<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 26, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CONECTIV, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 4931 51 0377417
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
--------------------------
800 King Street
Wilmington, Delaware 19899
Attn: Barbara S. Graham
(302) 429-3448
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
<TABLE>
<S> <C>
Barbara S. Graham Michael J. Barron
President and Secretary Vice President and Treasurer
Conectiv, Inc. Conectiv, Inc.
800 King Street 6801 Black Horse Pike
Wilmington, Delaware 19899 Egg Harbor Township, NJ 08234-4130
(302) 429-3448 (609) 645-4411
</TABLE>
(Names, Addresses, Including Zip Codes, and Telephone Numbers,
Including Area Codes, of Agents for Service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
Douglas W. Hawes, Esq. James M. Cotter, Esq.
Steven H. Davis, Esq. Vincent Pagano, Jr., Esq.
LeBoeuf, Lamb, Greene & MacRae, L.L.P. Simpson Thacher & Bartlett
125 West 55th Street 425 Lexington Avenue
New York, New York 10019 New York, New York 10017
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective. The
issuance of securities shall occur when all other conditions to the merger of DS
Sub, Inc. (a Delaware corporation and a wholly owned transitory subsidiary of
the Registrant established solely to effectuate such merger) with and into
Delmarva Power & Light Company (the "Delmarva Merger") and the merger of
Atlantic Energy, Inc., a New Jersey corporation, with and into the Registrant
(the "Atlantic Merger" and, together with the Delmarva Merger, the "Mergers")
pursuant to the Agreement and Plan of Merger (the "Merger Agreement") described
in the Joint Proxy Statement/Prospectus forming a part of this Registration
Statement, have been satisfied or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE(2)(3)
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share 100,557,607 shares
Class A Common Stock, par value $.01 per share 6,619,257 shares NOT APPLICABLE NOT APPLICABLE $653,004.84
</TABLE>
(1) Based on the estimated number of shares of Common Stock and Class A Common
Stock which may be issued in the Mergers.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(f)(1) under the Securities Act of 1933, as amended (the
"Securities Act"), based upon the proposed maximum aggregate offering price
of (i) the average of the high and low prices of the common stock of
Delmarva Power & Light Company, as reported on the New York Stock Exchange,
Inc. Composite Tape on December 20, 1996, times the estimated number of
shares of common stock of Delmarva Power & Light Company to be converted in
the Delmarva Merger into shares of Common Stock of the Registrant, plus (ii)
the average of the high and low prices of the common stock of Atlantic
Energy, Inc., as reported on the New York Stock Exchange, Inc. Composite
Tape on December 20, 1996, times the estimated number of shares of common
stock of Atlantic Energy, Inc. to be converted in the Atlantic Merger into
shares of Common Stock and Class A Common Stock of the Registrant.
(3) Filing Fee of $439,223.74 was paid to the Commission on October 11, 1996 in
connection with the filing of the preliminary joint proxy material of
Delmarva Power & Light Company and Atlantic Energy, Inc. The balance of the
filing fee for this Registration Statement, $213,781.10, is filed herewith.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[LOGO]
HOWARD E. COSGROVE
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
December 26, 1996
To the Stockholders of
Delmarva Power & Light Company:
You are cordially invited to attend a Special Meeting (the "Special
Meeting") of holders of common stock of Delmarva Power & Light Company, a
Delaware and Virginia corporation ("Delmarva"), which will be held at the
Holiday Inn, 800 King Street, Wilmington, Delaware 19899 on Thursday, January
30, 1997 at 10:00 a.m., local time.
At this important meeting, the holders of Delmarva Common Stock will be
asked to approve an Agreement and Plan of Merger, dated as of August 9, 1996 as
amended and restated as of December 26, 1996 (the "Merger Agreement"), among
Delmarva, Atlantic Energy, Inc., a New Jersey corporation ("Atlantic"),
Conectiv, Inc., a newly formed Delaware corporation (the "Company"), and DS Sub,
Inc., a newly formed Delaware corporation and wholly owned transitory subsidiary
of the Company established solely to effectuate a merger into Delmarva ("DS
Sub"). The Merger Agreement provides for the merger of DS Sub into Delmarva and
for the merger of Atlantic into the Company (together, "Mergers"). As a result
of the Mergers, the Company will become the parent of Delmarva and all of
Atlantic's subsidiaries including Atlantic City Electric Company ("ACE"). The
holders of Delmarva Common Stock will also be asked to approve the Company
Incentive Compensation Plan (the "Company Plan"), which upon consummation of the
Mergers will replace Delmarva's Long-Term Incentive Plan and an existing plan of
Atlantic's, subject to approval by stockholders.
Upon consummation of the Mergers, with certain limitations:
(a) each issued and outstanding share of the common stock, par value
$2.25 per share, of Delmarva (the "Delmarva Common Stock") will be converted
into one share of Common Stock, par value $.01 per share, of the Company
(the "Company Common Stock"); and
(b) each issued and outstanding share of common stock, no par value, of
Atlantic (the "Atlantic Common Stock") will be converted into 0.75 shares of
Company Common Stock and 0.125 shares of the Class A Common Stock, par value
$.01 per share, of the Company (the "Class A Common Stock").
Following the Mergers the common stockholders of Delmarva and Atlantic will both
become common stockholders of the Company.
Based on the conversion ratios set forth in the Merger Agreement and the
capitalization of Delmarva and Atlantic as of September 30, 1996, (i) the
holders of Delmarva Common Stock and Atlantic Common Stock would have held
approximately 60.6% and 39.4%, respectively, of the Company Common Stock and
(ii) the holders of the Atlantic Common Stock would have held all of the Class A
Common Stock representing 30% of the earnings of the Company attributable to the
current regulated utility business of ACE in excess of $40 million per year,
that would have been outstanding had the Mergers been consummated as of such
date.
<PAGE>
The accompanying Joint Proxy Statement/Prospectus and the Annexes thereto
contain a summary description of the Mergers followed by a more detailed
discussion of the Mergers, including the reasons for, and the benefits of, the
Mergers. Because a summary is not, by its nature, complete, stockholders are
urged to read the Joint Proxy Statement/Prospectus and Annexes in their
entirety.
As described in greater detail in the Joint Proxy Statement/Prospectus,
Delmarva and Atlantic share a common vision of the future and a similar view of
the strategic path necessary to succeed in the competitive marketplace. Both
companies believe the Mergers will provide opportunities to achieve benefits for
their stockholders, customers, employees and communities that would not be
available were they to remain separate companies.
Approval of the Merger Agreement by stockholders of Delmarva and Atlantic
entitled to vote thereon is a condition to the consummation of the Mergers. If
the Merger Agreement is approved and adopted by the stockholders of Delmarva and
Atlantic, the Mergers will be consummated only after certain regulatory
approvals are received and other conditions are satisfied or waived. It is
presently anticipated that this will take approximately 12 to 18 months from the
date of the Merger Agreement.
YOUR BOARD OF DIRECTORS HAS CAREFULLY REVIEWED AND CONSIDERED THE TERMS AND
CONDITIONS OF THE MERGER AGREEMENT AND THE COMPANY PLAN, BELIEVES THAT THEY ARE
IN THE BEST INTERESTS OF DELMARVA AND ITS STOCKHOLDERS, HAS UNANIMOUSLY APPROVED
THE MERGER AGREEMENT AND THE COMPANY PLAN AND RECOMMENDS A VOTE FOR APPROVAL OF
THE MERGER AGREEMENT AND THE COMPANY PLAN.
Common stockholders of record at the close of business on December 18, 1996
will be entitled to one vote for each share. For the Mergers to be approved, the
Merger Agreement must be approved by the holders of more than two-thirds of the
outstanding shares of Delmarva Common Stock entitled to vote, voting together as
a single class. The affirmative vote of the holders of a majority of Delmarva
Common Stock present in person or by proxy and entitled to vote is required for
approval of the Company Incentive Compensation Plan. Your vote is important no
matter how many shares you hold.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE SPECIAL MEETING, PLEASE MARK,
SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ADDRESSED,
POSTAGE-PAID ENVELOPE. You may revoke your proxy in writing if you so desire at
any time before it is voted. If you do attend the Special Meeting, you may vote
in person, whether or not you have sent in your proxy.
IF YOU DO NOT VOTE AT THE SPECIAL MEETING AND DO NOT SEND IN YOUR PROXY, IT
WILL HAVE THE SAME EFFECT AS IF YOU VOTED AGAINST THE MERGERS.
Promptly after the Mergers, a letter of transmittal will be mailed to each
holder of record of shares of Delmarva Common Stock. PLEASE DO NOT SEND YOUR
DELMARVA COMMON STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD AT THIS TIME.
Later, you will receive the letter of transmittal, which will include
instructions as to the procedure to be used in exchanging your Delmarva Common
Stock certificates for the common stock certificates of the Company.
Holders of the Preferred Stock and Preferred Stock--$25 Par of Delmarva
(collectively, the "Delmarva Preferred Stock") are not entitled to vote on the
Mergers. The Delmarva Preferred Stock will remain outstanding following
consummation of the Mergers and the rights and preferences of the Delmarva
Preferred Stock will not be affected by the Mergers. No series of Delmarva
Preferred Stock will have appraisal rights in connection with the Delmarva
Merger. See "The Mergers--Appraisal Rights" in the Joint Proxy
Statement/Prospectus.
Yours very truly,
[LOGO]
Howard E. Cosgrove
Chairman, President and
Chief Executive Officer
<PAGE>
[LOGO]
December 26, 1996
Dear Fellow Stockholder:
I am pleased to send you the enclosed Joint Proxy Statement/Prospectus
describing the details of Atlantic Energy's Agreement and Plan of Merger with
Delmarva Power & Light Company.
After carefully reviewing the enclosed material, I urge you to cast your
vote by marking, signing and dating the enclosed proxy and returning it promptly
in the accompanying envelope.
I also invite you to attend a special meeting of Atlantic Energy
stockholders on Thursday, January 30, 1997, at 3:00 p.m. at the Frank Guaracini,
Jr. Fine & Performing Arts Center at Cumberland County College, Sherman Avenue
and College Drive, Vineland, New Jersey 08360. At this important meeting, our
stockholders will be asked to approve the Agreement and Plan of Merger. You will
also be asked to approve the Conectiv, Inc. Incentive Compensation Plan (the
"Company Plan"), which upon consummation of the Mergers will replace Atlantic's
Equity Incentive Plan and an existing plan of Delmarva's, subject to approval by
stockholders. Votes cast by mail will be tallied at the meeting. The Joint Proxy
Statement/ Prospectus provides a detailed account of the matters that will be
acted upon at the meeting. Even if you plan to attend, we suggest that you mail
in your proxy to expedite the voting process.
OUR BOARD OF DIRECTORS HAS CAREFULLY CONSIDERED THE TERMS OF THE MERGER
AGREEMENT AND THE COMPANY PLAN AND BELIEVES THEY ARE IN THE BEST INTEREST OF
ATLANTIC ENERGY AND ITS STOCKHOLDERS. OUR BOARD, BY UNANIMOUS VOTE, APPROVED THE
MERGER AGREEMENT AND, BY UNANIMOUS VOTE OF ALL DIRECTORS PRESENT, THE COMPANY
PLAN AND RECOMMENDS THAT OUR STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER
AGREEMENT AND THE COMPANY PLAN.
WHY WE SUPPORT THE MERGER WITH DELMARVA POWER
Simply stated, the merger will place us in a stronger position to compete in
the energy services industry.
As described in greater detail in the Joint Proxy Statement/Prospectus,
Atlantic Energy and Delmarva have remarkably similar visions for the kind of
companies we want to be and the strategic paths we must follow to achieve
success. Both companies believe that in order to succeed we must have
competitive rates, offer innovative service choices, have large customer bases
and have access to even larger consumer markets. Our proposed merger with
Delmarva will significantly strengthen our position in all of these critical
areas while providing benefits to our stockholders, customers, employees and
communities. Finally, we strongly believe that combining forces now is a natural
fit and a wise strategic move for our respective companies.
KEY TERMS OF THE TRANSACTION
- As a result of the merger contemplated by the Merger Agreement, all of
Atlantic Energy's subsidiaries, including Atlantic City Electric Company
("ACE"), and Delmarva Power and all of its subsidiaries will become
subsidiaries of a new holding company.
- For each full share of Atlantic Energy Common Stock you own, you will
receive 0.75 shares of Common Stock of the new holding company (par value
$0.01 per share) and 0.125 shares of Class A Common Stock of the new
holding company (par value $0.01 per share).
- Based on the stock conversion ratios established in the merger agreement
and the capitalization of the two companies as of September 30, 1996,
Atlantic Energy stockholders would hold 39.4% of the total shares
outstanding of the new holding company Common Stock if the merger were
consummated on such date. This new holding company Common Stock will
represent the equity interest in the new holding company represented by
the business of Delmarva, the nonregulated businesses of ACE, the first
$40 million of the annual earnings attributable to the current regulated
business of ACE and 70% of such earnings in excess of the first $40
million.
<PAGE>
- Atlantic Energy's common stockholders will receive all of the outstanding
shares of the Class A Common Stock representing 30% of the earnings of the
new holding company attributable to the current regulated utility business
of ACE in excess of $40 million per year, and Atlantic Energy and Delmarva
have determined that dividends on the Class A stock will be based on this
amount after the "Initial Period" described below. Such amounts for the
fiscal year ended December 31, 1995 and the 12-month period ended
September 30, 1996 are set forth in the accompanying Joint Proxy
Statement/Prospectus under "Description of the Company's Capital Stock."
Accordingly, the Class A stock is intended to apportion a greater share of
the business results, growth prospects and the risks associated with the
regulated utility business of ACE to Atlantic Energy's stockholders.
Together with the interest in such earnings represented by the Company
Common Stock, Atlantic Energy stockholders will retain more than half of
the benefits and risks related to earnings of the current regulated
utility business of ACE in excess of $40 million per year. See the Joint
Proxy Statement/Prospectus under "Description of the Company's Capital
Stock." The Class A stock will not, however, have any specific rights or
claims against the businesses, assets or liabilities of ACE. Both classes
of common stock of the new holding company are expected to be listed on
the New York Stock Exchange.
- We anticipate that the initial annual dividend for the new holding company
Common Stock will be $1.54 per share, the same annual dividend both
companies now pay. The Merger Agreement provides that, subject to
declaration by the Board of the new holding company and its obligation to
react to the financial condition and regulatory environment of the new
holding company and its results, the new holding company will pay an
annual dividend of $3.20 per share on the Class A Common Stock until the
earlier of July 1, 2001 or the end of the twelfth calendar quarter
following the calendar quarter in which the mergers are consummated (the
"Initial Period"). Accordingly, during the Initial Period it is expected
that the current Atlantic stockholders will receive an aggregate dividend
of $1.555 for each Atlantic share they currently hold. See "Description of
the Company's Capital Stock--Common Stock--Dividends" and "The Company
Following the Mergers--Dividend Policies" in the accompanying Joint Proxy
Statement/Prospectus."
Please refer to the accompanying Joint Proxy Statement/Prospectus for the
complete details of the Class A Common Stock, the new holding company Common
Stock and the proposed merger.
Once again I encourage you to promptly complete and return your proxy. Your
vote is important no matter how many shares you own. For the Merger Agreement to
be approved, it must receive the affirmative vote of at least a majority of all
votes cast by holders of Atlantic Energy Common Stock. For the Company Plan to
be approved, it must receive the affirmative vote of a majority of all votes
cast by holders of Atlantic Energy Common Stock. Please be aware that if you
should change your mind after casting your proxy, you may revoke it in writing
any time or choose to vote your shares personally upon request if you attend the
meeting. The accompanying Joint Proxy Statement/Prospectus sets forth the voting
rights of holders of Atlantic common stock with respect to these matters.
Stockholders are urged to review carefully the attached Joint Proxy
Statement/Prospectus, which contains a detailed description of the Merger
Agreement, the terms and conditions thereof and the transactions contemplated
thereby and of the Company Plan.
In addition to receiving formal approval of the merger from our respective
stockholders, as described in the accompanying Joint Proxy Statement/Prospectus,
Atlantic Energy and Delmarva must secure numerous consents from state, federal
and regulatory bodies. We anticipate that this approval process will take
approximately 12 to 18 months to successfully complete from our August 1996
announcement date. Promptly following the completion of the mergers, we will
mail you a formal notice. The notice will include instructions on how to
exchange your Atlantic Energy Common Stock Certificates for Company Common Stock
certificates and Class A Common Stock certificates. PLEASE DO NOT SEND YOUR
CERTIFICATES WITH THE ENCLOSED PROXY CARD.
On behalf of Atlantic Energy's Board of Directors, I thank you for taking
the time to consider and vote upon this important issue.
Very truly yours,
[LOGO]
<PAGE>
DELMARVA POWER & LIGHT COMPANY
800 King Street
Wilmington, Delaware 19899
(302) 429-3011
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 30, 1997
HOWARD E. COSGROVE
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
December 26, 1996
To the Stockholders of
Delmarva Power & Light Company:
You are cordially invited to attend a Special Meeting (the "Special
Meeting") of Stockholders of Delmarva Power & Light Company ("Delmarva"), to be
held at the Holiday Inn, 800 King Street, Wilmington, Delaware 19899 on
Thursday, January 30, 1997 at 10:00 a.m., local time.
The purposes of the Special Meeting are:
1. To consider and vote upon a proposal to approve an Agreement and Plan of
Merger, dated as of August 9, 1996 as amended and restated as of December 26,
1996 (the "Merger Agreement"), among Delmarva, Atlantic Energy, Inc., a New
Jersey corporation ("Atlantic"), Conectiv, Inc., a newly formed Delaware
corporation (the "Company"), and DS Sub, Inc., a newly formed Delaware
corporation and wholly owned transitory subsidiary of the Company established
solely to effectuate a merger with and into Delmarva ("DS Sub"), which provides
for the merger of DS Sub with and into Delmarva (the "Delmarva Merger") and the
merger of Atlantic with and into the Company (the "Atlantic Merger") (the
Delmarva Merger and the Atlantic Merger, together referred to herein as the
"Mergers"), and whereby, with certain limitations: (a) each issued and
outstanding share of the common stock, par value $2.25 per share, of Delmarva
(the "Delmarva Common Stock") will be converted into the right to receive one
share of Company Common Stock, par value $.01 per share, of the Company (the
"Company Common Stock"); (b) each issued and outstanding share of common stock,
no par value, of Atlantic (the "Atlantic Common Stock") will be converted into
the right to receive 0.75 shares of Company Common Stock and 0.125 shares of the
Class A Common Stock, par value $.01 per share, of the Company (the "Class A
Common Stock"); and (c) the common stockholders of Delmarva and Atlantic will
become common stockholders of the Company, all as more fully described in the
accompanying Joint Proxy Statement/Prospectus.
2. To consider and vote upon a proposal to approve the Company Incentive
Compensation Plan.
3. To transact such other business related to matters incident to the
conduct of the Special Meeting as may properly come before the Special Meeting
or any adjournment or adjournments thereof.
Based on the conversion ratios set forth in the Merger Agreement and the
capitalization of Delmarva and Atlantic as of September 30, 1996, (i) the
holders of Delmarva Common Stock and Atlantic Common Stock would have held
approximately 60.6% and 39.4%, respectively, of the Company Common Stock and
(ii) the holders of the Atlantic Common Stock would have held all of the Class A
Common Stock representing 30% of the earnings of the Company attributable to the
current regulated utility business of Atlantic City Electric Company in excess
of $40 million per year that would have been outstanding, had the Mergers been
consummated as of such date.
The close of business on December 18, 1996, has been fixed by the Board of
Directors as the time for determining the holders of Delmarva Common Stock
entitled to vote at this meeting.
Please date, sign and mail the enclosed proxy as promptly as possible in the
enclosed return envelope. Stockholders who are present at the meeting may
withdraw their proxies and vote in person if they so desire. If you do not vote
at the Special Meeting and do not send in your proxy, it will have the same
effect as if you voted against the Mergers.
Yours very truly,
[SIG]
Whether or not you expect to be present at the Special Meeting, please sign,
date and return the accompanying proxy promptly so that your shares may be
represented and voted at the Meeting. You may revoke your proxy in writing if
you so desire at any time before it is voted. A return envelope, which requires
no postage if mailed in the United States, is enclosed for your convenience. If
you have any questions or need assistance in voting your proxy, please call our
proxy solicitor, Georgeson & Company Inc. at (800) 223-2064.
<PAGE>
ATLANTIC ENERGY, INC.
6801 Black Horse Pike
Egg Harbor Township, NJ 08234-4130
(609) 645-4420
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 30, 1997
December 26, 1996
To the Stockholders of Atlantic Energy, Inc.
A Special Meeting (the "Special Meeting") of holders of common stock of
Atlantic Energy, Inc., a New Jersey corporation ("Atlantic"), will be held on
Thursday, January 30, 1997 at 3:00 p.m. at The Frank Guaracini, Jr. Fine &
Performing Arts Center at Cumberland County College, Sherman Avenue and College
Drive, Vineland, New Jersey 08360 for the following purposes.
1. To consider and vote upon a proposal to approve an Agreement and Plan of
Merger, dated as of August 9, 1996 as amended and restated as of December 26,
1996 (the "Merger Agreement") among Atlantic, Delmarva Power & Light Company, a
Delaware and Virginia corporation ("Delmarva"), Conectiv, Inc., a newly formed
Delaware corporation (the "Company"), and DS Sub, Inc., a newly formed Delaware
corporation and wholly owned transitory subsidiary of the Company established
solely to effectuate a merger with and into Delmarva ("DS Sub"). The Merger
Agreement provides for the merger of Atlantic with and into the Company (the
"Atlantic Merger") and the merger of DS Sub with and into Delmarva (the
"Delmarva Merger") (the Atlantic and the Delmarva Merger, together the
"Mergers"), and whereby with certain limitations, (a) each issued and
outstanding share of common stock, no par value, of Atlantic (the "Atlantic
Common Stock") will be converted into the right to receive 0.75 of one share of
Common Stock, par value $.01 per share, of the Company (the "Company Common
Stock"), and 0.125 of one share of the Class A Common Stock, par value $.01 per
share, of the Company (the "Class A Common Stock"); (b) each issued and
outstanding share of the common stock, par value $2.25 per share, of Delmarva
(the "Delmarva Common Stock") will be converted into the right to receive one
share of Company Common Stock; and (c) the common stockholders of Delmarva and
Atlantic will become common stockholders of the Company, all as more fully
described in the accompanying Joint Proxy Statement/Prospectus.
2. To consider and vote upon a proposal to approve the Company Incentive
Compensation Plan.
3. To transact such other business related to matters incident to the
conduct of the Special Meeting as may properly come before the Special Meeting
or any adjournment or adjournments thereof.
Based on the conversion ratios set forth in the Merger Agreement and the
capitalization of Atlantic and Delmarva as of September 30, 1996, (i) the
holders of Atlantic Common Stock and Delmarva Common Stock would have held
approximately 39.4% and 60.6%, respectively, of the Company Common Stock and
(ii) the holders of the Atlantic Common Stock would have held 100% of the Class
A Common Stock representing 30% of the earnings of the Company attributable to
the current regulated utility business of Atlantic City Electric Company in
excess of $40 million per year that would have been outstanding, had the Mergers
been consummated as of such date.
Stockholders of record at the close of business on December 18, 1996 will be
entitled to notice of and to vote at the Special Meeting or at any adjournment
or adjournments thereof. EVEN IF YOU NOW EXPECT TO ATTEND THE SPECIAL MEETING,
YOU ARE REQUESTED AS PROMPTLY AS POSSIBLE TO MARK, SIGN, DATE AND RETURN THE
ACCOMPANYING PROXY IN THE ENCLOSED ADDRESSED, POSTAGE-PAID ENVELOPE.
If you do attend the Special Meeting, you may vote in person if you so
desire.
By order of the Board of Directors,
[SIG]
James E. Franklin II
SECRETARY
Whether or not you expect to be present at the Special Meeting, please sign,
date and return the accompanying proxy promptly so that your shares may be
represented and voted at the Meeting. You may revoke your proxy in writing if
you so desire at any time before it is voted. A return envelope, which requires
no postage if mailed in the United States, is enclosed for your convenience. If
you have any questions or need assistance in voting your proxy, please call our
proxy solicitor, Georgeson & Company Inc. at (800) 223-2064.
<PAGE>
JOINT PROXY STATEMENT
OF
DELMARVA POWER & LIGHT COMPANY
AND
ATLANTIC ENERGY, INC.
------------------
PROSPECTUS
OF
CONECTIV, INC.
COMMON STOCK
AND
CLASS A COMMON STOCK
---------------------
SPECIAL MEETING OF STOCKHOLDERS OF DELMARVA POWER & LIGHT COMPANY
TO BE HELD ON JANUARY 30, 1997
SPECIAL MEETING OF STOCKHOLDERS OF ATLANTIC ENERGY, INC.
TO BE HELD ON JANUARY 30, 1997
Conectiv, Inc., a Delaware corporation (the "Company"), has filed a
registration statement on Form S-4 (together with all amendments, schedules and
exhibits thereto, the "Registration Statement") with the Securities and Exchange
Commission (the "SEC") pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), covering the shares of Common Stock, par value $.01 per share
("Company Common Stock"), of the Company and Class A Common Stock, par value
$.01 per share ("Class A Common Stock"), of the Company to be issued (in the
case of the Company Common Stock) in connection with the merger (the "Delmarva
Merger") of DS Sub, Inc., a Delaware corporation and a wholly owned transitory
subsidiary of the Company established solely to effectuate such merger ("DS
Sub"), with and into Delmarva Power & Light Company, a Delaware and Virginia
corporation ("Delmarva"), and (in the case of the Company Common Stock and the
Class A Common Stock) in connection with the merger (the "Atlantic Merger") of
Atlantic Energy, Inc., a New Jersey corporation ("Atlantic"), with and into the
Company (the Atlantic Merger and the Delmarva Merger are referred to herein,
together, as the "Mergers"), all as more fully described below. The Company will
be a registered public utility holding company under the Public Utility Holding
Company Act of 1935, as amended (the "1935 Act"). This Joint Proxy
Statement/Prospectus is being furnished in connection with the Special Meeting
of Stockholders of Delmarva and the Special Meeting of Stockholders of Atlantic.
This Joint Proxy Statement/Prospectus also constitutes the prospectus of the
Company filed as a part of the Registration Statement. See "Available
Information."
All information herein with respect to Delmarva has been furnished by
Delmarva, all information herein with respect to Atlantic has been furnished by
Atlantic, and all information herein with respect to the Company has been
furnished by the Company.
<PAGE>
SEE "RISK FACTORS" COMMENCING ON PAGE 14 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY STOCKHOLDERS IN CONNECTION WITH THE MERGERS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Joint Proxy Statement/Prospectus is December 26, 1996. This
Joint Proxy Statement/ Prospectus is first being mailed to the stockholders of
Delmarva and Atlantic on or about December 27, 1996.
<PAGE>
MATTERS RELATING TO THE MERGERS
STOCKHOLDER MEETINGS. At the Delmarva Special Meeting (the "Delmarva
Meeting"), scheduled to be held on January 30, 1997, and the Atlantic Special
Meeting (the "Atlantic Meeting"), scheduled to be held on January 30, 1997,
common stockholders of Delmarva and Atlantic, respectively, will consider and
vote upon a proposal to approve an Agreement and Plan of Merger dated as of
August 9, 1996 as amended and restated as of December 26, 1996 (the "Merger
Agreement"), among Delmarva, Atlantic, the Company and DS Sub and the
transactions contemplated thereby, pursuant to which, among other things: (i) DS
Sub will be merged with and into Delmarva in the Delmarva Merger, with Delmarva
to be the surviving corporation; (ii) Atlantic will be merged with and into the
Company in the Atlantic Merger, with the Company to be the surviving
corporation; and (iii) Delmarva and Atlantic City Electric Company, a wholly
owned subsidiary of Atlantic ("ACE"), will become wholly owned subsidiaries of
the Company. In addition, at the Delmarva Meeting and the Atlantic Meeting,
common stockholders of Delmarva and Atlantic, respectively, will consider and
vote upon a proposal to approve the Company Incentive Compensation Plan (the
"Company Plan").
CONVERSION AND CANCELLATION OF SHARES UPON CONSUMMATION OF THE
MERGERS. Upon consummation of the Mergers, pursuant to the Merger Agreement:
- Each issued and outstanding share of Delmarva Common Stock, par value
$2.25 per share ("Delmarva Common Stock") (other than shares of Delmarva
Common Stock that are owned by Delmarva as treasury stock or by Atlantic
or by any wholly owned subsidiary of Delmarva or Atlantic), will be
converted into the right to receive one fully paid and nonassessable share
of Company Common Stock. Each share of Delmarva Common Stock that is owned
by Delmarva as treasury stock or by Atlantic or any wholly owned
subsidiary of Delmarva or Atlantic will be cancelled and will cease to
exist and no consideration will be delivered in exchange therefor.
- Each issued and outstanding share of Atlantic common stock, no par value
per share ("Atlantic Common Stock") (other than shares of Atlantic Common
Stock that are owned by Atlantic as treasury stock or by Delmarva or by
any wholly owned subsidiary of Atlantic or Delmarva), will be converted
into the right to receive 0.75 fully paid and nonassessable shares of
Company Common Stock and 0.125 fully paid and nonassessable shares of the
Class A Common Stock. Each share of Atlantic Common Stock owned by
Atlantic as treasury stock or by Delmarva or any wholly owned subsidiary
of Atlantic or Delmarva will be cancelled and will cease to exist and no
consideration will be delivered in exchange therefor.
- All shares of capital stock of the Company issued and outstanding
immediately prior to the Mergers will be cancelled without consideration
and will cease to exist.
Upon consummation of the Mergers, each certificate representing Delmarva
Common Stock and Atlantic Common Stock issued and outstanding prior to the
Mergers, other than any shares that will not be converted as described above,
will represent instead the right to receive the shares of Company Common Stock
and, in the case of Atlantic Common Stock, Class A Common Stock and cash in lieu
of fractional shares into which those issued and outstanding shares will be
converted. Upon conversion, all such shares of Delmarva Common Stock and
Atlantic Common Stock will be cancelled without consideration and cease to
exist, and each holder of a certificate representing any such shares will cease
to have any rights with respect thereto, except the right to receive, upon the
surrender of the certificate, without interest, the shares of Company Common
Stock and, in the case of Atlantic Common Stock, Class A Common Stock. Each
share of Preferred Stock (par value $100 per share) and each share of Preferred
Stock--$25 Par of Delmarva (together, the "Delmarva Preferred Stock")
outstanding at the time of the consummation of the Mergers will remain
outstanding preferred stock of Delmarva and the rights and preferences of the
Delmarva Preferred Stock will not be affected by the Mergers.
ii
<PAGE>
No person is authorized to give any information or to make any
representation concerning matters covered by this Joint Proxy
Statement/Prospectus other than those contained or incorporated by reference in
this Joint Proxy Statement/Prospectus, and if given or made, such information or
representation should not be relied upon as having been authorized. This Joint
Proxy Statement/Prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, the securities offered by this Joint Proxy
Statement/Prospectus or the solicitation of a proxy, in any jurisdiction, to or
from any person to whom or from whom it is unlawful to make such offer,
solicitation of an offer or proxy solicitation in such jurisdiction. Neither the
delivery of this Joint Proxy Statement/Prospectus nor any distribution of
securities pursuant to this Joint Proxy Statement/Prospectus shall, under any
circumstances, create an implication that there has been no change in the
information set forth herein since the date of this Joint Proxy
Statement/Prospectus.
AVAILABLE INFORMATION
Each of Delmarva, Atlantic and ACE is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and accordingly files reports, proxy statements and other information
with the SEC. Such reports, proxy statements and other information filed with
the SEC are available for inspection and copying at the public reference
facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the SEC's Regional Offices at 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
documents may also be obtained from the Public Reference Room of the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, any such material and other information concerning both
Delmarva and Atlantic may be inspected at the New York Stock Exchange, Inc. (the
"NYSE"), 20 Broad Street, New York, New York 10005 and the Philadelphia Stock
Exchange, Inc. (the "Philadelphia Exchange"), 1900 Market Street, Philadelphia,
Pennsylvania 19103 and, in the case of Atlantic, the Pacific Stock Exchange,
Inc. (the "Pacific Exchange"), 301 Pine Street, San Francisco, California 94104.
Certain of such reports, proxy statements and other information filed by
Delmarva, Atlantic or ACE are also available on the Internet at the SEC's World
Wide Web site at http:// www.sec.gov.
The Company has filed with the SEC under the Securities Act a Registration
Statement with respect to the shares of Company Common Stock and the Class A
Common Stock issuable in the Mergers. This Joint Proxy Statement/Prospectus does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the SEC. The Registration Statement, including any amendments, schedules and
exhibits thereto, is available for inspection and copying as set forth above.
Summaries of the contracts or documents referred to herein are summaries of the
material provisions thereof and are not necessarily complete and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such summary being qualified
in all respects by such reference.
iii
<PAGE>
INCORPORATION BY REFERENCE
This Joint Proxy Statement/Prospectus incorporates documents by reference
that are not presented herein or delivered herewith. These documents are
available upon request from, in the case of documents relating to Delmarva,
Donald P. Connelly, Secretary, Delmarva Power & Light Company, 800 King Street,
Wilmington, Delaware 19899 (Tel: (302) 429-3011), and, in the case of documents
relating to Atlantic and ACE, James E. Franklin II, Secretary, Atlantic Energy,
Inc., 6801 Black Horse Pike, Egg Harbor Township, New Jersey 08234-4130 (Tel:
(609) 645-4420). In order to ensure timely delivery of the documents, any
request should be made by five business days before the date of the meeting.
Delmarva and Atlantic hereby undertake to provide without charge to each
person, including any beneficial owner of Delmarva Common Stock or Atlantic
Common Stock to whom a copy of this Joint Proxy Statement/Prospectus has been
delivered, upon the written or oral request of such person, a copy (without
exhibits, except those specifically incorporated by reference) of any and all of
the documents referred to below that have been or may be incorporated in this
Joint Proxy Statement/Prospectus by reference. Requests for such documents
should be directed to the persons indicated above.
The following documents, previously filed with the SEC pursuant to the
Exchange Act, are hereby incorporated by reference:
1. Delmarva Annual Report on Form 10-K for the year ended December 31,
1995 (File No. 1-1405) (the "Delmarva 1995 Form 10-K");
2. Delmarva Quarterly Reports on Form 10-Q for the quarters ended March
31, 1996, June 30, 1996 and September 30, 1996 (File No. 1-1405) (the
"Delmarva 1996 Forms 10-Q");
3. Delmarva Current Reports on Form 8-K dated February 22, 1996, May 29,
1996, July 23, 1996 and August 9, 1996 (File No. 1-1405);
4. Delmarva Proxy Statement dated April 26, 1996, for the 1996 Annual
Meeting of Stockholders held on May 30, 1996;
5. Atlantic Annual Report on Form 10-K for the year ended December 31,
1995 (File No. 1-9760) (the "Atlantic 1995 Form 10-K");
6. Atlantic Quarterly Reports on Form 10-Q for the quarters ended March
31, 1996, June 30, 1996 and September 30, 1996 and on Form 10-Q/A for the
quarter ended September 30, 1996 (File No. 1-9760) (the "Atlantic 1996 Forms
10-Q");
7. Atlantic Current Reports on Form 8-K dated February 23, 1996, May 29,
1996, June 26, 1996, July 25, 1996, August 13, 1996 and October 23, 1996
(File No. 1-9760); and
8. Atlantic Proxy Statement dated March 15, 1996, for the 1996 Annual
Meeting of Stockholders held on April 24, 1996.
9. ACE Annual Report on Form 10-K for the year ended December 31, 1995
(File No. 1-3559) (the "ACE 1995 Form 10-K");
10. ACE Quarterly Reports on Form 10-Q for the quarters ended March 31,
1996, June 30, 1996 and September 30, 1996 and on Form 10-Q/A for the
quarter ended September 30, 1996 (File No. 1-3559) (the "ACE 1996 Forms
10-Q");
All documents filed by Delmarva, Atlantic and ACE pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to the
date of the Delmarva Meeting on January 30, 1997, and any adjournment or
adjournments thereof, or the Atlantic Meeting on January 30, 1997, and any
adjournment or adjournments thereof, shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing of such
documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Joint Proxy Statement/ Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Joint Proxy Statement/Prospectus.
iv
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C>
AVAILABLE INFORMATION..................................................................................... iii
INCORPORATION BY REFERENCE................................................................................ iv
TABLE OF CONTENTS......................................................................................... v
INDEX OF DEFINED TERMS.................................................................................... ix
SUMMARY OF JOINT PROXY STATEMENT/PROSPECTUS............................................................... 1
The Parties............................................................................................. 1
The Company........................................................................................... 1
Delmarva.............................................................................................. 1
Atlantic.............................................................................................. 1
Risk Factors............................................................................................ 1
Stockholder Meetings.................................................................................... 1
Delmarva.............................................................................................. 1
Atlantic.............................................................................................. 2
Required Vote........................................................................................... 2
The Mergers............................................................................................. 3
Exchange of Stock Certificates.......................................................................... 4
Conversion Ratios for Delmarva Common Stock and Atlantic Common Stock................................... 5
Company Incentive Compensation Plan..................................................................... 5
Background of the Mergers............................................................................... 5
Reasons for the Mergers................................................................................. 5
Recommendations of the Boards of Directors.............................................................. 6
Delmarva.............................................................................................. 6
Atlantic.............................................................................................. 6
Opinions of Investment Bankers.......................................................................... 6
Delmarva.............................................................................................. 6
Atlantic.............................................................................................. 6
Conflicts of Interest of Certain Persons in the Mergers................................................. 7
Directorships......................................................................................... 7
Severance Agreements.................................................................................. 7
Employee Plans........................................................................................ 7
Indemnification....................................................................................... 7
Certain Federal Income Tax Consequences................................................................. 7
Accounting Treatment.................................................................................... 8
Appraisal Rights........................................................................................ 8
Regulatory Matters...................................................................................... 8
Conditions to the Mergers............................................................................... 9
Rights to Terminate, Amend or Waive Conditions.......................................................... 9
Common Equity of the Company............................................................................ 10
Dividends............................................................................................... 12
Comparison of Corporate Charters and Rights of Security Holders......................................... 13
Selected Information Concerning Delmarva and Atlantic................................................... 13
The Company Following the Mergers....................................................................... 13
RISK FACTORS.............................................................................................. 14
Risk Factors Associated with the Dual Class Common Equity Structure..................................... 14
Risk Factors Associated with Each Class of Common Stock................................................. 18
Risk Factors Associated with the Class A Common Stock................................................... 19
Risk Factors Associated with the Company Common Stock................................................... 21
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA.......................................................... 23
Selected Historical Financial Data...................................................................... 23
Selected Unaudited Pro Forma Combined Financial Data and Comparative Per Share Data..................... 25
Comparative Earnings, Dividends and Book Values Per Share of Common Stock and Class A Common Stock...... 26
Comparative Per Share Prices of Delmarva Common Stock and Atlantic Common Stock......................... 28
</TABLE>
v
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<TABLE>
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MEETINGS, VOTING AND PROXIES.............................................................................. 29
Delmarva Meeting........................................................................................ 29
Atlantic Meeting........................................................................................ 30
THE MERGERS............................................................................................... 33
Background of the Mergers............................................................................... 33
Reasons for the Mergers................................................................................. 40
Recommendations of the Boards of Directors.............................................................. 41
Delmarva.............................................................................................. 41
Atlantic.............................................................................................. 43
Opinion of Financial Advisor to Delmarva................................................................ 44
Opinion of Financial Advisor to Atlantic................................................................ 48
Conflicts of Interest of Certain Persons in the Mergers................................................. 53
Employee Plans, Severance Arrangements and Agreements................................................... 53
The Company Benefit Plans............................................................................... 57
Certain Federal Income Tax Consequences................................................................. 58
Accounting Treatment.................................................................................... 60
Stock Exchange Listing of Company Capital Stock......................................................... 60
Federal Securities Law Consequences..................................................................... 60
Appraisal Rights........................................................................................ 60
REGULATORY MATTERS........................................................................................ 61
Antitrust Considerations................................................................................ 61
Federal Power Act....................................................................................... 61
Public Utility Holding Company Act of 1935.............................................................. 61
Nuclear Regulatory Commission........................................................................... 62
Delaware Public Service Commission...................................................................... 62
Virginia State Corporation Commission................................................................... 62
New Jersey Board of Public Utilities.................................................................... 63
Pennsylvania Public Utility Commission.................................................................. 63
Maryland Public Service Commission...................................................................... 63
Effects of Certain Regulatory Trends.................................................................... 63
Other Regulatory Matters................................................................................ 65
THE MERGER AGREEMENT...................................................................................... 66
The Mergers............................................................................................. 66
Consummation of the Mergers............................................................................. 66
Representations and Warranties.......................................................................... 67
Certain Covenants....................................................................................... 68
No Solicitation of Transactions......................................................................... 69
Company Board of Directors.............................................................................. 70
Indemnification......................................................................................... 70
Conditions to the Mergers............................................................................... 71
Benefit Plans........................................................................................... 72
Termination............................................................................................. 72
Termination Fees........................................................................................ 73
Expenses................................................................................................ 74
Amendment and Waiver.................................................................................... 74
</TABLE>
vi
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DESCRIPTION OF THE COMPANY'S CAPITAL STOCK................................................................ 75
General................................................................................................. 75
Preferred Stock......................................................................................... 75
Common Stock............................................................................................ 75
Intergroup Interest..................................................................................... 79
Conversion and Redemption of the Class A Common Stock................................................... 82
Notice and Other Provisions with Respect to Conversion and Redemption of the Class A Common Stock....... 85
Allocation of Consideration Between the Company Common Stock and the Class A Common Stock in a
Subsequent Merger or Consolidation.................................................................... 87
Voting.................................................................................................. 87
Liquidation Rights...................................................................................... 88
Determinations by the Company Board..................................................................... 88
No Preemptive Rights.................................................................................... 88
Certain Definitions..................................................................................... 88
Stock Exchange Listing.................................................................................. 96
Anti-Takeover Provisions................................................................................ 96
COMPARISON OF CORPORATE CHARTERS AND RIGHTS OF SECURITY HOLDERS........................................... 98
Delmarva................................................................................................ 98
Atlantic................................................................................................ 103
APPROVAL OF THE COMPANY INCENTIVE COMPENSATION PLAN....................................................... 108
Objective............................................................................................... 108
Shares Available Under the Plan......................................................................... 108
Termination............................................................................................. 108
Administration.......................................................................................... 108
Participation........................................................................................... 109
Section 162(m) Compliance............................................................................... 109
Awards.................................................................................................. 110
Effect of Change in Control............................................................................. 111
Tax Withholding......................................................................................... 112
Federal Income Tax Consequences......................................................................... 112
New Plan Benefits....................................................................................... 113
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS......................................................... 114
CONECTIV, INC. CONSOLIDATED BALANCE SHEET................................................................. 139
SELECTED INFORMATION CONCERNING DELMARVA AND ATLANTIC..................................................... 141
Business of Delmarva.................................................................................... 141
Business of Atlantic.................................................................................... 141
Prior Relationship Between Delmarva and Atlantic........................................................ 142
Salem Nuclear Generating Station........................................................................ 142
THE COMPANY FOLLOWING THE MERGERS......................................................................... 145
Management of the Company............................................................................... 145
Operations of the Company............................................................................... 147
Dividend Policies....................................................................................... 148
Financial Statements.................................................................................... 148
Name of the Company..................................................................................... 148
EXPERTS................................................................................................... 149
LEGAL MATTERS............................................................................................. 149
STOCKHOLDER PROPOSALS..................................................................................... 149
</TABLE>
vii
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ANNEX I MERGER AGREEMENT........................................................ I-1
ANNEX II FAIRNESS OPINION OF MERRILL LYNCH, PIERCE, FENNER & SMITH II-1
INCORPORATED..........................................................
ANNEX III FAIRNESS OPINION OF MORGAN STANLEY & CO. INCORPORATED................... III-1
ANNEX IV THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION..................... IV-1
ANNEX V THE COMPANY'S RESTATED BYLAWS........................................... V-1
ANNEX VI ILLUSTRATION OF CERTAIN CLASS A COMMON STOCK TERMS...................... VI-1
ANNEX VII COMPANY INCENTIVE COMPENSATION PLAN..................................... VII-1
</TABLE>
viii
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
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<S> <C>
1935 Act................................................................................................... i
1992 Act................................................................................................... 33
Abernathy.................................................................................................. 38
ACE........................................................................................................ ii
ACE 1995 Form 10-K......................................................................................... iv
ACE 1996 Forms 10-Q........................................................................................ iv
ACE Charter................................................................................................ 18
ACE Common Stock........................................................................................... 18
ACE Preferred Stock........................................................................................ 18
AEE........................................................................................................ 141
AEII....................................................................................................... 141
Antitrust Division......................................................................................... 61
Atlantic................................................................................................... i
Atlantic 1995 Form 10-K.................................................................................... iv
Atlantic 1996 Forms 10-Q................................................................................... iv
Atlantic Board............................................................................................. 2
Atlantic Bylaws............................................................................................ 30
Atlantic Charter........................................................................................... 103
Atlantic Common Stock...................................................................................... ii
Atlantic Conversion Ratio.................................................................................. 66
Atlantic Meeting........................................................................................... ii
Atlantic Merger............................................................................................ i
Atlantic Record Date....................................................................................... 2
Atlantic Utility Group..................................................................................... 88
Atlantic Utility Group Available Dividend Amount........................................................... 90
Atomic Energy Act.......................................................................................... 8
Class A Common Stock....................................................................................... i
Code....................................................................................................... 49
Common Shares Trust........................................................................................ 67
Common Stock............................................................................................... 75
Company.................................................................................................... i
Company Bylaws............................................................................................. 17
Company Charter............................................................................................ 11
Company Common Stock....................................................................................... i
Company Net Income (Loss) Attributable to the Atlantic Utility Group....................................... 90
Company Net Income (Loss) Attributable to the Residual Group............................................... 91
Company Plan............................................................................................... ii
Convertible Securities..................................................................................... 91
D&T Consulting Group....................................................................................... 37
Delmarva................................................................................................... i
Delmarva 1995 Form 10-K.................................................................................... iv
Delmarva 1996 Forms 10-Q................................................................................... iv
Delmarva Board............................................................................................. 2
Delmarva Bylaws............................................................................................ 29
Delmarva Charter........................................................................................... 18
Delmarva Common Stock...................................................................................... ii
Delmarva Conversion Ratio.................................................................................. 66
Delmarva LTIP.............................................................................................. 29
</TABLE>
ix
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<TABLE>
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<S> <C>
Delmarva Meeting........................................................................................... ii
Delmarva Merger............................................................................................ i
Delmarva Preferred Stock................................................................................... ii
Delmarva Record Date....................................................................................... 2
DGCL....................................................................................................... 3
Disposition................................................................................................ 91
DPSC....................................................................................................... 62
DS Sub..................................................................................................... i
Effective Date............................................................................................. 91
Effective Time............................................................................................. 3
Exchange Act............................................................................................... iii
Exchange Agent............................................................................................. 4
Fair Value................................................................................................. 91
FERC....................................................................................................... 8
Final Order................................................................................................ 71
Fraction................................................................................................... 80
FTC........................................................................................................ 61
Group...................................................................................................... 14
HSR Act.................................................................................................... 8
Indemnified Party.......................................................................................... 70
Initial Period............................................................................................. 19
Intergroup Interest........................................................................................ 80
Intergroup Interest Fraction............................................................................... 91
IRS........................................................................................................ 8
ISO........................................................................................................ 110
LeBoeuf/NJ................................................................................................. 35
LeBoeuf/NY................................................................................................. 34
Market Capitalization...................................................................................... 92
Market Value............................................................................................... 92
Market Value Ratio of the Class A Common Stock to the Company Common Stock................................. 92
Merger Agreement........................................................................................... ii
Mergers.................................................................................................... i
Merrill Lynch.............................................................................................. 6
Morgan Stanley............................................................................................. 6
MPSC....................................................................................................... 63
Net Proceeds............................................................................................... 93
NJBCA...................................................................................................... 3
NJBPU...................................................................................................... 11
NorthBridge................................................................................................ 36
Notional Fixed Charge...................................................................................... 10
NRC........................................................................................................ 8
Number of Shares Issuable with Respect to the Intergroup Interest.......................................... 93
NYSE....................................................................................................... iii
Out-of-Pocket Expenses..................................................................................... 73
Outstanding Atlantic Utility Fraction...................................................................... 94
Pacific Exchange........................................................................................... iii
Philadelphia Exchange...................................................................................... iii
Potter Anderson............................................................................................ 35
PPUC....................................................................................................... 63
Preferred Stock............................................................................................ 75
</TABLE>
x
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<TABLE>
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<S> <C>
PSE&G...................................................................................................... 142
Publicly Traded............................................................................................ 94
Registration Statement..................................................................................... i
Related Business Transaction............................................................................... 94
Residual Group............................................................................................. 94
Residual Group Available Dividend Amount................................................................... 95
Salem...................................................................................................... 142
SEC........................................................................................................ i
Securities Act............................................................................................. i
Simpson Thacher............................................................................................ 34
SAR........................................................................................................ 110
Target Party............................................................................................... 74
Time-Weighted Market Price................................................................................. 96
Trading Day................................................................................................ 96
VSCA....................................................................................................... 3
VSCC....................................................................................................... 3
</TABLE>
xi
<PAGE>
SUMMARY OF JOINT PROXY STATEMENT/PROSPECTUS
THE FOLLOWING IS A SUMMARY OF THE MATERIAL TERMS AND CONDITIONS OF THE
MERGERS AND RELATED INFORMATION. THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION
APPEARING IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND THE ANNEXES. STOCKHOLDERS
ARE URGED TO READ THIS JOINT PROXY STATEMENT/PROSPECTUS AND THE ANNEXES IN THEIR
ENTIRETY.
THE PARTIES
THE COMPANY. The Company is a Delaware corporation that was created to
become a holding company for Delmarva, ACE and the other subsidiaries of
Delmarva and Atlantic following the Mergers. The Company will be a public
utility holding company registered under the Public Utility Holding Company Act
of 1935, as amended (the "1935 Act"). See "The Company Following the Mergers."
It has, and prior to the consummation of the Mergers will have, no operations
except as contemplated by the Merger Agreement. See "The Merger Agreement." As
of the date of this Joint Proxy Statement/ Prospectus, 50% of the outstanding
capital stock of the Company is owned by each of Delmarva and Atlantic. The
principal executive offices of the Company are located at 800 King Street,
Wilmington, Delaware 19899. Upon the consummation of the Mergers, the name of
the Company will be changed to "Conectiv."
DELMARVA. Delmarva is an investor owned public utility that provides
electric and gas service. Delmarva provides electric service to approximately
437,500 retail and wholesale customers in Delaware, ten primarily Eastern Shore
counties in Maryland, and the Eastern Shore area of Virginia in an area
consisting of about 6,000 square miles with a population of approximately 1.1
million. Delmarva provides gas service to approximately 98,000 retail and
transportation customers in an area consisting of about 275 square miles with a
population of approximately 470,000 in northern Delaware, including the City of
Wilmington. The principal executive offices of Delmarva are located at 800 King
Street, Wilmington, Delaware 19899 and its telephone number is (302) 429-3011.
ATLANTIC. Atlantic is a public utility holding company as defined in the
1935 Act and has claimed an exemption from substantially all of the provisions
of the 1935 Act pursuant to Section 3(a) of the 1935 Act. Atlantic is the parent
of Atlantic City Electric Company, a New Jersey corporation ("ACE"), which is a
public utility primarily engaged in the generation, transmission, distribution
and sale of electric energy. ACE provides electric service to approximately
473,000 customers in a service territory encompassing approximately 2,700 square
miles within the southern one-third of New Jersey with the majority of customers
being residential and commercial. The principal executive offices of Atlantic
are located at 6801 Black Horse Pike, Egg Harbor Township, New Jersey 08234 and
its telephone number is (609) 645-4500.
RISK FACTORS
For a description of the risk factors to be considered by stockholders in
connection with the Mergers, see "Risk Factors."
STOCKHOLDER MEETINGS
DELMARVA. At the Delmarva Meeting and any adjournment or adjournments
thereof, the holders of Delmarva Common Stock will be asked to consider and vote
upon (i) a proposal to approve the Merger Agreement and the transactions
contemplated thereby and (ii) a proposal to approve the Company Incentive
Compensation Plan (the "Company Plan," the provisions of which are set forth in
Annex VII to this Joint Proxy Statement/Prospectus), approval of which has been
recommended by the Delmarva Board and the Company Board. See "Meetings, Voting
and Proxies--Delmarva Meeting."
<PAGE>
The Delmarva Meeting is scheduled to be held at 10:00 a.m., local time, on
January 30, 1997, at the Holiday Inn, 800 King Street, Wilmington, Delaware
19899. The Board of Directors of Delmarva (the "Delmarva Board") has fixed the
close of business on December 18, 1996 as the record date (the "Delmarva Record
Date") for the determination of holders of Delmarva Common Stock entitled to
notice of, and to vote at, the Delmarva Meeting.
The Delmarva Board, by a unanimous vote of all of the directors, has
approved the Merger Agreement and the Company Plan and the transactions
contemplated therein and recommends that holders of Delmarva Common Stock vote
FOR approval of the Merger Agreement and the Company Plan. Certain members of
the Delmarva Board will become directors and/or employees of the Company
following consummation of the Mergers and/or may become entitled to severance
benefits as a result of the Mergers. See "The Mergers--Conflicts of Interest of
Certain Persons in the Mergers" and "The Mergers--Employee Plans, Severance
Arrangements and Agreements."
ATLANTIC. At the Atlantic Meeting and any adjournment or adjournments
thereof, the holders of Atlantic Common Stock will be asked to consider and vote
upon (i) a proposal to approve the Merger Agreement and the transactions
contemplated thereby and (ii) a proposal to approve the Company Plan, approval
of which has been recommended by the Atlantic Board and the Company Board. See
"Meetings, Voting and Proxies--Atlantic Meeting."
The Atlantic Meeting is scheduled to be held at 3:00 p.m., local time, on
January 30, 1997, at the Frank Guaracini, Jr. Fine & Performing Arts Center at
Cumberland County College, Sherman Avenue and College Drive, Vineland, New
Jersey 08360. The Board of Directors of Atlantic (the "Atlantic Board") has
fixed the close of business on December 18, 1996 as the record date (the
"Atlantic Record Date") for the determination of holders of Atlantic Common
Stock entitled to notice of, and to vote at, the Atlantic Meeting.
The Atlantic Board, by unanimous vote, has approved the Merger Agreement
and, by unanimous vote of all of the directors present, the Company Plan and the
transactions contemplated therein and recommends that holders of Atlantic Common
Stock vote FOR approval of the Merger Agreement and the Company Plan. Certain
members of the Atlantic Board will become directors and/or employees of the
Company following the consummation of the Mergers and/or may be entitled to
severance benefits as a result of the Mergers. See "The Mergers--Conflicts of
Interest of Certain Persons in the Mergers" and "The Mergers--Employee Plans,
Severance Arrangements and Agreements."
REQUIRED VOTE
The affirmative vote of the holders of more than two-thirds of all votes
entitled to be cast by all holders of Delmarva Common Stock is required for the
approval of the Merger Agreement and the transactions contemplated thereby. The
affirmative vote of the holders of a majority of Delmarva Common Stock present
in person or by proxy and entitled to vote is required to approve the Company
Plan. On the Delmarva Record Date, 60,754,568 shares of Delmarva Common Stock
were outstanding and entitled to vote. As of the Delmarva Record Date,
directors, executive officers and their affiliates owned less than 1% of the
issued and outstanding shares of Delmarva Common Stock. See "Meetings, Voting
and Proxies-- Delmarva Meeting."
The affirmative vote of a majority of all votes cast by the holders of
Atlantic Common Stock is required for the approval of the Merger Agreement and
the transactions contemplated thereby. The affirmative vote of at least a
majority of all votes cast by all holders of Atlantic Common Stock entitled to
vote is required to approve the Company Plan. On the Atlantic Record Date,
52,704,052 shares of Atlantic Common Stock were outstanding and entitled to
vote. As of the Atlantic Record Date, directors, executive officers and their
affiliates owned less than 1% of the issued and outstanding shares of Atlantic
Common Stock. See "Meetings, Voting and Proxies--Atlantic Meeting."
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THE MERGERS
The Merger Agreement provides for: (i) the merger of DS Sub with and into
Delmarva in the Delmarva Merger; (ii) the merger of Atlantic with and into the
Company in the Atlantic Merger; (iii) the cancellation of the Delmarva Common
Stock owned by Delmarva, any subsidiary of Delmarva, Atlantic or any subsidiary
of Atlantic; (iv) the cancellation of the Atlantic Common Stock owned by
Atlantic, any subsidiary of Atlantic, Delmarva or any subsidiary of Delmarva;
(v) the conversion of shares of Delmarva Common Stock issued and outstanding
immediately prior to the consummation of the Delmarva Merger (except shares that
are cancelled) into shares of Company Common Stock; (vi) the conversion of all
issued and outstanding shares of Atlantic Common Stock (except shares that are
cancelled) into shares of Company Common Stock, Class A Common Stock and cash in
lieu of fractional shares; (vii) the conversion of all issued and outstanding
shares of common stock of DS Sub into shares of Delmarva Common Stock; and
(viii) the cancellation of all shares of capital stock of the Company that are
issued and outstanding immediately prior to the Mergers. As a result of the
Mergers, holders of Delmarva Common Stock and Atlantic Common Stock will become
holders of Company Common Stock and, in the case of Atlantic Common Stock, Class
A Common Stock. Each share of Delmarva Preferred Stock outstanding at the time
of the consummation of the Mergers will remain outstanding as preferred stock of
Delmarva and the rights and preferences of the Delmarva Preferred Stock will not
be affected by the Mergers. See "The Merger Agreement--The Mergers."
Pursuant to the Merger Agreement: (a) in connection with the Delmarva
Merger, (i) a certificate of merger complying with the General Corporation Law
of the State of Delaware (the "DGCL") will be executed by Delmarva and filed
with the Secretary of State of the State of Delaware and (ii) articles of merger
complying with the Virginia Stock Corporation Act ("VSCA") will be executed by
Delmarva and filed with the Virginia State Corporation Commission (the "VSCC");
and (b) in connection with the Atlantic Merger, (i) a certificate of merger
complying with the DGCL will be executed by the Company and filed with the
Secretary of State of the State of Delaware and (ii) a certificate of merger
complying with the New Jersey Business Corporation Act (the "NJBCA") will be
executed by Atlantic and the Company and filed with the Secretary of State of
the State of New Jersey, each on the second business day immediately following
the satisfaction or waiver of all conditions to the Mergers, or at such other
time as both Delmarva and Atlantic will agree. The Mergers will become effective
simultaneously and at the time specified in the respective certificates and
articles of merger for the Mergers. The "Effective Time" means the time and date
that the Delmarva Merger and the Atlantic Merger become effective. See "The
Merger Agreement--The Mergers." The Company will become a holding company
required to be registered under the 1935 Act. See "Regulatory Matters--Public
Utility Holding Company Act of 1935."
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The relationship among the Company, Delmarva, Atlantic and the direct
subsidiaries of Delmarva and Atlantic before and after the Mergers are
illustrated, respectively, in the following diagrams:
BEFORE THE MERGERS
[LOGO]
FOLLOWING THE MERGERS
[LOGO]
As illustrated in the diagrams, upon consummation of the Mergers (i)
Delmarva will become a direct, wholly owned subsidiary of the Company and
Delmarva's subsidiaries will become indirect subsidiaries of the Company and
(ii) Atlantic will cease to exist and Atlantic's direct subsidiaries, including
ACE, will become direct subsidiaries of the Company.
EXCHANGE OF STOCK CERTIFICATES
On or before the consummation of the Mergers, the Company will deposit with
a bank, trust company or other agent selected by Delmarva and Atlantic (the
"Exchange Agent") certificates representing shares of Company Common Stock and
Class A Common Stock to effect the conversion of Delmarva Common
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Stock or Atlantic Common Stock, as the case may be, into Company Common Stock
and, in the case of Atlantic Common Stock, Class A Common Stock.
As soon as practicable after the consummation of the Mergers, the Exchange
Agent will mail, to each holder of record of Delmarva Common Stock or Atlantic
Common Stock eligible for exchange at the consummation of the Mergers,
transmittal instructions advising the holder of the procedure for surrendering
Delmarva Common Stock certificates or Atlantic Common Stock certificates for
Company Common Stock certificates and, in the case of Atlantic Common Stock,
Class A Common Stock certificates. Holders of certificates that prior to the
consummation of the Mergers represented shares of Delmarva Common Stock or
Atlantic Common Stock will not be entitled to vote or receive any payment of
dividends or other distributions on or payment for any fractional shares of
Company Common Stock or Class A Common Stock until such certificates are
delivered for exchange. See "The Merger Agreement--The Mergers."
CONVERSION RATIOS FOR DELMARVA COMMON STOCK AND ATLANTIC COMMON STOCK
Each share of Delmarva Common Stock outstanding immediately prior to the
Effective Time will, upon consummation of the Delmarva Merger, be converted into
the right to receive one share of Company Common Stock. Each share of Atlantic
Common Stock outstanding immediately prior to the Effective Time will, upon
consummation of the Atlantic Merger, be converted into the right to receive 0.75
shares of Company Common Stock and 0.125 shares of Class A Common Stock.
Fractional shares of Company Common Stock and Class A Common Stock will not be
issued. Holders of Atlantic Common Stock eligible for exchange will receive cash
in lieu of fractional shares. See "The Merger Agreement--Consummation of the
Mergers."
COMPANY INCENTIVE COMPENSATION PLAN
Subsequent to the execution of the Merger Agreement, Delmarva and Atlantic,
as the stockholders of the Company, determined that it would be in the best
interests of the Company for the Company to adopt the Company Plan, which upon
consummation of the Mergers will replace the Delmarva Long-Term Incentive Plan
(the "Delmarva LTIP") and Atlantic's Equity Incentive Plan, subject to approval
by stockholders. The Delmarva Board and the Atlantic Board each approved the
Company Plan as of December 12, 1996, which by its terms is subject to the
approval of the stockholders of Delmarva and Atlantic. The Company Plan is a
comprehensive cash and stock compensation plan providing for the grant of annual
incentive awards, as well as long-term incentive awards such as restricted
stock, stock options, stock appreciation rights, performance units and dividend
equivalents, and any other types of awards as the committee of the Board which
will administer the Company Plan (the "Company Plan Committee") deems
appropriate. The maximum number of shares of Company Common Stock available for
issuance under the Company Plan is 5,000,000. The Delmarva Board and the
Atlantic Board determined to recommend that the respective stockholders of
Delmarva and Atlantic vote FOR approval of the Company Plan. For a description
of the Company Plan, see "The Mergers--The Company Benefit Plans" and "Approval
of the Company Incentive Compensation Plan."
BACKGROUND OF THE MERGERS
For a description of the background of the Mergers, see "The
Mergers--Background of the Mergers."
REASONS FOR THE MERGERS
Delmarva and Atlantic share a common vision of the future as well as a
similar view of the strategic path necessary to succeed in the competitive
marketplace and believe that the Mergers will provide opportunities to achieve
benefits for their respective stockholders, customers, employees and communities
that would not be available if they were to remain separate companies. The
benefits to be achieved through the Mergers include: increased scale; cost
savings; competitive prices and services; and a more
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balanced customer base. In addition, the combined companies will have increased
financial flexibility and greater access to the regional market. For a more
detailed description of the reasons for the Mergers, see "The Mergers--Reasons
for the Mergers."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
DELMARVA. The Delmarva Board unanimously approved the Merger Agreement and
the transactions contemplated thereby and determined to recommend that the
stockholders of Delmarva vote FOR approval of the Merger Agreement. The Delmarva
Board approved the Merger Agreement after consideration of a number of factors,
which are described under the heading "The Mergers--Recommendations of the
Boards of Directors--Delmarva." Certain of the members of the Delmarva Board
will become directors and/or employees of the Company following consummation of
the Mergers and/or may become entitled to severance benefits as a result of the
Mergers. Therefore, such directors have interests in the Merger Agreement that
are in addition to the interests of stockholders of Delmarva generally and that
could potentially represent conflicts of interest. The Delmarva Board was aware
of these interests and considered them, among other matters, in approving the
Merger Agreement. See "The Mergers-- Conflicts of Interest of Certain Persons in
the Mergers" and "The Mergers--Employee Plans, Severance Arrangements and
Agreements."
ATLANTIC. The Atlantic Board unanimously approved the Merger Agreement and
the transactions contemplated thereby and determined to recommend that the
stockholders of Atlantic vote FOR approval of the Merger Agreement. The Atlantic
Board approved the Merger Agreement after consideration of a number of factors,
which are described under the heading "The Mergers--Recommendations of the
Boards of Directors--Atlantic." Certain of the members of the Atlantic Board
will become directors and/or employees of the Company following consummation of
the Mergers and/or may become entitled to severance benefits as a result of the
Mergers. Therefore, such directors have interests in the Merger Agreement that
are in addition to the interests of stockholders of Atlantic generally and that
could potentially represent conflicts of interest. The Atlantic Board was aware
of these interests and considered them, among other matters, in approving the
Merger Agreement. See "The Mergers--Conflicts of Interest of Certain Persons in
the Mergers" and "The Mergers--Employee Plans, Severance Arrangements and
Agreements."
OPINIONS OF INVESTMENT BANKERS
DELMARVA. Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") delivered to the Delmarva Board its written opinions dated August 9,
1996 and December 26, 1996, each to the effect that, as of the date of each such
opinion, the Delmarva Conversion Ratio (as defined herein under "The Merger
Agreement--Consummation of the Mergers") contemplated by the Merger Agreement is
fair to Delmarva and its stockholders from a financial point of view. The
written opinion of Merrill Lynch dated December 26, 1996 is attached to this
Joint Proxy Statement/Prospectus as Annex II and should be read in its entirety.
For a description of the matters considered and assumptions made by Merrill
Lynch in reaching its opinions and the fees received and to be received by
Merrill Lynch, see "The Mergers--Opinion of Financial Advisor to Delmarva" and
Annex II.
ATLANTIC. Morgan Stanley & Co. Incorporated ("Morgan Stanley") delivered to
the Atlantic Board its oral opinion on August 9, 1996, which was confirmed in
written opinions dated August 9, 1996 and December 26, 1996, to the effect that,
as of the respective dates of such opinions and based upon the procedures and
subject to the assumptions described therein, the Atlantic Conversion Ratio (as
defined herein under "The Merger Agreement--Consummation of the Mergers") taking
into account the Delmarva Conversion Ratio is fair to the holders of Atlantic
Common Stock from a financial point of view. The written opinion of Morgan
Stanley dated December 26, 1996 is attached to this Joint Proxy Statement/
Prospectus as Annex III and should be read in its entirety. For a description of
matters considered and
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assumptions made by Morgan Stanley in reaching its opinions and the fees
received and to be received by Morgan Stanley, see "The Mergers--Opinion of
Financial Advisor to Atlantic" and Annex III.
CONFLICTS OF INTEREST OF CERTAIN PERSONS IN THE MERGERS
DIRECTORSHIPS. The Merger Agreement provides that the Delmarva Board will
be entitled to nominate ten members to the Company Board and the Atlantic Board
will be entitled to nominate eight members to the Company Board. Each member of
the Delmarva Board and the Atlantic Board serving in such capacity immediately
prior to the Effective Time will be given the opportunity to serve on the
Company Board. See "The Mergers--Conflicts of Interest of Certain Persons in the
Mergers--Board of Directors."
SEVERANCE AGREEMENTS. The Delmarva Board and the Atlantic Board have each
adopted agreements providing for severance benefits to the respective Delmarva
and Atlantic employees designated as parties to such agreements. The agreements
will be binding on the Company. A total of 48 Delmarva employees and 13 Atlantic
employees are parties to such agreements. If payments under such agreements to
all eligible employees were required to be made on the date of this Joint Proxy
Statement/Prospectus, the aggregate cost to Delmarva would be approximately
$16.6 million, and the aggregate cost to Atlantic (including the cost of early
vesting under employee plans) would be approximately $22.4 million. See "The
Mergers--Employee Plans, Severance Arrangements and Agreements."
EMPLOYEE PLANS. Under certain benefit plans, severance arrangements and
other employee agreements maintained, or entered into, by Delmarva and Atlantic,
certain benefits may become vested, and certain payments may become payable, in
connection with the Mergers. The cost resulting from early vesting of benefits
of Delmarva and Atlantic employees who have severance agreements is included in
the severance costs described in the preceding paragraph. See "The
Mergers--Employee Plans, Severance Arrangements and Agreements."
INDEMNIFICATION. From and after the Effective Time, the Company will, to
the fullest extent not prohibited by applicable law, indemnify, defend and hold
harmless the present and former officers, directors and management employees of
Delmarva and Atlantic against all losses, expenses (including reasonable
attorneys' fees), claims, damages or liabilities or, subject to certain
restrictions, amounts paid in settlement arising out of actions or omissions
occurring at or prior to or after the Effective Time that are in whole or in
part based on, or arising out of, the fact that such person is or was a
director, officer or management employee of such party or arising out of or
pertaining to the transactions contemplated by the Merger Agreement. See "The
Merger Agreement--Indemnification."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
A condition precedent to consummation of the Mergers is the receipt of
opinions of counsel substantially to the effect that the Mergers will be treated
as a tax-free reorganization under Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code") or an exchange under Section 351 of the Code.
Assuming the Mergers so qualify, then for federal income tax purposes (i) no
gain or loss will be recognized by Atlantic, Delmarva or the Company as a result
of the Mergers, (ii) holders of Delmarva Common Stock whose shares are converted
into Company Common Stock and holders of Atlantic Common Stock whose shares are
converted into Company Common Stock and Class A Common Stock in the Mergers will
recognize no gain or loss as a result of the conversion (except with respect to
Atlantic stockholders, who generally will recognize gain or loss to the extent
they receive cash in lieu of fractional shares) and (iii) the holding period and
basis applicable to shares of Company Common Stock and Class A Common Stock
received in the Mergers will be the same as the holding period and basis
attributable to the Delmarva Common Stock or Atlantic Common Stock that was
converted into Company Common Stock and Class A Common Stock in the Mergers
(reduced by any amount allocable to a fractional share interest in Company
Common Stock and Class A Common Stock for which cash is received). Although it
is the
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<PAGE>
opinion of Simpson Thacher & Bartlett that the Class A Common Stock will be
treated as stock of the Company for federal income tax purposes, there are no
federal income tax regulations, court decisions or published Internal Revenue
Service ("IRS") rulings bearing directly on this issue. If the Class A Common
Stock were determined not to be stock of the Company, the receipt of the Class A
Common Stock in the Atlantic Merger would be taxable to the Atlantic
Stockholders. See "The Mergers--Certain Federal Income Tax Consequences."
EACH DELMARVA AND ATLANTIC STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN
TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE
MERGERS, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND
FOREIGN TAX LAWS.
ACCOUNTING TREATMENT
The Mergers will be accounted for under the purchase method of accounting
for financial reporting purposes. See "The Mergers--Accounting Treatment."
APPRAISAL RIGHTS
Dissenters' or other appraisal rights are not available to holders of
Delmarva Common Stock, Delmarva Preferred Stock or Atlantic Common Stock in
connection with the transactions contemplated by the Merger Agreement. See "The
Mergers--Appraisal Rights."
REGULATORY MATTERS
The approvals of the SEC under the 1935 Act, the Nuclear Regulatory
Commission (the "NRC") under the Atomic Energy Act of 1954, as amended (the
"Atomic Energy Act"), the Federal Energy Regulatory Commission (the "FERC")
under the Federal Power Act, as well as the approvals of the Delaware, Virginia,
Maryland, New Jersey and Pennsylvania utility commissions under applicable state
laws and the expiration or termination of the applicable waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), are required to consummate the Mergers. See "Regulatory Matters."
Upon consummation of the Mergers, the Company must register as a holding
company under the 1935 Act. The 1935 Act imposes restrictions on the operations
of registered holding company systems. Among these are requirements that
securities issuances, sales and acquisitions of utility assets or of securities
of utility companies and acquisitions of interests in any other business be
approved by the SEC. The 1935 Act also limits the ability of registered holding
companies to engage in nonutility ventures and regulates holding company system
service companies and the rendering of services by holding company affiliates to
the system's utilities. Delmarva, Atlantic and the Company recognize that the
divestiture of the existing gas operations of Delmarva and certain nonutility
operations of Delmarva and Atlantic is a possibility under the new registered
holding company structure, but the Company will request in its 1935 Act
application that it be allowed to retain the gas utility operations of Delmarva
and the nonutility operations of Delmarva and Atlantic or, in the alternative,
that the question of divestiture be deferred. If divestiture is ultimately
required, the SEC historically has allowed companies sufficient time to
accomplish divestiture in a manner that protects stockholder value. See
"Regulatory Matters--Public Utility Holding Company Act of 1935."
For a discussion of certain regulatory trends and potential effects on
Delmarva, ACE and the Company, see "Regulatory Matters--Effects of Certain
Regulatory Trends."
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CONDITIONS TO THE MERGERS
The obligations of Delmarva and Atlantic to consummate the Mergers are
subject to the satisfaction of certain conditions, including: the approval of
the stockholders of each of Delmarva and Atlantic; the absence of any
restraining order, injunction or applicable law or regulation preventing or
prohibiting the Mergers; the effectiveness of the Registration Statement; the
approval of the listing on the NYSE of the Company Common Stock and the Class A
Common Stock upon official notice of issuance; the receipt of all material
statutory approvals as final orders, without such approvals having a material
adverse effect on Delmarva or Atlantic; the expiration or termination of the
applicable waiting period under the HSR Act; the performance of the agreements
and covenants required to be performed under the Merger Agreement in all
material respects; the accuracy of the representations and warranties set forth
in the Merger Agreement in all material respects; the absence of any material
adverse effect on the business, operations or results of operations of Delmarva
or Atlantic; the receipt of material third party consents; the receipt by each
of Delmarva and Atlantic of an officer's certificate from the other relating to
the satisfaction of conditions in the Merger Agreement; the receipt of tax
opinions; and the receipt of certain agreements from affiliates within the
meaning of SEC Rule 145, if any, of Delmarva and Atlantic. See "The Merger
Agreement--Conditions to the Mergers."
RIGHTS TO TERMINATE, AMEND OR WAIVE CONDITIONS
The Merger Agreement may be terminated under certain circumstances,
including: by mutual written consent of the Delmarva Board and the Atlantic
Board; by Delmarva or Atlantic if the Mergers are not consummated by 18 months
after the signing of the Merger Agreement (or by 30 months after the signing of
the Merger Agreement under certain conditions described under "The Merger
Agreement--Termination"); by Delmarva or Atlantic if the requisite stockholder
approvals are not obtained; by Delmarva or Atlantic if a law, order, rule or
regulation is issued or adopted that has the effect of prohibiting the Mergers,
or if any final and nonappealable action by a court of competent jurisdiction
prohibits either of the Mergers; in connection with a third-party acquisition
proposal by the recipient of the third-party acquisition proposal, if the Board
of Directors of the party receiving the acquisition proposal determines in good
faith that acceptance of the acquisition proposal is necessary for the Board of
Directors to act consistent with its fiduciary duties; by Delmarva or Atlantic
if there occurs a material breach of the Merger Agreement by the other party
that is not cured within 20 days after receipt of notice; or by Delmarva or
Atlantic if the other party shall not have complied with certain agreements and
covenants or if its Board of Directors withdraws or modifies in an adverse
manner or does not reaffirm upon request its recommendation to its stockholders
in favor of the Merger Agreement and the transactions contemplated thereby or
recommends a different acquisition proposal than contemplated by the parties; or
by Delmarva or Atlantic if a third party acquires greater than 50% of the voting
power of the other party or certain changes in the composition of the board of
the other party occur.
The Merger Agreement requires certain fees to be paid upon termination of
the Merger Agreement under certain circumstances. The aggregate termination fees
under these provisions may not exceed $40 million (including out-of-pocket
expenses of up to $10 million). See "The Merger Agreement--Termination Fees."
The Merger Agreement may be amended by Delmarva or Atlantic pursuant to
action by the Delmarva Board and the Atlantic Board, respectively, at any time
before or after its approval by the holders of Delmarva Common Stock and
Atlantic Common Stock, respectively, but after any such approval no amendment
may be made that alters or changes (i) the amount or kind of shares, securities
or cash to be received or exchanged for or on the conversion of shares of
Delmarva or Atlantic, (ii) the terms or conditions of the Merger Agreement if
such alterations or changes, alone or in the aggregate, would adversely affect
the rights of the holders of any class or series of stock of Delmarva or
Atlantic or (iii) the certificate of incorporation of the Company or Delmarva,
except for alterations or changes that could
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otherwise be adopted by the Company Board without the further approval of such
stockholders. See "The Merger Agreement--Amendment and Waiver."
At any time prior to the Effective Time, the time of performance of any
obligation or other acts may be extended or any inaccuracies in the
representations and warranties or conditions to a party's obligation to
consummate the Mergers under the Merger Agreement may be waived by the other
parties thereto.
COMMON EQUITY OF THE COMPANY
The common equity of the Company will be divided into two classes: the
Company Common Stock and the Class A Common Stock. The use of two classes of
common stock is designed to address the difference in Delmarva's and Atlantic's
evaluations of the growth prospects of, and uncertainties associated with
deregulation of, the regulated electric utility business of Atlantic. Upon the
consummation of the Mergers, the Company Common Stock will be issued both to the
holders of the Delmarva Common Stock and to the holders of the Atlantic Common
Stock and the Class A Common Stock will be issued to the holders of the Atlantic
Common Stock, thereby giving the current holders of Atlantic Common Stock a
proportionately greater opportunity to share in the growth prospects of, and a
proportionately greater exposure to the uncertainties associated with
deregulation of, the regulated electric utility business of Atlantic.
The principal advantage of this structure is that it addresses the concerns
of the managements of both Delmarva and Atlantic and allows the respective
stockholders of Delmarva and Atlantic to gain the level of exposure to the
growth prospects of, and uncertainties associated with deregulation of, the
regulated electric utility business of Atlantic that the respective managements
have deemed advisable. The level of such exposure is reflected primarily by (i)
the amount of the Notional Fixed Charge (defined below) ($40 million), (ii) the
percentage of equity interest in the Company attributable to the Atlantic
Utility Group represented by the outstanding Class A Common Stock (30%) and
(iii) the percentages of Company Common Stock and Class A Common Stock issued to
the Atlantic stockholders (39.4% and 100%) and to the Delmarva stockholders
(60.6% and 0%). Through the ownership of 39.4% of the Company Common Stock, the
Atlantic stockholders will have the benefit of 27.6% (39.4% of 70%) of the
interest in the earnings attributable to the current regulated utility business
of ACE in excess of $40 million per year as well as a 39.4% of the interest in
the first $40 million of such earnings. Accordingly, together with the 30%
interest in such earnings represented by the Class A Common Stock, Atlantic
stockholders will retain more than half the benefits and risks related to such
business. Such exposure will be realized by the respective stockholders to the
extent that dividends on the Class A Common Stock will actually be based on, and
to the extent that the market price of the Class A Common Stock will actually
reflect, the earnings of the Atlantic Utility Group in excess of the Notional
Fixed Charge, which are subject to significant uncertainties. The principal
disadvantage of this structure is that it creates a complex capital structure
for the Company which could have an adverse effect on the trading market for the
shares of both the Class A Common Stock and the Company Common Stock. See "Risk
Factors--Risk Factors Associated with the Class A Common Stock--No Assurance as
to Market Price of Class A Common Stock" and "--Risk Factors Associated with the
Company Common Stock--No Assurance as to Market Price of Company Common Stock."
For a discussion of risk factors associated with this dual class capital
structure, see "Risk Factors--Risk Factors Associated with the Dual Class Common
Equity Structure."
The Class A Common Stock will at the time of the consummation of the Mergers
represent 30% of the interest in the Company attributable to the Atlantic
Utility Group (as defined below), subject to a $40 million per annum charge (the
"Notional Fixed Charge") described below. This is primarily due to the fact that
the Company intends to base the amount of dividends on the Class A Common Stock
on the earnings of the Atlantic Utility Group in excess of the Notional Fixed
Charge, although the Company Board generally has discretion to examine all
relevant considerations, including factors affecting the Company overall, in
determining such amount. Delmarva and Atlantic have determined that certain
businesses, assets and liabilities of ACE described below will be "attributed
to," or included in, the Atlantic Utility
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Group for purposes of determining such Group's earnings in excess of the
Notional Fixed Charge. However, holders of the Class A Common Stock will, like
the holders of Company Common Stock, be common stockholders of the Company, will
not have any specific rights or claims against such businesses, assets and
liabilities, including upon liquidation of the Company, other than as common
stockholders of the Company and will be subject to risks associated with an
investment in the Company and all of its businesses, assets and liabilities. In
addition, funds representing the earnings of the Atlantic Utility Group will not
necessarily be held in any segregated accounts of such Group. See "Risk
Factors--Risk Factors Associated with the Dual Class Common Equity
Structure--Stockholders of One Company; Financial Effects on One Business Could
Affect Other Businesses."
The Atlantic Utility Group will include the interest of the Company at the
Effective Time in ACE, and solely those lines of business in which ACE was
engaged as of August 9, 1996, and the assets and liabilities attributable to
those lines of business, and which as of August 9, 1996 were: price regulated by
the New Jersey Board of Public Utilities (the "NJBPU"); directly related to the
supply of electricity (generation and purchase of electricity) or the delivery
of electricity (transmission and distribution of electricity); and a line of
business for which ACE has a franchise; all of the foregoing as further
qualified by the Restated Certificate of Incorporation of the Company (the
"Company Charter"), the provisions of which are set forth in Annex IV to this
Joint Proxy Statement/Prospectus.
The Company Common Stock will represent the interest in the Company that is
not represented by the Class A Common Stock. This will include (i) the interest
in the businesses, assets and liabilities of the Company other than those of the
Atlantic Utility Group and (ii) the interest in the Company attributable to the
Atlantic Utility Group that is not represented by the outstanding shares of
Class A Common Stock but is retained by the Company through its "Intergroup
Interest" in the Atlantic Utility Group and through the Notional Fixed Charge.
Upon consummation of the Mergers, the Intergroup Interest will represent 70%
of the interest in the Company attributable to the Atlantic Utility Group.
Following the Mergers the Intergroup Interest will be subject to increase or
decrease under the circumstances specified in the Company Charter. Should the
70% Intergroup Interest increase or decrease, the Class A Common Stock's 30%
proportionate interest in the interest in the Company attributable to the
Atlantic Utility Group will correspondingly decrease or increase accordingly.
Dividends on the Company Common Stock will be based on (i) the earnings of
the Company other than those of the Atlantic Utility Group, (ii) earnings of the
Atlantic Utility Group in proportion to the Intergroup Interest and (iii)
earnings of the Atlantic Utility Group up to the amount of the Notional Fixed
Charge.
The market prices of the Company Common Stock and the Class A Common Stock
after the consummation of the Mergers would be determined in the trading markets
and could be influenced by many factors, including the consolidated results of
the Company, as well as the respective performances of the Residual Group (as
defined under "Description of the Company's Capital Stock--Certain Definitions")
and the Atlantic Utility Group (each a "Group" and, together, the "Groups"),
investors' expectations for the Groups, trading volumes, the regulatory
environment and general economic and market conditions. There can be no
assurance as to the extent to which investors would assign values to the Company
Common Stock and the Class A Common Stock based on the reported financial
results or other measures of performance or prospects of the relevant
businesses. There is no present intention on the part of Delmarva and Atlantic
for the Company to issue any shares of Class A Common Stock following
consummation of the Mergers.
See "Description of the Company's Capital Stock--Common Stock," "--The Class
A Common Stock, the Atlantic Utility Group and the Notional Fixed Charge,"
"--Dividends," "--Intergroup Interest,"
"--Liquidation Rights," "--Certain Definitions--Atlantic Utility Group" and
Annex IV to this Joint Proxy Statement/Prospectus.
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It is expected that the Company Common Stock and the Class A Common Stock
will be listed on the NYSE.
DIVIDENDS
It is anticipated that following the Mergers the Company will initially pay
dividends on the Company Common Stock at the rate of $1.54 per annum, subject to
evaluation from time to time by the Company Board based on the Company's results
of operations, financial condition, capital requirements and other relevant
considerations. However, no assurance can be given that such dividend rate will
be in effect or will remain unchanged, and the Company reserves the right to
increase or decrease the dividend on the Company Common Stock as may be required
by law or contract or as may be determined by the Company Board, in its
discretion, to be advisable. For a description of certain restrictions on the
Company's ability to pay dividends on Company Common Stock, see "Description of
the Company's Capital Stock."
Subject to declaration by the Company Board and the obligation of the
Company Board to consider the financial condition and regulatory environment of
the Company and the results of its operations, the dividends declared and paid
on the Class A Common Stock will be maintained at a level of $3.20 per share per
annum until the earlier of July 1, 2001, or the end of the twelfth calendar
quarter following the calendar quarter in which the Effective Time occurs (the
"Initial Period"). Thereafter, it is the intention of the Company, subject to
declaration by the Company Board and the obligation of the Company Board to
consider the financial condition and regulatory environment of the Company and
the results of its operations, to pay annual dividends on the Class A Common
Stock in an amount (the amount of such dividends to include the amount credited
to the Intergroup Interest as described under "Description of the Company's
Capital Stock--Intergroup Interest--Adjustments in Connection with Various
Transactions--Dividends") equal to 90% of the Company Net Income Attributable to
the Atlantic Utility Group, subject to the fact that if the annual dividends
paid on the Class A Common Stock during the Initial Period (including the amount
credited to the Intergroup Interest as aforesaid) shall have exceeded 100% of
the Company Net Income Attributable to the Atlantic Utility Group during such
period, the Company Board may consider such fact in determining the amount of
future dividends, if any, on the Class A Common Stock. There can be no assurance
that the Company's earnings attributable to the Atlantic Utility Group will be
sufficient to cover dividends on the Class A Common Stock during the Initial
Period. DIVIDENDS ON THE CLASS A COMMON STOCK WILL NOT BE CUMULATIVE.
The Company Net Income Attributable to the Atlantic Utility Group for the
fiscal year ended December 31, 1995 and the 12-month period ended September 30,
1996 would have been $44.1 million and $31.8 million (I.E., $84.1 million and
$71.8 million minus the $40 million Notional Fixed Charge), respectively. The
Company Net Income Attributable to the Atlantic Utility Group for these same
periods would have been $57.6 million and $49.1 million (I.E., $97.6 million and
$89.1 million minus the $40 million Notional Fixed Charge), respectively, not
taking into account the higher than expected costs associated with the Salem
Nuclear Generating Station described under "Selected Information Concerning
Delmarva and Atlantic--Salem Nuclear Generating Station" and the effects of
foregone recovery of certain fuel costs under the Southern New Jersey Economic
Initiative, which are not expected to recur, and the effects of abnormal
weather.
The dividend policies with respect to the Class A Common Stock and the
Company Common Stock are and will be subject to evaluation from time to time by
the Company Board based on the Company's results of operations, financial
condition and capital requirements and other relevant considerations, including
regulatory considerations. See "Description of the Company's Capital
Stock--Common Stock--Dividends--Dividend Policies."
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COMPARISON OF CORPORATE CHARTERS AND RIGHTS OF SECURITY HOLDERS
As a result of the Mergers, holders of Delmarva Common Stock and Atlantic
Common Stock who receive shares of Company Common Stock and, in the case of
holders of Atlantic Common Stock, Class A Common Stock will become stockholders
of the Company and will have certain rights as stockholders of the Company
different from those they had as stockholders of Delmarva or Atlantic. For
comparisons of the DGCL to the NJBCA and the VSCA and of the provisions in the
articles or certificate of incorporation and bylaws of Delmarva, Atlantic and
the Company governing the rights of stockholders of Delmarva, Atlantic and the
Company, see "Comparison of Corporate Charters and Rights of Security Holders."
SELECTED INFORMATION CONCERNING DELMARVA AND ATLANTIC
For recent developments with respect to the Salem Nuclear Generating Station
and other information concerning Delmarva and Atlantic, see "Selected
Information Concerning Delmarva and Atlantic."
THE COMPANY FOLLOWING THE MERGERS
Following the consummation of the Mergers, the Company will maintain its
corporate headquarters and principal executive offices in Wilmington, Delaware,
and the Company will maintain a significant presence in New Jersey. After the
consummation of the Mergers, the Company will provide charitable contributions
and community support within the service areas of Delmarva and Atlantic and each
of their subsidiaries at levels substantially comparable to historical levels of
charitable contributions and community support provided by Delmarva and Atlantic
prior to the consummation of the Mergers. The business of the Company will be to
operate as a holding company for its utility subsidiaries and various nonutility
subsidiaries. See "The Company Following the Mergers."
Following the consummation of the Mergers, the Company and its subsidiaries
will honor all prior contracts, agreements, collective bargaining agreements and
commitments with current or former employees or current or former directors of
Delmarva or Atlantic and their respective subsidiaries, in accordance with the
respective terms of such contracts, agreements and commitments, subject to the
Company's right to enforce them in accordance with their terms (including any
reserved right to amend, modify, suspend, revoke or terminate them). The Company
will take all action necessary so that, after the consummation of the Mergers,
the Dividend Reinvestment and Common Share Purchase Plan, the Savings and Thrift
Plan and the Long-Term Incentive Plan of Delmarva and the Equity Incentive Plan,
the Directors' Restricted Stock Plan, the Employee Stock Purchase Plan and the
Dividend Reinvestment Plan of Atlantic will be terminated, replaced or amended
to provide for the issue and sale of Company Common Stock in place of Delmarva
Common Stock or Atlantic Common Stock, as the case may be, under such plans. See
"The Merger Agreement--Benefit Plans."
Both the holders of Company Common Stock and the holders of Class A Common
Stock will receive the consolidated financial statements of the Company. Since
upon consummation of the Mergers the financial results of ACE will be
substantially identical to the financial results for the Atlantic Utility Group,
the notes to the consolidated financial statements of the Company will at such
time include condensed financial information of ACE, including a reconciliation
of ACE's Income Available to Common Stockholders to the Earnings Applicable for
Class A Common Stock. Complete financial statements of ACE will continue to be
filed under the Exchange Act and will be available to stockholders upon request.
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RISK FACTORS
Stockholders should carefully consider the following factors, in addition to
the other information contained elsewhere in this Joint Proxy
Statement/Prospectus, the Annexes hereto and the documents incorporated by
reference or otherwise referred to herein, in connection with the Mergers.
RISK FACTORS ASSOCIATED WITH THE DUAL CLASS COMMON EQUITY STRUCTURE
STOCKHOLDERS OF ONE COMPANY; FINANCIAL EFFECTS ON ONE BUSINESS COULD AFFECT
OTHER BUSINESSES. Notwithstanding the attribution of assets and liabilities,
equity and items of income and expense between the Atlantic Utility Group and
the Residual Group (each as defined under "Description of the Company's Capital
Stock--Certain Definitions"; each a "Group" and, together, the "Groups"), the
capital structure of the Company contemplated by the Merger Agreement will not
affect legal title to such assets or responsibility for such liabilities of the
Company or any of its subsidiaries. Holders of Company Common Stock and of Class
A Common Stock will be common stockholders of the Company and will be subject to
risks associated with an investment in the Company and all of its businesses,
assets and liabilities. Financial effects arising from either Group that affect
the Company's consolidated results of operations or financial condition could,
if significant, affect the combined results of operations or financial condition
of the other Group and the market price of both the Company Common Stock and the
Class A Common Stock.
The financial condition of each Group will principally reflect the financial
condition of the businesses included therein. However, the Residual Group's
financial condition will reflect the fact that the Residual Group will hold an
undivided interest in the individual businesses, assets and liabilities of the
Atlantic Utility Group equal to the Intergroup Interest Fraction, which at the
consummation of the Mergers will equal 70%. See "Description of the Company's
Capital Stock--Intergroup Interest."
LIMITED SEPARATE STOCKHOLDER RIGHTS; EFFECTS ON VOTING POWER. From and
after the consummation of the Mergers, holders of Company Common Stock and Class
A Common Stock would not be provided any rights specifically related to their
corresponding Groups or have any right to vote on matters as a separate class,
other than (i) as set forth in the Company Charter and described under
"Description of the Company's Capital Stock--Common Stock" and (ii) separate
voting rights in limited circumstances as required by the DGCL. Separate
meetings for the holders of Company Common Stock or Class A Common Stock would
not be held.
From and after the consummation of the Mergers, holders of Company Common
Stock, Class A Common Stock and any preferred stock, par value $.01 per share,
of the Company (the "Preferred Stock") having general voting rights would vote
as one class on all matters coming before any meeting of stockholders and would
not have any separate class voting rights except in limited circumstances as
required by the DGCL and as provided in the Company Charter in the case of any
Preferred Stock. Under the DGCL, the holders of the outstanding shares of a
class are entitled to vote as a class upon a proposed amendment to a
corporation's certificate of incorporation, whether or not entitled to vote on
such amendment by the certificate of incorporation, if the amendment would alter
or change the powers, preferences or special rights of such class so as to
affect them adversely. The DGCL does not provide for any other separate voting
rights of a class of capital stock (other than with respect to a change in par
value or an increase or decrease in the authorized shares of such class).
Certain matters on which holders of Company Common Stock and of Class A
Common Stock would vote together as a single class could involve a divergence or
the appearance of a divergence of interests between the holders of Company
Common Stock and the holders of Class A Common Stock. For example, the Company
Charter does not require that a merger or consolidation of the Company requiring
the approval of the Company's stockholders be approved by a separate vote of
holders of either class of Common Stock. As a result, if holders of any one or
more classes of Common Stock that possess the requisite voting power vote to
approve the merger or consolidation, the merger or consolidation could be
consummated even if the holders of a majority of some other class of Common
Stock vote against the merger or consolidation. See "--Potential Divergence of
Interests and Requirement to Act on Behalf of
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Company and All Stockholders" and "--Management and Allocation Policies Not
Formulated; Policies Subject to Revision." The holders of Common Stock will not
be entitled to cumulative votes for the election of directors. Except as may
otherwise be required by the laws of the State of Delaware, the holders of
Company Common Stock and the holders of Class A Common Stock will vote as one
class for all purposes. Neither the holders of Company Common Stock nor the
holders of Class A Common Stock will have any rights to vote as a separate class
on any matters submitted to a vote at a meeting of stockholders except with
respect to certain limited class voting rights provided under the DGCL.
If the Merger Agreement is approved by the stockholders of Delmarva and
Atlantic and the Mergers are consummated, the Class A Common Stock will have one
vote per share and the Company Common Stock will have one vote per share. Based
on the shares of Delmarva Common Stock and Atlantic Common Stock outstanding as
of the close of business on September 30, 1996, the Company Common Stock would
represent approximately 94.2%, and the Class A Common Stock would represent
approximately 5.8%, of the voting power of all classes entitled to vote on
matters presented to stockholders. See "Description of Company's Capital
Stock--Voting."
POTENTIAL DIVERGENCE OF INTERESTS AND REQUIREMENT TO ACT ON BEHALF OF
COMPANY AND ALL STOCKHOLDERS. In certain instances where the interests of the
holders of Company Common Stock and the holders of Class A Common Stock may
diverge or appear to diverge, the Company Board will be required to act on
behalf of the Company and its stockholders taken as a whole. As further
discussed below, examples include determinations by the Company Board to (i)
convert each outstanding share of Class A Common Stock into shares of Company
Common Stock, (ii) approve the disposition of all or substantially all of the
properties and assets of the Atlantic Utility Group, (iii) allocate resources
and financial support to or pursue business opportunities or operational
strategies through one Group instead of the other Group, (iv) allocate the
proceeds of issuances of Class A Common Stock either to the Residual Group in
reduction in the Intergroup Interest or to the Atlantic Utility Group, (v) pay
or omit to pay dividends on Company Common Stock or Class A Common Stock or (vi)
approve transactions involving the transfer of funds or assets from one Group to
the other Group or make other operational or financial decisions with respect to
one Group that could be considered to be detrimental to the other Group. When
making decisions with regard to matters with respect to which the holders of the
Company Common Stock and the holders of the Class A Common Stock would have
potentially divergent interests, the Company Board would act in accordance with
the terms of the Company Charter, its fiduciary duties and, to the extent
applicable and consistent with its fiduciary duties, the management and
accounting policies, if any, adopted by the Company Board as discussed under
"The Company Following the Mergers--Management of the Company." See "--Fiduciary
Duties of the Company Board Are to All Stockholders Regardless of Class."
ALLOCATION OF RESOURCES AND FINANCIAL SUPPORT; PURSUIT OF OPERATIONAL
STRATEGIES. The Company Board could from time to time allocate resources and
financial support to or pursue operational strategies through one Group instead
of the other Group. The decision to allocate resources and financial support to
one Group may adversely affect the ability of the other Group to obtain funds
sufficient to implement its business strategies. Any such decision may favor one
Group at the expense of the other. For example, the decision to obtain funds for
one Group may adversely affect the ability of the other Group to obtain funds
sufficient to implement its growth strategies. All such decisions will be made
by the Company Board in its good faith business judgment and in accordance with
procedures and policies adopted by the Company Board from time to time,
including the policies described under "The Company Following the Mergers--
Certain Management Policies," to ensure that such decisions will be made in a
manner consistent with the best interests of the Company and all of its
stockholders, including both the holders of the Class A Common Stock and the
holders of the Company Common Stock. Following the Effective Time, the Audit
Committee of the Company Board will be charged with the responsibility of
advising the Company Board with respect to certain intercompany transactions and
other fiduciary matters that may relate to the Class A Common Stock. See "The
Company Following the Mergers--Management of the Company."
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FIDUCIARY DUTIES OF THE COMPANY BOARD ARE TO ALL STOCKHOLDERS REGARDLESS OF
CLASS. Under Delaware law, the Company Board has a duty to act with due care
and in the best interests of the Company as a whole and the entire body of
stockholders, including the holders of Company Common Stock and Class A Common
Stock. Although the Company is not aware of any precedent concerning the manner
in which principles of Delaware law would be applied in the context of a capital
structure involving multiple classes or series of capital stock the rights of
which include terms designed to reflect the separate performance of specified
businesses, principles of Delaware law provide that a board of directors must
act in accordance with its good faith business judgment of the corporation's
best interests, taking into consideration the interests of the entire body of
stockholders regardless of class or series. Under these principles of Delaware
law and the "business judgment rule," a good faith determination made by a
disinterested and adequately informed Company Board with respect to any matter
having a disparate impact upon the holders of Company Common Stock and the
holders of Class A Common Stock would be a defense to any challenge to such a
determination. Nevertheless, a Delaware court hearing a case involving such a
challenge may decide to apply principles of Delaware law other than those
discussed above or may fashion new principles of Delaware law, in order to
decide such a case, which would be a case of first impression. There may arise
circumstances involving a divergence of interests in which the Company Board is
held to have properly discharged its responsibilities to act with due care and
in the best interests of the Company and the entire body of stockholders but in
which holders of either the Company Common Stock or the Class A Common Stock
consider themselves to be disadvantaged relative to the other class. In such a
case, such holders would not have any remedy under Delaware law with respect to
the circumstances giving rise to the divergence of interests.
Disproportionate ownership interests of members of the Company Board in the
Company Common Stock and the Class A Common Stock could create or appear to
create potential conflicts of interest when directors are faced with decisions
that could have different implications for different series. See "-- Potential
Divergence of Interests." The existing benefit plans of Delmarva and Atlantic
will be converted to plans of the Company that will provide for the issuance of
Company Common Stock and not Class A Common Stock. See "The Company Following
the Mergers--Operations of the Company" and "Approval of the Company Incentive
Compensation Plan." Nevertheless, the Company believes that a director would be
able to discharge his or her fiduciary responsibilities even if his or her
interests in shares of Company Common Stock and Class A Common Stock were
disproportionate or had disparate values.
MANAGEMENT AND ALLOCATION POLICIES NOT FORMULATED; POLICIES SUBJECT TO
REVISION. Except for the provision contained in the Merger Agreement pursuant
to which the Audit Committee of the Company Board will advise the Company Board
with respect to certain intercompany transactions and other fiduciary matters
that may be related to the Class A Common Stock (see "The Company Following the
Mergers--Management of the Company"), Delmarva and Atlantic have determined not
to adopt specific management and allocation policies with respect to cash
management, corporate expenses, allocation of assets and liabilities and
inter-Group transactions at the present time. Rather than develop policies at
this time, the Company Board intends to exercise from time to time its judgment,
as to how best to obtain information regarding the divergence (or potential
divergence) of interests, under what circumstances to seek the assistance of
outside advisers, and how to assess which available alternative is in the best
interests of the Company and all of its stockholders. Delmarva and Atlantic
believe the advantages of retaining board flexibility to address circumstances
as they arise outweigh any perceived advantages that may derive from the
adoption of policies at the present time.
Any management and allocation policies with respect to cash management,
corporate expenses, allocation of assets and inter-Group transactions adopted by
the Company Board will be required to conform to federal and state regulations,
which extensively regulate the operations of the Company and its affiliates and
which may impose procedural, substantive, record keeping, accounting and other
requirements on the Company in connection with such matters. See "The Company
Following the Mergers-- Management of the Company."
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After management and allocation policies, if any, are adopted, any and all
of them could be modified or rescinded by the Company Board, in its sole
discretion, without the approval of stockholders. Any determination to modify or
rescind such policies, or to adopt other policies in their place, including any
such decision that could have disparate effects upon holders of Company Common
Stock or Class A Common Stock, would be made by the Company Board as set forth
under "-- Fiduciary Duties of the Company Board Are to All Stockholders
Regardless of Class." See "The Company Following the Mergers--Management of the
Company."
LIMITATIONS ON POTENTIAL ACQUISITION OF A GROUP. If each Group were a
separate publicly held corporation, any person interested in acquiring such
corporation without negotiation with management could seek control of the
outstanding stock of such corporation by means of a tender offer or proxy
contest. Although approval and consummation of the Mergers would authorize
issuance of the Class A Common Stock that is intended to reflect the performance
of the Atlantic Utility Group and the Company Common Stock that is intended to
reflect the performance of the Residual Group, a person interested in acquiring
only one Group without negotiation with the Company's management would still be
required to seek control of the voting power represented by all of the
outstanding capital stock of the Company, including the Company Common Stock and
the Class A Common Stock. See "Description of the Company's Capital
Stock--Voting."
ABSENCE OF APPROVAL RIGHTS WITH RESPECT TO FUTURE ISSUANCES OF AUTHORIZED
SHARES. Following consummation of the Mergers, the authorized but unissued
shares of capital stock would be available for issuance from time to time by the
Company at the sole discretion of the Company Board for any proper corporate
purpose. Such issuances could include shares of Company Common Stock or
(although there is no present intention to issue any such shares) shares of
Class A Common Stock, as well as the issuance of such shares upon the conversion
or exercise of securities of the Company that are convertible into or
exercisable or exchangeable for such shares. The approval of the stockholders of
the Company will not be sought by the Company for the issuance of authorized but
unissued shares of Company Common Stock or Class A Common Stock (or the
reissuance of previously issued shares that have been reacquired by the Company)
or securities of the Company that are convertible into or exercisable or
exchangeable for such shares, unless deemed advisable by the Company Board or
required by applicable law, regulation or stock exchange requirements. The
authorized capital stock of the Company, as of the time of the consummation of
the Mergers, will consist of (i) 160 million shares of common stock, of which
150 million shares will be designated as Company Common Stock and 10 million
shares will be designated as Class A Common Stock, and (ii) 20 million shares of
Preferred Stock.
ANTI-TAKEOVER CONSIDERATIONS. The Company Charter and the bylaws of the
Company (the "Company Bylaws"), the existence of the Class A Common Stock, the
DGCL, various state public utility regulatory statutes and the Public Utility
Holding Company Act of 1935, as amended (the "1935 Act") may serve to discourage
or make more difficult a change in control of the Company without the support of
the Company Board or without meeting various other conditions. Charter and bylaw
provisions that may discourage or make more difficult a change in control of the
Company include the authorization of the Company Board to issue additional
shares of Preferred Stock in one or more series and to fix and state the
designations, powers, preferences, qualifications, limitations, restrictions and
relative rights of the shares of each such series without further action by the
Company's stockholders, certain procedures required in connection with the
nomination of directors of the Company and the other provisions described under
"Description of the Company's Capital Stock--Anti-Takeover Provisions." The
existence of the Class A Common Stock would present complexities and could in
certain circumstances pose obstacles, financial and otherwise, to an acquiring
person. For example, a potential acquiror would have to take into consideration
that holders of different series of Common Stock might be more or less receptive
to the acquiror's proposal, that a tender offer would have to be structured so
as to take into account different prices at which shares of the different series
might be acquired, that a merger would require allocation of consideration among
the different classes of Common Stock and the effects of actions the Company
might
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take such as causing a conversion of the Class A Common Stock. In addition, to
the extent the relative market values of the Company Common Stock and the Class
A Common Stock fluctuate, a potential acquiror may be able to acquire relatively
more or less voting power for the same consideration depending on which class of
Common Stock is purchased. The Company is subject to Section 203 of the DGCL,
which, in general, prohibits a "business combination" between a corporation and
an "interested stockholder" unless certain conditions are met. In addition,
certain acquisitions of outstanding voting shares would require prior approval
of state regulatory authorities pursuant to applicable state public utility
regulatory statutes and of the SEC pursuant to the 1935 Act. See "Regulatory
Matters." The provisions of the Company Charter and the Company Bylaws, the
existence of the Class A Common Stock and provisions of the DGCL, various state
utility regulatory statutes and the 1935 Act could, under certain circumstances,
prevent stockholders from profiting from an increase in the market value of
their shares as a result of a change in control of the Company by delaying or
preventing such change in control. See "Description of the Company's Capital
Stock--Anti-Takeover Provisions."
RISK FACTORS ASSOCIATED WITH EACH CLASS OF COMMON STOCK
NO ASSURANCE OF PAYMENT OF DIVIDENDS ON THE COMMON STOCK. Although the
Merger Agreement sets forth a dividend policy with respect to the Class A Common
Stock, and Delmarva and Atlantic have announced a dividend policy for the
Company Common Stock at the time of the consummation of the Mergers, such
dividend policies are and will be subject to evaluation from time to time by the
Company Board based on the Company's results of operations, financial condition
and capital requirements and other relevant considerations, including regulatory
considerations. Such policies, moreover, are not contained within the Company
Charter, which is the instrument that establishes the terms of the Common Stock.
See "Description of the Company's Capital Stock--Common
Stock--Dividends--Dividend Policies" and "The Company Following the
Mergers--Dividend Policies." Any dividends on the Company Common Stock and the
Class A Common Stock that may be declared by the Company Board will be payable
out of the lesser of (i) the funds of the Company legally available for such
purpose, which are determined on the basis of the entire Company, and (ii) the
Residual Group Available Dividend Amount and the Atlantic Utility Group
Available Dividend Amount, respectively. See "Description of the Company's
Capital Stock--Common Stock--Dividends--Available Amounts." The Company's
ability to pay dividends will depend primarily upon the ability of its
subsidiaries, including Delmarva and ACE, to pay dividends or otherwise transfer
funds to it. Financing arrangements, charter provisions and regulatory
requirements may impose restrictions on the ability of the Company's
subsidiaries to transfer funds to the Company in the form of cash dividends,
loans or advances. Such charter provisions include the provisions in the
Restated Certificate and Articles of Incorporation, as amended, of Delmarva (the
"Delmarva Charter") and in the Certificate of Incorporation, as amended, of ACE
(the "ACE Charter") that, respectively, preclude the payment of dividends on
Delmarva Common Stock and the common stock, $3.00 par value, of ACE (the "ACE
Common Stock") if there are any arrearages in payment of dividends on the
Delmarva Preferred Stock or on the ACE preferred stock (the "ACE Preferred
Stock"). Under the 1935 Act, the SEC has the power to preclude the payment of
dividends by Delmarva and ACE to the Company or to preclude the payment of
dividends by the Company under certain circumstances. Any net losses of the
Company (without regard to whether such losses arose from any specific Group),
any dividends or distributions on, or repurchases of, the Company Common Stock
or the Class A Common Stock, and any dividends on, and certain repurchases of
Company Preferred Stock, will reduce the funds of the Company legally available
for payment of dividends on both the Company Common Stock and the Class A Common
Stock. Subject to limitations of the DGCL and the Company Charter, the Company
Board may declare and pay dividends on Company Common Stock and Class A Common
Stock in equal or unequal amounts, or may decide not to declare and pay such
dividends, notwithstanding the relationship between the Residual Group Available
Dividend Amount and the Atlantic Utility Group Available Dividend Amount, the
respective amounts of prior dividends paid on, or liquidation rights of, the
Company Common Stock or the Class A Common Stock or any other factor. See
"Description of the Company's Capital Stock-- Common Stock--Dividends--Dividend
Policies."
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DISPOSITION OF GROUP ASSETS WITHOUT STOCKHOLDER APPROVAL. As long as the
assets of a Group represent less than substantially all of the properties and
assets of the Company, the Company Board may approve sales and other
dispositions of any amount of the properties and assets of such Group without
stockholder approval, since under the DGCL and the Company Charter stockholder
approval is required only for a sale or other disposition of all or
substantially all of the properties and assets of the Company as a whole. The
proceeds from any such disposition would be assets attributed to such Group and
used for its benefit.
RISK FACTORS ASSOCIATED WITH THE CLASS A COMMON STOCK
NO ASSURANCE OF PAYMENT OF DIVIDENDS ON THE CLASS A COMMON STOCK. The
Merger Agreement provides, subject to declaration by the Company Board and the
obligation of the Company Board to react to the financial condition and
regulatory environment of the Company and its results of operations, that the
dividends declared and paid on the Class A Common Stock will be maintained at a
level of $3.20 per share per annum until the earlier of July 1, 2001 or the end
of the twelfth calendar quarter following the calendar quarter in which the
Mergers are consummated (the "Initial Period"). It is the intention of the
Company after the Initial Period to pay dividends on Class A Common Stock (the
amount of such dividends to include the amount credited to the Intergroup
Interest as described below under "Description of the Company's Capital
Stock--Intergroup Interest--Adjustments in Connection with Various
Transactions--Dividends") at a rate equal to 90% of the Company's earnings
attributable to the Atlantic Utility Group in excess of an amount equal to
$40,000,000 per annum (the "Notional Fixed Charge"). The anticipated dividend
rate for the Initial Period of $3.20 per annum would imply, at a payout ratio of
90%, that Company Net Income Attributable to the Atlantic Utility Group exceeded
$3.56 per outstanding share of Class A Common Stock. There can be no assurance
that the Atlantic Utility Group will have sufficient earnings after the Initial
Period to maintain a $3.20 per share dividend rate for the Class A Common Stock.
Furthermore, the Merger Agreement provides that if and to the extent that the
annual dividends paid on the Class A Common Stock during the Initial Period
(including the amount credited to the Intergroup Interest as aforesaid) shall
have exceeded 100% of Company Net Income Attributable to the Atlantic Utility
Group during such period, the Company Board may consider such fact in
determining the appropriate annual dividend rate on the Class A Common Stock
following the Initial Period. DIVIDENDS ON THE CLASS A COMMON STOCK WILL NOT BE
CUMULATIVE. See "Description of the Company's Capital Stock-- Common
Stock--Dividends--Dividend Policies."
CONVERSION OF CLASS A COMMON STOCK INTO COMPANY COMMON STOCK AT THE OPTION
OF THE COMPANY. The Company Board could, in its sole discretion, determine to
convert each outstanding share of Class A Common Stock into shares of Company
Common Stock (i) at any time at a premium that will decline over four years from
25% to 10% or (ii) following a dividend or partial redemption undertaken in
connection with a disposition of all or substantially all of the properties and
assets of the Atlantic Utility Group. Such determination could be made at a time
when either or both the Company Common Stock and the Class A Common Stock may be
considered to be overvalued or undervalued. In addition, any such conversion at
any such premium would dilute the interests in the Company of the holders of
Company Common Stock and could preclude holders of both classes of Common Stock
from retaining their investment in a security that is intended to reflect
separately the performance of the relevant business group. In determining
whether to convert Class A Common Stock into the Company Common Stock, the
Company Board would act in accordance with its good faith business judgment that
any such conversion is in the best interests of the Company and all of its
stockholders, including both the holders of the Class A Common Stock and the
holders of the Company Common Stock. The Company cannot predict the impact on
the market prices of the Company Common Stock or the Class A Common Stock of its
ability to effect any such conversion or the effect, if any, that the exercise
by the Company of such conversion right would have on the market price of the
Company Common Stock or the Class A Common Stock prevailing at such time. See
"--Risk Factors Associated with the Dual Class Common Equity
Structure--Potential Divergence of Interests and Requirement to Act on Behalf of
Company and All Stockholders" and "Description of the Company's Capital
Stock--Conversion and Redemption of the Class A Common Stock."
19
<PAGE>
NO ASSURANCE AS TO MARKET PRICE OF CLASS A COMMON STOCK. Because there has
been no prior market for the Class A Common Stock of the Company, there can be
no assurance as to the market price of the Class A Common Stock following the
consummation of the Mergers. Accordingly, there can be no assurance that the
combined market values of the Company Common Stock and the Class A Common Stock
held by an Atlantic stockholder after the consummation of the Mergers will equal
or exceed the market value of the Atlantic Common Stock held by such stockholder
prior to such time. See "Selected Historical and Unaudited Pro Forma Financial
Data--Comparative Per Share Prices of Delmarva Common Stock and Atlantic Common
Stock."
The market prices of the Class A Common Stock after the consummation of the
Mergers would be determined in the trading markets and could be influenced by
many factors, including the results of the Atlantic Utility Group, investors'
expectations for the Atlantic Utility Group, trading volumes, regulatory
environment and general economic and market conditions. There can be no
assurance as to the extent to which investors would assign values to the Class A
Common Stock based on the reported financial results or other measures of
performance or prospects of the relevant businesses. There is no present
intention on the part of Delmarva and Atlantic for the Company to issue any
shares of Class A Common Stock following consummation of the Mergers. Financial
effects of the Atlantic Utility Group that affect the Company's consolidated
results of operations or financial condition could affect the market prices of
the Class A Common Stock. In addition, the Company cannot predict the impact of
certain terms of the Class A Common Stock on their market price, such as (i)
basing the consideration to be paid, if all or substantially all of the
properties and assets of the Atlantic Utility Group are sold in a Disposition,
on the Net Proceeds of such Disposition, (ii) the ability of the Company to
convert Class A Common Stock into Company Common Stock or (iii) the discretion
of the Company Board to make various determinations with respect to the Atlantic
Utility Group and the Class A Common Stock.
The possibility that the Company's earnings attributable to the Atlantic
Utility Group will not be sufficient to maintain the dividend rate that the
Company intends to pay during the Initial Period, and therefore, the possibility
that the dividend rate payable on the Class A Common Stock will be reduced after
the Initial Period by a material amount, may have an adverse impact on the
market price of the Class A Common Stock. In addition, because the earnings of
the Company attributable to the Atlantic Utility Group out of which dividends on
the Class A Common Stock will be paid are calculated after deduction of the
Notional Fixed Charge, a small change in the earnings of the Company
attributable to the Atlantic Utility Group may have a disproportionately large
impact, on a percentage basis, on the earnings available to pay dividends on the
Class A Common Stock. As a result, the market price of the Class A Common Stock
may be more volatile than the market price of the Company Common Stock.
The earnings of the Company attributable to the Atlantic Utility Group are
dependent on a number of factors, many of which are beyond the control of the
Company. These factors include the growth in demand for electric power in the
areas served by the Atlantic Utility Group and the scope and timing of
regulatory changes that would allow other suppliers of electric power to serve
customers in the areas served by the Atlantic Utility Group. Because the
Atlantic Utility Group's average cost of power is above-market, changes in the
regulatory environment that allow lower cost suppliers of power to compete with
the Atlantic Utility Group without a corresponding non-bypassable charge having
been allowed by the regulatory authorities may have an adverse impact on the
Company's earnings attributable to the Atlantic Utility Group.
