<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 16, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ENERGY EAST CORPORATION
(Exact name of Registrant as Specified in Its Charter)
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<S> <C> <C>
NEW YORK 6719 14-1798693
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------------
P.O. BOX 1196
STAMFORD, CT 06904-1196
(203) 325-0690
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
------------------------------
KENNETH M. JASINSKI
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
ENERGY EAST CORPORATION
P.O. BOX 1196
STAMFORD, CT 06904-1196
(203) 325-0690
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
------------------------------
With copies to:
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<S> <C> <C>
SETH A. KAPLAN ROBERT A. YOLLES LEONARD BLUM
Wachtell, Lipton, Rosen & Katz Jones, Day, Reavis & Pogue Huber Lawrence & Abell
51 West 52nd Street 77 West Wacker Drive 605 Third Avenue
New York, NY 10019-6150 Chicago, IL 60601 New York, NY 10158
(212) 403-1000 (312) 782-3939 (212) 682-6200
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the merger of CTG Resources, Inc. with and into Oak Merger Co.,
pursuant to the Agreement and Plan of Merger, dated as of June 29, 1999, among
those two parties and the Registrant, described in the enclosed proxy
statement/prospectus, have been satisfied or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION FEE
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(1) PRICE(2) (3)
<S> <C> <C> <C> <C>
Common Stock ($0.01 Par Value) N/A N/A 118,578,879 $32,965
</TABLE>
(1) Pursuant to Securities Act Rule 457(o), this information is not included.
(2) Pursuant to Securities Act Rule 457(c), (f)(1) and (f)(3), and estimated
solely for purposes of calculating the registration fee, the proposed
maximum aggregate offering price is $118,578,879, which equals (i) the
product of (a) the average of the high and low prices of the common stock ,
without par value, of CTG Resources, of $36.16, as reported on the New York
Stock Exchange on August 13, 1999, multiplied by (b) the total number of
shares of common stock of CTG Resources to be canceled (which is 8,712,629),
less (ii) the amount of cash paid by the Registrant in exchange for shares
of common stock (which equals $41.00 times the number of shares of common
stock of CTG Resources to be converted into cash (which is 4,791,946).
(3) On July 30, 1999, CTG Resources filed a preliminary proxy
statement/prospectus in connection with the Merger and, pursuant to Exchange
Act Rules 14a-6(i)(1) and 0-11, paid a fee of $67,915. Pursuant to
Securities Act Rule 457(b), no additional fee need be paid upon filing of
this Registration Statement.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 16, 1999
[CTG RESOURCES LOGO]
Dear Shareholder:
PROPOSED MERGER -- YOUR VOTE IS IMPORTANT
You are cordially invited to attend a special meeting of shareholders of CTG
Resources, Inc., scheduled to be held on Monday, October 18, 1999, at the
offices of CTG Resources, 100 Columbus Boulevard, Hartford, Connecticut,
commencing at 10:30 a.m. Your board of directors and management look forward to
greeting those shareholders able to attend. Parking will be available.
The boards of directors of Energy East Corporation and CTG Resources have
agreed to a merger in which CTG Resources will merge into Oak Merger Co., a
wholly owned subsidiary of Energy East.
At the meeting, you will be asked to approve this merger.
In exchange for each share of CTG Resources common stock, CTG Resources
shareholders will have the option to receive either $41.00 in cash or a number
of shares of Energy East common stock valued at $41.00, subject to restrictions
on the maximum and minimum number of Energy East shares to be issued. The number
of Energy East shares to be exchanged for each CTG Resources share will be
between 1.3609 and 1.7320, based on the value of Energy East shares during the
20-trading-day period ending two trading days before the effective time of the
merger. CTG Resources shareholders can choose to convert some of their CTG
Resources shares into cash and others into Energy East shares.
Under the merger agreement, 55% of the CTG Resources shares must be
exchanged for cash, and 45% must be exchanged for Energy East shares. Therefore,
if shareholders owning more than 55% of the CTG Resources shares elect to
receive cash, the number of CTG Resources shares that will be converted into
cash will be less than the number elected. Similarly, if shareholders owning
more than 45% of the CTG Resources shares elect to receive Energy East shares,
the number of CTG Resources shares that will be converted into Energy East
shares will be less than the number elected.
Your board of directors recommends a vote "FOR" this proposal.
PLEASE SEE THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 19 FOR A
DISCUSSION OF POTENTIAL RISKS INVOLVED IN THE MERGER.
CTG Resources and Energy East cannot complete the merger unless CTG
Resources shareholders approve the merger agreement. We have scheduled a special
meeting of shareholders to vote on this matter.
YOUR VOTE IS VERY IMPORTANT. Regardless of the number of shares you own, it
is important that they be represented and voted at the meeting, whether or not
you plan to attend. Accordingly, you are requested to exercise your vote by (1)
signing, dating and mailing the enclosed proxy in the postage prepaid return
envelope provided for your convenience or (2) appointing and directing your
proxies by telephone in accordance with the instructions on the proxy card.
Only shareholders of record of CTG Resources on August 23, 1999 are entitled
to attend and vote at the special meeting.
This proxy statement/prospectus contains answers to frequently asked
questions; it also contains a summary description of the merger and other
related matters (beginning on page 1), followed by a more detailed discussion of
the merger and these matters. Because these answers and this summary are not, by
their nature, detailed, we urge you to read this proxy statement/prospectus in
its entirety. We encourage you to read the entire proxy statement/prospectus
carefully.
<PAGE>
In addition, you may obtain information about the two companies from
documents they have filed with the Securities and Exchange Commission.
Your interest and participation in the affairs of CTG Resources are
sincerely appreciated.
CTG RESOURCES, INC.
/s/ Arthur C. Marquardt
Arthur C. Marquardt
Chairman, President and Chief
Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED THE MERGER OR THE ISSUANCE OF ENERGY EAST SHARES, OR
DETERMINED WHETHER THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS
IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This document is also the prospectus of Energy East for the shares that it
will issue in connection with the merger. Energy East shares are traded on the
New York Stock Exchange under the symbol "NEG." On August 13, 1999, the last
full trading day for which information was available prior to the date of this
proxy statement/prospectus, the closing sales price for Energy East shares, as
reported in THE WALL STREET JOURNAL's New York Stock Exchange Composite
Transactions Report, was $25.69 per share.
Energy East has furnished all the information in this proxy
statement/prospectus concerning Energy East, and CTG Resources has furnished all
the information concerning CTG Resources.
Proxy statement/prospectus dated
August [ ], 1999 and first mailed to
shareholders on or about August [ ], 1999.
<PAGE>
CTG RESOURCES, INC.
P.O. BOX 1500
100 COLUMBUS BOULEVARD
HARTFORD, CONNECTICUT 06144-1500
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 18, 1999
To the Shareholders of CTG Resources, Inc.:
The CTG Resources board of directors is pleased to provide you with notice
of and cordially invites you to attend in person or by proxy the special meeting
of CTG Resources shareholders, which will be held at the offices of CTG
Resources, 100 Columbus Boulevard, Hartford, Connecticut, on October 18, 1999,
at 10:30 a.m. local time, for the sole purpose of approving the merger agreement
among CTG Resources, Energy East Corporation and Oak Merger Co., a wholly owned
subsidiary of Energy East.
CTG Resources shareholders who do not vote their CTG Resources shares to
approve the merger agreement and who deliver to CTG Resources before the vote is
taken a notice of intent to exercise dissenters' rights of appraisal will be
entitled to assert these rights under Connecticut law. If the merger agreement
is approved, these shareholders will receive a cash payment representing the
fair value of the shares they currently hold, and not the consideration payable
in the merger. A copy of the sections of Connecticut law that govern this
process is attached as Appendix C to the accompanying proxy
statement/prospectus.
Additional information about the merger may be found in the accompanying
proxy statement/ prospectus.
Only CTG Resources shareholders as of the close of business on August 23,
1999 are entitled to notice of and to vote at the special meeting or any
postponements or adjournments thereof.
THE CTG RESOURCES BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS IN
THE BEST INTERESTS OF CTG RESOURCES SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE TO APPROVE THE MERGER AGREEMENT AT THE SPECIAL MEETING.
Please sign, date and return the accompanying proxy in the enclosed
addressed envelope, which requires no postage if mailed in the United States. If
you prefer, you may vote by telephone in accordance with the instructions on the
proxy card. In either case, you may revoke your proxy at any time before the
vote is taken by delivering to the Secretary a written revocation or a proxy
with a later date or by oral revocation in person at the special meeting.
By Order of the Board of Directors,
/s/ Reginald L. Babcock
Reginald L. Babcock
Secretary
Hartford, Connecticut
August [ ], 1999
<PAGE>
IT IS IMPORTANT THAT YOU SIGN, DATE AND PROMPTLY RETURN THE PROXY CARD IN
THE ENCLOSED ENVELOPE OR THAT YOU REGISTER YOUR VOTE BY TELEPHONE BY FOLLOWING
THE INSTRUCTIONS ON YOUR PROXY CARD, SO THAT YOUR SHARES WILL BE REPRESENTED
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. FAILURE TO SECURE A
QUORUM ON THE DATE SET FOR THE SPECIAL MEETING WOULD REQUIRE AN ADJOURNMENT THAT
WOULD CAUSE US TO INCUR CONSIDERABLE ADDITIONAL EXPENSE.
IF YOU PLAN ON ATTENDING THE SPECIAL MEETING IN PERSON, YOU MUST BRING THE
ADMISSION TICKET INCLUDED WITH THESE PROXY MATERIALS.
PLEASE DO NOT SEND STOCK CERTIFICATES WITH YOUR PROXY CARD.
REGARDLESS OF THE NUMBER OF SHARES YOU HOLD, YOUR VOTE IS VERY IMPORTANT.
<PAGE>
TO FIND ANY ONE OF THE PRINCIPAL SECTIONS OF THIS PROXY STATEMENT/PROSPECTUS
IDENTIFIED BELOW, SIMPLY BEND THE DOCUMENT SLIGHTLY TO EXPOSE THE BLACK TABS AND
OPEN THE DOCUMENT TO THE TAB THAT CORRESPONDS TO THE TITLE OF THE SECTION YOU
WISH TO READ.
<TABLE>
<S> <C>
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE MERGER
SUMMARY
RISK FACTORS
THE COMPANIES
THE SPECIAL MEETING
THE MERGER
DISSENTERS' RIGHTS OF APPRAISAL OF CTG RESOURCES SHAREHOLDERS
THE MERGER AGREEMENT
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
COMPARATIVE RIGHTS OF CTG RESOURCES SHAREHOLDERS
AND ENERGY EAST SHAREHOLDERS
ADDITIONAL MATTERS
APPENDICES
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Questions and Answers About the Merger.................................................................... 1
Cautionary Statement Regarding Forward-Looking Statements................................................. 4
Summary................................................................................................... 5
The Companies........................................................................................... 5
The Special Meeting..................................................................................... 5
Share Ownership of Management........................................................................... 6
The Merger.............................................................................................. 6
Dissenters' Rights of Appraisal of CTG Resources Shareholders........................................... 7
The Merger Agreement.................................................................................... 7
Comparative Rights of CTG Resources Shareholders and Energy East Shareholders........................... 9
Comparative Per Share Market Price and Dividend Information............................................. 10
Unaudited Pro Forma Comparative Per Share Data.......................................................... 12
Selected Financial Information.......................................................................... 14
Risk Factors.............................................................................................. 19
The Amount of Consideration Shareholders Receive May Vary as a Result of Stock-Price Fluctuations Prior
to the Completion of the Merger....................................................................... 19
Regulatory Agencies Could Delay or Refuse to Approve the Merger or Impose Conditions that Could Have an
Adverse Effect........................................................................................ 20
Uncertainties in Integrating Energy East, CTG Resources, Connecticut Energy and CMP Group............... 20
Competitive and Regulatory Conditions................................................................... 20
Year-2000 Readiness Disclosure Statement................................................................ 21
The Companies............................................................................................. 22
Energy East............................................................................................. 22
Oak Merger Co........................................................................................... 24
CTG Resources........................................................................................... 24
The Special Meeting....................................................................................... 25
Purpose, Time and Place................................................................................. 25
Record Date, Voting Power and Vote Required............................................................. 25
Share Ownership of Management........................................................................... 25
Voting of Proxies....................................................................................... 25
Revocability of Proxies................................................................................. 26
Solicitation of Proxies................................................................................. 26
No Vote Required for Energy East Shareholders............................................................. 27
The Merger................................................................................................ 28
General Description of the Merger....................................................................... 28
Background.............................................................................................. 28
CTG Resources Reasons for the Merger.................................................................... 33
Recommendation of the CTG Resources Board of Directors.................................................. 34
Opinion of the Financial Advisor to the CTG Resources Board............................................. 36
Effective Time of the Merger............................................................................ 42
Certificate of Incorporation and By-Laws................................................................ 43
Directors and Officers.................................................................................. 43
Accounting Treatment.................................................................................... 43
Regulatory Approvals.................................................................................... 43
Listing of the Energy East Shares on the New York Stock Exchange........................................ 46
Resale of the Energy East Shares Issued in the Merger; CTG Resources Affiliates......................... 46
</TABLE>
i
<PAGE>
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PAGE
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<S> <C>
Merger Financing........................................................................................ 46
Interests of Certain Persons in the Merger.............................................................. 47
Material Federal Income Tax Consequences of the Merger.................................................. 50
CTG Resources Dividend Reinvestment Plan................................................................ 54
Dissenters' Rights of Appraisal of CTG Resources Shareholders............................................. 55
The Merger Agreement...................................................................................... 58
General................................................................................................. 58
Corporate Governance Matters............................................................................ 58
Conversion of CTG Resources Shares...................................................................... 58
Representations and Warranties.......................................................................... 61
Covenants............................................................................................... 62
Additional Agreements................................................................................... 64
Conditions.............................................................................................. 67
Termination, Amendment and Waiver....................................................................... 69
Share Ownership of Management and Certain Beneficial Owners............................................... 71
Unaudited Pro Forma Combined Condensed Financial Statements............................................... 72
Unaudited Pro Forma Combined Condensed Financial Statements Giving Effect to the Sales of Energy East's
Generation Assets and the CTG Resources Merger........................................................ 74
Unaudited Pro Forma Combined Condensed Financial Statements Giving Effect to the Sales of Energy East's
Generation Assets, the CTG Resources Merger and the Connecticut Energy Merger......................... 80
Unaudited Pro Forma Combined Condensed Financial Statements Giving Effect to the Sales of Energy East's
Generation Assets, the CTG Resources Merger, the Connecticut Energy Merger, the Sale of CMP Group's
Generation Assets and the CMP Group Merger............................................................ 86
Comparative Rights of CTG Resources Shareholders and Energy East Shareholders............................. 92
Authorized Capital Stock................................................................................ 92
Voting Rights........................................................................................... 92
Dividends............................................................................................... 92
Election and Classification of the Board of Directors................................................... 93
Size of the Board of Directors.......................................................................... 93
Removal of Directors; Filling of Vacancies.............................................................. 93
Special Meetings of Shareholders........................................................................ 93
Advance Notice Provisions............................................................................... 94
Indemnification of Directors and Officers............................................................... 94
Amendment of Certificate of Incorporation............................................................... 95
Amendment of By-Laws.................................................................................... 95
Duty of Directors....................................................................................... 96
Business Combinations................................................................................... 96
Fair Price Provisions................................................................................... 97
State Law Takeover Legislation.......................................................................... 97
Shareholder Rights Plan................................................................................. 98
Legal Matters............................................................................................. 99
Experts................................................................................................... 99
Independent Public Accountants............................................................................ 99
Other Matters............................................................................................. 99
Shareholder Proposals..................................................................................... 99
Certain Proxy Card Matters................................................................................ 100
Where You Can Find More Information....................................................................... 101
Index of Defined Terms.................................................................................... 103
</TABLE>
ii
<PAGE>
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PAGE
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<S> <C>
APPENDICES
APPENDIX A -- Agreement and Plan of Merger, dated as of June 29, 1999..................................... A-i
APPENDIX B -- Opinion of PaineWebber Incorporated......................................................... B-1
APPENDIX C -- Part XIII of the Connecticut Business Corporation Act....................................... C-1
</TABLE>
iii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. WHAT WILL HAPPEN IN THE PROPOSED TRANSACTION?
A. CTG Resources will become a direct subsidiary of Energy East by merging into
Oak Merger Co., a wholly owned subsidiary of Energy East.
Q. WHY HAS CTG RESOURCES DECIDED TO MERGE?
A. The CTG Resources board of directors and management believe that the merger
will help position the combined company to become one of the premier
distribution companies for energy distribution and other energy-related
services in the northeastern United States by increasing financial
flexibility and providing strategic growth opportunities that will benefit
the combined company and its shareholders, customers and employees in a
manner that CTG Resources could not achieve on its own.
Please read the more detailed description of CTG Resources's reasons for the
merger on pages 33 to 34.
Q. WHAT WILL CTG RESOURCES SHAREHOLDERS RECEIVE?
A. CTG Resources shareholders will have the option to elect to receive, in
exchange for each of their CTG Resources shares, either $41.00 in cash or a
number of Energy East shares valued at $41.00, subject to limitations on the
maximum and minimum number of Energy East shares to be issued. The number of
Energy East shares to be exchanged for each CTG Resources share will be
between 1.3609 and 1.7320, based on the value of Energy East shares during
the 20-trading-day period ending two trading days before the effective time
of the merger. CTG Resources shareholders can choose to convert some of
their CTG Resources shares into cash and others into Energy East shares.
Please read the more detailed description of the consideration to be issued
in the merger on pages 58 to 59.
Q. WILL I RECEIVE THE SPECIFIC AMOUNTS OF CASH AND STOCK THAT I ELECT?
A. Due to a requirement contained in the merger agreement that 55% of the CTG
Resources shares must be converted into cash and 45% must be converted into
Energy East shares, the amounts of cash and stock you receive may be
different from the amounts you elect. For example, if CTG Resources
shareholders owning more than 55% of CTG Resources shares elect to receive
cash, the number of CTG Resources shares converted into cash will be less
than the number elected. Similarly, if CTG Resources shareholders owning
more than 45% of CTG Resources shares elect to receive Energy East shares,
the number of CTG Resources shares converted into Energy East shares will be
less than the number elected.
For tax reasons that are explained on page 59, Energy East might have to
increase the number of CTG Resources shares converted into Energy East
shares and decrease the number of CTG Resources shares converted into cash.
Energy East will not issue any fractional shares in the merger. Instead, you
will get cash for any fractional shares that you would otherwise receive.
If you participate in the CTG Dividend Reinvestment Plan, cash that you
receive in this plan in the merger will be distributed to you or reinvested
in accordance with the terms of the plan and the merger agreement.
Please read the more detailed description of the allocation procedures on
page 59.
1
<PAGE>
Q. WHAT DO I NEED TO DO NOW?
A. After you carefully read this document, please, as soon as possible, (1)
complete, sign, date and mail your proxy card in the enclosed return
envelope or (2) appoint and direct your proxies by telephone in accordance
with the instructions on your proxy card. That way, your CTG Resources
shares can be represented at the special meeting.
If you participate in the CTG Resources Dividend Reinvestment Plan, and you
own uncertificated shares, your proxy card covers both plan shares and
certificated shares unless the registrations are different. If you have
registrations in different names, you will receive a separate proxy card for
each name registration. If a broker holds your shares as nominee, you will
receive a voter-information form from your broker.
CTG Resources and Energy East cannot complete the merger unless two-thirds
of the outstanding CTG Resources shares approve the merger agreement. Your
vote is very important.
THE CTG RESOURCES BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR"
APPROVAL OF THE MERGER AGREEMENT.
Q. SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A. No. You should continue to hold your stock certificates until we send you a
form of election that you can use to indicate your preference as to the type
of payment you would like to receive in the merger. You will not receive
this notice until after the special meeting has occurred, but not less than
30 days prior to the effective time of the merger. At that time, you will be
given instructions for sending in your certificates. If you currently hold
your CTG Resources shares in uncertificated form, for example, through the
CTG Dividend Reinvestment Plan, or if a broker holds your shares as nominee,
you do not need to request that certificates be issued. After the merger is
completed, you will receive written information on the exchange of these
shares.
Q. WHO MUST APPROVE THE MERGER?
A. In addition to approvals by the Energy East, CTG Resources and Oak Merger
Co. boards of directors, all of which have already been obtained, the merger
must be approved by the holders of two-thirds of the CTG Resources shares.
We must also obtain some regulatory approvals for the merger. Please read
the more detailed description of the regulatory approvals on pages 43 to 46.
Q. DO ENERGY EAST SHAREHOLDERS VOTE ON THE MERGER AGREEMENT?
A. No. Only CTG Resources shareholders vote on the merger.
Q. WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A. We are working to complete all aspects of the merger as quickly as possible.
Currently, we expect to complete the merger in the middle of the year 2000.
Q. WHAT HAPPENS IF I DO NOT INSTRUCT A BROKER HANDLING MY SHARES ON HOW TO VOTE
ON THE MERGER OR IF I ABSTAIN FROM VOTING?
A. If a broker holds your CTG Resources shares as nominee, he will not be able
to vote them without instructions from you.
If you mark your proxy "Abstain," select the "Abstain" option when
registering your vote by telephone or do not instruct your broker on how to
vote, your shares will have the effect of a vote against the merger
agreement.
Q. CAN I CHANGE MY VOTE AFTER I HAVE MAILED IN MY SIGNED AND DATED PROXY CARD
OR VOTED BY TELEPHONE?
A. Yes. If you would like to revoke your proxy in writing, you must deliver to
the Secretary of CTG Resources, at any time before the vote has been taken
at the special meeting, a written revocation or a proxy bearing a later
date. We will count only the most recently dated proxy at the special
meeting.
2
<PAGE>
You should send these to: CTG Resources, Inc., P.O. Box 1500, 100 Columbus
Boulevard, Hartford, Connecticut 06144-1500, Attention: Secretary.
Alternatively, you may attend the special meeting in person and revoke your
proxy orally before the vote takes place.
Q. WHOM SHOULD I CALL IF I HAVE ANY ADDITIONAL QUESTIONS OR WANT TO REQUEST A
COPY OF THIS DOCUMENT?
A. You may call D.F. King & Co., Inc., our proxy solicitor, at (800) 755-7250
with respect to questions regarding voting or to request a copy of this
document.
Q. ON WHAT OTHER MATTERS WILL CTG RESOURCES SHAREHOLDERS VOTE AT THE SPECIAL
MEETING?
A. CTG Resources shareholders will not vote on any other matters at the special
meeting, except possibly procedural items relating to the conduct of the
special meeting.
Q. ASSUMING I RECEIVE ENERGY EAST SHARES IN THE MERGER, WILL MY RIGHTS AS A
SHAREHOLDER CHANGE AS A RESULT OF THE MERGER?
A. Yes. For a summary of material differences between the rights of CTG
Resources shareholders and the rights of Energy East shareholders, see pages
92 to 98 of this document.
Q. I UNDERSTAND THAT ENERGY EAST IS INVOLVED IN SOME OTHER MERGERS. IS ITS
MERGER WITH CTG RESOURCES CONTINGENT ON THOSE OTHER MERGERS BEING COMPLETED?
A. Consistent with Energy East's strategy of selectively growing its energy
distribution business in the northeastern United States, Energy East entered
into a merger agreement in April 1999 with Connecticut Energy, an exempt
public utility holding company located in Connecticut, and a merger
agreement in June 1999 with CMP Group, an exempt public utility holding
company located in Maine. The merger between CTG Resources and Energy East
is not contingent upon the completion of these mergers.
For more information on the Connecticut Energy and CMP Group mergers, please
read the pro forma financial statements and accompanying notes on pages 72
to 91.
Q. WHERE CAN I FIND MORE INFORMATION ABOUT ENERGY EAST, CTG RESOURCES,
CONNECTICUT ENERGY AND CMP GROUP?
A. Various sources described under "Where You Can Find More Information" on
pages 101 and 102 of this document explain how you can obtain further
information.
3
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This document contains some forward-looking statements that involve risks
and uncertainties. We may make these statements about the financial condition,
results of operations and business of Energy East and CTG Resources. These
statements may be made directly in this document referring to Energy East or CTG
Resources, or may be "incorporated by reference" from other documents filed with
the Securities and Exchange Commission. This document may also include
statements relating to the period following 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 in this document or
in the documents incorporated by reference.
These forward-looking statements are subject to numerous assumptions, risks
and uncertainties. Factors that may cause actual results to differ from those
indicated by such forward-looking statements include, among others, the
following:
- the fact that these forward-looking statements are based on information of
a preliminary nature which may be subject to further and continuing review
and adjustment;
- the risk of a significant delay in the expected completion of, and
unexpected consequences resulting from, the merger;
- the highly competitive nature of the electric, natural gas and energy
marketing industries, including the speed and degree to which competition
enters these industries and the risk that other companies will further
expand into markets in which Energy East or CTG Resources operates;
- the risk that fluctuating energy prices may affect revenues;
- the risk that government authorities may impose unfavorable terms as a
condition of merger;
- the risk of favorable customer contracts expiring or being renewed on less
attractive terms;
- problems arising from the potential inability of computers to recognize
and process properly date-sensitive information beyond January 1, 2000,
which may result in an interruption in, or a failure of, normal business
activities or operations;
- the risks associated with future weather conditions;
- the risks associated with changes in customer demographics in the service
territories of Energy East or CTG Resources and the pursuit of new
markets;
- difficulties in completing Energy East's proposed mergers with Connecticut
Energy and CMP Group and complications arising from the integration of CTG
Resources, Connecticut Energy and CMP Group with Energy East;
- other considerations that may be disclosed from time to time in Energy
East's or CTG Resources's publicly disseminated documents or filings;
- regulatory issues, including the pace of deregulation of the retail
natural gas and electricity markets in the United States;
- inflation; and
- exposure to environmental issues and liabilities, as well as potential
changes in environmental regulations.
You should not place undue reliance on the forward-looking statements, which
speak only as of the date of this document or, in the case of a document
incorporated by reference, the date of that document.
The cautionary statements in this section expressly qualify, in their
entirety, all subsequent forward-looking statements attributable to Energy East,
CTG Resources or any person acting on their behalf. Neither Energy East nor CTG
Resources undertakes any obligation to release publicly any revisions to the
forward-looking statements to reflect events or circumstances occurring after
the date of this document.
4
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION IN THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
MERGER FULLY, AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
MERGER, YOU SHOULD READ CAREFULLY THIS ENTIRE DOCUMENT AND THE DOCUMENTS TO
WHICH WE HAVE REFERRED YOU. SEE "WHERE YOU CAN FIND MORE INFORMATION" BEGINNING
ON PAGE 101 OF THIS DOCUMENT. EACH ITEM IN THIS SUMMARY INCLUDES A PAGE
REFERENCE DIRECTING YOU TO A MORE COMPLETE DESCRIPTION OF THAT ITEM. ("WE" AND
"OUR" AS USED IN THIS DOCUMENT REFERS TO CTG RESOURCES.)
THE COMPANIES
ENERGY EAST (SEE PAGES 22 AND 23)
Energy East Corporation
P.O. Box 1196
Stamford, Connecticut 06904-1196
(203) 325-0690
Energy East is a holding company that was organized under the laws of the
State of New York in 1997. Energy East, through its subsidiaries, is an energy
delivery, products and services company with operations in New York,
Massachusetts, Maine, New Hampshire, Vermont and New Jersey, and offices in New
York and Connecticut. Energy East is the parent of New York State Electric & Gas
Corporation, a regulated public utility company. Energy East's nonutility
subsidiaries include XENERGY Enterprises, Inc. and Energy East Enterprises,
Inc., which invest in energy ventures and providers of energy-related and
telecommunication services.
Energy East has adopted a strategy of selling its generation assets and
using a portion of the proceeds to grow selectively its energy distribution
business in the northeastern United States. Consistent with this strategy,
Energy East sold its coal-fired generation assets to Edison Mission Energy in
March 1999 and to The AES Corporation in May 1999. In addition, Energy East
expects to complete by early next year the sale of its 18% interest in Nine Mile
Point nuclear generating unit No. 2 to AmerGen Energy Company. The net cash
received from these sales is being used to repurchase Energy East shares and
will be used to help fund Energy East's business combinations with CTG
Resources, Connecticut Energy and CMP Group.
CTG RESOURCES (SEE PAGE 24)
CTG Resources, Inc.
P.O. Box 1500
100 Columbus Boulevard
Hartford, Connecticut 06144-1500
(860) 727-3000
CTG Resources is a holding company whose businesses include the regulated
retail distribution of natural gas and other energy-related unregulated
activities. CTG Resources's principal subsidiary, Connecticut Natural Gas
Corporation, serves approximately 143,300 natural gas customers in Hartford,
Greenwich and 22 other cities and towns in central Connecticut. CTG Resources's
energy-related unregulated subsidiaries, including The Energy Network, Inc. and
The Hartford Steam Company, provide district heating and cooling services to
many buildings in Hartford and are involved in several cogeneration and other
ventures.
OAK MERGER CO. (SEE PAGE 24)
Oak Merger Co.
P.O. Box 1196
Stamford, Connecticut 06904-1196
(203) 325-0690
Oak Merger Co. is a wholly owned subsidiary of Energy East, formed under the
laws of the State of Connecticut solely for the purpose of completing the merger
with CTG Resources.
THE SPECIAL MEETING (SEE PAGES 25 AND 26)
The special meeting of CTG Resources shareholders will be held at the
offices of CTG Resources, 100 Columbus Boulevard, Hartford, Connecticut on
October 18, 1999, at 10:30 a.m. local time.
5
<PAGE>
At the special meeting, we will ask you to vote upon a proposal to approve
the merger agreement. Approval of the merger agreement requires the affirmative
vote of at least two-thirds of the outstanding CTG Resources shares.
Only the CTG Resources shareholders at the close of business on the record
date, August 23, 1999, will be entitled to notice of and to vote at the special
meeting.
Each CTG Resources share carries one vote. As of the close of business on
August 13, 1999, 8,648,029 CTG Resources shares were outstanding.
SHARE OWNERSHIP OF MANAGEMENT (SEE PAGE 70)
On June 30, 1999, directors and executive officers of CTG Resources and
their affiliates beneficially owned approximately 1.5% of the outstanding CTG
Resources shares. It is expected that all of these directors and executive
officers will vote their shares FOR the approval of the merger agreement.
THE MERGER
REASONS FOR AND BACKGROUND OF THE MERGER (SEE PAGES 28 TO 34)
You should review the factors that the CTG Resources board of directors
considered when deciding whether to approve the merger.
RECOMMENDATION TO SHAREHOLDERS (SEE PAGES 34 TO 36)
The CTG Resources board of directors has determined that the merger is in
the best interests of the CTG Resources shareholders and unanimously recommends
that CTG Resources shareholders vote to approve the merger agreement at the
special meeting.
FAIRNESS OPINION (SEE PAGES 36 TO 42)
In deciding to approve the merger, the CTG Resources board of directors
considered, among other things, the opinion of PaineWebber Incorporated, its
financial advisor, as to the fairness, from a financial point of view, of the
consideration that CTG Resources shareholders will receive. This opinion is
attached as Appendix B to this document and is also discussed on pages 36 to 42.
We encourage you to read this opinion.
ACCOUNTING TREATMENT (SEE PAGE 43)
The merger will be accounted for as an acquisition of CTG Resources by
Energy East under the purchase method of accounting in accordance with generally
accepted accounting principles. A portion of the purchase price will be
allocated to nonutility assets and liabilities of CTG Resources based on their
estimated fair market values at the date of acquisition. As a regulated utility,
the assets and liabilities of Connecticut Natural Gas will not be revalued. The
difference between the purchase price, representing fair value, and the recorded
amounts will be shown as goodwill on the balance sheet.
REGULATORY APPROVALS (SEE PAGES 43 TO 46)
CTG Resources and Energy East must obtain regulatory approval from the
Connecticut Department of Public Utility Control. In addition, both companies
must file certain notification forms with the Antitrust Division of the
Department of Justice and the Federal Trade Commission. Finally, Energy East
must obtain Securities and Exchange Commission approval of the acquisition under
the Public Utility Holding Company Act and must either obtain an exemption from
registration under that Act or register with the Securities and Exchange
Commission as a holding company. Energy East expects that if it completes its
proposed merger with CMP Group, Energy East will no longer be eligible for this
exemption.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (SEE PAGES 47 TO 50)
In considering the recommendation of the CTG Resources board of directors to
approve the merger, CTG Resources shareholders should be aware that members of
the CTG Resources board of directors and CTG Resources management will receive
benefits as a result of the merger that will be in addition to or different from
the benefits that CTG Resources
6
<PAGE>
shareholders receive generally. For example, Arthur C. Marquardt, current
chairman, president and chief executive officer of CTG Resources, will become
president and chief executive officer of the surviving company in the merger
(which will be a subsidiary of Energy East) and will hold officer positions in
other Energy East subsidiaries. In addition, one nonemployee director of CTG
Resources will become a director of Energy East, and members of the CTG
Resources board of directors will serve on an advisory board of the surviving
company.
The members of the CTG Resources board of directors knew about these
additional interests and considered them when they approved the merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (SEE PAGES 50 TO 54)
The U.S. federal income tax consequences of the merger to you will depend on
the form of consideration you receive in the merger. If you receive solely
Energy East shares for your CTG Resources shares, you will not recognize any
gain or loss for U.S. federal income tax purposes (except with respect to cash
received instead of fractional shares). If you receive part cash and part Energy
East shares, and your adjusted basis in your CTG Resources shares is less than
the sum of the amount of cash and the fair market value (as of the date of the
merger) of the Energy East shares you receive, you will recognize a gain. This
recognized gain will equal the lesser of (1) the sum of the amount of cash and
the fair market value, as of the date of the merger, of the Energy East shares
you receive, minus the adjusted basis of your CTG Resources shares, and (2) the
amount of cash you receive. However, if you realize a loss because your adjusted
basis in your CTG Resources shares is greater than the sum of the amount of cash
and the fair market value, as of the date of the merger, of the Energy East
shares you receive, the loss will not currently be allowed. If you receive
solely cash, gain or loss will generally be recognized by you to the extent of
the difference between the amount of cash you receive and your adjusted basis in
your CTG Resources shares.
The consequences described above assume, as expected, that the merger will
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code.
THE TAX CONSEQUENCES OF THE MERGER TO YOU WILL DEPEND ON YOUR OWN SITUATION.
YOU SHOULD CONSULT YOUR TAX ADVISOR FOR A FULL UNDERSTANDING OF THE TAX
CONSEQUENCES OF THE MERGER TO YOU.
DISSENTERS' RIGHTS OF APPRAISAL OF CTG
RESOURCES SHAREHOLDERS
(SEE PAGES 55 TO 57)
Dissenters' rights of appraisal permit shareholders to receive cash in the
amount of the judicially determined fair value of their shares rather than the
consideration that they would receive in the transaction under the merger
agreement. Under Connecticut law, CTG Resources shareholders have dissenters'
rights of appraisal in the merger. Therefore, if you follow the procedures
required by Connecticut law and you dissent from the merger but the merger is
eventually approved by CTG Resources shareholders and completed, you will
receive a cash payment representing the judicially determined fair value of CTG
Resources shares you currently hold. You will not receive the consideration
payable under the merger agreement. The relevant provisions of Connecticut law
governing this process are attached as Appendix C to this document.
THE MERGER AGREEMENT
The merger agreement is the legal document that governs the merger. The
merger agreement is attached as Appendix A to this document, and we encourage
you to read it carefully.
CONVERSION OF CTG RESOURCES SHARES (SEE
PAGES 58 TO 61)
In the merger, CTG Resources shareholders will have the option to elect to
receive either cash, Energy East shares or a combination of the two in return
for their shares, subject to limitations on the maximum and minimum number of
Energy East shares to be issued.
Specifically, in exchange for each of their CTG Resources shares, CTG
Resources
7
<PAGE>
shareholders will have the option to receive either $41.00 in cash or a number
of Energy East shares valued at $41.00, subject to restrictions on the maximum
and minimum number of Energy East shares to be issued. The number of Energy East
shares to be exchanged for each CTG Resources share will be between 1.3609 and
1.7320, based on the value of Energy East shares during the 20-trading-day
period ending two trading days before the effective time of the merger. CTG
Resources shareholders can choose to convert some of their CTG Resources shares
into cash and others into Energy East shares.
Under the merger agreement, 55% of the CTG Resources shares must be
exchanged for cash, and 45% must be exchanged for Energy East shares. Therefore,
if CTG Resources shareholders owning more than 55% of the CTG Resources shares
elect to receive cash, the number of CTG Resources shares that will be converted
into cash will be less than the number elected. Similarly, if CTG Resources
shareholders owning more than 45% of the CTG Resources shares elect to receive
Energy East shares, the number of CTG Resources shares that will be converted
into Energy East shares will be less than the number elected.
CERTAIN COVENANTS (SEE PAGES 62 TO 64)
CTG Resources has agreed not to solicit or encourage any proposal from any
person to acquire CTG Resources or its assets, but it may respond, in limited
circumstances, to unsolicited proposals that it receives.
CONDITIONS TO THE MERGER (SEE PAGES 67 TO 68)
Completion of the merger depends upon satisfaction of a number of
conditions. In addition to customary conditions relating to our compliance with
the merger agreement, these conditions include the following:
- approval of the merger agreement by CTG Resources shareholders;
- approval of the merger by the Connecticut Department of Public Utility
Control;
- approval of the merger by the Securities and Exchange Commission under the
Public Utility Holding Company Act;
- expiration or termination of the waiting period applicable to the merger
under U.S. federal antitrust laws and obtaining any other regulatory
approvals;
- absence of any injunction or legal restraint blocking the merger, or of
any proceedings by a governmental authority to block the merger;
- the Securities and Exchange Commission declaring effective, and the
absence of a suspension by the Securities and Exchange Commission of the
effectiveness of, the registration statement with respect to the Energy
East shares to be issued in the merger;
- the New York Stock Exchange approving for listing the Energy East shares
to be issued in the merger; and
- attorneys for Energy East furnishing to Energy East, and attorneys for CTG
Resources furnishing to CTG Resources, 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 merger will occur, and your CTG Resources shares will be converted into
the right to receive Energy East shares, cash or a combination of the two, as
soon as practicable after CTG Resources and Energy East satisfy all of the
conditions in the merger agreement.
TERMINATION (SEE PAGES 69 TO 70)
The merger agreement may be terminated, and the merger abandoned, only in
the following circumstances:
- if Energy East and CTG Resources mutually agree to terminate the merger
agreement;
- by either Energy East or CTG Resources if any law or regulation prohibits
the merger, or if a court issues a final, non-appealable order blocking
the merger;
- by either Energy East or CTG Resources, if the merger is not completed by
June 29, 2000 (or December 29, 2000, if the only barrier to closing is
that the requisite regulatory approvals have not been obtained);
8
<PAGE>
- by either Energy East or CTG Resources, if the other party materially
breaches the merger agreement and fails to cure the breach;
- by Energy East, if the CTG Resources board of directors withdraws its
approval of the merger agreement, fails to reaffirm its approval of the
merger agreement upon Energy East's request, approves a competing
acquisition proposal or resolves to take any of these actions; or
- by CTG Resources, prior to its shareholders' approval of the merger
agreement, if CTG Resources receives a third-party proposal concerning
another merger, sale of substantial assets or other business combination,
in response to which the CTG Resources board of directors determines,
based on the advice of outside counsel, that failure to accept the
proposal would likely result in a breach of its members' fiduciary duties,
and concludes in good faith that the person making the alternative
proposal has obtained or can obtain any necessary financing and that such
proposal would be financially superior to the merger; provided that before
CTG Resources can terminate the merger agreement, it must comply with
additional conditions contained in the merger agreement discussed on page
69.
If either Energy East or CTG Resources materially breaches the merger
agreement and the other party consequently terminates the agreement, the
breaching party must pay the other party up to $4 million in expenses and fees.
Moreover, if the merger agreement is terminated for any of the following
reasons:
- the CTG Resources board of directors decides to pursue an alternative
acquisition proposal;
- (1) CTG Resources shareholders fail to approve the merger agreement by
June 29, 2000, (2) there is an alternative acquisition proposal
outstanding at the time of the special meeting and (3) CTG Resources
enters into a definitive agreement on or completes an alternative
acquisition within two years of the termination of the merger agreement;
or
- (1) the CTG Resources board of directors withdraws, modifies or fails to
affirm its approval of the merger agreement, (2) there is an alternative
acquisition proposal outstanding at the time of the termination of the
merger agreement and (3) CTG Resources enters into a definitive agreement
on or completes an alternative acquisition within two years of the
termination;
then CTG Resources must pay Energy East $14 million in addition to fees and
expenses up to $4 million. However, if the breach is willful, the merger
agreement does not limit the amount of damages, expenses and fees the
nonbreaching party may seek.
COMPARATIVE RIGHTS OF CTG RESOURCES
SHAREHOLDERS AND ENERGY EAST
SHAREHOLDERS
(SEE PAGES 92 TO 98)
If you receive Energy East shares in the merger, your rights as an Energy
East shareholder will be governed by New York law and by Energy East's
certificate of incorporation and by-laws. These rights differ in certain
respects from your current CTG Resources shareholder rights, which are governed
by Connecticut law and CTG Resources's certificate of incorporation and by-laws.
9
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
Energy East shares are listed and traded on the New York Stock Exchange
under the symbol "NEG." CTG Resources shares are listed and traded on the New
York Stock Exchange under the symbol "CTG."
The following table provides trading and dividend information for Energy
East shares and for CTG Resources shares for the periods indicated based on a
calendar year. All of the prices set forth in this section and the next section
are as reported on the New York Stock Exchange Composite Transaction Tape, based
on published financial sources.
<TABLE>
<CAPTION>
ENERGY EAST SHARES CTG RESOURCES SHARES
----------------------------------------- -----------------------------------------
CASH DIVIDENDS CASH DIVIDENDS
HIGH LOW PER SHARE HIGH LOW PER SHARE
---------- ---------- ----------------- ---------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
1997
First Quarter................ $ 12.25 $ 10.625 $ .175 $ 25.375 $ 21.375 $ .38
Second Quarter............... 11.25 10.3125 .175 22.25 20.75 .38
Third Quarter................ 13.5938 10.4063 .175 23.8125 21.625 .38
Fourth Quarter............... 17.875 12.875 .175 26.50 22.75 .25
1998
First Quarter................ $ 20.25 $ 16.5313 $ .175 $ 26.75 $ 23.375 $ .25
Second Quarter............... 22.0938 19.4689 .20 25.9375 21.9375 .25
Third Quarter................ 25.6875 19.9375 .20 24.50 22.375 .25
Fourth Quarter............... 29.00 23.375 .20 26.3125 22.625 .26
1999
First Quarter................ $ 28.625 $ 24.5625 $ .21 $ 26.375 $ 22.25 $ .26
Second Quarter............... 28.125 24.75 .21 36.75 22.125 $ .26
Third Quarter (through August
13, 1999).................. 27.0625 25.50 .21 37.1875 36.00 --
</TABLE>
- ------------------------
Per share amounts for Energy East have been restated to reflect Energy East's
two-for-one stock split, effective April 1, 1999.
The following table shows the closing prices for CTG Resources and Energy
East shares on June 29, 1999, the last full trading day before the public
announcement of the proposed transactions, and on August 13, 1999, the most
recent date for which quotations were available prior to the date of this
document.
<TABLE>
<CAPTION>
ENERGY EAST SHARES CTG RESOURCES SHARES
---------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
DATE HIGH LOW CLOSE HIGH LOW CLOSE
- -------------------------------------------- ---------- ---------- ---------- ---------- --------- ---------
June 29, 1999............................... $ 26.4375 $ 26.0625 $ 26.125 $ 35.75 $ 34.25 $ 35.625
August 13, 1999............................. 26.0625 25.6875 25.6875 36.3125 36.00 36.25
</TABLE>
The number of Energy East shares to be exchanged for each CTG Resources
share in the merger will vary based on the value of Energy East shares during
the 20-trading-day period ending two trading days before the effective time of
the merger.
We urge you to obtain current market quotations for Energy East shares and
CTG Resources shares.
Energy East paid a dividend on Energy East shares of $.21 per share on
August 15, 1999, to holders of record on July 26, 1999. Energy East anticipates
that it will continue to pay quarterly cash dividends. The Energy East board of
directors, however, has discretion to decide upon the timing and
10
<PAGE>
amount of any future dividends. Whether or not Energy East will pay dividends,
and, if so, how much these dividends will be, will depend on Energy East's
future earnings, financial condition, capital requirements and other factors.
On July 27, 1999, the CTG Resources board of directors declared a dividend
on CTG Resources shares of $.26 per share, payable on September 24, 1999, to
holders of record on September 10, 1999. As part of the merger agreement, CTG
Resources has agreed that it will not make, declare or pay any dividend or
distribution on CTG Resources shares, other than regular quarterly dividends on
CTG Resources shares of $.26 per share with record and payment dates consistent
with past practice.
11
<PAGE>
UNAUDITED PRO FORMA COMPARATIVE PER SHARE DATA
We have summarized below information concerning earnings, cash dividends and
book value per share for:
- each of Energy East and CTG Resources on a historical basis;
- the combination of Energy East and CTG Resources on a pro forma basis;
- CTG Resources on a per share equivalent pro forma basis based on the
combination of Energy East and CTG Resources;
- the combination of Energy East, CTG Resources, Connecticut Energy and CMP
Group on a pro forma basis; and
- CTG Resources on a per share equivalent pro forma basis based on the
combination of Energy East, CTG Resources, Connecticut Energy and CMP
Group.
The pro forma information, in each case, takes into account Energy East's
sales of its generation assets. The pro forma information on the combination of
Energy East, CTG Resources, Connecticut Energy and CMP Group also takes into
account CMP Group's sale of its generation assets. We have derived the pro forma
combined earnings per share from the unaudited pro forma combined financial
statements presented elsewhere in this document. Book value per share for the
pro forma combined presentation is based upon outstanding Energy East shares,
adjusted to include the estimated number of Energy East shares to be issued in
the CTG Resources and Connecticut Energy mergers.
The pro forma data are based on the assumed conversion of 45% of the CTG
Resources shares into 1.57 Energy East shares per CTG Resources share and 55%
into $41.00 in cash per CTG Resources share, and the assumed conversion of half
of the Connecticut Energy shares into 1.60 Energy East shares per Connecticut
Energy share and half into $42.00 in cash per Connecticut Energy share. We
calculated the exchange ratio for CTG Resources shares by dividing $41.00 by
$26.125, the closing price of Energy East shares on June 29, 1999. We calculated
the exchange ratio for Connecticut Energy shares by dividing $42.00 by $26.25,
the closing price of Energy East shares on April 22, 1999. The pro forma data
also reflect the fact that, in the CMP Group merger, CMP Group shareholders will
receive $29.50 in cash, and no Energy East shares, for each of their CMP Group
shares.
You should read the information set forth below together with the audited
and unaudited financial statements of Energy East, CTG Resources, Connecticut
Energy and CMP Group incorporated by reference in this document and the
unaudited pro forma combined financial statements and related notes presented
elsewhere in this document. See "Where You Can Find More Information."
<TABLE>
<CAPTION>
SIX MONTHS FISCAL YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1999 1998
--------------- -----------------
<S> <C> <C>
ENERGY EAST -- HISTORICAL
Earnings per share, basic and diluted........................................ $ 1.19 $ 1.51
Cash dividends declared per share............................................ .42 .78
Book value per share at period end........................................... 13.26 13.61
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS FISCAL YEAR ENDED
ENDED JUNE 30, SEPTEMBER 30,
1999 1998
--------------- -----------------
<S> <C> <C>
CTG RESOURCES -- HISTORICAL
Earnings per share:
Basic...................................................................... $ 1.32 $ 1.71
Diluted.................................................................... 1.32 1.70
Cash dividends declared per share............................................ .52 1.00
Book value per share at period end........................................... 15.42 14.21
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS FISCAL YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1999 1998
--------------- -----------------
<S> <C> <C>
COMBINATION OF ENERGY EAST & CTG RESOURCES --
PRO FORMA
Earnings per share, basic and diluted........................................ $ 1.28 $ 1.64
Cash dividends declared per share............................................ .42 .78
Book value per share at period end........................................... 14.02 14.30
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS FISCAL YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1999 1998
--------------- -----------------
<S> <C> <C>
CTG RESOURCES -- PER SHARE EQUIVALENT PRO FORMA
BASIS BASED ON COMBINATION OF ENERGY EAST &
CTG RESOURCES
Earnings per share, basic and diluted........................................ $ 2.02 $ 2.57
Cash dividends declared per share............................................ .66 1.22
Book value per share at period end........................................... 22.00 22.44
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS FISCAL YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1999 1998
--------------- -----------------
<S> <C> <C>
COMBINATION OF ENERGY EAST, CTG RESOURCES
CONNECTICUT ENERGY & CMP GROUP -- PRO FORMA
Earnings per share, basic and diluted........................................ $ 1.42 $ 1.71
Cash dividends declared per share............................................ .42 .78
Book value per share at period end........................................... 14.80 15.03
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS FISCAL YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1999 1998
--------------- -----------------
<S> <C> <C>
CTG RESOURCES -- PER SHARE EQUIVALENT PRO FORMA
BASIS BASED ON COMBINATION OF ENERGY EAST,
CTG RESOURCES, CONNECTICUT ENERGY & CMP GROUP
Earnings per share, basic and diluted........................................ $ 2.23 $ 2.68
Cash dividends declared per share............................................ .66 1.22
Book value per share at period end........................................... 23.23 23.59
</TABLE>
13
<PAGE>
SELECTED FINANCIAL INFORMATION
The following tables present (1) selected consolidated financial information
for each of Energy East, CTG Resources, Connecticut Energy and CMP Group on a
historical basis; (2) selected unaudited pro forma financial data for Energy
East reflecting the sales of its generation assets and the merger with CTG
Resources; and (3) selected unaudited pro forma financial data of Energy East
reflecting the sales of its generation assets, its mergers with CTG Resources,
Connecticut Energy and CMP Group and the sale of CMP Group's generation assets.
We prepared the selected unaudited pro forma financial data by accounting
for the mergers with CTG Resources, Connecticut Energy and CMP Group under the
purchase method of accounting. See "The Merger -- Accounting Treatment." The CTG
Resources and Connecticut Energy twelve-month financial information is based on
a September 30 fiscal year. The selected unaudited pro forma financial data
reflect the mergers with CTG Resources, Connecticut Energy and CMP Group based
upon preliminary purchase accounting adjustments. Actual amounts may differ from
those reflected below.
The selected historical financial data for Energy East and CMP Group as of
December 31, 1998, 1997, 1996, 1995 and 1994 and for each of the years in the
five-year period ended December 31, 1998, set forth below, have been derived
from Energy East's and CMP Group's audited financial statements. The selected
historical financial data for CTG Resources and Connecticut Energy as of
September 30, 1998, 1997, 1996, 1995 and 1994 and for each of the years in the
five-year period ended September 30, 1998, set forth below, have been derived
from CTG Resources's and Connecticut Energy's audited financial statements. The
selected historical financial data for Energy East, CTG Resources, Connecticut
Energy and CMP Group as of and for the six months ended June 30, 1999 and June
30, 1998, set forth below, have been derived from their unaudited financial
statements and, in the opinion of their managements, include all adjustments,
consisting of normal recurring adjustments, necessary for fair presentations of
the data of these periods.
Due to the effect of seasonal fluctuations and other factors on the
operations of Energy East, CTG Resources, Connecticut Energy and CMP Group,
financial results for a period that is less than a full financial year are not
necessarily indicative of results for the full fiscal year. You should read the
information set forth below in conjunction with the respective audited and
unaudited financial statements of Energy East, CTG Resources, Connecticut Energy
and CMP Group incorporated by reference in this document and the unaudited pro
forma combined financial statements and related notes presented elsewhere in
this document. See "Where You Can Find More Information" and "Unaudited Pro
Forma Combined Condensed Financial Statements."
The pro forma balance sheet data give effect to the sales of the generation
assets and to the mergers as if these events occurred as of the balance sheet
dates; the pro forma statement of income data give effect to the sales of the
generation assets and the mergers as if these events occurred on January 1,
1998. The pro forma financial data are not, however, necessarily indicative of
the financial position or operating results that would have occurred had the
sales of the generation assets and the mergers been completed on these dates;
nor is the information necessarily indicative of future financial position or
operating results.
14
<PAGE>
ENERGY EAST SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, FISCAL YEAR ENDED
(UNAUDITED) DECEMBER 31,
-------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS:
Operating revenues....................... $1,162,365 $1,185,938 $2,499,418 $2,170,102 $2,108,865 $2,040,895 $1,918,431
Net income............................... 142,531 105,524 194,205 175,211 168,711 177,969 168,698
Earnings per share, basic and diluted.... 1.19 .81 1.51 1.29 1.19 1.24 1.18
Cash dividends declared per common
share.................................. .42 .38 .78 .70 .70 .70 1.00
<CAPTION>
JUNE, 30
(UNAUDITED) DECEMBER 31,
-------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............................. $4,129,160 $4,973,059 $4,883,337 $5,028,681 $5,059,681 $5,114,331 $5,230,685
Long-term debt, capital leases and
redeemable preferred stock (excluding
current portion)....................... 1,411,621 1,484,113 1,460,120 1,475,224 1,505,814 1,606,448 1,776,081
Common stock equity...................... 1,536,225 1,742,735 1,713,486 1,803,295 1,769,982 1,743,540 1,664,857
Book value per share..................... 13.26 13.47 13.61 13.36 12.70 12.19 11.64
</TABLE>
Per share amounts have been restated to reflect Energy East's two-for-one
common stock split, effective April 1, 1999.
CTG RESOURCES SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, (UNAUDITED) FISCAL YEAR ENDED
SEPTEMBER 30,
-------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS:
Operating revenues................................. $ 165,226 $ 153,786 $ 282,748 $ 305,295 $ 315,103 $ 274,935 $ 290,420
Net income......................................... 11,430 9,875 15,135 17,013 18,932 16,957 17,637
Earnings per share, basic.......................... 1.32 1.14 1.71 1.60 1.87 1.71 1.85
Earnings per share, diluted........................ 1.32 1.14 1.70 1.59 1.86 1.71 1.85
Cash dividends declared per common share........... .52 .50 1.00 1.52 1.50 1.48 1.48
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
(UNAUDITED) SEPTEMBER 30,
-------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets....................................... $ 477,441 $ 450,007 $ 459,181 $ 444,373 $ 443,574 $ 437,372 $ 437,622
Long-term debt (excluding current portion)......... 217,516 184,853 215,852 126,787 136,432 150,390 154,193
Common stock equity................................ 133,779 128,139 123,397 169,299 168,882 150,111 139,481
Book value per share............................... 15.42 14.76 14.21 15.85 15.86 15.07 14.58
</TABLE>
15
<PAGE>
CONNECTICUT ENERGY SELECTED HISTORICAL CONSOLIDATED FINANCIAL
INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, FISCAL YEAR ENDED
(UNAUDITED) SEPTEMBER 30,
-------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS:
Operating revenues................................. $ 141,541 $ 138,775 $ 242,431 $ 252,008 $ 261,093 $ 232,093 $ 240,873
Net income......................................... 15,980 14,231 19,011 16,441 15,165 14,060 12,843
Earnings per share, basic.......................... 1.56 1.40 1.89 1.81 1.70 1.60 1.58
Earnings per share, diluted........................ 1.54 1.39 1.88 1.81 1.70 1.60 1.58
Cash dividends declared per common share........... .67 .665 1.33 1.32 1.31 1.30 1.29
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
(UNAUDITED) SEPTEMBER 30,
-------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets....................................... $ 463,627 $ 443,609 $ 459,401 $ 424,281 $ 399,228 $ 370,088 $ 352,920
Long-term debt (excluding current portion)......... 148,458 134,073 150,007 134,073 138,727 119,322 119,917
Common stock equity................................ 191,420 180,820 177,153 144,514 137,961 131,561 125,719
Book value per share............................... 18.43 17.61 17.22 15.76 15.31 14.84 14.45
</TABLE>
CMP GROUP SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, FISCAL YEAR ENDED
(UNAUDITED) DECEMBER 31,
-------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS:
Operating revenues................................. $ 501,801 $ 458,771 $ 950,327 $ 956,246 $ 967,905 $ 916,016 $ 904,883
Net income (loss).................................. 37,298 16,970 52,910 5,213 50,777 27,802 (33,776)
Earnings (loss) per share, basic................... 1.15 .52 1.63 0.16 1.57 0.86 (1.04)
Earnings (loss) per share, diluted................. 1.14 .52 1.63 0.16 1.57 0.86 (1.04)
Cash dividends declared per common share........... .45 .45 0.900 0.900 0.900 0.900 0.900
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
(UNAUDITED) DECEMBER 31,
-------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............................. $2,257,590 $2,243,754 $2,262,884 $2,298,966 $2,010,914 $1,992,919 $2,046,007
Long-term debt, capital leases and
redeemable preferred stock (excluding
current portion)....................... 143,115 341,491 365,191 440,451 641,515 689,779 718,841
Common stock equity...................... 541,478 488,181 518,889 487,594 511,578 490,005 491,323
Book value per share..................... 16.69 15.05 15.99 15.03 15.77 15.10 15.14
</TABLE>
16
<PAGE>
ENERGY EAST AND CTG RESOURCES SELECTED UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL INFORMATION
The pro forma earnings per share are based on 125,870,000 average shares
outstanding for the six months ended June 30, 1999, and 134,849,000 average
shares outstanding for the fiscal year ended December 31, 1998, assuming a
conversion of 45% of all CTG Resources shares into 1.57 Energy East shares per
CTG Resources share and 55% into cash.
<TABLE>
<CAPTION>
FISCAL YEAR
SIX MONTHS ENDED ENDED
JUNE 30, DECEMBER 31,
1999 1998
----------------- ----------------
<S> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
STATEMENT OF OPERATIONS:
Operating revenues.......................................................... $ 1,241,290 $ 2,192,965
Net income.................................................................. 161,654 221,338
Basic earnings per share, basic and diluted................................. 1.28 1.64
Cash dividends declared per common share.................................... .42 .78
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets.................................................................... $ 4,659,176 $ 4,551,543
Long-term debt, capital leases and redeemable preferred stock (excluding current
portion)...................................................................... 1,629,137 1,677,660
Common stock equity............................................................. 1,710,707 1,887,968
Book value per share............................................................ 14.02 14.30
</TABLE>
Per share amounts have been restated to reflect Energy East's two-for-one
common stock split, effective April 1, 1999.
17
<PAGE>
ENERGY EAST, CTG RESOURCES, CONNECTICUT ENERGY AND CMP GROUP SELECTED
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The pro forma earnings per share are based on 134,180,000 average shares
outstanding for the six months ended June 30, 1999, and 143,159,000 average
shares outstanding for the fiscal year ended December 31, 1998, assuming a
conversion of 45% of all CTG Resources shares into 1.57 Energy East shares per
CTG Resources share and 55% into cash, and assuming a conversion of half of all
Connecticut Energy shares into 1.60 Energy East shares per Connecticut Energy
share and half into cash. The pro forma data also reflect the fact that, in the
CMP Group merger, CMP Group shareholders will receive $29.50 in cash, and no
Energy East shares, for each of their CMP Group shares.
<TABLE>
<CAPTION>
FISCAL YEAR
SIX MONTHS ENDED ENDED
JUNE 30, DECEMBER 31,
1999 1998
----------------- ----------------
<S> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
STATEMENT OF OPERATIONS:
Operating revenues.......................................................... $ 1,884,632 $ 3,385,723
Net income.................................................................. 190,773 244,808
Basic earnings per share, basic and diluted................................. 1.42 1.71
Cash dividends declared per common share.................................... .42 .78
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets.................................................................... $ 7,464,275 $ 7,632,492
Long-term debt, capital leases and redeemable preferred stock (excluding current
portion)...................................................................... 2,420,710 2,567,858
Common stock equity............................................................. 1,928,847 2,109,525
Book value per share............................................................ 14.80 15.03
</TABLE>
Per share amounts have been restated to reflect Energy East's two-for-one
common stock split, effective April 1, 1999.
18
<PAGE>
RISK FACTORS
IN CONSIDERING WHETHER TO VOTE IN FAVOR OF THE MERGER AGREEMENT AND WHETHER
TO ELECT TO RECEIVE ENERGY EAST SHARES OR CASH FOR YOUR CTG RESOURCES SHARES,
YOU SHOULD CONSIDER ALL THE INFORMATION WE HAVE INCLUDED IN THIS PROXY
STATEMENT/PROSPECTUS AND ITS APPENDICES AND ALL THE INFORMATION INCLUDED IN THE
DOCUMENTS WE HAVE INCORPORATED BY REFERENCE. IN ADDITION, YOU SHOULD PAY
PARTICULAR ATTENTION TO THE FOLLOWING RISK FACTORS RELATED TO THE MERGER AND TO
ENERGY EAST. THESE FACTORS ARE IMPORTANT, AND WE HAVE NOT BEEN ABLE TO QUANTIFY
THEIR POTENTIAL EFFECTS ON THE COMBINED COMPANY THAT WILL RESULT FROM THE
MERGER.
THE AMOUNT OF CONSIDERATION SHAREHOLDERS RECEIVE MAY VARY AS A RESULT OF
STOCK-PRICE FLUCTUATIONS PRIOR TO THE COMPLETION OF THE MERGER
Although CTG Resources shareholders will be able to elect to exchange their
CTG Resources shares for either cash or Energy East shares (or a combination of
cash and Energy East shares), the opportunity to make that election will not
occur at the time of the shareholder vote on the merger. Instead, it will occur
shortly after the effective time of the merger (as described further in this
proxy statement/prospectus), after all necessary regulatory approvals have been
obtained. The cash price per share to be paid for CTG Resources shares is fixed
at $41.00. This price will not be adjusted based on changes in market prices.
