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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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 Section 240.14a-11(c) or Section 240.14a-12
AQUARION COMPANY
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[X] Fee paid previously with preliminary materials:
The total fee of $89,067.39 computed pursuant to Exchange Act Rules
14a-6(i)(4) and 0-11 was previously paid in connection with the filing of
preliminary proxy materials on August 2, 1999.
[_] 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.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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AQUARION COMPANY
835 Main Street
Bridgeport, Connecticut 06604-4995
(203) 335-2333
August 19, 1999
Dear Shareholder:
You are cordially invited to attend a Special Meeting of the Shareholders
(the "Special Meeting") of Aquarion Company ("Aquarion"), which will be held at
People's Bank, Multi-purpose room (Second Floor), 850 Main Street, Bridgeport,
Connecticut 06604, on Tuesday, September 21, 1999, at 9:30 a.m., local time.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to adopt the Agreement and Plan of Merger, dated as of May 31, 1999
(the "Merger Agreement"), among Yorkshire Water plc, a public limited company
incorporated under the laws of England and Wales which has since changed its
name to "Kelda Group plc" ("Kelda"), Waterman Acquisition Corp., a Delaware
corporation and an indirect wholly-owned subsidiary of Kelda ("Waterman"), and
Aquarion. If the shareholders of Aquarion adopt the Merger Agreement, Waterman
will be merged with and into Aquarion (the "Merger"), with the outstanding
shares of Aquarion common stock ("Common Stock") being converted into the right
to receive $37.05 per share in cash, without interest. As a result of the
Merger, Aquarion will become an indirect wholly-owned subsidiary of Kelda.
Shareholders will not become shareholders of Kelda following the Merger.
Detailed information concerning the Merger is set forth in the accompanying
Proxy Statement and a copy of the Merger Agreement is attached as Annex A to the
Proxy Statement, both of which you are urged to read carefully.
Adoption of the Merger Agreement requires the affirmative vote of a
majority of the outstanding shares of Common Stock held by shareholders of
record on August 19, 1999.
Holders of Common Stock will be entitled to appraisal rights under Delaware
law in connection with the Merger as described in the accompanying Proxy
Statement.
Your Board of Directors, after careful consideration, has approved the
Merger Agreement and determined that the Merger is advisable, fair to, and in
the best interests of, Aquarion and its shareholders, and recommends that you
vote "FOR" adoption of the Merger Agreement and the transactions contemplated
thereby.
IT IS VERY IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL
MEETING, WHETHER OR NOT YOU PLAN TO ATTEND PERSONALLY. THEREFORE, YOU SHOULD
COMPLETE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT AS SOON AS POSSIBLE IN
THE ENCLOSED POSTAGE-PAID ENVELOPE. THIS WILL ENSURE THAT YOUR SHARES ARE
REPRESENTED AT THE SPECIAL MEETING.
Yours very truly,
Richard K. Schmidt
President and Chief Executive Officer
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AQUARION COMPANY
835 Main Street
Bridgeport, Connecticut 06604-4995
(203) 335-2333
___________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 21, 1999
___________
To the Shareholders of
AQUARION COMPANY:
NOTICE IS HEREBY GIVEN that a Special Meeting of the Shareholders
(including any adjournments or postponements thereof, the "Special Meeting") of
Aquarion Company, a Delaware corporation ("Aquarion"), will be held at People's
Bank, Multi-purpose room (Second Floor), 850 Main Street, Bridgeport,
Connecticut 06604, on Tuesday, September 21, 1999, at 9:30 a.m., local time, for
the following purpose, which is more fully described in the accompanying Proxy
Statement:
To consider and vote upon a proposal to adopt the Agreement and
Plan of Merger, dated as of May 31, 1999 (the "Merger
Agreement"), among Yorkshire Water plc, a public limited company
incorporated under the laws of England and Wales which has since
changed its name to "Kelda Group plc" ("Kelda"), Waterman
Acquisition Corp., a Delaware corporation and an indirect wholly-
owned subsidiary of Kelda ("Waterman"), and Aquarion. The Merger
Agreement provides, among other things, for the merger of
Waterman with and into Aquarion (the "Merger") pursuant to which
each share of Aquarion's common stock, no par value ("Common
Stock"), issued and outstanding immediately prior to the
effective time of the Merger (other than shares of Common Stock
for which appraisal rights are perfected) will be converted into
the right to receive $37.05 in cash, without interest. A
conformed copy of the Merger Agreement (including the exhibit
thereto) is attached as Annex A to the accompanying Proxy
Statement and is incorporated herein by reference. As a result of
the Merger, Aquarion will become an indirect wholly-owned
subsidiary of Kelda.
Adoption of the Merger Agreement requires the affirmative vote of a
majority of the outstanding shares of Common Stock held by shareholders of
record on August 19, 1999 (the "Record Date").
Only holders of record of shares of Common Stock at the close of business
on the Record Date are entitled to notice of, and to vote at, the Special
Meeting. A complete list of shareholders entitled to vote at the Special Meeting
will be available for examination, for proper purposes, during ordinary business
hours at Aquarion's corporate offices, 835 Main Street, Bridgeport, Connecticut
06604-4995, during the 10 days prior to the Special Meeting.
In connection with the proposed Merger, appraisal rights will be available
to those shareholders of Aquarion who do not vote in favor of adoption of the
Merger Agreement and who otherwise meet and comply with the requirements of
Section 262 of the Delaware General Corporation Law (the "DGCL"), a copy of
which is included as Annex C to the accompanying Proxy Statement. Reference is
made to the section entitled "Appraisal Rights" in the accompanying Proxy
Statement for a discussion of the procedures to be followed in asserting
appraisal rights under Section 262 of the DGCL in connection with the proposed
Merger.
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YOUR VOTE IS VERY IMPORTANT REGARDLESS OF HOW MANY SHARES OF AQUARION
COMMON STOCK YOU OWN. REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE SPECIAL
MEETING, YOU ARE REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME
PRIOR TO ITS EXERCISE. IF YOU ARE PRESENT AT THE SPECIAL MEETING OR ANY
ADJOURNMENTS OR POSTPONEMENTS THEREOF, YOU MAY REVOKE YOUR PROXY AND VOTE
PERSONALLY ON THE MATTERS PROPERLY BROUGHT BEFORE THE SPECIAL MEETING.
BY ORDER OF THE BOARD OF
DIRECTORS
Larry L. Bingaman
Secretary
August 19, 1999
PLEASE SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
STOCK CERTIFICATES SHOULD BE RETAINED UNTIL LETTERS OF TRANSMITTAL ARE RECEIVED
AFTER THE EFFECTIVE TIME OF THE MERGER. SEE "THE MERGER--PROCEDURES FOR
SURRENDER OF CERTIFICATES OF COMMON STOCK."
2
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AQUARION COMPANY
835 Main Street
Bridgeport, Connecticut 06604-4995
(203) 335-2333
___________
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
September 21, 1999
___________
This Proxy Statement is being furnished to the holders of the common stock, no
par value ("Common Stock"), of Aquarion Company, a Delaware corporation
("Aquarion"), in connection with the solicitation of proxies by the Board of
Directors of Aquarion to be used at a Special Meeting of Aquarion's shareholders
to be held at People's Bank, Multi-purpose room (Second Floor), 850 Main Street,
Bridgeport, Connecticut 06604, on Tuesday, September 21, 1999, at 9:30 a.m.,
local time, and any adjournments or postponements thereof (the "Special
Meeting").
At the Special Meeting, the holders of shares of Common Stock will be asked to
consider and vote upon a proposal to adopt the Agreement and Plan of Merger,
dated as of May 31, 1999 ("Merger Agreement"), among Yorkshire Water plc, a
public limited company incorporated under the laws of England and Wales which
has since changed its name to "Kelda Group plc" ("Kelda"), Waterman Acquisition
Corp., a Delaware corporation and an indirect wholly-owned subsidiary of Kelda
("Waterman"), and Aquarion. The Merger Agreement provides for the merger of
Waterman with and into Aquarion (the "Merger"). As a result of the Merger,
Aquarion will become an indirect wholly-owned subsidiary of Kelda.
Subject to the terms and conditions of the Merger Agreement, in the Merger
each issued and outstanding share of Common Stock (other than Dissenting Shares
(as defined herein)) will automatically be canceled and cease to exist and will
be converted into the right to receive a per share amount equal to $37.05 in
cash, without interest (the "Merger Consideration"). Upon the consummation of
the Merger, shareholders of Aquarion will have no further interest in the
surviving corporation. See "THE MERGER--Description of the Merger" and "THE
MERGER AGREEMENT--The Merger." A copy of the Merger Agreement is attached to
this Proxy Statement as Annex A.
In connection with the proposed Merger, appraisal rights will be available to
those shareholders of Aquarion who do not vote in favor of adoption of the
Merger Agreement and who otherwise meet and comply with the requirements of
Section 262 of the Delaware General Corporation Law (the "DGCL"), a copy of
which is included as Annex C to the accompanying Proxy Statement. Reference is
made to the section entitled "Appraisal Rights" in the accompanying Proxy
Statement for a discussion of the procedures to be followed in asserting
appraisal rights under Section 262 of the DGCL in connection with the proposed
Merger.
AQUARION'S BOARD OF DIRECTORS, AFTER CAREFUL CONSIDERATION, HAS APPROVED THE
MERGER AGREEMENT, HAS DETERMINED THAT THE MERGER IS ADVISABLE, FAIR TO, AND IN
THE BEST INTERESTS OF, AQUARION AND ITS SHAREHOLDERS, AND RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT AT THE SPECIAL MEETING.
This Proxy Statement is dated August 19, 1999 and is first being mailed to
registered holders of Common Stock on or about August 20, 1999.
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TABLE OF CONTENTS
Page
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AVAILABLE INFORMATION ............................................... 4
SUMMARY.............................................................. 5
The Special Meeting ............................................ 5
The Merger ..................................................... 6
The Merger Agreement ........................................... 8
Aquarion ....................................................... 9
Kelda and Waterman ............................................. 10
Selected Financial Data ........................................ 11
Price of Aquarion Common Stock ................................. 12
THE SPECIAL MEETING ................................................. 13
Date, Time and Place ........................................... 13
Purpose of the Special Meeting ................................. 13
Voting Rights .................................................. 13
Vote Required ................................................. 14
Recommendation of the Board of Directors ....................... 14
Voting and Revocation of Proxies ............................... 14
Appraisal Rights ............................................... 15
Solicitation of Proxies ........................................ 15
THE MERGER .......................................................... 16
Background ..................................................... 16
Reasons for the Merger ......................................... 19
Description of the Merger ...................................... 21
Opinion of Aquarion's Financial Advisor ........................ 22
Regulatory Approvals ........................................... 28
Federal Income Tax Consequences ................................ 29
Merger Consideration ........................................... 30
Closing and Effective Time of the Merger ....................... 30
Procedures for Surrender of Certificates of Common Stock ....... 30
Interests of Certain Persons in the Merger ..................... 31
THE MERGER AGREEMENT ................................................ 33
The Merger ..................................................... 33
Representations and Warranties ................................. 33
Certain Pre-Closing Covenants .................................. 34
No Solicitation of Transactions ................................ 37
Stock and Employee Benefit Plans ............................... 38
Access to Information .......................................... 39
Cooperation and Reasonable Best Efforts ........................ 40
Indemnification and Insurance .................................. 40
Conditions to the Consummation of the Merger ................... 40
Termination .................................................... 40
Expenses and Certain Required Payments ......................... 41
2
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Amendment and Waiver ............................................. 42
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ........ 43
AQUARION .............................................................. 44
KELDA AND WATERMAN .................................................... 44
APPRAISAL RIGHTS ...................... ............................... 46
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ....................... 48
SHAREHOLDER PROPOSALS FOR THE YEAR 2000 ANNUAL MEETING ................ 49
ANNEX A Agreement and Plan of Merger dated as of May 31, 1999
ANNEX B Opinion of Morgan Stanley & Co. Incorporated dated as of May 31, 1999
ANNEX C Section 262 of the DGCL Relating to Appraisal Rights
3
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AVAILABLE INFORMATION
Aquarion is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by Aquarion with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549-1004 and at the following regional offices of the SEC: New York
Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048 and
Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such information can also be obtained by mail from the Public
Reference Section of the Commission at 450 Fifth Street, N.W. Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549-1004, at prescribed rates. The
Commission maintains a web site (http://www.sec.gov) that contains reports,
proxy statements and other information regarding registrants, such as Aquarion,
that file electronically with the Commission. This material may also be
inspected at the offices of The New York Stock Exchange, Inc. (the "NYSE") at 11
Wall Street, New York, New York 10005.
No person is authorized to give any information or to make any
representations, other than as contained in this Proxy Statement, in connection
with the Merger, and, if given or made, such information or representations must
not be relied on as having been authorized by Aquarion. The delivery of this
Proxy Statement shall not, under any circumstances, create an implication that
there has been no change in the affairs of Aquarion or the information set forth
herein since the date of this Proxy Statement.
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement which highlights certain important information concerning
the Merger. This summary is subject to and qualified in its entirety by
reference to the more detailed information contained elsewhere in this Proxy
Statement, including the Annexes hereto. A copy of the Merger Agreement is set
forth as Annex A to this Proxy Statement, and reference is made thereto for a
complete description of the Merger. Shareholders are urged to read carefully the
entire Proxy Statement, including the Annexes. As used in this Proxy Statement,
the terms "Aquarion," "Kelda" and "Waterman" refer to such corporations,
respectively, and where the context requires, such corporations and their
respective subsidiaries. The term "Kelda" is also used in this Proxy Statement
to refer to such corporation or, where the context requires, such corporation
and its subsidiaries, during the time such corporation was named "Yorkshire
Water plc."
The Special Meeting
Date, Time and Place. The Special Meeting of the Shareholders of Aquarion
will be held at People's Bank, Multi-purpose room (Second Floor), 850 Main
Street, Bridgeport, Connecticut 06604, on Tuesday, September 21, 1999,
commencing at 9:30 a.m., local time.
Purpose of the Special Meeting. The purpose of the Special Meeting is to
consider and vote on adoption of the Merger Agreement, pursuant to which, among
other things, Waterman will be merged with and into Aquarion, Aquarion will
become an indirect wholly-owned subsidiary of Kelda and the shareholders of
Aquarion will receive the consideration described below in this Summary under
"The Merger--Effect of the Merger."
Voting Rights. The Board of Directors of Aquarion (the "Board of
Directors") has fixed the close of business on August 19, 1999 as the record
date (the "Record Date") for the determination of Aquarion's shareholders
entitled to notice of, and to vote at, the Special Meeting. As of the Record
Date, Aquarion had 11,420,916 shares of Common Stock outstanding. Holders of
shares of Common Stock are entitled to one vote for each share of Common Stock
held of record at the close of business on the Record Date. See "THE SPECIAL
MEETING -- Voting Rights."
Vote Required. The adoption of the Merger Agreement will require the
affirmative vote of the holders of a majority of the shares of Common Stock
issued and outstanding as of the Record Date. See "THE SPECIAL MEETING--Vote
Required" and "THE MERGER--Interests of Certain Persons in the Merger."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" ADOPTION OF THE MERGER AGREEMENT.
Appraisal Rights. Each Aquarion shareholder may demand appraisal of his or
her shares as provided in Section 262 of the DGCL. In order to exercise
appraisal rights, (i) the shareholder must deliver to Aquarion, prior to the
vote being taken on the Merger at the Special Meeting, written notice of his or
her intent to demand appraisal of his or her shares of Common Stock if the
Merger is effected and (ii) the shareholder must not vote in favor of adoption
of the Merger Agreement. See "THE SPECIAL MEETING--Appraisal Rights," "APPRAISAL
RIGHTS" and Annex C.
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Voting of Proxies. All shares of Common Stock represented by a properly
executed proxy received in time for the Special Meeting will be voted in the
manner specified in the proxy. Proxies that do not contain any instruction to
vote for or against or to abstain from voting on a particular matter will be
voted in accordance with the recommendation of the Board of Directors. See "THE
SPECIAL MEETING--Voting and Revocation of Proxies."
It is not expected that any matter other than that referred to herein will
be brought before the shareholders at the Special Meeting. If, however, other
matters are properly presented, the persons named as proxies will vote in
accordance with their best judgment with respect to such matters.
Adjournments; Revocability of Proxies. If the Special Meeting is
adjourned, for whatever reason, the approval of the Merger proposal shall be
considered and voted upon by shareholders at the subsequent, reconvened meeting,
if any.
You may revoke your proxy at any time prior to its exercise (i) by
attending the Special Meeting and voting in person (although attendance at the
Special Meeting will not in and of itself constitute revocation of a proxy),
(ii) by giving notice of revocation of your proxy at the Special Meeting or
(iii) by delivering (a) a written notice of revocation of your proxy or (b) a
duly executed proxy relating to the matter to be considered at the Special
Meeting, bearing a date later than the proxy previously executed, to the
Secretary of Aquarion, 835 Main Street, Bridgeport, Connecticut 06604-4995.
Unless revoked in one of the manners set forth above, proxies in the form
enclosed will be voted at the Special Meeting in accordance with your
instructions.
Solicitation of Proxies. The cost of soliciting proxies will be borne by
Aquarion. Arrangements will be made to furnish copies of proxy materials to
fiduciaries, custodians and brokerage houses for forwarding to beneficial owners
of Common Stock. Such persons will be paid reasonable out-of-pocket expenses. In
addition, Aquarion has retained ChaseMellon Shareholder Services, L.L.C. to
assist in the solicitation of proxies. See "THE SPECIAL MEETING Solicitation of
Proxies."
HOLDERS OF COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY
---
CARDS.
The Merger
Effect of the Merger. At the effective time of the Merger (the "Effective
Time"), Waterman will be merged with and into Aquarion and Aquarion will
continue as the surviving corporation in the Merger. Subject to the terms and
conditions of the Merger Agreement, in the Merger each issued and outstanding
share of Common Stock (other than Dissenting Shares (as defined herein)) will
automatically be canceled and cease to exist and will be converted into the
right to receive the Merger Consideration of $37.05. As a result of the Merger,
Aquarion will become an indirect wholly-owned subsidiary of Kelda.
Recommendation of the Board of Directors. Each member of the Board of
Directors has approved the Merger Agreement and the transactions contemplated
thereby, determined that the Merger is advisable, fair to, and in the best
interests of, Aquarion and its shareholders, and recommends that the
shareholders of Aquarion vote "FOR" the adoption of the Merger Agreement. For a
discussion of the factors considered by the Board of Directors in reaching its
decision, see "THE MERGER--Background" and "THE MERGER--Reasons for the Merger."
Opinion of Aquarion's Financial Adviser. Morgan Stanley & Co. Incorporated
("Morgan Stanley"), Aquarion's financial advisor, has delivered a written
opinion, dated May 31, 1999, to Aquarion's Board of
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Directors to the effect that, as of the date of such opinion and based upon and
subject to certain matters stated therein, the Merger Consideration was fair,
from a financial point of view, to the holders of the Common Stock. The full
text of the written opinion of Morgan Stanley, which sets forth the assumptions
made, matters considered and review undertaken, is attached as Annex C to this
Proxy Statement and should be read carefully in its entirety. See "THE MERGER--
Opinion of Aquarion's Financial Advisor."
Regulatory Approvals. Under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), and the rules promulgated thereunder by
the Federal Trade Commission (the "FTC"), the Merger may not be consummated
until notifications have been given and certain information has been furnished
to the FTC and the Antitrust Division of the Department of Justice (the
"Antitrust Division") and the applicable waiting period has expired or been
terminated. On June 30, 1999, Aquarion and Kelda filed Notification and Report
Forms under the HSR Act with the FTC and the Antitrust Division. On July 15,
1999, the FTC and the Antitrust Division granted early termination of the
waiting period under the HSR Act with respect to the Merger effective
immediately. See "THE MERGER -- Regulatory Approvals."
Aquarion's utility subsidiaries are regulated by several state agencies,
including the Connecticut Department of Public Utility Control (the "DPUC") and
the New York Public Service Commission (the "PSC"). Under applicable state laws,
the Merger may not be consummated until the DPUC and the PSC have approved the
Merger. On July 12, 1999, Aquarion and Kelda filed a joint application for
approval of the Merger with the DPUC. Aquarion and Kelda will file an
application for approval of the Merger with the PSC prior to the end of August
1999. See "THE MERGER -- Regulating Approvals."
Federal Income Tax Consequences. The receipt of the Merger Consideration by
Aquarion shareholders upon cancellation of shares of Common Stock pursuant to
the Merger will be taxable transactions for U.S. federal income tax purposes
under the Internal Revenue Code of 1986, as amended (the "Code"), and may also
be taxable transactions under applicable state, local foreign and other tax
laws. SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS TO DETERMINE THE
PARTICULAR TAX CONSEQUENCES TO THEM (INCLUDING THE APPLICATION AND EFFECT OF ANY
STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX LAWS) RESULTING FROM THE MERGER. See
"THE MERGER -- Federal Income Tax Consequences."
Interests of Certain Persons in the Merger. Certain directors and executive
officers of Aquarion may have interests, described herein, that present them
with potential conflicts of interest in connection with the Merger. The Board of
Directors is aware of the conflicts described below and considered them in
addition to the other matters described under "THE MERGER--Reasons for the
Merger."
Shares of Common Stock held by officers and directors of Aquarion will be
converted into the right to receive the same consideration as shares of Common
Stock held by other shareholders. The executive officers and directors of
Aquarion, the owners as a group of approximately 45,490 shares of Common Stock,
have indicated that they intend to vote in favor of the proposal to adopt the
Merger Agreement. See "THE MERGER--Interests of Certain Persons in The Merger"
and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
Stock options for shares of Common Stock ("Stock Options") held by the
officers and directors of Aquarion will be treated in the same manner as Stock
Options held by other employees of Aquarion. Pursuant to the Merger Agreement,
all outstanding Stock Options will be canceled as of the closing date of the
Merger (the "Closing Date") and at the closing of the Merger (the "Closing")
Aquarion will pay to each holder of Stock Options a cash payment equal to the
aggregate of the number of such Stock Options
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________________________________________________________________________________
multiplied by the excess of the Merger Consideration over the applicable
exercise prices, less such amounts as Aquarion is required to deduct and
withhold under applicable tax laws. See "THE MERGER--Interests of Certain
Persons in the Merger" and "THE MERGER AGREEMENT--Stock Options and Employee
Benefit Plans."
Certain of Aquarion's directors had previously elected to defer certain
amounts of their director's compensation in the form of stock units, the value
of each of which is equal to one share of Common Stock. Under the terms of
Aquarion's Directors' Deferred Compensation Plan and the Merger Agreement, each
such stock unit will be converted at the Closing into the right to receive,
under the terms and conditions of each holder's deferred compensation account,
cash equal to the highest price for Common Stock on the NYSE in the 60 days
prior to the Closing Date. See "THE MERGER--Interests of Certain Persons in the
Merger" and "THE MERGER AGREEMENT--Stock Options and Employee Benefit Plans."
As a result of a program commenced by the Board of Directors in February
1999, early in May 1999, Aquarion entered into continuity agreements with six of
its officers to encourage such officers to continue in their current positions
with Aquarion. Pursuant to the continuity agreements, if such officer's
employment is terminated by the employer for any reason other than "Disability,"
"Retirement," death or for "Cause" (in each case, as defined in such continuity
agreements) or by such officer for "Good Reason" (as defined in such continuity
agreements) within two years of a "Change in Control" (which, under the
definition set forth in forth in such agreements, would include the Merger)
(and, with respect to certain executive officers, in the event of a voluntary
termination by any such officer of his or her employment for any reason during
the 30-day period immediately following the first anniversary of a Change in
Control), then such officers would be entitled, among other benefits, to
specified severance payments. See "THE MERGER--Interests of Certain Persons in
the Merger."
The Merger will also constitute a "Change in Control" for purposes of
Aquarion's Directors' Retirement plan and, consequently, directors of Aquarion
will be entitled to full retirement benefits under such plan commencing on the
date of the Merger or, if Kelda were to decide to retain any such persons as
directors of Aquarion, which would then be Kelda's wholly-owned subsidiary, such
later date as he or she ceases to receive director's fees from Aquarion,
regardless of such director's age or years of service. See "THE MERGER--
Interests of Certain Persons in the Merger" and "THE MERGER AGREEMENT--Stock
Options and Employee Benefit Plans."
Pursuant to the Merger Agreement, Aquarion has agreed for six years after
the Effective Time to indemnify all present directors, officers and employees of
Aquarion and its subsidiaries and will, subject to certain limitations, maintain
for six years current policies of directors' and officers' liability insurance
and fiduciary liability insurance or substitute policies containing terms and
conditions which are, in the aggregate, no less advantageous with respect to
claims arising from facts or events occurring at or prior to the Effective Time.
See "THE MERGER--Interests of Certain Persons in the Merger" and "THE MERGER
AGREEMENT--Indemnification and Insurance."
The Merger Agreement
Closing and Effective Time. Subject to the conditions set forth in the
Merger Agreement, Waterman will be merged with and into Aquarion at the
Effective Time. The Closing will take place as soon as practicable, but in any
event not later than the third business day, after the satisfaction or waiver of
the conditions set forth in the Merger Agreement, unless another date is agreed
to by the parties. If the Closing Date does not occur on or before May 31, 2000
(or, under certain circumstances, November 30, 2000), the
________________________________________________________________________________
8
<PAGE>
________________________________________________________________________________
Merger Agreement is subject to termination by either party, subject to certain
exceptions. See "THE MERGER AGREEMENT--Closing and Effective Time of the
Merger."
Representations and Warranties. The Merger Agreement contains customary
representations and warranties by each of the parties. See "THE MERGER
AGREEMENT -- Representations and Warranties."
Preclosing Covenants. Aquarion has agreed that prior to Closing, it will
carry on its businesses in the usual, regular and ordinary course, in
substantially the same manner as previously conducted, and that it will limit
the sale of certain assets, continue current accounting and tax practices and
refrain from entering into certain specified transactions out of the ordinary
course of business without the consent of Kelda. See "THE MERGER AGREEMENT--
Certain Pre-Closing Covenants."
Conditions to Closing. The obligations of Aquarion, Kelda and Waterman to
consummate the Merger are subject to various conditions, including, without
limitation, obtaining requisite Aquarion shareholder approval, obtaining the
required regulatory approvals and the absence of any injunction or other legal
restraint or prohibition preventing the consummation of the Merger. See "THE
MERGER AGREEMENT-- Conditions to the Consummation of the Merger."
Termination. The Merger Agreement may be terminated by Aquarion or Kelda
under certain circumstances, some of which require Aquarion to pay Kelda a
termination fee of $20 million (the "Termination Fee"). See "THE MERGER
AGREEMENT-- Termination" and "THE MERGER AGREEMENT-- Expenses and Certain
Required Payments."
Amendment. The Merger Agreement may be amended by the parties by written
instrument at any time before or after shareholder approval; provided, however,
that after shareholder approval, no amendment shall be made which by law or the
rules of a relevant stock exchange requires further approval by the shareholders
without such further approval.
Aquarion
Aquarion Company was incorporated in Delaware as The Hydraulic Company in
1969 to become the parent company to The Bridgeport Hydraulic Company (now named
BHC Company) ("BHC"), a Connecticut corporation founded in 1857. The corporate
name was changed to Aquarion Company in 1991. Aquarion's executive offices are
located at 835 Main Street, Bridgeport, Connecticut 06604-4995 and its telephone
number is (203) 335-2333.
Aquarion is a holding company whose subsidiaries are engaged in the
regulated utility business of public water supply and various non-utility
businesses, including contract management of municipal water systems and
ownership of a timber processing company.
Aquarion's utility subsidiaries, BHC and Sea Cliff Water Company, a New
York corporation ("SCWC" and collectively with BHC, the "Utilities") collect,
treat and distribute water to residential, commercial and industrial customers,
to other utilities for resale and for private and municipal fire protection. The
Utilities provide water to customers in 30 communities with a population of more
than 500,000 people in Connecticut and Long Island, New York. BHC is the largest
investor-owned water company in Connecticut and with SCWC is among the 10
largest investor-owned water companies in the nation.
________________________________________________________________________________
9
<PAGE>
________________________________________________________________________________
Kelda and Waterman
Kelda Group plc (formerly known as Yorkshire Water plc) is a public limited
company organized under the laws of England and Wales. It was incorporated in
1989, as part of the process of privatization of the UK water industry, as the
holding company of Yorkshire Water Services Limited ("YWS"). YWS is one of the
ten water and sewerage (wastewater) service companies in England and Wales. On
August 3, 1999, the shareholders of Yorkshire Water plc approved the name change
of Yorkshire Water plc to "Kelda Group plc" which name change became effective
as of August 4, 1999.
Kelda's consolidated 1998/99 revenues were (Pounds)683 million (or $1.1
billion), with net income of (Pounds)211 million (or $340 million). YWS
represents 86% of consolidated revenues and services more than 1.9 million
households, or 4.5 million individuals in its service area in the county of
Yorkshire, England. YWS provides in excess of 340 million gallons of drinking
water per day, treated at 112 water treatment facilities. 620 wastewater
treatment plants treat more than 260 million gallons per day of domestic sewage,
industrial effluent and rainwater run-off. YWS maintains approximately 37,000
miles of water mains and sewers.
While the delivery of water and treatment of wastewater is the primary
business of Kelda, the group has diversified into related or complementary areas
of business. These are principally in the areas of waste management,
environmental services and renewable energy.
Waterman, a Delaware corporation and an indirect wholly-owned subsidiary of
Kelda, was organized in connection with the Merger and has not engaged in any
business activities other than those related to the Merger.
The principal executive offices of Kelda and Waterman are located at 2 The
Embankment, Sovereign Street, Leeds, West Yorkshire, LS1 4BG, England and its
telephone number 011-44-113-234-3234.
________________________________________________________________________________
10
<PAGE>
- --------------------------------------------------------------------------------
Selected Financial Data
The following table sets forth selected consolidated historical financial
data of Aquarion Company and has been derived from and should be read in
conjunction with the audited consolidated financial statements of Aquarion
Company for each of the five years ended December 31, 1998 and the unaudited
interim consolidated financial statements of Aquarion Company for the six months
ended June 30, 1999 and 1998, including the respective notes thereto. In the
opinion of management, all adjustments, consisting of normal recurring accruals
considered necessary for a fair presentation have been included in the unaudited
interim data. Interim results for the six months ended June 30, 1999 are not
necessarily indicative of results which may be expected for future periods,
including the year ended December 31, 1999.
<TABLE>
<CAPTION>
Six months ended
June 30, Year ended December 31,
------------------------ --------------------------------------------------------------
In thousands, except per share data 1999 1998 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Income Statement
Data:
Operating revenues from continuing
operations $ 53,286 $ 52,210 $ 115,669 $ 107,102 $ 94,804 $ 94,569 $ 97,691
Operating income (1) 18,010 17,927 44,361 37,355 31,312 30,775 29,550
Net income from continuing
operations $ 7,918 $ 7,043 $ 19,959 $ 15,011 $ 13,840 $ 13,296 $ 12,478
Loss from discontinued operations -- -- -- -- (4,835) (410) (257)
Net income $ 7,918 $ 7,043 $ 19,959 $ 15,011 $ 9,005 $ 12,886 $ 12,221
Basic earnings (loss) per share (2)
From continuing Operations $ 0.70 $ 0.64 $ 1.79 $ 1.40 $ 1.33 $ 1.30 $ 1.27
From discontinued operations -- -- -- -- (0.05) (0.04) (0.02)
From disposal of discontinued
operations -- -- -- -- (0.41) -- --
Basic earnings (loss) per share $ 0.70 $ 0.64 $ 1.79 $ 1.40 $ 0.87 $ 1.26 $ 1.25
Weighted average common shares
outstanding (2) 11,318,236 11,081,168 11,135,190 10,709,841 10,397,082 10,191,600 9,798,941
Diluted earnings (loss) per share (2)
From continuing operations $ 0.67 $ 0.62 $ 1.75 $ 1.39 $ 1.32 $ 1.30 $ 1.27
From discontinued operations -- -- -- -- (0.06) $ (0.04) (0.02)
From disposal of discontinued
operations (0.41)
Diluted earnings (loss) per share $ 0.67 $ 0.62 $ 1.75 $ 1.39 $ 0.86 $ 1.26 $ 1.25
Weighted average common shares
outstanding (2) 11,747,979 11,337,272 11,417,585 10,823,439 10,461,845 10,206,783 9,798,941
Dividends declared per common
share (2) $ 0.555 $ 0.547 $ 1.10 $ 1.09 $ 1.08 $ 1.08 $ 1.08
Balance Sheet Data (at end of the
period)
Total assets 465,024 456,304 457,480 455,009 449,092 413,980 370,870
Long-term obligations 141,380 141,380 141,380 151,380 148,487 132,276 111,796
Stockholder's equity 151,561 137,597 146,840 133,862 122,951 121,502 115,132
Book value per common share $ 13.39 $ 12.42 $ 13.19 $ 12.50 $ 11.82 $ 11.92 $ 11.75
</TABLE>
(1) Operating income is defined as operating revenues less total costs and
expensed, other than interest expense, income taxes and allowance for funds
used during construction.
(2) Basic and diluted earnings per share, weighted average common shares
outstanding and dividends declared per common share have been adjusted to
reflect the 3-for-2 stock split effected as of March 22, 1999 (the "Stock
Split").
- --------------------------------------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
Price of Aquarion Common Stock
The Common Stock is listed and traded on the NYSE under the symbol "WTR."