In connection with payments of dividends on the Class A Common Stock (other
than a dividend payable in shares of Class A Common Stock or in securities of
the Company attributed to the Atlantic Utility Group), the Residual Group will
be credited and the Atlantic Utility Group will be charged an amount reflecting
the Intergroup Interest. See "Description of the Company's Capital
Stock--Intergroup Interest" and "--Dividends." In the event the businesses
attributable to the Atlantic Utility Group do not make a cash payment to the
Residual Group in the amount of such credit and charge at the time a dividend is
paid on the Class A Common Stock, the Company may account for the credit and
charge in a number of possible ways. For instance, the Company could treat the
amount effectively as a loan from the
20
<PAGE>
Residual Group to the Atlantic Utility Group, on which interest would be
payable. Alternatively, the Company could also adjust for the credit and the
charge by reducing the Outstanding Atlantic Utility Fraction and increasing the
Intergroup Interest Fraction.
POTENTIAL ADVERSE EFFECTS OF POSSIBLE DISPOSITION OF ASSETS ATTRIBUTABLE TO
THE ATLANTIC UTILITY GROUP. The terms of the Class A Common Stock provide that
if the Company and/or its subsidiaries were to dispose of all or substantially
all of the properties and assets attributable to the Atlantic Utility Group,
other than in a transaction in which the Company receives primarily equity
securities of an entity engaged or proposing to engage primarily in a similar or
complementary business and other than in connection with the disposition of all
or substantially all of the assets of the Company, the Company would be
required, at its option, either to (i) distribute to holders of Class A Common
Stock an amount equal to their proportionate interest in the Net Proceeds of
such Disposition, either by special dividend or by redemption of all or part of
the outstanding shares of Class A Common Stock or (ii) convert outstanding
shares of Class A Common Stock into shares of the corresponding series of
Company Common Stock at a conversion ratio based on 110% of the average daily
ratio of the Market Value of a share of Class A Common Stock to the Market Value
of a share of Company Common Stock over a specified period following such
Disposition. In addition, the Company Charter will not require the Company Board
to select the option that would result in the distribution with the highest
value to the holders of the Class A Common Stock or with the smallest effect on
the Company Common Stock. The Company Board would select an option based upon
its good faith business judgment that such option is in the best interests of
the Company and all of its stockholders, including both the holders of the Class
A Common Stock and the holders of the Company Common Stock. "Net Proceeds" means
the proceeds of such Disposition after payment of or provision for certain
specified costs, including taxes to be paid by the Company in respect of the
Disposition or such dividend or redemption, transaction costs and liabilities
and other obligations (including obligations in respect of preferred stock)
attributed to the Atlantic Utility Group. If the Atlantic Utility Group were a
separate independent company and its shares were acquired by another person,
certain of those costs, including corporate level taxes, might not be payable in
connection with such an acquisition. As a result, the consideration that would
be received by stockholders of such a separate independent company in connection
with such a stock acquisition might be greater than the Fair Value of the Net
Proceeds that would be received by holders of Class A Common Stock if all or
substantially all of the properties and assets of the Atlantic Utility Group
were sold. In addition, no assurance can be given that the Net Proceeds per
share of Class A Common Stock to be received in connection with a Disposition of
all or substantially all of the properties and assets of the Atlantic Utility
Group will be equal to or more than the market value per share of Class A Common
Stock prior to or after announcement of such Disposition. See "-- Conversion of
Class A Common Stock into Company Common Stock at the Option of the Company" and
"--No Assurance as to Market Price of Class A Common Stock" and "Description of
the Company's Capital Stock--Conversion and Redemption of the Class A Common
Stock."
RISK FACTORS ASSOCIATED WITH THE COMPANY COMMON STOCK
NO ASSURANCE AS TO MARKET PRICE OF COMPANY COMMON STOCK. Because there has
been no prior market for the Company Common Stock, there can be no assurance as
to the market price of the Company Common Stock following the consummation of
the Mergers. Accordingly, there can be no assurance that the combined market
values of the Company Common Stock and the Class A Common Stock held by an
Atlantic stockholder after the consummation of the Mergers will equal or exceed
the market value of the Atlantic Common Stock held by such stockholder prior to
such time or that the market value of the Company Common Stock held by a
Delmarva stockholder after the consummation of the Mergers will equal or exceed
the market value of the Delmarva Common Stock held by such stockholder prior to
such time. See "Selected Historical and Unaudited Pro Forma Financial
Data--Comparative Per Share Prices of Delmarva Common Stock and Atlantic Common
Stock."
The market price of the Company Common Stock after the consummation of the
Mergers would be determined in the trading markets and could be influenced by
many factors, including the consolidated
21
<PAGE>
results of the Company, as well as the respective performances of the Groups,
investors' expectations for the Groups, trading volumes, regulatory environment
and general economic and market conditions. There can be no assurance as to the
extent to which investors would assign values to the Company Common Stock based
on the reported financial results or other measures of performance or prospects
of the relevant businesses. Financial effects of the Groups that affect the
Company's consolidated results of operations or financial condition could affect
the market prices of the Company Common Stock. In addition, the Company cannot
predict the impact of certain terms of the Company Common Stock and the Class A
Common Stock on the market price of the Company Stock such as (i) basing the
consideration to be paid, if all or substantially all of the properties and
assets of the Atlantic Utility Group are sold in a Disposition, on the Net
Proceeds of such Disposition, (ii) the ability of the Company to convert Class A
Common Stock into Company Common Stock or (iii) the discretion of the Company
Board to make various determinations with respect to the Groups and the Company
Common Stock and Class A Common Stock.
NO COMPANY CHARTER PROVISION GOVERNING DISPOSITION OF ALL OR SUBSTANTIALLY
ALL OF THE RESIDUAL GROUP'S PROPERTIES AND ASSETS. The Company Charter does not
contain provisions relating to a disposition of all or substantially all of the
properties and assets of the Residual Group comparable to those relating to a
Disposition of all or substantially all of the properties and assets of the
Atlantic Utility Group discussed above under "--Risk Factors Associated with the
Class A Common Stock--Potential Adverse Effects of Possible Disposition of
Assets of the Atlantic Utility Group." See "Description of Company's Capital
Stock--Conversion and Redemption of the Class A Common Stock." The appropriate
disposition of proceeds, if any, in the case of a disposition of all or
substantially all of the properties and assets of the Residual Group would be
subject to determination by the Company Board in accordance with the Company
Charter and in the exercise of its fiduciary duties. See "--Risk Factors
Associated with the Dual Class Common Equity Structure--Fiduciary Duties of the
Company Board Are to All Stockholders Regardless of Class."
22
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following tables contain the (1) selected historical consolidated
financial data, including certain historical per share data, for Delmarva and
Atlantic and (2) selected unaudited pro forma combined financial data, including
pro forma combined per share data, for the Company. The selected historical
financial data should be read in conjunction with the historical consolidated
financial statements and related notes thereto of Delmarva and Atlantic as
presented in their respective 1995 Forms 10-K and 1996 Forms 10-Q, which are
incorporated by reference herein. See "Available Information" and "Incorporation
by Reference." The selected unaudited pro forma combined financial data should
be read in conjunction with the unaudited pro forma combined financial
statements and related notes thereto of the Company, which are set forth
elsewhere in this Joint Proxy Statement/Prospectus.
SELECTED HISTORICAL FINANCIAL DATA
The selected historical consolidated financial data for Delmarva and
Atlantic for each year in the five-year period ended December 31, 1995 have been
derived from the audited financial statements of Delmarva and Atlantic,
respectively. The selected historical financial data for Delmarva and Atlantic
for the nine months ended September 30, 1996 and 1995, have been derived from
the unaudited financial statements of Delmarva and Atlantic, respectively,
which, in the opinion of the management of both companies, reflect all
adjustments, including only normal recurring adjustments, necessary for a fair
presentation of the financial results for the interim periods. The results for
such interim periods do not necessarily indicate the results for the full fiscal
year.
DELMARVA POWER & LIGHT COMPANY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------ -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1995 1994 1993 1992 1991
------------- --------- --------- --------- --------- --------- ---------
INCOME STATEMENT DATA
Operating revenues......... $834,579 $753,893 $995,103 $991,021 $970,607 $864,044 $855,821
Income from continuing
operations............... 94,503 97,566 117,488 108,310(a) 111,076 98,526(b) 80,506
Net income................. 94,503 97,566 117,488 108,310(a) 111,076 98,526(b) 93,236(c)
Earnings applicable to
common stock............. 87,210 90,089 107,546 98,940(a) 101,074 90,177(b) 85,259(c)
Earnings per average share
of common stock from
continuing operations.... $1.44 $1.50 $1.79 $1.67(a) $1.76 $1.69(b) $1.44
Earnings per average share
of common stock.......... $1.44 $1.50 $1.79 $1.67(a) $1.76 $1.69(b) $1.69(c)
Dividends declared per
share of common stock.... $1.155 $1.155 $1.54 $1.54 $1.54 $1.54 $1.54
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------------------------------------------
1996 1995 1994 1993 1992 1991
------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets............... $2,898,111 $2,866,685 $2,669,785 $2,592,479 $2,374,793 $2,263,718
Long-term debt and capital
lease obligations........ 848,953(d) 874,672(d) 794,218(d) 759,703(d) 813,468(d) 799,483(d)
Book value per common share
outstanding.............. $15.48 $15.20 $14.85 $14.66 $13.77 $13.42
</TABLE>
- ------------------------
(a) The 1994 early retirement offer reduced net income and earnings per share by
$10.7 million and $0.18, respectively.
(b) The 1992 settlement of the Peach Bottom lawsuit increased net income and
earnings per share by $11.4 million and $0.21, respectively.
(c) The 1991 one-time cumulative effect of a change in accounting for unbilled
revenues increased net income and earnings per share by $12.7 million and
$0.25, respectively.
(d) Excludes variable rate demand bonds classified as current liabilities and
amounts due within one year.
23
<PAGE>
ATLANTIC ENERGY, INC.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
INCOME STATEMENT DATA
Operating revenues........... $752,968 $727,543 $953,137 $913,039 $865,675 $816,825 $808,374
Net income................... 58,352 70,782 81,768 76,113(a) 95,297(b) 86,210(c) 85,635
Earnings per average share of
common stock............... $1.11 $1.34 $1.55 $1.41(a) $1.80(b) $1.67(c) $1.75
Dividends declared per share
of common stock............ $1.155 $1.155 $1.54 $1.54 $1.535 $1.515 $1.495
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------------------------------------------
1996 1995 1994 1993 1992 1991
------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets...................... $2,679,681 $2,620,896 $2,545,555 $2,487,508 $2,219,338 $2,151,416
Preferred stock subject to
mandatory redemption............ 90,000(d) 114,750(d) 149,250(d) 173,750(d) 190,250(d) 191,300(d)
Long-term debt and capital lease
obligations..................... 866,805(d) 870,083(d) 819,399(d) 810,508(d) 680,085(d) 617,900(d)
Book value per common share
outstanding..................... $15.42 $15.48 $15.56 $15.62 $15.17 $14.84
</TABLE>
- ------------------------
(a) The 1994 employee separation costs reduced net income and earnings per share
by $17.3 million and $0.32, respectively.
(b) The 1993 nonrecurring charges for reorganization activities reduced net
income and earnings per share by $5.4 million and $0.10, respectively.
(c) The 1992 settlement of the Peach Bottom lawsuit increased net income and
earnings per share by $7.7 million and $0.15, respectively.
(d) Excludes amounts due within one year.
24
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA AND COMPARATIVE PER SHARE
DATA
The following selected unaudited pro forma combined financial data combine
the historical consolidated balance sheets and statements of operations of
Delmarva and Atlantic for the same periods, after giving effect to the Mergers
under the purchase method of accounting and assuming that the Mergers had been
effective for all periods presented. Pro forma per share data for Company Common
Stock give effect to the conversion of each share of Delmarva Common Stock into
one share of Company Common Stock and the conversion of each share of Atlantic
Common Stock into 0.75 of one share of Company Common Stock and 0.125 of one
share of Class A Common Stock. This data does not reflect any cost savings or
other synergies anticipated by management as a result of the Mergers. See "The
Merger Agreement--The Mergers." The selected unaudited pro forma combined
financial data are not necessarily indicative of the actual operating outcomes
or financial position that would have resulted had the Mergers been consummated
on the dates for which the Mergers are being given effect and should not be
construed as necessarily indicative of future operating results or financial
position. The following information is based on the unaudited pro forma combined
statements of income and balance sheet presented below in this Joint Proxy
Statement/Prospectus (see "Unaudited Pro Forma Combined Financial Statements").
THE COMPANY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
-------------------------------------
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
<S> <C> <C>
INCOME STATEMENT DATA
Operating revenues....................................................... $1,587,547 $1,948,240
Net income............................................................... 144,407 187,567
Earnings applicable to common stock...................................... 134,828 173,736
Earnings applicable to Class A common stock.............................. 9,579 13,831
Earnings per average share of common stock............................... $1.35 $1.74
Earnings per average share of Class A common stock....................... $1.45 $2.10
Dividends declared per share of common stock............................. $1.155 $1.54
Dividends declared per share of Class A common stock..................... $2.40 $3.20
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------
<S> <C>
BALANCE SHEET DATA
Total assets................................................................................ $5,774,342
Preferred stock of subsidiaries subject to mandatory redemption............................. 183,950
Long-term debt and capital lease obligations, net of current maturities..................... 1,715,758
Book value per share outstanding............................................................ $17.53
</TABLE>
25
<PAGE>
COMPARATIVE EARNINGS, DIVIDENDS AND BOOK VALUES PER SHARE OF COMMON STOCK AND
CLASS A COMMON STOCK
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------- -------------------
<S> <C> <C>
EARNINGS PER AVERAGE SHARE OF COMMON STOCK
The Company
Pro forma (a).......................................................... $ 1.35 $ 1.74
Delmarva
Historical............................................................. 1.44 1.79
Equivalent pro forma (b)............................................... 1.35 1.74
Atlantic
Historical............................................................. 1.11 1.55
Equivalent pro forma (c)............................................... 1.01 1.31
EARNINGS PER AVERAGE SHARE OF CLASS A COMMON STOCK
The Company
Pro forma (a).......................................................... 1.45 2.10
Atlantic
Equivalent pro forma (d)............................................... 1.45 2.10
EQUIVALENT PRO FORMA EARNINGS PER SHARE TO BE RECEIVED BY ATLANTIC COMMON
STOCKHOLDERS FOR EACH SHARE OF ATLANTIC COMMON STOCK (E).................. 1.19 1.57
DIVIDENDS PER SHARE OF COMMON STOCK
The Company
Pro forma (a).......................................................... 1.155 1.54
Delmarva
Historical............................................................. 1.155 1.54
Equivalent pro forma (b)............................................... 1.155 1.54
Atlantic
Historical............................................................. 1.155 1.54
Equivalent pro forma (c)............................................... 0.866 1.155
DIVIDENDS PER SHARE OF CLASS A COMMON STOCK
The Company
Pro forma (a).......................................................... 2.40 3.20
Atlantic
Equivalent pro forma (d)............................................... 2.40 3.20
EQUIVALENT PRO FORMA DIVIDENDS PER SHARE TO BE RECEIVED BY ATLANTIC COMMON
STOCKHOLDERS FOR EACH SHARE OF ATLANTIC COMMON STOCK (E).................. 1.166 1.555
<CAPTION>
SEPTEMBER 30, 1996
-------------------
BOOK VALUE PER SHARE OUTSTANDING
<S> <C> <C>
The Company
Pro forma (a).......................................................... $ 17.53
Delmarva
Historical............................................................. 15.48
Equivalent pro forma................................................... 17.53
Atlantic
Historical............................................................. 15.42
Equivalent pro forma................................................... 17.53
</TABLE>
- --------------------------
(a) The Company pro forma financial data are based on the unaudited pro forma
combined statements of income and balance sheet presented below in this
Joint Proxy Statement/Prospectus (see "Unaudited Pro Forma Combined
Financial Statements").
(b) Delmarva equivalent pro forma earnings and dividends per share of common
stock are equal to the Company equivalent combined amounts because each
share of Delmarva Common Stock outstanding immediately prior to the
Effective Time shall be converted into the right to receive one share of
Company Common Stock.
(c) Atlantic equivalent pro forma earnings and dividends per share of common
stock are based upon the Company equivalent combined amount multiplied by
the exchange ratio of 0.75 share of Company Common Stock for each one share
of Atlantic Common Stock outstanding immediately prior to the Effective
Time.
26
<PAGE>
(d) Atlantic equivalent pro forma earnings and dividends per share of Class A
Common Stock are equal to the Company equivalent combined amounts because
the Class A Common Stock is to be exchanged solely for Atlantic Common Stock
outstanding immediately prior to the Effective Time.
(e) Equivalent pro forma earnings and dividends per share of Common Stock and
Class A Common Stock to be received by Atlantic common stockholders in
exchange for each share of Atlantic Common Stock are computed based on the
conversion ratios as follows:
<TABLE>
<CAPTION>
NINE
MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1995
--------------------- ---------------------
<S> <C> <C>
EARNINGS PER AVERAGE SHARE:
- ------------------------------------------------------------------
Earnings per average share of Common Stock
The Company
Pro forma..................................................... $ 1.35 $ 1.74
Atlantic's conversion ratio for Company
Common Stock.................................................. 0.75 0.75
------ ------
Subtotal.......................................................... $ 1.01 $ 1.31
------ ------
Earnings per average share of Class A Common Stock
The Company
Pro forma..................................................... $ 1.45 $ 2.10
Atlantic's conversion ratio for Class A Common Stock.............. 0.125 0.125
------ ------
Subtotal.......................................................... $ 0.18 $ 0.26
------ ------
Equivalent pro forma earnings per share of Common Stock and Class
A Common Stock to be received by Atlantic common stockholders
for each share of Atlantic Common Stock......................... $ 1.19 $ 1.57
------ ------
------ ------
<CAPTION>
DIVIDENDS PER AVERAGE SHARE:
- ------------------------------------------------------------------
<S> <C> <C>
Dividends per average share of Common Stock
The Company
Pro forma..................................................... $ 1.155 $ 1.54
Atlantic's conversion ratio for Company
Common Stock.................................................... 0.75 0.75
------ ------
Subtotal.......................................................... $ 0.866 $ 1.155
------ ------
Dividends per average share of Class A Common Stock
The Company
Pro forma..................................................... $ 2.40 $ 3.20
Atlantic's conversion ratio for Class A Common Stock.............. 0.125 0.125
------ ------
Subtotal.......................................................... $ 0.30 $ 0.40
------ ------
Equivalent pro forma dividends per share of Common Stock and Class
A Common Stock to be received by Atlantic common stockholders
for each share of Atlantic Common Stock......................... $ 1.166 $ 1.555
------ ------
------ ------
</TABLE>
27
<PAGE>
COMPARATIVE PER SHARE PRICES OF DELMARVA COMMON STOCK AND ATLANTIC COMMON STOCK
The Delmarva and Atlantic Common Stocks are listed on the NYSE and the
Philadelphia Stock Exchange, and the Atlantic Common Stock is also listed on the
Pacific Stock Exchange. The following table presents, for the calendar quarters
indicated, the dividends paid and the high and low sales prices of Delmarva
Common Stock and Atlantic Common Stock as reported on the NYSE--Composite
Transactions, in each case based on published financial sources.
<TABLE>
<CAPTION>
DELMARVA ATLANTIC
----------------------------------- ----------------------
<S> <C> <C> <C> <C> <C>
HIGH LOW DIVIDENDS HIGH LOW
---------- ---------- ----------- ---------- ----------
1994
First Quarter............................................... $ 235/8 $ 201/2 $ 0.38 1/2 $ 213/4 $ 197/8
Second Quarter.............................................. 21 167/8 0.38 1/2 211/2 163/8
Third Quarter............................................... 20 173/4 0.38 1/2 195/8 161/8
Fourth Quarter.............................................. 191/4 175/8 0.38 1/2 181/4 16
1995
First Quarter............................................... 20 177/8 0.38 1/2 19 173/4
Second Quarter.............................................. 211/4 191/8 0.38 1/2 195/8 177/8
Third Quarter............................................... 23 191/2 0.38 1/2 197/8 181/8
Fourth Quarter.............................................. 235/8 217/8 0.38 1/2 201/8 19
1996
First Quarter............................................... 235/8 21 0.38 1/2 20 165/8
Second Quarter.............................................. 213/8 191/8 0.38 1/2 183/4 16
Third Quarter............................................... 211/4 20 0.38 1/2 181/2 17
Fourth Quarter (a).......................................... 211/4 197/8 0.38 1/2 181/4 173/8
<CAPTION>
<S> <C>
DIVIDENDS
----------
1994
First Quarter............................................... $0.38 1/2
Second Quarter.............................................. 0.38 1/2
Third Quarter............................................... 0.38 1/2
Fourth Quarter.............................................. 0.38 1/2
1995
First Quarter............................................... 0.38 1/2
Second Quarter.............................................. 0.38 1/2
Third Quarter............................................... 0.38 1/2
Fourth Quarter.............................................. 0.38 1/2
1996
First Quarter............................................... 0.38 1/2
Second Quarter.............................................. 0.38 1/2
Third Quarter............................................... 0.38 1/2
Fourth Quarter (a).......................................... 0.38 1/2
</TABLE>
- ------------------------
(a) Through the close of business on December 20, 1996.
On August 9, 1996, the last full trading day before the public announcement
of the execution and delivery of the Merger Agreement, the closing price per
share was $20 5/8 for the Delmarva Common Stock and $17 1/8 for the Atlantic
Common Stock, as reported on the NYSE--Composite Transactions.
On December 20, 1996, the closing price per share was $20 for the Delmarva
Common Stock and $17 3/8 for the Atlantic Common Stock, as reported on the
NYSE--Composite Transactions.
The market prices of Delmarva Common Stock and Atlantic Common Stock are
subject to fluctuation. As a result, Delmarva and Atlantic stockholders are
urged to obtain current market quotations for Delmarva Common Stock and Atlantic
Common Stock.
The equivalent market value per share for Atlantic Common Stock is based on
the market value of the securities of the Company received for each share of
Atlantic Common Stock outstanding immediately prior to the consummation of the
Mergers. The portion of the equivalent market value related to the exchange of
each share of Atlantic Common Stock for 0.75 of one share of Company Common
Stock is $15.47 based on the August 9, 1996 closing price per share of Delmarva
Common Stock of $20 5/8. The portion of the equivalent market value related to
the exchange of each share of Atlantic Common Stock for 0.125 of one share of
Class A Common Stock is not determinable since there will not be a market for
the Class A Common Stock until it is issued in conjunction with the Mergers.
28
<PAGE>
MEETINGS, VOTING AND PROXIES
This Joint Proxy Statement/Prospectus is being furnished to (i) the
stockholders of Delmarva in connection with the solicitation of proxies by the
Delmarva Board from the holders of Delmarva Common Stock for use at the Delmarva
Meeting and (ii) the stockholders of Atlantic in connection with the
solicitation of proxies by the Atlantic Board from the holders of Atlantic
Common Stock for use at the Atlantic Meeting, each to consider and vote on
proposals to approve the Merger Agreement and the transactions contemplated
thereby and to adopt the Company Plan.
DELMARVA MEETING
PURPOSE OF DELMARVA MEETING. The purpose of the Delmarva Meeting is to
consider and vote upon the proposal to approve the Merger Agreement, pursuant to
which the holders of Delmarva Common Stock and the holders of Atlantic Common
Stock will become holders of Company Common Stock and, in the case of holders of
Atlantic Common Stock, Class A Common Stock upon the completion of the Delmarva
Merger and the Atlantic Merger, respectively, and to vote on the Company
Incentive Compensation Plan (the "Company Plan"), which upon consummation of the
Mergers will replace the Delmarva Power & Light Company Long-Term Incentive Plan
(the "Delmarva LTIP") and Atlantic's Equity Incentive Plan, subject to approval
by stockholders. The Delmarva Board is not aware, as of the date of this Joint
Proxy Statement/Prospectus, of any other matters that may properly come before
the Delmarva Meeting. The bylaws of Delmarva, as amended (the "Delmarva
Bylaws"), provide that only business within the purposes described in the notice
of the Delmarva Meeting may be conducted at the Delmarva Meeting. The enclosed
form of proxy authorizes the voting of shares represented by proxy on all other
matters that may properly come before the Delmarva Meeting and any adjournment
or adjournments thereof. If any other matter incident to the conduct of the
Delmarva Meeting properly came before the Delmarva Meeting or any adjournment or
adjournments thereof, it is the intention of the persons named in the proxy to
vote the proxies in accordance with their best judgment.
THE DELMARVA BOARD, BY UNANIMOUS VOTE OF THE DIRECTORS, HAS APPROVED THE
MERGER AGREEMENT AND THE COMPANY PLAN AND RECOMMENDS THAT HOLDERS OF DELMARVA
COMMON STOCK VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE COMPANY PLAN.
In considering the recommendation of the Delmarva Board with respect to the
Merger Agreement, stockholders should be aware that certain members of the
Delmarva Board will become directors and/or employees of the Company following
consummation of the Mergers and/or be or become entitled to severance benefits
as a result of the Mergers and therefore, such directors may have interests in
the Mergers that are in addition to the interests of stockholders of Delmarva
generally and that could potentially represent conflicts of interest. The
Delmarva Board was aware of these interests and considered them, among other
matters, in approving the Merger Agreement. See "The Mergers--Conflicts of
Interest of Certain Persons in the Mergers."
DATE, PLACE AND TIME; RECORD DATE. The Delmarva Meeting is scheduled to be
held on January 30, 1997 at 10:00 a.m., local time, at the Holiday Inn, 800 King
Street, Wilmington, Delaware 19899. Holders of record of Delmarva Common Stock
at the close of business on the Delmarva Record Date (December 18, 1996) will be
entitled to notice of and to vote at the Delmarva Meeting or any adjournment or
adjournments thereof. A list of stockholders of record entitled to vote at the
Delmarva Meeting will be available for inspection by holders of Delmarva Common
Stock at Delmarva's principal business office at 800 King Street, Wilmington,
Delaware 19899, prior to the Delmarva Meeting. The list will also be available
on the day of the Delmarva Meeting at the meeting site. Holders of record of
shares of Delmarva Common Stock at the close of business on the Delmarva Record
Date will also be entitled to vote at the Delmarva Meeting on the proposal to
adopt the Company Plan.
29
<PAGE>
VOTING RIGHTS. Each share of Delmarva Common Stock entitles its holder to
one vote with respect to the Merger Agreement and the Company Plan.
A majority of the shares issued and outstanding and entitled to vote,
present in person or represented by proxy, will constitute a quorum for the
transaction of business at the Delmarva Meeting. Abstentions and broker nonvotes
are counted as present for establishing a quorum. The affirmative vote of the
holders of more than two-thirds of all votes entitled to be cast by all holders
of Delmarva Common Stock is required for approval of the Merger Agreement and
the transactions contemplated thereby. The affirmative vote of the holders of a
majority of Delmarva Common Stock present in person or by proxy and entitled to
vote is required for approval of the Company Plan. Under the DGCL and the VSCA,
in determining whether the Merger Agreement has received the requisite number of
affirmative votes, abstentions and broker nonvotes will have the same effect as
a vote against approval of the Merger Agreement; abstentions will have the same
effect as a vote against approval of the Company Plan, and brokers who do not
receive specific instructions are entitled to vote on the Company Plan.
On the Delmarva Record Date, 60,754,568 shares of Delmarva Common Stock were
outstanding and entitled to vote. As of the Delmarva Record Date, directors,
executive officers and their affiliates owned less than 1% of the issued and
outstanding shares of Delmarva Common Stock.
PROXIES. Holders of Delmarva Common Stock may vote either in person or by
properly executed proxy. By completing and returning the form of proxy, the
Delmarva stockholder authorizes the persons named therein to vote all of such
Delmarva stockholder's shares on his or her behalf. All completed Delmarva
proxies returned will be voted in accordance with the instructions indicated in
the proxies. If no contrary instructions are given, the Delmarva proxies will be
voted FOR approval of the Merger Agreement and the transactions contemplated
thereby and FOR the Company Plan. Any proxy given pursuant to this solicitation
may be revoked by the person giving it at any time before it is voted (i) by
delivery to the Secretary of Delmarva at 800 King Street, Wilmington, Delaware
19899 on or before the taking of the vote at the Delmarva Meeting, a written
notice of revocation bearing a later date than the proxy or a later dated proxy
relating to the same shares of Delmarva Common Stock or (ii) by attending the
Delmarva Meeting and voting in person. Attendance at the Delmarva Meeting will
not in itself constitute a revocation of a proxy.
Delmarva will bear the cost of the solicitation of proxies for the Delmarva
Meeting, except that Delmarva and Atlantic will share equally expenses incurred
in connection with printing and filing this Joint Proxy Statement/Prospectus.
See "The Merger Agreement--Expenses." Proxies may be solicited by certain
officers and employees of Delmarva or its subsidiaries by mail, telephone,
personally or by other communications without compensation apart from their
normal salaries. Delmarva has retained Georgeson & Company Inc. to assist in
soliciting proxies from Delmarva stockholders, including brokers accounts, at a
fee for such services of approximately $50,000 and reasonable out-of-pocket
expenses.
The Delmarva Meeting may be adjourned one or more times to another date
and/or place for any purpose (including, without limitation, for the purpose of
soliciting additional proxies).
ATLANTIC MEETING
PURPOSE OF ATLANTIC MEETING. The purpose of the Atlantic Meeting is to
consider and vote upon the proposal to approve the Merger Agreement, pursuant to
which the holders of Atlantic Common Stock and the holders of Delmarva Common
Stock will become holders of Company Common Stock and, in the case of holders of
Atlantic Common Stock, Class A Common Stock upon the completion of the Atlantic
Merger and the Delmarva Merger, respectively, and to vote on the Company Plan,
which upon consummation of the Mergers will replace Atlantic's Equity Incentive
Plan and the Delmarva LTIP, subject to approval by stockholders. The Atlantic
Board is not aware, as of the date of this Joint Proxy Statement/Prospectus, of
any other matters that may properly come before the Atlantic Meeting. The bylaws
of Atlantic (the "Atlantic Bylaws") provide that only business within the
purposes described in the notice of the Atlantic
30
<PAGE>
Meeting may be conducted at the Atlantic Meeting. The enclosed form of proxy
authorizes the voting of shares represented by proxy on all other matters that
may properly come before the Atlantic Meeting and any adjournment or
adjournments thereof. If any other matter incident to the conduct of the
Atlantic Meeting properly came before the Atlantic Meeting or any adjournment or
adjournments thereof, it is the intention of the persons named in the proxy to
vote the proxies in accordance with their best judgment.
THE ATLANTIC BOARD, BY UNANIMOUS VOTE OF THE DIRECTORS, HAS APPROVED THE
MERGER AGREEMENT AND THE COMPANY PLAN AND RECOMMENDS THAT HOLDERS OF ATLANTIC
COMMON STOCK VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE COMPANY PLAN.
In considering the recommendation of the Atlantic Board with respect to the
Merger Agreement, stockholders should be aware that certain members of the
Atlantic Board will become directors and/or employees of the Company following
consummation of the Mergers and/or be or become entitled to severance benefits
as a result of the Mergers and therefore, such directors may have interests in
the Mergers that are in addition to the interests of stockholders of Atlantic
generally and that could potentially represent conflicts of interest. The
Atlantic Board was aware of these interests and considered them, among other
matters, in approving the Merger Agreement. See "The Mergers--Conflicts of
Interest of Certain Persons in the Mergers."
DATE, PLACE AND TIME; RECORD DATE. The Atlantic Meeting is scheduled to be
held on January 30, 1997 at 3:00 p.m., local time, at the Frank Guaracini, Jr.
Fine & Performing Arts Center at Cumberland County College, Sherman Avenue and
College Drive, Vineland, New Jersey 08360. Holders of record of Atlantic Common
Stock at the close of business on the Atlantic Record Date (December 18, 1996)
will be entitled to notice of and to vote at the Atlantic Meeting or any
adjournment or adjournments thereof. A list of stockholders of record entitled
to vote at the Atlantic Meeting will be available for inspection by holders of
Atlantic Common Stock at Atlantic's principal business office at 6801 Black
Horse Pike, Egg Harbor Township, New Jersey 08234, prior to the Atlantic
Meeting. The list will also be available on the day of the Atlantic Meeting at
the meeting site. Holders of record of shares of Atlantic Common Stock at the
close of business on the Atlantic Record Date will also be entitled to vote at
the Atlantic Meeting on the proposal to adopt the Company Plan.
VOTING RIGHTS. Each share of Atlantic Common Stock entitles its holder to
one vote with respect to the Merger Agreement and the Company Plan.
A majority of the shares issued and outstanding and entitled to vote,
present in person or represented by proxy, will constitute a quorum for the
transaction of business at the Atlantic Meeting. Abstentions and broker nonvotes
are counted as present for establishing a quorum. The affirmative vote of the
holders of at least a majority of all votes cast by all holders of Atlantic
Common Stock entitled to vote is required for approval of the Merger Agreement
and the transactions contemplated thereby. The affirmative vote of at least a
majority of all votes cast by all holders of Atlantic Common Stock entitled to
vote is required for approval of the Company Plan. Abstentions and broker
nonvotes are not counted in determining approval of the Merger Agreement;
abstentions are not counted in determining approval of the Company Plan, and
brokers who do not receive specific instructions are entitled to vote on the
Company Plan.
On the Atlantic Record Date, 52,704,052 shares of Atlantic Common Stock were
outstanding and entitled to vote. As of the Atlantic Record Date, directors,
executive officers and their affiliates owned less than 1% of the issued and
outstanding shares of Atlantic Common Stock.
PROXIES. Holders of Atlantic Common Stock may vote either in person or by
properly executed proxy. By completing and returning the form of proxy, the
Atlantic stockholder authorizes the persons named therein to vote all of such
Atlantic stockholder's shares on his or her behalf. All completed Atlantic
proxies returned will be voted in accordance with the instructions indicated in
the proxies. If no contrary instructions are given, the Atlantic proxies will be
voted FOR approval of the Merger Agreement and the
31
<PAGE>
transactions contemplated thereby and FOR the Company Plan. Any proxy given
pursuant to this solicitation may be revoked by the person giving it at any time
before it is voted (i) by delivery to the Secretary of Atlantic at 6801 Black
Horse Pike, Egg Harbor Township, New Jersey 08234 on or before the taking of the
vote at the Atlantic Meeting, a written notice of revocation bearing a later
date than the proxy or a later dated proxy relating to the same shares of
Atlantic Common Stock or (ii) by attending the Atlantic Meeting and voting in
person. Attendance at the Atlantic Meeting will not in itself constitute a
revocation of a proxy.
Atlantic will bear the cost of the solicitation of proxies for the Atlantic
Meeting, except that Atlantic and Delmarva will share equally expenses incurred
in connection with printing and filing this Joint Proxy Statement/Prospectus.
See "The Merger Agreement--Expenses." Proxies may be solicited by certain
officers and employees of Atlantic or its subsidiaries by mail, telephone,
personally or by other communications without compensation apart from their
normal salaries. Atlantic has retained Georgeson & Company Inc. to assist in
soliciting proxies from Atlantic stockholders, including brokers accounts, at a
fee for such services of approximately $30,000 and reasonable out-of-pocket
expenses.
The Atlantic Meeting may be adjourned one or more times to another date
and/or place for any purpose (including, without limitation, for the purpose of
soliciting additional proxies).
32
<PAGE>
THE MERGERS
BACKGROUND OF THE MERGERS
In this section, there are references to the following groups (comprising
the persons listed):
DELMARVA WORKING GROUP:
Between March 28 and April 26, 1996--Barbara S. Graham, Senior Vice
President, Treasurer and Chief Financial Officer (lead); Paul Gerritsen, Vice
President; Philip S. Reese, General Manager-- Marketing (elected Vice President
effective May 30, 1996); Thomas S. Shaw, Senior Vice President; and David M.
Velazquez, Manager of Strategic Planning.
Between April 26 and July 3, 1996--During this period, the Delmarva working
group was expanded to include: Randall V. Griffin, Senior Counsel; Daniel G.
Tavani, Engineer, Business Unit Planning/Analyst; and Gary M. Zibinski, Manager
of Financial Analysis.
Between July 3 and August 9, 1996--During this period, the Delmarva working
group was expanded to include: Donald E. Cain, Vice President; Peter F. Clark,
Assistant General Counsel; Joseph W. Ford, Senior Vice President; James P.
Lavin, Comptroller and Chief Accounting Officer; Michael Ratchford, General
Manager, Communications and Community Relations; and Dale G. Stoodley, Vice
President and General Counsel.
ATLANTIC EXECUTIVE COMMITTEE:
Jerrold L. Jacobs, Chairman of the Board and Chief Executive Officer;
Michael J. Chesser, President and Chief Operating Officer (effective July 1,
1996), Senior Vice President (until July 1, 1996); Michael J. Barron, Vice
President and Chief Financial Officer; James E. Franklin II, Vice President,
Secretary and General Counsel; Meredith I. Harlacher, Jr., Vice President--Power
System; Henry K. Levari, Vice President--External Affairs; Marilyn T. Powell,
Vice President--Marketing; Scott B. Ungerer, Vice President--Enterprise; Ernest
L. Jolly, Vice President--Human Resources and Transformation; and Robert L.
Aveyard, Director, Information Technology and Communications Services.
ATLANTIC WORKING GROUP:
Between April 3 and July 3, 1996--Michael J. Barron, Vice President and
Chief Financial Officer (lead); James E. Franklin II, Vice President, Secretary
and General Counsel; Meredith I. Harlacher, Jr., Vice President; Henry K.
Levari, Vice President; Christopher Moschella, Manager of Business Planning; and
Louis M. Walters, Treasurer.
Between July 3 and August 9, 1996--During this period, the Atlantic working
group was expanded to include: Robert L. Aveyard, Director, Information
Technology and Communications Services; Joseph M. Castaldi, Manager of External
Affairs; Neely D. Crowley, Supervisor of Communications/Public Relations; Nancy
J. Cunningham, Manager of Corporate Development; Louis A. DeCicco, Manager of
Bulk Power Marketing; Frank E. DiCola, Vice President (AEE); Gary L. Hanson,
Controller (ACE); Ernest L. Jolly, Vice President; Robert K. Marshall, Manager
of Finance and Treasury Operations; Marilyn T. Powell, Vice President; and
Deborah L. Turner-Fox, Manager of Human Resources.
Atlantic and Delmarva are neighboring utilities that have had a variety of
working relationships on a wide range of matters over many years. These included
joint minority ownership in a number of electric production facilities and
co-membership in the Pennsylvania-New Jersey-Maryland Interconnection
Association, a regional power pool.
The Energy Policy Act of 1992 (the "1992 Act"), which enhanced the authority
of the Federal Energy Regulatory Commission (the "FERC") to order electric
utilities to provide transmission service, has prompted new developments in the
electric utility industry. The 1992 Act also created a new class of power
producers, exempt wholesale generators, which are exempt from regulation under
the 1935 Act. This exemption has increased the number of entrants into the
wholesale electric generation market and so
33
<PAGE>
increased competition in the wholesale segment of the electric utility industry.
Pursuant to its authority under the 1992 Act, the FERC issued a number of orders
in specific cases commencing in December 1993 directing utilities to provide
transmission services. The FERC's actions have increased the availability of
transmission services, thus creating significant competition in the wholesale
power market. Other developments have resulted from policies at the SEC, which
has liberalized its interpretation and administration of the 1935 Act in ways
that have made mergers between utility companies less burdensome, thereby
facilitating the creation of larger industry competitors. Moreover, regulatory
bodies in a number of states have initiated proceedings to review the basic
structure of the industry, and such activity has led industry observers to
anticipate the advent of retail competition on a significant scale within the
electric utility industry.
In the fall of 1995, following a number of general discussions between
Atlantic's senior management and its financial advisors and legal counsel, among
others, regarding the potential strategic value of acquisitions, alliances and
mergers in the restructuring utility and energy services industry, Atlantic
began investigations of strategic alternatives. Atlantic's long-term advisors,
corporate counsel at Simpson Thacher & Bartlett ("Simpson Thacher"), which had
previously advised Atlantic and briefed the Atlantic Board on its fiduciary
duties in the context of a strategic transaction, and financial advisors at
Morgan Stanley & Co. Incorporated ("Morgan Stanley"), were alerted to Atlantic's
interest in pursuing discussions with individual target companies.
During 1995, Delmarva's senior management team participated in a series of
retreats focused on the future direction of the industry and their implications
for the company. Over the course of the last 12-18 months Delmarva consulted
with various advisors, including its long-term legal advisor, LeBoeuf, Lamb,
Greene & MacRae, L.L.P. ("LeBoeuf/NY"), regarding strategic opportunities
including, among other things, alliances, joint ventures and acquisitions, and
in June of 1995 acquired Conowingo Power Company from PECO Energy Company.
Over the course of their long business relationship, Mr. Howard E. Cosgrove,
Chairman, President and Chief Executive Officer of Delmarva, and Mr. Jerrold L.
Jacobs, Chairman of the Board and Chief Executive Officer of Atlantic, regularly
met to discuss industry issues. At one such meeting, on February 21, 1996, Mr.
Cosgrove raised the possibility of a merger of the two companies. At the time,
Mr. Jacobs declined to pursue the discussions, primarily because Atlantic was in
the process of investigating other alternatives. Later, Atlantic decided not to
continue to consider these alternatives.
On March 4, 1996, Mr. Jacobs called Mr. Cosgrove, indicating his interest in
commencing discussions that could lead to a merger or other business combination
of the two companies. They met on March 7, 1996 to conduct exploratory
discussions.
At a regularly scheduled Atlantic Board meeting on March 14, 1996, Mr.
Jacobs advised the Atlantic Board of the possibility of a merger or other
business combination with Delmarva.
On March 15, 1996, Mr. Jacobs and Mr. Michael J. Barron, Vice President and
Chief Financial Officer of Atlantic, held a teleconference with representatives
of Morgan Stanley to provide Morgan Stanley with an overview of discussions to
date and to go over the due diligence process that would be involved in
determining whether to effect a business combination with Delmarva.
At a regularly scheduled Delmarva Board meeting on March 28, 1996, Mr.
Cosgrove advised the Delmarva Board of his discussions with Mr. Jacobs and
interest in pursuing a possible merger or other business combination. Later that
evening, Mr. Cosgrove and Mrs. Barbara S. Graham, Senior Vice President,
Treasurer and Chief Financial Officer of Delmarva, met with representatives of
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") to provide
Merrill Lynch with an overview of discussions to date and to go over the due
diligence process that would be involved in determining whether to effect a
business combination with Atlantic. This meeting was followed by meetings on
March 29 and April 1, 1996 between representatives of Delmarva and Merrill
Lynch, as background for a meeting on April 4 that would initiate the first
phase of the merger discussions.
34
<PAGE>
On April 3, 1996, Mr. Jacobs met with Mr. Michael J. Chesser, then Senior
Vice President, now President and Chief Operating Officer of Atlantic, and the
Atlantic working group. On April 4, 1996, Messrs. Jacobs and Cosgrove met with
the joint working groups and Merrill Lynch and Morgan Stanley to commence Phase
I of the merger discussions. This phase was to include preliminary discussions
of benefits at a conceptual level and the identification of issues that would
need to be resolved before proceeding with a merger of the two companies.
Subgroups consisting of representatives of Delmarva and Atlantic were
established to address areas of interest and report back to a joint working
group meeting within a few days.
On April 9, 1996, representatives of Delmarva and Atlantic met with Merrill
Lynch and Morgan Stanley to assess the potential reaction of the capital markets
to a combination of the companies. On April 10, 1996, Atlantic and Delmarva
entered into a confidentiality agreement pursuant to which the parties agreed to
provide nonpublic information to one another. A joint meeting was held on April
10, 1996 with Atlantic's long-term regulatory counsel at LeBoeuf, Lamb, Greene &
MacRae, L.L.P. ("LeBoeuf/NJ"), to discuss potential legal regulatory issues. On
April 11, 1996, members of management from both companies made presentations to
a meeting at which representatives of Delmarva, Atlantic, Merrill Lynch and
Morgan Stanley were present, covering the business plans of each company,
potential benefits and other issues related to a potential business combination
of the two companies. A teleconference was held on April 15, 1996 among members
of the working group, Merrill Lynch, Morgan Stanley, LeBoeuf/NY and Potter
Anderson & Corroon ("Potter Anderson"), Delmarva's long-term legal advisor and
co-counsel to LeBoeuf/NY, and Simpson Thacher to discuss updates of the
evaluations of synergies and legal and regulatory issues. At a meeting on April
16, 1996 of members of the Delmarva and Atlantic working groups at which Merrill
Lynch and Morgan Stanley were present, the joint working group discussed a
framework for analyzing potential merger synergies.
On April 17, 1996, another meeting of the working groups was held to discuss
regulatory strategy and other matters, which Merrill Lynch, Morgan Stanley,
LeBoeuf/NY, Potter Anderson and Simpson Thacher attended. Preliminary
conclusions of Phase I were discussed. A preliminary report by Mr. Louis M.
Walters, Treasurer of Atlantic, identifying potential merger synergies, was
discussed. There was general agreement about the desire to move the discussions
forward, but additional analysis was sought on potential obstacles to a business
combination between Delmarva and Atlantic. On April 18, 1996 a teleconference
was held among members of the working groups, Merrill Lynch and Morgan Stanley
during which regulatory issues were discussed. At the conclusion of the
teleconference there was a consensus that discussions of a potential business
combination between Delmarva and Atlantic should be continued but that there was
need for further study of issues requiring resolution.
On April 19, 1996, representatives of Delmarva and Atlantic met to prepare
for a Phase I presentation to Messrs. Cosgrove, Jacobs and Chesser. This
presentation was made by Mrs. Graham and Mr. Barron at a meeting held on April
22, 1996 at which Merrill Lynch and Morgan Stanley were present. It ended with a
consensus to proceed with Phase IIa. This phase was to involve a focused
investigation of the identified issues needing resolution in order to proceed
with the transaction. These included the emerging regulatory environment and
general valuation issues.
At a regularly scheduled Atlantic Board meeting on April 24, 1996, Morgan
Stanley made a presentation which included an update on the potential
transaction, a description of other comparable transactions and the results of
their preliminary valuation analysis. Mr. Barron briefed the Atlantic Board on
the status of the discussions with Delmarva. Mr. Walters gave a presentation on
potential synergies that could be realized from a combination of the two
companies based on a high-level preliminary review. A recommendation was made to
proceed with Phase IIa. The Atlantic Board encouraged management to proceed with
discussions.
On April 25, 1996, at a regularly scheduled Delmarva Board meeting, Mr.
Cosgrove, Mrs. Graham and Mr. Thomas S. Shaw, Senior Vice President of Delmarva,
provided the Delmarva Board with a strategic overview of the proposed merger.
Representatives from Merrill Lynch and LeBoeuf/NY also commented on the proposed
merger. A recommendation was made to proceed with Phase IIa.
35
<PAGE>
On April 26, 1996, directly following the Delmarva and Atlantic board
meetings, Messrs. Jacobs and Cosgrove met to discuss the reactions of their
boards and their expectations for going forward with discussions in Phase IIa.
A joint regulatory subgroup of the Delmarva and Atlantic working groups held
a meeting on April 30, 1996 at which LeBoeuf/NJ provided a briefing on New
Jersey regulation. On May 2, 1996, this subgroup also heard a presentation from
The NorthBridge Group ("NorthBridge"), an economic consulting firm specializing
in the utility industry, about the scope of a stranded cost review. Merrill
Lynch and Morgan Stanley were also present at this meeting. The companies
decided after the presentation to have their counsel jointly engage NorthBridge
to do an evaluation of potential stranded costs arising in each of the
companies. NorthBridge presented to the joint working group on May 15, 1996 its
preliminary stranded costs review.
NorthBridge analyzed the potential for differential or asymmetric stranded
cost exposure for Delmarva and Atlantic as a result of a transition to retail
competition in the electric utility industry. Relative exposure was assessed
within each of four regulatory scenarios involving less than full recovery of
stranded costs: (i) administratively determined stranded costs, which are based
on regulators' forecasts of market prices (assumed to be higher than actual
market prices); (ii) a rate cap approach, in which rates are frozen for a period
of time and then permitted to fall to market levels; (iii) the "California
approach," in which stranded costs would be permitted to earn a lower return on
equity than currently permitted; and (iv) staged retail wheeling, in which
retail wheeling is made available to different classes of customers at different
times. In scenarios (i), (ii) and (iv), determinations were made under two
subscenarios, one with and one without the assumption of full recovery under
purchased power contracts over the transition period; in scenario (iii), such
recovery is assumed by definition. As a reference point for the study, an
assessment was made using current rates and market prices assuming an immediate
and full loss of all stranded costs.
NorthBridge used market price forecasts provided by Delmarva and Atlantic.
NorthBridge found these prices to be within a reasonable range and used average
figures for its base case (considering as well high and low cases at equal
points above and below these averages). It also relied on the companies'
information concerning production-related revenue requirements and forecasts of
regulatory asset revenue requirements, purchased power obligations and load.
Under each of the scenarios and subscenarios NorthBridge identified a potential
for greater proportional exposure for Atlantic, except under the administrative
scenario assuming that purchased power contracts were exempted from the
transition, in which case the exposure was marginally higher for Delmarva.
NorthBridge noted that the relative proportionalities were maintained over the
full range of future market prices considered but that different results could
occur where different jurisdictions adopted different approaches to
deregulation. The information was used by the working groups as one point of
reference in reflecting the potential impact of deregulation on the respective
values of the companies.
NorthBridge was selected by Delmarva and Atlantic based on its experience,
including its familiarity with trends in the electric utility industry. The fees
of NorthBridge incurred in connection with its assignment were based on time
spent plus expenses and are estimated at $50,000.
The joint legal subgroup had held a meeting on May 8, 1996 to address a
number of legal matters at which LeBoeuf/NJ was present.
Following this period of intense review of the potential obstacles to a
merger of Atlantic and Delmarva, representatives of the two companies met with
Merrill Lynch and Morgan Stanley on May 29, 1996. Discussions were held on the
status of the regulatory analysis, the analysis of general stand-alone valuation
issues and the likely reaction of the capital markets to an announcement of a
combination of the two companies. The companies' working groups and advisors
laid out a number of options, including having as a component of the merger
consideration a "second security" (I.E., a security in addition to the
conventional common stock of the new company) that would be distributed to the
stockholders of Atlantic to reflect the growth prospects of, and uncertainties
associated with deregulation of, the regulated electric
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utility business of Atlantic. The parties were considering the use of such a
second security as a mechanism to address the difference in Delmarva's and
Atlantic's evaluations of the overall impact of these growth prospects and
uncertainties on the regulated electric utility business of Atlantic. The
parties considered that the second security could take the form either of a
"letter stock," I.E., a common stock to be issued by the holding company that,
following the Mergers, would own the businesses of both Delmarva and Atlantic
but the performance of which would be tied in some manner to that of the
regulated New Jersey electric utility business of Atlantic, or of a preferred
stock that was in some way tied to the performance of such business.
At a regularly scheduled Delmarva Board meeting on May 30, 1996, Mrs. Graham
provided a status report on Phase IIa of the discussions, including an overview
of the preliminary NorthBridge study and an update on a review of Atlantic's
business plan. The concept of a second security was also reviewed with the
Delmarva Board. It was recommended, based on management's financial review of
the proposed transaction to date, that Delmarva proceed with the next phase of
discussions and analysis, assuming inclusion of a second security.
On May 31, 1996, the Atlantic Executive Committee met to discuss the status
of the merger discussions, the business plan and related issues. On June 4,
1996, these individuals met again. At the conclusion of the June 4 session, the
Atlantic Executive Committee determined that discussions should continue and
that nearly two days of briefings on topics related to a potential business
combination with Delmarva be presented to the Atlantic Board at its scheduled
Board Retreat on June 12-13, 1996.
On June 7, 1996, Messrs. Cosgrove and Jacobs met to discuss the status of
management structure issues and of the possible second security. This was the
beginning of a series of negotiation sessions between the two chief executive
officers.
At the June 12-13 Atlantic Board Retreat, Messrs. Jacobs and Barron, along
with other members of Atlantic's management, reported on the status of
negotiations, including those relating to a second security, such as a preferred
or letter stock. The status of negotiations was reviewed against the backdrop of
an in-depth discussion of Atlantic's long range business plans, including
regulatory issues.
On June 26, 1996, the Delmarva Board was provided with an update of
discussions with Atlantic. Representatives of LeBoeuf/NY and Potter Anderson
reviewed the structural implications of being a registered holding company under
the 1935 Act and Delmarva Board responsibilities in a merger of equals
transaction. On June 27, 1996, a representative from NorthBridge presented to
the Delmarva Board a preliminary review of stranded costs. This presentation was
followed by an overview of a proposed structure for a second security by Merrill
Lynch and an update by Delmarva management on its review of financial aspects of
the proposed transaction. The meeting was concluded with an overview of the
remaining areas of due diligence to be completed and a proposed timeline for
completion of Phase II.
On July 2, 1996, Messrs. Jacobs and Cosgrove met and agreed to start Phase
IIb discussions. Both companies had at this point agreed generally on the use of
a second security, which could be either a common or preferred equity security.
Phase IIb was to include due diligence investigations, detailed evaluation of
synergies, formal pricing discussions and the development of a communications
plan. Later that day, Mr. Jacobs met with Mr. Chesser and members of the
Atlantic working group to commence Phase IIb.
On July 3, 1996, members of both working groups and Morgan Stanley,
LeBoeuf/NY and Potter Anderson held a teleconference. Teams were formed to
address a range of due diligence issues: business plans and valuation;
regulatory issues; accounting, tax and financial systems; asset evaluation and
operations; communication and information systems; human resources; marketing,
communications and public relations; litigation; corporate documents; and
environmental and real estate. During the July 3, 1996 teleconference, a
decision was made to have counsel for Delmarva and Atlantic jointly engage
Deloitte & Touche Consulting Group ("D&T Consulting Group"), a nationally
recognized consulting firm with experience in utility mergers and acquisitions,
to assist Delmarva and Atlantic management in identifying and quantifying the
potential cost savings that could result from a business combination between the
two
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companies. D&T Consulting Group is a division of Deloitte & Touche LLP.
Following the teleconference, the parties identified the additional
representatives from each company that would be included in the working group
for Phase IIb.
During July and in early August, intensive due diligence activities,
including the exchange of documents between Delmarva and Atlantic and a series
of meetings, were conducted by Delmarva and Atlantic. On July 19 and July 25,
1996, each Atlantic due diligence team presented internal due diligence reports
to Mr. James E. Franklin II, Atlantic's General Counsel, identifying areas for
continuing evaluation. These topics, in addition to any others identified, were
worked to closure through the final stages of negotiation.
Delmarva held a series of meetings throughout Phase II in connection with
completion of due diligence. On July 18, Delmarva met with Merrill Lynch,
LeBoeuf/NY and Potter Anderson to discuss due diligence and the draft merger
agreement. On July 19, 1996, representatives of Delmarva met with Potter
Anderson to go over the status of due diligence.
Through a series of conference calls held July 15 through July 18, 1996 that
included representatives of Delmarva and Atlantic and representatives of Merrill
Lynch, Morgan Stanley, LeBoeuf/NY, Potter Anderson and Simpson Thacher,
agreement was reached that the second security would take the form of a letter
stock, I.E., a common equity security, rather than a preferred stock.
During a joint meeting of the communications subgroups of the Delmarva and
Atlantic teams on July 16, 1996, a decision was made that it was timely to
engage a communications advisor knowledgeable in merger-related communications.
A meeting of Atlantic and Delmarva together with Merrill Lynch, Morgan
Stanley, LeBoeuf/NY, Potter Anderson and Simpson Thacher was held on July 23,
1996. A number of smaller sessions were held among subgroups. There were
detailed discussions about the terms of a draft merger agreement and the terms
of the letter stock. In addition, members of Delmarva and Atlantic managements
and D&T Consulting Group discussed the status of the potential synergies
identification effort. At a communications subgroup session, at which Abernathy
MacGregor & Associates ("Abernathy") discussed with management of Delmarva and
Atlantic the necessary components of a communications plan, the parties agreed
to jointly engage Abernathy to assist them in the development of a communication
plan and in the preparation of communication materials in connection with the
potential transaction.
On July 25, 1996, Messrs. Jacobs and Chesser of Atlantic were invited to a
segment of the Delmarva Board meeting at which D&T Consulting Group, as a part
of its assistance to the joint working group, discussed the joint analysis of
potential synergies with the Delmarva Board, including the basic structure,
process and content of a synergy analysis, generally described the type of
synergies identified in other mergers, then explained the results to date of the
joint synergies analysis. The evaluation included preliminary estimates of
synergies, net of costs to achieve them, in excess of $500 million over a
10-year period that might be obtained from a business combination of the two
companies. After Messrs. Jacobs and Chesser and D&T Consulting Group left, the
Delmarva Board was updated on the status of negotiations with Atlantic. In
addition, Merrill Lynch gave a preliminary review of financial aspects of the
proposed transaction, and LeBoeuf/NY and Potter Anderson provided the Delmarva
Board with a summary of merger agreement issues. Updates were also provided on
regulatory strategy, the second security and the status of Delmarva's review of
financial aspects of the proposed transaction.
On July 26, 1996, Messrs. Jacobs and Barron of Atlantic and Mr. Cosgrove and
Mrs. Graham of Delmarva met to conclude the negotiation of management structure
issues and to begin to make progress on the parameters of the potential
transaction, including the extent to which the merger consideration distributed
to Atlantic's stockholders would include letter stock.
On July 30, 1996, the Atlantic Board was furnished with information
regarding the proposed transaction including the proposed general parameters for
the letter stock, in preparation for its August 5 board meeting.
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At a meeting of the Delmarva Board on August 1, 1996, management provided an
update on the status of discussions with Atlantic. A report was given on due
diligence, which, although essentially complete, would continue through the
final stages of negotiations. Additional presentations were made by LeBoeuf/NY
on the draft merger agreement and the second security, followed by presentations
by management and Merrill Lynch on financial aspects of the proposed transaction
and a presentation by management on the analysis of potential synergies. In
addition, the Delmarva Board was provided with an overview of communications
plans.
On August 2, 1996, members of the Delmarva and Atlantic working groups met
with D&T Consulting Group to review the final results of the analysis prepared
by Delmarva and Atlantic with the assistance of D&T Consulting Group on
potential synergies that could result in connection with a business combination
of Delmarva and Atlantic.
Discussions continued over the next several days among members of management
of each company, their financial advisors and their legal counsel regarding the
completion of due diligence, valuation issues, separate and combined financial
forecasts, regulatory issues, terms of the proposed merger agreement, human
resources issues and management responsibilities.
During discussions regarding the proposed merger at the August 5, 1996
Atlantic Board meeting, D&T Consulting Group, as a part of its assistance to the
joint working group, discussed the joint analysis of potential synergies with
the Atlantic Board. Morgan Stanley and Simpson Thacher were present at this
meeting and provided information on the results of due diligence, letter stock
and examples of its use, and a number of other merger-related topics. Simpson
Thacher also briefed the Atlantic Board on its responsibilities and obligations
in a merger of equals. Mr. Cosgrove met with the Atlantic Board, following which
Messrs. Cosgrove and Shaw and Mrs. Graham met informally with the Atlantic Board
at a recess in the proceedings.
On August 7, 1996, Messrs. Jacobs and Barron of Atlantic met with Mr.
Cosgrove and Mrs. Graham of Delmarva to engage in negotiations regarding
pricing, dividend policy and the proposed name of the new company. There was
still no agreement on material terms, but the parties agreed to proceed to
inform their respective boards of directors.
At the Atlantic Board meeting on August 8, the Atlantic Board was briefed on
the status of the negotiations and considered final presentations from
management on the rationale for a business combination of Delmarva and Atlantic,
including the potential benefits and the similarity of vision and strategy
between the two companies. Morgan Stanley made a presentation which included a
description of the letter stock and the results of their valuation analysis.
Simpson Thacher was present at this meeting and made presentations to the
Atlantic Board on a number of merger-related issues.
Prior to a meeting of the Atlantic Board on August 9, 1996, Mr. Cosgrove and
Mrs. Graham and Messrs. Jacobs and Barron held a teleconference and continued
their negotiations, in the end agreeing to take the status of the negotiations
to their respective boards for discussion.
At the Atlantic Board meeting of August 9, 1996, detailed presentations were
made by Morgan Stanley and management on the status of pricing negotiations.
Simpson Thacher reviewed in detail with the Atlantic Board the terms of the
Merger Agreement. The joint communication plan that would be put in place upon
an approved merger was presented to the Atlantic Board by management and a
representative of Abernathy. During the balance of the day additional telephone
discussions were held between Messrs. Jacobs and Barron of Atlantic and Mr.
Cosgrove and Mrs. Graham of Delmarva, and the parties agreed upon conversion
ratios to take to their respective boards. Simpson Thacher made presentations to
the Atlantic Board on a number of merger-related issues. Morgan Stanley made a
presentation which included a summary of the terms of the transaction, a further
description of the letter stock and the results of their valuation analysis.
Morgan Stanley rendered to the Atlantic Board its oral opinion, which was
subsequently confirmed in writing, to the effect that as of the date of such
meeting the Atlantic Conversion Ratio taking into account the Delmarva
Conversion Ratio was fair from a financial point of view to the
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holders of Atlantic Common Stock. The Atlantic Board then approved the terms of
the Merger Agreement, which was subsequently executed.
At the Delmarva Board meeting on the same day, management noted that due
diligence had been concluded and that no issues had been identified that would
preclude management's recommending that Delmarva proceed with the proposed
merger; management further noted that the synergies analysis was finalized.
Counsel to Delmarva reviewed in detail the transaction terms and representatives
of Merrill Lynch reviewed various financial and other information and rendered
to the Delmarva Board its opinion that, as of such date and based upon and
subject to the matters discussed therein, the Delmarva Conversion Ratio was fair
to Delmarva and its stockholders from a financial point of view. The Delmarva
Board discussed with Merrill Lynch and with counsel the information and advice
it had received at this and previous meetings. After such discussions, the
Delmarva Board approved the terms of the Merger Agreement and the Merger
Agreement was subsequently executed.
REASONS FOR THE MERGERS
The primary rationale for the Mergers is that Delmarva and Atlantic share a
common vision of the future as well as the strategic path necessary to succeed
in the increasingly competitive utility and energy services marketplace.
Delmarva and Atlantic see the electric industry splitting into a
commodity-like wholesale power generation market and a retail side where
customers have service needs that extend beyond kilowatt hour supply. The
companies also see the convergence of energy, energy-related services, electric
utility services, and ultimately other utility services such as
telecommunications, water and wastewater. The Mergers will better position the
combined company to successfully implement strategies in the following ways:
- INCREASED SCALE--As competition intensifies within the industry, Atlantic
and Delmarva believe scale will be one parameter that will contribute to
overall business success. Scale has importance in many areas, including
utility operations, product development, advertising and corporate
services. The Mergers are expected to improve the profitability of the
combined company by roughly doubling the customer base and providing
increased economies of scale in all of these areas.
- COST SAVINGS--Through the elimination of duplicative activities, increased
scale and improved purchasing power, the companies expect to capture
merger-related savings net of transaction costs in excess of $500 million
over the next ten years, based on preliminary estimates by the managements
of Delmarva and Atlantic with the assistance of D&T Consulting Group.
These estimated cost savings would be attributable to the Mergers and
would not include other types of savings that might be achieved without a
business combination of Delmarva and Atlantic. The estimated cost savings
reflect the creation of cost reduction or cost avoidance opportunities
through the ability to consolidate separate, stand-alone operations into a
single entity. In addition, the Company will continue efforts already
underway in both Delmarva and Atlantic to increase productivity and reduce
costs by redesigning or re-engineering key business processes.
- COMPETITIVE PRICES AND SERVICES--Sales to industrial, large commercial and
wholesale customers are considered to be at greatest near-term risk as a
result of increased competition in the electric utility industry. The
Mergers will enable the Company to meet the challenges of the increased
competition and will create operating efficiencies through which the
Company will be able to provide more competitive prices to customers.
- MORE BALANCED CUSTOMER BASE--The Mergers will create a larger company with
less reliance on the chemical and financial services industries, from
Delmarva's perspective, and on casino gaming, tourism and recreation, from
Atlantic's perspective. The combined service territories of Delmarva and
Atlantic will be more diverse than their individual service territories,
reducing the Company's exposure to adverse changes in any sector's
economic and competitive conditions.
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- FINANCIAL FLEXIBILITY--By roughly doubling the market capitalization of
the Company compared with the individual companies, the Mergers should
improve the Company's overall credit quality and liquidity of the
securities issued by the holding company and therefore improve the
Company's ability to fund continued growth.
- REGIONAL PLATFORM FOR GROWTH--The combination of Atlantic and Delmarva
will create a regional platform in the mid-Atlantic corridor. The corridor
is experiencing economic growth that is led by the casino gaming industry
in South Jersey and the expansion of the financial services industry in
Delaware. The Company plans to expand relationships with existing
customers and to develop relationships with new customers in the region.
The Company will use its combined distribution channels to market a
portfolio of energy-related products throughout the region and will follow
regional relationships to other geographical areas.
The estimated cost savings resulting from the Mergers referred to above are
expected to be allocated among stockholders and customers. This allocation will
depend upon the results of regulatory proceedings in the various jurisdictions
in which Delmarva and Atlantic operate their utility businesses. See "Regulatory
Matters."
The analyses employed in order to develop the preliminary estimates of
potential cost savings resulting from the Mergers referred to above include
forward-looking statements within the meaning of Section 21E of the Exchange
Act. These forward-looking statements reflect numerous assumptions, which
involve judgments with respect to a number of risks and uncertainties. Among the
factors that could cause actual results to differ materially from those set
forth above are: electric load and customer growth; abnormal weather conditions;
available sources and cost of fuel and generating capacity; the speed and degree
to which competition enters the power generation, wholesale and retail sectors
of the electric utility industry; state and federal regulatory initiatives that
increase competition, threaten cost and investment recovery and impact rate
structures; the ability of the Company to reduce successfully its cost
structure; operating performance of the nuclear generating facilities,
decommissioning costs associated with such facilities and impact on future
operational and financial condition associated with the uncertain status of the
Salem Nuclear Generating Station; the degree to which the Company develops
nonregulated business ventures; the economic climate and growth in the service
territories of Delmarva and Atlantic following the Mergers; economies generated
by the Mergers; inflationary trends and interest rates; and other risks detailed
from time to time in the reports filed with the SEC by Delmarva and Atlantic.
Accordingly, while Delmarva and Atlantic believe that such assumptions are
reasonable for purposes of the development of estimates of potential savings,
there can be no assurance that such assumptions will approximate actual
experience or that all such savings will be realized.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
DELMARVA. THE DELMARVA BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND DETERMINED TO RECOMMEND THE DELMARVA MERGER TO HOLDERS OF DELMARVA COMMON
STOCK. THE DELMARVA BOARD UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF DELMARVA
COMMON STOCK VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
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In considering the recommendation of the Delmarva Board with respect to the
Merger Agreement, stockholders should be aware that certain members of the
Delmarva Board will become directors and/or employees of the Company following
consummation of the Mergers and/or may become entitled to severance benefits as
a result of the Mergers. Therefore, such directors have interests in the Merger
Agreement that are in addition to the interests of stockholders of Delmarva
generally and that could potentially represent conflicts of interest. The
Delmarva Board was aware of these interests and considered them, among other
matters, in approving the Merger Agreement. See "--Conflicts of Interest of
Certain Persons in the Mergers."
The Delmarva Board believes that the Mergers will provide strategic and
operational opportunities and will enable Delmarva and its stockholders to
participate in a company which, through the pooling of common stock equity,
management, manpower and technical expertise and increased coordination in the
use of the facilities of Delmarva and Atlantic, will be better able to meet the
competitive environment for the delivery of energy and services. In addition,
the Delmarva Board believes that the combined entity will be able, in the long
term, to achieve benefits of increased financial stability and strength,
improved and unified management, efficiencies of operations, better use of
facilities for the benefit of customers and reduced or deferred requirements for
future additional generating capacity. In addition to the benefits expected to
be derived from the Mergers, the Delmarva Board considered the additional
regulatory oversight that would result, including regulation under the 1935 Act
and the possibility that the Company may be required to divest itself of its
natural gas operations and/or certain nonutility enterprises, and the problems
inherent in merging the operations of two large companies, including composition
of the Company Board, but concluded that the benefits outweighed these
disadvantages.
In reaching its conclusions, the Delmarva Board considered: (i) the amount
of Company Common Stock to be received by holders of each share of Delmarva
Common Stock and the inclusion of Class A Common Stock as a second security to
be issued to the holders of Atlantic Common Stock pursuant to the Mergers, as
more fully discussed below; (ii) the financial performance, condition, business
operations and prospects of each of Delmarva and Atlantic and the fact that the
Company will likely have greater financial stability and strength due to its
participation in the economic climate and growth of both Delmarva and Atlantic's
service territories, its increased economies of scale, the diversification of
its customer base and the impact of the potential operating efficiencies and
merger-related savings realized through the consolidation of Delmarva's and
Atlantic's stand-alone operations, as more fully discussed above; (iii) the
improved credit quality and liquidity of the Company as compared to Delmarva and
Atlantic individually, which will enhance the Company's access to capital and
ability to fund growth opportunities; (iv) current industry, economic, market
and regulatory conditions that encourage consolidation to compete effectively in
an increasingly deregulated environment (as described under "Background of the
Mergers"); (v) the anticipated positive effects of the Mergers on stockholders
through their ownership of stock in a stronger company as a result of the
reasons described in (ii), (iii) and (iv) above and on customers through more
competitive rates; (vi) the terms of the Merger Agreement, which provide for
reciprocal representations and warranties, conditions to closing and rights to
termination, balanced rights and obligations and protection for employees of
Delmarva (as discussed under "The Merger Agreement"); (vii) the recent incidence
of merger transactions involving electric utility companies in surrounding
markets, which is part of a wider trend in the utility industry towards
consolidation and strategic partnerships in order to create larger, stronger
companies made to face an increasingly competitive environment; (viii) the
impact of regulation under various state and federal laws (as described under
"Background of the Mergers"); and (ix) the opinion of Merrill Lynch, described
below, that the Delmarva Conversion Ratio is fair to Delmarva and its
stockholders from a financial point of view. With regard to item (i) above, the
Class A Common Stock was determined by the Delmarva Board to be necessary to
bridge a difference in view between Delmarva and Atlantic on the appropriate
conversion ratio for a business combination between the two companies. From
Delmarva's perspective, this difference in view relates primarily to the impact
of deregulation on the regulated utility business of Atlantic given its average
cost of power relative to other potential suppliers in the region. The second
security allocates proportionately more of the risks associated
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with Atlantic's regulated utility business to Atlantic's current stockholders
and, at the same time, provides them with the opportunity to participate in
proportionately more of the growth prospects of Atlantic's regulated utility
business. In approving the Merger Agreement and recommending that the common
stockholders of Delmarva approve the Merger Agreement, the Delmarva Board
considered the above factors as a whole and did not assign specific or relative
weights to any one factor or group of factors.
ATLANTIC. THE ATLANTIC BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND DETERMINED TO RECOMMEND THE ATLANTIC MERGER TO HOLDERS OF ATLANTIC COMMON
STOCK. THE ATLANTIC BOARD UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF ATLANTIC
COMMON STOCK VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
In considering the recommendation of the Atlantic Board with respect to the
Merger Agreement, stockholders should be aware that certain members of the
Atlantic Board will become directors and/or employees of the Company following
consummation of the Mergers and/or may become entitled to severance benefits as
a result of the Mergers. Therefore, such directors have interests in the Merger
Agreement that are in addition to the interests of stockholders of Atlantic
generally and that could potentially represent conflicts of interest. The
Atlantic Board was aware of these interests and considered them, among other
matters, in approving the Merger Agreement. See "--Conflicts of Interest of
Certain Persons in the Mergers."
The Atlantic Board believes that the Mergers will provide strategic and
operational opportunities and will enable Atlantic and its stockholders to
participate in a company which, through the pooling of common stock equity,
management, manpower and technical expertise and increased coordination in the
use of the facilities of Atlantic and Delmarva, will be better able to meet the
competitive environment for the delivery of energy and services. In addition,
the Atlantic Board believes that the combined entity will be able, in the long
term, to achieve benefits of increased financial stability and strength,
improved and unified management, efficiencies of operations, better use of
facilities for the benefit of customers and reduced or deferred requirements for
future additional generating capacity. In addition to the benefits expected to
be derived from the Mergers, the Atlantic Board considered the additional
regulatory oversight that would result, including regulation under the 1935 Act
and the possibility that the Company may be required to divest itself of
Delmarva's natural gas operations and/or certain nonutility enterprises, and the
problems inherent in merging the operations of two large companies, including
composition of the Company Board, but concluded that the benefits outweighed
these disadvantages.
In reaching its conclusions, the Atlantic Board considered: (i) the amount
of Company Common Stock and Class A Common Stock to be received by holders of
each share of Atlantic Common Stock, as discussed more fully below; (ii) the
fact that the inclusion of the Class A Common Stock permitted Atlantic and
Delmarva to proceed with a mutually beneficial transaction despite the two
companies' different evaluations of the growth prospects of, and uncertainties
associated with deregulation of, the regulated electric utility business of
Atlantic; (iii) the financial performance, condition, business operations and
prospects of each of Atlantic and Delmarva and the fact that the Company will
likely have greater financial stability and strength due to its participation in
the economic climate and growth of both Atlantic and Delmarva's service
territories, its increased economies of scale, the diversification of its
customer base and the impact of the potential operating efficiencies and
merger-related savings realized through the consolidation of Atlantic's and
Delmarva's stand-alone operations, as more fully discussed above; (iv) the
improved credit quality and liquidity of the Company as compared to Atlantic and
Delmarva individually, which will enhance the Company's access to capital and
ability to fund growth opportunities; (v) current industry, economic, market and
regulatory conditions, which encourage consolidation to compete effectively in
an increasingly deregulated environment (as described under "Background of the
Mergers"); (vi) the anticipated positive effects of the Mergers on stockholders
through their ownership of stock in a stronger company for the reasons described
in (iii), (iv) and (v) above and on customers through more competitive rates;
(vii) the terms of the Merger Agreement, which provide for reciprocal
representations
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and warranties, conditions to closing and rights to termination, balanced rights
and obligations and protection for employees of Atlantic (as discussed under
"The Merger Agreement"); (viii) the recent wave of merger activity involving
electric utility companies in surrounding markets, which is part of a wider
trend in the utility industry towards consolidation and strategic partnerships
in order to create larger, stronger companies ready to face an increasingly
competitive environment; (ix) the impact of regulation under various state and
federal laws (as described under "Background of the Mergers"); and (x) the
opinion of Morgan Stanley, described below, that the Atlantic Conversion Ratio,
taking into account the Delmarva Conversion Ratio, is fair from a financial
point of view to the holders of the Atlantic Common Stock. With regard to item
(i) above, the Class A Common Stock was determined by the Atlantic Board to be
necessary to bridge a difference in view between Atlantic and Delmarva on the
appropriate conversion ratio for a business combination between the two
companies. The second security allocates proportionately more of the risks
associated with Atlantic's regulated utility business to Atlantic's current
stockholders and, at the same time, provides them with the opportunity to
participate in proportionately more of the growth prospects of Atlantic's
regulated utility business. In approving the Merger Agreement and recommending
that the stockholders of Atlantic approve the Merger Agreement, the Atlantic
Board considered the above factors as a whole and did not assign specific or
relative weights to any one factor or group of factors.
OPINION OF FINANCIAL ADVISOR TO DELMARVA
DELMARVA
Merrill Lynch has delivered its written opinions to the Delmarva Board,
dated August 9, 1996 and the date of this Joint Proxy Statement Prospectus, to
the effect that, as of the dates of such opinions, and based upon the
assumptions made, matters considered and limits of review, as set forth in such
opinions, the Delmarva Conversion Ratio (as defined herein) contemplated by the
Merger Agreement is fair to Delmarva and its stockholders from a financial point
of view. References herein to the "Merrill Lynch Opinion" refer to the written
opinion of Merrill Lynch dated August 9, 1996.
A COPY OF THE MERRILL LYNCH OPINION DATED THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED
AND CERTAIN LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY MERRILL LYNCH, IS
ATTACHED AS ANNEX II TO THIS JOINT PROXY STATEMENT/PROSPECTUS. DELMARVA
STOCKHOLDERS ARE URGED TO READ THIS OPINION IN ITS ENTIRETY. THE MERRILL LYNCH
OPINIONS ARE DIRECTED ONLY TO THE FAIRNESS OF THE DELMARVA CONVERSION RATIO FROM
A FINANCIAL POINT OF VIEW AND DO NOT CONSTITUTE A RECOMMENDATION TO ANY DELMARVA
STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE DELMARVA MEETING. THE
SUMMARY OF THE MERRILL LYNCH OPINION SET FORTH IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE MERRILL LYNCH OPINION ATTACHED AS ANNEX II HERETO.
The Merrill Lynch opinion dated the date of this Joint Proxy
Statement/Prospectus is substantially similar to the Merrill Lynch Opinion dated
August 9, 1996.
In arriving at the Merrill Lynch Opinion, Merrill Lynch among other things
(i) reviewed Delmarva's and Atlantic's Annual Reports, Forms 10-K and related
financial information for the three fiscal years ended December 31, 1995, and
Forms 10-Q and related unaudited financial information for the quarterly periods
ended March 31, 1996; (ii) reviewed certain other filings with the SEC made by
Delmarva and Atlantic, including proxy statements, Forms 8-K, and registration
statements, during the last three years; (iii) reviewed certain information,
including financial forecasts, relating to the business, earnings, dividends,
cash flow, assets and prospects of Delmarva and Atlantic, furnished to Merrill
Lynch by Delmarva and Atlantic, respectively; (iv) conducted discussions with
members of senior management of Delmarva and Atlantic concerning their
respective businesses, regulatory environments, prospects and strategic
objectives and possible operating, administrative and capital synergies which
might be realized for the combined companies following the Mergers; (v) reviewed
the historical market prices and trading activity for Delmarva Common Stock and
Atlantic Common Stock; (vi) compared the results of operations of Delmarva and
Atlantic with those of certain companies deemed by Merrill Lynch to be
reasonably similar
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to Delmarva and Atlantic, respectively; (vii) compared the proposed financial
terms of the Mergers with the financial terms of certain other mergers and
acquisitions which Merrill Lynch deemed to be relevant; (viii) considered the
pro forma effect of the Mergers, in terms of net income available to common
stockholders, dividends per common share, book value per common share and
capitalization, on the Delmarva Common Stock; (ix) reviewed a draft of the
Merger Agreement dated August 7, 1996; (x) reviewed an analysis prepared by
Atlantic and Delmarva with the assistance of a third-party consultant regarding
estimates of the amount and timing of the cost savings expected to be derived
from the Mergers; and (xi) reviewed such other financial studies and analyses
and made such other inquiry and took into account such other matters deemed
necessary or appropriate by Merrill Lynch for purposes of the Merrill Lynch
Opinion.
In preparing the Merrill Lynch opinions, Merrill Lynch relied on the
accuracy and completeness of all information supplied or otherwise made
available to it by Delmarva and Atlantic, and did not independently verify such
information or any underlying assumptions. Merrill Lynch did not undertake an
independent appraisal or physical inspection of the assets or liabilities
(contingent or otherwise) of Delmarva or Atlantic. Merrill Lynch also assumed
that the financial forecasts and estimated synergies furnished to it by Delmarva
and Atlantic were reasonably prepared and reflected the best currently available
estimates and judgments of Delmarva's and Atlantic's management as to the
expected future financial performance of Delmarva and Atlantic, respectively,
and as to the expected future projected outcomes of various legal, regulatory
and other contingencies. Merrill Lynch also assumed that the estimates relating
to the impact of regulatory change and competition, furnished by Delmarva and
Atlantic, have been reasonably prepared and reflect the best currently available
estimates and judgment of Delmarva's and Atlantic's management as to the
expected future projected outcomes relating to such matters. Merrill Lynch also
assumed that the Mergers will be free of federal tax to Delmarva, the Company,
DS Sub, Atlantic and the respective holders of Delmarva Common Stock and
Atlantic Common Stock. Merrill Lynch's opinions are based upon general economic,
market, monetary and other conditions as they existed and could be evaluated,
and the information made available to it, as of the respective dates of such
opinions. The Merrill Lynch opinions are directed to the Delmarva Board and do
not constitute a recommendation to any Delmarva stockholder as to how such
stockholder should vote at the Delmarva Meeting.
The matters considered by Merrill Lynch in arriving at the Merrill Lynch
opinions are based on numerous macroeconomic, operating and financial
assumptions with respect to industry performance, general business and economic
conditions, many of which are beyond the control of Delmarva and Atlantic, and
involve the application of complex methodologies and educated judgment. Any
estimates incorporated in the analyses performed by Merrill Lynch are not
necessarily indicative of actual past or future results or values, which may be
significantly more or less favorable than such estimates. Estimated values do
not purport to be appraisals and do not necessarily reflect the prices at which
businesses or companies may be sold in the future. The Merrill Lynch opinions do
not present a discussion of the relative merits of the Mergers as compared to
any other business plan or opportunity that might be presented to Delmarva, or
the effect of any other arrangement in which Delmarva might engage.
The following is a summary of certain financial and comparative analyses
performed by Merrill Lynch in arriving at its August 9, 1996 opinion.
TRADING RATIO ANALYSIS. Merrill Lynch reviewed the performance of the per
share market price of Delmarva Common Stock and Atlantic Common Stock over the
five year period ended August 2, 1996. Merrill Lynch also calculated the ratio
of the per share market price of Atlantic Common Stock to the per share market
price of Delmarva Common Stock from August 2, 1991 to August 2, 1996, August 2,
1993 to August 2, 1996, and August 2, 1995 to August 2, 1996. This analysis
showed that over the five year period, the per share market price of Atlantic
Common Stock compared to the per share price of Delmarva Common Stock, traded at
an average ratio of 0.950. Over the three year period this analysis showed that
the per share market price of Atlantic Common Stock compared to the per share
price of Delmarva
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Common Stock, traded at an average ratio of 0.920. Over the one year period this
analysis showed that the per share market price of Atlantic Common Stock
compared to the per share price of Delmarva Common Stock, traded at an average
ratio of 0.853. Based on the August 8, 1996 closing prices, the trading ratio of
Atlantic Common Stock to Delmarva Common Stock was 0.831.
CONTRIBUTION ANALYSIS. In order to determine an implied exchange ratio
range based upon contribution analysis, Merrill Lynch calculated the
contribution of each of Delmarva and Atlantic to the pro forma combined Company
with respect to (i) earnings per share of common stock, (ii) dividends per share
of common stock, and (iii) common equity per share of common stock, for the
years 1993 through 1995 and, using certain projections provided by the
respective managements of Delmarva and Atlantic, for the years 1996 through
2000. The analysis of earnings per share of common stock for the years 1993
through 2000, yielded a range of implied exchange ratios for Atlantic Common
Stock to Delmarva Common Stock of 0.82 to 1.03. The analysis of dividends per
share of common stock for the years 1993 through 2000, yielded an implied
exchange ratio for Atlantic Common Stock to Delmarva Common Stock of 1.00. The
analysis of common equity per share of common stock for the years 1993 through
2000, yielded a range of implied effective exchange ratios for Atlantic Common
Stock to Delmarva Common Stock of 0.99 to 1.04.
COMPARABLE PUBLICLY TRADED COMPANY ANALYSIS. Using publicly available
information, Merrill Lynch compared certain financial and operating information
and ratios (described below) for Delmarva and Atlantic, respectively, with the
corresponding financial and operating information and ratios for separate groups
of publicly traded companies that Merrill Lynch deemed to be reasonably
comparable to Delmarva and Atlantic, respectively. The companies included in the
Delmarva comparable company analyses were: Baltimore Gas and Electric Company,
GPU, Inc., MidAmerican Energy Company, PECO Energy Company, Potomac Electric
Power Company, PP&L Resources, Inc., Public Service Enterprise Group
Incorporated and WPS Resources Corporation (collectively, the "Delmarva
Comparables"). The companies included in the Atlantic comparable company
analyses were: Baltimore Gas and Electric Company, Boston Edison, General Public
Utilities, Nevada Power Company, PECO Energy Company, Potomac Electric Power
Company, PP&L Resources, Inc. and Public Service Enterprise Group Incorporated
(collectively, the "Atlantic Comparables"). Merrill Lynch selected the companies
in the Delmarva Comparables and Atlantic Comparables, respectively, from the
universe of possible comparable utility companies based upon Merrill Lynch's
views as to the comparability of financial and operating characteristics of
these companies to Delmarva and Atlantic, respectively.
In order to determine an implied effective exchange ratio range based upon
comparable publicly traded company analysis, Merrill Lynch compared the market
value of Delmarva Common Stock and Atlantic Common Stock as a multiple of (a)
estimated 1997 earnings per share ("EPS"), which estimates were obtained from
management forecasts (the "1997 EPS Ratio"), and (b) book value of common equity
as of March 31, 1996, the most recently available fiscal quarter (the "Common
Equity Ratio"), to the corresponding ratios for each of the Delmarva Comparables
and Atlantic Comparables. The results of the foregoing were: (i) the 1997 EPS
Ratio resulted in a range of implied effective exchange ratios for Atlantic
Common Stock to Delmarva Common Stock of 0.77 to 1.10, and (ii) the Common
Equity Ratio resulted in a range of implied effective exchange ratios of 0.86 to
1.15.
Merrill Lynch then calculated the implied effective exchange ratio of
Atlantic Common Stock to Delmarva Common Stock using varying sensitivities
relating to the estimated impact of regulatory change and competition furnished
by the managements of Delmarva and Atlantic, and with and without certain
synergies estimated by the managements of Delmarva and Atlantic. Utilizing
comparable publicly traded company analysis and the varying sensitivities
mentioned, Merrill Lynch calculated implied effective exchange ratio ranges for
Atlantic Common Stock to Delmarva Common Stock of 0.44 to 1.34.
DISCOUNTED CASH FLOW ANALYSIS. In order to determine an implied exchange
ratio range based upon discounted cash flow ("DCF") analysis, Merrill Lynch
performed unlevered DCF analyses for the distinct
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businesses of Delmarva and Atlantic using the same management projections, and
calculated ranges of value for Delmarva Common Stock and Atlantic Common Stock.
Merrill Lynch performed separate DCF analyses for the Delmarva utility
business and the Delmarva unregulated businesses. The Delmarva utility business
DCF was based upon the discount to present value, assuming discount rates
ranging from 8.0% to 9.0%, of (i) its projected unlevered free cash flow for the
years 1996 through 2000, and (ii) its 2000 value based upon a range of multiples
from 11.5 to 12.5 times its projected 2000 net income, and 1.3 to 1.4 times its
projected 2000 book value, plus in each case, assumed debt and preferred stock
at year-end 2000. Merrill Lynch calculated a range of value for the Delmarva
unregulated businesses using a variety of DCF and other valuation analyses.
Based on its DCF analyses, Merrill Lynch calculated a range of value for
Delmarva Common Stock of $1,181 million to $1,376 million.
Merrill Lynch performed separate DCF analyses for the Atlantic utility
business and the Atlantic unregulated businesses. The Atlantic utility business
DCF was based upon the discount to present value, assuming discount rates
ranging from 8.0% to 9.0%, of (i) its projected unlevered free cash flow for the
years 1996 through 2000, and (ii) its 2000 value based upon a range of multiples
from 11.5 to 12.5 times its projected 2000 net income, and 1.3 to 1.4 times its
projected 2000 book value, plus in each case, assumed debt and preferred stock
at year-end 2000. Merrill Lynch calculated a range of value for the Atlantic
unregulated businesses using a variety of DCF and other valuation analyses.
Based on its DCF analyses, Merrill Lynch calculated a range of value for
Atlantic Common Stock of $935 million to $1,212 million.
Merrill Lynch then calculated the implied effective exchange ratio of
Atlantic Common Stock to Delmarva Common Stock using varying sensitivities
relating to the estimated impact of regulatory change and competition furnished
by the managements of Delmarva and Atlantic, and with and without certain
synergies estimated by the managements of Delmarva and Atlantic. Utilizing DCF
analysis and the varying sensitivities mentioned, Merrill Lynch calculated
implied effective exchange ratio ranges for Atlantic Common Stock to Delmarva
Common Stock of 0.43 to 1.38.
COMPARABLE MERGER TRANSACTIONS ANALYSIS. Using publicly available
information, Merrill Lynch reviewed 11 transactions announced between March 16,
1990 and January 22, 1996, involving the acquisition of selected electric
utility companies (the "Comparable Merger Transactions"). The Comparable Merger
Transactions and the date the transaction was announced were as follows: Kansas
City Power & Light Co.'s merger with UtiliCorp United Inc. (January 1996), WPL
Holdings, Inc.'s merger with IES Industries Inc. and Interstate Power Company
(November 1995), Baltimore Gas and Electric Company's merger with Potomac
Electric Power Company (September 1995), Public Service Company of Colorado's
merger with Southwestern Public Service Company (August 1995), Northern States
Power Company's merger with Wisconsin Energy Corporation (May 1995), Midwest
Resources Inc.'s merger with Iowa-Illinois Gas & Electric Company (July 1994),
Washington Water Power Company's merger with Sierra Pacific Resources (June
1994), Cincinnati Gas & Electric Company's merger with PSI Resources, Inc.
(August 1993), IE Industries, Inc.'s merger with Iowa Southern, Inc. (February
1991), Kansas Power & Light Company's merger with Kansas Gas & Electric Company
(October 1990), and Iowa Resources, Inc.'s merger with Midwest Energy Company
(March 1990).
In order to determine an implied exchange ratio range based on Comparable
Merger Transactions analysis, Merrill Lynch (i) compared the offer value in each
of the Comparable Merger Transactions as a multiple of the then publicly
available (a) latest 12 months ("LTM") net income available to common stock (the
"Net Income Multiple"), and (b) book value of common equity for the most
recently available fiscal quarter preceding such transaction (the "Book Value
Multiple") to the corresponding multiples for Delmarva Common Stock and Atlantic
Common Stock. The results of the foregoing were: (i) the Net Income Multiple
resulted in a range of implied effective exchange ratios for Atlantic Common
Stock to Delmarva Common Stock of 0.70 to 1.09, and (ii) the Book Value Multiple
resulted in a range of implied effective exchange ratios of 0.82 to 1.21.
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Merrill Lynch then calculated the implied effective exchange ratio of
Atlantic Common Stock to Delmarva Common Stock using varying sensitivities
relating to the estimated impact of regulatory change and competition furnished
by the managements of Delmarva and Atlantic, and with and without certain
synergies estimated by the managements of Delmarva and Atlantic. Utilizing the
Comparable Merger Transactions analysis and the varying sensitivities mentioned,
Merrill Lynch calculated implied effective exchange ratio ranges for Atlantic
Common Stock to Delmarva Common Stock of 0.40 to 1.39.
PRO FORMA ANALYSIS. Merrill Lynch also analyzed certain pro forma effects
resulting from the Mergers, including the potential impact to earnings per share
of Delmarva Common Stock. Using the projected earnings for the years 1998
through 2000 provided by the respective managements of Delmarva and Atlantic,
Merrill Lynch compared the projected earnings per share of Delmarva on a
stand-alone basis assuming the Mergers do not occur, to the earnings per share
of Company Common Stock assuming varying sensitivities to certain estimated
synergies provided by the respective managements of Delmarva and Atlantic. The
analysis indicated that the Mergers would be accretive to the projected earnings
per share of a Delmarva stockholder in each of 1998, 1999, and 2000.
The summary set forth above does not purport to be a complete description of
the analyses performed by Merrill Lynch in arriving at the Merrill Lynch
Opinion. The preparation of a fairness opinion is a complex process not
necessarily susceptible to partial or summary description. Merrill Lynch
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and of the factors considered by it, without
considering all such factors and analyses, could create a misleading view of the
process underlying its analyses set forth in the Merrill Lynch Opinion. No
company in the Delmarva Comparables or the Atlantic Comparables is identical to
Delmarva or Atlantic, respectively, and none of the Comparable Merger
Transactions is identical to the Mergers. Accordingly, an analysis of comparable
publicly traded companies and comparable merger transactions is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the public trading
value of the comparable companies or company to which they are being compared.
The Delmarva Board selected Merrill Lynch to render a fairness opinion
because Merrill Lynch is an internationally recognized investment banking firm
with substantial experience in transactions similar to the Mergers and because
it is familiar with Delmarva and its business. Merrill Lynch has from time to
time rendered investment banking, financial advisory and other services to
Delmarva and Atlantic, for which it has received customary compensation. As part
of its investment banking business, Merrill Lynch is continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions.
Pursuant to the terms of an engagement letter dated March 28, 1996, Delmarva
paid to Merrill Lynch a $150,000 retainer fee and an additional fee of
$1,125,000 upon the execution of the Merger Agreement. In addition, Delmarva has
agreed to pay Merrill Lynch a fee of $1,125,000 upon the approval of the Mergers
by the stockholders of Delmarva, and a fee of $2,250,000 upon consummation of
the Mergers, to which the $150,000 retainer fee already paid will be credited.
Delmarva has also agreed to reimburse Merrill Lynch for its reasonable
out-of-pocket expenses, including all reasonable fees and disbursements of its
legal counsel, and to indemnify Merrill Lynch and certain related persons
against certain liabilities in connection with its engagement, including certain
liabilities under the federal securities laws.
In the ordinary course of Merrill Lynch's business, Merrill Lynch may
actively trade the securities of Delmarva and Atlantic for its own account and
for the accounts of its customers and, accordingly, may at any time hold a long
or short position in such securities.
OPINION OF FINANCIAL ADVISOR TO ATLANTIC
In April, 1996, Morgan Stanley was retained by Atlantic to act as its
financial advisor in connection with the Merger. Morgan Stanley is an
internationally recognized investment banking firm and was
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selected by Atlantic based on Morgan Stanley's experience and expertise. In
connection with Morgan Stanley's engagement Atlantic requested that Morgan
Stanley evaluate the fairness of the Atlantic Conversion Ratio, taking into
account the Delmarva Conversion Ratio, from a financial point of view to the
holders of Atlantic Common Stock. On August 9, 1996, Morgan Stanley rendered to
Atlantic's Board of Directors an oral opinion, which was subsequently confirmed
in writing, to the effect that, as of such date and based on and subject to
certain matters stated therein, the Atlantic Conversion Ratio, taking into
account the Delmarva Conversion Ratio, was fair from a financial point of view
to the holders of the Atlantic Common Stock. Morgan Stanley subsequently
confirmed its opinion of August 9, 1996 by delivery of a written opinion dated
the date hereof.
THE FULL TEXT OF MORGAN STANLEY'S WRITTEN OPINION DATED THE DATE HEREOF,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED WITH LIMITATIONS ON
THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX III OF THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. HOLDERS OF
ATLANTIC COMMON STOCK ARE URGED TO, AND SHOULD, READ THIS OPINION CAREFULLY IN
ITS ENTIRETY. MORGAN STANLEY'S OPINION ADDRESSES ONLY THE FAIRNESS OF THE
ATLANTIC CONVERSION RATIO, TAKING INTO ACCOUNT THE DELMARVA CONVERSION RATIO,
FROM A FINANCIAL POINT OF VIEW TO THE HOLDERS OF ATLANTIC COMMON STOCK, AND IT
DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGERS NOR DOES IT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF ATLANTIC COMMON STOCK AS TO HOW TO VOTE AT THE
ATLANTIC MEETING. THE SUMMARY OF THE OPINION OF MORGAN STANLEY SET FORTH IN THIS
JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF SUCH OPINION.
In arriving at this opinion, Morgan Stanley: (i) analyzed certain publicly
available financial statements and other information of Atlantic and Delmarva,
respectively; (ii) analyzed certain internal financial statements and other
financial and operating data concerning Atlantic and Delmarva prepared by their
respective managements; (iii) analyzed certain financial projections of Atlantic
and Delmarva prepared by their respective managements; (iv) discussed the past
and current operations and financial condition and the prospects of Atlantic and
Delmarva with senior executives of Atlantic and Delmarva, respectively; (v)
reviewed the reported prices and trading activity of both Atlantic Common Stock
and Delmarva Common Stock; (vi) compared the financial performance of Atlantic
and Delmarva and the prices and trading activity of Atlantic Common Stock and
Delmarva Common Stock with that of certain other comparable publicly traded
companies and their securities; (vii) reviewed the financial terms, to the
extent publicly available, of certain comparable merger or acquisition
transactions; (viii) analyzed the pro forma financial impact of the Mergers on
Atlantic; (ix) participated in discussions and negotiations among
representatives of Atlantic and Delmarva and their respective financial and
legal advisors; (x) reviewed the Merger Agreement and certain related documents;
(xi) reviewed and discussed with Atlantic and Delmarva an analysis prepared by
Atlantic and Delmarva with the assistance of a third-party consultant regarding
estimates of the amount and timing of the cost savings estimated to be derived
from the Mergers; and (xii) performed such other analyses and examinations and
considered such other factors as Morgan Stanley deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon without
independent verification the accuracy and completeness of the information
reviewed by Morgan Stanley for the purposes of its opinion. With respect to the
financial projections and estimates of the cost savings expected to be derived
in the Mergers, Morgan Stanley assumed that they were reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
future financial performance of the Company, Atlantic and Delmarva,
respectively. Morgan Stanley did not make any independent valuation or appraisal
of the assets or liabilities of Atlantic or Delmarva. In addition, Morgan
Stanley assumed that the Mergers will be consummated in accordance with the
terms set forth in the Merger Agreement, including, among other things, that the
Mergers will be treated as a tax-free reorganization and/or exchange, each
pursuant to the Internal Revenue Code of 1986, as amended (the "Code"). Morgan
Stanley's opinion is necessarily based on economic, market and other conditions
as in effect on, and the information made available to it as of, the date of its
opinion.
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In arriving at its opinion, Morgan Stanley assumed that in connection with
the receipt of all the necessary regulatory and governmental approvals for the
proposed Mergers, no restriction will be imposed that would have a material
adverse effect on the contemplated benefits expected to be derived in the
proposed Mergers. In addition, Morgan Stanley was not authorized to solicit, and
did not solicit, interest from any party with respect to a merger with or other
business combination transaction involving Atlantic or any of its assets, nor
did Morgan Stanley have discussions or negotiations with any parties, other than
Delmarva, in connection with the Mergers.
The following is a brief summary of certain analyses performed by Morgan
Stanley and reviewed with the Atlantic Board on August 9, 1996 in connection
with Morgan Stanley's presentation and opinion to the Atlantic Board on such
date:
COMPARABLE PUBLICLY TRADED COMPANY ANALYSIS. As part of its analysis,
Morgan Stanley compared certain financial information of Atlantic with that of a
group of publicly traded electric utility companies, including Public Service
Enterprise, General Public Utilities, Orange & Rockland Utilities, Rochester Gas
& Electric, and United Illuminating (collectively, the "Atlantic Comparable
Companies") and also compared certain financial information of Delmarva with
that of a group of publicly traded electric utility companies, including
Baltimore Gas and Electric Company, PP&L Resources, Public Service Enterprise,
and Dominion Resources (collectively, the "Delmarva Comparable Companies"). Such
financial information included price to LTM ended March 31, 1996, forecasted
1996 and forecasted 1997 earnings multiples, price to book value multiple, price
to LTM operating cash flow multiple and dividend yield. In particular, such
analyses indicated that as of August 7, 1996 and based on a compilation of
earnings projections by securities research analysts as of July 27, 1996,
Atlantic and Delmarva traded at 10.2 and 11.5 times historical LTM earnings,
respectively, 10.3 and 11.8 times forecasted earnings for the calendar year
1996, respectively, 10.2 and 11.2 times forecasted earnings for the calendar
year 1997, respectively, 1.21 and 1.39 times book value as of the quarter ended
March 31, 1996, respectively, 5.0 times historical LTM operating cash flow for
each company, and a 8.0% and a 7.1% dividend yield, respectively. Morgan Stanley
noted that, based on a compilation of earnings projections by securities
research analysts as of July 27, 1996, the Atlantic Comparable Companies and
Delmarva Comparable Companies traded in a range of 8.8 to 10.7 times and 10.8 to
11.9 times historical LTM earnings, respectively, 9.8 to 10.7 times and 10.9 to
12.1 times 1996 forecasted earnings, respectively, 9.4 to 10.2 times and 10.7 to
11.6 times 1997 forecasted earnings, respectively, 1.15 to 1.26 times and 1.28
to 1.39 times book value as of the quarter ended March 31, 1996, respectively,
and had a 7.3% to 8.0% and a 6.5% to 7.7% dividend yield, respectively.
TRADING RATIO ANALYSIS. Morgan Stanley also reviewed the ratio of the
Atlantic Common Stock to Delmarva Common Stock trading prices over varying
intervals of time over the latest five years. Based on the closing price of
Atlantic Common Stock and Delmarva Common Stock on August 7, 1996 of $17.50 and
$20.75, respectively, the ratio was 0.84.
DISCOUNTED CASH FLOW ANALYSIS. Morgan Stanley performed DCF analyses of
Atlantic and Delmarva based on certain financial projections provided by the
respective managements of each company for the period 1996 through 2000.
Unlevered free cash flows of each company were calculated as net income
available to common stockholders plus the aggregate of preferred stock
dividends, depreciation and amortization, deferred taxes, and other noncash
expenses and after-tax net interest expense less the sum of capital expenditures
and investment in noncash working capital. Morgan Stanley calculated terminal
values by applying a range of multiples to the net income in fiscal 2000 and the
cash-flow streams and terminal values were then discounted to the present using
a range of discount rates representing an estimated range of the weighted
average cost of capital for each of Atlantic and Delmarva. Based on this
analysis, Morgan Stanley calculated median per share values for Atlantic ranging
from $14.05 to $20.09 and for Delmarva ranging from $22.54 to $26.52.
DISCOUNTED DIVIDEND ANALYSIS. Morgan Stanley performed discounted dividend
analyses of Atlantic and Delmarva based on certain financial projections
provided by the respective managements of each
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company for the period 1996 through 2000. Morgan Stanley calculated terminal
values by applying a range of multiples to the EPS in fiscal year 2000 and the
dividend streams and terminal values were then discounted to the present using a
range of discount rates representing an estimated range of the cost of equity
for each of Atlantic and Delmarva. Based on this analysis, Morgan Stanley
calculated median per share values for Atlantic ranging from $20.26 to $22.37
and for Delmarva ranging from $21.60 to $24.66.
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. Using publicly available
information, Morgan Stanley reviewed the following proposed or completed
transactions constituting mergers of equals in the electric utility industry:
UtiliCorp United and Kansas Power & Light Co., IES Industries and WPL Holdings,
Potomac Electric Power and Baltimore Gas and Electric Company, Southwestern
Public Service Co. and Public Service Co. of Colorado, Northern States Power Co.
and Wisconsin Energy Corp., and Iowa-Illinois Gas & Electric Co. and Midwest
Resources, Inc. (collectively, the "Electric Utility MOE Transactions"). Morgan
Stanley compared certain financial and market statistics of the Electric Utility
MOE Transactions. The premium to unaffected market price (I.E., the market price
one month prior to the announcement of the transaction) ranged from 0.2% to
14.3%, the price to book value multiple ranged from 1.4 to 1.7 times, the LTM
price to earnings multiple ranged from 12.0 to 14.6 times and the LTM operating
cash flow multiple ranged from 4.6 to 6.8 times. Based on this analysis, Morgan
Stanley calculated per share values for Atlantic ranging from $12.70 to $26.09.
CLASS A COMMON STOCK. Morgan Stanley utilized several approaches to
estimate the value of the Class A Common Stock which would be received in the
Mergers for each outstanding share of Atlantic Common Stock. Based on an assumed
price to 1997 earnings multiple of 7.0 to 8.5 times, and an estimated 1997
earnings level for the Class A Common Stock based on the securities research
analyst consensus estimate for Atlantic (adjusted to reflect the $40 million
fixed charge), Morgan Stanley calculated the estimated value of the Class A
Common Stock per share of Atlantic Common Stock ranging from $1.98 to $2.40;
based on a required dividend yield of 10.0% to 12.5%, an estimated 1997 earnings
level as derived above and an assumption of a 90% dividend payout (without
giving effect to the initial dividend level on the Class A Common Stock which
may exceed this payout ratio), Morgan Stanley calculated the estimated value of
the Class A Common Stock per share of Atlantic Common Stock ranging from $2.03
to $2.54; and based on a discounted dividend valuation model, an earnings level
based on the securities research analyst consensus as derived above and a 90%
payout ratio (without giving effect to the initial dividend level on the Class A
Common Stock which may exceed this payout ratio), Morgan Stanley calculated the
estimated value of the Class A Common Stock per share of Atlantic Common Stock
ranging from $2.22 to $2.61. The above analyses indicate a value range for the
Class A Common Stock per share of Atlantic Common Stock of approximately $2.00
to $2.50, and based on the exchange ratio of .75 share of DS Common Stock per
share of Atlantic Common Stock and the price of Delmarva Common Stock as of
August 7, 1996, Morgan Stanley calculated the total consideration per share of
Atlantic Common Stock ranging from $17.56 to $18.06, which represented a premium
of 0.3% to 3.2% over the Atlantic Common Stock closing price of $17.50 on August
7, 1996.
PRO FORMA ANALYSIS OF THE MERGERS. Morgan Stanley analyzed the pro forma
impact of the Mergers on Atlantic's EPS and dividends per share for the fiscal
years ended 1997 through 2000. The analysis was performed utilizing stand-alone
earnings estimated for the fiscal years ended 1997 through 2000 for Atlantic and
Delmarva based on certain financial projections prepared by the respective
managements of each company taking into account the cost savings expected to be
derived from the Mergers as estimated by Atlantic and Delmarva. Based on such
analysis, the Mergers would be accretive to Atlantic's stockholders for the
period 1997 through 2000 on an EPS basis in the range of 11.8% in 1997 to 1.2%
in 2000 and on a dividends per share basis by approximately 1.0%.
PRO FORMA OWNERSHIP. Morgan Stanley compared the aggregate percentage share
ownership of the combined company assuming the Mergers were consummated on
August 9, 1996 at the proposed Exchange Ratio. Based on this analysis, the
holders of Atlantic Common Stock would own 40.0% of the
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combined company and the holders of Delmarva Common Stock would own 60.0% of the
combined company.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. Morgan
Stanley believes that its analyses must be considered as a whole and that
selecting portions of its analyses, without considering all analyses, would
create an incomplete view of the process underlying its opinion. In addition,
Morgan Stanley may have given various analyses more or less weight than other
analyses, and may have deemed various assumptions more or less probable than
other assumptions, so that the ranges of valuations resulting for any particular
analysis described above should not be taken to be Morgan Stanley's view of the
actual value of Atlantic and Delmarva.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Atlantic and Delmarva.
The analyses performed by Morgan Stanley are not necessarily indicative of
actual value, which may be significantly more or less favorable than suggested
by such analyses. Such analyses were prepared solely as part of Morgan Stanley's
analysis of the fairness of the Atlantic Conversion Ratio, taking into account
the Delmarva Conversion Ratio, from a financial point of view to the holders of
Atlantic Common Stock and were provided to the Atlantic Board in connection with
the delivery of Morgan Stanley's written opinion dated the date hereof
confirming its oral opinion of August 9, 1996. The analyses do not purport to be
appraisals or to reflect the prices at which Atlantic and Delmarva might
actually be sold. Because such estimates are inherently subject to uncertainty,
none of Atlantic, Morgan Stanley or any other person assumes responsibility for
their accuracy. In addition, as described above, Morgan Stanley's opinion and
presentation to the Atlantic Board was one of many factors taken into
consideration by the Atlantic Board in making its determination to approve the
Mergers. Consequently, the Morgan Stanley analyses described above should not be
viewed as determinative of the opinion of the Atlantic Board or the view of the
management of Delmarva with respect to the value of Delmarva and Atlantic or of
whether the Atlantic Board or the management of Delmarva would have been willing
to agree to a different exchange ratio.
As part of its investment banking business, Morgan Stanley is regularly
engaged in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuation for estate, corporate and other purposes. In the ordinary course of
its business, Morgan Stanley and its affiliates may actively trade the debt and
equity securities of Atlantic and Delmarva for their own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities. In the past, Morgan Stanley has provided financial
advisory and financing services to Atlantic and Delmarva, for which services
Morgan Stanley has received customary fees.
Morgan Stanley has been retained by Atlantic to act as financial advisor to
Atlantic with respect to the Mergers. Pursuant to a letter agreement dated
August 8, 1996 between Atlantic and Morgan Stanley, Morgan Stanley is entitled
to (i) an advisory fee for its time and efforts expended in connection with the
engagement, which is estimated to be between $150,000 and $250,000 and which is
payable in the event the transaction is not consummated, (ii) an announcement
fee of $1,000,000, which has been paid, and (iii) a Merger fee equal to
approximately $4,230,000, which is payable upon consummation of the transaction.
Any amounts paid or payable to Morgan Stanley as advisory or announcement fees
will be credited against the transaction fee. Atlantic has also agreed to
reimburse Morgan Stanley for its expenses of its counsel, and to indemnify
Morgan Stanley and its affiliates against certain liabilities and expenses,
including liabilities under federal securities laws.
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CONFLICTS OF INTEREST OF CERTAIN PERSONS IN THE MERGERS
In considering the recommendations of the Delmarva Board and the Atlantic
Board with respect to the Mergers, stockholders should be aware that certain
members of the Delmarva and Atlantic management, the Delmarva Board and the
Atlantic Board have certain interests in the Mergers in addition to the
interests of stockholders of Delmarva and Atlantic generally. The Delmarva Board
and the Atlantic Board were aware of these interests and considered them, among
other matters, in approving the Merger Agreement and the transactions
contemplated thereby.
EMPLOYEE PLANS, SEVERANCE ARRANGEMENTS AND AGREEMENTS. Under certain
benefit plans, severance arrangements and other employee agreements maintained,
or entered into, by Delmarva and Atlantic, certain benefits may become vested,
and certain payments may become payable, in connection with the Mergers. These
benefit plans, severance arrangements and agreements and the nature of such
payments thereunder are described in greater detail below, under "--Employee
Plans, Severance Arrangements and Agreements."
BOARD OF DIRECTORS. As provided in the Merger Agreement, at the Effective
Time, the Company Board will consist of 18 directors, ten of whom will be
nominated by the Delmarva Board and eight of whom will be nominated by the
Atlantic Board. Each member of the Delmarva Board and Atlantic Board serving in
such capacity immediately prior to the consummation of the Mergers, will be
given an opportunity to serve on the Company Board. See "The Company Following
the Mergers--Management of the Company." The directors nominated by the Delmarva
Board and the Atlantic Board will be divided between the classes of directors of
the Company so that each class, to the extent possible, has the same proportion
of directors nominated by each of the Delmarva Board and the Atlantic Board. At
the consummation of the Mergers, the Audit Committee of the Company Board will
consist of an equal number of directors nominated by the Delmarva Board and the
Atlantic Board.
INDEMNIFICATION. From and after the consummation of the Mergers, the
Company will, to the fullest extent not prohibited by applicable law, indemnify,
defend and hold harmless the present and former officers and directors of
Delmarva and Atlantic against all losses, expenses (including reasonable
attorneys' fees), claims, damages or liabilities or, subject to certain
restrictions, amounts paid in settlement arising out of actions or omissions
occurring at or before or after the consummation of the Mergers, that are in
whole or in part based on, or arising out of, the fact that such person is or
was a director, officer or management employee of such party or arising out of
or pertaining to the transactions contemplated by the Merger Agreement. See "The
Merger Agreement--Indemnification."
EMPLOYEE PLANS, SEVERANCE ARRANGEMENTS AND AGREEMENTS
DELMARVA SEVERANCE AGREEMENTS. Delmarva has severance agreements (the
"Delmarva Severance Agreements") with 48 of its officers and senior managers
providing benefits upon a Change in Control (as defined in the Delmarva
Severance Agreements). The Delmarva Severance Agreements provide a payment to
the employee if the employee's employment is terminated by the employee for Good
Reason (as defined in the Delmarva Severance Agreements), or by Delmarva for any
reason other than retirement, death, disability, or cause at any time during the
period that begins on the date of the Change in Control and ends 24 months
thereafter. The payment will equal 2.99 times the employee's Base Amount (as
that term is defined in Code Section 280G) less certain deductions. These
deductions include the amount of any other payment (or the value of any other
benefit) received or to be received by the employee in connection with a Change
in Control if the payment or benefit is considered a parachute payment (as
defined in Code Section 280G(b)(2)) which together with other parachute payments
would result in disallowance of deductions by reason of Code Section 280G. The
employee will receive group life, disability, medical and dental insurance
benefits substantially similar to those received prior to employment termination
for the 24 months following employment termination, reduced by comparable
benefits the employee actually receives from other sources during that period.
In addition, the employee will
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receive a lump sum payment equal to the actuarial value of the excess of (i) the
benefits payable under Delmarva's Retirement Plan and, for the most senior
officers who participate in the Supplemental Executive Retirement Plan, the
Supplemental Executive Retirement Plan (the "Retirement Plans") assuming 24
additional months service and compensation equal to the highest annual rate
during the 12 month period preceding employment termination over (ii) the actual
benefit payable under the Retirement Plans. "Change in Control" is defined in
the Delmarva Severance Agreements as, among other things, stockholder approval
of a merger of Delmarva other than a merger where Delmarva's voting securities
outstanding immediately prior to the merger continue to represent at least 80%
of the combined voting power of the surviving entity outstanding immediately
after the merger. Stockholder approval of the Mergers will constitute a Change
in Control under the Delmarva Severance Agreements. "Good Reason" is defined
under the Delmarva Severance Agreements as, among other things, (i) assignment
to the employee of duties inconsistent with the employee's status or position
with Delmarva; (ii) a reduction by Delmarva in the employee's base salary
(except for across-the-board salary reductions similarly affecting all of
Delmarva employees and employees of any person in control of Delmarva); (iii)
relocation of Delmarva's principal offices to a location more than 50 miles from
the location prior to the Change in Control, or the closing thereof, or
relocation of the employee's office location following the Change in Control;
(iv) failure to pay current compensation; (v) failure to provide compensation
plans and benefits otherwise provided to similarly situated employees; and (vi)
the failure of Delmarva to obtain the agreement by a successor company to
expressly assume the severance agreement. If the employment of all executives
with Delmarva Severance Agreements had been terminated as of the date of this
Joint Proxy Statement/Prospectus, the aggregate cost to Delmarva would not
exceed approximately $16.6 million.
DELMARVA POWER & LIGHT COMPANY MANAGEMENT INCENTIVE COMPENSATION PLAN. The
Delmarva Power & Light Company Management Incentive Compensation Plan (the
"Compensation Plan") is a short-term annual performance award program provided
to a certain level of management employees. The Compensation Plan provides
payments based upon Delmarva and individual employee performance. Award amounts
for a year are paid in a lump sum after the end of the year in which they were
earned. Except for termination of employment due to retirement, death or
disability, an employee must be employed on the last day of the year to be
entitled to a payment. In the event of certain mergers or a change in the
ownership of at least 25% of Delmarva's voting securities, all amounts that have
been earned but not paid will be immediately paid. The consummation of the
Mergers would be a transaction contemplated by that provision in the
Compensation Plan.
