable redemption prices shall be:
TWELVE MONTH PERIOD REDEMPTION PRICE
BEGINNING OCTOBER 1, PER SHARE
-------------------- ----------------
2005 $103.50
2006 103.15
2007 102.80
2008 102.45
2009 102.10
2010 101.75
2011 101.40
2012 101.05
2013 100.70
2014 100.35
2015 and thereafter 100.00
PROVIDED, HOWEVER, that prior to October 1, 2005, the Corporation
will not redeem any shares of the 6.99% Cumulative Preference
Stock, 1995 Series ($100 par value). In case less than all of the
preference stock of this series at the time being outstanding is
so redeemed, the shares to be redeemed shall be, as nearly as is
reasonably practicable without creating fractional shares, a
proportionate part of the holdings of each holder of preference
stock of this series, or shall be selected, in whole or in part,
by lot. At least thirty (30) days' written notice of the election
of the Corporation to redeem the preference stock of this series
(or any part thereof, in which case the notice shall specify the
particular shares to be redeemed) shall be given to each holder
of the preference stock of this series so to be redeemed by
mailing the same, postage prepaid, and addressed to him at his
address as it appears upon the books of the Corporation. When
such notice shall have been so given and the funds for payment of
the redemption price plus accrued dividends shall have been
provided and set apart, the dividends on the shares of preference
stock of this series so called for redemption and all other
rights of the holders thereof, except the right to receive the
redemption price plus accrued dividends, shall cease.
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BY-LAWS
OF
CONSTELLATION ENERGY CORPORATION
------------------------
ARTICLE I.
OFFICES AND HEADQUARTERS
Section A. NAME. The name of the corporation is Constellation Energy
Corporation (the "CORPORATION").
Section B. OFFICES. The registered office of the Corporation in
State of Maryland is [_________]. The registered office of the Corporation in
the Commonwealth of Virginia is [________]. The names of its registered agents
in the State of Maryland and the Commonwealth of Virginia, respectively, at
these addresses are [_________]. The Corporation may also have other offices at
such other places, either within or without the State of Maryland and the
Commonwealth of Virginia, as the Board of Directors of the Corporation (the
"BOARD") may determine or as the activities of the Corporation may require.
ARTICLE II.
STOCKHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of stockholders of the
Corporation shall be held at such places, either within or without the State of
Maryland or the Commonwealth of Virginia, as may be fixed from time to time by
the Board and stated in the notice of the meeting or in a duly executed waiver
of notice thereof.
Section 2. ANNUAL MEETINGS. The annual meeting of the stockholders
for the election of directors and for the transaction of general business shall
be held on any date during the period April 6 through May 6, as determined year
to year by the Board. The time and location of the meeting shall be determined
by the Board. Failure to hold an annual meeting does not invalidate the
Corporation's existence or affect any otherwise valid corporate acts.
<PAGE>
The Chief Executive Officer of the Corporation shall prepare, or cause
to be prepared, an annual report containing a full and correct statement of the
affairs of the Corporation, including a balance sheet and a financial statement
of operations for the preceding fiscal year, which shall be submitted to the
stockholders at the annual meeting.
Section 3. SPECIAL MEETINGS. Special meetings of stockholders may
be called only by (a) a majority of the Board, (b) the Chairman, (c) the Chief
Executive Officer, or (d) by the Secretary upon the written request of the
holders of shares entitled to not less than twenty-five percent of all votes
entitled to be cast at such meeting. Such request of the stockholders shall
state the purpose or purposes of the meeting and the matters proposed to be
acted on thereat and shall be delivered to the Secretary, who shall inform such
stockholders of the reasonably estimated cost of preparing and mailing such
notice of the meeting, and upon payment to the Corporation of such costs the
Secretary shall give notice stating the purpose or purposes of the meeting to
all stockholders entitled to vote at such meeting. No special meeting need be
called upon the request of the holders of shares entitled to cast less than a
majority of all votes entitled to be cast at such meeting, to consider any
matter which is substantially the same as a matter voted upon at any special
meeting of the stockholders held during the preceding twelve months.
Section 4. NOTICE AND WAIVER; ORGANIZATION OF MEETING. Whenever
stockholders are required or permitted to take any action at a meeting whether
special or annual, written notice of the meeting shall be given to each
stockholder entitled to vote at the meeting and each other stockholder entitled
to notice of the meeting. The notice shall state the place, date and hour of
the meeting and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. The written notice of any meeting shall be given,
personally or by mail, not less than 10 or more than 60 days before the date of
the meeting or as otherwise required by law to each stockholder entitled to vote
at such meeting. If mailed, such notice shall be deemed given when deposited
with the United States Postal Service, postage prepaid, addressed to the
stockholder at his address as it appears on the records of the Corporation or
its registrar. The business at all special meetings shall be confined to that
specifically named in the notice thereof.
When a meeting is adjourned to another time or place, notice need not
be given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken unless the adjournment is for more
than 120 days, or, if after the adjournment, a new record date is fixed for the
adjourned meeting, in which circumstances a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
At the adjourned meeting the
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Corporation may transact any business which might have been transacted at the
original meeting.
Notice of any meeting of stockholders may be waived in writing by any
stockholders entitled to vote at such meeting. Attendance at a meeting by any
stockholder, in person or by proxy, shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
All meetings of the stockholders shall be called to order by the
Chairman of the Board, or in his absence by the Chief Executive Officer, or in
his absence by the Vice-Chairman, or in his absence by the President, or in his
absence by a Vice-President; or in the case of the absence of such officers,
then by any stockholder, whereupon the meeting shall organize by electing a
chairman. The Secretary of the Corporation, if present, shall act as Secretary
of the meeting, unless some other person shall be elected at the meeting to act
as Secretary. An accurate record of the meeting shall be kept by the Secretary
thereof, and placed in the record books of the Corporation.
Section 5. ORDER OF BUSINESS. (a) At any Annual Meeting, only such
business shall be conducted as shall have been brought before the Annual Meeting
(i) by or at the direction of the Board, or (ii) by any stockholder who complies
with the procedures set forth in this Section 5.
(b) For nominations or other business to be brought properly before
an Annual Meeting by a stockholder, the stockholder must have given timely
notice thereof in proper written form to the Secretary of the Corporation. To
be timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than 30 days or more
than 60 days prior to the Annual Meeting; PROVIDED, HOWEVER, that in the event
that less than 40 days' notice of the date of the Annual Meeting is given or
made to stockholders, notice by the stockholder to be timely must be received
not later than the close of business on the tenth day following the day on which
such notice of the date of the Annual Meeting was mailed. To be in proper
written form, a stockholder's notice to the Secretary shall set forth in writing
as to each matter the stockholder proposes to bring before the Annual Meeting:
(i) as to each person whom the stockholder proposes to nominate
for election or re-election as a director, all information relating to such
person that is required to be disclosed in solicitations of proxies for election
of directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
including such person's written consent to being
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<PAGE>
named in the proxy statement as a nominee and to serving as a director if
elected; and as to the stockholder giving the notice, the name and address, as
they appear on the Corporation's books, of the stockholder proposing such
nomination and the class and number of shares of stock of the Corporation which
are beneficially owned by the stockholder.
(ii) as to any other business that the stockholder proposes to
bring before the meeting:
(A) a brief description of the business desired to be
brought before the Annual Meeting and the reasons for conducting such
business at the Annual Meeting;
(B) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business;
(C) the class and number of shares of stock of the
Corporation which are beneficially owned by the stockholder; and
(D) any material interest of the stockholder in such
business.
(c) Notwithstanding anything in these By-laws to the contrary, no
business shall be conducted at an Annual Meeting except in accordance with the
procedures set forth in this Section 5 of Article II. The presiding officer of
an Annual Meeting shall, if the facts warrant, determine and declare at the
Annual Meeting that business was not properly brought before the Annual Meeting
in accordance with the provisions of this Section 5 of Article II and, if he
should so determine, he shall so declare at the Annual Meeting and any such
business not properly brought before the Annual Meeting shall not be transacted.
(d) Notwithstanding the foregoing provisions of this Section, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section. Nothing in this Section shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Section 6. QUORUM. At any meeting of stockholders, the presence in
person or by proxy of stockholders entitled to cast a majority of the votes
thereat shall constitute a quorum for the transaction of any business.
When a quorum is once present to organize a meeting, it is not broken
by the subsequent withdrawal of any stockholders.
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<PAGE>
The stockholders present, although less than a quorum, may adjourn the
meeting to another time or place; provided that notice of such adjourned meeting
is given in accordance with the provisions of Section 4 of this Article I.
Section 7. VOTING; PROXIES. Each holder of voting stock shall be
entitled to vote in person or by proxy at each meeting and shall have one vote
for each share of voting stock registered in his name, and when the Preferred or
Preference Stock is entitled to vote, holders of such shares shall have the
number of votes as provided in the Articles of Incorporation of the Corporation
for each share of the Preferred and Preference Stock. However, no proxy shall
be voted 11 months after the date thereof, unless the proxy provides for a
longer period.
Section 8. METHOD OF VOTING. The vote upon any question before the
meeting need not be by ballot. All elections and all other questions shall be
decided by a majority of the votes cast, at a meeting at which a quorum is
present, except as expressly provided otherwise by the Stock Corporation Act of
the Commonwealth of Virginia, the General Corporation Law of the State of
Maryland or the Articles of Incorporation and except that directors shall be
elected by a plurality of the votes cast.
Section 9. OWNERSHIP OF ITS OWN STOCK. Shares of capital stock of
the Corporation belonging either (i) to the Corporation or (ii) to another
corporation, if a majority of the shares entitled to vote in the election of
directors of such other corporation is held, directly or indirectly, by the
Corporation (a "CONTROLLED CORPORATION"), shall neither be entitled to vote nor
be counted for quorum purposes. Nothing in this Section 9 shall be construed as
limiting the right of the Corporation or any Controlled Corporation to vote
stock of the Corporation held by it in a fiduciary capacity.
Section 10. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.
In order to determine the stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purpose of any other lawful action, the Board may fix a
record date, which record date shall not be more than 70 or less than ten days
before the date of such meeting, or more than 60 days prior to any other action.
If no record date is fixed by the Board, the record date shall be determined in
accordance with the provisions of the General Corporation Law of the State of
Maryland and the Stock Corporation Act of the Commonwealth of Virginia.
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<PAGE>
ARTICLE III.
DIRECTORS
Section 1. NUMBER. The number of directors who will constitute the
entire Board shall be sixteen (16). Each director shall own at least 300 shares
of the Corporation's Common Stock.
Section 2. MANAGEMENT OF BUSINESS. The business of the Corporation
shall be managed by the Board.
Except as otherwise provided herein, the Board shall appoint the
officers for the conduct of business of the Corporation, determine the duties
and responsibilities and fix their compensation.
Section 3. CLASSIFIED BOARD. The directors shall be divided into
three classes, designated Class I, Class II and Class III. Each class shall
consist, as nearly as may be possible, of one-third of the total number of
directors constituting the entire Board. The initial Class I directors shall
hold office for a term to expire at the 199_ [INSERT YEAR OF THE FIRST ANNUAL
MEETING OCCURING AT LEAST ONE YEAR AFTER THE EFFECTIVE DATE] annual meeting of
shareholders. The initial Class II directors shall hold office for a term to
expire at the 199_ [INSERT YEAR OF FIRST ANNUAL MEETING OCCURING AT LEAST TWO
YEARS AFTER THE EFFECTIVE DATE] annual meeting of shareholders. The initial
Class III directors shall hold office for a term to expire at the 199_ [INSERT
YEAR OF FIRST ANNUAL MEETING OCCURING AT LEAST THREE YEARS AFTER THE EFFECTIVE
DATE] annual meeting of shareholders. At each succeeding annual meeting of
shareholders beginning in 199_ [INSERT YEAR OF FIRST ANNUAL MEETING AFTER THE
EFFECTIVE DATE], successors to the class of directors whose term expires at that
annual meeting shall be elected for a three-year term. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible. Any additional director of any class elected by shareholders to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but in no case
will a decrease in the number of directors shorten the term of any incumbent
director. A director shall hold office until the annual meeting for the year in
which his term expires and until his successor shall be elected and shall
qualify, subject, however, to prior death, resignation, disqualification or
removal from office.
Section 4. ELECTION AND TERM. The directors shall be elected as
provided herein and in the Articles of Incorporation of the Corporation, and
each director shall be elected to hold office until his successor shall be
elected and qualified, or until his earlier resignation or removal.
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Section 5. RESIGNATIONS. Any director of the Corporation may resign
at any time by giving written notice to the Corporation. Such resignation shall
take effect at the time specified therein, if any, or if no time is specified
therein, then upon receipt of such notice by the Corporation; and, unless
otherwise provided therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 6. VACANCIES. Any vacancies occurring in the Board from any
cause other than by reason of a removal or an increase in the number of
directors, may be filled by a majority of the remaining directors although such
majority is less than a quorum or by a sole remaining director. Any vacancies
occurring by reason of an increase in the number of directors may be filled by
action of a majority of the directors. A director elected by other directors to
fill a vacancy shall hold office until the next annual meeting of the
stockholders and until his successor is elected and qualified.
Notwithstanding the foregoing, whenever the holders of any class of
stock issued by the Corporation shall have the right, voting separately by class
or series, to elect directors at an annual or special meeting of shareholders,
the election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of the Articles of Incorporation
applicable thereto, and such directors so elected shall not be divided into
classes unless expressly provided by such terms.
Section 7. ANNUAL MEETING. The Board shall meet immediately
following the adjournment of the annual meeting of stockholders each year at the
same place, within or without the State of Maryland or the Commonwealth of
Virginia, and no notice of such meeting shall be necessary.
Section 8. REGULAR MEETINGS. Regular meetings of the Board may be
held at such time and place, within or without the State of Maryland or the
Commonwealth of Virginia, as shall from time to time be fixed by the Board and
no notice thereof shall be necessary.
Section 9. SPECIAL MEETINGS. Special meetings of the Board may be
called at any time by the Chairman of the Board, the Chief Executive Officer or
the President or by resolution of the Board. Special meetings shall be held at
such place, within or without the State of Maryland or the Commonwealth of
Virginia, as shall be fixed by the person or persons calling the meeting and
stated in the notice or waiver of notice of the meeting.
Unless waived, notice of each special meeting of the directors,
stating the time and place of the meeting, shall be given to each director by
delivered letter, by telegram or by personal communication either over the
telephone or otherwise, in each such case not later than the second day prior to
the
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meeting, or by mailed letter deposited in the United States mail with postage
thereon prepaid not later than the seventh day prior to the meeting. Notices of
special meetings of the Board and waivers thereof need not state the purpose or
purposes of the meeting. Attendance at a special meeting by any director shall
constitute a waiver of notice of such meeting, except when the director attends
the meeting for the express purpose of objecting at the beginning of the meeting
to the transaction of any business because the meeting is not lawfully called or
convened.
