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 26, 1996
To The Holders of Preferred and 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 30, 1996 at 11:00 A.M.
The purpose of the meeting is:
1. To elect three members of the Board of Directors;
2. To consider and vote upon a proposal to amend the Restated Certificate
and Articles of Incorporation to remove unsecured debt limits;
3. To consider and vote upon a proposal to approve the amendment and
extension of the Company's Long-Term Incentive Plan;
4. To appoint the Company's independent public accountants for the year
1996; and
5. To transact such other business as may properly come before the
meeting.
The close of business on April 22, 1996 has been fixed by the Board of
Directors as the time for determining the holders of Preferred and 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,
/s/ Howard Cosgrove
---------------------------------
- -------------------------------------------------------------------------------
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. If you have any
questions or need assistance in voting your proxy, please call our proxy
solicitor, D. F. King & Co., Inc. at (800) 207-3155.
- --------------------------------------------------------------------------------
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 30, 1996, and at any adjournments thereof. This Proxy
Statement and accompanying proxy will be mailed to holders of Preferred and
Common Stock on or about April 26, 1996.
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 a Company officer and a representative of the
Company's transfer agent, Wilmington Trust Company, 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 1995, containing financial
statements, was mailed to all stockholders of record on or about March 18, 1996,
and subsequently to all new stockholders through the close of business on April
22, 1996.
On December 31, 1995, the Company had outstanding 60,759,365 shares of Common
Stock and 2,880,850 shares of Preferred Stock consisting of 1,280,850 shares of
Preferred Stock--$100 par value and 1,600,000 shares of Preferred Stock--$25 par
value. Holders of record of outstanding Common and Preferred Stock at the close
of business on April 22, 1996, are entitled to vote at the meeting. The Common
Stock of the Company will vote as a single class, one vote per share and all
holders of Preferred Stock will vote together as a separate single class, with
each share of Preferred Stock having voting rights proportionate to their
respective par values. Accordingly, each share of Preferred Stock--$100 par
value will have one vote per share, and Preferred Stock--$25 par value will have
1/4 vote per share. Holders of the Company's Preferred Stock are entitled to
vote only on Proposal No. 2.
1
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 three
directors having terms expiring in 1997 and four directors having terms expiring
in 1998.
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 prior to the meeting, the proxy
holders will vote for a substitute nominee or nominees as selected by the Board
of Directors.
Effective November 1, 1995, H. Ray Landon, a director since 1988, retired
from the Company. He resigned from the Company's Board of Directors effective
October 1, 1995. At their meeting on September 28, 1995, members of the Board of
Directors elected Mr. R. Franklin Balotti, member of the law firm of Richards
Layton & Finger, Wilmington, Delaware, to serve the unexpired portion of Mr.
Landon's term.
All of the nominees for director were recommended by the Nominating Committee
and were approved by the Board of Directors on December 20, 1995.
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,
1995, 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.
2
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
AS OF FEBRUARY 29, 1996
Shares of
Nominees for Director Common Stock(1)(2)
--------------------------------- ------------------
CLASS III -- TERM EXPIRING IN
1999 ..........................
MICHAEL G. ABERCROMBIE ..... 830(3)
ROBERT D. BURRIS ........... 500
JAMES H. GILLIAM, JR. ...... 1,000
Incumbent Directors .............
- ----------------------------------
CLASS I -- TERM EXPIRING IN 1997
R. FRANKLIN BALOTTI ........ 1,017
MICHAEL B. EMERY ........... 1,000
SARAH I. GORE .............. 1,000
Incumbent Directors .............
- ----------------------------------
CLASS II -- TERM EXPIRING IN 1998
HOWARD E. COSGROVE ......... 36,973(4)(5)
AUDREY K. DOBERSTEIN ....... 1,000
JAMES C. JOHNSON ........... 1,020
WESTON E. NELLIUS .......... 500
Other Executive Officers ........
- ----------------------------------
H. RAY LANDON(6) ........... 22,853(4)(7)
THOMAS S. SHAW ............. 10,840(4)
BARBARA S. GRAHAM .......... 8,222(4)
RALPH E. KLESIUS ........... 12,459(4)(5)
PAUL S. GERRITSEN .......... 11,308(4)
As of February 29, 1996, all current executive officers and directors as a group
(20 persons) owned beneficially 142,291 shares of Common Stock, representing
0.23% of the shares of Common Stock outstanding.
- ------
(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 and
Performance-Based Employee Stock Ownership Plan.
(3) Does not include 300 shares of Common Stock owned by Mr. Abercrombie's wife,
beneficial ownership of which he disclaims.
(4) Includes 22,520, 10,780, 5,550, 4,940, 5,550 and 4,400 shares of
performance-based restricted stock for Messrs. Cosgrove, Landon and Shaw,
Mrs. Graham, and Messrs. Klesius and Gerritsen 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.
(5) 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.
(6) Mr. Landon, who also was a director of the Company until his retirement,
retired effective November 1, 1995.
(7) Does not include 4,200 shares of Common Stock owned by Mr. Landon's wife,
beneficial ownership of which he disclaims.
3
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 percent of the outstanding shares of Common Stock of the Company.
Name Shares
and Address of Beneficially Percent of
Beneficial Owner Owned(1) Class
----------------------------- -------------- ------------
Franklin Resources, Inc. 4,560,900 7.5%
777 Mariners Island Boulevard
P.O. Box 7777
San Mateo, California 94403
- ------
(1) The share ownership shown above is based on Amendment No. 3 to a Form 13G,
dated February 12, 1996, filed with the Securities and Exchange Commission.
4
NOMINEES FOR CLASS III DIRECTORS WITH TERMS
EXPIRING IN 1999:
Michael G. Abercrombie, age 56. Director since --------------
1993. President of Cato, Inc. (a petroleum PHOTO OF
distributorship), Salisbury, Maryland. Mr. PERSON TO
Abercrombie also serves as Immediate Past THE LEFT
President of The Community Foundation of the --------------
Eastern Shore and is past Chairman of the Greater
Salisbury Committee.
Robert D. Burris, age 51. Director since 1993. --------------
President of Burris Foods, Inc. (a refrigerated PHOTO OF
food distribution company), Milford, Delaware. Mr. PERSON TO
Burris also is a director of the Federal Reserve THE LEFT
Bank of Philadelphia and a member of the Board of --------------
the Milford Memorial Hospital.
James H. Gilliam, Jr., age 51. Director since
1993. Director, Executive Vice President and --------------
General Counsel of Beneficial Corporation (a PHOTO OF
financial services company), Wilmington, Delaware PERSON TO
(Executive Vice President, General Counsel and THE LEFT
Secretary from 1989 to 1992). Director of Bell --------------
Atlantic Corporation, Philadelphia, Pennsylvania.
Mr. Gilliam also is a Trustee of the Howard Hughes
Medical Institute.
5
CLASS I DIRECTORS WITH TERMS
EXPIRING IN 1997:
R. Franklin Balotti, age 54. Director since 1995.
Member of the law firm of Richards Layton & --------------
Finger, Wilmington, Delaware. Mr. Balotti is the PHOTO OF
immediate past President of the Delaware Bar PERSON TO
Association and serves as a member of the Board of THE LEFT
Overseers of Widener University School of Law. --------------
Michael B. Emery, age 57. Director since 1994.
Senior Vice President of E.I. duPont deNemours & --------------
Company (a diversified chemical, energy, and PHOTO OF
specialty products company), Wilmington, Delaware. PERSON TO
Mr. Emery also serves as Chairperson of the THE LEFT
Development Council of Delaware Technical and --------------
Community College.
Sarah I. Gore, age 61. Director since 1990. Human
Resources Associate, W. L. Gore & Associates, Inc. --------------
(a high technology manufacturing company), Newark, PHOTO OF
Delaware. Director of Delaware Trust Company, PERSON TO
Wilmington, Delaware. Mrs. Gore and her family THE LEFT
created the I Have a Dream Foundation of Delaware --------------
for which she serves as a director.
6
CLASS II DIRECTORS WITH TERMS
EXPIRING IN 1998:
Howard E. Cosgrove, age 53. Director since 1986.
