<PAGE> 1
File No. ___
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------------
FORM U-1 APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
--------------------------------------------
FirstEnergy Corp.
76 South Main Street
Akron, Ohio 44308
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(Name of companies filing this statement
and address of principal executive offices)
None
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(Name of top registered holding company, parent of each applicant or declarant)
H. Peter Burg, Treasurer
FirstEnergy Corp.
76 South Main Street
Akron, Ohio 44308
--------------------------------------------
(Names and addresses of agents for service)
The Commission is requested to send copies of all notices, orders and
communications in connection with this Application/Declaration to:
<TABLE>
<S> <C> <C> <C>
MICHAEL F. CUSICK TERRENCE G. LINNERT ANDREW G. BERG GORDON S. KAISER
Winthrop, Stimson, Putnam & Centerior Energy Corporation Akin, Gump, Strauss, Hauer & Squire, Sanders & Dempsey
Roberts 6200 Oak Tree Blvd. Feld, L.L.P. L.L.P.
One Battery Park Plaza Independence, Ohio 44131 1333 New Hampshire Ave., NW 4900 Key Tower
New York, New York 10004 (216) 447-3121 Suite 400 Cleveland, Ohio 44114
(212) 858-1000 Washington, D.C. 20036 (212) 479-8500
(202) 887-4000
</TABLE>
<PAGE> 2
Table of Contents
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<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Description of Proposed Merger......................................................................... 1
Introduction........................................................................................... 1
A. Description of Parties to the Merger............................................................... 2
1. General Description....................................................................... 2
a. FirstEnergy...................................................................... 2
b. Ohio Edison...................................................................... 2
c. Centerior........................................................................ 2
2. Description of Utility Operations......................................................... 3
a. Ohio Edison and Penn Power....................................................... 3
b. Centerior........................................................................ 6
c. Current Electric Coordination.................................................... 9
d. Utility Regulation.............................................................. 10
3. Non-Utility Interests.................................................................... 10
B. Description of the Proposed Merger................................................................ 11
C. Negotiations Leading to the Proposed Merger....................................................... 12
D. Reasons for and Anticipated Effect of Merger...................................................... 13
1. Savings.................................................................................. 13
2. Larger Stake in Major Generating Plants.................................................. 14
3. Rate Reduction........................................................................... 14
E. Additional Information............................................................................ 15
Item 2. Fees, Commissions and Expenses........................................................................ 15
Item 3. Applicable Statutory Provisions....................................................................... 15
A. Section 10(b)..................................................................................... 16
1. Section 10(b)(1)......................................................................... 16
a. Interlocking Relations.......................................................... 16
b. Concentration of Control........................................................ 17
2. Section 10(b)(2) Fairness of Consideration and Fees................................... 20
a. Fairness of Consideration....................................................... 20
b. Reasonableness of Fees.......................................................... 21
3. Section 10(b)(3) Capital Structure.................................................... 22
a. Complication.....................................................................22
b. Protected Interests..............................................................23
B. Section 10(c)..................................................................................... 23
1. Section 10(c)(1)......................................................................... 23
2. Section 10(c)(2)......................................................................... 24
a. Efficiencies and Economies...................................................... 24
b. Integrated Public Utility System................................................ 26
C. Section 10(f)..................................................................................... 28
Item 4. Regulatory Approvals.................................................................................. 29
A. Antitrust......................................................................................... 29
B. Federal Power Act................................................................................. 29
C. Atomic Energy Act................................................................................. 30
D. State Public Utility Regulation................................................................... 30
E. Other............................................................................................. 30
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
Item 5. Procedure............................................................................................. 30
Item 6. Exhibits and Financial Statements..................................................................... 31
A. Exhibits.......................................................................................... 31
B. Financial Statements.............................................................................. 32
Item 7. Information as to Environmental Effects................................................................33
</TABLE>
(ii)
<PAGE> 4
ITEM 1. DESCRIPTION OF PROPOSED MERGER
------------------------------
INTRODUCTION
Pursuant to Sections (9)(a)(2) and 10 of the Public Utility Holding
Company Act of 1935 (the "1935 Act" or the "Act"), FirstEnergy Corp., an Ohio
corporation ("FirstEnergy" or the "Applicant"), hereby requests that the
Securities and Exchange Commission (the "Commission") (i) authorize the direct
and indirect acquisition, as set forth herein, by FirstEnergy of all of the
issued and outstanding voting securities ("Common Stock") of Ohio Edison
Company, an Ohio corporation ("Ohio Edison"), The Cleveland Electric
Illuminating Company, an Ohio corporation ("Cleveland Electric"), The Toledo
Edison Company, an Ohio corporation ("Toledo Edison") and Pennsylvania Power
Company, a Pennsylvania corporation ("Penn Power") as well as 20.5% of the
Common Stock of Ohio Valley Electric Corporation, an Ohio corporation
("OVEC")(which, in turn, owns all of the Common Stock of Indiana-Kentucky
Electric Corporation ("IKEC")) and (ii) grant such other authorizations as may
be necessary in connection therewith.
Centerior Energy Corporation, an Ohio corporation ("Centerior"),
currently owns all of the Cleveland Electric and Toledo Edison Common Stock.
Ohio Edison currently owns all of the Penn Power Common Stock. Ohio Edison, Penn
Power, Cleveland Electric, Toledo Edison, OVEC and IKEC are all "public-utility
companies" as defined in the 1935 Act. Ohio Edison is also a "holding company"
as defined in the 1935 Act. Ohio Edison is currently exempt from the
registration and other requirements of the 1935 Act, other than from Section
9(a)(2) thereof, pursuant to Section 3(a)(2). Centerior is a "holding company"
as defined in the 1935 Act and is exempt under Section 3(a)(1) of the 1935 Act
from all of the provisions of the 1935 Act (except for Section 9(a)(2) thereof).
FirstEnergy will directly acquire all of the Cleveland Electric Common
Stock, the Toledo Edison Common Stock and the Ohio Edison Common Stock and will
indirectly acquire the Penn Power Common Stock through the transactions
contemplated by (i) the Agreement and Plan of Merger, dated as of September 13,
1996 (the "Merger Agreement") between Ohio Edison and Centerior, (ii) the Merger
Agreement by and among Ohio Edison Company, FirstEnergy Corp. and Ohio Edison
Acquisition Corp., attached to the Merger Agreement as Exhibit A (the "Ohio
Edison Merger Agreement"), and (iii) the Merger Agreement by and among Centerior
Acquisition Corp., FirstEnergy Corp. and Centerior Energy Corporation, attached
to the Merger Agreement as Exhibit B (the "Centerior Merger Agreement" and,
together with the Merger Agreement and the Ohio Edison Merger Agreement, the
"Merger Agreements"). The Merger Agreements provide, among other things, for (i)
the merger of Centerior with and into FirstEnergy Corp., (immediately after the
merger of a wholly-owned subsidiary of FirstEnergy ("Centerior Acquisition
Corp.") with and into Centerior pursuant to the Centerior Merger Agreement) and
(ii) the merger of another wholly-owned subsidiary of FirstEnergy ("Ohio Edison
Acquisition Corp.") with and into Ohio Edison pursuant to the Ohio Edison Merger
Agreement (collectively, the "Merger"). Following the Merger, FirstEnergy will
be a holding company which will directly hold all of the Ohio Edison Common
Stock, Cleveland Electric Common Stock and Toledo Edison Common Stock. Penn
Power will remain a wholly-owned subsidiary of Ohio Edison. Upon consummation of
the Merger, FirstEnergy will own indirectly 20.5% of the OVEC Common Stock.
FirstEnergy is not currently a "holding company" under the 1935 Act
because it does not own, control or hold with power to vote ten percent or more
of the voting securities of a public-utility company. Following the consummation
of the Merger, FirstEnergy will be a public-utility holding company under the
1935 Act. FirstEnergy will claim an exemption from all provisions of the 1935
Act (except for Section 9(a)(2) thereof) pursuant to Rule 2 under the 1935 Act
immediately following the consummation of the Merger.
<PAGE> 5
A. DESCRIPTION OF PARTIES TO THE MERGER
------------------------------------
1. GENERAL DESCRIPTION
-------------------
a. FIRSTENERGY
-----------
FirstEnergy was organized under the laws of the State of Ohio in 1996
by Ohio Edison and Centerior for the purpose of facilitating the Merger of Ohio
Edison and Centerior and is not currently engaging in any business. FirstEnergy
will organize two wholly owned subsidiaries, Centerior Acquisition Corp. and
Ohio Edison Acquisition Corp., both Ohio corporations, for the purpose of
consummating the Merger. Upon consummation of the Merger, FirstEnergy will
directly own all of the Common Stock of Ohio Edison, Cleveland Electric and
Toledo Edison, as well as indirectly owning all of the Common Stock of Penn
Power and 20.5% of the Common Stock of OVEC. Fifty percent of First Energy's
Common Stock currently is owned by Ohio Edison; the remainder of FirstEnergy's
Common Stock is owned by Centerior.
b. OHIO EDISON
-----------
Ohio Edison is an investor-owned public utility company headquartered
in Akron, Ohio. It was organized under the laws of the State of Ohio in 1930 and
is a "public utility company" and a public utility "holding company" which is
exempt from regulation by the Commission under the 1935 Act (except for Section
9(a)(2) thereof) because it is predominantly a public-utility company whose
operations as such do not extend beyond the State of Ohio and contiguous states.
SEE OHIO EDISON COMPANY, Holding Co. Act Release No. 21019 (April 26, 1979).
Ohio Edison owns all of the Common Stock of Penn Power, which is based in New
Castle, Pennsylvania. Penn Power is a "public utility company" under the 1935
Act. Including Penn Power, Ohio Edison has eight wholly-owned subsidiaries. Ohio
Edison owns directly 16.5% of the Common Stock of OVEC. OVEC and IKEC were
formed in 1952 by 15 independent investor-owned public utilities (including Ohio
Edison, Penn Power and Toledo Edison) for the purpose of providing the large
electric power requirements projected for the major uranium enrichment complex
near Portsmouth, Ohio, then being built by the Atomic Energy Commission, the
predecessor to the U.S. Department of Energy (the "DOE"). The merger will not
affect OVEC.
Ohio Edison and Penn Power operate and dispatch electrical service as a
single utility system known as the Ohio Edison System ("OES"). OES provides
retail electric service to 1.1 million customers in a 9,000 square mile area of
central and northeastern Ohio and western Pennsylvania. OES provides wholesale
electric capacity, energy and transmission services to 21 municipal electric
systems in its Ohio service area, and to five boroughs in Pennsylvania. In
addition, OES provides transmission service to nine rural electric cooperatives.
OES also engages in the sale, purchase and interchange of electric energy with
other electric companies and power producers. OES has 36 transmission
interconnections with eight public utilities, including Cleveland Electric and
Toledo Edison, which operate at or above 138 kilovolts ("kV").
Ohio Edison and Penn Power belong to the Central Area Power
Coordination Group ("CAPCO"). The other members of CAPCO are Cleveland Electric,
Toledo Edison and Duquesne Light Company ("Duquesne")(collectively, the "CAPCO
Companies"). The CAPCO Companies jointly own various generating units and
individually own various transmission facilities dedicated by the CAPCO
agreements to fulfill specified purposes. CAPCO is not a utility company or a
transmitting utility, and no CAPCO member owns a share of all CAPCO units. The
Merger will not affect the CAPCO agreements.
c. CENTERIOR
---------
Centerior is an investor-owned public utility holding company
headquartered in Independence, Ohio. It was organized under the laws of the
State of Ohio in 1985 in connection with the merger of Cleveland Electric and
Toledo Edison. Centerior is a "holding company" which is exempt from regulation
by the Commission under the 1935 Act (except for Section 9(a)(2) thereof)
because its operations and those of its public utility subsidiaries (Cleveland
Electric and Toledo Edison) from which it derives, directly or indirectly, any
material part of its income, are predominantly intrastate in character and are
carried on substantially in the State of Ohio. SEE Centerior Form
-2-
<PAGE> 6
U-3A-2, "Statement by Holding Company Claiming Exemption Under Rule U-2 from the
Provisions of the Public Utility Holding Company Act of 1935," dated February
27, 1996, attached hereto as Exhibit G-1. Centerior owns all of the Common Stock
of Cleveland Electric and Toledo Edison, which are based in Cleveland, Ohio, and
Toledo, Ohio, respectively. Cleveland Electric and Toledo Edison are
"public-utility companies" under the 1935 Act. In addition to Cleveland Electric
and Toledo Edison, Centerior has four other wholly-owned subsidiaries. Toledo
Edison owns directly 4% of the Common Stock of OVEC.
The service areas of Centerior's Toledo Edison and Cleveland Electric
subsidiaries are not contiguous. Cleveland Electric provides retail electric
service to 749,075 customers in a 1,700 square mile area of northeastern Ohio,
and Toledo Edison provides retail electric service to 290,480 customers in a
2,500 square mile area of northwestern Ohio. Cleveland Electric and Toledo
Edison also provide transmission services and electric energy for resale to
other electric utility companies and to 14 municipalities and 5 rural
cooperatives in Toledo Edison's service area. Cleveland Electric and Toledo
Edison also engage in the sale, purchase and interchange of electric energy
with other electric companies and power producers. Cleveland Electric and
Toledo Edison together have 21 transmission interconnections with 4 public
utilities, including OES, which operate at or above 138 kV.
2. DESCRIPTION OF UTILITY OPERATIONS
---------------------------------
a. OHIO EDISON AND PENN POWER
--------------------------
Ohio Edison furnishes electric service to communities in a 7,500 square
mile area of central and northeastern Ohio. A map of Ohio Edison's service
territory is attached as Exhibit E-1. Ohio Edison also provides transmission
services and electric energy for resale to certain municipalities in its service
area and transmission services to certain rural cooperatives. Ohio Edison also
engages in the sale, purchase and interchange of electric energy with other
electric companies. The area it serves has a population of approximately
2,530,000.
Penn Power furnishes electric service to communities in a 1,500 square
mile area of western Pennsylvania. Penn Power also provides transmission
services and electric energy for resale to certain municipalities in
Pennsylvania. The area served by Penn Power has a population of approximately
342,000. A map of Penn Power's service territory is attached as Exhibit E-1.
GENERATING UNITS OES owns or leases all or a portion of 39 electric
generating units, consisting of 18 coal fired units, three nuclear units, seven
oil fired units, one gas/oil fired unit and 10 diesel generators (located at
three sites), which have total net generating capacity of 5,757 megawatts
("MW"). Essentially all of the electric properties owned by OES are located
within the State of Ohio and the Commonwealth of Pennsylvania.
OES's generation requirements are supplied by a number of plants which
use a variety of fuels, as set forth below:
-3-
<PAGE> 7
<TABLE>
<CAPTION>
Total Unit OES-Owned
Net Portion of
Demonstrated Net Demonstrated
Generating Unit Location Unit Type Capability Capability
--------------- -------- --------- ---------- ----------
(MW) (MW)
<S> <C> <C> <C> <C>
NUCLEAR
Beaver Valley 1 Pennsylvania Steam Turbine 810 425(1)/
Beaver Valley 2 Pennsylvania Steam Turbine 820 343(2)/
Perry 1 Ohio Steam Turbine 1194 421(3)/
COAL
Burger 3 Ohio Steam Turbine 94 94(4)/
Burger 4 Ohio Steam Turbine 156 156(4)/
Burger 5 Ohio Steam Turbine 156 156(4)/
Mansfield 1 Pennsylvania Steam Turbine 780 501(5)/
Mansfield 2 Pennsylvania Steam Turbine 780 360(6)/
Mansfield 3 Pennsylvania Steam Turbine 800 335(7)/
New Castle 3 Pennsylvania Steam Turbine 98 98(8)/
New Castle 4 Pennsylvania Steam Turbine 98 98(8)/
New Castle 5 Pennsylvania Steam Turbine 137 137(8)/
Niles 1 Ohio Steam Turbine 108 108(4)/
Niles 2 Ohio Steam Turbine 108 108(4)/
Sammis 1 Ohio Steam Turbine 180 180(4)/
Sammis 2 Ohio Steam Turbine 180 180(4)/
Sammis 3 Ohio Steam Turbine 180 180(4)/
Sammis 4 Ohio Steam Turbine 180 180(4)/
Sammis 5 Ohio Steam Turbine 300 300(4)/
Sammis 6 Ohio Steam Turbine 600 600(4)/
Sammis 7 Ohio Steam Turbine 600 413(9)/
<FN>
- --------
1. Represents combined OES ownership of 52.50%.
2. Represents combined OES ownership and leasehold interest of 41.88%.
3. Represents combined OES ownership and leasehold interest of 35.24%.
4. 100% owned by Ohio Edison.
5. Represents combined OES ownership of 64.20%.
6. Represents combined OES ownership of 46.10%.
7. Represents combined OES ownership of 41.88%.
8. 100% owned by Penn Power.
9. Represents combined OES Ownership of 68.8%.
</TABLE>
-4-
<PAGE> 8
<TABLE>
<CAPTION>
Total Unit OES-Owned
Net Portion of
Demonstrated Net Demonstrated
Generating Unit Location Unit Type Capability Capability
--------------- -------- --------- ---------- ----------
(MW) (MW)
<S> <C> <C> <C> <C>
NATURAL GAS
Edgewater 4 Ohio Steam Turbine 100 100(4)/
OIL
Edgewater CT A&B Ohio Combustion Turbine 48 48(4)/
Mad River CT A&B Ohio Combustion Turbine 60 60(4)/
Niles CT A Ohio Combustion Turbine 30 30(4)/
West Lorain CT A&B Ohio Combustion Turbine 120 120(4)/
DIESEL
Burger D Ohio Internal Combustion 7 7(4)/
New Castle D Pennsylvania Internal Combustion 6 6(4)/
Sammis D Ohio Internal Combustion 13 13(4)/
---- ----
Total 8743 5757
==== ====
</TABLE>
SYSTEM REQUIREMENTS
-------------------
OES has a transmission system of 5,616 circuit line miles covering an
area of approximately 9,000 square miles. OES also has 26,144 distribution line
miles within its service areas. The transmission system has 629 circuit miles of
345 kV lines, 2,340 circuit miles of 138 kV lines, 182 circuit miles of 34.5 kV
lines, and 583 circuit miles of 23 kV lines. Additionally, OES's electric
distribution systems include 26,114 miles of overhead pole line and underground
conduit carrying primary, secondary and street lighting circuits. OES owns,
individually or together with one or more of the other CAPCO Companies as
tenants in common, 443 substations with a total installed transformer capacity
of 24,380,724 kV-amperes, of which 69 are transmission substations, including
nine located at generating plants.
The 1995 net maximum hourly demand on OES of 6,332,000 kilowatts ("kW")
(including 450,000 kW of firm power sales that extend through 2005) occurred on
August 15, 1995. The seasonal capability of OES on that day was 6,489,000 kW. Of
that system capability, 2.2% was available to serve additional load, after
giving effect to net firm and capacity purchases at that hour of 864,000 kW and
term power sales to other utilities.
FUEL SOURCES
------------
Sources of generation for Ohio Edison and Penn Power during the twelve
months ended September 30, 1996 were 75.4% coal and 24.6% nuclear. Over
two-thirds of OES's annual coal purchase requirements are supplied under
long-term contracts. These contracts have minimum annual tonnage levels of
approximately 5,300,000 tons. This contract coal is produced primarily from
mines located in Ohio, Pennsylvania, Kentucky and West Virginia; the contracts
expire at various times through February 28, 2003.
OES Fuel, a subsidiary of Ohio Edison, is the sole lessor for OES's
nuclear fuel requirements. OES and OES Fuel have contracts for the supply of
uranium sufficient to meet projected needs through 2000 and conversion services
sufficient to meet projected needs through 2001. Fabrication services for fuel
assemblies have been contracted by CAPCO for the next four reloads for Beaver
Valley Unit 1, two reloads for Beaver Valley Unit 2 (through approximately 2000
and 1998, respectively), and the next six reloads for Perry (through
approximately 2004). OES has a contract with U.S. Enrichment Corporation for the
majority of its enrichment requirements for nuclear fuel through 2014.
-5-
<PAGE> 9
Ohio Edison does not own or have any financial interest in any natural
gas pipeline company. However, at Ohio Edison's Edgewater plant, OES Fuel owns a
four mile gas pipeline that connects the Edgewater plant to the Columbia Gas
Transmission system.
OES's fuel costs (excluding disposal costs) for each of the five years
ended December 31, 1995, were as follows:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cost of fuel consumed
per million BTUs:
Coal $1.36 $1.36 $1.37 $1.40 $1.40
Nuclear $ .65 $ .75 $ .76 $ .83 $ .87
Oil, Natural Gas & Diesel $2.47 $4.33 $4.66 $1.67 $4.22
----- ----- ----- ----- -----
Average fuel cost per
kilowatt-hour
generated (cents) 1.22 1.26 1.31 1.31 1.34
</TABLE>
b. CENTERIOR
---------
GENERATING UNITS Cleveland Electric and Toledo Edison own or lease all
or a portion of 34 electric generating units, consisting of 22 coal-fired units,
3 nuclear units, 5 oil-fired steam units, 1 diesel generator and three pumped
storage units. Centerior's generating capacity is approximately 5,678 MW.
The generation requirements of Cleveland Electric and Toledo Edison are
supplied by a number of plants which use a variety of fuels, as set forth below:
<TABLE>
<CAPTION>
Centerior-Owned
Net Portion of Net
Demonstrated Demonstrated
Generating Unit Location Unit Type Capability Capability
- --------------- -------- --------- ---------- ----------
(MW) (MW)
<S> <C> <C> <C> <C>
CLEVELAND ELECTRIC ILLUMINATING
- -------------------------------
COAL
Ashtabula Unit 5 Ohio Steam Turbine 244 244(1)/
Ashtabula Unit 9 Ohio Steam Turbine 44 44(1)/
Avon Lake Unit 7 Ohio Steam Turbine 96 96(1)/
Avon Lake Unit 9 Ohio Steam Turbine 596 596(1)/
Mansfield Unit 1 Pennsylvania Steam Turbine 780 51(2)/
Mansfield Unit 2 Pennsylvania Steam Turbine 780 223(3)/
Mansfield Unit 3 Pennsylvania Steam Turbine 800 196(4)/
Eastlake Unit 1 Ohio Steam Turbine 132 132(1)/
<FN>
- --------
1. 100% owned by Cleveland Electric.
2. Represents 6.53% leasehold interest of Cleveland Electric.
3. Represents 28.59% leasehold interest of Cleveland Electric.
4. Represents 24.5% leasehold interest of Cleveland Electric.
</TABLE>
-6-
<PAGE> 10
<TABLE>
<CAPTION>
Centerior-Owned
Net Portion of Net
Demonstrated Demonstrated
Generating Unit Location Unit Type Capability Capability
- --------------- -------- --------- ---------- ----------
(MW) (MW)
<S> <C> <C> <C> <C>
Eastlake Unit 2 Ohio Steam Turbine 132 132(1)/
Eastlake Unit 3 Ohio Steam Turbine 132 132(1)/
Eastlake Unit 4 Ohio Steam Turbine 240 240(1)/
Eastlake Unit 5 Ohio Steam Turbine 600 411(5)/
OIL
Avon Lake Unit 10 Ohio Combustion Turbine 29 29(1)/
Eastlake Unit 6 Ohio Combustion Turbine 29 29(1)/
NUCLEAR
Beaver Valley Unit 2 Pennsylvania Steam Turbine 820 201(6)/
Davis Besse Unit 1 Ohio Steam Turbine 883 454(7)/
Perry Unit 1 Ohio Steam Turbine 1194 371(8)/
DIESEL
Lakeshore D Ohio Internal Combustion 4 4(1)/
HYDRO-PUMPED
Seneca Units 1-3 Pennsylvania Hydro-Pumped 351 351
Storage --- ---
Cleveland Electric Illuminating Total 7,886 3,936
- ------------------------------------- ----- -----
TOLEDO EDISON
- -------------
COAL
Bay Shore Unit 1 Ohio Steam Turbine 136 136(9)/
Bay Shore Unit 2 Ohio Steam Turbine 138 138(9)/
Bay Shore Unit 3 Ohio Steam Turbine 142 142(9)/
Bay Shore Unit 4 Ohio Steam Turbine 215 215(9)/
Mansfield Unit 2 Pennsylvania Steam Turbine 780 135(10)/
Mansfield Unit 3 Pennsylvania Steam Turbine 800 159(11)/
<FN>
- --------
5. Represents Cleveland Electric ownership of 68.5%.
6. Represents 24.5% leasehold interest of Cleveland Electric.
7. Represents Cleveland Electric ownership of 51.42%.
8. Represents Cleveland Electric ownership of 31.08%.
9. 100% owned by Toledo Edison.
10. Represents 17.31% leasehold interest of Toledo Edison.
11. Represents 19.91% leasehold interest of Toledo Edison.
</TABLE>
-7-
<PAGE> 11
<TABLE>
<CAPTION>
Centerior-Owned
Net Portion of Net
Demonstrated Demonstrated
Generating Unit Location Unit Type Capability Capability
- --------------- -------- --------- ---------- ----------
(MW) (MW)
<S> <C> <C> <C> <C>
OIL & NATURAL GAS
Bay Shore CT Ohio Combustion Turbine 17 17(9)/
Richland Unit 1 Ohio Combustion Turbine 14 14(9)/
Richland Unit 2 Ohio Combustion Turbine 14 14(9)/
Richland Unit 3 Ohio Combustion Turbine 14 14(9)/
Stryker Combustion Turbine 18 18(9)/
- -------
NUCLEAR
Beaver Valley Unit 2 Pennsylvania Steam Turbine 820 163(12)/
Davis Besse Unit 1 Ohio Steam Turbine 883 429(13)/
Perry Unit 1 Ohio Steam Turbine 1,194 238(14)/
----- ---
Toledo Edison Total 5,185 1,832
- ------------------- ----- -----
Centerior Energy Total 13,071 5,768
- ---------------------- ====== =====
</TABLE>
SYSTEM REQUIREMENTS
-------------------
Cleveland Electric has 3,936 MWs of generating facilities in service,
358 circuit miles of 345 kV transmission lines and 903 circuit miles of 138 kV
transmission lines. Toledo Edison has 1,832 MWs of generating capacity in
service and has 154 circuit miles of 345 kV transmission lines and 508 miles of
138 kV lines. Cleveland Electric and Toledo Edison own, individually or together
with one or more of the other CAPCO companies as tenants in common, 278
substations with a total installed transformer capacity of 25,020,000
kV-amperes, of which 55 are transmission substations, including 11 located at
generating plants.
Cleveland Electric and Toledo Edison together had a net 60-minute peak
load of their service areas for 1995 of 5,779,000 kW, which occurred on August
15. The net seasonal capability at the time of the 1995 peak load was 5,924,000
kW. The 60-minute peak load of Cleveland Electric's service area for 1995 was
4,049,000 kW and occurred on August 15. The capacity resources available at the
time of the 1995 peak were 4,273,000 kW. The net 60-minute peak load of Toledo
Edison's service area for 1995 was 1,738,000 kW and occurred on August 15.
The capacity resources available at the time of the 1995 peak were 1,651,000 kW.
FUEL SOURCES
------------
During the 12 months ended September 30, 1996, Centerior's sources of
generation consisted of 63.2% fossil, 31.0% nuclear and 5.8% pumped-storage.
Generation by type of fuel for 1995 was 61% coal-fired and 39% nuclear for
Cleveland Electric; 40% coal-fired and 60% nuclear for Toledo Edison; and 54%
coal-fired and 46% nuclear for Centerior.
In 1995, Cleveland Electric burned 5,237,000 tons of coal and Toledo
Edison burned 1,840,000 tons of coal for electric generation. In 1995, about 50%
of Cleveland Electric's coal requirements were purchased under
- --------
12. Represents Toledo Edison ownership of 19.91%.
13. Represents 48.58% leasehold interest of Toledo Edison.
14. Represents Toledo Edison ownership of 19.91%.
-8-
<PAGE> 12
long-term contracts, with the longest remaining term being almost eight years.
In most cases, these contracts provide for adjusting the price of the coal on
the basis of changes in coal quality and mining costs. Additionally, about 25%
of Cleveland Electric's coal requirements were purchased under short-term
contracts (nine to twelve month terms) with price adjustments on the basis of
coal quality. The balance of Cleveland Electric's coal was purchased on the spot
market. In 1995, about 66% of Toledo Edison's coal requirements were purchased
under long-term contracts, with the longest remaining term being almost five
years. In most cases, these contracts provide for adjusting the price of the
coal on the basis of changes in coal quality and mining costs. The balance of
Toledo Edison's coal was purchased on the spot market.
The CAPCO Companies have a contract with the United States Enrichment
Corporation ("USEC") which, through 1996, supplied all of the needed enrichment
services for their nuclear units' fuel supply. After 1996, the amount of
enrichment services under the USEC contract varies by CAPCO Company, with
Cleveland Electric's and Toledo Edison's enrichment services reduced to 70% in
1996-1999 and reduced to 0% in 2000 and beyond. The additional required
enrichment services are available. Substantial additional fuel will have to be
obtained in the future over the remaining useful lives of the units. There is a
plentiful supply of uranium oxide raw material to meet the industry's nuclear
fuel needs.
Cleveland Electric and Toledo Edison each have adequate supplies of
fuel oil for their oil-fired electric generating units which are used primarily
as reserve and peaking capacity.
The combined fuel costs (excluding disposal costs) of Cleveland
Electric and Toledo Edison for each of the five years ended December 31, 1995,
were as follows:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cost of fuel consumed
per million BTUs:
Coal $1.53 $1.46 $1.42 $2.00 $1.77
Nuclear $0.95 $0.95 $0.99 $1.03 $1.04
Other $3.85 $4.24 $4.28 $3.94 $3.63
Average fuel cost per
kilowatt-hour
generated (cents) 1.38 1.43 1.43 1.53 1.54
</TABLE>
c. CURRENT ELECTRIC COORDINATION
-----------------------------
Ohio Edison and Penn Power are extensively interconnected, with 12
points of interconnection at voltage levels ranging from 23 kV to 345 kV.
Cleveland Electric and Toledo Edison are not currently interconnected, because
they are separated by Ohio Edison's facilities. However, Ohio Edison and
Cleveland Electric have five 345 kV and four 138 kV interconnections, and Ohio
Edison and Toledo Edison have one 345 kV and one 138 kV interconnection. Ohio
Edison and Toledo Edison also have one 69 kV interconnection, which is normally
operated open. Thus, FirstEnergy's combined and integrated system will operate
as a single control area, with existing interconnections providing adequate
capacity for OES, Cleveland Electric and Toledo Edison to be thoroughly
integrated.
OES, Cleveland Electric and Toledo Edison are also each directly
connected to several other neighboring utilities. Ohio Edison has one 345 kV
interconnection with Allegheny Power System, Inc. ("Allegheny Power"), seven 345
kV interconnections with American Electric Power Company, Inc. ("AEP") and five
345 kV interconnections with Duquesne. Ohio Edison has the following 138 kV
interconnections: one with Allegheny Power, eight with AEP and three with Dayton
Power and Light Company ("Dayton"). OES also has the following 69 kV
interconnections: one with Dayton, one with AEP, one with Allegheny Power and
one with Duquesne. Ohio Edison also has one 23 kV interconnection with AEP. The
69 kV interconnections with Dayton and AEP, and the
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<PAGE> 13
23 kV interconnection with AEP, normally are operated open. One of the 138 kV
interconnections with AEP is also normally operated open.
Cleveland Electric has one 345 kV interconnection with GPU, Inc.
("GPU") and one 345 kV interconnection with AEP. Cleveland Electric also has
interconnections with Cleveland Public Power and Painesville Electric Division.
Toledo Edison has three 345 kV interconnections with the Michigan
Electric Coordinating System (Detroit Edison Company and Consumers Power
Company). Thirteen municipal distribution entities are also connected to Toledo
Edison's system. These entities are members of and are served by AMP-Ohio and
are sometimes referred to as the Northwest AMP-Ohio Service Group (NWASG).
The OVEC plants are connected by a 345 kV transmission network and are
interconnected with the major transmission systems of the Sponsor Companies,
although OVEC's transmission facilities do not interconnect directly with the
OES or Toledo Edison systems.
Ohio Edison and Centerior already own many of their generating assets
in common, because Ohio Edison, Penn Power, Cleveland Electric and Toledo Edison
are currently members, along with Duquesne, of CAPCO. Pursuant to the CAPCO
agreements, OES, Cleveland Electric and Toledo Electric share ownership
interests in Perry Unit 1, Beaver Valley Unit 2, and Mansfield Units 2 and 3.
OES and Cleveland Electric also share ownership interests in Mansfield Unit 1.
d. UTILITY REGULATION
------------------
Ohio Edison, Cleveland Electric and Toledo Edison are subject to broad
regulation as to rates and other matters by the Public Utilities Commission of
Ohio (the "PUCO"). Under Ohio law, municipalities may regulate rates, subject to
appeal to the PUCO if not acceptable to the utility. Penn Power is subject to
broad regulation as to rates and other matters by the Pennsylvania Public
Utilities Commission (the "PPUC").
Ohio Edison, Cleveland Electric, Toledo Edison and Penn Power are also
subject to the jurisdiction of the Federal Energy Regulatory Commission ("FERC")
under the Federal Power Act with respect to wholesale electric rates and other
matters. Construction and operation of nuclear generating units are subject to
the regulatory jurisdiction of the Nuclear Regulatory Commission ("NRC"),
including the issuance by it of construction permits and operating licenses. OES
and Centerior are subject to regulation by the NRC in connection with their
nuclear generating units.
3. NON-UTILITY INTERESTS
---------------------
Upon consummation of the Merger, the consolidated assets of FirstEnergy
will include various interests in non-utility businesses. Each such interest is
currently owned or held, directly or indirectly, by Ohio Edison or Centerior.
Ohio Edison has eight wholly-owned subsidiaries: Penn Power, OES
Capital, Incorporated; OES Fuel, Incorporated; OES Finance, Incorporated; OES
Financing Trust; Ohio Edison Financing Trust II; OES Nuclear, Incorporated; and
OES Ventures, Incorporated ("Ventures"). These subsidiaries manage and finance
nuclear fuel, finance certain electric accounts receivable and provide
structures for investment in energy related projects. Ventures finances and
manages businesses opportunities not directly related to the provision of
electric service. Ventures is part owner of three limited liability companies:
Eastroc LLC; Eastroc Technologies LLC; and Warrenton River Terminal, Ltd. Other
than Penn Power, these subsidiaries do not, individually or in the aggregate,
have a material impact on the consolidated financial statements of Ohio Edison.
Centerior has six wholly-owned subsidiaries: Cleveland Electric; Toledo
Edison; Centerior Service Company, which provides management, financial,
administrative, engineering and legal services to Cleveland Electric and Toledo
Edison at cost; Centerior Properties Company, CCO Company and Market Responsive
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<PAGE> 14
Energy, Inc. The last three subsidiaries, individually or in the aggregate, do
not have a material impact on the consolidated financial statements of
Centerior.
The pro forma consolidated assets of FirstEnergy at September 30, 1996
(unaudited) were $18,154,000,000; at that date the aggregate of the consolidated
interests (pro forma) of FirstEnergy in non-utility businesses or assets
(excluding businesses that are functionally related to its utility businesses,
i.e., reasonably incidental or economically necessary or appropriate to the
public utility operations of OES or Centerior) constituted less than 1% of the
aggregate pro forma consolidated assets of FirstEnergy.
B. DESCRIPTION OF THE PROPOSED MERGER
----------------------------------
Ohio Edison, Centerior, FirstEnergy, Ohio Edison Acquisition Corp. and
Centerior Acquisition Corp. have entered or will enter into the Merger
Agreements. Pursuant to the Merger Agreements, the holders of Ohio Edison Common
Stock and Centerior Common Stock will become the holders of FirstEnergy Common
Stock, which will, upon consummation of the Merger, be the only outstanding
equity securities of FirstEnergy.
As more fully described in the Merger Agreements, Centerior Acquisition
Corp. will merge with and into Centerior, with Centerior as the surviving
corporation, and Ohio Edison Acquisition Corp. will merge with and into Ohio
Edison, with Ohio Edison as the surviving corporation. Centerior will then be
merged into FirstEnergy, with FirstEnergy as the surviving corporation. Each
share of Ohio Edison Common Stock will be converted into 1 share of FirstEnergy
Common Stock; and each share of Centerior Common Stock will be converted into
0.525 shares of FirstEnergy Common Stock. No fractional shares will be issued.
Instead, each Centerior stockholder who would otherwise receive a fractional
share of FirstEnergy Common Stock will receive cash in payment for that
fractional share based on the market value of FirstEnergy Common Stock on its
first day of trading on the New York Stock Exchange ("NYSE").
The Merger Agreement also provides, among other things, that after the
Merger the holders of shares of Centerior Common Stock and Ohio Edison Common
Stock will cease to have any rights as stockholders of Centerior and Ohio
Edison, respectively, except that holders of shares who have perfected their
dissenters' rights in accordance with Ohio law will have the right to be paid
the fair cash value of such shares held on the applicable record date under Ohio
law. After the Articles of Merger are filed with the Secretary of State of Ohio,
certificates representing shares of Centerior Common Stock and Ohio Edison
Common Stock will be exchangeable for certificates representing shares of
FirstEnergy Common Stock.
Approval of the Merger by the affirmative vote of the holders of at
least a majority of the Common Stock of Centerior and by the affirmative vote of
the holders of at least two-thirds of the Common Stock of Ohio Edison is a
condition to consummation of the Merger. The Merger Agreement will be voted on
by Centerior and Ohio Edison stockholders at meetings to be held in March 1997.
Proxies for such meetings will be solicited pursuant to Regulation 14A under the
Securities Exchange Act of 1934 (the "1934 Act").
FirstEnergy will apply for the listing of FirstEnergy Common Stock on
the NYSE. Approval of the listing on the NYSE of the shares of FirstEnergy
Common Stock, issuable in the Merger, upon official notice of issuance, is a
condition precedent to the consummation of the Merger. Upon consummation of the
Merger, Ohio Edison Common Stock and Centerior Common Stock will be delisted
from each exchange on which they are listed. Following the Merger, FirstEnergy
will be required to file reports with the Commission pursuant to Section 13(a)
of the 1934 Act.
FirstEnergy proposes to account for the Merger on the "purchase
accounting" method under generally accepted accounting principles. Arthur
Andersen LLP, the independent public accountants for both Ohio Edison and
Centerior, have been selected as the independent public accountants for
FirstEnergy and have concurred in such accounting treatment for the Merger.
Under the purchase method of accounting, the common equity of the merged
enterprise will be equal to the book common equity of the purchaser (Ohio
Edison) at the time of combination plus the purchase price of the acquired
company (Centerior). The purchase price will be the fair market value of
FirstEnergy Common Stock allocated to Centerior Common Stockholders on the date
of consummation.
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<PAGE> 15
C. NEGOTIATIONS LEADING TO THE PROPOSED MERGER
-------------------------------------------
Ohio Edison and Centerior (and its predecessors) have had a lengthy
relationship characterized by joint activity and cooperation. Ohio Edison, Penn
Power, Cleveland Electric and Toledo Edison, together with Duquesne, have been
members of CAPCO since 1967. Since the formation of CAPCO, there have been
various proposals and discussions for closer forms of association and
combination among and between the CAPCO Companies. Those discussions led, for
example, in 1986, to the affiliation of Cleveland Electric and Toledo Edison as
wholly owned subsidiaries of Centerior.
The discussions that led to the execution of the Merger Agreement
commenced in the late spring of 1996, when Willard R. Holland, Chairman of the
Board and Chief Executive Officer of Ohio Edison, and Robert J. Farling,
Chairman, President and Chief Executive Officer of Centerior, began to discuss
the potential strategic benefits of a combination of the companies. On April 11,
1996, the PUCO had issued its order with respect to a rate application by
Cleveland Electric and Toledo Edison, in which it had recommended that the two
companies undertake various financial and accounting actions related to their
nuclear properties. Centerior had begun to consider its responses to that order,
and to identify its various strategic alternatives and options. On May 6,
Messrs. Holland and Farling agreed to establish small working teams to evaluate
the potential for a combination and to consider possible synergies. It was
agreed that discussions about possible exchange ratios would be deferred until
the parties had exchanged sufficient information to enable each to evaluate the
financial and operational effects of a possible combination. In addition, the
companies jointly retained McKinsey on May 20 to assist management in a
preliminary evaluation of the possible synergies resulting from a combination.
Morgan Stanley & Co. Incorporated ("Morgan Stanley") has regularly
provided financial advisory services to both Ohio Edison and Centerior over the
past several years, and thus has substantial knowledge of both companies and the
electric utility industry generally. Because of this experience and knowledge,
the managements and Boards of each of the two companies determined that it would
be beneficial to retain Morgan Stanley to assist in the structuring of a
possible business combination. Each Board engaged Morgan Stanley on June 18 to
assist management's financial and related analyses in connection with the
structuring of a possible combination on the understanding Morgan Stanley would
establish and maintain separate working teams for each company.
At its May 28 meeting, the Centerior Board of Directors appointed an ad
hoc committee consisting of Messrs. Farling, Mosier, Savage, Miller and Williams
of the Centerior Board and Paul B. Campbell of Squire, Sanders & Dempsey L.L.P.
to evaluate Centerior's strategic alternatives in light of the April 11 PUCO
order and the preliminary discussion with Ohio Edison and report its
recommendations to the Centerior Board. On June 1, Ohio Edison and Centerior
entered into a confidentiality agreement, including stand still provisions, to
facilitate the exchange of confidential information so that each could
appropriately evaluate the potential advantages and disadvantages of a
combination. Also in June, Centerior retained Barr Devlin & Co. Incorporated
("Barr Devlin") as a financial advisor and to provide a fairness opinion to the
Centerior Board should one be needed. Over the course of June and July, the
companies exchanged financial and operational information, evaluated that
information, met with financial advisors, accountants and lawyers on the
benefits and consequences of a combination and met to discuss a proposed form of
agreement for a possible combination. The status of the discussion was reviewed
with the Board of each company, and in Centerior's case, by the ad hoc
committee, at the meetings of those Boards in June and July. On June 25, the
Centerior Board adopted a Shareholder Rights Plan after considering prevailing
conditions in the electric industry, the trading level of its common stock as
compared to historical levels, and the possibility that Centerior might become a
more visible potential target of acquisition as a result of the discussions with
Ohio Edison, were those discussions to become public.
In early August, Centerior retained Deloitte & Touche to assist its
management in identifying and quantifying the potential synergies. On August 23,
the Ohio Edison Board held a special meeting to discuss the combination.
Following that meeting, Mr. Holland indicated to Mr. Farling that Ohio Edison
would be prepared to proceed with the combination based on an exchange ratio in
the range of .5 to 1. In response, Mr. Farling suggested that each company's
advisors meet to explore exchange ratio parameters. On August 30, 1996, Ohio
Edison retained McDonald & Company Securities Inc. ("McDonald") to act as Ohio
Edison's financial advisor and to provide a fairness opinion, if required.
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<PAGE> 16
Throughout early September, lawyers for and representatives of the
companies began meeting to draft a merger agreement. In the first two weeks of
September, Barr Devlin and both companies' Morgan Stanley Teams met to discuss
ranges of possible exchange ratios, without reaching agreement. Over the course
of September 12 and 13, Messrs. Holland, Farling, Anthony J. Alexander,
Executive Vice President and General Counsel of Ohio Edison, Terrence G.
Linnert, Senior Vice President, Chief Financial Officer and General Counsel of
Centerior and H. Peter Burg, President and Chief Operating Officer of Ohio
Edison, discussed and agreed to present to their Boards of Directors a
transaction involving an exchange ratio of .525 to 1. They also agreed to
present to their respective Boards proposals on the method of Board selection
and termination fees in connection with the Merger Agreement.
On September 13, the Ohio Edison and Centerior Boards each met,
determined that the proposed transaction was in the best interests of their
respective stockholders and approved the proposed transaction and the Merger
Agreement. At these meetings, McDonald and Barr Devlin delivered their fairness
opinions to the Ohio Edison Board and the Centerior Board, respectively. After
these meetings, the Merger Agreement was executed by both companies. Public
announcement of the transaction was made on September 16, 1996.
D. REASONS FOR AND ANTICIPATED EFFECT OF MERGER
--------------------------------------------
The Board of Directors and management of FirstEnergy believes that the
Merger will create a company that is better positioned to compete in the
electric utility industry than either Ohio Edison or Centerior on a stand-alone
basis, enhancing long-term stockholder value and providing customers with
reliable service at more stable and competitive prices. FirstEnergy expects to
achieve such results through:
(a) improved coordination, control and operation of major
generating plants and transmission facilities;
(b) accelerated debt reduction;
(c) elimination of duplicative activities;
(d) reduced operating expenses and cost of capital;
(e) elimination or deferral of certain capital expenditures;
(f) development of opportunities for sales of energy-related
products and services;
(g) enhanced cash flow; and
(h) enhanced purchasing capabilities for goods and services.
The combination of Ohio Edison and Centerior is a natural alliance of
two companies with adjoining service areas that already share ownership in many
of their major generating assets and which will realize opportunities to
eliminate duplicative costs, maximize efficiencies and increase management
flexibility in order to enhance revenues, cash flow and earnings and be a more
effective competitor in the increasingly competitive electric utility industry.
FirstEnergy believes the Merger will provide the following benefits:
1. SAVINGS
-------
The combination of the businesses of Ohio Edison and Centerior will
result in substantial savings, estimated at approximately $1 billion, net of
costs to achieve (estimated to be approximately $130 million), over ten years.
The regulatory plan filed with the PUCO provides for a portion of these savings
to be allocated to ratepayers in the form of lower rates for retail customers of
Cleveland Electric and Toledo Edison and by the reduction of the carrying cost
of existing assets. The savings, which Ohio Edison and Centerior do not believe
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<PAGE> 17
could be achieved without the Merger, are in addition to the estimated effects
of cost reduction programs currently underway at Ohio Edison and Centerior and
result primarily from the reduction of duplicative function and positions,
reductions in duplicative corporate and administrative expenses, joint dispatch
of generating facilities and procurement efficiencies. Reductions in labor are
expected to comprise slightly over half the estimated savings, based on a
reduction of approximately 900 positions in the FirstEnergy organization. These
reductions are expected to be phased in over a five-year period. Such
reductions are expected to be attained through attrition, controlled hiring and
voluntary and involuntary severance programs. Reductions in duplicative
corporate and administrative expenses, such as insurance, facilities,
professional services and advertising, should comprise about a quarter of
estimated savings. Cost savings from the joint dispatch of generating
facilities and procurement efficiencies comprise the balance of the estimated
savings.
In addition, both companies' ongoing cost reduction and efficiency
improvement programs will be available for implementation throughout the new
organization. Through such programs, as well as reductions in new capital
requirements and lower overheads resulting from combining operations,
FirstEnergy expects to reduce system-wide debt by at least $2.5 billion through
the year 2000, yielding additional long-term financial savings in the form of
lower interest expense.
2. LARGER STAKE IN MAJOR GENERATING PLANTS
---------------------------------------
FirstEnergy will have complete or majority ownership and operational
control over the 2,360 MW Bruce Mansfield Plant (coal); the 600 MW Sammis Unit 7
(coal); the 600 MW Eastlake Unit 5 (coal); the 883 MW Davis-Besse Unit 1
(nuclear); and the 1,194 MW Perry Unit 1 (nuclear). FirstEnergy will also have
majority ownership of the 1,630 MW Beaver Valley Plant (nuclear). With the
combined ownership shares of Ohio Edison and Centerior, FirstEnergy will be
better able to maximize the operating efficiency of the units, helping to reduce
the financial risks related to operations in a more competitive electric
industry.
3. RATE REDUCTION
--------------
Ohio Edison and Centerior have filed a plan that would extend to
Cleveland Electric and Toledo Edison customers a rate reduction program to
become effective upon consummation of the Merger. It calls for: (i) a base rate
freeze through 2005 followed by an immediate $310 million base rate reduction;
(ii) interim residential rate reductions of $3 per month beginning six months
after the Merger, increasing to $4 per month on July 1, 2000, and to $5 per
month from July 1, 2001 through the year 2005; (iii) interim rate reductions for
certain commercial customers; (iv) a $75 million economic development loan/lease
program; (v) a $30 million energy efficiency program for residential customers;
(vi) a $2 billion aggregate reduction in assets through 2005, resulting from
amounts that will have been revalued, amortized and/or depreciated on an
accelerated basis; and (vii) earnings caps that would enable customers to share
in any additional benefits from the Merger, limiting returns on common equity,
for regulatory purposes, of Cleveland Electric and Toledo Edison to 11.5% for
calendar years from inception of the Regulatory Plan through 1999, 12.0% in 2000
and 2001 and 12.59% from 2002 through 2005. The Ohio Consumers' Counsel and the
City of Toledo filed a stipulated agreement supporting the regulatory plan. The
plan requires the approval of the PUCO, which approval is a condition to the
consummation of the Merger.
These benefits are described in more detail in the discussion of the
economies and efficiencies resulting from the transaction in Item 3.B.2.a.
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<PAGE> 18
E. ADDITIONAL INFORMATION
----------------------
The directors and executive officers of Ohio Edison and Centerior hold
less than 1% of the outstanding shares of Ohio Edison Common Stock and Centerior
Common Stock, respectively. Information pertaining to the interests in the
Merger of the Boards of Directors and certain executives of Ohio Edison and
Centerior will be set forth in the Registration Statement on Form S-4 to be
filed with the Commission by FirstEnergy. No associate company or affiliate of
Centerior or Ohio Edison or any affiliate of any such associate company has any
direct or indirect material interest in the proposed transaction except as
stated herein or therein.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
------------------------------
The fees, commissions and expenses to be paid or incurred, directly or
indirectly, in connection with the Merger, including the solicitation of
proxies, registration of securities under the Securities Act of 1933, and other
related matters, are estimated as follows:
<TABLE>
<S> <C>
Commission filing fee for the
Registration Statement on Form S-4.................................................................. *
Accountants' fees
Arthur Andersen, LLP........................................................................... *
Legal fees and expenses relating to the Act......................................................... *
Other legal fees and expenses....................................................................... *
Stockholder communication and proxy solicitation.................................................... *
NYSE listing fee.................................................................................... *
Exchanging, printing and engraving of
stock certificates.................................................................................. *
Investment bankers' fees and expenses
McDonald....................................................................................... *
Barr Devlin.................................................................................... *
Morgan Stanley................................................................................. *
Consulting fees related to human
resource issues, public relations,
regulatory support, and other
matters relating to the Merger................................................................. *
Expenses related to integrating
the operations of the merged company
and miscellaneous.............................................................................. *
TOTAL
--------
<FN>
* To be filed by amendment.
</TABLE>
ITEM 3. APPLICABLE STATUTORY PROVISIONS
-------------------------------
Ohio Edison, Penn Power, Cleveland Electric, Toledo Edison, OVEC and
IKEC are "electric utility companies" as defined in Section 2(a)(3) of the Act.
