SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Filed by a party other than the Registrant / /
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/ / Preliminary Proxy Statement
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/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Delmarva Power & Light Company
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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/x/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
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previously. Identify the previous filing by registration statement number,
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DELMARVA POWER & LIGHT COMPANY
800 KING STREET
P.O. BOX 231
WILMINGTON, DELAWARE 19899
HOWARD E. COSGROVE
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
April 7, 1997
To The Holders of Common Stock of
Delmarva Power & Light Company:
You are cordially invited to attend the Annual Meeting of Stockholders of
Delmarva Power & Light Company (the "Company") to be held at the University of
Delaware's John M. Clayton Hall, located on Rt. 896 North, Newark, Delaware, on
Thursday, May 29, 1997 at 11:00 A.M.
The purpose of the meeting is:
1. To elect three members of the Board of Directors;
2. To appoint the Company's independent public accountants for the year
1997;
3. To consider and take action with respect to a stockholder proposal
relating to compensation of executive officers and directors, if such
proposal is properly brought before the meeting; and
4. To transact such other business as may properly come before the meeting.
The close of business on March 31, 1997 has been fixed by the Board of
Directors as the time for determining the holders of Common Stock entitled to
vote at this meeting.
Please date, sign and mail the enclosed proxy as promptly as possible in the
enclosed return envelope. Stockholders who are present at the meeting may
withdraw their Proxy and vote in person if they so desire.
Yours very truly,
[LOGO]
Whether or not you expect to be present at the Annual Meeting, please sign,
date and return the accompanying proxy promptly so that your shares may be
represented and voted at the Meeting. You may revoke your proxy if you so
desire at any time before it is voted. A return envelope, which requires no
postage if mailed in the United States, is enclosed for your convenience.
DELMARVA POWER & LIGHT COMPANY
800 KING STREET
P.O. BOX 231
WILMINGTON, DELAWARE 19899
------------------------
PROXY STATEMENT
This statement is furnished in connection with the solicitation of proxies
on behalf of the Board of Directors of Delmarva Power & Light Company (the
"Company") to be used at the Annual Meeting of Stockholders of the Company to be
held on Thursday, May 29, 1997, and at any adjournments thereof. This Proxy
Statement and accompanying proxy will be mailed to holders of Common Stock on or
about April 7, 1997.
Properly executed proxies received in time for the meeting will be voted in
the manner set forth on the proxy unless specifically otherwise directed by the
stockholder. If the enclosed form of proxy is executed and returned, it may
nevertheless be revoked at any time by delivering notice of revocation or a duly
executed proxy bearing a later date to the Secretary of the Company before the
proxy is voted, and stockholders who are present at the meeting may revoke their
proxies and vote in person.
The Company's proxies are returned to its transfer agent, who tabulates the
results of the voting and notifies the Company in writing. Proxies voted at the
Annual Meeting are counted by the Inspectors of Election for the Annual Meeting.
The Inspectors of Election are Company officers, both of whom have been
appointed by the Board of Directors.
If a proxy card indicates an abstention or a broker non-vote on a particular
matter, then the shares represented by such proxy will be counted for quorum
purposes. If a quorum is present, an abstention will have the effect of a vote
against the matter and broker non-votes will have no effect.
The Annual Report of the Company for the year 1996, containing financial
statements, was mailed to all stockholders of record on or about March 25, 1997,
and subsequently to all new stockholders through the close of business on March
31, 1997.
On December 31, 1996, the Company had outstanding 60,682,719 shares of
Common Stock. Holders of record of outstanding Common Stock at the close of
business on March 31, 1997, are entitled to vote at the meeting. The Common
Stock of the Company will vote as a single class, one vote per share.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
The Board of Directors currently consists of ten members divided into three
classes. Three nominees are to be elected at the Annual Meeting to serve for a
term of three years or until their successors are elected and qualified. The
remaining seven directors will continue to serve as set forth herein, with four
directors having terms expiring in 1998 and three directors having terms
expiring in 1999.
Unless such authority is withheld, it is the intention of the persons named
in the accompanying proxy to vote such proxy for the nominees named herein, all
of whom are currently serving as directors. Each nominee has consented to being
named in this Proxy Statement and to serve if elected. Although it is
contemplated that all of the nominees will be able to serve, in the event the
inability of one or more to do so is made known
1
prior to the meeting, the proxy holders will vote for a substitute nominee or
nominees as selected by the Board of Directors.
All of the nominees for director were recommended by the Nominating
Committee and were approved by the Board of Directors on March 27, 1997.
The election of directors requires the affirmative vote of the holders of a
majority of the shares of Common Stock present, in person or by proxy, and
entitled to vote at the Annual Meeting. Each proxy will be voted for or against
Proposal No. 1 in accordance with the specifications marked thereon, and if no
specifications are made, will be voted in favor of each of the nominees for
director.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR EACH OF THE NOMINEES
FOR DIRECTOR IN PROPOSAL NO. 1.
The nominees and directors are listed herein, together with their principal
occupation or employment, certain additional information as of December 31,
1996, and their respective terms. Except as otherwise indicated, nominees and
directors have been engaged in their present occupations for at least the past
five years.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
AS OF FEBRUARY 28, 1997
Shares of
Nominees for Director Common Stock(1)(2)
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CLASS I--TERM EXPIRING IN 2000
R. FRANKLIN BALOTTI.................................................. 1,096
MICHAEL B. EMERY..................................................... 1,000
SARAH I. GORE........................................................ 1,000
Incumbent Directors
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CLASS II--TERM EXPIRING IN 1998
HOWARD E. COSGROVE................................................... 83,977(3)(4)
AUDREY K. DOBERSTEIN................................................. 1,000
JAMES C. JOHNSON..................................................... 1,020
WESTON E. NELLIUS.................................................... 500
Incumbent Directors
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CLASS III--TERM EXPIRING IN 1999
MICHAEL G. ABERCROMBIE............................................... 1,000(5)
ROBERT D. BURRIS..................................................... 500
JAMES H. GILLIAM, JR................................................. 1,028
Other Executive Officers
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BARBARA S. GRAHAM.................................................... 19,474(3)
THOMAS S. SHAW....................................................... 22,049(3)
JOSEPH W. FORD....................................................... 13,661(3)
RALPH E. KLESIUS..................................................... 23,036(3)(4)
2
As of February 28, 1997, all current executive officers and directors as a
group (15 persons) owned beneficially 177,388 shares of Common Stock,
representing 0.29% of the shares of Common Stock outstanding.
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(1) Each of the individuals listed beneficially owned less than 1% of the
Company's outstanding common stock.
(2) Includes shares owned beneficially by Mr. Cosgrove and Other Executive
Officers of the Company pursuant to the Company's Savings & Thrift Plan,
Payroll-Based Employee Stock Ownership Plan, and Deferred Compensation Plan
Thrift Fund.
(3) Includes 67,300, 15,530, 16,140, 13,460, and 15,400 shares, of
performance-based restricted stock for Mr. Cosgrove, Mrs. Graham, and
Messrs. Shaw, Ford and Klesius respectively, which were granted as a part of
the Company's Long-Term Incentive Plan. The number of shares actually earned
will depend on the Company's performance, as measured by Total Stockholder
Return (stock appreciation and dividends paid), relative to the Peer Group
(as defined on page 10) at the end of a four-year period.