Chairman, President and Chief Executive Officer of --------------
the Company (President and Chief Operating Officer PHOTO OF
1991 to 1992, Executive Vice President 1985 to PERSON TO
1991). Mr. Cosgrove also is a director of the THE LEFT
Federal Reserve Bank of Philadelphia and a Trustee --------------
of The University of Delaware.
Audrey K. Doberstein, age 63. Director since 1992.
President of Wilmington College, New Castle, --------------
Delaware. Director of Mellon Bank Delaware (N.A.), PHOTO OF
Wilmington, Delaware. Dr. Doberstein also serves PERSON TO
as a member of the Board of Directors of Blue THE LEFT
Cross/Blue Shield of Delaware. --------------
James C. Johnson, age 61. Director since 1992. --------------
President and Chief Executive Officer of Loyola PHOTO OF
Federal Savings Bank, Baltimore, Maryland. Mr. PERSON TO
Johnson also is a member of the Board of Directors THE LEFT
of the Chesapeake Bay Trust. --------------
Weston E. Nellius, age 60. Director since 1995.
President, Nellius Management Associates, Inc. (a --------------
financial, management and government relations PHOTO OF
consulting firm), Dover, Delaware. Director of PERSON TO
Nations Bank of Delaware (N.A.), Dover, Delaware. THE LEFT
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.
7
BOARD OF DIRECTORS MEETINGS
The Board of Directors held eight regular meetings in 1995. All incumbent
directors 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.
COMMITTEES AND COMMITTEE MEETINGS
The Board of Directors has Audit, Executive, Investment, Nominating,
Compensation and Nuclear Oversight Committees. In 1995, the Audit Committee held
two meetings, the Executive Committee did not hold any meetings, the Investment
Committee did not hold any meetings, the Nominating Committee held four
meetings, the Compensation Committee held three meetings, and the Nuclear
Oversight Committee held two meetings.
The Audit Committee is comprised of three outside directors: James C.
Johnson, Chairperson, 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 three outside directors and one
inside director. The three outside directors are Sarah I. Gore, Vice
Chairperson, 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.
8
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 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.
CHANGES TO BY-LAWS
There were no changes to the By-Laws of the Company during 1995.
9
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 its customers with
high quality service at a competitive price and providing the Company's
stockholders with a competitive return on their investment.
Toward that end, the program is designed to provide:
o Total compensation levels that are competitive with those provided by
other utilities and allow the Company to compete for executive talent;
o Base salary levels related to position and individual performance;
o Annual incentive compensation that varies based on corporate and
individual performance; and
o Long-term incentive compensation based on long-term performance that
increases stockholder value.
In administering the executive compensation program, the Compensation
Committee attempts to strike an appropriate balance among these objectives, each
of which is discussed in greater detail below.
COMPETITIVE COMPENSATION LEVELS
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")* 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-term 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. The Company's 1995
salary level for each of its five named executive officers, without taking into
account Mr. Landon, who retired during the year, 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.
- -----------
* 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, 42 out of the 45
companies (93.3%) in the Dow Jones Electric Utilities Index are included in
the EEI Executive Compensation Survey Report.
10
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 exceed 95% of the Company's EPS goal.
The awards, upon satisfaction of these criteria, contain two components;
corporate performance and individual performance. Approximately 80% 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 (a) the Company's EPS as compared
with the Company's EPS goal, and (b) the Company's net change in electric rates
per kilowatt hour as compared against the net change in the electric rates of
the Peer Group over a three-year period. Generally, the payout in connection
with corporate performance is determined in the following manner. There is a
basic incentive opportunity ("BIO") set at the beginning of each year, which is
expressed as a percentage of salary. The BIO is adjusted at year-end based upon
corporate performance. This adjusted amount may not exceed 150% of the BIO. The
adjustment is made based upon the EPS/Rates multiplier (the "multiplier"), which
takes corporate performance into account. The BIO assumes that 100% of the
annual EPS goal is met and the net change in rates over a three-year period
equals the industry average. Therefore, the multiplier starts at 1.00, but it
may be adjusted up or down to reflect actual results. 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. A second adjustment is made for the average change in rates
over a three-year period, as compared to the Peer Group. If the Company's rates
go down more, or increase less, than the Peer Group average, the multiplier is
increased by 5% for each 1% positive deviation. If the Company's rates increase
more, or decrease less than the industry average, the decrease is 2% for each 1%
negative deviation.
The remaining approximately 20% 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 January 1 merit review.
LONG-TERM INCENTIVE COMPENSATION
The Company's Long-Term Incentive Plan reinforces the importance of providing
investors with a competitive return on their investment. Participants in this
Plan are contingently awarded shares of the Company's stock. Currently, awards
granted under this Plan consist entirely of shares of performance-based
restricted stock. 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 (4-year cumulative as compared to the Peer
Group) is in the 50% to 59.9% range. The threshold number will be awarded if the
Total Stockholder Return Percentile is in the 35% to 39.9% range and the maximum
number will be awarded if the Stockholder Return Percentile is in the 90% to
100% range. Formerly, this Plan also provided for stock options and dividend
rights, some of which are still outstanding.
11
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. The awards are limited by
the Management Incentive Compensation Plan to 27% of base salary for each of the
senior executives, including the five named executive officers, and other
specified amounts for other employees covered by the Plan.
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 <F1>
officers."**
Significant actions by the Committee for fiscal year 1995 included setting
salaries and reviewing criteria for and approving the awarding of annual
incentive awards, and long-term incentive grants. In addition, looking forward
into 1996, the Compensation Committee began considering potential changes in
executive compensation at its fall 1995 meetings. The Committee is conducting a
review of the Company's compensation policy in light of increasing competition
that presents both opportunities and challenges for the Company's future. In
this environment, the Committee believes it is important that the Company have
the ability to attract and retain high-quality executives from both within and
outside the utility industry.
CHIEF EXECUTIVE OFFICER COMPENSATION
SALARY ACTION
There was no change in Chief Executive Officer, Howard E. Cosgrove's salary
from 1994 to 1995. It remained the same at $345,000. At the December 1994
meeting of the Compensation Committee, as part of the Company's overall effort
to more closely link total compensation with corporate performance, the
Committee decided that in lieu of salary increases in 1995, the Company's ten
most highly-compensated officers, including Mr. Cosgrove, would be granted
additional compensation opportunities through an increase in grants of
performance-based restricted stock under the Long-Term Incentive Plan. Mr.
Cosgrove's salary in 1995 was approximately 90% of the median for Chief
Executive Officers in comparably sized utilities.
ANNUAL INCENTIVE AWARD
Mr. Cosgrove's annual incentive award for 1995, as shown in the
compensation table contained in this Proxy Statement, was based upon the
following: (a) actual EPS for the year was 100% of the Company's EPS goal,
(b) of the eight corporate goals that were established for 1995 in the areas
- --------
**As used throughout this Proxy Statement, the phrase "five named executive
officers" generally does not include Mr. Landon, who retired during 1995.
12
of safety, cost, competitive pricing, customer relations, the environment and
service reliability, seven were met or exceeded, and (c) the Company's average
kilowatt hour rate went down an average of .5% while its Peer Group increased an
average of 1.3%, for a net positive deviation of 1.8%, during the period of
1993-1995.
LONG-TERM INCENTIVE PLAN
Long-term incentive grants represent an important component of the
compensation opportunity for the Chief Executive Officer. Consistent with the
Company's Long-Term Incentive Plan, the Committee determined the 1995 grants of
performance-based restricted stock (reflected in the compensation tables
contained in this Proxy Statement) made to Mr. Cosgrove. For the 1995 cycle, the
initial award of performance-based restricted stock was targeted at providing
additional long- term compensation opportunities in lieu of a salary increase,
based upon the Company's performance as compared to the Peer Group. The number
of shares actually earned, if any, will be awarded in 1999 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 1995-1998, as discussed under
"Long-Term Incentive Compensation" on page 11.
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 each
of the Company's five other most highly-compensated executive officers, one of
whom retired during the year, based on compensation earned during 1995.
