PEPCO STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT, dated as of September 22, 1995,
(the "Agreement") by and between Baltimore Gas and Electric Company, a
corporation formed under the laws of the State of Maryland ("BGE") and Potomac
Electric Power Company, a corporation formed under the laws of the District of
Columbia and the Commonwealth of Virginia ("PEPCO"),
W I T N E S S E T H T H A T:
WHEREAS, concurrently with the execution and delivery of this
Agreement, PEPCO, BGE and RH Acquisition Corp., a corporation formed under the
laws of the State of Maryland ("Company"), are entering into an Agreement and
Plan of Merger, dated as of September 22, 1995, (the "Merger Agreement"), which
provides, inter alia, upon the terms and subject to the conditions thereof, for
the merger of PEPCO and BGE with and into Company (the "Merger");
WHEREAS, in connection with the execution of the Merger
Agreement, PEPCO and BGE are entering into a certain stock option agreement
dated as of the date hereof whereby BGE grants to PEPCO an option with respect
to certain shares of BGE's common stock on the terms and subject to the
conditions set forth therein (the "BGE Stock Option Agreement"); and
WHEREAS, as a condition to BGE's willingness to enter into the
Merger Agreement, BGE has requested that PEPCO agree, and PEPCO has so agreed,
to grant to BGE an option with respect to certain shares of PEPCO's common
stock, on the terms and subject to the conditions set forth herein;
NOW, THEREFORE, to induce BGE to enter into the Merger
Agreement and the BGE Stock Option Agreement, and in consideration of the
representations, warranties, covenants and agreements contained herein, in the
Merger Agreement and in the BGE Stock Option Agreement, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. GRANT OF OPTION.
(a) PEPCO hereby grants BGE an irrevocable option (the "PEPCO
Option") to purchase up to 23,579,900 shares, subject to adjustment as provided
in Section 11 (the "PEPCO Shares"), of common stock, par value $1.00 per share,
of PEPCO (the "PEPCO Common Stock") (being 19.9% of the number of shares of
PEPCO Common Stock outstanding as of August 31, 1995) in the manner set forth
below, at a price (the "Exercise Price") per PEPCO Share of
$21.225 (which is equal to the Fair Market Value (as defined below) of a PEPCO
Share as of the date hereof).
(b) The Exercise Price shall be payable, at BGE's
option, as follows:
(i) in cash, or
(ii) subject to PEPCO's having obtained the approvals
of any Governmental Authority required for PEPCO to acquire the BGE
Shares (as defined below) from BGE, in shares of common stock, without
par value, of BGE ("BGE Shares"),
in either case in accordance with Section 4 hereof.
(c) Notwithstanding the foregoing, in no event shall the
number of PEPCO Shares for which the PEPCO Option is exercisable exceed 19.9% of
the number of issued and outstanding shares of PEPCO Common Stock.
(d) As used herein, the "Fair Market Value" of any share shall
be the average of the daily closing sales price for such share on the New York
Stock Exchange (the "NYSE") during the ten NYSE trading days prior to the fifth
NYSE trading day preceding the date such Fair Market Value is to be determined.
(e) Capitalized terms used herein but not defined herein shall
have the meanings set forth in the Merger Agreement.
2. EXERCISE OF OPTION.
(a) The PEPCO Option may be exercised by BGE, in whole or in
part, at any time or from time to time after the Merger Agreement becomes
terminable by BGE under circumstances which could entitle BGE to a payment under
Section 9.3(b) of the Merger Agreement, regardless of whether the Merger
Agreement is actually terminated or whether there occurs a closing of any
Business Combination involving a Target Party or a closing by which a Target
Party becomes a subsidiary (any such event by which the Merger Agreement becomes
so terminable by BGE being referred to herein as a "Trigger Event").
(b) (i) PEPCO shall notify BGE promptly in writing of the
occurrence of any Trigger Event, it being understood that the giving of
such notice by PEPCO shall not be a condition to the right of BGE to
exercise the PEPCO Option.
(ii) In the event BGE wishes to exercise the PEPCO
Option, BGE shall deliver to PEPCO written notice (an "Exercise
Notice") specifying the total number of PEPCO Shares it wishes to
purchase.