The following table shows, for the fiscal periods indicated, the high and low
sale prices of a share of Common Stock on the NYSE Composite Transactions Tape,
adjusted to reflect the Stock Split.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal 1997
First Quarter (ended March 31, 1997)..................... 19.00 18.00
Second Quarter (ended June 30, 1997)...................... 18.50 16.50
Third Quarter (ended September 30, 1997)................. 18.75 16.75
Fourth Quarter (ended December 31, 1997).................. 24.33 18.00
Fiscal 1998
First Quarter (ended March 31, 1998)..................... 24.33 21.00
Second Quarter (ended June 30, 1998)...................... 23.13 21.08
Third Quarter (ended September 30, 1998)................. 23.92 22.08
Fourth Quarter (ended December 31, 1998).................. 27.33 21.63
Fiscal 1999
First Quarter (ended March 31, 1999)..................... 27.50 22.17
Second Quarter (ended June 30, 1999)...................... 34.63 25.06
Third Quarter (through August 17, 1999).................. 35.50 34.56
</TABLE>
On May 28, 1999, the last trading day before public announcement of the
execution of the Merger Agreement, the last sale price of Common Stock on the
NYSE Composite Transactions Tape was $31.06 per share.
On August 17, 1999, the most recent practicable date prior to the printing
of this Proxy Statement, the last sale price of Common Stock as reported on
the NYSE Composite Transactions Tape was $35.47 per share.
Aquarion shareholders should obtain current market prices for Common Stock.
- --------------------------------------------------------------------------------
12
<PAGE>
THE SPECIAL MEETING
Date, Time and Place
The Special Meeting of the Shareholders of Aquarion will be held at
People's Bank, Multi-purpose room (Second Floor), 850 Main Street, Bridgeport,
Connecticut 06604, on Tuesday, September 21, 1999, commencing at 9:30 a.m.,
local time.
Purpose of the Special Meeting
The purpose of the Special Meeting is to consider and vote upon a proposal
to adopt the Merger Agreement entered into among Aquarion, Kelda and Waterman,
an indirect wholly-owned subsidiary of Kelda, pursuant to which, among other
things, Waterman will be merged with and into Aquarion, and Aquarion will
become an indirect wholly-owned subsidiary of Kelda. Subject to the terms of
the Merger Agreement, in the Merger each issued and outstanding share of
Common Stock (other than Dissenting Shares) will automatically be cancelled
and will be converted into the right to receive the Merger Consideration.
Shareholders of Aquarion will not become shareholders of Kelda following the
Merger. See "THE MERGER" and "THE MERGER AGREEMENT."
Voting Rights
The Board of Directors has fixed the close business on August 19, 1999 as
the Record Date. Only holders of record of shares of Common Stock at the close
of business on the Record Date will be entitled to notice of and to vote at
the Special Meeting or any adjournment or postponement thereof.
As of the Record Date, Aquarion had 11,420,916 shares of Common Stock
outstanding. Holders of shares of Common Stock are entitled to one vote for
each share of Common Stock held of record at the close of business on the
Record Date. The presence, in person or by properly executed proxy, of the
holders of a majority of the shares of Common Stock entitled to vote at the
Special Meeting is necessary to constitute a quorum at the Special Meeting.
For purposes of determining the presence of a quorum, abstentions and shares
represented by a proxy from a broker or nominee indicating that such person
has not received instructions from the beneficial owner or other person
entitled to vote shares ("broker non-votes") will be counted as shares
present. Neither abstentions nor broker non-votes will be counted as votes
cast for purposes of determining whether the Merger Agreement has received
sufficient votes for approval and, therefore, will have the effect of a vote
against the proposal that shareholders adopt the Merger Agreement.
Proxies in the form accompanying this Proxy Statement are solicited by
Aquarion's Board of Directors. Shares of Common Stock represented by properly
executed proxies, if such proxies are received in time and are not revoked,
will be voted in accordance with the instructions indicated on the proxies. If
no instructions are indicated, such proxies will be voted "FOR" adoption of
the Merger Agreement.
If Aquarion does not receive by the time scheduled for the Special Meeting
a sufficient number of signed proxies to enable adoption of the Merger
Agreement, Aquarion may propose one or more adjournments or postponements of
the Special Meeting to permit continued solicitation of proxies with respect
to such adoption. Adjournment or postponement of the Special Meeting will be
proposed only if the Board of Directors believes that additional time to
solicit proxies might permit the receipt of sufficient votes to adopt the
Merger Agreement. It is anticipated that any such adjournment or postponement
would be for a relatively short period of time, but in no event for more than
90 days. Any
13
<PAGE>
shareholder may revoke such shareholder's proxy during any period of
adjournment or postponement in the manner described below.
Vote Required
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock entitled to vote thereon is required to adopt the Merger
Agreement. As of July 31, 1999, directors and executive officers of Aquarion
and their affiliates as a group beneficially held 45,490 shares (excluding
unexercised options), representing less than one-half of 1% of the outstanding
shares of Common Stock entitled to vote at the Special Meeting. The directors
and executive officers of Aquarion have indicated that they intend to vote
such shares of Common Stock in favor of the proposal that the shareholders of
Aquarion adopt the Merger Agreement.
Recommendation of the Board of Directors
Each Member of the Board of Directors of Aquarion has approved the Merger
and the Merger Agreement and determined that the Merger is advisable, fair to,
and in the best interests of, Aquarion and its shareholders. The determination
by the Board of Directors that the Merger is advisable, fair to and in the
best interests of Aquarion and its shareholders was based on a number of
factors, including most significantly an evaluation of the business and
prospects of Aquarion and the determination by the Board of Directors that the
Merger was the best of the strategic alternatives available to enhance
shareholder value. For a description of the material factors considered by the
Board of Directors in connection with the Merger, see "THE MERGER-- Reasons
for the Merger." The Board of Directors recommends that the shareholders vote
"FOR" adoption of the Merger Agreement.
Voting and Revocation of Proxies
All shares of Common Stock represented by properly executed proxies will be
voted at the Special Meeting in accordance with the directions indicated on
the proxies unless the proxies have been previously revoked. Unless contrary
direction is given, all shares represented by such proxies will be voted "FOR"
adoption of the Merger Agreement and in the proxy holders' discretion as to
such other matters incident to the conduct of the Special Meeting as may
properly come before the shareholders.
The Board of Directors is not aware of any matters other than those
specifically stated in this Proxy Statement that are to be presented for
action at the Special Meeting. If any other matters are properly presented at
the Special Meeting for action, including a question of adjourning the Special
Meeting from time to time, the persons named in the proxies and acting
thereunder will have discretion to vote on those matters in accordance with
their best judgment. Any adjournment of the Special Meeting will require the
affirmative vote of the holders of at least a majority of the shares of Common
Stock represented at the Special Meeting (regardless of whether those shares
of Common Stock constitute a quorum).
A shareholder of Aquarion executing and returning a proxy has the power to
revoke it at any time before it is voted. A shareholder who wishes to revoke a
proxy can do so by executing a later-dated proxy relating to the same shares
of Common Stock and delivering it to the Secretary of Aquarion prior to the
vote at the Special Meeting, by written notice of revocation or by appearing
in person at the Special Meeting and voting in person the shares of Common
Stock to which the proxy relates. Any written notice of revocation should be
sent to Aquarion at 835 Main Street, Bridgeport, Connecticut 06604-4995,
Attention: Secretary, at or before the taking of the vote at the Special
Meeting.
14
<PAGE>
Appraisal Rights
Each shareholder of Common Stock has a right to demand appraisal of his or
her shares in connection with the Merger, and, if the Merger is consummated,
to receive "fair value" for his or her shares in cash by complying with the
provisions of Delaware law, including Section 262 of the DGCL. A shareholder
wishing to do so must not vote in favor of adoption of the Merger Agreement
and must deliver to Aquarion, prior to the vote being taken on the Merger at
the Special Meeting, written notice of his or her intent to demand appraisal
of his or her shares if the Merger is effected. The full text of Section 262
of the DGCL is attached as Annex C hereto. See "APPRAISAL RIGHTS" for a
further discussion of such rights.
Solicitation of Proxies
Aquarion will bear the cost of the solicitation of Proxies and the cost of
printing and mailing this Proxy Statement. 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 shares held of
record by such persons and Aquarion will reimburse such custodians, nominees
and fiduciaries for their reasonable out-of-pocket expenses in connection
therewith. In addition, Aquarion has retained ChaseMellon Shareholder
Services, L.L.C. to assist in the solicitation of Proxies for a fee of $10,500
and reimbursement for out-of-pocket expenses.
HOLDERS OF AQUARION COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES WITH
---
THEIR PROXY CARDS. IF THE MERGER IS CONSUMMATED, THE PROCEDURE FOR THE
EXCHANGE OF CERTIFICATES REPRESENTING SHARES OF COMMON STOCK WILL BE AS SET
FORTH IN THIS PROXY STATEMENT. SEE "THE MERGER--PROCEDURES FOR SURRENDER OF
CERTIFICATES OF COMMON STOCK."
15
<PAGE>
THE MERGER
Background
Aquarion's Board of Directors has been monitoring a growing trend toward
consolidation worldwide in the water industry.
As part of its ongoing objective to enhance shareholder value, the Board of
Directors of Aquarion has from time to time adopted strategic plans with the
most recent being adopted in 1998 (the "Strategic Plan"). Pursuant to the
Strategic Plan, Aquarion has actively pursued acquisitions that it believed
would enhance long-term shareholder value and, since the adoption of the
Strategic Plan, has acquired a number of water systems in Connecticut.
Following adoption of the Strategic Plan, the Board of Directors and its
Finance Committee were provided with periodic updates of Aquarion's
acquisition activities, as well as discussions of current acquisition
activities in the water business and general trends.
From time to time Aquarion received unsolicited inquiries from other
companies in the industry regarding the possibility of an acquisition of, or
alternative strategic combinations with, Aquarion. In August 1998 following
one such informal proposal by another company (which was not Kelda), the Board
of Directors reconfirmed its confidence in the Strategic Plan and concluded
that Aquarion should not change its course of action at that time.
At its regular meeting held in December 1998, the Board of Directors
received one of its periodic updates on industry acquisition activities.
Discussion then ensued on worldwide trends in water utility consolidation,
including activities of foreign companies and the developing interest of
electric utility companies in acquiring water utilities, relative book
valuations of the participants in water utility consolidations, growth
strategies of various participant companies, Aquarion's current strategy and
the impact of all of the foregoing on Aquarion's stock price. The Board agreed
that, in view of the changing landscape in the water utility industry, it
would be appropriate for Aquarion to reevaluate its strategic posture. The
Board, in connection with its reconsideration of Aquarion's strategic posture,
determined that it would be appropriate to engage a financial advisor to
assist it in making this evaluation. Such an advisor would also be available
to assist the Board in evaluating possible transactions in the event that the
Board were to determine to pursue such a course.
Aquarion received proposals from three nationally recognized investment
banking firms regarding their plans for assisting the Board of Directors in
its reconsideration of Aquarion's strategic posture and in assisting
management in related activities. At a special meeting of Aquarion's Finance
Committee held in January 1999, after discussions of the various proposals,
Aquarion's objectives and the reputation and expertise of the candidates, the
Finance Committee authorized retaining the services of Morgan Stanley to
provide financial advice as generally outlined at the meeting.
At a meeting of Aquarion's Board of Directors held in February 1999,
representatives of Morgan Stanley appeared before the Board and reviewed the
current equity environment, the market perception of Aquarion, a review of
strategic alternatives, including developments in acquisitions of water
utilities by electric utility companies, a pro forma merger analysis and
processes to develop indications of value. Discussion then ensued concerning
various points of the presentation, including Morgan Stanley's recommendation
of a targeted auction process to develop indications of value for Aquarion as
part of its strategic review. After discussion, the Board recommended that
Morgan Stanley plan a targeted auction process as described by Morgan Stanley
to develop an indication of the value of Aquarion in an acquisition context.
16
<PAGE>
The targeted auction process was to be a two-step process involving, first,
non-binding statements of interest and, thereafter, if Aquarion's Board
authorized the next phase of the process, selected potential bidders would be
invited to perform intensive due diligence and to submit final binding
proposals. Morgan Stanley advised the Board of Directors that this process was
the most likely to result in obtaining the highest values with respect to a
potential transaction with Aquarion should the Board of Directors determine to
pursue such a course.
Following the February meeting, Morgan Stanley, working with Aquarion's
management, identified those it believed to be the most likely potential
acquirors of, or potential strategic partners with, Aquarion, including those
companies that had previously expressed an interest in Aquarion. The 13
potential acquirors so identified included companies both in the water
industry and in other utility businesses, and included both domestic and
foreign en tities. Kelda was among those companies so identified.
In early March 1999, 11 of the potential acquirors (including Kelda)
entered into confidentiality agreements with Aquarion and received a
Confidential Offering Memorandum, which outlined the process envisioned by
Morgan Stanley and Aquarion.
On April 15, 1999, nine companies (including Kelda) submitted non-binding
proposals, including preliminary indications of interest. Such proposals
included a range of alternative structures, including cash mergers, a stock-
for-stock merger, a part-stock and part-cash merger and, in certain cases,
flexibility in structuring the potential transaction.
At the regular meeting of the Board held on April 20, 1999, the Board of
Directors received an update on the auction process from Morgan Stanley,
including the companies that had been contacted and their level of interest.
Since the range of the submitted bids was in excess of the values suggested by
the Strategic Plan, Richard K. Schmidt, the President and Chief Executive
Officer of Aquarion, requested and received approval to proceed to Phase II of
the process to determine the level of interest in Aquarion by meeting with the
five companies that had submitted the highest bids and with another company
that increased its bid following its initial submission to be among the
highest bids.
On May 21, 1999, five of the six Phase II participants submitted final
binding bids for Aquarion, including their markups of the forms of merger
agreements proposed by Aquarion. Three of such proposals contemplated cash
mergers, one contemplated a stock-for-stock merger and one preferred a cash
merger but expressed flexibility in providing that up to 50% of the merger
consideration could be in the form of stock. Kelda's final binding proposal
provided the highest value, providing for merger consideration of $36.70 per
share of Common Stock in cash.
Also on May 21, 1999, investment bankers representing one of the potential
acquirors that was initially contacted by Morgan Stanley, but which had
declined to participate in the process, contacted Morgan Stanley to express a
renewed interest in an acquisition of Aquarion. Aquarion began to make
arrangements to provide such potential bidder with management presentations
and access to the diligence documents over the ensuing weekend, but the
potential bidder subsequently decided again not to participate in the process.
At a special meeting of Aquarion's Board of Directors held on May 25, 1999,
with all but one director present, the Board was again briefed on the process
by which it was to evaluate Aquarion's Strategic Plan in relation to final
binding bids resulting from the process conducted by Morgan Stanley on
Aquarion's behalf and on the applicable legal standards were the Board to
determine to pursue a cash bid. Following a presentation by representatives of
Morgan Stanley, the Board next reviewed the
17
<PAGE>
proposed material changes from the contract proposed by Aquarion that had been
requested by each bidder. The Board reviewed the proposals, the differences
and benefits of each and the financial capabilities of Kelda, which had
submitted the highest bid, to close the transaction. The Board also considered
the public utility commission approvals required and the outlook for approval.
The Board then instructed its legal counsel to meet with Kelda and its counsel
and to negotiate a form of merger agreement containing the best terms
available to Aquarion.
Beginning on May 26, 1999, Mr. Schmidt, Janet M. Hansen, the Executive Vice
President, Chief Financial Officer and Treasurer of Aquarion, other members of
Aquarion's management, representatives of Morgan Stanley and Aquarion's legal
counsel met with members of Kelda's management, including its chief executive
officer, and Kelda's financial advisors and legal counsel to negotiate a final
form of merger agreement. These negotiations concluded late Friday, May 28,
1999, with a definitive form of merger agreement which had been developed by
the parties. It was anticipated that the merger agreement would be reviewed by
Aquarion's Board of Directors at a special meeting expected to be called for
Memorial Day, May 31, 1999.
Early on Friday, May 28, 1999, investment bankers representing one of the
Phase II participants whose final binding proposal was not the highest bid and
whose markup of the merger agreement raised substantial issues (hereinafter
referred to solely for purposes of identification as "Bidder Two") contacted
Morgan Stanley on an unsolicited basis and indicated that Bidder Two wished to
increase its bid to $37.00 per share. Morgan Stanley's representatives
indicated that, given the then current status of the process, and in
accordance with conversations with Aquarion and its legal advisors, Aquarion
could not entertain such a proposal unless Bidder Two delivered by 5:00 p.m.,
New York City time, that same day, a new final binding bid in writing,
together with, if Bidder Two so desired, a revised signed markup of Aquarion's
form of merger agreement. On Friday morning, prior to the completion of the
negotiations with Kelda on the form of merger agreement, Kelda's chief
executive officer, Kelda's financial advisors and Kelda's legal counsel were
informed, without any further specific information, that Aquarion had received
"new information" and that Aquarion might be legally obligated to respond to
that information.
Shortly after the 5:00 p.m. deadline, Bidder Two delivered to Morgan
Stanley its revised final binding bid offering $37.00 per share of Common
Stock in cash and a revised and signed mark-up of Aquarion's form of merger
agreement which, in many instances, was more favorable to Aquarion than the
markup previously submitted by Bidder Two. In response to the revised
proposal, and based on the advice of legal counsel, at the direction of the
members of Aquarion's Board of Directors who were individually apprised of the
circumstances by Mr. Schmidt, legal counsel for Aquarion and Bidder Two met to
negotiate a definitive form of merger agreement to be considered by Aquarion's
Board. The negotiations concluded early Sunday morning, May 30, 1999 with a
revised proposed form of merger agreement to be reviewed by Aquarion's Board
of Directors at the special meeting tentatively called for May 31, 1999. That
Sunday evening, Bidder Two submitted a new signed mark-up of Aquarion's form
of merger agreement, which reflected further changes from the proposed form
that had been negotiated by legal counsel for Aquarion and Bidder Two earlier
that weekend.
On the morning of Monday, May 31, 1999, representatives of Morgan Stanley
on Aquarion's behalf called each of Kelda and Bidder Two to advise them that
Aquarion's Board would be meeting beginning at 9:00 p.m. that evening to
determine an appropriate course of action. Shortly before the commencement of
Aquarion's Board meeting, representatives of Kelda contacted Morgan Stanley to
advise them that they were increasing their bid price to $37.05 a share from
$36.70 a share but all other terms of their definitive form of agreement were
to remain the same.
18
<PAGE>
The special meeting of Aquarion's Board commenced shortly after 9:00 p.m.
on Monday, May 31, 1999, with all directors present in person or by conference
telephone. The Board was again advised of events since the Board's last
meeting on May 25. The directors then reviewed the key terms of the proposed
merger agreements with Kelda and Bidder Two, and discussed with counsel
certain differences in the provisions of the two proposed merger agreements
including the presence or absence of a provision for a pro rata dividend,
issues relating to the relative certainty of the satisfaction of various
closing conditions and the amount of termination fees as well as the
circumstances under which such fees would be payable. The Board then discussed
with Aquarion's regulatory counsel the public utility commission approval
process in Connecticut, whether the transactions would ultimately be approved,
and whether there might be a greater risk of regulatory issues being raised
with respect to either transaction. Representatives of Morgan Stanley next
reviewed with the Board a financial analysis of the two bids as well as a
comparison of the bids being considered to other valuation methodologies for
Aquarion. They pointed out that Morgan Stanley was prepared to issue its
fairness opinion with respect to either bid selected by the Board and then
reviewed the terms of the fairness opinion which Morgan Stanley was prepared
to issue. Morgan Stanley's representatives again reviewed with the Board the
process that it had used to obtain valuations for Aquarion, and noted that the
process was significantly more wide ranging than a typical limited or targeted
auction which had originally been anticipated at the time of the Board's
authorization of the process and that it was improbable that any likely
bidders had been excluded from the process. The Board of Directors then
discussed in detail the final bids of Kelda and Bidder Two in order to
determine what course to take. Among the primary considerations in choosing
between the two bids, each of which the Board believed would provide
Aquarion's shareholders with greater value than the values suggested by the
Strategic Plan, the Board considered the relative value, certainty of closure
and the structure and amount of termination fees under each proposal. Among
other things, the Board discussed the fact that Bidder Two's bid included a
provision for a pro rata dividend to the date of closing which was a feature
not present in the Kelda proposal and the Board noted that termination fees
would be payable under Bidder Two's proposal in certain instances where such
fees would not be payable under Kelda's bid. The Board then evaluated both
bids on the basis of relative value, certainty of closure and the structure
and amount of termination fees. Following such discussions, one of the
directors who was participating in the Board meeting by means of conference
telephone indicated that, as he had previously advised the other members of
the Board, he had then to depart the meeting in order to attend another
meeting. He then stated that he was in favor of entering into the merger
agreement negotiated with Kelda. Immediately following such director's
departure, a motion was made and seconded to approve the resolutions with
respect to a merger with Kelda and, by the unanimous vote of directors present
at the time of the vote, the Board of Directors, among other things, duly
approved the Merger and the Merger Agreement, directed that the Merger
Agreement be submitted to Aquarion's shareholders for adoption at a special
meeting to be held for that purpose and recommended that Aquarion's
shareholders adopt the Merger Agreement at such special meeting.
Late on Monday evening, following Aquarion's Board meeting, Aquarion
delivered an executed copy of the Merger Agreement to Kelda's counsel.
Prior to the opening of business on Tuesday, June 1, 1999, Aquarion and
Kelda issued a joint press release announcing that they had entered into the
Merger Agreement.
Reasons for the Merger
Each member of the Board of Directors has approved the Merger and the
Merger Agreement and determined that the Merger is advisable, fair to, and in
the best interests of, Aquarion and its shareholders and recommends that
holders of Common Stock vote FOR adoption of the Merger
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<PAGE>
Agreement. In the course of reaching its decision to approve the Merger
Agreement and the Merger, the Board of Directors consulted with Aquarion's
legal and financial advisors and considered a number of factors, including,
among others, the following:
(1) The value to be received by the shareholders of Aquarion in the Merger
is greater than the values to shareholders that could reasonably be
achieved by continued adherence to the Strategic Plan.
(2) The written opinion of Morgan Stanley delivered at the May 31, 1999
Board of Directors meeting to the effect that, as of such date, and
based upon the assumptions made, matters considered and limits of
review set forth in such opinion, the Merger Consideration was fair,
from a financial point of view, to the holders of Common Stock and the
presentation of Morgan Stanley at the May 31, 1999 Board meeting in
connection with its opinion. Aquarion chose Morgan Stanley as its
financial adviser based on its qualifications, expertise and
reputation. See "THE MERGER--Opinion of Aquarion's Financial
Adviser."
(3) The relationship of the Merger Consideration to the historical and
current market prices for the shares of Common Stock preceding the
announcement of the Merger, including the fact that the merger price
of $37.05 per share represents a premium of approximately 19.3% over
the $31.0625 closing sale price of the shares of Common Stock on May
28, 1999, the last trading day before the announcement that Aquarion
had entered into the Merger Agreement. See "PRICE OF AQUARION COMMON
STOCK."
(4) The business, financial condition and recent results of operations of
Aquarion (see "SUMMARY-- Financial Data") and management's best
estimates of Aquarion's prospects.
(5) The current and prospective environment in which Aquarion operates and
the trend toward consolidation in the water industry. The Board of
Directors recognized that further acquisitions in the utilities
industry were becoming more difficult as Aquarion was now competing
with larger consolidated entities and also that the Utilities had
essentially reached the practical limits of productivity improvements
given their size and the very real limits on the amount of money BHC
and SCWC could expend on further technology and productivity
enhancements within regulated utility customer rates.
(6) The process undertaken by Aquarion and Morgan Stanley to obtain
acquisition proposals, which was designed to result in obtaining the
highest values for Aquarion, and the conclusion that Kelda's bid
satisfied that objective. See "THE MERGER--Background."
(7) The Board of Directors' assessment that Kelda has the financial
capability to acquire Aquarion for the Merger Consideration, coupled
with the fact that there are no financing conditions relating to the
Merger. Furthermore, based on Kelda's present operating history,
particularly as it would be viewed by the applicable regulatory
authorities, as well as the limited conditions to closing set forth in
the Merger Agreement, the Board of Directors believed, in its
selection of Kelda, that an acquisition transaction could be
effectuated relatively quickly and in an orderly manner. See "THE
MERGER AGREEMENT."
(8) The Board of Directors' belief, after consultation with its legal
counsel, that the regulatory approvals necessary to consummate the
Merger could be obtained. In forming such belief, the Board
recognized that the DPUC, as well as certain of the other regulatory
agencies, will consider whether Kelda is financially, technologically
and managerially suitable to control
20
<PAGE>
the applicable Utility and the ability of the Utility to continue
to provide safe, adequate and reliable service to the public
through its plant, equipment and manner of operation were the
application before such agency to be approved. The Board's belief
was, consequently, based in substantial part upon its perception
that Kelda's large size, accompanying financial resources and
technical expertise, as well as Kelda's declared commitment to
customer service, effective employee relations, solid working
relationships with regulatory agencies and legislators, strong
community service and safe environmental practices, would be
found adequate to permit the Utilities to continue as well-run
customer-oriented water utilities and to result in benefits to
the Utilities' current and future customers, employees and
operations, including mitigation against the frequency and size
of future rate increases for the Utilities. See "THE MERGER--
Regulatory Approvals."
(9) The fact that the Merger Agreement requires that the Merger be
submitted to the shareholders of Aquarion for approval, which
allows for an informed vote of shareholders on the merits of the
transaction without requiring a tender of shares or other
potentially coercive transaction structure; and the fact that the
Merger Agreement provides that it may be terminated by Aquarion
if such approval is not received.
(10) The fact that Delaware law provides for appraisal rights in the
case of the transaction contemplated by the Merger Agreement. See
"THE SPECIAL MEETING--Appraisal Rights," "APPRAISAL RIGHTS" and
Annex C.
(11) The other terms and conditions of the Merger Agreement, including
(i) those relating to fees and expense reimbursements to Kelda
payable upon termination of the Agreement as a result of
competing offers and (ii) those relating to the ability of the
Board to consider unsolicited offers from third parties prior to
the adoption by Aquarion's shareholders of the Merger Agreement.
(12) The Board of Directors' belief that the consideration provided by
the two competing bids was roughly comparable but, after
consultation with its legal counsel, that the terms of the Merger
Agreement provided greater certainty of closure and fewer
instances in which a termination fee would be payable than the
merger agreement proposed by Bidder Two.
The foregoing discussion of the information and factors considered by
the Board of Directors is not intended to be exhaustive but is believed to
include all material factors considered by the Board of Directors. In view
of the variety of factors considered in connection with its evaluation of
the Merger, the Board of Directors did not find it practicable to, and did
not, quantify or otherwise attempt to assign relative weight to the
specific factors considered in reaching its determination. In addition,
individual members of the Board of Directors may have given different
weights to different factors. In the course of its deliberations, the Board
of Directors did not establish a range of values for Aquarion; however,
based on the factors outlined above and on an examination of the Strategic
Plan, the Board of Directors, by the unanimous vote of those directors
present at the time of the vote, determined that the Merger Agreement and
the Merger are fair to, and in the best interest of, Aquarion and its
shareholders.
Description of the Merger
Pursuant to the Merger Agreement and on the terms and subject to the
conditions set forth therein, Waterman will be merged with and into
Aquarion. As a result of the Merger, the separate corporate existence of
Waterman will cease and Aquarion will continue as a wholly-owned subsidiary
of Kelda. See "THE MERGER AGREEMENT."
21
<PAGE>
At the Effective Time, except with respect to Dissenting Shares (see
"APPRAISAL RIGHTS"), each issued and outstanding share of Common Stock will
automatically be canceled and cease to exist and will be converted into the
right to receive the Merger Consideration of $37.05 in cash. As a result of
the Merger, Aquarion will be a wholly-owned subsidiary of Kelda.
Opinion of Aquarion's Financial Advisor
Under a letter agreement dated February 11, 1999 Aquarion engaged
Morgan Stanley & Co. Incorporated to provide financial advisory services in
connection with a review of Aquarion's strategic options and any related
transaction. The Board of Directors selected Morgan Stanley as Aquarion's
financial advisor based on Morgan Stanley's qualifications, expertise and
reputation, and its knowledge of the business and affairs of Aquarion.
Morgan Stanley has delivered to the Board of Directors its written opinion,
dated May 31, 1999, that based upon and subject to the various
considerations described in its opinion, the Merger Consideration to be
received by holders of shares of Common Stock pursuant to the Merger
Agreement was fair, from a financial point of view, to the holders of
shares of Common Stock.
The full text of Morgan Stanley's written opinion, dated May 31, 1999,
which describes, among other things, assumptions made, procedures followed,
matters considered and limitations on the scope of the review undertaken by
Morgan Stanley in rendering its opinion, is attached as Annex B to this
Proxy Statement. Aquarion's shareholders are urged to read the opinion
carefully and in its entirety. Morgan Stanley's opinion is directed to the
Board of Directors and addresses only the fairness of the Merger
Consideration from a financial point of view to the holders of shares of
the Common Stock as of the date of the opinion. It does not address any
other aspect of the Merger and does not constitute a recommendation to any
holder of Common Stock as to how to vote at the Special Meeting. This
summary of Morgan Stanley's opinion is qualified in its entirety by
reference to the full text of the opinion.
In connection with rendering its opinion, Morgan Stanley:
. reviewed certain publicly available financial statements and
other information of Aquarion;
. reviewed certain internal financial statements and other
financial and operating data concerning Aquarion prepared by the
management of Aquarion;
. analyzed certain financial projections prepared by the management
of Aquarion;
. discussed the past and current operations and financial condition
and the prospects of Aquarion, including the strategic rationale
for the Merger, with senior executives of Aquarion;
. reviewed the reported prices and trading activity for the Common
Stock;
. compared the financial performance of Aquarion and the prices and
trading activity of the Common Stock with that of certain other
comparable publicly-traded companies and their securities;
. reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
22
<PAGE>
. participated in discussions and negotiations among
representatives of Aquarion and Kelda and their financial and
legal advisors;
. reviewed the draft merger agreement and certain related
documents; and
. performed such other analyses and considered such factors as we
have deemed appropriate.
Morgan Stanley assumed and relied upon without independent
verification the accuracy and completeness of the information reviewed by
it for the purposes of this opinion. With respect to the financial
projections, Morgan Stanley has assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the future financial performance of Aquarion. In addition,
Morgan Stanley has assumed that the Merger will be consummated in
accordance with the terms set forth in the Merger Agreement. Morgan Stanley
has not made any independent valuation or appraisal of the assets or
liabilities of Aquarion, nor has it been furnished with any such
appraisals. Morgan Stanley's opinion is necessarily based on financial,
economic, market and other conditions as in effect on, and the information
made available to Morgan Stanley as of, May 31, 1999.
Morgan Stanley noted that it is not a legal or regulatory expert and
has relied upon, without independent verification, the assessment of
Aquarion's regulatory advisors with respect to the legal and regulatory
matters related to the Merger.
The following is a brief summary of the material analyses performed by
Morgan Stanley in connection with the preparation of its opinion letter
dated May 31, 1999. Certain of these summaries of financial analyses
include information presented in a tabular format. In order to understand
fully the financial analyses used by Morgan Stanley, the tables must be
read together with the text of each summary. The tables alone do not
constitute a complete description of the financial analyses.
Comparative Stock Price Performance. Morgan Stanley reviewed the
recent stock price performance of Aquarion and compared its performance
with that of the following group of peer companies:
. American Water Works
. United Water Resources
. Philadelphia Suburban
. E'Town Corp.
. California Water Service
. American States Water
. Connecticut Water Service
. Middlesex Water
. SJW Corp
In addition, Morgan Stanley reviewed the stock price performance of
the Standard & Poor's 500 Index.
The following table presents the increase in the stock prices for
these groups, as compared to the change in the stock prices for Aquarion's
Common Stock, from May 21, 1998 to May 21, 1999.
23
<PAGE>
<TABLE>
<CAPTION>
Percentage
Increase
<S> <C>
Aquarion............................... 30%
Aquarion Peer Group (as listed above).. 18%
S&P 500 Index.......................... 19%
</TABLE>
Peer Companies Comparison. Morgan Stanley reviewed financial
information, including the price to forecasted fiscal 1999 earnings
multiples, the price to book value multiples, and the aggregate value to
earnings before interest, taxes, depreciation and amortization ("EBITDA")
multiples for the Aquarion peer companies and Aquarion. The financial
information was based on a compilation of earnings projections by
securities research analysts, the book value as of March 31, 1999 and the
EBITDA for the 12-month period ended March 31, 1999. The table below
summarizes these analyses and the relevant statistics for Aquarion as of
March 31, 1999.
<TABLE>
<CAPTION>
Aggregate
1999 Price To 1999 Value/LTM
P/E Book Value Ebitda
(As of March
31, 1999)
<S> <C> <C> <C>
American Water Works.......................... 18.1x 1.9x 9.3x
United Water Resources........................ 17.2x 1.7x 9.6x
Philadelphia Suburban......................... 22.4x 2.9x 11.6x
E'Town Corp................................... 15.5x 1.6x 11.3x
California Water Service...................... 15.2x 1.8x 7.6x
American States Water (formerly Southern Ca... 14.5x 1.5x 7.7x
Wtr.)
