PREM14A 1 t1401306-prem14a.htm PRELIMINARY PROXY STATEMENT
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Rule 14a-101)
Filed by the Registrant Filed by a Party other than the Registrant
Check the appropriate box:
  • Preliminary Proxy Statement
  • Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  • Definitive Proxy Statement
  • Definitive Additional Materials
  • Soliciting Material Pursuant to §240.14a-12
PEPCO HOLDINGS, INC.
 
(Name of Registrant as Specified In Its Charter)
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
  • No fee required.
  • Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1)
  • Title of each class of securities to which transaction applies:
    Common Stock, $0.01 par value
     
(2)
  • Aggregate number of securities to which transaction applies:
    253,666,978 shares of Pepco Holdings, Inc. common stock (including 90,275 shares of restricted stock, 2,077,251 shares of common stock issuable pursuant to outstanding time-based and performance-based restricted stock units (at target) and 84,861 common stock equivalents under various Pepco Holdings, Inc. deferred compensation plans and arrangements)
     
(3)
  • Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
    Solely for the purpose of calculating the filing fee, the per unit price is $27.25, which is equal to the per share cash consideration to be paid in the merger described herein.
     
(4)
  • Proposed maximum aggregate value of transaction:
    $6,912,425,147
     
(5)
  • Total fee paid:
    $890,320.36. In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was calculated by multiplying 0.0001288 by the proposed maximum aggregate value of the transaction of $6,912,425,147.
     
  • Fee paid previously with preliminary materials.
  • Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.
(1)
  • Amount Previously Paid:
       
     
(2)
  • Form, Schedule or Registration Statement No.:
       
     
(3)
  • Filing Party:
       
     
(4)
  • Date Filed:
       
     
 
 

PRELIMINARY PROXY STATEMENT, SUBJECT TO COMPLETION, DATED JULY 21, 2014
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PROPOSED MERGER TRANSACTION WITH EXELON CORPORATION—YOUR VOTE IS VERY IMPORTANT
[           ], 2014
Dear Fellow Stockholder:
Pepco Holdings, Inc. has entered into an Agreement and Plan of Merger, dated as of April 29, 2014, as amended and restated on July 18, 2014, referred to as the Merger Agreement, with Exelon Corporation and Purple Acquisition Corp. Under the Merger Agreement, Exelon will acquire Pepco Holdings through a merger in which you will be entitled to receive $27.25 in cash, without interest, for each outstanding share of Pepco Holdings common stock that you own. This transaction is referred to as the Merger.
You are cordially invited to attend a special meeting of our common stockholders, to be held at the Delmarva Power Conference Center, located at 4100 South Wakefield Drive, Newark, Delaware 19702, on [            ], 2014, at 10:00 a.m., Eastern time. Please note that the doors will open to the public at 9:15 a.m., Eastern time. At the special meeting, the common stockholders will be asked to consider and vote upon the following proposals:
  • Adoption of the Merger Agreement;
  • Approval, on a non-binding, advisory basis, of the compensation that may be paid or become payable to the named executive officers of Pepco Holdings in connection with the completion of the Merger; and
  • Approval of an adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the adjournment to adopt the Merger Agreement.
The Board of Directors of Pepco Holdings has unanimously determined that the Merger and the other transactions contemplated thereby are fair to, and in the best interests of, Pepco Holdings and its stockholders, and has approved and declared advisable the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement. The Board of Directors of Pepco Holdings unanimously recommends that the common stockholders of Pepco Holdings vote “FOR” each of the foregoing proposals. Approval of the proposal to adopt the Merger Agreement is necessary to complete the Merger. The proposal to adopt the Merger Agreement requires the approval of the holders of a majority of the shares of Pepco Holdings’ common stock that are outstanding and entitled to vote thereon.
Your vote is very important. Whether or not you plan to attend the special meeting, please complete, date, sign and return, as promptly as possible, the enclosed proxy card or voting instruction form in the accompanying prepaid reply envelope, or submit your proxy or voting instructions by telephone or the Internet. The failure to vote will have the same effect as a vote “AGAINST” approval of the proposal to adopt the Merger Agreement.
A copy of the Merger Agreement is attached as Annex A to the proxy statement. I encourage you to read carefully the proxy statement, including its annexes, in its entirety.
If you have any questions or need assistance voting your shares of Pepco Holdings common stock, please contact AST Phoenix Advisors, our proxy solicitor, by calling toll-free at (877) 732-3621. Intermediaries may call collect at (212) 493-3910.
Sincerely,
[MISSING IMAGE: sg_joseph-rigby.jpg]

Joseph M. Rigby
Chairman, President and Chief Executive Officer
Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the Merger, passed upon the merits or fairness of the Merger, or passed upon the adequacy or accuracy of the disclosure of this document. Any representation to the contrary is a criminal offense.

PRELIMINARY PROXY STATEMENT, SUBJECT TO COMPLETION, DATED JULY 21, 2014
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Notice of Special Meeting of Common Stockholders
[            ], 2014
10:00 a.m.
To the Common Stockholders of Pepco Holdings, Inc.:
A special meeting of the common stockholders of Pepco Holdings, Inc., a Delaware corporation (“PHI”), will be held at 10:00 a.m., Eastern time, on [           ], 2014 (the doors will open to the public at 9:15 a.m., Eastern time), at the Delmarva Power Conference Center, located at 4100 South Wakefield Drive, Newark, Delaware 19702, for the following purposes:
1.
  • To adopt the Agreement and Plan of Merger, dated as of April 29, 2014, as amended and restated by the Amended and Restated Agreement and Plan of Merger, dated as of July 18, 2014 (the “Merger Agreement”), among PHI, Exelon Corporation, a Pennsylvania corporation (“Exelon”), and Purple Acquisition Corp., a Delaware corporation and an indirect, wholly-owned subsidiary of Exelon (“Merger Sub”), whereby Merger Sub will be merged with and into PHI, with PHI being the surviving corporation (the “Merger”).
2.
  • To approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to the named executive officers of PHI in connection with the completion of the Merger.
3.
  • To approve an adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at that time to approve the proposal to adopt the Merger Agreement.
Your vote is very important. We cannot consummate the Merger unless the proposal to adopt the Merger Agreement receives the affirmative vote of a majority of the shares of our common stock outstanding and entitled to vote thereon.
Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return, as promptly as possible, the enclosed proxy card or voting instruction form in the accompanying prepaid reply envelope or submit your proxy or voting instructions by telephone or the Internet prior to the special meeting to ensure that your shares of common stock of PHI will be represented and voted at the special meeting if you are unable to attend. Failure to return your proxy card or voting instruction form, or failure to submit your proxy or voting instructions by phone or the Internet, will result in your shares of common stock of PHI not being counted for purposes of determining whether a quorum is present at the special meeting and will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement. For more information concerning the special meeting, the Merger Agreement, the Merger and other transactions contemplated by the Merger Agreement, please review the accompanying proxy statement and the copy of the Merger Agreement attached as Annex A thereto.
All common stockholders at the close of business on [           ], 2014, the record date with respect to the special meeting, are entitled to notice of and to vote at the meeting and any adjournment or postponement of the meeting.
If you plan to attend the meeting in person, you must obtain an admission ticket in advance. For more details on our admission procedures, please refer to pages 22 to 23 of the accompanying proxy statement.
The Board of Directors of PHI has unanimously approved the Merger Agreement and has submitted it to the common stockholders of PHI for consideration and adoption at the special meeting. The Board of Directors unanimously recommends that you vote “FOR” each of the foregoing proposals.
Any stockholder of PHI who does not vote in favor of the proposal to adopt the Merger Agreement will have the right to seek appraisal of the fair value of such stockholder’s shares of common stock of PHI if such stockholder delivers a demand for appraisal before the vote is taken on the Merger Agreement and complies with all the other requirements of Delaware law, which are summarized in the accompanying proxy statement and reproduced in their entirety in Annex F to the accompanying proxy statement.

WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE ENCLOSED PROXY CARD OR VOTING INSTRUCTION FORM IN THE ACCOMPANYING PREPAID REPLY ENVELOPE, OR SUBMIT YOUR PROXY OR VOTING INSTRUCTIONS BY TELEPHONE OR THE INTERNET. IF YOU ATTEND THE SPECIAL MEETING AND VOTE IN PERSON, YOUR VOTE BY BALLOT WILL REVOKE ANY PROXY OR VOTING INSTRUCTIONS PREVIOUSLY SUBMITTED.
By order of the Board of Directors,
[MISSING IMAGE: sg_jane-storero.jpg]

Jane K. Storero
Vice President and Secretary
[           ], 2014
Washington, D.C.
This proxy statement is first being mailed to our common stockholders on or about [           ], 2014.

TABLE OF CONTENTS
 
Section
Page
Number

 
Section
Page
Number
ANNEXES
 
Annex A
Amended and Restated Agreement and Plan of Merger, dated as of July 18, 2014
Annex B
Opinion of Lazard Frères & Co. LLC, dated as of April 29, 2014
Annex C
Opinion of Morgan Stanley & Co. LLC, dated as of April 29, 2014
Annex D
Subscription Agreement, dated as of April 29, 2014
Annex E
Certificate of Designation of Series A Non-Voting Non-Convertible Preferred Stock of Pepco Holdings, Inc., as filed with the Secretary of State of Delaware on April 30, 2014
Annex F
Section 262 of the General Corporation Law of the State of Delaware

SUMMARY TERM SHEET
This summary highlights selected information that is contained elsewhere in this proxy statement. It does not contain all of the information that may be important to you with regard to the proposed Merger and your voting rights in connection with the proposed Merger. Accordingly, you should read carefully this proxy statement in its entirety, including its annexes, as well as the other documents referred to in this proxy statement. You may obtain the information incorporated by reference in this proxy statement (excluding exhibits) without charge by following the instructions under “Where You Can Find More Information” on page 90. Parenthetical page references have been included to direct you to a more complete description of the topics presented in this summary.
This proxy statement and a proxy card are first being sent or given on or about [______], 2014 to stockholders as of the close of business on [           ], 2014. Unless the context requires otherwise, the term “stockholder” or “stockholders” throughout this proxy statement refers to a holder of our common stock, and the term “Pepco Holdings,” “PHI,” “we,” “us” or “our” refers to Pepco Holdings, Inc., a Delaware corporation.
Parties to the Merger (pages 17-18)
 
PHI
We are a holding company that, through our regulated public utility subsidiaries, is engaged primarily in the transmission, distribution and default supply of electricity, and, to a lesser extent, the distribution and supply of natural gas. We distribute electricity to approximately 1.9 million customers in the District of Columbia, Maryland, Delaware, and southern New Jersey, and natural gas to approximately 127,000 customers in northern Delaware. We had approximately $4.7 billion in revenues for the fiscal year ended December 31, 2013 and $1.3 billion in revenues for the quarter ended March 31, 2014.
Our principal executive offices are located at 701 Ninth Street, N.W., Washington, D.C. 20068, and our telephone number is (202) 872-2000. Shares of our common stock trade on the New York Stock Exchange, or NYSE, under the ticker symbol “POM.”
Exelon
Exelon is a utility services holding company engaged through its principal subsidiaries in the energy generation and energy delivery businesses. Through its regulated utility subsidiaries, Exelon distributes electricity to approximately 6.6 million customers in
northern Illinois, southeastern Pennsylvania, and central Maryland, and natural gas to approximately 1.2 million customers in southeastern Pennsylvania and central Maryland. Exelon had approximately $24.9 billion in revenues for the fiscal year ended December 31, 2013 and $7.2 billion in revenues for the quarter ended March 31, 2014.
Exelon’s principal executive offices are located at 10 South Dearborn Street, Chicago, Illinois 60603, and its telephone number is (312) 394-7398. Shares of Exelon common stock trade on the NYSE under the ticker symbol “EXC.”
Merger Sub
Merger Sub was incorporated in Delaware in April 2014. Merger Sub is an indirect, wholly-owned subsidiary of Exelon that was formed for the sole purpose of effecting the Merger. Merger Sub has engaged in no business activities to date and it has no material assets or liabilities of any kind, other than those incident to its formation and those incurred in connection with the Merger. Upon completion of the Merger, Merger Sub will cease to exist as a separate entity.
Merger Sub’s principal executive offices are located at 10 South Dearborn Street, Chicago, Illinois 60603, and its telephone number is (312) 394-7398.
The Merger (pages 25-58)
 
The Merger Agreement provides that, upon satisfaction or waiver of the conditions to the Merger, Merger Sub will merge with and into PHI, and PHI will become an indirect, wholly-owned subsidiary of Exelon. PHI will be the surviving corporation in the Merger, which we refer to as the Surviving Corporation. As a result of the Merger, PHI will cease to be a publicly traded company. If the Merger is
completed, you will not own any shares of the capital stock of the Surviving Corporation. Following completion of the Merger, all capital stock of the Surviving Corporation will be indirectly held by Exelon.
  • Merger Consideration.   In the Merger, each outstanding share of our common stock (other than certain excluded shares)

will be converted into the right to receive an amount in cash equal to $27.25 per share, which we refer to as the Per Share Merger Consideration, without interest and less any applicable withholding taxes. See “The Merger—Merger Consideration” beginning on page 25, for further details regarding the Per Share Merger Consideration.
  • Non-Voting Preferred Stock Redemption Mechanism.   In connection with the Merger, we entered into a subscription agreement with Exelon, pursuant to which we issued to Exelon on April 30, 2014, 9,000 shares of Series A non-voting, non-convertible and non-transferable preferred stock, par value $0.01 per share, which we refer to as Series A preferred stock, for a purchase price of $90 million, which is $10,000 per share of Series A preferred stock. Pursuant to the subscription agreement, Exelon also committed to purchase 1,800 shares of Series A preferred stock for a purchase price of $18 million, at the end of each 90-day period following the date of the subscription agreement, up to a maximum aggregate of 18,000 shares and for a maximum aggregate consideration of $180 million, subject to certain conditions. The Series A preferred stock is entitled to receive a cumulative, non-participating cash dividend of 0.1% per year, payable quarterly when, as and if declared by our Board of Directors, referred to as our Board or the Board.
We and Exelon have agreed that the transactions contemplated by the subscription agreement were and are being entered into for purposes of effecting the payment of the termination fee described in the next paragraph to us or, as applicable, the return of such fee to Exelon. See “The Merger Agreement—Subscription Agreement and Preferred Stock” beginning on page 60, for further details regarding the subscription agreement and the preferred stock.
In the circumstances described in the section entitled “The Merger Agreement—Termination Fee Payable by Exelon,” we have a right to redeem all outstanding Series A preferred stock on the date of the applicable Merger Agreement termination for $0.01 per share. If the Merger Agreement is terminated for any other reason, we will be required to redeem all of our outstanding Series A preferred stock held by Exelon for $10,000 per share, plus any accrued and unpaid dividends on such Series A preferred stock. See “The Merger Agreement—Termination Fee Payable by Exelon” beginning on page 76, for further details regarding this redemption mechanism.
  • Consequences If the Merger Is Not Completed.   If the Merger is not completed, whether because the Merger Agreement is not adopted by our stockholders or for any other reason, we will remain an independent public company, and our common stock will continue to be listed and traded on the NYSE. Under specified circumstances, we may be required to pay to Exelon, or be entitled to receive from Exelon, a fee with respect to the termination of the Merger Agreement. Under specified circumstances, we also may be obligated to reimburse Exelon and its affiliates for their reasonable and documented out-of-pocket fees and expenses, or be entitled to receive reimbursement from Exelon for our reasonable and documented out-of-pocket fees and expenses, which in each case are incurred in connection with the Merger and as described under “The Merger Agreement—Termination Fee Payable by PHI” and “The Merger Agreement—Termination Fee Payable by Exelon” beginning on page 75.
The Special Meeting (pages 19-24)
 