-2-
(iii) Upon the giving by BGE to PEPCO of the Exercise
Notice and the tender of the applicable aggregate Exercise Price, BGE,
to the extent permitted by law and PEPCO's organizational documents,
and provided that the conditions to PEPCO's obligation to issue the
PEPCO Shares to BGE hereunder set forth in Section 3 have been
satisfied or waived, shall be deemed to be the holder of record of the
PEPCO Shares issuable upon such exercise, notwithstanding that the
stock transfer books of PEPCO shall then be closed or that certificates
representing such PEPCO Shares shall not then be actually delivered to
BGE.
(iv) Each closing of a purchase of PEPCO Shares (a
"Closing") shall occur at a place, on a date, and at a time designated
by BGE in an Exercise Notice delivered at least two business days prior
to the date of the Closing.
(c) The PEPCO Option shall terminate upon the earliest
to occur of:
(i) the Effective Time of the Merger;
(ii) the termination of the Merger Agreement pursuant to
Section 9.1 thereof other than under circumstances which could entitle
BGE to a payment under Section 9.3(b) of the Merger Agreement; and
(iii) 180 days following any termination of the Merger
Agreement upon or during the continuance of a Trigger Event (or if, at
the expiration of such 180 day period, the PEPCO Option cannot be
exercised by reason of any applicable judgment, decree, order, law or
regulation, ten business days after such impediment to exercise shall
have been removed or shall have become final and not subject to appeal,
but in no event under this clause (iii) later than March 31, 1998).
(d) Notwithstanding the foregoing, the PEPCO Option may not be
exercised if BGE is in material breach of any of its representations or
warranties, or in material breach of any of its covenants or agreements,
contained in this Agreement or in the Merger Agreement.
3. CONDITIONS TO CLOSING. The obligation of PEPCO to
issue the PEPCO Shares to BGE hereunder is subject to the
conditions that
(a) all waiting periods, if any, under the HSR Act applicable
to the issuance of the PEPCO Shares hereunder shall have expired or have been
terminated;
(b) the PEPCO Shares, and any BGE Shares which are issued in
payment of the Exercise Price, shall have been approved for listing on the NYSE
upon official notice of issuance;
-3-
(c) all consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, any federal, state or local
administrative agency or commission or other federal, state or local
Governmental Authority, if any, required in connection with the issuance of the
PEPCO Shares hereunder shall have been obtained or made, including, without
limitation, the approval of the SEC under Section 10 of the 1935 Act, the
approval of the D.C. Commission of the issuance of the PEPCO Shares by PEPCO
and, if applicable, the acquisition of PEPCO Shares by BGE, and the approval of
the Maryland Commission of the acquisition of the PEPCO Shares by BGE and, if
applicable, the acquisition by PEPCO of the BGE Shares constituting the Exercise
Price hereunder; and
(d) no preliminary or permanent injunction or other order by
any court of competent jurisdiction prohibiting or otherwise restraining such
issuance shall be in effect.
The condition set forth in paragraph (b) above may be waived by PEPCO, in the
case of BGE Shares, and by BGE, in the case of PEPCO Shares, in the sole
discretion of the waiving party.
4. CLOSING. At any Closing,
(a) PEPCO shall deliver to BGE or its designee a single
certificate in definitive form representing the number of PEPCO Shares
designated by BGE in its Exercise Notice, such certificate to be registered in
the name of BGE and to bear the legend set forth in Section 12; and
(b) BGE shall deliver to PEPCO the aggregate price for
the PEPCO Shares so designated and being purchased by
(i) wire transfer of immediately available funds
or certified check or bank check, or
(ii) subject to the condition in Section 1(b)(ii), a
certificate or certificates representing the number of BGE Shares being
issued by BGE in consideration thereof, determined in accordance with
Section 4(c).
(c) In the event that BGE issues BGE Shares to PEPCO in
consideration of PEPCO Shares pursuant to Section 4(b)(ii), the number of BGE
Shares to be so issued shall be equal to the quotient obtained by dividing:
(i) the product of (x) the number of PEPCO Shares
with respect to which the PEPCO Option is being exercised
and (y) the Exercise Price, by
(ii) the Fair Market Value of the BGE Shares as of
the date immediately preceding the date the Exercise Notice is
delivered to PEPCO.
-4-
(d) PEPCO shall pay all expenses, and any and all United
States Federal, state and local taxes, and other charges that may be payable in
connection with the preparation, issue and delivery of stock certificates under
this Section 4.
