<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
POTOMAC ELECTRIC POWER COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
[Logo of Pepco Appears Here]
POTOMAC ELECTRIC POWER COMPANY
1900 Pennsylvania Avenue, N.W.
Washington, D.C. 20068
Notice of Annual Meeting of Shareholders
March 21, 2000
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Potomac
Electric Power Company will be held at 10:00 a.m. on Tuesday, May 9, 2000, at
the Hyatt Regency Bethesda Hotel, Crystal Ballroom, One Bethesda Metro Center,
Wisconsin Avenue at Old Georgetown Road, Bethesda, Maryland for the following
purposes:
1. To elect four directors to serve for three years;
2. To consider and take action with respect to a shareholder proposal
relating to the election of directors, if such proposal is brought before
the meeting; and
3. To transact such other business as may properly be brought before the
meeting.
The holders of the Common Stock of the Company of record at the close of
business on Monday, March 20, 2000, will be entitled to vote on each of the
above matters
By order of the Board of Directors,
ELLEN SHERIFF ROGERS
Secretary
----------------
IMPORTANT
You are cordially invited to attend the meeting in person.
Even if you plan to be present, you are urged to SIGN, DATE AND MAIL the
enclosed proxy promptly.
If you attend the meeting, you may vote either in person or by your proxy.
<PAGE>
PLEASE DATE AND SIGN YOUR
PROXY AND RETURN IT IN
THE ENVELOPE PROVIDED
THANK YOU FOR ACTING PROMPTLY
<PAGE>
PROXY STATEMENT
Annual Meeting of Shareholders
Potomac Electric Power Company
March 21, 2000
This document provides information concerning the Annual Meeting of
Shareholders of Potomac Electric Power Company (the "Company"), 1900
Pennsylvania Avenue, N.W., Washington, D.C. 20068. This information is
furnished by the Board of Directors in connection with its solicitation of
proxies to vote on the matters being submitted to a vote at the Annual
Meeting.
When and where will the Annual Meeting be held?
The Annual Meeting will be held at 10:00 a.m. on Tuesday, May 9, 2000, at
the Hyatt Regency Bethesda Hotel, Crystal Ballroom, One Bethesda Metro Center,
Bethesda, Maryland. Admission to the meeting will be limited to Company
shareholders or their authorized proxies. Admission tickets are not required.
Who is asking for my vote?
The Board of Directors of the Company asks that you vote on the matters
listed in the Notice of Annual Meeting of Shareholders. The votes will be
taken at the Annual Meeting on Tuesday, May 9, 2000, or if the Annual Meeting
is adjourned, at any later meeting.
What are shareholders being asked to vote on?
1. The election of four directors for three-year terms.
2. A shareholder proposal relating to the election of directors.
How does the Board recommend I vote on the proposals?
1. The Board recommends a vote FOR each of the nominees for director
identified in Item 1.
2. The Board recommends a vote AGAINST the shareholder proposal set forth in
Item 2.
How do I vote?
You may vote in person at the Annual Meeting or by returning your completed
proxy card(s) in the enclosed postage-paid envelope. Your signed proxy card(s)
will be voted in accordance with your instructions on your proxy card(s), or
if you return your signed proxy card(s) but do not mark the boxes showing how
you wish to vote, your shares will be voted FOR the election of each of the
Company's director nominees and AGAINST the shareholder proposal.
What is the quorum requirement?
In order to hold the Annual Meeting, the holders of a majority of the
outstanding shares of common stock, par value $1 per share (the "Common
Stock"), entitled to be voted must be present at the meeting by proxy or in
person.
1
<PAGE>
Who is eligible to vote?
All shareholders of record at the close of business on March 20, 2000 (the
"Record Date") are entitled to vote at the Annual Meeting. The Notice of
Annual Meeting, this Proxy Statement and a proxy card were first mailed to
shareholders of record on or about March 27, 2000.
How many shares can vote?
At the close of business on the Record Date, the Company had outstanding
118,530,802 shares of Common Stock. Each shareholder on the Record Date is
entitled to one vote for each full share owned by such shareholder on each of
the matters voted on at the Annual Meeting.
What shares are included on the enclosed proxy card?
The number of shares indicated on the enclosed proxy card consists of the
number of shares of Common Stock that you hold of record and, if you are a
participant in the Potomac Electric Power Company Dividend Reinvestment Plan,
the number of shares held for your account under that Plan. If you do not
execute and return the proxy card, your shares will not be voted unless you
attend the meeting and vote in person.
What does it mean if I get more than one proxy card?
You will receive one proxy card for each way in which your shares are
registered. If you receive more than one proxy card (other than because you
are a participant in the Company's 401(k) savings plan), it is because your
shares are registered in different names or with different addresses or are
held in different accounts. Please sign and return each proxy card that you
receive to ensure that all your shares are voted. To enable us to provide
better shareholder service, we encourage shareholders to have all their shares
registered in the same name with the same address.
How is stock in the 401(k) plan for employees voted?
If you are an employee or former employee of the Company who is a
participant in the Company's 401(k) savings plan, you will receive a proxy
card indicating the number of shares held for your account under the savings
plan. If you do not vote these shares, Fidelity Management Trust Company, the
trustee for the plan, will vote the shares in your account in proportion to
the vote of all of the 401(k) participants who vote their shares.
Can I change my vote after I have returned my proxy card?
You may revoke your proxy by:
. sending a written statement to that effect to the Secretary of the
Company before your proxy is voted;
. submitting a properly signed proxy with a later date; or
. voting in person at the Annual Meeting.
How can I obtain more information about the Company?
A copy of the Company's 1999 Annual Report to Shareholders was mailed on or
about March 3, 2000 to each direct shareholder.
2
<PAGE>
1. ELECTION OF DIRECTORS
At the Annual Meeting, four directors are to be elected to hold office for
three-year terms that expire in 2003, and until their respective successors
shall have been elected and qualified. Twelve directors constitute the entire
Board of Directors.
Can a shareholder nominate someone for election as a director of the Company?
Under the Company's By-Laws, a shareholder may nominate an individual for
election as a director at a future Annual Meeting by giving written notice of
the shareholder's intention to the Company's Secretary at 1900 Pennsylvania
Avenue, N.W., Washington, D.C. 20068, not less than 60 days nor more than 85
days prior to the meeting (or if the Company gives less than 65 days public
notice of the meeting, then the written notice must be received no later than
the close of business on the fifteenth day following the date of public notice
of the meeting). The notice provided to the Secretary must set forth the name,
residence and record address of the nominating shareholder and the class and
number of shares of capital stock of the Company beneficially owned by such
shareholder; and, for each nominee, the name, age, business address, residence
address, principal occupation or employment, the class and number of shares of
the capital stock of the Company that are beneficially owned by the nominee,
and any other information concerning the nominee that would be required to be
included in a proxy statement. The Company will publicly announce the date of
its 2001 Annual Meeting at a later date.
