<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CONNECTICUT ENERGY CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Certificate of Incorporation)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: Shares
of common stock, par value $1.00 per share, of Connecticut Energy
Corporation.
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies: 10,425,000
shares.
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): The filing
fee of $82,846.17 has been calculated in accordance with Rule
0-11(a)(4) and (c)(1) under the Exchange Act and is equal to 1/50 of 1%
of the sum of $218,925,000 (which is the product of 5,212,500 (the
number of shares of Connecticut Energy common stock to be exchanged for
cash) and $42.00 (the per share cash consideration)) plus $195,305,859
(which is the product of 5,212,500 (the number of shares of Connecticut
Energy common stock to be exchanged for shares of common stock, par
value $0.01 per share, of Energy East Corporation) and $37.46875 (the
average of the high and low sales prices of a share of Connecticut
Energy common stock reported on the New York Stock Exchange on May 27,
1999)).
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: $414,230,859.38
-----------------------------------------------------------------------
(5) Total fee paid: $82,847
-----------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/X/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
<PAGE>
<TABLE>
<S> <C> <C>
(1) Amount Previously Paid: $82,847
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.: Preliminary Proxy
Statement (No. 001-08369)
-----------------------------------------------------------------------
(3) Filing Party: Connecticut Energy Corporation and Energy East
Corporation
-----------------------------------------------------------------------
(4) Date Filed: May 28, 1999
-----------------------------------------------------------------------
</TABLE>
<PAGE>
DATED JULY 23, 1999
CONNECTICUT ENERGY CORPORATION
PROPOSED MERGER--YOUR VOTE IS IMPORTANT
The boards of directors of Energy East Corporation and Connecticut Energy
Corporation have agreed to a merger in which Connecticut Energy will merge into
Merger Co., a wholly owned subsidiary of Energy East.
In exchange for each share of Connecticut Energy common stock, Connecticut
Energy shareholders will have the option to receive either $42.00 in cash or a
number of shares of Energy East common stock 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 value of Energy East
shares during a 20-day period before the effective time of the merger.
Connecticut Energy shareholders can choose to convert some of their Connecticut
Energy shares into cash and others into Energy East shares.
Under the merger agreement, 50% of the Connecticut Energy shares must be
exchanged for cash, and 50% must be exchanged for Energy East shares. Therefore,
if shareholders owning more than 50% of the Connecticut Energy shares elect to
receive cash, the number of Connecticut Energy shares that will be converted
into cash will be less than the number elected. Similarly, if shareholders
owning more than 50% of the Connecticut Energy shares elect to receive Energy
East shares, the number of Connecticut Energy shares that will be converted into
Energy East shares will be less than the number elected.
PLEASE SEE THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 19 FOR A
DISCUSSION OF POTENTIAL RISKS INVOLVED IN THE MERGER.
This proxy statement/prospectus contains answers to frequently asked
questions and a summary description of the merger (beginning on page 1),
followed by a more detailed discussion of the merger and other related matters.
Because these answers and this summary are not, by their nature, complete, we
urge you to read this proxy statement/prospectus in its entirety.
Connecticut Energy and Energy East cannot complete the merger unless
Connecticut Energy shareholders approve the merger agreement. We have scheduled
a special meeting of shareholders to vote on this matter.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the special
meeting, please take the time to vote by completing the enclosed proxy card and
mailing it to us. If you sign, date and mail your proxy card without indicating
how you want to vote, your proxy will be counted in favor of the merger
agreement.
Only shareholders of record of Connecticut Energy on July 12, 1999 are
entitled to attend and vote at the special meeting. The date, time and place of
the special meeting are as follows:
Tuesday, September 14, 1999
10:00 a.m. local time
The Trumbull Marriott Hotel
180 Hawley Lane
Trumbull, Connecticut
<PAGE>
This proxy statement/prospectus provides you with detailed information about
the merger and other related matters. We encourage you to read the entire proxy
statement/prospectus carefully. In addition, you may obtain information about
the two companies from documents they have filed with the Securities and
Exchange Commission.
CONNECTICUT ENERGY CORPORATION
/s/ J.R. Crespo
Chairman, President & 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 July 21, 1999, the last full
trading day for which it was practicable to obtain market price data prior to
the printing 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 $26.375 per share.
Energy East has furnished all the information in this proxy
statement/prospectus concerning Energy East, and Connecticut Energy has
furnished all the information concerning Connecticut Energy.
Proxy statement/prospectus dated July 23, 1999
and first mailed to shareholders
on or about July 26, 1999.
<PAGE>
CONNECTICUT ENERGY CORPORATION
855 MAIN STREET
BRIDGEPORT, CONNECTICUT 06604
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 14, 1999
To the Shareholders of Connecticut Energy Corporation:
The Connecticut Energy 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 Connecticut Energy shareholders, which will be held at the Trumbull
Marriott Hotel, 180 Hawley Lane, Trumbull, Connecticut, on Tuesday, September
14, 1999 at 10:00 a.m. local time, for the sole purpose of approving the merger
agreement among Connecticut Energy, Energy East Corporation and Merger Co.
Connecticut Energy shareholders who do not vote their Connecticut Energy
shares in favor of the merger and who deliver to Connecticut Energy 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 is
approved, these shareholders will receive a cash payment representing the fair
market 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 matter that will be considered and acted
upon at the special meeting may be found in the accompanying proxy
statement/prospectus.
Only Connecticut Energy shareholders as of the close of business on July 12,
1999 are entitled to notice of and to vote at the special meeting or any
postponements or adjournments thereof.
THE CONNECTICUT ENERGY BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS
IN THE BEST INTERESTS OF CONNECTICUT ENERGY SHAREHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS VOTE TO APPROVE THE MERGER AGREEMENT AND RELATED
TRANSACTIONS 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.
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 to the Secretary at the special meeting.
By Order of the Board of Directors,
/s/ Samuel W. Bowlby
Samuel W. Bowlby
Secretary
Bridgeport, Connecticut
July 23, 1999
IT IS IMPORTANT THAT YOU SIGN, DATE AND PROMPTLY RETURN THE PROXY CARD IN
THE ENCLOSED ENVELOPE 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 YOUR 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 OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE MERGER
SUMMARY
RISK FACTORS
THE COMPANIES
THE SPECIAL MEETING
THE MERGER
DISSENTERS' RIGHTS OF APPRAISAL OF CONNECTICUT ENERGY SHAREHOLDERS
THE MERGER AGREEMENT
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
COMPARATIVE RIGHTS OF CONNECTICUT ENERGY SHAREHOLDERS AND ENERGY
EAST SHAREHOLDERS
ADDITIONAL MATTERS
APPENDICES
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Questions and Answers About the Merger..................................................................... 1
Cautionary Statement Regarding Forward-Looking Statements.................................................. 4
Summary.................................................................................................... 6
The Companies............................................................................................ 6
The Special Meeting...................................................................................... 6
Share Ownership of Management............................................................................ 7
The Merger............................................................................................... 7
Dissenters' Rights of Appraisal of Connecticut Energy Shareholders....................................... 8
The Merger Agreement..................................................................................... 8
Comparative Rights of Connecticut Energy Shareholders and Energy East Shareholders....................... 10
Comparative Per Share Market Price and Dividend Information.............................................. 11
Unaudited Pro Forma Comparative Per Share Data........................................................... 13
Selected Financial Information........................................................................... 15
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, Connecticut Energy, CMP Group and CTG Resources................ 20
Competitive and Regulatory Conditions.................................................................... 20
Year-2000 Readiness Disclosure Statement................................................................. 20
The Companies.............................................................................................. 22
Energy East.............................................................................................. 22
Merger Co................................................................................................ 24
Connecticut Energy....................................................................................... 24
The Special Meeting........................................................................................ 26
Purpose, Time and Place.................................................................................. 26
Record Date, Voting Power and Vote Required.............................................................. 26
Share Ownership of Management............................................................................ 26
Voting of Proxies........................................................................................ 26
Revocability of Proxies.................................................................................. 27
Solicitation of Proxies.................................................................................. 27
No Vote Required for Energy East Shareholders.............................................................. 28
The Merger................................................................................................. 29
General Description of the Merger........................................................................ 29
Background............................................................................................... 30
Connecticut Energy Reasons for the Merger................................................................ 32
Recommendation of the Connecticut Energy Board of Directors.............................................. 33
Opinion of the Financial Advisor to the Connecticut Energy Board......................................... 34
Effective Time of the Merger............................................................................. 39
Certificate of Incorporation and By-Laws................................................................. 39
Directors and Officers................................................................................... 40
Accounting Treatment..................................................................................... 40
Regulatory Approvals..................................................................................... 40
Listing of the Energy East Shares on the New York Stock Exchange......................................... 43
Resale of the Energy East Shares Issued in the Merger; Connecticut Energy Affiliates..................... 43
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Interests of Certain Persons in the Merger............................................................... 43
Material Federal Income Tax Consequences of the Merger................................................... 47
Connecticut Energy Stock Plans........................................................................... 51
Dissenters' Rights of Appraisal of Connecticut Energy Shareholders......................................... 52
The Merger Agreement....................................................................................... 55
General.................................................................................................. 55
Corporate Governance Matters............................................................................. 55
Conversion of Connecticut Energy Shares.................................................................. 55
Representations and Warranties........................................................................... 58
Covenants................................................................................................ 59
Additional Agreements.................................................................................... 61
Conditions............................................................................................... 64
Termination, Amendment and Waiver........................................................................ 65
Share Ownership of Management and Certain Beneficial Owners................................................ 68
Unaudited Pro Forma Combined Condensed Financial Statements................................................ 70
Unaudited Pro Forma Combined Condensed Financial Statements Giving Effect to the Sales of Energy East's
Generation Assets and the Connecticut Energy Merger.................................................... 72
Unaudited Pro Forma Combined Condensed Financial Statements Giving Effect to the Sales of Energy East's
Generation Assets, the Connecticut Energy Merger, the Sale of CMP Group's Generation Assets and the CMP
Group Merger........................................................................................... 78
Unaudited Pro Forma Combined Condensed Financial Statements Giving Effect to the Sales of Energy East's
Generation Assets, the Connecticut Energy Merger, the Sale of CMP Group's Generation Assets, the CMP
Group Merger and the CTG Resources Merger.............................................................. 84
Comparative Rights of Connecticut Energy Shareholders and Energy East Shareholders......................... 90
Authorized Capital Stock................................................................................. 90
Voting Rights............................................................................................ 90
Dividends................................................................................................ 90
Election and Classification of the Board of Directors.................................................... 91
Size of the Board of Directors........................................................................... 91
Removal of Directors; Filling of Vacancies............................................................... 91
Special Meetings of Shareholders......................................................................... 91
Advance Notice Provisions................................................................................ 92
Indemnification of Directors and Officers................................................................ 92
Amendment of Certificate of Incorporation................................................................ 93
Amendment of By-Laws..................................................................................... 93
Duty of Directors........................................................................................ 93
Business Combinations.................................................................................... 94
Fair Price Provisions.................................................................................... 95
State Law Takeover Legislation........................................................................... 95
Shareholder Rights Plan.................................................................................. 95
Legal Matters.............................................................................................. 97
Experts.................................................................................................... 97
Independent Public Accountants............................................................................. 97
Other Matters.............................................................................................. 97
Shareholder Proposals...................................................................................... 97
Certain Proxy Card Matters................................................................................. 98
Where You Can Find More Information........................................................................ 99
Index of Defined Terms..................................................................................... 101
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
APPENDICES
APPENDIX A--Agreement and Plan of Merger, dated as of April 23, 1999, amended as of July 15, 1999.......... A-i
APPENDIX B--Opinion of Morgan Stanley & Co. 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. Connecticut Energy will become a direct subsidiary of Energy East by merging
into Merger Co., a wholly owned subsidiary of Energy East.
Q. WHY HAS CONNECTICUT ENERGY DECIDED TO MERGE?
A. The board of directors and management of Connecticut Energy 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 Connecticut Energy could not achieve on its own.
Please read the more detailed description of Connecticut Energy's reasons
for the merger on page 32.
Q. WHAT WILL CONNECTICUT ENERGY SHAREHOLDERS RECEIVE?
A. Connecticut Energy shareholders will have the option to elect to receive, in
exchange 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 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 Connecticut Energy
share will be between 1.43 and 1.82, based on the value of Energy East
shares during a 20-day period before the effective time of the merger (i.e.,
the time when the merger is completed). Connecticut Energy shareholders can
choose to convert some of their Connecticut Energy 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 55 to 56.
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 half of the
Connecticut Energy shares must be converted into cash and half 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 Connecticut
Energy shareholders owning more than 50% of Connecticut Energy shares elect
to receive cash, the number of Connecticut Energy shares converted into cash
will be less than the number elected. Similarly, if Connecticut Energy
shareholders owning more than 50% of Connecticut Energy shares elect to
receive Energy East shares, the number of Connecticut Energy shares
converted into Energy East shares will be less than the number elected.
For tax reasons that are explained on page 56, Energy East might have to
increase the number of Connecticut Energy shares converted into Energy East
shares and decrease the number of Connecticut Energy 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 Connecticut Energy Dividend Reinvestment and Stock
Purchase Plan, the Non-Employee Director Stock Plan or the Restricted Stock
Award Plan, cash that you are entitled to receive under the merger agreement
will be distributed to you. The trustee under The Southern Connecticut Gas
Company Target Plan has been directed to elect to receive Energy East shares
in exchange for the Connecticut Energy shares held under the plan. Any cash
distributed in respect of Connecticut Energy shares held under the plan, by
virtue of oversubscription of the stock election, will be reinvested in
Energy East shares.
1
<PAGE>
Please read the more detailed description of the allocation procedures on
page 56.
Q. WHAT DO I NEED TO DO NOW?
A. After you carefully read this document, please complete, sign, date and mail
your proxy card in the enclosed return envelope as soon as possible. That
way, your Connecticut Energy shares can be represented at the special
meeting.
If you participate in the Connecticut Energy Dividend Reinvestment and Stock
Purchase Plan, The Southern Connecticut Gas Company Target Plan, the
Non-Employee Director Stock Plan or the Restricted Stock Award Plan, and you
own uncertificated shares in these plans, 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.
Connecticut Energy and Energy East cannot complete the merger unless
two-thirds of the outstanding Connecticut Energy shares approve the merger
agreement. Your vote is very important.
THE CONNECTICUT ENERGY 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 Connecticut Energy shares in uncertificated form, for example, through
the Connecticut Energy Dividend Reinvestment and Stock Purchase Plan, The
Southern Connecticut Gas Company Target Plan, the Non-Employee Director
Stock Plan or the Restricted Stock Award 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, Connecticut Energy and 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 Connecticut Energy
shares. We must also obtain some regulatory approvals for the merger. Please
read the more detailed description of the regulatory approvals on pages 40
to 42.
Q. DO ENERGY EAST SHAREHOLDERS VOTE ON THE MERGER?
A. No. Only Connecticut Energy 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 by early 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 Connecticut Energy shares as nominee, he will not be
able to vote them without instructions from you.
If you mark your proxy "Abstain" 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?
A. If you would like to revoke your proxy in writing, you must deliver to the
Secretary of Connecticut Energy, at any time before the vote has been taken
at the special meeting, a written revocation or a proxy bearing a
2
<PAGE>
later date. We will count only the most recently dated proxy at the special
meeting. You should send these to: Connecticut Energy Corporation, 855 Main
Street, Bridgeport, Connecticut 06604, 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 Connecticut Energy Shareholder Services at (800) 760-7776 with
respect to questions regarding voting or to request a copy of this document.
Q. ON WHAT OTHER MATTERS WILL CONNECTICUT ENERGY SHAREHOLDERS VOTE AT THE
SPECIAL MEETING?
A. Connecticut Energy 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 Connecticut
Energy shareholders and the rights of Energy East shareholders, see pages 90
to 96 of this document.
Q. I UNDERSTAND THAT ENERGY EAST IS INVOLVED IN SOME OTHER MERGERS. IS THE
MERGER WITH CONNECTICUT ENERGY CONTINGENT ON THOSE OTHER MERGERS BEING
COMPLETED?
A. In June 1999, consistent with Energy East's strategy of selectively growing
its distribution business in the northeastern United States, Energy East
entered into merger agreements with CMP Group, an exempt public utility
holding company located in Maine, and CTG Resources, an exempt public
utility holding company located in Connecticut. The merger between
Connecticut Energy and Energy East is not contingent upon the completion of
these mergers.
For more information on the CMP Group and CTG Resources mergers, please read
the pro forma financial statements and accompanying notes on pages 70 to 89.
Q. WHERE CAN I FIND MORE INFORMATION ABOUT ENERGY EAST, CONNECTICUT ENERGY, CMP
GROUP AND CTG RESOURCES?
A. Various sources described under "Where You Can Find More Information" on
pages 99 to 100 of this document provide 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 Connecticut Energy. These
statements may be made directly in this document referring to Energy East or
Connecticut Energy, 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, Connecticut Energy or the
combined company 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 the combined company and the pursuit of new markets;
- difficulties in completing the proposed mergers with CMP Group and CTG
Resources and complications arising from the integration of Connecticut
Energy, CMP Group and CTG Resources with Energy East;
- other considerations that may be disclosed from time to time in Energy
East's or Connecticut Energy'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.
4
<PAGE>
The cautionary statements in this section expressly qualify, in their
entirety, all subsequent forward-looking statements attributable to Energy East,
Connecticut Energy or any person acting on their behalf. Neither Energy East nor
Connecticut Energy 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.
5
<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" ON PAGE 99
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 CONNECTICUT ENERGY.)
THE COMPANIES
ENERGY EAST (SEE PAGES 22 TO 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 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 Connecticut Energy, CMP Group
and CTG Resources.
CONNECTICUT ENERGY (SEE PAGES 24 TO 25)
Connecticut Energy Corporation
855 Main Street
Bridgeport, Connecticut 06604
(800) 760-7776
Connecticut Energy is a holding company whose businesses include the retail
distribution of regulated natural gas and other energy-related non-regulated
activities. Connecticut Energy's principal subsidiary, The Southern Connecticut
Gas Company, serves approximately 158,000 natural gas customers in 22
communities in Connecticut. Through its energy-related non-regulated
subsidiaries, Connecticut Energy participates in energy sales, energy services
and a natural gas purchasing cooperative, and invests in ventures that develop
and market innovative energy-related products.
MERGER CO. (SEE PAGE 24)
Merger Co.
P.O. Box 1196
Stamford, Connecticut 06904-1196
(203) 325-0690
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 Connecticut Energy.
THE SPECIAL MEETING (SEE PAGES 26 TO 27)
The special meeting of Connecticut Energy shareholders will be held at the
Trumbull Marriott Hotel, 180 Hawley Lane, Trumbull, Connecticut, on Tuesday,
September 14, 1999, at 10:00 a.m. local time.
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 Connecticut Energy shares.
6
<PAGE>
Only the Connecticut Energy shareholders at the close of business on the
record date, July 12, 1999, will be entitled to notice of and to vote at the
special meeting.
Each Connecticut Energy share carries one vote. As of the close of business
on July 12, 1999, 10,387,615 votes were eligible to be cast at the special
meeting.
SHARE OWNERSHIP OF MANAGEMENT (SEE PAGE 68)
On July 12, 1999, directors and executive officers of Connecticut Energy and
their affiliates beneficially owned approximately 1.52% of the outstanding
Connecticut Energy 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 30 TO 32)
You should review the factors that the Connecticut Energy board of directors
considered when deciding whether to approve the merger.
RECOMMENDATION TO SHAREHOLDERS (SEE PAGES 33 TO 34)
The Connecticut Energy board of directors has determined that the merger is
in the best interests of the Connecticut Energy shareholders and unanimously
recommends that Connecticut Energy shareholders vote to approve the merger
agreement at the special meeting.
FAIRNESS OPINION (SEE PAGES 34 TO 39)
In deciding to approve the merger, the Connecticut Energy board of directors
considered, among other things, the opinion dated April 22, 1999 of Morgan
Stanley & Co. Incorporated, its financial advisor, as to the fairness, from a
financial point of view, of the consideration that Connecticut Energy
shareholders will receive, based upon and subject to the various considerations
noted in the opinion. A subsequent opinion dated July 22, 1999 is attached as
Appendix B to this document and is also discussed on pages 34 to 39. We
encourage you to read this opinion.
ACCOUNTING TREATMENT (SEE PAGE 40)
The 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.
REGULATORY APPROVALS (SEE PAGES 40 TO 42)
Connecticut Energy 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 43 TO 47)
In considering the recommendation of the Connecticut Energy board of
directors to approve the merger, Connecticut Energy shareholders should be aware
that members of the Connecticut Energy board of directors and Connecticut Energy
management will receive benefits as a result of the merger that will be in
addition to or different from the benefits that Connecticut Energy shareholders
receive generally. For example, J. R. Crespo, current chairman, president and
chief executive officer of Connecticut Energy, will become president, chief
executive officer and chairman of the board of directors of the surviving
company in
7
<PAGE>
the merger (which will be a subsidiary of Energy East) and an officer of Energy
East with the title of vice chairman. He will also hold other positions in other
Energy East subsidiaries. Energy East will elect Mr. Crespo to its board of
directors. In addition, new employment agreements with two members of
Connecticut Energy management will begin at the effective time of the merger.
The members of the Connecticut Energy board of directors knew about these
additional interests and considered them when they approved the merger
agreement.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (SEE PAGES 47 TO 50)
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 Connecticut Energy 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 Connecticut Energy 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 Connecticut Energy shares,
and (2) the amount of cash you receive. However, if you realize a loss because
your adjusted basis in your Connecticut Energy 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 Connecticut Energy 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 CONNECTICUT ENERGY SHAREHOLDERS
(SEE PAGES 52 TO 54)
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, Connecticut Energy 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 Connecticut Energy shareholders and completed,
you will receive a cash payment representing the judicially determined fair
value of Connecticut Energy shares you currently hold. You may 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 CONNECTICUT ENERGY SHARES (SEE PAGES 55 TO 58)
In the merger, Connecticut Energy 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 Connecticut Energy shares,
Connecticut Energy shareholders will have the option to receive
8
<PAGE>
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. 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 value of
Energy East shares during a 20-day period before the effective time of the
merger. Connecticut Energy shareholders can choose to convert some of their
Connecticut Energy shares into cash and others into Energy East shares.
Under the merger agreement, 50% of the Connecticut Energy shares must be
exchanged for cash, and 50% must be exchanged for Energy East shares. Therefore,
if Connecticut Energy shareholders owning more than 50% of the Connecticut
Energy shares elect to receive cash, the number of Connecticut Energy shares
that will be converted into cash will be less than the number elected.
Similarly, if Connecticut Energy shareholders owning more than 50% of the
Connecticut Energy shares elect to receive Energy East shares, the number of
Connecticut Energy shares that will be converted into Energy East shares will be
less than the number elected.
CERTAIN COVENANTS (SEE PAGES 59 TO 61)
Connecticut Energy has agreed not to solicit or encourage any proposal from
any person to acquire Connecticut Energy or its assets, but it may respond, in
certain circumstances, to unsolicited proposals that it receives.
CONDITIONS TO THE MERGER (SEE PAGES 64 TO 65)
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:
- the Securities and Exchange Commission approving the merger under the
Public Utility Holding Company Act;
- approval of the merger agreement by Connecticut Energy shareholders;
- expiration or termination of the waiting period applicable to the merger
under U.S. federal antitrust laws and obtaining other regulatory
approvals, including one from the Connecticut Department of Public Utility
Control;
- 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;
- Wachtell, Lipton, Rosen & Katz furnishing to Energy East, and LeBoeuf,
Lamb, Greene & MacRae, L.L.P. furnishing to Connecticut Energy, 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 of 1986; and
- termination of an operating agreement of a joint venture to which an
affiliate of Connecticut Energy is a party.
The merger will occur, and your Connecticut Energy shares will be converted
into the right to receive Energy East shares, cash or a combination of the two
as soon as practicable after Connecticut Energy and Energy East satisfy all of
the conditions in the merger agreement.
TERMINATION (SEE PAGES 65 TO 67)
The merger agreement may be terminated, and the merger abandoned, only in
the following circumstances:
- if Energy East and Connecticut Energy mutually agree to terminate the
merger agreement;
- by either Energy East or Connecticut Energy, if there is any law or
regulation that makes the merger illegal, or if any governmental authority
issues a final, non-appealable order blocking the merger;
9
<PAGE>
- by either Energy East or Connecticut Energy, if the merger is not
completed by April 23, 2000 (or October 23, 2000, if the only barrier to
closing is that the requisite regulatory approvals have not been
obtained);
- by either Energy East or Connecticut Energy, if the other party materially
breaches the merger agreement and fails to cure the breach;
- by Energy East, if the Connecticut Energy 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 Connecticut Energy, prior to its shareholders' approval of the merger
agreement, if Connecticut Energy receives a third-party proposal
concerning another merger, sale of substantial assets or other business
combination, in response to which the Connecticut Energy 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 demonstrated that it has obtained any necessary
financing and that such proposal would be financially superior to the
merger; provided that before Connecticut Energy may terminate the merger
agreement, it must comply with additional conditions contained in the
merger agreement discussed on pages 66 to 67.
If either Energy East or Connecticut Energy materially breaches the merger
agreement and the other party consequently terminates the agreement, the
breaching party must pay the other party up to $5 million in expenses and fees.
Moreover, if the merger agreement is terminated for any of the following
reasons:
- the Connecticut Energy board of directors decides to pursue an alternative
acquisition proposal;
- (1) Connecticut Energy shareholders fail to approve the merger agreement
by April 23, 2000, (2) there is an alternative acquisition proposal
outstanding at the time of the special meeting and (3) Connecticut Energy
enters into a definitive agreement to consummate an alternative
acquisition proposal within two years of the termination of the merger
agreement; or
- (1) the Connecticut Energy 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) Connecticut Energy enters into
a definitive agreement to consummate an alternative acquisition proposal
within two years of the termination;
then Connecticut Energy must pay Energy East $17 million.
COMPARATIVE RIGHTS OF CONNECTICUT ENERGY SHAREHOLDERS AND ENERGY EAST
SHAREHOLDERS
(SEE PAGES 90 TO 96)
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 Connecticut Energy shareholder rights, which are
governed by Connecticut law and Connecticut Energy's certificate of
incorporation and by-laws.
10
<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." Connecticut Energy shares are listed and traded on the
New York Stock Exchange under the symbol "CNE."