(4) Does not include 14,400 and 4,400 shares of Common Stock which Messrs.
Cosgrove and Klesius respectively, are deemed to have beneficial ownership.
These shares may be acquired upon the exercise of stock options granted
under the Company's Long-Term Incentive Plan.
(5) Does not include 300 shares of Common Stock owned by Mr. Abercrombie's wife,
beneficial ownership of which he disclaims.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table provides information with respect to the only person who
is known to Delmarva Power & Light Company to be the beneficial owner of more
than 5% of the outstanding shares of Common Stock of the Company.
NAME SHARES
AND ADDRESS OF BENEFICIALLY PERCENT OF
BENEFICIAL OWNER OWNED(1) CLASS
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Franklin Resources, Inc. 5,801,900 9.6%
777 Mariners Island Boulevard
P.O. Box 7777
San Mateo, California 94403
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(1) The share ownership shown above is based on Amendment No. 4 to a Form 13G,
dated February 12, 1997, filed with the Securities and Exchange Commission.
3
NOMINEES FOR CLASS I DIRECTORS WITH TERMS
EXPIRING IN 2000:
R. Franklin Balotti, age 54. Director since 1995.
Member of the law firm of Richards Layton & Finger, [LOGO]
Wilmington, Delaware. Mr. Balotti is a past President
of the Delaware Bar Association and serves as a member
of the Board of Overseers of Widener University School
of Law.
Michael B. Emery, age 58. Director since 1994. Retired,
Former Senior Vice President of E.I. duPont deNemours & [LOGO]
Company (a diversified chemical, energy, and specialty
products company), Wilmington, Delaware. Mr. Emery
serves as Chairperson of the Development Council of
Delaware Technical and Community College.
Sarah I. Gore, age 62. Director since 1990. Human
Resources Associate, W. L. Gore & Associates, Inc. (a [LOGO]
high technology manufacturing company), Newark,
Delaware. Member of the Delaware Advisory Board of
CoreStates Bank, Wilmington, Delaware. Mrs. Gore and
her family created the I Have a Dream Foundation of
Delaware for which she serves as a director.
4
CLASS II DIRECTORS WITH TERMS
EXPIRING IN 1998:
Howard E. Cosgrove, age 53. Director since 1986.
Chairman, President and Chief Executive Officer of the [LOGO]
Company (President and Chief Operating Officer 1991 to
1992). Mr. Cosgrove also is a director of the Federal
Reserve Bank of Philadelphia and is a Trustee of The
University of Delaware.
Audrey K. Doberstein, age 64. Director since 1992.
President of Wilmington College, New Castle, Delaware. [LOGO]
Director of Mellon Bank Delaware (N.A.), Wilmington,
Delaware. Dr. Doberstein also serves as a member of the
Board of Directors of Blue Cross/Blue Shield of
Delaware.
James C. Johnson, age 62. Director since 1992. Retired,
Former President and Chief Executive Officer of Loyola [LOGO]
Federal Savings Bank, Baltimore, Maryland. Mr. Johnson
is a member of the Board of Directors of the Chesapeake
Bay Trust.
Weston E. Nellius, age 61. Director since 1995.
President, Nellius Management Associates, Inc. (an [LOGO]
information technology, financial, management and
government relations consulting firm), Dover, Delaware.
Director of Nations Bank of Delaware (N.A.), Dover,
Delaware. Mr. Nellius also serves as a member of the
Board of Directors of The Delaware Family Foundation
and the Board of the Delaware Region of the National
Conference of Christians and Jews.
5
CLASS III DIRECTORS WITH TERMS
EXPIRING IN 1999:
Michael G. Abercrombie, age 57. Director since 1993.
President of Cato, Inc. (a petroleum distributorship), [LOGO]
Salisbury, Maryland. Mr. Abercrombie is a past
President of The Community Foundation of the Eastern
Shore and is a past Chairman of the Greater Salisbury
Committee.
Robert D. Burris, age 52. Director since 1993.
President of Burris Foods, Inc. (a refrigerated food [LOGO]
distribution company), Milford, Delaware. Mr. Burris
also is a director of the Federal Reserve Bank of
Philadelphia and is a member of the Board of BayHealth,
Inc.
James H. Gilliam, Jr., age 51. Director since 1993.
Director, Executive Vice President and General Counsel [LOGO]
of Beneficial Corporation (a financial services
company), Wilmington, Delaware (Executive Vice
President, General Counsel and Secretary from 1989 to
1992). Director of Bell Atlantic Corporation,
Philadelphia, Pennsylvania. Mr. Gilliam also is a
Trustee of the Howard Hughes Medical Institute.
6
BOARD OF DIRECTORS MEETINGS
The Board of Directors held ten regular and three special meetings in 1996.
All incumbent directors except Director Sarah I. Gore attended at least
seventy-five percent (75%) of the aggregate of the total number of meetings of
the Board of Directors and meetings of the Committees of the Board on which they
served. Due to extensive out of the country, business-related, travel, Mrs. Gore
was only able to attend 67% of the aggregate total number of meetings that she
was eligible to attend.
COMMITTEES AND COMMITTEE MEETINGS
The Board of Directors has Audit, Executive, Investment, Nominating,
Compensation and Nuclear Oversight Committees. In 1996, the Audit Committee held
two meetings, the Executive Committee held two meetings, the Investment
Committee and the Nominating Committee did not hold any meetings, the
Compensation Committee held three meetings, and the Nuclear Oversight Committee
held two meetings.
The Audit Committee is comprised of four outside directors: James C.
Johnson, Chairperson, R. Franklin Balotti, Robert D. Burris and Audrey K.
Doberstein. The Committee meets primarily to review and approve the scope of the
annual audit of financial statements by the independent certified public
accountants and to review and approve or disapprove the reports rendered by the
independent certified public accountants. The Audit Committee also recommends
independent certified public accountants for appointment by vote of the holders
of shares of Common Stock at the Company's Annual Meeting.
The Executive Committee is comprised of four outside directors and one
inside director. The four outside directors are Sarah I. Gore, Vice Chairperson,
L. Franklin Balotti, Michael B. Emery and James C. Johnson. Howard E. Cosgrove,
Chairperson, is the inside director member of the Committee. During intervals
between meetings of the Board of Directors, the Executive Committee may exercise
all powers of the Board of Directors (except those powers specifically reserved
to the full Board of Directors by Delaware and Virginia law and the Company's
Restated Certificate and Articles of Incorporation, as amended, and By-Laws, as
amended) in the management of all affairs of the Company.
The Investment Committee is comprised of three outside directors and one
inside director. The three outside directors are Audrey K. Doberstein, James H.
Gilliam, Jr. and Weston E. Nellius. Howard E. Cosgrove, Chairperson, is the
inside director member of the Committee. This Committee reviews financial
investments and policies encompassing matters beyond normal cash management
functions.
The Nominating Committee is comprised of three outside directors: Audrey K.
