<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 13, 2000
REGISTRATION NO. 333-46444
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FIRSTENERGY CORP.
(Exact name of the registrants as specified in their charter)
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<S> <C> <C>
OHIO 4911 34-1843785
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of incorporation or classification code number) identification number)
organization)
</TABLE>
------------------------
76 SOUTH MAIN STREET
AKRON, OHIO 44308
(330) 384-5800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
LEILA L. VESPOLI, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
FIRSTENERGY CORP.
76 SOUTH MAIN STREET
AKRON, OHIO 44308
(330) 384-5800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
WITH COPIES TO:
<TABLE>
<S> <C> <C>
MICHAEL F. CUSICK, ESQ. IRA H. JOLLES, ESQ. PAUL M. REINSTEIN, ESQ.
Winthrop, Stimson, Putnam & SENIOR VICE PRESIDENT Fried, Frank, Harris, Shriver
Roberts AND GENERAL COUNSEL & Jacobson
One Battery Park Plaza GPU, Inc. One New York Plaza
New York, New York 10004 300 Madison Avenue New York, New York 10004
(212) 858-1000 P.O. Box 1911 (212) 859-8000
Morristown, New Jersey 07962-1911
(973) 401-8200
</TABLE>
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--------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS JOINT PROXY
STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
<TABLE>
<S> <C>
First Energy Logo GPU Logo
</TABLE>
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JOINT PROXY STATEMENT/PROSPECTUS
PROPOSED MERGER--YOUR VOTE IS VERY IMPORTANT
We are pleased to provide you with this joint proxy statement/prospectus
which gives you a detailed explanation of the proposed merger of FirstEnergy
Corp. and GPU, Inc. unanimously approved by both of our boards of directors.
We cannot complete the merger unless the shareholders of both companies
adopt the merger agreement. We have scheduled special meetings for our
respective shareholders to vote on the merger agreement. This joint proxy
statement/prospectus contains detailed information about the date, times and
places of the meetings.
Under the terms of the merger agreement, before we complete the merger, we
will give each GPU shareholder the opportunity to elect to receive in connection
with the merger, for each share of GPU common stock that he or she owns, either:
- $36.50 in cash, without interest; or
- a number of shares of FirstEnergy common stock intended to provide GPU
shareholders with FirstEnergy shares having a value of $36.50, subject to
adjustment. We will determine the exact exchange ratio by dividing $36.50
by the average of the closing sale prices for a share of FirstEnergy
common stock over the 20-day trading period ending on the seventh trading
day before we complete the merger. The exchange ratio will be fixed at
1.2318 if the average closing price of FirstEnergy shares over this period
is equal to or greater than $29.6313, and at 1.5055 if the average closing
price of FirstEnergy shares over this period is equal to or less than
$24.2438.
As we more fully explain in this joint proxy statement/prospectus, the
elections of GPU shareholders will be subject to proration if the result of
those elections would cause more than 50% of the outstanding GPU shares to be
converted into either cash or FirstEnergy shares.
We estimate that FirstEnergy will issue to GPU shareholders between
approximately 74 million and 94 million FirstEnergy shares, representing between
approximately 24% and 30% of the FirstEnergy shares that will be outstanding
immediately after the merger. FirstEnergy common stock is listed on the New York
Stock Exchange under the symbol "FE". On October 12, 2000, the closing price for
FirstEnergy shares on the New York Stock Exchange was $25.4375.
If you are a FirstEnergy shareholder, you will continue to own the same
number of shares of FirstEnergy common stock that you now hold and those shares
will represent shares of the combined company.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend your meeting,
we urge you to vote now by completing and returning the accompanying proxy card
in the enclosed postage-paid envelope. Instead of mailing a proxy card,
FirstEnergy shareholders may vote their shares via telephone or Internet by
following the instructions on their proxy card.
WE ENCOURAGE YOU TO READ THIS DOCUMENT CAREFULLY BEFORE YOU VOTE. IN
PARTICULAR, YOU SHOULD READ THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON
PAGE 16 WHICH DISCUSSES THE POTENTIAL RISKS INVOLVED IN THE MERGER.
We are very enthusiastic about this merger and join all the other members of
our two companies' boards of directors in recommending that you vote in favor of
the merger.
Sincerely yours,
<TABLE>
<S> <C>
/s/ H. Peter Burg /s/ Fred Hafer
H. Peter Burg Fred D. Hafer
Chairman and Chief Executive Officer Chairman, President and Chief Executive Officer
FirstEnergy Corp. GPU, Inc.
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE MERGER OR THE ISSUANCE OF SHARES OF
FIRSTENERGY COMMON STOCK, OR DETERMINED THAT THIS JOINT PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This joint proxy statement/prospectus is dated October , 2000 and was
first mailed to shareholders on or about October , 2000.
<PAGE>
[LOGO]
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
AND JOINT PROXY STATEMENT
Dear FirstEnergy Shareholder:
The board of directors of FirstEnergy Corp. is pleased to provide you with
notice of, and cordially invites you to attend, a special meeting of FirstEnergy
shareholders which will be held at the Hilton Akron/Fairlawn, 3180 West Market
Street, Akron, Ohio on November 21, 2000 at 9:00 a.m. (local time). You are
being asked to consider and vote upon a proposal to adopt an Agreement and Plan
of Merger, dated as of August 8, 2000, between FirstEnergy Corp., an Ohio
corporation, and GPU, Inc., a Pennsylvania corporation, which provides for the
merger of GPU into FirstEnergy. To ensure that FirstEnergy has a sufficient
number of shares available to issue to GPU shareholders in connection with the
merger and for other corporate purposes, the merger agreement also provides for
an amendment to FirstEnergy's articles of incorporation to increase the number
of authorized shares of FirstEnergy common stock from 300 million to
375 million. The proposed merger and amendment are fully described in this joint
proxy statement/prospectus. A copy of the merger agreement is attached as
Appendix A.
FirstEnergy shareholders of record at the close of business on October 12,
2000 are entitled to notice of and to vote at the FirstEnergy special meeting or
at any adjournment or postponement. Adoption of the merger agreement, including
the amendment to the articles, requires the affirmative vote of at least a
majority of the outstanding shares of FirstEnergy's common stock.
Please appoint your proxy and vote by telephone, by Internet or by signing,
dating and returning the accompanying proxy card in the enclosed addressed
envelope, which requires no postage if mailed in the United States. Instructions
on how to vote by telephone or Internet are contained in the accompanying joint
proxy statement/prospectus and on your proxy card. You may revoke this proxy at
any time before the vote is taken by delivering to the Corporate Secretary of
FirstEnergy either a written revocation or a later-dated proxy. You may also
revoke your proxy orally at the special meeting.
Directions to the Hilton Akron/Fairlawn are on the back of your proxy card.
An admission ticket is not necessary; however, we do ask that shareholders
planning to attend the meeting inform us when appointing a proxy to help us with
meeting attendance preparations. If your shares are held in "street name" by a
broker or bank, upon arrival at the meeting you will need to present a letter or
statement from your broker or bank indicating ownership of FirstEnergy common
stock on the record date of October 12, 2000.
By Order of the Board of Directors,
NANCY C. ASHCOM
Corporate Secretary
October , 2000
<PAGE>
GPU Logo
GPU, Inc.
300 Madison Avenue
P.O. Box 1911
Morristown, NJ 07962-1911
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD TUESDAY, NOVEMBER 21, 2000
A special meeting of the shareholders of GPU, Inc. will be held at The
Morris Museum, Six Normandy Heights Road, Morristown, New Jersey on
November 21, 2000 at 9:00 a.m. (local time):
To consider and vote on a proposal to approve and adopt the Agreement and
Plan of Merger, dated as of August 8, 2000, between GPU, Inc., a
Pennsylvania corporation, and FirstEnergy Corp., an Ohio corporation,
which provides for the merger of GPU into FirstEnergy. The proposed
merger is fully described in this joint proxy statement/prospectus. A
copy of the merger agreement is attached as Appendix A.
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES WITH YOUR PROXY CARD.
Holders of record of shares of GPU common stock at the close of business on
October 12, 2000, will be entitled to vote at the meeting in person or by proxy.
If your shares are held through a brokerage firm or trustee and you plan to
attend the meeting, please obtain from your firm or trustee a letter or other
evidence of your beneficial ownership of those shares, to facilitate your
admittance to the meeting. The stock transfer books of the corporation will not
be closed.
By Order of the Board of Directors,
SCOTT L. GUIBORD, Secretary
October , 2000
------------------------------------------------
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING
If you plan to attend the special meeting in person, please mark your proxy
card in the space provided for that purpose. Please bring the lower portion of
the form (the Speaker and Admission Card sections) with you to the meeting.
Whether or not you attend the meeting, we urge you to complete and return
the accompanying proxy card as promptly as possible. YOUR VOTE IS VERY
IMPORTANT.
You may revoke this proxy at any time before the vote is taken by delivering
to the Secretary of GPU either a written revocation or a later-dated proxy, or
you may revoke your proxy orally if you attend the special meeting.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 3
The Companies............................................. 3
The Special Meetings...................................... 3
Share Ownership of Management............................. 4
Consideration Payable to GPU Shareholders................. 4
Our Recommendation to Shareholders........................ 6
Opinions of Financial Advisors............................ 6
Conditions to the Merger.................................. 6
Regulatory Approvals...................................... 7
Non-Solicitation Covenants................................ 7
Termination and Termination Fees.......................... 7
Accounting Treatment...................................... 8
Material U.S. Federal Income Tax Consequences............. 8
Interests of Certain Persons in the Merger................ 9
Dissenters' Rights of Shareholders........................ 9
Effects of the Merger on the Rights of GPU Shareholders... 9
Summary of Selected Historical and Unaudited Pro Forma
Combined Financial Information.......................... 10
Significant Events Affecting Historical Earnings Trends... 10
FirstEnergy--Selected Historical Consolidated Financial
Information............................................. 10
GPU--Selected Historical Consolidated Financial
Information............................................. 11
Selected Unaudited Pro Forma Combined Financial
Information............................................. 13
Unaudited Comparative Per Share Data...................... 14
Comparative Per Share Market Price and Dividend
Information............................................. 15
RISK FACTORS................................................ 16
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS... 20
THE SPECIAL MEETINGS........................................ 21
FirstEnergy Special Meeting of Shareholders............... 21
GPU Special Meeting of Shareholders....................... 23
Solicitation of Proxies................................... 24
THE MERGER.................................................. 25
General Description of the Merger......................... 25
Background................................................ 25
Recommendation of the Board of Directors of FirstEnergy;
FirstEnergy's Reasons for the Merger.................... 29
Recommendation of the Board of Directors of GPU; GPU's
Reasons for the Merger.................................. 31
Opinion of Financial Advisor to the FirstEnergy Board of
Directors............................................... 35
Opinion of Financial Advisor to the GPU Board of
Directors............................................... 41
Effective Time............................................ 52
Conversion of GPU Shares, GPU Stock Options and GPU Stock
Units................................................... 52
Illustrations Of Exchange Ratio Application And Value To
Be Received............................................. 57
Accounting Treatment...................................... 58
Regulatory Approvals...................................... 58
Stock Exchange Listing; Delisting and Deregistration of
GPU Common Stock........................................ 61
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Resale of the Shares of FirstEnergy Common Stock Issued in
the Merger; GPU Affiliates.............................. 61
Interests of Certain Persons in the Merger................ 62
Material U.S. Federal Income Tax Consequences of the
Merger.................................................. 68
Dividend Reinvestment Plan Holders........................ 72
Dissenters' Rights........................................ 72
THE MERGER AGREEMENT........................................ 73
General................................................... 73
Representations and Warranties............................ 73
Covenants Governing Business Conduct...................... 73
No Solicitation of Takeover Proposals..................... 75
Additional Agreements..................................... 75
Conditions................................................ 77
Termination, Amendment and Waiver......................... 78
DIRECTORS AND MANAGEMENT FOLLOWING THE MERGER............... 81
Directors................................................. 81
Management................................................ 81
RIGHTS OF DISSENTING SHAREHOLDERS........................... 82
Rights of Dissenting FirstEnergy Shareholders............. 82
Rights of Dissenting GPU Shareholders..................... 83
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION................................................. 86
DESCRIPTION OF FIRSTENERGY COMMON STOCK AFTER THE MERGER.... 99
Capital Stock............................................. 99
Dividend Rights........................................... 99
Liquidation Rights........................................ 99
Voting Rights............................................. 99
No Preemptive or Conversion Rights........................ 100
Anti-Takeover Effects of Certain Provisions of Ohio Law... 100
Listing................................................... 100
Transfer Agent and Registrar.............................. 100
DIFFERENCES IN THE RIGHTS OF GPU SHAREHOLDERS AFTER THE
MERGER...................................................... 101
General................................................... 101
Authorized Capital Stock.................................. 101
Director Vacancies and Removal............................ 101
Meetings of Shareholders.................................. 102
Amendment to Articles of Incorporation.................... 102
Amendment to By-laws/Regulations.......................... 103
Sale of Assets, Merger and Consolidation.................. 103
Anti-takeover Provisions/Shareholder Rights Agreements.... 104
Dissenters' Rights........................................ 107
Indemnification, Insurance and Limitation of Director
Liability............................................... 108
LEGAL MATTERS............................................... 110
EXPERTS..................................................... 110
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 110
</TABLE>
ii
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<CAPTION>
PAGE
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<S> <C>
SHAREHOLDER PROPOSALS....................................... 110
CERTAIN PROXY CARD MATTERS.................................. 111
WHERE YOU CAN FIND MORE INFORMATION......................... 111
APPENDICES
Appendix A--Agreement and Plan of Merger
Appendix B--Opinion of Morgan Stanley & Co. Incorporated,
Financial Advisor to FirstEnergy
Appendix C--Opinion of Salomon Smith Barney Inc., Financial
Advisor to GPU
Appendix D--Section 1701.85 of Ohio General Corporation Law
Appendix E--Subchapter D of Chapter 15 of Pennsylvania
Business Corporation Law
</TABLE>
iii
<PAGE>
REFERENCES TO ADDITIONAL INFORMATION
In accordance with SEC rules, we have incorporated by reference into this
joint proxy statement/ prospectus important business and financial information
about FirstEnergy and GPU from other documents that we have not included in or
delivered with this joint proxy statement/prospectus. You can obtain from
FirstEnergy the documents relating to FirstEnergy, and you can obtain from GPU
the documents relating to GPU, incorporated by reference in this joint proxy
statement/prospectus, without charge, by requesting them in writing or by
telephone from the appropriate company at the following addresses:
<TABLE>
<S> <C>
FIRSTENERGY CORP. GPU, INC.
INVESTOR SERVICES INVESTOR RELATIONS
76 SOUTH MAIN STREET 310 MADISON AVENUE
AKRON, OHIO 44308-1890 P.O. BOX 1957
(800) 631-8945 (TOLL-FREE) MORRISTOWN, NEW JERSEY 07962-1957
(877) 398-5639 (TOLL-FREE)
</TABLE>
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY NOVEMBER 14, 2000,
IN ORDER TO RECEIVE THEM BEFORE YOUR SPECIAL MEETING.
See "Where You Can Find More Information" on pages 111-112 for a list of
documents we have incorporated by reference into this joint proxy
statement/prospectus.
iv
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. WHAT WILL HAPPEN IN THE PROPOSED TRANSACTION?
A. GPU, Inc. will merge into FirstEnergy Corp. with FirstEnergy continuing as
the surviving corporation. If completed today, the merger of FirstEnergy and
GPU would create the nation's sixth largest investor-owned electric system,
based on the number of customers served.
Q. WHAT WILL I RECEIVE?
A. FIRSTENERGY SHAREHOLDERS
After the merger, you will continue to hold the shares of FirstEnergy common
stock you own immediately prior to the merger. Those shares will represent
the same number of shares in the combined company, but because FirstEnergy
will issue additional shares of its common stock to GPU shareholders in
connection with the merger, they will represent a smaller portion of the
outstanding shares of the combined company. Depending on the exchange ratio,
we estimate that FirstEnergy shareholders will own between approximately 70%
and 76% of the FirstEnergy shares that will be outstanding immediately after
the merger.
GPU SHAREHOLDERS
You will receive either cash, shares of FirstEnergy common stock or a
combination of both in exchange for the shares of GPU common stock you own
immediately prior to the merger.
Please read the more detailed description of the consideration to be issued
in the merger on pages 52-54.
Q. HOW WILL THE PROPOSED MERGER AFFECT MY FUTURE DIVIDENDS?
A. FirstEnergy currently pays its shareholders an annual dividend of $1.50 per
share of FirstEnergy common stock, and GPU currently pays its shareholders
an annual dividend of $2.18 per share of GPU common stock. Subject to the
discretion of each company's board of directors, we do not expect that the
annual rates of dividends currently paid to FirstEnergy and GPU shareholders
will change prior to the merger. GPU may, however, adjust record and payment
dates for GPU shareholders to accommodate the timing of the merger closing.
We expect that, after the merger, the combined company will maintain
FirstEnergy's annual dividend of $1.50 per share of FirstEnergy common
stock.
Please read the more detailed description of the companies' comparative
dividend information on page 15.
Q. WHO MUST APPROVE THE MERGER?
A. The shareholders of both FirstEnergy and GPU must vote to adopt the merger
agreement.
We also must obtain various regulatory approvals for the merger. Please read
the more detailed description of the regulatory approvals on pages 58-61.
THE BOARDS OF DIRECTORS OF BOTH FIRSTENERGY AND GPU UNANIMOUSLY RECOMMEND
THAT YOU VOTE "FOR" THE ADOPTION OF THE MERGER AGREEMENT.
Q. SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A. No. If the merger agreement is adopted by the FirstEnergy and GPU
shareholders at their respective special meetings, as we get closer to the
end of the regulatory approval process, we will send GPU shareholders
additional information explaining how to exchange their GPU stock
certificates or dividend reinvestment plan shares, and how to make an
election to receive cash or shares of FirstEnergy common stock. FirstEnergy
shareholders will not exchange their stock certificates or dividend
reinvestment plan shares.
Q. WHAT DO I NEED TO DO NOW?
A. After you carefully read this document, please vote your shares in accordance
with the voting procedures outlined on your proxy card. That way, your
shares will be
1
<PAGE>
represented and voted at your company's special meeting on November 21,
2000. If you are a FirstEnergy shareholder, you can take advantage of the
telephone or Internet options to vote your shares, as described on page 22
and on your proxy card.
If you participate in the GPU Dividend Reinvestment and Stock Purchase Plan
or the FirstEnergy Stock Investment Plan, your proxy card covers both your
plan shares and any certificated shares registered under the same name. If
your shares are registered in different names, you will receive a separate
proxy card for each name in which your shares are registered.
Q. MY SHARES ARE HELD BY MY BROKER OR BANK. WILL MY BROKER OR BANK VOTE MY
SHARES FOR ME?
A. No. If your shares are held by a broker or bank, you will receive separate
written instructions on how to vote. Many brokers and banks now offer voting
by telephone or Internet. We urge you to contact your broker or bank if you
do not receive instructions on how to direct your bank or broker to vote
your shares. If you do not direct your bank or broker to vote your shares,
they will not be voted at your company's special meeting.
Q. WHAT WILL HAPPEN IF I DON'T VOTE?
A. If you are a FirstEnergy shareholder and you do not vote or you abstain, this
is, in effect, a vote against the merger. If you are a GPU shareholder and
you do not vote or you abstain, it will count neither for nor against the
merger. In the case of each company, if you sign and return your proxy card
without marking your choice, your shares will be voted for the adoption of
the merger agreement.
Q. CAN I CHANGE MY VOTE AFTER I HAVE MAILED IN MY SIGNED AND DATED PROXY CARD?
A. Yes. You may change your vote at any time before the vote is taken at the
special meetings by delivering to the corporate secretary of FirstEnergy or
GPU, as the case may be, either a written revocation of your vote or a later
dated proxy. You may also change your vote orally if you attend your special
meeting.
The procedure to be followed by FirstEnergy shareholders who vote by
telephone or Internet and wish to change their vote is described on page 23.
Q. WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A. We hope to complete the merger by the end of the second quarter of 2001. We
are working towards completing the merger as quickly as possible, but the
timing will depend on obtaining all necessary regulatory approvals. We are
unable to predict when we will receive all necessary approvals.
Q. WHO CAN ANSWER QUESTIONS REGARDING THIS MERGER?
A. FIRSTENERGY
Investor Services
76 South Main Street
Akron, Ohio 44308-1890
(800) 631-8945 (toll-free)
GPU
Investor Relations
310 Madison Avenue
P.O. Box 1957
Morristown, New Jersey 07962-1957
(877) 398-5639 (toll-free)
2
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
MERGER MORE FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
MERGER, YOU SHOULD CAREFULLY READ THIS ENTIRE DOCUMENT AND THE DOCUMENTS THAT WE
HAVE INCORPORATED BY REFERENCE INTO THIS PROXY STATEMENT/PROSPECTUS. SEE "WHERE
YOU CAN FIND MORE INFORMATION" ON PAGES 111-112.
THE COMPANIES
FIRSTENERGY CORP.
76 South Main Street
Akron, Ohio 44308-1890
(800) 631-8945 (toll-free)
FirstEnergy Corp. is a diversified energy services holding company
headquartered in Akron, Ohio. FirstEnergy was formed in 1997 as the result of
the merger of Ohio Edison Company and Centerior Energy Corporation. FirstEnergy
companies provide electricity and natural gas services and a wide array of
energy-related products and services. The main subsidiaries of FirstEnergy are
its four electric utility operating companies:
- Ohio Edison Company;
- The Cleveland Electric Illuminating Company;
- Pennsylvania Power Company; and
- The Toledo Edison Company.
The four electric utility operating companies serve 2.2 million customers in
a 13,200 square mile service area in northern and central Ohio and western
Pennsylvania. American Transmission Systems Incorporated, a subsidiary of
FirstEnergy, owns and operates all of the transmission assets formerly owned by
FirstEnergy's four electric utility operating companies.
GPU, INC.
300 Madison Avenue
P.O. Box 1911
Morristown, New Jersey 07962-1911
(877) 398-5639 (toll-free)
GPU, Inc. is, through its subsidiaries, an international provider of
energy-related services.
Domestically, GPU's three electric utility subsidiaries--doing business as
GPU Energy--serve 2.1 million customers in Pennsylvania and New Jersey. GPU's
electric utility subsidiaries are:
- Jersey Central Power & Light Company;
- Metropolitan Edison Company (Met-Ed); and
- Pennsylvania Electric Company (Penelec).
In addition, through GPU Electric, Inc., GPU owns and operates electric
transmission and distribution facilities outside the United States. Through the
GPU International Group, GPU's independent power project business units own
interests in and operate 14 projects in five countries, including the U.S. On
October 5, 2000, GPU announced that it had agreed to sell GPU International's
interests in six independent power plants in the U.S. and its interest in a
domestic development stage project to Aquila Energy Corporation, a subsidiary of
UtiliCorp United. GPU anticipates that, subject to obtaining certain federal and
state regulatory approvals, this sale will close by the end of 2000. GPU also
sells competitive retail energy and related services in the mid-Atlantic region
of the United States through its subsidiary, GPU Advanced Resources, Inc. GPU's
other subsidiaries include MYR Group Inc., GPU Nuclear, Inc., GPU Service, Inc.
and GPU Telcom Services, Inc. Altogether, through its subsidiaries, GPU serves
more than 4.6 million customers around the world.
THE SPECIAL MEETINGS
(See pages 21-24)
FIRSTENERGY
The special meeting of FirstEnergy shareholders will be held at the Hilton
Akron/ Fairlawn, 3180 West Market Street, Akron, Ohio on November 21, 2000 at
9:00 a.m.
3
<PAGE>
At the special meeting, FirstEnergy shareholders will be asked to adopt the
merger agreement which provides for the merger of GPU with and into FirstEnergy.
To ensure that FirstEnergy has a sufficient number of shares available to issue
to GPU shareholders in connection with the merger and for other corporate
purposes, the merger agreement also provides for an amendment to FirstEnergy's
articles of incorporation to increase the number of authorized shares of
FirstEnergy common stock from 300 million to 375 million. The affirmative vote
of at least a majority of the total number of shares of FirstEnergy common stock
outstanding is required to adopt the merger agreement.
Only the FirstEnergy shareholders of record at the close of business on the
record date, October 12, 2000, are entitled to notice of the FirstEnergy special
meeting and only these shareholders may vote.
Each share of FirstEnergy common stock entitles its holder to one vote. On
October 12, 2000, there were 227,336,741 shares of FirstEnergy common stock
outstanding.
GPU
The special meeting of GPU shareholders will be held at The Morris Museum,
Six Normandy Heights Road, Morristown, New Jersey on November 21, 2000 at 9:00
a.m.
At the special meeting, GPU shareholders will consider and be asked to vote
to approve the adoption of the merger agreement. For the merger agreement to be
adopted, at least a majority of the votes cast, in person or by proxy, by GPU
shareholders at the special meeting must be voted in favor of adoption.
Only GPU shareholders of record at the close of business on the record date,
October 12, 2000, are entitled to notice of the GPU special meeting and only
these shareholders may vote.
Each share of GPU common stock entitles its holder to one vote. On
October 12, 2000, there were 121,332,510 shares of GPU common stock outstanding.
SHARE OWNERSHIP OF MANAGEMENT
FirstEnergy's directors and executive officers beneficially own, in the
aggregate, less than 1% of the outstanding shares of FirstEnergy's common stock.
GPU's directors and executive officers beneficially own, in the aggregate,
less than 1% of the outstanding shares of GPU's common stock.
CONSIDERATION PAYABLE TO GPU SHAREHOLDERS
(See pages 52-54)
As described in the following paragraphs, under the terms of the merger
agreement FirstEnergy will pay cash for 50%, and issue FirstEnergy shares for
50%, of the GPU shares outstanding at the time we complete the merger, subject
to the tax adjustment described below. Each GPU shareholder will be able to
elect to receive cash for all of his or her GPU shares, FirstEnergy shares for
all of his or her GPU shares, or cash for a portion and FirstEnergy shares for
the rest of his or her GPU shares.
ELECTION RIGHT. Shortly before we complete the merger, we will give each
person who is then a GPU shareholder the opportunity to elect to receive, for
each share of GPU common stock he or she owns, either:
- $36.50 in cash, without interest; or
- a number of shares of FirstEnergy common stock (the exchange ratio)
designed to provide GPU shareholders with FirstEnergy shares having a
value of $36.50, subject to adjustment as noted below.
We will determine the exact exchange ratio by dividing $36.50 by the average
of the closing sale prices for a share of FirstEnergy common stock on the New
York Stock Exchange as reported in THE WALL STREET JOURNAL over the 20-day
trading period ending on the seventh trading day before we complete the merger.
The exchange ratio, however, will be fixed at 1.2318 if the average closing
price of the FirstEnergy shares over this period is equal to or greater than
$29.6313, and at 1.5055 if the average
4
<PAGE>
closing price over this period is equal to or less than $24.2438.
If a GPU shareholder elects to receive FirstEnergy shares, the number of
FirstEnergy shares he or she will receive for each GPU share subject to that
election will not be less than 1.2318, nor more than 1.5055, regardless of what
happens to FirstEnergy's share price. This also means that if the average
closing price of the FirstEnergy shares is less than $24.2438, or more than
$29.6313, the FirstEnergy shares that GPU shareholders will receive for each GPU
share will likely have a value at the time we complete the merger of less than,
or more than, $36.50.
FirstEnergy will issue a press release before 9:00 a.m., New York City time,
on the sixth trading day before the merger occurs announcing the exchange ratio,
the average closing price of the FirstEnergy shares over the 20-day trading
period and the deadline for submitting elections to receive cash or FirstEnergy
shares.
CONSEQUENCES OF OVER- AND UNDER-ELECTION. If GPU shareholders elect to
receive cash for more than 50% of the GPU shares, the amount of cash that GPU
shareholders will receive for each GPU share for which they made a cash election
will be reduced pro rata so the total amount of cash that FirstEnergy will pay
to all GPU shareholders in the merger is the same as the amount that FirstEnergy
would have had to pay if cash elections were made for only 50% of the GPU
shares. If this reduction occurs, in addition to the reduced amount of cash,
FirstEnergy will issue, in respect of each GPU share for which a cash election
was made, FirstEnergy shares in lieu of the cash the GPU shareholder would have
otherwise received. The number of shares FirstEnergy will issue for each GPU
share subject to a cash election in this situation will be calculated by
multiplying the exchange ratio by the percentage reduction in the cash
consideration paid to GPU shareholders making cash elections.
Similarly, if GPU shareholders elect to receive FirstEnergy shares for more
than 50% of the GPU shares, the number of FirstEnergy shares GPU shareholders
will receive for each GPU share for which they made a share election will be
reduced pro rata so that the total number of shares that FirstEnergy will issue
to all GPU shareholders in the merger is the same as the number of shares that
FirstEnergy would have had to issue if share elections had been made for only
50% of the GPU shares. If this reduction occurs, in addition to the reduced
number of FirstEnergy shares, FirstEnergy will pay, in respect of each GPU share
for which a share election was made, cash in lieu of the FirstEnergy shares the
GPU shareholder would have otherwise received. The amount of cash to be paid for
each GPU share subject to a share election in this situation will be calculated
by multiplying $36.50 by the percentage reduction in FirstEnergy shares issued
to GPU shareholders making share elections.
In the case of an over-election for either cash or FirstEnergy shares, those
GPU shareholders who fail to make a valid election with respect to their shares
will receive the under-elected form of consideration for those shares. We,
therefore, encourage GPU shareholders to make a valid election with respect to
all of their shares.
If all GPU shareholders together make valid cash elections for fewer than
50% of the outstanding GPU shares and valid share elections for fewer than 50%
of the outstanding GPU shares, all of the remaining cash and FirstEnergy shares
that will be paid and issued in the merger will be allocated pro rata among the
holders of non-electing shares. This means that non-electing shareholders would
receive both cash and FirstEnergy shares for their GPU shares.
TAX ADJUSTMENT. As we explain on pages 54-55, under certain circumstances
it may be necessary for FirstEnergy to reduce the total amount of cash it pays
in the merger in order to ensure that the merger will be treated as a
"reorganization" for U.S. federal income tax purposes. In this event, all GPU
shareholders who are entitled to receive cash, other than as a result of being a
dissenting shareholder or being entitled to cash in lieu of a fractional share
of FirstEnergy common stock, will receive a reduced amount of cash. This
reduction will be implemented on a pro rata basis based on the amount of cash
each shareholder would
5
<PAGE>
otherwise be entitled to receive under the election procedure described above.
Each GPU shareholder who receives a reduced amount of cash as a result of a tax
adjustment will receive FirstEnergy shares with a value equal to the amount of
cash by which the cash payable to the GPU shareholder is reduced. For these
purposes, we will determine the value of those FirstEnergy shares based on the
closing price of the FirstEnergy shares on the date we complete the merger.
NO FRACTIONAL SHARES. FirstEnergy will not issue fractional shares in
connection with the merger. Any GPU shareholder otherwise entitled to a
fractional share, including in connection with a tax adjustment, will instead
receive cash in an amount equal to that fraction multiplied by the average of
the closing prices of the shares of FirstEnergy common stock over the five-day
trading period ending on the trading day before we complete the merger.
PROCEDURE FOR MAKING ELECTIONS. Between 30 and 90 days before we expect to
complete the merger, we will mail to each GPU shareholder who holds shares as of
a record date as close as practicable to the date of mailing, a form of election
and complete instructions for making an election with respect to his or her GPU
shares. For your election to be valid, the exchange agent for the merger must
receive your properly completed election form, together with any certificates
for your shares, at its designated office or offices, by 5:00 p.m., New York
City time, on the business day before we close the merger.
OUR RECOMMENDATION TO SHAREHOLDERS
(See pages 31-35)
FIRSTENERGY
The board of directors of FirstEnergy has carefully reviewed the merger
agreement and considered the proposed merger. THE FIRSTENERGY BOARD BELIEVES
THAT THE MERGER IS IN THE BEST INTERESTS OF FIRSTENERGY SHAREHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE PROPOSAL TO ADOPT THE
MERGER AGREEMENT, WHICH INCLUDES THE RELATED AMENDMENT TO FIRSTENERGY'S ARTICLES
OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF FIRSTENERGY
COMMON STOCK.
GPU
The board of directors of GPU has carefully reviewed the merger agreement
and considered the proposed merger. THE GPU BOARD HAS DETERMINED THAT THE MERGER
IS FAIR TO AND IN THE BEST INTERESTS OF THE GPU SHAREHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE PROPOSAL TO ADOPT THE MERGER
AGREEMENT.
OPINIONS OF FINANCIAL ADVISORS
(See pages 35-52)
In deciding to approve the merger, each of our boards of directors sought
advice from independent financial advisors.
FirstEnergy received an opinion from Morgan Stanley & Co. Incorporated,
dated as of August 8, 2000, to the effect that the consideration to be paid by
FirstEnergy pursuant to the merger agreement was fair from a financial point of
view to FirstEnergy.
GPU received an opinion from Salomon Smith Barney Inc., dated as of
August 8, 2000, to the effect that the consideration to be paid by FirstEnergy
to GPU shareholders for their shares of GPU common stock was fair from a
financial point of view to GPU shareholders.
We have included these opinions in this joint proxy statement/prospectus as
Appendices B and C. We urge FirstEnergy and GPU shareholders to read the
opinions of Morgan Stanley and Salomon, respectively, in their entirety.
CONDITIONS TO THE MERGER
(See pages 77-78)
Our respective obligations to complete the merger are subject to several
conditions, including the following:
- the adoption of the merger agreement by FirstEnergy and GPU shareholders;
- our having obtained all necessary regulatory approvals except those which
if not obtained would not be reasonably
6
<PAGE>
expected to result in a material adverse effect on the combined company;
and the obtained approvals not imposing terms and conditions that would
reasonably be expected to result in a material adverse effect on the
combined company;
- the New York Stock Exchange having authorized for listing the shares of
FirstEnergy common stock issuable to GPU shareholders;
- both FirstEnergy and GPU having received, from their respective counsels,
opinions to the effect that the merger will be treated as a
"reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code;
- the absence of any event since June 30, 2000, in the case of GPU, and
March 31, 2000, in the case of FirstEnergy, which would have a material
adverse effect on that company; and
- no law, regulation or ruling having been adopted or issued affecting
either GPU or FirstEnergy which would have a material adverse effect on
the combined company.
REGULATORY APPROVALS
(See pages 58-61)
To complete the merger, we must obtain approvals from various regulatory
agencies, including:
- the relevant utility regulatory agencies in New Jersey and Pennsylvania;
- the Securities and Exchange Commission under the Public Utility Holding
Company Act of 1935;
- the Federal Energy Regulatory Commission under the Federal Power Act; and
- the Nuclear Regulatory Commission under the Atomic Energy Act.
In addition, the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act must have expired or terminated.
We also may be required to obtain approvals from foreign regulatory agencies
in connection with the merger.
We have agreed to cooperate with each other and take whatever actions are
necessary for us to obtain the regulatory approvals required in connection with
the merger, unless taking these actions would reasonably be expected to have a
material adverse effect on the combined company after we complete the merger.
Upon the completion of the merger, FirstEnergy intends to register as a
holding company under the 1935 Act; GPU is already registered under the 1935
Act.
NON-SOLICITATION COVENANTS
(See page 75)
Each party has agreed not to solicit or encourage any proposal from any
person to acquire that party or a significant portion of its assets, but it may
respond, in certain circumstances, to unsolicited proposals that it receives.
TERMINATION AND TERMINATION FEES
(See pages 78-80)
FirstEnergy and GPU may agree to terminate the merger agreement at any time
before the merger becomes effective, even if shareholders of FirstEnergy or GPU
have already voted to adopt the merger agreement. In addition, either company
may terminate the merger agreement if:
- as a result of a breach of the merger agreement that is material and
uncured, a condition to the merger would not be satisfied;
- a court issues a permanent injunction or other order prohibiting the
merger;
- either company's shareholders do not approve the merger at that company's
special meeting; or
- the merger is not completed by September 30, 2001, although if the sole
reason the merger has not been completed is because regulatory approvals
7
<PAGE>
have not been obtained, this deadline may be extended by either company to
December 31, 2001 and may be further extended by GPU to March 31, 2002.
In addition, GPU may terminate the merger agreement, after giving
FirstEnergy two days' notice, if GPU receives a proposal for an alternative
transaction and its board of directors determines in good faith that accepting
the proposal is required by its fiduciary duties under applicable law.
GPU would be required to pay FirstEnergy a termination fee of $145 million
plus FirstEnergy's out-of-pocket fees and expenses if:
- GPU terminates the merger agreement to accept a proposal for an
alternative transaction or the merger agreement is terminated because GPU
violates its non-solicitation covenant described above;
- at the time the merger agreement is terminated, a third party has made a
proposal for an alternative transaction which remains outstanding and has
not been rejected by GPU; and
- within two and one-half years after the termination, GPU is acquired by
the third party that made the proposal for the alternative transaction.
If termination occurs because of a material breach by a party, the other
party would have the right to require the breaching party to pay $25 million,
plus all out-of-pocket fees and expenses incurred by the non-breaching party in
connection with the merger in lieu of such party's right to pursue any other
available remedy for the breach.
ACCOUNTING TREATMENT
(See page 58)
The merger will be accounted for on a purchase accounting basis in
accordance with accounting principles generally accepted in the United States
(GAAP).
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
(See pages 68-71)
The consequences described below assume that the merger will be treated as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code. We have conditioned the merger on our receipt of legal opinions confirming
this.
GPU SHAREHOLDERS
The U.S. federal income tax consequences of the merger will depend on the
form of consideration you receive in the merger.
If you receive only shares of FirstEnergy common stock for your shares of
GPU common stock, you will not recognize any gain or loss for U.S. federal
income tax purposes, except with respect to cash received for any fractional
share.
If you receive part cash and part shares of FirstEnergy common stock, and
your adjusted tax basis in your shares of GPU common stock is less than the sum
of the amount of cash and the fair market value at the date of the merger of the
shares of FirstEnergy common stock you receive, you will recognize gain. If your
adjusted tax basis in your shares of GPU common stock is greater than the sum of
the amount of cash and the fair market value at the date of the merger of the
shares of FirstEnergy common stock you receive, you will not be able to
currently recognize the loss, except with respect to cash received for any
fractional share.
If you receive only cash, you will recognize gain or loss generally equal to
the difference between the amount of cash you receive and your adjusted tax
basis in your shares of GPU common stock.
THE TAX CONSEQUENCES OF THE MERGER TO YOU WILL DEPEND ON YOUR INDIVIDUAL
SITUATION. YOU SHOULD CONSULT YOUR TAX ADVISOR FOR A FULL UNDERSTANDING OF THE
TAX CONSEQUENCES OF THE MERGER TO YOU.
FIRSTENERGY SHAREHOLDERS
You will not recognize any gain or loss for U.S. federal income tax purposes
solely as a
8
<PAGE>
result of the merger, unless you exercise dissenters' rights.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
(See pages 62-67)
When you consider your board's recommendations, you should realize that some
board members and executives will receive benefits or have interests that may be
different from yours as a shareholder. For example, Fred D. Hafer, GPU's current
chairman, president and chief executive officer, will become chairman of
FirstEnergy until his retirement and a consultant for three years thereafter. H.
Peter Burg, FirstEnergy's current chairman and chief executive officer, will
become vice chairman and remain chief executive officer of FirstEnergy and will
become chairman upon the retirement of Mr. Hafer. In addition, FirstEnergy's
board of directors will consist of ten members from FirstEnergy's current board
and six from GPU's current board.
The members of the boards of directors of both FirstEnergy and GPU were
aware of the additional interests of, and the additional benefits payable to,
other directors and executives of each company in connection with the merger and
considered them when they approved the merger agreement.
DISSENTERS' RIGHTS OF SHAREHOLDERS
(See pages 82-85)
FIRSTENERGY SHAREHOLDERS
Under Ohio law, you have the right to exercise dissenters' rights with
respect to the merger and to receive the "fair cash value" of your shares of
FirstEnergy common stock. This amount may be more, less, or the same as the
market value of your shares of FirstEnergy common stock on the date of the
completion of the merger.
To exercise your dissenters' rights, you must:
- not vote for the adoption of the merger agreement;
- file a written demand on FirstEnergy on or before the tenth day after the
FirstEnergy special meeting; and
- follow other procedures required by Ohio law.
We have attached a copy of the relevant provisions of Ohio law as
Appendix D to this joint proxy statement/prospectus.
GPU SHAREHOLDERS
Under Pennsylvania law, you have the right to exercise dissenters' rights
with respect to the merger and to demand payment of the "fair value" of your
shares of GPU common stock, in lieu of the consideration that FirstEnergy is
offering to GPU shareholders in the merger. This amount may be more than, less
than or the same as the value of what you would otherwise receive in the merger.
To exercise your dissenters' rights, you must:
- deliver to the GPU corporate secretary, prior to the GPU special meeting,
a written notice of intent to demand payment of the "fair value" of your
shares of GPU common stock;
- not change your ownership interests in your shares of GPU common stock;
- not vote for the adoption of the merger agreement; and
- follow other procedures required by Pennsylvania law.
We have attached a copy of the relevant provisions of Pennsylvania law as
Appendix E to this joint proxy statement/prospectus.
EFFECTS OF THE MERGER ON THE RIGHTS OF GPU SHAREHOLDERS
(See pages 101-109)
If you receive shares of FirstEnergy common stock in the merger, your rights
as a FirstEnergy shareholder will be governed by Ohio law and by FirstEnergy's
articles of incorporation and regulations. These rights differ in certain
respects from your current rights as a GPU shareholder, which are governed by
Pennsylvania law and GPU's articles of incorporation and by-laws.
9
<PAGE>
SUMMARY OF SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL
INFORMATION
We are providing the following selected historical financial information to
aid you in your analysis of the financial aspects of the merger. This
information is only a summary and you should read it in conjunction with
FirstEnergy's and GPU's historical financial statements (and related notes)
contained in the reports that we have filed with the SEC. See "Where You Can
Find More Information" on pages 111-112.
SIGNIFICANT EVENTS AFFECTING HISTORICAL EARNINGS TRENDS
Our companies report quarterly and annual earnings results in our SEC
filings in accordance with GAAP and SEC regulations. Sometimes the financial
results reported in this way include unusual or infrequent events and factors
that are not expected to occur regularly in the future. Unusual or infrequent
events and transactions that we believe would be helpful to review in
understanding our companies' past performances and future prospects are briefly
described in the footnotes to our historical financial information.
FIRSTENERGY--SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
We present below selected historical consolidated financial data for each of
the five fiscal years ended December 31, 1999, which have been derived from
FirstEnergy's audited consolidated financial statements, and selected historical
consolidated financial data for the six months ended June 30, 2000 and June 30,
1999, which have been derived from FirstEnergy's unaudited consolidated
financial statements.
Due to the effect of seasonal fluctuations and other factors affecting the
operations of FirstEnergy, FirstEnergy's financial results for the six-month
period ended June 30, 2000 are not necessarily indicative of what FirstEnergy's
financial results will be for the year ending December 31, 2000. You should read
the information set forth below in conjunction with the audited and unaudited
consolidated financial statements of FirstEnergy included in its filings with
the SEC that we have incorporated by reference in this document and the
unaudited pro forma combined financial statements and related notes we present
beginning on page 86.
<TABLE>
<CAPTION>
(UNAUDITED)
AT OR FOR THE
SIX MONTHS AT OR FOR THE
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
MILLIONS OF DOLLARS, ------------------- ----------------------------------------------------
EXCEPT PER SHARE DATA 2000 1999 1999 1998 (A) 1997 (B) 1996 1995
---------------------------------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................................ $ 3,310 $ 2,941 $ 6,320 $ 5,875 $ 2,961 $2,522 $2,501
Income before extraordinary item........ 276 262 568 441 306 303 295
Net income.............................. 276 262 568 411 306 303 295
Basic and diluted earnings per share of
common stock:
Before extraordinary item............. 1.23 1.15 2.50 1.95 1.94 2.10 2.05
After extraordinary item.............. 1.23 1.15 2.50 1.82 1.94 2.10 2.05
Cash dividends paid per share of common
stock................................. 0.75 0.75 1.50 1.50 1.50 1.50 1.50
Total assets............................ 18,101 18,383 18,224 18,192 18,261 9,219 9,035
Preferred stock subject to mandatory
redemption............................ 124 161 136 175 215 35 40
Subsidiary-obligated mandatorily
redeemable preferred securities....... 120 120 120 120 120 120 120
Long-term debt.......................... 5,966 6,143 6,001 6,352 6,970 2,713 2,786
</TABLE>
------------------------------
(a) FirstEnergy's 1998 results included an extraordinary loss of $30 million,
net of tax ($0.13 per share of common stock) resulting from a Pennsylvania
Public Utility Commission decision essentially deregulating FirstEnergy's
subsidiary, Penn Power's generation business.
(b) FirstEnergy's 1997 results included the 1997 results of operations of
Cleveland Electric and Toledo Edison, former Centerior Energy subsidiaries,
for the period November 8, 1997 through December 31, 1997, because of the
merger of Ohio Edison and Centerior Energy on November 8, 1997, which
created FirstEnergy. The 1997 results for FirstEnergy also included a
nonrecurring net of tax charge of $34 million ($0.22 per share of common
stock), primarily resulting from merger-related staffing reductions.
10
<PAGE>
GPU--SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
We present below selected historical consolidated financial data for each of
the five fiscal years ended December 31, 1999, which have been derived from
GPU's audited consolidated financial statements, and selected historical
consolidated financial data for the six months ended June 30, 2000 and June 30,
1999, which have been derived from GPU's unaudited consolidated financial
statements. Certain reclassifications have been made to the GPU historical
financial statements to conform to the presentation expected to be used by
FirstEnergy after the merger.
Due to the effect of seasonal fluctuations and other factors affecting the
operations of GPU, GPU's financial results for the six-month period ended
June 30, 2000 are not necessarily indicative of what GPU's financial results
will be for the year ending December 31, 2000. You should read the information
we have set forth below in conjunction with the audited and unaudited
consolidated financial statements of GPU included in its filings with the SEC
that we have incorporated by reference in this document and the unaudited pro
forma combined financial statements and related notes we present beginning on
page 86.
<TABLE>
<CAPTION>
(UNAUDITED)
AT OR FOR THE SIX
MONTHS AT OR FOR THE
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
MILLIONS OF DOLLARS, ------------------- ----------------------------------------------------
EXCEPT PER SHARE DATA 2000(A) 1999(B) 1999(C) 1998(D) 1997(E) 1996(F) 1995(G)
-------------------------------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.............................. $ 2,530 $ 2,109 $ 4,977 $ 4,249 $ 4,143 $ 3,971 $ 3,822
Income (loss) before extraordinary
item................................ (80) 238 459 386 335 298 440
Net income (loss)..................... (80) 238 459 360 335 298 440
Earnings (loss) per share of common
stock:
Before extraordinary item
Basic............................. (0.66) 1.88 3.66 3.03 2.78 2.48 3.79
Diluted........................... (0.66) 1.87 3.66 3.03 2.77 2.47 3.79
After extraordinary item
Basic............................. (0.66) 1.88 3.66 2.83 2.78 2.48 3.79
Diluted........................... (0.66) 1.87 3.66 2.83 2.77 2.47 3.79
Cash dividends paid per share of
common stock........................ 1.075 1.045 2.105 2.045 1.985 1.925 1.86
Total assets.......................... 20,459 19,202 21,698 16,288 12,823 10,851 9,752
Preferred stock subject to mandatory
redemption.......................... 51 82 73 87 92 114 134
Subsidiary-obligated mandatorily
redeemable preferred securities..... 125 330 125 330 330 330 330
Trust preferred securities............ 200 200 200 -- -- -- --
Long-term debt........................ 4,897 4,832 5,634 3,828 4,329 3,184 2,580
</TABLE>
------------------------
(a) For the six months ended June 30, 2000, GPU's results include a loss on the
sale of GPU's Australian PowerNet electric transmission business of
$295 million, net of tax ($2.43 per share of common stock).
(b) Earnings for the six months ended June 30, 1999 include a reduction in
income of $68 million, net of tax ($0.54 per share of common stock), as a
result of a New Jersey restructuring order applicable to GPU's subsidiary,
Jersey Central, and an increase of $10 million after-tax ($0.08 per share of
common stock) for the gain on the sale of the Midlands Electricity plc
supply business. Earnings for the six months ended June 30, 1999 also
included an increase in income of $28 million after-tax ($0.22 per share of
common stock) for the gain on the sale of Penelec's Homer City Generating
Station, related to wholesale operations.
(c) In 1999, GPU's results reflect a nonrecurring charge of $68 million, net of
tax ($0.54 per share of common stock), resulting from a New Jersey
restructuring order applicable to GPU's subsidiary, Jersey Central. This was
partially offset by net of tax gains of $36 million ($0.29 per share of
common stock) and $7 million ($0.05 per share of common stock) from the sale
of
11
<PAGE>
substantially all of the GPU Energy companies' electric generating
facilities, related to wholesale operations, and the Midlands Electricity
plc supply business, respectively.
(d) In 1998, GPU's results include an extraordinary loss of $26 million, net of
tax ($0.20 per share of common stock), and a nonrecurring net of tax charge
of $40 million ($0.32 per share of common stock) resulting from Pennsylvania
Public Utility Commission restructuring orders applicable to GPU's
subsidiaries, Met-Ed and Penelec.
(e) In 1997, GPU's results reflect a nonrecurring net of tax charge of
$109 million ($0.90 per share of common stock) for a windfall profits tax
imposed on privatized utilities, including GPU's subsidiary, Midlands, by
the Government of the United Kingdom.
(f) In 1996, GPU's results reflect a nonrecurring net of tax charge of
$75 million ($0.62 per share of common stock) for enhanced voluntary
retirement program costs.
(g) In 1995, GPU's results reflect the reversal of $105 million, net of tax
($0.91 per share of common stock), of certain future Three Mile Island
Unit-2 (TMI-2) retirement costs written off in 1994. The reversal of this
write-off resulted from a 1995 Pennsylvania Supreme Court decision that
overturned a 1994 lower court order and restored a 1993 Pennsylvania Public
Utility Commission order allowing recovery of these costs. This earnings
increase was partially offset by a nonrecurring net of tax charge of
$8 million ($0.07 per share of common stock) for TMI-2 monitored storage
costs not believed to be recoverable from customers.
12
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
We will account for the merger as a purchase in accordance with GAAP. Under
the purchase method of accounting, the post-merger common equity of FirstEnergy
will be equal to the book common equity of FirstEnergy at the time of the merger
plus the fair market value on the closing date of the new shares of FirstEnergy
common stock issued to GPU shareholders in connection with the merger. The cash
consideration which will be paid to GPU shareholders will be financed with debt.
The pro forma adjustments reflected in the unaudited pro forma financial
information set forth below assume a purchase price of $36.50 for each
outstanding share of GPU common stock.
Under purchase accounting, GPU's net assets will be adjusted to fair market
value on FirstEnergy's balance sheet as of the date of completion of the merger.
To the extent the purchase price exceeds the fair market value of GPU's net
assets, goodwill will be recognized on the balance sheets of GPU's subsidiaries
and, therefore, on the post-merger consolidated balance sheet of FirstEnergy.
Any such goodwill will be amortized over a period not to exceed 40 years. If the
purchase price is less than the fair market value of GPU's net assets, the value
of GPU's fixed assets will be reduced accordingly. No adjustment will be made to
FirstEnergy's pre-merger assets and liabilities in connection with the merger.
The reported income of FirstEnergy in the first financial reporting period
following completion of the merger will include GPU's results of operations only
from the date of completion forward. See "The Merger--Accounting Treatment" on
page 58.
We present below unaudited pro forma financial information intended to give
you a better picture of what the combined results of operations of FirstEnergy
and GPU might have been for the six months ended June 30, 1999 and 2000 and the
year ended December 31, 1999 had the merger occurred on January 1, 1999 and what
the financial position of the combined company might have been had the merger
occurred on June 30, 2000. We prepared the pro forma financial information by
combining the historical results of FirstEnergy's operations and the pro forma
results of operations for GPU and making estimated adjustments resulting from
the merger as described in Unaudited Pro Forma Combined Condensed Financial
Information beginning on page 86. You should not rely on the pro forma
information as being indicative of the historical results that we would have had
or of the future results that we will experience after the merger.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED AND AT FOR THE YEAR
JUNE 30, ENDED
------------------- DECEMBER 31,
2000 1999 1999
-------- -------- ------------
(MILLIONS OF DOLLARS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues.................................................... $ 5,940 $5,380 $11,562
Net income.................................................. 419 364 802
Basic and diluted earnings per common share................. 1.37 1.16(i) 2.57(ii)
Book value per common share................................. 22.36 21.61 22.02
Total assets................................................ 40,024 -- --
Preferred stock subject to mandatory redemption............. 175 -- --
Trust preferred securities.................................. 200 -- --
Long-term debt.............................................. 13,078 -- --
</TABLE>
------------------------------
(i) FirstEnergy pro forma combined basic and diluted earnings per share are
$1.38 excluding GPU's nonrecurring charge related to the New Jersey Board of
Public Utilities restructuring order described in Note 4 of the Notes to
Unaudited Pro Forma Combined Condensed Financial Statements.
(ii) FirstEnergy pro forma combined basic and diluted earnings per share are
$2.79 excluding GPU's nonrecurring charge related to the New Jersey Board of
Public Utilities restructuring order described in Note 4 of the Notes to
Unaudited Pro Forma Combined Condensed Financial Statements.
13
<PAGE>
UNAUDITED COMPARATIVE PER SHARE DATA
We have summarized below the per share information for our respective
companies on a pro forma, pro forma equivalent and historical basis. For this
purpose, we have assumed that GPU shareholders will receive, per GPU share,
1.355 shares of FirstEnergy common stock, the exchange ratio determined by
assuming a FirstEnergy share price of $26.938, which represents the midpoint
between $24.2438 and $29.6313, in exchange for 50% of their shares of GPU common
stock. The GPU Per Share Equivalents are therefore calculated by multiplying the
FirstEnergy Unaudited Pro Forma per share amounts by 1.355.
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS AT OR FOR THE
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2000 1999
------------- -------------
<S> <C> <C>
FIRSTENERGY UNAUDITED PRO FORMA
Basic and diluted earnings per common share................. $1.37 $2.57(c)
Cash dividends per common share(b).......................... 0.76 1.51
Book value per common share................................. 22.36 22.02
GPU PER SHARE EQUIVALENTS
Basic and diluted earnings per common share................. $1.85 $3.48
Cash dividends per common share............................. 1.03 2.05
Book value per common share................................. 30.30 29.84
FIRSTENERGY -- HISTORICAL
Basic and diluted earnings per common share................. $1.23 $2.50
Cash dividends paid per common share........................ 0.75 1.50
Book value per common share................................. 20.67 20.22
GPU -- HISTORICAL
Basic and diluted earnings per common share................. $(0.66)(a) $3.66
Cash dividends paid per common share........................ 1.075 2.105
Book value per common share................................. 26.99 28.45
</TABLE>
------------------------------
(a) GPU historical basic and diluted earnings per share, for the six months
ended June 30, 2000, are $1.77 excluding GPU's loss on the sale of its
Australian electric transmission business.
(b) The cash dividends paid per share of FirstEnergy common stock included above
reflect the sum of the dividends paid by both companies divided by the
number of shares that would have been outstanding for the periods presented
after adjusting the GPU shares by an assumed exchange ratio of 1.355 with
respect to 50% of the outstanding GPU shares. We expect, however, that upon
completion of the merger, the initial annual dividend rate will be the same
as FirstEnergy's current annual dividend rate of $1.50 per share.
(c) FirstEnergy pro forma combined basic and diluted earnings per share are
$2.79 excluding GPU's nonrecurring charge related to the New Jersey Board of
Public Utilities restructuring order described in Note 4 of the Notes to
Unaudited Pro Forma Combined Condensed Financial Statements.
14
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
We are providing you with the reported high and low sales prices of
FirstEnergy common stock and GPU common stock on the New York Stock Exchange's
Composite Transactions Tape, as reported in THE WALL STREET JOURNAL, for each
calendar quarter during 1998, 1999 and a portion of 2000 as well as dividend
information for these quarters. Shares of FirstEnergy common stock trade under
the symbol "FE" and shares of GPU common stock trade under the symbol "GPU."
<TABLE>
<CAPTION>
FIRSTENERGY GPU
------------------------------- --------------------------------
PRICE RANGE PRICE RANGE
DIVIDENDS ------------------- DIVIDENDS --------------------
PAID HIGH LOW PAID HIGH LOW
--------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
1998
First Quarter....................... $0.375 $31.625 $27.875 $0.50 $44.6875 $38.6875
Second Quarter...................... 0.375 31.875 28.50 0.515 44.4375 36.50
Third Quarter....................... 0.375 31.3125 27.0625 0.515 43.3125 35.1875
Fourth Quarter...................... 0.375 34.0625 29.1875 0.515 47.1875 41.375
1999
First Quarter....................... $0.375 $33.1875 $27.9375 $0.515 $45.00 $37.25
Second Quarter...................... 0.375 32.125 27.9375 0.53 44.625 36.50
Third Quarter....................... 0.375 31.3125 24.75 0.53 42.5625 32.00
Fourth Quarter...................... 0.375 26.5625 22.125 0.53 34.8125 28.75
2000
First Quarter....................... $0.375 $23.5625 $18.00 $0.53 $30.75 $23.4375
Second Quarter...................... 0.375 26.875 20.5625 0.545 30.375 26.1875
Third Quarter....................... 0.375 27.88 22.94 0.545 32.75 26.375
Fourth Quarter (through 10/12/00)... -- 27.81 25.06 -- 32.6875 31.4375
</TABLE>
The table below shows the high, low and closing prices for shares of
FirstEnergy common stock and GPU common stock on August 4, 2000, the last full
trading day prior to the time THE WALL STREET JOURNAL reported that GPU and
FirstEnergy were engaged in discussions regarding a potential merger; on
August 7, 2000, the last full trading day prior to the public announcement by
GPU and FirstEnergy of the proposed merger; and on October 12, 2000, the most
recent date for which quotations were available prior to the printing of this
joint proxy statement/prospectus.
<TABLE>
<CAPTION>
FIRSTENERGY GPU
------------------------------- ------------------------------
DATE HIGH LOW CLOSE HIGH LOW CLOSE
---- -------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
August 4, 2000...................... $27.1875 $26.1875 $26.9375 $28.25 $27.375 $28.0625
August 7, 2000...................... 25.4375 24.375 25.375 31.125 29.9375 30.6875
October 12, 2000.................... 25.9375 25.1875 25.4375 32.5625 32.0625 32.4375
</TABLE>
15
<PAGE>
RISK FACTORS
SHAREHOLDERS OF FIRSTENERGY AND GPU SHOULD CONSIDER CAREFULLY ALL THE
INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND ITS
APPENDICES. YOU SHOULD ALSO CONSIDER THE INFORMATION IN THE DOCUMENTS WE HAVE
INCORPORATED BY REFERENCE. IN ADDITION, YOU SHOULD PAY PARTICULAR ATTENTION TO
THE FOLLOWING FACTORS IN EVALUATING THE PROPOSALS TO BE VOTED ON AT YOUR
COMPANY'S SPECIAL MEETING.
FLUCTUATIONS IN THE MARKET PRICE OF FIRSTENERGY COMMON STOCK COULD RESULT IN GPU
SHAREHOLDERS RECEIVING FIRSTENERGY SHARES OR A COMBINATION OF FIRSTENERGY SHARES
AND CASH THAT MAY HAVE A MARKET VALUE AT CLOSING THAT IS LESS THAN OR MORE THAN
$36.50.
We will determine the exchange ratio by dividing $36.50 by the average of
the closing sales prices of FirstEnergy common stock during the 20-day trading
period ending on the seventh trading day before we complete the merger if the
average closing price is between $24.2438 and $29.6313. If the average closing
price of FirstEnergy shares is less than $24.2438, the exchange ratio will be
fixed at 1.5055; if the average closing price is greater than $29.6313, the
exchange ratio will be fixed at 1.2318. Accordingly, if the average closing
price of the FirstEnergy common stock over the relevant 20-day trading period is
less than $24.2438 or more than $29.6313, the market price of FirstEnergy common
stock represented by the exchange ratio will likely be less or more, as the case
may be, than $36.50 at the time we complete the merger. Even if the average
trading price is between $24.2438 and $29.6313, market price fluctuations may
cause the FirstEnergy shares represented by the exchange ratio to have a market
value of less or more than $36.50 when GPU shareholders actually receive
FirstEnergy shares in connection with the merger.
In addition, there is likely to be a significant amount of time between the
date when FirstEnergy and GPU shareholders vote on the merger agreement at the
special meetings and the date when we complete the merger. Therefore, the price
of FirstEnergy common stock on the date of the special meetings may not be
indicative of what the price will be immediately before we complete the merger
or what the price will be after the merger.
Also, the merger agreement does not provide for any FirstEnergy stock price
level at which FirstEnergy or GPU may terminate the merger agreement.
THE FORM OF CONSIDERATION A GPU SHAREHOLDER WILL RECEIVE IN THE MERGER MAY BE
DIFFERENT THAN WHAT THAT SHAREHOLDER ELECTS TO RECEIVE.
GPU shareholders electing to receive cash or FirstEnergy shares for their
GPU shares may receive part of their consideration in a form other than the form
they elect. Under the merger agreement, FirstEnergy is required to pay cash
consideration for one-half of the GPU shares outstanding immediately before we
complete the merger and to issue FirstEnergy shares for the other half. If GPU
shareholders elect to receive FirstEnergy shares for more than 50% of the GPU
shares, a GPU shareholder who elects to receive FirstEnergy shares will receive
part of his or her consideration in the form of cash. Similarly, if GPU
shareholders elect to receive cash for more than 50% of the GPU shares, a GPU
shareholder who elects to receive cash will receive part of his or her
consideration in the form of FirstEnergy common stock. See "The
Merger--Conversion of GPU Shares, GPU Stock Options and GPU Stock Units." In
addition, adjustments in the aggregate amounts of stock and cash consideration
received in the merger may be required so that the merger will be treated as a
"reorganization" for U.S. federal income tax purposes. This may also affect the
relative amounts of FirstEnergy common stock and cash GPU shareholders will
receive in connection with the merger. See "The Merger--Conversion of GPU
Shares, GPU Stock Options and GPU Stock Units--Tax Adjustment."
THE MERGER IS SUBJECT TO REGULATORY APPROVALS WHICH MAY IMPOSE CONDITIONS THAT
COULD HAVE AN ADVERSE EFFECT ON THE OPERATIONS OF FIRSTENERGY AFTER THE
COMPLETION OF THE MERGER.
Our respective obligations to complete the merger are conditioned upon our
receiving approvals from various governmental regulatory authorities. While we
hope to obtain the required regulatory
16
<PAGE>
approvals by the end of the second quarter of 2001, we cannot be certain that
all of the required approvals and consents will be obtained within that time
frame or without terms or conditions that may have a material adverse effect on
the operations of FirstEnergy and its prospective subsidiaries after the merger.
If these conditions would have a material adverse effect on the combined company
after the merger, either party may elect to not complete the merger.
For additional information on the required regulatory approvals, see "The
Merger--Regulatory Approvals."
WE MAY FAIL TO IMPLEMENT THE MERGER SUCCESSFULLY, ACHIEVE SAVINGS AND REALIZE
THE OTHER ANTICIPATED BENEFITS FROM THE MERGER BECAUSE OF DIFFICULTIES IN
INTEGRATING THE BUSINESS OPERATIONS OF THE TWO COMPANIES.
The integration of FirstEnergy and GPU following the merger will be complex
and time-consuming and will present us with significant challenges. As a result,
we may not be able to operate the combined company as effectively as we expect.
We may also fail to achieve the anticipated potential benefits of the merger as
quickly or as cost effectively as we anticipate or may not be able to achieve
those benefits at all. Specifically, we will face significant challenges
integrating the two companies' organizations, procedures and operations in a
timely and efficient manner and retaining key FirstEnergy and GPU personnel. In
addition, the management of FirstEnergy will have to dedicate substantial effort
to integrating our two companies and, therefore, its focus and resources may be
diverted from other strategic opportunities and from operational matters. We
will also have the added burden of effecting the integration amidst recent and
future developments in the electric and gas utility industries, including
restructuring, deregulation and increased competition.
THE COMBINED COMPANY COULD BE ADVERSELY AFFECTED BY SUBSTANTIAL CHANGES
AFFECTING THE ELECTRIC UTILITY INDUSTRY.
The merger will combine two companies that are currently affected by recent
developments in the electric utility industry, including restructuring,
deregulation and increased competition. After the merger, FirstEnergy's
operating subsidiaries will continue to be subject to extensive federal
regulation as well as regulation in each of New Jersey, Pennsylvania and Ohio,
and FirstEnergy itself will become subject to federal regulation. Each of these
jurisdictions has implemented or is in the process of implementing changes to
the regulatory and legislative framework applicable to the electric utility
industry, including a change to a competitive market for the sale of
electricity. The continuing effects of changes that have been implemented, the
possible effects of changes under consideration and the possible effects of
changes that may occur in the future could have a material adverse effect on the
combined company. Moreover, increased competition resulting from legislative
changes, regulatory changes or otherwise may create greater risks to the
stability of utility earnings generally. In a deregulated environment, formerly
regulated utility companies that are not responsive to a competitive energy
marketplace could suffer erosion in market share, revenues and profits as
competitors gain access to their service territories. All of FirstEnergy's and
GPU's utility subsidiaries have received orders from their state regulators
relating to their restructuring filings.