Any shareholder also may recommend for the consideration of the Nominating
Committee one or more candidates who would serve as a Company nominee for
election as a director. Recommendations for the 2001 Annual Meeting must be
received by the Company by November 21, 2000, and must be accompanied by the
information described in the preceding paragraph.
What vote is required to elect the directors?
Nominees for election as directors will be elected by a plurality of the
votes cast, meaning the four nominees receiving the largest number of votes
will be elected.
How will proxies be voted?
It is the intention of the persons named in the enclosed proxy card to vote
the proxy conferred for the election of the nominees of the Board of Directors
named below, unless such authority is withheld. Each nominee has confirmed
that he or she is willing to serve as a director. Should any person, prior to
the Annual Meeting, become unavailable to serve as a director for any reason,
all proxies will be voted for another nominee selected by the Board of
Directors.
3
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Who are the nominees for director?
NOMINEES FOR ELECTION AS DIRECTORS
For Terms Expiring in 2003
TERENCE C. GOLDEN, age 55, has been President, Chief
Executive Officer and a director of Host Marriott
Corporation since 1995. Host Marriott Corporation is
based in Bethesda, Maryland and owns lodging
properties throughout the world. He has been Chairman
of Bailey Realty Corporation since 1991 and Bailey
Capital Corporation in Washington, D.C. since 1993. He
is also a director of Cousins Properties, Inc. Mr.
Golden has been a director of the Company since 1998.
[picture]
DAVID O. MAXWELL, age 69, is retired Chairman of the
Board and Chief Executive Officer of Fannie Mae, a
position he held from 1981-1991. Mr. Maxwell has been
a director of the Company since 1993. He is a director
of Financial Security Assurance Holdings Ltd.
[picture]
FLORETTA D. McKENZIE, age 64, was the founder in 1987
and is the Chairwoman and Chief Executive Officer of
The McKenzie Group, Inc., a District of Columbia based
educational consulting firm. Dr. McKenzie has been a
director of the Company since 1988. Dr. McKenzie is a
director of Marriott International, Inc.
[picture]
EDWARD F. MITCHELL, age 68, is retired Chairman of the
Board of the Company, a position he held from 1992-
1999. He was Chief Executive Officer from 1989-1997.
He has been a director of the Company since 1980.
[picture]
4
<PAGE>
DIRECTORS CONTINUING IN OFFICE
Terms Expire in 2001
JOHN M. DERRICK, JR., age 60, has been Chairman of the
Board of the Company since April 1999. He was
President and Chief Executive Officer from October
1997 to April 1999. From 1992 to October 1997 he
served as President and Chief Operating Officer of the
Company. Mr. Derrick has been a director of the
Company since 1994. Mr. Derrick is a director of
Washington Real Estate Investment Trust.
[picture]
PETER F. O'MALLEY, age 61, is Of Counsel to O'Malley,
Miles, Nylen & Gilmore, P.A., a law firm headquartered
in Calverton, Maryland. Mr. O'Malley currently serves
as the President of Aberdeen Creek Corp., a privately
held company engaged in investment, business
consulting and development activities. He has been a
director of the Company since 1982. Mr. O'Malley is a
director of Legg Mason, Inc. and FTI Consulting.
[picture]
LOUIS A. SIMPSON, age 63, has been President and Chief
Executive Officer of Capital Operations (investments),
GEICO Corporation, Washington, D.C. since 1993. He has
been a director of the Company since 1990. Mr. Simpson
is a director of MediaOne Group, Inc., Pacific
American Income Shares, Inc., LM Institutional Fund
Advisors 1, Inc. and Science Applications
International Corporation.
[picture]
DENNIS R. WRAASE, age 56, has been Executive Vice
President of the Company since April 1999 and Chief
Financial Officer of the Company since 1996. From 1996
until 1999, he was also Senior Vice President of the
Company. From 1992 until 1996 he served as Senior Vice
President, Finance and Accounting. Mr. Wraase has been
a director of the Company since 1998.
[picture]
5
<PAGE>
DIRECTORS CONTINUING IN OFFICE
Terms Expire in 2002
ROGER R. BLUNT, SR., age 69, is Chairman of the Board,
President and Chief Executive Officer of Blunt
Enterprises, LLC (general contracting and construction
management), a Washington-based holding company, that
includes Essex Construction, LLC, of which he is
Chairman of the Board, President and Chief Executive
Officer, and Tyroc Construction, LLC, of which he is
Chairman of the Board, President and Chief Executive
Officer. Mr. Blunt has been a director of the Company
[Picture] since 1984.
EDMUND B. CRONIN, Jr., age 62, is Trustee, President
and Chief Executive Officer of Washington Real Estate
Investment Trust, based in Rockville, Maryland, which
owns income-producing real estate in the Mid-Atlantic
Region. From 1977 until 1994, Mr. Cronin was Chairman
and Chief Executive Officer of H.G. Smithy Company and
its various operating subsidiaries. Mr. Cronin has
been a director of the Company since 1998.
[Picture]
JUDITH A. McHALE, age 53, is President and Chief
Operating Officer of Discovery Communications, Inc.
(DCI), parent company of cable television's Discovery
Channel, which is based in Bethesda, Maryland. From
1989 to November 1995, she served as Executive Vice
President and General Counsel for DCI. She is a
director of John Hancock Financial Services, Inc. Ms.
McHale has been a director of the Company since 1998.
[Picture]
A. THOMAS YOUNG, age 61, is retired Executive Vice
President of Lockheed Martin Corporation. From 1990
until 1995, he was President and Chief Operating
Officer of Martin Marietta Corporation. He is a
director of the B.F. Goodrich Company and Science
Applications International Corporation. Mr. Young has
been a director of the Company since 1995.
[Picture]
6
<PAGE>
What are the Committees of the Board? How often did the Board and each
Committee of the Board meet in 1999?
The Board of Directors held six meetings in 1999. There are six Committees
of the Board. With the exception of the Executive Committee, the members of
each committee are independent, non-employee directors. In 1999, each director
attended more than 75% of the aggregate number of Board and Committee meetings
of which he or she was a member that were held during the period of his or her
service.
The Audit Committee held six meetings in 1999. The Committee's duties and
responsibilities include recommending to the Board the engagement of the
independent accountant, approving the plan and scope of the audit and the fee
before the audit begins and reviewing the results of the audit with the
independent accountant and its comments on the Company's system of internal
accounting and financial controls. The Committee also reviews a statement of
the independent accountant of all relationships between the independent
accountant and the Company and evaluates whether any disclosed relationships
could impair the objectivity or independence of the independent accountant.