DELMARVA POWER & LIGHT COMPANY LONG-TERM INCENTIVE PLAN. The Delmarva LTIP
provides long-term compensation in the form of stock options (both nonqualified
stock options and incentive stock options within the meaning of Code Section
422) restricted stock, stock appreciation rights, performance awards or such
other forms as the Delmarva LTIP committee (a committee comprised of outside
directors) may in its discretion deem appropriate. Persons eligible to
participate in the Delmarva LTIP are officers and senior managers of Delmarva
and its subsidiaries who, in the opinion of the Delmarva LTIP committee are in
the position to significantly affect the growth and financial success of
Delmarva. Delmarva directors who are not otherwise officers or employees of
Delmarva are not eligible to participate in the Delmarva LTIP. Upon a Change in
Control (as defined in the Delmarva LTIP) all options and stock appreciation
rights that are outstanding at the date of the Change in Control become fully
exercisable and vested; all incomplete performance periods for performance
awards that are outstanding on the date of the Change in Control shall be deemed
to have been completed, the maximum level of performance set forth shall be
deemed to have been obtained and the pro-rata portion (based on the number of
full and partial months that have lapsed with respect to each such performance
period) of each outstanding award will become payable immediately in cash to
each participant with the remaining of each such outstanding award being
cancelled for no value; and any conditions to the vesting of restricted stock
(whether performance objectives or periods of employment) are deemed to have
been satisfied and all restrictions lapse and these shares become fully vested
and nonforfeitable. Currently, Delmarva has outstanding two forms of long-term
compensation: stock options, all of which are vested, and restricted stock,
which would vest without
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restriction at the consummation of the Mergers. For purposes of the Delmarva
LTIP, a Change in Control includes, among other things, consummation of a merger
of Delmarva other than a merger where Delmarva's voting securities outstanding
immediately prior to the merger continue to represent at least 80% of the
combined voting power of the voting securities of the surviving entity
outstanding immediately after the merger. Consummation of the Mergers will
constitute a Change in Control under the Delmarva LTIP.
DELMARVA MANAGEMENT LIFE INSURANCE PLAN. Under the Delmarva Management Life
Insurance Plan (the "Delmarva Life Insurance Plan") Delmarva offers a life
insurance benefit to its officers and senior managers. The amount of life
insurance is approximately three times annual salary. Benefits are available
through both a term and permanent life insurance. Delmarva pays the premium for
term coverage and Delmarva and the employee both pay portions of the premium for
permanent coverage. Upon a change in the ownership of Delmarva including a
merger where Delmarva is not the surviving entity, the surviving entity must
assume the Delmarva Life Insurance Plan and prepay premiums for life insurance
in force. The Mergers would result in such a change in ownership. Delmarva
intends to amend the Delmarva Life Insurance Plan prior to the Mergers to
eliminate any requirement for prepayment of any premiums and will retain the
existing provision that the surviving entity shall assume Delmarva's rights and
obligations under this plan.
DELMARVA POWER & LIGHT COMPANY DEFERRED COMPENSATION PLAN. The Delmarva
Power & Light Company Deferred Compensation Plan (the "Delmarva Deferred
Compensation Plan") provides officers and senior managers with the opportunity
to defer a portion of their compensation and provides certain key executives the
opportunity to receive matching contributions that are not otherwise payable
under the terms of the Delmarva Power & Light Company Savings and Thrift Plan
due to certain restrictions. In the event of a Change in Control (as defined in
the Delmarva Deferred Compensation Plan) and the termination of an employee's
employment, the timing of the payment of amounts to such employee under the
Delmarva Deferred Compensation Plan may be accelerated at the discretion of the
Delmarva Deferred Compensation Plan committee comprised of outside directors.
For purposes of the Delmarva Deferred Compensation Plan a "Change of Control"
would include a merger that would result in Delmarva's voting securities
outstanding immediately prior to such merger being less than 75% of the combined
voting power of the voting securities of the surviving entity immediately
following such merger. The consummation of the Mergers will constitute a Change
in Control for purposes of the Delmarva Deferred Compensation Plan.
DELMARVA SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Delmarva Power & Light
Company Supplemental Executive Retirement Plan (the "SERP") provides
supplemental retirement income to executives who are vice president or above and
other managers or executives selected by Delmarva's Chief Executive Officer and
approved by the Compensation Committee of the Delmarva Board. The supplemental
benefits are benefits that would be provided under the Delmarva Power & Light
Company Retirement Plan but for certain statutory limits on qualified plan
benefits and benefits for certain employees recruited for or into key executive
positions. Upon a merger of Delmarva in which Delmarva is not the surviving
corporation or in which the holders of Delmarva stock receive securities in
another corporation, Delmarva will prepay all premiums to any life insurance or
annuity contracts intended to fund obligations under the SERP. Currently, only
benefits for two former executives are provided through arrangements of this
type. In addition, SERP participants will become immediately vested. The
consummation of the Mergers would be a transaction contemplated by that
provision in the SERP.
ATLANTIC SEVERANCE AGREEMENTS. Atlantic has previously entered into
employment agreements (the "Agreements") with 13 executive officers (the
"Executives"). For purposes of the Agreements, the Mergers will constitute a
"Change in Control." Therefore, in the event an Executive's employment is
terminated by Atlantic without "Cause" (as defined in the Agreements) or by the
Executive for "Good Reason" (as defined in the Agreements) following the
Mergers, the Executive will receive (a) the executive officer's full
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base salary through the date of termination, (b) a cash amount from Atlantic
equal to either three or two times the sum of (x) the Executive's annual base
salary and (y) the higher of the bonus paid to the Executive for the most recent
fiscal year or the target bonus for the current fiscal year (the "Minimum Bonus
Amount"), (c) the prorated portion of the Executive's unpaid Minimum Bonus
Amount, (d) any other amounts otherwise payable in respect of Atlantic's
otherwise applicable long-term incentive compensation and equity plans and
programs, and (e) all vested amounts or benefits owing to the Executive under
Atlantic's otherwise applicable employee benefit plans and programs. In
addition, the Executive will be entitled to continue to participate in
Atlantic's employee and Executive pension, welfare and fringe benefit plans
excluding supplemental retirement benefits. For purposes of calculating the
Executive's retirement benefit, additional years will be added to both the
Executive's age and service with Atlantic. The Agreements further provide that
if the payments described above constitute "excess parachute payments" under
applicable provisions of the Internal Revenue Code and related regulations,
Atlantic will pay the Executive an additional amount sufficient to place the
Executive in the same after-tax financial position the Executive would have been
in if the Executive had not incurred the excise tax imposed under Section 4999
of the Internal Revenue Code in respect of excess parachute payments. If the
employment of all Executives with Agreements had been terminated as of the date
of this Joint Proxy Statement/Prospectus, the aggregate cost to Atlantic would
not exceed approximately $22.4 million.
CONSULTING ARRANGEMENT. The agreement with J.L. Jacobs establishes an
opportunity at the election of J.L. Jacobs to enter into a consulting
arrangement with Atlantic for a term of two years with compensation at $130,000
annually to commence on the date following his retirement, but not before
December 1, 1996.
ATLANTIC EXECUTIVE SEVERANCE POLICY. The Atlantic Executive Severance
Policy covers approximately 24 executives and provides for severance in the
event of a termination by Atlantic without "Cause" (as defined in the Atlantic
Executive Severance Policy) or by the Executive for "Good Reason" (as defined in
the Atlantic Executive Severance Policy) following a "Change in Control" (I.E.,
the Mergers) in an amount equal to 1.5 times an executive's base salary and
continuation of benefits for a period of one year following termination. In the
event any of the payments due to an executive in connection with a Change in
Control constitute excess parachute payments, amounts due such executive under
the policy shall be reduced so that no payment results in the imposition of an
excise tax under Code Section 4999.
ATLANTIC EMPLOYEE STOCK PURCHASE PLAN. Upon a Change of Control, the right
of employees participating in the Employee Stock Purchase Plan to acquire one
share of Atlantic Common Stock will be converted into the right to receive .75
shares of Company Common Stock and .125 shares of Class A Common Stock.
ATLANTIC EQUITY INCENTIVE PLAN, ATLANTIC SUPPLEMENTAL EXECUTIVE RETIREMENT
PLAN AND ATLANTIC SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN II. At the Effective
Time, all stock options granted under Atlantic's Equity Incentive Plan will,
absent action to the contrary at the discretion of the Personnel & Benefits
Committee of the Atlantic Board, if the option has any value, be cashed out
pursuant to the terms of the Equity Incentive Plan. The option price of all
outstanding options granted pursuant to the Equity Incentive Plan exceeded the
closing price as reported on the NYSE on December 5, 1996. In addition, at the
Effective Time the restrictions applicable to any awards of restricted stock or
other stock-based awards lapse and such stock and awards will be deemed fully
vested. Benefits previously accrued under Atlantic's Supplemental Executive
Retirement Plan ("SERP") and Atlantic Supplemental Executive Retirement Plan II
("SERP II") become nonforfeitable after the consummation of the Mergers. Under
the terms of Atlantic's SERP, upon the Effective Time a participating executive
with less than five years of service will be deemed to have five years of
service and as a result will become fully vested in such executive's accrued
benefits. In addition, under the terms of Atlantic's SERP II, upon the Effective
Time a participating executive with less than five years of service with
Atlantic will be deemed to have five years of service and as a result will
become vested in 50% of such executive's accrued benefit.
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ATLANTIC DIRECTOR RETIREMENT PLAN. With respect to its directors, Atlantic
intends to amend its Director Retirement Plan to provide for lump sum payouts at
the Effective Time, equal to an Atlantic director's annual benefit under such
plan (not actuarially reduced), multiplied by the number of years remaining in
such director's life expectancy.
ATLANTIC DIRECTORS RESTRICTED STOCK PLAN. Under the terms of the Atlantic
Directors Restricted Stock Plan, at the Effective Time all restrictions on all
shares that have not yet vested will be eliminated and the shares will become
fully vested. Certain directors are also participants in Atlantic's Equity
Incentive Plan described above.
THE COMPANY BENEFIT PLANS
Following the consummation of the Mergers, the Company and its subsidiaries
will honor all prior contracts, agreements, collective bargaining agreements and
commitments with current or former employees or current or former directors of
Delmarva or Atlantic and their respective subsidiaries, in accordance with the
respective terms of such contracts, agreements and commitments, subject to the
Company's right to enforce them in accordance with their terms (including any
reserved right to amend, modify, suspend, revoke or terminate them). The Company
will take all action necessary so that after the consummation of the Mergers,
the Dividend Reinvestment and Common Share Purchase Plan and the Savings and
Thrift Plan of Delmarva and the Directors' Restricted Stock Plan, the Employee
Stock Purchase Plan and the Dividend Reinvestment Plan of Atlantic will be
terminated, replaced or amended to provide for the issuance and sale of Company
Common Stock in place of Delmarva Common Stock or Atlantic Common Stock, as the
case may be, under such plans.
Subsequent to the execution of the Merger Agreement, Delmarva and Atlantic,
as the stockholders of the Company, determined that it would be in the best
interests of the Company for the Company to adopt the Company Plan described
below to replace the Delmarva LTIP and Atlantic's Equity Incentive Plan, subject
to stockholder approval of the Company Plan at the Delmarva Meeting and the
Atlantic Meeting. The Company Plan will become effective as of the consummation
of the Mergers. The Company Plan is a comprehensive cash and stock compensation
plan designed to provide the Company with the ability to provide incentives
supporting the growth, development and financial success of the Company. The
Company Plan provides for the grant of annual incentive awards and long-term
incentive awards such as restricted stock, stock options (including incentive
stock options and nonqualified stock options), stock appreciation rights
("SARs"), performance units and dividend equivalents, and any other types of
awards as the Company Plan Committee deems appropriate. The maximum number of
shares of Company Common Stock available for issuance under the Company Plan is
5,000,000. The Company Plan Committee, which will be comprised solely of
nonemployee directors, will administer the Company Plan and make awards
thereunder, and will have broad authority to fix the terms and conditions of
individual grants and agreements with participants. The Company Plan is being
submitted to stockholders of Delmarva and Atlantic for approval, and is
described in greater detail under "Approval of the Company Incentive
Compensation Plan" elsewhere in this Joint Proxy Statement/Prospectus. A copy of
the Company Plan is attached to this Joint Proxy Statement/Prospectus as Annex
VII. Following implementation of the Company Plan, no further awards will be
made under the Delmarva LTIP or Atlantic's Equity Incentive Plan.
Delmarva currently has outstanding two forms of awards under the Delmarva
LTIP: stock options, all of which are exercisable, and performance-based
restricted stock, as to which all conditions to vesting would lapse at the
consummation of the Mergers and would be exchanged for shares of Company Common
Stock at the Delmarva Conversion Ratio, without restriction. It is anticipated
that any further awards under the Delmarva LTIP prior to the consummation of the
Mergers will be in the form of performance-based restricted stock. Such awards
will be granted with the condition that the consummation of the Mergers does not
constitute a Change in Control which causes the restrictions to lapse (the "New
Delmarva Awards"). After the consummation of the Mergers, the New Delmarva
Awards either (a) will
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continue to be held in the Delmarva LTIP (but in the form of Company Common
Stock rather than Delmarva Common Stock) until the performance period for such
New Delmarva Awards expires and the New Delmarva Awards vest at 100% (or, if
performance criteria are exceeded, at up to 150%, such additional shares to be
issued in Company Common Stock, without restriction) or are forfeited in part or
in whole and, in such case, the Delmarva LTIP will continue in effect until the
performance periods for such New Delmarva Awards has expired, or (b) the Company
will honor the outstanding New Delmarva Awards and the terms and conditions of
such New Delmarva Awards will otherwise remain the same; except that, if the
performance cycle with respect to such New Delmarva Awards extends beyond the
time at which the Mergers are consummated, the performance criteria will be
modified to take into consideration the performance of the Company, as well as
the performance of Delmarva prior to such time and, in such case, the Delmarva
LTIP will be terminated by Delmarva as soon as practicable after such time.
Atlantic currently has outstanding two forms of awards under its Equity
Incentive Plan: stock options that first become exercisable beginning in 1997
and performance-based restricted stock, as to which all conditions to vesting
would lapse at the consummation of the Mergers and absent any action by the
Personnel & Benefits Committee of the Atlantic Board (the "Committee") would
accelerate and be cashed out in accordance with terms of the Equity Incentive
Plan. It is anticipated that any further awards under Atlantic's Equity
Incentive Plan prior to the consummation of the Mergers will be in the form of
stock options and performance-based restricted stock (the "New Atlantic
Awards"). With the exception of the rights granted to the thirteen executive
officers covered by employment agreements, the Committee has the broad
discretion, not inconsistent with the terms of the Equity Incentive Plan, with
respect to whether and to what extent employees may be granted New Atlantic
Awards and to whether and what extent performance based restricted stock granted
under the Equity Incentive Plan would be exchanged for shares of Company Common
Stock and Class A Common Stock at the Atlantic Conversion Ratio, without
restriction. In exercising its discretion, the Committee may (a) accelerate
vesting of all or a part of the New Atlantic Awards or waive forfeiture
restrictions regarding any New Atlantic Awards or (b) determine that any New
Atlantic Awards either (i) will continue to be held in the Equity Incentive Plan
(but in the form of Company Common Stock and Class A Common Stock rather than
Atlantic Common Stock) until the performance period for such New Atlantic Awards
expires and the New Atlantic Awards will vest at 100% or are forfeited in part
or in whole, and, in such case, the Equity Incentive Plan will continue in
effect until the performance periods for such New Atlantic Awards has expired,
or (ii) the Company will honor the outstanding New Atlantic Awards and the terms
and conditions of such New Atlantic Awards will otherwise remain the same;
except that, if the performance cycle with respect to such New Atlantic Awards
extends beyond the consummation of the Mergers, the performance criteria will be
modified to take into consideration the performance of the Company, as well as
the performance of Atlantic prior to the consummation of the Mergers and, in
such case, the Equity Incentive Plan will be terminated by Atlantic as soon as
practicable after the consummation of the Mergers.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Mergers are designed to qualify as a tax-free reorganization or exchange
under the Code. A condition precedent to Atlantic's obligation to consummate the
Atlantic Merger is the receipt by Atlantic of an opinion of Simpson Thacher &
Bartlett substantially to the effect that the Atlantic Merger will be treated as
a reorganization under Section 368(a) of the Code. A condition to Delmarva's
obligation to consummate the Delmarva Merger is the receipt by Delmarva of an
opinion by LeBoeuf, Lamb, Greene & MacRae, L.L.P. substantially to the effect
that the Delmarva Merger, taken together with the Atlantic Merger, will be
treated as an exchange under Section 351 of the Code and/or as a reorganization
under Section 368(a) of the Code. Assuming the Mergers so qualify, then for
federal income tax purposes (i) no gain or loss will be recognized by Delmarva,
Atlantic or the Company as a result of the Mergers, (ii) holders of Delmarva
Common Stock whose shares are converted into Company Common Stock and holders of
Atlantic Common Stock whose shares are converted into Company Common Stock and
Class A Common Stock in the Mergers will recognize no gain or loss as a result
of the conversion (except, with
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respect to Atlantic stockholders, who will recognize gain or loss to the extent
that they receive cash in lieu of fractional shares), (iii) the holding period
and basis applicable to shares of Company Common Stock and Class A Common Stock
received in the Mergers will be the same as the holding period and basis
attributable to the Delmarva Common Stock or Atlantic Common Stock, as the case
may be, that was converted into Company Common Stock and Class A Common Stock in
the Mergers (reduced by any amount allocable to a fractional share interest in
Company Common Stock and Class A Common Stock for which cash is received). A
holder of shares of Atlantic Common Stock will allocate his or her basis in such
stock among the Company Common Stock and the Class A Common Stock received based
upon the relative fair market values of the Company Common Stock and the Class A
Common Stock. A holder of shares of Atlantic Common Stock who receives cash in
lieu of a fractional share interest in Company Common Stock and Class A Common
Stock will recognize gain or loss measured by the difference between the amount
of cash received and the amount of the stockholder's aggregate basis allocated
to the fractional share interest. Any gain an Atlantic stockholder recognizes
will be taxed either as a dividend or as a capital gain. The Internal Revenue
Service has published a ruling holding that, in the case of a minority
stockholder whose relative stock interest in the surviving corporation is
minimal, who exercises no control over the surviving corporation's affairs, and
whose relative ownership interest in the surviving corporation has been reduced
by a minimal amount as a result of the receipt of cash in lieu of fractional
shares, any gain or loss such stockholder recognizes will be a capital gain or
loss. If an Atlantic stockholder has held his or her shares of Atlantic Common
Stock as a capital asset, any capital gain or loss recognized will be long-term
if the stockholder held his or her shares for more than one year at the time of
the Mergers.
THE ABOVE-DESCRIBED CONDITIONS PRECEDENT TO THE CONSUMMATION OF THE ATLANTIC
MERGER AND THE DELMARVA MERGER ARE WAIVABLE BY ATLANTIC AND DELMARVA,
RESPECTIVELY. Delmarva and Atlantic each expect it will receive a tax opinion
from its counsel prior to the consummation of the Mergers and that it will not
waive the tax opinion condition applicable to it. In the event of such a waiver,
however, Atlantic and Delmarva will furnish a supplement to this Joint Proxy
Statement/Prospectus disclosing such waiver and all related material matters,
including risks to investors, and will resolicit proxies in favor of the Mergers
and the Company Plan following the furnishing of such supplement.
Although it is the opinion of Simpson Thacher & Bartlett that the Class A
Common Stock will be treated as stock of the Company for federal income tax
purposes, there are no federal income tax regulations, court decisions or
published IRS rulings bearing directly on this issue. In addition, the IRS
announced during 1987 that it was studying the federal income tax consequences
of stock that has certain voting and liquidation rights in an issuing
corporation but whose dividend rights are determined by reference to the
earnings of a segregated portion of the issuing corporation's assets, including
assets held by its subsidiary, and that it would not issue any advance rulings
regarding such stock. During 1995, the IRS withdrew such stock from its list of
matters under consideration and reiterated that it would not issue advance
rulings regarding such stock. In the absence of such a ruling, there is a risk
that the IRS could assert that the Class A Common Stock represents property
other than stock of the Company. If the Class A Common Stock were determined not
to be stock of the Company, the receipt of the Class A Common Stock in the
Atlantic Merger would be taxable to the Atlantic stockholders.
The discussion above represents a summary of the opinions of counsel that
Delmarva and Atlantic expect to receive prior to (and as a waivable condition
to) the consummation of the Mergers. Neither Delmarva nor Atlantic has received
an opinion as of the date of this Joint Proxy Statement/Prospectus. At such time
as Delmarva and Atlantic are in receipt of such opinions, they will be filed as
exhibits, by post-effective amendment, to the Registration Statement. THE
DISCUSSION ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. IT DOES NOT ADDRESS
THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE MERGERS. THE DISCUSSION IS BASED
ON CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING AND PROPOSED TREASURY
REGULATIONS
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THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE
FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING
VALIDITY OF THE DISCUSSION. EACH DELMARVA AND ATLANTIC STOCKHOLDER SHOULD
CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE
MERGERS TO HIM OR HER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE,
LOCAL AND FOREIGN TAX LAWS.
ACCOUNTING TREATMENT
The Mergers will be accounted for under the purchase method of accounting
for financial reporting purposes.
STOCK EXCHANGE LISTING OF COMPANY CAPITAL STOCK
The Company will apply for the listing of Company Common Stock on the NYSE.
Approval of the listing on the NYSE of the shares of Common Stock issuable in
the Mergers, upon official notice of issuance, is a condition precedent to the
consummation of the Mergers. The Company may also apply for listings on other
exchanges. If Delmarva and Atlantic continue to meet the requirements of the
NYSE and the Philadelphia Exchange and, in the case of Atlantic the Pacific
Exchange, Delmarva Common Stock and Atlantic Common Stock, respectively, will
continue to be listed on those exchanges until the Mergers have been
consummated.
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of Common Stock received by Delmarva and Atlantic stockholders in
the Mergers will be freely transferable, except that shares of the Common Stock
received by persons who are deemed to be "affiliates" (as defined under the
Securities Act) of Delmarva or Atlantic prior to or upon consummation of the
Mergers may be resold by them only in transactions permitted by the resale
provisions of Rule 145 promulgated under the Securities Act (or Rule 144 or
after registration in the case of such persons who become affiliates of the
Company upon consummation of the Mergers) or as otherwise permitted under the
Securities Act. Persons who may be deemed to be affiliates of Delmarva, Atlantic
or the Company generally include individuals or entities that control, are
controlled by, or are under common control with, such party and may include
certain officers and directors of such party as well as principal stockholders
of such party. The Merger Agreement requires each of Delmarva and Atlantic to
use its best efforts to cause each of its affiliates to execute a written
agreement to the effect that the affiliate will not offer or sell or otherwise
dispose of any shares of Company Common Stock issued to the affiliate in or
pursuant to the Mergers in violation of the Securities Act or the rules and
regulations promulgated by the SEC thereunder.
The Company will comply with all disclosure requirements under the Exchange
Act with respect to each of the Company Common Stock and the Class A Common
Stock as a separate class. In addition, holders of Company Common Stock and
Class A Common Stock will have to comply with Schedules 13D and 13G under the
Exchange Act separately for each class.
APPRAISAL RIGHTS
Delaware law does not provide appraisal rights to holders of Delmarva Common
Stock or Delmarva Preferred Stock because all of such stock is listed on a
national securities exchange. Virginia law does not provide dissenters' or other
appraisal rights to holders of any series of Delmarva Preferred Stock because
the holders of such stock are not entitled to vote on the Delmarva Merger.
Virginia law does not provide dissenters' or other appraisal rights to the
holders of Delmarva Common Stock because all of such stock is listed on a
national securities exchange.
New Jersey law does not provide dissenters' or other appraisal rights to
holders of Atlantic Common Stock because all of such stock is listed on a
national securities exchange. Atlantic has no shares of preferred stock
outstanding. The rights and preferences of the ACE Preferred Stock will not be
affected by the Mergers, such stock will remain outstanding following the
Mergers and the holders of such stock will have no appraisal rights.
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REGULATORY MATTERS
Set forth below is a summary, based on advice of counsel for Delmarva and
Atlantic, of the regulatory requirements affecting the Mergers. Failure to
obtain any necessary regulatory approval or any adverse conditions that are
imposed with respect to any necessary regulatory approval, including the failure
to obtain favorable ratemaking treatment, may affect the consummation of the
Mergers.
ANTITRUST CONSIDERATIONS
The HSR Act and the rules and regulations thereunder provide that certain
transactions (including the Mergers) may not be consummated until certain
information has been submitted to the Antitrust Division of the Department of
Justice (the "Antitrust Division") and the Federal Trade Commission (the "FTC")
and the specified HSR Act waiting period requirements have been satisfied.
Delmarva and Atlantic will provide their respective Premerger Notifications
pursuant to the HSR Act. The expiration or earlier termination of the HSR Act
waiting period would not preclude the Antitrust Division or the FTC from
challenging the Mergers on antitrust grounds. Neither Delmarva nor Atlantic
believes that the Mergers will violate federal antitrust laws. If the Mergers
are not consummated within 12 months after the expiration or earlier termination
of the initial HSR Act waiting period, Delmarva and Atlantic must submit new
information to the Antitrust Division and the FTC, and a new HSR Act waiting
period must expire or be earlier terminated before the Mergers may be
consummated.
FEDERAL POWER ACT
Section 203 of the Federal Power Act provides that no public utility shall
sell or otherwise dispose of its jurisdictional facilities or directly or
indirectly merge or consolidate its facilities with those of any other person or
acquire any security of any other public utility without first having obtained
authorization from the FERC. The approval of the FERC is required to consummate
the Mergers. Under Section 203 of the Federal Power Act, the FERC will approve a
merger if it finds the merger to be "consistent with the public interest."
Delmarva and Atlantic filed a joint application before the FERC seeking approval
of the Mergers on November 27, 1996.
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
The Company is required to obtain SEC approval under Section 9(a)(2) of the
1935 Act in connection with the Mergers. An application for approval of the
Mergers will be filed by the Company.
Under the applicable standards of the 1935 Act, the SEC is directed to
approve the proposed Mergers unless it finds that (i) the Mergers would tend
towards detrimental interlocking relations or a detrimental concentration of
control, (ii) the consideration to be paid in connection with the Mergers is not
reasonable, (iii) the Mergers would unduly complicate the capital structure of
the applicant's holding company system or would be detrimental to the proper
functioning of the applicant's holding company system or (iv) the Mergers would
violate applicable state law. To approve the proposed Mergers, the SEC must also
find that the Mergers would tend towards the development of an integrated public
utility system and would otherwise conform to the 1935 Act's integration and
corporate simplification standards.
Upon consummation of the Mergers as currently structured, the Company must
register as a holding company under the 1935 Act because it will not qualify for
any exemptions available under such Act. The 1935 Act imposes restrictions on
the operations of registered holding company systems. Among these are
requirements that certain securities issuances as well as sales and acquisitions
of utility assets or of securities of utility companies and acquisitions of
interests in any other business be approved by the SEC. The 1935 Act also limits
the ability of registered holding companies to engage in nonutility ventures and
regulates holding company system service companies and the rendering of services
by holding company affiliates to the system's utilities. The SEC has authority
under the 1935 Act to preclude the payment of dividends by Delmarva and Atlantic
to the Company or to preclude the payment of dividends by the Company under
certain circumstances. Delmarva, Atlantic and the Company recognize that the
divestiture
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of the existing gas operations of Delmarva and certain nonutility operations of
Delmarva and Atlantic is a possibility under the new registered holding company
structure but the Company will request in its 1935 Act application that it be
allowed to retain the gas utility operations of Delmarva and the nonutility
operations of Delmarva and Atlantic or, in the alternative, that the question of
divestiture be deferred. If divestiture is ultimately required, the SEC
historically has allowed companies sufficient time to accomplish divestiture in
a manner that protects stockholder value.
On June 20, 1995, the SEC issued a series of proposed regulations that are
designed, among other things, to liberalize the restrictions on and regulation
of the activities of registered holding companies. At the same time, the SEC's
Division of Investment Management (the "Division") issued a report of
legislative recommendations, including the Division's preferred recommendation
that Congress repeal the 1935 Act, subject to the transfer of certain authority
over audits, books and records and affiliate transactions of registered holding
companies to state utility commissions and to the FERC. The report also
recommended liberalizing the interpretation of the SEC's regulations to permit
registered holding companies to own both electric and gas utility systems if
state commissions agree. There is no assurance that the regulations proposed by
the SEC will be implemented or that the suggestions in the Division's report
will be adopted. In addition, on October 12, 1995, a bill was introduced in the
U.S. Senate to repeal the 1935 Act and enact the Public Utility Holding Company
Act of 1995 that contains significantly fewer regulatory restrictions than the
1935 Act and would be administered by the FERC. To the extent that some or all
of the regulations and recommendations are implemented or the 1935 Act is
repealed, restrictions on and regulation of the Company's activities may be
liberalized, and the Company's ability to retain ownership of the gas utility
properties and nonutility ventures currently operated by Delmarva and Atlantic
would be enhanced.
NUCLEAR REGULATORY COMMISSION
Delmarva and Atlantic each own a 7.41% interest in the Salem Nuclear
Generating Station, which consists of two nuclear units, and a 7.51% interest in
the Peach Bottom Nuclear Generating Station, which consists of two nuclear
units. In addition, Atlantic owns a 5% interest in the Hope Creek Nuclear
Generating Station, which consists of one nuclear unit. Delmarva and Atlantic
hold NRC licenses with respect to their ownership interests in these nuclear
units. The Atomic Energy Act currently provides that licenses may not be
transferred or in any manner disposed of, directly or indirectly, to any person
unless the NRC finds that such transfer is in accordance with the Atomic Energy
Act and consents to the transfer. Pursuant to the Atomic Energy Act, Delmarva
and Atlantic will seek approval from the NRC to the full extent required to
reflect that after the Mergers, Delmarva and Atlantic, although continuing to
own the identical pre-Merger shares of the nuclear units, will become operating
subsidiaries of the Company.
DELAWARE PUBLIC SERVICE COMMISSION
Delmarva is incorporated in Delaware and subject to the jurisdiction of the
Delaware Public Service Commission (the "DPSC"). Pursuant to Section 215 of the
Public Utilities Act, Delmarva must obtain the approval of the DPSC in order to
directly or indirectly merge or consolidate with any other person or company.
Section 215 also provides that no other entity shall acquire control, either
directly or indirectly, of any public utility doing business within Delaware
without the prior approval of the DPSC. The DPSC is required to approve the
proposed merger and acquisition when it finds that the same is to be made in
accordance with law, for a proper purpose and is in the public interest.
Delmarva and the Company will seek the approvals of the DPSC consistent with
these requirements.
VIRGINIA STATE CORPORATION COMMISSION
Delmarva is incorporated in Virginia and subject to the jurisdiction of the
VSCC. Pursuant to the Utility Transfers Act, no person, whether acting alone or
in concert with others, shall, directly or indirectly, acquire control of a
public utility without the prior approval of the VSCC and it is unlawful for any
public
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utility, directly or indirectly, to dispose of any utility assets situated
within Virginia unless authorized by the VSCC. Upon application, the VSCC will
approve a proposed transaction if satisfied that adequate service to the public
at just and reasonable rates will not be impaired or jeopardized by granting the
application.
Except to the extent preempted by the Securities Exchange Commission, the
VSCC, pursuant to statutory provisions under which the VSCC regulates relations
with affiliated interests, must approve certain contracts or arrangements for
certain services, purchases, sales, leases or exchanges, loans and guarantees
between a public service company and affiliates.
Delmarva and its affiliates will seek the approvals of the VSCC consistent
with these requirements.
NEW JERSEY BOARD OF PUBLIC UTILITIES
As the parent company of Atlantic City Electric Company, the transfer of the
ownership or control, or the merger of, Atlantic is subject to the jurisdiction
of the New Jersey Board of Public Utilities (the "NJBPU"). Pursuant to Title 48
of the New Jersey Statutes Annotated, no person shall acquire or seek to acquire
control of a public utility directly or indirectly through the medium of an
affiliated or parent corporation without requesting and receiving the written
approval of the NJBPU. In addition, any transfer of stock to another public
utility, or a transfer that vests another corporation with a majority interest
in the stock of a public utility, must be authorized by the NJBPU.
The NJBPU, pursuant to statutory provisions under which the NJBPU regulates
relations between public utilities and affiliated interests, must approve
certain contracts or arrangements for certain services, purchases or loans
between a public utility and affiliates.
Atlantic and its affiliates will seek the approvals of the NJBPU consistent
with these requirements.
PENNSYLVANIA PUBLIC UTILITY COMMISSION
Delmarva and Atlantic own fractional interests in the Keystone, Conemaugh
and Peach Bottom electric generating stations and related transmission lines
located in Pennsylvania. Pursuant to Pennsylvania statute, the transfer to any
person or corporation of the stock, including a transfer by merger, of a public
utility must be approved by the Pennsylvania Public Utility Commission ("PPUC").
The PPUC will approve such transfers upon a showing that the merger will
affirmatively promote the service, accommodation, convenience or safety of the
public in some substantial way. Delmarva and Atlantic will seek the approvals of
the PPUC consistent with these requirements.
MARYLAND PUBLIC SERVICE COMMISSION
The Maryland Public Service Commission (the "MPSC") is granted general
authority to supervise and regulate public utilities with operations in the
State of Maryland. Delmarva has advised the MPSC of the transactions
contemplated by the Merger Agreement and that it does not believe that the
approval of the MPSC of the Mergers is required. However, the MPSC has ruled
that it has jurisdiction over the Mergers to determine whether the Mergers will
have an adverse effect on the conduct of Delmarva's Maryland franchises and any
other matters that properly come before the MPSC at such hearing. Delmarva will
seek to show that the Mergers will not have an adverse effect on the conduct of
its Maryland franchises.
EFFECTS OF CERTAIN REGULATORY TRENDS
SFAS 71--Accounting for the Effects of Certain Types of Regulation in
general recognizes that accounting for rate-regulated enterprises should reflect
the relationship of costs and revenues. As a result, a regulated utility may
defer recognition of cost (a regulatory asset) or recognize an obligation (a
regulatory liability) if it is probable that, through the ratemaking process,
there will be a corresponding increase or decrease in revenues. Accordingly,
Delmarva and Atlantic have deferred costs that will be amortized over various
periods. To the extent that collection of such costs or payment of such
liabilities is no longer probable as a result of changes in regulation and/or
the competitive position of Delmarva or
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Atlantic, as the case may be, the associated regulatory asset or liability will
be reversed with a charge or credit to income. If Delmarva or Atlantic were to
discontinue the application of SFAS 71 the accounting impact would be an
extraordinary noncash charge to operations that could be material to the
financial position and results of operations of Delmarva or Atlantic, as the
case may be.
Competition exists and is expected to increase for certain electric and gas
energy markets historically served exclusively by regulated utilities. In recent
years, changing laws and governmental regulations permitting competition from
other utilities as well as nonregulated energy suppliers have prompted some
customers to use self-generation or alternative sources to meet their electric
and gas needs. The transition from strictly regulated to competitive resale and
retail markets is changing the structure of the utility industry and the way in
which it conducts business. As the electric utility industry transitions from a
regulated to a competitive industry, utilities may not be able to recover
certain costs. These costs, which are known as "stranded" costs, could result
from the shift from cost of service based pricing to market based pricing and
from customers choosing different energy suppliers than Delmarva or Atlantic.
Potential types of stranded costs could be (i) above-market costs associated
with generation facilities or long term power purchase agreements and (ii)
regulatory assets, which are expenses deferred and expected to be recovered from
customers in the future.
Several states are presently evaluating the most appropriate method to
address the rapidly emerging competitive energy marketplace and allow consumers
to participate in that market.
Delmarva has proposed to the Maryland and Delaware state regulatory
commissions that a forum be established to address changes in the regulation of
the electric utility industry, the objective being to develop cooperatively a
blueprint to move toward increased customer choice. The forums will address
issues such as open access to transmission and distribution lines by retail
customers (retail wheeling), stranded investment, rate redesign and alternative
forms of regulation, such as performance-based regulation.
To date, the NJBPU has made no formal pronouncement regarding deregulation
or recovery of stranded commitments. The NJBPU is currently examining changes to
the electric power industry. Specific issues are an evaluation of actions needed
to establish a wholesale electric generation marketplace, an analysis to
determine if divestiture of utility generating assets is necessary, a
determination of the appropriateness and necessity of retail wheeling, given the
achievement of a competitive wholesale market, and the definition and equitable
treatment of stranded costs. Working groups representing various interested
parties have been established to review these issues. In a preliminary status
report issued in May 1996, certain recommendations were made, including a
proposed 3-7 year transition to a competitive retail market. A formal
recommendation by the NJBPU is expected to be submitted in early 1997 to the New
Jersey governor and legislature, which is expected to include a specific
timetable, interim pilot programs and recommended changes to legislation.
Delmarva and ACE have not filed for accelerated depreciation of any capital
assets or special rate plans applicable to particular classes of customers.
However, ACE has entered into contracts with selected customers which provide
for special rates in conjunction with NJBPU approved guidelines. To date, the
aggregate amount of such discounts is not material to ACE's financial condition.
ACE has significant long term contract commitments to purchase capacity and
energy from nonutility sources at above-market costs. Recovery of amounts
associated with these contracts is through ACE's Levelized Energy Clause, for
rates are subject to approval by the NJBPU annually.
Delmarva and Atlantic are unable to predict the outcome of the various
regulatory proceedings that are presently underway with respect to deregulation.
However, if changes in the regulatory environment ultimately require a
recognition of any amounts considered to be stranded costs, Delmarva or
Atlantic, as the case may be, would be required to write down asset values, and
such writedowns could be material. Given the uncertainty with respect to the
timing of any regulatory changes, the resulting deregulated market prices for
energy and/or capacity and the extent to which regulatory commissions allow for
recovery
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of any previously incurred costs, it is not possible to predict the level of
stranded costs, if any, which would result.
The effect of competition on the Company's equity from reductions in profit
margins or extraordinary charges against income would reduce the amount of
common equity in the capital structure and could result in lowered credit
ratings on existing debt securities and higher corresponding financing costs. To
the extent that additional equity capital is required, issuances of common stock
may be necessary. To the extent that additional equity capital is required, the
effect would be to reduce reported earnings per share, the amount of which
Delmarva and Atlantic cannot presently determine.
OTHER REGULATORY MATTERS
Each of the states in which Delmarva and Atlantic operate regulates the
rates charged by Delmarva or Atlantic, as the case may be, to its utility
customers in that state. In approving rates, each state may take into account
the effect of the Mergers.
Delmarva, Atlantic and the Company have agreed in the Merger Agreement to
use all commercially reasonable efforts to obtain regulatory approvals, but
there can be no assurance as to when or if such approvals will be obtained or
that such approvals will be obtained on terms or conditions that do not have a
material adverse effect on the business, operations, properties, assets,
condition, prospects or results of the Company following the Mergers.
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THE MERGER AGREEMENT
THE FOLLOWING IS A BRIEF SUMMARY OF THE MATERIAL PROVISIONS OF THE MERGER
AGREEMENT, WHICH IS ATTACHED AS ANNEX I AND IS INCORPORATED HEREIN BY REFERENCE.
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT.
THE MERGERS
The Merger Agreement provides that, following its approval by the
stockholders of Delmarva and Atlantic and the satisfaction or waiver of the
other conditions to the Mergers, (i) DS Sub will be merged with and into
Delmarva in the Delmarva Merger and (ii) Atlantic will be merged with and into
the Company in the Atlantic Merger.
If the Merger Agreement is approved by the stockholders of Delmarva and
Atlantic and the other conditions to the Mergers are satisfied or waived, the
Mergers will become effective after the filing (i) by Delmarva of the
certificate of merger with the Secretary of State of the State of Delaware and
articles of merger with the VSCC and (ii) by the Company of a certificate of
merger with the Secretary of State of the State of Delaware and by Atlantic and
the Company of a certificate of merger with the Secretary of State of the State
of New Jersey, at the time specified by Delmarva and Atlantic in the respective
certificates and articles of merger. The date and time specified will be the
same with respect to both the Delmarva Merger and the Atlantic Merger.
CONSUMMATION OF THE MERGERS
At the Effective Time, pursuant to the Merger Agreement:
Each share of (i) Delmarva Common Stock issued and outstanding immediately
prior to the Effective Time (other than shares of Delmarva Common Stock that are
owned by Delmarva as treasury stock or by Atlantic or by any wholly owned
subsidiary of Delmarva or Atlantic) will be converted into the right to receive
one fully paid and nonassessable share of Company Common Stock (the "Delmarva
Conversion Ratio"), (ii) Atlantic Common Stock, issued and outstanding
immediately prior to the Effective Time (other than shares of Atlantic Common
Stock that are owned by Atlantic as treasury stock or by Delmarva or a wholly
owned subsidiary of Atlantic or Delmarva), will be converted into the right to
receive 0.75 fully paid and nonassessable shares of Company Common Stock and
0.125 fully paid and nonassessable shares of Class A Common Stock (the "Atlantic
Conversion Ratio").
Each share of (i) Delmarva Common Stock that is owned by Delmarva as
treasury stock or by Atlantic or any wholly owned subsidiary of Delmarva or
Atlantic, (ii) Atlantic Common Stock that is owned by Atlantic as treasury stock
or by Delmarva or by any wholly owned subsidiary of Atlantic or Delmarva and
(iii) Company Common Stock that is owned by Delmarva, Atlantic or any wholly
owned subsidiary of Delmarva or Atlantic in each case will be cancelled and
cease to exist, and no consideration will be delivered in exchange therefor.
Each share of DS Sub Common Stock, par value $.01 per share, issued and
outstanding immediately prior to the Effective Time will be converted into and
become one share of Common Stock, par value $2.25 per share, of the surviving
corporation in the Delmarva Merger.
Each share of Delmarva Preferred Stock outstanding at the time of the
consummation of the Mergers will remain as outstanding preferred stock of
Delmarva and the rights and designations of the Delmarva Preferred Stock will
not be affected by the Mergers. The shares of Delmarva Preferred Stock currently
listed on a national securities exchange will continue to be so listed following
consummation of the Mergers.
On or before the Effective Time, the Company will deposit with the Exchange
Agent certificates representing shares of Company Common Stock and Class A
Common Stock required to effect the conversion of Delmarva Common Stock and
Atlantic Common Stock into Company Common Stock and, in the case of Atlantic
Common Stock, Class A Common Stock.
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As soon as practicable after the Effective Time, the Exchange Agent will
mail to each holder of record of Delmarva Common Stock or Atlantic Common Stock
at the Effective Time, transmittal instructions advising such holder of the
procedure for surrendering Delmarva Common Stock or Atlantic Common Stock
certificates for Company Common Stock and Class A Common Stock certificates.
Delivery will be effected, and risk of loss and title to the certificates will
pass, only upon actual delivery to the Exchange Agent.
After the Effective Time, each certificate evidencing Delmarva Common Stock
or Atlantic Common Stock until so delivered will, for all purposes, represent
only the right to receive upon such delivery the certificate representing
Company Common Stock or Class A Common Stock and if applicable, the right to
receive any cash payment in lieu of a fractional share of Company Common Stock
or Class A Common Stock without interest. The holder of the unexchanged
certificate will not be entitled to vote or to receive dividends or other
distributions payable by the Company until the certificate is delivered, at
which time the holder will be entitled to receive all dividends or other
distributions accrued and unpaid from the Effective Time until the delivery.
No certificates or scrip representing fractional shares of Company Common
Stock or Class A Common Stock will be issued upon the delivery for exchange of
certificates and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of the Company. As promptly as
practicable following the Effective Time, the Exchange Agent will determine the
excess of (x) the number of full shares of Company Common Stock and Class A
Common Stock delivered to the Exchange Agent by the Company over (y) the
aggregate number of full shares of Company Common Stock and Class A Common Stock
to be distributed to holders of Delmarva Common Stock and Atlantic Common Stock
(such excess being herein called the "Excess Shares"). As soon as practicable
after the Effective Time, the Exchange Agent will sell the Excess Shares on the
NYSE through one or more member firms of the NYSE, in round lots to the extent
practicable. Until the proceeds of such sale or sales have been distributed to
the holders of Atlantic Common Stock, the Exchange Agent will hold such proceeds
in trust (the "Common Shares Trust"). The Company will pay all commissions,
transfer taxes and other out-of-pocket transaction costs, including the expenses
of compensation of the Exchange Agent incurred in connection with such sale of
the Excess Shares. The Exchange Agent will determine the portion of the proceeds
of the Common Shares Trust to which each holder of Atlantic Common Stock will be
entitled, if any, by multiplying the amount of the aggregate proceeds comprising
the Common Shares Trust by a fraction of the numerator of which is the amount of
the fractional share interest to which such holder of Atlantic Common Stock is
entitled and the denominator of which is the aggregate amount of fractional
share interests to which all holders of Atlantic Common Stock are entitled. As
soon as practicable after the sale of the Excess Shares described above, the
Exchange Agent will distribute such amounts to holders of Atlantic Common Stock
who have delivered certificates for exchange.
Any certificates representing Company Common Stock and Class A Common Stock
deposited with the Exchange Agent and not exchanged within one year after the
Effective Time will be returned to the Company, which will thereafter act as
Exchange Agent.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties by
each of Delmarva and Atlantic relating to, among other things: (i) their
respective organization and qualification, the organization and qualification of
their respective subsidiaries and similar corporate matters; (ii) their
respective capital structures; (iii) authorization, execution, delivery,
performance and enforceability of the Merger Agreement and related matters; (iv)
regulatory and statutory approvals; (v) compliance with applicable laws and
agreements; (vi) reports and financial statements filed with governmental
authorities and the accuracy of information contained therein; (vii) absence of
material adverse changes and undisclosed liabilities; (viii) litigation; (ix)
the accuracy of information supplied by Delmarva and Atlantic for use in the
Registration Statement and Joint Proxy Statement/Prospectus filed by the Company
in connection with the issuance of Company Common Stock and Class A Common
Stock; (x) certain tax matters; (xi) employee
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matters and ERISA; (xii) environmental matters; (xiii) the utility regulatory
status of Delmarva and Atlantic and their respective subsidiaries; (xiv) the
stockholder vote of Delmarva and Atlantic required to approve the Merger
Agreement; (xv) fairness opinions of Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Morgan Stanley & Co. Incorporated; (xvi) insurance; (xvii)
applicability of certain laws; (xviii) ownership by Delmarva and Atlantic,
respectively, of the other's common stock; and (xix) operations of nuclear
facilities.
CERTAIN COVENANTS
Pursuant to the Merger Agreement, Delmarva and Atlantic have each agreed
that, during the period from the date of the Merger Agreement until the
Effective Time or earlier termination of the Merger Agreement, except (i) as
permitted under the Merger Agreement or (ii) as otherwise consented to in
writing by the other parties, each will (and each of its subsidiaries will)
among other things: (a) carry on its business in the ordinary course consistent
with past practice and use all commercially reasonable efforts to preserve
certain arrangements so that goodwill and ongoing businesses are not materially
impaired at the Effective Time; (b) not (i) enter into any new line of business,
except as permitted under the Merger Agreement, involving material investment of
assets or resources or material exposure to liability or loss to such party and
its subsidiaries taken as a whole, (ii) make investments in the permitted new
businesses in excess of $250 million or (iii) make any investment in a Listed
Activity other than an investment by Atlantic in thermal services, in excess of
$7.5 million per year without consulting the other party; (c) not declare or pay
any dividends on or make other distributions in respect of any of its capital
stock, other than (i) to such party or its wholly owned subsidiaries, (ii)
stated dividends on Delmarva Preferred Stock or on ACE Preferred Stock, (iii)
regular quarterly dividends on the Delmarva Common Stock and the Atlantic Common
Stock with usual record and payment dates at an annual rate not to exceed $1.54
per share; (d) not split, combine or reclassify any capital stock or repurchase
or otherwise acquire capital stock, other than (i) in the ordinary course of
business including (A) in connection with employee plans, (B) in connection with
repurchases, redemptions and other acquisitions required by terms of any series
of Delmarva Preferred Stock or ACE Preferred Stock, (C) in connection with the
refunding of Delmarva Preferred Stock or ACE Preferred Stock or indebtedness, at
a lower cost of funds or through the issuance of long-term indebtedness and (D)
open market purchases used to fund up to $50 million in any fiscal year of the
cost of any acquisition permitted under the Merger Agreement or (ii)
intercompany acquisitions of capital stock; (e) not issue capital stock,
warrants, rights, options or convertible or similar securities other than (i)
the issuance of common stock or stock appreciation or similar rights pursuant to
(A) the Dividend Reinvestment and Common Share Purchase Plan, the Savings and
Thrift Plan and the Long-Term Incentive Plan of Delmarva or (B) the Employee
Incentive Plan, the Directors' Restricted Stock Plan, the Employee Stock
Purchase Plan and the Dividend Reinvestment Plan of Atlantic, in each case
consistent in kind and amount with past practice and in the ordinary course of
business under such plans substantially in accordance with their present terms,
(ii) the issuance by a wholly owned subsidiary of shares of its capital stock to
its parent and (iii) the issuance of common stock by Delmarva or Atlantic
utilized to fund up to $50 million per year of the cost of certain permitted
acquisitions; (f) not amend its certificate or articles of incorporation or its
bylaws, except as necessary to provide for the issuance of securities as
permitted under the Merger Agreement or as required by law; (g) not engage in
material acquisitions subject to certain exceptions; (h) not engage in material
dispositions, subject to certain exceptions; (i) not incur or guarantee any
indebtedness other than (i) short-term indebtedness incurred in the ordinary
course of business consistent with past practice, (ii) long-term indebtedness in
connection with the refinancing of existing indebtedness either at its stated
maturity or at a lower cost of funds, (iii) long-term indebtedness in connection
with the refunding of Delmarva Preferred Stock or ACE Preferred Stock at a lower
cost of funds and (iv) additional indebtedness in any fiscal year not exceeding
$25 million more than provided in the Delmarva Budget or the Atlantic Budget (as
defined in the Merger Agreement); (j) not make any capital expenditures other
than capital expenditures (i) in connection with the construction of new
facilities, (ii) to replace or repair facilities destroyed or damaged due to
casualty or accident and (iii) additional capital expenditures in any year not
exceeding 10% of the amount provided in the
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Delmarva Budget or the Atlantic Budget as the case may be; (k) subject to
certain exceptions, not enter into, adopt or amend (except as required by law),
or increase the amount or accelerate the payment or vesting of any benefit or
amount payable under, any employee benefit plan or other contract, agreement,
commitment or arrangement to increase in any manner the compensation or fringe
benefits, or otherwise to extend, expand or enhance the engagement, employment
or any related rights of any director, officer or other employee of such party
or any of its subsidiaries, except pursuant to binding legal commitment and
except for normal (including incentive) increases in the ordinary course of
business consistent with past practice that, in the aggregate, do not result in
a material increase in benefits or compensation expense to such party and its
subsidiaries taken as whole, provided that Atlantic will terminate its
retirement plan for nonemployee directors and pay in cash all accrued benefits
thereunder prior to the Effective Time, and each of Delmarva and Atlantic may,
with the agreement of the other, modify the benefits payable under its severance
arrangements with management employees in a manner that makes the aggregate
level of severance benefits received by such management employees comparable to
the aggregate level of severance benefits that are, on the date of the Merger
Agreement, provided to comparable employees of the other; (l) except as
contemplated by the Merger Agreement, not engage in any activity that would
cause a change in its status under the 1935 Act or impair the ability of
Atlantic to claim an exemption pursuant to Rule 2 of the 1935 Act; (m) not make
any changes in their accounting methods other than required by law or in
accordance with GAAP; (n) not take any action that would adversely affect the
status of the Mergers as a tax free transaction under Section 368(a) of the Code
and/or Section 351 of the Code; (o) not pay, discharge or satisfy any material
claims, liabilities or obligations, other than the payment in the ordinary
course of business consistent with past practice or in accordance with their
terms, of liabilities reflected in, reserved against in, or contemplated by the
most recently filed financial sheets filed with the SEC, as part of or pursuant
to any settlement of any rate filings before the public utility commission of
any state or the FERC pending on the date of the Merger Agreement, or as
otherwise contemplated in the Merger Agreement; (p) cooperate with the other
parties and notify the other parties of any significant change, including by
providing copies of any filings with a governmental agency; (q) discuss with the
other parties any proposed changes in its rates or charges, standards of service
or accounting; (r) use all commercially reasonable efforts to obtain third-party
consents to the Mergers; (s) not take any action that is likely to result in the
material breach of any provision of the Merger Agreement or result in any of its
representations and warranties becoming untrue; (t) not take any action that is
likely to jeopardize the qualification of outstanding revenue bonds issued for
the benefit of Delmarva or Atlantic as tax-exempt industrial revenue bonds; (u)
create and maintain a special transition management task force headed by Howard
E. Cosgrove and Michael J. Chesser; (v) maintain insurance with financially
responsible insurance companies, in such amounts and against such risks and
losses as are customary for companies in the utility industry; (w) maintain in
effect all existing permits pursuant to which such party or its subsidiaries
operate; and (x) not modify, amend, terminate, renew or fail to use reasonable
business efforts to renew any material contract or agreement to which it or any
of its subsidiaries is a party, or waive, release or assign any material rights
or claims.
NO SOLICITATION OF TRANSACTIONS
The Merger Agreement provides that the parties thereto and their respective
subsidiaries will not and will not authorize or permit any of their respective
representatives to, directly or indirectly, solicit, initiate or encourage, or
take any other action to facilitate knowingly any inquiries or the making of any
proposal that constitutes or may reasonably be expected to lead to an
Acquisition Proposal (as defined below) from any person, or engage in any
discussion or negotiations relating thereto or accept any Acquisition Proposal.
Notwithstanding anything to the contrary, Delmarva or Atlantic may (i) at any
time prior to the Delmarva stockholders' approval or the Atlantic stockholders'
approval, as the case may be, having been obtained, negotiate or discuss with a
third party who seeks to initiate such discussions or negotiations and may
furnish such third party with information concerning itself if and to the extent
that (A) (x) such third party shall have first made an Acquisition Proposal that
is financially superior to the Mergers and has demonstrated that financing is
reasonably likely to be obtained and (y) the Board of Directors of such
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party shall have concluded in good faith on the basis of a written opinion of
outside counsel that such action is necessary to act in a manner consistent with
its fiduciary duties and (B) prior to furnishing such information or entering
into such discussions or negotiations, such party (x) provides prompt notice to
the other party and (y) obtains an executed confidentiality agreement in
customary form in terms no more favorable to the third party than the
confidentiality agreement entered into between Delmarva and Atlantic, (ii)
comply with Rule 14e-2 promulgated under the Exchange Act in connection with a
tender offer and (iii) accept an Acquisition Proposal from a third party;
provided that such party terminates the Merger Agreement pursuant to clause (f)
under "The Merger Agreement--Termination." Each party will notify the other
party orally and in writing of any such inquiries, offers or proposals
(including without limitation the terms and conditions of any such proposal and
the identity of the person making it) within 24 hours of the receipt thereof and
will give the other party five days' advance notice of any agreement to be
entered into with or any information to be supplied to any person making such
inquiry, offer or proposal. As used in the Merger Agreement, "Acquisition
Proposal" means a proposal or offer (other than by another party to the Merger
Agreement) for a tender or exchange offer, merger, consolidation or other
business combination involving a party or any material subsidiary of such party
or any proposal to acquire a substantial equity interest in or a substantial
portion of the assets of such party or any material subsidiary of such party.
COMPANY BOARD OF DIRECTORS
The Merger Agreement provides that the Delmarva Board will be entitled to
nominate 10 members and the Atlantic Board will be entitled to nominate eight
members to serve on the Company Board at the Effective Time and will take all
necessary action to cause each director of Delmarva and Atlantic serving as such
immediately prior to the Effective Time to have the opportunity to serve as a
director of the Company. The directors nominated by the Delmarva Board and the
Atlantic Board will be divided between the classes of directors of the Company
so that each class, to the extent possible, has the same proportion of directors
nominated by each of the Delmarva Board and the Atlantic Board. At the Effective
Time, the Audit Committee of the Company Board will consist of an equal number
of directors nominated by the Delmarva Board and the Atlantic Board.
INDEMNIFICATION
The Merger Agreement provides that from and after the Effective Time, the
Company will, to the fullest extent not prohibited by applicable law, indemnify,
defend and hold harmless the present and former officers, directors and
management employees of Delmarva and Atlantic and their respective subsidiaries
(each an "Indemnified Party" and, collectively, the "Indemnified Parties")
against all losses, expenses (including reasonable attorneys' fees and
expenses), claims, damages, costs, liabilities, judgments or, subject to the
proviso of the next succeeding sentence, amounts paid in settlement arising out
of actions or omissions occurring at or prior to or after the Effective Time
that are in whole or in part based on, or arising out of, the fact that such
person is or was a director, officer or management employee of Delmarva or
Atlantic and arising out of or pertaining to the transactions contemplated by
the Merger Agreement. In the event of any such loss, expense, claim, damage or
liability (whether or not arising prior to the Effective Time), (i) the Company
will pay the reasonable fees and expenses of counsel selected by the Indemnified
Parties, which counsel shall be reasonably satisfactory to the Company, promptly
after statements therefor are received and otherwise advance to such Indemnified
Parties upon request reimbursement of documented expenses reasonably incurred,
in either case to the extent not prohibited by applicable law, (ii) the Company
will cooperate in the defense of any such matter and (iii) any determination
required to be made with respect to whether an Indemnified Party's conduct
complies with the standards under applicable law of the State of Delaware and
the Company Charter or Company Bylaws will be made by independent counsel
mutually acceptable to the Company and the Indemnified Party; provided that the
Company will not be liable for any settlement effected without its written
consent. The Indemnified Parties as a group may retain only one law firm (other
than local counsel) with respect to each related matter except to the extent
there is, in the sole opinion of counsel to an Indemnified Party under
applicable standards of
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professional conduct, a conflict on any significant issue between positions of
any two or more Indemnified Parties. If an Indemnified Party is required to
bring any action to enforce any of its rights under the Merger Agreement and is
successful, the Company will reimburse such Indemnified Party for all of its
expenses in bringing and pursuing such action. In addition, each Indemnified
Party is entitled to the advancement of expenses in connection with any such
action.
The Merger Agreement provides that, for a period of six years after the
Effective Time, the Company will cause to be maintained in effect the policies
of directors' and officers' liability insurance maintained by Delmarva and
Atlantic to the extent such liability insurance can be maintained annually at a
cost to the Company not greater than 200% of the respective current annual
premiums for their directors' and officers' liability insurance; provided that
the Company may substitute therefor policies of at least the same coverage
containing terms that are no less advantageous with respect to matters occurring
prior to the Effective Time; provided that if such insurance cannot be so
maintained or obtained at such cost, the Company will maintain or obtain as much
of such insurance for each of Delmarva and Atlantic as can be so maintained or
obtained at a cost equal to 200% of the respective current annual premiums of
each of Delmarva and Atlantic for their directors' and officers' liability
insurance and other indemnity agreements.
The Merger Agreement also provides that in the event that the Company or any
of its successors or assigns (i) consolidates with or merges into any other
person and will not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then and in either such case, proper
provision will be made so that the successors and assigns of the Company will
assume the obligations set forth above.
CONDITIONS TO THE MERGERS
The respective obligations of Delmarva and Atlantic to effect the Mergers
are subject to the following conditions, among others: (i) the required
approvals of the Delmarva stockholders and the Atlantic stockholders specified
in the Merger Agreement; (ii) the absence of any temporary restraining order,
preliminary or permanent injunction or other order or any applicable federal or
state law or regulation preventing the consummation of the Mergers and the
transactions contemplated by the Merger Agreement; (iii) the effectiveness of
this Registration Statement and the absence of any stop order suspending its
effectiveness; (iv) the approval for listing on the NYSE, upon official notice
of issuance of the shares of Company Common Stock and Class A Common Stock
issuable in the Mergers; (v) the receipt of all statutory approvals as Final
Orders (as defined below) that Delmarva and Atlantic are required to obtain
pursuant to the Merger Agreement, without any such Final Order imposing terms or
conditions having or reasonably likely to have, a material adverse affect on
business, operations, properties, assets, condition (financial or otherwise),
prospects or results of operations of Delmarva or Atlantic, in each case as if
it were organized as a separate division of the Company; (vi) the expiration or
termination of the applicable waiting periods under the HSR Act; (vii) the
agreements and covenants required to be performed under the Merger Agreement
having been performed in all material respects; (viii) the representations and
warranties set forth in the Merger Agreement being true in all material
respects; (ix) the absence of any material adverse effect on the business,
operations, properties, assets, conditions (financial or otherwise), prospects
or results of operations of Delmarva or Atlantic and their subsidiaries and
there being no fact or circumstance that is reasonably likely to have such an
effect; (x) the receipt of material third party consents; (xi) the receipt by
Delmarva and Atlantic of officers' certificates from the other stating that the
conditions set forth in the Merger Agreement have been satisfied; (xii) the
receipt by Delmarva and Atlantic from their respective special tax counsel
opinions to the effect that, in the case of Atlantic, the Atlantic Merger will
be treated as a reorganization described in Section 368(a) of the Code and in
the case of Delmarva, the Delmarva Merger, taken together with the Atlantic
Merger, will be treated as a nontaxable exchange described in Section 351 of the
Code; and (xiii) the receipt by Delmarva and Atlantic of certificates of certain
affiliates of Delmarva and Atlantic. As defined in the Merger Agreement, a
"Final Order" means action by the relevant regulatory authority that has not
been reversed, stayed, enjoined, set aside, annulled or suspended, with respect
to which any waiting period prescribed by law before the
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transactions contemplated by the Merger Agreement may be consummated has
expired, and as to which all conditions to the consummation of such transactions
prescribed by law, regulation or order have been satisfied, and as to which all
opportunities for rehearing are exhausted (whether or not any appeal thereof is
pending).
BENEFIT PLANS
Following the Effective Time, the Company and its subsidiaries will honor,
without modification, all prior contracts, agreements, collective bargaining
agreements and commitments with current or former employees or current or former
directors of Delmarva and Atlantic and their respective subsidiaries, subject to
any reserved right to amend, modify, suspend, revoke or terminate.
Each of the Delmarva Benefit Plans and the Atlantic Benefit Plans, as
defined in the Merger Agreement, in effect on the date of signing of the Merger
Agreement will be maintained in effect with respect to the employees or former
employees of Delmarva and Atlantic and any of their respective subsidiaries, who
are covered by such plans immediately prior to the closing date until the
Company determines otherwise; provided that nothing shall limit any reserved
right to amend, modify, suspend, revoke or terminate any such plan. Each
participant in any Delmarva Benefit Plan or Atlantic Benefit Plan will receive
credit for purposes of eligibility to participate, vesting and eligibility to
receive benefits under any benefit plan of the Company or any subsidiaries or
affiliates for service credited for the corresponding purpose under any such
benefit plan. The Company will take all action necessary so that after the
Effective Time, the Dividend Reinvestment and Common Share Purchase Plan, the
Savings and Thrift Plan and the Long-Term Incentive Plan of Delmarva and the
Executive Incentive Plan, the Directors' Restricted Stock Plan, the Employee
Stock Purchase Plan and the Dividend Reinvestment Plan of Atlantic will be
terminated, replaced or amended to provide for the issue and sale of Company
Common Stock in place of Delmarva Common Stock or Atlantic Common Stock, as the
case may be, under such plans.
TERMINATION
The Merger Agreement may be terminated at any time prior to the closing,
whether before or after approval by the stockholders of Delmarva or Atlantic:
(a) by mutual written consent of the Delmarva Board and the Atlantic Board; (b)
by Delmarva or Atlantic, by written notice to the other, if the Effective Time
shall not have occurred on or before 18 months from the signing of the Merger
Agreement; provided that such date will automatically be extended to 30 months
from signing of the Merger Agreement, if on the date 18 months from signing of
the Merger Agreement (i) the condition of obtaining the required statutory
approvals described above in clause (v) under "Conditions to the Mergers" has
not been satisfied or waived, (ii) the other conditions to the consummation of
the transactions contemplated by the Merger Agreement are then capable of being
satisfied and (iii) any required statutory approvals that have not yet been
obtained are being pursued with diligence; and provided that the right to
terminate the Merger Agreement under the provision described in this clause (b)
will not be available to any party whose failure to fulfill any obligation under
the Merger Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before the termination date; (c) by Delmarva or
Atlantic, by written notice to the other party, if any required stockholder
approval shall not have been obtained at a duly held meeting of stockholders or
at any adjournment or adjournments thereof; (d) by Delmarva or Atlantic, if any
state or federal law, order, rule or regulation is adopted or issued, which has
the effect, as supported by the written opinion of outside counsel for such
party, of prohibiting either or both of the Mergers, or if any court of
competent jurisdiction in the United States or any State shall have issued an
order, judgment or decree permanently restraining, enjoining or otherwise
prohibiting either or both of the Mergers and such order, judgment or decree
shall have become final and nonappealable; (e) by Delmarva or Atlantic, upon
five days' prior notice to the other if, as a result of an acquisition proposal
by a party other than Delmarva or Atlantic, as the case may be, or any of their
respective affiliates, the Delmarva Board or the Atlantic Board, as the case may
be, determines in good faith on the basis of a written opinion of outside
counsel, that acceptance of the acquisition proposal is necessary for the Board
of Directors to act consistent with its
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fiduciary duties; provided that (i) the Delmarva Board or the Atlantic Board, as
the case may be, shall have been advised by outside counsel that,
notwithstanding a binding commitment to consummate an agreement of the nature of
the Merger Agreement entered into in the proper exercise of its applicable
fiduciary duties, and notwithstanding all concessions that may be offered in
negotiations entered into pursuant to clause (ii), such fiduciary duties would
also require the directors to reconsider such commitment as a result of such
acquisition proposal and (ii) prior to any such termination, Delmarva or
Atlantic, as the case may be, will and will cause its respective financial and
legal advisors to negotiate with the other to make such adjustments in the terms
and conditions of the Merger Agreement as would enable Delmarva or Atlantic, as
the case may be, to proceed with the transactions contemplated therein; provided
that Delmarva and Atlantic acknowledge and affirm that notwithstanding anything
in the provisions described in this clause (e) to the contrary, Delmarva and
Atlantic intend the Merger Agreement to be an exclusive agreement and,
accordingly, nothing in the Merger Agreement is intended to constitute a
solicitation of an acquisition proposal, it being acknowledged and agreed that
any such proposal would interfere with the strategic advantages and benefits
that Delmarva and Atlantic expect to derive from the Mergers and other
transactions contemplated thereby; (f) by Delmarva or Atlantic (the "Terminating
Party"), by written notice to the other (the "Breaching Party"), if (i) there
shall have been any material breach of any representation or warranty or any
material breach of any covenant or agreement of the Breaching Party made in the
Merger Agreement that is not remedied within 20 days after receipt by the
Breaching Party of notice in writing from the Terminating Party specifying the
nature of such breach and requesting that it be remedied, or (ii) the Board of
Directors of the Breaching Party (A) shall withdraw or modify in any manner
adverse to the Terminating Party its approval of the Merger Agreement and the
transactions contemplated thereby or its recommendation to its stockholders
regarding the approval of the Merger Agreement, (B) shall fail to reaffirm such
approval or recommendation upon the request of the Terminating Party, (C) shall
approve or recommend the acquisition by a third party of the Breaching Party or
of a material portion of its assets or any tender offer for the capital stock of
the Breaching Party, or (D) shall resolve to take any of the actions specified
in clauses (A), (B) or (C) above; or (g) by either party by written notice to
the other party if (i) a third party acquires securities representing more than
50% of the voting securities of the other party or (ii) individuals who as of
the date of the Merger Agreement constitute the Delmarva Board or the Atlantic
Board cease for any reason to constitute a majority of the Delmarva Board or the
Atlantic Board, as the case may be, then in office.
TERMINATION FEES
If the Merger Agreement is terminated pursuant to the provision described
above in clause (e) under "Termination" ("clause (e)"), pursuant to the
provision described above in clause (f)(i) under "Termination" ("clause
(f)(i)"), pursuant to the provision described above in clause (f)(ii) under
"Termination" ("clause (f)(ii)", together with clause f(i), "clause f") or
pursuant to the provision described in clause (g) under "Termination" ("clause
(g)"), then the Breaching Party or the party whose Board of Directors has
exercised its fiduciary out or changed its recommendation or the Party whose
stock has been acquired or whose Board of Directors has changed, as the case may
be, shall promptly (but not later than five business days after notice of the
amount due is received) pay to the Terminating Party as liquidated damages an
amount equal to the out-of-pocket expenses and fees incurred by the Terminating
Party (including, without limitation, fees and expenses arising out of, in
connection with or related to the Mergers or the transactions contemplated by
the Merger Agreement) not to exceed $10 million in the aggregate ("Out-of-Pocket
Expenses"); provided that if the Merger Agreement is terminated as a result of
willful breach or failure to perform or comply with any agreements and covenants
therein, the nonbreaching party may pursue any remedies available at law or
equity in addition to the Out-of-Pocket Expenses.
If the Merger Agreement (i) is terminated by Delmarva or Atlantic pursuant
to the provision described above in clause (b) under "Termination," clause (f),
clause (e), pursuant to clause (c) under "Termination" ("clause (c)"), the
provision described above in clause (d) under "Termination," or as a result of a
party's failure to take specified action with respect to obtaining approval of
the Merger
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Agreement from its stockholders, (ii) at the time of such termination (or prior
to the meeting of such party's stockholders, in the case of a termination
resulting from a failure to take action with respect to obtaining stockholder
approval) there shall have been a third-party tender offer for shares of, or a
third-party offer or proposal with respect to a acquisition proposal involving,
Delmarva or Atlantic, as the case may be (the "Target Party") or its affiliates
that, at the time of such termination or of the meeting of such party's
stockholders, shall not have been (x) rejected by the Target Party and its Board
of Directors and (y) withdrawn by the third party and (iii) within two and
one-half years of any such termination, the Target Party or any of its
affiliates becomes a subsidiary of such offeror or a subsidiary of an affiliate
of such offeror or accepts a written offer or enters into a written agreement to
consummate or consummates an acquisition proposal with such offeror or an
affiliate thereof, then such Target Party, upon the signing of definitive
agreement or, if no agreement is signed, at the closing (as a condition of
closing) of the Target Party becoming a subsidiary or of such acquisition
proposal, then the Target Party will pay to the other party $30 million plus
Out-of-Pocket Expenses. If the Merger Agreement is terminated pursuant to clause
(g) then the nonterminating party will pay the terminating party $30 million
plus Out-of-Pocket Expenses.
In the event that termination fees are payable pursuant to the termination
provisions contained in the Merger Agreement, the aggregate amount payable to
either Delmarva or Atlantic and each of their respective affiliates will not
exceed $40 million (including Out-of-Pocket Expenses).
EXPENSES
In the Merger Agreement, the parties thereto agree that the agreements
described under "Termination Fees" are an integral part of the transactions
contemplated by the Merger Agreement and constitute liquidated damages and not a
penalty. If one party fails to pay promptly to the other any fees due
thereunder, the defaulting party will pay the costs and expenses (including
legal fees and expenses) in connection with any action, including the filing of
any lawsuit or other legal action, taken to collect payment, together with
interest on the amount of any unpaid fee at the publicly announced prime rate of
Citibank, N.A. from the date such fees are required to be paid.
Except as set forth above, all fees and expenses incurred in connection with
the Merger Agreement and the transactions contemplated thereby will be paid by
the party incurring such expenses, except that the expenses in connection with
printing and filing of this Joint Proxy Statement/Prospectus will be shared
equally by Delmarva and Atlantic.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by agreement of the respective Boards of
Directors of the parties thereto, at any time before or after the approval
thereof by the holders of Delmarva Common Stock and Atlantic Common Stock,
respectively, and prior to the Effective Time, but after such approvals, no such
amendment may be made that will (i) alter or change the amount or kind of
shares, securities or cash to be received or exchanged for or on conversion of
any class or series of capital stock of either Delmarva or Atlantic, (ii) alter
or change any of the terms or conditions of the Merger Agreement if any of the
alterations or changes, alone or in the aggregate, would adversely affect the
rights of holders of the holders of any class or series of capital stock of
Delmarva or Atlantic, or (iii) alter or change any term of the Company Charter
or the Delmarva Charter, except for alterations or changes that could otherwise
be adopted by the Company Board without the further approval of such
stockholders. At any time prior to the Effective Time, the parties to the Merger
Agreement may extend the time for the performance of any of the obligations or
other acts of the other parties thereto, waive any inaccuracies in the
representations and warranties contained therein or in any document delivered
pursuant thereto and waive compliance with any agreements or conditions to a
party's obligation to consummate the Mergers contained in the Merger Agreement.
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DESCRIPTION OF THE COMPANY'S CAPITAL STOCK
THE FOLLOWING DESCRIPTION IS QUALIFIED BY REFERENCE TO ANNEX IV TO THIS
JOINT PROXY STATEMENT/PROSPECTUS, WHICH CONTAINS THE FULL TEXT OF THE COMPANY
CHARTER, AND ANNEX V TO THIS JOINT PROXY STATEMENT/PROSPECTUS, WHICH CONTAINS
THE FULL TEXT OF THE COMPANY BYLAWS.
GENERAL
The authorized capital stock of the Company, as of the time of the
consummation of the Mergers, will consist of (i) 160 million shares of common
stock, of which 150 million shares will be designated as Company Common Stock
and 10 million shares will be designated as Class A Common Stock (the Company
Common Stock and the Class A Common Stock are referred to collectively herein as
"Common Stock"), and (ii) 20 million shares of preferred stock, par value $.01
per share ("Preferred Stock").
PREFERRED STOCK
Although the Company Charter authorizes the issuance of Preferred Stock, the
Company has no present intention to issue any Preferred Stock, and no Preferred
Stock will be outstanding at the time of the consummation of the Mergers.
Subject to any approval of the SEC that may be required under the 1935 Act, the
Company Board is authorized to divide any Preferred Stock issued by the Company
into series and, within the limitations set forth in the Company Charter or
prescribed by law, to fix and determine the relative rights and preferences of
the shares of any series so established. Such rights and preferences include the
maximum number of shares in a series, preferences as to dividends and upon
liquidation, dividend rate or rates, redemption prices and terms, sinking fund
provisions, if any, conversion rights, voting rights, restrictions on the
creation of indebtedness of the Company or on the issuance of any additional
stock ranking on a parity with or prior to the shares of such series and any
other rights or preferences as to which the DGCL permits variations between
different series of Preferred Stock.
COMMON STOCK
The authorized and unissued shares of Common Stock will be available for
issuance by the Company from time to time, as determined by the Company Board,
for any proper corporate purpose, which could include raising capital, acquiring
other companies or making investments and providing compensation or benefits to
employees. The issuance of such shares would not be subject to the approval of
the stockholders of the Company unless deemed advisable by the Company Board or
required by applicable law, regulation or stock exchange requirements. Although
the Company Charter authorizes the issuance of Class A Common Stock in addition
to the shares of Class A Common Stock to be issued pursuant to the Atlantic
Merger, the Company has no present intention to issue any shares of Class A
Common Stock following the consummation of the Mergers, and no shares of Class A
Common Stock will be outstanding at the time of the consummation of the Mergers
other than those to be issued to the holders of Atlantic Common Stock (including
those to be sold by the Exchange Agent with the proceeds being distributed to
such holders) pursuant to the Merger Agreement.
THE CLASS A COMMON STOCK, THE ATLANTIC UTILITY GROUP AND THE NOTIONAL FIXED
CHARGE. The Class A Common Stock is intended to reflect the performance of the
Atlantic Utility Group above the Notional Fixed Charge, as defined below, since
it is the intention of the Company to base the dividends on the Class A Common
Stock on such factor as well as all other relevant considerations (subject to,
and taking into consideration, the provisions relating to dividend policy set
forth in the Merger Agreement). The Company Charter defines "Atlantic Utility
Group" to include the interest of the Company at the Effective Time in ACE, and
solely those lines of business in which ACE was engaged as of August 9, 1996,
and the assets and liabilities attributable to those lines of business, and
which as of August 9, 1996 were: (a) price regulated by the NJBPU, including
without limitation off-tariff agreements; (b) directly related to the supply of
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electricity (generation and purchase of electricity) or the delivery of
electricity (transmission and distribution of electricity); and (c) a line of
business for which ACE has a franchise; provided that the Deepwater Operating
Company, a wholly owned subsidiary of ACE that operates certain generating
facilities, is specifically included in the Atlantic Utility Group. The Atlantic
Utility Group will also include certain assets and liabilities, including but
not limited to those associated with the included businesses and liabilities
under the $40 million per annum Notional Fixed Charge. Specifically excluded
without limitation from the Atlantic Utility Group are ACE's present unregulated
businesses. However, holders of the Class A Common Stock will, like the holders
of Company Common Stock, be common stockholders of the Company, will not have
any specific rights or claims against the businesses, assets and liabilities of
the Atlantic Utility Group, including upon liquidation of the Company, other
than as common stockholders of the Company and will be subject to risks
associated with an investment in the Company and all of its businesses, assets
and liabilities. See "--Certain Definitions."
The term "Company Net Income (Loss) Attributable to the Atlantic Utility
Group," as defined in the Company Charter, means the net income or loss of the
Atlantic Utility Group determined in accordance with GAAP minus the Notional
Fixed Charge plus the amount of amortization of goodwill arising from the
Atlantic Merger. See "--Certain Definitions." It is anticipated that the Class A
Common Stock will, following the Initial Period (as defined below), pay
dividends based upon the Company Net Income (Loss) Attributable to the Atlantic
Utility Group, which would include the adjustments for the Notional Fixed Charge
and amortization of goodwill arising from the Mergers. See
"--Dividends--Dividend Policies." Accordingly, the Class A Common Stock reflects
the intent of Delmarva and Atlantic to have a portion of the consideration
distributable to the holders of Atlantic Common Stock pursuant to the Atlantic
Merger provide a financial return to such holders based upon the earnings in
excess of $40 million annually (after the inclusion of amortized goodwill) of
the presently regulated businesses of Atlantic. See "Background of the Mergers."
Funds representing such earnings will not necessarily be held in any segregated
accounts of the Atlantic Utility Group.
The principal advantage of this structure is that it addresses the concerns
of the managements of both Delmarva and Atlantic and allows the respective
stockholders of Delmarva and Atlantic to gain the level of exposure to the
growth prospects of, and uncertainties associated with deregulation of, the
regulated electric utility business of Atlantic that the respective managements
have deemed advisable. The level of such exposure is reflected primarily by (i)
the amount of the Notional Fixed Charge (defined below) ($40 million), (ii) the
percentage of equity interest in the Company attributable to the Atlantic
Utility Group represented by the outstanding Class A Common Stock (30%) and
(iii) the percentages of Company Common Stock and Class A Common Stock issued to
the Atlantic stockholders (39.4% and 100%) and to the Delmarva stockholders
(60.6% and 0%). Through the ownership of 39.4% of the Company Common Stock, the
Atlantic stockholders will have the benefit of 27.6% (39.4% of 70%) of the
interest in the earnings attributable to the current regulated utility business
of ACE in excess of $40 million per year as well as a 39.4% of the interest in
the first $40 million of such earnings. Accordingly, together with the 30%
interest in such earnings represented by the Class A Common Stock, Atlantic
stockholders will retain more than half the benefits and risks related to such
business. Such exposure will be realized by the respective stockholders to the
extent that dividends on the Class A Common Stock will actually be based on, and
to the extent that the market price of the Class A Common Stock will actually
reflect, the earnings of the Atlantic Utility Group in excess of the Notional
Fixed Charge, which are subject to significant uncertainties. The principal
disadvantage of this structure is that it creates a complex capital structure
for the Company which could have an adverse effect on the trading market for the
shares of both the Class A Common Stock and the Company Common Stock. See "Risk
Factors--Risk Factors Associated with the Class A Common Stock--No Assurance as
to Market Price of Class A Common Stock" and "--Risk Factors Associated with the
Company Common Stock--No Assurance as to Market Price of Company Common Stock."
For a discussion of risk factors associated with this dual class capital
structure, see "Risk Factors--Risk Factors Associated with the Dual Class Common
Equity Structure."
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The market prices of the Class A Common Stock after the consummation of the
Mergers would be determined in the trading markets and could be influenced by
many factors, including the results of the Atlantic Utility Group, investors'
expectations for the Atlantic Utility Group, trading volumes, regulatory
environment and general economic and market conditions. There can be no
assurance as to the extent to which investors would assign values to the Class A
Common Stock based on the reported financial results or other measures of
performance or prospects of the relevant businesses. Financial effects of the
Atlantic Utility Group that affect the Company's consolidated results of
operations or financial condition could affect the market prices of the Class A
Common Stock.
THE COMPANY COMMON STOCK. The Company Common Stock will represent the
equity value of the Company that is not represented by the Class A Common Stock.
This will include (i) the value attributable to the businesses, assets and
liabilities of the Company other than those of the Atlantic Utility Group and
(ii) the value attributable to the Atlantic Utility Group that is not
represented by the outstanding shares of Class A Common Stock but is retained by
the Company through its Intergroup Interest in the Atlantic Utility Group, as
described below under "--Intergroup Interest."
DIVIDENDS--General. The holders of Common Stock will be entitled to receive
such dividends as the Company Board may from time to time declare, subject to
the rights and preferences of holders of Preferred Stock, if any. The Company's
ability to pay dividends will depend primarily upon the ability of its
subsidiaries, including Delmarva and ACE, to pay dividends or otherwise transfer
funds to it. Financing arrangements, charter provisions and regulatory
requirements may impose restrictions on the ability of the Company's
subsidiaries to transfer funds to the Company in the form of cash dividends,
loans or advances. Such charter provisions include the provisions in the
Delmarva Charter and in the ACE Charter that, respectively, preclude the payment
of dividends on Delmarva Common Stock and on ACE Common Stock if there are any
arrearages in payment of dividends on the Delmarva Preferred Stock or on the ACE
Preferred Stock, respectively. Under the 1935 Act, the SEC has the power to
preclude the payment of dividends by Delmarva and ACE to the Company or to
preclude the payment of dividends by the Company under certain circumstances.
Revenues of Delmarva's and ACE's electric utility businesses are dependent upon
rates determined in proceedings before regulatory agencies with jurisdiction
over the companies' respective electric utility rate structures. These rates are
presently set at levels that cover the utilities' cost of service to their
customers, including an equity return on the capital used in providing such
service. The weighted average allowed equity rate of return for Delmarva's
jurisdictions is approximately 11.5%. The allowed equity rate of return for
Atlantic is approximately 12.5%. Changes in regulation could result in certain
revenues being based on market rates or on other forms of price regulation. See
"Regulatory Matters--Effects of Certain Regulatory Trends." Restrictions on
electric utility rates affecting the ability of Delmarva or ACE to pay dividends
will affect the Company's ability to pay dividends on both the Company Common
Stock and the Class A Common Stock, since such restrictions will apply to actual
subsidiaries of the Company rather than to the notional Groups. To the extent
specifically applicable to the electric utility rates of ACE, such restrictions
will affect the revenues available to the Atlantic Utility Group.
Available Amounts. Dividends on the Common Stock will be limited to funds
of the Company legally available under the DGCL. The funds of the Company
legally available for dividends on both the Company Common Stock and the Class A
Common Stock will be determined on the basis of the entire Company and not on
the basis of, respectively, the Residual Group and the Atlantic Utility Group.
Consequently, the amount of funds legally available will be reduced to reflect
any net losses of either Group and any dividends on, or repurchases of, Company
Common Stock or Class A Common Stock.
The Company Charter further limits (i) dividends on the Company Common Stock
to an amount not to exceed the Residual Group Available Dividend Amount and (ii)
dividends on the Class A Common Stock to an amount not to exceed the Atlantic
Utility Group Available Dividend Amount. The Residual Group Available Dividend
Amount is intended to reflect the amount that would be legally available for the
payment of dividends on the Company Common Stock under the DGCL if the Residual
Group were a
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Delaware corporation distinct from the Atlantic Utility Group subject to the
adjustments for the Notional Fixed Charge and amortization of goodwill arising
from the Mergers (to the extent but only to the extent such goodwill would
otherwise decrease the Company Net Income Attributable to the Atlantic Utility
Group or increase the Company Net Loss Attributable to the Atlantic Utility
Group). The Atlantic Utility Group Available Dividend Amount is intended to
reflect the amount that would be legally available for the payment of dividends
on the Class A Common Stock under the DGCL if the Atlantic Utility Group were a
Delaware corporation distinct from the Residual Group subject to the adjustments
for the Notional Fixed Charge and amortization of goodwill arising from the
Mergers (to the extent but only to the extent such goodwill would otherwise
decrease the Company Net Income Attributable to the Atlantic Utility Group or
increase the Company Net Loss Attributable to the Atlantic Utility Group).
Limitations on Share Distributions. If at any time after the consummation
of the Mergers a distribution is made in Common Stock or any other securities
convertible into Common Stock or Preferred Stock (a "share distribution"), such
share distribution will be declared and made only as follows:
(i) a share distribution consisting of shares of Company Common Stock
(or securities convertible into shares of Company Common Stock) to holders
of shares of Company Common Stock or shares of Preferred Stock attributed to
the Residual Group;
(ii) a share distribution consisting of shares of Class A Common Stock
(or securities convertible into shares of Class A Common Stock) to holders
of shares of Class A Common Stock or shares of Preferred Stock attributed to
the Atlantic Utility Group; and
(iii) a share distribution consisting of shares of Class A Common Stock
(or securities convertible into shares of Class A Common Stock) to holders
of shares of Company Common Stock or shares of Preferred Stock attributed to
the Residual Group, provided that the sum of (1) the number of shares of
Class A Common Stock to be so issued (or the number of such shares that
would be issuable upon conversion of any Convertible Securities to be so
issued) and (2) the number of such shares issuable upon conversion of any
Convertible Securities then outstanding that are attributed to the Residual
Group, is less than or equal to the Number of Shares Issuable with Respect
to the Intergroup Interest.
Dividend Policies. The Merger Agreement provides, subject to declaration by
the Company Board and the obligation of the Company Board to react to the
financial condition and regulatory environment of the Company and its results of
operations, that the dividends declared and paid on the Class A Common Stock
will be maintained at a level of $3.20 per share per annum through the Initial
Period. Thereafter, it is the intention of the Company, subject to declaration
by the Company Board and the obligation of the Company Board to consider the
financial condition and regulatory environment of the Company and the results of
its operations, to pay annual dividends on the Class A Common Stock in an
aggregate amount (the amount of such dividends to include the amount credited to
the Intergroup Interest as described under "--Intergroup Interest--Adjustments
in Connection with Various Transactions--Dividends") equal to 90% of Company Net
Income Attributable to the Atlantic Utility Group. The Company Net Income
Attributable to the Atlantic Utility Group for the fiscal year ended December
31, 1995 and the 12-month period ended September 30, 1996 would have been $44.1
million and $31.8 million (I.E., $84.1 million and $71.8 million minus the $40
million Notional Fixed Charge), respectively. The Company Net Income
Attributable to the Atlantic Utility Group for these same periods would have
been $57.6 million and $49.1 million (I.E., $97.6 million and $89.1 million
minus the $40 million Notional Fixed Charge), respectively, not taking into
account the higher than expected costs associated with the Salem Nuclear
Generating Station described under "Selected Information Concerning Delmarva and
Atlantic--Salem Nuclear Generating Station" and the effects of foregone recovery
of certain fuel costs under the Southern New Jersey Economic Initiative, which
are not expected to recur, and the effect of abnormal weather. The Merger
Agreement further provides that notwithstanding the aforesaid intention with
respect to dividends on the Class A Common Stock following the Initial Period,
if and to the extent that the annual dividends paid on the Class A Common Stock
during the Initial Period (including the amount credited to the Intergroup
Interest as aforesaid) shall have exceeded 100% of Company Net Income
Attributable to the
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Atlantic Utility Group during such period, the Company Board may consider such
fact in determining the appropriate annual dividend rate on the Class A Common
Stock following the Initial Period. There can be no assurance that the Company's
earnings attributable to the Atlantic Utility Group will be sufficient to cover
dividends on the Class A Common Stock during the Initial Period. DIVIDENDS ON
THE CLASS A COMMON STOCK WILL NOT BE CUMULATIVE. In addition, Delmarva and
Atlantic presently expect the Company to pay an annual dividend of $1.54 per
share on the Company Common Stock at the time of the consummation of the
Mergers.
As an example, if in any year the Company Board determines to pay dividends
on the Class A Stock equal to 90% of the Company Net Income Attributable to the
Atlantic Utility Group, assuming Net Income Attributable to the Atlantic Utility
Group of $100 million, the aggregate amount of dividends payable to holders of
the outstanding Class A Common Stock would equal $16.2 million, calculated as
follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Net Income of Atlantic Utility Group (Assumed):.................................. $ 100.0
Notional Fixed Charge............................................................ (40.0)
------
Company Net Income Attributable to the Atlantic Utility Group.................... $ 60.0
After 70% Intergroup Interest.................................................... $ 18.0
Dividends Payable to Holders of Class A Common Stock............................. $ 16.2
</TABLE>
The financial results of the Atlantic Utility Group will be substantially
identical to the financial results of ACE. Since ACE will remain a registrant
following the Mergers, because of securities of ACE held by the public, goodwill
resulting from the Mergers will not be pushed down to ACE's balance sheet and
amortization of goodwill will not reduce ACE's net income. Therefore,
amortization of goodwill resulting from the Mergers is not included in Net
Income of Atlantic Utility Group above. See Note (o) to the Unaudited Pro Forma
Combined Financial Statements for examples of the computation of Earnings
Applicable to Class A Common Stock.
The policies described above have been agreed to by Delmarva and Atlantic,
but are not contained within the Company Charter, which is the instrument that
establishes the terms of the Common Stock. Pursuant to the Merger Agreement,
following the Effective Time the Audit Committee of the Company Board will be
charged with the responsibility of advising the Company Board with respect to
certain intercompany transactions and other fiduciary matters that may relate to
the Class A Common Stock. Subject to the limitations described under
"--General," "--Available Amounts" and "--Limitations on Share Distributions,"
the Company Charter provides to the Company Board the authority and discretion
to declare and pay dividends exclusively on the Company Common Stock,
exclusively on the Class A Common Stock or on both classes of Common Stock
notwithstanding the relative amounts of the Residual Group Available Dividend
Amount and the Atlantic Utility Group Available Dividend Amount, the amount of
dividends previously declared on each class, the respective voting or
liquidation rights of each class, the aforesaid dividend policies or any other
factor. The Company Charter does not require the declaration or payment of any
dividends on the Company Common Stock or on the Class A Common Stock and
establishes no priority or preference in favor of either security with respect
to the other or with respect to any other security the Company may issue. In
addition, any net losses of either Group, dividends or distributions on, or
repurchases of, the Company Common Stock or the Class A Common Stock, and
dividends on, or certain repurchases of, preferred stock, will reduce funds of
the Company legally available for the payment of dividends on both the Company
Common Stock and the Class A Common Stock.
INTERGROUP INTEREST
THE OUTSTANDING ATLANTIC UTILITY FRACTION AND THE INTERGROUP INTEREST
FRACTION. The Class A Common Stock to be issued to the holders of Atlantic
Common Stock upon the consummation of the Mergers will at the time of such
consummation represent 30% of the equity value attributable to the Atlantic
Utility Group, including a proportionate undivided interest in the individual
businesses, assets and liabilities
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thereof. This proportion is expressed in the "Outstanding Atlantic Utility
Fraction," which is defined to mean the percentage interest in the equity value
of the Company attributable to the Atlantic Utility Group that is represented at
any time by the outstanding shares of Class A Common Stock. The remainder of the
equity value of the Company attributable to the Atlantic Utility Group will be
retained by the Company through its "Intergroup Interest" in the Atlantic
Utility Group, which upon consummation of the Mergers will represent the
balance, or 70%, of the equity value of the Company so attributable. This
proportion is expressed in the "Intergroup Interest Fraction," which is defined
to mean the percentage interest in the equity value of the Company so
attributable that is attributed to the Company. Following the Mergers the
Intergroup Interest will be subject to increase or decrease under the
circumstances specified in the Company Charter for adjusting the Number of
Shares Issuable with Respect to the Intergroup Interest. The sum of the
Outstanding Atlantic Utility Fraction and the Intergroup Interest Fraction will
always equal 100%. See "--Certain Definitions."
NUMBER OF SHARES ISSUABLE WITH RESPECT TO THE INTERGROUP INTEREST. The term
"Number of Shares Issuable with Respect to the Intergroup Interest" refers to
the number of shares of Class A Common Stock that could be issued or sold by the
Company for the account of the Company in respect of the Intergroup Interest.
See "--Certain Definitions." The Number of Shares Issuable with Respect to the
Intergroup Interest will not be represented by outstanding shares of Class A
Common Stock and accordingly, the Company will not be entitled to any voting
rights in respect of the Intergroup Interest. In addition, outstanding shares of
Class A Common Stock that are held by majority-owned subsidiaries of the Company
(as to which the Company owns a majority of the shares entitled to vote in the
election of directors) will not be entitled to vote on matters presented to
stockholders or be counted for quorum purposes under the DGCL. Accordingly, the
outcome of any vote of the Class A Common Stock will be determined by the
holders of the outstanding shares of Class A Common Stock (excluding any shares
held by such majority-owned subsidiaries of the Company).
For financial reporting purposes, shares of Class A Common Stock acquired by
consolidated subsidiaries of the Company that remain outstanding following such
acquisition would be combined with the Number of Shares Issuable with Respect to
the Intergroup Interest and reported as the Company's investment in the Atlantic
Utility Group. Any differences between such reported investment and the then
existing Intergroup Interest would be reconcilable by adding to the then
existing Intergroup Interest the number of outstanding shares of Class A Common
Stock held by consolidated subsidiaries of the Company. Since these shares would
still be outstanding for purposes of the receipt of dividends and payment of
redemption or liquidation amounts, the Company would obtain substantially the
same economic benefits from such outstanding shares as it would have received
had such shares been retired or otherwise ceased to be outstanding following
their purchase and added to the Number of Shares Issuable with Respect to the
Intergroup Interest.
ADJUSTMENTS IN CONNECTION WITH VARIOUS TRANSACTIONS. Following the
consummation of the Mergers, adjustments will be made in the Outstanding
Atlantic Utility Fraction, the Intergroup Interest Fraction, the financial
statements for the Groups, and/or the Number of Shares Issuable with Respect to
the Intergroup Interest in a variety of transactional contexts. The following
transactions are illustrative only and not indicative of any plans with respect
to the Company following the consummation of the Mergers.
Dividends. Except as described below, from and after the payment of any
dividend or other distribution to the holders of outstanding shares of Class A
Common Stock, the Residual Group will be credited, and the Atlantic Utility
Group will be charged (in addition to the charge to the Atlantic Utility Group
for the amounts distributed to such holders), an amount equal to the product of
(i) the aggregate amount distributed in respect of the outstanding Class A
Common Stock times (ii) a fraction (for purposes of this and the following
paragraph, the "Fraction") the numerator of which is the Intergroup Interest
Fraction and the denominator of which is the Outstanding Atlantic Utility
Fraction. At the consummation of the Mergers, the Fraction will equal 2 1/3. As
the Fraction increases or decreases as a consequence of an increase or decrease
in the Intergroup Interest Fraction, the proportionate credit to the Residual
Group
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and proportionate charge to the Atlantic Utility Group for an amount distributed
to the holders of outstanding shares of Class A Common Stock will be increased
or decreased accordingly. In the event the Atlantic Utility Group did not effect
an actual cash payment to the Company in the amount of such credit and charge
when a dividend is paid on the Class A Common Stock, the Company may account for
the credit and charge in a number of possible manners. For instance, the Company
could reduce the capital of the Atlantic Utility Group to the extent of the
amount of such credit and charge. Alternatively, the Company could treat the
amount effectively as a loan from the Residual Group to the Atlantic Utility
Group, on which interest would be payable. The Company could also adjust for the
credit and the charge by reducing the Outstanding Atlantic Utility Fraction and
increasing the Intergroup Interest Fraction.
In the case of a distribution payable in shares of Class A Common Stock, an
appropriate adjustment, as determined by the Company Board, will be made in the
Number of Shares Issuable with Respect to the Intergroup Interest. In the case
of a distribution payable in securities of the Company attributed to the
Atlantic Utility Group, the Residual Group will be deemed to hold an interest in
the Atlantic Utility Group in the form of such securities in an amount equal to
the product of the number of securities so distributed times the Fraction. For
certain further adjustments with respect to distributed securities, see the
Company Charter's definition of "Residual Group" as set forth under "--Certain
Definitions."
See Annex VI for illustrations of the effect of dividends payable in Class A
Common Stock and of the calculation of the proportionate credits and charges to
the Residual Group and the Atlantic Utility Group, respectively, to be made in
connection with the payment of dividends and other distributions on outstanding
shares of Class A Common Stock.
Contributions to Atlantic Utility Group. The Company Board could, in its
sole discretion, determine from time to time to contribute cash or other
property of the Residual Group as additional equity to the Atlantic Utility
Group and increase the Number of Shares Issuable with Respect to the Intergroup
Interest by the number determined by dividing the amount of such cash or the
fair value (as determined by the Company Board) of such property by the Market
Value of one share of Class A Common Stock as of the date of such contribution.
In such event, the Intergroup Interest Fraction would increase and the
Outstanding Atlantic Utility Fraction would decrease accordingly. The Company
Board could, in its sole discretion, also determine from time to time to
transfer cash or other property of the Atlantic Utility Group from the Atlantic
Utility Group to the Residual Group in respect of a reduction in the Intergroup
Interest, and the Number of Shares Issuable with Respect to the Intergroup
Interest would be decreased by the amount of such cash or the fair value (as
determined by the Company Board) of such property divided by the Market Value of
one share of Class A Common Stock as of the date of such contribution. In such
event, the Intergroup Interest Fraction would decrease and the Outstanding
Atlantic Utility Fraction would increase accordingly. The Company Board could,
in its sole discretion, determine to make contributions or other transfers
referred to in this paragraph.
Repurchases of Class A Common Stock. If shares of Class A Common Stock were
retired or otherwise ceased to be outstanding following their repurchase with
funds attributed to the Residual Group the Number of Shares Issuable with
Respect to the Intergroup Interest would increase on a share-for-share basis and
the Intergroup Interest Fraction would increase and the Outstanding Atlantic
Utility Fraction would decrease accordingly. If the purchase of shares of Class
A Common Stock were attributed to the Atlantic Utility Group, the Number of
Shares Issuable with Respect to the Intergroup Interest would remain the same
but the Intergroup Interest Fraction would increase and the Outstanding Atlantic
Utility Fraction would decrease. The Company Board would, in its sole
discretion, determine whether purchases of Class A Common Stock should be made
with consideration attributed to the Residual Group or the Atlantic Utility
Group on the basis of such factors as it deems relevant.
Issuances of Class A Common Stock. Although the Company has no present
intention to issue any shares of Class A Common Stock following the issuance of
shares of Class A Common Stock to the holders of Atlantic Common Stock pursuant
to the Atlantic Merger, the authorized shares of Class A Common Stock in excess
of the total number of shares outstanding will be available for issuance or sale
without
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<PAGE>
further approval by the stockholders of the Company and may be issued at any
time at prices that could dilute the value of the outstanding shares of Class A
Common Stock. In the event that shares of Class A Common Stock are issued or
sold by the Company following the consummation of the Mergers, the Company will
identify (i) the number of shares of Class A Common Stock issued or sold for the
account of the Residual Group in respect of a reduction in the Intergroup
Interest, the net proceeds from the sale of which would be reflected in the
combined financial statements of the Residual Group, and (ii) the number of such
shares issued or sold for the account of the Atlantic Utility Group as an
additional equity interest in the Atlantic Utility Group, the net proceeds of
which will be reflected in the combined financial statements of the Atlantic
Utility Group. The Company Board would make such determination, in its sole
discretion, after consideration of such factors as it deems relevant. In the
event that, following the consummation of the Mergers, additional shares of
Class A Common Stock were issued or sold by the Company for the account of the
Residual Group in respect of a reduction in the Intergroup Interest, the Number
of Shares Issuable with Respect to the Intergroup Interest would decrease on a
share-for-share basis, and the Intergroup Interest Fraction would decrease and
the Outstanding Atlantic Utility Fraction increase accordingly. If the Number of
Shares Issuable with Respect to the Intergroup Interest were reduced to zero as
a result of such issuances, shares of Class A Common Stock could no longer be
issued or sold by the Company for the account of the Residual Group unless an
Intergroup Interest were again subsequently created. If the net proceeds of any
issuance or sale by the Company of Class A Common Stock were allocated to the
Atlantic Utility Group, the Number of Shares Issuable with respect to the
Intergroup Interest would not be reduced, but the Intergroup Interest Fraction
would decrease and the Outstanding Atlantic Utility Fraction would increase
accordingly.
Although the Company has no present intention to do so, if the Company Board
determined to issue or deliver shares of Class A Common Stock as a distribution
on the Company Common Stock, such distribution would be treated as a
distribution of shares issuable with respect to the Intergroup Interest and, as
a result, the Number of Shares Issuable with Respect to the Intergroup Interest
would decrease by the number of shares distributed to the holders of Company
Common Stock, resulting in a proportionate decrease in the Intergroup Interest
Fraction and increase in the Outstanding Atlantic Utility Fraction.
See Annex VI for illustrations of the calculation of the Outstanding
Atlantic Utility Fraction, the Intergroup Interest Fraction and the Number of
Shares Issuable with Respect to the Intergroup Interest in connection with the
aforesaid transactions.
CONVERSION AND REDEMPTION OF THE CLASS A COMMON STOCK
CONVERSION AT THE OPTION OF THE COMPANY. The Company may at any time
convert each share of Class A Common Stock into the number of shares of Company
Common Stock equal to the applicable percentage, on the date of such conversion,
set forth below of the Market Value Ratio (as defined in the Company Charter;
see "--Certain Definitions") of the Class A Common Stock to the Company Common
Stock as of the fifth Trading Day prior to the date of the notice of such
conversion:
<TABLE>
<CAPTION>
12-MONTH PERIOD PRIOR TO
THE APPLICABLE ANNIVERSARY PERCENTAGE OF
OF THE EFFECTIVE DATE MARKET VALUE RATIO
---------------------------- ---------------------
<S> <C>
First............................................................. 125%
Second............................................................ 120%
Third............................................................. 115%
Fourth and Thereafter............................................. 110%
</TABLE>
Any such conversion would dilute the interests of holders of Company Common
Stock and would preclude holders of Class A Common Stock from retaining their
interest in a security reflecting separately the business of the Atlantic
Utility Group.
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REDEMPTION OR CONVERSION FOLLOWING A TENDER OR EXCHANGE OFFER. If the
Company consummates (i) a tender offer for all of the Class A Common Stock at an
all cash price of at least 110% of the Time-Weighted Market Price (as defined in
the Company Charter; see "--Certain Definitions") of a share of Class A Common
Stock as of the Trading Day immediately preceding the date of such offer or (ii)
an offer to exchange each share of Class A Common Stock into a number of shares
of Company Common Stock equal to at least 110% of the Market Value Ratio of the
Class A Common Stock to the Company Common Stock as of the Trading Day
immediately preceding the date of such offer, that, in either case, is accepted
by the holders of more than 50% of the Class A Common Stock, the Company may
either (x) (if funds are legally available therefor) redeem each share of Class
A Common Stock remaining outstanding in exchange for cash in an amount equal to
the highest cash price paid per share by the Company pursuant to such tender
offer or to the product of the highest number of shares of Company Common Stock
per share issued in exchange for any share of Class A Common Stock pursuant to
such exchange offer and the Time-Weighted Market Price of a share of Company
Common Stock as of the Trading Day immediately preceding the date of such
exchange offer, as the case may be, or (y) convert each share of Class A Common
Stock remaining outstanding into a number of shares of Company Common Stock
equal to (1) the quotient of (A) the highest cash price paid per share by the
Company pursuant to such tender offer and (B) the Time-Weighted Market Price of
a share of Company Common Stock as of the Trading Day immediately preceding the
date of the notice of such conversion or to (2) the highest number of shares of
Company Common Stock per share issued in exchange for any share of Class A
Common Stock pursuant to any such exchange offer.
If any person (including the Company) consummates a tender offer for all of
the outstanding shares of Company Common Stock at an all cash price that is
accepted by the holders of more than 50% of the Company Common Stock, the
Company may either (x) redeem each share of Class A Common Stock for cash in an
amount equal to the product of (1) the highest cash price paid per share by such
person pursuant to such tender offer and (2) the Market Value Ratio of the Class
A Common Stock to the Company Common Stock as of the fifth Trading Day prior to
the date of such tender offer or (y) convert each share of Class A Common Stock
into a number of shares of Company Common Stock equal to the quotient of (A) the
highest cash price paid per share by such person pursuant to such tender offer
and the Time-Weighted Market Price of a share of Company Common Stock as of the
Trading Day immediately preceding the date of the notice of such conversion.
PARTICIPATION IN A TENDER OFFER. If any person (including the Company)
makes a tender offer to purchase shares of Company Common Stock for cash,
property or other securities, any holder of Class A Common Stock may elect to
convert each and any of such holder's shares of Class A Common Stock into the
number of shares of Company Common Stock equal to 100% of the Market Value Ratio
of the Class A Common Stock to the Company Common Stock as of the Trading Day
immediately preceding the date of such tender offer; provided that (x) any such
election may be revoked by notice to the Company prior to the consummation of
such tender offer, and (y) such conversion will only be effective with respect
to such shares of Company Common Stock issuable upon such conversion that are
accepted for purchase pursuant to such tender offer.
DIVIDEND, REDEMPTION OR CONVERSION UPON DISPOSITION OF ALL OR SUBSTANTIALLY
ALL ASSETS OF THE ATLANTIC UTILITY GROUP. Upon the Disposition, in one
transaction or a series of related transactions, by the Company and/or its
subsidiaries of all or substantially all of the properties and assets of the
Atlantic Utility Group to one or more entities (other than (i) in connection
with the liquidation, dissolution or winding up of the Company, (ii) the
distribution of the properties and assets of the Atlantic Utility Group to all
holders of shares of Class A Common Stock and to the Company or subsidiaries
thereof, divided among such holders and the Company or subsidiaries thereof on a
pro rata basis in accordance with the number of shares of Class A Common Stock
outstanding and the Number of Shares Issuable with Respect to the Intergroup
Interest, (iii) to any entity controlled by the Company or (iv) in connection
with a Related
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Business Transaction (as defined in the Company Charter; see "--Certain
Definitions")), the Company will, within 85 Trading Days following such
Disposition either:
(I) (a) if there are assets of the Company legally available therefor
and the Atlantic Utility Group Available Dividend Amount is sufficient
therefor, pay to the holders of Class A Common Stock a dividend in cash
and/or in securities (other than Common Stock) or other property having an
aggregate Fair Value (as defined in the Company Charter; see "--Certain
Definitions") as of the date of such Disposition equal to the product of (x)
the Outstanding Atlantic Utility Fraction as of the record date for
determining holders entitled to receive such dividend times (y) the Fair
Value of the Net Proceeds of such Disposition; or
(b) subject to the Atlantic Utility Group Available Dividend Amount and
other limitations as set forth in the Company Charter, if such Disposition
involves all (and not merely substantially all) of the properties and assets
attributed to the Atlantic Utility Group, redeem all of the Class A Common
Stock for cash and/or for securities (other than Common Stock) or other
property having a Fair Value as of the date of such Disposition equal to the
product of (x) the Outstanding Atlantic Utility Fraction as of the date of
such redemption times (y) the Fair Value of the Net Proceeds of such
Disposition; or
(c) subject to the Atlantic Utility Group Available Dividend Amount and
other limitations as set forth in the Company Charter, if such Disposition
involves substantially all (but not all) of the properties and assets
attributed to the Atlantic Utility Group, redeem the number of whole shares
of Class A Common Stock (which may be all of such shares outstanding) whose
aggregate average Market Value during the ten Trading Days beginning on the
16th Trading Day immediately succeeding such Disposition is closest to the
product of (x) the Outstanding Atlantic Utility Fraction as of the date such
shares are selected for redemption times (y) the Fair Value, as of the date
of such Disposition, of the Net Proceeds of such Disposition in
consideration for cash and/or securities (other than Company Common Stock)
or other property having a Fair Value in the aggregate equal to such
product; or
(II) convert each share of Class A Common Stock into a number of shares
of Company Common Stock equal to 110% of the ratio of the average Market
Value of one share of Class A Common Stock over the ten Trading Days
beginning on the 16th Trading Day following the date of such Disposition to
the average Market Value of one share of Company Common Stock over the same
ten Trading Day period.
The Company Charter defines "substantially all of the properties and assets
of the Atlantic Utility Group" to mean a portion of such properties and assets
(x) that represents at least 80% of the Fair Value of the properties and assets
attributed to the Atlantic Utility Group as of such date or (y) from which were
derived at least 80% of the aggregate revenues for the immediately preceding
twelve fiscal quarterly periods of the Company (calculated on a pro forma basis
to include revenues derived from any of such properties and assets acquired
during such period) derived from the properties and assets of the Atlantic
Utility Group as of such date.
In the event of a dividend or redemption as described in the preceding
clause (I), the Company Board may convert the remaining Class A Common Stock
prior to the first anniversary of such dividend or such redemption, as the case
may be, into a number of shares of Company Common Stock equal to 110% of the
Market Value Ratio of the Class A Common Stock to the Company Common Stock as of
the 5th Trading Day prior to the date of the notice of such conversion.
See Annex VI for illustrations of certain calculations in connection with a
Disposition of all or substantially all of the properties and assets of the
Atlantic Utility Group.
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NOTICE AND OTHER PROVISIONS WITH RESPECT TO CONVERSION AND REDEMPTION OF THE
CLASS A COMMON STOCK
NOTICE FOLLOWING AN OPTIONAL CONVERSION. If the Company determines to
convert the Class A Common Stock into Company Common Stock pursuant to the
provisions described under "--Conversion and Redemption of the Class A Common
Stock--Conversion at the Option of the Company" or "--Conversion and Redemption
of the Class A Common Stock--Redemption or Conversion Following a Tender or
Exchange Offer" or pursuant to the provisions described in clause (II) under
"--Dividend, Redemption or Conversion upon Disposition of All or Substantially
All Assets of the Atlantic Utility Group," the Company, will within 35 to 45
Trading Days prior to the conversion date, furnish certain information to each
holder of Class A Common Stock and of securities convertible into shares of
Class A Common Stock, including the conversion date (which, in the case of a
conversion after a Disposition, shall not be more than 85 Trading Days following
the consummation of such Disposition and, in the case of a conversion following
a tender or exchange offer, shall not be less than 35 or more than 85 Trading
Days following the consummation of such offer), the number of shares of Company
Common Stock into which each share of Class A Common Stock will be converted and
the number of shares of Class A Common Stock outstanding and covered by
outstanding Convertible Securities.
NOTICE FOLLOWING A DISPOSITION OF ALL OR SUBSTANTIALLY ALL OF THE ATLANTIC
UTILITY GROUP ASSETS. The Company Charter provides that not later than the 10th
Trading Day following a Disposition referred to above under "--Conversion and
Redemption of the Class A Common Stock--Dividend, Redemption or Conversion upon
Disposition of All or Substantially All Assets of the Atlantic Utility Group,"
the Company will publicly announce (i) the Net Proceeds of such Disposition,
(ii) the number of outstanding shares of Class A Common Stock, (iii) the number
of outstanding shares of Class A Common Stock into or for which Convertible
Securities are then convertible and the conversion price thereof and (iv) the
Outstanding Atlantic Utility Fraction on the date of such notice. Not earlier
than the 26th Trading Day following such Disposition, the Company will announce
publicly by press release which of the actions described under "--Conversion and
Redemption of the Class A Common Stock--Dividend, Redemption or Conversion upon
Disposition of All or Substantially All Assets of the Atlantic Utility Group" it
has determined to take. If the Company determines to pay a dividend on shares of
Class A Common Stock, the Company will, within 30 Trading Days following such
Disposition, furnish certain information to each holder of Class A Common Stock
and each holder of securities convertible into shares of Class A Common Stock,
including the record date and anticipated payment date for such dividend (which
shall not be more than 85 Trading Days following the consummation of such
Disposition), the type of property to be distributed, the Net Proceeds of the
Disposition, the applicable Outstanding Atlantic Utility Fraction and the number
of shares of Class A Common Stock outstanding and covered by outstanding
Convertible Securities. If the Company determines to undertake a redemption of
shares of Class A Common Stock, the Company will, between 35 and 45 Trading Days
prior to the date of redemption, furnish certain information to each holder of
Class A Common Stock and each holder of securities convertible into shares of
Class A Common Stock, including notice of the redemption, the anticipated
redemption date (which shall not be more than 85 Trading Days following the
consummation of such Disposition), the type of property in which the redemption
price is to be paid, the Net Proceeds of the Disposition, the applicable
Outstanding Atlantic Utility Fraction and the number of shares of Class A Common
Stock outstanding and covered by outstanding Convertible Securities. If the
Company determines to undertake a redemption of shares of Class A Common Stock
following a Disposition of substantially all (but not all) of the properties and
assets of the Atlantic Utility Group, the Company will within 30 Trading Days
following such Disposition furnish certain information to each holder of Class A
Common Stock and each holder of securities convertible into shares of Class A
Common Stock, including the anticipated redemption date (which shall not be more
than 85 Trading Days following the consummation of such Disposition), the type
of property in which the redemption price is to be paid, the Net Proceeds of
such Disposition, the
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applicable Outstanding Atlantic Utility Fraction and the number of shares of
Class A Common Stock outstanding and covered by outstanding Convertible
Securities.
NOTICE FOLLOWING CONSUMMATION OF A TENDER OR EXCHANGE OFFER. If the Company
determines to redeem Class A Common Stock following consummation of a tender or
exchange offer as described under "--Conversion and Redemption of Class A Common
Stock--Redemption or Conversion Following a Tender or Exchange Offer," the
Company will within 35 to 45 Trading Days prior to the redemption date furnish
certain information to each holder of shares of Class A Common Stock and of
securities convertible into shares of Class A Common Stock, including the
redemption date (which shall not be less than 35 or more than 85 Trading Days
following the consummation of the tender or exchange offer), the redemption
price and the number of shares of Class A Common Stock outstanding and covered
by outstanding convertible securities.
VALIDITY NOT AFFECTED. Neither the failure to mail any notice to any
particular holder of Class A Common Stock or of convertible securities nor any
defect therein will affect the sufficiency thereof with respect to any other
holder of outstanding shares of Class A Common Stock or of convertible
securities or the validity of any conversion or redemption.
NO FRACTIONAL SHARES REQUIRED. The Company will not be required to issue or
deliver fractional shares of any class of capital stock or any other securities
to any holder of Class A Common Stock upon any conversion, redemption, dividend
or other distribution. If more than one share of Class A Common Stock will be
held at the same time by the same holder, the Company may aggregate the number
of shares of any capital stock that shall be issuable or any other securities or
property distributable to such holder upon any conversion, redemption, dividend
or other distribution (including any fractional shares). If fractional shares of
any capital stock or of any other securities are otherwise required to be issued
or distributed to holders of Class A Common Stock, the Company will, if such
fractional shares are not issued or distributed to the holder, pay cash in
respect of such fractional shares in an amount equal to the Fair Value thereof
on the 5th Trading Day prior to the date such payment is to be made (without
interest).
SELECTION OF SECURITIES IN A PARTIAL REDEMPTION. If less than all of the
outstanding shares of Class A Common Stock are to be redeemed in connection with
a Disposition of substantially all (but less than all) of the assets of Atlantic
Utility Group, the shares to be redeemed by the Company will be selected on a
pro rata basis or by lot or by such other method as the Company Board may
determine to be equitable.
NO DIVIDEND ADJUSTMENTS. No adjustments in respect of dividends may be made
upon the conversion or redemption of any shares of Class A Common Stock, but if
the date of any such conversion or redemption is subsequent to the record date
for the payment of a dividend or other distribution, the holders of shares of
Class A Common Stock at the close of business on such record date will be
entitled to receive such distribution without interest, notwithstanding the
subsequent conversion or redemption of such shares.
