SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) September 22, 1995
POTOMAC ELECTRIC POWER COMPANY
(Exact name of registrant as specified in its charter)
District of Columbia and Virginia 1-1072 53-0127880
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation) File Number) Identification No.)
1900 Pennsylvania Avenue, N. W., Washington, D. C. 20068
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (202) 872-3526
(Former Name or Former Address, if Changed Since Last Report)
PEPCO
Form 8-K
Item 5. Other Events.
Merger Agreement With Baltimore Gas And Electric Company
Potomac Electric Power Company, a District of Columbia and Virginia
corporation ("PEPCO"), Baltimore Gas and Electric Company, a Maryland
corporation ("BGE"), and RH Acquisition Corp., a Maryland corporation (the
"Company"), have entered into an Agreement and Plan of Merger, dated as of
September 22, 1995 (the "Merger Agreement"), which provides for a strategic
business combination of PEPCO and BGE in a merger transaction (the
"Transaction"). The Transaction, which was unanimously approved by the Boards
of Directors of the constituent companies, is expected to close shortly after
all of the conditions to the consummation of the Transaction, including
obtaining applicable regulatory approvals, are met or waived. The regulatory
approval process is expected to take approximately 12 to 18 months.
The Merger Agreement, the press release, dated September 25, 1995, issued
in connection therewith and the related Stock Option Agreements (defined
below) are filed as exhibits to this report and are incorporated herein by
reference. The descriptions of the Merger Agreement and the Stock Option
Agreements set forth herein do not purport to be complete and are qualified in
their entirety by the provisions of the Merger Agreement and the Stock Option
Agreement, as the case may be.
Under the terms of the Merger Agreement, PEPCO and BGE each will be
merged with and into the Company, with the Company being the surviving
corporation. The Company, which currently is incorporated in the State of
Maryland, also will be incorporated under the laws of the Commonwealth of
Virginia at or prior to the time of the merger. The name of the Company will
be changed prior to closing to a name agreed upon by the Boards of Directors
of PEPCO and BGE. The utility businesses of PEPCO and BGE will be combined
into an integrated, non-holding company structure. The non-utility operations
of both companies will be combined, as appropriate, as subsidiaries of the
Company.
Each outstanding share of common stock, par value $1.00 per share, of
PEPCO will be converted into the right to receive 0.997 shares of common
stock, no par value per share, of the Company ("Company Common Stock"). Each
outstanding share of BGE common stock, no par value per share, will be
converted into the right to receive one share of Company Common Stock. As of
August 31, 1995, PEPCO had approximately 118.5 million common shares
outstanding and BGE had approximately 147.5 million shares of common stock
outstanding. Based on such capitalization, the Transaction would result in
the common shareholders of PEPCO receiving 44.5% of the common equity of the
Company and the common shareholders of BGE receiving the 55.5% of the common
equity of the Company. Each outstanding share of Serial Preferred Stock, par
value $50.00 per share, of PEPCO will be converted into the right to receive
one share of Series B Preferred Stock, par value $50.00 per share, of the
Company with identical rights (including dividend rights) and designations.
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PEPCO
Form 8-K
Each outstanding share of BGE Preferred Stock, par value $100.00 per share,
likewise will be converted into the right to receive one share of Series A
Preferred Stock, par value $100.00 per share, of the Company with identical
rights (including dividend rights) and designations. Each outstanding share
of BGE Preference Stock, par value $100.00 per share, will be converted into
the right to receive one share of Company Preference Stock, par value $100.00
per share, with identical rights (including dividend rights) and designations.
It is anticipated that the Company will adopt BGE's dividend policy and
that the annual dividend rate as of the expected 1997 closing date will be
$1.67 per share. PEPCO currently pays $1.66 per share annually, and BGE's
annual dividend rate currently is $1.56 per share.
The Transaction is subject to customary closing conditions, including,
without limitation, the receipt of required shareholder approvals of PEPCO and
BGE, the receipt of all necessary governmental approvals and the making of all
necessary governmental filings, including approvals of utility regulators in
the District of Columbia, Maryland and certain other states, the approval of
the Federal Energy Regulatory Commission and the Nuclear Regulatory
Commission, 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, and the expiration of the
applicable waiting period thereunder. The Transaction also is subject to the
receipt of opinions of counsel that the Transaction will qualify as a tax-free
reorganization and assurances from the parties' independent accountants that
the Transaction will qualify as a pooling-of-interests for accounting
purposes. In addition, the Transaction is conditioned upon the effectiveness
of a combined registration statement and proxy statement to be filed by PEPCO,
BGE and the Company with the Securities and Exchange Commission with respect
to shares of Company Common Stock to be issued in the Transaction and the
special stockholder meetings, and upon the approval of the Company Common
Stock for listing on the New York Stock Exchange. (See Article VIII of the
Merger Agreement.) The special meetings of the stockholders of PEPCO and BGE
to vote on the Transaction will be convened as soon as practicable and are
expected to be held in the first quarter of 1996.