The Committee reviews with the Company's General Manager, Internal Audit the
plan, scope and results of internal audits and his comments on the Company's
system of internal accounting controls. The Committee also reviews with
management, the independent accountant and the General Manager, Internal Audit
the accounting principles applied in financial reporting and compliance with
the Company's conflict of interest policy. The Committee reports its
activities to the Board periodically and makes such recommendations and
findings concerning any audit or related matter as it deems appropriate.
In carrying out these functions, the Audit Committee represents and assists
the Board in discharging its responsibility of oversight, but the existence of
the Committee does not alter the traditional roles and responsibilities of the
Company's management and the independent accountant with respect to the
accounting and control functions and financial statement presentation.
Committee members are Directors Blunt (Chairman), Cronin, Golden, McHale,
McKenzie, Simpson and Young.
The Executive Committee held one meeting in 1999. The Committee has, and may
exercise when the Board is not in session, all the powers of the Board in the
management of the property, business and affairs of the Company except as
otherwise provided by law. The Committee does not hold regularly scheduled
meetings. Committee members are Directors Blunt, Derrick, McKenzie, Mitchell
(Chairman) and Wraase.
The Finance Committee held three meetings in 1999. The Committee is
responsible for reviewing, approving or ratifying and recommending to the
Board, as appropriate, the Company's financial planning, financing program and
investment programs, and for reviewing activities, progress and results with
respect to such planning and programs. Committee members are Directors
Maxwell, Mitchell, O'Malley, Simpson (Chairman) and Young.
The Nominating Committee held one meeting in 1999. The Committee reviews and
recommends to the Board candidates for nomination for election as directors.
Committee members are Directors Cronin, Maxwell, McKenzie (Chairman),
Mitchell, O'Malley and Young.
The Human Resources Committee held five meetings in 1999. The Committee
reviews and recommends to the Board the Company's annual salary administration
program for all exempt employees and makes specific salary recommendations for
senior officers and employees, and administers the Company's executive
compensation plans. The Committee also makes recommendations to the Board with
respect to the Company's General Retirement Plan, other benefit plans, and
officer and senior management succession. Committee members are Directors
Blunt, Golden, Maxwell, McHale, O'Malley (Chairman) and Simpson.
7
<PAGE>
What are the directors paid for their services?
Each of the Company's non-employee directors is paid an annual retainer of
$26,000, plus a fee of $1,250 for each Board and Committee meeting attended.
Each director who is a Chairman of a Committee is paid an additional retainer
of $3,500.
The Stock Compensation Plan for Directors requires each director who is not
an employee of the Company to receive half of his or her $26,000 annual
retainer either (i) in shares of Common Stock or (ii) as a Common Stock
equivalent deferral under the Company's Deferred Compensation Plan, the value
of which corresponds to the market price of the Company's Common Stock. A
director may elect to receive up to 100% of his or her retainer and meeting
fees in shares of Common Stock or Common Stock equivalents. Common Stock
equivalents are credited with additional amounts equal to the dividend payout
on the corresponding number of shares of Common Stock, which amounts are
deemed reinvested in additional Common Stock equivalents. Common Stock
equivalents have no voting rights. A director alternatively may elect to be
paid in cash or to defer under the Deferred Compensation Plan the portion of
his or her annual retainer and meeting fee payments not required to be
invested in Common Stock or Common Stock equivalents. Such deferrals are
credited, at the election of the director, with a return equal to the prime
rate, or a return on a specified group of funds or a combination of both.
Balances under the Deferred Compensation Plan, including Common Stock
equivalent balances, are paid out in cash, in either a lump sum or
installments, commencing at a time selected by the director.
On May 1 of each year, each non-employee director is granted an option to
purchase 1,000 shares of Common Stock. Each option has an exercise price equal
to the market price of the Common Stock on the date of grant. Each option
becomes exercisable at the earlier of (i) four years after date of grant or
(ii) fifty percent upon attainment of a target price and the remaining fifty
percent upon the attainment of a higher target price. Upon a "change in
control," all options become immediately exercisable. Options expire ten years
after the date of grant or at such earlier date as specified by the Plan in
the event of retirement, death, disability or after termination of service of
the director.
The Company also provides directors with travel accident insurance for
Company-related travel and directors' and officers' liability insurance
coverage.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 29, 2000, for each director,
the five executive officers named in the Summary Compensation Table on page 10
and all directors and executive officers as a group (i) the number of shares
of Common Stock beneficially owned, (ii) the number of shares acquirable
within 60 days pursuant to exercise of stock options, (iii) credited Common
Stock equivalents and (iv) the total stock-based holdings. None of such
persons beneficially owns shares of any other class of equity securities of
the Company. Each of the individuals listed, as well as all directors and
executive officers as a group, beneficially owned less than 1% of the
Company's outstanding Common Stock. The following table also sets forth, as of
February 29, 2000, the number and percentage of shares of Common Stock owned
by all persons known by the Company to own beneficially 5% or more of the
Common Stock.
8
<PAGE>
<TABLE>
<CAPTION>
Shares of Common Stock Deferred Total
Common Stock Acquirable Within Common Stock Stock-Based
Name of Beneficial Owner Owned/1/ 60 Days Equivalents/2/ Holdings/3/
- ------------------------ ------------- ----------------- -------------- -----------
<S> <C> <C> <C> <C>
Roger R. Blunt, Sr. .... 366 1,000 939 2,305
Edmund B. Cronin, Jr. . 1,000 1,000 2,976 4,976
John M. Derrick, Jr. .. 45,951 108,385 - 154,336
Terence C. Golden....... 1,942 0 2,238 4,180
David O. Maxwell........ 500 1,000 939 2,439
Judith A. McHale........ 2,484 0 - 2,484
Floretta D. McKenzie.... 2,140 1,000 - 3,140
Edward F. Mitchell...... 72,697 1,000 939 74,636
Peter F. O'Malley....... 1,828 1,000 939 3,767
William J. Sim.......... 16,299 13,934 - 30,233
Louis A. Simpson........ 2,000 1,000 2,131 5,131
William T. Torgerson.... 22,420 21,843 - 44,263
Andrew W. Williams...... 25,542 13,934 - 39,476
Dennis R. Wraase........ 30,963 21,843 - 52,806
A. Thomas Young......... 1,000 1,000 3,746 5,746
All Directors and
Executive Officers as a
Group (25 Individuals). 322,744 201,873 14,847 539,464
<CAPTION>
Shares of
Name and Address of Common Stock Percent of Common
Beneficial Owner Owned Stock Outstanding
------------------- ------------- -----------------
<S> <C> <C> <C> <C>
Franklin Resources,
Inc. ................. 11,307,663/4/ 9.5%
777 Mariners Island
Boulevard
San Mateo, CA 94404
</TABLE>
(1) Includes shares held under the Company's Dividend Reinvestment Plan and
the Employee Savings Plan. Also includes shares awarded under the
Company's Long-Term Incentive Plan which will vest over time.