The special meeting of our stockholders will be held at the Delmarva Power Conference Center, located at 4100 South Wakefield Drive, Newark, Delaware 19702, on [           ], 2014 at 10:00 a.m., Eastern time. The doors will open to the public at 9:15 a.m., Eastern time. At the special meeting, our stockholders will be asked to take the following actions:
  • approve a proposal to adopt the Merger Agreement, which we refer to as the Merger Proposal;
  • approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to our named executive

officers in connection with the completion of the Merger, which we refer to as the Merger Compensation Proposal; and
  • approve an adjournment of the special meeting, if submitted for a vote, to solicit additional proxies if there are not sufficient
votes at the time of the adjournment to adopt the Merger Agreement, which we refer to as the Adjournment Proposal.
See “The Special Meeting,” beginning on page 19, for additional information.
Recommendation of Our Board (page 34)
 
Our Board, after considering the factors described in the section entitled “The Merger—Reasons for the Merger; Recommendation of Our Board” beginning on page 32, and after consulting with its legal and financial advisors, has unanimously approved the Merger Agreement and the transactions contemplated thereby, including the Merger. Our Board has determined that the Merger is fair to, and in the best interests of, PHI and our stockholders, and therefore unanimously recommends that you vote:
  • FOR” the Merger Proposal,
  • FOR” the Merger Compensation Proposal, and
  • FOR” the Adjournment Proposal.
In certain circumstances and subject to certain conditions set forth in the Merger Agreement, our Board may change its recommendation with respect to the Merger Proposal. For a more complete discussion of the recommendations of our Board and its reasons for approving the Merger Agreement and the circumstances under which our Board may change its recommendation with respect to the Merger Proposal, see the section entitled “The Merger—Reasons for the Merger; Recommendation of Our Board” beginning on page 32.
Opinions of Financial Advisors (pages 34-46)
 
Opinion of Lazard Frères & Co. LLC (see page 34 and Annex B)
Lazard Frères & Co. LLC, which we refer to as Lazard, was retained by PHI to act as its financial advisor in connection with the proposed Merger. On April 29, 2014, Lazard rendered its written opinion, consistent with its oral opinion rendered on the same date, to our Board that, as of such date, and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Lazard as set forth in its written opinion, the Per Share Merger Consideration to be paid to our stockholders (other than to holders of certain excluded shares) pursuant to the Merger Agreement was fair, from a financial point of view, to such stockholders.
The full text of Lazard’s written opinion to our Board, dated April 29, 2014, which sets forth the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken by Lazard in connection with its opinion, is attached to this proxy statement as Annex B. The foregoing summary of Lazard’s opinion is qualified in its entirety by reference to the full text of the opinion. You are encouraged to read Lazard’s opinion, this section and the summary of Lazard’s opinion below carefully and in their entirety. Lazard’s engagement and its opinion were for the benefit of our Board (in its capacity as such), and Lazard’s opinion was rendered to our Board in connection with its
evaluation of the Merger and addressed only the fairness as of the date of the opinion, from a financial point of view, to holders of PHI common stock (other than the excluded holders) of the consideration to be paid to such holders in the Merger. Lazard’s opinion was not intended to, and does not, constitute advice or a recommendation as to how any stockholder should vote at the special meeting or take any other action with respect to the Merger.
Opinion of Morgan Stanley & Co. LLC (see page 42 and Annex C)
Morgan Stanley & Co. LLC, which we refer to as Morgan Stanley, was retained by our Board to act as its financial advisor in connection with the proposed Merger. On April 29, 2014, Morgan Stanley rendered its written opinion, consistent with its oral opinion rendered on the same date, to our Board that, as of such date, and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley as set forth in its written opinion, the Per Share Merger Consideration to be received by our stockholders (other than to holders of certain excluded shares) pursuant to the Merger Agreement was fair, from a financial point of view, to such stockholders.
The full text of Morgan Stanley’s written opinion to our Board, dated April 29, 2014, which sets forth the assumptions made, procedures followed, matters

considered and qualifications and limitations on the review undertaken by Morgan Stanley in rendering its opinion, is attached to this proxy statement as Annex C. The foregoing summary of Morgan Stanley’s opinion is qualified in its entirety by reference to the full text of the opinion. You are encouraged to read Morgan Stanley’s opinion, this section and the summary of Morgan Stanley’s opinion below carefully and in their entirety. Morgan Stanley’s engagement and its opinion were for the benefit of our Board, in its capacity as such, and addressed only the fairness from
a financial point of view of the Per Share Merger Consideration to be received by our stockholders (other than holders of certain excluded shares) pursuant to the Merger Agreement as of the date of the opinion and did not address any other aspects or implications of the Merger. Morgan Stanley’s opinion was not intended to, and does not, constitute advice or a recommendation as to how such stockholder should vote at any stockholders’ meeting to be held in connection with the Merger or take any other action with respect to the Merger.
Treatment of Common Stock, Preferred Stock and Equity-Based Awards (pages 61-62)
 
Common Stock
At the time that a certificate of merger with respect to the Merger is filed with the Secretary of State of the State of Delaware or at such other time as we and Exelon agree and as specified in the certificate of merger, which is referred to as the Effective Time, each share of our common stock issued and outstanding immediately prior thereto (other than certain excluded shares) will be converted into the right to receive the Per Share Merger Consideration, without interest.
Preferred Stock
At the Effective Time, each share of Series A preferred stock issued and outstanding at the Effective Time will remain outstanding following the Effective Time.
Equity-Based Awards
The Merger Agreement provides for the following treatment as of the Effective Time of the restricted stock units, or RSUs, and other equity-based awards made under our stock incentive and other employee benefit plans:
RSUs Vesting Based Solely on Continued Service
At the Effective Time, each outstanding RSU that vests based solely on the continued service of the holder, whether vested or unvested, will be cancelled and converted into the right to receive an amount in cash. For RSUs granted on or prior to April 29, 2014, the date the Merger Agreement was originally executed by all parties thereto, the amount of cash will be equal to the product of the number of RSUs multiplied by the Per Share Merger Consideration. For RSUs granted after April 29, 2014 and outstanding as of the Effective Time, the amount as so determined will be prorated based on the number of days elapsed from the grant date (or, in the case of grants made in 2015, January 1, 2015) through the closing date of the
Merger relative to 1,095 days (or, with respect to director awards having a one-year retention period (which were paid as part of our directors’ annual retainer), 365 days).
RSUs Vesting Based on Achievement of Performance Objectives
At the Effective Time, each outstanding RSU that vests in whole or in part based on the achievement of performance objectives, whether vested or unvested, will be cancelled and converted into the right to receive an amount in cash. For RSUs granted on or prior to April 29, 2014 (including RSUs required to be granted pursuant to an agreement in place as of that date), the amount of cash will be equal to the product of the total number of shares of common stock subject to the RSU immediately prior to the Effective Time determined based on achievement of applicable performance objectives at the greater of (i) actual performance as reasonably determined by the Compensation/Human Resources Committee of our Board prior to the Effective Time or (ii) the target level of 100%, multiplied by the Per Share Merger Consideration. For RSUs granted after April 29, 2014 (other than RSUs required to be granted pursuant to an agreement in place as of that date) and outstanding as of the Effective Time, the amount as so determined will be prorated based on the number of days elapsed from the grant date (or, in the case of grants made in 2015, January 1, 2015) through the closing date relative to 1,095 days (or, with respect to awards having a one-year performance period, 365 days).
Other Equity-Based Awards
At the Effective Time, each right of any kind, whether vested or unvested, to receive shares of our common stock or benefits measured by the value of such shares, and each award of any kind consisting of such shares that may be held, awarded, outstanding, payable, or reserved for issuance under our stock or benefit plans, other than the RSUs described above,

will be cancelled and converted into the right of the holder to receive an amount in cash equal to the product of the number of our shares subject to the award immediately prior to the Effective Time determined, without proration, and, if performance-based, based on achievement of applicable performance objectives at the greater of (i) actual performance as reasonably determined by the Compensation/Human Resources Committee of
our Board prior to the Effective Time or (ii) the target level of 100%, multiplied by the Per Share Merger Consideration (or if the award provides for payments to the extent the value of such shares exceeds a specified reference or exercise price, the amount, if any, by which the Per Share Merger Consideration exceeds the reference or exercise price). See “The Merger—Interests of Our Directors and Executive Officers in the Merger” for additional information.
Material U.S. Federal Income Tax Consequences of the Merger (pages 55-57)
 
The exchange of shares of our common stock for cash pursuant to the Merger generally will be a taxable transaction to U.S. holders (as defined in “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 55) for U.S. federal income tax purposes. Stockholders who are U.S. holders and who exchange their shares of our common stock in the Merger for cash will generally recognize a capital gain or loss in an amount equal to the difference, if any, between the amount of cash received with respect to such shares and their adjusted tax basis in their shares of our common stock. Backup withholding may also apply to the cash
payments paid to a non-corporate U.S. holder pursuant to the Merger unless the U.S. holder or other payee provides a taxpayer identification number, certifies that such number is correct and otherwise complies with the backup withholding rules. You should read “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 55 for a more detailed discussion of the U.S. federal income tax consequences of the Merger. You should also consult your tax advisor for a complete analysis of the effect of the Merger on your federal, state and local and/or foreign taxes.
Interests of Our Directors and Executive Officers in the Merger (pages 48-52)
 
In considering the recommendation of our Board with respect to the proposed Merger, you should be aware that our executive officers and directors may have certain interests in the Merger that may be different from, or in addition to, the interests of our stockholders generally. Our Board was aware of and considered these interests, among other matters, in evaluating and negotiating the Merger Agreement and the Merger, and in recommending that the Merger Agreement be adopted by our stockholders. These interests include, but are not limited to, the following:
  • accelerated vesting and cash-out of stock-based awards (including all of our RSUs, whether based solely on continued service or achievement of performance objectives) based on the Per Share Merger Consideration; and
  • pursuant to our Amended and Restated Change-in-Control / Severance Plan for Certain Executive Employees, or the CIC Severance Plan, and our 2014 Management Employee Severance Plan, or the Management Severance Plan, the payment of severance obligations upon certain terminations of employment that may occur in connection with or following the Merger.
For further information with respect to the arrangements between us and our directors and executive officers, see the information included under “The Merger—Interests of Our Directors and Executive Officers in the Merger” beginning on page 48 and “Merger Compensation Advisory Vote” beginning on page 78.
No Solicitation (pages 66-68)
 
The Merger Agreement provides that from April 29, 2014 until the Effective Time, we are not permitted to, directly or indirectly, initiate, solicit or encourage any inquiry or the making of any proposal or offer that
constitutes, or could reasonably be expected to lead to, an acquisition proposal from any person, or engage in discussions or negotiations regarding, or to provide any non-public information to any person relating to,

or that could reasonably be expected to lead to, any acquisition proposal. Notwithstanding these restrictions, under certain circumstances, we may, prior to the time the Merger Agreement is adopted by our stockholders, respond to a written acquisition proposal or engage in discussions or negotiations with the person making such an acquisition proposal. At any time before the Merger Agreement is adopted by our stockholders, we may terminate the Merger Agreement to enter into an alternative acquisition agreement (defined as any letter of intent, agreement in principle, term sheet, memorandum of understanding, merger agreement, acquisition
agreement or other similar agreement relating to an acquisition proposal, other than certain confidentiality agreements) with respect to a superior proposal, so long as we comply with certain terms of the Merger Agreement, including negotiating revisions to the terms of the Merger Agreement with Exelon (to the extent Exelon desires to negotiate) for a period of three business days prior to taking action and paying a termination fee to Exelon. See “The Merger Agreement—No Solicitation” beginning on page 66 and “The Merger Agreement—Termination Fee Payable by PHI” beginning on page 75.
Conditions to the Merger (pages 72-73)
 
The respective obligations of PHI, Exelon and Merger Sub to consummate the Merger are subject to the satisfaction or waiver of certain customary conditions, including the following:
  • adoption of the Merger Agreement by our stockholders;
  • receipt of certain regulatory approvals;
  • the absence of any legal prohibitions or a burdensome regulatory condition;
  • the accuracy of the representations and warranties of the parties; and
  • compliance by the parties with their respective obligations under the Merger Agreement.
See “The Merger Agreement—Conditions to the Merger” beginning on page 72.
Termination of the Merger Agreement (pages 73-74)
 
General
The Merger Agreement may be terminated and the Merger abandoned under the following circumstances:
  • by mutual written consent by us and Exelon at any time prior to the Effective Time, whether before or after the adoption of the Merger Agreement by our stockholders;
  • by either Exelon or us, at any time prior to the Effective Time, as follows:
  • the Merger has not been consummated by July 29, 2015 (subject to extension until October 29, 2015 if all required regulatory approvals have not been obtained by that date), whether such date is before or after the adoption of the Merger Agreement by our stockholders; provided that this termination right will not be available to us if we or our Board has effected a change of recommendation or has given a change of recommendation notice to Exelon, or our Board has authorized us to enter into an alternative acquisition agreement with respect to a superior proposal;
  • our stockholders have not adopted the Merger Agreement at the special meeting;
  • an order permanently enjoining or otherwise prohibiting the consummation of the Merger has become final and non-appealable; or
  • the other party breaches a representation, warranty, covenant or agreement made by it (or, in the case of Exelon, by it or Merger Sub) in the Merger Agreement or any such representation and warranty becomes untrue after April 29, 2014, such that the condition to the closing of the Merger relating to the accuracy of the representations, warranties or covenants would fail to be true, and the breach or failure to be true cannot be cured, or if curable, is not cured prior to the earlier of (i) 30 calendar days after written notice is given by the non-breaching party and (ii) two business days prior to the termination date.
  • by us at any time prior to the adoption of the Merger Agreement by our stockholders

if (i) our Board authorizes us, subject to compliance with the Merger Agreement, to enter into an alternative acquisition agreement with respect to a superior proposal and we have notified Exelon, (ii) concurrently with the termination of the Merger Agreement, we enter into an alternative acquisition agreement with respect to that superior proposal and (iii) prior to or concurrently with such termination, we pay Exelon the termination fee discussed under “The Merger Agreement—Termination Fee Payable by PHI” beginning on page 75.
  • by Exelon at any time prior to the Effective Time if our Board (i) has made a change of recommendation, (ii) has delivered a change or recommendation notice or (iii) has authorized us to enter into an alternative acquisition agreement with respect to a superior proposal.
Termination Fees
Termination Fee Payable by PHI
Under certain circumstances involving an alternative acquisition proposal or a change of recommendation by our Board, we may be required to pay Exelon a termination fee of up to $293 million plus up to $40 million for documented out-of-pocket expenses incurred by Exelon or Merger Sub in connection with the Merger Agreement. If the Merger Agreement is terminated by either Exelon or us because our stockholders do not adopt the Merger Agreement or in specified circumstances involving an alternative acquisition proposal, we will be obligated to pay Exelon or Merger Sub up to $40 million in documented out-of-pocket expenses incurred in connection with the Merger Agreement, but in certain
circumstances these expenses will be credited against payment of the required termination fee. See “The Merger Agreement—Termination Fee Payable by PHI,” beginning on page 75, for additional information.
Termination Fee Payable by Exelon
We and Exelon have agreed that the transactions contemplated by the subscription agreement were and are being entered into for purposes of effecting the payment of the Exelon termination fee of up to $180 million to us (or, as applicable, the return of such termination fee to Exelon) based on the occurrence of certain events. If the Merger Agreement is terminated under certain circumstances, including (i) where there has been a failure to obtain the required regulatory approvals or (ii) a termination of the Merger Agreement by us due to Exelon’s failure to comply with its obligations related to certain regulatory matters and regulatory commitments under the Merger Agreement, and in each case above specified conditions to closing of the Merger have been satisfied or waived at the time of such termination, we will have a right to redeem for $0.01 per share all of Exelon’s shares of Series A preferred stock in PHI outstanding on the date of the applicable Merger Agreement termination. In addition, under such circumstances, Exelon will pay us up to $40 million for documented out-of-pocket expenses that we incurred in connection with the Merger Agreement.
If the Merger Agreement is terminated for any other reason, we will be required to redeem all of Exelon’s shares of Series A preferred stock in PHI for an aggregate amount equal to the price paid by Exelon to purchase the Series A preferred stock plus any dividends accrued and unpaid on such stock.
See “The Merger Agreement—Termination Fee Payable by Exelon,” beginning on page 76, for additional information.
Regulatory Approvals (pages 53-55)
 