Section 10. ACTION WITHOUT A MEETING. Any action required or
permitted to be taken at any meeting of the Board, or of any committee thereof,
may be taken without a meeting, if all members of the Board, or any such
committee, as the case may be, consent thereto in writing and the writing or
writings are filed with the minutes of proceedings of the Board, or any such
committee, as the case may be.
Section 11. TELEPHONE MEETINGS PERMITTED. At the Chairman's
discretion, members of the Board, or any committee, may participate in a meeting
thereof by means of conference telephone or similar communications equipment in
which all persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at such meeting.
Section 12. QUORUM. At all meetings of the Board a majority of the
whole Board shall constitute a quorum for the transaction of business. Except
in cases in which the Articles of Incorporation or these By-Laws otherwise
provide, the act of a majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board. A meeting may be adjourned by
less than a quorum if a quorum is not present at the meeting.
Section 13. EXECUTIVE COMMITTEE. The directors shall annually at
their first meeting succeeding the stockholders' meeting at which they are
elected, elect from among their number an Executive Committee of five or more
(but no more than nine), as the Board may determine. The Executive Committee
may exercise, in the intervals between meetings of the Board, all of the powers
of the Board regarding financing matters which are permitted by law.
Section 14. AUDIT COMMITTEE. The directors shall annually, at their
first meeting succeeding the stockholders' meeting at which they are elected,
elect from among their number an Audit Committee which shall consist of at least
three directors. Each member of the Audit Committee shall be independent of
Management and free from any relationship that, in the opinion of the Board,
would interfere with the exercise of independent judgment as a Committee member,
and provided further that no director who formerly was an officer of the
Corporation shall be a member of said Audit Committee. One such member of
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the Committee shall be designated by the Board to be Chairman of the Audit
Committee. The tenure of office of the members of the Audit Committee shall be
one year or until their successors shall have been duly appointed or elected.
Any vacancy shall be filled by the Board. A majority of the members of the
Audit Committee shall constitute a quorum.
In order to provide for direct communication between representatives
of the Board and the Independent Auditors for the Corporation, the Audit
Committee, in furtherance of this charge, shall have the following duties and
responsibilities:
(1) To recommend to the Board the public accounting firm to be
engaged to conduct the annual financial audit of the Corporation.
(2) To discuss with such Auditors the scope of their examination
which shall be in accordance with generally accepted auditing standards with
appropriate reports thereon to be submitted to the Board.
(3) To review with the Auditors and appropriate financial officers
and Management of the Corporation the annual financial statements and the
Auditors' report thereon.
(4) To invite comments and recommendations from the Auditors
regarding the need for and/or results of their reviews of those financial
statements and other documents and data reviewed or certified by the public
accounting firm thus engaged.
(5) To invite comments and recommendations from the Auditors
regarding the system of internal controls, accounting policies and practices,
and any other related matters employed by the Corporation.
(6) To meet with the Corporation's Internal Auditor in order to
ensure, as a part of the system of internal controls, that an adequate program
of internal auditing is being continuously carried out, to determine that the
Corporation's Internal Audit Staff is adequate and to review the findings of
such Staff's investigations.
(7) To report periodically regarding its activities to the Board of
the Corporation and to make such recommendations and findings concerning any
audit or audit-related matter as the Audit Committee deems appropriate.
Section 15. COMMITTEE ON MANAGEMENT. The directors shall annually,
at their first meeting succeeding the stockholders meeting at which they are
elected, elect from among their number a Committee on Management consisting of
at least three members. One such member shall be designated by the Board to be
the Chairman of the Committee on Management. The tenure of office of the
members of the Committee on Management shall be one
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year or until their successors shall have been duly appointed or elected. Any
vacancy shall be filled by the Board. A majority of the members shall
constitute a quorum.
The Committee on Management shall recommend to the Board nominees for
election as directors and shall consider the performance of incumbent directors
in determining whether to nominate them to stand for reelection; the Committee
shall, among other things, consider any major changes in the organization of the
Corporation; it shall recommend to the Board the remuneration arrangements for
officers and directors of the Corporation. The Committee shall recommend to the
Board nominees for officers of the Corporation. The Committee on Management
shall have such additional powers to perform such duties as shall be prescribed
by resolution of the Board.
Section 16. OTHER COMMITTEES. The Board is authorized to appoint
from among its members such other committees as it may, from time to time, deem
advisable and to delegate to such committee or committees any of the powers of
the Board which it may lawfully delegate. Each such committee shall consist of
at least two directors.
Section 17. COMPENSATION. The directors may be reimbursed for any
expenses incurred by them in respect of their attendance at any meeting of the
Board or of any of its committees. To the extent provided by resolution adopted
by a majority of the entire Board, a director may be paid a stated fee as
director and/or a fixed sum for attendance at each meeting or committee meeting
at which he is present. No payments or reimbursements described herein shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
ARTICLE IV.
OFFICERS
Section 1. ELECTION. The Board shall elect a Chairman of the Board,
a Chief Executive Officer, a Vice-Chairman, a President and Chief Operating
Officer, a Secretary and a Treasurer, and such other officers, if any, as the
Board may from time to time determine. With the exception of the offices of
President and Vice-President, any number of offices may be held by the same
person; however, a person who holds more than one office may not act in more
than one capacity to sign, acknowledge or verify an instrument required by law
to be signed, acknowledged or verified by more than one officer.
Section 2. TERMS OF OFFICE; VACANCIES. Each such officer shall hold
office until his successor is elected and qualified or until his earlier removal
or resignation. Any officer may resign at any time upon written notice to the
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Corporation. A vacancy occurring in any office may be filled by the Board.
Section 3. CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the shareholders and the Board, and assist the Chief
Executive Officer in seeing that all orders and resolutions of the Board are
carried into effect. The Chairman of the Board shall perform such other
duties and exercise such other powers as may be assigned to him by the Board or
as are set forth in such officer's employment agreement with the Corporation, if
any.
Section 4. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
shall have active responsibility for the executive management of the operations
of the Corporation and responsibility for carrying out all orders and directions
of the Board. The Chief Executive Officer shall also perform such other duties
and exercise such other powers as may be assigned to him by the Board or as are
set forth in such officer's employment agreement with the Corporation, if any.
Section 5. VICE-CHAIRMAN. The Vice-Chairman shall serve as the
Chairman of the Board of the Corporation's diversified subsidiaries, shall be
responsible for business development and strategic planning, and shall have such
powers and perform such duties as may be assigned to him by the Chief Executive
Officer or the Board or as are set forth in such officer's employment agreement
with the Corporation, if any.
Section 6. PRESIDENT AND CHIEF OPERATING OFFICER. The President and
Chief Operating Officer shall be responsible for utility operations, and shall
have such powers and perform such duties as may be assigned to him by the Chief
Executive Officer or the Board or as are set forth in such officer's employment
agreement with the Corporation, if any.
Section 7. SECRETARY. The Secretary shall keep true and complete
records of the proceedings of the meetings of the stockholders, the Board and
any committees of directors and shall file any written consents of the
stockholders, the Board and any committees of directors with the records of the
Corporation. It shall be the duty of the Secretary to be custodian of such
records and of the seal of the Corporation. The Secretary shall also attend to
the giving of all notices and shall perform such other duties as the Chief
Executive Officer or the Board may assign.
Section 8. TREASURER. The Treasurer shall act as legal custodian of
all moneys, notes, securities, and other valuables that may from time to time
come into the possession of the Corporation, and shall promptly deposit all
funds of the Corporation coming into his hands in the bank or other depository
designated by the Board and shall keep this bank account in the name of the
Corporation. The Treasurer shall perform such other
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duties and exercise such other powers as may be assigned to him by the Chief
Financial Officer, the Chief Executive Officer or the Board.
Section 9. OTHER OFFICERS. Such other officers as are appointed by
the Board shall exercise such duties and have such powers as by custom and
applicable law generally pertain to their respective offices as well as such
duties and powers as the Board or the Chief Executive Officer may assign.
Section 10. REMOVAL AND VACANCIES. Any officer may be removed by the
Board whenever, in its judgement, the best interests of the Corporation will be
served thereby. Removal shall be without prejudice to the contractual rights,
if any, of the person so removed, but election of an officer shall not of itself
create contractual rights.
Any vacancy occurring in any office of the Corporation shall be filled
by the Board and the officer so elected shall hold office for the unexpired term
in respect of which the vacancy occurred or until his successor shall be duly
elected and qualified.
In any event of absence or temporary disability of any officer of the
Corporation, the Board may authorize some other person to perform the duties of
that office.
Section 11. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the Chairman, the Chief Executive Officer,
the Vice-Chairman, the President or any Vice-President and any such officer may,
in the name of and on behalf of the Corporation, take all such action as any
such officer may deem advisable to vote in person or by proxy at any meeting of
security holders of any corporation in which the Corporation may own securities
and at any such meeting shall possess and may exercise any and all rights and
powers incident to the ownership of such securities and which, as the owner
thereof, the Corporation might have exercised and possessed if present. The
Board may, by resolution, from time to time confer like powers upon any other
person or persons.
ARTICLE V.
SPECIFIC CORPORATE ACTIONS
Section 1. CONTRACTS, CHECKS, NOTICES, ETC. All contracts and
agreements and all bonds and notes shall, unless otherwise directed by the Board
or unless otherwise required by law, be signed by any one of the Chairman, the
Chief Executive Officer, the Vice-Chairman, the President or a Vice-President of
the Corporation. The Treasurer, and any other officer or
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employee who the Board may by resolution designate, may in the name of the
Corporation execute checks, drafts and orders for the payment of money on its
behalf.
ARTICLE VI.
INDEMNIFICATION
Section 1. PROCEDURE. The Corporation shall indemnify all directors,
officers and employees to the fullest extent permitted by law and shall provide
indemnification expenses in advance to the extent permitted thereby. The
Corporation will follow the procedures required by applicable law in determining
persons eligible for indemnification and in making indemnification payments and
advances.
Section 2. EXCLUSIVITY, ETC. The indemnification and advance of
expenses provided by the Articles of Incorporation and these By-Laws shall not
be deemed exclusive of any other rights to which a person seeking
indemnification or advance of expenses may be entitled under any law (common or
statutory), or any agreement, vote of stockholders or disinterested directors or
other provision that is consistent with law, both as to action in his official
capacity and as to action in another capacity while holding office or while
employed by or acting as agent for the Corporation, shall continue in respect of
all events occurring while a person was a director or officer after such person
has ceased to be a director or officer, and shall inure to the benefit of the
estate, heirs, executors and administrators of such person. All rights to
indemnification and advance of expenses under the Articles of Incorporation of
the Corporation and hereunder shall be deemed to be a contract between the
Corporation and each director or officer of the Corporation who serves or served
in such capacity at any time while this By-Law is in effect. Nothing herein
shall prevent the amendment of this By-Law, PROVIDED that no such amendment
shall diminish the rights of any person hereunder with respect to events
occurring or claims made before its adoption or as to claims made after its
adoption in respect of events occurring before its adoption. Any repeal or
modification of this By-Law shall not in any way diminish any rights to
indemnification or advance of expenses of such director or officer or the
obligations of the Corporation arising hereunder with respect to events
occurring, or claims made, while this By-Law or any provision hereof is in
force.
Section 3. SEVERABILITY; DEFINITIONS. The invalidity or
unenforceability of any provision of this Article VI shall not affect the
validity or enforceability of any other provision hereof. The phrase "this By-
Law" in this Article VI means this Article VI in its entirety.
ARTICLE VII.
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MISCELLANEOUS
Section 1. SEAL. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its incorporation and the words "Corporate
Seal [RH Acquisition Corp.]."
Section 2. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by resolution of the Board.
Section 3. AMENDMENT OF BY-LAWS. These By-Laws may be altered,
amended or repealed by the Board.
Section 4. SECTION HEADINGS AND STATUTORY REFERENCES. The headings
of the Articles and Sections of these By-Laws, have been inserted for
convenience of reference only and shall not be deemed to be a part of these
By-Laws.
Section 5. SUPERMAJORITY. Notwithstanding Section 3 of this Article
VII or any other provision of these By-laws, until [INSERT 2 YEARS FROM CLOSING
DATE], a vote of 66 2/3% of the entire Board shall be required to (a) change the
number of directors as set forth in Article III, Section 1 hereof; (b) approve a
change in the Corporation's name; (c) to relocate the Corporation's headquarters
or its principal executive offices to an area other than the Annapolis, Maryland
area; (d) to amend the employment agreements, dated as of September 22, 1995,
between the Corporation and each of Edward F. Mitchell, Christian H. Poindexter,
Edward A. Crooke, or John M. Derrick, Jr. or to otherwise change the titles or
functions of such individuals from those set forth in the respective employment
agreements; (e) to change Committees of the Board as established by the Board
pursuant to SECTION 7.12(C) of the Agreement and Plan of Merger, dated as of
September 22, 1995, by and among Baltimore Gas and Electric Company, Potomac
Electric Power Company and the Corporation; or (f) to amend this Article VII,
Section 5 of the By-laws. On [INSERT TWO YEARS FROM THE CLOSING DATE] this
Article VII, Section 5 shall become null and void.
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Exhibit G1
Sections 3-202 to 3-213 of the Maryland General Corporation Law
3-202. Right to fair value of stock
(a) General rule. -- Except as provided in subsection (c) of this section, a
stockholder of a Maryland corporation has the right to demand and receive
payment of the fair value of the stockholder's stock from the successor if:
(1) The corporation consolidates or merges with another corporation;
(2) The stockholder's stock is to be acquired in a share exchange;
(3) The corporation transfers its assets in a manner requiring
corporateaction under @ 3-105 of this title;
(4) The corporation amends its charter in a way which alters the
contractrights, as expressly set forth in the charter, of any outstanding stock
and substantially adversely affects the stockholder's rights, unless the right
to do so is reserved by the charter of the corporation; or
(5) The transaction is governed by @ 3-602 of this title or exempted by
@3-603 (b) of this title.
(b) Basis of fair value. --
(1) Fair value is determined as of the close of business:
(i) With respect to a merger under @ 3-106 of this title of a 90percent
or more owned subsidiary into its parent, on the day notice is given or waived
under @ 3-106; or
(ii) With respect to any other transaction, on the day the
stockholdersvoted on the transaction objected to.
(2) Except as provided in paragraph (3) of this subsection, fair value
maynot include any appreciation or depreciation which directly or indirectly
results from the transaction objected to or from its proposal.
(3) In any transaction governed by @ 3-602 of this title or exempted by
@3-603 (b) of this title, fair value shall be value determined in accordance
with the requirements of @ 3-603 (b) of this title.