(2) Consists of Common Stock equivalents acquired under the Directors'
Deferred Compensation Plan.
(3)Consists of the sum of the three preceding columns.
(4) According to a Schedule 13G, dated January 27, 2000, filed with the
Securities and Exchange Commission jointly by Franklin Resources, Inc.,
Templeton Global Advisors Limited, a subsidiary of Franklin Resources,
Inc., and Charles B. Johnson and Rupert H. Johnson, Jr., each a principal
shareholder of Franklin Resources, Inc., the Common Stock is beneficially
owned by one or more open or closed-end investment companies or other
managed accounts that are advised by direct and indirect advisory
subsidiaries of Franklin Resources, Inc. Sole power to vote or to direct
the voting of the Common Stock is reported as follows: Templeton Global
Advisors Limited: 8,670,846; Franklin Advisers, Inc.: 2,225,000; and
Templeton Investment Management Limited: 394,237. Sole power to dispose or
to direct the disposition of the Common Stock is reported as follows:
Templeton Global Advisors Limited: 8,688,426; Franklin Advisers, Inc.:
2,225,000; and Templeton Investment Management Limited: 394,237.
Section 16(a) Beneficial Ownership Reporting Compliance
The rules of the Securities and Exchange Commission require that the Company
disclose any late filing of the reports of stock ownership (and changes in
stock ownership), and any known failure to file these reports, by its
directors and executive officers. To the best of the Company's knowledge, all
of the filings required to be made by the Company's directors and executive
officers were made on a timely basis in 1999.
9
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Incentive
Annual Compensation Plan
-------------------------------------- ---------------------
Awards
--------------------------------
Incentive
Name and Principal Other Annual Restricted Plan All Other
Position Year Salary Bonus Compensation/1/ Stock/2/ Options/3/ Payouts/4/ Compensation/5/
------------------ ---- -------- -------- --------------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John M. Derrick, Jr. 1999 $516,667 $191,732 $19,177 $ - 0 $288,930 $51,235
Chairman of the Board, 1998 471,666 143,419 16,251 125,692 108,385 184,692 55,536
President and 1997 410,000 0 13,773 - - 103,615 54,444
Chief Executive Officer
Dennis R. Wraase 1999 $335,000 $124,317 $ 4,644 $ - 0 $152,798 $37,711
Executive Vice President
and 1998 288,333 87,673 4,039 65,360 21,843 84,753 30,010
Chief Financial Officer 1997 250,833 0 3,512 - - 51,408 28,793
William T. Torgerson 1999 $281,667 $104,525 $ 3,900 $ - 0 $145,688 $26,359
Senior Vice President
and 1998 255,000 77,537 3,391 60,332 21,843 83,135 27,499
General Counsel 1997 231,667 0 2,949 - - 28,669 26,579
Andrew W. Williams 1999 $225,000 $ 63,108 $ 0 $ - 0 $ 63,074 $24,556
Group Vice President 1998 208,333 48,729 0 40,221 13,934 - 23,187
1997 193,333 0 0 - - - 22,834
William J. Sim 1999 $211,000 $ 59,181 $ 0 - 0 $ 60,938 $23,261
Group Vice President 1998 198,333 49,396 0 40,221 13,934 - 23,610
1997 191,333 0 0 - - - 24,431
</TABLE>
(1) Other Annual Compensation
Amounts in this column for each year represent above-market earnings on
deferred compensation funded by Company owned life insurance policies held in
trust, assuming the expected retirement at age 65. The amounts are reduced if
the executive terminates employment prior to age 62 for any reason other than
death, total or permanent disability or a change in control of the Company. In
the event of a change in control and termination of the participant's
employment, a lump sum payment will be made equal to the net present value of
the expected payments at age 65 discounted using the Pension Benefit Guaranty
Corporation immediate payment interest rate plus one-half of one percent. The
Company has purchased such policies on participating individuals under a
program designed so that if assumptions as to mortality experience, policy
return and other factors are realized, the compensation deferred and the death
benefits payable to the Company under such insurance policies will cover all
premium payments and benefit payments projected under this program, plus a
factor for the use of Company funds.
(2) Restricted Stock
Amounts in this column for 1998 represent the aggregate market price on the
grant date of restricted shares of Common Stock. These shares vest over a
four-year period: 20% vested on the first anniversary of the grant date, 20%
vest on the second anniversary of the grant date, 20% vest on the third
anniversary of the grant date, and the remaining 40% vest on the fourth
anniversary of the grant date. The market price does not reflect that the
shares are restricted. Dividends are paid on the restricted shares. Dollar
amounts shown are for executives who received restricted shares of Common
Stock in the years indicated. The number and aggregate market value of the
non-vested restricted shares of Common Stock at December 31, 1999 for the five
named executives are: 4,000 shares, $95,625 for Mr. Derrick; 2,080 shares,
$49,725 for Mr. Wraase; 1,920 shares, $45,900 for Mr. Torgerson; and 1,280
shares, $30,600 each for Messrs. Williams and Sim.
(3) Options
Amounts in this column represent the number of stock options granted for
each year. The shareholders approved the Long-Term Incentive Plan in April
1998 and options were granted for the first time in May 1998. Fifty percent of
the options granted in 1998 became exercisable on October 9, 1998 and the
remaining 50% became exercisable on June 11, 1999.
(4) Incentive Plan Payouts
All amounts in this column represent the value of vested Common Stock under
the Company's Executive Restricted Stock Performance Award Program. The amount
shown for 1999 consists of 33-1/3% of the Common Stock award from the eight
month performance cycle ended December 31, 1999, 50% of the Common Stock award
from the performance cycle ended December 31, 1998 (the "1998 Cycle"), and 50%
of the Common Stock award from the performance cycle ended December 31, 1997
(the "1997 Cycle"), that vested on January 1, 2000. For 1999,
10
<PAGE>
amounts also include cash awards which were applicable to the three-year
performance cycle ended December 31, 1999 (the "1999 Cycle"). The amounts
awarded for the 1999 Cycle for Messrs. Derrick, Wraase, Torgerson, Williams
and Sim were $119,722, $57,221, $53,482, $38,355 and $37,940, respectively.
