SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
[X] Definitive Proxy Statement RULE 14C-5(D)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
POTOMAC ELECTRIC POWER COMPANY
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
R.R. DONNELLEY FINANCIAL
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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Notes:
[LOGO OF PEPCO APPEARS HERE]
POTOMAC ELECTRIC POWER COMPANY
1900 PENNSYLVANIA AVENUE, N. W.
WASHINGTON, D. C. 20068
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
----------------------------------------
March 17, 1995
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Potomac
Electric Power Company will be held at 10:00 a.m. on Wednesday, April 26, 1995,
at The Capital Hilton Hotel, 16th and K Streets, N. W., Washington, D. C. for
the following purposes:
1. To elect four directors to serve for three years, and one director to
serve for one year;
2. To consider and take action with respect to a shareholder proposal
relating to the election of directors, if such proposal is brought before
the meeting; and
3. To transact such other business as may properly be brought before the
meeting.
The holders of the Common Stock of the Company of record at the close of
business on Tuesday, March 7, 1995, will be entitled to vote on each of the
above matters.
By order of the Board of Directors,
WILLIAM T. TORGERSON
Secretary
-------------
IMPORTANT
---------
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
EVEN IF YOU PLAN TO BE PRESENT, YOU ARE URGED TO SIGN, DATE AND MAIL THE
ENCLOSED PROXY PROMPTLY.
IF YOU ATTEND THE MEETING, YOU MAY VOTE EITHER IN PERSON OR BY YOUR PROXY.
PLEASE DATE AND SIGN YOUR
PROXY AND RETURN IT IN
THE ENVELOPE PROVIDED
THANK YOU FOR ACTING PROMPTLY
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
POTOMAC ELECTRIC POWER COMPANY
March 17, 1995
This statement is furnished in connection with a solicitation of proxies by
the Board of Directors of Potomac Electric Power Company (the "Company"), 1900
Pennsylvania Avenue, N.W., Washington, D.C. 20068, to be used at the Annual
Meeting of Shareholders of the Company to be held at 10:00 a.m. on Wednesday,
April 26, 1995, at The Capital Hilton Hotel, 16th and K Streets, N.W.,
Washington, D.C., and at any adjournment thereof, for the purposes set forth
in the foregoing notice of meeting. Properly executed proxies received prior
to closing of the polls during the meeting will be voted in the manner set
forth on the proxy unless specifically otherwise directed by the shareholder,
in which case they will be voted as directed. 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 shareholders
who are present at the meeting may revoke their proxies and vote in person.
At the close of business on Tuesday, March 7, 1995, the Company had
outstanding 118,248,594 shares of Common Stock of the par value of $1 per
share (the "Common Stock"), and the then holders of record thereof will be
entitled to one vote for each share so held by them on each of the matters to
be considered at the meeting.
The Annual Report to Shareholders for the fiscal year ended December 31,
1994, including financial statements, was mailed on or about February 24, 1995
to all shareholders. Such Report is not a part of the proxy soliciting
material.
1. ELECTION OF DIRECTORS
At the meeting, four directors are to be elected to hold office for three-
year terms, and until their respective successors shall have been elected and
qualified. In addition, one director is to be elected to hold office for one
year to fill the unexpired term of W. Reid Thompson, a director of the Company
for the past twenty-four years, who has reached the mandatory retirement age
for directors. Twelve directors constitute the entire Board of Directors.
It is the intention of the persons named in the enclosed proxy to vote such
proxy for the election of the nominees named below, all but one of whom are
now serving as directors, unless such authority is withheld. The Company does
not contemplate that any of such nominees will become unavailable for any
reason, but if that should occur before the meeting, proxies will be voted for
another nominee, or other nominees, to be selected by the Board of Directors.
Nominees receiving the greatest number of votes shall be elected. Shares as to
which authority to vote is withheld will not be voted for the election of
directors.
1
NOMINEES FOR ELECTION AS DIRECTORS
FOR TERM EXPIRING IN 1998
[PHOTO OF H. LOWELL H. LOWELL DAVIS, age 62, has been Vice Chairman and
DAVIS APPEARS HERE] Chief Financial Officer of the Company since 1983. He
has been a director of the Company since 1973 and is a
member of the Executive Committee. Mr. Davis is a
director of AVEMCO Corporation. He owns 52,832 shares
of the common stock of the Company.
[PHOTO OF JOHN M. JOHN M. DERRICK, JR., age 55, has been President of
DERRICK, JR. APPEARS the Company since December 1992. He has been Chief
HERE] Operating Officer since 1989. From 1989 to December
1992 he served as Executive Vice President of the
Company. Mr. Derrick has been a director of the
Company since 1994. He owns 14,674 shares of the
common stock of the Company.