5. REPRESENTATIONS AND WARRANTIES OF PEPCO. PEPCO
represents and warrants to BGE that
(a) Subject to any required regulatory approvals, PEPCO has
the corporate power and authority to enter into this Agreement and to carry out
its obligations hereunder, subject in the case of the repurchase of the PEPCO
Shares pursuant to Section 7(a) to applicable law and the provisions of PEPCO's
Articles of Incorporation, as amended (the "PEPCO Articles");
(b) this Agreement has been duly and validly executed and
delivered by PEPCO, and, assuming the due authorization, execution and delivery
hereof by BGE, constitutes a valid and binding obligation of PEPCO, enforceable
against PEPCO in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization or
other similar laws affecting the enforcement of creditors' rights generally, and
except that the availability of equitable remedies, including specific
performance, may be subject to the discretion of any court before which any
proceeding therefor may be brought;
(c) PEPCO has taken all necessary corporate action to
authorize and reserve for issuance and to permit it to issue, upon exercise of
the PEPCO Option, and at all times from the date hereof through the expiration
of the PEPCO Option will have reserved, 23,579,900 authorized and unissued PEPCO
Shares, such amount being subject to adjustment as provided in Section 11, all
of which, upon their issuance and delivery in accordance with the terms of this
Agreement, will be validly issued, fully paid and nonassessable;
(d) upon delivery of the PEPCO Shares to BGE upon the exercise
of the PEPCO Option, BGE will acquire the PEPCO Shares free and clear of all
claims, liens, charges, encumbrances and security interests of any nature
whatsoever;
(e) except as described in Section 4.4(b) of the Merger
Agreement, the execution and delivery of this Agreement by PEPCO does not, and,
subject to compliance with applicable law and the PEPCO Articles with respect to
the repurchase of the PEPCO Shares pursuant to Section 7(a), the consummation by
PEPCO of the transactions contemplated hereby will not, violate, conflict with,
or result in a breach of any provision of, or constitute a default (with or
without notice or a lapse of time, or both) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination, cancellation, or acceleration of any obligation or the loss of a
material benefit under, or the creation of a lien, pledge,
-5-
security interest or other encumbrance on assets (any such conflict, violation,
default, right of termination, cancellation or acceleration, loss or creation,
hereinafter a "Violation") of PEPCO or any of its subsidiaries, pursuant to
(i) any provision of the PEPCO Articles or the
Bylaws of PEPCO,
(ii) any provisions of any material loan or credit
agreement, note, mortgage, indenture, lease, PEPCO benefit plan or
other agreement, obligation, instrument, permit, concession, franchise,
license (any of the foregoing in effect on the date hereof being
referred to as a "Material Contract"), or
(iii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to PEPCO or its
properties or assets,
which Violation, in the case of each of clauses (ii) and (iii), could reasonably
be expected to have a PEPCO Material Adverse Effect (except that no
representation or warranty is given concerning any Violation of a Material
Contract with respect to the repurchase of PEPCO Shares pursuant to Section
7(a));
(f) except as described in Section 4.4(c) of the Merger
Agreement or Section 3 hereof, the execution and delivery of this Agreement by
PEPCO does not, and the performance of this Agreement by PEPCO will not, require
any consent, approval, authorization or permit or filing with or notification
to, any Governmental Authority;
(g) none of PEPCO, any of its affiliates or anyone acting on
its or their behalf, has issued, sold or offered any security of PEPCO to any
person under circumstances that would cause the issuance and sale of PEPCO
Shares, as contemplated by this Agreement, to be subject to the registration
requirements of the Securities Act as in effect on the date hereof, and,
assuming the representations and warranties of BGE contained in Section 6(g) are
true and correct, the issuance, sale and delivery of the PEPCO Shares hereunder
would be exempt from the registration and prospectus delivery requirements of
the Securities Act, as in effect on the date hereof (and PEPCO shall not take
any action which would cause the issuance, sale, and delivery of PEPCO Shares
hereunder not to be exempt from such requirements); and
(h) any BGE Shares acquired pursuant to this Agreement will be
acquired for PEPCO's own account, for investment purposes only, and will not be
acquired by PEPCO with a view to the public distribution thereof in violation of
any applicable provision of the Securities Act.