The amount shown for 1998 consists of 50% of the Common Stock award for the
1997 Cycle and 50% of the Common Stock award for the performance cycle ended
December 31, 1996 (the "1996 Cycle"), that vested on January 1, 1999. The
amount shown for 1997 consists of 50% of the Common Stock award for the 1996
Cycle and 50% of the Common Stock award from the performance cycle ended
December 31, 1995, that vested on January 1, 1998. The value of the vested
Common Stock was calculated based on the market price of the Common Stock on
the day preceding the vesting date. Dollar amounts shown are for executives
who were eligible to participate in the Executive Restricted Stock Performance
Award Program in the years indicated.
(5) All Other Compensation
Amounts in this column for 1999 consist of (i) Company contributions to the
Savings Plan for Exempt Employees of $7,450, $7,320, $7,450, $4,013 and $7,501
for Messrs. Derrick, Wraase, Torgerson, Williams and Sim, respectively, (ii)
Company contributions to the Executive Deferred Compensation Plan due to
Internal Revenue Service limitations on maximum contributions to the Savings
Plan for Exempt Employees of $12,563, $7,043, $5,475, $5,754 and $1,962 for
Messrs. Derrick, Wraase, Torgerson, Williams and Sim, respectively, (iii) the
term life insurance portion of life insurance written on a split-dollar basis
of $3,798, $2,050, $1,765, $940 and $1,420 for Messrs. Derrick, Wraase,
Torgerson, Williams and Sim, respectively, and (iv) the interest on employer
paid premiums for split-dollar life insurance of $27,424, $21,298, $11,669,
$13,849 and $12,378 for Messrs. Derrick, Wraase, Torgerson, Williams and Sim,
respectively. The split-dollar life insurance contract provides death benefits
to the executive's beneficiaries of approximately three times the executive's
annual salary. The split-dollar program is designed so that, if the
assumptions made as to mortality experience, policy return and other factors
are realized, the Company will recover all plan costs, including a factor for
the use of Company funds. The split-dollar policy provides a cash surrender
value to each participant in excess of any premiums paid.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of Shares
Underlying Unexercised Value of Unexercised In-
Options at End of Fiscal the-Money Options at End
Year of Fiscal Year/1/
------------------------- -------------------------
Shares
Acquired Value
on Exercise Realized
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John M. Derrick, Jr..... 0 0 108,385 0 0 -
Dennis R. Wraase........ 0 0 21,843 0 0 -
William T. Torgerson.... 0 0 21,843 0 0 -
Andrew W. Williams...... 0 0 13,934 0 0 -
William J. Sim.......... 0 0 13,934 0 0 -
</TABLE>
(1) Value of Unexercised In-the-Money Options at End of Fiscal Year
The value of unexercised in-the-money options at December 31, 1999 is
calculated by multiplying the number of shares by the amount by which the
closing price of the Common Stock on the last trading day of 1999, as reported
by the New York Stock Exchange, exceeds the option exercise price. The closing
price of the Common Stock on the last trading day of 1999 was less than the
option exercise price, making the value of the unexercised options zero.
11
<PAGE>
LONG-TERM INCENTIVE PLAN--
AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Performance or
Other Period
Until Maturation Threshold Target Maximum
Name or Payout Number of Shares Number of Shares Number of Shares
- ---- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
John M. Derrick, Jr..... 1999-2001 0 35,000 70,000
2000-2002 0 17,500 35,000
Dennis R. Wraase........ 1999-2001 0 14,000 28,000
2000-2002 0 7,000 14,000
William T. Torgerson.... 1999-2001 0 10,000 20,000
2000-2002 0 5,000 10,000
Andrew W. Williams...... 1999-2001 0 3,000 6,000
2000-2002 0 1,500 3,000
William J. Sim.......... 1999-2001 0 3,000 6,000
2000-2002 0 1,500 3,000
</TABLE>
The preceding table reflects the share awards available under the Company's
new Performance Restricted Stock Program established under the Company's Long-
Term Incentive Plan. The awards shown are for two performance periods. The
first is for a three-year performance cycle covering years 1999-2001; the
second is for a three-year performance cycle covering years 2000-2002. The
1999-2001 cycle is a transition cycle because of discontinuance of the prior
program which provided for one calendar year performance cycles. Under the new
Program, performance cycles will be measured over three-year periods
commencing January 1 of each year. The Plan provides for the earning of Common
Stock based on the Company's total shareholder return compared to other
companies in the S&P Midcap Utility Index. If, during the course of a
performance period, a significant event occurs, as determined in the sole
discretion of the Board of Directors, which the Board of Directors expects to
have a substantial effect on total shareholder performance during the period,
the Board of Directors may revise such measures.
Under the Program, a target performance is established. Each award provides
that, following completion of the performance period, the participant will be
eligible to earn a number of shares of Common Stock ranging from 0% to 200% of
the target performance award to the extent to which the performance objectives
are achieved. The shares of Common Stock earned by a participant will vest
immediately on the date that the performance award is earned.
12
<PAGE>
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Annual Retirement Benefits
-----------------------------------------------------
Average Annual Salary Years in Plan
in Final Three Years -----------------------------------------------------
of Employment 15 20 25 30 35 40
- --------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$150,000.................. $ 39,000 $ 53,000 $ 66,000 $ 79,000 $ 92,000 $105,000
$250,000.................. $ 66,000 $ 88,000 $109,000 $131,000 $153,000 $175,000
$350,000.................. $ 92,000 $123,000 $153,000 $184,000 $214,000 $245,000
$450,000.................. $118,000 $158,000 $197,000 $236,000 $276,000 $315,000
$550,000.................. $144,000 $193,000 $241,000 $289,000 $337,000 $385,000
$650,000.................. $171,000 $228,000 $284,000 $341,000 $398,000 $455,000
$750,000.................. $197,000 $263,000 $328,000 $394,000 $459,000 $525,000
$850,000.................. $223,000 $298,000 $372,000 $446,000 $521,000 $595,000
</TABLE>
The Company's General Retirement Plan provides participants benefits after
five years of service based on the average salary (the term salary being equal
to the amounts contained in the Salary column of the Summary Compensation
Table) for the final three years of employment and years of credited service
under the Plan at time of retirement. Normal retirement under the Plan is at
age 65. Plan benefits are subject to an offset for any Social Security
benefits. Benefits under the Plan may be reduced under certain provisions of
the Internal Revenue Code, as amended, and by salary deferrals under the
Company's deferred compensation plans (other than CODA contributions made
under the Savings Plan). Where any such limitations occur, the Company will
pay a supplemental retirement benefit to eligible executives designed to
maintain total retirement benefits at the formula level of the Plan. In
addition, for executives who retire under the terms of the General Retirement
Plan and are at least 59 years of age, their retirement benefit will be
calculated on the basis of average salary, plus the average of the highest
three annual incentive awards in the last five consecutive years. The annual
incentive amounts are equal to the amounts shown in the Bonus column of the
Summary Compensation Table. The current age, years of credited service and
compensation used to determine retirement benefits (including supplemental
benefits) for the above-named officers are as follows: Mr. Derrick, 60 and 38
years of credit, $644,276; Mr. Wraase, 56 and 30 years of credit, $392,266;
Mr. Torgerson, 55 and 30 years of credit, $346,219; Mr. Williams, 50 and 25
years of credit, $268,048; and Mr. Sim, 55 and 30 years of credit, $253,764.