The value of Energy East shares delivered to CTG Resources shareholders will
equal $41.00 if the average market price of an Energy East share over the
20-trading-day period ending two trading days before the effective time of the
merger is between $23.67 and $30.13. However, if the average market price of an
Energy East share over such period is more than $30.13 or less than $23.67, the
value of the Energy East shares delivered to holders of CTG Resources shares
would be more than or less than $41.00.
There may be a significant time delay between the date when CTG Resources
shareholders vote on the merger agreement at the special meeting and the
deadline for CTG Resources shareholders to make their elections, which is two
days after the effective time of the merger. The market values of Energy East
shares and CTG Resources shares may fluctuate during that period. As a result,
the relative prices of Energy East shares and CTG Resources shares may vary
significantly between the date of this proxy statement/prospectus, the date of
the special meeting and the date on which CTG Resources shareholders will have
the opportunity to make their elections. These variances may be caused by
changes in the businesses, operations, results and prospects of both companies,
market expectations of the likelihood that the merger will be completed and the
timing of completion, the effect of any conditions or restrictions imposed on or
proposed with respect to the combined company by regulatory agencies, general
market and economic conditions, or other factors.
For example, between June 29, 1998, and June 29, 1999, the closing sales
price of an Energy East share has ranged from a high of $29 to a low of $20 per
share, and the closing sales price of a CTG Resources share during the same
period has ranged from a high of $35.63 to a low of $22.38 per share. On August
13, 1999, the most recent date for which it was practicable to obtain market
price data, (1) the closing sales price of Energy East shares was $25.69, and
(2) the closing sales price of CTG Resources shares was $36.25, as reported in
THE WALL STREET JOURNAL's New York Stock Exchange Composite Transactions. We
urge you to obtain current market quotations for Energy East shares and CTG
Resources shares. In addition, the stock market generally has experienced
significant price and volume fluctuations. These market fluctuations could have
a material adverse effect on the market for, or liquidity of, Energy East shares
and CTG Resources shares.
It is impossible to predict accurately the market price of Energy East
shares immediately after the effective time of the merger and, therefore,
impossible to predict accurately the value of the stock consideration that CTG
Resources shareholders will receive. The value of the stock consideration may be
significantly higher or lower than the value of the cash consideration. See
"Summary -- Unaudited
19
<PAGE>
Pro Forma Comparative Per Share Data" and "-- Comparative Per Share Market Price
and Dividend Information."
REGULATORY AGENCIES COULD DELAY OR REFUSE TO APPROVE THE MERGER OR IMPOSE
CONDITIONS THAT COULD HAVE AN ADVERSE EFFECT
To complete the merger, CTG Resources and Energy East must obtain approvals
or consents from state and federal regulatory agencies, including the
Connecticut Department of Public Utility Control and the Securities and Exchange
Commission. The state or federal regulatory agencies may impose conditions that
could have an adverse effect on the business or financial position of CTG
Resources or Energy East. If these conditions would cause a material adverse
effect, either CTG Resources or Energy East could choose to terminate the merger
agreement.
In addition to the merger agreement with CTG Resources, Energy East has
entered into merger agreements with Connecticut Energy and CMP Group. Energy
East must obtain the Connecticut Department of Public Utility Control's approval
of the Connecticut Energy merger and the Securities and Exchange Commission's
approval of the Connecticut Energy and CMP Group mergers; furthermore, the Maine
Public Utilities Commission must approve the CMP Group merger. These regulatory
authorities could delay approval of or impose burdensome conditions on the
Connecticut Energy and CMP Group mergers. Although the completion of the CTG
Resources merger is not conditioned upon obtaining regulatory approvals of the
other two mergers, any delay in obtaining the required regulatory approvals of
the other two mergers could delay and possibly prevent the realization of
benefits of the combined company that would include Energy East, CTG Resources,
Connecticut Energy and CMP Group. Furthermore, any burdensome regulatory
conditions could have an adverse effect upon the combined company and its share
performance. We cannot be certain that all of the required regulatory approvals
will be obtained, or that they will be obtained within the time frame
contemplated by the merger agreement or that they will be obtained without
burdensome conditions. For additional information on the required regulatory
approvals, see "The Merger -- Regulatory Approvals."
UNCERTAINTIES IN INTEGRATING ENERGY EAST, CTG RESOURCES, CONNECTICUT ENERGY AND
CMP GROUP
The mergers of Energy East with CTG Resources, Connecticut Energy and CMP
Group will require the integration of four companies that have previously
operated independently. No assurance can be given that Energy East will be able
to integrate the operations of these companies without encountering difficulties
or experiencing the loss of key employees, customers or suppliers. Energy East's
management will have to dedicate substantial time and effort to ensure that this
integration proceeds successfully.
COMPETITIVE AND REGULATORY CONDITIONS
The mergers will combine companies that to a large extent share a common
regulatory environment and currently are affected by a number of similar
factors, including deregulation and increased competition. The utility industry
has been undergoing dramatic structural change for several years, resulting in
increasing competitive pressures faced by electric and natural gas utility
companies. Increased competition may create greater risks to the stability of
utility earnings generally and may in the future reduce Energy East's earnings
from retail electric and natural gas sales. In a deregulated environment,
formerly regulated utility companies that are not responsive to a competitive
energy marketplace may suffer erosion in market share, revenues and profits as
competitors gain access to their service territories.
20
<PAGE>
YEAR-2000 READINESS DISCLOSURE STATEMENT
CTG Resources, Energy East, Connecticut Energy and CMP Group are each
engaged in major company-wide efforts to address the year-2000 issue. This issue
relates to the inability of some computer programs and computer chips embedded
in operating equipment to recognize properly dates during and after the year
2000. This could result in system failures or miscalculations that could cause
disruptions to various business activities and operations. CTG Resources, Energy
East, Connecticut Energy and CMP Group expect to complete their efforts to
address the year-2000 issues in advance of December 31, 1999, and each is
planning to take steps to deal with possible year-2000 issues that may arise
around that date. However, factors that could cause actual results to differ
materially from those contemplated in this proxy statement/prospectus include,
among others:
- the risk that more year-2000 issues may be found;
- the risk that progress in addressing year-2000 issues may not proceed as
expected;
- the fact that despite all efforts, there can be no assurances that all
year-2000 issues can or will be remedied;
- the fact that there can be no assurances that all year-2000 issues will be
totally eliminated by suppliers, customers, neighboring or interconnected
utilities and other entities; and
- the fact that assessments of the effects of year-2000 issues are based, in
part, upon information received from suppliers, customers, neighboring or
interconnected utilities and other entities, and this information may be
inaccurate or incomplete.
21
<PAGE>
THE COMPANIES
ENERGY EAST
P.O. Box 1196
Stamford, CT 06904-1196
(203) 325-0690
Energy East is a New York corporation that was formed in 1997 and became the
parent of New York State Electric & Gas Corporation ("NYSEG") on May 1, 1998.
Energy East is a holding company that is currently exempt from the registration
requirement of the Public Utility Holding Company Act. Energy East expects that
if the pending merger with CMP Group is completed, it will no longer be eligible
for this exemption, and has agreed that it will register with the Securities and
Exchange Commission as a public utility holding company. It neither owns nor
operates any physical properties. Energy East, through its subsidiaries, is an
energy delivery, products and services company with operations in New York,
Massachusetts, Maine, New Hampshire, Vermont and New Jersey, and has offices in
New York and Connecticut. Energy East's nonutility subsidiaries include XENERGY
Enterprises, Inc. and Energy East Enterprises, Inc., which invest in energy
ventures and providers of energy and telecommunication services.
NYSEG. NYSEG, Energy East's principal subsidiary, is a public utility
company engaged in purchasing, transmitting and distributing electricity, and
purchasing, transporting and distributing natural gas. NYSEG also generates
electricity from its 18% share of a nuclear station and its hydroelectric
stations. NYSEG has agreed to sell its share of the nuclear station; the sale is
expected to be completed by early next year. NYSEG's service territory, 99% of
which is located outside the corporate limits of cities, is in the central,
eastern and western parts of the State of New York. NYSEG's service territory
has an area of approximately 19,900 square miles and a population of 2,400,000.
The larger cities in which NYSEG serves both electricity and natural gas
customers are Binghamton, Elmira, Auburn, Geneva, Ithaca and Lockport. NYSEG
serves approximately 826,000 electric customers and 244,000 natural gas
customers. The service territory reflects a diversified economy, including
high-tech firms, light industry, colleges and universities, agriculture and
recreational facilities. No customer accounts for 5% or more of either electric
or natural gas revenues. During 1996 through 1998, approximately 84% of NYSEG's
operating revenue was derived from electric service with the balance derived
from natural gas service.
XENERGY ENTERPRISES, INC. XENERGY Enterprises is a nonutility subsidiary of
Energy East and invests in providers of energy and telecommunications services.
One of XENERGY's subsidiaries is XENERGY Inc., which provides energy services,
information systems and energy consulting to utilities, governmental agencies,
and end-use energy consumers, primarily commercial and industrial.
Another one of XENERGY's subsidiaries, Energy East Solutions, Inc., markets
electricity and natural gas to end-use customers and wholesale markets in the
northeastern United States directly and through its wholly owned subsidiary,
NYSEG Solutions, Inc. In October 1998, Energy East Solutions formed a joint
venture with South Jersey Industries to market retail electricity and energy
management services in the mid-Atlantic region of the United States.
ENERGY EAST ENTERPRISES, INC. Energy East Enterprises, another Energy East
subsidiary, owns natural gas and propane air distribution companies outside of
the State of New York. Energy East Enterprises owns an interest in CMP Natural
Gas, L.L.C., which was formed to distribute natural gas to customers in Maine
who do not receive natural gas service and which began to provide service to
customers in May 1999. CMP Natural Gas, a Maine limited liability company, is
jointly owned by Energy East Enterprises and New England Gas Development
Corporation, a wholly owned subsidiary of CMP Group.
22
<PAGE>
New Hampshire Gas Corporation, another subsidiary of Energy East
Enterprises, established a presence in New Hampshire with the purchase of a
franchise and propane air distribution system. Long-term plans call for bringing
natural gas to this area.
Southern Vermont Natural Gas Corporation, a third subsidiary of Energy East
Enterprises, is working with Iroquois Gas Transmission System and Vermont Energy
Park Holdings to develop a combined natural gas supply and electric generation
project that includes an extension of a pipeline from New York to Vermont, two
combined-cycle electric generating plants and natural gas distribution systems.
SALE OF GENERATION ASSETS. Energy East has adopted a strategy of selling
its generation assets and using a portion of the proceeds to grow selectively
its energy distribution business in the northeastern United States. Consistent
with this strategy, Energy East sold its coal-fired generation assets to Edison
Mission Energy in March 1999 and to The AES Corporation in May 1999. In
addition, Energy East expects to complete by early next year the sale of its 18%
interest in Nine Mile Point nuclear generating unit No. 2 to AmerGen Energy
Company. The net cash received from these sales is being used to repurchase
Energy East shares and will be used to help fund Energy East's business
combinations with CTG Resources, Connecticut Energy and CMP Group.
MERGER AGREEMENT WITH CONNECTICUT ENERGY. On April 23, 1999, Energy East
agreed to a business combination with Connecticut Energy, in which Connecticut
Energy would merge with a newly formed, wholly owned subsidiary of Energy East.
In the transaction, Connecticut Energy shareholders will have the right to
receive, for each of their Connecticut Energy shares, either $42.00 in cash or a
number of Energy East shares valued at $42.00, subject to restrictions on the
maximum and minimum number of Energy East shares to be issued. Connecticut
Energy shareholders can choose to convert some of their Connecticut Energy
shares into cash and others into Energy East shares. The total equity market
value of the transaction is approximately $436 million. Under the Connecticut
Energy merger agreement, the Energy East board of directors will increase the
number of Energy East directors by one and will elect Mr. J.R. Crespo to its
board of directors. Completion of the transaction is subject to a number of
closing conditions, including regulatory approvals and Connecticut Energy
shareholder approval.
Connecticut Energy's wholly owned utility subsidiary, The Southern
Connecticut Gas Company, serves approximately 158,000 customers in Connecticut.
For additional information on this transaction, see "Unaudited Pro Forma
Combined Condensed Financial Statements," the Connecticut Energy merger
agreement (a copy of which Energy East filed with the SEC as an exhibit to its
Form 8-K dated April 23, 1999) and the Energy East registration statement on
Form S-4 dated July 22, 1999.
MERGER AGREEMENT WITH CMP GROUP. On June 14, 1999, Energy East agreed to a
business combination with CMP Group, in which CMP Group would merge with a newly
formed, wholly owned subsidiary of Energy East. In the transaction, CMP Group
shareholders will have the right to receive $29.50 in cash, without interest,
for each of their CMP Group shares. The total equity market value of the
transaction is approximately $957 million. Under the CMP Group merger agreement,
the Energy East board of directors will increase the number of Energy East
directors by three and will elect Mr. David T. Flanagan (the current president
and chief executive officer of CMP Group) and two other directors of CMP Group
mutually agreed upon by Energy East and CMP Group. Completion of the transaction
is subject to a number of closing conditions, including regulatory approvals and
CMP Group shareholder approval.
CMP Group's wholly owned utility subsidiary, Central Maine Power Company,
serves approximately 530,000 customers in central and southern Maine. For
additional information on this transaction, see "Unaudited Pro Forma Combined
Condensed Financial Statements" and the CMP Group merger agreement, a copy of
which Energy East filed with the SEC as an exhibit to its Form 8-K dated June
14, 1999.
23
<PAGE>
OAK MERGER CO.
c/o Energy East Corporation
P.O. Box 1196
Stamford, CT 06904-1196
(203) 325-0690
Oak Merger Co. is a Connecticut corporation formed by Energy East in June
1999 solely for the purpose of completing the merger with CTG Resources.
CTG RESOURCES
P.O. Box 1500
100 Columbus Boulevard
Hartford, CT 06144-1500
(860) 727-3000
CTG Resources is a holding company that is exempt from registration under
the Public Utility Holding Company Act. CTG Resources does not own or operate
any physical properties. All of its operations are conducted through direct and
indirect subsidiaries engaged in the energy-related businesses described below.
CTG Resources's consolidated operating revenues totaled approximately $282.7
million for the fiscal year ended September 30, 1998. CTG Resources and its
subsidiaries had 554 full-time employees as of June 30, 1999.
CONNECTICUT NATURAL GAS CORPORATION. Connecticut Natural Gas Corporation, a
Connecticut public service company and a wholly owned subsidiary of CTG
Resources, is primarily engaged in the retail distribution of natural gas for
residential, commercial and industrial uses and the transportation of natural
gas for commercial and industrial users. Connecticut Natural Gas was
incorporated in Connecticut in 1848 and currently serves approximately 143,300
customers in Hartford, Greenwich and 22 other cities and towns in central
Connecticut.
CNG REALTY CORP. CNG Realty Corp., a Connecticut corporation and a
wholly owned subsidiary of Connecticut Natural Gas, owns and leases to
Connecticut Natural Gas its corporate headquarters.
THE ENERGY NETWORK, INC. The Energy Network, a Connecticut corporation and
a wholly owned subsidiary of CTG Resources, provides energy products and
services directly and through its subsidiaries to commercial and industrial
customers, mainly in Hartford. These services include district heating and
cooling services to many buildings and complexes in the southend and downtown
neighborhoods of Hartford. The Energy Network also offers energy equipment
rentals and holds a 50% interest in the Downtown Cogeneration Associates Limited
Partnership, a 4.2-megawatt cogeneration facility in downtown Hartford. This
partnership produces and sells steam and electric power which is sold to the
local electric utility.
THE HARTFORD STEAM COMPANY. The Hartford Steam Company, a Connecticut
corporation and a wholly owned subsidiary of The Energy Network, owns and
operates a central production plant and distribution system for the
processing and distribution of steam for heating and chilled water for
cooling to a number of offices, stores and other large buildings in the
southend and downtown neighborhoods of Hartford. The Hartford Steam Company
also owns and operates a cogeneration facility that serves Hartford
Hospital, providing both steam and electricity to the Hospital. Any excess
electricity is sold to the local electric utility. The Hartford Steam
Company purchases part of its steam requirements from the Downtown
Cogeneration Associates Limited Partnership.
TEN TRANSMISSION COMPANY. TEN Transmission Company, a Connecticut
corporation wholly owned by The Energy Network, owns a 4.87% interest in the
Iroquois Gas Transmission System Limited Partnership, which operates a
natural gas pipeline transporting Canadian natural gas into the states of
New York, Massachusetts and Connecticut. The partnership is regulated by the
Federal Energy Regulatory Commission.
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THE SPECIAL MEETING
PURPOSE, TIME AND PLACE
The CTG Resources board of directors is soliciting proxies in the form
accompanying this proxy statement/prospectus for use at the special meeting of
CTG Resources shareholders. The special meeting will be held on October 18,
1999, at 10:30 a.m. local time, at the offices of CTG Resources, 100 Columbus
Boulevard, Hartford, Connecticut. Except as otherwise noted, when we refer in
this proxy statement/prospectus to the special meeting, we are including any
adjournments or postponements of that special meeting.
At the special meeting, CTG Resources shareholders as of the record date
will be asked to consider and vote on a proposal to approve the merger
agreement.
RECORD DATE, VOTING POWER AND VOTE REQUIRED
The CTG Resources board of directors has fixed the close of business (5:00
p.m. local time) on August 23, 1999 as the record date for determining the CTG
Resources shareholders entitled to notice of, and to vote at, the special
meeting. Only CTG Resources shareholders of record at the close of business on
the record date will be entitled to notice of, and to vote at, the special
meeting.
At the close of business on August 13, 1999, 8,648,029 CTG Resources shares
were issued and outstanding. There were no shares of CTG Resources preferred
stock issued and outstanding. CTG Resources shareholders of record are entitled
to one vote per share on the merger agreement. Votes may be cast at the special
meeting in person or by proxy. See "--Voting of Proxies."
The presence at the special meeting, either in person or by proxy, of the
holders of a majority of the outstanding CTG Resources shares entitled to vote
is necessary to constitute a quorum. If a quorum is not present at the special
meeting, CTG Resources management will adjourn or postpone the meeting in order
to solicit additional proxies.
The affirmative vote of the holders of at least two-thirds of the
outstanding CTG Resources shares is required to approve the merger agreement.
Abstentions and properly executed broker non-votes (that is, shares held by
brokers as nominees as to which instructions have not been received from the
beneficial owners and the broker or nominee does not have discretionary voting
power on that proposal) will be counted as present for purposes of establishing
a quorum and will not be counted for the purposes of determining whether the
merger agreement has been approved. Abstentions and properly executed broker
non-votes will have the effect of a vote against the merger agreement.
SHARE OWNERSHIP OF MANAGEMENT
At the close of business on June 30, 1999, CTG Resources's directors and
executive officers and their affiliates beneficially owned 133,731 CTG Resources
shares, which represents approximately 1.5% of the outstanding CTG Resources
shares. It is currently expected that all directors and executive officers of
CTG Resources will vote their CTG Resources shares for approval of the merger
agreement.
VOTING OF PROXIES
CTG Resources shares represented by properly signed and dated proxies
received in time for the special meeting will be voted at the special meeting in
the manner specified by the proxies. You may also vote your shares by appointing
and directing your proxies by telephone in accordance with the instructions on
the proxy card. You should be aware that, if your proxy is properly signed and
dated but
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does not contain voting instructions, your proxy will be voted FOR the approval
of the merger agreement. If you vote your CTG Resources shares by telephone,
your shares will be voted at the special meeting as instructed. Only the
approval of the merger agreement and possibly procedural items relating to the
conduct of the special meeting will be brought before the special meeting. Under
Connecticut law, the only business that may be conducted at a special meeting is
the business within the purposes described in the meeting notice.
If you participate in the CTG Resources Dividend Reinvestment Plan, and you
own uncertificated shares, your proxy card represents both the number of CTG
Resources shares certificated in your name and the number of full CTG Resources
shares credited to your account, unless the registrations are different. If you
have CTG Resources shares registered in different names, you will receive a
separate proxy card for each registration. All these shares will be voted in
accordance with the instructions on the proxy card or the instructions received
by telephone. If your shares are held by a broker as nominee, you will receive a
voter information form from your broker.
The grant of a proxy does not preclude you from voting in person.
REVOCABILITY OF PROXIES
You may revoke a proxy at any time before its exercise by (1) notifying in
writing the Secretary of CTG Resources at CTG Resources, Inc., P.O. Box 1500,
100 Columbus Boulevard, Hartford, Connecticut 06144-1500, Attention: Secretary,
(2) completing a later-dated proxy and returning it to the Secretary of CTG
Resources or (3) appearing in person and voting at the special meeting.
Additional proxy cards are available from CTG Resources's Secretary.
Attendance at the special meeting will not by itself constitute revocation
of a proxy. A CTG Resources shareholder of record attending the special meeting
may revoke his proxy and vote in person by informing any of the persons named on
the enclosed proxy card that he desires to revoke a previously submitted proxy.
We do not expect to adjourn the special meeting for a period of time long
enough to require the setting of a new record date for the special meeting. If
an adjournment occurs, it will have no effect on the ability of the CTG
Resources shareholders of record as of the record date either to exercise their
voting rights or to revoke any previously granted proxies.
SOLICITATION OF PROXIES
We will bear the costs of soliciting proxies from CTG Resources
shareholders, except that Energy East and CTG Resources intend to share equally
the costs associated with the printing and filing of this proxy
statement/prospectus. In addition to solicitation by mail, the directors,
officers and employees of CTG Resources and its subsidiaries may solicit proxies
from CTG Resources shareholders by telephone or in person. These directors,
officers and employees will not receive additional compensation but may be
reimbursed for out-of-pocket expenses incurred in connection with solicitation
of proxies. Arrangements will also be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation material
to the beneficial owners of CTG Resources shares held of record by these
persons, and CTG Resources will reimburse its custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses.
We have retained D.F. King & Co., Inc. to help solicit proxies. D.F. King &
Co. will receive a fee that we expect will not exceed $13,000 as compensation
for its basic solicitation services, plus additional charges for any telephone
solicitation services, plus reimbursement of its out-of-pocket expenses. CTG
Resources has agreed to indemnify D.F. King & Co. against certain liabilities
arising from its engagement.
YOU SHOULD NOT SEND STOCK CERTIFICATES WITH YOUR PROXY CARDS.
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NO VOTE REQUIRED FOR ENERGY EAST SHAREHOLDERS
Under New York law, Energy East shareholders need not approve the merger
agreement. Thus, no one is soliciting proxies from Energy East shareholders.
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THE MERGER
We are furnishing this proxy statement/prospectus to you in connection with
the proposed merger between Oak Merger Co. and CTG Resources because you are a
CTG Resources shareholder. If completed, the merger will be carried out as
provided in the merger agreement, a copy of which is attached as Appendix A to
this proxy statement/prospectus.
GENERAL DESCRIPTION OF THE MERGER
The merger agreement provides that CTG Resources will merge into Oak Merger
Co., a wholly owned subsidiary of Energy East. Oak Merger Co. will be the
surviving company and will continue to conduct CTG Resources's businesses under
the name "CTG Resources, Inc." as a direct, wholly owned subsidiary of Energy
East. In the merger, each outstanding CTG Resources share (other than those that
are held by CTG Resources shareholders who have not voted in favor of the merger
and have properly demanded dissenters' rights) will be converted into the right
to receive cash or Energy East shares. CTG Resources shareholders can choose to
convert some of their CTG Resources shares into cash and others into Energy East
shares.
Each CTG Resources shareholder can elect the form of consideration he would
like to receive, but (as is explained under "The Merger Agreement -- Conversion
of CTG Resources Shares") this election is subject to proration and an
adjustment driven by tax considerations. Under the merger agreement, 55% of all
issued and outstanding CTG Resources shares must be exchanged for cash, and 45%
must be exchanged for Energy East shares. If CTG Resources shareholders owning
more than 55% of CTG Resources shares elect to receive cash, the number of CTG
Resources shares converted into cash will be less than the number elected.
Similarly, if CTG Resources shareholders owning more than of 45% of CTG
Resources shares elect to receive Energy East shares, the number of CTG
Resources shares converted into stock will be less than the number elected. For
tax reasons that are explained below, Energy East may have to increase the
number of CTG Resources shares converted into Energy East shares and decrease
the number of CTG Resources shares converted into cash.
The per share cash consideration amounts to $41.00 in cash, without
interest. The per share stock consideration is a number of Energy East shares
that will vary depending on the "AVERAGE MARKET PRICE," which is the average of
the closing prices of Energy East shares on the New York Stock Exchange during
the 20 trading days immediately preceding the second trading day prior to the
effective time of the merger. If the Average Market Price is between $23.67 per
share and $30.13 per share, then each CTG Resources share converted into stock
will be exchanged for $41.00 worth of Energy East shares. If the Average Market
Price is less than or equal to $23.67, then each CTG Resources share converted
into stock will be exchanged for 1.7320 Energy East shares, irrespective of the
value of those shares. Finally, if the Average Market Price is greater than or
equal to $30.13 per share, then each CTG Resources share will be exchanged for
1.3609 Energy East shares, again irrespective of the value of those shares.
The total value of the consideration that CTG Resources shareholders will
receive in the merger, based on the number of CTG Resources shares outstanding
on August 13, 1999 and assuming that the Average Market Price of Energy East
shares is between $23.67 per share and $30.13 per share, is approximately $354.6
million.
BACKGROUND
Energy East has recently taken major steps in refocusing its business on
energy distribution. It is evolving from a vertically integrated upstate New
York utility to a growing energy distribution and services company in the
northeastern United States. In 1998, it accepted offers totaling $1.85 billion
for the sale of its coal-fired generation assets. Those sales have now been
completed. In addition, Energy
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East expects to complete by early next year the sale of its 18% interest in Nine
Mile Point nuclear generating unit No. 2 to AmerGen Energy Company. The net cash
received from the sales is being used to repurchase Energy East shares and will
be used to grow selectively Energy East's energy distribution business in the
northeastern United States. The merger with CTG Resources, together with the
recently announced proposed mergers with Connecticut Energy and CMP Group,
represent important steps in Energy East's overall strategy.
CTG Resources has carefully followed recent developments in the electric and
gas utility industries that have substantially increased competition in those
industries, making it particularly difficult for the small and medium-sized
utility companies to compete as effectively as larger utilities. Over the past
several years, CTG Resources has developed strategic plans to respond to the
evolving competitive environment as it affected CTG Resources. CTG Resources's
management concluded that the company's competitive position and growth
prospects would be significantly enhanced by, among other things, increasing the
scale of its operations and the size of its customer base, as well as an
increased focus on complementary nonutility activities. As a result, from time
to time, Arthur C. Marquardt, the chairman, president and chief executive
officer of CTG Resources, had conversations with chief executive officers of
other utilities considering the strategic direction of the utility industry and
business combinations in general.
In June 1998, CTG Resources's management conducted preliminary analyses of a
possible business combination with a neighboring company with gas utility
operations of similar size to those of CTG Resources's gas utility operations.
Although from time to time from July 1998 through September 1998 members of
senior management and the boards of directors of the two companies and the two
companies' respective financial advisors had exploratory conversations about the
possibility of a business combination, none of these conversations led to any
substantive negotiations.
As a result of the commencement of those conversations, however, on or about
June 25, 1998, CTG Resources engaged PaineWebber to provide financial advisory
services and to act as financial advisor in connection with a possible business
combination involving CTG Resources.
At a meeting of the CTG Resources board of directors in September 1998,
PaineWebber made a presentation to the board describing recent business
combination activity within the utility industry both regionally and nationally.
At that meeting, outside legal counsel explained the duties of the board when
considering possible business combination transactions.
From time to time from September 1998 through February 1999, Mr. Marquardt
had exploratory conversations with executives at various other regional utility
companies about the possibility of a business combination or other strategic
transaction, but none of these conversations led to any substantive
negotiations. During this period, members of CTG Resources's senior management
and representatives of PaineWebber also had conversations with a company
operating a large electric and gas utility system in the mid-Atlantic region of
the United States about joint ventures involving gas utility and limited
nonutility operations and about a possible business combination transaction.
Although a confidentiality agreement was signed and limited information was
exchanged, none of these conversations led to any substantive negotiations.
In November 1998, in connection with an economic development project in
Hartford, Connecticut, the Governor of the State of Connecticut announced that
he had reached agreement with the owner of the New England Patriots football
team under which the team would move to Connecticut and play its home games at a
newly built stadium in Hartford. The proposed site for the stadium was located
on the current site of CTG Resources's executive offices and a CTG Resources
steam plant. From time to time from December 1998 through February 1999, CTG
Resources had conversations with various representatives of the State of
Connecticut regarding the relocation of the executive offices and steam plant
and the appropriate level of compensation for that relocation.
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On or about February 3, 1999, Mr. Marquardt had a discussion with the
chairman, president and chief executive officer of a company operating an
electric utility system considerably larger than CTG Resources. During that
conversation, they discussed their respective companies' business strategies and
the possibility of a business combination.
On February 23, 1999, Mr. Marquardt received a letter from the chairman of
the other company indicating that it remained interested in pursuing the
business combination transaction that Mr. Marquardt and the chairman discussed
on February 3, 1999. On February 24, 1999, Mr. Marquardt wrote a letter to the
chairman and indicated that CTG Resources was not interested in exploring the
possibility of a transaction; in the letter Mr. Marquardt cited concern with the
State of Connecticut's attempt to develop a football stadium on a site in
Hartford that includes CTG Resources's headquarters, gas operations center and
other facilities.
On March 3, 1999, the chairman of the other company telephoned Mr. Marquardt
and reiterated his company's interest in pursuing a transaction. He stated his
belief that the two companies could reach an agreement with the State of
Connecticut with respect to the stadium project issue as part of an overall
agreement on a business combination transaction. There were no negotiations
involving price. The chairman indicated, however, that his company would be
willing to make a proposal that would provide CTG Resources shareholders with a
per share consideration in the lower part of the $30 to $40 range. Mr. Marquardt
indicated that he would discuss the expressed interest with the executive
committee of the CTG Resources board of directors at a meeting scheduled for
March 10, 1999. On March 5, 1999, Mr. Marquardt received a letter from the
chairman of the other company that confirmed the oral proposal of March 3, 1999.
On March 9, 1999, Mr. Marquardt met with the chairman of the other company
during which they began to discuss the potential benefits of a possible business
combination. The executive committee of the CTG Resources board of directors was
advised of these discussions at a special meeting held on March 10, 1999. CTG
Resources's financial advisor and outside legal counsel were present at that
meeting. Outside legal counsel again outlined the nature of the directors'
duties in the context of a possible business combination. The executive
committee concluded that the matter should be submitted to the full CTG
Resources board of directors.
From March 11, 1999 through March 18, 1999, there were further discussions
involving Mr. Marquardt, the chairman of the other company, members of the
boards of directors of the two companies and the two companies' financial
advisors.
The CTG Resources board of directors was advised of these discussions at its
regularly scheduled meeting held on March 23, 1999. At that meeting, Mr.
Marquardt stated that, although the other company was a candidate to provide the
growth previously determined to be essential to shareholder value in the rapidly
changing utility industry, he did not know whether that company was willing or
able to enter into an agreement that would provide CTG Resources shareholders
with consideration comparable to that received by shareholders of other gas
distribution companies in comparable transactions. Representatives of
PaineWebber followed Mr. Marquardt's presentation with a discussion of recent
comparable transactions. Following these presentations, the CTG Resources board
of directors authorized management to continue discussions with the other
company regarding a possible business combination.
On March 23, 1999, following the meeting of the CTG Resources board of
directors, there were further discussions involving Mr. Marquardt, the chairman
of the other company and the boards of directors of the two companies.
Representatives from the financial advisors of the two companies also
participated in the meeting. At the meeting, the other company submitted a
business combination proposal that would have provided CTG Resources
shareholders with a per share consideration in the middle of the $30 to $40
range. Mr. Marquardt indicated that he did not believe this proposal provided
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adequate consideration to CTG Resources shareholders. The other company
expressed an unwillingness to increase its offer and discussions between the two
companies ceased.
In April and May of 1999, Mr. Marquardt had exploratory discussions with
executive officers at other utility companies about the possibility of a
business combination or other strategic transaction. Mr. Marquardt's discussions
with these companies resulted in one company, which was substantially larger
than CTG Resources, entering into a confidentiality agreement with CTG
Resources. Confidential information was exchanged and the two companies
conducted business and legal due diligence. The financial advisors for both
companies also met and discussed terms of a possible transaction. The other
company submitted a business combination proposal in May 1999 that would have
provided CTG Resources shareholders with a per share consideration in the upper
part of the $30 to $40 range in the form of a combination of the other company's
stock and cash.
On May 13, 1999, at a telephonic meeting of the CTG Resources board of
directors, CTG Resources's senior management and representatives of PaineWebber
briefed the CTG Resources board of directors with regard to this business
combination proposal. The CTG Resources board of directors authorized Mr.
Marquardt and other members of senior management to continue discussions
regarding that business combination. The CTG Resources board of directors was
briefed about the possible business combination proposal at another telephonic
meeting held on May 21, 1999. The CTG Resources board of directors again
authorized Mr. Marquardt and other members of senior management to continue
discussions regarding that business combination proposal.
On May 25, 1999, CTG Resources management and financial advisors made
presentations to the CTG Resources board of directors relating to the
transaction. Outside legal counsel again explained the directors' duties in this
type of transaction and outlined the terms of a proposed merger agreement, which
had been sent to the board in advance of the meeting. The CTG Resources board of
directors authorized management to negotiate an acceptable transaction with the
other company. After several days of negotiations, however, CTG Resources's
management was unable to negotiate satisfactory terms, particularly relating to
regulatory approval standards, and the CTG Resources board of directors, at a
telephonic meeting held on May 31, 1999, instructed management to terminate
these discussions. The CTG Resources board of directors then authorized
management, with the assistance of PaineWebber, to explore alternative strategic
proposals to enhance the value of CTG Resources, including a possible sale. The
CTG Resources board of directors authorized PaineWebber to solicit preliminary
indications of interest from potential parties that might be interested in a
possible business combination involving CTG Resources.
On June 1, 1999, CTG Resources issued a press release announcing that CTG
Resources had engaged the services of PaineWebber as its financial advisor to
assist CTG Resources in exploring strategic alternatives as a means for
enhancing shareholder value.
In response to the CTG Resources board of directors' request,
representatives of PaineWebber contacted numerous potential financial and
strategic partners, including those companies with whom CTG Resources had
previously engaged in discussions. In response to these contacts, only a limited
number of entities was willing to enter into a confidentiality agreement with
CTG Resources. PaineWebber then distributed to those entities a memorandum
generally describing CTG Resources's operations and containing additional
nonpublic information about CTG Resources. Representatives of PaineWebber also
provided a letter to those entities advising them that CTG Resources reserved
its rights to terminate or revise the process and requesting that all
preliminary indications of interest be submitted in writing by July 8, 1999 to
enable CTG Resources to select a group of qualified parties to conduct more
detailed due diligence.
Following the issuance of the June 1 press release, J.R. Crespo, the
chairman, president and chief executive officer of Connecticut Energy, contacted
Mr. Marquardt and inquired whether CTG Resources would be interested in
exploring a possible transaction with Energy East, which had recently
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announced a merger transaction with Connecticut Energy. Mr. Crespo indicated
that Energy East would require that any discussions between the two companies be
conducted on an accelerated basis. Mr. Marquardt indicated that CTG Resources
would be interested in discussions with Energy East, but would be willing to
proceed with discussions on an accelerated basis only if Energy East were
willing to discuss a transaction with terms and conditions generally comparable
to recent transactions involving local gas distribution companies, including the
pending acquisition of Connecticut Energy by Energy East.
On June 11, 1999, Mr. Marquardt met with Mr. Crespo. During that meeting,
Messrs. Crespo and Marquardt discussed Connecticut Energy's pending transaction
with Energy East, the opportunities present in the gas utility market and Energy
East's vision of establishing a premier distribution, transmission and energy
services company in the northeastern United States. Messrs. Crespo and Marquardt
began to discuss the potential benefits of a possible business combination
between CTG Resources and Energy East. Members of the CTG Resources board of
directors were advised of these discussions over the weekend of June 12 and 13,
1999.
On June 14, 1999, Mr. Marquardt contacted Mr. Crespo about arranging a
meeting with Mr. Crespo and Wesley W. von Schack, the chairman, president and
chief executive officer of Energy East, to continue discussions regarding a
business combination between the two companies.
On June 16, 1999, Messrs. Crespo, Marquardt and von Schack met to discuss
trends in the utility industry, strategic issues in the context of a possible
business combination between the two companies and the procedures for the
commencement of due diligence investigations and the exchange of financial
information. Following these discussions, Mr. Marquardt indicated that he would
be willing to discuss with CTG Resources's board of directors a transaction in
which CTG Resources would become a direct subsidiary of Energy East on terms and
conditions that would generally be comparable to the terms and conditions of the
Connecticut Energy-Energy East transaction and that would provide CTG Resources
shareholders with a premium to book value for their shares comparable to that
received by shareholders of other local gas distribution companies in recent
transactions. Mr. von Schack indicated that he would be willing to discuss such
a transaction with Energy East's board of directors. Following this meeting, CTG
Resources's advisors had several discussions with Energy East's advisors about
the general terms and conditions on which CTG Resources would be willing to
enter into a business combination with Energy East.
On June 18, 1999, CTG Resources and Energy East entered into a
confidentiality agreement pursuant to which they agreed to exchange non-public
information. During the weekend of June 19 and 20, 1999, representatives of
PaineWebber and Morgan Stanley (representing Energy East) exchanged detailed
financial information and discussed due diligence matters.
On June 21, 22 and 23, 1999, members of senior management of CTG Resources
and Energy East and their financial and legal advisors held discussions
pertaining to the terms of a proposed business combination and general business
issues, and conducted due diligence investigations. The discussions on the terms
of a transaction related to the amount and composition of the merger
consideration, a proposed corporate structure and management structure and
roles, including the terms of Mr. Marquardt's employment following the merger.
Working groups composed of employees of both companies and their independent
accountants and financial advisors were formed to examine various issues,
including financial benefits and risks of the proposed transaction, regulatory
issues relating to the proposed transaction, opportunities and disadvantages to
employees that a transaction would present, the impact on CTG Resources's
communities of a transaction, the impact of change in control and severance
arrangements and identification of possible operational benefits and
difficulties of combining the two companies.
On June 24 and 25, 1999, phone conferences were held on the terms of the
merger agreement between the legal advisors for each company. Negotiations
involving management and their outside
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financial advisors continued on the terms and pricing of the transaction,
including the exchange ratio. Follow-up due diligence issues were resolved by
legal representatives.
During that week and over the weekend of June 26 and 27, 1999, Mr. Marquardt
contacted each member of the CTG Resources board of directors and informed them
of the status of the negotiations with Energy East.
On June 28, 1999, the CTG Resources board of directors met in a telephonic
meeting. At this meeting, the CTG Resources board of directors was updated by
senior management regarding the proposed business combination, including
potential strategic benefits and potential risks of the transaction, the status
of negotiations on, and key terms and conditions of, the proposed merger
agreement and related employment agreement for Mr. Marquardt, the regulatory
plan for the transaction and the status of CTG Resources's due diligence review
of Energy East. James P. Bolduc, CTG Resources's executive vice president and
chief financial officer, provided the directors with an in-depth review of CTG
Resources's due diligence investigation of Energy East. Representatives of
PaineWebber presented a general overview of the financial aspects of the
transaction, including a presentation on the methodology by which PaineWebber
would conduct its fairness review. Legal counsel provided advice regarding the
CTG Resources board of directors' legal responsibilities and fiduciary duties in
considering the proposed transaction and the status of negotiations regarding
the merger agreement. Legal counsel also outlined the proposed forms of merger
agreement and employment agreement and discussed the draft disclosure schedules
to the merger agreement, which had been previously sent to the directors. At
that meeting, CTG Resources's senior management also discussed its strategic
conclusions with the board of directors. Energy East was identified as the most
likely candidate to enhance value for the CTG Resources shareholders. Following
lengthy discussions, the CTG Resources board of directors authorized senior
management to complete negotiations with Energy East and provided direction with
respect to various merger agreement issues.
On June 29, 1999, at a special meeting, the CTG Resources board of directors
met and received updates from its senior management and financial and legal
advisors as to the terms of the merger agreement and related employment
agreement. Legal advisors and PaineWebber described various minor changes to the
merger agreement since the draft reviewed by the CTG Resources board of
directors at the previous day's meeting. Final drafts of the merger agreement,
employment agreement and disclosure schedules to the merger agreement were
reviewed at the meeting. After these presentations and a question and answer
period, PaineWebber delivered its fairness opinion to the CTG Resources board of
directors to the effect that, as of that date, the consideration to be received
in connection with the merger was fair from a financial point of view to the
holders of CTG Resources common stock. After considering and discussing the
various presentations at that meeting and at prior meetings, as well as the
recommendation of CTG Resources's senior management, the CTG Resources board of
directors approved, by a unanimous vote, the merger agreement and authorized the
execution of the merger agreement. Mr. Marquardt did not vote on those matters
relating to his employment agreement, which were unanimously approved by the
other directors.
Following the meetings of their respective boards of directors, CTG
Resources and Energy East executed the merger agreement on the evening of June
29, 1999 and publicly announced the merger the next morning.
CTG RESOURCES REASONS FOR THE MERGER
The CTG Resources board of directors believes that the merger will join two
companies with complementary operations as well as a common vision of the future
of the retail and wholesale energy markets in the northeastern region of the
United States. The CTG Resources board of directors believes that, as a result
of the increasing competitive pressures faced by natural gas utility companies
in the northeastern United States, CTG Resources would be better prepared to
succeed in such a
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market if it were to combine its operations with those of a diversified energy
services provider like Energy East. The CTG Resources board of directors expects
the merger to facilitate the realization of these goals and to provide
substantial strategic and financial benefits to the CTG Resources shareholders,
as well as to employees and customers of CTG Resources and its subsidiaries. The
CTG Resources board of directors believes that these benefits include:
- COMPETITIVE AND STRATEGIC POSITION. The merger is intended to establish a
combined company that is able to compete more effectively in unregulated
markets and serve customers more effectively in regulated markets. The
combination of the companies' complementary expertise and infrastructure,
including Energy East's diversified electric and natural gas businesses
throughout the northeastern United States, should provide the combined
company with the size and scope to be an effective competitor in the
emerging and increasingly competitive markets for transporting and
distributing energy and energy services. Moreover, Energy East's pending
transactions with Connecticut Energy and CMP Group provide an enhanced
opportunity for increased benefits to the shareholders of the combined
entity.
- NEW PRODUCTS AND SERVICES. The merger, as well as the pending CMP Group
and Connecticut Energy mergers, will enable Energy East to provide
customers with multiple energy products and services at lower costs than
CTG Resources could provide alone.
- INCREASED FINANCIAL STRENGTH AND CUSTOMER BASE. The combined company will
be financially stronger and will have a broader customer base than CTG
Resources as an independent entity. Based on the 1998 results for CTG
Resources and Energy East, the total annual revenues for the combined
company will be approximately $2.2 billion. In addition, the combined
company will serve approximately 826,000 electric customers in New York
and approximately 387,000 natural gas customers in New York and
Connecticut. Moreover, after the Connecticut Energy and CMP Group mergers,
the combined company will have $3.4 billion in total annual revenues
(based on 1998 results) and will serve approximately 1,359,000 electric
customers and 545,000 natural gas customers.
- ENERGY EAST'S GROWTH STRATEGY. This combination will enhance the
likelihood that Energy East can realize its goal of selectively growing
its energy distribution business in the northeastern United States.
- COMMUNITY DEVELOPMENT. The combined company will continue to play a
leading role in the economic development of the communities served by CTG
Resources. These communities also will benefit from increased competition
for regulated and deregulated natural gas and electricity and energy
related products and services.
RECOMMENDATION OF THE CTG RESOURCES BOARD OF DIRECTORS
THE CTG RESOURCES BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT CTG
RESOURCES SHAREHOLDERS VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT.
At a special meeting held on June 29, 1999, after determining that the
merger is fair to and in the best interests of CTG Resources and its
shareholders, the CTG Resources board of directors unanimously approved and
adopted the merger agreement. In approving the merger agreement and in reaching
its recommendation, the CTG Resources board of directors consulted with and
relied upon information and reports prepared or presented by CTG Resources's
management and CTG Resources's legal and financial advisors. The following are
the material factors that the CTG Resources board of directors considered, some
of which contain both positive and negative elements:
- the CTG Resources board of directors' understanding of the present and
anticipated environment in the utility industry, and how possible
consolidation within the utility industry could affect CTG Resources's
competitive position in the industry;
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<PAGE>
- the CTG Resources board of directors' consideration of the financial
condition, results of operations, prospects and businesses of CTG
Resources and Energy East, including the revenues of the companies, their
complementary businesses, the recent stock price performance of CTG
Resources shares and Energy East shares and the percentage of the combined
company to be owned by CTG Resources shareholders following the merger;
- current industry, economic and market conditions;
- other strategic options potentially available to CTG Resources;
- the fact that the corporate headquarters of the surviving company (which
will be a subsidiary of Energy East) will remain in Hartford, Connecticut;
- the fact that the nonregulated operations of Energy East will be
headquartered in Connecticut;
- the beneficial effect of increased competition on Connecticut Natural
Gas's customers;
- the beneficial effects of the merger on the municipalities served and
other societal concerns;
- the financial and business prospects for the combined company;
- the CTG Resources per share consideration of $41.00, which represents an
approximate 15.1% premium to the closing price of a CTG Resources share on
June 29, 1999, the last full trading day prior to the public announcement
of the merger, and an approximate 60.4% premium to the closing price of a
CTG Resources share on May 28, 1999, the last trading day prior to CTG
Resources's public announcement that it had retained PaineWebber to
explore strategic alternatives to enhance shareholder value;
- the fact that the merger agreement provides CTG Resources shareholders
with an opportunity to receive cash for their CTG Resources shares (even
though the amount of cash is subject to proration and an adjustment driven
by tax considerations);
- the anticipated level of the Energy East dividend following completion of
the merger and its growth potential;
- the corporate governance aspects of the merger, including the fact that
(1) one new director, who is a non-employee director of CTG Resources and
who will be designated by CTG Resources and reasonably acceptable to
Energy East, will be appointed to the Energy East board of directors, (2)
Mr. Marquardt will be the president and chief executive officer of the
board of directors of the surviving company (which will be a subsidiary of
Energy East) and will hold officer positions in other Energy East
subsidiaries and (3) the surviving company will create an advisory board,
whose members will be the same individuals who were directors of CTG
Resources immediately before the completion of the merger;
- the opinion of counsel expected to be delivered, as a condition to the
merger, at the closing of the merger to the effect that the merger will be
treated as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code. If the merger is a reorganization, then CTG
Resources shareholders who exchange their CTG Resources shares solely for
Energy East shares, as well as CTG Resources, Energy East and Oak Merger
Co., will recognize no gain or loss for U.S. federal income tax purposes
as a result of the consummation of the merger. It is also expected that
those CTG Resources shareholders who exchange their CTG Resources shares
for cash will generally be eligible for capital gains treatment;
- the interests of certain persons in the merger, including Mr. Marquardt;
- the opinion of PaineWebber that, as of June 29, 1999, and subject to the
considerations described therein, the consideration to be received by the
CTG Resources shareholders was fair from a financial point of view to
those shareholders;
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<PAGE>
- the other advice from CTG Resources management and the CTG Resources board
of directors' financial and legal advisors over an extended period, and
the discussions of the CTG Resources board of directors concerning the
proposed merger agreement;
- the ability to obtain regulatory approvals for the merger in the current
environment; and
- the fact that Energy East was actively acquiring other utilities
properties in Connecticut and Maine.
The CTG Resources board of directors also considered (1) the risk that the
benefits sought in the merger would not be obtained, (2) the risk that the
merger would not be completed, (3) the effect of the public announcement of the
merger on CTG Resources's sales, customer, supplier and creditor relationships,
operating results and ability to retain employees and the trading price of CTG
Resources shares, (4) the substantial management time and effort that will be
required to complete the merger and integrate the operations of the two
companies, (5) the impact of the merger on CTG Resources employees, (6) the
possibility that various provisions of the merger agreement might have the
effect of discouraging other persons potentially interested in a combination
with CTG Resources from pursuing such an opportunity, (7) the risk that the
value of Energy East shares will decline and (8) other matters described under
"Risk Factors" and "Cautionary Statement Regarding Forward-Looking Statements."
This discussion of the information and factors considered by the CTG
Resources board of directors is not intended to be exhaustive. In view of the
wide variety of factors considered, the CTG Resources board of directors did not
assign relative weights to the factors discussed above or determine that any
factor was of particular importance. Rather, the CTG Resources board of
directors based its recommendation upon the totality of the information
presented.
OPINION OF THE FINANCIAL ADVISOR TO THE CTG RESOURCES BOARD
THE FULL TEXT OF THE PAINEWEBBER OPINION, DATED JUNE 29, 1999, WHICH SETS
FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX B TO THIS PROXY
STATEMENT/PROSPECTUS. CTG RESOURCES SHAREHOLDERS ARE URGED TO READ THIS OPINION
CAREFULLY AND IN ITS ENTIRETY. THE SUMMARY OF THE PAINEWEBBER OPINION SET FORTH
IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF THIS OPINION. THE PAINEWEBBER OPINION IS NOT A RECOMMENDATION
TO ANY SHAREHOLDER AS TO HOW TO VOTE ON THE MERGER.
CTG Resources retained PaineWebber as its exclusive financial advisor in
connection with the merger. In connection with such engagement, CTG Resources
requested PaineWebber to render an opinion as to whether or not the merger
consideration is fair, from a financial point of view, to CTG Resources
shareholders.
In connection with the CTG Resources board of directors' consideration of
the merger, PaineWebber delivered the PaineWebber opinion, to the effect that,
as of June 29, 1999, and based on its review and assumptions and subject to the
limitations summarized below, the merger consideration is fair, from a financial
point of view, to CTG Resources shareholders. The PaineWebber opinion was
prepared at the request and for the information of the CTG Resources board of
directors and does not constitute a recommendation to any CTG Resources
shareholder as to how to vote on the merger. The PaineWebber opinion does not
address the relative merits of the merger or any other transactions or business
strategies that the CTG Resources board of directors may have discussed as
alternatives to the merger or the decision of the CTG Resources board of
directors to proceed with the merger. CTG Resources did not place any
limitations upon PaineWebber with respect to the procedures followed or factors
considered in rendering the PaineWebber opinion.
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<PAGE>
In arriving at its opinion, PaineWebber, among other things:
- reviewed among other public information, CTG Resources's annual reports,
Forms 10-K and related financial information for the five fiscal years
ended September 30, 1998 and CTG Resources's Form 10-Q and the related
unaudited financial information for the six months ended March 31, 1999;
- reviewed among other public information, Energy East's annual reports,
Forms 10-K and related financial information for the five fiscal years
ended December 31, 1998 and Energy East's Form 10-Q and the related
unaudited financial information for the three months ended March 31, 1999;
- reviewed information, including financial forecasts, relating to the
business, earnings, cash flow, assets and prospects of CTG Resources and
Energy East, furnished to PaineWebber by CTG Resources and Energy East;
- conducted discussions with members of senior management of CTG Resources
and Energy East concerning their businesses and prospects;
- compared the historical market prices and trading activity for CTG
Resources shares and Energy East shares with those of certain publicly
traded companies that PaineWebber deemed to be relevant;
- compared the financial position and results of operations of CTG Resources
and Energy East with those of certain publicly traded companies that
PaineWebber deemed to be relevant;
- compared the proposed financial terms of the merger with the financial
terms of certain other mergers and acquisitions that PaineWebber deemed to
be relevant;
- considered the potential pro forma effects of the merger on Energy East;
- reviewed a draft of the merger agreement in the form presented to CTG
Resources's board of directors; and
- reviewed other financial studies and analyses, performed other
investigations and took into account other matters as PaineWebber deemed
necessary, including PaineWebber's assessment of regulatory, general
economic, market and monetary conditions.
In preparing its opinion, PaineWebber relied on the accuracy and
completeness of all information that was publicly available, supplied or
otherwise communicated to PaineWebber by or on behalf of CTG Resources and
Energy East. PaineWebber has not assumed any responsibility to verify
independently this information. With respect to the financial forecasts examined
by PaineWebber, CTG Resources and Energy East have represented to it, and
PaineWebber has assumed, with CTG Resources's consent, that they were reasonably
prepared and reflect the best currently available estimates and good faith
judgments of the managements of CTG Resources and Energy East as to the future
performance of CTG Resources and Energy East. PaineWebber has also relied upon
assurances of the managements of CTG Resources and Energy East that they were
unaware of any facts that would make the information or financial forecasts
provided to PaineWebber incomplete or misleading. PaineWebber did not make an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of CTG Resources or Energy East, nor was PaineWebber furnished with
any such evaluations or appraisals. PaineWebber has also assumed, based on CTG
Resources's and Energy East's representations and with CTG Resources's consent,
that any material liabilities (contingent or otherwise, known or unknown) of CTG
Resources or Energy East are as set forth in the consolidated financial
statements of CTG Resources and Energy East. The PaineWebber opinion is based
upon regulatory, general economic, market and monetary conditions existing on
the date of the opinion. PaineWebber expressed no opinion as to the price at
which CTG Resources shares or Energy East
37
<PAGE>
shares may trade at any time after the date of the PaineWebber opinion. It
should be understood that, although subsequent developments may affect the
PaineWebber opinion, PaineWebber does not have any obligation to update, revise
or reaffirm its opinion.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative methods of financial analyses and
the application of those methods to the particular circumstances. Therefore,
such an opinion is not readily susceptible to partial analysis or summary
description. Accordingly, PaineWebber believes that its analysis must be
considered as a whole and that considering any portion of its analysis and of
the factors considered, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying the PaineWebber
opinion. In its analyses, PaineWebber made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of CTG Resources and Energy East.
Any estimates contained in these analyses are not necessarily indicative of
actual values or predictive of future results or values, which may be
significantly more or less favorable than as set forth in these analyses. In
addition, analyses relating to the value of businesses do not purport to be
appraisals or to reflect the prices at which businesses may be sold.
Accordingly, these analyses and estimates are inherently subject to substantial
uncertainty, and neither CTG Resources nor PaineWebber assume responsibility for
the accuracy of these analyses and estimates.
The following paragraphs summarize the significant analyses performed by
PaineWebber in arriving at its opinion.
STOCK TRADING HISTORY. PaineWebber reviewed the history of the trading
prices for CTG Resources shares and Energy East shares, both separately and in
relation to a market index and to comparable companies. The comparable companies
were selected based on several criteria, including relative size, profitability,
total revenue, growth characteristics, business position and credit rating. The
market index used was the Standard & Poor's 40 Utilities Index. The CTG
Resources comparable companies consisted of:
EnergyNorth, Inc.
Indiana Energy, Inc.
Laclede Gas Company
New Jersey Resources Corporation
Northwest Natural Gas Company
Providence Energy Corporation
SEMCO Energy, Inc.
South Jersey Industries, Inc.
The Energy East comparable companies consisted of:
Alliant Energy Corporation
Ameren Corporation
Constellation Energy Group, Inc.
DPL Inc.
LG&E Energy Corp.
Puget Sound Energy, Inc.
Wisconsin Energy Corporation
SELECTED COMPARABLE PUBLIC COMPANY ANALYSIS. Using publicly available
information, PaineWebber compared selected historical and projected financial,
operating and stock market performance data of CTG Resources and Energy East to
the corresponding data of the above-mentioned comparable companies.
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<PAGE>
With respect to CTG Resources and its comparable companies, PaineWebber
calculated multiples of total enterprise value (market value, as hereinafter
defined, plus preferred stock and debt less cash and cash equivalents) to (1)
latest twelve months ("LTM") earnings before interest, taxes and depreciation
and amortization ("EBITDA") and (2) LTM earnings before interest and taxes
("EBIT"). PaineWebber also calculated multiples of market value (share price
multiplied by shares outstanding including in-the-money options and warrants) to
(1) LTM net income, (2) projected fiscal year 1999 earnings per share ("EPS"),
(3) projected fiscal year 2000 EPS, (4) LTM cash flow from operations (net
income plus depreciation and amortization) and (5) book value of equity. The
comparable companies' projected fiscal year 1999 and 2000 EPS results were based
on publicly available estimates from First Call Research. The CTG Resources
comparable companies analysis resulted in the following ranges of multiples as
of June 25, 1999:
<TABLE>
<CAPTION>
ANALYSIS MULTIPLE RANGES
- ----------------------------------------------------------------------------- ---------------
<S> <C>
LTM EBITDA................................................................... 6.6x to 8.8x
LTM EBIT..................................................................... 10.2x to 13.2x
LTM net income............................................................... 15.1x to 21.4x
Projected fiscal year 1999 EPS............................................... 14.2x to 18.3x
Projected fiscal year 2000 EPS............................................... 12.6x to 16.3x
LTM cash flow from operations................................................ 6.2x to 8.8x
Book value of equity......................................................... 1.38x to 2.08x
</TABLE>
PaineWebber calculated CTG Resources's implied multiples (1) as of June 25,
1999 and (2) as of May 28, 1999, which was the last trading day prior to CTG
Resources's public announcement that PaineWebber had been retained to assist CTG
Resources in evaluating strategic alternatives. CTG Resources's implied
multiples, calculated on the same basis as the CTG Resources comparable
companies, were as follows:
<TABLE>
<CAPTION>
CTG RESOURCES
IMPLIED MULTIPLES
-----------------
<S> <C> <C>
AS OF AS OF
ANALYSIS 5/28/99 6/25/99
- ------------------------------------------------------------------------------------------ ------- -------
LTM EBITDA................................................................................ 6.5x 7.6x
LTM EBIT.................................................................................. 9.6x 11.1x
LTM net income............................................................................ 14.5x 19.1x
Projected fiscal year 1999 EPS............................................................ 14.2x 18.6x
Projected fiscal year 2000 EPS............................................................ 12.8x 16.8x
LTM cash flow from operations............................................................. 6.1x 8.1x
Book value of equity...................................................................... 1.62x 2.12x
</TABLE>
Projected fiscal year 1999 and 2000 EPS results for CTG Resources were based
on estimates provided by First Call Research.
With respect to Energy East and its comparable companies, PaineWebber
calculated multiples of total enterprise value to (1) LTM EBITDA and (2) LTM
EBIT. PaineWebber also calculated multiples of market value to (1) LTM net
income, (2) projected fiscal year 1999 EPS, (3) projected fiscal year 2000 EPS,
(4) LTM cash flow from operations and (5) book value of equity. The comparable
companies' projected fiscal year 1999 and 2000 EPS results were based on
publicly available estimates
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<PAGE>
from First Call Research. The Energy East comparable companies analysis resulted
in the following ranges of multiples as of June 25, 1999:
<TABLE>
<CAPTION>
ANALYSIS MULTIPLE RANGES
- ----------------------------------------------------------------------------- ---------------
<S> <C>
LTM EBITDA................................................................... 6.3x to 8.0x
LTM EBIT..................................................................... 9.3x to 12.9x
LTM net income............................................................... 13.0x to 16.4x
Projected fiscal year 1999 EPS............................................... 12.6x to 15.0x
Projected fiscal year 2000 EPS............................................... 12.0x to 14.2x
LTM cash flow from operations................................................ 4.9x to 8.8x
Book value of equity......................................................... 1.36x to 2.33x
</TABLE>
As of June 25, 1999, Energy East's implied multiples, calculated on the same
basis as the Energy East comparable companies, were as follows:
<TABLE>
<CAPTION>
ENERGY EAST
IMPLIED
ANALYSIS MULTIPLES
- ----------------------------------------------------------------------------- ---------------
<S> <C>
LTM EBITDA................................................................... 7.1x
LTM EBIT..................................................................... 10.0x
LTM net income............................................................... 15.3x
Projected fiscal year 1999 EPS............................................... 15.1x
Projected fiscal year 2000 EPS............................................... 13.5x
LTM cash flow from operations................................................ 7.8x
Book value of equity......................................................... 2.01x
</TABLE>
Projected fiscal year 1999 and 2000 EPS results for Energy East were based
on estimates provided by First Call Research.
SELECTED COMPARABLE MERGERS AND ACQUISITIONS ANALYSIS. PaineWebber reviewed
publicly available financial information for selected completed and pending
mergers and acquisitions involving companies in the gas distribution business.
The selected mergers and acquisitions PaineWebber analyzed included
(acquiror/target):
Wisconsin Energy Corporation / WICOR, Inc.
Northeast Utilities / Yankee Energy System, Inc.
Southern Union Company / Pennsylvania Enterprises, Inc.
ONEOK, Inc. / Southwest Gas Corporation
Energy East / Connecticut Energy
SCANA Corporation / Public Service Company of North Carolina, Incorporated
Carolina Power & Light Company / North Carolina Natural Gas Corporation
Eastern Enterprises / Colonial Gas Company
Eastern Enterprises / Essex Gas Company
NIPSCO Industries, Inc. / Bay State Gas Company
ONEOK, Inc. / Western Resources, Inc.