The Merger Agreement contains certain covenants concerning the activities
of the parties pending the consummation of the Transaction. Generally, each
of PEPCO and BGE must carry on its business in the ordinary course consistent
with past practice, except as otherwise permitted in accordance with a
financial plan provided to the other party, and may not increase dividends on
common stock beyond the indicated dividend rate for the Company. The Merger
Agreement also contains restrictions on, among other things, the issuance of
capital stock, charter and bylaw amendments, capital expenditures,
acquisitions, dispositions, incurrence of indebtedness and certain increases
in employee compensation and benefits. (See Article VI of the Merger
Agreement.)
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PEPCO
Form 8-K
The Merger Agreement provides that, after the effectiveness of the
Transaction (the "Effective Time"), the corporate headquarters and principal
executive offices of the Company will be located in the Annapolis, Maryland
area, but that the Company also will maintain significant operations in the
District of Columbia and Maryland. The Company's Board of Directors, which
will be divided into three classes, will consist of a total of 16 directors,
seven of whom will be designated by PEPCO and nine of whom will be designated
by BGE. Mr. Edward F. Mitchell, the current Chairman of the Board and Chief
Executive Officer ("CEO") of PEPCO, will serve as Chairman of the Board of the
Company at the Effective Time and for a period of one year thereafter. Mr.
Christian H. Poindexter, the current Chairman of the Board and CEO of BGE,
will serve as CEO of the Company. When Mr. Mitchell ceases to be Chairman,
Mr. Poindexter will assume the additional role of Chairman. Mr. John M.
Derrick, Jr., the current President of PEPCO, will serve as President and
Chief Operating Officer of the Company. Mr. Edward A. Crooke, BGE's current
President, will serve as the Company's Vice Chairman and as Chairman of the
Board of the Company's non-regulated subsidiaries.
The Merger Agreement may be terminated under certain circumstances,
including (1) by mutual consent of PEPCO and BGE; (2) by either PEPCO or BGE
if the Transaction 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 Transaction, other than the receipt of certain
statutory approvals, are capable of being satisfied on March 31, 1997); (3) by
either PEPCO or BGE if either PEPCO's or BGE's shareholders vote against the
Transaction or if any state or federal law or court order prohibits the
Transaction; (4) by a non-breaching party if there exists a breach of any
material representation, warranty or covenant contained in the Merger
Agreement which is not cured within twenty (20) days after notice from the
other party; (5) by either PEPCO or BGE if the Board of Directors of the other
shall withdraw or adversely modify its recommendation of the Transaction; or
(6) by either PEPCO or BGE, under certain circumstances, as a result of a
third-party tender offer or business combination proposal which the Board of
Directors of such party in good faith and pursuant to the exercise by the
Board of Directors of its fiduciary duties determines to accept, 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 Transaction to proceed.
The Merger Agreement provides that if a breach described in clause (4) of
the previous paragraph occurs, the breaching party must pay the non-breaching
party, as liquidated damages, $10 million in cash in respect of out-of-pocket
expenses. The Merger Agreement also requires payment of a termination fee of
$75 million in cash, plus $10 million in respect of out-of-pocket expenses, by
one party (the "Payor") to the other if (i) the Merger Agreement is terminated
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PEPCO
Form 8-K
(x) as a result of the acceptance by the Payor of a third-party tender offer
or business combination proposal, (y) following a failure of the shareholders
of the Payor to approve the Transaction or (z) as a result of a material
failure of the Payor (other than pursuant to the exercise by the Board of
Directors of its fiduciary duties) to convene a special shareholder meeting,
distribute proxy materials or recommend the Transaction to its shareholders;
and (ii) at the time of such termination or prior to the meeting of the
Payor's shareholders there shall have been a third-party tender offer or
business combination proposal which shall not have been rejected by the Payor
and withdrawn by such third party. In addition, if either PEPCO or BGE
terminates the Merger Agreement after the Board of Directors of the other
party withdraws or adversely modifies its recommendation of the Transaction, a
termination fee of $75 million, plus $10 million in respect of out-of-pocket
expenses, is payable to the party that terminates the Merger Agreement. The
termination fees payable by PEPCO or BGE under these provisions and the
aggregate amount which could be payable by PEPCO or BGE upon a required
repurchase of the options granted pursuant to the Stock Options Agreements may
not exceed $125 million in the aggregate. (See Article IX of the Merger
Agreement.)