Thus, these companies are "public-utility companies" as defined in Section
2(a)(5) of the Act. Because FirstEnergy will, as a result of the Merger, be
directly or indirectly acquiring five per centum or more of the outstanding
voting securities of each of six public-utility companies, the
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<PAGE> 19
transaction is subject to Section 9(a)(2) of the Act and thus cannot proceed
without Commission approval pursuant to Section 10 of the Act. The statutory
standards that the Commission must consider in deciding whether to approve the
proposed transaction are set forth in Sections 10(b), 10(c), and 10(f) of the
Act.
To the extent that other sections of the 1935 Act or the Commission's
rules thereunder are deemed applicable to the Merger, such sections and rules
should be considered to be set forth in this Item 3.
FirstEnergy believes that the operations of OVEC and IKEC devoted to
satisfying the DOE requirements represent a special and virtually riskless power
supply service to a single instrumentality of the United States government
filling a vital defense need, and is materially different from the utility
operations of Ohio Edison, Penn Power, Cleveland Electric and Toledo Edison.
FirstEnergy believes it is within the intent of the 1935 act to take this
qualitative difference into account, and that activities attributable to meeting
DOE's requirements under existing arrangements should not affect the
Commission's approval of the Merger. CF. UNION ELECTRIC COMPANY, 40 SEC 1072,
1076 (1962).
A. SECTION 10(b)
-------------
Section 10(b) of the 1935 Act provides that, if the requirements of
Section 10(f) are satisfied, the Commission shall approve an acquisition under
Section 9(a) unless the Commission finds that:
(1) such acquisition will tend towards interlocking relations
or the concentration of control of public utility companies, of a kind
or to an extent detrimental to the public interest or the interest of
investors or consumers;
(2) in case of the acquisition of securities or utility
assets, the consideration, including all fees, commissions, and other
remuneration, to whomsoever paid, to be given, directly or indirectly,
in connection with such acquisition is not reasonable or does not bear
a fair relation to the sums invested in or the earning capacity of the
utility assets to be acquired or the utility assets underlying the
securities to be acquired; or
(3) such acquisition will unduly complicate the capital
structure of the holding company system of the applicant or will be
detrimental to the public interest of consumers or the proper
functioning of such holding company system.
The Merger and the requests contained in this Application/Declaration
are well within the precedent of transactions approved by the Commission as
consistent with the 1935 Act. In addition, a number of the recommendations made
by the Division of Investment Management (the "Division") in the report issued
by the Division in June 1995 entitled "The Regulation of Public Utility Holding
Companies" (the "1995 Report") support the applicants' analysis. The
Commission's approval of the Merger would be consistent with previous Commission
rulings (SEE, E.G., CINERGY CORP., Holding Co. Act Release No. 26146 (Oct. 21,
1994), and would also be consistent with the Division's overall recommendation
in the 1995 Report that the Commission "act administratively to modernize and
simplify holding company regulation. . . and minimize regulatory overlap, while
protecting the interests of consumers and investors," since, as demonstrated
below, the Merger will benefit both consumers and stockholders of FirstEnergy,
and the other federal and state regulatory authorities with jurisdiction over
the Merger will have approved it as in the public interest.
1. SECTION 10(b)(1)
----------------
a. INTERLOCKING RELATIONS
----------------------
The Merger will not tend towards "interlocking relations or the
concentration of control of public utility companies, of a kind or to an extent
detrimental to the public interest or the interest of investors or consumers."
Although the Merger will result, as in any transaction subject to Section
9(a)(2), in certain interlocking relations and concentration of control, they
are not of a kind or to an extent detrimental to the public interest or the
interest
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<PAGE> 20
of investors or consumers. Following the Merger, there will exist among
FirstEnergy and its public utility subsidiaries interlocking directors and
officers only of such nature and to such extent as normally exist in public
utility holding company systems among affiliated and associated companies. SEE
CIPSCO, INC., Holding Co. Act. Release No. 25152, 47 S.E.C. Docket 174, 178
(1990). The Merger Agreement provides that from the time of consummation of the
Merger, Mr. Holland shall serve as Chairman of the Board, President and Chief
Executive Officer and Mr. Farling shall serve as Vice Chairman. The initial
members of the FirstEnergy Board of Directors will be designated by Ohio
Edison's Board of Directors. All other officers of FirstEnergy and directors and
officers of FirstEnergy's subsidiaries will be designated by the FirstEnergy
Board of Directors.
b. CONCENTRATION OF CONTROL
------------------------
It is well settled that the public interest is to be judged primarily
in the context of the problems with which the 1935 Act was designed to deal, as
set forth in Section 1(b) thereof. VERMONT YANKEE NUCLEAR POWER CORPORATION, 43
S.E.C. 693, 700 (1968), REV'D ON OTHER GROUNDS, 413 F.2d 1052 (D.C. Cir. 1969).
Viewed from this perspective, the Merger in no way contradicts the requirements
of Section 10(b)(1).
Section 10(b)(1) is intended to avoid "an excess of concentration and
bigness" while preserving the "opportunities for economies of scale, the
elimination of duplicate facilities and activities, the sharing of production
capacity and reserves and generally more efficient operations" afforded by the
coordination of local utilities into an integrated system. AMERICAN ELECTRIC
POWER CO., 46 S.E.C. 1299, 1309 (1978). In applying Section 10(b)(1) to utility
acquisitions, the Commission must determine whether the acquisition will create
"the type of structures and combinations at which the Act was specifically
directed." VERMONT YANKEE, 43 S.E.C. at 700. As discussed below, the Merger will
not create a "huge, complex, and irrational system" of a type at which the 1935
Act is directed, but rather will afford the opportunity to achieve economies of
scale and efficiencies which are expected to benefit investors and consumers.
AMERICAN ELECTRIC POWER CO., 46 S.E.C. 1299, 1307 (1978).
SIZE: The FirstEnergy system will serve approximately 2,000,000 retail
electric customers in northern and central Ohio and approximately 140,000 retail
electric customers in western Pennsylvania. The service areas of the companies
are contiguous, with over 100 linear miles of common borders. Ohio Edison
provides service in eight of the nine Ohio counties in Cleveland Electric's
service area. Ohio Edison provides service in three of the ten Ohio counties in
Toledo Edison's service area. Because Ohio Edison's service area lies, in part,
between the service areas of Cleveland Electric and Toledo Edison, the
combination of Ohio Edison, Penn Power, Cleveland Electric and Toledo Edison
will allow full integration of Toledo Edison and Cleveland Electric and
operation of a service area of approximately 13,200 square miles as a
fully-integrated single system.
As of and for the year ended December 31, 1995: (1) combined assets of
Ohio Edison and Centerior would have totaled approximately $18.112 billion; (2)
combined annual operating revenues would have totaled approximately $4.979
billion; and (3) combined annual electric sales would have totaled approximately
64 billion kWhs. Based upon kWh sales, the First Energy system will be the 11th
largest investor-owned electric system. Because ten investor-owned electric
systems are now larger than FirstEnergy will be after the Merger, based upon kWh
sales, it is apparent that FirstEnergy will not be larger than is necessary to
realize the available economies of scale of current electrical generation and
transmission technology. SEE Centerior Energy Corp., Holding Co. Act Release No.
24073, 35 SEC Docket (CCH) 769, 771-772 (April 29, 1986). Also, by comparison,
the Commission has approved acquisitions involving larger operating utilities.
SEE, E.G., Entergy Corp., Holding Co. Act Release No. 25952 (Dec. 17, 1993)
(acquisition of Gulf States Utilities; combined assets at time of acquisition in
excess of $21 billion).
Further, Section 10(b)(1) must be construed in light of the policy
stated in Section 1(b)(4) of the 1935 Act, where Congress, in its statement of
abuses and conditions which adversely affect the public interest, condemned "the
growth and extension of holding companies [that] bears no relation to economy of
management and operation or the integration and coordination of related
operating properties." Ohio Edison, Penn Power, Cleveland Electric and Toledo
Edison are already joint owners of several major generating facilities,
including Mansfield Units 1, 2 and 3, Beaver Valley Unit 2 and Perry Unit 1, and
have extensive transmission interconnections. The generating units in which the
companies share ownership represent approximately $6 billion of the total
combined assets of
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<PAGE> 21
FirstEnergy. Operating these facilities as part of a single integrated system
will allow FirstEnergy to realize available economies of scale that cannot be
fully realized without the combination.
In Ohio, Pennsylvania and surrounding states, several public utilities
are similar in size to or larger than FirstEnergy's utility operations will be
following the Merger. For example, AEP, Commonwealth Edison Co. ("Commonwealth
Edison"), Duke Power Co. ("Duke"), and Dominion Resources, Inc. ("VEPCO") have
significantly more generating capability than FirstEnergy will have following
the Merger, and APS, CINergy Corporation, Michigan Electric, GPU, PP&L
Resources, Inc. ("PP&L"), Public Service Electric & Gas Co. ("PSE&G"), Niagara
Mohawk Power Corporation ("NIMO") and Carolina Power & Light Company ("CP&L")
have similar generating capabilities. Also, many of the holding companies,
electric utilities and combination companies listed below are similar in size to
or larger than FirstEnergy will be following the Merger in terms of total
assets, operating revenues, customers and/or sales of electricity. Statistical
data, as of December 31, 1995, for Ohio Edison, Penn Power, Cleveland Electric
and Toledo Edison and for other investor-owned utilities in Ohio, Pennsylvania
and surrounding states are set forth below. Please note that while FirstEnergy
believes the figures in the table below are accurate and comparable one to
another, an individual figure may differ somewhat from figures filed elsewhere
in other contexts that may have been calculated in a different manner.
<TABLE>
<CAPTION>
Total Operating Electric Sales in
System Total Assets Revenues Customers KWH Generation
------------ ------ -------- --------- --- ----------
($ Millions) ($ Millions) (Millions) (MW)
<S> <C> <C> <C> <C> <C>
Ohio Edison 7,899 2,179 953,000 29,540 5,465.0
Penn Power 1,146 315 143,000 4,777 919.7
Cleveland Electric 7,152 1,769 749,000 21,247 4,633.8
Toledo Edison 3,474 874 291,000 11,149 1,942.6
Consolidating Adjustment (220) (172) -- (3,574) --
------- -------- --------- -------- --------
FirstEnergy 19,451 4,965 2,136,000 63,139 12,961.1
======== ========= ========= ========= ========
COMPANIES OPERATING
IN OHIO AND ADJACENT
STATES
AEP 15,902 5,670 2,912,183 120,653 24,725.8
CINergy Corporation 8,220 3,031 1,355,643 51,842 11,937.1
Dayton 3,323 1,255 475,563 16,814 3,377.9
COMPANIES OPERATING IN
PENNSYLVANIA AND ADJACENT
STATES
Allegheny Power 6,447 2,648 1,376,300 54,244 8,324.9
DQE, Inc. 4,459 988 580,600 15,403 3,205.8
PP&L 9,492 2,752 1,226,089 42,705 8,845.1
GPU 9,870 3,805 1,976,000 45,753 7,142.0
PECO Energy Co. 14,961 4,186 1,467,385 48,531 8,409.6
</TABLE>
-18-
<PAGE> 22
<TABLE>
<CAPTION>
Total Operating Electric Sales in
System Total Assets Revenues Customers KWH Generation
------------ ------ -------- --------- --- ----------
($ Millions) ($ Millions) (Millions) (MW)
<S> <C> <C> <C> <C> <C>
OTHER COMPANIES
Consumer Power Company 8,143 3,890 1,570,000 35,506 6,544.7
Detroit Edison Company 11,131 3,636 2,001,510 48,942 11,831.1
PSE&G 17,200 6,164 1,897,019 40,283 10,328.3
Commonwealth Edison 23,247 6,910 3,381,833 91,353 24,395.7
NIMO 9,478 3,917 1,561,657 37,684 4,659.5
Consolidated Edison Co. of
New York Inc. 13,950 6,537 2,994,447 51,306 9,576.0
Long Island Lighting Co. 12,484 3,075 1,025,107 16,572 4,416.7
CP&L 8,227 3,007 1,086,757 49,890 9,795.3
Duke 13,359 4,677 1,789,779 76,737 16,579.7
VEPCO 13,903 4,652 1,993,000 68,953 13,768.9
NIPSCO Industries Inc. 4,000 1,722 403,943 16,924 4,097.7
</TABLE>
Also, pursuant to retail rate plans that are in effect for Ohio Edison
and Penn Power, and proposed to be effective for Cleveland Electric and Toledo
Edison following the Merger, the combined FirstEnergy companies have committed
to (i) revalue and/or accelerate in depreciation and/or amortization of
approximately $4.3 billion in high cost nuclear and regulatory assets by
December 31, 2005, which will have the effect of significantly reducing the
total assets of the combined companies, and (ii) reduce annual base electric
rates by $610 million below current levels effective January 1, 2006. Also, over
the respective time periods of the rate plans, the companies will reduce
electric charges to customers by approximately $1 billion. Accordingly, as these
plans are fully implemented following the Merger, the relative size of
FirstEnergy as compared to these other companies will diminish.
Comparison of these data demonstrates that the integrated public
utility operations of FirstEnergy will not tend toward the concentration of
control of public utility companies of a kind or to an extent detrimental to the
public interest or the interest of investors or consumers.
EFFICIENCIES AND ECONOMIES: The Commission has rejected a mechanical
size analysis under Section 10(b)(1) in favor of assessing the size of the
resulting system with reference to the efficiencies and economies that can be
achieved through the integration and coordination of utility operations.
AMERICAN ELECTRIC POWER Co., 46 S.E.C. at 1309. More recent pronouncements of
the Commission confirm that size alone is not determinative. Thus, in CENTERIOR
ENERGY CORP., Holding Co. Act Release No. 24073 (April 29, 1986), the Commission
stated flatly that a "determination of whether to prohibit enlargement of a
system by acquisition is to be made on the basis of all the circumstances, not
on the basis of size alone." SEE ALSO ENTERGY CORP., Holding Co. Act Release No.
25952 (December 17, 1993). In addition, the Division recommended in the 1995
Report that the Commission approach its analysis of merger and acquisition
transactions in a flexible manner with emphasis on whether the Merger creates an
entity subject to effective regulation and is beneficial for stockholders and
customers as opposed to focusing on rigid, mechanical tests. 1995 Report at
73-4.
By virtue of the Merger, FirstEnergy will be in a position to realize
the "opportunities for economies of scale, the elimination of duplicate
facilities and activities, the sharing of production capacity and reserves and
generally more efficient operations" described by the Commission in AMERICAN
ELECTRIC POWER CO., 46 S.E.C. at 1309. Among other things, the Merger is
expected to yield significant production cost savings from integrated economic
dispatch; savings through greater purchasing power; labor cost savings; and
savings through consolidation of corporate and administrative programs. These
expected economies and efficiencies from the combined utility operations are
described in greater detail in Item 3.B.2 below and are projected to result in
net savings of approximately $1 billion over the first ten years alone.
COMPETITIVE EFFECTS: As the Commission noted in NORTHEAST UTILITIES,
Holding Co. Act Release No. 25221, 47 SEC Docket 1270 (December 21, 1990),
SUPPLEMENTED Holding Co. Act Release No. 25273 (March 15, 1991),
-19-
<PAGE> 23
AFF'D CITY OF HOLYOKE GAS & ELEC. DEPT. V. S.E.C., 792 F.2d 358 (D.C. Cir.
1992), the "antitrust ramifications of an acquisition must be considered in
light of the fact that public utilities are regulated monopolies and that
federal and state administrative agencies regulate the rates charged consumers."
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), the Merger may not be consummated until the applicable waiting
periods have expired or been terminated. A filing will be made by FirstEnergy,
Ohio Edison and Centerior with the Department of Justice (the "DOJ") and the
Federal Trade Commission (the "FTC") under the HSR Act, describing the effects
of the Merger on competition in the relevant market.
In addition, the competitive impact of the Merger will be fully
considered by the FERC before it approves the Merger. A detailed explanation of
the reasons why the transaction will not threaten competition in relevant
geographic and product markets is set forth in the market study and supporting
testimony included in the Joint Application of Ohio Edison, Penn Power,
Cleveland Electric and Toledo Edison filed with the FERC on November 8, 1996.
The Commission may appropriately rely upon the FERC with respect to such
matters. ENTERGY CORPORATION, SUPRA, citing CITY OF HOLYOKE GAS & ELECTRIC DEPT.
V. Sec., 972 F.2d at 363-64, quoting WISCONSIN ENVIRONMENTAL DECADE, INC. V.
S.E.C., 882 F.2d 523, 527 (D.C. Cir. 1989).
The Merger will result in a holding-company system whose management
will remain based in Ohio. Among the purposes of the Merger are (1) to foster
the economic management and operations of that system by obtaining
Merger-dependent cost savings and (2) to further the integration and
coordination of those operations.
Following the Merger, FirstEnergy, Ohio Edison, Cleveland Electric and
Toledo Edison will be subject to the oversight of the PUCO and Penn Power will
be subject to the oversight of the PPUC. The Merger will have no effect on the
regulation of OVEC and IKEC. The public utility operations of Ohio Edison,
Cleveland Electric and Toledo Edison will continue to be substantially confined
to the State of Ohio, and the public utility operations of Penn Power will
continue to be substantially confined to the Commonwealth of Pennsylvania. In
considering the Merger pursuant to Section 10(b)(1) of the Act in light of
Section 1(b)(4) thereof, there is no basis for concluding that the Merger will
involve the growth or extension of a holding company that bears no relation to
economies of management and operation or the integration and coordination of
related operating properties.
2. SECTION 10(b)(2) -- FAIRNESS OF CONSIDERATION AND FEES
------------------------------------------------------
a. FAIRNESS OF CONSIDERATION
-------------------------
Section 10(b)(2) of the 1935 Act requires the Commission to determine
whether the consideration in connection with a proposed acquisition of
securities is reasonable and whether it bears a fair relation to investment in
and earning capacity of the utility assets underlying the securities being
acquired. As noted earlier, when the Merger is consummated, each share of Ohio
Edison Common Stock will be converted into 1 share of FirstEnergy Common Stock
and each share of Centerior Common Stock will be converted into 0.525 shares of
FirstEnergy Common Stock.
These ratios were reached through a process of vigorous arm's-length
negotiations, accommodation, and compromise. Such negotiations were preceded by
extensive due diligence, analysis and evaluation of the assets, liabilities and
business prospects of each of the respective companies. See Item 1.C. As
recognized by the Commission in Ohio Power Co., 44 S.E.C. 340, 346 (1970),
prices arrived at through arms-length negotiations are particularly persuasive
evidence that Section 10(b)(2) is satisfied.
Finally, nationally-recognized investment bankers for each of Ohio
Edison and Centerior have reviewed extensive information concerning the
companies and analyzed the exchange ratios employing a variety of valuation
methodologies, and have opined that the exchange ratios are fair, from a
financial point of view, to the respective holders of Ohio Edison Common Stock
and Centerior Common Stock. The investment bankers' opinions are attached hereto
as Exhibits H-1 and H-2. The assistance of independent consultants in setting
consideration has been recognized by the Commission as evidence that the
requirements of Section 10(b)(2) have been met. THE SOUTHERN COMPANY; SV
VENTURES, INC., Holding Co. Act Release 24579 (February 12, 1988).
-20-
<PAGE> 24
b. REASONABLENESS OF FEES
----------------------
FirstEnergy believes that the fees and commissions incurred in
connection with the Merger are reasonable and fair in light of the size and
nature of the Merger and comparable transactions and thus meet the standards of
Section 10(b)(2).
As set forth in Item 2 of this Application, Ohio Edison and Centerior
together expect to incur a combined total of approximately $30 million in fees,
commissions and expenses in connection with the Merger. By contrast, The
Cincinnati Gas & Electric Company and PSI Resources Inc. incurred $47.1 million
in fees, commissions and expenses in connection with their reorganization as
subsidiaries of CINergy Corporation; Northeast Utilities alone incurred $46.5
million in fees, commissions and expenses in connection with its acquisition of
Public Service Company of New Hampshire; and Entergy Corporation alone incurred
approximately $38 million in fees, commissions and expenses in connection with
its acquisition of Gulf States Utilities -- all of which amounts were approved
as reasonable by the Commission. SEE CINERGY, Holding Co. Act Release No. 26146
(Oct. 21, 1994); NORTHEAST UTILITIES, Holding Co. Act Release No. 25548 (June 3,
1992); ENTERGY CORP., Holding Co. Act Release No. 25952 (Dec. 17, 1993).
With respect to financial advisory fees, Ohio Edison and Centerior
believe that the fees payable to their investment bankers are fair and
reasonable for similar reasons. Pursuant to the terms of an engagement letter
dated September 10, 1996, Ohio Edison has agreed to pay McDonald for its
services in connection with the Merger (i) $375,000 payable upon delivery of the
McDonald Opinion, and (ii) $375,000 payable upon approval of the Merger by the
stockholders of Ohio Edison. Ohio Edison has also agreed to reimburse McDonald
for all reasonable out-of-pocket expenses incurred in connection with the
performance of its duties, including but not limited to reasonable fees and
reasonable expenses of legal counsel retained by McDonald, and to indemnify
McDonald and certain related persons against certain costs and liabilities in
connection with its engagement, including certain liabilities under the federal
securities laws.
Pursuant to the terms of Barr Devlin's engagement, Centerior has agreed
to pay Barr Devlin for its services in connection with the Merger (i) a
financial advisory retainer fee of $62,500 per quarter commencing July 1, 1996;
(ii) an initial financial advisory progress fee of $1,340,000 payable upon
execution of the Merger Agreement; (iii) a second financial advisory progress
fee estimated at $1,510,000 payable upon Centerior stockholder approval of the
Merger Agreement and (iv) a transaction fee based on the aggregate consideration
to be received by Centerior and holders of Centerior Common Stock in connection
with the Merger at its consummation, ranging from 0.45% of such aggregate
consideration (for a transaction with an aggregate consideration of $1 billion)
to 0.41% of such aggregate consideration (for a transaction with an aggregate
consideration of $2 billion). All financial advisory retainer fees payable
during the term of the engagement, all financial advisory progress fees and an
additional $187,500 would be credited against any transaction fee payable to
Barr Devlin. Centerior has agreed to reimburse Barr Devlin for its out-of-pocket
expenses, including fees and expenses of legal counsel and other advisors
engaged with the consent of Centerior, and to indemnify Barr Devlin against
certain liabilities, including liabilities under the federal securities laws,
relating to or arising out of its engagement.
Pursuant to the terms of an engagement letter dated June 14, 1996, Ohio
Edison has agreed to pay Morgan Stanley for its services in connection with the
Merger (i) a financial advisory fee estimated to be between $150,000 and
$250,000, based on time expended on the Merger, (ii) a transaction fee based on
the aggregate consideration to be received by Centerior and holders of Centerior
Common Stock in connection with the Merger at its consummation, ranging from
0.513% of such aggregate consideration (for a transaction with an aggregate
consideration of $800 million) to 0.432% of such aggregate consideration (for a
transaction with an aggregate consideration of $1.3 billion). The transaction
fee is payable one-third upon execution of the Merger Agreement, one-third upon
Ohio Edison shareholder approval of the Merger Agreement and one-third upon
consummation of the Merger. All financial advisory fees and $375,000 (paid to
McDonald upon delivery of the McDonald Opinion) would be credited against any
transaction fee payable to Morgan Stanley. Ohio Edison has also agreed to
reimburse Morgan Stanley for all reasonable out-of-pocket expenses incurred in
connection with the performance of its duties, including but not limited to
reasonable fees and reasonable expenses of legal counsel retained by Morgan
Stanley.
-21-
<PAGE> 25
Pursuant to the terms of an engagement letter dated July 16, 1996,
Centerior has agreed to pay Morgan Stanley for its services in connection with
the Merger (i) a financial advisory fee estimated to be between $150,000 and
$250,000, based on time expended on the Merger, (ii) a transaction fee based on
the aggregate consideration to be received by Centerior and holders of Centerior
Common Stock in connection with the Merger at its consummation, ranging from
0.513% of such aggregate consideration (for a transaction with an aggregate
consideration of $800 million) to 0.395% of such aggregate consideration (for a
transaction with an aggregate consideration of $2 billion). The transaction fee
is payable one-third upon execution of the Merger Agreement, one-third upon
Centerior shareholder approval of the Merger Agreement and one-third upon
consummation of the Merger. All financial advisory fees and a mutually agreed
upon amount (to offset the amount paid to Barr Devlin upon delivery of the Barr
Devlin Opinion) would be credited against any transaction fee payable to Morgan
Stanley. Centerior has also agreed to reimburse Morgan Stanley for all
reasonable out-of-pocket expenses incurred in connection with the performance of
its duties, including but not limited to reasonable fees and reasonable expenses
of legal counsel retained by Morgan Stanley, and to indemnify Morgan Stanley and
certain related persons against any costs, losses, claims and damages in
connection with its engagement.
FirstEnergy believes the fees payable to Morgan Stanley, McDonald and
Barr Devlin are comparable to the fees paid to investment banks in other merger
and acquisition transactions comparable in terms of size and nature of services
rendered. Finally, the fees paid to Morgan Stanley, McDonald and Barr Devlin
reflect the competition of the marketplace. Investment banking firms actively
compete with each other to act as financial advisors to merger partners. The
fees charged by the investment banks in this transaction and in others reflect
this competition for services.
3. SECTION 10(b)(3) -- CAPITAL STRUCTURE
-------------------------------------
a. COMPLICATION
------------
Section 10(b)(3) requires the Commission to determine whether the
Merger will unduly complicate FirstEnergy's capital structure or will be
detrimental to the public interest, the interests of investors or consumers or
the proper functioning of FirstEnergy's system.
The corporate capital structure of FirstEnergy after the Merger will
not be unduly complicated. In the Merger, FirstEnergy will directly or
indirectly acquire, by operation of law, all of the Common Stock of Ohio Edison,
Cleveland Electric, Toledo Edison and Penn Power, and thus there will be no
minority Common Stock interest in any of such companies. The existing senior
debt and equity securities of Ohio Edison, Cleveland Electric, Toledo Edison and
Penn Power will not be affected by the Merger. No change will be effected in the
capital structure of Penn Power, which will continue to be a wholly-owned
subsidiary of Ohio Edison. The Commission has previously determined that
transactions similar to the Merger would not unduly complicate the applicant's
corporate capital structure. CF. ENTERGY CORPORATION, Holding Co. Act Release
No. 25952 (December 17, 1993); CENTERIOR ENERGY CORP., Holding Co. Act Release
No. 24073 (April 29, 1986).
Set forth below are summaries of the capital structure of Ohio Edison
and Centerior as of September 30, 1996 and the pro forma consolidated capital
structure of FirstEnergy (assuming the Merger had occurred at September 30,
1996):
-22-
<PAGE> 26
FirstEnergy Consolidated Capital Structure
September 30, 1996
(In millions)
(unauditied)
<TABLE>
<CAPTION>
Ohio Edison Centerior Adjustments FirstEnergy
----------- --------- ----------- -----------
$ % $ % $ $ %
- - - - - - -
<S> <C> <C> <C> <C> <C> <C> <C>
Common Stock 2,486 39.4 1,965 29.5 (401) 4,050 32.3
Preferred Stock 367 5.8 637 9.6 (14) 990 7.9
Long-term Debt 2,595 41.2 3,755 56.4 16 6,366 50.7
Short-term Debt 856 13.6 296 4.5 -- 1,152 9.1
----- ----- ----- ----- ---- ------ -----
Total 6,304 100.0 6,653 100.0 (399) 12,558 100.0
===== ===== ===== ===== ==== ====== =====
</TABLE>
FirstEnergy's pro forma consolidated common equity to total capitalization ratio
of 32.3% is higher than the common equity position approved by the Commission
for Northeast Utilities (27.6%) and exceeds the "traditionally acceptable 30%
level." NORTHEAST UTILITIES, Holding Co. Act Release No. 25221 (December 21,
1990).
b. PROTECTED INTERESTS
-------------------
As set forth more fully in Item 3.B.2.a. (Efficiencies and Economies),
Item 3.B.2.b. (Integrated Public Utility System) and elsewhere in this
Application/Declaration, the Merger is expected to result in substantial
otherwise unavailable cost savings and benefits to the public and to consumers
and investors of FirstEnergy, Ohio Edison and Centerior, and will integrate and
improve the efficiency of the OES, Cleveland Electric and Toledo Edison systems.
Moreover, as noted by the Commission in ENTERGY CORPORATION, Holding Co. Act
Release No. 25952 (December 17, 1993), "concerns with respect to investors'
interests have been largely addressed by developments in federal securities laws
and the securities markets themselves." FirstEnergy will be a reporting company
subject to the continuous disclosure requirements of the Securities Exchange Act
of 1934 (the "1934 Act") following consummation of the Merger. The various
reports filed or to be filed by Ohio Edison, Penn Power, Centerior, Cleveland
Electric and Toledo Edison under the 1934 Act contain readily available
information concerning the Merger. The Merger will, therefore, be in the public
interest and the interests of investors and consumers, and will not be
detrimental to the proper functioning of the resulting holding company system.
B. SECTION 10(c)
-------------
Section 10(c) of the 1935 Act provides that:
Notwithstanding the provisions of subsection (b), the Commission shall
not approve:
(1) an acquisition of securities or utility assets, or of any
other interest, which is unlawful under the provisions of Section 8 or
is detrimental to the carrying out of the provisions of Section 11; or
(2) the acquisition of securities or utility assets of a
public utility or holding company unless the Commission finds that such
acquisition will serve the public interest by tending towards the
economical and the efficient development of an integrated public
utility system . . . .
1. SECTION 10(c)(1)
----------------
Consistent with the standards set forth in Section 10(c)(1) of the Act,
the proposed acquisition of securities will not be unlawful under the provisions
of Section 8 of the Act (inasmuch as Section 8 applies only to REGISTERED
holding companies), or detrimental to the carrying out of the provisions of
Section 11 of the 1935 Act, which also applies, by its terms, only to REGISTERED
holding companies, because FirstEnergy believes that following the consummation
of the Merger it will be a public-utility holding company entitled to an
exemption under
-23-
<PAGE> 27
Section 3(a)(1) of the 1935 Act from all of the provisions of the 1935 Act
(except for Section 9(a)(2) thereof), including provisions relating to
registration.
Section 8 prohibits REGISTERED holding companies from acquiring, owning
interests in or operating both a gas and an electric utility serving
substantially the same area if prohibited by state law. Because none of Ohio
Edison, Penn Power, Cleveland Electric or Toledo Edison is involved in the gas
industry, following the Merger, FirstEnergy will not have acquired, and will not
own or operate a gas utility.
Section 11(a) of the Act requires the Commission to examine the
corporate structure of REGISTERED holding companies to ensure, INTER ALIA, that
unnecessary complexities are eliminated and voting powers are fairly and
equitably distributed. The proposed acquisition of securities meets the
standards of Section 11(a) of the Act. As discussed with respect to the
requirements of Section 10(b)(3) of the Act, SUPRA, FirstEnergy will issue only
common stock, and will directly or indirectly acquire, by operation of law, all
of the Common Stock of Ohio Edison, Penn Power, Cleveland Electric and Toledo
Edison, thus leaving no minority interests outstanding. Penn Power will continue
to be a wholly-owned subsidiary of Ohio Edison. FirstEnergy will indirectly own
20.5% of the OVEC Common Stock. After the Merger, no person will be a holding
company with respect to FirstEnergy.
2. SECTION 10(c)(2)
----------------
As the following discussion will demonstrate, the Merger will serve the
public interest by tending towards the ECONOMICAL and EFFICIENT development of
an integrated public-utility system, as required by Section 10(c)(2) of the Act.
a. EFFICIENCIES AND ECONOMIES
--------------------------
The direct or indirect acquisition by FirstEnergy of the Common Stock
of Ohio Edison, Penn Power, Cleveland Electric and Toledo Edison will produce
economies and efficiencies more than sufficient to satisfy the standards of
Section 10(c)(2) of the Act. The Merger is expected to generate over $1 billion
in net savings during the first ten years, without considering cost reduction
programs already in place at Centerior and Ohio Edison. Of those savings,
approximately 87% will be expense related, while 13% will be achieved through
reductions in the capital expenditure programs of Ohio Edison and Centerior.
A summary of the savings is as follows:
<TABLE>
<CAPTION>
Savings Category Total Savings 1998-2007
- ---------------- -----------------------
($ millions)
<S> <C>
Corporate and Operation Labor Cost............................................................... $ 643.3
Corporate and Administrative Programs............................................................ 299.4
Non-fuel Purchasing Economies.................................................................... 77.8
Electric Production Cost......................................................................... 115.9
Fuel Procurement Cost............................................................................ 44.6
---------
Total Savings................................................................................. $ 1,181.0
Less: Costs to Achieve........................................................................... (107.0)
Transaction Costs............................................................................. (30.0)
----------
Net Savings...................................................................................... $ 1,044.0
</TABLE>
Generally, these net cost savings result from the reduction of
duplicative functions and positions, joint dispatch of generating facilities and
related fuel purchasing, lower capital expenditures and consolidation of various
corporate programs.
In addition, other economies and efficiencies will be realized over
time as coordinated practices become standardized. Furthermore, the improved
financial condition of FirstEnergy should result in more favorable financing
costs when the need to attract capital occurs. These long-term efficiencies and
economies are properly
-24-
<PAGE> 28
considered in determining if the standards of Section 10(c)(2) of the Act have
been met. SEE AMERICAN ELECTRIC POWER CO., 46 S.E.C. 1299, 1321 (1978) ("[t]he
affiliation . . . is intended to be permanent . . . and we should look to
long-term considerations"); SEE ALSO CENTERIOR, SUPRA, 35 SEC Docket (CCH) 769
at 775 ("a demonstrated potential for economies will suffice even when these are
not precisely quantifiable").
Savings expected as a result of the Merger dwarf the savings claimed in
a number of recent acquisitions approved by the Commission. SEE, E.G., KANSAS
POWER AND LIGHT CO., Holding Co. Act Release No. 25465 (Feb. 5, 1992)(expected
savings of $140 million over five years); IES INDUSTRIES, Holding Co. Act
Release No. 25325 (June 3, 1991)(expected savings of $91 million over ten
years); MIDWEST RESOURCES, Holding Co. Act Release No. 25159 (Sept. 26, 1990)
(estimated savings of $25 million over five years).
These economies and efficiencies are described more fully below:
CORPORATE AND OPERATIONS LABOR COST SAVINGS: FirstEnergy estimates that
a net reduction in labor costs of approximately $643.3 million on a nominal
dollar basis can be achieved as a result of the Merger through elimination of
approximately 900 full time equivalent duplicative positions in certain
corporate administrative and technical support functions. FirstEnergy expects
that these labor reductions will be phased in 20% in each of the first five
years following consummation of the Merger. These savings, deriving from
eliminating overlap and duplication in functional performance, can only be
realized by consummating the Merger.
CORPORATE AND ADMINISTRATIVE PROGRAMS SAVINGS: FirstEnergy estimates
that a reduction in non-labor corporate and administrative expenses totalling
approximately $299.4 million on a nominal dollar basis can be achieved through
consolidation of duplicative programs and spreading expenses over greater asset
or customer bases. These include savings related to information systems,
insurance costs, outside services, stockholder services, benefits administration
and other general and administrative overheads. The aggregate cost of these
items for the companies on a stand-alone basis is greater than the cost will be
to the combined new company. An example would be the hiring of one outside
professional service (external auditors, attorneys, consultants, etc.) instead
of two.
NON-FUEL PURCHASING ECONOMIES SAVINGS: These are the savings which will
result from the new, larger company having greater purchasing power and
centralizing purchasing and inventory functions related to the construction,
operation and maintenance of generating plants, service centers, warehouses and
headquarters, as well as standardizing system components. FirstEnergy will be
able to coordinate its purchasing needs, buy in greater quantity, negotiate with
vendors and receive larger discounts. FirstEnergy estimates cost savings of
approximately $77.8 million on a nominal dollar basis from such economies.
ELECTRIC PRODUCTION COST SAVINGS: FirstEnergy estimates that production
cost savings (including fuel savings) of approximately $115.9 million on a
nominal dollar basis will result from the combined operation of the two
companies' generation and transmission systems, including the integrated
economic dispatch of such systems and electric fuel procurement savings. OES,
Cleveland Electric and Toledo Edison currently commit and dispatch their
respective systems on an "economic dispatch" basis; that is, each company
commits and dispatches its generating system to meet the load in such manner as
to minimize production costs. There are differences in incremental cost among
the systems, as well as generation available on each system during most hours.
FirstEnergy will be able to take advantage of these factors by committing and
dispatching the lowest cost generation from OES, Cleveland Electric and Toledo
Edison to serve the total load of FirstEnergy at a cost that is lower than the
combined cost of the stand-alone companies.
FUEL PROCUREMENT COST SAVINGS: FirstEnergy estimates savings of
approximately $44.6 million on a nominal dollar basis can be achieved by
reducing combined coal commodity procurement costs, due to larger purchasing
volumes and greater purchasing power.
COSTS TO ACHIEVE AND TRANSACTION COSTS: These consist of merger costs
such as investment bankers' fees, attorney and accountant fees, and severance
and other employee reduction-related costs. Item 2 provides details of some of
these components and their amounts.
-25-
<PAGE> 29
ADDITIONAL EXPECTED BENEFITS: In addition to the benefits described
above, there are other benefits which, while presently difficult to quantify,
are nonetheless substantial. These other benefits include maintenance of
competitive rates and services, increased size and stability, diversification of
service territory, coordination of diversification programs, complementary
operational functions and complementary management.
MAINTENANCE OF COMPETITIVE RATES: Cleveland Electric and Toledo
Edison's ratepayers will benefit because the Merger is conditioned upon the
approval of an acceptable retail regulatory plan similar to the retail
regulatory plan that the PUCO adopted for Ohio Edison in 1995. Under the plan
filed by FirstEnergy on behalf of Cleveland Electric and Toledo Edison, their
base rate will be frozen until 2005, followed by an immediate $310 million base
rate reduction. The plan calls for interim residential rate reductions of $3 per
month beginning six months after the Merger, increasing to $4 per month on
July 1, 2000, and to $5 per month from July 1, 2001 through the year 2005.
Other parts of the plan include an economic development loan/lease program, an
energy-efficiency program and an earnings cap through 2005 that would enable
customers to share in any additional benefits from the Merger. Furthermore,
FirstEnergy will be more effective in meeting the challenges of the
increasingly competitive environment in the utility industry than either Ohio
Edison or Centerior standing alone due to the economies of scale available to
FirstEnergy. The impact of these economies of scale, which are described in
greater detail below, will help to position FirstEnergy to deal effectively
with increased competition with respect to rates. The Merger, by creating the
potential for increased economies of scale, will create the opportunity for
strategic, financial and operational benefits for customers in the form of more
competitive rates over the long term and for stockholders in the form of
greater financial strength and financial flexibility.
MORE DIVERSE SERVICE TERRITORY: While lying within a single region, the
combined service territory of FirstEnergy will be larger and more diverse than
any of the discrete service territories of OES, on the one hand, and Cleveland
Electric and Toledo Edison on the other. This increased customer and
geographical diversity is expected to reduce the exposure to changes in
economic, competitive or climatic conditions in any given sector of the combined
service territory.
EXPANDED MANAGEMENT RESOURCES: FirstEnergy will be able to draw on a
larger and more diverse mid-and senior-level management pool to lead FirstEnergy
forward in an increasingly competitive environment for the delivery of energy
and should be better able to attract and retain the most qualified employees.
The employees of FirstEnergy should also benefit from new opportunities in the
expanded organization.
In light of these cost savings and various efficiencies, the
requirements of the economical and efficient development of an integrated
utility system of Section 10(c)(2) of the 1935 Act will clearly be met by the
Merger.
b. INTEGRATED PUBLIC UTILITY SYSTEM
--------------------------------
As applied to electric utility companies, the term "integrated public
utility system" is defined in Section 2(a)(29) of the Act as:
a system consisting of one or more units of generating plants
and/or transmission lines and/or distributing facilities,
whose utility assets, whether owned by one or more electric
utility companies, are physically interconnected or capable of
physical interconnection and which under normal conditions may
be economically operated as a single interconnected and
coordinated system confined in its operation to a single area
or region, in one or more states, not so large as to impair
(considering the state of the art and the area or region
affected) the advantages of localized management, efficient
operation, and the effectiveness of regulation.
On the basis of this statutory definition, the Commission has
established four standards that must be met before the Commission will find that
an integrated public-utility system will result from a proposed acquisition of
securities:
(1) the utility assets of the system are physically interconnected
or capable of physical interconnection;
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(2) the utility assets, under normal conditions, may be
economically operated as a single interconnected and
coordinated system;
(3) the system must be confined in its operations to a single area
or region; and
(4) the system must not be so large as to impair (considering the
state of the art and the area or region affected) the
advantages of localized management, efficient operation, and
the effectiveness of regulation.
ENVIRONMENTAL ACTION, INC. V. SEC, 895 F.2d 1255, 1263 (9th Cir. 1990),
quoting IN RE ELECTRIC ENERGY, INC., 38 S.E.C. 658, 668 (1958). The Merger
satisfies all four of these requirements. It should be noted that in the 1995
Report, the Division recommended that the Commission "respond realistically to
the changes in the utility industry and interpret more flexibly each piece of
the integration equation." 1995 Report at 71.
CAPABLE OF PHYSICAL INTERCONNECTION. Ohio Edison, Penn Power, Cleveland
Electric and Toledo Edison are "physically interconnected or capable of physical
interconnection" within the meaning of Section 2(a)(29)(A). The electric service
areas of the four utilities are adjacent, with Ohio Edison separating Cleveland
Electric and Toledo Edison. SEE map of combined OES and Centerior service areas,
attached hereto as Exhibit E-1. The Merger will unite a continuous,
geographically compact system across northern Ohio and western Pennsylvania.
Moreover, the service areas served by OES and Centerior are already
highly interconnected. Ohio Edison and Cleveland Electric have five 345 kV and
four 138 kV interconnections, and Ohio Edison and Toledo Edison have one 345 kV
and one 138 kV interconnection. Ohio Edison and Toledo Edison also have one 69
kV interconnection, which is normally operated open. Except for this last
interconnection, all of the interconnections permit two-way transfer capability.
The six 345 kV lines and five 138 kV lines provide adequate capacity for the
three systems to be thoroughly integrated, with sufficient transfer capability
to carry anticipated flows associated with joint dispatch.
In view of the proximity of OES, Cleveland Electric and Toledo Edison
and their points of interconnection, the facts presented clearly support a
finding that Ohio Edison, Penn Power, Cleveland Electric and Toledo Edison are
"physically interconnected or capable of physical interconnection" within the
meaning of Section 2(a)(29)(A) of the Act.
SINGLE INTERCONNECTED AND COORDINATED SYSTEM. OES, Cleveland Electric
and Toledo Edison could under normal conditions be operated as a single
interconnected, integrated, and coordinated system, whose operations would be
confined to a single area and region. At present, the systems of Cleveland
Electric and Toledo Edison are not physically integrated because Ohio Edison's
service area physically separates them. The combined FirstEnergy system will be
centrally and economically dispatched and generating units committed as a single
integrated system. Upon consummation of the Merger, Ohio Edison, Penn Power,
Cleveland Electric and Toledo Edison will enter into a coordination agreement
which will be filed with and approved by FERC. The Coordination Agreement will
provide for joint dispatch of the combined generating resources of Ohio Edison,
Penn Power, Cleveland Electric and Toledo Edison, and will contain the terms,
conditions and payment provisions associated with energy exchanges, resource
sharing and other transactions among the companies. Pursuant to the Coordination
Agreement, a central control center will be established to economically dispatch
the combined system and arrange off-system purchases and sales.
For integration purposes under the 1935 Act, what is relevant is that
FirstEnergy will have sufficient internal transmission capacity to fully
accommodate the anticipated transfers between Ohio Edison, Penn Power, Cleveland
Electric and Toledo Edison, and will obtain transmission service from
neighboring utilities to accommodate any transfers that might exceed the
capabilities of its system.
Also, Ohio Edison, Penn Power, Cleveland Electric and Toledo Edison are
all members of the East Central Area Reliability Coordination Agreement. Thus,
FirstEnergy will not be subject to conflicting operational requirements across
discrete reliability regions.
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SINGLE AREA OR REGION. As Exhibit E-1 clearly shows, the "single
integrated system" of OES, Cleveland Electric and Toledo Edison would be
confined in its operations to a single area or region. Ohio Edison is adjacent
to (and currently separates) Cleveland Electric and Toledo Edison, all of which
carry on their businesses substantially in the State of Ohio. Penn Power's
service area abuts at the Ohio-Pennsylvania border with the Ohio Edison service
area. In the 1995 Report, the Division has stated that the evaluation of the
"single area or region" portion of the integration requirement "should be made.
. . . in light of the effect of technological advances on the ability to
transmit electric energy economically over long distance, and other developments
in the industry, such as brokers and marketers, that affect the concept of
geographic integration." 1995 Report at 72-74. The 1995 Report also recommends
primacy be given to "demonstrated economies and efficiencies to satisfy the
integration requirements." 1995 Report at 73. As set forth in Item 3.B.2.a, the
Merger will result in economies and efficiencies for Ohio Edison, Penn Power,
Cleveland Electric and Toledo Edison and, in turn, their customers.
LOCALIZED MANAGEMENT, EFFICIENT OPERATION AND EFFECTIVE REGULATION.
Finally, the FirstEnergy system will not be so large as to impair the advantages
of localized management, efficient operations and the effectiveness of
regulation. The Commission's past decisions on "localized management" show that
the Merger fully preserves the advantages of localized management. In such
cases, the Commission has evaluated localized management in terms of: (i)
responsiveness to local needs, see AMERICAN ELECTRIC POWER CO., Holding Co. Act
Release No. 20633 (July 21, 1978)(advantages of localized management evaluated
in terms of whether an enlarged system could be "responsive to local needs");
GENERAL PUBLIC UTILITIES CORP., 37 S.E.C. 28, 36 (1956)(localized management
evaluated in terms of "local problems and matters involving relations with
consumers"); (ii) whether management and directors were drawn from local
utilities, see CENTERIOR ENERGY CORP., Holding Co. Act Release No. 24073 (April
29, 1986)(advantages of localized management would not be compromised by the
affiliation of two electric utilities under a new holding company because the
new holding company's "management [would be] drawn from the present management"
of the two utilities); (iii) the preservation of corporate identities, SEE
NORTHEAST UTILITIES, Holding Co. Act Release No. 25221 (December 21,
1990)(utilities "will be maintained as separate New Hampshire corporations . . .
[t]herefore the advantages of localized management will be preserved"); COLUMBIA
GAS SYSTEM, INC., Holding Co. Act Release No. 24599 (March 15, 1988)(benefits of
local management maintained where the utility to be added would be a separate
subsidiary); and (iv) the ease of communications, SEE AMERICAN ELECTRIC POWER
CO., Holding Co. Act Release No. 20633 (July 21, 1978)(distance of corporate
headquarters from local management was a "less important factor in determining
what is in the public interest" given the "present-day ease of communications
and transportation").
The Merger satisfies all of these factors. FirstEnergy will be
headquartered in Akron, Ohio, the present headquarters for Ohio Edison, which is
less than 25 miles from Centerior's present headquarters. As to Ohio Edison,
there will be no change in the locale of management. FirstEnergy's management
will be drawn from the present management of Ohio Edison and Centerior, so the
advantages of localized management will not be compromised. The Merger will
preserve (and enhance) all the benefits of localized management OES, Cleveland
Electric and Toledo Edison currently enjoy while simultaneously allowing for the
efficiencies and economies that will derive from their strategic alliance.
Furthermore, as described earlier, the system will facilitate efficient
operation.
The effectiveness of regulation will not be diminished; Ohio Edison,
Cleveland Electric and Toledo Edison will remain subject to regulation by the
PUCO, and Penn Power will remain subject to regulation by the PPUC. Moreover,
the respective interstate activities of Ohio Edison, Penn Power, Cleveland
Electric and Toledo Edison will continue to be regulated by the FERC.
C. SECTION 10(f)
-------------
Section 10(f) provides that
The Commission shall not approve any acquisition as to which an
application is made under this section unless it appears to the
satisfaction of the Commission that such State laws as may apply in
respect of such acquisition have been complied with, except where the
Commission finds that
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compliance with such State laws would be detrimental to the carrying
out of the provisions of section 11.
Ohio Edison, Cleveland Electric and Toledo Edison are currently subject
to the jurisdiction of the PUCO. FirstEnergy believes that the approval of the
Merger by the PUCO is not required. However, the Merger Agreement is conditioned
upon, among other matters, the PUCO's approval of a regulatory plan for
Cleveland Electric and Toledo Edison that is mutually acceptable to Ohio Edison
and Centerior. An application for such a plan was filed with the PUCO on
November 15, 1996. The PUCO has adopted a resolution stating that it intends to
intervene in proceedings before the FERC and to coordinate its consideration of
any filings made by Ohio Edison, Cleveland Electric and Toledo Edison with the
schedule of such FERC proceedings. SEE Item 4.B.
Penn Power is currently subject to the jurisdiction of the PPUC. Penn
Power believes that, under Pennsylvania law, the approval of the PPUC is not
required for consummation of the Merger. The PPUC has adopted a policy
essentially stating that whenever a change in control of a Pennsylvania utility
occurs, irrespective of Pennsylvania law, it will assume jurisdiction over the
transaction. Penn Power believes no change of control will occur as a result of
the Merger since (i) Penn Power will continue to be a wholly-owned subsidiary of
Ohio Edison, (ii) the Ohio Edison Board designates the FirstEnergy Board and
(iii) approximately two-thirds of FirstEnergy's common stock immediately after
consummation of the Merger will be owned by former Ohio Edison stockholders. On
November 27, 1996 Penn Power filed an application for a declaratory order of the
PPUC that it does not have jurisdiction over the Merger. On the same date Penn
Power filed an application with the PPUC seeking approval of the Merger if the
PPUC elects to assert jurisdiction.
ITEM 4. REGULATORY APPROVALS
--------------------
Set forth below is a summary of the regulatory approvals that the
applicants have obtained or expect to obtain in connection with the Merger.
A. ANTITRUST
---------
The HSR Act and the rules and regulations thereunder provide that
certain transactions (including the Merger) may not be consummated until certain
information has been submitted to the DOJ and FTC and specified HSR Act waiting
period requirements have been satisfied. The expiration or termination of the
HSR Act waiting period would not preclude the DOJ or the FTC from challenging
the Merger on antitrust grounds. If the Merger is not consummated within 12
months after the expiration or termination of the HSR Act waiting period, Ohio
Edison and Centerior would be required to submit new premerger notifications to
the DOJ and the FTC and a new HSR Act waiting period would have to expire or be
terminated before the Merger could be consummated. Ohio Edison and Centerior
will comply with the provisions of the HSR Act. The Merger will not be
consummated unless the applicable waiting period has expired or has been
terminated. Ohio Edison, Penn Power, Toledo Edison and Cleveland Electric will
file a Notification and Report Form for Certain Mergers and Acquisitions
Notification with the FTC and the Antitrust Division of the United States DOJ
under the HSR Act.