[PHOTO OF PETER F. PETER F. O'MALLEY, age 56, has been Of Counsel to
O'MALLEY APPEARS O'Malley, Miles, Nylen & Gilmore, P.A., a law firm in
HERE] Calverton, Maryland since 1989. He has been a director
of the Company since 1982 and is Chairman of the
Finance Committee and a member of the Human Resources
Committee. Mr. O'Malley is a director of Legg Mason,
Inc. and Giant Food Inc. He owns 1,828 shares of the
common stock of the Company.
[PHOTO OF LOUIS A. LOUIS A. SIMPSON, age 58, has been President and Chief
SIMPSON APPEARS HERE] Executive Officer of Capital Operations (investments),
GEICO Corporation, Washington, D.C. since May 1993.
From 1985 to May 1993 he served as Vice Chairman of
GEICO Corporation. He has been a director of the Com-
pany since December 1990, and is a member of the Audit
Committee and FinanceCommittee. Mr. Simpson is a di-
rector of GEICO Corporation and Salomon Inc. He owns
2,000 shares of the common stock of the Company.
2
NOMINEE FOR ELECTION AS DIRECTOR
FOR TERM EXPIRING IN 1996
[PHOTO OF A. THOMAS A. THOMAS YOUNG, age 56, has been President and Chief
YOUNG APPEARS HERE] Operating Officer since 1990 of Martin Marietta
Corporation, a company based in Bethesda, Maryland
operating in the fields of aerospace, electronics,
information management and energy, and producing
materials for construction and industrial
applications. He is a director of Martin Marietta
Corporation, Cooper Industries, Inc. and The Dial
Corp. Mr. Young was nominated as a director of the
Company in December 1994. He owns 1,000 shares of the
common stock of the Company.
DIRECTORS CONTINUING IN OFFICE
TERM EXPIRES IN 1996
[PHOTO OF ROGER R. ROGER R. BLUNT, SR., age 64, is Chairman of the Board,
BLUNT, SR. APPEARS President and Chief Executive Officer of Blunt
HERE] Enterprises, Inc. (general contracting and
construction management), a Washington-based holding
company, that includes Essex Construction Corporation,
of which he is Chief Executive Officer, and Tyroc
Construction Corporation, of which he is Chairman of
the Board and Chief Executive Officer. Mr. Blunt has
been a director of the Company since 1984 and is
Chairman of the Audit Committee and a member of the
Executive Committee and Nominating Committee. He owns
319 shares of the common stock of the Company.
[PHOTO OF A. JAMES A. JAMES CLARK, age 67, is Chairman of the Board and
CLARK APPEARS HERE] President of Clark Enterprises, Inc. (general
contracting), a holding company based in Bethesda,
Maryland that includes Omni Construction, Inc., The
Clark Construction Group, Inc., of which he is
Chairman of the Board and President, and The George
Hyman Construction Company, of which he is Chairman of
the Board (and was Chief Executive Officer until
1989). He has been a director of the Company since
1977 and is Chairman of the Human Resources Committee
and a member of the Finance Committee. Mr. Clark is a
director of Carr Realty Corporation, GEICO Corporation
and Martin Marietta Corporation. He owns 6,100 shares
of the common stock of the Company. Clark Enterprises,
Inc., of which Mr. Clark is the majority owner, owns
79,864 shares of the common stock of the Company. Mr.
Clark has sole voting and investment power with
respect to the shares held by that company.
[PHOTO OF ANN D. ANN D. MCLAUGHLIN, age 53, is former United States
MCLAUGHLIN APPEARS Secretary of Labor, has been President of the Federal
HERE] City Council since 1990 and Vice Chairman of The Aspen
Institute since 1993. She served as President and
Chief Executive Officer of the New American Schools
Development Corporation from July 1992 to 1993. She is
a member of the Board of Trustees of The Urban
Institute, Washington, D.C. She has been a director of
the Company since January 1991, and is Chairman of the
Nominating Committee and a member of the Human
Resources Committee. Ms. McLaughlin is a director of
AMR Corporation/American Airlines, Inc., General
Motors Corporation, Kellogg Company, Nordstrom Inc.,
Union Camp Corporation, Vulcan Materials Company, and
Host Marriott Corporation. She owns 459 shares of the
common stock of the Company.