Concurrently with the Merger Agreement, PEPCO and BGE have entered into
reciprocal stock option agreements (the "Stock Option Agreements"), each
granting the other an irrevocable option to purchase up to that number of
shares of common stock of the other company which equals 19.9% of the number
of shares of common stock of the other company outstanding on August 31, 1995,
at an exercise price of $21.225 per share of PEPCO common stock, in the case
of the PEPCO option, or $25.925 per share of BGE common stock, in the case of
the BGE option, if any of the circumstances which trigger the $75 million
payment occur. The issuance of any stock upon the exercise of either Stock
Option Agreement is subject to regulatory approval. If either of the options
becomes exercisable, the party holding the option (the "Exercising Party") may
require that the other party repurchase from the Exercising Party all or any
portion of the option, or any shares of common stock acquired upon the
exercise thereof, at the price specified in the applicable Stock Option
Agreement. (See the Stock Option Agreements).
The Company is expected to be one of the ten largest electric utility
companies in the United States. For the year ended December 31, 1994, the
combined revenues of PEPCO and BGE were approximately $4.8 billion, and the
combined total assets were approximately $15.1 billion. The Company will
serve approximately 1.8 million electric customers and over 530,000 natural
gas customers.
A preliminary estimate indicates that the Transaction will result in net
savings of approximately $1.3 billion in costs over 10 years. The allocation
of the net savings between ratepayers and shareholders of the Company will be
determined by various regulatory agencies.
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PEPCO
Form 8-K
Item 7. Financial Statements and Exhibits.
(c) Exhibits
Exhibit No. Description of Exhibit Reference
2-1 Agreement and Plan of
Merger dated as of
September 22, 1995 (1)...........Filed herewith.
2-2 Pepco Stock Option
Agreement dated as of
September 22, 1995...............Filed herewith.
2-3 BGE Stock Option Agreement
dated as of September 22, 1995...Filed herewith.
99 News Release of Potomac
Electric Power Company and
Baltimore Gas and Electric
Company dated September 25,
1995.............................Filed herewith.
(1) The registrant agrees to furnish supplementally any omitted exhibits or
schedules to the Commission upon request.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Potomac Electric Power Company
(Registrant)
/s/ H. Lowell Davis
By ___________________________
H. Lowell Davis
Vice Chairman and
Chief Financial Officer
September 26, 1995
DATE
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 RH
Acquisition Corp., 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
<PAGE>
Agreement, at the Effective Time, each of BGE and PEPCO shall be merged
with and into 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
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<PAGE>
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.
(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
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<PAGE>
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 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
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<PAGE>
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:
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
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<PAGE>
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 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
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<PAGE>
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 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
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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 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
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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 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
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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.
(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.
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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.
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
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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, cancellation 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, cancellation 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, 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
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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.
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
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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 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
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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
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
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(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.
(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),
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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
(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
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(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 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,
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(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).
(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),
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(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 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
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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) 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,
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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;
(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
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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.
(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
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(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.
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
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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).
(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
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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, 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
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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.
(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.
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<PAGE>
(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 Statutory Approvals (as defined in Section
5.4(c), to consummate the transactions contemplated hereby and thereby.
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(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, 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
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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
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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.
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
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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.
(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
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(1) there are no other employment or severance
contracts covering current or former employees of BGE below the level of
officer 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 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.
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(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.
(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.
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(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:
(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
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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 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
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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).
(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
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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 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
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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,
(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
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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.
(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
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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.
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
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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
(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
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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.
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
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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.
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.
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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
(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
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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 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
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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 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
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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.
(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
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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.
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
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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,
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
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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
(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,
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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.
(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
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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
(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
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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 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.
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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 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
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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; (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
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(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
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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.
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:
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(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;
(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;
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(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, 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 adjustments in the
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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,
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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 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.
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<PAGE>
(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 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
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<PAGE>
(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
(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
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<PAGE>
receipt confirmed), or (d) five days after being mailed by registered or
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,
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<PAGE>
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
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.