ENOVA Corporation / Pacific Enterprises
Atmos Energy Corporation / United Cities Gas Company
PaineWebber reviewed the consideration paid, or market value, (for stock
deals, based on acquiror stock prices on the day prior to the announcement of
the transaction) in the comparable transactions and calculated multiples of
total enterprise value to the targets' (1) LTM (latest twelve months prior to
the announcement of the transaction) EBITDA, (2) LTM EBIT and (3) total
customers. PaineWebber also calculated multiples of the consideration paid to
the targets' (1) LTM net income, (2) LTM cash
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<PAGE>
flow from operations and (3) book value of equity. The comparable transactions
analysis resulted in the following ranges:
<TABLE>
<CAPTION>
ANALYSIS RANGES
- ---------------------------------------------------------------------------- ----------------
<S> <C>
LTM EBITDA.................................................................. 6.0x to 13.0x
LTM EBIT.................................................................... 9.3x to 17.6x
Total customers............................................................. $875 to $3,798
LTM net income.............................................................. 16.2x to 32.4x
LTM cash flow from operations............................................... 6.8x to 17.0x
Book value of equity........................................................ 1.06x to 3.08x
</TABLE>
CTG Resources's multiples implied by the merger, calculated on the same
basis as the comparable transactions, were as follows:
<TABLE>
<CAPTION>
CTG RESOURCES
ANALYSIS IMPLIED MULTIPLES
- ------------------------------------------------------------------------------------------ -----------------
<S> <C>
LTM EBITDA................................................................................ 8.6x
LTM EBIT.................................................................................. 12.6x
Total customers........................................................................... $3,912
LTM net income............................................................................ 23.4x
LTM cash flow from operations............................................................. 9.9x
Book value of equity...................................................................... 2.60x
</TABLE>
DISCOUNTED CASH FLOW ANALYSIS. PaineWebber analyzed CTG Resources based on
an unleveraged discounted cash flow analysis of the projected financial
performance of CTG Resources. This projected financial performance was based
upon a five-year forecast for CTG Resources provided by CTG Resources
management. The discounted cash flow analysis determined the discounted present
value of the unleveraged after-tax cash flows generated over the five-year
period and then added a terminal value based upon a range of EBITDA multiples of
6.5x to 8.5x and EBIT multiples from 10.0x to 12.0x. The unleveraged after-tax
cash flows and terminal value were discounted using a range of discount rates
that represented an estimate of the weighted average cost of capital of CTG
Resources.
PREMIUMS PAID ANALYSIS. PaineWebber analyzed purchase price per share
premiums paid in 105 publicly-disclosed domestic transactions, in non-financial
industries, with transaction values between $100 million and $700 million,
announced since January 1, 1996. This analysis indicated the following mean and
median premiums to the targets' closing stock price (1) one day, (2) one week
and (3) four weeks prior to the announcement of the transaction:
<TABLE>
<CAPTION>
PERIOD PRIOR TO ANNOUNCEMENT MEAN MEDIAN
- ------------------------------------------------------------------------------------------ ---- ------
<S> <C> <C>
One day................................................................................... 30.6% 26.9%
One week.................................................................................. 36.6% 31.7%
Four weeks................................................................................ 45.5% 36.9%
</TABLE>
The premiums paid to CTG Resources implied by the merger, based on CTG
Resources's stock price as of May 28, 1999, the day prior to CTG Resources's
public announcement that PaineWebber had been retained to assist CTG Resources
in evaluating strategic alternatives, were as follows:
<TABLE>
<CAPTION>
CTG RESOURCES
PERIOD PRIOR TO ANNOUNCEMENT IMPLIED PREMIUM
- ------------------------------------------------------------------------------------------ ---------------
<S> <C>
One day................................................................................... 60.4%
One week.................................................................................. 60.4%
Four weeks................................................................................ 70.4%
</TABLE>
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<PAGE>
PRO FORMA MERGER ANALYSIS. PaineWebber performed an analysis of the
potential pro forma effect of the merger on Energy East's (1) EPS and (2) cash
flow from operations less dividends per share for the fiscal years 2000 through
2004. PaineWebber combined the projected operating results of CTG Resources
(provided by CTG Resources management) with the corresponding projected
operating results of Energy East (provided by Energy East management) to arrive
at the combined company projected (1) net income and (2) cash flow from
operations less dividends. PaineWebber divided the combined company projected
(1) net income and (2) cash flow from operations less dividends by the pro forma
shares outstanding to arrive at the combined company projected (1) EPS and (2)
cash flow from operations less dividends per share. PaineWebber then compared
the combined company projected (1) EPS and (2) cash flow from operations less
dividends per share to Energy East's projected stand-alone results (provided by
Energy East management) to determine the projected pro forma impact on Energy
East. This analysis suggested that, without assuming any cost savings due to the
merger, the merger would result in dilution to Energy East's EPS and accretion
to Energy East's cash flow from operations less dividends per share.
CTG Resources selected PaineWebber to be its financial advisor in connection
with the merger because PaineWebber is a prominent investment banking and
financial advisory firm with experience in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, private placements and
valuations for corporate purposes.
Pursuant to an engagement letter between CTG Resources and PaineWebber dated
June 25, 1998, PaineWebber has earned a retention fee of $200,000 and a fee of
approximately $1,742,000 for the rendering of the PaineWebber opinion and the
public announcement of the merger. In addition, PaineWebber will receive a fee
of approximately $1,642,000, payable upon completion of the merger, and will be
reimbursed for certain of its related expenses. PaineWebber will not be entitled
to any additional fees or compensation in the event the merger is not approved
or otherwise completed. CTG Resources also agreed, under separate agreement, to
indemnify PaineWebber, its affiliates and each of its directors, officers,
agents and employees and each person, if any, controlling PaineWebber or any of
its affiliates against certain liabilities, including liabilities under federal
securities laws.
In the past, PaineWebber and its affiliates have provided investment banking
and other financial services to CTG Resources and have received fees for the
rendering of these services. PaineWebber may provide financial advisory services
to, and may act as underwriter or placement agent for, the combined company in
the future. In the ordinary course of PaineWebber's business, PaineWebber may
actively trade the securities of CTG Resources and Energy East for its own
account and for the accounts of its customers and, accordingly, may at any time
hold long or short positions in such securities.
EFFECTIVE TIME OF THE MERGER
The merger will become effective when the parties to the merger agreement
file a certificate of merger with the Secretary of the State of Connecticut in
accordance with the Connecticut Business Corporation Act, or at a later time
that Energy East and CTG Resources may specify in the certificate of merger.
The merger will not become effective before the date of the special meeting.
If the merger agreement is approved at the special meeting, 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 all required regulatory approvals.
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<PAGE>
CERTIFICATE OF INCORPORATION AND BY-LAWS
The certificate of incorporation of Oak Merger Co., in effect immediately
prior to the effective time of the merger, will become the certificate of
incorporation of the surviving company until it is amended, except that the name
of the surviving company will be "CTG Resources, Inc." The by-laws of Oak Merger
Co. in effect immediately prior to the effective time will be the by-laws of the
surviving company, until they are amended.
DIRECTORS AND OFFICERS
DIRECTORS. After the merger becomes effective, the board of directors of
the surviving company will consist of the current directors of Oak Merger Co.
and Mr. Marquardt. These directors will hold office until their successors are
duly elected or appointed and qualified. In addition, pursuant to the merger
agreement, Energy East will add a member to its board of directors. This seat
will be filled by one of the current directors of CTG Resources, as designated
by CTG Resources and reasonably acceptable to Energy East. The additional
director will not be an employee of the surviving company.
OFFICERS. Once the merger becomes effective, Mr. Marquardt will be the
president and chief executive officer of the surviving company (which will be a
subsidiary of Energy East). He will also hold officer positions in other Energy
East subsidiaries, as specified in an employment agreement that he and Energy
East have signed. The other officers of the surviving company will be the same
individuals who hold the officer positions of Oak Merger Co. immediately prior
to the time the merger becomes effective. All officers will hold their positions
until their successors are duly elected or appointed and qualified.
ACCOUNTING TREATMENT
The merger will be accounted for as an acquisition of CTG Resources by
Energy East under the purchase method of accounting in accordance with generally
accepted accounting principles. A portion of the purchase price will be
allocated to nonutility assets and liabilities of CTG Resources based on their
estimated fair market value at the date of acquisition. As a regulated utility,
the assets and liabilities of Connecticut Natural Gas will not be revalued. The
difference between the purchase price, representing fair value, and the recorded
amounts will be shown as goodwill on the balance sheet.
REGULATORY APPROVALS
The parties must comply with federal and state regulatory requirements
before they can complete the merger. Although there can be no guarantee that the
parties will obtain the requisite consents or approvals on a timely basis, or at
all, we currently believe that the necessary approvals can be obtained in the
middle of the year 2000.
CONNECTICUT DEPARTMENT OF PUBLIC UTILITY CONTROL. The Connecticut
Department of Public Utility Control has jurisdiction over Connecticut Natural
Gas, CTG Resources's principal operating subsidiary, as a Connecticut public
service company. Connecticut Natural Gas is a public service company under
Connecticut law because it is a gas company distributing gas for heat or power
within Connecticut. An application has been filed with the Department. The
application requests approval for Energy East to control directly CTG Resources
and to control indirectly Connecticut Natural Gas pursuant to Connecticut law.
The Department will consider the suitability and financial responsibility of
Energy East as well as the ability of Connecticut Natural Gas to provide safe,
adequate and reliable service to the public through its plant, equipment, and
manner of operation were the application to be approved.
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<PAGE>
Within 30 business days after the filing of the application, the Department
must give notice of and begin a public hearing, which will be held at the
offices of the Department. The Department must issue a decision on the
application within 120 days after the filing date, unless the applicants agree
to an extension of time. The Department may request and receive an extension.
Energy East and CTG Resources believe that their application to the
Department will fully comply with the requirements of Connecticut law and will
include in their application testimony intended to demonstrate compliance with
Connecticut law. Nonetheless, opposition to the application is possible. The
Connecticut Office of Consumer Counsel has the statutory authority to appear in
and participate in the proceeding, and is expected to be named as a party in the
Department hearings. The parties to the proceedings will be entitled to conduct
discovery, which will likely consist of interrogatories addressed to the
applicants by Department staff, by the Office of Consumer Counsel, and possibly
by other intervening parties, including the Connecticut Attorney General. Energy
East and CTG Resources can give no assurance that the necessary Department
approvals will be obtained in a timely manner or at all. Moreover, it is
possible that the Department approvals will include conditions that, if
accepted, would result in a material adverse effect on Energy East or CTG
Resources. If so, the parties would not be obligated to complete the merger.
In addition, Energy East must obtain the Department's approval of Energy
East's merger with Connecticut Energy. The Department could delay approval of
either or both merger applications or impose burdensome conditions to the
completion of the mergers.
THE PUBLIC UTILITY HOLDING COMPANY ACT. In addition to its merger agreement
with CTG Resources, Energy East has entered into merger agreements with CMP
Group, an exempt public utility holding company located in Maine, and
Connecticut Energy, an exempt public utility holding company located in
Connecticut. Energy East expects that if it completes the pending merger with
CMP Group, it will no longer be eligible for an exemption under the Public
Utility Holding Company Act and has agreed that it will register with the SEC as
a public utility holding company under the Public Utility Holding Company Act.
The Public Utility Holding Company Act imposes restrictions on registered
holding companies. Among these restrictions are requirements that the SEC
approve certain securities issuances, sales and acquisitions of utility assets
or securities of utility companies, and acquisitions of interests in any other
business. A registered holding company is permitted to own one integrated public
utility system, as well as additional utility systems, provided the SEC makes
the necessary findings. The Public Utility Holding Company Act also limits the
ability of registered holding companies to engage in nonutility ventures and
regulates transactions between various affiliates within a holding company
system, including the provision of services by holding company affiliates to the
system's utilities.
In connection with the merger with CTG Resources, as well as the other
mergers described above, Energy East must obtain SEC approval under Section
9(a)(2) of the Public Utility Holding Company Act. Section 9(a)(2) of the Public
Utility Holding Company Act requires an entity owning, directly or indirectly, 5
percent or more of the outstanding voting securities of a public utility company
(as defined in the Public Utility Holding Company Act) to obtain the approval of
the SEC before acquiring a direct or indirect interest in 5 percent or more of
the voting securities of any additional public utility company. Energy East
currently holds in excess of 5 percent of the voting securities of two public
utility companies -- NYSEG and CMP Natural Gas. In the merger with CTG
Resources, Energy East will be indirectly acquiring more than 5 percent of the
voting securities of Connecticut Natural Gas, a public utility company within
the meaning of the Public Utility Holding Company Act. Energy East will also
indirectly acquire more than 5 percent of the voting securities of the public
utility subsidiaries of Connecticut Energy and CMP Group.
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Under the applicable standards of the Public Utility Holding Company Act,
the SEC may not approve a merger if it finds that (1) the merger would tend
towards detrimental interlocking relations or a detrimental concentration of
control, (2) the consideration to be paid in connection with the merger is not
reasonable, (3) the merger would unduly complicate the capital structure of the
acquiror's holding company system or would be detrimental to the proper
functioning of its holding company system or (4) the merger would violate
applicable state law. To approve the merger, the SEC must also find that the
merger would serve the public interest by tending toward the development of an
integrated public utility system. It is anticipated that Energy East's mergers
with CTG Resources, Connecticut Energy and CMP Group will comply with these
standards.
Section 10(c)(1) of the Public Utility Holding Company Act prevents the SEC
from approving an acquisition that "would be detrimental to the carrying out of
the provisions of section 11." Section 11(b)(1) of the Public Utility Holding
Company Act generally confines the utility properties of a registered holding
company to a "single integrated public-utility system," either gas or electric.
An exception to the requirement of a "single system" is provided in section
11(b)(1)(A), (B) and (C), the so-called ABC clauses. Under the exception, a
registered holding company may control one or more additional integrated public
utility systems if (A) each of these additional systems cannot be operated as an
independent system without the loss of substantial economies of scale; (B) all
of these additional systems are located in one state, adjoining states, or a
contiguous foreign country; and (C) the continued combination of these systems
under the control of such holding company is not so large as to impair the
advantages of localized management, efficient operation, or the effectiveness of
regulation.
Energy East believes that its gas system, Connecticut Energy's gas system,
and Connecticut Natural Gas will constitute a "single integrated public-utility
system" within the meaning of the Public Utility Holding Company Act and that
this system will be retainable under that Act. There can be no assurance,
however, that the SEC will approve the merger under the Public Utility Holding
Company Act or that the gas system will be found retainable under that Act, or
if approval is obtained, when it will be obtained or whether the terms of the
approval will ultimately be acceptable. In addition, Energy East anticipates
that the SEC will find that the merger with CMP Group complies with the
integration standards under the Public Utility Holding Company Act, although
there can be no assurance of this.
The SEC could also require, as a condition to its approval of the merger
under the Public Utility Holding Company Act, that Energy East or CTG Resources
divest some of its investments that are unrelated to the combined company's
post-merger utility operations. In several cases, the SEC has allowed the
retention of nonutility investments or deferred the question of divesture for a
substantial period of time. In cases in which a divestiture has been ordered,
the SEC has usually allowed enough time to complete the divestiture to avoid a
"fire sale" of the divested assets. Based on existing SEC policy and precedent,
it appears likely that the SEC will permit the retention by the combined company
of nonutility investments or, alternatively, will defer the question of
divestiture for a substantial period of time.
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ANTITRUST. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
and the rules promulgated thereunder by the U.S. Federal Trade Commission, we
cannot complete the merger until we have given notifications and furnished
certain information to the Federal Trade Commission and the Antitrust Division
of the U.S. Department of Justice, and satisfied specified waiting-period
requirements. Energy East and CTG Resources will file notification and report
forms under the Hart-Scott Act with the Federal Trade Commission and the
Antitrust Division. Even after the waiting period expires or is terminated, the
Federal Trade Commission and the Antitrust Division retain the authority to
challenge the merger on antitrust grounds before or after the merger is
completed. In addition, each state in which CTG Resources or Energy East
operates may also seek to review the merger. It is possible that some of these
authorities or a private party may seek to challenge the merger.
OBLIGATIONS TO OBTAIN REGULATORY APPROVALS. Under the merger agreement,
both Energy East and CTG Resources have agreed to use all commercially
reasonable efforts to obtain all regulatory and governmental approvals necessary
or advisable to complete the merger.
INJUNCTIONS. Energy East's and CTG Resources's obligation to complete the
merger is subject to the condition that there be no law, regulation or
injunction in effect that would prohibit the completion of the merger.
LISTING OF THE ENERGY EAST SHARES ON THE NEW YORK STOCK EXCHANGE
In the merger agreement, Energy East, Oak Merger Co. and CTG Resources have
agreed to use reasonable efforts to cause Energy East shares that are to be
issued pursuant to the merger agreement to be listed for trading on the New York
Stock Exchange. Approval for listing is a condition to the obligations of Energy
East, Oak Merger Co. and CTG Resources to complete the merger.
RESALE OF THE ENERGY EAST SHARES ISSUED IN THE MERGER; CTG RESOURCES AFFILIATES
Energy East shares to be issued to CTG Resources shareholders in connection
with the merger will be freely transferable under the Securities Act of 1933,
except for Energy East shares issued to any person deemed to be an affiliate of
CTG Resources for purposes of Rule 145 promulgated under the Securities Act at
the time of the special meeting. These affiliates may not sell their Energy East
shares acquired in connection with the merger, except pursuant to an effective
registration statement under the Securities Act covering such Energy East
shares, or in compliance with Rule 145 promulgated under the Securities Act or
another applicable exemption from the registration requirements of the
Securities Act. Pursuant to the merger agreement, CTG Resources has delivered to
Energy East a letter identifying all persons who, at the time of the special
meeting, may be deemed to be its affiliates.
MERGER FINANCING
In the merger, Energy East expects to pay CTG Resources shareholders
approximately $195 million in cash consideration. In addition, in its merger
with Connecticut Energy, Energy East expects to pay approximately $218 million
in cash consideration to Connecticut Energy shareholders; and in its merger with
CMP Group, Energy East expects to pay approximately $957 million in cash
consideration to CMP Group shareholders. Energy East anticipates funding the
cash consideration in the mergers with a combination of the proceeds from the
sales of its generation assets, the proceeds from the issuance of long-term debt
and internally generated funds.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the CTG Resources board of directors
with respect to the merger agreement, CTG Resources shareholders should be aware
that certain officers and directors of CTG Resources have interests in the
merger that are in addition to, or different from, the interests of CTG
Resources shareholders generally. The CTG Resources board of directors was aware
of these interests and considered them along with other matters in recommending
that CTG Resources shareholders vote to approve the merger agreement.
ENERGY EAST BOARD OF DIRECTORS. As provided in the merger agreement, Energy
East will add a director to the Energy East board of directors. This seat will
be filled by one of the current non-employee directors of CTG Resources, as
designated by CTG Resources and reasonably acceptable to Energy East. See "The
Merger Agreement -- Corporate Governance Matters."
SURVIVING COMPANY OFFICER. The merger agreement provides that, at the
effective time of the merger, Mr. Marquardt will become the president and chief
executive officer of the surviving company (which will be a subsidiary of Energy
East) and will hold officer positions in other subsidiaries of Energy East. See
"The Merger Agreement -- Corporate Governance Matters."
ADVISORY BOARD. Under the merger agreement, the present directors of CTG
Resources will continue as members of an advisory board of the surviving
company. The members of the advisory board will provide advice to the board of
directors of the surviving company with respect to various matters and receive
remuneration for their services equivalent to remuneration currently provided to
non-employee directors of CTG Resources. See "The Merger Agreement -- Additional
Agreements."
EMPLOYMENT AGREEMENT. Energy East and CTG Resources have signed an
employment agreement with Mr. Marquardt. The agreement will become effective at
the effective time of the merger, replacing Mr. Marquardt's existing
change-in-control employment agreement with CTG Resources described below under
"-- CTG Resources Change-in-Control Arrangements."
The term of Mr. Marquardt's new employment agreement is three years,
beginning on the effective date of the merger, and is automatically extended
each year unless either Energy East, the surviving company or Mr. Marquardt
gives written notice that the agreement will not be extended. Under the terms of
his employment agreement, Mr. Marquardt will become the president and chief
executive officer of the surviving company (which will be a subsidiary of Energy
East) and a member of its board; the president, chief operating officer and a
member of the board of directors of XENERGY; a member of the board of directors
of Connecticut Energy; and will hold other officer positions in Energy East's
subsidiaries as the board of directors of Energy East may determine. Commencing
not later than the first anniversary of the effective time of the merger, Mr.
Marquardt will also serve as chief executive officer of XENERGY, at which time
he will cease to be chief operating officer thereof unless the Energy East board
of directors decides otherwise.
Mr. Marquardt's base salary will not be less than $425,000 per year. Mr.
Marquardt will also be entitled to receive a special bonus of $400,000 within
five days of the effective time of the merger and two additional special bonuses
of $400,000 each if he is employed with Energy East or any Energy East
subsidiary on the first and second anniversaries of the merger. Mr. Marquardt
will participate in all incentive compensation, fringe benefit and employee
benefit plans on the same basis as other executives and key management
employees, including a company car, certain club dues and financial planning
services. Under his agreement, Mr. Marquardt will also be entitled to a special
retirement benefit (the "SPECIAL RETIREMENT BENEFIT") if he retires on or after
his sixtieth birthday or if his employment is terminated (i) within three years
after the effective time of the merger either by the surviving company for
reasons other than cause or disability or by Mr. Marquardt for good reason or
(ii) thereafter for any reason. The annual amount of the Special Retirement
Benefit payable to
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Mr. Marquardt, expressed as a single life annuity, will equal the excess of 75%
of his highest annual rate of base salary over the amount of pension benefits to
which he will be entitled under all qualified and nonqualified defined benefit
plans of CTG Resources, Energy East and their affiliates and all of his prior
employers. The agreement also provides for a "gross-up" payment to Mr. Marquardt
if any payment, benefit or distribution to Mr. Marquardt is subject to excise
tax under Section 4999 of the Internal Revenue Code.
Under the employment agreement, Energy East, the surviving company or Mr.
Marquardt may terminate Mr. Marquardt's employment at any time. If Energy East
or the surviving company terminates Mr. Marquardt's employment without cause
(other than his death or disability) or Mr. Marquardt terminates his employment
for good reason, he will receive:
- payment of base salary through the effective date of termination and all
compensation and benefits to which he is entitled under all compensation
and benefit plans or policies;
- a lump sum cash payment equal to three times the sum of (i) his base
salary at the rate in effect at the time of termination, (ii) a short-term
incentive compensation equivalent calculated on the basis of the value of
the higher of (A) the short-term incentive compensation paid to him in
respect of the most recently completed fiscal year and (B) the average of
short-term incentive compensation amounts paid for the three most recently
completed fiscal years, and (iii) the value of any outstanding long-term
incentive compensation awards, determined based on the projected target
value of the awards determined at the time of grant;
- payment of his Special Retirement Benefit as and to the extent described
above; and
- continuation of all employee benefits under employee benefit plans in
which he is participating for the remainder of the term of the employment
agreement.
We estimate that, if the merger occurred on July 1, 2000 and Mr. Marquardt's
employment were immediately terminated for one of the reasons noted above, he
would receive cash severance payments and gross-up payments pursuant to his new
employment agreement of approximately $4,693,600, not including the Special
Retirement Benefit.
CTG RESOURCES CHANGE-IN-CONTROL ARRANGEMENTS. Mr. Marquardt and eight other
executive officers have change-in-control employment agreements that provide
severance benefits if in certain circumstances they are either terminated after
a change in control or in anticipation thereof. The completion of the merger
would constitute a change in control as defined in these agreements. Mr.
Marquardt's new employment agreement will replace his current change-in-control
employment agreement at the effective time of the merger. Thus, Mr. Marquardt
will not be entitled to the change-in-control severance benefits provided for in
his current agreement if the merger is completed and his employment is
terminated thereafter. Under the other eight agreements, the following severance
benefits are provided if the executive's employment is terminated, within three
years following the merger, by the surviving company for any reason other than
death, disability or cause or by the executive for good reason:
- payment of base salary through the effective date of termination, a
prorated annual bonus based on the higher of the highest annual bonus for
the last three fiscal years prior to the merger or the bonus payable for
the most recently completed fiscal year prior to termination ("HIGHEST
ANNUAL BONUS"), compensation previously deferred by the executive and
earnings thereon and accrued vacation pay and all benefits and awards to
which the executive is entitled under any benefit plan or policy;
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- a cash payment equal to two times (or three times for three executive
officers), the sum of the executive's base salary in effect on the date of
termination and his or her Highest Annual Bonus;
- a cash payment equal to the actuarial equivalent of the additional
retirement benefits that the executive would have received under the
Connecticut Natural Gas qualified pension plan and officers' retirement
plan had he or she remained employed under the terms of the employment
agreement for up to an additional two (or three, where applicable) years;
- continued welfare benefits (E.G., medical insurance, life insurance, etc.)
for not less than two (or three, where applicable) years on terms no less
favorable than the most favorable terms in effect during the 120-day
period prior to the merger; and
- payment of expenses for outplacement services in an amount not to exceed
10% of base salary.
Additionally, the agreements provide that, if any payment, benefit, or
distribution to the executive is subject to excise tax under Section 4999 of the
Internal Revenue Code, he or she will receive a tax "gross-up" payment.
CTG Resources has also entered into an agreement with Jean McCarthy, vice
president of human resources services, that provides for a supplemental
retirement benefit payment if in certain circumstances she is terminated either
after a change in control or in anticipation thereof. The completion of the
merger would constitute a change in control as defined in her agreement. The
agreement provides that if Ms. McCarthy's employment is terminated within three
years following the merger by the surviving company for any reason other than
death, disability or cause or by Ms. McCarthy for good reason, she would be
entitled to a cash lump sum payment equal to the actuarial equivalent of the
additional retirement benefit she would have received under the Connecticut
Natural Gas qualified pension plan and officers' retirement plan if the benefits
were determined without regard to the provision in the officers' retirement plan
providing for a pro rata reduction if the executive has less than 15 years of
service at termination. However, the agreement further provides that the right
to such payment will be reduced to the extent such payment when added to other
payments or distributions to be received by Ms. McCarthy would give rise to an
excise tax under Section 4999 of the Internal Revenue Code but such reduction
shall only be made if the reduction would result in an increase in the aggregate
benefits and payments to the executive on an after-tax basis.
The annual incentive plan, executive restricted stock plan grants, 1999
stock option plan, officers' retirement plan, executive life insurance plan and
deferred compensation plan maintained by CTG Resources or its subsidiaries
contain provisions relating to change in control. Under the annual incentive
plan, after a change of control, employees, including executive officers,
participating in the plan, whether or not the employees are terminated, will
have a right to an immediate cash payment of their annual awards, on a prorated
basis, based on the annual rate of their base salary immediately prior to the
change in control and on the assumption that established targets at the 100%
performance level for the year had been met. Any such payment will reduce the
amount of prorated bonus paid to the participant in the year in which the change
in control occurs under his or her change-in-control employment agreement
described above. Under the executive restricted stock plan, outstanding
restricted stock grants will become immediately vested on the occurrence of a
change in control, except that for participants who do not have a
change-in-control employment agreement described above, the right to restricted
shares will be forfeited to the extent the value of full vesting would give rise
to an excise tax under Section 4999 of the Internal Revenue Code and such
forfeiture results in an increase in the aggregate benefits and payments to the
participant on an after-tax basis. Under the 1999 stock option plan, outstanding
options which are not vested and exercisable will become immediately exercisable
and vested in full on the occurrence of a change in control, and all outstanding
options will be canceled at the time of change in control in exchange for a cash
payment of the excess of the fair
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market value of the stock (which in the case of the merger would be $41.00 per
share) over the exercise price. Under the officers' retirement plan, the accrued
benefit of each individual participating therein will become fully vested on the
occurrence of a change in control. Under the deferred compensation plan,
following a change in control a participant may elect to have his or her
elective deferrals invested at the 30-Year Treasury Bond rate in lieu of other
deemed investment alternatives and to have his or her employer matching
contributions credits invested at the 30-Year Treasury Bond rate or in
accordance with other investment alternatives in lieu of a deemed investment in
employer stock. Under the executive life insurance plan, after a change in
control, coverage provided thereunder will continue in effect if a participant
terminates his or her employment prior to age 62 until the participant attains
age 62 or his or her earlier death or, in certain cases, for the balance of 10
years from the inception of the program. The completion of the merger will
constitute a "change in control" under all the plans and grants described above.
We estimate that if the merger were to occur on July 1, 2000 and all
participants, including executive officers, covered by the plans and agreements
described above were terminated immediately thereafter, based on currently
effective compensation levels, valuation factors, interest rates and a CTG
Resources share price of $41.00, the aggregate after-tax cost of the additional
benefits payable to participants under the above plans and agreements (other
than the change-in-control employment agreement applicable to Mr. Marquardt) as
a result of the merger and subsequent termination would be approximately
$10,481,500.
INDEMNIFICATION. Pursuant to the merger agreement, from and after the
effective time of the merger, Energy East and the surviving company will, to the
fullest extent permitted by applicable law, indemnify, defend and hold harmless
each individual who, prior to the effective time of the merger, was an officer,
director or employee of CTG Resources or any of its subsidiaries against all
losses, expenses (including reasonable attorneys' fees and expenses), claims,
damages or liabilities or, subject to various restrictions, amounts paid in
settlement, arising out of actions or omissions occurring at or prior to the
effective time of the merger that are at least in part (1) based on the fact
that that individual has ever been a director, officer or employee of such
entity or (2) based on the transactions contemplated by the merger agreement.
In addition, for six years after the effective time, Energy East will either
(1) maintain policies of liability insurance for the benefit of those persons
who currently are covered by CTG Resources's existing directors' and officers'
liability insurance policies or (2) provide tail coverage for those persons. In
either case, the terms of the coverage will be at least as favorable as the
terms of the current insurance coverage. Energy East will not, however, be
required to expend in any year more than 200% of the annual aggregate premiums
that CTG Resources currently pays.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion is a summary description of the material U.S.
federal income tax consequences of the merger applicable to CTG Resources
shareholders. This discussion is for general information only and does not
purport to consider all aspects of U.S. federal income taxation that may be
relevant to a CTG Resources shareholder. For example, this discussion does not
address the effect, if any, of the Foreign Investment in Real Property Tax Act
on non-U.S. persons who hold CTG Resources shares. This discussion is based upon
the provisions of the Internal Revenue Code, existing regulations, and
administrative and judicial interpretations of the Internal Revenue Code, all as
in effect as of the date hereof and all of which are subject to change (possibly
with retroactive effect). This discussion applies only to CTG Resources
shareholders who hold their CTG Resources shares as
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capital assets within the meaning of Section 1221 of the Internal Revenue Code
and does not apply to the following:
- shareholders who received their CTG Resources shares pursuant to the
exercise of employee stock options or similar securities or otherwise as
compensation;
- shareholders who hold their CTG Resources shares as part of a "straddle,"
"hedge," "conversion transaction," "synthetic security" or other
integrated investment;
- shareholders who exercise dissenters' rights of appraisal;
- shareholders (including, without limitation, financial institutions,
insurance companies, tax-exempt organizations, dealers or traders in
securities and shareholders subject to the alternative minimum tax) who
may be subject to special rules;
- shareholders whose functional currency is not the U.S. dollar; or
- shareholders who, for U.S. federal income tax purposes, are non-resident
alien individuals, foreign corporations, foreign partnerships, or foreign
estates or trusts.
This discussion also does not consider the effect of any foreign, state or
local laws or any U.S. federal laws other than those pertaining to the income
tax.
THE INDIVIDUAL CIRCUMSTANCES OF EACH CTG RESOURCES SHAREHOLDER MAY AFFECT
THE TAX CONSEQUENCES OF THE MERGER TO SUCH CTG RESOURCES SHAREHOLDER. THE
PARTICULAR FACTS OR CIRCUMSTANCES OF A CTG RESOURCES SHAREHOLDER THAT MAY SO
AFFECT THE CONSEQUENCES ARE NOT DISCUSSED HERE. ACCORDINGLY, YOU SHOULD CONSULT
YOUR TAX ADVISOR TO DETERMINE THE TAX EFFECT TO YOU OF THE MERGER, INCLUDING THE
APPLICATION AND EFFECT OF FOREIGN, OR U.S. FEDERAL, STATE, LOCAL OR OTHER TAX
LAWS. NON-U.S. SHAREHOLDERS, IF ANY, WHO HOLD OR HAVE HELD (DIRECTLY,
CONSTRUCTIVELY, OR BY ATTRIBUTION) MORE THAN 5% OF THE OUTSTANDING CTG RESOURCES
SHARES SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE CONSEQUENCES TO THEM OF
THE MERGER UNDER THE FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT, INCLUDING ANY
TAX FILING REQUIREMENTS THAT MAY APPLY.
The completion of the merger is contingent upon the receipt by:
- Energy East of an opinion from its attorneys to the effect that the merger
will be treated as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code; and
- CTG Resources of an opinion from its attorneys 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 opinions will be based upon certain customary assumptions and
representations of fact, including representations of fact contained in
certificates of officers of Energy East, CTG Resources and others. No ruling has
been or will be sought from the Internal Revenue Service as to the U.S. federal
income tax consequences of the merger, and the opinions of counsel are not
binding upon the Internal Revenue Service or any court. Accordingly, there can
be no assurances that the Internal Revenue Service will not contest the
conclusions expressed in the opinions or that a court will not sustain such
contest.
The following discussion of U.S. federal income tax consequences of the
merger to CTG Resources shareholders assumes that the merger will qualify as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code. As discussed below, the U.S. federal income tax consequences of the merger
to a CTG Resources shareholder depend on the form of consideration received by
the shareholder.
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SHAREHOLDERS WHO RECEIVE SOLELY ENERGY EAST COMMON STOCK. A CTG Resources
shareholder who exchanges CTG Resources shares solely for Energy East shares
will not recognize any gain or loss on that exchange, except to the extent the
shareholder receives cash in lieu of fractional shares of Energy East (as
discussed below). The aggregate adjusted tax basis of Energy East shares
received will equal the CTG Resources shareholder's aggregate adjusted tax basis
in the CTG Resources shares surrendered (reduced by the tax basis allocable to
any fractional shares of Energy East received in the merger). The holding period
of the Energy East shares received pursuant to the merger will include the
holding period of the CTG Resources shares surrendered.
SHAREHOLDERS WHO RECEIVE CASH AND ENERGY EAST COMMON STOCK. If the
consideration received in the merger by a CTG Resources shareholder consists of
part cash and part Energy East shares and the shareholder's adjusted basis in
the CTG Resources shares surrendered in the transaction is less than the sum of
the fair market value, as of the date of the merger, of the Energy East shares
and the amount of cash received by the shareholder, then the shareholder will
recognize a gain. This recognized gain will equal the lesser of (1) the sum of
the amount of cash and the fair market value, as of the date of the merger, of
the Energy East shares received, minus the adjusted basis of the CTG Resources
shares surrendered in exchange therefor, and (2) the amount of cash received by
the shareholder in the exchange. However, if a CTG Resources shareholder's
adjusted basis in the CTG Resources shares surrendered in the transaction is
greater than the sum of the amount of cash and the fair market value of the
Energy East shares received, the CTG Resources shareholder's loss will not be
currently allowed or recognized for U.S. federal income tax purposes.
In the case of a CTG Resources shareholder who recognizes gain on the
exchange, if the exchange sufficiently reduces the shareholder's proportionate
stock interest (as discussed below), the gain will be characterized as a capital
gain. If the exchange does not sufficiently reduce the shareholder's
proportionate stock interest, such gain will be taxable as a dividend to the
extent of the shareholder's ratable share of available earnings and profits (and
the remainder, if any, of such recognized gain will be capital gain).
The determination of whether the exchange sufficiently reduces a CTG
Resources shareholder's proportionate stock interest will be made in accordance
with Section 302 of the Internal Revenue Code, taking into account the stock
ownership attribution rules of Section 318 of the Internal Revenue Code. Under
those rules, for purposes of determining whether the exchange sufficiently
reduces a shareholder's proportionate stock interest, a CTG Resources
shareholder is treated as if (1) all such shareholder's CTG Resources shares
were first exchanged in the merger for Energy East shares and (2) a portion of
those Energy East shares were then redeemed for the cash actually received in
the merger. The CTG Resources shareholder's hypothetical stock interest in
Energy East (both actual and constructive) after hypothetical step (2) is
compared to such CTG Resources shareholder's hypothetical stock interest in
Energy East (both actual and constructive) after hypothetical step (1). Dividend
treatment will apply unless either the shareholder's stock interest in Energy
East has been completely terminated, there has been a "substantially
disproportionate" reduction in the shareholder's stock interest in Energy East
(I.E., such interest after hypothetical step (2) is less than 80% of the
interest after hypothetical step (1)), or the exchange is not "essentially
equivalent to a dividend." While the determination is based on a CTG Resources
shareholder's particular facts and circumstances, the Internal Revenue Service
has indicated in published rulings that a distribution is not "essentially
equivalent to a dividend" and will therefore result in capital gain treatment if
the distribution results in any actual reduction in the stock interest of an
extremely small minority shareholder in a publicly held corporation and the
shareholder exercises no control with respect to corporate affairs.
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BECAUSE THE DETERMINATION OF WHETHER A PAYMENT WILL BE TREATED AS HAVING THE
EFFECT OF THE DISTRIBUTION OF A DIVIDEND GENERALLY WILL DEPEND UPON THE FACTS
AND CIRCUMSTANCES OF EACH CTG RESOURCES SHAREHOLDER, CTG RESOURCES SHAREHOLDERS
ARE STRONGLY ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE TAX
TREATMENT OF CASH RECEIVED IN THE MERGER, INCLUDING THE APPLICATION OF THE
CONSTRUCTIVE OWNERSHIP RULES OF THE INTERNAL REVENUE CODE AND THE EFFECT OF ANY
TRANSACTIONS IN ENERGY EAST SHARES OR CTG RESOURCES SHARES BY THE CTG RESOURCES
SHAREHOLDER.
The basis of a CTG Resources shareholder who receives cash and Energy East
shares in the merger in the Energy East shares received will equal such
shareholder's adjusted basis in the shareholder's CTG Resources shares increased
by any gain recognized as a result of the merger and reduced by the amount of
cash received in the merger. The holding period of the Energy East shares
received will include the holding period of the CTG Resources shares
surrendered.
SHAREHOLDERS WHO RECEIVE SOLELY CASH. The exchange of CTG Resources shares
solely for cash generally will result in recognition of gain or loss by the
shareholder in an amount equal to the difference between the amount of cash
received and the shareholder's adjusted tax basis in the CTG Resources shares
surrendered. The gain or loss recognized will be long-term capital gain or loss
if the shareholder's holding period for the CTG Resources shares surrendered
exceeds one year. There are limitations on the extent to which shareholders may
deduct capital losses from ordinary income.
If a CTG Resources shareholder who receives only cash in exchange for all
such shareholder's CTG Resources shares constructively owns CTG Resources shares
before the merger or actually or constructively owns Energy East shares after
the merger (as the result of constructive ownership of CTG Resources shares that
are exchanged for Energy East shares in the merger, prior actual or constructive
ownership of Energy East shares or otherwise), all or a portion of the cash
received by the shareholder may, in certain circumstances, be taxed as a
dividend, and such shareholders should consult their tax advisors to determine
the amount and character of the income recognized in connection with the merger.
DISSENTING CTG RESOURCES SHAREHOLDERS. CTG Resources shareholders who elect
to exercise their right to dissent from the merger pursuant to the Connecticut
Business Corporation Act with respect to all of their CTG Resources shares and
to be paid the fair value of those shares will recognize gain or loss. The
amount of this gain or loss will generally be equal to the difference between
the amount of cash received and the shareholder's adjusted tax basis in the CTG
Resources shares transferred pursuant to the exercise of dissenters' rights.
Whether this gain is treated as capital gain or as dividend income and whether
any gain subject to capital treatment is long term or short term will generally
be based on principles similar to the principles described in the section above
applicable to CTG Resources shareholders who participate in the merger and
receive solely cash in exchange for their surrendered CTG Resources shares. See
"-- Shareholders Who Receive Solely Cash." CTG Resources shareholders who elect
to exercise their right to dissent from the merger should consult their tax
advisors as to the tax consequences to them of the merger and the exercise of
dissenters' rights, including the timing of gain or loss recognition and the
treatment of any interest that may be awarded pursuant to an appraisal
proceeding.
CASH RECEIVED IN LIEU OF FRACTIONAL SHARES. A CTG Resources shareholder who
receives cash in lieu of a fractional Energy East share will be treated as
having first received such fractional Energy East share in the merger and then
as having received cash in exchange for the fractional share interest. Thus,
such a CTG Resources shareholder generally will recognize gain or loss in an
amount equal to the difference between the amount of cash received in lieu of
the fractional Energy East share and the portion of the basis in the CTG
Resources shares allocable to that fractional interest.
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SPECIAL RULES FOR SHAREHOLDERS THAT ARE CORPORATIONS. To the extent that
cash received in exchange for CTG Resources shares is taxable as a dividend (as
described above) to a CTG Resources shareholder that is a corporation, that
shareholder will be (1) eligible for a dividends received deduction (subject to
applicable limitations) and (2) generally subject to the "extraordinary
dividend" provisions of the Internal Revenue Code. Under recently enacted
legislation, any such cash that is taxable as a dividend to a corporate
shareholder will constitute an extraordinary dividend. Consequently, the
nontaxed portion of any such dividend will reduce the adjusted tax basis of a
CTG Resources shareholder that is a corporation in the Energy East shares
received in the merger, but not below zero, and will thereafter be taxable as
capital gain.
INCOME TAX RATES. Capital gain recognized in the merger by individuals and
certain other noncorporate CTG Resources shareholders who have held their CTG
Resources shares for more than one year generally will be subject to a maximum
U.S. federal income tax rate of 20%. Gain or dividend income otherwise
recognized by CTG Resources shareholders generally will be subject to a (1)
maximum 39.6% U.S. federal income tax rate for individuals and certain other
noncorporate shareholders, or (2) maximum 35% U.S. federal income tax rate for
corporations.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES TO ENERGY EAST, CTG RESOURCES AND
OAK MERGER CO. Assuming that the merger is treated as a reorganization, none of
Energy East, CTG Resources or Oak Merger Co. will recognize gain or loss as a
result of the merger.
BACKUP WITHHOLDING. Payments in connection with the merger may be subject
to "backup withholding" at a rate of 31%, unless a CTG Resources shareholder (1)
provides a correct taxpayer identification number (which, for an individual
shareholder, is the shareholder's social security number) and any other required
information to the paying agent, or (2) is a corporation or comes within certain
exempt categories and, when required, demonstrates that fact and otherwise
complies with applicable requirements of the backup withholding rules. A CTG
Resources shareholder who does not provide a correct taxpayer identification
number may be subject to penalties imposed by the Internal Revenue Service. Any
amount paid as backup withholding does not constitute an additional tax and will
be creditable against the shareholder's U.S. federal income tax liability. Each
CTG Resources shareholder should consult with his own tax advisor as to his
qualification for exemption from backup withholding and the procedure for
obtaining such exemption. CTG RESOURCES SHAREHOLDERS MAY PREVENT BACKUP
WITHHOLDING BY COMPLETING A SUBSTITUTE FORM W-9 AND SUBMITTING IT TO THE PAYING
AGENT FOR THE MERGER WHEN THEY SUBMIT THEIR CTG RESOURCES SHARE CERTIFICATES.
CTG RESOURCES DIVIDEND REINVESTMENT PLAN
Some CTG Resources shareholders hold all or part of their CTG Resources
shares under CTG Resources's Dividend Reinvestment Plan. The CTG Resources
Dividend Reinvestment Plan will be terminated upon the completion of the merger.
CTG Resources shareholders who hold CTG Resources shares under this plan will
have the option to receive cash or Energy East shares in exchange for their CTG
Resources shares held under the plan.
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DISSENTERS' RIGHTS OF APPRAISAL OF CTG RESOURCES SHAREHOLDERS
If you hold CTG Resources shares and do not wish to accept the merger
consideration, then Sections 33-855 through 33-872 of the Connecticut Business
Corporation Act provide you with an alternative. Under these sections, you have
a right to dissent from the merger, and can choose to be paid the fair value of
your CTG Resources shares once the merger is completed, provided you follow the
procedures outlined in the statute. The complete text of these sections is
included in Appendix C to this proxy statement/prospectus.
If you wish to exercise your dissenters' rights of appraisal or to preserve
the right to do so, you should carefully review Appendix C and seek the advice
of counsel. If you do not comply with the deadlines and procedures specified in
the Connecticut Business Corporation Act, you may lose your dissenters' rights
of appraisal. To exercise these rights, you must satisfy each of the following
conditions:
- you must not vote in favor of the merger agreement; and
- you must deliver to the Secretary of CTG Resources, before the vote on the
merger at the special meeting, a written notice of your intent to demand
payment of the fair value of your shares.
You must deliver the notice of intent even if you submit a proxy or vote
against the merger. MERELY VOTING AGAINST, ABSTAINING FROM VOTING OR FAILING TO
VOTE IN FAVOR OF ADOPTION OF THE MERGER WILL NOT CONSTITUTE A NOTICE OF INTENT
TO EXERCISE DISSENTERS' RIGHTS OF APPRAISAL UNDER THE CONNECTICUT BUSINESS
CORPORATION ACT.
If CTG Resources shareholders approve the merger at the special meeting and
you meet the requirements above, then CTG Resources will send you, within ten
days of the approval of the merger, a written dissenters' notice to be used to
demand payment for your shares. The dissenters' notice will:
- state where the payment demand must be sent and when and where
certificates for certificated shares must be deposited;
- inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
- supply a form for demanding payment that includes the date of the first
announcement to the news media or to shareholders of the terms of the
merger agreement and require that each shareholder asserting dissenters'
rights certify whether or not he acquired beneficial ownership of the
shares before that date;
- set a date by which CTG Resources must receive the payment demand, which
may not be fewer than 30 nor more than 60 days after the written
dissenters' notice is delivered by CTG Resources; and
- be accompanied by a copy of Sections 33-855 through 33-872 of the
Connecticut Business Corporation Act (these are the sections that discuss
dissenters' rights).
Under Section 33-863(a) of the Connecticut Business Corporation Act, if you
receive a dissenters' notice and wish to exercise your dissenters' rights of
appraisal, you must:
- demand payment for your shares;
- certify that you acquired beneficial ownership of your shares (generally,
the right to vote or enter into an arrangement or agreement for the
purpose of voting your shares, the right to acquire shares and the right
to dispose of shares) before the date of the first announcement to the
news media or to the shareholders of the terms of the merger agreement as
set forth in the dissenters' notice; and
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<PAGE>
- deposit the certificate or certificates representing your shares in
accordance with the terms of the dissenters' notice.
IF YOU ARE CONSIDERING SEEKING DISSENTERS' RIGHTS OF APPRAISAL, YOU SHOULD
BE AWARE THAT THE FAIR VALUE OF YOUR SHARES AS DETERMINED UNDER THE APPLICABLE
PROVISIONS OF THE CONNECTICUT BUSINESS CORPORATION ACT COULD BE GREATER THAN,
THE SAME AS OR LESS THAN THE MERGER CONSIDERATION.
After CTG Resources receives a valid, timely and complete payment demand, or
upon completion of the merger, CTG Resources will pay to each dissenting
shareholder the amount it estimates to be the fair value of the dissenting
shareholder's shares, plus accrued interest, as provided in Section 33-865(a) of
the Connecticut Business Corporation Act. That payment will be accompanied by:
- CTG Resources's balance sheet as of the end of a fiscal year ending not
more than 16 months before the date of payment, an income statement for
that year, a statement of changes in shareholders' equity for that year
and the latest available interim financial statements, if any;
- a statement of CTG Resources's estimate of the fair value of the shares;
- an explanation of how the accrued interest was calculated;
- a statement of the shareholders' right to demand payment under Section
33-868 of the Connecticut Business Corporation Act; and
- a copy of Sections 33-855 through 33-872 of the Connecticut Business
Corporation Act.
If the merger does not take place within 60 days after the date set for
demanding payment and depositing certificates representing dissenting
shareholders' shares, CTG Resources will return the deposited certificates and
release any transfer restrictions that may have been imposed on uncertificated
shares. If the merger is completed after the return of the deposited shares and
the release of transfer restrictions, CTG Resources will send a new dissenters'
notice and repeat the payment-demand procedure.
Under Section 33-868 of the Connecticut Business Corporation Act, you may
send to CTG Resources your own estimate of the fair value of your shares and the
amount of any interest due, and demand payment of the difference between your
estimate and the amount paid, if any, by CTG Resources in the following cases:
- if you believe that the amount paid by CTG Resources is less than the fair
value of your shares or that the interest due is incorrectly calculated;
- if CTG Resources fails to make payment within 60 days after the date set
in the dissenters' notice for demanding payment (except if the payment is
withheld to holders of shares who acquired the shares after the
announcement of the merger); or
- if the merger is not completed, and CTG Resources does not return the
deposited certificates or release any transfer restrictions imposed on
uncertificated shares within 60 days after the date set in the dissenters'
notice for demanding payment.
If you do not demand payment of the difference between your estimate of the
fair value of your shares, plus interest, and the amount paid by CTG Resources
within 30 days after CTG Resources made or offered to make that payment, you
will lose your right to demand payment of any such difference.
Under Sections 33-871(a) and (b) of the Connecticut Business Corporation
Act, if your demand for payment of your estimate remains unsettled, CTG
Resources will commence a proceeding within 60 days after receipt of your demand
for payment and petition the superior court for the judicial district where CTG
Resources's principal office is located to determine the fair value of your
shares
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and accrued interest. If CTG Resources does not timely commence this proceeding,
CTG Resources must pay you the unsettled amount that you demanded.
If this proceeding takes place, CTG Resources will make all dissenting
shareholders whose demands remain unsettled (even if they are not residents of
Connecticut) parties to the proceeding, and all parties will be served with a
copy of the petition. The court may appoint appraisers who will receive evidence
and recommend a decision on the question of fair value. If the court finds that
the amount CTG Resources paid is less than the fair value of a dissenting
shareholder's shares, plus accrued interest, the court will order CTG Resources
to pay the difference to the dissenting shareholder.
The court will determine all costs of the proceeding, including the
reasonable compensation and expenses of court-appointed appraisers. CTG
Resources generally will pay these costs, but the court may order the dissenting
shareholders to pay some of them, in amounts the court finds equitable, if the
court finds that the shareholders acted arbitrarily, vexatiously or not in good
faith in demanding payment.
If you give notice of your intent to demand dissenters' rights for your
shares under the applicable provisions of the Connecticut Business Corporation
Act but fail to return the dissenters' notice or withdraw or lose your right to
demand payment, your shares will be converted into the right to receive the cash
consideration in the merger. See "The Merger Agreement -- Conversion of CTG
Resources Shares."
The foregoing is only a summary of the applicable provisions of the
Connecticut Business Corporation Act and is qualified in its entirety by
reference to the full text of such provisions, which is included in Appendix C.
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THE MERGER AGREEMENT
THE FOLLOWING DESCRIPTION OF THE MERGER AGREEMENT IS ONLY A SUMMARY. WE URGE
YOU TO READ THE ACTUAL MERGER AGREEMENT, A COPY OF WHICH IS ATTACHED AS APPENDIX
A TO THIS PROXY STATEMENT/PROSPECTUS.
GENERAL
The merger agreement provides that CTG Resources will merge with and into
Oak Merger Co., a wholly owned subsidiary of Energy East. Oak Merger Co. will
survive the merger as a wholly owned subsidiary of Energy East and will be
renamed "CTG Resources, Inc."
The closing of the merger will occur on the second business day immediately
following the date upon which all conditions to the merger have been satisfied
or waived, or at such other time as the parties agree. At the closing of the
merger, the parties will deliver a certificate of merger to the Secretary of the
State of Connecticut for filing. The merger will become effective upon the
filing of this certificate or at such later time as may be set forth in the
certificate. We currently expect that the closing of the merger will take place
in the middle of the year 2000.
CORPORATE GOVERNANCE MATTERS
DIRECTORS. After the merger becomes effective, the board of directors of
the surviving company will consist of the current directors of Oak Merger Co.
and Mr. Marquardt. These directors will hold office until their successors are
duly elected or appointed and qualified. In addition, pursuant to the merger
agreement, Energy East will add a member to its board of directors. This seat
will be filled by one of the current directors of CTG Resources, as designated
by CTG Resources and reasonably acceptable to Energy East. The additional
director will not be an employee of the surviving company.
OFFICERS. Once the merger becomes effective, Mr. Marquardt will be the
president and chief executive officer of the surviving company (which will be a
subsidiary of Energy East). He will also hold officer positions in other Energy
East subsidiaries, as specified in an employment agreement that he and Energy
East have executed. The other officers of the surviving company will be the same
individuals who hold the officer positions of Oak Merger Co. immediately prior
to the effective time of the merger. All officers will hold their positions
until their successors are duly elected or appointed and qualified.
CONVERSION OF CTG RESOURCES SHARES
MERGER CONSIDERATION. At the effective time of the merger, all outstanding
CTG Resources shares (other than those that are held by CTG Resources
shareholders who have not voted in favor of the merger agreement and have
properly demanded dissenters' rights) will be converted into the right to
receive the merger consideration. Each CTG Resources shareholder has a right to
make an election as to the form in which he would like to receive the merger
consideration, which may be subject to proration or adjustment based on tax
considerations as explained below. CTG Resources shareholders can elect to
receive cash, Energy East shares, or a combination of cash and Energy East
shares. The cash consideration amounts to $41.00 in cash, without interest, per
share. The stock consideration is a number of Energy East shares for each CTG
Resources share that will vary depending on the Average Market Price. If the
Average Market Price is equal to or more than $23.67 per share and equal to or
less than $30.13 per share, then a CTG Resources share will be exchanged for
$41.00 worth of Energy East shares. If the Average Market Price is less than
$23.67, then a CTG Resources share will be exchanged for 1.7320 Energy East
shares, irrespective of the value of those shares. Finally, if the Average
Market Price is greater than $30.13 per share, then a CTG Resources share will
be exchanged for 1.3609 Energy East shares, again irrespective of the value of
those shares. If a CTG Resources shareholder wants a combination of cash and
Energy East shares, he must designate how many of his
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CTG Resources shares he would like to convert into the $41.00 in cash and how
many he would like to convert into Energy East shares.
As of the effective time of the merger, no CTG Resources shares will be
outstanding; they will all be automatically canceled and retired. Each CTG
Resources shareholder will cease to have any shareholder rights, except either
the right to receive the merger consideration -- cash, Energy East shares or a
combination of the two -- or the right to dissent. CTG Resources shareholders
who have properly demanded dissenters' rights will have those rights that are
granted by Connecticut law.
OVERSUBSCRIPTION OF CASH OR STOCK. Subject to an adjustment for tax reasons
(as described below), 55% of all outstanding CTG Resources shares will be
converted into cash, and 45% will be converted into Energy East shares.
CTG Resources shareholders, as a group, may submit elections to convert more
than 55% of the outstanding CTG Resources shares into cash or more than 45% into
Energy East shares. If either cash or Energy East shares is oversubscribed, then
an equitable PRO RATA adjustment will be made to ensure that 55% of the
outstanding CTG Resources shares are converted into cash and 45% are converted
into Energy East shares. For example, if cash is oversubscribed, each CTG
Resources share as to which an election was submitted to be converted into the
$41.00 in cash will, instead, be converted into an amount of cash that is less
than $41.00 and a number of Energy East shares to make up the difference.
Similarly, if Energy East shares are oversubscribed, each CTG Resources share as
to which an election was submitted to be converted into a certain number of
Energy East shares will, instead, be converted into fewer Energy East shares and
an amount of cash to cover the difference.
NO FRACTIONAL SHARES. No fractional Energy East shares will be issued in
the merger. CTG Resources shareholders will receive a cash payment in lieu of
fractional Energy East shares. This cash will come from an exchange agent's
open-market sales of the aggregate fractional Energy East shares.
ADJUSTMENT TO PER SHARE ENERGY EAST STOCK AMOUNT. If, prior to the
effective time of the merger, Energy East pays an extraordinary dividend, enters
into a merger or consolidation, or changes the number of outstanding Energy East
shares through a stock split, stock dividend or similar transaction, then the
calculation of the number of Energy East shares to be received in the merger
will be adjusted to reflect this transaction.
TAX ADJUSTMENT. Energy East and CTG Resources intend for the merger to be a
"reorganization" within the meaning of the Internal Revenue Code and, therefore,
tax free for those shareholders who receive only Energy East shares in the
transaction. Under the Internal Revenue Code, however, the merger might not be a
reorganization if, on the closing date of the merger, the total value of the
Energy East shares that CTG Resources shareholders receive is less than 45% of
the value of the total consideration -- including Energy East shares, cash and
any other amounts treated as consideration in connection with the merger for
purposes of the Internal Revenue Code -- that CTG Resources shareholders
(including shareholders who exercise dissenters' rights) receive in connection
with the merger. To prevent this from happening, if the value of the Energy East
shares received would otherwise be less than 45% of the value of the total
consideration, the number of CTG Resources shares that will be converted into
Energy East shares will be increased, and the number of CTG Resources shares
converted into cash will be correspondingly decreased.
EXCHANGE AGENT. Energy East will deposit with an exchange agent
certificates evidencing the Energy East shares issuable and cash payable in
exchange for outstanding CTG Resources shares.
ELECTION PROCEDURE; EXCHANGE OF CERTIFICATES. Copies of the form of
election will be mailed to record holders of CTG Resources shares not less than
30 days prior to the effective time of the merger and made available to persons
who become record holders after this mailing but not later than seven business
days prior to the effective time of the merger. To be effective, a form of
election must be:
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- properly completed, signed and submitted to the exchange agent;
- accompanied by the CTG Resources 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 before the election deadline, which is 5:00
p.m., New York City Time, on the second day after the effective time of
the merger.
Energy East has the right to determine whether a CTG Resources shareholder
has properly completed, signed, and submitted (or revoked) a form of election
and to disregard immaterial defects in the form of election. Energy East may
delegate this right to the exchange agent. Neither Energy East nor the exchange
agent is under any obligation to notify any person of any defect in a form of
election submitted to the exchange agent. The exchange agent will also make all
computations that the merger agreement requires, and all such computations will
be conclusive and binding on CTG Resources shareholders. Any form of election
may be revoked prior to the deadline for submitting elections.
A CTG Resources shareholder who submits an untimely or improper form of
election will be deemed not to have made an election. CTG Resources may treat
that shareholder's shares as shares that the shareholder elected to exchange for
cash or Energy East shares, at CTG Resources's discretion.
DISSENTERS' SHARES. CTG Resources shareholders who decide to pursue their
rights to dissent under Connecticut law will lose their right to receive the
merger consideration; they will have only those rights that are granted by
applicable Connecticut law. If, however, after the effective time of the merger,
a holder withdraws or loses his right to dissent, his CTG Resources shares will
be treated as if he had elected to receive $41.00 in cash per CTG Resources
share. CTG Resources will promptly notify Energy East if it receives any written
demands for payment of the fair value of outstanding CTG Resources shares and
withdrawals of such demands. The surviving company will make all these payments.
EXCHANGE AND PAYMENT PROCEDURES. Promptly after the effective time of the
merger, the exchange agent will mail to each record holder of a certificate
representing CTG Resources shares that have been converted into the right to
receive merger consideration:
- a letter of transmittal for use in submitting stock certificates to the
exchange agent; and
- instructions explaining what the shareholders must do to effect the
surrender of the CTG Resources stock certificates and receive the merger
consideration.
After a shareholder submits his stock certificates, a letter of transmittal
and other documents that may be required, the shareholder will have the right to
receive cash, a certificate representing Energy East shares, or both. The merger
consideration may be delivered to someone who is not listed in CTG Resources's
transfer records if he presents a CTG Resources share certificate to the
exchange agent along with all documents required to evidence that a transfer of
the certificate has been made to him and any applicable stock transfer taxes
have been paid. Until surrender, each certificate (other than those that are
held by CTG Resources shareholders who have not voted in favor of the merger and
have properly demanded dissenters' rights) will be deemed at any time after the
effective time of the merger to represent only the right to receive the merger
consideration upon surrender.
PAYMENTS FOLLOWING SURRENDER. Until they have surrendered their
certificates, holders of certificates who elect to receive Energy East shares
will not receive:
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- dividends and other distributions with respect to Energy East shares that
they are entitled to pursuant to the merger and that are declared or made
with a record date after the effective time; or
- cash payment in place of fractional Energy East shares.
At the time of surrender, CTG Resources shareholders will receive the cash
payable in place of fractional Energy East shares to which the CTG Resources
shareholders are entitled under the merger agreement and the dividends or other
distributions that have been paid to Energy East shareholders if such
distributions had a record date after the effective time. These shareholders
will also be paid on 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.
SHAREHOLDERS SHOULD NOT FORWARD CERTIFICATES TO THE EXCHANGE AGENT, ENERGY
EAST OR CTG RESOURCES UNTIL THEY HAVE RECEIVED A FORM OF ELECTION. SHAREHOLDERS
SHOULD NOT RETURN CERTIFICATES WITH THE ENCLOSED PROXY. A FORM OF ELECTION AND
COMPLETE INSTRUCTIONS FOR PROPERLY MAKING AN ELECTION TO RECEIVE CASH, ENERGY
EAST SHARES OR A COMBINATION OF CASH AND ENERGY EAST SHARES WILL BE MAILED TO
SHAREHOLDERS UNDER SEPARATE COVER BEFORE THE ANTICIPATED DAY OF THE CLOSING OF
THE MERGER, WHICH IS CURRENTLY EXPECTED TO BE IN THE MIDDLE OF THE YEAR 2000.
REPRESENTATIONS AND WARRANTIES
In the merger agreement, CTG Resources and Energy East make representations
and warranties about themselves and their businesses, including the following:
by CTG Resources as to:
<TABLE>
<S> <C>
- - its proper organization, - validity of its subsidiaries' stock and the
good standing and ownership rights of CTG Resources;
qualification to do
business in various states;
- - capital structure; - authority to enter into and enforceability of the
merger agreement;
- - filing of all required - absence of certain adverse changes or events;
reports and financial
statements and the accuracy
of information used in
their preparation;
- - litigation; - accuracy of information used in the registration
statement and proxy statement that the parties to
the merger agreement must file with the SEC;
- - tax matters, including - employee matters and the Employee Retirement Income
Section 368(a) of the Security Act of 1974;
Internal Revenue Code;
- - environmental compliance - regulation as a utility;
and liability;
- - shareholder vote required; - opinion of financial advisor; and
- - ownership of Energy East - non-applicability of takeover laws and the CTG
shares; Resources rights agreement;
</TABLE>
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and by Energy East as to:
<TABLE>
<S> <C>
- - its proper organization, - validity of its subsidiaries' stock and the
good standing and ownership rights of Energy East;
qualification to do
business in various states;
- - capital structure; - authority to enter into and enforceability of the
merger agreement;
- - filing of all required - absence of certain adverse changes or events;
reports and financial
statements and the accuracy
of information used in
their preparation;
- - litigation; - accuracy of information used in the registration
statement and proxy statement;
- - regulation as a utility; - ownership of CTG Resources shares; and
- - environmental compliance - operations of Energy East's partially owned nuclear
and liability; power plant and compliance with applicable laws.