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------------------------
(a) (b) (c) (d) (e)
Other
Annual Com-
pensation
Name and Principal Position Year Salary($) Bonus($) $
- ----------------------...................... ------ --------- -------- -------------
H. E. Cosgrove Chairman of the Board 1995 345,000 73,500 -0-
President and Chief 1994 345,000 90,800 -0-
Executive Officer 1993 320,000 86,400 -0-
H. R. Landon(3) Executive Vice President 1995 183,333 46,900 -0-
1994 220,000 57,900 -0-
1993 200,000 53,600 -0-
T. S. Shaw Senior Vice President/ 1995 165,000 34,400 -0-
President, Delmarva 1994 165,000 42,600 -0-
Capital Investments, Inc. 1993 150,000 39,800 -0-
B. S. Graham(4) Senior Vice President, 1995 165,000 33,500 -0-
Treasurer and 1994 148,500 38,400 -0-
Chief Financial Officer 1993 135,000 35,100 -0-
R. E. Klesius Senior Vice President 1995 157,000 31,100 -0-
1994 157,000 39,000 -0-
1993 150,000 38,300 -0-
P.S. Gerritsen Vice President 1995 152,000 30,100 -0-
1994 152,000 37,700 -0-
1993 146,200 37,300 -0-
(RESTUBBED TABLE CONTINUED FROM ABOVE)
Long-Term Compensation
----------------------------------------
Awards Payouts
-------------------------- ---------
(a) (f) (g) (h) (i)
Restricted Securities All Other
Stock Underlying LTIP Com-
Award(s) Options Payouts pensation
Name and Principal Position $(1) (#) ($) ($)(2)
-------------------------- ------------ --------- ----------- -------------
H. E. Cosgrove -0- -0- -0- 19,498
-0- -0- -0- 24,118
-0- -0- -0- 28,584
H. R. Landon(3) -0- -0- -0- 13,565
-0- -0- -0- 21,984
-0- -0- -0- 25,998
T. S. Shaw -0- -0- -0- 8,179
-0- -0- -0- 10,030
-0- -0- -0- 11,506
B. S. Graham(4) -0- -0- -0- 6,793
-0- -0- -0- 7,454
-0- -0- -0- 8,196
R. E. Klesius -0- -0- -0- 7,979
-0- -0- -0- 9,672
-0- -0- -0- 10,890
P.S. Gerritsen -0- -0- -0- 11,242
-0- -0- -0- 14,326
-0- -0- -0- 17,108
#--Number of units $--Dollar amounts
14
- ------
(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, 1995: Mr. Cosgrove held 23,750 shares of restricted stock with
a value of $495,390 (1,230, 4,880, 6,070, and 11,570 shares with a
grant-date market price of $20.50, $22.75, $22.00 and $19.50 per share
respectively); Mr. Landon held 11,770 shares of restricted stock with a
value of $244,475 (990, 2,260, 2,650 and 5,870 shares with a grant-date
market price of $20.50, $22.75, $22.00 and $19.50 per share respectively);
Mr. Shaw held 5,830 shares of restricted stock with a value of $121,662.50
(280, 1,330, 1,350, and 2,870 shares with a grant-date market price of
$20.50, $22.75, $22.00 and $19.50 per share respectively); Mrs. Graham held
5,140 shares of restricted stock with a value of $106,355 (200, 1,000, 1,070
and 2,870 shares with a grant-date market price of $20.50, $22.75, $22.00
and $19.50 per share respectively); Mr. Klesius held 5,830 shares of
restricted stock with a value of $121,662.50 (280, 1,330, 1,350 and 2,870
shares with a grant-date market price of $20.50, $22.75, $22.00 and $19.50
per share respectively); and Mr. Gerritsen held 4,990 shares of restricted
stock with a value of $104,520 (590, 1,000, 1,350 and 2,050 shares with a
grant-date market price of $20.50, $22.75, $22.00 and $19.50 per share
respectively).
(2) The amounts of All Other Compensation for each of the named executive
officers for fiscal year 1995 include the following: for Mr. Cosgrove,
$5,896 in Company matching contributions to the Company's Savings & Thrift
Plan and an accrual of $13,398 for dividend rights acquired through the
Company's Long-Term Incentive Plan; for Mr. Landon, $4,583 in Company
matching contributions to the Company Savings & Thrift Plan, and an accrual
of $8,778 for dividend rights acquired through the Company's Long-Term
Incentive Plan; for Mr. Shaw, $4,125 in Company matching contributions to
the Company's Savings & Thrift Plan and an accrual of $3,850 for dividend
rights acquired through the Company's Long-Term Incentive Plan; for Mrs.
Graham, $4,125 in Company matching contributions to the Company's Savings &
Thrift Plan and an accrual of $2,464 for dividend rights acquired through
the Company's Long-Term Incentive Plan; for Mr. Klesius, $3,925 in Company
matching contributions to the Company's Savings & Thrift Plan and an accrual
of $3,850 for dividend rights acquired through the Company's Long-Term
Incentive Plan; and for Mr. Gerritsen, $3,800 in Company matching
contributions to the Company's Savings & Thrift Plan and an accrual of
$7,238 for dividend rights acquired through the Company's Long-Term
Incentive Plan. In addition, the amounts of All Other Compensation for Mr.
Landon and each of the five named executive officers includes $204 in term
life insurance premiums paid by the Company on such officer's behalf (which
insurance is provided on an equal basis to all employees of the Company).
(3) Mr. Landon, who retired effective November 1, 1995, is reported pursuant to
Securities and Exchange Commission regulations.
(4) Mrs. Graham is the only executive officer of the Company whose salary
increased in 1995. Her salary increase was due entirely to her promotion
from Vice President and Chief Financial Officer to Senior Vice President,
Treasurer and Chief Financial Officer effective January 1, 1995.
OPTION EXERCISES DURING 1995 AND YEAR-END OPTION VALUES
The following table provides information related to options held by the named
executive officers at fiscal year-end 1995. The Board of Directors, at its
January 1993 meeting, approved an amendment to the Company's Long-Term Incentive
Plan eliminating awards of Common Stock options and dividend rights effective
fiscal year 1993. The Company does not grant stock appreciation rights.
15
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
FY-End(#) FY-End ($)
Shares Acquired Value
Name on Exercise (#) Realized ($)(1) Exercisable Exercisable
------------------- ------------------- --------------- --------------- ----------------
H. E. Cosgrove -- -- 14,400 26,025
H. R. Landon(2) -- -- -- --
T. S. Shaw -- -- -- --
B. S. Graham -- -- -- --
R. E. Klesius -- -- 4,400 7,575
P. S. Gerritsen -- -- -- --
- ------
(1) The closing price for the Company's Common Stock as reported by the New York
Stock Exchange on December 31, 1995, was $22.750. The value is calculated on
the basis of the difference between the exercise price of the options and
$22.750, which difference is multiplied by the number of options. The
options all are exercisable currently.
(2) Mr. Landon, who retired effective November 1, 1995, is reported pursuant to
Securities and Exchange Commission regulations.
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 1995. 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
-----------------------------------
(a) (b) (c) (d) (e) (f)
Number of Performance or
Shares, Units or Other Period Until Threshold Target Maximum
Name Other Rights(#)(1) Maturation or Payout (#) (#) (#)
--------------- ------------------ -------------------- ----------- -------- ---------
H. E. Cosgrove 11,570 4 yrs. 2,893 11,570 17,355
H. R. Landon(2) 5,870 4 yrs. 1,468 5,870 8,805
T. S. Shaw 2,870 4 yrs. 718 2,870 4,305
B. S. Graham 2,870 4 yrs. 718 2,870 4,305
R. E. Klesius 2,870 4 yrs. 718 2,870 4,305
P. S. Gerritsen 2,050 4 yrs. 513 2,050 3,075
16
- ------
(1) 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 (4-year
cumulative as compared to the Peer Group) is in the 50% to 59.9% range. The
threshold number will be awarded if the Total Stockholder Return Percentile
is in the 35% to 39.9% range and the maximum number will be awarded if the
Stockholder Return Percentile is in the 90% to 100% range.
(2) Mr. Landon, who retired effective November 1, 1995, is reported pursuant to
Securities and Exchange Commission regulations.
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 $21,857 $ 38,345 $ 47,931 $ 57,518 $ 67,105
200,000 35,537 62,345 77,932 93,518 109,105
300,000(2) 53,777 94,345 117,932 141,518(3) 165,105(3)
400,000(2) 72,017 126,345(3) 157,932(3) 189,518(3) 221,105(3)
500,000(2) 90,257 158,345(3) 197,932(3) 237,518(3) 277,105(3)
- ------
(1) Represents reduced early retirement benefit payable at age 55.