(c) When right to fair value does not apply. -- Unless the transaction is
governed by @ 3-602 of this title or is exempted by @ 3-603 (b) of this title, a
stockholder may not demand the fair value of his stock and is bound by the terms
of the transaction if:
(1) The stock is listed on a national securities exchange or is
designatedas a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc.:
(i) With respect to a merger under @ 3-106 of this title of a 90percent
or more owned subsidiary into its parent, on the date notice is given or waived
under @ 3-106; or
(ii) With respect to any other transaction, on the record date
fordetermining stockholders entitled to vote on the transaction objected to;
(2) The stock is that of the successor in a merger, unless:
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(i) The merger alters the contract rights of the stock as expressly
setforth in the charter, and the charter does not reserve the right to do so; or
(ii) The stock is to be changed or converted in whole or in part in
themerger into something other than either stock in the successor or cash,
scrip, or other rights or interests arising out of provisions for the treatment
of fractional shares of stock in the successor; or
(3) The stock is that of an open-end investment company registered withthe
Securities and Exchange Commission under the Investment Company Act of 1940 and
the value placed on the stock in the transaction is its net asset value.
3-203. Procedure by stockholder
(a) Specific duties. -- A stockholder of a corporation who desires to receive
payment of the fair value of his stock under this subtitle:
(1) Shall file with the corporation a written objection to the
proposedtransaction:
(i) With respect to a merger under @ 3-106 of this title of a 90percent
or more owned subsidiary into its parent, within 30 days after notice is given
or waived under @ 3-106; or
(ii) With respect to any other transaction, at or before
thestockholders' meeting at which the transaction will be considered;
(2) May not vote in favor of the transaction; and
(3) Within 20 days after the Department accepts the articles for
record,shall make a written demand on the successor for payment for his stock,
stating the number and class of shares for which he demands payment.
(b) Failure to comply with section. -- A stockholder who fails to comply with
this section is bound by the terms of the consolidation, merger, share exchange,
transfer of assets, or charter amendment.
3-204. Effect of demand on dividend and other rights
A stockholder who demands payment for his stock under this subtitle:
(1) Has no right to receive any dividends or distributions payable
toholders of record of that stock on a record date after the close of business
on the day as at which fair value is to be determined under @ 3-202 of this
subtitle; and
(2) Ceases to have any rights of a stockholder with respect to that
stock,except the right to receive payment of its fair value.
@ 3-205. Withdrawal of demand
A demand for payment may be withdrawn only with the consent of the successor.
@ 3-206. Restoration of dividend and other rights
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(a) When rights restored. -- The rights of a stockholder who demands payment
are restored in full, if:
(1) The demand for payment is withdrawn;
(2) A petition for an appraisal is not filed within the time required
bythis subtitle;
(3) A court determines that the stockholder is not entitled to relief; or
(4) The transaction objected to is abandoned or rescinded.
(b) Effect of restoration. -- The restoration of a stockholder's rights
entitles him to receive the dividends, distributions, and other rights he would
have received if he had not demanded payment for his stock. However, the
restoration does not prejudice any corporate proceedings taken before the
restoration.
3-207. Notice and offer to stockholders
(a) Duty of successor. --
(1) The successor promptly shall notify each objecting stockholder
inwriting of the date the articles are accepted for record by the Department.
(2) The successor also may send a written offer to pay the
objectingstockholder what it considers to be the fair value of his stock. Each
offer shall be accompanied by the following information relating to the
corporation which issued the stock:
(i) A balance sheet as of a date not more than six months before
thedate of the offer;
(ii) A profit and loss statement for the 12 months ending on the dateof
the balance sheet; and
(iii) Any other information the successor considers pertinent.
(b) Manner of sending notice. -- The successor shall deliver the notice and
offer to each objecting stockholder personally or mail them to him by certified
mail, return receipt requested, bearing a postmark from the United States Postal
Service, at the address he gives the successor in writing, or, if none, at his
address as it appears on the records of the corporation which issued the stock.
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SECTION 3-208. PETITION FOR APPRAISAL; CONSOLIDATION OF PROCEEDINGS; JOINDER OF
OBJECTORS.
(a) PETITION FOR APPRAISAL. - Within 50 days after the Department accepts
the articles for record, the successor or an objecting stockholder who has not
received payment for his stock may petition a court of equity in the county
where the principal office of the successor is located or, if it does not have a
principal office in this State, where the resident agent of the successor is
located, for an appraisal to determine the fair value of the stock.
(B) CONSOLIDATION OF SUITS; JOINDER OF OBJECTORS. - (1) If more than one
appraisal proceeding is instituted, the court shall direct the consolidation of
all the proceedings on terms and conditions it considers proper.
(2) Two or more objecting stockholders may join or be joined in an
appraisal proceeding. (An. Code 1957, art. 23, Section 73; 1975, ch. 311,
Section 2.)
SECTION 3-209. NOTATION ON STOCK CERTIFICATE.
(A) SUBMISSION OF CERTIFICATE. - At any time after a petition for
appraisal is filed, the court may require the objecting stockholders parties to
the proceeding to submit their stock certificates to the clerk of the court for
notation on them that the appraisal proceeding is pending. If a stockholder
fails to comply with the order, the court may dismiss the proceeding as to him
or grant other appropriate relief.
(B) TRANSFER OF STOCK BEARING NOTATION. - If any stock represented by a
certificate which bears a notation is subsequently transferred, the new
certificate issued for the stock shall bear a similar notation and the name of
the original objecting stockholder. The transferee of this stock does not
acquire rights of any character with respect to the stock other than the rights
of the original objecting stockholder. (An. Code 1957, art. 23, Section 73;
1975, ch. 311, Section 2.),
SECTION 3-210. APPRAISAL OF FAIR VALUE.
(a) COURT TO APPOINT APPRAISERS. - If the court finds that the objecting
stockholder is entitled to an appraisal of his stock, it shall appoint three
disinterested appraisers to determine the fair value of the stock on terms and
conditions the court considers proper. Each appraiser shall take an oath to
<PAGE>
discharge his duties honestly and faithfully.
(b) REPORT OF APPRAISERS - FILING. - Within 60 days after their
appointment, unless the court sets a longer time, the appraisers shall determine
the fair value of the stock as of the appropriate date and file a report stating
the conclusion of the majority as to the fair value of the stock.
(C) SAME - CONTENTS. - The report shall state the reasons for the
conclusion and shall include a transcript of all testimony and exhibits offered.
(D) SAME - SERVICE; OBJECTION. - (1) On the same day that the report is
filed, the appraisers shall mail a copy of it to each party to the proceedings.
(2) Within 15 days after the report is filed, any party may object to
it and request a hearing. (An. Code 1957, art. 23, Section 73; 1975, ch. 311,
Section 2.)
SECTION 3-211. ACTION BY COURT ON APPRAISERS' REPORT.
(a) ORDER OF COURT. - The court shall consider the report and, on motion
of any party to the proceeding, enter an order which:
(1) Confirms, modifies, or rejects it; and
(2) If appropriate, sets the time for payment to the stockholder.
(B) PROCEDURE AFTER ORDER. - (1) If the appraisers' report is confirmed or
modified by the order, judgment shall be entered against the successor and in
favor of each objecting stockholder party to the proceeding for the appraised
fair value of his stock.
(2) If the appraisers' report is rejected, the court may:
(i) Determine the fair value of the stock and enter
judgment for the stockholder; or
(ii) Remit the proceedings to the same or other
appraisers on terms and conditions it considers proper.
(C) JUDGMENT INCLUDES INTEREST. - (1) Except as provided in paragraph (2)
of this subsection, a judgment for the stockholder shall award the value of the
stock and interest from the date as at which fair value is to be determined
under Section 3-202 of this subtitle.
(2) The court may not allow interest if it finds that
<PAGE>
the failure of the stockholder to accept an offer for the stock made under
Section 3-207 of this subtitle was arbitrary and vexatious or not in good faith.
In making this finding, the court shall consider:
(i) The price which the successor offered for the stock;
(ii) The financial statements and other information
furnished to the stockholder; and
(iii) Any other circumstances it considers relevant.
(D) COSTS OF PROCEEDINGS. - (1) The costs of the proceedings, including
reasonable compensation and expenses of the appraisers, shall be set by the
court and assessed against the successor. However, the court may direct the
costs to be apportioned and assessed against any objecting stockholder if the
court finds that the failure of the stockholder to accept an offer for the stock
made under Section 3-207 of this subtitle was arbitrary and vexatious or not in
good faith. In making this finding, the court shall consider:
(i) The price which the successor offered for the stock;
(ii) The financial statements and other information
furnished to the stockholder; and
(iii) Any other circumstances it considers relevant.
(2) Costs may not include attorney's fees or expenses. The reasonable
fees and expenses of experts may be included only if:
(i) The successor did not make an offer for the stock under
Section 3-207 of this subtitle; or
(ii) The value of the stock determined in the proceeding
materially exceeds the amount offered by the successor.
(e) EFFECT OF JUDGMENT. - The judgment is final and conclusive on all
parties and has the same force and effect as other decrees in equity. The
judgment constitutes a lien on the assets of the successor with priority over
any mortgage or other lien attaching on or after the effective date of the
consolidation, merger, transfer, or charter amendment. (An. Code 1957, art. 23,
Section 73; 1975, ch. 311, Section 2; 1976, ch. 567, Section 2.)
SECTION 3-212. SURRENDER OF STOCK.
<PAGE>
The successor is not required to pay for the stock of an objecting
stockholder or to pay a judgment rendered against it in a proceeding for an
appraisal unless, simultaneously with payment:
(1) The certificates representing the stock are surrendered to it,
indorsed in blank, and in proper form for transfer; or
(2) Satisfactory evidence of the loss or destruction of the certificates
and sufficient indemnity bond are furnished. (An. Code 1957, art. 23, Section
73; 1975, ch. 311, Section 2.)
SECTION 3-213. RIGHTS OF SUCCESSOR WITH RESPECT TO STOCK.
(A) GENERAL RULE. - A successor which acquires the stock of an objecting
stockholder is entitled to any dividends or distributions payable to holders of
record of that stock on a record date after the close of business on the day as
at which fair value is to be determined under Section 3-202 of this subtitle.
(B) SUCCESSOR IN TRANSFER OF ASSETS. - After acquiring the stock of an
objecting stockholder, a successor in a transfer of assets may exercise all the
rights of an owner of the stock.
(C) SUCCESSOR IN CONSOLIDATION, MERGER, OR SHARE EXCHANGE. Unless the
articles provide otherwise, stock in the successor of a consolidation, merger,
or share exchange otherwise deliverable in exchange for the stock of an
objecting stockholder has the status of authorized but unissued stock of the
successor. However, a proceeding for reduction of the capital of the successor
is not necessary to retire the stock or to reduce the capital of the successor
represented by the stock. (An. Code 1957, art. 23, Section 73; 1975, ch. 311,
Section 2; 1976, ch. 567, Section 2.)
SUBTITLE 3. PARTIAL LIQUIDATION AND REORGANIZATION.
SECTION 3-301. REORGANIZATION BY ORDER OF COURT.
(A) RATIFICATION BY STOCKHOLDERS OR DIRECTORS NOT REQUIRED. - If the final
order of a court makes a plan of reorganization binding on the stockholders of a
corporation, the board of directors, trustee, or receiver, as the case may be,
may take any action necessary to carry out the plan without any other corporate
approval.
(B) CONTENTS OF CHARTER DOCUMENT. - If a charter document is required to
be filed with the Department to carry out a transaction under subsection (a) of
this section, it shall state:
(1) That the transaction was carried out under a plan of
reorganization pursuant to a final order of a court having
<PAGE>
jurisdiction;
(2) The name of the court and the caption and docket number of the
proceedings; and
(3) That the transaction was approved by the board of directors,
trustee, or receiver, as the case may be.
(C) EXECUTION OF DOCUMENT. - If the action is taken by a trustee or
receiver, he may sign and acknowledge the charter document for the corporation,
and no other execution, acknowledgment, or affidavit on behalf of the
corporation is required. (An. Code 1957, art. 23, Section 75; 1975, ch. 311,
Section 2; 1988, ch. 280, Section 2; ch. 281, Section 2.)
<PAGE>
Exhibit G2
Sections 13.1-729 to 13.1-740 of the Virginia Stock Corporation Act
ARTICLE 15
DISSENTER'S RIGHTS
13.1-729 DEFINITIONS.-In this article:
"Corporation" means the issuer of the shares held by a dissenter before the
corporate action, except that (i) with respect to a merger, "corporation" means
the surviving domestic or foreign corporation OR LIMITED LIABILITY COMPANY by
merger of that issuer, and (ii) with respect to a share exchange, "corporation"
means the acquiring corporation by share exchange, rather than the issuer, if
the plan of share exchange places the responsibility for dissenters' rights on
the acquiring corporation.
"Dissenter" means a shareholder who is entitled to dissent from corporate
action under Section 13.1-730 and who exercises that right when and in the
manner required by Sections 13.1-732 through 13.1-739.
"Fair value" with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the corporate action to which the
dissenter objects, excluding any appreciation or depreciation in anticipation of
the corporate action unless exclusion would be inequitable.
"Interest" means interest from the effective date of the corporate action
until the date of payment, at the average rate currently paid by the corporation
on its principal bank loans or, if none, at a rate that is fair and equitable
under all the circumstances.
"Record shareholder" means the person in whose name shares are registered
in the records of a corporation or the beneficial owner of shares to the extent
of the rights granted by a nominee certificate on file with a corporation.
"Beneficial shareholder" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder.
"Shareholder" means the record shareholder or the beneficial shareholder.
(Last amended by Ch. 575, L. '92, eff. 7-1-92.)