- - Section 368(a) of the
Internal Revenue Code;
</TABLE>
The representations and warranties made by the parties to the merger
agreement will not survive the merger, but they form the basis of conditions to
the obligations of Energy East and CTG Resources.
COVENANTS
MUTUAL COVENANTS. Under the merger agreement, the parties agreed that,
during the period from the date of the merger agreement until the effective time
of the merger, except as otherwise permitted in the merger agreement or by
written consent of the parties, they will comply with the following covenants:
- they will coordinate dividend policies prior to the closing date of the
merger, so that differences in the timing of record, declaration or
payment dates will not adversely affect either Energy East shareholders or
CTG Resources shareholders;
- they and their subsidiaries will not amend their certificates of
incorporation, by-laws or other organizational documents, or take or fail
to take any other action, in such a way that would reasonably be expected
to prevent, materially impede or interfere with the merger;
- they will not take any actions that would be reasonably likely to affect
adversely the status of the merger as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code; in fact, each party agreed
to use all reasonable efforts to obtain this status;
- they will confer on a regular and frequent basis with representatives of
the other party to discuss, subject to applicable law, material
operational matters and the general status of their ongoing operations;
promptly notify the other party of any significant changes in their
business, properties, assets, condition, results of operations or
prospects; advise the other party of any change or event that has had or
is reasonably likely to result in a material adverse effect on
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them; and promptly provide the other party with copies of all filings with
governmental authorities in connection with the merger agreement;
- they and their subsidiaries will use commercially reasonable efforts to
obtain all necessary consents to complete the merger, promptly notify the
other party of any failure or prospective failure to obtain these
consents, and, if requested by the other party, will provide copies of all
the consents that have been obtained;
- they and their subsidiaries will not willfully take any action that is
reasonably likely to result in a material breach of the merger agreement
or in any of their representations and warranties being untrue on and as
of the closing date of the merger; and
- they will take all necessary steps within their control to exempt the
merger from, or, if necessary, challenge the validity or applicability of,
any applicable takeover law.
COVENANTS OF ENERGY EAST. Except as provided in the disclosure schedules to
the merger agreement, Energy East agreed that neither it nor any of its
subsidiaries will enter into a transaction that would require a governmental
filing or consent that would reasonably be expected to prevent or delay
materially the effective time of the merger beyond December 29, 2000.
COVENANTS OF CTG RESOURCES. CTG Resources agreed that, until the effective
time of the merger or the termination of the merger agreement (except as
disclosed in the schedules to the merger agreement), CTG Resources and its
subsidiaries will:
- carry on their businesses in the ordinary course;
- preserve intact their business organizations and relationships with
customers, suppliers and others having business dealings with them, keep
available the services of their present officers and employees as a group
(subject to prudent management of workforce needs and ongoing programs
currently in force), maintain properties and assets in good repair, and
maintain supplies and inventories in quantities consistent with past
practice;
- abide by certain customary restrictions on the conduct of their businesses
regarding: (1) dividends, (2) stock splits and issuances of CTG Resources
shares, (3) redemptions of CTG Resources shares, (4) substantial equity
and asset acquisitions and dispositions, (5) capital expenditures, (6)
indebtedness, (7) employee benefit plans and other employment
arrangements, (8) tax and accounting matters, (9) discharge of
liabilities, (10) amending, terminating and renewing material contracts
and (11) insurance;
- not engage in any activities that would cause a change in their status
under the Public Utility Holding Company Act;
- use reasonable efforts to maintain in effect all existing governmental
permits pursuant to which they operate; and
- ensure that the merger will not result in the grant of any rights to any
person under any material agreement (other than the employment agreements
disclosed in the schedules to the merger agreement) or in the exercise of
any rights under the CTG Resources rights agreement or otherwise.
NO SOLICITATION OF ALTERNATIVE PROPOSALS. CTG Resources also agreed to
certain restrictions concerning "ALTERNATIVE PROPOSALS," which are defined in
the merger agreement as mergers, consolidations or similar transactions between
third parties and CTG Resources or its subsidiaries, or any third-party
proposals or offers to acquire in any manner, directly or indirectly, a
substantial equity
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interest in or a substantial portion of the assets of CTG Resources or any of
its subsidiaries. Specifically, CTG Resources agreed that:
- neither it nor CTG Resources's subsidiaries will encourage, initiate,
solicit or take any other action to facilitate knowingly any inquiries,
proposals or offers that constitute or may reasonably be expected to lead
to an Alternative Proposal from any person;
- neither it nor CTG Resources's subsidiaries will engage in any discussion
or negotiations concerning, or provide any nonpublic information or data
to make or implement, an Alternative Proposal;
- it will immediately cease and cause to be terminated any existing
solicitation, initiation, encouragement, activity, discussions or
negotiations with any parties conducted with a view of formulating an
Alternative Proposal; and
- it will notify Energy East of any of these inquiries, offers or proposals
within one business day of their receipt, it will keep Energy East
informed of their status, and it will give Energy East 48 hours' advance
notice of its intent to enter into any agreement or to commence providing
information to any person making the inquiry, offer or proposal.
Nonetheless, CTG Resources may take the following steps:
- at any time before the CTG Resources shareholders vote to approve the
merger agreement, CTG Resources may engage in discussions or negotiations
with a third party that seeks to initiate such discussions or
negotiations, and may furnish such third party information concerning CTG
Resources and its business, properties and assets, but only if it complies
with the following requirements:
- the CTG Resources board of directors concludes that the third party has
made an Alternative Proposal that is financially superior to the merger
and has demonstrated that any necessary financing has been obtained or,
in the reasonable judgment of CTG Resources's financial advisor, is
obtainable, and the CTG Resources board of directors concludes in good
faith, after consultation with its financial advisor and based upon the
advice of outside counsel and other relevant matters, that failure to
take the above-mentioned steps would likely result in a breach of its
fiduciary duties under applicable law; and
- before CTG Resources provides information to, or enters into discussions
or negotiations with, the third party, CTG Resources (1) promptly
notifies Energy East that it intends to furnish information to, or
intends to enter into discussions with, that third party; (2) provides
Energy East a reasonable opportunity to respond to the Alternative
Proposal; and (3) receives from the third party an executed
confidentiality agreement;
- CTG Resources may comply with Rule 14e-2 under the Securities Exchange
Act of 1934 regulating tender or exchange offers; or
- CTG Resources may accept an Alternative Proposal from a third party,
provided that it first terminates the merger agreement with Energy East.
ADDITIONAL AGREEMENTS
In addition to the covenants above, the parties have also agreed on the
following matters.
ACCESS TO INFORMATION. Upon reasonable notice and during normal business
hours until the effective time of the merger, each party will provide the other
side reasonable access to all of its properties, books, contracts, commitments
and records. In addition, the parties will provide to each other (1) access to
all reports, schedules and other documents that they or their subsidiaries filed
or received under federal or state securities laws or filed with or sent to the
SEC, the Federal Energy
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<PAGE>
Regulatory Commission, the Antitrust Division of the Department of Justice, the
Federal Trade Commission, or any other U.S. federal or state regulatory agency
or commission, and (2) access to all information concerning themselves, their
subsidiaries, directors, officers and shareholders, and other matters that the
other party may reasonably request in connection with any filings, applications,
or approvals required under the merger agreement. Each party will hold in strict
confidence all information furnished to it in connection with the merger.
REGULATORY MATTERS. CTG Resources and Energy East will cooperate with each
other and use their best efforts to prepare and file promptly all necessary
documentation, to effect all necessary applications, notices, petitions, filings
and other documents, and to use all commercially reasonable efforts to obtain
required governmental consents by December 29, 2000.
SHAREHOLDER APPROVAL. CTG Resources will take all steps necessary to hold
the special meeting to obtain the necessary two-thirds vote to approve the
merger. Subject to their fiduciary duties, the CTG Resources board of directors
will recommend to the shareholders the approval of the merger agreement.
INDEMNIFICATION OF DIRECTORS AND OFFICERS. To the extent these individuals
are not otherwise indemnified, Energy East and the surviving company have agreed
to indemnify, after the effective time of the merger, each individual who has
ever been an officer, director or employee of CTG Resources or any of its
subsidiaries. This indemnification will cover all losses, expenses (including
reasonable attorneys' fees and expenses), claims, damages, liabilities or
amounts paid in settlement (if Energy East provided written consent to the
settlement) arising out of actions or omissions occurring at or before the
effective time of the merger that are at least in part (1) based on the fact
that such individual served as a director, officer or employee of CTG Resources
or one of its subsidiaries or (2) based on the transactions contemplated by the
merger agreement. Energy East will advance to the indemnified party, upon
request, reimbursement of documented expenses reasonably incurred. Independent
counsel mutually acceptable to Energy East and the indemnified individual will
make all necessary determinations to decide whether an indemnified individual's
conduct complies with the standards for indemnification established by
Connecticut law and the governing certificate of incorporation and by-laws.
These rights to indemnification will continue for at least six years after the
effective time of the merger.
INSURANCE. For six years after the effective time of the merger, Energy
East will either (1) maintain liability insurance policies for the benefit of
those directors and officers of CTG Resources and its subsidiaries who are
currently covered or (2) provide tail coverage for those directors and officers.
In either case, the terms of the coverage will be at least as favorable as the
terms of the current insurance coverage. Energy East will not, however, be
required to expend in any year more than 200% of the annual aggregate premiums
that CTG Resources currently pays.
PUBLIC ANNOUNCEMENTS. Subject to their legal obligations to disclose
information, CTG Resources and Energy East will cooperate with each other in the
development and distribution of all news releases and other public information
disclosures about the merger agreement and the merger. In addition, they will
not issue any public announcement or statement without the consent of the other
party (the consent cannot be withheld unreasonably).
EMPLOYEE AGREEMENTS. Except as provided below, Energy East and its
subsidiaries will honor, without modification, all existing contracts,
agreements and commitments of CTG Resources that were entered into before June
29, 1999, and apply to current or former employees and directors of CTG
Resources.
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Energy East and CTG Resources intend to continue their present strategy of
achieving workforce reductions through attrition, instead of through involuntary
layoffs. If any reductions in workforce become necessary in the future, they
will be made on a fair and equitable basis, giving consideration to previous
work history, job experience, qualifications and business needs without regard
to whether employment before the merger was with CTG Resources or its
subsidiaries or Energy East or its subsidiaries. Any employees whose employment
is terminated or whose jobs are eliminated will have a right to participate, on
a fair and equitable basis, in the job opportunity and employment placement
programs offered by Energy East, the surviving company or any of its
subsidiaries. Any workforce reductions carried out after the effective time of
the merger will be done in accordance with all applicable collective bargaining
agreements and all relevant laws and regulations, including the Worker
Adjustment and Retraining Notification Act and any similar U.S. federal, state
or local law.
EMPLOYEE BENEFIT PLANS. For at least 18 months after the merger becomes
effective, Energy East must provide all employees of CTG Resources and its
subsidiaries who are covered by benefit plans and who are not covered by
collective bargaining agreements with benefits that are at least as favorable as
the benefits they receive immediately before the merger. Further, all employees
of CTG Resources and its subsidiaries who are covered by benefit plans and who
are not covered by collective bargaining agreements will receive credit, for all
purposes other than benefit accrual, for their service with CTG Resources or any
of its subsidiaries. Finally, after the merger becomes effective, those
employees who are participants in the Connecticut Natural Gas's officers'
retirement plan immediately before the merger will continue to accrue benefits
under terms at least as favorable as the terms currently in effect.
CTG RESOURCES'S STOCK PLANS. With respect to CTG Resources's stock plans,
both companies will take all necessary actions to:
- provide for the issuance or purchase in the open market of Energy East
shares rather than CTG Resources shares under those plans, and to make
other changes in the CTG Resources stock plans to reflect the merger
agreement;
- obtain CTG Resources shareholder approval with respect to the CTG
Resources stock plans to the extent this approval is required to comply
with the Exchange Act (and the rules and regulations promulgated
thereunder), the Internal Revenue Code or other applicable law;
- reserve for issuance under the CTG Resources stock plans or otherwise
provide a sufficient number of Energy East shares for delivery upon
payment of benefits, grant of awards, or exercise of options under these
plans;
- file all required registration statements and amendments that are
necessary to register the Energy East shares that are subject to the CTG
Resources stock plans; and
- cancel each outstanding option to purchase CTG Resources shares, whether
or not the option has vested, in exchange for a cash payment equal to (1)
the excess of $41.00 over the exercise price of the option, multiplied by
(2) the number of shares covered by the option, less applicable tax and
withholding.
In addition, restricted shares granted under the Connecticut Natural Gas's
executive restricted stock plan will become fully vested, and owners of these
shares will have the opportunity, along with other shareholders, to receive
either cash or Energy East shares in exchange for their shares. Employees who
are participants in CTG Resources's annual incentive plan but who have not
entered into an employment agreement with CTG Resources, the benefits of which
are triggered by a change of control, will be entitled to participate on a pro
rata basis in an Energy East annual incentive plan for the remainder of the
fiscal year of Energy East in which the merger occurs.
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EXPENSES. Except for those expenses incurred in connection with the
printing and filing of this proxy statement/prospectus (which expenses are being
shared equally by CTG Resources and Energy East) and except as described under
"-- Termination, Amendment and Waiver," both parties will pay their own costs
and expenses incurred in connection with the merger.
FURTHER ASSURANCES. Each party and its subsidiaries will execute all
additional documents and instruments and take all other actions that the other
party may reasonably request in order to complete the merger.
CORPORATE OFFICES. After the effective time of the merger, the corporate
headquarters of the surviving company will be located in Hartford, Connecticut.
At and subsequent to the effective time of the merger, the corporate
headquarters of XENERGY Enterprises, a wholly owned subsidiary of Energy East,
will also be located in Connecticut.
COMMUNITY INVOLVEMENT. After the effective time of the merger, Energy East
or the surviving company will make annual charitable contributions of at least
$500,000 to the communities that the surviving company serves, and otherwise
maintain a substantial level of involvement in community activities in the State
of Connecticut that is at least as high as the level of community development
and related activities currently carried on by CTG Resources.
ADVISORY BOARD. The surviving company will set up an advisory board
comprised of the individuals who were directors of CTG Resources immediately
before the effective time of the merger. The advisory board will meet at least
quarterly and will provide advice to the surviving company board of directors as
requested. The members of the advisory board, who will serve at the discretion
of the surviving company, will receive remuneration for their services
equivalent to that currently provided to non-officer directors of CTG Resources.
CONDITIONS
MUTUAL CONDITIONS. The obligations of CTG Resources, Energy East and Oak
Merger Co. to complete the merger are subject to satisfaction of the following
conditions:
- CTG Resources shareholders must have approved the merger agreement and the
merger.
- No U.S. federal or state court may have issued a temporary restraining
order or injunction that prevents completion of the merger, and there is
no U.S. federal or state law or regulation prohibiting the merger.
- The SEC must have declared effective the registration statement pertaining
to the Energy East shares to be issued in connection with the merger.
- The New York Stock Exchange must have approved for listing the Energy East
shares to be issued in the merger.
- CTG Resources and Energy East must have obtained the requisite
governmental approvals by the effective time of the merger and all
applicable waiting periods must have expired. In addition, no governmental
authority may have imposed terms or conditions that would have a material
adverse effect on either CTG Resources or Energy East. The parties have
agreed that, although a requirement that Energy East become a registered
holding company under the Public Utility Holding Company Act would not
constitute a term or condition having a material adverse effect on either
CTG Resources or Energy East, a requirement that Energy East divest its
ownership of NYSEG would constitute a term or condition having a material
adverse effect.
CONDITIONS TO OBLIGATIONS OF ENERGY EAST. The obligations of Energy East to
complete the merger are contingent on the satisfaction of, or waiver by Energy
East of, the following conditions:
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- CTG Resources must have performed in all material respects the agreements
and covenants required by the merger agreement.
- The representations and warranties of CTG Resources contained in the
merger agreement must be true and correct on the date of the merger
agreement and on the closing date of the merger (except for
representations and warranties made as of a specified date, the accuracy
of which will be determined as of the specified date), unless any
inaccuracy of the representations and warranties would not reasonably be
expected to have a material adverse effect on CTG Resources.
- CTG Resources must have provided Energy East with a certificate, dated the
closing date of the merger, signed by CTG Resources's chief financial
officer regarding satisfaction of the two preceding conditions.
- CTG Resources has not suffered a material adverse effect, and there is no
fact or circumstance, unless it was disclosed in the schedules to the
merger agreement or in CTG Resources's public documents prior to June 29,
1999, that is reasonably likely to have a material adverse effect on CTG
Resources.
- CTG Resources must have obtained the requisite third-party consents,
unless the failure to obtain those consents would not have a material
adverse effect on CTG Resources.
- Each affiliate of CTG Resources must have signed an agreement stating that
the affiliate will not sell the Energy East shares that it receives in the
merger, except in accordance with Rule 145 promulgated under the
Securities Act.
- Attorneys for Energy East must have furnished to Energy East 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.
CONDITIONS TO OBLIGATIONS OF CTG RESOURCES. The obligations of CTG
Resources to complete the merger agreement and the merger are contingent on the
satisfaction of, or waiver by CTG Resources of, the following conditions:
- Energy East must have performed in all material respects the agreements
and covenants required by the merger agreement.
- The representations and warranties of Energy East contained in the merger
agreement must be true and correct on the date of the merger agreement and
on the closing date of the merger (except for representations and
warranties made as of a specified date, the accuracy of which will be
determined as of the specified date), unless any inaccuracy of the
representations and warranties would not reasonably be expected to have a
material adverse effect on Energy East.
- Energy East must have provided CTG Resources with a certificate, dated the
closing date of the merger, signed by Energy East's executive vice
president and general counsel regarding satisfaction of the two preceding
conditions.
- Energy East has not suffered a material adverse effect, and there is no
fact or circumstance, unless it was disclosed in Energy East's public
documents prior to June 29, 1999, that is reasonably likely to have a
material adverse effect on Energy East.
- Energy East must have obtained the requisite third-party consents, unless
the failure to obtain those consents would not have a material adverse
effect on Energy East.
- Attorneys for CTG Resources must have furnished to CTG Resources 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.
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TERMINATION, AMENDMENT AND WAIVER
TERMINATION. The merger agreement may be terminated at any time before the
effective time of the merger, even after the CTG Resources shareholders have
already approved it (unless otherwise noted below):
- by mutual written consent of the CTG Resources board of directors and the
Energy East board of directors;
- by either CTG Resources or Energy East if they have not completed the
merger by June 29, 2000 (or December 29, 2000, if the only barrier to the
closing of the merger is the inability to obtain the requisite
governmental approvals), so long as the delay has not been caused by a
failure of the party seeking termination to fulfill its obligations under
the merger agreement;
- by either CTG Resources or Energy East if any state or federal law
prohibits the merger (this determination must be supported by the written
opinion of outside counsel) or if any state or federal court of competent
jurisdiction issues a final and nonappealable decision that permanently
enjoins the merger;
- by CTG Resources, before its shareholders approve the merger agreement, if
CTG Resources is not in breach of the merger agreement and, as a result of
an Alternative Proposal, the CTG Resources board of directors determines
in good faith that
- the Alternative Proposal is financially superior to the merger and the
third party making the Alternative Proposal has obtained or, in the
reasonable judgment of CTG Resources's financial advisor, can obtain
the necessary financing; and
- after consultation with its financial advisor and based upon the advice
of outside counsel and other relevant matters, that failure to do so
would likely result in a breach of its fiduciary duties under
applicable law; provided that before CTG Resources may terminate the
merger agreement:
(1) CTG Resources must give Energy East five days' prior notice of
its intent to accept the alternative acquisition proposal; and
(2) CTG Resources and its financial and legal advisors must give
Energy East a reasonable opportunity during this five-day period
to make any adjustments in the terms of the merger agreement that
would allow CTG Resources to proceed with the merger, and must
negotiate with Energy East towards adjusting the merger agreement
so as to enable the merger to proceed;
- by CTG Resources if:
- Energy East has breached any of its representations, warranties or
covenants in the merger agreement, the breach would be reasonably
likely to result in a material adverse effect on Energy East, and
Energy East does not cure the breach within 20 days of receiving
written notice of the breach from CTG Resources; or
- by Energy East if:
- CTG Resources has breached any of its representations, warranties or
covenants in the merger agreement, the breach would be reasonably
likely to result in a material adverse effect on CTG Resources, and CTG
Resources does not cure the breach within 20 days of receiving written
notice of the breach from Energy East; or
- the CTG Resources board of directors or any committee thereof (1)
withdraws or modifies in any manner adverse to Energy East its approval
or recommendation of the merger agreement or the merger, (2) fails to
reaffirm its approval or recommendation upon Energy
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East's request within two days of that request, (3) approves or
recommends any acquisition of CTG Resources or a material portion of
its assets or any tender offer for the shares of capital stock of CTG
Resources by someone other than Energy East or any of its affiliates,
or (4) resolves to take any of these actions.
EFFECT OF TERMINATION. CTG Resources and Energy East have agreed that, if
either of them terminates the merger agreement for any reason outlined above,
the merger agreement -- except for the provisions concerning expenses,
termination fees, confidentiality of information subject to the terms of a
confidentiality agreement, waiver of a jury trial and certain damages and
enforcement of the agreement -- will become void and have no effect, without any
liability on the part of any party, their officers or their directors.
Nonetheless, if either party materially breaches any provision of the merger
agreement and the other party consequently terminates the agreement, then the
breaching party will have to give the other party an amount in cash equal to all
documented out-of-pocket expenses and fees incurred by the other party not in
excess of $4 million. However, if the breach is willful, the merger agreement
does not limit the amount of damages that the nonbreaching party may seek.
CTG Resources must pay Energy East a termination fee of $14 million plus
fees and expenses up to $4 million if the merger agreement is terminated for any
of the following reasons:
- the CTG Resources board of directors decides to pursue an Alternative
Proposal;
- CTG Resources shareholders fail to approve the merger by June 29, 2000,
but only if there was an Alternative Proposal outstanding at the time of
the special meeting and if, within two years of such termination, CTG
Resources enters into a definitive agreement to complete or actually does
complete an Alternative Proposal; or
- the CTG Resources board of directors withdraws, modifies, or fails to
affirm its approval or recommendation to CTG Resources shareholders, but
only if there was an Alternative Proposal outstanding at the time of the
termination and if, within two years of such termination, CTG Resources
enters into a definitive agreement to complete or actually does complete
an Alternative Proposal.
AMENDMENT. The parties' boards of directors may amend the merger agreement
at any time before the effective time of the merger, whether or not the CTG
Resources shareholders have already approved the agreement. After CTG Resources
shareholder approval, however, no such amendment can (1) alter the merger
consideration or the mechanics of the share exchange or (2) change any of the
terms and conditions of the merger agreement if any of the changes would
materially adversely affect the rights of CTG Resources shareholders (except for
changes that could otherwise be adopted by the CTG Resources board of directors
without the further approval of the CTG Resources shareholders).
WAIVER. At any time before the effective time of the merger, to the extent
permitted by applicable law, the parties may extend the time for the performance
of any of the obligations or other acts required by the merger agreement, waive
any inaccuracies in the representations and warranties contained in the merger
agreement, and waive compliance with any of the agreements or conditions
contained in the merger agreement. Any agreement on the part of a party to any
such extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party.
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SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of CTG Resources shares as of June 30, 1999, by (1) each director, (2)
the chief executive officer and each of the other four most highly compensated
executive officers of CTG Resources (determined as of the completion of CTG
Resources's last fiscal year) and (3) all executive officers and directors as a
group. None of the individuals listed below beneficially owns more than 1% of
the outstanding CTG Resources shares.
<TABLE>
<CAPTION>
NUMBER OF CTG
RESOURCES SHARES
NAME TITLE BENEFICIALLY OWNED
- ---------------------------------------------------------------------------------------------------- ------------------
<S> <C> <C>
Arthur C. Marquardt.......................... Chairman, President and Chief Executive Officer 18,899
James P. Bolduc.............................. Executive Vice President and Chief Financial Officer 16,590
James P. Laurito............................. President (TEN) 806
Reginald L. Babcock.......................... Vice President, General Counsel and Secretary 10,751
Anthony C. Mirabella......................... Senior Vice President, District Heating and Cooling 14,979
(TEN)
Bessye W. Bennett............................ Director 1,164
Herman J. Fonteyne........................... Director 3,395
Victor H. Frauenhofer........................ Director 37,047
Beverly L. Hamilton.......................... Director 1,635
Harvey S. Levenson........................... Director 6,947
Denis L. Mullane............................. Director 2,409
Richard J. Shima............................. Director 9,357
Lawrence A. Tanner........................... Director 2,595
Michael W. Tomasso........................... Director 2,208
All directors and executive officers as a
group, including those 14 individuals named
above...................................... 133,731(1)
</TABLE>
- ------------------------
(1) Constituting approximately 1.5% of outstanding CTG Resources shares.
To the knowledge of CTG Resources, no person or group of persons is the
beneficial owner of more than 5% of CTG Resources shares.
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UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
have been prepared to reflect the sales of Energy East's generation assets, the
CTG Resources merger, the Connecticut Energy merger, the sale of CMP Group's
generation assets and the CMP Group merger. The unaudited pro forma combined
condensed financial statements are organized as follows: first, statements are
presented to reflect the sales of Energy East's generation assets and the CTG
Resources merger; second, statements are presented to reflect the sales of
Energy East's generation assets, the CTG Resources merger and the Connecticut
Energy merger; and finally, statements are presented to reflect the sales of
Energy East's generation assets, the CTG Resources merger, the Connecticut
Energy merger, the sale of CMP Group's generation assets and the CMP Group
merger.
All three mergers will be accounted for as purchases. The nonutility assets
and liabilities of CTG Resources, Connecticut Energy and CMP Group will be
recorded in Energy East's consolidated financial statements at their estimated
fair values at the respective closing dates. The assets and liabilities of the
regulated utilities will not be revalued. See "The Merger -- Accounting
Treatment."
The unaudited pro forma combined condensed financial statements reflect
preliminary purchase accounting adjustments in compliance with generally
accepted accounting principles. Estimates relating to the fair value of some
assets, liabilities and other events have been made as more fully described in
the notes to the financial statements. Actual adjustments will be made on the
basis of actual assets, liabilities and other items as of the closing dates of
the CTG Resources merger, the Connecticut Energy merger and the CMP Group merger
on the basis of appraisals and evaluations. Therefore, actual amounts may differ
from those reflected below.
The unaudited pro forma combined condensed balance sheets assume that the
mergers and the sale of Energy East's nuclear generation assets occurred on June
30, 1999; the actual balance sheet data for June 30, 1999 already include the
sale of Energy East's coal-fired generation assets and the sale of CMP Group's
steam and hydro generation assets, which occurred prior to that date. The
unaudited pro forma combined condensed statements of income for the six months
ended June 30, 1999 and the unaudited pro forma combined condensed statements of
income for the year ended December 31, 1998 assume that each of the mergers and
all of the sales of the generation assets were completed on January 1, 1998. For
purposes of pro forma presentation for the year ended December 31, 1998, CTG
Resources's and Connecticut Energy's consolidated statements of income for their
September 30, 1998 fiscal year are used.
The following pro forma financial statements should be read in conjunction
with the consolidated historical financial statements and the related notes of
Energy East, CTG Resources, Connecticut Energy and CMP Group, which are
incorporated by reference. See "Where You Can Find More Information."
The following 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 sales and the mergers been completed on
January 1, 1998 or June 30, 1999, as assumed above; nor is the information
necessarily indicative of future financial position or operating results.
Fifty-five percent of the CTG Resources shares outstanding immediately prior
to the effective time of the CTG Resources merger will be converted into the
right to receive $41.00 per share in cash, and 45% will be converted into, on a
per share basis, a number of Energy East shares valued at $41.00, subject to
restrictions on the maximum and minimum number of Energy East shares to be
issued. The number of Energy East shares to be exchanged for each CTG Resources
share will be between 1.3609 and 1.7320, based on the closing prices of Energy
East shares on the New York Stock Exchange during
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the 20-trading-day period ending two trading days before the effective time of
the CTG Resources merger.
Half of the Connecticut Energy shares outstanding immediately prior to the
effective time of the merger will be converted into the right to receive $42.00
per share in cash, and half will be converted into, on a per share basis, a
number of Energy East shares valued at $42.00, subject to restrictions on the
maximum and minimum number of Energy East shares to be issued. The number of
Energy East shares to be exchanged for each Connecticut Energy share will be
between 1.43 and 1.82, based on the closing prices of Energy East shares on the
New York Stock Exchange during the 20-trading-day period ending two trading days
before the effective time of the merger.
Each CMP Group share outstanding immediately prior to the effective time of
the CMP Group merger will be converted into the right to receive $29.50 in cash.
Energy East expects to issue long-term debt, the proceeds of which, along
with the proceeds from the sales of its generation assets and internally
generated funds, will be used to help fund the cash portion of the consideration
in the CTG Resources merger, the Connecticut Energy merger and the CMP Group
merger, and to help fund Energy East's ongoing share repurchase program. The
unaudited pro forma financial statements, for illustrative purposes, reflect the
issuance of the long-term debt and the use of all of the proceeds to help fund
the consideration paid to CMP Group shareholders.
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS GIVING EFFECT TO THE
SALES OF ENERGY EAST'S GENERATION ASSETS AND THE CTG RESOURCES MERGER
ENERGY EAST CORPORATION COMBINED CONDENSED BALANCE SHEET
GIVING EFFECT TO THE SALE OF ENERGY EAST'S NUCLEAR GENERATION ASSETS
AND THE CTG RESOURCES MERGER
AT JUNE 30, 1999
ACTUAL AND PRO FORMA
(UNAUDITED)
<TABLE>
<CAPTION>
SALE OF SUB TOTAL CTG
NUCLEAR PRO FORMA RESOURCES
GENERATION ENERGY EAST CTG MERGER
ENERGY EAST PRO FORMA AND NUCLEAR RESOURCES PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS(1) GENERATION ACTUAL ADJUSTMENTS ENERGY EAST
----------- --------------- ----------- ------------- ------------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents... $1,291,845 $ 27,900 $1,319,745 $ 36,013 $(195,013)(5) $1,160,745
Special deposits............ 911 911 911
Accounts receivable, net.... 133,094 133,094 35,704 168,798
Other....................... 173,816 173,816 20,411 194,227
----------- --------------- ----------- ------------- ------------- -----------
Total Current Assets.... 1,599,666 27,900 1,627,566 92,128 (195,013) 1,524,681
Utility Plant, at Original
Cost........................ 4,129,975 (833,693) 3,296,282 520,743 3,817,025
Less accumulated
depreciation.............. 1,983,423 (824,998) 1,158,425 189,059 1,347,484
----------- --------------- ----------- ------------- ------------- -----------
Net utility plant in
service............... 2,146,552 (8,695) 2,137,857 331,684 2,469,541
Construction work in
progress.............. 9,252 9,252 5,956 15,208
----------- --------------- ----------- ------------- ------------- -----------
Total Utility Plant..... 2,155,804 (8,695) 2,147,109 337,640 2,484,749
Other Property and
Investments, Net............ 99,328 (23,717) 75,611 12,476 88,087
Regulatory Assets............. 249,033 26,571 275,604 6,781 282,385
Other Assets.................. 25,329 25,329 28,416 3,540(6) 57,285
Goodwill...................... -- -- -- -- 221,989(6)(7)(8) 221,989
----------- --------------- ----------- ------------- ------------- -----------
Total Assets............ $4,129,160 $ 22,059 $4,151,219 $477,441 $ 30,516 $4,659,176
----------- --------------- ----------- ------------- ------------- -----------
----------- --------------- ----------- ------------- ------------- -----------
</TABLE>
The notes on pages 78 and 79 are an integral part of the pro forma combined
condensed financial statements.
74
<PAGE>
ENERGY EAST CORPORATION COMBINED CONDENSED BALANCE SHEET
GIVING EFFECT TO THE SALE OF ENERGY EAST'S NUCLEAR GENERATION ASSETS
AND THE CTG RESOURCES MERGER
AT JUNE 30, 1999
ACTUAL AND PRO FORMA
(UNAUDITED)
<TABLE>
<CAPTION>
SALE OF SUB TOTAL CTG
NUCLEAR PRO FORMA RESOURCES
GENERATION ENERGY EAST CTG MERGER
ENERGY EAST PRO FORMA AND NUCLEAR RESOURCES PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS(1) GENERATION ACTUAL ADJUSTMENTS ENERGY EAST
----------- --------------- ----------- ------------- ------------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Liabilities
Current Liabilities
Current portion of long-term
debt...................... $ 2,018 $ 2,018 $ 3,237 $ 5,255
Current portion of preferred
stock of subsidiary....... -- --
Notes payable............... -- --
Taxes accrued............... 298,215 $ (17,271) 280,944 280,944
Other....................... 227,554 21,550 249,104 43,190 $ 3,500(8) 295,794
----------- --------------- ----------- ------------- ------------- -----------
Total Current
Liabilities........... 527,787 4,279 532,066 46,427 3,500 581,993
Regulatory Liabilities
Gain on sale of generation
assets.................... -- --
Other....................... 106,127 9,300 115,427 78,840 194,267
----------- --------------- ----------- ------------- ------------- -----------
Total Regulatory
Liabilities........... 106,127 9,300 115,427 78,840 194,267
Deferred income taxes......... 215,920 17,271 233,191 1,239(10) 234,430
Other......................... 321,349 (23,717) 297,632 297,632
Long-term debt................ 1,386,621 1,386,621 217,516 1,604,137
----------- --------------- ----------- ------------- ------------- -----------
Total Liabilities....... 2,557,804 7,133 2,564,937 342,783 4,739 2,912,459
Commitments
Preferred stock redeemable
solely at the option of
subsidiary.................. 10,131 10,131 879 11,010
Preferred stock subject to
mandatory redemption
requirements................ 25,000 25,000 25,000
Common Stock Equity
Common stock Energy East
($.01 par value, 300,000
shares authorized and
115,878 shares outstanding
as of June 30, 1999)........ 1,174 1,174 61(9) 1,235
Common Stock Equity
Common stock CTG Resources
(no par value, 20,000 shares
authorized and 8,648 shares
outstanding as of June 30,
1999)
Capital in excess of par
value....................... 819,960 819,960 67,448 92,047(9) 979,455
Retained earnings............. 754,088 14,926 769,014 66,841 (66,841) 769,014
Unearned compensation--
restricted stock awards..... (510) 510 --
Treasury stock, at cost (1,500
shares at June 30, 1999).... (38,997) (38,997) (38,997)
----------- --------------- ----------- ------------- ------------- -----------
Total Common Stock
Equity................ 1,536,225 14,926 1,551,151 133,779 25,777 1,710,707
----------- --------------- ----------- ------------- ------------- -----------
Total Liabilities and
Shareholders'
Equity................ $4,129,160 $ 22,059 $4,151,219 $477,441 $ 30,516 $4,659,176
----------- --------------- ----------- ------------- ------------- -----------
----------- --------------- ----------- ------------- ------------- -----------
</TABLE>
The notes on pages 78 and 79 are an integral part of the pro forma combined
condensed financial statements.
75
<PAGE>
ENERGY EAST CORPORATION COMBINED CONDENSED STATEMENT OF INCOME
GIVING EFFECT TO THE SALES OF ENERGY EAST'S GENERATION ASSETS
AND THE CTG RESOURCES MERGER
ACTUAL AND PRO FORMA
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR
FISCAL YEAR SUB TOTAL ENDED CTG
ENDED SALES OF PRO FORMA SEPTEMBER 30, RESOURCES
DECEMBER 31, GENERATION PRO ENERGY EAST 1998 MERGER PRO
1998 ENERGY FORMA AND CTG RESOURCES FORMA PRO FORMA
EAST ACTUAL ADJUSTMENTS(1) GENERATION ACTUAL ADJUSTMENTS ENERGY EAST
------------ -------------- ----------- ------------- ----------- -----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues
Sales and services.......... $2,499,418 $(589,201) $ 1,910,217 $282,748 $ 2,192,965
Operating Expenses
Fuel used in electricity
generation................ 239,258 (239,247) 11 11
Electricity purchased....... 752,978 (151,287) 601,691 601,691
Natural gas purchased....... 158,656 158,656 143,959 302,615
Other operating expenses.... 366,403 (61,276) 305,127 52,349 357,476
Maintenance................. 111,502 (38,517) 72,985 8,361 81,346
Depreciation and
amortization.............. 191,073 (82,906) 108,167 19,305 $ 5,550(11) 133,022
Other taxes................. 204,709 (31,540) 173,169 19,725 192,894
------------ -------------- ----------- ------------- ----------- -----------
Total Operating
Expenses.............. 2,024,579 (604,773) 1,419,806 243,699 5,550 1,669,055
------------ -------------- ----------- ------------- ----------- -----------
Operating Income.............. 474,839 15,572 490,411 39,049 (5,550) 523,910
Other Income and Deductions... 9,318 9,318 (2,521) 6,797
Interest Charges, Net......... 125,557 (1,646) 123,911 15,924 139,835
Preferred Stock Dividends of
Subsidiary.................. 8,583 8,583 61 8,644
------------ -------------- ----------- ------------- ----------- -----------
Income Before Federal Income
Taxes....................... 331,381 17,218 348,599 25,585 (5,550) 368,634
Federal Income Taxes.......... 137,176 (330)(10) 136,846 10,450 --(10) 147,296
------------ -------------- ----------- ------------- ----------- -----------
Net Income.................... $ 194,205 $ 17,548 $ 211,753 $ 15,135 $(5,550) $ 221,338
------------ -------------- ----------- ------------- ----------- -----------
------------ -------------- ----------- ------------- ----------- -----------
Earnings Per Share, basic and
diluted..................... $ 1.51 $ 1.64
Average Common Shares
Outstanding................. 128,742 6,107(12) 134,849
</TABLE>
The notes on pages 78 and 79 are an integral part of the pro forma combined
condensed financial statements.
Per share amounts and number of average Energy East shares outstanding have been
restated to reflect Energy East's two-for-one common stock split, effective
April 1, 1999.
76
<PAGE>
ENERGY EAST CORPORATION COMBINED CONDENSED STATEMENT OF INCOME
GIVING EFFECT TO THE SALES OF ENERGY EAST'S GENERATION ASSETS
AND THE CTG RESOURCES MERGER
SIX MONTHS ENDED JUNE 30, 1999
ACTUAL AND PRO FORMA
(UNAUDITED)
<TABLE>
<CAPTION>
CTG
SALES OF SUB TOTAL PRO RESOURCES
GENERATION PRO FORMA ENERGY CTG MERGER PRO
ENERGY EAST FORMA EAST AND RESOURCES FORMA PRO FORMA
ACTUAL ADJUSTMENTS(1) GENERATION ACTUAL ADJUSTMENTS ENERGY EAST
----------- -------------- -------------- ------------- ------------ -----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues
Sales and services.......... $1,162,365 $(86,301) $1,076,064 $165,226 $1,241,290
Operating Expenses
Fuel used in electricity
generation................ 74,756 (58,082) 16,674 16,674
Electricity purchased....... 333,665 22,524 356,189 356,189
Natural gas purchased....... 101,529 101,529 81,453 182,982
Other operating expenses.... 153,019 (19,613) 133,406 27,750 161,156
Maintenance................. 45,524 (10,428) 35,096 3,918 39,014
Depreciation and
amortization.............. 593,805 (34,072) 559,733 10,133 $ 2,775(11) 572,641
Other taxes................. 110,640 (10,242) 100,398 10,361 110,759
Gain on sale of generation
assets.................... (674,572) (674,572) (674,572)
Writeoff of Nine Mile Point
2......................... 69,930 69,930 69,930
----------- -------------- -------------- ------------- ------------ -----------
Total Operating
Expenses.............. 808,296 (109,913) 698,383 133,615 2,775 834,773
----------- -------------- -------------- ------------- ------------ -----------
Operating Income.............. 354,069 23,612 377,681 31,611 (2,775) 406,517
Other Income and Deductions... (14,360) 1,692 (12,668) (46) (12,714)
Interest Charges, Net......... 64,901 (372) 64,529 8,609 73,138
Preferred Stock Dividends of
Subsidiary.................. 1,721 1,721 31 1,752
----------- -------------- -------------- ------------- ------------ -----------
Income Before Federal Income
Taxes....................... 301,807 22,292 324,099 23,017 (2,775) 344,341
Federal Income Taxes.......... 159,276 11,824(10) 171,100 11,587 --(10) 182,687
----------- -------------- -------------- ------------- ------------ -----------
Net Income.................... $ 142,531 $ 10,468 $ 152,999 $ 11,430 $(2,775) $ 161,654
----------- -------------- -------------- ------------- ------------ -----------
----------- -------------- -------------- ------------- ------------ -----------
Earnings Per Share, basic and
diluted..................... $ 1.19 $ 1.28
Average Common Shares
Outstanding................. 119,763 6,107(12) 125,870
</TABLE>
The notes on pages 78 and 79 are an integral part of the pro forma combined
condensed financial statements.
Per share amounts and number of average Energy East shares outstanding have been
restated to reflect Energy East's two-for-one common stock split, effective
April 1, 1999.
77
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS GIVING
EFFECT TO THE SALES OF ENERGY EAST'S GENERATION ASSETS
AND THE CTG RESOURCES MERGER
NOTE 1. UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
The unaudited pro forma combined condensed balance sheet as of June 30,
1999, has been adjusted to give effect to the sale of Energy East's 18% interest
in the Nine Mile Point nuclear generating unit No. 2 to AmerGen Energy Company,
which it expects to complete early next year, and the CTG Resources merger. The
actual balance sheet for June 30, 1999, includes the sales of Energy East's
coal-fired generation assets that were completed this year prior to June 30,
1999. The unaudited pro forma combined condensed statements of income for the
six months ended June 30, 1999, and the twelve months ended December 31, 1998,
give effect to all of the sales of Energy East's generation assets and the CTG
Resources merger as if those events occurred on January 1, 1998.
The generation adjustments on the pro forma balance sheet represent the
amount of utility plant and fuel sold. Cash received, regulatory assets affected
and liabilities incurred related to the sale, such as income taxes and estimated
transaction costs, are also reflected in the adjustments.
The generation adjustments on the pro forma income statements, which were
based upon certain assumptions, do not reflect nonrecurring charges and credits
related to the sale of the plants. Operating expense and maintenance expense
include all amounts directly related to the operation and maintenance of
generation plus corporate administrative and general costs allocated based on
net revenues.
NOTE 2. ACCOUNTING METHOD.
The CTG Resources merger will be accounted for as an acquisition of CTG
Resources by Energy East under the purchase method of accounting in accordance
with generally accepted accounting principles. A portion of the purchase price
will be allocated to nonutility assets and liabilities of CTG Resources based on
their estimated fair market values at the date of acquisition. As a regulated
utility, the assets and liabilities of Connecticut Natural Gas will not be
revalued. The difference between the purchase price, representing fair value,
and the recorded amounts will be shown as goodwill on the balance sheet.
NOTE 3. MERGER.
The historical consolidated financial statements of Energy East and CTG
Resources for the years ended December 31, 1998, and September 30, 1998, and as
of and for the six months ended June 30, 1999, have been adjusted to give effect
to the CTG Resources merger.
NOTE 4. EARNINGS PER SHARE AND AVERAGE SHARES OUTSTANDING.
The pro forma earnings per share and number of average shares outstanding
have been restated to reflect Energy East's two-for-one common stock split,
effective April 1, 1999, and the average number of shares that would have been
outstanding if the merger occurred at the beginning of the periods presented
assuming a conversion of 45% of the CTG Resources shares into 1.57 Energy East
shares per CTG Resources share. The following table presents the range of shares
that could be issued based on various potential conversion ratios under the
merger agreement:
<TABLE>
<S> <C> <C> <C>
Conversion ratio....................................... 1.36 1.57 1.73
Number of shares (thousands)........................... 5,296 6,107 6,740
</TABLE>
78
<PAGE>
NOTE 5. CASH CONSIDERATION.
Reflects the cash consideration paid to CTG Resources shareholders based on
a purchase price per share of $41.00 for 55% of the shares outstanding.
NOTE 6. OTHER ASSETS.
Reflects the recognition of an other asset and reduction of goodwill for the
estimated difference between CTG Resources's pension and other postretirement
benefit obligations and the fair value of the respective plan assets.
NOTE 7. GOODWILL.
Reflects the recognition of an amount of goodwill equal to the excess of the
estimated purchase price of $355 million over the estimated net fair value of
the assets and liabilities of CTG Resources acquired of $134 million, plus
estimated transaction costs of $3.5 million related to the merger, reduced by
the estimated difference between CTG Resources's pension and other
postretirement obligations and the fair value of the respective plan assets.
NOTE 8. MERGER-RELATED COSTS.
Energy East and CTG Resources will incur direct expenses related to the
merger, including accounting and consulting fees. The pro forma adjustments
include an estimate for Energy East's merger-related costs of $3.5 million,
which is included in goodwill. CTG Resources expects to incur approximately $5.5
million of merger-related costs, which it will expense as incurred. The actual
amount of merger-related costs may differ from the amounts reflected in the
unaudited pro forma combined condensed financial statements.
NOTE 9. COMMON STOCK.
Reflects the Energy East shares to be issued to CTG Resources shareholders
in exchange for 45% of their CTG Resources shares, assuming a conversion ratio
of 1.57 Energy East shares per CTG Resources share, and the purchase of 55% of
their CTG Resources shares for cash.
NOTE 10. INCOME TAXES.
Income taxes on the pro forma income statements have been based on the
statutory rate and adjusted for goodwill, which is not tax deductible.
NOTE 11. AMORTIZATION OF GOODWILL.
Represents the amortization of goodwill, for financial accounting purposes,
over a 40-year period. The goodwill is not amortizable for tax purposes.
NOTE 12. ENERGY EAST SHARES ISSUED.
Reflects the number of Energy East shares to be issued in the merger
assuming a conversion of 45% of the CTG Resources shares into 1.57 Energy East
shares per CTG Resources share.
NOTE 13. NET INCOME FOR THREE MONTHS ENDED DECEMBER 31, 1998.
CTG Resources's revenues for the three months ended December 31, 1998, were
$81.7 million, and net income for the same period was $5.7 million or 65 cents
per share, diluted.
79
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS GIVING EFFECT TO THE
SALES OF ENERGY EAST'S GENERATION ASSETS, THE CTG RESOURCES MERGER
AND THE CONNECTICUT ENERGY MERGER
ENERGY EAST CORPORATION COMBINED CONDENSED BALANCE SHEET
GIVING EFFECT TO THE SALE OF ENERGY EAST'S NUCLEAR GENERATION ASSETS,
THE CTG RESOURCES MERGER AND THE CONNECTICUT ENERGY MERGER
AT JUNE 30, 1999
ACTUAL AND PRO FORMA
(UNAUDITED)
<TABLE>
<CAPTION>
ENERGY EAST,
GENERATION AND CTG CONNECTICUT CONNECTICUT ENERGY
RESOURCES PRO ENERGY MERGER PRO FORMA PRO FORMA
FORMA(1) ACTUAL ADJUSTMENTS ENERGY EAST
------------------ --------- ------------------ -----------
<S> <C> <C> <C> <C>
(in thousands)
Assets
Current Assets
Cash and cash equivalents............. $1,160,745 $ 5,966 $(218,140)(5) $ 948,571
Special deposits...................... 911 911
Accounts receivable, net.............. 168,798 32,778 201,576
Other................................. 194,227 9,894 204,121
------------------ --------- ------------------ -----------
Total Current Assets................ 1,524,681 48,638 (218,140) 1,355,179
Utility Plant, at Original Cost......... 3,817,025 415,728 4,232,753
Less accumulated depreciation......... 1,347,484 145,411 1,492,895
------------------ --------- ------------------ -----------
Net utility plant in service........ 2,469,541 270,317 2,739,858
Construction work in progress......... 15,208 6,243 21,451
------------------ --------- ------------------ -----------
Total Utility Plant................. 2,484,749 276,560 2,761,309
Other Property and Investments, Net..... 88,087 9,842 97,929
Regulatory Assets....................... 282,385 81,392 363,777
Other Assets............................ 57,285 47,195 7,016(6) 111,496
Goodwill................................ 221,989 244,800(6)(7)(8) 466,789
------------------ --------- ------------------ -----------
Total Assets........................ $4,659,176 $ 463,627 $ 33,676 $ 5,156,479
------------------ --------- ------------------ -----------
------------------ --------- ------------------ -----------
</TABLE>
The notes on pages 84 and 85 are an integral part of the pro forma combined
condensed financial statements.
80
<PAGE>
ENERGY EAST CORPORATION COMBINED CONDENSED BALANCE SHEET
GIVING EFFECT TO THE SALE OF ENERGY EAST'S NUCLEAR GENERATION ASSETS,
THE CTG RESOURCES MERGER AND THE CONNECTICUT ENERGY MERGER
AT JUNE 30, 1999
ACTUAL AND PRO FORMA
(UNAUDITED)
<TABLE>
<CAPTION>
ENERGY EAST, CONNECTICUT
GENERATION AND ENERGY MERGER
CTG RESOURCES CONNECTICUT PRO FORMA PRO FORMA
PRO FORMA(1) ENERGY ACTUAL ADJUSTMENTS ENERGY EAST
-------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
(in thousands)
Liabilities
Current Liabilities
Current portion of long-term debt..... $ 5,255 $ 1,629 $ 6,884
Current portion of preferred stock of
subsidiary.......................... -- --
Notes payable......................... -- 4,150 4,150
Taxes accrued......................... 280,944 10,156 291,100
Other................................. 295,794 23,702 $ 4,500(8) 323,996
-------------- ------------- ------------- -----------
Total Current Liabilities......... 581,993 39,637 4,500 626,130
Regulatory Liabilities
Gain on sale of generation assets..... -- --
Other................................. 194,267 2,111 196,378
-------------- ------------- ------------- -----------
Total Regulatory Liabilities...... 194,267 2,111 196,378
Deferred income taxes................... 234,430 74,923 2,456(9) 311,809
Other................................... 297,632 6,990 304,622
Long-term debt.......................... 1,604,137 148,458 1,752,595
-------------- ------------- ------------- -----------
Total Liabilities................. 2,912,459 272,119 6,956 3,191,534
Commitments............................. -- 88 88
Preferred stock redeemable solely at the
option of subsidiary.................. 11,010 11,010
Preferred stock subject to mandatory
redemption requirements............... 25,000 25,000
Common Stock Equity
Common stock Energy East
($.01 par value, 300,000 shares
authorized and 121,985 shares
outstanding as of June 30, 1999)...... 1,235 83(10) 1,318
Common Stock Equity
Common stock Connecticut Energy
($1 par value, 30,000 shares
authorized and 10,388 shares
outstanding as of June 30, 1999)...... 10,388 (10,388)(10) --
Capital in excess of par value.......... 979,455 123,715 94,342(10) 1,197,512
Retained earnings....................... 769,014 57,317 (57,317) 769,014
Treasury stock, at cost
(1,500 shares at June 30, 1999)....... (38,997) (38,997)
-------------- ------------- ------------- -----------
Total Common Stock Equity......... $1,710,707 $191,420 $ 26,720 $ 1,928,847
-------------- ------------- ------------- -----------
Total Liabilities and
Shareholders' Equity............ $4,659,176 $463,627 $ 33,676 $ 5,156,479
-------------- ------------- ------------- -----------
-------------- ------------- ------------- -----------
</TABLE>
The notes on pages 84 and 85 are an integral part of the pro forma combined
condensed financial statements.
81
<PAGE>
ENERGY EAST CORPORATION COMBINED CONDENSED STATEMENT OF INCOME
GIVING EFFECT TO THE SALES OF ENERGY EAST'S GENERATION ASSETS,
THE CTG RESOURCES MERGER AND THE CONNECTICUT ENERGY MERGER
ACTUAL AND PRO FORMA
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31, 1998 CONNECTICUT
ENERGY EAST, FISCAL YEAR ENDED ENERGY
GENERATION AND SEPTEMBER 30, 1998 MERGER
CTG RESOURCES CONNECTICUT PRO FORMA PRO FORMA
PRO FORMA(1) ENERGY ACTUAL ADJUSTMENTS ENERGY EAST
----------------- ------------------ ------------ -----------
<S> <C> <C> <C> <C>
(in thousands, except per share amounts)
Operating Revenues
Sales and services.............................. $2,192,965 $242,431 $ 2,435,396
Operating Expenses
Fuel used in electricity generation............. 11 11
Electricity purchased........................... 601,691 601,691
Natural gas purchased........................... 302,615 120,572 423,187
Other operating expenses........................ 357,476 51,471 408,947
Maintenance..................................... 81,346 3,701 85,047
Depreciation and amortization................... 133,022 16,904 $ 6,120(11) 156,046
Other taxes..................................... 192,894 15,365 208,259
----------------- -------- ------------ -----------
Total Operating Expenses........................ 1,669,055 208,013 6,120 1,883,188
----------------- -------- ------------ -----------
Operating Income.................................. 523,910 34,418 (6,120) 552,208
Other Income and Deductions....................... 6,797 (2,331) 4,466
Interest Charges, Net............................. 139,835 13,140 152,975
Preferred Stock Dividends of Subsidiary........... 8,644 8,644
----------------- -------- ------------ -----------
Income Before Federal Income Taxes................ 368,634 23,609 (6,120) 386,123
Federal Income Taxes.............................. 147,296 4,598 --(9) 151,894
----------------- -------- ------------ -----------
Net Income........................................ $ 221,338 $ 19,011 $(6,120) $ 234,229
----------------- -------- ------------ -----------
----------------- -------- ------------ -----------
Earnings Per Share, basic and diluted............. $ 1.64 $ 1.64
Average Common Shares Outstanding................. 134,849 8,310(12) 143,159
</TABLE>
The notes on pages 84 and 85 are an integral part of the pro forma combined
condensed financial statements.
Per share amounts and the number of average Energy East shares outstanding have
been restated to reflect Energy East's two-for-one common stock split, effective
April 1, 1999.
82
<PAGE>
ENERGY EAST CORPORATION COMBINED CONDENSED STATEMENT OF INCOME
GIVING EFFECT TO THE SALES OF ENERGY EAST'S GENERATION ASSETS,
THE CTG RESOURCES MERGER AND THE CONNECTICUT ENERGY MERGER
SIX MONTHS ENDED JUNE 30, 1999
ACTUAL AND PRO FORMA
(UNAUDITED)
<TABLE>
<CAPTION>
ENERGY EAST,
GENERATION AND CONNECTICUT ENERGY
CTG RESOURCES PRO CONNECTICUT MERGER PRO FORMA PRO FORMA
FORMA(1) ENERGY ACTUAL ADJUSTMENTS ENERGY EAST
------------------ ------------- ------------------ ------------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Operating Revenues
Sales and services........................ $ 1,241,290 $ 141,541 $ 1,382,831
Operating Expenses
Fuel used in electricity generation....... 16,674 16,674
Electricity purchased..................... 356,189 356,189
Natural gas purchased..................... 182,982 61,630 244,612
Other operating expenses.................. 161,156 25,577 186,733
Maintenance............................... 39,014 1,870 40,884
Depreciation and amortization............. 572,641 8,820 $ 3,060(11) 584,521
Other taxes............................... 110,759 9,601 120,360
Gain on sale of generation assets......... (674,572) (674,572)
Writeoff of Nine Mile Point 2............. 69,930 69,930
------------------ ------------- ------------------ ------------
Total Operating Expenses.................. 834,773 107,498 3,060 945,331
------------------ ------------- ------------------ ------------
Operating Income............................ 406,517 34,043 (3,060) 437,500
Other Income and Deductions................. (12,714) 1,115 (11,599)
Merger Related Expenses..................... 1,537 1,537
Interest Charges, Net....................... 73,138 6,757 79,895
Preferred Stock Dividends of Subsidiary..... 1,752 1,752
------------------ ------------- ------------------ ------------
Income Before Federal Income Taxes.......... 344,341 24,634 (3,060) 365,915
Federal Income Taxes........................ 182,687 8,654 --(9) 191,341
------------------ ------------- ------------------ ------------
Net Income.................................. $ 161,654 $ 15,980 $ (3,060) $ 174,574
------------------ ------------- ------------------ ------------
------------------ ------------- ------------------ ------------
Earnings Per Share, basic and diluted....... $ 1.28 $ 1.30
Average Common Shares Outstanding........... 125,870 8,310(12) 134,180
</TABLE>
The notes on pages 84 and 85 are an integral part of the pro forma combined
condensed financial statements.
Per share amounts and number of average Energy East shares outstanding have been
restated to reflect Energy East's two-for-one common stock split, effective
April 1, 1999.
83
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
GIVING EFFECT TO THE SALES OF ENERGY EAST'S GENERATION ASSETS,
THE CTG RESOURCES MERGER AND THE CONNECTICUT ENERGY MERGER
NOTE 1. UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
The unaudited pro forma combined condensed balance sheet as of June 30, 1999
has been adjusted to give effect to the disposition of Energy East's 18%
interest in the Nine Mile Point Nuclear generating unit No. 2 to AmerGen Energy
Company, which it expects to complete early next year, the CTG Resources merger
and the Connecticut Energy merger. The actual balance sheet for June 30, 1999,
includes the sales of Energy East's coal-fired generation assets that were
completed this year prior to June 30, 1999. The unaudited pro forma combined
condensed statements of income for the six months ended June 30, 1999, and the
twelve months ended December 31, 1998, give effect to all of the sales of Energy
East's generation assets, the CTG Resources merger and the Connecticut Energy
merger as if these events occurred on January 1, 1998.
NOTE 2. ACCOUNTING METHOD.
The Connecticut Energy merger will be accounted for as an acquisition of
Connecticut Energy by Energy East under the purchase method of accounting in
accordance with generally accepted accounting principles. A portion of the
purchase price will be allocated to nonutility assets and liabilities of
Connecticut Energy based on their estimated fair market values at the date of
acquisition. As a regulated utility, the assets and liabilities of The Southern
Connecticut Gas Company will not be revalued. The difference between the
purchase price, representing fair value, and the recorded amounts will be shown
as goodwill on the balance sheet.
NOTE 3. MERGER.
The historical consolidated financial statements of Energy East, CTG
Resources and Connecticut Energy for the year ended December 31, 1998, and
September 30, 1998, and as of and for the six months ended June 30, 1999, have
been adjusted to give effect to the CTG Resources merger and the Connecticut
Energy merger.
NOTE 4. EARNINGS PER SHARE AND AVERAGE SHARES OUTSTANDING.
The pro forma earnings per share and number of average shares outstanding
have been restated to reflect Energy East's two-for-one common stock split,
effective April 1, 1999, and the average number of shares that would have been
outstanding if the merger occurred at the beginning of the periods presented
assuming a conversion of half of the Connecticut Energy shares into 1.60 Energy
East shares per Connecticut Energy share. The following table presents the range
of shares that could be issued based on various potential conversion ratios
provided for by the merger agreement:
<TABLE>
<S> <C> <C> <C>
Conversion ratio............................................... 1.43 1.60 1.82
Number of shares (thousands)................................... 7,427 8,310 9,453
</TABLE>
NOTE 5. CASH CONSIDERATION.
Reflects the cash consideration paid to Connecticut Energy shareholders
based on a purchase price per share of $42.00 for half of the shares
outstanding.
84
<PAGE>
NOTE 6. OTHER ASSETS.
Reflects the recognition of an other asset and reduction of goodwill for the
estimated difference between Connecticut Energy's pension and other
postretirement benefit obligations and the fair value of the respective plan
assets.
NOTE 7. GOODWILL.
Reflects the recognition of goodwill equal to the excess of the estimated
purchase price of $436.3 million over the estimated net fair value of the assets
and liabilities of Connecticut Energy acquired of $191.4 million, plus estimated
transaction costs of $4.5 million related to the merger, reduced by the
estimated difference between Connecticut Energy's pension and other
postretirement benefit obligations and the fair value of the respective plan
assets.
NOTE 8. MERGER-RELATED COSTS.
Energy East and Connecticut Energy will incur direct expenses related to the
merger, including accounting and consulting fees. The pro forma adjustments
include an estimate for Energy East's merger-related costs of $4.5 million,
which is included in goodwill. Connecticut Energy expects to incur approximately
$6.9 million of merger-related costs, which it will expense as incurred. The
actual amount of merger-related costs may differ from the amounts reflected in
the unaudited pro forma combined condensed financial statements.
NOTE 9. INCOME TAXES.
Income taxes on the pro forma income statements have been based on the
statutory rate and adjusted for goodwill, which is not tax deductible, and such
items as depreciation that are accounted for differently for tax purposes.
NOTE 10. COMMON STOCK.
Reflects the Energy East shares issued to Connecticut Energy shareholders in
exchange for half of their Connecticut Energy shares, assuming a conversion
ratio of 1.60 Energy East shares per Connecticut Energy share, and the purchase
of half of their Connecticut Energy shares for cash.
NOTE 11. AMORTIZATION OF GOODWILL.
Represents the amortization of goodwill, for financial accounting purposes,
over a 40-year period. The goodwill is not amortizable for tax purposes.
NOTE 12. ENERGY EAST SHARES ISSUED.
Reflects the number of Energy East shares to be issued in the merger
assuming a conversion of half of the Connecticut Energy shares into 1.60 Energy
East shares per Connecticut Energy share.
NOTE 13. NET INCOME FOR THREE MONTHS ENDED DECEMBER 31, 1998.