Doberstein, Chairperson, Michael G. Abercrombie and Weston E. Nellius. The
Committee meets primarily to review and screen all recommendations submitted to
it and to select potential candidates for vacancies that occur on the Board of
Directors and to make recommendations to the Board of Directors for candidates
to fill those vacancies. The Nominating Committee, in recommending candidates
for election as directors, endeavors to locate candidates for Board membership
who have attained prominent positions in their fields and whose backgrounds
indicate that they have broad knowledge and experience and the ability to
exercise sound business judgment. The Nominating Committee will consider
nominees recommended by stockholders for election as directors. The name of any
such nominee, together with the nominee's qualifications and consent to be
considered as a nominee, should be sent to the Secretary of the Company,
pursuant to the Company's By-Laws, as amended.
The Compensation Committee is comprised of four outside directors: Sarah I.
Gore, Chairperson, Michael B. Emery, James H. Gilliam, Jr. and James C. Johnson.
This Committee reviews the compensation programs, approves the salaries of the
principal officers, makes recommendations regarding remuneration of
7
the directors, designates appropriate programs to carry out the purposes of the
Long-Term Incentive Plan and approves the distribution of payments under the
Management Incentive Compensation Plan.
The Nuclear Oversight Committee is comprised of two outside directors and
one inside director. The two outside directors are Michael G. Abercrombie,
Chairperson, and Robert D. Burris. Howard E. Cosgrove is the inside director
member of the Committee. The Committee reviews the status of those nuclear power
stations of which the Company is a part owner and assesses the Company's
position in respect to related matters.
DIRECTOR'S COMPENSATION
Directors who are not officers of the Company receive an annual retainer of
$12,000 plus $700 for each Board meeting attended and $600 for each Committee of
the Board meeting attended. Chairpersons of the Audit, Compensation, and Nuclear
Oversight Committees receive an additional annual retainer of $1,000. There have
been no changes in Director's Compensation since May 1, 1992. Beginning June 1,
1997 the $12,000 annual retainer paid to each director and the $1,000 annual
retainer paid to Chairpersons of the Committees previously mentioned will be
paid in Common Stock of the Company.
CHANGES TO BY-LAWS
There were two changes to the Company's By-Laws during 1996. To maximize the
flexibility of the Board of Directors in setting record dates, within the limits
of the law, the By-Laws were amended to allow for a record date to be set which
is not more than 60 days in advance of the stockholder meeting. This amendment
also increases the number of days a record date may precede the payment of
dividends from 40 to 60. Consistent with modern corporate practice, and as
permitted by Delaware and Virginia law, the second change amended the Company's
By-Laws to permit the advancement of expenses to a director or officer who is
indemnified by the Company against expenses and judgments in the event he or she
is made party to a proceeding by reason of the fact that he or she holds the
position of officer or director of the Company or serves as a director or
officer of another corporation (I.E., a subsidiary), at the request of the
Company. If the director or officer is successful in his or her defense in such
proceeding, he or she is entitled to be indemnified against the reasonable
expenses incurred.
DELMARVA POWER & LIGHT COMPANY
BOARD COMPENSATION COMMITTEE REPORT
PRINCIPLES OF EXECUTIVE COMPENSATION PROGRAM
OVERALL OBJECTIVES
The Company's executive compensation program is designed to motivate its
senior executives to achieve the Company's goals of providing the Company's
stockholders with a competitive return on their investment and its customers
with high quality service at a competitive price.
Toward that end, the program is designed to provide total compensation that
emphasizes long-term performance which increases stockholder value and reflects
market conditions for executive talent. This program includes the following
elements:
- Long-term incentive compensation based on long-term performance which
increases stockholder value;
- Annual incentive compensation that varies based on corporate and
individual performance; and
8
- Base salary levels related to position and individual performance.
In its role as administrator of the executive compensation program, the
Compensation Committee has placed particular emphasis on long-term compensation
as a critical element of total compensation. The Compensation Committee's
objective is to continue providing incentives which have a direct link to
increased stockholder value.
TOTAL COMPENSATION
Total Compensation (base salary, annual incentive, and long-term incentive)
opportunities are developed for Company executives utilizing the Edison Electric
Institute ("EEI") EXECUTIVE COMPENSATION SURVEY REPORT and counsel with the
Company's outside consulting firm, Towers Perrin. In general, the total
compensation structure for executives is targeted to the median of utility
industry peers contained in the EEI EXECUTIVE COMPENSATION SURVEY REPORT (the
"Peer Group")(1) with individual reward levels varying based on contribution and
performance. The targets for each component of the executive compensation
program are reviewed on an annual basis to ensure alignment with the Company's
compensation philosophy and to ensure a proper balance between short- and
long-term objectives. Annual base salary increases reflect the individual's
performance and contribution over several years in addition to the results for a
single year. Year-to-year changes in annual incentive awards vary with the
performance results of the individual as well as the Company. Following the 1996
salary increases, the Company's salary level for the five named executive
officers as a group was below the median of the salary range defined by the Peer
Group.
The Company has examined the IRS regulation pertaining to the $1,000,000
compensation deductibility cap for each of the five named executive officers and
has determined that the regulation is not applicable to the Company, since the
total compensation for any one individual is significantly below the cap.
ANNUAL INCENTIVE COMPENSATION
The Company's Management Incentive Compensation Plan is designed to motivate
participants to accomplish stretch financial and individual goals. The corporate
financial goals relate to both customer and stockholder measurements. Two
criteria must be met before there are any awards under this plan: (1) at least
half of specified corporate goals must be met; and (2) actual earnings per share
("EPS") for the year must meet or exceed 95% of the Company's EPS goal.
The awards, upon satisfaction of these criteria, contain two components:
corporate performance and individual performance. For the senior executives,
award targets for both performance components are set annually by the
Compensation Committee and may vary among individuals. Approximately 75% of the
maximum incentive opportunity for the Company's senior executives, including
those named in the compensation tables in this Proxy Statement, arises out of
corporate performance, which is measured by (1) the Company's actual EPS as
compared with the Company's EPS goal, and (2) the Company's net change in
electric rates per kilowatt hour as compared against the net change in the
electric rates of the average of a
- - ------------------------
1. The Compensation Peer Group does not include all of the same companies as
the published industry index in the Comparison of Five Year Cumulative Total
Return graph included in this Proxy Statement. However, 40 out of the 45
companies (89%) in the Dow Jones Electric Utilities Index are included in
the EEI EXECUTIVE COMPENSATION SURVEY REPORT.
9
regional survey(2) over a three-year period. Generally, the payout in connection
with corporate performance is determined in the following manner. The base
multiplier of 1.00 is adjusted at year-end based upon corporate performance.
This adjustment may not exceed 150% and is based upon the EPS and Rates
performance at the corporate level. EPS Adjustment: If actual EPS is higher than
the goal, the multiplier is increased by 5% for each 1% above the goal. If
actual EPS is lower than the goal, the multiplier is decreased by 20% for each
1% below the goal. Rates Adjustment: If the Company's rates decrease more, or
increase less, than the regional survey average, the multiplier is increased by
5% for each 1% positive deviation. If the Company's rates increase more, or
decrease less, than the regional survey average, the decrease is 2% for each 1%
negative deviation.
The remaining approximately 25% of the maximum incentive opportunity for
senior executives arises out of individual performance, with a particular focus
on achievement of individual goals, as evaluated at each year-end merit review.