6. REPRESENTATIONS AND WARRANTIES OF BGE. BGE represents and
warrants to PEPCO that
-6-
(a) BGE has the corporate power and authority to enter into
this Agreement and to carry out its obligations hereunder;
(b) this Agreement has been duly and validly executed and
delivered by BGE and, assuming the due authorization, execution and delivery
hereof, constitutes a valid and binding obligation of BGE, enforceable against
BGE in accordance with their respective terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, or other similar laws
affecting the enforcement of creditors' rights generally, and except that the
availability of equitable remedies, including specific performance, may be
subject to the discretion of any court before which any proceeding may be
brought;
(c) prior to any delivery of BGE Shares in consideration of
the purchase of PEPCO Shares pursuant hereto, BGE will have taken all necessary
corporate action to authorize for issuance and to permit it to issue such BGE
Shares, all of which, upon their issuance and delivery in accordance with the
terms of this Agreement, will be validly issued, fully paid and nonassessable;
(d) upon any delivery of such BGE Shares to PEPCO in
consideration of the purchase of PEPCO Shares pursuant hereto, PEPCO will
acquire the BGE Shares free and clear of all claims, liens, charges,
encumbrances and security interests of an nature whatsoever;
(e) except as described in Section 5.4(b) of the Merger
Agreement, the execution and delivery of this Agreement by BGE does not, and the
consummation by BGE of the transactions contemplated hereby will not, violate,
conflict with, or result in the breach of any provision of, or constitute a
default (with or without notice or a lapse of time, or both) under, or result in
any Violation by BGE or any of its subsidiaries, pursuant to
(i) any provision of the Articles of Incorporation or
Bylaws of BGE,
(ii) any provisions of any loan or credit agreement, note,
mortgage, indenture, lease, BGE benefit plan or other agreement,
obligation, instrument, permit, concession, franchise, license, or
(iii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to BGE or its properties or
assets,
which Violation, in the case of each of clauses (ii) or (iii), would have a BGE
Material Adverse Effect;
(f) except as described in Section 5.4(c) of the Merger
Agreement or Section 3 hereof, the execution and delivery of this Agreement by
BGE does not, and the consummation by BGE of
-7-
the transactions contemplated hereby will not, require any consent, approvals
authorization or permit of, or filing with or notification to, any Governmental
Authority; and
(g) any PEPCO Shares acquired upon exercise of the PEPCO
Option will be acquired for BGE's own account, for investment purposes only and
will not be, and the PEPCO Option is not being, acquired by BGE with a view to
the public distribution thereof, in violation of any applicable provision of the
Securities Act.
7. CERTAIN REPURCHASES.
(a) BGE "PUT". At the request of BGE by written notice (x) at
any time during which the PEPCO Option is exercisable pursuant to Section 2 (the
"Repurchase Period"), PEPCO (or any successor entity thereof) shall, if
permitted by applicable law, the PEPCO Articles and PEPCO's Material Contracts
(but notwithstanding any insufficiency in the number of PEPCO Shares authorized
for issuance upon the exercise of the PEPCO Option), repurchase from BGE all or
any portion of the PEPCO Option, at the price set forth in subparagraph (i)
below, or, (y) at any time prior to March 31, 1997 (provided that such date
shall be extended to March 31, 1998 under the circumstances where the date after
which either party may terminate the Merger Agreement pursuant to Section 9.1(b)
of the Merger Agreement has been extended to March 31, 1998), PEPCO (or any
successor entity thereof) shall, if permitted by applicable law, the PEPCO
Articles and PEPCO's Material Contracts, repurchase from BGE all or any portion
of the PEPCO Shares purchased by BGE pursuant to the PEPCO Option, at the price
set forth in subparagraph (ii) below:
(i) the difference between the "Market/Offer Price"
(as defined below) for shares of PEPCO Common Stock as of the date BGE
gives notice of its intent to exercise its rights under this Section 7
and the Exercise Price, multiplied by the number of PEPCO Shares
purchasable pursuant to the PEPCO Option (or portion thereof with
respect to which BGE is exercising its rights under this Section 7),
but only if the Market/Offer Price is greater than the Exercise Price.
For purposes of this subparagraph (i), "Market/Offer Price" shall mean,
as of any date, the higher of (x) the price per share offered as of
such date pursuant to any tender or exchange offer or other offer with
respect to a Business Combination involving PEPCO as the Target Party
which was made prior to such date and not terminated or withdrawn as of
such date and (y) the Fair Market Value of PEPCO Common Stock as of
such date.