3
DIRECTORS CONTINUING IN OFFICE
TERM EXPIRES IN 1997
[PHOTO OF RICHARD E. RICHARD E. MARRIOTT, age 56, has been Chairman of the
MARRIOTT APPEARS HERE] Board of Host Marriott Corporation, a company based in
Bethesda, Maryland consisting of real estate holdings
and airport and toll road concession operations, since
October 1993. From 1986 to October 1993 he served as
Vice Chairman and Executive Vice President of the
Marriott Corporation, a hotel and hospitality company.
Mr. Marriott has been a director of the Company since
1993 and is a member of the Human Resources Committee
and the Nominating Committee. Mr. Marriott is a
director of Marriott International. He owns 100 shares
of the common stock of the Company.
[PHOTO OF DAVID O. DAVID O. MAXWELL, age 64, is Retired Chairman of the
MAXWELL APPEARS HERE] Board and Chief Executive Officer of the Federal
National Mortgage Association, a position he held from
1981-1991. Mr. Maxwell has been a director of the
Company since 1993 and is a member of the Audit
Committee and the Human Resources Committee. He is a
director of the Hechinger Company, Kaufman and Broad
Home Corporation, SunAmerica Inc. and Financial
Security Assurance Holdings Ltd. He owns 500 shares of
the common stock of the Company.
[PHOTO OF FLORETTA D. FLORETTA D. MCKENZIE, age 59, was the founder in 1987
MCKENZIE APPEARS HERE] and is the President of The McKenzie Group (educa-
tional consulting firm). Dr. McKenzie has been a di-
rector of the Company since 1988 and is a member of
the Audit Committee and the Executive Committee. Dr.
McKenzie is a director of Marriott International. She
owns 319 shares of the common stock of the Company.
[PHOTO OF EDWARD F. EDWARD F. MITCHELL, age 63, has been Chairman of the
MITCHELL APPEARS HERE] Board of the Company since December 1992. He has been
Chief Executive Officer since September 1989. From
1983 to December 1992, he served as President of the
Company. He has been a director of the Company since
1980, and is a member of the Executive Committee. He
owns 46,125 shares of the common stock of the Company.
4
As of March 7, 1995, Mr. Paul Dragoumis and Mr. Dennis R. Wraase, non-
director officers, each of whom is listed in the Summary Compensation Table,
owned 10,919 and 12,504 shares, respectively, and all directors, nominees, and
executive officers as a group, owned 431,374 shares of the common stock of the
Company, representing less than 1% of the shares outstanding.
The Board of Directors held seven meetings in 1994. The Company has standing
Executive, Audit, Finance, Human Resources and Nominating Committees of the
Board of Directors.
The Audit Committee held four meetings in 1994. The Committee's duties and
responsibilities include recommending to the Board the engagement of the
independent accountant, approving the plan and scope of the audit and the fee
before the audit begins and, following the audit, reviewing the results with
the independent accountant and its comments on the Company's system of internal
accounting controls. The Committee also reviews with the Company's General
Auditor the plan, scope and results of internal audits and his comments on the
Company's system of internal accounting controls. It further reviews with
management, the independent accountant and the General Auditor the accounting
principles applied in financial reporting and the reports relating to
compliance with the Company's statements of policy relating to conflicts of
interest. The Committee reports its activities to the Board periodically and
makes such recommendations and findings concerning any audit or related matter
as it deems appropriate.
In carrying out these functions, the Audit Committee represents the Board in
discharging its responsibility of oversight, but the existence of the Committee
does not alter the traditional roles and responsibilities of the Company's
management and the independent accountant with respect to the accounting and
control functions and financial statement presentation.
The Nominating Committee, composed entirely of independent, non-employee
directors, held three meetings in 1994. The Committee recommends to the Board
candidates for nomination for election as directors. The Committee will
consider nominees recommended by shareholders upon the receipt, no later than
the deadline for receipt of shareholder proposals, of information concerning
the name, business address, occupation, qualifications and share holdings of
the proposed nominee.
The Human Resources Committee held five meetings in 1994. The Committee
recommends to the Board the annual salary administration program for all exempt
employees, including specific salary recommendations for senior officers and
employees, and administers the executive compensation plans. The Committee also
makes recommendations to the Board with respect to the Company's General
Retirement Plan, other benefit plans, and officer and senior management
succession.