Annual benefits at age 65 (including the effect of the Social Security offset)
are illustrated in the table above.
Employment Agreements and Severance Agreements
Messrs. Derrick, Wraase and Torgerson have entered into employment
agreements with the Company that provide for each executive's employment
through December 10, 2004, and that automatically extend for successive
periods of five years thereafter unless the Company or the executive has given
notice that it shall not be so extended. Each of the employment agreements
provides that the executive (i) will receive an annual base salary in an
amount not less than his salary in effect as of December 10, 1999, and
incentive compensation as determined by the Board of Directors and (ii) will
be entitled to participate in retirement and other benefit plans, and receive
fringe benefits on the same basis as other senior executives of the Company.
Under each of the employment agreements, the executive is entitled to
certain benefits if his employment is terminated prior to the expiration of
the initial term of the agreement (or as extended) either (i) by the Company
other than for cause, death or disability or (ii) by the executive if his
salary is reduced, he is not in good faith
13
<PAGE>
considered for incentive awards, the Company fails to provide him with
retirement benefits and other benefits provided to similarly situated
executives, he is required to relocate by more than 50 miles from Washington,
D.C., or he is demoted from a senior management position. These benefits
include: (i) a lump sum payment in cash equal to three times (x) the sum of
the executive's highest base salary rate in effect during the three-year
period preceding termination and (y) the higher of (1) the annual target bonus
for the year in which the termination of employment occurs or (2) the highest
annual bonus received by the executive in any of the three preceding calendar
years and (ii) the executive's annual cash incentive award for the year
preceding termination of employment, if not yet paid, and a pro rata portion
of the executive's annual incentive award for the year in which the
executive's employment terminates. In addition, any outstanding shares of
restricted stock will become immediately vested, and the executive will be
entitled to receive unpaid salary through the date of termination, certain
supplemental retirement benefits under existing plans of the Company, and a
continuation of premium payments under the Company's split dollar life
insurance policy. The agreements also provide that each executive is entitled
to receive a gross-up payment equal to the amount of any federal excise taxes
imposed upon compensation payable upon termination and the additional taxes
that result from such payment.
Messrs. Williams and Sim have entered into severance agreements with the
Company. Each severance agreement provides for the payment of severance
benefits to the executive if, within two years following a change in control,
which in the case of Mr. Sim includes a sale of all or substantially all of
the generation assets, of the Company, any of the following events occur: (i)
termination of the employment of the executive by the Company (or a successor
company), other than for cause, death, disability or voluntary normal
retirement; (ii) termination of employment by the executive for "good reason,"
defined as the assignment of duties materially inconsistent with the
executive's duties prior to the change in control or a material reduction or
alteration of his duties, a reduction in the executive's salary or relocation
of the executive by more than 50 miles; (iii) the failure or refusal by a
successor company to assume the Company's obligations under the agreement; or
(iv) a material breach of the agreement by the Company (or a successor
company). The executive also is entitled to severance benefits upon (i) the
termination of the executive's employment without cause in contemplation of,
but prior to, a change in control or (ii) the occurrence of an event, in
contemplation of, but prior to a change in control, constituting "good reason"
followed by the executive's voluntary termination of employment within two
years after a change in control. The severance benefits consist of: (i) an
amount equal to two times the executive's annual base salary (in effect at the
time of termination) and annual bonus (average of annual target bonuses during
the three years prior to termination) paid in 24 equal monthly installments
and (ii) certain welfare benefits for a three-year period after the date of
termination. The agreements also provide that each executive is entitled to
receive a gross-up payment equal to the amount of any federal excise taxes
imposed upon compensation payable upon termination and the additional taxes
that result from such payment.
Human Resources Committee Report on Executive Compensation
The Human Resources Committee of the Board of Directors is composed entirely
of independent, non-employee directors. The Committee's role includes review
of the performance of elected officers and other executives in connection with
executive compensation programs designed to provide a strong and direct link
between compensation, executive performance and the short- and long-term level
of Company performance. The Committee recommends specific executive salaries
to the Board of Directors. The Committee also establishes and recommends to
the Board performance guidelines under the Executive Incentive Compensation
Plan, approves payments made pursuant to that Plan and recommends the
structure of compensation and amounts of awards under the Long-Term Incentive
Plan approved by the shareholders effective May 1, 1998. The Committee reviews
other
14
<PAGE>
elements of compensation and benefits and makes recommendations to the Board
as appropriate. The Committee carries out these responsibilities with
assistance from consulting firms and with such input from the Chief Executive
Officer and management, as it deems appropriate.
Officer Compensation Philosophy
The Company's compensation philosophy reflects a commitment to attract and
retain key executives with a program which compensates executive officers
competitively with other companies in the industry while rewarding executives
for achieving levels of operational excellence and financial results which
result in growth in shareholder value. The Company's compensation policy is to
provide a total compensation opportunity comparable to the median compensation
levels of the 30 companies in the S&P Midcap Utility Index (the "S&P Index").
Previously, the Company had used the EEI 100 Index of Investor-owned Electrics
(the "EEI Index"). In 1999, the Committee reviewed the available indexes and
determined that with the changes taking place in the utility industry an index
including companies more closely related to the size of the Company was more
appropriate for measuring compensation. The relationship between pay and
performance is reinforced by aligning the peer group used for compensation
purposes with the same industry peer group used for purposes of comparing
total shareholder return.
The compensation program for executives consists of base salary, annual
incentive and long-term incentive components. The combination of these three
elements balances short- and long-term business performance goals and aligns
officer financial rewards with Company operating results and shareholder
return. Total compensation for any specific year may, of course, be above the
median for the peer group in the event performance exceeds goals, or below the
median if performance falls short of goals.