Connecticut Energy's revenues for the three months ended December 31, 1998,
were $61.6 million, and net income for the same period was $6.1 million or 59
cents per share, diluted.
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<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS GIVING EFFECT
TO THE SALES OF ENERGY EAST'S GENERATION ASSETS, THE CTG RESOURCES MERGER, THE
CONNECTICUT
ENERGY MERGER, THE SALE OF CMP GROUP'S GENERATION ASSETS AND THE CMP GROUP
MERGER
ENERGY EAST CORPORATION COMBINED CONDENSED BALANCE SHEET
GIVING EFFECT TO THE SALE OF ENERGY EAST'S NUCLEAR GENERATION ASSETS, THE CTG
RESOURCES
MERGER, THE CONNECTICUT ENERGY MERGER AND THE CMP GROUP MERGER
AT JUNE 30, 1999
ACTUAL AND PRO FORMA
(UNAUDITED)
<TABLE>
<CAPTION>
ENERGY EAST,
GENERATION, CTG
RESOURCES AND CMP GROUP
CONNECTICUT MERGER
ENERGY CMP GROUP PRO FORMA PRO FORMA
PRO FORMA(1) ACTUAL ADJUSTMENTS ENERGY EAST
--------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
(in thousands)
Assets
Current Assets
Cash and cash equivalents............................ $ 948,571 $ 335,094 $(457,000)(4)(5) $ 826,665
Special deposits..................................... 911 911
Accounts receivable, net............................. 201,576 125,754 327,330
Other................................................ 204,121 13,230 217,351
--------------- ---------- ----------- -----------
Total Current Assets............................... 1,355,179 474,078 (457,000) 1,372,257
Utility Plant, at Original Cost........................ 4,232,753 1,342,347 5,575,100
Less accumulated depreciation........................ 1,492,895 546,183 2,039,078
--------------- ---------- ----------- -----------
Net utility plant in service....................... 2,739,858 796,164 3,536,022
Construction work in progress........................ 21,451 14,823 36,274
--------------- ---------- ----------- -----------
Total Utility Plant................................ 2,761,309 810,987 3,572,296
Other Property and Investments, Net.................... 97,929 58,209 156,138
Regulatory Assets...................................... 363,777 914,316 34,074(8) 1,312,167
Other Assets........................................... 111,496 111,496
Goodwill............................................... 466,789 473,132(6)(7) 939,921
--------------- ---------- ----------- -----------
Total Assets....................................... $5,156,479 $2,257,590 $ 50,206 $7,464,275
--------------- ---------- ----------- -----------
--------------- ---------- ----------- -----------
</TABLE>
The notes on pages 90 and 91 are an integral part of the pro forma combined
condensed financial statements.
86
<PAGE>
ENERGY EAST CORPORATION COMBINED CONDENSED BALANCE SHEET
GIVING EFFECT TO THE SALE OF ENERGY EAST'S NUCLEAR GENERATION ASSETS, THE CTG
RESOURCES
MERGER, THE CONNECTICUT ENERGY MERGER AND THE CMP GROUP MERGER
AT JUNE 30, 1999
ACTUAL AND PRO FORMA
(UNAUDITED)
<TABLE>
<CAPTION>
ENERGY EAST,
GENERATION, CTG
RESOURCES AND CMP GROUP
CONNECTICUT MERGER
ENERGY CMP GROUP PRO FORMA PRO FORMA
PRO FORMA(1) ACTUAL ADJUSTMENTS ENERGY EAST
--------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(in thousands)
Liabilities
Current Liabilities
Current portion of long-term debt......................... $ 6,884 $ 18,716 $ 25,600
Current portion of preferred stock of subsidiary..........
Notes payable............................................. 4,150 101,628 105,778
Taxes accrued............................................. 291,100 154,386 445,486
Other..................................................... 323,996 94,180 $ 6,500(6) 424,676
--------------- ----------- ----------- -----------
Total Current Liabilities............................... 626,130 368,910 6,500 1,001,540
Regulatory Liabilities
Gain on sale of generation assets......................... 520,861 520,861
Other..................................................... 196,378 564,607 760,985
--------------- ----------- -----------
Total Regulatory Liabilities............................ 196,378 1,085,468 1,281,846
Deferred income taxes....................................... 311,809 83,091 394,900
Other....................................................... 304,622 85,184(7) 389,806
Long-term debt.............................................. 1,752,595 124,205 500,000(5) 2,376,800
--------------- ----------- ----------- -----------
Total Liabilities....................................... 3,191,534 1,661,674 591,684 5,444,892
Commitments................................................. 88 88
Preferred stock redeemable solely at the option of
subsidiary................................................ 11,010 35,528 46,538
Preferred stock subject to mandatory redemption
requirements.............................................. 25,000 18,910 43,910
Common Stock Equity
Common Stock Energy East ($.01 par value, 300,000 shares
authorized and 130,295 shares outstanding as of June 30,
1999)..................................................... 1,318 1,318
Common Stock Equity
Common Stock CMP Group, Inc. ($5 par value, 80,000 shares
authorized and 32,443 shares outstanding as of June 30,
1999)..................................................... 162,213 (162,213) --
Capital in excess of par value.............................. 1,197,512 286,035 (286,035) 1,197,512
Retained earnings........................................... 769,014 94,217 (94,217) 769,014
Treasury stock, at cost (1,500 shares at June 30, 1999)..... (38,997) (987) 987 (38,997)
--------------- ----------- ----------- -----------
Total Common Stock Equity............................... 1,928,847 541,478 (541,478) 1,928,847
--------------- ----------- ----------- -----------
Total Liabilities and Shareholders' Equity.............. $5,156,479 $2,257,590 $ 50,206 $7,464,275
--------------- ----------- ----------- -----------
--------------- ----------- ----------- -----------
</TABLE>
The notes on pages 90 and 91 are an integral part of the pro forma combined
condensed financial statements.
87
<PAGE>
ENERGY EAST CORPORATION COMBINED CONDENSED STATEMENT OF INCOME
GIVING EFFECT TO THE SALES OF ENERGY EAST'S GENERATION ASSETS, THE CTG RESOURCES
MERGER, THE CONNECTICUT ENERGY MERGER, THE SALE OF CMP GROUP'S GENERATION ASSETS
AND THE CMP GROUP MERGER
ACTUAL AND PRO FORMA
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31, 1998
ENERGY EAST,
GENERATION, CTG FISCAL YEAR SALE OF CMP GROUP
RESOURCES AND ENDED GENERATION PRO MERGER PRO
CONNECTICUT ENERGY DECEMBER 31, 1998 FORMA FORMA PRO FORMA
PRO FORMA(1) CMP GROUP ACTUAL ADJUSTMENTS(1) ADJUSTMENTS ENERGY EAST
------------------ ----------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(in thousands, except per share amounts)
Operating Revenues
Sales and services......................... $2,435,396 $950,327 $ 3,385,723
Operating Expenses
Fuel used in electricity generation........ 11 30,898 $ (29,000) 1,909
Electricity purchased...................... 601,691 454,732 102,022 1,158,445
Natural gas purchased...................... 423,187 423,187
Other operating expenses................... 408,947 213,489 (18,413) 604,023
Maintenance................................ 85,047 41,051 (10,020) 116,078
Depreciation and amortization.............. 156,046 56,493 (12,300) $ 11,828(9) 212,067
Other taxes................................ 208,259 27,783 (10,476) 225,566
------------------ -------- -------------- ----------- -----------
Total Operating Expenses................. 1,883,188 824,446 21,813 11,828 2,741,275
------------------ -------- -------------- ----------- -----------
Operating Income............................. 552,208 125,881 (21,813) (11,828) 644,448
Other Income and Deductions.................. 4,466 (24,683) (20,217)
Interest Charges, Net........................ 152,975 51,147 (11,600) 37,500(5) 230,022
Preferred Stock Dividends of Subsidiary...... 8,644 4,809 13,453
------------------ -------- -------------- ----------- -----------
Income Before Federal Income Taxes........... 386,123 94,608 (10,213) (49,328) 421,190
Federal Income Taxes......................... 151,894 41,698 (4,085) (13,125)(8) 176,382
------------------ -------- -------------- ----------- -----------
Net Income................................... $ 234,229 $ 52,910 $ (6,128) $(36,203) $ 244,808
------------------ -------- -------------- ----------- -----------
------------------ -------- -------------- ----------- -----------
Earnings Per Share, basic and diluted........ $ 1.64 $ 1.71
Average Common Shares Outstanding............ 143,159 143,159
</TABLE>
The notes on pages 90 and 91 are an integral part of the pro forma combined
condensed financial statements.
Per share amounts and number of average Energy East shares outstanding have been
restated to reflect Energy East's two-for-one common stock split, effective
April 1, 1999.
88
<PAGE>
ENERGY EAST CORPORATION COMBINED CONDENSED STATEMENT OF INCOME
GIVING EFFECT TO THE SALES OF ENERGY EAST'S GENERATION ASSETS, THE CTG RESOURCES
MERGER, THE CONNECTICUT ENERGY MERGER, THE SALE OF CMP GROUP'S GENERATION ASSETS
AND THE CMP GROUP MERGER
SIX MONTHS ENDED JUNE 30, 1999
ACTUAL AND PRO FORMA
(UNAUDITED)
<TABLE>
<CAPTION>
ENERGY EAST,
GENERATION, CTG SALE OF CMP GROUP
RESOURCES AND GENERATION PRO MERGER
CONNECTICUT ENERGY CMP GROUP FORMA PRO FORMA PRO FORMA
PRO FORMA(1) ACTUAL ADJUSTMENTS(1) ADJUSTMENTS ENERGY EAST
------------------ ---------- -------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
(in thousands, except per share amounts)
Operating Revenues
Sales and services................ $ 1,382,831 $ 501,801 $ 1,884,632
Operating Expenses
Fuel used in electricity
generation...................... 16,674 10,207 $ (7,656) 19,225
Electricity purchased............. 356,189 237,305 26,933 620,427
Natural gas purchased............. 244,612 244,612
Other operating expenses.......... 186,733 117,951 (3,683) 301,001
Maintenance....................... 40,884 16,299 (2,004) 55,179
Depreciation and amortization..... 584,521 26,677 (3,075) $ 5,914(9) 614,037
Other taxes....................... 120,360 12,153 (2,619) 129,894
Gain on sale of generation
assets.......................... (674,572) (674,572)
Writeoff of Nine Mile Point 2..... 69,930 69,930
------------------ ---------- ------- -------- ------------
Total Operating Expenses...... 945,331 420,592 7,896 5,914 1,379,733
------------------ ---------- ------- -------- ------------
Operating Income.................... 437,500 81,209 (7,896) (5,914) 504,899
Other Income and Deductions......... (11,599) (18,183) (29,782)
Merger Related Expenses............. 1,537 1,537
Interest Charges, Net............... 79,895 31,248 (2,900) 18,750(5) 126,993
Preferred Stock Dividends of
Subsidiary........................ 1,752 1,838 3,590
------------------ ---------- ------- -------- ------------
Income Before Federal Income
Taxes............................. 365,915 66,306 (4,996) (24,664) 402,561
Federal Income Taxes................ 191,341 29,008 (1,998) (6,563)(8) 211,788
------------------ ---------- ------- -------- ------------
Net Income.......................... $ 174,574 $ 37,298 $ (2,998) $ (18,101) $ 190,773
------------------ ---------- ------- -------- ------------
------------------ ---------- ------- -------- ------------
Earnings Per Share, basic and
diluted........................... $ 1.30 $ 1.42
Average Common Shares Outstanding... 134,180 134,180
</TABLE>
The notes on pages 90 and 91 are an integral part of the pro forma combined
condensed financial statements.
Per share amounts and number of average Energy East shares outstanding have been
restated to reflect Energy East's two-for-one common stock split, effective
April 1, 1999.
89
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
GIVING EFFECT TO THE SALES OF ENERGY EAST'S GENERATION ASSETS,
THE CTG RESOURCES MERGER, THE CONNECTICUT ENERGY MERGER, THE SALE OF
CMP GROUP'S GENERATION ASSETS AND THE CMP GROUP MERGER
NOTE 1. UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
The unaudited pro forma combined condensed balance sheet as of June 30,
1999, has been adjusted to give effect to the disposition of Energy East's 18%
interest in the Nine Mile Point nuclear generating unit No. 2 to AmerGen Energy
Company, which it expects to complete early next year, the CTG Resources merger,
the Connecticut Energy merger, the sale of CMP Group's generation assets and the
CMP Group merger. The actual balance sheet for June 30, 1999, includes the sales
of Energy East's coal-fired generation assets and the sale of CMP Group's steam
and hydro generation assets that were completed this year prior to June 30,
1999. The unaudited pro forma combined condensed statements of income for the
six months ended June 30, 1999, and the twelve months ended December 31, 1998,
give effect to all of the sales of Energy East's generation assets, the CTG
Resources merger, the Connecticut Energy merger, the sale of CMP Group's
generation assets and the CMP Group merger.
NOTE 2. ACCOUNTING METHOD.
The CMP Group merger will be accounted for as an acquisition of CMP Group by
Energy East under the purchase method of accounting in accordance with generally
accepted accounting principles. A portion of the purchase price will be
allocated to nonutility assets and liabilities of CMP Group based on their
estimated fair market values at the date of acquisition. As a regulated utility,
the assets and liabilities of Central Maine Power Company will not be revalued.
The difference between the purchase price, representing fair value, and the
recorded amounts will be shown as goodwill on the balance sheet.
NOTE 3. MERGER.
The historical consolidated financial statements of Energy East, Connecticut
Energy, and CMP Group for the 12 months ended December 31, 1998, and September
30, 1998, and as of and for the six months ended June 30, 1999, have been
adjusted to give effect to the Connecticut Energy merger and the CMP Group
merger.
NOTE 4. CASH CONSIDERATION.
Reflects the cash consideration paid to CMP Group shareholders based on a
purchase price of $29.50 per share for all of the CMP Group shares outstanding.
NOTE 5. NOTES PAYABLE.
Reflects the issuance of $500 million principal amount of notes payable with
an assumed interest rate of 7.5%, the proceeds of which may be used to fund the
consideration paid to CMP Group shareholders.
NOTE 6. MERGER-RELATED COSTS.
Energy East and CMP Group will incur direct expenses related to the merger,
including accounting and consulting fees. The pro forma adjustments include an
estimate for Energy East's merger-related costs of $6.5 million, which is
included in goodwill. CMP Group expects to incur approximately $7.5 million of
merger-related costs, which it will expense as incurred. The actual
90
<PAGE>
amount of merger-related costs may differ from the amounts reflected in the
unaudited pro forma combined condensed financial statements.
NOTE 7. GOODWILL.
Reflects the recognition of an amount of goodwill equal to the excess of the
estimated purchase price of $957 million over the estimated net fair value of
the assets and liabilities of CMP Group acquired of $541.5 million, plus
estimated transaction costs of $6.5 million related to the merger, increased by
the estimated difference between CMP Group's pension and other postretirement
benefit obligations and the fair value of the respective plan assets.
NOTE 8. INCOME TAXES.
Income taxes on the pro forma financial statements have been based on the
statutory rate and adjusted for goodwill, which is not tax deductible.
NOTE 9. AMORTIZATION OF GOODWILL.
Represents the amortization of goodwill, for financial accounting purposes,
over a 40-year period. The goodwill is not amortizable for tax purposes.
91
<PAGE>
COMPARATIVE RIGHTS OF CTG RESOURCES
SHAREHOLDERS AND ENERGY EAST SHAREHOLDERS
As a result of the merger, some or all of the CTG Resources shareholders
will become Energy East shareholders. The rights of CTG Resources shareholders
are presently governed by the Connecticut Business Corporation Act, the CTG
Resources certificate of incorporation and the CTG Resources by-laws. In
contrast, the rights of Energy East shareholders are governed by the New York
Business Corporation Law, the Energy East certificate of incorporation and the
Energy East by-laws. The following is a summary comparison of the material
differences between the rights of CTG Resources shareholders and the rights of
Energy East shareholders.
This summary does not purport to be a complete discussion of, and is
qualified in its entirety by reference to, the New York Business Corporation
Law, the Connecticut Business Corporation Act, and the certificates of
incorporation and by-laws of the two companies, copies of which are on file with
the SEC.
ENERGY EAST CTG RESOURCES
<TABLE>
<S> <C>
AUTHORIZED CAPITAL STOCK
Energy East's authorized capital stock consists of CTG Resources's authorized capital stock consists
300,000,000 shares of common stock, par value $.01 per of 20,000,000 shares of common stock, of which
share, of which 113,915,628 were outstanding at the 8,648,029 were outstanding at the close of business on
close of business on August 13, 1999, and 10,000,000 August 13, 1999, 2,000,000 shares of preferred stock,
shares of preferred stock, par value $.01 per share, none of which was outstanding at the close of business
none of which was outstanding at the close of business on August 13, 1999 and 200,000 shares of Series A
on August 13, 1999. Junior Participating Preferred Stock, none of which was
outstanding as of August 13, 1999.
VOTING RIGHTS
Each Energy East shareholder generally is entitled Each CTG Resources shareholder is entitled to one
to one vote per share. In elections of directors, vote per share. CTG Resources shareholders may not
however, Energy East shareholders are entitled to cumulate their votes in an election of directors.
"cumulate" their votes. Under "cumulative voting," the
total number of votes that a shareholder may cast in an
election of directors equals the number of directors to
be elected multiplied by the number of shares held; the
shareholder may cast all of his votes for a single
director, or he may distribute the votes among two or
more directors.
DIVIDENDS
Under the New York Business Corporation Law, Energy Under the Connecticut Business Corporation Act, CTG
East may declare and pay dividends or make other Resources may make distributions to its shareholders
distributions to Energy East shareholders (subject to (subject to restrictions in its certificate of
the rights of preferred stock, none of which is incorporation), unless, after doing so, CTG Resources
outstanding), unless, after doing so, Energy East would would be unable to pay its debts as they become due in
be unable to pay its debts as they become due in the the usual course of its business, or its total assets
ordinary course would be less than
</TABLE>
92
<PAGE>
<TABLE>
<S> <C>
of its business, or when doing so would be contrary to the sum of its total liabilities plus the amount that
any restrictions contained in the Energy East would be needed, upon a dissolution, to satisfy the
certificate of incorporation. Moreover, the net assets preferential rights of shareholders whose preferential
of Energy East remaining after a declaration, payment, rights are superior to those receiving the
or distribution must be at least as much as Energy distribution.
East's stated capital.
ELECTION AND CLASSIFICATION OF THE BOARD OF DIRECTORS
The Energy East board of directors is composed of The CTG Resources board of directors is composed of
three classes. One class is elected each year for a three classes. One class is elected each year for a
three-year term. three-year term.
SIZE OF THE BOARD OF DIRECTORS
The Energy East board of directors may fix the The CTG Resources board of directors or the
number of directors by a vote of a majority of the shareholders may fix the number of directors. The CTG
directors then in office. When the Energy East board of Resources board of directors currently consists of ten
directors increases the number of directors, it will directors.
elect the additional directors. The Energy East board
of directors currently consists of ten directors. After
the mergers with CTG Resources, Connecticut Energy and
CMP Group, the Energy East board of directors will
consist of 15 directors.
REMOVAL OF DIRECTORS; FILLING OF VACANCIES
Under the Energy East by-laws, except as otherwise Under the CTG Resources certificate of
provided by the New York Business Corporation Law, a incorporation and by-laws, a director can be removed
director may be removed only for cause and only by a only by the affirmative vote of at least 75% of the
majority of the outstanding Energy East shares at a outstanding CTG Resources voting stock. Under the CTG
meeting of shareholders. The New York Business Resources by-laws, any vacancies on the CTG Resources
Corporation Law provides that, when a corporation has board of directors may be filled by the affirmative
cumulative voting, no director may be removed when the vote of a majority of the remaining directors, even
votes cast against his removal would be sufficient to though less than a quorum. Vacancies on the board may
elect him if voted cumulatively. Any vacancies on the also be filled by the shareholders.
Energy East board of directors will be filled solely by
the affirmative vote of a majority of the remaining
directors, even though less than a quorum, and not by
the shareholders.
SPECIAL MEETINGS OF SHAREHOLDERS
Under the Energy East by-laws, special meetings of Under the CTG Resources by-laws, special meetings
shareholders may be called by the chairman, the of shareholders may be called by the chairman of the
president or at the request of a majority of the board board, a majority of the CTG Resources board of
of directors or of a majority of the outstanding Energy directors or on the request of shareholders holding at
East shares. Energy East shareholders may act without a least 35% of the outstanding CTG Resources voting
meeting but stock. Under
</TABLE>
93
<PAGE>
<TABLE>
<S> <C>
only by unanimous written consent. Under the New York the Connecticut Business Corporation Act, the only
Business Corporation Law, the only business that may be business that may be conducted at a special meeting of
conducted at a special meeting of shareholders is that shareholders is that which is related to the purposes
which is related to the purposes set forth in the set forth in the notice of the meeting.
notice of the meeting.
ADVANCE NOTICE PROVISIONS
For an Energy East shareholder to nominate For a CTG Resources shareholder to nominate
individuals for election as directors or to bring a individuals for election as directors at, or to bring a
matter before an annual meeting, the secretary of matter before, an annual meeting, the shareholder must
Energy East must receive written notice of the deliver notice in writing to the secretary of CTG
shareholder's intent, containing certain required Resources not less than 70 days and not more than 90
information. With respect to an election at, or a days before the first anniversary of the preceding
matter to be brought before an annual meeting, the year's annual meeting. However, if the date of the
secretary must receive the notice between 90 and 120 annual meeting is advanced by more than 20 days or
days before the anniversary of the preceding annual delayed by more than 70 days from that anniversary
meeting. With respect to an election at a special date, notice must be delivered not less than 70 days
meeting, the secretary must receive the notice at least before the meeting, not more than 90 days before the
ten days before the earlier of (1) the date notice of meeting and not more than 10 days after the
the special meeting was mailed and (2) the date that announcement of the meeting date. With respect to an
the date of the special meeting was publicly disclosed. election at a special meeting, a CTG Resources
shareholder must deliver notice to the secretary of CTG
Resources not less than 70 days before the meeting, not
more than 90 days before the meeting and not more than
10 days after the announcement of the meeting date.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The New York Business Corporation Law generally Under the CTG Resources by-laws, CTG Resources will
provides that a corporation may indemnify an officer or indemnify, to the fullest extent permitted by law, a
director made a party or threatened to be made a party director, officer, employee or agent of CTG Resources.
to any type of proceeding against judgments, fines, Under the Connecticut Business Corporation Act, CTG
amounts paid in settlement and expenses (including Resources generally may indemnify a director against
attorneys' fees) actually and necessarily incurred in liability incurred because he is or was a director if:
connection with the proceedings: - he conducted himself in good faith;
- if he acted in good faith for a purpose he - he reasonably believed (a) in the case of
reasonably believed to be in or not opposed to conduct in his official capacity with CTG
the best interests of the corporation; and Resources, that his conduct was in the best
- in the case of a criminal proceeding, if he had interests of CTG Resources, and (b) in all other
no reasonable cause to believe that his conduct cases, that his conduct was at least not opposed
was unlawful. to CTG Resources's best interests; and
The New York Business Corporation Law sets specific - in the case of any criminal proceeding, he had
standards only for indemnification of no reasonable cause to believe his conduct was
unlawful.
</TABLE>
94
<PAGE>
<TABLE>
<S> <C>
officers and directors, but it permits corporations to Also under Connecticut law, CTG Resources generally
indemnify corporate personnel other than officers and may indemnify an officer, employee or agent of CTG
directors. Resources who is not a director to the same extent as a
Energy East's by-laws generally provide for director, and, in addition, to the extent consistent
indemnification, as described above, of directors and with public policy, or as provided by contract, CTG
officers, as well as employees, of Energy East and of Resources's certificate of incorporation or by-laws.
other companies which such persons were serving at the A director, officer or employee may be entitled to
request of Energy East, to the extent not prohibited by other indemnification rights arising under any statute,
law. Under Energy East's by-laws, a director, officer certificate of incorporation, by-law or agreement.
or employee may be entitled to other indemnification
rights arising under any statute, certificate of
incorporation, by-law or agreement.
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Energy East certificate of incorporation The CTG Resources certificate of incorporation
generally may be amended by a majority of the generally may be amended by a majority of the votes
outstanding Energy East shares but the provision entitled to be cast on the amendment by any voting
relating to amendments to certain by-laws may be group with respect to which the amendment would create
amended only by two-thirds of the votes of the dissenters' rights. The provisions of the certificate
outstanding Energy East shares. Furthermore, under the of incorporation relating to transactions with
New York Business Corporation Law, any amendment to the interested shareholders may be amended only by 75% of
Energy East certificate of incorporation must be the CTG Resources voting stock. Furthermore, under the
authorized by the Energy East board of directors. Connecticut Business Corporation Act, any amendment to
the CTG Resources certificate of incorporation
generally must be recommended by the CTG Resources
board of directors. The CTG Resources board of
directors may condition its recommendation on any
basis, including increased voting requirements, within
the limits provided by the Connecticut Business
Corporation Act.
AMENDMENT OF BY-LAWS
The Energy East by-laws may be amended by a The CTG Resources by-laws may be amended by (1) the
majority of the outstanding Energy East shares, or by a holders of at least two-thirds of CTG Resources voting
majority of the Energy East board of directors. stock, or (2) two-thirds of the CTG Resources board of
However, an amendment of some by-laws, if by action of directors.
Energy East shareholders, must be by two-thirds of the
outstanding Energy East shares. The by-laws that may
not be amended without a supermajority vote generally
relate to the advance notice procedures, special
meetings of shareholders, structure of the Energy East
board of directors and amendment of the supermajority
requirements.
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DUTY OF DIRECTORS
Under the New York Business Corporation Law, in Under the Connecticut Business Corporation Act, in
performing his duties, an Energy East director is performing his duties, a CTG Resources director is
required to act in good faith and to use that degree of required to act in good faith, with the care an
care that an ordinarily prudent person in a similar ordinarily prudent person in a similar position would
position would use under similar circumstances. exercise under similar circumstances and in a manner he
In taking action, including action that may involve reasonably believes to be in CTG Resources's best
or relate to a change or potential change in control of interests.
Energy East, a director may consider the long-term and In taking action related to mergers, sales of
short-term interests of Energy East and Energy East assets and business combinations, a director must also
shareholders and the effects that Energy East's actions consider:
may have in the short-term or in the long-term upon - CTG Resources's long-term and short-term
Energy East's: interests;
- prospects for growth and development; - CTG Resources shareholders' long-term and
- current employees; short-term interests, including the possibility
- retired employees and others receiving that those interests may be best served by CTG
retirement, welfare or similar benefits from or Resources's continued independence;
pursuant to any plan or agreement of Energy - the interests of CTG Resources's employees,
East; customers, creditors and suppliers;
- customers and creditors; and - community and societal considerations, including
- ability to provide, as a going concern, goods, those of any community in which CTG Resources
services, employment opportunities and has an office or other facility; and
employment benefits and otherwise to contribute - any other factors the director reasonably
to the communities in which it does business. considers appropriate in determining what the
director reasonably believes to be in the best
interests of the corporation.
BUSINESS COMBINATIONS
Under the Energy East certificate of incorporation, Under the Connecticut Business Corporation Act, an
a majority of the outstanding Energy East shares are affirmative vote by two-thirds of the outstanding
needed to adopt a plan of merger or consolidation. shares are needed to adopt a plan of merger or
consolidation, unless the Connecticut corporation is
the surviving corporation.
Section 912 of the New York Business Corporation The Connecticut Business Corporation Act prohibits
Law prohibits a New York corporation from engaging in a Connecticut corporation from engaging in a merger,
certain business combinations with an interested consolidation or other business combination with an
shareholder (generally, the beneficial owner of 20% or interested shareholder (generally, the beneficial owner
more of a corporation's voting stock) for five years of 10% or more of a corporation's voting stock) for
following the time the shareholder became an interested five years following the time the shareholder became an
shareholder, unless, prior to that time, the interested shareholder, unless, prior to that time, the
corporation's board of directors approved the business corporation's board of directors and a majority of the
combination or the transaction that resulted in the non-employee directors, of which there must be at least
shareholder becoming an two, approved the business
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interested shareholder. After five years, these combination or the transaction that resulted in the
business combinations may occur if approved by a shareholder becoming an interested shareholder. After
majority vote of shares not owned by the interested five years, business combinations may occur only if
shareholder, or if specific fair price requirements are approved by 80% of the outstanding shares of the
met. corporation and by two-thirds of the voting power of
the corporation other than voting power held by an
interested shareholder who is a party to the proposed
business combination.
FAIR PRICE PROVISIONS
Under the New York Business Corporation Law, a Under the CTG Resources certificate of
corporation may engage in a business combination with incorporation, CTG Resources shareholders are entitled
any interested shareholder when the cash and other to receive the fair value of their CTG Resources shares
consideration to be received by the other shareholders in the event of a business combination with an
is the higher of: interested shareholder. The fair value of the CTG
- the highest per share price paid by the Resources shares is at least equal to the highest price
interested shareholder at a time when he paid by the interested shareholder of CTG Resources
beneficially owned at least five percent of the within the two years preceding the date on which he
outstanding voting stock and within the five became an interested shareholder.
years immediately prior to the date the business
combination is first announced;
- the highest price paid by the interested
shareholder within the five years immediately
prior to, or in, the transaction in which he
became an interested shareholder; and
- the market value per share of common stock on
the date the business combination is first
announced or on the interested shareholder's
stock acquisition date, whichever is higher;
plus, in each case, any accrued interest, and less, in
each case, any paid dividends.
STATE LAW TAKEOVER LEGISLATION
The New York Security Takeover Disclosure Act does The Connecticut Tender Offer Act generally places
not apply to Energy East because Energy East is a restrictions on tender offers and purchases of equity
public utility holding company (as defined in the securities. However, this statute does not apply to
Public Utility Holding Company Act) and any takeover companies like CTG Resources that are public utility
bid would be subject to SEC approval. holding companies (as defined in the Public Utility
Holding Company Act), an acquisition of which would be
subject to SEC approval.
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SHAREHOLDER RIGHTS PLAN
Energy East does not have a shareholder rights CTG Resources is a party to a rights agreement,
plan. dated as of December 1, 1998, as amended, between CTG
Resources and Chase Mellon Shareholder Services, LLC,
as rights agent. Under the agreement, CTG Resources
shares currently trade with certain stock purchase
rights. These rights, which cannot be traded separately
from CTG Resources shares, become exercisable upon the
occurrence of certain triggering events, including
acquisition by any beneficial holder of 15% or more of
CTG Resources shares or the announcement of a tender or
exchange offer that would result in such beneficial
ownership. The rights agreement could have the effect
of delaying, deferring or preventing a takeover or
change of control of CTG Resources that the CTG
Resources board of directors has not approved. The
rights agreement does not apply to the proposed merger
between CTG Resources and Energy East, and will be
terminated upon completion of the merger.
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LEGAL MATTERS
The validity of the Energy East shares to be issued in the merger will be
passed upon for Energy East by Huber Lawrence & Abell. As of August 13, members
of Huber Lawrence & Abell owned 4,387 Energy East shares.
EXPERTS
The consolidated financial statements of Energy East incorporated in this
proxy statement/ prospectus by reference from Energy East's Annual Report on
Form 10-K for the year ended December 31, 1998 have been incorporated by
reference in reliance on the report of PricewaterhouseCoopers LLP, independent
auditors, given on authority of that firm as experts in accounting and auditing.
The consolidated financial statements of CTG Resources incorporated in this
proxy statement/ prospectus by reference from CTG Resources's Annual Report on
Form 10-K for the year ended September 30, 1998 have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in giving said report.
The consolidated financial statements of Connecticut Energy incorporated in
this proxy statement/ prospectus by reference from Connecticut Energy's Annual
Report on Form 10-K for the year ended September 30, 1998 have been incorporated
by reference in reliance on the report of PricewaterhouseCoopers LLP,
independent auditors, given on authority of that firm as experts in accounting
and auditing.
The consolidated financial statements of CMP Group incorporated in this
proxy statement/ prospectus by reference from CMP Group's Annual Report on Form
10-K for the year ended December 31, 1998 have been incorporated by reference in
reliance on the report of PricewaterhouseCoopers LLP, independent auditors,
given on authority of that firm as experts in accounting and auditing.
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Arthur Andersen LLP expect to be present at the special
meeting and will be available to respond to appropriate questions from
shareholders in attendance. Although these representatives have stated that they
do not intend to make any statements at the special meeting, they will have the
opportunity to do so.
OTHER MATTERS
Pursuant to Connecticut law, the business that may be conducted at the
special meeting is confined to the purpose described in the notice of special
meeting of shareholders that accompanies this proxy statement/prospectus.
SHAREHOLDER PROPOSALS
If CTG Resources shareholders approve the merger agreement and the merger is
completed prior to the 2000 annual meeting of shareholders, CTG Resources will
not hold the 2000 annual meeting of shareholders. If the merger is not
completed, proposals by shareholders intended to be presented at the CTG
Resources 2000 annual meeting of shareholders must have been received by the
secretary of CTG Resources at CTG Resources's principal office in Hartford,
Connecticut no later than August 19, 1999 to be included in CTG Resources's
proxy, notice of meeting and proxy statement relating to that meeting. Any
shareholder intending to propose any matter at the CTG Resources 2000 annual
meeting of shareholders but not intending CTG Resources to include the matter in
its proxy, notice of meeting and proxy statement relating to that meeting must
notify CTG Resources by December 15, 1999 of that intention. If CTG Resources
does not receive the notice by that date, the notice will be considered
untimely. CTG Resources's proxy for its 2000 annual meeting of shareholders will
grant authority to the persons named in the proxy to exercise their voting
discretion with respect to any matter of which CTG Resources does not receive
notice by December 15, 1999.
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<PAGE>
CERTAIN PROXY CARD MATTERS
If you participate in the CTG Resources Restricted Stock Plan or Dividend
Reinvestment Plan, your proxy card represents both the number of CTG Resources
shares registered in your name and the number of shares credited to your
account, unless the registrations are different. CTG Resources shareholders
having shares registered in different names will receive a proxy card for each
registration. If your shares are held by a broker as nominee, you will receive a
voter information form from your broker. All these shares will be voted in
accordance with the instructions on the proxy card.
100
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
CTG Resources and Energy East 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:
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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. CTG Resources's and Energy East'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 CTG Resources and Energy East can
be inspected at the New York Stock Exchange, 20 Broad Street, 7th Floor, New
York, New York 10005, where CTG Resources shares and Energy East shares are
listed.
The SEC allows CTG Resources and Energy East to "incorporate by reference"
information into this document, which means that CTG Resources and Energy East
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 document, except for any information superseded by
information contained directly in, or incorporated by reference in, this
document. This document incorporates by reference the documents set forth below
that were previously filed with the SEC by CTG Resources (SEC File No. 1-12859),
Energy East (SEC File No. 1-14766) Connecticut Energy (SEC File No. 1-08369) or
CMP Group (SEC File No. 1-14786). These documents contain important information
about CTG Resources, Energy East, Connecticut Energy and CMP Group.
REGARDING CTG RESOURCES
- CTG Resources's Annual Report on Form 10-K, as amended on June 30, 1999,
for the fiscal year ended September 30, 1998.
- CTG Resources's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1998.
- CTG Resources's Quarterly Report on Form 10-Q for the quarter ended March
31, 1999.
- CTG Resources's Quarterly Report on Form 10-Q for the quarter ended June
30, 1999.
- CTG Resources's Current Report on Form 8-K dated December 2, 1998.
- CTG Resources's Current Report on Form 8-K dated June 29, 1999.
REGARDING ENERGY EAST
- Energy East's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.
- Energy East's Quarterly Report on Form 10-Q for the quarter ended March
31, 1999.
- Energy East's Quarterly Report on Form 10-Q for the quarter ended June 30,
1999.
- Energy East's Current Report on Form 8-K dated April 23, 1999.
- Energy East's Current Report on Form 8-K dated June 14, 1999.
- Energy East's Current Report on Form 8-K dated June 29, 1999.
- Energy East's S-8 dated December 17, 1998 (for a description of Energy
East capital stock).
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REGARDING CONNECTICUT ENERGY
- Connecticut Energy's Annual Report on Form 10-K for the fiscal year ended
September 30, 1998.
- Connecticut Energy's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1998.
- Connecticut Energy's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999.
- Connecticut Energy's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999.
- Connecticut Energy's Current Report on Form 8-K dated February 18, 1999.
- Connecticut Energy's Current Report on Form 8-K dated April 22, 1999.
REGARDING CMP GROUP
- CMP Group's Annual Report on Form 10-K, as amended on June 30, 1999, for
the fiscal year ended December 31, 1998.
- CMP Group's Quarterly Report on Form 10-Q for the quarter ended March 31,
1999.
- CMP Group's Quarterly Report on Form 10-Q for the quarter ended June 30,
1999.
- CMP Group's Current Report on Form 8-K dated January 19, 1999.
- CMP Group's Current Report on Form 8-K dated April 7, 1999.
- CMP Group's Current Report on Form 8-K dated June 14, 1999.
The SEC may require CTG Resources and Energy East to file other documents
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act between the
time this document is sent and the date the special meeting is held. These other
documents will be deemed to be incorporated by reference in this document and to
be a part of it from the date they are filed with the SEC.
If you are a CTG Resources shareholder, we may have already sent you some of
the documents incorporated by reference. Nevertheless, you may obtain any of
them through us, the SEC, or the SEC's Internet world wide web site as
previously described. Documents incorporated by reference are available from us
without charge, excluding all exhibits unless we have specifically incorporated
by reference an exhibit in this document. You may obtain documents incorporated
by reference in this document by requesting them in writing or by telephone from
the appropriate company at the following addresses:
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CTG RESOURCES, INC. ENERGY EAST CORPORATION
P.O. Box 1500 Shareholder Services
100 Columbus Boulevard P.O. Box 3200
Hartford, Connecticut 06144-1500 Ithaca, New York 14852-3200
(860) 727-3000 (800) 225-5643
</TABLE>
If you would like to request documents from CTG Resources or Energy East,
please do so promptly in order to receive them before the special meeting.
CTG Resources has provided all information contained in or incorporated by
reference in this document with respect to CTG Resources. Energy East has
provided all information contained in or incorporated by reference in this
document with respect to Energy East. Neither CTG Resources nor Energy East
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 DOCUMENT 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 DOCUMENT. THIS DOCUMENT IS DATED AUGUST [ ], 1999. YOU SHOULD
NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS DOCUMENT IS ACCURATE AS OF ANY
DATE OTHER THAN SUCH DATE. NEITHER THE MAILING OF THIS DOCUMENT TO STOCKHOLDERS
NOR THE COMPLETION OF THE MERGER WILL CREATE ANY IMPLICATION TO THE CONTRARY.
102
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INDEX OF DEFINED TERMS
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Alternative Proposals................................................................................... 63
Average Market Price.................................................................................... 28
EBIT.................................................................................................... 39
EBITDA.................................................................................................. 39
EPS..................................................................................................... 39
Highest Annual Bonus.................................................................................... 48
LTM..................................................................................................... 39
NYSEG................................................................................................... 22
Special Retirement Benefit.............................................................................. 47
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CTG RESOURCES, INC.,
ENERGY EAST CORPORATION
AND
OAK MERGER CO.,
DATED AS OF JUNE 29, 1999
A-i
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TABLE OF CONTENTS
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ARTICLE I THE MERGER..................................................................................... A-1
Section 1.1 The Merger..................................................................... A-1
Section 1.2 Effects of the Merger.......................................................... A-1
Section 1.3 Effective Time of the Merger................................................... A-1
Section 1.4 Directors...................................................................... A-2
Section 1.5 Officers....................................................................... A-2
ARTICLE II TREATMENT OF SHARES........................................................................... A-2
Section 2.1 Effect of the Merger on Capital Stock.......................................... A-2
Section 2.2 Exchange of Certificates....................................................... A-6
ARTICLE III THE CLOSING.................................................................................. A-8
Section 3.1 Closing........................................................................ A-8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................. A-8
Section 4.1 Organization And Qualification................................................. A-8
Section 4.2 Subsidiaries................................................................... A-8
Section 4.3 Capitalization................................................................. A-9
Section 4.4 Authority; Non-contravention; Statutory Approvals; Compliance.................. A-9
Section 4.5 Reports and Financial Statements............................................... A-11
Section 4.6 Absence of Certain Changes or Events........................................... A-11
Section 4.7 Litigation..................................................................... A-11
Section 4.8 Registration Statement and Proxy Statement..................................... A-11
Section 4.9 Tax Matters.................................................................... A-11
Section 4.10 Employee Matters; ERISA........................................................ A-13
Section 4.11 Environmental Protection....................................................... A-16
Section 4.12 Regulation as a Utility........................................................ A-17
Section 4.13 Vote Required.................................................................. A-18
Section 4.14 Opinion of Financial Advisor................................................... A-18
Section 4.15 Ownership of Parent Common Stock............................................... A-18
Section 4.16 Takeover Laws; Rights Plans.................................................... A-18
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT....................................................... A-19
Section 5.1 Organization and Qualification................................................. A-19
Section 5.2 Subsidiaries................................................................... A-19
Section 5.3 Capitalization................................................................. A-19
Section 5.4 Authority; Non-contravention; Statutory Approvals; Compliance.................. A-20
Section 5.5 Reports and Financial Statements............................................... A-21
Section 5.6 Absence of Certain Changes or Events........................................... A-21
Section 5.7 Litigation..................................................................... A-21
Section 5.8 Registration Statement and Proxy Statement..................................... A-21
Section 5.9 Regulation as a Utility........................................................ A-22
Section 5.10 Ownership of the Company Common Stock.......................................... A-22
Section 5.11 Environmental Protection....................................................... A-22
Section 5.12 Operations of Nuclear Power Plant.............................................. A-22
Section 5.13 Code Section 368(a)............................................................ A-23
ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER........................................................ A-23
Section 6.1 Covenants of the Parties....................................................... A-23
Section 6.2 Covenant of the Company; Alternative Proposals................................. A-26
Section 6.3 Employment Agreement........................................................... A-27
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Section 6.4 Additional Statutory Approvals................................................. A-27
ARTICLE VII ADDITIONAL AGREEMENTS........................................................................ A-28
Section 7.1 Access to Information.......................................................... A-28
Section 7.2 Proxy Statement and Registration Statement..................................... A-28
Section 7.3 Regulatory Matters............................................................. A-29
Section 7.4 Company Shareholders' Approval................................................. A-29
Section 7.5 Directors' and Officers' Indemnification....................................... A-29
Section 7.6 Disclosure Schedules........................................................... A-30
Section 7.7 Public Announcements........................................................... A-30
Section 7.8 Rule 145 Affiliates............................................................ A-31
Section 7.9 Certain Employee Agreements.................................................... A-31
Section 7.10 Employee Benefit Plans......................................................... A-31
Section 7.11 Company Stock and Other Plans.................................................. A-32
Section 7.12 Expenses....................................................................... A-33
Section 7.13 Further Assurances............................................................. A-33
Section 7.14 Corporate Offices.............................................................. A-33
Section 7.15 Parent Board of Directors...................................................... A-34
Section 7.16 Community Involvement.......................................................... A-34
Section 7.17 Advisory Board................................................................. A-34
Section 7.18 Tax-free Status................................................................ A-34
ARTICLE VIII CONDITIONS.................................................................................. A-34
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger..................... A-34
Section 8.2 Conditions to Obligation of Parent to Effect the Merger........................ A-35
Section 8.3 Conditions to Obligation of the Company to Effect the Merger................... A-36
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER............................................................. A-37
Section 9.1 Termination.................................................................... A-37
Section 9.2 Effect of Termination.......................................................... A-38
Section 9.3 Termination Fee; Expenses...................................................... A-38
Section 9.4 Amendment...................................................................... A-39
Section 9.5 Waiver......................................................................... A-39
ARTICLE X GENERAL PROVISIONS............................................................................. A-39
Section 10.1 Non-survival; Effect of Representations and Warranties......................... A-39
Section 10.2 Brokers........................................................................ A-39
Section 10.3 Notices........................................................................ A-40
Section 10.4 Miscellaneous.................................................................. A-40
Section 10.5 Interpretation................................................................. A-41
Section 10.6 Counterparts; Effect........................................................... A-41
Section 10.7 Parties in Interest............................................................ A-41
Section 10.8 Waiver of Jury Trial and Certain Damages....................................... A-41
Section 10.9 Enforcement.................................................................... A-41
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<PAGE>
INDEX OF DEFINED TERMS
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1935 Act.................................................................................................. A-8
Advisory Board............................................................................................ A-34
Affiliate Agreement....................................................................................... A-31
Agreement................................................................................................. A-1
Alternative Proposal...................................................................................... A-27
Business Combination...................................................................................... A-5
Cash Consideration........................................................................................ A-2
Cash Election............................................................................................. A-3
Cash Election Number...................................................................................... A-3
Cash Election Shares...................................................................................... A-3
Cash Fraction............................................................................................. A-3
CBCA...................................................................................................... A-1
Certificate of Merger..................................................................................... A-1
Closing................................................................................................... A-8
Closing Agreement......................................................................................... A-12
Closing Date.............................................................................................. A-8
Code...................................................................................................... A-1
Company................................................................................................... A-1
Company Certificates...................................................................................... A-4
Company Common Stock...................................................................................... A-2
Company Disclosure Schedule............................................................................... A-30
Company Financial Statements.............................................................................. A-11
Company Material Adverse Effect........................................................................... A-8
Company Preferred Stock................................................................................... A-9
Company Required Consents................................................................................. A-10
Company Required Statutory Approvals...................................................................... A-10
Company Right............................................................................................. A-2
Company Rights Agreement.................................................................................. A-2
Company SEC Reports....................................................................................... A-11
Company Shareholders' Approval............................................................................ A-18
Company Special Meeting................................................................................... A-29
Company Stock Plans....................................................................................... A-32
Confidentiality Agreement................................................................................. A-28
Controlled Group Liability................................................................................ A-13
Covered Company Employee.................................................................................. A-31
Disclosure Schedules...................................................................................... A-30
Dissenting Shares......................................................................................... A-5
Effective Time............................................................................................ A-2
Election.................................................................................................. A-4
Election Deadline......................................................................................... A-5
Employee Benefit Plan..................................................................................... A-13
Employment Agreement...................................................................................... A-27
Environmental Claim....................................................................................... A-17
Environmental Laws........................................................................................ A-17
Environmental Permits..................................................................................... A-16
ERISA..................................................................................................... A-13
ERISA Affiliate........................................................................................... A-13
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A-iv
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Excess Parent Common Shares............................................................................... A-7
Exchange Act.............................................................................................. A-10
Exchange Agent............................................................................................ A-6
Exchange Ratio............................................................................................ A-2
Expenses.................................................................................................. A-38
FERC...................................................................................................... A-10
Final Order............................................................................................... A-35
Form of Election.......................................................................................... A-3
GAAP...................................................................................................... A-11
Governmental Authority.................................................................................... A-10
Hazardous Materials....................................................................................... A-17
Indemnified Liabilities................................................................................... A-29
Indemnified Parties....................................................................................... A-29
Indemnified Party......................................................................................... A-29
Initial Termination Date.................................................................................. A-37
IRS....................................................................................................... A-14
joint venture............................................................................................. A-9
Liens..................................................................................................... A-9
Merger.................................................................................................... A-1
Merger Consideration...................................................................................... A-6
Merger Sub................................................................................................ A-1
Merger Sub Common Stock................................................................................... A-2
Mixed Consideration....................................................................................... A-2
Mixed Election............................................................................................ A-4
Multiemployer Plan........................................................................................ A-14
Multiple Employer Plan.................................................................................... A-15
No Election Shares........................................................................................ A-4
Nuclear Facility.......................................................................................... A-22
NYSE...................................................................................................... A-3
Parent.................................................................................................... A-1
Parent Common Stock....................................................................................... A-2
Parent Disclosure Schedule................................................................................ A-30
Parent Financial Statements............................................................................... A-21
Parent Material Adverse Effect............................................................................ A-19
Parent Preferred Stock.................................................................................... A-19
Parent Required Consents.................................................................................. A-20
Parent Required Statutory Approvals....................................................................... A-20
Parent SEC Reports........................................................................................ A-21
Parent Share Price........................................................................................ A-3
Parent Shares............................................................................................. A-6
Paying Agent.............................................................................................. A-4
PBGC...................................................................................................... A-15
PCBs...................................................................................................... A-17
Plan...................................................................................................... A-14
Post-Merger Period........................................................................................ A-33
Power Act................................................................................................. A-21
Proxy Statement........................................................................................... A-11
Proxy/Registration Statement.............................................................................. A-28
Qualified Plans........................................................................................... A-14
Registration Statement.................................................................................... A-11
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A-v
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Release................................................................................................... A-17
Representative............................................................................................ A-3
Representatives........................................................................................... A-28
Restricted Stock Plan..................................................................................... A-33
Schedule 7.11(c) Employees................................................................................ A-33
SEC....................................................................................................... A-10
Securities Act............................................................................................ A-10
SERP...................................................................................................... A-32
Stock Consideration....................................................................................... A-2
Stock Election............................................................................................ A-3
Stock Election Number..................................................................................... A-3
Stock Election Shares..................................................................................... A-3
Stock Fraction............................................................................................ A-3
Stock Option Plan......................................................................................... A-33
subsidiary................................................................................................ A-8
Surviving Corporation..................................................................................... A-1
Takeover Laws............................................................................................. A-18
Tax Return................................................................................................ A-12
Tax Ruling................................................................................................ A-12
Taxes..................................................................................................... A-11
Termination Fee........................................................................................... A-38
VEBA...................................................................................................... A-14
Violation................................................................................................. A-9
Withdrawal Liability...................................................................................... A-14
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A-vi
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of June 29, 1999 (this "Agreement"),
by and among CTG Resources, Inc., a Connecticut corporation (the "Company"),
Energy East Corporation, a New York corporation ("Parent"), and Oak Merger Co.,
a Connecticut corporation and a wholly owned subsidiary of Parent ("Merger
Sub").
WHEREAS, the Company and Parent have determined to engage in a business
combination transaction on the terms stated herein;
WHEREAS, the respective Boards of Directors of the Company, Parent and
Merger Sub have approved and deemed it advisable and in the best interests of
their respective shareholders to consummate the transactions contemplated herein
under which the businesses of the Company and Parent would be combined by means
of the merger of the Company with and into Merger Sub; and
WHEREAS, it is intended that the Merger (as defined below) shall constitute
a "reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code") and that this Agreement shall constitute a
plan of reorganization;
NOW THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I
THE MERGER
Section 1.1 THE MERGER. Upon the terms and subject to the conditions of
this Agreement:
At the Effective Time (as defined in Section 1.3), the Company shall be
merged with and into Merger Sub (the "Merger") in accordance with the laws of
the State of Connecticut. Merger Sub shall be the surviving corporation in the
Merger and shall continue its corporate existence under the laws of the State of
Connecticut. The effects and the consequences of the Merger shall be as set
forth in Section 1.2. Throughout this Agreement, the term "Merger Sub" shall
refer to Merger Sub prior to the Merger and the term "Surviving Corporation"
shall refer to Merger Sub in its capacity as the surviving corporation in the
Merger.
Section 1.2 EFFECTS OF THE MERGER. At the Effective Time, (i) the
certificate of incorporation of Merger Sub, as in effect immediately prior to
the Effective Time, shall be the certificate of incorporation of the Surviving
Corporation until thereafter amended as provided by law and such certificate of
incorporation, except that the name of the Surviving Corporation shall be "CTG
Resources, Inc.," and (ii) the by-laws of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the by-laws of the Surviving Corporation
until thereafter amended as provided by law, the certificate of incorporation of
the Surviving Corporation and such by-laws. Subject to the foregoing, the
additional effects of the Merger shall be as provided in Section 33-820 of the
Connecticut Business Corporation Act (the "CBCA").
Section 1.3 EFFECTIVE TIME OF THE MERGER. On the Closing Date (as defined
in Section 3.1), with respect to the Merger, a certificate of merger complying
with Section 33-819 of the CBCA (the "Certificate of Merger") shall be delivered
to the Secretary of the State of Connecticut for filing. The
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Merger shall become effective upon the filing of the Certificate of Merger, or
at such later date and time as may be set forth in the Certificate of Merger
(the "Effective Time").
Section 1.4 DIRECTORS. The directors of Merger Sub immediately prior to
the Effective Time and Mr. Arthur C. Marquardt shall be the directors of the
Surviving Corporation and shall hold office from the Effective Time until their
respective successors are duly elected or appointed and qualified in the manner
provided in the certificate of incorporation and by-laws of the Surviving
Corporation, or as otherwise provided by the CBCA.
Section 1.5 OFFICERS. Commencing at the Effective Time, and continuing
until his successor is duly elected or appointed and qualified in the manner
provided in the by-laws of the Surviving Corporation, Mr. Marquardt shall be
President and Chief Executive Officer of the Surviving Corporation and shall
hold other positions in other subsidiary corporations of Parent as specified in
his Employment Agreement (as defined in Section 6.3 hereof) subject to the terms
and conditions therein contained. The officers of Merger Sub immediately prior
to the Effective Time shall be the initial officers of the Surviving Corporation
(except that Mr. Marquardt shall be the President and Chief Executive Officer of
the Surviving Corporation) and shall hold office from the Effective Time until
their respective successors are duly elected or appointed and qualified in the
manner provided in the certificate of incorporation and by-laws of the Surviving
Corporation, or as otherwise provided by the CBCA.
ARTICLE II
TREATMENT OF SHARES
Section 2.1 EFFECT OF THE MERGER ON CAPITAL STOCK. At the Effective Time,
by virtue of the Merger and without any action on the part of any holder of any
capital stock of the Company or Merger Sub:
(a) SHARES OF MERGER SUB STOCK. Each share of common stock, without
par value, of Merger Sub (the "Merger Sub 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, without par value, of the Surviving Corporation.
(b) CANCELLATION OF CERTAIN COMPANY COMMON STOCK. Each share of common
stock, without par value, of the Company, together with each associated
preferred share purchase right (a "Company Right") under the Rights Agreement,
dated as of December 1, 1998 (the "Company Rights Agreement"), between the
Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (the
"Company Common Stock"), that is owned by the Company as treasury stock and all
shares of Company Common Stock that are owned by Parent shall be canceled and
shall cease to exist, and no stock of Parent or other consideration shall be
delivered in exchange therefor.
(c) CONVERSION OF COMPANY COMMON STOCK. Subject to the provisions of
this Section 2.1, each share of Company Common Stock, other than Dissenting
Shares (as defined in Section 2.1(n)) and shares canceled pursuant to Section
2.1(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) $41.00 in cash (the "Cash
Consideration") or (ii) a number of validly issued, fully paid and nonassessable
shares of Common Stock, par value $.01 per share, of Parent ("Parent Common
Stock") equal to the Exchange Ratio (as defined below) (the "Stock
Consideration") or (iii) the right to receive a combination of cash and shares
of Parent Common Stock determined in accordance with this Section (the "Mixed
Consideration"). The "Exchange Ratio" shall
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be equal to the Cash Consideration divided by either (i) the Parent Share Price
(as defined below) if the Parent Share Price is equal to or less than $30.13 and
equal to or more than $23.67, (ii) $30.13 if the Parent Share Price is greater
than $30.13, in which case the Exchange Ratio shall equal 1.3609, or (iii)
$23.67 if the Parent Share Price is less than $23.67, in which case the Exchange
Ratio shall equal 1.7320. The "Parent Share Price" shall be equal to the average
of the closing prices of the shares of Parent Common Stock on the New York Stock
Exchange ("NYSE") Composite Transactions Reporting System, as reported in The
Wall Street Journal, for the 20 trading days immediately preceding the second
trading day prior to the Effective Time.
(d) CASH ELECTION. Subject to the immediately following sentence, each
record holder of shares of Company Common Stock immediately prior to the
Effective Time shall be entitled to elect to receive cash for all or any part of
such holder's shares of Company Common Stock (a "Cash Election").
Notwithstanding the foregoing and subject to Section 2.1(l), the aggregate
number of shares of Company Common Stock that may be converted into the right to
receive cash in the Merger (the "Cash Election Number") plus any Dissenting
Shares shall be 55% of the total number of shares of Company Common Stock issued
and outstanding as of the Effective Time. Cash Elections shall be made on a form
designed for that purpose (a "Form of Election"). A holder of record of shares
of Company Common Stock who holds such shares as nominee, trustee or in another
representative capacity (a "Representative") may submit multiple Forms of
Election, provided that such Representative certifies that each such Form of
Election covers all the shares of Company Common Stock held by such
Representative for a particular beneficial owner.
(e) CASH ELECTION SHARES. If the aggregate number of shares of Company
Common Stock covered by Cash Elections (the "Cash Election Shares") exceeds the
Cash Election Number, each Cash Election Share shall be converted into (i) the
right to receive an amount in 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 Parent Common Stock equal to the product of (A) the Exchange Ratio and
(B) a fraction equal to one minus the Cash Fraction.
(f) STOCK ELECTION. Subject to the immediately following sentence,
each record holder of shares of Company Common Stock immediately prior to the
Effective Time shall be entitled to elect to receive shares of Parent Common
Stock for all or any part of such holder's shares of Company Common Stock (a
"Stock Election"). Notwithstanding the foregoing and subject to Section 2.1(l),
the aggregate number of shares of Company Common Stock that may be converted
into the right to receive shares of Parent Common Stock in the Merger (the
"Stock Election Number") shall be 45% of the total number of shares of Company
Common Stock issued and outstanding as of the close of business on the third
trading day prior to the Effective Time. Stock Elections shall be made on a Form
of Election. A Representative may submit multiple Forms of Election, provided
that such Representative certifies that each such Form of Election covers all
the shares of Company Common Stock held by such Representative for a particular
beneficial owner.
(g) STOCK ELECTION SHARES. If the aggregate number of shares of
Company Common Stock covered by Stock Elections (the "Stock Election Shares")
exceeds the Stock Election Number, each Stock Election Share shall be converted
into (i) the right to receive a number of shares of Parent 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 in cash, without interest, equal to the product of (A) the Cash
Consideration and (B) a fraction equal to one minus the Stock Fraction.
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(h) MIXED ELECTION. Subject to the immediately following sentence,
each record holder of shares of Company Common Stock immediately prior to the
Effective Time shall be entitled to elect to receive shares of Parent Common
Stock for part of such holder's shares of Company Common Stock and cash for the
remaining part of such holder's shares of Company Common Stock (the "Mixed
Election" and, collectively with Stock Election and Cash Election, the
"Election"). Notwithstanding the foregoing and subject to Section 2.1(l), the
aggregate number of shares of Company Common Stock that may be converted into
the right to receive the Cash Consideration plus Dissenting Shares shall be 55%,
and the number of shares of Company Common Stock converted into the right to
receive the Stock Election Number shall be 45%, in each case, of the total
number of shares of Company Common Stock issued and outstanding as of the
Effective Time. Mixed Elections shall be made on a Form of Election. A
Representative may submit multiple Forms of Election, provided that such
Representative certifies that each such Form of Election covers all the shares
of Company Common Stock held by such Representative for a particular beneficial
owner. With respect to each holder of Company Common Stock who makes a Mixed
Election, the shares of Company Common Stock such holder elects to be converted
into the right to receive Cash Consideration shall be treated as Cash Election
Shares for purposes of the provisions contained in Sections 2.1(d), (e) and (l),
and the shares such holder elects to be converted into the right to receive
shares of Parent Common Stock shall be treated as Stock Election Shares for
purposes of the provisions contained in Sections 2.1(f), (g) and (l).
(i) FORM OF ELECTION. To be effective, a Form of Election must be
properly completed, signed and submitted to Parent's transfer agent and
registrar, as paying agent (the "Paying Agent"), and accompanied by the
certificates representing the shares of Company Common Stock ("Company
Certificates") as to which the election is being made (or by an appropriate
guarantee of delivery of such Company 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 the Securities Transfer Agent's Medallion Program, the New York
Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange
Medallion Program). Parent shall have the discretion, which it may delegate in
whole or in part to the Paying 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 Parent (or the Paying
Agent) in such matters shall be conclusive and binding. Neither Parent nor the
Paying Agent shall be under any obligation to notify any person of any defect in
a Form of Election submitted to the Paying Agent. The Paying Agent shall also
make all computations contemplated by this Section 2.1, and all such
computations shall be conclusive and binding on the holders of shares of Company
Common Stock.
(j) DEEMED NON-ELECTION. For the purposes hereof, a holder of shares
of Company 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
2.1(k)) (the "No Election Shares") shall be deemed not to have made a Cash
Election, Stock Election or Mixed Election. If Parent or the Paying Agent shall
determine that any purported Election was not properly made, the shares subject
to such improperly made Election shall be treated as No Election Shares. No
Election Shares may be treated by the Company as Cash Election Shares or Stock
Election Shares.
(k) ELECTION DEADLINE. Parent and the Company shall each use its best
efforts to cause copies of the Form of Election to be mailed to the record
holders of the Company Shares not less than thirty days prior to the Effective
Time and to make the Form of Election available to all persons who become record
holders of Company Shares subsequent to the date of such mailing and no later
than the close of business on the seventh business day prior to the Effective
Time. A Form of Election must be received by the Paying Agent by 5:00 p.m., New
York City time, on the second day after the
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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.