EFFECT OF CONVERSION OR REDEMPTION ON RIGHTS. From and after any applicable
conversion or redemption date, all rights of a holder of shares of Class A
Common Stock that were converted or redeemed will cease except for the right,
upon surrender of the certificates representing such shares, to receive cash
and/ or certificates or instruments representing shares of the kind of capital
stock and/or other securities or property for which such shares were converted
or redeemed, together with any payment in respect of fractional shares and
rights to dividends, in each case without interest. No holder of a certificate
that immediately prior to the applicable conversion date represented shares of
Class A Common Stock will be entitled to receive any distribution or interest
payment with respect to shares of any kind of capital stock or other security or
instrument for which Class A Common Stock was converted until the surrender of
such certificate in exchange for a certificate or instrument representing such
capital stock or other security. Upon such surrender, there will be paid to the
holder the amount of any distributions (without interest) that theretofore
became payable on any class of capital stock of the Company as of a record date
after the
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conversion date, but that were not paid by reason of the foregoing, with respect
to the number of whole shares of the kind of capital stock represented by the
certificate or certificates issued upon such surrender. From and after a
conversion date, the Company will, however, be entitled to treat the
certificates for Class A Common Stock that have not yet been surrendered for
conversion as evidencing the ownership of the number of whole shares of the kind
or kinds of capital stock of the Company for which the shares of Class A Common
Stock represented by such certificates shall have been converted,
notwithstanding the failure to surrender such certificates.
DOCUMENTARY AND STAMP TAXES. The Company will pay all documentary, stamp or
similar issue or transfer taxes in respect of the issuance or delivery of any
shares of capital stock and/or other securities upon conversion or redemption of
shares of Class A Common Stock. The Company will not, however, be required to
pay any tax in a name other than that in which the shares of Class A Common
Stock so converted or redeemed were registered, and no issuance or delivery will
be made unless the person requesting such issuance or delivery has paid to the
Company the amount of any such tax or has established to the satisfaction of the
Company that such tax has been paid.
BOARD DISCRETION. The Company Board may establish such rules and
requirements to facilitate the effectuation of the aforementioned transactions
as it determines to be appropriate.
ALLOCATION OF CONSIDERATION BETWEEN THE COMPANY COMMON STOCK AND THE CLASS A
COMMON STOCK IN A SUBSEQUENT MERGER OR CONSOLIDATION
In the event of a merger or consolidation to which the Company is a party
and pursuant to which the holders of Common Stock are entitled to receive
consideration or shares of Common Stock are converted into securities or other
consideration, the holders of outstanding shares of Class A Common Stock will be
entitled to receive in exchange for each such share, or to have each such share
converted into, the consideration attributable pursuant to such merger or
consolidation to the number of shares of Company Common Stock equal to the
Market Value Ratio of the Class A Common Stock to the Company Common Stock as of
the Trading Day immediately preceding the date of the first public announcement
of such merger or consolidation subject to adjustments for stock splits and
combinations and stock dividends.
VOTING
Holders of Company Common Stock and holders of Class A Common Stock will
each be entitled to one vote per share on all matters submitted to a vote at a
meeting of stockholders, subject to the rights, if any, of holders of Preferred
Stock to vote on a matter as a class or series. Based on the shares of Delmarva
Common Stock and Atlantic Common Stock outstanding as of the close of business
on September 30, 1996, the Company Common Stock would represent approximately
94.2%, and the Class A Common Stock would represent approximately 5.8%, of the
voting power of all classes entitled to vote on matters presented to
stockholders. The holders of Common Stock will not be entitled to cumulative
votes for the election of directors. Except as may otherwise be required by the
laws of the State of Delaware, the holders of Company Common Stock and the
holders of Class A Common Stock will vote as one class for all purposes. Neither
the holders of Company Common Stock nor the holders of Class A Common Stock will
have any rights to vote as a separate class on any matters submitted to a vote
at a meeting of stockholders except with respect to certain limited class voting
rights provided under the DGCL. Under the DGCL, the approval of the holders of a
majority of the outstanding shares of any class of capital stock of a
corporation, voting separately as a class, is required to approve any amendment
to the certificate of incorporation of the corporation that would alter or
change the powers, preferences or special rights of the class so as to affect it
adversely. The DGCL does not provide for any other separate voting rights of a
class of capital stock (other than with respect to a change in par value or an
increase or decrease in the authorized shares of such class).
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LIQUIDATION RIGHTS
In the event of a liquidation, dissolution of winding up of the Company,
whether voluntary or involuntary, after payment or provision for payment of the
debts and other liabilities of the Company and subject to the prior payment in
full of the preferential amounts to which the Preferred Stock, if any, is
entitled, the holders of the outstanding shares of Common Stock will be entitled
to receive the remaining assets of the Company, regardless of the Group to which
such assets are attributed, divided among the holders of Common Stock in
accordance with the per share "Liquidation Units" attributable to each class of
Common Stock. Each share of Company Common Stock will be attributed one
Liquidation Unit and each share of Class A Common Stock will be attributed one
Liquidation Unit, in the case of each such class of Common Stock subject to
adjustment as determined by the Company Board to be appropriate to reflect any
subdivision (by stock split or otherwise) or combination (by reverse stock split
or otherwise) of such class of Common Stock or any dividend or other
distribution of shares of such class of Common Stock to holders of shares of
such class of Common Stock. Neither the merger nor consolidation of the Company
into or with any other company, nor the merger or consolidation of any other
company into or with the Company, nor a sale, transfer or lease of all or any
part of the assets of the Company, will be deemed a liquidation or winding up of
the Company, or cause the dissolution of the Company, for liquidation rights
purposes.
DETERMINATIONS BY THE COMPANY BOARD
The Company Charter will provide that any determination made by the Company
Board under any provisions of the Company Charter governing the capital stock of
the Company, and any determinations so made with respect to either Group or the
rights of the holders of any class of Common Stock made pursuant to or in
furtherance of such provisions, will be final and binding on all stockholders.
Such a determination is subject to applicable law and the fiduciary duty of the
Company Board. See "Risk Factors--Fiduciary Duties of the Company Board Are to
All Stockholders Regardless of Class."
NO PREEMPTIVE RIGHTS
The holders of the Common Stock will not have any preemptive rights to
subscribe for any additional shares of Common Stock or Preferred Stock or other
obligations convertible into shares of Common Stock or Preferred Stock that may
be issued following the consummation of the Mergers.
CERTAIN DEFINITIONS
"ATLANTIC UTILITY GROUP" means, as of any date from and after the Effective
Date:
(A) the interest of the Company on such date in ACE, and any successor
companies, and solely those lines of business in which ACE was engaged as of
August 9, 1996, and the assets and liabilities attributable to those lines
of business, and which meet all of the criteria listed in clause (i) below,
as of August 9, 1996, specifically excluding those businesses, lines of
business, and products and services listed in clause (ii) below, and
specifically including those businesses, lines of business and products and
services listed in clause (iii) below:
(i) only those businesses meeting all of the following criteria as
of August 9, 1996 shall be included in the Atlantic Utility Group: (a)
price regulated by the NJBPU, including, without limitation, off-tariff
agreements; (b) directly related to the supply of electricity (generation
and purchase of electricity) or the delivery of electricity (transmission
and distribution of electricity); and (c) a line of business for which
ACE has a franchise;
(ii) specifically excluded from the Atlantic Utility Group are the
following businesses, lines of business and products and services, which
list is not intended to be inclusive: (a) Appliance Shield program, (b)
lighting upgrade programs, (c) water heater service business, (d)
thermostat
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sales, (e) telecommunications business and investments, (f) energy
services and consulting, (g) utility services and consulting (E.G., plant
services and electrical equipment O&M services), (h) Atlantic Energy
International, and (i) Atlantic Energy Enterprises and its subsidiaries;
(iii) specifically included in the Atlantic Utility Group is the
Deepwater Operating Company.
(B) all assets and liabilities of the Company and its subsidiaries
(other than capital stock of a subsidiary) and liabilities relating to the
notional obligation of the Atlantic Utility Group to the Residual Group
described in clause (iii) of the definition of Company Net Income (Loss)
Attributable to the Atlantic Utility Group on such date attributed by the
Company Board to ACE or the businesses thereof, whether or not such assets
or liabilities are or were also assets and liabilities of ACE, including,
without limitation, the assets and liabilities as of the Effective Date
specified in the schedules filed with the records of the actions of the
Company Board (a copy of which shall be made available to any stockholder of
the Company upon written request therefor);
(C) all properties and assets transferred to the Atlantic Utility Group
from the Residual Group (other than a transaction pursuant to paragraph (D)
of this definition) after the Effective Date pursuant to transactions in the
ordinary course of business of both the Residual Group and the Atlantic
Utility Group or otherwise as the Company Board may have directed as
permitted by the applicable provisions of the Company Charter;
(D) all properties and assets transferred to the Atlantic Utility Group
from the Residual Group in connection with an increase in the Number of
Shares Issuable with Respect to the Intergroup Interest; and
(E) the interest of the Company or any of its subsidiaries in any
business or asset acquired and any liabilities assumed by the Company or any
of its subsidiaries outside of the ordinary course of business and
attributed to the Atlantic Utility Group, as determined by the Company
Board;
provided that (1) from and after the payment date of any dividend or other
distribution with respect to shares of Class A Common Stock (other than a
dividend or other distribution payable in shares of Class A Common Stock, with
respect to which adjustment shall be made as provided in the Company Charter, or
in securities of the Company attributed to the Atlantic Utility Group, for which
provision shall be made as set forth in clause (2) of this proviso), the
Atlantic Utility Group shall no longer include an amount of assets or properties
previously attributed to the Atlantic Utility Group of the same kind as so paid
in such dividend or other distribution with respect of shares of Class A Common
Stock as have a Fair Value on the record date for such dividend or distribution
equal to the product of (a) the Fair Value on such record date of the aggregate
of such dividend or distribution to holders of shares of Class A Common Stock
declared times (b) a fraction the numerator of which is equal to the Intergroup
Interest Fraction in effect on the record date for such dividend or distribution
and the denominator of which is equal to the Outstanding Atlantic Utility
Fraction in effect on the record date for such dividend or distribution, (2) if
the Company shall pay a dividend or make some other distribution with respect to
shares of Class A Common Stock payable in securities of the Company that are
attributed to the Atlantic Utility Group for purposes of the applicable
provisions of the Company Charter (other than Class A Common Stock), there shall
be excluded from the Atlantic Utility Group an interest in the Atlantic Utility
Group equivalent to the number or amount of such securities that is equal to the
product of the number or amount of securities so distributed to holders of Class
A Common Stock times the fraction specified in clause 1(b) of this proviso
(determined as of the record date for such distribution) (and such interest in
the Atlantic Utility Group shall be attributed to the Residual Group) and, to
the extent interest is, or dividends are, paid on the securities so distributed,
the Atlantic Utility Group shall no longer include a corresponding ratable
amount of the kind of assets paid as such interest or dividends as would have
been paid in respect of the securities equivalent to such interest in the
Atlantic Utility Group deemed held by the Residual Group if the securities
equivalent to such interest were outstanding (and in such eventuality such
assets as are no longer
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included in the Atlantic Utility Group shall be attributed to the Residual
Group) and (3) from and after any transfer of any assets or properties from the
Atlantic Utility Group to the Residual Group, the Atlantic Utility Group shall
no longer include such assets or properties so contributed or transferred. The
Company may also, to the extent a dividend or distribution on the Class A Common
Stock has been paid in Convertible Securities convertible into for Class A
Common Stock, cause such Convertible Securities as are deemed to be held by the
Residual Group in accordance with the third to last sentence of the definition
of "Residual Group" and clause (2) of the proviso to the immediately preceding
sentence to be deemed to be converted, as provided in the penultimate sentence
of the definition of "Residual Group," in which case such Convertible Securities
shall no longer be deemed to be held by the Residual Group.
"ATLANTIC UTILITY GROUP AVAILABLE DIVIDEND AMOUNT," on any date, shall mean
either:
(i) (x) the amount equal to the product of (1) the Outstanding Atlantic
Utility Fraction as of such date multiplied by (2) an amount equal to the
fair market value of the total assets attributed to the Atlantic Utility
Group less the total amount of the liabilities attributed to the Atlantic
Utility Group (provided that Preferred Stock shall not be treated as a
liability), in each case as of such date and determined on a basis
consistent with that applied in determining Company Net Income (Loss)
Attributable to the Atlantic Utility Group, minus (y) the aggregate par
value of, or any greater amount determined to be capital in respect of, all
outstanding shares of Class A Common Stock and shares of each class or
series of Preferred Stock attributed to the Atlantic Utility Group, plus (z)
the amount, as of such date, of amortization of goodwill during the period
from the Effective Date through such date arising from the Mergers with
respect to the Atlantic Utility Group (determined as set forth in clause
(ii) of the definition of Company Net Income (Loss) Attributable to the
Atlantic Utility Group), or
(ii) in case the total amount calculated pursuant to clause (i) above is
not a positive number, an amount equal to Company Net Income (Loss)
Attributable to the Atlantic Utility Group (if positive) for the fiscal year
in which the dividend is declared and/or the preceding fiscal year.
Notwithstanding the foregoing provisions of this definition, and consistent with
the definition of Convertible Securities, at any time when there are not
outstanding both (i) one or more shares of Company Common Stock or Convertible
Securities convertible into Company Common Stock and (ii) one or more shares of
Class A Common Stock or Convertible Securities convertible into Class A Common
Stock, the "Atlantic Utility Group Available Dividend Amount," on any
calculation date during such time period, with respect to the Company Common
Stock or the Class A Common Stock, as the case may be (depending on which of
such classes of Common Stock or Convertible Securities convertible into such
class of Common Stock is outstanding), shall mean the amount available for the
payment of dividends on such Common Stock in accordance with law.
"COMPANY NET INCOME (LOSS) ATTRIBUTABLE TO THE ATLANTIC UTILITY GROUP," for
any period through any date, shall mean (i) the net income or loss of the
Atlantic Utility Group for such period (or in respect of the fiscal periods of
the Company commencing prior to the Effective Date, the pro forma net income or
loss of the Atlantic Utility Group for such period as if the Effective Date had
been the first day of such period) determined in accordance with generally
accepted accounting principles in effect at such time, reflecting income and
expense of the Company attributed to the Atlantic Utility Group on a basis
substantially consistent with attributions of income and expense made in the
calculation of Company Net Income (Loss) Attributable to the Residual Group,
including, without limitation, corporate administrative costs, net interest and
other financial costs and income taxes, increased by (ii) the amount of
amortization of goodwill arising from the Mergers with respect to the Atlantic
Utility Group to the extent but only to the extent such goodwill would otherwise
decrease the Company Net Income Attributable to the Atlantic Utility Group or
increase the Company Net Loss Attributable to the Atlantic Utility Group (such
amount calculated for fiscal periods of the Company commencing prior to the
Effective Date on a pro forma basis as if the Effective Date had been the first
day of the relevant period), determined in accordance with
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generally accepted accounting principles in effect at such time applied on a
basis substantially consistent with that applied in determining Company Net
Income (Loss) Attributable to the Atlantic Utility Group and reduced by (iii) an
amount equal to $40 million per fiscal year.
"COMPANY NET INCOME (LOSS) ATTRIBUTABLE TO THE RESIDUAL GROUP," for any
period through any date, shall mean (i) the net income or loss of the Residual
Group for such period (or in respect of fiscal periods of the Company commencing
prior to the Effective Date, the pro forma net income or loss of the Residual
Group for such period as if the Effective Date had been the first day of such
period) determined in accordance with generally accepted accounting principles
in effect at such time, reflecting income and expense of the Company attributed
to the Residual Group on a basis substantially consistent with attributions of
income and expense made in the calculation of Company Net Income (Loss)
Attributable to the Atlantic Utility Group, including, without limitation,
corporate administrative costs, net interest and other financial costs and
income taxes, reduced by (ii) the amount of amortization of goodwill arising
from the Mergers with respect to the Atlantic Utility Group to the extent but
only to the extent such goodwill results in a decrease (increase) in the Company
Net Income (Loss) Attributable to the Atlantic Utility Group pursuant to clause
(ii) of the definition thereof (such amount calculated for fiscal periods of the
Company commencing prior to the Effective Date on a pro forma basis as if the
Effective Date had been the first day of the relevant period), determined in
accordance with generally accepted accounting principles in effect at such time
applied on a basis substantially consistent with that applied in determining
Company Net Income (Loss) Attributable to the Atlantic Utility Group (excluding
the portion thereof, if any, already applied to reduce net income or increase
net loss of the Residual Group for such period by virtue of the Intergroup
Interest) and increased by (iii) an amount equal to $40 million per fiscal year.
"CONVERTIBLE SECURITIES" at any time shall mean any securities of the
Company or of any subsidiary thereof (other than shares of Common Stock),
including warrants and options, outstanding at such time that by their terms are
convertible into or exchangeable or exercisable for or evidence the right to
acquire any shares of any class of Common Stock, whether convertible,
exchangeable or exercisable at such time or a later time or only upon the
occurrence of certain events, but in respect of antidilution provisions of such
securities only upon the effectiveness thereof.
"DISPOSITION" shall mean a sale, transfer, assignment or other disposition
(whether by merger, consolidation, sale or contribution of assets or stock or
otherwise) of properties or assets (including stock, other securities and
goodwill).
"EFFECTIVE DATE" shall mean the date on which the Mergers shall become
effective.
"FAIR VALUE" shall mean, in the case of equity securities or debt securities
of a class or series that has previously been Publicly Traded for a period of at
least 15 months, the Market Value thereof (if such value, as so defined, can be
determined) or, in the case of an equity security or debt security that has not
been Publicly Traded for at least such period, shall mean the fair value per
share of stock or per other unit of such other security, on a fully distributed
basis, as determined by an independent investment banking firm experienced in
the valuation of securities selected in good faith by the Company Board, or, if
no such investment banking firm is, as determined in the good faith judgment of
the Company Board, available to make such determination, in good faith by the
Company Board; provided that in the case of property other than securities, the
"Fair Value" thereof shall be determined in good faith by the Company Board
based upon such appraisals or valuation reports of such independent experts as
the Company Board shall in good faith determine to be appropriate in accordance
with good business practice. Any such determination of Fair Value shall be
described in a statement filed with the records of the actions of the Company
Board.
"INTERGROUP INTEREST FRACTION" as of any date shall mean a fraction the
numerator of which shall be the Number of Shares Issuable with Respect to the
Intergroup Interest on such date and the denominator of which shall be the sum
of (A) such Number of Shares Issuable with Respect to the Intergroup Interest
and (B) the aggregate number of shares of Class A Common Stock outstanding on
such date.
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"MARKET CAPITALIZATION" of any class or series of common stock on any date
shall mean the product of (i) the Market Value of one share of such class or
series of common stock on such date and (ii) the number of shares of such class
or series of common stock outstanding on such date.
"MARKET VALUE" of a share of any class or series of capital stock of the
Company on any day shall mean the average of the high and low reported sales
prices regular way of a share of such class or series on such Trading Day or, in
case no such reported sale takes place on such Trading Day, the average of the
reported closing bid and asked prices regular way of a share of such class or
series on such Trading Day, in either case as reported on the New York Stock
Exchange Composite Tape or, if the shares of such class or series are not listed
or admitted to trading on such Exchange on such Trading Day, on the principal
national securities exchange in the United States on which the shares of such
class or series are listed or admitted to trading or, if not listed or admitted
to trading on any national securities exchange on such Trading Day, on the
NASDAQ National Market or, if the shares of such class or series are not listed
or admitted to trading on any national securities exchange or quoted on such
National Market System on such Trading Day, the average of the closing bid and
asked prices of a share of such class or series in the over-the-counter market
on such Trading Day as furnished by any New York Stock Exchange member firm
selected from time to time by the Company or, if such closing bid and asked
prices are not made available by any such New York Stock Exchange member firm on
such Trading Day, the Fair Value of a share of such class or series; provided
that, for purposes of determining the market value of a share of any class or
series of capital stock for any period, (i) the "Market Value" of a share of
capital stock on any day prior to any "ex-dividend" date or any similar date
occurring during such period for any dividend or distribution (other than any
dividend or distribution contemplated by clause (ii)(B) of this sentence) paid
or to be paid with respect to such capital stock shall be reduced by the Fair
Value of the per share amount of such dividend or distribution and (ii) the
"Market Value" of any share of capital stock on any day prior to (A) the
effective date of any subdivision (by stock split or otherwise) or combination
(by reverse stock split or otherwise) of outstanding shares of such class or
series of capital stock occurring during such period or (B) any "ex-dividend"
date or any similar date occurring during such period for any dividend or
distribution with respect to such capital stock to be made in shares of such
class or series of capital stock or Convertible Securities that are convertible,
exchangeable or exercisable for such class or series of capital stock shall be
appropriately adjusted, as determined by the Company Board, to reflect such
subdivision, combination, dividend or distribution.
"MARKET VALUE RATIO OF THE CLASS A COMMON STOCK TO THE COMPANY COMMON STOCK"
as of any date shall mean the fraction (which may be greater than 1/1),
expressed as a decimal (rounded to the nearest five decimal places), of a share
of Company Common Stock to be issued in respect of a share of Class A Common
Stock upon a conversion of Class A Common Stock into Company Common Stock in
accordance with the aforesaid terms, based on the ratio of the market value of a
share of Class A Common Stock to the market value of a share of Company Common
Stock (or such other common stock) as of such date, determined by the fraction
the numerator of which shall be the sum of (A) four times the average Market
Value of one share of Class A Common Stock over the period of five consecutive
Trading Days ending on such date, (B) three times the average Market Value of
one share of Class A Common Stock over the period of five consecutive Trading
Days ending on the fifth Trading Day prior to such date, (C) two times the
average Market Value of one share of Class A Common Stock over the period of
five consecutive Trading Days ending on the tenth Trading Day prior to such date
and (D) the average Market Value of one share of Class A Common Stock over the
period of five consecutive Trading Days ending on the fifteenth Trading Day
prior to such date and the denominator of which shall be the sum of (A) four
times the average Market Value of one share of Company Common Stock (or such
other common stock) over the period of five consecutive Trading Days ending on
such date, (B) three times the average Market Value of one share of Company
Common Stock (or such other common stock) over the period of five consecutive
Trading Days ending on the fifth Trading Day prior to such date, (C) two times
the average Market Value of one share of Company Common Stock (or such other
common stock) over the period of five consecutive Trading Days ending on the
tenth Trading Day prior to such date and (D) the average Market Value of one
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share of Company Common Stock (or such other common stock) over the period of
five consecutive Trading Days ending on the fifteenth Trading Day prior to such
date.
"NET PROCEEDS" shall mean, as of any date with respect to any Disposition of
any of the properties and assets attributed to the Atlantic Utility Group an
amount, if any, equal to what remains of the gross proceeds of such Disposition
after payment of, or reasonable provision is made as determined by the Company
Board for, (A) any taxes payable by the Company (or which would have been
payable but for the utilization of tax benefits attributable to the Residual
Group) in respect of such Disposition or in respect of any resulting dividend or
redemption pursuant to clause (I) under "--Conversion and Redemption of the
Class A Common Stock--Dividend, Redemption or Conversion upon Disposition of All
or Substantially All Assets of the Atlantic Utility Group," (B) any transaction
costs, including, without limitation, any legal, investment banking and
accounting fees and expenses, (C) any liabilities (contingent or otherwise) of
or attributed to the Atlantic Utility Group, including, without limitation, any
liabilities for deferred taxes or any indemnity or guarantee obligations of the
Company incurred in connection with the Disposition or otherwise, and any
liabilities for future purchase price adjustments and any preferential amounts
plus any accumulated and unpaid dividends in respect of Preferred Stock
attributed to the Atlantic Utility Group and (D) a capitalized amount (as
determined by the Company Board) of the notional obligation of the Atlantic
Utility Group to the Residual Group described in clause (iii) of the definition
of Company Net Income (Loss) Attributable to the Atlantic Utility Group. For
purposes of this definition, any properties and assets attributed to the
Atlantic Utility Group remaining after such Disposition shall constitute
"reasonable provision" for such amount of taxes, costs, liabilities (contingent
or otherwise) and capitalized amount as the Company Board determines can be
expected to be supported by such properties and assets.
"NUMBER OF SHARES ISSUABLE WITH RESPECT TO THE INTERGROUP INTEREST" shall as
of the Effective Date be the number equal to 7/3 times the number of Class A
Common Stock to be issued pursuant to the Mergers, such number to be inserted
prior to the Effective Time; provided that such number shall from time to time
thereafter be:
(A) adjusted as determined by the Company Board to be appropriate to
reflect any subdivision (by stock split or otherwise) or combination (by
reverse stock split or otherwise) of the Class A Common Stock or any
dividend or other distribution of shares of Class A Common Stock to holders
of shares of Class A Common Stock or any reclassification of Class A Common
Stock;
(B) decreased (but to not less than zero) by action of the Company Board
by (1) the number of shares of Class A Common Stock issued or sold by the
Company that, immediately prior to such issuance or sale, were included (as
determined by the Company Board pursuant to paragraph (C) of this
definition) in the Number of Shares Issuable with Respect to the Intergroup
Interest, (2) the number of shares of Class A Common Stock issued upon
conversion of Convertible Securities that, immediately prior to the issuance
or sale of such Convertible Securities, were included in the Number of
Shares Issuable with Respect to the Intergroup Interest, (3) the number of
shares of Class A Common Stock issued by the Company as a dividend or other
distribution (including in connection with any reclassification or exchange
of shares) to holders of Company Common Stock, (4) the number of shares of
Class A Common Stock issued upon the conversion of any Convertible
Securities issued by the Company as a dividend or other distribution
(including in connection with any reclassification or exchange of shares) to
holders of Company Common Stock, or (5) the number (rounded, if necessary,
to the nearest whole number) equal to the quotient of (a) the aggregate Fair
Value as of the date of contribution of properties or assets (including
cash) transferred from the Atlantic Utility Group to the Residual Group in
consideration for a reduction in the Number of Shares Issuable with Respect
to the Intergroup Interest divided by (b) the Market Value of one share of
Class A Common Stock as of the date of such transfer; and
(C) increased by (1) the number of outstanding shares of Class A Common
Stock repurchased by the Company for consideration that is attributed as
provided by the definition of "Residual Group" to
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the Residual Group and (2) the number (rounded, if necessary, to the nearest
whole number) equal to the quotient of (a) the Fair Value of properties or
assets (including cash) theretofore attributed as provided by the definition
of "Residual Group" to the Residual Group that are contributed to the
Atlantic Utility Group in consideration of an increase in the Number of
Shares Issuable with Respect to the Intergroup Interest, divided by (b) the
Market Value of one share of Class A Common Stock as of the date of such
contribution and (3) the number of shares of Class A Common Stock into or
for which Convertible Securities are deemed converted pursuant to the
penultimate sentence of the definition of "Residual Group."
"OUTSTANDING ATLANTIC UTILITY FRACTION," as of any date, means the fraction
(which may simplify to 1/1) the numerator of which shall be the number of shares
of Class A Common Stock outstanding on such date and the denominator of which
shall be the sum of the number of shares of Class A Common Stock outstanding on
such date and the Number of Shares Issuable with Respect to the Intergroup
Interest on such date.
"PUBLICLY TRADED" with respect to any security shall mean (i) registered
under Section 12 of the Exchange Act (or any successor provision of law), and
(ii) listed for trading on the NYSE or the American Stock Exchange (or any
national securities exchange registered under Section 7 of the Exchange Act (or
any successor provision of law), that is the successor to either such exchange
or quoted in the National Association of Securities Dealers Automation Quotation
System (or any successor system).
"RELATED BUSINESS TRANSACTION" means any Disposition of all or substantially
all the properties and assets attributed to the Atlantic Utility Group in a
transaction or series of related transactions that results in the Company
receiving in consideration of such properties and assets primarily equity
securities (including, without limitation, capital stock, debt securities
convertible into or exchangeable for equity securities or interests in a general
or limited partnership or limited liability company, without regard to the
voting power or other management or governance rights associated therewith) of
any entity which (i) acquires such properties or assets or succeeds (by merger,
formation of a joint venture or otherwise) to the business conducted with such
properties or assets or controls such acquiror or successor and (ii) is
primarily engaged or proposes to engage primarily in one or more businesses
similar or complementary to the businesses conducted by the Atlantic Utility
Group prior to such Disposition, as determined by the Company Board.
"RESIDUAL GROUP" shall mean, as of any date from and as of the Effective
Date:
(A) the interest of the Company or any of its subsidiaries on such date
in all of the assets, liabilities and businesses of the Company or any of
its subsidiaries (and any successor companies), other than any assets,
liabilities and businesses attributed in accordance with the applicable
provisions of the Company Charter to the Atlantic Utility Group;
(B) a proportionate undivided interest in each and every business, asset
and liability attributed to the Atlantic Utility Group equal to the
Intergroup Interest Fraction as of such date;
(C) all properties and assets transferred to the Residual Group from the
Atlantic Utility Group (other than pursuant to paragraph (D) of this
definition) after the Effective Date pursuant to transactions in the
ordinary course of business of both the Residual Group and the Atlantic
Utility Group or otherwise as the Company Board may have directed as
permitted by the applicable provisions of the Company Charter;
(D) all properties and assets transferred to the Residual Group from the
Atlantic Utility Group in connection with a reduction of the Number of
Shares Issuable with Respect to the Intergroup Interest;
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(E) the interest of the Company or any of its subsidiaries in any
business or asset acquired and any liabilities assumed by the Company or any
of its subsidiaries outside the ordinary course of business and attributed
to the Residual Group, as determined by the Company Board; and
(F) from and after the payment date of any dividend or other
distribution with respect to shares of Class A Common Stock (other than a
dividend or other distribution payable in shares of Class A Common Stock,
with respect to which adjustment shall be made as provided in paragraph (A)
of the definition of "Number of Shares Issuable with Respect to the
Intergroup Interest," or in securities of the Company attributed to the
Atlantic Utility Group, for which provision shall be made as set forth in
the third to last sentence of this definition), an amount of assets or
properties previously attributed to the Atlantic Utility Group of the same
kind as were paid in such dividend or other distribution with respect to
shares of Class A Common Stock as have a Fair Value on the record date for
such dividend or distribution equal to the product of (1) the Fair Value on
such record date of the aggregate of such dividend or distribution to
holders of shares of Class A Common Stock declared multiplied by (2) a
Fraction the numerator of which is equal to the Intergroup Interest Fraction
in effect on the record date for such dividend or distribution and the
denominator of which is equal to the Outstanding Atlantic Utility Fraction
in effect on the record date for such dividend or distribution;
provided that from and after any transfer of any assets or properties from the
Residual Group to the Atlantic Utility Group, the Residual Group shall no longer
include such assets or properties so transferred (other than as reflected in
respect of such a transfer by the Intergroup Interest Fraction, as provided by
paragraph (B) of this definition).
If the Company shall pay a dividend or make some other distribution with
respect to shares of Class A Common Stock payable in securities of the Company
that are attributed to the Atlantic Utility Group (other than Class A Common
Stock), the Residual Group shall be deemed to hold an interest in the Atlantic
Utility Group equivalent to the number or amount of such securities that is
equal to the product of the number or amount of securities so distributed to
holders of Class A Common Stock multiplied by the Fraction specified in clause
(2) of paragraph (F) of this definition (determined as of the record date for
such distribution) and, to the extent interest is or dividends are paid on the
securities so distributed, the Residual Group shall include, and there shall be
transferred thereto out of the Atlantic Utility Group, a corresponding ratable
amount of the kind of assets paid as such interest or dividends as would have
been paid in respect of such securities so deemed to be held by the Residual
Group if such securities were outstanding. The Company may also, to the extent
the securities so paid as a dividend or other distribution to the holders of
Class A Common Stock are Convertible Securities and at the time are convertible
into shares of Class A Common Stock, treat such Convertible Securities as are so
deemed to be held by the Residual Group to be deemed to be converted and shall
do so to the extent such Convertible Securities are mandatorily converted (and
to the extent the terms of such Convertible Securities require payment of
consideration for such conversion the Residual Group shall then no longer
include an amount of the kind of properties or assets required to be paid as
such consideration for the amount of Convertible Securities deemed converted
(and the Atlantic Utility Group shall be attributed such properties or assets)),
in which case, from and after such time, the securities into or for which such
Convertible Securities so deemed to be held by the Residual Group were so
considered converted shall be deemed held by the Residual Group (as provided in
clause (3) of paragraph (C) of the definition of "Number of Shares Issuable with
Respect to the Intergroup Interest") and such Convertible Securities shall no
longer be deemed to be held by the Residual Group.
"RESIDUAL GROUP AVAILABLE DIVIDEND AMOUNT," on any date, shall mean either
(i) (x) the amount equal to the fair market value of the total assets
attributed to the Residual Group less the total amount of the liabilities
attributed to the Residual Group (provided that Preferred Stock shall not be
treated as a liability), in each case as of such date and determined on a
basis consistent with that applied in determining Company Net Income (Loss)
Attributable to the
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Residual Group, minus (y) the aggregate par value of, or any greater amount
determined to be capital in respect of, all outstanding shares of Company
Common Stock and shares of each class or series of Preferred Stock
attributed to the Residual Group, minus (z) the amount, as of such date, of
amortization of goodwill during the period from the Effective Date through
such date arising from the Mergers with respect to the Atlantic Utility
Group (determined as set forth in clause (ii) of the definition of "Company
Net Income (Loss) Attributable to the Residual Group" and, as in such clause
(ii), excluding the portion thereof, if any, already applied to reduce net
income or increase net loss of the Residual Group for such period by virtue
of its Intergroup Interest), or
(ii) in case the total amount calculated pursuant to clause (i) above is
not a positive number, an amount equal to Company Net Income (Loss)
Attributable to the Residual Group (if positive) for the fiscal year in
which the dividend is declared and/or the preceding fiscal year.
Notwithstanding the foregoing provisions of this definition, at any time when
there are not outstanding both (i) one or more shares of Company Common Stock or
Convertible Securities convertible into Company Common Stock and (ii) one or
more shares of Class A Common Stock or Convertible Securities convertible into
Class A Common Stock, the "Residual Group Available Dividend Amount," on any
calculation date during such time period, with respect to the Company Common
Stock or the Class A Common Stock, as the case may be (depending on which of
such classes of Common Stock or Convertible Securities convertible into such
class of Common Stock is outstanding), shall mean the amount available for the
payment of dividends on such Common Stock in accordance with law.
"TIME-WEIGHTED MARKET PRICE" as of any date with respect to any class of
Common Stock shall mean an amount equal to (i) the sum of (A) four times the
average Market Value of one share of such class of Common Stock over the period
of five consecutive Trading Days ending on such date, (B) three times the
average Market Value of one share of such class of Common Stock over the period
of five consecutive Trading Days ending on the fifth Trading Day prior to such
date, (C) two times the average Market Value of one share of such class of
Common Stock over the period of five consecutive Trading Days ending on the
tenth Trading Day prior to such date and (D) the average Market Value of one
share of such class of Common Stock over the period of five consecutive Trading
Days ending on the fifteenth Trading Day prior to such date, divided by (ii)
ten.
"TRADING DAY" shall mean each weekday other than any day on which the
relevant class of common stock of the Company is not traded on any national
securities exchange or quoted in the NASDAQ National Market or in the
over-the-counter market.
STOCK EXCHANGE LISTING
It is expected that the Company Common Stock and the Class A Common Stock
will be listed on the NYSE.
ANTI-TAKEOVER PROVISIONS
The Company Charter and the Company Bylaws contain provisions that may have
the effect of discouraging persons from acquiring large blocks of capital stock
of the Company or of delaying or preventing a change in control of the Company.
Material provisions that may have the effect of discouraging persons from
acquiring large blocks of capital stock of the Company are (i) provisions
providing that the Company Board will be divided into three classes of directors
with the term of only the directors in one class expiring each year and
permitting removal of directors only for cause and only at a special meeting of
stockholders called for that purpose, (ii) authorization for the Company Board
to issue Preferred Stock in series and to fix rights and preferences of the
series, (iii) provisions limiting the right to call a special meeting of
stockholders to the Company Board and limiting the business at a special meeting
of stockholders to proposals brought before the meeting by the Company Board,
(iv) advance notice
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procedures with respect to nominations of directors or proposals other than
those adopted or recommended by the Company Board, (v) a provision requiring
action by stockholders only at a meeting and (vi) provisions permitting
amendment of certain provisions contained in the Company Charter only by the
vote of at least 80% of stockholders entitled to vote.
The existence of the Class A Common Stock would present complexities and
could in certain circumstances pose obstacles for an acquiring person. For
example, it would be necessary for a potential acquiror to take into
consideration that holders of the Class A Common Stock might be more or less
receptive to the acquiror's proposal, that a tender offer must be structured to
take into account different prices at which shares of different classes might be
acquired, and the effects of actions the Company might take, such as causing a
conversion of the Class A Common Stock. In addition, to the extent the relative
market values of the Company Common Stock and the Class A Common Stock
fluctuate, a potential acquiror may be able to acquire relatively more or less
voting power for the same consideration depending on which class of Common Stock
is purchased.
In addition, the DGCL contains business combination and supermajority voting
provisions that would be applicable to certain mergers, share exchanges, asset
sales and other transactions involving the Company or a subsidiary of the
Company and a significant stockholder. These provisions could have the effect of
substantially increasing the cost of an acquisition to an acquiror and thereby
discouraging any such transaction.
The provisions of the DGCL, the Company Charter and the Company Bylaws and
the existence of the Class A Common Stock could, under certain circumstances,
prevent stockholders from profiting from an increase in the market value of
their shares as a result of a change in control of the Company by delaying or
preventing such change in control.
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COMPARISON OF CORPORATE CHARTERS AND RIGHTS OF SECURITY HOLDERS
DELMARVA
If the Delmarva Merger is consummated, the holders of Delmarva Common Stock
will become holders of Company Common Stock and their rights will be governed by
the Company Charter, the Company Bylaws, and the DGCL. The material differences
between the rights of holders of Company Common Stock and the holders of
Delmarva Common Stock are set forth below. This summary of the material
differences between rights of stockholders does not purport to be an exhaustive
list or a detailed description of the provisions discussed and is qualified in
its entirety by reference to the full text of the Company Charter and the
Company Bylaws attached as Annexes IV and V, respectively. See also "Available
Information."
VOTING POWER. If the Delmarva Merger is approved, based on the number of
shares outstanding as of September 30, 1996, holders of Delmarva Common Stock
would hold approximately 60.8 million of the approximately 100.3 million shares
of Company Common Stock that would have been outstanding at the consummation of
the Mergers had the Mergers been consummated on September 30, 1996. Following
the Mergers, Delmarva stockholders will therefore not possess the same relative
voting power on matters put to a vote to the stockholders of the Company as they
possessed prior to the Mergers. Neither the Company Charter nor the Delmarva
Charter permits cumulative voting in the election of directors.
CAPITALIZATION. The Company Charter authorizes the issuance of up to 150
million shares of Company Common Stock, 10 million shares of Class A Common
Stock of the Company and 20 million shares of Preferred Stock. The Company Board
is authorized to issue Preferred Stock in series and to determine the relative
rights and preferences of the shares of any series of Preferred Stock, which may
rank prior to shares of Company Common Stock or Class A Common Stock for the
payment of dividends or upon the dissolution, liquidation or winding up of the
Company.
SPECIAL STOCKHOLDER MEETINGS; STOCKHOLDER ACTION WITHOUT A MEETING. The
Delmarva Bylaws provide that special meetings of stockholders may be called by
the Chairman/Chairwoman of the Board, the President or the Board of Directors.
The Company Charter provides that special meetings of its stockholders may be
called only by the Chairman/Chairwoman of the Board or by a majority of the
Company Board.
The VSCA permits actions that could be taken at a stockholder meeting to be
taken by the unanimous written consent of the stockholders entitled to vote on
such action. The DGCL permits actions that could be taken at a stockholder
meeting to be taken by written consent of the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to take
such action at a meeting at which all shares entitled to vote thereon were
present and voted, unless the corporation's certificate of incorporation
provides otherwise. The Delmarva Charter permits action by written consent only
by the unanimous written consent of stockholders entitled to vote on the
particular matter. The Company Charter requires stockholder action to be
effected at a meeting of stockholders and prohibits stockholder action by
written consent.
BOARD OF DIRECTORS. The Delmarva Charter provides for a Board of Directors
consisting of not fewer than three and not more than 15 directors, the exact
number of directors to be determined from time to time by resolution of the
Delmarva Board or by resolution of two-thirds of the shares, represented by
proxy or in person, entitled to vote at a meeting at which a quorum is present.
The Delmarva Charter provides that directors shall be divided into three classes
(designated Class I, Class II and Class III) to provide for staggered terms,
with each class consisting, as nearly as may be possible, of one-third of the
total number of directors. The directors in each class are elected for three
year terms.
The Company Charter provides for a board of not fewer than nine and not more
than 18 directors, as determined from time to time by resolution of the Board of
Directors. The Company Charter provides that the directors shall be divided into
three classes (designated Class I, Class II, and Class III) to provide for
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staggered terms, with each class consisting, as nearly as possible, of one-third
of the total number of directors. The terms of the initial Class I directors
will expire on the date of the first annual meeting following the Effective Time
of the Mergers, the terms of the initial Class II directors will expire on the
date of the second annual meeting following the consummation of the Mergers, and
the terms of the initial Class III directors will expire on the date of the
third annual meeting following the consummation of the Mergers, and thereafter
the directors in each class will be elected for a term of three years.
REMOVAL OF DIRECTORS. Under the VSCA, unless the articles of incorporation
provide that directors may be removed only for cause, stockholders may remove
any director with or without cause if the number of votes cast to remove a
director constitutes a majority of the votes entitled to be cast at an election
of directors of the voting group or voting groups by which the director was
elected, unless the articles of incorporation require a greater vote. The DGCL
provides that unless a corporation's certificate of incorporation otherwise
provides, directors with staggered terms may be removed only for cause and
requires that the removal of directors be approved by a majority vote of the
shares then entitled to vote at an election of directors. The Delmarva Charter
provides that directors may be removed only for cause. The Company Charter
provides that a member of the Company Board may be removed only for cause, at an
annual meeting or a special meeting of the stockholders called for that purpose,
by a majority vote of not less than a majority of votes entitled to be cast by
the holders of all the then outstanding shares of capital stock entitled to vote
in the election of directors generally.
VACANCIES ON THE BOARD AND NEWLY CREATED DIRECTORSHIPS. The Delmarva
Charter provides that newly created directorships and vacancies in the Delmarva
Board may be filled by the Delmarva Board and if the directors remaining in
office constitute fewer than a quorum, by a majority of the directors remaining
in office, or at an annual meeting of stockholders by stockholders entitled to
vote on the election of directors. The Company Charter provides that newly
created directorships and vacancies in the Company Board of Directors shall be
filled by a majority of the directors then in office, even if less than a
quorum, or by the sole remaining director.
STOCKHOLDER PROPOSALS; NOMINATION OF DIRECTORS BY STOCKHOLDERS. The
Delmarva Bylaws provide that any stockholder proposal or nomination for election
to the Board of Directors brought before Delmarva's annual meeting must be
received by Delmarva not fewer than 50 days and, in the case of a stockholder
proposal, not more than 75 days, or, in the case of a nomination for election to
the Delmarva Board, not more than 90 days prior to the meeting; provided that in
the event that fewer than 65 days' notice or prior public disclosure of the date
of the meeting is given or made to stockholders, proposals or nominations by
stockholders must be received not later than the close of business on the
fifteenth day following the day on which notice of the annual meeting was mailed
or such public disclosure was made, whichever first occurs.
The Company Charter provides that any stockholder proposal or nomination for
election to the Board brought before the Company's annual meeting must be
received by the Company not less than 60 days nor more than 90 days prior to the
first anniversary of the preceding year's annual meeting. If the date of such
annual meeting is advanced by more than 30 days or delayed by more than 60 days,
or in the case of the Company's first annual meeting after the consummation of
the Mergers, notice by the stockholder to be timely must be received not earlier
than the ninetieth day prior to such annual meeting and not later than the close
of business on the later of (i) the sixtieth day prior to such annual meeting or
(ii) the tenth day following the date on which notice of the date of the annual
meeting was given. The Company Charter also provides that no business may be
brought before a special meeting by stockholders.
MERGERS. Under the VSCA, a plan of merger or share exchange must be
approved by more than two-thirds of all the votes entitled to be cast thereon by
each voting group, provided that the board of directors may require a greater
vote and the articles of incorporation may provide for a greater or lesser vote,
so long as the vote provided for is not less than a majority of all votes cast
by each voting group at a meeting at which a quorum exists. The DGCL provides
that a merger or consolidation may be approved by a
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majority vote of the shares entitled to vote thereon, unless a greater
percentage is required by the corporation's certificate of incorporation.
INSPECTION RIGHTS. Under the VSCA, a stockholder who has been a stockholder
of record for at least six months or who is the holder of record of at least
five percent of all of a corporation's outstanding shares is entitled to inspect
certain records of the corporation if he or she gives the corporation written
notice of his or her demand, the demand is made in good faith and for a proper
purpose, the demand describes with reasonable particularity the purpose of the
demand and the records to be inspected, and the records are directly connected
with such purpose. The DGCL provides that any stockholder shall have the right
to inspect the corporation's stock ledger, a list of its stockholders and its
other books and records upon written demand under oath stating the purpose
thereof if the demand for inspection is made for a proper purpose.
DIVIDENDS AND REPURCHASES OF STOCK. The VSCA provides that, subject to any
restriction in a corporation's articles of incorporation, a board of directors
may authorize and the corporation may pay distributions to the corporation's
stockholders, unless after such distribution the corporation would not be able
to pay its debts as they come due or unless its total assets after the
distribution would be less than the sum of its total liabilities plus (unless
the articles of incorporation permits otherwise) the amount that would be
needed, if the corporation were to be dissolved at the time of the distribution,
to satisfy upon dissolution the preferential rights of stockholders whose
preferential rights are superior to those receiving the distribution.
Under the DGCL, the board of directors may declare and pay dividends upon
shares of the corporation's capital stock either (1) out of the corporation's
surplus (I.E., the excess, if any, of the net assets of the corporation over the
capital of the corporation) or (2) in the case there shall be no such surplus,
out of its net profits for the fiscal year in which the dividend is declared
and/or the preceding fiscal year, so long as the declaration and payment of such
dividends do not violate the corporation's certificate of incorporation. Under
the DGCL, a corporation generally may repurchase shares of its stock out of
surplus so long as such repurchase does not violate the corporation's
certificate of incorporation, but the DGCL permits a corporation to repurchase
shares out of capital under certain circumstances.
CERTAIN BUSINESS COMBINATIONS AND SHARE PURCHASES. The VSCA contains a
provision that prohibits a corporation from engaging in an "affiliated
transaction" with a 10% stockholder for three years following the acquisition of
the 10% stake unless (i) the 10% stockholder became such with the approval of
the corporation's disinterested directors, (ii) the transaction is approved by a
majority of the corporation's disinterested directors and the holders of
two-thirds of the shares not held by the 10% stockholder or (iii) the
corporation has elected not to be bound by this provision. The VSCA also
contains a "control share" provision whereby the voting rights of a stockholder
are eliminated with respect to shares, the acquisition of which causes the
percentage of shares beneficially owned by such stockholder to exceed one of
several percentage thresholds, unless a resolution granting voting power is
approved by a majority of all votes that could be cast in an election of
directors, excluding certain shares including those of the acquiring
stockholder, or unless the corporation has elected not to be bound by this
provision. Delmarva pursuant to the VSCA has elected to opt out of this
provision.
Under Section 203 of the DGCL, a corporation such as the Company may not
engage in any business combination (defined to include mergers, share exchanges,
and asset sales) with any interested stockholder (defined as a 15% stockholder)
for a period of three years following the date that such stockholder became an
interested stockholder, unless (i) prior to the time that such person became an
interested stockholder, the board of directors of the corporation approved
either the business combination or the transaction in which the stockholder
became an interested stockholder, (ii) upon consummation of the transaction by
which the stockholder became an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation (excluding
certain shares owned by officers and directors of the corporation and by
employee stock plans) or (iii) the business combination is approved by both the
board
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of directors of the corporation and the affirmative vote of at least two-thirds
of the outstanding voting stock of the corporation that is not owned by the
interested stockholder.
AMENDMENT TO ARTICLES OR CERTIFICATE OF INCORPORATION. The VSCA provides
that a board of directors may condition its submission of a proposed charter
amendment to the stockholders on any basis. To be adopted, the amendment must be
approved by a more than two-thirds vote of each voting group entitled to vote
thereon, provided that the directors may require a greater vote or the articles
of incorporation may provide for a greater or lesser vote, so long as the vote
provided for is not less than a majority of those votes cast at a meeting at
which a quorum exists. The DGCL provides that the certificate of incorporation
of a corporation may be amended upon an affirmative vote of a majority of the
outstanding shares of capital stock entitled to vote thereon and a majority of
the outstanding stock of each class entitled to vote thereon as a class, unless
the corporation's certificate of incorporation requires a larger percentage.
Under the Delmarva Charter, the vote of the holders of two-thirds of the total
voting power of the Delmarva Preferred Stock and Preferred Stock--$25 Par of all
series voting as a single class is required for certain amendments to the
Delmarva Charter. Although the Company Charter provides generally that
amendments to the Company Charter may be approved by a majority vote of the
aggregate vote that the holders of the Company's capital stock are entitled to
cast on the amendment, a vote of at least 80% of the aggregate vote that the
holders of the Company's capital stock are entitled to cast on the amendment is
required for: (i) amendments to the provisions authorizing the Company Board to
issue and fix the rights of Preferred Stock; (ii) amendments to the provisions
dividing the Company Board into classes or providing that directors may be
removed only for cause; (iii) amendments to the provisions limiting who may call
special stockholder meetings, and the ability of stockholders to act without a
meeting and providing time requirements for the submission of stockholders'
proposals; and (iv) amendments that modify these supermajority voting
requirements.
ADOPTION, AMENDMENT AND REPEAL OF BYLAWS. The VSCA provides that a
corporation's board of directors may amend or repeal bylaws except to the extent
that (i) such right is reserved exclusively to the stockholders in the articles
of incorporation or by statute or (ii) the stockholders, in adopting or amending
a particular bylaw, provide expressly that the board of directors may not amend
or repeal that bylaw. Under the VSCA, stockholders may amend or repeal bylaws
even though the bylaws also may be amended or repealed by the board of
directors. The DGCL provides that the power to adopt, amend, and repeal bylaws
shall be in the stockholders entitled to vote; provided that any corporation may
in its certificate of incorporation, confer upon the directors the nonexclusive
power to adopt, amend, and repeal bylaws. The Delmarva Charter confers upon the
Delmarva Board the power to adopt, amend, and repeal the Delmarva Bylaws;
provided that any bylaw made by the Delmarva Board may be altered, amended or
repealed by the stockholders entitled to vote thereon at any annual or special
meeting called for such purpose. The Company Charter authorizes the Company
Board to make, alter, amend or repeal the Company Bylaws. The Company Charter
also provides that stockholders shall have the power to amend the Company Bylaws
only by the affirmative vote of 80% or more of the aggregate number of votes
that the holders of the then outstanding shares of Common Stock and Preferred
Stock are entitled to cast on the amendment.
EXCULPATION AND INDEMNIFICATION OF DIRECTORS. Under the VSCA, in any
proceeding brought by or in the name of the corporation or by or on behalf of
stockholders, the damages assessed against an officer or director arising out of
a single transaction, occurrence or course of conduct shall not exceed the
lesser of (i) the amount, including the elimination of liability, specified in
the corporation's articles of incorporation, or (if approved by the
stockholders) in the bylaws, as a limitation on or elimination of the director's
or officer's liability or (ii) the greater of $100,000 or the compensation
received by the director or officer from the corporation during the previous 12
months, provided that the liability of an officer or director cannot be limited
if the officer or director engaged in willful misconduct or a knowing violation
of a criminal law or securities law. Under the DGCL, the certificate of
incorporation may include a provision eliminating or limiting the personal
liability of directors for monetary damages for breach of fiduciary duty as a
director, except for breach of the duty of loyalty, for acts not in good faith
or involving intentional misconduct or a
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knowing violation of law, for acts from which the director derived an improper
personal benefit, or for the unlawful declaration of dividends or the unlawful
repurchase or redemption of capital stock. The Delmarva Charter provides for the
elimination of the personal liability of directors for monetary damages for
breach of fiduciary duty, except for the acts enumerated in the DGCL for which
no such elimination of liability is permitted. The Company Charter also provides
for the elimination of the personal liability of directors for monetary damages
for breach of fiduciary duty, except for such acts enumerated in the DGCL for
which no such elimination of liability is permitted.
The VSCA provides that a corporation may indemnify against certain
liabilities and expenses a director, officer, employee or agent of the
corporation who is made a party to a proceeding by reason of his or her service
in such capacity, if the director, officer, agent or employee acted in good
faith and (i) he or she believed, in the case of conduct undertaken in his or
her official capacity, that such conduct was in the best interests of the
corporation or, in the case of other conduct, that the other conduct was not
opposed to the best interests of the corporation and (ii) in the case of a
criminal proceeding, he or she had no reasonable cause to believe his or her
conduct was unlawful. However, under the VSCA, a corporation may not indemnify a
director, officer, agent or employee if such person was found liable to a
corporation in a proceeding by or in the right of the corporation or for
receiving an improper personal benefit, unless the articles of incorporation or
a stockholder approved bylaw provide otherwise. The VSCA permits stockholders to
authorize further indemnity except with respect to willful misconduct or a
knowing violation of criminal law. The Delmarva Charter provides for such
indemnity. Unless limited by its articles of incorporation, the VSCA requires a
corporation to indemnify a director or officer who is made a party to a
proceeding by reason of his or her service in such capacity and who entirely
prevails in defense of such proceeding, or if so ordered by a court. The VSCA
permits a corporation to advance expenses to a director, officer, employee or
agent of the corporation under certain conditions.
The DGCL provides that a corporation may indemnify against certain
liabilities and expenses an officer, director, employee or agent of the
corporation, or a person serving at the request of the corporation as a
director, officer, employee or agent of another entity, who is made a party to
certain proceedings by reason of his or her service in such capacity if such
person acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the corporation and, with respect to
any criminal proceeding, had no reasonable cause to believe his or her conduct
was unlawful. However, under the DGCL, a corporation may not indemnify any
person with respect to any claim or issue as to which such person was found
liable to the corporation in a proceeding by or in the right of the corporation,
unless indemnification of expenses is ordered by a court. The DGCL provides that
a corporation must indemnify against reasonable expenses a director, officer,
employee or agent of the corporation who is made a party to any proceeding by
reason of his or her service in such capacity and who is successful, on the
merits or otherwise, in the defense of any claim, issue or matter therein. The
DGCL permits a corporation to advance expenses to a director or officer under
certain conditions.
The Delmarva Charter provides that Delmarva shall indemnify directors and
officers of Delmarva to the full extent permitted by applicable law in
connection with certain actions, suits or proceedings, and
provides that Delmarva may indemnify employees and agents of Delmarva, as well
as persons serving at the request of Delmarva as directors, officers, employees
or agents of any other entity, to the full extent permitted by applicable law in
connection with certain actions, suits or proceedings. The Company Charter
provides that the Company shall indemnify directors or officers of the Company,
as well as persons serving at the request of the Company as directors, officers,
agents or employees of any other entity, to the full extent permitted by
applicable law in connection with certain actions, suits or proceedings, and
that the Company may, by action of the Company Board, indemnify employees or
agents of the Company to the full extent permitted by applicable law in
connection with certain actions, suits or proceedings. The Company Charter also
requires the Company to advance expenses to directors and officers, as well as
persons serving at the request of the Company as directors, officers, agents or
employees of any other entity, under certain circumstances.
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ATLANTIC
The rights of holders of Atlantic Common Stock are currently governed by the
Restated Certificate of Incorporation of Atlantic (the "Atlantic Charter"), the
Atlantic Bylaws and the NJBCA. If the Atlantic Merger is consummated, the
holders of Atlantic Common Stock will become holders of Company Common Stock and
Class A Common Stock, and their rights will be governed by the Company Charter,
the Company Bylaws and the DGCL. The material differences between the rights of
holders of Company Common Stock and the holders of Atlantic Common Stock are set
forth below. This summary of the material differences between rights of
stockholders does not purport to be an exhaustive list or a detailed description
of the provisions discussed and is qualified in its entirety by reference to the
full text of the Company Charter and the Company Bylaws attached as Annexes IV
and V, respectively, to this Joint Proxy Statement/Prospectus. See also
"Available Information." For a discussion of the rights of holders of Class A
Common Stock, see "Description of the Company's Capital Stock" and "Risk
Factors."
VOTING POWER. If the Atlantic Merger is approved, based on the number of
shares outstanding as of September 30, 1996, holders of Atlantic Common Stock
would hold approximately 39.5 million of the approximately 100.3 million shares
of Company Common Stock that would have been outstanding at the consummation the
Mergers had the Mergers been consummated on September 30, 1996. Following the
Mergers, Atlantic stockholders will therefore not possess the same relative
voting power on matters put to a vote to the stockholders of the Company as they
possessed prior to the Atlantic Merger. Neither the Company Charter nor the
Atlantic Charter permit cumulative voting in the election of directors.
CAPITALIZATION. The Company Charter authorizes the issuance of up to 150
million shares of Company Common Stock, 10 million shares of Class A Common
Stock and 20 million shares of Company Preferred. The Company Board is
authorized to issue Preferred Stock in series and to determine the relative
rights and preferences of the shares of any series of Preferred Stock, which may
rank prior to shares of Company Common Stock or Class A Common Stock for the
payment of dividends or upon the dissolution, liquidation or winding up of the
Company.
SPECIAL STOCKHOLDER MEETINGS; STOCKHOLDER ACTION WITHOUT A MEETING. The
Atlantic Bylaws provide that special meetings of stockholders may be called by
the Chairman of the Board, the President or the Secretary of Atlantic, by a
majority of the Atlantic Board. Additionally, under the NJBCA, such a special
meeting may be called by the holders of not less than 10% of all the outstanding
shares of Atlantic capital stock entitled to vote at the meeting. The Company
Charter provides that special meetings of its stockholders may be called only by
the Chairman of the Board or by a majority of the Company Board. The DGCL does
not permit a special meeting to be called by stockholders in the absence of a
charter or bylaw provision granting such right.
Both the NJBCA and the DGCL permit actions that could be taken at a
stockholder meeting to be taken by written action of the stockholders unless the
corporation's charter requires that a meeting be held. The DGCL permits action
that could be taken at a stockholder meeting to be taken by written consent of
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to take such action at a meeting at which all
shares entitled to vote thereon were present and voted, unless the corporation's
certificate of incorporation provides otherwise. The Atlantic Charter does not
restrict the ability of Atlantic stockholders to act without a meeting. The
Company Charter requires stockholder action to be effected at a meeting of
stockholders and prohibits stockholder action by written consent.
BOARD OF DIRECTORS. The Atlantic Bylaws provide for a Board of Directors
consisting of not fewer than three nor more than 12 members, as determined from
time to time by the Atlantic Board. The Atlantic Charter and the Atlantic Bylaws
do not provide for staggered terms of directors.
The Company Charter provides for a board of not fewer than nine and not more
than 18 directors, as determined from time to time by resolution of the Board of
Directors. The Company Charter provides that
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directors shall be divided into three classes (designated Class I, Class II and
Class III) to provide for staggered terms, with each class consisting, as nearly
as possible, of one-third of the total number of directors. The terms of the
initial Class I directors will expire on the date of the first annual meeting
following the consummation of the Mergers, the terms of the initial Class II
directors will expire on the date of the second annual meeting following the
consummation of the Mergers, and the terms of the initial Class III directors
will expire on the date of the third annual meeting following the consummation
of the Mergers, and thereafter the directors in each class will be elected for a
term of three years.
REMOVAL OF DIRECTORS. The NJBCA provides for the removal of directors, with
cause or unless otherwise provided in the certificate of incorporation without
cause, by a vote of a majority of the shares then entitled to vote. The Atlantic
Charter and Atlantic Bylaws are silent as to the issue of removal of directors.
The DGCL provides that unless a corporation's certificate of incorporation
otherwise provides, directors with staggered terms may be removed only for cause
and requires that the removal of directors be approved by a majority vote of the
shares then entitled to vote at an election of directors. The Company Charter
provides that a member of the Company Board may be removed only for cause, at an
annual meeting or a special meeting of stockholders called for that purpose, by
a majority vote of not less than a majority of votes entitled to be cast by the
holders of all the then outstanding shares of capital stock entitled to vote in
the election of directors generally.
VACANCIES ON THE BOARD AND NEWLY CREATED DIRECTORSHIPS. The Atlantic Bylaws
provide that newly created directorships and vacancies in the Atlantic Board may
be filled by the Atlantic Board, provided that if only two directors remain,
those two, or if only one director remains, that one, may elect directors so
that there are at least three directors holding office until the next annual
meeting of stockholders. The Company Charter provides that newly created
directorships and vacancies in the Company Board of Directors shall be filled by
a majority of the directors then in office, even if less than a quorum, or by
the sole remaining director.
STOCKHOLDER PROPOSALS; NOMINATION OF DIRECTORS BY STOCKHOLDERS. The Company
Charter provides that any stockholder proposal or nomination for election to the
Board brought before the Company's annual meeting must be received by the
Company not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting. If the date of such annual
meeting is advanced by more than 30 days or delayed by more than 60 days, or in
the case of the Company's first annual meeting after the consummation of the
Mergers, notice by the stockholder, to be timely, must be received not earlier
than the ninetieth day prior to such annual meeting and not later than the close
of business on the later of (i) the sixtieth day prior to such annual meeting or
(ii) the tenth day following the date on which notice of the date of the annual
meeting was given. The Company Charter also provides that no business may be
brought before a special meeting by stockholders.
The Atlantic Bylaws require that stockholder proposals or nominations be in
writing and be received not later than 90 days prior to the first anniversary of
the preceding year's annual meeting. If the date of such annual meeting is
advanced by more than 30 days or delayed by more than 60 days, the nomination
must be received not later than the close of business on seventh day following
the date on which notice of the date of the annual meeting was given. In the
case of a stockholder who wishes to nominate a person for election as a director
pursuant to consents in writing by stockholders without a meeting, such
nomination must be received by Atlantic at least 60 days before materials
soliciting such consents are first mailed to stockholders, or, if no such
materials are required under applicable law, 60 days before the first such
consent is executed.
MERGERS. In the case of corporations incorporated after January 1, 1969,
such as Atlantic, the NJBCA requires the vote of a majority of the votes cast by
the stockholders entitled to vote to approve a merger or share exchange
involving the corporation. The DGCL provides that a merger or consolidation may
be
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approved by a majority vote of the shares entitled to vote thereon, unless a
greater percentage is required by the corporation's certificate of
incorporation.
INSPECTION RIGHTS. The NJBCA provides that the record of stockholders may
be inspected upon five days' written notice by any stockholder that has been a
stockholder for six months or any 5% stockholder or group of stockholders owning
5% of the outstanding shares in the aggregate, and only if the demand for
inspection is made for a proper purpose. The DGCL provides that any stockholder
shall have the right to inspect the corporation's stock ledger, a list of its
stockholders and its other books and records upon written demand under oath
stating the purpose thereof if the demand for inspection is made for a proper
purpose.
DIVIDENDS AND REPURCHASES OF STOCK. Under the NJBCA and subject to any
restrictions in its articles of incorporation, a corporation generally may
declare and pay dividends and redeem or repurchase shares of its common stock
unless, after giving effect to such dividend or repurchase, the corporation is
unable to pay its debts as they become due in the usual course of business or
the corporation's assets are less than the sum of its total liabilities. Under
the DGCL, the board of directors may declare and pay dividends upon shares of
the corporation's capital stock either (1) out of the corporation's surplus
(i.e., the excess, if any, of the net assets of the corporation over the capital
of the corporation) or (2) in the case there shall be no such surplus, out of
its net profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year, so long as the declaration and payment of such dividends
do not violate the corporation's certificate of incorporation. Under the DGCL, a
corporation may repurchase shares of its stock so long as such repurchase does
not violate the corporation's certificate of incorporation and so long as such
purchase is not made when the capital of the corporation is impaired or if such
repurchase would cause any impairment of capital, except that a corporation may
repurchase shares out of capital under certain circumstances.
CERTAIN BUSINESS COMBINATIONS AND SHARE PURCHASES. Under Section 203 of the
DGCL, a corporation such as the Company may not engage in any business
combination (defined to include mergers, share exchanges and asset sales) with
any interested stockholder (defined as a 15% stockholder) for a period of three
years following the date that such stockholder became an interested stockholder,
unless (i) prior to the time that such person became an interested Stockholder,
the board of directors of the corporation approved either the business
combination or the transaction in which the stockholder became an interested
stockholder, (ii) upon consummation of the transaction by which the stockholder
became an interested stockholder, the interested stockholder owned at least 85%
of the voting stock of the corporation (excluding certain shares owned by
officers and directors of the corporation and employee stock plans) or (iii) the
business combination is approved by both the board of directors of the
corporation and the affirmative vote of at least two-thirds of the outstanding
voting stock of the corporation that is not owned by the interested stockholder.
The NJBCA contains a similar provision, known as the New Jersey Shareholders
Protection Act (Sections 14A:10A-1 through 14A:10A-6 of the NJBCA). Under this
statute, a resident domestic corporation, such as Atlantic, may not engage in
any business combination (defined similarly to the Delaware provision) with any
interested stockholder (a 10% stockholder) for a period of five years following
the date that such stockholder became an interested stockholder, unless (i) the
board of directors of the corporation approved the business combination prior to
the date that the interested stockholder became such, (ii) two-thirds of the
corporation's voting stock not owned by the interested stockholder approves the
combination or (iii) the combination satisfies certain "fair-price" conditions,
relating to the price at which the interested stockholder will purchase shares
from other stockholders.
AMENDMENT TO ARTICLES OR CERTIFICATE OF INCORPORATION. The NJBCA requires a
majority vote to amend the articles of incorporation of a corporation such as
Atlantic. The Atlantic Charter does not contain any provisions relating to its
amendment. The DGCL provides that the certificate of incorporation of a
corporation may be amended upon an affirmative vote of a majority of the
outstanding shares of capital
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stock entitled to vote thereon and a majority of the outstanding stock of each
class entitled to vote as a class thereon, unless the corporation's charter
requires a larger percentage. Although the Company Charter provides generally
that amendments to the Company Charter may be approved by a majority vote of the
Company's stockholders, an 80% majority is required for: (i) amendments to the
provisions authorizing the Company Board to issue and fix the rights of
Preferred Stock; (ii) amendments to the provisions dividing the Company Board
into classes or providing that directors may be removed only for cause; (iii)
amendments to the provisions limiting who may call special stockholder meetings,
prohibiting the stockholders from acting without a meeting, or fixing the time
requirements for submitting stockholder proposals; and (iv) amendments that
modify these supermajority voting requirements.
ADOPTION, AMENDMENT AND REPEAL OF BYLAWS. The NJBCA provides that a
corporation's board of directors shall have the power to make, alter and repeal
bylaws unless such power is reserved to the stockholders in the certificate of
incorporation. Bylaws made by the board may be altered and repealed, and new
bylaws made, by the stockholders. The stockholders may prescribe in the bylaws
that any bylaws made by them may not be altered or repealed by the board.
The DGCL provides that the power to adopt, amend and repeal bylaws shall be
in the stockholders entitled to vote; provided that any corporation may in its
certificate of incorporation, confer upon the directors the nonexclusive power
to adopt, amend and repeal bylaws.
The Atlantic Charter is silent on the adoption, amendment and repeal of
bylaws. The Atlantic Bylaws provide that they may be amended or added to by
majority vote of all directors, if (i) notice of the proposed change has been
sent to all the directors ten days before the meeting called to consider such
change, (ii) all the directors are present at such meeting or (iii) those not
present at such meeting assent in writing to such change.
The Company Charter authorizes the Company Board to make, alter, amend, or
repeal the Company Bylaws. The Company Charter also provides that stockholders
shall have the power to amend the Company Bylaws only by the affirmative vote of
80% or more of the aggregate number of votes that the holders of the then
outstanding shares of Common Stock and Preferred Stock are entitled to cast on
the amendment.
EXCULPATION AND INDEMNIFICATION OF DIRECTORS. Under the NJBCA, the
certificate of incorporation may provide that a director or officer shall not be
personally liable, or shall be liable only to the extent therein provided, to
the corporation or its stockholders for damages for breach of any duty owed to
the corporation or its stockholders, except for breach of duty based upon an act
or omission (a) in breach of such person's duty of loyalty to the corporation or
its stockholders, (b) not in good faith or involving a knowing violation of law
or (c) resulting in receipt by such person of an improper personal benefit.
Under the DGCL, the certificate of incorporation may include a provision
eliminating or limiting the personal liability of directors for monetary damages
for breach of fiduciary duty as a director, except for breach of the duty of
loyalty, for acts not in good faith or involving intentional misconduct or a
knowing violation of law, for acts from which the director derived an improper
personal benefit, or for the unlawful declaration of dividends or the unlawful
repurchase or redemption of capital stock. The Atlantic Charter provides that
directors and officers of Atlantic shall not be liable to Atlantic or its
stockholders for breach of fiduciary duty as directors or officers, except for
acts not in good faith or for personal benefit. The Company Charter also
provides for the elimination of the personal liability of directors for monetary
damages for breach of fiduciary duty, except for such acts enumerated in the
DGCL for which no such elimination of liability is permitted.
The NJBCA provides that a corporation may indemnify against certain
liabilities and expenses a director, officer, employee or agent of the
corporation who is made a party to a proceeding by reason of his or her service
in such capacity, (i) if the director, officer, agent or employee acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the corporation and (ii) in the case of a criminal
proceeding, he or she had no reasonable cause to believe his or her conduct
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was unlawful. However, under the NJBCA, a corporation may not indemnify a
director, officer, agent or employee if such person was found liable to the
corporation in a proceeding by or in the right of the corporation unless, upon
proper application, the Superior Court finds such indemnification proper. The
NJBCA requires a corporation to indemnify a director, officer, employee or agent
who is made a party to a proceeding by reason of his or her service in such
capacity to the extent that such individual has been successful in such
proceeding. The NJBCA permits a corporation to advance expenses to a director,
officer, employee or agent of the corporation under certain conditions.
The DGCL provides that a corporation may indemnify against certain
liabilities and expenses an officer, director, employee or agent of the
corporation, or a person serving at the request of the corporation as a
director, officer, employee or agent of another entity, who is made a party to
certain proceedings by reason of his or her service in such capacity if such
person acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the corporation and, with respect to
any criminal proceeding, had no reasonable cause to believe his or her conduct
was unlawful. However, under the DGCL, a corporation may not indemnify any
person with respect to any claim or issue as to which such person was found
liable to the corporation in a proceeding by or in the right of the corporation,
unless indemnification of expenses is ordered by a court. The DGCL provides that
a corporation must indemnify against reasonable expenses a director, officer,
employee or agent of the corporation who is made a party to any proceeding by
reason of his or her service in such capacity and who is successful, on the
merits or otherwise, in the defense of any claim, issue or matter therein. The
DGCL permits a corporation to advance expenses to a director or officer under
certain conditions.
The Atlantic Bylaws provide that Atlantic shall indemnify directors,
officers and employees of Atlantic to the full extent permitted by applicable
law in connection with certain actions, suits or proceedings, as well as persons
serving at the request of Atlantic as directors, officers or employees of any
other entity, to the full extent permitted by applicable law in connection with
certain actions, suits, or proceedings. The Company Charter provides that the
Company shall indemnify directors or officers of the Company, as well as persons
serving at the request of the Company as directors, officers, agents or
employees of any other entity, to the full extent permitted by applicable law in
connection with certain actions, suits or proceedings, and that the Company may,
by action of the Company Board, indemnify employees or agents of the Company to
the full extent permitted by applicable law in connection with certain actions,
suits, or proceedings. The Company Charter also requires the Company to advance
expenses to directors and officers, as well as persons serving at the request of
the Company as directors, officers, agents or employees of any other entity,
under certain circumstances.
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APPROVAL OF THE COMPANY INCENTIVE COMPENSATION PLAN
Subsequent to the execution of the Merger Agreement, Delmarva and Atlantic
agreed that the Company would adopt a cash and stock incentive compensation plan
to replace the Delmarva LTIP and Atlantic's Equity Incentive Plan, subject to
approval by stockholders. Accordingly, the Company Plan is submitted to
stockholders of the Delmarva Common Stock and the Atlantic Common Stock for
approval, as more fully described below. Conditioned upon the Mergers becoming
effective, the Company Plan will become effective only if approved by
stockholders as described below, in which event it will become effective at the
consummation of the Mergers and will terminate 10 years thereafter.
The affirmative vote of the holders of a majority of Delmarva Common Stock
present in person or by proxy and entitled to vote at the Delmarva Meeting and
the affirmative vote of at least a majority of all votes cast by all holders of
Atlantic Common Stock entitled to vote, respectively, is required to approve the
Company Plan. This stockholder approval is intended to meet the requirements of
Sections 162(m) and 422 of the Code and the listing guidelines of the NYSE.
THE BOARD OF DIRECTORS OF EACH OF DELMARVA, ATLANTIC AND THE COMPANY
UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE COMPANY PLAN.
Set forth below is a summary of certain important features of the Company
Plan, which summary is qualified in its entirety by reference to the actual
Company Plan document attached as Annex VII to this Joint Proxy
Statement/Prospectus:
OBJECTIVE
The objective of the Company Plan is to support the financial performance of
the Company and thereby increase stockholder value by providing annual and
long-term incentives to reward officers, key employees, advisors and consultants
of the Company and its subsidiaries for the continued growth, development and
financial success of the Company and its subsidiaries, and to increase the
ownership of Company Common Stock by such persons. The Company Plan also is
designed to permit the Company and its subsidiaries to hire and retain talented
and motivated executive officers and key employees
SHARES AVAILABLE UNDER THE PLAN
The number of shares of Company Common Stock that may be granted to
participants under the proposed Company Plan is 5,000,000. If an award lapses or
the participant's rights with respect to such award otherwise terminate, any
shares of Company Common Stock subject to such award will be available again for
future awards under the Company Plan.
TERMINATION
The Company Plan will continue in effect until all matters relating to the
payment of outstanding awards thereunder and administration thereof have been
settled.
ADMINISTRATION
The Company Plan will be administered by a committee of the Company Board
(the "Committee"), which shall be comprised solely of Non-Employee Directors (as
such term is defined in Rule 16b-3(b)(3) under Section 16 of the Exchange Act),
or which otherwise shall meet any disinterested administration or other
requirements of Section 16b-3 and/or Section 162(m) of the Code, each as in
effect at the applicable time. The Company Plan gives the Committee broad
authority to determine the persons to whom, and the times at which, awards will
be granted or lapse under the Company Plan, the types of awards to be granted,
the number of shares of Company Common Stock to be covered by each award, and
all other terms and conditions for awards granted under the Company Plan.
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PARTICIPATION
Each officer, key employee (whether on a regular, temporary or contract
basis), consultant or advisor of the Company or its subsidiaries who, in the
sole discretion of the Committee, is in a position in which his or her
decisions, actions and counsel significantly affect the growth, development and
financial success of the Company is an Eligible Person (as defined in the
Company Plan) able to participate in the Company Plan. Nonemployee directors
will not be eligible to participate in the Company Plan. Because the Company
Plan includes annual as well as long-term incentives, the number of Eligible
Persons will be greater than it would be in a long-term plan only. The total
number of Eligible Persons will be approximately 150, including approximately 25
officers.
SECTION 162(M) COMPLIANCE
Notwithstanding any other provisions in the Company Plan to the contrary,
with respect to any award which is contingent upon the attainment of performance
objectives, including, without limitation, performance-based restricted stock,
performance units and annual incentives ("Performance-Based Awards"), granted
under the Company Plan to an executive of the Company who, in the opinion of the
Committee, for a given Performance Period (as defined below) is or is likely to
be a "covered employee" within the meaning of Section 162(m) of the Code (a
"Covered Executive"), the Committee will establish performance objectives
("Performance Goals") with respect to such Performance-Based Awards no later
than the earlier of (i) 90 days after commencement of the period upon which
performance will be measured (a "Performance Period") relating to the
Performance-Based Award, or (ii) the date on which 25% of the Performance Period
relating to the Performance-Based Award will have elapsed.
Performance Goals, in the sole discretion of the Committee, may be based on
one or more business criteria that relate to the individual, groups of
individuals, a product or service line, business unit, division or subsidiary of
the Company or the Company as a whole, individually or in any combination (each
of which business criteria may be relative to a specified goal, to historical
performance of the Company or a product or service line, business unit, division
or subsidiary thereof, or to the performance of any other corporation or group
of corporations or a product or service line, business unit, division or
subsidiary thereof). Performance Goals will be based on one or more of the
following criteria: (a) gross, operating or net earnings before or after income
taxes; (b) earnings per share; (c) book value per share; (d) cash flow per
share; (e) return on equity; (f) return on investment; (g) return on assets,
employed assets or net assets; (h) total stockholder return (expressed on a
dollar or percentage basis); (i) return on cash flow; (j) internal rate of
return; (k) cash flow return on investment; (l) improvements in capital
structure; (m) residual income; (n) gross income, profitability or net income;
(o) price of any Company security; (p) sales to customers (expressed on a dollar
or percentage basis); (q) retention of customers (expressed on a dollar or
percentage basis); (r) increase in the Company's or a subsidiary's customer
satisfaction ratings (based on a survey conducted by an independent third
party); (s) economic value added (defined to mean net operating profit minus the
cost of capital); (t) market value added (defined to mean the difference between
the market value of debt and equity, and economic book value); (u) market share;
(v) level of expenses; (w) combined ratio; (x) payback period on investment; and
(y) net present value of investment.
The Committee will certify the satisfaction of the foregoing Performance
Goals prior to the payment of a Performance-Based Award. No Performance-Based
Award with respect to any Covered Executive shall exceed $3,000,000 (either in
cash or in the fair market value of stock as determined on the date of grant of
the Performance-Based Award, as appropriate to a given type of award) for any
Performance Period. The Committee, in its sole discretion, may reduce (but not
increase) the amount of any Performance-Based Award determined to be payable to
a Covered Executive. No Covered Executive may receive more than 5,000,000 in the
aggregate of options, SARs and shares of performance-based restricted stock for
the 10-year period during which awards may be made under the Company Plan.
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Regardless of whether provided for in or in conjunction with the grant of an
award, the Committee, in its sole discretion, may defer payment of a
participant's benefit under the Company Plan if and to the extent that the sum
of the participant's Company Plan benefit, plus all other compensation paid or
payable to the Participant for the fiscal year in which the Company Plan benefit
would otherwise be paid exceeds the maximum amount of compensation that the
Company may deduct under Section 162(m) of the Code with respect to the
Participant for the year. If deferred by the Committee, such award benefit will
be paid in the first fiscal year of the Company in which the sum of the
participant's Company Plan benefit and all other compensation paid or payable to
the Participant does not exceed the maximum amount of compensation deductible by
the Company under Section 162(m) of the Code.
AWARDS
Under the Company Plan, in addition to any other types of awards as the
Committee deems appropriate, the following types of awards may be granted from
time to time by the Committee:
RESTRICTED STOCK. The Committee may grant awards of Company Common Stock
bearing restrictions ("Company Restricted Stock") prohibiting a participant's
transfer of the Company Restricted Stock until the lapse of a restriction
period. No consideration is payable by the participant as a result of the grant.
The Committee may establish the terms and conditions of each grant, including
the restriction period (which will be not less than one and not more than 10
years), whether dividends will be paid currently or accumulated and the form of
any dividend payment, and may also condition the awards on the completion of a
specified period of service or on attainment, during a performance period
established by the Committee, of one or more performance objectives established
by the Committee. Performance objectives, which may vary from participant to
participant, are determined by the Committee and may include, but are not
limited to, the performance of the Company and/or the participant individually
or collectively with any other individuals or groups, or any combination
thereof. On completion of the restriction period and attainment of any
performance objectives, the restrictions will expire with respect to one or more
shares of Company Restricted Stock. If target performance objectives are
exceeded, the Committee may award additional Company Common Stock to a
participant.
OPTIONS. The Committee may grant either incentive stock options ("ISO"s)
that are qualified under Section 422 of the Code (which may be granted only to
persons employed by the Company or a subsidiary of the Company on a regular
basis) or options not intended to qualify under Section 422 of the Code
("Nonqualified Options"). No consideration is payable by the participant as a
result of the grant. The Committee may establish the terms and conditions of
each grant; provided that an option to purchase a share of Company Common Stock
may not be granted with an exercise price of less than 100% of the fair market
value of a share of Company Common Stock on such date. Further, the period
during which the options are exercisable will not exceed 10 years from the date
of grant. In the Committee's discretion, the exercise price may be paid in cash,
shares of Company Common Stock, or both.
PERFORMANCE UNITS. The Committee may make performance awards payable in
cash, Company Common Stock or both, upon attainment during a performance period
established by the Committee, of one or more performance objectives established
by the Committee. Performance objectives, which may vary from participant to
participant, are determined by the Committee and may include, but are not
limited to, the performance of the Company and/or the participant individually
or collectively with any other individuals or groups, or any combination
thereof.
STOCK APPRECIATION RIGHTS. The Committee may grant awards of stock
appreciation rights ("SAR"s) in conjunction with an option or as a separate
award. No consideration is payable by the participant as a result of the grant.
The Committee may establish the terms and conditions of each grant; provided
that the period during which the rights are exercisable will not exceed 10
years.
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SARs provide the right to receive a payment in cash, Company Common Stock,
or both in the Committee's discretion. If a grant is in conjunction with an
option, the option must be surrendered, and the amount of the payment will be
determined based on the excess of the fair market value of the Company Common
Stock at the date of exercise over the option price at the date the underlying
option was granted. If a grant is not in conjunction with an option, the payment
will be determined based on the excess of the fair market value of the Company
Common Stock at the date of exercise over the fair market value of the Company
Common Stock at the date of grant of the SAR.
DIVIDEND EQUIVALENTS. The Committee may grant awards of dividend
equivalents in conjunction with an option, a separately-awarded SAR or
performance unit. No consideration is payable by the participant as a result of
the grant. Each dividend equivalent entitles the participant to receive an
amount, at such times and in a form and manner in the Committee's discretion,
equal to the dividend actually paid with respect to a share of Company Common
Stock on each dividend payment date from the date of grant until the dividend
equivalent lapses. Dividend equivalents will lapse at a date no later than the
date the underlying award lapses or is exercised.
EFFECT OF CHANGE IN CONTROL
After the consummation of the Mergers, unless the Committee specifies
otherwise, upon the occurrence of a change in control of the Company: (a) all
options and SARs granted under the Company Plan will become exercisable in full
immediately; (b) all uncompleted performance periods for performance units will
be deemed to have been completed, the maximum level of performance will be
deemed to have been achieved and a pro rata portion of each performance unit
will become payable immediately in cash; (c) any conditions to the vesting of
Company Restricted Stock will be deemed to have been satisfied (assuming that
maximum performance was achieved for performance-based awards), any uncompleted
time periods will be deemed to have been completed and all restrictions will
lapse immediately; and (d) annual incentive awards shall be treated in such
manner as the Committee determines at the time of such change in control. For
purposes of the Company Plan, the term "change in control" means (a) any person
(within the meaning of Section 13(d) or 14(d) of the Exchange Act) is or becomes
the beneficial owner (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of securities of the Company representing 25% or more of either
the then outstanding shares of Company Common Stock or the combined voting power
of the Company's then outstanding securities; or (b) the following individuals
cease for any reason to constitute a majority of the number of directors then
serving: individuals who constitute the initial Board after the consummation of
the Mergers and any new director (other than a director whose initial assumption
of office is in connection with an actual or threatened election contest,
including but not limited to a consent solicitation, relating to the election of
directors) whose appointment or election by the Board or nomination for election
by the Company's stockholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were directors of the
initial Board after the consummation of the Mergers, or whose appointment,
election or nomination for election was previously so approved; or (c) there is
consummated a merger or consolidation of the Company with any other corporation
other than (i) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior to such merger or
consolidation continuing to represent at least 80% of the combined voting power
of the voting securities of the Company or such surviving entity or any parent
thereof outstanding immediately after such merger or consolidation, or (ii) a
merger or consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no person is or becomes the beneficial owner,
directly or indirectly, of securities of the Company representing 25% or more of
either the then outstanding shares of Company Common Stock or the combined
voting power of the Company's then outstanding securities; or (d) the
stockholders of the Company approve a plan of complete liquidation or
dissolution of the Company or there is consummated an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or substantially all of
the Company's assets to an entity, at least 80% of
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the combined voting power of the voting securities of which are owned by persons
in substantially the same proportions as their ownership of the Company
immediately prior to such sale.
TAX WITHHOLDING
The Company or its subsidiaries may withhold any applicable federal, state
or local taxes upon payment under an award. Subject to any applicable law, if
payment under an award is to be made in Company Common Stock, the Committee may
in its discretion permit or require a participant to satisfy any withholding or
other taxes payable through (a) the payment of cash by the participant to the
Company or its subsidiaries, (b) the retention by the Company or its
subsidiaries of shares of Company Common Stock, or (c) the delivery by the
participant to the Company or its subsidiaries of Company Common Stock owned by
the participant. Special rules may apply to participants subject to the
reporting requirements of Section 16(a) of the Exchange Act.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax consequences of an award under the Company Plan
depend on the type of award, as discussed below:
RESTRICTED STOCK. The grant of Company Restricted Stock does not result in
taxable income to a participant or a tax deduction for the Company. At the time
the restrictions expire, however, a participant will realize ordinary taxable
income in an amount equal to the fair market value of the Company Common Stock
on the date the restrictions expire, and the Company will be entitled to a
corresponding deduction. In addition, during or after the restriction period
(depending on whether the dividends are paid to the individuals or accumulated),
a participant will be taxed on the dividends paid with respect to Company
Restricted Stock as compensation, and the Company will be entitled to a
corresponding deduction.
INCENTIVE STOCK OPTIONS. ISOs under the Plan are intended to meet the
requirements of Section 422 of the Code. The grant of an ISO does not result in
taxable income to the participant or a tax deduction for the Company. The
exercise of an ISO will not result in ordinary taxable income to the participant
(although the difference between the exercise price and the fair market value of
the Company Common Stock subject to the option may result in alternative minimum
tax liability to the participant) and the Company will not be allowed a
deduction at any time in connection with such award, if the following conditions
are met: (a) at all times during the period beginning with the date of grant and
ending on the day three months before the date of exercise, the participant is
an employee of the Company or of a subsidiary; and (b) the participant makes no
disposition of Company Common Stock within two years from the date of grant nor
within one year after the Company Common Stock is transferred to the
participant. The three-month period is extended to one year in the event of
disability and is waived in the event of death of the participant. If the
Company Common Stock is sold by the participant after meeting these conditions,
any gain realized over the exercise price ordinarily will be treated as
long-term capital gain, and any loss will be treated as long-term capital loss,
in the year of the sale.
If the participant fails to comply with the employment or holding period
requirements discussed above, the participant will recognize ordinary taxable
income in an amount equal to the lesser of (a) the excess of the fair market
value of the Company Common Stock on the date of exercise over the exercise
price, or (b) the excess of the amount realized upon such disposition over the
exercise price. If the participant realizes ordinary taxable income on account
of such a disqualifying disposition (described above), a corresponding deduction
will be allowed to the Company for the same year.
NONQUALIFIED STOCK OPTIONS. The grant of a Nonqualified Option does not
result in taxable income to the participant or a tax deduction for the Company.
Upon exercise of a Nonqualified Stock option, the participant will realize
compensation taxable as ordinary income in an amount equal to the difference
between the exercise price and the fair market value of the Company Common Stock
on the date of
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exercise, and the Company will be entitled to a corresponding deduction for the
same year. The participant's basis in such shares will be the fair market value
on the date income is realized, and when the participant disposes of the shares
he or she will recognize capital gain or loss, either long-term or short-term,
depending on the holding period of the shares.
STOCK APPRECIATION RIGHTS. The grant of SARs does not result in taxable
income to the participant or a tax deduction for the Company. Upon exercise of
an SAR, the participant will realize ordinary taxable income in an amount equal
to the excess of the fair market value of the Company Common Stock or cash
received over any amount paid by the participant upon exercise, and the Company
will be entitled to a corresponding deduction for the same year.
PERFORMANCE UNITS. The grant of a performance unit does not result in
taxable income to the participant or a tax deduction for the Company. Upon the
expiration of the applicable award cycle and receipt of the Company Common Stock
distributed in payment of the award or an equivalent amount of cash, the
participant will realize ordinary taxable income equal to the full fair market
value of the shares delivered or the amount of cash paid. At that time, the
Company generally will be allowed a corresponding tax deduction equal to the
compensation taxable to participant.
Accounting principles require that restricted share awards be charged
against earnings on a pro rata basis over the restriction period and will be
based on the value of the stock at the date of grant. Under the terms of the
Company Plan, the granting of ISOs or Nonqualified Options, without accompanying
stock appreciation rights, will not require a charge against earnings. The
granting of SARs, however, will require that earnings be charged over the
specified award period for any appreciation in the value of the underlying stock
subsequent to the date of grant.
NEW PLAN BENEFITS
It cannot be determined at this time what benefits or amounts, if any, will
be received by or allocated to any person or group of persons under the Company
Plan if the Company Plan is adopted or what benefits or amounts would have been
received by or allocated to any person or group of persons for the last fiscal
year if the Company Plan had been in effect. Any such determinations will be
made by the Committee in its sole discretion.
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UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements combine the
historical balance sheets and statements of operations of Delmarva and Atlantic
to give effect to the Mergers under the purchase method of accounting and the
assumptions set forth in the notes thereto. The unaudited pro forma combined
balance sheet as of September 30, 1996 assumes that the Mergers were consummated
on September 30, 1996. The unaudited pro forma combined statements of operations
for the nine months ended September 30, 1996, and the year ended December 31,
1995 assume that the Mergers were consummated on January 1, 1995. The statements
do not reflect any cost savings or other synergies anticipated by management as
a result of the Mergers. In the opinion of management, all adjustments necessary
to present pro forma financial statements have been made.
The following unaudited pro forma combined financial information should be
read in conjunction with the historical consolidated financial statements and
related notes thereto of Delmarva, Atlantic and ACE, incorporated by reference
herein. See "Available Information" and "Incorporation by Reference." The
following information is not necessarily indicative of the financial position or
operating results that would have occurred had the Mergers been consummated on
the date, or at the beginning of the periods, for which the Mergers are being
given effect, nor is it necessarily indicative of future operating results or
financial position.
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THE COMPANY
PRO FORMA COMBINED BALANCE SHEETS
SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DELMARVA ATLANTIC
AS AS PRO FORMA THE COMPANY
ADJUSTED(S) ADJUSTED(S) ADJUSTMENTS PRO FORMA
------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
UTILITY PLANT, AT COST
Electric............................................ $ 2,944,454 $ 2,497,685 -- $ 5,442,139
Gas................................................. 219,916 -- -- 219,916
Common.............................................. 133,430 -- -- 133,430
------------- ------------- ----------- -------------
3,297,800 2,497,685 -- 5,795,485
Less: Accumulated depreciation...................... 1,263,693 853,134 -- 2,116,827
------------- ------------- ----------- -------------
Net utility plant in service........................ 2,034,107 1,644,551 -- 3,678,658
Construction work-in-progress....................... 99,008 120,075 -- 219,083
Leased property, net................................ 34,029 37,695 -- 71,724
Cost in excess of net assets acquired, net.......... 75,990 -- $ 204,476(f) 280,466
------------- ------------- ----------- -------------
2,243,134 1,802,321 204,476 4,249,931
------------- ------------- ----------- -------------
INVESTMENTS AND NONUTILITY PROPERTY
Investment in leveraged leases...................... 47,306 79,500 -- 126,806
Funds held by trustee............................... 34,662 81,591 -- 116,253
Other investments and nonutility property, net...... 60,331 68,909 -- 129,240
------------- ------------- ----------- -------------
142,299 230,000 -- 372,299
------------- ------------- ----------- -------------
CURRENT ASSETS
Cash and cash equivalents........................... 28,280 15,100 -- 43,380
Accounts receivable:
Customers......................................... 110,881 108,466 -- 219,347
Other............................................. 24,219 26,189 -- 50,408
Deferred energy costs............................... 19,041 33,568 -- 52,609
Inventories, at average cost:
Fuel (coal, oil, and gas)......................... 31,724 24,000 -- 55,724
Materials and supplies............................ 35,868 40,057 -- 75,925
Prepayments......................................... 9,277 29,160 -- 38,437
Other............................................... -- 4,451 -- 4,451
------------- ------------- ----------- -------------
259,290 280,991 -- 540,281
------------- ------------- ----------- -------------
DEFERRED CHARGES AND OTHER ASSETS
Unrecovered purchased power costs................... -- 87,507 -- 87,507
Deferred recoverable income taxes................... 140,983 85,858 -- 226,841
Unrecovered state excise taxes...................... -- 57,104 -- 57,104
Deferred debt refinancing costs..................... 22,018 30,493 -- 52,511
Other regulatory assets............................. 31,406 59,237 -- 90,643
Prepaid pension cost................................ 27,458 7,601 (7,601)(g) 27,458
Unamortized debt expense............................ 11,776 5,952 4,656(k) 22,384
Other............................................... 19,747 27,636 -- 47,383
------------- ------------- ----------- -------------
253,388 361,388 (2,945) 611,831
------------- ------------- ----------- -------------
TOTAL ASSETS.......................................... $ 2,898,111 $ 2,674,700 $ 201,531 $ 5,774,342
------------- ------------- ----------- -------------
------------- ------------- ----------- -------------
</TABLE>
The accompanying notes to the unaudited pro forma combined balance sheet and
statements of income are an integral part of this statement.
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THE COMPANY
PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
DELMARVA ATLANTIC
AS AS PRO FORMA THE COMPANY
ADJUSTED(S) ADJUSTED(S) ADJUSTMENTS PRO FORMA
------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
CAPITALIZATION
Common stock...................................... $ 136,717 $ 565,598 $(701,315)(a) $ 1,000
Class A common stock.............................. -- -- 66(a) 66
Additional paid-in capital--common stock.......... 506,680 -- 940,627(b) 1,447,307
Additional paid-in capital--Class A common
stock........................................... -- -- 137,289(b) 137,289
Retained earnings................................. 299,108 247,222 (262,770)(d) 283,560
------------- ------------- ----------- -------------
942,505 812,820 113,897 1,869,222
Treasury shares, at cost.......................... (5,020) -- 5,020(e) --
Unearned compensation............................. (824) (5,314) 6,138(m) --
------------- ------------- ----------- -------------
Total common stockholders' equity............. 936,661 807,506 125,055 1,869,222
Preferred stock not subject to mandatory
redemption...................................... 168,085 -- (168,085)(k) --
Preferred stock of subsidiaries:
Not subject to mandatory redemption............. -- 30,000 89,702(k) 119,702
Subject to mandatory redemption................. -- 90,000 93,950(k) 183,950
Long-term debt.................................... 827,242 829,799 -- 1,657,041
------------- ------------- ----------- -------------
1,931,988 1,757,305 140,622 3,829,915
------------- ------------- ----------- -------------
CURRENT LIABILITIES
Short-term debt................................... 81,187 87,700 (4,146)(k) 164,741
Preferred stock redemption requirement............ -- 10,000 -- 10,000
Long-term debt due within one year................ 27,244 74,100 -- 101,344
Variable rate demand bonds........................ 86,500 -- -- 86,500
Accounts payable.................................. 50,694 55,359 600 (k) 106,653
Taxes accrued..................................... 12,396 40,159 (5,073)(i)(m) 47,482
Interest accrued.................................. 21,336 17,186 -- 38,522
Dividends declared................................ 23,288 22,598 -- 45,886
Current capital lease obligation.................. 12,456 688 -- 13,144
Deferred income taxes, net........................ 5,438 2,438 -- 7,876
Other............................................. 31,314 36,829 45,394 (i) 113,537
------------- ------------- ----------- -------------
351,853 347,057 36,775 735,685
------------- ------------- ----------- -------------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes, net........................ 518,785 428,309 (34,374)(n) 912,720
Deferred investment tax credits................... 43,141 47,211 -- 90,352
Long-term capital lease obligations............... 21,711 37,006 -- 58,717
Postretirement obligations........................ -- 31,581 58,508(g) 90,089
Other............................................. 30,633 26,231 -- 56,864
------------- ------------- ----------- -------------
614,270 570,338 24,134 1,208,742
------------- ------------- ----------- -------------
TOTAL CAPITALIZATION AND LIABILITIES................ $ 2,898,111 $ 2,674,700 $ 201,531 $ 5,774,342
------------- ------------- ----------- -------------
------------- ------------- ----------- -------------
</TABLE>
The accompanying notes to the unaudited pro forma combined balance sheet and
statements of income are an integral part of this statement.
116
<PAGE>
THE COMPANY
PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
DELMARVA ATLANTIC
AS AS PRO FORMA THE COMPANY
ADJUSTED(S) ADJUSTED(S) ADJUSTMENTS PRO FORMA
------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Electric................................................ $ 752,415 $ 752,968 -- $ 1,505,383
Gas..................................................... 82,164 -- -- 82,164
------------- ------------- --------------- ---------------
834,579 752,968 -- 1,587,547
------------- ------------- --------------- ---------------
OPERATING EXPENSES
Electric fuel and purchased energy...................... 244,593 171,648 -- 416,241
Gas purchased........................................... 43,844 -- -- 43,844
Purchased electric capacity............................. 25,147 146,877 -- 172,024
Operation and maintenance............................... 191,449 143,054 -- 334,503
Depreciation and amortization........................... 91,435 60,490 $ 3,834(j) 155,759
State excise taxes...................................... -- 80,391 -- 80,391
Income taxes............................................ 62,547 30,842 (3,612)(l) 89,777
Other taxes............................................. 32,218 7,656 -- 39,874
------------- ------------- --------------- ---------------
691,233 640,958 222 1,332,413
------------- ------------- --------------- ---------------
OPERATING INCOME.......................................... 143,346 112,010 (222) 255,134
------------- ------------- --------------- ---------------
OTHER INCOME
Nonutility subsidiaries
Revenues and gains.................................... 42,194 10,573 -- 52,767
Expenses.............................................. (39,105) (10,033) -- (49,138)
------------- ------------- --------------- ---------------
Net earnings of nonutility subsidiaries............. 3,089 540 -- 3,629
Allowance for equity funds used during construction..... 774 697 -- 1,471
Other income, net of income taxes....................... (1,202) 2,063 -- 861
------------- ------------- --------------- ---------------
2,661 3,300 -- 5,961
------------- ------------- --------------- ---------------
INCOME BEFORE INTEREST CHARGES............................ 146,007 115,310 (222) 261,095
------------- ------------- --------------- ---------------
INTEREST CHARGES
Interest expense........................................ 53,589 49,303 1,176(l) 104,068
Allowance for borrowed funds used during construction... (2,085) (820) -- (2,905)
------------- ------------- --------------- ---------------
51,504 48,483 1,176 101,163
------------- ------------- --------------- ---------------
Preferred stock dividend requirements of subsidiaries..... -- 8,475 7,050(l) 15,525
NET INCOME................................................ 94,503 58,352 (8,448) 144,407
Dividends on preferred stock.............................. 7,293 -- (7,293)(l) --
------------- ------------- --------------- ---------------
EARNINGS APPLICABLE TO COMMON STOCK
Common stock............................................ 87,210 58,352 (10,734) 134,828
Class A common stock.................................... -- -- 9,579(o) 9,579
------------- ------------- --------------- ---------------
$ 87,210 $ 58,352 $ (1,155) $ 144,407
------------- ------------- --------------- ---------------
------------- ------------- --------------- ---------------
Average common shares outstanding (000):
Common stock............................................ 60,709 52,702 (13,175)(p) 100,236
Class A common stock.................................... -- -- 6,588(p) 6,588
Earnings per average share outstanding of:
Common stock............................................ $1.44 $1.11 -- $1.35
Class A common stock.................................... -- -- -- $1.45
Dividends declared per share of:
Common stock............................................ $1.155 $1.155 -- $1.155
Class A common stock.................................... -- -- -- $2.40
</TABLE>
The accompanying notes to the unaudited pro forma combined balance sheet and
statements of income are an integral part of this statement.
117
<PAGE>
THE COMPANY
PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
DELMARVA ATLANTIC
AS AS PRO FORMA THE COMPANY
ADJUSTED(S) ADJUSTED(S) ADJUSTMENTS PRO FORMA
------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Electric.......................................................... $ 899,662 $ 953,137 -- $ 1,852,799
Gas............................................................... 95,441 -- -- 95,441
------------- ------------- ----------- -------------
995,103 953,137 -- 1,948,240
------------- ------------- ----------- -------------
OPERATING EXPENSES
Electric fuel and purchased energy................................ 267,885 191,766 -- 459,651
Gas purchased..................................................... 48,615 -- -- 48,615
Purchased electric capacity....................................... 29,116 190,570 -- 219,686
Operation and maintenance......................................... 246,049 186,439 -- 432,488
Depreciation and amortization..................................... 113,022 78,461 $ 5,112(j) 196,595
State excise taxes................................................ -- 102,811 -- 102,811
Income taxes...................................................... 73,561 45,876 (4,927)(l) 114,510
Other taxes....................................................... 38,449 8,677 -- 47,126
------------- ------------- ----------- -------------
816,697 804,600 185 1,621,482
------------- ------------- ----------- -------------
OPERATING INCOME.................................................... 178,406 148,537 (185) 326,758
------------- ------------- ----------- -------------
OTHER INCOME
Nonutility subsidiaries
Revenues and gains.............................................. 52,042 6,925 -- 58,967
Expenses........................................................ (47,896) (7,680) -- (55,576)
------------- ------------- ----------- -------------
Net earnings of nonutility subsidiaries....................... 4,146 (755) -- 3,391
Allowance for equity funds used during construction............... 708 817 -- 1,525
Other income, net of income taxes................................. 557 8,996 -- 9,553
------------- ------------- ----------- -------------
5,411 9,058 -- 14,469
------------- ------------- ----------- -------------
INCOME BEFORE INTEREST CHARGES...................................... 183,817 157,595 (185) 341,227
------------- ------------- ----------- -------------
INTEREST CHARGES
Interest expense.................................................. 68,395 62,879 1,886(l) 133,160
Allowance for borrowed funds used during construction............. (2,066) (1,679) -- (3,745)
------------- ------------- ----------- -------------
66,329 61,200 1,886 129,415
------------- ------------- ----------- -------------
Preferred stock dividend requirements of subsidiary................. -- 14,627 9,618(l) 24,245
NET INCOME.......................................................... 117,488 81,768 (11,689) 187,567
Dividends on preferred stock........................................ 9,942 -- (9,942)(l) --
------------- ------------- ----------- -------------
EARNINGS APPLICABLE TO COMMON STOCK
Common stock...................................................... 107,546 81,768 (15,578) 173,736
Class A common stock.............................................. -- -- 13,831(o) 13,831
------------- ------------- ----------- -------------
$ 107,546 $ 81,768 $ (1,747) $ 187,567
------------- ------------- ----------- -------------
------------- ------------- ----------- -------------
Average common shares outstanding (000):
Common stock...................................................... 60,217 52,815 (13,288)(p) 99,744
Class A common stock.............................................. -- -- 6,588(p) 6,588
Earnings per average share outstanding of:
Common stock...................................................... $1.79 $1.55 -- $1.74
Class A common stock.............................................. -- -- -- $2.10
Dividends declared per share of:
Common stock...................................................... $1.54 $1.54 -- $1.54
Class A common stock.............................................. -- -- -- $3.20
</TABLE>
The accompanying notes to the unaudited pro forma combined balance sheet and
statements of income are an integral part of this statement.
118
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(a) Adjustments to record the estimated par value at $0.01 per share of Company
Common Stock and Class A Common Stock to be issued and outstanding. The
number of shares of Common Stock was estimated using the number of Delmarva
Common Stock and Atlantic Common Stock shares outstanding as of September
30, 1996. Each outstanding share of Delmarva Common Stock was converted into
one share of Company Common Stock and each outstanding share of Atlantic
Common Stock was converted into 0.75 of one share of Company Common Stock
plus 0.125 of one share of Class A Common Stock. The adjustments are
summarized below:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1996
---------------------
<S> <C>
Common Stock:
Number of Atlantic Common Stock shares outstanding............................. 52,702,052
Conversion Ratio............................................................... 0.75
---------------------
Number of Common Stock shares to be issued to Atlantic Common Stockholders..... 39,526,539
Number of Common Stock shares to be issued to Delmarva Common Stockholders
(Equal to the number of Delmarva Common Stock shares outstanding)............ 60,523,411
---------------------
Total number of Common Stock shares to be issued............................... 100,049,950
Par value per share............................................................ $0.01
---------------------
(In Thousands of Dollars):
Adjusted par value of total number of Common Stock shares to be issued......... $ 1,000
Delmarva's Common Stock, as previously reported................................ (136,717)
Atlantic's Common Stock, as previously reported................................ (565,598)
---------------------
Adjustment to Common Stock..................................................... $(701,315)
---------------------
---------------------
Class A Common Stock:
Number of Atlantic Common Stock shares outstanding............................. 52,702,052
Conversion Ratio............................................................... 0.125
---------------------
Number of Class A Common Stock shares to be issued to Atlantic Common
Stockholders................................................................. 6,587,757
Par value per share............................................................ $0.01
---------------------
Par value (In Thousands of Dollars)............................................ $66
---------------------
---------------------
</TABLE>
119
<PAGE>
(b) Adjustments to record additional paid-in-capital to reflect the following:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1996
---------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Additional Paid-In-Capital--Common Stock:
Cancellation of the Delmarva Treasury Stock cost in excess of par value........ $ (4,481)
Adjustment to par value of Delmarva Common Stock outstanding................... 135,572
Consideration to be paid to Atlantic's Common Stockholders in the form of
Company Common Stock in excess of par value.................................. 810,887
Estimated registration and issuance costs...................................... (1,750)
Redemption of preferred stock [see Note (k)]................................... 399
--------
$ 940,627
--------
--------
Additional Paid-In-Capital--Class A Common Stock:
Consideration to be paid to Atlantic's Common Stockholders in the form of Class
A Common Stock in excess of par value........................................ $ 137,289
--------
--------
</TABLE>
(c) The total consideration to be paid to the Atlantic Common Stockholders was
measured by the average daily closing market price of Atlantic's Common
Stock for the ten trading days following the public announcement of the
Merger Agreement on August 12, 1996.
Delmarva's Common Stockholders will receive one share of Company Common Stock
for each share of Delmarva's Common Stock. Therefore, the average daily
market price of Delmarva's Common Stock for the same ten day period
following the public announcement of the Merger Agreement was used to
measure the market value of Company Common Stock to be paid to Atlantic's
Common Stockholders. Delmarva's average market price per share was
multiplied by the Atlantic conversion ratio for Company Common Stock to
determine the estimated market value per share of Atlantic Common Stock
attributed to Company Common Stock. This market value per share was
multiplied by the number of Atlantic Common Stock shares outstanding at
September 30, 1996 to estimate the consideration to be paid to Atlantic
Common Stockholders in the form of Company Common Stock.
The difference between the total compensation to be paid to Atlantic's Common
Stockholders and the portion attributed to Company Common Stock was
attributed to Class A Common Stock.
The schedules below show the calculation of the total consideration to be
paid to Atlantic's Common Stockholders and the allocation of the total
consideration to be paid between Company Common Stock and Class A Common
Stock:
<TABLE>
<CAPTION>
AMOUNTS
--------------------
<S> <C>
Average market price per share of Atlantic Common Stock used to determine consideration
to be paid........................................................................... $ 18.00
Number of Atlantic Common Stock shares outstanding as of September 30, 1996............ 52,702,052
--------------------
Total consideration to be paid to Atlantic Common Stockholders (In Thousands of
Dollars)............................................................................. $ 948,637
--------------------
--------------------
Average market price per share of Delmarva Common Stock for the ten trading days
following the public announcement of the Merger Agreement............................ $ 20.525
Conversion ratio of Company Common Stock for each share of Atlantic Common Stock....... 0.75
--------------------
</TABLE>
120
<PAGE>
<TABLE>
<CAPTION>
AMOUNTS
--------------------
<S> <C>
Estimated market value per share of Atlantic Common Stock attributed to Company Common
Stock................................................................................ $ 15.39375
Number of Atlantic Common Stock shares outstanding as of September 30, 1996............ 52,702,052
--------------------
Consideration to be paid to Atlantic's Common Stockholders in the form of Company
Common Stock (In Thousands of Dollars) $ 811,282
--------------------
--------------------
(In Thousands of Dollars):
Total consideration to be paid to Atlantic Common Stockholders......................... $ 948,637
Portion of total consideration attributed to Company Common Stock...................... 811,282
--------------------
Portion of total consideration attributed to Class A Common Stock...................... $ 137,355
--------------------
--------------------
</TABLE>
(d) Adjustment to retained earnings to reflect the following:
<TABLE>
<CAPTION>
AMOUNTS
---------------------
<S> <C>
(DOLLARS IN
THOUSANDS)
Eliminate retained earnings of Atlantic............................................... $ (238,397)
Charges to expense of $11.9 million ($7.3 million after taxes) for nonrecurring
employee separation costs related to Delmarva employees and employee retraining
costs [see Note (h)]................................................................ (7,280)
Charges to retained earnings related to the redemption of preferred stock [see Note
(k)]................................................................................ (7,765)
Charge to expense to eliminate unearned income [see Note (m)]......................... (3,957)
Charge to expense for Atlantic's portion of direct costs of the acquisition [see Note
(i)]................................................................................ (5,371)
---------------------
Total adjustment...................................................................... $ (262,770)
---------------------
---------------------
</TABLE>
Prior to elimination, the retained earnings of Atlantic, as reported in its
Form 10-Q for the quarter ended September 30, 1996, of $247,222,000 was
reduced by $3,454,000, which is Atlantic's after tax portion of the expense
recognized that was related to employee incentive plans [see Note (m)] and
$5,371,000, which is Atlantic's after tax portion of direct costs of the
acquisition [see Note (i)].
(e) Adjustment to reflect the cancellation of the Delmarva treasury stock as a
condition of the Mergers.
121
<PAGE>
(f) The schedule below shows the calculation of the cost of acquiring Atlantic
and the allocation of the total acquisition cost to identifiable tangible
and intangible assets and liabilities.
<TABLE>
<CAPTION>
COST OF ACQUIRING ATLANTIC
- -------------------------------------------------------------------------------------- AMOUNTS
---------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Consideration to be paid to Atlantic's Common Stockholders [see Note (c)]............. $ 948,637
Add: Estimated direct costs of acquisition to be incurred by Delmarva................. 8,263
Less: Registration and issuance costs................................................. (1,750)
-----------
Total acquisition cost................................................................ $ 955,150
-----------
-----------
Less assets acquired:
Electric utility plant--net......................................................... $ 1,802,321
Investments and nonutility property................................................. 230,000
Current assets...................................................................... 280,991
Deferred debits..................................................................... 361,388
-----------
Total assets acquired (excluding goodwill).......................................... $ 2,674,700
-----------
-----------
Add liabilities acquired:
Preferred stock of subsidiaries..................................................... $ 120,000
Long-term debt...................................................................... 829,799
Current liabilities................................................................. 350,568
Deferred credits and other liabilities.............................................. 570,338
-----------
Total liabilities acquired.......................................................... $ 1,870,705
-----------
Costs incurred and liabilities assumed in connection with the Mergers................. $ 53,321
-----------
Cost in excess of net assets acquired................................................. $ 204,476
-----------
-----------
</TABLE>
The current liabilities of Atlantic as of September 30, 1996 included in net
assets acquired was adjusted to reflect transactions to be recorded by
Atlantic prior to the Mergers as shown below:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1996
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Current liabilities of Atlantic as adjusted [see Note (s)].......................... $ 347,057
Accrued liability for Atlantic's portion of direct costs of the Mergers [see Note
(i)]............................................................................... 8,263
Accrued tax benefits [see Notes (i) and (m)]........................................ (4,752)
--------
Current liabilities acquired........................................................ $ 350,568
--------
--------
</TABLE>
The fair value of the utility assets of Atlantic is their book value due to
the ratemaking process. Utility assets are recognized for ratemaking
purposes at their book values in determining utility revenue requirements.
Accordingly, the economic substance is that the fair value of the utility
assets is their book value.
The estimated fair values of Atlantic's nonutility assets is not
significantly different from their carrying values as reported by Atlantic
as of September 30, 1996.
(g) Adjustments to record additional pension and other postretirement benefit
liabilities, totaling $66.1 million, as liabilities assumed in the
acquisition of Atlantic in accordance with Statements of Financial
Accounting Standards (SFAS) Nos. 87 and 106.
(h) Adjustment to record an estimated liability of $16.9 million, which is
included in the acquisition cost, for employee separation and relocation
costs and facilities integration costs related to Atlantic's employees and
facilities and a liability of $11.9 million, which will be expensed, for
employee separation costs related to Delmarva's employees and employee
retraining costs. The Unaudited Pro
122
<PAGE>
Forma Combined Statements of Income for the nine months ended September 30,
1996 and twelve months ended December 31, 1995 do not reflect the
nonrecurring estimated expenses of $11.9 million before taxes ($7.3 million
after taxes) for employee separation costs related to Delmarva's employees
and employee retraining costs.
(i) Adjustments to record estimated direct costs of the Mergers of $16.5
million.
It is estimated that these costs will be incurred equally by Atlantic and
Delmarva. The Atlantic portion of these costs of $8.3 million before taxes
($5.4 million after taxes) will be expensed by Atlantic prior to the
Mergers. The Delmarva portion of these costs will be included in the cost of
acquiring Atlantic. The adjustments are summarized below:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1996
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Atlantic's portion of these costs:
Decrease in retained earnings..................................................... $ (5,371)
-------
-------
Accrued tax benefit............................................................... $ (2,892)
-------
-------
Other current liabilities......................................................... $ 8,263
-------
-------
Delmarva's portion of these costs:
Other current liabilities......................................................... $ 8,263
-------
-------
</TABLE>
The Unaudited Pro Forma Combined Statements of Income for the nine months
ended September 30, 1996 and twelve months ended December 31, 1995 do not
reflect Atlantic's portion of the direct costs of the Mergers, which are
nonrecurring.
(j) Adjustment to reflect the amortization of goodwill acquired over forty (40)
years.
(k) Adjustments to record the following issuances of preferred stock by wholly
owned trusts of Delmarva and an Atlantic subsidiary and redemptions of
preferred stock of Delmarva and an Atlantic subsidiary:
<TABLE>
<CAPTION>
DATE DIVIDEND RATE AMOUNT
- ------------------------------------------------------------------------------ ------------- -------------
<S> <C> <C>
Issuances:
October 1, 1996............................................................. 8.25% $ 70,000,000
October 3, 1996............................................................. 8.125% 70,000,000
Redemptions:
October 7, 1996............................................................. $ 7.80 37,050,000
October 16, 1996............................................................ 3.70% 1,013,400
October 16, 1996............................................................ 4.00% 2,012,600
October 16, 1996............................................................ 4.20% 2,459,600
October 16, 1996............................................................ 4.28% 2,154,000
October 16, 1996............................................................ 4.56% 3,042,900
October 16, 1996............................................................ 5.00% 3,147,700
October 16, 1996............................................................ 6.75% 16,500,000
October 16, 1996............................................................ 7.75% 32,087,500
October 16, 1996............................................................ Adjustable 965,000
November 8, 1996............................................................ $ 7.80 5,000,000
November 21, 1996........................................................... $ 7.80 4,000,000
December 13, 1996........................................................... 7.52% 15,000,000
</TABLE>
Also, during the third quarter of 1996, an Atlantic subsidiary redeemed $35
million of preferred stock, including a 7.52% Series, which increased
short-term debt.
123
<PAGE>
Short-term debt was adjusted to reflect the effect of the transactions listed
above.
A summary of the adjustments is presented below.
