-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MiPpadL47N7njRPXzcF1wKjmfOsjdtjiXT3uTtPPNSMHg0hfTeQ+hf1eILtNSVR1 BYGgxUBuIRFgFE8d6EdsBg== 0000898080-01-000051.txt : 20010213 0000898080-01-000051.hdr.sgml : 20010213 ACCESSION NUMBER: 0000898080-01-000051 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010212 ITEM INFORMATION: FILED AS OF DATE: 20010212 FILER: COMPANY DATA: COMPANY CONFORMED NAME: POTOMAC ELECTRIC POWER CO CENTRAL INDEX KEY: 0000079732 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 530127880 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-01072 FILM NUMBER: 1532493 BUSINESS ADDRESS: STREET 1: 1900 PENNSYLVANIA AVE NW STREET 2: C/O JANET PARKER OR LINDA EPPERLY RM 841 CITY: WASHINGTON STATE: DC ZIP: 20068 BUSINESS PHONE: 2028722000 MAIL ADDRESS: STREET 1: 1900 PENNSYLVANIA AVE NW STREET 2: SECRETARY'S OFFICE, ROOM 841 CITY: WASHINGTON STATE: DC ZIP: 20068-0001 8-K 1 0001.txt FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form 8-K CURRENT REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report: February 12, 2001 Date of earliest event reported: February 9, 2001 POTOMAC ELECTRIC POWER COMPANY (Exact name of registrant as specified in its charter) District of Columbia and Virginia (State or other jurisdiction of jurisdiction) 1-1072 (Commission File Number) 53-0127880 (I.R.S. Employer Identification No.) 1900 Pennsylvania Avenue, N. W., Washington, D. C. 20068 (Address of principal executive offices) Registrant's telephone number, including area code (202) 872-2900 (Former Name or Former Address, if Changed Since Last Report) Item 5. Other Events. Merger Agreement With Conectiv Potomac Electric Power Company, a corporation organized under the laws of the District of Columbia and the Commonwealth of Virginia ("Pepco"), Conectiv, a Delaware corporation and New RC, Inc., a Delaware corporation ("HoldCo"), have entered into an Agreement and Plan of Merger, dated as of February 9, 2001 (the "Merger Agreement"), providing for a strategic transaction in which Pepco will effectively acquire Conectiv for a combination of cash and stock (the "Transaction"). The Merger Agreement provides that two wholly owned newly formed subsidiaries of HoldCo will merge with and into Pepco and Conectiv such that Pepco and Conectiv will become wholly owned subsidiaries of HoldCo. The common stockholders of Pepco and Conectiv will together own all of the outstanding shares of common stock of HoldCo, and each share of each other class of capital stock of Pepco and Conectiv will be unaffected and remain outstanding. HoldCo will register with the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935, as amended. In addition, Pepco announced today that it will reduce its annual dividend to $1.00 per share from $1.66 per share, effective with the June 2001 dividend. The March 2001 dividend will remain at its current level. Pepco has also authorized a share repurchase program of up to $450 million and will repurchase its common stock in the open market or in privately negotiated transactions from time to time over the next 12 months. The actual amount of stock repurchased will be determined by management depending on market conditions. The press release, dated February 12, 2001, issued by Pepco and Conectiv is filed as an exhibit to this report. Under the Merger Agreement, Pepco stockholders will receive one share of common stock of HoldCo for each share of Pepco common stock that they hold. Each share of Pepco preferred stock will remain outstanding as Pepco preferred stock after the Transaction. For each share of Conectiv common stock, Conectiv stockholders will be receiving either $25.00 in cash ($21.69 for the Class A common stock) or HoldCo common stock with a market value of $25.00 ($21.69 for the Class A common stock) as long as the average market value of Pepco's common stock for 20 selected trading days in the 30 trading day period immediately prior to the closing of the Transaction is between $19.50 and $24.50. However, if the market value of Pepco's common stock at that time is below $19.50, the number of shares of HoldCo common stock received for each share of Conectiv common stock will be fixed at 1.28205 (1.11227 for the Class A common stock) and if the market value of Pepco's common stock is above $24.50, the number of shares of HoldCo common stock received for each share of Conectiv common stock will be fixed at 1.02041 (.88528 for the Class A common stock). Additionally, 50 percent of the consideration payable to Conectiv stockholders will be paid in cash and 50 percent in HoldCo common stock, giving Conectiv stockholders a right to elect their consideration with an allocation and proration formula in the event either cash or stock is oversubscribed. Fractional shares will still be cashed out. Based on the number of common shares of Pepco and Conectiv currently outstanding on a fully diluted basis, Pepco stockholders will own approximately 67 percent of the common equity of HoldCo, and Conectiv stockholders will own approximately 33 percent. The transaction is expected to be tax-free to the extent that stockholders receive stock for their shares. The Merger Agreement provides that the board of directors of HoldCo will have 12 directors, at least two of whom will come from the current Conectiv board. After the Transaction is completed, it is expected that John M. Derrick, Jr., chairman and chief executive officer of Pepco, will