Each of the Company's directors, except directors who are employees of the
Company, is paid an annual retainer of $26,000, plus a fee of $1,000 for each
Board and committee meeting attended. The Company has a Retirement Plan for
Directors under which directors retiring at or after age 65 will receive, for
life, or for lesser periods depending on the length of the director's non-
employee board service, annual benefits equal to the retainer fee for directors
in effect at the time of retirement, with limited death benefits to a surviving
spouse. The Company also has a Stock Compensation Plan for the Board of
Directors under which directors of the Company may elect to receive up to 100%
of their retainers in shares of the Company's Common Stock. In 1982 the Company
established deferred compensation plans which permit directors to defer annual
retainer and meeting fee payments.
5
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
--------------------------------- LONG-TERM
OTHER ANNUAL INCENTIVE PLAN ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION/1/ PAYOUTS/2/ COMPENSATION/3/,/4/
- --------------------------- ---- -------- -------- --------------- -------------- -------------------
Edward F. Mitchell 1994 $553,333 $ 0 $79,716 $95,568 $58,800
Chairman of the Board 1993 540,000 218,700 66,131 0 53,153
and Chief Executive Officer 1992 521,667 0 54,864 0 24,265
H. Lowell Davis 1994 $408,000 $ 0 $56,192 $72,710 $44,354
Vice Chairman and 1993 400,000 162,000 49,927 0 44,227
Chief Financial Officer 1992 388,333 0 43,543 0 20,520
John M. Derrick, Jr. 1994 $333,333 $ 0 $ 9,970 $41,546 $37,674
President 1993 300,000 121,500 9,312 0 32,354
1992 241,667 0 8,490 0 12,002
Paul Dragoumis 1994 $236,667 $ 27,216 $16,677 $34,913 $28,573
Executive Vice President 1993 232,000 76,850 15,498 0 27,524
1992 228,000 0 14,126 0 12,088
Dennis R. Wraase 1994 $190,667 $ 26,693 $ 3,004 $27,085 $24,609
Senior Vice President 1993 186,000 73,238 2,945 0 24,947
1992 182,000 0 2,807 0 8,983
- --------------------
/1/Other Annual Compensation
Amounts in this column represent above-market earnings on deferred
compensation funded by Company owned life insurance policies held in trust,
assuming the expected retirement at age 65. The amounts are reduced if the
executive terminates employment prior to age 62 for any reason other than
death, total or permanent disability or a change in control of the Company. In
the event of a change in control and termination of the participant's
employment, a lump sum payment will be made equal to the net present value of
the expected payments at age 65 discounted using the Pension Guaranty
Corporation immediate payment interest rate plus one-half of one percent. The
Company has purchased the policies on participating individuals under a
program designed so that if assumptions as to mortality experience, policy
return and other factors are realized, the compensation deferred and the death
benefits payable to the Company under such insurance policies will cover all
premium payments and benefit payments projected under this program, plus a
factor for the use of Company funds.
/2/Long-Term Incentive Plan Payouts
Amounts in this column represent the value of the vested long-term
restricted stock granted under the terms of the Company's Executive Restricted
Stock Performance Award Program for the three-year performance cycle ended
December 31, 1993. Under the terms of the plan, fifty percent of the
restricted stock awards made in 1994 for the performance cycle ended December
31, 1993 vested on January 1, 1995 and the remaining fifty percent will vest
on January 1, 1996, subject to the participant's continued Company employment.
Amounts shown above reflect the value of the shares which vested January 1,
1995, based on the average of the high and low stock price on the New York
Stock Exchange on December 30, 1994.
/3/Restricted Stock
The number and market value of the non-vested restricted shares at December
31, 1994 for the executives listed above are: 9,201 shares or $169,068 for Mr.
Mitchell, 7,158 shares or $131,528 for Mr. Davis, 3,662 shares or $67,289 for
Mr. Derrick, 3,300 shares or $60,638 for Mr. Dragoumis and 2,875 shares or
$52,828 for Mr. Wraase. In the event of change in control and subsequent
termination or diminution of duties, the balance of the restricted
shareholdings becomes vested immediately.
/4/All Other Compensation
Amounts in this column consist of (i) Company contributions to the Savings
Plan for Exempt Employees of $7,000 for Messrs. Mitchell, Davis, Derrick,
Dragoumis and Wraase, respectively, for 1994, (ii) Company contributions to
the Executive Deferred Compensation Plan due to Internal Revenue Service
limitations on maximum contributions to the Savings Plan for Exempt Employees
of $14,415, $8,906, $7,541, $3,900 and $1,830 for Messrs. Mitchell, Davis,
Derrick, Dragoumis and Wraase, respectively, for 1994, (iii) the term life
insurance portion of life insurance written on a split-dollar basis of $5,687,
$3,555, $1,152, $1,985, and $718 for Messrs. Mitchell, Davis, Derrick,
Dragoumis and Wraase, respectively, for 1994, and (iv) the interest on
employer paid premiums for split-dollar life insurance of $31,698, $24,893,
$21,981, $15,688 and $15,061 for Messrs. Mitchell, Davis, Derrick, Dragoumis
and Wraase, respectively, for 1994. The split-dollar life insurance contract
provides death benefits to the executive's beneficiaries of approximately
three times the executive's annual salary. The split-dollar program is
designed so that, if the assumptions made as to mortality experience, policy
return and other factors are realized, the Company will recover all plan
costs, including a factor for the use of Company funds. The split-dollar
policy provides a cash surrender value to each participant in excess of any
premiums paid.