(2) Effective January 1, 1996, annual compensation recognized in computing
Average Annual Earnings under the Retirement Plan may not exceed $150,000 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 1996, the limit on annual benefits payable under qualified, defined
benefit plans is $120,000. The amount in excess of $120,000 in the above
table would be payable under the Company's SERP.
17
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 (a) plus (b) where (a) 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 ($27,576
in 1996), and where (b) 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 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 17.
Messrs. Cosgrove, Landon and Shaw, Mrs. Graham, and Messrs. Klesius and
Gerritsen have, respectively, 29, 32, 24, 12, 30 and 18 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 (i) satisfy all Plan liabilities, (ii) fund certain post-retirement
medical benefits and death benefits and (iii) 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 (a) provide a 2% cost of
living increase for retirees for each year of retirement and (b) 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 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 forty-three 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
18
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.
19
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, 1995, 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, 1990, 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
250 |------------------------------------------------------------------|
| |
| |
| |
| & |
200 |------------------------------------------------------------------|
| |
| *# |
| |
D | *&# & |
O 150 |-------------------------*----------------------------------------|
L | &# |
L | *# |
A | *&# |
R | |
S 100 |---*&#------------------------------------------------------------|
| |
| |
| |
| |
50 |------------------------------------------------------------------|
| |
| |
| |
| |
0|----|----------|---------|-----------|-----------|-----------|----|
12/90 12/91 12/92 12/93 12/94 12/95
*= Delmarva Power & Light Company &=S & P 500
#=Dow Jones Electric Utilities
* $100 INVESTED ON 12/31/90 IN STOCK OR INDEX-INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
Five Year Total Return
----------------------------------------------------------
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
Delmarva Power & Light Company * 100 130 149 162 135 182
S & P 500 & 100 130 140 155 157 215
Dow Jones Electric Utilities # 100 127 138 155 136 178
20
PROPOSAL NO. 2--AMENDMENT TO RESTATED CERTIFICATE AND ARTICLES OF
INCORPORATION REMOVING LIMITS ON UNSECURED INDEBTEDNESS
Presently, the Company is restricted in the amount of unsecured debt it may
issue or assume, to 20% of the aggregate of its secured debt, preferred stock,
and common shareholder equity. The Board of Directors recommends the removal of
this limitation for the following reasons:
o The electric and gas utility industry is becoming more competitive due
to regulatory, legislative, and market developments. To proactively
address the issues of deregulation and increased competition, the
Company is changing the way it views and manages its business. In this
transitioning business environment, the restrictive terms and
conditions of the Company's Mortgage and Deed of Trust, under which
secured First Mortgage Bonds are issued, could negatively impact the
Company's strategic flexibility. Certain transactions that would be in
the best interest of the shareholders, creditors, and customers could
also be inhibited. Removal of the unsecured debt limit would enable the
Company to issue debt without using the overly restrictive and
administratively expensive First Mortgage Bonds.
o Change also is evident in the capital markets where new financial
instruments are being created and sold to help companies more effectively
raise funds. Certain of these financial instruments, which are designed to
enhance a company's overall credit structure and manage the Company's cost
of capital, make use of unsecured debt. Removal of the unsecured debt
limit would enable the Company to take advantage of such financial
instruments.
o The Company requires the flexibility and ease to issue interim unsecured
debt in order to obtain the best terms available in the market for
permanent capital financing. Removal of the unsecured debt limit would
provide the Company with this needed capacity.
Because of these benefits, the Board of Directors recommends that the
stockholders approve an amendment to Article FOURTH of the Company's Restated
Certificate and Articles of Incorporation, as amended (the "Charter"), removing
limits on unsecured indebtedness as described below.
Article FOURTH, Section 9(b), paragraph (2) of the Charter states that the
consent of a majority of the total voting power of the outstanding Preferred
Stock--$100 Par and Preferred Stock-- $25 Par of all series, voting as a single
class, is necessary before the Company may:
Issue or assume any unsecured notes, debentures or other securities
representing unsecured debt (other than for the purposes of refunding or
renewing outstanding unsecured securities issued or assumed by the Company
resulting in equal or longer maturities or redeeming or otherwise retiring
all outstanding shares of the preferred stock) if immediately after such
issue or assumption the total outstanding principal amount of all unsecured
notes, debentures or other securities representing unsecured debt of the
Company will thereby exceed 20% of the aggregate of all existing secured debt
of the Company, and the capital stock, premiums thereon, and surplus of the
Company, as then to be stated on the books of account of the Company.
The proposed amendment to the Charter would remove paragraph (2) under
Article FOURTH, Section 9(b) quoted above, thus eliminating the limitation on
the issuance of unsecured indebtedness by the Company.
21
If approved by the stockholders, the proposed amendment to Article FOURTH
would become effective under Delaware law upon filing a Certificate of Amendment
to the Company's Charter with the Delaware Secretary of State, which filing
would take place shortly after the Annual Meeting. The amendment to Article
FOURTH would become effect under Virginia law on June 7, 1996.
Adoption of this proposed amendment to the Company's Charter requires the
affirmative vote of the holders of a majority of the shares of the Common Stock
entitled to vote and the affirmative vote of a majority of the total voting
power of the outstanding Preferred Stock--$100 Par and Preferred Stock--$25 Par
of all series, voting as a single class. 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.
For all of the above reasons, your Board of Directors recommends that you
vote FOR Proposal No. 2.
PROPOSAL NO. 3--APPROVAL OF THE AMENDMENT AND EXTENSION OF THE LONG-TERM
INCENTIVE PLAN
GENERAL
The Company's Long-Term Incentive Plan (the "Plan") originally was adopted
(subject to stockholder approval) by the Board of Directors in November 1986 and
approved by the stockholders in April 1987 for a ten-year period. At this time,
the Board of Directors recommends that the stockholders approve an amendment and
extension of the Plan for an additional ten-year period.
The Plan, if the amendment and extension are approved, will continue to
provide certain officers and key executives of the Company and its subsidiaries
with a stake in the future of the Company and is designed to attract, retain,
and motivate individuals upon whom the sustained growth and financial success of
the Company and its subsidiaries depend. The total number of persons eligible to
participate in the Plan, which will change based on Compensation Committee
determinations of which persons are largely responsible for the continued growth
and financial success of the Company and its subsidiaries, currently is
forty-eight. The following description of the Plan is qualified in its entirety
by reference to the full text of the proposed Plan, as it is to be amended and
extended, a copy of which is set forth in Exhibit A to this Proxy Statement. The
Plan provides for the authority to grant the following types of long-term
incentive awards: stock options (both nonqualified stock options and incentive
stock options), stock appreciation rights, restricted stock, and performance
awards, or such other forms of awards as the Compensation Committee of the Board
may in its discretion deem appropriate.
The shares that may be issued under the Plan, if the amendment and extension
is approved, will not be more than 1.5 million shares of Common Stock during the
ten-year period commencing May 31, 1996, and ending May 30, 2006, the date of
termination of the Plan. Such amount will be subject to equitable adjustment as
provided in the Plan. Except as otherwise provided in the Plan, any shares
subject to an option, right or other award that for any reason expires, is
surrendered, canceled, exchanged or forfeited or is terminated unexercised or
unvested as to such shares, will again be available for award under the Plan.
Awards under the Plan are not determinable because they are made in the
discretion of the Committee. Grants of awards in 1995 to individuals named in
the Summary Compensation Table are reflected in the "Long-Term Incentive
Plans--Awards in Last Fiscal Year" table on page 16.
22
STOCK OPTIONS
Options granted under the Plan may be either incentive stock options, as
defined in the Internal Revenue Code, or options that do not qualify
("nonqualified options"). At the time an option is granted, the Compensation
Committee of the Board determines the number of shares subject to each stock
option and the manner and time of exercise. The Compensation Committee, however,
may permit acceleration of the previously determined terms. The option price per
share for stock options will be set in the grant; but in the case of incentive
stock options, the option price will be equal to the greater of 100% of the fair
market value of the stock on the date of grant or the par value of such stock,
and in the case of nonqualified stock options, the option price shall not be
less than the greater of 100% of the fair market value of the stock on the date
of grant or the par value of such stock. The option exercise price may be paid
with cash and/or shares of Common Stock. Options will be evidenced by stock
option agreements in a form approved by the Compensation Committee. In the event
an optionee ceases to be an employee of the Company, the optionee shall have the
right to exercise his or her options thereafter within such period and under
such circumstances as the Compensation Committee may set forth in the applicable
stock option agreement, but in no event beyond the expiration date of the
option. Unless otherwise set forth in the stock option agreement, the portion of
any option that has not become exercisable prior to the date of the optionee's
termination of employment shall be canceled immediately.