be chairman and chief executive officer of Holdco, and Howard E. Cosgrove, chairman and chief executive officer of Conectiv, will retire. In addition, HoldCo will have its headquarters in Washington, D.C. while Conectiv will maintain its headquarters in Wilmington, Delaware and will continue to have significant operations in New Jersey and the Delmarva Peninsula. The Transaction is not expected to result in significant workforce reductions and all union contracts will be honored. Both parties make representations and warranties regarding, among other things, organization, subsidiaries, capital structure, authority, compliance and permits, reports and financial statements, absence of certain changes, board approval, vote required, takeover statutes, brokers or finders, regulations as a utility, taxes, benefit plans, litigation, environmental matters, insurance, intellectual property, the respective rights plans, and no ownership of capital stock of the other party. Only Conectiv makes representations and warranties regarding commodity derivatives exposure and nuclear operations. Only Pepco makes representations and warranties regarding HoldCo's operations and sufficient funds to pay the consideration. None of the representations, warranties, covenants or other agreements in the Merger Agreement survive the Effective Time, except for those that by their terms are to be performed after the Effective Time. The Transaction is subject to customary closing conditions, including, without limitation, the receipt of required stockholder approvals of Pepco and Conectiv, the receipt of all necessary governmental approvals and the making of all necessary governmental filings. The Transaction is also subject to the receipt of opinions of counsel that the Transaction will qualify for treatment under Section 351 of the Internal Revenue Code of 1986. In addition, the Transaction is conditioned upon the effectiveness of a joint registration statement and proxy statement to be filed by Pepco, Conectiv and HoldCo with the Securities and Exchange Commission with respect to shares of HoldCo common stock to be issued in the Transaction and the stockholder meetings, and upon the approval of HoldCo common stock for listing on the New York Stock Exchange. The meetings of the stockholders of Pepco and Conectiv to vote on the Transaction will be convened as soon as is practicable. The companies anticipate that the transaction will be completed in approximately 12 months. The Merger Agreement contains certain covenants concerning the activities of the parties pending the consummation of the Transaction. Generally, each of Pepco and Conectiv must carry on its business in the ordinary course consistent with past practice, and may not increase dividends on common stock beyond their current annual dividend rate. The Merger Agreement also contains restrictions on both Pepco and Conectiv with respect to the issuance of capital stock, charter and bylaw amendments, acquisitions, incurrence of indebtedness, dispositions, accounting changes, insurance and certain other actions, although in most cases the specific restrictions differ for each of Pepco and Conectiv. In addition, the Merger Agreement provides for restrictions on Conectiv with respect to capital expenditures, rate matters, rights plan amendments and certain increases in employee compensation and benefits. The Merger Agreement may be terminated under certain circumstances, including (1) by mutual consent of Pepco and Conectiv; (2) by either Pepco or Conectiv if the Transaction is not consummated before the 18 month anniversary of the date of the Merger Agreement (provided, however, that such termination date shall be extended for an additional 6 months if any statutory approvals that have not been obtained are being pursued diligently and in good faith); (3) by either Pepco or Conectiv if either Pepco's or Conectiv's stockholders vote against the Transaction or if any state or federal law or court order prohibits the Transaction; (4) by either Pepco or Conectiv if the Board of Directors of the other shall withdraw or adversely modify its recommendation of the Transaction; (5) by a non-breaching party if there exists a breach of any material representation, warranty or covenant contained in the Merger Agreement which is not cured within 30 business days after notice from the other party; or (6) by Conectiv, under certain circumstances, as a result of a third-party tender offer or business combination proposal which the Board of Directors of Conectiv in good faith and pursuant to the exercise of its fiduciary duties determines to accept, after Pepco has first been given an opportunity to make adjustments in the terms of the Merger Agreement so as to enable the Transaction to proceed. In addition, in the event that the market value of Pepco's common stock during the pricing period discussed above is below $16.50, Conectiv may terminate the Merger Agreement, provided that before such termination is effective, Pepco will have the option to increase consideration to be paid to Conectiv stockholders so that they will receive an amount equal to the amount they would receive if the market value of Pepco's common stock is $16.50. If Pepco exercises this option, the Merger Agreement will not be terminated and the Transaction will proceed. The Merger Agreement requires payment of a termination fee of $60 million in cash, by Conectiv to Pepco if (i) the Merger Agreement is terminated as a result of the acceptance by Conectiv of a third-party tender offer or business combination proposal, or (ii) following a failure of the stockholders of Conectiv to approve the Transaction if at the time prior to the meeting of Conectiv's stockholders there shall have been a third-party tender offer or business combination proposal made public and a definitive agreement is entered into with respect thereto (and is subsequently consummated) or such proposal is consummated within 12 months after the termination. Pepco is required to pay to Conectiv a termination fee of $60 million if Pepco's stockholders fail to approve the Transaction and at the time prior to the meeting of Pepco's stockholders there shall have been made public a third-party tender offer or business combination proposal and a definitive agreement is entered into with respect thereto (and is subsequently consummated) or such proposal is consummated within 12 months after the termination. In addition, if either Pepco or Conectiv terminates the Merger Agreement after the Board of Directors of the other party withdraws or adversely modifies its recommendation of the Transaction, a termination fee of $60 million is payable to the party that terminates the Merger Agreement. Except for historical statements and discussions, the statements in this Form 8-K constitute "forward-looking statements" within the meaning of the federal securities laws. These statements contain management's beliefs based on information currently available to management and on various assumptions concerning future events. Forward-looking statements are not a guarantee of future performance or events. They are subject to a number of uncertainties and other factors, many of which are outside the company's control. In connection with the transaction, additional important factors that could cause actual results to differ materially from those in the forward-looking statements herein include risks and uncertainties relating to delays in obtaining or adverse conditions contained in, related regulatory approvals, changes in economic conditions, availability and cost of capital, changes in weather patterns, changes in laws, regulations or regulatory policies, developments in legal or public policy doctrines and other presently unknown or unforeseen factors. These uncertainties and factors could cause actual results to differ materially from such statements. Pepco disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This information is presented solely to provide additional information to further understand the results and prospects of Pepco. Item 7. Financial Statements and Exhibits. (c) Exhibits Exhibit No. Description of Exhibit Reference 99 Press Release of Potomac Electric Power Company and Conectiv dated February 12, 2001 Filed herewith. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Potomac Electric Power Company (Registrant) By /s/ A.W. Williams Andrew W. Williams Senior Vice President and Chief Financial Officer February 12, 2001 DATE EX-99 2 0002.txt PRESS RELEASE [LOGO] PEPCO [LOGO] CONECTIV PEPCO AND CONECTIV TO COMBINE TO CREATE THE LARGEST MID-ATLANTIC ELECTRICITY DELIVERY COMPANY Transaction Valued at $2.2 Billion Washington, D.C. and Wilmington, Delaware, February 12, 2001 - Potomac Electric Power Company ("Pepco") (NYSE: POM) and Conectiv (NYSE: CIV/CIVA) today announced that their boards of directors have approved a definitive merger agreement under which Pepco will acquire Conectiv for a combination of cash and stock valued at approximately $2.2 billion or $25.00 per CIV share. Both companies will become subsidiaries of a new holding company to be named at a later date. The combination is expected to be immediately accretive to Pepco's earnings per share and will be accounted for as a purchase. The companies anticipate that the transaction will be completed in approximately 12 months. The combination creates the largest electricity delivery company in the dynamic mid-Atlantic PJM region, serving more than 1.8 million customers in Delaware, the District of Columbia, Maryland, New Jersey and Virginia. The core delivery business will be complemented by a valuable, well-positioned portfolio of mid-merit generating assets and related marketing and risk management capabilities. These assets, combined with power purchase and regulatory agreements, will provide for the combined company's supply requirements through 2004. In addition, the combined company's growing, non-regulated energy and telecommunications businesses, which are focused on a broad customer base, will further enhance the core business. John M. Derrick, Jr., chairman and chief executive officer of Pepco, said: "This transaction elevates us to the leading position among mid-Atlantic electricity delivery companies. In addition to more than doubling our customer base and expanding our service territory by nine times, this combination will allow us to achieve operating efficiencies that will benefit our shareholders, customers and employees alike. Among other things, our ability to spread new technology costs across a greater asset base will bring a higher level of service, reliability and responsiveness to our customers. Our strategic combination will improve our ability to grow earnings in the changing energy marketplace. "Pepco has had the opportunity to develop a strong working relationship with Conectiv over