(l) ADJUSTMENT PER TAX OPINION. Notwithstanding anything in this
Article II to the contrary (other than the last sentence of Section 2.1(m)), the
number of shares of Company Common Stock to be converted into the right to
receive the Stock Consideration in the Merger shall be not less than that number
which would cause the ratio of (i) the closing price per share of Parent Common
Stock on the Closing Date times the aggregate number of shares of Parent Common
Stock to be paid as Stock Consideration pursuant to Section 2.1(c), to (ii) the
sum of (A) the amount set forth in the preceding clause (i) plus (B) the
aggregate Cash Consideration to be issued pursuant to Section 2.1(c) plus (C)
the number of Dissenting Shares times the per share Cash Consideration plus (D)
any other amounts paid by Parent or the Company (or any affiliate thereof) to,
or on behalf of, any Company shareholder in connection with the sale, redemption
or other disposition of any Company stock in connection with the Merger for
purposes of Treasury Regulation Sections 1.368-1(e) and 1.368-1T(e) plus (E) any
extraordinary dividend distributed by the Company prior to and in connection
with the Merger for purposes of Treasury Regulation Sections 1.368-1(e) and
1.368-1T(e), to be 45%. To the extent the application of this Section 2.1(l)
results in the number of shares of Company Common Stock to be converted into the
right to receive the Stock Consideration in the Merger being increased, the
number of such shares to be converted into the right to receive the Cash
Consideration will be reduced.
(m) ANTI-DILUTION PROVISIONS. In the event Parent (i) changes (or
establishes a record date for changing) the number of shares of Parent 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 Parent
Common Stock or (ii) pays or makes an extraordinary dividend or distribution in
respect of Parent Common Stock (other than a distribution referred to in clause
(i) of this sentence) and, in either case, the record date therefor shall be
prior to the Effective Time, the Merger Consideration (as defined in Section
2.2(b)) shall be proportionately adjusted. 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, Parent
shall merge or consolidate with or into any other corporation (a "Business
Combination") and the terms thereof shall provide that Parent 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 the Company who
would be entitled to receive shares of Parent Common Stock pursuant to this
Agreement shall be entitled to receive, in lieu of each share of Parent Common
Stock issuable to such shareholders as provided herein, the same kind and amount
of securities or assets as shall be distributable upon such Business Combination
with respect to one share of Parent Common Stock and the parties hereto shall
agree on an appropriate restructuring of the transactions contemplated herein.
(n) DISSENTING SHARES. Each outstanding share of Company 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 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 CBCA, shall be deemed to be converted
into, as of the Effective Time, the right to receive cash pursuant to Section
2.1(c) in the same manner as if such shares were Cash Election Shares. The
Company shall give Parent prompt notice upon receipt by the Company of any such
written demands for payment of the fair value of such shares of
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Company Common Stock and of withdrawals of such notice and any other instruments
provided pursuant to applicable law. Any payments made in respect of Dissenting
Shares shall be made by the Surviving Corporation.
Section 2.2 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 Parent and the Company (the "Exchange Agent"),
pursuant to an agreement in form and substance reasonably acceptable to Parent
and the Company, an amount of cash and certificates representing shares of
Parent Common Stock required to effect the conversion of Company Common Stock
into Parent Common Stock and cash in accordance with Section 2.1(c).
(b) EXCHANGE AND PAYMENT PROCEDURES. As soon as practicable after the
Effective Time, Parent shall cause the Paying Agent to mail to each holder of
record as of the Effective Time of a Certificate or Certificates that have been
converted pursuant to Section 2.1: (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon actual delivery of the Certificates to the
Paying Agent) and (ii) instructions for effecting the surrender of the
Certificates and receiving the Merger Consideration (as defined below) to which
such holder shall be entitled therefor pursuant to Section 2.1. Upon surrender
of a Certificate to the Paying Agent for cancellation, together with a duly
executed letter of transmittal and such other documents as the Paying Agent may
require, the holder of such Certificate shall be entitled to receive in exchange
therefor (i) a certificate representing that number of shares of Parent Common
Stock (the "Parent Shares") into which the shares of Company Common Stock
previously represented by such Certificate are converted in accordance with
Section 2.1(c), (ii) the cash to which such holder is entitled in accordance
with Section 2.1(c), and (iii) the cash in lieu of fractional Parent Shares to
which such holder has the right to receive pursuant to Section 2.2(d) (the
shares of Parent Common Stock and cash described in clauses (i), (ii) and (iii)
above being referred to collectively as the "Merger Consideration"). In the
event the Merger Consideration is to be delivered to any person who is not the
person in whose name the Certificate surrendered in exchange therefor is
registered in the transfer records of Company, the Merger Consideration may be
delivered to a transferee if the Certificate is presented to the Paying Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence satisfactory to the Paying Agent that any applicable stock transfer
taxes have been paid. Until surrendered as contemplated by this Section 2.2,
each Certificate (other than a certificate representing shares of Company Common
Stock to be canceled in accordance with Section 2.1(b)) shall be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender the Merger Consideration contemplated by this Section 2.2. No interest
will be paid or will accrue on any cash payable to holders of Certificates
pursuant to provisions of this Article II.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made after the Effective Time with respect to
Parent Shares with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the Parent Shares
represented thereby and no cash payment in lieu of fractional shares shall be
paid to any such holder pursuant to Section 2.2(d) until the holder of record of
such Certificate shall surrender such Certificate. Subject to the effect of
unclaimed property, escheat and other applicable laws, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole Parent 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 Parent Common Stock to which such
holder is entitled pursuant to Section 2.2(d) and the amount of dividends or
other
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distributions with a record date after the Effective Time theretofore paid with
respect to such whole Parent 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 Parent Shares.
(d) NO FRACTIONAL SECURITIES. In lieu of any such fractional
securities, each holder of Company Common Stock who would otherwise have been
entitled to a fraction of a share of Parent Common Stock upon surrender of
Certificates for exchange pursuant to this Article II will be paid an amount in
cash (without interest) equal to such holder's proportionate interest in the net
proceeds from the sale or sales in the open market by the Exchange Agent, on
behalf of all such holders, of the aggregate fractional shares of Parent Common
Stock issued pursuant to this Article II. As soon as practicable following the
Effective Time, the Exchange Agent shall determine the excess of (i) the number
of full shares of Parent Common Stock delivered to the Exchange Agent by Parent
over (ii) the aggregate number of full shares of Parent Common Stock to be
distributed to holders of Company Common Stock (such excess being herein called
the "Excess Parent Common Shares"). The Exchange Agent, as agent for the former
holders of Company Common Stock, shall sell the Excess Parent Common Shares at
the prevailing prices on the NYSE. The sales of the Excess Parent Common Shares
by the Exchange Agent shall be executed on the NYSE through one or more member
firms of the NYSE and shall be executed in round lots to the extent practicable.
Parent shall pay all commissions, transfer taxes and other out-of-pocket
transaction costs, including the expenses and compensation of the Exchange
Agent, incurred in connection with such sale of Excess Parent Common Shares.
Until the net proceeds of such sale have been distributed to the former holders
of Company Common Stock, the Exchange Agent will hold such proceeds in trust for
such former holders. As soon as practicable after the determination of the
amount of cash to be paid to former holders of Company Common Stock in lieu of
any fractional interests, the Exchange Agent shall make available in accordance
with this Agreement such amounts to such former holders.
(e) CLOSING OF TRANSFER BOOKS. If, after the Effective Time,
Certificates are presented to the Surviving Corporation, they shall be canceled
and exchanged for certificates representing the appropriate number of Parent
Shares and the appropriate amount of cash as provided in Section 2.1 and in this
Section 2.2.
(f) TERMINATION OF EXCHANGE AGENT. Any certificates representing
Parent Shares deposited with the Exchange Agent pursuant to Section 2.2(a) and
not exchanged within six months after the Effective Time pursuant to this
Section 2.2 shall be returned by the Exchange Agent to Parent, which shall
thereafter act as Exchange Agent. All funds held by the Exchange Agent for
payment to the holders of unsurrendered Certificates and unclaimed at the end of
one year from the Effective Time shall be returned to the Surviving Corporation,
after which time any holder of unsurrendered Certificates shall look as a
general creditor only to Parent for payment of such funds to which such holder
may be due, subject to applicable law.
(g) ESCHEAT. The Company shall not be liable to any person for such
shares or funds delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
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ARTICLE III
THE CLOSING
Section 3.1 CLOSING. The closing of the Merger (the "Closing") shall take
place at the offices of Wachtell, Lipton, Rosen & Katz, at 10:00 a.m., Eastern
time, on the second business day immediately following the date on which the
last of the conditions set forth in Article VIII hereof is fulfilled or waived
(other than conditions that by their nature are required to be performed on the
Closing Date, but subject to satisfaction of such conditions), or at such other
time and date and place as the Company and Parent shall mutually agree (the
"Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent as follows:
Section 4.1 ORGANIZATION AND QUALIFICATION. Except as set forth in Section
4.1 of the Company Disclosure Schedule (as defined in Section 7.6), the Company
and each of its subsidiaries (as defined below) is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization, has all requisite corporate power and authority,
and has been duly authorized by all necessary approvals and orders, to own,
lease and operate its assets and properties to the extent owned, leased and
operated and to carry on its business as it is now being conducted and is duly
qualified and in good standing to do business in each jurisdiction in which the
nature of its business or the ownership or leasing of its assets and properties
makes such qualification necessary, other than in such jurisdictions where the
failure to be so qualified and in good standing will not, when taken together
with all other such failures, have a material adverse effect on the business,
properties, financial condition or results of operations of the Company and its
subsidiaries taken as a whole or on the consummation of this Agreement (any such
material adverse effect being hereafter referred to as a "Company Material
Adverse Effect"). As used in this Agreement, the term "subsidiary" of a person
shall mean any corporation or other entity (including partnerships and other
business associations) of which a majority of the outstanding capital stock or
other voting securities having voting power under ordinary circumstances to
elect directors or similar members of the governing body of such corporation or
entity shall at the time be held, directly or indirectly, by such person.
Section 4.2 SUBSIDIARIES. Section 4.2 of the Company Disclosure Schedule
sets forth a description as of the date hereof, of all material and certain
other subsidiaries and joint ventures of the Company, including the name of each
such entity, the state or jurisdiction of its incorporation or organization, the
Company's interest therein and a brief description of the principal line or
lines of business conducted by each such entity. Except as set forth in Section
4.2 of the Company Disclosure Schedule, none of the Company's subsidiaries is a
"public utility company," a "holding company," a "subsidiary company" or an
"affiliate" of any public utility company within the meaning of Section 2(a)(5),
2(a)(7), 2(a)(8) or 2(a)(11) of the Public Utility Holding Company Act of 1935,
as amended (the "1935 Act"). Except as set forth in Section 4.2 of the Company
Disclosure Schedule, all of the issued and outstanding shares of capital stock
owned by the Company of each Company subsidiary are validly issued, fully paid,
nonassessable and free of preemptive rights, and are owned, directly or
indirectly, by the Company free and clear of any liens, claims, encumbrances,
security interests, equities, charges and options of any nature whatsoever, and
there are no outstanding subscriptions, options, calls, contracts, voting
trusts, proxies or other commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or exchange
under any outstanding security, instrument or other agreement, obligating any
such subsidiary to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of its capital stock or obligating it to grant, extend
or enter into any such agreement or commitment, except for any of the foregoing
that could not reasonably be expected to have a Company Material Adverse Effect.
As used in this
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Agreement, the term "joint venture" of a person shall mean any corporation or
other entity (including partnerships and other business associations) that is
not a subsidiary of such person, in which such person or one or more of its
subsidiaries owns an equity interest, other than equity interests held for
passive investment purposes which are less than 10% of any class of the
outstanding voting securities or equity of any such entity.
Section 4.3 CAPITALIZATION. The authorized capital stock of the Company
consists of 20,000,000 shares of Company Common Stock and 2,000,000 shares of
preferred stock, without par value, of the Company ("Company Preferred Stock").
As of the close of business on June 29, 1999, there were issued and outstanding
8,648,029 shares of Company Common Stock and no shares of Company Preferred
Stock. As of the close of business on June 29, 1999, 64,600 shares of Company
Common Stock were reserved for issuance upon exercise of outstanding Company
stock options. All of the issued and outstanding shares of the capital stock of
the Company are validly issued, fully paid, nonassessable and free of preemptive
rights. Except as set forth in Section 4.3 of the Company Disclosure Schedule,
as of the date hereof, and except for the Company Rights Agreement, there are no
outstanding subscriptions, options, stock appreciation rights, 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 the
Company or any of the subsidiaries of the Company to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of the capital stock of
the Company, or obligating the Company to grant, extend or enter into any such
agreement or commitment.
Section 4.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE.
(a) AUTHORITY. The Company has all requisite corporate power and
authority to enter into this Agreement and, subject to obtaining the Company
Shareholders' Approval (as defined in Section 4.13) and the Company Required
Statutory Approvals (as defined in Section 4.4(c)), to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of the Company subject to obtaining the applicable
Company Shareholders' Approval. This Agreement has been duly and validly
executed and delivered by the Company and, assuming the due authorization,
execution and delivery by the other signatories hereto, constitutes the
valid and binding obligations of the Company enforceable against it in
accordance with their terms.
(b) NON-CONTRAVENTION. Except as set forth in Section 4.4(b) of the
Company Disclosure Schedule, the execution and delivery of this Agreement by
the Company do not, and the consummation of the transactions contemplated
hereby will not, violate, conflict with, or result in a breach of any
provision of, or constitute a default (with or without notice or lapse of
time or both) under, or result in the termination or modification of, or
accelerate the performance required by, or result in a right of termination,
cancellation, or acceleration of any obligation or the loss of a benefit
under, or result in the creation of any lien, security interest, charge or
encumbrance ("Liens") upon any of the properties or assets of the Company or
any of its subsidiaries or any of its joint ventures (any such violation,
conflict, breach, default, right of termination, modification, cancellation
or acceleration, loss or creation, a "Violation" with respect to the Company
(such term when used in Article V having a correlative meaning with respect
to Parent)) pursuant to any provisions of (i) the articles of organization,
by-laws or similar governing documents of the Company, any of its
subsidiaries or any of its joint ventures, (ii) subject to obtaining the
Company Required Statutory Approvals and the receipt of the Company
Shareholders' Approval, any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any
Governmental Authority (as defined in Section 4.4(c)) applicable to the
Company, any of its subsidiaries or any of its joint ventures, or any of
their respective properties or assets or (iii) subject to obtaining the
third-party consents or other approvals set forth in Section 4.4(b) of
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the Company Disclosure Schedule (the "Company Required Consents") any note,
bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of
any kind to which the Company, any of its subsidiaries or any of its joint
ventures is a party or by which it or any of its properties or assets may be
bound or affected, excluding from the foregoing clauses (i), (ii) and (iii)
such Violations as would not have, in the aggregate, a Company Material
Adverse Effect.
(c) STATUTORY APPROVALS. Except as described in Section 4.4(c) of the
Company Disclosure Schedule, no declaration, filing or registration with, or
notice to or authorization, consent or approval of, any court, federal,
state, local or foreign governmental or regulatory body (including a stock
exchange or other self-regulatory body) or authority (each, a "Governmental
Authority") is necessary for the execution and delivery of this Agreement by
the Company or the consummation by the Company of the transactions
contemplated hereby, the failure to obtain, make or give which would have,
in the aggregate, a Company Material Adverse Effect (the "Company Required
Statutory Approvals"), it being understood that references in this Agreement
to "obtaining" such Company Required Statutory Approvals shall mean making
such declarations, filings or registrations, giving such notices, obtaining
such authorizations, consents or approvals and having such waiting periods
expire as are necessary to avoid a violation of law.
(d) COMPLIANCE. Except as set forth in Section 4.4(d) or Section 4.11
of the Company Disclosure Schedule, or as disclosed in the Company SEC
Reports (as defined in Section 4.5) filed prior to the date hereof, neither
the Company, nor any of its subsidiaries nor any of its joint ventures is in
violation of, is under investigation with respect to any violation of, or
has been given notice or been charged with any violation of, any law,
statute, order, rule, regulation, ordinance or judgment (including, without
limitation, any applicable Environmental Law, as defined in Section
4.11(f)(ii)) of any Governmental Authority except for violations that, in
the aggregate, do not have and are not reasonably likely to have a Material
Adverse Effect. Except as set forth in Section 4.4(d) of the Company
Disclosure Schedule or in Section 4.11 of the Company Disclosure Schedule,
the Company and its subsidiaries and joint ventures have all permits,
licenses, franchises and other governmental authorizations, consents and
approvals necessary to conduct their respective businesses as currently
conducted in all respects, except those which the failure to obtain would,
in the aggregate, not have a Company Material Adverse Effect. Except as set
forth in Section 4.4(d) of the Company Disclosure Schedule, the Company and
each of its subsidiaries are not in breach or violation of or in default in
the performance or observance of any term or provision of, and no event has
occurred which, with lapse of time or action by a third party, could result
in a default under, (i) its articles of organization or by-laws or (ii) any
material contract, commitment, agreement, indenture, mortgage, loan
agreement, note, lease, bond, license, approval or other instrument to which
it is a party or by which it is bound or to which any of its property is
subject, except for breaches, violations or defaults that, in the aggregate,
do not have and are not reasonably likely to have, a Company Material
Adverse Effect.
(e) Except as set forth in Section 4.4(e) of the Company Disclosure
Schedule, there is no "non-competition" or other similar contract,
commitment, agreement or understanding that restricts the ability of the
Company or any of its affiliates to conduct business in any geographic area
or that would reasonably be likely to restrict the Surviving Corporation or
any of its affiliates to conduct business in any geographic area.
Section 4.5 REPORTS AND FINANCIAL STATEMENTS. The filings required to be
made by the Company and its subsidiaries since January 1, 1996 under the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the 1935 Act and
applicable state public utility laws and regulations have been filed with the
Securities and Exchange Commission (the "SEC"), the Federal Energy Regulatory
Commission (the "FERC") or the appropriate state public utilities commission, as
the case may be, including all forms, statements,
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reports, agreements (oral or written) and all documents, exhibits, amendments
and supplements appertaining thereto, and complied, as of their respective
dates, in all material respects with all applicable requirements of the
appropriate statute and the rules and regulations thereunder. The Company has
made available to Parent a true and complete copy of each report, schedule,
registration statement and definitive proxy statement filed by the Company with
the SEC since January 1, 1996 (as such documents have since the time of their
filing been amended, the "Company SEC Reports"). As of their respective dates,
the Company SEC Reports did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The audited consolidated financial statements and
unaudited interim financial statements of the Company included in the Company
SEC Reports (collectively, the "Company Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis ("GAAP") (except as may be indicated therein or in the notes
thereto and except with respect to unaudited statements as permitted by Form
10-Q of the SEC) and fairly present the consolidated financial position of the
Company as of the dates thereof and the consolidated results of operations and
cash flows for the periods then ended. True, accurate and complete copies of the
articles of organization and by-laws of the Company, as in effect on the date
hereof, have been made available to Parent.
Section 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Company SEC Reports filed prior to the date hereof or as set forth in
Section 4.6 of the Company Disclosure Schedule, from December 31, 1998 the
Company and each of its subsidiaries have conducted their business only in the
ordinary course of business consistent with past practice, and there has not
been, and no fact or condition exists which would have or, insofar as reasonably
can be foreseen, could have, a Company Material Adverse Effect.
Section 4.7 LITIGATION. Except as disclosed in the Company SEC Reports
filed prior to the date hereof or as set forth in Section 4.7, Section 4.9 or
Section 4.11 of the Company Disclosure Schedule, (a) there are no claims, suits,
actions or proceedings, pending or threatened, nor are there any investigations
or reviews pending or threatened against, relating to or affecting the Company
or any of its subsidiaries, and (b) there are no judgments, decrees,
injunctions, rules or orders of any court, governmental department, commission,
agency, instrumentality or authority or any arbitrator applicable to the Company
or any of its subsidiaries, except for any of the foregoing under clauses (a)
and (b) that individually or in the aggregate would not reasonably be expected
to have a Company Material Adverse Effect.
Section 4.8 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by or on behalf of the Company for
inclusion or incorporation by reference in (a) the registration statement on
Form S-4 to be filed with the SEC in connection with the issuance of shares of
Parent Common Stock in the Merger (the "Registration Statement") will, at the
time the Registration Statement becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading and (b) the proxy statement, in definitive form (the "Proxy
Statement"), relating to the Company Special Meeting (as defined below) shall
not, at the dates mailed to shareholders and at the time of the Company Special
Meeting, 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 light of the circumstances under which they are made, not
misleading. The Registration Statement and the Proxy Statement, insofar as they
relate to the Company or any of its subsidiaries, shall comply as to form in all
material respects with the applicable provisions of the Securities Act and the
Exchange Act and the rules and regulations thereunder.
Section 4.9 TAX MATTERS. "Taxes," as used in this Agreement, means any
federal, state, county, local or foreign taxes, charges, fees, levies or other
assessments, including, without limitation, all net income, gross income, sales
and use, ad valorem, transfer, gains, profits, excise, franchise, real and
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personal property, gross receipts, capital stock, production, business and
occupation, disability, employment, payroll, license, estimated, stamp, custom
duties, severance or withholding taxes or charges imposed by any governmental
entity, and includes any interest and penalties (civil or criminal) on or
additions to any such taxes. "Tax Return," as used in this Agreement, means a
report, return or other written information required to be supplied to a
governmental entity with respect to Taxes.
Except as disclosed in Section 4.9 of the Company Disclosure Schedule:
(a) FILING OF TIMELY TAX RETURNS. The Company and each of its
subsidiaries have duly filed (or there has been filed on its behalf) within
the time prescribed by law all material Tax Returns (including withholding
Tax Returns) required to be filed by each of them under applicable law. All
such Tax Returns were and are in all material respects true, complete and
correct.
(b) PAYMENT OF TAXES. The Company and each of its subsidiaries have,
within the time and in the manner prescribed by law, paid all material Taxes
(including withholding Taxes) that are currently due and payable except for
those contested in good faith and for which adequate reserves have been
taken.
(c) TAX RESERVES. All material Taxes payable by the Company and its
subsidiaries for all taxable periods and portions thereof through the date
of the most recent financial statements contained in the Company Financial
Statements filed prior to the date of this Agreement are properly reflected
in such financial statements in accordance with GAAP, and the unpaid Taxes
of the Company and its subsidiaries do not exceed the amount shown therefor
on such financial statements adjusted for the passage of time through the
Effective Time in accordance with past custom and practice of the Company
and its subsidiaries in filing their Tax Returns.
(d) EXTENSIONS OF TIME FOR FILING TAX RETURNS. Neither the Company nor
any of its subsidiaries have requested any extension of time within which to
file any material Tax Return, which Tax Return has not since been filed.
(e) WAIVERS OF STATUTE OF LIMITATIONS. Neither the Company nor any of
its subsidiaries has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
material Taxes or material Tax Returns.
(f) EXPIRATION OF STATUTE OF LIMITATIONS. The statute of limitations
for the assessment of all material Taxes has expired for all applicable
material Tax Returns of the Company and each of its subsidiaries, or those
material Tax Returns have been examined by the appropriate taxing
authorities for all periods through the date hereof, and no deficiency for
any material Taxes has been proposed, asserted or assessed against the
Company or any of its subsidiaries that has not been resolved and paid in
full.
(g) AUDIT, ADMINISTRATIVE AND COURT PROCEEDINGS. No material claims,
audits, disputes, controversies, examinations, investigations or other
proceedings are presently pending with regard to any Taxes or Tax Returns of
the Company or any of its subsidiaries.
(h) TAX RULINGS. Neither the Company nor any of its subsidiaries has
received a Tax Ruling (as defined below) or entered into a Closing Agreement
(as defined below) with any taxing authority that would have a continuing
adverse effect after the Closing Date. "Tax Ruling," as used in this
Agreement, shall mean a written ruling of a taxing authority relating to
Taxes. "Closing Agreement," as used in this Agreement, shall mean a written
and legally binding agreement with a taxing authority relating to Taxes.
(i) AVAILABILITY OF TAX RETURNS. The Company has provided or made
available to Parent complete and accurate copies of (i) all Tax Returns, and
any amendments thereto, filed by the Company or any of its subsidiaries
since 1994, (ii) all audit reports received from any taxing authority
relating to any Tax Return filed by the Company or any of its subsidiaries
and (iii) any
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Closing Agreements entered into by the Company or any of its subsidiaries
with any taxing authority.
(j) TAX SHARING AGREEMENTS. Neither the Company nor any of its
subsidiaries is a party to any agreement, understanding or arrangement
relating to allocating or sharing of Taxes.
(k) LIABILITY FOR OTHERS. Neither the Company nor any of its
subsidiaries has any liability for any material Taxes of any person other
than the Company and its subsidiaries (i) under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local or foreign law), (ii) as
a transferee or successor, (iii) by contract or (iv) otherwise.
(l) CODE SECTION 897. To the best knowledge of the Company after due
inquiry, no foreign person owns or has owned beneficially more than five
percent of the total fair market value of Company Common Stock during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(m) CODE SECTION 368(A). The Company has no knowledge of any fact, nor
has the Company taken any action that would, or would be reasonably likely
to, adversely affect the qualification of the Merger as a reorganization
described in Section 368(a) of the Code.
(n) CODE SECTION 355(E). Neither the Company nor any of its
subsidiaries has constituted a "distributing corporation" or a "controlled
corporation" in a distribution of stock qualifying for tax-free treatment
under Section 355 of the Code (i) in the past 24 month period or (ii) in a
distribution which could otherwise constitute part of a "plan" or "series of
related transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the Merger.
Section 4.10 EMPLOYEE MATTERS; ERISA. Except as set forth in the
appropriate subsection of Section 4.10 of the Company Disclosure Schedule:
(a) For purposes of this Section 4.10, the following terms have the
definitions set forth below:
(i) "Controlled Group Liability" means any and all liabilities (a)
under Title IV of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), (b) as a result of a failure to comply with the
minimum funding requirements of Section 302 of ERISA or Section 412 of
the Code, (c) under Section 4971 of the Code, and (d) as a result of a
failure to comply with the continuation coverage requirements of Section
601 et seq. of ERISA and Section 4980B of the Code, other than such
liabilities that arise solely out of, or relate solely to, the Employee
Benefit Plans.
(ii) "ERISA Affiliate" means, with respect to any entity, trade or
business, any other entity, trade or business that is a member of a group
described in Section 414(b), (c), (m) or (o) of the Code or Section
4001(b)(1) of ERISA that includes the first entity, trade or business, or
that is a member of the same "controlled group" as the first entity,
trade or business pursuant to Section 4001(a)(14) of ERISA.
(iii) An "Employee Benefit Plan" means any material employee benefit
plan, program, policy, practice, or other arrangement providing benefits
to any current or former employee, officer or director of the Company or
any of its subsidiaries or any beneficiary or dependent thereof that is
sponsored or maintained by the Company or any of its subsidiaries or to
which the Company or any of its subsidiaries contributes or is obligated
to contribute, whether or not written, including without limitation any
employee welfare benefit plan within the meaning of Section 3(1) of
ERISA, any employee pension benefit plan within the meaning of Section
3(2) of ERISA (whether or not such plan is subject to ERISA) and any
material bonus, incentive, deferred compensation, vacation, stock
purchase, stock option, severance, employment, change of control or
fringe benefit plan, program or agreement.
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(iv) A "Plan" means any Employee Benefit Plan other than a
Multiemployer Plan.
(v) A "Multiemployer Plan" means any "multiemployer plan" within the
meaning of Section 4001(a)(3) of ERISA.
(vi) "Withdrawal Liability" means liability to a Multiemployer Plan
as a result of a complete or partial withdrawal from such Multiemployer
Plan, as those terms are defined in Part I of Subtitle E of Title IV of
ERISA.
(b) Section 4.10(b) of the Company Disclosure Schedule includes a
complete list of all material Employee Benefit Plans and, with respect to
executive welfare benefit plans and nonqualified pension, savings and
deferred compensation plans, states the number of employees participating in
or covered by such plans.
(c) With respect to each Plan, the Company has delivered to Parent a
true, correct and complete copy of: (i) each writing constituting a part of
such Plan, including without limitation all material plan documents, trust
agreements, and insurance contracts and other funding vehicles; (ii) the
most recent Annual Report (Form 5500 Series) and accompanying schedules, if
any; (iii) the current summary plan description and any material
modifications thereto, if required to be furnished under ERISA; (iv) the
most recent annual financial report, if any; (v) the most recent actuarial
report, if any; and (vi) the most recent determination letter from the
Internal Revenue Service (the "IRS"), if any. Except as specifically
provided in the foregoing documents delivered to Parent, there are no
amendments to any Plan that have been adopted or approved nor has the
Company or any of its subsidiaries undertaken to make any such amendments or
to adopt or approve any new Plan.
(d) Section 4.10(b) of the Company Disclosure Schedule identifies each
Plan that is intended to be a "qualified plan" within the meaning of Section
401(a) of the Code ("Qualified Plans"). The IRS has issued a favorable
determination letter with respect to each Qualified Plan and the related
trust that has not been revoked, and except as would not have a Company
Material Adverse Effect, there are no existing circumstances nor any events
that have occurred that could adversely affect the qualified status of any
Qualified Plan or the related trust. Section 4.10(b) of the Company
Disclosure Schedule identifies each Plan or related trust which is intended
to meet the requirements of Code Section 501(c)(9) (a "VEBA"), and except as
would not have a Company Material Adverse Effect, each such VEBA meets such
requirements and provides no disqualified benefits (as such term is defined
in Code Section 4976(b)).
(e) All material contributions required to be made to any Plan by
applicable law or regulation or by any Plan document or other contractual
undertaking, and all material premiums due or payable with respect to
insurance policies funding any Plan, for any period through the date hereof
have been timely made or paid in full or, to the extent not required to be
made or paid on or before the date hereof, have been fully reflected on the
Company Financial Statements. Each Plan that is an employee welfare benefit
plan under Section 3(1) of ERISA (i) is funded through an insurance company
contract or a contract with a health maintenance organization, (ii) is, or
is funded through, a VEBA identified as such in Section 4.10(b) of the
Company Disclosure Schedule, or (iii) is unfunded.
(f) Except as would not have a Company Material Adverse Effect, with
respect to each Employee Benefit Plan, the Company and its subsidiaries have
complied, and are now in compliance, with all provisions of ERISA, the Code
and all laws and regulations applicable to such Employee Benefit Plans and
each Plan has been administered in all material respects in accordance with
its terms. There is not now, nor do any circumstances exist that could
reasonably be expected to give rise to, any requirement for the posting of
security with respect to a Plan or the imposition of any lien on the assets
of the Company or any of its subsidiaries under ERISA or
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the Code. To the knowledge of the Company, no non-exempt prohibited
transaction (as defined in Section 406 of ERISA or Section 4975 of the Code)
has occurred with respect to any Plan.
(g) With respect to each Plan that is subject to Title IV of ERISA, the
minimum funding requirements of Section 302 of ERISA or Section 412 of the
Code, or Section 4971 of the Code: (i) there does not exist any accumulated
funding deficiency within the meaning of Section 412 of the Code or Section
302 of ERISA, whether or not waived, in respect of any plan year ended prior
to the date hereof and for which the time for making contributions in order
to avoid occurring an accumulated funding deficiency for such year has
expired; (ii) the fair market value of the assets of each such Plan that is
a defined benefit plan equals or exceeds the actuarial present value of the
accumulated benefit obligation (as of the date of the most recent actuarial
report prepared for such Plan) under such Plan (whether or not vested),
based upon the actuarial assumptions set forth in the most recent actuarial
report for such Plan; (iii) no reportable event within the meaning of
Section 4043(c) of ERISA for which the 30-day notice requirement has not
been waived has occurred since December 31, 1993 in respect of any such Plan
which is a defined benefit Plan; (iv) all material premiums to the Pension
Benefit Guaranty Corporation ("PBGC") have been timely paid in full; (v) no
material liability (other than for premiums to the PBGC and for the payment
of benefits and contributions in the ordinary course) under Title IV of
ERISA has been or could reasonably be expected to be incurred by the Company
or any of its subsidiaries; and (vi) to the knowledge of the Company, the
PBGC has not instituted proceedings to terminate any such Plan and no
condition exists that presents a material risk that such proceedings will be
instituted or which would constitute grounds under Section 4042 of ERISA for
the termination of, or the appointment of a trustee to administer, any such
Plan.
(h) No Employee Benefit Plan is a Multiemployer Plan or a plan that has
two or more contributing sponsors at least two of which are not under common
control, within the meaning of Section 4063 of ERISA (a "Multiple Employer
Plan"). None of the Company and its subsidiaries nor any of their respective
ERISA Affiliates has, at any time during the last six years, contributed to
or been obligated to contribute to any Multiemployer Plan or Multiple
Employer Plan. None of the Company and its subsidiaries nor any ERISA
Affiliates has incurred any Withdrawal Liability that has not been satisfied
in full.
(i) There does not now exist, nor do any circumstances exist that could
reasonably be expected to result in, any Controlled Group Liability that
would have a Company Material Adverse Effect following the Closing. Without
limiting the generality of the foregoing, neither the Company nor any of its
subsidiaries, nor any of their respective ERISA Affiliates, has engaged in
any transaction described in Section 4069 or Section 4204 or 4212 of ERISA
since December 31, 1993.
(j) Except for health continuation coverage as required by Section 4980B
of the Code or Part 6 of Title I of ERISA or applicable state law, the
Company and its subsidiaries have no material liability for life, health,
medical or other welfare benefits to former employees or beneficiaries or
dependents of former employees.
(k) Neither the execution and delivery of this Agreement nor the
consummation of any of the transactions contemplated hereby will (either
alone or in conjunction with any other event) result in, cause the
accelerated funding, vesting or delivery of, or increase the amount or value
of, any material payment or benefit to any employee, officer or director of
the Company or any of its subsidiaries. Section 4.10(k) of the Company
Disclosure Schedule sets forth the estimated amount that will be required to
be contributed to each trust listed thereon as a result of the consummation
of the transactions contemplated hereby.
(l) No labor organization or group of employees of the Company or any of
its subsidiaries has made a pending demand for recognition or certification,
and there are no representation or certification proceedings or petitions
seeking a representation proceeding presently pending or, to
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the knowledge of the Company, threatened to be brought or filed, with the
National Labor Relations Board or any other labor relations tribunal or
authority. There are no organizing activities, strikes, work stoppages,
slowdowns, lockouts, material arbitrations or material grievances, or other
material labor disputes pending or, to the knowledge of the Company,
threatened against or involving the Company or any of its subsidiaries. Each
of the Company and its subsidiaries is in compliance in all material
respects with all applicable laws and collective bargaining agreements
respecting employment and employment practices, terms and conditions of
employment, wages and hours and occupational safety and health.
(m) There are no pending or, to the knowledge of the Company, threatened
claims (other than claims for benefits in the ordinary course), lawsuits or
arbitrations which have been asserted or instituted, and there is no set of
circumstances which may reasonably give rise to a claim or lawsuit, against
the Plans, any fiduciaries thereof with respect to their duties to the Plans
or the assets of any of the trusts under any of the Plans which could
reasonably be expected to result in a Company Material Adverse Effect.
(n) The Company, its subsidiaries and each member of their respective
business enterprise has complied with the Worker Adjustment and Retraining
Notification Act.
Section 4.11 ENVIRONMENTAL PROTECTION. Except as set forth in Section 4.11
of the Company Disclosure Schedule or in the Company SEC Reports filed prior to
the date hereof:
(a) COMPLIANCE. Except where the failure to be in such compliance
would not in the aggregate have a Company Material Adverse Effect, (i) the
Company and each of its subsidiaries are in compliance with all applicable
Environmental Laws (as defined in Section 4.11(f)(ii)) and (ii) neither the
Company nor any of its subsidiaries has received any communication from any
Governmental Authority or any written communication from any other person
that alleges that the Company or any of its subsidiaries is not in
compliance with applicable Environmental Laws,.
(b) ENVIRONMENTAL PERMITS. The Company and each of 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 Environmental Permits are in good standing or,
where applicable, a renewal application has been timely filed and is pending
agency approval, and the Company and its subsidiaries are in compliance with
all terms and conditions of the Environmental Permits, and the Company
reasonably believes that any transfer, renewal or reapplication for any
Environmental Permit required as a result of the Merger can be accomplished
in the ordinary course of business, except where the failure to obtain or to
be in such compliance would not, in the aggregate, have a Company Material
Adverse Effect.
(c) ENVIRONMENTAL CLAIMS. There are no Environmental Claims (as
defined in Section 4.11(f)(i)) pending (i) against the Company or any of its
subsidiaries or joint ventures, or (ii) against any real or personal
property or operations that the Company or any of its subsidiaries owns,
leases or manages, in whole or in part that, if adversely determined, would
have, in the aggregate, a Company Material Adverse Effect.
(d) RELEASES. Except for Releases of Hazardous Materials the liability
for which would not have, in the aggregate, a Company Material Adverse
Effect, there have been no Releases (as defined in Section 4.11(f)(iv)) of
any Hazardous Material (as defined in Section 4.11(f)(iii)) that would be
reasonably likely to (i) form the basis of any Environmental Claim against
the Company or any of its subsidiaries, or (ii) to the knowledge of the
Company, cause, damage or diminution of value to any of the operations or
real properties owned, leased or managed, in whole or in part, by Company or
any of its subsidiaries.
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(e) PREDECESSORS. The Company has no knowledge 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, in
each case against any person or entity (including, without limitation, any
predecessor of the Company or any of its subsidiaries) whose liability the
Company or any of its subsidiaries has or may have retained or assumed
either contractually or by operation of law or against any real or personal
property which the Company or any of its subsidiaries formerly owned, leased
or managed, in whole or in part, except for Releases of Hazardous Materials
the liability for which would not have, in the aggregate, a Company Material
Adverse Effect.
(f) As used in this Agreement:
(i) "Environmental Claim" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters,
directives, claims, liens, investigations, proceedings or notices of
noncompliance or violation by any person or entity (including any
Governmental Authority) alleging potential liability (including, without
limitation, potential responsibility for or liability for enforcement
costs, investigatory costs, cleanup costs, governmental response costs,
removal costs, remedial costs, natural-resources damages, property
damages, personal injuries, fines or penalties) arising out of, based on
or resulting from (A) the presence, or Release or threatened Release into
the environment, of any Hazardous Materials at any location, whether or
not owned, operated, leased or managed by the Company, Parent or any of
their respective subsidiaries or joint ventures; 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 laws,
rules, ordinances and regulations relating to pollution, the environment
(including, without limitation, ambient air, surface water, groundwater,
land surface or subsurface strata) or protection of human health as it
relates to the environment including, without limitation, laws and
regulations relating to Releases or threatened Releases of Hazardous
Materials, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials.
(iii) "Hazardous Materials" means (A) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation, coal tar residue, and
transformers or other equipment that contain dielectric fluid containing
polychlorinated biphenyls ("PCBs") in regulated concentrations; 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," "hazardous
constituents" 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 the Parent, the Company or any of their
subsidiaries or joint ventures operates or has stored, treated or
disposed of Hazardous Materials.
(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 4.12 REGULATION AS A UTILITY. Except as set forth in Section 4.12
of the Company Disclosure Schedule, neither the Company nor any "associate
company," "subsidiary company" or "affiliate" (as such terms are defined in the
1935 Act) of the Company is subject to regulation as (a) a
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"holding company," a "public-utility company," a "subsidiary company" or an
"affiliate" of a "holding company," within the meaning of Sections 2(a)(7),
2(a)(5), 2(a)(8) and 2(a)(11), respectively, of the 1935 Act, (b) a "public
utility" under the Power Act, (c) a "natural-gas company" under the Natural Gas
Act or (d) a public utility or public service company (or similar designation)
by any state in the United States other than Connecticut or by any foreign
country.
Section 4.13 VOTE REQUIRED. The approval of the Merger by two-thirds of
the votes entitled to be cast by all holders of Company Common Stock (the
"Company Shareholders' Approval") is the only vote of the holders of any class
or series of the capital stock of the Company or any of its subsidiaries
required to approve this Agreement, the Merger and the other transactions
contemplated hereby.
Section 4.14 OPINION OF FINANCIAL ADVISOR. The Company has received the
opinion of PaineWebber Incorporated, to the effect that, as of June 29, 1999,
the Merger Consideration is fair from a financial point of view to the holders
of Company Common Stock.
Section 4.15 OWNERSHIP OF PARENT COMMON STOCK. Except as set forth in
Section 4.15 of the Company Disclosure Schedule, the Company does not
"beneficially own" (as such term is defined for purposes of Section 13(d) of the
Exchange Act) any shares of Parent Common Stock or Parent Preferred Stock.
Section 4.16 TAKEOVER LAWS; RIGHTS PLANS. (a) The Company has taken all
action required to be taken by it in order to exempt this Agreement and the
transactions contemplated hereby from, and this Agreement and the transactions
contemplated hereby are exempt from, the requirements of any "moratorium,"
"control share," "fair price" or other anti-takeover laws and regulations
(collectively, "Takeover Laws") of the State of Connecticut, including Sections
33-841 and 33-844 of the CBCA.
(b) The Company has (i) duly entered into an appropriate amendment to
the Company Rights Agreement which amendment has been provided to Parent and
(ii) taken all other action necessary or appropriate so that the entering
into of this Agreement and the consummation of the transactions contemplated
hereby (including the Merger) do not and will not result in the ability of
any person to exercise any Company Rights under the Company Rights Agreement
or enable or require the Company Rights to separate from the shares of
Company Common Stock to which they are attached or to be triggered or become
exercisable, and the Company Rights Agreement will expire immediately prior
to the Effective Time, and the Company Rights Agreement, as so amended, has
not been further amended or modified except in accordance herewith. Copies
of such amendments to the Company Rights Agreement have been previously
provided to Parent.
(c) No "Distribution Date" or "Triggering Event" (as such terms are
defined in the Company Rights Agreement) has occurred.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company as follows:
Section 5.1 ORGANIZATION AND QUALIFICATION. Except as set forth in Section
5.1 of the Parent Disclosure Schedule (as defined in Section 7.6), Parent and
each of its subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation or
organization, has all requisite corporate power and authority, and has been duly
authorized by all necessary approvals and orders, to own, lease and operate its
assets and properties to the extent owned, leased and operated and to carry on
its business as it is now being conducted and is duly qualified and in good
standing to do business in each jurisdiction in which the nature of its business
or the ownership or leasing of its assets and properties makes such
qualification necessary, other than in such jurisdictions where the failure to
be so qualified and in good standing will not, when taken together with all
other such failures, have a material adverse effect on the business, properties,
financial condition or results of operations of Parent and its subsidiaries
taken as a whole or on the consummation of this Agreement (any such material
adverse effect being hereafter referred to as a "Parent Material Adverse
Effect").
Section 5.2 SUBSIDIARIES. Section 5.2 of the Parent Disclosure Schedule
sets forth a description as of the date hereof of all material subsidiaries and
joint ventures of Parent, including the name of each such entity, the state or
jurisdiction of its incorporation or organization, Parent's interest therein,
and a brief description of the principal line or lines of business conducted by
each such entity. As of the date hereof, Parent is an exempt holding company
under the 1935 Act, and, except as set forth in Section 5.2 of the Parent
Disclosure Schedule, none of the subsidiaries of Parent is a "public utility
company" within the meaning of Section 2(a)(5) of the 1935 Act. Except as set
forth in Section 5.2 of the Parent Disclosure Schedule, all of the issued and
outstanding shares of capital stock of each Parent subsidiary are validly
issued, fully paid, nonassessable and free of preemptive rights, and are owned
directly or indirectly by Parent free and clear of any liens, claims,
encumbrances, security interests, equities, charges and options of any nature
whatsoever, and there are no outstanding subscriptions, options, calls,
contracts, voting trusts, proxies or other commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement, obligating any such Parent subsidiary to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of its capital stock or
obligating it to grant, extend or enter into any such agreement or commitment;
except for any of the foregoing that could not reasonably be expected to have a
Parent Material Adverse Effect.
Section 5.3 CAPITALIZATION. (a) Except as set forth in Section 5.3 of the
Parent Disclosure Schedule the authorized capital stock of Parent consists of
300,000,000 shares of Parent Common Stock and 10,000,000 shares of preferred
stock, par value $.01 per share, of Parent ("Parent Preferred Stock"). As of the
close of business on June 29, 1999, there were issued and outstanding
115,902,728 shares of Parent Common Stock and no shares of Parent Preferred
Stock. All of the issued and outstanding shares of the capital stock of Parent
are, and will be, validly issued, fully paid, nonassessable and free of
preemptive rights. Except as set forth in Section 5.3 of the Parent Disclosure
Schedule, as of the date hereof, there are no outstanding subscriptions,
options, calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement, obligating Parent or any of its subsidiaries to issue, deliver
or sell, or cause to be issued, delivered or sold, additional shares of the
capital stock of Parent, or obligating Parent to grant, extend or enter into any
such agreement or commitment.
(b) The authorized capital stock of Merger Sub consists of 1,000 shares
of common stock, without par value ("Merger Sub Common Stock"). As of the close
of business on June 29, 1999, there
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were issued and outstanding 1,000 shares of Merger Sub Common Stock, all of
which were owned by Parent.
Section 5.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE.
(a) AUTHORITY. Parent has all requisite corporate power and authority
to enter into this Agreement and, subject to the applicable Parent Required
Statutory Approvals (as defined in Section 5.4(c)), to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement,
and the consummation by Parent of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Parent. This
Agreement has been duly and validly executed and delivered by Parent and,
assuming the due authorization, execution and delivery by the other signatories
hereto, constitutes a valid and binding obligation of Parent enforceable against
it in accordance with its terms.
(b) NON-CONTRAVENTION. Except as set forth in Section 5.4(b) of the
Parent Disclosure Schedule, the execution and delivery of this Agreement by
Parent do not, and the consummation of the transactions contemplated hereby will
not, result in a Violation pursuant to any provisions of (i) the articles of
incorporation, by-laws or similar governing documents of Parent or any of its
subsidiaries or any of its joint ventures, (ii) subject to obtaining the Parent
Required Statutory Approvals (as defined in Section 5.4(c)) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit
or license of any Governmental Authority applicable to Parent or any of its
subsidiaries or any of its joint ventures or any of their respective properties
or assets or (iii) subject to obtaining the third-party consents or other
approvals set forth in Section 5.4(b) of the Parent Disclosure Schedule (the
"Parent Required Consents"), any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which Parent or any of its subsidiaries
or any of its joint ventures is a party or by which it or any of its properties
or assets may be bound or affected, excluding from the foregoing clauses (i),
(ii) and (iii) such Violations as would not have, in the aggregate, a Parent
Material Adverse Effect.
(c) STATUTORY APPROVALS. Except as described in Section 5.4(c) of the
Parent Disclosure Schedule, no declaration, filing or registration with, or
notice to or authorization, consent or approval of, any Governmental Authority
is necessary for the execution and delivery of this Agreement by Parent or the
consummation by Parent of the transactions contemplated hereby, the failure to
obtain, make or give which would have, in the aggregate, a Parent Material
Adverse Effect (the "Parent Required Statutory Approvals"), it being understood
that references in this Agreement to "obtaining" such Parent Required Statutory
Approvals shall mean making such declarations, filings or registrations; giving
such notices; obtaining such authorizations, consents or approvals; and having
such waiting periods expire as are necessary to avoid a violation of law.
(d) COMPLIANCE. Except as set forth in Section 5.4(d) or Section 5.11
of the Parent Disclosure Schedule, or as disclosed in the Parent SEC Reports (as
defined in Section 5.5) filed prior to the date hereof, neither Parent nor any
of its subsidiaries nor any of its joint ventures is in violation of, is under
investigation with respect to any violation of, or has been given notice or been
charged with any violation of, any law, statute, or order, rule, regulation,
ordinance or judgment (including, without limitation, any applicable
Environmental Law) of any Governmental Authority, except for violations that, in
the aggregate, do not have and are not reasonably likely to have, a Parent
Material Adverse Effect. Except as set forth in Section 5.4(d) of the Parent
Disclosure Schedule or in Section 5.11 of the Parent Disclosure Schedule, Parent
and its subsidiaries and joint ventures have all permits, licenses, franchises
and other governmental authorizations, consents and approvals necessary to
conduct their respective businesses as currently conducted in all respects,
except those which the failure to obtain would, in the aggregate, not have a
Parent Material Adverse Effect. Except as set forth in Section 5.4(d) of the
Parent Disclosure Schedule, Parent and each of its subsidiaries are not in
breach or violation of or in default in the performance or observance of any
term or provision of, and no
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event has occurred which, with lapse of time or action by a third party, could
result in a default under, (i) its articles of organization or by-laws or (ii)
any material contract, commitment, agreement, indenture, mortgage, loan
agreement, note, lease, bond, license, approval or other instrument to which it
is a party or by which it is bound or to which any of its property is subject;
except for breaches, violations or defaults that, in the aggregate, do not have
and are not reasonably likely to have, a Parent Material Adverse Effect.
Section 5.5 REPORTS AND FINANCIAL STATEMENTS. The filings required to be
made by Parent and its subsidiaries since January 1, 1996 under the Securities
Act, the Exchange Act, the 1935 Act, the Federal Power Act, as amended (the
"Power Act"), and applicable state public utility laws and regulations have been
filed with the SEC, the FERC or the appropriate state public utilities
commission, as the case may be, including all forms, statements, reports,
agreements and all documents, exhibits, amendments and supplements appertaining
thereto, and complied, as of their respective dates, in all material respects
with all applicable requirements of the appropriate statute and the rules and
regulations thereunder. Parent has made available to the Company a true and
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by Parent or its predecessor with the SEC since January 1,
1996 (as such documents have since the time of their filing been amended, the
"Parent SEC Reports"). As of their respective dates, the Parent SEC Reports did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim financial
statements of Parent included in the Parent SEC Reports (collectively, the
"Parent Financial Statements") have been prepared in accordance with GAAP
(except as may be indicated therein or in the notes thereto and except with
respect to unaudited statements as permitted by Form 10-Q of the SEC) and fairly
present the consolidated financial position of Parent as of the dates thereof
and the consolidated results of its operations and cash flows for the periods
then ended. True, accurate and complete copies of the articles of incorporation
and by-laws of Parent as in effect on the date hereof, have been made available
to the Company.
Section 5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Parent SEC Reports filed prior to the date hereof or as set forth in Section
5.6 of the Parent Disclosure Schedule, since December 31, 1998, Parent and each
of its subsidiaries have as of the date hereof conducted their businesses only
in the ordinary course of business consistent with past practice and there has
not been, and no fact or condition exists which has had or could reasonably be
expected to have a Parent Material Adverse Effect.
Section 5.7 LITIGATION. Except as disclosed in the Parent SEC Reports
filed prior to the date hereof or as set forth in Section 5.7 of the Parent
Disclosure Schedule (a) there are no claims, suits, actions or proceedings,
pending or threatened, nor are there any investigations or reviews pending or
threatened against, relating to or affecting Parent or any of its subsidiaries,
which would have a Parent Material Adverse Effect and (b) there are no
judgments, decrees, injunctions, rules or orders of any court, governmental
department, commission, agency, instrumentality or authority or any arbitrator
applicable to Parent or any of its subsidiaries, except for such that would not
reasonably be expected to have a Parent Material Adverse Effect.
Section 5.8 REGISTRATION STATEMENT AND PROXY STATEMENT. (a) None of the
information supplied or to be supplied by or on behalf of Parent for inclusion
or incorporation by reference in the Registration Statement will, at the time
the Registration Statement becomes effective under the Securities Act, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading and (b) the Proxy Statement shall not, at the dates mailed to the
Company shareholders and at the time of the Company Special Meeting, 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
light of the circumstances
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under which they are made, not misleading. The Registration Statement and the
Proxy Statement, insofar as they relate to Parent or any Parent subsidiary,
shall comply as to form in all material respects with the applicable provisions
of the Securities Act and the Exchange Act and the rules and regulations
thereunder.
Section 5.9 REGULATION AS A UTILITY. Except as set forth in Section 5.9 of
the Parent Disclosure Schedule, neither Parent nor any "subsidiary company" or
"affiliate" (as such terms are defined in the 1935 Act) of Parent is subject to
regulation as (a) a "holding company," a "public-utility company," a "subsidiary
company" or an "affiliate" of a "holding company," within the meaning of
sections 2(a)(7), 2(a)(5), 2(a)(8) or 2(a)(11), respectively, of the 1935 Act,
(b) a "public utility" under the Power Act, (c) a "natural-gas company" under
the Natural Gas Act, or (d) a public utility or public service company (or
similar designation) by any state in the United States other than New York or by
any foreign country.
Section 5.10 OWNERSHIP OF THE COMPANY COMMON STOCK. Except as set forth in
Section 5.10 of the Parent Disclosure Schedule, Parent does not "beneficially
own" (as such term is defined for purposes of Section 13(d) of the Exchange Act)
any shares of Company Common Stock.
Section 5.11 ENVIRONMENTAL PROTECTION. (a) Except as would not, in the
aggregate, reasonably be expected to result in a Parent Material Adverse Effect,
and except for matters disclosed in Section 5.11(a) of the Parent Disclosure
Schedule or in the Parent SEC Reports, (i) Parent and its subsidiaries are in
compliance with all applicable Environmental Laws and the terms and conditions
of all applicable Environmental Permits, and neither Parent nor any of its
subsidiaries has received any written notice from any person or Governmental
Authority that alleges that Parent or any of its subsidiaries is not in material
compliance with applicable Environmental Laws or the terms and conditions of all
such Environmental Permits, (ii) there are no Environmental Claims pending or
threatened (A) against Parent or any of its subsidiaries, (B) against any person
or entity whose liability for any Environmental Claim Parent or any of its
subsidiaries has or may have retained or assumed either contractually or by
operation of law or (C) against any real or personal property or operations that
Parent or any of its subsidiaries owns, leases or manages, in whole or in part,
and (iii) there has been no Release of Hazardous Materials that would be
reasonably likely to (A) form the basis of any Environmental Claim against
Parent or any of its subsidiaries or against any person or entity whose
liability for any Environmental Claim Parent or any of its subsidiaries has or
may have retained or assumed either contractually or by operation of law or (B)
cause damage or diminution of value to any of the operations or real properties
owned, leased or managed, in whole or in part, by Parent or any of its
subsidiaries.
(b) To the best knowledge of Parent, except as disclosed in the Parent
SEC Reports, there are no facts or circumstances that are likely to require
expenditures by Parent or any of its subsidiaries in order to comply with
currently applicable Environmental Laws, except for expenditures that are not
reasonably expected to have a Parent Material Adverse Effect.
Section 5.12 OPERATIONS OF NUCLEAR POWER PLANT. To the knowledge of the
Parent, the operation of the nuclear generation plant (the "Nuclear Facility")
currently partially owned by the Parent is being conducted in substantial
compliance with current laws and regulations governing nuclear plant operations,
except for such failures to comply as would not, individually or in the
aggregate, have a Parent Material Adverse Effect. To the best of the Parent's
knowledge and except as would not reasonably be expected to have a Parent
Material Adverse Effect, (a) the Nuclear Facility maintains and is in
substantial compliance with emergency evacuation plans as required by the laws
and regulations governing nuclear plant operations and (b) as of the date of
this Agreement, the storage of spent nuclear fuel and the plans for the
decommissioning of the Nuclear Facility substantially conforms with the
requirements of applicable law.
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Section 5.13 CODE SECTION 368(A). Parent has no knowledge of any fact, nor
has Parent taken any action that would, or would be reasonably likely to,
adversely affect the qualification of the Merger as a reorganization described
in Section 368(a) of the Code.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 COVENANTS OF THE PARTIES. After the date hereof and prior to
the Effective Time or earlier termination of this Agreement, Parent and the
Company each agree as follows, each as to itself and to each of its
subsidiaries, except as expressly contemplated or permitted in this Agreement,
or to the extent the other parties hereto shall otherwise consent in writing:
(a) ORDINARY COURSE OF BUSINESS. The Company shall, and shall cause
its subsidiaries to, carry on their respective businesses in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted and
use all commercially reasonable efforts to (i) preserve intact their present
business organizations and goodwill, preserve the goodwill and relationships
with customers, suppliers and others having business dealings with them, (ii)
subject to prudent management of workforce needs and ongoing programs currently
in force, keep available the services of their present officers and employees as
a group, and (iii) maintain and keep material properties and assets in as good
repair and condition as at present, subject to ordinary wear and tear, and
maintain supplies and inventories in quantities consistent with past practice.
(b) DIVIDENDS. The Company shall not, nor shall it permit any of its
subsidiaries to: (i) declare or pay any dividends on or make other distributions
in respect of any capital stock other than (A) dividends by a wholly owned
subsidiary to the Company or another wholly owned subsidiary, (B) dividends by a
less than wholly owned subsidiary consistent with past practice, (C) regular
dividends on Company Common Stock with usual record and payment dates that do
not exceed the current regular dividends on Company Common Stock; (ii) split,
combine or reclassify any capital stock or the capital stock of any subsidiary
or issue or authorize or propose the issuance of any other securities in respect
of, in lieu of, or in substitution for, shares of capital stock or the capital
stock of any subsidiary; or (iii) redeem, repurchase or otherwise acquire any
shares of capital stock or the capital stock of any subsidiary other than (A)
redemptions, repurchases and other acquisitions of shares of capital stock in
connection with the administration of employee benefit and dividend reinvestment
plans as in effect on the date hereof in the ordinary course of the operation of
such plans consistent with past practice, or (B) intercompany acquisitions of
capital stock. Prior to the Closing Date, each of the parties agrees to
coordinate dividend policies so as not to adversely affect either party's
shareholders because of the timing of record, declaration or payment dates.
(c) ISSUANCE OF SECURITIES. Except as set forth in Section 6.1(c) of
the Company Disclosure Schedule, the Company shall not, nor shall it permit any
of its subsidiaries to, issue, agree to issue, deliver, sell, award, pledge,
dispose of or otherwise encumber or authorize or propose the issuance, delivery,
sale, award, pledge, disposal or other encumbrance of, any shares of their
capital stock of any class or any securities convertible into or exchangeable
for, or any rights, warrants or options to acquire, any such shares or
convertible or exchangeable securities, other than pursuant to currently
outstanding stock options granted under Employee Benefit Plans and as provided
in the Company Rights Agreement.
(d) CHARTER DOCUMENTS; OTHER ACTIONS. Neither party shall, nor shall
any party permit any of its subsidiaries to, amend or propose to amend its
respective articles of organization, by-laws or regulations, or similar organic
documents or to take or fail to take any other action, which in any such case
would reasonably be expected to prevent or materially impede or interfere with
the Merger.
(e) ACQUISITIONS. Except as disclosed in Section 6.1(e) of the Company
Disclosure Schedule, the Company shall not, nor shall it permit any of its
subsidiaries to, acquire or agree to acquire, by
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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 business organization or
division thereof, or otherwise acquire or agree to acquire any material amount
of assets other than in the ordinary course of business.
(f) CAPITAL EXPENDITURES. Except as set forth in Section 6.1(f) of the
Company Disclosure Schedule, the Company shall not, nor shall it permit any of
its subsidiaries to, make capital expenditures in an aggregate amount in excess
of 110% of the amount budgeted by the Company or its subsidiaries for capital
expenditures as set forth in Section 6.1(f) of the Company Disclosure Schedule.
(g) NO DISPOSITIONS. Except as set forth in Section 6.1(g) of the
Company Disclosure Schedule, the Company shall not, nor shall it permit any of
its subsidiaries to, sell, lease, license, encumber or otherwise dispose of, any
of its respective assets, other than encumbrances or dispositions in the
ordinary course of business consistent with past practice.
(h) INDEBTEDNESS. Except as set forth in Section 6.1(h) of the Company
Disclosure Schedule, the Company shall not, nor shall it permit any of its
subsidiaries to, incur or guarantee any indebtedness (including any debt
borrowed or guaranteed or otherwise assumed including, without limitation, the
issuance of debt securities or warrants or rights to acquire debt) or enter into
any "keep well" or other agreement to maintain any financial statement condition
of another person or enter into any arrangement having the economic effect of
any of the foregoing other than (i) short-term indebtedness in the ordinary
course of business consistent with past practice; (ii) arrangements between the
Company and its subsidiaries or among its subsidiaries; or (iii) in connection
with the refunding of existing indebtedness at a lower cost of funds.
(i) COMPENSATION, BENEFITS. Except as set forth in Section 6.1(i) of
the Company Disclosure Schedule, as may be required by applicable law or under
existing Employee Benefit Plans or collective bargaining agreements, as may be
required to facilitate or obtain a determination letter from the IRS that a plan
is a Qualified Plan, or as expressly contemplated by this Agreement, the Company
shall not, nor shall it permit any of its subsidiaries to, (i) enter into, adopt
or amend or increase the amount or accelerate the payment or vesting of any
benefit or amount payable under any Employee Benefit Plan, or otherwise increase
the compensation or benefits of any director, officer or other employee of such
party or any of its subsidiaries, except for normal increases in compensation
and benefits, or grants of new incentive compensation awards, or actions in the
ordinary course of business, that are consistent with the Company's past
practice of adjusting compensation and benefits to reflect the average
compensation and benefits as determined by general industry or market surveys;
provided that prior to implementing any such increases on the basis of such
surveys the Company shall advise Parent of its intention so to increase
compensation or benefits and of the basis therefor and shall otherwise consult
with Parent concerning such proposed increases, or (ii) 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 other than with respect to employees who
are not officers of the Company in the ordinary course of business consistent
with current industry practice. This subsection (i) is not intended to (A)
restrict the Company or its subsidiaries from granting promotions to officers or
employees based upon job performance or workplace requirements in the ordinary
course of business consistent with past practice, (B) restrict the Company's
ability to make available to employees the plans, benefits and arrangements that
have customarily and consistent with past practices been available to officers
and employees in the context of such merit-based promotion or (C) restrict the
Company from dealing with matters of employee retention in specific areas of
expertise through the use of specialized employment and benefit plans designed
for that specific purpose; PROVIDED, HOWEVER, that the result of the use of such
specialized employment or benefit plans shall not, in the aggregate, result in
payments in excess of $600,000.
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(j) 1935 ACT. Except as set forth in Section 6.1(j) of the Company
Disclosure Schedule, and except as required or contemplated by this Agreement,
the Company shall not, nor shall it permit any of its subsidiaries to, engage in
any activities which would cause a change in its status, or that of its
subsidiaries, under the 1935 Act.
(k) ACCOUNTING. Except as set forth in Section 6.1(k) of the Company
Disclosure Schedule, the Company shall not, nor shall it permit any of its
subsidiaries to, make any changes in their accounting methods, except as
required by law, rule, regulation or GAAP.