The granting of an option does not entitle the participant to any dividend,
voting or other rights of a stockholder, unless and until the participant
receives Common Stock upon exercise of the option.
STOCK APPRECIATION RIGHTS
A stock appreciation right ("SAR") is the right to receive a stock
appreciation payment equal in value to the excess of the fair market value of
the Common Stock at a particular point in the future over the grant price of the
SAR, which is equal to the exercise price of the underlying option. SARs are
granted in tandem with either a nonqualified stock option or an incentive stock
option. Generally, an SAR granted in tandem with a nonqualified stock option may
be granted at the time of grant of the related nonqualified stock option or at
any time thereafter. An SAR granted in tandem with an incentive stock option
generally may be granted only at the time of grant of the related incentive
stock option. An SAR will be exercisable for the same period as the underlying
option. Upon the exercise of an SAR, the related option will be canceled to the
extent of the number of shares of stock as to which the SAR is exercised. Upon
the exercise of an option granted in connection with an SAR, the SAR will be
canceled to the extent of the number of shares of stock as to which the option
is exercised
Stock appreciation payments may be made in cash or Common Stock or a
combination of both at the discretion of the participant. The granting of an SAR
does not entitle the participant to any dividend, voting or other rights of a
stockholder, unless and until the participant receives Common Stock upon
exercise of an SAR.
RESTRICTED STOCK
Restricted stock awards are shares of Common Stock bearing restrictive
legends prohibiting the sale, transfer, pledge, or hypothecation until the
expiration of a restriction period as determined by the Compensation Committee
23
at the time of grant. Each share of restricted stock is restricted subject to
forfeiture upon separation from employment prior to the end of the restriction
period, except that these restrictions will be lifted earlier as to some or all
of the shares at the discretion of the Compensation Committee. The recipient of
an award is entitled to receive dividends and vote shares of restricted stock.
Unless otherwise determined by the Compensation Committee, in the event of a
participant's termination of employment, all rights to shares as to which there
remain unlapsed restrictions will be forfeited by the participant to the
Company.
PERFORMANCE AWARDS
Performance awards are to be awarded by the Compensation Committee in the
form of stock or cash as may be determined by the Compensation Committee prior
to the beginning of each performance period. The amount of performance awards
will be determined by taking into account the participant's responsibility
level, performance potential, and other considerations as the Compensation
Committee deems appropriate. Unless otherwise determined by the Compensation
Committee, a performance award granted to a participant will terminate for all
purposes if the participant is not in the continuous employ of the Company or
its subsidiaries at all times during the performance period.
CHANGE IN CONTROL
Upon the occurrence of a Change in Control, as defined in the Plan: (a) all
options and SARs granted under the Plan that are outstanding at the date of such
Change in Control become exercisable in full immediately; (b) with respect to
performance awards that are outstanding at the date of such Change in Control,
all uncompleted performance periods at the date of such Change in Control are
deemed to have been completed, the maximum level of performance set forth under
the respective performance objectives are deemed to have been attained and a pro
rata portion (based on the number of full and partial months that have elapsed
with respect to each performance period) of each such outstanding award becomes
payable immediately in cash to each participant, with the remainder of each such
outstanding award being canceled for no value; and (c) any conditions to the
vesting of the restricted stock (including without limitation, attainment of
performance objectives) are deemed to have been satisfied, any uncompleted time
periods (whether based on period of employment, performance period, or
otherwise) at the date of such Change in Control are deemed to have been
completed and all restrictions with respect to outstanding shares of restricted
stock lapse immediately, so that such shares are fully vested and
nonforfeitable.
MATERIAL AMENDMENTS TO THE PLAN
In addition to the additional shares to be issued under the Plan, there are
some material differences between the Plan as approved by the stockholders in
1987 and the Plan as submitted for approval at this time. For the most part,
these changes remove some of the specific aspects of the awards and leave more
to the discretion of the Compensation Committee. For instance, the Committee has
been given the discretion to accelerate the lapse of restrictions on restricted
stock in the event of a participant's termination of employment occurring prior
to the ordinary lapse of restrictions. Previously, such restricted stock would
have been forfeited by the participant. The Committee also has been given the
discretion to determine that a performance award granted to a participant will
not terminate where that participant has not been in the continuous employ of
24
the Company or its subsidiaries at all times during the performance period.
Previously, a performance award would have terminated automatically under such
circumstances, except where the participant's termination was due to death,
disability or retirement. The Plan now provides that upon a Change of Control
(as defined in the Plan), with respect to performance awards that are
outstanding at the date of such Change in Control, all uncompleted performance
periods at the date of such Change of Control will be deemed to be completed,
the maximum level of performance set forth under the respective performance
objectives will be deemed to have been attained, and a pro rata portion of each
outstanding award will become payable in cash to each participant. Previously,
the Plan was silent as to the consequences for outstanding performance awards in
the event of a Change in Control. Finally, the proposed Plan now allows the
Committee to award SARs in tandem with either incentive stock options or
nonqualified stock options, where previously SARs could not be granted in
connection with an incentive stock option.
FEDERAL TAX CONSEQUENCES
The following discussion of certain relevant federal income tax effects
applicable to stock options, SARs, restricted stock and performance awards
granted under the Plan is a brief summary only, and reference is made to the
Internal Revenue Code and the regulations and interpretations issued thereunder
for a complete statement of all relevant tax consequences.
INCENTIVE STOCK OPTIONS
No taxable income will be realized by an option holder upon the grant or
timely exercise of an incentive stock option. If shares of Common Stock are
issued to an option holder pursuant to the exercise of an incentive stock option
and if a disqualifying disposition of such shares is not made by the option
holder (i.e., no disposition is made within two years after the date of the
grant or within one year after receipt of the shares by such option holder,
whichever is later), then (a) upon sale of the shares, any amount realized in
excess of the exercise price of the incentive stock option will be taxed to the
option holder as a long-term capital gain and any loss sustained will be a long-
term capital loss, and (b) no deduction will be allowed to the Company. However,
if shares acquired upon the exercise of an incentive stock option are disposed
of prior to satisfying the holding period described in the parenthetical above,
generally, (a) the option holder will realize ordinary income in the year of
disposition in an amount equal to the excess, if any, of the fair market value
of the shares at the time of exercise (or, if less, the amount realized on the
disposition of the shares), over the exercise price thereof, and (b) the Company
will be entitled to deduct an amount equal to such income. Any additional gain
recognized by the option holder upon a disposition of shares prior to satisfying
the holding period described above will be taxed as a short-term or long-term
capital gain, as the case may be, and will not result in any deduction by the
Company.
If an incentive stock option is exercised at a time when it no longer
qualifies as an incentive stock option, the option will be treated as a
nonqualified stock option. Subject to certain exceptions, an incentive stock
option generally will not be eligible for the federal income tax treatment
described above if such option is exercised more than three months following
termination of employment with the Company.
NONQUALIFIED STOCK OPTIONS
In general, an optionee will not be subject to tax at the time a
nonqualified stock option is granted. Upon exercise of a nonqualified stock
option, the optionee generally must include in ordinary income at the time of
exercise an amount equal to the excess, if any, of the fair market value of the
25
Common Stock at the time of exercise over the exercise price, and will have a
tax basis in such shares equal to the amount paid upon exercise plus the amount
taxable as ordinary income to the optionee. If the holder receiving the shares
upon exercise is restricted from selling the shares because the holder is
subject to reporting under Section 16(a) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (generally, an executive officer or director of
the Company), and would be subject to liability under Section 16(b), then,
unless the holder makes an election under Section 83(b) of the Internal Revenue
Code within 30 days after exercise to be taxed under the rule of the preceding
sentence, (a) the holder will recognize taxable ordinary income at the time the
Section 16(b) restriction terminates, (b) the amount of such ordinary income
will be equal to the excess, if any, of the fair market value of the shares of
Common Stock at that time over the exercise price, (c) the holder's tax basis in
such shares will be the fair market value at that time, (d) the holder's holding
period for the shares will begin at that time, and (e) any dividends the holder
receives on the shares before that time will be taxable to the holder as
compensation income.