the years as neighbors, partners and members of PJM. We have complementary business strategies and similar corporate values, and I am confident that the combined company will be able to deliver greater value to all of our constituencies by drawing on the best practices and talent that exist within both of our organizations. We will continue both companies' strong traditions of support for the communities where we live and work through charitable contributions and the encouragement of employee volunteerism," he concluded. -more- Page 2 Howard E. Cosgrove, chairman and chief executive officer of Conectiv, said: "This combination with Pepco provides important benefits to all of our stakeholders that are not achievable on a stand-alone basis. The customers we serve will continue to enjoy excellent, reliable service at competitive rates from the same dedicated people who serve them today. Conectiv shareholders will receive a premium for their shares and have the opportunity to participate in the enhanced earnings and growth potential of the combined company. And our employees will benefit by becoming part of a dynamic company that is poised to play a leading role in the rapidly evolving energy industry." Both Pepco and Conectiv have independently made significant investments to enhance their system reliability, thus helping to ensure that their customers will have the power they need when they need it. Both companies share a commitment to high quality customer service. Management and Headquarters Mr. Derrick will be chairman and chief executive officer of the new holding company. Mr. Cosgrove plans to retire at the completion of the merger. The board of directors of the holding company will have 12 directors, at least two of whom will come from the current Conectiv board. The holding company will have its headquarters in Washington, D.C. Conectiv will maintain its headquarters in Wilmington, Delaware and will continue to have significant operations in New Jersey and the Delmarva Peninsula. This combination is not expected to result in significant workforce reductions and all union contracts will be honored. Terms Pepco stockholders will receive one share of the holding company's common stock on a tax-free basis for each share of Pepco common stock they hold. Conectiv common stockholders will have the option to receive either $25.00 in cash or holding company shares, subject to proration, such that the aggregate consideration paid to all Conectiv stockholders will be 50 percent cash and 50 percent stock. The amount of stock to be issued in the merger is subject to a fixed-price collar for Pepco stock prices between $19.50 and $24.50, such that each Conectiv share would be converted into not less than 1.02041 and not more than 1.28205 shares of the new company. The transaction is expected to be tax-free to the extent that Conectiv stockholders receive stock for their shares. As provided by Conectiv's certificate of incorporation, each holder of Class A stock will receive 86.8 percent of the per share value received by the common stockholders, or $21.69, subject to the same proration and collar provisions as the common stockholders. Based on the number of common shares currently outstanding on a fully diluted basis, Pepco stockholders will own approximately 67 percent of the common equity of the combined company, and Conectiv stockholders will own approximately 33 percent. A significant portion of the acquisition will be financed through cash on hand including proceeds from Pepco's recently completed sale of generating assets, as well as external financing. -more- Page 3 The merger is conditioned upon, among other things, the approvals of Pepco and Conectiv stockholders and various state and federal regulatory agencies. The new holding company will register with the SEC under the Public Utility Holding Company Act of 1935. Dividend Policy and Share Repurchase Pepco announced today that it will reduce its annual dividend to $1.00 per share from $1.66 per share, effective with the June 2001 dividend. This action is being taken to make Pepco's dividend payout ratio comparable to other delivery companies and to provide for continued investment in the growth of the company. The March 2001 dividend will remain at its current level. Pepco has also authorized a share repurchase program of up to $450 million. The new holding company expects to adopt Pepco's new dividend policy; as such, Conectiv stockholders who elect to receive stock can expect a higher dividend than they are currently receiving. Merrill Lynch & Co., Inc. is acting as financial advisor, and LeBoeuf, Lamb, Greene & MacRae, L.L.P. is acting as legal counsel to Pepco. Credit Suisse First Boston Corporation is acting as financial advisor, and Simpson Thacher & Bartlett and Potter Anderson & Corroon LLP are acting as legal counsel to Conectiv. About Pepco Pepco is an investor-owned utility that delivers electricity in Washington, D.C. and its Maryland suburbs to more than 700,000 customers. Through its family of subsidiaries, Pepco also operates in the mid-Atlantic region in the competitive arenas of diversified energy products and services, telecommunications and Internet procurement marketing. In a nationwide customer satisfaction study conducted in 2000 by J.D. Power and Associates and Navigant Consulting, Inc., Pepco ranked highest in Customer Satisfaction with Residential Electric Service in the Eastern region of the United States.