IF THE MERGER IS CONSUMMATED, FIRSTENERGY WILL BECOME A REGISTERED HOLDING
COMPANY UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 AND WILL BE SUBJECT
TO SIGNIFICANT ADDITIONAL REGULATION BY THE SEC.
As a result of the merger, FirstEnergy, which is currently an exempt holding
company under the 1935 Act and therefore subject to minimal regulation under the
1935 Act, will, like GPU, become a registered holding company. FirstEnergy will
therefore be subject to regulation under the 1935 Act with respect to
accounting, the issuance of securities, the acquisition and sale of utility
assets, securities or any other interest in any business, the entering into and
performance of service, sales and construction contracts and other matters. The
1935 Act may also limit the extent to which FirstEnergy will be permitted to
engage in or retain non-utility businesses or acquire additional utility
businesses. These regulations may have a materially adverse effect on
FirstEnergy's ability to react to conditions quickly
17
<PAGE>
in a more deregulated and competitive utility industry and may also cause
FirstEnergy to incur significant additional costs. Although efforts to repeal
the 1935 Act are currently under consideration, we cannot assure you that these
efforts will succeed or, if they do, whether they will have a beneficial impact
on FirstEnergy or any of its subsidiaries after the merger.
SALES OF GENERATING ASSETS BY GPU COMPANIES HAVE INCREASED THOSE COMPANIES'
EXPOSURE TO HIGHER PURCHASED POWER COSTS.
With the divestiture of essentially all their generating plants since the
beginning of 1999, the GPU electric utility subsidiary companies are in a net
electrical short position (demand in excess of supply). As a result of this net
short position, these GPU companies must manage their purchase and sale of
installed capacity and ancillary services to minimize business risk associated
with their reliability obligation in the PJM Interconnection, LLC, which is the
independent system operator for the power pool in which GPU's utility
subsidiaries operate. Although the GPU companies have implemented an energy risk
management program that includes entering into supply/hedging market instruments
for hedging purposes only, we can give no assurance that these hedging
activities will be effective against significant price rises.
In addition, as a result of the New Jersey Board of Public Utilities' and
the Pennsylvania Public Utility Commission's restructuring orders, the GPU
companies are required to provide generation service to customers who do not
choose an alternate supplier. Given their net electrical short position, the
companies will have to supply energy to these customers from contracted and open
market purchases. Under the New Jersey Board of Public Utilities' order, Jersey
Central is permitted to recover reasonably and prudently incurred costs
associated with providing basic supply service. The Pennsylvania Public Utility
Commission's restructuring orders, however, generally do not allow Met-Ed and
Penelec to recover their energy costs in excess of established rate caps, which
are in effect for varying periods. While management has implemented the energy
risk management program referred to above, we can give no assurance that the
companies will be able to fully recover the costs to supply electricity to
customers who do not choose an alternate supplier, especially in Pennsylvania.
GPU SHAREHOLDERS RECEIVING FIRSTENERGY COMMON STOCK IN THE MERGER WILL BE
EXPOSED TO RISKS RELATING TO THE OWNERSHIP OF ELECTRIC GENERATION ASSETS,
INCLUDING NUCLEAR PLANTS.
As a result of recent sales by the GPU Energy companies of Three Mile Island
Unit-1, the Oyster Creek Station and substantially all of their fossil fuel and
hydroelectric generating plants, GPU has become primarily a transmission and
distribution business. FirstEnergy, on the other hand, continues to own and
operate numerous electric generating facilities, including fossil and
nuclear-fueled plants. Some of the risks associated with the operation and cost
of operation of electric generating facilities differ from those relating to
GPU's utility and non-utility businesses as currently constituted, including
risks relating to unscheduled plant outages, changing environmental
requirements, nuclear plant decommissioning and disposal of spent nuclear fuel.
GPU shareholders who after the merger hold FirstEnergy common stock will be
exposed to risks associated with the generation portion of the electric utility
industry that are not currently applicable to GPU.
GPU'S ELECTRIC UTILITY SUBSIDIARIES MAY BE UNABLE TO RECOVER ALL DECOMMISSIONING
COSTS FOR THREE MILE ISLAND UNIT-2 NUCLEAR GENERATING FACILITY.
The New Jersey Board of Public Utilities granted Jersey Central recovery for
Three Mile Island Unit-2 retirement costs based on site-specific estimates. The
Pennsylvania Public Utility Commission restructuring orders granted Met-Ed and
Penelec recovery of Three Mile Island Unit-2 decommissioning costs as part of
their recovery of stranded costs, but also allowed Met-Ed and Penelec to defer
as a regulatory asset those amounts that are above the level provided for in
their recovery of stranded costs. Jersey Central intends to seek recovery for
any increases in Three Mile Island Unit-2 retirement costs, and Met-Ed and
Penelec intend to seek recovery for any increases in the nonaccident-related
portion of such costs, but recognize that recovery cannot be assured.
18
<PAGE>
AS A RESULT OF THE MERGER, FIRSTENERGY WILL OWN FOREIGN INVESTMENTS.
GPU owns interests in a number of foreign energy-related businesses,
including Midlands Electricity plc in the United Kingdom, Empresa Distribuidora
Electrica Regional, S.A. in Argentina and GPU GasNet in Australia. GPU has
attempted to sell its interest in GPU GasNet. The book value of GPU's
investments in foreign energy-related businesses will be adjusted to its
estimated fair market value as a purchase accounting adjustment when the merger
is completed. The adjusted value could be less than the current book value. As
of June 30, 2000, GPU's aggregate foreign investments, including GPU's
guarantees, were approximately $1.8 billion. If all of these interests are
retained and remain operational, their continued operation may require
additional investment.
EVENTS OF DEFAULT EXISTING UNDER LOAN AGREEMENTS RELATING TO GPU POWER'S
INVESTMENT IN A COLOMBIAN POWER PROJECT MAY LEAD TO SIGNIFICANT LIABILITIES.
On July 9, 1999, DIAN (the Colombian national tax authority) issued a
"Special Requirement" on the Termobarranquilla S.A., Empresa de Servicios
Publicos (TEBSA) 1996 income tax return, which challenges the exclusion from
taxable income of an inflation adjustment related to the value of assets used
for power generation (EI Barranquilla, a wholly-owned subsidiary of GPU Power,
ABB Barranquilla, Corporacion Electrica de la Costa Atlantica and Distral Group
have a 28.7%, 28.7%, 42.5% and 0.1% interest in TEBSA, respectively). The
failure to give notice of this Special Requirement to the US Export Import Bank
(EXIM Bank) is an event of default under the loan agreement. GPU also believes
that other events of default exist under the loan agreements with project
lenders including the Overseas Private Investment Corporation (OPIC) and a
commercial bank syndicate. As a result, certain required certifications have not
been delivered to EXIM Bank, OPIC and the other project lenders, which failure
is, itself, an event of default under the loan agreements. These issues are
currently being discussed with EXIM Bank and the other project lenders. GPU has
discussed these issues with the Government of Colombia, as well as the other
partners in the TEBSA project. As of June 30, 2000, GPU Power's investment in
TEBSA was approximately $84.4 million and is committed to make additional
standby equity contributions of $21.3 million, which GPU has guaranteed. The
total outstanding senior debt of the TEBSA project is $399 million and, in
addition, GPU International has guaranteed the obligations of the operators of
the TEBSA project, up to a maximum of $5 million, under the project's operations
and maintenance agreement. GPU International's guarantee obligation will be
assumed by GPU upon the consummation of the sale of GPU International's plant
interests as described on page 3. There can be no assurance as to the outcome of
these matters, including the degree of financial exposure to GPU.
THE COMBINED COMPANY'S INCREASED DEBT MAY ADVERSELY AFFECT ITS FINANCIAL
CONDITION AND RESULTS OF FUTURE OPERATIONS.
We currently anticipate that the cash consideration to be paid to GPU
shareholders will be financed by FirstEnergy through external sources. Although
the management of FirstEnergy believes that FirstEnergy will have access to many
sources and types of short-term and long-term capital financing at reasonable
rates, the terms of these financings may contain covenants that may adversely
affect the ability of the combined company to enter into possible future
transactions. As a result of the proposed financings, the pro forma consolidated
capitalization of FirstEnergy after giving effect to the merger consists of
approximately 35.3% common equity and preferred stock not subject to mandatory
redemption and approximately 64.7% long-term debt, preferred stock subject to
mandatory redemption, trust preferred securities and subsidiary-obligated
mandatorily redeemable preferred securities, a more leveraged capital structure
than either FirstEnergy or GPU has currently.
19
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus and the documents we have incorporated
by reference into this joint proxy statement/prospectus contain forward-looking
statements that are subject to risks and uncertainties. These statements relate
to the financial condition, results of operations and businesses of FirstEnergy
and GPU. They may also relate to the period after the completion of the merger.
You can find many of these statements by looking for words such as "believes,"
"expects," "anticipates," "estimates" or similar expressions.
These forward-looking statements are subject to numerous assumptions, risks
and uncertainties that may cause actual results to differ materially from the
results indicated in or implied by the forward-looking statements. These factors
include, but are not limited to, risks and uncertainties set forth in
FirstEnergy's and GPU's filings with the SEC, including risks and uncertainties
relating to:
- failure to obtain the benefits expected from the merger;
- delays in obtaining, or adverse conditions contained in, any required
regulatory approvals;
- changes in laws or regulations;
- economic or weather conditions affecting future sales and margins;
- changes in markets for energy services;
- changing energy market prices;
- availability and pricing of fuel and other energy commodities;
- legislative and regulatory changes (including revised environmental and
safety requirements); and
- availability and cost of capital and other similar factors.
Do not rely unduly on the forward-looking statements since they speak only
from a particular point in time. Future events can easily affect the
expectations that were held when the statements were made.
The cautionary statements in this section expressly qualify all
forward-looking statements in the future made by FirstEnergy, GPU or any person
acting on their behalf.
20
<PAGE>
THE SPECIAL MEETINGS
We are furnishing this joint proxy statement/prospectus to holders of shares
of FirstEnergy common stock and holders of shares of GPU common stock in
connection with the solicitation of proxies by the FirstEnergy board of
directors and the GPU board of directors for use at the FirstEnergy special
meeting and the GPU special meeting, respectively. At the special meetings,
FirstEnergy shareholders and GPU shareholders will be asked to vote to adopt the
merger agreement. In addition, by voting for the adoption of the merger
agreement, FirstEnergy shareholders will approve an amendment to FirstEnergy's
articles of incorporation to increase the number of authorized shares of
FirstEnergy common stock. We have attached a copy of the merger agreement to
this joint proxy statement/prospectus as Appendix A.
The merger is structured so that GPU will be merged into FirstEnergy, with
FirstEnergy continuing as the surviving corporation. The boards of directors of
both FirstEnergy and GPU have unanimously approved the merger. Each GPU
shareholder may elect to receive either cash or shares of FirstEnergy common
stock for all of his or her shares of GPU common stock, or cash for a portion
and shares of FirstEnergy common stock for the rest of that stock. For a more
thorough discussion of how consideration to be received by GPU shareholders will
be calculated, see "Summary--Consideration Payable to GPU Shareholders" on pages
4-6 and "The Merger--Conversion of GPU Shares, GPU Stock Options and GPU Stock
Units" on pages 52-57.
FIRSTENERGY SPECIAL MEETING OF SHAREHOLDERS
PURPOSE OF FIRSTENERGY SPECIAL MEETING. The purpose of the FirstEnergy
special meeting is to consider and vote upon a proposal to adopt the merger
agreement, which, in addition to the merger, provides for an amendment to
FirstEnergy's articles of incorporation to increase the number of authorized
shares of FirstEnergy common stock from 300 million to 375 million. The enclosed
proxy card, when properly completed by you, either by mail, telephone or
Internet, authorizes the voting of your shares of FirstEnergy common stock
represented by the proxy on the merger agreement including the increase in
authorized shares, at the FirstEnergy special meeting, and any adjournment or
postponement of the meeting, unless otherwise indicated. No other business will
be considered at the FirstEnergy special meeting.
The FirstEnergy board of directors has unanimously approved the merger
agreement and unanimously recommends that FirstEnergy shareholders vote for the
adoption of the merger agreement and the increase in authorized shares. We may
not complete the merger unless the merger agreement is adopted by FirstEnergy
shareholders and by GPU shareholders.
DATE, PLACE AND TIME; RECORD DATE. The FirstEnergy special meeting is
scheduled to be held on November 21, 2000, at 9:00 a.m., local time, at the
Hilton Akron/Fairlawn, 3180 West Market Street, Akron, Ohio. As a holder of
FirstEnergy common stock, you will be entitled to one vote for each share of
FirstEnergy common stock held of record by you as of the FirstEnergy record
date, which is October 12, 2000. At the close of business on the FirstEnergy
record date, 227,336,741 shares of FirstEnergy common stock were outstanding.
VOTING RIGHTS. Each share of FirstEnergy common stock that you own entitles
you to one vote on the proposed merger agreement. A majority of the FirstEnergy
shares outstanding, present in person or by proxy, will constitute a quorum for
the transaction of business at the FirstEnergy special meeting. Abstentions and
broker non-votes (proxies from brokers or nominees indicating that they have not
received voting instructions from the beneficial owners or other persons
entitled to vote shares) represented at the FirstEnergy special meeting will be
considered present for the purpose of establishing a quorum. In determining
whether the merger agreement has received the requisite number of affirmative
votes, abstentions and broker non-votes will have the same effect as votes cast
21
<PAGE>
against adoption. The affirmative vote of at least a majority of the outstanding
FirstEnergy shares is required for adoption of the merger agreement.
If you participate in the FirstEnergy Stock Investment Plan and also own
certificated shares, your proxy card represents both the full number of
FirstEnergy shares credited to your plan account and the number of certificated
shares registered under the same name. If your FirstEnergy shares are registered
in different names, you will receive a separate proxy card for each name in
which your shares are registered. If all or a portion of your shares are held by
a broker as nominee, you will receive separate written instructions on how to
vote those shares.
If you are a FirstEnergy shareholder entitled to vote on the merger
proposal, you may exercise dissenters' rights with respect to the merger under
Ohio law. See "Rights of Dissenting Shareholders--Rights of Dissenting
FirstEnergy Shareholders" on pages 82-83.
The directors and executive officers of FirstEnergy, together with their
affiliates, beneficially own less than 1% of the outstanding shares of
FirstEnergy common stock.
PROXIES. Proxies are being solicited on behalf of the FirstEnergy board of
directors. All shares of FirstEnergy common stock represented by properly
executed proxies received in time for the FirstEnergy special meeting will be
voted in accordance with the instructions specified in those proxies. If no
instructions are specified on a properly executed proxy card, the shares will be
voted for the adoption of the merger agreement including the increase in
authorized shares. Holders of proxies will be authorized to vote the shares
represented by those proxies in their discretion as to any matters incident to
the conduct of the FirstEnergy special meeting.
If your shares are held by a broker or bank, you should receive separate
instructions from your broker or bank on voting your shares. Many brokers and
banks offer voting by telephone or Internet.
If you are a registered shareholder, you may vote by telephone, Internet or
mail, or you may vote your shares in person at the special meeting. To vote:
- By telephone (do not return your proxy card)
- On a touch-tone telephone, call the toll-free number indicated on your
proxy card. Telephone voting is available 24 hours a day, 7 days a
week, until 9:00 a.m. Eastern time on November 21, 2000.
- Enter your control number indicated on your proxy card.
- Follow the simple recorded instructions.
- By Internet (do not return your proxy card)
- Go to the Web site indicated on your proxy card. Internet voting is
available 24 hours a day, 7 days a week, until 9:00 a.m. Eastern time
on November 21, 2000.
- Enter your control number indicated on your proxy card.
- Follow the simple instructions.
- By mail
- Mark your choice on your proxy card. If you properly execute your proxy
card but do not specify your choice, your shares will be voted as
recommended by your board of directors.
- Date and sign your proxy card.
- Mail your proxy card in the enclosed postage-paid envelope. If your
envelope is misplaced, send your proxy card to FirstEnergy Corp., c/o
IVS Associates, Inc., 111 Continental Drive, Suite 305, Newark,
Delaware 19713.
22
<PAGE>
You may change your vote by:
(i) filing with the corporate secretary of FirstEnergy, prior to the
FirstEnergy special meeting, a written notice bearing a later date than the
proxy;
(ii) a later-dated mail, telephone or Internet proxy relating to the
same shares of FirstEnergy common stock that revises your previous vote and
received by the corporate secretary of FirstEnergy before the vote is taken
at the FirstEnergy special meeting; or
(iii) attending the FirstEnergy special meeting and voting in person.
Attendance at the FirstEnergy special meeting will not by itself change your
vote.
If a proxy card is received after the date that a telephone or Internet
appointment is made, we will treat the proxy card as your final instructions.
For that reason, it is important to allow time for your proxy card to be
received if you want to change the voting instructions on a mailed proxy card by
using the telephone or Internet option.
The FirstEnergy special meeting may be adjourned to another date or place
for any proper purpose.
GPU SPECIAL MEETING OF SHAREHOLDERS
PURPOSE OF GPU SPECIAL MEETING. The purpose of the GPU special meeting is
to consider and vote upon a proposal to adopt the merger agreement. The enclosed
proxy card, upon due execution by you, authorizes the voting of your shares of
GPU common stock on the proposal to adopt the merger agreement, and any
adjournment or postponement of the meeting, unless otherwise indicated. No other
business will be considered at the GPU special meeting.
The GPU board of directors has unanimously approved the merger agreement and
unanimously recommends that GPU shareholders vote for the adoption of the merger
agreement. We may not complete the merger unless the merger agreement is adopted
by GPU shareholders and by FirstEnergy shareholders.
DATE, PLACE AND TIME; RECORD DATE. The GPU special meeting is scheduled to
be held on November 21, 2000, at 9:00 a.m., local time, at The Morris Museum,
Six Normandy Heights Road, Morristown, New Jersey. Holders of GPU common stock
will be entitled to one vote for each share of GPU common stock held of record
as of the GPU record date, which is October 12, 2000. At the close of business
on the GPU record date, 121,332,510 shares of GPU common stock were outstanding.
VOTING RIGHTS. Each share of GPU common stock that you own entitles you to
one vote on the proposed merger agreement. A majority of GPU shares outstanding,
present in person or by proxy, will constitute a quorum for the transaction of
business at the GPU special meeting. Abstentions and broker non-votes (proxies
from brokers or nominees indicating that they have not received voting
instructions from the beneficial owners or other persons entitled to vote
shares) will be considered present for the purpose of establishing a quorum. In
determining whether the merger proposal has received the requisite number of
affirmative votes, abstentions and broker non-votes will not be included in the
total number of votes cast and therefore will have no effect on the adoption of
the merger agreement. The affirmative vote of at least a majority of the votes
cast by GPU shareholders is required for adoption of the merger agreement.
If you participate in the GPU Dividend Reinvestment and Stock Purchase Plan
and also own certificated shares, your proxy card represents both the full
number of GPU shares credited to your plan account and the number of
certificated shares registered under the same name. If your GPU shares are
registered in different names, you will receive a separate proxy card for each
name in which your shares are registered. If all or a portion of your shares are
held by a broker as nominee, you will receive separate written instructions on
how to vote those shares.
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If you are a GPU shareholder entitled to vote on the merger proposal, you
may exercise dissenters' rights with respect to the merger under Pennsylvania
law. See "Rights of Dissenting Shareholders--Rights of Dissenting GPU
Shareholders" on pages 83-85.
The directors and executive officers of GPU, together with their affiliates,
beneficially own less than 1% of the outstanding shares of GPU common stock.
PROXIES. Proxies are being solicited on behalf of the GPU board of
directors. All shares of GPU common stock represented by properly executed
proxies received in time for the GPU special meeting will be voted in accordance
with the instructions specified in those proxies. If no instructions are
specified on a properly executed proxy, the shares will be voted for the
adoption of the merger agreement. Holders of proxies will be authorized to vote
the shares represented by those proxies in their discretion as to any matters
incident to the conduct of the GPU special meeting.
If you are a GPU shareholder of record, to vote your shares you must:
- Mark your choice on your proxy card. If you properly execute your proxy
card but do not specify your choice, your shares will be voted as
recommended by your board of directors.
- Date and sign your proxy card.
- Mail your proxy card in the enclosed postage-paid envelope. If your
envelope is misplaced, send your proxy card to GPU, Inc., c/o
ChaseMellon Shareholder Services, Attention: Proxy Solicitation, P.O.
Box 1016, New York, New York 10269-2316.
You may revoke any proxy you give at any time before it is voted by:
(i) filing with the secretary of GPU, at or before the GPU special
meeting, a written notice signed in the same manner as the proxy; or
(ii) attending the GPU special meeting and voting in person.
Attendance at the GPU special meeting will not by itself change your vote.
The GPU special meeting may be adjourned to another date or place for any
proper purpose.
SOLICITATION OF PROXIES
Any expenses of soliciting proxies for the FirstEnergy special meeting will
be paid by FirstEnergy, and any expenses of soliciting proxies for the GPU
special meeting will be paid by GPU, except that FirstEnergy and GPU will share
equally in expenses for printing, filing and mailing this joint proxy
statement/prospectus. These expenses will include reimbursement to banks and
brokerage firms for expenses of forwarding solicitation materials to beneficial
owners of shares.
For FirstEnergy, the solicitation is being made by mail and may also be made
in person or by letter, telephone or other electronic means of communication by
directors, officers and employees of FirstEnergy and its subsidiaries who will
not receive additional compensation for those efforts. In addition, FirstEnergy
will request persons who hold stock in their names for others to forward copies
of the proxy soliciting materials to them, and to request authority to execute
proxies. FirstEnergy has retained Innisfree M&A Incorporated to assist in the
solicitation of proxies and will pay that firm a fee not to exceed $35,000, plus
reimbursement for reasonable out-of-pocket expenses.
For GPU, the solicitation is being made by mail and may also be made in
person or by letter, telephone, facsimile or telegraph by directors, officers
and employees of GPU and its subsidiaries. In addition, GPU will request persons
who hold stock in their names for others to forward copies of the proxy
soliciting materials to them, and to request authority to execute proxies. GPU
will reimburse such persons for their out-of-pocket and reasonable clerical
expenses. GPU has retained ChaseMellon Shareholder Services, L.L.C. to assist in
the solicitation of proxies and will pay that firm a fee not to exceed $10,500,
plus reimbursement for reasonable out-of-pocket expenses.
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THE MERGER
IN THIS SECTION OF THE JOINT PROXY STATEMENT/PROSPECTUS, AS WELL AS THE
SECTION ENTITLED "THE MERGER AGREEMENT," WE PROVIDE YOU WITH MATERIAL
INFORMATION ABOUT THE MERGER AND THE MERGER AGREEMENT. THIS SECTION MAY NOT,
HOWEVER, INCLUDE ALL THE INFORMATION THAT YOU MAY WANT TO KNOW. YOU MAY OBTAIN
ADDITIONAL INFORMATION BY READING THE MERGER AGREEMENT ATTACHED AS APPENDIX A TO
THIS DOCUMENT AND DOCUMENTS WE HAVE INCORPORATED BY REFERENCE. SEE "WHERE YOU
CAN FIND MORE INFORMATION" ON PAGES 111-112.
GENERAL DESCRIPTION OF THE MERGER
Under the merger agreement, the separate existence of GPU will cease, and
GPU will be merged into FirstEnergy with FirstEnergy continuing as the surviving
corporation. Each GPU shareholder (unless he or she has dissented) will have the
opportunity to elect to receive cash for all of his or her GPU shares,
FirstEnergy shares for all of his or her GPU shares or cash for a portion and
FirstEnergy shares for the rest of his or her GPU shares. Under the merger
agreement, however, unless an adjustment is made as a result of tax
considerations, 50% of all issued and outstanding shares of GPU common stock
must be exchanged for cash and 50% must be exchanged for FirstEnergy shares. The
elections of GPU shareholders to receive cash or FirstEnergy shares are subject
to proration because of this provision and also because of a possible adjustment
controlled by tax considerations.
For a more thorough discussion of how the consideration to be received by
GPU shareholders will be calculated, see "Summary--Consideration Payable to GPU
Shareholders" on pages 4-6 and "The Merger--Conversion of GPU Shares, GPU Stock
Options and GPU Stock Units" on pages 52-57.
BACKGROUND
GPU's board of directors and management have continuously focused
significant attention on strategic planning in response to developments in the
electric utility industry. In early 2000, GPU's board of directors and
management continued to review GPU's alternatives in view of the changes
occurring in the industry, including the trend toward significant consolidation.
In connection with this review, GPU's board and management considered a variety
of strategic alternatives available to GPU as an independent company, including
possible asset sales, acquisitions and additional share repurchases, as well as
the possibility of a business combination transaction with another electric
utility company.
On March 17, 2000, Fred D. Hafer, chairman, president and chief executive
officer of GPU, and H. Peter Burg, chairman and chief executive officer of
FirstEnergy, met to discuss developments in the electric utility industry. At
this meeting, Mr. Burg raised the prospect of a merger of GPU and FirstEnergy.
On March 21, 2000, Mr. Burg discussed the possibility of a transaction with
GPU with the FirstEnergy board of directors at a regularly scheduled meeting.
On March 24, 2000, Mr. Burg sent a letter to Mr. Hafer outlining potential
benefits of a combination of GPU and FirstEnergy and identifying various issues
that would need to be addressed in connection with any transaction.
At an April 5, 2000 meeting of the GPU board to review strategic
alternatives, GPU's management identified prior contacts with several potential
merger partners, including FirstEnergy. At the meeting, the board instructed
management to explore potential combination transactions.
After this board meeting, Mr. Hafer contacted representatives of possible
partners to potential combination transactions to ascertain their interest in a
combination with GPU. In that regard, on April 14, 2000, Mr. Hafer telephoned
Mr. Burg to express GPU's interest in exploring the possibility of a merger of
GPU and FirstEnergy. The chairmen agreed to meet in the near future to discuss
the possibility of a transaction.
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On April 24, 2000, Messrs. Hafer and Burg met to discuss the potential for a
merger. They reviewed possible transaction structures as well as required
regulatory approvals. Mr. Burg indicated that FirstEnergy would consider a
transaction involving payment of a premium to GPU shareholders but would prefer
to pay a portion of the merger consideration in cash.
After this meeting, Messrs. Hafer and Burg communicated on several occasions
regarding various issues relating to a possible transaction.
On May 16, 2000, Mr. Burg discussed with the FirstEnergy board of directors
at a regularly scheduled meeting the progress of his discussions to date with
Mr. Hafer and the possibility of a transaction between FirstEnergy and GPU.
On May 17, 2000, Mr. Burg sent a letter to Mr. Hafer outlining general terms
for a possible transaction. The letter stated that, subject to due diligence and
agreement on transaction terms, FirstEnergy was prepared to commence negotiation
of a transaction that would provide a premium to GPU shareholders. The letter
iterated FirstEnergy's preference for a cash and stock transaction, but stated
that the cash portion would not be subject to a financing condition. The letter
also addressed possibilities concerning GPU representation on the board of a
combined company; opportunities with the combined company that would be
available to GPU's and FirstEnergy's management; and the effects of a merger on
GPU's employees and local communities. That day, GPU engaged Salomon to act as
its financial adviser in connection with its review of strategic alternatives,
including possible business combination transactions.
On May 19, 2000, FirstEnergy and GPU entered into a confidentiality
agreement.
On May 30, 2000, Messrs. Hafer and Burg met to continue their prior
discussions. They discussed transaction structure, pricing alternatives,
potential roles for GPU's board and management in a combined company, employee
matters as well as the effects of a merger on the communities in which GPU has
operations. They also agreed to proceed with reciprocal due diligence and
instruct their counsel to begin preparation of a draft merger agreement.
Thereafter, GPU, FirstEnergy and their legal and financial advisors began
conducting reciprocal business, legal and financial due diligence.
At the regularly scheduled board meeting on June 1, 2000, Mr. Hafer reported
to the GPU board on the status of the discussions with FirstEnergy. The GPU
board recommended that management seek out and further consider merger partners
other than FirstEnergy. Another company was identified as a possible combination
partner and management was instructed to explore the other company's interest.
On June 1, 2000, FirstEnergy engaged Morgan Stanley as the financial advisor
with respect to a possible transaction with GPU.
On June 5, 2000, Bruce L. Levy, senior vice president and chief financial
officer of GPU, met with Anthony J. Alexander, president and a director of
FirstEnergy, and Leila L. Vespoli, vice president and general counsel of
FirstEnergy, to discuss a possible combination. At this meeting, the
participants had a general discussion of pricing alternatives. They also
discussed transaction timetables, due diligence matters and regulatory
approvals.
On June 7, 2000, Winthrop, Stimson, Putnam & Roberts, FirstEnergy's outside
counsel, distributed a draft merger agreement to GPU and its outside counsel,
Fried, Frank, Harris, Shriver & Jacobson.
During the week of June 5, 2000, Mr. Hafer contacted the chief executive
officer of the other company to explore that company's interest in a possible
transaction with GPU. The two men agreed to schedule a meeting.
On June 20, 2000, the FirstEnergy board of directors met to discuss the
progress to date of the proposed transaction with GPU.
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On June 20, 2000, Mr. Hafer met and discussed with the chairman of the other
company the possibility of a combination between GPU and the other company. The
two chairmen discussed possible price ranges and forms of consideration, roles
for GPU's board and management in a combined company as well as the regulatory
approvals required to complete a transaction. They determined to proceed with
due diligence.
On June 21, 2000, members of senior management of GPU and FirstEnergy and
their financial advisors met to exchange and discuss due diligence information.
On June 22, 2000, GPU and the other company entered into a confidentiality
agreement. Shortly thereafter, the two companies and their legal and financial
advisors began conducting reciprocal business, legal and financial due
diligence.
On July 1, 2000, Mr. Burg telephoned Mr. Hafer to discuss possible price
ranges for a merger. Mr. Burg indicated that FirstEnergy would propose a
transaction involving 50% cash and 50% shares of FirstEnergy. Messrs. Burg and
Hafer also discussed possibilities for the composition of the board of the
combined company, opportunities for GPU management in a combined company as well
as the effects of a merger on GPU's employees and local communities.
On July 16, 2000, the other company's counsel delivered a draft merger
agreement to GPU and Fried Frank.
On July 18, 2000, the board of directors of FirstEnergy reviewed the status
of the possible transaction with GPU at a regularly scheduled meeting.
Messrs. Burg and Alexander described their discussions with the management of
GPU and the results to date of the due diligence process, as well as various
business and financial aspects of the proposed transaction. Representatives of
Morgan Stanley described its discussions on behalf of FirstEnergy with Salomon
and various financial aspects of a possible transaction with GPU.
On July 18, 2000, the board of directors of GPU met to continue its review
of GPU's alternatives and the discussions with both FirstEnergy and the other
company. Representatives of Salomon participated in the discussion of GPU's
strategic alternatives. Mr. Levy discussed several strategic opportunities being
considered by GPU's management as well as various considerations relating to a
business combination with FirstEnergy or the other company. Salomon discussed
the process undertaken by GPU to date, the due diligence process and the status
of discussions with FirstEnergy and the other company as well as various
financial aspects of the possible combinations. Representatives of Fried Frank
reviewed the board's fiduciary duties in evaluating whether, and the
circumstances under which, GPU should enter into a combination transaction.
Following this GPU board meeting, GPU's management and its representatives
continued to hold discussions with FirstEnergy and the other company and their
legal advisors to discuss the terms of their draft merger agreements. GPU
continued to conduct due diligence on the two prospective merger partners.
On July 19, 2000, Messrs. Levy and Alexander, and other GPU and FirstEnergy
representatives, met to discuss issues raised by FirstEnergy's draft merger
agreement and various due diligence matters.
On July 24, 2000, the board of directors of GPU met to review the status of
discussions and due diligence with both FirstEnergy and the other company and to
continue to evaluate GPU's other strategic alternatives. Representatives of
Salomon reviewed alternatives available to GPU on a stand-alone basis, updated
the board on the status of discussions with FirstEnergy and the other company,
presented a valuation analysis of GPU and each of the two companies and reviewed
the financial considerations raised by a combination with each of the two
companies. Ira H. Jolles, senior vice president and general counsel of GPU,
described to the board the regulatory approvals that would be necessary to
complete each proposed transaction, as well as potential timetables for
obtaining the
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required approvals. Representatives of Fried Frank reviewed with the GPU board
the contractual terms proposed by both FirstEnergy and the other company.
On July 24, 2000, GPU communicated to FirstEnergy and the other company that
each should furnish the GPU board with its final proposal for a combination with
GPU on August 4, 2000. Thereafter, members of GPU's management and its advisors
continued to have discussions with representatives of the two companies.
On July 25, 2000, Mr. Alexander met with Mr. Levy and Carole B. Snyder, GPU
Service's executive vice president-corporate affairs, to discuss possible
effects of a merger on the two companies' employees and communities, as well as
other related issues that would need to be addressed in connection with a
transaction.
On August 3, 2000, Messrs. Burg and Alexander met with Mr. Hafer and Michael
J. Chesser, president and chief executive officer of GPU's domestic utility
companies, to discuss terms of the merger and to attempt to resolve open issues
between the parties.
On August 4, 2000, the board of directors of FirstEnergy met to review the
status of discussions with GPU and the due diligence process. Representatives of
Morgan Stanley described their discussions on behalf of FirstEnergy with Salomon
and the various financial aspects of the proposed merger with GPU. Ms. Vespoli,
Messrs. Burg and Alexander and Richard H. Marsh, vice president and chief
financial officer of FirstEnergy, described various business, financial and
legal issues related to the proposed merger. A representative of Winthrop,
Stimson discussed related legal issues with the board.
On August 4, 2000 after its board meeting, FirstEnergy proposed a
combination transaction in which each GPU share would be exchanged for 0.69 of a
share of FirstEnergy's common stock and $18.25 in cash. Prior to this date, the
other company had informed GPU that it would not make a proposal, and the GPU
board was informed of this development.
On August 7, 2000, THE WALL STREET JOURNAL reported that GPU and FirstEnergy
were having discussions regarding a potential merger. On that day, GPU's shares
closed at $30.6875, up $2.625 from the closing price on the prior trading day,
as reported in THE WALL STREET JOURNAL. FirstEnergy's shares closed at $25.375,
down $1.5625 from the prior trading day's closing price.
Also, on August 7, 2000, the board of directors of GPU met to review
FirstEnergy's merger proposal. At the meeting, Mr. Hafer updated the GPU board
on the discussions with FirstEnergy and the withdrawal by the other company.
Representatives of Salomon reviewed the financial terms of the proposed
transaction. Representatives of Fried Frank and Drinker Biddle and Reath, LLP,
GPU's Pennsylvania counsel, outlined the board's fiduciary duties in evaluating
the proposed transaction. Representatives of Fried Frank outlined the terms of
the proposed merger agreement with FirstEnergy as well as the results of legal
due diligence of FirstEnergy. Mr. Levy reported to the GPU board on the results
of GPU's business due diligence of FirstEnergy's business operations. A
representative of Thelen Reid & Priest LLP, outside counsel to GPU, described
the regulatory approvals necessary to complete a transaction with FirstEnergy,
issues that may arise in the process of obtaining these approvals and the
possible timetables for obtaining the required approvals. Following discussion,
the GPU board instructed GPU's management to resume negotiations with
FirstEnergy and attempt to obtain "down-side" protection with respect to the
FirstEnergy common stock that would be issued to GPU shareholders in the
proposed merger. The meeting was adjourned until the morning of August 8.
In the evening of August 7, 2000, Mr. Hafer communicated the GPU board's
request to Mr. Burg. FirstEnergy subsequently revised its merger proposal. Under
the revised proposal, GPU shareholders would have the right to elect to receive
for each of their shares either (1) $36.50 in cash or (2) FirstEnergy shares
with a value of $36.50, based on the trading price of FirstEnergy's shares prior
to completion of the merger, with a maximum exchange ratio of 1.5055 FirstEnergy
shares and a minimum exchange ratio of 1.2318 FirstEnergy shares. In addition,
if GPU shareholders were to elect
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to receive either FirstEnergy shares or cash for more than 50% of the GPU
shares, their elections would be subject to proration.
During the evening of August 7, 2000, Mr. Burg described telephonically to
the members of the board of directors of FirstEnergy the course of his
discussions with Mr. Hafer that led to the revised merger proposal. Mr. Burg
advised the board members of the status of Morgan Stanley's analyses of the
effects of the revised proposal, which Mr. Burg described to the board members.
On the morning of August 8, 2000, the board of directors of GPU reconvened.
Mr. Hafer described to the board the prior evening's negotiations with
FirstEnergy and FirstEnergy's revised proposal. Salomon described to the board
financial considerations related to the revised proposal. Salomon also delivered
its oral opinion, later confirmed in writing, that as of August 8, 2000, the
consideration to be received by the GPU shareholders in the merger was fair from
a financial point of view to the GPU shareholders. The GPU board then voted
unanimously to approve the merger and the merger agreement.
At a telephonic meeting of the FirstEnergy board on the morning of
August 8, 2000, Mr. Burg again described the revised merger proposal. Mr. Burg
advised the FirstEnergy board that Morgan Stanley had delivered its oral opinion
to the board, which was confirmed in writing, that as of August 8, 2000, the
merger consideration to be paid by FirstEnergy pursuant to the merger agreement
was fair, from a financial point of view, to FirstEnergy. The FirstEnergy
directors then unanimously approved the merger and the merger agreement.
After the GPU and FirstEnergy board meetings, FirstEnergy and GPU executed
the merger agreement. Prior to the commencement of trading on August 8, 2000,
FirstEnergy and GPU issued a joint press release announcing the transaction.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF FIRSTENERGY; FIRSTENERGY'S REASONS
FOR THE MERGER
FirstEnergy believes that the merger of FirstEnergy and GPU is a key
strategic step in achieving its vision of becoming the premier energy and
related services provider in the region. The merger combines companies with the
management, employee experience and technical expertise, retail customer base,
energy and related services platform and financial resources to grow and succeed
in the rapidly changing energy marketplace.
FirstEnergy believes that the combination of FirstEnergy and GPU is a
natural alliance of companies with adjoining service areas and interconnected
transmission systems which will realize opportunities to eliminate duplicative
costs, maximize efficiencies and increase management and operational flexibility
in order to enhance revenues, cash flow and earnings and be a more effective
competitor.
The merger of FirstEnergy and GPU will provide significant strategic and
financial benefits to their shareholders, customers and employees, including:
STRATEGIC ADVANTAGES
If the merger were completed today, the combined company would be the sixth
largest investor-owned electric utility system in the U.S., based on customers
served. With assets of approximately $40 billion, a domestic customer base of
4.3 million and a service area of 37,200 square miles located within a 100 mile
radius of one-quarter of the U.S. population, the combined company will be one
of the nation's largest electric utility systems with more resources and
opportunities to compete successfully in the increasingly competitive electric
utility industry. Scale has importance in many areas beyond utility operations,
such as product development, advertising and corporate services. FirstEnergy
expects that it will be able to provide customers with a wider range of energy
services and products and
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enhanced service capabilities than either FirstEnergy or GPU could alone; key
advantages as our industry continues to transform.
COMPETITIVE PRICES AND SERVICES
Sales to industrial, large commercial and wholesale electric customers are
at greatest near-term risk as a result of increased competition in the electric
utility industry. FirstEnergy expects that the merger, which will create a
larger company, will permit FirstEnergy to be better able to meet the demands of
these customers for reliable, competitively priced power in the face of
increased competition among suppliers. FirstEnergy also expects that the merger
will create operating efficiencies, such as an increased capacity factor for its
generating plants, that will allow the combined company to be able to produce
and deliver competitively priced power to customers.
INCREASED OPPORTUNITIES IN UNREGULATED BUSINESSES
The companies each have a number of unregulated businesses, the combination
of which offer various opportunities.
The combination of GPU's MYR Group construction subsidiary and the
FirstEnergy Facilities Services Group will result in the fourth largest
facilities management and construction company in the United States with nearly
$1 billion in annual sales. This may provide opportunities to reduce overhead,
market to a broader customer base and reduce outsourcing.
The companies each have minority investments in America's Fiber Network, a
super regional high-speed fiber optics company, and Pantellos, an internet-based
management company. Combining these separate interests may provide more
influence in these ventures.
FINANCIAL STRENGTH
FirstEnergy believes its financial strength will be enhanced through
increased earnings and cash flow and by operating synergies.
GREATER DIVERSIFICATION
The combination of the two companies will immediately increase the combined
company's ability to serve a larger and more diverse base of customers. The
combined service areas will be more diverse than its individual service areas,
reducing exposure to adverse changes in any sector's economic and competitive
conditions. After the merger, FirstEnergy plans to expand relationships with
existing customers and to develop relationships with new customers in its
service areas, using its combined distribution channels to market innovative
energy-related products throughout the region at competitive prices.
COST REDUCTION
FirstEnergy anticipates that the combination of the businesses of
FirstEnergy and GPU will result in cost saving opportunities consistent with
savings achieved in other utility combinations, estimated at $150 million per
annum. FirstEnergy believes that these savings will result from a combination of
improved operating efficiencies, elimination of duplicative activities and
procurement efficiencies. FirstEnergy believes that labor reductions will be
obtained through attrition, controlled hiring and voluntary and involuntary
severance programs. In addition, FirstEnergy expects reductions in duplicative
corporate and administrative expenses to come from such areas as insurance,
facilities, professional services and advertising.
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RECOMMENDATION OF THE FIRSTENERGY BOARD OF DIRECTORS
THE FIRSTENERGY BOARD BELIEVES THAT THE MERGER IS IN YOUR BEST INTERESTS AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO ADOPT THE MERGER
AGREEMENT AND RELATED TRANSACTIONS.
In reaching its recommendation in favor of adoption of the merger agreement
and the related transactions, the FirstEnergy board consulted with FirstEnergy's
management and its legal and financial advisors and considered a number of
factors including:
- the respective businesses, operations, assets, management, geographic
location and prospects, particularly the contiguous nature of the service
areas;
- the presentations of management regarding potential operating and
financial synergies anticipated from the merger;
- the financial condition and results of operations of FirstEnergy and GPU
on a historical and prospective basis;
- the opinion of Morgan Stanley that as of August 8, 2000, and based on and
subject to the various considerations noted in its opinion, the merger
consideration to be paid by FirstEnergy pursuant to the merger agreement
was fair, from a financial point of view, to FirstEnergy;
- prices and trading information with respect to FirstEnergy common stock
and GPU common stock, particularly as compared to each other;
- the potential for enhanced economic development of the combined service
areas due to a better mix of location sites and infrastructure;
- the fact that the merger would provide benefits to shareholders and
customers that would not be available on a stand-alone basis; and
- the ability to maximize operating efficiencies and performance of
FirstEnergy's generating units in an increasingly competitive electric
utility industry.
The foregoing discussion of information and factors considered and given
weight by the FirstEnergy board is not intended to be exhaustive. In view of the
wide variety of factors considered in connection with its evaluation of the
terms of the merger, the FirstEnergy board did not find it practicable to, and
did not, quantify or otherwise attempt to assign relative weights to the
specific factors considered in reaching their determinations. In addition,
individual members of the FirstEnergy board may have given different weights to
different factors.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF GPU; GPU'S REASONS FOR THE MERGER
The GPU board of directors met on August 7, 2000 to consider the proposed
merger. At the meeting, which was continued on the morning of August 8, 2000,
the GPU board unanimously approved the merger agreement and the merger and
determined that the merger agreement and the merger are fair to and in the best
interests of GPU and its shareholders. ACCORDINGLY, THE GPU BOARD OF DIRECTORS
RECOMMENDS THAT THE SHAREHOLDERS OF GPU VOTE FOR THE ADOPTION OF THE MERGER
AGREEMENT.
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In reaching its decision to approve the merger agreement and the merger, the
GPU board of directors consulted with management, as well as outside legal
counsel and financial advisors and considered the following material factors:
- presentations by, and discussions with, Salomon regarding financial
aspects of the proposed merger and other strategic alternatives available
to GPU, and the oral opinion received from Salomon, later confirmed in
writing and described below under "Opinion of Financial Advisor to the GPU
Board of Directors," that, as of the date of its opinion, the
consideration to be received by the GPU shareholders in the merger was
fair from a financial point of view to GPU shareholders;
- the premium expected to be received by GPU's shareholders in the merger
based on the current and historical market prices of FirstEnergy's and
GPU's common stock;
- the judgment, advice and analysis of GPU's management, including its
favorable recommendation of the merger;
- the "down-side" protection with respect to the FirstEnergy common stock
provided for in the merger agreement, in that GPU shareholders who elect
to receive FirstEnergy shares in the merger will receive, for each GPU
share, subject to proration, FirstEnergy shares with a value of $36.50, if
the FirstEnergy share price is between $24.2438 and $29.6313 over the
20-trading day period ending on the seventh trading day prior to the
closing of the merger;
- the potential for appreciation in value of FirstEnergy's common stock and
the opportunity for GPU shareholders who receive FirstEnergy shares in the
merger to participate in this appreciation;
- the fact that the GPU shareholders have the right to elect to receive, in
the merger, cash, FirstEnergy shares or a combination of both for their
GPU shares, subject to proration if GPU shareholders holding more than 50%
of the outstanding GPU shares elect to receive cash or FirstEnergy shares
for more than 50% of GPU's outstanding shares;
- information concerning the business, operations, properties, financial
condition, competitive position, business strategy and prospects of GPU
and FirstEnergy;
- current financial, market and industry conditions and the historical
market prices of GPU's and FirstEnergy's common stock and the historical
market prices of common stock of other companies operating in the electric
utility industry;
- the effects of the changing regulatory environment and increased
competition in the electric utility industry;
- the trend in the electric utility industry toward consolidation and the
effect of this consolidation on GPU's competitive position;
- the strategic alternatives available to GPU as an independent company,
including possible asset sales, acquisitions and additional share
repurchases, and the viability of, and risks associated with, each
alternative;
- the board's long-term expectations with respect to the business and
affairs of GPU;
- the prospect of pursuing potential business combinations with parties
other than FirstEnergy, the results of management's exploration of
potential business combinations with those parties and the failure of any
other third parties to come forward despite public speculation about
combination discussions;
- the financial and business prospects of the combined company including
potential synergies resulting from the merger;
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- the view of the GPU board and management that a combination of GPU and
FirstEnergy represents an excellent fit from a strategic point of view
because:
- both companies are committed to growth in non-regulated businesses,
including construction and telecommunications, and
- the two companies have contiguous service areas;
- the expected enhanced scale and resources of the combined company,
including the expectation of GPU's board and management that the combined
company:
- will have greater potential to improve shareholder value and effect
future business combinations,
- will be positioned to offer a broader array of products and services to
GPU customers, and
- will offer expanded opportunities for career advancement and professional
growth to GPU employees;
- upon completion of the merger, the 16-member board of the combined company
will include six GPU directors, and Mr. Hafer, the current chairman,
president and chief executive officer of GPU, will be the chairman of the
combined company following the merger, until he reaches age 62;
- the expected role of management of GPU's operating subsidiaries following
the merger;
- although the headquarters of the combined company will be located in
Akron, Ohio, FirstEnergy has agreed that it will maintain GPU's offices
and presence in Morristown, New Jersey and Reading, Pennsylvania, subject
to the authority of the board of directors of the combined company to
manage the combined company's affairs;
- FirstEnergy has agreed to maintain, for a minimum of three years after
completion of the merger, substantially at current levels, GPU's
charitable commitments in the communities in which GPU's subsidiaries,
Jersey Central, Met-Ed and Penelec, currently serve and has indicated
that, after those three years, it intends to make charitable commitments
in those communities at levels substantially similar to the level of
charitable commitments in communities in which FirstEnergy's subsidiaries
serve;
- FirstEnergy's agreement that it will consider GPU employees for positions
with the combined company resulting from the merger using criteria
including previous work history, job experience and other qualifications;
- the combined company will continue to use the "GPU Energy" name (until
otherwise determined by the combined company) while reflecting its
affiliation with FirstEnergy;
- other non-financial terms of the merger agreement, including:
- the nature of and relatively limited conditions to closing, which the GPU
board and management believe increases the likelihood that the merger
will be completed if approved by shareholders,
- the provisions that allow GPU, under some circumstances, to conduct
negotiations and furnish confidential information in connection with a
third-party proposal for an alternative transaction with GPU, and
- the provision permitting the board of GPU to change its favorable
recommendation of the merger if required by its fiduciary duties;
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- FirstEnergy and GPU have agreed to take all action necessary to obtain all
regulatory approvals required to complete the merger, except to the extent
taking this action would reasonably be expected to have a material adverse
effect on the combined company; and, the likelihood of obtaining
regulatory approvals for the merger in the current regulatory environment;
and
- that a condition to the completion of the merger is that the parties
receive opinions of their respective counsels to the effect that the
merger will be treated as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code.
The GPU board of directors has also considered a number of countervailing
factors in its evaluation of the merger, including:
- the fact that GPU shareholders will constitute between approximately 24.4%
and 28.2% of the shareholders of the combined company after the merger and
will therefore not control the combined company;
- the risk that the benefits expected from the merger may not be realized,
including as a result of changes in laws or regulations, economic or
weather conditions affecting future sales and margins, changes in markets
for energy services and changes to energy prices;
- completion of the merger is subject to numerous regulatory approvals and
obtaining the approvals will delay closing for a lengthy period of time;
the merger may not be completed because of failure to obtain necessary
regulatory approvals or for other reasons; and the effect of the interim
uncertainty on GPU's business and employees;
- the lengthy period between signing and the closing of the merger and the
restrictions contained in the merger agreement on GPU's operation of its
business, and on its ability to pursue other strategic alternatives,
during this time;
- regulators may impose conditions in connection with their granting of
approval of the merger that may make the merger less favorable to GPU
shareholders or adversely affect the combined company;
- the possible negative impact of the merger on GPU management and
employees;
- the possibility that provisions of the merger agreement restricting
delivery of information to, and discussions with, third parties regarding
an alternative transaction, and provisions requiring payment of a
termination fee in certain circumstances, may have the effect of
discouraging other persons potentially interested in a combination with
GPU from pursuing this opportunity;
- if GPU shareholders, in the aggregate, elect to receive either cash or
FirstEnergy shares for more than 50% of the outstanding GPU shares, their
election will be prorated and GPU shareholders may not receive the exact
consideration which they elected;
- the risk that, if the average closing price of FirstEnergy shares over the
20-trading day period ending on the seventh trading day prior to closing
of the merger is below $24.2438, GPU shareholders who receive FirstEnergy
shares in the merger will receive less than $36.50 in value for their GPU
shares; and
- certain executive officers of GPU may have interests different from those
of shareholders generally, as described in "The Merger--Interests of
Certain Persons in the Merger."
In the judgment of the GPU board of directors, these countervailing factors
did not outweigh the potential benefits of the merger.
This discussion addresses the material information and factors considered by
the GPU board of directors in evaluating the proposed merger, including factors
that support the merger and factors that may weigh against it. In evaluating the
merger agreement, the board engaged in numerous discussions
34
<PAGE>
of the factors described above, including asking questions of GPU management and
legal and financial advisors. In view of the wide variety of factors and the
substantial amount of information considered by the GPU board in connection with
its evaluation of the merger and the complexity of these matters, the GPU board
of directors did not find it practicable to, and did not attempt to quantify,
rank or otherwise assign relative weights to the specific factors considered in
reaching its decision to approve the merger agreement and the merger. In
addition, the GPU board did not make any specific determination as to whether
any particular factor, or any aspect of any particular factor, was favorable or
unfavorable to its decision. The decision to approve the merger and the merger
agreement was made after consideration of all of the factors as a whole.
Furthermore, individual directors may have given different weight to different
factors.
OPINION OF FINANCIAL ADVISOR TO THE FIRSTENERGY BOARD OF DIRECTORS
Pursuant to a letter agreement dated as of June 1, 2000, Morgan Stanley &
Co. Incorporated was engaged to provide financial advisory services and a
financial fairness opinion in connection with the merger. Morgan Stanley was
selected by FirstEnergy's board of directors to act as FirstEnergy's financial
advisor based on Morgan Stanley's qualifications, expertise, reputation and its
knowledge of the business and affairs of the electric utility industry
generally. On August 8, 2000, Morgan Stanley rendered its oral opinion to the
FirstEnergy board, subsequently confirmed in writing, that as of the date of
such opinion, and based upon and subject to the various considerations noted in
the opinion, the consideration to be paid by FirstEnergy pursuant to the merger
agreement was fair from a financial point of view to FirstEnergy.
The full text of the written opinion of Morgan Stanley dated August 8, 2000,
which sets forth, among other things, the assumptions made, procedures followed,
matters considered and limitations on the scope of review undertaken by Morgan
Stanley in rendering its opinion is attached as Appendix B to this joint proxy
statement/prospectus. FirstEnergy shareholders are urged to, and should, read
the opinion carefully and in its entirety. Morgan Stanley's opinion is directed
to FirstEnergy's board of directors and addresses only the fairness from a
financial point of view of the consideration to be paid by FirstEnergy pursuant
to the merger agreement, as of the date of the opinion. Morgan Stanley's opinion
does not address any other aspect of the merger and does not constitute a
recommendation to any holder of FirstEnergy common stock as to how to vote at
the FirstEnergy special meeting. The summary of the opinion of Morgan Stanley
set forth in this joint proxy statement/prospectus is qualified in its entirety
by reference to the full text of such opinion.
In connection with rendering its opinion, Morgan Stanley, among other
things:
- reviewed certain publicly available financial statements and other
information of GPU and FirstEnergy;
- reviewed certain internal financial statements and other financial and
operating data concerning GPU and FirstEnergy prepared by the management
of GPU and FirstEnergy, respectively;
- reviewed certain financial projections prepared by the management of GPU
and FirstEnergy;
- discussed the past and current operations and financial condition and the
prospects of GPU and FirstEnergy, including discussions and information
relating to certain strategic, financial and operational benefits
anticipated from the merger, with senior executives of GPU and
FirstEnergy;
- reviewed the pro forma impact of the merger on FirstEnergy's earnings per
share, consolidated capitalization and financial ratios;
- reviewed the reported prices and trading activity for GPU common stock and
FirstEnergy common stock;
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<PAGE>
- compared the financial performance of GPU and the prices and trading
activity of GPU common stock with that of certain other comparable
publicly-traded companies and their securities;
- compared the financial performance of FirstEnergy and the prices and
trading activity of FirstEnergy common stock with that of certain other
comparable publicly-traded companies and their securities;
- reviewed the financial terms, to the extent publicly available, of certain
comparable acquisition transactions;
- discussed with the management of FirstEnergy the strategic rationale for
the merger;
- participated in discussions and negotiations among representatives of GPU
and FirstEnergy and their financial and legal advisors;
- reviewed the merger agreement; and
- performed such other analyses and considered such other factors as Morgan
Stanley deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by it for the purposes of its opinion. With respect to the financial
projections, including information relating to certain strategic, financial and
operational benefits anticipated from the merger, Morgan Stanley assumed that
they were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of GPU and
FirstEnergy. In addition, Morgan Stanley has assumed that the merger will be
consummated in accordance with the terms set forth in the merger agreement,
including, among other things, that the parties receive opinions of their
respective counsels to the effect that the merger will be treated as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code. Morgan Stanley has not made any independent valuation or appraisal of the
assets or liabilities of GPU and FirstEnergy, nor has it been furnished with any
such appraisals. Morgan Stanley noted that it is not a legal or regulatory
expert and has relied upon, without independent verification, the assessment of
FirstEnergy's legal and regulatory advisors with respect to the legal and
regulatory matters related to the merger. Morgan Stanley's opinion was
necessarily based on financial, economic, market and other conditions as in
effect on, and the information made available to it as of, the dates of its
opinion.
The following is a brief summary of analyses performed by Morgan Stanley in
the preparation of its oral opinion and the preparation of its opinion dated
August 8, 2000 and reviewed with the FirstEnergy board of directors on
August 4, 2000. Some of these summaries of financial analyses include
information presented in a tabular format. In order to fully understand the
financial analyses used by Morgan Stanley, the tables must be read together with
the text of each summary. The tables alone do not constitute a complete
description of the financial analyses.
COMPARATIVE STOCK PRICE PERFORMANCE
Morgan Stanley reviewed the recent stock price performance of FirstEnergy
and GPU common shares and compared such performance with that of the Standard &
Poor's Electric Utility Index.
The Standard & Poor's Electric Utility Index represents the stock price
performance of a group of companies in the electric utility industry and is a
benchmark against which the stock price performance of FirstEnergy and GPU may
be compared. The purpose of the comparative stock price performance analysis is
to isolate the stock price performance of FirstEnergy and GPU from general stock
market movements.
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<PAGE>
The following table presents the change in value for this index, as compared
to the change in the share prices of FirstEnergy common shares and GPU common
shares over the period from August 2, 1997 to August 2, 2000:
<TABLE>
<CAPTION>
PERCENTAGE CHANGE FOR THE
PERIOD 8/2/97 TO 8/2/00
-------------------------
<S> <C>
Standard & Poor's Electric Utility Index............... 12.5%
FirstEnergy............................................ 20.8%
GPU.................................................... (22.1)%
</TABLE>
COMPARABLE PUBLIC COMPANY ANALYSIS
As part of its analysis, Morgan Stanley compared financial information and
ratios of GPU and FirstEnergy with that of a group of publicly-traded regulated
electric companies that share some common characteristics with GPU and
FirstEnergy. The comparable companies selected for GPU were as follows:
Consolidated Edison, Inc.
Energy East Corp.
Public Service Enterprise Group Inc.
PPL Corp.
Conectiv Inc.
The table below presents, as of August 2, 2000, the representative range for
each of the ratios of stock price to forecasted fiscal 2000 and 2001 earnings
per share ("EPS"), stock price to book value as of March 31, 2000, the five-year
forecasted annual EPS growth rate, and the aggregate value to latest 12 months
("LTM") earnings before interest, income taxes, depreciation and amortization
("EBITDA") multiple. For purposes of the analysis, forecasted EPS estimates and
EPS growth rates were derived from the median estimates provided by
Institutional Brokerage Estimate Service ("I/B/E/S") as of August 2, 2000.
Aggregate value is defined as the sum of the common share market value, plus any
preferred shares, debt, capitalized lease obligations and minority interests,
minus cash and cash equivalents.
<TABLE>
<CAPTION>
AGGREGATE
PRICE TO PRICE TO FIVE-YEAR VALUE TO
FORECASTED FORECASTED PRICE TO FORECASTED LTM
2000 EPS 2001 EPS BOOK VALUE EPS GROWTH EL]EBITDA
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
GPU Comparable Companies.............. 9.0-10.3 8.5-9.6 1.2-2.3 4.0-10.0 5.9-7.4
GPU................................... 8.5 8.1 1.0 3.5 6.6
</TABLE>
Similarly, Morgan Stanley compared financial information of FirstEnergy with
that of a group of publicly-traded regulated electric companies. The comparable
companies selected for FirstEnergy were as follows:
American Electric Power Company
Cinergy Corp.
DTE Energy Company
Wisconsin Energy Corp.
The table below presents, as of August 2, 2000, the representative range for
each of the ratios of stock price to forecasted fiscal 2000 and 2001 earnings,
stock price to book value as of March 31, 2000, the five-year forecasted annual
EPS growth rate, and the aggregate value to LTM EBITDA multiple.
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<PAGE>
For purposes of the analysis, forecasted EPS estimates and EPS growth rates were
derived from the median estimates provided by I/B/E/S as of August 2, 2000.
<TABLE>
<CAPTION>
PRICE TO PRICE TO FIVE-YEAR AGGREGATE
FORECASTED FORECASTED PRICE TO FORECASTED VALUE TO
2000 EPS 2001 EPS BOOK VALUE EPS GROWTH LTM EBITDA
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FirstEnergy Comparable Companies...... 9.5-13.3 9.1-10.6 1.2-1.6 4.0-5.0 5.7-8.1
FirstEnergy........................... 10.3 9.8 1.4 5.0 5.7
</TABLE>
No company utilized in the comparable public company analysis as a
comparison is identical to GPU or FirstEnergy. In evaluating the companies,
Morgan Stanley made judgments and assumptions with regard to industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of GPU and FirstEnergy, such
as the impact of competition on the businesses of GPU and FirstEnergy and the
industry generally, industry growth and the absence of any material adverse
change in the financial condition and prospects of GPU, FirstEnergy or the
industry or in the financial markets in general. Mathematical analysis, such as
determining an average or a median, is not in itself a meaningful method of
using comparable public company data.
Based on this analysis, Morgan Stanley calculated per share trading values
for GPU common stock ranging from $26.50-$31.50 and for FirstEnergy common stock
ranging from $25.00 to $30.00.
DISCOUNTED CASH FLOW ANALYSIS
Morgan Stanley performed a discounted cash flow analysis of GPU and
FirstEnergy. Morgan Stanley's discounted cash flow analysis was based on
financial projections of GPU provided by the management of GPU for the period
2000 through 2004, as modified by FirstEnergy management, and financial
projections of FirstEnergy provided by the management of FirstEnergy for the
period 2000 through 2011. Unlevered free cash flow was calculated as net income
available to common shareholders plus the aggregate of preferred stock
dividends, depreciation and amortization, deferred taxes, and other noncash
expenses and after-tax net interest expense less the sum of capital expenditures
and investment in noncash working capital. Morgan Stanley calculated the value
of GPU and FirstEnergy as of the end of the period for which projections were
provided by the management of GPU and FirstEnergy, also referred to as the
terminal value, by applying a range of EBITDA multiples to the forecasted EBITDA
as of the last year for which projections were provided by the management of GPU
and FirstEnergy, also referred to as the exit EBITDA, and the cash-flow streams
and terminal values were then discounted to the present using a range of
discount rates representing an estimated range of the weighted average cost of
capital for each company. The range of discount rates utilized for the valuation
was 7.0%-8.0%, which is based on Morgan Stanley's estimated weighted average
cost of capital for GPU and FirstEnergy, respectively. The range of exit EBITDA
multiples applied for this analysis was 6.0x to 6.5x, which is based upon
trading multiples of the GPU Comparable Companies and the FirstEnergy Comparable
Companies.
Based on these analyses, Morgan Stanley calculated per share trading values
for GPU ranging from $30.65 to $38.68 and per share trading values for
FirstEnergy ranging from $31.12 to $37.77.
Morgan Stanley also performed a discounted cash flow analysis of GPU
including the value of potential synergy benefits that may result from the
merger. Morgan Stanley's discounted cash flow analysis was based on assumptions
provided by FirstEnergy management regarding the amount of retained synergies
associated with the operations of GPU and FirstEnergy.
Based on this analysis, Morgan Stanley calculated per share transaction
values for GPU ranging from $34.94 to $42.98.
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<PAGE>
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS
Using publicly available information, Morgan Stanley considered 16 announced
or completed transactions in the regulated electric utility industry comparable
in certain respects to the merger. These transactions included:
- AES Corporation's acquisition of IPALCO Enterprises, Inc.
- PowerGen plc's acquisition of LG&E Energy Corp.
- Berkshire Hathaway Inc.'s acquisition of MidAmerican Energy Holdings
Company
- Consolidated Edison, Inc.'s acquisition of Northeast Utilities
- Carolina Power & Light Company's acquisition of Florida Progress
Corporation
- Energy East Corporation's acquisition of CMP Group, Inc.
- UtiliCorp United Inc.'s acquisition of Empire District Electric Company
- UtiliCorp United Inc.'s acquisition of St. Joseph Light & Power Company
- The National Grid Group plc's acquisition of New England Electric System
- Scottish Power plc's acquisition of PacifiCorp
- BEC Energy's acquisition of Commonwealth Energy System
- AES Corporation's acquisition of CILCORP Inc.
- CalEnergy Company Inc.'s acquisition of MidAmerican Energy Holdings
Company
- Consolidated Edison, Inc.'s acquisition of Orange & Rockland
Utilities, Inc.
- American Electric Power Co., Inc.'s acquisition of Central and South West
Corporation
- LG&E Energy Corporation's acquisition of KU Energy Corporation
Morgan Stanley compared publicly available financial and market statistics
of the precedent transactions to the merger. The table below presents, as of
August 2, 2000, the representative range for each of the ratios of price paid
per share in the precedent transactions to the estimated EPS for the fiscal year
in which the transaction was announced (the "Current Year EPS") and the EPS for
the next fiscal year (the "Next Year EPS"), the price paid in the precedent
transactions to latest reported book value, the price paid in the precedent
transactions to LTM operating cash flow, and the aggregate value paid in the
precedent transactions to LTM EBITDA.
<TABLE>
<CAPTION>
PRICE TO PRICE TO BOOK PRICE TO LTM AGGREGATE VALUE
CURRENT NEXT PRICE TO OPERATING CASH LTM EBITDA
YEAR EPS YEAR EPS VALUE FLOW TO
--------- --------- -------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Precedent Transactions.............. 14.7-17.5 13.8-17.0 1.5-2.1 7.0-10.5 7.5-8.5
</TABLE>
Based on an analysis of the corresponding earnings estimates, book value,
LTM operating cash flow and EBITDA for GPU, Morgan Stanley calculated per share
transaction values for GPU ranging from $40.00 to $50.50.