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1996
---------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Preferred Stock:
Delmarva Preferred Stock to be redeemed............................................. ($ 78,383)
Delmarva Preferred Stock reclassified to Preferred Stock of Subsidiaries............ (89,702)
----------
Adjustment to Preferred Stock....................................................... $ (168,085)
----------
----------
Preferred Stock of Subsidiaries:
Not subject to mandatory redemption:
Delmarva Preferred Stock reclassified............................................. $ 89,702
----------
----------
Subject to mandatory redemption:
Preferred stock to be issued...................................................... $ 140,000
Less: Atlantic subsidiary preferred stock to be redeemed.......................... (46,050)
----------
Adjustment.......................................................................... $ 93,950
----------
----------
Paid-in-Capital:
Amounts transferred to Retained Earnings............................................ $ 399
----------
----------
Retained Earnings:
Estimated fees to redeem preferred stock............................................ $ (1,333)
Other costs to redeem preferred stock............................................... (6,432)
----------
Adjustment to Retained Earnings..................................................... $ (7,765)
----------
----------
Unamortized Debt Expense:
Issuance costs of wholly owned trust preferred securities............................. $ 4,656
----------
----------
Short-Term Debt:
Net decrease as of September 30, 1996................................................. $ (4,146)
----------
----------
Accounts Payable:
Fees to be paid....................................................................... $ 600
----------
----------
</TABLE>
On October 3, 1996, Delmarva's wholly owned trust ("Delmarva Power Financing
I"), formed for the purpose of issuing securities, issued $70 million of 8.125%
preferred capital securities with a liquidation amount of $25 per preferred
capital security. Delmarva's trust invested the proceeds in 8.125% subordinated
debentures issued by Delmarva which are due on September 30, 2036 and may be
redeemed in whole or in part on or after September 30, 2001. The preferred
capital securities issued by the trust are subject to redemption upon repayment
of the subordinated debentures. If (1) the trust becomes subject to federal
income taxation, (2) interest paid on the debentures is no longer deductible for
federal income tax purposes, or (3) the trust is required to be registered under
the Investment Company Act of 1940, the debentures and preferred stock may be
redeemed, or the trust may be terminated and the debentures may be distributed
to holders of the preferred capital securities.
Distributions from the trust to holders of the preferred capital securities are
payable quarterly at 8.125%. Delmarva may defer interest payments on the
subordinated debentures for up to 20 consecutive quarters. If interest payments
are deferred, distributions on the preferred capital securities are also
deferred and Delmarva would not be permitted to (1) declare or pay dividends on
any of its capital stock, or (2) make any payment of principal, interest or
premium on debt, or reacquire debt, that is pari passu with or junior to the
subordinated debentures. Interest and distributions continue to accrue,
compounded quarterly, during a deferral period.
124
<PAGE>
On October 1, 1996, ACE's newly formed business trust ("Atlantic Capital I"),
issued $70 million of 8.25% Cumulative Quarterly Income Preferred Securities
("QUIPS") with a stated liquidation preference of $25 each. The trust,
established for the purpose of issuing the QUIPS, invested the proceeds in 8.25%
Junior Subordinated Deferrable Interest Debentures ("QUIDS") issued by ACE. The
QUIDS mature on October 1, 2026, a date which may be extended not later than
October 1, 2045, if certain conditions are met. On or after October 1, 2001, the
QUIDS are redeemable in whole or in part at ACE's option. The QUIPS are subject
to redemption upon repayment of the QUIDS. If (1) the trust becomes subject to
federal income taxation, (2) interest paid on the QUIDS is no longer deductible
for federal income tax purposes, or (3) the trust is required to be registered
under the Investment Company Act of 1940, then the QUIDS and QUIPS may be
redeemed, or the trust may be terminated and the QUIDS may be distributed to
holders of the QUIPS.
Distributions from the trust to holders of the QUIDS are payable quarterly at
8.25%. ACE has the right to defer interest payments on the QUIDS for up to 20
consecutive quarters. If interest payments are deferred, distributions on the
QUIPS are also deferred and ACE may not, and may not permit any subsidiary to
(1) declare or pay dividends on ACE's capital stock, or (2) make any payment of
principal, interest or premium on debt, or reacquire debt, that is pari passu
with or junior to the QUIDS. Interest and distributions continue to accrue,
compounded quarterly, during a deferral period.
(l) Adjustments to reflect the recurring effects of preferred stock issuances
and redemptions and related changes in short-term debt as discussed in Note
(k). A summary of the adjustments is presented below:
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, 1996 1995
------------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Dividends on Preferred Stock:
Dividends on preferred stock to be redeemed................................ $ (4,043) $ (5,391)
Remaining Delmarva dividends on preferred stock reclassified to preferred
stock dividends of Subsidiaries.......................................... (3,250) (4,551)
-------- ------------
$ (7,293) $ (9,942)
-------- ------------
-------- ------------
Preferred Stock Dividend Requirements of Subsidiaries:
Reclassified preferred dividends of Delmarva............................... $ 3,250 $ 4,551
Dividends on Atlantic subsidiary preferred stock to be redeemed............ (4,797) (6,396)
Dividends on preferred stock to be issued.................................. 8,597 11,463
-------- ------------
Adjustment................................................................. $ 7,050 $ 9,618
-------- ------------
-------- ------------
Income Taxes:
Income tax benefit of Preferred Stock to be issued by wholly owned
trusts................................................................... $ (3,612) $ (4,927)
-------- ------------
-------- ------------
Interest Expense:
Increase in interest expense due to a net increase in short-term
borrowings............................................................... $ 1,176 $ 1,886
-------- ------------
-------- ------------
</TABLE>
125
<PAGE>
(m) Adjustments to recognize a pretax expense of $6.1 million to eliminate
unearned compensation costs payable under employee incentive plans at the
time of the Mergers. The adjustments are summarized below:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1996
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Decrease in retained earnings:
Atlantic..................................................................... $ (3,454)
Delmarva..................................................................... (503)
--------
Total decrease in retained earnings............................................ $ (3,957)
--------
--------
Accrued tax benefit:
Atlantic..................................................................... $ (1,860)
Delmarva..................................................................... (321)
--------
Total decrease in accrued taxes................................................ $ (2,181)
--------
--------
Eliminate unearned compensation................................................ $ 6,138
--------
--------
</TABLE>
The Unaudited Pro Forma Combined Statements of Income for the nine months
ended September 30, 1996 and twelve months ended December 31, 1995 do not
reflect the nonrecurring estimated expense of $6.1 million before taxes
($4.0 million after taxes).
(n) Adjustment to record additional deferred income taxes for the following
temporary differences:
<TABLE>
<CAPTION>
TEMPORARY DEFERRED
DIFFERENCES INCOME TAXES
----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Additional pension and other postretirement benefit liabilities
[see Note (g)].................................................................. $ 66,109 $ 23,138
Liabilities for employee separation, relocation, and retraining costs and
facilities integration costs [see Note (h)]..................................... 28,868 10,551
Liability for Delmarva's portion of direct acquisition costs that are deemed to be
tax deductible [see Note (i)]................................................... 1,500 685
------------
Total deferred income taxes................................................... $ 34,374
------------
------------
</TABLE>
In accordance with SFAS No. 109, deferred income taxes were not recorded on
goodwill for which the amortization is not deductible for tax purposes.
(o) Adjustment to present earnings applicable to the Class A Common Stock. The
Class A Common Stock is intended to reflect the growth prospects and
regulatory environment of Atlantic's regulated electric utility business.
When the Mergers are consummated, the shares of Class A Common Stock
received by holders of Atlantic Common Stock will represent, in aggregate, a
30% interest in any earnings of Atlantic's regulated electric utility
business in excess of $40 million per year.
126
<PAGE>
The calculation of the pro forma earnings applicable to the Class A Common
Stock for the nine months ended September 30, 1996 and the year ended
December 31, 1995 is shown below:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED
1996 DECEMBER 31, 1995
------------------ -----------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Atlantic City Electric Company (ACE) and Subsidiary
Income Available for Common Stockholders as reported
in Forms 10-Q and 10-K............................... $ 59,915 $ 84,125
ACE's portion of adjustments regarding preferred stock
issuances and redemptions and related changes in
short-term debt [see Note (l)]:
Decrease in dividends on preferred stock of
subsidiaries......................................... 466 621
Decrease in income taxes............................... 1,749 2,443
Increase in interest expense........................... (665) (1,205)
------- -------
ACE and subsidiary balance available for Common
Stockholders--as adjusted............................ $ 61,465 $ 85,984
Add: Net Losses of Nonutility Activities Specifically
Excluded............................................. 466 120
Less: Fixed Amount of $40 million per year............. (30,000) (40,000)
------- -------
Subtotal............................................... $ 31,931 $ 46,104
Percentage Applicable to Class A Common Stock.......... 30% 30%
------- -------
Earnings Applicable to Class A Common Stock............ $ 9,579 $ 13,831
------- -------
------- -------
</TABLE>
(p) Adjustments to decrease the weighted average number of Common Stock shares
outstanding based on the conversion ratio of 0.75 to 1 of Company Common
Stock to be issued to holders of Atlantic Common Stock and reflect the
issuance of Class A Common Stock shares to holders of Atlantic Common Stock.
The number of shares of Company Common Stock and Class A Common Stock
estimated to be issued to holders of Atlantic Common Stock for the
acquisition were deemed to be issued and outstanding for the entire period.
(q) The Merger Agreement provides, subject to certain conditions, that the
dividends declared and paid on the Class A Common Stock will be maintained
at a level of $3.20 per share per annum from the Effective Date until the
earlier of July 1, 2001 or the end of the twelfth calendar quarter following
the calendar quarter in which the Effective Date occurs. Thereafter, it is
the intention of the Company, subject to certain conditions, to pay annual
dividends on the Class A Common Stock in an aggregate amount (including the
amount credited to the Intergroup Interest as provided in the Company
Charter) equal to 90% of the Company Net Income Attributable to the Atlantic
Utility Group. The Merger Agreement further provides that if and to the
extent that the annual dividends paid on the Class A Common Stock during the
Initial Period (including the aforesaid amount) shall have exceeded 100% of
Company Net Income Attributable to the Atlantic Utility Group during such
period, the Company Board may consider such fact in determining the
appropriate annual dividend rate on the Class A Common Stock following the
Initial Period.
The pro forma Class A Common Stock dividends per share exceed the pro forma
Class A Common Stock earnings per share for the nine months ended September
30, 1996 and twelve months ended December 31, 1995.
127
<PAGE>
(r) The 1935 Act may require the Company to divest its gas utility operations
and nonutility operations. However, in the opinion of management,
divestiture is not expected. The schedule below provides the pro forma
revenues, operating income and identifiable assets of the Company for the
nine months ended September 30, 1996 and twelve months ended December 31,
1995.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Gas Operations:
Revenues......................................................... $ 82,164 $ 95,441
Operating income................................................. 11,292 12,492
Identifiable assets.............................................. 197,205 189,339
Nonutility Operations:
Revenues......................................................... 52,767 68,967
Operating income................................................. 3,629 3,391
Identifiable assets.............................................. 392,414 364,830
</TABLE>
(s) As necessary for fair presentation of the pro forma financial statements,
amounts previously reported by Atlantic and Delmarva have been reclassified
for consistency of presentation. The following schedules show the amounts
reclassified.
128
<PAGE>
DELMARVA POWER & LIGHT COMPANY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
REPORTED RECLASS ADJUSTED
AMOUNT ADJUSTMENTS AMOUNT
------------ ----------- ------------
<S> <C> <C> <C>
UTILITY PLANT, AT COST
Electric........................................................ $ 3,022,062 $ (77,608)(1)(2) $2,944,454
Gas............................................................. 219,916 -- 219,916
Common.......................................................... 136,236 (2,806)(2) 133,430
------------ ----------- ------------
3,378,214 (80,414) 3,297,800
Less: Accumulated depreciation.................................. 1,266,817 (3,124)(2) 1,263,693
------------ ----------- ------------
Net utility plant in service.................................... 2,111,397 (77,290) 2,034,107
Construction work-in-progress................................... 99,008 -- 99,008
Leased property, net............................................ 32,729 1,300(2) 34,029
Cost in excess of net assets acquired, net...................... -- 75,990(1) 75,990
------------ ----------- ------------
2,243,134 0 2,243,134
------------ ----------- ------------
INVESTMENTS AND NONUTILITY PROPERTY
Investment in leveraged leases.................................. 47,306 -- 47,306
Funds held by trustee........................................... 34,662 -- 34,662
Other investments and nonutility property, net.................. 60,331 -- 60,331
------------ ----------- ------------
142,299 0 142,299
------------ ----------- ------------
CURRENT ASSETS
Cash and cash equivalents....................................... 28,280 -- 28,280
Accounts receivable:
Customers..................................................... 110,881 -- 110,881
Other......................................................... 24,219 -- 24,219
Deferred energy costs........................................... 19,041 -- 19,041
Inventories, at average cost:
Fuel (coal, oil, and gas)..................................... 31,724 -- 31,724
Materials and supplies........................................ 35,868 -- 35,868
Prepayments..................................................... 9,277 -- 9,277
------------ ----------- ------------
259,290 0 259,290
------------ ----------- ------------
DEFERRED CHARGES AND OTHER ASSETS
Deferred recoverable income taxes............................... 140,983 -- 140,983
Deferred debt refinancing costs................................. 22,018 -- 22,018
Other regulatory assets......................................... -- 31,406(3) 31,406
Prepaid pension cost............................................ 27,458 -- 27,458
Unamortized debt expense........................................ 11,776 -- 11,776
Other........................................................... 51,153 (31,406)(3) 19,747
------------ ----------- ------------
253,388 0 253,388
------------ ----------- ------------
TOTAL ASSETS...................................................... $ 2,898,111 $ 0 $ 2,898,111
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
129
<PAGE>
ATLANTIC ENERGY, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
REPORTED RECLASS ADJUSTED
AMOUNT ADJUSTMENTS AMOUNT
------------ ----------- ------------
<S> <C> <C> <C>
ELECTRIC UTILITY PLANT
In service...................................................... $ 2,492,081 $ 5,604(4) $ 2,497,685
------------ ----------- ------------
2,492,081 5,604 2,497,685
Less: Accumulated depreciation.................................. 853,134 -- 853,134
------------ ----------- ------------
Net utility plant in service.................................... 1,638,947 5,604 1,644,551
Construction work-in-progress................................... 120,075 -- 120,075
Land held for future use........................................ 5,604 (5,604)(4) --
Leased property, net............................................ 37,695 -- 37,695
------------ ----------- ------------
1,802,321 0 1,802,321
------------ ----------- ------------
INVESTMENTS AND NONUTILITY PROPERTY
Investment in leveraged leases.................................. 79,500 -- 79,500
Funds held by trustee........................................... 68,946 12,645(5) 81,591
Nonutility property and equipment-net........................... 32,024 (32,024)(6) --
Other investments............................................... 49,530 19,379(5)(6) 68,909
------------ ----------- ------------
230,000 0 230,000
------------ ----------- ------------
CURRENT ASSETS
Cash and cash equivalents....................................... 14,627 473(7) 15,100
Accounts receivable:
Utility service............................................... 73,762 34,704(8) 108,466
Miscellaneous................................................. 26,189 -- 26,189
Allowance for doubtful accounts............................... (3,500) 3,500(8) --
Unbilled revenues............................................... 38,204 (38,204)(8) --
Deferred energy costs........................................... 33,568 -- 33,568
Inventories, at average cost:
Fuel (coal, oil, and gas)..................................... 24,000 -- 24,000
Materials and supplies........................................ 24,801 15,256(7) 40,057
Working funds................................................... 15,729 (15,729)(7) --
Prepaid excise taxes............................................ 29,160 -- 29,160
Other........................................................... 11,719 (7,268)(9) 4,451
------------ ----------- ------------
288,259 (7,268) 280,991
------------ ----------- ------------
DEFERRED CHARGES AND OTHER ASSETS
Unrecovered purchased power costs............................... 87,507 -- 87,507
Deferred recoverable income taxes............................... 85,858 -- 85,858
Unrecovered state excise taxes.................................. 57,104 -- 57,104
Deferred debt refinancing costs................................. 36,445 (5,952)(10) 30,493
Other regulatory assets......................................... 59,237 -- 59,237
Prepaid pension cost............................................ -- 7,601(9) 7,601
Unamortized debt expense........................................ -- 5,952 (10 5,952
Other........................................................... 32,950 (5,314) 11) 27,636
------------ ----------- ------------
359,101 2,287 361,388
------------ ----------- ------------
TOTAL ASSETS...................................................... $ 2,679,681 $ (4,981) $ 2,674,700
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
130
<PAGE>
DELMARVA POWER & LIGHT COMPANY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
REPORTED RECLASS ADJUSTED
AMOUNT ADJUSTMENTS AMOUNT
------------ ------------------- ------------
<S> <C> <C> <C>
CAPITALIZATION
Common stock...................................................... $ 136,717 -- $ 136,717
Additional paid-in capital--common stock.......................... 506,680 -- 506,680
Retained earnings................................................. 299,108 -- 299,108
------------ --- ------------
942,505 $ 0 942,505
Treasury shares, at cost.......................................... (5,020) -- (5,020)
Unearned compensation............................................. (824) -- (824)
------------ --- ------------
Total common stockholders' equity............................. 936,661 0 936,661
Preferred stock:
Not subject to mandatory redemption............................. 168,085 -- 168,085
Long-term debt.................................................... 827,242 -- 827,242
------------ --- ------------
1,931,988 0 1,931,988
------------ --- ------------
CURRENT LIABILITIES
Short-term debt................................................... 81,187 -- 81,187
Long-term debt due within one year................................ 27,244 -- 27,244
Variable rate demand bonds........................................ 86,500 -- 86,500
Accounts payable.................................................. 50,694 -- 50,694
Taxes accrued..................................................... 12,396 -- 12,396
Interest accrued.................................................. 21,336 -- 21,336
Dividends declared................................................ 23,288 -- 23,288
Current capital lease obligation.................................. 12,456 -- 12,456
Deferred income taxes, net........................................ 5,438 -- 5,438
Other............................................................. 31,314 -- 31,314
------------ --- ------------
351,853 0 351,853
------------ --- ------------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes, net........................................ 518,785 -- 518,785
Deferred investment tax credits................................... 43,141 -- 43,141
Long-term capital lease obligations............................... 21,711 -- 21,711
Other............................................................. 30,633 -- 30,633
------------ --- ------------
614,270 0 614,270
------------ --- ------------
TOTAL CAPITALIZATION AND LIABILITIES................................ $ 2,898,111 $ 0 $ 2,898,111
------------ --- ------------
------------ --- ------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
131
<PAGE>
ATLANTIC ENERGY, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
REPORTED RECLASS ADJUSTED
AMOUNT ADJUSTMENTS AMOUNT
------------ --------------- ------------
<S> <C> <C> <C>
CAPITALIZATION
Common stock.................................................. $ 565,598 -- $ 565,598
Retained earnings............................................. 247,222 -- 247,222
------------ --------------- ------------
812,820 $ 0 812,820
Unearned compensation......................................... -- (5,314)(11) (5,314)
------------ --------------- ------------
Total common stockholders' equity......................... 812,820 (5,314) 807,506
Preferred stock:
Not subject to mandatory redemption......................... 30,000 -- 30,000
Subject to mandatory redemption............................. 90,000 -- 90,000
Long-term debt................................................ 829,799 -- 829,799
------------ --------------- ------------
1,762,619 (5,314) 1,757,305
------------ --------------- ------------
CURRENT LIABILITIES
Short-term debt............................................... 87,700 -- 87,700
Cumulative preferred stock redemption requirement............. 10,000 -- 10,000
Long-term debt due within one year............................ 74,100 -- 74,100
Accounts payable.............................................. 55,359 -- 55,359
Taxes accrued................................................. 40,159 -- 40,159
Interest accrued.............................................. 17,186 -- 17,186
Dividends declared............................................ 22,598 -- 22,598
Current capital lease obligation.............................. -- 688 (12 688
Accrued employee separation costs............................. 2,683 (2,683)(12) --
Deferred income taxes, net.................................... 2,438 -- 2,438
Other......................................................... 34,501 2,328 (9)(12) 36,829
------------ --------------- ------------
346,724 333 347,057
------------ --------------- ------------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes, net.................................... 428,309 -- 428,309
Deferred investment tax credits............................... 47,211 -- 47,211
Long-term capital lease obligations........................... 37,006 -- 37,006
Postretirement obligations.................................... -- 31,581 (13) 31,581
Other......................................................... 57,812 (31,581)(13) 26,231
------------ --------------- ------------
570,338 0 570,338
------------ --------------- ------------
TOTAL CAPITALIZATION AND LIABILITIES............................ $ 2,679,681 $ (4,981) $ 2,674,700
------------ --------------- ------------
------------ --------------- ------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
132
<PAGE>
DELMARVA POWER & LIGHT COMPANY
CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
REPORTED RECLASS ADJUSTED
AMOUNT ADJUSTMENTS AMOUNT
---------- ----------- ----------
<S> <C> <C> <C>
OPERATING REVENUES
Electric.................................................................. $ 752,415 -- $ 752,415
Gas....................................................................... 82,164 -- 82,164
---------- ----------- ----------
834,579 $0 834,579
---------- ----------- ----------
OPERATING EXPENSES
Electric fuel and purchased energy........................................ 244,593 -- 244,593
Gas purchased............................................................. 43,844 -- 43,844
Purchased electric capacity............................................... 25,147 -- 25,147
Operation and maintenance................................................. 191,449 -- 191,449
Depreciation.............................................................. 91,435 -- 91,435
Income taxes.............................................................. 62,547 -- 62,547
Other taxes............................................................... 32,218 -- 32,218
---------- ----------- ----------
691,233 0 691,233
---------- ----------- ----------
OPERATING INCOME............................................................ 143,346 0 143,346
---------- ----------- ----------
OTHER INCOME AND EXPENSE
Nonutility subsidiaries
Revenues and gains...................................................... 42,194 -- 42,194
Expenses................................................................ (39,105) -- (39,105)
---------- ----------- ----------
Net earnings of nonutility subsidiaries............................... 3,089 0 3,089
Allowance for equity funds used during construction....................... 774 -- 774
Other income, net of income taxes......................................... (1,202) -- (1,202)
---------- ----------- ----------
2,661 0 2,661
---------- ----------- ----------
INCOME BEFORE INTEREST CHARGES.............................................. 146,007 0 146,007
---------- ----------- ----------
INTEREST CHARGES
Interest expense.......................................................... 53,589 -- 53,589
Allowance for borrowed funds used during construction..................... (2,085) -- (2,085)
---------- ----------- ----------
51,504 0 51,504
---------- ----------- ----------
NET INCOME.................................................................. 94,503 -- 94,503
Dividends on preferred stock................................................ 7,293 -- 7,293
---------- ----------- ----------
EARNINGS APPLICABLE TO COMMON STOCK......................................... $ 87,210 $0 $ 87,210
---------- ----------- ----------
---------- ----------- ----------
COMMON STOCK
Average shares outstanding (000).......................................... 60,709 -- 60,709
Earnings per average share................................................ $1.44 -- $1.44
Dividends declared........................................................ $1.155 -- $1.155
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
133
<PAGE>
ATLANTIC ENERGY, INC.
CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
REPORTED RECLASS ADJUSTED
AMOUNT ADJUSTMENTS AMOUNT
---------- ----------- ----------
<S> <C> <C> <C>
OPERATING REVENUES
Electric............................................................. $ 752,968 -- $ 752,968
---------- ----------- ----------
752,968 $ 0 752,968
---------- ----------- ----------
OPERATING EXPENSES
Electric fuel and purchased energy................................... 171,648 -- 171,648
Purchased electric capacity.......................................... 146,877 -- 146,877
Operation and maintenance............................................ 143,054 -- 143,054
Depreciation and amortization........................................ 60,490 -- 60,490
State excise taxes................................................... 80,391 -- 80,391
Federal income taxes................................................. 30,842 -- 30,842
Other taxes.......................................................... 7,656 -- 7,656
---------- ----------- ----------
640,958 0 640,958
---------- ----------- ----------
OPERATING INCOME....................................................... 112,010 0 112,010
---------- ----------- ----------
OTHER INCOME AND EXPENSE
Nonutility subsidiaries
Revenues and gains................................................. -- 10,573 (14) 10,573
Expenses........................................................... -- (10,033)(14) (10,033)
---------- ----------- ----------
Net earnings of nonutility subsidiaries.......................... -- 540 540
Allowance for equity funds used during construction.................. 697 -- 697
Other income, net of income taxes.................................... 2,603 (540)(14) 2,063
---------- ----------- ----------
3,300 0 3,300
---------- ----------- ----------
INCOME BEFORE INTEREST CHARGES......................................... 115,310 0 115,310
---------- ----------- ----------
INTEREST CHARGES
Interest expense..................................................... 49,303 -- 49,303
Allowance for borrowed funds used during construction................ (820) -- (820)
---------- ----------- ----------
48,483 0 48,483
---------- ----------- ----------
Less preferred stock dividend requirements of subsidiary............... 8,475 -- 8,475
---------- ----------- ----------
NET INCOME............................................................. $ 58,352 $ 0 $ 58,352
---------- ----------- ----------
---------- ----------- ----------
COMMON STOCK
Average shares outstanding (000)..................................... 52,702 -- 52,702
Earnings per average share........................................... $1.11 -- $1.11
Dividends declared................................................... $1.155 -- $1.155
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
134
<PAGE>
DELMARVA POWER & LIGHT COMPANY
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
REPORTED RECLASS ADJUSTED
AMOUNT ADJUSTMENTS AMOUNT
---------- ----------- ----------
<S> <C> <C> <C>
OPERATING REVENUES
Electric............................................................. $ 899,662 -- $ 899,662
Gas.................................................................. 95,441 -- 95,441
---------- ----------- ----------
995,103 $ 0 995,103
---------- ----------- ----------
OPERATING EXPENSES
Electric fuel and purchased energy................................... 267,885 -- 267,885
Gas purchased........................................................ 48,615 -- 48,615
Purchased electric capacity.......................................... -- 29,116 (15) 29,116
Operation and maintenance............................................ 275,165 (29,116)(15) 246,049
Depreciation......................................................... 113,022 -- 113,022
Income taxes......................................................... 73,561 -- 73,561
Other taxes.......................................................... 38,449 -- 38,449
---------- ----------- ----------
816,697 0 816,697
---------- ----------- ----------
OPERATING INCOME....................................................... 178,406 0 178,406
---------- ----------- ----------
OTHER INCOME AND EXPENSE
Nonutility subsidiaries
Revenues and gains................................................. 52,042 -- 52,042
Expenses........................................................... (47,896) -- (47,896)
---------- ----------- ----------
Net earnings of nonutility subsidiaries.......................... 4,146 -- 4,146
Allowance for equity funds used during construction.................. 708 -- 708
Other income, net of income taxes.................................... 557 -- 557
---------- ----------- ----------
5,411 0 5,411
---------- ----------- ----------
INCOME BEFORE INTEREST CHARGES......................................... 183,817 0 183,817
---------- ----------- ----------
INTEREST CHARGES
Interest expense..................................................... 68,395 -- 68,395
Allowance for borrowed funds used during construction................ (2,066) -- (2,066)
---------- ----------- ----------
66,329 0 66,329
---------- ----------- ----------
NET INCOME............................................................. 117,488 0 117,488
Dividends on preferred stock........................................... 9,942 -- 9,942
---------- ----------- ----------
EARNINGS APPLICABLE TO COMMON STOCK.................................... $ 107,546 $ 0 $ 107,546
---------- ----------- ----------
---------- ----------- ----------
COMMON STOCK
Average shares outstanding (000)..................................... 60,217 -- 60,217
Earnings per average share........................................... $1.79 -- $1.79
Dividends declared................................................... $1.54 -- $1.54
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
135
<PAGE>
ATLANTIC ENERGY, INC.
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
REPORTED RECLASS ADJUSTED
AMOUNT ADJUSTMENTS AMOUNT
---------- ----------- ----------
<S> <C> <C> <C>
OPERATING REVENUES
Electric.................................................................. $ 953,137 -- $ 953,137
---------- ----------- ----------
953,137 $ 0 953,137
---------- ----------- ----------
OPERATING EXPENSES
Electric fuel and purchased energy........................................ 191,766 -- 191,766
Purchased electric capacity............................................... 190,570 -- 190,570
Operation and maintenance................................................. 186,439 -- 186,439
Depreciation and amortization............................................. 78,461 -- 78,461
State excise taxes........................................................ 102,811 -- 102,811
Federal income taxes...................................................... 45,876 -- 45,876
Other taxes............................................................... 8,677 -- 8,677
---------- ----------- ----------
804,600 0 804,600
---------- ----------- ----------
OPERATING INCOME............................................................ 148,537 0 148,537
---------- ----------- ----------
OTHER INCOME AND EXPENSE
Nonutility subsidiaries
Revenues and gains...................................................... -- 6,925 (14 6,925
Expenses................................................................ -- (7,680) 14) (7,680)
---------- ----------- ----------
Net earnings of nonutility subsidiaries............................... -- (755) (755)
Allowance for equity funds used during construction....................... 817 817
Other income, net of income taxes......................................... 8,241 755 (14 8,996
---------- ----------- ----------
9,058 0 9,058
---------- ----------- ----------
INCOME BEFORE INTEREST CHARGES.............................................. 157,595 0 157,595
---------- ----------- ----------
INTEREST CHARGES
Interest expense.......................................................... 62,879 -- 62,879
Allowance for borrowed funds used during construction..................... (1,679) -- (1,679)
---------- ----------- ----------
61,200 0 61,200
---------- ----------- ----------
Less preferred stock dividend requirements of subsidiary.................... 14,627 -- 14,627
---------- ----------- ----------
NET INCOME.................................................................. $ 81,768 $ 0 $ 81,768
---------- ----------- ----------
---------- ----------- ----------
COMMON STOCK
Average shares outstanding (000).......................................... 52,815 -- 52,815
Earnings per average share................................................ $1.55 -- $1.55
Dividends declared........................................................ $1.54 -- $1.54
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
136
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Transfer goodwill from Electric plant to "Cost in excess of net assets
acquired, net."
(2) Transfer capital leases, net to "Leased property, net."
(3) Transfer regulatory assets from "Other" to "Other regulatory assets."
(4) Transfer "Land held for future use" to "Electric utility plant in
service."
(5) Transfer $12,645 for Investment in Bond Escrow Trust from "Other
investments" to "Funds held by trustee."
(6) Transfer "Nonutility property and equipment-net" to "Other investments."
(7) Transfer "Working funds" to "Cash" and to "Materials & supplies", as
appropriate.
(8) Transfer "Unbilled revenues" and "Allowance for doubtful accounts" to
"Accounts receivable Utility service."
(9) Transfer prepaid pension cost to a separate line.
(10) Transfer unamortized debt costs from "Deferred debt refinancing costs" to
"Unamortized debt expense."
(11) Transfer unearned compensation from other deferred debits to a separate
deduction from common equity.
(12) Transfer "Accrued employee separation costs" to "Other current
liabilities" and transfer current capital lease obligation from "Other
current liabilities" to a separate line.
(13) Transfer other postretirement benefits from "Other deferred credits" to a
separate line.
(14) Transfer "Net earnings of nonutility subsidiaries" from "Other income" to
a separate line.
(15) Transfer purchased electric capacity from "Operation and maintenance" to a
separate line.
137
<PAGE>
To the Board of Directors and Stockholders
Conectiv, Inc.
Wilmington, Delaware
We have audited the accompanying consolidated balance sheet of Conectiv,
Inc. (formerly DS, Inc.) as of September 30, 1996. This consolidated financial
statement is the responsibility of the Company's management. Our responsibility
is to express an opinion on this consolidated financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated balance sheet. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
balance sheet presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the consolidated balance sheet referred to above presents
fairly, in all material respects, the consolidated financial position of
Conectiv, Inc. as of September 30, 1996, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 1, 1996
138
<PAGE>
CONECTIV, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
<TABLE>
<S> <C>
ASSETS
Cash................................................................................. $ 50
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities.......................................................................... $ --
Stockholders' equity
Common stock, $0.01 par value (Note 1):
1,000 shares authorized; 1,000 shares issued and outstanding..................... 10
Additional paid-in capital......................................................... 40
---------
Total liabilities and stockholders' equity................................... $ 50
---------
---------
</TABLE>
The accompanying note is an integral part of this balance sheet.
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CONECTIV, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENT
SEPTEMBER 30, 1996
1. FORMATION AND ORGANIZATION (INFORMATION SUBSEQUENT TO OCTOBER 1, 1996 IS
UNAUDITED)
Conectiv, Inc. (the "Company") was incorporated under the laws of the State
of Delaware on August 8, 1996 as DS, Inc. with 50% of its outstanding $0.01 par
value common stock owned by Delmarva Power & Light Company ("Delmarva") and 50%
owned by Atlantic Energy, Inc. ("Atlantic"). DS, Inc.'s name was changed to
Conectiv, Inc. on December 24, 1996.
Delmarva and Atlantic entered into the Merger Agreement, dated as of August
9, 1996 and amended and restated as of December 26, 1996, providing for a
business combination of Delmarva and Atlantic as peer firms in a merger of
equals (the "Transaction"). As a result of the Transaction, the Company will
become the parent company of Delmarva and its direct and indirect subsidiaries
and the direct and indirect subsidiaries of Atlantic, including Atlantic City
Electric Company, which currently is Atlantic's regulated utility subsidiary.
The Company will be a holding company registered under the Public Utility
Holding Company Act of 1935, as amended. The Transaction is expected to close
shortly after all of the conditions to the consummation of the Transaction,
including obtaining applicable regulatory approvals, are met or waived. The
regulatory approval process is expected to take approximately 12 to 18 months
from the date of the Merger Agreement.
Under the terms of the Merger Agreement, the Company's subsidiary, DS Sub,
Inc., will be merged with and into Delmarva with Delmarva being the surviving
corporation in the merger (the "Delmarva Merger"). Simultaneously, Atlantic will
be merged with and into the Company with the Company being the surviving
corporation in the merger (the "Atlantic Merger"). Each share of the Company
Common Stock issued and outstanding immediately prior to the effective time of
the Mergers will be canceled, and no consideration shall be delivered in
exchange for such stock.
Each outstanding share of Delmarva Common Stock, par value $2.25 per share,
will be exchanged for one share of the Company Common Stock, par value $0.01 per
share. Each share of Atlantic Common Stock will be exchanged for 0.75 of one
share of the Company Common Stock and 0.125 of one share of Class A Common
Stock, par value $0.01 per share. [For more information, see Note (a) of the
Notes To Unaudited Pro Forma Combined Financial Statements.]
The corporate headquarters of the Company will be located in Wilmington,
Delaware, with a significant presence in New Jersey. The Board of Directors of
the Company after the Mergers will consist of 18 directors, ten of whom will be
nominated by Delmarva and eight of whom will be nominated by Atlantic.
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SELECTED INFORMATION CONCERNING DELMARVA AND ATLANTIC
THE FOLLOWING IS A BRIEF DESCRIPTION OF DELMARVA AND ATLANTIC AND THEIR
RESPECTIVE BUSINESSES. THIS INFORMATION DOES NOT PURPORT TO BE COMPLETE. FOR
INFORMATION THAT IS COMPLETE IN ALL MATERIAL RESPECTS, THE READER SHOULD REFER
TO THE ADDITIONAL INFORMATION CONTAINED IN THE DELMARVA 1995 FORM 10-K, DELMARVA
1996 FORMS 10-Q AND ATLANTIC 1995 FORM 10-K AND ATLANTIC 1996 FORMS 10-Q WHICH
ARE INCORPORATED HEREIN BY REFERENCE. SEE "INCORPORATION BY REFERENCE."
BUSINESS OF DELMARVA
Delmarva is predominantly a public utility that provides electric and gas
service. Delmarva provides electric service to approximately 437,500 retail and
wholesale customers in an area encompassing about 6,000 square miles in
Delaware, ten primarily Eastern Shore counties in Maryland, and the Eastern
Shore area of Virginia. Delmarva provides gas service to approximately 98,000
retail and transportation customers in an area consisting of about 275 square
miles in northern Delaware, including the City of Wilmington.
Delmarva's wholly owned subsidiaries are engaged in nonutility activities
and represent approximately 4% of the consolidated book value of Delmarva and
its subsidiaries as of June 30, 1996. The direct subsidiaries include Delmarva
Energy Company, Delmarva Industries, Inc., Delmarva Services Company, Delmarva
Capital Investments, Inc. and Service Confidence, Inc. For more information on
the subsidiaries, see the Delmarva 1995 Form 10-K, which is incorporated herein
by reference.
Information concerning the names, ages, positions and business experiences
of the executive officers and directors of Delmarva, along with additional
information, including executive compensation, security ownership of certain
beneficial owners and management, and certain relationships and related
transactions is incorporated by reference herein from Items 1, 10, 11, 12 and 13
of the Delmarva 1995 Form 10-K (which incorporates by reference portions of
Delmarva's Definitive Proxy Statement for its Annual Meeting of Stockholders
held on May 30, 1996).
BUSINESS OF ATLANTIC
Atlantic is a public utility holding company that is exempt under Section
3(a)(1) of the 1935 Act pursuant to Rule 2 thereunder. Atlantic has three wholly
owned subsidiaries, ACE, Atlantic Energy Enterprises, Inc., a New Jersey
corporation ("AEE"), and Atlantic Energy International, Inc., a Delaware
corporation ("AEII"). ACE is a public utility holding company that is exempt
under Section 3(a)(2) of the 1935 Act pursuant to Rule 2 thereunder. ACE is
primarily engaged in the generation, transmission, distribution and sale of
electric energy to over 473,000 customers in an area consisting of 2,700 square
miles in southern New Jersey. ACE is Atlantic's principal subsidiary.
AEE is a holding company that manages investments in several nonutility
subsidiaries, including Atlantic Generation, Inc., Atlantic Southern Properties,
Inc., ATE Investment, Inc., Atlantic Thermal Systems, Inc., CoastalComm, Inc.
and Atlantic Energy Technology, Inc. For more information about these
subsidiaries, see the Atlantic 1995 Form 10-K, which is incorporated herein by
reference. AEII was formed in July, 1996 to provide utility consulting services
and equipment sales to international markets.
Information about the names, ages, positions and business experience of the
executive officers and directors of Atlantic, along with additional information,
including executive compensation, security ownership of certain beneficial
owners and management, and certain relationships and related transactions is
incorporated by reference herein from Items 1, 10, 11, 12 and 13 of Atlantic's
1995 Form 10-K (which incorporates by reference portions of its Definitive Proxy
Statement for its 1996 Annual Meeting of Stockholders held on April 24, 1996).
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PRIOR RELATIONSHIP BETWEEN DELMARVA AND ATLANTIC
Delmarva and Atlantic, as owners of adjacent electric utility systems, have
had a long history of close operational coordination and participation in joint
projects. As members of the Pennsylvania-New Jersey-Maryland Interconnection
Association, the generation and transmission facilities of both companies are
operated on an integrated basis with those of six other utilities in
Pennsylvania, New Jersey, Maryland and the District of Columbia. In addition,
Delmarva and Atlantic have common ownership interests in Peach Bottom and Salem
nuclear generation stations, Keystone and Conemaugh coal-fired generation
stations and certain transmission facilities.
SALEM NUCLEAR GENERATING STATION
After consummation of the Mergers, the Company will own 14.82% of Salem
Nuclear Generating Station ("Salem"), which consists of two pressurized water
nuclear reactors ("PWR") and is operated by Public Service Electric & Gas
Company ("PSE&G"). As of September 30, 1996, the Company's pro forma net
investment in plant in service for Salem was approximately $230 million. Salem
represents approximately 4% of the Company's pro forma total assets and
approximately 6% of the Company's pro forma installed electric generating
capacity.
Salem Units 1 and 2 were removed from operation by PSE&G on May 16, 1995 and
June 7, 1995, respectively, due to operational problems and maintenance
concerns. Their return dates are subject to completion of the requirements of
their respective restart plans to the satisfaction of PSE&G and the NRC, which
encompasses a substantial review and improvement of personnel, process and
equipment issues.
With respect to Unit 1, PSE&G informed Delmarva and Atlantic in early 1996
that inspections of the steam generators using a new testing technology
indicated degradation in a significant number of tubes. After evaluating several
options, in May 1996 replacement steam generators from the unfinished Seabrook
Unit 2 nuclear power plant in New Hampshire were purchased from Northeast
Utilities Service Company for installation in Salem Unit 1. The replacement
steam generators arrived on site in October 1996 and are scheduled for
installation by early 1997. By using these steam generators, PSE&G expects to
return Unit 1 to service in mid-1997. The Company's pro forma share of the costs
to be capitalized for the steam generators, including installation, will range
from approximately $22 million to $26 million.
With respect to Unit 2, PSE&G also informed Delmarva and Atlantic in early
1996 that inspections of the steam generators using the new testing technology
confirmed that the condition of the generators is within current repair limits.
On July 22, 1996, PSE&G announced that although substantial progress has been
made, the outage at Unit 2 would continue well into the fourth quarter of 1996.
PSE&G recently advised the Company that Unit 2 currently is expected to return
to service early in the first quarter of 1997.
For the nine-month period ended September 30, 1996, the Company incurred and
expensed higher than expected pro forma operation and maintenance costs at Salem
of approximately $16 million.
The Company incurs pro forma replacement power costs while the units are out
of service of approximately $1,450,000 per month, per unit. Such amounts vary,
however, depending on the cost and availability of other Company owned
generation and the cost of purchased energy. Replacement power costs typically
are not incurred for routine refueling and maintenance outages, and the recovery
of replacement power costs is subject to approval by the regulatory commissions
having jurisdiction over Delmarva and Atlantic.
For Delmarva, from the inception of the Salem unit outages through September
30, 1996, approximately one-half of the current estimated replacement power
costs of $18 million has been expensed and the remaining portion has been
deferred on the Company's Consolidated Balance Sheet in expectation of future
recovery.
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For Atlantic, a $12 million provision for revenue credits to customers has
been recorded in accordance with a stipulation agreement dated October 22, 1996,
as discussed below.
The actual costs to be incurred by the Company may vary from the foregoing
estimates, since the periods projected by PSE&G during which the Salem units
will be out of service, the extent of the maintenance that will be required, and
the costs of replacement power and the extent of its recovery may be different
from those set forth above.
In May 1996, Delmarva filed an application with the VSCC for increased fuel
rates effective July 1996. In June 1996, Delmarva filed an application with the
MPSC for increased fuel rates effective August 1996. In both filings, the
Delmarva proposed that one-half of the replacement power costs associated with
the Salem outage be permitted on an interim basis until a full review of the
outage is made at a future time. The VSCC and MPSC approved Delmarva's filings,
with rates subject to refund.
In October 1996, Delmarva filed a proposal with the DPSC to address the
recovery of replacement power costs and other fuel costs. In that filing,
Delmarva asserted a belief that it should be permitted to recover all
replacement power costs associated with this outage, and requested an interim
treatment that would permit recovery of approximately 50% of replacement power
costs, beginning in January 1997, until the DPSC renders a final decision on
this issue. Delmarva's filing also provides that any proceeds from litigation
concerning replacement power costs will be credited to customers, net of
litigation costs, if full recovery is authorized by the DPSC. On December 10,
1996, the DPSC suspended the portion of the interim rates related to the Salem
replacement power costs until the earlier of June 1, 1997 or the end of the
case. If the suspended interim rates go into effect prior to the conclusion of
the case, they would go into effect subject to refund pending the final
decision.
With regard to Atlantic's regulatory treatment of the Salem outage, the
NJBPU by an order dated March 14, 1996, initiated an investigation of the
ongoing outage at Salem. By its order the NJBPU declared the base rates
associated with ownership in Salem Unit 1 interim and subject to refund pending
a hearing as to whether Salem Unit 1 is currently used and useful. The NJBPU
also, in an order dated June 26, 1996, declared the base rates associated with
ownership in Salem Unit 2 interim and subject to refund. The NJBPU voted on July
31, 1996 to include Unit 2 in the hearings scheduled for October 1996 to
determine if both units were still considered used and useful. On October 22,
1996, the New Jersey Ratepayer Advocate and the staff of the NJBPU signed a
stipulation settling the ongoing outage of Salem. Under the terms of the
stipulation, Atlantic will provide credits to customers totaling $12 million.
The credits will be made during January and February 1997 and will be based on
customer usage between January 1, 1996 and October 31, 1996. The stipulation
also provides that replacement power costs incurred, up to the agreed upon
return-to-service dates (June 30, 1997 for Unit 1 and December 31, 1996 for Unit
2), will be recoverable in the next annual levelized energy clause revenue
proceeding. Should either unit not return to service by its agreed upon
return-to-service date, replacement power costs incurred after such dates will
not be recoverable by Atlantic. The performance of the Salem Units will not be
included in the calculation of the Nuclear Performance Standard for the period
each unit was taken out of service to each unit's respective return-to-service
date. As such, Atlantic will not be subject to a penalty or reward under the
Nuclear Performance Standard for 1995 or 1996. In regard to the litigation
pending between Atlantic and PSE&G, discussed below, the stipulation provides
that the first $8 million of any net recovery, if any, by Atlantic as the result
of the litigation (the gross amount of recovery less litigation expenses) will
not be subject to any claim on behalf of the customers. Also, any settlement
amounts received for damages incurred after the agreed upon return-to-service
dates will not be subject to refund to customers, since Atlantic will bear the
costs of all replacement power costs incurred.
The above described stipulation has been submitted to the NJBPU for
acceptance and approval. A public hearing was held to review the stipulation on
November 25, 1996 and take public comments on this matter. On December 18, 1996,
the NJBPU approved the stipulation of settlement among ACE, the New Jersey
Division of the Ratepayer Advocate, and the Staff of the NJBPU.
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Notwithstanding current discussions with regulators concerning deregulation
of the generation portion of the business, management of each of Delmarva and
Atlantic believes it is reasonable to assume that rates will be set at levels
that will recover the current and anticipated costs, including the costs needed
to return the Salem units to operating status, of the joint investments in the
Salem plant, and such rates can be charged to and collected from customers.
On February 27, 1996, the co-owners of Salem, including Delmarva and
Atlantic, filed a complaint in the United States District Court for the District
of New Jersey against Westinghouse Electric Corporation ("Westinghouse"), the
designer and manufacturer of the Salem steam generators. The complaint, which
seeks to recover from Westinghouse the costs associated with and resulting from
the cracks discovered in Salem's steam generators and with replacing such steam
generators, alleges violations of federal and New Jersey Racketeer Influenced
and Corrupt Organizations Acts, fraud, negligent misrepresentation and breach of
contract. The estimated replacement cost of such generators is between $150
million and $170 million. The Salem co-owners contend that the recently
discovered degradation of the steam generators will prevent the steam generators
from operating for a design life of 40 years. The lawsuit asserts that the Salem
steam generators require replacement and these costs should be borne by
Westinghouse and not the customers and shareholders of the Salem co-owners.
Westinghouse filed an answer and a $2.5 million counterclaim for unpaid work on
April 30, 1996. On June 17, 1996, the court ordered the parties to mediate their
claims rather than proceeding to litigation, taking the position that
Westinghouse's involvement in steam generator lawsuits throughout the county,
involving substantially similar issues as are involved in the Salem litigation,
should enable the parties to resolve their dispute efficiently in mediation.
Mediation is nonbinding on the parties and for the purpose of enabling the
mediator to evaluate the parties' respective positions and the parties'
settlement discussions. The mediation occurred on October 29 and 30, 1996. The
parties were unable to resolve their claims in the mediation. It is expected
that the parties will proceed to litigation. Delmarva and Atlantic cannot
predict the outcome of this lawsuit.
On March 5, 1996, Delmarva and PECO Energy Company ("PECO") filed a
complaint in the United States District Court for the Eastern District of
Pennsylvania against Public Service Enterprise Group, Inc. ("Enterprise") and
PSE&G. On the same day, Atlantic filed a complaint in Superior Court of New
Jersey against Enterprise and PSE&G. The lawsuits allege that the defendants
failed to heed numerous citations, warnings, notices of violations and fines by
the NRC as well as repeated warnings from the Institute of Nuclear Power
Operations about performance, safety and management problems at Salem and to
take appropriate corrective action. The suits contend that as a result of these
actions and omissions, the Salem units were forced to shut down in 1995. The
suits ask for compensatory damages for breach of contract, negligence and
punitive damages, in amounts to be specified. Delmarva and Atlantic cannot
predict the outcome of these lawsuits.
PSE&G has informed Delmarva and Atlantic that in August 1996, the NRC
conducted an inspection of the Physical Security Program for Salem and Hope
Creek and identified six apparent violations that are being considered for
escalated enforcement. These apparent violations include the failure to: (1)
control photo badge key cards; (2) properly search an individual prior to
entrance to the protected area; (3) notify the nuclear shift supervisor of a
potential threat event; (4) deactivate photo badges for individuals who no
longer require site access; (5) complete training for security supervisors prior
to assignment of duties; and (6) test an intrusion detection system in
accordance with procedures. On September 3, 1996, PSE&G met with the NRC to
discuss these issues and provide specific corrective actions. On November 14,
1996, a predecisional enforcement conference was held to address these apparent
violations. At the conference, PSE&G presented their corrective actions,
including a change in security management. On December 11, 1996, the NRC issued
its written report to PSE&G. Based on the NRC's review of the inspection
findings and information provided during the enforcement conference, PSE&G was
cited for the aforementioned six violations and a civil penalty of $100,000 was
imposed. The Company's pro forma combined share of the penalty is $14,820.
Delmarva and Atlantic cannot predict what other actions the NRC may take on this
matter.
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THE COMPANY FOLLOWING THE MERGERS
MANAGEMENT OF THE COMPANY
The Delmarva Board will be entitled to nominate ten members to serve on the
Company Board and the Atlantic Board will be entitled to nominate eight members
to serve on the Company Board. The Delmarva Board and the Atlantic Board will
each take all action necessary to cause each member of the Delmarva Board and
each member of the Atlantic Board serving in such capacity immediately prior to
the Effective Time to have the opportunity to serve as a member of the Company
Board. The Company Board will be divided into three classes so that each class,
to the extent possible, has the same proportion of directors nominated by each
of the Delmarva Board and the Atlantic Board. In addition, at the consummation
of the Mergers, the Audit Committee of the Company Board will consist of an
equal number of directors nominated by the Delmarva Board and the Atlantic
Board.
At the consummation of the Mergers, Howard E. Cosgrove will be the Chief
Executive Officer and Chairman of the Company Board, Jerrold L. Jacobs (who will
retire from active employment after the consummation of the Mergers) will be
Vice Chairman of the Company Board and Michael J. Chesser will be the President
and Chief Operating Officer of the Company. Jerrold L. Jacobs will serve as Vice
Chairman of the Company Board until the second anniversary of the consummation
of the Mergers and during his term as Vice Chairman, will be a member of the
Executive Committee of the Company Board.
Following the consummation of the Mergers, the Audit Committee of the
Company Board will be charged with the responsibility of advising the Company
Board with respect to certain intercompany transactions and other fiduciary
matters that may relate to the Class A Common Stock.
Under Delaware law, the Company Board has a duty to act with due care and in
the best interests of all of the Company's stockholders, including the holders
of Company Common Stock and Class A Common Stock. The existence of the Company
Common Stock and the Class A Common Stock may give rise to occasions when the
interests of the holders of Company Common Stock and Class A Common Stock may
diverge or appear to diverge. Examples include, among others, determinations by
the Company Board to (i) convert each outstanding share of Class A Common Stock
into shares of Company Common Stock, (ii) approve the disposition of all or
substantially all of the properties and assets of the Atlantic Utility Group,
(iii) allocate resources and financial support to or pursue business
opportunities or operational strategies through one Group instead of the other
Group, (iv) allocate the proceeds of issuances of Class A Common Stock either to
the Company in a reduction in the Intergroup Interest or to the Atlantic Utility
Group, (v) pay or omit to pay dividends on Company Common Stock or Class A
Common Stock or (vi) approve transactions involving the transfer of funds or
assets from one Group to the other Group or make other operational or financial
decisions with respect to one Group that could be considered to be detrimental
to the other Group. In such instances, the Company Board will be required to act
on behalf of the Company and its stockholders taken as a whole. It is
anticipated that the regulatory environment in which Delmarva and ACE will be
conducting their respective operations following the consummation of the Mergers
will help to ensure dealings between the Groups and among the Company and the
Groups will be appropriate under the foregoing standard. For this reason, and
because Delmarva and ACE have not as yet operated as a combined enterprise,
Delmarva and Atlantic have determined to defer the adoption of management
policies with respect to cash management, corporate expenses, allocations of
assets and liabilities and inter-Group transactions, except to provide that the
Audit Committee of the Company Board will advise the Company Board with respect
to certain intercompany transactions and other fiduciary matters that may relate
to the Class A Common Stock of the Company. At and after the consummation of the
Mergers, the Company Board will exercise from time to time its judgment, as to
how best to obtain information regarding the divergence (or potential
divergence) of interests, under what circumstances to seek the assistance of
outside advisers and how to assess which available alternative is in the best
interests of the Company and all of its stockholders. The Company
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Board will evaluate the need for and establish such management policies, if any,
as it deems appropriate in its sole discretion.
The Company and its subsidiaries and affiliates will be subject to extensive
federal and state regulation governing dealings among their utility and
nonutility operations. Accordingly, any management policies adopted by the
Company Board must adhere to any procedural, substantive, record keeping,
accounting and other requirements imposed by such regulations. Such regulations
may include the following:
1935 ACT. The Company will become a registered holding company under the
1935 Act. The 1935 Act includes a number of restrictions on dealings between
registered holding companies and their subsidiaries.
Section 12(a) of the 1935 Act prohibits a registered holding company from
borrowing from any of its subsidiaries or from receiving from them any extension
or credit or indemnity. Section 12(b) of the 1935 Act prohibits a registered
holding company and its subsidiaries from lending or in any manner extending its
credit to or indemnifying any company in the same holding company system except
as authorized by the SEC.
Under Section 13(a) of the 1935 Act, registered holding companies are
prohibited from entering into service, sales or construction contracts with an
associated utility. Section 2(a)(19) of the 1935 Act defines "service contract"
to include any "contract, agreement, or understanding whereby a person
undertakes to sell or furnish, for a charge, any managerial, financial, legal,
engineering, purchasing, marketing, auditing, statistical, advertising,
publicity, tax, research, or any other service, information, or data." Although
the restrictions of Section 13(a) of the 1935 Act do not apply to transactions
involving special or unusual circumstances or not in the ordinary course of
business if the SEC exempts them, no exemptions generally applicable to
registered holding companies have been granted by the SEC to date.
Under Section 13(b) of the 1935 Act, no subsidiary of a registered holding
company may render any services to any associate (subsidiary) company except
pursuant to rules or order of the Commission "to insure that such contracts are
performed economically and efficiently for the benefit of such associate
companies at cost, fairly and equitably allocated among such companies." Rule 91
issued by the SEC under the 1935 Act provides that "a transaction shall be
deemed to be performed at not more than cost if the price (taking into account
all charges) does not exceed a fair and equitable allocation of expenses
(including the price paid for goods) plus reasonable compensation for necessary
capital procured through the issuance of capital stock (or similar securities of
an unincorporated company)." Rule 91(b) specifies standards for allocating
direct charges and other elements of cost, including taxes, interest, other
overhead and compensation for the use of capital procured by the issuance of
capital stock (or similar securities of an unincorporated company), on a fair
and equitable basis. Rule 93 requires the service company to file an annual
report with the SEC.
FEDERAL POWER ACT. Under Section 203 of the Federal Power Act, no public
utility may sell, lease or otherwise dispose of any part of its Federal Power
Act-jurisdictional facilities having a value in excess of $50,000 without first
having secured an order of the FERC authorizing it to do so. The application for
such an order must set forth the fact relied upon to show that the proposed
disposition will be consistent with the public interest.
NEW JERSEY. Under Section 48:3-7.1 of the New Jersey Statutes, no
management, advisory service, construction or engineering contract of a public
utility with any of its affiliates involving the expenditure of more than
$25,000 by the public utility is valid or effective until approved by the NJBPU,
which is required to disapprove any such contract whose price exceeds the fair
price for the property, work or services provided or that is contrary to the
public interest. Under Section 48:3-7.2 of the New Jersey Statutes, no public
utility may loan money or property to any affiliate without the prior approval
of the NJBPU. Section 48:3-7.8 of the New Jersey Statutes requires every public
utility to provide the NJBPU access to all of its
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records, books and accounts. The NJBPU has required ACE to adopt certain cost
allocation procedures for affiliate transactions. Furthermore, under Sections
48:2-29.1 and 48:2-29.2 of the New Jersey Statutes, the NJBPU may prohibit or
limit the payment of dividends by a public utility to insure compliance with
orders issued by the NJBPU and with the requirements of New Jersey corporate
law.
DELAWARE. Under Section 215 of the Delaware Public Utilities Act, no public
utility may dispose of any essential part of its property, or issue any stock or
indebtedness payable in more than one year, without the prior approval of the
DPSC. Section 207 of the Delaware Public Utilities Act provides that the DPSC
shall have access to all books, accounts and records of public utilities. Under
DPSC standards, in order for a public utility to have a transaction expense with
an affiliated entity allowed for purposes of fixing public utility rates, the
expense must be reasonable in that it must be the product of fair dealing and at
a fair price.
MARYLAND. Under Section 56 of the Maryland Public Service Commission Law,
the MPSC is granted general authority to supervise and regulate public utilities
operating in the State of Maryland to assure their operation in the interest of
the public and to promote adequate, economical and efficient delivery of utility
services.
VIRGINIA. Section 56-77 of the Code of Virginia requires the approval of or
exemption by the VSCC for all contracts and arrangements for the furnishing of
management, supervisory, construction, engineering, accounting, legal, financial
or similar services or for the purchase, sale, lease or exchange of any other
property, right or thing between a public service company and an affiliate. An
application requesting approval or exemption of every such contract or
arrangement must be filed with the VSCC regardless of the amount involved. Under
Section 56-77 of the Code of Virginia, any such proposed transaction may be
excluded in whole or in part from the accounts of a public service company in
any proceeding involving its rates or practices if the transaction is not
consistent with the public interest, and any payment or compensation may be
disapproved or disallowed by the VSCC unless satisfactory proof is submitted
thereto of the cost to the affiliated interest rendering the service or
furnishing the property or service in question. Also, under Section 56-80 of the
Code of Virginia, the VSCC retains continuing supervisory control over the terms
and conditions of affiliate contracts and any modifications or amendments
thereto and may revise or amend the terms of such contracts as necessary to
protect and promote the public interest. Section 56-82 of the Code of Virginia
requires a public utility to obtain the approval of the VSCC to loan money to,
or assume any obligation or liability of, an affiliate, and to extend or renew
any such loan or assumption of an obligation or liability. An important aspect
of the public interest is assurance that an affiliated company of a regulated
utility does not receive unjust benefits to the detriment of the utility's
customers.
OPERATIONS OF THE COMPANY
The Merger Agreement provides that at and after the consummation of the
Mergers, the Company will maintain (i) its corporate headquarters and principal
executive offices in Wilmington, Delaware and (ii) a significant presence in New
Jersey.
Following the consummation of the Mergers, the Company and its subsidiaries
will honor all prior contracts, agreements, collective bargaining agreements and
commitments with current or former employees or current or former directors of
Delmarva or Atlantic and their respective subsidiaries, in accordance with the
respective terms of such contracts, agreements and commitments, subject to the
Company's right to enforce them in accordance with their terms (including any
reserved right to amend, modify, suspend, revoke or terminate them). The Company
will take all action necessary so that after the consummation of the Mergers,
the Dividend Reinvestment and Common Share Purchase Plan, the Savings and Thrift
Plan and the Long-Term Incentive Plan of Delmarva and the Equity Incentive Plan,
the Directors' Restricted Stock Plan, the Employee Stock Purchase Plan and the
Dividend Reinvestment Plan of Atlantic will be
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terminated, replaced or amended to provide for the issue and sale of Company
Common Stock in place of Delmarva Common Stock or Atlantic Common Stock, as the
case may be, under such plans.
After the consummation of the Mergers, the Company will provide charitable
contributions and community support within the service areas of Delmarva and
Atlantic and each of their respective subsidiaries at levels substantially
comparable to the historical levels of charitable contribution and community
support provided by Delmarva, Atlantic and their respective subsidiaries within
their service areas.
DIVIDEND POLICIES
It is anticipated that following the Mergers the Company will initially pay
dividends on the Company Common Stock at the rate of $1.54 per annum, subject to
evaluation from time to time by the Company Board based on the Company's results
of operations, financial condition, capital requirements and other relevant
considerations. However, no assurance can be given that such dividend rate will
be in effect or will remain unchanged, and the Company reserves the right to
increase or decrease the dividend on the Company Common Stock as may be required
by law or contract or as may be determined by the Company Board, in its
discretion, to be advisable. For a description of certain restrictions on the
Company's ability to pay dividends on the Company Common Stock, see "Description
of the Company's Capital Stock."
It is anticipated that, subject to declaration by the Company Board and the
obligations of the Company Board to react to the financial condition and
regulatory environment of the Company and its results of operations, the
dividends declared and paid on the Class A Common Stock will be maintained at a
level of $3.20 per share per annum until the earlier of July 1, 2001, or the end
of the twelfth calendar quarter following the calendar quarter in which the
Mergers are consummated.
Thereafter, the Company intends, subject to declaration by the Company Board
and the obligation of the Company Board to consider the financial condition and
regulatory environment of the Company and the results of its operations, to pay
annual dividends on the Class A Common Stock in an amount (such amount to
include the amount credited to the Intergroup Interest as described under
"Description of the Company's Capital Stock--Intergroup Interest--Adjustments in
Connection with Various Transactions-- Dividends") equal to 90% of the Company
Net Income (Loss) Attributable to the Atlantic Utility Group, subject to the
fact that if annual dividends on the Class A Common Stock during the period
referred to above exceed 100% of the Company Net Income (Loss) Attributable to
the Atlantic Utility Group during such period, the Company Board may consider
such fact in determining the amount of future dividends, if any. There can be no
assurance that the Company's earnings attributable to the Atlantic Utility Group
will be sufficient to cover dividends on the Class A Common Stock during the
Initial Period. DIVIDENDS ON THE CLASS A COMMON STOCK WILL NOT BE CUMULATIVE.
FINANCIAL STATEMENTS
Both the holders of Company Common Stock and the holders of Class A Common
Stock will receive the consolidated financial statements of the Company. Since
upon consummation of the Mergers the financial results of ACE will be
substantially identical to the financial results for the Atlantic Utility Group,
the notes to the consolidated financial statements of the Company will at such
time include condensed financial information of ACE, including a reconciliation
of ACE's Income Available to common stockholders to the Earnings Applicable for
Class A Common Stock. Complete financial statements of ACE will continue to be
filed under the Exchange Act and will be available to stockholders upon request.
NAME OF THE COMPANY
Upon consummation of the Mergers, the name of the Company will be changed to
"Conectiv."
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EXPERTS
The consolidated balance sheets and statements of capitalization of Delmarva
Power & Light Company as of December 31, 1995 and 1994 and the consolidated
statements of income, changes in common stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1995, incorporated by
reference in this joint proxy statement/prospectus, have been incorporated
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing. The consolidated balance sheet of Conectiv, Inc. as of September 30,
1996, included in this joint proxy statement/prospectus, has been included
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The consolidated financial statements of Atlantic Energy, Inc. and Atlantic
City Electric Company incorporated herein by reference from Atlantic Energy,
Inc.'s and Atlantic City Electric Company's Annual Reports on Form 10-K for the
year ended December 31, 1995 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which are incorporated herein
by reference, and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
LEGAL MATTERS
LeBoeuf, Lamb, Greene & MacRae, L.L.P. and Simpson Thacher & Bartlett (a
partnership which includes professional corporations) will pass upon the
legality of the shares of Company Common Stock and the Class A Common Stock
issued in connection with the Mergers on behalf of Delmarva and Atlantic,
respectively.
STOCKHOLDER PROPOSALS
For proposals of holders of Delmarva Common Stock intended to be presented
at the Annual Meeting of Stockholders to be held in 1997 to be considered for
inclusion in the Delmarva proxy statement and form of proxy relating to that
meeting, such proposals must be received by Delmarva on or before December 27,
1996. Proposals should be sent to Donald P. Connelly, Secretary, Delmarva Power
& Light Company, 800 King Street, Wilmington, Delaware 19899.
The November 15, 1996 deadline for receipt by Atlantic of proposals from
holders of Atlantic Common Stock intended to be presented at the Annual Meeting
of Stockholders to be held in 1997 to be considered for inclusion in the
Atlantic proxy statement and form of proxy relating to that meeting has expired.
For proposals of holders of Atlantic Common Stock intended to be presented at
the Annual Meeting of Stockholders to be held in 1998 to be considered for
inclusion in the Atlantic proxy statement and form of proxy relating to that
meeting, such proposals must be received by Atlantic on or before November 19,
1997. Proposals should be sent to James E. Franklin II, Secretary, Atlantic
Energy, Inc., 6801 Black Horse Pike, Egg Harbor Township, New Jersey 08234.
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ANNEX I
AGREEMENT AND PLAN OF
MERGER
DATED AS OF AUGUST 9, 1996
AS
AMENDED AND RESTATED
AS OF DECEMBER 26, 1996
BY AND AMONG
DELMARVA POWER & LIGHT COMPANY
ATLANTIC ENERGY, INC.
CONECTIV, INC.
AND
DS SUB, INC.
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August 9, 1996 as amended and
restated in its entirety as of December 26, 1996 (this "Agreement"), by and
among Delmarva Power & Light Company, a corporation formed under the laws of the
State of Delaware and the Commonwealth of Virginia ("Delmarva"), Atlantic
Energy, Inc., a corporation formed under the laws of the State of New Jersey
("Atlantic"), Conectiv, Inc., a corporation formed under the laws of the State
of Delaware, 50% of whose outstanding capital stock is owned by Delmarva and 50%
of whose capital stock is owned by Atlantic (the "Company"), and DS Sub, Inc., a
corporation formed under the laws of the State of Delaware and a wholly owned
subsidiary of the Company ("DS Sub").
WHEREAS, Delmarva and Atlantic have determined to engage in a business
combination as peer firms in a merger of equals;
WHEREAS, in furtherance thereof, the respective Boards of Directors of
Delmarva, Atlantic, the Company and DS Sub have approved the consummation of a
reorganization provided for in this Agreement, pursuant to which Atlantic will
merge with and into the Company and DS Sub will merge with and into Delmarva, in
each case upon the terms and subject to the conditions set forth in this
Agreement (such transactions being referred to herein respectively as the
Atlantic Merger and the Delmarva Merger, each individually as a "Merger" and
together as the "Mergers"), as a result of which the common shareholders of
Delmarva and Atlantic will together own all of the outstanding shares of common
stock of the Company, including, in the case of the common shareholders of
Atlantic, the Letter Stock (as defined in Section 2.1(b)), and each share of
each other class of capital stock, if any, of Delmarva and Atlantic shall be
unaffected and remain outstanding; and
WHEREAS, for federal income tax purposes, it is intended that (i) the
Delmarva Merger will qualify as an exchange under the provisions of Section 351
of the United States Internal Revenue Code of 1986, as amended (the "Code"),
and/or as a reorganization under the provisions of Section 368(a) of the Code
and (ii) the Atlantic Merger will qualify as a reorganization under the
provisions of Section 368(a) of the Code.
NOW THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
ARTICLE I
THE MERGERS
Section 1.1 THE MERGERS. Upon the terms and subject to the conditions of
this Agreement:
(a) At the Effective Time (as defined in Section 1.3), Atlantic shall be
merged with and into the Company (the "Atlantic Merger") in accordance with the
applicable provisions of the laws of the State of Delaware and New Jersey. The
Company shall be the surviving corporation in the Atlantic Merger and shall
continue its corporate existence under the laws of the State of Delaware. The
effects and the consequences of the Atlantic Merger shall be as set forth in
Section 1.2(a). Throughout this Agreement, the term "Company" shall refer to the
Company prior to the Atlantic Merger or to the Company in its capacity as the
surviving corporation in the Atlantic Merger, as the context requires.
(b) At the Effective Time, DS Sub shall be merged with and into Delmarva
(the "Delmarva Merger") in accordance with the laws of the State of Delaware and
the Commonwealth of Virginia. Delmarva shall be the surviving corporation in the
Delmarva Merger and shall continue its corporate existence under the laws of the
State of Delaware and the Commonwealth of Virginia. The effects and the
consequences of the Delmarva Merger shall be as set forth in Section 1.2(b).
<PAGE>
Section 1.2 EFFECTS OF THE MERGERS.
(a) At the Effective Time, (i) the certificate of incorporation of the
Company, as in effect at the Effective Time (which shall be amended and restated
pursuant to Section 7.16), shall be the certificate of incorporation of the
surviving corporation in the Atlantic Merger until thereafter amended as
provided by law and such certificate of incorporation, and (ii) the bylaws of
the Company, as in effect immediately prior to the Effective Time (which shall
be amended and restated pursuant to Section 7.16), shall be the bylaws of the
surviving corporation in the Atlantic Merger until thereafter amended as
provided by law, the certificate of incorporation of the surviving corporation
in the Atlantic Merger and such bylaws. Subject to the foregoing, the additional
effects of the Atlantic Merger shall be as provided in the applicable provisions
of the Delaware General Corporation Law (the "DGCL") and the New Jersey Business
Corporation Act (the "NJBCA").
(b) At the Effective Time, (i) the certificate and articles of incorporation
of Delmarva, as in effect immediately prior to the Effective Time, shall be the
certificate and articles of incorporation of the surviving corporation in the
Delmarva Merger until thereafter amended as provided by law and such certificate
and articles of incorporation, and (ii) the bylaws of Delmarva, as in effect
immediately prior to the Effective Time, shall be the bylaws of the surviving
corporation in the Delmarva Merger until thereafter amended as provided by law,
the certificate and articles of incorporation of the surviving corporation in
the Delmarva Merger and such bylaws. Subject to the foregoing, the additional
effects of the Delmarva Merger shall be as provided in the applicable provisions
of the DGCL and the Virginia Stock Corporation Act (the "VSCA").
Section 1.3 EFFECTIVE TIME OF THE MERGERS. On the Closing Date (as defined
in Section 3.1): (a) a certificate of merger with respect to the Delmarva Merger
shall be executed and filed by Delmarva with the Secretary of State of the State
of Delaware pursuant to Section 251 of the DGCL and articles of merger with
respect to the Delmarva Merger shall be executed and filed by Delmarva with the
State Corporation Commission of Virginia (the "Virginia Commission") pursuant to
Section 13.1-720 of the VSCA; and (b) a certificate of merger with respect to
the Atlantic Merger shall be executed and filed by the Company with the
Secretary of State of the State of Delaware pursuant to Section 252 of the DGCL
and a certificate of merger with respect to the Atlantic Merger shall be
executed and filed by Atlantic and the Company with the Secretary of State of
the State of New Jersey pursuant to Section 14A:10-4.1 of the NJBCA. The Mergers
shall become effective simultaneously and at the time that Delmarva and Atlantic
shall agree, which time shall be specified in the respective certificates and
articles of merger for the Mergers (such time being herein referred to as the
"Effective Time").
ARTICLE II
TREATMENT OF SHARES
Section 2.1 EFFECT OF MERGERS ON CAPITAL STOCK. At the Effective Time, by
virtue of the Mergers and without any action on the part of any holder of any
capital stock of Delmarva, Atlantic, the Company or DS Sub:
(a) CANCELLATION OF CERTAIN COMMON STOCK. Each share of (i) Delmarva common
stock, par value $2.25 ("Delmarva Common Stock"), that is owned by Delmarva as
treasury stock or by Atlantic or by any wholly owned subsidiary (as defined in
Section 4.1) of Delmarva or Atlantic, (ii) Atlantic common stock, no par value
("Atlantic Common Stock"), that is owned by Atlantic as treasury stock or by
Delmarva or by any wholly owned subsidiary of Atlantic or Delmarva and (iii)
Company Common Stock, par value $.01 per share ("Company Common Stock"), that is
owned by Delmarva, Atlantic or any wholly owned subsidiary of Delmarva or
Atlantic, in each case shall be cancelled and shall cease to exist, and no
consideration shall be delivered in exchange therefor.
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(b) CONVERSION OF CERTAIN COMMON STOCK. Each share of Delmarva Common Stock
issued and outstanding immediately prior to the Effective Time (other than
shares cancelled pursuant to Section 2.1(a)) shall be converted into the right
to receive one fully paid and nonassessable share of Company Common Stock (the
"Delmarva Conversion Ratio"), and each share of Atlantic Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares cancelled
pursuant to Section 2.1(a)) shall be converted into the right to receive 0.75
fully paid and nonassessable share(s) of Company Common Stock and 0.125 fully
paid and nonassessable share(s) of Class A common stock, par value $0.01 per
share ("Letter Stock") of the Company, the provisions of which are set forth in
Article IV of the form of certificate of incorporation of the Company attached
hereto as Exhibit A (the "Atlantic Conversion Ratio"). Upon such conversions as
provided for herein, each holder of a certificate formerly representing any such
shares of Delmarva Common Stock or Atlantic Common Stock shall cease to have any
rights with respect thereto, except the right to receive the shares of Company
Common Stock and, in the case of holders of Atlantic Common Stock, the shares of
Letter Stock to be issued in consideration therefor (and cash in lieu of
fractional shares) upon the surrender of such certificate in accordance with
Section 2.2.
(c) CONVERSION OF DS SUB COMMON STOCK. Each share of DS Sub Common Stock,
par value $.01 per share, issued and outstanding immediately prior to the
Effective Time shall be converted into and become one share of Common Stock, par
value $2.25, of the surviving corporation in the Delmarva Merger.
(d) DELMARVA PREFERRED STOCK UNCHANGED. Each share of Delmarva Preferred
Stock and each share of Delmarva Preferred Stock --$25 par (together, "Delmarva
Preferred Stock"), shall be unchanged in and shall remain outstanding after the
Mergers.
(e) SHARES OF DISSENTING HOLDERS. Any issued and outstanding shares of
Delmarva stock which is neither (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Security Dealers, Inc., nor (ii) held of
record by more than 2,000 holders, and which are held by a person who objects to
the Merger and who has demanded appraisal for such shares in accordance with all
applicable provisions of the DGCL or the VSCA concerning the right of such
person to dissent from the Mergers and demand appraisal of such shares (each, a
"Dissenting Holder") shall, if the DGCL or the VSCA provides for appraisal
rights with respect to such shares in the Mergers, from and after the Effective
Time represent only the right to receive such consideration as may be determined
to be due to such Dissenting Holder with respect to such shares pursuant to the
DGCL or the VSCA, as applicable; provided, however, that shares outstanding
immediately prior to the Effective Time and held by a Dissenting Holder who
shall withdraw the demand for appraisal, or lose the right of appraisal of such
shares, pursuant to the DGCL or the VSCA, as applicable, shall be unchanged in
and remain outstanding after the Mergers, without interest.
Section 2.2 EXCHANGE OF COMMON STOCK CERTIFICATES.
(a) DEPOSIT WITH EXCHANGE AGENT. On or before the Effective Time, the
Company shall deposit with a bank, trust company or other agent selected by
Delmarva and Atlantic (the "Exchange Agent") certificates representing shares of
Company Common Stock and Letter Stock required to effect the conversion of
Delmarva Common Stock or Atlantic Common Stock, as the case may be, into Company
Common Stock and, in the case of Atlantic Common Stock, Letter Stock as
described in Section 2.1(b).
(b) EXCHANGE PROCEDURES. As soon as practicable after the Effective Time,
the Exchange Agent shall mail to each holder of record of a certificate or
certificates that immediately prior to the Effective Time represented issued and
outstanding shares of Delmarva Common Stock or Atlantic Common Stock
(collectively, "Certificates") that were converted ("Converted Shares") into the
right to receive shares of Company Common Stock and, in the case of Atlantic
Common Stock, Letter Stock (collectively, "Company Shares") pursuant to Section
2.1(b), (i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
actual delivery of the Certificates to the Exchange Agent) and (ii) instructions
for use in effecting the exchange of Certificates for certificates representing
Company Shares. Upon delivery of a Certificate to the Exchange Agent for
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exchange, together with a duly executed letter of transmittal and such other
documents as the Exchange Agent shall require, the holder of such Certificate
shall be entitled to receive in exchange therefor a certificate representing
that number of whole Company Shares and the amount of cash in lieu of fractional
share interests that such holder has the right to receive pursuant to the
provisions of this Article II. In the event of a transfer of ownership of
Converted Shares that is not registered in the transfer records of Delmarva or
Atlantic, as the case may be, a certificate representing the proper number of
Company Shares may be issued to a transferee if the Certificate representing
such Converted Shares is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence
satisfactory to the Exchange Agent that any applicable stock transfer taxes have
been paid. Until delivered as contemplated by this Section 2.2, each Certificate
shall be deemed at any time after the Effective Time to represent only the right
to receive upon such delivery the certificate representing Company Shares and
cash in lieu of any fractional shares of Company Common Stock as contemplated by
this Section 2.2.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or other
distributions declared or made after the Effective Time with respect to Company
Shares with a record date after the Effective Time shall be paid to the holder
of any undelivered Certificate with respect to the Company Shares represented
thereby, and no cash payment in lieu of fractional shares shall be paid to any
such holder pursuant to Section 2.2(d), until the holder of record of such
Certificate (or a transferee as described in Section 2.2(b)) shall have
delivered such Certificate as contemplated in Section 2.2(b). Subject to the
effect of unclaimed property, escheat and other applicable laws, following
delivery of any such Certificate there shall be paid to the record holder (or
transferee) of the certificates representing whole Company Shares issued in
exchange therefor, without interest, (i) at the time of such delivery, the
amount of any cash payable in lieu of a fractional share of Company Shares to
which such holder (or transferee) is entitled pursuant to Section 2.2(d) and the
amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole Company Shares and
(ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to such
delivery and a payment date subsequent to such delivery payable with respect to
such whole Company Shares.
(d) NO FRACTIONAL SHARES. (i) No certificates or scrip representing
fractional shares of Company Shares shall be issued upon the delivery for
exchange of Certificates, and such fractional share interests shall not entitle
the owner thereof to vote or to any rights of a shareholder of the Company.
(ii) As promptly as practicable following the Effective Time, the Exchange
Agent shall determine the excess of (x) the number of full shares of Company
Shares delivered to the Exchange Agent by the Company pursuant to Section 2.2(a)
over (y) the aggregate number of full shares of Company Common Stock and Letter
Stock to be distributed to holders of Delmarva Common Stock and Atlantic Common
Stock, respectively, pursuant to Section 2.1 (such excess being hereinafter
referred to as the "Excess Shares"). As soon after the Effective Time as
practicable, the Exchange Agent, as agent for the holders of Atlantic Common
Stock, shall sell the Excess Shares at then prevailing prices on the New York
Stock Exchange (the "NYSE"), all in the manner provided in Section 2.2(d)(iii).
(iii) The sale of the Excess Shares by the Exchange Agent shall be executed
on the NYSE through one or more member firms of the NYSE and shall be executed
in round lots to the extent practicable. Until the proceeds of such sale or
sales have been distributed to the holders of Atlantic Common Stock, the
Exchange Agent shall, until remitted pursuant to Section 2.2(f), hold such
proceeds in trust for the holders of Atlantic Common Stock (the "Common Shares
Trust"). The Company shall pay all commissions, transfer taxes and other
out-of-pocket transaction costs, including the expenses and compensation, of the
Exchange Agent incurred in connection with such sale of the Excess Shares. The
Exchange Agent shall determine the portion of the proceeds comprising the Common
Shares Trust to which each holder of Atlantic Common Stock shall be entitled, if
any, by multiplying the amount of the aggregate proceeds comprising the Common
Shares Trust by a fraction the numerator of which is the amount of the
fractional
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share interest to which such holder of Atlantic Common Stock is entitled and the
denominator of which is the aggregate amount of fractional share interests to
which all holders of Atlantic Common Stock are entitled.
(iv) As soon as practicable after the sale of Excess Shares pursuant to
clause (iii) above and the determination of the amount of cash, if any, to be
paid to holders of Atlantic Common Stock in lieu of any fractional share
interests, the Exchange Agent shall distribute such amounts to holders of
Atlantic Common Stock who have theretofore delivered Certificates for Atlantic
Common Stock for exchange pursuant to this Article II.
(e) CLOSING OF TRANSFER BOOKS. From and after the Effective Time, the stock
transfer books of Delmarva with respect to shares of Delmarva Common Stock, and
of Atlantic with respect to shares of Atlantic Common Stock, issued and
outstanding prior to the Effective Time shall be closed and no transfer of any
such shares shall thereafter be made. If after the Effective Time Certificates
are presented to the Company, they shall be cancelled and exchanged for
certificates representing the appropriate number of whole Company Shares and
cash in lieu of fractional shares of Company Common Stock as provided in this
Section 2.2.
(f) TERMINATION OF EXCHANGE AGENT. Any certificates representing Company
Shares deposited with the Exchange Agent pursuant to Section 2.2(a) and not
exchanged within one year after the Effective Time pursuant to this Section 2.2
shall be returned by the Exchange Agent to the Company, which shall thereafter
act as Exchange Agent. All funds held by the Exchange Agent for payment to the
holders of undelivered Certificates and unclaimed at the end of one year from
the Effective Time shall be remitted to the Company, after which time any holder
of undelivered Certificates shall look as a general creditor only to the Company
for payment of such funds to which such holder may be due, subject to applicable
law. The Company shall not be liable to any person for such shares or funds
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
ARTICLE III
THE CLOSING
Section 3.1 CLOSING. The closing (the "Closing") of the Mergers shall take
place at a place to be mutually agreed upon by the parties hereto at 10:00 A.M.,
local time, on the second business day immediately following the date on which
the last of the conditions set forth in Article VIII is fulfilled or waived, or
at such other time and date as Delmarva and Atlantic shall mutually agree (the
"Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF DELMARVA
Delmarva represents and warrants to Atlantic as follows:
Section 4.1 ORGANIZATION AND QUALIFICATION. Except as disclosed in Section
4.1 of the Delmarva Disclosure Schedule (as defined in Section 7.6(ii)), (i)
Delmarva is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdictions of incorporation, (ii) each of Delmarva's
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and (iii) each of
Delmarva and each of its subsidiaries has all requisite corporate power and
authority, and has been duly authorized by all necessary regulatory approvals
and orders, to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted and is duly qualified and in good
standing to do business in each jurisdiction in which the nature of its business
or the ownership or leasing of its assets and properties makes such
qualification necessary other than in such jurisdictions where the failure to be
so qualified and in good standing will not, when
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taken together with all other such failures, have a material adverse effect on
the business, operations, properties, assets, condition (financial or
otherwise), prospects or results of operations of Delmarva and its subsidiaries
taken as a whole or on the consummation of this Agreement (any such material
adverse effect being hereinafter referred to as a "Delmarva Material Adverse
Effect"). As used in this Agreement the term "subsidiary" with respect to any
person shall mean any corporation or other entity (including partnerships and
other business associations) in which such person directly or indirectly owns
outstanding capital stock or other voting securities having the power, under
ordinary circumstances, to elect a majority of the directors or similar members
of the governing body of such corporation or other entity or otherwise to direct
the management and policies of such corporation or other entity.
Section 4.2 SUBSIDIARIES. Section 4.2 of the Delmarva Disclosure Schedule
contains a description as of the date hereof of all subsidiaries and joint
ventures of Delmarva, including the name of each such entity, the state or
jurisdiction of its incorporation, a brief description of the principal line or
lines of business conducted by each such entity and Delmarva's interest therein.
Except as disclosed in Section 4.2 of the Delmarva Disclosure Schedule, none of
such entities is a "public utility company," a "holding company," a "subsidiary
company" or an "affiliate" of any public utility company within the meaning of
Section 2(a)(5), 2(a)(7), 2(a)(8) and 2(a)(11) of the Public Utility Holding
Company Act of 1935, as amended (the "1935 Act"), respectively. Except as
disclosed in Section 4.2 of the Delmarva Disclosure Schedule, all of the issued
and outstanding shares of capital stock of each subsidiary of Delmarva are
validly issued, fully paid, nonassessable and free of preemptive rights and are
owned directly or indirectly by Delmarva free and clear of any liens, claims,
encumbrances, security interests, equities, charges and options of any nature
whatsoever, and there are no outstanding subscriptions, options, calls,
contracts, voting trusts, proxies or other commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement, obligating any such subsidiary to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of its capital stock or
obligating it to grant, extend or enter into any such agreement or commitment.
As used in this Agreement, the term "joint venture" with respect to any person
shall mean any corporation or other entity (including partnerships and other
business associations and joint ventures) in which such person or one or more of
its subsidiaries owns an equity interest that is less than a majority of any
class of the outstanding voting securities or equity, other than equity
interests held for passive investment purposes that are less than 5% of any
class of the outstanding voting securities or equity.
Section 4.3 CAPITALIZATION. The authorized capital stock of Delmarva
consists of 90,000,000 shares of Delmarva Common Stock, 1,800,000 shares of
Delmarva Preferred Stock, 3,000,000 shares of Delmarva Preferred Stock--$25 Par,
and 10,000,000 shares of Delmarva Preferred Stock--$1 Par. As of the close of
business on June 30, 1996, 60,697,635 shares of Delmarva Common Stock, 1,280,850
shares of Delmarva Preferred Stock and 1,600,000 shares of Delmarva Preferred
Stock--$25 Par were issued and outstanding and no shares of Delmarva Preferred
Stock--$1 Par were issued and outstanding. All of the issued and outstanding
shares of the capital stock of Delmarva are validly issued, fully paid,
nonassessable and free of preemptive rights. Except as disclosed in Section 4.3
of the Delmarva Disclosure Schedule, as of the date hereof, there are no
outstanding subscriptions, options, calls, contracts, voting trusts, proxies or
other commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement, obligating Delmarva or any of its
subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of the capital stock or other voting securities of
Delmarva or obligating Delmarva or any of its subsidiaries to grant, extend or
enter into any such agreement or commitment.
Section 4.4 AUTHORITY; NONCONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE.
(a) AUTHORITY. Delmarva has all requisite power and authority to enter into
this Agreement and, subject to the Delmarva Shareholders' Approval (as defined
in Section 4.13) and the Delmarva Required Statutory Approvals (as defined in
Section 4.4(c)), to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation by Delmarva of the
transactions
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contemplated hereby have been duly authorized by all necessary corporate action
on the part of Delmarva, subject to obtaining the Delmarva Shareholders'
Approval. This Agreement has been duly and validly executed and delivered by
Delmarva and, assuming the due authorization, execution and delivery of this
Agreement by the other signatories hereto constitutes the legal, valid and
binding obligation of Delmarva enforceable against Delmarva in accordance with
its terms.
(b) NONCONTRAVENTION. Except as disclosed in Section 4.4(b) of the Delmarva
Disclosure Schedule, the execution and delivery of this Agreement by Delmarva do
not, and the consummation of the transactions contemplated hereby will not,
violate, conflict with or result in a breach of any provision of, or constitute
a default (with or without notice or lapse of time or both) under, or result in
the termination of, or accelerate the performance required by, or result in a
right of termination, cancellation or acceleration of any obligation under or
the loss of a material benefit under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets
(any such violation, conflict, breach, default, right of termination,
cancellation or acceleration, loss or creation, a "Violation") of Delmarva or
any of its subsidiaries or, to the best knowledge of Delmarva, any of its joint
ventures, under any provisions of (i) the certificate or articles of
incorporation, bylaws or similar governing documents of Delmarva or any of its
subsidiaries or joint ventures, (ii) subject to obtaining the Delmarva Required
Statutory Approvals and the receipt of the Delmarva Shareholders' Approval, any
statute, law, ordinance, rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any court, governmental or regulatory body (including
a stock exchange or other self-regulatory body) or authority, domestic or
foreign (each, a "Governmental Authority") applicable to Delmarva or any of its
subsidiaries or joint ventures or any of their respective properties or assets
or (iii) subject to obtaining the third-party consents or other approvals set
forth in Section 4.4(b) of the Delmarva Disclosure Schedule (the "Delmarva
Required Consents"), any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which Delmarva or any of its subsidiaries
or joint ventures is now a party or by which any of them or any of their
respective properties or assets may be bound or affected, excluding from the
foregoing clauses (ii) and (iii) such Violations as, in the aggregate, are not
reasonably likely to have a Delmarva Material Adverse Effect.
(c) STATUTORY APPROVALS. Except as disclosed in Section 4.4(c) of the
Delmarva Disclosure Schedule, no declaration, filing or registration with, or
notice to or authorization, consent, finding by or approval of, any Governmental
Authority is necessary for the execution and delivery of this Agreement by
Delmarva or the consummation by Delmarva of the transactions contemplated
hereby, the failure to obtain which, in the aggregate, is reasonably likely to
have a Delmarva Material Adverse Effect (the "Delmarva Required Statutory
Approvals"), it being understood that references in this Agreement to
"obtaining" such Delmarva Required Statutory Approvals shall mean making such
declarations, filings or registrations, giving such notice, obtaining such
authorizations, consents or approvals and having such waiting periods expire as
are, in each case, necessary to avoid a violation of law.
(d) COMPLIANCE. Except as disclosed in Section 4.4(d), 4.7, 4.10 or 4.11 of
the Delmarva Disclosure Schedule or as disclosed in the Delmarva SEC Reports (as
defined in Section 4.5), neither Delmarva nor any of its subsidiaries nor, to
the best knowledge of Delmarva, any of its joint ventures is in violation of or
under investigation with respect to, or has been given notice or been charged
with any violation of, any law, statute, order, rule, regulation, ordinance or
judgment (including without limitation any applicable Environmental Laws (as
defined in Section 4.11(g)(ii)) of any Governmental Authority, except for
violations that, in the aggregate, do not have, and to the best knowledge of
Delmarva are not reasonably likely to have, a Delmarva Material Adverse Effect.
Except as disclosed in Section 4.4(d) or 4.11 of the Delmarva Disclosure
Schedule, Delmarva, its subsidiaries and, to the best knowledge of Delmarva, its
joint ventures have all permits, licenses, franchises and other governmental
authorizations, consents and approvals necessary to conduct their respective
businesses as currently conducted (collectively, "Permits"), except those the
failure to obtain which, in the aggregate, are not reasonably likely to have a
Delmarva Material Adverse Effect. Except as set forth in Section 4.4(b), 4.4(d)
or 4.11 of the Delmarva Disclosure Schedule, neither Delmarva nor any of its
subsidiaries nor, to the best knowledge of Delmarva, any of its
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joint ventures, is in breach or violation of or in default in the performance or
observance of any term or provision of, and no event has occurred which, with
lapse of time or action by a third party, could result in a default under (i)
its certificate or articles of incorporation or its bylaws or (ii) except where
such breaches, violations and defaults, in the aggregate, are not reasonably
likely to have a Delmarva Material Adverse Effect, any contract, commitment,
agreement, indenture, mortgage, loan agreement, note, lease, bond, license,
approval or other instrument to which it is a party or by which it is bound or
to which any of its property is subject.
Section 4.5 REPORTS AND FINANCIAL STATEMENTS. Except as disclosed in Section
4.5 of the Delmarva Disclosure Schedule, the filings required to be made by
Delmarva and its subsidiaries since January 1, 1991 under the Securities Act of
1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), applicable Delaware, Maryland, Virginia and
Pennsylvania laws and regulations, the Federal Power Act, as amended (the "Power
Act"), the 1935 Act and the Atomic Energy Act of 1954, as amended (the "Atomic
Energy Act"), have been filed with the Securities and Exchange Commission (the
"SEC"), the Delaware Public Service Commission (the "Delaware Commission"), the
Maryland Public Service Commission (the "Maryland Commission"), the Virginia
Commission, the Pennsylvania Public Utility Commission (the "Pennsylvania
Commission"), the Federal Energy Regulatory Commission (the "FERC") and the
Nuclear Regulatory Commission (the "NRC"), respectively, including all forms,
statements, reports, agreements (oral or written) and all documents, exhibits,
amendments and supplements appertaining thereto, and, as of their respective
dates, complied in all material respects with all applicable requirements of the
appropriate act and the rules and regulations thereunder. Delmarva has made
available to Atlantic a true and complete copy of each report, schedule,
registration statement and definitive proxy statement filed by Delmarva with the
SEC since January 1, 1991 and through the date hereof (as such documents have
since the time of their filing been amended, the "Delmarva SEC Reports"). The
Delmarva SEC Reports, including without limitation any financial statements or
schedules included therein, at the time filed, and any forms, reports or other
documents filed by Delmarva with the SEC after the date hereof, did not and will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim financial
statements of Delmarva included in the Delmarva SEC Reports (collectively, the
"Delmarva Financial Statements") have been prepared, and will be prepared, in
accordance with generally accepted accounting principles applied on a consistent
basis ("GAAP") (except as may be indicated therein or in the notes thereto and
except with respect to unaudited statements as permitted by Form 10-Q) and
fairly present the consolidated financial position of Delmarva as of the
respective dates thereof or the consolidated results of operations and cash
flows for the respective periods then ended, as the case may be, subject, in the
case of the unaudited interim financial statements, to normal, recurring audit
adjustments. True, accurate and complete copies of the certificate and articles
of incorporation and the bylaws of Delmarva, as in effect on the date hereof,
have been delivered to Atlantic.
Section 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS; ABSENCE OF UNDISCLOSED
LIABILITIES. (a) Except as disclosed in the Delmarva SEC Reports filed prior to
the date hereof or as disclosed in Section 4.6 of the Delmarva Disclosure
Schedule, from December 31, 1995 through the date hereof each of Delmarva and
each of its subsidiaries has conducted its business only in the ordinary course
of business consistent with past practice and no event has occurred which has
had, and no fact or condition exists that would have or, to the best knowledge
of Delmarva, is reasonably likely to have, a Delmarva Material Adverse Effect.
(b) Neither Delmarva nor any of its subsidiaries has any liabilities or
obligations (whether absolute, contingent, accrued or otherwise) of a nature
required by GAAP to be reflected in a consolidated corporate balance sheet,
except liabilities, obligations or contingencies that are accrued or reserved
against in the consolidated financial statements of Delmarva or are reflected in
the notes thereto for the year ended December 31, 1995 or that were incurred
after December 31, 1995 in the ordinary course of business and are not
reasonably likely to have a Delmarva Material Adverse Effect.
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Section 4.7 LITIGATION. Except as disclosed in the Delmarva SEC Reports
filed prior to the date hereof or as disclosed in Section 4.7, 4.9, 4.10 or 4.11
of the Delmarva Disclosure Schedule, (i) there are no claims, suits, actions or
proceedings pending or to the best knowledge of Delmarva threatened, nor are
there any investigations or reviews pending or, to the best knowledge of
Delmarva, threatened against, relating to or affecting Delmarva or any of its
subsidiaries, (ii) there have not been any developments since December 31, 1995
with respect to any such disclosed claims, suits, actions, proceedings,
investigations or review and (iii) there are no judgments, decrees, injunctions,
rules or orders of any court, governmental department, commission, agency,
instrumentality or authority or any arbitrator applicable to Delmarva or any of
its subsidiaries that, in the aggregate, are reasonably likely to have a
Delmarva Material Adverse Effect.
Section 4.8 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by or on behalf of Delmarva for inclusion
or incorporation by reference in (i) the registration statement on Form S-4 to
be filed with the SEC by the Company in connection with the issuance of shares
of Company Common Stock and Letter Stock in the Mergers (the "Registration
Statement") will, at the time the Registration Statement becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading and (ii) the joint proxy in definitive form,
relating to the meetings of the shareholders of Delmarva and Atlantic to be held
in connection with the Mergers and the prospectus relating to the Company Common
Stock and Letter Stock to be issued in the Mergers (the "Joint Proxy Statement")
will, at the date mailed to such shareholders and, as the same may be amended or
supplemented, at the times of such meetings, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The Registration Statement and the Joint Proxy Statement will comply
as to form in all material respects with the provisions of the Securities Act
and the Exchange Act and the rules and regulations thereunder.
Section 4.9 TAX MATTERS. "Taxes", as used in this Agreement, means any
federal, state, county, local or foreign taxes, charges, fees, levies, or other
assessments, including all net income, gross income, sales and use, ad valorem,
transfer, gains, profits, excise, franchise, real and personal property, gross
receipts, capital stock, production, business and occupation, disability,
employment, payroll, license, estimated, stamp, custom duties, severance or
withholding taxes or charges imposed by any governmental entity, and includes
any interest and penalties (civil or criminal) on or additions to any such taxes
and any expenses incurred in connection with the determination, settlement or
litigation of any tax liability. "Tax Return", as used in this Agreement, means
a report, return or other information required to be supplied to a governmental
entity with respect to Taxes including, where permitted or required, combined or
consolidated returns for any group of entities that includes Delmarva or any of
its subsidiaries, on the one hand, or Atlantic or any of its subsidiaries, on
the other hand.
(a) FILING OF TIMELY TAX RETURNS. Except as disclosed in Section 4.9(a) of
the Delmarva Disclosure Schedule, Delmarva and each of its subsidiaries have
filed all Tax Returns required to be filed by each of them under applicable law.
All Tax Returns were in all material respects (and, as to Tax Returns not filed
as of the date hereof, will be) true, complete and correct and filed on a timely
basis.
(b) PAYMENT OF TAXES. Except as disclosed in Section 4.9(b) of the Delmarva
Disclosure Schedule, Delmarva and each of its subsidiaries have, within the time
and in the manner prescribed by law, paid (and until the Closing Date will pay
within the time and in the manner prescribed by law) all Taxes that are
currently due and payable except for those contested in good faith and for which
adequate reserves have been taken.
(c) TAX RESERVES. Delmarva and its subsidiaries have established (and until
the Closing Date will maintain) on their books and records reserves adequate to
pay all Taxes and reserves for deferred income taxes in accordance with GAAP.
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(d) TAX LIENS. There are no Tax liens upon the assets of Delmarva or any of
its subsidiaries except liens for Taxes not yet due.
(e) WITHHOLDING TAXES. Delmarva and each of its subsidiaries have complied
(and until the Closing Date will comply) in all material respects with the
provisions of the Code relating to the payment and withholding of Taxes,
including without limitation the withholding and reporting requirements under
Code SectionSection 1441 through 1464, 3401 through 3606, and 6041 and 6049, as
well as similar provisions under any other laws, and have within the time and in
the manner prescribed by law withheld from employee wages and paid over to the
proper governmental authorities all amounts required.
(f) EXTENSIONS OF TIME FOR FILING TAX RETURNS. Except as disclosed in
Section 4.9(f) of the Delmarva Disclosure Schedule, neither Delmarva nor any of
its subsidiaries has requested any extension of time within which to file any
Tax Return which Tax Return has not since been filed.
(g) WAIVERS OF STATUTE OF LIMITATIONS. Except as disclosed in Section 4.9(g)
of the Delmarva Disclosure Schedule, neither Delmarva nor any of its
subsidiaries has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns.
(h) EXPIRATION OF STATUTE OF LIMITATIONS. Except as disclosed in Section
4.9(h) of the Delmarva Disclosure Schedule, the statute of limitations for the
assessment of all Taxes has expired for all applicable Tax Returns of Delmarva
and each of its subsidiaries or those Tax Returns have been examined by the
appropriate taxing authorities for all periods through the date hereof, and no
deficiency for any Taxes has been proposed, asserted or assessed against
Delmarva or any of its subsidiaries that has not been resolved and paid in full.
(i) AUDIT, ADMINISTRATIVE AND COURT PROCEEDINGS. Except as disclosed in
Section 4.9(i) of the Delmarva Disclosure Schedule, no audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of Delmarva or any of its subsidiaries.
(j) POWERS OF ATTORNEY. Except as disclosed in Section 4.9(j) of the
Delmarva Disclosure Schedule, no power of attorney currently in force has been
granted by Delmarva or any of its subsidiaries concerning any Tax matter.
(k) TAX RULINGS. Except as disclosed in Section 4.9(k) of the Delmarva
Disclosure Schedule, neither Delmarva nor any of its subsidiaries has received a
Tax Ruling (as defined below) or entered into a Closing Agreement (as defined
below) with any taxing authority that would have a continuing adverse effect
after the Closing Date. "Tax Rulings", as used in this Agreement, shall mean a
written ruling of a taxing authority relating to Taxes. "Closing Agreement", as
used in this Agreement, shall mean a written and legally binding agreement with
a taxing authority relating to Taxes.
(l) AVAILABILITY OF TAX RETURNS. Delmarva and its subsidiaries have made
available to Atlantic complete and accurate copies, covering all open years, of
(i) all Tax Returns, and any amendments thereto, filed by Delmarva or any of its
subsidiaries, (ii) all audit reports received from any taxing authority relating
to any Tax Return filed by Delmarva or any of its subsidiaries and (iii) any
Closing Agreements entered into by Delmarva or any of its subsidiaries with any
taxing authority.
(m) TAX SHARING AGREEMENTS. Except as disclosed in Section 4.9(m) of the
Delmarva Disclosure Schedule, no agreements relating to the allocation or
sharing of Taxes exist between or among Delmarva and any of its subsidiaries.
(n) CODE SECTION 341(F). Neither Delmarva nor any of its subsidiaries has
filed a consent pursuant to Code Section 341(f) or has agreed to have Code
Section 341(f)(2) apply to any disposition of a subsection (f) asset (as such
term is defined in Code Section 341(f)(4)) owned by Delmarva or any of its
subsidiaries.
(o) CODE SECTION 168. Except as disclosed in Section 4.9(o) of the Delmarva
Disclosure Schedule, no property of Delmarva or any of its subsidiaries is
property that Delmarva or any such subsidiary or any
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party to this transaction is or will be required to treat as being owned by
another person pursuant to the provisions of Code Section 168(f)(8) (as in
effect prior to its amendment by the Tax Reform Act of 1986) or is tax-exempt
use property within the meaning of Code Section 168.
(p) CODE SECTION 481 ADJUSTMENTS. Except as disclosed in Section 4.9(p) of
the Delmarva Disclosure Schedule, neither Delmarva nor any of its subsidiaries
is required to include in income any adjustment pursuant to Code Section 481(a)
by reason of a voluntary change in accounting method initiated by Delmarva or
any of its subsidiaries, and, to the best of the knowledge of Delmarva, the
Internal Revenue Service (the "IRS") has not proposed any such adjustment or
change in accounting method.
(q) CODE SECTIONS 6661 AND 6662. Except as disclosed in Section 4.9(q)
of the Delmarva Disclosure Schedule, all transactions that could give rise to an
understatement of federal income tax (within the meaning of Code Section 6661
for Tax Returns filed on or before December 31, 1990, and within the meaning of
Code Section 6662 for tax returns filed after December 31, 1990) that could
reasonably be expected to result in a Delmarva Material Adverse Effect have been
adequately disclosed (or, with respect to Tax Returns filed following the
Closing, will be adequately disclosed) on the Tax Returns of Delmarva and its
subsidiaries in accordance with Code Section 6661(b)(2)(B) for Tax Returns filed
on or prior to December 31, 1990, and in accordance with Code Section
6662(d)(2)(B) for Tax Returns filed after December 31, 1990.
(r) CODE SECTION 280G. Except as disclosed in Section 4.9(r) of the Delmarva
Disclosure Schedule, neither Delmarva nor any of its subsidiaries is a party to
any agreement, contract, or arrangement that could reasonably be expected to
result, on account of the transactions contemplated hereunder, separately or in
the aggregate, in the payment of any "excess parachute payment" within the
meaning of Code Section 280G.
(s) NOLS. As of December 31, 1994, Delmarva and its subsidiaries had net
operating loss carryovers available to offset future income as disclosed in
Section 4.9(s) of the Delmarva Disclosure Schedule. Section 4.9(s) of the
Delmarva Disclosure Schedule discloses the amount of and year of expiration of
each company's net operating loss carryovers.
(t) CREDIT CARRYOVER. As of December 31, 1994, Delmarva and its subsidiaries
had tax credit carryovers available to offset future tax liability as disclosed
in Section 4.9(t) of the Delmarva Disclosure Schedule. Section 4.9(t) of the
Delmarva Disclosure Schedule discloses the amount and year of expiration of each
company's tax credit carryovers.
(u) CODE SECTION 338 ELECTIONS. Except as disclosed in Section 4.9(u) of the
Delmarva Disclosure Schedule, no election under Code Section 338 (or any
predecessor provision) has been made by or with respect to Delmarva or any of
its subsidiaries or any of their respective assets or properties.
(v) ACQUISITION INDEBTEDNESS. Except as disclosed in Section 4.9(v) of the
Delmarva Disclosure Schedule, no indebtedness of Delmarva or any of its
subsidiaries is "corporate acquisition indebtedness" within the meaning of Code
Section 279(b).
(w) INTERCOMPANY TRANSACTIONS. Except as disclosed in Section 4.9(w) of the
Delmarva Disclosure Schedule, neither Delmarva nor any of its subsidiaries have
engaged in any intercompany transactions within the meaning of Treasury
Regulations Section 1.1502-13 for which any income or gain will remain
unrecognized as of the close of the last taxable year prior to the Closing Date.
(x) LIABILITY FOR OTHERS. Except as disclosed in Section 4.9(x) of the
Delmarva Disclosure Schedule, neither Delmarva nor any of its subsidiaries has
any liability for Taxes of any person other than Delmarva and its subsidiaries
(i) under Treasury Regulations Section 1.1502-6 (or any similar provision of
state, local or foreign law) as a transferee or successor, (ii) by contract or
(iii) otherwise.
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Section 4.10 EMPLOYEE MATTERS; ERISA.
(a) BENEFIT PLANS. Section 4.10(a) of the Delmarva Disclosure Schedule
contains a true and complete list of: (i) each employee benefit plan, program or
arrangement covering employees, former employees or directors of Delmarva (or
any of its subsidiaries) or any of their dependents or beneficiaries, or
providing benefits to such persons in respect of services provided to any such
entity, including, but not limited to, any "employee benefit plan" within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") (whether or not terminated, if Delmarva or any of its
subsidiaries could have statutory or contractual liability with respect thereto
on or after the date hereof); (ii) each management, employment, deferred
compensation, severance (including any payment, right or benefit resulting from
a change in control), bonus or other contract for personal services with or
covering any current officer, key employee or director or any consulting
contract with any person who prior to entering into such contract was a director
or officer of Delmarva or any of its subsidiaries (whether or not terminated, if
Delmarva or any of its subsidiaries could have statutory or contractual
liability with respect thereto on or after the date hereof); (iii) each
"employee pension benefit plan" (within the meaning of ERISA Section 3(2))
subject to Title IV of ERISA or the minimum funding requirements of Code Section
412 maintained or contributed to by Delmarva or any entity required to be
aggregated therewith pursuant to Code Section 414(b) or (c) (each, a "Delmarva
ERISA Affiliate") at any time during the seven-year period immediately preceding
the date hereof (collectively, the "Delmarva Benefit Plans") and (iv) with
respect to each Delmarva Benefit Plan, the source or sources of benefit payments
under the plan (including, where applicable, the identity of any trust (whether
or not a grantor trust), insurance contract, custodial account, agency
agreement, or other arrangement that holds the assets of, or serves as a funding
vehicle or source of benefits for, such Delmarva Benefit Plan).
(b) CONTRIBUTIONS. Except as disclosed in Section 4.10(b) of the Delmarva
Disclosure Schedule, all material contributions and other payments required to
have been made by Delmarva or any of its subsidiaries pursuant to any Delmarva
Benefit Plan (or to any person pursuant to the terms thereof) have been timely
made or the amount of such payment or contribution obligation has been reflected
in the Delmarva Financial Statements.
(c) QUALIFICATION; COMPLIANCE. Except as disclosed in Section 4.10(c) of the
Delmarva Disclosure Schedule, each Delmarva Benefit Plan that is intended to be
"qualified" within the meaning of Code Section 401(a) has been determined by the
IRS to be so qualified, and, to the best knowledge of Delmarva, no event or
condition exists or has occurred that could reasonably be expected to result in
the revocation of any such determination. Delmarva and each of its subsidiaries
are in compliance with, and each Delmarva Benefit Plan is and has been operated
in compliance with, all applicable laws, rules and regulations governing such
plan, including without limitation ERISA and the Code, except for violations
that could not reasonably be expected to have a Delmarva Material Adverse
Effect. To the best knowledge of Delmarva, no individual or entity has engaged
in any transaction with respect to any Delmarva Benefit Plan as a result of
which Delmarva or any of its subsidiaries could reasonably expect to be subject
to liability pursuant to ERISA Section 409 or Section 502, or subject to an
excise tax pursuant to Code Section 4975. To the best knowledge of Delmarva, (i)
no Delmarva Benefit Plan is subject to any ongoing audit, investigation, or
other administrative proceeding of the Internal Revenue Service, the Department
of Labor, or any other federal, state or local governmental entity and (ii) no
Delmarva Benefit Plan is the subject of any pending application for
administrative relief under any voluntary compliance program of any governmental
entity (including without limitation the IRS's Voluntary Compliance Resolution
Program or Walk-in Closing Agreement Program, or the Department of Labor's
Delinquent Filer Voluntary Compliance Program).
(d) LIABILITIES. With respect to the Delmarva Benefit Plans, individually
and in the aggregate, no termination or partial termination of any Delmarva
Benefit Plan or other event has occurred, and, to the best knowledge of
Delmarva, there exists no condition or set of circumstances, that could subject
Delmarva or any of its subsidiaries to any liability arising under the Code,
ERISA or any other applicable law (including without limitation any liability to
or under any such plan or to the Pension Benefit Guaranty
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Corporation (the "PBGC"), or under any indemnity agreement to which Delmarva,
any of its subsidiaries or any Delmarva ERISA Affiliate is a party, which
liability, excluding liability for benefit claims and funding obligations
payable in the ordinary course and liability for PBGC insurance premiums payable
in the ordinary course, is reasonably likely to have a Delmarva Material Adverse
Effect.
(e) WELFARE PLANS. Except as disclosed in Section 4.10(e) of the Delmarva
Disclosure Schedule, no Delmarva Benefit Plan that is a "welfare plan" (within
the meaning of ERISA Section 3(1)) provides benefits for any retired or former
employees (other than as required pursuant to ERISA Section 601).
(f) DOCUMENTS MADE AVAILABLE. Delmarva has made available to Atlantic a true
and correct copy of each collective bargaining agreement to which Delmarva is a
party or under which Delmarva has obligations and, with respect to each Delmarva
Benefit Plan, as applicable (i) the current plan document (including all
amendments adopted since the most recent restatement) and its most recently
prepared summary plan description and all summaries of material modifications
prepared since the most recent summary plan description, (ii) the most recently
prepared annual report (IRS Form 5500 Series) including financial statements,
(iii) each related trust agreement, insurance contract, service provider or
investment management agreement (including all amendments to each such
document), (iv) the most recent IRS determination letter with respect to the
qualified status under Code Section 401(a) of such plan and a copy of any
application for an IRS determination letter filed since the most recent IRS
determination letter was issued and (v) the most recent actuarial report or
valuation.
(g) PAYMENTS RESULTING FROM MERGERS. Other than as disclosed in Section
4.10(g) of the Delmarva Disclosure Schedule, the consummation or announcement of
any transaction contemplated by this Agreement will not (either alone or upon
the occurrence of any additional or further acts or events) result in any (i)
payment (whether of severance pay or otherwise) becoming due from the Company or
Delmarva or any of its subsidiaries under any applicable Delmarva Benefit Plans
to any officer, employee, former employee or director thereof or to the trustee
under any "rabbi trust" or similar arrangement, or (ii) benefit under any
Delmarva Benefit Plan being established or becoming accelerated, vested or
payable, except for a payment or benefit that would have been payable under the
same terms and conditions without regard to the transactions contemplated by
this Agreement.
(h) FUNDED STATUS OF PLANS. Except as disclosed in Section 4.10(h) of the
Delmarva Disclosure Schedule, each Delmarva Benefit Plan that is subject to
either or both of the minimum funding requirements of ERISA Section 302 or to
Title IV of ERISA has assets that, as of the date hereof, have a fair market
value equal to or exceeding the present value of the accrued benefit obligations
thereunder on a termination basis, as of the date hereof based on the actuarial
methods, tables and assumptions theretofore utilized by such plan's actuary in
preparing such plan's most recently prepared actuarial valuation report, except
to the extent that applicable law would require the use of different actuarial
assumptions if such plan was to be terminated as of the date hereof. No Delmarva
Benefit Plan subject to the minimum funding requirements of ERISA Section 302
has incurred any "accumulated funding deficiency" (within the meaning of ERISA
Section 302).
(i) MULTIEMPLOYER PLANS. Except as disclosed in Section 4.10(i) of the
Delmarva Disclosure Schedule, no Delmarva Benefit Plan is or was a
"multiemployer plan" (within the meaning of ERISA Section 4001(a)(3)), a
multiple employer plan described in Code Section 413(c), or a "multiple employer
welfare arrangement" (within the meaning of ERISA Section 3(40)); and none of
Delmarva, any subsidiary thereof or any Delmarva ERISA Affiliate has been
obligated to contribute to, or otherwise has or has had any liability with
respect to, any multiemployer plan, multiple employer plan, or multiple employer
welfare arrangement. With respect to any Delmarva Benefit Plan that is listed in
Section 4.10(i) of the Delmarva Disclosure Schedule as a multiemployer plan,
Delmarva and its subsidiaries have not made or incurred a "complete withdrawal"
or a "partial withdrawal," as such terms are defined in ERISA Sections 4203 and
4205, therefrom at any time
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during the five calendar year period immediately preceding the date of this
Agreement and the transactions contemplated by the Agreement will not, in and of
themselves, give rise to such a "complete withdrawal" or "partial withdrawal."
(j) MODIFICATION OR TERMINATION OF PLANS. Except as disclosed in Section
4.10(j) of the Delmarva Disclosure Schedule: (i) neither Delmarva nor any
subsidiary of Delmarva is subject to any legal, contractual, equitable or other
obligation to establish as of any date any employee benefit plan of any nature,
including without limitation any pension, profit sharing, welfare,
post-retirement welfare, stock option, stock or cash award, nonqualified
deferred compensation or executive compensation plan, policy or practice; and
(ii) to the best knowledge of Delmarva, after review of all Delmarva Benefit
Plan documents, the Company, Delmarva or one or more of its subsidiaries may, in
any manner, and without the consent of any employee, beneficiary or dependent,
employees' organization or other person, terminate, modify or amend any Delmarva
Benefit Plan or any other employee benefit plan, policy, program or practice (or
its participation in any such Delmarva Benefit Plan or other employee benefit
plan, policy, program or practice) at any time sponsored, maintained or
contributed to by Delmarva or any of its subsidiaries, effective as of any date
before, on or after the Effective Time except to the extent that any retroactive
amendment would be prohibited by ERISA Section 204(g) or would deprive a plan
participant of a benefit in which such participant has a vested right.
(k) REPORTABLE EVENTS; CLAIMS. Except as disclosed in Section 4.10(k) of the
Delmarva Disclosure Schedule, (i) no event constituting a "reportable event"
(within the meaning of ERISA Section 4043(b)) for which the 30-day notice
requirement has not been waived by the PBGC has occurred with respect to any
Delmarva Benefit Plan and (ii) no liability, claim, action or litigation has
been made, commenced or, to the best knowledge of Delmarva, threatened, by or
against Delmarva or any of its subsidiaries with respect to any Delmarva Benefit
Plan (other than for benefits or PBGC premiums payable in the ordinary course)
that is reasonably likely to have a Delmarva Material Adverse Effect.