The following table provides trading and dividend information for Energy
East shares and for Connecticut Energy 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 CONNECTICUT ENERGY SHARES
--------------------------------- ---------------------------------
CASH CASH
DIVIDENDS DIVIDENDS
HIGH LOW PER SHARE HIGH LOW PER SHARE
--------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
1997
First Quarter.......................... $ 12.25 $ 10.625 $ .175 $ 24.375 $ 21.00 $ 0.33
Second Quarter......................... 11.25 10.3125 .175 24.25 22.25 0.33
Third Quarter.......................... 13.5938 10.4063 .175 24.9375 22.25 0.33
Fourth Quarter......................... 17.875 12.875 .175 30.4375 22.75 0.33
1998
First Quarter.......................... $ 20.25 $ 16.5313 $ .175 $ 30.75 $ 25.6875 $ 0.33
Second Quarter......................... 22.0938 19.4689 .20 32.25 25.625 0.335
Third Quarter.......................... 25.6875 19.9375 .20 29.6875 25.0625 0.335
Fourth Quarter......................... 29.00 23.375 .20 32.00 26.4375 0.335
1999
First Quarter.......................... $ 28.625 $ 24.5625 $ .21 $ 31.00 $ 24.25 $ 0.335
Second Quarter......................... 28.125 24.75 .21 39.1875 24.3125 0.335
Third Quarter (through July 21,
1999)................................ 26.875 26.00 -- 38.875 38.00 --
</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 Connecticut Energy and
Energy East shares on April 22, 1999, the last full trading day before the
public announcement of the proposed transactions, and on July 21, 1999, the most
recent date for which quotations were available prior to the printing of this
document.
<TABLE>
<CAPTION>
ENERGY EAST SHARES CONNECTICUT ENERGY SHARES
------------------------------- -------------------------------
DATE HIGH LOW CLOSE HIGH LOW CLOSE
- ------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
April 22, 1999........................ $ 26.50 $ 26.0625 $ 26.25 $ 31.625 $ 29.75 $ 31.375
July 21, 1999......................... 26.4375 26.1875 26.375 38.8125 38.50 38.5625
</TABLE>
The number of Energy East shares to be exchanged for each Connecticut Energy
share in the merger will vary based on the value of Energy East shares during a
20-day period ending two days before the effective time of the merger.
We urge you to obtain current market quotations for Energy East shares and
Connecticut Energy shares.
On July 9, 1999, the Energy East board of directors declared a dividend on
Energy East shares of $.21 per share, payable 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,
11
<PAGE>
however, has discretion to decide upon the timing and 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 May 25, 1999, the Connecticut Energy board of directors declared a
dividend on Connecticut Energy shares of $0.335 per share, payable on June 30,
1999, to holders of record on June 18, 1999. As part of the merger agreement,
Connecticut Energy has agreed that, until March 31, 2000, it will not make,
declare or pay any dividend or distribution on Connecticut Energy shares, other
than regular quarterly dividends on Connecticut Energy shares of $0.335 per
share with record and payment dates consistent with past practice. If the
closing of the transactions contemplated by the merger agreement has not
occurred by March 31, 2000, Connecticut Energy may increase its dividends to
$1.38 per year.
12
<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 Connecticut Energy on a historical basis;
- the combination of Energy East and Connecticut Energy on a pro forma
basis;
- Connecticut Energy on a per share equivalent pro forma basis based on the
combination of Energy East and Connecticut Energy;
- the combination of Energy East, Connecticut Energy, CMP Group and CTG
Resources on a pro forma basis; and
- Connecticut Energy on a per share equivalent pro forma basis based on the
combination of Energy East, Connecticut Energy, CMP Group and CTG
Resources.
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, Connecticut Energy, CMP Group and CTG Resources 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 Connecticut Energy and CTG Resources mergers.
The pro forma data are based on 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, and 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. 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. 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. 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 in conjunction with the
respective audited and unaudited financial statements of Energy East,
Connecticut Energy, CMP Group and CTG Resources incorporated by reference in
this document and the unaudited pro forma combined financial statements and
related notes thereto presented elsewhere in this document. See "Where You Can
Find More Information."
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEAR ENDED
MARCH 31, DECEMBER 31,
-------------------- -----------------
<S> <C> <C>
1999 1998
-------------------- -----------------
ENERGY EAST--HISTORICAL
Earnings per share, basic and diluted.................................. $ .71 $ 1.51
Cash dividends declared per share...................................... .21 .78
Book value per share at period end..................................... 13.25 13.61
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEAR ENDED
MARCH 31, SEPTEMBER 30,
-------------------- -----------------
<S> <C> <C>
1999 1998
-------------------- -----------------
CONNECTICUT ENERGY--HISTORICAL
Earnings per share:
Basic................................................................ $ 1.63 $ 1.89
Diluted.............................................................. 1.62 1.88
Cash dividends declared per share...................................... .34 1.33
Book value per share at period end..................................... 18.76 17.22
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEAR ENDED
MARCH 31, DECEMBER 31,
-------------------- -----------------
<S> <C> <C>
1999 1998
-------------------- -----------------
COMBINATION OF ENERGY EAST & CONNECTICUT ENERGY--PRO FORMA
Earnings per share, basic and diluted.................................. $ .84 $ 1.64
Cash dividends declared per share...................................... .21 .78
Book value per share at period end..................................... 14.24 14.53
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEAR ENDED
MARCH 31, DECEMBER 31,
-------------------- -----------------
<S> <C> <C>
1999 1998
-------------------- -----------------
CONNECTICUT ENERGY--PER SHARE EQUIVALENT BASED ON COMBINATION OF ENERGY
EAST & CONNECTICUT ENERGY
Earnings per share, basic and diluted.................................. $ 1.34 $ 2.63
Cash dividends declared per share...................................... .34 1.25
Book value per share at period end..................................... 22.79 23.26
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEAR ENDED
MARCH 31, DECEMBER 31,
------------------- -----------------
<S> <C> <C>
1999 1998
------------------- -----------------
COMBINATION OF ENERGY EAST, CONNECTICUT ENERGY, CMP GROUP & CTG
RESOURCES--PRO FORMA
Earnings per share, basic and diluted................................... $ 1.03 $ 1.71
Cash dividends declared per share....................................... .21 .78
Book value per share at period end...................................... 14.79 15.04
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEAR ENDED
MARCH 31, DECEMBER 31,
------------------- -----------------
<S> <C> <C>
1999 1998
------------------- -----------------
CONNECTICUT ENERGY--PER SHARE EQUIVALENT BASED ON COMBINATION OF ENERGY
EAST, CONNECTICUT ENERGY, CMP GROUP & CTG RESOURCES
Earnings per share, basic and diluted................................... $ 1.65 $ 2.74
Cash dividends declared per share....................................... .34 1.25
Book value per share at period end...................................... 23.67 24.07
</TABLE>
14
<PAGE>
SELECTED FINANCIAL INFORMATION
The following tables present (1) selected consolidated financial information
for each of Energy East, Connecticut Energy, CMP Group and CTG Resources 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
Connecticut Energy; and (3) selected unaudited pro forma financial data of
Energy East reflecting the sales of its generation assets, the mergers with
Connecticut Energy, CMP Group and CTG Resources, and the sale of CMP Group's
generation assets.
We prepared the selected unaudited pro forma financial data by accounting
for the mergers with Connecticut Energy, CMP Group and CTG Resources under the
purchase method of accounting. See "The Merger--Accounting Treatment." The
Connecticut Energy and CTG Resources twelve-month financial information is based
on a September 30 fiscal year. The selected unaudited pro forma financial data
reflect the mergers with Connecticut Energy, CMP Group and CTG Resources 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 Connecticut Energy and CTG Resources 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 Connecticut Energy's and CTG Resources's audited financial statements. The
selected historical financial data for Energy East, Connecticut Energy, CMP
Group and CTG Resources as of and for the three months ended March 31, 1999 and
March 31, 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 these periods.
Due to the effect of seasonal fluctuations and other factors on the
operations of Energy East, Connecticut Energy, CMP Group and CTG Resources,
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, Connecticut Energy, CMP Group and
CTG Resources 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 on March 31, 1999; 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 and the
mergers been completed on these dates; nor is the information necessarily
indicative of future financial position or operating results.
15
<PAGE>
ENERGY EAST SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
(UNAUDITED) FISCAL YEAR ENDED 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........................... $654,438 $637,630 $2,499,418 $2,170,102 $2,108,865 $2,040,895 $1,918,431
Net income................................... 87,036 76,171 194,205 175,211 168,711 177,969 168,698
Earnings per share, basic and diluted........ .71 .57 1.51 1.29 1.19 1.24 1.18
Cash dividends declared per common share..... .21 .18 .78 .70 .70 .70 1.00
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
(UNAUDITED) DECEMBER 31,
---------------------- ----------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................................. $5,700,807 $4,985,207 $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)................................... 1,460,961 1,474,209 1,460,120 1,475,224 1,505,814 1,606,448 1,776,081
Common stock equity.......................... 1,564,491 1,742,030 1,713,486 1,803,295 1,769,982 1,743,540 1,664,857
Book value per share......................... 13.25 13.50 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.
CONNECTICUT ENERGY SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
(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....................... $106,164 $100,773 $242,431 $252,008 $261,093 $232,093 $240,873
Net income............................... 16,746 15,250 19,011 16,441 15,165 14,060 12,843
Earnings per share, basic................ 1.63 1.50 1.89 1.81 1.70 1.60 1.58
Earnings per share, diluted.............. 1.62 1.49 1.88 1.81 1.70 1.60 1.58
Cash dividends declared per common
share.................................. .335 .33 1.33 1.32 1.31 1.30 1.29
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
(UNAUDITED) SEPTEMBER 30,
-------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............................. $486,292 $457,958 $459,401 $424,281 $399,228 $370,088 $352,920
Long-term debt (excluding current
portion)............................... 148,855 134,073 150,007 134,073 138,727 119,322 119,917
Common stock equity...................... 194,613 184,635 177,153 144,514 137,961 131,561 125,719
Book value per share..................... 18.76 18.02 17.22 15.76 15.31 14.84 14.45
</TABLE>
16
<PAGE>
CMP GROUP SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
(UNAUDITED) FISCAL YEAR ENDED 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....................... $276,633 $249,442 $950,327 $956,246 $967,905 $916,016 $904,883
Net income (loss)........................ 33,257 16,398 52,910 5,213 50,777 27,802 (33,776)
Earnings per share, basic................ 1.03 0.51 1.63 0.16 1.57 0.86 (1.04)
Earnings per share, diluted.............. 1.02 0.51 1.63 0.16 1.57 0.86 (1.04)
Cash dividends declared per common
share.................................. 0.225 0.225 0.900 0.900 0.900 0.900 0.900
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
(UNAUDITED) DECEMBER 31,
---------------------- ----------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................................. $2,237,939 $2,259,812 $2,262,884 $2,298,966 $2,010,914 $1,992,919 $2,046,007
Long-term debt (excluding current portion)... 263,810 342,316 346,281 400,923 587,987 622,251 638,841
Common stock equity.......................... 544,659 496,328 518,889 487,594 511,578 490,005 491,323
Book value per share......................... 16.79 15.30 15.99 15.03 15.77 15.10 15.14
</TABLE>
CTG RESOURCES SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
(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....................... $113,001 $105,416 $282,748 $305,295 $315,103 $274,935 $290,420
Net income............................... 12,241 9,727 15,196 17,075 18,995 17,019 17,703
Earnings per share, basic................ 1.41 1.12 1.71 1.60 1.87 1.71 1.85
Earnings per share, diluted.............. 1.41 1.12 1.70 1.60 1.87 1.71 1.85
Cash dividends declared per common
share.................................. .26 .25 1.00 1.52 1.50 1.48 1.48
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
(UNAUDITED) SEPTEMBER 30,
-------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............................. $492,542 $458,372 $459,181 $444,373 $443,574 $437,372 $437,622
Long-term debt (excluding current
portion)............................... 217,528 183,364 215,852 126,787 136,432 150,390 154,193
Common stock equity...................... 136,932 130,114 123,397 169,299 168,882 150,111 139,481
Book value per share..................... 15.79 14.99 14.21 15.85 15.86 15.07 14.58
</TABLE>
17
<PAGE>
ENERGY EAST AND CONNECTICUT ENERGY SELECTED UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL INFORMATION
The pro forma earnings per share are based on 131,238,000 average shares
outstanding for the three months ended March 31, 1999, and 137,041,000 average
shares outstanding for the fiscal year ended December 31, 1998, assuming a
conversion of half of all Connecticut Energy shares into 1.60 Energy East shares
per Connecticut Energy share and half into cash.
<TABLE>
<CAPTION>
THREE MONTHS FISCAL YEAR
ENDED MARCH 31, ENDED DECEMBER 31,
---------------- -------------------
1999 1998
---------------- -------------------
<S> <C> <C>
(in thousands, except per share
amounts)
STATEMENT OF OPERATIONS:
Operating revenues......................................................... $ 674,301 $ 2,152,648
Net income................................................................. 109,727 224,739
Earnings per share, basic and diluted...................................... .84 1.64
Cash dividends declared per common share................................... .21 .78
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets.................................................................. $5,378,548 $ 4,550,983
Long-term debt, capital leases and redeemable preferred stock (excluding
current portion)............................................................ 1,609,816 1,610,127
Common stock equity........................................................... 1,800,678 1,949,673
Book value per share.......................................................... 14.24 14.53
</TABLE>
Per share amounts have been restated to reflect Energy East's two-for-one common
stock split, effective April 1, 1999.
ENERGY EAST, CONNECTICUT ENERGY, CMP GROUP AND CTG RESOURCES SELECTED
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The pro forma earnings per share are based on 137,345,000 average shares
outstanding for the three months ended March 31, 1999, and 143,148,000 average
shares outstanding for the fiscal year ended December 31, 1998, assuming a
conversion of half of all Connecticut Energy shares into 1.60 Energy East shares
per Connecticut Energy share and half into cash, and 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>
THREE MONTHS FISCAL YEAR
ENDED MARCH 31, ENDED DECEMBER 31,
---------------- -------------------
1999 1998
---------------- -------------------
<S> <C> <C>
(in thousands, except per share
amounts)
STATEMENT OF OPERATIONS:
Operating revenues......................................................... $1,063,935 $ 3,385,723
Net income................................................................. 141,822 245,061
Earnings per share, basic and diluted...................................... 1.03 1.71
Cash dividends declared per common share................................... .21 .78
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets.................................................................. $8,441,403 $ 7,622,669
Long-term debt, capital leases and redeemable preferred stock (excluding
current portion)............................................................ 2,485,064 2,564,411
Common stock equity........................................................... 1,960,234 2,109,229
Book value per share.......................................................... 14.79 15.04
</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 CONNECTICUT ENERGY
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 Connecticut Energy shareholders will be able to elect to exchange
their Connecticut Energy 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
Connecticut Energy shares is fixed at $42.00. This price will not be adjusted
based on changes in market prices. The value of Energy East shares delivered to
Connecticut Energy shareholders will equal $42.00 if the average market price of
an Energy East share over a 20-trading-day period preceding the effective time
of the merger is between $23.10 and $29.40. However, if the average market price
of an Energy East share over such period is more than $29.40 or less than
$23.10, the value of the Energy East shares delivered to holders of Connecticut
Energy shares would be more than or less than $42.00.
There may be a significant time delay between the date when Connecticut
Energy shareholders vote on the merger at the special meeting and the deadline
for Connecticut Energy shareholders to make their elections, which is two days
after the effective time of the merger. The market values of Energy East shares
and Connecticut Energy shares may fluctuate during that period. As a result, the
relative prices of Energy East shares and Connecticut Energy shares may vary
significantly between the date of this proxy statement/prospectus, the date of
the special meeting and the date on which Connecticut Energy 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 April 23, 1998, and April 23, 1999, the closing sales
price of an Energy East share has ranged from a high of $29.00 to a low of
$19.75 per share, and the closing sales price of a Connecticut Energy share
during the same period has ranged from a high of $35.75 to a low of $24.25 per
share. On July 21, 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
$26.375, and (2) the closing sales price of Connecticut Energy shares was
$38.5625, 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 Connecticut Energy 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 Connecticut Energy 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
Connecticut Energy shareholders will receive. The value of the stock
consideration may be significantly higher or lower than the value of the cash
consideration. See "Summary--
19
<PAGE>
Unaudited 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, Connecticut Energy 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
Connecticut Energy or Energy East. If these conditions would cause a material
adverse effect, either Connecticut Energy or Energy East could choose to
terminate the merger agreement.
In addition to the merger agreement with Connecticut Energy, Energy East has
entered into merger agreements with CMP Group and CTG Resources. Energy East
must also obtain the Connecticut Department of Public Utility Control's approval
of Energy East's merger with CTG Resources. The Connecticut Department of Public
Utility Control could delay approval of either or both merger applications. Any
delay in obtaining the required regulatory approvals could delay and possibly
prevent the completion of the merger. 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. For additional
information on the required regulatory approvals, see "The Merger-- Regulatory
Approvals."
UNCERTAINTIES IN INTEGRATING ENERGY EAST, CONNECTICUT ENERGY, CMP GROUP AND CTG
RESOURCES
The mergers of Energy East with Connecticut Energy, CMP Group and CTG
Resources 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 merger will combine two 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.
YEAR-2000 READINESS DISCLOSURE STATEMENT
Connecticut Energy, Energy East, CMP Group and CTG Resources 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. Connecticut Energy,
Energy East, CMP Group and CTG Resources 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
20
<PAGE>
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 817,000 electric customers and 243,000 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 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 Connecticut Energy, CMP Group and CTG Resources.
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. Consummation 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.
MERGER AGREEMENT WITH CTG RESOURCES. On June 29, 1999, Energy East agreed
to a business combination with CTG Resources, in which CTG Resources would merge
with a newly formed, wholly owned subsidiary of Energy East. In the transaction,
CTG Resources shareholders will have the right to receive, 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 restrictions on the maximum and minimum number of Energy
East shares to be issued. CTG Resources shareholders can choose to convert some
of their CTG Resources shares into cash and others into Energy East shares. The
total equity market value of the transaction is approximately $355 million.
Under the CTG Resources merger agreement, the Energy East board of directors
will increase the number of Energy East directors by one and will elect one CTG
Resources director mutually agreed upon by Energy East and CTG Resources.
Consummation of the transaction is subject to a number of closing conditions,
including regulatory approvals and CTG Resources shareholder approval.
CTG Resources's wholly owned utility subsidiary, Connecticut Natural Gas
Corporation, serves approximately 142,000 customers in 21 municipalities in
Connecticut, principally in greater Hartford and Greenwich. For additional
information on this transaction, see "Unaudited Pro Forma Combined Condensed
Financial Statements" and the CTG Resources merger agreement, a copy of which
Energy East filed with the SEC as an exhibit to its Form 8-K dated June 29,
1999.
23
<PAGE>
MERGER CO.
c/o Energy East Corporation
P.O. Box 1196
Stamford, CT 06904-1196
(203) 325-0690
Merger Co. is a Connecticut corporation formed by Energy East in April 1999
solely for the purpose of completing the merger with Connecticut Energy.
CONNECTICUT ENERGY
855 Main Street
Bridgeport, Connecticut 06604
(800) 760-7776
Connecticut Energy, a Connecticut corporation, is a holding company that is
exempt from the registration requirement of the Public Utility Holding Company
Act. Connecticut Energy neither owns nor operates any physical properties. It
has four direct, wholly owned subsidiaries and six indirect subsidiaries, all
engaged in the functionally distinct operations described below. Connecticut
Energy's operating revenues totaled approximately $242,431,000 for the fiscal
year ended September 30, 1998. Connecticut Energy and its subsidiaries had 480
full-time employees as of December 31, 1998, as compared to 498 full-time
employees as of December 31, 1997.
THE SOUTHERN CONNECTICUT GAS COMPANY. The Southern Connecticut Gas Company,
a Connecticut public service company wholly owned by Connecticut Energy, 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. Southern's predecessor companies, New Haven Gas
Company and The Bridgeport Gas Company, originally were incorporated in
Connecticut in 1847 and 1849, respectively. The Southern Connecticut Gas Company
serves approximately 158,000 customers in Connecticut.
CNE ENERGY SERVICES GROUP, INC. CNE Energy, a Connecticut corporation
wholly owned by Connecticut Energy, provides energy products and services to
commercial and industrial customers in New England, both on its own and through
its participation as a member in various energy-related limited liability
companies.
CONECTIV/CNE ENERGY SERVICES, LLC. Conectiv/CNE Energy, a Delaware
limited liability company and a 50/50 joint venture of CNE Energy and
Conectiv's bulk energy group, sells natural gas, fuel oil and other
services, and markets a full range of energy-related planning, financial,
operational and maintenance services to commercial, industrial and municipal
customers in New England. Conectiv/CNE Energy has formed various alliances
with energy-related entities to market energy commodities and services to
commercial and industrial customers in New England. Under the merger
agreement, the operating agreement of Conectiv/CNE Energy must be terminated
before the closing date of the merger. However, CNE Energy desires to
continue the Conectiv/CNE Energy business with a new joint venture partner
to replace Conectiv. Therefore, Energy East Solutions, an indirect
subsidiary of Energy East, anticipates acquiring a 50% interest in
Conectiv/CNE Energy and performing the functions previously performed by
Conectiv.
TOTAL PEAKING SERVICES, LLC. Total Peaking, a Delaware limited
liability company and a 50/50 joint venture of CNE Energy and Conectiv
Energy Supply, Inc., operates a federally certificated 1.2 billion cubic
foot liquefied natural gas open access storage facility in Milford,
Connecticut. The facility has access to three major natural gas pipelines in
New England owned by Algonquin Gas
24
<PAGE>
Transmission Company, Iroquois Gas Transmission System, L.P. and Tennessee
Gas Pipeline Company.
CONECTIV/CNE PEAKING, LLC. Conectiv/CNE Peaking, a Delaware limited
liability company and a 50/50 joint venture of CNE Energy and Conectiv
Energy Supply, Inc., provides a firm in-market supply source to assist
energy marketers and local gas distribution companies in meeting the maximum
demands of their customers by offering firm supplies for peak-shaving and
emergency deliveries. Conectiv/CNE Peaking operates out of Delaware.
CNE DEVELOPMENT CORPORATION. CNE Development, a Connecticut corporation,
through equity participation in a natural gas purchasing cooperative, purchases
and markets natural gas. CNE Development is also wholly owned by Connecticut
Energy.
EAST COAST NATURAL GAS COOPERATIVE, LLC. East Coast, a Delaware limited
liability company in which CNE Development is a 16.67% equity participant,
purchases and stores gas spot supplies, provides storage service utilization
services and is involved in bundled sales.
CNE VENTURE-TECH, INC. CNE Venture-Tech, a Connecticut corporation and a
wholly owned subsidiary of Connecticut Energy, invests in ventures that produce
or market technologically advanced energy-related products. CNE Venture-Tech
owns a 100% interest in a limited liability company providing service-bureau
access to customer-billing software for third parties.
NTH POWER TECHNOLOGIES FUND I, L.P. Nth Power, a California limited
partnership in which CNE Venture-Tech is a 7.8884% limited partner, invests
in companies that develop, produce and market innovative energy-related
products.
CIS SERVICE BUREAU, LLC. CIS, a Delaware limited liability company
wholly owned by CNE Venture-Tech, is a service bureau providing access to
customer-billing software and other related services for local distribution
and other utility-type companies, including The Southern Connecticut Gas
Company.
25
<PAGE>
THE SPECIAL MEETING
PURPOSE, TIME AND PLACE
The Connecticut Energy board of directors is soliciting proxies in the form
accompanying this proxy statement/prospectus for use at the special meeting of
Connecticut Energy shareholders. The special meeting will be held on Tuesday,
September 14, 1999, at 10:00 a.m. local time, at the Trumbull Marriott Hotel,
180 Hawley Lane, Trumbull, 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, Connecticut Energy 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 Connecticut Energy board of directors has fixed the close of business
(5:00 p.m. local time) on July 12, 1999 as the record date for determining the
Connecticut Energy shareholders entitled to notice of, and to vote at, the
special meeting. Only Connecticut Energy 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 July 12, 1999, 10,387,615 Connecticut Energy
shares were issued and outstanding and entitled to vote at the special meeting.
There were no shares of Connecticut Energy preferred stock issued and
outstanding on the record date. Connecticut Energy 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 Connecticut Energy shares entitled to
vote is necessary to constitute a quorum. If a quorum is not present at the
special meeting, Connecticut Energy 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 Connecticut Energy 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 July 12, 1999, Connecticut Energy's directors
and executive officers and their affiliates beneficially owned 157,664
Connecticut Energy shares, which represents approximately 1.52% of the
outstanding Connecticut Energy shares. It is currently expected that all
directors and executive officers of Connecticut Energy will vote their
Connecticut Energy shares for approval of the merger agreement.
VOTING OF PROXIES
Connecticut Energy 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 should be aware that, if your proxy is
properly signed and dated but does not contain voting instructions, your proxy
will be voted FOR the approval of the merger agreement. We do not expect
26
<PAGE>
that any matter other than the approval of the merger agreement 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 Connecticut Energy Dividend Reinvestment and Stock
Purchase Plan, The Southern Connecticut Gas Company Target Plan, the
Non-Employee Director Stock Plan or the Restricted Stock Award Plan, and you own
uncertificated shares, your proxy card represents both the number of Connecticut
Energy shares certificated in your name and the number of full Connecticut
Energy shares credited to your account, unless the registrations are different.
If you have Connecticut Energy 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. 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 on the enclosed proxy card 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 Connecticut Energy at Connecticut Energy Corporation,
855 Main Street, Bridgeport, Connecticut 06604, Attention: Secretary, (2)
completing a later-dated proxy and returning it to the Secretary of Connecticut
Energy or (3) appearing in person and voting at the special meeting. Additional
proxy cards are available from Connecticut Energy's Secretary.
Attendance at the special meeting will not by itself constitute revocation
of a proxy. A Connecticut Energy 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 Connecticut
Energy shareholders of record as of the record date either to exercise their
voting rights or to revoke any previously delivered proxies.
SOLICITATION OF PROXIES
We will bear the costs of soliciting proxies from Connecticut Energy
shareholders, except that Energy East and Connecticut Energy 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 Connecticut Energy and its subsidiaries may solicit
proxies from Connecticut Energy 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 Connecticut Energy shares held
of record by these persons, and Connecticut Energy will reimburse its
custodians, nominees and fiduciaries for their reasonable out-of-pocket
expenses.