13.1-730 RIGHT TO DISSENT.-A. A shareholder is entitled to dissent from, and
obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
1. Consummation of a plan of merger to which the corporation is a party
(i) if shareholder approval is required
<PAGE>
for the merger by Section 13.1-718 or the articles of incorporation and the
shareholder is entitled to vote on the merger or (ii) if the corporation is a
subsidiary that is merged with its parent under Section 13.1-719;
2. Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan;
3. Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation if the shareholder was entitled to vote on the
sale or exchange or if the sale or exchange was in furtherance of a dissolution
on which the shareholder was entitled to vote, provided that such dissenter's
rights shall not apply in the case of (i) a sale or exchange pursuant to court
order, or (ii) a sale for cash pursuant to a plan by which all or substantially
all of the net proceeds of the sale will be distributed to the shareholders
within one year after the date of sale;
4. Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
B. A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
C. Notwithstanding any other provision of this article, with respect to a
plan of merger or share exchange or a sale or exchange of property there shall
be no right of dissent in favor of holders of shares of any class or series
which, at the record date fixed to determine the shareholders entitled to
receive notice of and to vote at the meeting at which the plan of merger or
share exchange or the sale or exchange of property is to be acted on, were (i)
listed on a national securities exchange or (ii) held by at least 2,000 record
shareholders, unless in either case:
1. The articles of incorporation of the corporation issuing such shares
provide otherwise;
2. In the case of a plan of merger or share exchange, the holders of the
class or series are required under the plan of merger or share exchange to
accept for such shares anything except:
a. Cash;
b. Shares OR MEMBERSHIP INTERESTS, or shares OR MEMBERSHIP
<PAGE>
INTERESTS and cash in lieu of fractional shares (i) of the surviving or
acquiring corporation or LIMITED LIABILITY COMPANY OR (II) of any other
corporation or LIMITED LIABILITY COMPANY which, at the record date fixed to
determine the shareholders entitled to receive notice of and to vote at the
meeting at which the plan of merger or share exchange is to be acted on, were
either listed subject to notice of issuance on a national securities exchange or
held of record by at least 2,000 record shareholders OR MEMBERS; or
c. A combination of cash and shares or membership interests as set forth
in subdivisions 2a and 2b of this subsection; or
3. The transaction to be voted on is an "affiliated transaction" and is
not approved by a majority of "disinterested directors" as such terms are
defined in Section 13.1-725.
D. The right of a dissenting shareholder to obtain payment of the fair
value of his shares shall terminate upon the occurrence of any one of the
following events:
1. The proposed corporate action is abandoned or rescinded;
2. A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
3. His demand for payment is withdrawn with the written consent of the
corporation.
(List amended by Ch. 575, L. '92, eff. 7-1-92.)
13.1-731 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.- A. A record
shareholder may assert dissenters rights as to fewer than all the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
B. A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:
1. He submits to the corporation the record shareholder's written consent
to the dissent not later than the time the beneficial shareholder asserts
dissenters' rights; and
2. He does so with respect to all shares of which he is the beneficial
shareholder or over which he has power to direct
<PAGE>
the vote.
13.1-732 NOTICE OF DISSENTERS' RIGHTS-A. If proposed corporate action
creating dissenters' rights under Section 13.1-730 is submitted to a vote at a
shareholders' meeting, the meeting notice shall state that shareholders are or
may be entitled to assert dissenters' rights under this article and be
accompanied by a copy of this article.
B. If corporate action creating dissenters' rights under Section 13.1-730
is taken without a vote of shareholders, the corporation, during the ten-day
period after the effectuation of such corporate action, shall notify in writing
all record shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters notice described in Section 13.1-734.
13.1-733 NOTICE OF INTENT TO DEMAND PAYMENT.-A. If proposed corporate
action creating dissenters' rights under Section 13.1-730 is submitted to a vote
at a shareholders' meeting, a shareholder who wishes to assert dissenters'
rights (i) shall deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed action is
effectuated and (ii) shall not vote such shares in favor of the proposed action.
B. A shareholder who does not satisfy the requirements of subsection A of
this section is not entitled to payment for his shares under this article.
13.1-734 DISSENTERS' NOTICE.-A. If proposed corporate action creating
dissenters' rights under Section 13.1-730 is authorized at a shareholders'
meeting, the corporation during the ten-day period after the effectuation of
such corporate action, shall deliver a dissenters' notice in writing to all
shareholders who satisfied the requirements of Section 13.1-733.
B. The dissenters' notice shall:
1. State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited;
2. Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
3. Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he acquired beneficial ownership of the shares
<PAGE>
before or after that date;
4. Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty nor more than sixty days after the date
of delivery of the dissenters' notice; and
5. Be accompanied by a copy of this article.
13.1-735 DUTY TO DEMAND PAYMENT.-A. A shareholder sent a dissenters"
notice described in Section 13.1-734 shall demand payment, certify that he
acquired beneficial ownership of the shares before or after the date required to
be set forth in the dissenters' notice pursuant to paragraph 3 of subsection B
of Section 13.1-734, and, in the case of certificated shares, deposit his
certificates in accordance with the terms of the notice.
B. The shareholder who deposits his shares pursuant to subsection A of
this section retains all other rights of a shareholder except to the extent that
these rights are canceled or modified by the taking of the proposed corporate
action.
C. A shareholder who does not demand payment and deposits his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
13.1-736 SHARE RESTRICTIONS.-A. The corporation may restrict the transfer
of uncertificated shares from the date the demand for their payment is received.
B. The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder except to the
extent that these rights are canceled or modified by the taking of the proposed
corporate action.
13.1-737 PAYMENT.-A. Except as provided in Section 13.1-738, within thirty
days after receipt of a payment demand made pursuant to Section 13.1-735, the
corporation shall pay the dissenter the amount the corporation estimates to be
the fair value of his shares, plus accrued interest. The obligation of the
corporation under this paragraph may be enforced (i) by the circuit court in the
city or county where the corporation's principal office is located, or, if none
in this Commonwealth, where its registered office is located or (ii) at the
election of any dissenter residing or having its principal office in the
Commonwealth, by the circuit court in the city or county where the dissenter
resides or has its principal office. The court shall dispose of the complaint
on an expedited basis.
<PAGE>
B. The payment shall be accompanied by:
1. The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the effective date of the corporate
action creating dissenters' rights, an income statement for that year, a
statement of changes in shareholders' equity for that year, and the latest
available interim financial statements, if any;
2. An explanation of how the corporation estimated the fair value of
the shares and of how the interest was calculated;
3. A statement of the dissenters' right to demand payment under
Section 13.1-739; and
4. A copy of this article.
13.1-738 AFTER-ACQUIRED SHARES.-A. A corporation may elect to withhold
payment required by Section 13.1-737 from a dissenter unless he was the
beneficial owner of the shares on the date of the first publication by news
media or the full announcement to shareholders generally, whichever is earlier,
of the terms of the proposed corporate action, as set forth in the dissenters'
notice.
B. To the extent the corporation elects to withhold payment under
subsection A of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
offer to pay this amount to each dissenter who agrees to accept it in full
satisfaction of his demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares and of how the
interest was calculated, and a statement of the dissenter's right to demand
payment under Section 13.1-739.
13.1-739 PROCEDURE OF SHAREHOLDER DISSATISFIED WITH PAYMENT" OR OFFER.-A.
A dissenter may notify the corporation in writing of his own estimate of the
fair value of his shares and amount of interest due, and demand payment of his
estimate (less any payment under Section 13.1-737), or reject the corporation's
offer under Section 13.1-738 and demand payment of the fair value of his shares
and interest due, if the dissenter believes that the amount paid under Section
13.1-737 or offered under Section 13.1-738 is less than the fair value of his
shares or that the interest due is incorrectly calculated.
B. A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection A
of this section within thirty days after the corporation made or offered payment
for his shares.
<PAGE>
13.1-740 COURT ACTION.--A. If a demand for payment under Section 13.1-739
remains unsettled, the corporation shall commence a proceeding within sixty days
after receiving the payment demand and petition the circuit court in the city or
county described in subsection B of this section to determine the fair value of
the shares and accrued interest. If the corporation does not commence the
proceeding within the sixty-day period, it shall pay each dissenter whose demand
remains unsettled the amount demanded.
B. The corporation shall commence the proceeding in the city or county
where its principal office is located, or, if none in this Commonwealth, where
its registered office is located. If the corporation is a foreign corporation
without a registered office in this Commonwealth, it shall commence the
proceeding in the city or county in this Commonwealth where the registered
office of the domestic corporation merged with or whose shares were acquired by
the foreign corporation was located.
C. The corporation shall make all dissenters, whether or not residents of
this Commonwealth, whose demands remain unsettled parties to the proceeding as
in an action against their shares and all parties shall be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
D. The corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the corporation,
complied with the provisions of this article. If the court determines that such
shareholder has not complied with the provisions of this article, he shall be
dismissed as a party.
E. The jurisdiction of the court in which the proceeding is commenced
under subsection B of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend a
decision on the question of fair value. The appraisers have the powers
described in the order appointing them, or in any amendment to it. The
dissenters are entitled to the same discovery rights as parties in other civil
proceedings.
F. Each dissenter made a party to the proceeding is entitled to judgment
(i) for the amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the corporation or (ii) for
the fair value, plus accrued interest, of his after-acquired shares for which
the corporation elected to withhold payment under Section 13.1-738.
13.1-741 COURT COSTS AND COUNSEL FEES.-A. The court in an appraisal
proceeding commenced under Section 13.1-740 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court.
<PAGE>
The court shall assess the costs against the corporation, except that the court
may assess costs against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds the dissenters did not act in
good faith in demanding payment under Section 13.1-739.
B. The court may also assess the reasonable fees and expenses of experts,
excluding those of counsel, for the respective parties, in amounts the court
finds equitable:
1. Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the requirements
of Sections 13.1-732 through 13.1-739; or
2. Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed did not act in good faith with respect to the rights provided by this
article.
C. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefitted.
D. In a proceeding commenced under subsection A of Section 13.1-737 the
court shall assess the costs against the corporation, except that the court may
assess costs against all or some of the dissenters who are parties to the
proceeding, in amounts the court finds equitable, to the extent the court finds
that such parties did not act in good faith in instituting the proceeding.
<PAGE>
Exhibit G3
Section 29-373 of the District of Columbia Business Corporation Act
29-373 SAME RIGHTS OF DISSENTING SHAREHOLDERS.-(a) If a shareholder of a
corporation which is a party to a merger or consolidation shall file with the
corporation, prior to or at the meeting of shareholders at which the plan of
merger or consolidation is submitted to a vote, a written objection to the plan
of merger or consolidation, and shall not vote in favor of the plan, and the
shareholder, within 20 days after the merger or consolidation is effected, shall
make written demand on the surviving or new corporation for payment of the fair
value of his or her shares as of the day prior to the date on which the vote was
taken approving the merger or consolidation, the surviving or new corporation
shall pay to the shareholder the fair value of the shares forthwith, in the case
of holders of uncertificated shares, or upon the surrender of the certificate or
certificates representing the shares, in the case of holders of shares
represented by certificates. Such a demand shall state the number and class of
the shares owned by the dissenting shareholder. Any shareholder failing to make
demand within the 20-day period shall be bound by the terms of the merger or
consolidation.
(b) If within 30 days after the date on which the merger or consolidation
was effected the value of the shares is agreed upon between the dissenting
shareholder and the surviving or new corporation repayment therefor shall be
made within 90 days after the date on which the merger or consolidation was
effected, in the case of holders of uncertificated shares, or upon surrender of
the certificate or certificates representing the shares, in the case of holders
of shares represented by certificates. Upon payment of the agreed value, the
dissenting shareholder shall cease to have any interest in the shares or the
corporation.
(c) If within the period of 30 days the shareholder and the surviving or
new corporation agree, then the dissenting shareholder may, within 60 days after
the expiration of the 30-day period, file a petition in any court of competent
jurisdiction within the District of Columbia, asking for a finding and
determination of the fair value of the shares, and be entitled to judgment
against the surviving or new corporation for the amount of the fair value as of
the day prior to the date on which the vote was taken approving the merger or
consolidation, together with interest thereon at the rate of 5% per annum to the
date of judgment. The judgment shall be payable forthwith in the case of
holders of uncertificated shares, or upon surrender of the certificate or
certificates representing the shares to the surviving or new corporation in the
case of holders of shares represented by certificates. Upon payment of the
judgment, the dissenting shareholder shall cease to have any interest in the
shares or in the surviving or new corporation. The shares may be
<PAGE>
held and disposed of by the surviving or new corporation as it may see fit.
Unless the dissenting shareholder shall file the petition within time herein
limited, the shareholder and all persons claiming under him or her shall be
bound by the terms of the merger or consolidation.
(d) The right of a dissenting shareholder to be paid and the fair value of
his or her shares as herein provided shall cease if and when the corporation
shall abandon the merger consolidation. (Last amended by D.C. Law 9-144, L.
'92, eff. 9-10-92.)
<PAGE>
DRAFT WSP&R 11/30/95
Constellation Energy Corporation Long-Term Incentive Plan
1. OBJECTIVE. The objective of this Plan is to increase shareholder
value by providing a long-term incentive to reward officers and key employees of
the Company and its Subsidiaries, who are mainly responsible for the continued
growth, development, and financial success of the Company and its Subsidiaries,
for the profitable performance of the Company and its Subsidiaries. The Plan is
also designed to permit the Company and its Subsidiaries to retain talented and
motivated officers and key employees and to increase their ownership of Company
common stock.
2. DEFINITIONS. All singular terms defined in this Plan will include
the plural and VICE VERSA. As used herein, the following terms will have the
meaning specified below:
"Award" means, individually or collectively, Restricted Stock, Options,
Performance Units, Stock Appreciation Rights, or Dividend Equivalents
granted under this Plan.
"Board" means the Board of Directors of the Company.
"Book Value" means the book value of a share of Stock determined in
accordance with the Company's regular accounting practices as of the last
business day of the month immediately preceding the month in which a Stock
Appreciation Right is exercised as provided in Section 10.
"Code" means the Internal Revenue Code of 1986, as amended. Reference in
the Plan to any section of the Code will be deemed to include any
amendments or successor provisions to such section and any regulations
promulgated thereunder.
"Committee" means the Committee on Management of the Board, provided,
however, that if such Committee fails to satisfy the disinterested
administration provisions of Rule 16b-3 under the Exchange Act, "Committee"
shall mean a committee of directors of the Company who satisfy the
disinterested person requirements of such Rule.
"Company" means Constellation Energy Corporation, a Maryland and a Virginia
corporation, or its successor, including any "New Company" as provided in
Section 14I.
"Date of Grant" means the date on which the granting of an Award is
authorized by the Committee or such later date as may be specified by the
Committee in such authorization.
<PAGE>
"Date of Retirement" means the date of Retirement or Early Retirement
applicable to a Participant.
"Disability" means the determination that a Participant is "disabled" under
the Company disability plan in effect at that time.
"Dividend Equivalent" means an award granted under Section 11.
"Early Retirement" means retirement prior to the Normal Retirement Date.
"Earned Performance Award" means an actual award of a specified number of
Performance Units (or shares of Restricted Stock, as the context requires)
which the Committee has determined have been earned and are payable (or, in
the case of Restricted Stock, earned and with respect to which restrictions
will lapse) for a particular Performance Period.
"Effective Time" means the Effective Time as defined in the Merger
Agreement.
"Eligible Employee" means any person employed by the Company or a
Subsidiary on a regularly scheduled basis who satisfies all of the
requirements of Section 5.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exercise Period" means the period or periods during which a Stock
Appreciation Right is exercisable as described in Section 10.