The Company generally will be entitled to a deduction in the amount of the
optionee's ordinary income at the time such income is recognized by the optionee
upon the exercise of a nonqualified stock option. Income and payroll taxes are
required to be withheld on the amount of ordinary income resulting from the
exercise of a nonqualified stock option.
STOCK APPRECIATION RIGHTS
The grant of an SAR generally should not result in taxable income to the
employee or a tax deduction for the Company. The exercise of SARs generally
should result in compensation taxable as ordinary income to the employee,
subject to withholding, and in a tax deduction for the Company. Such ordinary
income and commensurate deduction should be in the amount of the cash paid and
the fair market value on the date of exercise of any shares issued or
transferred.
RESTRICTED STOCK
In the case of an award of restricted stock, an employee generally will not
be taxed upon the grant of such an award, but, rather, will recognize ordinary
income in an amount equal to the fair market value of the stock at the time the
shares are no longer subject to a substantial risk of forfeiture, as defined in
the Internal Revenue Code (including forfeiture as a result of potential
liability under Section 16(b) of the Exchange Act). The Company generally will
be entitled to a deduction at the time and in the amount that the employee
recognizes ordinary income. An employee may make an election under Section 83(b)
of the Internal Revenue Code within 30 days after grant of restricted stock to
be taxed on an amount equal to the fair market value of the stock at the time of
the grant. If such an election is made, no additional taxable income will be
recognized by such employee at the time the restrictions lapse. The Company
generally will be entitled to a tax deduction at the time and to the extent that
income is recognized by such employee. If, however, shares of stock in respect
of which such election was made are later forfeited, no tax deduction is
allowable to the employee for the forfeited shares, and the Company generally
will be deemed to recognize ordinary income equal to the amount of the deduction
allowed to the Company at the time of the election in respect of such forfeited
shares.
PERFORMANCE AWARDS
An employee receiving a grant of performance awards generally will not be in
receipt of taxable income upon such grant. Rather, upon receipt of payment after
satisfaction of the performance criteria, in cash or stock, the employee will
26
recognize ordinary income equal to the cash received or the fair market value of
the stock received at the time of such payment. The Company generally will be
entitled to a tax deduction at the time and to the extent that income is
recognized by such employee.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of Common
Stock entitled to vote is required for the adoption of Proposal No. 3. Each
proxy will be voted for or against Proposal No. 3 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 Proposal No. 3.
PROPOSAL NO. 4 -- 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 1996. 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. 4 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. 4.
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 1997 Annual Meeting
of Stockholders must be received by the Company at its principal executive
offices no later than December 27, 1996, 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. In addition, D. F. King &
27
Company, Inc., New York, New York, has been retained to assist the Company in
the solicitation of proxies. The estimated aggregate cost of the services of D.
F. King & Company, Inc. for soliciting proxies for the Company is $28,000.
PARTICIPANTS IN THE DIVIDEND REINVESTMENT AND COMMON SHARE PURCHASE 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.
D. P. Connelly
Secretary
Wilmington, Delaware, April 26, 1996
28
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)
29
MAP OF NEWARK, DELAWARE
SHOWING LOCATION OF CLAYTON HALL
ON THE NORTH CAMPUS OF THE UNIVERSITY OF DELAWARE
30
EXHIBIT A
DELMARVA POWER & LIGHT COMPANY
LONG-TERM INCENTIVE PLAN
1. Purpose. The purpose of the Delmarva Power & Light Company Long-Term
Incentive Plan (the "Plan") is to improve the financial performance of Delmarva
Power & Light Company (the "Company"). The Plan provides long-term incentives to
those officers and key executive employees of the Company and its subsidiaries
who, in the opinion of the Committee (as hereinafter defined), are largely
responsible for the continued growth and financial success of the Company and
its subsidiaries.
2. Effective Date. Subject to the provisions of Paragraph 23, this Plan
shall be effective on May 31, 1996.
3. Administration. The Plan shall be administered by the Compensation
Committee of the Board of Directors of the Company (the "Committee"). No member
of the Committee shall be an employee of the Company or shall have received an
award under the Plan within a one-year period prior to his or her appointment.
The Committee shall have full and final authority in its discretion to
conclusively interpret the provisions of the Plan and to decide all questions of
fact arising in its application; to determine the employees to whom awards shall
be made under the Plan; to determine the type of award to be made and the
amount, size and terms of each such award, to determine the time when awards
will be granted; and to make all other determinations necessary or advisable for
the administration of this Plan.
4. Shares Subject to Plan. The shares that may be issued under the Plan
pursuant to Paragraph 6 shall not exceed in the aggregate 1,500,000 shares of
the Company's Common Stock, subject to adjustment as provided in Section 18.
Such shares may be authorized and unissued shares, shares purchased in the open
market or treasury shares. Except as otherwise provided herein, any shares
subject to an option, right or other award that for any reason expires, is
surrendered, canceled, exchanged or forfeited or is terminated unexercised or
unvested as to such shares shall again be available under the Plan.
5. Participants. Persons eligible to participate shall be limited to those
officers and other key executive employees of the Company and its subsidiaries
who, in the opinion of the Committee, are in positions in which their decisions,
actions, and counsel significantly affect the growth and financial success of
the Company. Directors of the Company who are not otherwise officers or
employees of the Company shall not be eligible to participate in the Plan.
6. Awards Under the Plan. Awards under the Plan may be in the form of stock
options (both nonqualified stock options and incentive stock options under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code") or any amendment thereof or substitute therefor or regulations
thereunder), restricted stock, stock appreciation rights ("SARs"), and
performance awards, or such other forms as the Committee may in its discretion
deem appropriate, including any combination of the above.
7. Stock Options. Options shall be evidenced by stock option agreements in
such form and not inconsistent with this Plan as the Committee shall approve
from time to time, which agreements shall contain in substance the following
terms and conditions. No options shall be granted hereunder after May 30, 2006.
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(a) Option Price. The purchase price per share of Common Stock
deliverable upon the exercise of an incentive stock option shall not be less
than the greater of 100% of the fair market value of the Common Stock on the
day the option is granted, as determined by the Committee, or the par value
of such Common Stock. The purchase price per share of Common Stock
deliverable upon the exercise of a nonqualified stock option shall not be
less than greater of 100% of the fair market value of the Common Stock on the
day the option is granted, as determined by the Committee, or the par value
of such Common Stock.
(b) Exercise of Option. Each stock option agreement shall state the
period or periods of time, as may be determined by the Committee, within
which the option may be exercised by the participant, in whole or in part.
Unless otherwise set forth in the stock option agreement, the portion of any
option that has not become exercisable prior to the date of the optionee's
termination of employment shall be canceled immediately. The Committee shall
have the power to permit in its discretion an acceleration of the previously
determined exercise terms, subject to the terms of this Plan, under such
circumstances and upon such terms and conditions as it deems appropriate.
(c) Payment for Shares. Stock purchased pursuant to an option agreement
shall be paid for in full at the time of purchase, either in the form of
cash, Common Stock of the Company at fair market value, or in a combination
thereof, as the Committee may determine.
(d) Rights Upon Termination of Employment. In the event that an optionee
ceases to be an employee of the Company, the optionee shall have the right to
exercise the option thereafter within such period and under such
circumstances as the Committee may set forth in the applicable stock option
agreement, but in no event beyond the expiration date of the option.
(e) Other Terms. Each incentive stock option agreement shall contain such
other terms, conditions and provisions as the Committee may determine to be
necessary or desirable in order to qualify such option as a tax-favored
option within the meaning of Section 422 of the Internal Revenue Code, or any
amendment thereof or substitute therefor or regulations thereunder. Subject
to the limitations of Paragraph 19, and without limiting any other provisions
hereof, the Committee shall have the power without further approval to amend
the terms of any option.