6
LONG-TERM INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR
PERFORMANCE OR
OTHER PERIOD
UNTIL THRESHOLD
MATURATION OR MINIMUM NUMBER OF MAXIMUM
NAME PAYOUT NUMBER OF SHARES SHARES NUMBER OF SHARES
---- --------------- ---------------- --------- ----------------
Edward F. Mitchell...... January 1, 1998 0 1,002 7,517
January 1, 1999 0 1,002 7,517
H. Lowell Davis......... January 1, 1998 0 742 5,569
January 1, 1999 0 742 5,568
John M. Derrick, Jr..... January 1, 1998 0 557 4,177
January 1, 1999 0 557 4,176
Paul Dragoumis.......... January 1, 1998 0 345 2,584
January 1, 1999 0 345 2,584
Dennis R. Wraase........ January 1, 1998 0 290 2,172
January 1, 1999 0 290 2,171
The above table reflects the share awards available under the Company's
Executive Restricted Stock Performance Award Program for the three-year
performance cycle beginning January 1, 1994. The Plan provides for the award of
restricted stock based on comparisons of Company performance to the Salomon
Brothers Electric Utilities index. The awards are based on total return to
shareholders over the three-year performance cycle and market-to-book ratios
for the same periods. Each of these two performance measures is given equal
weight. For a participant to receive the maximum award, the Company's total
return to shareholders and market-to-book ratio each must be in the top five of
all companies included in the Salomon Brothers Electric Utilities index.
Generally the Company results must be above the median of the companies
contained in the index for a participant to receive any award. Actual grants,
if any, will not be determined until the end of the performance cycle and
shares earned based on performance will vest in two equal installments on
January 1 of each of the two years commencing one year after the end of the
performance cycle. No dividends are paid on awards until actual grants are
made.
PENSION PLAN TABLE
ANNUAL RETIREMENT BENEFITS
-----------------------------------------------------
AVERAGE ANNUAL SALARY YEARS IN PLAN
IN FINAL THREE YEARS -----------------------------------------------------
OF EMPLOYMENT 15 20 25 30 35 40
--------------------- -------- -------- -------- -------- -------- --------
$150,000.................. $ 39,000 $ 53,000 $ 66,000 $ 79,000 $ 92,000 $105,000
$250,000.................. $ 66,000 $ 88,000 $109,000 $131,000 $153,000 $175,000
$350,000.................. $ 92,000 $123,000 $153,000 $184,000 $214,000 $245,000
$450,000.................. $118,000 $158,000 $197,000 $236,000 $276,000 $315,000
$550,000.................. $144,000 $193,000 $241,000 $289,000 $337,000 $385,000
$650,000.................. $171,000 $228,000 $284,000 $341,000 $398,000 $455,000
$750,000.................. $197,000 $263,000 $328,000 $394,000 $459,000 $525,000
The Company's General Retirement Plan provides participants benefits after
five years of service based on the average salary (the term salary being equal
to the amounts contained in the Salary column of the Summary Compensation
Table) for the final three years of employment and years in the Plan at the
time of retirement. Normal retirement age under the Plan is 65. Plan benefits
are subject to an offset for any Social Security benefits. Benefits under the
Plan may be reduced under certain provisions of the Internal Revenue Code, as
amended,
7
and by salary deferrals under the Company's deferred compensation plans (other
than CODA contributions made under the Savings Plan). Where any such reductions
occur, the Company will pay (as an operating expense) a retirement supplement
to eligible executives designed to maintain total retirement benefits at a
formula level of the Plan. In order to attract and retain executives, the
Company provides supplemental retirement benefits for executives who retire
under the terms of the General Retirement Plan and are at least 59 years of
age, which increases the average salary by the average of the highest three
annual incentive awards out of the last five consecutive years. The annual
incentive amounts are equal to the amounts shown in the Bonus column of the
Summary Compensation Table. The current age, years of credited service and
compensation used to determine retirement benefits for the above-named officers
are as follows: Mr. Mitchell, 63 and 38 years of credit, $654,928; Mr. Davis,
62 and 37 years of credit, $485,778; Mr. Derrick, 55 and 33 years of credit,
$350,222; Mr. Dragoumis, 60 and 29 years of credit, $283,522; and Mr. Wraase,
50 and 25 years of credit, $233,727. Annual benefits at age 65 (including the
effect of the Social Security offset) are illustrated in the table above.