"Fair Market Value" means the average of the highest and lowest price at
which the Stock was sold the regular way on the New York Stock Exchange-
Composite Transactions on a specified date.
"Incentive Stock Option" means an incentive stock option within the meaning
of Section 422 of the Code.
"Merger Agreement" means the Agreement and Plan of Merger by and among
Baltimore Gas and Electric Company and Potomac Electric Power Company,
dated as of September 22, 1995.
"Normal Retirement Date" is the earliest date as described in the Pension
Plan when a Participant is entitled to an unreduced retirement benefit
under such plan.
"Option" or "Stock Option" means either a nonqualified stock option or an
incentive stock option granted under Section 8.
-2-
<PAGE>
"Option Period" or "Option Periods" means the period or periods during
which an Option is exercisable as described in Section 8.
"Participant" means an employee of the Company or a Subsidiary who has been
granted an Award under this Plan.
"Pension Plan" means the applicable qualified or nonqualified retirement or
pension plan of the Company or its Subsidiaries as may be amended from time
to time which covers the Participant.
"Performance-Based" means that in determining the amount of a Restricted
Stock Award payout, the Committee will take into account the performance of
the Participant, the Company, one or more Subsidiaries, or any combination
thereof.
"Performance Period" means a period of time, established by the Committee
at the time an Award is granted, during which corporate and/or individual
performance is measured.
"Performance Unit" means a unit of measurement equivalent to such amount or
measure as defined by the Committee which may include, but is not limited
to, dollars, market value shares, or book value shares.
"Plan" means the Constellation Energy Corporation Long-Term Incentive
Plan as set forth herein.
"Plan Administrator" means, as set forth in Section 4, the Committee.
"Reporting Person" means a Participant who is subject to the reporting
requirements of Section 16(a) of the Exchange Act.
"Restricted Stock" means an Award granted under Section 7.
"Retirement" means retirement on or after the "Normal Retirement Date" (as
such term is defined in the Pension Plan or a Subsidiary's retirement or
pension plan).
"Service-Based" means that in determining the amount of a Restricted Stock
Award payout, the Committee will take into account only the period of time
that the Participant performed services for the Company or its Subsidiaries
since the Date of Grant.
"Stock" means the common stock, without par value, of the Company.
"Stock Appreciation Right" means an Award granted under Section 10.
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"Subsidiary(ies)" means any corporation of which 20% or more of its
outstanding voting stock or voting power is beneficially owned, directly or
indirectly, by the Company.
"Target Performance Award" means a targeted award of a specified number of
Performance Units (or shares of Restricted Stock, as the context requires)
which may be earned and payable (or, in the case of Restricted Stock,
earned and with respect to which restrictions will lapse) based upon the
performance objectives for a particular Performance Period, all as
determined by the Committee. The Target Performance Award will be a factor
in the Committee's ultimate determination of the Earned Performance Award.
"Termination" means resignation or discharge from employment with the
Company or any of its Subsidiaries except in the event of death,
Disability, Retirement or Early Retirement.
3. EFFECTIVE DATE, DURATION AND STOCKHOLDER APPROVAL.
A. EFFECTIVE DATE AND STOCKHOLDER APPROVAL. Subject to the approval
of the Plan by a majority of the outstanding shares of common stock of Baltimore
Gas and Electric Company voted in person or by proxy at a meeting of its
stockholders and a majority vote of the common stock of Potomac Electric Power
Company voted in person or by proxy at a meeting of its stockholders and
conditioned on the merger of Baltimore Gas and Electric Company and Potomac
Electric Power Company as agreed to in the Merger Agreement, the Plan will be
effective as of the Effective Time.
B. PERIOD FOR GRANTS OF AWARDS. Awards may be made as provided
herein for a period of 10 years after the Effective Time.
C. TERMINATION. The Plan will continue in effect until all matters
relating to the payment of outstanding Awards and administration of the Plan
have been settled.
4. PLAN ADMINISTRATION. The Committee is the Plan Administrator and
has sole authority (except as specified otherwise herein) to determine all
questions of interpretation and application of the Plan, or of the terms and
conditions pursuant to which Awards are granted, exercised or forfeited under
the Plan provisions, and, in general, to make all determinations advisable for
the administration of the Plan to achieve its stated objective. Such
determinations shall be final and not subject to further appeal.
5. ELIGIBILITY. Each officer or key employee of the Company and its
Subsidiaries (including officers or employees who are members of the Board, but
excluding directors who are not officers or employees) may be designated by the
Committee as a Participant, from time to time, with respect to one or more
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Awards. No officer or employee of the Company or its Subsidiaries shall have
any right to be granted an Award under this Plan.
6. GRANT OF AWARDS AND LIMITATION OF NUMBER OF SHARES AWARDED. The
Committee may, from time to time, grant Awards to one or more Eligible
Employees, provided that (i) subject to any adjustment pursuant to Section 14H,
the aggregate number of shares of Stock subject to Awards under this Plan may
not exceed five million five hundred thousand (5,500,000) shares; (ii) to the
extent that an Award lapses or the rights of the Participant to whom it was
granted terminate, any shares of Stock subject to such Award shall again be
available for the grant of an Award under the Plan; and (iii) shares delivered
by the Company under the Plan may be authorized and unissued Stock, Stock held
in the treasury of the Company, or Stock purchased on the open market (including
private purchases) in accordance with applicable securities laws.
7. RESTRICTED STOCK AWARDS.
A. GRANTS OF RESTRICTED SHARES. One or more shares of Restricted
Stock may be granted to any Eligible Employee. The Restricted Stock will be
issued to the Participant on the Date of Grant without the payment of
consideration by the Participant. The Restricted Stock will be issued in the
name of the Participant and will bear a restrictive legend prohibiting sale,
transfer, pledge or hypothecation of the Restricted Stock until the expiration
of the restriction period.
The Committee may also impose such other restrictions and conditions
on the Restricted Stock as it deems appropriate, and will designate the grant as
either a Service-Based or Performance-Based Award.
Upon issuance to the Participant of the Restricted Stock, the
Participant will have the right to vote the Restricted Stock, and subject to the
Committee's discretion, to receive the cash dividends distributable with respect
to such shares, with such dividends treated as compensation to the Participant.
The Committee, in its sole discretion, may direct the accumulation and payment
of distributable dividends to the Participant at such times, and in such form
and manner, as determined by the Committee.
B. SERVICE-BASED AWARD.
i. RESTRICTION PERIOD. At the time a Service-Based Restricted Stock
Award is granted, the Committee will establish a restriction period
applicable to such Award which will be not less than one year and not more
than ten years. Each Restricted Stock Award may have a different
restriction period, at the discretion of the Committee.
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ii. FORFEITURE OR PAYOUT OF AWARD. In the event a Participant ceases
employment during a restriction period, a Restricted Stock Award is subject
to forfeiture or payout (i.e., removal of restrictions) as follows: (a)
Termination - the Restricted Stock Award is completely forfeited; (b)
Retirement, Disability or death - payout of the Restricted Stock Award is
prorated for service during the period; or (c) Early Retirement - if at the
Participant's request, the payout or forfeiture of the Restricted Stock
Award is determined at the discretion of the Committee, or if at the
Company's request, payout of the Restricted Stock Award is prorated for
service during the period; provided, however, that the Committee may modify
the above if it determines at its sole discretion that special
circumstances warrant such modification.
Any shares of Restricted Stock which are forfeited will be transferred
to the Company.
Upon completion of the restriction period, all Award restrictions will
expire and new certificates representing the Award will be issued (the payout)
without the restrictive legend described in Section 7A.
C. PERFORMANCE-BASED AWARD.
i. RESTRICTION PERIOD. At the time a Performance-Based Restricted
Stock Award is granted, the Committee will establish a restriction period
applicable to such Award which will be not less than one year and not more
than ten years. Each Restricted Stock Award may have a different
restriction period, at the discretion of the Committee. The Committee will
also establish a Performance Period.
ii. PERFORMANCE OBJECTIVES. The Committee will determine, no later
than 90 days after the beginning of each Performance Period, the
performance objectives for each Participant's Target Performance Award and
the number of shares of Restricted Stock for each Target Performance Award
that will be issued on the Date of Grant. Performance objectives may vary
from Participant to Participant and will be based upon such performance
criteria or combination of factors as the Committee deems appropriate,
which may include, but not be limited to, the performance of the
Participant, the Company, one or more Subsidiaries, or any combination
thereof. Performance Periods may overlap and Participants may participate
simultaneously with respect to Performance-Based Restricted Stock Awards
for which different Performance Periods are prescribed.
If, during the course of a Performance Period significant events occur
as determined in the sole discretion of the Committee, which the Committee
expects to
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have a substantial effect on a performance objective during such period,
the Committee may revise such objective.
iii. FORFEITURE OR PAYOUT OF AWARD. As soon as practicable after the
end of each Performance Period, the Committee will determine whether the
performance objectives and other material terms of the Award were
satisfied. The Committee's determination of all such matters will be final
and conclusive.
As soon as practicable after the later of (i) the date the Committee
makes the above determination, or (ii) the completion of the restriction period,
the Committee will determine the Earned Performance Award for each Participant.
Such determination may result in forfeiture of all or some shares of Restricted
Stock (if Target Performance Award performance objectives were not attained), or
the issuance of additional shares of Stock (if Target Performance Award
performance objectives were exceeded), and will be based upon such factors as
the Committee determines at its sole discretion, but including the Target
Performance Award performance objectives.
In the event a Participant ceases employment during a restriction
period, the Restricted Stock Award is subject to forfeiture or payout (i.e.,
removal of restrictions) as follows: (a) Termination - the Restricted Stock
Award is completely forfeited; (b) Retirement, Disability or death - payout of
the Restricted Stock Award is prorated taking into account factors including,
but not limited to, service during the period; and the performance of the
Participant during the portion of the Performance Period before employment
ceased; or (c) Early Retirement - if at the Participant's request, the payout or
forfeiture of the Restricted Stock Award is determined at the discretion of the
Committee, or if at the Company's request, payout of the Restricted Stock Award
is prorated taking into account factors including, but not limited to, service
during the period and the performance of the Participant during the portion of
the Performance Period before employment ceased; provided, however, that the
Committee may modify the above if it determines at its sole discretion that
special circumstances warrant such modification.
Any shares of Restricted Stock which are forfeited will be transferred
to the Company.
With respect to shares of Restricted Stock for which restrictions
lapse, new certificates will be issued (the payout) without the restrictive
legend described in Section 7A. New certificates will also be issued for
additional Stock, if any, awarded to the Participant because Target Performance
Award performance objectives were exceeded.
D. WAIVER OF SECTION 83(B) ELECTION. Unless otherwise directed by
the Committee, as a condition of receiving an Award
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of Restricted Stock, a Participant must waive in writing the right to make an
election under Section 83(b) of the Code to report the value of the Restricted
Stock as income on the Date of Grant.
8. STOCK OPTIONS.
A. GRANTS OF OPTIONS. One or more Options may be granted to any
Eligible Employee on the Date of Grant without the payment of consideration by
the Participant.
B. STOCK OPTION AGREEMENT. Each Option granted under the Plan will
be evidenced by a "Stock Option Agreement" between the Company and the
Participant containing provisions determined by the Committee, including,
without limitation, provisions to qualify Incentive Stock Options as such under
Section 422 of the Code if directed by the Committee at the Date of Grant;
provided, however, that each Incentive Stock Option Agreement must include the
following terms and conditions: (i) that the Options are exercisable, either in
total or in part, with a partial exercise not affecting the exerciseability of
the balance of the Option; (ii) every share of Stock purchased through the
exercise of an Option will be paid for in full at the time of the exercise;
(iii) each Option will cease to be exercisable, as to any share of Stock, at the
earliest of (a) the Participant's purchase of the Stock to which the Option
relates, (b) the Participant's exercise of a related Stock Appreciation Right,
or (c) the lapse of the Option; (iv) Options will not be transferable by the
Participant except by Will or the laws of descent and distribution and will be
exercisable during the Participant's lifetime only by the Participant or by the
Participant's guardian or legal representative; and (v) notwithstanding any
other provision, in the event of a public tender for all or any portion of the
Stock or in the event that any proposal to merge or consolidate the Company with
another company is submitted to the stockholders of the Company for a vote, the
Committee, in its sole discretion, may declare any previously granted Option to
be immediately exercisable.
C. OPTION PRICE. The Option price per share of Stock will be set by
the grant, but will be not less than 100% of the Fair Market Value at the Date
of Grant.
D. FORM OF PAYMENT. At the time of the exercise of the Option, the
Option price will be payable in cash or in other shares of Stock or in a
combination of cash and other shares of Stock, in a form and manner as required
by the Committee in its sole discretion. When Stock is used in full or partial
payment of the Option price, it will be valued at the Fair Market Value on the
date the Option is exercised.
E. OTHER TERMS AND CONDITIONS. The Option will become exercisable
in such manner and within such Option Period or Periods, not to exceed 10 years
from its Date of Grant, as set
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forth in the Stock Option Agreement upon payment in full. Except as otherwise
provided in this Plan or in the Stock Option Agreement, any Option may be
exercised in whole or in part at any time.
F. LAPSE OF OPTION. An Option will lapse upon the earlier of: (i)
10 years from the Date of Grant, or (ii) at the expiration of the Option Period
set by the grant. If the Participant ceases employment within the Option Period
and prior to the lapse of the Option, the Option will lapse as follows: (a)
Termination - the Option will lapse on the effective date of the Termination; or
(b) Retirement, Early Retirement, or Disability - the Option will lapse at the
expiration of the Option Period set by the grant; provided, however, that the
Committee may modify the above if it determines in its sole discretion that
special circumstances warrant such modification. If the Participant dies within
the Option Period and prior to the lapse of the Option, the Option will lapse at
the expiration of the Option Period set by the grant unless it is exercised
before such time by the Participant's legal representative(s) or by the
person(s) entitled to do so under the Participant's Will or, if the Participant
fails to make testamentary disposition of the Option or dies intestate, by the
person(s) entitled to receive the Option under the applicable laws of descent
and distribution.
G. INDIVIDUAL LIMITATION. In the case of an Incentive Stock Option,
the aggregate Fair Market Value of the Stock for which Incentive Stock Options
(whether under this Plan or another arrangement) in any calendar year are first
exercisable will not exceed $100,000 with respect to such calendar year (or such
other individual limit as may be in effect under the Code on the Date of Grant)
plus any unused portion of such limit as the Code may permit to be carried over.
9. PERFORMANCE UNITS.
A. PERFORMANCE UNITS. One or more Performance Units may be earned
by an Eligible Employee based on the achievement of preestablished performance
objectives during a Performance Period.