8. Stock Appreciation Rights. The Committee is authorized to grant SARs in
tandem with incentive and/or nonqualified options. SARs shall be evidenced by an
SAR agreement (or may form part of the agreement pertaining to the tandem stock
option) in such form and not inconsistent with this Plan as the Committee shall
approve from time to time, which agreement shall contain in substance the
following terms and conditions:
(a) In General. Unless the Committee determines otherwise, an SAR (1)
granted in tandem with a nonqualified stock option may be granted at the time
of grant of the related nonqualified stock option or at any time thereafter,
or (2) granted in tandem with an incentive stock option may only be granted
at time of the related incentive stock option. An SAR will be exercisable for
the same period as the underlying option, as provided in subsections 7(b) and
7(d) of this Plan.
(b) SARs. An SAR shall confer on the participant a right to receive with
respect to each share subject thereto, upon exercise thereof, the excess of
(1) the fair market value of one share of Common Stock on the date of
exercise over (2) the grant price of the SAR, which shall be equal to the
exercise price of the underlying option.
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(c) Treatment of Related Options and Tandem SARs Upon Exercise. Upon the
exercise of an SAR, the related option shall be canceled to the extent of the
number of shares of Common Stock as to which the SAR is exercised and upon
the exercise of an option granted in connection with an SAR, the SAR shall be
canceled to the extent of the number of shares of Common Stock as to which
the option is exercised. Notwithstanding any such cancellation, the number of
shares subject to the canceled option or SAR shall not become available for
grant under Section 4 hereof.
(d) Payment. Upon exercise of an SAR, payment shall be made in the form
of Common Stock of the Company (at fair market value on the date of
exercise), in cash, or in a combination thereof, as the Committee may
determine.
9. Restricted Stock Awards. Restricted stock awards under the Plan shall be
in the form of shares of Common Stock of the Company, restricted as to transfer
and subject to forfeiture, and shall be evidenced by restricted stock agreements
in such form and not inconsistent with this Plan as the Committee shall approve
from time to time, which agreements shall contain in substance the following
terms and conditions:
(a) Award. The Committee shall determine the amount of a restricted stock
award to be granted to an eligible employee based on the participant's
salary, job performance, and other factors deemed by the Committee to be
appropriate.
(b) Restriction Period. Restricted stock awards made pursuant to this
Plan shall be subject to such terms, conditions, and restrictions, including
without limitation, substantial risks of forfeiture and/or attainment of
performance objectives, and for such period or periods as shall be determined
by the Committee at the time of grant. The Committee shall have the power to
permit, in its discretion, an acceleration of the expiration of the
applicable restriction period with respect to any part or all of the award to
any participant.
(c) Restrictions Upon Transfer. Shares awarded, and the right to vote
such shares and receive dividends thereon, may not be sold, assigned,
transferred, exchanged, pledged, hypothecated, or otherwise encumbered,
except as herein provided, during the restriction period applicable to such
shares. Notwithstanding the foregoing, and except as otherwise provided in
the Plan, the participant shall have all the other rights of a stockholder
including, but not limited to, the right to receive dividends and the right
to vote such shares.
(d) Certificates. Each certificate issued with respect to the restricted
stock shares awarded to the participant shall bear a legend stating, but not
limited to, the restricted period, the manner in which restrictions will
lapse, and the rights of the holder during the restricted period.
(e) Lapse of Restrictions. The agreement shall specify the terms and
conditions upon which any restrictions on the right to receive shares
representing restricted stock awarded under the Plan shall lapse, as
determined by the Committee. Upon the lapse of such restrictions, shares of
Common Stock free of any restrictive legend shall be issued to the
participant or his legal representative.
(f) Termination Prior to Lapse of Restrictions. Unless otherwise
determined by the Committee, in the event of a participant's termination
of employment for any reason prior to the lapse of restrictions applicable
to a restricted stock award made to such participant, all rights to shares
A-3
as to which there still remain unlapsed restrictions shall be forfeited by
such participant to the Company without payment or any consideration by the
Company, and neither the participant nor any successors, heirs, assigns or
personal representatives of such participant shall thereafter have any
further rights or interest in such shares.
10. Performance Awards. Performance awards under the Plan shall be evidenced
by performance plan agreements in such form and not inconsistent with this Plan
as the Committee shall approve from time to time, which agreements shall contain
in substance the following terms and conditions:
(a) Performance Period. At the time of the award, the Committee shall
establish with respect to each award a performance period over which the
award may be earned.
(b) Award. The Committee shall determine the amount and conditions under
which a performance award will be granted to an eligible employee, including
without limitation, the requirement that the participant or the Company
attain specific performance objectives for such period as shall be determined
by the Committee at the time of grant. In determining the amount of the
contingent performance award, the Committee shall take into account the
participant's responsibility level, performance, potential, and other
considerations as it deems appropriate.
(c) Form. The Committee shall determine whether performance awards earned
will be in the form of shares of stock or cash prior to the beginning of each
performance period.
(d) Payment of Award. Following the conclusion of each performance
period, the Committee shall determine the extent to which performance targets
have been attained for such period as well as the other terms established by
the Committee. Payment in cash or stock as determined by the Committee shall
be made as promptly as practical following the end of the performance period.
(e) Adjustments. At any time prior to the payment of the awards, the
Committee may adjust previously established performance targets and other
terms and conditions, including but not limited to the Company's financial
performance for Plan purposes, to reflect major unforeseen events such as
changes in laws, regulations or accounting practice, mergers, acquisitions or
divestitures or extraordinary, unusual, or non-recurring items or events. An
adjustment made hereunder shall not be deemed to be an amendment for the
purposes of Section 19.
(f) Termination Prior to Award Being Fully Earned. Unless otherwise
determined by the Committee, a performance award granted to a participant
shall terminate for all purposes if the participant is not in the continuous
employ of the Company or its subsidiaries at all times during the performance
period.
11. Change in Control. Upon the occurrence of a Change in Control, as
hereinafter defined, notwithstanding any provisions of this Plan to the
contrary, (a) all options and SARs granted under the Plan that are outstanding
at the date of such Change in Control shall become exercisable in full
immediately, without regard to the years that have elapsed from the date of
grant; (b) with respect to performance awards that are outstanding at the date
of such Change in Control, all uncompleted performance periods at the date of
A-4
such Change in Control shall be deemed to have been completed, the maximum level
of performance set forth under the respective performance objectives shall be
deemed to have been attained and a pro rata portion (based on the number of full
and partial months that have elapsed with respect to each such performance
period) of each such outstanding award shall be come payable immediately in cash
to each participant, with the remainder of each such outstanding award being
canceled for no value; and (c) any conditions to the vesting of the restricted
stock (including without limitation, attainment of performance objectives) are
deemed to have been satisfied, any uncompleted time periods (whether based on
period of employment, performance period, or otherwise) at the date of such
Change in Control are deemed to have been completed and all restrictions with
respect to outstanding shares of restricted stock shall lapse immediately, and
such shares shall be fully vested and nonforfeitable.
For the purposes of this section, a "Change in Control" shall be deemed to
have occurred if the event in any one of the following paragraphs shall have
occurred:
(a) Any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or a corporation owned,
directly or indirectly, by the stockholders of the Company in substantially
the same proportions as their ownership of stock of the Company, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 25%
or more of the combined voting power of the Company's then outstanding
securities; or
(b) During any period of two consecutive years (not including any period
prior to the effectiveness of this Plan, individuals who at the beginning of
such period constitute the Board and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clauses (a) or (c) of this subsection)
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least 2/3 of the directors then
still in office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved, cease
for any reason to constitute a majority thereof; or
(c) The stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 80% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such
merger or consolidation, or the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's assets.
12. General Restrictions. This Plan and each award under this Plan shall be
subject to the requirement that, if at any time the Committee shall determine
that (a) the listing, registration or qualification of the shares of Common
Stock subject or related thereto upon any securities exchange or under any state
or federal law, or (b) the consent or approval of any government regulatory
body, or (c) an agreement by the recipient of an award with respect to the
disposition of shares of Common Stock, is necessary or desirable as a condition
of, or in connection with the Plan or the granting of such award or the issue or
purchase of shares of Common Stock thereunder, such Plan will not be effective
and the award may not be consummated in whole or in part unless such listing,
registration, qualification, consent, approval or agreement shall have been
effected or obtained free of any conditions not acceptable to the Committee.
A-5
13. Rights of a Stockholder. The recipient of any award under this Plan shall
have no rights as a stockholder with respect thereto unless and until legended
certificates for shares of Common Stock are issued.