SJW Corp...................................... 13.1x 1.4x 7.4x
Connecticut Water Service..................... 15.0x 1.9x 11.3x
Middlesex Water............................... 16.4x 1.7x 11.2x
Median........................................ 16.0x 1.7x 9.5x
Aquarion...................................... 19.4x 2.2x 9.4x
</TABLE>
24
<PAGE>
No company utilized in the Aquarion peer companies comparison analysis
is identical to Aquarion. In evaluating the peer companies, Morgan Stanley
made judgments and assumptions with regard to industry performance, general
business, economic, market and financial conditions and other matters, many
of which are beyond Aquarion's control, including the impact of competition
on Aquarion's business and the industry generally, industry growth and the
absence of any material adverse change in the financial condition and
prospects of Aquarion or the industry or in the financial markets in
general. Mathematical analysis (such as determining the average or median)
is not in itself a meaningful method of using peer group data. Based upon
Morgan Stanley's peer companies analysis, the range of values for the
Common Stock was between $23.51 and $25.75. As of May 28, 1999, the Common
Stock price of the Company was $31.0625, and the Merger Consideration was
$37.05 per share.
Analysis of Selected Precedent Transactions. Morgan Stanley reviewed the
following water transactions:
Acquiror/Acquiree
---------------------------------------------
California Water/Dominguez Services
American Water Works/National Enterprises
Enron/Wessex Water
Philadelphia Suburban/Consumers Water
Nisource/Indianapolis Water
Morgan Stanley compared certain publicly available statistics for
these transactions to the relevant financial statistics for Aquarion in
connection with its proposed merger with Kelda.
The following table presents a comparison, as of May 20, 1999, of the
median and mean earnings multiples for the last 12 months and implied
premium to offer price based on the closing price of the relevant stock one
day and one month before the announcement of the relevant transaction
against the respective earnings multiple and implied premium for the
Merger.
25
<PAGE>
<TABLE>
<CAPTION>
Equity
Value/LTM Premium to Unaffected Price
Net Income 1 Month 1 Day Prior
Prior
<S> <C> <C> <C>
California Water/Dominguez Services 33.8x 52.7%/(1)/ 32.5%/(1)/
American Water Works/National Enterprises/(2)/ 25.6x N.A. N.A.
Enron/Wessex Water 12.9x/(3)/ 37.2% 28.0%
Philadelphia Suburban/Consumers Water 22.8x 42.9% 26.0%
Nisource/Indianapolis Water 23.6x 44.6% 23.1%
Mean 26.5x/(4)/ 44.4%/(4)/ 27.4%
Median 24.6x/(4)/ 43.8/(4)/ 27.0
Aquarion 23.3 47.8 19.3
</TABLE>
Notes: (1) Represents the premium prior to the initial California Water
announcement in November 1998.
(2) National Enterprises was a privately owned company.
(3) Net income based on UK GAAP.
(4) Mean and Median exclude Enron/Wessex Water transaction.
No transaction utilized as a comparison in the precedent transactions
analysis is identical to the merger. In evaluating the precedent
transactions, Morgan Stanley made judgments and assumptions with regard to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond Aquarion's control,
such as the impact of competition on Aquarion and the industry generally,
industry growth or consolidation and the absence of any material adverse
change in the financial condition and prospects of Aquarion or the industry
or in the financial markets in general. Mathematical analysis (such as
determining the average or median) is not in itself a meaningful method of
using comparable transaction data. Based upon Morgan Stanley's precedent
transactions analysis, the range of values for Aquarion's common stock was
between $29.35 and $34.38 per share.
Discounted Equity Value. Morgan Stanley performed an analysis of the
present value per share of Aquarion from Aquarion's cash flow projections.
Morgan Stanley calculated terminal values by applying a range of perpetual
growth rates to the unlevered free cash flow in fiscal 2008. The cash-flow
streams and terminal values were then discounted to the present using a
range of discount rates of 5.5% - 6.5%.
26
<PAGE>
The following table presents the ranges of discount rates and present values per
share of stock:
<TABLE>
<CAPTION>
Discounted Equity Value Analysis
Range of Discount Range of Present
Rates Values Per
Share
of Stock
<S> <C> <C>
Aquarion stand-alone (based on Aquarion's 5.5%-6.5% $25.25 - $35.47
cash flow projections)
</TABLE>
In connection with the review of the Merger by the Board of Directors,
Morgan Stanley performed a variety of financial and comparative analyses
for purposes of its opinions. 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 analysis or factor. Furthermore, Morgan Stanley
believes that selecting any portion of its analyses, without considering
all analyses, would create an incomplete view of the process underlying its
opinion. In addition, Morgan Stanley may have given various analyses and
factors more or less weight than other analyses and factors, and may have
deemed various assumptions more or less probable than other assumptions, so
that the ranges of valuations resulting from any particular analysis
described above should not be taken to be Morgan Stanley's view of the
actual value of Aquarion.
In performing its analyses, Morgan Stanley made numerous assumptions
with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of
Aquarion. Any estimates contained in Morgan Stanley's analyses are not
necessarily indicative of future results or actual values, which may be
significantly more or less favorable than those suggested by the estimates.
The analyses performed were prepared solely as part of Morgan Stanley's
analysis of the fairness of the Merger Consideration to be received by the
holders of shares of Common Stock pursuant to the Merger from a financial
point of view holders of Aquarion common stock and were conducted in
connection with the delivery of Morgan Stanley's opinion to the Board of
Directors. The analyses do not purport to be appraisals or to reflect the
prices at which Aquarion Common Stock might actually trade.
The Merger Consideration and the terms of the Merger Agreement were
determined through arm's-length negotiations between Aquarion and Kelda and
were approved by the Board of Directors. Morgan Stanley did not recommend
any specific consideration to Aquarion or that any specific consideration
constituted the only appropriate consideration for the Merger. In addition,
as described above, Morgan Stanley's May 31, 1999 opinion and presentation
to Aquarion's Board of Directors was one of the many factors taken into
consideration by Aquarion's board in making its decision to approve the
Merger. Consequently, Morgan Stanley's analyses as described above should
not be viewed as determinative of the opinion of Aquarion's Board of
Directors with respect to the value of Aquarion or of whether the Board of
Directors would have been willing to agree to a different form of
consideration.
Aquarion's Board of Directors retained Morgan Stanley based upon
Morgan Stanley's qualifications, experience and expertise. Morgan Stanley
is an internationally recognized investment banking and advisory firm.
Morgan Stanley, as part of its investment banking and financial advisory
business, is
27
<PAGE>
continuously engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and 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, may trade or otherwise effect transactions, for its own
account or for the account of customers, in the equity or debt securities
or senior loans of Aquarion or Kelda.
Pursuant to its letter agreement with Aquarion, Morgan Stanley
provided financial advisory services and financial opinions in connection
with the merger, and Aquarion agreed to pay Morgan Stanley's customary
fees, including a transaction fee contingent upon the consummation of the
Merger. Aquarion has also agreed to reimburse Morgan Stanley for its
out-of-pocket expenses incurred in performing its services.
In addition, Aquarion has agreed to indemnify Morgan Stanley and its
affiliates, their respective directors, officers, agents and employees and
each person, if any, controlling Morgan Stanley or any of its affiliates
against certain liabilities and expenses, including certain liabilities
under the federal securities laws, related to or arising out of Morgan
Stanley's engagement and any related transactions.
Regulatory Approvals
Certain aspects of the Merger will require notification to, and
filings with, the state public utility control or public service
commissions in Connecticut and New York, the jurisdictions where Aquarion
currently operates.
Antitrust Regulation. Under the HSR Act and the rules promulgated
thereunder by the FTC, the Merger may not be consummated until
notifications have been given and certain information has been furnished to
the FTC and the Antitrust Division and the applicable waiting period has
expired or been terminated. On June 30, 1999, Aquarion and Kelda filed
Notification and Report Forms under the HSR Act with the FTC and the
Antitrust Division. On July 15, 1999, the FTC and the Antitrust Division
granted early termination of the waiting period under the HSR Act with
respect to the Merger effective immediately. At any time before or after
consummation of the Merger, notwithstanding that early termination of the
waiting period under the HSR Act has been granted, the Antitrust Division
or the FTC could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin
the consummation of the Merger or seeking divestiture of substantial assets
of Aquarion. At any time before or after the Effective Time, and
notwithstanding that early termination of the waiting period under the HSR
Act has been granted, any state could take such action under the antitrust
laws as it deems necessary or desirable in the public interest. Such action
could include seeking to enjoin the consummation of the Merger or seeking
divestiture of substantial assets of Aquarion. Private parties may also
seek to take legal action under the antitrust laws under certain
circumstances.
While there can be no assurance that the Merger will not be challenged
by a governmental authority or private party on antitrust grounds, Aquarion
and Kelda believe that the Merger can be effected in compliance with
federal and state antitrust laws.
Utilities Regulation. The Utilities are regulated by several state
agencies, including the DPUC and the PSC. Under Title 16 of the Connecticut
General Statutes, including Section 16-47, the Merger may not be
consummated until approved by the DPUC. On July 12, 1999, Aquarion and
Kelda filed a joint application for such approval. The DPUC will consider
whether Kelda is financially, technologically and managerially suitable to
control BHC, as well as the ability of BHC to continue to provide safe,
adequate and reliable service to the public through its plant, equipment
and manner of operation were
28
<PAGE>
the application to be approved. Aquarion and Kelda believe that their
application to the DPUC fully complies with the requirements of Connecticut
law and have included in their application information intended to
demonstrate such compliance. Nonetheless, opposition to the application is
possible. The Connecticut Office of Consumer Counsel has the statutory
authority to represent consumers in utility matters before the DPUC and is
expected to be named as a party in the DPUC hearings. Discovery in the
proceedings will likely consist of interrogatories addressed to the
applicants by DPUC staff, by the Office of Consumer Counsel, and possibly
by intervening parties. Aquarion and Kelda can give no assurance that the
necessary DPUC approvals will be obtained in a timely manner or at all.
Moreover, it is possible that the DPUC approvals will include conditions
that, if accepted, would result in a material adverse effect on Aquarion or
Kelda. If so, the parties would not be obligated to consummate the Merger.
In addition, under Section 89-h of the New York Public Service Law the
Merger may not be consummated until certain information has been furnished
to the PSC and the PSC and has approved the Merger. Aquarion and Kelda will
file an application for approval of the Merger with the PSC prior to the
end of August 1999. While there can be no assurance that the Merger will be
approved by the PSC, Aquarion and Kelda believe that the Merger can be
effected in compliance with the requirements of New York law.
Federal Income Tax Consequences
The receipt of the Merger Consideration by each holder of shares of
Common Stock upon the cancellation of Common Stock pursuant to the Merger
will be taxable transactions for U.S. federal income tax purposes under the
Code and may also be taxable transactions under applicable state, local,
foreign and other tax laws.
Generally, a shareholder of Aquarion who receives cash in exchange for
shares of Common Stock pursuant to the Merger will, for U.S. federal income
tax purposes, recognize gain or loss equal to the difference between the
amount of cash received and such shareholder's adjusted tax basis in the
Common Stock exchanged therefor. If the Common Stock is held by a
shareholder as a capital asset, gain or loss recognized by the shareholder
will be a long-term capital gain or loss if the shareholder's holding
period for the Common Stock exceeds one year. In the case of a noncorporate
taxpayer, the current maximum U.S. federal income tax rate on net capital
gains generally is 20%.
Payments of cash to a holder of shares of Common Stock will generally
be subject to information reporting requirements. "Backup" withholding at a
rate of 31% will apply to such payments, unless the holder furnishes its
taxpayer identification number in the manner prescribed in the applicable
U.S. Treasury regulations, certifies that such number is correct, certifies
as to no loss of exemption from backup withholding and meets certain other
conditions. Any amounts withheld under the backup withholding rules will be
allowed as a refund or credit against the holder's U.S. federal income tax
liability, provided that the required information is furnished to the
Internal Revenue Service. Such "backup" withholding can be avoided if a
shareholder properly completes the letter of transmittal that the exchange
agent in connection with the Merger will mail to each shareholder as soon
as reasonably practicable after the Effective Time, and includes in such
letter the shareholder's correct taxpayer identification number. See "THE
MERGER -- Procedures for Surrender of Certificates of Common Stock."
The discussion set forth above as to the material federal income tax
consequences of the Merger is based upon the provisions of the Code,
applicable U.S. Treasury regulations thereunder, judicial decisions and
current administrative rulings, all as in effect on the date hereof and all
of which are subject to change at any time possibly with retroactive
effect. Special tax consequences not described herein may be applicable to
particular classes of taxpayers, such as financial institutions, insurance
29
<PAGE>
companies, persons that hold Common Stock as part of a straddle or
conversion transaction, or persons who are not citizens or residents of the
United States. The discussion does not address any aspect of state, local
or foreign taxation. No rulings have been, or will be, requested from the
Internal Revenue Service with respect to any of the matters discussed
herein. There can be no assurances that future legislation, regulations,
administrative rulings or court decisions will not alter the tax
consequences as set forth above.
THE AFOREMENTIONED DISCUSSION DOES NOT PURPORT TO BE A COMPLETE
ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT TO THE MERGER.
THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE WITH RESPECT TO CERTAIN
SHARES RECEIVED PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR
OTHERWISE AS COMPENSATION OR WITH RESPECT TO HOLDERS OF SHARES WHO ARE
SUBJECT TO SPECIAL TAX TREATMENT UNDER THE CODE, SUCH AS NON-U.S. PERSONS,
LIFE INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS AND FINANCIAL
INSTITUTIONS, AND MAY NOT APPLY TO A HOLDER OF SHARES IN LIGHT OF ITS
INDIVIDUAL CIRCUMSTANCES. SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISERS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM (INCLUDING
THE APPLICATION AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER
TAX LAWS) OF THE MERGER.
Merger Consideration
Subject to the terms and conditions of the Merger Agreement, in the
Merger each issued and outstanding share of Common Stock (other than
Dissenting Shares) will automatically be canceled and cease to exist and
will be converted into the right to receive $37.05 in cash, without
interest.
Closing and Effective Time of the Merger
The Merger will become effective, and Waterman will be merged with and
into Aquarion, upon the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware or such later date as is
specified in such Certificate of Merger. The filing of the Certificate of
Merger will be made on the Closing Date, which will take place as soon as
practicable, but in any event not later than the third business day, after
the satisfaction or waiver of the conditions to the Merger set forth in the
Merger Agreement unless another date is agreed to in writing by the
parties. Subject to certain limitations, the Merger Agreement may be
terminated by either Waterman or Aquarion if, among other reasons, the
Merger has not occurred on or before May 31, 2000 (or, under certain
circumstances, November 30, 2000). See "THE MERGER AGREEMENT --Conditions
to the Consummation of the Merger" and "THE MERGER AGREEMENT --
Termination."
Procedures for Surrender of Certificates of Common Stock
The conversion of shares of Common Stock (other than Dissenting
Shares) into the right to receive the Merger Consideration following the
Merger will occur at the Effective Time.
As soon as practicable as of or after the Effective Time, the Exchange
Agent will send a letter of transmittal to each holder of Common Stock. The
letter of transmittal will contain instructions with respect to the
surrender of certificates representing shares of Common Stock in exchange
for the Merger Consideration.
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SHAREHOLDERS SHOULD NOT FORWARD STOCK CERTIFICATES TO THE EXCHANGE
AGENT UNTIL THEY HAVE RECEIVED THE LETTER OF TRANSMITTAL.
As soon as practicable after the Effective Time, each holder of an
outstanding certificate or certificates at such time which prior thereto
represented shares of Common Stock shall, upon surrender to the Exchange
Agent of such certificate or certificates and acceptance thereof by the
Exchange Agent, be entitled to the amount of cash into which the number of
shares of Common Stock previously represented by such certificate or
certificates surrendered shall have been converted pursuant to the Merger
Agreement. The Exchange Agent will accept such certificates upon compliance
with such reasonable terms and conditions as the Exchange Agent may impose
to effect an orderly exchange thereof in accordance with normal exchange
practices. After the Effective Time, there will be no further transfer on
the records of Aquarion or its transfer agent of certificates representing
shares of Common Stock which have been converted pursuant to the Merger
Agreement into the right to receive the Merger Consideration, and if such
certificates are presented to Aquarion for transfer, they will be canceled
against delivery of the Merger Consideration. Until surrendered as
contemplated by the Merger Agreement, each certificate formerly
representing shares of Common Stock will be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender
the Merger Consideration. No interest will be paid or will accrue on the
Merger Consideration.
Interests of Certain Persons in the Merger
In considering the Merger, shareholders should be aware that certain
directors and executive officers of Aquarion may have interests, described
herein, that present them with potential conflicts of interest in
connection with the Merger. Aquarion's Board of Directors is aware of the
conflicts described below and considered them in addition to the other
matters described under "THE MERGER--Reasons for the Merger."
Shares of Common Stock held by officers and directors of Aquarion will
be converted into the right to receive the same Merger Consideration as
shares of Common Stock held by other shareholders. See "SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
Stock Options held by the officers and directors of Aquarion will be
treated in the same manner as Stock Options held by other employees of
Aquarion. Pursuant to the Merger Agreement, all outstanding Stock Options
will be canceled as of the Closing Date and at the Closing Aquarion will
pay to each holder of Stock Options a cash payment equal to the aggregate
of the number of such Stock Options multiplied by the excess of the Merger
Consideration over the applicable exercise prices, less such amounts as
Aquarion is required to deduct and withhold under applicable tax laws. See
"THE MERGER AGREEMENT--Stock Options and Employee Benefit Plans."
Certain of Aquarion's directors had previously elected to defer
certain amounts of their director's compensation in the form of stock
units, the value of each of which is equal to one share of Common Stock.
Under the terms of Aquarion's Directors' Deferred Compensation Plan and the
Merger Agreement, each such stock unit will be converted at the Closing
into the right to receive, under the terms and conditions of each holder's
deferred compensation account, cash equal to the highest price for Common
Stock on the NYSE in the 60 days prior to the Closing Date. See "THE MERGER
AGREEMENT -- Stock Options and Employee Benefit Plans."
As a result of a program commenced by the Board of Directors in
February 1999, early in May 1999 Aquarion entered into continuity
agreements with six of its officers to encourage such officers to continue
in their current positions with Aquarion. Pursuant to the continuity
agreements, the Merger
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would constitute a "Change in Control." In the event of a Change in
Control, if such officers' employment is terminated within two years of
such Change in Control by the employer for any reason other than
"Disability," "Retirement," death or for "Cause" (in each case, as defined
in such continuity agreements) or by such officer for "Good Reason" (as
defined in such continuity agreements) (and, with respect to the continuity
agreements entered into with Mr. Schmidt, Ms. Hansen and James S. McInerney
(who is Aquarion's Senior Vice President, Utilities Group and the President
and Chief Executive Officer of BHC) in the event of a voluntary termination
by any such officer of his or her employment for any reason during the 30-
day period immediately following the first anniversary of the "Change in
Control"), such officers will be entitled, among other things, to cash
severance payments equal to a specified multiple of the sum of (i) his or
her base salary, plus (ii) the average of the annual bonuses earned by such
officer in respect of the two years prior to the year in which the "Change
in Control" occurs. Each of the six officers would also be entitled upon
such termination to a cash payment equal to (i) pension contributions for
an additional number of years following termination equal to the specified
multiple and (ii) the present value of the difference between his or her
then existing pension benefits and benefits under Aquarion's retirement
plan calculated as if such officers had additional years of service and age
equal to the specified multiple (and, in the case of Mr. Schmidt and Ms.
Hansen, as if eligible for a full, unreduced life annuity under the plan).
The applicable multiples with respect to Mr. Schmidt, Ms. Hansen and Mr.
McInerney are three, two and two, respectively, and the applicable multiple
for the other three officers is one. Each of the six officers would also be
entitled under the continuity agreements to a cash payment equal to 12% of
his or her base salary for each of the two years following the "Change in
Control" in lieu of the continuation of such officers' perquisites as
provided in his or her employment agreement. Under the continuity
agreements and, in most cases, existing employment agreements with such
officers, such officers and their eligible dependents would also be
entitled to continued medical, dental, vision and life insurance coverage
for up to the specified multiple of years. If any payment made in
connection with the termination of their employment would constitute an
"excess parachute payment" under Section 280G of the Code, such payment
will be grossed up to ensure that such officers receive the same net after-
tax benefit they would have received if such Section had not been
applicable. To the extent any payment to such officers constitutes an
"excess parachute payment," it will not be deductible by Aquarion for
federal income tax purposes.
The Merger will also constitute a "Change in Control" for purposes of
the Directors' Retirement Plan of Aquarion Company and, consequently,
directors of Aquarion will be entitled to full retirement benefits under
such Plan commencing on the date of the Merger or, if Kelda were to decide
to retain any such persons as directors of Aquarion, which would then be
Kelda's wholly-owned subsidiary, such later date as he or she ceases to
receive director's fees from Aquarion, regardless of such director's age or
years of service. See "THE MERGER AGREEMENT--Stock Options and Employee
Benefit Plans."
Pursuant to the Merger Agreement, Aquarion has agreed for six years
after the Effective Time to indemnify all present directors, officers and
employees of Aquarion and its subsidiaries and will, subject to certain
limitations, maintain for six years current policies of directors' and
officers' liability insurance and fiduciary liability insurance or
substitute policies containing terms and conditions which are, in the
aggregate, no less advantageous to the insured with respect to claims
arising from facts or events occurring at or prior to the Effective Time.
See "THE MERGER AGREEMENT--Indemnification and Insurance."
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THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger
Agreement, which appears as Annex A to this Proxy Statement and is
incorporated herein by reference. Such summary is qualified in its entirety
by reference to the Merger Agreement.
The Merger
The Merger Agreement provides that, following the adoption of the
Merger Agreement by the vote of a majority of the shares of Common Stock
entitled to vote thereon and the satisfaction or waiver of the other
conditions to the Merger, Waterman will be merged with and into Aquarion,
and Aquarion will continue as the surviving corporation in the Merger.
If the conditions to the Merger are satisfied or waived, the parties
will file with the Secretary of State of the State of Delaware a duly
executed Certificate of Merger, and the Merger will become effective upon
the filing and acceptance thereof or at such date thereafter as is provided
in the Certificate of Merger.
Each share of Common Stock issued and outstanding at the Effective
Time (other than Dissenting Shares) will automatically be canceled and will
cease to exist and will be converted into the right to receive the Merger
Consideration. See "THE MERGER--Merger Consideration."
Representations and Warranties
The Merger Agreement contains customary representations and warranties
of Aquarion relating, with respect to Aquarion and its subsidiaries, to,
among other things, (a) organization, standing and power; (b) Aquarion's
capital structure; (c) the authorization, execution, delivery, performance
and enforceability of the Merger Agreement; (d) documents filed by Aquarion
with the Commission and the accuracy of information contained therein; (e)
the absence of undisclosed liabilities; (f) compliance with any laws or
orders; (g) environmental matters; (h) employee benefit plans and other
matters relating to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and employment matters; (i) the absence of certain
changes or events since March 31, 1999, including material adverse changes
with respect to Aquarion; (j) year 2000 preparedness; (k) filing of tax
returns and payment of taxes; (l) insurance; (m) title to owned property,
valid leasehold and subleasehold interests in leased property, possession
of required permits, and the other real-estate-related matters; (n) water
quality; (o) the recommendation of the Board of Directors with respect to
the Merger Agreement and the Merger and related transactions; (p) the
shareholder vote required to approve the Merger; (q) status under
Aquarion's rights plan; (r) brokers' fees and expenses; (s) the opinion of
Aquarion's financial advisor; (t) regulation as a utility; and (u) pending
or threatened litigation.
The Merger Agreement also contains customary representations and
warranties of Kelda and Waterman relating to, among other things, (a)
organization, standing, and power; (b) the authorization, execution,
delivery, performance and enforceability of the Merger Agreement; (c) board
approval and approval by Waterman's sole shareholder; (d) that no vote of
Kelda's shareholders is required; (e) brokers' fees and expenses; (f)
litigation; and (g) funds sufficient for the Merger Consideration.
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Certain Pre-Closing Covenants
Pursuant to the Merger Agreement, Aquarion and Kelda have agreed to
certain restrictions on their respective actions during the period from the
date of the Merger Agreement through the date of the Merger unless, in the
case of action by Aquarion, Kelda has consented thereto in writing.
Aquarion has agreed that Aquarion and each of its subsidiaries will
carry on their respective businesses in the usual, regular and ordinary
course in all material respects.
Aquarion has agreed that Aquarion will not, and will not permit any of
its subsidiaries to enter into any new material line of business or incur
or commit to any capital expenditures other than capital expenditures not
in excess of an agreed upon aggregate amount.
Aquarion has agreed that Aquarion will not, and will not permit any of
its subsidiaries to, and shall not propose to, (i) declare, set aside or
pay any dividends on or make other distributions in respect of any of its
capital stock, except (x) dividends by wholly-owned subsidiaries of
Aquarion to such subsidiary's parent or another wholly-owned subsidiary of
Aquarion and (y) the regular dividends on Common Stock in the amount of
$.2775 per share of Common Stock payable in the second quarter of 1999, up
to $.2825 per share of Common Stock payable in the third and fourth
quarters of 1999 and the first and second quarters of 2000, and up to
$.2875 per share of Common Stock per quarter thereafter (such amounts in
each case after giving effect to the Stock Split), (ii) split, combine,
subdivide or reclassify any of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or
in substitution for, shares of its capital stock, except for any such
transaction by a wholly-owned subsidiary of Aquarion which remains a
wholly-owned subsidiary of Aquarion after consummation of such
transaction , (iii) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such liquidation or a dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization or (iv) directly or indirectly repurchase, redeem or
otherwise acquire any shares of its capital stock or any securities
convertible into or exercisable for any shares of its capital stock except,
subject to and in accordance with applicable laws and orders, for the
purchase from time to time by Aquarion of Common Stock (and the associated
rights) in the ordinary course of business consistent with past practice in
connection with funding the Aquarion employee benefit plans.
Aquarion has agreed that Aquarion will not, and will not permit any of
its subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock of any class
or voting debt other than in connection with existing employee stock option
or dividend reinvestment benefits plans.
Aquarion has agreed that except to the extent required to comply with
their respective obligations hereunder or legally requirements, Aquarion
will not, and will not permit any of its subsidiaries to, amend or propose
to amend their respective certificates of incorporation, by-laws or other
governing documents.
Aquarion has agreed that, except for Aquarion's proposed acquisition
of The Village Water Company of Simsbury substantially on the terms
disclosed to Kelda and acquisitions that are part of, related to or in
support of the water utility business that have a value not in excess of $5
million individually and $25 million in the aggregate (in each case,
including the assumption of debt) and that would not reasonably be expected
to prevent or materially delay the Merger, Aquarion will not 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
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business or any corporation, partnership, association or other business
organization or division thereof or otherwise acquire or agree to acquire
any assets (other than in the ordinary course of business).
Aquarion has agreed that other than (i) dispositions (including sales
of surplus land) referred to in the reports filed with the Commission by
Aquarion filed prior to the date of the Merger Agreement, (ii) sales of
surplus land having a value not in excess of $10 million in the aggregate
(provided that no more than one such sale may have a value exceeding $3
million) or (iii) in the ordinary course of business consistent with past
practice (other than sales of surplus land), Aquarion will not, and will
not permit any of its subsidiaries to, sell, lease, transfer, encumber or
otherwise dispose of, or agree to sell, lease, transfer, encumber or
otherwise dispose of, any of its assets (including capital stock of
Aquarion's subsidiaries) which are material to Aquarion.
Aquarion has agreed that it will not, and will not permit any of its
subsidiaries to, (i) make any loans, advances or capital contributions to,
or investments in, any other person, other than loans (except for certain
loans made pursuant to certain main extension agreements), advances,
capital contributions and investments by Aquarion or a subsidiary to or in
Aquarion or any wholly-owned subsidiary of Aquarion, subject to certain
exceptions, (ii) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, or otherwise),
other than payments, discharges or satisfactions incurred or committed to
in the ordinary course of business consistent with past practice or
reflected in the most recent consolidated financial statements (or the
notes thereto) of Kelda included in the most recent reports filed with the
Commission by Aquarion filed prior to the date of the Merger Agreement or
(iii) other than in connection with certain permitted actions, create,
incur, assume or suffer to exist any indebtedness, guarantees, loans or
advances not in existence as of the date of the Merger Agreement except for
short-term indebtedness incurred under Aquarion's current short-term
facilities (and any replacements thereof) incurred in the ordinary course
of business, consistent with past practices, and which is reasonably
expected by Aquarion to be repaid from cash from continuing operations
within 12 months of the incurrence thereof in each case as such facilities
and other existing indebtedness may be amended, extended, modified,
refunded, renewed, refinanced or replaced after the date of the Merger
Agreement, but only if the aggregate principal amount thereof is not
increased thereby, the term thereof is not extended thereby (or, in the
case of replacement indebtedness, the term of such indebtedness is not for
a longer period of time than the period of time applicable to the
indebtedness so replaced) and the other terms and conditions thereof, taken
as a whole, are not less advantageous to Aquarion and its subsidiaries than
those in existence as of the date of the Merger Agreement.
Aquarion has agreed that Aquarion will not, and will not permit any of
its subsidiaries to, (i) increase the amount of compensation of any senior
executive officer, director or employee, (ii) make any increase in or
commitment to increase any employee benefits, (iii) issue any additional
Stock Options, equity-based awards or shares of Common Stock pursuant to
Aquarion's employee benefit plans, adopt or make any commitment to enter
into, amend in any material manner or terminate any employee benefit plan,
or any other agreement, arrangement, plan or policy between Aquarion or one
of its subsidiaries and one or more of its directors, officers or
employees, or (iv) make any contribution, other than regularly scheduled
contributions, to any employee benefit plan except as are granted in the
ordinary course of business, consistent with past practice, in connection
with normal periodic performance reviews and related compensation and
benefit increases (including annual across-the-board increases to be
granted in 2000 that are consistent with past practices in both timing and
amount).
Aquarion has agreed that Aquarion will not, and will not permit any of
its subsidiaries to take any action that would, or fail to take any action
which failure would, or that could reasonably be expected to, result in,
(i) a material breach of any provision of the Merger Agreement, or (ii) any
of the conditions to the Merger not being satisfied.
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Aquarion has agreed that except as disclosed in the reports filed by
Aquarion with the Commission prior to the date of the Merger Agreement, or
as required by a governmental entity, Aquarion will not, nor will it permit
any of its subsidiaries to, change its methods of accounting in effect at
December 31, 1998, except as required by changes in general accepted
accounting principles as concurred in by Aquarion's independent auditors.
In addition, Aquarion will not, nor will it permit any of its subsidiaries
to, (i) change its fiscal year, (ii) make or rescind any material tax
election, (iii) settle or compromise any claim, action, suit, litigation,
proceeding, arbitration, investigation, audit, or controversy in respect of
taxes for any amount in excess of the amount reserved therefor and
reflected in the most recent consolidated financial statements (or the
notes thereto) of Aquarion included in the most recent report filed by
Aquarion with the Commission, or (iv) change in any material respect any of
its methods of reporting income, deductions or accounting for federal
income tax purposes from those employed in the preparation of its federal
income tax return for the taxable year ending December 31, 1998.
Aquarion has agreed that it will not, nor will it permit any of its
subsidiaries, except in the ordinary course of business consistent with
past practice (i) to modify, amend, terminate or fail to use commercially
reasonable efforts to renew any material contract or waive, release or
assign any material rights or claims under a contract to which Aquarion or
any of its subsidiaries is a party or (ii) to enter into any new material
contracts.
Aquarion has agreed that except for filings in the ordinary course of
business consistent with past practice that would not have a Material
Adverse Effect (as defined in the Merger Agreement) on Aquarion, Aquarion
shall inform Kelda reasonably in advance of making a filing to implement
any changes in any of its subsidiaries' rates or surcharges for water
service or executing any agreement with respect thereto that is otherwise
permitted under the Merger Agreement. Aquarion will, and will cause its
subsidiaries to, make all such filings (A) only in the ordinary course of
business consistent with past practice or (B) as required by a governmental
entity.
Aquarion has agreed that neither it nor any of its subsidiaries will
terminate, amend, modify or waive any provision of any confidentiality or
standstill agreement to which it is a party. In addition, Aquarion will
take all steps necessary to enforce, to the fullest extent permitted under
applicable law and orders, the provisions of any such agreement.
Aquarion has agreed that neither it nor any of its subsidiaries will
settle or compromise any pending or threatened claims or arbitrations
(other than any claims or arbitrations relating to matters set forth in the
reports filed by Aquarion with the Commission), other than settlements
which involve solely the payment of money (without admission of liability)
that would not result in an uninsured payment by or liability of Aquarion
in excess of $300,000 in the aggregate above the reserves established
therefor on the books of Aquarion as of the date hereof.
Kelda has agreed that it will not, and will not permit any of its
subsidiaries to, take any action that would, or fail to take any action
which failure would, or that could reasonably be expected to, impair
Kelda's ability to have available sufficient funds to pay the Merger
Consideration pursuant to this Agreement and otherwise to satisfy its
obligations hereunder.
Kelda has agreed that it will not, and will not permit any of its
subsidiaries to, take any action that would, or fail to take any action
which failure would, reasonably be expected to impede or delay any required
consent or otherwise impede or delay the consummation of the Merger and the
other transactions contemplated by the Merger Agreement.
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Aquarion and Kelda have agreed to confer on a regular and frequent
basis with one another regarding matters relevant to the Merger and
regarding operational matters of Aquarion and technological matters and
innovations of Kelda. Aquarion has further agreed to advise Kelda promptly
of any material change or event affecting its business or operations,
including any complaint, investigation or hearing by any governmental
entity or the institution or threat of material litigation.
Aquarion and Kelda have agreed to appoint four officers each to serve
as their representatives on a committee that will be responsible for
coordinating transition planning and implementation relating to the Merger.
In addition, Aquarion has agreed to permit Kelda to locate up to two of its
representatives at Aquarion's offices to observe Aquarion's business; and
Kelda has agreed to permit Aquarion to locate up to two of its
representatives at Kelda's offices to observe technological matters and
innovations of Kelda that are relevant to Aquarion's business.