Morgan Stanley also performed a public market plus premium analysis for GPU
by applying a 25% to 40% premium, including the value of acquiring control of
GPU, to determine a transaction valuation range. The change of control premium
range was based on the premiums paid in the precedent transactions. By
multiplying the closing per share price of GPU common shares on August 2, 2000
by this premium range, Morgan Stanley calculated per share equity transaction
values for GPU ranging from $35.16-$39.38.
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<PAGE>
No transaction utilized as a comparison in the analysis of selected
precedent transactions is identical to the merger, and, accordingly, an analysis
of the results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
GPU and other factors that would affect the acquisition value of the companies
to which it is being compared. In evaluating the precedent transactions, Morgan
Stanley made judgments and assumptions with regard to industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of GPU, such as the impact of competition
on GPU and the industry generally, industry growth and the absence of any
adverse material change in the financial conditions and prospects of GPU or the
industry or in the financial markets in general. Mathematical analysis, such as
determining the mean or median, is not, in itself, a meaningful method of using
precedent transactions data.
PRO FORMA ANALYSIS OF THE MERGER
Morgan Stanley reviewed the pro forma impact of the merger on FirstEnergy's
EPS for the fiscal years ended 2002 through 2004. The analysis was performed,
assuming completion of the merger at the beginning of this period, based on both
management-provided financial projections and publicly available consensus EPS
estimates for the fiscal years ended 2002 through 2004 for GPU, as modified by
FirstEnergy, and for FirstEnergy. The analysis included assumptions regarding
the effects of potential retained synergies. Based on such analysis, and
assuming FirstEnergy issues stock to holders of GPU common shares at $26.94 per
share, on an EPS basis the merger would be accretive to FirstEnergy by 6.7%,
6.7% and 7.4% in 2002, 2003 and 2004, respectively, using management projections
and accretive to FirstEnergy by 8.8%, 7.4% and 7.0% in 2002, 2003 and 2004,
respectively, using publicly available earnings estimates for the two companies.
In connection with the review of the merger by FirstEnergy's board of
directors, Morgan Stanley performed a variety of financial and comparative
analyses and considered a number of factors for the purpose of delivering its
opinion. The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Morgan Stanley considered the results of all of its analyses as
a whole and did not attribute any particular weight to any analysis or factor
considered by it. Furthermore, Morgan Stanley believes that selecting any
portion of its analyses, without considering all analyses would create an
incomplete view of the process underlying its opinion. In addition, Morgan
Stanley may have given various analyses and factors more or less weight than
other analyses and factors, and may have deemed various assumptions more or less
probable than other assumptions, so that the ranges of valuations resulting from
any particular analysis described above should not be taken to be Morgan
Stanley's view of the actual value of GPU or FirstEnergy.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of GPU and FirstEnergy. Any
estimates contained in Morgan Stanley's analysis are not necessarily indicative
of future results or actual values, which may be significantly more or less
favorable than those suggested by such estimates. The analyses performed were
performed solely as part of Morgan Stanley's analysis of the fairness from a
financial point of view of the consideration to be paid by FirstEnergy pursuant
to the merger agreement and were conducted in connection with the delivery of
the Morgan Stanley opinion to FirstEnergy's board of directors. The analyses do
not purport to be appraisals or to reflect the prices at which GPU or
FirstEnergy common stock might actually trade. The consideration pursuant to the
merger agreement and other terms of the merger agreement were determined through
arm's length negotiations between GPU and FirstEnergy and were approved by
FirstEnergy's board of directors. Morgan Stanley provided advice to FirstEnergy
during such negotiations; however, Morgan Stanley did not recommend any specific
consideration to FirstEnergy or that any specific consideration constituted the
only appropriate consideration for the
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<PAGE>
merger. Morgan Stanley's opinion was one of many factors taken into
consideration by FirstEnergy's board of directors in making its decision to
approve the merger. Consequently, the Morgan Stanley analyses as described above
should not be viewed as determinative of the opinion of FirstEnergy's board of
directors with respect to the value of GPU or whether FirstEnergy's board of
directors would have been willing to agree to a different consideration.
FirstEnergy's board of directors retained Morgan Stanley based upon Morgan
Stanley's qualifications, experience and expertise. Morgan Stanley is an
internationally recognized investment banking and advisory firm. Morgan Stanley,
as part of its investment banking and financial advisory business, is
continuously involved in the valuation of business and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. In the ordinary course of
Morgan Stanley's trading and brokerage activities, Morgan Stanley or its
affiliates may at any time hold long or short positions or may trade or
otherwise effect transactions, for its own account or for the account of
customers, in the equity or debt securities or senior loans of FirstEnergy and
GPU. Morgan Stanley's parent and its affiliates, including its investment
management affiliates, owned approximately 9.5% of the common stock of GPU on
February 4, 2000 (the last filing by such parties of an Amendment to
Schedule 13G with respect to their security ownership of GPU common stock).
Morgan Stanley has been retained by FirstEnergy to act as financial advisor
to FirstEnergy with respect to the merger. Pursuant to the letter agreement
dated as of June 1, 2000 between FirstEnergy and Morgan Stanley, Morgan Stanley
is entitled to (i) an advisory fee of approximately $50,000 to $75,000 which is
payable in the event the transaction is not consummated and (ii) a transaction
fee of approximately $15,000,000, which is payable as follows: one-third upon
announcement of the transaction, one-third upon approval of the transaction by
FirstEnergy's shareholders and one-third upon closing of the transaction. Any
amounts paid or payable to Morgan Stanley as advisory or announcement fees will
be credited against the transaction fee. FirstEnergy has also agreed to
reimburse Morgan Stanley for expenses incurred by Morgan Stanley in performing
its services. In addition, FirstEnergy has agreed to indemnify Morgan Stanley
and its affiliates, their respective directors, officers, agents and each
person, if any, controlling Morgan Stanley or any of its affiliates against
certain liabilities and expenses, including certain liabilities under the
federal securities laws, related to or arising out of Morgan Stanley's
engagement and any related transactions. In the past, Morgan Stanley and its
affiliates have provided financial advisory and financing services for
FirstEnergy and for GPU and have received fees for the rendering of these
services.
OPINION OF FINANCIAL ADVISOR TO THE GPU BOARD OF DIRECTORS
Salomon Smith Barney Inc. has acted as the financial advisor to GPU in
connection with the merger and its review of other strategic alternatives. On
August 8, 2000, Salomon stated to the GPU board its oral opinion that, as of
that date and based upon and subject to the factors and assumptions set forth in
its presentation, Salomon's experience as investment bankers, its work as
described below and other factors Salomon deemed relevant, the merger
consideration was fair, from a financial point of view, to the holders of GPU
common stock. Salomon's opinion, which will be referred to as the Salomon
Opinion, was subsequently confirmed in writing.
The Salomon Opinion and the presentation of Salomon to the GPU board, in
connection with which Salomon was requested to evaluate the fairness from a
financial point of view of the merger consideration to the holders of GPU common
stock, was one of many factors taken into consideration by the GPU board in
making its determination to approve the merger agreement. The terms of the
merger were determined through negotiations between GPU and FirstEnergy, and
were approved by the GPU board. Although Salomon provided advice to GPU during
the course of these negotiations, the decision to enter into the merger
agreement and to accept the merger consideration was solely that of the GPU
board.
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The full text of the Salomon Opinion, which sets forth the assumptions made,
general procedures followed, matters considered and limitations on the review
undertaken by Salomon, is attached as Appendix C. Salomon has consented to the
inclusion of the Salomon Opinion and to the inclusion of the summary of the
Salomon Opinion in this document. In giving its consent, Salomon does not
concede that it comes within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, or the rules and regulations of
the Securities and Exchange Commission, nor does it concede that it is an expert
within the meaning of the term "experts" as used in the Securities Act of 1933
or the rules and regulations of the Securities and Exchange Commission with
respect to any part of this joint proxy statement/prospectus. The Salomon
Opinion should be read carefully and in its entirety. The Salomon Opinion is
directed only to the fairness, from a financial point of view, of the merger
consideration to the holders of GPU common stock and does not address GPU's
underlying business decision to effect the merger. It was provided for the
information of the GPU board in its evaluation of the proposed merger and is not
intended to be and does not constitute a recommendation to any GPU stockholder
as to how any stockholder should vote on any matters relating to the merger. The
Salomon Opinion does not imply any conclusion as to the likely trading range for
GPU common stock or FirstEnergy common stock following the announcement or
consummation of the merger, which may vary depending upon, among other factors,
changes in interest rates, dividend rates, market conditions, general economic
conditions and other factors that generally influence the prices of securities.
The summary of the Salomon Opinion set forth in this joint proxy
statement/prospectus is qualified in its entirety by reference to the full text
of the Salomon Opinion.
In connection with rendering the Salomon Opinion, Salomon, among other
things:
- reviewed the merger agreement;
- examined publicly available business and financial information that
Salomon deemed relevant relating to GPU and FirstEnergy and the industries
in which they operate;
- reviewed financial forecasts and other information and data for GPU and
FirstEnergy which were provided to or otherwise discussed with Salomon by
the managements of GPU and FirstEnergy;
- reviewed the financial terms of the merger as set forth in the merger
agreement in relation to, among other things, the historical and projected
earnings and other operating data of GPU and FirstEnergy, and the
capitalization and financial condition of GPU and FirstEnergy;
- considered, to the extent publicly available, the financial terms of other
similar transactions recently effected which Salomon considered relevant
in evaluating the merger and analyzed financial, stock market and other
publicly available information relating to the business of other companies
whose operations Salomon considered relevant in evaluating those of GPU
and FirstEnergy;
- discussed with members of GPU's and FirstEnergy's senior managements and
other officers and employees of GPU and FirstEnergy the foregoing,
including the past and current business operations, financial condition
and prospects of GPU and FirstEnergy; and
- conducted other analyses and examinations and considered other information
and financial, economic and market criteria as Salomon deemed appropriate
in arriving at its opinion.
In its review and analysis and in arriving at its opinion, Salomon assumed
and relied upon, without assuming any responsibility for verification, the
accuracy and completeness of all of the financial and other information provided
to, discussed with, or reviewed by or for Salomon, or publicly available. With
respect to GPU's and FirstEnergy's financial forecasts, Salomon was informed by
the management of GPU and FirstEnergy, and Salomon assumed, that these forecasts
had been reasonably prepared on bases reflecting the best currently available
estimates and judgments on the part of the management of
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GPU and FirstEnergy, as the case may be. Salomon expressed no view as to these
forecasts or the assumptions on which they were based.
Salomon did not make and was not provided with any independent evaluations
or appraisals of any of the assets or liabilities of GPU or FirstEnergy, and
Salomon did not conduct a physical inspection of the properties and facilities
of GPU or FirstEnergy. Although Salomon discussed a potential transaction with
another party, Salomon was not requested to, and did not, solicit third party
indications of interest in possible alternative transactions with GPU, nor was
Salomon requested to consider, and the Salomon Opinion does not address, the
relative merits of the merger as compared to any alternative business strategies
that might exist for GPU or the effect of any other transactions in which GPU
might engage. The Salomon Opinion was necessarily based upon market, economic
and other conditions as they existed and could be evaluated on August 8, 2000,
and Salomon assumed no responsibility to update or revise its opinion based upon
circumstances or events occurring after August 8, 2000.
Salomon also assumed that all material governmental, regulatory or other
consents and approvals would be obtained and that in the course of obtaining any
necessary governmental, regulatory or other consents and approvals, or any
amendments, modifications or waivers to any documents to which either GPU or
FirstEnergy is a party, as contemplated by the merger agreement, no restrictions
would be imposed, or amendments, modifications or waivers made that would have
any material effect on Salomon's analysis. Salomon assumed the merger would be
treated as a "reorganization" for U.S. federal income tax purposes.
In connection with rendering the Salomon Opinion to the GPU board, Salomon
performed a variety of financial analyses, the material portions of which are
summarized below. The summary of these analyses set forth below does not purport
to be a complete description of the analyses underlying the Salomon Opinion or
of Salomon's presentation to the GPU board. In addition, Salomon believes that
its analyses must be considered as a whole and that selecting portions of these
analyses and the factors considered therein, without considering all of these
analyses and factors, could create an incomplete view of the analyses and the
process underlying the Salomon Opinion. While the conclusions reached in
connection with each analysis were considered carefully by Salomon in arriving
at the Salomon Opinion, Salomon made various subjective judgments in arriving at
its opinion and did not consider it practicable to, nor did it attempt to,
assign relative weights to the individual analyses and specific factors
considered in reaching its opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In addition,
the process of preparing a fairness opinion necessarily requires a broad range
of subjective judgments with respect to appropriate comparable companies and
transactions, appropriate multiples of various selected financial data,
appropriate discount rates and other financial and other factors. Analyses and
estimates of the values of companies do not purport to be appraisals or
necessarily reflect the prices at which companies or their securities actually
may be sold. No public company utilized as a comparison is identical to GPU or
FirstEnergy, and none of the other business combinations utilized as a
comparison is identical to the proposed merger. Accordingly, any analysis of the
selected comparable companies and transactions is not purely mathematical;
rather, it involves complex considerations and judgments concerning differences
in financial and operating characteristics, transaction timing and
characteristics and other factors that would necessarily affect the value of GPU
or FirstEnergy versus the values of the companies to which they were being
compared and the comparison of the merger to the selected comparable
transactions. In evaluating the comparable companies and transactions, Salomon
made judgments and assumptions with regard to industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of GPU or FirstEnergy, such as the impact of
competition on GPU or FirstEnergy and the industry generally, industry growth
and the absence of any adverse material change in the financial conditions and
prospects of GPU or FirstEnergy or the
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industry or in the financial markets in general. The range of valuation for any
particular analysis should not be taken to be the view of Salomon of the actual
value of GPU or FirstEnergy.
The financial forecasts and financial forecast information furnished to
Salomon and used in formulating the Salomon Opinion were provided to Salomon, in
connection with the review of the merger, by the managements of GPU and
FirstEnergy who do not publicly disclose internal management forecasts or
forecast information of the type provided to Salomon. The forecasts and forecast
information were based on numerous variables and assumptions which are
inherently uncertain, including, without limitation, factors related to general
economic and competitive conditions. Accordingly, actual results could vary
significantly from those set forth in these forecasts or forecast information.
GPU FINANCIAL ANALYSIS
Salomon's calculations of GPU's firm value (equity value plus straight debt,
minority interest, preferred stock, and all out-of-money convertibles less cash
and marketable securities) were based upon 121.490 million diluted GPU shares
outstanding as of June 30, 2000, and net debt, as of March 31, 2000, comprised
of long-term debt of $5,627 million, short-term debt of $2,149 million and
$411 million of preferred stock less $422 million in excess cash and marketable
securities.
GPU RELATIVE STOCK PRICE PERFORMANCE. Salomon reviewed the recent stock
price performance of GPU common shares and compared its performance with that of
the Philadelphia Utility Index, the Standard & Poor's Composite Average and a
Comparable Companies Index comprised of eleven comparable publicly traded
utility companies (see GPU PUBLIC MARKET VALUATION ANALYSIS for detailed list of
these entities).
The following table presents the high, low, average and latest (as of
August 1, 2000) share price of GPU and the value of each index over the period
of August 1, 1999 to August 1, 2000 as a percentage of the share price of GPU
and the value of each index as of August 1, 1999:
<TABLE>
<CAPTION>
HIGH LOW AVERAGE LATEST
-------- -------- -------- --------
<S> <C> <C> <C> <C>
GPU......................................................... 100% 62% 78% 70%
Philadelphia Utility Index.................................. 103% 74% 90% 95%
S&P Composite Average (500 stocks).......................... 118% 95% 107% 108%
Comparable Companies Index.................................. 101% 76% 87% 90%
</TABLE>
GPU PUBLIC MARKET VALUATION ANALYSIS. Using stock prices as of August 1,
2000, management estimates as well as publicly available financial information
including estimates by First Call and Institutional Brokerage Estimate Service
("I/B/E/S"), and in the case of Funds Flow from Operations ("FFO") multiples for
comparable companies, forward FFO multiple estimates based on extrapolations
from the 12-month period ended March 31, 2000 ("LTM"), Salomon compared certain
financial measures of selected comparable publicly traded companies to those of
GPU. Salomon selected these companies based upon its views as to the
comparability of the financial and operating characteristics of these companies
to those of GPU.
The companies included in the GPU comparable companies analysis were:
- Consolidated Edison, Inc. (pro forma for its proposed merger with
Northeast Utilities),
- Sempra Energy,
- Energy East Corporation (pro forma for its proposed merger with CMP
Group, Inc.),
- Potomac Electric Power Company,
- Wisconsin Energy Corporation (pro forma for its proposed acquisition with
WICOR, Inc.),
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- DQE Inc.,
- NSTAR,
- Puget Sound Energy, Inc.,
- Conectiv,
- Sierra Pacific Power Company (pro forma for its proposed merger with
Portland General Electric Company), and
- United Illuminating Company.
Salomon's analysis resulted in the following selected reference ranges of
multiples from the comparable public companies analysis:
- price to earnings per share ("EPS") for the 12-month period ended
March 31, 2000 of 9.0x to 11.0x, compared to 8.1x for GPU,
- price to estimated EPS for 2000 of 8.0x to 10.0x, compared to 8.3x for
GPU,
- price to estimated EPS for 2001 of 7.0x to 9.0x, compared to 8.0x for GPU,
- price to LTM FFO of 4.0x to 5.0x, compared to 3.5x for GPU,
- price to 2000 estimated FFO of 3.8x to 4.7x, compared to 6.0x for GPU,
- price to 2001 estimated FFO of 3.6x to 4.4x, compared to 4.7x for GPU,
- price to book value per share of 1.2x to 1.4x, compared to 0.9x for GPU,
- firm value to LTM EBITDA of 6.0x to 7.0x, compared to 6.7x for GPU, and
- firm value to LTM EBIT of 9.5x to 10.5x, compared to 10.2x for GPU.
Based on the analysis described above, Salomon determined a reference value
range for GPU of $25.00 to $31.00 per common share.
In addition to the above analysis, Salomon used the range of multiples of
stock price to estimated one-year forward EPS of 8.0x to 10.0x as noted above
and applied those multiples to GPU management estimates of EPS for 2001, 2002
and 2003 to calculate a range of implied future GPU share prices. Salomon then
derived the net present values of these hypothetical future share prices using a
range of discount rates based on Salomon's estimate of GPU's cost of equity.
Based on this analysis, Salomon determined a reference value range for GPU of
$25.20 to $33.41 per common share.
GPU PRIVATE MARKET VALUATION ANALYSIS. Using publicly available
information, Salomon calculated a range of values for GPU based upon financial
information of national and local companies involved in selected recently
completed or announced business combination transactions which Salomon deemed to
be comparable in certain respects to the merger.
ACQUISITION TRANSACTIONS ANALYSIS. Salomon reviewed publicly available
information regarding the following 16 selected announced or completed
acquisition transactions in the domestic electric utility industry:
- AES Corporation's acquisition of IPALCO Enterprises, Inc.,
- NS Power Holdings Inc.'s acquisition of Bangor Hydro Electric Company,
- PowerGen plc's (U.K.) acquisition of LG&E Energy Corp.,
- Sierra Pacific Resources' acquisition of Portland General Electric
Company,
- Berkshire Hathaway Inc.'s acquisition of MidAmerican Energy Holdings
Company,
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- Consolidated Edison, Inc.'s acquisition of Northeast Utilities,
- Carolina Power & Light Company's acquisition of Florida Progress
Corporation,
- Energy East Corporation's acquisition of CMP Group Inc.,
- Dynegy Inc.'s acquisition of Illinova Corporation,
- Investor Group's acquisition of TNP Enterprises Inc.,
- UtiliCorp United Inc.'s acquisition of Empire District Electric Company,
- UtiliCorp United Inc.'s acquisition of St. Joseph Light & Power Company,
- New England Electric System's acquisition of Eastern Utilities Associates,
- The National Grid Group plc's (U.K.) acquisition of New England Electric
System,
- Boston Edison Company's acquisition of Commonwealth Energy System, and
- Scottish Power plc's (U.K.) acquisition of PacifiCorp.
Using publicly available information, including First Call and I/B/E/S
estimates and, in the case of FFO multiples, estimates of forward FFO multiples
based on extrapolations from the multiple for the last 12-month period prior to
the announcement of the transaction, Salomon calculated reference ranges for
each of the ratios of the price paid per share in the precedent transaction and
the firm value paid in the precedent transaction to certain financial measures
for the last 12-month period prior to the announcement of the transaction and
for the next two fiscal years (the "First Forward Year" and "Second Forward
Year", respectively). In deriving these reference ranges, Salomon also took into
consideration the percentage change in the Philadelphia Utility Index over the
time period from announcement to August 1, 2000. Salomon's analysis resulted in
the following selected reference ranges of acquisition multiples:
- price paid to First Forward Year EPS of 14.0x to 16.0x,
- price paid to Second Forward Year EPS of 13.0x to 15.0x,
- price paid to LTM FFO of 6.5x to 8.0x,
- price paid to First Forward Year FFO of 6.2x to 7.6x,
- price paid to Second Forward Year FFO of 5.9x to 7.2x,
- price paid to book value per share of 1.6x to 2.0x,
- aggregate value to LTM EBITDA of 7.0x to 8.0x,
- aggregate value to First Forward Year EBITDA of 6.7x to 7.6x
- aggregate value to Second Forward Year EBITDA of 6.4x to 7.2x, and
- aggregate value to LTM EBIT of 10.5x to 12.5x.
Salomon also derived a range of premiums of 20% to 40% paid in the above
transactions based on prices one day, five days and one month prior to
announcement. Salomon then applied this range of premiums to the GPU stock price
for the day prior, 5 days prior and one month prior to August 1, 2000.
Based on the analyses described above and using GPU management estimates,
Salomon determined a reference value range for GPU of $33.00 to $41.00 per
common share.
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MERGER-OF-EQUALS TRANSACTIONS ANALYSIS. Salomon reviewed publicly available
information regarding the following 11 selected announced or completed
merger-of-equals transactions in the domestic electric utility industry:
- FPL Group Inc.'s acquisition of Entergy Corporation,
- PECO Energy Company's acquisition of UNICOM Corporation,
- SIGCORP Inc.'s acquisition of Indiana Energy Inc.,
- NorthernStates Power Company's acquisition of New Century Energies,
- Nevada Power Company's acquisition of Sierra Pacific Resources,
- Allegheny Power System Inc.'s acquisition of DQE Inc.,
- Delmarva Power & Light Company's acquisition of Atlantic Energy Inc.,
- Kansas City Power & Light Company's acquisition of Utilicorp
United, Inc.,
- Public Service Company of Colorado's acquisition of Southwestern Public
Service Company,
- Wisconsin Energy Corporation's acquisition of Northern States Power
Company, and
- Midwest Resources Inc.'s acquisition of Iowa-Illinois Gas & Electric
Company.
Using publicly available information, including First Call and I/B/E/S
estimates and, in the case of FFO multiples, estimates of forward FFO multiples
based on extrapolations from the multiple for the last 12-month period prior to
the announcement of the transaction, Salomon calculated reference ranges for
each of the ratios of the price paid per share in the precedent transaction and
the firm value paid in the precedent transaction to certain financial measures
for the last 12-month period prior to the announcement of the transaction and
for the First Forward Year and Second Forward Year, respectively. Salomon's
analysis resulted in the following selected reference ranges of merger-of-equals
multiples:
- price paid to First Forward Year EPS of 11.0x to 13.0x,
- price paid to Second Forward Year EPS of 10.5x to 12.5x,
- price paid to LTM FFO of 5.0x to 6.5x,
- price paid to First Forward Year FFO of 4.7x to 6.2x,
- price paid to Second Forward Year FFO of 4.4x to 5.9x,
- price paid to book value per share of 1.4x to 1.8x,
- aggregate value to LTM EBITDA of 6.0x to 7.0x,
- aggregate value to First Forward Year EBITDA of 5.2x to 6.7x,
- aggregate value to Second Forward Year EBITDA of 5.4x to 6.4x, and
- aggregate value to LTM EBIT of 8.5x to 10.5x.
Based on the analysis described above and using GPU management estimates,
Salomon determined a reference value range for GPU of $25.00 to $33.00 per
common share.
GPU DISCOUNTED CASH FLOW ANALYSIS. Salomon applied a discounted cash flow
methodology to management estimates of future unlevered free cash flow in order
to calculate a range of GPU firm values as of June 30, 2000. Salomon applied
terminal net income multiples ranging from 9.5x to 10.5x and discount rates
representing Salomon's estimate of GPU's weighted average cost of capital
ranging from 6.6% to 7.1%. This analysis yielded firm values ranging from
$11,573 million to $12,314 million.
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This corresponds to a range of implied per share equity values of $30.71 to
$35.98, assuming 121.49 million shares outstanding as of June 30, 2000.
GPU SUM-OF-THE-PARTS ANALYSIS. Salomon derived a range of values for GPU by
utilizing a "sum-of-the-parts" valuation analysis which separately values
distinct components of GPU's business by applying various valuation
methodologies to those components and uses the sum of the derived valuations to
arrive at a range of values for GPU as a whole. The primary components of GPU's
business analyzed by Salomon in its sum-of-the-parts analysis consist of
domestic utilities, international electric businesses, telecommunications and
other businesses, and are referred to herein as the "GPU businesses."
This analysis does not imply the value at which the individual GPU
businesses could be sold. Salomon did not consider the effect of transaction
costs, including taxes that could be payable, associated with a disposition of
the GPU businesses.
GPU Sum-of-the-Parts Public Market Valuation. Using management estimates as
well as publicly available financial information, including First Call and
I/B/E/S estimates, Salomon compared certain financial measures of selected
comparable companies to those of the relevant GPU business as described above in
"GPU Public Market Valuation Analysis." Salomon selected these comparable
companies based upon its views as to the comparability of the financial and
operating characteristics of these companies to the relevant GPU business.
Salomon calculated reference value ranges for the GPU businesses by applying
various multiples derived from these comparable companies to selected financial
measures of the relevant GPU business. Based upon this analysis, Salomon
determined a reference value range for GPU on a consolidated basis of $25.09 to
$34.75 per common share.
GPU Sum-of-the-Parts Private Market Valuation. Using publicly available
information, Salomon calculated a range of valuations for GPU based upon
financial information of companies involved in selected recently completed or
announced business combination transactions which are comparable in certain
respects to an acquisition of the relevant GPU business. Salomon calculated
reference value ranges for the GPU businesses by applying various multiples
derived from these comparable transactions to selected financial measures of the
relevant GPU business. Based upon this analysis, Salomon determined a reference
value range for GPU on a consolidated basis of $31.14 to $43.08 per common
share.
GPU Sum-of-the-Parts Discounted Cash Flow Analysis. Salomon applied a
discounted cash flow methodology to management estimates of future unlevered
free cash flow of the GPU businesses in order to calculate a range of firm
values of each of the GPU businesses as of June 30, 2000. Salomon applied
terminal net income multiples for each of the GPU businesses and discount rates
representing the weighted average cost of capital or, in certain cases, the cost
of equity of the particular GPU businesses to which they were applied. For all
of the GPU businesses in aggregate, this analysis yielded firm values ranging
from $11,922.4 million to $12,648.5 million. This corresponds to a range of
implied per share equity values for GPU on a consolidated basis of $32.75 to
$38.73.
PRESENT VALUE OF FIRSTENERGY OFFER ASSUMING CURRENT STOCK PRICE REPRESENTS
FAIR VALUE. Salomon calculated the present value of the merger consideration
assuming a projected closing date of August 1, 2001 or February 1, 2002. The
present value of the offer is equal to the present value of GPU's projected
dividend stream between August 1, 2000 and the assumed closing date, the present
value of the cash consideration paid at closing and the value of the package of
stock and options represented by the exchange ratio and mechanics to adjust the
exchange ratio as described in "The Merger--Conversion of GPU Shares, GPU Stock
Options and GPU Stock Units" at 52-57. Salomon used discount rates of 7.0% and
10.0% to derive reference value ranges per GPU common share of $35.68 to $35.71
for an August 1, 2001 closing; and $35.35 to $35.41 for a February 1, 2002
closing.
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PRESENT VALUE OF FIRSTENERGY TRANSACTION BASED ON FUTURE EARNINGS OF
COMBINED COMPANY. Salomon calculated the present value of the transaction based
on the future earnings of the combined company in fiscal 2002 and 2003 by adding
the following: the present value of the stock portion of the consideration, the
cash portion, the projected GPU dividend stream between August 1, 2000 and the
closing and the projected FirstEnergy dividend stream of FirstEnergy quarterly
dividends on FirstEnergy shares to be issued in the merger from the close
through the valuation period considered by Salomon. To estimate the present
value of the stock to be received by GPU shareholders in the merger, Salomon
applied the one-year forward (2000 estimate) P/E multiple range from the public
market valuation analysis of FirstEnergy (9.5x-11.5x) to the pro forma earnings
of the combined company in 2002 and 2003 to determine the implied future share
price of the combined company as of June 30, 2002 and June 30, 2003. The future
share price was multiplied by an assumed exchange ratio of 1.3551, the exchange
ratio that would result if FirstEnergy's average closing price over the
20-trading day period ending on the seventh trading day before the completion of
the merger was $26.935 and then discounted at Salomon's estimate of
FirstEnergy's cost of equity. The cash consideration to be received at closing
was discounted at a risk-free rate of 7.0%. Salomon included in its calculation
the present value of the GPU and FirstEnergy quarterly dividend streams to be
received by GPU shareholders as indicated above, discounted at the estimated
9-10% cost of equity. All figures were discounted to August 1, 2000 and the
analysis was conducted assuming 12 months to close and assuming 18 months to
close. This analysis yielded a total value range for the FirstEnergy offer of
$36.91 to 42.44 for an August 1, 2001 closing; and $36.85 to $42.39 for a
February 1, 2002 closing.
FIRSTENERGY FINANCIAL ANALYSIS
Due to the stock component of the merger consideration, Salomon also
conducted an analysis of FirstEnergy. Salomon's calculations of FirstEnergy's
firm value were based upon 232.5 million diluted FirstEnergy shares outstanding
as of June 30, 2000, and net debt, as of March 31, 2000, comprised of straight
long-term debt of $6,056.2 million, straight short-term debt of
$1,011.3 million and $904.6 million of preferred stock less $43.0 million in
excess cash and marketable securities.
FIRSTENERGY RELATIVE STOCK PRICE PERFORMANCE. Salomon reviewed the recent
stock price performance of FirstEnergy common shares and compared its
performance with that of the Philadelphia Utility Index, the Standard & Poor's
Composite Average and a Comparable Companies Index comprised of eight comparable
publicly traded utility companies (see FIRSTENERGY PUBLIC MARKET VALUATION
ANALYSIS for detailed list of these entities).
The following table presents the high, low, average and latest (as of
August 1, 2000) stock prices of FirstEnergy and each index over the period of
August 1, 1999 to August 1, 2000 as a percentage of the Base Period:
<TABLE>
<CAPTION>
HIGH LOW AVERAGE LATEST
-------- -------- -------- --------
<S> <C> <C> <C> <C>
FirstEnergy................................................. 101% 62% 83% 92%
Philadelphia Utility Index.................................. 103% 74% 90% 95%
S&P Composite Average (500 stocks).......................... 115% 93% 105% 108%
Comparable Companies Index.................................. 102% 80% 91% 94%
</TABLE>
FIRSTENERGY PUBLIC MARKET VALUATION ANALYSIS. Using stock prices as of
August 1, 2000, management estimates as well as publicly available financial
information, including First Call and I/B/E/S estimates, and in the case of FFO
multiples for comparable companies, estimates of forward FFO multiples based on
extrapolations of the LTM FFO multiple, Salomon compared certain financial
measures of selected comparable publicly traded companies to those of
FirstEnergy. Salomon selected these companies based upon its views as to the
comparability of the financial and operating characteristics of these companies
to FirstEnergy.
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The companies included in the FirstEnergy comparable companies analysis
were:
- PECO Energy Company (pro forma for its proposed merger with UNICOM
Corporation),
- American Electric Power Company Inc. (pro forma for its merger with
Central & South West Corporation),
- Public Service Enterprise Group Inc.,
- DTE Energy Company (pro forma for its proposed merger with MCN Energy
Group Inc.),
- Ameren Corporation,
- Constellation Energy Group Inc.,
- Pinnacle West Capital Corporation, and
- DQE Inc.
Salomon's analysis resulted in the following selected reference ranges of
multiples from the comparable public companies analysis:
- price to LTM EPS of 10.0x to 12.0x, compared to 10.9x for FirstEnergy,
- price to estimated EPS for 2000 of 9.5x to 11.5x, compared to 10.2x for
FirstEnergy,
- price to estimated EPS for 2001 of 9.0x to 11.0x, compared to 9.7x for
FirstEnergy,
- price to LTM FFO of 4.5x to 5.5x, compared to 3.9x for FirstEnergy,
- price to 2000 estimated FFO of 4.3x to 5.2x, compared to 5.2x for
FirstEnergy,
- price to 2001 estimated FFO of 4.1x to 4.9x, compared to 4.7x for
FirstEnergy,
- price to book value per share of 1.2x to 1.5x, compared to 1.3x for
FirstEnergy,
- firm value to LTM EBITDA of 5.5x to 6.5x, compared to 5.7x for
FirstEnergy, and
- firm value to LTM EBIT of 9.0x to 10.0x, compared to 9.2x for FirstEnergy.
Based on the analysis described above, Salomon determined a reference value
range for FirstEnergy of $24.50 to $29.00 per common share.
In addition to the above analysis, Salomon used the range of multiples of
stock price to estimated one-year forward EPS of 9.5x to 11.5x as noted above
and applied those multiples to FirstEnergy management estimates of EPS for 2001,
2002 and 2003 to calculate ranges of implied future FirstEnergy share prices.
Salomon then derived the net present values of these hypothetical future share
prices using a range of discount rates based on Salomon's estimate of
FirstEnergy's cost of equity. Based on this analysis, Salomon determined a
reference value range for FirstEnergy of $26.47 to $33.33 per common share.
FIRSTENERGY DISCOUNTED CASH FLOW ANALYSIS. Salomon applied a discounted
cash flow methodology to FirstEnergy estimates of future unlevered free cash
flow, as provided by FirstEnergy management and as modified by GPU management,
in order to calculate a range of FirstEnergy firm values as of June 30, 2000.
Salomon applied terminal net income multiples ranging from 10.5x to 11.5x and
discount rates representing Salomon's estimate of FirstEnergy's weighted average
cost of capital ranging from 6.9% to 7.3%. This analysis yielded firm values
ranging from $13,774 million to $15,528 million. This corresponds to a range of
implied per share equity values of $25.92 to $33.46, assuming 232.5 million
shares outstanding as of June 30, 2000.
FIRSTENERGY SUM-OF-THE-PARTS ANALYSIS. Salomon derived a range of values
for FirstEnergy by utilizing a "sum-of-the-parts" valuation analysis which
separately values distinct components of FirstEnergy's business by applying
various valuation methodologies to those components and uses the
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derived valuations to arrive at a range of values for FirstEnergy as a whole.
The primary components of FirstEnergy's business analyzed by Salomon in its
sum-of-the-parts analysis consist of regulated businesses, unregulated
businesses, electricity transmission and other businesses, and are referred to
herein as the "FirstEnergy businesses."
This analysis does not imply the value at which the individual FirstEnergy
businesses could be sold. Salomon did not consider the effect of transaction
costs, including taxes that could be payable, associated with a disposition of
the FirstEnergy businesses.
FirstEnergy Sum-of-the-Parts Public Market Valuation. Using management
estimates as well as publicly available financial information, including First
Call and I/B/E/S estimates, Salomon compared certain financial measures of
selected comparable companies to those of the relevant FirstEnergy business as
described above in "FirstEnergy Public Market Valuation Analysis." Salomon
selected these comparable companies based upon its views as to the comparability
of the financial and operating characteristics of these companies to the
relevant FirstEnergy business. Salomon calculated reference value ranges for the
FirstEnergy businesses by applying various multiples derived from these
comparable companies to selected financial measures of the relevant FirstEnergy
business. Based upon this analysis, Salomon determined a reference value range
for FirstEnergy of $26.00 to $33.00 per common share.
FirstEnergy Sum-of-the-Parts Discounted Cash Flow Analysis. Salomon applied
a discounted cash flow methodology to management estimates of future unlevered
free cash flow of the FirstEnergy businesses in order to calculate ranges of
firm values of each of the FirstEnergy businesses as of June 30, 2000. Salomon
applied terminal net income multiples for each of the FirstEnergy businesses and
discount rates representing the weighted average cost of capital or, in certain
cases, the cost of equity of the particular FirstEnergy business to which they
were applied. For the FirstEnergy businesses in aggregate, this analysis yielded
firm values ranging from $14,717.5 million to $15,675.6 million. This
corresponds to a range of implied per share equity values for FirstEnergy on a
consolidated basis of $29.97 to $34.09.
PRO FORMA ANALYSIS OF THE MERGER
Salomon analyzed and reviewed the pro forma impact of the merger on
FirstEnergy's EPS for the fiscal years ended 2001 and 2003 assuming the exchange
ratios of 1.2318, 1.3551 and 1.5055. The analysis was performed assuming the
merger would be accounted for as a purchase transaction with 40-year goodwill
amortization. Salomon based the analysis upon FirstEnergy management estimates,
as provided by FirstEnergy management and as modified by GPU management. The
analysis also included assumptions regarding the effects of estimated potential
retained synergies. Based on this analysis, assuming an exchange ratio of
1.3551, on an EPS basis, the merger would be accretive to FirstEnergy by 6.2%
and 10.5% in 2001 and 2003, respectively. If the maximum exchange ratio of
1.5055 is used, the merger would be accretive to FirstEnergy on an EPS basis by
3.0% and 7.1% in 2001 and 2003, respectively. Finally, if the minimum exchange
ratio of 1.2318 is used, the merger would be accretive to FirstEnergy on an EPS
basis by 8.9% in 2001 and 13.4% in 2003.
Salomon is an internationally recognized investment banking firm that
regularly engages in the valuation of companies and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
bids, secondary distributions of listed and unlisted securities, and corporate,
estate and other purposes. GPU retained Salomon as a financial advisor because
of its reputation, expertise in the valuation of companies and substantial
experience in transactions similar to the merger.
In the past Salomon has provided investment banking services to GPU,
FirstEnergy and/or their respective affiliates for which it has received
compensation. Pursuant to Salomon's engagement letter with GPU, dated August 6,
2000, GPU agreed to pay Salomon a fee for its services as financial advisor to
GPU in connection with the merger totaling 0.40% of the transaction value, a
significant portion of
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which will be received upon the closing of the merger. Additionally, GPU has
agreed to reimburse Salomon for its reasonable out-of pocket expenses,
including, without limitation, reasonable fees and disbursements of Salomon's
legal counsel and agreed to indemnify Salomon and certain related persons
against certain liabilities, including liabilities under the federal securities
laws, related to or arising out of its engagement. In the ordinary course of
business, Salomon or its affiliates may hold or actively trade the debt and
equity securities of GPU, FirstEnergy and/or their respective affiliates for its
own account and for the accounts of its customers and, accordingly, may at any
time hold a long or short position in these securities. In addition, Salomon and
its affiliates, including Citigroup, Inc., may maintain other business
relationships with GPU, FirstEnergy and their respective affiliates.
EFFECTIVE TIME
If the merger agreement is adopted by FirstEnergy shareholders and GPU
shareholders, the effective time will occur as promptly as possible after
satisfaction or waiver of the remaining conditions to the merger contained in
the merger agreement, including the receipt of regulatory approvals.
The effective time will be when FirstEnergy files its certificate of merger
with the Secretary of State of the State of Ohio and GPU files its articles of
merger with the Department of State of the Commonwealth of Pennsylvania, in
accordance with the laws of the State of Ohio and the Commonwealth of
Pennsylvania, respectively.
CONVERSION OF GPU SHARES, GPU STOCK OPTIONS AND GPU STOCK UNITS
MERGER CONSIDERATION. As of the effective time, each share of GPU common
stock outstanding immediately prior to the effective time of the merger (other
than those held (i) by GPU shareholders who have not voted in favor of the
merger and have properly demanded dissenters' rights and (ii) by GPU as treasury
shares, which will be canceled) will automatically be exchanged for the right to
receive shares of FirstEnergy common stock or cash, or, if proration is required
as described below, a combination of cash and shares of FirstEnergy common
stock. Each holder of GPU common stock may elect to receive in exchange for each
of his or her shares of GPU common stock either:
- $36.50 in cash, without interest; or
- a number of whole shares of FirstEnergy common stock determined by
dividing $36.50 by the average of the closing sale prices for a share of
FirstEnergy common stock on the New York Stock Exchange as reported in THE
WALL STREET JOURNAL over the 20-day trading period ending on the seventh
trading day before the effective time (the "exchange ratio"); provided,
however, that:
- if the average closing price is equal to or above $29.6313, the exchange
ratio will be fixed at 1.2318 shares of FirstEnergy common stock for each
share of GPU common stock; and
- if the average closing prices is equal to or below $24.2438, the exchange
ratio will be fixed at 1.5055 shares of FirstEnergy common stock for each
share of GPU common stock.
- FirstEnergy will make a public announcement before 9:00 a.m. on the sixth
trading day prior to the date the merger becomes effective of the exchange
ratio, the average closing price of the FirstEnergy shares over the 20-day
trading period and the deadline for submitting elections to receive cash
or FirstEnergy shares.
- after GPU shareholder elections have been tabulated, the elected amounts
of cash and shares of FirstEnergy common stock will be subject to
proration to achieve a mix of the aggregate exchange consideration that is
50% cash and 50% shares of FirstEnergy common stock, subject to the tax
adjustment described below. AS A RESULT, GPU SHAREHOLDERS MAY RECEIVE A
DIFFERENT COMBINATION OF CASH AND SHARES OF FIRSTENERGY COMMON STOCK THAN
THEY ELECTED. SEE "CONSEQUENCES OF OVER- AND UNDER-ELECTION."
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CONSEQUENCES OF OVER-AND UNDER-ELECTION. Under the terms of the merger
agreement, except in the case of a tax adjustment, as described below, 50% of
the total consideration to be paid to GPU shareholders for their shares will
consist of cash and 50% will consist of FirstEnergy common stock. If GPU
shareholders, as a group, submit elections to convert more than 50% of the
outstanding GPU shares into cash or more than 50% into FirstEnergy shares, then
adjustments will be made to ensure that 50% of the outstanding GPU shares are
converted into cash and 50% of the outstanding GPU shares are converted into
FirstEnergy shares.
If GPU shareholders holding more than 50% of the outstanding shares of GPU
common stock elect to receive shares of FirstEnergy common stock, then:
- all shares of GPU common stock covered by elections to receive cash and
all shares of GPU common stock covered by non-elections will be converted
into the right to receive $36.50 per share in cash; and
- all shares of GPU common stock covered by elections to receive FirstEnergy
common stock will be converted into the right to receive cash and shares
of FirstEnergy common stock as follows:
- a number of shares of FirstEnergy common stock equal to:
- the number of shares equal to 50% of the outstanding shares of GPU
common stock divided by the aggregate number of shares of GPU
common stock covered by elections to receive shares of FirstEnergy
common stock
- multiplied by the exchange ratio; and
- cash in an amount equal to:
- the difference between (A) one and (B) the number of shares equal
to 50% of the outstanding shares of GPU common stock divided by the
aggregate number of shares of GPU common stock covered by elections
to receive shares of FirstEnergy common stock
- multiplied by $36.50.
The merger agreement also provides that no more than 50% of the total merger
consideration will be paid in cash. If GPU shareholders elect to receive more
than 50% of the merger consideration as cash, then:
- all shares of GPU common stock covered by elections to receive shares of
FirstEnergy common stock and all shares of GPU common stock covered by
non-elections will be converted into the right to receive shares of
FirstEnergy common stock, at the exchange ratio; and
- all shares of GPU common stock covered by elections to receive cash will
be converted into the right to receive cash and shares of FirstEnergy
common stock, as follows:
- cash in an amount equal to:
- the number of shares equal to 50% of the outstanding shares of GPU
common stock divided by the aggregate number of shares of GPU
common stock covered by elections to receive shares of FirstEnergy
common stock
- multiplied by $36.50; and
- a number of shares of FirstEnergy common stock equal to:
- the difference between (A) one and (B) the number of shares equal
to 50% of the outstanding shares of GPU common stock divided by the
aggregate number of shares of GPU common stock covered by elections
to receive shares of FirstEnergy common stock;
- multiplied by the exchange ratio.
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The merger agreement also provides that if after accounting for all
elections, less than 50% of the merger consideration will be paid in cash and
less than 50% of the merger consideration will be paid in shares of FirstEnergy
common stock, then:
- all shares of GPU common stock covered by elections to receive cash will
be converted into the right to receive $36.50 per share in cash;
- all shares of GPU common stock covered by elections to receive shares of
FirstEnergy common stock will be converted into the right to receive
shares of FirstEnergy common stock, at the exchange ratio;
- an allocation will be made among shares covered by non-elections so that
each share covered by a non-election will be converted into the right to
receive:
- a cash amount equal to:
- the difference between the number of shares equal to 50% of the
outstanding shares of GPU common stock and the aggregate number of
shares of GPU common stock covered by elections to receive cash,
divided by the number of shares covered by non-elections
- multiplied by $36.50; and
- a number of shares of FirstEnergy common stock equal to:
- the difference between the number of shares equal to 50% of the
outstanding shares of GPU common stock and the aggregate number of
shares of GPU common stock covered by elections to receive shares
of FirstEnergy common stock divided by the number of shares covered
by non-elections
- multiplied by the exchange ratio.
TAX ADJUSTMENT. FirstEnergy and GPU intend the merger to be treated as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code. In order to be treated as a reorganization under Section 368(a) of the
Internal Revenue Code, the merger must satisfy the "continuity of shareholder
interest" requirements under U.S. Treasury regulations and other U.S. federal
income tax principles relating to reorganizations under Section 368(a) of the
Internal Revenue Code. The relevant Treasury regulations generally require that
to qualify as a reorganization under Section 368(a) of the Internal Revenue
Code, a substantial part of the value of the proprietary interests in the target
corporation (in this case, GPU) must be preserved in the reorganization. There
is no definitive statement regarding what percentage of shareholder continuity
is required in order to satisfy this condition. It is generally believed,
however, that the continuity of shareholder interest requirement will be
satisfied if the percentage of the consideration received by GPU shareholders in
the merger in the form of FirstEnergy shares is at least somewhere between 40
and 45 percent of the total consideration received by GPU shareholders in the
merger, based upon the closing date price of FirstEnergy shares. It is a
condition to closing, which neither FirstEnergy nor GPU intends to waive without
GPU and FirstEnergy resoliciting proxies from shareholders of GPU and
FirstEnergy, that each of FirstEnergy and GPU receive opinions of their
respective counsels, dated as of the closing date, that the merger will be
treated as a reorganization under Section 368(a) of the Internal Revenue Code.
Therefore, the merger agreement provides that, if necessary to enable counsel to
deliver their opinions, then, to the minimum extent necessary, the amount of
cash to be delivered with respect to each GPU share convertible, in whole or in
part, into the right to receive cash will be reduced and FirstEnergy will
deliver, with respect to that GPU share, FirstEnergy shares of equal aggregate
value (based on the closing date price of FirstEnergy shares). For purposes of
calculating the percentage of the total merger consideration delivered in the
form of FirstEnergy shares, the total merger
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consideration received includes not only FirstEnergy shares and cash issued or
paid to GPU shareholders in exchange for their GPU shares, but also any other
amounts treated as consideration in connection with the merger for purposes of
the Internal Revenue Code.
NO FRACTIONAL SHARES. FirstEnergy will not issue fractional shares in
connection with the merger. Any GPU shareholder otherwise entitled to a
fractional share, including in connection with a tax adjustment, will instead
receive cash in an amount equal to that fraction multiplied by the average of
the closing prices of the shares of FirstEnergy common stock over the five-day
trading period ending on the trading day before we complete the merger.
DISSENTERS SHARES. GPU shareholders who decide to pursue their rights to
dissent under Pennsylvania law will lose their right to receive the merger
consideration; they will have only those rights that are granted by applicable
Pennsylvania law. If, however, after the effective time, a GPU shareholder
withdraws or loses their right to dissent, their GPU shares will be converted
into the right to receive the merger consideration with no right of election and
accordingly, will be treated as non-election shares. GPU will promptly notify
FirstEnergy if it receives any written demands for payment of the fair value of
outstanding GPU shares and withdrawals of such demands. The surviving
corporation will make all payments in respect of dissenting shares.
ADJUSTMENT TO PER SHARE AMOUNT. If FirstEnergy changes (or establishes a
record date for changing) the number of FirstEnergy shares issued and
outstanding prior to the effective time through a stock split, stock dividend,
stock combination, recapitalization, reclassification, reorganization or similar
transaction, or pays or makes an extraordinary dividend or distribution, and in
any of these instances the record date is prior to the effective time, then the
exchange ratio will be adjusted appropriately. If FirstEnergy enters into a
merger or consolidation whereby FirstEnergy shares are converted into or
exchanged for the shares of another corporation, GPU shareholders entitled to
receive FirstEnergy shares under the merger agreement will be entitled to
receive an amount of replacement securities or assets as will be distributable
in the new merger or consolidation of equal value.
EXCHANGE AGENT. As soon as practicable after the effective time, the
surviving corporation will deposit with a bank or trust company, as the exchange
agent, an amount of cash and certificates representing the FirstEnergy shares
necessary to convert the GPU shares into FirstEnergy shares and cash.
ELECTION PROCEDURE, ELECTION DEADLINE AND DEEMED NON-ELECTION. FirstEnergy
will cause forms of election to be mailed to record holders of GPU shares not
more than 90 days nor less than 30 days before the expected election deadline.
To be effective, a form of election must be:
- properly completed, signed and submitted to the exchange agent;
- accompanied by any GPU share certificates as to which the election is
being made (or an appropriate guarantee of delivery of such certificates
as provided in the merger agreement); and
- received by the exchange agent by the election deadline, which will be
5:00 p.m., New York City time, on the business day prior to the effective
time. FirstEnergy will issue a press release before 9:00 a.m. on the sixth
trading day before the merger occurs announcing the deadline for
submitting elections.
FirstEnergy (or, at FirstEnergy's option, the exchange agent) has the
discretion to determine whether a GPU shareholder has properly completed,
signed, and submitted (or revoked) a form of election and to disregard
immaterial defects in the form of election. The exchange agent will also make
all computations that the merger agreement requires, and all such computations
will be conclusive and binding on GPU shareholders.
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<PAGE>
All elections may be revoked in writing until the election deadline. A GPU
shareholder who submits an untimely or improper form of election will be deemed
not to have made an election.
EXCHANGE AND PAYMENT PROCEDURES. As soon as reasonably practicable after
the effective time, the exchange agent will mail to each record holder of a
certificate or certificates representing GPU shares who failed to return a
properly completed form of election:
- a letter of transmittal for use in submitting GPU share certificates to
the exchange agent; and
- instructions explaining what the holder must do to surrender his or her
GPU share certificates and receive the merger consideration.
After a GPU shareholder submits his or her GPU share certificates, together
with a letter of transmittal and other documents that may be required, they will
have the right to receive cash, a certificate representing FirstEnergy shares,
or both. The merger consideration may be delivered to someone who is not listed
in GPU's transfer records if that person presents a GPU share certificate to the
exchange agent along with all documents required to prove that the certificate
has been transferred to them and any applicable stock transfer taxes have been
paid. Until surrendered, each GPU share certificate will be deemed after the
effective time to represent only the right to receive, upon surrender, the
merger consideration.
NO FURTHER OWNERSHIP RIGHTS IN GPU COMMON STOCK. Payment of the merger
consideration to GPU shareholders will be deemed to be in full satisfaction of
all rights pertaining to GPU shares, subject to FirstEnergy's obligation to pay
any dividends or make any other distributions under the merger agreement. After
the effective time, GPU share certificates presented to FirstEnergy for any
reason will be canceled and exchanged as provided in the merger agreement.
GPU STOCK OPTIONS AND STOCK UNITS. At the effective time, each unexpired
and unexercised option to purchase GPU shares will become an option to purchase
a number of FirstEnergy shares equal to the number of GPU shares that could have
been purchased under the GPU option multiplied by the exchange ratio. The
exercise price per FirstEnergy share will be equal to the option exercise price
of the GPU option under its terms divided by the exchange ratio. If, however,
the current terms of a GPU option entitle the holder, upon completion of the
merger, to a cash payment in respect of that option, that holder will be
entitled to that cash payment in accordance with the current terms of the option
unless, within 30 days after the effective time, that holder elects, by written
notice to FirstEnergy, that the holder's GPU option will become a FirstEnergy
option.
At the effective time, all outstanding performance units granted under the
GPU stock plans will, in accordance with their terms, vest and become payable
and all deferred vested units may, in accordance with their terms and prior
elections made by the holders, vest and become payable upon the completion of
the merger. Each holder of a GPU stock unit which becomes payable upon the
completion of the merger will be entitled to receive at the effective time:
- if the GPU stock units are payable in cash, a cash payment calculated as
described in the merger agreement;
- if the GPU stock unit is payable in stock, a number of FirstEnergy shares
calculated as described in the merger agreement.
Each GPU deferred unit that does not become payable upon completion of the
merger, will, at the written election of its holder delivered to FirstEnergy
within 30 days after the effective time, be converted into either:
- a deferred vested unit covering a number of FirstEnergy shares calculated
as described in the merger agreement; or
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- a deferred cash account to be established and maintained by FirstEnergy or
one of its subsidiaries with an initial balance calculated as described in
the merger agreement, which balance thereafter will be credited with
interest until paid.
STATED CAPITAL OF FIRSTENERGY SHARES. At the effective time, the stated
capital of each class of shares of FirstEnergy will equal the par value of such
shares.
DO NOT FORWARD CERTIFICATES TO THE EXCHANGE AGENT, FIRSTENERGY OR GPU UNTIL
YOU HAVE RECEIVED A FORM OF ELECTION. DO NOT RETURN CERTIFICATES WITH THE
ENCLOSED PROXY. A FORM OF ELECTION AND COMPLETE INSTRUCTIONS FOR PROPERLY MAKING
AN ELECTION TO RECEIVE CASH, FIRSTENERGY SHARES OR A COMBINATION OF CASH AND
FIRSTENERGY SHARES WILL BE MAILED TO SHAREHOLDERS UNDER SEPARATE COVER BEFORE
THE EFFECTIVE TIME/CLOSING DATE, WHICH UNDER THE MERGER AGREEMENT WILL BE BY
SEPTEMBER 30, 2001, WITH POSSIBLE EXTENSIONS UP TO DECEMBER 31, 2001 OR
MARCH 31, 2002.
ILLUSTRATIONS OF EXCHANGE RATIO APPLICATION AND VALUE TO BE RECEIVED
The market price of FirstEnergy common stock will fluctuate, and the number
of outstanding shares of GPU common stock may change, between the date of this
joint proxy statement/prospectus and the effective time of the merger.
Therefore, the number of shares of FirstEnergy common stock to be issued in the
merger can be estimated, but the precise number cannot be determined at this
time.
The following table contains examples of the exchange ratio and the stock
consideration and cash paid for any fractional shares to be received by
shareholders assuming no proration occurs. The examples are based on various
average closing prices of FirstEnergy common stock over the 20-day trading
period ending on the seventh trading day before the completion of the merger and
assume that a GPU shareholder who owns 100 shares of GPU common stock elects to
receive only shares of FirstEnergy common stock as consideration. The examples
also assume that the market price of a share of FirstEnergy common stock on the
day the merger is completed is equal to the average closing price of FirstEnergy
common stock for the 20-day period and that for purposes of calculating the
amount of cash payable instead of fractional FirstEnergy shares, that the
average closing price of FirstEnergy common stock over the five-day trading
period ending on the day before the completion of the merger is equal to the
average closing price of FirstEnergy common stock for the 20-day period. For
each stated average closing price, the table indicates:
- the corresponding exchange ratio;
- the number and dollar value of whole shares of FirstEnergy common stock
that a GPU shareholder would receive;
- the amount of cash a GPU shareholder would receive for any fractional
share; and
- the total value of the FirstEnergy shares and cash for fractional shares.
<TABLE>
<CAPTION>
TOTAL VALUE OF CASH AND
STOCK CONSIDERATION TO
AVERAGE BE RECEIVED PER 100
FIRSTENERGY NUMBER OF WHOLE $ VALUE OF GPU SHARES
CLOSING FIRSTENERGY SHARES FIRSTENERGY SHARES CASH PAYMENT FOR (TO THE NEAREST WHOLE
PRICE EXCHANGE RATIO TO BE RECEIVED TO BE RECEIVED FRACTIONAL SHARE DOLLAR)
--------------------- -------------- ------------------ ------------------ ---------------- -----------------------
<S> <C> <C> <C> <C> <C>
$31.00 1.2318 123 $3,813.00 $5.58 $3,819
30.00 1.2318 123 3,690.00 5.40 3,695
29.6313 1.2318 123 3,644.65 5.33 3,650
27.00 1.3519 135 3,645.00 5.13 3,650
24.2438 1.5055 150 3,636.57 13.33 3,650
23.00 1.5055 150 3,450.00 12.65 3,463
22.00 1.5055 150 3,300.00 12.10 3,312
</TABLE>
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ACCOUNTING TREATMENT
The merger will be accounted for as a purchase in accordance with GAAP.
Under the purchase method of accounting, the post-merger common equity of
FirstEnergy will be equal to the book common equity of FirstEnergy at the time
of the merger plus the fair market value of the new shares of FirstEnergy common
stock issued to GPU shareholders in connection with the merger. The cash
consideration which will be paid to GPU shareholders will be financed with debt.
The pro forma adjustments reflected in the unaudited pro forma financial
information assume a purchase price of $36.50 for each outstanding share of GPU
common stock.
GPU's net assets must be adjusted to fair market value on FirstEnergy's
balance sheet as of the date of completion. To the extent the purchase price
exceeds the fair market value of GPU's net assets, goodwill will be recognized
on the balance sheets of GPU's subsidiaries and therefore on the post-merger
consolidated balance sheet of FirstEnergy. Any goodwill resulting from the
merger will be amortized over a period not to exceed 40 years. If the purchase
price is less than the fair market value of GPU's net assets, the value of GPU's
fixed assets will be reduced accordingly. No adjustment will be made to
FirstEnergy's pre-merger assets and liabilities in connection with the merger.
The reported income of FirstEnergy in the first financial reporting period
following completion of the merger will include GPU's results of operations only
from the date of completion of the merger forward.
REGULATORY APPROVALS
Under the merger agreement, neither FirstEnergy nor GPU will be required to
complete the merger unless they receive all regulatory approvals required in
connection with the merger other than those which if not obtained would not
reasonably be expected to have a material adverse effect on the combined
company. Even if these regulatory approvals can be obtained, neither company
will be required to complete the merger if the final regulatory orders approving
the merger would impose terms and conditions which, in the aggregate, would
reasonably be expected to have a material adverse effect on the combined
company.
Under the merger agreement, FirstEnergy and GPU have agreed to take all
action necessary to obtain all regulatory approvals required in connection with
the merger. The parties have also agreed to use their best efforts to take all
necessary, proper or advisable action to complete the merger as promptly as
possible. Various parties may seek to oppose the merger or to have conditions
imposed upon the receipt of necessary approvals. While FirstEnergy and GPU
believe that they will receive the requisite regulatory approvals for the
merger, there can be no assurance as to the timing of these approvals or the
ability of the parties to obtain such approvals on satisfactory terms. It is a
condition to the completion of the merger that final orders approving the merger
be obtained from the various federal and state governmental entities described
below, which orders do not impose terms and conditions that, in the aggregate,
would reasonably be expected to have a material adverse effect on the business,
operations, properties, assets, financial condition or reported or future
results of operations of FirstEnergy and its subsidiaries after the merger.
There can also be no assurance that any approvals will not contain terms or
conditions that cause the approvals to fail to satisfy this condition to the
completion of the merger.
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FEDERAL POWER ACT
We are required under Section 203 of the Federal Power Act to obtain the
approval of the FERC in connection with the merger. Section 203 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. 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 evaluates:
- the effect on competition;
- the effect on rates; and
- the effect on federal regulation.
FirstEnergy and GPU will shortly file an application with the FERC requesting
that the FERC approve the merger.
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
FirstEnergy is currently a holding company exempt from most provisions of
the 1935 Act. GPU is a registered holding company under that Act. FirstEnergy is
required to obtain approval from the SEC under Section 9(a)(2) of the 1935 Act
in connection with the merger. Section 9(a)(2) of the 1935 Act provides that it
is unlawful for any person to acquire any security of any public utility company
if that person owned, or by virtue of that transaction will come to own, 5% or
more of the voting securities of the public utility company and of any other
public utility company, without the prior approval of the SEC. An application
for approval of the merger under the 1935 Act will be filed by FirstEnergy.
Under the applicable standards of the 1935 Act, the SEC is directed to approve a
proposed acquisition unless it finds that:
- the acquisition would tend towards detrimental interlocking relations or a
detrimental concentration of control;
- the consideration to be paid in connection with the acquisition is not
reasonable;
- the acquisition would unduly complicate the capital structure of the
applicant's holding company system or would be detrimental to the public
interest or the interest of investors or consumers or the proper
functioning of the applicant's holding company system; or
- the acquisition would violate applicable state law. In order to approve a
proposed acquisition, the SEC must also find that the acquisition would
tend towards the economical and efficient development of an integrated
public utility system and would otherwise conform to the 1935 Act's
integration and corporate simplification standards.
FirstEnergy will be required to be registered under Section 5 of the 1935
Act when the merger is completed. At that time, FirstEnergy will become subject
to the restrictions that the 1935 Act imposes on registered holding company
systems. Among these are the requirements that certain securities issuances as
well as sales and acquisitions of interests of any other business be approved or
authorized by the SEC. The 1935 Act also limits the ability of registered
holding companies to engage in nonutility ventures and regulates any holding
company system service company and the rendering of services by holding company
affiliates to the system's utilities. The 1935 Act restrictions are not expected
to have any material adverse impact on FirstEnergy since GPU is already
regulated by and registered under the 1935 Act. In addition, FirstEnergy expects
that its current and planned non-utility investments and transactions will be
permitted under the 1935 Act. Although the SEC may, pursuant to the 1935 Act,
require the divestiture of any business that is not functionally related to the
utility business as a condition to approval of the merger, FirstEnergy and GPU
believe that all of their non-utility activities
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after completion of the merger will meet the requirements for retention by a
registered holding company.
ATOMIC ENERGY ACT
Ohio Edison and Penn Power each holds a license from the NRC authorizing it
to hold ownership or leasehold interests in the Beaver Valley Unit 1 nuclear
unit and (along with OES Nuclear Inc., which is a wholly-owned subsidiary of
Ohio Edison) the Perry Unit 1 nuclear unit. Ohio Edison also holds an NRC
license authorizing it to hold an ownership or a leasehold interest in Beaver
Valley Unit 2. Each of Cleveland Electric and Toledo Edison holds an NRC license
authorizing them to hold ownership or leasehold interests in Perry Unit 1,
Beaver Valley Unit 2 and the Davis-Besse nuclear units. The Davis-Besse facility
also includes a generally licensed independent spent fuel storage installation.
FirstEnergy Nuclear Operating Company holds NRC licenses authorizing it to
operate these FirstEnergy nuclear power plants. GPU Nuclear, Met-Ed, Jersey
Central and Penelec each holds an NRC license authorizing it to possess Three
Mile Island Unit-2. The Saxton Nuclear Experimental Corporation (an indirect,
wholly-owned subsidiary of GPU) is licensed to possess the Saxton Facility and
GPU Nuclear is licensed to possess, manage, use and maintain this facility. On
September 14, 2000, FirstEnergy formally informed the NRC, in a docketed filing,
that completion of the merger will not result in a direct or indirect transfer
of control of the operating licenses for Perry Nuclear Power Plant, the
Davis-Besse Nuclear Power Station and the Beaver Valley Power Station Units 1
and 2. After the merger, these nuclear plants will continue to be operated by
the FirstEnergy Nuclear Operating Company and will continue to be entirely owned
by wholly-owned subsidiaries of the Company, which subsidiary companies will
remain unchanged as a result of the merger. While this does not constitute a
change of control of the FirstEnergy Nuclear Operating Company plants, the
merger will result in an indirect transfer of control over the possession-only
licenses for the two plants owned by GPU, the Three Mile Island Unit-2 and the
Saxton facility. FirstEnergy also advised the NRC that FirstEnergy and GPU will
be filing joint applications with the NRC in late September 2000, requesting its
approval of the indirect transfer of control of the possession-only licenses for
Three Mile Island Unit-2 and Saxton, to the extent required by the Atomic Energy
Act.
ANTITRUST CONSIDERATIONS
The Hart-Scott-Rodino Antitrust Improvements 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
Department of Justice and the Federal Trade Commission 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, new premerger notifications would need to be submitted 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. FirstEnergy and GPU will comply with the
provisions of the HSR Act.