Annual incentive awards are earned based on the Company's financial and
operational plans and results, including annual earnings. Long-term incentive
awards are in the form of (1) restricted shares of Company Common Stock
("Restricted Stock") which will be earned at the end of three-year performance
periods based upon meeting pre-established goals relating to total shareholder
returns and/or (2) stock options. The senior executive compensation program is
structured so that between 38 and 66 percent of the total compensation
opportunity is composed of incentive compensation.
The Omnibus Budget Reconciliation Act of 1993 included a provision limiting
the deductibility of certain executive compensation. For 1999, all
compensation earned by the Company's five highest paid executives was
completely deductible. In the future the Committee will, considering the best
interests of the Company and its shareholders, use its best judgment to
continue the complete tax deductibility of the compensation paid to its
executives.
Executive Salaries
The Committee determines base salary ranges for executives based upon
competitive pay practices. Executive salaries correspond to approximately the
median of the companies in the S&P Index. Mr. Derrick, Chief Executive
Officer, was awarded a 5% salary increase effective May 1, 1999 after the
Committee made a compensation assessment within the framework and philosophy
outlined above.
Executive Incentive Compensation Plan
In 1983, the Board of Directors established the Executive Incentive
Compensation Plan for Company executives under which the Company is authorized
to pay annual cash bonuses. Under the Plan guidelines, awards
15
<PAGE>
for the President and Chief Executive Officer, Executive Vice President and
Senior Vice President are based upon the Company's progress in achieving plan
goals; awards for other executives are based on a combination of corporate
goals and individual goals established at the beginning of the year. For
awards paid in January 2000 for performance during 1999, the weighted
corporate goals were (1) earnings relative to corporate plan, (2) achieving
corporate goals for operating and maintenance expense control, (3) capital
cost containment and (4) total shareholder return.
Application of the Plan formula for executives subject to utility earnings
goals resulted in an incentive award level of 93% of the target award level
(compared to a maximum of 180% of the target), based on utility earnings
(which were at the target level), total return to shareholders (second
quartile performance compared to the EEI Index) and meeting the cost
containment objectives. The Committee increased the incentive to 108% of the
target award in recognition of (1) management's accomplishments in obtaining
the necessary approvals to implement the Company's strategic objective of
divestiture of the generation assets; (2) early completion of and the success
of Year 2000 preparations; (3) performance during the two severe storms of
1999; and (4) obtainment of the financial goals while incurring the additional
expenses associated with the storms. Under the Plan guidelines, the earnings
goal for the Chief Executive Officer was based on consolidated earnings; the
award paid to the Chief Executive Officer in January 2000 for 1999 was based
on the achievement of 129% of the target award level.
Long-Term Incentive Plans
In 1996, the Board of Directors adopted a Performance Share Plan. This Plan
provided for awards based on the Company's stock performance as compared to a
peer index for total shareholder return and market to book ratio, each equally
weighted. The awards paid in cash were based on the year-end 1996 market price
of the Common Stock and each participant's salary at that date. In January
2000, awards under the Plan formula were made for the performance period 1997
to 1999. For the three-year performance cycle total shareholder return was
40th for the 64 companies comprising the index which resulted in an award of
23 points for this measure. For the same three-year cycle the Company's market
to book ratio was 34th for the 64 companies resulting in 34 points. As a
result, the Chief Executive Officer was awarded 37.78% of his maximum award
potential. Amounts awarded under the Plan are shown in the Summary
Compensation Table herein.
In 1998, the Board of Directors adopted the Restricted Stock Annual
Objective Performance Program, pursuant to the Long-Term Incentive Plan. This
Program provided for the award of Restricted Stock, which would vest over
three years in equal installments once earned, based on a participant's annual
performance related to specific goals. Since individual performance against
goals determined a participant's award, awards for participants ranged from
100% to 150% depending upon their respective attainment of goals. The
Committee reviewed the performance of the Chief Executive Officer and other
senior executives and awarded the Chief Executive Officer 133% of the target
award or 8,000 shares of Common Stock for his performance in 1999. Due to the
adoption of a new program discussed below this Program has been discontinued.
In 1999, the Board of Directors adopted a new Performance Restricted Stock
Program replacing the Restricted Stock Annual Objective Performance Program.
The new Program provides for awards of Restricted Stock based on total
shareholder return as the only measurement. Performance is compared to the
other companies in the S&P Index. Target awards require performance above the
median for the S&P Index and awards can range from 0% to 200% of the target
award based on performance. Restricted Stock, if any, earned under the Program
will vest immediately upon the determination of the Board of the extent to
which the performance objectives have been satisfied. The Board of Directors
approved a transitional plan for senior executives covering the 1999-2001
16
<PAGE>
performance period because of the transition from an annual to a three-year
performance period. Amounts awarded under the newly adopted Program for the
performance cycles beginning January 1, 2000 and the transitional cycle are
set forth in the table titled "Long-Term Incentive Plan--Awards in Last Fiscal
Year" contained herein.
To further ensure alignment of executive compensation with other companies
in the industry, the Board of Directors, after conducting market surveys,
approved annual stock option grants for executives. The option exercise price
is equal to the market price of the Common Stock on January 1, 2000. The
options vest in four equal amounts over four years. The Program and stock
option grants have been expanded to include approximately 35 executives.
HUMAN RESOURCES COMMITTEE
Peter F. O'Malley, Chairman
Roger R. Blunt, Sr.
Terence C. Golden
David O. Maxwell
Judith A. McHale
Louis A. Simpson
17
<PAGE>
Performance Presentation
The following chart compares Pepco's five year cumulative total return to
shareholders consisting of the change in stock price and reinvestment of
dividends with the five year cumulative total return on the EEI 100 Index of
Investor-owned Electrics (the "EEI Index"), the Dow Jones Utilities Index and
the S&P Midcap Electric Utilities Index (the "S&P Index"). The Company has
included the S&P Index in the performance presentation chart this year, and
intends to use the S&P Index in the future, because in 1999 the S&P Index was
substituted for the EEI Index as the Company's peer group for executive
compensation comparison. The Company believes that use of the S&P Index for
compensation and total shareholder return purposes recognizes the changes
taking place in the utility industry and aligns the Company more closely with
companies of the same relative size.
[Performance Graph Appears Here]
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
Pepco $100.00 $153.76 $160.70 $172.54 $187.51 $174.58
EEI $100.00 $131.02 $132.59 $168.88 $192.34 $156.57
Dow Jones Utilities $100.00 $132.15 $144.08 $177.23 $210.18 $198.37
S & P Midcap Elec $100.00 $131.84 $136.05 $172.68 $198.48 $168.37
Utilities
Independent Public Accountants
The Board of Directors of the Company appointed PricewaterhouseCoopers LLP as
Independent Public Accountants for the Company for the year 1999 and, upon
recommendation of the Audit Committee of the Board, has reappointed the firm
for 2000. A representative of PricewaterhouseCoopers LLP is expected to attend
the Annual Meeting and will be given the opportunity to make a statement and to
respond to appropriate questions.