(l) LABOR AGREEMENTS. Except as disclosed in Section 4.10(l) of the Delmarva
Disclosure Schedule, to the best knowledge of Delmarva, as of the date hereof,
there is no current labor union representation question involving employees of
Delmarva or any of its subsidiaries, nor does Delmarva or any of its
subsidiaries know of any activity or proceeding of any labor organization (or
representative thereof) or employee group (or representative thereof) to
organize any such employees. Except as disclosed in the Delmarva SEC Reports or
as disclosed in Section 4.10(l) of the Delmarva Disclosure Schedule: (i) neither
Delmarva nor any of its subsidiaries is a party to any collective bargaining
agreement or other labor agreement with any union or labor organization; (ii)
there are no unfair labor practice charges or grievances arising out of a
collective bargaining agreement or other grievance procedure against Delmarva or
any of its subsidiaries pending, or to the best knowledge of Delmarva
threatened, that, in the aggregate, are reasonably likely to have a Delmarva
Material Adverse Effect; (iii) there are no complaints, lawsuits or proceedings
in any forum or forums by or on behalf of any present or former employees, any
applicants for employment or classes of the foregoing alleging breach of any
express or implied contract of employment, any law or regulation governing
employment or the termination thereof or other discriminatory, wrongful or
tortious conduct in connection with the employment relationship against Delmarva
or any of its subsidiaries pending, or to the best knowledge of Delmarva
threatened, that, in the aggregate, are reasonably likely to have, a Delmarva
Material Adverse Effect; (iv) there are no strikes, disputes, slowdowns, work
stoppages or lockouts pending, or to the best knowledge of Delmarva threatened,
against or involving Delmarva or any of its subsidiaries that, in the aggregate,
are reasonably likely to have a Delmarva Material Adverse Effect; (v) Delmarva
and each of its subsidiaries are in compliance with all applicable laws
respecting employment and employment practices, terms and conditions of
employment, wages, hours of work and occupational safety and health, except for
noncompliance that, in the aggregate, is not reasonably likely to have a
Delmarva Material Adverse Effect; and (vi) there is no proceeding, claim, suit,
action or governmental investigation pending, or to the best knowledge of
Delmarva threatened, in respect to which any director, officer, employee or
agent of Delmarva or any of its subsidiaries is or may be
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entitled to claim indemnification from Delmarva or any of its subsidiaries
pursuant to their respective certificates or articles of incorporation or bylaws
or as provided in the indemnification agreements listed on Section 4.10(l) of
the Delmarva Disclosure Schedule.
Section 4.11 ENVIRONMENTAL PROTECTION.
(a) COMPLIANCE. Except as disclosed in Section 4.11(a) of the Delmarva
Disclosure Schedule or as disclosed in the Delmarva SEC Reports, Delmarva and
each of its subsidiaries are and have been in material compliance with all
applicable Environmental Laws (as defined in Section 4.11(g)), except where the
failure to be or to have been so in material compliance, in the aggregate, is
not reasonably likely to have a Delmarva Material Adverse Effect. Except as
disclosed in Section 4.11(a) of the Delmarva Disclosure Schedule, neither
Delmarva nor any of its subsidiaries has received any written notice from any
person or Governmental Authority that alleges that Delmarva or any of its
subsidiaries is not or has not been in material compliance with applicable
Environmental Laws, except where the failure to be or to have been so in
material compliance, in the aggregate, is not reasonably likely to have a
Delmarva Material Adverse Effect.
(b) ENVIRONMENTAL PERMITS. Except as disclosed in Section 4.11(b) of the
Delmarva Disclosure Schedule or as disclosed in the Delmarva SEC Reports,
Delmarva and each of its subsidiaries have obtained or have applied for all
material environmental, health and safety permits and authorizations
(collectively, "Environmental Permits") necessary for the construction of their
facilities and the conduct of their operations, and all such Environmental
Permits are in good standing or, where applicable, a renewal application has
been timely filed and is pending agency approval, and Delmarva and its
subsidiaries are in material compliance with all terms and conditions of all
such Environmental Permits and are not required to make any material
expenditures in connection with any renewal application pending agency approval,
except where the failure to obtain or be in such compliance and the requirement
to make such expenditures, in the aggregate, is not reasonably likely to have a
Delmarva Material Adverse Effect.
(c) ENVIRONMENTAL CLAIMS. Except as disclosed in Section 4.11(c) of the
Delmarva Disclosure Schedule or as disclosed in the Delmarva SEC Reports, to the
best knowledge of Delmarva, there are no Environmental Claims (as hereinafter
defined in Section 4.11(g)) pending, or to the best knowledge of Delmarva
threatened, (i) against Delmarva or any of its subsidiaries or joint ventures,
(ii) against any person or entity whose liability for any Environmental Claim
Delmarva or any of its subsidiaries or joint ventures has or may have retained
or assumed either contractually or by operation of law or (iii) against any real
or personal property or operations that Delmarva or any of its subsidiaries or
joint ventures owns, leases or manages, in whole or in part, that, if adversely
determined, are in the aggregate reasonably likely to have a Delmarva Material
Adverse Effect.
(d) RELEASES. Except as disclosed in Section 4.11(c) or 4.11(d) of the
Delmarva Disclosure Schedule or as disclosed in the Delmarva SEC Reports, to the
best knowledge of Delmarva, there has been no Release (as hereinafter defined in
Section 4.11(g)) of any Hazardous Material (as hereinafter defined in Section
4.11(g)) that would be reasonably likely to form the basis of any Environmental
Claim against Delmarva or of any subsidiary or joint venture of Delmarva, or
against any person or entity whose liability for any Environmental Claim
Delmarva or any subsidiary or joint venture of Delmarva has or may have retained
or assumed either contractually or by operation of law, except for Releases of
Hazardous Materials the liability for which is not in the aggregate reasonably
likely to have a Delmarva Material Adverse Effect.
(e) PREDECESSORS. Except as disclosed in Section 4.11(e) of the Delmarva
Disclosure Schedule, or as disclosed in the Delmarva SEC Reports, to the best
knowledge of Delmarva, with respect to any predecessor of Delmarva or of any
subsidiary or joint venture of Delmarva, there are no Environmental Claims
pending or threatened, or any Releases of Hazardous Materials that would be
reasonably likely to form the basis of any Environmental Claims, that are
reasonably likely to have, in the aggregate, a Delmarva Material Adverse Effect.
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(f) DISCLOSURE. To the best knowledge of Delmarva, Delmarva has disclosed to
Atlantic all material facts that Delmarva reasonably believes are likely to form
the basis of a material Environmental Claim or to require material expenditures
in order to comply with current or future applicable Environmental Laws arising
from (i) the cost of pollution control equipment currently required or known to
be required in the future, (ii) current investigatory, removal, remediation or
response costs or investigatory, removal, remediation or response costs known to
be required in the future, in each case, both on-site and off-site and (iii) any
other environmental matters affecting Delmarva or its subsidiaries.
(g) As used in this Agreement:
(i) "Environmental Claim" means any and all administrative, regulatory
or judicial actions, suits, demands, demand letters, directives, claims,
liens, investigations, proceedings or notices of noncompliance or violation
by any person or entity (including without limitation any Governmental
Authority) alleging potential liability (including without limitation
potential liability for enforcement costs, investigatory costs, cleanup
costs, response costs, removal costs, remedial costs, natural resources
damages, property damages, personal injuries, fines or penalties) arising
out of, based on or resulting from (A) the presence, or Release or
threatened Release, of any Hazardous Materials at any location, whether or
not owned, operated, leased or managed by Delmarva or any of its
subsidiaries or joint ventures (for purposes of this Section 4.11 only), or
by Atlantic or any of its subsidiaries or joint ventures (for purposes of
Section 5.11 only), (B) circumstances forming the basis of any violation, or
alleged violation, of any Environmental Law or (C) any and all claims by any
third party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from the presence or Release of
any Hazardous Materials.
(ii) "Environmental Laws" means all federal, state and local laws, rules
and regulations relating to pollution or protection of human health or the
environment (including without limitation ambient air, surface water,
groundwater, land surface or subsurface strata), including without
limitation laws and regulations relating to Releases or threatened Releases
of Hazardous Materials or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials.
(iii) "Hazardous Materials" means (A) any petroleum or petroleum
products or petroleum wastes (including crude oil or any fraction thereof),
nuclear fuel or waste or other radioactive materials, friable asbestos or
friable asbestos-containing material, urea formaldehyde foam insulation, and
transformers or other equipment that contain dielectric fluid containing
polychlorinated biphenyls, (B) any chemicals, materials or substances which
are now defined as or included in the definition of "hazardous substances",
"hazardous wastes", "hazardous materials", "extremely hazardous wastes",
"restricted hazardous wastes", "toxic substances", "toxic pollutants", or
words of similar import, under any Environmental Law and (C) any other
chemical, material, substance or waste, exposure to which is now prohibited,
limited or regulated under any Environmental Law in a jurisdiction in which
Delmarva or any of its subsidiaries or joint ventures operates (for purposes
of this Section 4.11 only) or in which Atlantic or any of its subsidiaries
or joint ventures operates (for purposes of Section 5.11 only).
(iv) "Release" means any release, spill, emission, leaking, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
atmosphere, soil, surface water, groundwater or property (indoors or
outdoors).
Section 4.12 REGULATION AS A UTILITY. Delmarva is regulated as a public
utility in the States of Delaware and Maryland and in the Commonwealth of
Virginia and in no other state. Except as disclosed in Section 4.12 of the
Delmarva Disclosure Schedule, neither Delmarva nor any "subsidiary company" or
"affiliate" (as such terms are defined in the 1935 Act) of Delmarva is subject
to regulation as a public utility or public service company (or similar
designation) by any other state in the United States, by the United States or
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any agency or instrumentality of the United States or by any foreign country.
Delmarva is not a holding company under the 1935 Act.
Section 4.13 VOTE REQUIRED. The approval of the Delmarva Merger by more than
two-thirds of all votes entitled to be cast by all holders of Delmarva Common
Stock (or such lesser percentage as may be required as a result of any change of
applicable law) (the "Delmarva Shareholders' Approval") is the only vote of the
holders of any class or series of the capital stock of Delmarva required to
approve this Agreement, the Mergers and the other transactions contemplated
hereby.
Section 4.14 OPINION OF FINANCIAL ADVISOR. Delmarva has received the opinion
of Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated the date hereof, to
the effect that, as of the date hereof, the consideration to be received by the
holders of Delmarva Common Stock are fair from a financial point of view to the
holders of Delmarva Common Stock.
Section 4.15 INSURANCE. Except as disclosed in Section 4.15 of the Delmarva
Disclosure Schedule, each of Delmarva and each of its subsidiaries is, and has
been continuously since January 1, 1991, insured with financially responsible
insurers in such amounts and against such risks and losses as are customary for
companies conducting the respective businesses conducted by Delmarva and its
subsidiaries during such time period. Except as disclosed in Section 4.15 of the
Delmarva Disclosure Schedule, neither Delmarva nor any of its subsidiaries has
received any notice of cancellation or termination with respect to any material
insurance policy thereof. All material insurance policies of Delmarva and its
subsidiaries are valid and enforceable policies.
Section 4.16 APPLICABILITY OF CERTAIN DELAWARE AND VIRGINIA LAW. Assuming
the accuracy of the representation of Atlantic set forth in Section 5.17, none
of the control share acquisition restrictions of Section 13.1-728.1 et seq. of
the VSCA, the business combination restrictions of Section 203 of the DGCL or
the affiliated transactions restrictions of Section 13.1-725 et seq. of the VSCA
is applicable to the transactions contemplated by this Agreement.
Section 4.17 OWNERSHIP OF ATLANTIC COMMON STOCK. Delmarva does not
"beneficially own" (as such term is defined in Rule 13d-3 under the Exchange
Act) any shares of Atlantic Common Stock.
Section 4.18 OPERATIONS OF DELMARVA NUCLEAR POWER PLANTS. Except as set
forth in Section 4.18 of the Delmarva Disclosure Schedule, to the best knowledge
of Delmarva, the operations of the Salem and Peach Bottom Nuclear Generating
Stations owned by Delmarva (together with Atlantic) (collectively, the "Delmarva
Facilities") are and have at all times been conducted in compliance with
applicable health, safety, regulatory and other legal requirements, except where
the failure to be in compliance in the aggregate does not and insofar as can
reasonably be foreseen would not have a Delmarva Material Adverse Effect. To the
best knowledge of Delmarva, each of the Delmarva Facilities maintains emergency
plans designed to respond to an unplanned release therefrom of radioactive
materials into the environment and customary liability insurance consistent with
industry practice and consistent with Delmarva's view of the risks inherent in
the operation of a nuclear power facility currently exists with respect to such
Delmarva Facility. To the best knowledge of Delmarva, plans for the
decommissioning of each of the Delmarva Facilities and for the short-term
storage of spent nuclear fuel conform with the requirements of applicable law,
and such plans have at all times been funded consistently with reasonable budget
projections for such plans.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ATLANTIC
Atlantic represents and warrants to Delmarva as follows:
Section 5.1 ORGANIZATION AND QUALIFICATION. Except as disclosed in Section
5.1 of the Atlantic Disclosure Schedule (as defined in Section 7.6(i)), (i)
Atlantic is a corporation duly organized, validly existing and in good standing
under the laws of New Jersey, (ii) each of Atlantic's subsidiaries is a
corporation or partnership duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization and (iii) each of Atlantic
and its subsidiaries has all requisite corporate or partnership power and
authority, and has been duly authorized by all necessary regulatory approvals
and orders, to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted, and is duly qualified and in good
standing to do business in each jurisdiction in which the nature of its business
or the ownership or leasing of its assets and properties makes such
qualification necessary other than in such jurisdictions where the failure to be
so qualified and in good standing will not, when taken together with all other
such failures, have a material adverse effect on the business, operations,
properties, assets, condition (financial or otherwise), prospects or results of
operations of Atlantic and its subsidiaries taken as a whole or on the
consummation of this Agreement (any such material adverse effect being
hereinafter referred to as a "Atlantic Material Adverse Effect").
Section 5.2 SUBSIDIARIES. Section 5.2 of the Atlantic Disclosure Schedule
contains a description as of the date hereof of all subsidiaries and joint
ventures of Atlantic, including the name of each such entity, the state or
jurisdiction of its organization, a brief description of the principal line or
lines of business conducted by each such entity and Atlantic's interest therein.
Except as disclosed in Section 5.2 of the Atlantic Disclosure Schedule, none of
such entities is a "public utility company," a "holding company," a "subsidiary
company" or an "affiliate" of any public utility company within the meaning of
Section 2(a)(5), 2(a)(7), 2(a)(8) and 2(a)(11) of the 1935 Act, respectively.
Except as disclosed in Section 5.2 of the Atlantic Disclosure Schedule, all of
the issued and outstanding shares of capital stock of each subsidiary of
Atlantic are validly issued, fully paid, nonassessable and free of preemptive
rights and are owned directly or indirectly by Atlantic free and clear of any
liens, claims, encumbrances, security interests, equities, charges and options
of any nature whatsoever, and there are no outstanding subscriptions, options,
calls, contracts, voting trusts, proxies or other commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement, obligating any such subsidiary to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of its capital stock or
obligating it to grant, extend or enter into any such agreement or commitment.
Section 5.3 CAPITALIZATION. The authorized capital stock of Atlantic
consists of 75,000,000 shares of Atlantic Common Stock. As of the close of
business on June 30, 1996, 52,702,052 shares of Atlantic Common Stock were
issued and outstanding. All of the issued and outstanding shares of the capital
stock of Atlantic are validly issued, fully paid, nonassessable and free of
preemptive rights. Except as disclosed in Section 5.3 of the Atlantic Disclosure
Schedule, as of the date hereof, there are no outstanding subscriptions,
options, calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement, obligating Atlantic or any of its subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
the capital stock or other voting securities of Atlantic or obligating Atlantic
or any of its subsidiaries to grant, extend or enter into any such agreement or
commitment.
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Section 5.4 AUTHORITY; NONCONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE.
(a) AUTHORITY. Atlantic has all requisite power and authority to enter into
this Agreement and, subject to the Atlantic Shareholders' Approval (as defined
in Section 5.13) and the Atlantic Required Statutory Approvals (as defined in
Section 5.4(c), to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation by Atlantic of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Atlantic, subject to obtaining the Atlantic
Shareholders' Approval. This Agreement has been duly and validly executed and
delivered by Atlantic and, assuming the due authorization, execution and
delivery of this Agreement by the other signatories hereto, constitutes the
legal, valid and binding obligation of Atlantic enforceable against Atlantic in
accordance with its terms.
(b) NONCONTRAVENTION. Except as disclosed in Section 5.4(b) of the Atlantic
Disclosure Schedule, the execution and delivery of this Agreement by Atlantic do
not, and the consummation of the transactions contemplated hereby will not
result in any Violation by Atlantic or any of its subsidiaries or, to the best
knowledge of Atlantic, any of its joint ventures under any provisions of (i) the
certificate or articles of incorporation, bylaws or similar governing documents
of Atlantic or any of its subsidiaries or joint ventures, (ii) subject to
obtaining the Atlantic Required Statutory Approvals and the receipt of the
Atlantic Shareholders' Approval, any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any Governmental
Authority applicable to Atlantic or any of its subsidiaries or joint ventures or
any of their respective properties or assets, or (iii) subject to obtaining the
third-party consents or other approvals set forth in Section 5.4(b) of the
Atlantic Disclosure Schedule (the "Atlantic Required Consents"), any note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind to
which Atlantic or any of its subsidiaries or joint ventures is now a party or by
which any of them or any of their respective properties or assets may be bound
or affected, excluding from the foregoing clauses (ii) and (iii) such Violations
as, in the aggregate, are not reasonably likely to have an Atlantic Material
Adverse Effect.
(c) STATUTORY APPROVALS. Except as disclosed in Section 5.4(c) of the
Atlantic Disclosure Schedule, no declaration, filing or registration with, or
notice to or authorization, consent, finding by or approval of, any Governmental
Authority is necessary for the execution and delivery of this Agreement by
Atlantic or the consummation by Atlantic of the transactions contemplated
hereby, the failure to obtain which, in the aggregate, is reasonably likely to
have an Atlantic Material Adverse Effect (the "Atlantic Required Statutory
Approvals"), it being understood that references in this Agreement to
"obtaining" such Atlantic Required Statutory Approvals shall mean making such
declarations, filings or registrations, giving such notice, obtaining such
authorizations, consents or approvals and having such waiting periods expire as
are, in each case, necessary to avoid a violation of law.
(d) COMPLIANCE. Except as disclosed in Section 5.4(d), 5.7, 5.10 or 5.11 of
the Atlantic Disclosure Schedule or as disclosed in the Atlantic SEC Reports (as
defined in Section 5.5), neither Atlantic nor any of its subsidiaries nor, to
the best knowledge of Atlantic, any of its joint ventures is in violation of or
under investigation with respect to, or has been given notice or been charged
with any violation of, any law, statute, order, rule, regulation, ordinance or
judgment (including without limitation any applicable Environmental Laws) of any
Governmental Authority, except for violations that, in the aggregate, do not
have, and to the best knowledge of Atlantic are not reasonably likely to have,
an Atlantic Material Adverse Effect. Except as disclosed in Section 5.4(d) or
5.11 of the Atlantic Disclosure Schedule, Atlantic, its subsidiaries and, to the
best knowledge of Atlantic, its joint ventures have all Permits, except those
the failure to obtain which, in the aggregate, are not reasonably likely to have
an Atlantic Material Adverse Effect. Except as set forth in Section 5.4(b),
5.4(d) or 5.11 of the Atlantic Disclosure Schedule, neither Atlantic nor any of
its subsidiaries nor, to the best knowledge of Atlantic, any of its joint
ventures, is in breach or violation of or in default in the performance or
observance of any term or provision of, and no event has occurred which, with
lapse of time or action by a third party, could result in a default under (i)
its certificate or articles of incorporation or its bylaws or (ii) except where
such breaches, violations and
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defaults, in the aggregate, are not reasonably likely to have an Atlantic
Material Adverse Effect, any contract, commitment, agreement, indenture,
mortgage, loan agreement, note, lease, bond, license, approval or other
instrument to which it is a party or by which it is bound or to which any of its
property is subject.
Section 5.5 REPORTS AND FINANCIAL STATEMENTS. Except as disclosed in Section
5.5 of the Atlantic Disclosure Schedule, the filings required to be made by
Atlantic and its subsidiaries since January 1, 1991 under the Securities Act,
the Exchange Act, applicable New Jersey and Pennsylvania laws and regulations,
the Power Act, the 1935 Act and the Atomic Energy Act have been filed with the
SEC, the New Jersey Board of Public Utilities (the "New Jersey Commission"), the
Pennsylvania Commission, the FERC and the NRC, respectively, including all
forms, statements, reports, agreements (oral or written) and all documents,
exhibits, amendments and supplements appertaining thereto, and, as of their
respective dates, complied in all material respects with all applicable
requirements of the appropriate act and the rules and regulations thereunder.
Atlantic has made available to Delmarva a true and complete copy of each report,
schedule, registration statement and definitive proxy statement filed by
Atlantic with the SEC since January 1, 1991 and through the date hereof (as such
documents have since the time of their filing been amended, the "Atlantic SEC
Reports"). The Atlantic SEC Reports, including without limitation any financial
statements or schedules included therein, at the time filed, and any forms,
reports or other documents filed by Atlantic with the SEC after the date hereof,
did not and will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited consolidated financial statements and unaudited
interim financial statements of Atlantic included in the Atlantic SEC Reports
(collectively, the "Atlantic Financial Statements") have been prepared, and will
be prepared, in accordance with GAAP (except as may be indicated therein or in
the notes thereto and except with respect to unaudited statements as permitted
by Form 10-Q) and fairly present the consolidated financial position of Atlantic
as of the respective dates thereof or the consolidated results of operations and
cash flows for the respective periods then ended, as the case may be, subject,
in the case of the unaudited interim financial statements, to normal, recurring
audit adjustments. True, accurate and complete copies of the certificate of
incorporation and bylaws of Atlantic, as in effect on the date hereof, have been
delivered to Delmarva.
Section 5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS; ABSENCE OF UNDISCLOSED
LIABILITIES. (a) Except as disclosed in the Atlantic SEC Reports filed prior to
the date hereof or as disclosed in Section 5.6 of the Atlantic Disclosure
Schedule, from December 31, 1995 through the date hereof, each of Atlantic and
each of its subsidiaries has conducted its business only in the ordinary course
of business consistent with past practice and no event has occurred which has
had, and no fact or condition exists that would have or, to the best knowledge
of Atlantic, is reasonably likely to have, an Atlantic Material Adverse Effect.
(b) Neither Atlantic nor any of its subsidiaries has any liabilities or
obligations (whether absolute, contingent, accrued or otherwise) of a nature
required by GAAP to be reflected in a consolidated corporate balance sheet,
except liabilities, obligations or contingencies that are accrued or reserved
against in the consolidated financial statements of Atlantic or are reflected in
the notes thereto for the year ended December 31, 1995 or that were incurred
after December 31, 1995 in the ordinary course of business and are not
reasonably likely to have an Atlantic Material Adverse Effect.
Section 5.7 LITIGATION. Except as disclosed in the Atlantic SEC Reports
filed prior to the date hereof or as disclosed in Section 5.7, 5.9, 5.10 or 5.11
of the Atlantic Disclosure Schedule, (i) there are no claims, suits, actions or
proceedings pending or, to the best knowledge of Atlantic, threatened, nor are
there any investigations or reviews pending or, to the best knowledge of
Atlantic, threatened against, relating to or affecting Atlantic or any of its
subsidiaries, (ii) there have not been any developments since December 31, 1995
with respect to any such disclosed claims, suits, actions, proceedings,
investigations or reviews and (iii) there are no judgments, decrees,
injunctions, rules or orders of any court, governmental department,
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commission, agency, instrumentality or authority or any arbitrator applicable to
Atlantic or any of its subsidiaries that, in the aggregate, are reasonably
likely to have an Atlantic Material Adverse Effect.
Section 5.8 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by or on behalf of Atlantic for inclusion
or incorporation by reference in (i) the Registration Statement will, at the
time the Registration Statement becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading and (ii) the Joint Proxy Statement will, at the date mailed to
the shareholders of Atlantic and Delmarva and, as the same may be amended or
supplemented, at the times of the meetings of such shareholders to be held in
connection with the Mergers, contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Registration Statement and the Joint Proxy Statement will comply
as to form in all material respects with the provisions of the Securities Act
and the Exchange Act and the rules and regulations thereunder.
Section 5.9 TAX MATTERS.
(a) FILING OF TIMELY TAX RETURNS. Except as disclosed in Section 5.9(a) of
the Atlantic Disclosure Schedule, Atlantic and each of its subsidiaries have
filed all Tax Returns required to be filed by each of them under applicable law.
All Tax Returns were in all material respects (and, as to Tax Returns not filed
as of the date hereof, will be) true, complete and correct and filed on a timely
basis.
(b) PAYMENT OF TAXES. Except as disclosed in Section 5.9(b) of the Atlantic
Disclosure Schedule, Atlantic and each of its subsidiaries have, within the time
and in the manner prescribed by law, paid (and until the Closing Date will pay
within the time and in the manner prescribed by law) all Taxes that are
currently due and payable except for those contested in good faith and for which
adequate reserves have been taken.
(c) TAX RESERVES. Atlantic and its subsidiaries have established (and until
the Closing Date will maintain) on their books and records reserves adequate to
pay all Taxes and reserves for deferred income taxes in accordance with GAAP.
(d) TAX LIENS. There are no Tax liens upon the assets of Atlantic or any of
its subsidiaries except liens for Taxes not yet due.
(e) WITHHOLDING TAXES. Atlantic and each of its subsidiaries have complied
(and until the Closing Date will comply) in all material respects with the
provisions of the Code relating to the payment and withholding of Taxes,
including without limitation the withholding and reporting requirements under
Code Sections 1441 through 1464, 3401 through 3606, and 6041 and 6049, as well
as similar provisions under any other laws, and have within the time and in the
manner prescribed by law withheld from employee wages and paid over to the
proper governmental authorities all amounts required.
(f) EXTENSIONS OF TIME FOR FILING TAX RETURNS. Except as disclosed in
Section 5.9(f) of the Atlantic Disclosure Schedule, neither Atlantic nor any of
its subsidiaries has requested any extension of time within which to file any
Tax Return which Tax Return has not since been filed.
(g) WAIVERS OF STATUTE OF LIMITATIONS. Except as disclosed in Section 5.9(g)
of the Atlantic Disclosure Schedule, neither Atlantic nor any of its
subsidiaries has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns.
(h) EXPIRATION OF STATUTE OF LIMITATIONS. Except as disclosed in Section
5.9(h) of the Atlantic Disclosure Schedule, the statute of limitations for the
assessment of all Taxes has expired for all applicable Tax Returns of Atlantic
and each of its subsidiaries or those Tax Returns have been examined by the
appropriate taxing authorities for all periods through the date hereof, and no
deficiency for any Taxes has been proposed, asserted or assessed against
Atlantic or any of its subsidiaries that has not been resolved and paid in full.
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(i) AUDIT, ADMINISTRATIVE AND COURT PROCEEDINGS. Except as disclosed in
Section 5.9(i) of the Atlantic Disclosure Schedule, no audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of Atlantic or any of its subsidiaries.
(j) POWERS OF ATTORNEY. Except as disclosed in Section 5.9(j) of the
Atlantic Disclosure Schedule, no power of attorney currently in force has been
granted by Atlantic or any of its subsidiaries concerning any Tax matter.
(k) TAX RULINGS. Except as disclosed in Section 5.9(k) of the Atlantic
Disclosure Schedule, neither Atlantic nor any of its subsidiaries has received a
Tax Ruling or entered into a Closing Agreement with any taxing authority that
would have a continuing adverse effect after the Closing Date.
(l) AVAILABILITY OF TAX RETURNS. Atlantic and its subsidiaries have made
available to Delmarva complete and accurate copies, covering all open years, of
(i) all Tax Returns, and any amendments thereto, filed by Atlantic or any of its
subsidiaries, (ii) all audit reports received from any taxing authority relating
to any Tax Return filed by Atlantic or any of its subsidiaries and (iii) any
Closing Agreements entered into by Atlantic or any of its subsidiaries with any
taxing authority.
(m) TAX SHARING AGREEMENTS. Except as disclosed in Section 5.9(m) of the
Atlantic Disclosure Schedule, no agreements relating to the allocation or
sharing of Taxes exist between or among Atlantic and any of its subsidiaries.
(n) CODE SECTION 341(F). Neither Atlantic nor any of its subsidiaries has
filed a consent pursuant to Code Section 341(f) or has agreed to have Code
Section 341(f)(2) apply to any disposition of a subsection (f) asset (as such
term is defined in Code Section 341(f)(4)) owned by Atlantic or any of its
subsidiaries.
(o) CODE SECTION 168. Except as disclosed in Section 5.9(o) of the Atlantic
Disclosure Schedule, no property of Atlantic or any of its subsidiaries is
property that Atlantic or any such subsidiary or any party to this transaction
is or will be required to treat as being owned by another person pursuant to the
provisions of Code Section 168(f)(8) (as in effect prior to its amendment by
the Tax Reform Act of 1986) or is tax-exempt use property within the meaning of
Code Section 168.
(p) CODE SECTION 481 ADJUSTMENTS. Except as disclosed in Section 5.9(p) of
the Atlantic Disclosure Schedule, neither Atlantic nor any of its subsidiaries
is required to include in income any adjustment pursuant to Code Section 481(a)
by reason of a voluntary change in accounting method initiated by Atlantic or
any of its subsidiaries, and to the best of the knowledge of Atlantic, the IRS
has not proposed any such adjustment or change in accounting method.
(q) CODE SECTIONS 6661 AND 6662. Except as disclosed in Section 5.9(q) of
the Atlantic Disclosure Schedule, all transactions that could give rise to an
understatement of federal income tax (within the meaning of Code Section 6661
for Tax Returns filed on or before December 31, 1990, and within the meaning of
Code Section 6662 for tax returns filed after December 31, 1990) that could
reasonably be expected to result in an Atlantic Material Adverse Effect have
been adequately disclosed (or, with respect to Tax Returns filed following the
Closing will be adequately disclosed) on the Tax Returns of Atlantic and its
subsidiaries in accordance with Code Section 6661(b)(2)(B) for Tax Returns
filed on or prior to December 31, 1990, and in accordance with Code Section
6662(d)(2)(B) for Tax Returns filed after December 31, 1990.
(r) CODE SECTION 280G. Except as disclosed in Section 5.9(r) of the
Atlantic Disclosure Schedule, neither Atlantic nor any of its subsidiaries is a
party to any agreement, contract, or arrangement that could reasonably be
expected to result, on account of the transactions contemplated hereunder,
separately or in the aggregate, in the payment of any "excess parachute payment"
within the meaning of Code Section 280G.
(s) NOLS. As of December 31, 1994, Atlantic and its subsidiaries had net
operating loss carryovers available to offset future income as disclosed in
Section 5.9(s) of the Atlantic Disclosure Schedule. Section 5.9(s) of the
Atlantic Disclosure Schedule discloses the amount of and year of expiration of
each company's net operating loss carryovers.
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(t) CREDIT CARRYOVER. As of December 31, 1994, Atlantic and its subsidiaries
had tax credit carryovers available to offset future tax liability as disclosed
in Section 5.9(t) of the Atlantic Disclosure Schedule. Section 5.9(t) of the
Atlantic Disclosure Schedule discloses the amount and year of expiration of each
company's tax credit carryovers.
(u) CODE SECTION 338 ELECTIONS. Except as disclosed in Section 5.9(u) of
the Atlantic Disclosure Schedule, no election under Code Section 338 (or any
predecessor provision) has been made by or with respect to Atlantic or any of
its subsidiaries or any of their respective assets or properties.
(v) ACQUISITION INDEBTEDNESS. Except as disclosed in Section 5.9(v) of the
Atlantic Disclosure Schedule, no indebtedness of Atlantic or any of its
subsidiaries is "corporate acquisition indebtedness" within the meaning of Code
Section 279(b).
(w) INTERCOMPANY TRANSACTIONS. Except as disclosed in Section 5.9(w) of the
Atlantic Disclosure Schedule, neither Atlantic nor any of its subsidiaries have
engaged in any intercompany transactions within the meaning of Treasury
Regulations Section 1.1502-13 for which any income or gain will remain
unrecognized as of the close of the last taxable year prior to the Closing Date.
(x) LIABILITY FOR OTHERS. Except as disclosed in Section 5.9(x) of the
Atlantic Disclosure Schedule, neither Atlantic nor any of its subsidiaries has
any liability for Taxes of any person other than Atlantic and its subsidiaries
(i) under Treasury Regulations Section 1.1502-6 (or any similar provision of
state, local or foreign law) as a transferee or successor, (ii) by contract or
(iii) otherwise.
Section 5.10 EMPLOYEE MATTERS; ERISA.
(a) BENEFIT PLANS. Section 5.10(a) of the Atlantic Disclosure Schedule
contains a true and complete list of: (i) each employee benefit plan, program or
arrangement covering employees, former employees or directors of Atlantic (or
any of its subsidiaries) or any of their dependents or beneficiaries, or
providing benefits to such persons in respect of services provided to any such
entity, including, but not limited to, any "employee benefit plan" within the
meaning of ERISA Section 3(3) (whether or not terminated, if Atlantic or any of
its subsidiaries could have statutory or contractual liability with respect
thereto on or after the date hereof); (ii) each management, employment, deferred
compensation, severance (including any payment, right or benefit resulting from
a change in control), bonus or other contract for personal services with or
covering any current officer, key employee or director or any consulting
contract with any person who prior to entering into such contract was a director
or officer of Atlantic or any of its subsidiaries (whether or not terminated, if
Atlantic or any of its subsidiaries could have statutory or contractual
liability with respect thereto on or after the date hereof); (iii) each
"employee pension benefit plan" (within the meaning of ERISA Section 3(2))
subject to Title IV of ERISA or the minimum funding requirements of Code Section
412 maintained or contributed to by Atlantic or any entity required to be
aggregated therewith pursuant to Code Section 414(b) or (c) (each, an "Atlantic
ERISA Affiliate") at any time during the seven-year period immediately preceding
the date hereof (collectively, the "Atlantic Benefit Plans") and (iv) with
respect to each Atlantic Benefit Plan, the source or sources of benefit payments
under the plan (including, where applicable, the identity of any trust (whether
or not a grantor trust), insurance contract, custodial account, agency
agreement, or other arrangement that holds the assets of, or serves as a funding
vehicle or source of benefits for, such Atlantic Benefit Plan).
(b) CONTRIBUTIONS. Except as disclosed in Section 5.10(b) of the Atlantic
Disclosure Schedule, all material contributions and other payments required to
have been made by Atlantic or any of its subsidiaries pursuant to any Atlantic
Benefit Plan (or to any person pursuant to the terms thereof) have been timely
made or the amount of such payment or contribution obligation has been reflected
in the Atlantic Financial Statements.
(c) QUALIFICATION; COMPLIANCE. Except as disclosed in Section 5.10(c) of the
Atlantic Disclosure Schedule, each Atlantic Benefit Plan that is intended to be
"qualified" within the meaning of Code Section 401(a) has been determined by
the IRS to be so qualified, and, to the best knowledge of Atlantic, no
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event or condition exists or has occurred that could reasonably be expectedto
result in the revocation of any such determination. Atlantic and each of its
subsidiaries are in compliance with, and each Atlantic Benefit Plan is and has
been operated in compliance with, all applicable laws, rules and regulations
governing such plan, including without limitation ERISA and the Code, except for
violations that could not reasonably be expected to have an Atlantic Material
Adverse Effect. To the best knowledge of Atlantic, no individual or entity has
engaged in any transaction with respect to any Atlantic Benefit Plan as a result
of which Atlantic or any of its subsidiaries could reasonably expect to be
subject to liability pursuant to ERISA Section 409 or Section 502, or subject
to an excise tax pursuant to Code Section 4975. To the best knowledge of
Atlantic, (i) no Atlantic Benefit Plan is subject to any ongoing audit,
investigation, or other administrative proceeding of the Internal Revenue
Service, the Department of Labor, or any other federal, state or local
governmental entity and (ii) no Atlantic Benefit Plan is the subject of any
pending application for administrative relief under any voluntary compliance
program of any governmental entity (including without limitation the IRS's
Voluntary Compliance Resolution Program or Walk-in Closing Agreement Program, or
the Department of Labor's Delinquent Filer Voluntary Compliance Program).
(d) LIABILITIES. With respect to the Atlantic Benefit Plans, individually
and in the aggregate, no termination or partial termination of any Atlantic
Benefit Plan or other event has occurred, and, to the best knowledge of
Atlantic, there exists no condition or set of circumstances, that could subject
Atlantic or any of its subsidiaries to any liability arising under the Code,
ERISA or any other applicable law (including without limitation any liability to
or under any such plan or to the PBGC), or under any indemnity agreement to
which Atlantic, any of its subsidiaries or any Atlantic ERISA Affiliate is a
party, which liability, excluding liability for benefit claims and funding
obligations payable in the ordinary course and liability for PBGC insurance
premiums payable in the ordinary course is reasonably likely to have an Atlantic
Material Adverse Effect.
(e) WELFARE PLANS. Except as disclosed in Section 5.10(e) of the Atlantic
Disclosure Schedule, no Atlantic Benefit Plan that is a "welfare plan" (within
the meaning of ERISA Section 3(1)) provides benefits for any retired or former
employees (other than as required pursuant to ERISA Section 601).
(f) DOCUMENTS MADE AVAILABLE. Atlantic has made available to Delmarva a true
and correct copy of each collective bargaining agreement to which Atlantic is a
party or under which Atlantic has obligations and, with respect to each Atlantic
Benefit Plan, as applicable (i) the current plan document (including all
amendments adopted since the most recent restatement) and its most recently
prepared summary plan description and all summaries of material modifications
prepared since the most recent summary plan description, (ii) the most recently
prepared annual report (IRS Form 5500 Series) including financial statements,
(iii) each related trust agreement, insurance contract, service provider or
investment management agreement (including all amendments to each such
document), (iv) the most recent IRS determination letter with respect to the
qualified status under Code Section 401(a) of such plan and a copy of any
application for an IRS determination letter filed since the most recent IRS
determination letter was issued and (v) the most recent actuarial report or
valuation.
(g) PAYMENTS RESULTING FROM MERGERS. Other than as disclosed in Section
5.10(g) of the Atlantic Disclosure Schedule, the consummation or announcement of
any transaction contemplated by this Agreement will not (either alone or upon
the occurrence of any additional or further acts or events) result in any (i)
payment (whether of severance pay or otherwise) becoming due from the Company or
Atlantic or any of its subsidiaries under any applicable Atlantic Benefit Plans
to any officer, employee, former employee or director thereof or to the trustee
under any "rabbi trust" or similar arrangement, or (ii) benefit under any
Atlantic Benefit Plan being established or becoming accelerated, vested or
payable, except for a payment or benefit that would have been payable under the
same terms and conditions without regard to the transactions contemplated by
this Agreement.
(h) FUNDED STATUS OF PLANS. Except as disclosed in Section 5.10(h) of the
Atlantic Disclosure Schedule, each Atlantic Benefit Plan that is subject to
either or both of the minimum funding requirements of
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ERISA Section 302 or to Title IV of ERISA has assets that, as of the date
hereof, have a fair market value equal to or exceeding the present value of the
accrued benefit obligations thereunder on a termination basis, as of the date
hereof based on the actuarial methods, tables and assumptions theretofore
utilized by such plan's actuary in preparing such plan's most recently prepared
actuarial valuation report, except to the extent that applicable law would
require the use of different actuarial assumptions if such plan was to be
terminated as of the date hereof. No Atlantic Benefit Plan subject to the
minimum funding requirements of ERISA Section 302 has incurred any "accumulated
funding deficiency" (within the meaning of ERISA Section 302).
(i) MULTIEMPLOYER PLANS. Except as disclosed in Section 5.10(i) of the
Atlantic Disclosure Schedule, no Atlantic Benefit Plan is or was a
"multiemployer plan" (within the meaning of ERISA Section 4001(a)(3)), a
multiple employer plan described in Code Section 413(c), or a "multiple
employer welfare arrangement" (within the meaning of ERISA Section 3(40)); and
none of Atlantic, any subsidiary thereof or any Atlantic ERISA Affiliate has
been obligated to contribute to, or otherwise has or has had any liability with
respect to, any multiemployer plan, multiple employer plan, or multiple employer
welfare arrangement. With respect to any Atlantic Benefit Plan that is listed in
Section 5.10(i) of the Atlantic Disclosure Schedule as a multiemployer plan,
Atlantic and its subsidiaries have not made or incurred a "complete withdrawal"
or a "partial withdrawal," as such terms are defined in ERISA Sections 4203 and
4205, therefrom at any time during the five calendar year period immediately
preceding the date of this Agreement and the transactions contemplated by the
Agreement will not, in and of themselves, give rise to such a "complete
withdrawal" or "partial withdrawal."
(j) MODIFICATION OR TERMINATION OF PLANS. Except as disclosed in Section
5.10(j) of the Atlantic Disclosure Schedule: (i) neither Atlantic nor any
subsidiary of Atlantic is subject to any legal, contractual, equitable or other
obligation to establish as of any date any employee benefit plan of any nature,
including without limitation any pension, profit sharing, welfare,
post-retirement welfare, stock option, stock or cash award, nonqualified
deferred compensation or executive compensation plan, policy or practice; and
(ii) to the best knowledge of Atlantic after review of all Atlantic Benefit Plan
documents, the Company, Atlantic or one or more of its subsidiaries may, in any
manner, and without the consent of any employee, beneficiary or dependent,
employees' organization or other person, terminate, modify or amend any Atlantic
Benefit Plan or any other employee benefit plan, policy, program or practice (or
its participation in any such Atlantic Benefit Plan or other employee benefit
plan, policy, program or practice) at any time sponsored, maintained or
contributed to by Atlantic or any of its subsidiaries, effective as of any date
before, on or after the Effective Time except to the extent that any retroactive
amendment would be prohibited by ERISA Section 204(g) or would deprive a plan
participant of a benefit in which such participant has a vested right.
(k) REPORTABLE EVENTS; CLAIMS. Except as disclosed in Section 5.10(k) of the
Atlantic Disclosure Schedule, (i) no event constituting a "reportable event"
(within the meaning of ERISA Section 4043(b)) for which the 30-day notice
requirement has not been waived by the PBGC has occurred with respect to any
Atlantic Benefit Plan and (ii) no liability, claim, action or litigation has
been made, commenced or, to the best knowledge of Atlantic, threatened, by or
against Atlantic or any of its subsidiaries with respect to any Atlantic Benefit
Plan (other than for benefits or PBGC premiums payable in the ordinary course)
that is reasonably likely to have an Atlantic Material Adverse Effect.
(l) LABOR AGREEMENTS. Except as disclosed in Section 5.10(l) of the Atlantic
Disclosure Schedule, to the best knowledge of Atlantic, as of the date hereof,
there is no current labor union representation question involving employees of
Atlantic or any of its subsidiaries, nor does Atlantic or any of its
subsidiaries know of any activity or proceeding of any labor organization (or
representative thereof) or employee group (or representative thereof) to
organize any such employees. Except as disclosed in the Atlantic SEC Reports or
as disclosed in Section 5.10(l) of the Atlantic Disclosure Schedule: (i) neither
Atlantic nor any of its subsidiaries is a party to any collective bargaining
agreement or other labor agreement with any union or labor organization; (ii)
there are no unfair labor practice charges or grievances arising out of a
collective bargaining agreement or other grievance procedure against Atlantic
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or any of its subsidiaries pending, or to the best
knowledge of Atlantic threatened, that, in the aggregate, are reasonably likely
to have an Atlantic Material Adverse Effect; (iii) there are no complaints,
lawsuits or proceedings in any forums by or on behalf of any present or former
employees, any applicants for employment or classes of the foregoing alleging
breach of any express or implied contract of employment, any law or regulation
governing employment or the termination thereof or other discriminatory,
wrongful or tortious conduct in connection with the employment relationship
against Atlantic or any of its subsidiaries pending, or to the best knowledge of
Atlantic threatened, that, in the aggregate, are reasonably likely to have an
Atlantic Material Adverse Effect; (iv) there are no strikes, disputes,
slowdowns, work stoppages or lockouts pending, or to the best knowledge of
Atlantic threatened, against or involving Atlantic or any of its subsidiaries
that, in the aggregate, are reasonably likely to have an Atlantic Material
Adverse Effect; (v) Atlantic and each of its subsidiaries are in compliance with
all applicable laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work and occupational safety and
health, except for noncompliance that, in the aggregate, is not reasonably
likely to have an Atlantic Material Adverse Effect; and (vi) there is no
proceeding, claim, suit, action or governmental investigation pending, or to the
best knowledge of Atlantic threatened, in respect to which any director,
officer, employee or agent of Atlantic or any of its subsidiaries is or may be
entitled to claim indemnification from Atlantic or any of its subsidiaries
pursuant to their respective certificates or articles of incorporation or bylaws
or as provided in the indemnification agreements listed on Section 5.10(l) of
the Atlantic Disclosure Schedule.
Section 5.11 ENVIRONMENTAL PROTECTION.
(a) COMPLIANCE. Except as disclosed in Section 5.11(a) of the Atlantic
Disclosure Schedule or as disclosed in the Atlantic SEC Reports, Atlantic and
each of its subsidiaries are and have been in material compliance with all
applicable Environmental Laws, except where the failure to be or to have been so
in material compliance, in the aggregate, is not reasonably likely to have an
Atlantic Material Adverse Effect. Except as disclosed in Section 5.11(a) of the
Atlantic Disclosure Schedule, neither Atlantic nor any of its subsidiaries has
received any written notice from any person or Governmental Authority that
alleges that Atlantic or any of its subsidiaries is not or has not been in
material compliance with applicable Environmental Laws, except where the failure
to be or to have been so in material compliance, in the aggregate, is not
reasonably likely to have an Atlantic Material Adverse Effect.
(b) ENVIRONMENTAL PERMITS. Except as disclosed in Section 5.11(b) of the
Atlantic Disclosure Schedule or as disclosed in the Atlantic SEC Reports,
Atlantic and each of its subsidiaries have obtained or have applied for all
material Environmental Permits necessary for the construction of their
facilities and the conduct of their operations, and all such Environmental
Permits are in good standing or, where applicable, a renewal application has
been timely filed and is pending agency approval, and Atlantic and its
subsidiaries are in compliance with all terms and conditions of all such
Environmental Permits and are not required to make any material expenditures in
connection with any renewal application pending agency approval, except where
the failure to obtain or be in such compliance and the requirement to make such
expenditures, in the aggregate, is not reasonably likely to have an Atlantic
Material Adverse Effect.
(c) ENVIRONMENTAL CLAIMS. Except as disclosed in Section 5.11(c) of the
Atlantic Disclosure Schedule or as disclosed in the Atlantic SEC Reports, to the
best knowledge of Atlantic, there are no Environmental Claims (as defined in
Section 4.11(g)) pending, or to the best knowledge of Atlantic threatened, (i)
against Atlantic or any of its subsidiaries or joint ventures, (ii) against any
person or entity whose liability for any Environmental Claim Atlantic or any of
its subsidiaries or joint ventures has or may have retained or assumed either
contractually or by operation of law or (iii) against any real or personal
property or operations that Atlantic or any of its subsidiaries or joint
ventures owns, leases or manages, in whole or in part, that, if adversely
determined are in the aggregate reasonably likely to have an Atlantic Material
Adverse Effect.
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(d) RELEASES. Except as disclosed in Section 5.11(c) or 5.11(d) of the
Atlantic Disclosure Schedule or as disclosed in the Atlantic SEC Reports, to the
best knowledge of Atlantic, there has been no Release of any Hazardous Material
that would be reasonably likely to form the basis of any Environmental Claim
against Atlantic or any subsidiary or joint venture of Atlantic, or against any
person or entity whose liability for any Environmental Claim Atlantic or any
subsidiary or joint venture of Atlantic has or may have retained or assumed
either contractually or by operation of law, except for Releases of Hazardous
Materials the liability for which is not in the aggregate reasonably likely to
have an Atlantic Material Adverse Effect.
(e) PREDECESSORS. Except as disclosed in Section 5.11(e) of the Atlantic
Disclosure Schedule or as disclosed in the Atlantic SEC Reports, to the best
knowledge of Atlantic with respect to any predecessor of Atlantic or of any
subsidiary or joint venture of Atlantic, there are no Environmental Claims
pending or threatened, or any Releases of Hazardous Materials that would be
reasonably likely to form the basis of any Environmental Claims, that are
reasonably likely to have, in the aggregate, an Atlantic Material Adverse
Effect.
(f) DISCLOSURE. To the best knowledge of Atlantic, Atlantic has disclosed to
Delmarva all material facts that Atlantic reasonably believes are likely to form
the basis of a material Environmental Claim or to require material expenditures
in order to comply with current or future applicable Environmental Laws arising
from (i) the cost of pollution control equipment currently required or known to
be required in the future, (ii) current investigatory, removal, remediation or
response costs or investigatory, removal, remediation or response costs known to
be required in the future, in each case, both on-site and off-site and (iii) any
other environmental matters affecting Atlantic or its subsidiaries.
Section 5.12 REGULATION AS A UTILITY. One of Atlantic's wholly owned
subsidiaries is regulated as a public utility in the State of New Jersey and by
the FERC. Except as disclosed in Section 5.12 of the Atlantic Disclosure
Schedule, neither Atlantic nor any "subsidiary company" or "affiliate" (as such
terms are defined in the 1935 Act) of Atlantic is subject to regulation as a
public utility or public service company (or similar designation) by any other
state in the United States, by the United States or any agency or
instrumentality of the United States or by any foreign country. Atlantic is a
holding company exempt from all provisions of the 1935 Act except Section
9(a)(2) pursuant to Section 3(a)(1) of the 1935 Act.
Section 5.13 VOTE REQUIRED. The approval of the Atlantic Merger by a
majority of all votes cast by the holders of Atlantic Common Stock (the
"Atlantic Shareholders' Approval"), is the only vote of the holders of any class
or series of the capital stock of Atlantic required to approve this Agreement,
the Mergers and the other transactions contemplated hereby.
Section 5.14 OPINION OF FINANCIAL ADVISOR. Atlantic has received the opinion
of Morgan Stanley & Co. Incorporated, dated the date hereof, to the effect that,
as of the date hereof, the Atlantic Conversion Ratio, taking into account the
Delmarva Conversion Ratio, is fair from a financial point of view to the holders
of Atlantic Common Stock.
Section 5.15 INSURANCE. Except as disclosed in Section 5.15 of the Atlantic
Disclosure Schedule, each of Atlantic and each of its subsidiaries is, and has
been continuously since January 1, 1991, insured with financially responsible
insurers in such amounts and against such risks and losses as are customary for
companies conducting the respective businesses conducted by Atlantic and its
subsidiaries during such time period. Except as disclosed in Section 5.15 of the
Atlantic Disclosure Schedule, neither Atlantic nor any of its subsidiaries has
received any notice of cancellation or termination with respect to any material
insurance policy thereof. All material insurance policies of Atlantic and its
subsidiaries are valid and enforceable policies.
Section 5.16 APPLICABILITY OF CERTAIN NEW JERSEY LAW. Assuming the accuracy
of the representation of Delmarva set forth in Section 4.17, the New Jersey
Shareholders Protection Act (Section 14A:10A-1 et seq. of the NJBCA) is not
applicable to the transactions contemplated by this Agreement.
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Section 5.17 OWNERSHIP OF DELMARVA COMMON STOCK. Atlantic does not
"beneficially own" (as such term is defined in Rule 13d-3 under the Exchange
Act) any shares of Delmarva Common Stock.
Section 5.18 OPERATIONS OF ATLANTIC NUCLEAR POWER PLANTS. Except as set
forth in Section 5.18 of the Atlantic Disclosure Schedule, to the best knowledge
of Atlantic, the operations of the Hope Creek Nuclear Generating Station owned
by Atlantic and the Salem and Peach Bottom Nuclear Generating Stations owned by
Atlantic together with Delmarva (collectively, the "Atlantic Facilities") are
and have at all times been conducted in compliance with applicable health,
safety, regulatory and other legal requirements, except where the failure to be
in compliance in the aggregate does not and insofar as can reasonably be
foreseen would not have an Atlantic Material Adverse Effect. To the best
knowledge of Atlantic, each of the Atlantic Facilities maintains emergency plans
designed to respond to an unplanned release therefrom of radioactive materials
into the environment and customary liability insurance consistent with industry
practice and consistent with Atlantic's view of the risks inherent in the
operation of a nuclear power facility currently exists with respect to such
Atlantic Facility. To the best knowledge of Atlantic, plans for the
decommissioning of each of the Atlantic Facilities and for the short-term
storage of spent nuclear fuel conform with the requirements of applicable law,
and such plans have at all times been funded consistently with reasonable budget
projections for such plans.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGERS
Delmarva and Atlantic have each delivered to the other a budget for the
years 1996 through 1998 (respectively, the "Delmarva Budget" and the "Atlantic
Budget"), which Delmarva or Atlantic, as the case may be, may update or
otherwise modify in writing for purposes of this Article VI only with the
consent in writing of Atlantic or Delmarva, as the case may be. After the date
hereof and prior to the Effective Time or earlier termination of this Agreement,
each of Delmarva and Atlantic agrees as to itself and its subsidiaries, except
as expressly contemplated or permitted in this Agreement, or to the extent
Atlantic or Delmarva, as the case may be, shall otherwise consent in writing, as
follows:
Section 6.1 ORDINARY COURSE OF BUSINESS. Each of Delmarva and Atlantic
shall, and each shall cause its respective subsidiaries to, carry on its and
their respective businesses in the usual, regular and ordinary course consistent
with past practice and use all commercially reasonable efforts to preserve
intact their present business organizations and goodwill, preserve the goodwill
and relationships with customers, suppliers and others having business dealings
with them and, subject to prudent management of their workforces, including
(without limitation) ongoing or planned activities, benefits, programs,
practices, and policies related to effecting their business strategies and
downsizing, re-engineering and similar matters, keep available the services of
their present officers and employees, to the end that their goodwill and ongoing
businesses shall not be impaired in any material respect at the Effective Time.
Neither Delmarva nor Atlantic shall, nor shall either permit any of its
subsidiaries to, (i) enter into a new line of business that is not described, in
the case of Delmarva, in Section 6.1 of the Delmarva Disclosure Schedule, or, in
the case of Atlantic, in Section 6.1 of the Atlantic Disclosure Schedule (in
each case, a "Listed Activity") involving any material investment of assets or
resources or any material exposure to liability or loss (including without
limitation any loans or capital contributions to, and the undertaking of any
guarantees in favor of or any "keepwell" or other agreements to maintain the
financial condition of, another person), in the case of Delmarva, to Delmarva
and its subsidiaries taken as a whole, and, in the case of Atlantic, to Atlantic
and its subsidiaries taken as a whole, (ii) make aggregate investments
(including without limitation any loans or capital contributions to, and the
undertaking of any guarantees in favor of or any "keep well" or other agreements
to maintain the financial condition of, another person) during the period from
the date of this Agreement to the Effective Time in or in respect of Listed
Activities in excess of $250,000,000 in the aggregate, or (iii) make any such
investment in or in respect of any Listed Activity, other than an investment by
Atlantic in thermal (heating and cooling) services, in excess of $7,500,000 per
year in any Listed Activity without consultations with each other concerning the
investment. For purposes of this
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Article VI, "consistent with past practice" as applied to Atlantic and its
subsidiaries shall mean among other things that, unless otherwise required by
applicable law or regulation, the allocation of benefits and burdens to Atlantic
City Electric Company ("Atlantic Utility") in comparison with those allocated to
Atlantic and its subsidiaries other than Atlantic Utility shall be on a basis
not more favorable to Atlantic Utility than has previously been the case.
Section 6.2 DIVIDENDS. Neither Delmarva nor Atlantic shall, nor shall either
permit any of its subsidiaries to: (a) declare or pay any dividends on or make
other distributions in respect of any of their capital stock other than (i) to
such party or its wholly-owned subsidiaries, (ii) dividends required to be paid
on any Delmarva Preferred Stock or any preferred stock issued by Atlantic City
Electric Company ("Atlantic Subsidiary Preferred Stock") in accordance with
their respective terms, (iii) regular quarterly dividends on Delmarva Common
Stock with usual record and payment dates at an annual rate not in excess of
$1.54 per share and (iv) regular quarterly dividends on Atlantic Common Stock
with usual record and payment dates at an annual rate not in excess of $1.54 per
share; (b) split, combine or reclassify any of their capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in lieu
of, or in substitution for, shares of its capital stock; or (c) redeem,
repurchase or otherwise acquire any shares of their capital stock other than (i)
redemptions, repurchases and other acquisitions of shares of capital stock in
the ordinary course of business consistent with past practice including without
limitation, (w) repurchases, redemptions and other acquisitions in connection
with the administration of employee benefit and dividend reinvestment plans as
in effect on the date hereof in the ordinary course of the operation of such
plans, (x) redemptions, purchases or acquisitions required by the respective
terms of any series of Delmarva Preferred Stock or Atlantic Subsidiary Preferred
Stock, (y) in connection with the refunding of Delmarva Preferred Stock or
Atlantic Subsidiary Preferred Stock through the issuance of additional Delmarva
Preferred Stock or Atlantic Utility Preferred Stock or indebtedness, as the case
may be, at a lower cost of funds (calculating such cost on an aggregate
after-tax basis) or through the issuance of long-term indebtedness as permitted
under Section 6.7 and (z) open-market repurchases of Delmarva Common Stock or
Atlantic Common Stock, as the case may be, utilized to fund up to $50,000,000 in
any fiscal year (when aggregated with common stock so utilized by Delmarva or
Atlantic, as the case may be, pursuant to clause (c) of Section 6.3) of the cost
of any acquisitions permitted under Section 6.5 and (ii) intercompany
acquisitions of capital stock.
Section 6.3 ISSUANCE OF SECURITIES. Neither Delmarva nor Atlantic shall, nor
shall either permit any of its subsidiaries to, issue, deliver or sell, or
authorize or propose the issuance, delivery or sale of, any shares of their
capital stock of any class or any securities convertible into or exchangeable
for, or any rights, warrants or options to acquire, any such shares or
convertible or exchangeable securities, except as provided in the Delmarva
Budget or the Atlantic Budget, as the case may be, and except for (a) the
issuance of common stock or stock appreciation or similar rights, as the case
may be, pursuant to (i) the Dividend Reinvestment and Common Share Purchase
Plan, the Savings and Thrift Plan, and the Long-Term Incentive Plan of Delmarva
or (ii) the Employee Incentive Plan, the Directors' Restricted Stock Plan, the
Employee Stock Purchase Plan and the Dividend Reinvestment Plan of Atlantic, in
each case consistent with past practice in kind and amount and in the ordinary
course of business under such plans substantially in accordance with their
present terms, (b) the issuance by a wholly owned subsidiary of shares of its
capital stock to its parent and (c) the issuance of common stock by Delmarva or
Atlantic, as the case may be, utilized to fund up to $50,000,000 in any fiscal
year (when aggregated with common stock so utilized by Delmarva or Atlantic, as
the case may be, pursuant to clause (c)(i)(z) of Section 6.2) of the cost of any
acquisitions permitted under Section 6.5.
Section 6.4 CHARTER DOCUMENTS. Neither Delmarva nor Atlantic shall amend or
propose to amend its certificate or articles of incorporation or its bylaws,
except as necessary to provide for the issuance of securities as permitted
pursuant to Section 6.3 or as required by law.
Section 6.5 ACQUISITIONS. Except as permitted by Section 6.1 in respect of
Listed Activities or as may be disclosed in Section 6.5 of the Delmarva
Disclosure Schedule or the Atlantic Disclosure Schedule, and except for
acquisitions not exceeding $20,000,000 in the aggregate during any fiscal year,
or more than
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$40,000,000 in the aggregate during the period from the date of this Agreement
to the Effective Time, in the case of, on the one hand, Delmarva and its
subsidiaries and, on the other hand, Atlantic and its subsidiaries, neither
Delmarva nor Atlantic shall, nor shall either permit any of its subsidiaries to,
acquire or agree or publicly propose to acquire, by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof, or
otherwise acquire or agree to acquire any material amount of assets other than
in the ordinary course of business consistent with past practice.
Section 6.6 NO DISPOSITIONS. Except as disclosed in Section 6.6 of the
Delmarva Disclosure Schedule or the Atlantic Disclosure Schedule, and other than
(a) dispositions not exceeding $5,000,000 during any fiscal year in the case of,
on the one hand, Delmarva and its subsidiaries and, on the other hand, Atlantic
and its subsidiaries, (b) as may be required by law to consummate the
transactions contemplated hereby or (c) in the ordinary course of business
consistent with past practice, neither Delmarva nor Atlantic shall, nor shall
either permit any of its subsidiaries to, sell, lease, license, encumber or
otherwise dispose of, any of its assets that are material, individually or in
the aggregate, to such party and its subsidiaries taken as a whole.
Section 6.7 INDEBTEDNESS. Except as disclosed in Section 6.7 of the Delmarva
Disclosure Schedule or the Atlantic Disclosure Schedule and except as provided
in the Delmarva Budget and the Atlantic Budget, as the case may be, neither
Delmarva nor Atlantic shall, nor shall either permit any of its subsidiaries to,
incur or guarantee any indebtedness (including any debt borrowed or guaranteed
or otherwise assumed, including without limitation the issuance of debt
securities or warrants or rights to acquire debt) or enter into any "keepwell"
or other agreement to maintain the financial condition of another person or
enter into arrangements having the effect of any of the foregoing other than (a)
short-term indebtedness in the ordinary course of business consistent with past
practice, (b) long-term indebtedness in connection with the refinancing of
existing indebtedness either at its stated maturity or at a lower cost of funds
(calculating such cost on an aggregate after-tax basis), (c) long-term
indebtedness in connection with the refunding of Delmarva Preferred Stock or
Atlantic Preferred Stock at a lower cost of funds (calculated as aforesaid), and
(d) additional indebtedness in any fiscal year not exceeding $25,000,000 more
than the amount provided therefor in the Delmarva Budget for such fiscal year
with respect to Delmarva and its subsidiaries and in the Atlantic Budget for
such fiscal year with respect to Atlantic and its subsidiaries.
Section 6.8 CAPITAL EXPENDITURES. Except as permitted by Section 6.1 in
respect of Listed Activities or as may be disclosed in Section 6.8 of the
Delmarva Disclosure Schedule or the Atlantic Disclosure Schedule or as required
by law, neither Delmarva nor Atlantic shall, nor shall either permit any of its
subsidiaries to, make any capital expenditures, other than (a) capital
expenditures incurred in connection with the construction of new facilities, (b)
capital expenditures to repair or replace facilities destroyed or damaged due to
casualty or accident (whether or not covered by insurance) and (c) additional
capital expenditures in any year of not more than 10% of the amount provided
therefor in the Delmarva Budget for that year with respect to Delmarva and its
subsidiaries and in the Atlantic Budget for that year with respect to Atlantic
and its subsidiaries.
Section 6.9 COMPENSATION, BENEFITS. Except as disclosed in Section 6.9 of
the Delmarva Disclosure Schedule or the Atlantic Disclosure Schedule, neither
Delmarva nor Atlantic shall, nor shall either permit any of its subsidiaries to,
(i) enter into, adopt or amend (except as may be required by applicable law), or
increase the amount or accelerate the payment or vesting of any benefit or
amount payable under, any employee benefit plan or other contract, agreement,
commitment, arrangement, plan or policy maintained by, contributed to or entered
into by such party or any of its subsidiaries, or increase, or enter into any
contract, agreement, commitment or arrangement to increase in any manner, the
compensation or fringe benefits, or otherwise to extend, expand or enhance the
engagement, employment or any related rights, of any director, officer or other
employee of such party or any of its subsidiaries, except pursuant to binding
legal commitments and except for normal (including incentive) increases,
extensions, expansions, enhancements, amendments or adoptions in the ordinary
course of business consistent with past practice that, in the aggregate, do not
result in a material increase in benefits or compensation expense to such party
and
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its subsidiaries taken as a whole or (ii) enter into or amend any employment,
severance, special pay arrangement with respect to termination of employment or
other similar contract, agreement or arrangement with any director or officer
other than in the ordinary course of business consistent with past practice.
Notwithstanding the foregoing, (i) Atlantic shall terminate its retirement plan
for non-employee directors and pay in cash all accrued benefits thereunder as
described in Section 6.9 of the Atlantic Disclosure Schedule prior to the
Effective Time, and (ii) each of Delmarva and Atlantic may, with the agreement
of the other, modify the benefits payable under its severance arrangements with
management employees in a manner which makes the aggregate level of severance
benefits received by such management employees comparable to the aggregate level
of severance benefits which are, on the date of this Agreement, provided to
comparable employees of the other.
Section 6.10 1935 ACT. Atlantic shall not, nor shall it permit any of its
subsidiaries to, except as required or contemplated by this Agreement, engage in
any activities that would cause a change in its status, or that of its
subsidiaries, under the 1935 Act, that would impair the ability of Atlantic to
claim an exemption from all provisions of the 1935 Act except Section 9(a)(2)
under Section 3(a)(1) of the 1935 Act or that would impair the ability of
Atlantic Utility to claim an exemption from all provisions of the 1935 Act
except Section 9(a)(2) under Section 3(a)(2) of the 1935 Act, other than (i) the
application to the SEC under the 1935 Act contemplated by this Agreement for
approval to the extent required of the transactions contemplated hereby and (ii)
the registration of the Company pursuant to the 1935 Act.
Section 6.11 ACCOUNTING. Neither Delmarva nor Atlantic shall, nor shall
either permit any of its subsidiaries to, make any changes in their accounting
methods, except as required by law, rule, regulation or GAAP.
Section 6.12 TAX-FREE STATUS. No party shall, nor shall any party permit any
of its subsidiaries to, take any actions that would, or would be reasonably
likely to, adversely affect the status of the Mergers as a tax-free transaction
(except as to dissenters' rights and fractional shares) under Code Section
368(a) and/or Code Section 351, and each party shall use all commercially
reasonable efforts to achieve such result.
Section 6.13 DISCHARGE OF LIABILITIES. Neither Delmarva nor Atlantic shall,
nor shall either permit any of its subsidiaries to, pay, discharge or satisfy
any material claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than (i) the payment, discharge or
satisfaction, in the ordinary course of business consistent with past practice
(which includes the payment of final and unappealable judgments and the
refinancing of existing indebtedness for borrowed money either at its stated
maturity or at a lower cost of funds) or in accordance with their terms, of
liabilities reflected or reserved against in, or contemplated by, the most
recent consolidated financial statements (or the notes thereto) of such party
included in such party's reports filed with the SEC, or incurred in the ordinary
course of business consistent with past practice or, or pursuant to Section 6.7
or as disclosed in Section 6.7 of the Delmarva Disclosure Schedule or the
Atlantic Disclosure Schedule, or (ii) as part of or pursuant to any settlement
of any rate filings before the public utility commission of any state or the
FERC pending on the date of this Agreement.
Section 6.14 COOPERATION, NOTIFICATION. Each of Delmarva and Atlantic shall:
(a) confer on a regular and frequent basis with one or more representatives of
the other to discuss, subject to applicable law, material operational matters
and the general status of its ongoing operations; (b) promptly notify the other
of any significant changes in its business (including the entry into material
new lines of business or material extensions or expansions of existing lines of
business), properties, assets, condition (financial or other), prospects or
results of operations; (c) advise the other of any change or event that has had
or, insofar as reasonably can be foreseen, is reasonably likely to result in, a
Delmarva Material Adverse Effect or an Atlantic Material Adverse Effect, as the
case may be; and (d) promptly provide the other with copies of all filings made
by it or any of its subsidiaries with any state or federal court, administrative
agency, commission or other Governmental Authority in connection with this
Agreement and the transactions contemplated hereby.
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Section 6.15 RATE MATTERS. Other than currently pending rate filings and
matters related to the recovery of costs associated with outages at the Salem
Nuclear Generating Station, each of Delmarva and Atlantic shall, and shall cause
its subsidiaries to, discuss with the other any changes in its or its
subsidiaries' regulated rates or charges, standards of service or accounting
from those in effect on the date hereof and consult with the other parties prior
to making any filing (or any amendment thereto), or effecting any agreement,
commitment, arrangement or consent with governmental regulators, whether written
or oral, formal or informal, with respect thereto, and neither shall make any
filing to change its rates or charges on file with the public utility commission
of any state or FERC that would have a material adverse effect on the benefits
associated with the Mergers.
Section 6.16 THIRD-PARTY CONSENTS. Delmarva shall, and shall cause its
subsidiaries to, use all commercially reasonable efforts to obtain all Delmarva
Required Consents. Delmarva shall promptly notify Atlantic of any failure or
anticipated failure to obtain any such consents and, if requested by Atlantic,
shall provide copies of all Delmarva Required Consents obtained by Delmarva to
Atlantic. Atlantic shall, and shall cause its subsidiaries to, use all
commercially reasonable efforts to obtain all Atlantic Required Consents.
Atlantic shall promptly notify Delmarva of any failure or anticipated failure to
obtain any such consents and, if requested by Delmarva, shall provide copies of
all Atlantic Required Consents obtained by Atlantic to Delmarva.
Section 6.17 NO BREACH, ETC. No party shall, nor shall any party permit any
of its subsidiaries to, take any action that would or is reasonably likely to
result in a material breach of any covenant or agreement of this Agreement or in
any of its representations and warranties set forth in this Agreement being
untrue on and as of the Closing Date.
Section 6.18 TAX-EXEMPT STATUS. No party shall, nor shall any party permit
any subsidiary to, take any action that would, or would be reasonably likely to,
jeopardize the qualification of the outstanding revenue bonds issued for the
benefit of Delmarva (or any subsidiary thereof) or for the benefit of Atlantic
(or any subsidiary thereof) that qualify on the date hereof under Code Section
142(a) as "exempt facility bonds" or as tax-exempt industrial development bonds
under Section 103(b)(4) of the Internal Revenue Code of 1954, as amended prior
to the Tax Reform Act of 1986.
Section 6.19 TRANSITION MANAGEMENT. Delmarva and Atlantic shall create a
special transition management task force (the "Task Force") to be headed by
Howard E. Cosgrove (or an individual designated by him who shall be reasonably
satisfactory to the other Task Force head) and Michael J. Chesser (or an
individual designated by him and reasonably satisfactory to the other Task Force
head). The Task Force shall examine various alternatives regarding the manner in
which best to organize and manage the business of the Company after the
Effective Time, subject to applicable law. From time to time, the Task Force
shall report its findings to the Board of Directors of each of Delmarva and
Atlantic.
Section 6.20 INSURANCE. Each of Delmarva and Atlantic shall, and shall cause
its subsidiaries to, maintain with financially responsible insurance companies
insurance in such amounts and against such risks and losses as are customary for
companies engaged in the utility industry and employing methods of generating
electric power and fuel sources similar to those methods employed and fuels used
by such party or such party's subsidiaries.
Section 6.21 PERMITS. Delmarva and Atlantic shall, and shall each cause its
subsidiaries to, use all reasonable efforts to maintain in effect all existing
Permits (as defined in Section 4.4) pursuant to which it or its subsidiaries
operate.
Section 6.22 CONTRACTS; AGREEMENTS. Neither Delmarva nor Atlantic shall, nor
shall either permit any of its subsidiaries to, except in the ordinary course of
business consistent with past practice, modify, amend, terminate, renew or fail
to use reasonable business efforts to renew any material contract or agreement
to which such party or any subsidiary of such party is a party or waive, release
or assign any material rights or claims. Neither Delmarva nor Atlantic shall,
nor shall either permit any of its subsidiaries to, agree in writing to take any
action not permitted by this Article VI.
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ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 ACCESS TO INFORMATION. Upon reasonable notice and during normal
business hours, each party shall, and shall cause its subsidiaries to, afford to
the officers, directors, employees, accountants, counsel, investment banker,
financial advisor and other representatives of the other (collectively,
"Representatives") reasonable access, during normal business hours throughout
the period prior to the Effective Time, to all of its properties, books,
contracts, commitments and records (including, but not limited to, Tax Returns)
and, during such period, each party shall, and shall cause its subsidiaries to,
furnish promptly to the other (i) access to each report, schedule and other
document filed or received by it or any of its subsidiaries pursuant to the
requirements of federal or state securities laws or filed with the SEC, the
FERC, the NRC, the Department of Justice, the Federal Trade Commission, the
Delaware Commission, the Maryland Commission, the Virginia Commission, the New
Jersey Commission, the Pennsylvania Commission or any other federal or state
regulatory agency or commission, and (ii) access to all information concerning
themselves, their subsidiaries, directors, officers and shareholders and such
matters as may be reasonably requested by the other party in connection with any
filings, applications or approvals required or contemplated by this Agreement.
All documents and information furnished pursuant to this Section 7.1 shall be
subject to the confidentiality agreement dated April 10, 1996 between Delmarva
and Atlantic, as it may be amended from time to time (the "Confidentiality
Agreement"). The party requesting copies of any documents from any other party
hereto shall be responsible for all out-of-pocket expenses incurred by the party
to whom such request is made in complying with such request, including any cost
of reproducing and delivering any required information.
Section 7.2 JOINT PROXY STATEMENT AND REGISTRATION STATEMENT.
(a) PREPARATION AND FILING. As promptly as reasonably practicable after the
date hereof, the parties shall prepare and file with the SEC the Registration
Statement and the Joint Proxy Statement (together, the "Joint Proxy/Registration
Statement"). The parties shall take such actions as may be reasonably required
to cause the Registration Statement to be declared effective under the
Securities Act as promptly as practicable after such filing. The parties shall
also take such action as may be reasonably required to cause the shares of
Company Common Stock and Letter Stock issuable in connection with the Mergers to
be registered or to obtain an exemption from registration under applicable state
"blue sky" or securities laws; provided, however, that none of the Company,
Atlantic or Delmarva shall be required to register or qualify as a foreign
corporation or to take any other action that would subject it to general service
of process in any jurisdiction in which the Company will not, following the
Mergers, be so subject. Each of the parties shall furnish all information
concerning itself that is required or customary for inclusion in the Joint
Proxy/Registration Statement. No representation, covenant or agreement contained
in this Agreement is made by any party with respect to information supplied by
any other party for inclusion in the Joint Proxy/ Registration Statement. The
Joint Proxy/Registration Statement shall comply as to form in all material
respects with the Securities Act and the rules and regulations thereunder. The
parties shall take such action as may be reasonably required to cause the shares
of Company Common Stock and Letter Stock to be issued in the Mergers to be
approved for listing on the NYSE and any other stock exchanges agreed to by the
parties, each upon official notice of issuance.
(b) LETTER OF DELMARVA'S ACCOUNTANTS. Following receipt by Coopers &
Lybrand, Delmarva's independent auditors, of an appropriate request from
Atlantic pursuant to SAS No. 72, Delmarva shall use best efforts to cause to be
delivered to the Company and Atlantic a letter of Coopers & Lybrand, dated a
date within two business days before the effective date of the Registration
Statement, and addressed to the Company and Atlantic, in form and substance
reasonably satisfactory to the Company and Atlantic and customary in scope and
substance for "cold comfort" letters delivered by independent public accountants
in connection with registration statements and proxy statements similar to the
Joint Proxy/Registration Statement.
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(c) LETTER OF ATLANTIC'S ACCOUNTANTS. Following receipt by Deloitte &
Touche, LLP, Atlantic's independent auditors, of an appropriate request from
Delmarva pursuant to SAS No. 72, Atlantic shall use best efforts to cause to be
delivered to the Company and Delmarva a letter of Deloitte & Touche, LLP, dated
a date within two business days before the effective date of the Registration
Statement, and addressed to the Company and Delmarva, in form and substance
satisfactory to the Company and Delmarva and customary in scope and substance
for "cold comfort" letters delivered by independent public accountants in
connection with registration statements and proxy statements similar to the
Joint Proxy/Registration Statement.
(d) FAIRNESS OPINIONS. It shall be a condition to the mailing of the Joint
Proxy Statement to the shareholders of Atlantic and Delmarva that (i) Delmarva
shall have received an opinion from Merrill Lynch, Pierce, Fenner & Smith
Incorporated, dated the date of the Joint Proxy Statement, to the effect that,
as of the date thereof, the Delmarva Conversion Ratio is fair to the holders of
Delmarva Common Stock, and (ii) Atlantic shall have received an opinion from
Morgan Stanley & Co. Incorporated, dated the date of the Joint Proxy Statement,
to the effect that, as of the date thereof, the Atlantic Conversion Ratio is
fair to the holders of Atlantic Common Stock.
Section 7.3 REGULATORY MATTERS.
(a) HSR FILINGS. Each party shall file or cause to be filed with the Federal
Trade Commission and the Department of Justice any notifications required to be
filed by their respective "ultimate parent" companies under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and the rules and regulations promulgated thereunder with respect to the
transactions contemplated hereby. The parties shall use all commercially
reasonable efforts to make such filings promptly and shall respond promptly to
any requests for additional information made by either of such agencies.
(b) OTHER REGULATORY APPROVALS. Each party shall cooperate and use its best
efforts to promptly prepare and file all necessary documentation, to effect all
necessary applications, notices, petitions, filings and other documents, and to
use all commercially reasonable efforts to obtain all necessary permits,
consents, approvals and authorizations of all Governmental Authorities and all
other persons necessary or advisable to consummate the transactions contemplated
by this Agreement, including without limitation the Delmarva Required Statutory
Approvals and the Atlantic Required Statutory Approvals. Atlantic shall have the
right to review and approve in advance all characterizations of the information
relating to Atlantic, on the one hand, and Delmarva shall have the right to
review and approve in advance all characterizations of the information relating
to Delmarva, on the other hand, in either case which appear in any filing made
in connection with the transactions contemplated by this Agreement. Delmarva and
Atlantic shall each consult with the other with respect to the obtaining of all
such necessary or advisable permits, consents, approvals and authorizations of
Governmental Authorities.
Section 7.4 SHAREHOLDER APPROVALS.
(a) APPROVAL OF ATLANTIC SHAREHOLDERS. Atlantic shall, as promptly as
reasonably practicable after the date hereof (i) take all steps reasonably
necessary to call, give notice of, convene and hold a special meeting of its
shareholders (the "Atlantic Special Meeting") for the purpose of securing the
Atlantic Shareholders' Approval, (ii) distribute to its shareholders the Joint
Proxy Statement in accordance with applicable federal and state law and its
articles of incorporation and bylaws, (iii) subject to the fiduciary duties of
its Board of Directors, recommend to its shareholders the approval of the
Atlantic Merger, this Agreement and the transactions contemplated hereby and
(iv) cooperate and consult with Delmarva with respect to each of the foregoing
matters.
(b) APPROVAL OF DELMARVA SHAREHOLDERS. Delmarva shall, as promptly as
reasonably practicable after the date hereof (i) take all steps reasonably
necessary to call, give notice of, convene and hold a special meeting of its
shareholders (the "Delmarva Special Meeting") for the purpose of securing the
Delmarva Shareholders' Approval, (ii) distribute to its shareholders the Joint
Proxy Statement in accordance with applicable federal and state law and its
articles of incorporation and bylaws, (iii) subject to the fiduciary duties of
its Board of Directors, recommend to its shareholders the approval of the
Delmarva Merger, this
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Agreement and the transactions contemplated hereby and (iv) cooperate and
consult with Atlantic with respect to each of the foregoing matters.
(c) MEETING DATE. The Delmarva Special Meeting and the Atlantic Special
Meeting shall be held on the same day unless otherwise agreed by Delmarva and
Atlantic.
(d) FAIRNESS OPINIONS NOT WITHDRAWN. It shall be a condition to the
obligation of Delmarva to hold the Delmarva Special Meeting that the opinion of
Merrill Lynch, Pierce, Fenner & Smith Incorporated referred to in Section 7.2(d)
shall not have been withdrawn, and it shall be a condition to the obligation of
Atlantic to hold the Atlantic Special Meeting that the opinion of Morgan Stanley
& Co. Incorporated referred to in Section 7.2(d) shall not have been withdrawn.
Section 7.5 DIRECTORS' AND OFFICERS' INDEMNIFICATION.
(a) INDEMNIFICATION. To the extent, if any, not provided by an existing
right of indemnification or other agreement or policy, from and after the
Effective Time, the Company shall, to the fullest extent not prohibited by
applicable law, indemnify, defend and hold harmless the present and former
directors, officers and management employees of the parties hereto and their
respective subsidiaries (each, an "Indemnified Party" and, collectively, the
"Indemnified Parties") against (i) all losses, expenses (including reasonable
attorneys' fees and expenses), claims, damages, costs, liabilities, judgments or
(subject to the proviso of the next succeeding sentence) amounts that are paid
in settlement of or in connection with any claim, action, suit, proceeding or
investigation based in whole or in part on or arising in whole or in part out of
the fact that such person is or was a director, officer or management employee
of such party or any subsidiary thereof, whether pertaining to any matter
existing or occurring at or prior to or after the Effective Time and whether
asserted or claimed prior to, at or after the Effective Time and (ii) all
liabilities based in whole or in part on, or arising in whole or in part out of,
or pertaining to this Agreement or the transactions contemplated hereby. In the
event of any such loss, expense, claim, damage, cost, liability, judgment or
settlement (whether or not arising before the Effective Time), (x) the Company
shall pay the reasonable fees and expenses of counsel selected by the
Indemnified Parties, which counsel shall be reasonably satisfactory to the
Company, promptly after statements therefor are received, and otherwise advance
to the Indemnified Parties upon request reimbursement of documented expenses
reasonably incurred, in either case to the extent not prohibited by applicable
law, (y) the Company shall cooperate in the defense of any such matter and (z)
any determination required to be made with respect to whether an Indemnified
Party's conduct complies with the standards under applicable law or as set forth
in the Company's certificate of incorporation or bylaws shall be made by
independent counsel mutually acceptable to the Company and the Indemnified
Party; provided, however, that the Company shall not be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld or delayed). The Indemnified Parties as a group may retain
only one law firm (other than local counsel) with respect to each related matter
except to the extent there is, in the sole opinion of counsel to an Indemnified
Party, under applicable standards of professional conduct, a conflict on any
significant issue between positions of any two or more Indemnified Parties, in
which case each Indemnified Party with a conflicting position on a significant
issue shall be entitled to separate counsel. In the event any Indemnified Party
is required to bring any action to enforce rights or to collect moneys due under
this Agreement and is successful in such action, the Company shall reimburse
such Indemnified Party for all of its expenses in bringing and pursuing such
action. Each Indemnified Party shall be entitled to the advancement of expenses
to the full extent contemplated in this Section 7.5(a) in connection with any
such action.
(b) INSURANCE. For a period of six years after the Effective Time, the
Company shall cause to be maintained in effect the policies of directors' and
officers' liability insurance maintained by Delmarva and Atlantic; provided that
the Company may substitute therefor policies of at least the same coverage
containing terms that are no less advantageous with respect to matters occurring
at or prior to the Effective Time to the extent such liability insurance can be
maintained annually at a cost to the Company not greater than 200 percent of the
current annual premiums for the policies currently maintained by Delmarva and
Atlantic for their directors' and officers' liability insurance; provided
further that if such
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insurance cannot be so maintained or obtained at such cost, the Company shall
maintain or obtain a policy providing the best coverage available, as determined
by the Board of Directors of the Company, for a premium not exceeding 200
percent of the aggregate annual premiums currently paid by Delmarva and Atlantic
for their directors' and officers' liability insurance and other indemnity
agreements.
(c) SUCCESSORS. In the event the Company or any of its successors or assigns
(i) consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets to any
person, then and in either such case proper provision shall be made so that the
successors and assigns of the Company shall assume the obligations set forth in
this Section 7.5.
(d) SURVIVAL OF INDEMNIFICATION. To the fullest extent not prohibited by
law, from and after the Effective Time, all rights to indemnification now
existing in favor of the employees, agents, directors or officers of Delmarva,
Atlantic and their respective subsidiaries with respect to their activities as
such prior to or at the Effective Time, as provided in their respective articles
of incorporation or bylaws or indemnification agreements in effect on the date
of such activities or otherwise in effect on the date hereof, shall survive the
Mergers and shall continue in full force and effect for a period of not less
than six years from the Effective Time; provided that in the event any claim or
claims are asserted or made within such six-year period, all such rights to
indemnification in respect of such claim or claims shall continue until the
final disposition thereof.
Section 7.6 DISCLOSURE SCHEDULES. On or before the date of this Agreement,
(i) Atlantic has delivered to Delmarva a schedule (the "Atlantic Disclosure
Schedule") accompanied by a certificate signed by the chief financial officer of
Atlantic stating that the Disclosure Schedule is being delivered pursuant to
this Section 7.6(i) and (ii) Delmarva has delivered to Atlantic a schedule (the
"Delmarva Disclosure Schedule") accompanied by a certificate signed by the chief
financial officer of Delmarva stating that the Delmarva Disclosure Schedule is
being delivered pursuant to this Section 7.6(ii). The Atlantic Disclosure
Schedule and the Delmarva Disclosure Schedule are collectively referred to
herein as the "Disclosure Schedules". The Disclosure Schedules constitute an
integral part of this Agreement and modify the respective representations,
warranties, covenants and agreements of the parties hereto contained herein to
the extent that such representations, warranties, covenants or agreements
expressly refer to the Disclosure Schedules. Any and all statements,
representations, warranties or disclosures set forth in the Disclosure Schedules
shall be deemed to have been made on and as of the date of this Agreement.
Section 7.7 PUBLIC ANNOUNCEMENTS. Delmarva and Atlantic shall cooperate with
each other in the development and distribution of all news releases and other
public information disclosures with respect to this Agreement or any of the
transactions contemplated hereby and, subject to each party's disclosure
obligations imposed by law or any applicable national securities exchange, shall
not issue any public announcement or statement prior to consultation with the
other party.
Section 7.8 RULE 145 AFFILIATES. Atlantic shall identify in a letter to
Delmarva, and Delmarva shall identify in a letter to Atlantic, all persons who
are and, to such persons' best knowledge who will be, at the Closing Date,
"affiliates" of Atlantic and Delmarva, respectively, as such term is used in
Rule 145 under the Securities Act. Atlantic and Delmarva shall use their
respective best efforts to cause their respective affiliates to deliver to the
Company on or prior to the Closing Date a written agreement substantially in the
form attached hereto as Exhibit C (each, an "Affiliate Agreement").
Section 7.9 EMPLOYEE AGREEMENTS AND WORKFORCE MATTERS.
(a) CERTAIN EMPLOYEE AGREEMENTS. Subject to Section 7.10 and Section 7.14,
the Company and its subsidiaries shall honor, without modification, all
contracts, agreements, collective bargaining agreements and commitments of the
parties that apply to any current or former employees or current or former
directors of the parties hereto; provided, however, that this undertaking is not
intended to prevent the Company from enforcing such contracts, agreements,
collective bargaining agreements and commitments in accordance with their terms
or from exercising any right to amend, modify, suspend, revoke or terminate any
such contract, agreement, collective bargaining agreement or commitment.
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(b) WORKFORCE MATTERS. Subject to applicable collective bargaining
agreements, for a period of two years following the Effective Time, any
reductions in workforce in respect of employees of the Company shall be made on
a fair and equitable basis, in light of the circumstances and the objectives to
be achieved without regard to whether employment was with Delmarva or its
subsidiaries or Atlantic or its subsidiaries, and any employees whose employment
is terminated or jobs are eliminated by the Company or any of its subsidiaries
during such period shall be entitled to participate on a fair and equitable
basis in the job opportunity and employment placement programs offered by the
Company or any of its subsidiaries. Any workforce reductions carried out
following the Effective Time by the Company and its subsidiaries shall be done
in accordance with all applicable collective bargaining agreements, and all laws
and regulations governing the employment relationship thereof including without
limitation the Worker Adjustment and Retraining Notification Act and regulations
promulgated thereunder, and any comparable state or local law. However, no
provision contained in this Section 7.9 shall be deemed to constitute an
employment contract between the Company and any individual, be construed as
conferring any rights on the collective bargaining representative of any
employee, or be considered a waiver of the Company's right, subject to the
provisions of any applicable collective bargaining agreement, to discharge any
employee at any time, with or without cause.
(c) Subject to applicable collective bargaining agreements, the Company
shall develop employee benefit programs and policies for all of its employees
which minimize the differences between the employee benefit programs and
policies maintained by Delmarva and Atlantic prior to the Effective Time and
which are fair and equitable and appropriate to the business environment in
which the Company will operate.
Section 7.10 EMPLOYEE BENEFIT PLANS. Each of the Delmarva Benefit Plans and
Atlantic Benefit Plans (other than plans specifically provided for in Section
7.11), in effect on the date hereof (or as amended in accordance with or as
permitted by this Agreement) shall be maintained in effect with respect to the
employees or former employees of Delmarva and any of its subsidiaries and of
Atlantic and any of its subsidiaries, respectively, who are covered by such
plans immediately prior to the Closing Date until the Company determines
otherwise on or after the Effective Time; provided, however, that nothing herein
contained, other than the provisions of Section 6.9, shall limit any reserved
right contained in any such Delmarva Benefit Plan or Atlantic Benefit Plan to
amend, modify, suspend, revoke or terminate any such plan. Without limiting the
foregoing, each participant in any Delmarva Benefit Plan or Atlantic Benefit
Plan shall receive credit for purposes of eligibility to participate, vesting
and eligibility to receive benefits under any benefit plan of the Company or any
of its subsidiaries or affiliates for service credited for the corresponding
purpose under any such benefit plan; provided, however, that such crediting of
service shall not operate to duplicate any benefit to any such participant or
the funding for any such benefit. However, no provision contained in this
Section 7.10 shall be deemed to constitute an employment contract between the
Company and any individual, or a waiver of the Company's right to discharge any
employee at any time, with or without cause.
Section 7.11 INCENTIVE, STOCK AND OTHER PLANS. With respect to each of the
Dividend Reinvestment and Common Share Purchase Plan, the Savings and Thrift
Plan and the Long-Term Incentive Plan of Delmarva, and the Employee Incentive
Plan, the Directors' Restricted Stock Plan, the Employee Stock Purchase Plan and
the Dividend Reinvestment Plan of Atlantic, and each other employee benefit
plan, program or arrangement under which the delivery of Delmarva Common Stock,
Atlantic Common Stock or Company Common Stock, as the case may be, is required
to be used for purposes of the payment of benefits, grant of awards or exercise
of options (each, a "Stock Plan"), (i) Delmarva and Atlantic shall take such
action as may be necessary so that, after the Effective Time, such Stock Plan
shall provide for the issuance only of Company Common Stock and (ii) the Company
shall (x) take all corporate action necessary or appropriate to obtain
shareholder approval with respect to such Stock Plan to the extent such approval
is required for purposes of the Code or other applicable law, or, to the extent
the Company deems it desirable, to enable such Stock Plan to comply with Rule
16b-3 promulgated under the Exchange Act, (y) reserve for issuance under such
Stock Plan or otherwise provide a sufficient number of shares of
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Company Common Stock for delivery upon payment of benefits, grants of awards or
exercise of options under such Stock Plan and (z) as soon as practicable after
the Effective Time, file one or more registration statements under the
Securities Act with respect to the shares of Company Common Stock subject to
such Stock Plan to the extent such filing is required under applicable law and
use its best efforts to maintain the effectiveness of such registration
statement(s) (and the current status of the prospectuses contained therein or
related thereto) so long as such benefits, grants or awards remain payable or
such options remain outstanding, as the case may be. With respect to those
individuals who subsequent to the Mergers will be subject to the reporting
requirements under Section 16(a) of the Exchange Act, the Company shall
administer the Stock Plans, where applicable, in a manner that complies with
Rule 16b-3 under the Exchange Act. Each of Delmarva and Atlantic shall obtain
any shareholder approvals that may be necessary for the deduction of any
compensation payable under any Stock Plan or other compensation arrangement.
Section 7.12 NO SOLICITATIONS. From and after the date hereof, Delmarva and
Atlantic shall not, and shall not authorize or permit any of their respective
Representatives to, directly or indirectly, solicit, initiate or encourage
(including by way of furnishing information) or take any other action to
facilitate knowingly any inquiries or the making of any proposal that
constitutes or may reasonably be expected to lead to an Acquisition Proposal (as
defined herein) from any person, or engage in any discussion or negotiations
relating thereto or accept any Acquisition Proposal; provided, however, that
notwithstanding any other provision hereof, Delmarva or Atlantic may (i) at any
time prior to the time at which the Delmarva Shareholders' Approval, in the case
of Delmarva, or the Atlantic Shareholders' Approval, in the case of Atlantic,
has been obtained, engage in discussions or negotiations with a third party who
(without any solicitation, initiation, encouragement, discussion or negotiation,
directly or indirectly, by or with Delmarva or Atlantic, as the case may be, or
its Representatives after the date hereof) seeks to initiate such discussions or
negotiations and may furnish such third party information concerning itself and
its business, properties and assets if, and only to the extent that, (A) (x)
such third party shall first have made an Acquisition Proposal that is
financially superior to the Mergers and have demonstrated that financing for
such Acquisition Proposal is reasonably likely to be obtained (as determined in
good faith in each case by the Board of Directors of Delmarva or Atlantic, as
the case may be, after consultation with its financial advisors) and (y) the
Board of Directors of Delmarva or Atlantic, as the case may be, shall have
concluded in good faith on the basis of a written opinion of outside counsel
that such action is necessary for such Board of Directors to act in a manner
consistent with its fiduciary duties under applicable law and (B) prior to
furnishing such information to or entering into discussions or negotiations with
such third party, Delmarva or Atlantic, as the case may be, (x) provides prompt
notice to Atlantic or Delmarva, as the case may be, to the effect that it is
furnishing information to or entering into discussions or negotiations with such
third party and (y) receives from such third party an executed confidentiality
agreement in reasonably customary form on terms not in the aggregate materially
more favorable to such third party than the terms contained in the
Confidentiality Agreement, (ii) comply with Rule 14e-2 promulgated under the
Exchange Act with regard to a tender or exchange offer, and (iii) accept an
Acquisition Proposal from a third party, provided Delmarva or Atlantic, as the
case may be, terminates this Agreement pursuant to Section 9.1(g) or 9.1(h), as
the case may be. Each party shall immediately cease and terminate any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any parties conducted heretofore by such party or its Representatives with
respect to the foregoing. Atlantic and Delmarva shall each notify the other
orally and in writing of any such inquiries, offers or proposals (including
without limitation the terms and conditions of any such proposal and the
identity of the person making it) within 24 hours of the receipt thereof, shall
keep the other informed of the status and details of any such inquiry, offer or
proposal, and shall give the other five days' advance notice of any agreement to
be entered into with, or any information to be supplied to, any person making
such inquiry, offer or proposal. As used herein, "Acquisition Proposal" shall
mean a proposal or offer (other than by another party hereto) for a tender or
exchange offer, merger, consolidation or other business combination involving a
party or any material subsidiary of such party or any proposal to acquire in any
manner a
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substantial equity interest in or a substantial portion of the assets of such
party or any material subsidiary of such party.
Section 7.13 COMPANY BOARD OF DIRECTORS. The Board of Directors of Delmarva
shall be entitled to nominate 10 members and the Board of Directors of Atlantic
shall be entitled to nominate 8 members to serve on the Board of Directors of
the Company at the Effective Time and shall each take such action as may be
necessary to cause each director of Delmarva and Atlantic serving as such
immediately prior to the Effective Time to have the opportunity to serve as a
director of the Company. The directors nominated by the Delmarva Board and
directors nominated by the Atlantic Board shall be divided between the classes
of directors of the Company so that each class, to the extent possible, has the
same proportion of directors nominated by each of the Delmarva Board and the
Atlantic Board. At the Effective Time, the Audit Committee of the Board of
Directors of the Company shall consist of an equal number of directors nominated
by the Delmarva Board and the Atlantic Board.
Section 7.14 COMPANY OFFICERS. At the Effective Date, Howard E. Cosgrove
shall be the Chief Executive Officer and Chairman of the Board of Directors of
the Company, Jerrold L. Jacobs shall be the Vice Chairman of the Board of
Directors of the Company and Michael J. Chesser shall be the President and Chief
Operating Officer of the Company. Jerrold L. Jacobs shall serve as Vice Chairman
of the Company until the second anniversary of the Effective Date and, during
his term as Vice Chairman, shall be a member of the Executive Committee of the
Board of Directors of the Company. The other officers of the Company at the
Effective Time shall be such officers as may be designated by the Board of
Directors of the Company.
Section 7.15 LOCATION OF CORPORATE OFFICES AND OPERATIONS; COMPANY NAME. At
and after the Effective Time, the corporate headquarters and principal executive
offices of the Company shall be located in Wilmington, Delaware, and the Company
shall maintain a significant presence in New Jersey. After the Effective Time,
the Company shall provide charitable contributions and community support within
the service areas of Delmarva and Atlantic and each of their respective
subsidiaries at levels substantially comparable to the historical levels of
charitable contributions and community support provided by Delmarva and Atlantic
and their respective subsidiaries within their service areas. The Company's name
shall be as agreed upon by the Board of Directors of Delmarva and the Board of
Directors of Atlantic following the completion of marketing studies which will
give serious consideration to names containing "Atlantic" or variations of the
names of Atlantic and its subsidiaries.
Section 7.16 COMPANY CERTIFICATE OF INCORPORATION AND BYLAWS. Delmarva,
Atlantic and the Company shall take all actions necessary so that (i) at or
prior to the Effective Time, the certificate of incorporation of the Company
shall be amended and restated so that, at the Effective Time, such certificate
of incorporation shall read in its entirety substantially in the form attached
hereto as Exhibit A (the "Company's Restated Charter") and (ii) at or prior to
the Effective Time, the bylaws of the Company shall be amended and restated so
that, at the Effective Time, such bylaws shall read in their entirety
substantially in the form attached hereto as Exhibit B.
Section 7.17 EXPENSES. Subject to Section 7.1 and Section 9.3, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, except
that those expenses incurred in connection with printing the Joint Proxy/
Registration Statement, as well as the filing fee relating thereto, shall be
shared equally by Delmarva and Atlantic.
Section 7.18 LETTER STOCK DIVIDEND POLICY. Subject to declaration by the
Board of Directors of the Company and the obligation of the Board of Directors
of the Company to react to the financial condition and regulatory environment of
the Company and its results of operations, the dividends declared and paid on
the Letter Stock shall be maintained at a level of $3.20 per share per annum
until the earlier of July 1, 2001 or the end of the twelfth calendar quarter
following the calendar quarter in which the Effective Date occurs. Thereafter,
it is the intention of the Company, subject to declaration by the Board of
Directors of the Company and the obligation of the Board of Directors of the
Company to react to the financial
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condition and regulatory environment of the Company and the results of its
operations, to pay annual dividends on the Letter Stock (the amount of such
dividends to include the amount credited to the Intergroup Interest as provided
in the Company's Restated Charter) at a rate equal to 90% of Net Income (Loss)
Attributable to the Atlantic Utility Group; provided that if, and to the extent
that, the annual dividends on the Letter Stock paid during the period referred
to in the preceding sentence exceeds 100% of Net Income (Loss) Attributable to
the Atlantic Utility Group during such period, the Board of Directors of the
Company may consider such fact in determining the appropriate annual dividend
rate on the Letter Stock thereafter. Following the Effective Time, the Audit
Committee of the Board of Directors of the Company shall be charged with the
responsibility of advising the Board of Directors of the Company with respect to
certain intercompany transactions and other fiduciary matters that may relate to
the Letter Stock.
Section 7.19 FURTHER ASSURANCES.
(a) Each of Atlantic and Delmarva shall, and shall cause its subsidiaries
to, execute such further documents and instruments and take such further actions
as may reasonably be requested by the other in order to consummate the Mergers
and the other transactions contemplated by this Agreement, and to use its best
efforts to take or cause to be taken all actions, and to do or cause to be done
all things, necessary, proper or advisable under applicable laws and regulations
to consummate and make effective the Mergers and the other transactions
contemplated hereby (subject to the votes of its shareholders described in
Sections 4.13 and 5.13, respectively), including fully cooperating with the
other in obtaining the Atlantic Required Statutory Approvals, the Delmarva
Required Statutory Approvals and all other approvals and authorizations of any
Governmental Authorities necessary or advisable to consummate the transactions
contemplated hereby.
(b) Atlantic and Delmarva, respectively, shall be responsible for the taking
of any action necessary or advisable to obtain the Atlantic Required Statutory
Approvals and to obtain the Delmarva Required Statutory Approvals. Atlantic and
Delmarva agree to cooperate in obtaining the necessary approvals from the NRC,
the FERC and the SEC under the 1935 Act, the Securities Act and the Exchange Act
and from the applicable state authorities under state "blue sky", securities or
utility regulatory laws. Atlantic and Delmarva shall each provide the other with
copies of any filings made with any Governmental Authorities in connection with
the foregoing.
(c) It may be preferable to effectuate a business combination between
Delmarva and Atlantic by means of an alternative structure in light of the
conditions set forth in Sections 8.1(e), 8.2(f) and 8.3(f). Accordingly, if the
only conditions to the parties' obligations to consummate the Mergers that are
not satisfied or waived are receipt of any one or more of the Delmarva Required
Consents, Delmarva Statutory Approvals, Atlantic Required Consents and Atlantic
Statutory Approvals, and the adoption of an alternative structure (that
otherwise substantially preserves for Delmarva and Atlantic the economic
benefits of the Mergers) would result in such conditions being satisfied or
waived, then the parties shall use their respective best efforts to effect a
business combination among themselves by means of a mutually agreed upon
structure other than the Mergers that so preserves such benefits; provided that
prior to closing any such restructured transaction, all material third party and
Governmental Authority declarations, filings, registrations, notices,
authorizations, consents or approvals necessary for the effectuation of such
alternative business combination shall have been obtained and all other
conditions to the parties' obligations to consummate the Mergers, as applied to
such alternative business combination, shall have been satisfied or waived.
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ARTICLE VIII
CONDITIONS
Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER TO
WHICH IT IS PARTY. The respective obligations of each party to effect the Merger
to which it is party shall be subject to the satisfaction on or prior to the
Closing Date of the following conditions, except, to the extent permitted by
applicable law, that such conditions may be waived in writing pursuant to
Section 9.5:
(a) SHAREHOLDER APPROVALS. The Atlantic Shareholders' Approval and the
Delmarva Shareholders' Approval shall have been obtained.
(b) NO INJUNCTION. No temporary restraining order or preliminary or
permanent injunction or other order by any federal or state court preventing
consummation of either or both of the Mergers shall have been issued and
continuing in effect, and the Mergers and the other transactions
contemplated hereby shall not have been prohibited under any applicable
federal or state law or regulation.
(c) REGISTRATION STATEMENT. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act, and no
stop order suspending such effectiveness shall have been issued and remain
in effect.
(d) LISTING OF SHARES. The shares of Company Common Stock and the shares
of Letter Stock issuable in the Mergers pursuant to Article II shall have
been approved for listing on the NYSE upon official notice of issuance.
(e) STATUTORY APPROVALS. The Delmarva Required Statutory Approvals and
the Atlantic Required Statutory Approvals shall have been obtained at or
prior to the Effective Time, such approvals shall have become Final Orders
(as hereinafter defined), and no Final Order shall impose terms or
conditions that would have, or would be reasonably likely to have, a
material adverse effect on the business, operations, properties, assets,
condition (financial or otherwise), prospects or results of operations of
Delmarva as if it were organized as a separate subsidiary of the Company or
a material adverse effect on the business, operations, properties, assets,
condition (financial or other), prospects or results of operations of
Atlantic as if it were organized as a separate division of the Company, or
which would be materially inconsistent with the agreements of the parties
contained herein. A "Final Order" means action by the relevant regulatory
authority that has not been reversed, stayed, enjoined, set aside, annulled
or suspended, with respect to which any waiting period prescribed by law
before the transactions contemplated hereby may be consummated has expired,
and as to which all conditions to the consummation of such transactions
prescribed by law, regulation or order have been satisfied, and as to which
all opportunities for rehearing are exhausted (whether or not any appeal
thereof is pending).
Section 8.2 CONDITIONS TO OBLIGATION OF ATLANTIC TO EFFECT THE ATLANTIC
MERGER. The obligation of Atlantic to effect the Atlantic Merger shall be
further subject to the satisfaction, on or prior to the Closing Date, of the
following conditions, except as may be waived by Atlantic in writing pursuant to
Section 9.5:
(a) PERFORMANCE OF OBLIGATIONS OF DELMARVA. Delmarva shall have
performed in all material respects its agreements and covenants contained in
or contemplated by this Agreement required to be performed by it at or prior
to the Effective Time.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Delmarva set forth in this Agreement qualified as to materiality shall be
true in all respects and those not so qualified shall be true and correct in
all material respects as of the date hereof and as of the Closing Date as if
made on and as of the Closing Date, except as otherwise contemplated by this
Agreement.
(c) CLOSING CERTIFICATES. Atlantic shall have received a certificate
signed by the Chief Executive Officer and Chief Financial Officer of
Delmarva, dated the Closing Date, to the effect that, to the best
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of each such officer's knowledge, the conditions set forth in Section 8.2(a)
and Section 8.2(b) have been satisfied.
(d) DELMARVA MATERIAL ADVERSE EFFECT. No Delmarva Material Adverse
Effect shall have occurred, and there shall exist no fact or circumstance
that is reasonably likely to have a Delmarva Material Adverse Effect.
(e) TAX OPINION. Atlantic shall have received an opinion of Simpson
Thacher & Bartlett, in form and substance satisfactory to Atlantic, dated
the Closing Date, which opinion may be based on appropriate representations
of Delmarva, Atlantic and the Company that are in form and substance
reasonably satisfactory to such counsel, to the effect that the Atlantic
Merger will be treated as a reorganization described in Code Section 368(a).
(f) DELMARVA REQUIRED CONSENTS. The material Delmarva Required Consents
shall have been obtained.
(g) AFFILIATE CERTIFICATES. The Company shall have received Affiliate
Agreements, duly executed by each "affiliate" of Delmarva, substantially in
the form of Exhibit C, as provided in Section 7.8.
Section 8.3 CONDITIONS TO OBLIGATION OF DELMARVA TO EFFECT THE DELMARVA
MERGER. The obligation of Delmarva to effect the Delmarva Merger shall be
further subject to the satisfaction, on or prior to the Closing Date, of the
following conditions, except as may be waived by Delmarva in writing pursuant to
Section 9.5:
(a) PERFORMANCE OF OBLIGATIONS OF ATLANTIC. Atlantic shall have
performed in all material respects its agreements and covenants contained in
or contemplated by this Agreement required to be performed by it at or prior
to the Effective Time.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Atlantic set forth in this Agreement qualified as to materiality shall be
true in all respects and those not so qualified shall be true and correct in
all material respects as of the date hereof and as of the Closing Date as if
made on and as of the Closing Date, except as otherwise contemplated by this
Agreement.
(c) CLOSING CERTIFICATES. Delmarva shall have received a certificate
signed by the Chief Executive Officer and Chief Financial Officer of
Atlantic, dated the Closing Date, to the effect that, to the best of each
such officer's knowledge, the conditions set forth in Section 8.3(a) and
Section 8.3(b) have been satisfied.
(d) ATLANTIC MATERIAL ADVERSE EFFECT. No Atlantic Material Adverse
Effect shall have occurred, and there shall exist no fact or circumstance
that is reasonably likely to have an Atlantic Material Adverse Effect.
(e) TAX OPINION. Delmarva shall have received an opinion of LeBoeuf,
Lamb, Greene & MacRae, L.L.P., in form and substance satisfactory to
Delmarva, dated the Closing Date, which opinion may be based on appropriate
representations of Delmarva, Atlantic and the Company that are in form and
substance reasonably satisfactory to such counsel, to the effect that (i)
the Delmarva Merger, taken together with the Atlantic Merger, will be
treated as a nontaxable exchange described in Code Section 351 and/or (ii)
the Delmarva Merger will be treated as a nontaxable reorganization described
in Section 368.
(f) ATLANTIC REQUIRED CONSENTS. The material Atlantic Required Consents
shall have been obtained.
(g) AFFILIATE CERTIFICATES. The Company shall have received Affiliate
Agreements, duly executed by each "affiliate" of Atlantic, substantially in
the form of Exhibit C, as provided in Section 7.7.
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ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 TERMINATION. This Agreement may be terminated at any time prior
to the Closing Date, whether before or after approval by the shareholders of the
respective parties contemplated by this Agreement:
(a) by mutual written consent of the Boards of Directors of Delmarva and
Atlantic;
(b) by Delmarva or Atlantic, by written notice to the other, if the
Effective Time shall not have occurred on or before 18 months from signing;
provided, however, that such date shall automatically be extended to 30
months from signing if, on 18 months from signing: (i) the condition set
forth in Section 8.1(e) has not been satisfied or waived; (ii) the other
conditions to the consummation of the transactions contemplated hereby are
then capable of being satisfied; and (iii) any approvals required by Section
8.1(e) that have not yet been obtained are being pursued with diligence;
provided further that the right to terminate this Agreement under this
Section 9.1(b) shall not be available to any party whose failure to fulfill
any obligation under this Agreement has been the cause of, or resulted in,
the failure of the Effective Time to occur on or before the termination
date;
(c) by Delmarva or Atlantic, by written notice to the other, if the
Delmarva Shareholders' Approval shall not have been obtained at a duly held
Delmarva Special Meeting, including any adjournments thereof, or the
Atlantic Shareholders' Approval shall not have been obtained at a duly held
Atlantic Special Meeting, including any adjournments thereof;
(d) by Delmarva or Atlantic, if any state or federal law, order, rule or
regulation is adopted or issued that has the effect, as supported by the
written opinion of outside counsel for such party, of prohibiting either or
both of the Mergers, or if any court of competent jurisdiction in the United
States or any State shall have issued an order, judgment or decree
permanently restraining, enjoining or otherwise prohibiting either or both
of the Mergers and such order, judgment or decree shall have become final
and nonappealable;
(e) by Delmarva, upon five days' prior notice to Atlantic, if, as a
result of an Acquisition Proposal by a party other than Atlantic or any of
its affiliates, the Board of Directors of Delmarva determines in good faith
on the basis of a written opinion of outside counsel that acceptance of such
Acquisition Proposal is necessary for the Board of Directors to act
consistent with its fiduciary duties under applicable law; provided,
however, that (i) the Board of Directors of Delmarva shall have been advised
by outside counsel that, notwithstanding a binding commitment to consummate
an agreement of the nature of this Agreement entered into in the proper
exercise of their applicable fiduciary duties, and notwithstanding all
concessions that may be offered by Atlantic in negotiations entered into
pursuant to clause (ii) below, such fiduciary duties would also require the
directors to reconsider such commitment as a result of such Acquisition
Proposal and (ii) prior to any such termination, Delmarva shall, and shall
cause its respective financial and legal advisors to, negotiate with
Atlantic to make such adjustments in the terms and conditions of this
Agreement as would enable Delmarva to proceed with the transactions
contemplated herein; provided further that Delmarva and Atlantic acknowledge
and affirm that, notwithstanding anything in this Section 9.1(e) to the
contrary, Delmarva and Atlantic intend this Agreement to be an exclusive
agreement and, accordingly, nothing in this Agreement is intended to
constitute a solicitation of an Acquisition Proposal, it being acknowledged
and agreed that any such proposal would interfere with the strategic
advantages and benefits that Delmarva and Atlantic expect to derive from the
Mergers and the other transactions contemplated hereby;
(f) by Atlantic, upon five days' prior notice to Delmarva, if, as a
result of an Acquisition Proposal by a party other than Delmarva or any of
its affiliates, the Board of Directors of Atlantic determines in good faith
on the basis of written advice of outside counsel that acceptance of such
Acquisition Proposal is necessary for the Board of Directors to act
consistent with its fiduciary duties
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<PAGE>
under applicable law; provided, however, that (i) the Board of Directors of
Atlantic shall have been advised by outside counsel that, notwithstanding a
binding commitment to consummate an agreement of the nature of this
Agreement entered into in the proper exercise of their applicable fiduciary
duties, and notwithstanding all concessions that may be offered by Delmarva
in negotiations entered into pursuant to clause (ii) below, such fiduciary
duties would also require the directors to reconsider such commitment as a
result of such Acquisition Proposal and (ii) prior to any such termination,
Atlantic shall, and shall cause its respective financial and legal advisors
to, negotiate with Delmarva to make such adjustments in the terms and
conditions of this Agreement as would enable Atlantic to proceed with the
transactions contemplated herein; provided further that Delmarva and
Atlantic acknowledge and affirm that, notwithstanding anything in this
Section 9.1(f) to the contrary, Delmarva and Atlantic intend this Agreement
to be an exclusive agreement and, accordingly, nothing in this Agreement is
intended to constitute a solicitation of an Acquisition Proposal, it being
acknowledged and agreed that any such proposal would interfere with the
strategic advantages and benefits that Delmarva and Atlantic expect to
derive from the Mergers and the other transactions contemplated hereby;
(g) by Delmarva, by written notice to Atlantic, if (i) there shall have
been any material breach of any representation or warranty, or any material
breach of any covenant or agreement, of Atlantic hereunder, and such breach
shall not have been remedied within 20 days after receipt by Atlantic of
notice in writing from Delmarva, specifying the nature of such breach and
requesting that it be remedied, or (ii) the Board of Directors of Atlantic
or any committee thereof (A) shall withdraw or modify in any manner adverse
to Delmarva its approval or recommendation of this Agreement or the Atlantic
Merger, (B) shall fail to reaffirm such approval or recommendation upon
Delmarva's request, (C) shall approve or recommend any Acquisition Proposal
with respect to Atlantic by a party other than Delmarva or any of its
affiliates or (D) shall resolve to take any of the actions specified in
clause (A), (B) or (C) above.
(h) by Atlantic, by written notice to Delmarva, if (i) there shall have
been any material breach of any representation or warranty, or any material
breach of any covenant or agreement, of Delmarva hereunder, and such breach
shall not have been remedied within 20 days after receipt by Delmarva of
notice in writing from Atlantic, specifying the nature of such breach and
requesting that it be remedied, or (ii) the Board of Directors of Delmarva
or any committee thereof (A) shall withdraw or modify in any manner adverse
to Atlantic its approval or recommendation of this Agreement or the Delmarva
Merger, (B) shall fail to reaffirm such approval or recommendation upon
Atlantic's request, (C) shall approve or recommend any Acquisition Proposal
with respect to Delmarva by a party other than Atlantic or any of its
affiliates or (D) shall resolve to take any of the actions specified in
clause (A), (B) or (C) above.
(i) by either Delmarva or Atlantic, by written notice to the other
party, if (i) a third party acquires securities representing greater than
50% of the voting power of the outstanding voting securities of Atlantic or
Delmarva, as the case may be, or (ii) individuals who as of the date hereof
constitute the Board of Directors of Atlantic or Delmarva, as the case may
be (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of such party
was approved by a vote of a majority of the directors of such party then
still in office who are either directors as of the date hereof or whose
election or nomination for election was previously so approved), cease for
any reason to constitute a majority of the Board of Directors of Atlantic or
Delmarva, as the case may be, then in office.
Section 9.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Delmarva or Atlantic pursuant to Section 9.1, there shall be
no liability hereunder on the part of either Delmarva or Atlantic or their
respective officers or directors, except that (i) Section 7.17 (expenses),
Section 9.3 (termination fee) and the agreement contained in the second to the
last sentence of Section 7.1 (confidentiality) shall survive any such
termination and (ii) no such termination shall relieve any party from liability
by reason of any willful breach of any agreement, representation, warranty or
covenant contained in this Agreement.
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<PAGE>
Section 9.3 CERTAIN DAMAGES, PAYMENTS AND EXPENSES.
(a) DAMAGES PAYABLE UPON TERMINATION FOR BREACH OR WITHDRAWAL OF
APPROVAL. If this Agreement is terminated pursuant to Section 9.1(e) or (f)
(fiduciary out), Section 9.1(g)(i) or (ii) or Section 9.1(h)(i) or (ii)
(breach or change of recommendation) or Section 9.1(i) (acquisition of
voting power or change of board), then the breaching party or party whose
board has exercised its fiduciary out or changed its recommendation or whose
voting stock has been acquired or whose board has changed, as the case may
be, shall promptly (but not later than five business days after receipt of
notice that the amount is due from the other party) pay to the other party,
as liquidated damages, an amount in cash equal to the of out-of-pocket
expenses and fees incurred by the other party arising out of, in connection
with or related to the Mergers and the other transactions contemplated by
this Agreement not in excess of $10 million ("Out-of-Pocket Expenses");
provided, however, that if this Agreement is terminated by a party as a
result of a willful breach of a representation, warranty, covenant or
agreement by the other party, the nonbreaching party may pursue any remedies
available to it at law or in equity and shall, in addition to the amount of
Out-of-Pocket Expenses set forth above, be entitled to recover such
additional amounts as such nonbreaching party may be entitled to receive at
law or in equity.