14. Rights to Terminate Employment. Nothing in this Plan or in any agreement
entered into pursuant to the Plan shall confer upon any participant the right to
continue in the employment of the Company or its subsidiaries or affect any
right that the Company or its subsidiaries may have to terminate the employment
of such participant.
15. Withholding of Taxes. Whenever the Company proposes or is required to
issue or transfer shares of Common Stock under this Plan, the Company shall have
the right to require the recipient to remit to the Company an amount sufficient
to satisfy any federal, state and/or local withholding tax requirement prior to
the delivery of any certificate or certificates for such shares. Whenever under
this Plan payments are to be made in cash, such payments shall be net of an
amount sufficient to satisfy any federal, state and/or local withholding tax
requirements.
16. Non-Assignability. No award under this Plan shall be assignable or
transferable by the recipient thereof except by will or by the laws of descent
and distribution or by such other means as the Committee may approve from time
to time. During the life of the recipient, such award shall be exercisable only
by such person or by such person's guardian or legal representative.
17. Non-Uniform Determinations. The Committee's determinations under this
Plan (including without limitation determinations of the persons to receive
awards, the form, amount and timing of such awards, the terms and provisions of
such awards and the agreements evidencing same, and the establishment of values
and performance targets) need not be uniform and may be made by it selectively
among persons who receive, or are eligible to receive, awards under this Plan,
whether or not such persons are similarly situated.
18. Adjustments. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, stock, or other
property), recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, spin-off, combination, repurchase, or share exchange, or
other similar corporate transaction or event, affects the stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of participants under this Plan, then the Committee shall make such
equitable changes or adjustments as it deems necessary or appropriate to any or
all of (a) the number and kind of shares of stock that may thereafter be issued
in connection with awards, whether in the aggregate or to any individual, (b)
the number and kind of shares of stock issued or issuable in respect of
outstanding awards, and (c) the exercise price, grant price, or purchase price
relating to any award; provided, however, that, with respect to incentive stock
options, such adjustment shall be made in accordance with Section 424 of the
Internal Revenue Code or any amendment thereof or substitute therefor or
regulations thereunder.
19. Amendment. The Board of Directors of the Company or the Committee may at
any time and from time to time, alter, amend, suspend or terminate this Plan in
whole or in part; provided, however, that no amendment that requires stockholder
approval in order for this Plan to continue to be eligible to comply with Rule
16b-3 under the Exchange Act or Internal Revenue Code Section 162(m) or any
amendment of or substitute for either of them shall be effective unless the same
shall be approved by the requisite vote of the stockholders of the Company.
A-6
20. Effect on Other Plans. Participation in this Plan shall not affect an
employee's eligibility to participate in any other benefit or incentive plan of
the Company and any awards made pursuant to this Plan shall not be used in
determining the benefits provided under any other plan of the Company unless
specifically provided.
21. Duration of this Plan. This Plan shall remain in effect until all awards
under this Plan have been satisfied by the issuance of shares or the payment of
cash, but no award shall be granted after May 30, 2006.
22. Funding of this Plan. This Plan shall be unfunded. The Company shall not
be required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any award under this Plan and
payment or awards shall be subordinate to the claims of the Company's general
creditors. In no event shall interest be paid or accrued on any award, including
unpaid installments of awards.
23. Approval of Stockholders. Notwithstanding anything herein to the
contrary, this Plan shall only be effective if it is approved by holders of a
majority of the outstanding shares of Common Stock of the Company voting, in
person or by proxy, at the Annual Meeting of Stockholders to be held on May 30,
1996.
A-7
======
Proxy Delmarva Delmarva Power & Light Company
Power
- -------------------------------------------------------------------------------
This proxy, when properly executed, will be voted as directed by the
stockholder. If no direction is given, the shares represented by this proxy
will be voted "FOR" proposal nos. 1, 2, 3 and 4. This proxy is solicited on
behalf of the Board of Directors.
By signing and dating on the reverse side, you authorize Howard E. Cosgrove,
Michael B. Emery and Sarah I. Gore, 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 30,
1996, 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.
Nominees for the Election of Directors (3-year term): Michael G. Abercrombie,
Robert D. Burris and
James H. Gilliam, Jr.
(See Reverse Side)
If you have any questions or need assistance in voting your proxy, please call
our proxy solicitor D.F. King & Co., Inc. at (800) 207-3155.
The Board of Directors recommends a vote "FOR" proposal nos. 1, 2, 3 and 4.
- -------------------------------------------------------------------------------
To vote for all nominees, mark an "X" in the "For" box. To withhold authority
on any individual nominee, mark an "X" in the "For (except)" box and print the
appropriate nominee's name on the line provided. If no boxes are marked, this
Proxy will be voted "FOR" proposal nos. 1, 2, 3 and 4.
Proposal No. 1-Election of Directors
/ / For / / Withhold (all) / / For (except)
----------------------------------
Proposal No. 2-Amendment to Restated Certificate and Articles of Incorporation
Removing Limits on Unsecured Indebtedness
/ / For / / Against / / Abstain
Proposal No. 3-Approval of the Amendment and Extension of the Long-Term
Incentive Plan
/ / For / / Against / / Abstain
Proposal No. 4-Appointment of Coopers & Lybrand L.L.P. as Independent Auditor
/ / For / / Against / / Abstain
Signature
---------------------------------------------
Signature
---------------------------------------------
Date , 1996
---------------------------------------------
Please sign name or names as printed on this
proxy to authorize the voting of your shares
as indicated. Where shares are registered
with joint owners, all joint owners should
sign. Persons signing as executors,
administrators, trustees, etc. should so
indicate.
====================
Proxy for Preferred Delmarva Delmarva Power & Light Company
Stock-$25 Par Power
- -------------------------------------------------------------------------------
This proxy, when properly executed, will be voted as directed by the
stockholder. If no direction is given, the shares represented by this proxy will
be voted "FOR" proposal no. 2. This proxy is solicited on behalf of the Board
of Directors.
By signing and dating on the reverse side, you authorize Howard E. Cosgrove,
Michael B. Emery and Sarah I. Gore, 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 30,
1996, 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.
(See Reverse Side)
If you have any questions or need assistance in voting your proxy, please call
our proxy solicitor D.F. King & Co., Inc. at (800) 207-3155.
The Board of Directors recommends a vote "FOR" proposal no. 2.
- -------------------------------------------------------------------------------
If no box is marked, this Proxy will be voted "FOR" proposal no. 2.
Proposal No. 2-Amendment to Restated Certificate and Articles of Incorporation
Removing Limits on Unsecured Indebtedness
/ / For / / Against / / Abstain
Signature
---------------------------------------------
Signature
---------------------------------------------
Date , 1996
---------------------------------------------
Please sign name or names as printed on this
proxy to authorize the voting of your shares
as indicated. Where shares are registered
with joint owners, all joint owners should
sign. Persons signing as executors,
administrators, trustees, etc. should so
indicate.
====================
Proxy for Preferred Delmarva Delmarva Power & Light Company
Stock-$100 Par Power
- -------------------------------------------------------------------------------
This proxy, when properly executed, will be voted as directed by the
stockholder. If no direction is given, the shares represented by this proxy will
be voted "FOR" proposal no. 2. This proxy is solicited on behalf of the Board
of Directors.
By signing and dating on the reverse side, you authorize Howard E. Cosgrove,
Michael B. Emery and Sarah I. Gore, 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 30,
1996, 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.
(See Reverse Side)
If you have any questions or need assistance in voting your proxy, please call
our proxy solicitor D.F. King & Co., Inc. at (800) 207-3155.
The Board of Directors recommends a vote "FOR" proposal no. 2.
- -------------------------------------------------------------------------------
If no box is marked, this Proxy will be voted "FOR" proposal no. 2.
Proposal No. 2-Amendment to Restated Certificate and Articles of Incorporation
Removing Limits on Unsecured Indebtedness
/ / For / / Against / / Abstain
Signature
---------------------------------------------
Signature
---------------------------------------------
Date , 1996
---------------------------------------------
Please sign name or names as printed on this
proxy to authorize the voting of your shares
as indicated. Where shares are registered
with joint owners, all joint owners should
sign. Persons signing as executors,
administrators, trustees, etc. should so
indicate.