We have retained Georgeson & Company to help solicit proxies. Georgeson &
Company will receive a fee that we expect will not exceed $75,000 as
compensation for its basic solicitation services, plus additional charges for
any telephone solicitation services, plus reimbursement of its out-of-pocket
expenses. Connecticut Energy has agreed to indemnify Georgeson & Company against
certain liabilities arising from its engagement.
YOU SHOULD NOT SEND STOCK CERTIFICATES WITH YOUR PROXY CARDS.
27
<PAGE>
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.
28
<PAGE>
THE MERGER
We are furnishing this proxy statement/prospectus to you in connection with
the proposed merger between Merger Co. and Connecticut Energy because you are a
Connecticut Energy 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 Connecticut Energy will merge into Merger
Co., a wholly owned subsidiary of Energy East. Merger Co. will be the surviving
company and will continue to conduct Connecticut Energy's businesses as a
direct, wholly owned subsidiary of Energy East. In the merger, each outstanding
Connecticut Energy share (other than those that are held by Connecticut Energy
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. Connecticut Energy shareholders can choose to convert some
of their Connecticut Energy shares into cash and others into Energy East shares.
Each Connecticut Energy shareholder can elect the form of consideration he
would like to receive, but (as is explained under "The Merger
Agreement--Conversion of Shares of Connecticut Energy Common Stock") this
election is subject to proration and an adjustment driven by tax considerations.
Under the merger agreement, 50% of all issued and outstanding Connecticut Energy
shares must be exchanged for cash, and 50% must be exchanged for Energy East
shares. If Connecticut Energy shareholders owning more than 50% of Connecticut
Energy shares elect to receive cash, the number of Connecticut Energy shares
converted into cash will be less than the number elected. Similarly, if
Connecticut Energy shareholders owning more than of 50% of Connecticut Energy
shares elect to receive Energy East shares, the number of Connecticut Energy
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
Connecticut Energy shares converted into Energy East shares and decrease the
number of Connecticut Energy shares converted into cash. If you are a
participant in The Southern Connecticut Gas Company Target Plan, please see the
description of the election process for the shares held in this plan under
"Connecticut Energy Stock Plans" on page 51 of this proxy statement/prospectus.
The per share cash consideration amounts to $42.00 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 $23.10 per
share and $29.40 per share, then each Connecticut Energy share converted into
stock will be exchanged for $42.00 worth of Energy East shares. If the Average
Market Price is less than or equal to $23.10, then each Connecticut Energy share
converted into stock will be exchanged for 1.82 Energy East shares, irrespective
of the value of those shares. Finally, if the Average Market Price is greater
than or equal to $29.40 per share, then each Connecticut Energy share will be
exchanged for 1.43 Energy East shares, again irrespective of the value of those
shares.
The total value of the consideration that Connecticut Energy shareholders
will receive in the merger, based on the number of Connecticut Energy shares
outstanding on July 12, 1999 and assuming that the Average Market Price of
Energy East shares is between $23.10 per share and $29.40 per share, is
approximately $436.3 million. Energy East anticipates funding the cash portion
of the merger consideration with internally generated funds or the proceeds from
the sale of its generation assets.
29
<PAGE>
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
consummated. 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 grow selectively Energy East's
energy distribution business in the northeastern United States. The merger with
Connecticut Energy, together with the recently announced proposed mergers with
CMP Group and CTG Resources, represent important steps in Energy East's overall
strategy.
Connecticut Energy has carefully followed recent developments in the
electric and natural 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. As a result, over the past several years Connecticut Energy has
developed strategic plans to respond to the evolving competitive environment as
it affects Connecticut Energy. Connecticut Energy's management concluded that
Connecticut Energy's competitive position and growth prospects in this new
environment would be significantly enhanced by, among other things, increasing
the scale of its operations and the size of its customer base.
During 1997 and early 1998, Connecticut Energy's management conducted
preliminary analyses of possible business combination transactions with a number
of other utility companies. Some of these companies were considerably larger
than Connecticut Energy whereas others were smaller than or of similar size to
Connecticut Energy. Following these analyses, Mr. Crespo, the chairman,
president and chief executive officer of Connecticut Energy, had preliminary
conversations with executives at several utility companies about the possibility
of a business combination with Connecticut Energy. On March 24, 1998,
Connecticut Energy retained Morgan Stanley & Co. Incorporated as its financial
advisor and LeBoeuf, Lamb, Greene & MacRae, L.L.P. as its legal advisor to
assist in exploring possible business combinations.
Between March and September of 1998, senior management of Connecticut Energy
and its legal and financial advisors held discussions with several utility
companies about the possibility of a business combination. Energy East was one
of the companies contacted during this period, but the discussions were
terminated when Connecticut Energy refused to conduct the discussions on an
exclusive basis. Mr. Crespo's discussions with companies other than Energy East
resulted in one company submitting a formal business combination proposal in
September 1998 that would have provided Connecticut Energy shareholders with a
per share consideration of $40.50 in the form of the other company's stock with
a cash election up to 50% of the total consideration. The Connecticut Energy
board of directors authorized management to negotiate an acceptable transaction
with the other company. After several days of negotiation, however, Connecticut
Energy's management was not able to negotiate a satisfactory transaction, and
the Connecticut Energy board of directors instructed management to terminate
these discussions. Following termination of these discussions, Connecticut
Energy terminated its engagement letter with Morgan Stanley. From time to time
from October of 1998 through March of 1999, Mr. Crespo had exploratory
conversations with executives at utility companies other than Energy East about
the possibility of a business combination, but none of these conversations led
to any substantive negotiations.
In March of 1999, Mr. Crespo had several discussions with Wesley W. von
Schack, the chairman, president and chief executive officer of Energy East,
during which they discussed their respective companies' business strategies and
the possibility of a business combination.
30
<PAGE>
In early April of 1999, Mr. von Schack indicated that he would be willing to
have Connecticut Energy merge with a subsidiary of Energy East on terms and
conditions that would provide Connecticut Energy shareholders with a premium to
book value for their shares comparable to that received by shareholders of other
New England gas companies in recent transactions, as well as other non-price
terms consistent with recent comparable transactions. Mr. Crespo indicated that
he would be willing to discuss such a transaction with Connecticut Energy's
board of directors if various terms and conditions could be worked out to the
board's satisfaction. Following this meeting, Mr. Crespo retained Morgan
Stanley, and Mr. Crespo, Morgan Stanley and LeBoeuf, Lamb had several
discussions with Energy East's management and advisors about the general terms
and conditions on which Energy East would be willing to enter into a business
combination with Connecticut Energy.
On April 12, 1999, Mr. Crespo reported on these discussions to the
Connecticut Energy board of directors. Mr. Crespo also indicated to the board
that Energy East was prepared to commence negotiation of a definitive merger
agreement and a detailed due diligence review of Connecticut Energy, but only if
Connecticut Energy entered into an exclusivity agreement providing that
Connecticut Energy would not seek proposals from any other party and would
negotiate with other parties only if Connecticut Energy was required to do so by
its fiduciary duties. Mr. von Schack also met with the Connecticut Energy board
of directors during a portion of this meeting to provide the directors with some
background regarding Energy East, its business strategy and how a transaction
with Connecticut Energy would fit into that business strategy. Following
discussion, the board authorized Mr. Crespo to enter into negotiations with
Energy East on an exclusive basis for 45 days. On April 14, 1999, Connecticut
Energy entered into a confidentiality and standstill agreement with Energy East.
The agreement also provided that, prior to May 29, 1999, Connecticut Energy
would not solicit any business-combination proposal from any other party and
would not enter into discussions with any other party unless required to do so
by its fiduciary duties.
From April 14 through April 22, 1999, Energy East and Connecticut Energy
each conducted a detailed due diligence review of the other. During this period,
Connecticut Energy and its advisors received two unsolicited inquiries from
other companies asking whether Connecticut Energy would be interested in
discussing the possibility of a strategic combination. One of these companies
was the company that had submitted the formal proposal in September 1998 and the
other was a company with which Mr. Crespo had preliminary discussions earlier in
1999. Based on the earlier conversations that had been held with each of these
companies and the exclusivity arrangement then in effect with Energy East,
Connecticut Energy determined not to enter into discussions with either party.
Also during the period from April 14 through April 22, the executives of
Energy East and Connecticut Energy and their respective legal and financial
advisors conducted extensive negotiations regarding the specific terms and
conditions of the definitive merger agreement and the value and form of the
consideration that the Connecticut Energy shareholders would receive in the
transaction.
On April 20, 1999, at a meeting of the Connecticut Energy board of
directors, Mr. Crespo and representatives of Morgan Stanley and LeBoeuf, Lamb
updated the board as to the status of negotiations with Energy East. Following
the April 20th board meeting, the parties continued to discuss the value and
form of consideration as well as other terms and conditions of the merger
agreement. On April 22, 1999, Energy East proposed a price of $42 per share of
Connecticut Energy common stock, 50% in cash and 50% in Energy East common
stock, with a 12% collar in either direction. Mr. Crespo agreed to present this
proposal to the Connecticut Energy board of directors.
On April 22, 1999, the Connecticut Energy board of directors met and
considered Energy East's most recent proposal, and received updates from Mr.
Crespo, Morgan Stanley and LeBoeuf, Lamb on some previously open issues.
Representatives of Morgan Stanley made a detailed presentation on the proposed
business combination with Energy East that included discussions about the
financial structure of the transaction, the merger consideration and financial
benefits and risks of the transaction to
31
<PAGE>
Connecticut Energy. In addition, Mr. Crespo and representatives of LeBoeuf, Lamb
summarized the terms and conditions of the merger agreement, including the
provisions concerning governance issues such as board size, headquarters
location and senior management composition. In addition, Morgan Stanley rendered
its oral opinion to the Connecticut Energy board of directors, subsequently
confirmed in writing, that, as of April 22, 1999, based upon the considerations
described in its opinion, the merger consideration was fair from a financial
point of view to the Connecticut Energy shareholders. After considering and
discussing the various presentations at this meeting and at prior meetings, as
well as the recommendation of Connecticut Energy's senior management, the
Connecticut Energy board of directors unanimously approved the merger agreement
and authorized the execution of the merger agreement.
On April 23, 1999, the Energy East board of directors held a meeting at
which Energy East management and advisors made presentations on the proposed
acquisition of Connecticut Energy. After considering and discussing the various
presentations, the Energy East board of directors unanimously approved the
merger agreement and authorized the execution of the merger agreement.
On April 23, 1999, Connecticut Energy and Energy East executed the merger
agreement and publicly announced the proposed merger.
CONNECTICUT ENERGY REASONS FOR THE MERGER
The Connecticut Energy 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. As a result of utility deregulation and the increasing
competitive pressures faced by electric and natural gas utility companies in the
northeastern United States, the Connecticut Energy board of directors believes
that, in order to succeed in such a market, Connecticut Energy must be an
efficient, low-cost supplier of energy and related services with a diverse
customer base. The Connecticut Energy board of directors expects the merger to
allow us to achieve these goals and to provide substantial strategic and
financial benefits to the Connecticut Energy shareholders, as well as to
employees and customers of Connecticut Energy and its subsidiaries. The
Connecticut Energy board of directors believes that such benefits include:
- STRATEGIC POSITION. The combination of the companies' complementary
expertise and infrastructure, including Connecticut Energy's competitive
natural gas distribution facilities in Connecticut and Energy East's
diversified electric and natural gas businesses throughout the
northeastern United States will provide the combined company with the size
and scope necessary to be an effective participant in the emerging and
increasingly competitive electric and natural gas markets.
- NEW PRODUCTS AND SERVICES. The combined company will use its distribution
channels to market a portfolio of energy-related services throughout the
northeastern United States. The merger will create a company with the
ability to develop and market competitive new products and services and to
provide integrated energy solutions for its customers.
- INCREASED FINANCIAL STRENGTH AND CUSTOMER BASE. The combined company will
be financially stronger and will have a broader customer base than
Connecticut Energy as an independent entity. Based on the 1998 results for
Connecticut Energy 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 817,000 electric customers in
New York and more than 400,000 natural gas customers in New York and
Connecticut.
- ENERGY EAST'S GROWTH STRATEGY. The combined company will continue Energy
East's strategy of selectively growing its gas and electric distribution
business in the northeastern United States.
32
<PAGE>
RECOMMENDATION OF THE CONNECTICUT ENERGY BOARD OF DIRECTORS
THE CONNECTICUT ENERGY BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
CONNECTICUT ENERGY SHAREHOLDERS VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT.
At a special meeting held on April 22, 1999, after determining that the
merger is fair to and in the best interests of Connecticut Energy and its
shareholders, the Connecticut Energy board of directors unanimously approved and
adopted the merger agreement. In approving the merger agreement and in reaching
its recommendation, the Connecticut Energy board of directors consulted with and
relied upon information and reports prepared or presented by Connecticut
Energy's management and Connecticut Energy's legal and financial advisors. The
following are the material factors that the Connecticut Energy board of
directors considered, some of which contain both positive and negative elements:
- the Connecticut Energy board of directors' understanding of the present
and anticipated environment in the utility industry, and how possible
consolidation within the utility industry could affect Connecticut
Energy's competitive position in the industry;
- the Connecticut Energy board of directors' consideration of the financial
condition, results of operations, prospects and businesses of Connecticut
Energy and Energy East, including the revenues of the companies, their
complementary businesses, the recent stock price performance of
Connecticut Energy shares and Energy East shares and the percentage of the
combined company to be owned by Connecticut Energy shareholders following
the merger;
- current industry, economic and market conditions;
- other strategic options potentially available to Connecticut Energy;
- the fact that the offices of Connecticut Energy and The Southern
Connecticut Gas Company will remain in Connecticut;
- the beneficial effect of increased competition on The Southern Connecticut
Gas Company'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 Connecticut Energy per share consideration of $42.00, which represents
an approximate 33.9% premium to the closing price of a Connecticut Energy
share on April 22, 1999;
- the fact that the merger agreement provides Connecticut Energy
shareholders an opportunity to receive cash for their Connecticut Energy
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 consummation
of the merger and its growth potential;
- the corporate governance aspects of the merger, including the fact that
(1) Energy East will elect Mr. Crespo to its board of directors, (2) Mr.
Crespo will be the president, chief executive officer and chairman of the
board of directors of the surviving company (which will be a subsidiary of
Energy East), will be an officer of Energy East with the title of vice
chairman and will hold other positions in Energy East's subsidiaries, and
(3) the surviving company will create an advisory board, whose members
will be the same individuals who were directors of Connecticut Energy
immediately before the effective time 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
33
<PAGE>
of Section 368(a) of the Internal Revenue Code. If the merger is a
reorganization, then Connecticut Energy shareholders who exchange their
Connecticut Energy shares solely for Energy East shares, as well as
Connecticut Energy, Energy East and 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 Connecticut Energy
shareholders who exchange their Connecticut Energy shares for cash will
generally be eligible for capital gains treatment;
- the interests of certain persons in the merger, including Mr. Crespo;
- the opinion of Morgan Stanley that, as of April 22, 1999 and subject to
the considerations described therein, the consideration to be received by
the Connecticut Energy shareholders is fair from a financial point of view
to Connecticut Energy shareholders;
- the other advice from Connecticut Energy management and the Connecticut
Energy board of directors' financial and legal advisors over an extended
period, and the discussions of the Connecticut Energy board of directors
concerning the proposed merger agreement; and
- the ability to obtain regulatory approvals for the merger in the current
environment.
The Connecticut Energy 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 consummated, (3) the effect of the public announcement of
the merger on Connecticut Energy's sales, customer and supplier relationships,
operating results, ability to retain employees and the trading price of
Connecticut Energy shares, (4) the substantial management time and effort that
will be required to consummate the merger and integrate the operations of the
two companies, (5) the impact of the merger on Connecticut Energy employees, (6)
the possibility that certain provisions of the merger agreement might have the
effect of discouraging other persons potentially interested in a combination
with Connecticut Energy 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."
In the judgment of the Connecticut Energy board of directors, the potential
benefits of the merger outweigh these considerations.
This discussion of the information and factors considered by the Connecticut
Energy board of directors is not intended to be exhaustive. In view of the wide
variety of factors considered, the Connecticut Energy board of directors did not
assign relative weights to the factors discussed above or determine that any
factor was of particular importance. Rather, the Connecticut Energy board of
directors based its recommendation upon the totality of the information
presented.
OPINION OF THE FINANCIAL ADVISOR TO THE CONNECTICUT ENERGY BOARD
Pursuant to a letter agreement, dated April 7, 1999, Connecticut Energy
engaged Morgan Stanley to provide financial advisory services in connection with
the merger. The Connecticut Energy board of directors selected Morgan Stanley to
act as its financial advisor based on Morgan Stanley's qualifications,
expertise, reputation and knowledge of the business and affairs of Connecticut
Energy. At a meeting of the Connecticut Energy board of directors on April 22,
1999, Morgan Stanley rendered its oral opinion, subsequently confirmed in
writing by opinions dated April 22, 1999 and July 22, 1999 that, as of the dates
of such opinions, based upon and subject to the various considerations noted in
the opinion, the consideration to be received in the merger was fair from a
financial point of view to Connecticut Energy shareholders.
THE FULL TEXT OF MORGAN STANLEY'S OPINION DATED JULY 22, 1999 IS ATTACHED AS
APPENDIX B TO THIS DOCUMENT. CONNECTICUT ENERGY SHAREHOLDERS ARE URGED TO, AND
SHOULD, READ THE OPINION CAREFULLY AND IN ITS ENTIRETY. MORGAN STANLEY'S OPINION
IS DIRECTED TO THE CONNECTICUT ENERGY BOARD OF DIRECTORS AND ADDRESSES ONLY THE
FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE CONSIDERATION TO BE RECEIVED BY
THE CONNECTICUT ENERGY SHAREHOLDERS PURSUANT TO THE MERGER AGREEMENT, AS OF THE
DATE OF THE OPINION.
34
<PAGE>
MORGAN STANLEY'S OPINION DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER AND
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY CONNECTICUT ENERGY SHAREHOLDER AS TO
HOW TO VOTE AT THE SPECIAL MEETING. THE FOLLOWING SUMMARY OF MORGAN STANLEY'S
OPINION, ALTHOUGH MATERIALLY COMPLETE, IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF THE OPINION.
In connection with rendering its opinions, Morgan Stanley, among other
things:
- reviewed certain publicly available financial statements and other
information of Connecticut Energy and Energy East;
- reviewed certain internal financial statements and other financial and
operating data concerning Connecticut Energy and Energy East prepared by
the managements of Connecticut Energy and Energy East, respectively;
- analyzed certain financial projections concerning Connecticut Energy and
Energy East prepared by the managements of Connecticut Energy and Energy
East, respectively;
- discussed the past and current operations and the financial condition and
the prospects of Connecticut Energy with senior executives of Connecticut
Energy;
- discussed the past and current operations and the financial condition and
the prospects of Energy East with senior executives of Energy East;
- reviewed the pro forma impact of the merger on Energy East's earnings per
share;
- reviewed the reported prices and trading activity for the Connecticut
Energy shares and Energy East shares;
- compared the financial performance of Connecticut Energy and Energy East
and the prices and trading activity of Connecticut Energy shares and
Energy East shares with that of certain other comparable publicly traded
companies and their securities;
- reviewed the financial terms, to the extent publicly available, of certain
comparable acquisition transactions;
- participated in discussions and negotiations among representatives of
Connecticut Energy and Energy East and their financial and legal advisors;
- reviewed the draft merger agreement and certain related documents; and
- performed such other analyses as Morgan Stanley had deemed appropriate.
Morgan Stanley assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by Morgan Stanley for the
purposes of its opinions. With respect to the financial projections, Morgan
Stanley assumed that they were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the future financial performance
of Connecticut Energy and Energy East. In addition, Morgan Stanley assumed that
the merger will be treated as a tax-free reorganization and/or exchange (on the
company level), pursuant to the Internal Revenue Code, and will be consummated
in accordance with the terms of the merger agreement. Morgan Stanley did not
make any independent valuation or appraisal of the assets or liabilities of
Connecticut Energy and Energy East, nor had Morgan Stanley been furnished with
any such appraisals. Morgan Stanley relied upon, without independent
verification, Connecticut Energy management's assessment of the strategic
benefits expected to result from the merger. Morgan Stanley assumed that, in
connection with the receipt of all the necessary regulatory approvals for the
proposed merger, no restrictions will be imposed that would have a material
adverse effect on the contemplated benefits expected to be derived in the
merger. Morgan Stanley's opinions were necessarily based on economic, market,
and other conditions as of, and the information made available to it as of the
date of each of its opinions.
35
<PAGE>
The following is a brief summary of certain analyses that Morgan Stanley
performed in connection with its oral opinion and the preparation of its opinion
letter dated April 22, 1999. Some of these summaries include information
presented in a tabular format. To understand fully Morgan Stanley's financial
analyses, you must read the tables together with the text of each summary. The
tables alone do not constitute a complete description of the financial analyses.
COMPARATIVE STOCK PRICE PERFORMANCE. Morgan Stanley reviewed the recent
stock price performance of Connecticut Energy and compared this performance with
that of the following indices:
- Small-capitalization natural gas local distribution company index that
included seven companies
- 30-year Treasury bond price
The following table presents the change in the stock prices for these
groups, as compared to the change in the price of Connecticut Energy shares over
the period from April 20, 1998 to April 20, 1999.
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
-------------------
<S> <C>
Small-capitalization-natural-gas-local-distribution-company index.......... -9.7%
30-year Treasury bond price................................................ +6.4%
Connecticut Energy......................................................... -9.6%
</TABLE>
COMPARABLE PUBLIC COMPANY ANALYSIS. As part of its analysis, Morgan Stanley
compared certain financial information of Connecticut Energy with that of a
group of publicly traded natural-gas-local-distribution companies (collectively,
the "CONNECTICUT ENERGY COMPARABLE COMPANIES") and also compared certain
financial information of Energy East with that of a group of publicly traded
utility companies (collectively, the "ENERGY EAST COMPARABLE COMPANIES"). The
comparable companies selected for Connecticut Energy and Energy East were as
follows:
<TABLE>
<CAPTION>
CONNECTICUT ENERGY ENERGY EAST
COMPARABLE COMPANIES COMPARABLE COMPANIES
- ---------------------------------------------- ----------------------------------------------
<S> <C>
CTG Resources, Inc. BEC Energy
Laclede Gas Co. Consolidated Edison Inc.
New Jersey Resources Corp. DQE Inc.
NUI Corp. NiSource Inc.
Providence Energy Corp.
South Jersey Industries, Inc.
Yankee Energy System, Inc.
</TABLE>
36
<PAGE>
The table below presents, as of April 20, 1999, the representative range or
value for each of the ratios of price to forecasted fiscal 1999 and forecasted
fiscal 2000 earnings (based on estimates of I/B/E/S International, Inc.), price
to book value as of December 31, 1998, and the aggregate value to last twelve
months ("LTM") earnings before interest, taxes, depreciation, and amortization
("EBITDA") and the aggregate value to LTM earnings before interest and taxes
("EBIT").
<TABLE>
<CAPTION>
PRICE TO PRICE TO
FORECASTED FORECASTED PRICE TO AGGREGATE
1999 2000 12/31/98 AGGREGATE VALUE VALUE
EARNINGS EARNINGS BOOK VALUE TO LTM EBITDA TO LTM EBIT
-------------- -------------- ----------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Connecticut Energy Comparable
Companies...................... 13.2-14.3 11.8-12.3 1.5 8.2-8.6 12.0-12.6
Energy East Comparable
Companies...................... 13.9-15.9 13.1-14.4 1.8-2.9 5.5-7.9 8.7-12.6
Connecticut Energy............... 14.4 14.0 1.6 8.5 12.4
Energy East...................... 15.2 13.6 1.8 7.3 10.2
</TABLE>
DISCOUNTED CASH FLOW ANALYSIS. Morgan Stanley performed a discounted cash
flow analysis of Connecticut Energy and Energy East based on certain financial
projections provided by the respective managements for each company for the
period 1999 through 2003. Unlevered free cash flow of each company was
calculated as net income available to common shareholders plus the aggregate of
preferred stock dividends, depreciation and amortization, deferred taxes, and
other noncash expenses and after-tax net interest expense less the sum of
capital expenditures and investment in noncash working capital. Morgan Stanley
calculated terminal values by applying a range of perpetual-growth-rate
multiples to Connecticut Energy's unlevered free cash flow in fiscal 2003 and by
applying a range of terminal price-to-earnings multiples to Energy East's
unlevered free cash flow in fiscal 2003. Morgan Stanley then discounted the cash
flow streams and terminal values to the present using a range of discount rates
representing estimates of the weighted average cost of capital for both
Connecticut Energy and Energy East. Based on this analysis, Morgan Stanley
calculated per share values for Connecticut Energy ranging from $31.75 to $39.50
and for Energy East ranging from $24.00 to $36.00.
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. Using publicly available
information, Morgan Stanley considered all of the recently announced or
completed transactions in the natural-gas-local-distribution industry, which
Morgan Stanley deemed to be comparable to the merger. Specifically, Morgan
Stanley focused on the following transactions:
- Eastern Enterprises' acquisition of Colonial Gas Company;
- Eastern Enterprises' acquisition of Essex County Gas Company; and
- NIPSCO Industries, Inc.'s acquisition of Bay State Gas Company.
Morgan Stanley compared certain financial and market statistics of these
precedent transactions to the statistics of the merger. The table below presents
the representative range for each of the ratios of price to LTM earnings, price
to book value as of December 31, 1998, aggregate value to LTM EBITDA, and
aggregate value to LTM EBIT multiples.
<TABLE>
<CAPTION>
PRICE TO AGGREGATE
FORECASTED LTM PRICE TO LTM AGGREGATE VALUE VALUE
EARNINGS BOOK VALUE TO LTM EBITDA TO LTM EBIT
--------------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
Precedent Transactions............ 18.3-23.6 2.3-2.5 9.6-11.0 13.9-16.2
</TABLE>
Based on this analysis, Morgan Stanley calculated per share values for
Connecticut Energy ranging from $35.75 to $42.75.