(b) OTHER TERMINATION PAYMENTS. If (i) this Agreement is terminated
pursuant to (A) Section 9.1(b) (expiration date), (B) Section 9.1(e) or (f)
(fiduciary out), (C) Section 9.1(c) (failure to obtain shareholder
approval), (D) as a result of a breach of Section 7.4 (approval of
shareholders) or (E) pursuant to Section 9.1(g)(i) or (ii) or 9.1(h)(i) or
(ii) (breach or change of recommendation); and (ii) at the time of such
termination (or in the case of clause (i)(C) above, prior to the meeting of
such party's shareholders) there shall have been an Acquisition Proposal
involving the Delmarva or Atlantic (as the case may be, the "Target Party")
or any of its affiliates which, at the time of such termination (or such
meeting, as the case may be) shall not have been (x) rejected by the Target
Party and its Board of Directors and (y) withdrawn by the third party; and
(iii) within two and one-half years of any such termination described in
clause (i) above, the Target Party or any of its affiliates becomes a
subsidiary of such offeror or a subsidiary of an affiliate of such offeror
or accepts a written offer or enters into a written agreement to consummate
or consummates an Acquisition Proposal with such offeror or an affiliate
thereof, then such Target Party (jointly and severally with its affiliates),
upon the signing of a definitive agreement relating to such Acquisition
Proposal, or, if no such agreement is signed, then at the closing (and as a
condition to the closing) of such Target Party becoming such a subsidiary or
of such Acquisition Proposal, shall pay Atlantic or Delmarva, as the case
may be, a termination fee equal to $30 million plus Out-of-Pocket Expenses.
If this Agreement is terminated by Delmarva or Atlantic pursuant to Section
9.1(i) (third party acquisition of voting power or change of board), then
Atlantic or Delmarva, as the case may be, shall pay the terminating party a
termination fee equal to $30 million plus Out-of-Pocket Expenses.
(c) EXPENSES. Delmarva and Atlantic agree that the agreements contained
in this Section 9.3 are an integral part of the transactions contemplated by
this Agreement and constitute liquidated damages and not a penalty. If one
party fails to promptly pay to the other any fees due hereunder, such
defaulting party shall pay the costs and expenses (including legal fees and
expenses) in connection with any action, including the filing of any lawsuit
or other legal action, taken to collect payment, together with interest on
the amount of any unpaid fee at the publicly announced prime rate of
Citibank, N.A. in effect from time to time from the date such fee was
required to be paid.
(d) LIMITATION OF FEES. Notwithstanding anything herein to the contrary,
the aggregate amount payable by Delmarva and its affiliates pursuant to
Sections 9.3(a) and 9.3(b) shall not exceed $40 million and the aggregate
amount payable by Atlantic and its affiliates pursuant to Sections 9.3(a)
and 9.3(b) shall not exceed $40 million.
Section 9.4 AMENDMENT. This Agreement may be amended by the parties hereto
or thereto pursuant to action of the respective Boards of Directors of each of
Delmarva and Atlantic, the Company and DS
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<PAGE>
Sub at any time before or after approval hereof by the shareholders of Delmarva,
Atlantic and prior to the Effective Time, but after such approvals no such
amendment shall (a) alter or change the amount or kind of shares, securities or
cash to be received or exchanged for or on conversion of any class or series of
capital stock of either Delmarva or Atlantic as provided in Article II, (b)
alter or change any of the terms and conditions of this Agreement if any of the
alterations or changes, alone or in the aggregate, would adversely affect the
rights of holders of any class or series of stock of Delmarva or Atlantic or (c)
alter or change any term of the certificate of incorporation of the Company or
Delmarva, except for alterations or changes that could otherwise be adopted by
the Board of Directors of the Company, without the further approval of such
shareholders, as applicable. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto or thereto.
Section 9.5 WAIVER. At any time prior to the Effective Time, the parties may
(a) extend the time for the performance of any of the obligations or other acts
of the other parties, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions contained herein. Any
agreement to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed by a duly authorized officer of each party.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. All representations, warranties, covenants and agreements in this
Agreement shall not survive the Mergers, except the covenants and agreements
contained in this Section 10.1 and in Article II (Treatment of Shares), the
second to the last sentence of Section 7.1 (Confidentiality), Section 7.5
(Directors' and Officers' Indemnification), Section 7.9 (Employee Agreements and
Workforce Matters), Section 7.10 (Employee Benefit Plans), Section 7.11
(Incentive, Stock and Other Plans), Section 7.13 (Company Board of Directors),
Section 7.14 (Company Officers), Section 7.15 (Location of Corporate Offices and
Operations; Company Name), Section 7.17 (Expenses), Section 7.18 (Letter Stock
Dividend Policy) and Section 10.7 (Parties in Interest), each of which shall
survive in accordance with its terms.
Section 10.2 BROKERS. Delmarva represents and warrants that, except for
Merrill Lynch, Pierce, Fenner & Smith Incorporated, its investment banking firm,
no broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the Mergers or the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Delmarva. Atlantic represents and warrants that, except for Morgan Stanley & Co.
Incorporated, its investment banking firm, no broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with the Mergers or the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Atlantic.
Section 10.3 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given (a) if delivered personally, or (b) if
sent by overnight courier service (receipt confirmed in writing), or (c) if
delivered by facsimile transmission (with receipt confirmed), or (d) five days
after being
I-46
<PAGE>
mailed by registered or certified mail (return receipt requested) to the
parties, in each case to the following addresses (or at such other address for a
party as shall be specified by like notice):
<TABLE>
<S> <C>
(i) If to Delmarva, to:
Delmarva Power & Light Company
800 King Street
Wilmington, Delaware 19899
Attention: Barbara S. Graham
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
Attention: Douglas W. Hawes, Esq.
Steven H. Davis, Esq.
and a copy to:
Potter Anderson & Corroon
350 Delaware Trust Building
P.O. Box 951
Wilmington, Delaware 19899
Attention: Robert K. Payson, Esq.
Michael B. Tumas, Esq.
(ii) If to Atlantic, to:
Atlantic Energy, Inc.
6801 Black Horse Pike
Pleasantville, NJ 08232
Attention: Michael J. Barron
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: James M. Cotter
Vincent Pagano, Jr.
</TABLE>
Section 10.4 ENTIRE AGREEMENT; ASSIGNMENT; GOVERNING LAW; WAIVER OF JURY
TRIAL; ETC. This Agreement (including the documents and instruments referred to
herein) constitutes the entire agreement and supersedes all other prior
agreements and understandings, both written and oral, among the parties, or any
of them, with respect to the subject matter hereof other than the
Confidentiality Agreement. This Agreement shall not be assigned by operation of
law or otherwise. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts
executed in and to be fully performed in such state, without giving effect to
its conflicts of laws statutes, rules or principles. Each party hereto
acknowledges and agrees that any controversy that may arise under this Agreement
is likely to involve complicated and difficult issues, and therefore each such
party hereby irrevocably and unconditionally waives any right such party may
have to a trial by jury in respect of any litigation directly or indirectly
arising out of or relating to this Agreement or the transactions contemplated
hereby. Each party certifies and acknowledges that (i) no representative, agent
or attorney of any other party has represented, expressly or otherwise, that
such other party would not, in the event of litigation, seek to enforce the
foregoing waiver, (ii) each such party understands and has considered the
implications of this waiver, (iii) each such party makes this waiver
voluntarily, and (iv) each such party has been induced to enter into
I-47
<PAGE>
this Agreement by, among other things, the mutual waivers and certifications of
this Section 10.4. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect. The parties
hereto shall negotiate in good faith to replace any provision of this Agreement
so held invalid or unenforceable with a valid provision that is as similar as
possible in substance to the invalid or unenforceable provision.
Section 10.5 INTERPRETATION. When reference is made in this Agreement to
Articles, Sections or Exhibits, such reference shall be to an Article, Section
or Exhibit of this Agreement, as the case may be, unless otherwise indicated.
The table of contents and headings contained in this Agreement are for reference
purposes and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes", or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." Whenever "or" is used in this Agreement it shall be construed in
the nonexclusive sense.
Section 10.6 COUNTERPARTS; EFFECT. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
Section 10.7 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and, except for rights of
Indemnified Parties as set forth in Section 7.5 (Directors' and Officers'
Indemnification), nothing in this Agreement, express or implied, is intended to
confer upon any person any rights or remedies of any nature whatsoever under or
by reason of this Agreement.
Section 10.8 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties hereto shall be entitled to
an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
I-48
<PAGE>
IN WITNESS WHEREOF, Delmarva, Atlantic, the Company and DS Sub have caused
this Agreement, as amended and restated as of December 26, 1996 to be signed by
their respective officers thereunto duly authorized as of the date first above
written.
DELMARVA POWER & LIGHT COMPANY
<TABLE>
<S> <C>
By /s/ HOWARD E. COSGROVE
-----------------------------------------------
Name: Howard E. Cosgrove
Title:
President and Chairman
ATLANTIC ENERGY, INC.
By /s/ JERROLD L. JACOBS
-----------------------------------------------
Name: Jerrold L. Jacobs
Title:
President and Chief Executive Officer
CONECTIV, INC.
By /s/ BARBARA S. GRAHAM
-----------------------------------------------
Name: Barbara S. Graham
Title:
President
</TABLE>
<TABLE>
<S> <C>
And By /s/ MICHAEL J. BARRON
------------------------------------------
Name: Michael J. Barron
Title:
Vice President
</TABLE>
<TABLE>
<S> <C>
DS SUB, INC.
By /s/ BARBARA S. GRAHAM
-----------------------------------------------
Name: Barbara S. Graham
Title:
President
</TABLE>
I-49
<PAGE>
ABC
ANNEX II
MERRILL LYNCH LOGO
212 449 1000
December 26,
1996
Board of Directors
Delmarva Power & Light Company
800 King Street
Wilmington, DE 19899
Directors:
Delmarva Power & Light Company, a corporation formed under the laws of the
State of Delaware and the Commonwealth of Virginia ("Delmarva"), Atlantic
Energy, Inc., a corporation formed under the laws of the State of New Jersey
("Atlantic"), Conectiv, Inc., a Delaware corporation whose capital stock is 50%
owned by each of Delmarva and Atlantic, respectively (the "Company"), and DS
Sub, Inc., a Delaware corporation and wholly owned subsidiary of the Company
("DS Sub"), entered into an Agreement and Plan of Merger, dated as of August 9,
1996, as amended and restated as of December 26, 1996 (the "Agreement"),
pursuant to which Atlantic will merge with and into the Company (the "Atlantic
Merger") and DS Sub will merge with and into Delmarva (the "Delmarva Merger"
and, together with the Atlantic Merger, the "Mergers"). In the Delmarva Merger,
each issued and outstanding share (other than shares canceled pursuant to
section 2.1(a) of the Agreement) of Delmarva common stock, par value $2.25 per
share ("Delmarva Common Stock"), shall be converted into the right to receive
one share of Company common stock, par value $0.01 per share ("Company Common
Stock"), and in the Atlantic Merger, each issued and outstanding share (other
than shares canceled pursuant to section 2.1(a) of the Agreement) of Atlantic
common stock, no par value ("Atlantic Common Stock"), shall be converted into
the right to receive 0.750 shares of Company Common Stock and 0.125 shares of
Company Class A common stock, par value $0.01 per share. The ratio at which
Delmarva Common Stock is converted into Company Common Stock, in accordance with
the Agreement, is referred to herein as the "Delmarva Conversion Ratio."
Consummation of the Mergers is subject to the terms and conditions set forth in
the Agreement.
You have asked us whether, in our opinion, the Delmarva Conversion Ratio
contemplated by the Agreement is fair to Delmarva and its shareholders from a
financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed Delmarva's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended December 31, 1995 and
Delmarva's Form 10-Q and the related unaudited financial information for
the quarterly periods ended September 30, 1996;
II-1
<PAGE>
(2) Reviewed Atlantic's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended December 31, 1995 and
Atlantic's Form 10-Q and the related unaudited financial information for
the quarterly periods ended September 30, 1996;
(3) Reviewed certain other filings with the Securities and Exchange
Commission made by Delmarva and Atlantic, including proxy statements,
Forms 8-K and registration statements, during the last three years;
(4) Reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets and prospects of Delmarva and
Atlantic, furnished to us by Delmarva and Atlantic, respectively;
(5) Conducted discussions with members of senior management of Delmarva and
Atlantic concerning their respective businesses, regulatory environments,
prospects and strategic objectives and possible operating, administrative
and capital synergies which might be realized for the Company following
the Mergers;
(6) Reviewed the historical market prices and trading activity for the
Delmarva Common Stock and the Atlantic Common Stock;
(7) Compared the results of operations of Delmarva and Atlantic with that of
certain companies which we deemed to be reasonably similar to Delmarva
and Atlantic, respectively;
(8) Compared the proposed financial terms of the Mergers with the financial
terms of certain other mergers and acquisitions which we deemed to be
relevant;
(9) Considered the pro forma effect of the Mergers, in terms of net income
available to common shareholders, dividends per common share, book value
per common share and capitalization, on the Delmarva Common Stock;
(10) Reviewed the Agreement; and
(11) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary or appropriate.
In preparing our opinion, we have relied on the accuracy and completeness of
all information supplied or otherwise made available to us by Delmarva and
Atlantic, and we have not independently verified such information, conducted a
physical inspection of the properties or facilities of Delmarva or Atlantic, or
undertaken an evaluation or independent appraisal of the assets or liabilities
(contingent or otherwise) of Delmarva or Atlantic. We have assumed that the
financial forecasts and projected synergies furnished by Delmarva and Atlantic
have been reasonably prepared and reflect the best currently available estimates
and judgment of Delmarva's and Atlantic's management as to the expected future
financial performance of Delmarva and Atlantic, respectively, and as to the
expected future projected outcomes of various legal, regulatory and other
contingencies. We have also assumed that the estimates relating to the impact of
Atlantic's non-utility generation contracts, furnished by Delmarva and Atlantic,
have been reasonably prepared and reflect the best currently available estimates
and judgment of Delmarva's and Atlantic's management as to the expected future
projected outcomes relating to such contracts. We have also assumed that the
Mergers will be free of Federal tax to Delmarva, the Company, DS Sub, Atlantic
and the respective holders of Delmarva Common Stock and Atlantic Common Stock.
Our opinion is based upon general economic, market, monetary and other
conditions as they exist and can be evaluated, and the information made
available to us, as of the date hereof.
We have, in the past, provided financial advisory and financing services to
Delmarva and Atlantic and have received fees for the rendering of such services.
In addition, in the ordinary course of our securities business, we may actively
trade debt and equity securities of Delmarva and Atlantic for our own account
II-2
<PAGE>
and the accounts of our customers, and we therefore may from time to time hold a
long or short position in such securities.
This opinion has been prepared for the confidential use of Delmarva's Board
of Directors and may not be reproduced, summarized, described or referred to
without Merrill Lynch's prior written consent.
On the basis of, and subject to the foregoing, we are of the opinion that
the Delmarva Conversion Ratio contemplated by the Agreement is fair to Delmarva
and its shareholders from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
II-3
<PAGE>
ANNEX III
MORGAN STANLEY
MORGAN STANLEY & CO.
INCORPORATED
1585 BROADWAY
NEW YORK, NEW YORK 10036
(212) 761-4000
December 26, 1996
Board of Directors
Atlantic Energy, Inc.
6801 Black Horse Pike
Egg Harbor Township, NJ 08232-4130
Members of the Board of Directors:
We understand that Atlantic Energy, Inc. ("AEI" or the "Company"), Delmarva
Power & Light Company ("Delmarva"), Conectiv, Inc., a corporation whose
outstanding capital stock is 50% owned by AEI and 50% owned by Delmarva
("Newco"), and Newco Sub, a wholly owned subsidiary of Newco ("Newco Sub") have
entered into an Agreement and Plan of Merger, dated as of August 9, 1996, as
amended and restated as of December 26, 1996 (the "Merger Agreement"), which
provides, among other things, for the merger of AEI with and into Newco (the
"AEI Merger") and the merger of Newco Sub with and into Delmarva (the "Delmarva
Merger" and together with the AEI Merger, the "Merger"). Pursuant to the AEI
Merger, Newco will be the surviving corporation and each issued and outstanding
share of common stock, no par value per share, of the Company (the "Company
Common Stock"), other than shares held in treasury or held by Delmarva or the
subsidiaries of the Company or Delmarva, will be converted into the right to
receive (i) .75 shares of common stock, par value $.01 per share, of Newco (the
"Newco Common Stock") and (ii) .125 shares of Class A Common Stock, par value
$.01 per share (the "Letter Stock"), of Newco (collectively, the "AEI Conversion
Ratio"). Pursuant to the Delmarva Merger, Delmarva will be the surviving
corporation and will become a wholly owned subsidiary of Newco and each issued
and outstanding share of common stock, par value $2.25 per share, of Delmarva
(the "Delmarva Common Stock"), other than shares held in treasury or held by the
Company or the subsidiaries of Delmarva or the Company will be converted into
the right to receive one share (the "Delmarva Conversion Ratio") of Newco Common
Stock. The terms and conditions of the Merger are more fully set forth in the
Merger Agreement.
You have asked for our opinion as to whether the AEI Conversion Ratio,
taking into account the Delmarva Conversion Ratio, is fair from a financial
point of view to the holders of shares of the Company Common Stock.
For purposes of the opinion set forth herein, we have:
(i) analyzed certain publicly available financial statements and other
information of the Company and Delmarva, respectively;
III-1
<PAGE>
(ii) analyzed certain internal financial statements and other financial and
operating data concerning the Company and Delmarva prepared by their
respective managements;
(iii) analyzed certain financial projections of the Company and Delmarva
prepared by their respective managements;
(iv) discussed the past and current operations and financial condition and
the prospects of the Company and Delmarva with senior executives of the
Company and Delmarva, respectively;
(v) reviewed the reported prices and trading activity of both the Company
Common Stock and Delmarva Common Stock;
(vi) compared the financial performance of the Company and Delmarva and the
prices and trading activity of the Company Common Stock and Delmarva
Common Stock with that of certain other comparable publicly traded
companies and their securities;
(vii) reviewed the financial terms, to the extent publicly available, of
certain comparable merger or acquisition transactions;
(viii) analyzed the pro forma financial impact of the Merger on the Company;
(ix) participated in discussions and negotiations among representatives of
the Company and Delmarva and their respective financial and legal
advisors;
(x) reviewed the Merger Agreement and certain related documents;
(xi) reviewed and discussed with the Company and Delmarva an analysis
prepared by the Company and Delmarva with the assistance of a third
party consultant regarding estimates of the amount and timing of the
cost savings estimated to be derived from the Merger; and
(xii) performed such other analyses and examinations and considered such
other factors as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections and estimates of the
cost savings expected to be derived in the Merger, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of Newco, the
Company and Delmarva, respectively. We have not made any independent valuation
or appraisal of the assets or liabilities of the Company or Delmarva. In
addition, we have assumed that the Merger will be consummated in accordance with
the terms set forth in the Merger Agreement, including, among other things that
the Merger will be treated as a tax-free reorganization and/ or exchange, each
pursuant to the Internal Revenue Code of 1986. Our opinion is necessarily based
on economic, market and other conditions as in effect on, and the information
made available to us as of, the date hereof.
In arriving at our opinion, we have assumed that in connection with the
receipt of all the necessary regulatory and governmental approvals for the
proposed Merger, no restriction will be imposed that would have a material
adverse effect on the contemplated benefits expected to be derived in the
proposed Merger. In addition, we were not authorized to solicit, and did not
solicit, interest from any party with respect to a merger with or other business
combination transaction involving the Company or any of its assets, nor did we
have discussions or negotiations with any parties, other than Delmarva, in
connection with the Merger.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for the Company and Delmarva and have
received fees for the rendering of these services.
III-2
<PAGE>
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company with the Securities and Exchange Commission
with respect to the Merger and the transactions related thereto. In addition, we
express no recommendation as to how the shareholders of the Company should vote
at the shareholders' meeting held in connection with the Merger.
Based on the foregoing, we are of the opinion on the date hereof that the
AEI Conversion Ratio, taking into account the Delmarva Conversion Ratio, is fair
from a financial point of view to the holders of shares of the Company Common
Stock.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Jeffrey R. Holzschuh
Jeffrey R. Holzschuh
Managing Director
III-3
<PAGE>
ANNEX IV
FORM OF
RESTATED CERTIFICATE OF INCORPORATION OF CONECTIV
PURSUANT TO SECTIONS 242 AND 245 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
Conectiv, a corporation organized and existing under the laws of the State
of Delaware, hereby certifies as follows:
1. The name of the corporation is Conectiv (the "Corporation"). The
Corporation was originally incorporated under the name DS, Inc., which name
was changed to "Conectiv, Inc." on December 24, 1996 and to "Conectiv" on
. The original Certificate of Incorporation was filed with
the Secretary of State of the State of Delaware on August 8, 1996.
2. This Restated Certificate of Incorporation restates and further
amends the Certificate of Incorporation of the Corporation and has been
adopted and approved in accordance with Sections 242 and 245 of the General
Corporation Laws of the State of Delaware.
3. The text of the Certificate of Incorporation as heretofore amended
is hereby amended and restated to read in its entirety as follows:
ARTICLE I.
NAME
The name of the Corporation is Conectiv.
ARTICLE II.
REGISTERED OFFICE AND AGENT
The address of the registered office of the Corporation is 800 King Street,
Wilmington, New Castle County, Delaware 19899, and the name of the registered
agent at such office is the Corporation itself.
ARTICLE III.
PURPOSE
The Corporation is organized for the purpose of engaging in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware (the "GCLD").
ARTICLE IV.
CAPITAL STOCK
SECTION I. AUTHORIZATION. The aggregate number of shares of stock which the
Corporation shall have authority to issue is one hundred eighty million
(180,000,000) shares, of which one hundred fifty million (150,000,000) shares
shall be shares of a class of common stock designated as "Common Stock," having
a par value of $0.01 per share (the "Company Common Stock"), ten million
(10,000,000) shares shall be shares of a class of common stock designated as
"Class A Common Stock," having a par value of $0.01 per share (the "Class A
Common Stock"), and twenty million (20,000,000) shares shall be shares of a
class of preferred stock having a par value of $.01 per share (the "Preferred
Stock") and issuable in one or more series as hereinafter provided. The Company
Common Stock and the Class A Common Stock shall hereinafter collectively be
called "Common Stock" and either shall sometimes be called a class of Common
Stock. Certain capitalized terms used in this Article IV shall have the meanings
set forth in Section II.7 of this Article IV. For purposes of this Article IV,
the Class A Common Stock, when issued,
IV-1
<PAGE>
shall be considered issued in respect of the Atlantic Utility Group and the
Company Common Stock, when issued, shall be considered issued in respect of the
Residual Group, in each case upon the terms and subject to the conditions of
this Article IV.
SECTION II. COMMON STOCK. The voting powers, preferences and relative,
participating, optional or other special rights of the Common Stock, and the
qualifications and restrictions thereon, shall be as follows in this Section II.
1. DIVIDENDS. Subject to any preferences and relative, participating,
optional or special rights of any outstanding series of Preferred Stock and any
qualifications or restrictions on the Common Stock or any class thereof created
thereby, dividends may be declared and paid upon the Company Common Stock and
the Class A Common Stock, upon the terms with respect to each such class, and
subject to the limitations provided for below in this subsection 1, as the Board
of Directors may determine.
1.1. LIMITATION ON DIVIDENDS ON COMPANY COMMON STOCK. Dividends on Company
Common Stock may be declared and paid only out of the lesser of (i) the funds of
the Corporation legally available therefor and (ii) the Residual Group Available
Dividend Amount.
1.2. LIMITATION ON DIVIDENDS ON CLASS A COMMON STOCK. Dividends on Class A
Common Stock may be declared and paid only out of the lesser of (i) the funds of
the Corporation legally available therefor and (ii) the Atlantic Utility Group
Available Dividend Amount.
1.3. DISCRIMINATION IN DIVIDENDS BETWEEN CLASSES OF COMMON STOCK. The Board
of Directors, subject to the provisions of subsections 1.1 and 1.2 of this
Section II, may at any time declare and pay dividends exclusively on Company
Common Stock, exclusively on Class A Common Stock or on both such classes in
equal or unequal amounts, notwithstanding the relative amounts of the Residual
Group Available Dividend Amount and the Atlantic Utility Group Available
Dividend Amount, the amount of dividends previously declared on each class, the
respective voting or liquidation rights of each class or any other factor.
1.4. SHARE DISTRIBUTIONS. Subject to subsections 1.1 and 1.2, as the case
may be, of this Section II, and except as permitted by subsection 4.1 of this
Section II, the Board of Directors may declare and pay dividends or
distributions of shares of Common Stock (or Convertible Securities convertible
into or exchangeable or exercisable for shares of Common Stock) on shares of
Common Stock or shares of Preferred Stock only as follows:
(A) dividends or distributions of shares of Company Common Stock (or
Convertible Securities convertible into or exchangeable or exercisable for
shares of Residual Common Stock) on shares of Company Common Stock or shares
of Preferred Stock attributed to the Residual Group;
(B) dividends or distributions of shares of Class A Common Stock (or
Convertible Securities convertible into or exchangeable or exercisable for
shares of Class A Common Stock) on shares of Class A Common Stock or shares
of Preferred Stock attributed to the Atlantic Utility Group; and
(C) dividends or distributions of shares of Class A Common Stock (or
Convertible Securities convertible into or exchangeable or exercisable for
shares of Class A Common Stock) on shares of Company Common Stock or shares
of Preferred Stock attributed to the Residual Group, but only if the sum of
(1) the number of shares of Class A Common Stock to be so issued (or the
number of such shares which would be issuable upon conversion, exchange or
exercise of any Convertible Securities to be so issued, as the case may be)
and (2) the number of shares of Class A Common Stock which are issuable upon
conversion, exchange or exercise of any Convertible Securities then
outstanding that are attributed in accordance with this Article IV to the
Residual Group is less than or equal to the Number of Shares Issuable with
Respect to the Intergroup Interest.
For purposes of this subsection 1.4, any outstanding Convertible Securities that
are convertible into or exchangeable or exercisable for any other Convertible
Securities which are themselves convertible into or exchangeable or exercisable
for Company Common Stock or Class A Common Stock (or other Convertible
Securities that are so convertible, exchangeable or exercisable) shall be deemed
to have been converted, exchanged or exercised in full for such Convertible
Securities.
IV-2
<PAGE>
2. VOTING POWERS. Except as otherwise provided by law or by the terms of any
outstanding series of Preferred Stock or any provision of the certificate of
incorporation of the Corporation restricting the power to vote on a specified
matter to other stockholders, the entire voting power of the stockholders of the
Corporation shall be vested in the holders of Common Stock of the Corporation,
who shall be entitled to vote on any matter on which the holders of stock of the
Corporation shall, by law or by the provisions of the certificate of
incorporation or bylaws of the Corporation, be entitled to vote, and each class
of Common Stock shall vote thereon together as though one class. On each matter
to be voted on by the holders of all classes of Common Stock voting together as
one class, (i) each outstanding share of Company Common Stock shall have one
vote and (ii) each outstanding share of Class A Common Stock shall have one
vote. The number of authorized shares of Company Common Stock or of Class A
Common Stock may be increased or decreased by the affirmative vote of a majority
of the outstanding shares of Common Stock voting as a single class.
3. LIQUIDATION RIGHTS. In the event of the voluntary or involuntary
dissolution of the Corporation or the liquidation and winding up of the
Corporation, after payment or provision for payment of the debts and other
liabilities of the Corporation and the full preferential amounts (including any
accumulated and unpaid dividends) to which the holders of Preferred Stock are
entitled (regardless of the Group to which such shares of Preferred Stock were
attributed in accordance with this Article IV), unless otherwise provided in
respect of a series of preferred stock by the resolution of the Board of
Directors fixing the liquidation rights and preferences of such series of
preferred stock, the holders of the outstanding shares of Common Stock shall be
entitled to receive the remaining assets of the Corporation, regardless of the
Group to which such assets are attributed in accordance with this Article IV,
divided among the holders of Common Stock in accordance with the per share
"Liquidation Units" attributable to each class of Common Stock. Each share of
Company Common Stock is hereby attributed one "Liquidation Unit" and each share
of Class A Common Stock is hereby attributed one "Liquidation Unit," in the case
of each such class of Common Stock subject to adjustment as determined by the
Board of Directors to be appropriate to reflect any subdivision (by stock split
or otherwise) or combination (by reverse stock split or otherwise) of such class
of Common Stock or any dividend or other distribution of shares of such class of
Common Stock to holders of shares of such class of Common Stock. None of the
merger or consolidation of the Corporation into or with any other company, the
merger or consolidation of any other company into or with the Corporation, or
the sale, transfer or lease of all or any part of the assets of the Corporation,
shall be deemed a liquidation or winding up of the Corporation, or cause the
dissolution of the Corporation, for purposes of this subsection 3.
4. CONVERSION OR REDEMPTION OF COMMON STOCK. The Class A Common Stock is
subject to conversion or redemption upon the terms provided below in this
subsection 4.
4.1. CONVERSION OR REDEMPTION OF CLASS A COMMON STOCK.
(A) In the event of the Disposition, in one transaction or a series of
related transactions, by the Corporation and/or its subsidiaries of all or
substantially all of the properties and assets attributed to the Atlantic
Utility Group to one or more persons or entities (other than (1) the
Disposition by the Corporation of its properties and assets in one
transaction or a series of related transactions in connection with the
dissolution or the liquidation and winding up of the Corporation and the
distribution of assets to stockholders as referred to in subsection 3 of
this Section II, (2) the Disposition of the properties and assets of the
Atlantic Utility Group to all holders of shares of Class A Common Stock and
to the Corporation or subsidiaries thereof, divided among such holders and
the Corporation or subsidiaries thereof on a PRO RATA basis in accordance
with the number of shares of Class A Common Stock outstanding and the Number
of Shares Issuable with Respect to the Intergroup Interest, (3) to any
person or entity controlled (as determined by the Board of Directors) by the
Corporation or (4) pursuant to a Related Business Transaction), the
Corporation shall, on or prior to the 85th Trading Day after the date of
consummation of such Disposition (the "Atlantic Utility Group Disposition
Date"), pay a dividend on the Class A Common Stock or redeem some or all of
the Class A Common Stock or convert Class A Common Stock into Company Common
Stock
IV-3
<PAGE>
(or another class or series of common stock of the Corporation), all as
provided by the following subparagraphs (1) and (2) of this paragraph (A)
and, to the extent applicable, by subsection 4.3 of this Section II, as the
Board of Directors shall have selected among such alternatives:
(1) provided that there are funds of the Corporation legally
available therefor:
(a) pay to the holders of the shares of Class A Common Stock a
dividend, as the Board of Directors shall have declared subject to
compliance with subsection 1, in cash and/or in securities (other
than a dividend of Common Stock) or other property having a Fair
Value as of the Atlantic Utility Group Disposition Date in the
aggregate equal to the product of the Outstanding Atlantic Utility
Fraction as of the record date for determining holders entitled to
receive such dividend multiplied by the Fair Value of the Net
Proceeds of such Disposition; or
(b) (i) subject to the last sentence of this paragraph (A), if
such Disposition involves all (not merely substantially all) of the
properties and assets attributed to the Atlantic Utility Group,
redeem as of the Redemption Date provided by paragraph (C) of
subsection 4.3 of this Section II, all outstanding shares of Class A
Common Stock in exchange for cash and/or for securities (other than
Common Stock) or other property having a Fair Value as of the
Atlantic Utility Group Disposition Date in the aggregate equal to the
product of the Outstanding Atlantic Utility Fraction as of such
Redemption Date multiplied by the Fair Value of the Net Proceeds of
such Disposition; or
(ii) subject to the last sentence of this paragraph (A), if such
Disposition involves substantially all (but not all) of the
properties and assets attributed to the Atlantic Utility Group,
redeem as of the Redemption Date provided by paragraph (D) of
subsection 4.3 of this Section II such number of whole shares of
Class A Common Stock (which may be all of such shares outstanding) as
have in the aggregate an average Market Value during the period of
ten consecutive Trading Days beginning on the sixteenth Trading Day
immediately succeeding the Atlantic Utility Group Disposition Date
closest to the product of the Outstanding Atlantic Utility Fraction
as of the date such shares are selected for redemption multiplied by
the Fair Value as of the Atlantic Utility Group Disposition Date of
the Net Proceeds of such Disposition (but in no event more than all
the shares of Class A Common Stock then outstanding), in
consideration for cash and/or securities (other than Common Stock) or
other property having a Fair Value in the aggregate equal to such
product; or
(2) declare that each outstanding share of Class A Common Stock shall
be converted as of the Conversion Date provided by paragraph (E) of
subsection 4.3 of this Section II into a number of fully paid and
nonassessable shares of Company Common Stock (or, if the Company Common
Stock is not Publicly Traded at such time and shares of another class or
series of common stock of the Corporation (other than Class A Common
Stock) are then Publicly Traded, of such other class or series of common
stock as has the largest Market Capitalization as of the close of
business on the Trading Day immediately preceding the date of the notice
of such conversion required by such paragraph (E) equal to 110% of the
ratio, expressed as a decimal fraction rounded to the nearest five
decimal places, of the average Market Value of one share of Class A
Common Stock over the period of ten consecutive Trading Days beginning on
the sixteenth Trading Day following the Atlantic Utility Group
Disposition Date to the average Market Value of one share of Company
Common Stock (or such other class or series of common stock) over the
same ten Trading Day period.
Notwithstanding the foregoing provisions of this paragraph (A), the
Corporation shall redeem Class A Common Stock as provided by subparagraph
(1)(b)(i) or (1)(b)(ii) of this paragraph (A) only if the amount to be paid in
redemption of such stock is less than or equal to the sum of (i) the Atlantic
Utility Group Available Dividend Amount as of the Redemption Date and (ii) the
amount determined to be capital in respect of the shares to be redeemed in
accordance with applicable corporation law as of the Redemption Date.
IV-4
<PAGE>
(B) For purposes of this subsection 4.1:
(1) as of any date, "substantially all of the properties and assets"
attributed to the Atlantic Utility Group shall mean a portion of such
properties and assets (x) that represents at least 80% of the Fair Value
of the properties and assets attributed to the Atlantic Utility Group as
of such date, or (y) from which were derived at least 80% of the
aggregate revenues for the immediately preceding twelve fiscal quarterly
periods of the Corporation (calculated on a pro forma basis to include
revenues derived from any of such properties and assets acquired during
such period) derived from the properties and assets of the Atlantic
Utility Group as of such date;
(2) in the case of a Disposition of the properties and assets
attributed to the Atlantic Utility Group in a series of related
transactions, such Disposition shall not be deemed to have been
consummated until the consummation of the last of such transactions; and
(3) the Board of Directors may pay any dividend or redemption price
referred to in paragraph (A) of this subsection 4.1 in cash, securities
(other than Common Stock) or other property, regardless of the form or
nature of the proceeds of the Disposition.
(C) After the payment of the dividend or the redemption price with
respect to the Class A Common Stock provided for by subparagraph (1) of
paragraph (A) of this subsection 4.1, the Board of Directors may declare
that each share of Class A Common Stock remaining outstanding shall be
converted, but only as of a Conversion Date (determined as provided by
paragraph (E) of subsection 4.3 of this Section II) prior to the first
anniversary of the payment of such dividend or redemption price, into a
number of fully paid and nonassessable shares of Company Common Stock (or,
if the Company Common Stock is not Publicly Traded at such time and shares
of any other class or series of common stock of the Corporation (other than
Class A Common Stock) are then Publicly Traded, of such other class or
series of common stock as has the largest Market Capitalization as of the
close of business on the Trading Day immediately preceding the date of the
notice of such conversion required by such paragraph (E) equal to 110% of
the Market Value Ratio of the Class A Common Stock to the Company Common
Stock as of the fifth Trading Day prior to the date of the notice of such
conversion required by such paragraph (E).
(D) The Board of Directors may declare that each outstanding share of
Class A Common Stock shall be converted, as of the Conversion Date provided
by paragraph (E) of subsection 4.3 of this Section II, into the number of
fully paid and nonassessable shares of Company Common Stock (or, if the
Company Common Stock is not Publicly Traded at such time and shares of any
other class or series of common stock of the Corporation (other than Class A
Common Stock) are then Publicly Traded, of such other class or series of
common stock as has the largest Market Capitalization as of the close of
business on the Trading Day immediately preceding the date of the notice of
conversion required by such paragraph (E) of subsection 4.3) equal to the
applicable percentage, on the Conversion Date, set forth below of the Market
Value Ratio of the Class A Common Stock to the Company Common Stock as of
the fifth Trading Day prior to the date of the notice of such conversion
required by such paragraph (E):
<TABLE>
<CAPTION>
12 MONTH PERIOD PRIOR TO
THE APPLICABLE ANNIVERSARY PERCENTAGE OF
OF THE EFFECTIVE DATE MARKET VALUE RATIO
- -------------------------------------------------------------------------- ---------------------
<S> <C>
First..................................................................... 125%
Second.................................................................... 120%
Third..................................................................... 115%
Fourth and Thereafter..................................................... 110%
</TABLE>
(E) If the Corporation consummates (i) a tender offer made by the
Corporation for all of the outstanding shares of Class A Common Stock at an
all cash price of at least 110% of the Time-Weighted Market Price of a share
of Class A Common Stock as of the Trading Day immediately preceding the date
of such offer or (ii) an exchange offer by the Corporation to exchange each
outstanding share of Class A Common Stock into a number of shares of Company
Common Stock (or,
IV-5
<PAGE>
if the Company Common Stock is not Publicly Traded at such time and shares
of any other class or series of common stock of the Corporation (other than
Class A Common Stock) are then Publicly Traded, of such other class or
series of common stock as has the largest Market Capitalization as of the
close of business on the Trading Day immediately preceding the date of such
offer) equal to at least 110% of the Market Value Ratio of the Class A
Common Stock to the Company Common Stock as of the Trading Day immediately
preceding the date of such offer, which, in either case, is accepted by the
holders of greater than 50% of the outstanding shares of Class A Common
Stock, then the Board of Directors may either (x) provided that there are
funds of the Corporation legally available therefor, redeem as of the
Redemption Date provided by paragraph (F) of subsection 4.3 of this Section
II each share of Class A Common Stock remaining outstanding in exchange for
cash in an amount equal to the highest cash price paid per share by the
Corporation pursuant to such tender offer or to the product of the highest
number of shares of Company Common Stock (or such other class or series of
common stock of the Corporation) per share issued in exchange for any share
of Class A Common Stock pursuant to such exchange offer and the
Time-Weighted Market Price of a share of Company Common Stock (or such other
class or series of common stock of the Corporation) as of the Trading Day
immediately preceding the date of such exchange offer, as the case may be,
or (y) declare that each share of Class A Common Stock remaining outstanding
shall be converted as of the Conversion Date provided by paragraph (E) of
subsection 4.3 of this Section II into a number of fully paid and
nonassessable shares of Company Common Stock (or, if the Company Common
Stock is not Publicly Traded at such time and shares of any other class or
series of common stock of the Corporation (other than Class A Common Stock)
are then Publicly Traded, of such other class or series of common stock as
has the largest Market Capitalization as of the close of business on the
Trading Day immediately preceding the date of the notice of such conversion
required by such paragraph (E) equal to the quotient of the highest cash
price paid per share by the Corporation pursuant to such tender offer and
the Time-Weighted Market Price of a share of Company Common Stock (or such
other class or series of common stock of the Corporation) as of the Trading
Day immediately preceding the date of the notice of such conversion required
by such paragraph (E) or to the highest number of shares of Company Common
Stock (or such other class or series of common stock of the Corporation) per
share issued in exchange for any share of Class A Common Stock pursuant to
such exchange offer, as the case may be.
(F) If any person (including the Corporation) makes a tender offer to
purchase shares of Company Common Stock (or, if the Company Common Stock is
not Publicly Traded at such time and shares of any other class or series of
common stock of the Corporation (other than Class A Common Stock) are then
Publicly Traded, of such other class or series of common stock as has the
largest Market Capitalization as of the close of business on the Trading Day
immediately preceding the date of such offer) for cash, property or other
securities, the holders of shares of Class A Common Stock will be entitled
to convert each and any such share of Class A Common Stock into the number
of fully paid and nonassessable shares of Company Common Stock (or such
other class or series of common stock, as the case may be) equal to 100% of
the Market Value Ratio of the Class A Common Stock to the Company Common
Stock as of the Trading Day immediately preceding the date of such tender
offer; provided, that (x) any election by such holder to make such
conversion may be fully revoked by such holder with respect to any such
share of Class A Common Stock by giving written notice to the Corporation
prior to the consummation of such tender offer and (y) such conversion will
only be effective with respect to such shares of Company Common Stock (or
such other class or series of common stock of the Corporation) issuable upon
such conversion which are actually accepted for purchase pursuant to such
tender offer.
(G) If any person (including the Corporation) consummates a tender offer
for all of the outstanding shares of Company Common Stock (or, if the
Company Common Stock is not Publicly Traded at such time and shares of any
other class or series of common stock of the Corporation (other than Class A
Common Stock) are then Publicly Traded, of such other class or series of
common stock as has the largest Market Capitalization as of the close of
business on the Trading Day immediately
IV-6
<PAGE>
preceding the date of such offer) at an all cash price which is accepted by
the holders of greater than 50% of the outstanding shares of Company Common
Stock (or such other class or series of common stock of the Corporation),
then the Board of Directors may either (x) redeem as of the Redemption Date
provided by paragraph (F) of subsection 4.3 of this Section II each share of
Class A Common Stock outstanding in exchange for cash in an amount equal to
the product of the highest cash price paid per share by such person pursuant
to such tender offer and the Market Value Ratio of the Class A Common Stock
to the Company Common Stock as of the fifth Trading Day prior to the date of
such tender offer or (y) declare that each share of Class A Common Stock
outstanding shall be converted as of the Conversion Date provided by
paragraph (E) of subsection 4.3 of this Section II into a number of fully
paid and nonassessable shares of Company Common Stock (or, if the Company
Common Stock is not Publicly Traded at such time and shares of any other
class or series of common stock of the Corporation (other than Class A
Common Stock) are then Publicly Traded, of such other class or series of
common stock as has the largest Market Capitalization as of the close of
business on the Trading Day immediately preceding the date of the notice of
such conversion required by such paragraph (E) equal to the quotient of the
highest cash price paid per share by such person pursuant to such tender
offer and the Time-Weighted Market Price of a share of Company Common Stock
(or such other class or series of common stock of the Corporation) as of the
Trading Day immediately preceding the date of the notice of such conversion
required by such paragraph (E).
4.2. TREATMENT OF CONVERTIBLE SECURITIES. After any Conversion Date or
Redemption Date on which all outstanding shares of Class A Common Stock were
converted or redeemed, any share of Class A Common Stock that is to be issued on
conversion, exchange or exercise of any Convertible Securities shall,
immediately upon such conversion, exchange or exercise and without any notice
from or to, or any other action on the part of, the Corporation or its Board of
Directors or the holder of such Convertible Security:
(A) in the event the shares of Class A Common Stock outstanding on such
Conversion Date were converted into shares of Company Common Stock (or
another class or series of common stock of the Corporation) pursuant to
subparagraph (A)(2) or paragraph (C), (D), (E), (F) or (G) of subsection 4.1
of this Section II, be converted into the amount of cash and/or the number
of shares of the kind of capital stock and/or other securities or property
of the Corporation that the number of shares of Class A Common Stock that
were to be issued upon such conversion, exchange or exercise would have
received had such shares been outstanding on such Conversion Date; or
(B) in the event the shares of Class A Common Stock outstanding on such
Redemption Date were redeemed pursuant to subparagraph (A)(1)(b) of
subsection 4.1 of this Section II, be redeemed, to the extent of funds of
the Corporation legally available therefor, for $.01 per share in cash for
each share of Class A Common Stock that otherwise would be issued upon such
conversion, exchange or exercise.
The provisions of the immediately preceding sentence shall not apply to the
extent that other adjustments in respect of such conversion, exchange or
redemption of Class A Common Stock are otherwise made pursuant to the provisions
of such Convertible Securities.
4.3. NOTICE AND OTHER PROVISIONS.
(A) Not later than the tenth Trading Day following the consummation of a
Disposition referred to in paragraph (A) of subsection 4.1 of this Section
II, the Corporation shall announce publicly by press release (1) the Net
Proceeds of such Disposition, (2) the number of shares outstanding of the
Class A Common Stock, (3) the number of shares of Class A Common Stock into
or for which Convertible Securities are then convertible, exchangeable or
exercisable and the conversion, exchange or exercise price thereof and (4)
the Outstanding Atlantic Utility Fraction on the date of such notice. Not
earlier than the 26th Trading Day and not later than the 30th Trading Day
following the consummation of such Disposition, the Corporation shall
announce publicly by press release which of the actions specified in
paragraph (A) of such subsection 4.1 it has irrevocably determined to take
in respect of such Disposition.
IV-7
<PAGE>
(B) If the Corporation determines to pay a dividend on shares of Class A
Common Stock pursuant to subparagraph (A)(1)(a) of subsection 4.1 of this
Section II, the Corporation shall, not later than the 30th Trading Day
following the consummation of the Disposition referred to in such
subparagraph, cause notice to be given to each holder of shares of Class A
Common Stock and to each holder of Convertible Securities that are
convertible into or exchangeable or exercisable for shares of Class A Common
Stock (unless alternate provision for such notice to the holders of such
Convertible Securities is made pursuant to the terms of such Convertible
Securities), setting forth (1) the record date for determining holders
entitled to receive such dividend, which shall be not earlier than the 40th
Trading Day and not later than the 50th Trading Day following the
consummation of such Disposition, (2) the anticipated payment date of such
dividend (which shall not be more than 85 Trading Days following the
consummation of such Disposition), (3) the type of property to be paid as
such dividend in respect of the outstanding shares of Class A Common Stock,
(4) the Net Proceeds of such Disposition, (5) the Outstanding Atlantic
Utility Fraction on the date of such notice, (6) the number of outstanding
shares of Class A Common Stock and the number of shares of Class A Common
Stock into or for which outstanding Convertible Securities are then
convertible, exchangeable or exercisable and the conversion, exchange or
exercise price thereof and (7) in the case of notice to be given to holders
of Convertible Securities, a statement to the effect that a holder of such
Convertible Securities shall be entitled to receive such dividend only if
such holder properly converts, exchanges or exercises such Convertible
Securities on or prior to the record date referred to in clause (1) of this
sentence. Such notice shall be sent by first-class mail, postage prepaid, to
each such holder at such holder's address as the same appears on the
transfer books of the Corporation.
(C) If the Corporation determines to redeem Class A Common Stock
pursuant to subparagraph (A)(1)(b)(i) of subsection 4.1 of this Section II,
the Corporation shall, not earlier than the 35th Trading Day and not later
than the 45th Trading Day prior to the Redemption Date, cause notice to be
given to each holder of shares of Class A Common Stock, and to each holder
of Convertible Securities convertible into or exchangeable or exercisable
for shares of Class A Common Stock (unless alternate provision for such
notice to the holders of such Convertible Securities is made pursuant to the
terms of such Convertible Securities), setting forth (1) a statement that
all shares of Class A Common Stock outstanding on the Redemption Date shall
be redeemed, (2) the Redemption Date (which shall not be more than 85
Trading Days following the consummation of such Disposition), (3) the type
of property in which the redemption price for the shares to be redeemed is
to be paid, (4) the Net Proceeds of such Disposition, (5) the Outstanding
Atlantic Utility Fraction on the date of such notice, (6) the place or
places where certificates for shares of Class A Common Stock, properly
endorsed or assigned for transfer (unless the Corporation waives such
requirement), are to be surrendered for delivery of cash and/or securities
or other property, (7) the number of outstanding shares of Class A Common
Stock and the number of shares of Class A Common Stock into or for which
such outstanding Convertible Securities are then convertible, exchangeable
or exercisable and the conversion, exchange or exercise price thereof, (8)
in the case of notice to be given to holders of Convertible Securities, a
statement to the effect that a holder of such Convertible Securities shall
be entitled to participate in such selection for redemption only if such
holder properly converts, exchanges or exercises such Convertible Securities
on or prior to the Redemption Date referred to in clause (2) of this
sentence and a statement as to what, if anything, such holder will be
entitled to receive pursuant to the terms of such Convertible Securities or,
if applicable, this subsection 4 if such holder thereafter converts,
exchanges or exercises such Convertible Securities and (9) a statement to
the effect that, except as otherwise provided by paragraph (I) of this
subsection 4.3, dividends on such shares of Class A Common Stock shall cease
to be paid as of such Redemption Date. Such notice shall be sent by first-
class mail, postage prepaid, to each such holder at such holder's address as
the same appears on the transfer books of the Corporation.
(D) If the Corporation determines to redeem Class A Common Stock
pursuant to subparagraph (A)(1)(b)(ii) of subsection 4.1 of this Section II,
the Corporation shall, not later than the 30th Trading Day following the
consummation of the Disposition referred to in such subparagraph, cause
notice to
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be given to each holder of shares of Class A Common Stock and to each holder
of Convertible Securities that are convertible into or exchangeable or
exercisable for shares of Class A Common Stock (unless alternate provision
for such notice to the holders of such Convertible Securities is made
pursuant to the terms of such Convertible Securities) setting forth (1) a
date not earlier than the 40th Trading Day and not later than the 50th
Trading Day following the consummation of the Disposition in respect of
which such redemption is to be made on which shares of Class A Common Stock
shall be selected for redemption, (2) the anticipated Redemption Date (which
shall not be more than 85 Trading Days following the consummation of such
Disposition), (3) the type of property in which the redemption price for the
shares to be redeemed is to be paid, (4) the Net Proceeds of such
Disposition, (5) the Outstanding Atlantic Utility Fraction, (6) the number
of shares of Class A Common Stock outstanding and the number of shares of
Class A Common Stock into or for which outstanding Convertible Securities
are then convertible, exchangeable or exercisable and the conversion,
exchange or exercise price thereof, (7) in the case of notice to be given to
holders of Convertible Securities, a statement to the effect that a holder
of such Convertible Securities shall be eligible to participate in such
selection for redemption only if such holder properly converts, exchanges or
exercises such Convertible Securities on or prior to the record date
referred to in clause (1) of this sentence, and a statement as to what, if
anything, such holder will be entitled to receive pursuant to the terms of
such Convertible Securities or, if applicable, this subsection 4 if such
holder thereafter converts, exchanges or exercises such Convertible
Securities and (8) a statement that the Corporation will not be required to
register a transfer of any shares of Class A Common Stock for a period of 15
Trading Days next preceding the date referred to in clause (1) of this
sentence. Promptly following the date referred to in clause (1) of the
preceding sentence, but not earlier than 40 Trading Days nor later than 50
Trading Days following the consummation of such Disposition, the Corporation
shall cause a notice to be given to each holder of record of shares of Class
A Common Stock to be redeemed setting forth (1) the number of shares of
Class A Common Stock held by such holder to be redeemed, (2) a statement
that Class A Common Stock shall be redeemed, (3) the Redemption Date, (4)
the kind and per share amount of cash and/or securities or other property to
be received by such holder with respect to each share of Class A Common
Stock to be redeemed, including details as to the calculation thereof, (5)
the place or places where certificates for shares of Class A Common Stock,
properly endorsed or assigned for transfer (unless the Corporation shall
waive such requirement), are to be surrendered for delivery of such cash
and/or securities or other property, (6) if applicable, a statement to the
effect that the shares being redeemed may no longer be transferred on the
transfer books of the Corporation after the Redemption Date and (7) a
statement to the effect that, except as otherwise provided by paragraph (I)
of this subsection 4.3, dividends on such shares of Class A Common Stock
shall cease to be paid as of the Redemption Date. Such notices shall be sent
by first-class mail, postage prepaid, to each such holder at such holder's
address as the same appears on the transfer books of the Corporation.
(E) If the Corporation determines to convert the Class A Common Stock
into Company Common Stock (or another class or series of common stock of the
Corporation) pursuant to subparagraph (A)(2) or paragraph (C), (D), (E) or
(G) of subsection 4.1 of this Section II, the Corporation shall, not earlier
than the 35th Trading Day and not later than the 45th Trading Day prior to
the Conversion Date, cause notice to be given to each holder of shares of
Class A Common Stock and to each holder of Convertible Securities that are
convertible into or exchangeable or exercisable for shares of Class A Common
Stock (unless alternate provision for such notice to the holders of such
Convertible Securities is made pursuant to the terms of such Convertible
Securities) setting forth (1) a statement that all outstanding shares of
Class A Common Stock shall be converted, (2) the Conversion Date (which, in
the case of a conversion after a Disposition, shall not be more than 85
Trading Days following the consummation of such Disposition and, in the case
of a conversion after a tender or exchange offer pursuant to paragraph (E)
or (G) of subsection 4.1 of this Section II, shall not be less than 35 or
more than 85 Trading Days following the consummation of such offer), (3) the
per share number of shares of Class A Common Stock or another class or
series of common stock of the
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<PAGE>
Corporation, as the case may be, to be received with respect to each share
of Class A Common Stock, including details as to the calculation thereof,
(4) the place or places where certificates for shares of Class A Common
Stock, properly endorsed or assigned for transfer (unless the Corporation
shall waive such requirement), are to be surrendered for delivery of
certificates for shares of Class A Common Stock, (5) the number of
outstanding shares of Class A Common Stock and the number of shares of Class
A Common Stock into or for which outstanding Convertible Securities are then
convertible, exchangeable or exercisable and the conversion, exchange or
exercise price thereof, (6) a statement to the effect that, except as
otherwise provided by paragraph (I) of this subsection 4.3, dividends on
such shares of Class A Common Stock shall cease to be paid as of such
Conversion Date and (7) in the case of notice to holders of such Convertible
Securities, a statement to the effect that a holder of such Convertible
Securities shall be entitled to receive shares of common stock upon such
conversion only if such holder properly converts, exchanges or exercises
such Convertible Securities on or prior to such Conversion Date and a
statement as to what, if anything, such holder will be entitled to receive
pursuant to the terms of such Convertible Securities or, if applicable, this
subsection 4 if such holder thereafter converts, exchanges or exercises such
Convertible Securities. Such notice shall be sent by first-class mail,
postage prepaid, to each such holder at such holder's address as the same
appears on the transfer books of the Corporation.
(F) If the Corporation determines to redeem Class A Common Stock
pursuant to subparagraph (E) or (G) of subsection 4.1 of this Section II,
the Corporation shall, not earlier than the 35th Trading Day and not later
than the 45th Trading Day prior to the Redemption Date, cause notice to be
given to each holder of shares of Class A Common Stock, and to each holder
of Convertible Securities convertible into or exchangeable or exercisable
for shares of Class A Common Stock (unless alternate provision for such
notice to the holders of such Convertible Securities is made pursuant to the
terms of such Convertible Securities), setting forth (1) a statement that
all shares of Class A Common Stock outstanding on the Redemption Date shall
be redeemed, (2) the Redemption Date (which shall not be less than 35 or
more than 85 Trading Days following the consummation of the applicable
tender or exchange offer), (3) the redemption price for the shares, (4) the
place or places where certificates for shares of Class A Common Stock,
properly endorsed or assigned for transfer (unless the Corporation waives
such requirement), are to be surrendered for delivery of cash, (5) the
number of outstanding shares of Class A Common Stock and the number of
shares of Class A Common Stock into or for which such outstanding
Convertible Securities are then convertible, exchangeable or exercisable and
the conversion, exchange or exercise price thereof, (6) in the case of
notice to be given to holders of Convertible Securities, a statement to the
effect that a holder of such Convertible Securities shall be entitled to
participate in such selection for redemption only if such holder properly
converts, exchanges or exercises such Convertible Securities on or prior to
the Redemption Date referred to in clause (2) of this sentence and a
statement as to what, if anything, such holder will be entitled to receive
pursuant to the terms of such Convertible Securities or, if applicable, this
subsection 4 if such holder thereafter converts, exchanges or exercises such
Convertible Securities and (7) a statement to the effect that, except as
otherwise provided by paragraph (I) of this subsection 4.3, dividends on
such shares of Class A Common Stock shall cease to be paid as of such
Redemption Date. Such notice shall be sent by first-class mail, postage
prepaid, to each such holder at such holder's address as the same appears on
the transfer books of the Corporation.
(G) If less than all of the outstanding shares of Class A Common Stock
are to be redeemed pursuant to subparagraph (A)(1) of subsection 4.1 of this
Section II, the shares to be redeemed by the Corporation shall be selected
from among the holders of shares of Class A Common Stock outstanding at the
close of business on the record date for such redemption on a pro rata basis
among all such holders or by lot or by such other method as may be
determined by the Board of Directors to be equitable.
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<PAGE>
(H) The Corporation shall not be required to issue or deliver fractional
shares of any capital stock or of any other securities to any holder of
Class A Common Stock upon any conversion, redemption, dividend or other
distribution pursuant to this subsection 4. If more than one share of Class
A Common Stock shall be held at the same time by the same holder, the
Corporation may aggregate the number of shares of any capital stock that
shall be issuable or any other securities or property that shall be
distributable to such holder upon any conversion, redemption, dividend or
other distribution (including any fractional shares). If there are
fractional shares of any capital stock or of any other securities remaining
to be issued or distributed to the holders of Class A Common Stock, the
Corporation shall, if such fractional shares are not issued or distributed
to the holder, pay cash in respect of such fractional shares in an amount
equal to the Fair Value thereof on the fifth Trading Day prior to the date
such payment is to be made (without interest).
(I) No adjustments in respect of dividends shall be made upon the
conversion or redemption of any shares of Class A Common Stock; provided,
however, that if the Conversion Date or Redemption Date, as the case may be,
with respect to any shares of Class A Common Stock shall be subsequent to
the record date for the payment of a dividend or other distribution thereon
or with respect thereto, the holders of Class A Common Stock at the close of
business on such record date shall be entitled to receive the dividend or
other distribution payable on or with respect to such shares on the date set
for payment of such dividend or other distribution, in each case without
interest, notwithstanding the subsequent conversion or redemption of such
shares.
(J) Before any holder of Class A Common Stock shall be entitled to
receive any cash payment and/or certificates or instruments representing
shares of any capital stock and/or other securities or property to be
distributed to such holder with respect to Class A Common Stock pursuant to
this subsection 4, such holder shall surrender at such place as the
Corporation shall specify certificates for Class A Common Stock, properly
endorsed or assigned for transfer (unless the Corporation shall waive such
requirement). The Corporation shall as soon as practicable after receipt of
certificates representing shares of Class A Common Stock deliver to the
person for whose account such shares were so surrendered, or to such
person's nominee or nominees, the cash and/or the certificates or
instruments representing the number of whole shares of the kind of capital
stock and/or other securities or property to which such person shall be
entitled as aforesaid, together with any payment in respect of fractional
shares contemplated by paragraph (H) of this subsection 4.3, in each case
without interest. If less than all of the shares of Class A Common Stock
represented by any one certificate are to be redeemed or converted, the
Corporation shall issue and deliver a new certificate for the shares of
Class A Common Stock not redeemed.
(K) From and after any applicable Conversion Date or Redemption Date, as
the case may be, all rights of a holder of shares of Class A Common Stock
that were converted or redeemed shall cease except for the right, upon
surrender of the certificates representing such shares as required by
paragraph (J) of this subsection 4.3, to receive the cash and/or the
certificates or instruments representing shares of the kind of capital stock
and/or other securities or property for which such shares were converted or
redeemed, together with any payment in respect of fractional shares
contemplated by paragraph (H) of this subsection 4.3 and rights to dividends
as provided in paragraph (I) of this subsection 4.3, in each case without
interest. No holder of a certificate that immediately prior to the
applicable Conversion Date represented shares of Class A Common Stock shall
be entitled to receive any dividend or other distribution or interest
payment with respect to shares of any kind of capital stock or other
security or instrument for which Class A Common Stock was converted until
the surrender as required by this subsection 4 of such certificate in
exchange for a certificate or certificates or instrument or instruments
representing such capital stock or other security. Upon such surrender,
there shall be paid to the holder the amount of any dividends or other
distributions (without interest) which theretofore became payable on any
class or series of capital stock of the Corporation as of a record date
after the Conversion Date, but that were not paid by reason of the
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<PAGE>
foregoing, with respect to the number of whole shares of the kind of capital
stock represented by the certificate or certificates issued upon such
surrender. From and after a Conversion Date, the Corporation shall, however,
be entitled to treat the certificates for Class A Common Stock that have not
yet been surrendered for conversion as evidencing the ownership of the
number of whole shares of the kind or kinds of capital stock of the
Corporation for which the shares of Class A Common Stock represented by such
certificates shall have been converted, notwithstanding the failure to
surrender such certificates.
(L) The Corporation shall pay any and all documentary, stamp or similar
issue or transfer taxes that may be payable in respect of the issuance or
delivery of any shares of capital stock and/or other securities upon
conversion or redemption of shares of Class A Common Stock pursuant to this
subsection 4. The Corporation shall not, however, be required to pay any tax
that may be payable in respect of any transfer involved in the issuance or
delivery of any shares of capital stock and/or other securities in a name
other than that in which the shares of Class A Common Stock so converted or
redeemed were registered, and no such issuance or delivery shall be made
unless and until the person requesting such issuance or delivery has paid to
the Corporation the amount of any such tax or has established to the
satisfaction of the Corporation that such tax has been paid.
(M) Neither the failure to mail any notice required by this subsection
4.3 to any particular holder of Class A Common Stock or of Convertible
Securities nor any defect therein shall affect the sufficiency thereof with
respect to any other holder of outstanding shares of Class A Common Stock or
of Convertible Securities or the validity of any such conversion or
redemption.
(N) The Board of Directors may establish such rules and requirements to
facilitate the effectuation of the transactions contemplated by this
subsection 4 as the Board of Directors shall determine to be appropriate.
5. MERGERS AND CONSOLIDATIONS. In the event of a merger or consolidation to
which the Corporation is a party and pursuant to which the holders of common
stock of the Corporation are entitled to receive securities or other
consideration or pursuant to which shares of common stock of the Corporation are
converted into securities or other consideration, the holder of each outstanding
share of Class A Common Stock shall be entitled to receive, or to have such
share converted into, as the case may be, the securities or other consideration
attributable pursuant to such merger or consolidation to the number of shares of
Company Common Stock (or, if the Company Common Stock is not Publicly Traded at
such time and shares of any other class or series of common stock of the
Corporation (other than Class A Common Stock) are then Publicly Traded, of such
other class or series of common stock as has the largest Market Capitalization
as of the close of business on the Trading Day immediately preceding the date of
the first public announcement of such merger or consolidation) equal to the
Market Value Ratio of the Class A Common Stock to the Company Common Stock as of
the Trading Day immediately preceding the date of the first public announcement
of such merger or consolidation, subject to adjustment as determined by the
Board of Directors to be appropriate to reflect any subdivision (by stock split
or otherwise) or combination (by reverse stock split or otherwise) of either
class of Common Stock or any dividend or other distribution of shares of such
class of Common Stock to holders of shares of such class of Common Stock after
such date and prior to the consummation of such merger or consolidation.
6. BOARD DETERMINATIONS BINDING. Subject to applicable law, any
determinations made in good faith by the Board of Directors of the Corporation
under any provision of this Article IV, and any determinations with respect to
any Group or the rights of the holders of any class of Common Stock made
pursuant to or in furtherance of this Article IV, shall be final and binding on
all stockholders.
7. CERTAIN DEFINITIONS. As used in this Article IV, the following terms
shall have the following meanings (with terms defined in the singular having
comparable meaning when used in the plural and vice versa), unless the context
otherwise requires. As used in this Article IV, references to the "Board of
Directors" shall refer to the Board of Directors of the Corporation. As used in
this subsection 7, a "contribution" or
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<PAGE>
"transfer" of assets or properties from one Group to another shall refer to the
reattribution of such assets or properties from the contributing or transferring
Group to the other Group and correlative phrases shall have correlative
meanings.
7.1. ATLANTIC UTILITY GROUP shall mean, as of any date from and after the
Effective Date:
(A) the interest of the Corporation on such date in Atlantic City
Electric Company, a New Jersey corporation (the "Atlantic Utility Group
Company"), and any successor companies, and solely those lines of business
in which the Atlantic Utility Group Company was engaged as of August 9,
1996, and the assets and liabilities attributable to those lines of
business, and which meet all of the criteria listed in clause (i) below, as
of August 9, 1996, specifically excluding those businesses, lines of
business, and products and services listed in clause (ii) below, and
specifically including those businesses, lines of business and products and
services listed in clause (iii) below:
(i) only those businesses meeting all of the following criteria as of
August 9, 1996 shall be included in the Atlantic Utility Group: (a) price
regulated by the New Jersey Board of Public Utilities, including, without
limitation, off-tariff agreements; (b) directly related to the supply of
electricity (generation and purchase of electricity) or the delivery of
electricity (transmission and distribution of electricity); and (c) a
line of business for which Atlantic Utility Group Company has a
franchise;
(ii) specifically excluded from the Atlantic Utility Group are the
following businesses, lines of business and products and services, which
list is not intended to be inclusive: (a) Appliance Shield program, (b)
lighting upgrade programs, (c) water heater service business, (d)
thermostat sales, (e) telecommunications business and investments, (f)
energy services and consulting, (g) utility services and consulting (e.g.
plant services and electrical equipment O&M services), (h) Atlantic
Energy International, and (i) Atlantic Energy Enterprises and its
subsidiaries;
(iii) specifically included in the Atlantic Utility Group is the
Deepwater Operating Company.
(B) all assets and liabilities of the Corporation and its subsidiaries
(other than capital stock of a subsidiary) and liabilities relating to the
notional obligation of the Atlantic Utility Group to the Residual Group
described in clause (iii) of the definition of Company Net Income (Loss)
Attributable to the Atlantic Utility Group on such date attributed by the
Board of Directors to any of the Atlantic Utility Group Company or the
businesses thereof, whether or not such assets or liabilities are or were
also assets and liabilities of the Atlantic Utility Group Company,
including, without limitation, the assets and liabilities as of the
Effective Date specified in the schedules filed with the records of the
actions of the Board of Directors (a copy of which shall be made available
to any stockholder of the Corporation upon written request therefor);
(C) all properties and assets transferred to the Atlantic Utility Group
from the Residual Group (other than a transaction pursuant to paragraph (D)
of this subsection 7.1) after the Effective Date pursuant to transactions in
the ordinary course of business of both the Residual Group and the Atlantic
Utility Group or otherwise as the Board of Directors may have directed;
(D) all properties and assets transferred to the Atlantic Utility Group
from the Residual Group in connection with an increase in the Number of
Shares Issuable with respect to the Intergroup Interest; and
(E) the interest of the Corporation or any of its subsidiaries in any
business or asset acquired and any liabilities assumed by the Corporation or
any of its subsidiaries outside of the ordinary course of business and
attributed to the Atlantic Utility Group, as determined by the Board of
Directors;
provided that (1) from and after the payment date of any dividend or other
distribution with respect to shares of Class A Common Stock (other than a
dividend or other distribution payable in shares of Class A Common Stock, with
respect to which adjustment shall be made as provided in paragraph (A) of
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subsection 7.16, or in securities of the Corporation attributed to the Atlantic
Utility Group, for which provision shall be made as set forth in clause (2) of
this proviso), the Atlantic Utility Group shall no longer include an amount of
assets or properties previously attributed to the Atlantic Utility Group of the
same kind as so paid in such dividend or other distribution with respect of
shares of Class A Common Stock as have a Fair Value on the record date for such
dividend or distribution equal to the product of (a) the Fair Value on such
record date of the aggregate of such dividend or distribution to holders of
shares of Class A Common Stock declared multiplied by (b) a fraction the
numerator of which is equal to the Intergroup Interest Fraction in effect on the
record date for such dividend or distribution and the denominator of which is
equal to the Outstanding Atlantic Utility Fraction in effect on the record date
for such dividend or distribution, (2) if the Corporation shall pay a dividend
or make some other distribution with respect to shares of Class A Common Stock
payable in securities of the Corporation that are attributed to the Atlantic
Utility Group for purposes of this Article IV (other than Class A Common Stock),
there shall be excluded from the Atlantic Utility Group an interest in the
Atlantic Utility Group equivalent to the number or amount of such securities
that is equal to the product of the number or amount of securities so
distributed to holders of Class A Common Stock multiplied by the fraction
specified in clause 1(b) of this proviso (determined as of the record date for
such distribution) (and such interest in the Atlantic Utility Group shall be
attributed to the Residual Group) and, to the extent interest is or dividends
are paid on the securities so distributed, the Atlantic Utility Group shall no
longer include a corresponding ratable amount of the kind of assets paid as such
interest or dividends as would have been paid in respect of the securities
equivalent to such interest in the Atlantic Utility Group deemed held by the
Residual Group if the securities equivalent to such interest were outstanding
(and in such eventuality such assets as are no longer included in the Atlantic
Utility Group shall be attributed to the Residual Group) and (3) from and after
any transfer of any assets or properties from the Atlantic Utility Group to the
Residual Group, the Atlantic Utility Group shall no longer include such assets
or properties so contributed or transferred. The Corporation may also, to the
extent a dividend or distribution on the Class A Common Stock has been paid in
Convertible Securities that are convertible into or exchangeable or exercisable
for Class A Common Stock, cause such Convertible Securities as are deemed to be
held by the Residual Group in accordance with the third to last sentence of
subsection 7.21 and clause (2) of the proviso to the immediately preceding
sentence to be deemed to be converted, exchanged or exercised as provided in the
penultimate sentence of subsection 7.21, in which case such Convertible
Securities shall no longer be deemed to be held by the Residual Group.
7.2. ATLANTIC UTILITY GROUP AVAILABLE DIVIDEND AMOUNT, on any date, shall
mean either:
(i) (x) the amount equal to the product of (1) the Outstanding Atlantic
Utility Fraction as of such date multiplied by (2) an amount equal to the
fair market value of the total assets attributed to the Atlantic Utility
Group less the total amount of the liabilities attributed to the Atlantic
Utility Group (provided that preferred stock shall not be treated as a
liability), in each case as of such date and determined on a basis
consistent with that applied in determining Company Net Income (Loss)
Attributable to the Atlantic Utility Group, minus (y) the aggregate par
value of, or any greater amount determined to be capital in respect of, all
outstanding shares of Class A Common Stock and shares of each class or
series of Preferred Stock attributed to the Atlantic Utility Group, plus (z)
the amount, as of such date, of amortization of goodwill during the period
from the Effective Date through such date arising from the mergers
(together, the "Mergers") of Atlantic Energy, Inc., a New Jersey
corporation, with and into the Corporation, and of DS Sub, Inc., a Delaware
corporation, with and into Delmarva Power & Light Company, a Delaware
corporation, with respect to the Atlantic Utility Group (determined as set
forth in clause (ii) of the definition of Company Net Income (Loss)
Attributable to the Atlantic Utility Group), or
(ii) in case the total amount calculated pursuant to clause (i) above is
not a positive number, an amount equal to Company Net Income (Loss)
Attributable to the Atlantic Utility Group (if positive) for the fiscal year
in which the dividend is declared and/or the preceding fiscal year.
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Notwithstanding the foregoing provisions of this subsection 7.2, and consistent
with subsection 7.6, at any time when there are not outstanding both (i) one or
more shares of Residual Common Stock or Convertible Securities convertible into
or exchangeable or exercisable for Residual Common Stock and (ii) one or more
shares of Class A Common Stock or Convertible Securities convertible into or
exchangeable or exercisable for Class A Common Stock, the "Available Dividend
Amount," on any calculation date during such time period, with respect to the
Residual Common Stock or the Class A Common Stock, as the case may be (depending
on which of such classes of Common Stock or Convertible Securities convertible
into or exchangeable or exercisable for such class of Common Stock is
outstanding), shall mean the amount available for the payment of dividends on
such Common Stock in accordance with law.
7.3. COMPANY NET INCOME (LOSS) ATTRIBUTABLE TO THE ATLANTIC UTILITY GROUP,
for any period through any date, shall mean (i) the net income or loss of the
Atlantic Utility Group for such period (or in respect of the fiscal periods of
the Corporation commencing prior to the Effective Date, the pro forma net income
or loss of the Atlantic Utility Group for such period as if the Effective Date
had been the first day of such period) determined in accordance with generally
accepted accounting principles in effect at such time, reflecting income and
expense of the Corporation attributed to the Atlantic Utility Group on a basis
substantially consistent with attributions of income and expense made in the
calculation of Company Net Income (Loss) Attributable to the Residual Group,
including, without limitation, corporate administrative costs, net interest and
other financial costs and income taxes, increased (or, in the case of a loss,
reduced) by (ii) the amount of amortization of goodwill arising from the Mergers
with respect to the Atlantic Utility Group to the extent but only to the extent
such goodwill would otherwise decrease the Company Net Income Attributable to
the Atlantic Utility Group or increase the Company Net Loss Attributable to the
Atlantic Utility Group (such amount calculated for fiscal periods of the
Corporation commencing prior to the Effective Date on a pro forma basis as if
the Effective Date had been the first day of the relevant period), determined in
accordance with generally accepted accounting principles in effect at such time
applied on a basis substantially consistent with that applied in determining
Company Net Income (Loss) Attributable to the Atlantic Utility Group and reduced
(or, in the case of a loss, increased) by (iii) an amount equal to $40 million
per fiscal year and by (iv) the amount of dividends paid in such period (or, in
respect of fiscal periods of the Corporation commencing prior to the Effective
Date, the pro forma amount of dividends paid in such period as if the Effective
Date had been the first day of such period) with respect to shares of preferred
and preference stock of Atlantic Utility Group Company.
7.4. COMPANY NET INCOME (LOSS) ATTRIBUTABLE TO THE RESIDUAL GROUP, for any
period through any date, shall mean (i) the net income or loss of the Residual
Group for such period (or in respect of fiscal periods of the Corporation
commencing prior to the Effective Date, the pro forma net income or loss of the
Residual Group for such period as if the Effective Date had been the first day
of such period) determined in accordance with generally accepted accounting
principles in effect at such time, reflecting income and expense of the
Corporation attributed to the Residual Group on a basis substantially consistent
with attributions of income and expense made in the calculation of Company Net
Income (Loss) Attributable to the Atlantic Utility Group, including, without
limitation, corporate administrative costs, net interest and other financial
costs and income taxes, reduced (or, in the case of a loss, increased) by (ii)
the amount of amortization of goodwill arising from the Mergers with respect to
the Atlantic Utility Group to the extent but only to the extent such goodwill
results in a decrease (increase) in the Company Net Income (Loss) Attributable
to the Atlantic Utility Group pursuant to clause (ii) of subsection 7.3 of this
Article IV (such amount calculated for fiscal periods of the Corporation
commencing prior to the Effective Date on a pro forma basis as if the Effective
Date had been the first day of the relevant period), determined in accordance
with generally accepted accounting principles in effect at such time applied on
a basis substantially consistent with that applied in determining Company Net
Income (Loss) Attributable to the Atlantic Utility Group (excluding the portion
thereof, if any, already applied to reduce net income or increase net loss of
the Residual Group for such period by virtue of the Intergroup Interest
Fraction) and increased (or, in the case of a loss, decreased) by (iii) the
amount described in clause (iii) of the definition of Company Net Income (Loss)
Attributable to the Atlantic Utility Group.
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7.5. CONVERSION DATE shall mean the date fixed by the Board of Directors as
the effective date for the conversion of shares of Class A Common Stock into
shares of Company Common Stock (or another class or series of common stock of
the Corporation) as shall be set forth in the notice to holders of shares of
Class A Common Stock and to holders of any Convertible Securities that are
convertible into or exchangeable or exercisable for shares of Class A Common
Stock required pursuant to paragraph (E) of subsection 4.3 of this Section II.
7.6. CONVERTIBLE SECURITIES at any time shall mean any securities of the
Corporation or of any subsidiary thereof (other than shares of Common Stock),
including warrants and options, outstanding at such time that by their terms are
convertible into or exchangeable or exercisable for or evidence the right to
acquire any shares of any class of Common Stock, whether convertible,
exchangeable or exercisable at such time or a later time or only upon the
occurrence of certain events, but in respect of antidilution provisions of such
securities only upon the effectiveness thereof.
7.7. DISPOSITION shall mean a sale, transfer, assignment or other
disposition (whether by merger, consolidation, sale or contribution of assets or
stock or otherwise) of properties or assets (including stock, other securities
and goodwill).
7.8. EFFECTIVE DATE shall mean the date on which the merger of Atlantic
Energy, Inc., a New Jersey corporation, with and into the Corporation, and the
merger of DS Sub, Inc., a Delaware corporation, with and into Delmarva Power &
Light Company, a Delaware corporation, shall become effective.
7.9. FAIR VALUE shall mean, in the case of equity securities or debt
securities of a class or series that has previously been Publicly Traded for a
period of at least 15 months, the Market Value thereof (if such value, as so
defined, can be determined) or, in the case of an equity security or debt
security that has not been Publicly Traded for at least such period, shall mean
the fair value per share of stock or per other unit of such other security, on a
fully distributed basis, as determined by an independent investment banking firm
experienced in the valuation of securities selected in good faith by the Board
of Directors, or, if no such investment banking firm is, as determined in the
good faith judgment of the Board of Directors, available to make such
determination, in good faith by the Board of Directors; provided, however, that
in the case of property other than securities, the "Fair Value" thereof shall be
determined in good faith by the Board of Directors based upon such appraisals or
valuation reports of such independent experts as the Board of Directors shall in
good faith determine to be appropriate in accordance with good business
practice. Any such determination of Fair Value shall be described in a statement
filed with the records of the actions of the Board of Directors.
7.10. GROUP shall mean, as of any date, the Residual Group or the Atlantic
Utility Group, as the case may be.
7.11. INTERGROUP INTEREST FRACTION as of any date shall mean a fraction the
numerator of which shall be the Number of Shares Issuable with Respect to the
Intergroup Interest on such date and the denominator of which shall be the sum
of (A) such Number of Shares Issuable with Respect to the Intergroup Interest
and (B) the aggregate number of shares of Class A Common Stock outstanding on
such date. A statement setting forth the Intergroup Interest Fraction as of the
record date for any dividend or distribution on any class of Common Stock, as of
the effective date of any conversion, exchange or exercise of Convertible
Securities into or for shares of Class A Common Stock and as of the end of each
fiscal quarter of the Corporation shall be filed by the Secretary of the
Corporation in the records of the Board of Directors of the Corporation not
later than ten days after such date.
7.12. MARKET CAPITALIZATION of any class or series of common stock on any
date shall mean the product of (i) the Market Value of one share of such class
or series of common stock on such date and (ii) the number of shares of such
class or series of common stock outstanding on such date.
7.13. MARKET VALUE of a share of any class or series of capital stock of the
Corporation on any day shall mean the average of the high and low reported sales
prices regular way of a share of such class or series on such Trading Day or, in
case no such reported sale takes place on such Trading Day, the average of the
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reported closing bid and asked prices regular way of a share of such class or
series on such Trading Day, in either case as reported on the New York Stock
Exchange Composite Tape or, if the shares of such class or series are not listed
or admitted to trading on such Exchange on such Trading Day, on the principal
national securities exchange in the United States on which the shares of such
class or series are listed or admitted to trading or, if not listed or admitted
to trading on any national securities exchange on such Trading Day, on the
NASDAQ National Market or, if the shares of such class or series are not listed
or admitted to trading on any national securities exchange or quoted on such
National Market System on such Trading Day, the average of the closing bid and
asked prices of a share of such class or series in the over-the-counter market
on such Trading Day as furnished by any New York Stock Exchange member firm
selected from time to time by the Corporation or, if such closing bid and asked
prices are not made available by any such New York Stock Exchange member firm on
such Trading Day, the Fair Value of a share of such class or series; provided
that, for purposes of determining the market value of a share of any class or
series of capital stock for any period, (i) the "Market Value" of a share of
capital stock on any day prior to any "ex-dividend" date or any similar date
occurring during such period for any dividend or distribution (other than any
dividend or distribution contemplated by clause (ii)(B) of this sentence) paid
or to be paid with respect to such capital stock shall be reduced by the Fair
Value of the per share amount of such dividend or distribution and (ii) the
"Market Value" of any share of capital stock on any day prior to (A) the
effective date of any subdivision (by stock split or otherwise) or combination
(by reverse stock split or otherwise) of outstanding shares of such class or
series of capital stock occurring during such period or (B) any "ex-dividend"
date or any similar date occurring during such period for any dividend or
distribution with respect to such capital stock to be made in shares of such
class or series of capital stock or Convertible Securities that are convertible,
exchangeable or exercisable for such class or series of capital stock shall be
appropriately adjusted, as determined by the Board of Directors, to reflect such
subdivision, combination, dividend or distribution.
7.14. MARKET VALUE RATIO OF THE CLASS A COMMON STOCK TO THE COMPANY COMMON
STOCK as of any date shall mean the fraction (which may be greater than 1/1),
expressed as a decimal (rounded to the nearest five decimal places), of a share
of Company Common Stock (or another class or series of common stock of the
Corporation, if so provided by subsection 4.1 or subsection 5 of this Section II
because Company Common Stock is not then Publicly Traded) to be issued in
respect of a share of Class A Common Stock upon a conversion of Class A Common
Stock into Company Common Stock (or another class or series of common stock of
the Corporation) in accordance with subsection 4.1 of this Section II or to
determine the consideration attributable to a share of Class A Common Stock in
accordance with subsection 5 of this Section II, based on the ratio of the
market value of a share of Class A Common Stock to the market value of a share
of Company Common Stock (or such other common stock) as of such date, determined
by the fraction the numerator of which shall be the sum of (A) four times the
average Market Value of one share of Class A Common Stock over the period of
five consecutive Trading Days ending on such date, (B) three times the average
Market Value of one share of Class A Common Stock over the period of five
consecutive Trading Days ending on the fifth Trading Day prior to such date, (C)
two times the average Market Value of one share of Class A Common Stock over the
period of five consecutive Trading Days ending on the tenth Trading Day prior to
such date and (D) the average Market Value of one share of Class A Common Stock
over the period of five consecutive Trading Days ending on the fifteenth Trading
Day prior to such date and the denominator of which shall be the sum of (A) four
times the average Market Value of one share of Company Common Stock (or such
other common stock) over the period of five consecutive Trading Days ending on
such date, (B) three times the average Market Value of one share of Company
Common Stock (or such other common stock) over the period of five consecutive
Trading Days ending on the fifth Trading Day prior to such date, (C) two times
the average Market Value of one share of Company Common Stock (or such other
common stock) over the period of five consecutive Trading Days ending on the
tenth Trading Day prior to such date and (D) the average Market Value of one
share of Company Common Stock (or such other common stock) over the period of
five consecutive Trading Days ending on the fifteenth Trading Day prior to such
date.
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7.15. NET PROCEEDS shall mean, as of any date with respect to any
Disposition of any of the properties and assets attributed to the Atlantic
Utility Group an amount, if any, equal to what remains of the gross proceeds of
such Disposition after payment of, or reasonable provision is made as determined
by the Board of Directors for, (A) any taxes payable by the Corporation (or
which would have been payable but for the utilization of tax benefits
attributable to the Residual Group) in respect of such Disposition or in respect
of any resulting dividend or redemption pursuant to subparagraph (A)(1)(a) or
(b) of subsection 4.1 of this Section II, (B) any transaction costs, including,
without limitation, any legal, investment banking and accounting fees and
expenses, (C) any liabilities (contingent or otherwise) of or attributed to the
Atlantic Utility Group, including, without limitation, any liabilities for
deferred taxes or any indemnity or guarantee obligations of the Corporation
incurred in connection with the Disposition or otherwise, and any liabilities
for future purchase price adjustments and any preferential amounts plus any
accumulated and unpaid dividends in respect of Preferred Stock attributed to the
Atlantic Utility Group and (D) a capitalized amount (as determined by the Board
of Directors) of the notional obligation of the Atlantic Utility Group to the
Residual Group described in clause (iii) of the definition of Company Net Income
(Loss) Attributable to the Atlantic Utility Group. For purposes of this
definition, any properties and assets attributed to the Atlantic Utility Group
remaining after such Disposition shall constitute "reasonable provision" for
such amount of taxes, costs, liabilities (contingent or otherwise) and
capitalized amount as the Board of Directors determines can be expected to be
supported by such properties and assets.
7.16. NUMBER OF SHARES ISSUABLE WITH RESPECT TO THE INTERGROUP INTEREST
shall as of the Effective Date be ______________ (1) provided, however, that
such number shall from time to time thereafter be:
(A) adjusted as determined by the Board of Directors to be appropriate
to reflect any subdivision (by stock split or otherwise) or combination (by
reverse stock split or otherwise) of the Class A Common Stock or any
dividend or other distribution of shares of Class A Common Stock to holders
of shares of Class A Common Stock or any reclassification of Class A Common
Stock;
(B) decreased (but to not less than zero) by action of the Board of
Directors by (1) the number of shares of Class A Common Stock issued or sold
by the Corporation that, immediately prior to such issuance or sale, were
included (as determined by the Board of Directors pursuant to paragraph (C)
of this subsection 7.16) in the Number of Shares Issuable with Respect to
the Intergroup Interest, (2) the number of shares of Class A Common Stock
issued upon conversion, exchange or exercise of Convertible Securities that,
immediately prior to the issuance or sale of such Convertible Securities,
were included in the Number of Shares Issuable with Respect to the
Intergroup Interest, (3) the number of shares of Class A Common Stock issued
by the Corporation as a dividend or other distribution (including in
connection with any reclassification or exchange of shares) to holders of
Company Common Stock, (4) the number of shares of Class A Common Stock
issued upon the conversion, exchange or exercise of any Convertible
Securities issued by the Corporation as a dividend or other distribution
(including in connection with any reclassification or exchange of shares) to
holders of Company Common Stock, or (5) the number (rounded, if necessary,
to the nearest whole number) equal to the quotient of (a) the aggregate Fair
Value as of the date of contribution of properties or assets (including
cash) transferred from the Atlantic Utility Group to the Residual Group in
consideration for a reduction in the Number of Shares Issuable with Respect
to the Intergroup Interest divided by (b) the Market Value of one share of
Class A Common Stock as of the date of such transfer; and
(C) increased by (1) the number of outstanding shares of Class A Common
Stock repurchased by the Corporation for consideration that is attributed as
provided by subsection 7.21 to the Residual Group and (2) the number
(rounded, if necessary, to the nearest whole number) equal to the quotient
of (a) the Fair Value of properties or assets (including cash) theretofore
attributed as provided by
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(1) This number equals 7/3 times the number of Class A Common Stock to be issued
pursuant to the Mergers.
IV-18
<PAGE>
subsection 7.21 to the Residual Group that are contributed to the Atlantic
Utility Group in consideration of an increase in the Number of Shares
Issuable with Respect to the Intergroup Interest, divided by (b) the Market
Value of one share of Class A Common Stock as of the date of such
contribution and (3) the number of shares of Class A Common Stock into or
for which Convertible Securities are deemed converted, exchanged or
exercised pursuant to the penultimate sentence of the definition of
"Residual Group" in subsection 7.21 of this Section II.
7.17. OUTSTANDING ATLANTIC UTILITY FRACTION, as of any date, means the
fraction (which may simplify to 1/1) the numerator of which shall be the number
of shares of Class A Common Stock outstanding on such date and the denominator
of which shall be the sum of the number of shares of Class A Common Stock
outstanding on such date and the Number of Shares Issuable with Respect to the
Intergroup Interest on such date. A statement setting forth the Outstanding
Atlantic Utility Fraction as of the record date for the payment of any dividend
or distribution on any class of Common Stock and as of the end of each fiscal
quarter of the Corporation shall be filed by the Secretary of the Corporation in
the records of the actions of the Board of Directors not later than ten days
after such date.
7.18. PUBLICLY TRADED with respect to any security shall mean (i) registered
under Section 12 of the Securities Exchange Act of 1934, as amended (or any
successor provision of law), and (ii) listed for trading on the New York Stock
Exchange or the American Stock Exchange (or any national securities exchange
registered under Section 7 of the Securities Exchange Act of 1934, as amended
(or any successor provision of law), that is the successor to either such
exchange) or quoted in the National Association of Securities Dealers Automation
Quotation System (or any successor system).
7.19. REDEMPTION DATE shall mean the date fixed by the Board of Directors as
the effective date for a redemption of shares of Class A Common Stock, as set
forth in a notice to holders thereof required pursuant to paragraph (C), (D) or
(F) of subsection 4.3 of this Section II.
7.20. RELATED BUSINESS TRANSACTION means any Disposition of all or
substantially all the properties and assets attributed to the Atlantic Utility
Group in a transaction or series of related transactions that result in the
Corporation receiving in consideration of such properties and assets primarily
equity securities (including, without limitation, capital stock, debt securities
convertible into or exchangeable for equity securities or interests in a general
or limited partnership or limited liability company, without regard to the
voting power or other management or governance rights associated therewith) of
(1) any entity which (i) acquires such properties or assets or succeeds (by
merger, formation of a joint venture or otherwise) to the business conducted
with such properties or assets or controls such acquiror or successor and (ii)
is primarily engaged or proposes to engage primarily in one or more businesses
similar or complementary to the businesses conducted by the Atlantic Utility
Group prior to such Disposition, as determined by the Board of Directors.
7.21. RESIDUAL GROUP shall mean, as of any date from and as of the Effective
Date:
(A) the interest of the Corporation or any of its subsidiaries on such
date in all of the assets, liabilities and businesses of the Corporation or
any of its subsidiaries (and any successor companies), other than any
assets, liabilities and businesses attributed in accordance with this
Article IV to the Atlantic Utility Group;
(B) a proportionate undivided interest in each and every business, asset
and liability attributed to the Atlantic Utility Group equal to the
Intergroup Interest Fraction as of such date;
(C) all properties and assets transferred to the Residual Group from the
Atlantic Utility Group (other than pursuant to paragraph (D) of this
subsection 7.19) after the Effective Date pursuant to transactions in the
ordinary course of business of both the Residual Group and the Atlantic
Utility Group or otherwise as the Board of Directors may have directed;
IV-19
<PAGE>
(D) all properties and assets transferred to the Residual Group from the
Atlantic Utility Group in connection with a reduction of the Number of
Shares Issuable with Respect to the Intergroup Interest;
(E) the interest of the Corporation or any of its subsidiaries in any
business or asset acquired and any liabilities assumed by the Corporation or
any of its subsidiaries outside the ordinary course of business and
attributed to the Residual Group, as determined by the Board of Directors;
and
(F) from and after the payment date of any dividend or other
distribution with respect to shares of Class A Common Stock (other than a
dividend or other distribution payable in shares of Class A Common Stock,
with respect to which adjustment shall be made as provided in paragraph (A)
of subsection 7.16, or in securities of the Corporation attributed to the
Atlantic Utility Group, for which provision shall be made as set forth in
the third to last sentence of this definition), an amount of assets or
properties previously attributed to the Atlantic Utility Group of the same
kind as were paid in such dividend or other distribution with respect to
shares of Class A Common Stock as have a Fair Value on the record date for
such dividend or distribution equal to the product of (1) the Fair Value on
such record date of the aggregate of such dividend or distribution to
holders of shares of Class A Common Stock declared multiplied by (2) a
fraction the numerator of which is equal to the Intergroup Interest Fraction
in effect on the record date for such dividend or distribution and the
denominator of which is equal to the Outstanding Atlantic Utility Fraction
in effect on the record date for such dividend or distribution; provided
that from and after any transfer of any assets or properties from the
Residual Group to the Atlantic Utility Group, the Residual Group shall no
longer include such assets or properties so transferred (other than as
reflected in respect of such a transfer by the Intergroup Interest Fraction,
as provided by paragraph (B) of this subsection 7.21).
If the Corporation shall pay a dividend or make some other distribution with
respect to shares of Class A Common Stock payable in securities of the
Corporation that are attributed to the Atlantic Utility Group for purposes of
this Article IV (other than Class A Common Stock), the Residual Group shall be
deemed to hold an interest in the Atlantic Utility Group equivalent to the
number or amount of such securities that is equal to the product of the number
or amount of securities so distributed to holders of Class A Common Stock
multiplied by the fraction specified in clause (2) of paragraph (F) of this
subsection 7.21 (determined as of the record date for such distribution) and, to
the extent interest is or dividends are paid on the securities so distributed,
the Residual Group shall include, and there shall be transferred thereto out of
the Atlantic Utility Group, a corresponding ratable amount of the kind of assets
paid as such interest or dividends as would have been paid in respect of such
securities so deemed to be held by the Residual Group if such securities were
outstanding. The Corporation may also, to the extent the securities so paid as a
dividend or other distribution to the holders of Class A Common Stock are
Convertible Securities and at the time are convertible into or exchangeable or
exercisable for shares of Class A Common Stock, treat such Convertible
Securities as are so deemed to be held by the Residual Group to be deemed to be
converted, exchanged or exercised, and shall do so to the extent such
Convertible Securities are mandatorily converted, exchanged or exercised (and to
the extent the terms of such Convertible Securities require payment of
consideration for such conversion, exchange or exercise, the Residual Group
shall then no longer include an amount of the kind of properties or assets
required to be paid as such consideration for the amount of Convertible
Securities deemed converted, exchanged or exercised (and the Atlantic Utility
Group shall be attributed such properties or assets)), in which case, from and
after such time, the securities into or for which such Convertible Securities so
deemed to be held by the Residual Group were so considered converted, exchanged
or exercised shall be deemed held by the Residual Group (as provided in clause
(3) of paragraph (C) of subsection 7.16 of this Section II) and such Convertible
Securities shall no longer be deemed to be held by the Residual Group. A
statement setting forth the election to effectuate any such deemed conversion,
exchange or exercise of Convertible Securities so deemed to be held by the
Residual Group and the properties or assets, if any, to be attributed to the
Atlantic Utility Group in consideration of such conversion, exchange or exercise
(if any) shall be filed in
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<PAGE>
the records of the actions of the Board of Directors and, upon such filing, such
deemed conversion, exchange or exercise shall be effectuated.
7.22. RESIDUAL GROUP AVAILABLE DIVIDEND AMOUNT, on any date, shall mean
either:
(i) (x) the amount equal to the fair market value of the total assets
attributed to the Residual Group less the total amount of the liabilities
attributed to the Residual Group (provided that preferred stock shall not be
treated as a liability), in each case as of such date and determined on a
basis consistent with that applied in determining Company Net Income (Loss)
Attributable to the Residual Group, minus (y) the aggregate par value of, or
any greater amount determined to be capital in respect of, all outstanding
shares of Company Common Stock and shares of each class or series of
Preferred Stock attributed to the Residual Group, minus (z) the amount, if
any, as of such date, of amortization of goodwill during the period from the
Effective Date through such date arising from the Mergers with respect to
the Atlantic Utility Group (determined as set forth in clause (ii) of the
definition of Company Net Income (Loss) Attributable to the Residual Group
and, as in such clause (ii), excluding the portion thereof, if any, already
applied to reduce net income or increase net loss of the Residual Group for
such period by virtue of the Intergroup Interest Fraction), or
(ii) in case the total amount calculated pursuant to clause (i) above is
not a positive number, an amount equal to Company Net Income (Loss)
Attributable to the Residual Group (if positive) for the fiscal year in
which the dividend is declared and/or the preceding fiscal year.
Notwithstanding the foregoing provisions of this subsection 7.22, at any time
when there are not outstanding both (i) one or more shares of Company Common
Stock or Convertible Securities convertible into or exchangeable or exercisable
for Company Common Stock and (ii) one or more shares of Class A Common Stock or
Convertible Securities convertible into or exchangeable or exercisable for Class
A Common Stock, the "Available Dividend Amount," on any calculation date during
such time period, with respect to the Company Common Stock or the Class A Common
Stock, as the case may be (depending on which of such classes of Common Stock or
Convertible Securities convertible into or exchangeable or exercisable for such
class of Common Stock is outstanding), shall mean the amount available for the
payment of dividends on such Common Stock in accordance with law.
7.23. TIME-WEIGHTED MARKET PRICE as of any date with respect to any class of
Common Stock shall mean an amount equal to (i) the sum of (A) four times the
average Market Value of one share of such class of Common Stock over the period
of five consecutive Trading Days ending on such date, (B) three times the
average Market Value of one share of such class of Common Stock over the period
of five consecutive Trading Days ending on the fifth Trading Day prior to such
date, (C) two times the average Market Value of one share of such class of
Common Stock over the period of five consecutive Trading Days ending on the
tenth Trading Day prior to such date and (D) the average Market Value of one
share of such class of Common Stock over the period of five consecutive Trading
Days ending on the fifteenth Trading Day prior to such date, divided by (ii) ten
(10).
7.24. TRADING DAY shall mean each weekday other than any day on which the
relevant class of common stock of the Corporation is not traded on any national
securities exchange or quoted in the NASDAQ National Market or in the
over-the-counter market.
SECTION III. PREFERRED STOCK. The Preferred Stock may be issued from time to
time in one or more series. The Board of Directors is authorized, by resolution
adopted and filed in accordance with law, to fix the number of shares in each
series, the designation thereof, the voting powers, preferences and relative
participating, optional or other special rights thereof, and the qualifications
or restrictions thereon, of each series and the variations in such voting powers
and preferences and rights as between series. Any shares of any class or series
of Preferred Stock purchased, exchanged, converted or otherwise acquired by the
Corporation, in any manner whatsoever shall be retired and cancelled promptly
after the acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock, without designation as
to series, and may be reissued as part of any series of Preferred Stock created
by resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth in this certificate of
incorporation or in such resolution or resolutions.
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ARTICLE V.
BOARD OF DIRECTORS
SECTION I. POWERS. The business and affairs of the Corporation shall be
managed by, or under the direction of, a Board of Directors, which shall
exercise all of the powers of the Corporation except as are by law or by this
Certificate of Incorporation or the Bylaws of the Corporation conferred upon or
reserved to the stockholders of the Corporation.
SECTION II. NUMBER, TENURE AND QUALIFICATIONS OF DIRECTORS.
1. NUMBER OF DIRECTORS. The Board of Directors shall consist of no fewer
than 9 and no more than 18 directors, as determined from time to time by
resolution of the Board of Directors
2. TERMS OF DIRECTORS. The directors shall be divided into three classes
for the purpose of providing for staggered director terms, to be designated
Class I, Class II and Class III. Each class shall consist, as nearly as
possible, of one-third of the total number of directors constituting the entire
Board of Directors. Class I directors shall be elected for a term expiring on
the first annual meeting of stockholders following the Effective Date, Class II
directors shall be elected for a term expiring on the second annual meeting of
stockholders following the Effective Date, and Class III directors shall be
elected for a term expiring on the third annual meeting of stockholders
following the Effective Date. At each succeeding annual meeting of stockholders,
successors to the class of directors whose term expires at that annual meeting
shall be elected for three-year terms. If the number of directors is changed,
any increase or decrease shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal as possible, and
any additional director of any class elected to fill a vacancy resulting from an
increase in such class shall hold office for a term that shall coincide with the
remaining term of that class, but in no case will a decrease in the number of
directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting of stockholders for the year in which his or her
term expires and until his or her successor shall be elected and shall qualify,
subject, however, to prior death, resignation, retirement, disqualification or
removal from office. Except as otherwise required by law or in this Certificate
of Incorporation, any vacancy on the Board of Directors that results from an
increase in the number of directors and any other vacancy occurring in the Board
of Directors shall be filled by a majority of the directors then in office, even
if less than a quorum, or by the sole remaining director. Any director elected
to fill a vacancy not resulting from an increase in the number of directors
shall have the same remaining term as that of his or her predecessor.
3. REMOVAL OF DIRECTORS. Any director, or the entire Board of Directors,
may be removed from office only for cause and only by the affirmative vote of
not less than a majority of the votes entitled to be cast by the holders of all
the then outstanding shares of capital stock of the Corporation of any class or
series entitled to vote in the election of directors generally, voting together
as one class at an annual meeting or at a special meeting of the stockholders
called for such purpose.
4. CLASS VOTES FOR DIRECTORS. Notwithstanding the foregoing, whenever the
holders of any one or more classes or series of stock issued by the Corporation
shall have the right, voting separately by class or series, to elect directors,
the election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of this Certificate of
Incorporation applicable thereto, as amended, and such directors so elected
shall not be divided into classes pursuant to this Article V, Section II unless
expressly provided by such terms.
SECTION III. ADDITIONAL AUTHORITY OF BOARD. In furtherance and not in
limitation of the powers conferred by statute, the Board of Directors is
expressly authorized to make, alter, amend or repeal the Bylaws of the
Corporation.
SECTION IV. NOMINATION AND ELECTION OF DIRECTORS. Subject to the rights of
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, dissolution
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or winding up of the Corporation, nominations for the election of directors
shall be made by a nominating committee of the Board of Directors if then
constituted pursuant to the Bylaws of the Corporation, or if no nominating
committee has been constituted, by the Board of Directors. In addition, any
stockholder entitled to vote in the election of directors generally may nominate
one or more persons for election as directors at an annual meeting of
stockholders, but only if written notice of such stockholder's intent to make
such nomination or nominations has been received by the Secretary of the
Corporation not less than sixty nor more than ninety days prior to the first
anniversary of the preceding year's annual meeting of stockholders. In the event
that the date of the annual meeting of stockholders is advanced by more than
thirty days or delayed by more than sixty days from such anniversary or in the
case of the Corporation's first annual meeting of stockholders after the
Effective Date, notice by the stockholder to be timely must be received not
earlier than the ninetieth day prior to such annual meeting and not later than
the close of business on the later of (a) the sixtieth day prior to such annual
meeting or (b) the tenth day following the day on which notice of the date of
the annual meeting was mailed or public disclosure thereof was made by the
Corporation, whichever first occurs. Each such notice by a stockholder shall set
forth: (a) the name and address of the stockholder who intends to make the
nomination and of the person or persons to be nominated; (b) a representation
that the stockholder is a holder of record of stock of the Corporation entitled
to vote at such meeting and intends to appear in person or by proxy at a meeting
to nominate the person or persons specified in the notice; (c) a description of
all arrangements or understandings between the stockholder or any person that
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such stockholder ( an
"Affiliate" of such stockholder) and each nominee and any other person or
persons (naming such person or persons) relating to the nomination or
nominations; (d) the class and number of shares of the Corporation which are
beneficially owned by such stockholder and the person to be nominated as of the
date of such stockholder's notice and by any other stockholders known by such
stockholder to be supporting such nominees as of the date of such stockholder's
notice; (e) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission; and (f)
the written consent of each nominee to serve as a director of the Corporation if
so elected. The stockholder shall also comply with all applicable requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations thereunder, with respect to the matters set forth in this
Article V, Section IV.
In addition, in the event the Corporation calls a special meeting of
stockholders for the purpose of electing one or more directors, any stockholder
entitled to vote in the election of directors generally may nominate one or more
persons for election as directors at a special meeting only if written notice of
such stockholder's intent to make such nomination or nominations, setting forth
the information and complying with the form described in the immediately
preceding paragraph, has been received by the Secretary of the Corporation not
earlier than the ninetieth day prior to such special meeting and not later than
the close of business on the later of (i) the sixtieth day prior to such special
meeting or (ii) the tenth day following the day on which notice of the date of
the special meeting was mailed or public disclosure thereof was made by the
Corporation, whichever comes first. The stockholder shall also comply with all
applicable requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this Article V, Section IV.
No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Article V,
Section IV. The presiding officer of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by this Article V, Section IV, and if
he or she should so determine, the defective nomination shall be disregarded.
Elections of directors shall be by written ballot.
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ARTICLE VI.
STOCKHOLDERS
SECTION I. MEETINGS OF STOCKHOLDERS; BOOKS. Meetings of the stockholders may
be held within or without the State of Delaware, as the Bylaws may provide. Any
action required or permitted to be taken by the stockholders of the Corporation
must be effected at a duly called annual or special meeting of such stockholders
and may not be effected by a consent in writing by any such holders. Subject to
the rights of holders of any class or series of stock having a preference over
the Common Stock as to dividends or upon liquidation, dissolution or winding up
of the Corporation, special meetings of the stockholders of the Corporation may
be called only by the Chairman of the Board or by the Board of Directors
pursuant to a resolution approved by a majority of the entire Board of
Directors. The books of the Corporation may be kept (subject to any provision of
law) outside the State of Delaware at such place or places as may be designated
from time to time by the Board of Directors or in the Bylaws of the Corporation.
Except as otherwise required by law or by this Certificate of Incorporation,
the holders of not less than a majority in voting power of the shares entitled
to vote at any meeting of stockholders, present in person or by proxy, shall
constitute a quorum, and in all matters other than the election of directors the
act of the holders of a majority in voting power of the shares present in person
or by proxy and entitled to vote on the subject matter shall be deemed the act
of the stockholders. Directors shall be elected by a plurality of the vote of
the shares present in person or represented by proxy at a meeting of
stockholders and entitled to vote in the election of directors. If a quorum
shall fail to attend any meeting, the presiding officer may adjourn the meeting
to another place, date or time.
SECTION II. PROPOSALS OF STOCKHOLDERS. At any meeting of the stockholders,
only such business shall be conducted as shall have been properly brought before
such meeting. To be properly brought before an annual meeting of stockholders,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors or (c) otherwise properly brought before the meeting by a stockholder.
For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice must be
received no less than sixty days nor more than ninety days prior to the first
anniversary of the preceding year's annual meeting of stockholders; provided,
however, that in the event that the date of the annual meeting is advanced by
more than thirty days or delayed by more than sixty days from such anniversary
or in the case of the Corporation's first annual meeting of stockholders after
the Effective Date, notice by the stockholder to be timely must be received not
earlier than the ninetieth day prior to such annual meeting of stockholders and
not later than the close of business on the later of (a) the sixtieth day prior
to such annual meeting or (b) the tenth day following the date on which notice
of the date of the annual meeting was mailed or public disclosure thereof was
made, whichever first occurs. Each such notice shall set forth as to each matter
the stockholder proposes to bring before the annual meeting of stockholders: (a)
a brief description of the business desired to be brought before the annual
meeting of stockholders and the reasons for conducting such business at such
meeting, (b) the name and address, as they appear on the Corporation's books, of
the stockholder proposing such business, (c) the class, series and number of
shares of the Corporation which are beneficially owned by the stockholder, and
(d) any material interest of the stockholder or any Affiliate of the stockholder
in such business. The stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this Article VI, Section II. To be properly
brought before a special meeting, business must be (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors or (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors. No business may be brought before a special
meeting by stockholders.
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No business shall be conducted at any meeting of the stockholders except in
accordance with the procedures set forth in this Article VI, Section II. The
presiding officer of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
and in accordance with the provisions of this Article VI, Section II, and if he
or she should so determine, any such business not properly brought before the
meeting shall not be transacted. Nothing herein shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act or any successor
provision.
SECTION III. POWER TO AMEND BYLAWS. The stockholders shall have the power
and authority to amend the Bylaws of the Corporation only by the affirmative
vote of 80% or more of the aggregate number of votes that the holders of the
then outstanding shares of Common Stock and Preferred Stock are entitled to cast
on the amendment.
ARTICLE VII.
AMENDMENTS
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation; provided, however, that except
with respect to the designation of the rights and preferences of series of
Preferred Stock pursuant to Article IV, Section III, which is delegated to the
Board of Directors, and notwithstanding any other provisions of this Certificate
of Incorporation or the Bylaws of the Corporation (and notwithstanding the fact
that a lesser percentage or separate class vote may be specified by law, this
Certificate of Incorporation or the Bylaws of the Corporation), any lawful
amendment of this Certificate of Incorporation may be made by affirmative vote
by at least the proportion specified below of the aggregate number of votes
which the holders of the then outstanding shares of Common Stock and Preferred
Stock are entitled to cast on the amendment and, if the shares of one or more
classes or series are entitled under this Certificate of Incorporation or
otherwise by law to vote thereon as a class, affirmative vote by the same
proportion of the aggregate number of votes which the holders of the then
outstanding shares of such one or more classes or series are entitled to cast on
the amendment. The proportion referred to above in this Article VII shall be 80%
in the case of any amendment of the provisions set forth in Section III of
Article IV, Article V and Article VI of this Certificate of Incorporation and
this Article VII and shall be a majority in all other cases.
ARTICLE VIII.
LIMITATION ON DIRECTOR LIABILITY AND
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION I. LIMITED LIABILITY. A person who is or was a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (a) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the GCLD, or (d) for any transaction from which the director
derived an improper personal benefit. If the GCLD is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of the directors of the Corporation shall be
eliminated or limited to the fullest extent permitted by the GCLD, as so
amended. The elimination and limitation of liability provided herein shall
continue after a director has ceased to occupy such position as to acts or
omissions occurring during such director's term or terms of office, and no
amendment, repeal or modification of this Article IX shall apply to or have any
effect on the liability or
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alleged liability of any director of the Corporation for or with respect to any
acts or omissions of such director occurring prior to such amendment, repeal or
modification.
SECTION II. RIGHT TO INDEMNIFICATION.
1. Each person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or the person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the GCLD, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expenses, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
this Article VIII, Section II, the Corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if authorized by the Board of Directors of the
Corporation. Any indemnification under this Article VIII, Section II (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he or she has
met the applicable standard set forth in the GCLD. Such a determination shall be
made (a) by a majority vote of the directors who are not parties to such action,
suit or proceeding, even though less than a quorum; (b) by independent legal
counsel (compensated by the Corporation) in a written opinion; (c) by the
stockholders; or (d) in any other manner permitted by the GCLD. In addition to
the right to indemnification conferred in this Article VIII, Section II, each of
the above persons shall have the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the GCLD requires, the payment of such
expenses incurred by a director or officer in his or her capacity as a director
or officer of the Corporation (and not in any other capacity in which service
was or is rendered by such person while a director or officer, including,
without limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Section II or otherwise.
The Corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers. The right
to indemnification and to an advancement of expenses conferred in this Article
VIII, Section II, shall be a contract right.
2. If a claim under paragraph 1 of this Section II is not paid in full by
the Corporation within 30 days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim (including attorneys' fees). It shall be a defense to any
such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standard of conduct which makes
it permissible under the GCLD for the Corporation to indemnify the claimant for
the amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its
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stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
GCLD, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct. In any suit brought by the claimant to enforce a right to
indemnification or to an advancement of expenses hereunder, or brought by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the burden of proving that the claimant is not entitled to be
indemnified, or to such advancement of expenses, under this Article VIII or
otherwise shall be on the Corporation.
3. The rights to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Article VIII, Section II, shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, provision of this
Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
4. The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under the
GCLD.
5. The Corporation may enter into an indemnity agreement with any director,
officer, employee or agent of the Corporation, or of another corporation,
partnership, joint venture, trust or other enterprise, upon terms and conditions
that the Board of Directors deems appropriate, as long as the provisions of the
agreement are not impermissible under applicable law.
6. Any amendment or repeal of this Article VIII, Section II, shall not be
retroactive in effect.
7. In case any provision in this Article VIII, Section II, shall be
determined at any time to be unenforceable in any respect, the other provisions
shall not in any way be affected or impaired thereby, and the affected provision
shall be given the fullest possible enforcement in the circumstances, it being
the intention of the Corporation to afford indemnification and advancement of
expenses to the persons indemnified hereby to the fullest extent permitted by
law.
8. The Corporation may, by action of the Board of Directors, authorize one
or more officers to grant rights to indemnification and advancement of expenses
to employees or agents of the Corporation on such terms and conditions as such
officer or officers deem appropriate under the circumstances.
IN WITNESS WHEREOF, the undersigned has caused this Restated Certificate of
Incorporation to be executed in its corporate name by its this day
of , 199 .
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Name:
Title:
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ANNEX V
FORM OF BYLAWS
OF CONECTIV
1. OFFICES.
1.1 OFFICES. In addition to its registered office in the State of Delaware,
the Corporation shall have a corporate office in Wilmington, Delaware and a
significant presence in New Jersey, and such other offices, either within or
without the State of Delaware, at such locations as the Board of Directors may
from time to time determine or the business of the Corporation may require.
2. SEAL.
2.1 SEAL. The Corporation shall have a seal, which shall have inscribed
thereon its name and year of incorporation and the words, "Corporate Seal
Delaware."
3. MEETINGS OF STOCKHOLDERS.
3.1 ANNUAL MEETINGS. The annual meeting of stockholders of the Corporation
shall be held on such date, at such time and at such place within or without the
State of Delaware as shall be determined by the Board of Directors from time to
time.
3.2 SPECIAL MEETINGS. Special meetings of the stockholders of the
Corporation shall be held on such date, at such time and at such place within or
without the State of Delaware as the Board of Directors may designate.
3.3 NOTICE OF MEETINGS. (a) Notices of meetings of stockholders shall be in
writing and shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which a meeting is
called. No business other than that specified in the notice thereof shall be
transacted at any special meeting.
(b) Such notice shall either be delivered personally or mailed, postage
prepaid, to each stockholder entitled to vote at such meeting not less than 10
nor more than 60 days before the date of the meeting. If mailed, the notice
shall be directed to the stockholder at his or her address as it appears on the
records of the Corporation. Personal delivery of any such notice to any officer
of a corporation or association or to any member of a partnership shall
constitute delivery of such notice to such corporation, association or
partnership.
(c) Notice of any meeting of stockholders need not be given to any
stockholder if waived by such stockholder in writing, whether before or after
such meeting is held, or if such stockholder shall sign the minutes or attend
the meeting, except that if such stockholder attends a meeting for the express
purpose of objecting at the beginning of the meeting to the transaction of any
business because the meeting is not lawfully called or convened, such
stockholder shall not be deemed to have waived notice of such meeting.
3.4 ADJOURNED MEETINGS. When a meeting is adjourned to another time or
place, unless otherwise provided by these Bylaws, notice need not be given of
the adjourned meeting if the time and place thereof are announced at the meeting
at which the adjournment is taken. At the adjourned meeting the stockholders may
transact any business which might have been transacted at the original meeting.
If an adjournment is for more than 30 days, or if after an adjournment, a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder entitled to vote at the meeting.
3.5 QUORUM AND ADJOURNMENT. Except as otherwise provided by law, by the
Certificate of Incorporation of the Corporation or by these Bylaws, the
presence, in person or by proxy, of the holders of a majority of the aggregate
voting power of the stock issued and outstanding, entitled to vote thereat,
shall constitute
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a quorum for the transaction of business at all meetings of stockholders. If
such majority shall not be present or represented at any meeting of
stockholders, the stockholders present, although less than a quorum, shall have
the power to adjourn the meeting.
3.6 VOTE REQUIRED. Except as otherwise provided by law or by the Certificate
of Incorporation:
(a) Directors shall be elected by a plurality of the votes present in person
or represented by proxy at a meeting of stockholders and entitled to vote in the
election of directors, and
(b) whenever any corporate action other than the election of Directors is to
be taken, it shall be authorized by a majority in voting power of the shares
present in person or by proxy at a meeting of stockholders and entitled to vote
on the subject matter.
3.7 MANNER OF VOTING. At each meeting of stockholders, each stockholder
having the right to vote shall be entitled to vote in person or by proxy.
Proxies need not be filed with the Secretary of the Corporation until the
meeting is called to order, but shall be filed before being voted. Each
stockholder shall be entitled to vote each share of stock having voting power
registered in his name on the books of the Corporation on the record date fixed
for determination of stockholders entitled to vote at such meeting. All
elections of Directors by stockholders shall be by written ballot.
3.8 PROXIES. (a) At any meeting of stockholders, any stockholder may be
represented and vote by proxy or proxies appointed by a written form of proxy.
In the event that any form of proxy shall designate two or more persons to act
as proxies, a majority of such persons present at the meeting or, if only one
shall be present, then that one shall have and may exercise all of the powers
conferred by the form of proxy upon all of the persons so designated unless the
form of proxy shall otherwise provide.
(b) The Board of Directors may, in advance of any annual or special meeting
of the stockholders, prescribe additional regulations concerning the manner of
execution and filing of proxies and the validation of the same, which are
intended to be voted at any such meeting.
3.9 PRESIDING OFFICER AND SECRETARY. The Chairman of the Board shall act as
chairman of all meetings of the stockholders. In the absence of the Chairman of
the Board, the Vice Chairman of the Board or, in his or her absence, the Chief
Executive Officer or, in his or her absence, the President or, in his or her
absence, any Vice President designated by the Board of Directors shall act as
chairman of the meeting.