Included in the years of credited service for Mr. Dragoumis are additional
years of service resulting from an agreement dated July 17, 1976 which provides
retirement benefits to him as though he had not had any interruption in
employment. Mr. Dragoumis joined the Company on September 1, 1971. In 1975 he
resigned to accept an executive appointment with the United States government.
He returned to the Company after approximately one year of Federal service.
HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Human Resources Committee of the Board of Directors is composed entirely
of independent, non-employee directors. The Committee's role includes review of
the performance of elected officers and other executives in connection with
executive compensation programs designed to provide a strong and direct link
between compensation, executive performance and the current and long-term level
of Company performance. The Committee recommends specific officer salaries to
the Board of Directors. The Committee also establishes and recommends to the
Board performance guidelines under the Executive Incentive Compensation Plan,
approves payments made pursuant to that Plan and recommends the structure of
compensation and amounts of awards under the Long-Term Incentive Plan approved
by the shareholders effective July 1, 1986. The Committee also reviews other
elements of compensation and benefits, making recommendations to the Board as
appropriate. The Committee carries out these responsibilities with assistance
from consulting firms and with such input from the Chief Executive Officer and
management as it deems appropriate.
OFFICER COMPENSATION PHILOSOPHY
The Company's compensation philosophy reflects a commitment to attract and
retain key executives with a program which compensates executive officers
competitively with other companies in the industry while rewarding executives
for achieving levels of operational excellence and financial results which
result in growth in shareholder value. The Company's compensation policy is to
provide a total compensation opportunity comparable to the median compensation
levels of the companies in the Salomon Brothers Electric Utilities index. The
relationship between pay and performance is reinforced by aligning the peer
group used for compensation comparison purposes with the same industry peer
group used for purposes of comparing total shareholder return.
The compensation program for officers consists of base salary, annual
incentive and, for senior officers, long-term incentive components. The
combination of these three elements balances short- and long-term business
8
performance goals and aligns officer financial rewards with Company operating
results and shareholder return. Total compensation for any specific year may,
of course, be above the median for the peer group in the event performance
exceeds goals, or below the median if performance falls short of goals (as was
the case for 1992 when no annual executive incentive awards were made and for
1994 with very limited annual incentive awards).
Annual incentive awards are earned based on the Company's financial and
operational plans and results, including relative industry ranking in total
return to shareholders. Long-term incentive awards are in the form of shares of
Company stock (Restricted Shares) which are awarded at the end of each three-
year cycle based upon meeting pre-established goals based on relative
shareholder return. Restricted Shares, if any, awarded under the long-term
incentive program will vest on the basis of continued service. The officer
compensation program is structured so that between 36 and 48 percent of the
total compensation opportunity is composed of incentive compensation.
The Omnibus Budget Reconciliation Act of 1993 included a provision on the
deductibility of the compensation earned by a company's five highest paid
officers. For 1994, all compensation earned by the Company's five highest paid
officers was completely deductible. In the future, the Committee will,
considering the best interests of the Company and its shareholders, use its
best judgment to continue the complete tax deductibility of the compensation
paid to its officers.
OFFICER SALARIES
The Committee determines base salary ranges for executive officers based upon
competitive pay practices. Officer salaries correspond to approximately the
median of the companies in the Salomon Brothers Electric Utilities index.
Consistent with a Company-wide salary and wage freeze, the Company's officers
did not receive a salary increase during 1993. (With the exception of Mr.
Derrick, who received an increase in connection with his election as President
in December 1992, increases from 1992 salaries shown for the year 1993 in the
Summary Compensation Table result from annualization of increases granted
during 1992.) Following no salary increase in 1993, the Chief Executive Officer
received a 3.7% base salary increase effective May 1, 1994, consistent with
Company salary administration programs and the Committee's compensation
assessment within the philosophy and framework outlined above.