B. FEDERAL POWER ACT
-----------------
Section 203 of the Federal Power Act of 1935, as amended (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
such 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 in order to consummate the Merger. 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." In undertaking its
review of a utility merger transaction, the FERC generally has evaluated (i)
whether the merger will adversely affect competition, (ii) whether the merger
will adversely affect operating costs and rates, (iii) whether the merger will
impair the effectiveness of regulation, (iv) whether the purchase price is
reasonable, (v) whether the merger is the result of coercion and (vi) whether
the accounting treatment is reasonable. However, the FERC has indicated in its
new merger policy statement issued
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on December 18, 1996 that rather than utilizing the six-factor test described
above, it will instead focus only on the following three factors: (i) the effect
on competition; (ii) the effect on rates; and (iii) the effect on federal
regulation. The new policy statement, which is effective immediately, states the
FERC's intention to address the specific application of the policy to pending
cases on a case-by-case basis. Ohio Edison and Centerior have filed, on November
8, 1996, an application with the FERC requesting that the FERC approve the
Merger and a joint dispatch agreement under Sections 203 and 205 of the Federal
Power Act, and a separate application pursuant to Section 205 for approval of an
open access transmission tariff offering transmission services over the combined
companies' system at a single transmission rate contingent upon the FERC's
approval of the Merger.
C. ATOMIC ENERGY ACT
-----------------
Ohio Edison and Penn Power each holds an NRC operating license authorizing it
to hold ownership and leasehold interests in the Beaver Valley Unit 1 nuclear
unit and (along with OES Nuclear Inc., a wholly-owned subsidiary of Ohio
Edison) the Perry Unit 1 nuclear unit. Ohio Edison also holds an NRC
operating license authorizing it to hold ownership and leasehold interests in
Beaver Valley Unit 2. Each of Cleveland Electric and Toledo Edison holds an NRC
operating license authorizing it to hold ownership or leasehold interests in
Perry Unit 1, Beaver Valley Unit 2 and the Davis-Besse nuclear unit (and, in
the case of Cleveland Electric, to operate Perry Unit 1 and, in the case of
Toledo Edison, to operate Davis-Besse). The Davis-Besse facility also includes
a generally licensed independent spent fuel storage installation. The Atomic
Energy Act provides that no NRC license may be transferred, assigned, or in any
manner disposed of, directly or indirectly, through transfer of control of any
license to any person unless the NRC finds that the transfer is in accordance
with the Atomic Energy Act and consents to the transfer. Ohio Edison and
Centerior have filed requests with the NRC seeking approval of the transfer of
control of their nuclear facility operating licenses to FirstEnergy pursuant to
the Atomic Energy Act.
D. STATE PUBLIC UTILITY REGULATION
-------------------------------
While FirstEnergy does not believe that approval of the Merger by the
PUCO is required, the Merger is conditional upon the PUCO's approval of an
acceptable retail regulatory plan for Cleveland Electric and Toledo Edison. An
application for such a plan was filed with the PUCO on November 15, 1996. Penn
Power is seeking a declaratory order of the PPUC that it does not have
jurisdiction over the Merger. Penn Power has in the alternative filed an
application with the PPUC seeking approval of the Merger if the PPUC elects to
assert jurisdiction.
Except as set forth above, no other state or local regulatory body or
agency and no other federal commission or agency has jurisdiction over the
transactions proposed herein.
E. OTHER
-----
FirstEnergy may file other applications for, or request, certain other
consents or authorizations by federal, state or municipal agencies in connection
with the issuance of securities, system operations and franchises or any other
activities subject to regulatory approval.
ITEM 5. PROCEDURE
---------
The Commission is respectfully requested to issue and publish not later
than January 31, 1997 the requisite notice under Rule 23 with respect to the
filing of this Application, such notice to specify a date not later than March
1, 1997 by which comments may be entered and a date not later than March 2, 1997
as the date after which an order of the Commission granting and permitting his
Application/Declaration to become effective may be entered by the Commission. A
form of notice suitable for publication is attached hereto as Exhibit I-1.
The Applicant requests that there be no 30-day waiting period between
the issuance of the Commission's order and the date on which it is to become
effective. The Applicant submits that a recommended decision by a hearing or
other responsible officer of the Commission is not needed with respect to the
proposed transaction and
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that the Division may assist with the preparation of the Commission's decision
and/or order in this matter unless such Division opposes the matters covered
hereby.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
---------------------------------
A. EXHIBITS
--------
Exhibit A-1: Form of Amended Articles of Incorporation of FirstEnergy.
Exhibit A-2: Amended Articles of Incorporation, effective June 21,
1994, constituting the Articles of Incorporation of Ohio
Edison (Incorporated by reference to the Form 10-K Annual
Report of Ohio Edison for the year ended December 31, 1994,
File No. 1-2578).
Exhibit A-3: Amended Articles of Incorporation, effective April 29,
1986, constituting the Articles of Incorporation of Centerior
(Incorporated by reference to a Registration Statement filed
with the Commission pursuant to the 1933 Act, File No.
33-4790).
Exhibit A-4: Form of Articles of Incorporation of Ohio Edison Acquisition
Corp.
Exhibit A-5: Form of Articles of Incorporation of Centerior Acquisition
Corp.
Exhibit B-1: Merger Agreement between Ohio Edison and Centerior dated as of
September 13, 1996 (with exhibits A and B thereto being
incorporated as Exhibits B-2 and B-3 to this
Application/Declaration).
Exhibit B-2: Merger Agreement by and among Ohio Edison, FirstEnergy and
Ohio Edison Acquisition Corp.
Exhibit B-3: Merger Agreement by and among Centerior Acquisition Corp.,
FirstEnergy and Centerior.
Exhibit C-1: Registration Statement on Form S-4 (including all exhibits
thereto).*
Exhibit C-2: Prospectus/Proxy Statement (Included in Registration Statement
on Form S-4 filed as Exhibit C-1 herein).*
Exhibit D-1: Relevant Sections of Ohio Code.
Exhibit D-2: Joint Application of Ohio Edison, Penn Power, Cleveland
Electric and Toledo Edison to FERC.*
Exhibit D-3: Order of FERC.*
Exhibit D-4: Application for approval of retail regulatory plan by the
PUCO.*
Exhibit D-5: Application for declaratory order of the PPUC regarding
jurisdiction.
Exhibit D-6: Application for approval of the Merger by the PPUC.
Exhibit E-1: Map showing combined Ohio Edison, Penn Power, Cleveland
Electric and Toledo Edison service areas.*
Exhibit F-1: Preliminary Opinion of Counsel.
- --------
* To be filed by amendment.
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<PAGE> 35
Exhibit F-2: Past Tense Opinion of Counsel (to be filed with certificate of
notification).
Exhibit G-1: Centerior Form U-3A-2, "Statement by Holding Company Claiming
Exemption under Rule U-2 from the Provisions of the Public
Utility Holding Company Act of 1935," dated February 27, 1996
(Incorporated by reference to such filing, File No. 69-315).
Exhibit G-2: Form 10-K Annual Report of Ohio Edison for the year ended
December 31, 1995 (Incorporated by reference to such filing,
File No. 1-2578).
Exhibit G-3: Form 10-K Annual Report of Centerior for the year ended
December 31, 1995 (Incorporated by reference to such filing,
File No. 1-9130).
Exhibit G-4: Form 10-K Annual Report of Penn Power for the year ended
December 31, 1995 (Incorporated by reference to such filing,
File No. 1-3491).
Exhibit G-5: Form 10-K Annual Report of Cleveland Electric for the year
ended December 31, 1995 (Incorporated by reference to such
filing, File No. 1-2323).
Exhibit G-6: Form 10-K Annual Report of Toledo Edison for the year ended
December 31, 1995 (Incorporated by reference to such filing,
File No. 1-3583).
Exhibit G-7: Form 10-Q Quarterly Report of Ohio Edison for the Quarter
ended September 30, 1996 (Incorporated by reference to such
filing, File No. 1-2578).
Exhibit G-8: Form 10-Q Quarterly Report of Centerior for the Quarter ended
September 30, 1996 (Incorporated by reference to such filing,
File No. 1-9130).
Exhibit G-9: Form 10-Q Quarterly Report of Penn Power for the Quarter ended
September 30, 1996 (Incorporated by reference to such filing,
File No. 1-3491).
Exhibit G-10: Form 10-Q Quarterly Report of Cleveland Electric for the
Quarter ended September 30, 1996 (Incorporated by reference to
such filing, File No. 1-2323).
Exhibit G-11: Form 10-Q Quarterly Report of Toledo Edison for the Quarter
ended September 30, 1996 (Incorporated by reference to such
filing, File No. 1-3583).
Exhibit H-1: McDonald & Company Securities Inc. Fairness Opinion.
Exhibit H-2: Barr Devlin & Co. Incorporated Fairness Opinion.
Exhibit I-1: Form of Notice.
Exhibit J-1: Financial Data Schedule.*
B. FINANCIAL STATEMENTS
--------------------
FS-1: FirstEnergy Unaudited Pro Forma Combined Condensed Balance Sheet as of
September 30, 1996 and Unaudited Pro Forma Combined Condensed
Statement of Income for the year ended December 31, 1995 and the nine
months ended September 30, 1996.
FS-2: Ohio Edison Consolidated Balance Sheet as of December 31, 1995 (see
Annual Report of Ohio Edison on Form 10-K for the year ended December
31, 1995 (Exhibit G-2 hereto)).
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FS-3: Ohio Edison Consolidated Statements of Income for its last three fiscal
years (see Annual Report of Ohio Edison on Form 10-K for the year ended
December 31, 1995 (Exhibit G-2 hereto)).
FS-4: Centerior Consolidated Balance Sheet as of December 31, 1995 (see
Annual Report of Ohio Edison on Form 10-K for the year ended December
31, 1995 (Exhibit G-3 hereto)).
FS-5: Centerior Consolidated Statements of Income for its last three fiscal
years (see Annual Report of Ohio Edison on Form 10-K for the year ended
December 31, 1995 (Exhibit G-3 hereto)).
FS-6: Penn Power Consolidated Balance Sheet as of December 31, 1995 (see
Annual Report of Penn Power on Form 10-K for the year ended December
31, 1995 (Exhibit G-4 hereto)).
FS-7: Penn Power Consolidated Statements of Income for its last three fiscal
years (see Annual Report of Penn Power on Form 10-K for the year ended
December 31, 1995 (Exhibit G-4 hereto)).
FS-8: Cleveland Electric Consolidated Balance Sheet as of December 31, 1995
(see Annual Report of Cleveland Electric on Form 10-K for the year
ended December 31, 1995 (Exhibit G-5 hereto)).
FS-9: Cleveland Electric Consolidated Statements of Income for its last three
fiscal years (see Annual Report of Cleveland Electric on Form 10-K for
the year ended December 31, 1995 (Exhibit G-5 hereto)).
FS-10: Toledo Edison Consolidated Balance Sheet as of December 31, 1995 (see
Annual Report of Toledo Edison on Form 10-K for the year ended December
31, 1995 (Exhibit G-6 hereto)).
FS-11: Toledo Edison Consolidated Statements of Income for its last three
fiscal years (see Annual Report of Toledo Edison on Form 10-K for the
year ended December 31, 1995 (Exhibit G-6 hereto)).
There have been no material changes, not in the ordinary course of
business, to the aforementioned balance sheets from September 30, 1996 to the
date of this Application/Declaration .
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
---------------------------------------
The Merger neither involves a "major federal action" nor "significantly
affects the quality of the human environment" as those terms are used in Section
102(2)(C) of the National Environmental Policy Act, 42 U.S.C. Sec. 4321 et seq.
The only federal actions related to the Merger pertain to the expiration of the
applicable waiting period under the HSR Act the Commission's declaration of the
effectiveness of the Registration Statement on Form S-4, the approvals and
actions described under Item 4 and Commission approval of this Application.
Consummation of the Merger will not result in changes in the operations of
FirstEnergy, Ohio Edison or Centerior that would have any impact on the
environment. No federal agency is preparing an environmental impact statement
with respect to this matter.
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<PAGE> 37
SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned company has duly caused this
Application/Declaration to be signed on its behalf by the undersigned thereunto
duly authorized.
Date: January 24, 1997
FIRSTENERGY CORP.
By: /s/ Willard R. Holland
---------------------------
Willard R. Holland
President
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<PAGE> 1
EXHIBIT A-1
AMENDED
ARTICLES OF INCORPORATION
OF
FIRSTENERGY CORP.
ARTICLE I
The name of the corporation is FirstEnergy Corp. (the "Corporation").
ARTICLE II
The place in the State of Ohio where the Corporation's principal office is
located is the City of Akron, Summit County.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be formed under Sections 1701.01 to 1701.98,
inclusive, of the Ohio Revised Code.
ARTICLE IV
A. AUTHORIZED CAPITAL STOCK. The Corporation is authorized to issue 305
million shares of capital stock, consisting of five (5) million shares of
preferred stock, with par value of $100 per share ("Preferred Stock"), and 300
million shares of common stock, with par value of $0.10 per share ("Common
Stock").
B. PREFERRED STOCK. The Board of Directors shall have authority to issue
Preferred Stock from time to time in one or more classes or series. The express
terms of shares of a different series of any particular class shall be identical
except for such variations as may be permitted by law.
C. COMMON STOCK. Subject to any Preferred Stock Designation (as defined
herein), the holders of shares of Common Stock shall be entitled to one vote on
each matter submitted to a vote at a meeting of shareholders for each share of
Common Stock held of record by such holder as of the record date for such
meeting.
ARTICLE V
The Board of Directors shall be authorized hereby to exercise all powers
now or hereafter permitted by law providing rights to the Board of Directors to
adopt amendments to these Articles of Incorporation to fix or change the express
terms of any unissued or treasury shares of any class, including, without
limiting the generality of the foregoing: division of such shares into series
and the designation and authorized number of shares of each series; voting
rights of such shares (to the extent now or hereafter permitted by law);
dividend or distribution rates; dates of payment of dividends or distributions
and the dates from which they are cumulative; liquidation price; redemption
rights and price; sinking fund requirements; conversion rights; and restrictions
on the issuance of shares of the same series or any other class or series; all
as may be established by resolution of the Board of Directors from time to time
(collectively, a "Preferred Stock Designation").
ARTICLE VI
Except as may be provided in any Preferred Stock Designation, the holders
of shares of capital stock of the Corporation shall not be entitled to
cumulative voting rights in the election of directors.
A-1
<PAGE> 2
ARTICLE VII
Except as may be provided in any Preferred Stock Designation, no holder of
any shares of capital stock of the Corporation shall have any preemptive right
to acquire any shares of unissued capital stock of any class or series, now or
hereafter authorized, or any treasury shares or securities convertible into such
shares or carrying a right to subscribe to or acquire such shares of capital
stock.
ARTICLE VIII
The Corporation may from time to time, pursuant to authorization by the
Board of Directors and without action by the shareholders, purchase or otherwise
acquire capital stock of the Corporation of any class or classes in such manner,
upon such terms and in such amounts as the Board of Directors shall determine;
subject, however, to such limitation or restriction, if any, as is contained in
any Preferred Stock Designation at the time of such purchase or acquisition.
ARTICLE IX
Subject to any Preferred Stock Designation, to the extent applicable law
permits these Amended Articles of Incorporation expressly to provide or permit a
lesser vote than a two-thirds vote otherwise provided by law for any action or
authorization for which a vote of shareholders is required, including, without
limitation, adoption of an amendment to these Articles of Incorporation,
adoption of a plan of merger, authorization of a sale or other disposition of
all or substantially all of the assets of the Corporation not made in the usual
and regular course of its business or adoption of a resolution of dissolution of
the Corporation, such action or authorization shall be by such two-thirds vote
unless the Board of Directors of the Corporation shall provide otherwise by
resolution, then such action or authorization shall be by the affirmative vote
of the holders of shares entitling them to exercise a majority of the voting
power of the Corporation on such proposal and a majority of the voting power of
any class entitled to vote as a class on such proposal; provided, however, this
Article IX (and any resolution adopted pursuant hereto) shall not alter in any
case any greater vote otherwise expressly provided by any provision of these
Articles of Incorporation or the Code of Regulations. For purposes of these
Articles of Incorporation, "voting power of the Corporation" means the aggregate
voting power of (1) all the outstanding shares of Common Stock of the
Corporation and (2) all the outstanding shares of any class or series of capital
stock of the Corporation that has (i) rights to distributions senior to those of
the Common Stock including, without limitation, any relative, participating,
optional, or other special rights and privileges of, and any qualifications,
limitations or restrictions on, such shares and (ii) voting rights entitling
such shares to vote generally in the election of directors.
ARTICLE X
Notwithstanding anything to the contrary contained in these Articles of
Incorporation, the affirmative vote of the holders of at least 80% of the voting
power of the Corporation, voting together as a single class, shall be required
to amend or repeal, or adopt any provision inconsistent with, Article V, Article
VI, Article VII, Article VIII or this Article X; provided, however, that this
Article X shall not alter the voting entitlement of shares that, by virtue of
any Preferred Stock Designation, are expressly entitled to vote on any amendment
to these Articles of Incorporation.
ARTICLE XI
Any and every statute of the State of Ohio hereafter enacted, whereby the
rights, powers or privileges of corporations or of the shareholders of
corporations organized under the laws of the State of Ohio are increased or
diminished or in any way affected, or whereby effect is given to the action
taken by any number, less than all, of the shareholders of any such corporation,
shall apply to the Corporation and shall be binding not only upon the
Corporation but upon every shareholder of the Corporation to the same extent as
if such statute had been in force at the date of filing these Articles of
Incorporation in the office of the Secretary of State of Ohio.
A-2
<PAGE> 1
Exhibit A-4
ARTICLES OF INCORPORATION
OF
OHIO EDISON ACQUISITION CORP.
The undersigned, desiring to form a corporation for profit under
Sections 1701.01 to 1701.98, inclusive, of the Ohio Revised Code, does hereby
certify:
FIRST: The name of the Corporation shall be OHIO EDISON ACQUISITION
CORP.
SECOND: The place in the State of Ohio where the principal office of
the Corporation will be located is the City of Cleveland, in Cuyahoga County.
THIRD: The purpose for which the Corporation is formed is to engage in
any lawful act or activity for which corporations may be formed under Sections
1701.01 to 1701.98, inclusive, of the Ohio Revised Code, as now in effect or
hereafter amended, including without limitation, the generation, transmission,
distribution or sale of electricity or other forms of energy.
FOURTH: The authorized number of shares of the Corporation is 100, all
of which shall be common stock without par value.
FIFTH: No holder of any class of shares of the Corporation shall, as
such holder, have any preemptive or preferential right to purchase or subscribe
to any shares of any class of stock of the Corporation, whether now or hereafter
authorized, whether unissued or in the treasury, or to purchase any obligations
convertible into shares of any class of stock of the Corporation, which at any
time may be proposed to be issued by the Corporation or subject to rights or
options to purchase granted by the Corporation.
SIXTH: Without derogation from any other power to purchase shares of
the Corporation, the Corporation by action of its directors may purchase
outstanding shares of any class of the Corporation to the extent not prohibited
by Law.
IN WITNESS WHEREOF, the undersigned has caused these Articles of
Incorporation to be executed as of this 23rd day of January, 1997.
/s/ David L. Feltner
-----------------------------------
David L. Feltner
Sole Incorporator
<PAGE> 1
Exhibit A-5
ARTICLES OF INCORPORATION
OF
CENTERIOR ACQUISITION CORP.
The undersigned, desiring to form a corporation for profit under
Sections 1701.01 to 1701.98, inclusive, of the Ohio Revised Code, does hereby
certify:
FIRST: The name of the Corporation shall be CENTERIOR ACQUISITION CORP.
SECOND: The place in the State of Ohio where the principal office of
the Corporation will be located is the City of Cleveland, in Cuyahoga County.
THIRD: The purpose for which the Corporation is formed is to engage in
any lawful act or activity for which corporations may be formed under Sections
1701.01 to 1701.98, inclusive, of the Ohio Revised Code, as now in effect or
hereafter amended, including without limitation, the generation, transmission,
distribution or sale of electricity or other forms of energy.
FOURTH: The authorized number of shares of the Corporation is 100, all
of which shall be common stock without par value.
FIFTH: No holder of any class of shares of the Corporation shall, as
such holder, have any preemptive or preferential right to purchase or subscribe
to any shares of any class of stock of the Corporation, whether now or hereafter
authorized, whether unissued or in the treasury, or to purchase any obligations
convertible into shares of any class of stock of the Corporation, which at any
time may be proposed to be issued by the Corporation or subject to rights or
options to purchase granted by the Corporation.
SIXTH: Without derogation from any other power to purchase shares of
the Corporation, the Corporation by action of its directors may purchase
outstanding shares of any class of the Corporation to the extent not prohibited
by Law.
IN WITNESS WHEREOF, the undersigned has caused these Articles of
Incorporation to be executed as of this 23rd day of January, 1997.
/s/ David L. Feltner
-----------------------------------
David L. Feltner
Sole Incorporator
<PAGE> 1
EXHIBIT B-1
[CONFORMED COPY]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BETWEEN
OHIO EDISON COMPANY
AND
CENTERIOR ENERGY CORPORATION
DATED AS OF SEPTEMBER 13, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
FORMATION OF FIRSTENERGY AND MERGER COMPANIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1.1 Organization of FirstEnergy...................................................... B-1-2
1.2 Directors and Officers of FirstEnergy............................................ B-1-2
(a) Prior to the Effective Time................................................ B-1-2
(b) As of the Effective Time................................................... B-1-2
1.3 Organization of Merger Companies................................................. B-1-2
</TABLE>
ARTICLE II
THE MERGER
<TABLE>
<S> <C> <C>
2.1 Closing.......................................................................... B-1-2
2.2 Effective Time of the Merger..................................................... B-1-2
2.3 Effects of the Merger............................................................ B-1-2
2.4 Directors and Officers of the Surviving Corporation.............................. B-1-3
</TABLE>
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
RESPECTIVE CORPORATIONS; EXCHANGE OF CERTIFICATES
<TABLE>
<S> <C> <C>
3.1 Manner of Converting Shares...................................................... B-1-3
(a) Capital Stock of Merger Companies.......................................... B-1-3
(b) Capital Stock of Centerior and Ohio Edison................................. B-1-3
(c) Capital Stock of Centerior................................................. B-1-3
(d) Stock Options of Centerior................................................. B-1-4
(e) Cancellation of Treasury Stock and Certain Ohio Edison and
Centerior Common Stock..................................................... B-1-4
(f) Adjustment Upon Changes in Capitalization.................................. B-1-4
(g) Shares of Dissenting Holders............................................... B-1-5
(h) Capital Stock of FirstEnergy............................................... B-1-5
3.2 Exchange of Certificates......................................................... B-1-5
(a) Exchange Agent............................................................. B-1-5
(b) Exchange Procedures........................................................ B-1-5
(c) Distributions with Respect to Unexchanged Shares........................... B-1-6
(d) No Further Ownership Rights in Centerior and Ohio Edison Common Stock...... B-1-6
(e) No Fractional Shares....................................................... B-1-6
(f) Application of Exchange Fund............................................... B-1-7
(g) No Liability............................................................... B-1-7
</TABLE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CENTERIOR
<TABLE>
<S> <C> <C>
4.1 Organization, Standing and Power................................................. B-1-7
4.2 Capital Structure................................................................ B-1-8
4.3 Corporate Authority.............................................................. B-1-8
4.4 No Violation..................................................................... B-1-8
4.5 Consents and Approvals........................................................... B-1-9
4.6 Centerior SEC Documents.......................................................... B-1-10
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
4.7 No Undisclosed Liabilities....................................................... B-1-10
4.8 Information Supplied............................................................. B-1-10
4.9 Compliance with Applicable Laws.................................................. B-1-11
4.10 Litigation....................................................................... B-1-11
4.11 Taxes............................................................................ B-1-11
4.12 Employee Matters................................................................. B-1-12
4.13 Absence of Certain Changes or Events............................................. B-1-14
4.14 Opinion of Centerior Financial Advisor........................................... B-1-14
4.15 Vote Required.................................................................... B-1-14
4.16 Accounting Matters............................................................... B-1-14
4.17 No Change in Capital Structure................................................... B-1-14
4.18 Ownership of Ohio Edison Stock................................................... B-1-14
4.19 Centerior Subsidiaries........................................................... B-1-14
4.20 Environmental Protection......................................................... B-1-15
(a) Compliance................................................................. B-1-15
(b) Environmental Permits...................................................... B-1-15
(c) Environmental Claims....................................................... B-1-16
(d) Releases................................................................... B-1-16
(e) Predecessors............................................................... B-1-16
(f) Disclosure................................................................. B-1-16
4.21 Regulation as a Utility.......................................................... B-1-17
4.22 Insurance........................................................................ B-1-17
</TABLE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF OHIO EDISON
<TABLE>
<S> <C> <C>
5.1 Organization, Standing and Power................................................. B-1-18
5.2 Capital Structure................................................................ B-1-18
5.3 Corporate Authority.............................................................. B-1-19
5.4 No Violation..................................................................... B-1-19
5.5 Consents and Approvals........................................................... B-1-19
5.6 Ohio Edison SEC Documents........................................................ B-1-20
5.7 No Undisclosed Liabilities....................................................... B-1-20
5.8 Information Supplied............................................................. B-1-20
5.9 Compliance with Applicable Laws.................................................. B-1-21
5.10 Litigation....................................................................... B-1-21
5.11 Taxes............................................................................ B-1-21
5.12 Employee Matters................................................................. B-1-22
5.13 Absence of Certain Changes or Events............................................. B-1-24
5.14 Opinion of Ohio Edison Financial Advisor......................................... B-1-24
5.15 Vote Required.................................................................... B-1-24
5.16 Accounting Matters............................................................... B-1-24
5.17 No Change in Capital Structure................................................... B-1-24
5.18 Ownership of Centerior Stock..................................................... B-1-24
5.19 Ohio Edison Subsidiaries......................................................... B-1-24
5.20 Environmental Protection......................................................... B-1-25
(a) Compliance................................................................. B-1-25
(b) Environmental Permits...................................................... B-1-25
(c) Environmental Claims....................................................... B-1-25
(d) Releases................................................................... B-1-25
(e) Predecessors............................................................... B-1-26
(f) Disclosure................................................................. B-1-26
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
5.21 Regulation as a Utility.......................................................... B-1-26
5.22 Insurance........................................................................ B-1-26
</TABLE>
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
<TABLE>
<S> <C> <C>
6.1 Ordinary Course.................................................................. B-1-26
6.2 Dividends; Changes in Stock...................................................... B-1-27
6.3 Issuance of Securities........................................................... B-1-28
6.4 Constituent Documents............................................................ B-1-28
6.5 No Solicitations................................................................. B-1-28
6.6 Acquisitions..................................................................... B-1-29
6.7 Dispositions..................................................................... B-1-29
6.8 Indebtedness..................................................................... B-1-29
6.9 No Actions....................................................................... B-1-29
6.10 Cooperation, Notification........................................................ B-1-29
6.11 Rights Agreements................................................................ B-1-30
6.12 Collective Bargaining Agreements................................................. B-1-30
6.13 Employee Benefit Covenant........................................................ B-1-30
6.14 Tax Covenant..................................................................... B-1-31
6.15 Capital Expenditures............................................................. B-1-31
6.16 Transmission, Generation......................................................... B-1-31
6.17 Modifications to Facilities...................................................... B-1-31
6.18 Accounting....................................................................... B-1-31
6.19 Tax-Free Status.................................................................. B-1-31
6.20 Affiliate Transactions........................................................... B-1-31
6.21 Rate Matters..................................................................... B-1-31
6.22 Third-Party Consents............................................................. B-1-32
6.23 Tax-Exempt Status................................................................ B-1-32
6.24 FirstEnergy Actions.............................................................. B-1-32
</TABLE>
ARTICLE VII
ADDITIONAL AGREEMENTS
<TABLE>
<S> <C> <C>
7.1 Preparation of S-4 and the Joint Proxy Statement................................. B-1-32
7.2 Letters of Centerior's Accountants............................................... B-1-32
7.3 Letters of Ohio Edison's Accountants............................................. B-1-32
7.4 Access to Information............................................................ B-1-33
7.5 Shareholder Approvals............................................................ B-1-33
7.6 Satisfaction of Conditions to the Merger......................................... B-1-33
7.7 Rule 145 Affiliates.............................................................. B-1-34
7.8 Stock Exchange Listing........................................................... B-1-34
7.9 Employee Benefit Plans........................................................... B-1-34
7.10 Expenses......................................................................... B-1-34
7.11 Brokers or Finders............................................................... B-1-35
7.12 FirstEnergy Board of Directors and Officers...................................... B-1-35
7.13 Indemnification; Directors' and Officers' Insurance.............................. B-1-35
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
7.14 Further Assurances............................................................... B-1-37
7.15 Tax Treatment.................................................................... B-1-38
7.16 Accounting Treatment............................................................. B-1-38
7.17 Disclosure Schedules............................................................. B-1-38
7.18 Public Announcements............................................................. B-1-38
7.19 Employee Agreements.............................................................. B-1-38
7.20 Transition Management............................................................ B-1-39
</TABLE>
ARTICLE VIII
CONDITIONS PRECEDENT
<TABLE>
<S> <C> <C>
8.1 Conditions to Each Party's Obligation To Effect the Merger....................... B-1-39
(a) Shareholder Approvals...................................................... B-1-39
(b) NYSE Listing............................................................... B-1-39
(c) Regulatory Approvals....................................................... B-1-39
(d) S-4 Effective.............................................................. B-1-40
(e) No Injunctions or Restraints............................................... B-1-40
(f) Letter from Rule 145 Affiliates............................................ B-1-40
(g) Regulatory Order........................................................... B-1-40
(h) Dissenters' Rights......................................................... B-1-40
8.2 Conditions to Obligations of Ohio Edison......................................... B-1-40
(a) Representations and Warranties............................................. B-1-40
(b) Performance of Obligations of Centerior.................................... B-1-41
(c) Tax Opinion................................................................ B-1-41
(d) No Amendments to Resolutions............................................... B-1-41
(e) Rights Agreement........................................................... B-1-41
(f) Consents Under Agreements.................................................. B-1-41
(g) Centerior Material Adverse Effect.......................................... B-1-41
(h) Ohio Edison Fairness Opinion............................................... B-1-41
8.3 Conditions to Obligations of Centerior........................................... B-1-41
(a) Representations and Warranties............................................. B-1-41
(b) Performance of Obligations of Ohio Edison.................................. B-1-42
(c) Tax Opinion................................................................ B-1-42
(d) No Amendments to Resolutions............................................... B-1-42
(e) Rights Agreement........................................................... B-1-42
(f) Consents Under Agreements.................................................. B-1-42
(g) Ohio Edison Material Adverse Effect........................................ B-1-42
(h) Centerior Fairness Opinion................................................. B-1-42
</TABLE>
ARTICLE IX
TERMINATION AND AMENDMENT
<TABLE>
<S> <C> <C>
9.1 Termination...................................................................... B-1-43
9.2 Effect of Termination............................................................ B-1-44
9.3 Amendment........................................................................ B-1-44
9.4 Extension; Waiver................................................................ B-1-44
9.5 Termination Fee; Expenses........................................................ B-1-44
(a) Termination Fee Upon Breach................................................ B-1-44
(b) Additional Termination Fee................................................. B-1-44
(c) Rights; Expenses........................................................... B-1-45
</TABLE>
iv
<PAGE> 6
ARTICLE X
GENERAL PROVISIONS
<TABLE>
<S> <C> <C>
10.1 Nonsurvival of Representations and Warranties.................................... B-1-45
10.2 Further Assurances............................................................... B-1-45
10.3 Notices.......................................................................... B-1-46
10.4 Interpretation................................................................... B-1-46
10.5 Descriptive Headings............................................................. B-1-47
10.6 Counterparts..................................................................... B-1-47
10.7 Entire Agreement................................................................. B-1-47
10.8 No Third Party Beneficiaries..................................................... B-1-47
10.9 Governing Law.................................................................... B-1-47
10.10 Severability..................................................................... B-1-47
10.11 Publicity........................................................................ B-1-47
10.12 Binding Effect................................................................... B-1-47
10.13 Assignment....................................................................... B-1-47
10.14 Amendments; Waiver............................................................... B-1-47
Exhibit A Form of Ohio Edison Merger Agreement
Exhibit B Form of Centerior Merger Agreement
Exhibit C Form of initial Articles of Incorporation of FirstEnergy
Exhibit D Form of Regulations of FirstEnergy
Exhibit E Officers of FirstEnergy Corp.
Exhibit F Form of amended Articles of Incorporation of FirstEnergy
Exhibit G Form of amended Regulations of FirstEnergy
Exhibit H Form of amendment to Ohio Edison Rights Agreement
Exhibit I Form of Letter Identifying Rule 145 Affiliates
Exhibit J Form of Affiliate Agreement with Form of Rule 145 Compliance Letter attached
thereto as Annex A
</TABLE>
v
<PAGE> 7
DEFINED TERMS
<TABLE>
<S> <C>
AEA..................................................................................... 9
Agreement............................................................................... 1
Blue-Sky Filings........................................................................ 9
Blue-Sky Laws........................................................................... 9
Business Combination.................................................................... 45
Centerior............................................................................... 1
Centerior 1995 Financials............................................................... 14
Centerior Acquisition Corp.............................................................. 1
Centerior Acquisition Corp. Common Stock................................................ 3
Centerior Advisors...................................................................... 14
Centerior Certificates.................................................................. 5
Centerior Common Stock.................................................................. 1
Centerior Controlled Group Plans........................................................ 12
Centerior Disclosure Schedule........................................................... 8
Centerior Fairness Advisor.............................................................. 14
Centerior Conversion Number............................................................. 3
Centerior Indemnified Liabilities....................................................... 36
Centerior Indemnified Parties........................................................... 35
Centerior Indemnifying Party............................................................ 35
Centerior Material Adverse Effect....................................................... 7
Centerior Merger........................................................................ 1
Centerior Merger Agreement.............................................................. 1
Centerior Option........................................................................ 4
Centerior Permits....................................................................... 11
Centerior Preferred..................................................................... 8
Centerior Right......................................................................... 1
Centerior Rights Agreement.............................................................. 1
Centerior SEC Documents................................................................. 10
Centerior Stock Plans................................................................... 8
Centerior Subs Preferred................................................................ 14
Certificate of Merger................................................................... 2
Closing................................................................................. 2
Closing Date............................................................................ 2
Code.................................................................................... 1
Confidentiality Agreement............................................................... 33
Conversion Number....................................................................... 3
Disclosure Schedules.................................................................... 38
Dissenting Holder....................................................................... 5
DOJ..................................................................................... 9
DRP Agent............................................................................... 5
Effective Time.......................................................................... 2
Environmental Claim..................................................................... 16
Environmental Laws...................................................................... 17
Environmental Permits................................................................... 15
ERISA................................................................................... 12
Exchange Act............................................................................ 9
Exchange Agent.......................................................................... 5
Exchange Fund........................................................................... 5
FERC.................................................................................... 9
FERC Approvals.......................................................................... 9
Final Order............................................................................. 40
</TABLE>
vi
<PAGE> 8
<TABLE>
<S> <C>
FirstEnergy............................................................................. 1
FirstEnergy Common Stock................................................................ 1
FirstEnergy Merger...................................................................... 1
FirstEnergy Option...................................................................... 4
FPA..................................................................................... 9
FTC..................................................................................... 9
GAAP.................................................................................... 1
Governmental Entity..................................................................... 9
Hazardous Materials..................................................................... 17
HSR Act................................................................................. 9
Injunction.............................................................................. 40
IRS..................................................................................... 12
Joint Proxy Statement................................................................... 9
Joint venture........................................................................... 15
Local Approvals......................................................................... 9
Merger.................................................................................. 1
NRC..................................................................................... 9
NRC Approvals........................................................................... 9
Ohio Edison............................................................................. 1
Ohio Edison Acquisition Corp............................................................ 1
Ohio Edison Acquisition Corp. Common Stock.............................................. 3
Ohio Edison Advisors.................................................................... 24
Ohio Edison Certificates................................................................ 5
Ohio Edison Class A Preferred........................................................... 18
Ohio Edison Common Stock................................................................ 1
Ohio Edison Controlled Group Plans...................................................... 22
Ohio Edison Conversion Number........................................................... 3
Ohio Edison Disclosure Schedule......................................................... 19
Ohio Edison Fairness Advisor............................................................ 24
Ohio Edison Indemnified Liabilities..................................................... 37
Ohio Edison Indemnified Parties......................................................... 36
Ohio Edison Indemnifying Party.......................................................... 36
Ohio Edison Material Adverse Effect..................................................... 18
Ohio Edison Merger...................................................................... 1
Ohio Edison Merger Agreement............................................................ 1
Ohio Edison Permits..................................................................... 21
Ohio Edison Preference.................................................................. 18
Ohio Edison Preferred................................................................... 18
Ohio Edison Right....................................................................... 1
Ohio Edison Rights Agreement............................................................ 1
Ohio Edison SEC Documents............................................................... 20
Ohio Edison Subs Preferred.............................................................. 24
Ohio Edison 1995 Financials............................................................. 24
Ohio GCL................................................................................ 3
Payment Date............................................................................ 28
PCBs.................................................................................... 17
PUHCA................................................................................... 9
Release................................................................................. 17
S-4..................................................................................... 9
SEC..................................................................................... 1
SEC PUHCA Order......................................................................... 9
Securities Act.......................................................................... 10
Services................................................................................ 30
</TABLE>
vii
<PAGE> 9
<TABLE>
<S> <C>
Significant Subsidiary.................................................................. 7
State Takeover Approvals................................................................ 9
Subsidiary.............................................................................. 4
Takeover Proposal....................................................................... 28
Target Party............................................................................ 45
Task Force.............................................................................. 39
Tax..................................................................................... 12
Taxable................................................................................. 12
Taxes................................................................................... 12
Taxing.................................................................................. 12
Unrecorded Transfer..................................................................... 6
Violation............................................................................... 8
Voting Debt............................................................................. 8
</TABLE>
viii
<PAGE> 10
AGREEMENT AND PLAN OF MERGER dated as of September 13, 1996 (the
"Agreement"), between OHIO EDISON COMPANY, an Ohio corporation with its
principal executive offices in Akron, Ohio ("Ohio Edison"), and CENTERIOR
ENERGY CORPORATION, an Ohio corporation with its principal executive offices in
Independence, Ohio ("Centerior").
WHEREAS, the respective Boards of Directors of Ohio Edison and Centerior
deem it advisable and in the best interests of their respective shareholders to
consummate, and have approved, the business combination transactions provided
for herein in which
(i) Ohio Edison and Centerior will form an Ohio holding company,
FirstEnergy Corp. ("FirstEnergy"),
(ii) (A) FirstEnergy will form two subsidiaries, one of which ("Ohio
Edison Acquisition Corp.") will merge with and into Ohio Edison with Ohio
Edison continuing as the surviving corporation (the "Ohio Edison Merger")
pursuant to the Ohio Edison Merger Agreement attached hereto as Exhibit A
(the "Ohio Edison Merger Agreement"), and the other of which ("Centerior
Acquisition Corp.") will merge with and into Centerior with Centerior
continuing as the surviving corporation (the "Centerior Merger") pursuant
to the Centerior Merger Agreement attached hereto as Exhibit B (the
"Centerior Merger Agreement"), and
(B) whereby
(I) each issued and outstanding share of common stock, par
value $9 per share, of Ohio Edison ("Ohio Edison Common Stock"), and
any associated right (an "Ohio Edison Right") that may be issued
pursuant to the Rights Agreement, dated as of October 16, 1990, between
Ohio Edison and Citibank, N.A., as Rights Agent (the "Ohio Edison Rights
Agreement"), and
(II) each issued and outstanding share of common stock,
without par value, of Centerior ("Centerior Common Stock"), and any
associated right (a "Centerior Right") that may be issued pursuant to
the Shareholder Rights Agreement, dated as of June 25, 1996, between
Centerior and KeyBank National Association, as Rights Agent (the
"Centerior Rights Agreement"),
in each case not owned directly or through a wholly-owned Subsidiary by
Ohio Edison or Centerior, will be converted into the right to receive
common stock, par value $0.10 per share, of FirstEnergy ("FirstEnergy
Common Stock"),
(iii) immediately after the Centerior Merger, Centerior will merge
with and into FirstEnergy with FirstEnergy continuing as the surviving
corporation (the "FirstEnergy Merger"; the Ohio Edison Merger, the
Centerior Merger and the FirstEnergy Merger together being referred to
herein as the "Merger"), and
(iv) as a result of the Merger, the respective common shareholders of
Ohio Edison and Centerior will own all of the outstanding shares of
FirstEnergy Common Stock and each share of any other class of capital stock
of Ohio Edison and its Subsidiaries and of the Subsidiaries of Centerior
will be unaffected by the Merger and will remain outstanding;
WHEREAS, for Federal income tax purposes, it is intended that the Merger
qualify, as to Ohio Edison, as a tax-free transfer within the meaning of Section
351(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and, as
to Centerior, as a tax-free reorganization within the meaning of Section 368(a)
of the Code;
WHEREAS, for accounting purposes, it is intended that the Merger will be
accounted for on a purchase accounting basis in accordance with generally
accepted accounting principles applied on a consistent basis ("GAAP") and
applicable regulations of the Securities and Exchange Commission (the "SEC");
WHEREAS, Centerior and Ohio Edison desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;
B-1-1
<PAGE> 11
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties agree as follows:
ARTICLE I
FORMATION OF FIRSTENERGY AND MERGER COMPANIES
1.1 Organization of FirstEnergy. As promptly as practicable following the
execution of this Agreement, Ohio Edison and Centerior shall cause FirstEnergy
to be organized under the laws of the State of Ohio. The initial Articles of
Incorporation and Regulations of FirstEnergy shall be in the forms attached
hereto as Exhibits C and D, respectively. The authorized capital stock of
FirstEnergy shall consist initially of 100 shares of common stock, par value
$0.10 per share, of which 50 shares will be issued to Ohio Edison and 50 shares
will be issued to Centerior.
1.2 Directors and Officers of FirstEnergy.
(a) Prior to the Effective Time. Upon formation of FirstEnergy, Ohio
Edison and Centerior shall cause one individual selected by each company to
be elected as directors of FirstEnergy and the individuals designated on
Exhibit E hereto to be elected as the officers of FirstEnergy, holding the
position(s) designated on Exhibit E. Each such officer and director (or any
replacement officer or director designated as set forth above) shall remain
in office until his successor is elected.
(b) As of the Effective Time. As of the Effective Time, the parties
hereto agree that the Board of Directors and officers of FirstEnergy shall
be designated as provided in Section 7.12 of this Agreement.
1.3 Organization of Merger Companies. As promptly as practicable after
the formation of FirstEnergy, the parties shall cause FirstEnergy to cause Ohio
Edison Acquisition Corp. and Centerior Acquisition Corp. to be organized under
the laws of the State of Ohio. The Articles of Incorporation and Regulations of
Ohio Edison Acquisition Corp. and Centerior Acquisition Corp. shall be in such
form as shall be determined by FirstEnergy. Upon formation of each company,
FirstEnergy shall designate the Boards of Directors and officers of each of Ohio
Edison Acquisition Corp. and Centerior Acquisition Corp.
ARTICLE II
THE MERGER
2.1 Closing. The closing of the Merger (the "Closing") will take place
at 10:00 a.m., on a date to be specified by the parties, which shall be no later
than the second business day following the date on which the last of the closing
conditions set forth in Article VIII has been met or waived, at the offices of
Squire, Sanders & Dempsey, 4900 Key Tower, 127 Public Square, Cleveland, Ohio,
unless another date or place is agreed to in writing by the parties hereto (the
"Closing Date").
2.2 Effective Time of the Merger. Subject to the provisions of this
Agreement, certificates of merger shall be duly prepared, executed and
acknowledged by an appropriate officer of each of the corporations involved in
the Merger (the "Certificates of Merger") and thereafter delivered on the
Closing Date to the Secretary of State of the State of Ohio for filing, as
provided by Ohio law, as soon as practicable on or after the Closing Date. The
Merger shall become effective upon the filing of the Certificates of Merger with
the Secretary of State of the State of Ohio or at such time thereafter as is
provided in the Certificates of Merger (the "Effective Time").
2.3 Effects of the Merger. At the Effective Time, and subject to such
changes as Ohio Edison and Centerior shall agree to be necessary to secure
required regulatory approvals,
(a) the separate existence of Ohio Edison Acquisition Corp. shall
cease and Ohio Edison Acquisition Corp. shall be merged with and into Ohio
Edison with Ohio Edison continuing as the surviving corporation,
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(b) the separate existence of Centerior Acquisition Corp. shall cease
and Centerior Acquisition Corp. shall be merged with and into Centerior
with Centerior continuing as the surviving corporation,
(c) the separate existence of Centerior shall cease and Centerior
shall be merged with and into FirstEnergy with FirstEnergy continuing as
the surviving corporation,
(d) the Merger shall have all the effects of applicable law,
including, without limitation, Section 1701.82 of the Ohio General
Corporation Law (the "Ohio GCL"), and
(e) the Articles of Incorporation and Regulations of FirstEnergy shall
be amended and restated in their entirety in the form attached hereto as
Exhibits F and G, respectively.
2.4 Directors and Officers of the Surviving Corporation. As of the
Effective Time, the directors and officers of the respective surviving
corporations of the Merger shall be designated as provided in Section 7.12 of
this Agreement.
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
RESPECTIVE CORPORATIONS; EXCHANGE OF CERTIFICATES
3.1 Manner of Converting Shares. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of
capital stock of the corporations involved:
(a) Capital Stock of Merger Companies. The shares of common stock of
Ohio Edison Acquisition Corp, par value $0.10 per share ("Ohio Edison
Acquisition Corp. Common Stock"), which are issued and outstanding
immediately prior to the Effective Time, shall be converted into and become
shares of Ohio Edison Common Stock at a rate of one (1) share of Ohio
Edison Common Stock for each share of Ohio Edison Acquisition Corp. Common
Stock, and the shares of common stock of Centerior Acquisition Corp., par
value $0.10 per share (the "Centerior Acquisition Corp. Common Stock"),
which are issued and outstanding immediately prior to the Effective Time,
shall be converted into and become shares of Centerior Common Stock at a
rate of one (1) share of Centerior Common Stock for each share of Centerior
Acquisition Corp. Common Stock.
(b) Capital Stock of Centerior and Ohio Edison.
(i) Subject to Section 3.1(e), (f) and (g), each share of Centerior
Common Stock issued and outstanding immediately prior to the Effective
Time, including any Centerior Right, and each share of Ohio Edison
Common Stock issued and outstanding immediately prior to the Effective
Time, including any Ohio Edison Right, shall be converted into and
become a right to receive fully paid and nonassessable shares of
FirstEnergy Common Stock at the rate of 0.525 (525/1000) share of
FirstEnergy Common Stock for each share of Centerior Common Stock (the
"Centerior Conversion Number") and at the rate of one share of
FirstEnergy Common Stock for each share of Ohio Edison Common Stock (the
"Ohio Edison Conversion Number" and each, a "Conversion Number").
(ii) All shares of Centerior and Ohio Edison Common Stock referred
to in Section 3.1(b)(i) and so converted shall no longer be outstanding
and shall automatically be canceled and retired and shall cease to
exist, and, except as provided under Section 1701.85 of the Ohio GCL,
each holder of a certificate representing any such shares shall cease to
have any rights with respect to such certificate, except the right to
receive certificates for shares of FirstEnergy Common Stock to be issued
in consideration therefor upon the surrender of such certificate in
accordance with Section 3.2, without interest.
(c) Capital Stock of Centerior. The shares of Centerior Common Stock
which are issued and outstanding immediately prior to the FirstEnergy
Merger shall be canceled and retired and shall cease to exist.
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(d) Stock Options of Centerior.
(i) Each unexpired and unexercised option to purchase Centerior
Common Stock (each, a "Centerior Option") under Centerior's Equity
Compensation Plan shall be deemed to be automatically converted into an
option (a "FirstEnergy Option") to purchase a number of shares of
FirstEnergy Common Stock equal to the number of shares of Centerior
Common Stock that could have been purchased under the Centerior Option
multiplied by the Centerior Conversion Number (with the resulting number
of shares rounded up or down to the nearest whole share), at an exercise
price per share of FirstEnergy Common Stock equal to the option exercise
price of the Centerior Option determined pursuant to the Centerior
Option divided by the Centerior Conversion Number (with the resulting
exercise price rounded up or down to the nearest whole cent).
(ii) Each such FirstEnergy Option shall otherwise be subject to the
same terms and conditions as the Centerior Option.
(iii) The date of grant of the substituted FirstEnergy Option shall
be the date on which the corresponding Centerior Option was granted.
(iv) At the Effective Time, the parties shall cause FirstEnergy to
(A) assume all of Centerior's obligations with respect to all
Centerior Options as contemplated by this Section 3.1(d),
(B) reserve for issuance the number of shares of FirstEnergy
Common Stock that will become subject to FirstEnergy Options pursuant
to this Section 3.1(d),
(C) from and after the Effective Time, upon exercise of the
FirstEnergy Options in accordance with the terms thereof, make
available for issuance all shares of FirstEnergy Common Stock covered
thereby, and
(D) as soon as practicable after the Effective Time, issue to
each holder of an outstanding Centerior Option a document evidencing
the foregoing assumption by FirstEnergy.
(e) Cancellation of Treasury Stock and Certain Ohio Edison and
Centerior Common Stock.
(i) Any shares of Centerior or Ohio Edison Common Stock that are
owned immediately prior to the Effective Time by any of the parties
hereto or by any other wholly-owned Subsidiary of Centerior or Ohio
Edison, including any such common stock which constitutes treasury stock
in the hands of the holder thereof, shall be canceled and retired and
shall cease to exist, and no FirstEnergy Common Stock or other
consideration shall be issued or delivered in exchange therefor, and
each holder of a certificate representing any such shares shall cease to
have any rights with respect thereto.
(ii) As used in this Agreement, a "Subsidiary" of a person means
any corporation or other organization, whether incorporated or
unincorporated, of which such person or any other Subsidiary of such
person is a general partner (excluding partnerships, the general
partnership interests of which held by such person or any Subsidiary of
such person do not have a majority of the voting interests in such
partnership) or directly or indirectly owns or controls at least a
majority of the securities or other interests having by their terms
ordinary voting power to elect a majority of the Board of Directors or
others performing similar functions with respect to such corporation or
other organization.
(f) Adjustment Upon Changes in Capitalization. In the event of any
change in Centerior or Ohio Edison Common Stock by reason of stock
dividends, splitups, mergers (other than the Merger), recapitalizations,
combinations, exchange of shares or the like, the type and number of shares
or securities to be issued upon conversion of the Centerior or Ohio Edison
Common Stock, as the case may be, and the applicable Conversion Number
provided in Section 3.1(b), shall be adjusted appropriately.