LONG-TERM INCENTIVE COMPENSATION
The Company's Long-Term Incentive Plan reinforces the importance of
providing stockholders with a competitive return on their investment. Currently,
awards granted under this Plan consist entirely of shares of performance-based
restricted stock. Participants in the Plan are granted shares of the Company's
stock, subject to forfeiture if performance criteria are not met over a
four-year performance period. After the end of the four-year performance cycle,
the Company's performance, as measured by Total Stockholder Return (stock
appreciation and dividends paid), is compared to the Peer Group to determine the
number of shares of unrestricted Company Common Stock to be paid out to
participants. For grants made under the Plan in 1993, 1994, 1995 and 1996, the
following criteria will apply: If Total Stockholder Return over the four-year
cycle as compared to the Peer Group is in less than the 35th percentile, no
award will be made; 25% of the shares originally granted (referred to as the
threshold number in the Long-Term Incentive Plan table on page 16) will be
awarded if the Company's Total Stockholder Return over the four-year cycle as
compared to the Peer Group is in the 35th percentile to the 39.9th percentile;
50% of the shares originally granted will be awarded if the Total Stockholder
Return is in the 40th percentile to the 49.9th percentile; 100% of the shares
originally granted (referred to as the target number in the Long-Term Incentive
Plan table on page 16) will be awarded if the Total Stockholder Return is in the
50th percentile to the 59.9th percentile; 115% of the shares originally granted
will be awarded if the Total Stockholder Return is in the 60th percentile to the
74.9th percentile; 130% of the shares originally granted will be awarded if the
Total Stockholder Return is in the 75th to the 89.9th percentile; and 150% of
the shares originally granted (referred to as the maximum number in the
Long-Term Incentive Plan Table on page 16) will be awarded if the Total
Stockholder Return is in the 90th percentile or greater.
For grants made after 1996, the percentile levels referred to above have
changed. Amounts of shares of Common Stock will be awarded at the end of a
four-year performance cycle as follows. If Total Stockholder Return over the
four-year cycle as compared to the Peer Group is below the 35th percentile there
will be no award. The full grant will be earned for performance at the 55th
percentile and an award of 150% will be earned at the 85th percentile. A
straight line ratio will determine the size of the award between these
percentiles.
- - ------------------------
2. The regional survey includes some, but not all, of the same companies as the
Peer Group and the published industry index in the Comparison of Five Year
Cumulative Total Return graph included in this Proxy Statement.
10
Formerly, awards of stock options and dividend rights were made under the
Plan, and some of those awards are still outstanding.
SUMMARY OF ACTIONS TAKEN BY THE COMPENSATION COMMITTEE
The Compensation Committee, consisting entirely of outside directors,
reviews and approves each of the Company's executive compensation plans and
assesses the effectiveness of the program as a whole. This includes activities
such as reviewing the design of the Company's various incentive plans and
assessing the reasonableness of the overall executive compensation program.
In addition, the Committee administers key aspects of the Company's salary
program and incentive plans, such as approving the annual salary increase
budget, setting the targets used in the annual incentive plan, approving the
size of the annual incentive pool and setting grant levels under the annual and
long-term incentive plans. With respect to the annual incentive pool, individual
awards are not limited by the size of the total pool, but are limited to maximum
amounts annually determined by the Compensation Committee. In 1996, within the
senior executive group, these maximum amounts vary among individuals.
Finally, the Committee implements the Company's executive compensation
program, which includes the Chief Executive Officer and the Company's four other
most highly-compensated executives--I.E., the five "named executive officers."
Significant actions by the Committee for fiscal year 1996 included setting
salaries and reviewing criteria for and approving the grants of annual incentive
awards, and long-term incentive opportunities. In addition, as discussed in the
Company's 1996 Proxy Statement, the Compensation Committee completed the review
begun in 1995 of the Company's compensation policy in light of increasing
competition facing the Company. Based on this review, the Committee made several
changes in the executive compensation program in 1996. These changes, which are
reflected in other sections of this Proxy Statement, are intended to bring the
total compensation structure of Company executives up to competitive utility
levels. In spite of the Company's stated policy to provide total compensation
levels that are competitive with those provided by similarly-sized utilities,
the Committee's review showed that the Company's compensation practices have
produced total executive compensation levels below those of the competitive
utility market. The Committee also found that, in an environment where
competition is increasing and predicted to become more intense, it is
increasingly important that the Company have the ability to attract and retain
high-quality executives from both within and outside the utility industry. In
order to provide competitive executive compensation levels, the Compensation
Committee determined that it was necessary to increase base salaries and modify
the total amount of short-and long-term incentive opportunities. The Committee
chose to place more emphasis on long-term incentive opportunities than on
short-term, in order to keep management interests in line with the long-term
interests of the Company's stockholders.
Because of the competitive market for executive talent, the Compensation
Committee also looked at the appropriateness of providing for higher
compensation levels by basing compensation structure on a blend of utility and
general competitive industry markets. The compensation program for all Company
employees, other than executives, is based, on average, at the median of the
blend of utility industry and general competitive industry. The Committee
determined that it was not necessary to change executive compensation policy in
this manner in 1996, but that it was important that the Company's executive
compensation levels be closer to the levels in similarly-sized utilities. Hence,
the Committee's specific goal in making changes to the executive compensation
program in 1996 was to provide a total executive compensation structure that is
in the middle of the utility market, with individual compensation differentiated
by contribution and performance.
11
Looking forward into 1997 and beyond, the Compensation Committee has
determined to make executive compensation opportunities more sensitive to the
long-term performance of the Company and increased value to the Company's
stockholders. Accordingly, more of the total compensation of the Company's
management team will be in the form of incentive awards tied to long-term
Company performance. Not only will more of each executive's total compensation
be comprised of long-term incentives, but the targets to achieve those
incentives have been changed to make it more difficult to achieve awards at the
threshold and target levels. At the same time, an adjustment was made to lower
the threshold for the maximum award from the 90th percentile to the 85th
percentile. Thus, the potential for targeted reward is greater, but higher
levels of performance will be required to achieve that potential. In addition,
it is expected that base salary will continue to be targeted to the median of
the utility market, while annual and long-term incentives will be targeted to
the median of a blend of utility and general competitive industry markets. This
blend is important because the Company is facing increasing competition and the
related risks. The Company is not simply a utility anymore, but is increasingly
becoming a part of the general competitive industry market. As a final note, the
Compensation Committee intends that all specific decisions involving total
compensation for each executive will be made in the larger context of the
program designed to increase stockholder value.
CHIEF EXECUTIVE OFFICER COMPENSATION
SALARY ACTION
Chief Executive Officer, Howard E. Cosgrove's salary increased from $345,000
in 1995 to $400,000 in 1996. This increase in Mr. Cosgrove's salary was designed
to bring his compensation closer to the salaries of other Chief Executive
Officers in the utility industry. Mr. Cosgrove's 1995 salary was approximately
10% below the median for Chief Executive Officers in comparably-sized utilities.
Mr. Cosgrove's 1996 salary placed him at approximately 99% of the median for
Chief Executive Officers in comparably-sized utilities.