18
<PAGE>
2. SHAREHOLDER PROPOSAL
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST ITEM 2.
Mrs. Evelyn Y. Davis, Watergate Office Building, Suite 215, 2600 Virginia
Avenue, N.W., Washington, D.C. 20037, who is the record holder of 200 shares
of the Company's Common Stock, has notified the Company of her intention to
present the following proposal for action at the meeting:
"RESOLVED: That the shareholders of Pepco recommend that the Board of
Directors take the necessary steps to reinstate the election of directors
ANNUALLY, instead of the staggered system which was recently adopted."
The following statement has been supplied by the shareholder submitting this
proposal:
"REASONS: Until recently, directors of Pepco were elected annually by all
shareholders."
"The great majority of New York Stock Exchange listed corporations elect all
their directors each year."
"This insures that ALL directors will be more accountable to ALL
shareholders each year and to a certain extent prevents the self-perpetuation
of the Board."
"Last year the owners of 22,521,399 shares, representing approximately 26.1%
of shares voting, voted FOR this proposal."
"If you AGREE, please mark your proxy FOR this resolution."
END OF SUPPORTING STATEMENT
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST THE ADOPTION OF
THIS PROPOSAL, WHICH IS SET FORTH AS ITEM 2 ON THE PROXY CARD.
Mrs. Davis has submitted this proposal at each of the Company's last eleven
Annual Meetings. In each instance, the proposal was defeated.
The Board of Directors believes that this proposal is not in the best
interests of the Company and its shareholders. The Board believes that the
present system which has been in place since 1987, providing for the election
of directors for three-year terms on a staggered bases, rather than one-year
terms, has enhanced the continuity and stability in the composition of and in
the policies formulated by the Company's Board of Directors. The Board also
believes that this, in turn, has permitted it to represent more effectively
the interests of all shareholders.
What vote is required to adopt this proposal?
Adoption of the shareholder proposal requires the affirmative vote of the
holders of a majority of the shares of the Common Stock present and entitled
to vote at a meeting of shareholders at which a quorum is present.
How are the votes counted?
Abstentions will be deemed present and entitled to vote for the purpose of
determining whether the shareholder proposal is approved. Broker non-votes are
not considered present and entitled to vote. If no voting instructions are
given by a shareholder, a properly executed proxy will be voted against the
shareholder proposal.
19
<PAGE>
RECEIPT OF SHAREHOLDER PROPOSALS
What is the deadline for submission of shareholder proposals for inclusion in
the Company's Proxy Statement for the 2001 Annual Meeting?
Shareholder proposals must be received by the Company by November 21, 2000
in order to be considered for inclusion in the Proxy Statement for next year's
Annual Meeting.
May a shareholder introduce a resolution for a vote at the Annual Meeting?
The Company's By-Laws contain an advance notice provision which requires
that for a shareholder to bring business properly before a future annual
meeting, the shareholder must give timely written notice to the Company's
Secretary at 1900 Pennsylvania Avenue, N.W., Washington, D.C. 20068, not less
than 60 days nor more than 85 days prior to the meeting (or if the Company
gives less than 65 days public notice of the meeting, then the written notice
must be received no later than the close of business on the fifteenth day
following the date of public notice of the meeting). The shareholder's notice
must set forth a description of the business desired to be brought before the
meeting and the reasons for conducting the business at the annual meeting, the
name and record address of the shareholder, the class and number of shares
owned by the shareholder and any material interest of the shareholder in the
proposed business. The Company will publicly announce the date of its 2001
Annual Meeting at a later date.
3. OTHER MATTERS WHICH MAY COME BEFORE THE MEETING
Does the Board of Directors know of any additional matters to be acted upon at
the Annual Meeting?
The Board of Directors knows of no other matter to be brought before the
meeting.
If another matter does come before the meeting, how will my proxy be voted?
If any other matter should properly come before the meeting, your signed
proxy card gives discretionary authority to the individuals named to vote on
such matters in accordance with their best judgment.
----------------
How can proxies be solicited and who pays for the costs involved?
In addition to the use of the mails, proxies may be solicited by officers,
directors and regular employees of the Company personally, by telephone or by
facsimile. The Company will bear the costs of solicitation of proxies. The
Company will reimburse banks and brokers for certain costs incurred in
forwarding proxy materials to beneficial owners.
20
<PAGE>
[Logo of Recycle Appears Here]
Printed on recycled paper.
<PAGE>
POTOMAC ELECTRIC POWER COMPANY
1900 Pennsylvania Avenue, N.W.
Washington, D.C. 20068
Annual Meeting of Shareholders -- May 9, 2000 PROXY
[Pepco Logo]
The undersigned hereby appoints JOHN M. DERRICK, JR., DENNIS R. WRAASE and
WILLIAM T. TORGERSON and each of them, proxies of the undersigned, with power
of substitution, to attend the above Annual Meeting to be held on Tuesday, May
9, 2000 at 10 a.m. at the Hyatt Regency Bethesda Hotel, One Metro Center,
Bethesda, Maryland, and all adjournments thereof, and thereat to vote all
shares of Common Stock of the Company that the undersigned would be entitled to
vote if personally present on matters set forth in the Proxy Statement and upon
such other matters as may properly come before the meeting. Unless indicated to
the contrary, this Proxy shall be deemed to grant authority to vote FOR Item 1
and AGAINST Item 2.
This Proxy is solicited on behalf of
the Board of Directors of Potomac Electric Power Company
Continued on reverse side
<PAGE>
[Pepco Logo] PROXY
------------------------------------------------------------------------
1.ELECTION OF DIRECTORS FOR all nominees WITHHOLD AUTHORITY
listed below to vote for all
(except as marked to the nominees listed
contrary below) [_] below [_]
(To withhold authority for any individual nominee strike a line through
the nominee's name in the list below.)
Four to serve for three years
Terence C. Golden David O. Maxwell Floretta D. McKenzie Edward F. Mitchell
-----------------------------------------------------------------------------
The Board of Directors recommends a vote "AGAINST"
Item 2 below
2. Shareholder proposal relating to the election of FOR AGAINST ABSTAIN
Directors........................................ [_] [_] [_]
Sign here
as name X ____________________________________ (L.S.)
appears X ____________________________________ (L.S.) Date _____ , 2000
above
Attorneys, executors, administrators, trustees and corporate officials
should indicate the capacity in which they are signing. Shares held in
the Shareholder Dividend Reinvestment Plan are voted on this Proxy.