(ii) the product of (x) the sum of (A) the Exercise
Price paid by BGE per PEPCO Share acquired pursuant to the PEPCO
Option, and (B) the difference between the "Offer Price" (as defined
below) and the Exercise Price, but
-8-
only if the Offer Price is greater than the Exercise Price, and (y) the
number of PEPCO Shares so to be repurchased pursuant to this Section 7.
For purposes of this clause (ii), the "Offer Price" shall be the
highest price per share offered pursuant to a tender or exchange offer
or other Business Combination offer involving PEPCO as the Target Party
during the Repurchase Period prior to the delivery by BGE of a notice
of repurchase.
(b) REDELIVERY OF BGE SHARES. If BGE shall have previously
elected to purchase PEPCO Shares pursuant to the exercise of the PEPCO Option by
the issuance and delivery of BGE Shares, then PEPCO shall, if so requested by
BGE, in fulfillment of its obligation pursuant to Section 7(a)(y) (that is, with
respect to the Exercise Price only and without limitation to its obligation to
pay additional consideration under clause (B) of Section 7(a)(ii)(x)), redeliver
the certificates for such BGE Shares to BGE, free and clear of all liens,
claims, charges and encumbrances of any kind or nature whatsoever; provided,
however, that if at any time less than all of the PEPCO Shares so purchased by
BGE pursuant to the PEPCO Option are to be repurchased by PEPCO pursuant to
Section 7(a)(y), then (i) PEPCO shall be obligated to redeliver to BGE the same
proportion of such BGE Shares as the number of PEPCO Shares that PEPCO is then
obligated to repurchase bears to the number of PEPCO Shares acquired by BGE upon
exercise of the PEPCO Option and (ii) BGE shall issue to PEPCO new certificates
representing those BGE Shares which are not due to be redelivered to BGE
pursuant to this Section 7(b) to the extent that excess BGE Shares are included
in the certificates redelivered to BGE by PEPCO.
(c) PAYMENT AND REDELIVERY OF PEPCO OPTIONS OR SHARES. In the
event BGE exercises its rights under this Section 7, PEPCO shall, within ten
business days thereafter, pay the required amount to BGE in immediately
available funds and BGE shall surrender to PEPCO the PEPCO Option or the
certificate or certificates evidencing the PEPCO Shares purchased by BGE
pursuant hereto, and BGE shall warrant that it owns the PEPCO Option or such
shares and that the PEPCO Option or such shares are then free and clear of all
liens, claims, damages, charges and encumbrances of any kind or nature
whatsoever.
(d) BGE "CALL". If BGE has elected to purchase PEPCO Shares
pursuant to the exercise of the PEPCO Option by the issuance and delivery of BGE
Shares, notwithstanding that BGE may no longer hold any such PEPCO Shares or
that BGE elects not to exercise its other rights under this Section 7, BGE may
require, at any time or from time to time prior to March 31, 1997 (provided that
such date shall be extended to March 31, 1998 under the circumstances where the
date after which either party may terminate the Merger Agreement pursuant to
Section 9.1(b) of the Merger Agreement has been extended to March 31, 1998),
PEPCO to sell to BGE any such BGE Shares at the price attributed to such BGE
Shares pursuant to Section 4 plus interest at the rate
-9-
of 8.75% per annum on such amount from the Closing Date relating to the exchange
of such BGE Shares pursuant to Section 4 to the Closing Date under this Section
7(d) less any dividends on such BGE Shares paid during such period or declared
and payable to stockholders of record on a date during such period.
(e) REPURCHASE PRICE REDUCED AT BGE'S OPTION. In the event the
repurchase price specified in Section 7(a) would subject the purchase of the
PEPCO Option or the PEPCO Shares purchased by BGE pursuant to the PEPCO Option
to a vote of the shareholders of PEPCO pursuant to applicable law or the PEPCO
Articles, then BGE may, at its election, reduce the repurchase price to an
amount which would permit such repurchase without the necessity for such a
shareholder vote.
8. VOTING OF SHARES. Following the date hereof and prior to
the fifth anniversary of the date hereof (the "Expiration Date"), each party
shall vote any shares of capital stock of the other party acquired by such party
pursuant to this Agreement ("Restricted Shares"), including any BGE Shares
issued pursuant to Section 1(b), or otherwise beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), by such party on each matter submitted to a vote
of shareholders of such other party for and against such matter in the same
proportion as the vote of all other shareholders of such other party are voted
(whether by proxy or otherwise) for and against such matter.