Consistent with the Compensation Committee's goal to tie more of its
executives' total compensation opportunity to corporate performance, it is the
intention of the Compensation Committee to freeze Mr. Cosgrove's base salary for
the 1997 fiscal year and provide no annual incentive opportunity. This decision
is not intended as a negative reflection on Mr. Cosgrove's performance. On the
contrary, the Committee commends Mr. Cosgrove's leadership and supports the
direction the Company is taking in this increasingly competitive and uncertain
environment. As an expression of confidence in Mr. Cosgrove's ability to drive
the Company's success in the long term (including the successful implementation
of the Company's business plans and the proposed merger with Atlantic Energy,
Inc.), any increase in Mr. Cosgrove's total compensation will be made in
long-term incentives which are tied to the Company's long-term performance.
ANNUAL INCENTIVE AWARD
Under the criteria established for the annual incentive plan, Mr. Cosgrove
would have earned an annual incentive award in 1996. However, Mr. Cosgrove
declined his 1996 annual incentive award, since the Company's earnings
performance was lower than expected (solely because of outages that were
entirely outside of the Company's control at the Salem Nuclear Generating Plant
operated by another utility, in which the Company owns an interest). In lieu of
this annual incentive award, a greater long-term incentive opportunity was
granted to Mr. Cosgrove in 1997 than otherwise would have been granted, to allow
Mr. Cosgrove to share in the Company's success if stockholder value is increased
through better long-term Company performance.
As discussed above, it is expected that Mr. Cosgrove also will receive no
annual incentive opportunity related to the 1997 performance year.
12
LONG-TERM INCENTIVE PLAN
Long-term incentive grants represent an increasingly important component of
the compensation opportunity for the Chief Executive Officer. Consistent with
the Company's Long-Term Incentive Plan, the Committee determined the 1996 grants
of performance-based restricted stock (reflected in the compensation tables
contained in this Proxy Statement) made to Mr. Cosgrove. The initial award of
performance-based restricted stock is targeted at providing total compensation,
including a long-term opportunity, consistent with similar awards made to other
utility executives from the Peer Group who earn similar salary levels. The
number of shares actually earned, if any, will be awarded in the year 2000 based
on a comparison of the Company's performance, as measured by Total Stockholder
Return compared to the Peer Group over the four-year period 1996-1999, as
discussed under "Long-Term Incentive Compensation" on page 10. As discussed
above, Mr. Cosgrove's 1997 base salary will not be increased and he will receive
no annual incentive opportunity; instead, all of Mr. Cosgrove's opportunity to
increase his total compensation in 1997 will be in the form of long-term
incentives which are tied to the Company's performance over the four-year
period. The performance targets for this period will be more difficult to
achieve than in the past, but the potential pay-out at the end of the
performance period will be greater.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised solely of non-officer directors.
There are no Compensation Committee interlocks.
COMPENSATION COMMITTEE
S. I. Gore, Chairperson J. H. Gilliam, Jr.
M. B. Emery J. C. Johnson
13
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding compensation earned
during the past three years by the Company's Chief Executive Officer and by
three of the Company's other four most highly-compensated executive officers.
The table also reflects Mr. Ford's compensation since he began his employment on
March 13, 1995.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
--------------------------------
AWARDS
ANNUAL COMPENSATION --------------------------------
-------------------------------------------
(E) (F) (G)
OTHER RESTRICTED SECURITIES
ANNUAL COM- STOCK UNDERLYING
(A) (B) (C) (D) PENSATION AWARD(S) OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) $ $(1) (#)
- - ------------------------------------------ --------- ----------- ----------- ----------------- --------------- ---------------
H. E. Cosgrove Chairman of the Board, 1996 400,000 -0- -0- -0- -0-
President and Chief 1995 345,000 73,500 -0- -0- -0-
Executive Officer 1994 345,000 90,800 -0- -0- -0-
B. S. Graham Senior Vice President, 1996 180,000 92,300 -0- -0- -0-
Treasurer and Chief 1995 165,000 33,500 -0- -0- -0-
Financial Officer 1994 148,500 38,400 -0- -0- -0-
T. S. Shaw Senior Vice President 1996 180,000 52,300 -0- -0- -0-
1995 165,000 34,400 -0- -0- -0-
1994 165,000 42,600 -0- -0- -0-
J. W. Ford (3) Senior Vice President/ 1996 180,000 32,300 -0- -0- -0-
President, Delmarva 1995 125,461 32,500 -0- -0- -0-
Capital Investments, Inc.
R. E. Klesius Senior Vice President 1996 165,000 24,600 -0- -0- -0-
1995 157,000 31,100 -0- -0- -0-
1994 150,000 39,000 -0- -0- -0-
#--Number of units $--Dollar amounts
PAYOUTS
-------------
(I)
(H) ALL OTHER
LTIP COM-
PAYOUTS PENSATION
NAME AN ($) ($)(2)
- - -------------- ------------- -----------
H. E. Cosgrove -0- 18,115
-0- 19,498
-0- 24,118
B. S. Graham -0- 5,529
-0- 6,793
-0- 7,454
T. S. Shaw -0- 6,333
-0- 8,179
-0- 10,030
J. W. Ford (3) -0- 3,767
-0- 145
R. E. Klesius -0- 5,994
-0- 7,979
-0- 9,672
#--Number of u
- - ------------------------
(1) Dividends on shares of performance-based restricted stock are accrued at the
same rate as that paid to all holders of Common Stock. Restricted stock
awards are reported in the Long-Term Incentive Plan Table on page 16. As of
December 31, 1996: Mr. Cosgrove held 32,110 shares of restricted stock with
a value of $689,546.25 (4,880, 6,070, 11,570, and 9,590 shares with a
grant-date market price of $22.75, $22.00, $19.50, and $22.875 per share
respectively); Mrs. Graham held 7,520 shares of restricted stock with a
value of $161,272.50 (1,000, 1,070, 2,870, and 2,580 with a grant-date
market price of $22.75, $22.00, $19.50, and $22.875 per share respectively);
Mr. Shaw held 8,130 shares of restricted stock with a value of $174,940.00
(1,330, 1,350, 2,870, and 2,580 shares with a grant-date market price of
$22.75, $22.00, $19.50, and $22.875 per share respectively); Mr. Ford held
5,450 shares of restricted stock with a value of $114,982.50 (2,870 and
2,580 shares with a grant-date market price of $19.50 and $22.875 per share
respectively); and Mr. Klesius held 8,130 shares of restricted stock with a
value of $174,940.00 (1,330, 1,350, 2,870, and 2,580 shares with a
grant-date market price of $22.75, $22.00, $19.50, and $22.875 per share
respectively). During 1996, all restrictions lapsed on a portion of the
performance-based restricted stock granted during 1992; the balance of the
shares granted in 1992 were forfeited. Because the Company's Total
Stockholder Return compared to the Peer Group over the four year performance
period was in the 40th percentile to the 49.9th percentile, 50% of the
shares originally granted was earned, resulting in a payout of 615 shares
for Mr. Cosgrove, 100 shares for Mrs. Graham, and 140 shares each for
Messrs. Shaw and Klesius, with a value of $13,991.25, $2,275.00, $3,185.00
and $3,185 respectively, based on the market price of the stock at the close
of business on December 31, 1995 ($22.75).