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(g) Shares of Dissenting Holders. Any issued and outstanding shares of
Centerior or Ohio Edison Common Stock held by a person who objects to the
applicable Merger and complies with all provisions of applicable law
concerning the right of such person to dissent from such Merger and demand
appraisal of such shares (a "Dissenting Holder") shall not be converted
into a right to receive FirstEnergy Common Stock as set forth in Section
3.1(b) but shall 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 pursuant to such applicable laws, Articles of
Incorporation or Regulations; provided, however, that shares of Centerior
or Ohio Edison Common Stock outstanding immediately prior to the Effective
Time and held by a Dissenting Holder who shall, after such Effective Time,
withdraw the demand for appraisal or lose the right of appraisal, in either
case pursuant to such applicable law, of such shares, shall be deemed to be
converted, as of the Effective Time, into the right to receive the shares
of FirstEnergy Common Stock specified in Section 3.1(b), without interest.
(h) Capital Stock of FirstEnergy. The shares of FirstEnergy Common
Stock which are issued and outstanding immediately prior to the Effective
Time shall be canceled and retired and shall cease to exist.
3.2 Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, FirstEnergy shall have
deposited with such bank or trust company designated by Ohio Edison, with
the approval of Centerior which approval shall not be unreasonably withheld
(the "Exchange Agent"), for the benefit of the holders of shares of
Centerior or Ohio Edison Common Stock, as the case may be, for exchange in
accordance with this Article III, through the Exchange Agent, certificates
representing the shares of FirstEnergy Common Stock (such shares of
FirstEnergy Common Stock and monies for payment in lieu of fractional
shares as hereinafter provided being hereinafter referred to as the
"Exchange Fund") issuable pursuant to Section 3.1 in exchange for
outstanding shares of Centerior and Ohio Edison Common Stock.
(b) Exchange Procedures.
(i) As soon as reasonably practicable after the Merger, the
Exchange Agent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of Centerior Common Stock (the "Centerior
Certificates") or Ohio Edison Common Stock (the "Ohio Edison
Certificates") whose shares were converted into the right to receive
shares of FirstEnergy Common Stock pursuant to Section 3.1(b),
(A) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Centerior
Certificates or Ohio Edison Certificates, as the case may be, shall
pass, only upon delivery of the Centerior Certificates or Ohio Edison
Certificates, as the case may be, to the Exchange Agent and shall be
in such form and have such other provisions as FirstEnergy may
reasonably specify) and
(B) instructions for use in effecting the surrender of the
Centerior Certificates or Ohio Edison Certificates, as the case may
be, in exchange for certificates representing shares of FirstEnergy
Common Stock.
(ii) Upon surrender of a Centerior Certificate or an Ohio Edison
Certificate, as the case may be, for cancellation to the Exchange Agent
or to such other agent or agents as may be appointed by FirstEnergy,
together with such letter of transmittal, duly executed, the holder of
such Centerior Certificate or Ohio Edison Certificate, as the case may
be, shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares (except in the case of the
agent for Centerior's Dividend Reinvestment and Stock Purchase Plan (the
"DRP Agent"), which shall be entitled to whole and fractional shares)
of FirstEnergy Common Stock (including the right to receive cash in lieu
of fractional shares as contemplated in Section 3.2(e)) which such
holder has the right to receive pursuant to the provisions of this
Article III, and the Centerior Certificate or Ohio Edison Certificate,
as the case may be, so surrendered shall forthwith be canceled.
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(iii) In the event of a transfer of ownership of Centerior Common
Stock or Ohio Edison Common Stock which is not registered in the
transfer records of Centerior or Ohio Edison, as the case may be (an
"Unrecorded Transfer"), a certificate representing the proper number of
shares of FirstEnergy Common Stock (including the right to receive cash
in lieu of fractional shares as contemplated in Section 3.2(e)) may be
issued to a transferee of an Unrecorded Transfer if the Centerior
Certificate or Ohio Edison Certificate, as the case may be, representing
such Centerior Common Stock or Ohio Edison Common Stock is presented to
the Exchange Agent, accompanied by all documents required to evidence
and effect the Unrecorded Transfer and by evidence that any applicable
stock transfer taxes have been paid.
(iv) Until surrendered as contemplated by this Section 3.2, each
Centerior Certificate and Ohio Edison Certificate, as the case may be,
shall be deemed at any time after the Effective Time to represent the
number of whole (and, in the case of the DRP Agent, fractional) shares
of FirstEnergy Common Stock which the holder of record thereof has the
right to receive upon such surrender. Cash in lieu of any fractional
shares of FirstEnergy Common Stock as contemplated by this Section 3.2
shall only be paid upon such surrender and shall be paid without
interest or any other accretion.
(c) Distributions with Respect to Unexchanged Shares.
(i) Dividends or other distributions declared or made after the
Effective Time with respect to FirstEnergy Common Stock with a record
date after the Effective Time shall be paid to the holder of any
unsurrendered Centerior Certificate or Ohio Edison Certificate, as the
case may be, with respect to the whole (and, in the case of the DRP
Agent, fractional) shares of FirstEnergy Common Stock represented
thereby.
(ii) Subject to the effect of applicable laws, following surrender
of any such Centerior Certificate or Ohio Edison Certificate, as the
case may be, there shall be paid to the record holder of the
certificates representing whole shares of FirstEnergy Common stock
issued in exchange therefor, without interest, at the time of such
surrender, the amount of any cash payable in lieu of a fractional share
of FirstEnergy Common Stock to which such holder is entitled pursuant to
Section 3.2(e).
(d) No Further Ownership Rights in Centerior and Ohio Edison Common
Stock.
(i) All shares of FirstEnergy Common Stock issued in the Merger
upon conversion of shares of Centerior and Ohio Edison Common Stock in
accordance with the terms hereof (including any cash paid in lieu of
fractional shares pursuant to Section 3.2(e)) shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares
of Centerior and Ohio Edison Common Stock, subject, however, to the
obligation of FirstEnergy to pay any dividends or make any other
distributions with a record date prior to the Effective Time which may
have been declared or made by Centerior on such shares of Centerior
Common Stock or by Ohio Edison on such shares of Ohio Edison Common
Stock in accordance with the terms of this Agreement or prior to the
date hereof and which remain unpaid at the Effective Time, and there
shall be no further registration of transfers on the stock transfer
books of Centerior or Ohio Edison, as the case may be, of the shares of
Centerior Common Stock or Ohio Edison Common Stock which were
outstanding immediately prior to the Effective Time.
(ii) If, after the Effective Time, Centerior Certificates or Ohio
Edison Certificates are presented to FirstEnergy for any reason, they
shall be canceled and exchanged as provided in this Article III.
(e) No Fractional Shares.
(i) Except with respect to the DRP Agent, no certificates or scrip
representing fractional shares of FirstEnergy Common Stock shall be
issued upon the surrender for exchange of Centerior or Ohio Edison
Certificates, and such fractional share interests will not entitle the
owner thereof to vote or to any rights of a shareholder of FirstEnergy.
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(ii) To the extent a holder of Centerior Common Stock or Ohio
Edison Common Stock would otherwise have been entitled to receive a
fractional share of FirstEnergy Common Stock, such holder shall be
entitled to receive payment in cash therefor, without interest, in an
amount equal to such fraction multiplied by the closing price of
FirstEnergy Common Stock on the New York Stock Exchange on the date of
the Effective Time or, if such stock does not trade on such exchange on
that date, on the first day after the date of the Effective Time that
such stock trades on such exchange. Payments in lieu of fractional
shares pursuant to this Section 3.2(e) are merely intended to provide a
mechanism for "rounding off" fractional shares and do not constitute
separately bargained for consideration.
(iii) As soon as practicable after the determination of the amount
of cash, if any, to be paid to holders of Centerior and Ohio Edison
Common Stock in lieu of any fractional share interests, the Exchange
Agent shall make available such amounts to such holders of Centerior and
Ohio Edison Common Stock.
(f) Application of Exchange Fund. Any certificates for shares of
FirstEnergy Common Stock and any monies for payment in lieu of fractional
shares in the Exchange Fund which remain undistributed to the holders of
Centerior and Ohio Edison Common Stock for 12 months after the Effective
Time shall be delivered to FirstEnergy, upon demand, and any holders of
Centerior or Ohio Edison Common Stock who have not theretofore complied
with this Article III shall thereafter look only to FirstEnergy for payment
of their claim for FirstEnergy Common Stock and any cash in lieu of
fractional shares of FirstEnergy Common Stock.
(g) No Liability. No party to this Agreement shall be liable to any
holder of shares of Centerior Common Stock, Ohio Edison Common Stock or
FirstEnergy Common Stock, as the case may be, for such shares (or dividends
or distributions with respect thereto) or cash delivered to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CENTERIOR
Centerior represents and warrants to Ohio Edison as follows:
4.1 Organization, Standing and Power.
(a) Each of Centerior and its Significant Subsidiaries
(i) is a corporation or partnership duly organized, validly
existing and in good standing under the laws of its state of
incorporation or organization,
(ii) has all requisite power and authority, and has been duly
authorized by all necessary approvals and orders of Governmental
Entities (as defined in Section 4.4), to own, lease and operate its
properties and to carry on its business as now being conducted, and
(iii) is duly qualified and in good standing to transact business
in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification
necessary, other than in such jurisdictions where the failure to be so
qualified and in good standing would not, when taken together with all
other such failures, have a material adverse effect on the business,
operations, properties, assets, condition (financial or otherwise),
business prospects or the results of operations of Centerior and its
Subsidiaries taken as a whole or on the consummation of the transactions
contemplated hereby (a "Centerior Material Adverse Effect").
(b) As used in this Agreement, a "Significant Subsidiary" means any
Subsidiary that would constitute a significant subsidiary within the
meaning of Rule 1-02 of Regulation S-X of the SEC.
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4.2 Capital Structure.
(a) As of the date hereof, the authorized capital stock of Centerior
consists of (i) 180,000,000 shares of Centerior Common Stock of which, as
of July 31, 1996, 148,025,928 shares were issued and outstanding and
2,673,996 shares were held by Centerior in its treasury or by any of its
wholly-owned Subsidiaries and not more than 7,700,000 shares of Centerior
Common Stock were reserved for issuance pursuant to the Equity Compensation
Plan, Employee Savings Plan, Restated Stock Purchase Plan, Dividend
Reinvestment and Stock Purchase Plan and Directors Restricted Stock Plan
(collectively, the "Centerior Stock Plans"); and (ii) 5,000,000 shares of
preferred stock, without par value (the "Centerior Preferred"), of which,
as of the date hereof, no shares were issued and outstanding and no shares
were held by Centerior in its treasury or by any of its wholly-owned
Subsidiaries; and no bonds, debentures, notes or other indebtedness having
the right to vote (or convertible into securities having the right to vote)
on any matters on which shareholders may vote ("Voting Debt") are issued
or outstanding.
(b) All outstanding shares of Centerior's capital stock are validly
issued, fully paid and nonassessable and are not subject to preemptive
rights.
(c) As of the date of this Agreement (except pursuant to this
Agreement or the Centerior Stock Plans), there are no options, warrants,
calls, rights, commitments or agreements of any character to which
Centerior or any Subsidiary of Centerior is a party or by which it is bound
obligating Centerior or any Subsidiary of Centerior to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of
capital stock or any Voting Debt of, or other equity interest in, Centerior
or any Subsidiary of Centerior or securities convertible or exchangeable
for such shares, Voting Debt or other equity interests, or obligating
Centerior or any Subsidiary of Centerior to grant, extend or enter into any
such option, warrant, call, right, commitment or agreement.
4.3 Corporate Authority.
(a) Centerior has all requisite corporate power and authority to enter
into this Agreement and, subject to the approval of this Agreement and the
transactions contemplated hereby and to the adoption of the Centerior
Merger Agreement by the shareholders of Centerior, to consummate the
transactions contemplated hereby and thereby.
(b) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Centerior, subject to the
approval of this Agreement and to the adoption of the Centerior Merger
Agreement by the shareholders of Centerior.
(c) This Agreement has been duly executed and delivered by Centerior
and, subject to the approval of this Agreement and to the adoption of the
Centerior Merger Agreement by the shareholders of Centerior, constitutes a
valid and binding obligation of Centerior enforceable in accordance with
its terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally, and except that the availability of equitable
remedies, including specific performance, may be subject to the discretion
of any court before which any proceeding may be brought.
4.4 No Violation. Except as set forth in Section 4.4 of the disclosure
schedule delivered by Centerior (the "Centerior Disclosure Schedule") or as
contemplated by Section 4.5, the execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or the loss of a material benefit
under, or the creation of a lien, pledge, security interest or other encumbrance
on assets pursuant to (any such conflict, violation, default, right of
termination, cancellation or acceleration, loss or creation, a "Violation"),
(a) any provision of the Articles of Incorporation or Regulations of
Centerior or any Subsidiary of Centerior,
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(b) any provision of any loan or credit agreement, note, bond,
mortgage, indenture, lease, Centerior Controlled Group Plan (as defined in
Section 4.12) or other agreement, obligation, instrument, permit,
concession, franchise, license of any kind to which Centerior or any of its
Subsidiaries is a party or by which any of them or any of their respective
properties or assets may be bound or affected, or
(c) any judgment, order, injunction, writ, decree, statute, law,
ordinance, rule, regulation, permit or license of any court, administrative
agency or commission or other governmental authority or instrumentality,
domestic or foreign (a "Governmental Entity") applicable to Centerior or
any of its Subsidiaries or their respective properties or assets,
which Violation, in the case of each of clauses (b) and (c), would have a
Centerior Material Adverse Effect.
4.5 Consents and Approvals. No consent, approval, order or authorization
of, or registration, declaration or filing with, any Governmental Entity, is
required by or with respect to Centerior or any of its Subsidiaries in
connection with the execution and delivery of this Agreement by Centerior or the
consummation by Centerior of the transactions contemplated hereby, the failure
of which to obtain would have a Centerior Material Adverse Effect, except for:
(a) the filing of a premerger notification report with the Federal
Trade Commission (the "FTC") and the Department of Justice (the "DOJ")
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"),
(b) the filing with the SEC of
(i) a proxy statement in definitive form relating to the meeting
of Centerior's and Ohio Edison's shareholders to be held in connection with
the Merger (the "Joint Proxy Statement"),
(ii) a registration statement on Form S-4 to be filed by
FirstEnergy in connection with the issuance of shares of FirstEnergy Common
Stock in the Merger (the "S-4") and
(iii) such reports under Sections 13(a), 13(d) and 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as may
be required in connection with this Agreement and the transactions
contemplated hereby, and the obtaining from the SEC of such orders as may
be so required,
(c) the obtaining from the SEC of an order pursuant to Section 10 of
the Public Utility Holding Company Act of 1935, as amended ("PUHCA"),
approving the transactions contemplated hereby (the "SEC PUHCA Order"),
(d) the filing of such documents with, and the qualification with, the
various state securities authorities under state securities or legal
investment laws (the "Blue-Sky Laws"), that are required in connection
with the transactions contemplated by this Agreement (the "Blue-Sky
Filings"),
(e) the filing of Certificates of Merger with the Secretary of State
of the State of Ohio in accordance with applicable law,
(f) such filings, authorizations, orders and approvals of the Federal
Energy Regulatory Commission (the "FERC") under the Federal Power Act, as
amended (the "FPA"), that may be required in connection with the
transactions contemplated by this Agreement (the "FERC Approvals"),
(g) such filings, authorizations, orders and approvals of the Nuclear
Regulatory Commission (the "NRC") under the Atomic Energy Act, as amended
(the "AEA"), that may be required in connection with the transactions
contemplated by this Agreement (the "NRC Approvals"),
(h) such filings, authorizations, orders and approvals as may be
required of state and local governmental authorities, including state and
local utility commissions (the "Local Approvals"), and
(i) such filings and approvals as may be required pursuant to state
takeover laws ("State Takeover Approvals").
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4.6 Centerior SEC Documents.
(a) Centerior has made available to Ohio Edison a true and complete
copy of each report, schedule, registration statement and definitive proxy
statement filed by Centerior with the SEC since January 1, 1993 (as such
documents have since the time of their filing been amended, the "Centerior
SEC Documents") which are all the documents (other than preliminary
material) that Centerior was required to file with the SEC since such date.
(b) As of their respective dates, the Centerior SEC Documents complied
in all material respects with the requirements of the Securities Act of
1933, as amended (the "Securities Act"), or the Exchange Act, as the case
may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such Centerior SEC Documents, and none of the Centerior SEC
Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading.
(c) The financial statements of Centerior included in the Centerior
SEC Documents comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the
SEC with respect thereto, have been prepared in accordance with GAAP
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto or, in the case of the unaudited statements,
as permitted by Form 10-Q of the SEC) and fairly present (subject, in the
case of the unaudited statements, to normal, recurring adjustments) the
consolidated financial position of Centerior and its consolidated
Subsidiaries as at the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended.
4.7 No Undisclosed Liabilities.
(a) Except as and to the extent set forth in Centerior's Annual Report
on Form 10-K for the year ended December 31, 1995, as of December 31, 1995,
neither Centerior nor any of its Subsidiaries had any liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise,
that would be required by GAAP to be reflected on a consolidated balance
sheet (including the notes thereto) of Centerior and its Subsidiaries.
(b) Since December 31, 1995, except as set forth in the Centerior SEC
Documents filed by Centerior with the SEC since December 31, 1995 and prior
to the date of this Agreement, neither Centerior nor any of its
Subsidiaries has incurred any liabilities of any nature, whether or not
accrued, contingent or otherwise, which would have, individually or in the
aggregate, a Centerior Material Adverse Effect.
4.8 Information Supplied.
(a) None of the information supplied or to be supplied by Centerior
for inclusion or incorporation by reference in
(i) the S-4 will, at the time it is filed with the SEC and at the
time it 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 Centerior and the shareholders of Ohio Edison and at the
time of the meetings of such shareholders to be held in connection with the
Merger, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which
they are made, not misleading.
(b) The Joint Proxy Statement will comply as to form in all material
respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
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4.9 Compliance with Applicable Laws.
(a) Centerior and its Subsidiaries hold all permits, licenses,
variances, exemptions, orders and approvals of all Governmental Entities
which are material to the operation of the businesses of Centerior and its
Subsidiaries, taken as a whole (the "Centerior Permits").
(b) Centerior and its Subsidiaries are in compliance with the terms of
the Centerior Permits, except where the failure so to comply would not have
a Centerior Material Adverse Effect.
(c) Except as disclosed in the Centerior SEC Documents filed prior to
the date of this Agreement, the businesses of Centerior and its
Subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity, except for possible violations which
individually or in the aggregate do not, and, insofar as reasonably can be
foreseen, in the future will not, have a Centerior Material Adverse Effect.
(d) Except as disclosed in the Centerior SEC Documents filed prior to
the date of this Agreement, as of the date of this Agreement,
(i) no investigation or review by any Governmental Entity with
respect to Centerior or any of its Subsidiaries is pending or, to the
knowledge of Centerior, threatened, and
(ii) no Governmental Entity has indicated an intention to conduct
any such investigation or review,
other than, in each case, those the outcome of which, as far as reasonably can
be foreseen, will not have a Centerior Material Adverse Effect.
4.10 Litigation. As of the date of this Agreement, except as disclosed in
the Centerior SEC Documents filed prior to the date of this Agreement,
(a) there is no suit, action or proceeding pending or, to the
knowledge of Centerior, threatened against or affecting Centerior or any of
its Subsidiaries which is reasonably likely to have a Centerior Material
Adverse Effect, and
(b) there is no judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against Centerior or any of
its Subsidiaries having, or which is reasonably likely to have, a Centerior
Material Adverse Effect.
4.11 Taxes.
(a) Except as set forth in Section 4.11 of the Centerior Disclosure
Schedule, each of Centerior and its Subsidiaries (including any
predecessors) has timely filed when due all Tax returns required to be
filed by any of them and has paid (or Centerior has paid on its behalf), or
has made adequate provision for or set up in accordance with GAAP an
adequate accrual or reserve for the payment of, all Taxes required to be
paid in respect of all periods for which returns have been filed or are due
(whether or not shown as being due on any Tax returns), and has established
an adequate accrual or reserve for the payment of all Taxes payable in
respect of any period for which no return has been filed or is due, and the
most recent financial statements contained in the Centerior SEC Documents
reflect in accordance with GAAP a reserve for all Taxes payable by
Centerior and its Subsidiaries accrued through the date of such financial
statements.
(b) Except as set forth in Section 4.11 of the Centerior Disclosure
Schedule, no material deficiencies for any Taxes have been proposed,
asserted or assessed against Centerior or any of its Subsidiaries, and no
audit of the Tax returns of Centerior or any of its Subsidiaries is
currently being conducted by any Taxing authority.
(c) Except with respect to any claims for refunds and except as set
forth in Section 4.11 of the Centerior Disclosure Schedule, the Federal
income Tax returns of Centerior and each of its Subsidiaries consolidated
in such returns for all such periods ended on or before December 31, 1990
have been
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examined by and settled with the United States Internal Revenue Service
(the "IRS"), or the applicable statute of limitations with respect to such
years, including extensions thereof, has expired.
(d) Copies of all Federal Tax returns required to be filed by
Centerior or any of its Subsidiaries (including any predecessors) for each
of the last three years, together with all schedules and attachments
thereto, have been delivered by Centerior to Ohio Edison.
(e) Except as set forth in Section 4.11 of the Centerior Disclosure
Schedule, none of Centerior or any of its Subsidiaries (including any
predecessors) is a party to, is bound by, or has any obligation under any
Tax sharing or similar agreement.
(f) For the purpose of this Agreement, the term "Tax" (including,
with correlative meaning, the terms "Taxes", "Taxing", and "Taxable")
shall include all Federal, state, local and foreign income, profits,
franchise, gross receipts, payroll, sales, employment, use, property,
gains, transfer, recording, license, value-added, withholding, excise and
other taxes, duties or assessments of any nature whatsoever (whether
payable directly or by withholding), together with any and all estimated
Tax interest, penalties and additions to Tax imposed with respect to such
amounts and any obligations in respect thereof under any Tax sharing, Tax
allocation, Tax indemnity or similar agreement as well as any obligations
arising pursuant to Code Regulation Section 1.1502-6 or comparable state,
local or foreign provision.
4.12 Employee Matters.
(a) With respect to each employee benefit plan (including, without
limitation, any "employee benefit plan," as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
and any bonus, pension, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
retirement, vacation, severance, disability, death benefit,
hospitalization, insurance or other plan, arrangement or understanding
(whether or not legally binding) (all the foregoing being herein called the
"Centerior Controlled Group Plans"), maintained or contributed to by
Centerior, any of its Subsidiaries or any other organization which is a
member of a controlled group of organizations (within the meaning of
Sections 414(b), (c), (m) or (o) of the Code) of which Centerior is a
member, Centerior has made available to Ohio Edison, or will deliver to
Ohio Edison within 30 days after the date hereof, a true and correct copy
of
(i) the most recent annual report (Form 5500) filed with the IRS,
(ii) any such Centerior Controlled Group Plan,
(iii) each trust agreement and group annuity contract, if any,
relating to any such Centerior Controlled Group Plan and
(iv) the most recent actuarial report or valuation relating to any
such Centerior Controlled Group Plan subject to Title IV of ERISA.
(b) (i) Except as set forth in Section 4.12(b) of the Centerior
Disclosure Schedule, each of the Centerior Controlled Group Plans intended
to be "qualified" within the meaning of Section 401(a) of the Code has been
determined by the IRS to be so qualified, and, to the best knowledge of
Centerior, no circumstances exist that are reasonably expected by Centerior
to result in the revocation of any such determination.
(ii) Centerior is in compliance in all material respects with, and
each Centerior Controlled Group Plan is and has been operated in all
material respects in compliance with, all applicable laws, rules and
regulations governing such plan, including, without limitation, ERISA
and the Code.
(iii) Each Centerior Controlled Group Plan intended to provide for
the deferral of income, the reduction of salary or other compensation or
to afford other income tax benefits complies with the requirements of
the applicable provisions of the Code or other laws, rules and
regulations required to provide such income tax benefits.
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(c) With respect to the Centerior Controlled Group Plans, individually
and in the aggregate, no event has occurred, and to the knowledge of
Centerior or any of its Subsidiaries, there exists no condition or set of
circumstances in connection with which Centerior or any of its Subsidiaries
could be subject to any liability that is reasonably likely to exceed
$1,000,000 (except liability for benefits claims and funding obligations
payable in the ordinary course) under ERISA, the Code or any other
applicable law.
(d) Except as set forth in Section 4.12(d) of the Centerior Disclosure
Schedule, with respect to each Centerior Controlled Group Plan, there are
no material funded benefit obligations for which contributions have not
been made or properly accrued and there are no material unfunded benefit
obligations which have not been accounted for by reserves, or otherwise
properly footnoted in accordance with GAAP, on the financial statements of
Centerior or any of its Subsidiaries.
(e) Except as set forth in Section 4.12(e) of the Centerior Disclosure
Schedule or as provided for in this Agreement, as of the date of this
Agreement, neither Centerior nor any of its Subsidiaries is a party to any
union or collective bargaining agreement.
(f) Except as set forth in Section 4.12(f) of the Centerior Disclosure
Schedule, no Centerior Controlled Group Plan is a multiemployer plan
(within the meaning of Section 3(37) or Section 4001(a)(3) of ERISA or
Section 414(f) of the Code).
(g) For each Centerior Controlled Group Plan which is intended to be
an employee stock ownership plan (within the meaning of Section 4975(e)(7)
of the Code) or a tax credit employee stock ownership plan (within the
meaning of Section 409(a) of the Code), each of the following is true:
(i) except as disclosed on Section 4.12(g) of the Centerior
Disclosure Schedule, there is no securities acquisition loan (within the
meaning of Section 133 of the Code) outstanding with respect to the
plan;
(ii) except for the transactions contemplated in this Agreement, no
event has occurred and no condition exists which would give rise to the
recapture of any Tax credit previously claimed with respect to the plan
or to any Tax or penalties assessable against Centerior, any of its
Subsidiaries or FirstEnergy; and
(iii) except for the transactions contemplated in this Agreement,
no event has occurred and no condition exists which would cause the
termination of the plan and the distribution of all amounts held
thereunder to give rise to the recapture of any Tax credit previously
claimed with respect to the plan or to any Tax or penalties assessable
against Centerior, any of its Subsidiaries or FirstEnergy.
(h) Except as set forth in Section 4.12(h) of the Centerior Disclosure
Schedule, none of the Centerior Controlled Group Plans that are welfare
plans (within the meaning of Section 3(l) of ERISA) provides for any
retiree benefits.
(i) Except as set forth in Section 4.12(i) of the Centerior Disclosure
Schedule,
(i) 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
(A) payment (whether of severance pay or otherwise) becoming due
from Centerior or any of its Subsidiaries to any officer, employee,
former employee or director thereof or to the trustee under any
"rabbi trust" or similar arrangement, or
(B)benefit under any Centerior Controlled Group Plan being
established or becoming accelerated, vested or payable, and
(ii) neither Centerior nor any of its Subsidiaries is a party to
(A) any 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 any
officer, director or employee,
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<PAGE> 23
(B) any consulting contract with any person who prior to
entering into such contract was a director or officer of Centerior,
or
(C) any plan, agreement, arrangement or understanding similar to
any of the foregoing.
4.13 Absence of Certain Changes or Events. Except as disclosed in the
Centerior SEC Documents filed prior to the date of this Agreement or in the
audited consolidated balance sheet of Centerior and its Subsidiaries as at
December 31, 1995, and the related consolidated statements of income, cash flows
and changes in shareholders' equity (the "Centerior 1995 Financials"), true and
correct copies of which have been delivered to Ohio Edison, or except as
contemplated by this Agreement, since the date of the Centerior 1995 Financials,
Centerior and its Subsidiaries have conducted their respective businesses only
in the ordinary and usual course, and, as of the date of this Agreement, there
has not been
(a) any damage, destruction or loss, whether covered by insurance or
not, which has, or insofar as reasonably can be foreseen in the future is
reasonably likely to have, a Centerior Material Adverse Effect;
(b) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to any of
Centerior's or its Subsidiaries' capital stock, except for regular
quarterly cash dividends of $0.20 per share on Centerior Common Stock and
regular dividends on Centerior Subsidiaries' preferred stock (the
"Centerior Subs Preferred") with usual record and payment dates for such
dividends and dividends on common stock paid by a wholly-owned Subsidiary
of Centerior; or
(c) any transaction, commitment, dispute or other event or condition
(financial or otherwise) of any character (whether or not in the ordinary
course of business) individually or in the aggregate having, or which,
insofar as reasonably can be foreseen, in the future is reasonably likely
to have, a Centerior Material Adverse Effect.
4.14 Opinion of Centerior Financial Advisor. Centerior has received the
opinion of Barr Devlin & Co. Incorporated (hereinafter referred to as "Centerior
Fairness Advisor" and collectively with Morgan Stanley & Co. Incorporated, as
"Centerior Advisors"), dated the date hereof, to the effect that, as of such
date, the Centerior Conversion Number is fair to holders of Centerior Common
Stock from a financial point of view, and copies of such opinion have been
previously delivered to Ohio Edison.
4.15 Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of Centerior Common Stock is the only vote of the holders
of any class or series of Centerior capital stock necessary to approve this
Agreement and the transactions contemplated hereby.
4.16 Accounting Matters. Neither Centerior nor, to its best knowledge,
any of its affiliates has through the date of this Agreement taken or agreed to
take any action that would prevent FirstEnergy from accounting for the business
combination to be effected by the Centerior Merger on a purchase accounting
basis in accordance with GAAP and applicable regulations of the SEC.
4.17 No Change in Capital Structure. There has been no material change in
the information set forth in the first sentence of Section 4.2 between the close
of business on July 31, 1996 and the date hereof.
4.18 Ownership of Ohio Edison Stock. As of the date of this Agreement,
Centerior and its affiliates do not "beneficially own" (as such term is defined
in the Ohio Edison Rights Agreement) any shares of Ohio Edison Common Stock.
4.19 Centerior Subsidiaries.
(a) Section 4.19(a) of the Centerior Disclosure Schedule sets forth a
description as of the date hereof of all Subsidiaries and joint ventures of
Centerior, including the name of each such entity, a brief description of
the principal line or lines of business conducted by each such entity and
Centerior's interest therein.
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<PAGE> 24
(b) Except as set forth in Section 4.19(b) of the Centerior 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) or
2(a)(11) of PUHCA, respectively.
(c) Except as set forth in Section 4.19(c) of the Centerior Disclosure
Schedule, all of the issued and outstanding shares of capital stock of each
Subsidiary of Centerior are validly issued, fully paid, nonassessable and
free of preemptive rights, are owned directly or indirectly by Centerior
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 "wholly-owned Subsidiary" shall include Subsidiaries
the preferred stock or similar non-voting securities of which need not be
owned by the entity as to which such Subsidiary is a subsidiary.
(d) As used in this Agreement, the term "joint venture" of a 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 which are less
than 5% of any class of the outstanding voting securities or equity of any
such entity.
4.20 Environmental Protection.
(a) Compliance.
(i) Except as set forth in Section 4.20(a) of the Centerior
Disclosure Schedule, each of Centerior and its Subsidiaries is in
compliance with all applicable Environmental Laws (as hereinafter
defined), except where the failure to be in compliance would not have a
Centerior Material Adverse Effect.
(ii) Except as set forth in Section 4.20(a) of the Centerior
Disclosure Schedule, neither Centerior nor any of its Subsidiaries has
received any communication (written or oral) from any person or
Governmental Entity that alleges that Centerior or any of its
Subsidiaries is not in compliance with applicable Environmental Laws,
except where the failure to be in compliance would not have a Centerior
Material Adverse Effect.
(b) Environmental Permits. Except as set forth in Section 4.20(b) of
the Centerior Disclosure Schedule, each of Centerior and its Subsidiaries
has obtained or has applied for all environmental, health and safety
permits and governmental authorizations (collectively, the "Environmental
Permits") necessary for the construction of their facilities or the
conduct of their operations, and all such permits are in good standing or,
where applicable, a renewal application has been timely filed and is
pending agency approval, and Centerior and each of its Subsidiaries is in
material compliance with all terms and conditions of the Environmental
Permits, except where the failure to obtain or be in compliance with such
Environmental Permit would not have a Centerior Material Adverse Effect.
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<PAGE> 25
(c) Environmental Claims. Except as set forth in Section 4.20(c) of
the Centerior Disclosure Schedule, to the best knowledge of Centerior upon
diligent review, there is no Environmental Claim (as hereinafter defined)
pending
(i) against Centerior or any of its Subsidiaries or joint ventures,
(ii) against any person or entity whose liability for any
Environmental Claim Centerior 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 which
Centerior or any of its Subsidiaries or joint ventures owns, leases or
manages, in whole or in part,
which, if adversely determined, would have in the aggregate a Centerior
Material Adverse Effect.
(d) Releases. Except as set forth in Section 4.20(d) of the Centerior
Disclosure Schedule, Centerior has no knowledge of any Releases (as
hereinafter defined) of any Hazardous Material (as hereinafter defined)
that would be reasonably likely to form the basis of any Environmental
Claim against Centerior or any Subsidiaries or joint ventures of Centerior,
or its Subsidiaries, or against any person or entity whose liability for
any Environmental Claim Centerior or any Subsidiaries or joint ventures of
Centerior or its Subsidiaries has or may have retained or assumed either
contractually or by operation of law, except for Releases of Hazardous
Materials the liability for which would not have, in the aggregate, a
Centerior Material Adverse Effect.
(e) Predecessors. Except as set forth in Section 4.20(e) of the
Centerior Disclosure Schedule, Centerior has no knowledge, with respect to
any predecessor of Centerior or any Subsidiary or joint venture of
Centerior, of any Environmental Claim pending or threatened, or of any
Release of Hazardous Materials that would be reasonably likely to form the
basis of any Environmental Claim, which would have a Centerior Material
Adverse Effect.
(f) Disclosure. To Centerior's best knowledge upon a good faith
effort, Centerior has disclosed to Ohio Edison all material facts which
Centerior reasonably believes form the basis of a Centerior Material
Adverse Effect arising from
(i) the cost of pollution control equipment currently required or
known to be required in the future;
(ii) current remediation costs or remediation costs known to be
required in the future; or
(iii) any other environmental matter affecting Centerior 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 (written or oral) by any person or entity
(including any Governmental Entity) alleging potential liability
(including, without limitation, potential liability for enforcement,
investigatory costs, cleanup costs, governmental response costs, removal
costs, remedial costs, natural resources damages, property damages,
personal injuries, or penalties) arising out of, based on or resulting
from
(A) the presence, or Release or threatened Release into the
environment, of any Hazardous Materials at any location, whether or
not owned, operated, leased or managed by Centerior or any Subsidiary
or joint venture of Centerior or its Subsidiaries (for purposes of
this Section 4.20), or by Ohio Edison or any of its Subsidiary or
joint ventures of Ohio Edison or its Subsidiaries (for purposes of
Section 5.20); or
(B) circumstances forming the basis of any violation, or alleged
violation, of any Environmental Law; or
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<PAGE> 26
(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, radioactive materials,
asbestos in any form that is or could become friable, urea
formaldehyde foam insulation, and transformers or other equipment
that contain dielectric fluid containing polychlorinated biphenyls
("PCBs"); and
(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 Centerior or any
Subsidiary or joint venture of Centerior operates (for purposes of
this Section 4.20) or in which Ohio Edison or any Subsidiary or joint
venture of Ohio Edison operates (for purposes of Section 5.20).
(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.
4.21 Regulation as a Utility.
(a) Except as set forth in Section 4.21 of the Centerior Disclosure
Schedule, neither Centerior nor any "subsidiary company" or "affiliate" of
Centerior is subject to regulation as a public utility or public service
company (or similar designation) by any state in the United States or any
foreign country.
(b) Centerior is an exempt holding company under Section 3(a)(1) of
PUHCA.
(c) Section 4.21 of the Centerior Disclosure Schedule sets forth each
"affiliate" and each "subsidiary company" of Centerior which may be deemed
to be a "public utility company" or a "holding company" within the meaning
of PUHCA.
(d) As used in this Section 4.21 and in Section 5.21, the terms
"subsidiary company" and "affiliate" shall have the respective meanings
ascribed to them in PUHCA.
4.22 Insurance. Except as set forth in Section 4.22 of the Centerior
Disclosure Schedule:
(a) Each of Centerior and its Subsidiaries is as of the date hereof,
and has been continuously since January 1, 1990 through the date hereof,
insured with financially responsible insurers in such amounts and against
such risks and losses as are customary for companies conducting the
businesses as conducted by Centerior and its Subsidiaries during such time
period.
(b) Centerior hereby covenants and agrees to maintain all such
insurance for itself and its Subsidiaries from the date of this Agreement
through the Effective Time so long as such insurance is available on
commercially reasonable terms.
(c) (i) Neither Centerior nor its Subsidiaries have received any
notice of cancellation or termination with respect to any material
insurance policy of Centerior or its Subsidiaries.
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<PAGE> 27
(ii) The insurance policies of Centerior and each of its
Subsidiaries are valid and enforceable policies.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF OHIO EDISON
Ohio Edison represents and warrants to Centerior as follows:
5.1 Organization, Standing and Power.
(a) Each of Ohio Edison and its Significant Subsidiaries
(i) is a corporation or partnership duly organized, validly
existing and in good standing under the laws of its state of
incorporation or organization,
(ii) has all requisite power and authority, and has been duly
authorized by all necessary approvals and orders of Governmental
Entities (as defined in Section 4.4), to own, lease and operate its
properties and to carry on its business as now being conducted, and
(iii) is duly qualified and in good standing to transact business
in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification
necessary, other than in such jurisdictions where the failure to be so
qualified and in good standing would not, when taken together with all
other such failures, have a material adverse effect on the business,
operations, properties, assets, condition (financial or otherwise),
business prospects or the results of operations of Ohio Edison and its
Subsidiaries taken as a whole or on the consummation of the transactions
contemplated hereby (a "Ohio Edison Material Adverse Effect").
5.2 Capital Structure.
(a) As of the date hereof, the authorized capital stock of Ohio Edison
consists of (i) 175,000,000 shares of Ohio Edison Common Stock of which, as
of July 31, 1996, 152,569,437 shares were issued and outstanding and no
shares were held by Ohio Edison in its treasury or by any of its
wholly-owned Subsidiaries and no shares of Ohio Edison Common Stock were
reserved for any purpose; (ii) 6,000,000 shares of Preferred Stock, $100
par value (the "Ohio Edison Preferred") of which, as of the date hereof,
859,650 shares were issued and outstanding and no shares were held by Ohio
Edison in its treasury or by any of its wholly-owned Subsidiaries; (iii)
8,000,000 shares of Class A Preferred Stock, $25 par value (the "Ohio
Edison Class A Preferred") of which, as of the date hereof, 4,000,000
shares were issued and outstanding and no shares were held by Ohio Edison
in its treasury or by any of its wholly-owned Subsidiaries; and (iv)
8,000,000 shares of Preference Stock, without par value (the "Ohio Edison
Preference") of which, as of the date hereof, no shares were issued and
outstanding and no shares were held by Ohio Edison in its treasury or by
any of its wholly-owned Subsidiaries; and no Voting Debt is issued or
outstanding.
(b) All outstanding shares of Ohio Edison's capital stock are validly
issued, fully paid and nonassessable and are not subject to preemptive
rights.
(c) As of the date of this Agreement (except pursuant to this
Agreement or the Ohio Edison Dividend Reinvestment Plan), there are no
options, warrants, calls, rights, commitments or agreements of any
character to which Ohio Edison or any Subsidiary of Ohio Edison is a party
or by which it is bound obligating Ohio Edison or any Subsidiary of Ohio
Edison to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock or any Voting Debt of, or other equity
interest in, Ohio Edison or any Subsidiary of Ohio Edison or securities
convertible or exchangeable for such shares, Voting Debt or other equity
interests, or obligating Ohio Edison or any Subsidiary of Ohio Edison to
grant, extend or enter into any such option, warrant, call, right,
commitment or agreement.
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5.3 Corporate Authority.
(a) Ohio Edison has all requisite corporate power and authority to
enter into this Agreement and, subject to the approval of this Agreement
and the transactions contemplated hereby and to the adoption of the Ohio
Edison Merger Agreement by the shareholders of Ohio Edison, to consummate
the transactions contemplated hereby and thereby.
(b) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Ohio Edison, subject to the
approval of this Agreement and to the adoption of the Ohio Edison Merger
Agreement by the shareholders of Ohio Edison.
(c) This Agreement has been duly executed and delivered by Ohio Edison
and, subject to the approval of this Agreement and to the adoption of the
Ohio Edison Merger Agreement by the shareholders of Ohio Edison,
constitutes a valid and binding obligation of Ohio Edison enforceable in
accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally, and except that the
availability of equitable remedies, including specific performance, may be
subject to the discretion of any court before which any proceeding may be
brought.
5.4 No Violation. Except as set forth in Section 5.4 of the disclosure
schedule delivered by Ohio Edison (the "Ohio Edison Disclosure Schedule") or as
contemplated by Section 5.5, the execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated hereby will not,
result in a Violation under or pursuant to,
(a) any provision of the Articles of Incorporation or Regulations of
Ohio Edison or any Subsidiary of Ohio Edison,
(b) any provision of any loan or credit agreement, note, bond,
mortgage, indenture, lease, Ohio Edison Controlled Group Plan (as defined
in Section 5.12) or other agreement, obligation, instrument, permit,
concession, franchise, license of any kind to which Ohio Edison or any of
its Subsidiaries is a party or by which any of them or any of their
respective properties or assets may be bound or affected, or
(c) any judgment, order, injunction, writ, decree, statute, law,
ordinance, rule, regulation, permit or license of any Governmental Entity
applicable to Ohio Edison or any of its Subsidiaries or their respective
properties or assets,
which Violation, in the case of each of clauses (b) and (c), would have an Ohio
Edison Material Adverse Effect.
5.5 Consents and Approvals. No consent, approval, order or authorization
of, or registration, declaration or filing with, any Governmental Entity, is
required by or with respect to Ohio Edison or any of its Subsidiaries in
connection with the execution and delivery of this Agreement by Ohio Edison or
the consummation by Ohio Edison of the transactions contemplated hereby, the
failure of which to obtain would have an Ohio Edison Material Adverse Effect,
except for:
(a) the filing of a premerger notification report with the FTC and the
DOJ under the HSR Act,
(b) the filing with the SEC of
(i) the Joint Proxy Statement,
(ii) the S-4 and
(iii) such reports under Sections 13(a), 13(d) and 16(a) of the
Exchange Act as may be required in connection with this Agreement and
the transactions contemplated hereby, and the obtaining from the SEC of
such orders as may be so required,
(c) the SEC PUHCA Order,
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(d) the Blue-Sky Filings,
(e) the filing of Certificates of Merger with the Secretary of State
of the State of Ohio in accordance with applicable law,
(f) the FERC Approvals,
(g) the NRC Approvals,
(h) the Local Approvals, and
(i) State Takeover Approvals.
5.6 Ohio Edison SEC Documents.
(a) Ohio Edison has made available to Centerior a true and complete
copy of each report, schedule, registration statement and definitive proxy
statement filed by Ohio Edison with the SEC since January 1, 1993 (as such
documents have since the time of this filing been amended, the "Ohio Edison
SEC Documents") which are all the documents (other than preliminary
material) that Ohio Edison was required to file with the SEC since such
date.
(b) As of their respective dates, the Ohio Edison SEC Documents
complied in all material respects with the requirements of the Securities
Act or the Exchange Act, as the case may be, and the rules and regulations
of the SEC promulgated thereunder applicable to such Ohio Edison SEC
Documents, and none of the Ohio Edison SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(c) The financial statements of Ohio Edison included in the Ohio
Edison SEC Documents comply as to form in all material respects with
applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto or, in the case
of the unaudited statements, as permitted by Form 10-Q of the SEC) and
fairly present (subject, in the case of the unaudited statements, to
normal, recurring adjustments) the consolidated financial position of Ohio
Edison and its consolidated Subsidiaries as at the dates thereof and the
consolidated results of their operations and cash flows for the periods
then ended.
5.7 No Undisclosed Liabilities.
(a) Except as and to the extent set forth in Ohio Edison's Annual
Report on Form 10-K for the year ended December 31, 1995, as of December
31, 1995, neither Ohio Edison nor any of its Subsidiaries had any
liabilities or obligations of any nature, whether or not accrued,
contingent or otherwise, that would be required by GAAP to be reflected on
a consolidated balance sheet (including the notes thereto) of Ohio Edison
and its Subsidiaries.
(b) Since December 31, 1995, except as set forth in the Ohio Edison
SEC Documents filed by Ohio Edison with the SEC since December 31, 1995 and
prior to the date of this Agreement, neither Ohio Edison nor any of its
Subsidiaries has incurred any liabilities of any nature, whether or not
accrued, contingent or otherwise, which would have, individually or in the
aggregate, an Ohio Edison Material Adverse Effect.
5.8 Information Supplied.
(a) None of the information supplied or to be supplied by Ohio Edison
for inclusion or incorporation by reference in
(i) the S-4 will, at the time it is filed with the SEC and at the
time it 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
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(ii) the Joint Proxy Statement will, at the date mailed to the
shareholders of Ohio Edison and the shareholders of Centerior and at the
time of the meetings of such shareholders to be held in connection with
the Merger, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances
under which they are made, not misleading.
(b) The Joint Proxy Statement will comply as to form in all material
respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
5.9 Compliance with Applicable Laws.
(a) Ohio Edison and its Subsidiaries hold all permits, licenses,
variances, exemptions, orders and approvals of all Governmental Entities
which are material to the operation of the businesses of Ohio Edison and
its Subsidiaries, taken as a whole (the "Ohio Edison Permits").
(b) Ohio Edison and its Subsidiaries are in compliance with the terms
of the Ohio Edison Permits, except where the failure so to comply would not
have an Ohio Edison Material Adverse Effect.
(c) Except as disclosed in the Ohio Edison SEC Documents filed prior
to the date of this Agreement, the businesses of Ohio Edison and its
Subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity, except for possible violations which
individually or in the aggregate do not, and, insofar as reasonably can be
foreseen, in the future will not, have an Ohio Edison Material Adverse
Effect.
(d) Except as disclosed in the Ohio Edison SEC Documents filed prior
to the date of this Agreement, as of the date of this Agreement,
(i) no investigation or review by any Governmental Entity with
respect to Ohio Edison or any of its Subsidiaries is pending or, to the
knowledge of Ohio Edison, threatened, and
(ii) no Governmental Entity has indicated an intention to conduct
any such investigation or review,
other than, in each case, those the outcome of which, as far as reasonably
can be foreseen, will not have an Ohio Edison Material Adverse Effect.
5.10 Litigation. As of the date of this Agreement, except as disclosed in
the Ohio Edison SEC Documents filed prior to the date of this Agreement,
(a) there is no suit, action or proceeding pending or, to the
knowledge of Ohio Edison, threatened against or affecting Ohio Edison or
any of its Subsidiaries which is reasonably likely to have an Ohio Edison
Material Adverse Effect, and
(b) there is no judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against Ohio Edison or any of
its Subsidiaries having, or which is reasonably likely to have, an Ohio
Edison Material Adverse Effect.
5.11 Taxes.
(a) Except as set forth in Section 5.11 of the Ohio Edison Disclosure
Schedule, each of Ohio Edison and its Subsidiaries (including any
predecessors) has timely filed when due all Tax returns required to be
filed by any of them and has paid (or Ohio Edison has paid on its behalf),
or has made adequate provision for or set up in accordance with GAAP an
adequate accrual or reserve for the payment of, all Taxes required to be
paid in respect of all periods for which returns have been filed or are due
(whether or not shown as being due on any Tax returns), and has established
an adequate accrual or reserve for the payment of all Taxes payable in
respect of any period for which no return has been filed or is due, and the
most recent financial statements contained in the Ohio Edison SEC Documents
reflect in accordance with GAAP a reserve for all Taxes payable by Ohio
Edison and its Subsidiaries accrued through the date of such financial
statements.
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(b) Except as set forth in Section 5.11 of the Ohio Edison Disclosure
Schedule, no material deficiencies for any Taxes have been proposed,
asserted or assessed against Ohio Edison or any of its Subsidiaries, and no
audit of the Tax returns of Ohio Edison or any of its Subsidiaries is
currently being conducted by any Taxing authority.
(c) Except with respect to any claims for refunds and except as set
forth in Section 5.11 of the Ohio Edison Disclosure Schedule, the Federal
income Tax returns of Ohio Edison and each of its Subsidiaries consolidated
in such returns for all such periods ended on or before December 31, 1990
have been examined by and settled with the IRS or the applicable statute of
limitations with respect to such years, including extensions thereof, has
expired.
(d) Copies of all Federal Tax returns required to be filed by Ohio
Edison or any of its Subsidiaries (including any predecessors) for each of
the last three years, together with all schedules and attachments thereto,
have been delivered by Ohio Edison to Centerior.
(e) Except as set forth in Section 5.11 of the Ohio Edison Disclosure
Schedule, none of Ohio Edison or any of its Subsidiaries (including any
predecessors) is a party to, is bound by, or has any obligation under any
Tax sharing or similar agreement.
5.12 Employee Matters.
(a) With respect to each employee benefit plan (including, without
limitation, any "employee benefit plan," as defined in Section 3(3) of the
ERISA, and any bonus, pension, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock option,
phantom stock, retirement, vacation, severance, disability, death benefit,
hospitalization, insurance or other plan, arrangement or understanding
(whether or not legally binding) (all the foregoing being herein called the
"Ohio Edison Controlled Group Plans"), maintained or contributed to by
Ohio Edison, any of its Subsidiaries or any other organization which is a
member of a controlled group of organizations (within the meaning of
Sections 414(b), (c), (m) or (o) of the Code) of which Ohio Edison is a
member, Ohio Edison has made available to Centerior, or will deliver to
Centerior within 30 days after the date hereof, a true and correct copy of
(i) the most recent annual report (Form 5500) filed with the IRS,
(ii) any such Ohio Edison Controlled Group Plan,
(iii) each trust agreement and group annuity contract, if any,
relating to any such Ohio Edison Controlled Group Plan and
(iv) the most recent actuarial report or valuation relating to any
such Ohio Edison Controlled Group Plan subject to Title IV of ERISA.
(b) (i) Except as set forth in Section 5.12(b) of the Ohio Edison
Disclosure Schedule, each of the Ohio Edison Controlled Group Plans
intended to be "qualified" within the meaning of Section 401(a) of the
Code has been determined by the IRS to be so qualified, and, to the best
knowledge of Ohio Edison, no circumstances exist that are reasonably
expected by Ohio Edison to result in the revocation of any such
determination.
(ii) Ohio Edison is in compliance in all material respects with,
and each Ohio Edison Controlled Group Plan is and has been operated in
all material respects in compliance with, all applicable laws, rules and
regulations governing such plan, including, without limitation, ERISA
and the Code.
(iii) Each Ohio Edison Controlled Group Plan intended to provide
for the deferral of income, the reduction of salary or other
compensation or to afford other income tax benefits complies with the
requirements of the applicable provisions of the Code or other laws,
rules and regulations required to provide such income tax benefits.
