SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Schedule 13 of 15(d) of the
Securities Exchange Act of 1934
Date of Report
(Date of earliest event reported): September 22, 1995
BALTIMORE GAS AND ELECTRIC COMPANY
(Exact Name of Registrant as Specified in Charter)
MARYLAND 1-1910 52-0280210
(State or other jurisdiction (Commission File I.R.S. Employer
of incorporation) Number) Identification Number
39 W. Lexington Street
Baltimore, Maryland 21201
(Address of Principal Executive Offices) (Zip Code)
(410) 234-5511
(Registrant's telephone number, including area code)
Item 5. Other Events
MERGER AGREEMENT WITH POTOMAC ELECTRIC POWER COMPANY
Baltimore Gas and Electric Company, a Maryland corporation
("BGE"), Potomac Electric Power Company, a District of Columbia and Virginia
corporation ("PEPCO") and RH Acquisition Corp., a Maryland corporation, the
outstanding capital stock of which is owned 50% by BGE and 50% by PEPCO (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 involving BGE and PEPCO (the "Transaction"). The
Transaction, which was unanimously approved by the Boards of Directors of BGE
and PEPCO, is expected to close by the early part of 1997 after all of the
conditions to the consummation of the Transaction, including obtaining
applicable regulatory approvals, are met or waived.
The Merger Agreement, the joint press release 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 Agreements, as the case
may be.
Under the terms of the Merger Agreement, BGE and PEPCO will
each be merged with and into the Company, with the Company being the surviving
corporation. A new name will be selected for the Company in the near future.
Each outstanding share of Common Stock, no par value, of BGE shall be converted
into a right to receive one share of Common Stock, no par value, of the Company
("Company Common Stock"). Each outstanding share of Common Stock, $1.00 par
value, of PEPCO shall be converted into a right to receive 0.997 shares of
Company Common Stock. As of August 31, 1995, BGE had 147.5 million common shares
outstanding and PEPCO had 118.5 million common shares outstanding. Each
outstanding share of each series of BGE Preferred Stock, $100.00 par value,
shall be converted into one share of the respective series of preferred stock of
the Company ("Company Preferred Stock"), $100 par value, with equal stated value
and dividends and like redemption provisions and other terms and conditions.
Each outstanding share of each series of BGE Preference Stock, $100.00 par
value, shall be converted into a right to receive one share of the respective
series of preference stock, $100 par value, of the Company ("Company Preference
Stock") with equal stated value and dividends and like redemption and other
terms and conditions. Each outstanding share of PEPCO Preferred Stock, $50.00
par value, shall be converted into one share of the respective series of Company
Preferred Stock, $50 par value, with equal stated value and dividends and like
redemption provisions and other terms and conditions. (See Article II of the
Merger Agreement.)
The Company will adopt BGE's dividend policy. The annual
dividend at the expected 1997 closing date is expected to be $1.67 per share of
Company Common Stock.
BGE currently pays $1.56 annually per share of common stock and PEPCO
currently pays $1.66 annually per share of common stock.
The Transaction is subject to customary closing conditions,
including, without limitation, the receipt of required shareholder approvals of
BGE and PEPCO; and the receipt of all necessary governmental approvals and the
making of all necessary governmental filings, including approvals of the 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 periods thereunder. The Transaction is also subject to 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
registration statement to be filed with the Securities and Exchange Commission
(the "SEC") with respect to the Company Common Stock, Preferred Stock and
Preference Stock to be issued in the Transaction and the approval for listing of
such shares on the New York Stock Exchange. (See Article VIII of the Merger
Agreement.) Shareholder meetings to vote upon the Transaction are expected to be
held in early 1996.
The Merger Agreement contains certain covenants of the parties
pending the consummation of the Transaction. Generally, the parties must carry
on their businesses in the ordinary course consistent with past practice, may
not increase dividends on common stock beyond specified levels, and may not
issue any capital stock beyond certain limits. The Merger Agreement also
requires consent from both BGE and PEPCO for either to make, among other things,
certain charter and bylaw amendments; capital expenditures, acquisitions,
dispositions, or incurrence of indebtedness above specified levels; and certain
increases in employee compensation and benefits. (See Article VI of the Merger
Agreement.)
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
and the Company will maintain significant operations in the District of Columbia
and Baltimore, Maryland. The Company's Board of Directors, which will be divided
into three classes, will consist of a total of 16 directors, 9 of whom will be
designated by BGE and 7 of whom will be designated by PEPCO. Mr. Edward F.