EXECUTIVE INCENTIVE COMPENSATION PLAN
In 1983, the Board of Directors established the Executive Incentive
Compensation Plan for Company officers and senior executives. Under the plan
guidelines, awards for the Chairman, Vice Chairman and President are based upon
the Company's progress in achieving plan goals; awards for other officers are
based on a combination of corporate goals and individual goals established at
the beginning of the year. For awards paid in February 1995 for performance
during 1994, the equally weighted corporate goals were (1) earnings relative to
corporate plan, (2) achieving corporate goals for cost containment,
productivity improvements, customer service, plant efficiency and demand side
management, and (3) total return to shareholders in comparison with the Salomon
Brothers Electric Utilities index. Application of the plan formula resulted in
an incentive award level of 60% of the target award level, compared to a
maximum award level of 180% of the target, with the entire award resulting from
items (1) earnings (which slightly exceeded threshold plan award levels) and
(2) specific corporate goals (six out of eight goals achieved), with no award
amount from item (3) total return to shareholders. Although application of the
formula produced an award level of 60% of target, the Committee reduced the
total 1994 award level from 60% of the target award level to 40% of the target
award level in recognition of the low ranking in 1994 total return to
shareholders.
9
Although application of the plan formula at 40% of target award level would
have resulted in an award of 12% of 1994 base salary for the Chief Executive
Officer, no incentive award was made for the year 1994 in view of the Company's
low ranking in total return to shareholders for the year 1994 relative to the
Salomon Brothers Electric Utilities index.
LONG-TERM INCENTIVE PLAN
In 1991, the Board of Directors adopted an Executive Restricted Stock
Performance Award Program pursuant to the Long-Term Incentive Plan approved by
the Company's shareholders effective July 1, 1986. The initial three-year
performance period covered the period from 1991 through 1993. At the start of
the cycle, each participant became eligible for the award of Performance
Shares, with the maximum amounts based upon the participant's salary and the
price of Company stock at that date. As previously reported in the March 1994
proxy statement, the initial award under the long-term plan was made in
February 1994. The number of shares actually earned was based on the
performance measured over the three-year period ended December 31, 1993.
Pursuant to the plan formula, the Chief Executive Officer, was awarded 10,402
shares, or 62% of the total award potential of 16,778 fixed at the beginning of
the cycle. Under the plan, 50% of the shares earned for the 1991-1993 period
vested on January 1, 1995, as reported at page 6 herein in the Long-Term
Incentive Plan Payouts column of the Summary Compensation Table. Subject to the
participant's continued Company employment, the remaining 50% will vest on
January 1, 1996. (These restricted stock awards are shares of common stock
subject to limitations on their sale, transfer or pledge until the expiration
of the restriction period determined by the Committee at the time of grant.) As
reported at page 7, a performance cycle covering the years 1994 through 1996
was approved during 1994, with awards, if any, to be determined in the Spring
of 1997. Award potential was determined based upon participant's base salary
and market value per share at the beginning of the cycle, consistent with the
compensation philosophy and framework outlined above. At the end of the three-
year cycle, awards, if any, will be based on the Company's relative ranking in
three-year total return to shareholders and relative ranking in average market-
to-book value as compared to total return and market-to-book ratios for Salomon
Brothers Electric Utilities index for the corresponding three-year period. To
receive the maximum award, the Company must be among the top five of all
companies included in the Salomon Brothers Electric Utilities index in total
return to shareholders and market-to-book ratio. No award recognition is given
for performance rankings in the lower third of the index.
HUMAN RESOURCES COMMITTEE
Mr. A. James Clark, Chairman
Mr. Richard E. Marriott
Mr. David O. Maxwell
Ms. Ann D. McLaughlin
Mr. Peter F. O'Malley
10
The following chart compares PEPCO's five year cumulative total return to
shareholders with the five year cumulative total return for the Salomon
Brothers Electric Utilities index and the Dow Jones Utilities index.
PERFORMANCE PRESENTATION
(ART)
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company appointed Price Waterhouse LLP as
Independent Public Accountants for the Company for the year 1994 and, upon
recommendation of the Audit Committee of the Board, has reappointed the firm
for 1995. A representative of Price Waterhouse LLP is expected to attend the
Annual Meeting and will be given the opportunity to make a statement and to
respond to appropriate questions.
11
2. SHAREHOLDER PROPOSAL
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST ITEM 2.
Mrs. Evelyn Y. Davis, Watergate Office Building, Suite 215, 2600 Virginia
Avenue, N.W., Washington, D.C. 20037, who is the record holder of 100 shares of
the Company's Common Stock, has notified the Company of her intention to
present the following proposal for action at the meeting:
"RESOLVED: That the shareholders of PEPCO recommend that the Board of
Directors take the necessary steps to reinstate the election of directors
ANNUALLY, instead of the staggered system which was recently adopted."
