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,
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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(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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(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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(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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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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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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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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(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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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.
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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.
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(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.
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(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,
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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
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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
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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
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David A. Brune, Esq.
General Counsel
Fax: (410) 234-5513
with a copy to:
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004-1490
Attention: Stephen R. Rusmisel, Esq.
Fax: (212) 858-1500
17. GOVERNING LAW; CHOICE OF FORUM. This Agreement shall be
governed by and construed in accordance with the laws of the State of Maryland
applicable to agreements made and to be performed entirely within such State and
without regard to its choice of law principles.
18. INTERPRETATION.
(a) When reference is made in this Agreement to Articles,
Sections or Exhibits, such reference shall be to an Article, Section or Exhibit
of this Agreement, as the case may be, unless otherwise indicated.
(b) The table of contents and headings contained in this
Agreement are for reference purposes and shall not affect in any way the meaning
or interpretation of the Agreement.
(c) Whenever the words "include," "includes," or "including"
are used in this Agreement, they shall be deemed to be followed by the words
"without limitation."
(d) Whenever "or" is used in this Agreement it shall be
construed in the nonexclusive sense.
19. COUNTERPARTS; EFFECT. This Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement.
20. AMENDMENTS; WAIVER. This Agreement may be amended by the
parties hereto and the terms and conditions hereof may be waived only by an
instrument in writing signed on behalf of each of the parties hereto, or, in the
case of a waiver, by an instrument signed on behalf of the party waiving
compliance.
21. EXTENSION OF TIME PERIODS. The time periods for exercise
of certain rights under Sections 2, 6 and 7 shall be extended:
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(a) to the extent necessary to obtain all regulatory approvals
for the exercise of such rights, and for the expiration of all statutory waiting
periods; and
(b) to the extent necessary to avoid any liability under
Section 16(b) of the Exchange Act by reason of such exercise.
THIS SPACE INTENTIONALLY LEFT BLANK.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective duly authorized officers as of the
date first above written.
POTOMAC ELECTRIC POWER COMPANY
/s/ EDWARD F. MITCHELL
-----------------------------------
Edward F. Mitchell
Chairman of the Board and
Chief Executive Officer
BALTIMORE GAS AND ELECTRIC COMPANY
/s/ CHRISTIAN H. POINDEXTER
-----------------------------------
Christian H. Poindexter
Chairman of the Board and
Chief Executive Officer
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