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<PAGE>
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.
(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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<PAGE>
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: /s/ Christian H. Poindexter
Name: Christian H. Poindexter
Title: Chief Executive Officer
POTOMAC ELECTRIC POWER COMPANY
By: /s/ Edward F. Mitchell
Name: Edward F. Mitchell
Title: Chairman of the Board and
Chief Executive Officer
RH ACQUISITION CORP.
By: /s/ Stephen Rusmisel
Name: Stephen Rusmisel
Title: Director
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<PAGE>
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
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<PAGE>
AGREEMENT AND PLAN
OF MERGER
by and among
BALTIMORE GAS AND ELECTRIC COMPANY,
POTOMAC ELECTRIC POWER COMPANY,
and
RH ACQUISITION CORP.
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
<PAGE>
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
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
<PAGE>
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
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
<PAGE>
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
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
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 RH Acquisition Corp., 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:
1. 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
<PAGE>
$21.225 (which is equal to the Fair Market Value (as defined
below) of a PEPCO Share as of the date hereof).
(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.
2. 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.
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<PAGE>
(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 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.
3. 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;
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(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
(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.
4. 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.
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(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.
5. 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");
(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,
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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));
(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
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(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;
(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
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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 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
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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.
(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
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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.
(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
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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
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(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; 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.
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(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 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.
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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 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
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<PAGE>
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, 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
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<PAGE>
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
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
-16-
<PAGE>
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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<PAGE>
(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
/S/ Edward F. Mitchell
By:_______________________________
Name: Edward F. Mitchell
Title: Chairman of the Board
and Chief Executive
Officer
BALTIMORE GAS AND ELECTRIC COMPANY
/s/ Christian H. Poindexter
By:_______________________________
Name: Christian H. Poindexter
Title: Chief Executive Officer
-19-
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 RH Acquisition Corp., 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:
1. 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,
<PAGE
at a price (the "Exercise Price") per BGE Share of $25.925 (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.
2. 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.
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<PAGE>
(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
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.
3. 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;
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<PAGE>
(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 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.
4. 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.
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<PAGE>
(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.
5. 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 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,
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<PAGE>
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
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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<PAGE>
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,
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<PAGE>
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 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.
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<PAGE>
(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.
(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
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<PAGE>
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.
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-
<PAGE>
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
(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.
-11-
<PAGE>
(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; 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.
-12-
<PAGE>
(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.
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,
-13-
<PAGE>
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.
(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
-14-
<PAGE>
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
-15-
<PAGE>
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 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
Fax: (410) 234-5690
-16-
<PAGE>
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:
-17-
<PAGE>
(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.
-18-
<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
/S/ Edward F. Mitchell
By:________________________
Name: Edward F. Mitchell
Title: Chairman of the Board
and Chief Executive
Officer
BALTIMORE GAS AND ELECTRIC COMPANY
/s/ Christian H. Poindexter
By:________________________
Name: Christian H. Poindexter
Title: Chief Executive Officer
-19-
BGE PEPCO
Potomac Electric Power Company
==============================================================================
NEWS RELEASE
==============================================================================
MEDIA CONTACT:
Jo-Anne Sinnott-(212) 880-5330
Maria Gonzalez (Cellular)-(203) 554-7491
Ogilvy Adams & Rinehart
Arthur J. Slusark - (410) 234-7436
Baltimore Gas and Electric Company
Tom Welle - (202) 872-2680
Potomac Electric Power Company
BGE AND PEPCO COMBINE TO FORM $15 BILLION COMPANY
Largest Combination of Two Electric Utility Companies To Date
ANNAPOLIS, MARYLAND, September 25, 1995 -- In a joint statement today,
Christian H. Poindexter, Chairman of the Board and CEO of Baltimore Gas and
Electric Company (NYSE: BGE), and Edward F. Mitchell, Chairman of the Board
and CEO of Potomac Electric Power Company (NYSE: POM), announced that their
respective Boards of Directors have unanimously approved a strategic business
combination of the two companies. This merger will create a regional energy
company with customers in Maryland and Washington, D.C. The new company will
be one of the ten largest electric utility companies in the United States,
serving a population of 4.5 million with 1.8 million electric customers and
over 530,000 gas customers. The transaction will create a new company with
assets exceeding $15 billion and annual revenues of approximately $5 billion.