The following statement has been supplied by the shareholder submitting this
proposal:
"REASONS: Until recently, directors of PEPCO were elected annually by all
shareholders."
"The great majority of New York Stock Exchange listed corporations elect all
their directors each year.
"This insures that ALL directors will be more accountable to ALL shareholders
each year and to a certain extent prevents the self-perpetuation of the Board.
"Last year the owners of 18,615,156 shares, representing 23.1% of shares
voting, voted FOR this proposal.
"If you AGREE, please mark your proxy FOR this resolution."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST THE ADOPTION OF
THIS PROPOSAL, SET FORTH AS ITEM 2 ON THE PROXY.
The Board of Directors believes that this proposal is not in the best
interests of the Company and its shareholders. The Board believes that the
present system, providing for the election of directors for three-year terms on
a staggered basis rather than one-year terms, enhances the likelihood of
continuity and stability in the composition of and in the policies formulated
by the Company's Board of Directors. The Board also believes that this, in
turn, permits it to represent more effectively the interests of all
shareholders.
In order to be adopted, the shareholder proposal requires the vote of the
holders of a majority of the stock present and entitled to vote at a meeting of
shareholders at which a quorum is present. Abstentions and broker non-votes
will be deemed present and entitled to vote but will not be counted as a vote
either for or against this proposal.
RECEIPT OF SHAREHOLDER PROPOSALS
Shareholder proposals must be received by the Company by November 17, 1995
for inclusion in the proxy material for next year's Annual Meeting.
12
3. OTHER MATTERS WHICH MAY COME BEFORE THE MEETING
The Board of Directors knows of no other matters which are likely to be
brought before the meeting. However, if any other matter should properly come
before the meeting, it is the intention of the person named in the enclosed
proxy to vote it in accordance with their judgment on such matters.
----------------
The Company will bear the cost of solicitation of proxies. In addition to the
use of the mails, proxies may be solicited by officers, directors and regular
employees of the Company personally, by telephone or by facsimile. The Company
expects to reimburse persons holding stock in their names or in those of their
nominees for their expenses in sending soliciting materials to their
principals.
[RECYCLING LOGO APPEARS HERE]
13
POTOMAC ELECTRIC POWER COMPANY
1900 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20068
ANNUAL MEETING OF SHAREHOLDERS -- APRIL 26,1995 PROXY
[LOGO OF PEPCO APPEARS HERE]
The undersigned hereby appoints EDWARD F. MITCHELL, H. LOWELL DAVIS and JOHN M.
DERRICK, JR., and each of them, proxies of the undersigned, with power of
substitution, to attend the above Annual Meeting to be held on Wednesday, April
26, 1995 at 10 a.m. at The Capital Hilton Hotel, 16th and K Streets, N.W.,
Washington, D.C., and all adjournments thereof, and thereat to vote all shares
of Common Stock of the Company that the undersigned would be entitled to vote
if personally present on matters set forth in the Proxy Statement and upon such
other matters as may properly come before the meeting. UNLESS INDICATED TO THE
CONTRARY, THIS PROXY SHALL BE DEEMED TO GRANT AUTHORITY TO VOTE FOR ITEM 1 AND
---
AGAINST ITEM 2.
- -------
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF POTOMAC ELECTRIC POWER COMPANY
CONTINUED ON REVERSE SIDE
[LOGO OF PEPCO APPEARS HERE]
PROXY
- --------------------------------------------------------------------------------
1.ELECTION OF FOR all nominees listed below WITHHOLD AUTHORITY
DIRECTORS (except as marked to to vote for all nominees
the contrary below) [_] listed below [_]
(TO WITHHOLD AUTHORITY FOR ANY INDIVIDUAL NOMINEE STRIKE A LINE THROUGH
THE NOMINEE'S NAME IN THE LIST BELOW.)
Four to serve for three years
H. Lowell Davis John M. Derrick, Jr. Peter F. O'Malley Louis A. Simpson
One to serve for one year
A. Thomas Young
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" ITEM 2 BELOW
2. Shareholder proposal relating to the election of FOR AGAINST ABSTAIN
Directors........................................ [_] [_] [_]
+ + + +
+
+
+
-------------------
ACCOUNT NO.
-------------------
Sign here
as name X ____________________________________ (L.S.)
appears X ____________________________________ (L.S.) Date _____ , 1995
above
Attorneys, executors, administrators, trustees and corporate officials should
indicate the capacity in which they are signing. Shares held in the Shareholder
Dividend Reinvestment Plan are voted on this Proxy.