14
(2) The amounts of All Other Compensation for each of the named executive
officers for fiscal year 1996 include the following: for Mr. Cosgrove,
$3,750 in Company matching contributions to the Company's Savings & Thrift
Plan, $5,383 in Company matching contributions under the Company's Deferred
Compensation Plan Thrift Fund and an accrual of $8,778 for dividend rights
acquired through the Company's Long-Term Incentive Plan; for Mrs. Graham,
$3,750 in Company matching contributions to the Company's Savings & Thrift
Plan, $189 in Company matching contributions under the Company's Deferred
Compensation Plan Thrift Fund and an accrual of $1,386 for dividend rights
acquired through the Company's Long-Term Incentive Plan; for Mr. Shaw,
$2,438 in Company matching contributions to the Company's Savings & Thrift
Plan, $1,689 in Company matching contributions under the Company's Deferred
Compensation Plan Thrift Fund and an accrual of $2,002 for dividend rights
acquired through the Company's Long-Term Incentive Plan; for Mr. Ford,
$3,563 in Company matching contributions to the Company's Savings & Thrift
Plan; and for Mr. Klesius, $2,406 in Company matching contributions to the
Company's Savings & Thrift Plan, $1,382 in Company matching contributions
under the Company's Deferred Compensation Plan Thrift Fund and an accrual of
$2,002 for dividend rights acquired through the Company's Long-Term
Incentive Plan. In addition, the amounts of All Other Compensation for each
of the five named executive officers includes $204 in term life insurance
premiums paid by the Company on such officer's behalf (which insurance is
provided on an equal basis to all employees of the Company).
(3) Mr. Ford joined the Company on March 13, 1995.
OPTION EXERCISES DURING 1996 AND YEAR-END OPTION VALUES
The following table provides information related to options held by the
named executive officers at fiscal year-end 1996. The Board of Directors, at its
January 1993 meeting, approved an amendment to the Company's Long-Term Incentive
Plan eliminating awards of Common Stock options and dividend rights effective
fiscal year 1993. The Company does not grant stock appreciation rights.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
(D)
NUMBER OF (E)
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
(B) (C) OPTIONS AT OPTIONS AT
(A) SHARES ACQUIRED VALUE FY-END(#) FY-END($)
NAME ON EXERCISE (#) REALIZED ($)(1) EXERCISABLE EXERCISABLE(1)(2)
- - ------------------------ --------------------- ------------------- ------------ -------------
H. E. Cosgrove -- -- 14,400 -0-
B. S. Graham -- -- -- --
T. S. Shaw -- -- -- --
J. W. Ford -- -- -- --
R. E. Klesius -- -- 4,400 -0-
- - ------------------------
(1) The closing price for the Company's Common Stock as reported by the New York
Stock Exchange on December 31, 1996, was $20.375. The value, were there any,
would be calculated on the basis of the difference between the exercise
price of the options and $20.375, which difference is multiplied by the
number of options. The options all are exercisable currently.
(2) The exercise price of all of the exercisable options exceeds the current
fair market value of the underlying stock. Thus, all of such options are
out-of-the-money.
15
PERFORMANCE-BASED RESTRICTED STOCK GRANTS CHART
The following table shows the number of shares of performance-based
restricted stock that were granted to the named executive officers as part of
the Company's Long-Term Incentive Plan for 1996. It also shows the number of
shares of Common Stock that would be awarded if the threshold, target or maximum
performance is achieved at the end of the four-year performance period.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
ESTIMATED FUTURE
PAYOUTS UNDER NON-STOCK
PRICE-BASED PLANS
-----------------------------------
(B) (C)
NUMBER OF PERFORMANCE OR (D) (E) (F)
(A) SHARES, UNITS OR OTHER PERIOD UNTIL THRESHOLD TARGET MAXIMUM
NAME OTHER RIGHTS(#)(*) MATURATION OR PAYOUT (#) (#) (#)
- - ------------------------ ------------------- --------------------- ----------- --------- -----------
H. E. Cosgrove 9,590 4 yrs. 2,398 9,590 14,385
B. S. Graham 2,580 4 yrs. 645 2,580 3,870
T. S. Shaw 2,580 4 yrs. 645 2,580 3,870
J. W. Ford 2,580 4 yrs. 645 2,580 3,870
R. E. Klesius 2,580 4 yrs. 645 2,580 3,870
- - ------------------------
(*) Shares of performance-based restricted stock were granted as a part of the
Company's Long-Term Incentive Plan. Actual awards are made after the end of
a four-year performance cycle and are based on a comparison of the Company's
performance, as measured by Total Stockholder Return (stock appreciation and
dividends paid), to the Peer Group. The target number of shares will be
awarded if the Company's Total Stockholder Return Percentile (four year
cumulative as compared to the Peer Group) is in the 50th percentile to the
59.9th percentile range. The threshold number will be awarded if the Total
Stockholder Return Percentile is in the 35th percentile to the 39.9th
percentile range and the maximum number will be awarded if the Total
Stockholder Return is in the 90th percentile or greater.
RETIREMENT PLAN
PENSION PLAN TABLE
ANNUAL RETIREMENT BENEFITS TO
PERSONS IN SPECIFIED REMUNERATION
AND YEARS OF SERVICE CLASSIFICATIONS
- - --------------------------------------------------------------------------------
AVERAGE ANNUAL
EARNINGS FOR THE
5
CONSECUTIVE YEARS CREDITED YEARS OF SERVICE
OF EARNINGS THAT -------------------------------------------------------------
RESULT IN THE 15 20 25 30 35
HIGHEST AVERAGE YRS.(1) YRS. YRS. YRS. YRS.
- - ----------------- --------- ----------- ----------- ----------- -----------
$ 125,000 $ 21,798 $ 38,242 $ 47,802 $ 57,363 $ 66,923
200,000(2) 35,478 62,242 77,802 93,363 108,923
300,000(2) 53,718 94,242 117,802 141,363(3) 164,923(3)
400,000(2) 71,958 126,242(3) 157,802(3) 189,763(3) 220,923(3)
500,000(2) 90,198 158,242(3) 197,802(3) 237,363(3) 276,923(3)
16
- - ------------------------
(1) Represents reduced early retirement benefit payable at age 55.
(2) Effective January 1, 1997, annual compensation recognized in computing
Average Annual Earnings under the Retirement Plan may not exceed $160,000 as
limited by Section 401(a)(17) of the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"). With the exception of this
limitation, and the exclusion of compensation paid under the Company's
Long-Term Incentive Plan and Company contributions under the Savings &
Thrift Plan and Supplemental Executive Retirement Plan ("SERP"), Average
Annual Earnings include substantially all cash compensation shown in the
Summary Compensation Table on page 14. Compensation in excess of the
limitation of Section 401(a)(17) is recognized in computing the benefit
payable under the SERP.
(3) For 1997, the limit on annual benefits payable under qualified, defined
benefit plans is $125,000. The amount in excess of $125,000 in the above
table would be payable under the Company's SERP.