(l) TAX-FREE STATUS. No party shall, nor shall any party permit any of
its subsidiaries to, take any actions which would, or would be reasonably likely
to, adversely affect the status of the Merger as a reorganization within the
meaning of Section 368(a) of the Code, and each party hereto shall use all
reasonable efforts to achieve such result.
(m) COOPERATION, NOTIFICATION. Each party shall, and shall cause its
subsidiaries to, (i) confer on a regular and frequent basis with one or more
representatives of the other party to discuss, subject to applicable law,
material operational matters and the general status of its ongoing operations;
(ii) promptly notify the other party of any significant changes in its business,
properties, assets, condition (financial or other), results of operations or
prospects; (iii) advise the other party of any change or event which has had or,
insofar as reasonably can be foreseen, is reasonably likely to result in, in the
case of the Company, a Company Material Adverse Effect or, in the case of
Parent, a Parent Material Adverse Effect; and (iv) promptly provide the other
party with copies of all filings made by such party or any of its subsidiaries
with any state or federal court, administrative agency, commission or other
Governmental Authority in connection with this Agreement and the transactions
contemplated hereby.
(n) THIRD-PARTY CONSENTS. The Company shall, and shall cause its
subsidiaries to, use all commercially reasonable efforts to obtain all the
Company Required Consents. The Company shall promptly notify Parent of any
failure or prospective failure to obtain any such consents and, if requested by
Parent shall provide copies of all the Company Required Consents obtained by the
Company to Parent. Parent shall, and shall cause its subsidiaries to, use all
commercially reasonable efforts to obtain all Parent Required Consents. Parent
shall promptly notify the Company of any failure or prospective failure to
obtain any such consents and, if requested by the Company, shall provide copies
of all Parent Required Consents obtained by Parent to the Company.
(o) NO BREACH, ETC. No party shall, nor shall any party permit any of
its subsidiaries to, willfully take any action that would or is reasonably
likely to result in a material breach of any provision of this Agreement or in
any of its representations and warranties set forth in this Agreement being
untrue on and as of the Closing Date.
(p) DISCHARGE OF LIABILITIES. The Company shall not pay, discharge or
satisfy any material claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction, in the ordinary course of business consistent with
past practice (which includes the payment of final and unappealable judgments)
or in accordance with their terms, of liabilities reflected or reserved against
in, or contemplated by, the most recent consolidated financial statements (or
the notes thereto) of the Company included in the Company's reports filed with
the SEC, or incurred in the ordinary course of business consistent with past
practice.
(q) CONTRACTS. Except as set forth in Section 6.1(q) of the Company
Disclosure Schedule, the Company shall not, except in the ordinary course of
business consistent with past practice, modify, amend, terminate, renew or fail
to use reasonable business efforts to renew any material contract or agreement
to which the Company or any of its subsidiaries is a party or waive, release or
assign any material rights or claims.
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(r) INSURANCE. The Company shall, and shall cause its subsidiaries to,
maintain with financially responsible insurance companies insurance in such
amounts and against such risks and losses as are customary for companies engaged
in the electric and gas utility industry.
(s) PERMITS. The Company shall, and shall cause its subsidiaries to,
use reasonable efforts to maintain in effect all existing governmental permits
pursuant to which the Company or any of its subsidiaries operate.
(t) TAKEOVER LAWS. Neither party shall take any action that would
cause the transactions contemplated by this Agreement to be subject to
requirements imposed by any Takeover Law, and each of them shall take all
necessary steps within its control to exempt (or ensure the continued exemption
of) the transactions contemplated by this Agreement from, or if necessary
challenge the validity or applicability of, any applicable Takeover Law, as now
or hereafter in effect, including Sections 33-841 through 33-844 of the CBCA.
(u) NO RIGHTS TRIGGERED. The Company shall ensure that the entering
into of this Agreement and the consummation of the transactions contemplated
hereby and any other action or combination of actions, or any other transactions
contemplated hereby, do not and will not result, directly or indirectly, in the
grant of any rights to any person under any material agreement (other than the
employment agreements disclosed in Section 6.1(u) of the Company Disclosure
Schedule) to which it or any of its subsidiaries is a party (including the
Company Rights Agreement) or in the exercise of any rights under the Company
Rights Agreement or otherwise. In addition, the Company shall not amend or waive
any rights under the Company Rights Agreement or otherwise in a manner that
would materially and adversely affect either party's ability to consummate the
Merger or the economic benefits of the Merger to either party.
(v) TAXES. Except as disclosed on Section 6.1(v) of the Company
Disclosure Schedule, the Company shall not, and shall cause its subsidiaries not
to, (A) make or rescind any express or deemed material election relating to
Taxes, (B) settle or compromise any material claim, audit, dispute, controversy,
examination, investigation or other proceeding relating to Taxes, (C) materially
change any of its methods of reporting income or deductions for federal income
Tax purposes, except as may be required by applicable law, or (D) file any
material Tax Return other than in a manner consistent with past custom and
practice.
Section 6.2 COVENANT OF THE COMPANY; ALTERNATIVE PROPOSALS. From and after
the date hereof, the Company agrees (a) that it will not, its subsidiaries will
not, and it will not authorize or permit any of its or its subsidiaries'
officers, directors, employees, agents and representatives (including, without
limitation, any investment banker, attorney or accountant retained by it or any
of its subsidiaries or any of the foregoing) to, directly or indirectly,
encourage, initiate or solicit (including by way of furnishing information) or
take any other action to facilitate knowingly any inquiries or the making of any
proposal or offer (including, without limitation, any proposal or offer to its
shareholders) which constitutes or may reasonably be expected to lead to an
Alternative Proposal (as defined below) from any person or engage in any
discussion or negotiations concerning, or provide any non-public information or
data to make or implement, an Alternative Proposal; (b) that it will immediately
cease and cause to be terminated any existing solicitation, initiation,
encouragement, activity, discussions or negotiations with any parties conducted
heretofore with a view of formulating an Alternative Proposal; and (c) that it
will notify Parent orally and in writing of any such inquiry, offer or proposals
(including, without limitation, the terms and conditions of any such proposal
and the identity of the person making it), within one business day of the
receipt thereof, and that it shall keep Parent informed of the status and
details of any such inquiry, offer or proposal and shall give Parent 48 hours'
prior notice of any agreement to be entered into or of the fact that it proposes
to commence providing information to any person making such inquiry, offer or
proposal; provided however, that notwithstanding any other provision hereof, the
Company may (i) at any time prior to the time at which the Company
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Shareholders' Approval shall have been obtained engage in discussions or
negotiations with a third party who (without any solicitation, initiation,
encouragement, discussion or negotiation, directly or indirectly, by or with
Company or its representatives after the date hereof) seeks to initiate such
discussions or negotiations and may furnish such third party information
concerning the Company and its business, properties and assets if, and only to
the extent that, (A) (x) the third party has first made an Alternative Proposal
that is financially superior to the Merger and has demonstrated that any
necessary financing has been obtained, or in the reasonable judgment of the
Company's financial advisor is obtainable, and (y) the Board of Directors of the
Company shall conclude in good faith, after consultation with its financial
advisor and based upon the advice of outside counsel and such other matters as
the Board of Directors of the Company deems relevant, that failure to do so
would likely result in a breach of its fiduciary duties under applicable law,
and (B) prior to furnishing such information to, or entering into discussions or
negotiations with, such person or entity, the Company (x) provides prompt
written notice to Parent to the effect that it intends to furnish information
to, or intends to enter into discussions or negotiations with, such person or
entity, (y) provides the Parent a reasonable opportunity to respond to the
Alternative Proposal and (z) receives from such person an executed
confidentiality agreement in reasonably customary form except that such
confidentiality agreement shall not prohibit such person from making an
unsolicited Alternative Proposal, and (ii) comply with Rule 14e-2 promulgated
under the Exchange Act with regard to a tender or exchange offer and/or (iii)
accept an Alternative Proposal from a third party, provided the Company
terminates this Agreement pursuant to Section 9.1(e). "Alternative Proposal"
shall mean any merger, acquisition, consolidation, reorganization, share
exchange, tender offer, exchange offer or similar transaction involving the
Company or any of the Company's subsidiaries, or any proposal or offer to
acquire in any manner, directly or indirectly, a substantial equity interest in
or a substantial portion of the assets of the Company or any of the Company's
subsidiaries. Nothing herein shall prohibit a disposition permitted by Section
6.1(g) hereof.
Section 6.3 EMPLOYMENT AGREEMENT. Parent, the Company and Mr. Marquardt
have entered into an employment agreement in the form attached hereto as Exhibit
A (the "Employment Agreement"), which will become effective upon consummation of
the Merger.
Section 6.4 ADDITIONAL STATUTORY APPROVALS. Parent agrees not to, and it
will not permit any subsidiary to, and will use reasonable best efforts to cause
any prospective subsidiary not to, be a party to any transaction that would make
it necessary for Parent or the Company to make any declaration, filing or
registration with, or notice to or authorization, consent or approval of, any
Governmental Authority in connection with the consummation by Parent, Merger Sub
or the Company of the transactions contemplated by this Agreement, other than
those set forth in Section 5.4(c) of the Parent Disclosure Schedule or Section
4.4(c) of the Company Disclosure Schedule, in either case, that would reasonably
be expected to prevent or materially impede, interfere with, or delay
consummation of the Merger or the transactions contemplated by this Agreement
beyond the 18-month anniversary of the date hereof.
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ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 ACCESS TO INFORMATION. Upon reasonable notice and during
normal business hours, each party shall, and shall cause its subsidiaries to,
afford to the officers, directors, employees, accountants, counsel, investment
bankers, financial advisors and other representatives of the other
(collectively, "Representatives") reasonable access, throughout the period prior
to the Effective Time, to all of its properties, books, contracts, commitments
and records (including, but not limited to, Tax Returns) and, during such
period, each party shall, and shall cause its subsidiaries to, furnish promptly
to the other (a) access to each report, schedule and other document filed or
received by it or any of its subsidiaries pursuant to the requirements of
federal or state securities laws or filed with or sent to the SEC, the FERC, the
Department of Justice, the Federal Trade Commission or any other federal or
state regulatory agency or commission, and (b) access to all information
concerning themselves, their subsidiaries, directors, officers and shareholders
and such other matters as may be reasonably requested by the other party in
connection with any filings, applications or approvals required or contemplated
by this Agreement. Each party shall, and shall cause its subsidiaries and
Representatives to, hold in strict confidence all Proprietary Information (as
defined in the Confidentiality Agreement) concerning the other parties furnished
to it in connection with the transactions contemplated by this Agreement in
accordance with the Confidentiality Agreement, dated as of June 18, 1999,
between the Company and Parent, as it may be amended from time to time (the
"Confidentiality Agreement").
Section 7.2 PROXY STATEMENT AND REGISTRATION STATEMENT.
(a) PREPARATION AND FILING. The parties will prepare and file with the
SEC as soon as reasonably practicable after the date hereof the Registration
Statement and the Proxy Statement (together, the "Proxy/Registration
Statement"). The parties hereto shall each use reasonable efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as practicable after such filing. Each party hereto shall also take
such action as may be reasonably required to cause the shares of Parent Common
Stock issuable in connection with the Merger to be registered or to obtain an
exemption from registration under applicable state "blue sky" or securities
laws; provided, however, that no party shall be required to register or qualify
as a foreign corporation or to take other action which would subject it to
service of process in any jurisdiction where it will not be, following the
Merger, so subject. Each of the parties hereto shall furnish all information
concerning itself which is required or customary for inclusion in the
Proxy/Registration Statement. The parties shall use reasonable efforts to cause
the shares of Parent Common Stock issuable in the Merger to be approved for
listing on the NYSE upon official notice of issuance. The information provided
by any party hereto for use in the Proxy/Registration Statement shall be true
and correct in all material respects without omission of any material fact which
is required to make such information not false or misleading. No representation,
covenant or agreement is made by or on behalf of any party hereto with respect
to information supplied by any other party for inclusion in the Proxy
Statement/Registration Statement.
(b) LETTER OF THE COMPANY'S ACCOUNTANT. Following receipt by Arthur
Andersen LLP, the Company's independent auditor, of an appropriate request from
the Company pursuant to SAS No. 72, the Company shall use its best efforts to
cause to be delivered to Parent a letter of Arthur Andersen LLP dated a date
within two business days before the date of the Proxy/Registration Statement,
and addressed to Parent, in form and substance reasonably satisfactory to Parent
and customary in scope and substance for "cold comfort" letters delivered by
independent public accountants in connection with registration statements
similar to the Proxy/Registration Statement.
(c) LETTER OF PARENT'S ACCOUNTANT. Following receipt by
PricewaterhouseCoopers LLP, Parent's independent auditor, of an appropriate
request from Parent pursuant to SAS No. 72, Parent shall use its best efforts to
cause to be delivered to the Company a letter of PricewaterhouseCoopers
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LLP, dated a date within two business days before the date of the
Proxy/Registration Statement, and addressed to the Company, in form and
substance reasonably satisfactory to the Company and customary in scope and
substance for "cold comfort" letters delivered by independent public accountants
in connection with registration statements similar to the Proxy/Registration
Statement.
Section 7.3 REGULATORY MATTERS. Each party hereto shall cooperate and use
its best efforts to promptly prepare and file all necessary documentation, to
effect all necessary applications, notices, petitions, filings and other
documents, and to use all commercially reasonable efforts to obtain no later
than the Initial Termination Date, as such date may be extended pursuant to
Section 9.1(b), all necessary permits, consents, approvals and authorizations of
all Governmental Authorities necessary or advisable to consummate the
transactions contemplated by this Agreement, including, without limitation, the
Company Required Statutory Approvals and the Parent Required Statutory
Approvals.
Section 7.4 COMPANY SHAREHOLDERS' APPROVAL.
(a) COMPANY SPECIAL MEETING. Subject to the provisions of Section
7.4(b), the Company shall, as soon as reasonably practicable after the date
hereof (i) take all steps necessary to duly call, give notice of, convene and
hold a meeting of its shareholders (the "Company Special Meeting") for the
purpose of securing the Company Shareholders' Approval, (ii) distribute to its
shareholders the Proxy Statement in accordance with applicable federal and state
law and with its certificate of incorporation and by-laws, (iii) subject to the
fiduciary duties of its Board of Directors, recommend to its shareholders the
approval of this Agreement and the transactions contemplated hereby and (iv)
cooperate and consult with Parent with respect to each of the foregoing matters.
(b) MEETING DATE. The Company Special Meeting for the purpose of
securing the Company Shareholders' Approval shall be held on such date as the
Company and Parent shall mutually determine.
Section 7.5 DIRECTORS' AND OFFICERS' INDEMNIFICATION.
(a) INDEMNIFICATION. To the extent, if any, not provided by an
existing right of indemnification or other agreement or policy, from and after
the Effective Time, Parent and the Surviving Corporation shall, to the fullest
extent permitted by applicable law, indemnify, defend and hold harmless each
person who is now, or has been at any time prior to the date hereof, or who
becomes prior to the Effective Time, an officer, director or employee of the
Company or any of its subsidiaries (each an "Indemnified Party" and
collectively, the "Indemnified Parties") against (i) all losses, expenses
(including reasonable attorney's fees and expenses), claims, damages or
liabilities or, subject to the proviso of the next succeeding sentence, amounts
paid in settlement, arising out of actions or omissions occurring at or prior to
the Effective Time (and whether asserted or claimed prior to, at or after the
Effective Time) that are, in whole or in part, based on or arising out of the
fact that such person is or was a director, officer or employee of the Company
or a subsidiary of the Company (the "Indemnified Liabilities"), and (ii) all
Indemnified Liabilities to the extent they are based on or arise out of or
pertain to the transactions contemplated by this Agreement. In the event of any
such loss, expense, claim, damage or liability (whether or not arising before
the Effective Time), (i) Parent shall pay the reasonable fees and expenses of
counsel selected by the Indemnified Parties, which counsel shall be reasonably
satisfactory to Parent, promptly after statements therefor are received and
otherwise advance to such Indemnified Party upon request reimbursement of
documented expenses reasonably incurred, (ii) any determination required to be
made with respect to whether an Indemnified Party's conduct complies with the
standards set forth in Section 33-756, 33-757 and 33-765 of the CBCA, and the
certificate of incorporation or by-laws shall be made by independent counsel
mutually acceptable to Parent and the Indemnified Party; provided, however, that
Parent shall not be liable for any settlement effected without its written
consent (which consent shall not be unreasonably withheld). The Indemnified
Parties as a group may retain only one law firm with respect to each related
matter except to the extent there is, in the opinion of counsel to an
Indemnified Party, under
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applicable standards of professional conduct, a conflict on any significant
issue between positions of such Indemnified Party and any other Indemnified
Party or Indemnified Parties.
(b) INSURANCE. For a period of six years after the Effective Time,
Parent shall (i) cause to be maintained in effect policies of directors' and
officers' liability insurance for the benefit of those persons who are currently
covered by such policies of the Company on terms no less favorable than the
terms of such current insurance coverage or (ii) provide tail coverage for such
persons which provides coverage for a period of six years for acts prior to the
Effective Time on terms no less favorable than the terms of such current
insurance coverage; provided, however, that Parent shall not be required to
expend in any year an amount in excess of 200% of the annual aggregate premiums
currently paid by the Company, for such insurance; and provided, further, that
if the annual premiums of such insurance coverage exceed such amount, Parent
shall be obligated to obtain a policy with the best coverage available, in the
reasonable judgment of the Board of Directors of Parent, for a cost not
exceeding such amount.
(c) SUCCESSORS. In the event Parent or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then, and in either such case, proper provisions shall be made so
that the successors and assigns of Parent shall assume the obligations set forth
in this Section 7.5.
(d) SURVIVAL OF INDEMNIFICATION. To the fullest extent permitted by
law, from and after the Effective Time, all rights to indemnification as of the
date hereof in favor of the employees, agents, directors and officers of the
Company, and its subsidiaries with respect to their activities as such prior to
the Effective Time, as provided in its respective articles of organization and
by-laws in effect on the date hereof, or otherwise in effect on the date hereof,
shall survive the Merger and shall continue in full force and effect for a
period of not less than six years from the Effective Time.
(e) BENEFIT. The provisions of this Section 7.5 are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her representatives.
Section 7.6 DISCLOSURE SCHEDULES. On the date hereof, (a) Parent has
delivered to the Company a schedule (the "Parent Disclosure Schedule"),
accompanied by a certificate signed by the Executive Vice President and General
Counsel of Parent stating the Parent Disclosure Schedule is being delivered
pursuant to this Section 7.6(a), and (b) the Company has delivered to Parent a
schedule (the "Company Disclosure Schedule"), accompanied by a certificate
signed by the Vice President, General Counsel and Secretary of the Company
stating the Company Disclosure Schedule is being delivered pursuant to this
Section 7.6(b). The Company Disclosure Schedule and the Parent Disclosure
Schedule are collectively referred to herein as the "Disclosure Schedules." The
Disclosure Schedules constitute an integral part of this Agreement and modify
the respective representations, warranties, covenants or agreements of the
parties hereto contained herein to the extent that such representations,
warranties, covenants or agreements expressly refer to the Disclosure Schedules.
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.
Section 7.7 PUBLIC ANNOUNCEMENTS. Subject to each party's disclosure
obligations imposed by law, the Company and Parent will cooperate with each
other in the development and distribution of all news releases and other public
information disclosures with respect to this Agreement or any of the
transactions contemplated hereby and shall not issue any public announcement or
statement with respect hereto without the consent of the other party (which
consent shall not be unreasonably withheld).
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Section 7.8 RULE 145 AFFILIATES. Within 30 days after the date of this
Agreement, the Company shall identify in a letter to Parent all persons who are,
and to such person's best knowledge who will be at the Closing Date,
"affiliates" of the Company, as such term is used in Rule 145 under the
Securities Act. The Company shall use all reasonable efforts to cause its
affiliates (including any person who may be deemed to have become an affiliate
after the date of the letter referred to in the prior sentence) to deliver to
Parent on or prior to the Closing Date a written agreement substantially in the
form attached as Exhibit 7.8 (each, an "Affiliate Agreement").
Section 7.9 CERTAIN EMPLOYEE AGREEMENTS. Subject to Section 7.10, Parent
and the Surviving Corporation and its subsidiaries shall honor, without
modification, all contracts, agreements, collective bargaining agreements and
commitments of the parties which apply to any current or former employee or
current or former director of the parties hereto; provided, however, that the
foregoing shall not prevent Parent or the Surviving Corporation 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. It is the present intention of
Parent and the Company that following the Effective Time, there will be no
involuntary reductions in force at the Surviving Corporation or its
subsidiaries, but that Parent, the Surviving Corporation and their respective
subsidiaries will continue Parent's and the Company's present strategy of
achieving workforce reductions through attrition; however, if any reductions in
workforce in respect of employees of Parent and its subsidiaries, including the
Surviving Corporation and its subsidiaries, become necessary, they shall be made
on a fair and equitable basis, in light of the circumstances and the objectives
to be achieved, giving consideration to previous work history, job experience,
qualifications, and business needs without regard to whether employment prior to
the Effective Time was with the Company or its subsidiaries or Parent or its
subsidiaries, and any employees whose employment is terminated or jobs are
eliminated by Parent, the Surviving Corporation or any of their respective
subsidiaries shall be entitled to participate on a fair and equitable basis in
the job opportunity and employment placement programs offered by Parent, the
Surviving Corporation or any of their respective subsidiaries. Any workforce
reductions carried out following the Effective Time by Parent or the Surviving
Corporation and their respective subsidiaries shall be done in accordance with
all applicable collective bargaining agreements, and all laws and regulations
governing the employment relationship and termination thereof including, without
limitation, the Worker Adjustment and Retraining Notification Act and
regulations promulgated thereunder, and any comparable state or local law.
Section 7.10 EMPLOYEE BENEFIT PLANS.
(a) Except as may be required by applicable law and except as provided
in Section 7.11(b) with respect to the Stock Option Plan and Restricted
Stock Plan, each Plan in effect on the date hereof (or as amended or
established in accordance with or as permitted by this Agreement) shall be
maintained in effect with respect to the employees, former employees,
directors or former directors of the Company and any of its subsidiaries who
are covered by such plans, programs, agreements or arrangements immediately
prior to the Effective Time until Parent determines otherwise on or after
the Effective Time, and Parent shall assume or cause the Surviving
Corporation to assume as of the Effective Time each Plan maintained by the
Company immediately prior to the Effective Time and perform such plan,
program, agreement or arrangement in the same manner and to the same extent
that the Company would be required to perform thereunder; PROVIDED, HOWEVER,
that nothing herein contained shall limit any reserved right contained in
any such Plan to amend, modify, suspend, revoke or terminate any such plan,
program, agreement or arrangement; PROVIDED, FURTHER, that Parent or its
subsidiaries shall provide to each employee of the Company and any of its
subsidiaries who was covered by Plans immediately prior to the Effective
Time and who is not covered by a collective bargaining agreement (a "Covered
Company Employee") for a period of no less than 18 months following the
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Effective Time, employer-provided benefits under Qualified Plans,
supplemental retirement benefit and deferred compensation plans which are
not Qualified Plans and welfare plans that are no less favorable in the
aggregate than those provided to the employee immediately prior to the
Effective Time. Without limiting the foregoing, each Covered Company
Employee who is a participant in any Plan shall receive credit for purposes
of eligibility to participate, vesting and eligibility to receive benefits
(but specifically excluding for benefit accrual purposes) under any
replacement benefit plan of Parent or any of its subsidiaries or affiliates
in which such employee becomes a participant for service credited for the
corresponding purpose under any such Plan; PROVIDED, HOWEVER, that such
crediting of service shall not operate to cause any such plan or agreement
to fail to comply with the applicable provisions of the Code and ERISA. No
provision contained in this Section 7.10 shall be deemed to constitute an
employment contract between Parent or any of its subsidiaries and any
individual, or a waiver of Parent's or any of its subsidiaries' right to
discharge any employee at any time, with or without cause. Notwithstanding
the foregoing, but subject to Section 7.10(b), Parent acknowledges that each
Covered Company Employee who is a participant in the Connecticut Natural Gas
Corporation Officers' Retirement Plan (the "SERP") as of the date hereof
shall continue to accrue benefits after the Effective Time under terms at
least as favorable as the terms of the SERP in effect on the date of this
Agreement, taking into account service and compensation earned while
employed by Parent and its subsidiaries after the Effective Time.
(b) The Company shall take all necessary actions so that, effective no
later than immediately before the Effective Time, (i) each of the SERP, the
Connecticut Natural Gas Corporation Officers Deferred Compensation Plan, the
Connecticut Natural Gas Corporation Executive Life Insurance Plan and all
other executive benefit plans and programs of the Company and its
subsidiaries shall be amended to the extent necessary so that any provisions
therein that prohibit or limit the amendment or termination thereof
following a change of control do not apply to individuals who are not
participants therein as of the date of this Agreement and (ii) subject to
applicable law and the provisions of any applicable collective bargaining
agreement, each Qualified Plan shall be amended to the extent necessary so
that any provisions therein that call for the waiver or elimination of
vesting requirements upon or following a change in control shall apply only
to individuals who are participants therein immediately before the Effective
Time.
Section 7.11 COMPANY STOCK AND OTHER PLANS.
(a) With respect to each Plan that provides for benefits in the form of
Company Common Stock ("Company Stock Plans"), the Company and Parent shall
take all corporate action necessary or appropriate to (i) provide for the
issuance or purchase in the open market of Parent Common Stock rather than
Company Common Stock, pursuant thereto, and otherwise to amend such Company
Stock Plans to reflect this Agreement and the Merger, (ii) obtain
shareholder or board of director approval with respect to such Company Stock
Plans to the extent such approval is required for purposes of the Code or
other applicable law, or to enable such Company Stock Plans to comply with
Rule 16b-3 promulgated under the Exchange Act, (iii) reserve for issuance
under such Company Stock Plans or otherwise provide a sufficient number of
shares of Parent Common Stock for delivery upon payment of benefits, grant
of awards or exercise of options under such Company Stock Plans and (iv) as
soon as practicable after the Effective Time, file registration statements
on Form S-8 or amendments on such forms to the Form S-4 Registration
Statement, as the case may be (or any successor or other appropriate forms),
with respect to the shares of Parent Common Stock subject to such Company
Stock Plans to the extent such registration statement is required under
applicable law, and Parent shall use its best efforts to maintain the
effectiveness of such registration statements (and maintain the current
status of the prospectuses contained therein) for so long as such benefits
and grants remain payable and such options remain outstanding. With respect
to those individuals who subsequent to the Merger will be subject to the
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reporting requirements under Section 16(a) of the Exchange Act, the Company
shall administer the Company Stock Plans, where applicable, in a manner that
complies with Rule 16b-3 promulgated under the Exchange Act.
(b) The Company and its subsidiaries and the Parent and its
subsidiaries, including the Surviving Corporation and its subsidiaries,
shall take all actions necessary to provide that upon the Effective Time (i)
each outstanding option to purchase Company Common Stock granted under the
Company's 1999 Stock Option Plan (the "Stock Option Plan"), whether or not
then vested and exercisable, shall be canceled in exchange for a cash
payment equal to (A) the excess of $41.00 over the exercise price thereof
times (B) the number of shares of Company Common Stock subject thereto, less
applicable tax withholding, and (ii) each outstanding restricted share of
Company Common Stock granted under the Connecticut Natural Gas Corporation
Executive Restricted Stock Plan (the "Restricted Stock Plan") shall become
fully vested as provided in and subject to the terms of the award agreements
relating thereto and simultaneously converted for Cash Consideration or
Stock Consideration payable to the holder thereof as provided in Section 2.1
hereof. The Company and its subsidiaries shall take all actions needed to
terminate the Stock Option Plan and Restricted Stock Plan as of the
Effective Time, subject, however, to the payments required under the
preceding sentence.
(c) Each employee of the Company who is a participant in the Company's
Annual Incentive Plan and who is not a party to a Change of Control
Employment Agreement with the Company is listed on Schedule 7.11(c) hereto
(such employees, the "Schedule 7.11(c) Employees"). Following the Effective
Time, each Schedule 7.11(c) Employee shall be entitled to participate in an
annual incentive plan of Parent or any of its subsidiaries for the portion
of the fiscal year of Parent or the applicable subsidiary in which the
Effective Time occurs that follows the Effective Time (the "Post-Merger
Period"), under which (i) the Schedule 7.11(c) Employee's award opportunity
for the Post-Merger Period shall equal the percentage of the Schedule
7.11(c) Employee's base salary set forth opposite the Schedule 7.11(c)
Employee's name on Schedule 7.11(c), and (ii) the amount of such award
opportunity that is earned shall be pro-rated based upon the number of days
occurring in such fiscal year that occur during the Post-Merger Period.
Section 7.12 EXPENSES. Subject to Section 9.3, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, except that those
expenses incurred in connection with printing the Proxy/Registration Statement,
as well as the filing fee relating thereto, shall be shared equally by the
Company and Parent.
Section 7.13 FURTHER ASSURANCES. Each party will, and will cause its
subsidiaries to, execute such further documents and instruments and take such
further actions as may reasonably be requested by any other party in order to
consummate the Merger in accordance with the terms hereof.
Section 7.14 CORPORATE OFFICES. At and subsequent to the Effective Time,
the corporate headquarters of the Surviving Corporation shall be located in
Hartford, Connecticut. At and subsequent to the Effective Time, the corporate
headquarters of XENERGY Enterprises, Inc. shall be located in Connecticut.
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Section 7.15 PARENT BOARD OF DIRECTORS. At the Effective Time, the Board
of Directors of Parent shall increase by one the number of directors on the
Board of Directors of Parent and shall thereupon elect as a director a
non-employee director of the Company designated by the Company and reasonably
acceptable to Parent.
Section 7.16 COMMUNITY INVOLVEMENT. After the Effective Time, Parent will,
or will cause the Surviving Corporation to make at least $500,000 per year in
charitable contributions to the communities served by the Surviving Corporation
and otherwise maintain a substantial level of involvement in community
activities in the State of Connecticut that is similar to, or greater than, the
level of community development and related activities carried on by the Company.
Section 7.17 ADVISORY BOARD. At the Effective Time, there shall be
established an advisory board to the Surviving Corporation ("Advisory Board"),
which shall be comprised of the persons who were directors of the Company
immediately prior to the Effective Time. The Advisory Board shall meet no less
frequently than quarterly and shall provide advice to the board of directors of
the Surviving Corporation with respect to such issues as the board of directors
of the Surviving Corporation may from time to time request, including but not
limited to community relations, customer service, economic development, employee
development and relations and such other matters of community interest as may be
appropriate. The members of the Advisory Board, who shall serve at the
discretion of the Surviving Corporation, shall receive remuneration for their
services equivalent to the remuneration currently provided to non-employee
directors of the Company.
Section 7.18 TAX-FREE STATUS. No party shall, nor shall any party permit
any of its subsidiaries to, take any actions which would, or would be reasonably
likely to, adversely affect the status of the Merger as a reorganization within
the meaning of Section 368(a) of the Code, and each party hereto shall use all
reasonable efforts to achieve such result.
ARTICLE VIII
CONDITIONS
Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction on or prior to the Closing Date of the following
conditions, except, to the extent permitted by applicable law, that such
conditions may be waived in writing pursuant to Section 9.5 by the joint action
of the parties hereto:
(a) SHAREHOLDER APPROVAL. The Company Shareholders' Approval shall
have been obtained.
(b) NO INJUNCTION. No temporary restraining order or preliminary or
permanent injunction or other order by any federal or state court preventing
consummation of the Merger shall have been issued and be continuing in effect,
and the Merger and the other transactions contemplated hereby shall not have
been prohibited under any applicable federal or state law or regulation.
(c) REGISTRATION STATEMENT. The Registration Statement shall have
become effective in accordance with the provisions of the Securities Act, and no
stop order suspending such effectiveness shall have been issued and remain in
effect.
(d) LISTING OF SHARES. The shares of Parent Common Stock issuable in
the Merger pursuant to Article II shall have been approved for listing on the
NYSE upon official notice of issuance.
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(e) STATUTORY APPROVALS. The Company Required Statutory Approvals and
the Parent Required Statutory Approvals shall have been obtained at or prior to
the Effective Time, such approvals shall have become Final Orders (as defined
below) and such Final Orders shall not impose terms or conditions which, in the
aggregate, would have, or insofar as reasonably can be foreseen, could have, a
Company Material Adverse Effect or a Parent Material Adverse Effect; provided,
however, that a requirement that Parent become a registered holding company
pursuant to Section 5 of the 1935 Act as a result of the Merger shall not
constitute a term or condition which could have a "material adverse effect"
within the meaning of this Section 8.1(e) of the Agreement. In addition, the
inclusion of a condition or requirement of the Securities and Exchange
Commission's approval of the Merger under the 1935 Act that Parent divest its
ownership of New York State Electric & Gas Corporation, a New York corporation
and wholly owned subsidiary of Parent, shall constitute a term or condition
which could have a "material adverse effect" within the meaning of this Section
8.1(e) of the Agreement. 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.
Section 8.2 CONDITIONS TO OBLIGATION OF PARENT TO EFFECT THE MERGER. The
obligation of Parent to effect the Merger shall be further subject to the
satisfaction, on or prior to the Closing Date, of the following conditions,
except as may be waived by Parent in writing pursuant to Section 9.5:
(a) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company (and its
appropriate subsidiaries) shall have performed in all material respects its
agreements and covenants contained in Sections 6.1 and 6.2 and shall have
performed in all material respects its other agreements and covenants contained
in or contemplated by this Agreement to be performed by it at or prior to the
Effective Time.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company set forth in this Agreement shall be true and correct (i) on and
as of the date hereof and (ii) on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
the Closing Date (except for representations and warranties that expressly speak
only as of a specific date or time other than the date hereof or the Closing
Date, which need only be true and correct as of such date or time) except in
each of cases (i) and (ii) for such failures of representations or warranties to
be true and correct (without regard to any materiality qualifications contained
therein) which, individually and in the aggregate, would not be reasonably
likely to result in a Company Material Adverse Effect.
(c) CLOSING CERTIFICATES. Parent shall have received a certificate
signed by the chief financial officer of the Company, dated the Closing Date, to
the effect that, to the best of such officer's knowledge, the conditions set
forth in Section 8.2(a) and Section 8.2(b) have been satisfied.
(d) NO COMPANY MATERIAL ADVERSE EFFECT. No Company Material Adverse
Effect shall have occurred, and there shall exist no fact or circumstance other
than facts and circumstances described in Section 8.2(d) of the Company
Disclosure Schedule or the Company SEC Reports filed prior to the date hereof
which is reasonably likely to have a Company Material Adverse Effect.
(e) COMPANY REQUIRED CONSENTS. The Company Required Consents the
failure of which to obtain would have a Company Material Adverse Effect shall
have been obtained.
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(f) AFFILIATE AGREEMENTS. Parent shall have received Affiliate
Agreements, duly executed by each "affiliate" of the Company, substantially in
the form of Exhibit 7.8, as provided in Section 7.8.
(g) TAX OPINION. Parent shall have received an opinion of Wachtell,
Lipton, Rosen & Katz to the effect that the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code. In rendering
such opinion, Wachtell, Lipton, Rosen & Katz may receive and rely upon
representations contained in certificates of Parent, the Company and others, in
each case in form and substance reasonably acceptable to such counsel.
Section 8.3 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger shall be further
subject to the satisfaction, on or prior to the Closing Date, of the following
conditions, except as may be waived by the Company in writing pursuant to
Section 9.5.
(a) PERFORMANCE OF OBLIGATIONS OF PARENT. Parent (and its appropriate
subsidiaries) shall have performed in all material respects its agreements and
covenants contained in Section 6.1 and shall have performed in all material
respects its other agreements and covenants contained in or contemplated by this
Agreement to be performed by it at or prior to the Effective Time.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Parent set forth in this Agreement shall be true and correct (i) on and as of
the date hereof and (ii) on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of the
Closing Date (except for representations and warranties that expressly speak
only as of a specific date or time other than the date hereof or the Closing
Date, which need only be true and correct as of such date or time) except in
each of cases (i) and (ii) for such failures of representations or warranties to
be true and correct (without regard to any materiality qualifications contained
therein) which, individually and in the aggregate, would not be reasonably
likely to result in a Parent Material Adverse Effect.
(c) CLOSING CERTIFICATES. The Company shall have received a
certificate signed by the Executive Vice President and General Counsel of
Parent, dated the Closing Date, to the effect that, to the best of such
officer's knowledge, the conditions set forth in Section 8.3(a) and Section
8.3(b) have been satisfied.
(d) NO PARENT MATERIAL ADVERSE EFFECT. No Parent Material Adverse
Effect shall have occurred, and there shall exist no fact or circumstance other
than facts and circumstances described in the Parent SEC Reports filed prior to
the date hereof which is reasonably likely to have a Parent Material Adverse
Effect.
(e) PARENT REQUIRED CONSENTS. The Parent Required Consents the failure
of which to obtain would have a Parent Material Adverse Effect shall have been
obtained.
(f) TAX OPINION. The Company shall have received an opinion from
Jones, Day, Reavis & Pogue to the effect that the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code. In rendering
such opinion, Jones, Day, Reavis & Pogue, may receive and rely upon
representations contained in certificates of Parent, the Company and others, in
each case in form and substance reasonably acceptable to such counsel.
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ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date, whether before or after approval by the shareholders
of the respective parties hereto contemplated by this Agreement:
(a) by mutual written consent of the Boards of Directors of the Company
and Parent;
(b) by any party hereto, by written notice to the other parties, if the
Effective Time shall not have occurred on or before the date that is 12
months from the date hereof (the "Initial Termination Date"); provided,
however, that if on the Initial Termination Date the conditions to the
Closing set forth in Section 8.1(e) shall not have been fulfilled but all
other conditions to the Closing shall be fulfilled or shall be capable of
being fulfilled, then the Initial Termination Date shall be extended to the
18-month anniversary of the date hereof; and provided, further, that the
right to terminate this Agreement under this Section 9.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement or whose breach of any agreement or covenant has been the cause
of, or resulted directly or indirectly in, the failure of the Effective Time
to occur on or before the Initial Termination Date or as it may be so
extended.
(c) by any party hereto, by written notice to the other parties, if the
Company Shareholders' Approval shall not have been obtained at a duly held
Company Special Meeting, including any adjournments thereof by the Initial
Termination Date;
(d) by any party hereto, if any state or federal law, order, rule or
regulation is adopted or issued, which has the effect, as supported by the
written opinion of outside counsel for such party, of prohibiting the
Merger, or by any party hereto if any court of competent jurisdiction in the
United States or any State shall have issued an order, judgment or decree
permanently restraining, enjoining or otherwise prohibiting the Merger, and
such order, judgment or decree shall have become final and nonappealable;
(e) by the Company prior to the time at which the Company Shareholders'
Approval shall have been obtained, upon five days' prior notice to Parent,
if the Company is not in breach of this Agreement and, as a result of an
Alternative Proposal, the Board of Directors of the Company determines in
good faith, that (i) the Alternative Proposal is financially superior to the
Merger and the third party making the Alternative Proposal has demonstrated
that any necessary financing has been obtained, or in the reasonable
judgment of the Company's financial advisor such financing is obtainable,
and (ii) after consultation with its financial advisor and based upon the
advice of outside counsel and such other matters as the Board of Directors
of the Company deems relevant, after considering applicable provisions of
state law and after giving effect to all concessions which may be offered by
the other party pursuant to the proviso below, that failure to do so would
likely result in a breach of its fiduciary duties under applicable law;
provided, however, that prior to any such termination, the Company shall,
and shall cause its respective financial and legal advisors to, negotiate
with Parent to make such adjustments in the terms and conditions of this
Agreement as would enable the Company to proceed with the transactions
contemplated herein;
(f) by the Company, by written notice to Parent, if (i) there exist
breaches of the representations and warranties of Parent made herein as of
the date hereof which breaches, individually or in the aggregate, would or
would be reasonably likely to result in a Parent Material Adverse Effect,
and such breaches shall not have been remedied within 20 days after receipt
by Parent of notice in writing from the Company, specifying the nature of
such breaches and requesting that they be remedied, or (ii) Parent (or its
appropriate subsidiaries) shall have failed to perform and comply with, in
all material respects, its agreements and covenants hereunder, and such
failure to perform or comply shall not have been remedied within 20 days
after receipt by
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Parent of notice in writing from the Company, specifying the nature of such
failure and requesting that it be remedied; or
(g) by Parent, by written notice to the Company, if (i) there exist
material breaches of the representations and warranties of the Company made
herein as of the date hereof which breaches, individually or in the
aggregate, would or would be reasonably likely to result in a Company
Material Adverse Effect, and such breaches shall not have been remedied
within 20 days after receipt by the Company of notice in writing from
Parent, specifying the nature of such breaches and requesting that they be
remedied, (ii) the Company (or its appropriate subsidiaries) shall not have
performed and complied with its agreements and covenants contained in
Sections 6.1(b) and 6.1(c) or shall have failed to perform and comply with,
in all material respects, its other agreements and covenants hereunder, and
such failure to perform or comply shall not have been remedied within 20
days after receipt by the Company of notice in writing from Parent,
specifying the nature of such failure and requesting that it be remedied; or
(iii) the Board of Directors of the Company or any committee thereof (A)
shall withdraw or modify in any manner adverse to Parent its approval or
recommendation of this Agreement or the transactions contemplated herein,
(B) shall fail to reaffirm such approval or recommendation upon Parent's
request within two days of such request, (C) shall approve or recommend any
acquisition of the Company or a material portion of its assets or any tender
offer for the shares of capital stock of the Company, in each case by a
party other than Parent or any of its affiliates or (D) shall resolve to
take any of the actions specified in clause (A), (B) or (C).
Section 9.2 EFFECT OF TERMINATION. Subject to Section 10.1(b), in the
event of termination of this Agreement by either the Company or Parent pursuant
to Section 9.1, there shall be no liability on the part of either the Company or
Parent or their respective officers or directors hereunder, except that Section
7.12, Section 9.3, the agreement contained in the last sentence of Section 7.1,
Section 10.8 and Section 10.9 shall survive the termination.
Section 9.3 TERMINATION FEE; EXPENSES.
(a) TERMINATION FEE UPON BREACH OR WITHDRAWAL OF APPROVAL. If this
Agreement is terminated at such time that this Agreement is terminable pursuant
to one (but not both) of (x) Section 9.1(f)(i) or (ii) or (y) Section 9.1(g)(i)
or (ii), then: (i) the breaching party shall promptly (but not later than five
business days after receipt of notice from the non-breaching party) pay to the
non-breaching party in cash 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) not in excess of $4 million ("Expenses"); provided, however, that, if
this Agreement is terminated by a party as a result of a willful breach by the
other party, the non-breaching party may pursue any remedies available to it at
law or in equity and shall, in addition to its out-of-pocket expenses (which
shall be paid as specified above and shall not be limited to $4 million), be
entitled to retain such additional amounts as such non-breaching party may be
entitled to receive at law or in equity.
(b) The Company shall pay Parent a fee of $14 million ("Termination
Fee") plus Expenses, upon the termination of this Agreement by Parent or the
Company pursuant to Section 9.1(c) or the Company pursuant to Section 9.1(e) or
by Parent pursuant to Section 9.1(g)(iii); provided, however, that in the event
of termination under either Section 9.1(c) or Section 9.1(g)(iii), no payment of
the Termination Fee or Expenses shall be required unless and until within two
years of such termination the Company enters into a definitive agreement to
consummate or consummates an Alternative Proposal, and, in the case of a
termination pursuant to Section 9.1(c), there shall have been made and not
withdrawn at the time of the Company Special Meeting an Alternative Proposal
and, in the case of
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a termination pursuant to Section 9.1(g)(iii), there shall have been made and
not withdrawn at the time of such termination an Alternative Proposal.
(c) LIQUIDATED DAMAGES; PROMPT PAYMENT. The parties agree that the
agreements contained in this Section 9.3 are an integral part of the
transactions contemplated by the Agreement and constitute liquidated damages and
not a penalty. If one party fails to pay promptly to the other any fee or
expenses due hereunder, the defaulting party shall pay the costs and expenses
(including legal fees and expenses) in connection with any action, including the
filing of any lawsuit or other legal action, taken to collect payment, together
with interest on the amount of any unpaid fee at the publicly announced prime
rate of Chase Manhattan Bank, N.A., from the date such fee was required to be
paid.
Section 9.4 AMENDMENT. This Agreement may be amended by the Boards of
Directors of the parties hereto, at any time before or after approval hereof by
the shareholders of the Company and prior to the Effective Time, but after such
approvals, no such amendment shall (a) alter or change the amount or kind of
shares, rights or any of the proceedings of the treatment of shares under
Article II, or (b) alter or change any of the terms and conditions of this
Agreement if any of the alterations or changes, alone or in the aggregate, would
materially adversely affect the rights of holders of Company capital stock,
except for alterations or changes that could otherwise be adopted by the Board
of Directors of the Company, without the further approval of such shareholders.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
Section 9.5 WAIVER. At any time prior to the Effective Time, the parties
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein, to the extent permitted by applicable law. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid if set forth in an instrument in writing signed on behalf of such party.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 NON-SURVIVAL; EFFECT OF REPRESENTATIONS AND WARRANTIES. (a)
All representations, warranties and agreements in this Agreement shall not
survive the Merger, except as otherwise provided in this Agreement and except
for the agreements contained in this Section 10.1, in Articles I and II and in
Sections 7.5, 7.11, 10.7, 10.8 and 10.9.
(b) No party may assert a claim for breach of any representation or
warranty contained in this Agreement (whether by direct claim or
counterclaim) except in connection with the cancellation of this Agreement
pursuant to Section 9.1(f)(i) or Section 9.1(g)(i) (or pursuant to any other
subsection of Section 9.1, if the terminating party would have been entitled
to terminate this Agreement pursuant to Section 9.1(f)(i) or Section
9.1(g)(i)).
Section 10.2 BROKERS. The Company represents and warrants that, except for
PaineWebber Incorporated whose fees have been disclosed to Parent prior to the
date hereof, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger or
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of the Company. Parent represents and warrants that, except for
Morgan Stanley & Co. Incorporated whose fees have been disclosed to the Company
prior to the date hereof, no broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the Merger
or the transactions contemplated by this Agreement based upon arrangements made
by or on behalf of Parent.
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Section 10.3 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if (a) delivered personally, (b) sent by
reputable overnight courier service, (c) telecopied (which is confirmed) or (d)
five days after being mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
<TABLE>
<C> <S> <C>
(i) If to the Company, to:
CTG Resources, Inc.
100 Columbus Boulevard
Hartford, Connecticut 06144
Attention: Reginald L. Babcock, Esq.
Vice President, General Counsel and Secretary
Telephone: (860) 727-3000
Telecopy: (860) 727-3064
with a copy to:
Jones, Day, Reavis & Pogue
77 West Wacker
Chicago, Illinois 60601
Attention: Robert A. Yolles, Esq.
Telephone: (312) 782-3939
Telecopy: (312) 782-8585
(ii) If to Parent or Merger Sub, to:
Energy East Corporation
One Canterbury Green
P.O. Box 1196
Stamford, Connecticut 06901
Attention: Kenneth J. Jasinski, Esq.
Executive Vice President and General Counsel
Telephone: (203) 325-0690
Telecopy: (203) 403-2000
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Seth A. Kaplan, Esq.
Telephone: (212) 403-1000
Telecopy: (212) 403-2000
</TABLE>
Section 10.4 MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and
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understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof other than the Employment Agreement and the
Confidentiality Agreement; (b) shall not be assigned by operation of law or
otherwise; and (c) shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts executed in and to be
fully performed in such State, without giving effect to its conflicts of law,
rules or principles and except to the extent the provisions of this Agreement
(including the documents or instruments referred to herein) are expressly
governed by or derive their authority from the CBCA.
Section 10.5 INTERPRETATION. When a reference is made in this Agreement to
Sections or Exhibits, such reference shall be to a Section or Exhibit of this
Agreement, respectively, unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation."
Section 10.6 COUNTERPARTS; EFFECT. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
Section 10.7 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and, except for rights of
Indemnified Parties as set forth in Section 7.5, nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
Section 10.8 WAIVER OF JURY TRIAL AND CERTAIN DAMAGES. Each party to this
Agreement waives, to the fullest extent permitted by applicable law, (a) any
right it may have to a trial by jury in respect of any action, suit or
proceeding arising out of this Agreement and (b) without limiting the effect of
Section 9.3, any right it may have, other than in the case of a willful breach,
to receive damages from any other party based on any theory of liability for any
special, indirect, consequential (including lost profits) or punitive damages.
Section 10.9 ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of New York or in New York state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any federal court located in the State of New York or
any New York state court in the event any dispute arises out of this Agreement
or any of the transactions contemplated by this Agreement, (b) agrees that it
will not attempt to deny such personal jurisdiction by motion or other request
for leave from any such court and (c) agrees that it will not bring any action
relating to this Agreement or any of the transactions contemplated by this
Agreement in any court other than a federal or state court sitting in the State
of New York.
[Signature Page Follows]
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IN WITNESS WHEREOF, the Company, Parent and Merger Sub have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
<TABLE>
<S> <C> <C>
CTG RESOURCES, INC.
By: /s/ ARTHUR C. MARQUARDT
-----------------------------------------
Name: Arthur C. Marquardt
Title: President and Chief Executive
Officer
ENERGY EAST CORPORATION
By: /s/ KENNETH M. JASINSKI
-----------------------------------------
Name: Kenneth M. Jasinski
Title: Executive Vice President and
General Counsel
OAK MERGER CO.
By: /s/ KENNETH M. JASINSKI
-----------------------------------------
Name: Kenneth M. Jasinski
Title: Secretary, Treasurer and
Vice President
</TABLE>
<PAGE>
APPENDIX B
June 29, 1999
CONFIDENTIAL
Board of Directors
CTG Resources, Inc.
100 Columbus Boulevard
Hartford, CT 06103
Ladies and Gentlemen:
Energy East Corporation ("Parent"), CTG Resources, Inc. (the "Company"), and
Oak Merger Co., a wholly-owned subsidiary of Parent ("Merger Sub"), propose to
enter into an Agreement and Plan of Merger (the "Agreement") which provides for
the merger of the Company with and into Merger Sub, with Merger Sub as the
surviving corporation (the "Merger"). Capitalized terms used herein without
definition have the meanings assigned to them in the Agreement. At the Effective
Time of the Merger, each issued and outstanding share of common stock, without
par value, of the Company ("Company Common Stock") will be converted into the
right to receive (i) $41.00 in cash (the "Cash Consideration") or (ii) a number
of validly issued, fully paid and nonassessable shares of common stock, par
value $.01 per share, of Parent ("Parent Common Stock") equal to the Exchange
Ratio (as defined below) (the "Stock Consideration") or (iii) the right to
receive a combination of cash and shares of Parent Common Stock determined in
accordance with the Agreement (the "Mixed Consideration"). The "Exchange Ratio"
shall be equal to the Cash Consideration divided by either (i) the Parent Share
Price (as defined below) if the Parent Share Price is equal to or less than
$30.13 and equal to or more than $23.67, (ii) $30.13 if the Parent Share Price
is greater than $30.13, in which case the Exchange Ratio shall equal 1.3609, or
(iii) $23.67 if the Parent Share Price is less than $23.67, in which case the
Exchange Ratio shall equal 1.7320. The "Parent Share Price" shall be equal to
the average of the closing prices of the shares of Parent Common Stock on the
New York Stock Exchange Composite Transactions Reporting System, as reported in
the Wall Street Journal, for the 20 days immediately preceding the second
trading day prior to the Effective Time. The Cash Consideration, the Stock
Consideration and the Mixed Consideration are collectively defined herein as the
"Merger Consideration."
You have asked us whether or not, in our opinion, the Merger Consideration
is fair, from a financial point of view, to the holders of Company Common Stock.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related financial
information for the five fiscal years ended September 30, 1998 and the
Company's Form 10-Q and the related unaudited financial information for the
six months ended March 31, 1999;
(2) Reviewed Parent's Annual Reports, Forms 10-K and related financial
information for the five fiscal years ended December 31, 1998 and Parent's
Form 10-Q and the related unaudited financial information for the three
months ended March 31, 1999;
(3) Reviewed certain information, including financial forecasts, relating to the
business, earnings, cash flow, assets and prospects of the Company and
Parent, furnished to us by the Company and Parent, respectively;
(4) Conducted discussions with members of senior management of the Company and
Parent concerning their respective businesses and prospects;
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(5) Compared the historical market prices and trading activity for Company
Common Stock and Parent Common Stock with those of certain publicly traded
companies which we deemed to be relevant;
(6) Compared the financial position and results of operations of the Company and
Parent with those of certain publicly traded companies which we deemed to be
relevant;
(7) Compared the proposed financial terms of the Merger with the financial terms
of certain other mergers and acquisitions which we deemed to be relevant;
(8) Considered the potential pro forma effects of the Merger on Parent;
(9) Reviewed a draft of the Agreement in the form presented to the Board of
Directors of the Company; and
(10) Reviewed such other financial studies and analyses and performed such other
investigations and took into account such other matters as we deemed
necessary, including our assessment of regulatory, general economic, market
and monetary conditions.
(11) In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Company
and Parent, and we have not assumed any responsibility to independently
verify such information. With respect to the financial forecasts examined by
us, we have assumed that they were reasonably prepared and reflect the best
currently available estimates and good faith judgments of the managements of
the Company and Parent, as to the future performance of the Company and
Parent, respectively. We have also relied upon assurances of the managements
of the Company and Parent that they are unaware of any facts that would make
the information or financial forecasts provided to us incomplete or
misleading. We have not made any independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of the Company or Parent nor
have we been furnished with any such evaluations or appraisals. We have also
assumed with your consent, that (i) the Merger will be accounted for under
the purchase method of accounting, (ii) the Merger will be a tax free
reorganization and (iii) any material liabilities (contingent or otherwise,
known or unknown) of the Company or Parent are as set forth in the
consolidated financial statements of the Company and Parent, respectively.
No opinion is expressed herein as to the price at which Company Common Stock
or Parent Common Stock may trade at any time. Our opinion is based on
regulatory, general economic, market and monetary conditions existing on the
date hereof.
(12) This opinion is directed only to the Board of Directors of the Company and
does not constitute a recommendation to any holder of Company Common Stock
as to how any such holder should vote on the Merger. This opinion does not
address the relative merits of the Merger and any other transactions or
business strategies discussed by the Board of Directors of the Company as
alternatives to the Merger or the decision of the Board of Directors of the
Company to proceed with the Merger.
In the ordinary course of business, PaineWebber Incorporated may trade in
the securities of the Company and Parent for our own account and for the
accounts of our customers and, accordingly, may at any time hold long or short
positions in such securities.
PaineWebber Incorporated is currently acting as financial advisor to the
Company in connection with the Merger and will be receiving a fee in connection
with the rendering of this opinion and upon consummation of the Merger. In the
past, PaineWebber Incorporated and its affiliates have provided investment
banking and other financial services to the Company and have received fees for
rendering these services.
On the basis of, and subject to the foregoing, we are of the opinion that
the Merger Consideration is fair, from a financial point of view, to the holders
of Company Common Stock.
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This opinion has been prepared for the information of the Board of Directors
of the Company in connection with the Merger and shall not be reproduced,
summarized, described or referred to, provided to any person or otherwise made
public or used for any other purpose without the prior written consent of
PaineWebber Incorporated, provided, however, that this letter may be reproduced
in full in the Proxy Statement/Prospectus related to the Merger.
Very truly yours,
/s/ PAINEWEBBER INCORPORATED
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APPENDIX C
CONNECTICUT BUSINESS CORPORATION ACT
PART XIII. DISSENTERS' RIGHTS
(A) RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
33-855 DEFINITIONS -- As used in sections 33-855 to 33-872, inclusive:
(1) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 33-856 and who exercises that right when and in
the manner required by sections 33-860 to 33-868, inclusive.
(3) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable tinder all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
33-856 RIGHT TO DISSENT -- (a) A shareholder is entitled to dissent from, to
obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a party (A)
if shareholder approval is required for the merger by section 33-817 or the
CERTIFICATE of incorporation and the shareholder is entitled to vote on the
merger or (B) if the corporation is a subsidiary that is merged with its parent
tinder section 33-818;
(2) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
year after the date of sale;
(4) An amendment of the CERTIFICATE of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it: (A)
Alters or abolishes a preferential right of the shares; (B) creates, alters or
abolishes a right in respect of redemption, including a provision respecting a
sinking fund for the redemption or repurchase, of the shares; (C) alters or
abolishes a preemptive right of the holder of the shares to acquire shares or
other securities; (D) excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution through
issuance
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of shares or other securities with similar voting rights; or (E) reduces the
number of shares owned by the shareholder to a fraction of a share if the
fractional share so created is to be acquired for cash under section 33-668; or
Any corporate action taken pursuant to a shareholder vote to the extent the
CERTIFICATE of incorporation, bylaws or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to dissent and
obtain payment for their shares. (Last amended by P.A. 96-271, L. '96, eff.
1-1-97.)
33-857 DISSENT BY NOMINEES AND BENEFICIAL OWNERS -- (a) A record shareholder
may assert dissenters' rights as to fewer than all the shares registered in his
name only if he dissents with respect to all shares beneficially owned by any
one person and notifies the corporation in writing of the name and address of
each person on whose behalf he asserts dissenters' rights. The rights of a
partial dissenter under this subsection are determined as if the shares as to
which he dissents and his other shares were registered in the names of different
shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares held
on his behalf only if: (1) He submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and (2) he does so with
respect to all shares of which he is the beneficial shareholder or over which he
has power to direct the vote.
33-858, 33-859 [Reserved for future use.]
(B) PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
33-860 NOTICE OF DISSENTERS' RIGHTS -- (a) If proposed corporate action
creating dissenters' rights under section 33-856 is submitted to a vote at a
shareholders' meeting, the meeting notice shall state that shareholders are or
may be entitled to assert dissenters' rights under sections 33-855 to 33-872,
inclusive, and be accompanied by a copy of said sections.
(b) If corporate action creating dissenters' rights under section 33-856 is
taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in section 33-862.
33-861 NOTICE OF INTENT TO DEMAND PAYMENT -- (a) If proposed corporate
action creating dissenters' rights under section 33-856 is submitted to a vote
at a shareholders' meeting, a shareholder who wishes to assert dissenters'
rights (1) shall deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed action is
effectuated and (2) shall not vote his shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a) of
this section is not entitled to payment for his shares under sections 33-855 to
33-872, inclusive.
33-862 DISSENTERS' NOTICE -- (a) If proposed corporate action creating
dissenters' rights under section 33-856 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of section 33-861.
(b) The dissenters' notice shall be sent no later than ten days after the
corporate action was taken and shall:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the
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person asserting dissenters' rights certify whether or not he acquired
beneficial ownership of the shares before that date;
(4) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty nor more than sixty days after the date
the subsection (a) of this section notice is delivered; and
(5) Be accompanied by a copy of sections 33-855 to 33-872, inclusive.
33-863 DUTY TO DEMAND PAYMENT -- (a) A shareholder sent a dissenters' notice
described in section 33-862 must demand payment, certify whether he acquired
beneficial ownership of the shares before the date required to be set forth in
the dissenters' notice pursuant to subdivision (3) of subsection (b) of said
section and deposit his certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) of this section retains all other rights of a shareholder
until these rights are cancelled or modified by the taking of the proposed
corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under sections 33-855 to 33-872,
inclusive.
33-864 SHARE RESTRICTIONS -- (a) The corporation may restrict the transfer
of uncertificated shares from the date the demand for their payment is received
until the proposed corporate action is taken or the restrictions released under
section 33-866.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are
cancelled or modified by the taking of the proposed corporate action.
33-865 PAYMENT -- (a) Except as provided in section 33-867, as soon as the
proposed corporate action is taken, or upon receipt of a payment demand, the
corporation shall pay each dissenter who complied with section 33-863 the amount
the corporation estimates to be the fair value of his shares plus accrued
interest.
(b) The payment shall be accompanied by: (1) The corporation's balance sheet
as of the end of a fiscal year ending not more than sixteen months before the
date of payment, an income statement for that year, a statement of changes in
shareholders' equity for that year and the latest available interim financial
statements, if any; (2) a statement of the corporation's estimate of the fair
value of the shares; (3) an explanation of how the interest was calculated; (4)
a statement of the dissenter's right to demand payment under section(1) 33-868;
and (5) a copy of sections 33-855 to 33-872, inclusive. (Last amended by P.A.
98-137, L. '98, eff. 7-1-98.)
33-866 FAILURE TO TAKE ACTION -- (a) If the corporation does not take the
proposed action within sixty days after the date set for demanding payment and
depositing share certificates, the corporation shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 33-862 and repeat the payment demand procedure.
33-867 AFTER-ACQUIRED SHARES -- (a) A corporation may elect to withhold
payment required by section 33-865 from a dissenter unless he was the beneficial
owner of the shares before the date set forth in the dissenters' notice as the
date of the first announcement to news media or to shareholders of the terms of
the proposed corporate action.
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(b) To the extent the corporation elects to withhold payment under
subsection (a) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated and a statement of the dissenter's right to demand payment under
section 33-868.
33-868 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER -- (a) A
dissenter may notify the corporation in writing of his own estimate of the fair
value of his shares and amount of interest due, and demand payment of his
estimate, less any payment under section 33-865, or reject the corporation's
offer under section 33-867 and demand payment of the fair value of his shares
and interest due, if:
(1) The dissenter believes that the amount paid under section 33-865 or
offered under section 33-867 is less than the fair value of his shares or that
the interest due is incorrectly calculated;
(2) The corporation fails to make payment under section 33-865 within sixty
days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within sixty days after the date set for demanding
payment.
(b) A dissenter waives his right to demand payment under this section unless
he notifies the corporation of his demand in writing under subsection (a) of
this section within thirty days after the corporation made or offered payment
for his shares.