B. PERFORMANCE PERIOD AND PERFORMANCE OBJECTIVES. The Committee
will determine a Performance Period and will determine, no later than 90 days
after the beginning of each Performance Period, the performance objectives for
each Participant's Target Performance Award and the number of Performance Units
subject to each Target Performance Award. Performance objectives may vary from
Participant to Participant and will be based upon such performance criteria or
combination of factors as the Committee deems appropriate, which may include,
but not be limited to, the performance of the Participant, the Company, one or
more Subsidiaries, or any combination thereof. Performance Periods may overlap
and Participants may participate simultaneously with
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respect to Performance Units for which different Performance Periods are
prescribed.
If during the course of a Performance Period significant events occur
as determined in the sole discretion of the Committee which the Committee
expects to have a substantial effect on a performance objective during such
period, the Committee may revise such objective.
C. FORFEITURE OR PAYOUT OF AWARD. As soon as practicable after the
end of each Performance Period, the Committee will determine whether the
performance objectives and other material terms of the Award were satisfied.
The Committee's determination of all such matters will be final and conclusive.
As soon as practicable after the date the Committee makes the above
determination, the Committee will determine the Earned Performance Award for
each Participant. Such determination may result in an increase or decrease in
the number of Performance Units payable based upon such Participant's Target
Performance Award, and will be based upon such factors as the Committee
determines in its sole discretion, but including the Target Performance Award
performance objectives.
In the event a Participant ceases employment during a Performance
Period, the Performance Unit Award is subject to forfeiture or payout as
follows: (a) Termination - the Performance Unit Award is completely forfeited;
(b) Retirement, Disability or death - payout of the Performance Unit Award is
prorated taking into account factors including, but not limited to, service and
the performance of the Participant during the portion of the Performance Period
before employment ceased; or (c) Early Retirement - if at the Participant's
request, the payout or forfeiture of the Performance Unit Award is determined at
the discretion of the Committee, or if at the Company's request, payout of the
Performance Unit Award is prorated taking into account factors including, but
not limited to, service and the performance of the Participant during the
portion of the Performance Period before employment ceased; provided, however,
that the Committee may modify the above if it determines in its sole discretion
that special circumstances warrant such modification.
D. FORM AND TIMING OF PAYMENT. Each Performance Unit is payable in
cash or shares of Stock or in a combination of cash and Stock, as determined by
the Committee in its sole discretion. Such payment will be made as soon as
practicable after the Earned Performance Award is determined.
10. STOCK APPRECIATION RIGHTS.
A. GRANTS OF STOCK APPRECIATION RIGHTS. Stock Appreciation Rights
may be granted under the Plan in conjunction
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with an Option either at the Date of Grant or by amendment or may be separately
granted. Stock Appreciation Rights will be subject to such terms and conditions
not inconsistent with the Plan as the Committee may impose.
B. RIGHT TO EXERCISE; EXERCISE PERIOD. A Stock Appreciation Right
issued pursuant to an Option will be exercisable to the extent the Option is
exercisable; both such Stock Appreciation Right and the Option to which it
relates will not be exercisable during the six months following their respective
Dates of Grant except in the event of the Participant's Disability or death. A
Stock Appreciation Right issued independent of an Option will be exercisable
pursuant to such terms and conditions established in the grant. Notwithstanding
such terms and conditions, in the event of a public tender for all or any
portion of the Stock or in the event that any proposal to merge or consolidate
the Company with another company is submitted to the stockholders of the Company
for a vote, the Committee, in its sole discretion, may declare any previously
granted Stock Appreciation Right immediately exercisable.
C. FAILURE TO EXERCISE. If on the last day of the Option Period, in
the case of a Stock Appreciation Right granted pursuant to an Option, or the
specified Exercise Period, in the case of a Stock Appreciation Right issued
independent of an Option, the Participant has not exercised a Stock Appreciation
Right, then such Stock Appreciation Right will be deemed to have been exercised
by the Participant on the last day of the Option Period or Exercise Period.
D. PAYMENT. An exercisable Stock Appreciation Right granted
pursuant to an Option will entitle the Participant to surrender unexercised the
Option or any portion thereof to which the Stock Appreciation Right is attached,
and to receive in exchange for the Stock Appreciation Right payment (in cash or
Stock or a combination thereof as described below) equal to either of the
following amounts, determined in the sole discretion of the Committee at the
Date of Grant: (1) the excess of the Fair Market Value of one share of Stock at
the date of exercise over the Option price, times the number of shares called
for by the Stock Appreciation Right (or portion thereof) which is so
surrendered, or (2) the excess of the Book Value of one share of Stock at the
date of exercise over the Book Value of one share of Stock at the Date of Grant
of the related Option, times the number of shares called for by the Stock
Appreciation Right. Upon exercise of a Stock Appreciation Right not granted
pursuant to an Option, the Participant will receive for each Stock Appreciation
Right payment (in cash or Stock or a combination thereof as described below)
equal to either of the following amounts, determined in the sole discretion of
the Committee at the Date of Grant: (1) the excess of the Fair Market Value of
one share of Stock at the date of exercise over the Fair Market Value of one
share of Stock at the Date of Grant of the Stock
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Appreciation Right, times the number of shares called for by the Stock
Appreciation Right, or (2) the excess of the Book Value of one share of Stock at
the date of exercise of the Stock Appreciation Right over the Book Value of one
share of Stock at the Date of Grant of the Stock Appreciation Right, times the
number of shares called for by the Stock Appreciation Right.
The Committee may direct the payment in settlement of the Stock
Appreciation Right to be in cash or Stock or a combination thereof.
Alternatively, the Committee may permit the Participant to elect to receive cash
in full or partial settlement of the Stock Appreciation Right, provided that (i)
the Committee must consent to or disapprove such election and (ii) unless the
Committee directs otherwise, the election and the exercise must be made during
the period beginning on the 3rd business day following the date of public
release of quarterly or year-end earnings and ending on the 12th business day
following the date of public release of quarterly or year-end earnings. The
value of the Stock to be received upon exercise of a Stock Appreciation Right
shall be the Fair Market Value of the Stock on the trading day preceding the
date on which the Stock Appreciation Right is exercised. To the extent that a
Stock Appreciation Right issued pursuant to an Option is exercised, such Option
shall be deemed to have been exercised, and shall not be deemed to have lapsed.
E. NONTRANSFERABLE. A Stock Appreciation Right will not be
transferable by the Participant except by Will or the laws of descent and
distribution and will be exercisable during the Participant's lifetime only by
the Participant or by the Participant's guardian or legal representative.
F. LAPSE OF A STOCK APPRECIATION RIGHT. A Stock Appreciation Right
will lapse upon the earlier of: (i) 10 years from the Date of Grant; or (ii) at
the expiration of the Exercise Period as set by the grant. If the Participant
ceases employment within the Exercise Period and prior to the lapse of the Stock
Appreciation Right, the Stock Appreciation Right will lapse as follows: (a)
Termination - the Stock Appreciation Right will lapse on the effective date of
the Termination; or (b) Retirement, Early Retirement, or Disability - the Stock
Appreciation Right will lapse at the expiration of the Exercise Period set by
the grant; provided, however, that the Committee may modify the above if it
determines in its sole discretion that special circumstances warrant such
modification. If the Participant dies within the Exercise Period and prior to
the lapse of the Stock Appreciation Right, the Stock Appreciation Right will
lapse at the expiration of the Exercise Period set by the grant unless it is
exercised before such time by the Participant's legal representative(s) or by
the person(s) entitled
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to do so under the Participant's Will or, if the Participant fails to make
testamentary disposition of the Stock Appreciation Right or dies intestate, by
the person(s) entitled to receive the Stock Appreciation Right under the
applicable laws of descent and distribution.
11. DIVIDEND EQUIVALENTS.
A. GRANTS OF DIVIDEND EQUIVALENTS. Dividend Equivalents may be
granted under the Plan in conjunction with an Option or a separately awarded
Stock Appreciation Right, at the Date of Grant or by amendment, without
consideration by the Participant. Dividend Equivalents may also be granted
under the Plan in conjunction with Performance Units, at any time during the
Performance Period, without consideration by the Participant. Dividend
Equivalents will be granted under a Performance-Based Restricted Stock Award in
conjunction with additional shares of Stock issued if Target Performance Award
performance objectives are exceeded.
B. PAYMENT. Each Dividend Equivalent will entitle the Participant
to receive an amount equal to the dividend actually paid with respect to a share
of Stock on each dividend payment date from the Date of Grant to the date the
Dividend Equivalent lapses as set forth in Section 11D. The Committee, in its
sole discretion, may direct the payment of such amount at such times and in such
form and manner as determined by the Committee.
C. NONTRANSFERABLE. A Dividend Equivalent will not be transferable
by the Participant.
D. LAPSE OF A DIVIDEND EQUIVALENT. Each Dividend Equivalent will
lapse on the earlier of (i) the date of the lapse of the related Option or Stock
Appreciation Right; (ii) the date of the exercise of the related Option or Stock
Appreciation Right; (iii) the end of the Performance Period (or if earlier, the
date the Participant ceases employment) of the related Performance Units or
Performance-Based Restricted Stock Award; or (iv) the lapse date established by
the Committee on the Date of Grant of the Dividend Equivalent.
12. ACCELERATED AWARD PAYOUT/EXERCISE.
A. CHANGE IN CONTROL. Notwithstanding anything in this Plan
document to the contrary, a Participant is entitled to an accelerated payout or
accelerated Option or Exercise Period (as set forth in Section 12B) with respect
to any previously granted Award, upon the happening of a change in control.
A change in control for purposes of this Section 12 means (i) the
purchase or acquisition by any person, entity or group of persons (within the
meaning of section 13(d) or 14(d) of the Exchange Act, or any comparable
successor provisions), of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20 percent or more of either the
outstanding shares of common stock of the Company or the combined voting power
of the Company's then outstanding
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shares of voting securities entitled to a vote generally, or (ii) the approval
by the stockholders of the Company of a reorganization, merger, or
consolidation, in each case, with respect to which persons who were stockholders
of the Company immediately prior to such reorganization, merger or consolidation
do not, immediately thereafter, own more than 50 percent of the combined voting
power entitled to vote generally in the election of directors of the
reorganized, merged or consolidated entity's then outstanding securities, or
(iii) a liquidation or dissolution of the Company or the sale of substantially
all of its assets, or (iv) a change of more than one-half of the members of the
Board within a 90-day period for reasons other than the death, disability, or
retirement of such members.
B. AMOUNT OF AWARD SUBJECT TO ACCELERATED PAYOUT/OPTION PERIOD/
EXERCISE PERIOD. The amount of a Participant's previously granted Award that
will be paid or exercisable upon the happening of a change in control will be
determined as follows:
RESTRICTED STOCK AWARDS. The Participant will be entitled to an
accelerated Award payout, and the amount of the payout will be based on the
number of shares of Restricted Stock that were issued on the Date of Grant,
prorated based on the number of months of the restriction period that have
elapsed as of the payout date. Also, with respect to Performance-Based
Restricted Stock Awards, in determining the amount of the payout, maximum
performance achievement will be assumed.
STOCK OPTION AWARDS AND STOCK APPRECIATION RIGHTS. Any previously granted
Stock Option Awards or Stock Appreciation Rights will be immediately
exercisable.
PERFORMANCE UNITS. The Participant will be entitled to an accelerated
Award payout, and the amount of the payout will be based on the number of
Performance Units subject to the Target Performance Award as established on
the Date of Grant, prorated based on the number of months of the
Performance Period that have elapsed as of the payout date, and assuming
that maximum performance was achieved.
C. TIMING OF ACCELERATED PAYOUT/OPTION PERIOD/EXERCISE PERIOD. The
accelerated payout set forth in Section 12B will be made within 30 days after
the date of the change in control. The accelerated Option Period/Exercise
Period set forth in Section 12B will begin on the date of the change in control.
If the original Award provided for a payout in Stock, any accelerated payout set
forth in Section 12B will be made in Stock.
13. AMENDMENT OF PLAN.
The Committee may at any time and from time to time alter, amend,
suspend or terminate the Plan in whole or in part, except (i) no such action may
be taken without stockholder
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approval which materially increases the benefits accruing to Participants
pursuant to the Plan, materially increases the number of securities which may be
issued pursuant to the Plan (except as provided in Section 14H), extends the
period for granting Options under the Plan or materially modifies the
requirements as to eligibility for participation in the Plan; and (ii) no such
action may be taken without the consent of the Participant to whom any Award was
previously granted, which adversely affects the rights of such Participant
concerning such Award, except as such termination or amendment of the Plan is
required by statute, or rules and regulations promulgated thereunder.
Notwithstanding the foregoing, the Committee may amend the Plan as desirable at
the discretion of the Committee to address any issues concerning (i) Section
162(m) of the Code, or (ii) maintaining an exemption under Rule 16b-3 of the
Exchange Act.
14. MISCELLANEOUS PROVISIONS.
A. NONTRANSFERABILITY. No benefit provided under this Plan shall be
subject to alienation or assignment by a Participant (or by any person entitled
to such benefit pursuant to the terms of this Plan), nor shall it be subject to
attachment or other legal process except (i) to the extent specifically mandated
and directed by applicable state or federal statute, and (ii) as requested by
the Participant (or by any person entitled to such benefit pursuant to the terms
of this Plan), and approved by the Committee, to satisfy income tax withholding.
B. NO EMPLOYMENT RIGHT. Participation in this Plan shall not
constitute a contract of employment between the Company or any Subsidiary and
any person and shall not be deemed to be consideration for, or a condition of,
continued employment of any person.
C. TAX WITHHOLDING. The Company or a Subsidiary may withhold any
applicable federal, state or local taxes at such time and upon such terms and
conditions as required by law or determined by the Company or a Subsidiary.
Subject to compliance with any requirements of applicable law, the Committee may
permit or require a Participant to have any portion of any withholding or other
taxes payable in respect to a distribution of Stock satisfied through the
payment of cash by the Participant to the Company or a Subsidiary, the retention
by the Company or a Subsidiary of shares of Stock, or delivery of previously
owned shares of the Participant's Stock, having a Fair Market Value equal to the
withholding amount. A Reporting Person may elect to have a sufficient number of
shares of Stock withheld to fulfill such withholding obligation (the
"Withholding Election") only if the election complies with the following
requirements: the Withholding Election is made (A) during the period beginning
on the third business day following the date of release for publication of the
quarterly or annual summary statements of the earnings of the Company [AND ITS
SUBSIDIARIES] and ending on the
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twelfth business day following such date, (B) six months before the Award
becomes taxable or (C) during any other period in which a Withholding Election
may be made under the provisions of Rule 16b-3 promulgated pursuant to the
Exchange Act. Any fractional share of Common Stock required to satisfy such
withholding obligations shall be disregarded and the amount due shall be paid in
cash by the Participant.