Aquarion and Kelda have agreed that the community service programs
currently supported by Aquarion serve a number of important goals and Kelda
intends to continue to cause Aquarion to support such community service
programs.
No Solicitation of Transactions
Pursuant to the Merger Agreement, Aquarion has agreed that it will,
and will instruct each of its subsidiaries and representatives to,
immediately cease all existing discussions or negotiations, if any, with
any parties conducted heretofore with respect to any Acquisition Proposal
(as defined below). Aquarion shall not directly or indirectly, and it shall
cause its Subsidiaries, officers, directors, employees, representatives,
agents or affiliates, including any investment bankers, attorneys or
accountants retained by Aquarion or any of its subsidiaries or affiliates,
not to, directly or indirectly, through any person, (i) solicit, initiate,
encourage or otherwise facilitate (including by way of furnishing
information) any inquiries or proposals that constitute, or could
reasonably be expected to lead to, any inquiry, proposal or offer (or any
improvement, restatement, amendment, renewal or reiteration thereof) from
any person relating to any direct or indirect acquisition or purchase of
Aquarion or any of its subsidiaries, a merger, recapitalization,
consolidation, business combination, sale of a significant portion of the
assets of Aquarion and its subsidiaries, taken as a whole, sale of 10% or
more of the shares of capital stock (including by way of a tender offer,
share exchange or exchange offer) or similar or comparable transactions
involving Aquarion or any of its subsidiaries, other than the transactions
contemplated by this Agreement (any such inquiry, proposal or offer (or
improvement, restatement, amendment, renewal or reiteration thereof, other
than made by Kelda or an affiliate thereof, being herein referred to as an
"Acquisition Proposal"), or (ii) engage in negotiations or discussions
concerning, or provide any non-public information to any person relating
to, any Acquisition Proposal. The Board of Directors of Aquarion may,
however, at any time prior to adoption of the Merger Agreement by the
shareholders of Aquarion, furnish information (pursuant to a customary
confidentiality agreement no more favorable, in the aggregate, to the party
receiving information than the confidentiality agreement entered into
between Kelda and Aquarion) to, or engage in discussions or negotiations
with, any person in response to a "Superior Proposal" (defined as an
unsolicited bona fide written Acquisition Proposal that the Board of
Directors of Aquarion concludes in good faith (after consultation with its
financial advisors) would, if consummated, provide greater aggregate value
to Aquarion's shareholders, from a financial point of view, than the
transactions contemplated by the Merger Agreement and for which any
required financing is committed or which, in the good faith judgment of the
Board of Directors of Aquarion (after consultation with its financial
advisors), is reasonably capable of being financed by the person making
such Acquisition Proposal (provided that for purposes of this provision the
meaning assigned to such term is modified such that (x) the reference to
"10% or more of the shares" in the definition of "Acquisition Proposal" is
deemed to be a reference to "sale of 50% or more of the shares" and (y)
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"Acquisition Proposal" is only deemed to refer to a transaction involving
Aquarion, or with respect to assets (including the shares of any subsidiary
of Aquarion) of Aquarion and its subsidiaries, taken as a whole, and not
any of its subsidiaries alone) made by such person if, and only to the
extent that, prior to taking such action, (A) the Board of Directors of
Aquarion consults in good faith with its independent legal counsel as to
the advisability of furnishing information to, or engaging in discussions
or negotiations with, such person and (B) Aquarion provides reasonable
advance notice to Kelda to the effect that it is taking such action.
Except and only to the extent provided below, neither the Board of
Directors of Aquarion nor any committee thereof will (i) withdraw, modify
or change, or propose to withdraw, modify or change, in any manner adverse
to Kelda, the approval or recommendation by such Board of Directors or such
committee of the Merger or the Merger Agreement, (ii) approve or recommend,
or propose to approve or recommend, any Acquisition Proposal, or (iii)
cause Aquarion to enter into any agreement (other than a permitted
confidentiality agreement), letter of intent, agreement in principle,
acquisition agreement or other similar agreement relating to any
Acquisition Proposal.
In response to a Superior Proposal and after consulting in good faith
with its independent legal counsel as to the advisability of such action,
Aquarion's Board of Directors is permitted, at any time prior to the
adoption of the Merger Agreement by the shareholders of Aquarion, (i) to
withdraw, modify or change, or propose to withdraw, modify or change, the
approval or recommendation by the Board of Directors of the Merger
Agreement, the Merger or the other transactions contemplated by the Merger
Agreement or (ii) to approve or recommend, or propose to approve or
recommend, any Superior Proposal, but only in each case referred to in
clauses (i) and (ii), after the fifth business day following Kelda's
receipt of written notice advising Kelda that the Board of Directors of
Aquarion has received a Superior Proposal, specifying the material terms
and conditions of such Superior Proposal, identifying the person making
such Superior Proposal and stating that it intends to take any action
described in clause (i) or (ii) above. After providing such notice,
Aquarion must provide a reasonable opportunity to Kelda within such five
business day-period to make such adjustments in the terms and conditions of
the Merger Agreement as would enable Aquarion to proceed with its
recommendation to the shareholders of Aquarion without taking any action
described in clauses (i) or (ii) of the preceding sentence; provided that
--------
any such adjustments will be at the discretion of Kelda at such time.
Aquarion will immediately advise Kelda orally and in writing of any
request for information or any Acquisition Proposal, the material terms and
conditions of such request or Acquisition Proposal and the identity of the
person making such request or Acquisition Proposal. Aquarion will keep
Kelda reasonably informed of the status and details (including amendments
or proposed amendments) of any such request or Acquisition Proposal.
Stock and Employee Benefit Plans
Pursuant to the Merger Agreement, Aquarion and Kelda will take all
requisite action, including, any and all required amendments to the Stock
Option plans and the Directors' Deferred Compensation Plan or to any
agreements entered into thereunder, to the extent necessary so that at the
Closing (i) all Stock Options that have been granted and that have not been
exercised prior to the Closing Date will be canceled as of the Closing Date
and at the Closing Aquarion will pay to each holder of Stock Options a cash
payment equal to the aggregate of the number of Stock Options held as of
immediately preceding the Closing multiplied by the excess of the Merger
Consideration over the applicable exercise price (regardless of whether
such Stock Options are then vested or exercisable), less such amounts as
Aquarion is required to deduct and withhold with respect to the making of
such payment under the Code or any provision of state, local or foreign tax
law or order and (ii) all stock units under the Directors' Deferred
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<PAGE>
Compensation Plan that remain outstanding as of immediately prior to the
Closing shall be converted into the right to receive cash under the terms
and conditions of each holder's deferred compensation account. In addition,
Aquarion and Kelda will take all actions necessary to ensure that such
payments or conversions into the right to receive cash extinguish all
rights of participants under the Stock Option plans and the Directors'
Deferred Compensation Plan to receive either shares of Common Stock or
Kelda Ordinary Shares at or after the Effective Time.
Pursuant to the Merger Agreement, Kelda will cause the surviving
corporation to assume all employment and other related agreements with
respect to any current employee of Aquarion, which shall be performed in
accordance with their terms. In addition, the obligations under each
Aquarion employee benefit plan as to which Aquarion or any of its
subsidiaries has any obligation with respect to any current or former
employee will become the obligations of Kelda and the surviving corporation
at the Effective Time, and for at least two years thereafter, Kelda shall,
or shall cause the surviving corporation to, provide benefits, in the
aggregate, that are no less favorable than the benefits provided, in the
aggregate, under such employee benefit plans to Aquarion's employees
immediately prior to the Effective Time.
Pursuant to any benefit plans of Kelda or any Kelda subsidiary in
which Aquarion employees participate effective as of the Closing Date,
Kelda will, or will cause the surviving corporation to: (i) not impose any
limitations more onerous than those currently in effect under a comparable
Aquarion benefit plan as to pre-existing conditions, exclusions and waiting
periods with respect to participation and coverage requirements applicable
to Aquarion employees under any benefit plan of Kelda or any subsidiary of
Kelda in which such employees may be eligible to participate after the
Effective Time, (ii) provide each Aquarion employee with credit for any co-
payments and deductibles paid prior to the Effective Time in satisfying any
applicable deductible or out-of-pocket requirements under any welfare
benefit plan of Kelda or any subsidiary of Kelda in which such employees
may be eligible to participate after the Effective Time, and (iii)
recognize all service of Aquarion employees with Aquarion for all purposes
(including, without limitation, purposes of eligibility to participate,
vesting credit, entitlement for benefits, and benefit accrual) in any
benefit plan of Kelda or any subsidiary of Kelda in which such employees
may be eligible to participate after the Effective Time, to the same extent
taken into account under a comparable Aquarion benefit plan immediately
prior to the Closing Date.
Pursuant to the Merger Agreement, Aquarion and Kelda agree that, for
purposes of the Aquarion employee benefit plans, the approval or
consummation of the transactions contemplated by the Merger Agreement, as
applicable, shall constitute a "Change in Control," as applicable under
such employee benefit plans.
Access to Information
Subject to applicable provisions regarding confidentiality and any
applicable law or order, Aquarion has agreed in the Merger Agreement to,
and to cause its subsidiaries to, afford Kelda and its representatives
reasonable access during normal business hours to all its facilities,
operations, officers, employees, agents and accountants and its properties,
books, contracts, commitments, personnel and records and to furnish Kelda
with each report, schedule, registration statement and other document
required by applicable Federal or state securities laws or filed with any
other governmental entity and to furnish Kelda with all other information
concerning its business, properties and personnel as Kelda may from time to
time reasonably request.
39
<PAGE>
Cooperation and Reasonable Best Efforts
Pursuant to the Merger Agreement and subject to certain conditions and
limitations described therein, the parties have agreed to cooperate with
each other and to use their respective reasonable best efforts to take
certain specified and other actions so that the transactions contemplated
by the Merger Agreement may be consummated.
Indemnification and Insurance
Following the Merger, the Certificate of Incorporation and By-Laws of
Aquarion will contain for a period of six years after the Effective Time
Aquarion's current provisions with respect to elimination of personal
liability and indemnification of, and advancement of expenses to, officers,
directors and employees (as set forth in the Amended and Restated
Certificate of Incorporation of Aquarion (attached as Exhibit 1.5 to Annex
A to this Proxy Statement) and the current By-laws of Aquarion.
In addition, the Merger Agreement provides that Aquarion will
maintain, with certain limitations, in effect for six years from the
Effective Time the current policies of directors' and officers' liability
insurance and fiduciary liability insurance with respect to claims arising
from facts or events that occurred on or before the Effective Time.
Conditions to the Consummation of the Merger
The respective obligations of Aquarion and Waterman to effect the
Merger are subject to various conditions which include, in addition to
certain other customary closing conditions such as the continued
correctness of representations and warranties in all material respects and
due performance of the obligations of the parties under the Merger
Agreement, the following: (i) the Merger Agreement has been approved by the
requisite vote of holders of outstanding shares of Common Stock; (ii) no
federal, state, local or foreign, if any, law has been adopted or
promulgated, and no temporary restraining order, preliminary or permanent
injunction or other order issued by a court or other governmental entity of
competent jurisdiction is in effect, having the effect of making the Merger
illegal or otherwise prohibiting consummation of the Merger; (iii) required
governmental approvals have been obtained; and (iv) the waiting period (and
any extension thereof) applicable to the Merger under the HSR Act shall
have been terminated or shall have expired. See "THE MERGER--Regulatory
Approvals."
Termination
The Merger Agreement may be terminated at any time prior to the
Effective Time, by action taken or authorized by the Board of Directors of
the terminating party or parties, and except as provided below, whether
before or after the adoption of the Merger Agreement by the shareholders of
Aquarion:
(a) by mutual written consent of Kelda and Aquarion, by action of
their respective Boards of Directors;
(b) by either Aquarion or Kelda if:
(i) the Merger shall not have been consummated on or before
May 31, 2000 (the "Termination Date"); provided that if on
such date all required governmental approvals have not been
satisfied or waived, but all other conditions to the Merger
have been satisfied, waived or can readily be satisfied, and
all required governmental approvals are being pursued
diligently and in good faith, then the Termination Date will
be extended to the
40
<PAGE>
earlier of November 30, 2000 or the date that such approvals are no
longer being pursued diligently and in good faith by any necessary
party.
(ii) any governmental entity (a) has issued an order, decree or ruling
or taken any other action permanently restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or
other action has become final and nonappealable or (b) has failed to
issue an order, decree or ruling or to take any action that is
necessary to obtain required governmental approvals or fulfill the
requirements under the HSR Act and such denial of a request to issue
such order, decree, ruling or take such other action shall have become
final and nonappealable; or
(iii) if the approval by the shareholders of Aquarion required for the
consummation of the Merger has not been obtained by reason of the
failure to obtain the required vote upon the taking of such vote at a
duly held meeting of the shareholders of Aquarion, or at any
adjournment thereof;
(c) by Kelda if the Board of Directors of Aquarion has (i) withdrawn,
modified or changed or proposed to withdraw, modify or change, in a manner
adverse to Kelda, its approval or recommendation of the Merger or the
Merger Agreement, or (ii) approved or recommended, or proposed to approve
or recommend, any Acquisition Proposal from a person other than Kelda or
its affiliates; or
(d) by Aquarion, if at any time prior to the adoption of the Merger
Agreement by Aquarion's shareholders, the Board of Directors of Aquarion
approves a Superior Proposal; provided that Aquarion has complied with the
requirements of the Merger Agreement with respect to such Superior Proposal
and has paid Kelda the Termination Fee.
Expenses and Certain Required Payments
Under the Merger Agreement, generally all expenses incurred in connection
with the Merger Agreement and the transaction contemplated thereby will be paid
by the party incurring such expenses.
Aquarion has agreed to pay Kelda the Termination Fee of $20 million if:
(i) (A) Aquarion or Kelda terminates the Merger Agreement due
to the failure of Aquarion's shareholders to adopt the Merger
Agreement, (B) at any time after the date of the Merger Agreement and
at or before the time of the event giving rise to such termination
there exists an Acquisition Proposal with respect to Aquarion or any
of its subsidiaries and (C) within 12 months following such
termination Aquarion enters into a definitive agreement with a third
party with respect to an Acquisition Proposal or an Acquisition
Proposal is consummated;
(ii) Kelda terminates the Merger Agreement because the Board of
Directors of Aquarion has (A) withdrawn, modified or changed, or
proposed to withdraw, modify or change, in a manner adverse to Kelda,
its approval or recommendation of the Merger or the Merger Agreement
or (B) approved or recommended, or proposed to approve or recommend,
any Acquisition Proposal from a person other than Kelda and its
affiliates; or
(iii) Aquarion wishes to terminate the Merger Agreement because,
at any time prior to the adoption of the Merger Agreement by the
shareholders of Aquarion, the Board of
41
<PAGE>
Directors of Aquarion approves a Superior Proposal from a person other
than Kelda and its affiliates.
Amendment and Waiver
The Merger Agreement may be amended by the parties by action taken or
authorized by their respective Boards of Directors at any time; provided,
however, that, after the adoption of the Merger Agreement by the shareholders of
Aquarion, no amendment may be made which would require further approval by such
shareholders without such further approval.
42
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of July 31, 1999, certain information
concerning ownership of shares of Aquarion Common Stock by each director of
Aquarion, each of the executive officers of Aquarion and all directors and
executive officers of Aquarion as a group. No shareholder has reported
beneficial ownership of five percent or more of the outstanding Common Stock.
<TABLE>
<CAPTION>
Name of Shares Beneficially Owned Percent of
Beneficial Owner Directly or Indirectly/(1)(2)(3)/ Class/(4)/
- -------------------------------------------------------------------------------------
<S> <C> <C>
George W. Edwards, Jr. 2,250 *
Geoffrey Etherington 10,960 *
Janet D. Greenwood 300 *
Edgar G. Hotard 772 *
Jack E. McGregor 195,702 1.7
G. Jackson Ratcliffe 6,980 *
Richard K. Schmidt 189,548 1.6
John A. Urquhart 750 *
Larry L. Bingaman 56,057 *
Janet M. Hansen 102,028 *
James S. McInerney 124,015 1.1
Directors and officers as a group 689,362 5.7
(11 persons)
</TABLE>
(1) Based on reports furnished by the directors and officers. The shares
include, in some instances, shares held by the immediate families of
directors and officers or entities controlled by directors and officers,
the reporting of which is not to be construed as an admission of beneficial
ownership. The number of shares includes options to purchase shares that
may be acquired within 60 days through the exercise of stock options under
the Company's stock option plan as follows: Jack E. McGregor, 185,250
shares; Richard K. Schmidt, 186,749 shares; Larry L. Bingaman, 54,374
shares; Janet M. Hansen, 96,377 shares; James S. McInerney, 121,124 shares;
and, directors and executive officers as a group, 643,872 shares.
(2) Each of the directors and officers included in the foregoing table has sole
voting and investment power as to the shares of Common Stock beneficially
owned, directly or indirectly, by him or her, except for the following: (i)
as to which such powers are shared, 1,683 shares with respect to Mr.
Bingaman; 1,833 shares with respect to Mrs. Hansen; and 516 shares with
respect to Mr. Schmidt; (ii) as to which such powers are held by other
people or entities, 1,566 shares with respect to Mr. Etherington; 7,101
shares with respect to Mr. McGregor; and 188 shares with respect to Mr.
McInerney; and (iii) as to which there are restrictions as to the
disposition of shares, 501 shares with respect to Mr. McInerney.
(3) Does not include share units, each representing one share of Common Stock
credited to and held under the Company's deferred compensation program for
directors who are not employees of the Company. As of July 31, 1999, the
following stock units have been credited under the deferred compensation
program: Mr. Edwards, 225 units; Mr. Etherington, 38,154 units; Dr.
Greenwood, 1,248 units; Mr. Hotard, 1,248 units; Mr. McGregor, 225 units;
Mr. Ratcliffe, 1,248 units; and Mr. Urquhart, 1,248 units.
(4) Asterisk denotes percentage of beneficial stock ownership less than one
percent of the outstanding Common Stock of the Company.
43
<PAGE>
AQUARION
Aquarion was incorporated in Delaware as The Hydraulic Company in 1969 to
become the parent company to BHC, a Connecticut corporation founded in 1857. The
corporate name was changed to Aquarion Company in 1991. Aquarion's executive
offices are located at 835 Main Street, Bridgeport, Connecticut 06604-4995 and
its telephone number is (203) 335-2333.
Aquarion is a holding company whose subsidiaries are engaged in the
regulated utility business of public water supply and various non-utility
businesses, including contract management of municipal water systems and
ownership of a timber processing company.
Aquarion's utility subsidiaries, BHC and SCWC collect, treat and distribute
water to residential, commercial and industrial customers, to other utilities
for resale and for private and municipal fire protection. The Utilities provide
water to customers in 30 communities with a population of more than 500,000
people in Connecticut and Long Island, New York. BHC is the largest investor-
owned water company in Connecticut and with SCWC is among the 10 largest
investor-owned water companies in the nation.
KELDA AND WATERMAN
Kelda (formerly known as Yorkshire Water plc) is a public limited company
organized under the Laws of England and Wales. It was incorporated in 1989, as
part of the process of privatization of the UK water industry, as the holding
company of YWS. On August 3, 1999, the shareholders of Yorkshire Water plc
approved the name change of Yorkshire Water plc to "Kelda Group plc" which name
change became effective as of August 4, 1999.
YWS is one of the ten water and sewerage (wastewater) service companies in
England and Wales. Before privatization, YWS was the state-owned Yorkshire Water
Authority.
Kelda's consolidated 1998/99 revenues were (Pounds)683 million (or $1.1
billion) with net income of (Pounds)211 million (or $340 million). YWS
represents 86% of consolidated revenues and services more than 1.9 million
households, or 4.5 million individuals in its service area in the county of
Yorkshire, England. YWS provides in excess of 340 million gallons of drinking
water per day, treated at 112 water treatment facilities. 620 wastewater
treatment plants treat more than 260 million gallons per day of domestic sewage,
industrial effluent and rainwater run-off. YWS maintains approximately 37,000
miles of water mains and sewers.
While the delivery of water and treatment of wastewater is the primary
business of Kelda, the group has diversified into related or complementary areas
of business. These are principally in the areas of waste management,
environmental services and renewable energy. Kelda's environmental services
businesses deal with the collection and disposal of clinical waste in the United
Kingdom and the operation of analytical laboratories in the United Kingdom and
Holland. These laboratories analyze water, soil, air and food. Kelda also owns
46% of Waste Recycling Group plc, one of the largest waste management companies
in the United Kingdom. The renewable energy business is currently constructing
the first generating plant of its type in Europe, which will produce electricity
from willow trees and forest residue.
As the largest land owner in the county, Kelda has a real estate business
which manages the group's property portfolio.
44
<PAGE>
Waterman, a Delaware corporation and an indirect wholly-owned subsidiary of
Kelda, was organized in connection with the Merger and has not engaged in any
business activities other than those related to the Merger.
The principal executive offices of Kelda and Waterman are located at 2 The
Embankment, Sovereign Street, Leeds, West Yorkshire, LS1 4BG, England and its
telephone number 011-44-113-234-3234.
45
<PAGE>
APPRAISAL RIGHTS
Record holders of shares of Common Stock who follow the appropriate
procedures are entitled to appraisal rights under Section 262 of the DGCL in
connection with the Merger. The following discussion is not a complete statement
of the law pertaining to appraisal rights under the DGCL and is qualified in its
entirety by the full text of Section 262 which is reprinted in its entirety as
Annex C to this Proxy Statement. Except as set forth herein, shareholders of
Aquarion will not be entitled to appraisal rights in connection with the Merger.
Under the DGCL, record holders of shares of Common Stock who follow the
procedures set forth in Section 262 and who have not voted in favor of adoption
of the Merger Agreement will be entitled to have their shares of Common Stock
(such shares, "Dissenting Shares") appraised by the Delaware Court of Chancery
and to receive payment in cash of the "fair value" of such shares, exclusive of
any element of value arising from the accomplishment or expectation of the
Merger, together with a fair rate of interest, as determined by such court.
Under Section 262, where a merger agreement is to be submitted for adoption
at a meeting of shareholders, as in the case of the Special Meeting, not less
than 20 days prior to the meeting Aquarion must notify each of the holders of
shares of Common Stock at the close of business on the Record Date that such
appraisal rights are available and include in each such notice a copy of Section
262. This Proxy Statement constitutes such notice. Any shareholder who wishes to
exercise appraisal rights should review the following discussion and Annex C
carefully because failure to timely and properly comply with the procedures
specified in Section 262 will result in the loss of appraisal rights under the
DGCL.
A holder of shares of Common Stock wishing to exercise appraisal rights
must (i) deliver to Aquarion, before the vote on the adoption of the Merger
Agreement at the Special Meeting, a written demand for appraisal of such
holder's shares of Common Stock and (ii) not vote in favor of adoption of the
Merger Agreement. In addition, a holder of shares of Common Stock wishing to
exercise appraisal rights must be the record holder of such shares on the date
the written demand for appraisal is made and must continue to hold such shares
of record through the Effective Time.
Only a holder of record of shares of Common Stock is entitled to assert
appraisal rights for the shares of Common Stock registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the holder of
record fully and correctly, as the holder's name appears on the stock
certificates.
If the shares of Common Stock are owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, execution of the demand should be
made in that capacity, and if the shares of Common Stock are owned of record by
more than one person, as in a joint tenancy or tenancy in common, the demand
should be executed by or on behalf of all joint owners. An authorized agent,
including one or more joint owners, may execute a demand for appraisal on behalf
of a holder of record; however, the agent must identify the record owner or
owners and expressly disclose the fact that, in executing the demand, the agent
is agent for such owner or owners. A record holder such as a broker who holds
shares of Common Stock as nominee for several beneficial owners may exercise
appraisal rights with respect to the shares of Common Stock held for one or more
beneficial owners while not exercising such rights with respect to the shares of
Common Stock held for other beneficial owners; in such case, the written demand
should set forth the number of shares as to which appraisal is sought and where
no number of shares is expressly mentioned the demand will be presumed to cover
all shares of Common Stock held in the name of the record owner. Holders of
shares of Common Stock who hold their shares in brokerage accounts or other
nominee forms and who wish to exercise appraisal rights are urged to consult
with their brokers to determine the appropriate procedures for the making of a
demand for appraisal by such nominee. All written demands for appraisal of
shares
46
<PAGE>
of Common Stock should be mailed or delivered to Aquarion Company, 835 Main
Street, Bridgeport, Connecticut 06604-4995, Attention: Secretary, so as to be
received before the vote on the adoption of the Merger Agreement at the Special
Meeting.
Within 10 days after the Effective Time, Aquarion, as the surviving
corporation in the Merger, must send a notice of the effective date of the
Merger to each person who has duly demanded appraisal in accordance with the
provisions of Section 262. Within 120 days after the Effective Time, but not
thereafter, Aquarion, or any holder of shares of Common Stock entitled to
appraisal rights under Section 262 and who has complied with the foregoing
procedures, may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of such shares. Aquarion is not under any
obligation, and has no present intention, to file a petition with respect to the
appraisal of the fair value of the shares of Common Stock. Accordingly, it is
the obligation of the shareholders to initiate all necessary action to perfect
their appraisal rights within the time prescribed in Section 262.
Within 120 days after the Effective Time, any record holder of shares of
Common Stock who has complied with the requirements for exercise of appraisal
rights will be entitled, upon written request, to receive from Aquarion a
statement setting forth the aggregate number of shares of Common Stock with
respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. Such statements must be mailed within 10 days
after a written request therefor has been received by Aquarion.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine the holders of shares of
Common Stock entitled to appraisal rights and will appraise the "fair value" of
the shares of Common Stock, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
Holders considering seeking appraisal should be aware that the fair value of
their shares of Common Stock as determined under Section 262 could be more than,
the same as or less than the value of the consideration that they would
otherwise receive in the Merger if they did not seek appraisal of their shares
of Common Stock. The Delaware Supreme Court has stated that "proof of value by
any techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court" should be considered in
the appraisal proceedings. More specifically, the Delaware Supreme Court has
stated that: "Fair value, in an appraisal context, measures `that which has been
taken from the shareholder, viz., his proportionate interest in a going
concern.' In the appraisal process the corporation is valued `as an entity,' not
merely as a collection of assets or by the sum of the market price of each share
of its stock. Moreover, the corporation must be viewed as an on-going
enterprise, occupying a particular market position in the light of future
prospects." In addition, Delaware courts have decided that the statutory
appraisal remedy, depending on factual circumstances, may or may not be a
shareholder's exclusive remedy. The Court will also determine the amount of
interest, if any, to be paid upon the amounts to be received by persons whose
shares of Common Stock have been appraised. The costs of the action may be
determined by the Court and taxed upon the parties as the Court deems equitable.
The Court may also order that all or a portion of the expenses incurred by any
holder of shares of Common Stock in connection with an appraisal, including,
without limitation, reasonable attorneys' fees and the fees and expenses of
experts utilized in the appraisal proceeding, be charged pro rata against the
value of all of the shares of Common Stock entitled to appraisal.
Any holder of shares of Common Stock who has duly demanded an appraisal in
compliance with Section 262 will not, after the Effective Time, be entitled to
vote the shares of Common Stock subject to such demand for any purpose or be
entitled to the payment of dividends or other distributions on those shares
(except dividends or other distributions payable to holders of record of shares
of Common Stock as of a date prior to the Effective Time).
47
<PAGE>
If any holder of shares of Common Stock who demands appraisal of shares
under Section 262 fails to perfect, or effectively withdraws or loses, the right
to appraisal, as provided in the DGCL, the shares of Common Stock of such holder
will be converted into the right to receive the Merger Consideration in
accordance with the Merger Agreement, as more fully described under "THE
MERGER--Merger Consideration." A holder of shares of Common Stock will fail to
perfect, or will effectively lose, the right to appraisal if no petition for
appraisal is filed within 120 days after the Effective Time. A holder may
withdraw a demand for appraisal by delivering to Aquarion a written withdrawal
of the demand for appraisal and acceptance of the Merger, except that any such
attempt to withdraw made more than 60 days after the Effective Time will require
the written approval of Aquarion and, once an appraisal proceeding is commenced,
such proceeding may not be dismissed as to any shareholder without the approval
of the Court.
Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in the loss of such rights.
The foregoing is a summary of certain of the provisions of Section 262 of
the DGCL and is qualified in its entirety by reference to the full text of such
Section, a copy of which is attached hereto as Annex C.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Proxy Statement incorporates by reference documents which are not
presented herein or delivered herewith. Copies of any such documents relating to
Aquarion, other than exhibits to such documents (unless such exhibits
specifically are incorporated by reference in such documents), are available
without charge, upon written or oral request, from Aquarion Company, 835 Main
Street, Bridgeport, Connecticut 06604-4995, Attention: Secretary, telephone:
(203) 335-2333. In order to ensure timely delivery of the documents requested,
any such request should be made by September 7, 1999.
The following documents previously filed by Aquarion with the Commission
are incorporated in this Proxy Statement by reference:
(1) Aquarion's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998;
(2) Aquarion's Quarterly Report on Form 10-Q for the quarter ended March
31, 1999 and Aquarion's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999, as amended by the Form 10-Q/A filed August 18,
1999; and
(3) Aquarion's Current Report on Form 8-K filed June 8, 1999.
All reports and other documents subsequently filed by Aquarion pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act prior to the date of the
Special Meeting shall be deemed to be incorporated by reference herein and to be
part hereof from the date of the filing of such reports and documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein, or in any other subsequently filed document that also is or is deemed to
be incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute part of this Proxy Statement.
48
<PAGE>
SHAREHOLDER PROPOSALS FOR THE YEAR 2000 ANNUAL MEETING
To the extent that the annual meeting of Aquarion's shareholders for the
Year 2000 (the "Year 2000 Annual Meeting") is to be held prior to the
consummation of the Merger, any proposal that a shareholder intends to present
at the Year 2000 Annual Meeting must be received at Aquarion's principal
executive offices by November 17, 1999 to be included in the proxy statement and
form of proxy relating to the meeting. In addition, under the Commission's proxy
rules, if a shareholder wishes to bring a proposal before the Year 2000 Annual
Meeting outside the proxy inclusion process but does not provide written notice
of the proposal to Aquarion on or before January 31, 2000, any proxies received
by the Board of Directors from shareholders in response to its proxy
solicitation will be voted by Aquarion's designated proxies in their discretion
on such matter, regardless of whether specific authority to vote on such matter
has been received from the shareholders submitting such proxies.