STATE APPROVALS AND RELATED MATTERS
PUBLIC UTILITIES COMMISSION OF OHIO. FirstEnergy believes that the approval
of the merger by the Public Utilities Commission of Ohio is not required.
PENNSYLVANIA PUBLIC UTILITY COMMISSION. Penn Power, Met-Ed and Penelec are
currently subject to the jurisdiction of the Pennsylvania Public Utility
Commission. Under Chapter 11 of the Pennsylvania Public Utility Code, any public
utility must obtain a certificate of public convenience before it (or any
affiliate) may acquire from, or transfer to, another entity the title to, or the
possession or use of, any property used or useful in the public service. In
addition, under the Pennsylvania Public Utility Commission's policy, a merger
that results in the change in control of an existing Pennsylvania public utility
(which includes a change in the controlling interest of the utility's parent)
requires the issuance
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of a certificate of public convenience by the Pennsylvania Public Utility
Commission. In accordance with Chapter 28 of the Public Utility Code, the
Pennsylvania Public Utility Commission is required to consider whether any
proposed merger is likely to result in anticompetitive or discriminatory
conduct, including the unlawful exercise of market power which prevents retail
electricity customers from realizing the benefits of a properly functioning
competitive retail market. Chapter 21 of the Pennsylvania Public Utility Code
also requires that contracts or other arrangements between and among utility
affiliates be filed with and approved by the Pennsylvania Public Utility
Commission.
The Pennsylvania courts have generally held that those seeking approval of a
utility merger must demonstrate that it will affirmatively promote the service,
accommodation, convenience or safety of the public in some material way.
GPU and FirstEnergy intend to seek the required approvals from the
Pennsylvania Public Utility Commission in accordance with the above
requirements.
NEW JERSEY BOARD OF PUBLIC UTILITIES. The transfer of the ownership or
control or the merger of GPU, as the parent company of Jersey Central, is
subject to the jurisdiction of the New Jersey Board of Public Utilities.
Pursuant to Title 48 of the New Jersey Statutes Annotated, no person may acquire
or seek to acquire control of a public utility directly or indirectly through
the medium of an affiliated or parent corporation without first requesting and
receiving approval of the New Jersey Board of Public Utilities. In addition, the
prior authorization of the New Jersey Board of Public Utilities is required for
any transfer of stock to another public utility, or a transfer that vests
another corporation with a majority interest in the stock of a public utility.
In order to approve the merger of a public utility, it has been the New
Jersey Board of Public Utilities' long standing policy in applying the statutory
criteria of Title 48 that it must determine that the proposed transaction will
not adversely impact the financial integrity of the New Jersey utility, will not
cause any adverse impact on competition, rates, employees or the provision of
safe and adequate service at just and reasonable rates, and is not contrary to
the public interest.
Pursuant to statutory provisions under which the New Jersey Board of Public
Utilities regulates relations between public utilities and affiliated persons or
entities, the New Jersey Board of Public Utilities must also approve certain
contracts or arrangements for certain services, purchases or loans between a
public utility and its affiliates.
GPU and its affiliates will seek the approvals of the New Jersey Board of
Public Utilities consistent with these requirements.
STOCK EXCHANGE LISTING; DELISTING AND DEREGISTRATION OF GPU COMMON STOCK
It is a condition to the merger that the shares of FirstEnergy common stock
to be issued in the merger to holders of shares of GPU common stock and such
other shares to be reserved for issuance in connection with the merger be
approved for listing on the New York Stock Exchange. Once the merger is
completed, GPU common stock will no longer be listed on any exchange.
RESALE OF THE SHARES OF FIRSTENERGY COMMON STOCK ISSUED IN THE MERGER; GPU
AFFILIATES
All shares of FirstEnergy common stock received by GPU shareholders in the
merger will be freely transferable, except that shares of FirstEnergy common
stock received by people who are considered to be "affiliates" (as that term is
defined under the Securities Act of 1933) of GPU prior to the merger may be
resold by them only in transactions permitted by the resale provisions of
Rules 144 or 145 promulgated under the Securities Act or as otherwise permitted
under the Securities Act. Generally, people who may be deemed to be affiliates
of GPU include individuals or entities that control, are controlled by, or are
under common control with, GPU and may include officers or directors of GPU. The
merger agreement requires GPU to use commercially reasonable efforts to cause
its affiliates to execute a written agreement to the effect that those people
will not offer or sell or otherwise dispose of any of the shares of FirstEnergy
common stock issued to them in the merger in violation of the Securities Act or
the rules and regulations of the SEC.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the GPU board of directors to vote
"FOR" approval and adoption of the merger agreement, GPU shareholders should be
aware that some directors and executive officers of GPU have certain interests
in the merger that are different from, or in addition to, the interests of GPU
shareholders generally. The GPU board recognized those interests and considered
them when it approved the merger and the merger agreement.
NEW EMPLOYMENT AGREEMENTS. FirstEnergy has agreed to enter into employment
agreements with Fred D. Hafer, the current chairman, chief executive officer and
president of GPU, and Carole B. Snyder, executive vice president--corporate
affairs of GPU Service, providing for their employment with the combined
company. Upon the execution, the agreement with Mr. Hafer will supersede his
existing severance protection agreement with GPU. See "Existing Severance
Protection Agreements" below. The agreement with Ms. Snyder will incorporate
certain terms of her severance protection agreement with GPU. We describe the
severance protection agreements between GPU and various of its executive
officers below under "Existing Severance Protection Agreements."
Mr. Hafer's employment agreement will provide for his employment as an
officer and as the chairman of the board of directors of FirstEnergy for a term
commencing at the time the merger is completed and ending when Mr. Hafer reaches
age 62; he is currently 59. The agreement will also provide for a subsequent
thirty-six month consulting arrangement.
During his term of employment with FirstEnergy after the merger, Mr. Hafer
will be entitled to receive a base salary, annual bonus and long-term incentive
opportunities and executive and employee benefits that are at least as favorable
as what he is entitled to receive immediately before the merger. Mr. Hafer will
also be entitled to participate in FirstEnergy's qualified and non-qualified
pension, retirement and deferred compensation plans. Under FirstEnergy's
retirement benefit plans, Mr. Hafer's annual retirement benefit will be no less
than the annual retirement benefit to which he is entitled under similar GPU
plans prior to the merger (less any benefits accrued under the GPU plans prior
to the merger). Mr. Hafer will be entitled to accrue additional benefits under
FirstEnergy's retirement plans during his term of employment with FirstEnergy
after the merger.
If Mr. Hafer's employment with FirstEnergy is terminated by FirstEnergy for
any reason other than for cause or by Mr. Hafer for good reason or for any
reason during a thirty-day period six months after FirstEnergy undergoes a
change in control (as defined in Mr. Hafer's agreement), Mr. Hafer will be
entitled to:
- any unpaid compensation he has earned or accrued through the date of
termination, and a pro rata portion of his target annual bonus for the
year in which his employment is terminated or, if greater, the highest
annual bonus paid to him during the preceding three years;
- a lump sum severance payment equal to three times the sum of (1) the
greater of (x) his base salary in effect at the time of termination or
(y) his base salary in effect immediately prior to the change in control
of FirstEnergy and (2) the greater of (x) the highest annual bonus paid to
him during the preceding three years, or (y) his target bonus for the year
of termination;
- medical and other welfare benefits for himself and his dependents for
thirty-six months;
- immediate exercise of all or a portion of his stock options; and
- reimbursement for all expenses he incurs for one year of outplacement
services.
Upon his retirement at age 62, or if his employment is terminated for any
reason other than under circumstances which would entitle him to the severance
payments and benefits described above, Mr. Hafer will act as a consultant to
FirstEnergy for three years. As a consultant, Mr. Hafer will render advisory and
consulting services commensurate with his status and position that FirstEnergy's
chief executive officer reasonably requests, and receive a consulting fee at an
annual rate equal to his base salary in effect at his retirement or the
termination of his employment. If Mr. Hafer's service as a consultant to
FirstEnergy is terminated for any reason other than by FirstEnergy for cause, he
will be
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entitled to any unpaid fees and expenses he has earned and accrued and a lump
sum payment equal to the consulting fees he would have received for the
remainder of the consulting term had his service not been terminated.
The proposed agreement with Mr. Hafer contains an excise tax gross-up to
make Mr. Hafer whole for any taxes or penalties imposed as a result of the
application of Sections 4999 and 280G of the Internal Revenue Code of 1986, as
amended, with respect to any payments or benefits provided to Mr. Hafer pursuant
to the agreement or otherwise.
The employment letter agreement with Ms. Snyder provides for a two-year term
of employment with FirstEnergy following the completion of the merger. During
her term of employment, Ms. Snyder will be entitled to receive a base salary,
annual bonus and long-term incentive opportunities and executive and employee
benefits that are at least as favorable as what she is entitled to receive
immediately before the merger. Ms. Snyder will also be entitled to participate
in FirstEnergy's qualified and non-qualified pension, retirement and deferred
compensation plans. Under FirstEnergy's retirement benefit plans, Ms. Snyder's
annual retirement benefit will be no less than the annual retirement benefit to
which she is entitled under similar GPU plans prior to the merger (less any
benefits accrued under the GPU plans prior to the merger). Ms. Snyder will be
entitled to accrue additional benefits under FirstEnergy's retirement plans
during her term of employment with FirstEnergy after the merger.
If Ms. Snyder's employment with FirstEnergy terminates for any reason within
two years after the completion of the merger, she will be entitled to all of the
payments and other benefits to which she would have been entitled under her
severance protection agreement with GPU had she resigned for good reason (as
defined in her severance protection agreement).
EXISTING SEVERANCE PROTECTION AGREEMENTS. Messrs. Hafer, Jolles, Chesser
and Levy and Ms. Snyder are each party to a severance protection agreement with
GPU. Under their agreements, each executive is entitled to receive the benefits
described below if his or her employment is terminated by GPU or, after the
merger by FirstEnergy for reasons other than cause, disability or death, or if
he or she resigns for good reason, during the two years following the completion
of the merger or during the year prior to the completion of the merger or
otherwise in connection with the merger.
The severance benefits payable to all executive officers consist of, in
general:
- the executive's base salary through the termination;
- a pro rata portion of the executive's target incentive bonus or, if
greater, the highest annual bonus paid to the executive in any of the
three full fiscal years prior to either termination or the change in
control, in either case reduced by any bonus payable under the GPU
incentive compensation plan for elected officers in respect of the year in
which the executive's termination occurs;
- a lump sum severance payment equal to three times the sum of (1) the
greater of (x) the executive's base salary in effect at the time of
termination or (y) his base salary in effect immediately prior to the
change in control and (2) the greater of (x) the highest annual bonus paid
to the executive during the preceding three years, or (y) his target bonus
for the year of termination;
- medical and other welfare benefits for the executive and his or her
dependents for thirty-six months;
- reimbursement of certain expenses subject to specified limitations; and
- an additional amount to reimburse the executive, on an after-tax basis,
for any excise tax under Section 4999 of the Internal Revenue Code, and
any related interest and penalties, on amounts payable under the
agreements or otherwise.
The severance protection agreements have an initial term of two years and
automatically renew annually unless earlier terminated by the executive or GPU.
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SEVERANCE POLICY. GPU's severance policy covers all employees, including
officers that are not party to a severance protection agreement. Under the
severance policy, employees whose employment is involuntarily terminated (as
defined in the policy, and including constructive termination as a result of a
reduction in a participant's base salary or target incentive award, or a
relocation in excess of 50 miles) within 18 months following a change in control
(which, as defined in the policy includes the completion of the merger) for
reasons other than cause, will receive:
- thirty days paid notice;
- severance pay equal to three weeks of base salary for each year of service
with a minimum of 26 weeks, and a maximum of 52 weeks;
- continuation of medical, dental and basic life insurance for the period
equal to the period of severance;
- outplacement benefits providing job search assistance; and
- "bridge benefits."
"Bridge benefits" enhance retirement benefits for employees not yet eligible
to retire when their employment terminates. The "bridge" allows employees who
have completed 10 years of service and who have attained age 50, but not age 55,
the opportunity to receive:
- pension benefits calculated using more favorable employer-subsidized early
retirement reduction factors rather than the actuarial reduction factors
generally applicable upon a termination of employment prior to normal
retirement;
- continued medical and life insurance benefits until age 55; and
- retiree medical and life insurance coverage upon attaining age 55 on the
same terms and conditions as if the employee had retired from GPU.
Prior to the completion of the merger, GPU has the right to provide these
severance benefits to participants, as appropriate. Employees accepting the
severance benefits will be required to sign a release of claims.
In addition, GPU has the right to enter into severance and/or retention
arrangements prior to the completion of the merger with certain key employees.
Severance payable under these arrangements will be in lieu of severance provided
under the severance policy described above. Retention arrangements will be
provided under a special retention bonus program. Generally, retention bonuses
will be paid to eligible participants who remain employed by GPU for six months
following the completion of the merger, or upon an earlier termination of
employment by GPU under certain circumstances. GPU may, however, pay out
portions of the retention bonuses to eligible participants prior to these
events.
STOCK OPTIONS AND OTHER EQUITY AWARDS. Upon completion of the merger, each
outstanding stock option to purchase GPU shares, other than options originally
granted under the stock plans of the MYR Group which were converted into options
to purchase shares of GPU shares when GPU acquired MYR, will become immediately
vested and exercisable. Subject to the next sentence, each unexpired or
unexercised option to purchase GPU shares (including those originally granted
under the stock plans of the MYR Group and converted into options to purchase
shares of GPU shares) will become an option to purchase a number of FirstEnergy
shares equal to the number of GPU shares that could have been purchased under
the GPU option multiplied by the exchange ratio. The exercise price per
FirstEnergy share will be equal to the option exercise price of the GPU option
under its terms divided by the exchange ratio. If, however, the current terms of
a GPU option entitle the holder, upon completion of the merger, to a cash
payment in respect of that option, that holder will be entitled to that cash
payment in accordance with the current terms of the option unless, within
30 days after the effective time, that holder elects, by written notice to
FirstEnergy, that the holder's GPU option will become a FirstEnergy option.
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At the effective time, all outstanding performance units granted under the
GPU stock plans will, in accordance with their terms, vest and become payable
and all deferred vested units may, in accordance with their terms and prior
elections made by the holders, vest and become payable upon the completion of
the merger. Each holder of a GPU stock unit which becomes payable upon the
completion of the merger will be entitled to receive at the effective time:
- if the GPU stock units are payable in cash, a cash payment calculated as
described in the merger agreement;
- if the GPU stock unit is payable in stock, a number of FirstEnergy shares
calculated as described in the merger agreement.
Each GPU deferred unit that does not become payable upon completion of the
merger, will, at the written election of its holder delivered to FirstEnergy
within 30 days after the effective time, be converted into either:
- a deferred vested unit covering a number of FirstEnergy shares calculated
as described in the merger agreement; or
- a deferred cash account to be established and maintained by FirstEnergy or
one of its subsidiaries with an initial balance calculated as described in
the merger agreement, which balance thereafter will be credited with
interest until paid.
INCENTIVE COMPENSATION PLAN FOR ELECTED OFFICERS. This is GPU's annual
incentive program for certain eligible elected officers of GPU. Awards to
individual elected officers are based on the achievement of objectives set for
GPU elected officers. Upon a change in control (which, as defined in the plan,
includes the completion of the merger), awards for the period in which the
change in control occurs, and the previous period if awards have not yet been
paid, will be determined as follows:
- all objectives for the then current performance period will be deemed 100%
achieved; and
- each executive officer who prior to the change in control was eligible to
receive an award for the then current performance period will be entitled
to an award, and executive officers whose employment terminated during the
performance period in which the change in control occurred will receive a
pro rata award.
DEFERRED COMPENSATION PLAN. Elected officers and certain other highly
compensated employees may defer all or a portion of their current compensation
under the deferred compensation plan and may receive additional contributions to
their deferral accounts under the plan to account for the company matching
contributions the participants would otherwise have received under GPU's
tax-qualified savings plan but for certain limitations imposed by the Internal
Revenue Code.
Plan participants may elect, in accordance with certain plan procedures, to
receive a lump sum distribution of their accounts under the deferred
compensation plan upon:
- a change in control (which, as defined in the plan, includes completion of
the merger);
- a termination of employment within two years following a change in
control; or
- upon a change in control following a termination of employment, provided
the participant's full account has not been previously paid.
In addition, a participant may make a lump sum distribution election, or
revoke a previous election, commencing on the date of the first public
announcement of the merger through the 45th day following this announcement, and
may elect during this period to receive his or her account balance in a lump sum
in the event of an involuntary termination within twelve months following the
public announcement.
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SUPPLEMENTAL AND EXCESS BENEFITS PLAN AND SUPPLEMENTAL EXECUTIVE RETIREMENT
PLAN. GPU maintains the supplemental and excess benefits plan for its officers
and other highly compensated employees which provides supplemental retirement
benefits over certain limits imposed by the Internal Revenue Code. GPU also
maintains the supplemental executive retirement plan for certain executive
officers which provides a supplemental retirement benefit equal to 2% of the
participant's average annual compensation for the 36 highest paid months of
employment per year of creditable service under the supplemental executive
retirement plan, up to 30 years. The benefits under the supplemental executive
retirement plan are offset by other specified sources of retirement income.
Under these plans, participants may elect, in accordance with certain plan
procedures, to receive a lump sum distribution of their benefits upon:
- a termination of employment within two years following a change in control
(which, as defined in the plans, includes completion of the merger); or
- upon a change in control following a termination of employment, provided
all of the benefits required to be paid to the participant have not
previously been paid.
In addition, a participant may make a lump sum distribution election, or
revoke a previous election, commencing on the date of the first public
announcement of the merger through the 45th day following this announcement, and
may elect during this period to receive his or her account balance in a lump sum
in the event of an involuntary termination or death within twelve months
following the public announcement.
Under the terms of these plans, if a participant's employment is terminated
within 24 months following a change in control by reason of an involuntary
termination, the participant's supplemental retirement benefits will be
calculated based on more favorable employer-subsidized early retirement
reduction factors rather than the actuarial reduction factors generally
applicable upon a termination of employment prior to normal retirement. Subject
to completion of the merger, if the employment of a participant in the
supplemental executive retirement plan is terminated for any reason following
the merger, or upon an involuntary termination after August 8, 2000 and prior to
completion of the merger, he or she will be entitled to supplemental retirement
benefits calculated as if he or she had an additional five years of creditable
age and service added to his or her actual years of creditable age and service.
SUPPLEMENTAL PENSION LETTER AGREEMENTS WITH IRA JOLLES AND MICHAEL
CHESSER. The supplemental pension letter agreements with Messrs. Jolles and
Chesser provide generally, that upon retirement, the executive will be entitled
to receive a supplemental pension in addition to the benefits payable under
GPU's other retirement plans. In the event Mr. Jolles' employment is terminated
within 24 months following a change in control by reason of an involuntary
termination or by GPU without cause, then his supplemental pension benefits will
be calculated as if he had twenty years of past creditable service in addition
to his actual years of creditable service. In the event Mr. Chesser's employment
is terminated within 24 months following a change in control by reason of an
involuntary termination or by GPU without cause, he will be entitled to his
supplemental pension regardless of whether he has completed five years of
service and the supplemental pension will be calculated based on more favorable
employer-subsidized early retirement reduction factors rather than the actuarial
reduction factors generally applicable upon a termination of employment prior to
normal retirement.
Generally, the supplemental pension benefits are payable as an annuity.
However, the executive officer may elect, in accordance with procedures set
forth in the agreements, to have the supplemental pension benefits paid as a
lump sum,
- in the event of a termination of employment within the two-year period
following the occurrence of a change in control (which, as defined in the
agreements, includes completion of the merger); or
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- in the event of a change in control following the executive's termination
of employment, provided all payments required to be paid have not
previously been paid.
In addition, the executive may make a lump sum distribution election, or
revoke a previous election, commencing on the date of the first public
announcement of the merger through the 45th day following this announcement, and
may elect during this period to receive his account balance in lump sum in the
event of an involuntary termination or death within twelve months following the
public announcement.
SPLIT DOLLAR LIFE INSURANCE ARRANGEMENTS. GPU maintains split-dollar life
insurance coverage for certain senior officers. In the event of a change in
control (which, as defined in the arrangements, includes completion of the
merger), premium payments will continue to be made under the split-dollar
arrangements through the last premium due date, as applicable.
DIRECTOR PLANS. Under the retirement plan for outside directors, which was
frozen as to future benefit accruals on June 30, 1997, upon a change in control
(which, as defined in the plan, includes completion of the merger) outside
directors are eligible for benefits without having completed the 54 months of
service generally required for vesting.
Under the retirement plan for outside directors and the deferred
remuneration plan for outside directors, directors may elect to receive benefits
accrued under these plans in a lump sum payment upon:
- the director's termination of service upon a change in control (which, as
defined in the plans, includes completion of the merger); or
- upon a change in control following the director's termination of service,
provided all of the benefits required to be paid to the director have not
previously been paid.
Under each of these outside director plans and the deferred stock unit plan
for outside directors:
- for a 45-day period following the execution of the merger agreement,
directors may make special change in control lump sum distribution
elections or revoke previous change in control distributions elections;
- provided the director has not retired prior to the merger, the director's
retirement date will be the date of the merger unless the director elects
to serve on the board of the combined company; and
- if a director becomes a member of the board of the combined company,
during the 45 days following the execution of the merger agreement or on
any other day at least one year prior to the completion of the merger, the
director may elect to designate his retirement date as the date of
resignation from the board of the combined company, rather than the date
of the merger.
RABBI TRUSTS. GPU maintains benefit protection trust agreements to be used
to fund its obligations to executive officers and directors under deferred
compensation and incentive programs and agreements, and certain retirement and
termination benefits, in the event of a change in control (which, as defined by
the trusts, includes the completion of the merger). The trusts are currently
partially funded.
Within 30 days following the merger, FirstEnergy must make an irrevocable
contribution to each trust in an amount necessary to fully fund each trust.
Thereafter, FirstEnergy must maintain the funded status of the trusts with
additional irrevocable contributions every 60 days. In addition, following the
merger, FirstEnergy may not direct the trustee to return any of the trust assets
to FirstEnergy before all participants have received payment of all benefits
under any plan or arrangement covered by the trust, and the trustee may only
invest the assets of each trust in limited permitted investments.
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The discussion below is the opinion of Winthrop, Stimson, Putnam & Roberts,
outside counsel to FirstEnergy, and Fried, Frank, Harris, Shriver & Jacobson,
outside counsel to GPU, as to the material U.S. federal income tax consequences
of the merger to FirstEnergy, GPU and the holders of GPU or FirstEnergy common
stock who are citizens or residents of the United States or that are domestic
corporations. The discussion below:
- is based upon current provisions of the Internal Revenue Code, currently
applicable Treasury regulations promulgated thereunder, and judicial and
administrative decisions, all of which are subject to change, possibly
with retroactive effect;
- does not purport to address all aspects of U.S. federal income taxation
that may affect particular shareholders in light of their particular
circumstances, that are generally assumed to be known by investors or that
may affect shareholders to which special provisions of the U.S. federal
income tax laws may apply based on their particular circumstances or
status (see "Qualifications" below);
- assumes that the shares of GPU common stock are held as capital assets;
and
- assumes that the merger and related transactions will take place in
accordance with all of the terms and conditions of the merger agreement
and as described in this joint proxy statement/ prospectus without the
waiver or modification of any of those terms or conditions.
In addition, no information is provided in this document with respect to the
tax consequences of the merger under foreign, state or local laws.
Neither FirstEnergy nor GPU has requested a ruling from the Internal Revenue
Service with regard to any of the U.S. federal income tax consequences of the
merger. The opinions of counsel will not be binding on the Internal Revenue
Service and there can be no assurance that the IRS or the courts will not take a
contrary view.
CLOSING TAX OPINIONS
As conditions to their respective obligations to complete the merger, which
conditions neither FirstEnergy nor GPU intends to waive without GPU and
FirstEnergy resoliciting proxies from shareholders of GPU and FirstEnergy,
FirstEnergy must receive an opinion, dated as of the closing date of the merger,
of Winthrop, Stimson, Putnam & Roberts or other counsel satisfactory to
FirstEnergy, and GPU must receive an opinion, dated as of the closing date of
the merger, of Fried, Frank, Harris, Shriver & Jacobson or other counsel
satisfactory to GPU, subject to the assumptions set forth below, to the effect
that, based upon present U.S. federal income tax law, the merger will be treated
as a "reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code.
These opinions will be based on, among other things:
- certain factual representations and statements of FirstEnergy and GPU;
- the assumption that those representations and statements will be complete
and accurate as of the effective time of the merger;
- the assumption that the merger and related transactions will take place in
accordance with all of the terms and conditions of the merger agreement
and as described in this proxy statement/ prospectus; and
- considerations relating to the value of the FirstEnergy common stock
received in the merger.
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The following discussion, which assumes that the merger will be treated as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, addresses the material U.S. federal income tax consequences of the merger
to a GPU shareholder.
CONSEQUENCES TO GPU SHAREHOLDERS
ONLY SHARES OF FIRSTENERGY COMMON STOCK RECEIVED. Except as discussed below
with respect to cash received in lieu of a fractional share of FirstEnergy
common stock, a GPU shareholder that receives solely shares of FirstEnergy
common stock in exchange for the holder's shares of GPU common stock will not
recognize gain or loss. The tax basis of the shares of FirstEnergy common stock
received in the merger will be the same as the tax basis of the exchanged shares
of GPU common stock. The holding period of the shares of FirstEnergy common
stock received in the merger will include the holding period of the exchanged
shares of GPU common stock.
ONLY CASH RECEIVED. A GPU shareholder that receives solely cash in the
merger in exchange for the shareholder's shares of GPU common stock generally
will recognize capital gain or loss measured by the difference between the
amount of cash received and the tax basis of the exchanged shares of GPU common
stock. This capital gain or loss will be long-term capital gain or loss if the
shareholder's holding period with respect to its GPU common stock exceeds one
year as of the effective time of the merger. If, however, a shareholder that
receives solely cash in the merger constructively owns shares of GPU common
stock before the merger for which consideration other than cash will be
received, or actually or constructively owns shares of FirstEnergy common stock
after the merger, the consequences to the shareholder may be similar to those
discussed below under "Shares of FirstEnergy Common Stock and Cash
Received--Treatment of Gain Recognized," except that the amount of consideration
treated as a dividend might not be limited to the amount of the shareholder's
gain realized in the transaction. See also "Shares of FirstEnergy Common Stock
and Cash Received--Effect of Overlapping or Constructive Ownership" for a
general discussion of the effect of a shareholder's overlapping or constructive
ownership on the dividend/capital gain issue.
SHARES OF FIRSTENERGY COMMON STOCK AND CASH RECEIVED
GENERAL. Except as discussed below with respect to cash received in lieu of
a fractional share of FirstEnergy common stock, a GPU shareholder that receives
both shares of FirstEnergy common stock and cash in exchange for shares of GPU
common stock will recognize gain equal to the lesser of:
(a) the amount, if any, by which the sum of the cash and fair market
value, as of the effective time of the merger, of FirstEnergy common stock
received with respect to each share of GPU common stock exceeds the
shareholder's tax basis in each exchanged share of GPU common stock; and
(b) the amount of cash received.
No loss will be recognized in the exchange. For this purpose gain or loss
must be calculated separately for each identifiable block of shares surrendered
in the exchange, and a loss realized on one block of shares cannot be used to
offset a gain realized on another block of shares. Any recognized capital gain
will be long-term capital gain if the shareholder's holding period with respect
to its GPU common stock exceeds one year as of the effective time of the merger.
TREATMENT OF GAIN RECOGNIZED. Any gain recognized will be taxed as gain
from the sale or exchange of stock, except in the circumstances described in
this paragraph. These circumstances primarily include cases where there is
overlapping or constructive ownership or where the stock election is
oversubscribed. A GPU shareholder will be required to treat any gain recognized
as a dividend, to the extent of the shareholder's ratable share of earnings and
profits, if, as a result of the deemed redemption described in step (2) below,
the shareholder's interest in FirstEnergy was not reduced sufficiently to cause
the cash received to be not "essentially equivalent to a dividend" under
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Section 302 of the Internal Revenue Code. Whether a shareholder's interest was
reduced sufficiently to cause the cash received to be not "essentially
equivalent to a dividend" requires a determination based on a shareholder's
particular facts and circumstances. However, the Internal Revenue Service has
indicated in published rulings that a distribution that results in any reduction
in interest of a small, minority shareholder in a publicly held corporation will
sufficiently reduce the shareholder's interest in the corporation if the
shareholder exercises no control with respect to corporate affairs. In addition,
if the deemed redemption described in step (2) below is "substantially
disproportionate" with respect to the shareholder, the gain recognized will be
taxed as capital gain. The deemed redemption generally will be substantially
disproportionate if the percentage of FirstEnergy common stock owned after the
deemed redemption described in step (2) below is less than 80 per cent of the
percentage of FirstEnergy common stock owned after step (1) below.
For purposes of determining whether a shareholder's interest has been
reduced, a GPU shareholder will be treated as if the shareholder had engaged in
a hypothetical transaction in which the shareholder and all other GPU
shareholders (though it is unclear whether GPU shareholders who receive solely
cash in the merger are counted for this purpose) (1) received solely shares of
FirstEnergy common stock in exchange for all of their shares of GPU common
stock, and (2) thereafter had a portion of those shares of FirstEnergy common
stock redeemed for the cash portion of the merger consideration. A GPU
shareholder's hypothetical interest in FirstEnergy after step (1) is compared to
the shareholder's interest in FirstEnergy subsequent to the deemed redemption in
step (2). In each case, subject to limited exceptions, shares of FirstEnergy
common stock actually or constructively owned, under the constructive ownership
rules described in "Effect of Overlapping or Constructive Ownership" below, by a
shareholder will be considered owned for purposes of applying these tests.
EFFECT OF OVERLAPPING OR CONSTRUCTIVE OWNERSHIP. Under the applicable
constructive ownership rules of Section 318 of the Internal Revenue Code, a
shareholder will, in general, be treated as owning shares owned by some family
members and other related entities, or that are subject to options owned or
deemed owned by that person. The actual or constructive ownership of shares of
FirstEnergy or GPU common stock may have the effect of causing a GPU shareholder
that would otherwise qualify for capital gain treatment to fail to so qualify
and subject the shareholder to dividend treatment on the cash portion of the
merger consideration to the extent of the shareholder's ratable share of
earnings and profits, even if the shareholder receives solely cash in the
merger. Therefore, GPU shareholders that:
- constructively own shares of GPU common stock, or
- actually or constructively own shares of FirstEnergy common stock,
should consult their tax advisors as to the tax consequences of receiving cash,
whether or not the shareholder intends to make a stock election.
TAX BASIS AND HOLDING PERIOD OF SHARES OF FIRSTENERGY COMMON STOCK RECEIVED
IN THE MERGER. The tax basis of the shares of FirstEnergy common stock received
in the merger will be the same as the tax basis of the exchanged shares of GPU
common stock, increased by the amount of gain recognized on the exchange with
respect to those shares of GPU common stock, decreased by the tax basis of any
portion of those shares of GPU common stock which are converted into cash in
lieu of receipt of a fractional share of FirstEnergy common stock, and further
decreased by the amount of cash received with respect to those shares of GPU
common stock, other than cash received in lieu of a fractional share interest.
The holding period of the shares of FirstEnergy common stock received will
include the holding period of the exchanged shares of GPU common stock.
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FRACTIONAL SHARES
A GPU shareholder that receives cash in lieu of a fractional share of
FirstEnergy common stock should be treated as having received the fractional
share of FirstEnergy common stock and then having exchanged the fractional share
for cash in a redemption by FirstEnergy. Gain or loss recognized as a result of
that exchange would generally be equal to the cash amount received for the
fractional share of FirstEnergy common stock less the proportion of the
shareholder's tax basis in shares of GPU common stock exchanged and allocable to
the fractional share of FirstEnergy common stock. It is possible, however, that
the cash received in lieu of a fractional share of FirstEnergy common stock
would instead be treated in the same manner as other cash received in the
merger. See "Shares of FirstEnergy Common Stock and Cash Received."
QUALIFICATIONS
As noted above, the foregoing discussion does not address aspects of U.S.
federal income taxation that may be relevant to GPU shareholders to which
special provisions of the U.S. federal income tax law may apply based on their
particular circumstances or status. For example, the discussion does not address
aspects of U.S. federal income taxation that may be relevant to:
- dealers in securities or currencies;
- traders in securities;
- financial institutions;
- tax-exempt organizations;
- insurance companies;
- persons holding shares of GPU common stock as part of a hedging,
"straddle," conversion or other integrated transaction;
- non-United States persons;
- persons whose functional currency is not the United States dollar;
- persons who acquired their shares of common stock through the exercise of
employee stock options or otherwise as compensation; or
- shareholders that exercise dissenters' rights.
CONSEQUENCES TO FIRSTENERGY SHAREHOLDERS
FirstEnergy shareholders (other than those that exercise dissenters' rights)
will not recognize gain or loss as a result of the merger.
CONSEQUENCES TO FIRSTENERGY AND GPU
Neither FirstEnergy nor GPU will recognize gain or loss as a result of the
merger.
THE PRECEDING DISCUSSION SETS FORTH THE MATERIAL U.S. FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER BUT DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR
DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT THERETO. THUS, GPU SHAREHOLDERS
ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES
TO THEM OF THE MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS, WHETHER
GAIN, IF ANY, WILL BE TREATED AS CAPITAL GAIN OR A DIVIDEND, THE APPLICABILITY
AND EFFECT OF U.S. FEDERAL, STATE, LOCAL AND OTHER APPLICABLE TAX LAWS AND THE
EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS.
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DIVIDEND REINVESTMENT PLAN HOLDERS
Some GPU shareholders hold all or part of their shares under GPU's Dividend
Reinvestment and Stock Purchase Plan. The GPU Dividend Reinvestment and Stock
Purchase Plan will be terminated upon the completion of the merger. GPU
shareholders who hold GPU shares under this plan will, like all other GPU
shareholders, have the opportunity to elect to receive cash or FirstEnergy
shares in exchange for their GPU shares held under the plan. Each FirstEnergy
share issued in respect of a GPU share held under GPU's plan will be issued
through and held under, and dividends on that FirstEnergy share will be
reinvested in accordance with the terms of, FirstEnergy's Stock Investment Plan
unless the shareholder elects otherwise.
DISSENTERS' RIGHTS
Dissenters' rights are available to shareholders of both FirstEnergy and
GPU. Under Ohio law, FirstEnergy shareholders have the right to exercise
dissenters' rights with respect to the merger and to receive the "fair cash
value" of their shares of FirstEnergy common stock. This amount may be more,
less, or the same as the market value of the shares of FirstEnergy common stock
on the date the merger is consummated. Under Pennsylvania law, GPU shareholders
have the right to exercise dissenters' rights with respect to the merger and to
demand payment of the "fair value" of their shares of GPU common stock, in lieu
of the consideration that FirstEnergy is offering to GPU shareholders in the
merger. This amount may be more or less than the value of what you otherwise may
receive in the merger.
For a more complete discussion of dissenters' rights, see "Rights of
Dissenting Shareholders" on pages 82-85. In addition, copies of the relevant
provisions of Ohio and Pennsylvania law are included in Appendices D and E,
respectively, to this joint proxy statement/prospectus.
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THE MERGER AGREEMENT
THE FOLLOWING SUMMARY OF THE MERGER AGREEMENT IS QUALIFIED IN ITS ENTIRETY
BY THE TERMS OF THE MERGER AGREEMENT ATTACHED AS APPENDIX A TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. WE URGE YOU TO READ THE MERGER AGREEMENT IN ITS ENTIRETY.
GENERAL
The merger agreement provides that GPU will merge with and into FirstEnergy,
and FirstEnergy will continue as the surviving corporation.
The merger agreement also provides that, as of the effective time of the
merger, the articles of incorporation of FirstEnergy will be amended to increase
the authorized number of shares of FirstEnergy common stock from 300,000,000 to
375,000,000.
The closing of the merger will occur no later than the second business day
after the date upon which all conditions to the merger have been met or, if
permissible, waived, or at such other time as GPU and FirstEnergy agree. On the
date of the closing, FirstEnergy will deliver a certificate of merger to the
Secretary of State of the State of Ohio, and GPU will deliver articles of merger
to the Department of State of the Commonwealth of Pennsylvania, for filing. The
merger will become effective upon filing the certificate and the articles or at
a later time that is agreed upon by GPU and FirstEnergy and is specified in the
certificates.
REPRESENTATIONS AND WARRANTIES
In the merger agreement, GPU and FirstEnergy each make customary
representations and warranties about themselves, their respective subsidiaries
and their businesses, financial condition, organizational structure and other
facts pertinent to the merger.
The representations and warranties made by each party in the merger
agreement will not survive past the effective time. GPU or FirstEnergy may
decline to complete the merger if the other party's representations and
warranties are inaccurate and those inaccuracies would reasonably be expected to
have a material adverse effect on that other party.
COVENANTS GOVERNING BUSINESS CONDUCT
Both FirstEnergy and GPU have agreed to comply with various covenants
governing the conduct of their respective businesses during the period prior to
the time we complete the merger. A party's obligation under its covenants may be
waived with the consent of the other party, which may not be unreasonably
withheld.
The following describes covenants applicable to both FirstEnergy and GPU,
covenants applicable only to GPU and covenants applicable only to FirstEnergy.
MUTUAL COVENANTS. FirstEnergy and GPU, with specified exceptions, each have
agreed until the merger is completed:
- to carry on its businesses, and those of its subsidiaries, in all material
respects in the ordinary course;
- not to declare or pay any dividends on or make other distributions to
shareholders other than regular quarterly cash dividends on common stock
of not more than $0.545 per share for GPU and $0.375 per share for
FirstEnergy and regularly scheduled dividends on preferred securities of
subsidiaries;
- not to split, combine or reclassify any of its capital stock or issue any
other securities in respect of its capital stock;
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- not to repurchase any of its outstanding shares except for repurchases
required under the terms of, or in connection with, the refinancing of
outstanding preferred stock of subsidiaries or for the purpose of funding
employee stock ownership plans, equity compensation and dividend
reinvestment and stock purchase plans;
- not to issue, deliver or sell any shares of their 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 except for issuances of equity-based compensation
in amounts consistent with past practice and in the ordinary course of
business and, in the case of FirstEnergy, in connection with permitted
acquisitions;
- except for specified indebtedness, not to incur or guarantee any
indebtedness for borrowed money or issue or sell any debt securities or
non-convertible preferred securities or guarantee any debt securities; and
- not to make any changes in its accounting methods, except as required by
law, rule, regulation or GAAP.
GPU'S COVENANTS. GPU, with specified exceptions, has agreed until the
merger is completed:
- not to acquire or agree to acquire any business or any entity or division
of any entity that would constitute a significant subsidiary of GPU or any
assets not in the ordinary course of business and except as provided for
in GPU's capital budget;
- except for specified acquisitions and transactions, not to enter into a
new line of business or make any change in the lines of business it
engages in;
- except for specified dispositions, not to dispose of any of its assets (or
agree to do so) not in the ordinary course of business;
- not to increase the compensation or fringe benefits of any director or
officer of GPU except for normal increases in the ordinary course of
business that, in total, do not result in a material increase in benefits
or compensation expense;
- not to enter into or amend any GPU benefit plan or any employment,
severance or special pay arrangement with respect to the termination of
employment or other similar contract, agreement or arrangement with any
director or officer or other employee of GPU or any of its subsidiaries;
- except as required by law or to provide or maintain reliable electric
service, not to make any annual capital expenditures in excess of GPU's
existing capital budget for 2000 or any capital budget for future time
periods adopted in accordance with GPU's past practice after consultation
with FirstEnergy; and
- not to take any action that would or is reasonably likely to prevent,
materially delay or impede the completion of the merger.
FIRSTENERGY'S COVENANTS. FirstEnergy, with specified exceptions, has agreed
until the merger is completed:
- not to enter into a new line of business, make any change in the lines of
business it engages in, dispose of or acquire assets, by merger or
otherwise, or divest liabilities, or permit its subsidiaries to do so,
unless such action would not delay the merger beyond September 30, 2001
and would meet other specified conditions;
- not take any action, other than entering into an acquisition otherwise
permitted by the merger agreement that would or is reasonably likely to
prevent, materially delay or impede the completion of the merger; and
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- not to sell, lease, license or otherwise dispose of any of the shares of
common stock of Ohio Edison, Cleveland Electric, Toledo Edison or Penn
Power.
NO SOLICITATION OF TAKEOVER PROPOSALS
GPU and FirstEnergy also agreed to certain restrictions concerning "Takeover
Proposals." These are defined in the merger agreement as follows:
- "GPU Takeover Proposal" is defined to mean any tender or exchange offer,
proposal for a merger, consolidation or other business combination
involving GPU or any significant subsidiary of GPU or any proposal or
offer to acquire in any manner:
(i) a 20% or greater common equity interest (including any security
convertible into, exchangeable or exercisable for, or otherwise
entitling the owner thereof to acquire such common equity interest) in,
or 20% or more of the assets on a consolidated basis of, GPU, other than
the merger, or
(ii) any equity interest (other than non-convertible preferred securities)
in the assets, other than in the ordinary course, and certain other
dispositions of GPU's subsidiaries, Jersey Central, Met-Ed or Penelec.
- "FirstEnergy Takeover Proposal" is defined to mean any tender or exchange
offer, proposal for a merger, consolidation or other business combination
involving FirstEnergy or any significant subsidiary of FirstEnergy or any
proposal or offer to acquire in any manner, by any person or a group of
affiliated persons, a 20% or greater common equity interest (including any
security convertible into, exchangeable or exercisable for, or otherwise
entitling the owner thereof to acquire such common equity interest) in, or
20% or more of the assets on a consolidated basis of, FirstEnergy, other
than the merger.
Specifically, GPU and FirstEnergy have agreed that each will promptly advise
the other orally and in writing of any Takeover Proposals or possible inquiries
concerning a Takeover Proposal, and that it will not, and it will not permit any
of its subsidiaries, officers, directors or employees or other representative
retained by it or its subsidiaries to:
- solicit or encourage, or take any other action to facilitate, the making
of a Takeover Proposal; or
- agree to, or unless in the case of GPU, a good faith determination is made
by its board of directors that a change or modification to the
recommendation to vote in favor of this merger is required pursuant to its
fiduciary duties under applicable law or its other legal obligations as
directors, endorse, recommend or approve any Takeover Proposal.
Nonetheless, unless shareholder approval for the merger has been obtained,
if the board of directors of GPU or FirstEnergy determines in good faith, after
consultation with outside counsel, that its fiduciary duties under applicable
law so require, that party may participate in discussions or negotiations and
furnish information in connection with a possible Takeover Proposal.
ADDITIONAL AGREEMENTS
In addition to the covenants above and certain other matters, the parties
have also agreed on the following matters:
DIRECTORS. At the effective time, the surviving corporation's board of
directors will consist of sixteen directors, ten of whom will be designated by
FirstEnergy's current board of directors and six of whom will be designated by
GPU's current board of directors, prior to the effective time of the merger.
GPU DESIGNATED DIRECTORS. Prior to the effective time, GPU will determine
how the GPU designated directors will be allocated among the three classes of
FirstEnergy's board of directors so long as two of those directors are allocated
to each class. If, during the two-year period following the
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effective time of the merger, there are fewer than six directors on the
FirstEnergy board of directors who were either initially designated to the
FirstEnergy board by GPU or subsequently appointed by the FirstEnergy board to
replace a director initially designated by GPU, the vacancy or vacancies will be
filled by the appointment of a person or persons recommended by not less than
80% of the remaining members of the then existing FirstEnergy board of
directors. In addition, at all times during this two-year period, the chairman
of at least one of the standing committees of FirstEnergy's board of directors
must be a director initially designated by GPU or a director who replaced such
an individual.
OFFICERS. Fred D. Hafer, current chairman, president and chief executive
officer of GPU, will serve as chairman of FirstEnergy from the effective time
until he reaches the age of 62 or is no longer willing or able to so serve.
Mr. Hafer was 59 as of October 12, 2000. In addition, from the effective time
until otherwise determined by the board of directors after the merger, Mr. H.
Peter Burg, currently chairman and chief executive officer of FirstEnergy, will
serve as vice chairman and chief executive officer of FirstEnergy and will
assume the role of chairman upon retirement of Mr. Hafer. All other officers of
the surviving corporation will be designated by the surviving corporation's
board of directors.
EMPLOYEE BENEFIT PLANS. FirstEnergy and GPU have agreed to continue GPU
employee benefit plans after the merger, to the extent practicable. If a GPU
employee benefit plan is terminated, non-union individuals will be allowed to
participate in a similar FirstEnergy employee benefit plan. In such a case, the
affected GPU employees will receive credit for their GPU service, and any
pre-existing condition exclusions and actively-at-work requirements will be
waived. Expenses incurred before the merger will be taken into account in
determining whether deductible, co-insurance and maximum out-of pocket
provisions are satisfied.
After the merger, non-union GPU employees will:
- retain the amount of accrued but unused vacation and sick leave to which
such employees were entitled prior to the merger;
- be eligible to participate in all job placement, job posting, job
training, career development and educational programs of FirstEnergy and
its subsidiaries; and
- be considered for positions at FirstEnergy and its subsidiaries resulting
from the merger using criteria including previous work history, job
experience and qualifications.
EMPLOYEE AND COLLECTIVE BARGAINING AGREEMENTS. The surviving corporation
and its subsidiaries will honor, without modification, all contracts,
agreements, collective bargaining agreements and commitments of the parties
which apply to any current or former employee or director of the parties that
were entered into before or on August 8, 2000; made in the merger agreement; or
permitted to be entered into prior to the effective time pursuant to the merger
agreement. However, the surviving corporation may enforce 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.
EXPENSES. Except for the expense of printing, filing and mailing this joint
proxy statement/ prospectus, out-of-pocket costs incurred to obtain regulatory
approvals and other out-of-pocket expenses of a joint nature (all of which
FirstEnergy and GPU will share equally), and except as described under
"Termination, Amendment and Waiver" below, GPU and FirstEnergy will pay their
own costs and expenses incurred in connection with the merger.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES; INSURANCE. GPU and
FirstEnergy and, after the effective time of the merger, the surviving
corporation are each required to indemnify any person who is now or has been, or
who will be prior to the effective time of the merger, a director, officer or
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employee of GPU or FirstEnergy, as the case may be, under various circumstances.
In addition, with limited exceptions, the surviving corporation must maintain
the directors' and officers' liability insurance policies currently maintained
by GPU and FirstEnergy for a period of six years after the effective time of the
merger.
TRANSITION MANAGEMENT. GPU and FirstEnergy will create a special transition
management task force made up of representatives of GPU and FirstEnergy (as
designated by Mr. Burg in consultation with Mr. Hafer) whose functions will
include:
- serving as a conduit for the flow of information and documents between the
companies and their subsidiaries, to the extent permitted by law;
- developing regulatory plans and proposals, corporate organizational and
management plans, workforce combination proposals, and such other matters
as they deem appropriate; and
- evaluating and recommending the manner in which best to organize and
manage the business of the surviving corporation.
The transition management task force will be headed by Mr. Burg (or an
individual designated by him or the board of directors of FirstEnergy) who will
be responsible for directing all of its activities.
CHARITABLE COMMITMENTS. For a minimum of three years after the effective
time of the merger, the surviving corporation will maintain GPU's charitable
commitments substantially at current levels in the communities in which GPU's
subsidiaries, Jersey Central, Met-Ed and Penelec, currently serve. After this
three-year period, FirstEnergy and GPU intend that the surviving corporation
will make charitable commitments in a manner substantially similar to what
FirstEnergy's subsidiaries do in the communities they currently serve.
OFFICES AND NAME. After the effective time, subject to the discretion of
the surviving corporation's board of directors, the surviving corporation will
maintain GPU's current offices and presence in their current general locations
in Morristown, New Jersey and Reading, Pennsylvania. The surviving corporation's
headquarters will be in Akron, Ohio. The surviving corporation also will
continue to use the "GPU Energy" name, reflecting also the affiliation with
FirstEnergy, until otherwise determined by the surviving corporation.
CONDITIONS
MUTUAL CONDITIONS. Before either GPU or FirstEnergy will be obligated to
complete the merger, the following conditions must have been satisfied:
- the shareholders of FirstEnergy and GPU must have adopted the merger
agreement;
- the New York Stock Exchange must have authorized for listing the
FirstEnergy shares to be issued in the merger and other FirstEnergy shares
that are required to be reserved for issuance in connection with the
merger, including to satisfy exercises of GPU options after the merger;
- all necessary regulatory and governmental approvals must have been
received as final orders except those approvals which if not obtained
would not be reasonably expected to result in a material adverse effect on
the combined company, and these approvals would not impose terms and
conditions that would reasonably be expected to result in a material
adverse effect on the surviving corporation or its subsidiaries;
- the registration statement pertaining to the FirstEnergy shares to be
issued in connection with the merger, of which this joint proxy
statement/prospectus forms a part, must not be the subject of any stop
order or proceedings seeking a stop order under Section 8 of the
Securities Act; and
- no injunction or other order issued by any court of competent jurisdiction
or other legal restraint or prohibition is in effect which prevents the
completion of the merger.
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CONDITIONS TO OBLIGATIONS OF FIRSTENERGY. Before FirstEnergy will be
obligated to complete the merger, the following additional conditions must have
been satisfied or, except for the tax opinion condition described below, waived
by FirstEnergy:
- the representations and warranties of GPU in the merger agreement must be
true and correct in all material respects. The representations and
warranties may contain inaccuracies if, taken together, they would not
reasonably be expected to have a material adverse effect on GPU;
- GPU must have performed in all material respects all its obligations
required under the merger agreement;
- FirstEnergy's outside counsel must have furnished it with an opinion to
the effect that the merger will be treated as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code;
- the GPU's shareholders' rights plan must not have been triggered;
- since August 8, 2000, there shall be no new or amended law, regulation,
ruling, order or decree (or new interpretation of any of these) affecting
GPU or any of its subsidiaries that would have a material adverse effect
on the surviving corporation; and
- there must not have been any event since June 30, 2000 which would have a
material adverse effect on GPU.
CONDITIONS TO OBLIGATIONS OF GPU. Before GPU will be obligated to complete
the merger, the following additional conditions must have been satisfied or,
except for the tax opinion condition described below, waived by GPU:
- the representations and warranties of FirstEnergy in the merger agreement
must be true and correct in all material respects. The representations and
warranties may contain inaccuracies if, taken together, they would not
reasonably be expected to have a material adverse effect on FirstEnergy;
- FirstEnergy must have performed in all material respects all its
obligations required under the merger agreement;
- GPU's outside counsel must have furnished it with an opinion to the effect
that the merger will be treated as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code;
- the FirstEnergy's shareholders' rights plan must not have been triggered;
- since August 8, 2000, there shall be no new or amended applicable law,
regulation, ruling, order or decree (or new interpretation of any of
these) affecting FirstEnergy or any of its subsidiaries that would have a
material adverse effect on the surviving corporation; and
- there must not have been any event since March 31, 2000, which would have
a material adverse effect on FirstEnergy.
TERMINATION, AMENDMENT AND WAIVER
TERMINATION. The merger agreement may be terminated at any time prior to
completion of the merger, whether before or after the approval and adoption of
the merger agreement by the respective shareholders of FirstEnergy and GPU:
- by mutual written consent of FirstEnergy and GPU;
- by either FirstEnergy or GPU if the other party has materially breached
any representation, warranty, covenant or agreement, and the breach is not
cured by the breaching party or adequate assurance of a cure is not given
by the breaching party within 20 days following receipt
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of written notice from the other party of the breach, and as a result of
the breach, the closing condition that the breaching party's
representations and warranties be true or that its obligations be
performed is not satisfied prior to the "end date" described below;
- by either FirstEnergy or GPU if (i) any permanent restraining order or
injunction or other order of a court or other competent authority
preventing the completion of the merger has become final and
nonappealable, or (ii) any state or federal law, rule or regulation is
adopted or issued, which has the effect of prohibiting the merger;
- by GPU, upon two days' prior notice to FirstEnergy, if GPU's board of
directors determines in good faith, after consultation with outside
counsel that the termination of the merger agreement and the acceptance of
a GPU Takeover Proposal is required pursuant to its fiduciary duties.
However, during the two-day period prior to any such termination, if
requested by FirstEnergy, GPU must negotiate in good faith with
FirstEnergy regarding any adjustments in the terms and conditions of the
merger agreement proposed by FirstEnergy that would enable GPU to proceed
with the merger;
- by either FirstEnergy or GPU if the merger has not occurred before
September 30, 2001, the "end date," subject to the following:
(i) If the only closing condition not satisfied on September 30, 2001 is
that relating to obtaining all required regulatory and governmental
approvals, then, either party may extend the "end date" to December 31,
2001. GPU may further extend the "end date" to any date up to March 31,
2002;
(ii) such termination right will not be available to any party whose action,
or failure to fulfill any obligation under the merger agreement, has
caused or resulted in the failure of the effective time to occur on or
before September 30, 2001;
- by either FirstEnergy or GPU if the required shareholder approvals have
not been obtained.
EFFECT OF TERMINATION. If the merger agreement is terminated by either GPU
or FirstEnergy for any reason outlined above, neither FirstEnergy nor GPU or
their respective officers or directors will incur any liability or obligation,
except:
- with respect to provisions in the merger agreement concerning
confidentiality of information, expenses, brokers or finders fees,
indemnification of directors, officers and employees and termination fees
and expenses, which will remain in effect; and
- to the extent that termination results from the willful breach by a party
of any of its representations, warranties, covenants or agreements in the
merger agreement.
TERMINATION FEE AND EXPENSES. If the merger agreement is terminated by
either GPU or FirstEnergy because of a material breach of any representation,
warranty, covenant or agreement of the other (other than solely because of a
non-curable breach of a representation or warranty that was not willful), then
the breaching party will be required if requested by the non-breaching party to
pay to the non-breaching party $25,000,000 in cash, plus all documented
out-of-pocket expenses and fees incurred by the non-breaching party in
connection with the merger.
FirstEnergy will be entitled to an additional termination fee of
$145,000,000 in cash, plus out-of-pocket expenses and fees, if the following
conditions are met:
- the merger agreement is terminated:
- by GPU pursuant to GPU's board of directors determination in good faith
that the termination of the merger agreement and the acceptance of a GPU
Takeover Proposal is required pursuant to its fiduciary duties, as
described above, or
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- by FirstEnergy as a result of GPU's material breach of its obligations
relating to non-solicitation of GPU Takeover Proposals as described
above, and
- at the time of the termination or prior to the meeting of GPU's
shareholders, a GPU Takeover Proposal was not rejected by GPU and its
board of directors, and not withdrawn by the third-party offeror, and
- within two and one-half years of any termination, GPU or its significant
subsidiary which is the subject of the GPU Takeover Proposal becomes a
subsidiary of the third-party offeror or a subsidiary of its affiliate, or
consummates or agrees to consummate a merger, sale or other business
combination with the third-party offeror or its affiliate involving 30% or
more of GPU's consolidated assets.
The fact that the merger agreement provides the right to receive the fees
described above does not impair a party's right to pursue other remedies to
which a party may be entitled. If a party seeks and obtains any fee described
above, however, that party would be precluded from pursuing any other remedy it
may be entitled to.
AMENDMENT. The boards of directors of FirstEnergy and GPU may, in writing
signed on behalf of both parties, amend the merger agreement at any time,
whether before or after the shareholders of FirstEnergy or GPU have adopted the
merger agreement. However, after adoption of the merger agreement by the
shareholders of FirstEnergy or GPU, no amendment will be made which by law or
applicable rule of the New York Stock Exchange requires further approval by such
shareholders, unless the amendment is made subject to obtaining such further
approval.
WAIVER. At any time before the effective time, FirstEnergy and GPU may, to
the extent legally allowed;
- extend the time for performing the obligations or other acts of the other
party;
- waive any inaccuracies in the representations and warranties or in any
document delivered pursuant to the merger agreement, and
- waive compliance with any of the agreements or conditions contained in the
merger agreement.
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DIRECTORS AND MANAGEMENT FOLLOWING THE MERGER
DIRECTORS
Under the merger agreement, the board of directors of FirstEnergy after the
merger will consist of 16 members, ten of whom will be designated by the current
board of directors of FirstEnergy and six of whom will be designated by the
current board of directors of GPU prior to the effective time of the merger. GPU
will determine how such GPU designated members will be allocated among the three
classes of FirstEnergy's board of directors, so long as such members are
allocated among those classes in as nearly equal numbers as possible.
FirstEnergy and GPU have not yet determined which of their current directors
will be appointed to serve as directors of FirstEnergy after the merger. These
directors will be selected prior to the date the merger becomes effective.
If, during the two years after the effective time of the merger, there are
less than six members on the FirstEnergy board of directors who were either
initially designated to the FirstEnergy board by GPU or subsequently appointed
by the FirstEnergy board to replace a director initially designated by GPU, the
vacancy or vacancies will be filled by the appointment of a person or persons
recommended by at least 80% of the remaining members of the then existing
FirstEnergy board. In addition, at all times during this two-year period, the
chairman of at least one of the standing committees of FirstEnergy's board of
directors must be a director initially designated by GPU or a director who
replaced such an individual.
MANAGEMENT
FirstEnergy and GPU have agreed that Fred D. Hafer, who currently serves as
chairman, president and chief executive officer of GPU, will serve as chairman
of the combined company until his retirement at the age of 62 or he is no longer
willing or able to serve. As of October 12, 2000, Mr. Hafer was 59. H. Peter
Burg, current chairman and chief executive officer of FirstEnergy, will become
vice chairman and continue to serve as chief executive officer of FirstEnergy
and will become chairman upon the retirement of Mr. Hafer.
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RIGHTS OF DISSENTING SHAREHOLDERS
RIGHTS OF DISSENTING FIRSTENERGY SHAREHOLDERS
Section 1701.84 of the Ohio General Corporation Law provides that all
FirstEnergy shareholders entitled to vote on the merger proposal may exercise
dissenters' rights with respect to the merger. The following is a summary of the
principal steps which you must take as a FirstEnergy shareholder to perfect your
dissenters' rights with respect to the merger under Section 1701.85 of the Ohio
General Corporation Law. This summary is not intended to be complete and is
qualified in its entirety by reference to Section 1701.85 of the Ohio General
Corporation Law, a copy of which is attached as Appendix D and incorporated in
this joint proxy statement/prospectus by reference. FAILURE TO SATISFY FULLY AND
PRECISELY ANY ONE OF THE PROCEDURAL REQUIREMENTS UNDER SECTION 1701.85 OF THE
OHIO GENERAL CORPORATION LAW MAY RESULT IN A LOSS OF YOUR DISSENTERS' RIGHTS.
Any holder of shares of FirstEnergy common stock who is considering dissenting
should consult his or her legal advisor.
To perfect your dissenters' rights as a FirstEnergy shareholder, you must
satisfy each of the following conditions:
1. NOT VOTE IN FAVOR OF THE MERGER. You must not vote your shares of
FirstEnergy common stock in favor of the adoption of the merger agreement at the
FirstEnergy special meeting. This requirement will be satisfied if:
- you submit a properly executed proxy with instructions to vote "against"
the adoption of the merger agreement or "abstain" from this vote;
- you do not return a proxy and no vote is cast by you at the FirstEnergy
special meeting in favor of the adoption of the merger agreement; or
- you revoke a proxy and thereafter "abstain" from or vote "against" the
adoption of the merger agreement.
A VOTE FOR THE ADOPTION OF THE MERGER AGREEMENT CONSTITUTES A WAIVER OF
DISSENTERS' RIGHTS. If you return a signed proxy without indicating a voting
preference, it will be voted in favor of the adoption of the merger agreement
and will constitute a waiver of your dissenters' rights. Failure to vote does
not constitute a waiver of your dissenters' rights. As a dissenting FirstEnergy
shareholder, you may revoke a proxy at any time before its exercise or change
your voting instructions by:
- filing with the corporate secretary of FirstEnergy, prior to the
FirstEnergy special meeting, a written notice bearing a later date than
the proxy;
- duly executing a later-dated proxy relating to the same shares of
FirstEnergy common stock that revises your previous appointment, by mail,
telephone or Internet and delivering it to the corporate secretary of
FirstEnergy before the taking of the vote at the FirstEnergy special
meeting; or
- attending the FirstEnergy special meeting and voting in person. See "The
Special Meetings--FirstEnergy Special Meeting of Shareholders."
2. FILE A WRITTEN DEMAND. You must serve a written demand upon FirstEnergy
for the "fair cash value" of the shares of FirstEnergy common stock as to which
you are seeking relief. The written demand must be served on or before the tenth
day after the shareholder vote approving the merger and must otherwise comply
with Section 1701.85 of the Ohio General Corporation Law and should be delivered
to FirstEnergy Corp., Corporate Secretary, 76 South Main Street, Akron, Ohio
44308-1890. Your required written demand must specify your name and address, the
number of shares of FirstEnergy common stock as to which you are seeking relief
and the amount claimed as the "fair cash value" of those shares.
FIRSTENERGY WILL NOT INFORM SHAREHOLDERS OF THE EXPIRATION OF THE TEN-DAY
PERIOD. VOTING AGAINST THE ADOPTION OF THE MERGER AGREEMENT WILL NOT OF ITSELF
CONSTITUTE A WRITTEN DEMAND AS REQUIRED BY SECTION 1701.85 OF THE OHIO GENERAL
CORPORATION LAW.
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If you are a beneficial owner of shares of FirstEnergy common stock and want
to exercise dissenters' rights, you must, in all cases, have the record holder
of your shares submit the demand. The demand must be signed by the shareholder
of record, or by the duly authorized representative of that shareholder, exactly
as the shareholder's name appears on the shareholder records of FirstEnergy. A
demand with respect to shares of FirstEnergy common stock owned jointly by more
than one person must identify and be signed by all of the holders of record. Any
person signing a demand on behalf of a partnership or corporation or in any
other representative capacity, such as an attorney-in-fact, executor,
administrator, trustee or guardian, must indicate the nature of the
representative capacity and, if requested, must furnish written proof of this
capacity and that individual's authority to sign the demand.
3. FILE A PETITION WITH THE COURT. If FirstEnergy and you cannot agree on
the "fair cash value" of your shares of FirstEnergy common stock, either you or
FirstEnergy may, within three months after service of your demand, file a
complaint in the Court of Common Pleas of Summit County, Ohio, the county of
FirstEnergy's principal office, for a determination of the "fair cash value" of
the shares of FirstEnergy common stock. The court, if it determines that you are
entitled to be paid the "fair cash value" of your shares of FirstEnergy common
stock, may appoint one or more appraisers to determine the value of those
shares. The court will then make a finding as to the fair cash value per share
and will render judgment for that amount. The costs of the proceeding, including
reasonable compensation to the appraisers, will be assessed or apportioned as
the court considers equitable.
FIRSTENERGY DOES NOT INTEND TO FILE SUCH A COMPLAINT. THEREFORE, AS A
DISSENTING FIRSTENERGY SHAREHOLDER, YOU MUST TIMELY FILE A COMPLAINT TO PROTECT
YOUR RIGHTS TO A JUDICIAL DETERMINATION UNDER THE OHIO GENERAL CORPORATION LAW.
From the time your demand is made until either the termination of the right
arising from that demand, or the purchase of your shares by FirstEnergy, all
rights accruing from those shares, including voting, dividend or distribution
rights, shall be suspended. If, during the suspension, any cash dividend is paid
with respect to FirstEnergy common stock, an amount equal to the dividend will
be paid to the holder of record of your dissenting shares as a credit upon the
fair cash value thereof. If the right to receive "fair cash value" is terminated
other than by purchase of your dissenting shares by FirstEnergy, all rights with
respect to those shares will be restored to you and any distribution that would
have been made to you, but for the suspension, will be made at the time of the
termination.
RIGHTS OF DISSENTING GPU SHAREHOLDERS
Pursuant to the Pennsylvania Business Corporation Law, shareholders of GPU
have the right to dissent from the merger and to obtain payment of the "fair
value" of their shares if the merger is consummated. The following is a summary
of the principal steps which you must take as a GPU shareholder to perfect your
dissenters' rights with respect to the merger under Section 1930 and Subchapter
D of Chapter 15 of the Pennsylvania Business Corporation Law. This summary is
not intended to be complete and is qualified in its entirety by reference to
Section 1930 and Subchapter D of Chapter 15 of the Pennsylvania Business
Corporation Law, a copy of which is attached as Appendix E and incorporated in
this joint proxy statement/prospectus by reference. YOU MUST TAKE EACH STEP IN
THE INDICATED ORDER AND IN STRICT COMPLIANCE WITH THE APPLICABLE PROVISIONS OF
THE STATUTE IN ORDER TO PERFECT YOUR DISSENTERS' RIGHTS. YOUR FAILURE TO COMPLY
WITH THESE STEPS WILL RESULT IN YOU RECEIVING THE CONSIDERATION CONTEMPLATED BY
THE MERGER AGREEMENT AND WAIVING YOUR RIGHT TO DISSENT. Any holder of shares of
GPU common stock who is considering dissenting should consult his or her legal
advisor.