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<PAGE> 32
(c) With respect to the Ohio Edison Controlled Group Plans,
individually and in the aggregate, no event has occurred, and to the
knowledge of Ohio Edison or any of its Subsidiaries, there exists no
condition or set of circumstances in connection with which Ohio Edison or
any of its Subsidiaries could be subject to any liability that is
reasonably likely to exceed $1,000,000 (except liability for benefits
claims and funding obligations payable in the ordinary course) under ERISA,
the Code or any other applicable law.
(d) Except as set forth in Section 5.12(d) of the Ohio Edison
Disclosure Schedule, with respect to each Ohio Edison Controlled Group
Plan, there are no material funded benefit obligations for which
contributions have not been made or properly accrued and there are no
material unfunded benefit obligations which have not been accounted for by
reserves, or otherwise properly footnoted in accordance with GAAP, on the
financial statements of Ohio Edison or any of its Subsidiaries.
(e) Except as set forth in Section 5.12(e) of the Ohio Edison
Disclosure Schedule and except as provided for in this Agreement, as of the
date of this Agreement, neither Ohio Edison nor any of its Subsidiaries is
a party to any union or collective bargaining agreement.
(f) Except as set forth in Section 5.12(f) of the Ohio Edison
Disclosure Schedule, no Ohio Edison Controlled Group Plan is a
multiemployer plan (within the meaning of Section 3(37) or Section
4001(a)(3) of ERISA or Section 414(f) of the Code).
(g) For each Ohio Edison Controlled Group Plan which is intended to be
an employee stock ownership plan (within the meaning of Section 4975(e)(7)
of the Code) or a tax credit employee stock ownership plan (within the
meaning of Section 409(a) of the Code), each of the following is true:
(i) except as disclosed on Section 5.12(g) of the Ohio Edison
Disclosure Schedule, there is no securities acquisition loan (within the
meaning of Section 133 of the Code) outstanding with respect to the
plan;
(ii) except for the transactions contemplated in this Agreement, no
event has occurred and no condition exists which would give rise to the
recapture of any Tax credit previously claimed with respect to the plan
or to any Tax or penalties assessable against Ohio Edison, any of its
Subsidiaries or FirstEnergy; and
(iii) except for the transactions contemplated in this Agreement,
no event has occurred and no condition exists which would cause the
termination of the plan and the distribution of all amounts held
thereunder to give rise to the recapture of any Tax credit previously
claimed with respect to the plan or to any Tax or penalties assessable
against Ohio Edison, any of its Subsidiaries or FirstEnergy.
(h) Except as set forth in Section 5.12(h) of the Ohio Edison
Disclosure Schedule, none of the Ohio Edison Controlled Group Plans that
are welfare plans (within the meaning of Section 3(l) of ERISA) provides
for any retiree benefits.
(i) Except as set forth in Section 5.12(i) of the Ohio Edison
Disclosure Schedule,
(i) 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
(A) payment (whether of severance pay or otherwise) becoming due
from Ohio Edison or any of its Subsidiaries to any officer, employee,
former employee or director thereof or to the trustee under any
"rabbi trust" or similar arrangement, or
(B) benefit under any Ohio Edison Controlled Group Plan being
established or becoming accelerated, vested or payable, and
(ii) neither Ohio Edison nor any of its Subsidiaries is a party to
(A) any 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 any
officer, director or employee,
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<PAGE> 33
(B) any consulting contract with any person who prior to
entering into such contract was a director or officer of Ohio Edison,
or
(C) any plan, agreement, arrangement or understanding similar to
any of the foregoing.
5.13 Absence of Certain Changes or Events. Except as disclosed in the
Ohio Edison SEC Documents filed prior to the date of this Agreement or in the
audited consolidated balance sheet of Ohio Edison and its Subsidiaries as at
December 31, 1995, and the related consolidated statements of income, cash flows
and changes in shareholders' equity (the "Ohio Edison 1995 Financials"), true
and correct copies of which have been delivered to Centerior, or except as
contemplated by this Agreement, since the date of the Ohio Edison 1995
Financials, Ohio Edison and its Subsidiaries have conducted their respective
businesses only in the ordinary and usual course, and, as of the date of this
Agreement, there has not been
(a) any damage, destruction or loss, whether covered by insurance or
not, which has, or insofar as reasonably can be foreseen in the future is
reasonably likely to have, an Ohio Edison Material Adverse Effect;
(b) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to any of
Ohio Edison's or its Subsidiaries' capital stock, except for regular
quarterly cash dividends of $0.375 per share on Ohio Edison Common Stock
and regular dividends on Ohio Edison's Preferred, Ohio Edison's Class A
Preferred and Ohio Edison Subsidiaries' preferred securities (the "Ohio
Edison Subs Preferred") with usual record and payment dates for such
dividends and dividends on common stock paid by wholly-owned Subsidiaries
of Ohio Edison; or
(c) any transaction, commitment, dispute or other event or condition
(financial or otherwise) of any character (whether or not in the ordinary
course of business) individually or in the aggregate having, or which,
insofar as reasonably can be foreseen, in the future is reasonably likely
to have, an Ohio Edison Material Adverse Effect.
5.14 Opinion of Ohio Edison Financial Advisor. Ohio Edison has received
the opinion of McDonald & Company Securities, Inc. (hereinafter referred to as
"Ohio Edison Fairness Advisor" and collectively with Morgan Stanley & Co.
Incorporated, as "Ohio Edison Advisors"), dated the date hereof, to the effect
that, as of such date, the Ohio Edison Conversion Number is fair to holders of
Ohio Edison Common Stock from a financial point of view, and copies of such
opinion have been previously delivered to Centerior.
5.15 Vote Required. The affirmative vote of the holders of two-thirds of
the outstanding shares of Ohio Edison Common Stock is the only vote of the
holders of any class or series of Ohio Edison capital stock necessary to approve
this Agreement and the transactions contemplated hereby.
5.16 Accounting Matters. Neither Ohio Edison nor, to its best knowledge,
any of its affiliates has through the date of this Agreement taken or agreed to
take any action that would prevent FirstEnergy from accounting for the business
combination to be effected by the Centerior Merger on a purchase accounting
basis in accordance with GAAP and applicable regulations of the SEC.
5.17 No Change in Capital Structure. There has been no material change in
the information set forth in the first sentence of Section 5.2 between the close
of business on July 31, 1996 and the date hereof.
5.18 Ownership of Centerior Stock. As of the date of this Agreement, Ohio
Edison and its affiliates do not "beneficially own" (as such term is defined in
the Centerior Rights Agreement) any shares of Centerior Common Stock.
5.19 Ohio Edison Subsidiaries.
(a) Section 5.19(a) of the Ohio Edison Disclosure Schedule sets forth
a description as of the date hereof of all Subsidiaries and joint ventures
of Ohio Edison, including the name of each such entity, a brief description
of the principal line or lines of business conducted by each such entity
and Ohio Edison's interest therein.
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<PAGE> 34
(b) Except as set forth in Section 5.19(b) of the Ohio Edison
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) or 2(a)(11) of PUHCA, respectively.
(c) Except as set forth in Section 5.19(c) of the Ohio Edison Disclosure
Schedule, all of the issued and outstanding shares of capital stock of each
Subsidiary of Ohio Edison are validly issued, fully paid, nonassessable and
free of preemptive rights, are owned directly or indirectly by Ohio Edison
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.
5.20 Environmental Protection.
(a) Compliance.
(i) Except as set forth in Section 5.20(a) of the Ohio Edison
Disclosure Schedule, each of Ohio Edison and its Subsidiaries is in
compliance with all applicable Environmental Laws, except where the
failure to be in compliance would not have an Ohio Edison Material
Adverse Effect.
(ii) Except as set forth in Section 5.20(a) of the Ohio Edison
Disclosure Schedule, neither Ohio Edison nor any of its Subsidiaries has
received any communication (written or oral) from any person or
Governmental Entity that alleges that Ohio Edison or any of its
Subsidiaries is not in compliance with applicable Environmental Laws,
except where the failure to be in compliance would not have an Ohio
Edison Material Adverse Effect.
(b) Environmental Permits. Except as set forth in Section 5.20(b) of
the Ohio Edison Disclosure Schedule, each of Ohio Edison and its
Subsidiaries has obtained or has applied for all Environmental Permits
necessary for the construction of their facilities or the conduct of their
operations, and all such permits are in good standing or, where applicable,
a renewal application has been timely filed and is pending agency approval,
and Ohio Edison and each of its Subsidiaries is in material compliance with
all terms and conditions of the Environmental Permits, except where the
failure to obtain or be in compliance with such Environmental Permit would
not have an Ohio Edison Material Adverse Effect.
(c) Environmental Claims. Except as set forth in Section 5.20(c) of
the Ohio Edison Disclosure Schedule, to the best knowledge of Ohio Edison
upon diligent review, there is no Environmental Claim (as hereinafter
defined) pending
(i) against Ohio Edison or any of its Subsidiaries or joint
ventures,
(ii) against any person or entity whose liability for any
Environmental Claim Ohio Edison 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 which
Ohio Edison or any of its Subsidiaries or joint ventures owns, leases or
manages, in whole or in part,
which, if adversely determined, would have in the aggregate an Ohio Edison
Material Adverse Effect.
(d) Releases. Except as set forth in Section 5.20(d) of the Ohio
Edison Disclosure Schedule, Ohio Edison has no knowledge of any Releases of
any Hazardous Material that would be reasonably likely to form the basis of
any Environmental Claim against Ohio Edison or any Subsidiaries or joint
ventures of Ohio Edison, or its Subsidiaries, or against any person or
entity whose liability for any Environmental Claim Ohio Edison or any
Subsidiaries or joint ventures of Ohio Edison or its Subsidiaries has or
may have retained or assumed either contractually or by operation of law,
except for Releases of Hazardous
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Materials the liability for which would not have, in the aggregate, an Ohio
Edison Material Adverse Effect.
(e) Predecessors. Except as set forth in Section 5.20(e) of the Ohio
Edison Disclosure Schedule, Ohio Edison has no knowledge, with respect to
any predecessor of Ohio Edison or any Subsidiary or joint venture of Ohio
Edison, of any Environmental Claim pending or threatened, or of any Release
of Hazardous Materials that would be reasonably likely to form the basis of
any Environmental Claim, which would have an Ohio Edison Material Adverse
Effect.
(f) Disclosure. To Ohio Edison's best knowledge upon a good faith
effort, Ohio Edison has disclosed to Centerior all material facts which
Ohio Edison reasonably believes form the basis of an Ohio Edison Material
Adverse Effect arising from
(i) the cost of pollution control equipment currently required or
known to be required in the future;
(ii) current remediation costs or remediation costs known to be
required in the future; or
(iii) any other environmental matter affecting Ohio Edison or its
Subsidiaries.
5.21 Regulation as a Utility.
(a) Except as set forth in Section 5.21 of the Ohio Edison Disclosure
Schedule, neither Ohio Edison nor any "subsidiary company" or "affiliate"
of Ohio Edison is subject to regulation as a public utility or public
service company (or similar designation) by any state in the United States
or any foreign country.
(b) Ohio Edison is an exempt holding company under Section 3(a)(2) of
PUHCA.
(c) Section 5.21 of the Ohio Edison Disclosure Schedule sets forth
each "affiliate" and each "subsidiary company" of Ohio Edison which may
be deemed to be a "public utility company" or a "holding company" within
the meaning of PUHCA.
5.22 Insurance. Except as set forth in Section 5.22 of the Ohio Edison
Disclosure Schedule:
(a) Each of Ohio Edison and its Subsidiaries is as of the date hereof,
and has been continuously since January 1, 1990 through the date hereof,
insured with financially responsible insurers in such amounts and against
such risks and losses as are customary for companies conducting the
businesses as conducted by Ohio Edison and its Subsidiaries during such
time period.
(b) Ohio Edison hereby covenants and agrees to maintain all such
insurance for itself and its Subsidiaries from the date of this Agreement
through the Effective Time so long as such insurance is available on
commercially reasonable terms.
(c) (i) Neither Ohio Edison nor its Subsidiaries has received any
notice of cancellation or termination with respect to any material
insurance policy of Ohio Edison or its Subsidiaries.
(ii) The insurance policies of Ohio Edison and each of its
Subsidiaries are valid and enforceable policies.
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
During the period from the date of this Agreement and continuing until the
Effective Time (except as expressly contemplated or permitted by this Agreement
or to the extent that the other party shall otherwise consent in writing),
Centerior and Ohio Edison each agree that:
6.1 Ordinary Course.
(a) Each party hereto shall, and shall cause its respective
Subsidiaries to, carry on their respective businesses in the usual, regular
and ordinary course in substantially the same manner as heretofore
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<PAGE> 36
conducted 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 workforce needs
and ongoing programs currently in force, keep available the services of
their present officers and employees.
(b) Except as set forth in Section 6.1 of the Centerior or Ohio Edison
Disclosure Schedule, no party shall, nor shall any party permit any of its
Subsidiaries to, enter into a new line of business, or make any change in
the line of business it engages in as of the date hereof involving any
investment of assets or resources or any exposure to liability or loss, in
excess of $5 million, in each case inclusive of their respective
Subsidiaries, taken as a whole.
6.2 Dividends; Changes in Stock. No party shall, nor shall any party
permit any of its Subsidiaries to,
(a) declare or pay any dividends on or make other distributions in
respect of any of its capital stock, except that
(i) Centerior may continue the declaration and payment of regular
quarterly cash dividends not in excess of $0.20 per share of Centerior
Common Stock,
(ii) Centerior Subs may continue the declaration and payment of
regularly scheduled dividends on the Centerior Subs Preferred,
(iii) Ohio Edison may continue the declaration and payment of
regular quarterly cash dividends not in excess of $0.40 per share of
Ohio Edison Common Stock and regularly scheduled dividends, on Ohio
Edison Class A Preferred, Ohio Edison Preferred Stock and Ohio Edison
Preference Stock,
(iv) Ohio Edison Subsidiaries may continue the declaration and
payment of regularly scheduled dividends on the Ohio Edison Subs
Preferred,
in each case with usual record and payment dates for such dividends in
accordance with such parties' past dividend practice, and except for
dividends on common stock by a wholly-owned Subsidiary of such party or
such Subsidiary,
(b) split, combine or reclassify any of its 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) repurchase, redeem or otherwise acquire, or permit any Subsidiary
to purchase or otherwise acquire, any shares of its capital stock, other
than
(i) redemptions, purchases or acquisitions required by the
respective terms of any series of Centerior Preferred, Centerior Subs
Preferred, Ohio Edison Preferred, Ohio Edison Class A Preferred, or Ohio
Edison Subs Preferred,
(ii) in connection with refunding of such Preferred Stocks with
preferred stock or debt at a lower cost of funds (calculating such cost
on an after-tax basis),
(iii) in connection with intercompany purchases,
(iv) for the purpose of funding employee stock ownership or
dividend reinvestment and stock purchase plans in accordance with past
practice, or
(v) as set forth on Section 6.2(c) of the Centerior or Ohio Edison
Disclosure Schedules.
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(d) notwithstanding Section 6.2(a), each of Ohio Edison and Centerior
shall declare a dividend on each share of its Common Stock to holders of
record of such shares as of the close of business on the business day next
preceding the Effective Time in an amount equal to the product of
(i) a fraction,
(A) the numerator of which equals the number of days between the
payment date with respect to the most recent regular dividend paid by
Ohio Edison and Centerior, as the case may be, and the Effective
Time, and
(B) the denominator of which equals 91, and
(ii) the amount of the regular cash dividend most recently paid by
Ohio Edison or Centerior, as the case may be;
provided, however, that if either Ohio Edison or Centerior has declared a
regular quarterly dividend on shares of its Common Stock with a payment
date (the "Payment Date") after the Effective Time, then no dividend as
provided for in this Section 6.2(d) shall be declared or paid with respect
to such shares and the dividend of the other party or parties shall be
calculated by substituting "Payment Date" for "Effective Time" in clause
(i)(A) of this Section 6.2(d).
6.3 Issuance of Securities. Except as set forth in Section 6.3 of the
Ohio Edison Disclosure Schedule, no party shall, nor shall any party permit any
of its Subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock of any class, any
Voting Debt or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, Voting Debt or convertible securities,
other than
(a) the issuance of common stock or stock appreciation or similar
rights, as the case may be, pursuant to the Centerior Stock Plans or the
Ohio Edison Dividend Reinvestment Plan, in each case consistent in kind and
amount with past practice and in the ordinary course of business under such
Plans in accordance with their present terms,
(b) issuances of Preferred Stocks in connection with refundings as
contemplated by Section 6.2(c)(iii),
(c) the issuance and reservation of Ohio Edison and Centerior capital
stock pursuant to any rights plan in accordance with Section 6.11.
6.4 Constituent Documents. No party shall amend or propose to amend its
articles of incorporation or its regulations.
6.5 No Solicitations.
(a) No party shall, nor shall any party permit any of its
Subsidiaries to, nor shall it authorize or permit any of its officers,
directors or employees or any investment banker, financial advisor
(including the Centerior Advisors and the Ohio Edison Advisors), attorney,
accountant or other representative retained by it or any of its
Subsidiaries to, solicit or encourage (including by way of furnishing
information), or take any other action to facilitate, any inquiries or the
making of any proposal which constitutes, or may reasonably be expected to
lead to, any Takeover Proposal, or agree to, endorse, recommend or approve
any Takeover Proposal.
(b) Each party shall promptly advise the other party orally and in
writing of any such inquiries or Takeover Proposals.
(c) As used in this Agreement, "Takeover Proposal" shall mean any
tender or exchange offer, proposal for a merger, consolidation or other
business combination involving a party hereto or any Significant Subsidiary
of such party or any proposal or offer to acquire in any manner a
substantial equity interest in, or a substantial portion of the assets of,
such party or any of its Significant Subsidiaries other than the
transactions contemplated by this Agreement.
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(d) Notwithstanding anything in this Section 6.5 to the contrary,
unless the approvals of the shareholders of Ohio Edison and Centerior have
been obtained, a party may, to the extent that the Board of Directors of
such party determines in good faith with the written advice of outside
counsel that a failure to do so would result in a breach of its fiduciary
duties under applicable law, participate in discussions or negotiations
with, furnish information to, and afford access to the properties, books
and records of such party and its Subsidiaries to any person in connection
with a possible Takeover Proposal with respect to such party by such
person.
6.6 Acquisitions. Except as set forth in Section 6.6 of the Centerior or
Ohio Edison Disclosure Schedule, other than acquisitions by a party and its
Subsidiaries not in excess of $25 million, no party shall, nor shall any party
permit any of its Subsidiaries to, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity interest in or
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 that would constitute a Significant Subsidiary of such party or
otherwise acquire or agree to acquire any assets not in the ordinary course of
business. Centerior further agrees that unless approved by Ohio Edison,
Centerior shall not consummate the merger of The Cleveland Electric Illuminating
Company and The Toledo Edison Company.
6.7 Dispositions. Other than dispositions by a party and its affiliates
of less than $10 million singularly or in the aggregate or as set forth in
Section 6.7 of the Centerior or Ohio Edison Disclosure Schedule, no party shall,
nor shall any party permit any of its Subsidiaries to, sell, lease, license,
encumber or otherwise dispose of, or agree to sell, lease, license, encumber or
otherwise dispose of, any of its assets, other than dispositions, including,
without limitation, dispositions of accounts receivable, in the ordinary course
of business of such party or such Subsidiary consistent with past practices.
6.8 Indebtedness. Except as set forth in Section 6.8 of the Centerior or
Ohio Edison Disclosure Schedule, or as permitted in Section 6.2 in connection
with the refunding of Preferred Stock, no party shall, nor shall any party
permit any of its Subsidiaries to, incur (which shall not be deemed to include
entering into credit agreements, lines of credit or similar arrangements until
borrowings are made under such arrangements) any indebtedness for borrowed money
or guarantee any such indebtedness or issue or sell any debt securities or
warrants or rights to acquire any debt securities of such party or any of its
Subsidiaries or guarantee any debt securities of others other than
(a) for short-term indebtedness in the ordinary course of business
consistent with prior practice,
(b) as may be necessary in connection with acquisitions permitted by
Section 6.6 or new lines of business permitted by Section 6.1,
(c) the incurrence of long-term indebtedness, issuances of debt
securities or guarantees not aggregating in excess of $50 million, or
(d) indebtedness incurred to refund or refinance outstanding
indebtedness of such party or such Subsidiary so long as the amount of such
indebtedness so incurred does not exceed the amount of indebtedness so
refunded or refinanced and any accrued interest and premium, if any,
thereon.
6.9 No Actions. 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) any of its representations and warranties set forth in this
Agreement being untrue as of the date made (to the extent so limited),
(b) any of the conditions to the Merger set forth in Article VIII not
being satisfied, or
(c) a material breach of any provision of this Agreement.
6.10 Cooperation, Notification. Each party shall, and shall cause its
Subsidiaries to, (i) confer on a regular and frequent basis with one or more
representatives of the other party to discuss material operational
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matters and the general status of its ongoing operations; (ii) promptly notify
the other party of any significant changes in its business, properties, assets,
condition (financial or other), results of operations or prospects; (iii) advise
the other party of any change or event which has had or, insofar as reasonably
can be foreseen, is reasonably likely to result in, a material adverse effect on
the party so advising or any of its Subsidiaries; and (iv) promptly provide the
other party (or the other party's counsel) with copies of all filings made by
such party or any of its Subsidiaries with any state or Federal court,
administrative agency, commission or other Governmental Entity in connection
with this Agreement and the transactions contemplated hereby.
6.11 Rights Agreements.
(a) As promptly as practicable after the date hereof but in any event
before the "Distribution Date" (as defined in the Ohio Edison Rights
Agreement), Ohio Edison shall cause to be amended the Ohio Edison Rights
Agreement to effect the changes contemplated by the form of amendment
attached hereto as Exhibit H, which amendment has been authorized as of the
date hereof by Ohio Edison.
(b) Except as otherwise provided in this Section 6.11, Ohio Edison
shall not redeem the Ohio Edison Rights, or amend (other than to delay the
"Distribution Date" (as defined therein) or to render the Ohio Edison
Rights inapplicable to the Merger) or terminate the Ohio Edison Rights
Agreement prior to the Effective Time unless required to do so by order of
a court of competent jurisdiction.
(c) Ohio Edison shall take all action so that the Ohio Edison Rights
will no longer be outstanding upon the Merger.
(d) Except as otherwise provided in this Section 6.11, Centerior shall
not redeem the Centerior Rights, or amend (other than to delay the
"Distribution Date" (as defined therein) or to render the Centerior Rights
inapplicable to the Merger) or terminate the Centerior Rights Agreement
prior to the Effective Time unless required to do so by order of a court of
competent jurisdiction.
(e) Centerior shall take all action so that the Centerior Rights will
no longer be outstanding upon the Merger.
6.12 Collective Bargaining Agreements. During the period from the date of
this Agreement and continuing until the Effective Time, each party agrees, as to
itself and its Subsidiaries, that each of them will consult with the other party
prior to entering into any substantive negotiations with respect to any
collective bargaining agreement, or the modification or amendment thereof.
6.13 Employee Benefit Covenant. During the period from the date of this
Agreement and continuing until the Effective Time, except as set forth in
Section 6.13 of the Centerior Disclosure Schedule, as may be required by
applicable law or as contemplated by this Agreement, Centerior agrees as to
itself and its Subsidiaries that it will not, and will not permit any of its
Subsidiaries to, without the prior written consent of Ohio Edison,
(a) enter into, adopt, amend (except as may be required by law) or
terminate any Centerior Controlled Group Plan or any other agreement,
arrangement, plan or policy between Centerior or Centerior Services Company
("Services") and one or more of the directors or officers of Centerior or
Services or
(b) except for normal 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 Centerior or
Services, as the case may be, increase in any manner the compensation or
fringe benefits of any director or officer of Centerior or Services or
(c) pay any benefit not required by any Centerior Controlled Group
Plan or arrangement as in effect as of the date hereof (including, without
limitation, the granting of stock options, stock appreciation rights,
restricted stock or performance units) to any director or officer of
Centerior or Services or
(d) enter into any contract, agreement, commitment or arrangement to
do any of the foregoing, or enter into or amend any employment, severance
or special pay arrangement with respect to the
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termination of employment or other similar contract, agreement or
arrangement with any director or officer or other employee of Centerior or
any of its Subsidiaries; or
(e) make any change in any defined benefit Plan of Centerior or any of
its Subsidiaries which accelerates or increases benefits thereunder (except
as may be required by law).
6.14 Tax Covenant. During the period from the date of this Agreement and
continuing until the Effective Time, each party agrees, as to itself and its
Subsidiaries, that each of them will not, except in the ordinary course of
business consistent with prior practice, make any Tax election or settle or
compromise any Tax liability.
6.15 Capital Expenditures. Except as set forth in Section 6.15 of the
Centerior or Ohio Edison Disclosure Schedule or as required by law, no party
shall, nor shall any party permit any of its Subsidiaries to make any annual
capital expenditures, including expenditures for sulfur dioxide emission
allowances as provided for by the Clean Air Act Amendments of 1990, in excess of
each company's respective aggregate capital budget for 1996. Ohio Edison and
Centerior agree to endeavor mutually to reduce their capital expenditures to the
extent practicable.
6.16 Transmission, Generation. Except as required pursuant to tariffs on
file with the FERC as of the date hereof or as set forth in Section 6.16 of the
Centerior or Ohio Edison Disclosure Schedule, no party shall, nor shall any
party permit any of its Subsidiaries to,
(a) commence construction of any additional generating capacity or
transmission or delivery capacity, except for such projects ongoing or
mandated by a binding legal commitment existing on the date hereof or, in
the case of transmission or delivery capacity, required to satisfy such
party's obligation to serve, or
(b) obligate itself to purchase or otherwise acquire, or to sell or
otherwise dispose of, or to share, any additional generation (including,
without limitation, the energy produced by generating facilities),
transmission or delivery capacity, other than in the ordinary course of
business consistent with past practice.
6.17 Modifications to Facilities. Except as set forth in Section 6.17 of
the Centerior or Ohio Edison Disclosure Schedule, no party shall, nor shall any
party permit any of its Subsidiaries to, enter into any binding commitment to
make any modification to any of its or its Subsidiaries' existing facilities
that would require any material investment or expenditure.
6.18 Accounting. No party shall, nor shall any party permit any of its
Subsidiaries to, make any changes in its accounting methods, except as required
by law, rule, regulation or GAAP.
6.19 Tax-Free Status. No party shall, nor shall any party permit any of
its Subsidiaries to, take any actions which would, or would be reasonably likely
to, adversely affect the status of the Merger as a tax-free transaction (except
as to dissenters' rights and fractional shares) under the Code.
6.20 Affiliate Transactions. Except as set forth in Section 6.20 of the
Centerior or Ohio Edison Disclosure Schedule, no party shall, nor shall any
party permit any of its Subsidiaries to, enter into any agreement or arrangement
with any of their respective affiliates (other than wholly-owned Subsidiaries of
such party or Subsidiary) on terms to such party or its Subsidiaries materially
less favorable than could be reasonably expected to have been obtained with an
unaffiliated third party on an arm's length basis.
6.21 Rate Matters. Each party shall, and shall cause its Subsidiaries to,
discuss with the other party any changes in its or its Subsidiaries' rates or
charges (other than pass-through fuel rates or charges), standards of service or
accounting from those in effect on the date of this Agreement and consult with
the other party prior to making any filing (or any amendment thereto), or
effecting any agreement, commitment, arrangement or consent, whether written or
oral, formal or informal, with respect thereto, and no party will make, or
permit any Subsidiary to make, any filing to change its rates on file with the
FERC or any other
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regulatory commission that would have a material adverse effect on the benefits
associated with the business combination provided herein. Notwithstanding the
foregoing, however, each party and its Subsidiaries shall be permitted to enter
into arrangements with customers in the ordinary course of business consistent
with past practices.
6.22 Third-Party Consents.
(a) Each party shall, and shall cause its Subsidiaries to, use all
commercially reasonable efforts to obtain any third-party consents
necessary to consummate the Merger.
(b) Each party shall promptly notify the other of any failure or
prospective failure to obtain any such consents and, if requested, shall
provide copies of all consents obtained to the other party.
6.23 Tax-Exempt Status. No party shall, nor shall any party permit any
Subsidiary to, take any action that would likely jeopardize the qualification of
the outstanding revenue bonds issued for the benefit of such party or any of its
Subsidiaries which 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.
6.24 FirstEnergy Actions. Ohio Edison and Centerior shall cause
FirstEnergy to take only those actions, from the date hereof until the Effective
Time, that are required or contemplated by this Agreement to be so taken by
FirstEnergy, including, without limitation, the declaration, filing or
registration with, or notice to or authorization, consent or approval of, any
Governmental Entity, to obtain the consents or approvals contemplated by
Sections 4.5 and 5.5 of this Agreement.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Preparation of S-4 and the Joint Proxy Statement.
(a) Ohio Edison and Centerior shall promptly prepare and file with the
SEC the Joint Proxy Statement and shall cause FirstEnergy to prepare and
file with the SEC the S-4, in which the Joint Proxy Statement will be
included as a prospectus.
(b) Each of Ohio Edison and Centerior shall use its best efforts to
have the S-4 declared effective under the Securities Act as promptly as
practicable after such filing.
(c) Ohio Edison and Centerior shall also cause FirstEnergy to take any
action required to be taken under any applicable Blue-Sky Law in connection
with the issuance of FirstEnergy Common Stock pursuant to the Merger and
Ohio Edison and Centerior shall furnish all information concerning
themselves and the holders of their common stock as may be reasonably
requested in connection with any such action.
7.2 Letters of Centerior's Accountants. Centerior shall use its best
efforts to cause to be delivered to FirstEnergy and Ohio Edison a "comfort"
letter of Arthur Andersen LLP, Centerior's independent auditors, addressed to
FirstEnergy and Ohio Edison, dated a date within two business days before the
date on which the S-4 shall become effective, and confirmed in writing as of the
Effective Time, in form and substance reasonably satisfactory to FirstEnergy and
Ohio Edison and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the S-4.
7.3 Letters of Ohio Edison's Accountants. Ohio Edison shall use its best
efforts to cause to be delivered to FirstEnergy and Centerior a "comfort" letter
of Arthur Andersen LLP, Ohio Edison's independent auditors, addressed to
FirstEnergy and Centerior, dated a date within two business days before the date
on which the S-4 shall become effective and confirmed in writing as of the
Effective Time, in form and substance reasonably satisfactory to FirstEnergy and
Centerior and customary in scope and substance for
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letters delivered by independent public accountants in connection with
registration statements similar to the S-4.
7.4 Access to Information.
(a) Upon reasonable notice, Centerior and Ohio Edison shall each (and
shall cause each of their respective Subsidiaries to) afford to the
officers, employees, accountants, counsel and other representatives of the
other, reasonable access, during normal business hours during the period
prior to the Effective Time, to all its properties, books, contracts,
commitments and records (including, but not limited to, Tax returns but
excluding any documents with respect to which an attorney-client privilege
is available) and, during such period, each of Centerior and Ohio Edison
shall (and shall cause each of their respective Subsidiaries to) furnish
promptly to the other
(i) a copy of each report, schedule, registration statement and
other document filed or received by it during such period pursuant to
the requirements of Federal securities laws, or filed with or sent to
the SEC, the FERC, the NRC, the DOE, the Department of Justice, the FTC,
the Public Utilities Commission of Ohio or any other Federal or state
regulatory agency or commission, and
(ii) all other information concerning its business, properties and
personnel as such other party may reasonably request.
(b) Any information delivered by Centerior to Ohio Edison, or by Ohio
Edison to Centerior, shall be subject to the Confidentiality Agreement,
dated June 1, 1996, between Centerior and Ohio Edison (the "Confidentiality
Agreement"), which agreement shall be extended hereby through the
Effective Time.
7.5 Shareholder Approvals.
(a) Ohio Edison and Centerior shall each call a meeting of their
respective shareholders to be held as promptly as practicable for the
purpose of voting upon this Agreement and the transactions contemplated
hereby.
(b) Ohio Edison and Centerior will, through their respective Boards of
Directors, recommend to their respective shareholders approval of such
matters; provided, however, that neither Board of Directors shall be
obligated to recommend approval of this Agreement and the Merger to its
respective shareholders if such Board of Directors, acting with the advice
of counsel and financial advisors, determines that such recommendation
would be contrary to their legal obligations as Directors.
(c) Centerior and Ohio Edison will coordinate and cooperate with
respect to the timing of such shareholder approvals and shall use their
best efforts to hold such meetings on the same day and to secure such
approvals as soon as practicable after the date on which the S-4 becomes
effective.
7.6 Satisfaction of Conditions to the Merger.
(a) Each of Ohio Edison and Centerior will take all reasonable actions
necessary to comply promptly with all legal requirements which may be
imposed on itself with respect to this Agreement.
(b) Subject to the terms and conditions of this Agreement, each of the
parties hereto agrees to use its best efforts to take, or cause to be
taken, all action 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 transactions contemplated by this Agreement (subject to
the appropriate vote of shareholders of Ohio Edison and Centerior,
respectively, described in Section 7.5), including full cooperation with
the other party and including the provision of information and making of
all necessary filings in connection with, among other things, the approvals
under the HSR Act, the Securities Act and the Exchange Act, the FERC
Approvals, the NRC Approvals, the SEC PUHCA Order, the Blue-Sky Filings,
the Local Approvals and the State Takeover Approvals.
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<PAGE> 43
(c) In connection therewith, the parties agree that, as between them,
(i) Ohio Edison shall be primarily responsible for the preparation
and processing of the filings necessary to obtain the approvals required
for the consummation of the transactions contemplated hereby under the
Securities Act and the Exchange Act, the FERC Approvals, the SEC PUHCA
Order and the Local Approvals required from the State of Ohio or any
other State, as well as the Blue-Sky Filings, and
(ii) Centerior shall be primarily responsible for the preparation
and processing of the filings necessary to obtain the NRC Approvals.
(d) Each of Ohio Edison and Centerior will, and will cause its
Subsidiaries and FirstEnergy and its Subsidiaries to, take all reasonable
actions necessary to obtain (and will cooperate with each other in
obtaining) any consent, authorization, order or approval of, or any
exemption by, any Governmental Entity required to be obtained or made by
Ohio Edison, FirstEnergy, Centerior or any of their Subsidiaries in
connection with the Merger or the taking of any action contemplated thereby
or by this Agreement.
7.7 Rule 145 Affiliates.
(a) Prior to the date of the meetings of their respective shareholders
referred to in Section 7.5, Ohio Edison and Centerior shall deliver to
FirstEnergy a letter substantially in the form attached hereto as Exhibit
I, identifying all persons who may be, at the time this Agreement is
submitted for approval to such shareholders, "affiliates" of Ohio Edison or
Centerior, as the case may be, for purposes of Rule 145 under the
Securities Act and the SEC's Accounting Series Release 135.
(b) Ohio Edison and Centerior shall use their best efforts to cause
each such person to deliver to FirstEnergy on or prior to the date of the
applicable meeting of shareholders referred to in Section 7.5 a written
agreement substantially in the form attached hereto as Exhibit J.
7.8 Stock Exchange Listing. Centerior and Ohio Edison shall use their
best efforts to cause the shares of FirstEnergy Common Stock to be issued in the
Merger and, if necessary under the Benefit Plans referred to in Section 7.9,
after the Merger, to be approved for listing on the NYSE and such other national
securities exchanges as may be selected by FirstEnergy, subject to official
notice of issuance, prior to the Closing.
7.9 Employee Benefit Plans.
(a) Ohio Edison and Centerior agree that the Ohio Edison Controlled
Group Plans and the Centerior Controlled Group Plans in effect at the date
of this Agreement shall, to the extent practicable, remain in effect until
otherwise determined after the Effective Time.
(b) In the case of Ohio Edison Controlled Group Plans and Centerior
Controlled Group Plans which are continued and under which the employees'
interests are based upon or valued in relation to Ohio Edison Common Stock
or Centerior Common Stock, as the case may be, Ohio Edison and Centerior
agree that such interests shall be based on FirstEnergy Common Stock in an
equitable manner (and in the case of any such interests existing at the
Effective Time, on the basis of the applicable Conversion Number);
provided, however, that nothing contained herein shall be construed as
requiring FirstEnergy to continue any specific plans.
(c) Except as set forth in Section 7.9(c) of the Ohio Edison
Disclosure Schedule, Centerior and Ohio Edison agree not to make any
changes in severance benefits for officers of Centerior, Services or Ohio
Edison, as the case may be, from those disclosed in Section 4.12(i) of the
Centerior Disclosure Schedule or Section 5.12(i) of the Ohio Edison
Disclosure Schedule, as the case may be.
7.10 Expenses. Except as set forth in Section 9.5, whether or not the
Merger is consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense, and, in connection therewith, each of Ohio Edison and
Centerior
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shall pay, with its own funds and not with funds provided by the other party,
any and all property or transfer taxes imposed on such party resulting from the
Merger, except that
(a) expenses incurred in connection with printing and mailing the
Joint Proxy Statement and the S-4 shall be shared equally by Ohio Edison
and Centerior,
(b) all out-of-pocket costs of the parties (including attorneys' fees)
incurred to obtain the FERC Approvals, the SEC PUHCA Order, the NRC
Approvals (including, without limitation, all such costs incurred for all
filings and proceedings relating thereto) and the Local Approvals shall be
shared equally by Ohio Edison and Centerior, and
(c) all other out-of-pocket expenses of a joint nature incurred in
connection with the transactions contemplated by this Agreement shall be
shared equally by Ohio Edison and Centerior.
7.11 Brokers or Finders. Each of Ohio Edison and Centerior represents, as
to itself, its Subsidiaries and its affiliates, that no agent, broker,
investment banker, financial advisor or other firm or person is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
in connection with any of the transactions contemplated by this Agreement,
except for Centerior Advisors, whose fees and expenses will be paid by Centerior
in accordance with Centerior's agreements with such firms (copies of which have
been delivered by Centerior to Ohio Edison prior to the date of this Agreement),
and except for Ohio Edison Advisors, whose fees and expenses will be paid by
Ohio Edison in accordance with Ohio Edison's agreements with such firms (copies
of which have been delivered by Ohio Edison to Centerior prior to the date of
this Agreement), and each of Ohio Edison and Centerior agree to indemnify and
hold the other harmless from and against any and all claims, liabilities or
obligations with respect to any other fees, commissions or expenses asserted by
any person on the basis of any act or statement alleged to have been made by
such party or its affiliate.
7.12 FirstEnergy Board of Directors and Officers.
(a) Ohio Edison's and Centerior's Boards of Directors shall take such
actions as may be necessary to cause the number of Directors comprising the
full Board of Directors of FirstEnergy at the Effective Time to be such
number and such individuals as are designated by Ohio Edison prior to the
Effective Time.
(b) From the Effective Time until otherwise determined by the
FirstEnergy Board of Directors, Mr. Willard R. Holland shall serve as
Chairman of the Board, President and Chief Executive Officer of
FirstEnergy.
(c) From the Effective Time until otherwise determined by the
FirstEnergy Board of Directors, Mr. Robert J. Farling shall serve as Vice
Chairman of FirstEnergy.
(d) All other officers of FirstEnergy will be designated by the
FirstEnergy Board of Directors.
(e) Directors and officers of FirstEnergy's Subsidiaries will be
designated by the FirstEnergy Board of Directors.
7.13 Indemnification; Directors' and Officers' Insurance.
(a) Centerior and, from and after the Effective Time, FirstEnergy
(each of Centerior and FirstEnergy, as the case may be, is referred to
herein as a "Centerior Indemnifying Party") shall indemnify, defend, and
hold harmless each person who is now, or has been at any time prior to the
date of this Agreement or who becomes prior to the Effective Time, an
officer, director, or employee of Centerior or any of its Subsidiaries (the
"Centerior Indemnified Parties") against
(i) all losses, claims, damages, costs, expenses, liabilities or
judgments or amounts that are paid in settlement with the approval of
the Centerior Indemnifying Party (which approval shall not be
unreasonably withheld) 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
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person is or was a director, officer or employee of Centerior or any of
its Subsidiaries, whether pertaining to any matter existing or occurring
at or prior to the Effective Time and whether asserted or claimed prior
to, or at or after, the Effective Time (the "Centerior Indemnified
Liabilities"), and
(ii) all Centerior Indemnified 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 each case to the
full extent a corporation is permitted under applicable law to indemnify
its own directors, officers, and employees, as the case may be (and the
applicable Centerior Indemnifying Party will pay expenses as incurred in
advance of the final disposition of any such action or proceeding to
each Centerior Indemnified Party to the full extent permitted by
applicable law).
(b) (i) Without limiting the foregoing, in the event any such claim,
action, suit, proceeding, or investigation is brought against any Centerior
Indemnified Party (whether arising before or after the Effective Time),
(A) the Centerior Indemnified Parties may retain counsel
satisfactory to them and approved by the Centerior Indemnifying Party,
which approval shall not be unreasonably withheld,
(B) the Centerior Indemnifying Party shall pay all reasonable
fees and expenses of such counsel for the Centerior Indemnified Parties
promptly as statements therefor are received, and
(C) the Centerior Indemnifying Party will use all reasonable
efforts to assist in the vigorous defense of any such matter.
(ii) However, no Centerior Indemnifying Party shall be liable for
any settlement of any claim effected without its written consent, which
consent shall not be unreasonably withheld.
(iii) Any Centerior Indemnified Party wishing to claim
indemnification under this Section 7.13, upon learning of any such
claim, action, suit, proceeding, or investigation, shall notify the
applicable Centerior Indemnifying Party (but the failure so to notify a
Centerior Indemnifying Party shall not relieve it from any liability
which it may have under this Section 7.13 except to the extent such
failure prejudices such party).
(iv) The Centerior Indemnified Parties as a group may retain only
one law firm to represent them with respect to each such matter unless
there is, under applicable standards of professional conduct, a conflict
on any significant issue between the positions of any two or more
Centerior Indemnified Parties.
(c) For a period of six years after the Effective Time, FirstEnergy
shall cause to be maintained in effect the current policies of directors'
and officers' liability insurance maintained by Centerior (provided that
FirstEnergy may substitute therefor policies of at least the same coverage
and amounts containing terms and conditions which, in the aggregate, are no
less advantageous than the current policies maintained by Centerior with
respect to its directors and officers) with respect to claims arising from
facts or events which occurred before the Effective Time to the extent
available on commercially reasonable terms; provided, however, that in no
event shall FirstEnergy be required to expend, in order to maintain or
procure insurance coverage pursuant to this Section 7.13(c), any amount per
annum in excess of 200% of the aggregate premiums paid by Centerior in 1995
on an annualized basis for such purpose.
(d) Ohio Edison and, from and after the Effective Time, FirstEnergy
(each of Ohio Edison and FirstEnergy, as the case may be, is referred to
herein as an "Ohio Edison Indemnifying Party") shall indemnify, defend,
and hold harmless each person who is now, or has been at any time prior to
the date of this Agreement or who becomes prior to the Effective Time, an
officer, director, or employee of Ohio Edison or any of its Subsidiaries
(the "Ohio Edison Indemnified Parties") against
(i) all losses, claims, damages, costs, expenses, liabilities or
judgments or amounts that are paid in settlement with the approval of
the Ohio Edison Indemnifying Party (which approval shall not be
unreasonably withheld) of or in connection with any claim, action, suit,
proceeding or
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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
employee of Ohio Edison or any of its Subsidiaries, whether pertaining
to any matter existing or occurring at or prior to the Effective Time
and whether asserted or claimed prior to, or at or after, the Effective
Time (the "Ohio Edison Indemnified Liabilities"), and
(ii) all Ohio Edison Indemnified 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 each case to the
full extent a corporation is permitted under applicable law to indemnify
its own directors, officers, and employees, as the case may be (and the
applicable Ohio Edison Indemnifying Party will pay expenses as incurred
in advance of the final disposition of any such action or proceeding to
each Ohio Edison Indemnified Party to the full extent permitted by
applicable law).
(e) (i) Without limiting the foregoing, in the event any such claim,
action, suit, proceeding, or investigation is brought against any Ohio
Edison Indemnified Party (whether arising before or after the Effective
Time),
(A) the Ohio Edison Indemnified Parties may retain counsel
satisfactory to them and approved by the Ohio Edison Indemnifying Party,
which approval shall not be unreasonably withheld,
(B) the Ohio Edison Indemnifying Party shall pay all
reasonable fees and expenses of such counsel for the Ohio Edison
Indemnified Parties promptly as statements therefor are received, and
(C) the Ohio Edison Indemnifying Party will use all reasonable
efforts to assist in the vigorous defense of any such matter.
(ii) However, no Ohio Edison Indemnifying Party shall be liable for
any settlement of any claim effected without its written consent, which
consent shall not be unreasonably withheld.
(iii) Any Ohio Edison Indemnified Party wishing to claim
indemnification under this Section 7.13, upon learning of any such
claim, action, suit, proceeding, or investigation, shall notify the
applicable Ohio Edison Indemnifying Party (but the failure so to notify
an Ohio Edison Indemnifying Party shall not relieve it from any
liability which it may have under this Section 7.13 except to the extent
such failure prejudices such party).
(iv) The Ohio Edison Indemnified Parties as a group may retain only
one law firm to represent them with respect to each such matter unless
there is, under applicable standards of professional conduct, a conflict
on any significant issue between the positions of any two or more Ohio
Edison Indemnified Parties.
(f) For a period of six years after the Effective Time, FirstEnergy
shall cause to be maintained in effect the current policies of directors'
and officers' liability insurance maintained by Ohio Edison (provided that
FirstEnergy may substitute therefor policies of at least the same coverage
and amounts containing terms and conditions which, in the aggregate, are no
less advantageous than the current policies maintained by Ohio Edison with
respect to its directors and officers) with respect to claims arising from
facts or events which occurred before the Effective Time to the extent
available on commercially reasonable terms; provided, however, that in no
event shall FirstEnergy be required to expend, in order to maintain or
procure insurance coverage pursuant to this Section 7.13(f), any amount per
annum in excess of 200% of the aggregate premiums paid by Ohio Edison in
1995 on an annualized basis for such purpose.
(g) The provisions of this Section 7.13 are intended to be for the
sole benefit of, and shall be enforceable by, each Indemnified Party and
his or her heirs and representatives.
7.14 Further Assurances. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement or to vest FirstEnergy or its Subsidiaries with full title
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to all properties, assets, rights, approvals, immunities and franchises of Ohio
Edison and Centerior, the proper officers and directors of Ohio Edison and
Centerior shall take all such necessary action.
7.15 Tax Treatment. Ohio Edison and Centerior each agree to treat the
Merger, as to Ohio Edison, as a transfer within the meaning of Section 351(a) of
the Code and, as to Centerior, as a reorganization within the meaning of Section
368(a) of the Code.
7.16 Accounting Treatment. Ohio Edison and Centerior each agree to, and
to cause FirstEnergy to, account for the Centerior Merger on a purchase
accounting basis in accordance with GAAP and applicable SEC regulations.
7.17 Disclosure Schedules.
(a) On the date hereof,
(i) Centerior has delivered to Ohio Edison a Centerior Disclosure
Schedule, accompanied by a certificate signed by the chief financial
officer of Centerior stating the Centerior Disclosure Schedule is being
delivered pursuant to this Section 7.17(a), and
(ii) Ohio Edison has delivered to Centerior an Ohio Edison
Disclosure Schedule, accompanied by a certificate signed by the chief
financial officer of Ohio Edison stating the Ohio Edison Disclosure
Schedule is being delivered pursuant to this Section 7.17(a).
(b) The Centerior Disclosure Schedule and the Ohio Edison Disclosure
Schedule are collectively referred to herein as the "Disclosure Schedules."
(c) (i) The Disclosure Schedules constitute an integral part of this
Agreement and modify the respective representations, warranties, covenants
or agreements of the parties hereto contained herein to the extent that
such representations, warranties, covenants or agreements expressly refer
to the Disclosure Schedules.
(ii) Anything to the contrary contained herein or in the Disclosure
Schedules notwithstanding, 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 hereof.
Disclosure of any matters in one part of the Centerior Disclosure Schedule
or the Ohio Edison Disclosure Schedule, any other Schedule hereto or in this
Agreement shall be deemed to be a disclosure of such matters in response to any
other provision of this Agreement (including any other part of a Centerior or an
Ohio Edison Disclosure Schedule, as the case may be) to which such matter may be
applicable.
7.18 Public Announcements. Subject to each party's disclosure obligations
imposed by law, Ohio Edison and Centerior will 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 shall not issue any public announcement or statement
prior to consultation with the other party.
7.19 Employee Agreements. Ohio Edison and Centerior shall cause
FirstEnergy and its Subsidiaries, following the Effective Time, to honor,
without modification, all contracts, agreements, collective bargaining
agreements and commitments of the parties prior to or at the date hereof or made
herein which apply to any current or former employee or current or former
director of the parties hereto; provided, however, that this undertaking is not
intended to prevent FirstEnergy or its Subsidiaries from enforcing such
contracts, agreements, collective bargaining agreements and commitments in
accordance with their terms, including, without limitation, any reserved right
to amend, modify, suspend, revoke or terminate any such contract, agreement,
collective bargaining agreement or commitment.
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7.20 Transition Management.
(a) As promptly as practicable after the date hereof, Centerior and
Ohio Edison shall create a special transition management task force (the
"Task Force") headed by Mr. Holland (or an individual designated by him or
by the Board of Directors of Ohio Edison) as Chairman with Mr. Farling (or
an individual designated by him or by the Board of Directors of Centerior)
as Vice Chairman. Members of the Task Force shall consist of
representatives of Ohio Edison and Centerior as designated by the Chairman
in consultation with the Vice Chairman.
(b) The functions of the Task Force shall include
(i) to serve as a conduit for the flow of information and documents
between the companies and their subsidiaries as contemplated by Section
6.10,
(ii) to review and evaluate proposed exceptions to the restrictions
on the conduct of business pending the Merger set forth in Article VI,
provided, however, that a consent by either Centerior or Ohio Edison to
an exception to the restrictions set forth in Article VI shall be
effective only if set forth in a writing that describes in reasonable
detail the actions proposed to be taken and that is signed by Mr.
Holland (or his designee) and Mr. Farling (or his designee),
(iii) development of regulatory plans and proposals, corporate
organizational and management plans, workforce combination proposals,
and such other matters as they deem appropriate, and
(iv) to evaluate and recommend the manner in which best to organize
and manage the business of FirstEnergy after the Effective Time.
(c) The Chairman of the Task Force, or his designee, shall be
responsible for directing all activities of the Task Force contemplated by
this Section 7.20.
(d) From time to time, Mr. Holland shall report on such matters as he
deems appropriate to the respective board of directors of Centerior and
Ohio Edison. After the date hereof and prior to the Effective Time, Mr.
Holland may attend meetings of Centerior's Board of Directors and Mr.
Farling may attend meetings of Ohio Edison's Board of Directors.