Mitchell, the current Chairman of the Board and Chief Executive Officer ("CEO")
of PEPCO, will serve as Chairman of the Company's Board of Directors until one
year from the Closing. Mr. Christian H. Poindexter, the current Chairman of the
Board and CEO of BGE, will serve as Chief Executive Officer of the Company until
the date when Mr. Mitchell ceases to be Chairman of the Board, at which time Mr.
Poindexter will assume the additional role of Chairman of the Board. Mr. Edward
A. Crooke, the current President of BGE, will serve as Vice Chairman of the
Company from the Effective Time and Chairman of the Board of the Company's
diversified business subsidiaries. Mr. John M. Derrick, Jr., the current
President of PEPCO, will serve as President and Chief Operating
Officer of the Company from the Effective Time. (See Article VII of the Merger
Agreement.)
The Merger Agreement may be terminated under certain
circumstances, listed below. Where indicated, termination results in the payment
of expenses and termination fees in the amounts listed below as liquidated
damages; provided that the liquidated damages, when added to the aggregate
amount which could be payable by BGE or PEPCO upon a required purchase of the
options granted pursuant to the Stock Option Agreements (defined below), may not
exceed $125 million in the aggregate. (See Article IX of the Merger Agreement).
Such circumstances include (1) by mutual consent of the parties (no liquidated
damages); (2) by any party 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 by any of the parties, have been satisfied by March
31, 1997 (no liquidated damages)); (3) by any party if BGE's or PEPCO's
shareholders vote against the Transaction ($85 million liquidated damages if the
vote follows a third-party offer of the type described below in clause (7) that
has not been rejected by the target and its Board and withdrawn by the third
party; otherwise no liquidated damages); (4) by any party if any state or
federal law or court order prohibits the Transaction (no liquidated damages);
(5) by a non-breaching party if there exists a material breach of any material
representation or warranty contained in the Merger Agreement, or any material
breach of any covenant or agreement, and such breach is not cured within twenty
(20) days after notice ($10 million liquidated damages); (6) by either party if
the Board of Directors of the other party shall withdraw or adversely modify its
approval or recommendation of the Transaction ($85 million liquidated damages);
or (7) by either party, under certain circumstances, as a result of a
third-party tender offer or business combination proposal which such party's
board of directors determines in good faith that their fiduciary duties requires
be accepted, after the other party has first been given an opportunity to make
adjustments in the terms of the Merger Agreement so as to enable the Transaction
to proceed ($85 million liquidated damages). (See Article IX of the Merger
Agreement.)
Concurrently with the Merger Agreement, the parties 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 as of August 31, 1995 at
an exercise price of $25.925 per share, in the case of BGE common stock, or
$21.225 per share, in the case of PEPCO common stock, under certain
circumstances if the Merger Agreement becomes terminable by one party as a
result of the other party's breach or as a result of the other party becoming
the subject of a third-party proposal for a business combination. Any party
whose option becomes exercisable (the "Exercising party") may require the other
party to repurchase from it all or any portion of the Exercising party's option
at the price specified in the Stock Option Agreements. (See the Stock Option
Agreements.)
A preliminary estimate indicates that the Transaction will
result in net savings of approximately $1.3 billion in costs over 10 years.
BGE's RATINGS REAFFIRMED
BGE received reaffirmation of its securities ratings following
announcement of the merger as follows:
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Standard Moody's
& Poors Investors Duff & Phelps
Rating Group Service Credit Rating Co.
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Senior Secured Debt Single-A-Plus A1 AA-
(First Mortgage Bonds)
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Unsecured Debt Single-A A2 A+
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Preference Single-A a2 A
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Preferred Single-A a1 A+
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Communications issued by each agency are included as exhibits
to this report.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
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EXHIBIT NO. DESCRIPTION OF EXHIBIT
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(2)-1 Agreement and Plan of Merger dated as of September
22, 1995, by and among Baltimore Gas and Electric
Company, Potomac Electric Power Company, and RH
Acquisition Corp.
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(2)-2 BGE Stock Option Agreement dated as of September 22,
1995, by and among Baltimore Gas and Electric
Company, Potomac Electric Power
Company.
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(2)-3 PEPCO Stock Option Agreement dated as of September 22,
1995, by and among Baltimore Gas and Electric Company,
Potomac Electric Power Company.
- ----------------------------------------------------------------------------
(99)-1 Joint Press Release, dated September 25, 1995 of
Baltimore Gas and Electric Company and
Potomac Electric Power Company.
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The registrant agrees to furnish supplementally any omitted
exhibits or schedules to the Commission upon request.
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 duly authorized.
BALTIMORE GAS AND ELECTRIC COMPANY
(Registrant)
By: /s/CHARLES W. SHIVERY
Charles W. Shivery
Vice President and
Chief Financial Officer
Dated: September 27, 1995