49
<PAGE>
Annex A
AGREEMENT AND PLAN OF MERGER
DATED AS OF MAY 31, 1999
among
YORKSHIRE WATER PLC
WATERMAN ACQUISITION CORP.
and
AQUARION COMPANY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
THE MERGER 1
1.1 The Merger............................................................... 1
1.2 Closing.................................................................. 2
1.3 Effective Time........................................................... 2
1.4 Effects of the Merger.................................................... 2
1.5 Certificate of Incorporation............................................. 2
1.6 By-Laws.................................................................. 2
1.7 Officers and Directors of Surviving Corporation.......................... 2
1.8 Effect on Capital Stock.................................................. 2
1.9 Further Assurances....................................................... 3
ARTICLE II
EXCHANGE OF CERTIFICATES......................................................... 4
2.1 Exchange Fund............................................................ 4
2.2 Exchange Procedures...................................................... 4
2.3 No Further Ownership Rights in Aquarion Common Stock..................... 5
2.4 Termination of Exchange Fund............................................. 5
2.5 No Liability............................................................. 5
2.6 Investment of the Exchange Fund.......................................... 5
2.7 Lost Certificates........................................................ 5
2.8 Withholding Rights....................................................... 5
2.9 Stock Transfer Books..................................................... 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES................................................... 6
3.1 Representations and Warranties of Aquarion............................... 6
(a) Organization, Standing and Power................................. 6
(b) Capital Structure................................................ 6
(c) Authority; No Violations......................................... 8
(d) Reports and Financial Statements................................. 10
(e) Absence of Liabilities........................................... 10
(f) Compliance....................................................... 10
(g) Environmental Matters............................................ 11
(h) Employee Benefit Plans; ERISA.................................... 13
(i) Absence of Certain Changes or Events............................. 15
(j) Year 2000........................................................ 15
(k) Taxes............................................................ 15
(l) Insurance........................................................ 16
</TABLE>
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(m) Property Franchises.............................................. 16
(n) Water Quality.................................................... 17
(o) Board Approval................................................... 17
(p) Vote Required.................................................... 17
(q) Rights Plan...................................................... 17
(r) Brokers or Finders............................................... 17
(s) Opinion of Aquarion Financial Advisor............................ 18
(t) Regulation as a Utility.......................................... 18
(u) Litigation....................................................... 18
(v) No Parent Capital Stock.......................................... 18
3.2 Representations and Warranties of Parent................................. 18
(a) Organization, Standing and Power................................. 18
(b) Authority; No Violations......................................... 18
(c) Board Approval................................................... 19
(d) Vote Required.................................................... 19
(e) Brokers or Finders............................................... 20
(f) Litigation....................................................... 20
(g) No Aquarion Capital Stock........................................ 20
(h) Financing........................................................ 20
3.3 Representations and Warranties of Parent and Merger Sub.................. 20
(a) Organization, Standing and Power................................. 20
(b) Authority; No Violations......................................... 20
(c) Board and Stockholder Approval................................... 21
(d) No Business Activities........................................... 21
(e) No Aquarion Capital Stock........................................ 21
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS........................................ 21
4.1 Covenants of Aquarion.................................................... 21
(a) Ordinary Course.................................................. 22
(b) Dividends; Changes in Share Capital.............................. 22
(c) Issuance of Securities........................................... 22
(d) Governing Documents.............................................. 23
(e) No Acquisitions.................................................. 23
(f) No Dispositions.................................................. 23
(g) Investments; Indebtedness........................................ 23
(h) Compensation..................................................... 24
(i) Other Actions.................................................... 24
(j) Accounting Methods; Income Tax Matters........................... 24
(k) Rights Plan...................................................... 25
(l) Contracts........................................................ 25
(m) Regulatory Matters............................................... 25
(n) Standstill Agreements............................................ 25
(o) Compromise; Settlement........................................... 25
4.2 Covenants of Parent...................................................... 25
</TABLE>
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(a) Financing........................................................ 26
(b) Regulatory Approvals............................................. 26
4.3 Advice of Changes; Governmental Filings.................................. 26
4.4 Transition Planning; Continued Operations of Aquarion.................... 26
4.5 Community Service Programs............................................... 27
4.6 Control of Aquarion's Business........................................... 27
ARTICLE V
ADDITIONAL AGREEMENTS............................................................ 27
5.1 Preparation of Proxy Statement; Aquarion Stockholders Meeting............ 27
5.2 Access to Information.................................................... 29
5.3 Reasonable Best Efforts.................................................. 29
5.4 Acquisition Proposals.................................................... 30
5.5 Treatment of Aquarion Stock Options; Other Stock Plans; Employee Benefits
Matters............................................................... 32
(a) Options; Other Stock Plans....................................... 32
(b) Employee Benefits................................................ 33
5.6 Fees and Expenses........................................................ 34
5.7 Directors' and Officers' Indemnification and Insurance................... 34
5.8 Public Announcements..................................................... 35
5.9 Disclosure Schedule Supplements.......................................... 35
ARTICLE VI
CONDITIONS PRECEDENT............................................................. 36
6.1 Conditions to Each Party's Obligation to Effect the Merger............... 36
(a) Stockholder Approval............................................. 36
(b) No Injunctions or Restraints; Illegality......................... 36
(c) Governmental Approvals........................................... 36
(d) HSR Act.......................................................... 36
6.2 Additional Conditions to Obligations of Parent and Merger Sub............ 36
(a) Representations and Warranties................................... 36
(b) Performance of Obligations of Aquarion........................... 37
6.3 Additional Conditions to Obligations of Aquarion......................... 37
(a) Representations and Warranties................................... 37
(b) Performance of Obligations of Parent............................. 37
ARTICLE VII
TERMINATION AND AMENDMENT........................................................ 37
7.1 Termination.............................................................. 37
7.2 Effect of Termination.................................................... 38
7.3 Amendment................................................................ 39
7.4 Extension; Waiver........................................................ 39
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ARTICLE VIII
GENERAL PROVISIONS............................................................... 40
8.1 Non-Survival of Representations, Warranties and Agreements............... 40
8.2 Notices.................................................................. 40
8.3 Interpretation........................................................... 41
8.4 Counterparts............................................................. 41
8.5 Entire Agreement; Third Party Beneficiaries.............................. 41
8.6 Governing Law............................................................ 42
8.7 Severability............................................................. 42
8.8 Assignment............................................................... 42
8.9 Submission to Jurisdiction; Waivers...................................... 42
8.10 Enforcement.............................................................. 43
8.11 Definitions.............................................................. 43
8.12 Other Agreements......................................................... 45
</TABLE>
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GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
Definition Location of Definition
<S> <C>
1935 Act..................................... Section 3.1(t)
Acquisition Proposal......................... Section 5.4
Agreement.................................... Preamble
Aquarion..................................... Preamble
Aquarion Board Approval...................... Section 3.1(o)
Aquarion Common Stock........................ Recitals
Aquarion Disclosure Schedule................. Section 3.1
Aquarion Employees........................... Section 5.5(b)(i)
Aquarion Financial Advisor................... Section 3.1(r)
Aquarion Preferred Stock..................... Section 3.1(b)(i)
Aquarion Proxy Statement..................... Section 5.1(a)
Aquarion Required Consents................... Section 3.1(c)(iii)
Aquarion SEC Reports......................... Section 3.1(d)
Aquarion Stock Option Plans.................. Section 3.1(b)(i)
Aquarion Stock Options....................... Section 3.1(b)(i)
Aquarion Stockholders Meeting................ Section 5.1(b)
Aquarion Voting Debt......................... Section 3.1(b)(ii)
Benefit Plans................................ Section 8.11(a)
BHC.......................................... Section 3.1(b)(iv)
Board of Directors........................... Section 8.11(b)
Business Day................................. Section 8.11(c)
Certificate.................................. Section 1.8(b)
Closing...................................... Section 1.2
Closing Date................................. Section 1.2
Code......................................... Section 2.8
Confidentiality Agreement.................... Section 5.2
Contracts.................................... Section 3.1(c)(ii)
Delaware Certificate of Merger............... Section 1.3
Dissenting Shares............................ Section 1.8(e)
DGCL......................................... Section 1.1
DOJ.......................................... Section 5.3(b)
DRIP......................................... Section 3.1(b)(i)
Encumbrances................................. Section 3.1(b)(iv)
Effective Time............................... Section 1.3
Environmental Claim.......................... Section 3.1(g)(v)(A)
Environmental Law............................ Section 3.1(g)(v)(B)
ERISA........................................ Section 3.1(h)(i)
Exchange Act................................. Section 3.1(c)(iii)
Exchange Agent............................... Section 2.1
Exchange Fund................................ Section 2.1
Expenses..................................... Section 5.6
Final Order.................................. Section 6.1(c)
</TABLE>
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GAAP......................................... Section 3.1(d)
Governmental Entity.......................... Section 3.1(c)(iii)
Hazardous Materials.......................... Section 3.1(g)(v)(C)
Health Agencies.............................. Section 3.1(c)(iii)
HSR Act...................................... Section 3.1(c)(iii)
Indemnified Parties.......................... Section 5.7(a)
knowledge.................................... Section 8.11(d)
Laws......................................... Section 3.1(c)(ii)
Material Adverse Effect...................... Section 8.11(e)
Merger....................................... Recitals
Merger Consideration......................... Section 1.8(a)
Merger Sub................................... Preamble
NYSE......................................... Section 3.1(c)(iii)
Orders....................................... Section 3.1(c)(ii)
Parent....................................... Preamble
Parent Disclosure Schedule................... Section 3.2
Parent Financial Advisor..................... Section 3.2(e)
Parent Ordinary Shares....................... Section 3.1(v)
Person....................................... Section 8.11(g)
PUCs......................................... Section 3.1(c)(iii)
Release...................................... Section 3.1(g)(v)(D)
Required Aquarion Vote....................... Section 3.1(p)
Rights....................................... Section 3.1(b)(i)
Rights Plan.................................. Section 3.1(b)(i)
SEC.......................................... Section 3.1(d)
Significant Subsidiary....................... Section 8.11(h)
Stock Split.................................. Section 3.1(b)(i)
Subsidiary................................... Section 8.11(h)
Superior Proposal............................ Section 8.11(i)
Surviving Corporation........................ Section 1.1
Tax Return................................... Section 3.1(k)(vi)
Taxes........................................ Section 3.1(k)(vi)
Termination Date............................. Section 7.1(b)
Termination Fee.............................. Section 7.2(b)
Violation.................................... Section 3.1(c)(ii)
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of May 31, 1999 (this
"Agreement"), among YORKSHIRE WATER PLC, a public limited company incorporated
under the laws of England and Wales ("Parent"), WATERMAN ACQUISITION CORP., a
Delaware corporation and an indirect wholly-owned subsidiary of Parent ("Merger
Sub"), and AQUARION COMPANY, a Delaware corporation ("Aquarion").
W I T N E S S E T H :
WHEREAS, the respective Boards of Directors of the Parent, Merger Sub
and Aquarion have each determined that this Agreement and the merger of Merger
Sub with and into Aquarion (the "Merger") in accordance with the provisions of
this Agreement are advisable and in the best interests of their respective
stockholders, and such Boards of Directors have approved such Merger, upon the
terms and subject to the conditions set forth in this Agreement, pursuant to
which the holders of shares of common stock, no par value, of Aquarion
("Aquarion Common Stock") will be converted into the right to receive the Merger
Consideration (as defined in Section 1.8) for each share of Aquarion Common
Stock issued and outstanding immediately prior to the Effective Time (as defined
in Section 1.3) (other than shares of Aquarion Common Stock that are owned or
held directly or indirectly by Parent or Aquarion which shall be canceled as
provided in Section 1.8, and Dissenting Shares (as defined in Section 1.8)), and
Aquarion will become a wholly owned subsidiary of Parent;
WHEREAS, Parent, Merger Sub and Aquarion desire to make certain
representations, warranties, covenants and agreements in connection with the
transactions contemplated hereby and also to prescribe various conditions to the
transactions contemplated hereby; and
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set
----------
forth in this Agreement, and in accordance with the Delaware General Corporation
Law (the "DGCL"), Merger Sub shall be merged with and into Aquarion at the
Effective Time. Following the Merger, the separate corporate existence of
Merger Sub shall cease and Aquarion shall continue as the surviving corporation
(the "Surviving Corporation").
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1.2 Closing. The closing of the Merger (the "Closing") will take
-------
place at 10:00 a.m., New York City time, as soon as practicable, but in any
event not later than the third Business Day, after the satisfaction or waiver
(subject to any applicable Law or Order (each as defined in Section 3.1(c)) of
the conditions (excluding conditions that, by their terms, cannot be satisfied
until the Closing Date) set forth in Article VI (the "Closing Date"), unless
another time or date is agreed to in writing by the parties hereto. The Closing
shall be held at the offices of Simpson Thacher & Bartlett, 425 Lexington
Avenue, New York, New York, 10017, unless another place is agreed to in writing
by the parties hereto.
1.3 Effective Time. On the Closing Date, the parties shall (i) file
--------------
a certificate of merger (the "Delaware Certificate of Merger") in such form as
is required by and executed in accordance with the relevant provisions of the
DGCL and (ii) make all other filings or recordings required under the DGCL. The
Merger shall become effective at such time as the Delaware Certificate of Merger
is duly filed with the Delaware Secretary of State or at such subsequent time as
Parent and Aquarion shall agree and be specified in the Delaware Certificate of
Merger (the date and time the Merger becomes effective being the "Effective
Time").
1.4 Effects of the Merger. At and after the Effective Time, the
---------------------
Merger will have the effects set forth in the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time all the
property, rights, privileges, powers and franchises of Aquarion and Merger Sub
shall be vested in the Surviving Corporation, and all debts, liabilities and
duties of Aquarion and Merger Sub shall become the debts, liabilities and duties
of the Surviving Corporation.
1.5 Certificate of Incorporation. At the Effective Time, the
----------------------------
certificate of incorporation of the Surviving Corporation shall be amended in
accordance with the DGCL to read in its entirety as set forth in Exhibit 1.5
hereto until thereafter amended as provided therein and under the DGCL.
1.6 By-Laws. The by-laws of Merger Sub as in effect at the Effective
-------
Time shall be the by-laws of the Surviving Corporation until thereafter changed
or amended as provided therein and under applicable Law or Order.
1.7 Officers and Directors of Surviving Corporation. The officers of
-----------------------------------------------
Aquarion as of the Effective Time shall be the officers of the Surviving
Corporation, until the earlier of their resignation or removal or otherwise
ceasing to be an officer or until their respective successors are duly elected
and qualified, as the case may be. The directors of Merger Sub as of the
Effective Time shall be the directors of the Surviving Corporation until the
earlier of their resignation or removal or otherwise ceasing to be a director or
until their respective successors are duly elected and qualified.
1.8 Effect on Capital Stock.
-----------------------
(a) At the Effective Time, by virtue of the Merger and without any
action on the part of the holder thereof, each share of Aquarion Common Stock
issued and outstanding immediately prior to the Effective Time (other than
shares of Aquarion Common Stock that are
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100% owned or held directly or indirectly by Parent or Aquarion, which shall be
canceled as provided in Section 1.8(c) and Dissenting Shares) shall be converted
into the right to receive, subject to the provisions of Article II, $37.05 in
cash (the "Merger Consideration"), without any interest or dividends thereon,
except as provided in Section 2.3.
(b) As a result of the Merger and without any action on the part of
the holders thereof, at Effective Time, all shares of Aquarion Common Stock
shall cease to be outstanding and shall be canceled and shall cease to exist,
and each holder of a certificate which immediately prior to the Effective Time
represented any such shares of Aquarion Common Stock (a "Certificate") shall
thereafter cease to have any rights with respect to such shares of Aquarion
Common Stock, except the right to receive the applicable Merger Consideration,
other than with respect to Aquarion Common Stock to be canceled in accordance
with Section 1.8(c) and Dissenting Shares, in accordance with Article II upon
the surrender of such Certificate.
(c) Each share of Aquarion Common Stock issued that is 100% owned or
held directly or indirectly by Parent or Aquarion at the Effective Time shall,
by virtue of the Merger, cease to be outstanding and shall be canceled and no
payment or other consideration shall be delivered in exchange therefor.
(d) Each share of common stock, par value $.01 per share, of Merger
Sub issued and outstanding immediately prior to the Effective Time, shall be
converted into one share of common stock, par value $.01 per share, of the
Surviving Corporation as of the Effective Time.
(e) Notwithstanding any other provision of this Agreement, shares of
Aquarion Common Stock issued and outstanding immediately prior to the Effective
Time and held by a holder who has not voted in favor of the Merger and who
demands appraisal for such shares in accordance with Section 262 of the DGCL
("Dissenting Shares") shall not be converted into a right to receive the Merger
Consideration unless such holder fails to perfect within the period prescribed
by the DGCL or withdraws or otherwise loses such holder's right to appraisal
under the DGCL. If, after the Effective Time, such holder fails to perfect or
withdraws or loses such holder's right to appraisal, such Dissenting Shares
shall be treated as if they had been converted as of the Effective Time into the
right to receive the Merger Consideration, without interest or dividends
thereon, except as provided in Section 2.3. Aquarion shall give Merger Sub
prompt notice of any written demands received by Aquarion for appraisal of
shares of Aquarion Common Stock, withdrawals of such demands, and other
instruments served pursuant to the DGCL and received by Aquarion and relating
thereto. Parent shall direct all negotiations and proceedings with respect to
such demands for appraisals. Prior to the Effective Time, Aquarion shall not,
except with the prior written consent of Merger Sub, make any payment with
respect to, or settle or offer to settle, any such demands.
1.9 Further Assurances. At and after the Effective Time, the
------------------
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of Aquarion or Merger Sub, any
deeds, bills of sale, assignments or assurances and to take and do, in the name
and on behalf of Aquarion or Merger Sub, any other actions and things to vest,
perfect or confirm of record or otherwise in the Surviving Corporation any and
all right, title and
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interest in, to and under any of the rights, properties or assets acquired or to
be acquired by the Surviving Corporation as a result of, or in connection with,
the Merger.
ARTICLE II
EXCHANGE OF CERTIFICATES
2.1 Exchange Fund. Prior to the Effective Time, Parent shall
-------------
designate a commercial bank or trust company selected by Parent and reasonably
acceptable to Aquarion to act as exchange agent hereunder for the purpose of
exchanging Certificates for the Merger Consideration (the "Exchange Agent"). At
or prior to the Effective Time, Parent shall deposit or cause to be deposited
with the Exchange Agent, in trust for the benefit of holders of shares of
Aquarion Common Stock, the aggregate amount of cash to be paid pursuant to
Section 1.8 in exchange for outstanding shares of Aquarion Common Stock (other
than shares of Aquarion Common Stock that are 100% owned or held directly or
indirectly by Parent or Aquarion which shall be canceled as provided in Section
1.8(c) and Dissenting Shares). Parent shall, or shall cause the Surviving
Corporation to make available to the Exchange Agent from time to time as needed,
cash sufficient to pay any dividends pursuant to Section 2.3. Any cash
deposited with the Exchange Agent shall hereinafter be referred to as the
"Exchange Fund".
2.2 Exchange Procedures. As soon as reasonably practicable after the
-------------------
Effective Time, the Surviving Corporation shall cause the Exchange Agent to mail
to each holder of a Certificate (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 delivery of the Certificates to the Exchange Agent, and
which letter shall be in customary form and have such other provisions as Parent
may reasonably specify and (ii) instructions for effecting the surrender of such
Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate to the Exchange Agent together with such letter of transmittal, duly
executed and completed in accordance with the instructions thereto, and such
other documents as may reasonably be required by the Exchange Agent, the holder
of such Certificate shall be entitled to receive in exchange therefor a check in
the aggregate amount equal to (A) the Merger Consideration multiplied by the
number of shares of Aquarion Common Stock formerly represented by such
Certificate and (B) any dividends payable in accordance with Section 2.3 less
any required withholding of taxes as provided in Section 2.8. No interest will
be paid or will accrue on any cash payable pursuant to the preceding sentence.
In the event of a transfer of ownership of Aquarion Common Stock which is not
registered in the transfer records of Aquarion, a check in the proper amount of
cash for the appropriate Merger Consideration and any dividends payable in
accordance with Section 2.3 may be paid with respect to such Aquarion Common
Stock to such a transferee if the Certificate formerly representing such shares
of Aquarion Common Stock is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid or are not payable. The Exchange
Fund shall not be used for any purpose other than as set forth in this Article
II.
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2.3 No Further Ownership Rights in Aquarion Common Stock. Cash paid
----------------------------------------------------
upon conversion of shares of Aquarion Common Stock in accordance with the terms
of Article I and this Article II shall be deemed to have been paid in full
satisfaction of all rights pertaining to the shares of Aquarion Common Stock,
subject, however, to the Surviving Corporation's obligation, if any, to pay any
dividends or make any other distributions with a record date prior to the
Effective Time which may have been declared or made by Aquarion on such shares
of Aquarion Common Stock prior to the date of this Agreement and which remain
unpaid at the Effective Time.
2.4 Termination of Exchange Fund. Any portion of the Exchange Fund
----------------------------
which remains undistributed to the holders of Certificates for twelve months
after the Effective Time shall be delivered to the Surviving Corporation or
otherwise on the instruction of the Surviving Corporation, and any holders of
the Certificates who have not theretofore complied with this Article II shall
thereafter look only to the Surviving Corporation and Parent for the Merger
Consideration with respect to the shares of Aquarion Common Stock formerly
represented thereby to which such holders are entitled pursuant to Section 1.8
and Section 2.2, and any dividends on shares of Aquarion Common Stock to which
such holders are entitled pursuant to Section 2.3.
2.5 No Liability. None of Parent, Merger Sub, Aquarion, the
------------
Surviving Corporation or the Exchange Agent shall be liable to any Person in
respect of any Merger Consideration or dividends from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar Law.
2.6 Investment of the Exchange Fund. The Exchange Agent shall invest
-------------------------------
any cash included in the Exchange Fund only in one or more of the following
investments as directed by the Surviving Corporation from time to time: (i)
obligations of the United States government maturing not more than 180 days
after the date of purchase; (ii) certificates of deposit maturing not more than
180 days after the date of purchase issued by a bank organized under the laws of
the United States or any state thereof having a combined capital and surplus of
at least $500,000,000; (iii) a money market fund having assets of at least
$3,000,000,000; or (iv) tax-exempt or corporate debt obligations maturing not
more than 180 days after the date of purchase given the highest investment grade
rating by Standard & Poor's and Moody's Investor Service. Any interest and
other income resulting from such investments shall promptly be paid to the
Surviving Corporation.
2.7 Lost Certificates. If any Certificate shall have been lost,
-----------------
stolen or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such Person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will deliver in exchange for such lost, stolen or destroyed
Certificate the applicable Merger Consideration with respect to the shares of
Aquarion Common Stock formerly represented thereby and unpaid dividends, if any,
on shares of Aquarion Common Stock deliverable in respect thereof, pursuant to
this Agreement.
2.8 Withholding Rights. Each of the Surviving Corporation and Parent
------------------
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Aquarion Common
Stock such amounts as it is required to deduct and
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withhold with respect to the making of such payment under the Internal Revenue
Code of 1986, as amended, and the rules and regulations promulgated thereunder
(the "Code"), or any provision of state, local or foreign tax Law or Order. To
the extent that amounts are so withheld by the Surviving Corporation or Parent,
as the case may be, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the holder of the shares of Aquarion
Common Stock in respect of which such deduction and withholding was made by the
Surviving Corporation or Parent, as the case may be.
2.9 Stock Transfer Books. At the close of business, New York City
--------------------
time, on the day Effective Time occurs, the stock transfer books of Aquarion
shall be closed and there shall be no further registration of transfers of
shares of Aquarion Common Stock thereafter on the records of Aquarion. From and
after the Effective Time, the holders of Certificates shall cease to have any
rights with respect to such shares of Aquarion Common Stock formerly represented
thereby, except as otherwise provided herein or by Law. On or after the
Effective Time, any Certificates presented to the Exchange Agent or Parent for
any reason shall be exchanged for the Merger Consideration with respect to the
shares of Aquarion Common Stock formerly represented thereby and any dividends
to which the holders thereof are entitled pursuant to Section 2.3.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Aquarion. Except as set forth
------------------------------------------
in the Disclosure Schedule delivered by Aquarion to Parent prior to the
execution of this Agreement (the "Aquarion Disclosure Schedule"), Aquarion
represents and warrants to Parent as follows:
(a) Organization, Standing and Power. Each of Aquarion and its
--------------------------------
Subsidiaries (as defined in Section 8.11(h)) is a corporation duly incorporated
or otherwise organized, validly existing and in good standing under the Laws of
its jurisdiction of incorporation or organization, has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted, and each of Aquarion and its Subsidiaries 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 properties makes such
qualification necessary other than in such jurisdictions where the failure so to
qualify or be in good standing would not, individually or in the aggregate, have
a Material Adverse Effect (as defined in Section 8.11(e)) on Aquarion. Section
3.1(a) of the Aquarion Disclosure Schedule sets forth a complete and accurate
list of each direct and indirect Subsidiary of Aquarion. The copies of the
certificates of incorporation and by-laws of Aquarion and its material
Subsidiaries that were previously furnished to Parent are true, complete and
correct copies of such documents as in effect on the date of this Agreement.
(b) Capital Structure.
-----------------
(i) As of the date of this Agreement, the authorized capital
stock of Aquarion consisted of (A) 16,000,000 shares of Aquarion Common
Stock and (B) 2,500,000
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shares of preferred stock, no par value ("Aquarion Preferred Stock"), in
one or more series, in an aggregate stated value not in excess of
$25,000,000, of which no shares were outstanding but of which 100,000
shares have been designated as Series B Junior Participating Preferred
Stock and reserved for issuance upon exercise of the Preferred Stock
Purchase Rights (the "Rights") distributed to the holders of Aquarion
Common Stock pursuant to the Rights Agreement dated as of June 25, 1996, as
amended as of the date hereof, between Aquarion and ChaseMellon Shareholder
Services, L.L.C., as Rights Agent (the "Rights Plan"). As of May 21, 1999,
11,373,624 shares of Aquarion Common Stock were issued and outstanding. As
of the date of this Agreement, no shares of Aquarion Common Stock and no
shares of Aquarion Preferred Stock were held in the treasury of Aquarion.
From January 1, 1999 to May 21, 1999, there were no issuances of shares of
the capital stock of Aquarion or any other securities of Aquarion other
than the issuance of (i) 34,126 shares (and accompanying Rights) pursuant
to options or rights outstanding as of December 31, 1998 under the Aquarion
Stock Option Plans (as defined below), (ii) 67,746 shares (and accompanying
Rights) pursuant to Aquarion's Dividend Reinvestment and Common Stock
Purchase Plan (the "DRIP") and (iii) phantom stock units for 223 shares
pursuant to the Directors' Deferred Compensation Plan. All issued and
outstanding shares of the capital stock of Aquarion are duly authorized,
validly issued, fully paid and nonassessable, and no class of capital stock
is entitled to preemptive rights. There were outstanding as of May 21, 1999
no options, warrants or other rights to acquire capital stock from Aquarion
other than (w) the Rights, (x) options representing in the aggregate the
right to purchase up to 1,260,712 shares of Aquarion Common Stock
(collectively, the "Aquarion Stock Options") under the (1985) Long-Term
Incentive Plan, as amended, the (1994) Stock Incentive Plan, as amended,
and the 1999 Stock Incentive Plan (collectively, the "Aquarion Stock Option
Plans"), (y) stock units representing in the aggregate the right to be paid
43,150.82 shares of Aquarion Common Stock under the Directors' Deferred
Compensation Plan and (z) rights of stockholders under the DRIP. As of May
21, 1999 Aquarion had reserved 245,987 shares of Aquarion Common Stock for
purchase pursuant to the DRIP and 1,260,712 shares of Aquarion Common Stock
for purchase pursuant to the Aquarion Stock Option Plans. Other than the
associated Rights issued with the shares issued as described above and
options or other rights to acquire no more than 1,549,849.82 shares of
Aquarion Common Stock (and accompanying Rights) in the aggregate pursuant
to the Aquarion Stock Option Plans, the DRIP and the Directors' Deferred
Compensation Plan, no options or warrants or other rights to acquire
capital stock from Aquarion have been issued or granted and remain
outstanding as of the date of this Agreement. All shares of Aquarion Common
Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid and
nonassessable. All of the numbers of shares of Aquarion Common Stock
provided in this Section 3.1(b)(i) or elsewhere in this Agreement are in
each case determined after giving effect to the 3-for-2 stock split of the
Aquarion Common Stock effected in the form of a distribution of one-half of
one share of Aquarion Common Stock on each outstanding share of Aquarion
Common Stock paid on March 22, 1999 (the "Stock Split").
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<PAGE>
(ii) As of the date of this Agreement, no bonds, debentures,
notes or other indebtedness of Aquarion or any of its Subsidiaries having
the right to vote on any matters on which stockholders may vote ("Aquarion
Voting Debt") are issued or outstanding.
(iii) Except as set forth in this Section 3.1(b), pursuant to
the Aquarion Stock Options, pursuant to the Directors' Deferred
Compensation Plan or pursuant to the DRIP, as of the date of this
Agreement, there are no securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which
Aquarion or any of its Subsidiaries is a party, or by which any of them is
bound, obligating Aquarion or any of its Subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other voting securities of Aquarion or any of its
Subsidiaries or, securities convertible into or exchangeable for shares of
capital stock or voting securities of Aquarion or any of its Subsidiaries,
or obligating Aquarion or any of its Subsidiaries to issue, grant, extend
or enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking. As of the date of this Agreement,
there are no outstanding obligations of Aquarion or any of its Subsidiaries
to repurchase, redeem or otherwise acquire any shares of capital stock of
Aquarion or any of its Subsidiaries or to provide funds to, or make any
investment in any other Person, other than a wholly owned Subsidiary of
Aquarion.
(iv) All of the outstanding shares of capital stock of each
Subsidiary of Aquarion are duly authorized, validly issued, fully paid and
nonassessable and are owned, beneficially and of record, by Aquarion or a
Subsidiary, which is wholly owned, directly or indirectly, by Aquarion,
free and clear of any liens, claims, mortgages, encumbrances, pledges,
security interests, or any other restrictions with respect to the
transferability or assignability thereof (collectively, "Encumbrances"),
except for Encumbrances pursuant to the First Mortgage dated as of June 1,
1924, between BHC Company ("BHC") and State Street Bank as Trustee, as
amended by the Twenty-Fifth Supplemental Mortgage thereto.
(c) Authority; No Violations.
------------------------
(i) Aquarion has all requisite corporate power and authority
to execute and deliver this Agreement, to perform its obligations hereunder
and to consummate the transactions contemplated hereby, subject in the case
of the consummation of the Merger to the adoption of this Agreement by the
Required Aquarion Vote (as defined in Section 3.1(p)). The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of Aquarion, and no other corporate or
stockholder proceedings on the part of Aquarion are necessary to authorize
this Agreement or to consummate the transactions contemplated hereby (other
than in the case of the consummation of the Merger, the adoption of this
Agreement by the Required Aquarion Vote). This Agreement has been duly and
validly executed and delivered by Aquarion and constitutes a valid and
binding agreement of Aquarion, enforceable against it in accordance with
its terms.
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<PAGE>
(ii) The execution and delivery of this Agreement by Aquarion
do not or will not, as the case may be, and the performance of the
Agreement and the consummation of the Merger by Aquarion and the other
transactions contemplated hereby will not, result in any violation of, or
constitute a default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, amendment, cancellation or
acceleration of any obligation or the loss of a material benefit under, or
the creation of an Encumbrance on any assets of Aquarion or any of its
Subsidiaries (any such violation, default, right of termination, amendment,
cancellation or acceleration, loss or creation, a "Violation") pursuant to:
(A) any provision of the certificate of incorporation or by-laws of
Aquarion or any Subsidiary of Aquarion or (B) except as would not,
individually or in the aggregate, have a Material Adverse Effect on
Aquarion, subject to obtaining or making the consents, approvals, orders,
authorizations, registrations, declarations and filings referred to in
paragraph (iii) below, any loan or credit agreement, note, mortgage, bond,
indenture, lease, benefit plan or other agreement, obligation, instrument,
permit, concession, franchise, or license (collectively, "Contracts"), or
any statute, law, ordinance, rule, regulation, whether federal, state,
local or foreign (collectively, "Laws"), or any judgment, order or decree,
whether federal, state, local or foreign (collectively, "Orders")
applicable to Aquarion or any Subsidiary of Aquarion or their respective
properties or assets.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, or notice to, any foreign,
supranational, national, state, municipal or local government, any
instrumentality, subdivision, court, administrative agency or commission or
other authority thereof, or any quasi-governmental or private body
exercising any regulatory, taxing, importing or other governmental or quasi
governmental authority (a "Governmental Entity"), is required by or with
respect to Aquarion or any Subsidiary of Aquarion in connection with the
execution and delivery of this Agreement by Aquarion or the performance of
this Agreement and the consummation of the Merger and the other
transactions contemplated hereby, except for those required under or in
relation to (A) the Hart Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), (B) the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (C) the DGCL with respect to the filing of
the Delaware Certificate of Merger, (D) Laws, practices and Orders of any
state public utility control or public service commissions or similar state
regulatory bodies ("PUCs"), each of which is identified in Section
3.1(c)(iii)(D) of the Aquarion Disclosure Schedule, (E) Laws, practices and
Orders of any state departments of public health or departments of health
or similar state regulatory bodies or of any federal or state regulatory
body having jurisdiction over environmental protection or environmental
conservation or similar matters ("Health Agencies"), each of which is
identified in Section 3.1(c)(iii)(E) of the Aquarion Disclosure Schedule,
(F) rules and regulations of The New York Stock Exchange, Inc. (the
"NYSE"), and (G) such consents, approvals, Orders, authorizations,
registrations, declarations and filings the failure of which to make or
obtain would not, individually or in the aggregate, have a Material Adverse
Effect on Aquarion. Consents, approvals, Orders, authorizations,
registrations, declarations and filings required under or in relation to
any of the foregoing clauses (A) through (F) are hereinafter referred to as
"Aquarion Required Consents." The parties hereto agree that references in
this Agreement to "obtaining" Aquarion Required Consents means obtaining
such consents,
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<PAGE>
approvals or authorizations, making such registrations,
declarations or filings, giving such notices; and having such waiting
periods expire as are necessary to avoid a violation of Law or an Order.
(d) Reports and Financial Statements. Aquarion has filed all required
--------------------------------
reports, schedules, forms, statements and other documents required to be filed
by it with the Securities and Exchange Commission (the "SEC") since January 1,
1998 (collectively, including all exhibits thereto, the "Aquarion SEC Reports").
No Subsidiary of Aquarion is required to file any form, report or other document
with the SEC. None of Aquarion SEC Reports, as of their respective dates (and,
if amended or superseded by a filing prior to the date of this Agreement or the
Closing Date, then on the date of such filing), contained or will contain any
untrue statement of a material fact or omitted or will 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. Each
of the audited consolidated financial statements and unaudited interim financial
statements (including the related notes) included in the Aquarion SEC Reports
presents fairly, in all material respects, the consolidated financial position
and consolidated results of operations and cash flows of Aquarion and its
Subsidiaries as of the respective dates or for the respective periods set forth
therein, all in conformity with United States generally accepted accounting
principles ("GAAP") consistently applied during the periods involved except as
otherwise noted therein, and subject, in the case of the unaudited interim
financial statements, to normal and recurring year-end adjustments that have not
been and are not expected to be material in amount. All of such Aquarion SEC
Reports, as of their respective dates (and as of the date of any amendment to
the respective Aquarion SEC Report), complied as to form in all material
respects with the applicable requirements of the Securities Act of 1933, as
amended, and the Exchange Act and the rules and regulations promulgated
thereunder.
(e) Absence of Liabilities. Except for liabilities or obligations
----------------------
which are accrued or reserved against in Aquarion's most recent financial
statements (or in the related notes thereto) included in the Aquarion SEC
Reports or which were incurred in the ordinary course of business and consistent
with past practices since the date of Aquarion's most recent financial
statements included in the Aquarion SEC Reports, Aquarion and each of its
Subsidiaries do not have any material, known liabilities or obligations (whether
absolute, accrued, contingent or otherwise) of a nature required by GAAP to be
reflected in a consolidated balance sheet (or reflected in the notes thereto) of
Aquarion.
(f) Compliance.