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To perfect your dissenters' rights as a GPU shareholder, you must satisfy
each of the following conditions:
1. NOT VOTE IN FAVOR OF THE MERGER. You must not vote your shares of GPU
common stock in favor of the adoption of the merger agreement at the GPU special
meeting. This requirement will be satisfied if:
- you submit a properly executed proxy with instructions to vote "against"
the adoption of the merger agreement or to "abstain" from this vote;
- you do not return a proxy and no vote is cast by you at the GPU special
meeting in favor of the adoption of the merger agreement; or
- you revoke a proxy and thereafter "abstain" from or vote "against" the
adoption of the merger agreement.
A VOTE FOR THE ADOPTION OF THE MERGER AGREEMENT CONSTITUTES A WAIVER OF
DISSENTERS' RIGHTS. However, failure to vote is considered an abstention or
nonvote and does not constitute a waiver of your dissenters' rights. As a
dissenting GPU shareholder, you may revoke a proxy at any time before its
exercise or change your voting instructions by:
- filing with the secretary of GPU, at or before the GPU special meeting, a
written notice signed in the same manner as the proxy; or
- attending the GPU special meeting and voting in person. See "The Special
Meetings--GPU Special Meeting of Shareholders."
2. FILE A WRITTEN NOTICE. You must file with GPU PRIOR to the vote of the
GPU shareholders on the merger at the GPU special meeting, a written notice of
your intent to demand that you be paid the fair value for your shares of GPU
common stock, if the merger is effected. Any written notice or demand filed in
connection with the exercise of dissenters' rights may be sent to GPU at the GPU
principal offices located at 300 Madison Avenue, P.O. Box 1911, Morristown, New
Jersey 07962-1911.
NEITHER THE GIVING OF A PROXY NOR A VOTE AGAINST ADOPTION OF THE MERGER
AGREEMENT WILL CONSTITUTE THE NECESSARY WRITTEN NOTICE OF YOUR INTENTION TO
DISSENT.
3. MAKE NO CHANGES IN THE BENEFICIAL OWNERSHIP OF YOUR GPU SHARES. You
must not effect any change in the beneficial ownership of your shares of GPU
common stock from the date of filing upon written notice with GPU continuously
through the closing date of the merger.
If you are a beneficial owner of shares of GPU common stock which are held
of record by a brokerage firm, bank or other nominee, you must obtain the
written consent of that record holder to exercise your dissenters' rights and
must submit that consent to GPU, no later than the time of the filing of your
notice of intention to dissent.
If the merger agreement is adopted by the required vote of GPU's
shareholders at the GPU special meeting, GPU will mail a notice to you and all
other dissenters who gave due notice of intention to demand payment for their
shares and who refrained from voting in favor of the adoption of the merger
agreement. The notice will state where and when a demand for payment must be
sent and certificates for the shares of GPU common stock must be deposited in
order to obtain payment. The notice will also include a form for demanding
payment and a copy of Subchapter D of Chapter 15 of the Pennsylvania Business
Corporation Law. The time set for receipt of the demand for payment and deposit
of stock certificates will not be less than 30 days from the date of mailing of
the notice.
YOUR FAILURE TO TIMELY DEMAND PAYMENT OR TO TIMELY DEPOSIT STOCK
CERTIFICATES, AS REQUIRED BY GPU'S NOTICE, WILL TERMINATE YOUR RIGHT TO RECEIVE
PAYMENT OF THE FAIR VALUE OF YOUR SHARES.
Promptly after completion of the merger, or upon timely receipt of demand
for payment if the merger already has been completed, GPU either will remit to
dissenters who have made a demand for payment and have deposited their stock
certificates, the amount that GPU estimates to be the fair
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<PAGE>
value of those dissenters' shares of GPU common stock or give written notice
that no remittance is being made. The remittance or notice will be accompanied
by:
- a closing balance sheet and an statement of income of GPU for a fiscal
year ending not more than 16 months before the date of remittance or
notice, together with the latest available interim financial statements;
- a statement of GPU's estimate of the fair value of the shares of GPU
common stock; and
- notice of the right of each dissenter to demand payment or supplemental
payment under the Pennsylvania Business Corporation Law, as the case may
be, accompanied by a copy of Subchapter D of Chapter 15 of the
Pennsylvania Business Corporation Law.
If GPU does not remit the amount of its estimated fair value for shares of
GPU common stock with respect to which demand for payment has been made and
stock certificates have been deposited, then GPU will return any certificates
that have been deposited. Returned certificates, and any certificates
subsequently issued in exchange therefor, will be marked to record the fact that
demand for payment has been made. Transferees of shares of GPU common stock so
marked shall not acquire any rights in GPU other than those rights held by the
original dissenter after such dissenter demanded payment of fair value.
If you believe that the amount stated in the notice as GPU's estimate of the
fair value of your shares of GPU common stock or remitted by GPU is less than
the fair value of those shares, you may send GPU your own estimate of the fair
value of those shares, which shall be deemed to be a demand for payment of the
amount of the deficiency. YOUR NOTICE MUST BE FILED WITH GPU WITHIN 30 DAYS
AFTER THE DATE GPU MAILED ITS REMITTANCE OR ESTIMATE OF VALUE; FAILURE TO MAIL
THE NOTICE LIMITS YOUR ENTITLEMENT TO THE AMOUNT REMITTED OR STATED AS GPU'S
ESTIMATE OF FAIR VALUE.
If GPU and you are unable to compromise on a fair value, GPU may commence
proceedings for a judicial determination of fair value in the Court of Common
Pleas of Berks County. GPU intends to negotiate in good faith with any
dissenting shareholder. If after negotiation, a claim cannot be settled, then
GPU will file an application requesting that the fair value of the dissenters'
shares be determined by the court.
The application for proceedings must be filed within 60 days from the latest
to occur of:
- completion of the merger;
- timely receipt by GPU of any demands for payment; or
- timely receipt by GPU of any estimates by dissenters of fair value.
In such case, all dissenters, wherever residing, whose demands have not been
settled shall be made parties to the proceeding as in an action against their
shares of GPU common stock, and a copy of the application shall be served on
each of those dissenters. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. Each dissenter who is made
a party shall be entitled to recover the amount by which the fair value of his
shares of GPU common stock is found to exceed the amount, if any, previously
remitted, plus interest.
If GPU fails to file an application of this kind, then you or any other
dissenter who has made a demand and who has not settled his claim against GPU
may file an application in the name of GPU at any time within 30 days after the
expiration of the 60-day period and request that the fair value be determined by
the court. If no dissenter files an application of this kind, then each
dissenter entitled to do so shall be paid GPU's estimate of the fair value of
the dissenters' shares and no more, and may bring an action to recover any
amount not previously remitted.
IF YOU ARE CONSIDERING EXERCISING DISSENTERS' RIGHTS AS A HOLDER OF GPU
COMMON STOCK, YOU SHOULD RECOGNIZE THAT THE FAIR VALUE OF YOUR SHARES DETERMINED
BY THE COURT COULD BE MORE THAN, THE SAME AS OR LESS THAN THE CONSIDERATION YOU
ARE ENTITLED TO RECEIVE PURSUANT TO THE MERGER AGREEMENT IF YOU DO NOT EXERCISE
DISSENTERS' RIGHTS.
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<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The unaudited pro forma combined condensed balance sheet as of June 30, 2000
and the unaudited pro forma combined condensed statements of income for the
six-month periods ended June 30, 2000 and 1999, and for the year ended
December 31, 1999, combine historical financial information of FirstEnergy and
unaudited pro forma financial information of GPU to give effect to the merger.
As discussed below, pro forma financial information for GPU is included to
reflect recent GPU acquisition and divestiture activity. The unaudited pro forma
combined condensed financial statements have been prepared to reflect the merger
under the purchase method of accounting with FirstEnergy as the acquiring
entity. Under the purchase method of accounting, GPU's tangible and identifiable
intangible assets acquired and liabilities assumed are reflected in the
unaudited pro forma combined condensed balance sheet at their estimated fair
values. The excess of the purchase price, including estimated fees and expenses
related to the merger, over the estimated fair value of the net assets of GPU,
is classified as goodwill on the accompanying unaudited pro forma combined
condensed balance sheet. The estimated fair values and useful lives of GPU's
assets acquired and liabilities assumed, which were utilized to calculate
goodwill, are subject to final valuation adjustments in accordance with GAAP.
The unaudited pro forma financial statements do not reflect any anticipated
cost savings that FirstEnergy may be able to retain from the elimination of
duplicate corporate and administrative programs in connection with the merger or
operating efficiencies that may result from the merger. The pro forma
adjustments and the merger are reflected in the unaudited combined condensed pro
forma balance sheet as if the merger occurred on June 30, 2000. The unaudited
pro forma combined condensed statements of income for the six-month periods
ended June 30, 2000 and 1999, and for the year ended December 31, 1999, assume
that this transaction was completed on January 1, 1999.
The unaudited pro forma combined condensed financial statements assume that
50% of the outstanding GPU common shares were exchanged for cash consideration
of $36.50 and 50% of the outstanding GPU common shares were exchanged at an
exchange ratio of 1.355 shares of FirstEnergy common stock. The exchange ratio
was determined assuming a FirstEnergy share price of $26.938, which represents
the midpoint between $24.2438 and $29.6313.
During 1999 and the six months ended June 30, 2000, GPU engaged in
acquisition and divestiture activity. GPU's unaudited pro forma condensed
consolidated statements of income for the six-month periods ended June 30, 2000
and 1999, and for the year ended December 31, 1999 have been prepared to
illustrate the estimated effect the acquisition and divestiture activity would
have had on GPU's historical financial statements had these transactions
occurred on the assumed date of January 1, 1999, rather than at various times
throughout 1999 and the first six months of 2000, as was the case. The pro forma
information is not necessarily indicative of the actual results that would have
been realized had these transactions occurred on the assumed date, nor is it
indicative of future results. This pro forma information, which is discussed
more fully in Note 4 to the unaudited pro forma combined condensed financial
statements, is for information purposes only.
The following unaudited pro forma financial statements are for illustrative
purposes only. They are not necessarily indicative of the financial position or
operating results that would have occurred had the merger been completed on
January 1, 1999 or June 30, 2000, as assumed above, nor is the information
indicative of future financial position or operating results. Results of
operations and financial position in the first year after completion of the
merger could differ significantly from the unaudited pro forma combined
condensed financial statements, which are based on past operations. Future
operations will be affected by various factors including operating performance,
energy market developments and other matters.
YOU SHOULD READ THE FINANCIAL INFORMATION IN THIS SECTION ALONG WITH
FIRSTENERGY'S AND GPU'S HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS AND
ACCOMPANYING NOTES INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. SEE "WHERE YOU CAN FIND MORE INFORMATION" ON
PAGES 111-112.
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FIRSTENERGY CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 2000
(IN MILLIONS)
<TABLE>
<CAPTION>
MERGER FIRSTENERGY
PRO FORMA PRO FORMA
FIRSTENERGY GPU ADJUSTMENTS COMBINED
----------- -------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Current assets.................................. $ 1,339 $ 2,238 $ -- $ 3,577
Property, plant and equipment................... 7,445 6,939 (450)(3a) 13,934
Investments..................................... 2,709 1,634 880 (3d) 5,223
Regulatory assets............................... 4,048 4,640 -- 8,688
Goodwill........................................ 2,117 2,227 3,261 (3b) 5,378
(2,227)(3b)
Accumulated deferred income taxes............... -- 2,556 -- 2,556
Other assets.................................... 443 225 -- 668
------- ------- ------- -------
Total Assets.................................... $18,101 $20,459 $ 1,464 $40,024
======= ======= ======= =======
LIABILITIES AND CAPITALIZATION:
Current liabilities............................. $ 2,304 $ 3,705 $ 35 (3b) $ 6,164
120 (3c)
Accumulated deferred income taxes............... 2,185 3,529 84 (3h) 5,798
Accumulated deferred investment tax credits..... 258 57 -- 315
Other liabilities............................... 1,887 4,606 71 (3d) 6,564
------- ------- ------- -------
6,634 11,897 310 18,841
------- ------- ------- -------
Common shareholders' equity:
Common stock and other paid-in capital.......... 3,674 1,031 2,215 (3e) 5,889
(1,031)(3e)
Retained earnings and accumulated other
comprehensive loss............................ 1,052 2,245 (2,245)(3e) 1,052
Unallocated ESOP common shares.................. (117) -- -- (117)
------- ------- ------- -------
Total common shareholders' equity............... 4,609 3,276 (1,061) 6,824
Preferred stock of consolidated subsidiaries:
Not subject to redemption..................... 648 13 -- 661
Subject to mandatory redemption............... 124 51 -- 175
Subsidiary-obligated mandatorily redeemable
preferred securities.......................... 120 125 -- 245
Trust preferred securities...................... -- 200 -- 200
Long-term debt.................................. 5,966 4,897 2,215 (3g) 13,078
------- ------- ------- -------
Total Capitalization............................ 11,467 8,562 1,154 21,183
------- ------- ------- -------
Total Liabilities and Capitalization............ $18,101 $20,459 $ 1,464 $40,024
======= ======= ======= =======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
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FIRSTENERGY CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 2000
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
GPU
PRIOR TO
MERGER MERGER FIRSTENERGY
PRO PRO FORMA PRO FORMA
FIRSTENERGY FORMA(4) ADJUSTMENTS COMBINED
----------- -------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Electric utilities............................. $2,630 $2,133 $ -- $4,763
Other.......................................... 680 497 -- 1,177
------ ------ ------ ------
Total revenues............................... 3,310 2,630 -- 5,940
------ ------ ------ ------
EXPENSES:
Fuel and purchased power....................... 392 858 -- 1,250
Other operating expenses....................... 1,474 854 (9)(3d) 2,319
Provision for depreciation and amortization.... 427 248 41 (3f) 676
(34)(3f)
(6)(3f)
General taxes.................................. 279 102 -- 381
------ ------ ------ ------
Total expenses............................... 2,572 2,062 (8) 4,626
------ ------ ------ ------
INCOME BEFORE INTEREST AND INCOME TAXES.......... 738 568 8 1,314
------ ------ ------ ------
NET INTEREST CHARGES:
Interest expense............................... 247 230 97 (3g) 574
Trust preferred securities..................... -- 7 -- 7
Subsidiary-obligated mandatorily redeemable
preferred securities......................... -- 6 -- 6
Capitalized interest........................... (13) (2) -- (15)
Subsidiaries' preferred stock dividends........ 35 4 -- 39
------ ------ ------ ------
Net interest charges......................... 269 245 97 611
------ ------ ------ ------
INCOME TAXES..................................... 193 120 (29)(3h) 284
------ ------ ------ ------
NET INCOME....................................... $ 276 $ 203 $ (60) $ 419
====== ====== ====== ======
Average common shares outstanding:
Basic.......................................... 224 121 (39)(3i) 306
====== ====== ====== ======
Diluted........................................ 225 121 (39)(3i) 307
====== ====== ====== ======
Earnings per share of common stock:
Basic.......................................... $ 1.23 $ 1.68 $ 1.37
====== ====== ======
Diluted........................................ $ 1.23 $ 1.67 $ 1.37
====== ====== ======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
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FIRSTENERGY CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1999
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
GPU
PRIOR TO
MERGER MERGER FIRSTENERGY
PRO PRO FORMA PRO FORMA
FIRSTENERGY FORMA(4) ADJUSTMENTS COMBINED
----------- -------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Electric utilities............................. $2,625 $2,098 $ -- $4,723
Other.......................................... 316 341 -- 657
------ ------ ------ ------
Total revenues............................... 2,941 2,439 -- 5,380
------ ------ ------ ------
EXPENSES:
Fuel and purchased power....................... 409 671 -- 1,080
Other operating expenses....................... 1,097 826 (9)(3d) 1,914
Provision for depreciation and amortization.... 408 299 41 (3f) 698
(44)(3f)
(6)(3f)
General taxes.................................. 277 101 -- 378
------ ------ ------ ------
Total expenses............................... 2,191 1,897 (18) 4,070
------ ------ ------ ------
INCOME BEFORE INTEREST AND INCOME TAXES.......... 750 542 18 1,310
------ ------ ------ ------
NET INTEREST CHARGES:
Interest expense............................... 261 254 97 (3g) 612
Trust preferred securities..................... -- 1 -- 1
Subsidiary-obligated mandatorily redeemable
preferred securities......................... -- 15 -- 15
Capitalized interest........................... (6) (2) -- (8)
Subsidiaries' preferred stock dividends........ 39 6 -- 45
------ ------ ------ ------
Net interest charges......................... 294 274 97 665
------ ------ ------ ------
INCOME TAXES..................................... 194 116 (29)(3h) 281
------ ------ ------ ------
NET INCOME....................................... $ 262 $ 152 $ (50) $ 364
====== ====== ====== ======
Average common shares outstanding:
Basic.......................................... 228 127 (41)(3i) 314
====== ====== ====== ======
Diluted........................................ 228 127 (41)(3i) 314
====== ====== ====== ======
Earnings per share of common stock:
Basic.......................................... $ 1.15 $ 1.20 $ 1.16 (i)
====== ====== ======
Diluted........................................ $ 1.15 $ 1.20 $ 1.16 (i)
====== ====== ======
</TABLE>
(i) FirstEnergy pro forma combined basic and diluted earnings per share are
$1.38 excluding GPU's nonrecurring charge related to the New Jersey Board of
Public Utilities restructuring order described in Note 4.
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
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FIRSTENERGY CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1999
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
GPU
PRIOR TO
MERGER MERGER FIRSTENERGY
PRO PRO FORMA PRO FORMA
FIRSTENERGY FORMA(4) ADJUSTMENTS COMBINED
----------- -------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Electric utilities.......................... $5,453 $4,474 $ -- $9,927
Other....................................... 867 768 -- 1,635
------ ------ ----- ------
Total revenues............................ 6,320 5,242 -- 11,562
------ ------ ----- ------
EXPENSES:
Fuel and purchased power.................... 877 1,449 -- 2,326
Other operating expenses.................... 2,426 2,007 (18)(3d) 4,415
Provision for depreciation and
amortization.............................. 938 556 82 (3f) 1,475
(89)(3f)
(12)(3f)
General taxes............................... 544 211 -- 755
------ ------ ----- ------
Total expenses.............................. 4,785 4,223 (37) 8,971
------ ------ ----- ------
INCOME BEFORE INTEREST AND INCOME TAXES....... 1,535 1,019 37 2,591
------ ------ ----- ------
NET INTEREST CHARGES:
Interest expense............................ 509 471 194 (3g) 1,174
Trust preferred securities.................. -- 8 -- 8
Subsidiary-obligated mandatorily redeemable
preferred securities...................... -- 25 -- 25
Capitalized interest........................ (13) (4) -- (17)
Subsidiaries' preferred stock dividends..... 76 11 -- 87
------ ------ ----- ------
Net interest charges...................... 572 511 194 1,277
------ ------ ----- ------
INCOME TAXES.................................. 395 175 (58)(3h) 512
------ ------ ----- ------
NET INCOME.................................... $ 568 $ 333 $ (99) $ 802
====== ====== ===== ======
Average common shares outstanding:
Basic....................................... 227 125 (40)(3i) 312
====== ====== ===== ======
Diluted..................................... 227 126 (41)(3i) 312
====== ====== ===== ======
Earnings per share of common stock:
Basic....................................... $ 2.50 $ 2.65 $ 2.57 (i)
====== ====== ======
Diluted..................................... $ 2.50 $ 2.65 $ 2.57 (i)
====== ====== ======
</TABLE>
------------------------
(i) FirstEnergy pro forma combined basic and diluted earnings per share are
$2.79 excluding GPU's nonrecurring charge related to the New Jersey Board of
Public Utilities restructuring order described in Note 4.
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
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FIRSTENERGY CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
NOTE 1--RECLASSIFICATIONS
Certain reclassifications have been made to the FirstEnergy and GPU
historical financial statements to conform to the presentation expected to be
used by FirstEnergy after the merger.
NOTE 2--EXCHANGE RATIOS
Under the merger agreement, GPU shareholders would receive for each GPU
share $36.50 in cash and/or a number of shares of FirstEnergy common stock at an
exchange ratio determined by dividing $36.50 by the average closing price of
FirstEnergy common stock during the 20-day trading period ending on the seventh
trading day prior to the merger closing, so long as the average closing price of
FirstEnergy's common stock is between $24.2438 and $29.6313. If the average
closing price of the FirstEnergy common stock is equal to or greater than
$29.6313, the exchange ratio will be 1.2318, and if the average closing price of
the FirstEnergy common stock is equal to or less than $24.2438, the exchange
ratio will be 1.5055. Each GPU shareholder will have the opportunity to elect
the form of consideration he or she wishes to receive, subject to proration so
that the amount and form of consideration paid to all GPU shareholders, subject
to a tax adjustment described in the merger agreement, will be the same as the
amount and form of consideration FirstEnergy would pay if holders of 50% of the
GPU shares elected to receive cash and holders of 50% of the GPU shares elected
to receive FirstEnergy common stock. For purposes of the unaudited pro forma
combined condensed financial statements a FirstEnergy share price of $26.938 has
been assumed, which represents the midpoint between $24.2438 and $29.6313.
<TABLE>
<CAPTION>
(MILLIONS)
----------
<S> <C>
Cash payment to GPU shareholders............................ $2,215
Stock payment to GPU shareholders........................... 2,215
------
Purchase of 121.4 million GPU common shares................. $4,430
======
</TABLE>
NOTE 3--PRO FORMA ADJUSTMENTS
(a) As required by Accounting Principles Board Opinion No. 16, "Business
Combinations", a pro forma adjustment has been recognized by FirstEnergy to
adjust GPU's fixed assets to fair value. Such adjustment has been based upon the
current estimated fair market values of these assets which were considered in
the preliminary purchase price allocation. This adjustment would be applicable
to GPU only in connection with the completion of the merger.
(b) 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 GPU's net assets after taking into account the other adjustments
described herein. The carrying cost for all other assets and liabilities (except
as described in (a) above and in (d) below) is assumed to be equal to fair
market value. If it is ultimately determined that the fair market value of GPU's
net assets is more or less than their carrying
91
<PAGE>
FIRSTENERGY CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--PRO FORMA ADJUSTMENTS (CONTINUED)
value at the time of the completion of the merger, goodwill would be adjusted
accordingly. The pro forma adjustment to record the goodwill resulting from the
merger is disclosed below:
<TABLE>
<CAPTION>
(MILLIONS)
----------
<S> <C>
Purchase of 121.4 million GPU common shares................. $ 4,430
Estimated direct costs incurred in consummating the
merger.................................................... 35
Elimination of GPU shareholders' equity on June 30, 2000.... (3,276)
Addition of GPU goodwill to purchase price.................. 2,227
Fair value adjustments to GPU's assets and liabilities,
net....................................................... (155)
--------
Total adjusted goodwill..................................... $ 3,261
========
</TABLE>
(c) A pro forma adjustment has been made to recognize estimated severance
costs.
(d) A pro forma adjustment has been made to recognize GPU's net unamortized
transition assets and obligations related to certain retirement benefits and the
impact of this adjustment on the net periodic benefit cost.
(e) Pro forma equity adjustments have been made to recognize the
elimination of GPU's retained earnings and accumulated other comprehensive loss
as of the completion of the merger and to reflect payment of stock consideration
in the merger as discussed in Note 2.
<TABLE>
<CAPTION>
(MILLIONS)
----------
<S> <C>
Elimination of GPU shareholders' equity..................... $ (3,276)
Issuance of stock to purchase GPU common shares............. 2,215
--------
$ (1,061)
========
</TABLE>
(f) 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 resulting from the assumed revaluation of
GPU's assets described in (a) above.
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS FOR THE YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
------------------- ------------
2000 1999 1999
-------- -------- ------------
(MILLIONS)
<S> <C> <C> <C>
Amortization of goodwill............................ $ 41 $ 41 $ 82
Reversal of amortization of GPU purchased
goodwill.......................................... $(34) $(44) $(89)
Reduction in depreciation expense from assumed
revaluation of GPU's assets....................... $ (6) $ (6) $(12)
</TABLE>
(g) A pro forma adjustment reflects the issuance of $2,215 million of
long-term debt bearing interest at an assumed effective rate of 8.75%, inclusive
of costs of issuance, to fund the cash consideration to be paid to GPU
shareholders. The pro forma annual interest expense is $194 million. A 1/8 of 1%
variation in the interest rate would result in a $2.8 million change to the
annual interest expense.
92
<PAGE>
FIRSTENERGY CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--PRO FORMA ADJUSTMENTS (CONTINUED)
(h) Pro forma adjustments have been made for the estimated income tax
effects of the adjustments discussed in (a), (c), (d), (f) and (g) above
assuming an income tax rate of 35%.
(i) A pro forma adjustment reflects the issuance of FirstEnergy shares at
an assumed issuance cost of $26.938 as described in Note 2, net of the
elimination of average GPU common shares outstanding.
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED
BASIC COMMON SHARES OUTSTANDING ENDED JUNE 30, DECEMBER 31,
------------------------------- ------------------- -------------
2000 1999 1999
-------- -------- -------------
(MILLIONS)
<S> <C> <C> <C>
Elimination of average GPU common shares
outstanding.................................... (121.3) (126.7) (125.3)
Purchase of 50% of GPU common shares at an
exchange ratio of 1.355 shares of FirstEnergy
common stock per GPU common share.............. 82.2 85.8 84.9
------ ------ ------
(39.1) (40.9) (40.4)
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED
DILUTED COMMON SHARES OUTSTANDING ENDED JUNE 30, DECEMBER 31,
--------------------------------- ------------------- -------------
2000 1999 1999
-------- -------- -------------
(MILLIONS)
<S> <C> <C> <C>
Elimination of average GPU common shares
outstanding.................................... (121.4) (126.9) (125.6)
Purchase of 50% of GPU common shares at an
exchange ratio of 1.355 shares of FirstEnergy
common stock per GPU common share.............. 82.2 86.0 85.1
------ ------ ------
(39.2) (40.9) (40.5)
====== ====== ======
</TABLE>
NOTE 4--PRIOR TO MERGER PRO FORMA ADJUSTMENTS FOR GPU, INC.
The unaudited pro forma condensed consolidated statements of income for the
six-month periods ended June 30, 2000 and 1999, and for the year ended
December 31, 1999, were prepared based on pro forma financial information for
GPU for these periods, which give effect to certain acquisitions and
divestitures of GPU. The pro forma information is not necessarily indicative of
the actual results that would have been realized had these transactions occurred
on the assumed date of January 1, 1999, nor is it indicative of future results.
The GPU pro forma adjustments discussed below are based upon historical
information and certain estimates, and are for illustrative purposes only.
GPU's historical financial information for the six-month period ended
June 30, 1999 and the year ended December 31, 1999 includes a nonrecurring
charge that has not been removed from the GPU pro forma financial information.
The historical results of operations of GPU for the 1999 periods include a
reduction in net income of $68 million ($0.54 per share of common stock) as a
result of a
93
<PAGE>
FIRSTENERGY CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--PRIOR TO MERGER PRO FORMA ADJUSTMENTS FOR GPU, INC. (CONTINUED)
New Jersey Board of Public Utilities restructuring order issued to GPU's Jersey
Central subsidiary, that also had the effect of reducing GPU's operating revenue
by $115 million in both periods.
(a) During the six-month period ended June 30, 2000, GPU sold PowerNet and
acquired MYR Group. For pro forma purposes, it is assumed that these
transactions occurred on January 1, 1999. Therefore, GPU's unaudited pro
forma condensed consolidated statement of income for the six-month period
ended June 30, 2000 reflects adjustments to: (1) eliminate the nonrecurring
$295 million after-tax loss ($2.43 per share of common stock) incurred on
the sale of PowerNet; (2) eliminate PowerNet's results of operations for the
period (including related debt reductions and income tax effects); and
(3) include the consolidated results of operations of MYR Group, recognizing
ownership of these assets for the full six-month period, as well as interest
expense and amortization of goodwill resulting from the acquisition
(including the related income tax effects).
Pro forma adjustments by business unit for the six-month period ended
June 30, 2000 are summarized as follows:
<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
--------------------------------------------------------
NET INTEREST INCOME NET
REVENUES EXPENSES CHARGES TAXES INCOME
-------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
PowerNet........................................ $(96) $(406) $(45) $ 71 $284
MYR Group....................................... 196 192 5 -- (1)
---- ----- ---- ---- ----
Total Adjustments............................. $100 $(214) $(40) $ 71 $283
==== ===== ==== ==== ====
</TABLE>
(b) During 1999, GPU acquired Emdersa, GasNet and the 50% of Midlands that it
did not already own, and in 2000, GPU acquired MYR Group and sold PowerNet.
For pro forma purposes, it is assumed that these transactions occurred on
January 1, 1999. As a result, GPU's unaudited pro forma condensed
consolidated statements of income for the six-month period ended June 30,
1999 and the year ended December 31, 1999 reflect adjustments to:
(1) include the consolidated results of operations of Emdersa, GasNet,
Midlands (the additional 50%) and MYR Group, recognizing ownership of these
assets for the full six- and twelve-month periods, respectively, as well as
interest expense, amortization of goodwill and depreciation expense
resulting from the acquisitions (including the related income tax effects);
(2) eliminate PowerNet's results of operations for the periods (including
the related debt reductions and income tax effects); and (3) remove the
nonrecurring after-tax gains of $10 million ($0.08 per share of common
stock) and $7 million ($0.05 per share of common stock) for the six- and
twelve-month periods, respectively, resulting from the sale of the Midlands
supply business.
Also during 1999, GPU Energy substantially completed the sales of its
generating assets. GPU's unaudited pro forma condensed consolidated
statements of income for the six-month period ended June 30, 1999 and the
year ended December 31, 1999 include adjustments reflecting the impact that
the sale of these generating assets reasonably could be expected to have on
GPU's results of operations, assuming a January 1, 1999 divestiture date.
The major adjustments reflected in GPU's pro forma statements of income
include: (1) a reduction of electric utility revenues for sales of energy to
other utilities that resulted from GPU having additional power available due
to a delay in divestiture of its generating assets; (2) the removal of fuel,
depreciation and operation and
94
<PAGE>
FIRSTENERGY CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--PRIOR TO MERGER PRO FORMA ADJUSTMENTS FOR GPU, INC. (CONTINUED)
maintenance expenses which would not have been incurred had the generating
assets been sold on the assumed date of January 1, 1999, offset by
additional purchased power expenses; (3) the removal of the nonrecurring
after-tax gains of $28 million ($0.22 per share of common stock) and
$36 million ($0.29 per share of common stock) for the six- and twelve-month
periods, respectively, resulting from the sale of generating assets; and
(4) the related tax effects resulting from the above adjustments.
Pro forma adjustments by business unit for the six-month period ended
June 30, 1999 are summarized as follows:
<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
--------------------------------------------------------
NET INTEREST INCOME NET
REVENUES EXPENSES CHARGES TAXES INCOME
-------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
GPU Energy Generation........................... $(73) $(16) $ (1) $(18) $(38)
PowerNet........................................ (96) (36) (49) (4) (7)
Midlands (additional 50%)....................... 203 156 93 (4) (42)
GasNet.......................................... 43 15 24 (1) 5
Emdersa......................................... 27 23 9 (2) (3)
MYR Group....................................... 226 219 7 1 (1)
---- ---- ---- ---- ----
Total Adjustments............................. $330 $361 $ 83 $(28) $(86)
==== ==== ==== ==== ====
</TABLE>
Pro forma adjustments by business unit for the year ended December 31, 1999
are summarized as follows:
<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
--------------------------------------------------------
NET INTEREST INCOME NET
REVENUES EXPENSES CHARGES TAXES INCOME
-------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
GPU Energy Generation........................... $(277) $(142) $(12) $(51) $ (72)
PowerNet........................................ (194) (91) (98) (2) (3)
Midlands (additional 50%)....................... 188 156 92 (9) (51)
GasNet.......................................... 43 15 24 (1) 5
Emdersa......................................... 27 23 9 (2) (3)
MYR Group....................................... 478 466 14 -- (2)
----- ----- ---- ---- -----
Total Adjustments............................. $ 265 $ 427 $ 29 $(65) $(126)
===== ===== ==== ==== =====
</TABLE>
95
<PAGE>
FIRSTENERGY CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--PRIOR TO MERGER PRO FORMA ADJUSTMENTS FOR GPU, INC. (CONTINUED)
GPU, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 2000
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRIOR TO MERGER GPU
PRO FORMA PRIOR TO MERGER
GPU ADJUSTMENTS(4A) PRO FORMA
-------- --------------- ---------------
<S> <C> <C> <C>
REVENUES:
Electric utilities.................................... $2,225 $ (92) $2,133
Other................................................. 305 192 497
------ ----- ------
Total revenues...................................... 2,530 100 2,630
------ ----- ------
EXPENSES:
Fuel and purchased power.............................. 858 -- 858
Other operating expenses.............................. 687 167 854
Loss on sale of investment............................ 372 (372) --
Provision for depreciation and amortization........... 264 (16) 248
General taxes......................................... 95 7 102
------ ----- ------
Total expenses...................................... 2,276 (214) 2,062
------ ----- ------
INCOME BEFORE INTEREST AND INCOME TAXES................. 254 314 568
------ ----- ------
NET INTEREST CHARGES:
Interest expense...................................... 270 (40) 230
Trust preferred securities............................ 7 -- 7
Subsidiary-obligated mandatorily redeemable preferred
securities.......................................... 6 -- 6
Capitalized interest.................................. (2) -- (2)
Subsidiaries' preferred stock dividends............... 4 -- 4
------ ----- ------
Net interest charges................................ 285 (40) 245
------ ----- ------
INCOME TAXES............................................ 49 71 120
------ ----- ------
NET INCOME (LOSS)....................................... $ (80) $ 283 $ 203
====== ===== ======
Average common shares outstanding:
Basic................................................. 121 121
====== ======
Diluted............................................... 121 121
====== ======
Earnings per share of common stock:
Basic................................................. $(0.66) $ 1.68
====== ======
Diluted............................................... $(0.66) $ 1.67
====== ======
</TABLE>
96
<PAGE>
FIRSTENERGY CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--PRIOR TO MERGER PRO FORMA ADJUSTMENTS FOR GPU, INC. (CONTINUED)
GPU, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1999
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRIOR TO MERGER GPU
PRO FORMA PRIOR TO MERGER
GPU ADJUSTMENTS(4B) PRO FORMA
-------- --------------- ---------------
<S> <C> <C> <C>
REVENUES:
Electric utilities.................................... $1,931 $167 $2,098
Other................................................. 178 163 341
------ ---- ------
Total revenues...................................... 2,109 330 2,439
------ ---- ------
EXPENSES:
Fuel and purchased power.............................. 682 (11) 671
Other operating expenses.............................. 518 308 826
Provision for depreciation and amortization........... 243 56 299
General taxes......................................... 93 8 101
------ ---- ------
Total expenses...................................... 1,536 361 1,897
------ ---- ------
INCOME BEFORE INTEREST AND INCOME TAXES................. 573 (31) 542
------ ---- ------
NET INTEREST CHARGES:
Interest expense...................................... 171 83 254
Trust preferred securities............................ 1 -- 1
Subsidiary-obligated mandatorily redeemable preferred
securities.......................................... 15 -- 15
Capitalized interest.................................. (2) -- (2)
Subsidiaries' preferred stock dividends............... 6 -- 6
------ ---- ------
Net interest charges................................ 191 83 274
------ ---- ------
INCOME TAXES............................................ 144 (28) 116
------ ---- ------
NET INCOME.............................................. $ 238 $(86) $ 152
====== ==== ======
Average common shares outstanding:
Basic................................................. 127 127
====== ======
Diluted............................................... 127 127
====== ======
Earnings per share of common stock:
Basic................................................. $ 1.88 $ 1.20
====== ======
Diluted............................................... $ 1.87 $ 1.20
====== ======
</TABLE>
97
<PAGE>
FIRSTENERGY CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--PRIOR TO MERGER PRO FORMA ADJUSTMENTS FOR GPU, INC. (CONTINUED)
GPU, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1999
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRIOR TO MERGER GPU
PRO FORMA PRIOR TO MERGER
GPU ADJUSTMENTS (4B) PRO FORMA
-------- ---------------- ---------------
<S> <C> <C> <C>
REVENUES:
Electric utilities.................................... $4,594 $(120) $4,474
Other................................................. 383 385 768
------ ----- ------
Total revenues...................................... 4,977 265 5,242
------ ----- ------
EXPENSES:
Fuel and purchased power.............................. 1,520 (71) 1,449
Other operating expenses.............................. 1,543 464 2,007
Provision for depreciation and amortization........... 543 13 556
General taxes......................................... 190 21 211
------ ----- ------
Total expenses...................................... 3,796 427 4,223
------ ----- ------
INCOME BEFORE INTEREST AND INCOME TAXES................. 1,181 (162) 1,019
------ ----- ------
NET INTEREST CHARGES:
Interest expense...................................... 442 29 471
Trust preferred securities............................ 8 -- 8
Subsidiary-obligated mandatorily redeemable preferred
securities.......................................... 25 -- 25
Capitalized interest.................................. (4) -- (4)
Subsidiaries' preferred stock dividends............... 11 -- 11
------ ----- ------
Net interest charges................................ 482 29 511
------ ----- ------
INCOME TAXES............................................ 240 (65) 175
------ ----- ------
NET INCOME.............................................. $ 459 $(126) $ 333
====== ===== ======
Average common shares outstanding:
Basic................................................. 125 125
====== ======
Diluted............................................... 126 126
====== ======
Earnings per share of common stock:
Basic................................................. $ 3.66 $ 2.65
====== ======
Diluted............................................... $ 3.66 $ 2.65
====== ======
</TABLE>
98
<PAGE>
DESCRIPTION OF FIRSTENERGY COMMON STOCK AFTER THE MERGER
Certain provisions of FirstEnergy's articles of incorporation and
regulations are summarized or referred to below. The summaries are merely an
outline, do not purport to be complete, do not relate to or give effect to the
provisions of statutory or common law, and are qualified in their entirety by
express reference to such articles of incorporation and regulations.
CAPITAL STOCK
FirstEnergy is currently authorized by its articles of incorporation to
issue 300,000,000 shares of common stock, par value $0.10 per share, of which
227,876,641 shares were issued and outstanding as of September 20, 2000.
FirstEnergy is also authorized by its articles of incorporation to issue
5,000,000 shares of preferred stock, par value $100 per share, none of which are
issued and outstanding. The common stock currently outstanding is, and the
common stock offered pursuant to this prospectus will be, fully paid and
non-assessable.
The authorized number of shares of FirstEnergy common stock will be
increased to 375,000,000 if the FirstEnergy shareholders vote in favor of the
adoption of the merger agreement including the proposed amendment to increase
the number of authorized shares of FirstEnergy common stock.
DIVIDEND RIGHTS
Subject only to the prior rights and preferences of any issued and
outstanding shares of FirstEnergy preferred stock, the holders of the common
stock shall be entitled to receive dividends thereon when, as and if declared by
the board of directors of FirstEnergy out of legally available funds. There can
be no assurance that funds will be legally available to pay dividends at any
given time or that, if funds are available, the board of directors will declare
a dividend.
LIQUIDATION RIGHTS
In the event of any dissolution or liquidation of FirstEnergy, the holders
of common stock shall be entitled to receive, pro rata, after the prior rights
of the holders of any issued and outstanding shares of FirstEnergy preferred
stock have been satisfied, all of the assets of FirstEnergy that remain
available for distribution after payment in full of all liabilities of
FirstEnergy.
VOTING RIGHTS
The holders of common stock of FirstEnergy are entitled to one vote on each
matter submitted for their vote at any meeting of the shareholders of
FirstEnergy for each share of FirstEnergy common stock held of record as of the
record date for such meeting. Under FirstEnergy's articles of incorporation, the
voting rights, if any, of FirstEnergy preferred stock may differ from the voting
rights of FirstEnergy common stock. The holders of common stock are not entitled
to cumulate their votes for the election of directors. FirstEnergy's articles of
incorporation provide that the board of directors be divided into three classes
with the term of office of the respective classes to expire in successive years.
In order to amend or repeal, or adopt any provision inconsistent with, the
provisions of FirstEnergy's articles of incorporation dealing with (a) the right
of the board of directors to establish the terms of unissued shares or to
authorize the acquisition by FirstEnergy of its outstanding shares; (b) the
absence of cumulative voting and preemptive rights; or (c) the requirement that
at least 80% of the voting power of FirstEnergy's outstanding shares must
approve the foregoing, the affirmative vote of at least 80% of the voting power
of FirstEnergy's outstanding shares is required. In addition, the affirmative
vote of at least 80% of the voting power of FirstEnergy's outstanding shares
must be obtained to amend or repeal the provisions of FirstEnergy's regulations
dealing with (a) the time and
99
<PAGE>
place of shareholders' meetings, the manner in which special meetings of
shareholders are called or the way business is conducted at such meetings;
(b) the number, election and terms of directors, the manner of filling vacancies
on the board of directors, the removal of directors or the manner in which
directors are nominated; or (c) the indemnification of officers or directors.
Amendment of the provision of the regulations that requires the approval of 80%
of the voting power of FirstEnergy's outstanding shares in the instances
enumerated above requires the same level of approval.
Adoption of amendments to FirstEnergy's articles of incorporation (other
than those requiring 80% approval as specified above), adoption of a plan of
merger, consolidation or reorganization, authorization of a sale or other
disposition of all or substantially all of the assets of FirstEnergy not made in
the usual and regular course of its business or adoption of a resolution of
dissolution, and any other matter which would otherwise require a two-thirds
approving vote, require the approval of two-thirds of the voting power of
FirstEnergy's outstanding shares, unless FirstEnergy's board of directors
provides otherwise, in which case, these matters will require the approval of a
majority of the voting power of FirstEnergy's outstanding shares and the
approval of a majority of the voting power of any shares entitled to vote as a
class.
NO PREEMPTIVE OR CONVERSION RIGHTS
Holders of FirstEnergy common stock have no preemptive or conversion rights
and are not subject to further calls or assessments by FirstEnergy. There are no
redemption or sinking fund provisions applicable to the common stock.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF OHIO LAW
Ohio law contains several anti-takeover provisions that are applicable to
FirstEnergy. In addition, FirstEnergy has in effect a Shareholder Rights
Agreement which grants to FirstEnergy shareholders the rights to purchase
additional shares of FirstEnergy common stock under various circumstances. These
rights may have anti-takeover effects. For a more complete description of the
provisions of Ohio Law and FirstEnergy Shareholder Rights Agreement, please see
"Differences in the Rights of GPU Shareholders After the Merger--Anti-takeover
Provisions/Shareholders Rights Agreements--FirstEnergy."
LISTING
The outstanding shares of FirstEnergy common stock are traded on the New
York Stock Exchange under the symbol "FE."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock of FirstEnergy is
FirstEnergy Securities Transfer Company, a wholly-owned subsidiary of
FirstEnergy.
100
<PAGE>
DIFFERENCES IN THE RIGHTS OF GPU SHAREHOLDERS AFTER THE MERGER
GENERAL
GPU is a Pennsylvania corporation subject to the provisions of the
Pennsylvania Business Corporation Law. FirstEnergy is an Ohio corporation
subject to the provisions of the Ohio General Corporation Law.
Upon completion of the merger, shareholders of GPU will become shareholders
of FirstEnergy and their rights as shareholders of FirstEnergy will be governed
by the articles of incorporation and regulations of FirstEnergy and Ohio law,
rather than by the articles of incorporation and by-laws of GPU and Pennsylvania
law. FirstEnergy's regulations are effectively equivalent to a company's
by-laws.
The following is a summary of how the rights of the shareholders of GPU will
differ when they become shareholders of FirstEnergy. This summary does not
purport to be complete and is qualified in its entirety by reference to the
Pennsylvania Business Corporation Law and the Ohio General Corporation Law,
GPU's articles of incorporation and by-laws and FirstEnergy's articles of
incorporation and regulations.
AUTHORIZED CAPITAL STOCK
GPU. The authorized capital stock of GPU consists of 350,000,000 shares of
common stock, par value $2.50 per share, of which 121,332,510 shares were issued
and outstanding as of the close of business on October 12, 2000. No GPU
preferred stock is currently authorized or outstanding.
FIRSTENERGY. The authorized capital stock of FirstEnergy consists of
(i) 300,000,000 shares of common stock, par value $0.10 per share, of which
227,336,741 were issued and outstanding as of the close of business on
October 12, 2000 and (ii) 5,000,000 shares of preferred stock, par value $100
per share, none of which are currently issued and outstanding. If the merger is
approved, FirstEnergy's authorized common stock will increase to 375,000,000
shares. FirstEnergy's articles of incorporation authorize the board of directors
to cause the preferred stock to be issued in one or more series and to adopt
amendments to the articles of incorporation fixing the terms of each series
issued.
DIRECTOR VACANCIES AND REMOVAL
GPU. Pursuant to GPU's articles of incorporation, candidates receiving the
highest number of votes shall be elected as directors of GPU. A vacancy on the
board of directors for any reason may be filled by a majority of the remaining
members of the board of directors, even if the remaining directors constitute
less than a quorum.
GPU's directors are divided into three classes, each to hold office in
staggered three-year terms, and may only be removed for cause by the vote of the
holders of at least a majority of the shares of GPU common stock outstanding.
GPU's shareholders are entitled to a cumulative vote in the election of
directors. Cumulative voting means that each shareholder is entitled to as many
votes as are equal to the number of shares the shareholder owns multiplied by
the number of directors to be elected at any particular annual shareholders'
meeting. At any annual meeting, a GPU shareholder may cast all of his or her
votes for a single candidate for election to the GPU board or may distribute
them among any two or more candidates.
FIRSTENERGY. FirstEnergy's directors are divided into three classes and
each class is to hold office in staggered three-year terms. Pursuant to
FirstEnergy's regulations, at each annual meeting, directors of one class of
FirstEnergy are elected by a plurality vote of its shareholders. Any vacancies
on the board of directors (including vacancies resulting from newly created
directorships) may be filled (i) by the affirmative vote of a majority of the
remaining directors then in office, even if the remaining directors constitute
less than a quorum, or by a sole remaining director or (ii) by the affirmative
vote
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of FirstEnergy's shareholders after a vote to increase the number of directors
at a meeting called for that purpose. Any director or the entire board of
directors may be removed with or without cause upon the affirmative vote of the
holders of at least 80% of the voting power of the shareholders, voting together
as a single class. FirstEnergy's shareholders do not have the right to exercise
cumulative voting in the election of directors.
MEETINGS OF SHAREHOLDERS
GPU. Under GPU's by-laws, in addition to the annual meeting, a special
meeting of the shareholders may be called by the chairman of the board of
directors or by the president. In addition, GPU's chief executive officer or
secretary must call a special meeting at the request in writing of any three
members of the board of directors. Business transacted at a special meeting
shall be confined to the purpose stated in the call. The holders of a majority
of shares of GPU common stock issued and outstanding and entitled to vote,
present in person or by proxy, shall constitute a quorum at any meeting of
shareholders.
FIRSTENERGY. Under FirstEnergy's code of regulations, in addition to the
annual meeting, a special meeting of the shareholders may be called by the
chairman, the president, a majority of the board of directors acting with or
without a meeting or any person or persons holding not less than 50% of all the
shares outstanding and entitled to vote on any proposal to be submitted at such
meeting. To constitute a quorum at any meeting of shareholders, there must be
present, in person or by proxy, shareholders of record entitled to exercise not
less than a majority of the voting power with respect to any one of the purposes
for which the meeting is called.
AMENDMENT TO ARTICLES OF INCORPORATION
GPU. Generally, Pennsylvania law provides that, unless the articles of
incorporation specify a greater vote, adoption of a proposed amendment to the
articles of incorporation requires the affirmative vote of a majority of the
votes cast by the shareholders entitled to vote on the amendment and, if any
class or series of shares is entitled to vote on the amendment as a class, the
affirmative vote of a majority of the votes cast in the class vote; the board of
directors must also approve the amendment. GPU's articles of incorporation do
not specify a greater vote to adopt a proposed amendment to GPU's articles of
incorporation unless the proposed amendment relates to the size and
classification of GPU's board, in which case, the amendment must be adopted by
GPU shareholders holding at least two thirds of GPU's outstanding shares.
FIRSTENERGY. Ohio law permits the adoption of amendments to the articles of
incorporation if those amendments are approved at a meeting held for that
purpose by the holders of shares entitling them to exercise two-thirds of the
voting power of the corporation, or a lesser (but not less than a majority) or
greater vote as specified in the articles of incorporation. FirstEnergy's
articles of incorporation provide that amendments to its articles which would
change its name, the location of its principal office, its permissible
activities or its authorized capital stock, or which would affect the ability of
the directors to alter the vote otherwise required by Ohio law in these
instances may be effected by a two-thirds vote of the voting power of
FirstEnergy, unless the board of directors provides otherwise by resolution, in
which case such amendments may be effected by the affirmative vote of the
holders of shares entitling them to exercise a majority of the voting power of
FirstEnergy. Amendments to FirstEnergy's articles of incorporation which would
change the power of the directors to act or the power of FirstEnergy to acquire
its capital stock, which would establish cumulative voting or grant preemptive
rights or which would reduce, or be inconsistent with, the vote required in any
of these instances can only be effected upon the affirmative vote of 80% of the
voting power of FirstEnergy, voting together as a single class.
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AMENDMENT TO BY-LAWS/REGULATIONS
GPU. Under Pennsylvania law, the power to adopt, amend or repeal by-laws
resides exclusively in the shareholders unless the by-laws confer a concurrent
power on the board of directors. However, pursuant to Pennsylvania law, even if
the by-laws confer concurrent power on the board of directors, the directors
have no authority to adopt or change a by-law on any subject that is committed
expressly to the shareholders by Pennsylvania law, and any action effected by
such concurrent power remains subject to the power of the shareholders to change
such action. GPU's by-laws provide that the affirmative vote of the holders of a
majority of the capital stock represented and entitled to vote at a
shareholders' meeting or a majority of GPU's board of directors may adopt, amend
or repeal GPU's by-laws. In the event of the adoption, amendment or repeal of
any by-law by the board of directors, such action is subject to the power of the
shareholders to repeal such action.
FIRSTENERGY. FirstEnergy's regulations provide that except as provided by
law or in the instances noted below, the regulations may be amended or repealed
at any meeting of shareholders if the amendment has been described in the notice
of such meeting. The sections in the FirstEnergy regulations relating to time
and place of meetings, the calling of special meetings, the order of business at
shareholders' meetings, the number, election and terms of directors, newly
created directorships and vacancies, the removal, nomination and election of
directors, indemnification of directors, officers, employees and agents and
amendment of the regulations may be amended or repealed only with the
affirmative vote of the holders of at least 80% of the voting power of
FirstEnergy, voting together as a single class. No amendment to the FirstEnergy
regulations will be effective to eliminate or diminish indemnification rights of
any person, whether by way of insurance, contract or otherwise, existing at the
time immediately preceding such amendment.
SALE OF ASSETS, MERGER AND CONSOLIDATION
GPU. Generally, under Pennsylvania law, a sale or other disposition of all
or substantially all of the corporation's assets, a merger, consolidation, share
exchange, division or dissolution of the corporation must be adopted by the
board of directors and, unless the articles of incorporation or the board of
directors requires a greater vote or vote by voting group, approved by a
majority of the votes cast by all shareholders entitled to vote thereon, except
in limited circumstances. Since GPU's articles of incorporation are silent on
this issue, approval by a majority of the votes cast by all shareholders is
sufficient to authorize the foregoing transactions.
FIRSTENERGY. Under Ohio law, unless otherwise provided in the articles of
incorporation, any merger, consolidation or sale of substantially all of the
assets of the corporation requires the approval of the holders of shares
entitling them to exercise at least two-thirds of the voting power of the
corporation. With respect to mergers and consolidations, approval by the
affirmative vote of the holders of two-thirds of any class of shares, unless
otherwise provided in the articles, may also be required if the rights of
holders of that class are affected in certain respects by the merger or
consolidation. Ohio law permits mergers without approval by shareholders of the
surviving corporation if, among other things, no amendment of the articles of
incorporation is involved and no more than a specified maximum increase in
outstanding voting stock will result. In Ohio, the maximum permitted increase is
any amount less than one-sixth of the surviving corporation's shares possessing
voting power in the election of directors after giving effect to the business
combination.
FirstEnergy's articles of incorporation provide that the adoption of a plan
of merger, consolidation or reorganization, as well as authorization of a sale
or other disposition of all or substantially all of the assets of FirstEnergy
not made in the usual and regular course of its business or adoption of a
resolution of dissolution of FirstEnergy, requires authorization by the holders
of two-thirds of the voting power of FirstEnergy, unless the FirstEnergy board
of directors provides otherwise by resolution, in which case such authorization
shall be by a majority of the voting power of FirstEnergy.
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ANTI-TAKEOVER PROVISIONS/SHAREHOLDER RIGHTS AGREEMENTS
GPU. Pennsylvania law contains several anti-takeover provisions applicable to
GPU.
INTERESTED PARTY TRANSACTIONS. Under Pennsylvania law, unless a corporation
has opted out of the applicable statutory provisions in its articles of
incorporation, specified proposed transactions to which the corporation is a
party require the affirmative vote of the holders of shares representing at
least a majority of the votes that all shareholders are entitled to cast with
respect to the proposed transaction, excluding any shares held by a shareholder
(including his or her associates and affiliates) who is a party to the proposed
transaction or who receives special treatment. Those specified proposed
transactions include transactions where that shareholder would:
- be a party to a merger or consolidation, a share exchange or certain sales
of assets involving the corporation or one of its subsidiaries;
- receive a disproportionate amount of any of the securities of any
corporation which survives or results from a division of the corporation;
- be treated differently from others holding shares of the same class in a
voluntary dissolution of the corporation; or
- have his or her percentage of voting or economic share interest in the
corporation materially increased relative to substantially all other
shareholders in a reclassification.
This special voting requirement does not apply if:
- the transaction being proposed has been approved by a majority of the
corporation's board of directors, excluding directors affiliated with or
nominated by that shareholder;
- the consideration received for each class of stock owned by that
shareholder is at least as high as the highest consideration paid for that
class by that shareholder; or
- the transaction involves a parent corporation which owns at least 80% of
the stock.
GPU's articles of incorporation do not except GPU from these provisions of
Pennsylvania law with respect to interested shareholder transactions.
CONTROL TRANSACTIONS. Under Pennsylvania law, unless a corporation has
opted out of the applicable statutory provisions, when a person or group of
persons acting together acquires 20% or more of the shares entitled to vote in
the election of directors, any other shareholder of the corporation who objects
may, within a reasonable time after such person or group of persons acquires the
20% stake, under certain prescribed procedures, require such person or group of
persons to purchase his or her shares at a fair value as defined in the
Pennsylvania Business Corporation Law. GPU's articles of incorporation and
by-laws do not except GPU from these provisions of Pennsylvania law with respect
to control transactions.
BUSINESS COMBINATIONS; FAIR PRICING. Pennsylvania law, unless a corporation
has opted out of the applicable statutory provisions, prohibits a corporation
from engaging in a business combination (such as a merger, consolidation, share
exchange, division, sale or other disposition of property or issuance of shares
for a specified percentage of the value of the corporation) with a 20%
shareholder for five years from the time he or she acquired the stock to become
a 20% shareholder except where one of the following conditions is met:
- the 20% shareholder's stock purchase was approved by the corporation's
board of directors before the date that person became a 20% holder;
- the business combination itself was approved by the corporation's board of
directors before that date;
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- the business combination is approved by the affirmative vote of the
majority of shareholders, excluding the 20% shareholder, no earlier than
three months after that date, provided the 20% shareholder is the
beneficial owner of 80% of the voting shares of the corporation and
provided the price paid to all shareholders meets statutory criteria
establishing a formula price; or
- the business combination is approved by the affirmative vote of all of the
holders of all of the outstanding common shares.
After the expiration of the five-year period, the business combination will
be permitted if:
- approved by a majority of shareholders, excluding the 20% shareholder; or
- approved by a majority vote of the shareholders provided the price to be
paid meets the formula price.
GPU's articles of incorporation and by-laws do not except GPU from these
provisions of Pennsylvania law with respect to business combinations and fair
pricing.
GPU SHAREHOLDER RIGHTS AGREEMENT. On August 6, 1998, GPU's board of
directors declared a dividend distribution of one common stock purchase right
for each outstanding share of GPU common stock. Generally, each right, when
exercisable, entitles the registered holder to purchase from GPU one-tenth of a
share of GPU common stock at a price of $12 per one-tenth of a share, subject to
adjustment. The following description of the rights is qualified in its entirety
by reference to the terms of the rights agreement between GPU and ChaseMellon
Shareholder Services, L.L.C., as rights agent. The rights agreement is generally
not applicable to transactions approved by GPU's board of directors and is not
applicable to the proposed merger between GPU and FirstEnergy.
The rights are not exercisable until the earlier to occur of:
- a public announcement that, without the prior consent of GPU's board of
directors, a person or group, including any affiliates or associates of
such person or group, acquired or obtained the right to acquire,
beneficial ownership of 10% or more of the outstanding shares of GPU
common stock; or
- ten business days following the commencement or announcement of an
intention to make a tender offer or exchange offer which would result in
any person or group (and related persons) having beneficial ownership of
10% or more of the outstanding shares of GPU common stock without the
prior consent of the GPU board of directors.
The rights will expire on August 6, 2008, unless earlier redeemed by GPU as
described below.
The rights become exercisable if a person or group acquires beneficial
ownership of 10% or more of the outstanding shares of GPU common stock, each
holder of a right, other than rights beneficially owned by such person or group,
which become void, will generally thereafter have the right to receive upon
exercise that number of shares of GPU common stock having an average market
value during a specified time period of two times the purchase price provided
for in the right. In addition, at any time after a person or group acquires
beneficial ownership of 10% or more of the outstanding shares of GPU common
stock and prior to the acquisition by such person or group of 50% or more of the
then outstanding shares of GPU common stock, GPU's board of directors may
exchange all or part of the then outstanding rights, other than rights owned by
such person or group which have become void, for shares of GPU common stock.
If GPU is acquired in a merger or other business combination transaction or
50% or more of its assets or earning power is sold after a person or group
acquires beneficial ownership of 10% or more of the outstanding shares of GPU
common stock without the prior consent of GPU's board of directors, each holder
of a right will thereafter have the right to receive upon exercise that number
of
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shares of common stock of the acquiring company which at the time of such
transaction would have a market value of two times the exercise price of the
right.
At any time prior to the earlier to occur of (i) a person or group acquiring
beneficial ownership of 10% or more of the outstanding shares of GPU common
stock or (ii) the expiration of the rights, GPU's board of directors may redeem
the rights in whole, but not in part, at a price of $0.001 per right.
Additionally, at any time after a person or group acquires beneficial ownership
of 10% or more of the outstanding shares of GPU common stock and prior to the
expiration of the period during which the right is exercisable, GPU may redeem
the rights in whole, but not in part, at a price of $0.001 per right, provided
that such redemption is in connection with a merger or other business
combination transaction or series of transactions involving GPU in which all
holders of GPU common stock are treated alike but not involving a person or
group having beneficial ownership of 10% or more of the outstanding shares of
GPU common stock.
The rights, if applicable, may have anti-takeover effects. The rights will
cause substantial dilution to a person or group that attempts to acquire GPU
unless the GPU board of directors consent to the acquisition or redeem the
rights.
FIRSTENERGY. Ohio law contains several anti-takeover provisions applicable to
FirstEnergy.
TRANSACTIONS WITH INTERESTED SHAREHOLDERS. Chapter 1704 of the Ohio General
Corporation Law applies to a broad range of business combinations between an
Ohio corporation and an interested shareholder. The Ohio law definition of
"business combination" includes mergers, consolidations, combinations or
majority share acquisitions. An "interested shareholder" is defined as a
shareholder who, directly or indirectly, exercises or directs the exercise of
10% or more of the voting power of the corporation.
Chapter 1704 restricts corporations from engaging in business combinations
with interested shareholders, unless the articles of incorporation provide
otherwise, for a period of three years following the date on which the
shareholder became an interested shareholder, unless the directors of the
corporation have approved the business combination or the interested
shareholder's acquisition of shares of the corporation prior to the date the
shareholder became an interested shareholder. After the initial three-year
moratorium, Chapter 1704 prohibits such transactions absent approval by the
directors of the interested shareholder's acquisition of shares of the
corporation prior to the date that the shareholder became an interested
shareholder, approval by disinterested shareholders of the corporation or the
transaction meeting certain statutorily defined fair price provisions.
CONTROL SHARE ACQUISITIONS. Under Section 1701.831 of the Ohio General
Corporation Law, unless the articles of incorporation provide otherwise, any
control share acquisition of a corporation can only be made with the prior
approval of the corporation's shareholders. A "control share acquisition" is
defined as any acquisition of shares of a corporation that, when added to all
other shares of that corporation owned by the acquiring person, would enable
that person to exercise levels of voting power in any of the following ranges:
at least 20% but less than 33 1/3%; at least 33 1/3% but less than 50%; or 50%
or more.
FIRSTENERGY SHAREHOLDER RIGHTS AGREEMENT. On November 18, 1997, FirstEnergy
authorized the assignment of one share purchase right for each outstanding share
of FirstEnergy common stock. Each right entitles the registered holder to
purchase one share of FirstEnergy common stock at a purchase price of $70 per
share, when the rights become exercisable. The following description of the
rights is qualified in its entirety by reference to the terms of the rights
agreement between FirstEnergy and The Bank of New York, as rights agent.
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The rights are not exercisable until the earlier of:
- ten days following a public announcement that a person or group, including
any affiliates or associates of such person or group, has acquired or
obtained the right to acquire, beneficial ownership of 15% or more of the
outstanding shares of FirstEnergy common stock (an "Acquiring Person"); or
- ten days following the commencement or announcement of an intention to
make a tender offer or exchange offer which would result in any person or
group (and related persons) having beneficial ownership of 25% or more of
the outstanding shares of FirstEnergy common stock.
The rights will expire on November 28, 2007, unless such date is extended or
the rights are earlier redeemed by FirstEnergy and exchanged for shares of
FirstEnergy common stock, as described below.
In the event that (i) FirstEnergy merges with or is involved in a business
combination transaction with an Acquiring Person, (ii) 50% or more of
FirstEnergy's consolidated assets or earning power are sold to an Acquiring
Person, (iii) an Acquiring Person acquires 25% or more of the outstanding shares
of FirstEnergy common stock or (iv) an Acquiring Person engages in one or more
self-dealing transactions with FirstEnergy, each holder of a right, other than
rights beneficially owned by an Acquiring Person, which become void, will have
the right to receive upon exercise that number of shares of FirstEnergy common
stock or stock of the acquiring company, as the case may be, having an average
market value during a specified time period of two times the purchase price
provided for in the right.
At any time after a person or group acquires beneficial ownership of 15% or
more of the outstanding shares of FirstEnergy common stock and prior to the
acquisition by such person or group of 50% or more of the then outstanding
shares of FirstEnergy common stock, FirstEnergy may exchange all or part of the
then outstanding rights (other than rights owned by such person or group which
have become void) for shares of FirstEnergy common stock.
At any time prior to the tenth day following the acquisition by a person or
group of beneficial ownership of 15% or more of the outstanding shares of
FirstEnergy common stock, FirstEnergy may redeem the rights in whole, but not in
part, at a price of $0.001 per right.
The rights may have anti-takeover effects. The rights will cause substantial
dilution to a person or group that attempts to acquire FirstEnergy unless the
rights are redeemed by FirstEnergy's board of directors. However, it can be
expected that the rights would not interfere with any merger or other business
combination approved by the board of directors.
DISSENTERS' RIGHTS
GPU. Pennsylvania law provides rights to the following shareholders of a
corporation to dissent from, and receive payment of the fair value of their
shares.
- shareholders who are members of a subgroup of a class with identifiable
characteristics accorded special treatment pursuant to a plan (including a
plan of asset transfer, plan of merger, plan of consolidation, plan of
exchange and plan of division) or amendment which was not approved by a
vote of this subgroup voting as a special class;
- shareholders of a corporation to be a party to a merger or consolidation
except where the merger or consolidation does not require shareholder
approval because the surviving corporation is a domestic corporation with
identical articles of incorporation to those of the constituent
corporation except for any provisions therein not subject to shareholder
vote;
- shareholders of shares to be acquired pursuant to a plan of share
exchange;
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- shareholders of a corporation which adopt a plan of division unless
shareholder approval of such plan was not required;
- shareholders of a corporation which adopt a plan of conversion into a
nonprofit corporation or a management corporation; and
- shareholders granted dissenters' rights pursuant to the by-laws or a
resolution of the board of directors in connection with a corporate action
or other transaction which would not otherwise trigger statutory
dissenters' rights.
However, with limited exceptions, no dissenters' rights are available in the
case of a merger, consolidation, plan of exchange or plan of division with
respect to shares which, at the applicable record date, were either listed on a
national securities exchange or held of record by more than 2,000 shareholders.
Those exceptions are as follows:
- the holders of the shares are required by the terms of the merger or
consolidation to accept any consideration other than shares of the
acquiring, surviving, new or other corporation or cash in lieu of
fractional shares;
- the shares constitute a preferred or special class and such class was not
entitled to vote on the proposed transaction or plan and effectuation of
the proposed transaction or the plan was not conditioned upon the approval
by the affirmative vote of a majority of all shares within the class; or
- shareholders who are members of a subgroup of a class with identifiable
characteristics accorded special treatment pursuant to a plan of asset
transfer, plan of merger, plan of consolidation, plan of exchange or plan
of division which was not approved by a vote of such subgroup voting as a
special class.