No company used in the comparable public company analysis as a comparison is
identical to Connecticut Energy or Energy East. Thus, an analysis of the results
of the foregoing necessarily
37
<PAGE>
involves complex considerations and judgments concerning differences in
financial and operating characteristics of Connecticut Energy and other factors
that would affect the acquisition value of the companies to which it is being
compared. Also, no transaction utilized as a comparison in the analysis of
selected precedent transactions is identical to the merger in both timing and
size. Mathematical analysis (such as determining the mean or median) is not, in
itself, a meaningful method of using comparable public company or precedent
transactions data.
PRO FORMA ANALYSIS OF THE MERGER. Morgan Stanley reviewed the pro forma
impact of the merger on Energy East's earnings per share for the fiscal years
ended 2000 through 2003. Morgan Stanley assumed completion of the merger at the
beginning of this period and utilized stand-alone earnings estimates for the
fiscal years ended 2000 through 2003 based on I/B/E/S International, Inc., and
publicly available equity research projections prior to the inclusion of any
synergies. Based on such analysis, assuming no synergies, the merger would be
4.6% to 3.9% dilutive to Energy East earnings per share in 2000 through 2003.
In addition, Morgan Stanley reviewed the pro forma impact of the merger on
the dividends per share to be received by Connecticut Energy shareholders for
the fiscal years ended 2000 through 2003. Morgan Stanley assumed completion of
the merger at the beginning of this period and utilized stand-alone dividend
estimates for the fiscal years ended 2000 through 2003 based on management
projections for both Connecticut Energy and Energy East. Based on such analysis,
the merger would be 2.8% to 11.9% accretive to the dividends per share to be
received by Connecticut Energy shareholders in 2000 through 2003.
In connection with its written opinion dated July 22, 1999, Morgan Stanley
reviewed the analyses used to render its April 22, 1999 opinion by performing
procedures to update certain such analyses and by reviewing the assumptions upon
which such analyses were based and the factors considered in connection with
these analyses.
In connection with the review of the merger by Connecticut Energy's board of
directors, Morgan Stanley performed a variety of financial and comparative
analyses for purposes of its opinion given in connection therewith. The summary
set forth above does not purport to be a complete description of the analyses
performed by Morgan Stanley in connection with the merger. The preparation of a
fairness opinion is a complex process and is not necessarily susceptible to
partial analysis or summary description. In arriving at its opinions, Morgan
Stanley considered the results of all of its analyses as a whole and did not
attribute any particular weight to any particular analysis or factor.
Furthermore, Morgan Stanley believes that selecting any portion of its analyses,
without considering all analyses, would foster an incomplete view of the process
underlying its opinions. In addition, Morgan Stanley may have given various
analyses and factors more or less weight than other analyses and factors, and
may have deemed various assumptions more or less probable than other
assumptions. Thus, one should not interpret the ranges of valuations resulting
from any particular analysis to be Morgan Stanley's view of the actual value of
Connecticut Energy or Energy East.
In performing its analyses, Morgan Stanley made judgments and assumptions
with regard to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Connecticut Energy, such as the impact of competition on Connecticut Energy and
the industry generally, industry growth and the absence of any adverse material
change in the financial conditions and prospects of Connecticut Energy or the
industry or in the financial markets in general. Any estimates contained in
Morgan Stanley's analysis are not necessarily indicative of future results or
actual values, which may be significantly more or less favorable than those
suggested by such estimates. The analyses performed were performed solely as
part of Morgan Stanley's analysis of the fairness from a financial point of view
of the consideration to be received by the Connecticut Energy shareholders
pursuant to the merger agreement and were conducted in connection with the
delivery of the Morgan Stanley opinion dated April 22, 1999 to Connecticut
Energy's board of directors. The analyses do not purport to be appraisals or to
reflect the
38
<PAGE>
prices at which Connecticut Energy shares or Energy East shares might actually
trade. The consideration and other terms of the merger agreement were determined
through arms'-length negotiations between Connecticut Energy and Energy East and
were approved by the Connecticut Energy board of directors. Morgan Stanley
provided advice to Connecticut Energy during these negotiations. In addition, as
described above, Morgan Stanley's opinion dated April 22, 1999 was one of many
factors that the Connecticut Energy board of directors took into consideration
in making its decision to approve the merger agreement. Consequently, the Morgan
Stanley analyses should not be viewed as determinative of the opinion of the
Connecticut Energy board of directors on the value of Connecticut Energy or
whether the Connecticut Energy board of directors would be willing to agree to a
different merger consideration.
Morgan Stanley is an internationally recognized investment banking and
advisory firm. As part of its investment banking and financial advisory
business, Morgan Stanley is continuously involved in the valuation of business
and securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements, and valuations for corporate and other
purposes. In the ordinary course of Morgan Stanley's trading and brokerage
activities, Morgan Stanley or its affiliates may at any time hold long or short
positions and may trade or otherwise effect transactions for its own account or
for the accounts of customers in the equity or debt securities of Connecticut
Energy or Energy East.
Connecticut Energy retained Morgan Stanley to act as its financial advisor
on the merger. Pursuant to the letter agreement dated April 7, 1999 with
Connecticut Energy, Morgan Stanley is entitled to a transaction fee equal to
approximately $3,740,000, which is payable as follows: one-fourth upon the
execution of a definitive transaction agreement, one-fourth upon approval of the
merger agreement and related transactions by Connecticut Energy shareholders and
one-half upon the closing of the transaction. Any amounts paid to Morgan Stanley
as advisory or announcement fees will be credited against the transaction fee.
Connecticut Energy has also agreed to reimburse Morgan Stanley for the
out-of-pocket expenses it incurred in performing its services. In addition,
Connecticut Energy has agreed to indemnify Morgan Stanley and its affiliates,
their respective directors, officers, agents, and each person, if any,
controlling Morgan Stanley or any of its affiliates. The indemnification covers
certain liabilities and expenses, including liabilities under the U.S. federal
securities laws, related to or arising out of Morgan Stanley's engagement and
any related transactions. In the past, Morgan Stanley and its affiliates have
provided financial advisory and financing services for Connecticut Energy and
Energy East and have received fees for rendering these services.
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 State of Connecticut in
accordance with the Connecticut Business Corporation Act, or at a later time
that Energy East and Connecticut Energy may specify in the certificate of
merger.
The merger will not become effective before the date of the special meeting.
If the merger 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.
CERTIFICATE OF INCORPORATION AND BY-LAWS
The certificate of incorporation of 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 "Connecticut Energy Corporation." The
by-laws of Merger Co. in effect immediately prior to the effective time will be
the by-laws of the surviving company, until they are amended.
39
<PAGE>
DIRECTORS AND OFFICERS
DIRECTORS. After the merger becomes effective, the board of directors of
the surviving company will consist of the current directors of Merger Co. and
Mr. Crespo. These directors will hold office until their successors are duly
elected or appointed and qualified. In addition, Energy East will elect Mr.
Crespo to its board of directors.
OFFICERS. Once the merger becomes effective, Mr. Crespo will be the
president, chief executive officer and chairman of the board of directors of the
surviving company (which will be a subsidiary of Energy East) and an officer of
Energy East with the title of vice chairman. He will also hold other 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 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 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 value 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.
REGULATORY APPROVALS
The parties must comply with federal and state regulatory requirements
before they can consummate 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 by
early 2000.
CONNECTICUT DEPARTMENT OF PUBLIC UTILITY CONTROL. The Connecticut
Department of Public Utility Control has jurisdiction over The Southern
Connecticut Gas Company, Connecticut Energy's principal operating subsidiary, as
a Connecticut public service company. The Southern Connecticut Gas Company is a
public service company under Connecticut law because it is a gas company
distributing gas for heat or power within Connecticut. Energy East, Connecticut
Energy, and, if required, The Southern Connecticut Gas Company intend to file an
application with the Department. The application will request approval for
Energy East to control directly Connecticut Energy and to control indirectly The
Southern Connecticut Gas Company pursuant to Connecticut law. The Department
will consider the suitability and financial responsibility of Energy East as
well as the ability of The Southern Connecticut Gas Company to provide safe,
adequate and reliable service to the public through its plant, equipment, and
manner of operation were the application to be approved.
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 Connecticut Energy 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
40
<PAGE>
parties to the proceeding 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 Connecticut
Energy 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 Connecticut Energy. If so, the
parties would not be obligated to consummate the merger agreement.
In addition, Energy East must also obtain the Connecticut Department of
Public Utility Control's approval of Energy East's merger with CTG Resources.
The Connecticut Department of Public Utility Control could delay approval of
either or both merger applications.
THE PUBLIC UTILITY HOLDING COMPANY ACT. In addition to its merger agreement
with Connecticut Energy, Energy East has entered into merger agreements with CMP
Group, an exempt public utility holding company located in Maine, and CTG
Resources, 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
some necessary findings. The Public Utility Holding Company Act also limits the
ability of registered holding companies to engage in nonutility ventures and
regulates the provision of services by holding company affiliates to the
system's utilities.
In connection with the merger with Connecticut Energy, 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 Connecticut
Energy, Energy East will be indirectly acquiring more than 5% of the voting
securities of The Southern Connecticut Gas Company, a public utility company
within the meaning of the Public Utility Holding Company Act. Energy East will
also indirectly acquire more than 5% of the voting securities of the public
utility subsidiaries of CTG Resources and CMP Group.
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 merger
with Connecticut Energy 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
41
<PAGE>
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
this 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, CTG Resources's gas system, and
The Southern Connecticut Gas Company 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 Connecticut
Energy 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.
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 consummate the merger until we have given notifications, 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 Connecticut Energy 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 Connecticut Energy 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 Connecticut Energy have agreed to use all commercially
reasonable efforts to obtain all regulatory and governmental approvals necessary
or advisable to complete the merger, including approvals from the Federal
Communications Commission in connection with wireless-radio licenses issued to
The Southern Connecticut Gas Company.
INJUNCTIONS. Energy East's and Connecticut Energy'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.
42
<PAGE>
LISTING OF THE ENERGY EAST SHARES ON THE NEW YORK STOCK EXCHANGE
In the merger agreement, Energy East, Merger Co. and Connecticut Energy 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, Merger Co. and Connecticut Energy to complete the merger.
RESALE OF THE ENERGY EAST SHARES ISSUED IN THE MERGER; CONNECTICUT ENERGY
AFFILIATES
Energy East shares to be issued to Connecticut Energy 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 Connecticut Energy 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,
Connecticut Energy 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.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Connecticut Energy board of
directors with respect to the merger agreement, Connecticut Energy shareholders
should be aware that certain officers and directors of Connecticut Energy have
interests in the merger that are in addition to, or different from, the
interests of Connecticut Energy shareholders generally. The Connecticut Energy
board of directors was aware of these interests and considered them along with
other matters in recommending that Connecticut Energy shareholders vote to
approve the merger agreement.
ENERGY EAST BOARD OF DIRECTORS. Energy East will elect Mr. Crespo to its
board of directors.
SURVIVING COMPANY OFFICER. At the effective time of the merger, Mr. Crespo
will become the president, chief executive officer and chairman of the board of
directors of the surviving company (which will be a subsidiary of Energy East),
will be an officer of Energy East with the title of vice chairman and will hold
other positions in other Energy East subsidiaries. See "The Merger
Agreement--Corporate Governance Matters."
ADVISORY BOARD. Under the merger agreement, the present directors of
Connecticut Energy 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-officer directors of The Southern Connecticut Gas Company. See
"The Merger Agreement-- Additional Agreements."
EMPLOYMENT AGREEMENTS. Energy East and Connecticut Energy have signed an
employment agreement with Mr. Crespo, and have agreed to offer to enter into an
employment agreement with Carol Forest. Energy East, Connecticut Energy and The
Southern Connecticut Gas Company have agreed to offer to enter into an
employment agreement with David Silverstone. The agreements will become
effective at the effective time of the merger. At the effective time of the
merger, these employment agreements will replace and terminate each executive's
existing agreement with The Southern Connecticut Gas Company and Connecticut
Energy.
The term of Mr. Crespo's new employment agreement is three years, beginning
on the effective date of the merger, and is automatically extended each month
unless either Energy East or Mr. Crespo
43
<PAGE>
gives written notice that the agreement will not be extended. Under the terms of
his employment agreement, Mr. Crespo will become the president, chief executive
officer and chairman of the board of directors of the surviving company (which
will be a subsidiary of Energy East), will be an officer of Energy East with the
title of vice chairman and will hold other positions in other Energy East
subsidiaries. Energy East will elect Mr. Crespo to its board of directors. Mr.
Crespo's salary will not be lower than the salary he was receiving prior to the
merger. Mr. Crespo will also be entitled to receive a special bonus of one
million dollars within five days of the effective time of the merger and two
additional special bonuses of $650,000 each if he is employed with Energy East
or any Energy East subsidiary on the first and second anniversaries of the
merger. Mr. Crespo will also 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 and certain club expenses, and
Energy East will continue Mr. Crespo's existing deferred compensation benefit
currently provided for in the deferred compensation agreement, dated November 1,
1998, among Mr. Crespo, The Southern Connecticut Gas Company, and Connecticut
Energy. Under this existing agreement, following the approval of the merger by
the Connecticut Energy shareholders, Mr. Crespo will be entitled to a benefit
computed by adding an additional five years to his age at the time of his
termination of employment. The additional five years will not be used for
purposes of calculating his life expectancy when determining the amount of any
annuity to which he and/or his spouse are entitled. Under the new employment
agreement, Mr. Crespo will continue to be entitled to receive a life insurance
benefit that is not less than two and one-half times his annual compensation,
and he will also be entitled to certain other death and disability benefits. Mr.
Crespo's medical benefits will continue until Mr. Crespo reaches age 65 on the
same basis as medical benefits offered by Energy East or the surviving company
to active executive officers. The agreement also provides for a "gross-up"
payment to Mr. Crespo if any payment, benefit or distribution to Mr. Crespo is
subject to excise tax under Section 4999 of the Internal Revenue Code.
Energy East or the surviving company or Mr. Crespo may terminate Mr.
Crespo's employment at any time. If Energy East or the surviving company
terminates Mr. Crespo's employment without cause and for a reason other than the
executive's death or disability or Mr. Crespo terminates his employment for good
reason, he will receive:
- payments of his base salary at the rate in effect at the time of
termination for the remainder of the term of his employment agreement;
- payment of any remaining special bonuses due, determined as if he had
remained employed for the remainder of the term of the employment
agreement;
- incentive compensation for the remainder of the term of his employment
agreement, calculated on the basis of the value of short-term incentive
compensation paid to him in the most recently completed fiscal year and
the value of any long-term incentive compensation awards determined based
on the projected target value of the awards;
- continuation of his deferred compensation benefit for the remainder of the
term of the employment agreement;
- continuation of fringe benefits for the remainder of the term of the
employment agreement; and
- continuation of all employee welfare benefits for the remainder of the
term of the employment agreement.
We estimate that if the merger occurred on January 1, 2000 and Mr. Crespo'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 $6,784,278, not including the payment of
any special bonuses.
44
<PAGE>
Ms. Forest's and Mr. Silverstone's new employment agreements will be for
three years beginning at the effective time of the merger. Under the terms of
these employment agreements, Ms. Forest will serve as the vice president,
finance, chief financial officer and treasurer of the surviving company. Mr.
Silverstone will serve as vice president of The Southern Connecticut Gas
Company. Ms. Forest's and Mr. Silverstone's base salaries after the merger will
be no less than the salaries they were receiving prior to the merger. Each also
will receive a bonus equal to the amount of his or her base salary as of the
effective time of the merger, which will be paid within five days after the
effective time of the merger.
Ms. Forest and Mr. Silverstone will be entitled to participate in incentive
compensation, retirement and welfare programs available to other executives, as
determined by the Energy East board of directors. If Ms. Forest's employment is
terminated by the surviving company without cause or by Ms. Forest for good
reason before she reaches age 55, she will receive until age 55 post-termination
medical benefits on the same basis as are received by other executive officers.
After age 55, Ms. Forest will participate in the retiree medical plan generally
applicable to other retired salaried employees, or, alternatively, Ms. Forest
will receive benefits equal to those she would have received under such plan.
The agreements also provide for "gross-up" payments to Ms. Forest and Mr.
Silverstone if any payment, benefit or distribution to the executives is subject
to excise tax under Section 4999 of the Internal Revenue Code.
Energy East or the surviving company may terminate Ms. Forest's or Mr.
Silverstone's employment at any time, and The Southern Connecticut Gas Company
may terminate Mr. Silverstone's employment at any time. Ms. Forest and Mr.
Silverstone may also terminate her or his own employment at any time. Under the
employment agreements, if Ms. Forest's or Mr. Silverstone's employment is
terminated by Energy East or the surviving company, or if Mr. Silverstone's
employment is terminated by The Southern Connecticut Gas Company, without cause
and for a reason other than the executive's death or disability, or by the
executive for good reason, Ms. Forest or Mr. Silverstone will receive:
- payments of his or her base salary at the rate in effect at the time of
termination for the remainder of the term of the employment agreement;
- incentive compensation for the remainder of the term of the employment
agreement, calculated on the basis of the value of short-term incentive
compensation paid to the executive in the most recently completed fiscal
year along with the value of any long-term incentive compensation awards
determined based on the projected target value of the awards;
- continuation for the remainder of the term of his or her employment
agreement of accrual of benefits under retirement plans, or, if continued
accrual is not possible under existing plans, payment of an amount equal
to the present value of such continued accrual;
- continuation of welfare benefits for the remainder of the term of the
employment agreement; and
- in Mr. Silverstone's case, a cash payment equal to the value of any
pension benefits that he has accrued that are not yet vested.
We estimate that if the merger occurred on January 1, 2000 and Ms. Forest's
and Mr. Silverstone's employment were immediately terminated for one of the
reasons noted above they would receive cash severance payments and gross-up
payments upon termination pursuant to their new employment agreements of
approximately $1,137,544 and $953,672, respectively, not including the bonuses
payable at the time of the merger.
CHANGE IN CONTROL AGREEMENTS. Messrs. Crespo and Silverstone and Ms. Forest
currently have agreements that provide severance benefits if they are terminated
after a change in control. Connecticut Energy shareholder approval of the merger
would constitute a change in control as it is
45
<PAGE>
defined in these agreements. The new employment agreements, which replace and
terminate the current agreements, do not begin until the effective time of the
merger. Thus, Messrs. Crespo and Silverstone and Ms. Forest may be entitled to
the change in control severance benefits provided for in their current
agreements if their employment is terminated after Connecticut Energy
shareholders approve the merger but before the effective time of the merger. In
addition, Thomas A. Trotta and Samuel W. Bowlby currently have agreements
related to a change in control with The Southern Connecticut Gas Company and
Connecticut Energy. These agreements also provide that approval of the merger by
Connecticut Energy shareholders would constitute a change in control. Each of
the five agreements provides the following severance benefits if the executive's
employment is terminated within three years following Connecticut Energy
shareholder approval of the merger for any reason other than (1) death or
disability, (2) by Connecticut Energy for cause or (3) by the executive without
good reason (the rights of Messrs. Crespo and Silverstone and Ms. Forest will be
governed by their new employment agreements if the termination occurs after the
effective time of the merger):
- payment of base salary through the effective date of termination and
payment of all benefits and awards to which the executive is entitled
under any benefit plans or policies;
- a cash payment equal to three times the executive's base salary in effect
on the date of termination;
- a cash payment equal to three times the amount of the highest bonus the
executive was awarded in the five fiscal years before the fiscal year in
which shareholders approve the merger or, if greater, three times the
bonus the executive would have been awarded in the fiscal year in which
Connecticut Energy shareholders approve the merger if the executive had
continued to be employed and performed at the same level as immediately
before Connecticut Energy shareholder approval of the merger;
- an amount equal to three times the largest annual contribution made on the
executive's behalf to The Southern Connecticut Gas Company Target Plan
within the five years before the fiscal year in which Connecticut Energy
shareholders approve the merger or, if greater, the amount of the
contribution that would have been made for the fiscal year in which
Connecticut Energy shareholders approve the merger had the executive
remained employed and continued to contribute to the plan at the same
rate;
- a supplemental retirement benefit so that the executive receives aggregate
retirement benefits equal to those he or she would have received had he or
she remained employed for up to an additional three years and been up to
three years older when he or she was terminated; and
- an amount equal to 35% of the executive's annual base salary in effect on
the date of termination or, if higher, his or her base salary immediately
before the Connecticut Energy shareholder approval of the merger, as
compensation for loss of medical and other benefits.
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.
We estimate that if shareholder approval of the merger occurred on July 1,
1999 and the employment of Messrs. Crespo, Silverstone, Trotta and Bowlby and
Ms. Forest were immediately terminated for one of the reasons noted above they
would receive cash severance payments upon termination pursuant to their
agreements of approximately $5,191,090, $794,589, $1,650,794, $1,184,797, and
$1,074,152, respectively, including the estimated gross-up payments.
RESTRICTED STOCK VESTING. Upon Connecticut Energy shareholder approval of
the merger, the performance vesting requirements applicable to restricted stock
previously awarded pursuant to Connecticut Energy's 1997 Restricted Stock Award
Plan will be waived, and such awards will be paid in
46
<PAGE>
full and delivered in the form of fully vested Connecticut Energy shares. As a
result, the executive officers will receive the following numbers of shares: J.
R. Crespo--56,471; Larry S. McGaughy-- 10,802; Vincent L. Ammann, Jr.--7,728;
all others--17,013.
INDEMNIFICATION. Pursuant to the merger agreement, from and after the
effective time of the merger, 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 Connecticut Energy or any of its subsidiaries against all losses,
expenses (including reasonable attorneys' fees), claims, damages or liabilities
or, subject to certain restrictions, amounts paid in settlement, arising out of
actions or omissions occurring at or prior to the effective time of the merger
that are at least in part (1) based on the fact that such 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 directors
and officers of Connecticut Energy or its subsidiaries who are currently covered
or (2) provide tail coverage for those officers and directors. 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 Connecticut
Energy 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 Connecticut Energy
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 Connecticut Energy 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 Connecticut Energy 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 Connecticut
Energy shareholders who hold their Connecticut Energy shares as capital assets
within the meaning of Section 1221 of the Internal Revenue Code and does not
apply to the following:
- shareholders who received their Connecticut Energy shares pursuant to the
exercise of employee stock options or similar securities or otherwise as
compensation;
- shareholders who hold their Connecticut Energy shares as part of a
"straddle," "hedge," "conversion transaction," "synthetic security" or
other integrated investment;
- 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 CONNECTICUT ENERGY SHAREHOLDER MAY
AFFECT THE TAX CONSEQUENCES OF THE MERGER TO SUCH CONNECTICUT ENERGY
SHAREHOLDER. THE PARTICULAR FACTS OR CIRCUMSTANCES OF A CONNECTICUT ENERGY
SHAREHOLDER THAT MAY SO AFFECT THE CONSEQUENCES ARE NOT
47
<PAGE>
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 CONNECTICUT ENERGY 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 consummation 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
- Connecticut Energy 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, Connecticut Energy 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 Connecticut Energy 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 Connecticut Energy shareholder depend on the form of
consideration received by the shareholder.
SHAREHOLDERS WHO RECEIVE SOLELY ENERGY EAST COMMON STOCK. A Connecticut
Energy shareholder who exchanges Connecticut Energy 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 Connecticut Energy shareholder's aggregate adjusted tax
basis in the Connecticut Energy 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 Connecticut Energy shares surrendered.
SHAREHOLDERS WHO RECEIVE CASH AND ENERGY EAST COMMON STOCK. If the
consideration received in the merger by a Connecticut Energy shareholder
consists of part cash and part Energy East shares and the shareholder's adjusted
basis in the Connecticut Energy 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
Connecticut Energy shares surrendered in exchange therefor, and (2) the amount
of cash received by the shareholder in the exchange. However, if a Connecticut
Energy shareholder's adjusted basis in the Connecticut Energy 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 Connecticut Energy
shareholder's loss will not be currently allowed or recognized for U.S. federal
income tax purposes.
In the case of a Connecticut Energy 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
48
<PAGE>
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 Connecticut
Energy 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 Connecticut Energy
shareholder is treated as if (1) all such shareholder's Connecticut Energy
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 Connecticut Energy shareholder's hypothetical stock
interest in Energy East (both actual and constructive) after hypothetical step
(2) is compared to such Connecticut Energy shareholder's hypothetical stock
interest in Energy East (both actual and constructive) after hypothetical step
(1). Dividend treatment will apply unless 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 Connecticut
Energy 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.
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 CONNECTICUT ENERGY SHAREHOLDER, CONNECTICUT ENERGY
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 CONNECTICUT ENERGY SHARES BY THE
CONNECTICUT ENERGY SHAREHOLDER.
The basis of a Connecticut Energy 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 Connecticut Energy 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 Connecticut Energy shares
surrendered.
SHAREHOLDERS WHO RECEIVE SOLELY CASH. The exchange of Connecticut Energy
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 Connecticut Energy
shares surrendered. The gain or loss recognized will be long-term capital gain
or loss if the shareholder's holding period for the Connecticut Energy shares
surrendered exceeds one year. There are limitations on the extent to which
shareholders may deduct capital losses from ordinary income.
If a Connecticut Energy shareholder who receives only cash in exchange for
all such shareholder's Connecticut Energy shares constructively owns Connecticut
Energy shares before the merger or actually or constructively owns Energy East
shares after the merger (as the result of constructive ownership of Connecticut
Energy 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.
49
<PAGE>
CASH RECEIVED IN LIEU OF FRACTIONAL SHARES. A Connecticut Energy
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 Connecticut Energy 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
Connecticut Energy shares allocable to that fractional interest.
SPECIAL RULES FOR SHAREHOLDERS THAT ARE CORPORATIONS. To the extent that
cash received in exchange for Connecticut Energy shares is taxable as a dividend
(as described above) to a Connecticut Energy shareholder that is a corporation,
that shareholder will be (1) eligible for a dividends received deduction
(subject to applicable limitations) and (2) 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
Connecticut Energy 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 Connecticut Energy shareholders who have held their
Connecticut Energy 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 Connecticut Energy 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, CONNECTICUT ENERGY
AND MERGER CO. Assuming that the merger is treated as a reorganization, none of
Energy East, Connecticut Energy or 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 Connecticut Energy
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 Connecticut Energy 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 Connecticut Energy shareholder should consult with
his own tax advisor as to his qualification for exemption from backup
withholding and the procedure for obtaining such exemption. CONNECTICUT ENERGY
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
CONNECTICUT ENERGY SHARE CERTIFICATES.