D. FRACTIONAL SHARES. Any fractional shares concerning Awards shall
be eliminated at the time of payment or payout by rounding down for fractions of
less than one-half and rounding up for fractions of equal to or more than one-
half. No cash settlements shall be made with respect to fractional shares
eliminated by rounding.
E. GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company
to make payment of Awards in Stock or otherwise shall be subject to all
applicable laws, rules, and regulations, and to such approvals by any government
agencies as may be required. The Company shall be under no obligation to
register under the Securities Act of 1933, as amended ("Act"), any of the shares
of Stock issued, delivered or paid in settlement under the Plan. If Stock
awarded under the Plan may in certain circumstances be exempt from registration
under the Act, the Company may restrict its transfer in such manner as it deems
advisable to ensure such exempt status.
F. INDEMNIFICATION. Each person who is or at any time serves as a
member of the Committee (and each person or Committee to whom the Committee or
any member thereof has delegated any of its authority or power under this Plan)
shall be indemnified and held harmless by the Company against and from (i) any
loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by such person in connection with or resulting from any claim, action,
suit, or proceeding to which such person may be a party or in which such person
may be involved by reason of any action or failure to act under the Plan; and
(ii) any and all amounts paid by such person in satisfaction of judgment in any
such action, suit, or proceeding relating to the Plan. Each person covered by
this indemnification shall give the Company an opportunity, at its own expense,
to handle and defend the same before such person undertakes to handle and defend
it on such person's own behalf. The foregoing right of indemnification shall
not be exclusive of any other rights of indemnification to which such persons
may be entitled under the Charter or By-Laws of the Company or any of its
Subsidiaries, as a matter of law, or otherwise, or any power that the Company
may have to indemnify such person or hold such person harmless.
G. RELIANCE ON REPORTS. Each member of the Committee (and each
person or Committee to whom the Committee or any member thereof has delegated
any of its authority or power under this Plan) shall be fully justified in
relying or acting in good faith upon any report made by the independent public
accountants of the
-16-
<PAGE>
Company and its Subsidiaries and upon any other information furnished in
connection with the Plan. In no event shall any person who is or shall have
been a member of the Committee be liable for any determination made or other
action taken or any omission to act in reliance upon any such report or
information or for any action taken, including the furnishing of information, or
failure to act, if in good faith.
H. CHANGES IN CAPITAL STRUCTURE. In the event of any change in the
outstanding shares of Stock by reason of any stock dividend or split,
recapitalization, combination or exchange of shares or other similar changes in
the Stock, then appropriate adjustments shall be made in the shares of Stock
theretofore awarded to the Participants and in the aggregate number of shares of
Stock which may be awarded pursuant to the Plan. Such adjustments shall be
conclusive and binding for all purposes. Additional shares of Stock issued to a
Participant as the result of any such change shall bear the same restrictions as
the shares of Stock to which they relate.
I. COMPANY SUCCESSORS. In the event the Company becomes a party to
a merger, consolidation, sale of substantially all of its assets or any other
corporate reorganization in which the Company will not be the surviving
corporation or in which the holders of the Stock will receive securities of
another corporation (in any such case, the "New Company"), then the New Company
shall assume the rights and obligations of the Company under this Plan.
J. GOVERNING LAW. All matters relating to the Plan or to Awards
granted hereunder shall be governed by the laws of the State of Maryland,
without regard to the principles of conflict of laws.
K. RELATIONSHIP TO OTHER BENEFITS. Any Awards under this Plan are
not considered compensation for purposes of determining benefits under any
pension, profit sharing, or other retirement or welfare plan, or for any other
general employee benefit program.
L. EXPENSES. The expenses of administering the Plan shall be borne
by the Company and its Subsidiaries.
M. TITLES AND HEADINGS. The titles and headings of the sections in
the Plan are for convenience of reference only, and in the event of any
conflict, the text of the Plan, rather than such titles or headings, shall
control.
-17-
<PAGE>
BGE SM
BALTIMORE GAS AND ELECTRIC COMPANY
P.O. BOX 1642, BALTIMORE, MARYLAND 21203-1642
PREFERENCE STOCK PROXY FOR SPECIAL MEETING OF SHAREHOLDERS - MARCH 15, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PLEASE VOTE AND SIGN ON REVERSE SIDE AND RETURN IN THE ENCLOSED ENVELOPE.
The undersigned appoints Jerome W. Geckle, George V. McGowan and Christian H.
Poindexter (or a majority of them or their substitutes, or one acting alone in
the absence of the others), as proxies, with power to each to appoint a
substitute and to revoke the appointment of such substitute, to vote all shares
of preference stock of Baltimore Gas and Electric Company (the Company) which
the undersigned is entitled to vote at the special meeting to be held on March
15, 1996, and at any adjournments thereof, in the manner specified on the
reverse side of this card with respect to the proposed merger with the Potomac
Electric Power Company (as set forth in the Notice of Special Meeting and Proxy
Statement).
SHARES REPRESENTED BY ALL PROPERLY EXECUTED PROXIES WILL BE VOTED AT THE SPECIAL
MEETING IN THE MANNER SPECIFIED. IF NO SPECIFICATION IS MADE, VOTES WILL BE
CAST "FOR" THE PROPOSED MERGER WITH POTOMAC ELECTRIC POWER COMPANY.
(OVER)
<PAGE>
A VOTE "FOR" THE PROPOSED MERGER WITH POTOMAC ELECTRIC
POWER COMPANY IS RECOMMENDED:
FOR AGAINST ABSTAIN
1. APPROVAL OF PROPOSED MERGER / / / / / /
WITH POTOMAC ELECTRIC POWER
COMPANY
/ / PLEASE CHECK THIS BOX IF YOU PLAN TO ATTEND THE SPECIAL MEETING.
________________________________________________________________________________
________________________________________________________________________________
Please sign below, exactly as name appears above. Joint owners should EACH
sign. Attorneys, executors, administrators, trustees and corporate officials
should give title or capacity in which they are signing.
Signature ___________________________________________Date _______________
Signature ___________________________________________Date _______________
BALTIMORE GAS AND ELECTRIC COMPANY
<PAGE>
BGE SM
BALTIMORE GAS AND ELECTRIC COMPANY
P.O. BOX 1642, BALTIMORE, MARYLAND 21203-1642
COMMON STOCK PROXY FOR SPECIAL MEETING OF SHAREHOLDERS - MARCH 15, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PLEASE VOTE AND SIGN ON REVERSE SIDE AND RETURN IN THE ENCLOSED ENVELOPE.
The undersigned appoints Jerome W. Geckle, George V. McGowan and Christian H.
Poindexter (or a majority of them or their substitutes, or one acting alone in
the absence of the others), as proxies, with power to each to appoint a
substitute and to revoke the appointment of such substitute, to vote all shares
of common stock of Baltimore Gas and Electric Company which the undersigned is
entitled to vote at the special meeting to be held on March 15, 1996, and at any
adjournments thereof, in the manner specified on the reverse side of this card
with respect to each item identified thereon (as set forth in the Notice of
Special Meeting and Proxy Statement), and in their discretion on any other
business as may properly come before the special meeting.
SHARES REPRESENTED BY ALL PROPERLY EXECUTED PROXIES WILL BE VOTED AT THE SPECIAL
MEETING IN THE MANNER SPECIFIED. IF NO SPECIFICATION IS MADE, VOTES WILL BE
CAST "FOR" ITEMS 1 AND 2 ON THE REVERSE OF THIS CARD.
(OVER)
<PAGE>
A VOTE "FOR" ITEMS 1 AND 2 IS RECOMMENDED:
FOR AGAINST ABSTAIN
1. APPROVAL OF PROPOSED MERGER / / / / / /
WITH POTOMAC ELECTRIC POWER
COMPANY
2. APPROVAL OF NEW COMPANY / / / / / /
LONG-TERM INCENTIVE PLAN
/ / PLEASE CHECK THIS BOX IF YOU PLAN TO ATTEND THE SPECIAL MEETING.
________________________________________________________________________________
________________________________________________________________________________
Please sign below, exactly as name appears above. Joint owners should EACH
sign. Attorneys, executors, administrators, trustees and corporate officials
should give title or capacity in which they are signing.
Signature ___________________________________________Date _______________
Signature ___________________________________________Date _______________
BALTIMORE GAS AND ELECTRIC COMPANY
<PAGE>
BGE SM
BALTIMORE GAS AND ELECTRIC COMPANY
P.O. BOX 1642, BALTIMORE, MARYLAND 21203-1642
PREFERRED STOCK PROXY FOR SPECIAL MEETING OF SHAREHOLDERS - MARCH 15, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PLEASE VOTE AND SIGN ON REVERSE SIDE AND RETURN IN THE ENCLOSED ENVELOPE.
The undersigned appoints Jerome W. Geckle, George V. McGowan and Christian H.
Poindexter (or a majority of them or their substitutes, or one acting alone in
the absence of the others), as proxies, with power to each to appoint a
substitute and to revoke the appointment of such substitute, to vote all shares
of preferred stock of Baltimore Gas and Electric Company (the Company) which the
undersigned is entitled to vote at the special meeting to be held on March 15,
1996, and at any adjournments thereof, in the manner specified on the reverse
side of this card with respect to the proposed merger with the Potomac Electric
Power Company (as set forth in the Notice of Special Meeting and Proxy
Statement).
SHARES REPRESENTED BY ALL PROPERLY EXECUTED PROXIES WILL BE VOTED AT THE SPECIAL
MEETING IN THE MANNER SPECIFIED. IF NO SPECIFICATION IS MADE, VOTES WILL BE
CAST "FOR" THE PROPOSED MERGER WITH POTOMAC ELECTRIC POWER COMPANY.
(OVER)
<PAGE>
A VOTE "FOR" THE PROPOSED MERGER WITH POTOMAC ELECTRIC
POWER COMPANY IS RECOMMENDED:
FOR AGAINST ABSTAIN
1. APPROVAL OF PROPOSED MERGER / / / / / /
WITH POTOMAC ELECTRIC POWER
COMPANY
/ / PLEASE CHECK THIS BOX IF YOU PLAN TO ATTEND THE SPECIAL MEETING.
________________________________________________________________________________
________________________________________________________________________________
Please sign below, exactly as name appears above. Joint owners should EACH
sign. Attorneys, executors, administrators, trustees and corporate officials
should give title or capacity in which they are signing.
Signature ___________________________________________Date _______________
Signature ___________________________________________Date _______________
BALTIMORE GAS AND ELECTRIC COMPANY
<PAGE>
Exhibit (12)-1
BALTIMORE GAS AND ELECTRIC COMPANY
<TABLE>
<CAPTION>
12 MONTHS YEAR ENDED DECEMBER 31,
ENDED -----------------------------------------------------
SEP 30-95 1994 1993 1992 1991 1990
----------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges (b) 3.16 3.14 3.00 2.65 2.27 1.78
Ratio of Earnings to Fixed Charges and Preferred
and Preference Stock Dividends Combined (b) 2.50 2.47 2.34 2.08 1.82 1.47
</TABLE>
1
<PAGE>
Exhibit (12)-2
POTOMAC ELECTRIC POWER COMPANY
<TABLE>
<CAPTION>
12 MONTHS YEAR ENDED DECEMBER 31,
ENDED -----------------------------------------------------
SEP 30-95 1994 1993 1992 1991 1990
----------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges (b).......... 1.54 2.37 2.31 2.19 2.23 2.14
Ratio of Earnings to Fixed Charges and Preferred
Stock Dividends Combined (b)................... 1.41 2.15 2.12 2.02 2.08 2.00
</TABLE>
1
<PAGE>
Exhibit (12)-3
CONSTELLATION ENERGY CORPORATION
<TABLE>
<CAPTION>
12 MONTHS YEAR ENDED DECEMBER 31,
ENDED -----------------------------------------------------
SEP 30-95 1994 1993 1992 1991 1990
----------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges (b) 2.29 2.74 2.64 2.41 2.25 1.95
Ratio of Earnings to Fixed Charges and
Preferred and Preference Stock Dividends
Combined (b) 1.95 2.32 2.24 2.05 1.94 1.71
1
</TABLE>
<PAGE>
Exhibit 15
December 6, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are aware that Baltimore Gas and Electric Company and Potomac Electric
Power Company have incorporated by reference our reports on the unaudited
financial statements of Potomac Electric Power Company dated May 1, 1995,
July 28, 1995 and October 30, 1995 (issued pursuant to the provisions of
Statement on Auditing Standards No. 71) in the Joint Proxy
Statement/Prospectus constituting part of this Registration Statement on Form
S-4 to be filed on or about December 6, 1995. We are also aware of our
responsibilities under the Securities Act of 1933.
Very truly yours,
PRICE WATERHOUSE LLP
Washington, D.C.
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Joint Proxy
Statement/Prospectus constituting part of this Registration Statement
on Form S-4 of Constellation Energy Corporation of our report dated January
26, 1995, which appears on page 31 of Potomac Electric Power Company's 1994
Annual Report to Shareholders, which is incorporated by reference in its
Annual Report on Form 10-K for the year ended December 31, 1994. We also
consent to the incorporation by reference of our report on the Consolidated
Financial Statement Schedule, which appears on page 48 of such Annual Report
on Form 10-K. We also consent to the reference to us under the heading
"Experts" in such Joint Proxy Statement/Prospectus.
PRICE WATERHOUSE LLP
Washington, D.C.