To complete the Merger, we and Exelon must obtain approvals or consents from, or make filings with, a number of U.S. federal and other public utility commissions, and regulatory authorities. The material regulatory approvals, consents and filings include the following:
  • the expiration or early termination of the waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, or the HSR Act, and its related rules and regulations;
  • authorization from Federal Energy Regulatory Commission, or FERC, under the Federal Power Act, or the FPA;
  • approval from the Delaware Public Service Commission, or the DPSC;
  • approval from the District of Columbia Public Service Commission, or the DCPSC;
  • approval from the Maryland Public Service Commission, or the MPSC;
  • approval from the New Jersey Board of Public Utilities, or the NJBPU;
  • approval from the Virginia State Corporation Commission, or the VSCC; and
  • approval from the Federal Communications

Commission, or FCC, for the transfer of control over certain FCC licenses for private internal communications held by certain of our subsidiaries.
We and Exelon have made or intend to make various filings and submissions for the above-mentioned authorizations and approvals. We will seek to complete the Merger with Exelon by the third quarter of 2015. Although we believe that we and Exelon will receive the required consents and approvals described above to
complete the Merger, we cannot give any assurance as to the timing of these consents and approvals or as to Exelon’s or our ultimate ability to obtain such consents or approvals (or any additional consents or approvals which may otherwise become necessary). We also cannot ensure that we will obtain such consents or approvals on terms and conditions satisfactory to us and Exelon. See “The Merger—Regulatory Approvals,” beginning on page 53, for additional information about these matters.
Legal Proceedings Related to the Merger (page 57)
 
In connection with the proposed Merger, as of July 21, 2014, thirteen lawsuits were filed in the Court of Chancery of the State of Delaware. The lawsuits were filed against PHI, Exelon, Merger Sub and members of our Board. On June 11, 2014, one of the thirteen cases was dismissed voluntarily, and the Court of Chancery separately entered an order consolidating the remaining twelve cases and appointing lead plaintiffs in the consolidated action.
The complaints generally allege, among other things, that the members of our Board breached their fiduciary duties by, among other things, conducting an allegedly inadequate sale process and agreeing to the
Merger at a price that allegedly undervalues PHI, and that Exelon, PHI and Merger Sub aided and abetted those supposed breaches of duty. The complaints seek various remedies, including an injunction against the Merger and monetary damages, including attorneys’ fees and expenses.
All defendants deny any wrongdoing in connection with the proposed Merger and plan to vigorously defend against all pending claims.
See “The Merger—Legal Proceedings Related to the Mergeron page 57, for additional information about these matters.
Delisting and Deregistration of Common Stock (page 58)
 
If the Merger is completed, our common stock will no longer be traded on the NYSE and will be deregistered under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and we will no longer be required under Sections 13 or 14 of the Exchange Act to file periodic reports and proxy and information statements with the Securities and Exchange
Commission, or the SEC, on account of our common stock. We currently expect that, after the Effective Time, we and our utility subsidiaries will continue to file annual, quarterly and current reports with the SEC pursuant to Section 15(d) of the Exchange Act with respect to publicly issued debt of PHI and our utility subsidiaries.
Appraisal Rights Under Delaware Law (pages 82-84)
 
Under the General Corporation Law of the State of Delaware, or the DGCL, our stockholders that do not vote for the adoption of the Merger Agreement have the right to seek appraisal of the fair value of their shares of common stock in cash as determined by the Delaware Court of Chancery, but only if they comply fully with all of the applicable requirements of the DGCL, which are summarized in this proxy statement. Any appraisal amount determined by the court could be more than, the same as, or less than the value of the Per Share Merger Consideration. Any stockholder intending to exercise appraisal rights must, among other things, submit a written demand for appraisal to
us before the vote on the adoption of the Merger Agreement and must not vote or otherwise submit a proxy in favor of adoption of the Merger Agreement. Failure to follow the procedures specified under the DGCL will result in the loss of appraisal rights. Because of the complexity of the DGCL relating to appraisal rights, if you are considering exercising your appraisal rights, we encourage you to seek promptly the advice of your own legal and financial advisors. See “Appraisal Rights Under Delaware Law,” beginning on page 82, as well as Annex F, for additional information about these matters.

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
The following questions and answers are intended to address briefly some commonly asked questions regarding the special meeting, the Merger and the Merger Agreement. These questions and answers may not address all questions that may be important to you as a stockholder. Please refer to the “Summary Term Sheet” beginning on page 1 and the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to in this proxy statement, which you should read carefully and in their entirety. You may obtain the information incorporated by reference in this proxy statement (excluding exhibits) without charge by following the instructions under “Where You Can Find More Information” beginning on page 90.
Q.
  • What is the proposed Merger and what effect will it have on PHI?
A.
  • The proposed Merger is the acquisition of PHI by Exelon and Merger Sub, an indirect, wholly-owned subsidiary of Exelon, pursuant to the Merger Agreement, whereby Merger Sub will be merged with and into PHI with PHI being the surviving corporation. If the proposal to adopt the Merger Agreement is approved by our stockholders and the other closing conditions set forth in the Merger Agreement have been satisfied or waived, and the Merger is consummated, PHI will become an indirect, wholly-owned subsidiary of Exelon. Following the Merger, our common stock will be delisted from the NYSE and deregistered under the Exchange Act, and we will no longer be required under Sections 13 or 14 of the Exchange Act to file periodic reports and proxy and information statements with the SEC on account of our common stock. We currently expect that, after the Effective Time, we and our utility subsidiaries will continue to file annual, quarterly and current reports with the SEC pursuant to Section 15(d) of the Exchange Act with respect to publicly issued debt of PHI and our utility subsidiaries.
Q.
  • What will I receive if the Merger is completed?
A.
  • Upon completion of the Merger, you will be entitled to receive the Per Share Merger Consideration of $27.25 in cash, without interest, less any applicable withholding taxes, for each share of our common stock that you own, unless you have properly exercised and not withdrawn your appraisal rights under the DGCL with respect to such shares. For example, if you own 100 shares of our common stock, you will receive $2,725.00 in cash in exchange for your shares of our common stock, less any applicable withholding taxes. In connection with the Merger, you will not own any shares of the capital stock in the Surviving Corporation.
Q.
  • How does the Per Share Merger Consideration compare to the market price of our common stock prior to the announcement of the Merger?
A.
  • The Per Share Merger Consideration represents a premium of approximately 19.6% to the closing price of our common stock on April 29, 2014, the last trading day prior to the public announcement of the proposed Merger. The Per Share Merger Consideration represents a premium of approximately 29.5% to our 20-day volume-weighted average share price as of April 25, 2014, the third business day prior to the public announcement on April 30, 2014 of the proposed Merger.
Q.
  • When do you expect the Merger to be completed?
A.
  • We are working to consummate the Merger as soon as possible. Assuming timely receipt of all required regulatory approvals and the satisfaction of other closing conditions, including approval by our stockholders of the proposal to adopt the Merger Agreement, we anticipate that the Merger will be completed by the third quarter of 2015.
Q.
  • What happens if the Merger is not completed?
A.
  • If the Merger Agreement is not adopted by our stockholders or if the Merger is not completed for any other reason, you will not receive any payment for your shares in connection with the Merger. Instead, we will remain an independent public company and our common stock will continue to be listed and traded on the NYSE. Under specified circumstances, we may be required to pay to Exelon, or be entitled to receive from Exelon, a fee with respect to the termination of the Merger Agreement, and/or to reimburse Exelon and its affiliates for their reasonable and documented out-of-pocket fees and expenses, or be entitled to receive reimbursement from Exelon for reasonable and documented out-of-pocket fees and expenses incurred by us in connection with the Merger, as described under “The Merger Agreement—Termination Fee Payable by PHI,” beginning on page 75, and “The Merger Agreement—Termination Fee Payable by Exelon,” beginning on page 76.

Q.
  • What conditions must be satisfied to complete the Merger?
A.
  • We, Exelon and Merger Sub are not required to complete the Merger unless a number of conditions are satisfied or waived. These conditions include, among others: (i) receipt of approval by our stockholders of the adoption of the Merger Agreement; (ii) receipt of applicable approvals of FERC, the FCC and certain public utility commissions, and the expiration or termination of any waiting periods applicable to the consummation of the Merger under these approvals and the HSR Act; (iii) these applicable approvals do not, individually or in the aggregate, impose terms, conditions or sanctions that constitute a Burdensome Condition as defined under the Merger Agreement; (iv) the absence of any law (whether temporary, preliminary or permanent) that is in effect and restrains, enjoins or otherwise prohibits or makes illegal the consummation of the Merger; (v) our and each of Exelon’s and Merger Sub’s representations and warranties under the Merger Agreement being true and correct, subject to applicable materiality standards; (vi) each of us, Exelon and Merger Sub having performed in all material respects our and their respective obligations under the Merger Agreement; and (vii) each of us, Exelon and Merger Sub having delivered an officer’s certificate certifying that all of the above conditions with respect to the representations and warranties and performance of obligations have been satisfied.
For a more complete summary of the conditions that must be satisfied or waived prior to the completion of the Merger, see “The Merger Agreement—Conditions to the Merger” beginning on page 72.
Q.
  • Is the Merger expected to be taxable to me?
A.
  • Yes. The exchange of shares of our common stock for cash pursuant to the Merger generally will be a taxable transaction to U.S. holders (as defined in “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” on page 55) for U.S. federal income tax purposes. If you are a U.S. holder and you exchange your shares of our common stock in the Merger for cash, you will generally recognize a capital gain or loss in an amount equal to the difference, if any, between the amount of cash received with respect to such shares and your adjusted tax basis in such shares. Backup withholding may also apply to the cash payments paid to a non-corporate U.S. holder pursuant to the Merger unless the U.S. holder or other payee provides a taxpayer identification number, certifies that such number is correct and otherwise complies with the backup withholding rules. You should read “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 55 for a more detailed discussion of the U.S. federal income tax consequences of the Merger. You should also consult your tax advisor for a complete analysis of the effect of the Merger on your federal, state and local and/or foreign taxes.
Q.
  • Why am I receiving this proxy statement and proxy card or voting instruction form?
A.
  • You are receiving this proxy statement and proxy card or voting instruction form because you own shares of our common stock as of the close of business on [           ], 2014. This proxy statement describes matters relating to the Merger on which you as a stockholder are entitled to vote and provides information to assist you in deciding how to vote your shares with respect to such matters.
Q.
  • When and where is the special meeting?
A.
  • The special meeting of our stockholders will be held on [           ], 2014 at 10:00 a.m., Eastern time, at the Delmarva Power Conference Center, located at 4100 South Wakefield Drive, Newark, Delaware 19702. The doors will open to the public at 9:15 a.m., Eastern time.
Q.
  • What am I being asked to vote on at the special meeting?
A.
  • You are being asked to consider and vote on the Merger Proposal, the Merger Compensation Proposal, and the Adjournment Proposal.
Q.
  • How does our Board recommend that I vote?
A.
  • Our Board recommends that you vote “FOR” approval of the Merger Proposal, “FOR” approval of the Merger Compensation Proposal and “FOR” approval of the Adjournment Proposal.
Q.
  • Why am I being asked to consider and vote on the Merger Compensation Proposal?
A.
  • Under SEC rules, we are required to conduct a non-binding, advisory vote of stockholders regarding the compensation that may be paid or become payable to our named executive officers in connection with the completion of the Merger.

Q.
  • What will happen if our stockholders do not approve the Merger Compensation Proposal?
A.
  • Approval of the Merger Compensation Proposal is not a condition to completion of the Merger. The vote is advisory and will not be binding on us or on Exelon. Therefore, if the Merger Agreement is adopted by our stockholders and the Merger is completed, the compensation that is the subject of the Merger Compensation Proposal, which includes amounts we are contractually obligated to pay, could still be paid regardless of the outcome of the advisory vote.
Q.
  • Do any of our directors or executive officers have interests in the Merger that differ from or are in addition to my interests as a stockholder?
A.
  • In considering the recommendation of our Board with respect to the Merger Proposal, you should be aware that our directors and executive officers may have interests in the Merger that are different from, or in addition to, the interests of our stockholders generally. Our Board was aware of and considered these interests, among other matters, in evaluating and negotiating the Merger Agreement and approving the Merger, and in recommending that the Merger Agreement be adopted by our stockholders. See “The Merger—Interests of Our Directors and Executive Officers in the Merger” beginning on page 48 and “Merger Compensation Advisory Vote” beginning on page 78.
Q.
  • Who can vote at the special meeting?
A.
  • All of our stockholders of record as of the close of business on [           ], 2014, the record date for the special meeting, are entitled to receive notice of, and to vote at, the special meeting. Each stockholder is entitled to cast one vote on each matter properly brought before the special meeting for each share of our common stock owned by such holder at the close of business on the record date. As of the close of business on the record date, there were [      ] outstanding shares of our common stock.
Q.
  • What is the difference between holding shares as a stockholder of record and as a beneficial owner?
A.
  • If your shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, you are considered the stockholder of record with respect to those shares and you can attend the meeting and vote in person. You can also vote your shares by proxy without attending the meeting in any of the ways specified in “The Special Meeting—Voting and Proxies—How to Vote Shares Registered in Your Own Name.”
If your shares are held by a brokerage firm, trustee, bank, other financial intermediary or nominee, referred to as an intermediary, you are considered the beneficial owner of shares held in “street name,” and the intermediary is considered the stockholder of record with respect to these shares.
Q.
  • If my shares of common stock are held in “street name” by an intermediary, will the intermediary vote my shares of common stock for me?
A.
  • The intermediary will only be permitted to vote your shares of our common stock if you instruct the intermediary how to vote. You should follow the procedures provided by the intermediary regarding the voting of your shares. Under NYSE rules, intermediaries that are members of the NYSE and who hold shares for customers in street name have the authority to vote in their discretion only on “routine” matters. On non-routine matters, an intermediary is permitted to vote shares held for customers in street name only in accordance with the customers’ instructions. Each of the Merger Proposal, the Merger Compensation Proposal, and the Adjournment Proposal is considered a non-routine matter. As a result, if you are a beneficial owner and you do not provide the intermediary with voting instructions, your shares of our common stock will not be voted, which is referred to as a broker non-vote.
Q.
  • How do I vote if my shares are held by an intermediary?
A.
  • If you hold shares in “street name,” the intermediary through which you hold such shares will provide you with a voting instruction form which will explain how to direct the voting of your shares through the intermediary, which may include the ability to provide voting instructions via the Internet or by telephone.
Q.
  • What is a quorum?
A.
  • Under our bylaws, the presence, either in person or by proxy, of the holders of a majority of the shares of our common stock outstanding at the close of business on the record date will constitute a quorum for the transaction of business at the special meeting, except that a quorum is not required for a vote on the Adjournment Proposal.