50
<PAGE>
CONNECTICUT ENERGY STOCK PLANS
Some holders of Connecticut Energy shares hold all or part of their
Connecticut Energy shares under Connecticut Energy's Dividend Reinvestment and
Stock Purchase Plan. This plan will be terminated upon the completion of the
merger. Connecticut Energy shareholders who hold Connecticut Energy shares under
this plan will have the option to receive cash or Energy East shares in exchange
for Connecticut Energy shares held under the plan.
Participants in The Southern Connecticut Gas Company Target Plan are
eligible to invest in the Connecticut Energy Stock Fund maintained by the
trustee of that plan. The Connecticut Energy Stock Fund is a unitized fund that
is currently invested in Connecticut Energy shares with a small investment in
cash equivalents sufficient to meet the cash needs of the fund. The plan trustee
has been directed by The Southern Connecticut Gas Company, as the administrator
of the plan, to elect to receive, upon consummation of the merger, in exchange
for its Connecticut Energy shares, Energy East shares. The number of Energy East
shares the trustee will be eligible to receive for each Connecticut Energy share
held in the fund will be governed by the formula applicable to all Connecticut
Energy shareholders. To the extent that the terms of the merger agreement and
the elections of other Connecticut Energy shareholders result in the plan
trustee receiving cash instead of Energy East shares in exchange for the
Connecticut Energy shares held in the fund, The Southern Connecticut Gas Company
has directed the trustee to use that cash to purchase additional Energy East
shares as promptly as feasible. The intended result of The Southern Connecticut
Gas Company's directions to the trustee is to maintain the fund as a unitized
fund, fully (except for the small amount invested in cash equivalents) invested
in the publicly traded stock of The Southern Connecticut Gas Company's parent
corporation (Connecticut Energy until the consummation of the merger, and Energy
East thereafter). Plan participants who want their target plan balance invested
in Energy East stock should maintain their investment in the Connecticut Energy
Stock Fund.
51
<PAGE>
DISSENTERS' RIGHTS OF APPRAISAL OF CONNECTICUT ENERGY SHAREHOLDERS
If you hold Connecticut Energy 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 Connecticut Energy 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; and
- you must deliver to the Secretary of Connecticut Energy, 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 Connecticut Energy shareholders approve the merger at the special meeting
and you meet the requirements above, then Connecticut Energy 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 Connecticut Energy 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 Connecticut Energy; 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
52
<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 Connecticut Energy receives a valid, timely and complete payment
demand, or upon completion of the merger, Connecticut Energy 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:
- Connecticut Energy'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 Connecticut Energy'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, Connecticut Energy 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, Connecticut Energy
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 Connecticut Energy 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 Connecticut Energy in the
following cases:
- if you believe that the amount paid by Connecticut Energy is less than the
fair value of your shares or that the interest due is incorrectly
calculated;
- if Connecticut Energy 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 Connecticut Energy 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 Connecticut
Energy within 30 days after Connecticut Energy 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, Connecticut
Energy will commence a proceeding within 60 days after receipt of your demand
for payment and petition the superior court for the judicial
53
<PAGE>
district where Connecticut Energy's principal office is located to determine the
fair value of your shares and accrued interest. If Connecticut Energy does not
timely commence this proceeding, Connecticut Energy must pay you the unsettled
amount that you demanded.
If this proceeding takes place, Connecticut Energy 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 Connecticut Energy paid is less than the fair value of a dissenting
shareholder's shares, plus accrued interest, the court will order Connecticut
Energy 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. Connecticut
Energy 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
Connecticut Energy 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.
54
<PAGE>
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 Connecticut Energy will merge with and
into Merger Co., a wholly owned subsidiary of Energy East. Merger Co. will
survive the merger as a wholly owned subsidiary of Energy East and will be
renamed "Connecticut Energy Corporation."
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
by early 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 Merger Co. and
Mr. Crespo. These directors will hold office until their successors are duly
elected or appointed and qualified. In addition, pursuant to his employment
agreement, Energy East will elect Mr. Crespo to its board of directors.
OFFICERS. Once the merger becomes effective, Mr. Crespo will be the
president, chief executive officer and chairman of the board of directors of the
surviving company (which will be a subsidiary of Energy East) and will be an
officer of Energy East with the title of vice chairman. He will also hold other
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
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 CONNECTICUT ENERGY SHARES
MERGER CONSIDERATION. At the effective time of the merger, all outstanding
Connecticut Energy shares (other than those that are held by Connecticut Energy
shareholders who have not voted in favor of the merger and have properly
demanded dissenters' rights) will be converted into the right to receive the
merger consideration. Each Connecticut Energy 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. Connecticut Energy shareholders can elect to
receive cash, Energy East shares, or a combination of cash and Energy East
shares. The cash consideration amounts to $42.00 in cash, without interest, per
share. The stock consideration is a number of Energy East shares for each
Connecticut Energy share that will vary depending on the Average Market Price.
If the Average Market Price is equal to or more than $23.10 per share and equal
to or less than $29.40 per share, then a Connecticut Energy share will be
exchanged for $42.00 worth of Energy East shares. If the Average Market Price is
less than $23.10, then a Connecticut Energy share will be exchanged for 1.82
Energy East shares, irrespective of the value of those shares. Finally, if the
Average Market Price is greater than $29.40 per share, then a Connecticut Energy
share will be exchanged for 1.43 Energy East shares, again irrespective of the
value of those shares. If a Connecticut Energy shareholder wants a combination
of cash and Energy East shares, he must designate how many of his Connecticut
Energy shares he would like to convert into the $42.00 in cash and how many he
would like to convert into Energy East shares.
55
<PAGE>
As of the effective time of the merger, no Connecticut Energy shares will be
outstanding; they will all be automatically canceled and retired. Each
Connecticut Energy 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. Connecticut Energy
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), 50% of all outstanding Connecticut Energy shares will be
converted into cash, and 50% will be converted into Energy East shares.
Connecticut Energy shareholders, as a group, may submit elections to convert
more than half of the outstanding Connecticut Energy shares into cash or more
than half 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 half of the outstanding Connecticut Energy shares are converted into cash
and half are converted into Energy East shares. For example, if cash is
oversubscribed, each Connecticut Energy share as to which an election was
submitted to be converted into the $42.00 in cash will, instead, be converted
into an amount of cash that is less than $42.00 and a number of Energy East
shares to make up the difference. Similarly, if Energy East shares are
oversubscribed, each Connecticut Energy 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. Connecticut Energy 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 Connecticut Energy 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 Connecticut Energy 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 Connecticut Energy
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 Connecticut Energy shares that will be
converted into Energy East shares will be increased, and the number of
Connecticut Energy 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 Connecticut Energy shares.
ELECTION PROCEDURE; EXCHANGE OF CERTIFICATES. Copies of the form of
election will be mailed to record holders of Connecticut Energy 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:
56
<PAGE>
- properly completed, signed and submitted to the exchange agent;
- accompanied by the Connecticut Energy 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 Connecticut Energy
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 Connecticut Energy shareholders.
Any form of election may be revoked prior to the deadline for submitting
elections.
A Connecticut Energy shareholder who submits an untimely or improper form of
election will be deemed not to have made an election. Connecticut Energy may
treat that shareholder's shares as shares that the shareholder elected to
exchange for cash or Energy East shares, at Connecticut Energy's discretion.
DISSENTERS' SHARES. Connecticut Energy 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 Connecticut Energy shares
will be treated as if he had elected to receive $42.00 in cash per Connecticut
Energy share. Connecticut Energy will promptly notify Energy East if it receives
any written demands for payment of the fair value of outstanding Connecticut
Energy 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 Connecticut Energy 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 Connecticut Energy 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 Connecticut
Energy's transfer records if he presents a Connecticut Energy 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 Connecticut Energy 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:
57
<PAGE>
- 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, Connecticut Energy shareholders will receive the
cash payable in place of fractional Energy East shares to which the Connecticut
Energy 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 CONNECTICUT ENERGY 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 EARLY IN 2000.
REPRESENTATIONS AND WARRANTIES
In the merger agreement, Connecticut Energy and Energy East make
representations and warranties about themselves and their businesses, including
the following:
by Connecticut Energy as to:
<TABLE>
<S> <C>
- - its proper organization, good standing and - validity of its subsidiaries' stock and the
qualification to do business in various ownership rights of Connecticut Energy;
states;
- - capital structure; - authority to enter into and enforceability
of the merger agreement;
- - filing of all required reports and - absence of certain adverse changes or
financial statements and the accuracy of events;
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 Section 368(a) of - employee matters and the Employee
the Internal Revenue Code; Retirement Income Security Act of 1974;
- - environmental compliance and liability; - regulation as a utility;
- - shareholder vote required; - opinion of financial advisor; and
- - ownership of Energy East shares; - nonapplicability of takeover laws and the
Connecticut Energy rights agreement;
</TABLE>
58
<PAGE>
and by Energy East as to:
<TABLE>
<S> <C>
- - its proper organization, good standing and - validity of its subsidiaries' stock and the
qualification to do business in various ownership rights of Energy East;
states;
- - capital structure; - authority to enter into and enforceability
of the merger agreement;
- - filing of all required reports and - absence of certain adverse changes or
financial statements and the accuracy of events;
information used in their preparation;
- - litigation; - accuracy of information used in the
registration statement and proxy statement;
- - regulation as a utility; - ownership of Connecticut Energy shares; and
- - environmental compliance and liability; - operations of Energy East's partially owned
- - Section 368(a) of the Internal Revenue nuclear power plant and compliance with
Code; applicable laws.
</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 Connecticut Energy.
COVENANTS
MUTUAL COVENANTS. Under the merger agreement, the parties have 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
Connecticut Energy 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 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;
59
<PAGE>
- 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.
COVENANT OF ENERGY EAST. Connecticut Energy's Chief Executive Officer has
entered into an employment agreement with Energy East and Connecticut Energy.
Energy East has agreed that, at the closing of the merger, it will offer to sign
employment agreements with Ms. Forest and Mr. Silverstone.
COVENANTS OF CONNECTICUT ENERGY. Connecticut Energy has 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), Connecticut
Energy 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 Connecticut
Energy shares, (3) redemptions of Connecticut Energy 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 Connecticut Energy rights agreement or otherwise.
NO SOLICITATION OF ALTERNATIVE PROPOSALS. Connecticut Energy 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 Connecticut Energy or its subsidiaries, or any third-party
proposals or offers to acquire in any manner, directly or indirectly, a
substantial equity interest in or a substantial portion of the assets of
Connecticut Energy or any of its subsidiaries. Specifically, Connecticut Energy
agreed that:
- neither it nor Connecticut Energy'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 Connecticut Energy's subsidiaries will engage in any
discussion or negotiations concerning, or provide any nonpublic
information or data to make or implement, an Alternative Proposal;
60
<PAGE>
- 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 24 hours 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, Connecticut Energy may take the following steps:
- at any time before the Connecticut Energy shareholders vote to approve the
merger agreement, Connecticut Energy 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
Connecticut Energy and its business, properties and assets, but only if it
complies with the following requirements:
- the Connecticut Energy 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, and the Connecticut Energy board of directors concludes in good
faith, 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 Connecticut Energy provides information to, or enters into
discussions or negotiations with, the third party, Connecticut Energy (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;
- Connecticut Energy may comply with Rule 14e-2 under the Securities
Exchange Act of 1934 regulating tender or exchange offers; or
- Connecticut Energy 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 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. Connecticut Energy 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 October 23, 2000.
61
<PAGE>
SHAREHOLDER APPROVAL. Connecticut Energy 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 Connecticut Energy 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 Connecticut Energy 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 that are at least in part (1)
based on the fact that such individual served as a director, officer or employee
of Connecticut Energy 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
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 Connecticut Energy 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 Connecticut Energy currently pays.
PUBLIC ANNOUNCEMENTS. Subject to their legal obligations to disclose
information, Connecticut Energy 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 Connecticut Energy that were entered into before
April 23, 1999, and apply to current or former employees and directors of
Connecticut Energy.
Energy East and Connecticut Energy 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 and qualifications, without regard to
whether employment before the merger was with Connecticut Energy 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. Everyone who works for Connecticut Energy or any of
its subsidiaries immediately before the effective time of the merger, remains
employed after the effective time of the merger and is not covered by a
collective bargaining agreement will be provided with credit (for all
62
<PAGE>
purposes other than benefit accrual) for his years of service with Connecticut
Energy and its subsidiaries before the effective time of the merger. To the
extent permissible under applicable law, the surviving company will maintain the
benefit plans of Connecticut Energy in effect for not less than two years
following the effective time. In addition:
- each of these employees will be immediately eligible to participate,
without any waiting period, in all employee benefit plans sponsored by
Energy East and Energy East's subsidiaries for the benefit of such
employees to the extent coverage under these new plans replaces coverage
under a comparable plan in which these employees participated immediately
before the effective time of the merger;
- for purposes of each new plan providing medical, dental, pharmaceutical or
vision benefits to any of these employees or their dependents, Energy East
will waive all pre-existing condition exclusions and actively-at-work
requirements of the new plan; and
- these employees and their dependents will get credit for the eligible
expenses they incurred under the old plan, for purposes of satisfying all
applicable deductible, coinsurance and maximum out-of-pocket requirements,
as if these expenses had been paid under the new plan.
CONNECTICUT ENERGY STOCK PLANS. With respect to Connecticut Energy'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 Connecticut Energy shares under those plans, and to
make other changes in the Connecticut Energy stock plans to reflect the
merger agreement;
- obtain Connecticut Energy shareholder approval with respect to the
Connecticut Energy 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 Connecticut Energy 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; and
- file all required registration statements and amendments that are
necessary to register the Energy East shares that are subject to the
Connecticut Energy stock plans. Energy East will use its best efforts to
maintain the effectiveness and current status of these registration
statements for so long as benefits remain payable and related options
remain outstanding. With respect to those individuals who will be subject
to the reporting requirements under Section 16(a) of the Exchange Act
following the merger, Connecticut Energy will administer its stock plans
in a manner that complies with the Exchange Act.
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 Connecticut Energy 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 Bridgeport,
Connecticut. At and subsequent to the effective time of the merger, the
corporate headquarters of Energy East Enterprises and XENERGY Enterprises, both
of which are wholly owned subsidiaries of Energy East, will also be located in
Connecticut.
63
<PAGE>
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 Connecticut Energy.
ADVISORY BOARD. The surviving company will set up an advisory board
comprised of the individuals who were directors of Connecticut Energy
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 The
Southern Connecticut Gas Company.
CONDITIONS
MUTUAL CONDITIONS. The obligations of Connecticut Energy, Energy East and
Merger Co. to consummate the merger are subject to satisfaction of the following
conditions:
- Connecticut Energy 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 consummation 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.
- Connecticut Energy 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 Connecticut Energy 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 Connecticut Energy 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
consummate the merger are contingent on the satisfaction of, or waiver by Energy
East of, the following conditions:
- Connecticut Energy must have performed in all material respects the
agreements and covenants required by the merger agreement.
- The representations and warranties of Connecticut Energy 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 Connecticut Energy.
- Connecticut Energy must have provided Energy East with a certificate,
dated the closing date of the merger, signed by Connecticut Energy's Chief
Financial Officer regarding satisfaction of the two preceding conditions.
64
<PAGE>
- Connecticut Energy 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 Connecticut Energy's public documents prior to
April 23, 1999, that is reasonably likely to have a material adverse
effect on Connecticut Energy.
- Connecticut Energy must have obtained the requisite third-party consents,
unless the failure to obtain those consents would not have a material
adverse effect on Connecticut Energy.
- Each affiliate of Connecticut Energy 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.
- The current operating agreement of Conectiv/CNE Energy, which restricts
the ability of any affiliate of Connecticut Energy to compete in New
England, must have been terminated.
CONDITIONS TO OBLIGATIONS OF CONNECTICUT ENERGY. The obligations of
Connecticut Energy to consummate the merger agreement and the merger are
contingent on the satisfaction of, or waiver by Connecticut Energy 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 Connecticut Energy 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 April 23, 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 Connecticut Energy must have furnished to Connecticut Energy
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.
TERMINATION, AMENDMENT AND WAIVER
TERMINATION. The merger agreement may be terminated at any time before the
effective time of the merger, even after the Connecticut Energy shareholders
have already approved it:
- by mutual written consent of the Connecticut Energy board of directors and
the Energy East board of directors;
- by either Connecticut Energy or Energy East if they have not completed the
merger by April 23, 2000 (or October 23, 2000, if the only barrier to the
closing of the merger is the inability to
65
<PAGE>
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 Connecticut Energy 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 Connecticut Energy, before its shareholders approve the merger
agreement, if Connecticut Energy is not in breach of the merger agreement
and, as a result of an Alternative Proposal, the Connecticut Energy 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 the necessary
financing; 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 Connecticut Energy may
terminate the merger agreement:
(1) Connecticut Energy must give Energy East five business days' prior
notice of its intent to accept the alternative acquisition proposal;
and
(2) Connecticut Energy 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 Connecticut Energy 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 Connecticut Energy 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 Connecticut Energy; or
- by Energy East if:
- Connecticut Energy 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 Connecticut Energy, and
Connecticut Energy does not cure the breach within 20 days of receiving
written notice of the breach from Energy East; or
- the Connecticut Energy 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 East's request within
two days of that request, (3) approves or recommends any acquisition of
Connecticut Energy or a material portion of its assets or any tender
offer for the shares of capital stock of Connecticut Energy by someone
other than Energy East or any of its affiliates, or (4) resolves to take
any of these actions.
EFFECT OF TERMINATION. Connecticut Energy 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
66
<PAGE>
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 $5
million;
Connecticut Energy must pay Energy East a termination fee of $17 million if
the merger agreement is terminated for any of the following reasons:
- the Connecticut Energy board of directors decides to pursue an Alternative
Proposal;
- Connecticut Energy shareholders fail to approve the merger by April 23,
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,
Connecticut Energy enters into a definitive agreement to consummate or
actually does consummate an Alternative Proposal; or
- the Connecticut Energy board of directors withdraws, modifies, or fails to
affirm its approval or recommendation to Connecticut Energy shareholders,
but only if there was an Alternative Proposal outstanding at the time of
the termination and if, within two years of such termination, Connecticut
Energy enters into a definitive agreement to consummate or actually does
consummate 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
Connecticut Energy shareholders have already approved the agreement. After
Connecticut Energy 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 Connecticut Energy
shareholders (except for changes that could otherwise be adopted by the
Connecticut Energy board of directors without the further approval of the
Connecticut Energy 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.
67
<PAGE>
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of Connecticut Energy shares as of July 12, 1999, by (1) each
director, (2) the chief executive officer and each of the other four most highly
compensated executive officers of Connecticut Energy (determined as of the
completion of Connecticut Energy'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 Connecticut Energy shares.
<TABLE>
<CAPTION>
NUMBER OF CONNECTICUT
ENERGY SHARES
NAME TITLE BENEFICIALLY OWNED
--------------------------------- ------------------------------------------------- ---------------------
<S> <C> <C> <C>
1. J. R. Crespo Chairman, President and Chief Executive Officer 72,938(1)
2. Thomas A. Trotta Executive Vice President and Chief Operating 6,906
Officer
3. Larry S. McGaughy Vice President 12,139(2)
4. Vincent L. Ammann, Jr. Vice President and Chief Accounting Officer 9,542(3)
5. Carol A. Forest Vice President Finance, Treasurer and Assistant 4,394
Secretary
6. Henry Chauncey, Jr. Director 3,578
7. James P. Comer Director 2,162
8. Richard F. Freeman Director 12,069
9. Richard M. Hoyt Director 1,350
10. Newman M. Marsilius, III Director 1,745
11. Samuel Sugden Director 3,300(4)
12. Christopher D. Turner Director 2,071
All directors and executive officers as a group, including those named above (15
individuals)................................................................................... 157,664(5)
</TABLE>
- ------------------------
(1) Includes 32,795 and 23,676 Connecticut Energy shares awarded on October 1,
1996 and October 1, 1998, respectively, under Connecticut Energy's
Restricted Stock Award Plan.
(2) Includes 6,261 and 4,541 Connecticut Energy shares awarded on October 1,
1996 and October 1, 1998, respectively, under Connecticut Energy's
Restricted Stock Award Plan.
(3) Includes 4,612 and 3,116 Connecticut Energy shares awarded on October 1,
1996 and October 1, 1998, respectively, under Connecticut Energy's
Restricted Stock Award Plan.
(4) All of these Connecticut Energy shares are held jointly by Mr. Sugden and
his wife.
(5) Constituting 1.52% of outstanding Connecticut Energy shares.
68
<PAGE>
To the knowledge of Connecticut Energy, except for Brinson Partners, Inc.
and Neuberger & Berman, LLC, no person or group of persons is the beneficial
owner of more than 5% of Connecticut Energy shares. The following table sets
forth, as of March 31, 1999, certain information as to the number of common
shares beneficially owned by persons in excess of 5% based on reports filed with
the Securities Exchange Commission or other reliable information:
<TABLE>
<CAPTION>
TITLE OF NUMBER OF PERCENT OF
NAME AND ADDRESS CLASS SHARES CLASS
- ----------------------------------------------------------------------------- ---------- ----------- -----------
<S> <C> <C> <C>
Brinson Partners, Inc........................................................ Common 589,100 5.7%
209 South LaSalle
Chicago, Illinois 60604
Neuberger & Berman, LLC...................................................... Common 702,700 6.8%
605 Third Avenue
New York, New York 10158-3698
</TABLE>
69
<PAGE>
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
Connecticut Energy merger, the sale of CMP Group's generation assets, the CMP
Group merger and the CTG Resources 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
Connecticut Energy merger; second, statements are presented to reflect the sales
of Energy East's generation assets, the Connecticut Energy merger, the sale of
CMP Group's generation assets, and the CMP Group merger; and finally, statements
are presented to reflect the sales of Energy East's generation assets, the
Connecticut Energy merger, the sale of CMP Group's generation assets, the CMP
Group merger and the CTG Resources merger.
All three mergers will be accounted for as purchases. The nonutility assets
and liabilities of Connecticut Energy, CMP Group and CTG Resources 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 Connecticut Energy merger, the CMP Group merger and the CTG Resources 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 sales of the generation assets occurred on March 31, 1999. The
unaudited pro forma combined condensed statements of operations for the three
months ended March 31, 1999 and the unaudited pro forma combined condensed
statements of operations for the year ended December 31, 1998 assume that each
of the mergers and the sales of the generation assets was completed on January
1, 1998. For purposes of pro forma presentation, Connecticut Energy's and CTG
Resources's consolidated statements of operations are based on their September
30 fiscal year end.
The following pro forma financial statements should be read in conjunction
with the consolidated historical financial statements and the related notes of
Energy East, Connecticut Energy, CMP Group and CTG Resources, 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 March 31, 1999, as assumed above; nor is the information
necessarily indicative of future financial position or operating results.
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, discussed on
pages 55 to 56. 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 a 20-day
period ending two 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.
70
<PAGE>
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 a 20-day period ending two
days before the effective time of the CTG Resources merger.
Energy East expects to issue $500 million principal amount of notes payable.
The unaudited pro forma financial statements reflect the issuance of these notes
and the use of all of the proceeds to help fund the consideration paid to CMP
Group shareholders. However, Energy East may use part of the proceeds to help
fund the cash portion of the consideration in the Connecticut Energy merger or
the CTG Resources merger, or to help fund Energy East's ongoing share repurchase
program.
71
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS GIVING EFFECT TO THE
SALES OF ENERGY EAST'S GENERATION ASSETS AND THE CONNECTICUT ENERGY MERGER
ENERGY EAST CORPORATION COMBINED CONDENSED BALANCE SHEET
GIVING EFFECT TO THE SALES OF ENERGY EAST'S GENERATION ASSETS
AND THE CONNECTICUT ENERGY MERGER
AT MARCH 31, 1999
ACTUAL AND PRO FORMA
(UNAUDITED)
<TABLE>
<CAPTION>
SUB TOTAL CONNECTICUT
SALES OF PRO FORMA ENERGY
GENERATION ENERGY EAST CONNECTICUT MERGER
ENERGY EAST PRO FORMA AND ENERGY PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS(1) GENERATION ACTUAL ADJUSTMENTS ENERGY EAST
----------- -------------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Assets (in thousands)
Current Assets
Cash and cash
equivalents.......... $ 949,489 $ 981,516 $1,931,005 $ 8,505 $(217,844)(5) $1,721,666
Special deposits....... 3,731 3,731 3,731
Accounts receivable,
net.................. 175,808 175,808 57,777 233,585
Other.................. 175,017 (14,613) 160,404 15,264 175,668
----------- -------------- ----------- ----------- ------------ -----------
Total Current
Assets........... 1,304,045 966,903 2,270,948 81,546 (217,844) 2,134,650
Utility Plant, at
Original Cost.......... 5,611,716 (2,330,684) 3,281,032 411,948 3,692,980
Less accumulated
depreciation......... 2,060,153 (933,792) 1,126,361 142,415 1,268,776
----------- -------------- ----------- ----------- ------------ -----------
Net utility plant
in service....... 3,551,563 (1,396,892) 2,154,671 269,533 2,424,204
Construction work in
progress............. 12,114 12,114 5,078 17,192
----------- -------------- ----------- ----------- ------------ -----------
Total Utility
Plant............ 3,563,677 (1,396,892) 2,166,785 274,611 2,441,396
Other Property and
Investments, Net....... 132,866 (62,144) 70,722 8,480 79,202
Regulatory............... 663,865 (337,570) 326,295 75,958 402,253
Other Assets............. 36,354 (9,035) 27,319 45,697 7,016(6) 80,032
Goodwill................. 241,015(6)(7)(8) 241,015
----------- -------------- ----------- ----------- ------------ -----------
Total Assets....... $5,700,807 $ (838,738) $4,862,069 $486,292 $ 30,187 $5,378,548
----------- -------------- ----------- ----------- ------------ -----------
----------- -------------- ----------- ----------- ------------ -----------
</TABLE>
The notes on pages 76 to 77 are an integral part of the pro forma combined
condensed financial statements.