See "Rights of Dissenting Shareholders--Rights of Dissenting GPU
Shareholders" above for an explanation of how GPU shareholders may exercise
dissenters' rights in connection with the proposed merger between GPU and
FirstEnergy.
FIRSTENERGY. Under Ohio law, dissenting shareholders are entitled to
appraisal rights in connection with the lease, sale, exchange, transfer or other
disposition of all or substantially all of the assets of a corporation and in
connection with certain amendments to a corporation's articles of incorporation.
Shareholders of an Ohio corporation being merged into or consolidated with
another corporation are also entitled to appraisal rights. In addition,
shareholders of an acquiring corporation are entitled to appraisal rights in any
merger, combination or "majority share acquisition" in which such shareholders
are entitled to voting rights. The Ohio law provides shareholders of an
acquiring corporation with voting rights if the acquisition involves the
transfer of shares of the acquiring corporation entitling the recipients thereof
to exercise one-sixth or more of the voting power of such acquiring corporation
immediately after the completion of the merger. See "Rights of Dissenting
Shareholders--Rights of Dissenting FirstEnergy Shareholders" above for an
explanation of how FirstEnergy shareholders may exercise dissenters' rights in
connection with the proposed merger between FirstEnergy and GPU.
INDEMNIFICATION, INSURANCE AND LIMITATION OF DIRECTOR LIABILITY
GPU. GPU's by-laws provide that a director of GPU shall not be personally
liable for monetary damages for any action taken, or any failure to take any
action, unless the director has breached or failed to perform the duties of his
office under Section 1721 of the Pennsylvania Business Corporation Law, and the
breach or failure to perform constitutes self-dealing, willful misconduct or
recklessness. GPU will indemnify any person who was or is a party or is
threatened to be made a party to any action, suit or proceeding by reason of the
fact that he or she was an officer, director or employee of GPU, to the fullest
extent permitted by law, unless the act or failure to act of such person giving
rise to
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the claim for indemnification is finally determined by a court to have
constituted willful misconduct or recklessness.
FIRSTENERGY. Under Ohio law, Ohio corporations are permitted to indemnify
directors, officers, employees and agents within prescribed limits, and must
indemnify them under certain circumstances. Ohio law does not authorize payment
by a corporation of judgments against a director, officer, employee or agent
after a finding of negligence or misconduct in a derivative suit absent a court
order. Indemnification is required, however, to the extent that person succeeds
on the merits. In all other cases, if it is determined that a director, officer,
employee or agent acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation,
indemnification is discretionary, except as otherwise provided by a
corporation's articles of incorporation or code of regulations, or by contract,
except with respect to the advancement of expenses of directors. The statutory
right to indemnification is not exclusive in Ohio, and Ohio corporations may,
among other things, purchase insurance to indemnify those persons.
Ohio law provides that a director is entitled to mandatory advancement of
expenses, including attorneys' fees, incurred in defending any action, including
derivative actions, brought against the director. The director must agree,
however, to cooperate with the corporation concerning the matter and to repay
the amount advanced if it is proved by clear and convincing evidence that his or
her action or failure to act was done with deliberate intent to cause injury to
the corporation or with reckless disregard for the corporation's best interests.
FirstEnergy's regulations provide that FirstEnergy shall indemnify, to the
full extent permitted by Ohio law, any person who was or is a party or is
threatened to be made a party to any action, suit or proceeding, by reason of
the fact that he or she is or was an officer, director, employee or agent of
FirstEnergy. The FirstEnergy regulations also permit FirstEnergy to purchase and
maintain insurance providing for the indemnification of the persons described
above and, upon approval of the FirstEnergy board, to enter into indemnification
agreements with such persons.
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LEGAL MATTERS
The validity of the shares of FirstEnergy common stock to be issued in
connection with the merger will be passed upon by Leila L. Vespoli, Esq., Vice
President and General Counsel of FirstEnergy Corp.
The material U.S. federal income tax consequences of the merger are being
passed upon for FirstEnergy by Winthrop, Stimson, Putnam & Roberts and for GPU
by Fried, Frank, Harris, Shriver & Jacobson.
EXPERTS
The consolidated financial statements incorporated by reference in
FirstEnergy's Annual Report on Form 10-K for the year ended December 31, 1999
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report dated February 11, 2000, and are incorporated in this
joint proxy statement/prospectus by reference. The consolidated financial
statements included in GPU's Annual Report on Form 10-K for the year ended
December 31, 1999 have been audited by PricewaterhouseCoopers LLP, independent
public accountants, as indicated in their report dated February 10, 2000, and
are incorporated in this joint proxy statement/prospectus by reference. The
audited consolidated financial statements of FirstEnergy and GPU are
incorporated herein by reference in reliance upon the reports of said firms as
experts in accounting and auditing.
With respect to the unaudited interim financial information of FirstEnergy
for the quarters ended March 31, 2000 and June 30, 2000, Arthur Andersen LLP has
applied limited procedures in accordance with professional standards for a
review of that information. However, their separate reports thereon state that
they did not audit and they do not express an opinion on that interim financial
information. Accordingly, the degree of reliance on their reports on that
information should be restricted in light of the limited nature of the review
procedures applied. In addition, the accountants are not subject to the
liability provisions of Section 11 of the Securities Act of 1933 for their
reports on the unaudited interim financial information because these reports are
not "reports" or "parts" of the registration statement prepared or certified by
the accountants within the meaning of Sections 7 and 11 of that Act.
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Arthur Andersen LLP expect to be present at the
FirstEnergy special meeting and will be available to respond to appropriate
questions from FirstEnergy shareholders in attendance. Representatives of
PricewaterhouseCoopers LLP expect to be present at the GPU special meeting and
will be available to respond to appropriate questions from GPU shareholders in
attendance.
SHAREHOLDER PROPOSALS
FIRSTENERGY. A FirstEnergy shareholder who wishes to offer a proposal for
inclusion in FirstEnergy's proxy statement and proxy card for the 2001 annual
meeting should submit the proposal and any supporting statement to the corporate
secretary at FirstEnergy's principal office by November 17, 2000. Any proposal
received after that date will not be eligible for inclusion in the 2001 proxy
statement and proxy card. A FirstEnergy shareholder who wishes to offer a
proposal for consideration at the 2001 annual meeting after November 17, 2000,
and who wants the proposal referenced in FirstEnergy's proxy statement, may do
so by submitting the proposal to the corporate secretary at FirstEnergy's
principal office by February 9, 2001. However, in order to actually raise the
matter at the meeting, the shareholder will also have to comply with the notice
provisions contained in FirstEnergy's regulations.
GPU. A GPU shareholder who wishes to offer a proposal for inclusion in the
proxy statement and proxy card for the 2001 annual meeting of shareholders must
submit the proposal and any
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supporting statement to the corporate secretary at GPU's principal office not
later than November 21, 2000. A GPU shareholder may also present a proposal at
the 2001 annual meeting of shareholders which is not included in the proxy
statement provided that the proposal is submitted to the corporate secretary in
accordance with the notice and procedural requirements contained in GPU's
by-laws.
CERTAIN PROXY CARD MATTERS
If you participate in the GPU Dividend Reinvestment and Stock Purchase Plan
or the FirstEnergy Stock Investment Plan, your proxy card represents both the
number of shares credited to your plan account and any certificated shares
registered under the same name. If your shares are registered in different
names, you will receive a separate proxy card for each name in which your shares
are registered. If your shares are held by a broker or bank as nominee, you will
receive a voter information form from your broker or bank.
WHERE YOU CAN FIND MORE INFORMATION
FirstEnergy and GPU file annual, quarterly and current reports, proxy
statements, and other information with the SEC. Anything the companies file may
be read and copied at the following locations at the SEC:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
Room 1024, Judiciary Plaza Suite 1300 Citicorp Center
450 Fifth Street, N.W. 7 World Trade Center Suite 1400
Washington, DC 20549 New York, New York 10048 500 West Madison Street
Chicago, Illinois 60661-2511
</TABLE>
Please call the SEC at 1-800-732-0330 for further information on the public
reference rooms. FirstEnergy's and GPU's SEC filings should also be available to
the public from commercial document retrieval services and at the Internet
world-wide web site that the SEC maintains at HTTP://WWW.SEC.GOV. In addition,
materials and information concerning FirstEnergy and GPU can be inspected at the
New York Stock Exchange, 20 Broad Street, 7th Floor, New York, New York 10005,
where shares of FirstEnergy common stock and GPU common stock are listed.
The SEC allows FirstEnergy and GPU to "incorporate by reference" information
into this joint proxy statement/prospectus, which means that FirstEnergy and GPU
can disclose important information to you by referring you to another document
filed separately with the SEC. The information incorporated by reference is
deemed to be part of this joint proxy statement/prospectus, except for any
information superseded by information contained directly in this joint proxy
statement/prospectus, or in later filed documents incorporated by reference in
this joint proxy statement/prospectus. This joint proxy statement/prospectus
incorporates by reference the documents set forth below that were previously
filed with the SEC by FirstEnergy (SEC File No. 333-21011) or GPU (SEC File
No. 001-06047). These incorporated documents contain important information about
FirstEnergy and GPU.
REGARDING FIRSTENERGY
- FirstEnergy's Annual Report on Form 10-K for the year ended December 31,
1999.
- FirstEnergy's Quarterly Reports on Form 10-Q for the quarterly periods
ended March 31, 2000 and June 30, 2000.
- FirstEnergy's Current Reports on Form 8-K filed April 18, 2000, June 24,
2000, and August 10, 2000.
111
<PAGE>
REGARDING GPU
- GPU's Annual Report on Form 10-K for the year ended December 31, 1999.
- GPU's Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31, 2000 and June 30, 2000.
- GPU's Current Reports on Form 8-K filed February 4, 2000, March 3, 2000,
April 18, 2000, May 1, 2000, June 21, 2000, June 30, 2000, August 4, 2000,
August 11, 2000 and October 6, 2000.
The SEC may require FirstEnergy and GPU to file other documents pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
between the date of this joint proxy statement/prospectus and the date on which
the FirstEnergy special meeting and the GPU special meeting are to be held.
These other documents will be deemed to be incorporated by reference in this
joint proxy statement/prospectus.
FirstEnergy or GPU may have already sent you some of the documents
incorporated by reference in this joint proxy statement/prospectus.
Nevertheless, you may obtain any of them through either FirstEnergy or GPU, as
the case may be, the SEC, or the SEC's Internet world-wide web site as
previously described. Documents incorporated by reference are available from
either FirstEnergy or GPU, as the case may be, without charge, excluding all
exhibits unless such exhibits have specifically been incorporated by reference
in this joint proxy statement/prospectus. You may obtain documents incorporated
by reference in this joint proxy statement/prospectus by requesting them in
writing or by telephone from the appropriate company at the following addresses:
<TABLE>
<S> <C>
FIRSTENERGY CORP. GPU, INC.
INVESTOR SERVICES INVESTOR RELATIONS
76 SOUTH MAIN STREET 310 MADISON AVENUE
AKRON, OHIO 44308-1890 P.O. BOX 1957
(800) 631-8945 (TOLL-FREE) MORRISTOWN, NEW JERSEY 07962-1957
(877) 398-5639 (TOLL-FREE)
</TABLE>
If you would like to request documents from FirstEnergy or GPU, please do so
promptly in order to receive them before the special meetings.
FirstEnergy has provided all information contained in or incorporated by
reference in this joint proxy statement/prospectus with respect to FirstEnergy.
GPU has provided all information contained in or incorporated by reference in
this joint proxy statement/prospectus with respect to GPU. Neither FirstEnergy
nor GPU assumes any responsibility for the accuracy or completeness of the
information provided by the other party.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS TO VOTE ON THE MERGER
AGREEMENT. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT FROM WHAT IS CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS. THIS
JOINT PROXY STATEMENT/PROSPECTUS IS DATED OCTOBER 19, 2000. YOU SHOULD NOT
ASSUME THAT THE INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS
IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE. NEITHER THE MAILING OF THIS
JOINT PROXY STATEMENT/PROSPECTUS TO SHAREHOLDERS NOR THE COMPLETION OF THE
MERGER WILL CREATE ANY IMPLICATION TO THE CONTRARY.
112
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APPENDIX A
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
between
FIRSTENERGY CORP.
and
GPU, INC.
Dated as of August 8, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM REFERENCE
------------ ---------
<S> <C>
"1935 Act".................................................. Section 3.05(c)
"AEA"....................................................... Section 3.05(f)
"Aggregate Consideration"................................... Section 2.02(b)(ii)
"Aggregate Stock Amount".................................... Section 2.01(l)
"Agreement"................................................. Heading of the Agreement
"Blue-Sky Filings".......................................... Section 4.05(d)
"Blue-Sky Laws"............................................. Section 4.05(d)
"Business Combination"...................................... Section 9.05(b)(ii)
"Cash Consideration"........................................ Section 2.01(c)
"Cash Election"............................................. Section 2.01(d)
"Cash Election Number"...................................... Section 2.01(d)
"Cash Election Shares"...................................... Section 2.01(e)
"Cash Fraction"............................................. Section 2.01(e)
"Certificates of Merger".................................... Section 1.03
"CEI"....................................................... Section 6.01
"Closing"................................................... Section 1.02
"Closing Date".............................................. Section 1.02
"Code"...................................................... 2nd Recital
"Confidentiality Agreement"................................. Section 7.04(b)
"Disclosure Schedules"...................................... Section 7.17(b)
"Dissenting Shares"......................................... Section 2.01(n)
"DOJ"....................................................... Section 3.05(a)
"Effective Time"............................................ Section 1.03
"Election".................................................. Section 2.01(f)
"Election Deadline"......................................... Section 2.01(k)
"End Date".................................................. Section 9.01(d)
"Environmental Claim"....................................... Section 3.19(g)(i)
"Environmental Laws"........................................ Section 3.19(g)(ii)
"Environmental Permits"..................................... Section 3.19(b)
"ERISA"..................................................... Section 3.12(a)
"Exchange Act".............................................. Section 2.01(c)
"Exchange Agent"............................................ Section 2.02(a)
"Exchange Ratio"............................................ Section 2.01(c)
"Extended End Date"......................................... Section 9.01(d)
"FCC"....................................................... Section 3.05(g)
"FCC Approvals"............................................. Section 3.05(g)
"FERC"...................................................... Section 3.05(e)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM REFERENCE
------------ ---------
<S> <C>
"FERC Approvals"............................................ Section 3.05(e)
"Final Order"............................................... Section 8.01(c)(i)
"FirstEnergy"............................................... Heading of the Agreement
"FirstEnergy Advisor"....................................... Section 4.14
"FirstEnergy Common Stock".................................. Section 2.01(a)
"FirstEnergy Controlled Group Plans"........................ Section 4.12(a)
"FirstEnergy Deferred Unit"................................. Section 2.02(h)(ii)
"FirstEnergy Disclosure Schedule"........................... Article IV, 1st
paragraph
"FirstEnergy Indemnified Liabilities"....................... Section 7.13(d)(i)
"FirstEnergy Indemnified Parties"........................... Section 7.13(d)
"FirstEnergy Indemnifying Party"............................ Section 7.13(d)
"FirstEnergy Material Adverse Effect"....................... Section 3.01(a)
"FirstEnergy Option"........................................ Section 2.02(h)(i)
"FirstEnergy Option Plan"................................... Section 2.02(h)(i)
"FirstEnergy Performance Unit".............................. Section 2.02(h)(ii)
"FirstEnergy Permits"....................................... Section 4.09(a)
"FirstEnergy Permitted Acquisition"......................... Section 6.07(c)
"FirstEnergy Preferred"..................................... Section 4.02(a)
"FirstEnergy Rights"........................................ Section 4.02(c)
"FirstEnergy Rights Agreement".............................. Section 4.02(c)
"FirstEnergy SEC Documents"................................. Section 4.06(a)
"FirstEnergy Share Price"................................... Section 2.01(c)
"FirstEnergy Shares"........................................ Section 2.02(b)(ii)
"FirstEnergy Subs Preferred"................................ Section 4.13(b)(ii)
"FirstEnergy Takeover Proposal"............................. Section 6.05(c)
"Foreign Approvals"......................................... Section 3.05(j)
"Form of Election".......................................... Section 2.01(d)
"FPA"....................................................... Section 3.05(e)
"FTC"....................................................... Section 3.05(a)
"GAAP"...................................................... 3rd Recital
"Governmental Entity"....................................... Section 3.04(c)
"GPU"....................................................... Heading of the Agreement
"GPU Advisor"............................................... Section 3.14
"GPU Affiliates"............................................ Section 7.07(a)
"GPU Capital Budget"........................................ Section 5.15
"GPU Certificates".......................................... Section 2.01(i)
"GPU Common Stock".......................................... Section 2.01(b)
"GPU Controlled Group Plans"................................ Section 3.12(a)
"GPU Deferred Unit"......................................... Section 2.02(h)(ii)
"GPU Designees"............................................. Section 7.12(a)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM REFERENCE
------------ ---------
<S> <C>
"GPU Director".............................................. Section 7.12(b)
"GPU Disclosure Schedule"................................... Article III, 1st
paragraph
"GPU Indemnified Liabilities"............................... Section 7.13(a)(i)
"GPU Indemnified Parties"................................... Section 7.13(a)
"GPU Indemnifying Party".................................... Section 7.13(a)
"GPU Material Adverse Effect"............................... Section 3.01(a)
"GPU Option"................................................ Section 2.02(h)(i)
"GPU PCN Committee"......................................... Section 2.02(h)(ii)
"GPU Performance Unit"...................................... Section 2.02(h)(ii)
"GPU Permits"............................................... Section 3.09(a)
"GPU Rights"................................................ Section 3.02(c)
"GPU Rights Agreement"...................................... Section 3.02(c)
"GPU SEC Documents"......................................... Section 3.06(a)
"GPU Service"............................................... Section 7.09(d)
"GPU Stock Plan", "GPU Stock Plans"......................... Section 2.02(h)(i)
"GPU Stock Price"........................................... Section 2.02(h)(ii)
"GPU Stock Units"........................................... Section 2.02(h)(ii)
"GPU Subs Preferred"........................................ Section 3.13(b)
"GPU Takeover Proposal"..................................... Section 5.05(c)
"Hazardous Materials"....................................... Section 3.19(g)(iii)
"HSR Act"................................................... Section 3.05(a)
"Injunction"................................................ Section 8.01(e)
"IRS"....................................................... Section 3.11(c)
"JCP&L"..................................................... Section 5.05(c)
"Joint Proxy Statement"..................................... Section 3.05(b)(i)
"joint venture"............................................. Section 3.18(c)
"Local Approvals"........................................... Section 3.05(h)
"Material Adverse Effect"................................... Section 3.01(a)
"Merger".................................................... 1st Recital
"Merger Consideration"...................................... Section 2.01(c)
"MetEd"..................................................... Section 5.05(c)
"Minimum Tax Ratio"......................................... Section 2.01(l)
"No Election Shares"........................................ Section 2.01(j)
"Non-Convertible Preferred Securities"...................... Section 3.18(b)
"NRC"....................................................... Section 3.05(f)
"NRC Approvals"............................................. Section 3.05(f)
"NYSE"...................................................... Section 2.01(c)
"OE"........................................................ Section 6.01
"Ohio GCL".................................................. Section 1.04(d)
"PCBs"...................................................... Section 3.19(g)(iii)(A)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM REFERENCE
------------ ---------
<S> <C>
"Penelec"................................................... Section 5.05(c)
"Pennsylvania BCL".......................................... Section 1.04(d)
"PP"........................................................ Section 6.01
"Reduction Amount".......................................... Section 2.01(l)
"Registration Statement".................................... Section 4.05(b)(ii)
"Release"................................................... Section 3.19(g)(iv)
"SEC"....................................................... 3rd Recital
"SEC `35 Act Order"......................................... Section 3.05(c)
"Securities Act"............................................ Section 2.02(h)(vi)
"Significant Subsidiary".................................... Section 3.01(b)
"State Takeover Approvals".................................. Section 3.05(i)
"Stock Consideration"....................................... Section 2.01(c)
"Stock Election"............................................ Section 2.01(f)
"Stock Election Number"..................................... Section 2.01(f)
"Stock Election Shares"..................................... Section 2.01(g)
"Stock Fraction"............................................ Section 2.01(g)
"Subsidiary"................................................ Section 3.01(b)
"Surviving Corporation"..................................... Section 1.01
"Surviving Corporation Material Adverse Effect"............. Section 7.06(f)
"Takeover Proposal"......................................... Section 6.05(c)
"Target Party".............................................. Section 9.05(b)(i)(C)
"Task Force"................................................ Section 7.20(a)
"Tax", "Taxable", "Taxes", "Taxing"......................... Section 3.11(h)
"Tax Ratio"................................................. Section 2.01(l)
"TE"........................................................ Section 6.01
"to the knowledge of the executive officers"................ Section 10.04(d)
"Violation"................................................. Section 3.04
"Voting Debt"............................................... Section 3.02(a)
"wholly owned Subsidiary"................................... Section 3.18(b)
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE I
THE MERGER
Section 1.01 The Merger.................................................. A-1
Section 1.02 Closing..................................................... A-1
Section 1.03 Effective Time of the Merger................................ A-1
Section 1.04 Effects of the Merger....................................... A-1
Section 1.05 Directors and Officers of the Surviving Corporation......... A-2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
RESPECTIVE CORPORATIONS; EXCHANGE OF CERTIFICATES
Section 2.01 Manner of Converting Shares................................. A-2
Section 2.02 Exchange of Certificates.................................... A-6
Section 2.03 Stated Capital of Surviving Corporation Shares.............. A-10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF GPU
Section 3.01 Organization, Standing and Power............................ A-10
Section 3.02 Capital Structure........................................... A-11
Section 3.03 Corporate Authority......................................... A-11
Section 3.04 No Violation................................................ A-11
Section 3.05 Consents and Approvals...................................... A-12
Section 3.06 GPU SEC Documents........................................... A-13
Section 3.07 No Undisclosed Liabilities.................................. A-13
Section 3.08 Information Supplied........................................ A-13
Section 3.09 Compliance with Applicable Laws............................. A-14
Section 3.10 Litigation.................................................. A-14
Section 3.11 Taxes....................................................... A-14
Section 3.12 Employee Matters............................................ A-15
Section 3.13 Absence of Certain Changes or Events........................ A-17
Section 3.14 Opinion of GPU Financial Advisor............................ A-17
Section 3.15 Vote Required............................................... A-17
Section 3.16 Accounting Matters.......................................... A-17
Section 3.17 Ownership of FirstEnergy Stock.............................. A-17
Section 3.18 GPU Subsidiaries............................................ A-17
Section 3.19 Environmental Protection.................................... A-18
Section 3.20 Regulation as a Utility..................................... A-20
Section 3.21 Insurance................................................... A-20
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FIRSTENERGY
Section 4.01 Organization, Standing and Power............................ A-21
Section 4.02 Capital Structure........................................... A-21
Section 4.03 Corporate Authority......................................... A-21
Section 4.04 No Violation................................................ A-22
Section 4.05 Consents and Approvals...................................... A-22
Section 4.06 FirstEnergy SEC Documents................................... A-23
Section 4.07 No Undisclosed Liabilities.................................. A-23
Section 4.08 Information Supplied........................................ A-23
Section 4.09 Compliance with Applicable Laws............................. A-24
Section 4.10 Litigation.................................................. A-24
Section 4.11 Taxes....................................................... A-24
Section 4.12 Employee Matters............................................ A-25
Section 4.13 Absence of Certain Changes or Events........................ A-27
Section 4.14 Opinion of FirstEnergy Financial Advisor.................... A-27
Section 4.15 Vote Required............................................... A-27
Section 4.16 Accounting Matters.......................................... A-27
Section 4.17 Ownership of GPU Stock...................................... A-27
Section 4.18 FirstEnergy Subsidiaries.................................... A-28
Section 4.19 Environmental Protection.................................... A-28
Section 4.20 Regulation as a Utility..................................... A-29
Section 4.21 Insurance................................................... A-29
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS OF GPU
Section 5.01 Ordinary Course............................................. A-30
Section 5.02 Dividends; Changes in Stock................................. A-30
Section 5.03 Issuance of Securities...................................... A-30
Section 5.04 Constituent Documents....................................... A-31
Section 5.05 Solicitations............................................... A-31
Section 5.06 Acquisitions................................................ A-31
Section 5.07 Dispositions................................................ A-32
Section 5.08 Financings.................................................. A-32
Section 5.09 No Actions.................................................. A-32
Section 5.10 Cooperation, Notification................................... A-32
Section 5.11 Rights Agreement............................................ A-33
Section 5.12 Collective Bargaining Agreements............................ A-33
Section 5.13 Employee Benefit Covenant................................... A-33
Section 5.14 Tax Covenant................................................ A-33
Section 5.15 Capital Expenditures........................................ A-34
Section 5.16 Transmission, Generation.................................... A-34
Section 5.17 Modifications to Facilities................................. A-34
Section 5.18 Accounting.................................................. A-34
Section 5.19 Tax-Free Status............................................. A-34
Section 5.20 Affiliate Transactions...................................... A-34
Section 5.21 Rate Matters................................................ A-34
Section 5.22 Third-Party Consents........................................ A-35
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS OF FIRSTENERGY
Section 6.01 Ordinary Course............................................. A-35
Section 6.02 Dividends; Changes in Stock................................. A-35
Section 6.03 Issuance of Securities...................................... A-36
Section 6.04 Constituent Documents....................................... A-36
Section 6.05 Solicitations............................................... A-36
Section 6.06 Financings.................................................. A-37
Section 6.07 No Actions.................................................. A-37
Section 6.08 Cooperation, Notification................................... A-38
Section 6.09 Rights Agreement............................................ A-38
Section 6.10 Accounting.................................................. A-38
Section 6.11 Tax-Free Status............................................. A-38
Section 6.12 Affiliate Transactions...................................... A-38
Section 6.13 Third-Party Consents........................................ A-38
Section 6.14 Tax-Exempt Status........................................... A-39
Section 6.15 Certain Acquisitions........................................ A-39
ARTICLE VII
ADDITIONAL AGREEMENTS
Preparation of Registration Statement and the Joint Proxy
Section 7.01 Statement................................................... A-39
Section 7.02 Letters of GPU's Accountants................................ A-39
Section 7.03 Letters of FirstEnergy's Accountants........................ A-39
Section 7.04 Access to Information....................................... A-39
Section 7.05 Shareholder Approvals....................................... A-40
Section 7.06 Satisfaction of Conditions to the Merger.................... A-40
Section 7.07 Rule 145 Affiliates......................................... A-41
Section 7.08 Stock Exchange Listing...................................... A-41
Section 7.09 Employee Benefit Plans...................................... A-41
Section 7.10 Expenses.................................................... A-42
Section 7.11 Brokers or Finders.......................................... A-43
Section 7.12 Surviving Corporation Board of Directors and Officers....... A-43
Section 7.13 Indemnification; Directors' and Officers' Insurance......... A-43
Section 7.14 Further Assurances.......................................... A-46
Section 7.15 Tax Treatment............................................... A-46
Section 7.16 Accounting Treatment........................................ A-46
Section 7.17 Disclosure Schedules........................................ A-46
Section 7.18 Public Announcements........................................ A-46
Section 7.19 Employee Agreements......................................... A-47
Section 7.20 Transition Management....................................... A-47
Section 7.21 Charitable Commitments; Offices; Name....................... A-47
ARTICLE VIII
CONDITIONS PRECEDENT
Conditions to Each Party's Obligation To Effect the
Section 8.01 Merger...................................................... A-48
Section 8.02 Conditions to Obligations of FirstEnergy.................... A-49
Section 8.03 Conditions to Obligations of GPU............................ A-49
</TABLE>
A-iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE IX
TERMINATION AND AMENDMENT
Section 9.01 Termination................................................. A-50
Section 9.02 Effect of Termination....................................... A-51
Section 9.03 Amendment................................................... A-51
Section 9.04 Extension; Waiver........................................... A-51
Section 9.05 Termination Fee; Expenses................................... A-52
ARTICLE X
GENERAL PROVISIONS
Section 10.01 Nonsurvival of Representations and Warranties............... A-53
Section 10.02 Further Assurances.......................................... A-53
Section 10.03 Notices..................................................... A-53
Section 10.04 Interpretation.............................................. A-54
Section 10.05 Descriptive Headings........................................ A-54
Section 10.06 Counterparts................................................ A-54
Section 10.07 Entire Agreement............................................ A-55
Section 10.08 No Third Party Beneficiaries................................ A-55
Section 10.09 Governing Law............................................... A-55
Section 10.10 Severability................................................ A-55
Section 10.11 Binding Effect.............................................. A-55
Section 10.12 Assignment.................................................. A-55
Section 10.13 Amendments; Waiver.......................................... A-55
</TABLE>
A-iv
<PAGE>
<TABLE>
<S> <C>
EXHIBIT
(OMITTED)
Exhibit A Form of Letter Identifying Rule 145 Affiliates
Exhibit B Form of Affiliate Agreement with Form of Rule 145 Compliance
Letter attached thereto as Annex A
</TABLE>
A-v
<PAGE>
AGREEMENT AND PLAN OF MERGER dated as of August 8, 2000 (the "AGREEMENT"),
between FIRSTENERGY CORP., an Ohio corporation with its principal executive
offices in Akron, Ohio ("FIRSTENERGY"), and GPU, INC., a Pennsylvania
corporation with its principal executive offices in Morristown, New Jersey
("GPU").
WHEREAS, the respective Boards of Directors of FirstEnergy and GPU deem it
advisable and in the best interests of their respective shareholders to
consummate, and have approved, the business combination transaction contemplated
herein pursuant to which the businesses of GPU and FirstEnergy will be combined
by means of the merger of GPU with and into FirstEnergy (the "MERGER"); and
WHEREAS, for Federal income tax purposes, it is intended that the Merger
will be treated as a "reorganization" within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "CODE"); and
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 ("GAAP") and applicable regulations of the
Securities and Exchange Commission (the "SEC"); and
WHEREAS, GPU and FirstEnergy desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties intending to be legally bound agree as follows:
ARTICLE I
THE MERGER
Section 1.01 THE MERGER. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 1.03), GPU shall be
merged with and into FirstEnergy in accordance with the laws of the Commonwealth
of Pennsylvania and the State of Ohio. FirstEnergy shall be the surviving
corporation in the Merger and shall continue its corporate existence under the
laws of the State of Ohio. The effects and the consequences of the Merger shall
be as set forth in Section 1.04. Throughout this Agreement, the term "SURVIVING
CORPORATION" shall refer to FirstEnergy in its capacity as the surviving
corporation in the Merger.
Section 1.02 CLOSING. The closing of the Merger (the "CLOSING") will take
place at 10:00 A.M. (local time), 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 Winthrop, Stimson, Putnam & Roberts, One Battery Park
Plaza, New York, NY 10004, unless another date or place is agreed to in writing
by the parties hereto (the "CLOSING DATE").
Section 1.03 EFFECTIVE TIME OF THE MERGER. Subject to the provisions of
this Agreement, articles or 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
as soon as practicable on the Closing Date to the Department of State of the
Commonwealth of Pennsylvania for filing as well as to the Secretary of State of
the State of Ohio as provided by Pennsylvania law and Ohio law. The Merger shall
become effective upon the filing of the Certificates of Merger with the
Department of State of the Commonwealth of Pennsylvania and the Secretary of
State of the State of Ohio or at such time thereafter as is agreed by the
parties and provided in the Certificates of Merger (the "EFFECTIVE TIME").
Section 1.04 EFFECTS OF THE MERGER. At the Effective Time,
A-1
<PAGE>
(a) the separate existence of GPU shall cease and GPU shall be merged with
and into FirstEnergy with FirstEnergy continuing as the Surviving Corporation,
(b) pursuant to the Merger, Article IV.A of the Amended Articles of
Incorporation of FirstEnergy shall be amended by replacing "305 million" and
"300 million" contained therein with "380 million" and "375 million",
respectively, and as so amended such Amended Articles of Incorporation shall be
the Articles of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Articles of Incorporation,
(c) the Regulations of FirstEnergy, as in effect immediately prior to the
Effective Time, shall be the Regulations of the Surviving Corporation until
thereafter amended as provided by law, the Articles of Incorporation of the
Surviving Corporation and such Regulations, and
(d) the Merger shall have all the effects of applicable law, including
without limitation as provided in Section 1701.82 of the Ohio General
Corporation Law (the "OHIO GCL") and Section 1929 of the Pennsylvania Business
Corporation Law (the "PENNSYLVANIA BCL").
Section 1.05 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. As of
the Effective Time, the directors and officers of the Surviving Corporation
shall be designated as provided in Section 7.12 of this Agreement.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
RESPECTIVE CORPORATIONS; EXCHANGE OF CERTIFICATES
Section 2.01 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 FIRSTENERGY. Each share of common stock, par value
$0.10 per share, of FirstEnergy ("FIRSTENERGY COMMON STOCK") that is issued and
outstanding immediately prior to the Effective Time shall remain outstanding
unchanged by reason of the Merger as one fully paid and nonassessable share of
common stock, par value $0.10 per share, of the Surviving Corporation.
(b) CANCELLATION OF CERTAIN GPU COMMON STOCK. Each share of common stock,
par value $2.50 per share, of GPU ("GPU COMMON STOCK") that is owned by GPU as
treasury stock shall be canceled and cease to exist, and no stock or other
consideration shall be delivered in exchange therefor.
(c) CONVERSION OF GPU COMMON STOCK. Each share of GPU Common Stock, other
than Dissenting Shares (as defined in Section 2.01(n)) and shares canceled
pursuant to Section 2.01(b), issued and outstanding immediately prior to the
Effective Time shall by virtue of the Merger and without any action on the part
of the holder thereof, be converted into the right to receive (i) $36.50 in
cash, without interest (the "CASH CONSIDERATION"), (ii) a number of validly
issued, fully paid and nonassessable shares of FirstEnergy Common Stock equal to
the Exchange Ratio (as defined below) or (iii) a combination of cash and shares
as provided in Sections 2.01(e), (g) and (h) below ((i), (ii) or (iii) as
applicable, the "MERGER CONSIDERATION"). The "EXCHANGE RATIO" shall be equal to
the quotient (rounded to the nearest ten thousandth, or if there is no nearest
ten thousandth, the next higher ten thousandth) of the Cash Consideration
divided by the FirstEnergy Share Price (as defined below); PROVIDED, HOWEVER,
that if the FirstEnergy Share Price is less than $24.2438, the "Exchange Ratio"
shall be 1.5055, and if the FirstEnergy Share Price is greater than $29.6313,
the "Exchange Ratio" shall be 1.2318. The "FIRSTENERGY SHARE PRICE" shall be
equal to the average of the closing prices of the shares of FirstEnergy Common
Stock on the New York Stock Exchange ("NYSE") Composite Transactions Reporting
System, as reported in The Wall Street Journal (but subject to correction for
typographical or other manifest errors in such reporting), over the 20 trading
days ending on the trading day immediately preceding the fifth Business Day (as
defined in Rule 14d-1(g)(3) under the Securities
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Exchange Act of 1934 and the rules and regulations promulgated thereunder (the
"EXCHANGE ACT")) prior to the Election Deadline. FirstEnergy shall make a public
announcement of the Exchange Ratio and the Election Deadline (as defined below)
no later than 9:00 a.m., New York City time, on the fifth Business Day prior to
the date of the Election Deadline by issuing a release to the Dow Jones News
Service or similar U.S. news service.
(d) CASH ELECTION. Subject to the immediately following sentence, each
record holder of shares of GPU Common Stock immediately prior to the Effective
Time shall be entitled to elect to receive cash, without interest, for all or
any part of such holder's shares of GPU Common Stock (a "CASH ELECTION").
Notwithstanding the foregoing and subject to Section 2.01(l), the aggregate
number of shares of GPU Common Stock that will be converted into the right to
receive cash in the Merger (the "CASH ELECTION NUMBER") will be 50% of the total
number of shares of GPU Common Stock issued and outstanding as of the Effective
Time. Cash Elections shall be made on a form reasonably acceptable to GPU and
FirstEnergy designed for that purpose (a "FORM OF ELECTION").
(e) OVERSUBSCRIBED CASH ELECTION. If the aggregate number of shares of GPU
Common Stock covered by Cash Elections (the "CASH ELECTION SHARES") exceeds the
Cash Election Number, (1) each Cash Election Share shall be converted into
(i) the right to receive an amount of cash, without interest, equal to the
product of (a) the Cash Consideration and (b) a fraction (the "CASH FRACTION"),
the numerator of which shall be the Cash Election Number and the denominator of
which shall be the total number of Cash Election Shares, and (ii) a number of
shares of FirstEnergy Common Stock equal to the product of (a) the Exchange
Ratio and (b) a fraction equal to one minus the Cash Fraction and (2) each Stock
Election Share and each No Election Share (each as defined below) shall be
converted into the right to receive a number of shares of FirstEnergy Common
Stock equal to the Exchange Ratio.
(f) STOCK ELECTION. Subject to the immediately following sentence, each
record holder of shares of GPU Common Stock immediately prior to the Effective
Time shall be entitled to elect to receive shares of FirstEnergy Common Stock
for all or any part of such holder's shares of GPU Common Stock (a "STOCK
ELECTION", and together with a Cash Election, the "ELECTION"). Notwithstanding
the foregoing and subject to Section 2.01(l), the aggregate number of shares of
GPU Common Stock that will be converted into the right to receive shares of
FirstEnergy Common Stock in the Merger (the "STOCK ELECTION NUMBER") shall be
50% of the total number of shares of GPU Common Stock issued and outstanding as
of the Effective Time. Stock Elections shall be made on a Form of Election.
(g) OVERSUBSCRIBED STOCK ELECTION. If the aggregate number of shares of
GPU Common Stock covered by Stock Elections (the "STOCK ELECTION SHARES")
exceeds the Stock Election Number, (1) each Stock Election Share shall be
converted into (i) the right to receive a number of shares of FirstEnergy Common
Stock, equal to the product of (a) the Exchange Ratio and (b) a fraction (the
"STOCK FRACTION"), the numerator of which shall be the Stock Election Number and
the denominator of which shall be the total number of Stock Election Shares, and
(ii) an amount of cash, without interest, equal to the product of (a) the Cash
Consideration and (b) a fraction equal to one minus the Stock Fraction and
(2) each Cash Election Share and No Election Share shall be converted into the
right to receive an amount of cash, without interest, equal to the Cash
Consideration.
(h) UNDERSUBSCRIBED CASH ELECTION AND STOCK ELECTION. If (x) the aggregate
number of Cash Election Shares is equal to or less than the Cash Election Number
AND (y) the aggregate number of Stock Election Shares is equal to or less than
the Stock Election Number, (1) each Cash Election Share shall be converted into
the right to receive an amount of cash, without interest, equal to the Cash
Consideration, (2) each Stock Election Share shall be converted into the right
to receive a number of shares of FirstEnergy Common Stock equal to the Exchange
Ratio and (3) each No Election Share shall be converted into the right to
receive (A) an amount of cash, without interest, equal to the product of
(i) the Cash Consideration and (ii) a fraction (x) the numerator of which shall
be the Cash
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Election Number less the number of Cash Election Shares and the (y) denominator
of which shall be the aggregate number of No Election Shares and (B) a number of
shares of FirstEnergy Common Stock equal to the product of (i) the Exchange
Ratio and (ii) a fraction (x) the numerator of which shall be the Stock Election
Number less the number of Stock Election Shares and (y) the denominator of which
shall be the aggregate number of No Election Shares.
(i) FORM OF ELECTION. To be effective, a Form of Election must be properly
completed, signed and submitted to the Exchange Agent (defined below), and
accompanied by the certificates representing the shares of GPU Common Stock
("GPU CERTIFICATES") as to which the election is being made (or by an
appropriate guarantee of delivery of such GPU Certificate signed by a firm that
is a member of any registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. or a bank, broker, dealer,
credit union, savings association or other entity that is a member in good
standing of a recognized Medallion Program approved by the Securities Transfer
Association Inc.). FirstEnergy shall have the discretion, which it may delegate
in whole or in part to the Exchange Agent, to determine whether Forms of
Election have been properly completed, signed and submitted or revoked and to
disregard immaterial defects in Forms of Election. The decision of FirstEnergy
(or the Exchange Agent) in such matters shall be conclusive and binding. Neither
FirstEnergy nor the Exchange Agent shall be under any obligation to notify any
person of any defect in a Form of Election submitted to the Exchange Agent. The
Exchange Agent shall also make all computations contemplated by Sections
2.01(e), (g) and (h), and all such computations shall be conclusive and binding
on the holders of shares of GPU Common Stock (absent manifest error).
(j) DEEMED NON-ELECTION. For the purposes hereof, a holder of shares of
GPU Common Stock who does not submit a Form of Election that is received by the
Paying Agent prior to the Election Deadline (as defined in Section 2.01(k)) (the
"NO ELECTION SHARES") shall be deemed not to have made a Cash Election or Stock
Election. If FirstEnergy or the Exchange Agent shall determine that any
purported Election was not properly made prior to the Election Deadline, the
shares subject to such improperly made Election shall be treated as No Election
Shares.
(k) ELECTION DEADLINE. Not more than 90 days nor less than 20 Business
Days prior to the Election Deadline, FirstEnergy shall cause copies of the Form
of Election, together, in the case of holders of GPU Common Stock who became
such after the record date for the meeting referred to therein, with a copy of
the Joint Proxy Statement (as defined in Section 3.05), to be mailed to the
holders of record of GPU Common Stock (as of a record date as close as
practicable to the date of mailing and mutually agreed by GPU and FirstEnergy).
FirstEnergy shall use best efforts to make the Form of Election, together with a
copy of the Joint Proxy Statement, available to all persons who become record
holders of GPU Common Stock subsequent to the record date with respect to such
mailing and prior to the Election Deadline. A Form of Election must be received
by the Exchange Agent by 5:00 p.m., New York City time, on the Business Day
prior to the Effective Time (the "ELECTION DEADLINE"), in order to be effective.
All Elections may be revoked until the Election Deadline in writing by the
record holders submitting Forms of Election. In addition, all Elections shall
automatically be revoked if the Merger Agreement is terminated in accordance
with Section 9.01. If an Election is revoked, the GPU Certificates (or guarantee
of delivery, as applicable) to which the Election relates shall be promptly
returned to the shareholder submitting those GPU Certificates in respect of such
Election. Nothing contained herein shall be interpreted to prohibit a holder of
shares of GPU Common Stock from making Cash Elections with respect to those
shares.
(l) ADJUSTMENT PER TAX OPINION. Notwithstanding anything in this
Article II to the contrary (other than the last sentence of Section 2.01(m)),
if, based on the Exchange Ratio determined in accordance with Section 2.01(c),
the Tax Ratio (as defined below) is less than 45% (or such lesser percentage,
not below 40%, as shall be reasonably agreed to by tax counsel to FirstEnergy
and GPU to enable such tax counsel to deliver the tax opinions referred to in
Section 8.02(c) and 8.03(c)) (the "MINIMUM TAX RATIO"), the amount of cash to be
delivered (but for this Section 2.01(l)) with respect to
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each share of GPU Common Stock convertible, in whole or in part, into a right to
receive cash shall be reduced to the minimum extent necessary (the amount of
such reduction, the "REDUCTION AMOUNT") (and FirstEnergy shall deliver with
respect to each such share of GPU Common Stock, in lieu of the Reduction Amount,
that number of shares of FirstEnergy Common Stock having an aggregate value
(based on the closing price of the FirstEnergy Common Stock on the Closing Date)
equal to the Reduction Amount) so that the Tax Ratio is equal to the Minimum Tax
Ratio. "TAX RATIO" shall mean the ratio of (i) the product of (A) the closing
price per share of FirstEnergy Common Stock on the Closing Date times (B) the
excess of (x) the aggregate number of shares of FirstEnergy Common Stock to be
issued pursuant to this Section 2.01 over (y) the number of shares of
FirstEnergy Common Stock that tax counsel to FirstEnergy or GPU reasonably deems
necessary to exclude for purposes of the "continuity-of-interest" requirements
under applicable federal income tax principles relating to reorganizations
described in the Code (the "AGGREGATE STOCK AMOUNT"), to (ii) the sum of
(u) the Aggregate Stock Amount plus (v) the aggregate cash payable pursuant to
this Section 2.01 (plus the aggregate estimated amount of cash payable in lieu
of fractional shares of FirstEnergy Common Stock pursuant to
Section 2.02(e)(ii)) plus (w) the number of Dissenting Shares times the per
share fair value of such shares determined pursuant to applicable law or, if
such fair value has not been determined as of the date the calculation required
by this Section 2.01(l) is required to be made, then times the greater of
(A) the Cash Consideration and (B) the value of the number of shares of
FirstEnergy Common Stock equal to the Exchange Ratio (based on the closing price
per share of FirstEnergy Common Stock on the Closing Date), plus (x) any other
amounts paid by GPU (or any affiliate thereof) to, or on behalf of, any holder
of shares of GPU Common Stock in connection with the sale, redemption or other
disposition of any GPU Common Stock in connection with the Merger for purposes
of Treasury Regulation Sections 1.368-1(e) and 1.368-1T(e) plus (y) any
extraordinary dividend distributed by GPU prior to and in connection with the
Merger for purposes of Treasury Regulation Sections 1.368-1(e) and 1.368-1T(e),
plus (z) the amount of any other items that tax counsel to FirstEnergy or GPU
reasonably deems necessary to take into account for purposes of making the
Merger satisfy the "continuity-of-interest" requirements under applicable
federal income tax principles relating to reorganizations described in the Code.
(m) ANTI-DILUTION PROVISIONS. In the event FirstEnergy (i) changes (or
establishes a record date for changing) the number of shares of FirstEnergy
Common Stock issued and outstanding prior to the Effective Time as a result of a
stock split, stock dividend, stock combination, recapitalization,
reclassification, reorganization or similar transaction with respect to the
outstanding FirstEnergy Common Stock or (ii) pays or makes a dividend or
distribution not permitted by Section 6.02 in respect of FirstEnergy Common
Stock (other than a distribution referred to in clause (i) of this sentence)
and, in either case, the record date therefor or the effective time thereof
shall be prior to the Effective Time, the Exchange Ratio shall be adjusted
appropriately. Regular quarterly cash dividends and increases thereon shall not
be considered extraordinary for purposes of the preceding sentence. If, between
the date hereof and the Effective Time, FirstEnergy shall merge or consolidate
with or into any other corporation in a transaction otherwise permitted by the
terms of this Agreement and the terms thereof shall provide that FirstEnergy
Common Stock shall be converted into or exchanged for the shares of any other
corporation or entity, then provision shall be made so that shareholders of GPU
who would be entitled to receive shares of FirstEnergy Common Stock pursuant to
this Agreement shall be entitled to receive, in lieu of each share of
FirstEnergy Common Stock issuable to such shareholders as provided herein, the
same kind and amount of securities or assets as shall be distributable upon such
merger or consolidation with respect to one share of FirstEnergy Common Stock
and the parties hereto shall agree on an appropriate restructuring of the
transactions contemplated herein.
(n) DISSENTING SHARES. Each outstanding share of GPU Common Stock the
holder of which has perfected his right to dissent under applicable law and has
not effectively withdrawn or lost such right as of the Effective Time (the
"DISSENTING SHARES") shall not be converted into or represent a right to
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receive the Merger Consideration, and the holder thereof shall be entitled only
to such rights as are granted by applicable law; PROVIDED, HOWEVER, that any
Dissenting Share held by a person at the Effective Time who shall, after the
Effective Time, withdraw the demand for payment for shares or lose the right to
payment for shares, in either case pursuant to the Pennsylvania BCL, shall be
deemed to be converted into, as of the Effective Time, the right to receive the
Merger Consideration as provided in Section 2.01, without interest thereon, upon
surrender of the GPU Certificates representing such Dissenting Shares in
accordance with Section 2.02 hereof. GPU shall give (i) FirstEnergy prompt
notice upon receipt by GPU of any written demands for payment of the fair value
of any shares of GPU Common Stock and of withdrawals of any such demands and any
other instruments provided pursuant to applicable law and (ii) the opportunity
to direct all negotiations and proceedings with respect to demands for appraisal
under the Pennsylvania BCL. GPU shall not voluntarily make any payment with
respect to any demands for appraisal and shall not, except with the prior
written consent of FirstEnergy, settle or offer to settle any such demands. Any
payments made in respect of Dissenting Shares shall be made by the Surviving
Corporation.
Section 2.02 EXCHANGE OF CERTIFICATES. (a) DEPOSIT WITH EXCHANGE
AGENT. As soon as practicable after the Effective Time, the Surviving
Corporation shall deposit with a bank or trust company mutually agreeable to
FirstEnergy and GPU (the "EXCHANGE AGENT"), pursuant to an agreement in form and
substance reasonably acceptable to FirstEnergy and GPU, an amount of cash and
certificates representing the shares of FirstEnergy Common Stock required to
effect the conversion of GPU Common Stock into FirstEnergy Common Stock and cash
in accordance with Section 2.01.
(b) EXCHANGE AND PAYMENT PROCEDURES. (i) As soon as reasonably practicable
after the Merger, FirstEnergy shall cause the Exchange Agent to mail to each
holder of record as of the Effective Time of one or more GPU Certificates in
respect of which the holder failed to return a properly completed Form of
Election,
(A) a letter of transmittal (which shall specify that delivery shall
be effected, and risk of loss and title to the GPU Certificates shall
pass, only upon delivery of the GPU Certificates to the Exchange Agent)
and
(B) instructions for effecting the surrender of the GPU Certificates
and receiving the Aggregate Consideration (as defined below) to which
such holder shall be entitled pursuant to Section 2.01.
(ii) Upon surrender of a GPU Certificate for cancellation to the
Exchange Agent or to such other agent or agents as may be appointed by
FirstEnergy for such purpose, together with such letter of transmittal, duly
executed, the holder of such GPU Certificate shall be entitled to receive in
exchange therefor (x) a certificate representing that number of shares of
FirstEnergy Common Stock ("FIRSTENERGY SHARES") into which the shares of GPU
Common Stock previously represented by such GPU Certificate are converted in
accordance with Section 2.01, (y) the cash to which such holder is entitled
in accordance with Section 2.01, and (z) the cash in lieu of fractional
FirstEnergy Shares which such holder has the right to receive pursuant to
Section 2.02(e) (the shares of FirstEnergy Common Stock and cash described
in clauses (x), (y) and (z) above being referred to collectively as the
"AGGREGATE CONSIDERATION"). In the event the Aggregate Consideration is to
be delivered to any person who is not the person in whose name the GPU
Certificate surrendered in exchange therefor is registered in the transfer
records of GPU, the Aggregate Consideration may be delivered to a transferee
if the GPU Certificate is presented to the Exchange Agent, accompanied by
all documents reasonably required to evidence and effect such transfer and
by evidence reasonably satisfactory to the Exchange Agent that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.02, each GPU Certificate (other than a GPU
Certificate representing shares of GPU Common Stock to be canceled in
accordance with Section 2.01(b)) shall be deemed at any time after the
Effective Time to represent
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only the right to receive upon such surrender the Aggregate Consideration
contemplated by this Section 2.02. No interest will be paid or will accrue
on any cash payable to holders of GPU Certificates pursuant to provisions of
this Article II.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or paid after the Effective Time with respect to
FirstEnergy Shares with a record date after the Effective Time shall be paid to
the holder of any unsurrendered GPU Certificate with respect to the FirstEnergy
Shares represented thereby and no cash payment in lieu of fractional shares
shall be paid to any such holder pursuant to Section 2.02(e) until the holder of
record of such GPU Certificate shall surrender such GPU Certificate. Subject to
the effect of unclaimed property, escheat and other applicable laws, following
surrender of any such GPU Certificate, there shall be paid to the record holder
of the certificates representing whole FirstEnergy Shares issued in exchange
therefor, without interest, (i) 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 2.02(e) and the amount of dividends
or other distributions with a record date after the Effective Time theretofore
paid with respect to such whole FirstEnergy Shares and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole FirstEnergy Shares.
(d) NO FURTHER OWNERSHIP RIGHTS IN GPU COMMON STOCK. (i) The payment of
the Aggregate Consideration to be made to holders of GPU Certificates upon
conversion of shares of GPU Common Stock in accordance with the terms hereof
(including any cash paid in lieu of fractional shares pursuant to
Section 2.02(e)) shall be deemed to have been issued and paid in full
satisfaction of all rights pertaining to such shares of GPU Common Stock,
subject, however, to the obligation of FirstEnergy to pay any dividends or make
any other distributions pursuant to Section 2.02(c) above.
(ii) If, after the Effective Time, GPU Certificates are presented to
FirstEnergy for any reason, they shall be canceled and exchanged as provided
in this Article II.
(e) NO FRACTIONAL SHARES. (i) No certificates or scrip representing
fractional shares of FirstEnergy Common Stock shall be issued upon the surrender
for exchange of GPU Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a shareholder of
FirstEnergy.
(ii) To the extent a holder of GPU Common Stock would otherwise have
been entitled to receive a fractional share of FirstEnergy Common Stock,
such holder shall be entitled to receive in lieu thereof a payment in cash,
without interest, in an amount equal to (x) such fraction multiplied by
(y) the average of the closing prices of the shares of FirstEnergy Common
Stock on the NYSE over the five trading day period ending on the trading day
immediately prior to the Closing Date, as reported in The Wall Street
Journal (but subject to correction for typographical or other manifest
errors in such reporting). The fractional shares of FirstEnergy Common Stock
shall be aggregated and no holder of GPU Common Stock shall be entitled to
receive cash in an amount equal to or greater than the value of one full
share of FirstEnergy Common Stock as calculated above.
(f) TERMINATION OF EXCHANGE AGENT. Any certificates representing
FirstEnergy Shares deposited with the Exchange Agent pursuant to
Section 2.02(a) and not exchanged within one year after the Effective Time
pursuant to this Section 2.02 shall be returned by the Exchange Agent to
FirstEnergy, which shall thereafter act as Exchange Agent. All funds held by the
Exchange Agent for payment to the holders of unsurrendered GPU Certificates and
unclaimed at the end of one year from the Effective Time shall be returned to
FirstEnergy, after which time any holder of unsurrendered GPU Certificates shall
look as a general creditor only to FirstEnergy for payment of such funds to
which such holder may be due, subject to applicable law.
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(g) WITHHOLDING RIGHTS. FirstEnergy shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement to
any holder of GPU Common Stock (or to any person pursuant to Section 2.02(h))
such amounts as it is required to deduct and withhold with respect to the making
of such payment under the Code, or any provision of state, local or foreign tax
law. To the extent that amounts are so withheld by FirstEnergy, such withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to the holder of the shares of GPU Common Stock (or to any person pursuant to
Section 2.02(h)) in respect of which such deduction and withholding was made by
FirstEnergy.
(h) STOCK OPTIONS OF GPU. (i) At the Effective Time, each unexpired and
unexercised option to purchase GPU Common Stock (each, a "GPU OPTION") granted
under each of GPU's stock plans including but not limited to the GPU 1990
Employee Stock Plan, as amended, the GPU Deferred Stock Unit Plan for Outside
Directors, the 1989, 1990, 1992, 1995 and 1999 Stock Option and Restricted Stock
Plans of MYR Group Inc. and the 1993 Non-Employee Director Stock Option Plan of
MYR Group Inc. (the "GPU STOCK PLANS", and each, a "GPU STOCK PLAN"), shall
become, subject to the next sentence, an option (a "FIRSTENERGY OPTION") to
purchase a number of shares of FirstEnergy Common Stock equal to the number of
shares of GPU Common Stock that could have been purchased under the GPU Option
multiplied by the Exchange Ratio as adjusted in accordance with Section 2.01(m)
(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 GPU Option determined pursuant to the GPU Option
divided by the Exchange Ratio as adjusted in accordance with Section 2.01(m)
(with the resulting exercise price rounded up or down to the nearest whole
cent). Notwithstanding the foregoing, any holder of a GPU Option the current
terms of which entitle the holder, upon consummation of the Merger, to a cash
payment in respect of that option shall be entitled to that cash payment in
accordance with the current terms of the option unless, within 30 days after the
Effective Date, that holder elects, by written notice to FirstEnergy, that the
holder's GPU Option shall become a FirstEnergy Option in accordance with the
prior sentence of this Section 2.02(h). Prior to the Closing Date, the Board of
Directors of GPU and GPU shall take, or cause the appropriate committee to take,
all action necessary to effectuate the foregoing, including the adoption of
necessary amendments to the GPU Stock Plans.
(ii) As of the Effective Time all outstanding performance units (each, a
"GPU PERFORMANCE UNIT") granted under the GPU Stock Plans in respect of
shares of GPU Common Stock will, in accordance with their terms, vest and
become payable upon the consummation of the Merger, and all outstanding
deferred vested units (each, a "GPU DEFERRED UNIT" and together with a GPU
Performance Unit, the "GPU STOCK UNITS") granted under the GPU Stock Plans
in respect of shares of GPU Common Stock may, in accordance with their terms
and prior elections made by the holders thereof, become payable upon the
consummation of the Merger. Each holder of a GPU Stock Unit which becomes
payable upon the consummation of the Merger shall be entitled to receive at
the Effective Time, (i) if the GPU Stock Units are payable in cash, a cash
payment equal to the number of GPU Stock Units held at the Effective Time
multiplied by the highest closing price per share of GPU Common Stock, as
reported on the New York Stock Exchange Composite Tape, occurring during the
90-day period immediately preceding the Effective Time (the "GPU STOCK
PRICE"), and (ii) if the GPU Stock Unit is payable in stock, a number of
shares of FirstEnergy Common Stock equal to the quotient of (1) the product
of the number of such GPU Stock Units, multiplied by the GPU Stock Price,
divided by (2) the per share closing price of FirstEnergy Common Stock on
the last business day immediately preceding the Effective Time. Each GPU
Deferred Unit that does not become payable upon consummation of the Merger,
shall, at the written election of the holder thereof delivered to
FirstEnergy within 30 days after the Effective Time, be converted at the
Effective Time into either (i) a deferred vested unit (a "FIRSTENERGY
DEFERRED UNIT") in respect of a number of shares of FirstEnergy Common Stock
equal to the quotient of (1) the product of the number of such GPU Deferred
Units, multiplied by the
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GPU Stock Price, divided by (2) the per share closing price of FirstEnergy
Common Stock on the last business day immediately preceding the Effective
Time, or (ii) a deferred cash account to be established and maintained by
FirstEnergy or one of its Subsidiaries with an initial balance equal to the
number of shares of GPU Common Stock covered by the GPU Deferred Unit
multiplied by the GPU Stock Price, which balance shall be credited with
interest at an annual rate not less than the Citibank, N.A. prime rate as in
effect from time to time. In accordance with the terms of the GPU Stock
Plans and the GPU Stock Units, the personnel, compensation and nominating
committee of the Board of Directors of GPU (the "GPU PCN COMMITTEE") shall
prior to the Effective Time determine whether all or a portion of each GPU
Stock Unit that becomes payable upon the consummation of the Merger or
thereafter shall entitle the holder thereof to payment in cash or in shares
of FirstEnergy Common Stock. Prior to the Effective Time, GPU shall take, or
cause the appropriate committee to take, all action necessary to effectuate
the foregoing, including the adoption of necessary amendments to the
applicable GPU Stock Plan.
(iii) From and after the Effective Time, each substituted FirstEnergy
Option and FirstEnergy Deferred Unit provided for in this Section 2.02(h)
shall otherwise be subject to the same terms and conditions as the
corresponding GPU Option or GPU Stock Unit, as applicable (subject to the
adjustments provided for in this Section 2.02(h), the GPU Stock Plans and
the option or deferred vested unit agreements pursuant to which any such
option or deferred vested unit was granted).
(iv) The date of grant of the substituted FirstEnergy Option or
FirstEnergy Deferred Unit provided for in this Section 2.02(h) shall be the
date on which the corresponding GPU Option or GPU Deferred Unit was granted.
(v) FirstEnergy shall
(A) At the Effective Time, assume all of GPU's obligations with
respect to all GPU Options and GPU Stock Units as contemplated by this
Section 2.02(h),
(B) At the Effective Time, have reserved for issuance the number of
shares of FirstEnergy Common Stock that will become subject to or payable
in respect of FirstEnergy Options, GPU Stock Units and FirstEnergy
Deferred Units pursuant to this Section 2.02(h),
(C) from and after the Effective Time, upon exercise of the
FirstEnergy Options or upon the payment of GPU Stock Units or FirstEnergy
Deferred Units, in each case, 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 GPU Option or GPU Stock Unit a document
evidencing the foregoing assumption by FirstEnergy.
(vi) FirstEnergy shall use reasonable best efforts to ensure that the
shares of FirstEnergy Common Stock issuable or deliverable upon the exercise
of the FirstEnergy Options or upon the payment of the GPU Stock Units or
FirstEnergy Deferred Units are listed on the NYSE upon issuance or delivery,
as applicable. Prior to the Effective Time, FirstEnergy shall file with the
SEC a registration statement on Form S-8 (or any successor form), or an
amendment to a registration statement previously filed, under the Securities
Act of 1933 and the rules and regulations promulgated thereunder (the
"SECURITIES ACT"), with respect to the shares of FirstEnergy Common Stock
deliverable upon exercise of the FirstEnergy Options or upon the payment of
the GPU Stock Units or FirstEnergy Deferred Units. FirstEnergy shall take
all necessary action so that newly filed registration statement or amendment
to the previously filed registration statement, as the case may be, shall be
effective at the Effective Time. FirstEnergy shall use reasonable best
efforts to (1) maintain the current status of the prospectus or prospectuses
relating to any registration statement applicable to the FirstEnergy Options
and/or GPU Stock Units and/or
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FirstEnergy Deferred Units and (2) comply with any applicable state
securities or "blue sky" laws, in each case so long as any FirstEnergy
Options and/or GPU Stock Units and/or FirstEnergy Deferred Units remain
outstanding.
(vii) The Board of Directors or compensation committee of FirstEnergy
and Board of Directors of GPU or the GPU PCN Committee will each grant all
approvals and take all other actions required pursuant to Rules 16b-3(d) and
16b-3(e) under the Exchange Act to cause the disposition in the Merger of
GPU Common Stock, GPU Options and GPU Stock Units and the acquisition in the
Merger of FirstEnergy Common Stock, FirstEnergy Options and FirstEnergy
Deferred Units to be exempt from the provisions of Section 16(b) of the
Exchange Act.
(i) NO LIABILITY. No party to this Agreement shall be liable to any holder
of shares of GPU Common Stock for payment of the Merger Consideration (or
dividends or distributions relating thereto) delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
Section 2.03 STATED CAPITAL OF SURVIVING CORPORATION SHARES. At the
Effective Time, the stated capital of each class of shares of the Surviving
Corporation shall equal the par value of such shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF GPU
Except as set forth in (x) the GPU SEC Documents (as defined in
Section 3.06) filed with the SEC prior to or as of the date of this Agreement
and (y) the disclosure schedule delivered to FirstEnergy by GPU pursuant to
Section 7.17(a)(ii) (the "GPU DISCLOSURE SCHEDULE"), GPU represents and warrants
to FirstEnergy as follows:
Section 3.01 ORGANIZATION, STANDING AND POWER. (a) Each of GPU and its
Significant Subsidiaries
(i) is a corporation or other organization duly organized, validly
existing and in good standing (with respect to jurisdictions that recognize
the concept of good standing) under the laws of its jurisdiction of
incorporation or organization,
(ii) has all requisite corporate or similar power and authority, and has
been duly authorized by all necessary approvals and orders of Governmental
Entities (as defined in Section 3.04), 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 (with respect to
jurisdictions that recognize the concept of 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,
except with respect to each of clauses (ii) and (iii) above where the failure to
have such power and authority, or to be so qualified or in good standing, would
not, when taken together with all other such failures, have a GPU Material
Adverse Effect. "MATERIAL ADVERSE EFFECT" shall mean, with respect to GPU or
FirstEnergy, as applicable, a material adverse effect on the business,
operations, properties, assets, financial condition or the reported or future
results of operations of that party and its Subsidiaries taken as a whole or on
that party's ability to consummate the Merger; PROVIDED, HOWEVER, that events,
consequences or conditions arising out of or caused by the following shall not
be considered in determining whether a "Material Adverse Effect" has occurred or
would occur: (a) changes to general economic conditions, and (b) changes
resulting from the adoption, amendment or issuance of any law, regulation,
ruling, order or decree, or any new interpretation of any of the foregoing, by
any Governmental Entity, unless, in the case of a ruling, order or decree, such
ruling, order or decree is applicable solely to GPU or FirstEnergy, as
applicable, or any of its Subsidiaries. A "Material Adverse Effect" on GPU or
FirstEnergy is referred to respectively as a "GPU MATERIAL ADVERSE EFFECT" or a
"FIRSTENERGY MATERIAL ADVERSE EFFECT". FirstEnergy and GPU have exchanged
certain
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internal businesses projections; FirstEnergy and GPU agree that such business
projections are not covered by the representations or warranties of FirstEnergy
or GPU, as the case may be, contained in this Agreement and will not form the
basis for a determination by either FirstEnergy or GPU that a Material Adverse
Effect has occurred or would occur.