----------
(i) Except as set forth in the Aquarion SEC Reports filed prior to the
date hereof, neither Aquarion nor any of its Subsidiaries is in violation
of, is, to the knowledge of Aquarion, under investigation with respect to
any violation of, or has been given notice or threatened with any violation
of, any Laws or Orders (excluding for purposes of this Section 3.1(f)
Environmental Laws), except for violations or possible violations which
would not, individually or in the aggregate, have a Material Adverse Effect
on Aquarion. Aquarion and its Subsidiaries have all permits, licenses,
franchises and other governmental authorizations, consents and approvals
necessary to conduct their businesses as presently conducted, except
A-10
<PAGE>
for such permits, licenses, franchises and other governmental
authorizations, consents and approvals the absence of which would not,
individually or in the aggregate, have a Material Adverse Effect on
Aquarion. BHC is in material compliance with the provisions of the
Connecticut Water Diversion Policy Act, Sections 22a-365 et seq. of the
Connecticut General Statutes. Sea Cliff Water Company is currently
operating in material accordance with the declaration of policy set forth
in Section 15-0105 of the New York Environmental Conservation Law and the
terms and conditions of all decisions, orders, permits, licenses, or
approvals issued and/or renewed by the New York Department of Environmental
Conservation under Article 15 of the Environmental Conservation Law.
Neither Aquarion nor any of its Subsidiaries is in breach or violation of,
or in default in the performance or observance of (i) any provision of its
certificate of incorporation or by-laws, or (ii) except as would not,
individually or in the aggregate, have a Material Adverse Effect on
Aquarion, any Contract applicable to Aquarion or any Subsidiaries of
Aquarion or their respective properties or assets.
(ii) All filings required to be made by Aquarion or any of its
Subsidiaries since December 31, 1996, under any applicable Laws or Orders
relating to the regulation of public utilities, have been filed with the
appropriate PUC or Health Agency or any other appropriate Governmental
Entity (including, without limitation, to the extent required, the state
public utility regulatory agencies in Connecticut and New York), as the
case may be, including all forms, statements, reports, agreements (oral or
written) and all documents, exhibits, amendments and supplements
appertaining thereto, including but not limited to all rates, tariffs,
franchises, service agreements and related documents and all such filings
complied, as of their respective dates, in all material respects with all
applicable requirements of the appropriate Laws or Orders, except for such
filings or such failures to comply that would not, individually or in the
aggregate, have a Material Adverse Effect on Aquarion.
(g) Environmental Matters.
---------------------
(i) Aquarion and each of its Subsidiaries are in compliance with all
applicable Environmental Laws (as defined in Section 3.1(g)) (which
compliance includes, but is not limited to, the possession by Aquarion of
all permits and other governmental authorizations required under applicable
Environmental Laws, and compliance with the terms and conditions thereof),
except where the failure to be in compliance would not, individually or in
the aggregate, have a Material Adverse Effect on Aquarion. Aquarion has
not received any communication (written or oral), whether from a
Governmental Entity, citizens group, employee or otherwise, alleging that
Aquarion or any of its Subsidiaries are not in such compliance, and there
are no past or present (or to the knowledge of Aquarion, future) actions,
activities, circumstances, conditions, events or incidents that may prevent
or interfere with such compliance in the future, except for such failure to
be in compliance and such actions, activities, circumstances, conditions,
events or incidents that would not, individually or in the aggregate, have
a Material Adverse Effect on Aquarion.
(ii) There are no Environmental Claims (as defined in Section 3.1(g))
pending or, to the knowledge of Aquarion, threatened, against Aquarion or
any of its Subsidiaries, or any
A-11
<PAGE>
Person whose liability for any such Environmental Claim Aquarion or any of
its Subsidiaries has retained or assumed either contractually or by
operation of Law or Order.
(iii) To the knowledge of Aquarion, there are no past or present
actions, activities, circumstances, conditions, events or incidents,
including, without limitation, the Release (as defined in Section 3.1(g)),
threatened Release or presence of any Hazardous Material (as defined in
Section 3.1(g)), that could form the basis of any Environmental Claim
against Aquarion or any of its Subsidiaries, or to the best knowledge of
Aquarion against any Person whose liability for any Environmental Claim
Aquarion or any of its Subsidiaries has or may have retained or assumed
either contractually or by operation of Law or Order, except for such
liabilities which would not, individually or in the aggregate, have a
Material Adverse Effect on Aquarion.
(iv) Aquarion has delivered or otherwise made available for
inspection to the Parent complete and correct copies of all material
reports, studies or analyses in the possession of or initiated by Aquarion
or any of its Subsidiaries pertaining to Hazardous Materials in, on,
beneath or adjacent to any property currently or formerly owned, operated
or leased by Aquarion or any of its Subsidiaries, or regarding Aquarion's
or any of its Subsidiaries' compliance with applicable Environmental Laws.
There are no reports, studies or analyses in the possession of or initiated
by Aquarion or any of its Subsidiaries pertaining to Hazardous Materials
in, on, beneath or adjacent to any property currently or formerly owned,
operated or leased by Aquarion or any of its Subsidiaries, or regarding
Aquarion's or any of its Subsidiaries' compliance with applicable
Environmental Law, which contain any information not otherwise set forth in
the Aquarion Disclosure Schedule that is materially adverse to Aquarion.
(v) As used in this Agreement:
(A) "Environmental Claim" means any written claim, action, cause
of action, investigation or notice by any Person alleging potential
liability (including, without limitation, potential liability for
investigatory costs, cleanup costs, governmental response costs,
natural resources damages, property damages, personal injuries, or
penalties) arising out of, based on or resulting from (a) the
presence, or Release of any Hazardous Materials at any location,
whether or not owned or operated by Aquarion, or (b) circumstances
forming the basis of any violation, or alleged viola tion, of any
Environmental Law.
(B) "Environmental Law" means all Laws relating to pollution or
protection of human health or the environment, including without
limitation, Laws relating to Releases or threatened Releases of
Hazardous Materials or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, Release, disposal,
transport or handling of Hazardous Materials and all Laws with regard
to recordkeeping, notification, disclosure and reporting requirements
respecting Hazardous Materials.
A-12
<PAGE>
(C) "Hazardous Materials" means all substances defined as
Hazardous Substances, Oils, Pollutants or Contaminants in the National
Oil and Hazardous Sub stances Pollution Contingency Plan, 40 C.F.R.
(S) 300.5, or defined as such by, or regulated as such under, any
Environmental Law.
(D) "Release" means any release, spill, emission, discharge,
leaking, pumping, injection, deposit, disposal, dispersal, leaching or
migration into the indoor or outdoor environment (including, without
limitation, ambient air, surface water, groundwater and surface or
subsurface strata) or into or out of any property, including the
movement of Hazardous Materials through or in the air, soil, surface
water, groundwater or property.
(h) Employee Benefit Plans; ERISA.
-----------------------------
(i) Section 3.1(h)(i) of the Aquarion Disclosure Schedule
contains a true and complete list of each deferred compensation and
each bonus or other incentive compensation, stock purchase, stock
option and other equity compensation or ownership plan, program,
agreement or arrangement, each severance or termination pay, medical,
surgical, hospitalization, life insurance and other "welfare" plan,
fund or program (within the meaning of Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended, and the rules and
regulations promulgated thereunder ("ERISA")) (excluding any payroll
practices, compensation arrangements and fringe benefits or
perquisites which, individually or in the aggregate, are not
material); each profit-sharing, stock bonus or other "pension" plan,
fund or program (within the meaning of Section 3(2) of ERISA); each
employment, retention, consulting, termination or severance agreement
with any officer or director or any other employee (if the cash
severance amount payable to such employee under such agreement could
be reasonably expected to exceed $200,000); and each other material
employee benefit plan, fund, program, agreement or arrangement, in
each case, that is sponsored, maintained or contributed to or required
to be contributed to by Aquarion or by any trade or business, whether
or not incorporated (an "ERISA Affiliate"), that together with
Aquarion would be deemed a "single employer" within the meaning of
section 4001(b) of ERISA, or to which Aquarion or an ERISA Affiliate
is party for the benefit of any employee or former employee of
Aquarion or any Subsidiary of Aquarion, in respect of which Aquarion
or any Subsidiary of Aquarion will have continuing liability on or
after the Effective Time (the "Aquarion Benefit Plans").
Notwithstanding the foregoing, at any time prior to the tenth Business
Day following the date of this Agreement, Aquarion may amend or
supplement the list set forth in Section 3.1(h)(i) of the Aquarion
Disclosure Schedule, so long as the items included in any such
amendment or supplement would not, individually or in the aggregate,
have a Material Adverse Effect.
(ii) With respect to each Aquarion Benefit Plan, (A) no
amendments have been made thereto since December 31, 1998 (other than
as required by applicable Law or as would not result in any increased
cost that would have a Material Adverse
A-13
<PAGE>
Effect), and (B) Aquarion has heretofore delivered or made available
to Parent true and complete copies of the Aquarion Benefit Plans, any
related trust or other funding vehicle, any reports or summaries
required under ERISA or the Code and the most recent determination
letter received from the IRS with respect to each Aquarion Benefit
Plan intended to qualify under Section 401 of the Code.
(iii) No liability under Title IV has been incurred by Aquarion
or any ERISA Affiliate that has not been satisfied in full, and no
condition exists that presents a material risk to Aquarion or any
ERISA Affiliate of incurring any such liability, other than liability
for premiums due the Pension Benefit Guaranty Corporation (which
premiums have been paid when due), where any such liability has had,
or would have a Material Adverse Effect.
(iv) No Aquarion Benefit Plan that is subject to Title IV (a
"Aquarion Title IV Plan") is a "multiemployer pension plan," as
defined in section 3(37) of ERISA, nor is any Aquarion Title IV Plan a
plan described in section 4063(a) of ERISA.
(v) Each Aquarion Benefit Plan has been operated and
administered in accordance with its terms, the terms of any applicable
collective bargaining agreement and applicable Law, including but not
limited to ERISA and the Code, except as would not be reasonably
expected to result in a Material Adverse Effect, and each Aquarion
Benefit Plan intended to be "qualified" within the meaning of Section
401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service.
(vi) None of the terms of the Aquarion Benefit Plans provide
that the consummation of the transactions contemplated by this
Agreement will, either alone or in combination with another event, (A)
entitle any current or former employee or officer of Aquarion or any
ERISA Affiliate to severance pay, unemployment compensation or any
other payment, except as expressly provided in this Agreement, or (B)
accelerate the time of payment or vesting, or increase the amount of
compensation due any such employee or officer. Aquarion has made
available to Parent estimates prepared by Deloitte & Touche of the
amounts reasonably expected to be paid to the individuals set forth in
Section 3.1(h)(vi) of the Aquarion Disclosure Schedule (or by which
any of their benefits may be increased or accelerated) (in accordance
with the assumptions set forth therein) as a result of a qualified
termination of employment occurring after a Change in Control (as such
term is defined in the Continuity Agreements). For purposes of the
preceding sentence, estimates were prepared in good faith, in
accordance with the assumptions set forth therein (which were believed
to be reasonable) and, to the best knowledge of Aquarion, such amounts
accurately reflect the amounts to be paid under the Continuity
Agreements, based on such assumptions.
(vii) There are no pending, or to the knowledge of Aquarion,
threatened or anticipated claims by or on behalf of any Aquarion
Benefit Plan, by any employee or
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<PAGE>
beneficiary covered under any such Aquarion Benefit Plan, or otherwise
involving any such Aquarion Benefit Plan (other than routine claims
for benefits) that would be reasonably expected to result in liability
that would have a Material Adverse Effect.
(viii) The individuals set forth in Section 3.1(h)(vi) of the
Aquarion Disclosure Schedule have entered into Continuity Agreements
previously provided to Parent under cover of a memorandum of your
counsel dated May 11, 1999.
(i) Absence of Certain Changes or Events. Except as disclosed in the
------------------------------------
Aquarion SEC Reports filed with the SEC prior to the date hereof, since March
31, 1999 (a) the businesses of Aquarion and its Subsidiaries have been conducted
in the ordinary course, consistent with past practices and (b) there has not
been any event, occurrence, development or state of circumstances or facts that
has had, or would, individually or in the aggregate, have a Material Adverse
Effect on Aquarion. As of the date hereof, $14.5 million of short term
indebtedness incurred by Aquarion and its Subsidiaries remains outstanding.
(j) Year 2000. The computer software operated by Aquarion and its
---------
Subsidiaries which is used in the conduct of their businesses is capable of
providing or being adapted to provide uninterrupted millennium functionality to
record, store, process and present calendar dates falling on or after January 1,
2000 in substantially the same manner and with the same functionality as such
software records, stores, processes and presents such calendar dates falling on
or before December 31, 1999, other than such interruptions in millennium
functionality that would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect on Aquarion. Aquarion believes
that the remaining cost of adaptions referred to in the foregoing sentence is
not reasonably likely to have a Material Adverse Effect on Aquarion.
(k) Taxes.
-----
(i) Aquarion and its Subsidiaries have (A) duly filed (or there has
been filed on their behalf) with the appropriate Governmental Entities all
Tax Returns (as defined in Section 3.1(k)(vii)(B)) required to be filed by
them on or prior to the date hereof, other than those Tax Returns the
failure of which to file would not, individually or in the aggregate,
result in a Material Adverse Effect on Aquarion, and such Tax Returns are
true, correct and complete in all material respects, and (B) duly paid in
full or made provision in accordance with GAAP (or there has been paid or
provision has been made on their behalf) for the payment of all Taxes (as
defined in Section 3.1(k)(vii)(A)) shown to be due on such Tax Returns.
(ii) Except as set forth in Section 3.1(k)(ii) of the Aquarion
Disclosure Schedule, there are no ongoing federal, state, local or foreign
audits or examinations of any Tax Return of Aquarion or any of its
Subsidiaries.
(iii) There are no outstanding requests, agreements, consents or
waivers to extend the statutory period of limitations applicable to the
assessment of any Taxes or deficiencies
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<PAGE>
against Aquarion or any of its Subsidiaries, and no power of attorney
granted by either Aquarion or any of its Subsidiaries with respect to any
Taxes is currently in force.
(iv) Neither Aquarion nor any of its Subsidiaries is a party to any
agreement providing for the allocation or sharing of Taxes.
(v) No consent under Section 341(f) of the Code has been filed with
respect to Aquarion or any of its Subsidiaries.
(vi) For purposes of this Agreement: (A) "Taxes" means any and all
federal, state, local, foreign or other taxes of any kind (together with
any and all interest, penalties, additions to tax and additional amounts
imposed with respect thereto) imposed by any taxing authority, including,
without limitation, taxes or other charges on or with respect to income,
franchises, windfall or other profits, gross receipts, property, sales,
use, capital stock, payroll, employment, social security, workers'
compensation, unemployment compensation or net worth, and taxes or other
charges in the nature of excise, withholding, ad valorem or value added,
and (B) "Tax Return" means any return, report or similar statement
(including the attached schedules) required to be filed with respect to any
Tax, including, without limitation, any information return, claim for
refund, amended return or declaration of estimated Tax.
(l) Insurance. Each of Aquarion and its Subsidiaries is, and has
---------
been continuously since January 1, 1994, insured with financially responsible
insurers in such amounts and against such risks and losses as are (i) customary
in all material respects for companies in the United States conducting the
business conducted by Aquarion and its Subsidiaries during such time period,
(ii) required to be maintained by Aquarion or any of its Subsidiaries under the
terms of any note, bond, indenture, contract, agreement or arrangement to which
either Aquarion or any of its Subsidiaries is a party or by which any of their
respective properties are bound, except for such failures to maintain insurance
that would not, individually or in the aggregate, reasonably be expected to
result in the acceleration of any payment of the principal amount of any such
note, bond, indenture, contract, agreement or arrangement, and (iii) required to
be maintained pursuant to all applicable Laws and Orders, except for (in the
case of clause (iii)) such insurance the absence of which would not have a
Material Adverse Effect. Neither Aquarion nor any of its Subsidiaries has
received any notice of cancellation or termination with respect to any material
insurance policy of Aquarion or any Subsidiary of Aquarion. Aquarion has
fulfilled all of its obligations under each material insurance policy, including
the timely payment of premiums, other than such failures to fulfill its
obligations that would not reasonably be expected, individually or in the
aggregate to reduce or nullify the benefits under such policy.
(m) Property Franchises. Aquarion and its Subsidiaries own or have
-------------------
sufficient rights and consents to use under existing franchises, easements,
leases, and license agreements all properties, rights and assets necessary for
the conduct of their businesses and operations as currently conducted, except
where the failure to own or have sufficient rights and consents to use such
properties, rights and assets would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Aquarion. BHC is
duly authorized and franchised by the State
A-16
<PAGE>
of Connecticut to sell and deliver water service and otherwise operate as a
"water company" as defined in Section 16-1(a)(1) of the Connecticut General
Statutes within the jurisdictions described on page 2 of Aquarion's 1999 annual
report to stockholders, except where the failure to be so authorized or
franchised would not, individually or in the aggregate, have a Material Adverse
Effect on Aquarion. Sea Cliff Water Company is duly authorized to sell, furnish
and distribute water for domestic, commercial and public purposes and otherwise
operate as a "water-works corporation" as defined in Section 40 of the New York
Transportation Corporations Law and Section 2, subd. 27 of the New York Public
Service Law within the jurisdictions described on page 2 of Aquarion's 1999
annual report to stockholders.
(n) Water Quality. The quality of water supplied by Aquarion and its
-------------
Subsidiaries to their respective customers meets or exceeds all standards for
quality and safety of water in all material respects in accordance with
applicable Laws and Orders.
(o) Board Approval. The Board of Directors of Aquarion, by
--------------
resolutions duly adopted at a meeting duly called and held and not subsequently
rescinded or modified in any way (the "Aquarion Board Approval"), has duly (i)
determined that this Agreement and the Merger are advisable and in the best
interests of Aquarion and its stockholders, (ii) approved this Agreement and the
Merger and (iii) recommended that the stockholders of Aquarion adopt this
Agreement. Assuming the accuracy of the representations and warranties set forth
in Sections 3.2(g) and 3.3(e), the Board of Directors of Aquarion has taken the
necessary action to make inapplicable the restrictions on business combinations
set forth in Section 203 of the DGCL and any other similar applicable
antitakeover Laws.
(p) Vote Required. Assuming the accuracy of the representations and
-------------
warranties set forth in Sections 3.2(g) and 3.3(e), the affirmative vote of the
holders of a majority of the outstanding shares of Aquarion Common Stock to
adopt this Agreement (the "Required Aquarion Vote") is the only vote of the
holders of any class or series of Aquarion capital stock necessary to adopt this
Agreement and approve the transactions contemplated hereby.
(q) Rights Plan. Aquarion has heretofore provided Parent with a
-----------
complete and correct copy of the Rights Plan, including all amendments and
exhibits thereto. The Board of Directors of Aquarion has approved an amendment
to the Rights Plan (a certified copy of which has been provided to Parent) so
that neither the execution of this Agreement nor the consummation of the Merger
will (i) cause the Rights to become exercisable, (ii) cause Parent or Merger Sub
to become an Acquiring Person (as such term is defined in the Rights Plan) or
(iii) give rise to a Stock Acquisition Date or a Distribution Date (as each such
term is defined in the Rights Plan).
(r) Brokers or Finders. No agent, broker, investment banker,
------------------
financial advisor or other firm or Person is or will be entitled to any broker's
or finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement, except Morgan Stanley & Co.
Incorporated (the "Aquarion Financial Advisor"), whose fees and expenses will be
paid by Aquarion in accordance with Aquarion's agreement with such firm, based
upon arrangements made by or on behalf of Aquarion and previously disclosed to
Parent.
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<PAGE>
(s) Opinion of Aquarion Financial Advisor. Aquarion has received the
-------------------------------------
opinion of Aquarion Financial Advisor, dated the date of this Agreement, to the
effect that, as of such date, the Merger Consideration is fair, from a financial
point of view, to the holders of Aquarion Common Stock, a copy of which opinion
has been made available to Parent.
(t) Regulation as a Utility. Certain Subsidiaries of Aquarion are
-----------------------
regulated as public utilities in Connecticut and New York. Neither Aquarion nor
any "subsidiary company" or "affiliate" (as such terms are defined in the Public
Utility Holding Company Act of 1935, as amended (the "1935 Act")) of Aquarion is
subject to regulation as a public utility or public service company (or similar
designation) by any other state in the United States, by the United States or
any agency or instrumentality of the United States or by any foreign country.
Aquarion is not a holding company under the 1935 Act. From December 31, 1989 to
the date of this Agreement no Governmental Entity has denied the request of
Aquarion or any of its Subsidiaries to include any asset then in utility service
in rate base for recovery in the amount of $500,000 or more.
(u) Litigation. Except for claims, actions, suits, proceedings or
----------
investigations (collectively, "Claims") that would not have a Material Adverse
Effect on Aquarion, there are no claims, actions, suits, proceedings or
investigations pending or, to Aquarion's knowledge, threatened against Aquarion
or any of its Subsidiaries, or any properties or rights of Aquarion or any of
its Subsidiaries, by or before any Governmental Entity. To the knowledge of
Aquarion, Section 3.1(a) of the Aquarion Disclosure Schedule sets forth all
Claims which are pending or threatened against any of Aquarion or its
Subsidiaries as of the date hereof.
(v) No Parent Capital Stock. Aquarion does not own or hold directly
-----------------------
or indirectly any ordinary shares of 15 5/9 pence each of Parent ("Parent
Ordinary Shares") or any other capital stock of Parent, or any options, warrants
or other rights to acquire any Parent Ordinary Shares or any other capital stock
of Parent, or in each case, any interests therein.
3.2 Representations and Warranties of Parent. Except as set forth in
----------------------------------------
the Disclosure Schedule delivered by Parent to Aquarion prior to the execution
of this Agreement (the "Parent Disclosure Schedule"), Parent represents and
warrants to Aquarion as follows:
(a) Organization, Standing and Power. Parent is a corporation duly
--------------------------------
incorporated or otherwise organized and validly existing under the Laws of its
jurisdiction of incorporation or organization, has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted, and is duly qualified to do business in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification necessary other than in such
jurisdictions where the failure so to qualify or to be in good standing would
not, individually or in the aggregate, have a Material Adverse Effect on Parent.
(b) Authority; No Violations.
------------------------
(i) Parent has all requisite corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the
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<PAGE>
consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of Parent.
This Agreement has been duly and validly executed and delivered by Parent
and constitutes a valid and binding agreement of Parent, enforceable
against it in accordance with its terms.
(ii) The execution and delivery of this Agreement by Parent do
not or will not, as the case may be, and the performance of this Agreement
and the consummation by Parent of the Merger and the other transactions
contemplated hereby will not, result in a Violation pursuant to: (A) any
provision of the memorandum and articles of association (or other
comparable charter documents) of Parent or any Subsidiary of Parent or (B)
except as would not, individually or in the aggregate, have a Material
Adverse Effect on Parent, subject to obtaining or making the consents,
approvals, orders, authorizations, registrations, declarations and filings
referred to in paragraph (iii) below, any Contract, Laws or Orders
applicable to Parent or any Subsidiary of Parent or their respective
properties or assets.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, or notice to, any Governmental
Entity is required by or with respect to Parent or any Subsidiary of Parent
in connection with the execution and delivery of this Agreement by Parent
or the performance of this Agreement and the consummation of the Merger and
the other transactions contemplated hereby, except for those required under
or in relation to (A) the HSR Act, (B) Laws of any PUCs and set forth in
Section 3.2 (b)(iii)(B) of the Parent Disclosure Schedule, (C) Laws of any
Health Agencies set forth in Section 3.2 (b)(iii)(C) of the Parent
Disclosure Schedule, (D) rules and regulations of the London Stock
Exchange, (E) any notification required to be made to the Office of Water
Services pursuant to the Instrument of Appointment of York Water Services
Limited as a regulated water and sewerage undertaker and (F) such consents,
approvals, orders, authorizations, registrations, declarations and filings
the failure of which to make or obtain would not, individually or in the
aggregate, have a Material Adverse Effect on Parent. Consents, approvals,
orders, authorizations, registrations, declarations and filings required
under or in relation to the foregoing clauses (A) through (F) are
hereinafter referred to as the "Parent Required Consents". The parties
hereto agree that references in this Agreement to "obtaining" Parent
Required Consents means obtaining such consents, approvals or
authorizations, making such registrations, declarations or filings, giving
such notices; and having such waiting periods expire as are necessary to
avoid a violation of Law or an Order.
(c) Board Approval. The Board of Directors of Parent, by resolutions
--------------
duly adopted at a meeting duly called and held and not subsequently rescinded or
modified in any way, has duly (i) determined that this Agreement and the Merger
are in the best interests of Parent and its stockholders and (ii) approved this
Agreement and the Merger.
(d) Vote Required. No vote of the holders of any class or series of
-------------
Parent capital stock is necessary to approve this Agreement, the Merger or the
other transactions contemplated hereby.
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<PAGE>
(e) Brokers or Finders. No agent, broker, investment banker,
------------------
financial advisor or other firm or Person is or will be entitled to any broker's
or finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Parent, except Greenhill & Co., L.L.C. (the "Parent Financial
Advisor"), whose fees and expenses will be paid by Parent in accordance with
Parent's agreement with such firm based upon arrangements made by or on behalf
of Parent.
(f) Litigation. As of the date hereof, there are no claims, actions,
----------
suits, proceedings or investigations pending or, to Parent's knowledge,
threatened against Parent or any of its Subsidiaries, or any properties or
rights of Parent or any of its Subsidiaries, before any Governmental Entity that
(i) seek to question, delay or prevent the consummation of the Merger or the
other transactions contemplated hereby or (ii) would reasonably be expected to
affect adversely the ability of Parent to fulfill its obligations hereunder,
including Parent's obligations under Article I and Article II.
(g) No Aquarion Capital Stock. Parent does not own or hold directly
-------------------------
or indirectly any shares of Aquarion Common Stock or any other capital stock of
Aquarion, or any options, warrants or other rights to acquire any shares of
Aquarion Common Stock or any other capital stock of Aquarion, or in each case,
any interests therein, other than pursuant to the Merger as contemplated by this
Agreement.
(h) Financing. Parent has or will have available, prior to the
---------
Effective Time, sufficient funds to pay the Merger Consideration pursuant to
this Agreement and otherwise to satisfy its obligations hereunder.
3.3 Representations and Warranties of Parent and Merger Sub. Parent
-------------------------------------------------------
and Merger Sub represent and warrant to Aquarion as follows:
(a) Organization, Standing and Power. Merger Sub is a corporation
--------------------------------
duly incorporated, validly existing and in good standing under the Laws of
Delaware. Merger Sub is an indirect wholly-owned subsidiary of Parent.
(b) Authority; No Violations.
------------------------
(i) Merger Sub has all requisite corporate power and authority
to execute and deliver this Agreement, to perform its obligations hereunder
and to consummate the transactions contemplated hereby. The execution,
delivery and performance by Merger Sub of this Agreement and the
consummation by Merger Sub of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate and stockholder
action on the part of Merger Sub. This Agreement has been duly and validly
executed and delivered by Merger Sub and constitutes a valid and binding
agreement of Merger Sub, enforceable against it in accordance with its
terms.
(ii) The execution and delivery of this Agreement by Merger Sub
do not or will not, as the case may be, and the performance of this
Agreement and the
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<PAGE>
consummation by Merger Sub of the Merger and the other transactions
contemplated hereby will not, result in a Violation pursuant to: (A) any
provision of the certificate of incorporation or by-laws of Merger Sub or
(B) except as would not, individually or in the aggregate, have a Material
Adverse Effect on Parent, subject to obtaining or making the consents,
approvals, orders, authorizations, registrations, declarations and filings
referred to in paragraph (iii) below, any Contract, Laws or Orders
applicable to Merger Sub or its properties or assets.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is
required by or with respect to Merger Sub in connection with the execution
and delivery of this Agreement by Merger Sub or the consummation of the
Merger and the other transactions contemplated hereby, except for the
Parent Required Consents, the filing of the Delaware Certificate of Merger
pursuant to the DGCL and such consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to make or
obtain would not, individually or in the aggregate, have a Material Adverse
Effect on Parent.
(c) Board and Stockholder Approval. The Board of Directors of Merger
------------------------------
Sub, by resolutions duly adopted without a meeting by unanimous consent thereto
in writing and not subsequently rescinded or modified in any way, has duly (i)
determined that this Agreement and the Merger are advisable and in the best
interest of Merger Sub and its stockholder, (ii) approved this Agreement and the
Merger and (iii) recommended that the stockholder of Merger Sub adopt this
Agreement. Following the adoption of such resolutions by the Board of Directors
of Merger Sub, the sole stockholder of Merger Sub, without a meeting by consent
in writing, has duly adopted this Agreement.
(d) No Business Activities. Merger Sub has not conducted any
----------------------
activities other than in connection with its organization, the negotiation and
execution of this Agreement and the consummation of the transactions
contemplated hereby. Merger Sub has no Subsidiaries.
(e) No Aquarion Capital Stock. Merger Sub does not own or hold
-------------------------
directly or indirectly any shares of Aquarion Common Stock or any other capital
stock of Aquarion, or any options, warrants or other rights to acquire any
shares of Aquarion Common Stock or any other capital stock of Aquarion, or in
each case, any interests therein.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Covenants of Aquarion. During the period from the date of this
---------------------
Agreement and continuing until the Effective Time, Aquarion agrees as to itself
and its Subsidiaries that (except as expressly contemplated or permitted by this
Agreement or as otherwise indicated in Section 4.1 of the Aquarion Disclosure
Schedule or as required by a Governmental Entity of competent jurisdiction
(written notice of which will be given promptly to Parent) or to the extent that
Parent shall otherwise consent in writing):
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<PAGE>
(a) Ordinary Course.
---------------
(i) Aquarion and each of its Subsidiaries shall carry on their
respective businesses in the usual, regular and ordinary course in all
material respects, in substantially the same manner as heretofore
conducted, and shall use all reasonable efforts to preserve intact their
present lines of business, business organizations and reputations, maintain
their rights, franchises and permits, keep available the services of their
key officers and employees, maintain their assets and properties in good
working order and condition, ordinary wear and tear excepted, and preserve
their relationships with customers, suppliers and others having business
dealings with them to the end that their ongoing businesses shall not be
impaired in any material respect at the Effective Time; provided, however,
-------- -------
that no action by Aquarion or its Subsidiaries with respect to matters
specifically addressed by any other provision of this Section 4.1 shall be
deemed a breach of this Section 4.1(a)(i) unless such action would
constitute a breach of one or more of such other provisions.
(ii) Aquarion shall not, and shall not permit any of its
Subsidiaries to, (A) enter into any new material line of business or (B)
incur or commit to any capital expenditures other than capital expenditures
not in excess of the aggregate amount set forth in Section 4.1(a)(ii)(A) of
the Aquarion Disclosure Schedule or, if the Closing Date has not occurred
on or prior to December 31, 1999, the aggregate amounts set forth in
Section 4.1(a)(ii)(B) of the Aquarion Disclosure Schedule.
(b) Dividends; Changes in Share Capital. Aquarion shall not, and
-----------------------------------
shall not permit any of its Subsidiaries to, and shall not propose to, (i)
declare, set aside or pay any dividends on or make other distributions in
respect of any of its capital stock, except (x) dividends by wholly owned
Subsidiaries of Aquarion to such Subsidiary's parent or another wholly owned
Subsidiary of Aquarion and (y) the regular dividends on Aquarion Common Stock in
the amount of $.2775 per share of Aquarion Common Stock payable in the second
quarter of 1999, up to $.2825 per share of Aquarion Common Stock payable in the
third and fourth quarters of 1999 and the first and second quarters of 2000, and
up to $.2875 per share of Aquarion Common Stock per quarter thereafter (such
amounts in each case after giving effect to the Stock Split), (ii) split,
combine, subdivide or reclassify any of its capital stock or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of or in
substitution for, shares of its capital stock, except for any such transaction
by a wholly owned Subsidiary of Aquarion which remains a wholly owned Subsidiary
of Aquarion after consummation of such transaction , (iii) adopt a plan of
complete or partial liquidation or resolutions providing for or authorizing such
liquidation or a dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization or (iv) directly or indirectly
repurchase, redeem or otherwise acquire any shares of its capital stock or any
securities convertible into or exercisable for any shares of its capital stock
except, subject to and in accordance with applicable Laws and Orders, for the
purchase from time to time by Aquarion of Aquarion Common Stock (and the
associated Rights) in the ordinary course of business consistent with past
practice in connection with funding the Aquarion Benefit Plans.
(c) Issuance of Securities. Aquarion shall not, and shall not permit
----------------------
any of its Subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any
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<PAGE>
shares of its capital stock of any class, any Aquarion Voting Debt or any
securities convertible into or exercisable for, or any rights, warrants or
options to acquire, any such shares or Aquarion Voting Debt, or enter into any
agreement with respect to any of the foregoing, other than (i) the issuance of
Aquarion Common Stock (and the associated Rights) upon the exercise of stock
options or in connection with other stock-based Aquarion Benefit Plans
outstanding on the date hereof in accordance with their present terms or
pursuant to the DRIP, (ii) issuances by a wholly owned Subsidiary of Aquarion of
capital stock to such Subsidiary's Parent or another wholly owned Subsidiary of
Aquarion and (iii) issuances of shares, options, rights or other awards and
amendments to equity-related awards, except as permitted in Section 4.1(h).
(d) Governing Documents. Except to the extent required to comply with
-------------------
their respective obligations hereunder or, following written notice to Parent,
as may be required by Law or Order or required by the rules and regulations of
the NYSE, Aquarion shall not, and shall not permit any of its Subsidiaries to,
amend or propose to amend their respective certificates of incorporation, by-
laws or other governing documents.