72
<PAGE>
ENERGY EAST CORPORATION COMBINED CONDENSED BALANCE SHEET
GIVING EFFECT TO THE SALES OF ENERGY EAST'S GENERATION ASSETS
AND THE CONNECTICUT ENERGY MERGER
AT MARCH 31, 1999
ACTUAL AND PRO FORMA
(UNAUDITED)
<TABLE>
<CAPTION>
SUB TOTAL CONNECTICUT
SALES OF PRO FORMA ENERGY
GENERATION ENERGY EAST CONNECTICUT MERGER
ENERGY EAST PRO FORMA AND ENERGY PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS(1) GENERATION ACTUAL ADJUSTMENTS ENERGY EAST
----------- -------------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Liabilities (in thousands)
Current Liabilities
Current portion of
long-term debt....... $ 28,582 $ (25,200) $ 3,382 $ 1,673 $ 5,055
Current portion of
preferred stock of
subsidiary........... 19,309 19,309 19,309
Notes payable.......... 252,000 252,000 8,000 260,000
Taxes accrued.......... 323,147 251,060 574,207 22,152 596,359
Other.................. 219,084 49,881 268,965 26,292 $ 4,500(8) 299,757
----------- -------------- ----------- ----------- ------------ -----------
Total Current
Liabilities...... 842,122 275,741 1,117,863 58,117 4,500 1,180,480
Regulatory Liabilities
Gain on sale of
generation assets.... 617,484 (617,484) -- --
Other.................. 188,576 (44,015) 144,561 2,593 147,154
----------- -------------- ----------- ----------- ------------ -----------
Total Regulatory
Liabilities...... 806,060 (661,499) 144,561 2,593 147,154
Deferred income taxes.... 708,867 (451,058) 257,809 75,455 2,456 335,720
Other.................... 308,175 (20,265) 287,910 6,552 294,462
Long-term debt........... 1,435,961 1,435,961 148,855 1,584,816
----------- -------------- ----------- ----------- ------------ -----------
Total
Liabilities...... 4,101,185 (857,081) 3,244,104 291,572 6,956 3,542,632
Commitments.............. 107 107
Preferred stock
redeemable solely at
the option of
subsidiary............. 10,131 10,131 10,131
Preferred stock subject
to mandatory redemption
requirements........... 25,000 25,000 25,000
Common Stock Equity
Common stock Energy
East ($.01 par value,
200,000 shares
authorized and 118,101
shares outstanding as
of March 31, 1999)..... 598 598 83(9) 681
Common Stock Equity
Common stock
Connecticut Energy ($1
par value, 30,000
shares authorized and
10,374 shares
outstanding as of March
31, 1999).............. 10,374 (10,374)(9)
Capital in excess of par
value.................. 879,700 879,700 121,893 95,868(9) 1,097,461
Retained earnings........ 723,190 18,343 741,533 62,346 (62,346)(9) 741,533
Treasury stock, at cost
(1,500 shares at March
31, 1999).............. (38,997) (38,997) (38,997)
----------- -------------- ----------- ----------- ------------ -----------
Total Common Stock
Equity........... 1,564,491 18,343 1,582,834 194,613 23,231 1,800,678
----------- -------------- ----------- ----------- ------------ -----------
Total Liabilities
and Shareholders'
Equity........... $5,700,807 $ (838,738) $4,862,069 $486,292 $ 30,187 $5,378,548
----------- -------------- ----------- ----------- ------------ -----------
----------- -------------- ----------- ----------- ------------ -----------
</TABLE>
The notes on pages 76 to 77 are an integral part of the pro forma combined
condensed financial statements.
73
<PAGE>
ENERGY EAST CORPORATION COMBINED CONDENSED STATEMENT OF INCOME
GIVING EFFECT TO THE SALES OF ENERGY EAST'S GENERATION ASSETS
AND THE CONNECTICUT ENERGY MERGER
ACTUAL AND PRO FORMA
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR
ENDED SUB TOTAL ENDED
DECEMBER 31, SALES OF PRO FORMA SEPTEMBER 30, CONNECTICUT
1998 GENERATION ENERGY 1998 ENERGY MERGER
ENERGY EAST PRO FORMA EAST AND CONNECTICUT PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS(1) GENERATION ENERGY ACTUAL ADJUSTMENTS ENERGY EAST
------------ -------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
(in thousands, except per share amounts)
Operating Revenues
Sales and services.................. $2,499,418 $(589,201) $1,910,217 $242,431 $2,152,648
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............... 158,656 158,656 120,572 279,228
Other operating expenses............ 366,403 (61,276) 305,127 51,471 356,598
Maintenance......................... 111,502 (38,517) 72,985 3,701 76,686
Depreciation and amortization....... 191,073 (82,906) 108,167 16,904 $ 6,025(11) 131,096
Other taxes......................... 204,709 (31,540) 173,169 15,365 188,534
------------ -------------- ------------- ------------- ------------- -----------
Total Operating Expenses.......... 2,024,579 (604,773) 1,419,806 208,013 6,025 1,633,844
------------ -------------- ------------- ------------- ------------- -----------
Operating Income...................... 474,839 15,572 490,411 34,418 (6,025) 518,804
Other Income and Deductions........... 9,318 9,318 (2,331) 6,987
Interest Charges, Net................. 125,557 (1,646) 123,911 13,140 137,051
Preferred Stock Dividends of
Subsidiary.......................... 8,583 8,583 8,583
------------ -------------- ------------- ------------- ------------- -----------
Income Before Federal Income Taxes.... 331,381 17,218 348,599 23,609 (6,025) 366,183
Federal Income Taxes.................. 137,176 (330)(10) 136,846 4,598 --(10) 141,444
------------ -------------- ------------- ------------- ------------- -----------
Net Income............................ $ 194,205 $ 17,548 $ 211,753 $ 19,011 $ (6,025) $ 224,739
------------ -------------- ------------- ------------- ------------- -----------
------------ -------------- ------------- ------------- ------------- -----------
Earnings Per Share, basic and
diluted............................. $ 1.51 $ 1.64
Average Common Shares Outstanding..... 128,742 8,299(12) 137,041
</TABLE>
The notes on pages 76 to 77 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.
74
<PAGE>
ENERGY EAST CORPORATION COMBINED CONDENSED STATEMENT OF INCOME
GIVING EFFECT TO THE SALES OF ENERGY EAST'S GENERATION ASSETS
AND THE CONNECTICUT ENERGY MERGER
THREE MONTHS ENDED MARCH 31, 1999
ACTUAL AND PRO FORMA
(UNAUDITED)
<TABLE>
<CAPTION>
CONNECTICUT
SALES OF SUB TOTAL ENERGY
GENERATION PRO FORMA MERGER
ENERGY EAST PRO FORMA ENERGY EAST CONNECTICUT PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS(1) AND GENERATION ENERGY ACTUAL ADJUSTMENTS ENERGY EAST
----------- -------------- -------------- ------------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
(in thousands, except per share amounts)
Operating Revenues
Sales and services..... $654,438 $ (86,301) $568,137 $106,164 $674,301
Operating Expenses
Fuel used in
electricity
generation........... 56,485 (56,482) 3 3
Electricity
purchased............ 148,793 10,344 159,137 159,137
Natural gas
purchased............ 66,042 66,042 49,169 115,211
Other operating
expenses............. 88,788 (13,887) 74,901 13,411 88,312
Maintenance............ 25,713 (9,171) 16,542 1,053 17,595
Depreciation and
amortization......... 55,332 (28,782) 26,550 4,482 $ 1,506(11) 32,538
Other taxes............ 54,061 (8,434) 45,627 7,807 53,434
----------- -------------- -------------- ------------- ------ -----------
Total Operating
Expenses............. 495,214 (106,412) 388,802 75,922 1,506 466,230
----------- -------------- -------------- ------------- ------ -----------
Operating Income......... 159,224 20,111 179,335 30,242 (1,506) 208,071
Other Income and
Deductions............. (682) 1,692 1,010 137 1,147
Interest Charges, Net.... 32,182 (372) 31,810 3,450 35,260
Preferred Stock Dividends
of Subsidiary.......... 1,030 1,030 1,030
----------- -------------- -------------- ------------- ------ -----------
Income Before Federal
Income Taxes........... 126,694 18,791 145,485 26,655 (1,506) 170,634
Federal Income Taxes..... 39,658 11,340(10) 50,998 9,909 --(10) 60,907
----------- -------------- -------------- ------------- ------ -----------
Net Income............... $ 87,036 $ 7,451 $ 94,487 $ 16,746 $ (1,506) $109,727
----------- -------------- -------------- ------------- ------ -----------
----------- -------------- -------------- ------------- ------ -----------
Earnings Per Share, basic
and diluted............ $ .71 $ .84
Average Common Shares
Outstanding............ 122,939 8,299(12) 131,238
</TABLE>
The notes on pages 76 to 77 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.
75
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
GIVING EFFECT TO THE SALES OF ENERGY EAST'S GENERATION ASSETS
AND THE CONNECTICUT ENERGY MERGER
NOTE 1. UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
The unaudited pro forma combined condensed financial statements as of and
for the three months ended March 31, 1999, and for the 12 months ended December
31, 1998, have been adjusted to give effect to the dispositions of Energy East's
coal-fired generation assets to Edison Mission Energy in March 1999 and The AES
Corporation in May 1999, 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 Connecticut Energy merger. In accordance
with Energy East's restructuring plan approved by the Public Service Commission
of the State of New York in January 1998, all proceeds from the sales, net of
taxes and transaction costs, in excess of the net book value of the generation
assets, less funded deferred taxes, were used to write down Energy East's 18%
investment in the Nine Mile Point nuclear generating unit No. 2 in the second
quarter of 1999.
The generation adjustments on the pro forma balance sheet represent the
amount of utility plant, other property and investments, fuel, and materials and
supplies sold. Cash received, regulatory assets and long-term debt eliminated,
liabilities incurred related to the sale, such as income taxes and estimated
transaction costs, are also reflected in the adjustments. The gain from the sale
of the plants was used to write down Energy East's interest in the Nine Mile
Point nuclear generating unit No. 2. Deferred income taxes, unamortized
investment tax credits and the curtailment of pension and other postretirement
benefits, resulting from the sale, 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 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 and
Connecticut Energy for the 12 months ended December 31, 1998 and September 30,
1998, respectively, and as of and for the three months ended March 31, 1999 have
been adjusted to give effect to 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
76
<PAGE>
per Connecticut Energy 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....................................... 1.43 1.60 1.82
Number of shares (thousands)........................... 7,417 8,299 9,440
</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.
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 an amount of goodwill equal to the excess of the
estimated purchase price of $435.7 million over the estimated net fair value of
the assets and liabilities of Connecticut Energy acquired of $194.6 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. COMMON STOCK.
Reflects the Energy East shares to be 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 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, and such
items as depreciation that are accounted for differently for tax purposes.
NOTE 11. AMORTIZATION OF GOODWILL.
Represents the amortization of goodwill, which is not tax deductible, over a
40-year period.
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.
77
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS GIVING EFFECT TO THE
SALES OF ENERGY EAST'S GENERATION ASSETS, 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
SALES OF ENERGY EAST'S GENERATION ASSETS, THE CONNECTICUT ENERGY MERGER, THE
SALE OF CMP GROUP'S GENERATION ASSETS AND THE CMP GROUP MERGER AT MARCH 31, 1999
ACTUAL AND PRO FORMA (UNAUDITED)
<TABLE>
<CAPTION>
ENERGY EAST, CMP
SALES OF GROUP
GENERATION AND SALE OF CMP GROUP
CONNECTICUT GENERATION MERGER
ENERGY PRO CMP GROUP PRO FORMA PRO FORMA PRO FORMA
FORMA(1) ACTUAL ADJUSTMENTS(2) ADJUSTMENTS ENERGY EAST
-------------- ---------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(in thousands)
Assets
Current Assets
Cash and cash equivalents..................... $1,721,666 $ 33,122 $ 504,946 $(457,000)(5)(6) $ 1,802,734
Special deposits.............................. 3,731 3,731
Accounts receivable, net...................... 233,585 145,079 378,664
Other......................................... 175,668 27,522 (9,907) 193,283
-------------- ---------- --------------- ----------- -----------
Total Current Assets........................ 2,134,650 205,723 495,039 (457,000) 2,378,412
Utility Plant, at Original Cost................. 3,692,980 1,758,144 (446,079) 5,005,045
Less accumulated depreciation................. 1,268,776 704,214 (235,619) 1,737,371
-------------- ---------- --------------- ----------- -----------
Net utility plant in service................ 2,424,204 1,053,930 (210,460) 3,267,674
Construction work in progress................. 17,192 20,445 (8,374) 29,263
-------------- ---------- --------------- ----------- -----------
Total Utility Plant......................... 2,441,396 1,074,375 (218,834) 3,296,937
Other Property and Investments, Net............. 79,202 69,013 (9,760) 138,455
Regulatory...................................... 402,253 888,828 (8,459) 34,074 1,316,696
Other Assets.................................... 80,032 80,032
Goodwill........................................ 241,015 469,951(7)(8) 710,966
-------------- ---------- --------------- ----------- -----------
Total Assets................................ $5,378,548 $2,237,939 $ 257,986 $ 47,025 $ 7,921,498
-------------- ---------- --------------- ----------- -----------
-------------- ---------- --------------- ----------- -----------
</TABLE>
The notes on pages 82 to 83 are an integral part of the pro forma combined
condensed financial statements.
78
<PAGE>
ENERGY EAST CORPORATION COMBINED CONDENSED BALANCE SHEET GIVING EFFECT TO THE
SALES OF ENERGY EAST'S GENERATION ASSETS, THE CONNECTICUT ENERGY MERGER, THE
SALE OF CMP GROUP'S GENERATION ASSETS AND THE CMP GROUP MERGER AT MARCH 31, 1999
ACTUAL AND PRO FORMA (UNAUDITED)
<TABLE>
<CAPTION>
ENERGY EAST,
SALES OF CMP GROUP
GENERATION AND SALE OF CMP GROUP
CONNECTICUT GENERATION MERGER
ENERGY CMP GROUP PRO FORMA PRO FORMA PRO FORMA
PRO FORMA(1) ACTUAL ADJUSTMENTS(2) ADJUSTMENTS ENERGY EAST
-------------- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
(in thousands)
Liabilities
Current Liabilities
Current portion of long-term debt............... $ 5,055 $ 19,388 $ (19,388) $ 5,055
Current portion of preferred stock of
subsidiary.................................... 19,309 19,309
Notes payable................................... 260,000 327,253 (201,329) 385,924
Taxes accrued................................... 596,359 35,695 292,663 924,717
Other........................................... 299,757 109,119 272 $ 6,500(7) 415,648
-------------- ------------- -------------- ----------- -------------
Total Current Liabilities................... 1,180,480 491,455 72,218 6,500 1,750,653
Regulatory Liabilities
Gain on sale of generation assets............... -- 565,319 565,319
Other........................................... 147,154 481,126 628,280
-------------- ------------- -------------- ----------- -------------
Total Regulatory Liabilities................ 147,154 481,126 565,319 1,193,599
Deferred income taxes............................. 335,720 402,451 (294,468) 443,703
Other............................................. 294,462 39,917 85,184(8) 419,563
Long-term debt.................................... 1,584,816 263,810 (125,000) 500,000(6) 2,223,626
-------------- ------------- -------------- ----------- -------------
Total Liabilities........................... 3,542,632 1,638,842 257,986 591,684 6,031,144
Commitments....................................... 107 107
Preferred stock redeemable solely at the option of
subsidiary...................................... 10,131 35,528 45,659
Preferred stock subject to mandatory redemption
requirements.................................... 25,000 18,910 43,910
Common Stock Equity
Common stock Energy East ($.01 par value,
200,000 shares authorized and 126,400 shares
outstanding as of
March 31, 1999)................................. 681 681
Common Stock Equity
Common stock CMP Group, Inc. ($5 par value,
80,000 shares authorized and 32,443 shares
outstanding as of
March 31, 1999)............................... 162,213 (162,213)
Capital in excess of par value.................... 1,097,461 285,917 (285,917) 1,097,461
Retained earnings................................. 741,533 97,543 (97,543) 741,533
Treasury stock, at cost (1,500 shares at March 31,
1999)........................................... (38,997) (1,014) 1,014 (38,997)
-------------- ------------- -------------- ----------- -------------
Total Common Stock Equity................... 1,800,678 544,659 (544,659) 1,800,678
-------------- ------------- -------------- ----------- -------------
Total Liabilities and Shareholders'
Equity.................................... $5,378,548 $2,237,939 $ 257,986 $ 47,025 $7,921,498
-------------- ------------- -------------- ----------- -------------
-------------- ------------- -------------- ----------- -------------
</TABLE>
The notes on pages 82 to 83 are an integral part of the pro forma combined
condensed financial statements.
79
<PAGE>
ENERGY EAST CORPORATION COMBINED CONDENSED STATEMENT OF INCOME
GIVING EFFECT TO THE SALES OF ENERGY EAST'S GENERATION ASSETS, 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,
SALES OF FISCAL YEAR
GENERATION ENDED CMP GROUP
AND DECEMBER SALE OF CMP GROUP
CONNECTICUT 31, 1998 GENERATION MERGER
ENERGY CMP GROUP PRO FORMA PRO FORMA PRO FORMA
PRO FORMA(1) ACTUAL ADJUSTMENTS(2) ADJUSTMENTS ENERGY EAST
------------ ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(in thousands, except per share amounts)
Operating Revenues
Sales and services.......... $2,152,648 $ 950,327 $ 3,102,975
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....... 279,228 279,228
Other operating expenses.... 356,598 213,489 (18,413) 551,674
Maintenance................. 76,686 41,051 (10,020) 107,717
Depreciation and
amortization.............. 131,096 56,493 (12,300) $ 11,749(10) 187,038
Other taxes................. 188,534 27,783 (10,476) 205,841
------------ ------------- ------------- ----------- -----------
Total Operating
Expenses.............. 1,633,844 824,446 21,813 11,749 2,491,852
------------ ------------- ------------- ----------- -----------
Operating Income.............. 518,804 125,881 (21,813) (11,749) 611,123
Other Income and
Deductions.................. 6,987 (24,683) (17,696)
Interest Charges, Net......... 137,051 51,147 (11,600) 37,500 214,098
Preferred Stock Dividends of
Subsidiary.................. 8,583 4,809 13,392
------------ ------------- ------------- ----------- -----------
Income Before Federal Income
Taxes....................... 366,183 94,608 (10,213) (49,249) 401,329
Federal Income Taxes.......... 141,444 41,698 (4,085)(9) (13,125)(9) 165,932
------------ ------------- ------------- ----------- -----------
Net Income.................... $ 224,739 $ 52,910 $ (6,128) $ (36,124) $ 235,397
------------ ------------- ------------- ----------- -----------
------------ ------------- ------------- ----------- -----------
Earnings Per Share, basic
and diluted................. $ 1.64 $ 1.72
Average Common Shares
Outstanding................. 137,041 137,041
</TABLE>
The notes on pages 82 to 83 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.
80
<PAGE>
ENERGY EAST CORPORATION COMBINED CONDENSED STATEMENT OF INCOME
GIVING EFFECT TO THE SALES OF ENERGY EAST'S GENERATION ASSETS, THE CONNECTICUT
ENERGY
MERGER, THE SALE OF CMP GROUP'S GENERATION ASSETS AND THE CMP GROUP MERGER
THREE MONTHS ENDED MARCH 31, 1999
ACTUAL AND PRO FORMA
(UNAUDITED)
<TABLE>
<CAPTION>
ENERGY EAST,
SALES OF CMP GROUP
GENERATION AND SALE OF CMP GROUP
CONNECTICUT GENERATION MERGER
ENERGY CMP GROUP PRO FORMA PRO FORMA PRO FORMA
PRO FORMA(1) ACTUAL ADJUSTMENTS(2) ADJUSTMENTS ENERGY EAST
-------------- --------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(in thousands, except per share amounts)
Operating Revenues
Sales and services......................... $674,301 $276,633 $950,934
Operating Expenses
Fuel used in electricity generation........ 3 8,947 $(7,656) 1,294
Electricity purchased...................... 159,137 117,249 26,933 303,319
Natural gas purchased...................... 115,211 115,211
Other operating expenses................... 88,312 53,204 (3,683) 137,833
Maintenance................................ 17,595 8,274 (2,004) 23,865
Depreciation and amortization.............. 32,538 14,672 (3,075) $ 2,937(10) 47,072
Other taxes................................ 53,434 7,405 (2,619) 58,220
-------------- --------- ------- ----------- -----------
Total Operating Expenses................. 466,230 209,751 7,896 2,937 686,814
-------------- --------- ------- ----------- -----------
Operating Income............................. 208,071 66,882 (7,896) (2,937) 264,120
Other Income and Deductions.................. 1,147 (4,834) (3,687)
Interest Charges, Net........................ 35,260 11,796 (2,900) 9,375 53,531
Preferred Stock Dividends of Subsidiary...... 1,030 919 1,949
-------------- --------- ------- ----------- -----------
Income Before Federal Income Taxes........... 170,634 59,001 (4,996) (12,312) 212,327
Federal Income Taxes......................... 60,907 25,744 (1,998)(9) (3,281)(9) 81,372
-------------- --------- ------- ----------- -----------
Net Income................................... $109,727 $ 33,257 $(2,998) $(9,031) $130,955
-------------- --------- ------- ----------- -----------
-------------- --------- ------- ----------- -----------
Earnings Per Share, basic
and diluted................................ $ .84 $ 1.00
Average Common Shares Outstanding............ 131,238 131,238
</TABLE>
The notes on pages 82 to 83 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.
81
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS GIVING
EFFECT TO THE SALES OF ENERGY EAST'S GENERATION ASSETS, 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 financial statements as of and
for the three months ended March 31, 1999, and for the 12 months ended December
31, 1998, have been adjusted to give effect to the disposition of Energy East's
coal-fired generation assets to Edison Mission Energy in March 1999 and The AES
Corporation in May 1999, 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, the Connecticut Energy merger, the sale of CMP
Group's steam and hydro generation assets to FPL Group in April 1999 and the CMP
Group merger. In accordance with Energy East's restructuring plan approved by
the Public Service Commission of the State of New York in January 1998, all
proceeds from the sales, net of taxes and transaction costs, in excess of the
net book value of the generation assets, less funded deferred taxes, were used
to write down Energy East's 18% investment in the Nine Mile Point nuclear
generating unit No. 2 in the second quarter of 1999.
NOTE 2. SALE OF CMP GROUP'S GENERATION ASSETS.
The generation adjustments on the pro forma balance sheet represent the
amount of utility plant, other property and investments, fuel and materials and
supplies sold. Cash received, regulatory assets added, current and long-term
debt eliminated, liabilities incurred (such as income taxes and estimated
transaction costs) and the deferred gain on the generation assets are also
reflected in the adjustments.
The generation adjustments on the pro forma income statements 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 3. 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 4. 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 three months ended March 31, 1999 have been
adjusted to give effect to the Connecticut Energy merger and the CMP Group
merger.
NOTE 5. 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.
82
<PAGE>
NOTE 6. NOTES PAYABLE.
Reflects the issuance of $500 million principal amount of 7.5% notes
payable, the proceeds of which will be used to fund the consideration paid to
CMP Group shareholders.
NOTE 7. 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 amount of
merger-related costs may differ from the amounts reflected in the unaudited pro
forma combined condensed financial statements.
NOTE 8. 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 $545 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 post retirement
benefit obligation and the fair value of the respective plan assets.
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.
NOTE 10. AMORTIZATION OF GOODWILL.
Represents the amortization of goodwill, which is not tax deductible, over a
40-year period.
83
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS GIVING EFFECT TO THE
SALES OF ENERGY EAST'S GENERATION ASSETS, THE CONNECTICUT ENERGY MERGER, THE
SALE OF CMP GROUP'S GENERATION ASSETS, THE CMP GROUP MERGER AND THE CTG
RESOURCES MERGER
ENERGY EAST CORPORATION COMBINED CONDENSED BALANCE SHEET
GIVING EFFECT TO THE SALES OF ENERGY EAST'S GENERATION ASSETS, THE CONNECTICUT
ENERGY MERGER, THE SALE OF CMP GROUP'S GENERATION ASSETS, THE CMP
GROUP MERGER AND THE CTG RESOURCES MERGER
AT MARCH 31, 1999
ACTUAL AND PRO FORMA
(UNAUDITED)
<TABLE>
<CAPTION>
ENERGY EAST,
SALES OF
GENERATION, CTG RESOURCES
CONNECTICUT ENERGY MERGER
AND CMP GROUP CTG RESOURCES PRO FORMA PRO FORMA
PRO FORMA(1) ACTUAL ADJUSTMENTS ENERGY EAST
------------------ ------------- -------------- -----------
<S> <C> <C> <C> <C>
Assets (in thousands)
Current Assets
Cash and cash equivalents... $1,802,734 $ 21,963 $ (195,013)(5) $ 1,629,684
Special deposits............ 3,731 3,731
Accounts receivable, net.... 378,664 66,518 445,182
Other....................... 193,283 16,814 210,097
------------------ ------------- -------------- -----------
Total Current Assets.... 2,378,412 105,295 (195,013) 2,288,694
Utility Plant, at Original
Cost........................ 5,005,045 517,066 5,522,111
Less accumulated
depreciation.............. 1,737,371 184,658 1,922,029
------------------ ------------- -------------- -----------
Net utility plant in
service............... 3,267,674 332,408 3,600,082
Construction work in
progress.................. 29,263 5,535 34,798
------------------ ------------- -------------- -----------
Total Utility Plant..... 3,296,937 337,943 3,634,880
Other Property and
Investments, Net............ 138,455 11,902 150,357
Regulatory.................... 1,316,696 8,321 1,325,017
Other Assets.................. 80,032 29,081 3,540(6) 112,653
Goodwill...................... 710,966 218,836(6)(7)(8) 929,802
------------------ ------------- -------------- -----------
Total Assets............ $7,921,498 $ 492,542 $ 27,363 $ 8,441,403
------------------ ------------- -------------- -----------
------------------ ------------- -------------- -----------
</TABLE>
The notes on pages 88 to 89 are an integral part of the pro forma combined
condensed financial statements.