Q.
  • What vote is required for our stockholders to approve the Merger Proposal?
A.
  • The adoption of the Merger Agreement requires the affirmative vote of the holders of a majority of the shares of our common stock that are outstanding and entitled to vote thereon.
Abstentions, broker non-votes, and shares not in attendance will have the same effect as a vote “AGAINST” approval of the Merger Proposal.
Q.
  • What vote of our stockholders is required to approve the Merger Compensation Proposal?
A.
  • Approval of the Merger Compensation Proposal requires the affirmative vote of the holders of a majority of the outstanding shares of our common stock that are present at the special meeting, whether in person or by proxy, and entitled to vote thereon.
Abstentions will have the same effect as a vote “AGAINST” approval of the Merger Compensation Proposal. Broker non-votes and shares not in attendance will have no effect on the outcome of the vote on the Merger Compensation Proposal.
Q.
  • What vote of our stockholders is required to approve the Adjournment Proposal?
A.
  • Approval of the Adjournment Proposal requires the affirmative vote of the holders of a majority of the outstanding shares of our common stock that are present at the special meeting, whether in person or by proxy, and entitled to vote thereon. A vote on the Adjournment Proposal does not require the presence of a quorum. The Adjournment Proposal will be submitted to a vote at the special meeting only if there are not sufficient votes at the time of the adjournment to adopt the Merger Agreement.
Abstentions will have the same effect as a vote “AGAINST” approval of the Adjournment Proposal. Broker non-votes and shares not in attendance will have no effect on the outcome of the vote on the Adjournment Proposal.
Q.
  • How do I attend the meeting in person?
A.
  • You will not be admitted to the meeting unless you present an admission ticket and a valid form of government-issued photo identification. If you are a stockholder of record or hold shares through our Direct Stock Purchase and Dividend Reinvestment Plan, referred to as the DRP, or the Pepco Holdings, Inc. Retirement Savings Plan, or the 401(k) plan, your admission ticket is attached to your proxy card.
If you hold your shares through an intermediary and you are planning to attend the meeting in person (regardless of whether you intend to vote your shares in person at the meeting), you must send us a written request for an admission ticket, which we must receive by [           ], 2014. Please note that if you are a beneficial owner and wish to vote in person at the special meeting, you may not do so unless you first obtain a legal proxy from the intermediary. See “The Special Meeting—Attending the Special Meeting in Person—Holders of Shares in ‘Street Name’ and Legal Proxies” beginning on page 22 for additional information.
Q.
  • How do I vote?
A.
  • Stockholders of Record.   If you are a stockholder of record, you may vote your shares at the special meeting in any of the following ways:
  • Via Our Internet Voting Site at www.voteproxy.com.   Follow the instructions for Internet voting printed on your proxy card.
  • By Telephone.   Call toll-free 1-800-PROXIES (1-800-776-9437). You can also vote by telephone by following the instructions provided on the Internet voting site or by following the instructions provided on your proxy card.
  • By Mail.   You can vote by completing, signing, dating and returning the proxy card in the postage-paid envelope enclosed with the proxy statement.
  • In Person.   You may attend the special meeting and cast your vote at the special meeting.
The Internet and telephone voting facilities for stockholders of record will close at 5:00 p.m., Eastern time, on [           ], 2014.
Beneficial Owners.   If you are a beneficial owner, please refer to the instructions provided by the intermediary to see which of the above choices for voting are available to you.

Q.
  • As a participant in our 401(k) plan, how do I vote the portion of my account that is allocated to PHI’s common stock?
A.
  • If you are a participant in our 401(k) plan, you may direct the voting of the number of shares of common stock allocated to your 401(k) plan account, which number is printed on the enclosed voting instruction form, in accordance with the directions provided. By filling out and returning the voting instruction form or transmitting voting instructions via the Internet or by telephone, you will be providing the plan trustee with instructions on how to vote the shares of common stock allocated to your 401(k) plan account.
Q.
  • How do I vote the shares of common stock that I hold through the DRP?
A.
  • Shares held through the DRP (other than shares allocated to your 401(k) plan account) will be treated as shares that are registered in your name, and will be voted in accordance with the proxy card that you fill out and return to us.
Q.
  • How can I change or revoke my vote?
A.
  • If you own shares in your own name or through the DRP, or with respect to shares allocated to your 401(k) plan account, you may revoke any prior proxy or voting instructions, regardless of how your proxy or voting instructions were originally submitted, by:
  • sending a written statement to that effect to our Corporate Secretary, which must be received by us before the meeting;
  • submitting a properly signed proxy card or voting instruction form dated a later date;
  • submitting a later dated proxy or providing new voting instructions via the Internet or by telephone; or
  • attending the meeting in person and voting your shares.
If you hold shares in “street name”, you should contact the intermediary for instructions on how to change your vote.
Q.
  • If a stockholder gives a proxy, how are the shares of common stock voted?
A.
  • Regardless of the method you choose to vote, the individuals named on the proxy card will vote your shares of our common stock as you indicate. When casting your vote by proxy card, by the Internet or by telephone, you may specify whether your shares of our common stock should be voted “for” or against” each of the Merger Proposal, the Merger Compensation Proposal, and the Adjournment Proposal, or whether such individuals should “abstain” from voting your shares of common stock on any or all of the proposals.
If you own shares that are registered in your own name and return a signed proxy card or grant a proxy via the Internet or telephone, but do not indicate how you wish your shares to be voted, the shares represented by your properly signed proxy will be voted “FOR” approval of the Merger Proposal, “FORapproval of the Merger Compensation Proposal, and, if submitted to a vote, “FOR” approval of the Adjournment Proposal.
Q.
  • What if I receive more than one proxy or set of voting instructions?
A.
  • If you received more than one proxy card, your shares are likely registered in different names, under different addresses or in multiple accounts. You must vote the shares shown on each proxy card and comply with each set of voting instructions that you receive in order for all of your shares to be voted at the special meeting.
Q.
  • What happens if I sell my shares of common stock before the special meeting?
A.
  • The record date for stockholders entitled to vote at the special meeting is [           ], 2014, which is earlier than the date of the special meeting. If you sell or otherwise transfer your shares after the record date but before the special meeting, unless special arrangements (such as provision of a proxy) are made between you and the person to whom you transfer your shares and each of you notifies us in writing of such special arrangements, you will retain your right to vote such shares at the special meeting but will transfer the right to receive the Per Share Merger Consideration to the person to whom you transfer your shares.

Q.
  • What happens if I sell or otherwise transfer my shares of common stock after the special meeting but before the Effective Time?
A.
  • If the Merger Proposal is approved by our stockholders and you sell or otherwise transfer your shares after the special meeting but before the Effective Time, you will have transferred the right to receive the Per Share Merger Consideration to the person to whom you transfer your shares. In order to receive the Per Share Merger Consideration at the time of the closing of the Merger, you must hold your shares of common stock through completion of the Merger.
Q.
  • Who will solicit and pay the cost of soliciting proxies?
A.
  • We have engaged AST Phoenix Advisors to assist in the solicitation of proxies for the special meeting. We will pay AST Phoenix Advisors an estimated fee of $12,500 plus all reasonable, out-of-pocket expenses for these solicitation services. We have also agreed to indemnify AST Phoenix Advisors and its stockholders, officers, directors, employees, agents and affiliates, against certain direct claims, costs, damages, liabilities, judgments and expenses, including the reasonable and customary fees, costs and expenses of its legal counsel. We may also reimburse intermediaries for their expenses in forwarding proxy materials to beneficial owners of our common stock. Our directors, officers and employees may also solicit proxies by telephone, by facsimile, by mail, on the Internet or in person, and they will not be paid any additional amounts for soliciting proxies.
Q.
  • What do I need to do now?
A.
  • Even if you plan to attend the special meeting, after carefully reading and considering the information contained in this proxy statement, please vote promptly to ensure that your shares are represented at the special meeting.
Q.
  • Should I send in my stock certificates now?
A.
  • No. If you hold a stock certificate, following the completion of the Merger, you will receive a letter of transmittal and other materials describing how you may exchange your shares of common stock for the Per Share Merger Consideration. Please do NOT return your stock certificate(s) with your proxy card or voting instructions.
Q.
  • Am I entitled to exercise appraisal rights under the DGCL instead of receiving the Per Share Merger Consideration for my shares of common stock?
A.
  • Yes. As a stockholder, you are entitled to exercise appraisal rights under the DGCL in connection with the Merger if you take all of the actions required under the DGCL to do so and meet certain conditions, including the requirement that you do not vote in favor of adoption of the Merger Agreement. See “Appraisal Rights Under Delaware Law” beginning on page 82.
Q.
  • What is the purpose of the preferred stock that we issued to Exelon?
A.
  • In connection with the Merger, on April 29, 2014, we entered into a subscription agreement with Exelon, pursuant to which we issued to Exelon 9,000 shares of our Series A preferred stock on April 30, 2014 for a purchase price of $90 million. Pursuant to the subscription agreement, Exelon also committed to purchase 1,800 shares of Series A preferred stock for a purchase price of $18 million at the end of each 90-day period after the date of the subscription agreement, up to a maximum aggregate of 18,000 shares and for a maximum aggregate consideration of $180 million, subject to certain conditions. The proceeds from the issuance of the Series A preferred stock are not subject to restrictions and are intended to effect the potential payment of a reverse termination fee to us by Exelon. The Series A preferred stock is redeemable on the terms and in the circumstances set forth in the certificate of designation with respect to the Series A preferred stock. For further details on the Series A preferred stock and the termination fee provisions, see “The Merger Agreement—Subscription Agreement and Preferred Stock” beginning on page 60, as well as Annexes D and E attached hereto, “The Merger Agreement—Termination Fee Payable by PHI” beginning on page 76 and “The Merger Agreement—Termination Fee Payable by Exelon” beginning on page 76.
Q.
  • Who can help answer any other questions I might have?
A.
  • If you have additional questions about the Merger, need assistance in submitting your proxy or voting your shares of our common stock, or need additional copies of the proxy statement or a replacement proxy card, please contact AST Phoenix Advisors, our proxy solicitor, by calling toll-free at (877) 732-3621. Brokers, banks and other intermediaries may call our proxy solicitor collect at (212) 493-3910.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This proxy statement and the other documents referred to or incorporated by reference into this proxy statement contain or may contain “forward-looking statements” within the meaning of Section 21E of the Exchange Act, and are subject to the safe harbor created thereby under the Private Securities Litigation Reform Act of 1995. Words such as “may,” “might,” “will,” “should,” “could,” “anticipate,” “estimate,” “expect,” “predict,” “project,” “future,” “potential,” “intend,” “seek to,” “plan,” “assume,” “believe,” “target,” “forecast,” “goal,” “objective,” “continue” or the negative of such terms or other variations thereof or comparable terminology, and words and terms of similar substance used in connection with any discussion of future plans, actions, or events identify forward-looking statements. These statements are based on the current expectations of our management. There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements included in this proxy statement and such other documents:
  • certain risks and uncertainties associated with the proposed Merger, including:
  • our inability to obtain stockholder approval required for the Merger;
  • the inability of us or Exelon to obtain regulatory approvals required for the Merger;
  • delays caused by required regulatory approvals, which may delay the Merger or cause us and/or Exelon to abandon the Merger;
  • the inability of us or Exelon to satisfy conditions to the closing of the Merger;
  • an unsolicited offer of another company to acquire our assets or capital stock, which could interfere with the Merger, including as a result of stockholder litigation;
  • unexpected costs, liabilities or delays that may arise from the Merger;
  • negative impacts on our businesses or those of our regulated utility subsidiaries as a result of uncertainty surrounding the Merger; and
  • future regulatory or legislative actions impacting the industries in which we
and our regulated utility subsidiaries operate, which actions could adversely affect us and our regulated utility subsidiaries;
  • changes in governmental policies and regulatory actions affecting the energy industry, us or our subsidiaries specifically, including allowed rates of return, industry and rate structure, acquisition and disposal of assets and facilities, operation and construction of transmission and distribution facilities and the recovery of purchased power expenses;
  • the outcome of pending and future rate cases and other regulatory proceedings, including (i) challenges to the base return on equity and the application of the formula rate process previously established by FERC for transmission services provided by our regulated utility subsidiaries; (ii) challenges to 2011, 2012 and 2013 annual FERC formula rate updates for Delmarva Power & Light Company, or DPL, one of our utility subsidiaries; and (iii) other possible disallowances related to recovery of costs and expenses or delays in the recovery of such costs;
  • the resolution of outstanding tax matters with the Internal Revenue Service, and the funding of any additional taxes, interest or penalties that may be due;
  • the expenditures necessary to comply with regulatory requirements, including regulatory orders, and to implement reliability enhancement, emergency response and customer service improvement programs;
  • possible fines, penalties or other sanctions assessed by regulatory authorities against us or our subsidiaries;
  • the impact of adverse publicity and media exposure which could render us or our subsidiaries vulnerable to negative customer perception and could lead to increased regulatory oversight or other sanctions;
  • weather conditions affecting usage and emergency restoration costs;
  • population growth rates and changes in demographic patterns;

  • changes in customer energy demand due to, among other things, conservation measures and the use of renewable energy and other energy-efficient products, as well as the impact of net metering and other issues associated with the deployment of distributed generation and other new technologies;
  • general economic conditions, including the impact on energy use caused by an economic downturn or recession, or by changes in the level of commercial activity in a particular region or service territory, or affecting a particular business or industry located therein;
  • changes in and compliance with environmental and safety laws and policies;
  • changes in tax rates or policies;
  • changes in rates of inflation;
  • changes in accounting standards or practices;
  • unanticipated changes in operating expenses and capital expenditures;
  • rules and regulations imposed by, and decisions of, federal and/or state regulatory commissions, PJM Interconnection, LLC, or PJM, the North American Electric Reliability Corporation, or NERC, and other applicable electric reliability organizations;
  • legal and administrative proceedings (whether civil or criminal) and settlements that affect our or our subsidiaries’ business and profitability;
  • pace of entry into new markets;
  • interest rate fluctuations and the impact of credit and capital market conditions on the ability to obtain funding on favorable terms; and
  • effects of geopolitical and other events, including the threat of terrorism or cyber attacks.
The foregoing factors should not be construed as exhaustive. Other unknown or unpredictable factors could also have material adverse effects on our performance or achievements prior to the Merger. Therefore, forward-looking statements are not guarantees or assurances of future performance, and actual results could differ materially from those indicated by the forward-looking statements. Discussions of some of these other important factors and assumptions are contained in our filings with the SEC and available at the SEC’s website at http:/​/​www.sec.gov, including in (i) (a) Part I, Item 1A. Risk Factors; (b) Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations; and (c) Part II, Item 8. Financial Statements and Supplementary Data, each in our Annual Report on Form 10-K for the year ended December 31, 2013; and (ii) (a) Part I, Item 1. Financial Statements; (b) Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations; and (c) Part II, Item 1A. Risk Factors, each in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014. In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed in this proxy statement may not occur.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this proxy statement or the date of such other filing, as the case may be. We do not undertake any obligation to publicly release any revision to our forward-looking statements to reflect events or circumstances after the date of this proxy statement. New factors emerge from time to time, and it is not possible for us to predict all such factors. Furthermore, it may not be possible to assess the impact of any such factor on our or our utility subsidiaries’ businesses (either individually or collectively) or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. Any specific factors that may be provided should not be construed as exhaustive.