Mr. Poindexter, who will serve as CEO of the new combined company,
stated that "with the challenges facing the energy industry today, this
combination creates a larger, stronger company that allows us to compete in a
way neither of our companies could do alone. We will be able to provide
service at a lower cost than would otherwise be possible."
1
<PAGE>
Mr. Mitchell, who will serve as Chairman of the Board of the new
company, added "this merger combines two financially strong, low-cost energy
providers with common values and strategies and highly compatible operations
and management. In this competitive world the low-cost producers will be the
winners. We intend to be a winner."
The agreement calls for shareholders of Baltimore Gas and Electric
Company to receive one share of stock in the new company for each share of BGE
common stock owned. Holders of Potomac Electric Power Company common stock
will receive 0.997 share of stock in the new company for each share of PEPCO
stock owned. This exchange ratio approximates a 20% premium to the average
PEPCO trading price over the previous week's level. BGE and PEPCO currently
have 148 million and 118 million common shares outstanding, respectively.
DIVIDEND POLICY
The new company will adopt BGE's dividend policy. The annual dividend
at the expected 1997 closing date will be $1.67 per share. This compares to
BGE's current $1.56 dividend and PEPCO's current annual dividend of $1.66.
The new company's dividend strategy is consistent with BGE's current
dividend payout ratio goal of approximately 70%. The dividend at closing will
be 7% greater than BGE's current dividend. Both companies' shareholders are
expected to benefit over time from a strategy of dividend growth.
NEW COMPANY MANAGEMENT
The new company's management team will combine the talents of seasoned
executives from both companies. Mr. Mitchell, PEPCO's Chairman and CEO, will
be Chairman of the new company's Board of Directors following the completion
of the merger. Mr. Poindexter, BGE's Chairman and CEO, will be the CEO of the
new company and will succeed Mr. Mitchell as Chairman of the Board one year
after the merger takes place. BGE's President, Edward A. Crooke, will be Vice
2
<PAGE>
Chairman of the new company and will be Chairman of the Board of non-regulated
subsidiaries. Mr. Crooke will also be responsible for the new company's
strategic planning efforts and new business initiatives. John M. Derrick,
Jr., PEPCO's President, will be President and COO of the new company and will
be responsible for the day-to-day operations of the company's utility
business. The new company's Board of Directors will consist of 16 members,
with 9 being appointed from BGE's current Board and 7 from PEPCO's current
Board.
NEW COMPANY STRUCTURE
A name will be selected for the new company in the near future. The new
company will be structured as a single utility company. The non-utility
operations of both companies will be combined, as appropriate, as subsidiaries
of the new company. This transaction is expected to qualify as a pooling of
interests and as a tax-free exchange of shares for the holders of each
company's common stock.
BGE and PEPCO have agreed that the new company will be headquartered
between Baltimore and Washington in the Annapolis, Maryland area, and that the
new company will continue to maintain a significant presence in both Baltimore
and Washington.
EXPECTED COMBINATION SAVINGS
Savings from the combined utility systems are expected to be
substantial, approximately $1.3 billion over a ten-year period. These savings
will be accomplished through the elimination of duplicate support services and
field operations, economies of centralized purchasing and the reduction of
corporate expenses. Synergies will be achieved by combining the two utility
systems in an integrated, non-holding company structure and will be enhanced
by the contiguous nature of the two systems. Opportunities will be created
through enhanced transmission interconnections. The expected elimination of
duplicate positions will result in reductions in the total combined workforce
of approximately 10%. Additional savings may be achieved over time from
combining the companies' non-regulated operations as well.
3
<PAGE>
EARNINGS IMPACT
The combination should result in little or no earnings dilution in the
first year of operations. Earnings are expected to be positively impacted
thereafter as synergies are realized.
REQUIRED APPROVALS
The Merger Agreement is subject to the approval by shareholders of both
companies and certain regulatory agencies including:
- The Federal Energy Regulatory Commission
- The Public Service Commissions of Maryland and the District of
Columbia
- The Nuclear Regulatory Commission
- The Securities & Exchange Commission
All required approvals are expected to be completed by the early part of 1997.
Shareholder approval will be sought in early 1996.
KEY REASONS FOR THE COMBINATION
Mr. Derrick, PEPCO's President, stated that "the combination of the
transmission and distribution systems provides more options to meet future
generation needs." In addition, the companies presented the following key
reasons for the combination:
4
<PAGE>
- It creates additional shareholder value through increased
efficiencies and reduced costs resulting in a financially
stronger and more competitive company.