ARTICLE VIII
CONDITIONS PRECEDENT
8.1 Conditions to Each Party's Obligation To Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction prior to the Closing Date of each of the following conditions:
(a) Shareholder Approvals. This Agreement, and the transactions
contemplated hereby, shall have been approved and adopted by the
affirmative vote of the holders of a majority of the outstanding shares of
Centerior Common Stock and by the affirmative vote of the holders of
two-thirds of the outstanding shares of Ohio Edison Common Stock.
(b) NYSE Listing. The shares of FirstEnergy Common Stock issuable to
holders of Centerior Common Stock and Ohio Edison Common Stock pursuant to
this Agreement and such other shares required to be reserved for issuance
in connection with the Merger shall have been authorized for listing on the
NYSE upon official notice of issuance.
(c) Regulatory Approvals.
(i) Other than the filings provided for by Section 2.2, all
authorizations, consents, orders or approvals of, or declarations or
filings with, or expirations of waiting periods imposed by, any
Governmental Entity the failure to obtain which would have a material
adverse effect on FirstEnergy and its Subsidiaries taken as a whole,
shall have been filed, occurred or been obtained, as the case may be,
including but not limited to the FERC Approvals, the NRC Approvals, the
SEC PUHCA
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Order, the Local Approvals, and the State Takeover Approvals and all
applicable waiting periods, if any, including any extensions thereof,
under any applicable law, statute, regulations or rule, including but
not limited to the HSR Act, shall have expired or terminated.
(ii) (A) All such authorizations, consents, orders and approvals
shall have become Final Orders (as hereinafter defined) and such Final
Orders (unless Ohio Edison and Centerior shall have agreed, by way of
stipulation or otherwise, to the terms of such Final Order) shall not
impose terms or conditions which, in the aggregate, would have, or
insofar as reasonably can be foreseen, could have, a material adverse
effect on the business, operations, properties, assets or condition
(financial or other) or results of operations or prospects of
FirstEnergy and its prospective subsidiaries taken as a whole or which
would be inconsistent with the agreements of the parties contained
herein. It is agreed that any condition that would require changes in
the conduct of the respective retail businesses in the retail service
areas of The Cleveland Electric Illuminating Company, The Toledo Edison
Company or Ohio Edison will be considered material and adverse, unless
waived in writing by Centerior and Ohio Edison, which waiver shall not
be unreasonably withheld.
(B) A "Final Order" means action by the relevant regulatory
authority which 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.
(iii) FirstEnergy shall have received all permits and other
authorizations necessary under the Blue-Sky Laws to issue the
FirstEnergy Common Stock in exchange for the Centerior Common Stock and
the Ohio Edison Common Stock and to consummate the Merger.
(d) S-4 Effective. The S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order, or
proceedings seeking a stop order, under Section 8 of the Securities Act.
(e) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the Merger, or materially
changing the transactions contemplated hereby, shall be in effect.
(f) Letter from Rule 145 Affiliates. FirstEnergy shall have received
from each person named in the letters from Centerior and Ohio Edison
referred to in Section 7.7, an executed copy of an agreement substantially
in the form of Exhibit J hereto.
(g) Regulatory Order. Centerior Subsidiaries shall have received
formal written approval, or assurance of such approval, in a form
reasonably acceptable to Ohio Edison and Centerior, from the Public
Utilities Commission of Ohio, with respect to the Regulatory Plan described
in Section 8.1(g) of the Centerior Disclosure Schedule.
(h) Dissenters' Rights. The number of shares held by Dissenting
Holders shall not constitute more than 10% of the number of issued and
outstanding shares of Ohio Edison Common Stock in the case of Ohio Edison
shareholders or more than 10% of the number of issued and outstanding
shares of Centerior Common Stock in the case of Centerior shareholders.
8.2 Conditions to Obligations of Ohio Edison. The obligation of Ohio
Edison to effect the Merger is subject to the satisfaction of each of the
following conditions unless waived by Ohio Edison:
(a) Representations and Warranties. Except as otherwise contemplated
by this Agreement, the representations and warranties of Centerior set
forth in this Agreement shall be true and correct in all material respects
as of the date of this Agreement (except to the extent such representations
and warranties speak as of an earlier date) and as of the Closing Date as
though made on and as of the Closing Date, and FirstEnergy and Ohio Edison
shall have received a certificate signed on behalf of Centerior by its
chief executive officer and chief financial officer to such effect.
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(b) Performance of Obligations of Centerior. Centerior shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and FirstEnergy
and Ohio Edison shall have received a certificate signed on behalf of
Centerior by its chief executive officer to such effect.
(c) Tax Opinion. Ohio Edison shall have received an opinion, dated on
or about the date of, and referred to in, the S-4 and the Proxy Statement
of Winthrop, Stimson, Putnam & Roberts, counsel to Ohio Edison, which
opinion may be based on appropriate representations of Centerior, Ohio
Edison and FirstEnergy which are in form and substance satisfactory to such
counsel, and in form and substance reasonably satisfactory to Ohio Edison,
to the effect that
(i) the Merger will be treated for Federal income tax purposes, as
to Ohio Edison, as a transfer within the meaning of Section 351(a) of
the Code and, as to Centerior, as a reorganization within the meaning of
Section 368(a) of the Code,
(ii) FirstEnergy and Centerior will each be a party to such
reorganization within the meaning of Section 368(b) of the Code, and
(iii) no gain or loss will be recognized by Ohio Edison or
Centerior shareholders that exchange Ohio Edison Common Stock or
Centerior Common Stock for FirstEnergy Common Stock in the Merger
(except as to fractional shares and dissenters).
(d) No Amendments to Resolutions. Neither the Board of Directors of
Centerior nor any committee thereof shall have amended, modified, rescinded
or repealed the resolutions adopted by them on September 13, 1996 (accurate
and complete copies of which have been provided to Ohio Edison) and shall
not have adopted any other resolutions in connection with this Agreement
and the transactions contemplated hereby inconsistent with such
resolutions.
(e) Rights Agreement. Under the Centerior Rights Agreement, no
"flip-in" or "flip-over" or similar event commonly described in rights
plans, or a Trigger Event as defined therein, shall have occurred with
respect to the Centerior Rights Agreement that would increase the number of
shares of FirstEnergy Common Stock to be issued under the Merger, or the
rights issued thereunder shall not have become nonredeemable.
(f) Consents Under Agreements. Centerior shall have obtained the
consent or approval of each person (other than the Government Entities
referred to in Section 8.1(c)), whose consent or approval shall be required
in order to permit Centerior to consummate the transactions contemplated
hereby, except those for which failure to obtain such consents and
approvals would not, individually or in the aggregate, have a material
adverse effect on
(i) the business, operations, properties, assets, condition
(financial or otherwise), business prospects or the results of
operations of FirstEnergy and its Subsidiaries taken as a whole or
(ii) the consummation of the transactions contemplated hereby
(any such material adverse effect being referred to as a "FirstEnergy
Material Adverse Effect").
(g) Centerior Material Adverse Effect. Since June 30, 1996, there
shall not have been any event which constitutes a Centerior Material
Adverse Effect.
(h) Ohio Edison Fairness Opinion. The fairness opinion letter
delivered by the Ohio Edison Fairness Advisor to Ohio Edison shall not, in
good faith, have been withdrawn by the Ohio Edison Fairness Advisor.
8.3 Conditions to Obligations of Centerior. The obligation of Centerior to
effect the Merger is subject to the satisfaction of each of the following
conditions unless waived by Centerior:
(a) Representations and Warranties. Except as otherwise contemplated
by this Agreement, the representations and warranties of Ohio Edison set
forth in this Agreement shall be true and correct in all
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material respects as of the date of this Agreement (except to the extent
such representations and warranties speak as of an earlier date) and as of
the Closing Date as though made on and as of the Closing Date, and
FirstEnergy and Centerior shall have received a certificate signed on
behalf of Ohio Edison by its chief executive officer and chief financial
officer to such effect.
(b) Performance of Obligations of Ohio Edison. Ohio Edison shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and FirstEnergy
and Centerior shall have received a certificate signed on behalf of Ohio
Edison by its chief executive officer to such effect.
(c) Tax Opinion. Centerior shall have received an opinion, dated on
or about the date of, and referred to in, the S-4 and the Proxy Statement
of Squire, Sanders & Dempsey, counsel to Centerior, which opinion may be
based on appropriate representations of Ohio Edison, Centerior and
FirstEnergy which are in form and substance satisfactory to such counsel,
and in form and substance reasonably satisfactory to Centerior, to the
effect that
(i) the Merger will be treated for Federal income tax purposes, as
to Ohio Edison, as a transfer within the meaning of Section 351(a) of
the Code and, as to Centerior, as a reorganization within the meaning of
Section 368(a) of the Code,
(ii) FirstEnergy and Centerior will each be a party to such
reorganization within the meaning of Section 368(b) of the Code, and
(iii) no gain or loss will be recognized by Ohio Edison or
Centerior shareholders that exchange Ohio Edison Common Stock or
Centerior Common Stock for FirstEnergy Common Stock in the Merger
(except as to fractional shares or dissenters).
(d) No Amendments to Resolutions. Neither the Board of Directors of
Ohio Edison nor any committee thereof shall have amended, modified,
rescinded or repealed the resolutions adopted by the Ohio Edison Board of
Directors at a meeting duly called and held on September 13, 1996 (accurate
and complete copies of which have been provided to Centerior), and shall
not have adopted any other resolutions in connection with this Agreement
and the transactions contemplated hereby inconsistent with such
resolutions.
(e) Rights Agreement. Under the Ohio Edison Rights Agreement, no
"flip-in" or "flip-over" or similar event commonly described in rights
plans, or a Trigger Event as defined therein, shall have occurred with
respect to the Ohio Edison Rights Agreement that would increase the number
of shares of FirstEnergy Common Stock to be issued under the Merger, or the
rights issued thereunder shall not have become nonredeemable.
(f) Consents Under Agreements. Ohio Edison shall have obtained the
consent or approval of each person (other than the Government Entities
referred to in Section 8.1(c)), whose consent or approval shall be required
in order to permit Ohio Edison to consummate the transactions contemplated
hereby, except those for which failure to obtain such consents and
approvals would not, individually or in the aggregate, have a FirstEnergy
Material Adverse Effect.
(g) Ohio Edison Material Adverse Effect. Since June 30, 1996, there
shall not have been any event which constitutes an Ohio Edison Material
Adverse Effect.
(h) Centerior Fairness Opinion. The fairness opinion letter delivered
by the Centerior Fairness Advisor to Centerior shall not, in good faith,
have been withdrawn by the Centerior Fairness Advisor.
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ARTICLE IX
TERMINATION AND AMENDMENT
9.1 Termination. At any time prior to the Effective Time, whether before
or after approval of the matters presented in connection with the Merger by the
holders of Ohio Edison Common Stock or by the holders of Centerior Common Stock,
this Agreement may be terminated:
(a) by mutual written consent of Ohio Edison and Centerior;
(b) by either Ohio Edison or Centerior
(i) if there has been a material breach of any representation,
warranty, covenant or agreement on the part of the other set forth in
this Agreement which breach has not been cured within ten (10) business
days following receipt by the breaching party of notice of such breach
or adequate assurance of such cure shall not have been given by or on
behalf of the breaching party within such ten (10) business day period,
or
(ii) if any permanent Injunction or other order of a court or other
competent authority preventing the consummation of the Merger shall have
become final and nonappealable;
(c) by Ohio Edison, upon two days' prior notice to Centerior, if, as a
result of a Takeover Proposal involving Ohio Edison or any of its
Significant Subsidiaries, the Board of Directors of Ohio Edison determines
in good faith that its fiduciary obligations under applicable law require
that such Takeover Proposal be accepted; provided, however, that
(i) the Board of Directors of Ohio Edison shall have been advised
in writing 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 its applicable fiduciary duties, such
fiduciary duties would also require the Board to reconsider such
commitment as a result of such Takeover Proposal; and
(ii) prior to any such termination, Ohio Edison shall, and shall
cause its respective financial and legal advisors to, negotiate with
Centerior to make such adjustments in the terms and conditions of this
Agreement as would enable Ohio Edison to proceed with the transactions
contemplated herein;
(d) by Centerior, upon two days' prior notice to Ohio Edison, if, as a
result of a Takeover Proposal involving Centerior or any of its Significant
Subsidiaries, the Board of Directors of Centerior determines in good faith
that its fiduciary obligations under applicable law require that such
Takeover Proposal be accepted; provided, however, that
(i) the Board of Directors of Centerior shall have been advised in
writing 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 its applicable fiduciary duties, such fiduciary
duties would also require the Board to reconsider such commitment as a
result of such Takeover Proposal; and
(ii) prior to any such termination, Centerior shall, and shall
cause its respective financial and legal advisors to, negotiate with
Ohio Edison to make such adjustments in the terms and conditions of this
Agreement as would enable Centerior to proceed with the transactions
contemplated herein;
(e) by either Ohio Edison or Centerior if the Merger shall not have
been consummated before June 30, 1998; provided, however, that the right to
terminate the Agreement under this Section 9.1(e) 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 this date;
(f) by either Ohio Edison or Centerior if the required approval of the
holders of Ohio Edison Common Stock or the holders of Centerior Common
Stock shall not have been obtained by reason of the
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failure to obtain the required approval upon a vote taken at a duly held
meeting of shareholders or at any adjournment thereof; or
(g) by either Ohio Edison or Centerior 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 the Merger.
9.2 Effect of Termination.
In the event of termination of this Agreement by either Centerior or Ohio
Edison as provided in Section 9.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Ohio Edison or
Centerior or their respective officers or directors, except
(i) with respect to Sections 7.4(b), 7.10, 7.11 and 9.5, and
(ii) to the extent that such termination results from the willful
breach by a party hereto of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
9.3 Amendment.
This Agreement may be amended by the parties hereto, by action taken or
authorized by their respective Boards of Directors, at any time before or after
approval of the matters presented in connection with the Merger by the holders
of Ohio Edison Common Stock or the holders of Centerior Common Stock but, after
any such approval, no amendment shall be made which by law or applicable rule of
the NYSE requires further approval by such shareholders without such further
approval.
9.4 Extension; Waiver.
(a) At any time prior to the Effective Time, the parties hereto, by
action duly taken, may, to the extent legally allowed,
(i) extend the time for the performance of any of the obligations
or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto, and
(iii) waive compliance with any of the agreements or conditions
contained herein.
(b) Any agreement on the part of a party hereto to any such extension
or waiver shall be valid only if set forth in a written instrument signed
on behalf of such party.
9.5 Termination Fee; Expenses
(a) Termination Fee Upon Breach. If this Agreement is terminated at
such time that this Agreement is terminable pursuant to Section 9.1(b)(i)
(other than solely pursuant to a non-curable breach of a representation or
warranty unless such breach was willful) by one of the parties but not the
other, then the breaching party shall promptly (but not later than five
business days after receipt of notice from the non-breaching party) pay, in
addition to its own expenses, to the non-breaching party in cash an amount
equal to $10 million, plus cash in an amount equal to all documented
out-of-pocket expenses and fees incurred by the non-breaching party
(including, without limitation, fees and expenses payable to all legal,
accounting, financial, public relations and other professional advisors)
arising out of, in connection with or related to the Merger or the
transactions contemplated by this Agreement.
(b) Additional Termination Fee.
(i) If
(A) this Agreement
(I) is terminated by any party pursuant to Section 9.1(c) or
Section 9.1(d), or
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(II) is terminated by any party pursuant to Section 9.1(f)
or is terminated as a result of a party's material breach of
Section 6.5, and
(B) at the time of such termination or prior to the meeting of
such party's shareholders there shall have been a Takeover Proposal
with respect to such party or any of its Significant Subsidiaries
which at the time of such termination or of the meeting of such
party's shareholders shall not have been
(I) rejected by such party and its board of directors, and
(II) withdrawn by the third-party offeror, and
(C) within two and one-half years of any such termination
described in clause (A) above, the party or its Significant
Subsidiary which is the subject of the Takeover Proposal (the "Target
Party") becomes a subsidiary of such third-party offeror or a
subsidiary of an affiliate of such third-party offeror or accepts a
written offer to consummate or consummates a Business Combination
with such third-party offeror or affiliate thereof,
then such third-party offeror, together with its affiliates, on the one
hand, will, at the closing (and as a condition to the closing) of such
Target Party so becoming a subsidiary or of such Business Combination, pay
to the other party hereto a termination fee equal to $55,000,000 in cash,
plus cash in an amount equal to all documented out-of-pocket expenses and
fees incurred by such other party (including, without limitation, fees and
expenses payable to all legal, accounting, financial, public relations and
other professional advisors) arising out of, in connection with or related
to the Merger or the transactions contemplated by this Agreement.
(ii) For purposes of this Agreement, a "Business Combination" shall
mean any merger, sale of a material portion of assets or other business
combination.
(c) Rights; Expenses.
(i) The successful exercise of the rights under this Section 9.5
shall constitute an election of remedies, but the existence of such
rights shall not constitute an election of remedies or in any way limit
or impair a party's right to pursue any other remedy against the other
party to which it may be entitled under this Agreement, at law or in
equity, or otherwise.
(ii) The parties agree that the agreements contained in this
Section 9.5 are an integral part of the transactions contemplated by the
Agreement, that the damages that would be suffered by a party upon
breach of this Agreement by the other party are inherently insusceptible
of calculation, and that the agreements contained in this Section 9.5
therefore constitute liquidated damages and not a penalty.
(iii) If one party fails to pay promptly to the other any fee due
hereunder, the 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. from the date
such fee was required to be paid.
ARTICLE X
GENERAL PROVISIONS
10.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time.
10.2 Further Assurances. Each party will execute and deliver all such
further documents and instruments and take all such further action as may be
necessary in order to consummate the transactions contemplated hereby.
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10.3 Notices. Any notice or communication required or permitted hereunder
shall be in writing and either delivered personally or telecopied (with
confirmation of receipt) or sent by certified or registered mail, postage
prepaid, and shall be deemed to be given, dated and received when so delivered
personally or telecopied (with confirmation of receipt) or, if mailed, five
business days after the date of mailing to the following address or telecopy
number, or to such other address or addresses as such person may subsequently
designate by notice given hereunder.
(a) if to Ohio Edison, to
Ohio Edison Company
76 South Main Street
Akron, OH 44308
Telecopy: (330) 384-5922
Telephone: (330) 384-5973
Attention: Anthony J. Alexander
with a copy to
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, NY 10004
Telecopy: (212) 858-1500
Telephone: (212) 858-1000
Attention: John H. Byington, Jr.
(b) if to Centerior, to
Centerior Energy Corporation
P.O. Box 94661
Cleveland, Ohio 44101-4661
Telecopy: (216) 447-2592
Telephone: (216) 447-3121
Attention: Terrence G. Linnert
with a copy to
Squire, Sanders & Dempsey
4900 Key Tower
Cleveland, OH 44114
Telecopy: (216) 479-8780
Telephone: (216) 479-8500
Attention: Gordon S. Kaiser
10.4 Interpretation.
(a) When a reference is made in this Agreement to Sections, such
reference shall be to a Section of this Agreement unless otherwise
indicated.
B-1-46
<PAGE> 56
(b) Whenever the words "include", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words
"without limitation".
(c) The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party
to whom such information is to be made available.
10.5 Descriptive Headings. The descriptive headings herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
10.6 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
10.7 Entire Agreement. This Agreement (including the documents and the
instruments referred to herein) and the Confidentiality Agreement constitute the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof.
10.8 No Third Party Beneficiaries. Except as provided in Section 7.13
(which covenants shall be enforceable by the persons affected thereby following
the Effective Time), this Agreement (including the documents and the instruments
referred to herein) is not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder.
10.9 Governing Law. This Agreement shall be governed and construed in
accordance with the internal substantive laws of the State of Ohio without
regard to any applicable conflicts of law.
10.10 Severability.
(a) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect.
(b) In the event any court or other competent authority holds any
provision of this Agreement to be null, void or unenforceable, the parties
hereto shall negotiate in good faith the execution and delivery of an
amendment to this Agreement in order, as nearly as possible, to effectuate,
to the extent permitted by law, the intent of the parties hereto with
respect to such provision.
10.11 Publicity. Except as otherwise required by law or the rules of the
NYSE, so long as this Agreement is in effect, neither Centerior nor Ohio Edison
shall, or shall permit any of their respective Subsidiaries to, issue or cause
the publication of any press release or other public announcement with respect
to the transactions contemplated by this Agreement without the consent of the
other party, which consent shall not be unreasonably withheld.
10.12 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their respective
successors and permitted assigns.
10.13 Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the other
parties.
10.14 Amendments; Waiver. This Agreement may be amended by the parties
hereto and the terms and conditions hereof may be waived only by an instrument
in writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
B-1-47
<PAGE> 57
IN WITNESS WHEREOF, Ohio Edison and Centerior have caused this Agreement to
be signed by their respective officers thereunto duly authorized, all as of the
date first above written.
<TABLE>
<CAPTION>
CENTERIOR ENERGY CORPORATION OHIO EDISON COMPANY
<S> <C>
By: /s/ ROBERT J. FARLING By: /s/ WILLARD R. HOLLAND
------------------------------ ------------------------------
Name: Robert J. Farling Name: Willard R. Holland
Title: Chairman, President Title: President and Chief
and Chief Executive Officer Executive Officer
</TABLE>
B-1-48
<PAGE> 1
EXHIBIT B-2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MERGER AGREEMENT
BY AND AMONG
OHIO EDISON COMPANY,
FIRSTENERGY CORP.
AND
OHIO EDISON ACQUISITION CORP.
DATED AS OF
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
OHIO EDISON MERGER AGREEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I Merger of Ohio Edison Acquisition Corp. into Ohio Edison............. B-2-1
ARTICLE II The Merger -- Manner and Effect of Conversion
and Exchange......................................................... B-2-2
ARTICLE III Effective Time of the Merger......................................... B-2-2
ARTICLE IV Articles of Incorporation............................................ B-2-3
ARTICLE V Regulations.......................................................... B-2-3
ARTICLE VI Directors and Officers of the Surviving Corporation.................. B-2-3
ARTICLE VII Miscellaneous........................................................ B-2-3
</TABLE>
<PAGE> 3
OHIO EDISON MERGER AGREEMENT
THIS MERGER AGREEMENT ("Merger Agreement") is entered into as of
, 1996, pursuant to Section 1701.78 of the Ohio Revised Code, by
and among OHIO EDISON COMPANY, an Ohio corporation ("Ohio Edison"), FIRSTENERGY
CORP., an Ohio corporation ("FirstEnergy"), and OHIO EDISON ACQUISITION CORP.,
an Ohio corporation ("OEAC") (the parties to this Merger Agreement are
hereinafter sometimes collectively referred to as the "Constituent
Corporations").
WITNESSETH:
WHEREAS, OEAC is a wholly owned subsidiary of FirstEnergy;
WHEREAS, Ohio Edison and Centerior Energy Corporation, an Ohio corporation
("Centerior") have entered into, and FirstEnergy has approved, an Agreement and
Plan of Merger dated September 13, 1996 (the "Reorganization Agreement"),
providing for the mergers of OEAC into Ohio Edison and Centerior Acquisition
Corp., an Ohio corporation ("CAC"), into Centerior and resulting in Ohio Edison
and Centerior becoming subsidiaries of FirstEnergy and the common shareholders
of Ohio Edison and Centerior becoming common shareholders of FirstEnergy;
WHEREAS, the directors of each of the Constituent Corporations have
heretofore approved and the shareholders of FirstEnergy have heretofore adopted
the Reorganization Agreement and this Merger Agreement;
NOW, THEREFORE, in consideration of the premises hereof and the mutual
agreements contained herein and in the Reorganization Agreement, and in
accordance with the laws of the State of Ohio, the Constituent Corporations have
agreed, and do hereby agree that, subject to the terms and conditions of this
Merger Agreement and the Reorganization Agreement, OEAC shall be merged into
Ohio Edison (the "Merger"), which shall be the corporation surviving the Merger
(hereinafter sometimes referred to as the "Surviving Corporation"), the
outstanding common stock, par value $0.10 per share, of OEAC ("OEAC Common")
shall be converted into shares of common stock, par value $9 per share, of Ohio
Edison ("Ohio Edison Common") and the outstanding Ohio Edison Common shall be
converted into shares of common stock, par value $0.10 per share, of FirstEnergy
("FirstEnergy Common"), and that the terms and conditions of the Merger, the
mode of carrying it into effect, and the manner of converting and exchanging
shares shall be as follows:
ARTICLE I
MERGER OF OEAC INTO OHIO EDISON
1.1 OEAC shall be merged into Ohio Edison, Ohio Edison shall be the
surviving corporation of the Merger, and the Surviving Corporation shall
continue to have the name Ohio Edison Company and be governed by the laws of the
State of Ohio.
1.2 The OEAC Common issued and outstanding at the Effective Time, as
defined in Article III below, shall thereupon and without more be converted into
and become that number of common shares of the Surviving Corporation which shall
be equivalent to the aggregate number of shares of OEAC Common outstanding
immediately prior to the Effective Time.
1.3 Each share of Ohio Edison Common issued and outstanding at the
Effective Time (excluding any shares of Ohio Edison Common as to which a
shareholder of Ohio Edison has perfected rights as a dissenting shareholder
under Section 1701.85 of the Ohio Revised Code unless those rights are
terminated otherwise than by purchase) shall thereupon and without more be
converted into and become one share of FirstEnergy Common.
1.4 Each share of Ohio Edison preferred stock, $100 par value (the "Ohio
Edison $100 Preferred Stock") and Ohio Edison Class A preferred stock, $25 par
value (the "Ohio Edison $25 Preferred Stock") that shall be issued and
outstanding immediately prior to the Effective Time (and each share of Ohio
Edison
B-2-1
<PAGE> 4
$100 Preferred Stock and Ohio Edison $25 Preferred Stock held in the treasury of
Ohio Edison at the Effective Time) shall remain unchanged and shall continue to
be one share of Ohio Edison $100 Preferred Stock and Ohio Edison $25 Preferred
Stock, as the case may be.
ARTICLE II
THE MERGER -- MANNER AND EFFECT OF CONVERSION AND EXCHANGE
2.1 Matters Affecting Capital Stock. Those provisions of Article III of
the Reorganization Agreement that affect the capital stock and share
certificates of OEAC and Ohio Edison and the common stock and related share
certificates of FirstEnergy are hereby adopted and incorporated by reference
herein.
2.2 Certain Effects of the Merger. At the Effective Time, the effect of
the Merger shall be as provided by the applicable provisions of Ohio law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time: the separate existence of OEAC shall cease; the Surviving
Corporation shall possess all assets and property of every description, and
every interest therein, wherever located, and the rights, privileges,
immunities, powers, franchises and authorities of a public, as well as of a
private, nature of OEAC and Ohio Edison; all obligations belonging to or due
OEAC and Ohio Edison shall be vested in, and become the obligations of, the
Surviving Corporation without further act or deed; title to any real estate or
any interest therein vested in OEAC or Ohio Edison shall not revert or in any
way be impaired by reason of the Merger; all rights of creditors and all liens
upon any property of OEAC and Ohio Edison shall be preserved unimpaired; and the
Surviving Corporation shall be liable for all the obligations of OEAC and Ohio
Edison, and any claim existing, or action or proceeding pending, by or against
OEAC or Ohio Edison may be prosecuted to judgment with right of appeal as if the
Merger had not taken place.
2.3 Further Assurances. If at any time contemporaneous with or after the
Effective Time either the Surviving Corporation or FirstEnergy shall consider it
to be advisable that any further conveyances, agreements, documents, instruments
and assurances of law or any other things are necessary or desirable to vest,
perfect, confirm or record in the Surviving Corporation the title to any
property, rights, privileges, obligations, powers and franchises of OEAC or Ohio
Edison or otherwise to carry out the provisions of this Merger Agreement, the
proper directors and officers of the Surviving Corporation or the proper
directors and officers of Ohio Edison last in office shall execute and deliver,
upon request of either the Surviving Corporation or FirstEnergy, any and all
proper conveyances, agreements, documents, instruments and assurances of law,
and do all things necessary or proper to vest, perfect, or confirm title to such
property, rights, privileges, obligations, powers and franchises in the
Surviving Corporation and otherwise to carry out the provisions of this Merger
Agreement.
2.4 Effect on Ohio Edison Preferred and Debt Instruments. The Merger
shall not have any effect upon the Ohio Edison $100 Preferred Stock and $25
Preferred Stock or upon the bonds, notes and other debt securities of Ohio
Edison issued and outstanding immediately prior to the Effective Time, and all
such securities shall remain unchanged and shall be the obligations of the
Surviving Corporation after the Effective Time.
ARTICLE III
EFFECTIVE TIME OF THE MERGER
If this Merger Agreement is duly adopted by the holders of shares of Ohio
Edison Common as provided in the Reorganization Agreement, if the conditions set
forth in the Reorganization Agreement are duly satisfied, or waived by Ohio
Edison, and if this Merger Agreement has not been terminated pursuant to Section
7.2 hereof, at the time specified in the Reorganization Agreement a certificate
of merger, duly executed in accordance with Section 1701.81(A) of the Ohio
Revised Code, shall be filed by the Constituent Corporations with the Secretary
of State of Ohio. The Effective Time shall be the time at which said certificate
of merger is so filed or at such time thereafter as is provided in the
certificate of merger.
B-2-2
<PAGE> 5
ARTICLE IV
ARTICLES OF INCORPORATION
The Amended Articles of Incorporation of Ohio Edison, as in effect
immediately prior to the Effective Time, shall constitute the "Articles" of the
Surviving Corporation within the meaning of Section 1701.01(D) of the Ohio
Revised Code and shall remain in effect until thereafter duly altered, amended,
or repealed in accordance with the provisions thereof and applicable law.
ARTICLE V
REGULATIONS
The Regulations of Ohio Edison, as in effect immediately prior to the
Effective Time, shall constitute the Regulations of the Surviving Corporation
and shall remain in effect until thereafter duly altered, amended, or repealed
in accordance with the provisions thereof, the Articles of Incorporation of the
Surviving Corporation and applicable law.
ARTICLE VI
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
The directors and officers of Ohio Edison in office at the Effective Time
shall be the directors and officers of the Surviving Corporation after the
Effective Time and shall continue in office in accordance with the Articles and
Regulations of the Surviving Corporation and applicable law.
ARTICLE VII
MISCELLANEOUS
7.1 Waiver and Amendment. Any Constituent Corporation may, at any time
prior to the Effective Time, by action taken by its directors or officers
thereunto duly authorized, waive any of the terms or conditions of this Merger
Agreement and/or agree to the amendment or modification of this Merger
Agreement; provided, however, that after a favorable vote by the shareholders of
a Constituent Corporation any such action shall be taken by that Constituent
Corporation only if, in the opinion of its directors or officers, such waiver or
such amendment or modification will not have any material adverse effect on the
benefits intended under this Merger Agreement for the shareholders of such party
and will not require resolicitation of any proxies from such shareholders.
7.2 Termination. This Merger Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time as provided in Article IX of
the Reorganization Agreement. If the Reorganization Agreement is terminated in
accordance with Article IX thereof, then this Merger Agreement shall
simultaneously terminate and the Merger shall be abandoned without further
action by the Constituent Corporations. In the event of termination of this
Merger Agreement, the directors of the Constituent Corporations shall each
direct their officers not to file the certificate of merger in the Office of the
Secretary of State of Ohio, notwithstanding favorable action by the shareholders
of the respective Constituent Corporations.
7.3 Limitation on Rights. Except as otherwise specifically provided
herein, nothing expressed or implied in this Merger Agreement is intended or
shall be construed to confer upon or give any person, firm or corporation, other
than the Constituent Corporations and their respective shareholders, any rights
or remedies under or by reason of this Merger Agreement or any transactions
contemplated hereby.
7.4 Captions; Governing Law. The captions in this Merger Agreement are
for convenience only and shall not be considered a part or affect the
construction or interpretation of any provision of this Merger Agreement. This
Merger Agreement shall be governed by and construed in accordance with the laws
of the State of Ohio.
B-2-3
<PAGE> 6
7.5 Counterparts. This Merger Agreement may be executed in any number of
counterparts, each of which shall be an original and all of which shall be
considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other parties.
IN WITNESS WHEREOF, the parties to this Merger Agreement, pursuant to the
approval and authority duly given by resolutions adopted by their respective
Boards of Directors, have each caused this Merger Agreement to be executed and
attested by its President and Secretary.
<TABLE>
<S> <C>
OHIO EDISON ACQUISITION CORP.
Attest: By
________________, Secretary ________________, President
FIRSTENERGY CORP.
Attest: By
________________, Secretary ________________, President
OHIO EDISON COMPANY
Attest: By
________________, Secretary ________________, President
</TABLE>
B-2-4
<PAGE> 1
EXHIBIT B-3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MERGER AGREEMENT
BY AND AMONG
CENTERIOR ACQUISITION CORP.,
FIRSTENERGY CORP.
AND
CENTERIOR ENERGY CORPORATION
DATED AS OF
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
CENTERIOR ENERGY CORPORATION MERGER AGREEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I Merger of Centerior Acquisition Corporation into
Centerior Energy Corporation......................................... B-3-1
ARTICLE II The Merger -- Manner and Effect of Conversion
and Exchange......................................................... B-3-2
ARTICLE III Effective Time of the Merger........................................... B-3-2
ARTICLE IV Articles of Incorporation.............................................. B-3-2
ARTICLE V Regulations............................................................ B-3-3
ARTICLE VI Directors and Officers of the Surviving Corporation.................... B-3-3
ARTICLE VII Miscellaneous.......................................................... B-3-3
</TABLE>
<PAGE> 3
CENTERIOR ENERGY CORPORATION MERGER AGREEMENT
THIS MERGER AGREEMENT ("Merger Agreement") is entered into as of
, 1996, pursuant to Section 1701.78 of the Ohio Revised Code, by
and among CENTERIOR ACQUISITION CORP., an Ohio corporation ("CAC"), FIRSTENERGY
CORP., an Ohio corporation ("FirstEnergy"), and CENTERIOR ENERGY CORPORATION, an
Ohio corporation ("Centerior") (the parties to this Merger Agreement are
hereinafter sometimes collectively referred to as the "Constituent
Corporations").
WITNESSETH:
WHEREAS, CAC is a wholly owned subsidiary of FirstEnergy;
WHEREAS, Ohio Edison Company, an Ohio corporation ("Ohio Edison") and
Centerior have entered into, and FirstEnergy has approved, an Agreement and Plan
of Merger dated September 13, 1996 (the "Reorganization Agreement"), providing
for the mergers of Ohio Edison Acquisition Corp., an Ohio corporation ("OEAC"),
into Ohio Edison and CAC into Centerior and resulting in Ohio Edison and
Centerior becoming subsidiaries of FirstEnergy and the common shareholders of
Ohio Edison and Centerior becoming common shareholders of FirstEnergy;
WHEREAS, the directors of each of the Constituent Corporations have
heretofore approved and the shareholders of FirstEnergy have heretofore adopted
the Reorganization Agreement and this Merger Agreement;
NOW, THEREFORE, in consideration of the premises hereof and the mutual
agreements contained herein and in the Reorganization Agreement, and in
accordance with the laws of the State of Ohio, the Constituent Corporations have
agreed, and do hereby agree that, subject to the terms and conditions of this
Merger Agreement and the Reorganization Agreement, CAC be merged into Centerior
(the "Merger"), which shall be the corporation surviving the Merger (hereinafter
sometimes referred to as the "Surviving Corporation"), the outstanding common
stock, par value $0.10 per share, of CAC ("CAC Common") shall be converted into
shares of Centerior common stock, without par value ("Centerior Common") and the
outstanding Centerior Common shall be converted into shares of common stock, par
value $0.10 per share, of FirstEnergy ("FirstEnergy Common"), and that the terms
and conditions of the Merger, the mode of carrying it into effect, and the
manner of converting and exchanging shares shall be as follows:
ARTICLE I
MERGER OF CAC INTO CENTERIOR
1.1 CAC shall be merged into Centerior, Centerior shall be the surviving
corporation of the Merger, and the Surviving Corporation shall continue to have
the name Centerior Energy Corporation and be governed by the laws of the State
of Ohio.
1.2 The CAC Common issued and outstanding at the Effective Time, as
defined in Article III below, shall thereupon and without more be converted into
and become that number of common shares of the Surviving Corporation which shall
be equivalent to the aggregate number of shares of CAC Common outstanding
immediately prior to the Effective Time.
1.3 Each share of Centerior Common issued and outstanding at the Effective
Time (excluding any shares of Centerior Common as to which a shareholder of
Centerior has perfected rights as a dissenting shareholder under Section 1701.85
of the Ohio Revised Code unless those rights are terminated otherwise than by
purchase) shall thereupon and without more be converted into and become 0.525 of
a share of FirstEnergy Common.
B-3-1
<PAGE> 4
ARTICLE II
THE MERGER -- MANNER AND EFFECT OF CONVERSION AND EXCHANGE
2.1 Matters Affecting Capital Stock. Those provisions of Article III of
the Reorganization Agreement that affect the capital stock and share
certificates of CAC and Centerior and the Common Stock and related share
certificates of FirstEnergy are hereby adopted and incorporated by reference
herein.
2.2 Certain Effects of the Merger. At the Effective Time, the effect of
the Merger shall be as provided by the applicable provisions of Ohio law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time: the separate existence of CAC shall cease; the Surviving
Corporation shall possess all assets and property of every description, and
every interest therein, wherever located, and the rights, privileges,
immunities, powers, franchises and authorities of a public, as well as of a
private, nature of CAC and Centerior; all obligations belonging to or due CAC
and Centerior shall be vested in, and become the obligations of, the Surviving
Corporation without further act or deed; title to any real estate or any
interest therein vested in CAC or Centerior shall not revert or in any way be
impaired by reason of the Merger; all rights of creditors and all liens upon any
property of CAC and Centerior shall be preserved unimpaired; and the Surviving
Corporation shall be liable for all the obligations of CAC and Centerior, and
any claim existing, or action or proceeding pending, by or against CAC or
Centerior may be prosecuted to judgment with right of appeal as if the Merger
had not taken place.
2.3 Further Assurances. If at any time contemporaneous with or after the
Effective Time either the Surviving Corporation or FirstEnergy shall consider it
to be advisable that any further conveyances, agreements, documents, instruments
and assurances of law or any other things are necessary or desirable to vest,
perfect, confirm or record in the Surviving Corporation the title to any
property, rights, privileges, obligations, powers and franchises of CAC or
Centerior or otherwise to carry out the provisions of this Merger Agreement, the
proper directors and officers of the Surviving Corporation or the proper
directors and officers of Centerior last in office shall execute and deliver,
upon request of either the Surviving Corporation or FirstEnergy, any and all
proper conveyances, agreements, documents, instruments and assurances of law,
and do all things necessary or proper to vest, perfect, or confirm title to such
property, rights, privileges, obligations, powers and franchises in the
Surviving Corporation and otherwise to carry out the provisions of this Merger
Agreement.
2.4 Effect on Centerior Debt Instruments. The Merger shall not have any
effect upon the Centerior bonds, notes and other debt securities of Centerior
issued and outstanding immediately prior to the Effective Time, and all such
securities shall remain unchanged and shall be the obligations of the Surviving
Corporation after the Effective Time.
ARTICLE III
EFFECTIVE TIME OF THE MERGER
If this Merger Agreement is duly adopted by the holders of shares of
Centerior Common as provided in the Reorganization Agreement, if the conditions
set forth in the Reorganization Agreement are duly satisfied, or waived by
Centerior, and if this Merger Agreement has not been terminated pursuant to
Section 7.2 hereof, at the time specified in the Reorganization Agreement a
certificate of merger, duly executed in accordance with Section 1701.81(A) of
the Ohio Revised Code, shall be filed by the Constituent Corporations with the
Secretary of State of Ohio. The Effective Time shall be the time at which said
certificate of merger is so filed or at such time thereafter as is provided in
the certificate of merger.
ARTICLE IV
ARTICLES OF INCORPORATION
The Amended Articles of Incorporation of Centerior, as in effect
immediately prior to the Effective Time, shall constitute the "Articles" of the
Surviving Corporation within the meaning of Sec-
B-3-2
<PAGE> 5
tion 1701.01(D) of the Ohio Revised Code and shall remain in effect until
thereafter duly altered, amended, or repealed in accordance with the provisions
thereof and applicable law.
ARTICLE V
REGULATIONS
The Regulations of Centerior, as in effect immediately prior to the
Effective Time, shall constitute the Regulations of the Surviving Corporation
and shall remain in effect until thereafter duly altered, amended, or repealed
in accordance with the provisions thereof, the Articles of Incorporation of the
Surviving Corporation and applicable law.
ARTICLE VI
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
The directors and officers of Centerior in office at the Effective Time
shall be the directors and officers of the Surviving Corporation after the
Effective Time and shall continue in office in accordance with the Articles and
Regulations of the Surviving Corporation and applicable law.
ARTICLE VII
MISCELLANEOUS
7.1 Waiver and Amendment. Any Constituent Corporation may, at any time
prior to the Effective Time, by action taken by its directors or officers
thereunto duly authorized, waive any of the terms or conditions of this Merger
Agreement and/or agree to the amendment or modification of this Merger
Agreement; provided, however, that after a favorable vote by the shareholders of
a Constituent Corporation any such action shall be taken by that Constituent
Corporation only if, in the opinion of its directors or officers, such waiver or
such amendment or modification will not have any material adverse effect on the
benefits intended under this Merger Agreement for the shareholders of such party
and will not require resolicitation of any proxies from such shareholders.
7.2 Termination. This Merger Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time as provided in Article IX of
the Reorganization Agreement. If the Reorganization Agreement is terminated in
accordance with Article IX thereof, then this Merger Agreement shall
simultaneously terminate and the Merger shall be abandoned without further
action by the Constituent Corporations. In the event of termination of this
Merger Agreement, the directors of the Constituent Corporations shall each
direct their officers not to file the certificate of merger in the Office of the
Secretary of State of Ohio, notwithstanding favorable action by the shareholders
of the respective Constituent Corporations.
7.3 Limitation on Rights. Except as otherwise specifically provided
herein, nothing expressed or implied in this Merger Agreement is intended or
shall be construed to confer upon or give any person, firm or corporation, other
than the Constituent Corporations and their respective shareholders, any rights
or remedies under or by reason of this Merger Agreement or any transactions
contemplated hereby.
7.4 Captions; Governing Law. The captions in this Merger Agreement are
for convenience only and shall not be considered a part or affect the
construction or interpretation of any provision of this Merger Agreement. This
Merger Agreement shall be governed by and construed in accordance with the laws
of the State of Ohio.
7.5 Counterparts. This Merger Agreement may be executed in any number of
counterparts, each of which shall be an original and all of which shall be
considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other parties.
B-3-3
<PAGE> 6
IN WITNESS WHEREOF, the parties to this Merger Agreement, pursuant to the
approval and authority duly given by resolutions adopted by their respective
Boards of Directors, have each caused this Merger Agreement to be executed and
attested by its President and Secretary.
<TABLE>
<S> <C>
CENTERIOR ACQUISITION CORP.
Attest: By
________________, Secretary ________________, President
FIRSTENERGY CORP.
Attest: By
________________, Secretary ________________, President
CENTERIOR ENERGY CORPORATION
Attest: By
________________, Secretary ________________, President
</TABLE>
B-3-4
<PAGE> 1
Exhibit D-1
@ 1701.78 Merger or consolidation into domestic corporation.
(A) Pursuant to an agreement of merger or consolidation between the
constituent corporations as provided in this section, a domestic or foreign
corporation and, if so provided, one or more additional domestic or foreign
corporations may be merged into a domestic surviving corporation, or a domestic
corporation together with one or more additional domestic or foreign
corporations may be consolidated into a new domestic corporation formed by such
consolidation, provided the provisions of Chapter 1704 of the Revised Code do
not prevent the merger or consolidation from being effected. If any constituent
corporation is a foreign corporation, the merger or consolidation must also be
permitted by the laws of each state under the laws of which any foreign
constituent corporation exists.
(B) The agreement of merger or consolidation shall set forth:
(1) The state under the laws of which each constituent
corporation exists;
(2) In the case of a merger, that one or more specified constituent
corporations shall be merged into a specified domestic surviving corporation
and, in the case of a consolidation, that the constituent corporations shall be
consolidated into a new domestic corporation. The name of the surviving or new
corporation may be the same as or similar to that of any constituent
corporation.
(3) All statements and matters required to be set forth in an agreement of
merger or consolidation by the laws of each state under the laws of which any
foreign constituent corporation exists;
(4) In the case of a consolidation, the articles of the new corporation or a
provision that the articles of a specified domestic constituent corporation with
such amendments as may be set forth in the agreement shall be the articles of
the new corporation;
(5) In the case of a consolidation, the name and address of the statutory
agent upon whom any process, notice, or demand against any constituent
corporation or the new corporation may be served;
(6) The terms of the merger or consolidation; the mode of carrying them into
effect; and the manner and basis of converting the shares of the constituent
corporations into, or substituting the shares of the constituent corporations
for, shares, evidences of indebtedness, other securities, cash, rights, or any
other
D-1-1
<PAGE> 2
property, or any combination of shares, evidences of indebtedness, securities,
cash, rights, or any other property of the surviving corporation, of the new
corporation, or of any other corporation, including the parent of any
constituent corporation, or any other person. No such conversion or substitution
shall be effected if there are reasonable grounds to believe that the surviving
or new corporation would be rendered insolvent by the conversion or
substitution.
(C) The agreement of merger or consolidation may also set forth:
(1) The effective date of the merger or consolidation, which may be on or
after the date of filing the certificate;
(2) A provision authorizing the directors of one or more of the constituent
corporations to abandon the proposed merger or consolidation prior to filing the
certificate;
(3) In the case of a merger, any amendments to the articles of the surviving
corporation or a provision that the articles of a specified domestic constituent
corporation other than the surviving corporation with such amendments as may be
set forth in the agreement shall be the articles of the surviving corporation;
(4) A statement of, or a statement of the method of determining, the fair
value of the assets to be owned by the surviving or new corporation;
(5) The regulations of the surviving or new corporation or a provision that
the regulations of a specified domestic constituent corporation with such
amendments as may be set forth in the agreement shall be the regulations of the
surviving or new corporation;
(6) In the case of a consolidation, the initial directors of the new
corporation or a provision that all the directors of one or more specified
constituent corporations shall constitute the initial directors of the new
corporation, and, in the case of a merger, any changes in the directors of the
surviving corporation;
(7) The parties to the agreement in addition to the constituent corporations;
(8) The stated capital of each class of shares of the surviving or new
corporation to be outstanding at the time the merger or consolidation becomes
effective;
(9) Any additional provision necessary or desirable with respect to the
proposed merger or consolidation.
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(D) To effect the merger or consolidation, the agreement shall be approved by
the directors of each domestic constituent corporation, adopted by the
shareholders of each domestic constituent corporation, other than the surviving
corporation in the case of a merger, at a meeting of the shareholders of each
such corporation held for the purpose, and approved or otherwise authorized by
or on behalf of each foreign constituent corporation in accordance with the laws
of the state under which it exists. In the case of a merger, the agreement shall
also be adopted by the shareholders of the surviving corporation at a meeting
held for the purpose, if one or more of the following conditions exist:
(1) The articles or regulations of the surviving corporation then in effect
require that the agreement be adopted by the shareholders or by the holders of a
particular class of shares of that corporation;
(2) The agreement conflicts with the articles or regulations of the surviving
corporation then in effect, or changes the articles or regulations, or
authorizes any action that, if it were being made or authorized apart from the
merger, would otherwise require adoption by the shareholders or by the holders
of a particular class of shares of that corporation;
(3) The merger involves the issuance or transfer by the surviving corporation
to the shareholders of the other constituent corporation or corporations of such
number of shares of the surviving corporation as will entitle the holders of the
shares immediately after the consummation of the merger to exercise one-sixth or
more of the voting power of that corporation in the election of directors;
(4) The agreement of merger makes such change in the directors of the
surviving corporation as would otherwise require action by the shareholders or
by the holders of a particular class of shares of that corporation.
(E) Notice of each meeting of shareholders of a domestic constituent
corporation at which an agreement of merger or consolidation is to be submitted
shall be given to all shareholders of that corporation, whether or not they are
entitled to vote, and shall be accompanied by a copy or a summary of the
material provisions of the agreement.
(F) The vote required to adopt an agreement of merger or consolidation at a
meeting of the shareholders of a domestic constituent corporation is the
affirmative vote of the holders of shares of that corporation entitling them to
exercise at least two-thirds of the voting power of the corporation on such
proposal or such different proportion as the articles may provide, but not less
than a majority, and such affirmative vote of the holders of shares of any
particular class as is required
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by the articles of that corporation. If the agreement would have an effect that,
if accomplished through an amendment to the articles, would entitle the holders
of shares of any particular class of a domestic constituent corporation to vote
as a class on the adoption of such amendment as provided in division (B) of
section 1701.71 of the Revised Code, the agreement must also be adopted by the
affirmative vote of the holders of at least two-thirds of the shares of such
class, or such different proportion as the articles may provide, but not less
than a majority. However, if the agreement would have an effect that, if
accomplished through an amendment to the articles, would entitle the holders of
shares of any particular class of a domestic constituent corporation to vote as
a class on the adoption of such amendment pursuant to division (B)(2) or (4) of
section 1701.71 of the Revised Code solely because those shares are to be
converted into or substituted for the same number of shares of a class of a
different corporation that have express terms identical in all material respects
to those of the class of shares so converted or substituted, the agreement need
not be adopted by the affirmative vote of the holders of shares of that
particular class voting as a class. If the agreement would authorize any
particular corporate action that under any applicable provision of law or the
articles could be authorized only by or pursuant to a specified vote of
shareholders, the agreement must also be adopted by the same affirmative vote as
would be required for such action.
(G) At any time prior to the filing of the certificate of merger or
consolidation, the merger or consolidation may be abandoned by the directors of
any of the constituent corporations if the directors are authorized to do so by
the agreement or by the same vote of shareholders as is required to adopt the
agreement. The agreement of merger or consolidation may contain a provision
authorizing the directors of the constituent corporations to amend the agreement
at any time prior to the filing of the certificate of merger or consolidation,
except that, after the adoption of the agreement by the shareholders of any
domestic constituent corporation, the directors shall not be authorized to amend
the agreement to do any of the following:
(1) Alter or change the amount or kind of shares, evidences of indebtedness,
other securities, cash, rights, or any other property to be received by
shareholders of the domestic constituent corporation in conversion of or in
substitution for their shares;
(2) Alter or change any term of the articles of the surviving or new domestic
corporation, except for alterations or changes that could otherwise be adopted
by the directors of the surviving or new domestic corporation;
(3) Alter or change any other terms and conditions of the agreement if any of
the alterations or changes, alone or in the
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aggregate, would materially adversely affect the holders of any class or series
of shares of the domestic constituent corporation.
(H) If division (D) of this section does not require adoption of the
agreement of merger by the shareholders of the surviving corporation, the
approval of the agreement by the directors of that corporation constitutes
adoption by that corporation.
[@ 1701.78.1] @ 1701.781 Merger or consolidation into domestic corporation when
noncorporate entities included.
(A) If the constituent entities in a merger or consolidation include entities
that are not corporations, section 1701.78 of the Revised Code does not apply.