PARTIES TO THE MERGER
PHI
 
We are a holding company that, through our regulated public utility subsidiaries, is engaged primarily in the transmission, distribution and default supply of electricity, and, to a lesser extent, the distribution and supply of natural gas. Our three regulated utility subsidiaries that comprise our power delivery business are Potomac Electric Power Company, or Pepco, DPL, and Atlantic City Electric Company, or ACE. We had approximately $4.7 billion in revenues for the fiscal year ended December 31, 2013 and $1.3 billion in revenues for the quarter ended March 31, 2014.
Shares of our common stock trade on the NYSE under the ticker symbol “POM.” Our principal executive offices are located at 701 Ninth Street, N.W., Washington, D.C. 20068, and our telephone number is (202) 872-2000. Our web address is http:/​/​www.pepcoholdings.com. This web address is provided for convenience only, and none of the information on our website is incorporated by reference into or otherwise deemed to be a part of this proxy statement.
This proxy statement incorporates important business and financial information about us from other documents that are not included in or delivered with this proxy statement. For a list of the documents that are incorporated by reference, see the section entitled “Where You Can Find More Information” beginning on page 90.
Power Delivery
Our power delivery business, operated through Pepco, DPL and ACE, consists of the transmission, distribution and default supply of electricity to approximately 1.9 million customers in the District of Columbia, portions of Maryland and Delaware, and portions of southern
New Jersey, as well as the distribution of natural gas to approximately 127,000 customers in portions of northern Delaware. In the aggregate, we own approximately 4,600 circuit miles of interconnected transmission lines with voltages ranging from 115 kilovolts, or kV, to 500 kV. Each of our utility subsidiaries is a member of the PJM Regional Transmission Organization, the regional transmission organization designated by FERC to coordinate the movement of wholesale electricity within its region.
For the fiscal year ended December 31, 2013, and the quarter ended March 31, 2014, our power delivery business accounted for approximately 96% of our consolidated revenue.
Pepco Energy Services
In addition to our regulated utility operations, we, through our wholly-owned subsidiary Pepco Energy Services, Inc., and its subsidiaries, collectively referred to as Pepco Energy Services, are engaged in the following activities:
  • designing, constructing and operating energy efficiency projects and distributed generation equipment, including combined heat and power plants, principally for federal, state and local government customers;
  • providing underground transmission and distribution construction and maintenance services for electric utilities in North America; and
  • providing steam and chilled water under long-term contracts through systems owned and operated by Pepco Energy Services, primarily to hotels and casinos in Atlantic City, New Jersey.
Exelon
 
Exelon is a utility services holding company engaged through its principal subsidiaries in the energy generation and energy delivery businesses. Exelon had approximately $24.9 billion in revenues for the fiscal year ended December 31, 2013 and $7.2 billion in revenues for the quarter ended March 31, 2014.
Exelon operates through its principal subsidiaries: Exelon Generation Company, LLC, or Generation, Commonwealth Edison Company, or ComEd, PECO Energy Company, or PECO, and Baltimore Gas and Electric Company, or BGE, each as described below.
Shares of Exelon common stock trade on the NYSE under the ticker symbol “EXC.” Exelon’s principal executive offices are located at 10 South Dearborn Street, Chicago, Illinois 60603, and its telephone number is (312) 394-7398.
Generation
Generation’s business consists of its owned and contracted electric generating facilities, its wholesale energy marketing operations and its competitive retail supply operations. At December 31, 2013, Generation

owned generation assets with an aggregate net capacity of 33,138 megawatts, or MW. In addition, Generation controlled another 11,425 MW of capacity through long-term contracts and investments.
Energy Delivery
Exelon distributes electricity to approximately 6.6 million customers in northern Illinois, southeastern
Pennsylvania and central Maryland, and natural gas to approximately 1.2 million customers in southeastern Pennsylvania and central Maryland. Exelon’s energy delivery business includes the operations of ComEd, PECO and BGE.
Merger Sub
 
Merger Sub was incorporated in Delaware in April 2014. Merger Sub is an indirect, wholly-owned subsidiary of Exelon that was formed for the sole purpose of effecting the merger of Merger Sub with and into PHI, with PHI surviving the Merger as an indirect, wholly-owned subsidiary of Exelon. Merger Sub has engaged in no business activities to date and it has no material assets or liabilities of any kind, other
than those incident to its formation and those incurred in connection with the Merger. Upon completion of the Merger, Merger Sub will cease to exist as a separate entity.
Merger Sub’s principal executive offices are located at 10 South Dearborn Street, Chicago, Illinois 60603, and its telephone number is (312) 394-7398.

THE SPECIAL MEETING
Our Board has directed that this proxy statement be used to solicit proxies from our stockholders in connection with the special meeting.
Purpose of the Special Meeting
 
The following table summarizes the proposals that will be brought for a vote of our stockholders at the special meeting, along with the voting recommendation of our Board with regard to each proposal.
 
Proposal
No.
Description of Proposal
Board’s
Recommendation
1
Merger Proposal:   Adoption of the Merger Agreement, a copy of which is included as Annex A to this proxy statement.
FOR
2
Merger Compensation Proposal:   Approval, on a non-binding, advisory basis, of the compensation that may be paid or become payable to our named executive officers in connection with the completion of the Merger.
FOR
3
Adjournment Proposal:   Approval of an adjournment of the special meeting, if submitted to a vote, to solicit additional proxies if there are not sufficient votes at the time of the adjournment to adopt the Merger Agreement.
FOR
Our Board has unanimously declared the Merger advisable, fair to and in the best interests of PHI and our stockholders and has unanimously approved the Merger Agreement and directed that it be submitted to our stockholders for adoption. Our Board unanimously recommends that our stockholders vote “FOR” each of the foregoing proposals. See “The Merger—Reasons for the Merger; Recommendation of Our Board” beginning on page 32 for additional information.
Date, Time and Place of the Special Meeting
 
The special meeting of our stockholders will be held at the Delmarva Power Conference Center, located at 4100 South Wakefield Drive, Newark, Delaware 19702, on [           ], 2014 at 10:00 a.m., Eastern time (the doors will open at 9:15 a.m., Eastern time).
If you plan to attend the meeting in person, you must present an admission ticket and a valid form of government-issued photo identification. If you are a stockholder of record, your admission ticket is attached to your proxy card.
If you hold your shares of our common stock through an intermediary and you are planning to attend the meeting in person, you must send us a written request for an admission ticket, which we must receive by [           ], 2014. For more information, see “The Special Meeting—Attending the Special Meeting in Person” beginning on page 22.
Record Date and Quorum
 
Our Board has fixed the close of business on [           ], 2014 as the record date for determination of stockholders entitled to notice of, and to vote at, the special meeting. Our common stock is our only class of voting security. Only holders of record of shares of our common stock at the close of business on the record date are entitled to notice of, and to vote at, the special meeting and any adjournments or any postponements of the special meeting that occur within 60 days after the record date. Each stockholder is entitled to one vote for each share of our common stock held at the close of
business on the record date. As of the record date for the special meeting, there were approximately [      ] shares of our common stock outstanding and held by [      ] holders of record.
In order to constitute a quorum to conduct the special meeting, holders of a majority of the shares of our common stock outstanding at the close of business on the record date must be present, either in person or by proxy, except that a quorum is not required for a vote on the Adjournment Proposal.

Abstentions are included in the determination of shares present at the meeting for quorum purposes. An abstention will occur if a stockholder attends the special meeting in person and abstains from voting or expressly directs the proxy holder to abstain from voting.
A “broker non-vote” will occur when an intermediary holding shares in “street name” does not receive voting instructions from the beneficial owner of the shares on a matter for which the intermediary lacks discretionary authority to vote because the matter is not considered routine. Each of the Merger Proposal,
the Merger Compensation Proposal, and the Adjournment Proposal is considered to be a non-routine matter. As a result, intermediaries will not be authorized to vote on these proposals unless they have received specific voting instructions from the beneficial owners of our common stock. Because intermediaries will be unable to vote uninstructed shares at the special meeting, if you hold your shares in street name and fail to provide voting instructions to your intermediary, your shares will not be counted as present for the purpose of establishing a quorum.
Stockholder Vote Required to Adopt Each Proposal
 
The table below summarizes the votes required for approval of each matter to be brought before the special meeting, as well as the treatment of abstentions and broker non-votes:
 
Proposal Number
Description of Proposal
Vote Required for Approval
Abstentions
Broker Non-Votes
1
Merger Proposal
Majority of the shares of common stock that are outstanding and entitled to vote
Against
Against
2
Merger Compensation Proposal
Majority of outstanding shares of common stock present at the special meeting and entitled to vote
Against
Not taken into account
3
Adjournment Proposal, if submitted to a vote
Majority of outstanding shares of common stock present at the special meeting and entitled to vote
Against
Not taken into account
Voting by PHI’s Directors and Executive Officers
 
As of the record date for the special meeting, our directors and executive officers collectively had the right to vote approximately [   ]% of our common stock outstanding and entitled to vote at the special meeting.
We currently expect that our directors and executive officers will vote their shares of our common stock in favor of each of the proposals to be considered at the special meeting, although none of them has entered into any agreement obligating them to do so.
Voting and Proxies
 
Providing a proxy means that a PHI stockholder authorizes the persons named in the proxy to vote such stockholder’s shares at the special meeting in the manner that such stockholder directs. All shares represented by properly executed proxies received in time for the special meeting will be voted at the special meeting in the manner specified by the stockholders giving those proxies.
How to Vote Shares Registered in Your Own Name
You may vote by proxy without attending the meeting in any of the following ways:
  • Via our Internet Voting Site at www.voteproxy.com.   Follow the instructions for Internet voting printed on your proxy card.

  • By Telephone.   Call toll-free 1-800-PROXIES (1-800-776-9437). You can vote by telephone by following the instructions provided on the Internet voting site or by following the instructions provided on your proxy card.
  • By Mail.   You can vote by completing, signing, dating and returning the proxy card in the accompanying postage-paid envelope.
If you own shares that are registered in your own name, you may also attend the special meeting and vote in person, provided that you comply with all of the admission procedures.
The Internet and telephone voting facilities for stockholders of record will close at 5:00 p.m., Eastern time, on [           ], 2014. Your signed proxy card or the proxy you grant via the Internet or by telephone will be voted in accordance with your instructions.
If you own shares that are registered in your own name and return a signed proxy card or grant a proxy via the Internet or by telephone, but do not indicate how you wish your shares to be voted, your shares will be voted “FOR” each of the Merger Proposal, the Merger Compensation Proposal, and, if submitted to a vote, the Adjournment Proposal.
In the absence of instructions to the contrary, proxies will be voted in accordance with the judgment of the person exercising the proxy on any other matter properly submitted to the vote of the stockholders at the special meeting.
If you received more than one proxy card, your shares are likely registered in different names, under different addresses or in multiple accounts. You must separately vote the shares shown on each proxy card that you receive in order for all of your shares to be voted at the special meeting.
How to Vote Shares Held in “Street Name”
If you hold shares in “street name” through an intermediary, you will not receive a proxy card. Rather, you will receive from that intermediary a voting instruction form that will explain how to direct the voting of your shares through the intermediary, which may include the ability to provide voting instructions via the Internet or by telephone.
If your shares are held in street name through a brokerage firm that is a member of the NYSE, and you wish to vote on any of the proposals to be submitted to a vote at the meeting, you must indicate how you wish your shares to be voted. The broker will vote shares held by you in street name in accordance with your voting instructions, as indicated on your signed voting instruction form or by the instructions you provide via the Internet or by telephone. Absent such
instructions, the proxy submitted by the broker with respect to your shares will indicate that it is a broker non-vote with respect to those shares. A broker non-vote with respect to each proposal will have the effect set forth under “The Special Meeting—Stockholder Vote Required to Adopt Each Proposal” on page 20. Accordingly, if your shares are held in street name, it is important that you provide voting instructions to the broker or other intermediary as to each proposal so that your vote will be counted.
If you hold shares in street name and wish to vote your shares in person at the meeting, you must first obtain a valid legal proxy from the intermediary. To attend the meeting in person (regardless of whether you intend to vote your shares in person at the meeting), you must obtain an admission ticket in advance of the meeting by following the instructions under “The Special MeetingAttending the Special Meeting in Person” beginning on page 22.
If you received more than one voting instruction form, your shares are likely held in different names or with different addresses or in multiple accounts. You must separately follow the foregoing voting procedures for each voting instruction form that you receive in order for all of your shares to be voted at the special meeting.
The Internet and telephone voting facilities for shares held in street name will close at 11:59 p.m., Eastern time, on [           ], 2014.
Shares Held Through Certain Plans
401(k) Plan
The 401(k) plan is the successor plan to:
  • the Potomac Electric Power Company Savings Plan for Bargaining Unit Employees;
  • the Potomac Electric Power Company Retirement Savings Plan for Management Employees (which itself is the successor to the Potomac Electric Power Company Savings Plan for Non-Exempt, Non-Bargaining Unit Employees), and which was formerly known as the Potomac Electric Power Company Savings Plan for Exempt Employees;
  • the Conectiv Savings and Investment Plan and the Conectiv PAYSOP/ESOP; and
  • the Atlantic Electric 401(k) Savings and Investment Plan-B.
You may direct the voting of the number of shares of our common stock allocated to your 401(k) plan account, which is printed on the enclosed voting instruction form, in accordance with the directions provided. By completing, dating, signing and returning the voting instruction form or transmitting voting

instructions via the Internet or by telephone, you will be providing the plan trustee with instructions on how to vote the shares of our common stock allocated to your 401(k) plan account.
If you do not provide voting instructions for these plan shares on a matter, the 401(k) plan trustee will vote these shares on that matter in proportion to the voting instructions given by all of the other participants in the 401(k) plan. You will not be able to vote these plan shares in person at the meeting without a legal proxy from the 401(k) plan trustee.
The Internet and telephone voting facilities for participants in the 401(k) plan will close at 11:59 p.m., Eastern time, on [           ], 2014.
DRP
We maintain the DRP, which permits participants to automatically reinvest cash dividends that we pay on our common stock in additional shares of our
common stock, and to make supplemental cash purchases of our common stock. For purposes of voting shares at the meeting, shares held through the DRP (other than shares allocated to your 401(k) plan account) will be treated as shares that are registered in your name, and will be voted in accordance with your completed, signed and dated proxy card or in accordance with your Internet or telephone voting instructions.
If you own shares in the DRP and return a signed proxy card or grant a proxy via the Internet or by telephone, but do not indicate how you wish your shares to be voted as to a particular matter, your shares will be voted “FOR” that matter, except that shares allocated to a participant in the 401(k) plan through the DRP will be voted as set forth above under “401(k) Plan.”
The Internet and telephone voting facilities for participants in the DRP will close at 5:00 p.m., Eastern time, on [           ], 2014.
Revocation of Proxies
 