9. RESTRICTIONS ON TRANSFER.
(a) RESTRICTIONS ON TRANSFER. Prior to the Expiration Date,
neither party shall, directly or indirectly, by operation of law or otherwise,
sell, assign, pledge, or otherwise dispose of or transfer any Restricted Shares
beneficially owned by such party, other than (i) pursuant to Section 7, or (ii)
in accordance with Section 9(b) or Section 10.
(b) PERMITTED SALES. Following the termination of the Merger
Agreement, a party shall be permitted to sell any Restricted Shares beneficially
owned by it if such sale is made pursuant to a tender or exchange offer that has
been approved or recommended, or otherwise determined to be fair to and in the
best interests of the shareholders of the other party, by a majority of the
members of the Board of Directors of such other party, which majority shall
include a majority of directors who were directors prior to the announcement of
such tender or exchange offer.
10. REGISTRATION RIGHTS.
(a) Following the termination of the Merger Agreement, either
party hereto that owns Restricted Shares (a "Designated Holder") may by written
notice (the "Registration Notice") to the other party (the "Registrant") request
the Registrant to register
-10-
under the Securities Act all or any part of the Restricted Shares beneficially
owned by such Designated Holder (the "Registrable Securities") pursuant to a
bona fide firm commitment underwritten public offering, in which the Designated
Holder and the underwriters shall effect as wide a distribution of such
Registrable Securities as is reasonably practicable and shall use their best
efforts to prevent any person (including any Group (as used in Rule 13d-5 under
the Exchange Act)) and its affiliates from purchasing through such offering
Restricted Shares representing more than 1% of the outstanding shares of common
stock of the Registrant on a fully diluted basis (a "Permitted Offering").
(b) The Registration Notice shall include a certificate
executed by the Designated Holder and its proposed managing underwriter, which
underwriter shall be an investment banking firm of nationally recognized
standing (the "Manager"), stating that
(i) they have a good faith intention to commence
promptly a Permitted Offering, and
(ii) the Manager in good faith believes that, based
on the then-prevailing market conditions, it will be able to sell the
Registrable Securities at a per share price equal to at least 80% of
the then Fair Market Value of such shares.
(c) The Registrant (and/or any person designated by the
Registrant) shall thereupon have the option exercisable by written notice
delivered to the Designated Holder within ten business days after the receipt of
the Registration Notice, irrevocably to agree to purchase all or any part of the
Registrable Securities proposed to be so sold for cash at a price (the "Option
Price") equal to the product of (i) the number of Registrable Securities to be
so purchased by the Registrant and (ii) the then Fair Market Value of such
shares.
(d) Any purchase of Registrable Securities by the Registrant
(or its designee) under Section 10(c) shall take place at a closing to be held
at the principal executive offices of the Registrant or at the offices of its
counsel at any reasonable date and time designated by the Registrant and/or such
designee in such notice within twenty business days after delivery of such
notice, and any payment for the shares to be so purchased shall be made by
delivery at the time of such closing in immediately available funds.
(e) If the Registrant does not elect to exercise its option
pursuant to this Section 10 with respect to all Registrable Securities, it shall
use its best efforts to effect, as promptly as practicable, the registration
under the Securities Act of the unpurchased Registrable Securities proposed to
be so sold; provided, however, that
-11-
(i) neither party shall be entitled to more than
an aggregate of two effective registration statements
hereunder, and
(ii) the Registrant will not be required to file any
such registration statement during any period of time (not to exceed 40
days after such request in the case of clause (A) below or 90 days in
the case of clauses (B) and (C) below) when
(A) the Registrant is in possession of material non-public
information which it reasonably believes would be detrimental to be disclosed at
such time and, in the opinion of counsel to the Registrant, such information
would have to be disclosed if a registration statement were filed at that time;
(B) the Registrant is required under the Securities Act to
include audited financial statements for any period in such registration
statement and such financial statements are not yet available for inclusion in
such registration statement; or
(C) the Registrant determines, in its reasonable judgment,
that such registration would interfere with any financing, acquisition or other
material transaction involving the Registrant or any of its affiliates.
(f) The Registrant shall use its reasonable best efforts to
cause any Registrable Securities registered pursuant to this Section 10 to be
qualified for sale under the securities or Blue Sky laws of such jurisdictions
as the Designated Holder may reasonably request and shall continue such
registration or qualification in effect in such jurisdiction; provided, however,
that the Registrant shall not be required to qualify to do business in, or
consent to general service of process in, any jurisdiction by reason of this
provision.