33-869, 33-870 [Reserved for future use.]
(C) JUDICIAL APPRAISAL OF SHARES
33-871 COURT ACTION -- (a) If a demand for payment under section 33-868
remains unsettled, the corporation shall commence a proceeding within sixty days
after receiving the payment demand and petition the court to determine the fair
value of the shares and accrued interest. If the corporation does not commence
the proceeding within the sixty-day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the superior court for
the judicial district where a corporation's principal office or, if none in this
state, its registered office is located. If the corporation is a foreign
corporation without a registered office in this state, it shall commence the
proceeding in the superior court for the judicial district where the registered
office of the domestic corporation merged with or whose shares were acquired by
the foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) of this section is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision on
the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The dissenters are entitled to
the same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment
(1) for the amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the
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corporation, or (2) for the fair value, plus accrued interest, of his
after-acquired shares for which the corporation elected to withhold payment
under section 33-867.
33-872 COURT COSTS AND COUNSEL FEES -- (a) The court in an appraisal
proceeding commenced under section 33-871 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously or not in good faith in demanding
payment under section 33-868.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable: (1) Against
the corporation and in favor of any or all dissenters if the court finds the
corporation did not substantially comply with the requirements of sections
33-860 to 33-868, inclusive; or (2) 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 arbitrarily, vexatiously
or not in good faith with respect to the rights provided by sections 33-855 to
33-872, inclusive.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Business Corporation Law of the State of New York ("BCL") provides that
if a derivative action is brought against a director or officer, the Registrant
may indemnify him against amounts paid in settlement and reasonable expenses,
including attorneys' fees, incurred by him in connection with the defense or
settlement of such action, if such director or officer acted in good faith for a
purpose which he reasonably believed to be in the best interests of the
Registrant, except that no indemnification shall be made without court approval
in respect of a threatened action, or a pending action settled or otherwise
disposed of, or in respect of any matter as to which such director or officer
has been found liable to the Registrant. In a nonderivative action or threatened
action, the BCL provides that the Registrant may indemnify a director or officer
against judgments, fines, amounts paid in settlement and reasonable expenses,
including attorneys' fees incurred by him in defending such action if such
director or officer acted in good faith for a purpose which he reasonably
believed to be in the best interests of the Registrant.
Under the BCL, a director or officer who is successful, either in a
derivative or nonderivative action, is entitled to indemnification as outlined
above. Under any other circumstances, such director or officer may be
indemnified only if certain conditions specified in the BCL are met. The
indemnification provisions of the BCL are not exclusive of any other rights to
which a director or officer seeking indemnification may be entitled pursuant to
the provisions of the certificate of incorporation or the by-laws of a
corporation or, whether authorized by such certificate of incorporation or
by-laws, pursuant to a shareholders' resolution, a directors' resolution or an
agreement providing for such indemnification.
The above is a general summary of certain provisions of the BCL and is
subject, in all cases, to the specific and detailed provisions of Sections
721-725 of the BCL.
The By-Laws of the Registrant provide that to the extent not prohibited by
law, the Registrant shall indemnify each person made, or threatened to be made,
a party to any civil or criminal action or proceeding by reason of the fact that
he, or his testator or intestate, (i) is or was a director or officer of the
Registrant or (ii) is or was serving any other corporation of any type or kind,
domestic or foreign, or any partnership, joint venture, trust, employee benefit
plan or other enterprise, in any capacity at the request of the Registrant.
The By-Laws of the Registrant also provide, among other things, that:
(1) no indemnification shall be made to or on behalf of any director or
officer, if a judgment or other final adjudication adverse to the director or
officer establishes that his acts were committed in bad faith or were the result
of active and deliberate dishonesty and were material to the cause of action so
adjudicated, or that he personally gained in fact a financial profit or other
advantage to which he was not legally entitled;
(2) the rights to indemnification and advancement of defense expenses
granted by or pursuant to the By-Laws shall not limit or exclude, but shall be
in addition to, any other rights which may be granted by or pursuant to any
statute, certificate of incorporation, by-law, resolution or agreement; and
(3) the Registrant may, with the approval of the Board of Directors, enter
into an agreement with any person who is, or is about to become, a director or
officer of the Registrant, or who is serving, or is about to serve, at the
request of the Registrant, as a director, officer, or in any other capacity, any
other corporation of any type or kind, domestic or foreign, or any partnership,
joint venture, trust, employee benefit plan or other enterprise, which agreement
may provide for indemnification of such
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person and advancement of defense expenses to such person upon such terms, and
to the extent, not prohibited by law.
The Registrant has insurance policies indemnifying its directors and
officers against certain obligations that may be incurred by them, subject to
certain retention and co-insurance provisions.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
See Exhibit Index.
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the Registrant's by-laws, the BCL or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(d) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offering
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in the documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
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(f) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
(g) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
PROVIDED, HOWEVER, that paragraphs (g)(1)(i) and (g)(1)(ii) do not apply if the
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
Registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(3) To remove from registration by means of post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
(4) If the Registrant is a foreign private issuer, to file a post-effective
amendment to the Registration Statement to include any financial
statements required by Rule 3-19 of this chapter at the start of any
delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10(a)(3) of the
Act need not be furnished, PROVIDED, that the Registrant includes in the
prospectus, by means of a post-effective amendment, financial statements
required pursuant to this paragraph (g)(4) and other information
necessary to ensure that all other information in the prospectus is at
least as current as the date of those financial statements.
Notwithstanding the foregoing, with respect to registration statements on
Form F-3, a post-effective amendment need not be filed to include
financial statements and information required by Section 10(a)(3) of the
Act or Rule 3-19 of this chapter if such financial statements and
information are contained in periodic reports filed with or furnished to
the Commission by the Registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference
in the Form F-3.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 16, 1999.
<TABLE>
<S> <C> <C>
ENERGY EAST CORPORATION
By: /s/ LEONARD BLUM
-----------------------------------------
Leonard Blum
ATTORNEY-IN-FACT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on August 16, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<S> <C>
Principal Executive, Financial
and
Accounting Officer:
*
- ------------------------------ Chairman and Director
Wesley W. von Schack
Directors:
*
- ------------------------------ Director
Richard Aurelio
*
- ------------------------------ Director
James A. Carrigg
*
- ------------------------------ Director
Alison P. Casarett
*
- ------------------------------ Director
Joseph J. Castiglia
*
- ------------------------------ Director
Lois B. DeFleur
*
- ------------------------------ Director
Paul L. Gioia
*
- ------------------------------ Director
Ben E. Lynch
*
- ------------------------------ Director
John M. Keeler
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
*
- ------------------------------ Director
Walter G. Rich
/s/ LEONARD BLUM As attorney-in-fact for
- ------------------------------ the officers and directors
Leonard Blum marked by an asterisk
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. METHOD OF FILING
- ----------- ---------------------------------------------------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of June 29, Included as Appendix A to the Proxy
1999, by and among CTG Resources, the Registrant Statement/Prospectus.
and Oak Merger Co. The Registrant agrees to furnish
supplementally a copy of both disclosure schedules
to the SEC upon request.
3.1 Restated Certificate of Incorporation of the Incorporated by reference to Exhibit No. 4-1 of
Registrant filed in the office of the Secretary of Post-effective Amendment No. 1 to Registrant's
State of the State of New York on April 23, 1998. Registration No. 033-54155.
3.2 Certificate of Amendment of the Certificate of Incorporated by reference to Exhibit No. 3-3 of the
Incorporation of the Registrant filed in the office Registrant's 10-Q for the quarter ended March 31,
of the Secretary of State of the State of New York 1999, File No. 1-14766.
on April 26, 1999.
3.3 By-Laws of the Registrant as amended Incorporated by reference to Exhibit No. 3-4 of the
April 23, 1999. Registrant's 10-Q for the quarter ended March 31,
1999, File No. 1-14766.
5.1 Opinion of Huber Lawrence & Abell with respect to Filed herewith.
the legality of the securities registered hereunder
(including consent).
8.1 Opinion of Jones, Day, Reavis & Pogue regarding the Filed herewith.
federal income tax consequences of the merger
(including consent).
8.2 Opinion of Wachtell, Lipton, Rosen & Katz regarding Filed herewith.
the federal income tax consequences of the merger
(including consent).
10.1 Amended and Restated Employment Agreement, dated as Filed herewith.
of June 29, 1999, by and among the Registrant, CTG
Resources and Arthur C. Marquardt.
23.1 Consent of Huber Lawrence & Abell. Included in opinion filed as Exhibit No. 5.1.
23.2 Consent of Jones, Day, Reavis & Pogue. Included in opinion filed as Exhibit No. 8.1.
23.3 Consent of Wachtell, Lipton, Rosen & Katz. Included in opinion filed as Exhibit No. 8.2.
23.4 Consent of PricewaterhouseCoopers LLP. Filed herewith.
23.5 Consent of PricewaterhouseCoopers LLP. Filed herewith.
23.6 Consent of PricewaterhouseCoopers LLP. Filed herewith.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. METHOD OF FILING
- ----------- ---------------------------------------------------
<C> <S> <C>
23.7 Consent of Arthur Andersen LLP. Filed herewith.
24.1 Powers of Attorney of Directors and Officers. Filed herewith.
24.2 Power of Attorney of Registrant. Filed herewith.
99.1 Form of Proxy Card of CTG Resources. Filed herewith.
99.2 Consent of PaineWebber Incorporated. Filed herewith.
</TABLE>
<PAGE>
Exhibit 5.1
[Huber Lawrence & Abell Letterhead]
August 16, 1999
Energy East Corporation
One Canterbury Green, Fourth Floor
Stamford, CT 06901
Re: REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
We have acted as counsel for Energy East Corporation (the "Company")
in connection with a Registration Statement on Form S-4 (the "Registration
Statement") being filed with the Securities and Exchange Commission for the
purpose of registering under the Securities Act of 1933, as amended, shares
of the Company's Common Stock, with a par value of One Cent ($.01) per share
(the "Common Stock"), to be issued in connection with the merger of CTG
Resources, Inc., a Connecticut corporation, into the Company's wholly owned
subsidiary, Oak Merger Co., a Connecticut corporation (the "Merger") pursuant
to the Agreement and Plan of Merger (the "Merger Agreement") by and among CTG
Resources, Inc., the Company and Oak Merger Co. dated as of June 29, 1999,
filed as Appendix A to the Proxy Statement/Prospectus which forms a part of
the Registration Statement. All capitalized terms not otherwise defined
herein have the same meanings as defined in the Registration Statement.
As counsel to the Company, we are generally familiar with its corporate
proceedings and have examined the Registration Statement and the Merger
Agreement and such other documents as we have deemed relevant and necessary as a
basis for the opinion hereinafter set forth. In addition, we have made such
other and further investigations as we have deemed relevant and necessary as a
basis for the opinion hereinafter set forth.
<PAGE>
August 16, 1999
Page 2
In such examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such latter documents.
Based on the foregoing and upon such further examination of corporate
records and documents and matters of law as we have considered necessary or
desirable for the purposes of this opinion, it is our opinion that the Common
Stock, when issued in accordance with the terms of the Merger Agreement, will be
validly issued, fully paid and non-assessable shares of Common Stock of the
Company.
The opinion expressed herein is limited to the laws of the State of New
York and to applicable United States federal law and we express no opinion as to
the laws of any other jurisdiction.
We hereby consent to the making of the statements with reference to our
firm under the heading "Legal Matters" in the Registration Statement and to the
filing of this opinion as Exhibit 5.1 to the Registration Statement.
Very truly yours,
/s/ Huber Lawrence & Abell
<PAGE>
Exhibit 8.1
[Jones, Day, Reavis & Pogue Letterhead]
August 13, 1999
CTG Resources, Inc.
P.O. Box 1500
100 Columbus Boulevard
Hartford, CT 06144-1500
Re: Agreement and Plan of Merger (the "Merger Agreement") By and
Among CTG Resources, Inc. (the "Company"), Energy East
Corporation ("Parent") and Oak Merger Co., a wholly owned
subsidiary of Patent ("Merger Sub"), Dated as of June 29, 1999
(the "Merger")
Ladies and Gentlemen:
You have requested our opinion relating to certain federal income tax
consequences arising out of the transactions described in the Merger Agreement.
Capitalized terms used but not defined in this letter have the meaning given
them in the Merger Agreement.
Our conclusions are based upon the facts and representations set forth
in the Proxy Statement/Prospectus of the Company and Parent (the "Proxy
Statement/Prospectus") included in the Registration Statement of Parent on Form
S-4 and accompanying exhibits to be filed in connection with the Merger (the
"Registration Statement"). We have made no independent investigation with regard
to the facts and representations set forth in the Proxy Statement/Prospectus and
the Registration Statement. In rendering our opinion we have assumed, with your
consent, that the preceding facts or representations are true, complete and
accurate as of the date hereof and will be true, complete and accurate as of the
Effective Time.
In rendering our opinion, we have considered the applicable provisions
of the Code, Treasury Regulations promulgated thereunder, pertinent judicial
authorities, interpretive rulings of the Internal Revenue Service (the "IRS")
and such other authorities that we have considered relevant. It should be noted
that statutes, regulations, judicial decisions and administrative
interpretations are subject to change at any time and in certain circumstances
with retroactive effect.
Based upon and subject to the assumptions and limitations described
above, it is our opinion that the statements made under the caption
"SUMMARY--Material Federal Income Tax Consequences" and "THE MERGER--Material
Federal Income Tax Consequences" in the Proxy Statement/Prospectus, to the
extent they constitute matters of law or legal conclusions, are accurate in
all material respects.
If any fact, representation or assumption described above or contained
in the Merger Agreement, the Proxy Statement/Prospectus or the Registration
Statement is neither true, correct, nor complete, or in the event of a change in
law after the date hereof adversely affecting the
<PAGE>
conclusions reached in this letter, our opinion shall be void and of no force
or effect. You should be aware that although this letter represents our
opinion concerning the matters specifically discussed, it is not binding on
the courts or on any administrative agency, including the IRS, and a court or
agency may act or hold to the contrary. Our opinion is provided to you as a
legal opinion only, and not as a guaranty or warranty, and is limited to the
specific transactions, documents and matters described above. No opinion may
be implied or inferred beyond that which is expressly stated in this letter.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the references to us therein and in the Proxy
Statement/Prospectus. In giving such consent, we do not hereby admit that we are
in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended. We are furnishing this opinion in
connection with the filing of the Registration Statement with the SEC, and
this opinion is not to be used, circulated, quoted or otherwise referred to
for any other purpose without our express consent.
Very truly yours,
Jones, Day, Reavis & Pogue
<PAGE>
Exhibit 8.2
[Wachtell, Lipton, Rosen & Katz Letterhead]
August 16, 1999
Energy East Corporation
P.O. Box 1196
Stamford, Connecticut 06904-1196
Ladies and Gentlemen:
Reference is made to the Registration Statement on Form S-4 (the
"REGISTRATION STATEMENT") of Energy East Corporation, a New York corporation
("ENERGY EAST"), relating to the merger (the "MERGER") of CTG Resources,
Inc., a Connecticut corporation, with and into Oak Merger Co., a Connecticut
corporation and a wholly owned subsidiary of Energy East.
We have participated in the preparation of the discussion set forth
in the section entitled "The Merger--Material Federal Income Tax Consequences
of the Merger." In our opinion, such discussion, insofar as it relates to the
federal income tax consequences of the Merger, is accurate in all material
respects.
We hereby consent to the filing of this opinion with the Securities
and Exchange Commission as an exhibit to the Registration Statement, and to
the references therein to us. In giving such consent, we do not thereby admit
that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
/a/ Wachtell, Lipton, Rosen & Katz
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT, dated as of June 29,
1999 (the "Agreement"), by and among Energy East Corporation, a New York
corporation ("Parent"), CTG Resources, Inc., a Connecticut corporation or its
successor (the "Company"), and Arthur C. Marquardt (the "Executive"), amends and
restates as of the Effective Time (as defined below) that certain Amended and
Restated Employment Agreement dated April 27, 1999, by and between the Company
and the Executive (the "Prior Agreement").
The Executive is currently serving as the President and Chief Executive
Officer of the Company, and the Company, Parent and Oak Merger Co. have entered
into a Merger Agreement (as defined below) which contemplates the merger of the
Company with and into Oak Merger Co. to be effective as of the Effective Time.
The Board of Directors of Parent (the "Board") and the Board of
Directors of the Company (the "Company Board") desire to provide for the
employment of the Executive as a member of the management of the Company,
XENERGY Enterprises, Inc. ("XENERGY") and certain of their subsidiaries and
affiliates, from and after the Effective Time, and the Executive is willing to
commit himself to serve the Company, XENERGY and their subsidiaries and
affiliates, on the terms and conditions herein provided.
In order to effect the foregoing, Parent, the Company and the Executive
wish to enter into an employment agreement on the terms and conditions set forth
below. Accordingly, in consideration of the premises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. DEFINED TERMS. The definitions of capitalized terms used in this
Agreement, unless otherwise defined herein, are provided in the last Section
hereof.
2. EMPLOYMENT. The Company hereby agrees to employ the Executive, and
the Executive hereby agrees to serve Parent, the Company, XENERGY and their
subsidiaries and affiliates, on the terms and conditions set forth herein,
during the term of this Agreement (the "Term").
3. TERM OF AGREEMENT. The Term will commence on the Effective Time of
the Merger as those terms are defined in the Agreement and Plan of Merger dated
as of June 29, 1999, by and among the Company, Parent and Oak Merger Co., a
Connecticut corporation and wholly owned subsidiary of Parent (the "Merger
Agreement"), and end on the third anniversary of the day on which the Effective
Time occurs, unless further extended as hereinafter provided. Commencing on the
first anniversary of the Effective Time and each succeeding anniversary
thereafter, the Term of this Agreement shall automatically be extended for one
(1) additional year unless Parent, the Company, or the Executive shall have
given 90 days' prior written notice not to extend this Agreement.
<PAGE>
4. POSITION AND DUTIES. During the Term, the Executive shall serve as
President and Chief Executive Officer of the Company and a member of the Company
Board, and President and Chief Operating Officer of XENERGY and a member of the
Board of Directors of XENERGY, and shall also serve in any such executive
officer position of the Company or its subsidiaries and affiliates if so
appointed by the Board. Commencing no later than the one-year anniversary of the
Effective Time, the Executive shall also serve as the Chief Executive Officer of
XENERGY, and at that time he shall cease serving as its Chief Operating Officer
unless otherwise notified in writing by the Board. During the Term, the
Executive shall also be a member of the Board of Directors of Connecticut Energy
Corporation. The Executive shall devote substantially all his working time and
efforts to the business and affairs of Parent, the Company and their
subsidiaries and affiliates; PROVIDED, HOWEVER, that the Executive may also
serve on the boards of directors or trustees of other non-affiliated companies
and organizations, as long as such service does not substantially interfere with
the performance of his duties hereunder or violate his obligations under Section
10 hereof.
5. COMPENSATION AND RELATED MATTERS.
5.1. BASE SALARY. The Company shall pay, or cause to be paid,
to the Executive an annual base salary ("Base Salary") during the period of the
Executive's employment hereunder, which shall be at an initial rate of not less
than $425,000 per year. The Base Salary shall be paid in substantially equal
bi-weekly installments, in arrears. During the period of the Executive's
employment hereunder, the Board shall make an annual review of the Executive's
compensation for possible increase, as the Board deems appropriate in its
business judgment (and, as so increased, shall thereafter constitute "Base
Salary" hereunder). The Base Salary in effect from time to time shall not be
decreased during the Term.
Compensation of the Executive by Base Salary payments shall not be
deemed exclusive and shall not prevent the Executive from participating in any
other compensation or benefit plan of Parent, XENERGY or the Company. The Base
Salary payments (including any increased Base Salary payments) shall not in any
way limit or reduce any other obligation of Parent or the Company hereunder, and
no other compensation, benefit or payment hereunder shall in any way limit or
reduce the obligation of the Company to pay the Executive's Base Salary.
5.2. BENEFIT PLANS. The Executive shall be entitled to
participate in or receive benefits under any "employee benefit plan" (as defined
in section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended from time to time ("ERISA")) or employee benefit arrangement made
available by Parent, XENERGY or the Company during the period of the Executive's
employment hereunder to their executives and key management employees, subject
to and on a basis consistent with the terms, conditions and overall
administration of such plans and arrangements. The Executive's participation in
such employee benefit plans and arrangements shall be on an appropriate level,
but no less favorable than the level of other peer executives of Parent, XENERGY
and the Company, as determined by the Board.
5.3. INCENTIVE COMPENSATION. The Executive shall be entitled
to participate in or receive benefits under any short or long-term incentive
compensation plan made available by Parent during the period of the Executive's
employment hereunder to their executives and key
-2-
<PAGE>
management employees at a level appropriate for the Executive's position as
determined by the Board, but no less favorable than the level of other peer
executives of Parent, XENERGY and the Company, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements; PROVIDED, HOWEVER, that the Executive shall not be eligible to
receive benefits from any long-term incentive compensation plan, policy or
arrangement of Parent to the extent the Executive is receiving a similar benefit
pursuant to an incentive compensation plan, policy or arrangement of the Company
or any of its subsidiaries.
5.4. FRINGE BENEFITS. The Executive shall be entitled to
receive any fringe benefits which are made available by Parent, XENERGY or the
Company during the period of the Executive's employment hereunder to their
executives and key management employees; provided, however, if not otherwise
included, Executive shall receive: (a) an automobile provided at the expense of
the Parent or a subsidiary thereof, (b) payment for luncheon club dues at a
level not less than that which the Executive was entitled to receive immediately
prior to the Effective Time, and (c) financial and tax planning services and
computer allowance of $3,500 per year.
5.5. EXPENSES. Upon presentation of reasonably adequate
documentation to Parent, the Executive shall receive prompt reimbursement from
Parent or a subsidiary thereof for all reasonable and customary business
expenses incurred by the Executive in accordance with Parent's policy in
performing services hereunder.
5.6. VACATION. The Executive shall be entitled to five (5)
weeks of vacation during each year of this Agreement, or such greater period as
the Board shall approve, without reduction in salary or other benefits.
5.7. COMPLETION BONUSES. Parent shall pay, or cause to be
paid, to the Executive in cash a bonus of $400,000 within five (5) days of the
Effective Time. Parent shall pay, or cause to be paid, to the Executive the
following completion bonuses (the "Completion Bonuses") upon completion of the
specified periods of his employment: (i) $400,000 if Executive is employed with
Parent or any subsidiary or affiliate thereof on the one (1) year anniversary of
the Effective Time; and (ii) $400,000 if Executive is employed with Parent or
any subsidiary or affiliate thereof on the two (2) year anniversary of the
Effective Time. Each Completion Bonus shall be paid within five (5) days after
the respective anniversary of the Effective Time.
5.8. SPECIAL RETIREMENT BENEFIT. If the Executive retires on
or after his 60th birthday ("Retirement"), or if the Executive's employment
hereunder is terminated within three years after the Effective Time by the
Company without Cause (other than Disability) or by the Executive for Good
Reason ("Wrongful Termination"), or for any reason (including, without
limitation, the Executive's death) thereafter during the Term, the Executive (or
in the event of his death at any time during the Term, his surviving spouse)
shall be entitled to a supplemental retirement benefit (the "Special Retirement
Benefit") as set forth herein, which shall be in addition to his pension
benefits under all qualified and nonqualified defined benefit retirement plans
of the Company and Parent and their affiliates and all of his prior employers
(the "Basic Plans"). The Special Retirement Benefit shall be payable in the form
of a monthly single life
-3-
<PAGE>
annuity, or, if the Executive is married at the commencement of the Special
Retirement Benefit or at the time of his death during the Term, in the form of
an actuarially equivalent joint and 66 2/3% survivor benefit with the surviving
spouse to whom he was married at the time of the commencement of the Special
Retirement Benefit or date of death, if earlier (the amount of which actuarially
equivalent benefit shall be determined based on assumptions no less favorable to
the Executive than the applicable assumptions in the Connecticut National Gas
Corporation Officers' Retirement Plan immediately prior to the Effective Time).
The Special Retirement Benefit shall be payable beginning as of (i) in the case
of the Executive's Retirement, the date of the Executive's Retirement, (ii) in
the case of the Executive's Wrongful Termination, the third anniversary of the
Date of Termination, (iii) in the case of the Executive's death during the Term,
the date of his death, and (iv) in all other cases, the later of the date of the
Executive's termination of employment or the Executive's 60th birthday. The
amount of the Special Retirement Benefit shall be such that for each month, the
aggregate of the monthly payments payable to the Executive pursuant to the
Special Retirement Benefit and the Basic Plans equals 75% of the highest annual
rate of the Executive's Base Salary in effect at any time during the Term,
divided by twelve; provided, that in determining the amounts payable pursuant to
the Basic Plans, it shall be assumed that the benefits thereunder are payable in
the same form as the Special Retirement Benefit, beginning on the earliest date
permitted by the terms of the applicable Basic Plan. If the Executive (or in the
case of the Executive's death during the Term, his surviving spouse) becomes
entitled to receive the Special Retirement Benefit, he or his surviving spouse,
as applicable, shall supply Parent and the Company with such information as they
may reasonably request relating to his benefits from retirement plans of prior
employers in order to determine the amount of the Special Retirement Benefit.
6. COMPENSATION RELATED TO DISABILITY. During the Term of this
Agreement, during any period that the Executive fails to perform the Executive's
full-time duties hereunder as a result of incapacity due to physical or mental
illness, Parent shall pay, or cause to be paid, to the Executive his Base Salary
at the rate in effect at the commencement of any such period, together with all
compensation and benefits payable to the Executive under the terms of any
compensation or benefit plan, program or arrangement maintained by Parent,
XENERGY or the Company during such period, until the Executive's employment is
terminated by Parent for Disability; PROVIDED, HOWEVER, that such payments shall
be reduced by the sum of the amounts, if any, payable to the Executive at or
prior to the time of any such payment under disability benefit plans of Parent
or the Company or under the Social Security disability insurance program, which
amounts were not previously applied to reduce any such payment.
7. TERMINATION COMPENSATION AND BENEFITS.
7.1. If the Executive's employment shall be terminated for
any reason during the Term of this Agreement, the Company shall pay the
Executive's Base Salary (to the Executive or in accordance with Section 11.2 if
the Executive's employment is terminated by his death) through the Date of
Termination at the rate in effect immediately prior to the time the Notice of
Termination is given, together with all compensation and benefits (other than
severance compensation and benefits) payable to the Executive through the Date
of Termination or thereafter under the terms of any compensation or benefit
plan, program or arrangement maintained by Parent, XENERGY or the Company during
such period, and any unreimbursed
-4-
<PAGE>
expenses payable pursuant to Section 5.5 of the Agreement that were incurred
before the Date of Termination.
7.2. In the event the Executive's employment is terminated
prior to the expiration of the Term of the Agreement by the Executive for Good
Reason or by Parent or the Company for reasons other than Cause (other than the
death or Disability of the Executive), the Executive shall receive, in addition
to amounts payable under Section 7.1 and 7.3, (i) a lump sum cash payment to be
made within five (5) days of the Date of Termination equal to three times the
sum of the Base Salary and incentive compensation (as described below), (ii)
continuation of the benefits provided for in Section 5.2 of this Agreement for
the remainder of the Term, and (iii) the Special Retirement Benefit (to the
extent provided for in Section 5.8 hereof). For purposes of determining
equivalent value of incentive compensation, the value of short-term incentive
compensation shall be the higher of (i) the amount of short-term compensation
payable to the Executive with respect to the fiscal year ended immediately prior
to the Date of Termination and (ii) the average of the amounts of short-term
compensation payable to the Executive with respect to each of the three most
recently completed fiscal years ended immediately prior to the Date of
Termination, and the value of long-term incentive compensation shall be the
value of long-term incentive compensation awards outstanding on the Date of
Termination for performance periods ending after the Date of Termination, such
value being determined based upon the projected target value of the applicable
long-term incentive compensation award as determined by the Company in
connection with the grant thereof.
7.3. If the Executive's employment shall be terminated for
any reason during the Term of this Agreement, the Company shall pay (i) the
Executive's normal post-termination compensation and benefits (other than
severance compensation and benefits) to the Executive as such payments become
due, and (ii) the Special Retirement Benefit as and to the extent provided for
in Section 5.8. Such normal post-termination compensation and benefits (other
than severance compensation and benefits) shall be determined under, and paid in
accordance with, Parent's or the Company's retirement, insurance and other
compensation or benefit plans, programs and arrangements (other than this
Agreement), as applicable.
7.4. (a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment, benefit,
or distribution by Parent, the Company or their affiliates to or for the benefit
of the Executive, whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise (a "Payment"), would be
subject to the excise tax imposed by Section 4999 of the Code, or any interest
or penalties with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment ("Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes and Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 7.4(c) hereof,
all determinations required to be made under this Section 7.4, including whether
a Gross-Up
-5-
<PAGE>
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be used in arriving at such determinations, shall be made by Parent's
principal outside accounting firm (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Board and the Executive within
fifteen (15) business days of the Date of Termination and/or such earlier
date(s) as may be requested by Parent or the Executive (each such date and the
Date of Termination shall be referred to as a "Determination Date" for purposes
of this Section 7.4(b) and Section 7.5 hereof). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. The initial Gross-Up
Payment, if any, as determined pursuant to this Section 7.4(b), shall be paid by
the Company to the Executive within five (5) days of the receipt of the
Accounting Firm's determination. If the Accounting Firm determines that no
Excise Tax is payable by the Executive, it shall furnish the Executive with a
written opinion that failure to report the Excise Tax on the Executive's
applicable federal income tax return would not result in the imposition of a
negligence or similar penalty. Any determination by the Accounting Firm under
this Section 7.4(b) shall be binding upon Parent, the Company and the Executive.
As a result of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment") consistent with the calculations required
to be made hereunder. In the event that Parent exhausts its remedies pursuant to
Section 7.4(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify Parent in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of an Underpayment. Such notification shall be given as
soon as practicable but no later than ten (10) business days after the Executive
is informed in writing of such claim and shall apprise Parent of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the thirty (30)
day period following the date on which he gives such notice to Parent (or such
shorter period ending on the date that any payment of taxes with respect to such
claim is due). If Parent notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give Parent any information reasonably
requested by Parent relating to such
claim;
(ii) take such action in connection with
contesting such claim as Parent shall
reasonably request in writing from time
to time, including, without limitation,
accepting legal representation with
respect to such claim by an attorney
reasonably selected by Parent;
(iii) cooperate with Parent in good faith in
order to effectively contest such claim;
and
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(iv) permit Parent to participate in any
proceeding relating to such claim;
PROVIDED, HOWEVER, that Parent shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 7.4(c), Parent shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as Parent shall determine;
PROVIDED, HOWEVER, that if Parent directs the Executive to pay such claim and
sue for a refund, the Company shall advance the amount of such payment to the
Executive on an interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax, including
interest or penalties with respect thereto, imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and
PROVIDED, FURTHER that any extension of the statute of limitations relating to
payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, Parent's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7.4(c) hereof, the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to Parent's and the Company's complying with the requirements of
Section 7.4(c) hereof) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 7.4(c) hereof, a determination is made that the
Executive shall not be entitled to any refund with respect to such claim and
Parent does not notify the Executive in writing of its intent to contest such
denial of refund prior to the expiration of thirty (30) days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid.
7.5. The payments provided for in Section 7.4 hereof (other
than Section 7.4(c) and (d)) shall be made not later than the fifth (5th) day
following each Determination Date; PROVIDED, HOWEVER, that if the amounts of
such payments cannot be finally determined on or before such day, the Company
shall pay to the Executive on such day an estimate, as determined by the
Executive, of the minimum amount of such payments to which the Executive is
clearly entitled and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as
the amount thereof can be determined but in no event later than the thirtieth
(30th) day after each Determination Date. In the event that the
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<PAGE>
amount of the estimated payments exceeds the amount subsequently determined to
have been due, such excess shall constitute a loan by the Company to the
Executive, payable on the fifth (5th) business day after demand by the Company
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code).
7.6. The Company also shall pay to the Executive all
reasonable legal fees and expenses incurred by the Executive as a result of a
termination which entitles the Executive to the Severance Payments (including
all such fees and expenses, if any, incurred in disputing any termination or in
seeking in good faith to obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of Section 4999 of the Code to any payment or
benefit provided hereunder); PROVIDED, HOWEVER, the Company shall not be
required to pay to the Executive legal fees and expenses to the extent such
legal fees and expenses were incurred in connection with a contest controlled by
Parent pursuant to Section 7.4(c) hereof in connection with which Parent
complied with its obligations under said Section 7.4(d). Such payments shall be
made within five (5) business days after delivery of the Executive's written
request for payment accompanied with such evidence of fees and expenses incurred
as Parent reasonably may require.
8. TERMINATION PROCEDURES.
8.1. NOTICE OF TERMINATION. During the Term of this
Agreement, any purported termination of the Executive's employment (other than
by reason of death) shall be communicated by written Notice of Termination from
one party hereto to the other party hereto in accordance with Section 12 hereof.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement relied
upon and, in the case of a termination by the Company for Cause or by the
Executive for Good Reason, shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. Further, a Notice of Termination
for Cause is required to include a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the entire membership
of the Board at a meeting of the Board which was called and held for the purpose
of considering such termination (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's counsel, to be
heard before the Board) finding that, in the good faith opinion of the Board,
the Executive was guilty of conduct set forth in clause (i) or (ii) of the
definition of Cause herein, and specifying the particulars thereof in detail.
8.2. DATE OF TERMINATION. "Date of Termination", with respect
to any purported termination of the Executive's employment during the Term of
this Agreement, shall mean (i) if the Executive's employment is terminated by
his death, the date of his death, (ii) if the Executive's employment is
terminated for Disability, thirty (30) days after Notice of Termination is
given (provided that the Executive shall not have returned to the full time
performance of the Executive's duties during such thirty (30) day period),
and (iii) if the Executive's employment is terminated for any other reason,
the date specified in the Notice of Termination (which, in the case of a
termination by Parent, shall not be less than thirty (30) days (except in the
case of a termination for Cause) and, in the case of a termination by the
Executive, shall not be less than
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<PAGE>
fifteen (15) days nor more than sixty (60) days, respectively, from the date
such Notice of Termination is given).
9. NO MITIGATION. Parent and the Company agree that, if the
Executive's employment hereunder is terminated during the Term, the Executive is
not required to seek other employment or to attempt in any way to reduce any
amounts payable to the Executive by Parent or the Company hereunder. Further,
the amount of any payment or benefit provided for hereunder (other than pursuant
to Section 7.4(d) hereof) shall not be reduced by any compensation earned by the
Executive as the result of employment by another employer, by retirement
benefits, by offset against any amount claimed to be owed by the Executive to
Parent or the Company, or otherwise.
10. CONFIDENTIALITY AND NONCOMPETITION.
10.1. The Executive will not, during or after the Term,
without the prior written consent of the Parent or as may otherwise be required
by law or legal process, disclose to any entity or person any information which
is treated as confidential by Parent or the Company or any of their subsidiaries
or affiliates (each, an "EE Entity"), and not generally known or available in
the marketplace, and to which the Executive gains access by reason of his
position as an employee or director of any EE Entity.
10.2. Except as permitted by Parent or the Company upon its
prior written consent, the Executive shall not, during the Executive's
employment with the EE Entities and for the period ending one year after the
Executive's employment with the EE Entities terminates for any reason enter,
directly or indirectly, into the employ of or render or engage in, directly or
indirectly, any services to any person, firm or corporation within the
"Restricted Territory," which is a major competitor of any EE Entity with
respect to products which any EE Entity is then producing or services which any
EE Entity is then providing (a "Competitor"). However, it shall not be a
violation of the immediately preceding sentence for the Executive to be employed
by, or render services to, a Competitor, if the Executive renders those services
only in lines of business of the Competitor which are not directly competitive
with a primary line of business of any EE Entity or are outside of the
Restricted Territory. For purposes of this Section 10.2, the "Restricted
Territory" shall be the states and/or commonwealths of Connecticut, Vermont,
Massachusetts, New Hampshire, Maine and Rhode Island.
11. SUCCESSORS; BINDING AGREEMENT.
11.1. In addition to any obligations imposed by law upon any
successor to Parent or the Company, Parent and the Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of Parent
or the Company, as the case may be, to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that Parent and the
Company would be required to perform it if no such succession had taken place.
Failure of Parent or the Company to obtain such assumption and agreement prior
to the effectiveness of any such succession shall be a breach of this Agreement
and shall entitle the Executive to compensation from Parent or the Company in
the same amount and on the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the Executive's
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<PAGE>
employment for Good Reason, except that, for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination.
11.2. This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate upon the death of
the Executive) if the Executive had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the executors, personal representatives or administrators of the
Executive's estate.
11.3. Except as provided herein, at the Effective Time, the
Prior Agreement shall be terminated and no longer in effect; and the Executive
expressly waives his rights to any payments under the Prior Agreement.
Notwithstanding any other provision of this Agreement, this Agreement shall be
null and void and of no further force or effect if the Merger Agreement is
terminated without consummation of the Merger or if the Executive's employment
with the Company and/or its subsidiaries terminates for any reason before the
Effective Time.
12. NOTICES. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addressees set forth below, or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon actual receipt:
(a) To the Company:
Energy East Corporation
One Canterbury Green
P.O. Box 1196
Stamford, Connecticut 06901
Attention: Mr. Kenneth M. Jasinski
Executive Vice President and General Counsel
Telephone: (203) 325-0690
Telecopy: (203) 325-1901
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<PAGE>
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Seth A. Kaplan, Esq.
Telephone: (212) 403-1000
Telecopy: (212) 403-2000
(b) To the Company:
CTG Resources, Inc.
100 Columbus Boulevard
Hartford, Connecticut 06144
Attention: Reginald L. Babcock, Esq.
Vice President, General Counsel and Secretary
Telephone: (860) 727-3000
Telecopy: (860) 727-3064
with a copy to:
Jones, Day, Reavis & Pogue
77 West Wacker
Chicago, Illinois 60601-1692
Attention: Robert A. Yolles, Esq.
Telephone: 312-782-3939
Telecopier: 312-782-8585
(c) To the Executive:
At the Executive's residence address as maintained by
the Company in the regular course of its business for
payroll purposes.
13. MISCELLANEOUS.
13.1. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officers as may be specifically
designated by the Board. No waiver by any party hereto at any time of any breach
by any other party hereto of, or compliance with, any condition or
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<PAGE>
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
any party which are not expressly set forth in this Agreement. This Agreement
sets forth the entire agreement of the parties hereto in respect of the subject
matter contained herein and supersedes all prior agreements, promises,
covenants, arrangements, communications, representations or warranties, whether
oral or written, by any officer, employee or representative of any party hereto;
and any prior agreement of the parties hereto in respect of the subject matter
contained herein is hereby terminated and canceled, except as otherwise provided
in this Agreement. The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of New York, without
giving effect to choice of law principles.
All references to sections of the Code shall be deemed also to refer to
any successor provisions to such sections. There shall be withheld from any
payments provided for hereunder any amounts required to be withheld under
federal, state or local law and any additional withholding amounts to which the
Executive has agreed. The obligations under this Agreement of Parent, the
Company or the Executive which by their nature and terms require satisfaction
after the end of the Term shall survive such event and shall remain binding upon
such party.
13.2. Notwithstanding any provision of this Agreement to the
contrary, Parent and the Company shall be jointly and severally liable to the
Executive and his personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees or legatees for all payment
obligations under this Agreement.
14. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
15. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
16. SETTLEMENT OF DISPUTES; ARBITRATION. All claims by the Executive
for benefits under this Agreement shall be directed to and initially determined
by the Board and shall be in writing. Any denial by the Board of a claim for
benefits under this Agreement shall be delivered to the Executive in writing and
shall set forth the specific reasons for the denial and the specific provisions
of this Agreement relied upon. The Board shall afford a reasonable opportunity
to the Executive for a review of the decision denying a claim and shall further
allow the Executive to appeal to the Board a decision of the Board within sixty
(60) days after notification by the Board that the Executive's claim has been
denied. To the extent permitted by applicable law, any further dispute or
controversy arising under or in connection with this Agreement shall be settled
exclusively by arbitration in New York, New York in accordance with the
Commercial Arbitration Rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
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<PAGE>
17. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the meaning indicated below:
(a) "Base Salary" shall have the meaning stated in
Section 5.1 hereof.
(b) "Cause" for termination by Parent or the Company of
the Executive's employment, for purposes of this Agreement, shall mean (i) the
willful and continued failure by the Executive to substantially perform the
Executive's duties hereunder (other than any such failure resulting from the
Executive's incapacity due to physical or mental illness or any such actual or
anticipated failure after the issuance of a Notice of Termination for Good
Reason by the Executive pursuant to Section 8.1) after a written demand for
substantial performance is delivered to the Executive by the Board, which demand
specifically identifies the manner in which the Board believes that the
Executive has not substantially performed the Executive's duties, or (ii) the
willful engaging by the Executive in conduct which is demonstrably and
materially injurious to Parent or its subsidiaries, monetarily or otherwise. For
purposes of clauses (i) and (ii) of this definition, no act, or failure to act,
on the Executive's part shall be deemed "willful" unless done, or omitted to be
done, by the Executive not in good faith and without reasonable belief that the
Executive's act, or failure to act, was in the best interest of Parent or the
Company.
(c) "Code" shall mean the Internal Revenue Code of
1986, as amended from time to time.
(d) "Company" shall mean CTG Resources, Inc. or any
successor to its business and/or assets.
(e) "Date of Termination" shall have the meaning stated
in Section 8.2 hereof.
(f) "Disability" shall be deemed the reason for the
termination by Parent or the Company of the Executive's employment, if, as a
result of the Executive's incapacity due to physical or mental illness, the
Executive shall have been absent from the full time performance of the
Executive's duties hereunder for the maximum number of months applicable to the
Executive under the Company's Disability Policy for Salaried Employees (or any
successor policy) (but in no event for less than six (6) consecutive months),
Parent shall have given the Executive a Notice of Termination for Disability,
and, within thirty (30) days after such Notice of Termination is given, the
Executive shall not have returned to the full time performance of the
Executive's duties.
(g) "Parent" shall mean Energy East Corporation and any
successor to its business and/or assets.
(h) "Excise Tax" shall have the meaning stated in
Section 7.4(a) hereof.
(i) "Executive" shall mean the individual named in the
first paragraph of this Agreement.
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<PAGE>
(j) "Good Reason" for termination by the Executive of
the Executive's employment shall mean the occurrence (without the Executive's
express written consent), of any one of the following acts by Parent or the
Company, or failures by Parent or the Company to act, unless, in the case of any
act or failure to act described in paragraphs (i) or (ii) below, such act or
failure to act is corrected prior to the Date of Termination specified in the
Notice of Termination given in respect thereof:
(i) the assignment to the Executive of any
duties inconsistent with the Executive's
status as an executive officer of the
Company and XENERGY or a substantial
alteration in the nature or status of the
Executive's responsibilities consistent
with the titles set forth in Section 4;
(ii) any material breach of any provision of
this Agreement by Parent or the Company;
(iii) the relocation of the Company's principal
executive offices to a location which is
not within the 25-mile radius of
Hartford, Connecticut or Parent or the
Company's requiring the Executive to be
based anywhere other than the Company's
principal executive offices except for
required travel on the business of Parent
or the Company or its affiliates; or
(iv) any purported termination of the
Executive's employment which is not
effected pursuant to a Notice of
Termination satisfying the requirements
of Section 8.1; for purposes of this
Agreement, no such purported termination
shall be effective.
The Executive's right to terminate the Executive's employment for Good
Reason shall not be affected by the Executive's incapacity due to physical or
mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
(k) "Gross-Up Payment" shall have the meaning stated in
Section 7.4(a) hereof.
(l) "Notice of Termination" shall have the meaning
stated in Section 8.1 hereof.
(m) "Severance Payments" shall mean those payments
described in Section 7.2 hereof.
(n) "Term" shall have the meaning stated in Section 3
hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
ENERGY EAST CORPORATION
/s/ Kenneth M. Jasinski
--------------------------------------------
By: Kenneth M. Jasinski
Title: Executive Vice President and General
Counsel
CTG RESOURCES, INC.
/s/ R. L. Babcock
--------------------------------------------
By: R. L. Babcock
Title: Vice President, General Counsel and
Secretary
EXECUTIVE
/s/ Arthur C. Marquardt
--------------------------------------------
Arthur C. Marquardt
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<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in a registration statement of
Energy East Corporation on Form S-4 relating to the acquisition of CTG
Resources, Inc. by Energy East Corporation of our report dated January 29, 1999,
on our audits of the consolidated financial statements and financial statement
schedule of Energy East Corporation and Subsidiaries as of December 31, 1998 and
1997, and for each of the three years in the period ended December 31, 1998,
which report is included in the Annual Report on Form 10-K for 1998 of Energy
East Corporation. We also consent to the reference to our Firm under the caption
"Experts" in the related Prospectus pertaining to the issuance of common stock
of Energy East Corporation.
/s/ PricewaterhouseCoopers LLP
New York, New York
August 16, 1999
<PAGE>
Exhibit 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in a registration statement of
Energy East Corporation on Form S-4 relating to the acquisition of CTG
Resources, Inc. by Energy East Corporation of our report dated January 26, 1999,
on our audits of the consolidated financial statements and the financial
statement schedules of CMP Group, Inc. and its subsidiaries and Central Maine
Power Company and its subsidiaries as of December 31, 1998 and 1997, and for
each of the three years in the period ended December 31, 1998, which report is
included in the combined Annual Report on Form 10-K for 1998 of CMP Group, Inc.
and Central Maine Power Company. We also consent to the reference to our Firm
under the caption "Experts" in the related Prospectus pertaining to the issuance
of common stock of Energy East Corporation.
/s/ PricewaterhouseCoopers LLP
Portland, Maine
August 16, 1999
<PAGE>
Exhibit 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in a registration statement of
Energy East Corporation on Form S-4 relating to the acquisition of CTG
Resources, Inc. by Energy East Corporation of our report dated October 30, 1998,
on our audits of the consolidated financial statements and financial statement
schedules of Connecticut Energy Corporation as of September 30, 1998 and 1997,
and for each of the three years in the period ended September 30, 1998, which
report is included in the Annual Report on Form 10-K for 1998 of Connecticut
Energy Corporation. We also consent to the reference to our Firm under the
caption "Experts" in the related Prospectus pertaining to the issuance of common
stock of Energy East Corporation.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
August 16, 1999
<PAGE>
Exhibit 23.7
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated October 27, 1998
included in CTG Resources, Inc.'s Form 10-K for the year ended September 30,
1998 and to all references to our Firm included in this Registration
Statement.
/s/ Arthur Andersen LLP
Hartford, Connecticut
August 16, 1999
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of Energy East Corporation, a New York corporation, hereby
constitutes and appoints W.W. von Schack, K.M. Jasinski, Esq., R.D. Kump,
D.W. Farley, L. Blum, Esq. and F. Lee, Esq. and each of them (with full power
to each of them to act alone) his or her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and
on his or her behalf and in his or her name, place and stead, to sign,
execute and file a Registration Statement with the Securities and Exchange
Commission, Washington, D.C. under the provisions of the Securities Act of
1933, as amended, for the proposed issue of shares of the Corporation's
Common Stock ($.01 Par Value) in connection with the proposed acquisition of
CTG Resources, Inc., any and all amendments to such Registration
Statement and any and all other documents requisite to be filed with respect
thereto, with all exhibits and other documents in connection therewith,
granting unto said attorneys, and each of them or their substitutes or
substitute, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, in order
to effectuate the same as fully to all intents and purposes as he or she
might or could do.
IN WITNESS WHEREOF, the undersigned has set his or her hand this 16th
day of August, 1999.
/s/ WESLEY W. VON SCHACK
----------------------------
Wesley W. von Schack
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of Energy East Corporation, a New York corporation, hereby
constitutes and appoints W.W. von Schack, K.M. Jasinski, Esq., R.D. Kump,
D.W. Farley, L. Blum, Esq. and F. Lee, Esq. and each of them (with full power
to each of them to act alone) his or her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and
on his or her behalf and in his or her name, place and stead, to sign,
execute and file a Registration Statement with the Securities and Exchange
Commission, Washington, D.C. under the provisions of the Securities Act of
1933, as amended, for the proposed issue of shares of the Corporation's
Common Stock ($.01 Par Value) in connection with the proposed acquisition of
CTG Resources, Inc., any and all amendments to such Registration Statement
and any and all other documents requisite to be filed with respect thereto,
with all exhibits and other documents in connection therewith, granting unto
said attorneys, and each of them or their substitutes or substitute, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, in order to effectuate
the same as fully to all intents and purposes as he or she might or could do.
IN WITNESS WHEREOF, the undersigned has set his or her hand this 16th
day of August, 1999.
/s/ RICHARD AURELIO
----------------------------
Richard Aurelio
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of Energy East Corporation, a New York corporation, hereby
constitutes and appoints W.W. von Schack, K.M. Jasinski, Esq., R.D. Kump,
D.W. Farley, L. Blum, Esq. and F. Lee, Esq. and each of them (with full power
to each of them to act alone) his or her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and
on his or her behalf and in his or her name, place and stead, to sign,
execute and file a Registration Statement with the Securities and Exchange
Commission, Washington, D.C. under the provisions of the Securities Act of
1933, as amended, for the proposed issue of shares of the Corporation's
Common Stock ($.01 Par Value) in connection with the proposed acquisition of
CTG Resources, Inc., any and all amendments to such Registration Statement
and any and all other documents requisite to be filed with respect thereto,
with all exhibits and other documents in connection therewith, granting unto
said attorneys, and each of them or their substitutes or substitute, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, in order to effectuate
the same as fully to all intents and purposes as he or she might or could do.
IN WITNESS WHEREOF, the undersigned has set his or her hand this 16th
day of August, 1999.
/s/ JAMES A. CARRIGG
----------------------------
James A. Carrigg
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of Energy East Corporation, a New York corporation, hereby
constitutes and appoints W.W. von Schack, K.M. Jasinski, Esq., R.D. Kump,
D.W. Farley, L. Blum, Esq. and F. Lee, Esq. and each of them (with full power
to each of them to act alone) his or her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and
on his or her behalf and in his or her name, place and stead, to sign,
execute and file a Registration Statement with the Securities and Exchange
Commission, Washington, D.C. under the provisions of the Securities Act of
1933, as amended, for the proposed issue of shares of the Corporation's
Common Stock ($.01 Par Value) in connection with the proposed acquisition of
CTG Resources, Inc., any and all amendments to such Registration Statement
and any and all other documents requisite to be filed with respect thereto,
with all exhibits and other documents in connection therewith, granting unto
said attorneys, and each of them or their substitutes or substitute, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, in order to effectuate
the same as fully to all intents and purposes as he or she might or could do.
IN WITNESS WHEREOF, the undersigned has set his or her hand this 16th
day of August, 1999.
/s/ ALISON P. CASARETT
----------------------------
Alison P. Casarett
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of Energy East Corporation, a New York corporation, hereby
constitutes and appoints W.W. von Schack, K.M. Jasinski, Esq., R.D. Kump,
D.W. Farley, L. Blum, Esq. and F. Lee, Esq. and each of them (with full power
to each of them to act alone) his or her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and
on his or her behalf and in his or her name, place and stead, to sign,
execute and file a Registration Statement with the Securities and Exchange
Commission, Washington, D.C. under the provisions of the Securities Act of
1933, as amended, for the proposed issue of shares of the Corporation's
Common Stock ($.01 Par Value) in connection with the proposed acquisition of
CTG Resources, Inc., any and all amendments to such Registration Statement
and any and all other documents requisite to be filed with respect thereto,
with all exhibits and other documents in connection therewith, granting unto
said attorneys, and each of them or their substitutes or substitute, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, in order to effectuate
the same as fully to all intents and purposes as he or she might or could do.
IN WITNESS WHEREOF, the undersigned has set his or her hand this 16th
day of August, 1999.
/s/ JOSEPH J. CASTIGLIA
----------------------------
Joseph J. Castiglia
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of Energy East Corporation, a New York corporation, hereby
constitutes and appoints W.W. von Schack, K.M. Jasinski, Esq., R.D. Kump,
D.W. Farley, L. Blum, Esq. and F. Lee, Esq. and each of them (with full power
to each of them to act alone) his or her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and
on his or her behalf and in his or her name, place and stead, to sign,
execute and file a Registration Statement with the Securities and Exchange
Commission, Washington, D.C. under the provisions of the Securities Act of
1933, as amended, for the proposed issue of shares of the Corporation's
Common Stock ($.01 Par Value) in connection with the proposed acquisition of
CTG Resources, Inc., any and all amendments to such Registration Statement and
any and all other documents requisite to be filed with respect thereto, with
all exhibits and other documents in connection therewith, granting unto said
attorneys, and each of them or their substitutes or substitute, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, in order to effectuate the
same as fully to all intents and purposes as he or she might or could do.
IN WITNESS WHEREOF, the undersigned has set his or her hand this 16th
day of August, 1999.
/s/ LOIS B. DEFLEUR
----------------------------
Lois B. DeFleur
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of Energy East Corporation, a New York corporation, hereby
constitutes and appoints W.W. von Schack, K.M. Jasinski, Esq., R.D. Kump,
D.W. Farley, L. Blum, Esq. and F. Lee, Esq. and each of them (with full power
to each of them to act alone) his or her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and
on his or her behalf and in his or her name, place and stead, to sign,
execute and file a Registration Statement with the Securities and Exchange
Commission, Washington, D.C. under the provisions of the Securities Act of
1933, as amended, for the proposed issue of shares of the Corporation's
Common Stock ($.01 Par Value) in connection with the proposed acquisition of
CTG Resources, Inc., any and all amendments to such Registration Statement
and any and all other documents requisite to be filed with respect thereto,
with all exhibits and other documents in connection therewith, granting unto
said attorneys, and each of them or their substitutes or substitute, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, in order to effectuate
the same as fully to all intents and purposes as he or she might or could do.
IN WITNESS WHEREOF, the undersigned has set his or her hand this 16th
day of August, 1999.
/s/ PAUL L. GIOIA
----------------------------
Paul L. Gioia
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of Energy East Corporation, a New York corporation, hereby
constitutes and appoints W.W. von Schack, K.M. Jasinski, Esq., R.D. Kump,
D.W. Farley, L. Blum, Esq. and F. Lee, Esq. and each of them (with full power
to each of them to act alone) his or her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and
on his or her behalf and in his or her name, place and stead, to sign,
execute and file a Registration Statement with the Securities and Exchange
Commission, Washington, D.C. under the provisions of the Securities Act of
1933, as amended, for the proposed issue of shares of the Corporation's
Common Stock ($.01 Par Value) in connection with the proposed acquisition of
CTG Resources, Inc., any and all amendments to such Registration Statement
and any and all other documents requisite to be filed with respect thereto,
with all exhibits and other documents in connection therewith, granting unto
said attorneys, and each of them or their substitutes or substitute, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, in order to effectuate
the same as fully to all intents and purposes as he or she might or could do.
IN WITNESS WHEREOF, the undersigned has set his or her hand this 16th
day of August, 1999.
/s/ BEN E. LYNCH
----------------------------
Ben E. Lynch
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of Energy East Corporation, a New York corporation, hereby
constitutes and appoints W.W. von Schack, K.M. Jasinski, Esq., R.D. Kump,
D.W. Farley, L. Blum, Esq. and F. Lee, Esq. and each of them (with full power
to each of them to act alone) his or her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and
on his or her behalf and in his or her name, place and stead, to sign,
execute and file a Registration Statement with the Securities and Exchange
Commission, Washington, D.C. under the provisions of the Securities Act of
1933, as amended, for the proposed issue of shares of the Corporation's
Common Stock ($.01 Par Value) in connection with the proposed acquisition of
CTG Resources, Inc., any and all amendments to such Registration Statement
and any and all other documents requisite to be filed with respect thereto,
with all exhibits and other documents in connection therewith, granting unto
said attorneys, and each of them or their substitutes or substitute, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, in order to effectuate
the same as fully to all intents and purposes as he or she might or could do.
IN WITNESS WHEREOF, the undersigned has set his or her hand this 16th
day of August, 1999.
/s/ JOHN M. KEELER
----------------------------
John M. Keeler
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of Energy East Corporation, a New York corporation, hereby
constitutes and appoints W.W. von Schack, K.M. Jasinski, Esq., R.D. Kump,
D.W. Farley, L. Blum, Esq. and F. Lee, Esq. and each of them (with full power
to each of them to act alone) his or her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and
on his or her behalf and in his or her name, place and stead, to sign,
execute and file a Registration Statement with the Securities and Exchange
Commission, Washington, D.C. under the provisions of the Securities Act of
1933, as amended, for the proposed issue of shares of the Corporation's
Common Stock ($.01 Par Value) in connection with the proposed acquisition of
CTG Resources, Inc., any and all amendments to such Registration Statement
and any and all other documents requisite to be filed with respect thereto,
with all exhibits and other documents in connection therewith, granting unto
said attorneys, and each of them or their substitutes or substitute, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, in order to effectuate
the same as fully to all intents and purposes as he or she might or could do.
IN WITNESS WHEREOF, the undersigned has set his or her hand this 16th
day of August, 1999.
/s/ WALTER G. RICH
----------------------------
Walter G. Rich
<PAGE>
Exhibit 24.2
ENERGY EAST CORPORATION
CERTIFIED RESOLUTION
RESOLVED, that the Corporation hereby constitutes and appoints W.W.
von Schack, K.M. Jasinski, Esq., R.D. Kump, D.W. Farley, L. Blum, Esq. and F.
Lee, Esq. and each of them (with full power to each of them to act alone) its
true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for it and on its behalf and in its name, place and
stead, to sign, execute and file a Registration Statement with the Securities
and Exchange Commission, Washington, D.C. under the provisions of the
Securities Act of 1933, as amended, for the proposed issue of shares of the
Corporation's Common Stock ($.01 Par Value) in connection with the proposed
acquisition of CTG Resources, Inc., any and all amendments to such
Registration Statement and any and all other documents requisite to be filed
with respect thereto, with all exhibits and other documents in connection
therewith, granting unto said attorneys, and each of them or their
substitutes or substitute, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, in order to effectuate the same as fully to all intents and
purposes as the Corporation might or could do.
* * * * * * * * * * * *
I, DANIEL W. FARLEY, Secretary of Energy East Corporation, a New York
corporation, do hereby certify that the foregoing is a true and correct copy of
a resolution duly adopted by the Board of Directors of said Corporation at a
meeting thereof duly called, convened and held on June 29, 1999 and that said
resolution is in full force and effect as of the date hereof.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of said Corporation this 16th day of August, 1999.
/s/ DANIEL W. FARLEY
----------------------------
Daniel W. Farley
<PAGE>
[FORM OF PROXY CARD]
PROXY
CTG RESOURCES, INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 18, 1999
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Arthur C. Marquardt and Harvey S. Levenson,
or either of them, proxies with full power of substitution to vote all shares of
common stock of CTG Resources, Inc. standing in the name of the undersigned at
the special meeting of CTG Resources, Inc. shareholders to be held on Monday,
October 18, 1999, at 10:30 a.m. local time, at CTG Resources Inc.'s principal
executive offices, 100 Columbus Boulevard, Hartford, Connecticut 06103 and any
adjournment thereof, as follows:
Proposal to approve the Agreement and Plan of Merger among CTG Resources,
Inc., Energy East Corporation and Oak Merger Co.
/ / FOR / / AGAINST / / ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR APPROVAL OF THE MERGER AGREEMENT.
(CONTINUED, AND TO BE SIGNED AND DATED, ON REVERSE SIDE)
<PAGE>
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Dated _______________________, 1999
___________________________________
Signature
___________________________________
Signature
PLEASE VOTE, SIGN, DATE AND PROMPTLY RETURN THIS CARD IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE OR FOLLOW THE INSTRUCTIONS FOR VOTING BY TELEPHONE SET
FORTH BELOW.
REGISTER YOUR VOTE BY TELEPHONE
Your telephone vote authorizes the named proxies to vote your shares in the
same manner as if you marked, signed and returned your proxy card.
WHEN REGISTERING YOUR VOTE BY TELEPHONE, YOU WILL BE ASKED TO ENTER THE
NUMBER LOCATED IN THE BOX MARKED "CONTROL NUMBER." YOU WILL THEN HEAR THESE
INSTRUCTIONS:
- To vote FOR approval of the proposal, press 1;
- To vote AGAINST the proposal, press 9;
- To ABSTAIN, press 0.
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1.
IF YOU VOTE BY TELEPHONE, PLEASE DO NOT MAIL BACK YOUR PROXY.
CALL TOLL-FREE ON A TOUCH-TONE TELEPHONE CONTROL NUMBER
1-800-840-1208- ANYTIME
THERE IS NO CHARGE TO YOU FOR THIS CALL.
<PAGE>
ADMISSION TICKET
CTG RESOURCES, INC.
SPECIAL MEETING OF SHAREHOLDERS
MONDAY, OCTOBER 18, 1999
10:30 A.M.
CTG RESOURCES, INC.
100 COLUMBUS BOULEVARD
HARTFORD, CONNECTICUT
PLEASE ADMIT NON-TRANSFERABLE
<PAGE>
Exhibit 99.2
Consent to Use of
Fairness Opinion in S-4
Registration Statement
-----------------------
We hereby consent to the use of our opinion letter dated June 29, 1999
to the Board of Directors of CTG Resources, Inc. included as Appendix B to the
Prospectus/Proxy Statement which forms a part of the Registration Statement on
Form S-4 relating to the proposed merger of CTG Resources, Inc. with and into
Oak Merger Co., a wholly owned subsidiary of Energy East Corporation and to the
references to such opinion in such Prospectus/Proxy Statement. In giving such
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations issued by the Securities and Exchange Commission
thereunder.
Very truly yours,
PAINEWEBBER INCORPORATED
By /s/ Charles E. Buckley
-------------------------
August 13, 1999
New York, New York