If you own shares registered in your own name or through the DRP, and with respect to shares allocated to your 401(k) plan account, you may revoke any prior proxy or voting instructions, regardless of how your proxy or voting instructions were originally submitted, by:
  • sending a written statement to that effect to our Corporate Secretary, which we must receive before the meeting;
  • submitting a properly signed proxy card or voting instruction form dated a later date;
  • submitting a later dated proxy or providing new voting instructions via the Internet or by telephone; or
  • attending the meeting in person and voting your shares.
If you hold shares in street name, you should follow the instructions provided on your voting instruction form or contact the intermediary for instructions on how to change your vote.
Attending the Special Meeting in Person
 
Admission Procedures
If you plan to attend the meeting in person, you must have an admission ticket, along with a valid, government-issued photo identification, such as a driver’s license, that matches your name on the admission ticket, prior to the start of the meeting. We reserve the right to deny admission to any person who does not bring both a valid admission ticket and photo identification, with matching names.
Attendees will not be permitted to bring food or beverages, cameras, camera phones, cell phones, recording equipment, electronic devices, computers, large bags, briefcases, weapons (including any item we may deem to be a weapon in our sole discretion) or packages into the meeting. If you bring any of these prohibited items to the meeting, you will be required to leave them outside the meeting room
until the meeting has concluded. Furthermore, no weapons are permitted anywhere on our property, including in your vehicle if it is parked on our property.
To ensure the safety and security of all persons, attendees will be required to pass through a security screening device prior to entering the meeting.
Under our bylaws, our Board or the chairman of the meeting may impose additional reasonable restrictions on the conduct of the meeting and the ability of individuals to attend the meeting in person. These procedures are designed to ensure the safety and security of all attendees at the meeting.
Admission Tickets
Registered holders, holders of shares through the DRP, persons whose shares are held in “street name” through an intermediary, and persons who have

shares allocated to them in their 401(k) plan account, each as of the record date, or their legal proxies, are the only persons eligible to receive admission tickets.
Please note that seating is limited. Requests for admission tickets will be accepted on a first-come, first-served basis. These requests will be processed in the order in which they are received and must be received at our principal executive offices no later than [           ], 2014.
For the address of our principal executive offices, see “Parties to the Merger—PHI” on page 17.
Registered Holders
If your shares are registered in your name or are held through the DRP or through the allocation of shares to your 401(k) plan account, your admission ticket is attached to your proxy card or 401(k) plan voting instruction form.
The original admission ticket attached to your proxy card must be presented. Photocopies of this ticket will not be accepted. If you lose your admission ticket, please contact our transfer agent, American Stock Transfer & Trust Company, to request a replacement. For further information on how to contact our transfer agent, see “Householding of Proxy Materials” on page 88 of this proxy statement.
Holders of Shares in “Street Name” and Legal Proxies
If you hold your shares in street name or you hold a valid legal proxy and you plan to attend the meeting in person, you must send us a written request for an admission ticket. Please include the following information with your request:
  • A signed cover letter stating:
  • your name and complete mailing address, including daytime and evening telephone numbers;
  • that you are requesting an admission ticket;
  • the number of shares that you own in street name or that are the subject of the legal proxy; and
  • the name, address and telephone number of the intermediary, or the stockholder who gave the legal proxy, if applicable.
  • An originally signed letter from the bank, broker or intermediary holding your shares (or, in the case of a legal proxy, the shares owned by the stockholder who gave the legal proxy) verifying your beneficial ownership of common stock as of the record date. A copy or printout of a brokerage statement (including any statement retrieved through the Internet) WILL NOT be sufficient without an originally signed letter from your bank, broker or other intermediary.
  • If you are a holder of a valid legal proxy, a copy of the proxy, which must be properly executed, notarized and dated.
  • A copy of your valid, government-issued photo identification.
Solicitation Costs
 
We will bear the costs of solicitation of proxies, including the reimbursement of banks and brokers for certain costs incurred in forwarding proxy materials to beneficial owners. We have engaged AST Phoenix Advisors to assist in the solicitation of proxies for the special meeting. We will pay AST Phoenix Advisors an estimated fee of $12,500 plus all reasonable, out-of-pocket expenses for these solicitation services. We have also agreed to indemnify AST Phoenix Advisors and its stockholders, officers, directors, employees, agents and affiliates, against certain direct claims, costs, damages, liabilities, judgments and expenses, including the reasonable and customary fees, costs and expenses of its legal counsel.
In addition to the use of the mails, our officers, directors and employees may solicit proxies personally, by telephone or facsimile or via the Internet. These individuals will not receive any additional compensation for these activities.
Arrangements may also be made with intermediaries to forward solicitation materials to the beneficial owners of shares held of record by such persons, and we will reimburse intermediaries for reasonable out-of-pocket expenses incurred by them in connection therewith. The extent to which these proxy-soliciting efforts will be necessary depends upon how promptly proxies are submitted.

Postponement or Adjournment
 
In the event that a quorum is not present at the time the special meeting is to be convened, we may postpone the special meeting without a vote of the stockholders.
Although it is not currently expected, if we convene the special meeting, and there are not sufficient votes to adopt the Merger Agreement, we may adjourn the special meeting for the purpose of soliciting additional proxies. If the special meeting is adjourned for the purpose of soliciting additional proxies, stockholders who have already submitted their proxies may revoke
them at any time prior to their use. See “Adjournment of the Special Meeting” on page 81.
If we adjourn or postpone the special meeting and such adjournment or postponement is for more than 30 days or, if after the adjournment or postponement, a new record date is fixed for the adjourned or postponed meeting, notice of the adjourned or postponed meeting will be given to each stockholder of record entitled to vote at the meeting in accordance with our bylaws.
Stockholder List
 
A list of our stockholders entitled to vote at the special meeting will be available for examination by any of our stockholders at the special meeting. At least ten days prior to the date of the special meeting for any purpose germane to the meeting, this stockholder list
will be available for inspection by our stockholders, subject to compliance with the applicable provisions of Delaware law, during ordinary business hours at our corporate offices located at 701 Ninth Street, N.W., Washington, D.C. 20068.
Exchange of Stock Certificates
 
Our stockholders should not send stock certificates with their proxies or voting instructions. If the Merger is consummated, separate transmittal documents for the surrender of stock certificates in exchange for the Per Share Merger Consideration will be mailed to registered holders promptly following the Effective
Time, and in any event within two business days thereafter. PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATES NOW. See “The Merger Agreement—Exchange and Payment Procedures” beginning on page 60 for additional information.
Questions and Additional Information
 
If you have more questions about the Merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or
voting instructions, please call our proxy solicitor, AST Phoenix Advisors, toll-free at (877) 732-3621. Intermediaries may call collect at (212) 493-3910.

THE MERGER
This discussion of the Merger is qualified in its entirety by reference to the Merger Agreement, which is attached to this proxy statement as Annex A. You should read the entire Merger Agreement carefully as it is the legal document that governs the Merger.
The Merger Agreement provides that, upon satisfaction or waiver of the conditions to the Merger, Merger Sub will merge with and into PHI. PHI will be the Surviving Corporation in the Merger. You will not own any shares of the capital stock of the Surviving Corporation in the Merger.
Merger Consideration
 
In the Merger, each outstanding share of our common stock (other than shares owned by Exelon, Merger Sub and us or any of their or our other direct or indirect, wholly-owned subsidiaries (in each case not held on behalf of third parties, but not including shares held by us in any “rabbi trust” or similar arrangement in respect of any compensation plan or arrangement)
and shares owned by stockholders who have perfected and not withdrawn a demand for, or lost their right to, appraisal with respect to such shares, which we refer to collectively as Excluded Shares) will be converted into the right to receive an amount in cash equal to $27.25 per share, without interest and less any applicable withholding taxes.
Background of the Merger
 
The Board and senior management of PHI regularly review and assess PHI’s long-term business plan and strategic alternatives available to PHI to enhance stockholder value, including potential business combination transactions. Lazard has participated and provided advice to the Board in connection with certain of these planning and review processes.
On January 27, 2014, PHI reported that its Chairman, President and Chief Executive Officer, Joseph M. Rigby, announced plans to step down from his position as President and Chief Executive Officer of PHI at the end of 2014 following the selection of his successor. PHI also announced that it would be conducting a search for a new chief executive officer. Mr. Rigby would continue to be employed by PHI through May 1, 2015 and would continue to serve as Executive Chairman through the date of PHI’s 2015 annual stockholders meeting.
On January 28, 2014, Christopher M. Crane, the President and Chief Executive Officer of Exelon, called Mr. Rigby and expressed Exelon’s interest in acquiring PHI in a cash transaction and asked Mr. Rigby to have dinner with him so that they could discuss the matter further. Mr. Rigby informed certain members of the Board and senior management of PHI of his conversation with Mr. Crane.
On February 4, 2014, Mr. Rigby received a call from the President and Chief Executive Officer of a company we will refer to as Bidder A, indicating that he wanted to have a discussion with Mr. Rigby about a possible transaction. On February 5 and February 9,
2014, Mr. Rigby informed certain members of senior management and certain members of the Board of his conversation with the Chief Executive Officer of Bidder A.
On the evening of February 5, 2014, Mr. Rigby had dinner with Mr. Crane. During dinner, Mr. Crane indicated Exelon’s interest in acquiring PHI. Mr. Crane discussed the economics of an all-cash transaction at a price of approximately $22.00 per share and the implied premiums to the then current market price of PHI’s stock and the average price of PHI’s stock over the last five years. Following the dinner, Mr. Rigby informed certain members of the Board and senior management of his conversation with Mr. Crane.
On February 7, 2014, certain members of senior management of PHI discussed the approaches from Exelon and Bidder A with representatives of Lazard and asked Lazard to prepare a preliminary financial analysis of PHI on a standalone basis. As noted previously, the Board and senior management had consulted with Lazard from time to time in the ordinary course and in connection with PHI’s annual review of its long-term strategic plan.
On February 14, 2014, Mr. Rigby had a telephone conversation with Mr. Crane as a follow-up to their conversation on February 5. Also on February 14, Mr. Rigby received another call from the Chief Executive Officer of Bidder A regarding Bidder A’s interest in acquiring PHI. Mr. Rigby informed certain members of the Board and senior management of his conversations.

On February 20, 2014, Mr. Rigby had a call with the Board that was also attended by certain members of senior management. Mr. Rigby discussed with the Board the inquiries made by each of Exelon and Bidder A, indicating that at the regular Board meeting scheduled for the following week PHI would invite outside financial and legal advisors to attend the meeting to discuss the inquiries received, possible responses and other alternatives available to PHI. After a discussion, the Board determined that Mr. Rigby should inform each of Exelon and Bidder A that their inquiries would be discussed by the Board. On February 20 and 21, 2014, Mr. Rigby contacted Mr. Crane and the Chief Executive Officer of Bidder A, respectively, to so inform them. Each of Mr. Crane and the Chief Executive Officer of Bidder A during such conversations indicated an interest in commencing a due diligence investigation of PHI.
On February 26, 2014, the Board held a meeting that was also attended by certain members of senior management and representatives of Lazard and Sullivan & Cromwell LLP, special counsel to PHI, which we refer to as Sullivan & Cromwell. A representative of Lazard reviewed with the Board various preliminary financial analyses with respect to PHI, including management’s long-term strategic plan that had been discussed with the Board in September 2013, preliminary valuation analyses and sensitivities related to the foregoing. A representative of Lazard also discussed with the Board various options potentially available to PHI, including continuing to pursue its long-term business plan or pursuing a strategic transaction, companies that potentially could be interested in acquiring PHI, including financial counterparties (including private equity funds, infrastructure funds and pension funds), potential companies for PHI to consider acquiring, and possible paths for pursuing these options. A representative of Sullivan & Cromwell reviewed with the Board the directors’ fiduciary duties under Delaware law in connection with considering the various options available to PHI, the importance of confidentiality and, if PHI were to pursue a strategic transaction, the regulatory approval process and the potential risks related thereto.
On February 27, 2014, the Board held a meeting that was also attended by certain members of senior management and representatives of Lazard and Sullivan & Cromwell. The Board continued to discuss the various options available to PHI, PHI’s long-term strategic plan and potential risks in connection with the achievement of that plan, potential counterparties and potential risks with respect to the regulatory approval process if PHI were to decide to pursue a strategic transaction. After discussion, the Board determined that the inquiries from Exelon and Bidder A made further investigation of a strategic transaction advisable. The Board directed management and its advisors to contact six additional
potential strategic counterparties from the list that had been identified by Lazard and discussed with the Board (in addition to Exelon and Bidder A), each of which was a utility holding company, enter into non-disclosure agreements with each of those eight potential counterparties that were interested in doing so (referred to as the counterparties), provide limited due diligence information to each of them and ask each interested counterparty for an indication of their interest prior to the next Board meeting, so that the Board could determine, based on the indications, including price and commitment to obtaining regulatory approvals, whether to continue considering pursuit of a possible strategic transaction. The Board determined, based on the view of Lazard and discussions at the meeting, that the eight counterparties included the parties with the greatest likelihood to have the financial resources and strategic intent to acquire PHI. This aspect of the process is referred to as Phase I.
Between February 28, 2014 and March 4, 2014, Mr. Rigby contacted the chief executive officer and, at the direction of PHI, Lazard also contacted the chief executive officer or other senior officers, of each of the potential counterparties and informed each of them (i) that the Board had decided to explore pursuing potential strategic options, (ii) that in Phase I of this process it would permit each interested counterparty to conduct a limited, confidential due diligence review of PHI, (iii) of the timetable for Phase I, and (iv) that key issues for the counterparties to address would be price and potential regulatory risks and closing certainty in respect of any proposed transaction.
On March 6, 2014, one of the potential counterparties indicated it was not interested in participating in Phase I. On March 7, 2014, Bidder A indicated it was no longer interested in pursuing an acquisition of PHI. On March 7, 2014, a company we will refer to as Bidder B and Exelon each entered into non-disclosure agreements with PHI. On March 10, 2014, a company we will refer to as Bidder C entered into a non-disclosure agreement with PHI. On March 11, 2014, a company we will refer to as Bidder D entered into a non-disclosure agreement with PHI. On March 14, 2014, a company we will refer to as Bidder E entered into a non-disclosure agreement with PHI. On March 24, 2014, one of the potential counterparties indicated it was not interested in participating in Phase I. Each of the non-disclosure agreements entered into by PHI included a “don’t ask, don’t waive” standstill provision that prohibited the potential counterparty from making a proposal for PHI unless PHI asks for such proposal and prohibited such counterparty from asking PHI for a waiver of such provision.
Between March 13, 2014 and March 24, 2014, management of PHI provided each of Exelon and Bidders B, C, D and E with limited due diligence and