- It creates a larger, stronger company well-positioned to
prosper in an increasingly competitive environment.
- It combines two of the lower-cost energy companies in the
Mid-Atlantic area having no "stranded" high-cost generating
plants.
- Customers will benefit from reduced costs of the combined
company which will keep rates low into the future.
- The new company will be well-positioned to take advantage
of future strategic opportunities as competition intensifies.
- The combination of the two companies' diversified operations
will provide the financial and management resources necessary
to succeed in a changing business environment.
DESCRIPTION OF COMPANIES
BGE is an investor-owned company that combines its core utility business
with diversified non-utility operations. Founded in 1816, BGE is the nation's
first gas utility and one of its earliest utilities, with a tradition of
superior, low-cost service and reliability. With assets of more than $8
billion, BGE serves more than 1 million business and residential electric
customers and 530,000 gas customers in an economically diverse 2,300-square-
mile area encompassing Baltimore City and all or part of 10 Central Maryland
Counties.
5
<PAGE>
PEPCO is an investor-owned electric utility, founded in 1896, serving
the electricity needs of 1.9 million people in the Washington Metropolitan
area. PEPCO's 640-square-mile service territory includes the District of
Columbia and major portions of Montgomery and Prince George's Counties in
Maryland. PEPCO also sells electricity at wholesale to Southern Maryland
Electric Cooperative, Inc. PEPCO's service territory is unique, with
virtually no heavy industry. The Washington Metropolitan area remains one of
the nation's major markets with a well-educated and affluent population.
# # #
Two-Page Fact Sheet to follow.
Photographs available through AP Photo Express.
<PAGE>
BGE - PEPCO Merger
Fact Sheet
Information As Of December 31, 1994 Unless Otherwise Noted
==============================================================================
BGE PEPCO COMBINED
=== ===== ========
I. Financial Statement
Information:
=======================
Total Assets $8.1 Billion $7.0 Billion $15.1 Billion
9th Largest Utility
Consolidated Revenues $2.8 Billion $2.0 Billion $4.8 Billion
==============================================================================
II. Common Stock Information:
=============================
Earnings Per Share $1.93 $1.79
Current Annual Dividend
Per Share $1.56 $1.66 $1.67
Current Stock Price as
of 9/22/95 $26-1/8 $21-1/2
Current Dividend Yield as
of 9/22/95 6.0% 7.7%
Current Market-to-Book 142% 140%
Common Shares Outstanding 148 million 118 million
==============================================================================
III. Capital Structure Information
===================================
Credit Ratings
==============
Sr. Secured Debt A+/A1 A/A1
Unsecured Debt A/A2 A-/A2
Preferred Stock A/"a1" A-/"a1"
Preference Stock A/"a2" --
Consolidated Capital Structure
==============================
Short-Term Debt 1.0% 4.4%
Long-Term Debt 46.1% 54.2%
Preferrred/Preference
Stock 8.9% 5.0%
Common Equity 44.0% 36.4%
<PAGE>
IV. Service Territory & Customer Information:
==============================================
Service Territory
=================
- -Electric 2,300 sq. miles 640 sq. miles 2,940 sq. miles
- -Gas 627 sq. miles -- 627 sq. miles
Population
==========
- -Electric 2,625,000 1,900,000 4,525,000
- -Gas 1,980,000 -- 1,980,000
Customers
=========
- -Electric 1,084,515 672,141 1,756,656
- -Gas 537,397 -- 537,397
Total Electric Sales - MWH 27,454,000 25,546,210 53,000,210
Electric Sales by Customer
==========================
- -Residential 39% 26% 33%
- -Commercial 45% 46% 45%
- -Industrial 16% -- 8%
- -Government -- 19% 9%
- -Wholesale -- 9% 5%
Employees
=========
- -Utility 7,296 4,524
- -Non-Utility 655 37
===== =====
Total 7,951 4,561
V. Operating Statistics:
=========================
Total Generating
Capability 6,741 6,723 13,464
Generating Capability
by Fuel Type
=====================
Nuclear 25% 0% 12%
Coal 39% 45% 42%
Oil, Gas & Hydro 26% 46% 36%
Interchange & Purchases 10% 9% 10%
% Generation by Fuel Type
=========================
Nuclear 39% 0% 22%
Coal 56% 69% 62%
Oil, Gas & Hydro 6% 18% 11%
Interchange & Purchases -1% 13% 5%