(b) As used in this Agreement, (x) a "SIGNIFICANT SUBSIDIARY" means any
Subsidiary that would constitute a significant subsidiary within the meaning of
Rule 1-02(w) of Regulation S-X of the SEC and (y) a "SUBSIDIARY" means, with
respect to any corporation or other entity, any other corporation or other
entity in which the first entity owns, directly or indirectly, more than fifty
percent of the securities or other ownership interests having by their terms
ordinary voting power to elect at least a majority of the board of directors or
other persons performing similar functions.
Section 3.02 CAPITAL STRUCTURE. (a) As of the date hereof, (i) the
authorized capital stock of GPU consists of 350,000,000 shares of GPU Common
Stock of which, as of August 4, 2000, 121,285,419 shares were issued and
outstanding and 11,497,919 shares were held by GPU in its treasury or by any of
its wholly owned Subsidiaries; (ii) options under the GPU Stock Plans to
purchase not more than 1,196,374 shares of GPU Common Stock are outstanding; and
(iii) no bonds, debentures, notes or other indebtedness having the right to vote
(or convertible into securities having the right to vote) ("VOTING DEBT") on any
matters on which shareholders of GPU may vote are issued or outstanding.
(b) All outstanding shares of GPU'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 as set forth in paragraph (a)
above and except for rights ("GPU RIGHTS") issued under the Rights Agreement,
dated as of August 6, 1998, between GPU and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent (the "GPU RIGHTS AGREEMENT")), there are no options,
warrants, calls, rights, commitments or agreements of any character to which GPU
or any Subsidiary of GPU is a party or by which it is bound obligating GPU or
any Subsidiary of GPU 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, GPU or securities convertible or exchangeable for such
shares, Voting Debt or other equity interests, or obligating GPU or any
Subsidiary of GPU to grant, extend or enter into any such option, warrant, call,
right, commitment or agreement.
Section 3.03 CORPORATE AUTHORITY. (a) GPU 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 by the shareholders of
GPU, to consummate the transactions contemplated hereby.
(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 GPU, subject to the approval of this Agreement
by the shareholders of GPU.
(c) This Agreement has been duly executed and delivered by GPU and
constitutes a valid and binding obligation of GPU enforceable in accordance with
its terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance 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.
Section 3.04 NO VIOLATION. Except as contemplated by Section 3.05, 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
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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, as amended, or By-Laws
of GPU or the articles of incorporation, by-laws or similar constitutional
documents of any Subsidiary of GPU,
(b) any provision of any loan or credit agreement, note, bond, mortgage,
indenture, lease, GPU Controlled Group Plan (as defined in Section 3.12(a)) or
other agreement, obligation, instrument, permit, concession, franchise, license
of any kind to which GPU 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, which Violation would have a GPU Material Adverse Effect, or
(c) any judgment, order, injunction, writ, decision, 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 GPU or any of its
Subsidiaries or their respective properties or assets, which Violation would
have a GPU Material Adverse Effect.
Section 3.05 CONSENTS AND APPROVALS. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity, is required to be obtained by GPU with respect to GPU or any of its
Subsidiaries in connection with the execution and delivery of this Agreement by
GPU or the consummation by GPU of the transactions contemplated hereby, the
failure of which to obtain would have a GPU 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"), and the expiration or termination of the applicable waiting period under
the HSR Act,
(b) the filing with, and to the extent applicable, the declaration of
effectiveness by, the SEC of
(i) a proxy statement in definitive form relating to the meeting of
GPU's and FirstEnergy's shareholders to be held in connection with the
Merger (the "JOINT PROXY STATEMENT"), and
(ii) such reports and other filings under the Securities Act or 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 under the Securities Act or the Exchange Act,
(c) the filing and notices required under the Public Utility Holding Company
Act of 1935 and the rules and regulations promulgated thereunder (the "1935
ACT") and the obtaining from the SEC of an order pursuant to Section 10 of the
1935 Act approving the transactions contemplated hereby (the "SEC '35 ACT
ORDER"),
(d) the filing of Certificates of Merger with the Department of State of the
Commonwealth of Pennsylvania and the Secretary of State of the State of Ohio in
accordance with applicable law,
(e) such filings, notices, authorizations, orders and approvals with, of, to
or from, 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"),
(f) such filings, notices, authorizations, orders and approvals with, of, to
or from, 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"),
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(g) such filings, notices, authorizations, orders and approvals as may be
required of the Federal Communications Commission (the "FCC") under the Federal
Communications Act, as amended that may be required in connection with the
transactions contemplated by this Agreement (the "FCC 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"),
(i) such filings and approvals as may be required pursuant to state takeover
laws ("STATE TAKEOVER APPROVALS"), and
(j) such filings and approvals as may be required under the laws of foreign
countries or their political subdivisions (the "FOREIGN APPROVALS").
Section 3.06 GPU SEC DOCUMENTS. (a) GPU has made available to FirstEnergy
a true and complete copy of each report, schedule, registration statement and
definitive proxy statement filed by GPU with the SEC since January 1, 2000 (as
such documents have since the time of their filing been amended, the "GPU SEC
DOCUMENTS") which are all the documents (other than preliminary material) that
GPU was required to file with the SEC since such date.
(b) As of their respective dates of filing, (x) the GPU SEC Documents
complied as to form in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, to the extent applicable
to such GPU SEC Documents, and (y) none of the GPU 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 consolidated financial statements of GPU included in the GPU 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, and present fairly, in all material respects, the financial
position of GPU and its subsidiary companies at the dates indicated, and the
results of their operations and cash flows for the periods indicated, in
conformity with GAAP applied on a consistent basis during the periods involved
(except (x) as may be indicated in the notes thereto and (y) in the case of the
unaudited statements, as permitted by Form 10-Q of the SEC and for normal,
recurring adjustments).
Section 3.07 NO UNDISCLOSED LIABILITIES. (a) Except as and to the extent
set forth in GPU's Annual Report on Form 10-K for the year ended December 31,
1999 and Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31, 2000 and June 30, 2000, as of June 30, 2000, neither GPU nor any of
its Subsidiaries had any liabilities or obligations of any nature, whether or
not accrued, contingent or otherwise, except for liabilities or obligations that
would not be required by GAAP to be reflected on a consolidated balance sheet
(including the notes thereto) of GPU or which would not, individually or in the
aggregate, be reasonably likely to have a GPU Material Adverse Effect.
(b) Since June 30, 2000, except as set forth in the GPU SEC Documents filed
by GPU with the SEC since June 30, 2000 and prior to the date of this Agreement,
neither GPU nor any of its Subsidiaries has incurred any liabilities or
obligations of any nature, whether or not accrued, absolute, contingent,
threatened or otherwise, which would, individually or in the aggregate, have a
GPU Material Adverse Effect.
Section 3.08 INFORMATION SUPPLIED. (a) None of the information supplied or
to be supplied by GPU for inclusion or incorporation by reference in
(i) the Registration Statement (as defined in Section 4.05(b)(ii)) will,
at the time it is filed with the SEC and at the time it becomes effective
under the Securities Act, contain any untrue
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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 GPU and the shareholders of FirstEnergy 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.
Section 3.09 COMPLIANCE WITH APPLICABLE LAWS. (a) GPU 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
GPU and its Subsidiaries, taken as a whole (the "GPU PERMITS").
(b) GPU and its Subsidiaries are in compliance with the terms of the GPU
Permits, except where any such failures so to comply would not, individually or
in the aggregate, have a GPU Material Adverse Effect.
(c) The businesses of GPU and its Subsidiaries are not being conducted in
violation of any law, ordinance or regulation of any Governmental Entity, except
for possible violations which would not individually or in the aggregate, have a
GPU Material Adverse Effect.
(d) As of the date of this Agreement,
(i) no investigation or review by any Governmental Entity with respect
to GPU or any of its Subsidiaries is pending or, to the knowledge of the
executive officers of GPU, threatened, and
(ii) to the knowledge of the executive officers of GPU, no Governmental
Entity has indicated an intention to conduct any such investigation or
review,
other than, in each case, those the outcome of which would not have a GPU
Material Adverse Effect.
Section 3.10 LITIGATION. As of the date of this Agreement:
(a) there is no suit, action or proceeding pending or, to the knowledge of
the executive officers of GPU, threatened against GPU or any of its Subsidiaries
which is reasonably likely to have a GPU Material Adverse Effect, and
(b) there is no judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against GPU or any of its
Subsidiaries having, or which is reasonably likely to have, a GPU Material
Adverse Effect.
Section 3.11 TAXES. (a) Each of GPU 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 GPU has paid on its behalf), or has established an
adequate accrual or reserve (determined in accordance with GAAP) 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) or which are otherwise due and payable, except as would not have a GPU
Material Adverse Effect. The most recent balance sheet contained in the GPU SEC
Documents reflects an adequate accrual or reserve (determined in accordance with
GAAP) for Taxes payable by GPU and its Subsidiaries accrued through the date of
such balance sheet, except as would not have a GPU Material Adverse Effect.
(b) Except as would not have a GPU Material Adverse Effect, (i) no
deficiencies for any Taxes have been proposed, asserted or assessed in writing
or, to the knowledge of the executive officers of GPU, orally, by any Taxing
authority against GPU or any of its Subsidiaries, and (ii) no audit of the Tax
returns of GPU or any of its Subsidiaries is currently being conducted by any
Taxing authority.
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(c) Except with respect to any claims for refunds, the Federal income Tax
returns of GPU and each of its Subsidiaries consolidated in such returns for all
such periods ended on or before December 31, 1995 have been 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. As of the date of this Agreement, none of GPU
or any of its Subsidiaries (i) has requested any extension of time within which
to file any material Federal income Tax return, which Tax return has not since
been filed and (ii) has in effect any extension, outstanding waivers or
comparable consents with respect to any material Federal income Taxes or
material Federal income Tax returns.
(d) Copies of all Federal Tax returns required to be filed by GPU 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 or made
available by GPU to FirstEnergy.
(e) None of GPU 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) None of GPU or any of its Subsidiaries (i) has received a Tax ruling
from any Federal Taxing authority or entered into a closing agreement with any
Federal Taxing authority that would have a continuing material effect after the
Closing Date or (ii) is required to include in income any adjustment pursuant to
Section 481(a) of the Code by reason of a voluntary change in accounting method
initiated by it for any tax year, and, to the knowledge of the executive
officers of GPU, the IRS has not proposed any such adjustment or change in
accounting method for any tax year for which the statute of limitations remains
open. None of GPU or any of its Subsidiaries has constituted a "distributing
corporation" in a distribution of stock qualifying for tax-free treatment under
Section 355 of the Code in the past 24 month period or in a distribution which
could otherwise constitute part of a "plan" or a series of "related
transactions" within the meaning of Section 355(e) of the Code.
(g) GPU has not taken any actions, nor is it aware of any facts or
circumstances, which would, or would be reasonably likely to, prevent the Merger
from constituting a reorganization within the meaning of Section 368(a) of the
Code.
(h) 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 Regulation 1.1502-6 promulgated under the Code
or comparable state, local or foreign provision.
Section 3.12 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 material plan, arrangement or understanding
(whether or not legally binding) (all the foregoing being herein called the "GPU
CONTROLLED GROUP PLANS"), maintained or contributed to by GPU, 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 GPU is a member, GPU has made available to FirstEnergy, or will
deliver to FirstEnergy 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,
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(ii) any such GPU Controlled Group Plan,
(iii) each trust agreement and group annuity contract, if any, relating
to any such GPU Controlled Group Plan, and
(iv) the most recent actuarial report or valuation relating to any such
GPU Controlled Group Plan subject to Title IV of ERISA.
(b) (i) Each of the GPU 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 knowledge of the executive officers of GPU, no
circumstances exist that are reasonably expected by GPU to result in the
revocation of any such determination.
(ii) Except as would not have a GPU Material Adverse Effect, GPU is in
compliance with, and each GPU Controlled Group Plan is and has been operated
in compliance with, all applicable laws, rules and regulations governing
such plan, including, without limitation, ERISA and the Code.
(iii) Except as would not have a GPU Material Adverse Effect, each GPU
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.
(c) With respect to the GPU Controlled Group Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of any of the executive
officers of GPU or any of its Subsidiaries, there exists no condition or set of
circumstances in connection with which GPU 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 would not have a GPU Material Adverse Effect, with respect to
each GPU Controlled Group Plan, there are no material funded benefit obligations
for which contributions have not been made or in accordance with GAAP properly
accrued and there are no material unfunded benefit obligations which have not
been accounted for in accordance with GAAP, on the financial statements of GPU
or any of its Subsidiaries.
(e) Except as provided for in this Agreement, as of the date of this
Agreement, neither GPU nor any of its Subsidiaries is a party to any union or
collective bargaining agreement.
(f) No GPU 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) No GPU Controlled Group Plan 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).
(h) None of the GPU Controlled Group Plans that are welfare plans (within
the meaning of Section 3(l) of ERISA) provides for any retiree benefits.
(i) Except as would not have a GPU Material Adverse Effect,
(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
GPU 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
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(B) benefit under any GPU Controlled Group Plan being established or
becoming accelerated, vested or payable, and
(ii) neither GPU 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,
(B) any consulting contract with any person who prior to entering
into such contract was a director or officer of GPU, or
(C) any plan, agreement, arrangement or understanding similar to any
of the foregoing.
Section 3.13 ABSENCE OF CERTAIN CHANGES OR EVENTS. Between June 30, 2000
and the date of this Agreement, GPU and its Subsidiaries have conducted their
respective businesses in all material respects 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 would have, a GPU 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 GPU's
or its Subsidiaries' capital stock, except for (i) regular quarterly cash
dividends of $.545 per share on GPU Common Stock; (ii) regular dividends on
GPU's Subsidiaries' preferred stock (the "GPU SUBS PREFERRED") with usual record
and payment dates for such dividends; and (iii) dividends on common stock paid
by wholly owned Subsidiaries of GPU; 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 is reasonably
likely to have, a GPU Material Adverse Effect.
Section 3.14 OPINION OF GPU FINANCIAL ADVISOR. GPU has received the
opinion of Salomon Smith Barney, Inc. (hereinafter referred to as "GPU
ADVISOR"), dated as of the date hereof, to the effect that, subject to the
limitations and qualifications contained in that opinion, as of the date of the
opinion, the Merger Consideration is fair from a financial point of view to the
holders of GPU Common Stock, and copies of such opinion have been previously or
will be delivered to FirstEnergy.
Section 3.15 VOTE REQUIRED. The affirmative vote of a majority of the
votes cast by holders of shares of GPU Common Stock with respect to the adoption
of this Agreement (at a meeting of shareholders duly called, noticed and held
and at which a quorum is present (whether in person or by proxy)) is the only
vote of the holders of any class or series of GPU capital stock necessary to
approve this Agreement and the transactions contemplated hereby.
Section 3.16 ACCOUNTING MATTERS. Neither GPU nor, to the knowledge of the
executive officers of GPU, 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 Merger on a
purchase accounting basis in accordance with GAAP and applicable regulations of
the SEC.
Section 3.17 OWNERSHIP OF FIRSTENERGY STOCK. As of the date of this
Agreement, GPU and its affiliates do not "beneficially own" (as such term is
defined in the FirstEnergy Rights Agreement) any shares of FirstEnergy Common
Stock.
Section 3.18 GPU SUBSIDIARIES. (a) SECTION 3.18(A) of the GPU Disclosure
Schedule sets forth a description as of the date hereof of all Significant
Subsidiaries and material joint ventures of GPU,
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including the name of each such entity, a brief description of the principal
line or lines of business conducted by each such entity and GPU's interest
therein.
(b) All of the issued and outstanding shares of capital stock of each
Significant Subsidiary of GPU are validly issued, fully paid, nonassessable and
free of preemptive rights, and, other than outstanding shares of preferred stock
or similar securities that are not convertible into common equity securities
("NON-CONVERTIBLE PREFERRED SECURITIES"), are owned directly or indirectly by
GPU free and clear of any material 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 Significant
Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of its capital stock, other than Non-Convertible Preferred
Securities, 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 securities of which
may not be owned by the entity as to which such Subsidiary is otherwise a wholly
owned Subsidiary.
(c) 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) 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.
Section 3.19 ENVIRONMENTAL PROTECTION. (a) COMPLIANCE. (i) Each of GPU and
its Subsidiaries is in compliance with all applicable Environmental Laws (as
hereinafter defined), except for failures to be in compliance which would not
have a GPU Material Adverse Effect.
(ii) Neither GPU nor any of its Subsidiaries has received any written
communication or, to the knowledge of the executive officers of GPU, any
oral communication, from any person or Governmental Entity that alleges that
GPU 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 GPU Material Adverse Effect.
(b) PERMITS. Each of GPU 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
its facilities or the conduct of its operations, and all such permits are in
effect or, where applicable, a renewal application has been timely filed and is
pending agency approval, and GPU and each of its Subsidiaries is in material
compliance with all terms and conditions of the Environmental Permits, in each
case, except for failures to obtain or be in compliance with such Environmental
Permit, or of such Environmental Permits to be in effect, which would not have a
GPU Material Adverse Effect.
(c) CLAIMS. To the knowledge of the executive officers of GPU, no
Environmental Claim (as hereinafter defined) is pending
(i) against GPU or any of its Subsidiaries or any joint ventures to
which GPU or any of its Subsidiaries is a party,
(ii) against any person or entity whose liability for any Environmental
Claim GPU or any of its Subsidiaries or joint ventures has or may have
retained or assumed either contractually or by operation of law, or
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(iii) against any real or personal property or operations which GPU or
any of its Subsidiaries or joint ventures owns, leases or manages, in whole
or in part,
which would have, in the aggregate, a GPU Material Adverse Effect.
(d) The executive officers of GPU have 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
GPU or any Subsidiaries or joint ventures of GPU, or its Subsidiaries, or
against any person or entity whose liability for any Environmental Claim GPU or
any Subsidiaries or joint ventures of GPU 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 GPU Material Adverse Effect.
(e) The executive officers of GPU have no knowledge, with respect to any
predecessor of GPU or any Subsidiary or joint venture of GPU, 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 GPU Material Adverse Effect.
(f) To the knowledge of the executive officers of GPU, GPU has disclosed to
FirstEnergy all material facts which GPU reasonably believes form the basis of a
GPU Material Adverse Effect arising from
(i) the cost of pollution control equipment currently required or known
to be required in the future; or
(ii) current remediation costs or remediation costs known to be required
in the future.
(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 GPU or any Subsidiary or joint
venture of GPU or its Subsidiaries (for purposes of this Section 3.19) or
by FirstEnergy or any of its Subsidiary or joint ventures of FirstEnergy
or its Subsidiaries (for purposes of Section 4.19); or
(B) circumstances forming the basis of any violation, or alleged
violation, of any Environmental Law; or
(C) any and all claims by any third party seeking damages,
contribution, indemnification, cost recovery, compensation or injunctive
relief resulting from the presence or Release of any Hazardous Materials.
(ii) "ENVIRONMENTAL LAWS" means all Federal, state, local and foreign
laws, rules and regulations relating to pollution (including without
limitation, indoor or 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.
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(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 GPU or any Subsidiary or joint venture of GPU
operates (for purposes of this Section 3.19) or in which FirstEnergy or
any Subsidiary or joint venture of FirstEnergy operates (for purposes of
Section 4.19).
(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.
Section 3.20 REGULATION AS A UTILITY. (a) Except as set forth in
paragraphs (b), (c) and (d) of this Section 3.20 (including the sections of the
GPU Disclosure Schedule referred to in those paragraphs), neither GPU nor any
"subsidiary company" or "affiliate" of GPU is subject to regulation as a public
utility or public service company (or similar designation) by the United States,
by any state in the United States or by any foreign country or political
subdivision thereof.
(b) GPU is a public utility holding company registered under the 1935 Act.
(c) SECTION 3.20(C) of the GPU Disclosure Schedule sets forth each
"affiliate" and each "subsidiary company" of GPU which may be deemed to be a
"public-utility company" or a "holding company" within the meaning of the 1935
Act.
(d) SECTION 3.20(D) of the GPU Disclosure Schedule sets forth each
"affiliate" and each "subsidiary company" of GPU which is an "exempt wholesale
generator" or a "foreign utility company" within the meaning of the 1935 Act.
Section 3.21 INSURANCE. Except in each case as would not have a GPU
Material Adverse Effect,
(a) Each of GPU and its Subsidiaries is as of the date hereof, and has been
continuously since January 1, 1995 (or such later date as such entity may have
been formed) 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 GPU and its Subsidiaries
during such time period.
(b) GPU hereby covenants and agrees (i) 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 and at a cost substantially comparable to the cost to GPU to maintain such
insurance as of the date of this Agreement and (ii) to notify FirstEnergy
promptly of any failure by GPU to maintain any such insurance that is permitted
by the preceding clause.
(c) (i) Neither GPU nor its Subsidiaries have received any notice of
cancellation or termination with respect to any material insurance policy of GPU
or its Subsidiaries.
(ii) The insurance policies of GPU and each of its Subsidiaries are
valid and enforceable policies.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FIRSTENERGY
Except as set forth in (x) the FirstEnergy SEC Documents (as defined in
Section 4.06) filed with the SEC prior to or as of the date of this Agreement
and (y) the disclosure schedule delivered to GPU by FirstEnergy pursuant to
Section 7.17(a)(i) (the "FIRSTENERGY DISCLOSURE SCHEDULE"), FirstEnergy
represents and warrants to GPU as follows:
Section 4.01 ORGANIZATION, STANDING AND POWER. (a) Each of FirstEnergy and
its Significant Subsidiaries
(i) is a corporation or other organization duly organized, validly
existing and in good standing (with respect to jurisdictions that recognize
the concept of good standing) under the laws of its jurisdiction of
incorporation or organization,
(ii) has all requisite corporate or similar power and authority, and
has been duly authorized by all necessary approvals and orders of
Governmental Entities, 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 (with respect to
jurisdictions that recognize the concept of 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,
except with respect to each of clauses (ii) and (iii) above where the
failure to have such power and authority, or to be so qualified or in good
standing, would not, when taken together with all other such failures, have
a FirstEnergy Material Adverse Effect.
Section 4.02 CAPITAL STRUCTURE. (a) As of the date hereof, (i) the
authorized capital stock of FirstEnergy consists of (1) 300,000,000 shares of
FirstEnergy Common Stock of which, as of August 4, 2000, 228,615,241 shares were
issued and outstanding and no shares were held by FirstEnergy in its treasury or
by any of its wholly owned Subsidiaries and no shares of FirstEnergy Common
Stock were reserved for any purpose and (2) 5,000,000 shares of Preferred Stock,
$100 par value (the "FIRSTENERGY PREFERRED") of which, as of the date hereof, no
shares were issued and outstanding and no shares were held by FirstEnergy in its
treasury or by any of its wholly owned Subsidiaries; (ii) options under the
FirstEnergy Controlled Group Plans (as defined in Section 4.12) to purchase not
more than 3,799,153 shares of FirstEnergy Common Stock are outstanding; and
(iii) no Voting Debt on any matters on which shareholders of FirstEnergy may
vote are issued or outstanding. As of the Effective Time, the authorized number
of shares of FirstEnergy Common Stock referred to in (1) above shall be
increased to 375,000,000 shares subject to receipt of the approval of the
shareholders of FirstEnergy.
(b) All outstanding shares of FirstEnergy'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
as set forth in paragraph (a) above and except for rights ("FIRSTENERGY RIGHTS")
issued under the Rights Agreement, dated as of November 18, 1997, between
FirstEnergy and The Bank of New York, as Rights Agent (the "FIRSTENERGY RIGHTS
AGREEMENT")), there are no options, warrants, calls, rights, commitments or
agreements of any character to which FirstEnergy or any Subsidiary of
FirstEnergy is a party or by which it is bound obligating FirstEnergy or any
Subsidiary of FirstEnergy 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, FirstEnergy or securities convertible or exchangeable
for such shares, Voting Debt or other equity interests, or obligating
FirstEnergy or any Subsidiary of FirstEnergy to grant, extend or enter into any
such option, warrant, call, right, commitment or agreement.
Section 4.03 CORPORATE AUTHORITY. (a) FirstEnergy has all requisite
corporate power and authority to enter into this Agreement and, subject to the
approval of this Agreement and the transactions
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contemplated hereby by the shareholders of FirstEnergy, to consummate the
transactions contemplated hereby.
(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 FirstEnergy, subject to the approval of this
Agreement by the shareholders of FirstEnergy.
(c) This Agreement has been duly executed and delivered by FirstEnergy and
constitutes a valid and binding obligation of FirstEnergy enforceable in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance 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.
Section 4.04 NO VIOLATION. Except as contemplated by Section 4.05, the
execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated hereby will not, result in a Violation with, under or
pursuant to,
(a) any provision of the Amended Articles of Incorporation or Regulations
of FirstEnergy or the articles of incorporation, by-laws or similar
constitutional documents of any Subsidiary of FirstEnergy,
(b) any provision of any loan or credit agreement, note, bond, mortgage,
indenture, lease, FirstEnergy Controlled Group Plan (as defined in
Section 4.12) or other agreement, obligation, instrument, permit, concession,
franchise, license of any kind to which FirstEnergy 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, which Violation would have a FirstEnergy
Material Adverse Effect, or
(c) any judgment, order, injunction, writ, decision, decree, statute, law,
ordinance, rule, regulation, permit or license of any Governmental Entity
applicable to FirstEnergy or any of its Subsidiaries or their respective
properties or assets, which Violation would have a FirstEnergy Material Adverse
Effect.
Section 4.05 CONSENTS AND APPROVALS. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity, is required to be obtained by FirstEnergy with respect to FirstEnergy or
any of its Subsidiaries in connection with the execution and delivery of this
Agreement by FirstEnergy or the consummation by FirstEnergy of the transactions
contemplated hereby, the failure of which to obtain would have a FirstEnergy
Material Adverse Effect, except for:
(a) the filing of a premerger notification report with the FTC and the DOJ
under the HSR Act and the expiration or termination of the applicable waiting
period under the HSR Act,
(b) the filing with, and to the extent applicable, the declaration of
effectiveness by, the SEC of
(i) 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 "REGISTRATION STATEMENT"), and
(iii) such reports and other filings under the Securities Act or 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 required under the Securities Act or the Exchange Act,
(c) the SEC '35 Act Order,
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(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 Department of State of
the Commonwealth of Pennsylvania and the Secretary of State of the State of Ohio
in accordance with applicable law,
(f) the FERC Approvals,
(g) the NRC Approvals,
(h) the FCC Approvals,
(i) the Local Approvals, and
(j) State Takeover Approvals.
Section 4.06 FIRSTENERGY SEC DOCUMENTS. (a) FirstEnergy has made available
to GPU a true and complete copy of each report, schedule, registration statement
and definitive proxy statement filed by FirstEnergy with the SEC since
January 1, 2000 (as such documents have since the time of their filing been
amended, the "FIRSTENERGY SEC DOCUMENTS") which are all the documents (other
than preliminary material) that FirstEnergy was required to file with the SEC
since such date.
(b) As of their respective dates of filing, (x) the FirstEnergy SEC
Documents complied as to form in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, to the extent
applicable to such FirstEnergy SEC Documents, and (y) none of the FirstEnergy
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 consolidated financial statements of FirstEnergy included in the
FirstEnergy 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 and present fairly, in all material respects,
the financial position of FirstEnergy and its Subsidiaries as at the dates
indicated, and the results of their operations and their cash flows for the
periods indicated, in conformity with GAAP applied on a consistent basis during
the periods involved (except (x) as may be indicated in the notes thereto and
(y) in the case of the unaudited statements, as permitted by Form 10-Q of the
SEC and for normal, recurring adjustments).
Section 4.07 NO UNDISCLOSED LIABILITIES. (a) Except as and to the extent
set forth in FirstEnergy's Annual Report on Form 10-K for the year ended
December 31, 1999 and Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 2000, as of March 31, 2000, neither FirstEnergy nor any of its
Subsidiaries had any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, except for liabilities or obligations that
would not be required by GAAP to be reflected on a consolidated balance sheet
(including the notes thereto) of FirstEnergy or which would not, individually or
in the aggregate, be reasonably likely to have a FirstEnergy Material Adverse
Effect.
(b) Since March 31, 2000, except as set forth in the FirstEnergy SEC
Documents filed by FirstEnergy with the SEC since March 31, 2000 and prior to
the date of this Agreement, neither FirstEnergy nor any of its Subsidiaries has
incurred any liabilities or obligations of any nature, whether or not accrued,
absolute, contingent, threatened or otherwise, which would, individually or in
the aggregate, have a FirstEnergy Material Adverse Effect.
Section 4.08 INFORMATION SUPPLIED. (a) None of the information supplied or
to be supplied by FirstEnergy for inclusion or incorporation by reference in
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(i) the Registration Statement 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 FirstEnergy and the shareholders of GPU 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 Registration Statement
will comply as to form in all material respects with the provisions of the
Securities Act.
Section 4.09 COMPLIANCE WITH APPLICABLE LAWS. (a) FirstEnergy 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 FirstEnergy and its Subsidiaries, taken as a whole (the
"FIRSTENERGY PERMITS").
(b) FirstEnergy and its Subsidiaries are in compliance with the terms of
the FirstEnergy Permits, except where any such failures so to comply would not,
individually or in the aggregate, have a FirstEnergy Material Adverse Effect.
(c) The businesses of FirstEnergy and its Subsidiaries are not being
conducted in violation of any law, ordinance or regulation of any Governmental
Entity, except for possible violations which would not, individually or in the
aggregate, have a FirstEnergy Material Adverse Effect.
(d) As of the date of this Agreement,
(i) no investigation or review by any Governmental Entity with respect
to FirstEnergy or any of its Subsidiaries is pending or, to the knowledge of
the executive officers of FirstEnergy, threatened, and
(ii) to the knowledge of the executive officers of FirstEnergy, no
Governmental Entity has indicated an intention to conduct any such
investigation or review,
other than, in each case, those the outcome of which would not have a
FirstEnergy Material Adverse Effect.
Section 4.10 LITIGATION. As of the date of this Agreement:
(a) there is no suit, action or proceeding pending or, to the knowledge of
the executive officers of FirstEnergy, threatened against FirstEnergy or any of
its Subsidiaries which is reasonably likely to have a FirstEnergy Material
Adverse Effect, and
(b) there is no judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against FirstEnergy or any of its
Subsidiaries having, or which is reasonably likely to have, a FirstEnergy
Material Adverse Effect.
Section 4.11 TAXES. (a) Each of FirstEnergy 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 FirstEnergy has paid on its behalf),
or has established an adequate accrual or reserve (determined in accordance with
GAAP) 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) or which are otherwise due and payable, except as
would not have a FirstEnergy Material Adverse Effect. The most recent balance
sheet contained in the FirstEnergy SEC Documents reflects an adequate accrual or
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reserve (determined in accordance with GAAP) for Taxes payable by FirstEnergy
and its Subsidiaries accrued through the date of such balance sheet, except as
would not have a FirstEnergy Material Adverse Effect.
(b) Except as would not have a FirstEnergy Material Adverse Effect, (i) no
deficiencies for any Taxes have been proposed, asserted or assessed in writing,
or to the knowledge of the executive officers of FirstEnergy, orally, by any
Taxing authority against FirstEnergy or any of its Subsidiaries, and (ii) no
audit of the Tax returns of FirstEnergy or any of its Subsidiaries is currently
being conducted by any Taxing authority.
(c) Except with respect to any claims for refunds, the Federal income Tax
returns of FirstEnergy and each of its Subsidiaries consolidated in such returns
for all such periods ended on or before December 31, 1994 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. None of FirstEnergy or
any of its Subsidiaries (i) has requested any extension of time within which to
file any material Federal income Tax return, which Tax return has not since been
filed and (ii) has in effect any extension, outstanding waivers or comparable
consents with respect to any material Federal income Taxes or material Federal
income Tax returns.
(d) Copies of all Federal Tax returns required to be filed by FirstEnergy
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 or made available by FirstEnergy to GPU.
(e) None of FirstEnergy 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) FirstEnergy has not taken any actions, nor is it aware of any facts or
circumstances, which would, or would be reasonably likely to, prevent the Merger
from constituting a reorganization within the meaning of Section 368(a) of the
Code.
Section 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 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 material plan, arrangement or
understanding (whether or not legally binding) (all the foregoing being herein
called the "FIRSTENERGY CONTROLLED GROUP PLANS"), maintained or contributed to
by FirstEnergy, 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 FirstEnergy is a member,
FirstEnergy has made available to GPU, or will deliver to GPU 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 FirstEnergy Controlled Group Plan,
(iii) each trust agreement and group annuity contract, if any, relating
to any such FirstEnergy Controlled Group Plan and
(iv) the most recent actuarial report or valuation relating to any such
FirstEnergy Controlled Group Plan subject to Title IV of ERISA.
(b) (i) Each of the FirstEnergy 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 knowledge of the executive officers
of FirstEnergy, no circumstances exist that are reasonably expected by
FirstEnergy to result in the revocation of any such determination.
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(ii) Except as would not have a FirstEnergy Material Adverse Effect,
FirstEnergy is in compliance with, and each FirstEnergy Controlled Group
Plan is and has been operated in compliance with, all applicable laws, rules
and regulations governing such plan, including, without limitation, ERISA
and the Code.
(iii) Except as would not have a FirstEnergy Material Adverse Effect,
each FirstEnergy 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.
(c) With respect to the FirstEnergy Controlled Group Plans, individually
and in the aggregate, no event has occurred, and to the knowledge of any of the
executive officers of FirstEnergy or any of its Subsidiaries, there exists no
condition or set of circumstances in connection with which FirstEnergy 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 would not have a FirstEnergy Material Adverse Effect, with
respect to each FirstEnergy Controlled Group Plan, there are no material funded
benefit obligations for which contributions have not been made or in accordance
with GAAP properly accrued and there are no material unfunded benefit
obligations which have not been accounted for in accordance with GAAP, on the
financial statements of FirstEnergy or any of its Subsidiaries.
(e) Except as provided for in this Agreement, as of the date of this
Agreement, neither FirstEnergy nor any of its Subsidiaries is a party to any
union or collective bargaining agreement.
(f) No FirstEnergy 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 FirstEnergy 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) 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 FirstEnergy or any of its
Subsidiaries; 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 FirstEnergy or any of its
Subsidiaries.
(h) None of the FirstEnergy Controlled Group Plans that are welfare plans
(within the meaning of Section 3(l) of ERISA) provides for any retiree benefits.
(i) Except as would not have a FirstEnergy Material Adverse Effect,
(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
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(A) payment (whether of severance pay or otherwise) becoming due
from FirstEnergy 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 FirstEnergy Controlled Group Plan being
established or becoming accelerated, vested or payable, and
(ii) neither FirstEnergy 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,
(B) any consulting contract with any person who prior to entering
into such contract was a director or officer of FirstEnergy, or
(C) any plan, agreement, arrangement or understanding similar to any
of the foregoing.
Section 4.13 ABSENCE OF CERTAIN CHANGES OR EVENTS. Between March 31, 2000
and the date of this Agreement, FirstEnergy and its Subsidiaries have conducted
their respective businesses in all material respects 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 would have, a FirstEnergy 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
FirstEnergy's or its Subsidiaries' capital stock, except for (i) regular
quarterly cash dividends of $.375 per share on FirstEnergy Common Stock;
(ii) regular dividends on FirstEnergy's Subsidiaries' preferred securities (the
"FIRSTENERGY SUBS PREFERRED") with usual record and payment dates for such
dividends; and (3) dividends on common stock paid by wholly owned Subsidiaries
of FirstEnergy; 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 is reasonably
likely to have, a FirstEnergy Material Adverse Effect.
Section 4.14 OPINION OF FIRSTENERGY FINANCIAL ADVISOR. FirstEnergy has
received the opinion of Morgan Stanley & Co. Incorporated (hereinafter referred
to as "FIRSTENERGY ADVISOR") dated the date hereof, to the effect that, subject
to the limitations and qualifications contained in that opinion, as of such
date, the Merger Consideration is fair from a financial point of view to
FirstEnergy, and copies of such opinion have been previously or will be
delivered to GPU.
Section 4.15 VOTE REQUIRED. The affirmative vote of the holders of a
majority of the outstanding shares of FirstEnergy Common Stock is the only vote
of the holders of any class or series of FirstEnergy capital stock necessary to
approve this Agreement and the transactions contemplated hereby.
Section 4.16 ACCOUNTING MATTERS. Neither FirstEnergy nor, to the knowledge
of the executive officers of FirstEnergy, 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
Merger on a purchase accounting basis in accordance with GAAP and applicable
regulations of the SEC.
Section 4.17 OWNERSHIP OF GPU STOCK. As of the date of this Agreement,
FirstEnergy and its affiliates do not "beneficially own" (as such term is
defined in the GPU Rights Agreement) any shares of GPU Common Stock.
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Section 4.18 FIRSTENERGY SUBSIDIARIES. (a) Section 4.18(A) of the
FirstEnergy Disclosure Schedule sets forth a description as of the date hereof
of all Significant Subsidiaries and material joint ventures of FirstEnergy,
including the name of each such entity, a brief description of the principal
line or lines of business conducted by each such entity and FirstEnergy's
interest therein.
(b) All of the issued and outstanding shares of capital stock of each
Significant Subsidiary of FirstEnergy are validly issued, fully paid,
nonassessable and free of preemptive rights, and, other than outstanding
Non-Convertible Preferred Securities, are owned directly or indirectly by
FirstEnergy free and clear of any material 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 Significant
Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of its capital stock, other than Non-Convertible Preferred
Securities, or obligating it to grant, extend or enter into any such agreement
or commitment.
Section 4.19 ENVIRONMENTAL PROTECTION. (a) COMPLIANCE. (i) Each of
FirstEnergy and its Subsidiaries is in compliance with all applicable
Environmental Laws, except for failures to be in compliance which would not have
a FirstEnergy Material Adverse Effect.
(ii) Neither FirstEnergy nor any of its Subsidiaries has received any
written communication or, to the knowledge of the executive officers of
FirstEnergy, any oral communication, from any person or Governmental Entity
that alleges that FirstEnergy 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 FirstEnergy Material Adverse Effect.
(b) PERMITS. Each of FirstEnergy and its Subsidiaries has obtained or has
applied for all Environmental Permits necessary for the construction of its
facilities or the conduct of its operations, and all such permits are in effect
or, where applicable, a renewal application has been timely filed and is pending
agency approval, and FirstEnergy and each of its Subsidiaries is in material
compliance with all terms and conditions of the Environmental Permits, in each
case except for failures to obtain or be in compliance with such Environmental
Permit, or of such Environmental Permits to be in effect, which would not have a
FirstEnergy Material Adverse Effect.
(c) CLAIMS. To the knowledge of the executive officers of FirstEnergy, no
Environmental Claim is pending
(i) against FirstEnergy or any of its Subsidiaries or any joint
ventures to which FirstEnergy or any of its Subsidiaries is a party,
(ii) against any person or entity whose liability for any Environmental
Claim FirstEnergy 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
FirstEnergy or any of its Subsidiaries or joint ventures owns, leases or
manages, in whole or in part,
which would have, in the aggregate, a FirstEnergy Material Adverse Effect.
(d) The executive officers of FirstEnergy have no knowledge of any Releases
of any Hazardous Material that would be reasonably likely to form the basis of
any Environmental Claim against FirstEnergy or any Subsidiaries or joint
ventures of FirstEnergy, or its Subsidiaries, or against any person or entity
whose liability for any Environmental Claim FirstEnergy or any Subsidiaries or
joint ventures of FirstEnergy 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
FirstEnergy Material Adverse Effect.
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(e) The executive officers of FirstEnergy have no knowledge, with respect
to any predecessor of FirstEnergy or any Subsidiary or joint venture of
FirstEnergy, 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 FirstEnergy Material Adverse Effect.
(f) To the knowledge of the executive officers of FirstEnergy, FirstEnergy
has disclosed to GPU all material facts which FirstEnergy reasonably believes
form the basis of a FirstEnergy Material Adverse Effect arising from
(i) the cost of pollution control equipment currently required or known
to be required in the future; or
(ii) current remediation costs or remediation costs known to be
required in the future.
Section 4.20 REGULATION AS A UTILITY. (a) Except as set forth in
paragraphs (b), (c) and (d) of this Section 4.20 (including the sections of the
FirstEnergy Disclosure Schedule referred to in those paragraphs), neither
FirstEnergy nor any "subsidiary company" or "affiliate" of FirstEnergy is
subject to regulation as a public utility or public service company (or similar
designation) by the United States, by any state in the United States or by any
foreign country or political subdivision thereof.
(b) FirstEnergy is a holding company exempt under Section 3(a)(1) of the
1935 Act.
(c) SECTION 4.20(C) of the FirstEnergy Disclosure Schedule sets forth each
"affiliate" and each "subsidiary company" of FirstEnergy which may be deemed to
be a "public-utility company" or a "holding company" within the meaning of the
1935 Act.
(d) SECTION 4.20(D) of the FirstEnergy Disclosure Schedule sets forth each
"affiliate" and each "subsidiary company" of FirstEnergy which is an "exempt
wholesale generator" or a "foreign utility company" within the meaning of the
1935 Act.
Section 4.21 INSURANCE. Except in each case as would not have a
FirstEnergy Material Adverse Effect,
(a) Each of FirstEnergy and its Subsidiaries is as of the date hereof, and
has been continuously since January 1, 1995 (or such later date as such entity
may have been formed) 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 FirstEnergy
and its Subsidiaries during such time period.
(b) FirstEnergy hereby covenants and agrees (i) 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 and at a cost substantially comparable to the cost
incurred by FirstEnergy to maintain such insurance as of the date of this
Agreement and (ii) to notify GPU promptly of any failure by FirstEnergy to
maintain any such insurance that is permitted by the preceding clause.
(c) (i) Neither FirstEnergy nor its Subsidiaries have received any notice
of cancellation or termination with respect to any material insurance policy of
FirstEnergy or its Subsidiaries.
(ii) The insurance policies of FirstEnergy and each of its Subsidiaries
are valid and enforceable policies.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS OF GPU
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 as set forth in the GPU
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Disclosure Schedule or to the extent that FirstEnergy shall otherwise consent in
writing, such consent not to be unreasonably withheld), GPU agrees that:
Section 5.01 ORDINARY COURSE. GPU shall, and shall cause each of its
Subsidiaries to, carry on its respective business in all material respects in
the ordinary course and, to the extent consistent therewith, use all
commercially reasonable efforts to preserve intact in all material respects its
present business organizations and goodwill, preserve its goodwill and
relationships with customers, suppliers and others having business dealings with
it and, subject to prudent management of workforce needs and ongoing programs
currently in force, keep available the services of its officers and employees.
Section 5.02 DIVIDENDS; CHANGES IN STOCK. GPU shall not, nor shall GPU
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) subject to Section 5.02(d), GPU may continue the declaration and
payment of regular quarterly cash dividends not in excess of $.545 per share
of GPU Common Stock, and
(ii) Subsidiaries of GPU may continue the declaration and payment of
regularly scheduled dividends on, and other distributions required by the
terms of, GPU Subs Preferred,
in each case, subject to Section 5.02(d), with usual record and payment dates
for such dividends in accordance with GPU's past dividend practice or as
otherwise required by the terms of the GPU Subs Preferred, and except for
dividends or other distributions on common stock declared and paid by a wholly
owned Subsidiary of GPU.
(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 GPU Subs Preferred,
(ii) in connection with refunding of any GPU Subs Preferred,
(iii) in connection with intercompany purchases, or
(iv) for the purpose of funding or issuing pursuant to any employee
stock ownership plan, the GPU Stock Plans or any dividend reinvestment or
stock purchase plan, in the ordinary course.
(d) GPU shall coordinate with FirstEnergy regarding the declaration of any
dividends in respect of GPU Common Stock and the record and payment dates
relating thereto, it being the intention of GPU and FirstEnergy that the holders
of GPU Common Stock shall receive a final dividend on their GPU Common Stock
equal to GPU's regular quarterly dividend payment prorated from GPU's most
recent previous quarterly dividend payment date to the Effective Time and shall
not receive an overlapping dividend on any FirstEnergy Common Stock that they
receive in exchange for their GPU Common Stock.
Section 5.03 ISSUANCE OF SECURITIES. GPU shall not, nor shall GPU 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
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(a) the issuance of common stock, stock options, performance units, stock
appreciation or similar rights, as the case may be, pursuant to the GPU Stock
Plans, in each case consistent in amount with past practice and in the ordinary
course of business under such GPU Stock Plans in accordance with their present
terms,
(b) issuances of Non-Convertible Preferred Securities of Subsidiaries of
GPU to the extent permitted by Section 5.08, and
(c) the issuance and reservation of GPU capital stock pursuant to the GPU
Rights Agreement.
Section 5.04 CONSTITUENT DOCUMENTS. GPU shall not amend or propose to
amend its articles of incorporation or its by-laws.
Section 5.05 SOLICITATIONS. (a) GPU shall not, nor shall GPU 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 GPU Advisor), 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 GPU Takeover Proposal (as defined below), or agree to, or subject to the
proviso in Section 7.05(b), endorse, recommend or approve, any GPU Takeover
Proposal.
(b) GPU shall promptly advise FirstEnergy orally and in writing of any such
inquiries or GPU Takeover Proposals.
(c) As used in this Agreement, "GPU TAKEOVER PROPOSAL" shall mean any
tender or exchange offer, proposal for a merger, consolidation or other business
combination involving GPU or any Significant Subsidiary of GPU or any proposal
or offer to acquire in any manner (i) a 20% or greater common equity interest
(including any security convertible into, exchangeable or exercisable for, or
otherwise entitling the owner thereof to acquire such common equity interest)
in, or 20% or more of the assets on a consolidated basis of, GPU, other than the
Merger, or (ii) any equity interest (other than Non-Convertible Preferred
Securities) in, or, other than as permitted by Section 5.07, any of the assets
of, any of Jersey Central Power & Light Company ("JCP&L"), Metropolitan Edison
Company ("METED") or Pennsylvania Electric Company ("PENELEC").
(d) Notwithstanding anything in this Section 5.05 to the contrary, unless
the approvals of the shareholders of GPU have been obtained, GPU or a
Significant Subsidiary of GPU, may, to the extent that the Board of Directors of
GPU determines in good faith, after consultation with outside counsel, that its
fiduciary duties under applicable law so require, participate in discussions or
negotiations with, furnish information to, and afford access to the properties,
books and records of GPU and its Subsidiaries to, any person in connection with
a possible GPU Takeover Proposal with respect to GPU by such person.
(e) Nothing contained in this Agreement shall prohibit GPU from taking and
disclosing to its shareholders a position contemplated by Rule 14e-2 under the
Exchange Act or from making any disclosure to its shareholders if, in the good
faith judgment of the Board of Directors of GPU, after consultation with outside
counsel, that disclosure is required pursuant to its obligations under
applicable law.
Section 5.06 ACQUISITIONS. GPU shall not, nor shall it permit any of its
Subsidiaries to (a) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof that
would constitute a Significant Subsidiary of GPU or otherwise acquire or agree
to acquire any assets not in the ordinary course of business or (b) except as
included in the GPU Capital Budget (as defined in Section 5.15 hereof) enter
into a new line of business or make any change, except in the ordinary
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course of business, in the lines of business it engages in as of the date
hereof; provided, in each case, that GPU and its Subsidiaries may enter into or
consummate any such transaction so long as (1) no such individual transaction
involves payment by GPU or any of its Subsidiaries of consideration or
investment of assets or resources or exposure to liability or loss in excess of
$25 million and (2) all such transactions entered into after the date of this
Agreement do not involve payment of consideration or investment of assets or
resources or exposure to liability or loss in excess of $75 million, in the
aggregate.
Section 5.07 DISPOSITIONS. Other than (x) sales, leases, licenses or other
dispositions, including dispositions of accounts receivable, in the ordinary
course of business, (y) sales, leases, licenses, encumbrances or other
dispositions outside the ordinary course of business that individually do not
involve assets of GPU or its Subsidiaries with a value (which in the case of a
sale shall be the sale price) in excess of $5 million or that, in the aggregate
do not involve assets of GPU and its Subsidiaries with an aggregate value (which
in the case of a sale shall be the sale price) in excess of $25 million, and
(z) encumbrances incurred in connection with any transaction permitted by
Section 5.08, in the case of each of (x), (y) and (z), not involving the
disposition of electric generating plants located in the United States, GPU
shall not, nor shall GPU 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.
Section 5.08 FINANCINGS. GPU shall not, nor shall GPU 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 Non-Convertible
Preferred Securities or warrants or rights to acquire any debt securities or
Non-Convertible Preferred 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 past practice,
(b) as may be necessary in connection with acquisitions permitted by
Section 5.06 (including acquisitions listed in SECTION 5.06 of the GPU
Disclosure Schedule),
(c) the incurrence of long-term indebtedness and/or issuances of debt
securities or guarantees by GPU or any of its Subsidiaries, and/or issuances of
Non-Convertible Preferred Securities of Subsidiaries of GPU, not aggregating in
excess of $50 million (not including incurrences or issuances pursuant to
clauses (a), (b) and (d) of this Section 5.08), or
(d) indebtedness of GPU or any of its Subsidiaries, and/or Non-Convertible
Preferred Securities of Subsidiaries of GPU, incurred or issued to refund or
refinance outstanding indebtedness or Non-Convertible Preferred Securities of
such party or such Subsidiary so long as the amount of such indebtedness or
Non-Convertible Preferred Securities so incurred or issued does not materially
exceed the amount of the indebtedness or Non-Convertible Preferred Securities so
refunded or refinanced and any accrued interest or dividends and premium, if
any, thereon.
Section 5.09 NO ACTIONS. GPU shall not, nor shall GPU permit any of its
Subsidiaries to, take any action that would or is reasonably likely to
(a) result in any of the conditions to the Merger set forth in
Article VIII not being satisfied, or
(b) prevent, materially delay or materially impede the consummation of the
Merger.
Section 5.10 COOPERATION, NOTIFICATION. To the extent permitted by law,
GPU shall, and shall cause its Subsidiaries to, (i) confer on a regular and
reasonably frequent basis with one or more representatives of FirstEnergy to
discuss material operational matters and the general status of its ongoing
operations; (ii) promptly notify FirstEnergy of any significant changes, of
which its executive officers have knowledge, in its business, properties,
assets, financial condition or reported or future
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results of operations; (iii) advise FirstEnergy of any change or event which has
had, or in so far as reasonably can be foreseen, is reasonably likely to result
in, a GPU Material Adverse Effect; and (iv) promptly provide FirstEnergy (or
FirstEnergy's counsel) with copies of all filings made by GPU or any of its
Subsidiaries with any state, Federal or foreign court, administrative agency,
commission or other Governmental Entity in connection with this Agreement and
the transactions contemplated hereby.
Section 5.11 RIGHTS AGREEMENT. (a) Except as otherwise provided in this
Section 5.11, GPU shall not redeem the GPU Rights, or amend (other than to delay
the "Distribution Date" (as defined in the GPU Rights Agreement) or to render
the GPU Rights inapplicable to the Merger) or terminate the GPU Rights Agreement
prior to the Effective Time unless required to do so by order of a court of
competent jurisdiction.
(b) GPU shall take all action so that the GPU Rights will expire
immediately prior to the Effective Time.
Section 5.12 COLLECTIVE BARGAINING AGREEMENTS. During the period from the
date of this Agreement and continuing until the Effective Time, GPU agrees, as
to itself and its Subsidiaries, that it will consult with FirstEnergy prior to
entering into any substantive negotiations (x) with respect to any collective
bargaining agreement, or any material modification or amendment thereof, that
cover employees of the regulated business of GPU's Subsidiaries conducted in the
United States or (y) with respect to any other collective bargaining agreement,
or any material modification or amendment thereof, if the scope and type of the
negotiations are reasonably expected to be materially different than the scope
and type of negotiations previously conducted with respect to such agreement.
Section 5.13 EMPLOYEE BENEFIT COVENANT. During the period from the date of
this Agreement and continuing until the Effective Time, except as set forth in
SECTION 5.13 of the GPU Disclosure Schedule, as may be required by applicable
law or as contemplated by this Agreement, GPU 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 FirstEnergy (which consent shall not be
unreasonably withheld),
(a) enter into, adopt, amend (except as may be required by law) or
terminate any GPU Controlled Group Plan or any other agreement, arrangement,
plan or policy between GPU and one or more of the directors or officers of GPU,
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 GPU, increase in any
manner the compensation or fringe benefits of any director or officer of GPU, or
(c) pay any benefit not required by any GPU 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 GPU, 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 termination of employment or other similar
contract, agreement or arrangement with any director or officer or other
employee of GPU or any of its Subsidiaries, or
(e) make any change in any defined benefit Plan of GPU or any of its
Subsidiaries which accelerates or increases benefits thereunder (except as may
be required by law).
Section 5.14 TAX COVENANT. During the period from the date of this
Agreement and continuing until the Effective Time, GPU agrees, as to itself and
its Subsidiaries, that each of them (a) will not, except in the ordinary course
of business consistent with past practice, make any material Tax election or
settle or compromise any Tax liability material to GPU or any of its Significant
Subsidiaries and
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(b) will promptly notify FirstEnergy of the making of any request for extension
of the time within which to file any Federal income Tax return for such entity.
Section 5.15 CAPITAL EXPENDITURES. Except as required by law or to provide
or maintain reliable electric service, GPU shall not, nor shall GPU permit any
of its Subsidiaries to, make any annual capital expenditures in excess of GPU's
existing capital budget for 2000, a copy of which has been delivered to
FirstEnergy, or any capital budget for future time periods adopted in accordance
with GPU's past practice after consultation with FirstEnergy (each such capital
budget, the "GPU CAPITAL BUDGET").
Section 5.16 TRANSMISSION, GENERATION. Except (i) as required pursuant to
tariffs on file with the FERC as of the date hereof or (ii) to the extent
necessary, in the reasonable judgment of GPU, to comply with applicable law,
existing contractual obligations, or requirements of Governmental Entities, or
to avoid the incurrence of material liability, GPU shall not, nor shall GPU
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 pursuant to a contract agreement or other arrangement the
duration of which exceeds twelve months without the prior approval of
FirstEnergy (not to be unreasonably withheld).
Section 5.17 MODIFICATIONS TO FACILITIES. Except in the ordinary course of
business, to provide or maintain reliable electric service or in accordance with
the GPU Capital Budget, GPU shall not, nor shall GPU 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 material to GPU or, in the case of investment
or expenditure by JCP&L, MetEd or Penelec, to the affected Subsidiary. GPU shall
consult with FirstEnergy with respect to any binding commitment permitted by the
previous sentence which will, or is reasonably likely to, continue for a period
of twelve months or more.
Section 5.18 ACCOUNTING. GPU shall not, nor shall GPU permit any of its
Subsidiaries to, make any changes in its accounting methods, except as required
by law, rule, regulation or GAAP.
Section 5.19 TAX-FREE STATUS. GPU shall not, nor shall GPU permit any of
its Subsidiaries to, take any actions which would, or would be reasonably likely
to, adversely affect the treatment of the Merger as a "reorganization" within
the meaning of Section 368(a) of the Code.
Section 5.20 AFFILIATE TRANSACTIONS. Except as may be required by the 1935
Act, GPU shall not, nor shall GPU permit any of its Subsidiaries to, enter into
any agreement or arrangement with any of their respective affiliates (other than
wholly owned Subsidiaries of GPU) on terms to GPU or its Subsidiaries materially
less favorable than could reasonably be expected to have been obtained with an
unaffiliated third party on an arm's length basis.
Section 5.21 RATE MATTERS. To the extent permitted by law, and except for
routine or administrative filings, GPU shall, and shall cause its Subsidiaries
to, discuss with FirstEnergy any changes in its or its Subsidiaries' rates or
charges (other than pass-through charges), standards of service or regulatory
accounting from those in effect on the date of this Agreement and consult with
FirstEnergy 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,
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and GPU will not make, or permit any Subsidiary to make, any filing to change
its rates on file with the FERC or any other regulatory commission that would
have, alone or in conjunction with all previous such filings, a GPU Material
Adverse Effect. Notwithstanding the foregoing, neither GPU nor any of its
Subsidiaries shall be required to consult or have discussions with FirstEnergy
prior to entering into arrangements with customers in the ordinary course of
business consistent with past practices.
Section 5.22 THIRD-PARTY CONSENTS. (a) GPU shall, and shall cause its
Subsidiaries to, use all commercially reasonable efforts, consistent with United
States and foreign laws, to obtain any third-party consents necessary to
consummate the Merger.
(b) GPU shall promptly notify FirstEnergy of any failure or prospective
failure to obtain any such consents and, if requested, shall provide copies of
all consents obtained to FirstEnergy.
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS OF FIRSTENERGY
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 as set forth in the FirstEnergy Disclosure Schedule or to the extent that GPU
shall otherwise consent in writing, such consent not to be unreasonably
withheld), FirstEnergy agrees that:
Section 6.01 ORDINARY COURSE. FirstEnergy shall, and shall cause each of
its Subsidiaries to, carry on its business in the ordinary course and use all
commercially reasonable efforts to preserve intact their 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, PROVIDED, HOWEVER, that, to the extent permitted
by Section 6.15, FirstEnergy may enter into a new line of business, make any
change in the lines of business it engages in as of the date hereof or dispose
of or acquire assets, by merger or otherwise, or divest liabilities (or enter
into any agreement with respect to any of the foregoing) in each case only if
(x)(a) the taking of such action (or in the case of an agreement, the
transaction contemplated thereby) by a holding company registered under the 1935
Act has generally been permitted or approved by the SEC (or by the Staff of the
SEC acting pursuant to authority delegated by the SEC) under the 1935 Act and
under then applicable SEC orders, or (b) based on discussions with the Staff of
the SEC (the substance of which has been communicated to GPU), the parties
reasonably believe such action (or in the case of an agreement, the transaction
contemplated thereby) would be approved and (y) obtaining the approval of the
SEC (or the Staff of the SEC pursuant to delegated authority) under the 1935
Act, and the conditions to, such approval, would not materially delay or impede
the Merger past the End Date in effect at the time of the action (or in the case
of an agreement, as of the date of the agreement), PROVIDED FURTHER, HOWEVER,
that if such new line of business, change in any line of business that
FirstEnergy or its Subsidiaries engage in as of the date hereof, assets disposed
of or acquired or divested liability is material, then such event has been
disclosed in the Joint Proxy Statement or an amendment thereto. FirstEnergy
shall not, and shall not permit any of its Subsidiaries to, sell, lease, license
or otherwise dispose of any of the shares of common stock of Ohio Edison Company
("OE"), The Cleveland Electric Illuminating Company ("CEI"), The Toledo Edison
Company ("TE") or Pennsylvania Power Company ("PP"), except, in the case of any
such Subsidiary, to FirstEnergy or such Subsidiary's immediate parent company.
Section 6.02 DIVIDENDS; CHANGES IN STOCK. FirstEnergy shall not, nor shall
FirstEnergy 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
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(i) FirstEnergy may continue the declaration and payment of regular
quarterly cash dividends not in excess of $.375 per share of FirstEnergy
Common Stock, and
(ii) Subsidiaries of FirstEnergy may continue the declaration and
payment of regularly scheduled dividends on, and other distributions
required by the terms of, FirstEnergy Subs Preferred,
in each case, with usual record and payment dates for such dividends in
accordance with such parties' past dividend practice, or as otherwise required
by the terms of the FirstEnergy Subs Preferred, and except for dividends or
other distributions on common stock declared and paid by a wholly owned
Subsidiary of FirstEnergy,
(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 FirstEnergy Subs Preferred,
(ii) in connection with refunding of any FirstEnergy Subs Preferred,
(iii) in connection with intercompany purchases, or
(iv) for the purpose of funding or issuing pursuant to any FirstEnergy
Controlled Group Plan or any employee stock ownership plan or any dividend
reinvestment or stock purchase plan of FirstEnergy, in the ordinary course.
Section 6.03 ISSUANCE OF SECURITIES. Except in a transaction permitted by
Section 6.01, FirstEnergy shall not, nor shall FirstEnergy 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, stock options, performance units, stock
appreciation or similar rights, as the case may be, pursuant to the FirstEnergy
Controlled Group Plans in accordance with their present terms,
(b) issuances of Non-Convertible Preferred Securities of Subsidiaries of
FirstEnergy to the extent permitted by Section 6.06,
(c) the issuance and reservation of FirstEnergy capital stock pursuant to
the FirstEnergy Rights Agreement, and
(d) the issuance, delivery or sale of capital stock by any Subsidiary of
FirstEnergy to FirstEnergy or such Subsidiary's immediate parent company.
Section 6.04 CONSTITUENT DOCUMENTS. Except as provided in Section 4.02,
FirstEnergy shall not amend or propose to amend its Amended Articles of
Incorporation or its Regulations.
Section 6.05 SOLICITATIONS. (a) FirstEnergy shall not, nor shall
FirstEnergy 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 FirstEnergy Advisor), 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 FirstEnergy Takeover
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Proposal (as defined below), or agree to endorse, recommend or approve any
FirstEnergy Takeover Proposal.
(b) FirstEnergy shall promptly advise GPU orally and in writing of any such
inquiries or FirstEnergy Takeover Proposals.
(c) As used in this Agreement, "FIRSTENERGY TAKEOVER PROPOSAL" shall mean
any tender or exchange offer, proposal for a merger, consolidation or other
business combination involving FirstEnergy or any Significant Subsidiary of
FirstEnergy or any proposal or offer to acquire in any manner, by any person or
a group of affiliated persons, a 20% or greater common equity interest
(including any security convertible into, exchangeable or exercisable for, or
otherwise entitling the owner thereof to acquire such common equity interest)
in, or 20% or more of the assets on a consolidated basis of, FirstEnergy, other
than the Merger. GPU Takeover Proposals and FirstEnergy Takeover Proposals are
sometimes herein referred to as "TAKEOVER PROPOSALS".
(d) Notwithstanding anything in this Section 6.05 to the contrary, unless
the approvals of the shareholders of FirstEnergy have been obtained, FirstEnergy
or a Significant Subsidiary of FirstEnergy, may, to the extent that the Board of
Directors of FirstEnergy determines in good faith, after consultation with
outside counsel, that its fiduciary duties under applicable law so require,
participate in discussions or negotiations with, furnish information to, and
afford access to the properties, books and records of FirstEnergy and its
Subsidiaries to, any person in connection with a possible FirstEnergy Takeover
Proposal with respect to FirstEnergy by such person.
(e) Nothing contained in this Agreement shall prohibit FirstEnergy from
taking and disclosing to its shareholders a position contemplated by Rule 14e-2
under the Exchange Act or from making any disclosure to its shareholders if, in
the good faith judgment of the Board of Directors of FirstEnergy, after
consultation with outside counsel, that disclosure is required pursuant to its
obligations under applicable law.
Section 6.06 FINANCINGS. Except in connection with a transaction permitted
or not prohibited by Section 6.01, Section 6.02, Section 6.07 or Section 6.15,
FirstEnergy shall not, nor shall FirstEnergy 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 Non-Convertible Preferred
Securities or warrants or rights to acquire any debt securities or
Non-Convertible Preferred 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) the incurrence of long-term indebtedness and/or issuances of debt
securities or guarantees by FirstEnergy or any of its Subsidiaries, and/or
issuances of Non-Convertible Preferred Securities of Subsidiaries of
FirstEnergy, not aggregating in excess of $50 million (not including incurrences
or issuances pursuant to clause (a) and (c) of this Section 6.06), or
(c) indebtedness of FirstEnergy or any of its Subsidiaries, and/or
Non-Convertible Preferred Securities of Subsidiaries of FirstEnergy, incurred or
issued to refund or refinance outstanding indebtedness or Non-Convertible
Preferred Securities of such party or such Subsidiary so long as the amount of
such indebtedness or Non-Convertible Preferred Securities so incurred or issued
does not materially exceed the amount of the indebtedness or Non-Convertible
Preferred Securities so refunded or refinanced and any accrued interest or
dividends and premium, if any, thereon.
Section 6.07 NO ACTIONS. FirstEnergy shall not, nor shall FirstEnergy
permit any of its Subsidiaries to
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(a) take any action that would or is reasonably likely to result in any of
the conditions to the Merger set forth in Article VIII not being satisfied;
(b) take any action (other than entering into a FirstEnergy Permitted
Acquisition (as defined below)) that would or is reasonably likely to prevent,
materially delay or materially impede the consummation of the Merger; or
(c) make any FirstEnergy Permitted Acquisition (or enter into any agreement
with respect thereto), unless, considering the circumstances at the time
FirstEnergy enters into an agreement for the FirstEnergy Permitted Acquisition,
including the results of discussions with applicable Governmental Entities, the
FirstEnergy Permitted Acquisition would not prevent consummation of the Merger
or materially delay consummation of the Merger beyond the End Date, or, if the
End Date has been extended in accordance with Section 9.01(d) hereof prior to
the time the agreement with respect to the FirstEnergy Permitted Acquisition is
entered into, the Extended End Date. "FIRSTENERGY PERMITTED ACQUISITION" means
any acquisition by FirstEnergy or any of its Subsidiaries permitted by Sections
6.01 and 6.15 hereof.