84
<PAGE>
ENERGY EAST CORPORATION COMBINED CONDENSED BALANCE SHEET
GIVING EFFECT TO THE SALES OF ENERGY EAST'S GENERATION ASSETS, THE CONNECTICUT
ENERGY MERGER, THE SALE OF CMP GROUP'S GENERATION ASSETS, THE CMP
GROUP MERGER AND THE CTG RESOURCES MERGER
AT MARCH 31, 1999
ACTUAL AND PRO FORMA
(UNAUDITED)
<TABLE>
<CAPTION>
ENERGY EAST,
SALES OF
GENERATION,
CONNECTICUT ENERGY CTG RESOURCES
AND CMP GROUP CTG RESOURCES MERGER PRO FORMA PRO FORMA
PRO FORMA(1) ACTUAL ADJUSTMENTS ENERGY EAST
------------------ -------------- ----------------- -----------
<S> <C> <C> <C> <C>
Liabilities (in thousands)
Current Liabilities
Current portion of long-term debt.......... $ 5,055 $ 3,235 $ 8,290
Current portion of preferred stock of
subsidiary............................... 19,309 19,309
Notes payable.............................. 385,924 385,924
Taxes accrued.............................. 924,717 924,717
Other...................................... 415,648 53,133 $ 3,500(8) 472,281
------------------ -------------- ----------------- -----------
Total Current Liabilities.............. 1,750,653 56,368 3,500 1,810,521
Regulatory Liabilities
Gain on sale of generation assets.......... 565,319 565,319
Other...................................... 628,280 80,835 709,115
------------------ -------------- ----------------- -----------
Total Regulatory Liabilities........... 1,193,599 80,835 1,274,434
Deferred income taxes........................ 443,703 1,239 444,942
Other........................................ 419,563 419,563
Long-term debt............................... 2,223,626 217,528 2,441,154
------------------ -------------- ----------------- -----------
Total Liabilities...................... 6,031,144 354,731 4,739 6,390,614
Commitments.................................. 107 107
Preferred stock redeemable solely at the
option of subsidiary....................... 45,659 879 46,538
Preferred stock subject to mandatory
redemption requirements.................... 43,910 43,910
Common Stock Equity
Common stock Energy East
($.01 par value, 200,000 shares
authorized and 126,400 shares outstanding
as of March 31, 1999).................... 681 61(9) 742
Common Stock Equity
Common stock CTG Resources
(no par value, 20,000 shares authorized
and 8,648 shares outstanding as of March
31, 1999)................................
Capital in excess of par value............... 1,097,461 67,448 92,047(9) 1,256,956
Retained earnings............................ 741,533 69,884 (69,884)(9) 741,533
Unearned compensation--restricted stock
awards..................................... (400) 400
Treasury stock, at cost (1,500 shares at
March 31, 1999)............................ (38,997) (38,997)
------------------ -------------- ----------------- -----------
Total Common Stock Equity.............. 1,800,678 136,932 22,624 1,960,234
------------------ -------------- ----------------- -----------
Total Liabilities and Shareholders'
Equity............................... $ 7,921,498 $ 492,542 $ 27,363 $ 8,441,403
------------------ -------------- ----------------- -----------
------------------ -------------- ----------------- -----------
</TABLE>
The notes on pages 88 to 89 are an integral part of the pro forma combined
condensed financial statements.
85
<PAGE>
ENERGY EAST CORPORATION COMBINED CONDENSED STATEMENT OF INCOME
GIVING EFFECT TO THE SALES OF ENERGY EAST'S GENERATION ASSETS, THE CONNECTICUT
ENERGY MERGER, THE SALE OF CMP GROUP'S GENERATION ASSETS, THE CMP
GROUP MERGER AND THE CTG RESOURCES MERGER
ACTUAL AND PRO FORMA
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31, 1998
ENERGY EAST,
SALES OF FISCAL YEAR ENDED
GENERATION, SEPTEMBER 30, CTG RESOURCES
CONNECTICUT ENERGY 1998 MERGER
AND CMP GROUP CTG RESOURCES PRO FORMA PRO FORMA
PRO FORMA(1) ACTUAL ADJUSTMENTS ENERGY EAST
------------------ ----------------- ------------- -----------
<S> <C> <C> <C> <C>
(in thousands, except per share amounts)
Operating Revenues
Sales and services.......... $3,102,975 $ 282,748 $ 3,385,723
Operating Expenses
Fuel used in electricity
generation................ 1,909 1,909
Electricity purchased....... 1,158,445 1,158,445
Natural gas purchased....... 279,228 150,685 429,913
Other operating expenses.... 551,674 45,623 597,297
Maintenance................. 107,717 8,361 116,078
Depreciation and
amortization.............. 187,038 19,305 $ 5,471(10) 211,814
Other taxes................. 205,841 17,109 222,950
------------------ ----------------- ------------- -----------
Total Operating
Expenses................ 2,491,852 241,083 5,471 2,738,406
------------------ ----------------- ------------- -----------
Operating Income.............. 611,123 41,665 (5,471) 647,317
Other Income and Deductions... (17,696) (1,665) (19,361)
Interest Charges, Net......... 214,098 15,924 230,022
Preferred Stock Dividends of
Subsidiary.................. 13,392 61 13,453
------------------ ----------------- ------------- -----------
Income Before Federal Income
Taxes....................... 401,329 27,345 (5,471) 423,203
Federal Income Taxes.......... 165,932 12,210 --(11) 178,142
------------------ ----------------- ------------- -----------
Net Income.................... $ 235,397 $ 15,135 $ (5,471) $ 245,061
------------------ ----------------- ------------- -----------
------------------ ----------------- ------------- -----------
Earnings Per Share, basic and
diluted..................... $ 1.72 $ 1.71
Average Common Shares
Outstanding................. 137,041 6,107(12) 143,148
</TABLE>
The notes on pages 88 to 89 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.
86
<PAGE>
ENERGY EAST CORPORATION COMBINED CONDENSED STATEMENT OF INCOME
GIVING EFFECT TO THE SALES OF ENERGY EAST'S GENERATION ASSETS, THE CONNECTICUT
ENERGY MERGER, THE SALE OF CMP GROUP'S GENERATION ASSETS, THE CMP
GROUP MERGER AND THE CTG RESOURCES MERGER
THREE MONTHS ENDED MARCH 31, 1999
ACTUAL AND PRO FORMA
(UNAUDITED)
<TABLE>
<CAPTION>
ENERGY EAST,
SALES OF GENERATION,
CONNECTICUT CTG RESOURCES
ENERGY AND CMP MERGER PRO
GROUP CTG RESOURCES FORMA PRO FORMA
PRO FORMA(1) ACTUAL ADJUSTMENTS ENERGY EAST
-------------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
(in thousands, except per share amounts)
Operating Revenues
Sales and services.......... $950,934 $113,001 $ 1,063,935
Operating Expenses
Fuel used in electricity
generation................ 1,294 1,294
Electricity purchased....... 303,319 303,319
Natural gas purchased....... 115,211 59,167 174,378
Other operating expenses.... 137,833 12,912 150,745
Maintenance................. 23,865 1,959 25,824
Depreciation and
amortization.............. 47,072 5,086 $ 1,368(10) 53,526
Other taxes................. 58,220 5,912 64,132
-------- ------------- ------------- -----------
Total Operating
Expenses................ 686,814 85,036 1,368 773,218
-------- ------------- ------------- -----------
Operating Income.............. 264,120 27,965 (1,368) 290,717
Other Income and Deductions... (3,687) (510) (4,197)
Interest Charges, Net......... 53,531 4,259 57,790
Preferred Stock Dividends of
Subsidiary.................. 1,949 16 1,965
-------- ------------- ------------- -----------
Income Before Federal Income
Taxes....................... 212,327 24,200 (1,368) 235,159
Federal Income Taxes.......... 81,372 11,975 --(11) 93,347
-------- ------------- ------------- -----------
Net Income.................... $130,955 $ 12,225 $(1,368) $ 141,812
-------- ------------- ------------- -----------
-------- ------------- ------------- -----------
Earnings Per Share, basic and
diluted..................... $ 1.00 $ 1.03
Average Common Shares
Outstanding................. 131,238 6,107(12) 137,345
</TABLE>
The notes on pages 88 to 89 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.
87
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
GIVING EFFECT TO THE SALES OF ENERGY EAST'S GENERATION ASSETS, THE CONNECTICUT
ENERGY MERGER, THE SALE OF CMP GROUP'S GENERATION ASSETS, THE CMP
GROUP MERGER AND THE CTG RESOURCES MERGER
NOTE 1. UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
The unaudited pro forma combined condensed financial statements as of and
for the three months ended March 31, 1999, and for the 12 months ended December
31, 1998, have been adjusted to give effect to the disposition of Energy East's
coal-fired generation assets to Edison Mission Energy in March 1999 and The AES
Corporation in May 1999, 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, the Connecticut Energy merger, the sale of
CMP Group's steam and hydro generation assets to FPL Group in April 1999, the
CMP Group merger and the CTG Resources merger. In accordance with Energy East's
restructuring plan approved by the Public Service Commission of the State of New
York in January 1998, all proceeds from the sales, net of taxes and transaction
costs, in excess of the net book value of the generation assets, less funded
deferred taxes, were used to write down Energy East's 18% investment in the Nine
Mile Point nuclear generating unit No. 2 in the second quarter of 1999.
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 Corporation 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, CMP Group and CTG Resources for the years ended December 31, 1998 and
September 30, 1998, and as of and for the three months ended March 1, 1999 have
been adjusted to give effect to the Connecticut Energy merger, the CMP Group
merger and 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 provided for
by 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>
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.
88
<PAGE>
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 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 $137 million, plus estimated
transaction costs of $3.5 million related to the merger.
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 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. AMORTIZATION OF GOODWILL.
Represents the amortization of goodwill, which is not tax deductible, over a
40-year period.
NOTE 11. 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 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.
89
<PAGE>
COMPARATIVE RIGHTS OF CONNECTICUT ENERGY
SHAREHOLDERS AND ENERGY EAST SHAREHOLDERS
As a result of the merger, some or all of the Connecticut Energy
shareholders will become Energy East shareholders. The rights of Connecticut
Energy shareholders are presently governed by the Connecticut Business
Corporation Act, the Connecticut Energy certificate of incorporation and the
Connecticut Energy 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 Connecticut
Energy 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.
<TABLE>
<S> <C>
ENERGY EAST CONNECTICUT ENERGY
AUTHORIZED CAPITAL STOCK
Energy East's authorized capital stock Connecticut Energy's authorized capital
consists of 300,000,000 shares of common stock consists of 30,000,000 shares of
stock, par value $.01 per share, of which common stock, par value $1.00 per share, of
114,724,428 were outstanding at the close of which 10,387,615 were outstanding at the
business on July 20, 1999, and 10,000,000 close of business on July 12, 1999, and
shares of preferred stock, par value $.01 1,000,000 shares of preferred stock, par
per share, none of which was outstanding at value $1.00 per share, none of which was
the close of business on July 20, 1999. outstanding at the close of business on July
12, 1999.
VOTING RIGHTS
Each Energy East shareholder generally Each Connecticut Energy shareholder is
is entitled to one vote per share. In entitled to one vote per share. Connecticut
elections of directors, however, Energy East Energy shareholders may not cumulate their
shareholders are entitled to "cumulate" votes in an election of directors.
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 Under the Connecticut Business Corporation
Law, Energy East may declare and pay Act, Connecticut Energy may make
dividends or make other distributions to distributions to its shareholders (subject
Energy East shareholders (subject to the to restrictions in its certificate of
rights of preferred stock, none of which is incorporation), unless, after doing so,
outstanding), unless, after doing so, Energy Connecticut Energy would be unable to pay
East would be unable to pay its debts as its debts as they become due in the usual
they become due in the ordinary course of course of its business, or its total assets
its business, or when doing so would be would be less than the sum of its total
contrary to any restrictions contained in liabilities plus the amount that would be
the Energy East certificate of needed, upon a dissolution, to satisfy the
incorporation. Moreover, the net assets of preferential rights of shareholders whose
Energy East remaining after a declaration, preferential rights are superior to those
payment, or distribution must be at least as receiving the distribution.
much as Energy East's stated capital.
</TABLE>
90
<PAGE>
<TABLE>
<S> <C>
ELECTION AND CLASSIFICATION OF THE BOARD OF DIRECTORS
The Energy East board of directors is The Connecticut Energy board of directors is
composed of three classes. One class is composed of three classes. One class is
elected each year for a three-year term. elected each year for a three-year term.
SIZE OF THE BOARD OF DIRECTORS
The Energy East board of directors may The Connecticut Energy by-laws set the
fix the number of directors by a vote of a number of Connecticut Energy directors at
majority of the directors then in office. eight.
When the Energy East board of directors
increases the number of directors, it will
elect the additional directors. The Energy
East board of directors currently consists
of ten directors. After the merger, the
Energy East board of directors will consist
of 11 directors. After the mergers with CMP
Group and CTG Resources, 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 Under the Connecticut Energy by-laws, a
otherwise provided by the New York Business director may be removed only for cause and
Corporation Law, a director may be removed only by (1) a majority of the directors then
only for cause and only by a majority of the in office, or (2) the holders of at least
outstanding Energy East shares at a meeting 80% of the outstanding Connecticut Energy
of shareholders. The New York Business voting stock. Under the Connecticut Energy
Corporation Law provides that, when a certificate of incorporation, any vacancies
corporation has cumulative voting, no on the Connecticut Energy board of directors
director may be removed when the votes cast will be filled solely by the affirmative
against his removal would be sufficient to vote of a majority of the remaining
elect him if voted cumulatively. Any directors, even though less than a quorum,
vacancies on the Energy East board of and not by the shareholders.
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 Under the Connecticut Energy by-laws,
meetings of shareholders may be called by special meetings of shareholders may be
the chairman, the president or at the called by the chairman of the board, the
request of a majority of the board of president or a majority of the Connecticut
directors or of a majority of the Energy board of directors. Connecticut
outstanding Energy East shares. Energy East Energy shareholders may act without a
shareholders may act without a meeting but meeting but only by unanimous written
only by unanimous written consent. Under the consent. Under the Connecticut Business
New York Business Corporation Law, the only Corporation Act, the only business that may
business that may be conducted at a special be conducted at a special meeting of
meeting of shareholders is that which is shareholders is that which is related to the
related to the purposes set forth in the purposes set forth in the notice of the
notice of the meeting. meeting.
</TABLE>
91
<PAGE>
<TABLE>
<S> <C>
ADVANCE NOTICE PROVISIONS
For an Energy East shareholder to For a Connecticut Energy shareholder to
nominate individuals for election as nominate individuals for election as
directors or to bring a matter before an directors, he must give the secretary of
annual meeting, the secretary of Energy East Connecticut Energy a written notice of his
must receive written notice of the intent, either by personal delivery or by
shareholder's intent, containing certain mail not later than (1) with respect to an
required information. With respect to an election to be held at an annual meeting of
election at, or a matter to be brought shareholders, 90 days in advance of the
before an annual meeting, the secretary must meeting, and (2) with respect to an election
receive the notice between 90 and 120 days of directors to be held at a special meeting
before the anniversary of the preceding of shareholders, seven days after the date
annual meeting. With respect to an election on which notice of the meeting is first
at a special meeting, the secretary must given to Connecticut Energy shareholders.
receive the notice at least ten days before
the earlier of (1) the date notice of the
special meeting was mailed and (2) the date
that the date of the special meeting was
publicly disclosed.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The New York Business Corporation Law Under the Connecticut Energy by-laws,
generally provides that a corporation may Connecticut Energy will indemnify, to the
indemnify an officer or director made a fullest extent permitted by law, a current
party or threatened to be made a party to or former director, officer, employee or
any type of proceeding against judgments, agent of Connecticut Energy, as well as an
fines, amounts paid in settlement and individual who is serving or has served as a
expenses (including attorneys' fees) director, officer or in any other capacity
actually and necessarily incurred in of another company at Connecticut Energy's
connection with the proceedings: request. Under the Connecticut Business
- - if he acted in good faith for a purpose he Corporation Act, Connecticut Energy
reasonably believed to be in or not generally may indemnify a director against
opposed to the best interests of the liability incurred because he is or was a
corporation; and director if:
- - in the case of a criminal proceeding, if - he conducted himself in good faith;
he had no reasonable cause to believe that - he reasonably believed (a) in the case of
his conduct was unlawful. conduct in his official capacity with
The New York Business Corporation Law sets Connecticut Energy, that his conduct was
specific standards only for indemnification in the best interests of Connecticut
of officers and directors, but it permits Energy, and (b) in all other cases, that
corporations to indemnify corporate his conduct was at least not opposed to
personnel other than officers and directors. Connecticut Energy's best interests; and
Energy East's by-laws generally provide - in the case of any criminal proceeding, he
for indemnification, as described above, of had no reasonable cause to believe his
directors and officers, as well as conduct was unlawful.
employees, of Energy East and of other Also under Connecticut law, Connecticut
companies which such persons were serving at Energy generally may indemnify an officer,
the request of Energy East, to the extent employee or agent of Connecticut Energy who
not prohibited by law. Under Energy East's is not a director to the same extent as a
by-laws, a director, officer or employee may director, and, in addition, to the extent
be entitled to other indemnification rights consistent with public policy, or as
arising under any statute, certificate of provided by contract, Connecticut Energy's
incorporation, by-law or agreement. certificate of incorporation or by-laws.
A director, officer or employee may be
entitled to other indemnification rights
arising under any statute, certificate of
incorporation, by-law or agreement.
</TABLE>
92
<PAGE>
<TABLE>
<S> <C>
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Energy East certificate of The Connecticut Energy certificate of
incorporation generally may be amended by a incorporation generally may be amended by
majority of the outstanding Energy East (1) a majority of the votes entitled to be
shares but the provision relating to cast on the amendment by any voting group
amendments to certain by-laws may be amended with respect to which the amendment would
only by two-thirds of the votes of the create dissenters' rights; and (2) if a
outstanding Energy East shares. Furthermore, majority of the votes entitled to be cast on
under the New York Business Corporation Law, the matter by any other voting group is
any amendment to the Energy East certificate present at the meeting, a majority of the
of incorporation must be authorized by the present shares of that voting group. The
Energy East board of directors. provisions relating to transactions with
interested shareholders may be amended only
by 80% of the Connecticut Energy voting
stock, unless at least two-thirds of the
disinterested directors recommended the
amendment to Connecticut Energy shareholders
at a time when there is no interested
shareholder, in which case the amendment
requires only a majority vote. Furthermore,
under the Connecticut Business Corporation
Act, any amendment to the Connecticut Energy
certificate of incorporation generally must
be recommended by the Connecticut Energy
board of directors. The Connecticut Energy
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 The Connecticut Energy by-laws may be
by a majority of the outstanding Energy East amended by (1) the holders of at least 80%
shares, or by a majority of the Energy East of Connecticut Energy voting stock, or (2) a
board of directors. However, an amendment of majority of the Connecticut Energy board of
some by-laws, if by action of Energy East directors.
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.
DUTY OF DIRECTORS
Under the New York Business Corporation Under the Connecticut Business Corporation
Law, in performing his duties, an Energy Act, in performing his duties, a Connecticut
East director is required to act in good Energy director is required to act in good
faith and to use that degree of care that an faith, with the care an ordinarily prudent
ordinarily prudent person in a similar person in a similar position would exercise
position would use under similar under similar circumstances and in a manner
circumstances. he reasonably believes to be in Connecticut
Energy's best interests.
</TABLE>
93
<PAGE>
<TABLE>
<S> <C>
In taking action, including action that In taking action related to mergers, sales
may involve or relate to a change or of assets and business combinations, a
potential change in control of Energy East, director must also consider:
a director may consider the long-term and - Connecticut Energy's long-term and
short-term interests of Energy East and short-term interests;
Energy East shareholders and the effects - Connecticut Energy shareholders' long-term
that Energy East's actions may have in the and short-term interests, including the
short-term or in the long-term upon Energy possibility that those interests may be
East's: best served by Connecticut Energy's
- - prospects for growth and development; continued independence;
- - current employees; - the interests of Connecticut Energy's
- - retired employees and others receiving employees, customers, creditors and
retirement, welfare or similar benefits suppliers;
from or pursuant to any plan or agreement - community and societal considerations,
of Energy East; including those of any community in which
- - customers and creditors; and Connecticut Energy has an office or other
- - ability to provide, as a going concern, facility; and
goods, services, employment opportunities - any other factors he reasonably considers
and employment benefits and otherwise to appropriate in determining what he
contribute to the communities in which it reasonably believes to be in the best
does business. interests of the corporation.
BUSINESS COMBINATIONS
Under the Energy East certificate of Under the Connecticut Business Corporation
incorporation, a majority of the outstanding Act, an affirmative vote by two- thirds of
Energy East shares are needed to adopt a the outstanding shares are needed to adopt a
plan of merger or consolidation. plan of merger or consolidation, unless the
Section 912 of the New York Business Connecticut corporation is the surviving
Corporation Law prohibits a New York company.
corporation from engaging in certain The Connecticut Business Corporation Act
business combinations with an interested prohibits a Connecticut corporation from
shareholder (generally, the beneficial owner engaging in a merger, consolidation or other
of 20% or more of a corporation's voting business combination with an interested
stock) for five years following the time the shareholder (generally, the beneficial owner
shareholder became an interested of 10% or more of a corporation's voting
shareholder, unless, prior to that time, the stock) for five years following the time the
corporation's board of directors approved shareholder became an interested
the business combination or the transaction shareholder, unless, prior to that time, the
that resulted in the shareholder becoming an corporation's board of directors and a
interested shareholder. After five years, majority of the non-employee directors, of
these business combinations may occur if which there must be at least two, approved
approved by a majority vote of shares not the business combination or the transaction
owned by the interested shareholder, or if that resulted in the shareholder becoming an
specific fair price requirements are met. interested shareholder. After five years,
business combinations may occur only if
approved by 80% of the outstanding shares of
the 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.
</TABLE>
94
<PAGE>
<TABLE>
<S> <C>
FAIR PRICE PROVISIONS
Under the New York Business Corporation Under the Connecticut Energy certificate of
Law, a corporation may engage in a business incorporation, Connecticut Energy
combination with any interested shareholder shareholders are entitled to receive the
when the cash and other consideration to be fair value of their Connecticut Energy
received by the other shareholders is the shares in the event of a business
higher of: combination with an interested shareholder.
- - the highest per share price paid by the The fair value of the Connecticut Energy
interested shareholder at a time when he shares is the higher of:
beneficially owned at least five percent - the highest price paid by an interested
of the outstanding voting stock and within shareholder of Connecticut Energy within
the five years immediately prior to the the two years preceding the announcement
date the business combination is first date (the first public announcement of the
announced; proposed business combination) by the
- - the highest price paid by the interested interested shareholder in the transaction
shareholder within the five years in which it became an interested
immediately prior to, or in, the shareholder; or
transaction in which he became an - the fair market value (generally, the
interested shareholder; and highest closing sale price of Connecticut
- - the market value per share of common stock Energy shares) immediately preceding the
on the date the business combination is announcement date or the determination
first announced or on the interested date (the date the interested shareholder
shareholder's stock acquisition date, became an interested shareholder),
whichever is higher; whichever is higher;
plus, in each case, any accrued interest, multiplied by the ratio of (1) the highest
and less, in each case, any paid dividends. per share price (including any brokerage
commissions, transfer taxes and soliciting
dealers' fees) paid by the interested
shareholder in the two years immediately
prior to the announcement date to (2) the
fair market value of the Connecticut Energy
shares on the first day of the two years
immediately preceding the announcement date.
STATE LAW TAKEOVER LEGISLATION
The New York Security Takeover The Connecticut Tender Offer Act generally
Disclosure Act does not apply to Energy East places restrictions on tender offers and
because Energy East is a public utility purchases of equity securities. However,
holding company as defined in the Public this statute does not apply to companies
Utility Holding Company Act and any takeover like Connecticut Energy that are public
bid would be subject to SEC approval. utility holding companies (as defined in the
Public Utility Holding Company Act), an
acquisition of which would be subject to SEC
approval.
SHAREHOLDER RIGHTS PLAN
Energy East does not have a shareholder Connecticut Energy is a party to a rights
rights plan. agreement, dated as of July 28, 1998, as
amended, between Connecticut Energy and
BankBoston, N.A., as rights agent. Under the
agreement, Connecticut Energy shares
currently trade with certain stock purchase
rights. These rights, which cannot be traded
separately from Connecticut Energy shares,
become exercisable upon the occurrence of
certain triggering events,
</TABLE>
95
<PAGE>
<TABLE>
<S> <C>
including acquisition by any beneficial
holder of 15% or more of Connecticut Energy
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 Connecticut Energy that the
Connecticut Energy board of directors has
not approved. The rights agreement does not
apply to the proposed merger between
Connecticut Energy and Energy East, and will
be terminated upon completion of the merger.
</TABLE>
96
<PAGE>
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 July 12, 1999,
members of Huber Lawrence & Abell owned 4,388 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 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.
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.
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of PricewaterhouseCoopers 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
In order for shareholder proposals for the 2000 Connecticut Energy annual
meeting of shareholders to be eligible for inclusion in the Connecticut Energy
proxy statement, they must be received by Connecticut Energy at its principal
office in Bridgeport, Connecticut, prior to August 13, 1999. With respect to
shareholder proposals for the 2000 annual meeting of shareholders that are not
sought to be included in the 2000 Connecticut Energy proxy statement,
Connecticut Energy may exercise the discretionary voting authority granted under
proxies with respect to such proposals, unless written notice of such proposals
is received by Connecticut Energy at its principal office in Bridgeport,
Connecticut on or before October 28, 1999.
97
<PAGE>
CERTAIN PROXY CARD MATTERS
The proxy card for a participant in the Connecticut Energy Dividend
Reinvestment and Stock Purchase Plan, The Southern Connecticut Gas Company
Target Plan, the Non-Employee Director Stock Plan or the Restricted Stock Award
Plan includes both the number of Connecticut Energy shares registered in the
participant's name and the number of shares credited to the participant's plan
account, unless the registrations are different. Connecticut Energy 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.
98
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Connecticut Energy 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:
<TABLE>
<CAPTION>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
Room 1024, Judiciary Plaza Suite 1300 Citicorp Center
450 Fifth Street, N.W. 7 World Trade Center Suite 1400
Washington, DC 20549 New York, New York 10048 500 West Madison Street
Chicago, Illinois 60661-2511
</TABLE>
Please call the SEC at 1-800-732-0330 for further information on the public
reference rooms. Connecticut Energy'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 Connecticut Energy and Energy
East can be inspected at the New York Stock Exchange, 20 Broad Street, 7th
Floor, New York, New York 10005, where Connecticut Energy shares and Energy East
shares are listed.