(e) No Acquisitions. Except for Aquarion's proposed acquisition of
---------------
The Village Water Company substantially on the terms disclosed to Parent, and
acquisitions that are part of, related to or in support of the water utility
business, that have a value not in excess of $5 million individually and $25
million in the aggregate (in each case, including the assumption of debt) and
that would not reasonably be expected to prevent or materially delay the Merger,
Aquarion shall not, and shall not 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
other business organization or division thereof or otherwise acquire or agree to
acquire any assets (other than the acquisition of assets used in the operations
of the business of Aquarion and its Subsidiaries in the ordinary course).
Aquarion shall inform Parent reasonably in advance of taking, or permitting any
Subsidiary to take, action relating to any direct or indirect acquisition
related to or in support of the water utility business, including any such
acquisition permitted by this Section 4.1(e).
(f) No Dispositions. Other than (i) dispositions (including sales of
---------------
surplus land) referred to in the Aquarion SEC Reports filed prior to the date of
this Agreement, (ii) sales of surplus land having a value not in excess of $10
million in the aggregate (provided that no more than one such sale may have a
value exceeding $3 million) or (iii) in the ordinary course of business
consistent with past practice (other than sales of surplus land), Aquarion shall
not, and shall not permit any Subsidiary of Aquarion to, sell, lease, transfer,
encumber or otherwise dispose of, or agree to sell, lease, transfer, encumber or
otherwise dispose of, any of its assets (including capital stock of Subsidiaries
of Aquarion) which are material to Aquarion.
(g) Investments; Indebtedness. Aquarion shall not, and shall not
-------------------------
permit any of its Subsidiaries to, (i) other than in connection with actions
permitted by Section 4.1(e), make any loans, advances or capital contributions
to, or investments in, any other Person, other than loans (except for loans made
pursuant to the Carematrix and Georgetown main extension agreements), advances,
capital contributions and investments by Aquarion or a Subsidiary of Aquarion to
or in Aquarion or any wholly owned Subsidiary of Aquarion, (ii) pay, discharge
or satisfy any claims,
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<PAGE>
liabilities or obligations (absolute, accrued, asserted or unasserted, or
otherwise), other than payments, discharges or satisfactions incurred or
committed to in the ordinary course of business consistent with past practice or
reflected in the most recent consolidated financial statements (or the notes
thereto) of Parent included in the most recent Aquarion SEC Reports filed prior
to the date of this Agreement or (iii) other than in connection with actions
permitted by Section 4.1(e), create, incur, assume or suffer to exist any
indebtedness, guarantees, loans or advances not in existence as of the date of
this Agreement except for short-term indebtedness incurred under Aquarion's
current short-term facilities (and any replacements thereof) incurred in the
ordinary course of business, consistent with past practices, and which is
reasonably expected by Aquarion to be repaid by Aquarion from cash from
continuing operations within 12 months of the incurrence thereof in each case as
such facilities and other existing indebtedness may be amended, extended,
modified, refunded, renewed, refinanced or replaced after the date of this
Agreement, but only if the aggregate principal amount thereof is not increased
thereby, the term thereof is not extended thereby (or, in the case of
replacement indebtedness, the term of such indebtedness is not for a longer
period of time than the period of time applicable to the indebtedness so
replaced) and the other terms and conditions thereof, taken as a whole, are not
less advantageous to Aquarion and its Subsidiaries than those in existence as of
the date of this Agreement.
(h) Compensation. Aquarion shall not, and shall not permit any of its
------------
Subsidiaries to, (i) increase the amount of compensation of any senior executive
officer, director or employee, (ii) make any increase in or commitment to
increase any employee benefits, (iii) issue any additional Aquarion Stock
Options, equity-based awards or shares of Aquarion Common Stock pursuant to the
Aquarion Benefits Plans, adopt or make any commitment to enter into, adopt,
amend in any material manner or terminate any Aquarion Benefit Plan, or any
other agreement, arrangement, plan or policy between Aquarion or one of its
Subsidiaries and one or more of its directors, officers or employees, or (iv)
make any contribution, other than regularly scheduled contributions, to any
Aquarion Benefit Plan except as are granted in the ordinary course of business,
consistent with past practice, in connection with normal periodic performance
reviews and related compensation and benefit increases (including annual across-
the-board increases to be granted in 2000 that are consistent with past
practices in both timing and amount); provided, that Aquarion shall notify
--------
Parent of any such increases, issuances or grants.
(i) Other Actions. Aquarion shall not, and shall not permit any of
-------------
its Subsidiaries to take any action that would, or fail to take any action which
failure would, or that could reasonably be expected to, result in, (i) a
material breach of any provision of this Agreement, or (ii) any of the
conditions to the Merger set forth in Article VI not being satisfied.
(j) Accounting Methods; Income Tax Matters. Except as disclosed in
--------------------------------------
the Aquarion SEC Reports filed prior to the date of this Agreement, or as
required by a Governmental Entity, Aquarion shall not, nor shall it permit any
of its Subsidiaries to, change its methods of accounting in effect at December
31, 1998, except as required by changes in GAAP as concurred in by Aquarion's
independent auditors. Aquarion shall not, nor shall it permit any of its
Subsidiaries to, (i) change its fiscal year, (ii) make or rescind any material
tax election, (iii) settle or compromise any claim, action, suit, litigation,
proceeding, arbitration, investigation, audit, or controversy in respect of
Taxes for any amount in excess of the amount reserved therefor and reflected in
the most
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<PAGE>
recent consolidated financial statements (or the notes thereto) of Aquarion
included in the most recent Aquarion SEC Report, or (iv) change in any material
respect any of its methods of reporting income, deductions or accounting for
federal income Tax purposes from those employed in the preparation of its
federal income Tax Return for the taxable year ending December 31, 1998.
(k) Rights Plan. Nothing in this Agreement shall be deemed to
-----------
restrict the ability of Aquarion to amend, modify or waive any provision of the
Rights Plan, or take any other action with respect to the Rights, in response to
any Acquisition Proposal (as defined in Section 5.4); provided that any such
amendment, modification, waiver or other action is in no way adverse to Parent
and will not impede or delay consummation of the Merger or the other
transactions contemplated hereby.
(l) Contracts. Aquarion shall not, nor shall it permit any of its
---------
Subsidiaries, except in the ordinary course of business consistent with past
practice (i) to modify, amend, terminate or fail to use commercially reasonable
efforts to renew any material Contract or waive, release or assign any material
rights or claims under a Contract to which Aquarion or any of its Subsidiaries
is a party or (ii) to enter into any new material Contracts.
(m) Regulatory Matters. Except for filings in the ordinary course of
------------------
business consistent with past practice that would not have a Material Adverse
Effect on Aquarion, Aquarion shall inform Parent reasonably in advance of making
a filing to implement any changes in any of its or its Subsidiaries' rates or
surcharges for water service or executing any agreement with respect thereto
that is otherwise permitted under this Agreement and shall, and shall cause its
Subsidiaries to, deliver to Parent a copy of each such filing or agreement.
Aquarion shall, and shall cause its Subsidiaries to, make all such filings (A)
only in the ordinary course of business consistent with past practice or (B) as
required by a Governmental Entity.
(n) Standstill Agreements. Neither Aquarion nor any of its
---------------------
Subsidiaries shall terminate, amend, modify or waive any provision of any
confidentiality or standstill agreement to which it is a party. Aquarion shall
take all steps necessary to enforce, to the fullest extent permitted under
applicable Law and Orders, the provisions of any such agreement.
(o) Compromise; Settlement. Neither Aquarion nor any of its
----------------------
Subsidiaries shall settle or compromise any pending or threatened claims or
arbitrations (other than any Claims or arbitrations relating to matters set
forth in the Aquarion SEC Reports), other than settlements which involve solely
the payment of money (without admission of liability) that would not result in
an uninsured payment by or liability of Aquarion in excess of $300,000 in the
aggregate above the reserves established therefor on the books of Aquarion as of
the date hereof.
4.2 Covenants of Parent. During the period from the date of this
-------------------
Agreement and continuing until the Effective Time, Parent agrees as to itself
and its Subsidiaries that (except as expressly contemplated or permitted by this
Agreement or as otherwise indicated on the Parent Disclosure Schedule or as
required by a Governmental Entity of competent jurisdiction (written notice of
which will be given promptly to Aquarion) or to the extent that Aquarion shall
otherwise consent in writing):
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<PAGE>
(a) Financing. Parent shall not, and shall not permit any of its
---------
Subsidiaries to, take any action that would, or fail to take any action which
failure would, or that could reasonably be expected to, impair Parent's ability
to have available sufficient funds to pay the Merger Consideration pursuant to
this Agreement and otherwise to satisfy its obligations hereunder.
(b) Regulatory Approvals. Parent shall not, and shall not permit any
--------------------
of its Subsidiaries to, take any action that would, or fail to take any action
which failure would, reasonably be expected to impede or delay any Parent
Required Consent or any Aquarion Required Consent or otherwise impede or delay
the consummation of the Merger and the other transactions contemplated by this
Agreement.
4.3 Advice of Changes; Governmental Filings. Each party shall (a)
---------------------------------------
confer on a regular and frequent basis with the other, with respect to matters
relevant to the Merger and (b) report (to the extent permitted by Law, Order or
any applicable confidentiality agreement) on operational matters with respect to
Aquarion and its Subsidiaries and technological matters and innovations with
respect to Parent and its Subsidiaries, and Aquarion shall promptly advise
Parent, orally and in writing, of any material change or event affecting its
business or operations, including any complaint, investigation or hearing by any
Governmental Entity (or communication indicating the same may be contemplated)
or the institution or threat of material litigation. Aquarion shall file all
reports required to be filed by it with the SEC (and all other Governmental
Entities) between the date of this Agreement and the Effective Time and shall
(to the extent permitted by Law, Order or any applicable confidentiality
agreement) deliver to Parent copies of all such reports, announcements and
publications promptly after the same are filed. Except as otherwise required by
Section 4.1(m) and subject to applicable Laws and Orders relating to the
exchange of information, each of Aquarion and Parent shall have the right to
review in advance, and will consult with the other with respect to, all the
information relating to the other party and each of their respective
Subsidiaries, which appears in any filings, announcements or publications made
with, or written materials submitted to, any third party or any Governmental
Entity in connection with the transactions contemplated by this Agreement. In
exercising the foregoing right, each of the parties hereto agrees to act
reasonably and as promptly as practicable. Each party agrees that, to the extent
practicable and as timely as practicable, it will consult with, and provide all
appropriate and necessary assistance to, the other party with respect to the
obtaining of all permits, consents, approvals and authorizations of all third
parties and Governmental Entities necessary or advisable to consummate the
transactions contemplated by this Agreement and each party will keep the other
party apprised of the status of matters relating to completion of the
transactions contemplated hereby. Aquarion will provide Parent with copies of
Aquarion's proposed 2000 Capital Budget and 2000 Operating Budget promptly
following management's completion thereof.
4.4 Transition Planning; Continued Operations of Aquarion.
-----------------------------------------------------
(a) Aquarion and Parent shall each appoint four officers to serve
from time to time as their respective representatives on a committee that will
be responsible for coordinating transition planning and implementation relating
to the Merger. The initial representatives of Aquarion shall be Richard Schmidt,
Janet Hansen, James McInerney and Larry Bingaman. The initial representatives of
Parent shall be Kevin Bond, James Newman, Gillian Johnson and Paul Wynn.
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(b) Between the date of this Agreement and the Effective Time, Parent
at its discretion may locate up to two of its representatives at the offices of
Aquarion (it being understood that such representatives shall not interfere with
the business and operations of Aquarion or its Subsidiaries and shall have no
authority whatsoever with respect to the operation of the business of Aquarion
or any of its subsidiaries). During such period Aquarion shall cause one or more
of its designated representatives to consult as requested by Parent with such
representatives of Parent and to discuss the general status of the business of
Aquarion and its Subsidiaries consistent with Sections 4.4 and 5.2 hereof.
(c) Between the date of this Agreement and the Effective Time,
Aquarion at its discretion may locate up to two of its representatives at the
offices of Parent for observation with respect to technological matters and
innovations relevant to Aquarion's business (it being understood that such
representatives shall not interfere with the business or operations of Parent or
its subsidiaries, shall have no authority whatsoever with respect to the
operations of the business of Parent or any of its subsidiaries and that
Aquarion will hold any information obtained by such persons or any information
provided to Aquarion pursuant to Section 4.3 in confidence to the extent
required by, and in accordance with, the provisions of a mutually satisfactory
confidentiality agreement).
(d) Parent agrees that the Surviving Corporation will continue to
operate Aquarion's offices and facilities in Bridgeport, Connecticut for the
foreseeable future.
4.5 Community Service Programs. The parties agree that the community
--------------------------
service programs that are currently provided by Aquarion and its Subsidiaries
serve a number of important goals. After the Effective Time, Parent intends to
cause the Surviving Corporation to continue to support the community service
programs which are supported by Aquarion and its Subsidiaries.
4.6 Control of Aquarion's Business. Nothing contained in this
------------------------------
Agreement shall be deemed to give Parent, directly or indirectly, the right to
control or direct Aquarion's operations prior to the Effective Time. Prior to
the Effective Time, Aquarion shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision over its
operations.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of Proxy Statement; Aquarion Stockholders Meeting.
-------------------------------------------------------------
(a) As promptly as practicable following the date hereof, Aquarion
shall, in cooperation with Parent, prepare and file with the SEC preliminary
proxy materials relating to the Aquarion Stockholders Meeting (such proxy
statement, and any amendments or supplements thereto, the "Aquarion Proxy
Statement"). The Aquarion Proxy Statement shall comply as to form in all
material respects with the applicable provisions of the Exchange Act and the
rules and regulations
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thereunder, and shall include a statement that the Board of Directors finds the
Merger to be advisable, fair to and in the best interests of Aquarion. Each of
Aquarion and Parent shall use all reasonable efforts to have the Proxy Statement
cleared by the SEC as promptly as practicable after filing with the SEC.
Aquarion shall, as promptly as practicable after receipt thereof, provide copies
of any written comments received from the SEC with respect to the Aquarion Proxy
Statement to Parent and advise Parent of any oral comments with respect to the
Aquarion Proxy Statement received from the SEC. Aquarion shall cause the Proxy
Statement to be mailed to its stockholders at the earliest practicable date
following clearance of the Proxy Statement by the SEC and, subject to Section
5.4, shall include in the Proxy Statement the recommendation of the Board of
Directors of Aquarion that the stockholders of Aquarion vote in favor of the
adoption of the Merger Agreement.
Parent agrees that none of the information supplied or to be supplied
by Parent for inclusion or incorporation by reference in the Aquarion Proxy
Statement and each amendment or supplement thereto, at the time of mailing
thereof and at the time of Aquarion Stockholders Meeting, will contain an 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. Aquarion agrees that
none of the information supplied or to be supplied by Aquarion for inclusion or
incorporation by reference in the Aquarion Proxy Statement and each amendment or
supplement thereto, at the time of mailing thereof and at the time of Aquarion
Stockholders Meeting, will contain an 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. For purposes of the foregoing, it is understood and agreed
that information concerning or related to Parent will be deemed to have been
supplied by Parent and information concerning or related to Aquarion and
Aquarion Stockholders Meeting shall be deemed to have been supplied by Aquarion.
Aquarion will provide Parent and its counsel with a reasonable opportunity to
review and comment on the Aquarion Proxy Statement and all responses to requests
for additional information by and replies to comments of the SEC prior to filing
such with, or sending such to, the SEC, and will provide Parent and its counsel
with a copy of all such filings made with the SEC. No amendment or supplement to
the information supplied by Parent for inclusion in the Aquarion Proxy Statement
shall be made without the approval of Parent, which approval shall not be
unreasonably withheld or delayed.
(b) Subject to Sections 5.4 and 7.1(f), Aquarion shall, as promptly
as practicable following the execution of this Agreement, duly call, give notice
of, convene and hold a meeting of its stockholders (the "Aquarion Stockholders
Meeting") for the purpose of obtaining the Required Aquarion Vote with respect
to the transactions contemplated by this Agreement, shall take all lawful action
to solicit the adoption of this Agreement by the Required Aquarion Vote and the
Board of Directors of Aquarion shall recommend adoption of this Agreement by the
stockholders of Aquarion. Without limiting the generality of the foregoing but
subject to its rights pursuant to Sections 5.4 and 7.1(f), Aquarion agrees that
its obligations pursuant to the first sentence of this Section 5.1(b) shall not
be affected by the commencement, public proposal, public disclosure or
communication to Aquarion of any Acquisition Proposal (as defined in Section
5.4).
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5.2 Access to Information. Upon reasonable notice, Aquarion shall
---------------------
(and shall cause its Subsidiaries to) afford to the officers, employees,
accountants, counsel, financial advisors and other representatives of Parent
reasonable access during normal business hours, during the period prior to the
Effective Time, to all its facilities, operations, officers, employees, agents
and accountants and its properties, books, contracts, commitments and records
and, during such period, Aquarion shall (and shall cause its Subsidiaries to)
furnish promptly to Parent (or in the case of the documents referred to in
clause (a)(ii) below, make available to any representatives of Parent situated
at Aquarion's facility in accordance with Section 4.4(b)) (i) a copy of each
report, schedule, registration statement and other document filed, published,
announced or received by it during such period pursuant to the requirements of
Federal or state securities Laws, as applicable; and (ii) each report, schedule,
statement and other document filed with any other Governmental Entity (other
than, in the case of clause (i) or (ii), documents which such party is not
permitted to disclose under applicable Law or Orders), and (b) consistent with
its legal obligations, all other information concerning its business, properties
and personnel as Parent may reasonably request; provided, however, that Aquarion
-------- -------
may restrict the foregoing access to the extent that (i) a Governmental Entity
requires Aquarion or any of its Subsidiaries to restrict access to any
properties or information reasonably related to any such contract on the basis
of applicable Laws or Orders with respect to national security matters or (ii)
any Law or Order of any Governmental Entity applicable to Aquarion requires
Aquarion or its Subsidiaries to restrict access to any properties or
information. Parent will hold any information provided under this Section 5.2 or
Sections 4.3 or 4.4 that is non-public in confidence to the extent required by,
and in accordance with, the provisions of the letter dated March 19, 1999
between Aquarion and Parent (the "Confidentiality Agreement"). Any investigation
by Parent shall not affect the representations and warranties of Aquarion.
5.3 Reasonable Best Efforts.
-----------------------
(a) Subject to the terms and conditions of this Agreement, each party
will use its reasonable best efforts to take, or cause to be taken, all actions
and to do, or cause to be done, and to assist and cooperate with the other
parties in doing, all things necessary, proper or advisable under applicable
Laws and Orders to consummate the Merger and the other transactions contemplated
by this Agreement as soon as practicable after the date hereof. In furtherance
and not in limitation of the foregoing, each party hereto agrees to make an
appropriate filing of a Notification and Report Form pursuant to the HSR Act
with respect to the transactions contemplated hereby as promptly as practicable
after the date hereof and to supply as promptly as practicable any additional
information and documentary material that may be requested pursuant to the HSR
Act and to take all other actions necessary to cause the expiration or
termination of the applicable waiting periods under the HSR Act as soon as
practicable.
(b) Each of Parent and Aquarion shall, in connection with the efforts
referenced in Section 5.3(a) to obtain all requisite approvals and
authorizations for the transactions contemplated by this Merger Agreement under
the HSR Act or any other applicable Law or Order, use its reasonable best
efforts to (i) make all appropriate filings and submissions with any PUC, Health
Agency or other Governmental Entity that may be necessary, proper or advisable
under applicable Laws or Orders in respect of any of the transactions
contemplated by this Agreement, (ii) cooperate in all respects with each other
in connection with any such filing or submission and in
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connection with any investigation or other inquiry, including any proceeding
initiated by a private party, (iii) promptly inform the other party of any
communication received by such party from, or given by such party to, PUCs,
Health Agencies, the Antitrust Division of the Department of Justice (the "DOJ")
or any other Governmental Entity and of any material communication received or
given in connection with any proceeding by a private party, in each case
regarding any of the transactions contemplated hereby and (iv) permit the other
party to review any communication given by it to, and consult with each other in
advance of any meeting or conference with, PUCs, Health Agencies, the DOJ or any
such other Governmental Entity or, in connection with any proceeding by a
private party, with any other Person, and to the extent permitted by PUCs,
Health Agencies, the DOJ or such other applicable Governmental Entity or other
Person, give the other party the opportunity to attend and participate in such
meetings and conferences.
(c) In furtherance and not in limitation of the covenants of the
parties contained in Sections 5.3(a) and 5.3(b), if any administrative or
judicial action or proceeding, including any proceeding by a private party, is
instituted (or threatened to be instituted) challenging any transaction
contemplated by this Agreement as violative of any applicable Law or Order, each
of Parent and Aquarion shall cooperate in all respects with each other and use
its respective reasonable best efforts to contest and resist any such action or
proceeding and to have vacated, lifted, reversed or overturned any decree,
judgment, injunction or other order, whether temporary, preliminary or
permanent, that is in effect and that prohibits, prevents or restricts
consummation of the transactions contemplated by this Agreement. Notwithstanding
the foregoing or any other provision of this Agreement, nothing in this Section
5.3 shall limit a party's right to terminate this Agreement pursuant to Section
7.1(b) or 7.1(c) so long as such party has up to then complied in all respects
with its obligations under this Section 5.3.
(d) If any objections are asserted with respect to the transactions
contemplated hereby under any applicable Law or Order or if any suit is
instituted by any Governmental Entity or any private party challenging any of
the transactions contemplated hereby as violative of any applicable Law or
Order, each of Parent and Aquarion shall use its best reasonable efforts to
resolve any such objections or challenge as such Governmental Entity or private
party may have to such transactions under such Law or Order so as to permit
consummation of the transactions contemplated by this Agreement.
5.4 Acquisition Proposals.
---------------------
(a) Aquarion shall, and shall instruct each of its Subsidiaries and
Representatives (as defined below) to, immediately cease all existing
discussions or negotiations, if any, with any parties conducted heretofore with
respect to any Acquisition Proposal (as defined below). Aquarion shall not
directly or indirectly, and it shall cause its Subsidiaries, officers,
directors, employees, representatives, agents or affiliates, including any
investment bankers, attorneys or accountants ("Representatives") retained by
Aquarion or any of its Subsidiaries or affiliates, not to, directly or
indirectly, through any Person, (i) solicit, initiate, encourage or otherwise
facilitate (including by way of furnishing information) any inquiries or
proposals that constitute, or could reasonably be expected to lead to, any
inquiry, proposal or offer (or any improvement, restatement, amendment, renewal
or
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<PAGE>
reiteration thereof) from any Person relating to any direct or indirect
acquisition or purchase of Aquarion or any of its Subsidiaries, a merger,
recapitalization, consolidation, business combination, sale of a significant
portion of the assets of Aquarion and its Subsidiaries, taken as a whole, sale
of 10% or more of the shares of capital stock (including by way of a tender
offer, share exchange or exchange offer) or similar or comparable transactions
involving Aquarion or any of its Subsidiaries, other than the transactions
contemplated by this Agreement (any such inquiry, proposal or offer (or
improvement, restatement, amendment, renewal or reiteration thereof) (other than
made by Parent or an affiliate thereof) being herein referred to as an
"Acquisition Proposal"), or (ii) engage in negotiations or discussions
concerning, or provide any non-public information to any Person relating to, any
Acquisition Proposal. Notwithstanding any other provision of this Agreement, the
Board of Directors of Aquarion may, at any time prior to adoption of this
Agreement by the stockholders of Aquarion, furnish information (pursuant to a
customary confidentiality agreement no more favorable, in the aggregate, to the
party receiving information than the Confidentiality Agreement (it being
understood that Aquarion may enter into a confidentiality agreement without a
standstill or with a standstill provision less favorable to Aquarion if it
waives or similarly modifies the standstill provision in the Confidentiality
Agreement; provided that in no circumstances shall any such standstill provision
--------
in any such further confidentiality agreement be more favorable with respect to
the purchase of shares of Aquarion Common Stock)) to, or engage in discussions
or negotiations with, any Person in response to a Superior Proposal (as defined
in Section 8.11(i)) made by such Person if, and only to the extent that, prior
to taking such action, (A) the Board of Directors of Aquarion consults in good
faith with its independent legal counsel as to the advisability of furnishing
information to, or engaging in discussions or negotiations with, such Person and
(B) Aquarion provides reasonable advance notice to Parent to the effect that it
is taking such action.
(b) Except and only to the extent provided in paragraph (c) below,
neither the Board of Directors of Aquarion nor any committee thereof shall (i)
withdraw, modify or change, or propose to withdraw, modify or change, in any
manner adverse to Parent, the approval or recommendation by such Board of
Directors or such committee of the Merger or this Agreement, (ii) approve or
recommend, or propose to approve or recommend, any Acquisition Proposal, or
(iii) cause Aquarion to enter into any agreement (other than a confidentiality
agreement entered into in accordance with Section 5.4(a)), letter of intent,
agreement in principle, acquisition agreement or other similar agreement
relating to any Acquisition Proposal.
(c) Notwithstanding any other provision of this Agreement, in
response to a Superior Proposal and after consulting in good faith with its
independent legal counsel as to the advisability of such action, Aquarion's
Board of Directors shall be permitted (subject to this and the following
sentences), at any time prior to the adoption of this Agreement by the
stockholders of Aquarion, (i) to withdraw, modify or change, or propose to
withdraw, modify or change, the approval or recommendation by the Board of
Directors of this Agreement, the Merger or the other transactions contemplated
by this Agreement or (ii) to approve or recommend, or propose to approve or
recommend, any Superior Proposal, but only in each case referred to in clauses
(i) and (ii), after the fifth Business Day following Parent's receipt of written
notice advising Parent that the Board of Directors of Aquarion has received a
Superior Proposal, specifying the material terms and conditions of such Superior
Proposal, identifying the Person making such Superior Proposal and stating that
it intends to take any action described in clause (i) or (ii) above. After
providing such notice, Aquarion
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<PAGE>
shall provide a reasonable opportunity to Parent within such five Business Day-
period to make such adjustments in the terms and conditions of this Agreement as
would enable Aquarion to proceed with its recommendation to the stockholders of
Aquarion without taking any action described in clauses (i) or (ii) of the
preceding sentence; provided that any such adjustments shall be at the
--------
discretion of Parent at such time.
(d) Aquarion shall immediately advise Parent orally and in writing of
any request for information or any Acquisition Proposal, the material terms and
conditions of such request or Acquisition Proposal and the identity of the
Person making such request or Acquisition Proposal. Aquarion will keep Parent
reasonably informed of the status and details (including amendments or proposed
amendments) of any such request or Acquisition Proposal.
(e) Nothing contained in this Section 5.4 shall prohibit Aquarion or
its Board of Directors (i) from taking and disclosing to its stockholders a
position contemplated by Rule 14d-9 and Rule 14e-2(a) promulgated under the
Exchange Act or from making any legally required disclosure to the stockholders
of Aquarion with regard to an Acquisition Proposal or (ii prior to the adoption
of this Agreement by the stockholders of Aquarion, from taking any action as
contemplated by Section 7.1(f). Nothing in this Section 5.4 shall (x) permit
Aquarion to terminate this Agreement (except as specifically provided in Article
VII hereof) or (y) affect any other obligation of Aquarion under this Agreement.
5.5 Treatment of Aquarion Stock Options; Other Stock Plans; Employee
----------------------------------------------------------------
Benefits Matters.
- ----------------
(a) Options; Other Stock Plans. Aquarion and Parent shall take all
--------------------------
requisite action, including, any and all required amendments to the Aquarion
Stock Option Plans and the Directors' Deferred Compensation Plan or to any
agreements entered into thereunder (in each case which amendments may be
conditioned on the Closing occurring) (provided that, with respect to any
required stockholder approval, or any required consent or agreement of another
party to such agreements, of such amendments, such requisite action shall be
limited to Aquarion's and Parent's respective reasonable best efforts to obtain
such stockholder approval), to the extent necessary so that at the Closing (i)
all Aquarion Stock Options that have been granted and that have not been
exercised prior to the Closing Date shall be canceled as of the Closing Date and
at the Closing Aquarion shall pay to each holder of Aquarion Stock Options a
cash payment equal to the aggregate of the number of Aquarion Stock Options at
each exercise price held as of immediately preceding the Closing multiplied by
the excess of the Merger Consideration over the applicable exercise price
(regardless of whether such Aquarion Stock Options are then vested or
exercisable), less such amounts as Aquarion is required to deduct and withhold
with respect to the making of such payment under the Code or any provision of
state, local or foreign tax Law or Order and (ii) all stock units under the
Directors' Deferred Compensation Plan that remain outstanding as of immediately
prior to the Closing shall be converted into the right to receive cash under the
terms and conditions of each holder's deferred compensation account. Aquarion
and Parent shall take all actions necessary to ensure that such payments or
conversions into the right to receive cash extinguish all rights of participants
under the Aquarion Stock Option Plans and the Directors' Deferred Compensation
Plan
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to receive either shares of Aquarion Common Stock or Parent Ordinary Shares at
or after the Effective Time.
(b) Employee Benefits.
-----------------
(i) Obligations of Parent; Comparability of Benefits. Parent
------------------------------------------------
shall cause the Surviving Corporation to assume all employment and other
related Agreements with respect to any current employee of Aquarion, which
shall be performed in accordance with their terms. In addition, the
obligations under each Aquarion Benefit Plan (as defined in Section
8.11(a)) as to which Aquarion or any of its Subsidiaries has any obligation
with respect to any current or former employee (the "Aquarion Employees")
shall become the obligations of Parent and the Surviving Corporation at the
Effective Time, and for at least two years thereafter, Parent shall, or
shall cause the Surviving Corporation to, provide benefits, in the
aggregate, that are no less favorable than the benefits provided, in the
aggregate, under such Aquarion Benefit Plans to Aquarion Employees
immediately prior to the Effective Time. Notwithstanding the foregoing,
nothing herein shall require (A) the continuation of any particular
Aquarion Benefit Plan or prevent the amendment or termination thereof
(subject to the maintenance, in the aggregate, of the benefits as provided
in the preceding sentence) or (B) Parent or the Surviving Corporation to
continue or maintain any stock purchase or other equity plan related to the
equity of Aquarion or the Surviving Corporation or Parent.
(ii) Pre-Existing Limitations: Deductible: Service Credit. With
----------------------------------------------------
respect to any Benefit Plans of Parent or any Subsidiary of Parent in which
Aquarion Employees participate effective as of the Closing Date, Parent
shall, or shall cause the Surviving Corporation to: (A) not impose any
limitations more onerous than those currently in effect as to pre-existing
conditions, exclusions and waiting periods with respect to participation
and coverage requirements applicable to Aquarion Employees under any
Benefit Plan of Parent or any Subsidiary of Parent in which such employees
may be eligible to participate after the Effective Time, (B) provide each
Aquarion Employee with credit for any co-payments and deductibles paid
prior to the Effective Time in satisfying any applicable deductible or out-
of-pocket requirements under any welfare Benefit Plan of Parent or any
Subsidiary of Parent in which such employees may be eligible to participate
after the Effective Time, and (C) recognize all service of Aquarion
Employees with Aquarion for all purposes (including, without limitation,
purposes of eligibility to participate, vesting credit, entitlement for
benefits, and benefit accrual) in any Benefit Plan of Parent or any
Subsidiary of Parent in which such employees may be eligible to participate
after the Effective Time, to the same extent taken into account under a
comparable Aquarion Benefit Plan immediately prior to the Closing Date.
(iii) Change of Control. Aquarion and Parent agree that, for
-----------------
purposes of the Aquarion Benefit Plans, the approval or consummation of the
transactions contemplated by this Agreement, as applicable, shall
constitute a "Change in Control", as applicable under such Aquarion Benefit
Plans.
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5.6 Fees and Expenses. Whether or not the Merger is consummated, all
-----------------
Expenses (as defined below) incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
Expenses, except (a) if the Merger is consummated, the Surviving Corporation
shall pay, or cause to be paid, any and all property or transfer taxes imposed
on Aquarion or its Subsidiaries and (b) as provided in Section 7.2. As used in
this Agreement, "Expenses" includes all out-of-pocket expenses (including all
fees and expenses of counsel, accountants, investment bankers, experts and
consultants to a party hereto and its affiliates) incurred by a party or on its
behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement and the transactions
contemplated hereby, including the preparation, printing, filing and mailing of
the Aquarion Proxy Statement and the solicitation of stockholder approvals and
all other matters related to the transactions contemplated hereby.
5.7 Directors' and Officers' Indemnification and Insurance.
------------------------------------------------------
(a) After the Effective Time through the sixth anniversary of the
Effective Time, Parent and the Surviving Corporation shall, jointly and
severally, indemnify and hold harmless each present (as of the Effective Time)
or former officer, director or employee of the Company and its Subsidiaries (the
"Indemnified Parties"), against all claims, losses, liabilities, damages,
judgments, fines and reasonable fees, costs and expenses (including attorneys'
fees and expenses) incurred in connection with any claim, action, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to (i) the fact that the Indemnified Party is or was an
officer, director or employee of the Company or any of its Subsidiaries or (ii)
matters existing or occurring at or prior to the Effective Time (including this
Agreement and the transactions and actions contemplated hereby), whether
asserted or claimed prior to, at or after the Effective Time, to the fullest
extent permitted under applicable Law or Order; provided that no Indemnified
--------
Party may settle any such claim without the prior approval of Parent (which
approval shall not be unreasonably withheld or delayed). Each Indemnified Party
will be entitled to advancement of expenses incurred in the defense of any
claim, action, proceeding or investigation from Parent or the Surviving
Corporation within ten Business Days of receipt by Parent or the Surviving
Corporation from the Indemnified Party of a request therefor; provided that any
--------
Person to whom expenses are advanced provides an undertaking, to the extent
required by the DGCL, to repay such advances if it is ultimately determined that
such Person is not entitled to indemnification.