* For more information, visit the company's website at www.pepco.com. About Conectiv Conectiv, a Fortune 500 company headquartered in Wilmington, DE, is focused on two core energy businesses. Conectiv Power Delivery provides safe, reliable, and affordable energy service to more than one million customers in New Jersey, Delaware, Maryland, and Virginia. Conectiv Energy uses a sophisticated power-trading unit to optimize the value of a growing portfolio of "mid-merit" power plants that can start and stop quickly in response to changes in the demand for power within the PJM [Pennsylvania-New Jersey-Maryland] power pool. For more information, visit the company's website at www.conectiv.com. *J.D. Power and Associates/Navigant Consulting, Inc., 2000 Electric Utility Residential Customer Satisfaction StudySM. The study was based on a total of 23,969 consumer responses. In the Eastern Region, the top 19 largest electric companies were ranked in the study. www.jdpower.com -more- Page 4 Forward Looking Statements: Except for historical statements and discussions, the statements in this press release constitute "forward-looking statements" within the meaning of the federal securities laws. These statements contain managements' beliefs based on information currently available to them and on various assumptions concerning future events. Forward-looking statements are not a guarantee of future performance or events. They are subject to a number of uncertainties and other factors, many of which are outside the companies' control. In connection with the transaction, additional important factors that could cause actual results to differ materially from those in the forward-looking statements herein include risks and uncertainties relating to delays in obtaining or adverse conditions contained in, related regulatory approvals, changes in economic conditions, availability and cost of capital, changes in weather patterns, changes in laws, regulations or regulatory policies, developments in legal or public policy doctrines and other presently unknown or unforeseen factors. These uncertainties and factors could cause actual results to differ materially from such statements. The companies disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This information is presented solely to provide additional information to further understand the results and prospects of the companies. Additional Information In connection with the proposed merger, Pepco and Conectiv will file a joint proxy statement/prospectus with the Securities and Exchange Commission (the "SEC"). WE URGE INVESTORS TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Investors will be able to obtain a copy of the joint proxy statement/prospectus (when available) and other documents filed by Pepco and Conectiv free of charge at the SEC's web site, http://www.sec.gov or at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, reports, proxy statements and other information concerning Pepco can be inspected at the offices of the New York Stock Exchange, Inc., whose address is 20 Broad Street, New York, NY 10005, where certain securities of Pepco are listed. You can also obtain information about Pepco at the company's website, the address of which is http://www.pepco.com. You can obtain information about Conectiv at the company's website, the address of which is www.conectiv.com. In addition, documents filed by Pepco with the SEC can be obtained by contacting Pepco at the following address and telephone number: Ellen Sheriff Rogers, Associate General Counsel, Secretary and Assistant Treasurer, Potomac Electric Power Company, 1900 Pennsylvania Avenue, N.W., Washington D.C. 20068, telephone (202) 872-2900. Documents filed with the SEC by Conectiv can be obtained by contacting Conectiv at the following address and telephone number: Corporate Secretary, Conectiv, 800 King Street, Wilmington, DE 19899, telephone (302) 429-3114. -more- Page 5 Pepco, its officers, directors and certain other employees of Pepco may be soliciting proxies from Pepco stockholders in favor of the merger and may be deemed to be "participants in the solicitation" under the rules of the SEC. Conectiv, its officers, directors and certain other employees of Conectiv may be soliciting proxies from Conectiv stockholders in favor of the merger and may be deemed to be "participants in the solicitation" under the rules of the SEC. Information regarding the interests of the participants in the solicitation will be set forth in the joint proxy statement/prospectus when it becomes available. Financial Analyst Conference: There will be a financial analyst conference today at 10:00 AM (EST) to discuss the transaction. It can be monitored via the world wide web at www.pepco.com and www.conectiv.com or http://webcast.themeetingson.com/webcast.jsp?reservation=17967394. Media Teleconference: There will be a media teleconference call today at 11:30 AM (EST) to discuss the transaction. It can be accessed by dialing (800) 213-1351, or (212) 676-5001 for international callers, and asking for the Pepco/Conectiv media teleconference. Contacts for Pepco Contacts for Conectiv Investors: Investors: Ernie Bourscheid Bob Marshall (202) 872-2797 (302) 429-3114 ejbourscheid@pepco.com robert.marshall@conectiv.com Media: Media: Nancy Moses Tim Brown (202) 872-2680 (302) 283-5803 nsmoses@pepco.com tim.brown@conectiv.com # # # -----END PRIVACY-ENHANCED MESSAGE-----