non-public financial information regarding PHI, which included participating in due diligence calls with representatives and outside advisors of each of Exelon and Bidders B, C, D and E.
On March 17, 2014, the Finance Committee of the Board held a meeting that was also attended by certain members of senior management. At the meeting, management of PHI updated the members of the Finance Committee as to the status of Phase I, including the fact that PHI had entered into a non-disclosure agreement with each of Exelon and Bidders B, C, D and E, the status of due diligence materials provided to each of the various counterparties and the description of due diligence calls held with each of the various counterparties. Senior management and PHI’s advisors stated that they would regularly update the Finance Committee on the status of Phase I.
On March 27, 2014, PHI received indications of interest from Exelon and each of Bidders B, C, D and E. The indication of interest from Exelon provided for an acquisition of PHI in an all cash transaction for $24.00 per share; the indication of interest from Bidder D provided for an acquisition of PHI in an all cash transaction for $26.00 per share; the indication of interest from Bidder E provided for an acquisition of PHI in a cash and stock transaction (with stock representing 50% to 75% of the consideration) amounting in the aggregate to a nominal value of $24.00 per share; and the indication of interests from Bidders B and C were each at nominal values lower than $24.00 per share.
On March 29, 2014, certain members of senior management of PHI and representatives of Lazard and Sullivan & Cromwell met to review the indications of interest received from each of Exelon and Bidders B, C, D and E and held calls with each of such counterparties to clarify and ask questions with respect to the indication of interest submitted by each counterparty.
On April 1, 2014, the Finance Committee of the Board held a meeting that was also attended by certain members of senior management and representatives of Lazard and Sullivan & Cromwell. Senior management reviewed with the Finance Committee PHI’s updated long-term base case plan and regulatory upside case, which upside case assumed, among other things (as discussed in “—Forecasted Financial Information” beginning on page 46), 12-month forward reliability capital expenditures in the rate base in each of PHI’s relevant jurisdictions. The Finance Committee discussed changes to both plans since September 2013 and potential risks and benefits contained in such plans. Senior management also discussed with the Finance Committee the potential negative financial impact on the base case plan if PHI were to enter into a merger agreement and be prohibited or limited in its ability to make rate case
filings for approximately 18 months while a transaction was pending. Representatives of Lazard also reviewed the Phase I process, including the indications of interest that had been received and the calls with each of the counterparties to review and clarify their indications of interest, and discussed each of the potential counterparties with the Finance Committee. The Finance Committee discussed with senior management and PHI’s advisors potential next steps, potential timing and risks to completion of a transaction, including potential mitigation strategies, if PHI were to enter into a transaction. The Finance Committee also discussed with representatives of Sullivan & Cromwell the existence of any potential conflicts of interest of management or PHI’s outside advisors and the merits of the Board retaining a separate financial advisor to advise the Board and to provide a review of the sale process being conducted by PHI as well as the value of PHI.
On April 3, 2014, the Board held a meeting that was also attended by certain members of senior management and representatives of Lazard and Sullivan & Cromwell. Representatives of Lazard reviewed the Phase I process, including the five indications of interest received and the various mixes of consideration offered in connection with each indication of interest. Representatives of Lazard discussed the various potential counterparties with the Board, including certain operating and regulatory issues facing Bidder E and the potential impact that such issues could have on the stock component of its proposal. A representative of Lazard reviewed with the Board its preliminary valuation of PHI on a standalone basis, its preliminary analysis of the indications of interest received and noted that in its view, the universe of potential buyers contacted included the parties with the greatest likelihood to have the financial resources and strategic intent to acquire PHI. Members of senior management reviewed the updated base case and regulatory upside case projections that were provided to the Finance Committee on April 1, 2014 and discussed the material differences between the two. A representative of Sullivan & Cromwell reviewed with the Board the directors’ fiduciary duties under Delaware law. Members of senior management discussed with the Board certain regulatory considerations in connection with any merger transaction, including the regulatory approval process, potential risks related to the inability to complete a merger transaction and possible steps that could be taken to mitigate such risks, the likelihood that PHI would be unable to file new rate cases while a merger transaction was pending, the potential financial impact on PHI of up to an 18 month hiatus in new rate case filings and recent conditions imposed in other merger transactions by the regulators in jurisdictions relevant to PHI. The Board also discussed the potential retention by the Board of a separate financial advisor to review the sale process being undertaken by PHI,

conduct a financial valuation of PHI independent of the valuation being conducted by Lazard and render a fairness opinion independent of the opinion that Lazard might be asked to provide. After discussion, the Board determined, based on the indications of interest received and the discussions with the counterparties regarding their indications of interest, to continue discussions with Exelon and Bidder D to determine if PHI could reach an agreement with either of such parties, at a price and on terms, including with respect to closing certainty and regulatory commitments, that the Board believed would achieve the best value reasonably available for PHI’s stockholders in a transaction that would be likely to close. We refer to this aspect of the process as Phase II. The Board also determined that the Finance Committee should receive regular updates on the status of Phase II from senior management and PHI’s advisors. Following this meeting, Exelon and Bidder D were invited to participate in Phase II and Bidders B, C and E were informed that they were not being invited to participate in Phase II.
Following the April 3, 2014 Board meeting and at the request of the Board, senior management of PHI and PHI’s Lead Independent Director had discussions with Morgan Stanley regarding the potential retention by the Board of Morgan Stanley as a financial advisor, with Morgan Stanley having confirmed their availability to be so retained. On April 10, 2014, PHI received information from Morgan Stanley in response to questions posed by PHI as to any potential conflicts that would exist if Morgan Stanley were engaged by the Board as its financial advisor. On April 12, 2014, and following review of Morgan Stanley’s prior relationships and notification by Morgan Stanley to PHI that there were no conflicts, Morgan Stanley executed an engagement letter with the Board. PHI had a due diligence call with Morgan Stanley on April 16, 2014.
On April 9, 2014, representatives of PHI and a representative of Sullivan & Cromwell met with representatives of Bidder D and a representative of outside counsel to Bidder D to discuss regulatory approval matters, including the nature of the potential regulatory commitments that Bidder D might be expected to make in order to secure the necessary regulatory approvals in the event of a transaction between PHI and Bidder D and the process for seeking and obtaining those approvals.
On April 10, 2014, the Finance Committee of the Board held a meeting that was also attended by certain other members of the Board, certain members of senior management and representatives of Lazard and Sullivan & Cromwell. The Finance Committee was provided with an update on Phase II, including with respect to the status of a draft Merger Agreement, the status of the establishment of an electronic data room, the status of discussions with Morgan Stanley
regarding its possible retention as a financial advisor to the Board, the discussions with counterparties who were not invited to proceed in Phase II, the status of PHI’s consideration of regulatory approval matters, and the results of a meeting on regulatory matters that occurred with Bidder D on April 9, 2014. A representative of Sullivan & Cromwell also discussed with the Finance Committee key terms of a draft of a proposed Merger Agreement that had been prepared by Sullivan & Cromwell and members of senior management of PHI. In particular, Sullivan & Cromwell discussed with the Board a provision in the proposed Merger Agreement providing for a $180 million reverse termination fee which a buyer would pay to PHI if the transaction did not close due to failure to receive regulatory approvals as a way to partially compensate PHI in the event of termination of the Merger Agreement for the inability of PHI to file new rate cases while a merger transaction was pending. Other provisions related to regulatory matters were also discussed. The representative of Sullivan & Cromwell also discussed with the Finance Committee a structure whereby PHI would obtain from the counterparty an up-front cash payment in the amount of the proposed reverse termination fee by requiring the counterparty to purchase Company preferred stock at the time the Merger Agreement was executed.
Later on April 10, 2014, representatives of PHI and a representative of Sullivan & Cromwell met with representatives of Exelon and a representative of Kirkland & Ellis LLP, outside counsel to Exelon, which we refer to as Kirkland & Ellis, to discuss regulatory approval matters, including the nature of the potential regulatory commitments that Exelon might be expected to make in order to secure the necessary regulatory approvals in the event of a transaction between PHI and Exelon and the process for seeking and obtaining those approvals.
On April 11, 2014, an initial draft of the Merger Agreement was provided to Exelon and Bidder D. On April 11, 2014, PHI made available to each of Exelon and Bidder D additional non-public information regarding PHI in an electronic data room. Management of PHI and representatives of Lazard also continued to respond to additional due diligence requests from Exelon and Bidder D.
During the week of April 14, 2014, PHI held management meetings with each of Bidder D and Exelon.
On April 17, 2014, the Finance Committee of the Board held a meeting that was also attended by certain other members of the Board, members of senior management and representatives of Lazard and Sullivan & Cromwell. The Finance Committee was provided with an update on Phase II, including with respect to the management due diligence meetings that took place with each of Exelon and Bidder D, the

fact that the draft Merger Agreement had been provided to the counterparties on April 11, 2014 and that revised drafts of the Merger Agreement were expected from each of Exelon and Bidder D the week of April 20, 2014, the regulatory approval and commitment discussions held with each of Exelon and Bidder D, and possible timing for receiving final proposals from each of Exelon and Bidder D.
On April 18, 2014, representatives of Kirkland & Ellis sent to Sullivan & Cromwell a memo describing Exelon’s most significant issues with respect to the April 11, 2014 Merger Agreement draft provided by PHI, including the amount and timing of the payment of a reverse termination fee, the definition of burdensome condition as it related to the level of regulatory commitments Exelon would be required to agree to with regulators, various deal protection provisions (particularly the terms of the no-shop provision and the amount and conditions for payment by PHI of a break-up fee), PHI’s ability to pay a stub dividend to its stockholders prior to closing, and the length of time during which Exelon would be required to maintain certain levels of employee compensation and benefits after closing a merger transaction. On April 21, 2014, representatives of Sullivan & Cromwell discussed Exelon’s most significant issues with representatives of Kirkland & Ellis. In particular, Sullivan & Cromwell provided guidance that limitations on the reverse termination fee and narrowing the definition of burdensome condition may significantly disadvantage Exelon’s bid.
On April 18, 2014, the Compensation/Human Resources Committee of the Board, or the Compensation Committee, also held a meeting that was also attended by representatives of Sullivan & Cromwell, Covington & Burling, LLP, outside counsel to PHI with respect to compensation matters, which we refer to as Covington & Burling, and Pearl Meyer & Partners, LLC, the independent compensation consultant to the Compensation Committee, which we refer to as PM&P. The Compensation Committee discussed with its advisors its desire to extend the terms of Mr. Rigby’s employment with PHI through the completion of a transaction in the event that PHI entered into a merger agreement with a counterparty. A representative of Sullivan & Cromwell informed the Compensation Committee that each of Exelon and Bidder D had indicated a preference to have Mr. Rigby remain as Chairman, President and Chief Executive Officer of PHI through completion of any merger transaction.
On April 21, 2014, representatives of PHI and Manatt, Phelps & Phillips, LLP, special regulatory counsel to PHI, met with representatives of Exelon and Kirkland & Ellis to discuss strategies for seeking necessary regulatory approvals.
On April 22, 2014, outside counsel to Bidder D sent to representatives of Sullivan & Cromwell comments on the April 11, 2014 Merger Agreement draft provided
by PHI. On April 23, 2014, after discussion with senior management of PHI, Sullivan & Cromwell discussed with outside counsel to Bidder D the significant issues with respect to its revised draft of the Merger Agreement, including the timing, triggers for payment and amount of a reverse termination fee, the definition of burdensome condition as it relates to the level of regulatory commitments Bidder D would be required to agree to with regulators, deal protection provisions, the definition in the draft of the Merger Agreement of a Company material adverse effect, PHI’s ability to pay a stub dividend to its stockholders prior to closing, and the treatment of employee matters with respect to the period between signing and closing.
On April 23, 2014, Kirkland & Ellis sent representatives of Sullivan & Cromwell comments on the April 11, 2014 draft of the Merger Agreement provided by PHI. The comments reflected discussions had during the call between Sullivan & Cromwell and Kirkland & Ellis on April 21, 2014.
On April 24, 2014, the Finance Committee of the Board held a meeting that was also attended by all of the other members of the Board, certain members of senior management and representatives of Lazard, Morgan Stanley and Sullivan & Cromwell. A representative of Lazard discussed the status of various aspects of Phase II, including the proposed financing plans of each of Exelon and Bidder D and discussions by these potential counterparties regarding the transaction with the credit rating agencies, receipt of a revised draft of the Merger Agreement from each of Exelon and Bidder D, that final proposals were expected to be received on April 25, 2014, and that management and PHI’s advisors would discuss the proposals and endeavor to negotiate terms with the potential counterparties in advance of the Board’s meeting scheduled for April 29, 2014. After discussion, the Finance Committee determined that it would recommend to the Board that the Board meeting to consider the final proposals be held on April 29, 2014, and, based on terms and price, that a Board meeting be scheduled after the close of the market on May 2, 2014 to discuss and decide whether to proceed with a transaction and if so, to vote on a merger agreement with the leading bidder. A representative of Sullivan & Cromwell also reviewed with the directors the process undertaken by the Board in Phase I and Phase II and discussed with the directors certain aspects of the draft Merger Agreement and comments thereto from the counterparties. A representative of Sullivan & Cromwell also discussed with the directors that the non-disclosure agreements that PHI had entered into with each counterparty contained standstills that include “don’t ask, don’t waive” provisions and the effect of such provisions once PHI enters into a merger agreement. After discussion, the directors expressed the view that the “don’t ask, don’t waive”