The Company has a trusteed, noncontributory Retirement Plan covering all
regular employees. Directors who are not employees of the Company do not
participate in the Plan. Subject to the maximum limitation on benefits imposed
by Section 415(b) of the Internal Revenue Code, the Retirement Plan provides
management employees, including all officers, a retirement income equal to years
of service times the sum of (1) plus (2) where (1) is 1.30% of the Average
Annual Earnings (for the five consecutive years of earnings that result in the
highest annual average) up to the Average Social Security Earnings Base ($29,304
in 1997), and where (2) is 1.60% of such Average Annual Earnings above the
Average Social Security Earnings Base. Effective January 1, 1996, a second
formula was added (I.E., 1.50% of Average Annual Earnings times years of
service). Management employees will receive a pension computed under this second
formula if it results in a greater pension amount. Normal retirement is age 65;
however, employees may retire as early as age 55 with an actuarial reduction in
benefits and also at age 60 without such reduction, provided they have completed
the requisite number of years of service with the Company. Aside from the
integration feature of the above-described benefit formula, retirement benefits
are not subject to any reduction for Social Security benefits or other offset
amounts.
Annual benefits payable upon retirement will be in the form of a joint and
50% survivor annuity for married individuals and a straight life annuity for
single individuals. Both the straight life and joint and survivor forms are paid
to management employees in specified remuneration and years of service
classifications, as illustrated in the Pension Plan Table on page 16.
Mr. Cosgrove, Mrs. Graham, and Messrs. Shaw, Ford and Klesius have,
respectively, 30, 13, 25, 2 and 31 credited years of service under the Company's
Retirement Plan.
In the event of a change in control of the Company, as defined in the
Retirement Plan, the Plan's surplus assets are to be allocated to the extent
available to (1) satisfy all Plan liabilities, (2) fund certain post-retirement
medical benefits and death benefits and (3) subject to certain limitations,
increase the benefits payable to employees who were active participants on the
date of such change in control by crediting each such participant with an
additional five years of deemed credited service and five years of deemed salary
increases at 5% per year. If the Plan is terminated or merged or benefits are
reduced within five years of such change in control, any remaining surplus
assets would be allocated to the extent available to (1) provide a 2% cost of
living increase for retirees for each year of retirement and (2) subject to
certain limitations, increase the benefits payable to employees who were active
participants on the date of such termination, merger or benefit curtailment by
crediting each such participant with additional years of deemed credited service
for the ten-year period following such change in control together with salary
increases at 5% per year for such period. The
17
Retirement Plan requires that the obligations described above that are assumed
following such a change in control must be funded by the purchase of a
guaranteed annuity contract.
SEVERANCE AGREEMENTS AND OTHER PROVISIONS RELATING TO POSSIBLE
CHANGE OF CONTROL
The Company has entered into severance agreements with the five named
executive officers and 44 other members of management. The severance agreements
are intended to encourage the continued dedication of members of the Company's
management. These agreements provide potential benefits for such persons upon
actual or constructive termination of employment (other than for cause)
following a change of control of the Company, as defined in such agreements.
Each affected employee would receive a severance payment equal to 2.99 times
base salary (as defined in Section 280G of the Internal Revenue Code), and
entitlement to Company-paid life, disability, medical and dental benefits for 24
months following termination, as well as an amount in cash equal to the
actuarial equivalent value of accrued retirement pension credits equal to 24
months following termination; provided, however, that if any payments under such
agreements would not be deductible by the Company as a result of Section 280G of
the Internal Revenue Code, the amounts payable under such agreements will be
reduced until the entire payment is deductible.
The Company has the following additional benefit plans containing "change in
control" provisions. These plans, for which the five named executive officers
are eligible, were established by the Board of Directors. In the event of a
change in control: The SERP provides for the Company to satisfy the liabilities
accrued under the SERP through the purchase of fully-paid annuity or life
insurance contracts; the Company's Management Incentive Compensation Plan
provides that, at the option of the participant, the Company will pay all
Incentive Awards earned but not distributed; the Company's Management Life
Insurance Plan provides for the Company to prepay all premiums to any life
insurance policy under this Insurance Plan; and the Company's Long-Term
Incentive Plan provides that all restrictions on shares of performance-based
restricted stock will lapse immediately, without regard to performance
criterion, and shares will be issued to all participants, and all dividends in
each Dividend Rights Account will be paid or, at the employee's option, the
ongoing obligation to make such payments will continue.
18
STOCK PERFORMANCE CHART
The following chart compares the yearly change in the cumulative Total
Stockholder Return on the Company's Common Stock during the last five fiscal
years ended December 31, 1996, with the cumulative total return of the Standard
& Poor's ("S&P") 500 Index and the Dow Jones Electric Utilities Index. The
comparison assumes $100 was invested on December 31, 1991, in the Company's
Common Stock and in each of the foregoing indices and assumes reinvestment of
dividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG DELMARVA POWER & LIGHT COMPANY, THE S&P 500 INDEX
AND THE DOW JONES ELECTRIC UTILITIES INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
DOW JONES ELECTRIC
DELMARVA POWER & LIGHT COMPANY S & P 500 UTILITIES
12/91 100 100 100
12/92 117 108 107
12/93 127 119 118
12/94 108 120 105
12/95 143 165 138
12/96 138 203 139
* $100 INVESTED ON 12/31/91 IN STOCK OR INDEX.
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
19
PROPOSAL NO. 2--APPOINTMENT OF THE COMPANY'S INDEPENDENT
PUBLIC ACCOUNTANTS
Coopers & Lybrand L.L.P., Certified Public Accountants, have been
recommended by the Audit Committee to examine the financial statements of the
Company for the year 1997. The By-Laws of the Company require the independent
public accountants to be appointed by vote of the holders of Common Stock.
Representatives of Coopers & Lybrand L.L.P. will be present at the Annual
Meeting to respond to appropriate questions and may make such statements as they
may desire.
The affirmative vote of the holders of a majority of the Common Stock
present and entitled to vote is necessary to appoint Coopers & Lybrand L.L.P. as
the Company's independent public accountants. Each proxy will be voted for or
against Proposal No. 2 in accordance with the specification marked thereon, and,
if no specification is made, will be voted in favor of such Proposal.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ADOPTION OF
PROPOSAL NO. 2.
PROPOSAL NO. 3--STOCKHOLDER PROPOSAL
PROPOSAL. Mr. Richard A. Robinson, 408 Viewfield Drive, Salisbury, Maryland
21804, owner of 1,600 shares of the Company's Common Stock, presented the
following proposal for submission to the stockholders for action at the Annual
Meeting.
"That there should be no pay raises (nor cost of living raises) to the Board
of Director [sic] or the top twenty (20) executives of the Company in any year
that dividends are not increased per common share for that year. No bonuses
should be paid unless the dividend has increased per share for that year."
DIRECTORS' RECOMMENDATION. THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST
THE PRECEDING STOCKHOLDER PROPOSAL FOR THE FOLLOWING REASONS:
As described elsewhere in this Proxy Statement, the Compensation Committee
of the Board of Directors has designed the compensation program for Company
executives to provide total compensation that emphasizes long-term performance,
which increases stockholder value and reflects market conditions for executive
talent, including long-term and annual incentive compensation and base salaries.