Section 6.08 COOPERATION, NOTIFICATION. To the extent permitted by law,
FirstEnergy shall, and shall cause its Subsidiaries to, (i) confer on a regular
and reasonably frequent basis with one or more representatives of GPU to discuss
material operational matters and the general status of its ongoing operations;
(ii) promptly notify GPU of any significant changes, of which its executive
officers have knowledge, in its business, properties, assets, financial
condition or reported or future results of operations; (iii) advise GPU of any
change or event which has had, or is reasonably likely to result in, a
FirstEnergy Material Adverse Effect; and (iv) promptly provide GPU (or GPU's
counsel) with copies of all filings made by FirstEnergy 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.
Section 6.09 RIGHTS AGREEMENT. FirstEnergy shall not redeem the
FirstEnergy Rights or amend (other than to delay the "Distribution Date" (as
defined in the FirstEnergy Rights Agreement)) or terminate the FirstEnergy
Rights Agreement prior to the Effective Time unless required to do so by order
of a court of competent jurisdiction.
Section 6.10 ACCOUNTING. FirstEnergy shall not, nor shall FirstEnergy
permit any of its Subsidiaries to, make any changes in its accounting methods,
except as required by law, rule, regulation or GAAP.
Section 6.11 TAX-FREE STATUS. FirstEnergy shall not, nor shall FirstEnergy
permit any of its Subsidiaries to, take any actions which would, or would be
reasonably likely to, adversely affect the status of the treatment of the Merger
as a "reorganization" within the meaning of Section 368(a) of the Code.
Section 6.12 AFFILIATE TRANSACTIONS. FirstEnergy shall not, nor shall
FirstEnergy permit any of its Subsidiaries to, enter into any agreement or
arrangement with any of their respective affiliates (other than wholly owned
Subsidiaries of FirstEnergy) on terms to FirstEnergy or its Subsidiaries
materially less favorable than could reasonably be expected to have been
obtained with an unaffiliated third party on an arm's length basis.
Section 6.13 THIRD-PARTY CONSENTS. (a) FirstEnergy shall, and shall cause
its Subsidiaries to, use all commercially reasonable efforts, consistent with
United States and foreign laws, to obtain any third-party consents necessary to
consummate the Merger.
(b) FirstEnergy shall promptly notify GPU of any failure or prospective
failure to obtain any such consents and, if requested, shall provide copies of
all consents obtained to GPU.
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Section 6.14 TAX-EXEMPT STATUS. FirstEnergy shall not, nor shall
FirstEnergy permit any Subsidiary to, take any action that would likely
jeopardize the qualification of the outstanding revenue bonds issued for the
benefit of 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.
Section 6.15 CERTAIN ACQUISITIONS. Without the consent of GPU, which shall
not be unreasonably withheld, FirstEnergy shall not, and shall not allow any
Subsidiary to, acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof (a "target") or
otherwise acquire or agree to acquire any assets if not permitted under
Section 6.01 or Section 6.07 or if (i) the aggregate consideration (in any form)
payable by FirstEnergy or such Subsidiary shall equal or exceed $1 billion or
(ii) the target is, or the acquisition of such assets would result in their
acquirer becoming, an "electric utility company" as defined in the 1935 Act.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.01 PREPARATION OF REGISTRATION STATEMENT AND THE JOINT PROXY
STATEMENT. (a) FirstEnergy and GPU shall promptly prepare and file with the SEC
the Joint Proxy Statement and FirstEnergy shall prepare and file with the SEC
the Registration Statement, in which the Joint Proxy Statement will be included
as a prospectus.
(b) Each of FirstEnergy and GPU shall use its best efforts to have the
Registration Statement declared effective under the Securities Act as promptly
as practicable after such filing.
(c) FirstEnergy and GPU shall also 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 FirstEnergy and GPU shall furnish all
information concerning themselves and the holders of their common stock as may
be reasonably requested in connection with any such action.
Section 7.02 LETTERS OF GPU'S ACCOUNTANTS. GPU shall use commercially
reasonable efforts to cause to be delivered to FirstEnergy a "comfort" letter of
PricewaterhouseCoopers LLP, GPU's independent auditors, addressed to
FirstEnergy, dated as of the date the Registration Statement shall become
effective, and confirmed in writing as of the Effective Time, in form and
substance reasonably satisfactory to FirstEnergy and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement.
Section 7.03 LETTERS OF FIRSTENERGY'S ACCOUNTANTS. FirstEnergy shall use
commercially reasonable efforts to cause to be delivered to GPU a "comfort"
letter of Arthur Andersen LLP, FirstEnergy's independent auditors, addressed to
GPU, dated as of the date the Registration Statement shall become effective, and
confirmed in writing as of the Effective Time, in form and substance reasonably
satisfactory to GPU and customary in scope and substance for letters delivered
by independent public accountants in connection with registration statements
similar to the Registration Statement.
Section 7.04 ACCESS TO INFORMATION. (a) To the extent permitted by law,
upon reasonable notice, GPU and FirstEnergy 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
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of GPU and FirstEnergy 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, the Pennsylvania Public Utility Commission or
the New Jersey Board of Public Utilities or any other Federal, state or
foreign 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 GPU to FirstEnergy, or by FirstEnergy to
GPU, shall be subject to the Confidentiality Agreement, dated May 19, 2000,
between GPU and FirstEnergy (the "CONFIDENTIALITY AGREEMENT").
Section 7.05 SHAREHOLDER APPROVALS. (a) FirstEnergy and GPU shall each
call a meeting of their respective shareholders to be held as promptly as
practicable for the purpose of voting upon the adoption of this Agreement.
(b) FirstEnergy and GPU will, through their respective Boards of Directors,
recommend to their respective shareholders that they vote in favor of the
adoption of this Agreement (including, in the case of FirstEnergy, the amendment
of the Amended Articles of Incorporation of FirstEnergy to increase the number
of authorized shares of FirstEnergy Common Stock as necessary to issue the
shares of FirstEnergy Common Stock as contemplated by Article II); PROVIDED,
HOWEVER, that neither Board of Directors shall be obligated to recommend the
adoption of this Agreement and the Merger to its respective shareholders if such
Board of Directors determines in good faith, after consultation with outside
counsel and financial advisors, that a change or modification to such
recommendation is required pursuant to its fiduciary duties under applicable law
or its other legal obligations as Directors.
(c) GPU and FirstEnergy 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 Registration Statement becomes
effective.
Section 7.06 SATISFACTION OF CONDITIONS TO THE MERGER. (a) Each of
FirstEnergy and GPU 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 promptly 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 FirstEnergy and GPU, respectively, described
in Section 7.05), as promptly as possible after the date of this Agreement,
including fully cooperating with the other party and providing all necessary
information and making all necessary filings in connection with, among other
things, the approvals and clearance under the HSR Act, the Securities Act and
the Exchange Act, the FERC Approvals, the NRC Approvals, the FCC Approval, the
SEC '35 Act Order, the Blue-Sky Filings, the Local Approvals, the State Takeover
Approvals and the Foreign Approvals.
(c) In connection therewith, the parties agree that, as between them,
FirstEnergy 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 NRC Approvals, the FCC Approval, the SEC '35 Act
Order
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and the Local Approvals required from the State of Ohio and the Commonwealth of
Pennsylvania as well as the Blue-Sky Filings; PROVIDED THAT FirstEnergy shall
furnish GPU with copies of, and an opportunity to comment on, all such filings a
reasonable time prior to filing; and GPU shall be primarily responsible for the
preparation and processing of the filings necessary to obtain the Local
Approvals required from the State of New Jersey and the Foreign Approvals;
PROVIDED THAT, with respect to any Local Approvals and Foreign Approvals, GPU
shall not (i) make any filing or (ii) agree to any settlement without the prior
consent of FirstEnergy, which consent shall not be unreasonably withheld.
(d) Each of FirstEnergy and GPU will, and will cause its Subsidiaries to,
take all 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 FirstEnergy, GPU
or any of their Subsidiaries in connection with the Merger or the taking of any
action contemplated thereby or by this Agreement.
(e) Notwithstanding anything to the contrary set forth in this Agreement,
neither FirstEnergy nor GPU shall be required to accept or agree to any material
conditions, terms or restrictions on the conduct of its business or any
dispositions of assets or businesses in order to obtain any consent, waiver,
license, permit, approval, authorization, ruling or order in connection with the
Merger if the implementation or effectiveness of any such condition, terms or
restriction, or disposition, is not conditioned on consummation of the Merger.
(f) Notwithstanding the foregoing, neither FirstEnergy nor GPU shall be
required by this Agreement to take any action or make any commitment that would
reasonably be expected to have a Material Adverse Effect (as defined in
Section 3.01(a) but without reference to GPU or FirstEnergy) on the
(x) business, operations, properties, assets, financial condition or results of
operations of the Surviving Corporation and its Subsidiaries taken as a whole
after consummation of the Merger or (y) the parties' ability to consummate the
Merger (a "SURVIVING CORPORATION MATERIAL ADVERSE EFFECT").
Section 7.07 RULE 145 AFFILIATES. (a) Prior to the date of the meeting of
the shareholders of GPU, GPU shall deliver to FirstEnergy a letter substantially
in the form attached hereto as EXHIBIT A, identifying all persons who may be, at
the time this Agreement is submitted for approval to such shareholders,
"affiliates" of GPU ("GPU AFFILIATES") for purposes of Rule 145 under the
Securities Act.
(b) GPU shall use commercially reasonable efforts to cause to be delivered
to FirstEnergy on or prior to the date of the applicable meeting of shareholders
referred to in Section 7.05 a written agreement from each of the GPU Affiliates
substantially in the form attached hereto as EXHIBIT B.
Section 7.08 STOCK EXCHANGE LISTING. FirstEnergy shall use its 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 7.09,
after the Merger, to be approved for listing on the NYSE, subject to official
notice of issuance, prior to the Closing.
Section 7.09 EMPLOYEE BENEFIT PLANS. (a) FirstEnergy and GPU agree that
the FirstEnergy Controlled Group Plans and the GPU 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 GPU Controlled Group Plans which are continued and under
which the employees' interests are based upon or valued in relation to GPU
Common Stock, FirstEnergy and GPU 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 Exchange Ratio as
adjusted in accordance with Section 2.01(m)); PROVIDED, HOWEVER, that nothing
contained herein shall be construed as requiring FirstEnergy to continue any
specific plans.
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(c) GPU will not make any changes in severance benefits for officers of GPU
or its Subsidiaries from those disclosed in SECTION 3.12(I) or SECTION 5.13 of
the GPU Disclosure Schedule.
(d) Certain Non-bargaining Unit GPU Employees. (i) If an applicable GPU
Controlled Group Plan is terminated in which non-bargaining unit employees of
GPU, GPU Service, Inc. ("GPU SERVICE"), GPU Telcom Services, Inc., GPU Advanced
Resources, Inc., GPU International, Inc. (domestic corporate level employees),
JCP&L, MetEd or Penelec, participate, FirstEnergy shall, and shall cause each of
its Subsidiaries, as applicable, to:
(A) permit such employees to participate in any similar FirstEnergy
Controlled Group Plan established by FirstEnergy in a manner
substantially similar to similarly situated employees of FirstEnergy and
its Subsidiaries, recognizing that the availability, providers or benefit
levels of such FirstEnergy Controlled Group Plan may reflect differing
circumstances;
(B) grant all such employees credit for all service with GPU prior to
the Effective Time with respect to the applicable FirstEnergy Controlled
Group Plan;
(C) waive any pre-existing condition exclusions and actively-at-work
requirements with respect to the applicable FirstEnergy Controlled Group
Plan; and
(D) provide that any expenses incurred on or before the Effective
Time by any such employee or any such employee's covered dependent shall
be taken into account for purposes of satisfying applicable deductible,
coinsurance and maximum out-of-pocket provisions with respect to the
applicable FirstEnergy Controlled Group Plan.
(ii) FirstEnergy shall, and shall cause each of its subsidiaries to:
(A) allow, after the Effective Time such employees to use the
remaining amount of accrued but unused vacation and sick leave such
employees were entitled immediately prior to the Effective Time;
(B) allow such employees to participate, as soon as practical, in all
job placement, job posting, job training, career development and
educational programs of FirstEnergy and its Subsidiaries; and
(C) consider such employees for positions at FirstEnergy and its
Subsidiaries resulting from the Merger using criteria including previous
work history, job experience and qualifications.
(e) Other. Without limiting the generality of the foregoing, FirstEnergy
agrees to the matters set forth in SECTION 7.09(E) of the FirstEnergy Disclosure
Schedule.
Section 7.10 EXPENSES. Except as set forth in Section 9.05, 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 FirstEnergy
and GPU shall pay, with its own funds and not with funds provided by the other
party, any and all real property transfers or gains, sales, use, transfer, stock
transfer or stamp Taxes, any transfer, recording, registration or other fees, or
any similar conveyance 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 Registration Statement shall be shared equally by
FirstEnergy and GPU,
(b) all out-of-pocket costs of the parties (including attorneys' fees)
incurred to obtain the FERC Approvals, the FCC Approvals, the SEC '35 Act Order,
the NRC Approvals (including, without limitation, all such costs incurred for
all filings and proceedings relating thereto), the Local Approvals and the
Foreign Approvals shall be shared equally by FirstEnergy and GPU, and
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(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 FirstEnergy and GPU.
Section 7.11 BROKERS OR FINDERS. Each of FirstEnergy and GPU 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 the GPU Advisor, whose fees and expenses will be paid by GPU in
accordance with GPU's agreement with such firm (copies of which have been
delivered by GPU to FirstEnergy prior to the date of this Agreement), and except
for the FirstEnergy Advisor, whose fees and expenses will be paid by FirstEnergy
in accordance with FirstEnergy's agreement with such firm (copies of which have
been delivered by FirstEnergy to GPU prior to the date of this Agreement), and
each of FirstEnergy and GPU 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.
Section 7.12 SURVIVING CORPORATION BOARD OF DIRECTORS AND OFFICERS. (a)
FirstEnergy's Board of Directors shall take such actions as may be necessary to
cause (x) the number of Directors comprising the full Board of Directors of the
Surviving Corporation's at the Effective Time to be 16 and (y) at the Effective
Time, 10 members of the Board of Directors of the Surviving Corporation to be
persons designated prior to the Effective Time by FirstEnergy's Board of
Directors and 6 members of the Board of Directors of the Surviving Corporation
to be persons designated prior to the Effective Time by GPU's Board of Directors
("GPU DESIGNEES"). At the Effective Time, the GPU Designees shall be allocated
among the classes of the Surviving Corporation's Board of Directors as
designated by GPU's Board of Directors prior to the Effective Time so long as
the GPU Designees are allocated among those classes in a manner that is as
nearly equal as possible.
(b) If, at any time during the two year period following the Effective Time,
there are fewer than 6 GPU Directors, the vacancy or vacancies, as applicable,
shall be filled as promptly as practicable by the appointment by the Surviving
Corporation's Board of Directors of a person or persons recommended by not less
than 80% of the remaining members of the Surviving Corporation's Board of
Directors. At all times during such two year period, the chairman of at least
one of the standing committees of the Surviving Corporation's Board of Directors
shall be a GPU Director. The term "GPU DIRECTOR" means (i) any GPU Designee who
becomes a Director of the Surviving Corporation at the Effective Time and
(ii) any person who subsequently becomes a Director of the Surviving Corporation
pursuant to this paragraph.
(c) From the Effective Time until the earlier of the date he reaches the age
of 62 or the date he is no longer willing or able to serve in such capacity,
Mr. Hafer shall serve as Chairman of the Surviving Corporation and from such
date until otherwise determined by the Surviving Corporation's Board of
Directors, Mr. Burg shall serve as Chairman of the Surviving Corporation.
(d) From the Effective Time until otherwise determined by the Surviving
Corporation's Board of Directors, Mr. Burg shall serve as Chief Executive
Officer and, until the date referred to in (c) above, Vice Chairman of the
Surviving Corporation.
(e) All other officers of the Surviving Corporation will be designated by
the Surviving Corporation's Board of Directors.
Section 7.13 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. (a) GPU
and, from and after the Effective Time, the Surviving Corporation (each of GPU
and the Surviving Corporation, as the case may be, is referred to herein as a
"GPU 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
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becomes prior to the Effective Time, an officer, director, or employee of GPU or
any of its Subsidiaries (the "GPU 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
GPU 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 person is or was a director, officer or employee
of GPU 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 "GPU INDEMNIFIED
LIABILITIES"), and
(ii) all GPU 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 permitted
by applicable law (and the applicable GPU Indemnifying Party will pay
expenses as incurred in advance of the final disposition of any such action
or proceeding to each GPU 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 GPU Indemnified Party
(whether arising before or after the Effective Time),
(A) the GPU Indemnified Parties may retain counsel satisfactory to
them and approved by the GPU Indemnifying Party, which approval shall not
be unreasonably withheld,
(B) the GPU Indemnifying Party shall pay all reasonable fees and
expenses of such counsel for the GPU Indemnified Parties promptly as
statements therefor are received, and
(C) the GPU Indemnifying Party will use all reasonable efforts to
assist in the vigorous defense of any such matter.
(ii) However, no GPU 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 GPU 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 GPU Indemnifying
Party (but the failure so to notify a GPU 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 GPU 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 GPU Indemnified Parties.
(c) For a period of six years after the Effective Time, the Surviving
Corporation shall cause to be maintained in effect the current policies of
directors' and officers' liability insurance maintained by GPU (provided that
the Surviving Corporation may substitute therefor policies of at least the same
coverage and amounts and otherwise containing terms and conditions which, in the
aggregate, are no less advantageous than the current policies maintained by GPU
with respect to its directors and officers) with respect to claims arising from
facts or events which occurred before the Effective Time; PROVIDED, HOWEVER,
that in no event shall the Surviving Corporation 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 GPU in 2000
on an annualized basis for such purpose. For a period of six years after the
Effective Time, the Regulations of the Surviving Corporation (or similar
constitutional documents of any successor entity) shall contain provisions not
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less favorable than are set forth in Sections 31-33 of FirstEnergy's Regulations
as in effect as of the date of this Agreement.
(d) FirstEnergy and, from and after the Effective Time, the Surviving
Corporation. (each of FirstEnergy and the Surviving Corporation, as the case may
be, is referred to herein as an "FIRSTENERGY 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 FirstEnergy or any of its
Subsidiaries (the "FIRSTENERGY 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
FirstEnergy 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 person is or was a director, officer or employee
of FirstEnergy 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 "FIRSTENERGY
INDEMNIFIED LIABILITIES"), and
(ii) all FirstEnergy 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
permitted by applicable law (and the applicable FirstEnergy Indemnifying
Party will pay expenses as incurred in advance of the final disposition of
any such action or proceeding to each FirstEnergy 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 FirstEnergy
Indemnified Party (whether arising before or after the Effective Time),
(A) the FirstEnergy Indemnified Parties may retain counsel
satisfactory to them and approved by the FirstEnergy Indemnifying Party,
which approval shall not be unreasonably withheld,
(B) the FirstEnergy Indemnifying Party shall pay all reasonable fees
and expenses of such counsel for the FirstEnergy Indemnified Parties
promptly as statements therefor are received, and
(C) the FirstEnergy Indemnifying Party will use all reasonable
efforts to assist in the vigorous defense of any such matter.
(ii) However, no FirstEnergy 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 FirstEnergy 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 FirstEnergy
Indemnifying Party (but the failure so to notify a FirstEnergy 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 FirstEnergy 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 FirstEnergy
Indemnified Parties.
(f) For a period of six years after the Effective Time, the Surviving
Corporation shall cause to be maintained in effect the current policies of
directors' and officers' liability insurance maintained by
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FirstEnergy (provided that the Surviving Corporation may substitute therefor
policies of at least the same coverage and amounts and otherwise containing
terms and conditions which, in the aggregate, are no less advantageous than the
current policies maintained by FirstEnergy with respect to its directors and
officers) with respect to claims arising from facts or events which occurred
before the Effective Time; PROVIDED, HOWEVER, that in no event shall the
Surviving Corporation 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 FirstEnergy in 2000 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.
Section 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 the Surviving Corporation or its Subsidiaries with
full title to all properties, assets, rights, approvals, immunities and
franchises of FirstEnergy and GPU, the proper officers and directors of
FirstEnergy and GPU shall take all such necessary action.
Section 7.15 TAX TREATMENT. FirstEnergy and GPU each agree to treat the
Merger as a "reorganization" within the meaning of Section 368(a) of the Code,
and each party hereto shall use all reasonable efforts to achieve such result.
Following the Effective Time, FirstEnergy shall not, nor shall FirstEnergy
permit any of its Subsidiaries to, take any actions which would, or would be
reasonably likely to, adversely affect the status of the treatment of the Merger
as a "reorganization" within the meaning of Section 368(a) of the Code.
Section 7.16 ACCOUNTING TREATMENT. FirstEnergy and GPU each agree to, and
to cause the Surviving Corporation to, account for the Merger on a purchase
accounting basis in accordance with GAAP and applicable SEC regulations.
Section 7.17 DISCLOSURE SCHEDULES. (a) On the date hereof,
(i) GPU has delivered to FirstEnergy a GPU Disclosure Schedule,
accompanied by a certificate signed by the chief financial officer of GPU
stating the GPU Disclosure Schedule is being delivered pursuant to this
SECTION 7.17(A), and
(ii) FirstEnergy has delivered to GPU a FirstEnergy Disclosure Schedule,
accompanied by a certificate signed by the chief financial officer of
FirstEnergy stating the FirstEnergy Disclosure Schedule is being delivered
pursuant to this SECTION 7.17(A).
(b) The GPU Disclosure Schedule and the FirstEnergy 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.
(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 GPU Disclosure Schedule or the
FirstEnergy Disclosure Schedule, in any Section thereof 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 the GPU Disclosure
Schedule or FirstEnergy Disclosure Schedule, as the case may be) to which such
matter may be applicable.
Section 7.18 PUBLIC ANNOUNCEMENTS. Subject to each party's disclosure
obligations imposed by law and applicable stock exchange rules, FirstEnergy and
GPU will cooperate with each other in the
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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
with respect thereto without the consent of the other party, which consent shall
not be unreasonably withheld.
Section 7.19 EMPLOYEE AGREEMENTS. FirstEnergy and GPU shall cause the
Surviving Corporation 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 or permitted to be entered into prior to the Effective Time pursuant to
this Agreement 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 the Surviving Corporation 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.
Section 7.20 TRANSITION MANAGEMENT. (a) As promptly as practicable after
the date hereof, GPU and FirstEnergy shall create a special transition
management task force (the "TASK FORCE") headed by Mr. Burg (or an individual
designated by him or by the Board of Directors of FirstEnergy). Members of the
Task Force shall consist of representatives of FirstEnergy and GPU as designated
by Mr. Burg in consultation with Mr. Hafer.
(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 Sections
5.10 and 6.08,
(ii) development of regulatory plans and proposals, corporate
organizational and management plans, workforce combination proposals, and
such other matters as they deem appropriate, and
(iii) to evaluate and recommend the manner in which best to organize and
manage the business of the Surviving Corporation after the Effective Time;
provided that the Task Force shall not be responsible for controlling the
operations of the businesses of FirstEnergy, GPU or any of their respective
Subsidiaries.
(c) Mr. Burg or his designee, shall be responsible for directing all
activities of the Task Force contemplated by this Section 7.20.
(d) Effective from the date hereof to the earlier of the Effective Time or
the termination of this Agreement pursuant to Section 9.01 hereof, the Chairman
of the Board of Directors of FirstEnergy may request of the Chairman of the
Board of Directors of GPU to attend any meeting of the Board of Directors of GPU
and the Chairman of the Board of Directors of GPU may request of the Chairman of
the Board of Directors of FirstEnergy to attend any meeting of the Board of
Directors of FirstEnergy. Each company whose Chairman receives any such request
shall consider the request and, if the company to whose Chairman the request was
made determines in its sole discretion to do so, that company may accommodate
the request of the other party's Chairman.
Section 7.21 CHARITABLE COMMITMENTS; OFFICES; NAME. The Surviving
Corporation will maintain GPU's charitable commitments substantially at current
levels in the communities which JCP&L, MetEd and Penelec currently serve for a
minimum of three years after the Effective Time. The parties intend that after
this three year period, the Surviving Corporation will make charitable
commitments in such communities in a manner substantially similar to what
FirstEnergy's Subsidiaries do in the communities they currently serve. After the
Effective Time, subject to the authority of the Surviving Corporation's Board of
Directors to manage the affairs of the Surviving Corporation, GPU's offices and
presence will be maintained in their current general locations in Morristown,
New Jersey and Reading, Pennsylvania,
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and the headquarters of the Surviving Corporation will be located in Akron,
Ohio. The Surviving Corporation will maintain the use of the "GPU Energy" name
until otherwise determined by the Surviving Corporation; PROVIDED THAT such name
will also reflect the affiliation with FirstEnergy.
ARTICLE VIII
CONDITIONS PRECEDENT
Section 8.01 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 shall have been adopted by the
shareholders of GPU in accordance with the Pennsylvania BCL and by the
shareholders of FirstEnergy in accordance with the Ohio GCL.
(b) LISTING. The shares of FirstEnergy Common Stock issuable to holders of
GPU 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 1.03, all authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations of all applicable waiting periods
(including but not limited to the waiting period under the HSR Act), including
extensions thereof, imposed by, any Governmental Entity or required under any
applicable law, statute, regulations or rule (including but not limited to the
FERC Approvals, the NRC Approvals, the FCC Approvals, the SEC '35 Act Order, the
Local Approvals, the State Takeover Approvals and the Foreign Approvals) shall
have been made or obtained and have become Final Orders (as hereinafter defined)
and, with respect to any waiting period, including any extension thereof, such
waiting period shall have expired or terminated, except to the extent that
failures (x) to make or obtain these authorizations, consents, orders,
approvals, declarations, and filings, including Final Orders, and (y) of any
applicable waiting period, or extension thereof, to expire or be terminated
would not, in the aggregate, be reasonably expected to result in a Surviving
Corporation Material Adverse Effect, and the foregoing authorizations, consents,
orders, approvals, declarations and filings, including Final Orders, shall not
impose terms or conditions on FirstEnergy, GPU or any of its Subsidiaries that
would be reasonably expected to result in a Surviving Corporation Material
Adverse Effect. For purposes of this Section 8.01(c), any requirement in a Final
Order that generation assets of any of FirstEnergy's Subsidiaries which are, in
the sole judgement of FirstEnergy, made on a reasonable basis, material to the
business or operations of FirstEnergy or any of its Subsidiaries, be divested
shall be deemed to be a Surviving Corporation Material Adverse Effect. 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.
(ii) 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 GPU Common Stock and to consummate the
Merger, except to the extent that the failure, in the aggregate, to receive
such permits or other authorizations would not be reasonably expected to
result in a Surviving Corporation Material Adverse Effect.
(d) REGISTRATION STATEMENT EFFECTIVE. The Registration Statement 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.
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(e) 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 shall be in effect.
(f) AGREEMENTS FROM RULE 145 AFFILIATES. The Surviving Corporation shall
have received from each person named in the letters from GPU and FirstEnergy
referred to in Section 7.07, an executed copy of an agreement substantially in
the form of EXHIBIT B hereto.
Section 8.02 CONDITIONS TO OBLIGATIONS OF FIRSTENERGY. The obligation of
FirstEnergy to effect the Merger is subject to the satisfaction of each of the
following conditions unless waived by FirstEnergy:
(a) REPRESENTATIONS AND WARRANTIES. Except as otherwise contemplated by
this Agreement, the representations and warranties of GPU set forth in this
Agreement shall be true and correct 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 except to
the extent that all failures of GPU's representations and warranties to be true
and correct, taken together, would not, as of the Closing Date, reasonably be
expected to have a GPU Material Adverse Effect (it being understood that, for
purposes of this paragraph (a), all "GPU Material Adverse Effect" and other
materiality qualifications in GPU's representations and warranties shall be
disregarded), and FirstEnergy shall have received a certificate signed on behalf
of GPU by its chief executive officer and chief financial officer to such
effect.
(b) PERFORMANCE OF OBLIGATIONS OF GPU. GPU 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 shall have received a
certificate signed on behalf of GPU by its chief executive officer to such
effect.
(c) TAX OPINION. FirstEnergy shall have received an opinion, dated the
Closing Date, from Winthrop, Stimson, Putnam & Roberts, counsel to FirstEnergy
(or, if Winthrop, Stimson, Putnam & Roberts refuses to issue this opinion, from
other counsel reasonably satisfactory to FirstEnergy), to the effect that the
Merger will be treated for Federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code. In rendering such opinion,
Winthrop, Stimson, Putnam & Roberts (or such other counsel) shall be entitled to
receive and rely upon customary representations contained in certificates of
FirstEnergy and GPU, and such other persons as such counsel reasonably deems
necessary or appropriate, in each case in form and substance reasonably
acceptable to such counsel.
(d) RIGHTS AGREEMENT. Under the GPU Rights Agreement, no "Stock
Acquisition Date," as defined therein, shall have occurred with respect to the
GPU Rights Agreement that would increase the number of shares of FirstEnergy
Common Stock to be issued under the Merger.
(e) REGULATORY MATERIAL ADVERSE EFFECT. Since the date of this Agreement,
no law, regulation, ruling, order or decree (or new interpretation of any of the
foregoing) affecting GPU or any of its Subsidiaries shall have been adopted,
amended or issued that, individually or in the aggregate, would have a Surviving
Corporation Material Adverse Effect.
(f) MATERIAL ADVERSE EFFECT. Since June 30, 2000, there shall not have
been any event which constitutes a GPU Material Adverse Effect.
Section 8.03 CONDITIONS TO OBLIGATIONS OF GPU. The obligation of GPU to
effect the Merger is subject to the satisfaction of each of the following
conditions unless waived by GPU:
(a) REPRESENTATIONS AND WARRANTIES. Except as otherwise contemplated by
this Agreement, the representations and warranties of FirstEnergy 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
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Closing Date, except to the extent that all failures of FirstEnergy's
representations and warranties to be true and correct taken together, would not,
as of the Closing Date, reasonably be expected to have a FirstEnergy Material
Adverse Effect (it being understood that, for purposes of this paragraph (a),
all "FirstEnergy Material Adverse Effect" and other materiality qualifications
in FirstEnergy's representations and warranties shall be disregarded) and GPU
shall have received a certificate signed on behalf of FirstEnergy by its chief
executive officer and chief financial officer to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF FIRSTENERGY. FirstEnergy 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 GPU shall have
received a certificate signed on behalf of FirstEnergy by its chief executive
officer to such effect.
(c) TAX OPINION. GPU shall have received an opinion, dated the Closing
Date, from Fried, Frank, Harris, Shriver & Jacobson, counsel to GPU (or, if
Fried, Frank, Harris, Shriver & Jacobson refuses to issue this opinion, from
other counsel reasonably satisfactory to GPU), to the effect that the Merger
will be treated for Federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code. In rendering such opinion, Fried, Frank,
Harris, Shriver & Jacobson (or such other counsel) shall be entitled to receive
and rely upon customary representations contained in certificates of FirstEnergy
and GPU, and such other persons as such counsel reasonably deems necessary or
appropriate, in each case in form and substance reasonably acceptable to such
counsel.
(d) RIGHTS AGREEMENT. Under the FirstEnergy Rights Agreement, no "flip-in"
or "flip-over" or similar event commonly described in rights plans, or a
"Triggering Event" as defined therein, shall have occurred with respect to the
FirstEnergy Rights Agreement.
(e) REGULATORY MATERIAL ADVERSE EFFECT. Since the date of this Agreement,
no law, regulation, ruling, order or decree (or new interpretation of any of the
foregoing) affecting FirstEnergy or any of its Subsidiaries shall have been
adopted, amended or issued that would have a Surviving Corporation Material
Adverse Effect.
(f) MATERIAL ADVERSE EFFECT. Since March 31, 2000, there shall not have
been any event which constitutes a FirstEnergy Material Adverse Effect.
ARTICLE IX
TERMINATION AND AMENDMENT
Section 9.01 TERMINATION. At any time prior to the Effective Time, whether
before or after the adoption of this Agreement by the holders of FirstEnergy
Common Stock or by the holders of GPU Common Stock, this Agreement may be
terminated:
(a) by mutual written consent of FirstEnergy and GPU;
(b) by either FirstEnergy or GPU
(i) if there has been a material breach of any representation, warranty,
covenant or agreement on the part of the other party set forth in this
Agreement which breach has not been cured within twenty (20) 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 twenty (20) business day period and as a
result of such breach a condition set forth in Sections 8.02(a) or
(b) (with respect to a breach by GPU) or Sections 8.03(a) or (b) (with
respect to a breach by FirstEnergy) shall not be satisfied prior to or as of
the End Date (as defined in (d) below), 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, or any
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state or Federal law, rule or regulation is adopted or issued, which has the
effect of prohibiting the Merger;
(c) by GPU, upon two days' prior notice to FirstEnergy, if, as a result of a
GPU Takeover Proposal, the Board of Directors of GPU determines in good faith
after consultation with outside counsel that the termination of this Agreement
and the acceptance of such GPU Takeover Proposal is required pursuant to its
fiduciary duties under applicable law; PROVIDED, HOWEVER, THAT during the
two-day period prior to any such termination, if requested by FirstEnergy, GPU
shall, and shall cause its respective financial and legal advisors to, negotiate
in good faith with FirstEnergy regarding any adjustments in the terms and
conditions of this Agreement proposed by FirstEnergy that would enable GPU to
proceed with the transactions contemplated herein;
(d) by either FirstEnergy or GPU if the Merger shall not have been
consummated before September 30, 2001 (the "END DATE"); PROVIDED, HOWEVER, that
if on the End Date the conditions to the Closing set forth in Section 8.01(c)
shall not have been fulfilled but all other conditions to the Closing shall be
fulfilled or shall be capable of being fulfilled, then either party shall have
the right to extend the End Date to December 31, 2001 and GPU shall have the
further right to extend the End Date to any date up to March 31, 2002 (the End
Date, if and as extended, the "EXTENDED END DATE"); PROVIDED, HOWEVER, that the
right to terminate the Agreement under this Section 9.01(d) shall not be
available to any party whose action, or 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 September 30, 2001; PROVIDED, FURTHER that
in the event that (x) after the date hereof FirstEnergy or any of its
Subsidiaries enters into any acquisition transaction (or any agreement with
respect thereto), (y) the Effective Time does not occur on or prior to
December 31, 2001 and (z) the acquisition transaction (or agreement) referred to
in clause (x) is a material factor in delaying the Effective Time beyond
December 31, 2001, then (i) each of the references in Section 8.02(a) to "the
Closing Date" shall be deemed to be a reference to "December 31, 2001",
(ii) the phrase "Since the date of this Agreement" in Section 8.02(e) shall be
replaced with: "Between the date of this Agreement and December 31, 2001", and
(iii) the phrase "Since June 30, 2000" in Section 8.02(f) shall be replaced
with: "Between June 30, 2000 and December 31, 2001", or
(e) by either FirstEnergy or GPU if the required approval of the holders of
FirstEnergy Common Stock or the holders of GPU Common Stock shall not have been
obtained by reason of the failure to obtain the required approval upon a vote
taken at a duly held meeting of shareholders or at any adjournment thereof.
Section 9.02 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either GPU or FirstEnergy as provided in Section 9.01, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of FirstEnergy or GPU or their respective officers or
directors, except
(i) with respect to Sections 7.04(b), 7.10, 7.11, 7.13 and 9.05, 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.
Section 9.03 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 adoption of this Agreement by the holders of
FirstEnergy Common Stock or the holders of GPU Common Stock but, after this
Agreement is so adopted, no amendment shall be made which by law or applicable
rule of the NYSE requires further approval by such shareholders, unless the
amendment is made subject to obtaining such further approval.
Section 9.04 EXTENSION; WAIVER. (a) At any time prior to the Effective
Time, the parties hereto, by action duly taken, may, to the extent legally
allowed,
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(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.
Section 9.05 TERMINATION FEE; EXPENSES. (a) TERMINATION FEE UPON BREACH.
If this Agreement is terminated at such time that this Agreement is terminable
pursuant to Section 9.01(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, if requested in writing by the
non-breaching party, 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 $25,000,000, 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 GPU pursuant to Section 9.01(c), or
(II) is terminated by FirstEnergy as a result of GPU's material
breach of Section 5.05, and
(B) at the time of such termination or prior to the meeting of GPU's
shareholders there shall have been a GPU Takeover Proposal which at the
time of such termination or of the meeting of GPU's shareholders shall
not have been
(I) rejected by GPU 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, GPU or its Significant Subsidiary which is the
subject of the GPU 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 FirstEnergy a
termination fee equal to $145,000,000 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 or other business combination, in each case involving at
least 30% of GPU's assets on a consolidated basis.
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(c) RIGHTS; EXPENSES. (i) The existence of the rights to receive payment
pursuant to this Section 9.05 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; PROVIDED, HOWEVER, the successful exercise of the rights
under this Section 9.05 shall constitute an election of remedies and shall
preclude that party from any other remedy against the other party to which it
may otherwise be entitled under this Agreement, at law or in equity or
otherwise.
(ii) The parties agree that the agreements contained in this
Section 9.05 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 9.05
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 or base rate of Citibank, N.A., from the date such fee was required to
be paid.
ARTICLE X
GENERAL PROVISIONS
Section 10.01 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.
Section 10.02 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.
Section 10.03 NOTICES. Any notice or communication required or permitted
hereunder, including any request by either party to the other for modification
of the covenants relating to the conduct of business contained in Article V or
Article VI, 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 FirstEnergy, to
FirstEnergy Corp.
76 South Main Street
Akron, Ohio 44308
Telecopy: (330) 761-4104
Telephone: (330) 384-5800
Attention: Leila L. Vespoli, Esq.
Vice President and General Counsel
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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: Michael F. Cusick, Esq.
(b) if to GPU, to
GPU, Inc.
310 Madison Avenue
P.O. Box 1957
Morristown, New Jersey 07962-1957
Telecopy: (973) 401-8777
Telephone: (973) 455-8200
Attention: Ira H. Jolles, Esq.
Senior Vice President and General Counsel
with a copy to
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004
Telecopy: (212) 859-4000
Telephone: (212) 859-8000
Attention: Paul M. Reinstein, Esq.
Section 10.04 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) 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 or, with respect to GPU SEC
Documents or FirstEnergy SEC Documents, available on the SEC's Electronic Data
Gathering Analysis and Retrieval System (EDGAR).
(d) Whenever the phrase "to the knowledge of the executive officers" or any
party, or any similar phrase is used in this Agreement, such phrase shall mean
to the actual knowledge of those officers of that party that are subject to the
provisions of Section 16 of the Exchange Act, after inquiry reasonable under the
circumstances.
Section 10.05 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.
Section 10.06 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.
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Section 10.07 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.
Section 10.08 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 Disclosure
Schedules, 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.
Section 10.09 GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the internal substantive laws of the Commonwealth
of Pennsylvania without regard to any applicable conflicts of law, except that
with respect to any provision of this Agreement subject to the Ohio GCL, the
provision shall be governed and construed in accordance with the Ohio GCL.
Section 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.
Section 10.11 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.
Section 10.12 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.
Section 10.13 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.
IN WITNESS WHEREOF, FirstEnergy and GPU have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first above written.
<TABLE>
<S> <C> <C> <C>
GPU, INC. FIRSTENERGY CORP.
By: /s/ FRED D. HAFER By: /s/ H. PETER BURG
-------------------------------------- --------------------------------------
Name: Fred D. Hafer Name: H. Peter Burg
Title: Chairman, President and Title: Chairman and Chief Executive
Chief Executive Officer Officer
</TABLE>
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APPENDIX B
MORGAN STANLEY DEAN WITTER
1585 Broadway
New York, New York 10036
(212) 761-4000
August 8, 2000
Board of Directors
FirstEnergy Corp.
76 South Main Street
Akron, Ohio 44308
Members of the Board:
We understand that GPU, Inc. ("GPU") and FirstEnergy Corp. ("FirstEnergy")
have entered into an Agreement and Plan of Merger dated as of August 8, 2000
(the "Merger Agreement") which provides, among other things, for the merger (the
"Merger") of GPU with and into FirstEnergy. Pursuant to the Merger, each
outstanding share of common stock, par value $2.50 per share (the "GPU Common
Stock"), of GPU, other than shares held in treasury or as to which dissenters'
rights have been perfected, will be converted into the right to receive
(i) $36.50 per share net to the seller in cash (the "Cash Consideration"),
(ii) a certain number of shares of common stock, par value $.10 per share (the
"FirstEnergy Common Stock"), of FirstEnergy, determined pursuant to a certain
formula set forth in the Merger Agreement (the "Stock Consideration"), or
(iii) a combination of Cash Consideration and Stock Consideration determined
pursuant to a certain formula set forth in the Merger Agreement, with each of
(i), (ii) or (iii) subject to adjustment in certain circumstances as set forth
in the Merger Agreement (collectively, the "Consideration"). Pursuant to the
Merger Agreement, the aggregate Consideration shall consist of (i) Cash
Consideration received for 50% of the total number of shares of GPU Common Stock
issued and outstanding as of the Effective Time (as defined in the Merger
Agreement), and (ii) Stock Consideration received for 50% of the total number of
shares of GPU Common Stock issued and outstanding as of the Effective Time. The
terms and conditions of the Merger are more fully set forth in the Merger
Agreement.
You have asked for our opinion as to whether the Consideration to be paid by
FirstEnergy pursuant to the Merger Agreement is fair from a financial point of
view to FirstEnergy.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the GPU and FirstEnergy;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning GPU and FirstEnergy prepared by the
management of GPU and FirstEnergy, respectively;
(iii) reviewed certain financial projections prepared by the management of
GPU and FirstEnergy;
(iv) discussed the past and current operations and financial condition and
the prospects of GPU and FirstEnergy, including discussions and
information relating to certain strategic, financial and operational
benefits anticipated from the Merger, with senior executives of GPU and
FirstEnergy;
(v) reviewed the pro forma impact of the Merger on the FirstEnergy's
earnings per share, consolidated capitalization and financial ratios;
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(vi) reviewed the reported prices and trading activity for the GPU Common
Stock and the FirstEnergy Common Stock;
(vii) compared the financial performance of GPU and the prices and trading
activity of the GPU Common Stock with that of certain other comparable
publicly-traded companies and their securities;
(viii) compared the financial performance of FirstEnergy and the prices and
trading activity of the FirstEnergy Common Stock with that of certain
other comparable publicly-traded companies and their securities;
(ix) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(x) discussed with the management of FirstEnergy the strategic rationale for
the Merger;
(xi) participated in discussions and negotiations among representatives of
GPU and FirstEnergy and their financial and legal advisors;
(xii) reviewed the Merger Agreement; and
(xiii) performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, including information
relating to certain strategic, financial and operational benefits anticipated
from the Merger, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
future financial performance of GPU and FirstEnergy. In addition, we have
assumed that the Merger will be consummated in accordance with the terms set
forth in the Merger Agreement, including, among other things, that the Merger
will be treated as a tax-free reorganization and/or exchange, each pursuant to
the Internal Revenue Code of 1986. We have not made any independent valuation or
appraisal of the assets or liabilities of GPU and FirstEnergy, nor have we been
furnished with any such appraisals. We note that we are neither legal nor
regulatory experts and have relied upon, without independent verification, the
assessment of GPU's and FirstEnergy's legal and regulatory advisors with respect
to the legal and regulatory matters related to the Merger. Our opinion is
necessarily based on financial, economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of FirstEnergy
in connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for GPU and FirstEnergy and have
received fees for the rendering of these services. Additionally, as you have
been advised, Morgan Stanley's parent and its affiliates, including its
investment management affiliates, owned approximately 9.5% of the Common Stock
of GPU on February 4, 2000 (the last filing by such parties of an Amendment to
Schedule 13G with respect to their security ownership of GPU Common Stock).
It is understood that this letter is for the information of the Board of
Directors of FirstEnergy and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety,
if required, in any filing made by FirstEnergy in respect of this transaction
with the Securities and Exchange Commission. In addition, this opinion does not
in any manner address the prices at which FirstEnergy Common Stock will trade
following consummation of the Merger, and Morgan Stanley expresses no opinion or
recommendation as to how shareholders of FirstEnergy should vote at the
shareholders' meeting held in connection with the Merger.
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Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Consideration to be paid by FirstEnergy pursuant to the Merger
Agreement is fair from a financial point of view to FirstEnergy.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
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APPENDIX C
SALOMON SMITH BARNEY INC.
August 8, 2000
Board of Directors
GPU, Inc.
310 Madison Avenue
P.O. Box 1957
Morristown, New Jersey 07962-1957
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the holders of common stock, par value $2.50
per share ("Company Common Stock"), of GPU, Inc., a Pennsylvania corporation
(the "Company"), of the Consideration (as defined below) to be received by such
holders pursuant to the Agreement and Plan of Merger (the "Agreement") between
the Company and FirstEnergy Corp., an Ohio corporation ("Buyer"), to be entered
into in connection with the proposed merger (the "Merger") of the Company with
and into Buyer. Pursuant to the Agreement, each share of Company Common Stock
issued and outstanding immediately prior to the effective time of the Merger,
except for shares owned by the Company as treasury stock and shares owned by
holders who have perfected their rights to dissent under applicable law and have
not effectively withdrawn or lost such rights as of the effective time of the
Merger, will be converted into the right to receive, at the election of the
holder of such share (subject to proration limitations and certain other
adjustments as set forth in the Agreement), either (i) $36.50 in cash (the "Cash
Consideration") or (ii) that number of shares of common stock, par value $0.10
per share ("Buyer Common Stock"), of Buyer equal to the Exchange Ratio (as
described below). As more fully described in the Agreement, (a) the Exchange
Ratio shall be equal to the quotient (rounded to the nearest ten thousandth, or
if there is no nearest ten thousandth, the next higher ten thousandth) of the
Cash Consideration divided by the Buyer Share Price (as defined below);
provided, however, that if the Buyer Share Price is less than $24.2438, the
Exchange Ratio shall be 1.5055, and if the Buyer Share Price is greater than
$29.6313, the Exchange Ratio shall be 1.2318; and (b) the "Buyer Share Price"
shall be equal to the average of the closing prices of the shares of Buyer
Common Stock on the New York Stock Exchange Composite Transactions Reporting
System, as reported in The Wall Street Journal, over the 20 trading days ending
on the trading day immediately preceding the sixth business day prior to the
effective time of the Merger. The Agreement provides that, subject to certain
exceptions, (i) the aggregate number of shares of Company Common Stock to be
converted into the right to receive cash shall be 50% of the total number of
shares of Company Common Stock issued and outstanding immediately prior to the
effective time of the Merger and (ii) the aggregate number of shares of Company
Common Stock to be converted into the right to receive Buyer Common Stock shall
be 50% of the total number of shares of Company Common Stock issued and
outstanding immediately prior to the effective time of the Merger. The proration
provisions of the Agreement provide that (a) in the event that the holders of
more than 50% of the total number of shares of Company Common Stock issued and
outstanding immediately prior to the effective time of the Merger elect to
receive cash or elect to receive stock, each share held by such electing holder
shall be converted into the right to receive a prorated amount of cash and a
prorated number of shares, in each case, as set forth in the Agreement and
(b) in the event that elections for cash and elections for Company Common Stock
in each case are made by holders of less than 50% of the total number of shares
of Company Common Stock issued and outstanding immediately prior to the
effective time of the Merger, each share held by holders who fail to make an
election shall be converted into the right
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to receive a prorated amount of cash and stock. The aggregate consideration to
be received by the holders of Company Common Stock in the Merger is referred to
herein as the "Consideration."
In connection with rendering our opinion, we have, among other things,
reviewed the execution copy of the Agreement, dated August 8, 2000, in the form
provided to us and held discussions with certain senior officers, directors and
other representatives and advisors of the Company and certain senior officers
and other representatives and advisors of Buyer concerning the business,
operations and prospects of the Company and Buyer. We examined certain publicly
available business and financial information relating to the Company and Buyer
as well as certain financial forecasts and other information and data for the
Company and Buyer which were provided to or otherwise discussed with us by the
management of the Company and Buyer. We reviewed the financial terms of the
Merger as set forth in the Agreement in relation to, among other things, the
historical and projected earnings and other operating data of the Company and
Buyer; and the capitalization and financial condition of the Company and Buyer.
We considered, to the extent publicly available, the financial terms of certain
other similar transactions recently effected which we considered relevant in
evaluating the Merger and analyzed certain financial, stock market and other
publicly available information relating to the businesses of other companies
whose operations we considered relevant in evaluating those of the Company and
Buyer. In addition to the foregoing, we conducted such other analyses and
examinations and considered such other information and financial, economic and
market criteria as we deemed appropriate in arriving at our opinion.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon, without assuming any responsibility for verification, the
accuracy and completeness of all of the financial and other information provided
to, discussed with, or reviewed by or for us, or publicly available. With
respect to the Company's and Buyer's financial forecasts, we have been informed
by managements of the Company and Buyer, and we have assumed, that such
forecasts have been reasonably prepared on bases reflecting the best currently
available estimates and judgments on the part of management of the Company and
Buyer, as the case may be. We express no view with respect to such forecasts or
the assumptions on which they are based. We have assumed that the Merger will be
treated as a reorganization for federal income tax purposes. We have not made or
been provided with any independent evaluations or appraisals of any of the
assets or liabilities of the Company or Buyer, and we have not conducted a
physical inspection of the properties and facilities of the Company or Buyer.
Although we discussed a potential transaction with another party, we were not
requested to, and we did not, solicit third party indications of interest in
possible alternative transactions with the Company, nor were we requested to
consider, and our opinion does not specifically address, the relative merits of
the Merger as compared to any alternative business strategies that might exist
for the Company or the effect of any other transaction in which the Company
might engage.
Representatives of the Company have advised us, and we have assumed, that
the final terms of the Agreement will not vary materially from those set forth
in the draft reviewed by us. We have also assumed that all material
governmental, regulatory or other consents and approvals will be obtained and
that in the course of obtaining any necessary governmental, regulatory or other
consents and approvals, or any amendments, modifications or waivers to any
documents to which either the Company or Buyer is a party, as contemplated by
the Agreement, no restrictions will be imposed or amendments, modifications or
waivers made that would have any material effect on our analysis.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on the date hereof, and we assume no
responsibility to update or revise our opinion based upon circumstances or
events occurring after the date hereof. Our opinion does not imply any
conclusion as to the likely trading range for Company Common Stock or Buyer
Common Stock following the announcement or consummation of the Merger, which may
vary depending upon, among other factors, changes in interest rates, dividend
rates, market conditions, general economic conditions and other factors that
generally influence the price of securities.
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As you are aware, Salomon Smith Barney Inc. has acted as financial advisor
to the Company in connection with the Merger and will receive a fee for such
services, a significant portion of which will be received upon the consummation
of the Merger. We have in the past provided investment banking services to the
Company and Buyer and/or their respective affiliates for which we have received
compensation. In the ordinary course of business, we or our affiliates may hold
or trade in the debt and equity securities of the Company, Buyer and/or their
respective affiliates for our own account or for the accounts of our customers
and, accordingly, may at any time hold a long or short position in such
securities. In addition, we and our affiliates (including Citigroup Inc.) may
maintain other business relationships with the Company, Buyer and their
respective affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of the Company in its evaluation of the
proposed Merger. Our opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder should vote on any
matters relating to the Merger.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Consideration is fair, from
a financial point of view, to the holders of Company Common Stock.
Very truly yours,
SALOMON SMITH BARNEY INC.
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APPENDIX D
SECTION 1701.85 OF OHIO GENERAL CORPORATION LAW
Section 1701.85 QUALIFICATIONS OF AND PROCEDURES FOR DISSENTING
SHAREHOLDERS
(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.
(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 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 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 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
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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 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 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
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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:
i. The dissenting shareholder has not complied with this section, unless
the corporation by its directors waives such failure;
ii. 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;
iii. The dissenting shareholder withdraws his demand, with the consent of
the corporation by its directors;
iv. 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.
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<PAGE>
APPENDIX E
SUBCHAPTER D OF CHAPTER 15 OF PENNSYLVANIA BUSINESS CORPORATION LAW
Section 1571--APPLICATION AND EFFECT OF SUBCHAPTER
(a) General rule.--Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from, and
to obtain payment of the fair value of his shares in the event of, any corporate
action, or to otherwise obtain fair value for his shares, where this part
expressly provides that a shareholder shall have the rights and remedies
provided in this subchapter. See:
(1) Section 1906(c) (relating to dissenters rights upon special treatment).
(2) Section 1930 (relating to dissenters rights).
(3) Section 1931(d) (relating to dissenters rights in share exchanges).
(4) Section 1932(c) (relating to dissenters rights in asset transfers).
(5) Section 1952(d) (relating to dissenters rights in division).
(6) Section 1962(c) (relating to dissenters rights in conversion).
(7) Section 2104(b) (relating to procedure).
(8) Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
(9) Section 2325(b) (relating to minimum vote requirement).
(10) Section 2704(c) (relating to dissenters rights upon election).
(11) Section 2705(d) (relating to dissenters rights upon renewal of
election).
(12) Section 2907(a) (relating to proceedings to terminate breach of
qualifying conditions).
(13) Section 7104(b)(3) (relating to procedure).
(b) Exceptions.--
(1) Except as otherwise provided in paragraph (2), the holders of the shares
of any class or series of shares that, at the record date fixed to determine the
shareholders entitled to notice of and to vote at the meeting at which a plan
specified in any of Section 1930, 1931(d), 1932(c) or 1952(d) is to be voted on,
are either:
i. listed on a national securities exchange; or
ii. held of record by more than 2,000 shareholders; shall not have the
right to obtain payment of the fair value of any such shares under this
subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights shall be
available without regard to the exception provided in that paragraph in the case
of:
i. Shares converted by a plan if the shares are not converted solely into
shares of the acquiring, surviving, new or other corporation or solely
into such shares and money in lieu of fractional shares.
ii. Shares of any preferred or special class unless the articles, the plan
or the terms of the transaction entitle all shareholders of the class
to vote thereon and require for the adoption of the plan or the
effectuation of the transaction the affirmative vote of a majority of
the votes cast by all shareholders of the class.
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<PAGE>
iii. Shares entitled to dissenters rights under Section 1906(c) (relating to
dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase, lease,
exchange or other disposition all or substantially all of the shares, property
or assets of another corporation by the issuance of shares, obligations or
otherwise, with or without assuming the liabilities of the other corporation and
with or without the intervention of another corporation or other person, shall
not be entitled to the rights and remedies of dissenting shareholders provided
in this subchapter regardless of the fact, if it be the case, that the
acquisition was accomplished by the issuance of voting shares of the corporation
to be outstanding immediately after the acquisition sufficient to elect a
majority or more of the directors of the corporation.
(c) Grant of optional dissenters rights.--The bylaws or a resolution of the
board of directors may direct that all or a part of the shareholders shall have
dissenters rights in connection with any corporate action or other transaction
that would otherwise not entitle such shareholders to dissenters rights.
(d) Notice of dissenters rights.--Unless otherwise provided by statute, if a
proposed corporate action that would give rise to dissenters rights under this
subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:
(1) a statement of the proposed action and a statement that the shareholders
have a right to dissent and obtain payment of the fair value of their shares by
complying with the terms of this subchapter; and
(2) a copy of this subchapter.
(e) Other statutes.--The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part that
makes reference to this subchapter for the purpose of granting dissenters
rights.
(f) Certain provisions of articles ineffective.--This subchapter may not be
relaxed by any provision of the articles.
(g) Cross references.--See Sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished)
and 2512 (relating to dissenters rights procedure).
Section 1572--DEFINITIONS
The following words and phrases when used in this subchapter shall have the
meanings given to them in this section unless the context clearly indicates
otherwise:
"CORPORATION." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation, division,
conversion or otherwise of that issuer. A plan of division may designate which
of the resulting corporations is the successor corporation for the purposes of
this subchapter. The successor corporation in a division shall have sole
responsibility for payments to dissenters and other liabilities under this
subchapter except as otherwise provided in the plan of division.
"DISSENTER." A shareholder or beneficial owner who is entitled to and does
assert dissenters rights under this subchapter and who has performed every act
required up to the time involved for the assertion of those rights.
"FAIR VALUE." The fair value of shares immediately before the effectuation
of the corporate action to which the dissenter objects, taking into account all
relevant factors, but excluding any appreciation or depreciation in anticipation
of the corporate action.
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<PAGE>
"INTEREST." Interest from the effective date of the corporate action until
the date of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors, including the average
rate currently paid by the corporation on its principal bank loans.
Section 1573--RECORD AND BENEFICIAL HOLDERS AND OWNERS
(a) Record holders of shares.--A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares of the
same class or series beneficially owned by any one person and discloses the name
and address of the person or persons on whose behalf he dissents. In that event,
his rights shall be determined as if the shares as to which he has dissented and
his other shares were registered in the names of different shareholders.
(b) Beneficial owners of shares.--A beneficial owner of shares of a business
corporation who is not the record holder may assert dissenters rights with
respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters rights a written consent
of the record holder. A beneficial owner may not dissent with respect to some
but less than all shares of the same class or series owned by the owner, whether
or not the shares so owned by him are registered in his name.
Section 1574--NOTICE OF INTENTION TO DISSENT
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he be paid the
fair value for his shares if the proposed action is effectuated, must effect no
change in the beneficial ownership of his shares from the date of such filing
continuously through the effective date of the proposed action and must refrain
from voting his shares in approval of such action. A dissenter who fails in any
respect shall not acquire any right to payment of the fair value of his shares
under this subchapter. Neither a proxy nor a vote against the proposed corporate
action shall constitute the written notice required by this section.
Section 1575--NOTICE TO DEMAND PAYMENT
(a) General rule.--If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters who gave due notice of
intention to demand payment of the fair value of their shares and who refrained
from voting in favor of the proposed action. If the proposed corporate action is
to be taken without a vote of shareholders, the corporation shall send to all
shareholders who are entitled to dissent and demand payment of the fair value of
their shares a notice of the adoption of the plan or other corporate action. In
either case, the notice shall:
(1) State where and when a demand for payment must be sent and certificates
for certificated shares must be deposited in order to obtain payment.
(2) Inform holders of uncertificated shares to what extent transfer of
shares will be restricted from the time that demand for payment is
received.
(3) Supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person on
whose behalf the shareholder dissents, acquired beneficial ownership of
the shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment.--The time set for receipt of the
demand and deposit of certificated shares shall be not less than 30 days from
the mailing of the notice.
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<PAGE>
Section 1576--FAILURE TO COMPLY WITH NOTICE TO DEMAND PAYMENT, ETC.
(a) Effect of failure of shareholder to act.--A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares) to timely
deposit certificates, as required by a notice pursuant to section 1575 (relating
to notice to demand payment) shall not have any right under this subchapter to
receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares.--If the shares are not represented
by certificates, the business corporation may restrict their transfer from the
time of receipt of demand for payment until effectuation of the proposed
corporate action or the release of restrictions under the terms of
Section 1577(a) (relating to failure to effectuate corporate action).
(c) Rights retained by shareholder.--The dissenter shall retain all other
rights of a shareholder until those rights are modified by effectuation of the
proposed corporate action.
Section 1577--RELEASE OF RESTRICTIONS OR PAYMENT FOR SHARES
(a) Failure to effectuate corporate action.--Within 60 days after the date
set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall return
any certificates that have been deposited and release uncertificated shares from
any transfer restrictions imposed by reason of the demand for payment.
(b) Renewal of notice to demand payment.--When uncertificated shares have
been released from transfer restrictions and deposited certificates have been
returned, the corporation may at any later time send a new notice conforming to
the requirements of Section 1575 (relating to notice to demand payment), with
like effect.
(c) Payment of fair value of shares.--Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance under
this section will be made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the issuer of the
shares held or owned by the dissenter for a fiscal year ending not more
than 16 months before the date of remittance or notice together with the
latest available interim financial statements.
(2) A statement of the corporation's estimate of the fair value of the
shares.
(3) A notice of the right of the dissenter to demand payment or supplemental
payment, as the case may be, accompanied by a copy of this subchapter.
(d) Failure to make payment.--If the corporation does not remit the amount
of its estimate of the fair value of the shares as provided by subsection (c),
it shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such certificate
or on the records of the corporation relating to any such uncertificated shares
that such demand has been made. If shares with respect to which notation has
been so made shall be transferred, each new certificate issued therefor or the
records relating to any transferred uncertificated shares shall bear a similar
notation, together with the name of the original dissenting holder or owner of
such shares. A transferee of such shares shall not acquire by such transfer any
rights in the corporation other than those that the original dissenter had after
making demand for payment of their fair value.
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<PAGE>
Section 1578--ESTIMATE BY DISSENTER OF FAIR VALUE OF SHARES
(a) General rule.--If the business corporation gives notice of its estimate
of the fair value of the shares, without remitting such amount, or remits
payment of its estimate of the fair value of a dissenter's shares as permitted
by Section 1577(c) (relating to payment of fair value of shares) and the
dissenter believes that the amount stated or remitted is less than the fair
value of his shares, he may send to the corporation his own estimate of the fair
value of the shares, which shall be deemed a demand for payment of the amount or
the deficiency.
(b) Effect of failure to file estimate.--Where the dissenter does not file
his own estimate under subsection (a) within 30 days after the mailing by the
corporation of its remittance or notice, the dissenter shall be entitled to no
more than the amount stated in the notice or remitted to him by the corporation.
Section 1579--VALUATION PROCEEDINGS GENERALLY
(a) General rule.--Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely receipt of any demands for payment under Section 1575 (relating
to notice to demand payment); or
(3) timely receipt of any estimates pursuant to Section 1578 (relating to
estimate by dissenter of fair value of shares); if any demands for
payment remain unsettled, the business corporation may file in court an
application for relief requesting that the fair value of the shares be
determined by the court.
(b) Mandatory joinder of dissenters.--All dissenters, wherever residing,
whose demands have not been settled shall be made parties to the proceeding as
in an action against their shares. A copy of the application shall be served on
each such dissenter. If a dissenter is a nonresident, the copy may be served on
him in the manner provided or prescribed by or pursuant to 42 Pa.C.S. Ch. 53
(relating to bases of jurisdiction and interstate and international procedure).
(c) Jurisdiction of the court.--The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(d) Measure of recovery.--Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found to
exceed the amount, if any, previously remitted, plus interest.
(e) Effect of corporation's failure to file application.--If the corporation
fails to file an application as provided in subsection (a), any dissenter who
made a demand and who has not already settled his claim against the corporation
may do so in the name of the corporation at any time within 30 days after the
expiration of the 60-day period. If a dissenter does not file an application
within the 30-day period, each dissenter entitled to file an application shall
be paid the corporation's estimate of the fair value of the shares and no more,
and may bring an action to recover any amount not previously remitted.
Section 1580--COSTS AND EXPENSES OF VALUATION PROCEEDINGS
(a) General rule.--The costs and expenses of any proceeding under
Section 1579 (relating to valuation proceedings generally), including the
reasonable compensation and expenses of the appraiser appointed by the court,
shall be determined by the court and assessed against the business corporation
except that any part of the costs and expenses may be apportioned and assessed
as the court deems
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appropriate against all or some of the dissenters who are parties and whose
action in demanding supplemental payment under Section 1578 (relating to
estimate by dissenter of fair value of shares) the court finds to be dilatory,
obdurate, arbitrary, vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack of good faith
appears.--Fees and expenses of counsel and of experts for the respective parties
may be assessed as the court deems appropriate against the corporation and in
favor of any or all dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed against either the
corporation or a dissenter, in favor of any other party, if the court finds that
the party against whom the fees and expenses are assessed acted in bad faith or
in a dilatory, obdurate, arbitrary or vexatious manner in respect to the rights
provided by this subchapter.
(c) Award of fees for benefits to other dissenters.--If the court finds that
the services of counsel for any dissenter were of substantial benefit to other
dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefited.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
An Exhibit Index, containing a list of all exhibits to this registration
statement, commences on page II-4.
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Akron, State
of Ohio, on October 13, 2000.
<TABLE>
<S> <C> <C>
FIRSTENERGY CORP.
(Registrant)
By: *
-----------------------------------------
H. Peter Burg
Chairman of the Board
and Chief Executive Officer
and Director (Principal Executive Officer)
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
October 13, 2000 in the capacities indicated.
<TABLE>
<S> <C>
* *
---------------------------------------- ----------------------------------------
H. Peter Burg Anthony J. Alexander
Chairman of the Board President and Director
and Chief Executive Officer
and Director (Principal Executive
Officer)
* *
---------------------------------------- ----------------------------------------
Richard H. Marsh Harvey L. Wagner
Vice President and Controller
Chief Financial Officer (Principal Accounting Officer)
(Principal Financial Officer)
* *
---------------------------------------- ----------------------------------------
Carol A. Cartwright Paul J. Powers
Director Director
* *
---------------------------------------- ----------------------------------------
William F. Conway Robert C. Savage
Director Director
* *
---------------------------------------- ----------------------------------------
Robert B. Heisler, Jr. George M. Smart
Director Director
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
* *
---------------------------------------- ----------------------------------------
Robert L. Loughhead Jesse T. Williams, Sr.
Director Director
*
----------------------------------------
Russell W. Maier
Director
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ N. C. ASHCOM
--------------------------------------
N. C. Ashcom
ATTORNEY-IN-FACT
</TABLE>
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