aspect of the standstill should be waived by PHI with respect to the counterparties who were not invited to participate in Phase II. With respect to Exelon and Bidder D, the Finance Committee and other Board members present determined that such counterparties should be informed that such provision would not be waived, and the provision would be enforced, with respect to the party that is not successful, so as to enable PHI to obtain each party’s best price and terms as part of Phase II.
On April 24, 2014, the Board held a meeting that was also attended by certain members of senior management and a representative of Sullivan & Cromwell. A representative of Sullivan & Cromwell discussed with the Board the application of Delaware law with respect to evaluating the offers to be received, the duty of directors to consider both price and closing risks associated with any proposal and the complexities that can arise in such analysis based on contract terms and other differences between potential counterparties.
On April 24, 2014, the Compensation Committee also held a meeting that was attended by representatives of Sullivan & Cromwell, Covington & Burling and PM&P. The Compensation Committee discussed the possible extension of Mr. Rigby’s employment agreement for a period of up to two years if PHI were to enter into a merger agreement, possible terms of such an extension agreement, discussions with Mr. Rigby regarding the terms thereof and the desire of each of Exelon and Bidder D to have Mr. Rigby remain as President and Chief Executive Officer of PHI while a merger transaction is pending. The Compensation Committee determined to continue discussions regarding such possible extension and obtain additional information regarding the amounts that would be payable in connection therewith.
After the April 24, 2014 discussions between PHI’s directors, senior management and advisors at the Board meeting, at PHI’s direction, Lazard informed Exelon that based on the price offered in its initial indication of interest and Exelon’s comments on the draft Merger Agreement received on April 23, 2014, Exelon’s proposal was less attractive on price and transaction terms, and that Exelon should take these matters into consideration when submitting its final proposal on April 25, 2014. At PHI’s direction, Lazard also advised each of Exelon and Bidder D that the bids submitted on April 25, 2014 should represent their respective best and final offers and that each of them should not assume it would have an opportunity thereafter to improve their offers.
On April 25, 2014, PHI received final proposals to acquire PHI from each of Exelon and Bidder D, including revised drafts of the Merger Agreement. Exelon proposed to pay $27.00 per share in cash and Bidder D proposed to pay $26.50 per share in cash.
From April 26, 2014 through April 28, 2014, based on guidance received from the Board and members of
senior management, representatives of Sullivan & Cromwell negotiated, and exchanged multiple revised drafts of the Merger Agreement with outside counsel for each of Exelon and Bidder D to address the significant issues raised by them, as discussed above. During this exchange, the parties focused on the definition of burdensome condition, the timing of the preferred stock investment to fund the reverse termination fee, the amount of the termination fee and the circumstances under which the termination fee would be payable.
On April 27, 2014, the Board held a meeting that was also attended by certain members of senior management and representatives of Lazard, Morgan Stanley and Sullivan & Cromwell. Mr. Rigby updated the Board with respect to the process since the April 24, 2014 Board meeting, including the proposals submitted on April 25, 2014 by Exelon of $27.00 per share in cash and by Bidder D of $26.50 per share in cash. Mr. Rigby also discussed with the Board an April 26, 2014 meeting among certain members of senior management of PHI and PHI’s outside legal and financial advisors during which different possible approaches had been discussed to seek to take advantage of the significant competition between Exelon and Bidder D to permit PHI to obtain the best possible price and the greatest transaction certainty. He advised the Board that during this meeting senior management and the outside advisors agreed with a proposed strategy of accelerating the process to reach final agreement with Exelon, as the bidder presenting both the highest price and best proposed contractual terms at the time, and given the risk to the process from public disclosure or speculation regarding a potential transaction, but continuing to negotiate strongly for the best possible contractual protections around transaction certainty from both bidders and remaining open throughout to the possibility of obtaining higher prices from Exelon and Bidder D. Mr. Rigby also discussed a subsequent telephone conversation on April 26, 2014 with representatives of Morgan Stanley and PHI’s Lead Independent Director with respect to the foregoing strategy in which they agreed with the strategy. Mr. Rigby also described negotiations between representatives of Sullivan & Cromwell and counsel to each of Exelon and Bidder D on the draft of the Merger Agreement and the progress that had been made with respect to the significant issues discussed above. Mr. Rigby noted that based on these discussions, he spoke to Mr. Crane on April 26, 2014 to indicate PHI’s potential desire to accelerate the timetable for entering into the Merger Agreement to following the close of business on April 29, 2014.
A representative of Sullivan & Cromwell discussed the status of negotiations with respect to the Merger Agreement with Exelon. The representative of Sullivan & Cromwell noted that Exelon had agreed generally to accept the material features of PHI’s position on

significant items, including the formulation of the definitions of burdensome condition and Company material adverse effect proposed by PHI on April 26, 2014, and agreeing that PHI could pay a stub dividend to PHI’s common stockholders prior to closing. The representative of Sullivan & Cromwell also reported that agreement had been reached with Exelon on various deal protection provisions and on the amount and terms of the reverse break-up fee (whereby Exelon would agree to purchase $90 million of PHI’s preferred stock upon execution of the Merger Agreement, and would agree to purchase $18 million of preferred stock every 90 days thereafter up to an aggregate of $180 million). The representative of Sullivan & Cromwell also discussed the negotiations with respect to the Merger Agreement with Bidder D, including that Bidder D was still considering PHI’s proposed definition of burdensome condition (which Bidder D generally agreed to on April 28, 2014) and was resisting various aspects of the exceptions to the definition of a Company material adverse effect, but that Bidder D had agreed to purchase $180 million of PHI’s preferred stock upon the signing of the Merger Agreement to fund the reverse termination fee and had agreed that PHI could pay a stub dividend to its common stockholders prior to closing.
After discussion, the Board determined that, given the status of the Merger Agreement discussions, the limited number of open issues, and the advice from senior management and PHI’s advisors, it would be beneficial to PHI for the transaction and confidentiality reasons discussed above to seek to accelerate the timing of entering into a merger agreement. The Board also determined that senior management and PHI’s advisors should proceed on such accelerated basis understanding that facts and circumstances could change such that the Board might not be in a position to make a decision on April 29, 2014. There was discussion of the possibility of accelerating the timing for reaching final agreement with both Exelon and Bidder D, but after a thorough discussion with senior management and its advisors that alternative was viewed as impractical to achieve with respect to both Exelon and Bidder D simultaneously. The Board concurred with senior management and PHI’s advisors, and determined that if Bidder D ended up having the more attractive proposal, PHI would defer final action on that proposal until May 2, 2014.
On April 28, 2014, the Chief Executive Officer of Bidder D called Mr. Rigby and asked what level of price increase was necessary for Bidder D to be the highest bidder. In response, Mr. Rigby asked for Bidder D’s best and final price, and in response, Bidder D raised its bid to $27.00 per share in cash. Following that call, on April 28, 2014, Mr. Rigby
informed Mr. Crane that Bidder D had raised its bid and asked Mr. Crane for Exelon’s best and final price. In response, Exelon raised its bid to $27.25 per share in cash.
During the morning of April 29, 2014, the Board held a meeting attended by certain members of senior management and representatives of Lazard, Morgan Stanley and Sullivan & Cromwell. Mr. Rigby updated the Board with respect to the increased bids made by each of Exelon and Bidder D. Mr. Rigby noted that each such counterparty had indicated to Mr. Rigby that its increased bid was its best and final offer on price, and that based on the higher price being offered by Exelon and the other terms in the Merger Agreement draft that Exelon had agreed to, that the purpose of the meeting was for the Board to discuss and consider a proposed transaction with Exelon. Representatives of Sullivan & Cromwell reviewed with the Board the directors’ fiduciary duties under Delaware law, the process followed by the Board in connection with considering the transaction and the terms of the draft Merger Agreement with Exelon. A representative of Lazard reviewed with the Board PHI’s standalone management plan and discussed the firm’s valuation analysis of PHI based on such plan as compared to the prices being offered by Exelon and Bidder D, including that the top end of the discounted cash flow analysis with respect to the management base case was below the prices being offered by each of Exelon and Bidder D. A representative of Morgan Stanley reviewed with the Board the sale process PHI had followed and Morgan Stanley’s valuation analysis with respect to PHI, including the premium and multiple to be received in the Merger. Members of senior management reviewed with the Board the anticipated regulatory approval process, the regulatory commitments agreed to by Exelon and the due diligence that senior management had performed on Exelon and Bidder D, including with respect to regulatory relationships, reliability, operating track records and employee matters. Mr. Crane and certain other members of senior management of Exelon then joined the Board meeting. Mr. Crane addressed the Board, including as to Exelon’s regulatory commitments in connection with the Merger.
On April 29, 2014, the Compensation Committee also held a meeting that was attended by representatives of Sullivan & Cromwell, Covington & Burling and PM&P. The Compensation Committee reviewed and discussed the terms of the proposed extension of Mr. Rigby’s employment agreement and approved, subject to PHI entering into the Merger Agreement, the amendment of Mr. Rigby’s employment agreement on such terms, which would, among other things, extend the term of his employment for an additional period of up to two years.

In the afternoon of April 29, 2014, the Board held a meeting attended by certain members of senior management and representatives of Lazard, Morgan Stanley and Sullivan & Cromwell. Representatives of Sullivan & Cromwell summarized the negotiations that had taken place since the meeting earlier in the day and presented the final Merger Agreement, including the certificate of designation and subscription agreement for the Series A preferred stock, which Exelon would purchase in order to fund the reverse termination fee. Lazard delivered its oral opinion to the Board (which was subsequently confirmed by delivery of a written opinion dated April 29, 2014), to the effect that, as of April 29, 2014, and based upon and subject to the assumptions, procedures, factors, qualifications and limitations set forth in its opinion, the Merger consideration of $27.25 in cash per share of outstanding Company common stock to be paid to holders of such Company common stock (other than excluded shares) in the Merger was fair, from a financial point of view, to such holders. Morgan Stanley delivered its oral opinion to the Board (which was subsequently confirmed by delivery of a written opinion dated April 29, 2014), to the effect that, as of April 29, 2014, based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley as set forth in its opinion, the Merger consideration to be received by holders of shares of Company common stock (other than excluded shares) pursuant to the Merger Agreement was fair from a financial point of view to such holders. Thereafter, the Board
unanimously determined that the Merger is fair to and in the best interests of PHI and its stockholders and approved and declared advisable the Merger Agreement, the Merger and the other transactions contemplated thereby, and resolved that the Merger Agreement be submitted for consideration by the holders of PHI’s common stock at a special meeting of stockholders, and recommended that such stockholders of PHI vote to adopt the Merger Agreement.
PHI then sent letters to each of Bidders B, C and E waiving the “don’t ask, don’t waive” aspect of the standstill provision contained in the non-disclosure agreements between PHI and each of such bidders.
Immediately thereafter, Exelon, PHI and Merger Sub executed the Merger Agreement and the subscription agreement with respect to the Series A preferred stock. On April 30, 2014, PHI and Exelon issued a joint press release announcing the execution of the Merger Agreement prior to the commencement of trading on the NYSE. The Certificate of Designation with respect to the Series A preferred stock was filed by PHI with the Secretary of State of the State of Delaware on April 30, 2014.
On July 18, 2014, PHI, Exelon and Merger Sub entered into the amended and restated Merger Agreement following approval thereof by their respective boards of directors. The amended and restated Merger Agreement did not make any material changes to the terms of the original Merger Agreement.
Reasons for the Merger; Recommendation of Our Board
 
Reasons for the Merger
The Board held six meetings at which the possibility of initiating or executing the exploration of a sales process was discussed. Beginning on February 26, 2014, PHI’s outside legal advisor, Sullivan & Cromwell, and financial advisor, Lazard, participated in portions of the six meetings of the Board at which such subject matter was discussed. On April 12, 2014, the Board also retained Morgan Stanley as an additional financial advisor. The Board met in executive session at each meeting without management and advisors.
At a meeting held on April 29, 2014, the Board unanimously determined that the Merger is advisable and fair to and in the best interests of PHI and its stockholders, approved the Merger Agreement and resolved to recommend that PHI’s stockholders adopt the Merger Agreement. On July 18, 2014, the Board approved amendments to the Merger Agreement and resolved to recommend that PHI’s stockholders adopt the amended and restated Merger Agreement.
The Board believes that PHI’s operating performance was improving and that over time, improved operating performance should improve regulatory outcomes and financial performance. However, the unsolicited inquiries regarding a possible transaction, combined with the announcement of Mr. Rigby’s retirement plans, caused the Board to consider whether a sale transaction might be preferable to the status quo. The results of that exploration led to the Merger Agreement with Exelon and the $27.25 Per Share Merger Consideration, which the Board approved because it believes it compensates stockholders not only for the value of PHI’s current business and results but also for the potential that these results will improve as future regulatory outcomes improve. The Board also believes that the time to execute a sale for cash is advantageous because utility trading multiples are at historic highs due in part to the low interest rate environment and the resulting attractiveness of utility dividend yields. While it is impossible to accurately predict future

interest rates or stock price multiples, the Board believes there likely is more risk of interest rates increasing and utility multiples decreasing than the alternative, suggesting this could be an optimal time to sell PHI for cash.
In addition to the foregoing, the material factors considered by the Board in making these determinations included the following:
  • Their understanding of the business, operations, financial condition, earnings, regulatory position, strategy and prospects of PHI, as well as PHI’s historical and projected financial performance.
  • The $27.25 Per Share Merger Consideration represented approximately a 29.5% premium to the volume-weighted average trading price of PHI’s common stock for the 20 trading day period ending on April 25, 2014, the last full trading day prior to press speculation regarding a possible merger transaction. The premium offered represents approximately $1.6 billion of value to PHI’s stockholders.
  • That the $27.25 Per Share Merger Consideration indicated an implied valuation multiple of 22.7x PHI’s projected earnings per share, or EPS, for fiscal year 2014, as compared to a precedent transaction median multiple of 17.7x EPS for the current fiscal year.
  • The opinions of Lazard and Morgan Stanley, each dated April 29, 2014, that as of such date and based on, and subject to, various assumptions and limitations described in their respective opinions, the $27.25 Per Share Merger Consideration to be received by holders of PHI’s common stock (other than Excluded Shares) was fair, from a financial point of view, to such holders, including the various analyses undertaken by Lazard and Morgan Stanley in connection with their respective opinions, each of which is described below under “The Merger—Opinion of Lazard” and “The Merger—Opinion of Morgan Stanley” beginning on pages 34 and 42, respectively, and particularly the fact that these analyses show that the $27.25 Per Share Merger Consideration was above the range of values that resulted from most of the valuation methodologies employed by these firms.
  • The negotiations that took place between the parties resulted in an increase from Exelon’s initial expression of interest on February 5, 2014 of approximately $22.00 per share to the Per Share Merger Consideration of $27.25.
  • That the Company had conducted a competitive process and that Exelon was the highest bidder in such process.
  • That under the Merger Agreement, PHI is permitted to declare and pay regular quarterly dividends on its common stock of up to $0.27 per share, and that PHI is permitted to pay a pro-rata final dividend based upon the number of days from the record date for the prior full dividend to the closing date of the Merger.
  • The Board’s belief that the all-cash merger consideration will allow PHI’s common stockholders to realize in the near term a fair value, in cash, for their shares, while avoiding medium and long-term market and business risks and the risks associated with realizing current expectations for PHI’s future financial performance.
  • The Board’s belief that the Per Share Merger Consideration compensates PHI’s common stockholders not only for the value of PHI’s current business and results but also for the potential that these results will improve as future regulatory outcomes improve.
  • All of the terms and conditions of the Merger Agreement, including, among other things, the representations, warranties, covenants and agreements of the parties, the conditions to closing of the Merger, the form and structure of the Merger consideration, the termination rights and the right of PHI under certain circumstances upon termination of the Merger Agreement associated with failure to obtain regulatory approvals to redeem the Series A preferred stock for a nominal amount.
  • That while the Merger Agreement contains a covenant prohibiting PHI from soliciting third-party acquisition proposals, the Merger Agreement permits PHI, prior to the time that Company stockholders adopt the Merger Agreement, to discuss and negotiate, under specified circumstances, an unsolicited acquisition proposal should one be made and, if the Board determines in good faith, after consultation with its legal and financial advisors, that the unsolicited acquisition proposal constitutes a superior proposal within the meaning of the Merger Agreement, the Board is permitted, after taking certain steps, to terminate the Merger Agreement in order to enter into a definitive agreement for that superior proposal, subject to payment of a termination fee of $259 million (or $293 million if the superior proposal is made by Bidder D).

  • That the Merger Agreement allows the Board, prior to the time that our stockholders adopt the Merger Agreement, to change or withdraw its recommendation of the Merger Agreement in connection with a superior proposal or if any change, event, or occurrence becomes known to or understood by the Board that the Board determines in good faith, after consultation