(g) The registration rights set forth in this Section 10 are
subject to the condition that the Designated Holder shall provide the Registrant
with such information with respect to such holder's Registrable Securities, the
plans for the distribution thereof, and such other information with respect to
such holder as, in the reasonable judgment of counsel for the Registrant, is
necessary to enable the Registrant to include in such registration statement all
material facts required to be disclosed with respect to a registration
thereunder.
(h) A registration effected under this Section 10 shall be
effected at the Registrant's expense, except for underwriting discounts and
commissions and the fees and the expenses of counsel to the Designated Holder,
and the Registrant shall provide to the underwriters such documentation
(including certificates, opinions of counsel and "comfort" letters from
auditors) as is customary in connection with underwritten public offerings as
such underwriters may reasonably require.
-12-
(i) In connection with any registration effected under
this Section 10, the parties agree
(i) to indemnify each other and the underwriters in the
customary manner,
(ii) to enter into an underwriting agreement in form and
substance customary for transactions of such type with the Manager and
the other underwriters participating in such offering, and
(iii) to take all further actions which shall be
reasonably necessary to effect such registration and sale (including if
the Manager deems it necessary, participating in road-show
presentations).
(j) The Registrant shall be entitled to include (at its
expense) additional shares of its common stock in a registration effected
pursuant to this Section 10 only if and to the extent the Manager determines
that such inclusion will not adversely affect the prospects for success of such
offering.
11. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. Without
limitation to any restriction on PEPCO contained in this Agreement or in the
Merger Agreement, in the event of any change in PEPCO Common Stock by reason of
stock dividends, splitups, mergers (other than the Merger), recapitalizations,
combinations, exchange of shares or the like, the type and number of shares or
securities subject to the PEPCO Option, and the purchase price per share
provided in Section 1, shall be adjusted appropriately to restore to BGE its
rights hereunder, including the right to purchase from PEPCO (or its successors)
shares of PEPCO Common Stock representing 19.9% of the outstanding PEPCO Common
Stock for the aggregate Exercise Price calculated as of the date of this
Agreement as provided in Section 1.
12. RESTRICTIVE LEGENDS. Each certificate representing shares
of PEPCO Common Stock issued to BGE hereunder, and BGE Shares, if any, delivered
to PEPCO at a Closing, shall include a legend in substantially the following
form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
OR BLUE SKY LAWS, AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR
IF AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. SUCH SECURITIES
ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN
THE PEPCO STOCK OPTION AGREEMENT, DATED AS OF SEPTEMBER 22, 1995, A
COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER UPON REQUEST.
-13-
It is understood and agreed that:
(i) the reference to the resale restrictions of the
Securities Act and state securities or Blue Sky laws in the above
legend shall be removed by delivery of substitute certificate(s)
without such reference if BGE or PEPCO, as the case may be, shall have
delivered to the other party a copy of a letter from the staff of the
SEC, or an opinion of counsel, in form and substance satisfactory to
the other party, to the effect that such legend is not required for
purposes of the Securities Act or such laws;
(ii) the reference to the provisions to this
Agreement in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if the shares have
been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of
such reference; and
(iii) the legend shall be removed in its entirety if
the conditions in the preceding clauses (i) and (ii) are both
satisfied.
In addition, such certificates shall bear any other legend as may be required by
law. Certificates representing shares sold in a registered public offering
pursuant to Section 10 shall not be required to bear the legend set forth in
this Section 12.
13. BINDING EFFECT; NO ASSIGNMENT; NO THIRD PARTY
BENEFICIARIES. (a) This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
(b) Except as expressly provided for in this Agreement,
neither this Agreement nor the rights or obligations of either party hereto are
assignable, except by operation of law, or with the written consent of the other
party.
(c) Nothing contained in this Agreement, express or implied,
is intended to confer upon any person other than the parties hereto and their
respective permitted assigns any rights or remedies of any nature whatsoever by
reason of this Agreement.
(d) Any Restricted Shares sold by a party in compliance with
the provisions of Section 10 shall, upon consummation of such sale, be free of
the restrictions imposed with respect to such shares by this Agreement, unless
and until such party shall repurchase or otherwise become the beneficial owner
of such shares, and any transferee of such shares shall not be entitled to the
registration rights of such party.
14. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable harm would occur in the event that any of the provisions of this
Agreement were not performed in accordance
-14-
with their specified terms or were otherwise breached. It is accordingly agreed
that the parties hereto shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or equity.
15. VALIDITY. (a) The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
the other provisions of this Agreement, which shall remain in full force and
effect.
(b) In the event any court or other competent authority holds
any provisions of this Agreement to be null, void or unenforceable, the parties
hereto shall negotiate in good faith the execution and delivery of an amendment
to this Agreement in order, as nearly as possible, to effectuate, to the extent
permitted by law, the intent of the parties hereto with respect to such
provision and the economic effects thereof.
(c) If for any reason any such court or regulatory agency
determines that BGE is not permitted to acquire, or PEPCO is not permitted to
repurchase pursuant to Section 7, the full number of shares of PEPCO Common
Stock provided in Section 1 hereof (as the same may be adjusted), it is the
express intention of PEPCO to allow BGE to acquire or to require PEPCO to
repurchase such lesser number of shares as may be permissible without any
amendment or modification hereof.
(d) Each party agrees that, should any court or other
competent authority hold any provision of this Agreement or part hereof to be
null, void or unenforceable, or order any party to take any action inconsistent
herewith, or not take any action required herein, the other party shall not be
entitled to specific performance of such provision or part hereof or to any
other remedy, including but not limited to money damages, for breach hereof or
of any other provision of this Agreement or part hereof as the result of such
holding or order.
16. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if (a) delivered personally, or
(b) if sent by overnight courier service (receipt confirmed in writing), or (c)
if delivered by facsimile transmission with receipt confirmed), or (d) five days
after being mailed by registered or certified mail (return receipt requested) to
the parties in each case to the following addresses (or at such other address
for a party as shall be specified by like notice):
A. If to BGE, to:
By Mail: P.O. Box 1475
Baltimore, MD 21203
-15-
By Hand: Liberty and Lexington Streets
Baltimore, MD 21201
Attention: Charles W. Shivery
Vice President and CFO
Fax: (410) 234-5690
David A. Brune, Esq.
General Counsel
Fax: (410) 234-5513
with a copy to:
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004-1490
Attention: Stephen R. Rusmisel, Esq.
Fax: (212) 858-1500
B. If to PEPCO, to:
By Mail 1900 Pennsylvania Avenue, NW
and Hand: Washington, D.C. 20063
Attention: Dennis R. Wraase
Senior Vice President-
Finance and Accounting
Fax: (202) 331-6314
William T. Torgerson
Senior Vice President-
Law & Governmental
Relations, General Counsel
and Secretary
Fax: (202) 331-6314
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
Attention: Douglas W. Hawes, Esq.
Fax: (212) 424-8500
-16-
and a copy to:
Covington & Burling
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20044
Attention: George B. Reid, Jr., Esq.
Fax: (202)662-6291
17. GOVERNING LAW; CHOICE OF FORUM. This Agreement shall be
governed by and construed in accordance with the laws of the State of Maryland
applicable to agreements made and to be performed entirely within such State and
without regard to its choice of law principles.
18. INTERPRETATION.
(a) When reference is made in this Agreement to Articles,
Sections or Exhibits, such reference shall be to an Article, Section or Exhibit
of this Agreement, as the case may be, unless otherwise indicated.
(b) The table of contents and headings contained in this
Agreement are for reference purposes and shall not affect in any way the meaning
or interpretation of the Agreement.
(c) Whenever the words "include," "includes," or "including"
are used in this Agreement, they shall be deemed to be followed by the words
"without limitation."
(d) Whenever "or" is used in this Agreement it shall be
construed in the nonexclusive sense.
19. COUNTERPARTS; EFFECT. This Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement.
20. AMENDMENTS; WAIVER. This Agreement may be amended by the
parties hereto and the terms and conditions hereof may be waived only by an
instrument in writing signed on behalf of each of the parties hereto, or, in the
case of a waiver, by an instrument signed on behalf of the party waiving
compliance.
21. EXTENSION OF TIME PERIODS. The time periods for exercise
of certain rights under Sections 2, 6 and 7 shall be extended:
(a) to the extent necessary to obtain all regulatory approvals
for the exercise of such rights, and for the expiration of all statutory waiting
periods; and
-17-
(b) to the extent necessary to avoid any liability under
Section 16(b) of the Exchange Act by reason of such exercise.
THIS SPACE INTENTIONALLY LEFT BLANK
-18-
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
-19-