If the constituent entities in a merger or consolidation include entities that
are not corporations, the constituent entities may be merged into a domestic
surviving corporation or may be consolidated into a new domestic corporation
pursuant to an agreement of merger or consolidation as provided in this section.
If any constituent entity is formed or organized under the laws of any state
other than this state or under any chapter of the Revised Code other than this
chapter, the merger or consolidation also must be permitted by the chapter of
the Revised Code under which each domestic constituent entity exists and by the
laws under which each foreign constituent entity exists.
(B) The agreement of merger or consolidation shall set forth all of the
following:
(1) The name and the form of entity of each constituent entity and the state
under the laws of which each constituent entity exists;
(2) In the case of a merger, that one or more specified constituent entities
will be merged into a specified domestic surviving corporation or, in the case
of a consolidation, that the constituent entities will be consolidated into a
new domestic corporation. The name of the surviving or new corporation may be
the same as or similar to that of any constituent corporation or constituent
limited liability company.
(3) All statements and matters required to be set forth in an agreement of
merger or consolidation by the laws under which each constituent entity exists;
(4) In the case of a consolidation, the articles of the new corporation, or a
provision that the articles of a specified domestic constituent corporation,
with any amendments that are set forth in the agreement, shall be the articles
of the new corporation;
(5) In the case of a consolidation, the name and address of
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the statutory agent upon whom any process, notice, or demand against any
constituent entity or the new domestic corporation may be served;
(6) The terms of the merger or consolidation, the mode of carrying them into
effect, and the manner and basis of converting the shares or interests of the
constituent entities into, or substituting the shares or interests of the
constituent entities for, shares, interests, evidences of indebtedness, other
securities, cash, rights, or any other property or any combination of shares,
interests, evidences of indebtedness, securities, cash, rights, or any other
property of the surviving corporation, of the new corporation, or of any other
entity, including the parent of any constituent entity, or any other person. No
conversion or substitution shall be effected if there are reasonable grounds to
believe that the surviving or new corporation would be rendered insolvent by the
conversion or substitution.
(C) The agreement of merger or consolidation also may set forth any of the
following:
(1) The effective date of the merger or consolidation, which date may be on
or after the date of the filing of the certificate;
(2) A provision authorizing one or more of the constituent entities to
abandon the proposed merger or consolidation prior to filing the certificate of
merger or consolidation pursuant to section 1701.81 of the Revised Code by
action of the directors of a constituent corporation, action of the general
partners of a constituent partnership, or action of the comparable
representatives of any other constituent entity;
(3) In the case of a merger, any amendments to the articles of the surviving
corporation, or a provision that the articles of a specified domestic
constituent corporation other than the surviving corporation, with any
amendments that are set forth in the agreement of merger, shall be the articles
of the surviving corporation;
(4) A statement of, or a statement of the method of determining, the fair
value of the assets to be owned by the surviving or new corporation;
(5) The regulations of the surviving or new corporation, or a provision that
the regulations of a specified domestic constituent corporation with any
amendments that are set forth in the agreement shall be the regulations of the
surviving or new corporation;
(6) In the case of a consolidation, either the identity of the
initial directors of the new corporation, or a provision stating
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that all of the directors of one or more specified constituent corporations
shall constitute the initial directors of the new corporation, and, in the case
of a merger, any changes in the directors of the surviving corporation;
(7) The parties to the agreement in addition to the constituent entities;
(8) The stated capital, if any, of each class of shares of the surviving or
new corporation to be outstanding at the time the merger or consolidation
becomes effective;
(9) Any additional provision necessary or desirable with respect to the
proposed merger or consolidation.
(D) To effect the merger or consolidation, the agreement of merger or
consolidation shall be approved by the directors of each domestic constituent
corporation, adopted by the shareholders of each domestic constituent
corporation, other than the surviving corporation in the case of a merger, at a
meeting of the shareholders of each corporation held for the purpose, and
approved or otherwise authorized by or on behalf of each other constituent
entity in accordance with the laws under which it exists. In the case of a
merger, the agreement also shall be adopted by the shareholders of the surviving
corporation at a meeting held for the purpose, if one or more of the following
conditions exist:
(1) The articles or regulations of the surviving corporation then in effect
require that the agreement be adopted by the shareholders or by the holders of a
particular class of shares of that corporation;
(2) The agreement conflicts with the articles or regulations of the surviving
corporation then in effect, or changes the articles or regulations, or
authorizes any action that, if it were being made or authorized apart from the
merger, would otherwise require adoption by the shareholders or by the holders
of a particular class of shares of that corporation;
(3) The merger involves the issuance or transfer by the surviving corporation
to the shareholders of the other constituent corporation or corporations of the
numbers of shares of the surviving corporation that will entitle the holders of
the shares immediately after the consummation of the merger to exercise
one-sixth or more of the voting power of that corporation in the election of
directors;
(4) The agreement of merger makes a change in the directors of the surviving
corporation that would otherwise require action by the shareholders or by the
holders of a particular class of shares of that corporation.
(E) Notice of each meeting of shareholders of a domestic
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<PAGE> 8
constituent corporation at which an agreement of merger or consolidation is to
be submitted shall be given to all shareholders of that corporation, whether or
not they are entitled to vote, and shall be accompanied by a copy or a summary
of the material provisions of the agreement.
(F) The vote required to adopt an agreement of merger or consolidation under
this section at a meeting of the shareholders of a domestic constituent
corporation is the affirmative vote of the holders of shares of that corporation
entitling them to exercise at least two-thirds of the voting power of the
corporation on the proposal or the different proportion that the articles may
provide, but not less than a majority, and such affirmative vote of the holders
of shares of any particular class as is required by the articles of that
corporation. If the agreement would have an effect that, if accomplished through
an amendment to the articles, would entitle the holders of shares of any
particular class of a domestic constituent corporation to vote as a class on the
adoption of the amendment as provided in division (B) of section 1701.71 of the
Revised Code, the agreement also must be adopted by the affirmative vote of the
holders of at least two-thirds of the shares of that class, or the different
proportion that the articles may provide, but not less than a majority. However,
if the agreement would have an effect that, if accomplished through an amendment
to the articles, would entitle the holders of shares of any particular class of
a domestic corporation to vote as a class on the adoption of the amendment
pursuant to division (B)(2) or (4) of section 1701.71 of the Revised Code solely
because those shares are to be converted into or substituted for the same number
of shares of a class of a different corporation that have express terms
identical in all material respects to those of the class of shares so converted
or substituted, the agreement is not required to be adopted by the affirmative
vote of the holders of shares of that particular class voting as a class. If the
agreement would authorize any particular corporate action that under any
applicable provision of law or the articles could be authorized only by or
pursuant to a specified vote of shareholders, the agreement also must be adopted
by the same affirmative vote as would be required for that action.
(G) At any time before the filing of the certificate of merger or
consolidation under section 1701.81 of the Revised Code, the merger or
consolidation may be abandoned by the directors of any constituent corporation,
the general partners of any constituent partnership, or the comparable
representatives of any other constituent entity if the directors, general
partners, or other representatives are authorized to do so by the agreement of
merger or consolidation or by the same vote of shareholders, partners, or others
as is required under division (F) of this section to adopt the agreement. The
agreement of merger or consolidation may contain a provision authorizing the
directors of any constituent corporation, the general partners of any
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<PAGE> 9
constituent partnership, or the comparable representatives of any other
constituent entity to amend the agreement at any time before the filing of the
certificate of merger or consolidation, except that, after the adoption of the
agreement by the shareholders of any domestic constituent corporation, the
directors shall not be authorized to amend the agreement to do any of the
following:
(1) Alter or change the amount or kind of shares, interests, evidences of
indebtedness, other securities, cash, rights, or any other property to be
received by the shareholders of the domestic constituent corporation in
conversion of, or in substitution for, their shares;
(2) Alter or change any term of the articles of the surviving or new domestic
corporation, except for alterations or changes that could otherwise be adopted
by the directors of the surviving or new domestic corporation;
(3) Alter or change any other terms and conditions of the agreement of merger
or consolidation if any of the alterations or changes, alone or in the
aggregate, would materially adversely affect the holders of any class or series
of shares of the domestic constituent corporation.
(H) If division (D) of this section does not require adoption of the
agreement of merger by the shareholders of the surviving corporation, the
approval of the agreement by the directors of that corporation constitutes
adoption by that corporation.
@ 1701.80 Merger into parent corporation.
(A) Pursuant to an agreement of merger between the constituent corporations
as provided in this section and provided that the provisions of Chapter 1704 of
the Revised Code do not prevent the merger from being effected, one or more
domestic or foreign subsidiaries may be merged into a domestic or foreign parent
corporation, provided that the parent owns ninety per cent or more of each class
of the outstanding shares of each subsidiary, that at least one constituent
corporation is a domestic corporation, and that, in the case of a domestic
parent, the conditions set forth in divisions (D)(1), (2), (3), and (4) of
section 1701.78 of the Revised Code do not exist.
(B) The agreement of merger shall set forth the designation and the number of
the outstanding shares of each class of each subsidiary constituent corporation
and the number of shares of each such class owned by the surviving corporation.
It shall also set forth any statements and matters that are required, and may
set forth any provision that is permitted, in a merger under section 1701.78 of
the Revised Code if the surviving corporation is a domestic corporation or under
section 1701.79 of the Revised Code if the surviving corporation is a foreign
corporation.
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(C)(1) To effect the merger, the agreement shall be approved by the directors
of each domestic constituent corporation, but it need not be adopted by the
shareholders of any domestic constituent corporation. If any constituent
corporation is a foreign corporation, the agreement shall be approved or
otherwise authorized by or on behalf of each foreign constituent corporation in
accordance with the laws of the state under which it exists.
(2) Within twenty days after the approval of the agreement of merger by the
directors of each domestic constituent corporation, the surviving corporation
shall deliver or send written notice of such approval and copy or summary of the
agreement to each shareholder of each domestic constituent corporation other
than the surviving corporation of record as of the date on which the directors
of the surviving corporation approved the agreement.
(D) The approval of the agreement of merger by the directors of a domestic
constituent corporation under this section constitutes adoption by that
corporation.
[@ 1701.80.1] @ 1701.801 Merger into domestic subsidiary corporation.
(A) Pursuant to an agreement of merger between the constituent corporations
as provided in this section and provided that the provisions of Chapter 1704 of
the Revised Code do not prevent the merger from being effected, one or more
domestic or foreign corporations may be merged into a domestic corporation,
provided that the domestic surviving corporation is a subsidiary of one of the
constituent corporations and that the parent constituent corporation owns ninety
per cent or more of each class of the outstanding shares of the surviving
subsidiary corporation.
(B) The agreement of merger shall set forth the designation and the number of
the outstanding shares of each class of the surviving subsidiary corporation and
the number of shares of each such class owned by the parent constituent
corporation. It shall also set forth any statements and matters that are
required, and may set forth any provision that is permitted, in a merger under
section 1701.78 of the Revised Code.
(C)(1) To effect the merger, the agreement shall be approved by the directors
of each domestic constituent corporation and shall be adopted by the
shareholders of each domestic constituent corporation in the same manner and
with the same notice to and vote of shareholders or holders of a particular
class of shares as is required by section 1701.78 of the Revised Code, except
that the agreement need not be adopted by the shareholders of the surviving
subsidiary corporation. If any constituent corporation is a foreign corporation,
the agreement shall be approved or otherwise authorized by or on behalf of each
foreign constituent corporation in accordance with the laws of the state under
which it exists.
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(2) Within twenty days after the approval of the agreement of merger by the
directors of the surviving subsidiary corporation, the surviving corporation
shall deliver or send written notice of such approval and a copy or summary of
the agreement to each shareholder of the surviving corporation, other than the
parent of the surviving corporation, of record as of the date on which the
directors of the surviving corporation approved the agreement.
(D) The approval of the agreement of merger by the directors of the surviving
subsidiary corporation under this section constitutes adoption by the
corporation.
@ 1701.82 Effect of merger or consolidation; actions to set aside.
(A) When a merger or consolidation becomes effective, all of the following
apply:
(1) The separate existence of each constituent entity other than the
surviving entity in a merger shall cease, except that whenever a conveyance,
assignment, transfer, deed, or other instrument or act is necessary to vest
property or rights in the surviving or new entity, the officers, general
partners, or other authorized representatives of the respective constituent
entities shall execute, acknowledge, and deliver such instruments and do such
acts. For these purposes, the existence of the constituent entities and the
authority of their respective officers, directors, general partners, or other
authorized representatives is continued notwithstanding the merger or
consolidation.
(2) In the case of a consolidation, the new entity exists when the
consolidation becomes effective and, if it is a domestic corporation, the
articles contained in or provided for in the agreement of consolidation shall be
its original articles. In the case of a merger in which the surviving entity is
a domestic corporation, the articles of the domestic surviving corporation in
effect immediately prior to the time the merger becomes effective shall continue
as its articles after the merger except as otherwise provided in the agreement
of merger.
(3) The surviving or new entity possesses all assets and property of every
description, and every interest in the assets and property, wherever located,
and the rights, privileges, immunities, powers, franchises, and authority, of a
public as well as of a private nature, of each constituent entity, and all
obligations belonging to or due to each constituent entity, all of which are
vested in the surviving or new entity without further act or deed. Title to any
real estate or any interest in the real estate vested in any constituent entity
shall not revert or in any way be impaired by reason of such merger or
consolidation.
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(4) The surviving or new entity is liable for all the obligations of each
constituent entity, including liability to dissenting shareholders. Any claim
existing or any action or proceeding pending by or against any constituent
entity may be prosecuted to judgment, with right of appeal, as if the merger or
consolidation had not taken place, or the surviving or new entity may be
substituted in its place.
(5) All the rights of creditors of each constituent entity are preserved
unimpaired, and all liens upon the property of any constituent entity are
preserved unimpaired, on only the property affected by such liens immediately
prior to the effective date of the merger or consolidation. If a general partner
of a constituent partnership is not a general partner of the entity surviving or
the new entity resulting from the merger or consolidation, then the former
general partner shall have no liability for any obligation incurred after the
merger or consolidation except to the extent that a former creditor of the
constituent partnership in which the former general partner was a partner
extends credit to the surviving or new entity reasonably believing that the
former general partner continued as a general partner of the surviving or new
entity.
(B) If a general partner of a constituent partnership is not a general
partner of the entity surviving or the new entity resulting from the merger or
consolidation, the provisions of division (B) of section 1782.434 [1782.43.4] of
the Revised Code shall apply.
(C) In the case of a merger of a domestic constituent corporation into a
foreign surviving corporation, limited liability company, or limited partnership
that is not licensed or registered to transact business in this state or in the
case of a consolidation of a domestic constituent corporation into a new foreign
corporation, limited liability company, or limited partnership, if the surviving
or new entity intends to transact business in this state and the certificate of
merger or consolidation is accompanied by the information described in division
(B)(4) of section 1701.81 of the Revised Code, then, on the effective date of
the merger or consolidation, the surviving or new entity shall be considered to
have complied with the requirements for procuring a license or for registering
to transact business in this state as a foreign corporation, limited liability
company, or limited partnership, as the case may be. In such a case, a copy of
the certificate of merger or consolidation certified by the secretary of state
constitutes the license certificate prescribed by the laws of this state for a
foreign corporation transacting business in this state or the application for
registration prescribed for a foreign limited partnership or limited liability
company.
(D) Any action to set aside any merger or consolidation on the
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ground that any section of the Revised Code applicable to the merger or
consolidation has not been complied with shall be brought within ninety days
after the effective date of such merger or consolidation or be forever barred.
(E) As used in this section, "corporation" or "entity" applies to both
domestic and foreign corporations and entities where the context so permits. In
the case of a foreign constituent entity or a foreign new entity, this section
is subject to the laws of the state under the laws of which the entity exists or
in which it has property.
@ 1701.84 Persons entitled to relief as dissenting shareholders.
The following are entitled to relief as dissenting shareholders under section
1701.85 of the Revised Code:
(A) Shareholders of a domestic corporation that is being merged or
consolidated into a surviving or new entity, domestic or foreign, pursuant to
section 1701.78, 1701.781 [1701.78.1], 1701.79, 1701.791 [1701.79.1], or
1701.801 [1701.80.1] of the Revised Code;
(B) In the case of a merger into a domestic corporation, shareholders of the
surviving corporation who under section 1701.78 or 1701.781 [1701.78.1] of the
Revised Code are entitled to vote on the adoption of an agreement of merger, but
only as to the shares so entitling them to vote;
(C) Shareholders, other than the parent corporation, of a domestic subsidiary
corporation that is being merged into the domestic or foreign parent corporation
pursuant to section 1701.80 of the Revised Code;
(D) In the case of a combination or a majority share acquisition,
shareholders of the acquiring corporation who under section 1701.83 of the
Revised Code are entitled to vote on such transaction, but only as to the shares
so entitling them to vote;
(E) Shareholders of a domestic subsidiary corporation into which one or more
domestic or foreign corporations are being merged pursuant to section 1701.801
[1701.80.1] of the Revised Code.
@ 1701.85 Dissenting shareholder's demand for fair cash value of shares.
(A)(1) A shareholder of a domestic corporation is entitled to relief as a
dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
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(2) If the proposal must be submitted to the shareholders of the corporation
involved, the dissenting shareholder shall be a record holder of the shares of
the corporation as to which he seeks relief as of the date fixed for the
determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 [1701.80.1] of the Revised Code shall be a
record holder of the shares of the corporation as to which he seeks relief as of
the date on which the agreement of merger was adopted by the directors of that
corporation. Within twenty days after he has been sent the notice provided in
section 1701.80 or 1701.801 [1701.80.1] of the Revised Code, the dissenting
shareholder shall deliver to the corporation a written demand for payment with
the same information as that provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the address
specified in his demand, a request for the certificates representing the shares
as to which he seeks relief, the dissenting shareholder, within fifteen days
from the date of the sending of such request, shall deliver to the corporation
the certificates requested so that the corporation may forthwith endorse on them
a legend to the effect that demand for the fair cash value of such shares has
been made. The corporation promptly shall return such endorsed certificates to
the dissenting shareholder. A dissenting shareholder's failure to deliver such
certificates terminates his rights as a dissenting shareholder, at the option of
the corporation, exercised by written notice sent to the dissenting shareholder
within twenty days after the lapse of the fifteen-day period, unless a court for
good cause shown otherwise directs. If shares represented by a certificate on
which such a legend has been endorsed are transferred, each
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new certificate issued for them shall bear a similar legend, together with the
name of the original dissenting holder of such shares. Upon receiving a demand
for payment from a dissenting shareholder who is the record holder of
uncertificated securities, the corporation shall make an appropriate notation of
the demand for payment in its shareholder records. If uncertificated shares for
which payment has been demanded are to be transferred, any new certificate
issued for the shares shall bear the legend required for certificated securities
as provided in this paragraph. A transferee of the shares so endorsed, or of
uncertificated securities where such notation has been made, acquires only such
rights in the corporation as the original dissenting holder of such shares had
immediately after the service of a demand for payment of the fair cash value of
the shares. A request under this paragraph by the corporation is not an
admission by the corporation that the shareholder is entitled to relief under
this section.
(B) Unless the corporation and the dissenting shareholder have come to an
agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving or
new entity, within three months after the service of the demand by the
dissenting shareholder, may file a complaint in the court of common pleas of the
county in which the principal office of the corporation that issued the shares
is located or was located when the proposal was adopted by the shareholders of
the corporation, or, if the proposal was not required to be submitted to the
shareholders, was approved by the directors. Other dissenting shareholders,
within that three-month period, may join as plaintiffs or may be joined as
defendants in any such proceeding, and any two or more such proceedings may be
consolidated. The complaint shall contain a brief statement of the facts,
including the vote and the facts entitling the dissenting shareholder to the
relief demanded. No answer to such a complaint is required. Upon the filing of
such a complaint, the court, on motion of the petitioner, shall enter an order
fixing a date for a hearing on the complaint and requiring that a copy of the
complaint and a notice of the filing and of the date for hearing be given to the
respondent or defendant in the manner in which summons is required to be served
or substituted service is required to be made in other cases. On the day fixed
for the hearing on the complaint or any adjournment of it, the court shall
determine from the complaint and from such evidence as is submitted by either
party whether the dissenting shareholder is entitled to be paid the fair cash
value of any shares and, if so, the number and class of such shares. If the
court finds that the dissenting shareholder is so entitled, the court may
appoint one or more persons as appraisers to receive evidence and to recommend a
decision on the amount of the fair cash value. The appraisers have such power
and authority as is specified in the order of their appointment. The court
thereupon shall make a finding as to
D-1-15
<PAGE> 16
the fair cash value of a share and shall render judgment against the corporation
for the payment of it, with interest at such rate and from such date as the
court considers equitable. The costs of the proceeding, including reasonable
compensation to the appraisers to be fixed by the court, shall be assessed or
apportioned as the court considers equitable. The proceeding is a special
proceeding and final orders in it may be vacated, modified, or reversed on
appeal pursuant to the Rules of Appellate Procedure and, to the extent not in
conflict with those rules, Chapter 2505. of the Revised Code. If, during the
pendency of any proceeding instituted under this section, a suit or proceeding
is or has been instituted to enjoin or otherwise to prevent the carrying out of
the action as to which the shareholder has dissented, the proceeding instituted
under this section shall be stayed until the final determination of the other
suit or proceeding. Unless any provision in division (D) of this section is
applicable, the fair cash value of the shares that is agreed upon by the parties
or fixed under this section shall be paid within thirty days after the date of
final determination of such value under this division, the effective date of the
amendment to the articles, or the consummation of the other action involved,
whichever occurs last. Upon the occurrence of the last such event, payment shall
be made immediately to a holder of uncertificated securities entitled to such
payment. In the case of holders of shares represented by certificates, payment
shall be made only upon and simultaneously with the surrender to the corporation
of the certificates representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of the
corporation, fair cash value as to those shareholders shall be determined as of
the day prior to the day on which the vote by the shareholders was taken and, in
the case of a merger pursuant to section 1701.80 or 1701.801 [1701.80.1] of the
Revised Code, fair cash value as to shareholders of a constituent subsidiary
corporation shall be determined as of the day before the adoption of the
agreement of merger by the directors of the particular subsidiary corporation.
The fair cash value of a share for the purposes of this section is the amount
that a willing seller who is under no compulsion to sell would be willing to
accept and that a willing buyer who is under no compulsion to purchase would be
willing to pay, but in no event shall the fair cash value of a share exceed the
amount specified in the demand of the particular shareholder. In computing such
fair cash value, any appreciation or depreciation in market value resulting from
the proposal submitted to the directors or to the shareholders shall be
excluded.
(D)(1) The right and obligation of a dissenting shareholder to receive such
fair cash value and to sell such shares as to which he seeks relief, and the
right and obligation of the corporation to purchase such shares and to pay the
fair cash value of them terminates if any of the following applies:
D-1-16
<PAGE> 17
(a) The dissenting shareholder has not complied with this section, unless the
corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally enjoined or
prevented from carrying it out, or the shareholders rescind their adoption of
the action involved;
(c) The dissenting shareholder withdraws his demand, with the consent of the
corporation by its directors;
(d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the shareholder nor
the corporation has filed or joined in a complaint under division (B) of this
section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand until
either the termination of the rights and obligations arising from it or the
purchase of the shares by the corporation, all other rights accruing from such
shares, including voting and dividend or distribution rights, are suspended. If
during the suspension, any dividend or distribution is paid in money upon shares
of such class or any dividend, distribution, or interest is paid in money upon
any securities issued in extinguishment of or in substitution for such shares,
an amount equal to the dividend, distribution, or interest which, except for the
suspension, would have been payable upon such shares or securities, shall be
paid to the holder of record as a credit upon the fair cash value of the shares.
If the right to receive fair cash value is terminated other than by the purchase
of the shares by the corporation, all rights of the holder shall be restored and
all distributions which, except for the suspension, would have been made shall
be made to the holder of record of the shares at the time of termination.
D-1-17
<PAGE> 1
EXHIBIT D-5
2000 One Logan Square
Morgan, Lewis
Philadelphia, PA 19103-6993 & Bockius LLP
215-963-5000 COUNSELORS AT LAW
Fax: 215-963-5299
Thomas P. Gadsden
215-963-5234
November 27, 1996
VIA HAND DELIVERY
- -----------------
John G. Alford, Secretary
Pennsylvania Public Utility Commission
New Filing Section - Room B-20
North Office Building
Commonwealth Avenue and North Street
Harrisburg, PA 17120
Re: PETITION OF PENNSYLVANIA POWER COMPANY FOR A DECLARATORY ORDER
REGARDING THE APPLICATION OF SECTION 1102(a)(3). DOCKET NO. P-
APPLICATION OF PENNSYLVANIA POWER COMPANY ("PENN POWER") FOR A
CERTIFICATE OF PUBLIC CONVENIENCE EVIDENCING COMMISSION APPROVAL UNDER
SECTION 1102(a)(3) OF THE TRANSFER OF STOCK OF OHIO EDISON COMPANY,
PARENT OF PENN POWER, TO FIRSTENERGY CORP. DOCKET NO. A-
-----------------------------------------------------------------------
Dear Secretary Alford:
Enclosed for filing are an original and two copies of the PETITION OF
PENNSYLVANIA POWER COMPANY FOR A DECLARATORY ORDER REGARDING THE APPLICATION OF
SECTION 1102(a)(3). The Petition requests that the Pennsylvania Public Utility
Commission ("Commission" or "PUC") enter an Order finding and declaring that
Section 1102(a)(3) of the Public Utility Code, 66 Pa. C.S. Section 1102(a)(3),
does not comprehend a proposed transaction whereby the common stock of
Pennsylvania Power Company's ("Penn Power") parent, Ohio Edison Company ("OE"),
will be exchanged for the common stock of a newly-formed corporation,
FirstEnergy Corp. ("FirstEnergy"), as more fully described in the Petition.
As also explained in the enclosed Petition (Paragraph 17 at pp. 11-12), while
Penn Power firmly believes that Section 1102(a)(3) approval of the proposed
transaction involving OE is not required, Penn Power recognizes that, as a
practical matter, the issues raised therein would be moot if the Commission were
to expeditiously grant its unqualified approval of the OE stock transfer.
Accordingly, Penn Power has provided, as a separately bound Appendix A to the
Petition, an original and two copies of a completed and executed APPLICATION OF
PENNSYLVANIA POWER COMPANY ("PENN POWER") FOR A CERTIFICATE OF PUBLIC
CONVENIENCE EVIDENCING COMMISSION APPROVAL UNDER SECTION 1102(a)(3) OF THE
TRANSFER OF STOCK OF
D-5-1
<PAGE> 2
Morgan, Lewis
John G. Alford, Secretary & Bockius LLP
November 27, 1996
Page 2
OHIO EDISON COMPANY, PARENT OF PENN POWER, TO FIRSTENERGY CORP. The Application
is being provided on a contingent basis, and does not represent either OE's
submission to the jurisdiction of the PUC or an admission by Penn Power or OE of
the PUC's jurisdiction or authority under Section 1102(a)(3) over the proposed
stock transfer. An affidavit of verification is attached to the Application, and
a check in the amount of $350 payable to the Commonwealth of Pennsylvania is
enclosed in satisfaction of the Commission's filing fee under 52 Pa. Code
Section 1.43(a).
Pursuant to 52 Pa. Code Section 1.51, the Commission is to provide Penn Power
with instructions for the service and/or public notice of the filing of the
Application. As evidenced by the enclosed Certificate of Service, Penn Power has
already served copies of the Petition and Application upon the Office of
Consumer Advocate and the Office of Small Business Advocate.
Additional copies of this letter, the Petition and the Application are enclosed,
which we request that you date stamp and return to us as evidence of filing.
If there are any questions concerning the Petition or the Application, please
feel free to call us.
Very truly yours,
/s/
Thomas P. Gadsden
Attorney for Pennsylvania Power Company
TPG
Enclosures
cc: Irwin A. Popowsky, Consumer Advocate (w/encl)
Bernard A. Ryan, Jr., Small Business Advocate (w/encl)
Douglas T. Beebe, Office of Special Assistants (w/encl)
bcc: Stephen L. Feld, Esquire (FedEx)
Michael R. Beiting (FedEx)
Robert S. Waters (FedEx)
D-5-2
<PAGE> 3
BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION
CERTIFICATE OF SERVICE
----------------------
I hereby certify that I have, this 27th day of November 1996,
served true and correct copies of the PETITION OF PENNSYLVANIA POWER COMPANY FOR
A DECLARATORY ORDER REGARDING THE APPLICATION OF SECTION 1102(a)(3) and the
APPLICATION OF PENNSYLVANIA POWER COMPANY ("PENN POWER") FOR A CERTIFICATE OF
PUBLIC CONVENIENCE EVIDENCING COMMISSION APPROVAL UNDER SECTION 1102(a)(3) OF
THE TRANSFER OF STOCK OF OHIO EDISON COMPANY, PARENT OF PENN POWER, TO
FIRSTENERGY CORP. upon the following persons in the manner indicated below:
BY HAND DELIVERY
----------------
Irwin A. Popowsky, Consumer Advocate
Office of Consumer Advocate
1425 Strawberry Square
Harrisburg, PA 17120
Bernard A. Ryan, Small Business Advocate
Office of Small Business Advocate
Suite 1102, Commerce Building
300 North Second Street
Harrisburg, PA 17120
Douglas T. Beebe
Supervisor - Securities
Office of Special Assistants
Pennsylvania Public Utility Commission
Rm 207 North Office Building
Commonwealth Avenue and North Street
Harrisburg, PA 17120
DATED: November 27, 1996 ______________________________________
Anthony C. DeCusatis
Counsel for Pennsylvania Power Company
D-5-3
<PAGE> 4
PENNSYLVANIA PUBLIC UTILITY COMMISSION
PETITION OF PENNSYLVANIA POWER :
COMPANY FOR A DECLARATORY : DOCKET NO.
ORDER REGARDING THE APPLICATION : P-_____________
OF SECTION 1102(A)(3) :
PETITION OF
PENNSYLVANIA POWER COMPANY
--------------------------
Pennsylvania Power Company ("Penn Power" or the "Company"), pursuant to
Section 331(f) of the Public Utility Code, 66 Pa. C.S. Sections 331(f), and 52
Pa. Code Section 5.42, respectfully requests that the Pennsylvania Public
Utility Commission ("PUC" or the "Commission") issue a declaratory order
holding that Section 1102(a)(3) of the Public Utility Code, 66 Pa. C.S. Section
1102(a)(3) (hereafter, "Section 1102(a)(3)"), does not comprehend a proposed
transaction whereby the common stock of Penn Power's parent, Ohio Edison
Company ("OE"), will be exchanged for the common stock of a newly-formed
corporation, FirstEnergy Corp. ("FirstEnergy"), and, after the exchange: (1) OE
will be a wholly-owned subsidiary of FirstEnergy; (2) holders of the common
stock of OE will own shares of common stock of FirstEnergy representing a
66.25% majority voting interest in that company; (3) OE will have the right to
appoint the first Board of Directors of FirstEnergy; (4) all of Penn Power's
common stock will continue to be held by OE; (5) there will be no change in the
management of Penn Power; and (6) Penn Power's existing rates will not increase
nor its existing service be diminished as a result of the proposed transaction.
In support of its request for a declaratory order, Penn Power states as
follows:
THE COMPANIES
-------------
1. Penn Power is a public utility providing electric service to
approximately 144,000 customers within its authorized service territory located
within the Counties of Allegheny, Beaver, Butler, Crawford, Lawrence and Mercer
in Western Pennsylvania. Penn
D-5-4
<PAGE> 5
Power is subject to the regulatory jurisdiction of this Commission and the
Federal Energy Regulatory Commission ("FERC").
2. All of the outstanding common stock of Penn Power is held by OE. OE
is a public utility that provides electric service to approximately 1.1 million
customers within its authorized service territory located in Central and
Northern Ohio. OE is subject to the regulatory jurisdiction of the Public
Utilities Commission of Ohio ("PUCO") and the FERC. By reason of its ownership
of Penn Power's common stock, OE is a "holding company" as defined in the Public
Utility Holding Company Act of 1935, 15 U.S.C. Sections 79 to 79z-6 ("PUHCA"),
but is exempt from registration under Section 3(a)(2) of PUHCA, 15 U.S.C.
Section 79c(a)(2).
3. Centerior Energy Corporation ("Centerior") holds all of the
outstanding common stock of The Cleveland Electric Illuminating Company ("CEI")
and The Toledo Edison Company ("TE"). Both CEI and TE are public utilities
providing electric service within their authorized service territories in Ohio.
CEI serves the City of Cleveland and contiguous areas. TE serves the City of
Toledo and contiguous areas. In aggregate CEI and TE supply electric service to
approximately 1.0 million customers in Northern Ohio. CEI and TE are subject to
the regulatory jurisdiction of the PUCO, the FERC and the Nuclear Regulatory
Commission ("NRC"). Centerior is a "holding company" as defined by PUHCA but is
exempt from registration under Section 3(a)(1) thereof, 15 U.S.C. Section
79c(a)(1).
THE PROPOSED TRANSACTION
------------------------
4. On September 13, 1996, OE and Centerior entered into an Agreement
and Plan of Merger (the "Merger Agreement"). Pursuant to the Merger Agreement,
OE, CEI and TE will become wholly-owned subsidiaries of FirstEnergy, and Penn
Power will remain a wholly-owned subsidiary of OE. OE, Penn Power, CEI and TE
have also entered into a Joint
D-5-5
<PAGE> 6
Dispatch Agreement, under which they will operate their combined systems as a
single control area. Copies of the Merger Agreement and the Joint Dispatch
Agreement have been provided to the Commission as part of the Joint Application
Of Ohio Edison Company, Pennsylvania Power Company, The Cleveland Electric
Illuminating Company, and The Toledo Edison Company For Approval Of Merger And
Joint Dispatch Agreement (the "FERC Application"), which was filed with the FERC
on November 8, 1996. The FERC Application, together with all Exhibits thereto
and accompanying testimony, was submitted to the Commission pursuant to 18
C.F.R. Section 33.6.
5. Under the terms of the Merger Agreement, each share of common stock
of OE will be converted into one share of common stock of FirstEnergy and each
share of Centerior will be converted into 0.525 shares of FirstEnergy. Debt and
preferred shares of OE, Penn Power, CEI and TE will remain outstanding. Upon
completion of the transaction, former OE common stockholders will own common
stock in FirstEnergy representing 66.25% of FirstEnergy's total voting shares.
The Merger Agreement also provides that OE's Board of Directors will designate
the members of FirstEnergy's initial Board of Directors, which is expected to be
the twelve current members of the OE Board. Also, the Chairman of the Board,
President and Chief Executive Officer ("CEO") of FirstEnergy will be W. R.
Holland, who is currently the Chairman of the Board of Penn Power.
6. The Merger Agreement and the Joint Dispatch Agreement are subject to
approval by the FERC under Sections 203 and 205 of the Federal Power Act. The
PUCO will have an opportunity to review the proposed merger in the context of a
merger-related CEI/TE regulatory plan that will provide for, INTER ALIA, a rate
freeze and accelerated depreciation of certain fixed assets. Regulatory
approvals will also be required by the Securities and Exchange Commission, the
NRC, the United States Department of Justice and the Federal
D-5-6
<PAGE> 7
Trade Commission. As is evident, the Merger Agreement will be reviewed by a
number of agencies to assure that the proposed transaction is in the public
interest. FirstEnergy will be a "holding company" as defined by PUHCA, and is
expected to be exempt from registration under Section 3(a)(1) thereof, 15 U.S.C.
Section 79c(a)(1).
7. As previously indicated, upon completion of the transaction in the
manner set forth in the Merger Agreement, OE will continue to own all of the
common stock of Penn Power. As a result of the proposed transaction, no changes
in the management of Penn Power will occur, nor will Penn Power's rates be
increased or its service diminished.
SECTION 1102(A)(3) AND THE COMMISSION'S
POLICY STATEMENT
---------------------------------------
8. Section 1102(a)(3) requires prior PUC approval, as evidenced by a
certificate of public convenience, for:
[A]ny public utility or an affiliated interest of a public
utility as defined in section 2101 ... to acquire from, or
transfer to, any person or corporation, including a municipal
corporation, by any method or device whatsoever, including the
sale or transfer of stock and including a consolidation,
merger, sale or lease, the title to, or the possession or use
of, any tangible or intangible property used or useful in the
public service.
9. In JOINT APPLICATION OF COMMONWEALTH TELEPHONE COMPANY, ET AL.,
Docket No. A-310800F0006 (October 22, 1993) ("COMMONWEALTH TELEPHONE"), the
Commission reversed its longstanding interpretation of Section 1102(a)(3). Prior
to COMMONWEALTH TELEPHONE, only the transfer of utility stock was considered to
be a transfer of used or useful property requiring approval under Section
1102(a)(3).(1)/ In COMMONWEALTH TELEPHONE, however, the Commission stated that:
- --------
(1) SEE APPLICATION OF AIRSIGNAL INTERNATIONAL OF PITTSBURGH, PA., INC.,
A-101365 (January 14, 1980); APPLICATION OF MCI AIRSIGNAL, INC. OF PA.,
INC., A-330035 (July 15, 1986).
D-5-7
<PAGE> 8
[F]rom a practical view, the transfer of equity control of a
utility parent or grandparent can directly affect the
management of the utility. Stockholders exercising a
controlling interest in a parent or grandparent can affect the
Board of Directors, utility personnel and utility management
philosophy and can ultimately have a direct effect on the cost
and quality of service to the public.
In COMMONWEALTH TELEPHONE, the transaction involved the transfer of a
57% voting interest in the parent of a telephone utility providing local
exchange service in Pennsylvania subject to the PUC's jurisdiction.
10. On September 1, 1994, the Commission issued a Policy Statement
regarding utility stock transfers under Section 1102(a)(3). In its Order
adopting the Policy Statement, the Commission noted that its purpose was to
clarify the application of COMMONWEALTH TELEPHONE, which it characterized as
holding that:
[Section] 1102(a)(3) invoked Commission jurisdiction over the
transfer of stock of either a utility or its parent,
regardless of the remoteness of the transaction, IF THE EFFECT
OF THE STOCK TRANSFER IS THE TRANSFER OR ACQUISITION OF
CONTROL OF A JURISDICTIONAL UTILITY. (Emphasis added.)
24 Pa. Bulletin 5328, 5329 (October 22, 1994).
Specifically, the Policy Statement addressed the issue of what
constitutes de facto "control," as follows:
(b) Policy.
(1) A transaction or series of transactions resulting in a new
controlling interest is jurisdictional when the transaction or
transactions result in a different entity becoming the
beneficial holder of the largest voting interest in the
utility or parent, regardless of the tier. A transaction or
series of transactions resulting in the elimination of a
controlling interest is jurisdictional when the transaction or
transactions result in the dissipation of the largest voting
interest in the utility or parent, regardless of the tier.
(2) For purposes of this section, a controlling interest is an
interest, held by a person or a group acting in concert, which
enables the beneficial holders to control at least 20% of the
voting interest in the utility or its parent, regardless of
the remoteness of the transaction. In
D-5-8
<PAGE> 9
determining whether a controlling interest is present, voting
power arising from a contingent right shall be disregarded.
52 Pa. Code Section 69.901.
PUC APPROVAL UNDER
SECTION 1102(A)(3) IS NOT REQUIRED
----------------------------------
11. At the outset, Penn Power must reiterate its fundamental
disagreement with the PUC's interpretation of Section 1102(a)(3) as reaching
stock transfers occurring at the level of a jurisdictional utility's parent or
grandparent. The language of Section 1102(a)(3) does not support the PUC's
interpretation. Moreover, transfers of stock by and between non-Pennsylvania
public utilities are not within the jurisdiction and authority of the
Commission, as Penn Power explained in detail in the Comments it filed to the
Commission's proposed Policy Statement, which are incorporated herein by
reference. While Penn Power acknowledges that the Commission did not agree with
this position at the time the Policy Statement was issued, it believes that the
Commission would be justified, based on the facts and circumstances involved in
this matter, in revisiting the issue at this time.(2)/ However, even if the
Commission were not inclined to reconsider its position on that issue, it should
nonetheless enter the Declaratory Order requested by Penn Power because the
proposed OE-Centerior transaction is outside the
- --------
2 In this regard, it should be noted that statements of policy do not
have the force of law, are merely interpretive in nature and are not
binding upon a reviewing court. The value of a policy statement is, at
most, persuasive, so long as it represents an accurate interpretation
of the relevant statute or other authorities from which it is derived.
PENNSYLVANIA DEPT. OF HEALTH V. NORTH HILLS PASSAVANT HOSPITAL, 674
A.2d 1141, 1147 (Pa. Cmwlth. 1996); PENNSYLVANIA HUMAN RELATIONS
COMM'N. V. NORRISTOWN AREA SCHOOL DISTRICT, 20 Pa. Cmwlth. 555, 342
A.2d 464 (1975), AFFIRMED, 473 Pa. 334, 374 A.2d 671 (1977).
Consequently, the Commission's Policy Statement on stock transfers
under Section 1102(a)(3) is not, in itself, a primary source of
governing law nor is it a presumptively correct interpretation of the
law.
D-5-9
<PAGE> 10
purpose and intent of the Commission's Policy Statement and the holding in
COMMONWEALTH TELEPHONE.
12. As previously explained, the Commission expressed its intent to
assert jurisdiction over the transfer of stock by a utility's parent or
grandparent "if the effect of the stock transfer is the transfer or acquisition
of control of a jurisdictional utility." 24 Pa. Bulletin at 5329. Also, as the
Commission noted in COMMONWEALTH TELEPHONE, in determining whether a change of
control would occur, it would take a "practical view." To that end, the Policy
Statement proposes an analytic approach that collapses intermediary corporate
changes and focuses upon changes in stock ownership among the persons or
entities that have ultimate control over any tiered group of corporations that
include a Pennsylvania jurisdictional utility. SEE 52 Pa. Code Section
69.901(b)(1).
13. Applying the Commission-authorized approach, outlined above, to the
OE-Centerior transaction, it is clear that the proposed stock transfer will NOT
effect a "change of control." Prior to the transaction, ultimate "control" of OE
is lodged in the holders of OE's publicly-traded common stock. After
consummation of the transaction, ultimate "control" of the tiered group, as
represented by the stock ownership in FirstEnergy, will continue to be lodged in
the former OE stockholders, who would own 66.25% of the voting shares of
FirstEnergy. In short, the very same stockholders would be in "control" both
before and after the transaction.
14. As previously explained, OE would name FirstEnergy's initial Board
of Directors. In addition, OE's CEO would become the Chairman, President and CEO
of FirstEnergy. Thus, although a holding company structure is being used to
effect a nominal "merger" of OE and Centerior, this transaction is widely viewed
as an acquisition of Centerior by OE that will place OE in control of the
combined entity. See ELECTRIC UTILITY WEEK, p. 1
D-5-10
<PAGE> 11
(September 23, 1996), referring to "Ohio Edison's agreement to acquire
Cleveland-based Centerior Energy ... ;" THE ENERGY DAILY, p. 1 (September 17,
1996) ("The 'merger,' in reality, a $1.6 billion purchase of Centerior by Ohio
Edison, will enable the companies to provide 'better service at lower
prices'..."); NUCLEONICS WEEK, p. 1 (September 19, 1996) ("[T]he planned merger
is in the form of a stock-for-stock transaction under which Ohio Edison, the
financially stronger company, will pay approximately $1.6 billion for Centerior
and control the resulting company...").
15. It must also be emphasized that the immediate ownership and
management of Penn Power will not be affected by the proposed
transaction. All of Penn Power's common stock will continue to be
owned by OE, and Penn Power's management will remain in place. Additionally,
Penn Power's rates will not be increased nor the quality of its service
diminished as a result of the proposed transaction. In particular, Penn Power
would remain subject to the terms and conditions of the Rate Stability And
Economic Development Plan approved by the Commission's Order entered June 25,
1996, at Docket No. P-00961028.
16. For the reasons set forth above, the Commission should enter an
order finding and determining that the proposed transaction, as hereinbefore
described, is not subject to a requirement of prior Commission approval under
Section 1102(a)(3).
CONTINGENT APPLICATION FOR A
CERTIFICATE OF PUBLIC CONVENIENCE
---------------------------------
17. While Penn Power firmly believes that Section 1102(a)(3) approval
of the proposed transaction is not required, it recognizes that, as a practical
matter, the issues raised herein would be moot if the Commission were to
expeditiously grant its unqualified approval of the OE stock transfer and issue
a certificate of public convenience in evidence
D-5-11
<PAGE> 12
thereof. In view of the substantial public benefits that will result from the
proposed transaction, Penn Power desires to avoid any unnecessary delay in
obtaining the requisite regulatory action, whether in the form of PUC approval
of the proposed transaction or a declaratory order obviating the need for such
approval. In furtherance of that goal, Penn Power is providing to the
Commission, as Appendix A hereto, a completed and executed Application For A
Certificate of Public Convenience Evidencing Commission Approval Under Section
1102(a)(3) of the Transfer of Stock of Ohio Edison Company, Parent of
Pennsylvania Power Company, To FirstEnergy Corp. The Application is being
provided on a contingent basis only, and represents neither OE's submission to
the jurisdiction of the PUC nor an admission by Penn Power or OE of the PUC's
jurisdiction or authority under Section 1102(a)(3) over the proposed stock
transfer.
D-5-12
<PAGE> 13
WHEREFORE, for the reasons set forth above, the Commission should issue
a Declaratory Order finding and determining that the transfer of stock in OE to
FirstEnergy does not require prior Commission approval under Section 1102(a)(3).
If, however, the Commission declines to issue such an Order, then the
Application provided in Appendix A should be deemed filed, NUNC PRO TUNC, as of
the date of filing of this Petition and the Commission should promptly enter an
order approving the proposed stock transfer without condition or qualification.
Respectfully submitted,
/s/ Thomas P. Gadsden
---------------------------
Thomas P. Gadsden
Anthony C. DeCusatis
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103-6993
Robert P. Wushinske
Stephen L. Feld
Counsel for
Pennsylvania Power Company
One East Washington Street
P.O. Box 891
New Castle, PA 16103
OF COUNSEL:
MORGAN, LEWIS & BOCKIUS LLP
2000 One Logan Square
Philadelphia, PA 19103
Date: November 27, 1996
D-5-13
<PAGE> 14
A F F I D A V I T
COMMONWEALTH OF PENNSYLVANIA )
) ss.:
COUNTY OF LAWRENCE )
Robert P. Wushinske, being duly sworn according to law, deposes and
says that he is Vice President of Pennsylvania Power Company; that he is
authorized to and does make this affidavit for it; that he has read the
foregoing Petition and states that the facts set forth therein are true and
correct to the best of his knowledge, information and belief and he expects
Pennsylvania Power Company to be able to prove the same at a hearing, if any,
thereon.
/s/ Robert P. Wushinske
-------------------------
Robert P. Wushinske
Sworn to and subscribed
before me this 25th day
of November, 1996
/s/ Donna S. Mathieson
- --------------------------
Notary Public
D-5-14
<PAGE> 15
APPENDIX A
APPLICATION OF PENNSYLVANIA POWER COMPANY ("PENN POWER")
FOR A CERTIFICATE OF PUBLIC CONVENIENCE
EVIDENCING COMMISSION APPROVAL UNDER
SECTION 1102(A)(3) OF THE TRANSFER OF STOCK OF
OHIO EDISON COMPANY, PARENT OF PENN POWER,
TO FIRSTENERGY CORP.
(The aforementioned Application is being submitted
as a separately bound document.)
D-5-15
<PAGE> 1
Exhibit D-6
BEFORE THE
PENNSYLVANIA PUBLIC UTILITY COMMISSION
APPLICATION OF PENNSYLVANIA POWER :
COMPANY ("PENN POWER") FOR A :
CERTIFICATE OF PUBLIC CONVENIENCE :
EVIDENCING APPROVAL UNDER : APPLICATION
SECTION 1102(A)(3) OF THE TRANSFER : DOCKET NO.
OF STOCK OF OHIO EDISON COMPANY, : _________, 1996
PARENT OF PENN POWER, TO :
FIRSTENERGY CORP. :
TO THE PENNSYLVANIA PUBLIC UTILITY COMMISSION
("COMMISSION"):
A. INTRODUCTION
------------
1. The name and address of the Applicant are
Pennsylvania Power Company
One East Washington Street
P.O. Box 891
New Castle, PA 16103
2. The names and addresses of the Applicant's
attorneys are:
Thomas P. Gadsden
Anthony C. DeCusatis
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103-6993
and
Robert P. Wushinske
Stephen L. Feld
Pennsylvania Power Company
One East Washington Street
P.O. Box 891
New Castle, PA 16103
3. This Application pertains to a transaction whereby the
common stock of Penn Power's parent, Ohio Edison Company ("OE"), will be
exchanged for the common stock of a newly-formed company, FirstEnergy Corp.
("FirstEnergy"), as part of a proposed merger of OE and Centerior Energy
Corporation ("Centerior"), as
D-6-1
<PAGE> 2
more fully described hereafter.
4. On November 27, 1996, Penn Power filed a Petition For A
Declaratory Order Regarding The Application Of Section 1102(a)(3), in which it
asked the Commission to issue an order finding and declaring that the proposed
exchange of OE common stock for FirstEnergy common stock is not subject to
approval under Section 1102(a)(3) of the Public Utility Code, 66 Pa.C.S. Section
1102(a)(3) (hereafter, "Section 1102(a)(3)"). For the reasons fully explained in
the Petition (see Paragraphs 11-16, at pp. 7-11), the Commission should issue
the requested declaratory order. However, as also explained in the Petition
(Paragraph 17 at pp. 11-12):
While Penn Power firmly believes that Section 1102(a)(3)
approval of the proposed transaction is not required, it
recognizes that, as a practical matter, the issues raised
herein would be moot if the Commission were to expeditiously
grant its unqualified approval of the OE stock transfer and
issue a certificate of public convenience in evidence thereof.
In view of the substantial public benefits that will result
from the proposed transaction, Penn Power desires to avoid any
unnecessary delay in obtaining the requisite regulatory
action, whether in the form of PUC approval of the proposed
transaction or a declaratory order obviating the need for such
approval. In furtherance of that goal, Penn Power is providing
to the Commission, as Appendix B hereto, a completed and
executed Application For A Certificate of Public Convenience
Evidencing Commission Approval Under Section 1102(a)(3) of the
Transfer of Stock of Ohio Edison Company, Parent of
Pennsylvania Power Company, To FirstEnergy Corp. The
Application is being provided on a contingent basis only, and
represents neither OE's submission to the jurisdiction of the
PUC nor an admission by Penn Power or OE of the PUC's
jurisdiction or authority under Section 1102(a)(3) over the
proposed stock transfer.
5. This Application is being submitted on a contingent basis
pursuant to the terms of Paragraph No. 17 of the
D-6-2
<PAGE> 3
Petition, as set forth above. Accordingly, if the Commission does not issue a
declaratory order, as requested in Penn Power's Petition, then this Application
should be deemed filed, NUNC PRO TUNC, as of the date of filing of the Petition,
and the Commission should promptly enter an order approving the proposed stock
transfer without condition or qualification.