December 6, 1995
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PEPCO'S
SEPTEMBER 30, 1995 INTERIM CONSOLIDATED INCOME STATEMENT, BALANCE SHEET AND
STATEMENT OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,393,932
<OTHER-PROPERTY-AND-INVEST> 1,570,503
<TOTAL-CURRENT-ASSETS> 551,789
<TOTAL-DEFERRED-CHARGES> 563,932
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 7,030,156
<COMMON> 116,493
<CAPITAL-SURPLUS-PAID-IN> 1,010,556
<RETAINED-EARNINGS> 784,026
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,913,075
143,485
125,341
<LONG-TERM-DEBT-NET> 2,599,034
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 289,950
<LONG-TERM-DEBT-CURRENT-PORT> 397,873
0
<CAPITAL-LEASE-OBLIGATIONS> 165,771
<LEASES-CURRENT> 20,772
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,424,855
<TOT-CAPITALIZATION-AND-LIAB> 7,080,156
<GROSS-OPERATING-REVENUE> 1,574,037
<INCOME-TAX-EXPENSE> 43,541
<OTHER-OPERATING-EXPENSES> 1,282,364
<TOTAL-OPERATING-EXPENSES> 1,325,905
<OPERATING-INCOME-LOSS> 248,132
<OTHER-INCOME-NET> 9,326
<INCOME-BEFORE-INTEREST-EXPEN> 257,458
<TOTAL-INTEREST-EXPENSE> 172,321
<NET-INCOME> 85,137
12,675
<EARNINGS-AVAILABLE-FOR-COMM> 72,462
<COMMON-STOCK-DIVIDENDS> 147,316
<TOTAL-INTEREST-ON-BONDS> 128,500
<CASH-FLOW-OPERATIONS> 310,504
<EPS-PRIMARY> $.61
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEWCO'S
SEPTEMBER 30, 1995 PRO FORMA INTERIM CONSOLIDATED INCOME STATEMENT, BALANCE
SHEET AND STATEMENT OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 9,867,654
<OTHER-PROPERTY-AND-INVEST> 2,791,502
<TOTAL-CURRENT-ASSETS> 1,277,178
<TOTAL-DEFERRED-CHARGES> 1,267,407
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 15,203,741
<COMMON> 1,543,486
<CAPITAL-SURPLUS-PAID-IN> 1,010,556
<RETAINED-EARNINGS> 2,180,493
<TOTAL-COMMON-STOCKHOLDERS-EQ> 4,721,685
396,985
394,526
<LONG-TERM-DEBT-NET> 5,108,153
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 303,750
<LONG-TERM-DEBT-CURRENT-PORT> 726,919
87,500
<CAPITAL-LEASE-OBLIGATIONS> 165,771
<LEASES-CURRENT> 20,772
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,277,680
<TOT-CAPITALIZATION-AND-LIAB> 115,203,741
<GROSS-OPERATING-REVENUE> 3,783,124
<INCOME-TAX-EXPENSE> 186,844
<OTHER-OPERATING-EXPENSES> 2,922,565
<TOTAL-OPERATING-EXPENSES> 3,109,409
<OPERATING-INCOME-LOSS> 673,715
<OTHER-INCOME-NET> 17,276
<INCOME-BEFORE-INTEREST-EXPEN> 690,991
<TOTAL-INTEREST-EXPENSE> 320,776
<NET-INCOME> 370,215
42,810
<EARNINGS-AVAILABLE-FOR-COMM> 327,405
<COMMON-STOCK-DIVIDENDS> 316,972
<TOTAL-INTEREST-ON-BONDS> 294,246
<CASH-FLOW-OPERATIONS> 840,961
<EPS-PRIMARY> $1.23
<EPS-DILUTED> $1.23
</TABLE>
<PAGE>
CHARLES CENTER P.O. BOX 1642
BALTIMORE, MARYLAND 21203-1642
Thank you for your returned proxy. However, we could not vote your shares
because your proxy was not signed.
We would appreciate your signing and returning the proxy in the enclosed
envelope.
Thank you
Shareholder Services
<PAGE>
BALTIMORE GAS AND ELECTRIC COMPANY
EMPLOYEE SAVINGS PLAN
T. Rowe Price Retirement Plan Services, Inc., Trustee of the Employee
Savings Plan, has not received a Voting Instructions card for the shares that
you hold in the Plan. The Trustee is not permitted to vote shares of common
stock unless Voting Instructions have been received.
We appreciate the support of our shareholders and encourage you to vote
your Employee Savings Plan shares, regardless of the size of your holdings. We
have, therefore, enclosed a second Voting Instructions card so that you can vote
your shares. Whether or not you plan to attend the meeting, we would appreciate
your completing the Voting Instructions card and returning it to the Trustee in
the envelope provided by March 8, 1996.
Our initial mailing to you included a notice of special meeting and proxy
statement. If you would like to receive a duplicate copy of this information,
please contact one of our shareholder representatives in metropolitan Baltimore
at 783-5920, within Maryland at 1-800-492-2861, outside Maryland at 1-800-258-
0499, or TTY/TTD at 1-800-492-5539.
D.L. Featherstone
Plan Administrator
<PAGE>
CHRISTIAN H. POINDEXTER BALTIMORE GAS AND ELECTRIC COMPANY
CHAIRMAN OF THE BOARD P.O. BOX 1475
AND CHIEF EXECUTIVE OFFICER BALTIMORE, MARYLAND 21203
February 23, 1996
Dear Shareholder:
As of February 20, 1996, we had not received your proxy for the the special
shareholders meeting to be held March 15.
We appreciate the support of our shareholders and encourage you to vote your
proxy, regardless of the size of your holdings. We have, therefore, enclosed a
second proxy so that you can vote your shares. We would appreciate your
executing the proxy and returning it promptly to assure that your vote will be
counted at the meeting.
Our initial mailing to you also included a notice of special meeting and proxy
statement. If you would like to receive a duplicate copy of this information,
simply contact one of our shareholder representatives in metropolitan Baltimore
at 783-5920, within Maryland at 1-800-492-2861, outside Maryland at 1-800-258-
0499, or TTY/TDD at 1-800-492-5539.
Sincerely,
Chairman of the Board
Enclosures
<PAGE>
BGE SM
SPECIAL MEETING OF SHAREHOLDERS
MARCH 15, 1996, 10:00 A.M.
GAS AND ELECTRIC BUILDING - SECOND FLOOR
Lexington and Liberty Street, Baltimore, Maryland 21201
IF YOU PLAN TO ATTEND THE MEETING, PLEASE MARK THE BOX PROVIDED ON YOUR
PROXY. ADMISSION TICKETS ARE NOT REQUIRED FOR ENTRANCE TO THE MEETING. The Gas
and Electric Building is handicapped-accessible. We want to make every
reasonable effort to accommodate shareholders with special needs relating to:
(1) access to the meeting facilities; or (2) their ability to participate in the
meeting. If you need special accommodations, please fill out and return this
card with your proxy. We will contact you promptly to let you know what
arrangement, if any, we are able to make.
Name: ________________________________ Daytime Phone #: ________________
General Nature of Accommodation Requested: _______________________________
___________________________________________________________________________
If you have any questions, please call us between 8:00 a.m. and 4:45 p.m.
in metropolitan Baltimore at 783-5920, within Maryland at 1-800-492-2861,
outside Maryland at 1-800-258-0499, or TTY/TDD at 1-800-492-5539.
<PAGE>
CONFIDENTIAL VOTING INSTRUCTIONS TO TRUSTEE
PLEASE VOTE AND SIGN ON REVERSE SIDE AND RETURN IN THE ENCLOSED ENVELOPE
THESE VOTING INSTRUCTIONS ARE REQUESTED IN CONJUNCTION WITH A PROXY
SOLICITATION BY THE BOARD OF DIRECTORS OF
BALTIMORE GAS AND ELECTRIC COMPANY.
TO: T. ROWE PRICE RETIREMENT PLAN SERVICES, INCORPORATED AS TRUSTEE UNDER THE
BALTIMORE GAS AND ELECTRIC COMPANY EMPLOYEE SAVINGS PLAN
I hereby instruct T. Rowe Price Retirement Plan Services, Incorporated, as
Trustee under the Baltimore Gas and Electric Company Employee Savings Plan
(Plan), to vote, in person or by proxy, all shares of common stock of Baltimore
Gas and Electric Company (Company) allocated to me under the Plan at the special
meeting of the shareholders of the Company to be held on March 15, 1996, and at
any adjournments thereof, in the manner specified on the reverse side of this
form with respect to each item identified thereon (as set forth in the Notice of
Special Meeting and Proxy Statement), and in its discretion on any other
business as may properly come before the special meeting.
The Trustee will vote the shares represented by this voting instructions card if
properly signed and received by March 8, 1996. IF NO INSTRUCTIONS ARE SPECIFIED
ON A SIGNED CARD, THE SHARES REPRESENTED THEREBY WILL BE VOTED IN ACCORDANCE
WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF THE COMPANY: "FOR" ITEMS 1
AND 2. The Trustee is not permitted under the Plan to vote shares of common
stock unless voting instructions have been received.
(over)
<PAGE>
PLEASE MARK YOUR CHOICE LIKE THIS [ ] IN DARK INK.
A VOTE "FOR" ITEMS 1 AND 2 IS RECOMMENDED:
FOR AGAINST ABSTAIN
1. APPROVAL OF PROPOSED MERGER / / / / / /
WITH POTOMAC ELECTRIC POWER
COMPANY
2 APPROVAL OF NEW COMPANY / / / / / /
LONG-TERM INCENTIVE PLAN
Please sign below, exactly as your name appears on the reverse of this form.
Signature ___________________________________________Date _______________
BALTIMORE GAS AND ELECTRIC COMPANY
<PAGE>
BALTIMORE GAS AND ELECTRIC COMPANY
TO PARTICIPANTS IN THE
EMPLOYEE SAVINGS PLAN (THE PLAN)
The enclosed Notice of Special Meeting of Shareholders, Proxy Statement,
and Voting Instructions for the Special Meeting of Shareholders of the Company,
to be held on March 15, 1996, are being furnished to you by BGE on behalf of T.
Rowe Price Retirement Plan Services, Inc., Trustee under the Plan.
In accordance with the Plan and the Trust Agreement between BGE and the
Trustee, you may instruct the Trustee how to vote the shares of common stock
held for you under the Plan. Therefore, please complete the enclosed Voting
Instructions and return it in the accompanying envelope by March 8, 1996. After
receipt of the properly executed Voting Instructions, the Trustee will vote as
directed by those instructions. The Trustee is not permitted to vote shares of
common stock unless Voting Instructions have been received.
Each participant in the Plan who is a holder of record of other shares of
BGE stock will continue to receive, separately, a proxy and accompanying proxy
material to vote the shares of common stock registered in his or her name.
D.L. Featherstone
Plan Administrator
<PAGE>
POTOMAC ELECTRIC POWER COMPANY
1900 Pennsylvania Avenue, N.W.
Washington, D.C. 20068
PEPCO Special Meeting of Shareholders -- ________, 1996 PROXY
The undersigned hereby appoints EDWARD F. MITCHELL, H. LOWELL DAVIS and JOHN M.
DERRICK, JR., and each of them, proxies of the undersigned, with power of
substitution, to attend the Special Meeting of Shareholders to be held on
________________, 1996 at 10 a.m. at ___________________, Washington, D.C., and
all adjournments thereof, and thereat to vote all shares of Common Stock of the
Company that the undersigned would be entitled to vote if personally present on
matters set forth in the Proxy Statement and to transact such other business
incident to the conduct of the Special Meeting as may properly come before the
Special Meeting. Unless indicated to the contrary, this Proxy shall be deemed
to grant authority to vote FOR Items 1 and 2.
This Proxy is solicited on behalf of
the Board of Directors of Potomac Electric Power Company
Continued on reverse side
<PAGE>
PEPCO COMMON STOCK PROXY
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1 AND 2 BELOW.
FOR AGAINST ABSTAIN
1. Approval of the Agreement and Plan of
Merger. . . . . . . . . . . . . . . / / / / / /
2. Approval of Long-Term Incentive Plan
of Constellation Energy Corporation . / / / / / /
ACCOUNT NO.
Sign here
as name x____________________________ (L.S.)
appears
above x____________________________ (L.S.) Date___________, 1996
Attorneys, executors, administrators, trustees and corporate officials should
indicate the capacity in which they are signing. Shares held in the Shareholder
Dividend Reinvestment Plan are voted on this Proxy.
<PAGE>
POTOMAC ELECTRIC POWER COMPANY
1900 Pennsylvania Avenue, N.W.
Washington, D.C. 20068
PEPCO Special Meeting of Shareholders -- ________, 1996 PROXY
The undersigned hereby appoints EDWARD F. MITCHELL, H. LOWELL DAVIS and JOHN M.
DERRICK, JR., and each of them, proxies of the undersigned, with power of
substitution, to attend the Special Meeting of Shareholders to be held on
________________, 1996 at 10 a.m. at ___________________, Washington, D.C., and
all adjournments thereof, and thereat to vote all shares of Common Stock of the
Company that the undersigned would be entitled to vote if personally present on
matters set forth in the Proxy Statement and to transact such other business
incident to the conduct of the Special Meeting as may properly come before the
Special Meeting. Unless indicated to the contrary, this Proxy shall be deemed
to grant authority to vote FOR Item 1.
This Proxy is solicited on behalf of
the Board of Directors of Potomac Electric Power Company
Continued on reverse side
<PAGE>
PEPCO SERIAL PREFERRED STOCK PROXY
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 1 BELOW.
FOR AGAINST ABSTAIN
1. Approval of the Agreement and Plan of
Merger. . . . . . . . . . . . . . . / / / / / /
ACCOUNT NO.
Sign here
as name x____________________________ (L.S.)
appears
above x____________________________ (L.S.) Date___________, 1996
Attorneys, executors, administrators, trustees and corporate officials should
indicate the capacity in which they are signing.
<PAGE>
Exhibit (99)-3
CONSENT OF CHRISTIAN H. POINDEXTER
In accordance with Rule 438 under the Securities Act of 1933, I hereby
consent to be named as a person to become a director of Constellation Energy
Corporation in the Joint Proxy Statement/ Prospectus, which is part of a
Registration Statement on Form S-4 to be filed with the Securities and Exchange
Commission on or about December 5, 1995.
/s/ Christian H. Poindexter
------------------------------------------------------------------
Christian H. Poindexter
December 5, 1995
Baltimore, Maryland
<PAGE>
Exhibit (99)-4
CONSENT OF EDWARD F. MITCHELL
In accordance with Rule 438 under the Securities Act of 1933, I hereby
consent to be named as a person to become a director of Constellation Energy
Corporation in the Joint Proxy Statement/ Prospectus, which is part of a
Registration Statement on Form S-4 to be filed with the Securities and Exchange
Commission on or about December 6, 1995.
/s/ Edward F. Mitchell
--------------------------------------------------------------
Edward F. Mitchell
December 6, 1995
Washington, D.C.
<PAGE>
Exhibit (99)-5
CONSENT OF JOHN M. DERRICK, JR.
In accordance with Rule 438 under the Securities Act of 1933, I hereby
consent to be named as a person to become a director of Constellation Energy
Corporation in the Joint Proxy Statement/ Prospectus, which is part of a
Registration Statement on Form S-4 to be filed with the Securities and Exchange
Commission on or about December 6, 1995.
/s/ John M. Derrick, Jr.
---------------------------------------------------------------
John M. Derrick, Jr.
December 4, 1995
Washington, D.C.
<PAGE>
Exhibit (99)-6
CONSENT OF EDWARD A. CROOKE
In accordance with Rule 438 under the Securities Act of 1933, I hereby
consent to be named as a person to become a director of Constellation Energy
Corporation in the Joint Proxy Statement/ Prospectus, which is part of a
Registration Statement on Form S-4 to be filed with the Securities and Exchange
Commission on or about December 5, 1995.
/s/ Edward A. Crooke
-------------------------------------------------------------
Edward A. Crooke
December 5, 1995
Baltimore, Maryland