This compensation structure is designed to attract and retain highly-capable
executives to manage the Company's businesses. The Company competes for
executive personnel in a national marketplace, which is highly competitive. In
order to retain its current management team and to attract new executive talent,
the Company must offer such persons compensation which is competitive with that
of other major companies.
The foregoing proposal seeks to link director and management compensation to
the amount of dividends paid by the Company. The Board of Directors opposes the
establishment of this linkage, since tying base salary increases to one single
measure, such as dividends, would create a very narrow short-term focus for
Directors, the CEO and the executive management team. The Board believes that
the overall interests of stockholders will best be met by maintaining a balanced
view of performance and by placing increased emphasis on the stockholders'
interest through tying all long-term incentive compensation awards to Total
Stockholder Return, which is a combination of dividend payout and stock
appreciation. The level of dividend a company pays takes into consideration
expected earnings growth, as well as opportunities for reinvestment in the
business. When combined with price performance, the dividend must adequately
compensate stockholders for their investment. Dividends alone are, therefore,
not an appropriate indicator of Company and
20
executive performance and should be considered only in conjunction with other
financial and operating measures.
The Board of Directors believes that the current compensation strategy is
the correct one and that approval of the stockholder proposal could severely
restrict the Company's ability to compete with other companies in attracting and
retaining high quality executives and employees, and, consequently, its ability
to compete within its industry, which is becoming increasingly competitive.
For all these reasons, the Board believes that approval of the proposal
would be detrimental to the Company and its stockholders.
Approval of Proposal No. 3 requires the affirmative vote of the holders of a
majority of the shares of Common Stock present, in person or by proxy, and
entitled to vote at the Annual Meeting. Each proxy will be voted for or against
Proposal No. 3 in accordance with the specifications marked thereon, and if no
specifications are made, will be voted against such proposal.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST PROPOSAL NO. 3.
OTHER MATTERS
If any other matters are properly brought before the meeting, it is intended
that the holders of the proxies will vote thereon in accordance with their best
judgment.
* * * * *
STOCKHOLDER PROPOSALS
Any stockholder proposal intended to be presented at the 1998 Annual Meeting
of Stockholders must be received by the Company at its principal executive
offices no later than December 5, 1997, in order to be eligible to be considered
for inclusion in the Company's proxy materials relating to that Meeting.
SOLICITATION
The cost of the solicitation, including the expenses of brokers and others
who may forward solicitation material to beneficial owners, will be borne by the
Company. Officers and employees of the Company may solicit proxies personally or
by telecommunications as well as by use of the mails.
PARTICIPANTS IN THE DIVIDEND REINVESTMENT AND COMMON SHARE PURCHASE PLAN,
SAVINGS AND THRIFT PLAN, AND PAYROLL-BASED EMPLOYEE STOCK OWNERSHIP PLAN PLEASE
NOTE
The proxy includes the number of shares that are held in your name in the
Company's Dividend Reinvestment and Common Share Purchase Plan ("DRIP"). Your
vote with respect to the shares that are held in your name is also an
instruction for voting the DRIP shares. The proxy also will serve as voting
instructions to the plan trustee for shares held on behalf of participants in
the following Delmarva Power & Light Company benefit plans: the Savings and
Thrift Plan and the Payroll-Based Employee Stock Ownership Plan ("PAYSOP"). If
proxy cards representing shares in Savings and Thrift and PAYSOP are not
received, or if you fail to give specific voting instructions, the trustee will
vote the shares as he or she determines.
D. P. Connelly
Secretary
Wilmington, Delaware, April 7, 1997
21
DIRECTIONS TO CLAYTON HALL--
UNIVERSITY OF DELAWARE NORTH CAMPUS
(WATCH FOR SIGNS DIRECTING YOU TO CLAYTON HALL)
To: Clayton Hall
From: Kirkwood Highway (Rt. 2)
Drive South on Kirkwood Highway, turn right onto Cleveland Avenue at Porter
Chevrolet, drive past 2 traffic lights, turn right onto New London Road (Rt.
896), look for blue signs for Clayton Hall--University of Delaware North Campus
on right (about 1/8 of a mile).
To. Clayton Hall
From: 1-95 or Rt. 896
Exit onto Northbound Rt. 896 Newark exit and continue north on South College
Avenue, past the University of Delaware athletic complex, over the bridge and
past other University of Delaware buildings until you come to East Main Street.
Turn left onto East Main Street (position yourself in the right lane), turn
right onto New London Road (Rt. 896), drive up New London Road, pass through one
traffic light, look for signs for Clayton Hall--University of Delaware North
Campus on the right (about 1/8 of a mile past traffic light).
(SEE MAP ON FOLLOWING PAGE)
[LOGO]
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Your Board of Directors recommends you vote "FOR" Proposal nos. 1 and 2 and "AGAINST" proposal no. 3.
1. Election of Directors FOR all nominees /x/ WITHHOLD AUTHORITY to vote /x/ *EXCEPTIONS /x/
listed below for all nominees listed below
Nominees: R. Franklin Balotti, Michael B. Emery, and Sarah I. Gore
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark the "Exceptions" box and write that nominee's name
in the space provided below.)
*Exceptions _____________________________________________________________________________________________________________________
2. Appoint the Company's independent public accountants for the year 1997. 3. Stockholder proposal relating to compensation
of executive officers and directors.
FOR /x/ AGAINST /x/ ABSTAIN /x/ FOR /x/ AGAINST /x/ ABSTAIN /x/
4. To transact such other business as may properly come before the meeting.
Change of Address and
or Comments Mark Here /x/
NOTE: Please date and sign this proxy exactly as
your name appears hereon. In case of joint owners,
each joint owner should sign. When signing in a
fudiciary or representative capacity, please give
your full title. If the proxy is submitted by a
corporation or partnership, it should be executed
in the full corporate or partnership name by a duly
authorized person.
Dated:________________________________________, 1997
____________________________________________________
Signature
____________________________________________________
Signature
Votes must be indicated
(x) in Black or Blue ink. /x/
(Please sign, date and return this proxy in the enclosed postage prepaid envelope.)
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DELMARVA POWER & LIGHT COMPANY
PROXY
This proxy, when properly executed, will be voted as described by the stockholder. If
no direction is given, the shares represented by this proxy will be voted "FOR" proposal nos. 1 and
2 and "AGAINST" proposal no. 3. This proxy is solicited on behalf of the Board of Directors.
By signing and dating on the reverse side, you authorize Howard E. Cosgrove, Audrey K.
Doberstein and James H. Gilliam, Jr., or any one of them, each with the power of substitution, to
represent and vote your shares of the Company at the Annual Meeting of Stockholders of Delmarva
Power & Light Company to be held on May 29, 1997, or at any adjournments thereof, as directed
on the reverse side. They are further authorized to vote, in their discretion, upon such other
matters as may properly come before said meeting and adjournments thereof.
This proxy also provides voting instructions for shares held in the Dividend Reinvestment Plan,
Savings and Thrift Plan and PAYSOP as described on page 21 in the Proxy Statement.
(See Reverse Side)
DELMARVA POWER & LIGHT COMPANY
P.O. BOX 11065
NEW YORK, N.Y. 10203-0065
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