(b) The Surviving Corporation shall cause to be maintained in effect
(i) in its certificate of incorporation and by-laws for a period of six years
after the Effective Time, the current provisions regarding elimination of
liability of directors and indemnification of, and advancement of expenses to,
officers, directors and employees contained in the certificate of incorporation
and by-laws of Aquarion and (ii) for a period of six years after the Effective
Time, the current policies of directors' and officers' liability insurance and
fiduciary liability insurance maintained by Aquarion (provided that the
--------
Surviving Corporation may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are, in the
aggregate, no less advantageous to the insured) with respect to claims arising
from facts or events that occurred on or before the Effective Time; provided,
--------
however, that in no event shall the Surviving Corporation be required to expend
- -------
in any one year an amount in excess of 200% of the annual premiums currently
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<PAGE>
paid by Aquarion for such insurance; and, provided, further, that if the annual
-------- -------
premiums of such insurance coverage exceed such amount, the Surviving
Corporation shall be obligated to obtain a policy with the greatest coverage
available for a cost not exceeding such amount.
(c) Notwithstanding anything herein to the contrary, if any claim,
action, proceeding or investigation (whether arising before, at or after the
Effective Time) is made against any Indemnified Party on or prior to the sixth
anniversary of the Effective Time, the provisions of this Section 5.7 shall
continue in effect until the final disposition of such claim, action, proceeding
or investigation.
(d) In the event that the Surviving Corporation 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 or conveys all or substantially all of
its properties and assets to any Person, then, and in each such case, proper
provision shall be made so that the successors or assigns of the Surviving
Corporation shall succeed to the obligations set forth in Section 5.5 and this
Section 5.7.
5.8 Public Announcements. Aquarion and Parent shall use all
--------------------
reasonable efforts to develop a joint communications plan and each party shall
use all reasonable efforts (i) to ensure that all press releases and other
public statements with respect to the transactions contemplated hereby shall be
consistent with such joint communications plan, and (ii) unless otherwise
required by applicable Law or by obligations pursuant to any listing agreement
with or rules of any securities exchange, to consult with each other before
issuing any press release or otherwise making any public statement with respect
to this Agreement or the transactions contemplated hereby.
5.9 Disclosure Schedule Supplements. From time to time after the
-------------------------------
date of this Agreement and prior to the Effective Time, Aquarion will promptly
supplement or amend the Aquarion Disclosure Schedule with respect to any matter
hereafter arising which, if existing or occurring at or prior to the date of
this Agreement, would have been required to be set forth or described in the
Aquarion Disclosure Schedule or which is necessary to correct any information in
a schedule or in any representation and warranty of Aquarion which has been
rendered inaccurate thereby. From time to time after the date of this Agreement
and prior to the Effective Time, Parent will promptly supplement or amend the
Parent Disclosure Schedule with respect to any matter hereafter arising which,
if existing or occurring at or prior to the date of this Agreement, would have
been required to be set forth or described in the Parent Disclosure Schedule or
which is necessary to correct any information in a schedule or in any
representation and warranty of Parent or Merger Sub which has been rendered
inaccurate thereby (including, for purposes of this Section 5.9 only, any
representation or warranty set forth in Section 3.2(f) without regard to the
words "As of the date hereof" therein). Each of Aquarion and Parent shall,
within a reasonable period of time following any such supplement or amendment,
negotiate in good faith with respect to the consequences of any such supplement
or amendment. For purposes of determining the accuracy of the representations
and warranties of Aquarion contained in this Agreement and the accuracy of the
representations and warranties of Parent and Merger Sub contained in this
Agreement in order to determine the fulfillment of the conditions set forth in
Sections 6.2(a) and 6.3(a), the Parent Disclosure Schedule and the Aquarion
Disclosure Schedule shall be deemed to include only that information contained
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<PAGE>
therein on the date of this Agreement and shall be deemed to exclude any
information contained in any subsequent supplement or amendment thereto.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
----------------------------------------------------------
respective obligations of Aquarion, Parent and Merger Sub to effect the Merger
are subject to the satisfaction or waiver at or prior to the Closing of the
following conditions:
(a) Stockholder Approval. Aquarion shall have obtained the Required
--------------------
Aquarion Vote for the adoption of this Agreement by the stockholders of
Aquarion.
(b) No Injunctions or Restraints; Illegality. No federal, state,
----------------------------------------
local or foreign, if any, Law shall have been adopted or promulgated, and no
temporary restraining Order, preliminary or permanent injunction or other Order
issued by a court or other Governmental Entity of competent jurisdiction shall
be in effect, having the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger.
(c) Governmental Approvals. All Parent Required Consents and the
----------------------
Aquarion Required Consents shall have been obtained prior to the Effective Time,
and shall have become Final Orders. The Final Orders shall not, individually or
in the aggregate, impose terms and conditions that (i) could reasonably be
expected to result in a Material Adverse Effect on Aquarion or on Parent or (ii)
materially impair the ability of the parties to complete the Merger or the other
transactions contemplated hereby. "Final Order" for purposes of this Agreement
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 any Law or Order before the Merger and other
transactions contemplated hereby may be consummated has expired, and as to which
all conditions to be satisfied before the consummation of such transactions
prescribed by Law or Order have been satisfied.
(d) HSR Act. The waiting period (and any extension thereof)
-------
applicable to the Merger under the HSR Act shall have been terminated or shall
have expired.
6.2 Additional Conditions to Obligations of Parent and Merger Sub.
-------------------------------------------------------------
The obligations of Parent and Merger Sub to effect the Merger are subject to the
satisfaction of, or waiver by Parent, at or prior to the Closing of the
following additional conditions:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties of Aquarion set forth in this Agreement shall be true and correct
(other than any representation or warranty, or any portion of a representation
or warranty, that is not qualified as to Material Adverse Effect, which
representations and warranties shall be true and correct in all material
respects), as if
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<PAGE>
such representations or warranties were made as of the Effective Time, except
(i) to the extent given as of a certain date and (ii) for changes specifically
permitted by this Agreement, and Parent shall have received a certificate of the
chief executive officer and the chief financial officer of Aquarion to such
effect.
(b) Performance of Obligations of Aquarion. Aquarion shall have
--------------------------------------
performed or complied in all material respects with all agreements and covenants
required to be performed by it under this Agreement at or prior to the Closing
Date, and Parent shall have received a certificate of the chief executive
officer and the chief financial officer of Aquarion to such effect.
6.3 Additional Conditions to Obligations of Aquarion. The
------------------------------------------------
obligations of Aquarion to effect the Merger are subject to the satisfaction of,
or waiver by Aquarion, at or prior to the Closing of the following additional
conditions:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties of Parent and Merger Sub set forth in this Agreement shall be true
and correct (other than any representation or warranty, or any portion of a
representation or warranty, that is not qualified as to Material Adverse Effect,
which representations and warranties shall be true and correct in all material
respects), as if such representations or warranties were made as of the
Effective Time, except (i) to the extent given as of a certain date and (ii) for
changes specifically permitted by this Agreement, and Aquarion shall have
received a certificate of the chief executive officer and the chief financial
officer of Parent to such effect.
(b) Performance of Obligations of Parent. Parent shall have performed
------------------------------------
or complied in all material respects with all agreements and covenants required
to be performed by it under this Agreement at or prior to the Closing Date, and
Aquarion shall have received a certificate of the chief executive officer and
the chief financial officer of Parent to such effect.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated at any time prior
-----------
to the Effective Time, by action taken or authorized by the Board of Directors
of the terminating party or parties, and except as provided below, whether
before or after approval of the matters presented in connection with the Merger
by the stockholders of Aquarion or Merger Sub:
(a) By mutual written consent of Parent and Aquarion, by action of
their respective Boards of Directors;
(b) By either Aquarion or Parent, by written notice to the other
party, if the Effective Time shall not have occurred on or before the first
anniversary of the date of this Agreement (the "Termination Date"); provided,
--------
however, that the right to terminate this Agreement under this Section 7.1(b)
- -------
shall not be available to any party whose failure to fulfill any obligation
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<PAGE>
under this Agreement (including without limitation Section 5.3) has been the
cause of, or resulted in, the failure of the Effective Time to occur on or
before the Termination Date; provided further that if, on such first
-------- -------
anniversary, (i) the condition set forth in Section 6.1(c) has not been
satisfied or waived, (ii) all of the other conditions to the consummation of the
Merger set forth in Article VI have been satisfied or waived or can readily be
satisfied and (iii) any approvals required in order for the condition set forth
in Section 6.1(c) to be satisfied that have not yet been obtained are being
pursued diligently and in good faith, then the Termination Date shall, without
any action by any of the parties, be extended to the earlier of (x) the date
that is six months after the first anniversary of the date hereof and (y) the
date that such approvals are no longer being pursued diligently and in good
faith by any party necessary to the prosecution thereof;
(c) By either Aquarion or Parent if any Governmental Entity (i) shall
have issued an order, decree or ruling or taken any other action (which the
parties shall have used their reasonable best efforts to resist, resolve or
lift, as applicable, in accordance with Section 5.3) permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement, and such order, decree, ruling or other action shall have become
final and nonappealable or (ii) shall have failed to issue an order, decree or
ruling or to take any other action (which order, decree, ruling or other action
the parties shall have used their reasonable best efforts to obtain, in
accordance with Section 5.3), in each case (i) and (ii) that is necessary to
fulfill the conditions set forth in subsections 6.1(c) and (d), as applicable,
and such denial of a request to issue such order, decree, ruling or take such
other action shall have become final and nonappealable; provided, however, that
-------- -------
the right to terminate this Agreement under this Section 7.1(c) shall not be
available to any party whose failure to comply with Section 5.3 has been the
cause of such action or inaction;
(d) By either Aquarion or Parent if the approval by the stockholders
of Aquarion required for the consummation of the Merger shall not have been
obtained by reason of the failure to obtain the Required Aquarion Vote upon the
taking of such vote at a duly held meeting of stockholders of Aquarion, or at
any adjournment thereof;
(e) By Parent if the Board of Directors of Aquarion shall have taken
or resolved to take any of the actions set forth in clauses (i) or (ii) of
Section 5.4(b); or
(f) By Aquarion at any time prior to adoption of this Agreement by
the stockholders of Aquarion if the Board of Directors of Aquarion shall approve
a Superior Proposal; provided, however, that Aquarion shall have complied with
-------- -------
Section 5.4 and provided, further, that it shall be a condition to termination
-------- -------
by Aquarion pursuant to this Section 7.1(f) that Aquarion shall have made the
payment of the Termination Fee (as defined in Section 7.2(b)) to Parent required
by Section 7.2(b).
7.2 Effect of Termination.
---------------------
(a) In the event of termination of this Agreement by either Aquarion
or Parent as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Parent or Aquarion
or their respective officers or directors except with respect to the second
sentence of Section 5.2, Section 5.6, this Section 7.2 and Article VIII;
provided,
- --------
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<PAGE>
however, that nothing herein shall relieve any party from liability for the
- -------
willful breach of any of its representations, warranties, covenants or
agreements set forth in this Agreement and; provided, further, that if this
-------- -------
Agreement is terminated by either Parent pursuant to Section 7.1(e) or by
Aquarion pursuant to Section 7.1(f), Parent shall no longer be bound by the
terms of Section 7 of the Confidentiality Agreement.
(b) Parent and Aquarion agree that Aquarion shall pay to Parent the
sum of $20 million (the "Termination Fee") solely as follows: (i) if (A)
Aquarion or Parent shall terminate this Agreement pursuant to Section 7.1(d) due
to the failure of Aquarion's stockholders to adopt this Agreement, (B) at any
time after the date of this Agreement and at or before the time of the event
giving rise to such termination there shall exist an Acquisition Proposal with
respect to Aquarion or any of its Subsidiaries and (C) within 12 months
following the termination of this Agreement, Aquarion enters into a definitive
agreement with a third party with respect to an Acquisition Proposal or an
Acquisition Proposal is consummated, or (ii) if Parent shall terminate this
Agreement pursuant to Section 7.1(e), or (iii) if Aquarion shall terminate this
Agreement pursuant to Section 7.1(f).
(c) The Termination Fee required to be paid to Parent pursuant to
Section 7.2(b)(iii) shall be made prior to, and shall be a pre-condition to the
effectiveness of termination of, this Agreement by Aquarion pursuant to Section
7.1(f). The Termination Fee required to be paid to Parent pursuant to Section
7.2(b)(i) shall be made to Parent not later than five Business Days after the
entering into of a definitive agreement with respect to, or the consummation of,
an Acquisition Proposal, as applicable. The Termination Fee required to be paid
to Parent pursuant to Section 7.2(b)(ii) shall be made to Parent not later than
five Business Days after such termination. All payments under this Section 7.2
shall be made by wire transfer of immediately available funds to an account
designated by Parent.
7.3 Amendment. This Agreement may be amended by the parties hereto,
---------
by action taken or authorized by their respective Boards of Directors, at any
time before or after approval of the matters presented in connection with the
Merger by the stockholders of Aquarion and Merger Sub, but, after any such
approval, no amendment shall be made which by Law or in accordance with the
rules of any relevant stock exchange requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
7.4 Extension; Waiver. At any time prior to the Effective Time, the
-----------------
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party. The failure
of any party to this Agreement to assert any of its rights under this Agreement
or otherwise shall not constitute a waiver of those rights.
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<PAGE>
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations, Warranties and Agreements. None
----------------------------------------------------------
of the representations, warranties, covenants and other agreements in this
Agreement or in any instrument delivered pursuant to this Agreement, including
any rights arising out of any breach of such representations, warranties,
covenants and other agreements, shall survive the Effective Time, except for
those covenants and agreements contained herein and therein that by their terms
apply or are to be performed in whole or in part after the Effective Time and
this Article VIII. Nothing in this Section 8.1 shall relieve any party for any
breach of any representation, warranty, covenant or other agreement in this
Agreement occurring prior to termination.
8.2 Notices. All notices and other communications hereunder shall be
-------
in writing (including telecopy or other similar writing) and shall be deemed
duly given (a) on the date of delivery if delivered personally, or by telecopy
or telefacsimile, upon confirmation of receipt, (b) on the first Business Day
following the date of dispatch if delivered by a recognized next-day courier
service, (c) on the tenth Business Day following the date of mailing if
delivered by registered or certified mail, return receipt requested, postage
prepaid or (d) if given by any other means, when received at the address
specified in this Section 8.2, except, in each case, for a notice of a change of
address, which shall be effective only upon receipt thereof. All notices
hereunder shall be delivered as set forth below, or pursuant to such other
instructions as may be designated in writing by the party to receive such
notice:
(a) if to Parent or Merger Sub, to
Yorkshire Water plc
2 The Embankment
Sovereign Street
Leed LS1 4BG
Fax: 011-44-113-242-9511
Attention: Steven Webb
Group Company Secretary
with a copy to
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Fax: (212) 735-2000
Attention: Margaret L. Wolff
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<PAGE>
(b) if to Aquarion to
Aquarion Company
835 Main Street
Bridgeport, Connecticut 06601-2353
Fax: (203) 336-5639
Attention: Richard K. Schmidt
President and Chief Executive Officer
with a copy to
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3954
Fax: (212) 455-2502
Attention: Joel S. Hoffman
8.3 Interpretation. When a reference is made in this Agreement to
--------------
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents, glossary of defined terms 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". The inclusion of any matter in the Aquarion
Disclosure Schedule or the Parent Disclosure Schedule in connection with any
representation, warranty, covenant or agreement that is qualified as to
materiality or "Material Adverse Effect" shall not be an admission by the party
delivering such disclosure schedule that such matter is material or would have a
Material Adverse Effect.
8.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when each party shall have received counterparts hereof
signed by all other parties hereto, it being understood that the parties need
not sign the same counterpart.
8.5 Entire Agreement; Third Party Beneficiaries.
-------------------------------------------
(a) This Agreement together with the Aquarion Disclosure Schedule,
the Parent Disclosure Schedule and exhibits hereto constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof, other
than the Confidentiality Agreement, which shall survive the execution and
delivery of this Agreement.
(b) This Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and nothing in this Agreement, express or implied,
is intended to or shall confer upon any other Person any right, benefit or
remedy of any nature whatsoever under or by reason of this
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<PAGE>
Agreement, other than Section 5.7 (which is intended to be for the benefit of
the Persons covered thereby and may be enforced by such Persons).
8.6 Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of Delaware, without regard to principles
of conflict of laws.
8.7 Severability. If any term or other provision of this Agreement
------------
is invalid, illegal or incapable of being enforced by any Law, Order or public
policy, all other terms and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
8.8 Assignment. Neither this Agreement nor any of the rights,
----------
interests or obligations hereunder shall be assigned by any of the parties
hereto, in whole or in part (whether by operation of Law, Order or otherwise),
without the prior written consent of the other parties, and any attempt to make
any such assignment without such consent shall be null and void. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and assigns.
Aquarion agrees that, at the request of Parent and Merger Sub at any time prior
to adoption of this Agreement by the stockholders of Aquarion, Aquarion will
take all actions required by the DGCL in order to effect, after all actions
required by the DGCL are taken by Parent and Merger Sub, the substitution of
another direct or indirect wholly owned Subsidiary of Parent for Merger Sub in
this Agreement; provided that each of Parent and such substitute Subsidiary
--------
shall represent and warrant to Aquarion, on the date such substitution is to be
effective, the representations and warranties set forth in Section 3.3; and
provided, further, that no action shall be taken that would require Aquarion to
- -------- -------
amend or supplement the Aquarion Proxy Statement at any time after the Aquarion
Proxy Statement has first been mailed to Aquarion's stockholders.
8.9 Submission to Jurisdiction; Waivers. Each of Parent, Merger Sub
-----------------------------------
and Aquarion irrevocably agrees that any legal action or proceeding with respect
to this Agreement or for recognition and enforcement of any judgment in respect
hereof brought by any party hereto or its successors or assigns may be brought
and determined in the Chancery or other Courts of the State of Delaware, or in
the United States Courts in or for the District of Delaware, in each case having
subject matter jurisdiction, and each of Parent, Merger Sub and Aquarion hereby
irrevocably submits with regard to any such action or proceeding for itself and
in respect to its property, generally and unconditionally, to the nonexclusive
jurisdiction of the aforesaid courts. By the execution and delivery of this
Agreement, Parent appoints The Corporation Trust Company at 1209 Orange Street,
Wilmington, Delaware 19801 (or at such other place within the State of Delaware
as may be designated for such purpose), as its agent upon which process may be
served in any such legal action or proceeding. Service of process upon such
agent, together with notice of such service given to Parent in the manner
specified in Section 8.2, shall be deemed in every respect effective service of
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<PAGE>
process upon Parent in any legal action or proceeding. Nothing herein shall in
any way be deemed to limit the ability of Aquarion to serve any writs, process
or summons in any other manner permitted by applicable Law or Order or to obtain
jurisdiction over Parent in such other jurisdictions and in such manner as may
be permitted by applicable Law or Order. Each of Parent, Merger Sub and Aquarion
hereby irrevocably waives, and agrees not to assert, by way of motion, as a
defense, counterclaim or otherwise, in any action or proceeding with respect to
this Agreement, (a) any claim that it is not personally subject to the
jurisdiction of the above-named courts for any reason other than the failure to
serve process in accordance with this Section 8.9, (b) that it or its property
is exempt or immune from jurisdiction of any such court or from any legal
process commenced in such courts (whether through service of notice, attachment
prior to judgment, attachment in aid of execution of judgment, execution of
judgment or otherwise) and (c) to the fullest extent permitted by applicable Law
or Order, that (i) the suit, action or proceeding in any such court is brought
in an inconvenient forum, (ii) the venue of such suit, action or proceeding is
improper and (iii) this Agreement, or the subject matter hereof, may not be
enforced in or by such courts. This Agreement does not involve less than
$100,000, and the parties intend that 6 Del.C. (S)2708 shall apply to this
------
Agreement. Notwithstanding anything contained herein to the contrary, Aquarion
understands and agrees that this Section 8.9 is not intended to and shall not be
deemed to be a consent by Parent to jurisdiction for any purpose other than the
limited purpose of enforcing this Agreement in accordance with its terms.
8.10 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. It is accordingly agreed
that the parties shall be entitled to specific performance of the terms hereof,
this being in addition to any other remedy to which they are entitled at Law,
Order or in equity.
8.11 Definitions. As used in this Agreement:
-----------
(a) "Benefit Plans" means, with respect to any Person, each employee
or director benefit plan, program, arrangement and contract (including any
"employee benefit plan," as defined in Section 3(3) of ERISA, and any bonus,
deferred compensation, stock bonus, stock purchase, restricted stock, stock
option, employment, termination, stay agreement or bonus, change in control and
severance plan, program, arrangement and contract) in effect on the date of this
Agreement or disclosed on Section 4.1(c) of the Aquarion Disclosure Schedule, to
which such Person or its Subsidiary is a party, which is maintained or
contributed to by such Person, or with respect to which such Person could incur
material liability under Section 4069, 4201 or 4212(c) of ERISA.
(b) "Board of Directors" means the Board of Directors of any
specified Person and any committees thereof.
(c) "Business Day" means any day on which banks are not required or
authorized to close in The City of New York.
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<PAGE>
(d) "knowledge" when used with respect to any party means the
knowledge of any senior executive officer of such party after reasonable
inquiry.
(e) "Material Adverse Effect" means, with respect to any Person, any
change, circumstance or effect that would reasonably be expected to result in a
materially adverse effect on the business, financial condition or results of
operations of such Person and its Subsidiaries taken as a whole, other than any
change, circumstance or effect relating (i) to reductions in consumer demand or
reductions in supply sources solely as a result of unusual climatic conditions
in the watersheds or in the areas serviced by Aquarion or any of its
Subsidiaries or (ii) to actions or omissions by either Parent or Aquarion, or
any of their Subsidiaries, as the case may be, taken with the written permission
of the other party in connection with the transactions contemplated hereby.
(f) "the other party" means, with respect to Aquarion, Parent and
means, with respect to Parent, Aquarion.
(g) "Person" means an individual, corporation, limited liability
company, partnership, association, trust, unincorporated organization, other
entity or group (as defined in the Exchange Act).
(h) "Subsidiary" when used with respect to any party means any
corporation or other organization, whether incorporated or unincorporated, (i)
of which such party or any other Subsidiary of such party is a general partner
(excluding partnerships, the general partnership interests of which held by such
party or any Subsidiary of such party do not have a majority of the voting
interests in such partnership) or (ii) at least a majority of the securities or
other interests of which having by their terms ordinary voting power to elect a
majority of the Board of Directors or others performing similar functions with
respect to such corporation or other organization is directly or indirectly
owned or controlled by such party or by any one or more of its Subsidiaries, or
by such party and one or more of its Subsidiaries.
(i) "Superior Proposal" means an unsolicited bona fide written
Acquisition Proposal that the Board of Directors of Aquarion concludes in good
faith (after consultation with its financial advisors) would, if consummated,
provide greater aggregate value to Aquarion's stockholders (in their capacities
as stockholders), from a financial point of view, than the transactions
contemplated by this Agreement and for which any required financing is committed
or which, in the good faith judgment of the Board of Directors of Aquarion
(after consultation with its financial advisors), is reasonably capable of being
financed by the Person making such Acquisition Proposal (provided that for
purposes of this definition the term Acquisition Proposal shall have the meaning
assigned to such term in Section 5.4 except that (x) the reference to "10% or
more of the shares" in the definition of "Acquisition Proposal" shall be deemed
to be a reference to "sale of 50% or more of the shares" and (y) "Acquisition
Proposal" shall only be deemed to refer to a transaction involving Aquarion, or
with respect to assets (including the shares of any Subsidiary of Aquarion) of
Aquarion and its Subsidiaries, taken as a whole, and not any of its Subsidiaries
alone.
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<PAGE>
8.12 Other Agreements. The parties hereto acknowledge and agree that,
----------------
except as otherwise expressly set forth in this Agreement, the rights and
obligations of Aquarion and Parent under any other agreement between the parties
shall not be affected by any provision of this Agreement.
____________________________
[Intentionally Left Blank]
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<PAGE>
IN WITNESS WHEREOF, Parent, Aquarion and Merger Sub have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first above written.
YORKSHIRE WATER PLC
By: /s/ Kevin Bond
-------------------------------
Name: Kevin Bond
Title: CEO
WATERMAN ACQUISITION CORP.
By: /s/ Kevin Bond
--------------------------------
Name: Kevin Bond
Title: President
AQUARION COMPANY
By: /s/ Richard K. Schmidt
-------------------------------
Name: Richard K. Schmidt
Title: President/CEO
A-46
<PAGE>
Exhibit 1.5
RESTATED
CERTIFICATE OF INCORPORATION
OF
AQUARION COMPANY
(Originally incorporated under the name of
The Hydraulic Company on October 17, 1968)
FIRST: The name of the Corporation is Aquarion Company (hereinafter
-----
the "Corporation").
SECOND: The address of the registered office of the Corporation in
------
the State of Delaware is 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at that address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
-----
or activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware as set forth in Title 8 of the Delaware
Code (the "GCL").
FOURTH: The total number of shares of stock which the Corporation
------
shall have authority to issue is 1000 shares of Common Stock, each having a par
value of one cent ($.01) per share.
FIFTH: The following provisions are intended for the management of
-----
the business and the conduct of the affairs of the Corporation and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders.
(1) The business and the affairs of the Corporation shall be
managed by or under the direction of the Board of Directors.
(2) The directors shall have concurrent power with the
stockholders to make, alter, amend, change, add to or repeal the By-
Laws of the Corporation.
(3) The number of directors of the Corporation shall be as
from time to time fixed by, or in the manner provided in, the By-Laws
of the Corporation. Election of directors need not be by written
ballot unless the By-Laws so provide.
A-I-1
<PAGE>
(4) No director of the Corporation shall be personally liable
to the Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director; provided, however, that this
paragraph (4) of Article FIFTH shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under section 174 of the Delaware
General Corporation law, or (iv) for any transaction from which the
director derived an improper personal benefit. This paragraph (4) of
Article FIFTH shall not eliminate or limit the liability of a director
for any act or omission occurring prior to the date on which this
paragraph (4) of Article FIFTH becomes effective. Any repeal or
modification of this paragraph (4) of Article FIFTH shall not
adversely affect any right or protection of a director of the
Corporation existing hereunder with respect to any act or omission
occurring prior to the time of such repeal or modification.
(5) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby
empowered to exercise all such powers and do all such acts and things
as may be exercised or done by the Corporation, subject, nevertheless,
to the provisions of the GCL, this Certificate of Incorporation, and
any By-Laws adopted by the stockholders; provided, however, that no
By-Laws hereafter adopted by the stockholders shall invalidate any
prior act of the directors which would have been valid if such By-Laws
had not been adopted.
SIXTH: Meetings of the stockholders may be held within or without the
-----
State of Delaware, as the By-Laws may provide. The books of the Corporation may
be kept (subject to any provision contained in the GCL) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation.
SEVENTH: The Corporation reserves the right to amend, alter, change
-------
or repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
A-I-2
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Annex B
MORGAN STANLEY DEAN WITTER
1585 BROADWAY
NEW YORK, NEW YORK 10036
(212) 761-4000
May 31, 1999
Board of Directors
Aquarion Company
835 Main Street
Bridgeport, CT 06601
Members of the Board:
We understand that Aquarion Company (the "Company"), Yorkshire Water plc
("Buyer") and Waterman Acquisition Corp., a wholly owned subsidiary of Buyer
("Acquisition Sub") propose to enter into an Agreement and Plan of Merger
substantially in the form of the draft dated May 31, 1999 (the "Merger
Agreement") which provides, among other things, for the merger (the "Merger") of
Acquisition Sub with and into the company. Pursuant to the Merger, the Company
will become a wholly owned subsidiary of Buyer and each outstanding share of the
common stock, no par value per share (the "Common Stock") of the Company, other
than shares held in treasury or held by Buyer or any affiliate of Buyer or as to
which dissenters' rights have been perfected, will be converted into the right
to receive $37.05 per share in cash. 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:
(i) reviewed certain publicly available financial statements and
other information of the Company;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company prepared by
the management of the Company;
(iii) analyzed certain financial projections prepared by the
management of the Company.
(iv) discussed the past and current operations and financial
condition and the prospects of the Company, including the
strategic rationale for the Merger, with senior executives of
the Company;
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Board of Directors
May 31, 1999
Page 2
(v) reviewed the reported prices and trading activity for the
Common Stock;
(vi) compared the financial performance of the Company and the
prices and trading activity of the Common Stock with that of
certain other comparable publicly-traded companies and their
securities;
(vii) reviewed the financial terms, to the extent publicly
available, of certain comparable acquisition transactions;
(viii) participated in discussions and negotiations among
representatives of the Company and the Buyer and their
financial and legal advisors;
(ix) reviewed the draft Merger Agreement and certain related
documents; and
(x) performed such other analyses and considered such factors as
we have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, 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. In
addition, we have assumed that the Merger 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, nor have we
been furnished with any such appraisals. Our opinion is necessarily based on
financial, economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
We note that we are not legal or regulatory experts and have relied upon,
without independent verification, the assessment of the Company's legal and
regulatory advisors with respect to the legal and regulatory matters related to
the Merger.
We have acted as financial advisor to the Board of Directors of the Company in
connection with this transaction and will receive a fee for our services.
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, Morgan Stanley expresses
no opinion or recommendation as to how the 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.
B-2
<PAGE>
Board of Directors
May 31, 1999
Page 3
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Daniel B. More
------------------------------
Daniel B. More
Managing Director
B-3
<PAGE>
Annex C
GENERAL CORPORATION LAW OF DELAWARE
SECTION 262 - APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this Section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to (S)228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S)251 (other than a merger effected pursuant to (S)251(g)
of this title), (S)252, (S)254, (S)257, (S)258, (S)263 or (S)264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipt in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant
to (S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
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a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under (S)253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or
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consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S)228
and (S)253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided, that if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on in which the notice is given.
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(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from
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the accomplishment or expectation of the merger or consolidation, together with
a fair rate of interest, if any, to be paid upon the amount determined to be the
fair value. In determining such fair value, the Court shall take into account
all relevant factors. In determining the fair rate of interest, the Court may
consider all relevant factors, including the rate of interest which the
surviving or resulting corporation would have had to pay to borrow money during
the pendency of the proceeding. Upon application by the surviving or resulting
corporation or by any stockholder entitled to participate in the appraisal
proceeding, the Court may, in its discretion, permit discovery or other pretrial
proceedings and may proceed to trial upon the appraisal prior to the final
determination of the stockholder entitled to an appraisal. Any stockholder whose
name appears on the list filed by the surviving or resulting corporation
pursuant to subsection (f) of this section and who has submitted such
stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the
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approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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<PAGE>
AQUARION COMPANY
AQUARION COMPANY COMMON STOCK PROXY
Special Meeting of Shareholders--September 21, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
George W. Edwards, Jr., Edgar G. Hotard and Jack E. McGregor, or any of
them, with power of substitution, are hereby appointed proxies of the
undersigned to vote all common stock of Aquarion Company ("Aquarion") owned by
the undersigned at the Special Meeting of Shareholders to be held at People's
Bank, Multi-Purpose Room (Second Floor), 850 Main Street, Bridgeport,
Connecticut 06604, on September 21, 1999, or any adjournments or postponements
thereof, upon the matter listed on the reverse side, as more fully set forth in
the enclosed Notice of Special Meeting of Shareholders and Proxy Statement, and
any other matters that may properly come before the meeting, or any adjournments
or postponements thereof, or are incident to the conduct thereof.
The shares represented hereby will be voted in accordance with the
directions given by the shareholder. If not otherwise directed, the shares
represented by this proxy will be voted "FOR" adoption of the Merger Agreement.
(Continued and to be signed, on reverse side)
FOLD AND DETACH HERE
<PAGE>
Please Mark
your choice as X
indicated in this sample
The Board of Directors recommends a vote "FOR" adoption of the Merger Agreement:
1. Adoption of the Agreement and Plan of Merger dated as of May 31, 1999 among
Yorkshire Water plc (which has subsequently been renamed "Kelda Group plc")
("Kelda"), Waterman Acquisition Corp. ("Waterman") and Aquarion ("the
Merger Agreement"), pursuant to which Waterman will be merged with and into
Aquarion and Aquarion will become a wholly-owned subsidiary of Kelda. The
Merger Agreement is summarized in the enclosed Proxy Statement and is set
forth in its entirety as Annex A thereto.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
I plan to attend the meeting. [ ]
Dated: , 1999
-----------------------------------------
_________________________________________
Signature of shareholder
_________________________________________
Signature (if held jointly)
The proxies are authorized to vote in accordance with their discretion on any
other matters that may properly come before the meeting, or any adjournments or
postponements thereof, or are incident to the conduct thereof. Please mark,
date, sign and return this proxy card promptly in the enclosed envelope, which
requires no postage if mailed in the U.S.A. When signing as attorney, executor,
trustee or guardian or in other representative capacities, please give full
title as such. By signing this proxy card you also acknowledge receipt of the
enclosed Notice of Special Meeting of Shareholders and Proxy Statement.
FOLD AND DETACH HERE
AQUARION COMPANY
Special Meeting of Shareholders
Tuesday, September 21, 1999
9:30 a.m.
People's Bank
Multi-Purpose Room (Second Floor)
850 Main Street
Bridgeport, Connecticut 06604
<PAGE>
IF YOU PLAN TO ATTEND THE SPECIAL MEETING OF SHAREHOLDERS, PLEASE CHECK THE BOX
ABOVE.
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