B. THE COMPANIES INVOLVED
----------------------
6. Penn Power is a public utility providing electric service
to approximately 144,000 customers within its authorized service territory
located within the Counties of Allegheny, Beaver, Butler, Crawford, Lawrence and
Mercer in Western Pennsylvania. A breakdown of the customers, by customer
classification, served by Penn Power, as of September 30, 1996, is provided on
Exhibit A hereto. A map depicting the service territory of Penn Power is
attached hereto as Exhibit B. Penn Power is subject to the regulatory
jurisdiction of this Commission and the Federal Energy Regulatory Commission
("FERC").
7. All of the outstanding common stock of Penn Power is held
by OE. OE is a public utility that provides electric service to approximately
1.1 million customers within its authorized service territory located in Central
and Northern Ohio. OE is subject to the regulatory jurisdiction of the Public
Utilities Commission of Ohio ("PUCO") and the FERC. By reason of its ownership
of Penn Power's common stock, OE is a "holding company" as defined in the Public
Utility Holding Company Act of 1935, 15 U.S.C. Sections 79 to 79z-6 ("PUHCA"),
but is exempt from registration under Section 3(a)(2) of PUHCA, 15 U.S.C.
D-6-3
<PAGE> 4
Section 79c(a)(2).
8. Centerior holds all of the outstanding common stock of The
Cleveland Electric Illuminating Company ("CEI") and The Toledo Edison Company
("TE"). Both CEI and TE are public utilities providing electric service within
their authorized service territories in Ohio. CEI serves the City of Cleveland
and contiguous areas. TE serves the City of Toledo and contiguous areas. In
aggregate, CEI and TE supply electric service to approximately 1.0 million
customers in Northern Ohio. CEI and TE are subject to the regulatory
jurisdiction of the PUCO, the FERC and the Nuclear Regulatory Commission
("NRC"). Centerior is a "holding company" as defined by PUHCA, but is exempt
from registration under Section 3(a)(1) thereof, 15 U.S.C. Section 79c(a)(1).
C. THE PROPOSED TRANSACTION
------------------------
9. On September 13, 1996, OE and Centerior entered into an
Agreement and Plan of Merger (the "Merger Agreement").(1)/ Pursuant to the
Merger Agreement, OE, CEI and TE will become wholly-owned subsidiaries of
FirstEnergy, and Penn Power will remain a wholly-owned subsidiary of OE.
10. Under the terms of the Merger Agreement, each share of
common stock of OE will be converted into one share of common stock of
FirstEnergy, and each share of Centerior will be converted into 0.525 shares of
FirstEnergy. Debt and preferred
- --------
1. A copy of the Merger Agreement has been provided as an Exhibit to the
FERC Application filed with the Commission on November 8, 1996, as
explained in note 2, INFRA.
D-6-4
<PAGE> 5
shares of OE, Penn Power, CEI and TE will remain outstanding. Upon completion of
the transaction, former OE common stockholders will own common stock in
FirstEnergy representing 66.25% of FirstEnergy's total voting shares. The Merger
Agreement also provides that OE's Board of Directors will designate the members
of FirstEnergy's initial Board of Directors, which is expected to be the twelve
current members of OE's Board.
11. The Merger Agreement is subject to approval by the FERC
under Section 203 of the Federal Power Act.(2)/ The PUCO will have an
opportunity to review the proposed merger in the context of a merger-related
CEI/TE regulatory plan that will provide for, INTER ALIA, a rate freeze and
accelerated depreciation of certain fixed costs. Regulatory approvals will also
be required by the Securities and Exchange Commission, the NRC, the United
States Department of Justice and the Federal Trade Commission (SEE Section VI.
I. of the FERC Application). As is evident, the Merger Agreement will be
reviewed by a number of agencies to assure that the proposed transaction is in
the public interest. FirstEnergy will be a "holding company" as defined by
PUHCA, but is expected to be exempt from registration under Section 3(a)(1)
thereof, 15 U.S.C. Section 79c(a)(1).
- --------
2. A copy of the Joint Application Of Ohio Edison Company, Pennsylvania
Power Company, The Cleveland Electric Illuminating Company, And The
Toledo Edison Company For Approval Of Merger And Joint Dispatch
Agreement (the "FERC Application"), which was filed with the FERC on
November 8, 1996, together with all Exhibits thereto and accompanying
testimony, was submitted to the Commission on the same date pursuant to
18 C.F.R Section 33.6.
D-6-5
<PAGE> 6
12. As previously indicated, upon completion of the
transaction in the manner set forth in the Merger Agreement, OE will continue to
own all of the common stock of Penn Power. As a result of the proposed
transaction, no changes in the management of Penn Power will occur nor will Penn
Power's rates be increased or its service diminished.
D. BACKGROUND FINANCIAL INFORMATION
--------------------------------
13. BALANCE SHEETS. The balance sheet of Penn Power, as of
September 30, 1996, is attached hereto as Exhibit C. In addition, the balance
sheets of OE, CEI and TE, as of December 31, 1995, and a pro forma balance sheet
for FirstEnergy are included as Exhibit C to the FERC Application.
14. INCOME STATEMENT. The income statement of Penn Power, as
of September 30, 1996, is attached as Exhibit D. In addition, income statements
of OE, CEI and TE, as of December 31, 1995, and a pro forma income statement for
FirstEnergy are included as Exhibit E to the FERC Application.
15. STATEMENT OF FIXED PLANT. A statement showing the
depreciated original cost of Penn Power's fixed utility plant-in-service, as of
September 30, 1996, is attached hereto as Exhibit E. In addition, similar
statements of fixed plant for OE, CEI and TE, as of December 31, 1995, are
included as part of Exhibit C to the FERC Application.
16. RESOLUTIONS. Approval by the Board of Directors of Penn
Power is not required for the proposed merger. Certified copies of the
resolutions of the Boards of Directors of the merging companies necessary to
authorize the proposed merger are
D-6-6
<PAGE> 7
included as Exhibit A to the FERC Application.
17. DOCUMENTS INCORPORATED BY REFERENCE. All the annual
reports, tariffs, certificates of notification, applications for certificates of
valuation, applications for approval of the issuance of securities and
securities certificates filed with the Commission by Penn Power and its
predecessor, constituent and affiliated companies are made part hereof by
reference.
E. CONCLUSION
----------
18. If the Commission determines that approval of the proposed
transaction is necessary, then this Application should be granted and a
certificate of public convenience evidencing Commission approval should be
issued for, among others, the following principal reasons:
(a) The existing management of Penn Power will remain
in place after the proposed transaction.
(b) Completion of the proposed transaction will have
no adverse impact upon the service or rates of Penn Power. In particular, Penn
Power would remain subject to the terms and conditions of the Rate Stability And
Economic Development Plan approved by the Commission's Order entered June 25,
1996 at Docket No. R-00961028.
(c) The proposed transaction will make Penn Power
part of a larger and financially stronger FirstEnergy system that will be far
better positioned to deal with evolving changes in the wholesale and retail
electric markets, including the increasing exposure to competitive forces. In
particular, and as
D-6-7
<PAGE> 8
explained in detail in the Direct Testimony of Arthur R. Garfield (pp. 30-32)
filed with the FERC Application, OE, Penn Power, CEI and TE have entered into a
Joint Dispatch Agreement to provide for the economic dispatch of their
generating facilities and purchased power resources on a combined basis in order
to serve their aggregate load requirements and sales obligations. Joint dispatch
of capacity resources and extensive interconnections among the operating
companies will result in greater reliability for the combined system than either
OE/Penn Power or the Centerior system presently realize.
(d) As explained in the FERC Application (Section
B.1.) and in the Direct Testimony of Messrs. Garfield and Thomas J. Flaherty
filed with the FERC Application, the proposed merger is expected to produce
substantial savings on a system-wide basis and for individual operating
companies. In large measure, the benefits that will accrue to Penn Power from
the merger will provide the means to meet the aggressive goals to which Penn
Power is committed under its Rate Stability And Economic Development Plan. As
the Commission is aware, under that Plan, Penn Power, INTER ALIA, will reduce
its investment in generating assets and regulatory assets by at least an
additional $330 million over the life of the Plan; will increase its annual
funding for nuclear plant decommissioning by $2.76 million per year; and will
substantially increase funding for economic development programs and low-income
customer assistance programs, while freezing its base rates until June 20, 2006.
D-6-8
<PAGE> 9
WHEREFORE, for the reasons set forth above, Pennsylvania Power
Company requests that the Commission enter an Order approving this Application
and issue a certificate of public convenience evidencing its approval of the
transaction hereinbefore described.
Respectfully submitted,
/s/ Thomas P. Gadsden
---------------------------
Thomas P. Gadsden
Anthony C. DeCusatis
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103-6993
Robert P. Wushinske
Stephen L. Feld
Counsel for
Pennsylvania Power Company
One East Washington Street
P.O. Box 891
New Castle, PA 16103
OF COUNSEL:
MORGAN, LEWIS & BOCKIUS LLP
2000 One Logan Square
Philadelphia, PA 19103
Date: November 27, 1996
D-6-9
<PAGE> 10
A F F I D A V I T
COMMONWEALTH OF PENNSYLVANIA )
) ss.:
COUNTY OF LAWRENCE )
Robert P. Wushinske, being duly sworn according to law,
deposes and says that he is Vice President of Pennsylvania Power Company; that
he is authorized to and does make this affidavit for it; that he has read the
foregoing Application and states that the facts set forth therein are true and
correct to the best of his knowledge, information and belief and he expects
Pennsylvania Power Company to be able to prove the same at a hearing, if any,
thereon.
/s/ Robert P. Wushinske
--------------------------
Robert P. Wushinske
Sworn to and subscribed
before me this 25th
day of November, 1996.
/s/ Donna S. Mathieson
- ----------------------
Notary Public
D-6-10
<PAGE> 11
EXHIBIT A
CUSTOMERS AS OF SEPTEMBER 30, 1996
D-6-11
<PAGE> 12
EXHIBIT A
PENNSYLVANIA POWER COMPANY
--------------------------
CUSTOMERS AS OF SEPTEMBER 30, 1996
<TABLE>
<S> <C>
Residential 127,279
Commercial 16,492
Industrial 222
Street Lighting 88
Municipal Resale 6
-------
Total 144,087
=======
</TABLE>
D-6-12
<PAGE> 13
EXHIBIT B
SERVICE TERRITORY MAP
[Due to Graphical Nature of Map, Not
Filed in EDGAR System]
D-6-13
<PAGE> 14
EXHIBIT C
BALANCE SHEET AS OF SEPTEMBER 30, 1996
D-6-14
<PAGE> 15
EXHIBIT C
Page 1
PENNSYLVANIA POWER COMPANY
(Unaudited)
Balance Sheet
September 30, 1996
(In thousands)
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
UTILITY PLANT:
In service, at original cost................................. $1,223,563
Less - Accumulated provision
for depreciation.......................................... 450,384
----------
773,179
----------
Construction work in progress -
Electric plant............................................... 10,553
Nuclear fuel................................................. 1,808
----------
12,361
----------
785,540
----------
OTHER PROPERTY AND INVESTMENTS..................................... 16,756
----------
CURRENT ASSETS:
Cash and cash equivalents.................................... 914
Notes receivable from parent company......................... 37,000
Receivables -
Parent Company............................................. 9,860
Other...................................................... 47,064
Provision for uncollectible accounts......................... (555)
Materials and supplies, at average cost...................... 13,335
Prepayments ................................................. 2,771
----------
110,389
----------
DEFERRED CHARGES:
Customer receivables for future income taxes................. 102,300
Deferred fuel costs.......................................... 3,923
Deferred Perry Unit 1 costs.................................. 20,121
Deferred costs of term. construction project................. 41,287
Other........................................................ 21,684
----------
189,315
----------
Total Assets................................................. $1,102,000
==========
</TABLE>
D-6-15
<PAGE> 16
EXHIBIT C
Page 2
PENNSYLVANIA POWER COMPANY
(Unaudited)
Balance Sheet
September 30, 1996
(In thousands)
<TABLE>
<CAPTION>
CAPITALIZATION AND LIABILITIES
------------------------------
<S> <C>
CAPITALIZATION:
Common stock, $30 par value, authorized
6,500,000 shares - 6,290,000 shares
outstanding........................................... $ 188,700
Other paid-in capital.................................... (422)
Retained earnings........................................ 97,330
----------
Total common stockholder's equity 285,608
Preferred stock.......................................... 65,905
Long-term debt........................................... 311,394
----------
662,907
----------
CURRENT LIABILITIES:
Currently payable long-term debt -
Associated companies................................... 8,834
Other.................................................. 50,658
Accounts payable -
Associated companies................................... 7,765
Other.................................................. 17,997
Accrued taxes............................................ 12,028
Accrued interest......................................... 5,541
Other.................................................... 17,641
----------
120,464
----------
DEFERRED CREDITS:
Accumulated deferred income taxes........................ 258,592
Accumulated deferred investment tax
credits.................................................. 28,974
Other.................................................... 31,063
318,629
----------
Total Capitalization and Liabilities $1,102,000
==========
</TABLE>
D-6-16
<PAGE> 17
EXHIBIT D
STATEMENT OF INCOME
AS OF SEPTEMBER 30, 1996
D-6-17
<PAGE> 18
EXHIBIT D
Page 1
PENNSYLVANIA POWER COMPANY
(Unaudited)
Statement of Income
Twelve Months Ended September 30, 1996
(In thousands)
<TABLE>
<S> <C>
OPERATING REVENUES................................................ $323,913
--------
OPERATING EXPENSES AND TAXES:
Operation -
Fuel and purchased power.................................. 66,311
Nuclear operating costs................................... 26,483
Other operating costs..................................... 60,250
--------
Total operation and maintenance expenses.................... 153,044
Provision for depreciation........................................ 45,035
General taxes..................................................... 24,028
Amortization of net regulatory assets............................. 3,690
Income taxes...................................................... 30,945
--------
Total operating expenses and taxes.......................... 256,742
OPERATING INCOME.................................................. 67,171
--------
OTHER INCOME...................................................... 5,798
--------
TOTAL INCOME...................................................... 72,969
--------
NET INTEREST:
Interest on long-term debt.................................. 26,550
Interest on nuclear fuel obligations........................ 284
Allowance for borrowed funds used during
construction.............................................. (526)
Other interest expense...................................... 1,994
--------
Net interest........................................... 28,302
--------
NET INCOME........................................................ 44,667
PREFERRED STOCK DIVIDEND REQUIREMENTS............................. 4,627
EARNINGS ON COMMON STOCK.......................................... $ 40,040
========
</TABLE>
D-6-18
<PAGE> 19
EXHIBIT E
SUMMARY OF UTILITY PLANT AND
ACCUMULATED PROVISIONS FOR
DEPRECIATION, AMORTIZATION AND DEPLETION
AS OF SEPTEMBER 30, 1996
D-6-19
<PAGE> 20
EXHIBIT E
Page 1
PENNSYLVANIA POWER COMPANY
(Unaudited)
Summary of Utility Plant and Accumulated Provisions
For Depreciation, Amortization and Depletion
September 30, 1996
(In thousands)
<TABLE>
<CAPTION>
UTILITY PLANT
-------------
<S> <C>
Electric Plant In Service
Plant in Service (Classified)................................... $1,144,240
Property Under Capital Leases................................... 11,864
Plant Purchased or Sold......................................... (7,819)
Completed Construction not Classified........................... 34,683
----------
TOTAL......................................................... 1,182,968
Leased to Others................................................ 899
Held for Future Use............................................. 9,405
Construction Work in Progress................................... 10,553
----------
TOTAL Utility Plant........................................... 1,203,825
Accum. Prov. for Depr., Amort., & Depl 434,697
----------
NET Utility Plant............................................. $769,128
==========
Detail of Accumulated Provisions for
Depreciation, Amortization, and Depletion
-----------------------------------------
Electric Plant In Service
Depreciation and Amortization................................... $422,024
Amort. of Other Utility Plant................................... 12,628
----------
TOTAL in Service............................................... 434,652
Depreciation of Plant Leased to Others................................ 45
----------
TOTAL Accumulated Provisions................................... $434,697
==========
</TABLE>
D-6-20
<PAGE> 1
EXHIBIT F-1
WINTHROP, STIMSON, PUTNAM & ROBERTS LETTERHEAD
ONE BATTERY PARK PLAZA
NEW YORK, NY 10004-1490
TELEPHONE: 212-858-1000
TELEFAX: 211-858-1500
TELEX: 62854 WINSTIM
January 24, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: FirstEnergy Application/Declaration
on Form U-1
-----------
Ladies and Gentlemen:
We are New York counsel to FirstEnergy Corp. ("FirstEnergy").
We have examined FirstEnergy's Application/Declaration on Form U-1 (File No.
____)(the "Application/Declaration") filed on January 24, 1997, with the
Securities and Exchange Commission (the "Commission") under the Public Utility
Holding Company Act of 1935 (the "Act") requesting an order of the Commission
under the Act (i) authorizing the direct and indirect acquisition by FirstEnergy
of all of the issued and outstanding voting securities ("Common Stock") of Ohio
Edison Company, an Ohio corporation ("Ohio Edison"), The Cleveland Electric
Illuminating Company, an Ohio corporation ("Cleveland Electric"), The Toledo
Edison Company, an Ohio corporation ("Toledo Edison") and Pennsylvania Power
Company, a Pennsylvania corporation ("Penn Power") as well as 20.5% of the
Common Stock of Ohio Valley Electric Corporation, an Ohio corporation
("OVEC")(which, in turn, owns all of the Common Stock of Indiana-Kentucky
Electric Corporation ("IKEC")) and (ii) granting such other authorizations as
may be necessary in connection therewith.
Such acquisition is to be effected through the transactions
contemplated by (i) the Agreement and Plan of Merger, dated as of September 13,
1996 (the "Merger Agreement") between Ohio Edison and Centerior, (ii) the Merger
Agreement by and among Ohio Edison Company,
<PAGE> 2
Securities and Exchange Commission January 24, 1997
FirstEnergy Corp. and Ohio Edison Acquisition Corp., attached to the Merger
Agreement as Exhibit A (the "Ohio Edison Merger Agreement"), and (iii) the
Merger Agreement by and among Centerior Acquisition Corp., FirstEnergy Corp. and
Centerior Energy Corporation, attached to the Merger Agreement as Exhibit B (the
"Centerior Merger Agreement" and, together with the Merger Agreement and the
Ohio Edison Merger Agreement, the "Merger Agreements"). The Merger Agreements
provide, among other things, for (i) the merger of Centerior with and into
FirstEnergy Corp., (immediately after the merger of a wholly-owned subsidiary of
FirstEnergy with and into Centerior pursuant to the Centerior Merger Agreement)
and (ii) the merger of another wholly-owned subsidiary of FirstEnergy with and
into Ohio Edison pursuant to the Ohio Edison Merger Agreement (collectively, the
"Merger"). Following the Merger, FirstEnergy will be a holding company which
will directly hold all of the Ohio Edison Common Stock, Cleveland Electric
Common Stock and Toledo Edison Common Stock. Penn Power will remain a
wholly-owned subsidiary of Ohio Edison. Upon consummation of the Merger,
FirstEnergy will own indirectly 20.5% of the OVEC Common Stock. The Merger
Agreements envision the issuance of approximately 230,300,000 shares, $0.10 par
value, of common stock of FirstEnergy (the "Shares").
Based upon our examination of the Application/Declaration and
such other instruments, documents and matters of law as we have deemed
requisite, we are of the opinion that:
1. FirstEnergy is duly incorporated and validly existing under the laws of the
State of Ohio, with full power and authority (corporate and other) to own
its properties and conduct its business as described in the
Application/Declaration; to the best of our knowledge, FirstEnergy is not
qualified as a foreign corporation in any jurisdiction and the nature of
its operations are such that it is not required to be so qualified.
2. Assuming the Merger is accomplished in accordance with the Merger
Agreements and as described in the Application/Declaration: (i) all laws of
the State of Ohio applicable to the Merger will have been complied with,
(ii) the Shares will be legally issued, fully paid and nonassessable, and
the holders thereof will be entitled to the rights appertaining thereto set
forth in the Amended Articles of Incorporation of FirstEnergy, (iii)
FirstEnergy will legally acquire, directly or indirectly, all of the issued
and outstanding voting securities of Ohio Edison, Cleveland Electric,
Toledo
<PAGE> 3
Securities and Exchange Commission January 24, 1997
Edison, Penn Power and 20.5% of the issued and outstanding voting
securities of OVEC and (iv) the consummation of the transactions
proposed in said Application/Declaration will not violate the legal
rights of the holders of any securities issued by FirstEnergy or any
associate company thereof.
We hereby consent to the filing of this opinion as an exhibit
to the Application/Declaration.
Very truly yours,
/s/ Winthrop, Stimson, Putnam & Roberts
<PAGE> 1
EXHIBIT H-1
(LOGO)
MEMBER NEW YORK STOCK EXCHANGE
McDONALD INVESTMENT CENTER
800 SUPERIOR AVENUE
CLEVELAND, OHIO 44114-2603
216-443-2300
SEPTEMBER 13, 1996
PERSONAL AND CONFIDENTIAL
- -------------------------
Board of Directors
Ohio Edison Company
76 South Main Street
Akron, OH 44305-1890
You have requested our opinion as to the fairness, from a financial point
of view, as of the date hereof, to the holders of the outstanding common shares,
par value $9.00 per share (the "Company Common Shares"), of Ohio Edison Company
(the "Company") of the exchange ratio at which Company Common shares will be
exchanged (the "Company Exchange Ratio") for common shares, $0.10 par value, of
FirstEnergy Corp. ("FirstEnergy"), pursuant to the Agreement and Plan of Merger
to be dated as of September 13, 1996 (the "Agreement") by and between the
Company and Centerior Energy Corporation ("Centerior"), in light of the
Centerior Exchange Ratio (as defined below). Pursuant to the Agreement, the
Company and Centerior will form FirstEnergy, a holding company. The Company will
be merged with a subsidiary of FirstEnergy, and each of the outstanding Company
Common Shares will be converted into the right to receive one common share, par
value $0.10 per share, of FirstEnergy (the "FirstEnergy Common Shares").
Centerior will be merged into FirstEnergy, and each of the outstanding common
shares, no par value, of Centerior (the "Centerior Common Shares") will be
converted into the right to receive .525 shares of FirstEnergy Common Shares
(the "Centerior Exchange Ratio").
McDonald & Company Securities, Inc., as part of its investment banking
business, is customarily engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes.
In connection with this opinion, we have reviewed, among other things: (i)
the Agreement; (ii) Annual Reports to shareholders and Annual Reports on Form
10-K of the Company and Centerior for the five years ended December 31, 1995;
(iii) certain interim reports to shareholders and Quarterly Reports on Form 10-Q
of the Company and Centerior; (iv) certain FERC Forms 1 of the Company and
Centerior; (v) certain other communications from the Company and Centerior to
their respective shareholders; and (vi) certain internal financial analyses and
forecasts of certain operating efficiencies and financial synergies expected to
be achieved as a result of the proposed combination, which were prepared jointly
by the managements of the Company and Centerior, with the assistance of third
party consultants. We also have held discussions with members of the senior
management of the Company and Centerior regarding the past and current business
operations, financial conditions and future prospects of their respective
companies and their analyses of the strategic benefits of the proposed
combination, including, without limitation, the amount and timing of realization
of the synergies related to the proposed combination. In addition, we have
reviewed the reported price and trading activity information for Company Common
Shares and Centerior Common Shares, compared certain financial and stock market
information for the Company and Centerior with similar information for certain
other companies the securities of which are publicly traded, reviewed the
financial terms of certain recent business combinations in the electric utility
industry and performed such other studies and analyses as we considered
appropriate.
H-1-1
<PAGE> 2
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided us or publicly available and have assumed and relied upon
the representations and warranties of the Company and Centerior contained in the
Agreement. We have not been engaged to verify, nor have we independently
attempted to verify, any of such information. We have also relied upon the
managements of the Company and Centerior as to the reasonableness and
achievability of the financial and operating projections (and the assumptions
and bases therefor) provided to us and, with your consent, we have assumed that
such projections reflect the best currently available estimates and judgments of
such respective managements of the Company and Centerior and that such
projections and forecasts will be realized in the amounts and in the time
periods currently estimated by the managements of the Company and Centerior. We
have not been engaged to assess the achievability of such projections or the
assumptions upon which they were based and express no view as to such
projections or assumptions. In addition, we have not conducted a physical
inspection or appraisal of any of the assets, properties or facilities of either
the Company or Centerior nor have we been furnished with any such evaluation or
appraisal. In addition, we have further assumed that obtaining any necessary
regulatory or third party approvals for the transaction contemplated by the
Agreement will not have an adverse effect on the Company or Centerior.
It should be noted that this opinion is based on economic and market
conditions and other circumstances existing on, and information made available
as of, the date hereof and does not address any matters subsequent to such date,
including the value of the Company Common Shares or the Centerior Common Shares
at the time of the consummation of the proposed combination. In addition, our
opinion is, in any event, limited to the fairness, from a financial point of
view, as of the date hereof, to the holders of the Company Common Shares of the
Company Exchange Ratio, in light of the Centerior Exchange Ratio, and does not
address the Company's underlying business decision to effect the proposed
combination or any other terms of the proposed combination.
We will receive from the Company a fee for rendering this opinion, a
significant portion of which is contingent upon the approval of the proposed
combination by the holders of the Company Common Shares. The Company has. also
agreed to indemnify us under certain circumstances. We have also provided
certain investment banking services to the Company and Centerior from time to
time, including acting as an underwriter of certain securities offerings, and
have received customary compensation for such services. In the ordinary course
of our business, we may actively trade securities of both the Company and
Centerior for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Our opinion is directed to the Board of Directors and does not constitute a
recommendation to any shareholder of the Company as to how such shareholder
should vote at the shareholders' meeting held in connection with the proposed
combination.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof, the
Company Exchange Ratio specified in the Agreement, in light of the Centerior
Exchange Ratio, is fair from a financial point of view, to the holders of the
Company Common Shares.
Very truly yours,
McDONALD & COMPANY SECURITIES, INC.
By: /s/ RICHARD D. WEBER
------------------------------
Richard D. Weber
Senior Vice President
H-1-2
<PAGE> 1
EXHIBIT H-2
September 13, 1996
Revised
The Board of Directors
Centerior Energy Corporation
6200 Oak Tree Boulevard
Independence, Ohio 44131
Dear Members of the Board;
We understand that Centerior Energy Corporation, an Ohio corporation
("Centerior"), and Ohio Edison Company, an Ohio corporation ("Ohio Edison"),
have determined to engage in a strategic business combination. The terms and
conditions of the business combination are set forth in the Agreement and Plan
of Merger, dated as of September 13, 1996 (the "Agreement") between Ohio Edison
and Centerior. The Agreement provides for, among other things, (i) the formation
of FirstEnergy Corp., an Ohio corporation ("FirstEnergy"), 50% of whose capital
stock will be owned by Centerior and 50% of whose capital stock will be owned by
Ohio Edison, (ii) the merger of a subsidiary of firstenergy with and into Ohio
Edison (the "Ohio Edison Merger"), (iii) the merger of another subsidiary of
FirstEnergy with and into Centerior (the "Centerior Merger"), and (iv)
immediately after the Centerior Merger, the merger of Centerior with and into
FirstEnergy (the "FirstEnergy Merger") (the Ohio Edison Merger, the Centerior
Merger and the FirstEnergy Merger together being referred to herein as the
"Merger"). Pursuant to the Agreement, each issued and outstanding share of
common stock, par value $9 per share, of Ohio Edison ("Ohio Edison Common
Stock") will be converted into common stock, par value $0.10 per share, of
FirstEnergy ("First Energy Common Stock") at the rate of one share of
FirstEnergy Common Stock for each share of Ohio Edison Common Stock (the "Ohio
Edison Conversion Number"); and each issued and outstanding share of common
stock, without par value, of Centerior ("Centerior Common Stock") will be
converted into FirstEnergy Common Stock at the rate of 0.525 shares of
FirstEnergy Common Stock for each share of Centerior Common Stock (the
"Centerior Conversion Number"). The terms and conditions of the Merger are set
forth in more detail in the Agreement. Capitalized terms used herein without
definition have the respective meanings assigned to such terms in the Agreement.
We have been requested by Centerior to render our opinion with respect to
the fairness, from a financial point of view, to holders of Centerior Common
Stock of the Centerior Conversion Number to be offered in the Merger.
In arriving at our opinion, we have, among other things:
(1) Reviewed the Annual Reports, Forms 10-K and the related financial
information for the three-year period ended December 31, 1995, and the
Forms 10-Q and the related unaudited financial information for the
quarterly periods ended March 31, 1996 and June 30, 1996, for
Centerior, The Cleveland Electric Illuminating Company and The Toledo
Edison Company;
(2) Reviewed the Annual Reports, Forms 10-K and the related financial
information for the three-year period ended December 31, 1995, and the
Forms 10-Q and the related unaudited financial information for the
quarterly periods ended March 31, 1996 and June 30, 1996, for Ohio
Edison and Pennsylvania Power Company;
(3) Reviewed certain other filings with the Securities and Exchange
Commission and other regulatory authorities made by Centerior, The
Cleveland Electric Illuminating Company, The Toledo Edison Company,
Ohio Edison and Pennsylvania Power Company during the last three
years, including proxy statements, FERC Forms 1, Forms 8-K and
registration statements;
H-2-1
<PAGE> 2
(4) Reviewed certain internal information including financial forecasts,
relating to the business, earnings, capital expenditures, cash flow,
assets and prospects of Centerior and Ohio Edison furnished to us by
Centerior and Ohio Edison;
(5) Conducted discussions with members of senior management of Centerior
and Ohio Edison concerning their respective businesses, regulatory
environments, prospects and strategic objectives and possible
operating, administrative and capital synergies which might be
realized for the benefit of FirstEnergy following the Merger;
(6) Reviewed the historical market prices and trading activity for shares
of Centerior Common Stock and Ohio Edison Common Stock and compared
them with those of certain publicly traded companies which we deemed
to be relevant;
(7) Compared the results of operations of Centerior and Ohio Edison with
those of certain companies which we deemed to be relevant:
(8) Compared the proposed financial terms of the Merger with the financial
terms of certain utility industry business combinations which we
deemed to be relevant;
(9) Analyzed the respective contributions in terms of assets, earnings,
cash flow and shareholders' equity of Centerior and Ohio Edison to
FirstEnergy;
(10) Analyzed the valuation of shares of Centerior Common Stock and Ohio
Edison Common Stock using various valuation methodologies which we
deemed to be appropriate;
(11) Considered the pro forma capitalization, earnings and cash flow of
FirstEnergy;
(12) Compared the pro forma capitalization ratios, earnings per share,
dividends per share and payout ratio of FirstEnergy with each of the
corresponding current and projected values for Centerior and Ohio
Edison on a stand-alone basis;
(13) Reviewed the Agreement; and
(14) Reviewed such other studies, conducted such other analyses, considered
such other financial, economic and market criteria, performed such
other investigations and taken into account such other matters as we
deemed necessary or appropriate for purposes of this opinion.
In rendering our opinion, we have relied, without independent verification,
upon the accuracy and completeness of all financial and other information
publicly available or otherwise furnished or made available to us by Centerior
and Ohio Edison and have further relied upon the assurances of management of
Centerior and Ohio Edison-that they are not aware of any facts that would make
such information inaccurate or misleading. With respect to the financial
projections of Centerior and Ohio Edison (including, without limitation,
projected cost savings benefits), we have relied upon the assurances of
management of Centerior and Ohio Edison that such projections have been
reasonably prepared and reflect the best currently available estimates and
judgments of the management of Centerior and Ohio Edison is to the future
financial performance of Centerior and Ohio Edison, as the case may be, and as
to the projected outcomes of legal regulatory and other contingencies. In
arriving at our opinion, we have not made or been provided with an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of Centerior or Ohio Edison, nor have we made any physical inspection of the
properties or assets of Centerior or Ohio Edison. We have assumed that the
Merger will be treated for Federal income tax purposes, as to Ohio Edison, as a
transfer within the meaning of Section 351 (a) of the Internal Revenue Code of
1986, as amended ("the Code"), and the regulations thereunder, and as to
Centerior, as a reorganization within the meaning of Section 468 (a) of the
Code, and that Centerior, Ohio Edison and shareholders of Centerior and Ohio
Edison who exchange their shams solely for FirstEnergy Common Stock will
recognize no gain or loss for federal income tax purposes as a result of the
consummation of the Merger. We have also assumed that the Centerior Merger will
be accounted for by the purchase method of accounting. You have not authorized
us to solicit, and we have not solicited, any indications of interest from any
third party with respect to the purchase of all or a part of Centerior. Our
H-2-2
<PAGE> 3
opinion herein is necessarily based upon financial, stock market and other
conditions and circumstances existing and disclosed to us as of the date hereof.
We have acted as financial advisor to Centerior in connection with the
Merger and will receive certain fees for, our services. In addition, we, have in
the past rendered certain investment banking and financial advisory services to
Centerior for which we received customary compensation.
Our advisory services and the opinion expressed herein are provided for the
use of Centerior's Board of Directors in evaluating the Merger and are not
provided on behalf of, or intended to confer rights or remedies upon, any
stockholder of Centerior, Ohio Edison or any person other than Centerior's Board
of Directors. Except for its publication in the Joint Proxy Statement which will
be distributed to holders of Centerior Common Stock and Ohio Edison Common Stock
in connection with approval of the Merger, our opinion may not be published or
otherwise used or referred to without our prior written consent. This opinion is
not intended to be and does not constitute a recommendation to any stockholder
as to how such stockholder should act with respect to the Merger.
Based upon and subject to the foregoing, our experience as investment
bankers and other factors we deem relevant, we are of the opinion that, as of
the date hereof, the Centerior Conversion Number to be offered in connection
with the Merger is fair, from a financial point of view, to the holders of
Centerior Common Stock.
Very truly yours,
/s/ Barr Devlin & Co. Incorporated
BARR DEVLIN & CO. INCORPORATED
H-2-3
<PAGE> 1
Exhibit I-1
FIRSTENERGY CORP. ( )
- -----------------
FirstEnergy Corp., 76 South Main Street, Akron, Ohio 44308, an Ohio
corporation ("FirstEnergy"), has filed an application/declaration under
Sections (9)(a)(2) and 10 of the Public Utilities Holding Company Act of 1935
(the "Act") to acquire, directly or indirectly, all of the issued and
outstanding voting securities (the "Common Stock") of Ohio Edison Company ("Ohio
Edison"), The Cleveland Electric Illuminating Company ("Cleveland Electric"),
The Toledo Edison Company ("Toledo Edison") and Pennsylvania Power Company
("Penn Power"), as well as 20.5% of the Common Stock of Ohio Valley Electric
Corporation ("OVEC")(which, in turn, owns all of the Common Stock of
Indiana-Kentucky Electric Corporation).
FirstEnergy requests an order approving the proposed acquisition of
Ohio Edison, Penn Power, Cleveland Electric and Toledo Edison. FirstEnergy's
proposed acquisition will be the result of the merger of FirstEnergy, Ohio
Edison and Centerior Energy Corporation ("Centerior"), which currently holds all
of the Cleveland Electric and Toledo Edison Common Stock. FirstEnergy states
that the merger will result in substantial savings, enhance long-term
stockholder value and provide customers with reliable service at more stable and
competitive prices.
FirstEnergy was organized under the laws of the State of Ohio in 1996
by Ohio Edison and Centerior for the purpose of facilitating the Merger of Ohio
Edison and Centerior
I-1
<PAGE> 2
and is not currently engaging in any business. Ohio Edison is an investor-owned
"public utility company" and a public utility "holding company" which is exempt
from regulation by the Commission under the 1935 Act (except for Section 9(a)(2)
thereof) because it is predominantly a public-utility company whose operations
as such do not extend beyond the State of Ohio and contiguous states. Ohio
Edison owns all of the Common Stock of Penn Power, which is a "public utility
company" under the 1935 Act. Centerior is an investor-owned public utility
"holding company" which is exempt from regulation by the Commission under the
1935 Act (except for Section 9(a)(2) thereof) because its operations and those
of its public utility subsidiaries (Cleveland Electric and Toledo Edison) from
which it derives, directly or indirectly, any material part of its income, are
predominantly intrastate in character and are carried on substantially in the
State of Ohio. Ohio Edison owns 16.5% of the Common Stock of OVEC. Toledo Edison
owns 4% of the Common Stock of OVEC.
FirstEnergy states that it will directly acquire all of the Cleveland
Electric Common Stock, the Toledo Edison Common Stock and the Ohio Edison Common
Stock and will indirectly acquire the Penn Power Common Stock and 20.5% of the
OVEC Common Stock through the transactions contemplated by (i) the Agreement and
Plan of Merger, dated as of September 13, 1996 (the "Merger Agreement") between
Ohio Edison and Centerior, (ii) the Merger Agreement by and among Ohio Edison
Company, FirstEnergy Corp. and Ohio Edison Acquisition Corp., attached to the
Merger Agreement
I-2
<PAGE> 3
as Exhibit A (the "Ohio Edison Merger Agreement"), and (iii) the Merger
Agreement by and among Centerior Acquisition Corp., FirstEnergy Corp. and
Centerior Energy Corporation, attached to the Merger Agreement as Exhibit B (the
"Centerior Merger Agreement" and, together with the Merger Agreement and the
Ohio Edison Merger Agreement, the "Merger Agreements"). The Merger Agreements
provide, among other things, for (i) the merger of Centerior with and into
FirstEnergy Corp., (immediately after the merger of a wholly-owned subsidiary of
FirstEnergy ("Centerior Acquisition Corp.") with and into Centerior pursuant to
the Centerior Merger Agreement) and (ii) the merger of another wholly-owned
subsidiary of FirstEnergy ("Ohio Edison Acquisition Corp.") with and into Ohio
Edison pursuant to the Ohio Edison Merger Agreement (collectively, the
"Merger"). Following the Merger, FirstEnergy will be a holding company which
will directly hold all of the Ohio Edison Common Stock, Cleveland Electric
Common Stock and Toledo Edison Common Stock. Penn Power will remain a
wholly-owned subsidiary of Ohio Edison. Upon consummation of the Merger,
FirstEnergy will own indirectly 20.5% of the OVEC Common Stock.
FirstEnergy states that the existing senior debt and equity securities
of Ohio Edison, Cleveland Electric, Toledo Edison and Penn Power will not be
affected by the Merger.
I-3
<PAGE> 1
Exhibit FS-1
FIRSTENERGY UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma balance sheet of FirstEnergy at September 30, 1996,
set forth below, gives effect to the Merger as if it had been consummated on
such date. The unaudited pro forma statements of income of FirstEnergy for the
nine month periods ended September 30, 1996 and 1995, set forth below, give
effect to the Merger as if it had been consummated on January 1, 1995. These
statements are prepared based on accounting for the Merger as a purchase with
the assumptions specified in the notes thereto. Purchase accounting adjustments
are estimates and therefore subject to change.
The following pro forma financial information has been prepared from, and
should be read in conjunction with, the historical consolidated financial
statements and related notes thereto of Ohio Edison and Centerior incorporated
by reference herein. The following information does not reflect any potential
cost reductions or synergies associated with the Merger and is not necessarily
indicative of the financial position or operating results that would have
occurred had the Merger been consummated on the date as of which, or at the
beginning of the periods for which, the Merger is being given effect, nor is it
necessarily indicative of future financial position or operating results.
The unaudited pro forma financial statements have been adjusted for the
expected impact of the regulatory plan filed by FirstEnergy, the result of
which is to discontinue the application of SFAS 71 for Cleveland Electric and
Toledo Edison nuclear operations. The adjustments reflect the write off of $750
million of regulatory assets at Cleveland Electric and Toledo Edison, and, as
required by APB 16, a fair value adjustment of $1.25 billion to reduce the
carrying value of the nuclear generating units at FirstEnergy. The ultimate
fair value of Cleveland Electric's and Toledo Edison's net assets to be
determined at the time of consummation of the Merger could require an
adjustment which may be more or less than the assumption used for purposes of
the unaudited pro forma financial statements. Any difference between the
ultimate net asset valuation and the valuation assumed in the unaudited pro
forma financial statements will be reflected as an adjustment of the goodwill
recognized in connection with the Merger.
FS-1-1
<PAGE> 2
FIRSTENERGY CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
OHIO EDISON CENTERIOR ADJUSTMENTS COMBINED
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Utility plant, net of depreciation.......... $ 5,487 $ 6,914 $ (1,250)(3a) $11,151
Other property and investments.............. 1,029 225 1,254
Current assets.............................. 489 638 (12)(3b) 1,115
Regulatory assets........................... 1,729 2,193 (750)(3a) 3,172
Goodwill.................................... 0 0 865(3c) 865
Other deferred charges...................... 262 335 597
----------- --------- ----------- ---------
Total Assets................................ $ 8,996 $ 10,305 $ (1,147) $18,154
========= ======= ========= ========
CAPITALIZATION AND LIABILITIES
Common shareholders' equity:
Common stock and other paid-in capital.... $ 2,100 $ 2,321 $ (757)(3d) $ 3,664
Retained earnings (deficit)............... 542 (356) 356(3d) 542
Unallocated ESOP common shares............ (156) 0 (156)
----------- --------- ----------- ---------
Total common shareholders' equity......... 2,486 1,965 (401) 4,050
Preferred stock:
Not subject to mandatory redemption....... 161 0 (161)(3e) 0
Subject to mandatory redemption........... 20 0 (20)(3e) 0
Preferred stock of consolidated
subsidiaries:
Not subject to mandatory redemption....... 51 448 161(3e) 660
Subject to mandatory redemption........... 15 189 6(3e)(3f) 210
Ohio Edison obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely Ohio Edison subordinated
debentures................................ 120 0 120
Long-term debt.............................. 2,595 3,755 16(3f) 6,366
----------- --------- ----------- ---------
Total Capitalization........................ 5,448 6,357 (399) 11,406
Current liabilities......................... 1,305 875 (12)(3b) 2,168
Accumulated deferred income taxes........... 1,756 1,900 (690)(3k) 2,966
Accumulated deferred investment tax
credits................................... 203 254 (64)(3k) 393
Other liabilities........................... 284 919 18(3g) 1,221
----------- --------- ----------- ---------
Total Capitalization and Liabilities........ $ 8,996 $ 10,305 $ (1,147) $18,154
========= ======= ========= ========
</TABLE>
FS-1-2
<PAGE> 1
Exhibit FS-2
FIRSTENERGY CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
OHIO EDISON CENTERIOR ADJUSTMENTS COMBINED
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Operating revenues.......................... $ 1,858 $ 1,941 $ (14)(3h) $ 3,785
----------- --------- ----------- ---------
Fuel and purchased power.................... 346 348 (3)(3h) 691
Other operation and maintenance expenses.... 491 595 (11)(3h) 1,075
----------- --------- ----------- ---------
Total operation and maintenance expenses.... 837 943 (14) 1,766
Depreciation and amortization, net.......... 285 259 (40)(3i) 504
General taxes............................... 185 247 432
Income taxes................................ 146 94 20(3k) 260
----------- --------- ----------- ---------
Total operating expenses and taxes.......... 1,453 1,543 (34) 2,962
----------- --------- ----------- ---------
Operating income............................ 405 398 20 823
Other income (expense)...................... 25 (5) 20
----------- --------- ----------- ---------
Total income................................ 430 393 20 843
----------- --------- ----------- ---------
Interest charges............................ 178 254 432
Allowance for borrowed funds used during
construction and capitalized interest..... (3) (2) (5)
Subsidiaries' preferred stock dividend
requirements.............................. 12 42 10(3j) 64
----------- --------- ----------- ---------
Net interest and other charges.............. 187 294 10 491
----------- --------- ----------- ---------
Net income.................................. 243 99 10 352
Preferred stock dividend requirements....... 10 0 (10)(3j) 0
----------- --------- ----------- ---------
Earnings on common stock.................... $ 233 $ 99 $ 20 $ 352
========= ======= ========= ========
Average common shares outstanding........... 144 148 (70) 222
========= ======= ========= ========
Earnings per share of common stock.......... $ 1.62 $ .67 $ 1.59
========= ======= ========
</TABLE>
FS-1-3
<PAGE> 2
FIRSTENERGY CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
OHIO EDISON CENTERIOR ADJUSTMENTS COMBINED
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Operating revenues.......................... $ 1,849 $ 1,934 $ (13)(3h) $ 3,770
----------- --------- ----------- ---------
Fuel and purchased power.................... 347 361 (4)(3h) 704
Other operation and maintenance expenses.... 549 579 (9)(3h) 1,119
----------- --------- ----------- ---------
Total operation and maintenance expenses.... 896 940 (13) 1,823
Depreciation and amortization, net.......... 188 162 (40)(3i) 310
General taxes............................... 184 246 430
Income taxes................................ 149 115 20(3k) 284
----------- --------- ----------- ---------
Total operating expenses and taxes.......... 1,417 1,463 (33) 2,847
----------- --------- ----------- ---------
Operating income............................ 432 471 20 923
Other income................................ 8 35 43
----------- --------- ----------- ---------
Total income................................ 440 506 20 966
----------- --------- ----------- ---------
Interest charges............................ 203 271 474
Allowance for borrowed funds used during
construction and capitalized interest..... (4) (2) (6)
Deferred nuclear unit interest.............. (4) 0 (4)
Subsidiaries' preferred stock dividend
requirements.............................. 3 46 17(3j) 66
----------- --------- ----------- ---------
Net interest and other charges.............. 198 315 17 530
----------- --------- ----------- ---------
Net income.................................. 242 191 3 436
Preferred stock dividend requirements....... 17 0 (17)(3j) 0
----------- --------- ----------- ---------
Earnings on common stock.................... $ 225 $ 191 $ 20 $ 436
========= ======= ========= ========
Average common shares outstanding........... 143 148 (70) 221
========= ======= ========= ========
Earnings per share of common stock.......... $ 1.57 $ 1.29 $ 1.97
========= ======= ========
</TABLE>
FS-1-4
<PAGE> 3
FIRSTENERGY CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
OHIO EDISON CENTERIOR ADJUSTMENTS COMBINED
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Operating revenues.......................... $ 2,466 $ 2,516 $ (17)(3h) $ 4,965
----------- --------- ----------- ---------
Fuel and purchased power.................... 465 465 (8)(3h) 922
Other operation and maintenance expenses.... 737 777 (12)(3h) 1,502
----------- --------- ----------- ---------
Total operation and maintenance expenses.... 1,202 1,242 (20) 2,424
Depreciation and amortization, net.......... 262 228 (53)(3i) 437
General taxes............................... 243 322 2(3h) 567
Income taxes................................ 192 135 26(3k) 353
----------- --------- ----------- ---------
Total operating expenses and taxes.......... 1,899 1,927 (45) 3,781
----------- --------- ----------- ---------
Operating income............................ 567 589 28 1,184
Other income................................ 14 47 (1)(3h) 60
----------- --------- ----------- ---------
Total income................................ 581 636 27 1,244
----------- --------- ----------- ---------
Interest charges............................ 267 358 625
Allowance for borrowed funds used during
construction and capitalized interest..... (6) (3) (9)
Deferred nuclear unit interest.............. (4) 0 (4)
Subsidiaries' preferred stock dividend
requirements.............................. 7 61 22(3j) 90
----------- --------- ----------- ---------
Net interest and other charges.............. 264 416 22 702
----------- --------- ----------- ---------
Net income.................................. 317 220 5 542
Preferred stock dividend requirements....... 22 0 (22)(3j) 0
----------- --------- ----------- ---------
Earnings on common stock.................... $ 295 $ 220 $ 27 $ 542
========= ======= ========= ========
Average common shares outstanding........... 144 148 (70) 222
========= ======= ========= ========
Earnings per share of common stock.......... $ 2.05 $ 1.49 $ 2.44
========= ======= ========
</TABLE>
FS-1-5
<PAGE> 4
FIRSTENERGY CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
NOTE 1 -- RECLASSIFICATIONS
Certain reclassifications have been made to the Centerior unaudited
historical financial statements to conform to the presentation expected to be
used by the merged companies.
NOTE 2 -- EXCHANGE RATIOS
Under the Merger Agreement, each outstanding share of Ohio Edison Common
Stock will be converted into one share of FirstEnergy Common Stock, and each
outstanding share of Centerior Common Stock will be converted into 0.525 of a
share of FirstEnergy Common Stock. These conversion numbers were used in
computing share and per share amounts in the accompanying unaudited pro forma
combined condensed financial statements.
NOTE 3 -- PRO FORMA ADJUSTMENTS
(a) As required by APB 16, a pro forma adjustment has been recognized by
FirstEnergy to adjust the Cleveland Electric and Toledo Edison nuclear
generating units to fair value. Such adjustment has been based upon the
estimated discounted future cash flows expected to be generated by their nuclear
generating units. As a result of discontinuing SFAS 71 for Cleveland Electric
and Toledo Edison nuclear assets and operations, a pro forma adjustment has been
made to reflect the write-off of certain regulatory assets prior to consummation
of the merger. All other regulatory assets are expected to continue to be
recovered through rates associated with the remainder of their business.
(b) A pro forma adjustment has been made to eliminate accounts receivable
and payable between Ohio Edison and Centerior as of the balance sheet date.
(c) A pro forma adjustment has been made to recognize goodwill in
connection with the Merger. The goodwill represents the excess of the purchase
price over Centerior's net assets after taking into account the adjustments
described in (a) above. The carrying cost for all other assets and liabilities
(except as described in (f) and (g) below) is assumed to be equal to fair market
value. If it is ultimately determined that the fair market value of Centerior's
net assets is more or less than their carrying value at the time of
consummation, goodwill would be adjusted accordingly. The purchase price was
based on the imputed value to holders of Centerior Common Stock using a market
value of Ohio Edison Common Stock of $20.125 per share.
(d) Pro forma equity adjustments recognize the elimination of Centerior's
accumulated deficit as of the consummation of the Merger and the purchase price
computed as described in (c) above.
(e) Pro forma adjustments have been made to reclassify Ohio Edison
preferred stock outstanding to subsidiary preferred stock outstanding on
FirstEnergy's balance sheet.
(f) A pro forma adjustment has been made to recognize Centerior's preferred
stock of consolidated subsidiaries subject to mandatory redemption and long-term
debt at estimated fair market value.
(g) A pro forma adjustment has been made to recognize Centerior's net
unamortized transition obligation related to certain retirement benefits.
(h) Pro forma adjustments have been made to eliminate revenue and expense
transactions between Ohio Edison and Centerior.
(i) Pro forma adjustments have been made to recognize amortization of
goodwill in connection with the Merger over a 40-year period, offset by
reductions in depreciation expense and amortization of regulatory assets
resulting from the assumed revaluation of Centerior's assets described in (a)
above.
(j) A pro forma adjustment has been made to reclassify Ohio Edison's
preferred stock dividend requirements to subsidiaries' preferred stock dividend
requirements (a reduction to net income) on FirstEnergy's statement of income.
(k) Pro forma adjustments have been made for the estimated tax effects of
the adjustments discussed in (a), (f), (g) and (i) above.
FS-1-6