The SEC allows Connecticut Energy and Energy East to "incorporate by
reference" information into this document, which means that Connecticut Energy
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 Connecticut Energy (SEC
File No. 1-08369), Energy East (SEC File No. 1-14766), CMP Group (SEC File No.
1-14786) or CTG Resources (SEC File No. 1-12859). These documents contain
important information about Connecticut Energy, Energy East, CMP Group and CTG
Resources.
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 Current Report on Form 8-K dated February 18, 1999.
- Connecticut Energy's Current Report on Form 8-K dated April 22, 1999.
- Connecticut Energy's Current Report on Form 8-A/A dated May 14, 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 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 Registration Statement on Form S-8 dated December 17, 1998
(for a description of Energy East capital stock).
99
<PAGE>
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 Current Report on Form 8-K dated April 7, 1999.
- CMP Group's Current Report on Form 8-K dated June 14, 1999.
REGARDING CTG RESOURCES
- CTG Resources's Annual Report on Form 10-K, as amended on June 29, 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 Current Report on Form 8-K dated June 29, 1999.
The SEC may require Connecticut Energy 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 Connecticut Energy 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:
<TABLE>
<CAPTION>
<S> <C>
CONNECTICUT ENERGY CORPORATION ENERGY EAST CORPORATION
Shareholder Services Shareholder Services
855 Main Street P.O. Box 3200
Bridgeport, Connecticut 06604 Ithaca, New York 14852-3200
1-800-760-7776 1-800-225-5643
</TABLE>
If you would like to request documents from Connecticut Energy or Energy
East, please do so promptly in order to receive them before the special meeting.
Connecticut Energy has provided all information contained in or incorporated
by reference in this document with respect to Connecticut Energy. Energy East
has provided all information contained in or incorporated by reference in this
document with respect to Energy East. Neither Connecticut Energy 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 JULY 23, 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.
100
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE NO.
-------------
<S> <C>
Alternative Proposals................................................................................... 60
Average Market Price.................................................................................... 29
Connecticut Energy Comparable Companies................................................................. 36
EBIT.................................................................................................... 37
EBITDA.................................................................................................. 37
Energy East Comparable Companies........................................................................ 36
LTM..................................................................................................... 37
NYSEG................................................................................................... 22
</TABLE>
101
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CONNECTICUT ENERGY CORPORATION,
ENERGY EAST CORPORATION
AND
MERGER CO.,
dated as of April 23, 1999*
A-i
*Text of Appendix A reflects First Amendment to Agreement and Plan of Merger
dated as of July 15, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE I
THE MERGER
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-1
Section 1.5 Officers................................................................................. A-2
ARTICLE II
TREATMENT OF SHARES
Section 2.1 Effect of the Merger on Capital Stock.................................................... A-2
Section 2.2 Exchange of Certificates................................................................. A-5
ARTICLE III
THE CLOSING
Section 3.1 Closing.................................................................................. A-7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 4.1 Organization and Qualification........................................................... A-7
Section 4.2 Subsidiaries............................................................................. A-8
Section 4.3 Capitalization........................................................................... A-8
Section 4.4 Authority; Non-Contravention; Statutory Approvals; Compliance............................ A-8
Section 4.5 Reports and Financial Statements......................................................... A-10
Section 4.6 Absence of Certain Changes or Events..................................................... A-10
Section 4.7 Litigation............................................................................... A-10
Section 4.8 Registration Statement and Proxy Statement............................................... A-10
Section 4.9 Tax Matters.............................................................................. A-11
Section 4.10 Employee Matters; ERISA.................................................................. A-12
Section 4.11 Environmental Protection................................................................. A-15
Section 4.12 Regulation as a Utility.................................................................. A-16
Section 4.13 Vote Required............................................................................ A-16
Section 4.14 Opinion of Financial Advisor............................................................. A-17
Section 4.15 Ownership of Parent Common Stock......................................................... A-17
Section 4.16 Takeover Laws; Rights Plans.............................................................. A-17
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT
Section 5.1 Organization and Qualification........................................................... A-17
Section 5.2 Subsidiaries............................................................................. A-17
Section 5.3 Capitalization........................................................................... A-18
Section 5.4 Authority; Non-Contravention; Statutory Approvals; Compliance............................ A-18
Section 5.5 Reports and Financial Statements......................................................... A-19
Section 5.6 Absence of Certain Changes or Events..................................................... A-20
Section 5.7 Litigation............................................................................... A-20
Section 5.8 Registration Statement and Proxy Statement............................................... A-20
Section 5.9 Regulation as a Utility.................................................................. A-20
Section 5.10 Ownership of the Company Common Stock.................................................... A-20
Section 5.11 Environmental Protection................................................................. A-20
Section 5.12 Operations of Nuclear Power Plant........................................................ A-21
Section 5.13 Code Section 368(a)...................................................................... A-21
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 Covenants of the Parties................................................................. A-21
Section 6.2 Covenant of the Company; Alternative Proposals........................................... A-24
Section 6.3 Covenant of Parent; Employment Agreements................................................ A-25
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Access to Information.................................................................... A-25
Section 7.2 Proxy Statement and Registration Statement............................................... A-26
Section 7.3 Regulatory Matters....................................................................... A-26
Section 7.4 Shareholder Approval..................................................................... A-26
Section 7.5 Directors' and Officers' Indemnification................................................. A-27
Section 7.6 Disclosure Schedules..................................................................... A-28
Section 7.7 Public Announcements..................................................................... A-28
Section 7.8 Rule 145 Affiliates...................................................................... A-28
Section 7.9 Certain Employee Agreements.............................................................. A-28
Section 7.10 Employee Benefit Plans................................................................... A-29
Section 7.11 Company Stock Plans...................................................................... A-29
Section 7.12 Expenses................................................................................. A-30
Section 7.13 Further Assurances....................................................................... A-30
Section 7.14 Corporate Offices........................................................................ A-30
Section 7.15 Community Involvement.................................................................... A-30
Section 7.16 Advisory Board........................................................................... A-30
Section 7.17 Tax-Free Status.......................................................................... A-30
ARTICLE VIII
CONDITIONS
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger............................... A-30
Section 8.2 Conditions to Obligation of Parent to Effect the Merger.................................. A-31
Section 8.3 Conditions to Obligation of the Company to Effect the Merger............................. A-32
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination.............................................................................. A-32
Section 9.2 Effect of Termination.................................................................... A-34
Section 9.3 Termination Fee; Expenses................................................................ A-34
Section 9.4 Amendment................................................................................ A-34
Section 9.5 Waiver................................................................................... A-35
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Non-Survival; Effect of Representations and Warranties................................... A-35
Section 10.2 Brokers.................................................................................. A-35
Section 10.3 Notices.................................................................................. A-35
Section 10.4 Miscellaneous............................................................................ A-36
Section 10.5 Interpretation........................................................................... A-36
Section 10.6 Counterparts; Effect..................................................................... A-36
Section 10.7 Parties in Interest...................................................................... A-36
Section 10.8 Waiver of Jury Trial and Certain Damages................................................. A-36
Section 10.9 Enforcement.............................................................................. A-37
</TABLE>
A-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of April 23, 1999 (this "AGREEMENT"),
by and among Connecticut Energy Corporation, a Connecticut corporation (the
"COMPANY"), Energy East Corporation, a New York corporation ("Parent"), and
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 Boards of Directors of the Company and Parent 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");
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
"Connecticut Energy Corporation," 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 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. Joseph R. Crespo 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. In addition, in accordance
with the by-laws of Parent, the Board of Directors of Parent shall increase by
one the number of directors on the Board of Directors of Parent and shall
A-1
<PAGE>
thereupon elect as a director a director of the Company designated by the
Company and reasonably acceptable to Parent.
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. Crespo shall be the
President, Chief Executive Officer and Chairman of the Board of Directors of the
Surviving Corporation and shall hold such other positions in Parent and other
subsidiary corporations of Parent as specified in his Employment Agreement (as
defined in SECTION 6.3 hereof). Except for the President, Chief Executive
Officer and Chairman of the Board of Directors of Merger Sub, the officers of
Merger Sub immediately prior to the Effective Time shall be the initial officers
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, par value
$1.00 per share, 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, par value $1.00 per share, of the
Surviving Corporation.
(b) CANCELLATION OF CERTAIN COMPANY COMMON STOCK. Each share of common
stock, par value $1.00 per share, of the Company, including each attached
right (a "COMPANY RIGHT") issued pursuant to the Rights Agreement, dated
July 28, 1998 (the "COMPANY RIGHTS AGREEMENT" ), between the Company and
BankBoston, N.A. (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 (other than shares held as treasury shares by the Company) 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) $42 in cash (the "CASH
CONSIDERATION") or (ii) a number of validly issued, fully paid and
nonassessable shares of 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 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 $29.40 and equal to or more than $23.10, (ii) $29.40 if the
Parent Share Price is greater than $29.40, in which case the Exchange Ratio
shall equal 1.43, or (iii) $23.10 if the Parent Share Price is less than
$23.10, in which case the Exchange Ratio shall equal 1.82. 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
A-2
<PAGE>
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")
will be 50% 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. 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 50% 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.
(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"). 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).
A-3
<PAGE>
(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
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 issued as Stock Consideration pursuant to
Section 2.1(c), to (ii) the sum of (v) the amount set forth in the preceding
clause (i) plus (w) the aggregate Cash Consideration to be issued pursuant
to Section 2.1(c) plus (x) the number of Dissenting Shares times the per
share Cash Consideration plus (y) any other amounts paid by 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 (z) 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 decreased.
(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
A-4
<PAGE>
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 Business Corporation Law of the State of Connecticut, 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 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
A-5
<PAGE>
(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 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 New York Stock Exchange (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.
A-6
<PAGE>
(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.
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., New York
City 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(II)), 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.
A-7
<PAGE>
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 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 30,000,000 shares of Company Common Stock and 1,000,000 shares of
preferred stock, par value $1.00 per share, of the Company ("COMPANY PREFERRED
STOCK"). As of the close of business on March 31, 1999, there were issued and
outstanding 10,373,528 shares of Company Common Stock and no shares of Company
Preferred Stock. 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, 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
A-8
<PAGE>
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 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.
A-9
<PAGE>
(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, 1995 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, 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, 1995 (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, (i) 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 (ii) 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 (i)
and (ii) 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 (i) 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 (ii) the proxy statement, in definitive form (the "PROXY
STATEMENT"), relating to the Company Special
A-10
<PAGE>
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
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.
A-11
<PAGE>
(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 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" in a distribution
of stock qualifying for tax-free treatment under Section 355 of the Code (x)
in the past 24 month period or (y) 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) under 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,
A-12
<PAGE>
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.
(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.
(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 schedule, 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 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 Employee Benefit Plan that is an employee
welfare benefit plan under Section 3(1) of ERISA (i) is funded through an
insurance company contract and is not a "welfare benefit fund" within the
meaning of Section 419 of the Code, (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,
A-13
<PAGE>
with all provisions of ERISA, the Code and all laws and regulations
applicable to such Employee Benefit Plans and each Employee Benefit 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 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; (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 all accrued benefits 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; (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 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, 1992.
(j) Except for health continuation coverage as required by Section 4980B
of the Code or Part 6 of Title I of ERISA, 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.
(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 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,
A-14
<PAGE>
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. The Company and each of its subsidiaries are in compliance
with all applicable Environmental Laws (as defined in SECTION 4.11(F)(II)); and
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, except where the failure to be in
such compliance would not in the aggregate have a Company Material Adverse
Effect.
(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 is no Environmental Claim (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
(A) form the basis of any Environmental Claim against the Company or any of its
subsidiaries, or (B) 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.
(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
A-15
<PAGE>
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 (i) 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) and 2(a)(11),
respectively, of the 1935 Act, (ii) a "public utility" under the Power Act,
(iii) a "natural-gas company" under the Natural Gas Act, or (iv) 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.
A-16
<PAGE>
SECTION 4.14 OPINION OF FINANCIAL ADVISOR. The Company has received the
opinion of Morgan Stanley & Co. Incorporated, to the effect that, as of April
22, 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. (i) 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.
(ii) The Company has (1) duly entered into an appropriate amendment
to the Company Rights Agreement which amendment has been provided to
Parent and (2) 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 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.
(iii) No "DISTRIBUTION DATE" or "TRIGGERING EVENT" (as such terms are
defined in the Company Rights Plan) has occurred.
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(I)), 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
A-17
<PAGE>
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
200,000,000 shares of Parent Common Stock and 10,000,000 shares of preferred
stock, par value $0.01 per share, of Parent ("PARENT PREFERRED STOCK"). As of
the close of business on April 23, 1999, there were issued and outstanding
117,127,142 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, par value $1.00 per share ("MERGER SUB COMMON STOCK" ). As of the
close of business on April 22, 1999, there 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.
A-18
<PAGE>
(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 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, 1995 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,
1995 (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.
A-19
<PAGE>
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 (i) 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 (ii) 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. (i) 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 (ii) 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 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 (i) 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,
(ii) a "public utility" under the Power Act, (iii) a "natural-gas company" under
the Natural Gas Act, or (iv) 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 5.12(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
A-20
<PAGE>
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, (i) 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 (ii) 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.
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; provided that,
in the event the Closing has not occurred by March 31, 2000 then the Company may
increase the rate of such dividends to $1.38 per annum; (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
A-21
<PAGE>
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, 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 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 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 or as may be required by applicable law, 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 in the
ordinary course of business consistent with past practice that, with respect to
employees who are not officers, in the aggregate, do not result in an increase
in benefits or compensation expense to the Company
A-22
<PAGE>
or any of its subsidiaries in excess of three percent per year, 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.
(j) 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,
A-23
<PAGE>
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.
(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 and 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. 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 24 hours 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
A-24
<PAGE>
to the time the Company shareholders shall have voted to approve this Agreement
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 and (y) the Company
Board of Directors shall conclude in good faith, based upon the advice of
outside counsel and such other matters as the Company Board of Directors 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 COVENANT OF PARENT; EMPLOYMENT AGREEMENTS. Parent and Mr.
Crespo have entered into an employment agreement, and Parent shall at the
Closing offer to enter into employment agreements on the terms set forth in
Exhibit 6.3 of the Company Disclosure Schedule with the persons identified
thereon.
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 (i) access to each report, schedule and other document filed or
received by it or any of its subsidiaries pursuant to the requirements of
federal or state securities laws or filed with 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 (ii) 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 April 14, 1999,
between the Company and Parent, as it may be amended from time to time (the
"CONFIDENTIALITY AGREEMENT").
A-25
<PAGE>
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
PricewaterhouseCoopers 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 PricewaterhouseCoopers
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 best efforts to
cause to be delivered to the Company a letter of PricewaterhouseCoopers 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 SHAREHOLDER APPROVAL.
(a) THE COMPANY SHAREHOLDERS. 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 articles of organization 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.
A-26
<PAGE>
(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
articles of organization 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 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
A-27
<PAGE>
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, (i) Parent has
delivered to the Company a schedule (the "PARENT DISCLOSURE SCHEDULE"),
accompanied by a certificate signed by the Senior Vice President and General
Counsel of Parent stating the Parent Disclosure Schedule is being delivered
pursuant to this SECTION 7.6(I), and (ii) 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(II). 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).
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 prior to the date hereof 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, 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 the Company 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, and qualifications, 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 during such period 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
A-28
<PAGE>
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. Each individual employed by the
Company or any of its subsidiaries immediately before the Effective Time who (i)
remains employed by Parent, the Surviving Corporation or any of their respective
subsidiaries and (ii) is not covered by a collective bargaining agreement (each
such individual, a "NONUNION CONTINUING COMPANY EMPLOYEE"), shall be provided
with credit, for all purposes other than benefit accrual under the employee
benefit plans of Parent and its Affiliates providing benefits after the
Effective Time to Nonunion Continuing Company Employees, for his or her years of
service with the Company and its subsidiaries before the Effective Time, to the
same extent as such Nonunion Continuing Company Employee was entitled, before
the Effective Time, to credit for such service under any similar Plans. In
addition, and without limiting the generality of the foregoing: (i) each
Nonunion Continuing Company Employee shall be immediately eligible to
participate, without any waiting time, in any and all employee benefit plans
sponsored by Parent and its subsidiaries for the benefit of Nonunion Continuing
Company Employees (such Plans, collectively, the "NEW PLANS") to the extent
coverage under such New Plan replaces coverage under a comparable Plan in which
such Nonunion Continuing Company Employee participated immediately before the
Effective Time (such plans, collectively, the "OLD PLANS"); and (ii) for
purposes of each New Plan providing medical, dental, pharmaceutical and/or
vision benefits to any Nonunion Continuing Company Employee, Parent shall cause
all pre-existing condition exclusions and actively-at-work requirements of such
New Plan to be waived for such Nonunion Continuing Company Employee and his or
her covered dependents, and Parent shall cause any eligible expenses incurred by
such Nonunion Continuing Company Employee and his or her covered dependents
during the portion of the plan year of the Old Plan ending on the date such
Nonunion Continuing Company Employee's participation in the corresponding New
Plan begins to be taken into account under such New Plan for purposes of
satisfying all deductible, coinsurance and maximum out-of-pocket requirements
applicable to such Nonunion Continuing Company Employee and his or her covered
dependents for the applicable plan year as if such amounts had been paid in
accordance with such New Plan; PROVIDED, HOWEVER, that to the extent permissible
under applicable law, Parent shall cause the Surviving Corporation to maintain
the Old Plans in effect for not less than two years following the Effective
Time.
SECTION 7.11 COMPANY STOCK PLANS. 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 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 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.
A-29
<PAGE>
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
Bridgeport, Connecticut. At and subsequent to the Effective Time, the corporate
headquarters of Energy East Enterprises, Inc., and Xenergy Enterprises, Inc.,
shall be located in Connecticut.
SECTION 7.15 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 7.16 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-officer
directors of the Southern Connecticut Gas Company, a Connecticut corporation.
SECTION 7.17 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.
A-30
<PAGE>
(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.
(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; provided further
that 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.
(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
A-31
<PAGE>
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.
(h) TERMINATION OF OPERATING AGREEMENT. The Amended and Restated Operating
Agreement of Connectiv/CNE Energy Services, L.L.C., dated September 1, 1997
shall have been terminated and shall be of no further force or effect.
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 Senior 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 LeBoeuf,
Lamb, Greene & MacRae, L.L.P. 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, LeBoeuf, Lamb, Greene & MacRae, LLP, 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.
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 which is twelve
months from the date hereof (the "INITIAL TERMINATION DATE"); PROVIDED, HOWEVER,
that the right to terminate the Agreement under this SECTION 9.1(B)shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or
A-32
<PAGE>
resulted directly or indirectly in, the failure of the Effective Time to occur
on or before such date; and PROVIDED, FURTHER, 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 eighteen-month anniversary of the date hereof;
(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 approval of this Agreement by the
shareholders of the Company, 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
(x) 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 and (y) based upon the advice of outside counsel and
such other matters as the Company Board of Directors 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 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
A-33
<PAGE>
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 $5 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 $5 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 $17 million ("TERMINATION FEE"),
upon the termination of this Agreement by Parent or the Company pursuant to
SECTION 9.1(C) or by 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 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 (i) alter or change the amount or kind of
shares, rights or any of the proceedings of the treatment of shares under
ARTICLE II, or (ii) 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.
A-34
<PAGE>
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
Morgan Stanley & Co. 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
Chase Securities, Inc. 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.
SECTION 10.3 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if (i) delivered personally, (ii) sent
by reputable overnight courier service, (iii) telecopied (which is confirmed),
or (iv) 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):
(a) If to the Company, to:
Connecticut Energy Corporation
855 Main Street
Bridgeport, Connecticut 06604-4918
Attention: Samuel W. Bowlby
Telephone: (203) 382-8100
Telecopy: (203) 382-8123
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
121 W. 55(th) Street
New York, New York 10019-5389
Attention: William S. Lamb, Esq.
Benjamin G. Clark, Esq.
A-35
<PAGE>
Telephone: (212) 424-8000
Telecopy: (212) 424-8500
(b) If to Parent, to:
Energy East Corporation
One Canterbury Green, Fourth Floor
Stamford, Connecticut 06901
Attention: Kenneth M. Jasinski, Esq.
Telephone: (203) 325-0690
Telecopy:
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
SECTION 10.4 MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein) (i) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof
other than the Employment Agreement and the Confidentiality Agreement; (ii)
shall not be assigned by operation of law or otherwise; and (iii) 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, (i) any
right it may have to a trial by jury in respect of any action, suit or
proceeding arising out of this Agreement and (ii) 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.
A-36
<PAGE>
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.
A-37
<PAGE>
IN WITNESS WHEREOF, the Company, Parent and Merger Co. 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>
CONNECTICUT ENERGY CORPORATION
By: /s/ SAMUEL W. BOWLBY
-----------------------------------------
Name: Samuel W. Bowlby
Title: Vice President, General Counsel
and Secretary
ENERGY EAST CORPORATION
By: /s/ KENNETH M. JASINSKI
-----------------------------------------
Name: Kenneth M. Jasinski
Title: Senior Vice President and General
Counsel
MERGER CO.
By: /s/ KENNETH M. JASINSKI
-----------------------------------------
Name: Kenneth M. Jasinski
Title: Secretary, Treasurer and Vice
President
</TABLE>
A-38
<PAGE>
APPENDIX B
MORGAN STANLEY DEAN WITTER
<TABLE>
<S> <C>
1585 Broadway
New York, New York 10036
(212) 761-4000
July 22, 1999
</TABLE>
Board of Directors
Connecticut Energy Corporation
855 Main Street
Bridgeport, CT 06640-4918
Members of the Board:
We understand that Connecticut Energy Corporation ("Connecticut Energy" or
the "Company"), Energy East Corporation ("Energy East") and Merger Co., a wholly
owned subsidiary of Energy East ("Merger Sub"), have entered into an Agreement
and Plan of Merger dated April 23, 1999 (the "Merger Agreement"), which
provides, among other things, for the merger of Connecticut Energy with and into
Merger Sub (the "Merger"). Pursuant to the Merger, Connecticut Energy will
become a wholly owned subsidiary of Energy East and each outstanding share of
common stock, par value $1.00 per share, of Connecticut Energy (the "Common
Stock") other than shares held in treasury or held by Energy East or any
affiliate of Energy East or as to which dissenters rights have been perfected,
will be converted into the right to receive a certain number of shares of common
stock, par value $0.01 per share, of Energy East ("Energy East Common Stock")
pursuant to a formula set forth in the Merger Agreement, $42.00 in cash or some
combination thereof. The terms and conditions of the Merger are more fully set
forth in the Merger Agreement.
You have asked for our opinion as to whether the consideration to be
received by the holders of shares of Common Stock pursuant to the Merger
Agreement is fair from a financial point of view to such holders.
For purposes of the opinion set forth herein, we have, among other things:
(i) reviewed certain publicly available financial statements and other
information of the Company and Energy East;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning the Company and Energy East prepared by the
managements of the Company and Energy East, respectively;
(iii) analyzed certain financial projections concerning the Company and
Energy East prepared by the managements of the Company and Energy East,
respectively;
(iv) discussed the past and current operations and financial condition
and the prospects of the Company with senior executives of the Company;
(v) discussed the past and current operations and financial condition
and the prospects of Energy East with senior executives of Energy East;
(vi) reviewed the pro forma impact of the Merger on Energy East's
earnings per share;
(vii) reviewed the reported prices and trading activity for the Common
Stock and the Energy East Common Stock;
B-1
<PAGE>
(viii) compared the financial performance of the Company and Energy East
and the prices and trading activity of the Common Stock and the Energy East
Common Stock with that of certain other comparable publicly-traded companies
and their securities;
(ix) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(x) participated in discussions and negotiations among representatives
of the Company and Energy East and their financial and legal advisors;
(xi) reviewed the Merger Agreement and certain related documents; and
(xii) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon without independent verification and
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Company and Energy East. In addition, we have assumed that the Merger will be
treated as a tax-free reorganization and/or exchange, pursuant to the Internal
Revenue Code of 1986, and will be consummated in accordance with the terms set
forth in the Merger Agreement. We have not made any independent valuation or
appraisal of the assets or liabilities of the Company and Energy East, nor have
we been furnished with any such appraisals. We have relied upon, without
independent verification, the Company management's assessment of the strategic
benefits expected to result from the Merger. Morgan Stanley has assumed that, in
connection with the receipt of all the necessary regulatory approvals for the
proposed Merger, no restrictions will be imposed that would have material
adverse effect on the contemplated benefits to be derived in the proposed
Merger. Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for the Company and Energy East and
have received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of the Company except that this opinion may be included in its
entirety in any filing made by the Company in respect of the transaction with
the Securities and Exchange Commission. In addition, this opinion does not in
any manner address the prices at which the Energy East Common Stock will trade
following consummation of the Merger, and Morgan Stanley expresses no opinion or
recommendation as to how shareholders of the Company should vote at the
shareholders' meeting held in connection with the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the consideration to be received by the holders of shares of Common
Stock pursuant to the Merger Agreement is fair from a financial point of view to
such holders.
<TABLE>
<S> <C> <C>
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ DANIEL B. MORE
-----------------------------------------
Daniel B. More
MANAGING DIRECTOR
</TABLE>
B-2
<PAGE>
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 under 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, and
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 under 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
C-1
<PAGE>
issuance 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
(5) 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.
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 person
C-2
<PAGE>
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 33-868; and
(5) a copy of sections 33-855 to 33-872, inclusive.
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.
(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
C-3
<PAGE>
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 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.
C-4
<PAGE>
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.
C-5
<PAGE>
[FORM OF PROXY CARD]
PROXY CONNECTICUT ENERGY CORPORATION
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 14, 1999
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints J.R. Crespo, Carol A. Forest, and Samuel W.
Bowlby, or any of them, proxies with full power of substitution to vote all
shares of common stock of Connecticut Energy Corporation standing in the name of
the undersigned at the special meeting of Connecticut Energy Corporation
shareholders to be held on Tuesday, September 14, 1999, at 10:00 A.M., local
time, at the Trumbull Marriott Hotel, 180 Hawley Lane, Trumbull, Connecticut,
and any adjournment thereof, as follows:
1. Proposal to approve the Agreement and Plan of Merger among Connecticut
Energy Corporation, Energy East Corporation and Merger Co.
FOR / / AGAINST / / ABSTAIN / /
[(Continued on reverse side)]
<PAGE>
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 PROPOSAL 1.
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