The Secretary of the Corporation shall act as secretary of all meetings of
the stockholders, but, in the absence of the Secretary, the Assistant Secretary
designated in accordance with Section 5.11(b) of these Bylaws shall act as
secretary of all meetings of the stockholders, but in the absence of a
designated Assistant Secretary, the chairman of the meeting may appoint any
person to act as secretary of the meeting.
3.10 PROCEDURE. At each meeting of stockholders, the chairman of the meeting
shall fix and announce the date and time of the opening and the closing of the
polls for each matter upon which the stockholders will vote at the meeting and
shall determine the order of business and all other matters of procedure. Except
to the extent inconsistent with any such rules and regulations as adopted by the
Board of Directors, the chairman of the meeting may establish rules, which need
not be in writing, to maintain order and safety and for the conduct of the
meeting. Without limiting the foregoing, he or she may:
(a) restrict attendance at any time to bona fide stockholders of record and
their proxies and other persons in attendance at the invitation of the chairman;
(b) restrict dissemination of solicitation materials and use of audio or
visual recording devices at the meeting;
(c) adjourn the meeting without a vote of the stockholders, whether or not
there is a quorum present; and
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(d) make rules governing speeches and debate, including time limits and
access to microphones.
The chairman of the meeting acts in his or her absolute discretion and his
or her rulings are not subject to appeal.
4. DIRECTORS.
4.1 POWERS. The Board of Directors shall exercise all of the powers of the
Corporation except such as are by law, or by the Certificate of Incorporation of
this Corporation or by these Bylaws conferred upon or reserved to the
stockholders of any class or classes.
4.2 RESIGNATIONS. Any Director may resign at any time by giving written
notice to the Board of Directors or the Secretary. Such resignation shall take
effect at the date of receipt of such notice or at any later time specified
therein. Acceptance of such resignation shall not be necessary to make it
effective.
4.3 PRESIDING OFFICER AND SECRETARY. The Chairman of the Board shall act as
chairman of all meetings of the Board of Directors. In the absence of the
Chairman of the Board, the Vice Chairman of the Board, or in his absence, the
Chief Executive Officer or other person designated by the Board of Directors
shall act as chairman of the meeting.
The Secretary of the Corporation shall act as secretary of all meetings of
the Board of Directors, but, in the absence of the Secretary, the Assistant
Secretary designated in accordance with Section 5.11(b) of these Bylaws shall
act as secretary of all meetings of the stockholders, but in the absence of a
designated Assistant Secretary, the chairman of the meeting may appoint any
person to act as secretary of the meeting.
4.4 ANNUAL MEETINGS. The Board of Directors shall meet each year immediately
following the annual meeting of stockholders, at the place where such meeting of
stockholders has been held, or at such other place as shall be fixed by the
person presiding over the meeting of the stockholders, for the purpose of
election of officers and consideration of such other business as the Board of
Directors considers relevant to the management of the Corporation.
4.5 REGULAR MEETINGS. Regular meetings of the Board of Directors shall be
held on such dates and at such times and places, within or without the state of
Delaware, as shall from time to time be determined by the Board of Directors. In
the absence of any such determination, such meetings shall be held at such times
and places, within or without the State of Delaware, as shall be designated by
the Chairman of the Board on not less than twelve hours notice to each Director,
given verbally or in writing either personally, by telephone (including by
message or recording device), by facsimile transmission, by telegram or by telex
or on not less than three (3) calendar days' notice to each Director given by
mail.
4.6 SPECIAL MEETINGS. Special meetings of the Board of Directors shall be
held at the call of the Chairman of the Board at such times and places, within
or without the State of Delaware, as he or she shall designate, on not less than
twelve hours notice to each Director, given verbally or in writing either
personally, by telephone (including by message or recording device), by
facsimile transmission, by telegram or by telex or on not less than three (3)
calendar days' notice to each Director given by mail. Special meetings shall be
called by the Secretary on like notice at the written request of a majority of
the Directors then in office.
4.7 QUORUM AND POWERS OF A MAJORITY. At all meetings of the Board of
Directors and of each committee thereof, a majority of the members shall be
necessary and sufficient to constitute a quorum for the transaction of business,
and the act of a majority of the members present at any meeting at which a
quorum is present shall be the act of the Board of Directors or such committee,
unless by express provision of law, of the Certificate of Incorporation or these
Bylaws, a different vote is required, in which case such express provision shall
govern and control. In the absence of a quorum, a majority of the members
present at any
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meeting may, without notice other than announcement at the meeting, adjourn such
meeting from time to time until a quorum is present.
4.8 WAIVER OF NOTICE. Notice of any meeting of the Board of Directors, or
any committee thereof, need not be given to any member if waived by him or her
in writing, whether before or after such meeting is held, or if he or she shall
sign the minutes or attend the meeting, except that if such Director attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because the meeting is not lawfully called or
convened, then such Director shall not be deemed to have waived notice of such
meeting.
4.9 MANNER OF ACTING. (a) Members of the Board of Directors, or any
committee thereof, may participate in any meeting of the Board of Directors or
such committee by means of conference telephone or similar communications
equipment by means of which all persons participating therein can hear each
other, and participation in a meeting by such means shall constitute presence in
person at such meeting.
(b) Any action required or permitted to be taken at any meeting of the Board
of Directors or any committee thereof may be taken without a meeting if all
members of the Board of Directors or such committee, as the case may be, consent
thereto in writing, and the writings are filed with the minutes of proceedings
of the Board of Directors or such committee.
4.10 COMPENSATION. (a) The Board of Directors, by a resolution or
resolutions, may fix, and from time to time change, the compensation of
Directors.
(b) Each Director shall be entitled to reimbursement from the Corporation
for his or her reasonable expenses incurred with respect to duties as a member
of the Board of Directors or any committee thereof.
(c) Nothing contained in these Bylaws shall be construed to preclude any
Director from serving the Corporation in any other capacity and from receiving
compensation from the Corporation for service rendered to it in such other
capacity.
4.11 COMMITTEES. The Board of Directors may designate one or more
committees, each committee to consist of one or more Directors, which to the
extent provided in said resolution or resolutions shall have and may exercise
the powers and authority of the Board of Directors in the management of the
business and affairs of the corporation; provided, however, that no such
committee shall have the power or authority in reference to the following
matters: (i) approving or adopting, or recommending to the stockholders, any
action or matter expressly required by the General Corporation Law of Delaware
(the "GCLD") to be submitted to stockholders for approval or (ii) adopting,
amending, or repealing any bylaw of the corporation. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member of the committee. In the absence or
disqualification of a member of a committee, the member or members present at
any meeting of such committee and not disqualified from voting, whether or not
such member of members constitute a quorum, may unanimously appoint another
member of the board of directors to act as at the meeting in place of such
absent of disqualified director.
4.12 COMMITTEE PROCEDURE, LIMITATIONS OF COMMITTEE POWERS. (a) Except as
otherwise provided by these Bylaws, each committee shall adopt its own rules
governing the time, place and method of holding its meetings and the conduct of
its proceedings and shall meet as provided by such rules or by resolution of the
Board of Directors. Unless otherwise provided by these Bylaws or any such rules
or resolutions, notice of the time and place of each meeting of a committee
shall be given to each member of such committee as provided in Section 4.6 of
these Bylaws with respect to notices of special meetings of the Board of
Directors.
(b) Each committee shall keep regular minutes of its proceedings and report
the same to the Board of Directors when required.
V-4
<PAGE>
(c) Any member of any committee may be removed from such committee either
with or without cause, at any time, by the Board of Directors at any meeting
thereof. Any vacancy in any committee shall be filled by the Board of Directors
in the manner prescribed by the Certificate of Incorporation or these Bylaws for
the original appointment of the members of such committee.
5. OFFICERS.
5.1 NUMBER. (a) The officers of the Corporation shall include a Chief
Executive Officer, a President, one or more Vice Presidents (including one or
more Executive Vice Presidents and one or more Senior Vice Presidents if deemed
appropriate by the Board of Directors), a Secretary and a Treasurer. The Board
of Directors shall also elect a Chairman of the Board and may elect a Vice
Chairman of the Board. The Board of Directors may also elect such other officers
as the Board of Directors may from time to time deem appropriate or necessary.
Except for the Chairman of the Board, the Vice Chairman of the Board and the
Chief Executive Officer, none of the officers of the Corporation need be a
director of the Corporation. Any two or more offices may be held by the same
person to the extent permitted by the GCLD.
(b) The Board of Directors may delegate to the Chief Executive Officer or
President the power to appoint one or more employees of the Corporation as
divisional or departmental vice presidents and fix the duties of such
appointees. However, no such divisional or departmental vice president shall be
considered as an officer of the Corporation, the officers of the Corporation
being limited to those officers elected by the Board of Directors.
5.2 ELECTION OF OFFICERS, QUALIFICATION AND TERM. The officers of the
Corporation shall be elected from time to time by the Board of Directors and,
except as may otherwise be expressly provided in a contract of employment duly
authorized by the Board of Directors or the Merger Agreement, shall hold office
at the pleasure of the Board of Directors.
5.3 REMOVAL. Except as otherwise expressly provided in the Merger Agreement,
any officer elected by the Board of Directors may be removed, either with or
without cause, by the Board of Directors at any meeting thereof, or to the
extent delegated to the Chairman of the Board or the Chief Executive Officer, by
the Chairman of the Board or the Chief Executive Officer.
5.4 RESIGNATIONS. Any officer of the Corporation may resign at any time by
giving written notice to the Board of Directors or to the Chairman of the Board
or to the Chief Executive Officer. Such resignation shall take effect at the
date of the receipt of such notice or at any later time specified therein and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
5.5 SALARIES. The salaries of all officers of the Corporation shall be fixed
by the Board of Directors from time to time, and no officer shall be prevented
from receiving such salary by reason of the fact that he is also a Director of
the Corporation.
5.6 THE CHAIRMAN OF THE BOARD. The Chairman of the Board shall have the
powers and duties customarily and usually associated with the office of the
Chairman of the Board. The Chairman of the Board shall preside at meetings of
the stockholders and of the Board of Directors.
5.7 VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board shall have
the powers and duties customarily and usually associated with the office of the
Vice Chairman of the Board.
5.8 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall have, subject
to the supervision, direction and control of the Board of Directors, the general
powers and duties of supervision, direction and management of the affairs and
business of the Corporation usually vested in the chief executive officer of a
corporation, including, without limitation, all powers necessary to direct and
control the organizational and reporting relationships within the Corporation.
If at any time the office of the Chairman of the Board and the Vice Chairman of
the Board shall not be filled, or in the event of the temporary absence or
disability of
V-5
<PAGE>
the Chairman of the Board and the Vice Chairman of the Board, the Chief
Executive Officer shall have the powers and duties of the Chairman of the Board.
5.9 THE PRESIDENT. The President shall serve as chief operating officer and
shall have such other powers and perform such other duties as may be delegated
to him or her from time to time by the Board of Directors or the Chief Executive
Officer.
5.10 THE VICE PRESIDENTS. Each Vice President shall have such powers and
perform such duties as may from time to time be assigned to him or her by the
Board of Directors, the Chief Executive Officer or the President.
5.11 THE SECRETARY AND THE ASSISTANT SECRETARY. (a) The Secretary shall
attend meetings of the Board of Directors and meetings of the stockholders and
record all votes and minutes of all such proceedings in a book kept for such
purpose. He or she shall have all such further powers and duties as generally
are incident to the position of Secretary or as may from time to time be
assigned to him or her by the Board of Directors, the Chief Executive Officer or
the President.
(b) Each Assistant Secretary shall have such powers and perform such duties
as may from time to time be assigned to him or her by the Board of Directors,
the Chief Executive Officer, the President or the Secretary. In case of the
absence or disability of the Secretary, the Assistant Secretary designated by
the Chief Executive Officer (or, in the absence of such designation, by the
Secretary) shall perform the duties and exercise the powers of the Secretary.
5.12 THE TREASURER AND THE ASSISTANT TREASURER. (a) The Treasurer shall have
custody of the Corporation's funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit or cause to be deposited moneys or other valuable
effects in the name and to the credit of the Corporation in such depositories as
may be designated by the Board of Directors. The Treasurer shall also maintain
adequate records of all assets, liabilities and transactions of the Corporation
and shall see that adequate audits thereof are currently and regularly made. The
Treasurer shall have such other powers and perform such other duties that
generally are incident to the position of Treasurer or as may from time to time
be assigned to him or her by the Board of Directors, the Chief Executive Officer
or the President.
(b) Each Assistant Treasurer shall have such powers and perform such duties
as may from time to time be assigned to him or her by the Board of Directors,
the Chief Executive Officer, the President or the Treasurer. In case of the
absence or disability of the Treasurer, the Assistant Treasurer designated by
the Chief Executive Officer (or, in the absence of such designation, by the
Treasurer) shall perform the duties and exercise the powers of the Treasurer.
6. STOCK.
6.1 CERTIFICATES. Certificates for shares of stock of the Corporation shall
be issued under the seal of the Corporation, or a facsimile thereof, and shall
be numbered and shall be entered in the books of the Corporation as they are
issued. Each certificate shall bear a serial number, shall exhibit the holder's
name and the number of shares evidenced thereby, and shall be signed by the
Chairman of the Board or a Vice Chairman, if any, or the Chief Executive Officer
or the President or any Vice President, and by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer. Any or all of the
signatures on the certificate may be a facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the corporation
with the same effect as if such person or entity were such officer, transfer
agent or registrar at the date of issue.
6.2 TRANSFERS. Transfers of stock of the Corporation shall be made on the
books of the Corporation only upon surrender to the Corporation of a certificate
(if any) for the shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, provided such
V-6
<PAGE>
succession, assignment or transfer is not prohibited by the Certificate of
Incorporation, these Bylaws, applicable law or contract. Thereupon, the
Corporation shall issue a new certificate (if requested) to the person entitled
thereto, cancel the old certificate (if any) and record the transaction upon its
books.
6.3 LOST, STOLEN OR DESTROYED CERTIFICATES. Any person claiming a
certificate of stock to be lost, stolen or destroyed shall make an affidavit or
an affirmation of that fact, and shall give the Corporation a bond of indemnity
in satisfactory form and with one or more satisfactory sureties, whereupon a new
certificate (if requested) may be issued of the same tenor and for the same
number of shares as the one alleged to be lost, stolen or destroyed.
6.4 REGISTERED STOCKHOLDERS. The Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the owner of shares
as the person entitled to exercise the rights of a stockholder and shall not be
bound to recognize any equitable or other claim to or interest in any such
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise expressly provided by the GCLD.
6.5 ADDITIONAL POWERS OF THE BOARD. (a) In addition to those powers set
forth in Section 4.1, the Board of Directors shall have power and authority to
make all such rules and regulations as it shall deem expedient concerning the
issue, transfer and registration of certificates for shares of stock of the
Corporation, including the use of uncertificated shares of stock subject to the
provisions of the GCLD.
(b) The Board of Directors may appoint and remove transfer agents and
registrars of transfers, and may require all stock certificates to bear the
signature of any such transfer agent and/or any such registrar of transfers.
7. MISCELLANEOUS.
7.1 PLACE AND INSPECTION OF BOOKS. (a) The books of the Corporation other
than such books as are required by law to be kept within the State of Delaware
shall be kept in such place or places either within or without the State of
Delaware as the Board of Directors may from time to time determine.
(b) At least ten days before each meeting of stockholders, the officer in
charge of the stock ledger of the Corporation shall prepare a complete list of
the stockholders entitled to vote at the meeting, arranged in alphabetical order
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not specified, at the place where
the meeting is to be held. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof, and may be inspected by
any stockholder who is present.
(c) The Board of Directors shall determine from time to time whether and, if
allowed, when and under what conditions and regulations the accounts and books
of the Corporation (except such as may be by law specifically open to inspection
or as otherwise provided by these Bylaws) or any of them shall be open to the
inspection of the stockholders and the stockholders' rights in respect thereof.
7.2 VOTING SHARES IN OTHER CORPORATIONS. The Chief Executive Officer, the
President or any other officer of the Corporation designated by the Board of
Directors may vote any and all shares held by the Corporation in any other
corporation.
7.3 FISCAL YEAR. The fiscal year of the Corporation shall be such fiscal
year as the Board of Directors from time to time by resolution shall determine.
7.4 GENDER/NUMBER. As used in these Bylaws, the masculine, feminine or
neuter gender, and the singular or plural number, shall each include the others
whenever the context so indicates.
V-7
<PAGE>
7.5 PARAGRAPH TITLES. The titles of the paragraphs have been inserted as a
matter of reference only and shall not control or affect the meaning or
construction of any of the terms and provisions hereof.
7.6 AMENDMENT. These Bylaws may be altered, amended or repealed by (a) the
affirmative vote of 80% or more of the aggregate number of votes that the
holders of the then outstanding shares of Common Stock and Preferred Stock are
entitled to cast on the amendment, or (b) by resolution adopted by the
affirmative vote of not less than a majority of the Directors in office, at any
annual or regular meeting of the Board of Directors or at any special meeting of
the Board of Directors if notice of the proposed alteration, amendment or repeal
be contained in written notice of such special meeting. Notwithstanding the
foregoing, the amendment of any provision of these Bylaws requiring an
affirmative vote in excess of a majority of the Directors in office shall
require the affirmative vote of at least the number of directors the affirmative
vote of whom is required by such provision.
7.7 CERTIFICATE OF INCORPORATION. Notwithstanding anything to the contrary
contained herein, if any provision contained in these Bylaws is inconsistent
with or conflicts with a provision of the Certificate of Incorporation, such
provision of these Bylaws shall be superseded by the inconsistent provision in
the Certificate of Incorporation to the extent necessary to give effect to such
provision in the Certificate of Incorporation.
V-8
<PAGE>
ANNEX VI
ILLUSTRATION OF CERTAIN CLASS A COMMON STOCK TERMS
The following illustrations demonstrate the method of calculating the
Intergroup Interest in the Atlantic Utility Group and certain other items
following the issuance of Class A Common Stock to the holders of Atlantic Common
Stock pursuant to the Merger Agreement and, subsequent thereto, in a range of
transactional contexts. The illustrations use 40 million shares as the number of
authorized shares of Class A Common Stock, 6 million shares as the number of
shares of Class A Common Stock issued to the holders of Atlantic Common Stock
pursuant to the Atlantic Merger, and 14 million shares as the Number of Shares
Issuable with Respect to the Intergroup Interest in the Atlantic Utility Group
upon consummation of the Mergers. Unless otherwise specified, each illustration
below should be read independently as if none of the other transactions
illustrated in this Annex VI had occurred. Capitalized terms used herein have
the respective meanings assigned to them in the Joint Proxy
Statement/Prospectus.
The following are illustrations only and are not intended to reflect either
the results of the Mergers or transactions that are anticipated to occur
following the Mergers. Nor do the illustrations indicate all of the consequences
of the transactions that are illustrated. The illustrations are qualified in
their entirety by the more detailed information contained in the Joint Proxy
Statement/Prospectus and the other Annexes thereto, including Annex IV, which
sets forth the terms of the Class A Common Stock.
At any given time, the Outstanding Atlantic Utility Fraction, which is the
percentage interest in the equity value of the Company attributable to the
Atlantic Utility Group that is represented by the outstanding shares of Class A
Common Stock, would equal:
<TABLE>
<S> <C> <C>
OUTSTANDING SHARES OF CLASS A COMMON STOCK
-------------------------------------------------------
OUTSTANDING SHARES + NUMBER OF SHARES ISSUABLE WITH RESPECT
OF CLASS A COMMON STOCK TO THE INTERGROUP INTEREST
</TABLE>
The balance of the equity value of the Company attributable to the Atlantic
Utility Group is represented by the Residual Group's Intergroup Interest in the
Atlantic Utility Group. At any given time, the Intergroup Interest Fraction,
which is the percentage interest in the equity value of the Company attributable
to the Atlantic Utility Group that is retained by the Residual Group, would
equal:
<TABLE>
<S> <C> <C>
NUMBER OF SHARES ISSUABLE WITH RESPECT TO THE INTERGROUP INTEREST
-----------------------------------------------------------------
OUTSTANDING SHARES + NUMBER OF SHARES ISSUABLE WITH RESPECT
OF CLASS A COMMON STOCK TO THE INTERGROUP INTEREST
</TABLE>
The sum of the Outstanding Atlantic Utility Fraction and the Intergroup
Interest Fraction will at all times equal 100%.
CONSUMMATION OF THE MERGERS
The following illustration shows how the foregoing items are calculated
after giving effect to the initial issuance by the Company of Class A Common
Stock to the holders of Atlantic Common Stock pursuant to the Merger Agreement.
- The Number of Shares Issuable with Respect to the Intergroup Interest will
be 14 million immediately following the consummation of the Mergers. As a
result, the Outstanding Atlantic Utility Fraction will be 30%, calculated
as follows:
6 million
---------
6 million + 14 million
VI-1
<PAGE>
-------
- The Intergroup Interest Fraction would accordingly represent an interest
of 70% in the Atlantic Utility Group.
- In the event of a dividend or other distribution on the Class A Common
Stock (other than a dividend or other distribution payable in shares of
Class A Common Stock or in securities of the Company attributed to the
Atlantic Utility Group), the Residual Group would be credited, and the
Atlantic Utility Group would be charged, with 2 1/3 (representing the
ratio of the Intergroup Interest Fraction (70%) to the Outstanding
Atlantic Utility Fraction (30%)) times the amount with respect to such
distribution. If, for example, a dividend of $1 per share were declared
and paid on the 6 million shares of Class A Common Stock outstanding (an
aggregate of $6 million), the Residual Group would be credited with $14
million, and the Atlantic Utility Group would be charged with that amount
in addition to the $6 million dividend on the outstanding shares of Class
A Common Stock (a total of $20 million). An example of the effects of a
distribution of Class A Common Stock is set forth below under the caption
"Class A Common Stock Dividends."
- Immediately after the consummation of the Mergers, the Company would have
34 million authorized and unissued shares of Class A Common Stock
remaining (40 million minus 6 million issued and outstanding).
REPURCHASES OF CLASS A COMMON STOCK
The following two illustrations reflect the repurchase by the Company of 2
million issued and outstanding shares of Class A Common Stock, which are then
retired or otherwise cease to be outstanding following their purchase.
REPURCHASE WITH ATLANTIC UTILITY GROUP FUNDS
Assume all of the repurchased shares are identified by the Company Board
were purchased with funds attributed to the Atlantic Utility Group, with the
Atlantic Utility Group being charged with the consideration paid for such
shares.
- Shares of Class A Common Stock Outstanding
<TABLE>
<S> <C>
Shares previously issued and outstanding.................................... 6 million
Shares purchased............................................................ 2 million
---------
Total shares issued and outstanding after purchase.......................... 4 million
---------
---------
</TABLE>
- The Number of Shares Issuable with Respect to the Intergroup Interest
would not be changed by the purchase of Class A Common Stock with funds
attributed to the Atlantic Utility Group but would continue to be 14
million.
- The Outstanding Atlantic Utility Fraction would be reduced to
approximately 22.2%, calculated as follows:
4 million
---------
4 million + 14 million
- The Intergroup Interest Fraction would accordingly represent an interest
of approximately 77.8% in the Atlantic Utility Group.
- In the event of a dividend or other distribution on the Class A Common
Stock immediately following the repurchase (other than a dividend or other
distribution payable in shares of Class A Common Stock or in securities of
the Company attributed to the Atlantic Utility Group), the Residual Group
would be credited, and the Atlantic Utility Group would be charged, with
an
VI-2
<PAGE>
amount equal to 3.5 (representing the ratio of the Intergroup Interest
Fraction (77.8%) to the Outstanding Atlantic Utility Fraction (22.2%))
times the amount of such distribution.
- The Company would have 36 million authorized and unissued shares of Class
A Common Stock (40 million minus 4 million issued and outstanding).
REPURCHASE WITH RESIDUAL GROUP FUNDS
Assume all of the repurchased shares identified by the Company Board were
purchased with funds attributed to the Residual Group, with the Residual Group
being charged with the consideration paid for such shares.
<TABLE>
<S> <C> <C>
- - Shares previously issued and outstanding.................................. 6 million
Shares purchased.......................................................... 2 million
---------
Total shares issued and outstanding after purchase........................ 4 million
---------
---------
- - The Number of Shares Issuable with Respect to the Intergroup Interest would be
increased by the number of shares of Class A Common Stock so purchased because the
purchase was effected with funds attributed to the Residual Group.
Number of Shares Issuable with Respect to the Intergroup Interest prior to 14
purchase................................................................ million
Shares purchased.......................................................... 2 million
---------
Number of Shares Issuable with Respect to the Intergroup Interest after 16
purchase.................................................................. million
---------
---------
</TABLE>
- The Outstanding Atlantic Utility Fraction would be reduced to 20%,
calculated as follows:
4 million
---------
4 million + 16 million
- The Intergroup Interest Fraction would accordingly represent an interest
of 80% in the Atlantic Utility Group.
- In the event of a dividend or other distribution on the Class A Common
Stock immediately following the repurchase (other than a dividend or other
distribution payable in shares of Class A Common Stock or in securities of
the Company attributed to the Atlantic Utility Group), the Residual Group
would be credited, and the Atlantic Utility Group would be charged, with
an amount equal to 4.0 (representing the ratio of the Intergroup Interest
Fraction (80%) to the Outstanding Atlantic Utility Fraction (20%)) times
the amount of such distribution.
- The Company would have 36 million authorized and unissued shares of Class
A Common Stock (40 million minus 4 million issued and outstanding).
VI-3
<PAGE>
TRANSFERS OF ASSETS BETWEEN THE RESIDUAL GROUP AND THE ATLANTIC UTILITY GROUP
CONTRIBUTION OF ASSETS FROM THE RESIDUAL GROUP TO THE ATLANTIC UTILITY GROUP
The following illustration reflects the contribution, by the Residual Group
to the Atlantic Utility Group with respect to the Intergroup Interest, of $20
million of assets previously attributed to the Residual Group, on a date on
which the Market Value of the Class A Common Stock is $20 per share.
<TABLE>
<S> <C> <C>
- - Shares previously issued and outstanding.................................. 6 million
Newly issued shares....................................................... 0
---------
Total shares issued and outstanding after contribution.................... 6 million
---------
---------
- - The Number of Shares Issuable with Respect to the Intergroup Interest would be
increased to reflect the contribution to the Atlantic Utility Group of assets
theretofore attributed to the Residual Group.
Number of Shares Issuable with Respect to the Intergroup Interest prior to 14
contribution............................................................ million
Adjustment to reflect contribution to the Atlantic Utility Group of assets
attributed to the Residual Group ($20 million divided by $20)........... 1 million
---------
Number of Shares Issuable with Respect to the Intergroup Interest after 15
contribution............................................................ million
---------
---------
- - The Outstanding Atlantic Utility Fraction would be reduced to approximately 28.6%,
calculated as follows:
</TABLE>
6 million
---------
6 million + 15 million
- The Intergroup Interest Fraction would accordingly represent an interest
of approximately 71.4% in the Atlantic Utility Group.
- In the event of a dividend or other distribution on the Class A Common
Stock immediately following the contribution (other than a dividend or
other distribution payable in shares of Class A Common Stock or in
securities of the Company attributed to the Atlantic Utility Group), the
Residual Group would be credited, and the Atlantic Utility Group would be
charged, with an amount equal to 2.5 (representing the ratio of the
Intergroup Interest Fraction (approximately 71.4%) to the Outstanding
Atlantic Utility Fraction (approximately 28.6%)) times the amount of such
distribution.
- The Company would have 34 million authorized and unissued shares of Class
A Common Stock (40 million minus 6 million issued and outstanding).
VI-4
<PAGE>
TRANSFER OF ASSETS FROM THE ATLANTIC UTILITY GROUP TO THE RESIDUAL GROUP
The following illustration reflects the transfer, from the Atlantic Utility
Group to the Residual Group in reduction of the Intergroup Interest, of $20
million of assets attributed to the Atlantic Utility Group, on a date on which
the Market Value of the Class A Common Stock is $20 per share.
<TABLE>
<S> <C> <C>
- - Shares previously issued and outstanding.................................. 6 million
Shares repurchased........................................................ 0
---------
Total shares issued and outstanding after transfer........................ 6 million
---------
---------
- - The Number of Shares Issuable with Respect to the Intergroup Interest would be
decreased to reflect the contribution to the Residual Group of assets theretofore
attributed to the Atlantic Utility Group.
Number of Shares Issuable with Respect to the Intergroup Interest prior to 14
transfer.................................................................. million
Adjustment to reflect transfer to the Residual Group of assets attributed
to the Atlantic Utility Group ($20 million divided by $20).............. 1 million
---------
Number of Shares Issuable with Respect to the Intergroup Interest after 13
transfer.................................................................. million
---------
---------
- - The Outstanding Atlantic Utility Fraction would be approximately 31.6%, calculated as
follows:
</TABLE>
6 million
---------
6 million + 13 million
- The Intergroup Interest Fraction would accordingly represent an interest
of approximately 68.4% in the Atlantic Utility Group.
- In the event of a dividend or other distribution on the Class A Common
Stock immediately following the transfer (other than a dividend or other
distribution payable in shares of Class A Common Stock or in securities of
the Company attributed to the Atlantic Utility Group), the Residual Group
would be credited, and the Atlantic Utility Group would be charged, with
an amount equal to 2 1/6 (representing the ratio of the Intergroup
Interest Fraction (approximately 68.4%) to the Outstanding Atlantic
Utility Fraction (approximately 31.6%)) times the amount of such
distribution.
- The Company would have 34 million authorized and unissued shares of Class
A Common Stock (40 million minus 6 million issued and outstanding).
- The Atlantic Utility Group may not make transfers of assets to the
Residual Group in reduction of the Intergroup Interest if the effect would
be to reduce the Number of Shares Issuable with Respect to the Intergroup
Interest to less than zero. The Atlantic Utility Group cannot have an
interest in the Residual Group corresponding to the Intergroup Interest.
FUTURE OFFERINGS OF CLASS A COMMON STOCK
The following illustrations reflect the issuance and sale by the Company of
6 million shares of Class A Common Stock on a date on which the Number of Shares
Issuable with Respect to the Intergroup Interest is 6 million.
VI-5
<PAGE>
OFFERING FOR THE ATLANTIC UTILITY GROUP
Assume all the issued and sold shares are identified as issued and sold for
the account of the Atlantic Utility Group, with the net proceeds credited to the
Atlantic Utility Group.
<TABLE>
<S> <C> <C>
Shares previously issued and outstanding.................................. 6 million
Newly issued shares....................................................... 6 million
---------
Total shares issued and outstanding after offering........................ 12
million
---------
---------
</TABLE>
- The Number of Shares Issuable with Respect to the Intergroup Interest
would not be changed by the issuance of any shares of Class A Common Stock
for the account of the Atlantic Utility Group and would remain equal to 14
million.
- The Outstanding Atlantic Utility Fraction would be approximately 46.2%,
calculated as follows:
12 million
-----------
12 million + 14 million
- The Intergroup Interest Fraction would accordingly represent an interest
of approximately 53.8% in the Atlantic Utility Group.
- The Company would have 28 million authorized and unissued shares of Class
A Common Stock remaining (40 million minus 12 million issued and
outstanding).
OFFERING FOR THE RESIDUAL GROUP
Assume all of the shares issued and sold are identified as issued and sold
for the account of the Residual Group with respect to the Intergroup Interest,
with the net proceeds credited to the Residual Group.
<TABLE>
<S> <C> <C>
Shares previously issued and outstanding.................................. 6 million
Newly issued shares....................................................... 6 million
---------
Total shares issued and outstanding after offering........................ 12
million
---------
---------
</TABLE>
- The Number of Shares Issuable with Respect to the Intergroup Interest
would decrease by the number of shares of Class A Common Stock issued for
the account of the Residual Group.
<TABLE>
<S> <C> <C>
Number of Shares Issuable with Respect to the Intergroup Interest prior to 14
offering.................................................................. million
Shares issued in offering................................................. 6 million
---------
Number of Shares Issuable with Respect to the Intergroup Interest after
offering.................................................................. 8 million
---------
---------
</TABLE>
- The Outstanding Atlantic Utility Fraction would be 60%, calculated as
follows:
12 million
----------
12 million + 8 million
- The Intergroup Interest Fraction would accordingly represent an interest
of 40% in the Atlantic Utility Group.
- The Company would have 28 million authorized and unissued shares of Class
A Common Stock remaining (40 million minus 12 million issued and
outstanding).
VI-6
<PAGE>
CLASS A COMMON STOCK DIVIDENDS
The following illustrations reflect dividends of Class A Common Stock on
outstanding Class A Common Stock and outstanding Company Common Stock,
respectively.
CLASS A COMMON STOCK DIVIDEND ON CLASS A COMMON STOCK
Assume the Company declares a dividend of half a share of Class A Common
Stock on each outstanding share of Class A Common Stock.
<TABLE>
<S> <C> <C>
Shares previously issued and outstanding.................................. 6 million
Newly issued shares....................................................... 3 million
---------
Total shares issued and outstanding after dividend........................ 9 million
---------
---------
</TABLE>
- The Number of Shares Issuable with Respect to the Intergroup Interest
would be increased proportionately to reflect the stock dividend payable
in shares of Class A Common Stock to holders of Class A Common Stock
(I.E., by an amount equal to (i) the ratio of the Intergroup Interest
Fraction to the Outstanding Atlantic Utility Fraction times (ii) the
number of shares distributed to the Class A Common Stock holders.
<TABLE>
<S> <C> <C>
Number of Shares Issuable with Respect to the Intergroup Interest prior to 14
dividend................................................................ million
Adjustment to reflect dividend of shares on outstanding shares of Class A
Common Stock (2 1/3 times 3 million shares)............................... 7 million
---------
Number of Shares Issuable with Respect to the Intergroup Interest after 21
dividend.................................................................. million
---------
---------
</TABLE>
- The Outstanding Atlantic Utility Fraction would continue to be 30%,
calculated as follows:
9 million
---------
9 million + 21 million
- The Intergroup Interest Fraction would accordingly continue to represent
an interest of 70% in the Atlantic Utility Group.
- The Company would have 31 million authorized and unissued shares of Class
A Common Stock remaining (40 million minus 9 million issued and
outstanding).
CLASS A COMMON STOCK DIVIDEND ON COMPANY COMMON STOCK
Assume the Company declares a dividend of 0.1 shares of Class A Common Stock
on each outstanding share of Company Common Stock, where 30 million shares of
Company Common Stock are outstanding.
<TABLE>
<S> <C> <C>
Shares previously issued and outstanding.................................. 6 million
Newly issued shares....................................................... 3 million
---------
Total shares issued and outstanding after dividend........................ 9 million
---------
---------
</TABLE>
VI-7
<PAGE>
- Any dividend of shares of Class A Common Stock on the outstanding shares
of Company Common Stock will be treated as reducing the Number of Shares
Issuable with Respect to the Intergroup Interest on a share-for-share
basis.
<TABLE>
<S> <C> <C>
Number of Shares Issuable with Respect to the Intergroup Interest prior to 14
dividend................................................................ million
Shares distributed on outstanding shares of Company Common Stock.......... 3 million
---------
Number of Shares Issuable with Respect to the Intergroup Interest after 11
dividend.................................................................. million
---------
---------
</TABLE>
- The Outstanding Atlantic Utility Fraction would be 45%, calculated as
follows:
9 million
---------
9 million + 11 million
- The Intergroup Interest Fraction would accordingly represent an interest
of 55% in the Atlantic Utility Group.
- The Company would have 31 million authorized and unissued shares of Class
A Common Stock remaining (40 million minus 9 million issued and
outstanding).
DIVIDEND, REDEMPTION OR CONVERSION UPON A DISPOSITION OF SUBSTANTIALLY ALL
ASSETS OF ATLANTIC UTILITY GROUP
Assume that a Disposition of all or substantially all of the properties and
assets of the Atlantic Utility Group occurs and the Net Proceeds (which includes
an adjustment for a capitalized amount of the Notional Fixed Charge) from such
Disposition equal $500 million.
- If the Company elected to pay a dividend to the holders of Class A Common
Stock, the aggregate amount of such dividend would be $150 million
(representing the product of the Outstanding Atlantic Utility Fraction and
the Net Proceeds of such Disposition), calculated as follows:
<TABLE>
<S> <C>
6 million X $500 million
----------------------
6 million + 14 million
</TABLE>
In this case, the Residual Group would be credited, and the Atlantic
Utility Group would be charged, with $350 million, an amount equal to
2 1/3 (representing the ratio of the Intergroup Interest Fraction (70%)
and the Outstanding Atlantic Utility Fraction (30%)), times the amount of
such dividend.
- If such Disposition involved all (not merely substantially all) of the
properties and assets of the Atlantic Utility Group and the Company
elected to redeem all outstanding shares of Class A Common Stock, the
aggregate redemption price would be $150 million (representing the product
of the Outstanding Atlantic Utility Fraction and the Net Proceeds of such
Disposition), calculated as follows:
<TABLE>
<S> <C>
6 million X $500 million
-----------------------
6 million + 14 million
</TABLE>
In this case, each outstanding share of Class A Common Stock would be
redeemed in exchange for $25 per share (representing the quotient of the
aggregate redemption price ($150 million) and the number of outstanding
shares of Class A Common Stock (6 million)).
- If such Disposition involved substantially all (but not all) of the
properties and assets of the Atlantic Utility Group and the Company
elected to redeem shares of Class A Common Stock, the aggregate
VI-8
<PAGE>
redemption price would be $150 million (representing to the product of the
Outstanding Atlantic Utility Fraction and the Net Proceeds of such
Disposition), calculated as follows:
<TABLE>
<S> <C>
6 million
----------------------
6 million + 14 million X $500 million
</TABLE>
In this case, assuming that the average Market Value of one share of Class
A Common Stock during the 10-Trading Day period following the consummation
of such Disposition is $30, an aggregate of 5 million (equal to the
quotient of the aggregate redemption price and such average Market Value)
shares of Class A Common Stock would be redeemed at a redemption price of
$30 per share.
- If the Company elected to convert the Class A Common Stock into Company
Common Stock assuming that the Market Value of one share of Class A Common
Stock on each Trading Day during the 10-Trading Day period referred to in
the preceding paragraph is $30 and the Market Value of one share of
Company Common Stock on each Trading Day during such period is $40, the
Class A Common Stock would be converted into Company Common Stock at a
ratio of 0.83 (representing 110% of the average daily ratio during such
period of the Market Value of one share of Class A Common Stock to the
Market Value of one share of Company Common Stock) shares of Company
Common Stock for each share of Class A Common Stock.
VI-9
<PAGE>
ANNEX VII
CONECTIV, INC.
INCENTIVE COMPENSATION PLAN
1. OBJECTIVE. The objective of the Conectiv, Inc. Incentive Compensation
Plan (this "Plan") is to support the financial performance of the Company (as
defined below) and thereby increase stockholder value. This Plan provides both
annual and long-term incentives to reward those officers, key employees,
consultants and advisors of the Company and its subsidiaries who, in the opinion
of the Committee (as defined below), are responsible for the continued growth,
development and financial success of the Company and its subsidiaries. This Plan
also is designed to permit the Company and its subsidiaries to hire and retain
talented and motivated executive officers and key employees and to increase
their ownership in Company Common Stock.
2. DEFINITIONS. All singular terms defined in this Plan will include the
plural and vice versa. As used herein, the following terms will have the meaning
specified below:
"ANNUAL INCENTIVE" means any Award in cash, Stock or in any other form
or type under this Plan, which is based on the performance of the Company
and/or the Participant individually or collectively with any other
individuals or groups, or any combination thereof, as the Committee, in its
sole discretion, deems appropriate, over the prior fiscal year.
"ATLANTIC" means Atlantic Energy, Inc., a New Jersey corporation.
"AWARD" means, individually, collectively or in any combination, Annual
Incentives, Restricted Stock, Options, Performance Units, Stock Appreciation
Rights, Dividend Equivalents, or such other forms or types of Awards as the
Committee, in its sole discretion, deems appropriate.
"BENEFICIAL OWNER" means "Beneficial Owner" as defined in Rule 13d-3
under the Exchange Act.
"BOARD" means the Board of Directors of the Company.
"CHANGE IN CONTROL" means the occurrence of an event in any one of the
following paragraphs:
(a) Any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the securities
beneficially owned by such Person any securities acquired directly from
the Company or its subsidiaries) representing 25% or more of either the
then outstanding shares of Stock of the Company or the combined voting
power of the Company's then outstanding securities; or
(b) The following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals who
constitute the initial Board after the Effective Time and any new
director (other than a director whose initial assumption of office is in
connection with an actual or threatened election contest, including but
not limited to a consent solicitation, relating to the election of
directors) whose appointment or election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds ( 2/3) of the directors then still in office who either were
directors of the initial Board after the Effective Time, or whose
appointment, election or nomination for election was previously so
approved; or
(c) There is consummated a merger or consolidation of the Company
with any other corporation other than (i) a merger or consolidation which
would result in the voting securities of the Company outstanding
immediately prior to such merger or consolidation continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the
VII-1
<PAGE>
surviving entity or any parent thereof) at least 80% of the combined
voting power of the voting securities of the Company or such surviving
entity or any parent thereof outstanding immediately after such merger or
consolidation, or (ii) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no
Person is or becomes the Beneficial Owner, directly or indirectly, of
securities of the Company (not including in the securities Beneficially
Owned by such Person any securities acquired directly from the Company or
its subsidiaries) representing 25% or more of either the then outstanding
shares of Stock of the Company or the combined voting power of the
Company's then outstanding securities; or
(d) The stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets, other than a sale or
disposition by the Company of all or substantially all of the Company's
assets to an entity, at least 80% of the combined voting power of the
voting securities of which are owned by Persons in substantially the same
proportions as their ownership of the Company immediately prior to such
sale.
"CODE" means the Internal Revenue Code of 1986, as amended. Reference
in this Plan to any section of the Code will be deemed to include any
amendments or successor provisions to such section and any regulations
promulgated thereunder.
"COMMITTEE" means the committee of the Board which has been designated
by the Board to administer this Plan or similar plans, which shall be
comprised solely of Non-Employee Directors (as such term is defined in Rule
16b-3(b)(3) of the Section 16 Rules), or which otherwise shall meet any
disinterested administration or other requirements of the Section 16 Rules
and/or Section 162(m) of the Code, each as in effect at the applicable time.
"COMPANY" means Conectiv, Inc., whose name formerly was DS, Inc. and
whose name will be changed to Conectiv as of the Effective Time.
"DATE OF GRANT" means the date on which the granting of an Award is
authorized by the Committee or such later date as may be specified by the
Committee in such authorization.
"DATE OF RETIREMENT" means the date of Retirement or Early Retirement
applicable to a Participant.
"DELMARVA" means Delmarva Power & Light Company, a Delaware and
Virginia corporation.
"DISABILITY" means the determination that a Participant is "disabled"
under the Company disability plan in effect at that time.
"DIVIDEND EQUIVALENT" means an Award granted under Section 14 hereof.
"EARLY RETIREMENT" means retirement prior to the Normal Retirement
Date.
"EARNED PERFORMANCE AWARD" means an actual Award of a specific number
of Performance Units (or shares of Restricted Stock, as the context
requires) which the Committee has determined have been earned and are
payable (or, in the case of Restricted Stock, earned and with respect to
which restrictions will lapse) for a particular Performance Period.
"EFFECTIVE TIME" means the Effective Time as defined in the Merger
Agreement.
"ELIGIBLE PERSON" means any person employed by the Company or a
subsidiary of the Company on a regular, contract or temporary basis, or any
consultant or advisor, who satisfies all of the requirements of Section 7
hereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time.
VII-2
<PAGE>
"EXERCISE PERIOD" means the period or periods during which a Stock
Appreciation Right is exercisable as described in Section 13(b) hereof.
"FAIR MARKET VALUE" means the average of the highest and lowest price
at which the Stock was sold in the typical manner on the New York Stock
Exchange--Composite Transactions on a specified date, or if such Stock was
not traded on the New York Stock Exchange--Composite Transactions on such
specified date, on the last date on which such Stock was so traded.
"INCENTIVE STOCK OPTION" means an incentive stock option within the
meaning of Section 422 of the Code.
"MERGER AGREEMENT" means the Agreement and Plan of Merger, dated as of
August 9, 1996, as amended and restated as of December 26, 1996, among the
Company, Delmarva Power & Light Company, Atlantic Energy, Inc. and DS Sub,
Inc., as it shall be amended from time to time prior to the Effective Time.
"NORMAL RETIREMENT DATE" means the earliest, as described in the
Pension Plan, when a Participant is entitled to an unreduced retirement
benefit under such Pension Plan.
"OPTION" or "STOCK OPTION" means either a nonqualified stock option or
an Incentive Stock Option granted under Section 11 hereof.
"OPTION PERIOD" means the period or periods during which an Option is
exercisable as described in Section 11(e) hereof.
"PARTICIPANT" means any Eligible Person who has been granted an Award
under this Plan.
"PENSION PLAN" means the applicable qualified or nonqualified defined
benefit retirement or pension plan of the Company or its subsidiaries, as it
may be amended from time to time, which covers the applicable Participant.
"PERFORMANCE-BASED" means that, in determining the amount of a
Restricted Stock Award payout, the Committee will take into account the
performance of the Company and/or the Participant individually or
collectively with any other individuals or groups, or any combination
thereof, as the Committee, in its sole discretion, deems appropriate.
"PERFORMANCE PERIOD" means a period of time, established by the
Committee at the time the Award is granted, during which corporate and/or
individual performance is measured.
"PERFORMANCE UNIT" means a unit of measurement equivalent to such
amount or measure as the Committee, in its sole discretion, deems
appropriate at the time the Performance Unit is granted, which may include,
but is not limited to, dollars or market value shares.
"PERSON" means "Person" as defined in Section 3(a)(9) of the Exchange
Act, as modified and used in Sections 13(d) and 14(d) thereof (except that
such term shall not include (i) the Company or any of its subsidiaries, (ii)
a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its subsidiaries, (iii) an underwriter
temporarily holding securities pursuant to an offering of such securities,
or (iv) a corporation owned, directly or indirectly, by the stockholders of
the Company in substantially the same proportions as their ownership of
stock of the Company).
"PLAN ADMINISTRATOR" means the Committee, as set forth in Section 6
hereof.
VII-3
<PAGE>
"POTENTIAL CHANGE IN CONTROL" means the occurrence of an event in any
one of the following paragraphs:
(a) The Company enters into an agreement, the consummation of which
would result in the occurrence of a Change in Control; or
(b) The Company or any Person publicly announces an intention to take
or to consider taking actions which, if consummated, would constitute a
Change in Control; or
(c) Any Person becomes the Beneficial Owner, directly or indirectly,
of securities of the Company (not including in the securities
Beneficially Owned by such Person any securities acquired directly from
the Company or its subsidiaries) representing 15% or more of either the
then outstanding shares of Stock of the Company or the combined voting
power of the Company's then outstanding securities; or
(d) The Board adopts a resolution to the effect that, for purposes of
this Plan, a Potential Change in Control has occurred.
"REPORTING PERSON" means a Participant who is subject to the reporting
requirements of Section 16(a) of the Exchange Act.
"RESTRICTED STOCK" means an Award, granted conditionally and subject to
forfeiture, under Section 10 hereof.
"RETIREMENT" means retirement on or after the Normal Retirement Date.
"SECTION 16 RULES" means the rules and regulations promulgated by the
Securities and Exchange Commission (or any successor) under Section 16 of
the Exchange Act. Reference in this Plan to the Section 16 Rules will be
deemed to include any amendments or successor provisions thereto.
"SERVICE-BASED" means that, in determining the amount of a Restricted
Stock Award payout, the Committee will take into account only the period of
time that the Participant performed services for the Company or its
subsidiaries since the Date of Grant.
"STOCK" means the Common Stock, $.01 par value, of the Company.
"STOCK APPRECIATION RIGHT" means an Award granted under Section 13
hereof.
"TARGET PERFORMANCE AWARD" means a targeted Award of a specified number
of Performance Units (or shares of Restricted Stock, as the context
requires) which may be earned and payable (or, in the case of Restricted
Stock, earned and with respect to which restrictions will lapse) based upon
the performance objectives for a particular Performance Period, all as
determined by the Committee, in its sole discretion. The Target Performance
Award will be a factor in the Committee's ultimate determination of the
Earned Performance Award.
"TERMINATION" means resignation or discharge from employment with the
Company or any of its subsidiaries, except in the event of death,
Disability, Retirement or Early Retirement.
3. EFFECTIVE DATE AND STOCKHOLDER APPROVAL. Subject to the approval of
this Plan by the affirmative vote of the holders of a majority of Common Stock
of Delmarva present in person or by proxy and entitled to vote and a majority of
all votes cast by holders of Common Stock of Atlantic entitled to vote at a
meeting of its stockholders and conditioned on the consummation of the
transactions contemplated by the Merger Agreement, this Plan will be effective
at the Effective Time.
4. PERIOD FOR GRANTS OF AWARDS. Awards may be made as provided herein for
a period of 10 years after the Effective Time.
VII-4
<PAGE>
5. TERMINATION. This Plan will continue in effect until all matters
relating to the payment of outstanding Awards and administration of this Plan
shall have been settled.
6. PLAN ADMINISTRATION. The Committee is the Plan Administrator and has
sole authority (except as otherwise specified herein) to determine all questions
of interpretation and application of this Plan, or of the terms and conditions
pursuant to which Awards are granted, exercised or forfeited under Plan
provisions, and, in general, to make all determinations advisable for the
administration of the Plan to achieve its stated objectives. Such determinations
by the Committee shall be final and not subject to further appeal.
7. ELIGIBILITY. Persons eligible to participate shall be limited to those
officers and other key employees of the Company and its subsidiaries, and
consultants and advisors who, in the sole discretion of the Committee, are in
positions in which their decisions, actions and counsel significantly affect the
growth, development and financial success of the Company. The eligibility of
persons to be Participants shall be in the sole discretion of the Committee and
no officer or employee of the Company or its subsidiaries shall have any right
to receive any Award under this Plan.
8. SHARES OF STOCK SUBJECT TO AWARDS. The Committee may, from time to
time, grant Awards to one or more Eligible Persons; provided that: (a) subject
to any adjustment pursuant to Section 24 hereof, the aggregate number of shares
of Stock subject to Awards under this Plan may not exceed 5,000,000; (b) to the
extent that an Award lapses, is forfeited or the rights of the Participant to
whom it was granted otherwise terminate, any shares of Stock subject to such
Award again shall be available for the grant of an Award under this Plan; and
(c) shares of Stock delivered by the Company under this Plan may be authorized
and unissued Stock, Stock held in treasury of the Company or Stock purchased on
the open market (including private purchases) in accordance with applicable
securities laws.
9. SECTION 162(M) COMPLIANCE.
(a) PERFORMANCE-BASED AWARDS; COVERED EXECUTIVES. Notwithstanding any
provisions herein to the contrary, with respect to any Award which is contingent
upon the attainment of performance objectives, including, without limitation,
Performance-Based Restricted Stock, Performance Units and Annual Incentives (for
purposes of this Section 9, "Performance-Based Awards"), granted to an executive
of the Company who, in the opinion of the Committee, for a given Performance
Period is or is likely to be a "covered employee" within the meaning of Section
162(m) of the Code (for purposes of this Section 9, a "Covered Executive"), the
Committee shall establish performance objectives (for purposes of this Section
9, "Performance Goals") with respect to such Awards no later than the earlier of
(i) 90 days after commencement of the Performance Period relating to the
Performance-Based Award, or (ii) the date on which 25% of the Performance Period
relating to the Performance-Based Award will have elapsed.
(b) PERFORMANCE CRITERIA. Performance Goals, in the sole discretion of the
Committee, may be based on one or more business criteria that relate to the
individual, groups of individuals, a product or service line, business unit,
division or subsidiary of the Company or the Company as a whole, individually or
in any combination (each of which business criteria may be relative to a
specified goal, to historical performance of the Company or a product or service
line, business unit, division or subsidiary thereof, or to the performance of
any other corporation or group of corporations or a product or service line,
business unit, division or subsidiary thereof). Performance Goals will be based
on one or more of the following criteria: (i) gross, operating or net earnings
before or after income taxes; (ii) earnings per share; (iii) book value per
share; (iv) cash flow per share; (v) return on equity; (vi) return on
investment; (vii) return on assets, employed assets or net assets; (viii) total
stockholder return (expressed on a dollar or percentage basis); (ix) return on
cash flow; (x) internal rate of return; (xi) cash flow return on investment;
(xii) improvements in capital structure; (xiii) residual income; (xiv) gross
income, profitability or net income; (xv) price of any Company security; (xvi)
sales to customers (expressed on a dollar or percentage basis); (xvii) retention
of customers (expressed on a dollar or percentage basis); (xviii) increase in
the Company's or a subsidiary's customer satisfaction ratings (based on a survey
conducted by an independent third party);
VII-5
<PAGE>
(xix) economic value added (defined to mean net operating profit minus the cost
of capital); (xx) market value added (defined to mean the difference between the
market value of debt and equity, and economic book value); (xxi) market share;
(xxii) level of expenses; (xxiii) combined ratio; (xxiv) payback period on
investment; and (xxv) net present value of investment.
(c) CERTIFICATION; MAXIMUM AWARD AND COMMITTEE DISCRETION. The Committee
shall certify the satisfaction of the foregoing Performance Goals prior to the
payment of a Performance-Based Award. No Performance-Based Award with respect to
any Covered Executive shall exceed $3,000,000 (either in cash or in Fair Market
Value of Stock as determined on the Date of Grant, as appropriate to a given
type of Award) for any Performance Period. The Committee, in its sole
discretion, may reduce (but not increase) the amount of any Performance-Based
Award determined to be payable to a Covered Executive. No Covered Executive may
receive more than 5,000,000 in the aggregate of Options, Stock Appreciation
Rights and shares of Performance-Based Restricted Stock for the 10-year period
during which Awards may be made pursuant to Section 4 hereof.
(d) DEFERRAL OF PAYMENT. Regardless of whether provided for in or in
conjunction with the grant of the Award, the Committee, in its sole discretion,
may defer payment of a Participant's benefit under this Plan if and to the
extent that the sum of the Participant's Plan benefit, plus all other
compensation paid or payable to the Participant for the fiscal year in which the
Plan benefit would otherwise be paid exceeds the maximum amount of compensation
that the Company may deduct under Section 162(m) of the Code with respect to the
Participant for the year. If deferred by the Committee, such Award benefit shall
be paid in the first fiscal year of the Company in which the sum of the
Participant's Plan benefit and all other compensation paid or payable to the
Participant does not exceed the maximum amount of compensation deductible by the
Company under Section 162(m).
10. RESTRICTED STOCK AWARDS.
(a) GRANTS OF RESTRICTED STOCK. One or more shares of Restricted Stock may
be granted conditionally, subject to forfeiture, as determined by the Committee,
in its sole discretion, to any person who is an Eligible Person. Certificates
evidencing the conditional grant of the Restricted Stock will be issued to the
Participant on the Date of Grant without the payment of consideration by the
Participant. Such certificates will be issued in the name of the Participant and
will bear a restrictive legend prohibiting sale, transfer, pledge or
hypothecation of the Restricted Stock until the expiration of the restriction
period.
The Committee also may impose such other restrictions and conditions on the
Restricted Stock as it, in its sole discretion, deems appropriate, and will
designate an Award as Service-Based or Performance-Based.
Upon the issuance to the Participant of the Restricted Stock, the
Participant will have the right to vote the Restricted Stock, and if so
determined by the Committee, in its sole discretion, to receive cash dividends
distributable with respect to such shares, with such dividends treated as
compensation to the Participant. The Committee, in its sole discretion, may
direct the accumulation and payment of dividends on the Restricted Stock to the
Participant at such times, and in such form and manner, as determined by the
Committee.
(b) SERVICE-BASED AWARD.
(i) RESTRICTION PERIOD. At the time a Service-Based Restricted Stock Award
is granted, the Committee will establish a restriction period applicable to such
Award which will be not less than one year and not more than 10 years. Each
Restricted Stock Award may have a different restriction period, as determined in
the sole discretion of the Committee.
(ii) FORFEITURE OR PAYOUT OF AWARD. Unless the Committee, in its sole
discretion, specifies otherwise at the time of the grant of the Award, in the
event that a Participant ceases employment during a restriction period, a
Restricted Stock Award is subject to forfeiture or payout (I.E., removal of
restrictions)
VII-6
<PAGE>
as follows: (A) Termination--the Restricted Stock Award is forfeited entirely;
(B) Retirement, Disability or death--payout of the Restricted Stock Award is
prorated for service during the period; or (C) Early Retirement--if at the
Participant's request, the payout or forfeiture of the Restricted Stock Award is
determined in the sole discretion of the Committee, or if at the Company's
request, payout of the Restricted Stock Award is prorated for service during the
period; provided that the Committee may modify the above at the time the
Participant ceases employment, if it determines, in its sole discretion, that
special circumstances warrant such modification. In the event of forfeiture, the
Participant shall not be entitled to any payment or consideration by the
Company, and neither the Participant nor any successors, heirs, assigns or
personal representatives of such Participant shall thereafter have any further
rights or interest in such shares.
Except as set forth above in this Section 10(b)(ii), upon completion of the
restriction period, all Award restrictions will lapse and certificates
representing full ownership of the Award in Stock will be issued (the payout) to
the Participant or his or her legal representative, without the restrictive
legend described in Section 10(a) hereof.
(c) PERFORMANCE-BASED AWARD.
(i) RESTRICTION PERIOD. At the time a Performance-Based Restricted Stock
Award is granted, the Committee will establish a restriction period applicable
to such Award which will be not less than one year and not more than ten years.
Each Restricted Stock Award may have a different restriction period, as
determined in the sole discretion of the Committee. The Committee also will
establish a Performance Period.
(ii) PERFORMANCE OBJECTIVES. Prior to the Date of Grant, the Committee will
determine the number of shares of Restricted Stock for each Target Performance
Award that will be issued on the Date of Grant. No later than 90 days after the
commencement of each Performance Period, the Committee will determine the
performance objectives for each Participant's Target Performance Award.
Performance objectives may vary from Participant to Participant and will be
based upon such performance criteria or combination of factors as the Committee,
in its sole discretion, deems appropriate, which may include, but not be limited
to, the performance of the Participant, the Company, one or more subsidiaries or
any combination thereof. Performance Periods may overlap and Participants may
participate simultaneously with respect to Performance-Based Restricted Stock
Awards for which different Performance Periods are prescribed.
If, during the course of a Performance Period, significant events occur, as
determined in the sole discretion of the Committee, which the Committee expects
to have a substantial effect on any performance objective during the Performance
Period, the Committee may revise such objective.
(iii) FORFEITURE OR PAYOUT OF AWARD. As soon as practicable after the end of
each Performance Period, the Committee will determine whether the performance
objectives and other material terms of the Award were satisfied. The Committee's
determination of all such matters will be final and conclusive.
As soon as practicable after the later of (A) the date the Committee makes
the above determination, or (B) the completion of the restriction period, the
Committee will determine the Earned Performance Award for each Participant. Such
determination may result in forfeiture of all or some shares of Restricted Stock
(if Target Performance Award performance objectives were not attained) or the
issuance of additional shares of Stock (if Target Performance Award performance
objectives were exceeded), and will be based upon such factors as the Committee
determines, in its sole discretion, but including the Target Performance Award
performance objectives.
Unless the Committee, in its sole discretion, specifies otherwise at the
time of the grant of the Award, in the event that a Participant ceases
employment during a restriction period, a Restricted Stock Award is subject to
forfeiture or payout (I.E., removal of restrictions) as follows: (A)
Termination--the Restricted Stock Award is forfeited entirely; (B) Retirement or
Disability--the amount of the Earned Performance Award is determined in
accordance with the preceding two paragraphs at the end of the Performance
VII-7
<PAGE>
Period and a pro rata portion of the resulting Earned Performance Award is
received by the Participant based on service during the period; (C)
death--payout of the Restricted Stock Award is prorated for service during the
period, without regard to the performance objectives; or (D) Early
Retirement--if at the Participant's request, the payout or forfeiture of the
Restricted Stock Award is determined in the sole discretion of the Committee, or
if at the Company's request, the amount of the Earned Performance Award is
determined in accordance with the preceding two paragraphs at the end of the
Performance Period and a pro rata portion of the resulting Earned Performance
Award is received by the Participant based on service during the period;
provided that the Committee may modify the above at the time the Participant
ceases employment, if it determines, in its sole discretion, that special
circumstances warrant such modification. In the event of forfeiture, the
Participant shall not be entitled to any payment or consideration by the
Company, and neither the Participant nor any successors, heirs, assigns or
personal representatives of such Participant shall thereafter have any further
rights or interest in such shares.
With respect to shares of Restricted Stock for which restrictions lapse,
certificates representing full ownership of the Award in Stock will be issued
(the payout) without the restrictive legend described in Section 10(a) hereof.
Certificates also will be issued for additional Stock, if any, awarded to the
Participant because Target Performance Award performance objectives were
exceeded.
(d) WAIVER OF SECTION 83(B) ELECTION. If directed by the Committee, as a
condition of receiving an Award of Restricted Stock, a Participant must waive in
writing the right to make an election under Section 83(b) of the Code to report
the value of the Restricted Stock as income on the Date of Grant.
11. STOCK OPTIONS.
(a) GRANTS OF OPTIONS. One or more Options may be granted to any person
who is an Eligible Person on the Date of Grant (except that Incentive Stock
Options may be granted only to persons employed by the Company or a subsidiary
of the Company on a regular basis) without the payment of consideration by the
Participant.
(b) STOCK OPTION AGREEMENT. Each Option granted under the Plan will be
evidenced by a "Stock Option Agreement" between the Company and the Participant
containing provisions determined by the Committee, in its sole discretion,
including, without limitation, provisions to qualify Incentive Stock Options as
such under Section 422 of the Code if directed by the Committee at the Date of
Grant; provided that each Incentive Stock Option Agreement must include the
following terms and conditions: (i) that the Options are exercisable, either in
whole or in part, with a partial exercise not affecting the exerciseability of
the balance of the Option; (ii) every share of Stock purchased through the
exercise of an Option will be paid for in full at the time of the exercise;
(iii) each Option will cease to be exercisable, as to any share of Stock, at the
earliest of (A) the Participant's purchase of the Stock to which the Option
relates, (B) the Participant's exercise of a related Stock Appreciation Right,
or (C) the lapse of the Option; (iv) Options will not be transferable by the
Participant except by will or the laws of descent and distribution and will be
exercisable during the Participant's lifetime only by the Participant or by the
Participant's guardian or legal representative; and (v) notwithstanding any
other provision, in the event of a public tender for all or any portion of the
Stock or in the event that any proposal to merge or consolidate the Company with
another company is approved by the stockholders of the Company, the Committee,
in its sole discretion, may declare any previously granted Option to be
immediately exercisable.
(c) OPTION PRICE. The Option price per share of Stock will be set by the
grant, but will be not less than 100% of the Fair Market Value at the Date of
Grant.
(d) FORM OF PAYMENT. At the time of the exercise of the Option, the Option
price will be payable in cash or in other shares of Stock or in a combination of
cash and other shares of Stock, in a form and manner as required by the
Committee, in its sole discretion. When Stock is used in full or partial payment
of the Option price, it will be valued at the Fair Market Value on the date the
Option is exercised.
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(e) OTHER TERMS AND CONDITIONS. The Option will become exercisable in such
manner and within such Option Period or Periods, not to exceed 10 years from its
Date of Grant, as set forth in the Stock Option Agreement upon payment in full.
Except as otherwise provided in this Plan or in the Stock Option Agreement, any
Option may be exercised in whole or in part at any time, but in no event beyond
the Option Period set by the grant.
(f) LAPSE OF OPTIONS. An option will lapse upon the earlier of: (i) 10
years from the Date of Grant, or (ii) at the expiration of the Option Period set
by the grant. Unless the Committee, in its sole discretion, specifies otherwise
in the Stock Option Agreement, if the Participant ceases employment for any
reason within the Option Period and prior to the lapse of the Option, the Option
will lapse as follows: (i) Termination--if Termination occurs prior to the
Option being exercisable, the Option will lapse on the effective date of the
Termination, or if Termination occurs after the Option becomes exercisable and
within the Option Period, the Option will lapse if not exercised within 90 days
of the effective date of the Termination; or (ii) Retirement, Early Retirement
or Disability--the Option will lapse at the expiration of the Option Period set
by the grant; provided that the Committee may modify the above if it determines,
in its sole discretion, that special circumstances warrant such modification;
and provided further that, notwithstanding the above, for Incentive Stock
Options, if not yet exercisable, the Option will become exercisable immediately
upon Retirement, Early Retirement or Disability, but will lapse if not exercised
within (A) 90 days of the effective date of the Retirement or Early Retirement
or (B) one year of the effective date of the Disability. Unless the Committee,
in its sole discretion, specifies otherwise in the Stock Option Agreement, if
the Participant dies within the Option Period and prior to the lapse of the
Option, the Option will lapse at the expiration of the Option Period set by the
grant unless it is exercised before such time by the Participant's legal
representative(s) or by the person(s) entitled to do so under the Participant's
will or, if the Participant fails to make testamentary disposition of the Option
or dies intestate, by the person(s) entitled to receive the Option under the
applicable laws of descent and distribution; provided that notwithstanding the
above, for Incentive Stock Options, the Option, if not yet exercisable, will
become exercisable immediately upon death of a Participant who is an employee of
the Company at the time of death, but will lapse if not exercised within one
year of the date of death by any such person.
(g) INDIVIDUAL LIMITATION. In the case of an Incentive Stock Option, the
aggregate Fair Market Value of the Stock for which Incentive Stock Options
(whether under this Plan or another arrangement) in any calendar year are first
exercisable will not exceed $100,000 with respect to such calendar year (or such
other individual limit as may be in effect on the Code on the Date of Grant).
12. PERFORMANCE UNITS.
(a) PERFORMANCE UNITS. One or more Performance Units may be earned by an
Eligible Person based on the achievement of preestablished performance
objectives during a Performance Period.
(b) PERFORMANCE PERIOD AND PERFORMANCE OBJECTIVES. Prior to the Date of
Grant, the Committee will determine a Performance Period and the number of
Performance Units subject to each Target Performance Award. No later than 90
days after the commencement of each Performance Period, the Committee will
determine the performance objectives for each Participant's Target Performance
Award. Performance objectives may vary from Participant to Participant and will
be based upon such performance criteria or combination of factors as the
Committee, in its sole discretion, deems appropriate, which may include, but not
be limited to, the performance of the Company and/or the Participant
individually or collectively with any other individuals or groups, or any
combination thereof. Performance Periods may overlap and Participants may
participate simultaneously with respect to Performance Units for which different
Performance Periods are prescribed.
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If, during the course of a Performance Period, significant events occur, as
determined in the sole discretion of the Committee, which the Committee expects
to have a substantial effect on a performance objective during the Performance
Period, the Committee may revise such objective.
(c) FORFEITURE OR PAYOUT OF AWARD. As soon as practicable after the end of
each Performance Period, the Committee will determine whether the performance
objectives and other material terms of the Award were satisfied. The Committee's
determination of all such matters will be final and conclusive.
As soon as practicable after the date the Committee makes the above
determination, the Committee will determine the Earned Performance Award for
each Participant. Such determination may result in an increase or decrease in
the number of Performance Units payable based upon such Participant's Target
Performance Award, and will be based upon such factors as the Committee
determines, in its sole discretion, but including the Target Performance Award
performance objectives.
In the event a Participant ceases employment during a Performance Period,
unless otherwise determined by the Committee, in its sole discretion, all
Performance Units granted to a Participant shall terminate and be forfeited by
such Participant to the Company without payment or any consideration by the
Company, and neither the Participant nor any successors, heirs, assigns or
personal representatives of such Participant shall thereafter have any further
rights or interest in such Performance Units.
(d) FORM AND TIMING OF PAYMENT. Each Performance Unit is payable in cash
or shares of Stock or in a combination of cash and Stock, as determined by the
Committee, in its sole discretion. Such payment will be made as soon as
practicable after the Earned Performance Award is determined.
13. STOCK APPRECIATION RIGHTS.
(a) GRANTS OF STOCK APPRECIATION RIGHTS. Stock Appreciation Rights may be
granted under this Plan in conjunction with an Option either at the Date of
Grant or by amendment or may be separately granted. Stock Appreciation Rights
will be subject to such terms and conditions not inconsistent with this Plan as
the Committee may impose.
(b) RIGHT TO EXERCISE; EXERCISE PERIOD. A Stock Appreciation Right issued
pursuant to an Option will be exercisable to the extent the Option is
exercisable; both such Stock Appreciation Right and the Option to which it
relates will not be exercisable during the six months following their respective
Dates of Grant except in the event of the Participant's Disability or death. A
Stock Appreciation Right issued independent of an Option will be exercisable
pursuant to such terms and conditions established in the grant. Notwithstanding
such terms and conditions, in the event of a public tender for all or any
portion of the Stock or in the event that any proposal to merge or consolidate
the Company with another company is approved by the stockholders of the Company,
the Committee, in its sole discretion, may declare any previously granted Stock
Appreciation Right immediately exercisable.
(c) FAILURE TO EXERCISE. If on the last day of the Option Period, in the
case of a Stock Appreciation Right granted pursuant to an Option, or the
specified Exercise Period, in the case of a Stock Appreciation Right issued
independent of an Option, the Participant has not exercised a Stock Appreciation
Right, then such Stock Appreciation Right will be deemed to have been exercised
by the Participant on the last day of the Option Period or Exercise Period.
(d) PAYMENT. An exercisable Stock Appreciation Right granted pursuant to
an Option will entitle the Participant to surrender unexercised the Option or
any portion thereof to which the Stock Appreciation Right is attached, and to
receive in exchange for the Stock Appreciation Right payment (in cash or Stock
or a combination thereof as described below) equal to the excess of the Fair
Market Value of one share of Stock at the date of exercise over the Option
price, times the number of shares called for by the Stock Appreciation Right (or
portion thereof) which is so surrendered. Upon exercise of a Stock Appreciation
Right not granted pursuant to an Option, the Participant will receive for each
Stock Appreciation Right payment (in cash or Stock or a combination thereof as
described below) equal to the
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excess of the Fair Market Value of one share of Stock at the date of exercise
over the Fair Market Value of one share of Stock at the Date of Grant of the
Stock Appreciation Right, times the number of shares called for by the Stock
Appreciation Right.
The Committee may direct the payment in settlement of the Stock Appreciation
Right to be in cash or Stock or a combination thereof. Alternatively, the
Committee may permit the Participant to elect to receive cash in full or partial
settlement of the Stock Appreciation Right; provided that (i) the Committee must
consent to or disapprove such election and (ii) unless the Committee directs
otherwise, the election and the exercise must be made during the period
beginning on the third business day following the date of public release of
quarterly or year-end earnings and ending on the twelfth business day following
the date of public release of quarterly or year-end earnings. The value of the
Stock to be received upon exercise of a Stock Appreciation Right shall be the
Fair Market Value of the Stock on the trading day preceding the date on which
the Stock Appreciation Right is exercised. To the extent that a Stock
Appreciation Right issued pursuant to an Option is exercised, such Option shall
be deemed to have been exercised, and shall not be deemed to have lapsed.
(e) NONTRANSFERABILITY. A Stock Appreciation Right will not be
transferable by the Participant except by will or the laws of descent and
distribution and will be exercisable during the Participant's lifetime only by
the Participant or by the Participant's guardian or legal representative.
(f) LAPSE OF A STOCK APPRECIATION RIGHT. A Stock Appreciation Right will
lapse upon the earlier of: (i) 10 years from the Date of Grant; or (ii) at the
expiration of the Exercise Period as set by the grant. Unless the Committee, in
its sole discretion, specifies otherwise at the time of the grant of the Award,
if the Participant ceases employment within the Exercise Period and prior to the
lapse of the Stock Appreciation Right, the Stock Appreciation Right will lapse
as follows: (i) Termination--if Termination occurs prior to the Stock
Appreciation Right being exercisable, the Stock Appreciation Right will lapse on
the effective date of the Termination, or if Termination occurs after the Stock
Appreciation Right becomes exercisable and within the Exercise Period, the Stock
Appreciation Right will lapse if not exercised within 90 days of the effective
date of the Termination; or (ii) Retirement, Early Retirement or Disability--the
Stock Appreciation Right will lapse at the expiration of the Exercise Period set
by the grant; provided that the Committee may modify the above at the time the
Participant ceases employment, if it determines, in its sole discretion, that
special circumstances warrant such modification. Unless the Committee, in its
sole discretion, specifies otherwise at the time of the grant of the Award, if
the Participant dies within the Exercise Period and prior to the lapse of the
Stock Appreciation Right, the Stock Appreciation Right will lapse at the
expiration of the Exercise Period set by the grant unless it is exercised before
such time by the Participant's legal representative(s) or by the person(s)
entitled to do so under the Participant's will or, if the Participant fails to
make testamentary disposition of the Stock Appreciation Right or dies intestate,
by the person(s) entitled to receive the Stock Appreciation Right under the
applicable laws of descent and distribution.
14. DIVIDEND EQUIVALENTS.
(a) GRANTS OF DIVIDEND EQUIVALENTS. Dividend Equivalents may be granted
under this Plan in conjunction with an Award of an Option or a
separately-awarded Stock Appreciation Right, at the Date of Grant or by
amendment, without consideration by the Participant. Dividend Equivalents also
may be granted under this Plan in conjunction with Performance Units, at any
time during the Performance Period, without consideration by the Participant.
(b) PAYMENT. Each Dividend Equivalent will entitle the Participant to
receive an amount equal to the dividend actually paid with respect to a share of
Stock on each dividend payment date from the Date of Grant to the date the
Dividend Equivalent lapses as set forth in Section 14(d) hereof. The Committee,
in its sole discretion, may direct the payment of such amount at such times and
in such form and manner as determined by the Committee.
VII-11
<PAGE>
(c) NONTRANSFERABILITY. A Dividend Equivalent will not be transferable by
the Participant.
(d) LAPSE OF A DIVIDEND EQUIVALENT. Each Dividend Equivalent will lapse on
the earlier of: (i) the date of the lapse of the related Option or Stock
Appreciation Right; (ii) the date of the exercise of the related Option or Stock
Appreciation Right; (iii) the end of the Performance Period (or, if earlier, the
date the Participant ceases employment) of the related Performance Units; or
(iv) the lapse date established by the Committee on the Date of Grant of the
Dividend Equivalent.
15. ANNUAL INCENTIVE AWARDS. Annual Incentive Awards may be granted to any
person who is an Eligible Person on the Date of Grant without the payment of
consideration by the Participant, in such amounts and on such terms and
conditions as the Committee, in its sole discretion, deems appropriate. In the
event a Participant ceases employment for any reason prior to receiving an
Annual Incentive Award, unless otherwise determined by the Committee, in its
sole discretion, such Award shall terminate and be forfeited by such Participant
without payment or any consideration by the Company, and neither the Participant
nor any successors, heirs, assigns or personal representatives of such
Participant shall thereafter have any further rights or interest in such Award.
16. EFFECT OF CHANGE IN CONTROL. Notwithstanding anything in this Plan to
the contrary, unless the Committee, in its sole discretion, specifies otherwise
at the time of the grant of an Award or at any time thereafter prior to the
exercise, vesting, lapse or forfeiture of such Award, as applicable, upon the
occurrence of a Change in Control: (a) all Options and Stock Appreciation Rights
granted under this Plan that are outstanding at the date of such Change of
Control shall become exercisable in full immediately, without regard to the
years that have elapsed from the Date of Grant; (b) with respect to Performance
Units that are outstanding at the date of such Change in Control, all
uncompleted Performance Periods at the date of such Change in Control shall be
deemed to have been completed, the maximum level of performance set forth under
the respective performance objectives shall be deemed to have been achieved and
a pro rata portion (based on the number of full and partial months that have
elapsed with respect to such Performance Period) of each such outstanding Award
shall become payable immediately in cash to each Participant, with the remainder
of each such outstanding Award being canceled for no value; (c) any conditions
to the vesting of the Restricted Stock (including, but not limited to,
attainment of performance objectives, if any, assuming that maximum performance
was achieved) shall be deemed to have been satisfied, any uncompleted time
periods (whether Service-Based or Performance-Based, or otherwise) at the date
of such Change in Control shall be deemed to have been completed and all
restrictions with respect to outstanding shares of Restricted Stock shall lapse
immediately, and such shares shall be fully vested and nonforfeitable; and (d)
Annual Incentive Awards shall be treated in such manner as the Committee, in its
sole discretion, shall determine at the time of such Change in Control; provided
that, this Section 16 shall not apply with respect to Participants who have
retired (whether Early Retirement or Normal Retirement) prior to the occurrence
of a Change in Control, whose Awards shall vest, lapse or be forfeited in the
same manner as if a Change in Control had not occurred.
17. GENERAL RESTRICTIONS. This Plan and each Award under this Plan shall
be subject to the requirement that, if at any time the Committee shall determine
that: (a) the listing, registration or qualification of the shares of Stock
subject or related thereto upon any securities exchange or under any state or
federal law; or (b) the consent or approval of any governmental regulatory body;
or (c) an agreement by the recipient of an Award with respect to the disposition
of shares of Stock; is necessary or desirable as a condition of, or in
connection with this Plan or the granting of such Award or the issuance or
acquisition of shares of Stock thereunder, this Plan will not be effective and
the Award may not be consummated in whole or in part unless such listing,
registration, qualification, consent, approval or agreement, as the case may be,
shall have been effected or obtained free of any conditions not acceptable to
the Committee.
18. AMENDMENT OF PLAN. The Board or the Committee may at any time and from
time to time alter, amend, suspend or terminate this Plan in whole or in part,
except: (a) no amendment that requires
VII-12
<PAGE>
stockholder approval in order for (i) the shares of Stock subject to this Plan
to continue to be eligible for listing under the New York Stock Exchange (or its
successor or any other exchange on which the Committee determines the Stock
should be listed) rules and guidelines for such listing, or (ii) this Plan to
continue to be eligible to satisfy the requirements for exemption of acquisition
of securities under this Plan pursuant to the Section 16 Rules, or (iii) this
Plan to continue to be eligible to comply with Section 162(m) of the Code, or
any amendment of or substitute for any of them, shall be effective unless the
same shall be approved by the requisite vote of the stockholders of the Company;
and (b) during the period commencing on the date of a Potential Change in
Control and ending on the earlier of (i) six months after the later of (A) the
expiration of six months following the occurrence of such Potential Change in
Control, or (B) the Board's adoption of a resolution certifying that a Potential
Change in Control ceases to exist, or (ii) the date of the occurrence of a
Change in Control, the Plan may not be amended in any manner adverse or
detrimental to any person who is a Participant immediately prior to such
amendment or to such Participant's beneficiaries (including, but not limited to,
any adverse amendment to this sentence) without the consent of at least
two-thirds ( 2/3) of Participants who were Participants immediately prior to
such amendment. Notwithstanding the foregoing, the Committee may amend this Plan
as desirable or in the discretion of the Committee to address any issues
concerning Section 162(m) of the Code, maintaining an exemption under the
Section 16 Rules, or maintaining the listing of the Stock subject to the Plan on
any stock exchange, to the extent that such amendment does not require
stockholder action for the purposes described in clause (a) above.
19. RIGHTS OF A STOCKHOLDER. The recipient of any Award under this Plan
shall have no rights as a stockholder with respect thereto unless and until
legended certificates for shares of Stock are issued.
20. RIGHTS TO TERMINATE EMPLOYMENT. Nothing in this Plan or in any
agreement entered into pursuant to this Plan shall constitute a contract or
employment or confer upon any Participant the right to continue in the
employment of the Company or its subsidiaries or affect any right that the
Company or its subsidiaries may have to terminate the employment of such
Participant, or be deemed to be consideration for, or a condition of, continued
employment of any person.
21. NONTRANSFERABILITY. No benefit provided under this Plan shall be
subject to alienation or assignment by a Participant (or by any person entitled
to such benefit pursuant to the terms of this Plan), nor shall it be subject to
attachment or other legal process, except: (a) to the extent specifically
mandated and directed by applicable state or federal statute; and (b) as
requested by the Participant (or by any persons entitled to such benefit
pursuant to the terms of this Plan), and approved by the Committee, to satisfy
tax withholding.
22. TAX WITHHOLDING. The Company or a subsidiary may withhold any
applicable federal, state or local taxes at such time and upon such terms and
conditions as are required by law or determined by the Company or such
subsidiary. Subject to compliance with any requirements of applicable law, the
Committee may permit or require a Participant to have any portion of any
withholding or other taxes payable in respect to a distribution of Stock
satisfied through the payment of cash by the Participant to the Company or a
subsidiary, the retention by the Company or such subsidiary of shares of Stock,
or delivery of previously-owned shares of the Participant's Stock, having a Fair
Market Value equal to the withholding amount. A Reporting Person may elect to
have a sufficient number of shares of Stock withheld to fulfill such withholding
obligation (the "Withholding Election") only if the Withholding Election is made
during any period in which a Withholding Election may be made to ensure an
exemption with respect to such transaction pursuant to the Section 16 Rules. Any
fractional share of Stock required to satisfy such withholding obligations shall
be disregarded and the amount due with respect thereto shall be paid in cash by
the Participant.
23. NON-UNIFORM DETERMINATIONS. The Committee's determinations under this
Plan (including, but not limited to, determinations of the persons eligible to
receive Awards, the form, amount and timing of Awards, the terms and provisions
of Awards and the agreements evidencing Awards, and the establishment
VII-13
<PAGE>
of values and performance targets and objectives) need not be uniform and may be
made by it selectively among persons who receive, or are eligible to receive,
Awards under this Plan, whether or not such persons are similarly situated,
except as such determinations may be limited by applicable law.
24. ADJUSTMENTS. In the event that the Committee shall determine, in its
sole discretion, that any dividend or other distribution (whether in the form of
cash, Stock or other property), recapitalization, Stock split, reverse Stock
split, reorganization, merger, consolidation, spin-off, combination, repurchase
or share exchange or other similar corporate transaction or event, affects the
Stock such that an adjustment is appropriate in order to prevent dilution or
enlargement of the rights of Participants, then the Committee shall make such
equitable changes or adjustments as it deems necessary or appropriate to any or
all of (a) the number and kind of shares of Stock that may thereafter be issued
in connection with Awards, whether in the aggregate or to any individual, (b)
the number and kind of shares of Stock issued or issuable in respect of
outstanding Awards, and (c) the exercise price, grant price or purchase price
relating to any Award; and in any such event, the Committee may, in its sole
discretion, terminate any Award and make equitable cash payment for the value of
such Award, as such value shall be determined by the Committee in its sole
discretion; provided that, with respect to Incentive Stock Options, such
adjustment or termination shall be made in accordance with Section 424 of the
Code or any amendment thereof or substitute therefor or regulations thereunder.
25. FRACTIONAL SHARES. Any fractional shares concerning Awards shall be
eliminated at the time of payment or payout by rounding down for fractions of
less than one-half and rounding up for fractions of equal to or greater than
one-half. No cash settlements shall be made with respect to fractional shares
eliminated by rounding.
26. GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company to
make payment of Awards in Stock or otherwise shall be subject to all applicable
laws, rules and regulations, and to such approvals by any governmental agencies
as may be required. The Company shall be under no obligation to register under
the Securities Act of 1933, as amended (the "Act"), any of the shares of Stock
issued, delivered or paid in settlement under this Plan. If Stock awarded under
this Plan in certain circumstances may be exempt from registration under the
Act, the Company may restrict the transfer of such Stock in such manner as it
deems advisable to ensure such exempt status.
27. INDEMNIFICATION. Each person who is, or at any time serves as, a
member of the Committee (and each person to whom the Committee or any member
thereof has delegated any of its authority or power under this Plan), to the
fullest extent of applicable law, shall be indemnified and held harmless by the
Company against and from: (a) any loss, cost, liability or expense that may be
imposed upon or reasonably incurred by such person in connection with or
resulting from any claim, action, suit or proceeding to which such person may be
a party or in which such person may be involved by reason of any action or
failure to act under this Plan; and (b) any and all amounts paid by such person
in satisfaction of judgment in any such action, suit or proceeding relating to
this Plan. As a condition to the Company's indemnification obligation hereunder,
each person covered by this indemnification shall give the Company an
opportunity, at the Company's expense, to handle and defend the same before such
person undertakes to handle and defend it on such person's own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Restated
Certificate of Incorporation or By-Laws of the Company or any of its
subsidiaries, as a matter of law, or otherwise, or any power that the Company
may have to indemnify such person or hold such person harmless.
28. RELIANCE ON REPORTS. Each member of the Committee (and each person to
whom the Committee or any member thereof has delegated any of its authority or
power under this Plan) shall be justified fully in relying or acting in good
faith upon any report made by the independent public accountants of the Company
and its subsidiaries and upon any other information furnished in connection with
this Plan. In no event shall any person who is or shall have been a member of
the Committee be liable for any determination made or other action taken or any
omission to act in reliance upon any such report or
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<PAGE>
information or for any action taken, including the furnishing of information, or
failure to act, if in good faith.
29. EFFECT ON OTHER PLANS. Participation in this Plan shall not affect a
Participant's eligibility to participate in any other benefit or incentive plan
of the Company and any Awards made pursuant to this Plan shall not be considered
compensation for purposes of determining benefits under any pension, profit
sharing or other retirement or welfare plan, or for any other general employee
benefit plan, unless specifically provided otherwise.
30. FUNDING OF THIS PLAN. This Plan shall be unfunded. The Company shall
not be required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any Award and payment of Awards
shall be subordinate to the claims of the Company's general creditors. In no
event shall interest be paid or accrued on any Award, including any unpaid
installments of Awards.
31. EXPENSES. The expenses of administering this Plan shall be borne by
the Company and its subsidiaries.
32. GOVERNING LAW. All matters relating to this Plan or to Awards granted
hereunder shall be governed by the laws of the State of Delaware, without regard
to the principles of conflict of laws.
33. TITLES AND HEADINGS. The titles and headings of the sections in this
Plan are for convenience or reference only, and in the event of any conflict,
the text of this Plan, rather than such titles or headings, shall control.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware (the
"GCLD") permits corporations organized under the GCLD to indemnify directors,
officers, employees and agents against liability under certain circumstances.
The Company Charter provides for indemnification of directors and officers of
the Company and any person serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture or
otherwise, to the fullest extent provided by the GCLD. The Company Charter
states that the indemnification provided therein shall not be deemed exclusive
and shall be deemed a contract right. The Company may purchase and maintain
insurance on behalf of itself and any director, officer, employee or agent of
the Company, of another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the Company
would have the power to indemnify such person against such expense liability or
loss under the GCLD.
Under Section 7.5 of the Merger Agreement, the parties have agreed that the
Company will (a) indemnify, defend and hold harmless the present and former
directors, officers and management employees of each of the parties to the
Merger Agreement or any of their respective subsidiaries against certain
liabilities (i) arising out of actions or omissions occurring at or prior to the
Effective Time that are based on or arise out of such service as an officer,
director or management employee or (ii) that are based on, arise from or pertain
to the Merger Agreement or the transactions contemplated by the Merger Agreement
and (b) maintain policies of directors' officers' liability insurance for a
period of six years after the Effective Time. In addition, to the fullest extent
permitted by law, all existing rights of indemnification will continue in full
force and effect for not less than six years from the Effective Time. See "The
Merger Agreement -- Indemnification" in the Joint Proxy Statement/Prospectus
which forms a part of this Registration Statement.
ITEM 21. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2(a) Amended and Restated Agreement and Plan of Merger dated as of August 9, 1996 as amended and restated as
of December 26, 1996 (attached as Annex I).
3(a) Restated Certificate of Incorporation of the Company (attached as Annex IV).
3(b) Bylaws of the Company (attached as Annex V).
5(a) Opinion re Legality of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
5(b) Opinion re Legality of Simpson Thacher & Bartlett.
8(a) Form of Opinion re Tax Matters of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
8(b) Form of Opinion re Tax Matters of Simpson Thacher & Bartlett.
23(a) Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P. (included in Exhibits 5(a) and 8(a)).
23(b) Consent of Simpson Thacher & Bartlett (included in Exhibits 5(b) and 8(b)).
23(c) Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
23(d) Consent of Morgan Stanley & Co. Incorporated.
23(e) Consent of Coopers & Lybrand L.L.P.
23(f) Consent of Deloitte & Touche LLP.
23(g) Consent of The NorthBridge Group.
27(a) Financial Data Schedule.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
99(a) Form of Proxy/Direction to be used in connection with the Special Meeting of Stockholders of Delmarva.
99(b) Form of Proxy/Direction to be used in connection with the Special Meeting of Stockholders of Atlantic.
99(c) Fairness Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated (attached as Annex II).
99(d) Fairness Opinion of Morgan Stanley & Co. Incorporated (attached as Annex III).
99(e) Conectiv, Inc. Incentive Compensation Plan (attached as Annex VII).
</TABLE>
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE offering
thereof.
(2) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(3) That every prospectus: (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
(4) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(5) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Wilmington, State of
Delaware on December 26, 1996.
CONECTIV, INC.
BY: /S/ BARBARA S. GRAHAM
-----------------------------------------
Barbara S. Graham
PRESIDENT AND SECRETARY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated, on December 26, 1996.
Signature and Title
/s/ BARBARA S. GRAHAM /s/ MICHAEL J. BARRON
- ------------------------------ --------------------------
Barbara S. Graham Michael J. Barron
PRESIDENT, SECRETARY AND VICE PRESIDENT, TREASURER
DIRECTOR AND DIRECTOR
(PRINCIPAL ACCOUNTING AND
(PRINCIPAL EXECUTIVE OFFICER) FINANCIAL OFFICER)
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- ------------------------------------------------------------------------------------------------
<C> <S> <C>
2(a) Amended and Restated Agreement and Plan of Merger dated as of August 9, 1996 as amended and
restated as of December 26, 1996 (attached as Annex I).
3(a) Restated Certificate of Incorporation of the Company (attached as Annex IV).
3(b) Bylaws of the Company (attached as Annex V).
5(a) Opinion re Legality of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
5(b) Opinion re Legality of Simpson Thacher & Bartlett.
8(a) Form of Opinion re Tax Matters of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
8(b) Form of Opinion re Tax Matters of Simpson Thacher & Bartlett.
23(a) Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P. (included in Exhibits 5(a) and 8(a)).
23(b) Consent of Simpson Thacher & Bartlett (included in Exhibits 5(b) and 8(b)).
23(c) Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
23(d) Consent of Morgan Stanley & Co. Incorporated.
23(e) Consent of Coopers & Lybrand L.L.P.
23(f) Consent of Deloitte & Touche LLP.
23(g) Consent of The NorthBridge Group.
27(a) Financial Data Schedule.
99(a) Form of Proxy/Direction to be used in connection with the Special Meeting of Stockholders of
Delmarva.
99(b) Form of Proxy/Direction to be used in connection with the Special Meeting of Stockholders of
Atlantic.
99(c) Fairness Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated (attached as Annex II).
99(d) Fairness Opinion of Morgan Stanley & Co. Incorporated (attached as Annex III).
99(e) Conectiv, Inc. Incentive Compensation Plan (attached as Annex VII).
</TABLE>
<PAGE>
EXHIBIT 5(A)
[LETTERHEAD OF LEBOEUF, LAMB, GREENE, & MACRAE, L.L.P.]
December 26, 1996
Delmarva Power & Light Company
800 King Street
Wilmington, DE 19899
Conectiv, Inc.
800 King Street
Wilmington, DE 19899
Ladies and Gentlemen:
We have acted as counsel to Delmarva Power & Light Company, a Delaware and
Virginia corporation ("Delmarva"), and Conectiv, Inc., a Delaware corporation
(the "Company"), in connection with the filing of a Registration Statement (the
"Registration Statement") on Form S-4 under the Securities Act of 1933, as
amended (the "Act"), relating to the registration of 100,557,607 shares of
Common Stock, par value $0.01 per share, of the Company and 6,619,257 shares of
Class A Common Stock, par value $0.01 per share, of the Company.
In connection with this opinion, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of such instruments,
certificates, records and documents, and have reviewed such questions of law, as
we have deemed necessary or appropriate for purposes of this opinion. In such
examination, we have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals, the conformity to the original
documents of all documents submitted as copies and the authenticity of the
originals of such latter documents. As to any facts material to our opinion, we
have relied upon the aforesaid instruments, certificates, records and documents
and inquiries of Company and Delmarva representatives.
Based upon the foregoing examination, we are of the opinion that the shares
to be issued by the Company to the Delmarva stockholders have been duly
authorized and, when issued in the manner contemplated by the Registration
Statement (including the declaration and maintenance of the effectiveness of the
Registration Statement and the obtaining and maintenance of all requisite
regulatory and other approvals), will be validly issued, fully paid and
nonassessable.
We are, in this opinion, opining only on the corporate law of the State of
Delaware and the federal law of the United States. We are not opining on "blue
sky" or other state securities laws.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" therein and in the related prospectus, and in any supplements thereto
or amendments thereof. Our consent to such reference does not constitute a
consent under Section 7 of the Act, and in consenting to such reference we have
not certified any part of the Registration Statement and do not otherwise come
within the categories of persons whose consent is required under Section 7 or
under the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
<PAGE>
Exhibit 5(b)
[LETTERHEAD OF SIMPSON THACHER & BARTLETT]
December 26, 1996
Conectiv, Inc.
800 King Street
Wilmington, Delaware 19899
Ladies and Gentlemen:
With respect to the Registration Statement on Form S-4 (the "Registration
Statement") of Conectiv, Inc., a Delaware corporation (the "Company"), relating
to the issuance of shares of its Common Stock, par value $.01 per share (the
"Company Common Stock"), and shares of its Class A Common Stock, par value $.01
per share (the "Class A Common Stock"), pursuant to an Agreement and Plan of
Merger, dated August 9, 1996, as amended and restated as of December 26, 1996,
by and among Atlantic Energy, Inc., a New Jersey corporation ("Atlantic"),
Delmarva Power & Light Company, a Delaware corporation, DS Sub, Inc., a Delaware
corporation, and the Company (the "Merger Agreement"), we are of the opinion
that when the shares of Class A Common Stock and the shares of Company Common
Stock to be issued to the stockholders of Atlantic pursuant to the Merger
Agreement (the "Shares") have been issued in accordance with the Merger
Agreement and in the manner contemplated by the Registration Statement
(including the declaration and maintenance of the effectiveness of the
Registration Statement and the obtaining and maintenance of all requisite
corporate, governmental and other authorizations), the Shares will be legally
issued, fully paid and nonassessable.
We are members of the Bar of the State of New York, and we do not express
any opinion herein concerning any law other than the law of the State of New
York, the federal law of the United States and the Delaware General Corporation
Law.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference of this firm appearing in the
Registration Statement under the caption "Legal Matters".
Very truly yours,
SIMPSON THACHER & BARTLETT
<PAGE>
EXHIBIT 8(A)
FORM OF FEDERAL INCOME TAX OPINION
[LETTERHEAD OF LEBOEUF, LAMB, GREENE & MACRAE, L.L.P.]
[DATE]
Delmarva Power & Light Company
800 King Street
Wilmington, Delaware 19899
Re: Federal Income Tax Consequences of Merger of DS Sub,
Inc. with and into Delmarva Power & Light Company
Ladies and Gentlemen:
You have requested our opinion relating to certain federal income tax
consequences arising out of the Agreement and Plan of Merger, dated as of August
9, 1996, as amended and restated in its entirety as of December 26, 1996 (the
"Merger Agreement"), by and among Delmarva Power & Light Company ("Delmarva"),
Atlantic Energy, Inc. ("Atlantic"), Conectiv, Inc. ("Company") and DS Sub, Inc.
("DS Sub"), 100% of whose outstanding capital stock is owned by Company. Our
conclusions are based upon (i) the facts and assumptions set forth below and
(ii) the representations made in Delmarva's letter to us dated as of
(the "Delmarva Letter"), Atlantic's letter to us dated as of
(the "Atlantic Letter") and Company's letter to us dated as of
(the "Company Letter"). If any of these stated facts or assumptions are not
correct, please advise us at once, as our advice may be affected by a change in
such facts or assumptions. Capitalized terms used but not defined in this letter
have the meaning given them in the Merger Agreement. Our opinion does not
address (i) certain federal income tax consequences applicable to special
classes of taxpayers including, without limitation, foreign corporations,
tax-exempt entities, persons who do not hold their Delmarva Common Stock as
capital assets and persons who acquired Delmarva Common Stock pursuant to the
exercise of an employee option or otherwise as compensation or (ii) the tax
consequences of the Delmarva Merger, defined below, under state, local or
foreign law.
FACTS
Pursuant to the Merger Agreement, DS Sub shall be merged with and into
Delmarva in accordance with the applicable provisions of the laws of the states
of Delaware and Virginia (the "Delmarva Merger"). Delmarva shall be the
surviving corporation in the Delmarva Merger and shall continue its corporate
existence under the laws of the states of Delaware and Virginia. As a result of
the Delmarva Merger, Delmarva shall become a direct wholly owned subsidiary of
Company.
Pursuant to the Merger Agreement and in conjunction with the Delmarva
Merger, Atlantic shall be merged with and into Company in accordance with the
laws of the states of New Jersey and Delaware (the "Atlantic Merger"). Company
shall be the surviving corporation in the Atlantic Merger and shall continue its
existence under the laws of the state of Delaware.
As a result of the Mergers, each share of Delmarva Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares canceled
pursuant to Section 2.1(a) of the Merger
1
<PAGE>
Agreement) shall be converted into the right to receive one share of Company
Common Stock and each share of Atlantic Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares canceled pursuant to
Section 2.1(a) of the Merger Agreement) shall be converted into the right to
receive 0.75 shares of Company Common Stock and .125 shares of Class A common
stock of Company.
Each share of Delmarva Preferred Stock issued and outstanding immediately
prior to the Effective Time will remain issued and outstanding preferred stock
of Delmarva and the rights and preferences of the Delmarva Preferred Stock will
not be affected by the Mergers.
ASSUMPTIONS
In rendering our opinion, we have assumed with your consent that (i) the
proposed transactions will be consummated strictly in accordance with the terms
and conditions described in the Merger Agreement, (ii) the representations made
to us by Delmarva in the Delmarva Letter, by Atlantic in the Atlantic Letter and
by Company in the Company Letter are true at the Effective Time and (iii) the
Atlantic Merger qualifies as a reorganization within the meaning of section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
OPINION
Based on the facts and assumptions set forth above and our review of the
Merger Agreement, the Proxy Statement/Prospectus included in the Registration
Statement on Form S-4 and accompanying exhibits dated December 24, 1996 and the
relevant legal authorities, it is our opinion that:
(1) If the Delmarva Preferred Stock is issued and outstanding
immediately prior to the Effective Time of the Mergers, the Delmarva Merger,
taken together with the Atlantic Merger, will qualify as a tax-free
transaction within the meaning of section 351 of the Code; or,
alternatively, if the Delmarva Common Stock is the only stock of Delmarva
that is issued and outstanding immediately prior to the Effective Time, the
Delmarva Merger will qualify as (i) a tax-free reorganization within the
meaning of section 368(a) of the Code and/or (ii), taken together with the
Atlantic Merger, a tax-free transaction within the meaning of section 351 of
the Code.
(2) No gain or loss will be recognized by Delmarva, Company, DS Sub or
the Delmarva stockholders as a result of the Delmarva Merger;
(3) The basis of Company Common Stock to be received by a Delmarva
stockholder will be the same, in each instance, as the basis in the Delmarva
Common Stock surrendered in exchange therefor; and
(4) The holding period of Company Common Stock received by a Delmarva
stockholder will include the period during which that stockholder held the
Delmarva Common Stock surrendered in exchange therefor.
SCOPE OF OPINION
In rendering our opinion, we have considered the applicable provisions of
the Code, Treasury Regulations promulgated thereunder, pertinent judicial
authorities, interpretive rulings of the Internal Revenue Service and such other
authorities as we have considered relevant. It should be noted that statutes,
regulations, judicial decisions and administrative interpretations are subject
to change at any time, and in certain circumstances, with retroactive effect. A
material change in the authorities or the facts, information, covenants,
statements, representations or assumptions upon which our opinion is based could
affect our conclusions.
This opinion is not binding on the Internal Revenue Service and there can be
no assurance, and none is thereby given, that the Internal Revenue Service will
not take a position contrary to one or more of the
2
<PAGE>
positions reflected in the foregoing opinion, or that our opinion will be upheld
by the courts if challenged by the Internal Revenue Service.
CONSENTS
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement on Form S-4 and
to the reference to our firm under the heading "The Merger--Certain Federal
Income Tax Consequences" in the Proxy Statement/Prospectus that constitutes part
of the Registration Statement.
Very truly yours,
LEBOEUF, LAMB, GREENE & MACRAE, L.L.P.
3
<PAGE>
EXHIBIT 8(B)
FORM OF FEDERAL TAX OPINION
[LETTERHEAD OF SIMPSON THACHER & BARTLETT]
[DATE]
Re: Federal Income Tax Consequences of Merger of
Atlantic Energy, Inc. with and into Conectiv, Inc.
Atlantic Energy, Inc.
6801 Black Horse Pike
Egg Harbor Township, NJ 08234
Dear Ladies and Gentlemen:
You have requested our opinion with respect to certain federal income tax
consequences arising out of the Agreement and Plan of Merger, dated as of August
9, 1996 as amended and restated in its entirety as of December 26, 1996 (the
"Merger Agreement"), by and among Delmarva Power & Light Company ("Delmarva"),
Atlantic Energy, Inc. ("Atlantic"), Conectiv, Inc. ("Company") and DS Sub, Inc.
("DS Sub"), 100% of whose outstanding capital stock is owned by Company.
Capitalized terms not defined in this letter have the meaning given them in the
Merger Agreement.
Upon receipt of all required approvals and the expiration of all required
waiting periods, and upon the satisfaction or waiver of all other conditions
precedent set forth in the Merger Agreement, the Mergers will be effected as set
forth in the following summary:
(i) Pursuant to the Merger Agreement, DS Sub shall be merged with and
into Delmarva in accordance with the applicable provisions of the laws of
the State of Delaware and Virginia (the "Delmarva Merger"). Delmarva shall
be the surviving corporation in the Delmarva Merger and shall continue its
corporate existence under the laws of the State of Delaware and Virginia. As
a result of the Delmarva Merger, Delmarva shall become a subsidiary of the
Company.
(ii) Pursuant to the Merger Agreement, Atlantic shall be merged with and
into Company in accordance with the laws of the State of New Jersey and
Delaware (the "Atlantic Merger"). Company shall be the surviving corporation
in the Atlantic Merger and shall continue its existence under the laws of
the State of Delaware.
(iii) As a result of the above Mergers, each share of Delmarva Common
Stock issued and outstanding immediately prior to the Effective Time (other
than shares canceled pursuant to Section 2.1(a) of the Merger Agreement)
shall be converted into the right to receive one share of Company Common
Stock and each share of Atlantic Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares canceled pursuant
to Section 2.1(a) of the Merger Agreement) shall be converted into the right
to receive 0.75 shares of Company Common Stock and .125 shares of Class A
common stock of Company ("Class A Common Stock").
(iv) Each share of Delmarva preferred stock outstanding immediately
prior to the Effective Time of the Mergers will remain outstanding preferred
stock of Delmarva and the rights and preferences of the Delmarva preferred
stock will not be affected by the Mergers.
1
<PAGE>
In acting as counsel to Atlantic in connection with the Mergers, we have, in
preparing our opinion, as hereinafter set forth, participated in the preparation
of the Merger Agreement and the preparation and filing with the Securities and
Exchange Commission of a Joint Proxy Statement and Prospectus of Company
relating to the proposed Mergers and to the Company Common Stock and Class A
Common Stock to be issued to Company stockholders in the Mergers pursuant to the
Merger Agreement (the "Joint Proxy Statement/Prospectus").
In rendering the opinion set forth below, we have assumed with your consent
(i) that the Mergers will be effected in accordance with the Merger Agreement
(and exhibits thereto) and as described in the Joint Proxy Statement/Prospectus
and (ii) that the representations made in your letter to us of
and Delmarva's letter to us of are true and accurate as of the
date hereof and will remain true and accurate as of the Effective Time unless we
are otherwise notified in writing. We have examined the documents referred to
above and the originals, or copies certified or otherwise identified to our
satisfaction, of such records, documents, certificates or other instruments and
made such other inquiries as in our judgment are necessary or appropriate to
enable us to render the opinion set forth below. We have not, however,
undertaken any independent investigation of any factual matter set forth in any
of the foregoing.
Our opinion is based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Regulations, administrative interpretations, and judicial
precedents as of the date hereof. It should be noted that statutes, regulations,
judicial decisions and administrative interpretations are subject to change at
any time, and in certain circumstances, with retroactive effect. A material
change in the authorities or the facts, information, covenants, statements,
representations or assumptions upon which our opinion is based could affect our
conclusion.
Subject to the foregoing and to the qualifications and limitations set forth
herein, we are of the opinion that:
(1) Class A Common Stock and Company Common Stock will be treated as
stock of the Company for federal income tax purposes;
(2) the Atlantic Merger will be treated as a reorganization within the
meaning of section 368(a)(1)(A) of the Code;
(3) no gain or loss will be recognized by Atlantic, Company or the
Atlantic stockholders pursuant to the Atlantic Merger (except that Atlantic
stockholders will recognize gain or loss to the extent they receive cash in
lieu of fractional share interests);
(4) the basis of Class A Common Stock and Company Common Stock to be
received by an Atlantic stockholder will be the same as the basis in the
Atlantic Common Stock surrendered in exchange therefor (reduced by the basis
allocated to fractional share interests in Class A Common Stock and Company
Common Stock for which cash is received); and
(5) the holding period of Class A Common Stock and Company Common Stock
received by an Atlantic stockholder will include the period during which
that stockholder held the Atlantic Common Stock surrendered in exchange
therefor.
We express our opinion herein only as to those matters specifically set
forth above and no opinion should be inferred as to the tax consequences of the
Mergers under any state, local or foreign law, or with respect to other areas of
United States federal taxation. The foregoing opinion does not address certain
federal income tax consequences applicable to special classes of taxpayers
including, without limitation, foreign corporations, tax exempt entities,
persons who do not hold their Atlantic Common Stock as capital assets and
persons who acquired Atlantic Common Stock pursuant to the exercise of an
employee option or otherwise as compensation.
2
<PAGE>
This option is not binding on the Internal Revenue Service and there can be
no assurance, and none is thereby given, that the Internal Revenue Service will
not take a position contrary to the one or more of the positions reflected in
the foregoing opinion, or that our opinion will be upheld by the courts if
challenged by the Internal Revenue Service.
We are members of the Bar of the State of New York, and we do not express
any opinion herein concerning any law other than the federal law of the United
States. We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement on Form S-4 and
to the reference to our firm under the heading "The Mergers--Certain Federal
Income Tax Consequences" in the Joint Proxy Statement/Prospectus that
constitutes part of the Registration Statement.
Very truly yours,
SIMPSON THACHER & BARTLETT
3
<PAGE>
EXHIBIT 23(C)
FORM OF CONSENT OF MERRILL LYNCH
We hereby consent to the use of our opinion letter dated December 26, 1996
to the Board of Directors of Delmarva Power & Light Company included as Annex II
to the Joint Proxy Statement/Prospectus which forms a part of the Registration
Statement on Form S-4 relating to the proposed mergers of Atlantic Energy, Inc.
with and into Conectiv, Inc. and DS Sub, Inc. with and into Delmarva Power &
Light Company and to the references to such opinion in such Joint Proxy
Statement/Prospectus. In giving such consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder, nor do we thereby admit that we
are experts with respect to any part of such Registration Statement within the
meaning of the term "experts" as used in the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:______________________________
December 26, 1996
<PAGE>
EXHIBIT 23(D)
CONSENT OF
MORGAN STANLEY & CO. INCORPORATED
December 26, 1996
Delmarva Power and Light Company
800 King Street
Wilmington, DE 19899
Dear Sirs:
We hereby consent to the inclusion in the Registration Statement of
Conective, Inc. ("DS Sub") on Form S-4, with respect to the shares of Common
Stock, par value $0.01 per share, and Class A Common Stock, par value $0.01 per
share, of DS Sub, of our opinion letter appearing as Annex III to the Joint
Proxy Statement/Prospectus which is part of the Registration Statement, and to
the references of our firm name therein. In giving such consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the rules
and regulations adopted by the Securities and Exchange Commission thereunder nor
do we admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities Act
of 1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: _________________________________
<PAGE>
EXHIBIT 23(E)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-4 of our report dated February 2, 1996, except as to the information
presented under the caption Salem Outage in Note 16 to the financial statements,
for which the date is February 26, 1996, on our audits of the consolidated
financial statements of Delmarva Power & Light Company as of December 31, 1995
and 1994 and for each of the three years in the period ended December 31, 1995;
and we consent to the inclusion in this registration statement of our report
dated October 1, 1996 on our audit of the consolidated balance sheet of
Conectiv, Inc. as of September 30, 1996. We also consent to the references to
our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 26, 1996
<PAGE>
EXHIBIT 23(F)
[LETTERHEAD OF DELOITTE & TOUCHE LLP]
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Conectiv, Inc. on Form S-4 of our reports dated February 2, 1996, appearing
in the Annual Report on Form 10-K of Atlantic Energy, Inc. and the Annual Report
on Form 10-K of Atlantic City Electric Company for the year ended December 31,
1995 and to the reference to us under the heading "Experts" in this Registration
Statement.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
December 26, 1996
<PAGE>
EXHIBIT 23(G)
[LETTERHEAD OF THE NORTHBRIDGE GROUP]
CONSENT OF
THE NORTHBRIDGE GROUP
December 26, 1996
Delmarva Power and Light Company
800 King Street
Wilmington, DE 19899
Atlantic Energy, Inc.
6801 Black Horse Pike
Egg Harbor Township, NJ 08234-4130
Dear Sirs:
We hereby consent to the references to our firm and to the review conducted
by our firm found in the Joint Proxy Statement/Prospectus which is part of the
Registration Statement of Conectiv, Inc. ("Conectiv") on Form S-4, with respect
to the shares of Common Stock, par value $0.01 per share, and Class A Common
Stock, par value $0.01 per share, of Conectiv. In giving such consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the rules
and regulations adopted by the Securities and Exchange Commission thereunder nor
do we admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities Act
of 1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very Truly Yours,
THE NORTHBRIDGE GROUP
By: /s/ Michael Schnitzer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 50
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 50
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 50
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 40
<TOTAL-LIABILITY-AND-EQUITY> 50
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> $0.00
<EPS-DILUTED> $0.00
</TABLE>
<PAGE>
EXHIBIT 99(A)
DELMARVA POWER & LIGHT COMPANY
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
JANUARY 30, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
The undersigned, a holder of common stock, par value $2.25 per share (the
"Common Stock"), of Delmarva Power & Light Company (the "Company") hereby
appoints Howard E. Cosgrove, Barbara S. Graham and Donald P. Connelly, or any
one or more of them, the proxies and attorneys of the undersigned, with power of
substitution (the action of a majority of them or their substitutes present and
acting to be in any event controlling), to attend the Special Meeting of the
Stockholders of the Company on January 30, 1997, and any adjournment or
adjournments thereof, and thereat to vote all the shares of the Common Stock of
the Company which the undersigned would be entitled to vote if personally
present at such Meeting.
<TABLE>
<C> <S>
1. Approval of the Agreement and Plan of Merger, dated as of August 9, 1996, as amended and restated as of
December 26, 1996 by and among Delmarva Power & Light Company, Atlantic Energy, Inc., Conectiv, Inc. and DS
Sub, Inc.
2. Approval of the Conectiv, Inc. Incentive Compensation Plan.
3. The proxies are also authorized to vote in their discretion upon such other matters incident to the conduct of
the meeting as may properly come before the meeting or any adjournment or adjournments thereof.
</TABLE>
<TABLE>
<S> <C>
ADDRESS CHANGE OR COMMENTS
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
</TABLE>
<PAGE>
<TABLE>
<C> <S>
/X/ PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
</TABLE>
This proxy, when properly executed, will be voted in the manner directed herein.
If no direction is made, this Proxy will be voted FOR Item 1 and FOR Item 2.
This proxy is solicited on behalf of the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR BOTH OF THE PROPOSALS.
<TABLE>
<CAPTION>
(HAVING THE SAME EFFECT AS A VOTE
FOR AGAINST ABSTAIN AGAINST)
<S> <C> <C> <C> <C> <C>
1. Approval of the Agreement and
Plan of Merger (see reverse) / / / / / /
2. Approval of Conectiv, Inc.
Incentive Compensation Plan / / / / / /
</TABLE>
<TABLE>
<S> <C>
MARK HERE FOR ADDRESS CHANGE AND NOTE ON
REVERSE SIDE
The stockholder hereby acknowledges
receipt of the Notice of Special Meeting
and the Joint Proxy Statement/Prospectus
attached thereto.
PLEASE DATE AND SIGN EXACTLY AS NAME
APPEARS ON THIS CARD INDICATING, WHERE
PROPER, OFFICIAL POSITION OR
REPRESENTATIVE CAPACITY. FOR JOINT
ACCOUNTS, EACH JOINT OWNER SHOULD SIGN.
---------------------------------------
---------------------------------------
SIGNATURE(S) DATE
</TABLE>
<PAGE>
EXHIBIT 99(B)
ATLANTIC ENERGY, INC.
SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned holder of common stock, no par value (the "Common Stock"),
of Atlantic Energy, Inc. (the "Company") hereby appoints each of James E.
Franklin II, Michael J. Barron and Louis M. Walters and each of them with full
power of substitution, for and in the name of the undersigned, to represent and
to vote, as designated below, all shares of Common Stock that the undersigned is
entitled to vote if personally present at the Special Meeting of Stockholders of
the Company, and at any adjournment thereof. The undersigned hereby revokes any
previous proxies with respect to the matters covered by this Proxy.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THE MERGER AGREEMENT
(PLEASE MARK THE PROPOSAL WITH AN "X" IN THE APPROPRIATE BOX)
<TABLE>
<C> <S> <C>
1. APPROVAL OF MERGER AGREEMENT:
Approval of Agreement and Plan of Merger, dated as of August 9,
1996, as amended and restated as of December 26, 1996 by and among
Delmarva Power & Light Company, Atlantic Energy, Inc., Conectiv,
Inc. and DS Sub, Inc. (the "Merger Agreement")
/ / FOR THE MERGER AGREEMENT / / AGAINST
THE MERGER AGREEMENT
2. APPROVAL OF CONECTIV, INC. INCENTIVE COMPENSATION PLAN:
Approval of the Conectiv, Inc. Incentive Compensation Plan (the
"Incentive Compensation Plan")
/ / FOR THE INCENTIVE COMPENSATION
PLAN / / AGAINST THE INCENTIVE COMPENSATION
PLAN
- -----------------------------------------------------------------------------
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENT THEREOF.
</TABLE>
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
IN THE ENCLOSED ENVELOPE PROVIDED
(CONTINUED ON OTHER SIDE)
<PAGE>
(CONTINUED FROM OTHER SIDE)
This Proxy, when properly executed, will be voted in the manner marked
herein by the undersigned stockholder. IF NO MARKING IS MADE, THIS PROXY WILL BE
DEEMED TO BE A DIRECTION TO VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND FOR
APPROVAL OF THE INCENTIVE COMPENSATION PLAN.
<TABLE>
<S> <C>
The stockholder hereby acknowledges
receipt of the Notice of the Special
Meeting and the Joint Proxy
Statement/Prospectus attached thereto.
PLEASE DATE AND SIGN
THIS PROXY EXACTLY AS YOUR NAME APPEARS
HEREON.
----------------------------------------
(Signature)
----------------------------------------
(Signature, if held jointly)
----------------------------------------
(Title)
----------------------------------------
Dated:
To vote in accordance with the Board's recommendation, just sign and When shares are held by joint tenants,
date this proxy; no boxes need to be checked. both should sign. When signing as
attorney-in-fact, executor,
administrator, trustee, guardian,
corporate officer or partner, please
give full title as such. If a
corporation, please sign in corporate
name by President or other authorized
officer. If a partnership, please sign
in partnership name by authorized
person.
</TABLE>
