<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
SCHEDULE 14D-9/A
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 2)
---------------------
NEW YORK STATE ELECTRIC & GAS CORPORATION
(NAME OF SUBJECT COMPANY)
NEW YORK STATE ELECTRIC & GAS CORPORATION
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $6.66 2/3 PER SHARE
(TITLE OF CLASS OF SECURITIES)
------------------------------
649840105
(CUSIP NUMBER OF CLASS OF SECURITIES)
------------------------------
DANIEL W. FARLEY, ESQ.
VICE PRESIDENT AND SECRETARY
NEW YORK STATE ELECTRIC & GAS CORPORATION
ITHACA-DRYDEN ROAD
P.O. BOX 3200
ITHACA, NEW YORK 14852-3200
(607) 347-2506
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS
ON BEHALF OF THE PERSON(S) FILING STATEMENT)
------------------------------
COPY TO:
SETH A. KAPLAN, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019
(212) 403-1000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
This Amendment No. 2 (this "Amendment No. 2") amends and supplements the
Solicitation/ Recommendation Statement on Schedule 14D-9 filed with the
Securities and Exchange Commission (the "Commission") on July 30, 1997 by New
York State Electric & Gas Corporation, a New York corporation (the "Company"),
as amended by Amendment No. 1 thereto filed with the Commission on July 30, 1997
(as amended, the "Schedule 14D-9"), relating to the offer by CE Electric (NY),
Inc., a New York corporation ("CENY") and a wholly owned subsidiary of CalEnergy
Company, Inc., a Delaware corporation ("CalEnergy"), to purchase 6,540,670
shares of outstanding Common Stock, par value $6.66 2/3 per share, at $24.50 per
share. Capitalized terms used but not defined herein have their respective
meanings set forth in the Schedule 14D-9.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Item 8 is hereby amended as follows:
The section captioned "LITIGATION" is hereby amended and supplemented by
inserting the following at the end thereof:
On August 5, 1997, the Company filed an Amended Complaint against CalEnergy
and CENY in the United States District Court for the Southern District of New
York, entitled NEW YORK STATE ELECTRIC & GAS CORPORATION V. CALENERGY COMPANY,
INC., ET AL., 97 Civ. 5644(DC) (the "Amended Complaint"). A copy of the Amended
Complaint is filed as an Exhibit to this Amendment No. 2 and is incorporated by
reference herein.
SHAREHOLDER DEMAND LITIGATION. On July 22, 1997, CENY made a request under
New York Common Law for certain books and records of the Company including,
among other things, a list of the Company's holders of record of Common Stock
(the "Request"). On July 25, 1997, the Company informed CENY that CENY's Request
was still under consideration by the Company and that the Company would respond
to the Request no later than the date by which the Company was required under
Rule 14e-2 to file the Statement on Schedule 14D-9 (which date corresponded with
12:00 midnight on July 31, 1997).
On the morning of July 31, 1997, CENY filed a Verified Article 78 Petition
seeking production of the items delineated in the Request (the "Petition").
A copy of the Petition is filed as an Exhibit to this Amendment No. 2 and is
incorporated by reference herein.
The section captioned "SHAREHOLDER LITIGATION" is hereby amended and
supplemented by inserting the following at the end thereof:
On July 17, 1997, a purported class action was filed in the Supreme Court of
the State of New York, New York County, against the Company and its directors,
entitled ROBERT HUNTLEY, ET AL., V. NEW YORK STATE ELECTRIC & GAS CORPORATION,
ET AL., Index No. 97-603927 (the "Huntley Action"). On August 4, 1997, a
purported class action was filed in the Supreme Court of the State of New York,
New York County, against the Company and its directors, entitled JERRY KRIM V.
WESLEY W. VON SCHACK, ET AL., Index No. 97-114075 (the "Krim Action"). The
Huntley Action and the Krim Action are included within the "Shareholder Actions"
definition. The allegations and claims made in the Huntley Action and the Krim
Action are substantially similar to those made in the other Shareholder Actions.
The complaints filed in the Huntley Action and the Krim Action are included
as Exhibits to this Amendment No. 2 and are incorporated by reference herein.
<PAGE>
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
Exhibit 42 -- Amended Complaint in NEW YORK STATE ELECTRIC & GAS CORPORATION V. CALENERGY
COMPANY, INC., ET AL. (U.S. District Court, Southern District of New York).
Exhibit 43 -- Complaint in ROBERT HUNTLEY, ET AL., V. NEW YORK STATE ELECTRIC & GAS
CORPORATION, ET AL. (Supreme Court of the State of New York, New York County).
Exhibit 44 -- Complaint in JERRY KRIM V. WESLEY W. VON SCHACK, ET AL. (Supreme Court of
the State of New York, New York County).
Exhibit 45 -- Verified Petition in IN THE MATTER OF THE APPLICATION OF CE ELECTRIC (NY),
INC. V. NEW YORK STATE ELECTRIC & GAS CORPORATION (Supreme Court of the State
of New York, Tompkins County).
Exhibit 46 -- Presentation: NYSEG Creating Shareholder Value.*
Exhibit 47 -- Advertisement run Wednesday, August 6, 1997 in selected newspapers.
</TABLE>
- ------------------------
* The Company is filing this Exhibit on a voluntary basis only.
2
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
NEW YORK STATE ELECTRIC & GAS CORPORATION
BY: /S/ WESLEY W. VON SCHACK
-----------------------------------------
Wesley W. von Schack
(CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER)
Dated: August 6, 1997
3
<PAGE>
EXHIBIT 42
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- ---------------------------------------x
:
NEW YORK STATE ELECTRIC & :
GAS CORPORATION, :
:
Plaintiff, :
:
-against- : 97 Civ. 5644(DC)
:
CALENERGY COMPANY, INC., :
CE ELECTRIC (NY), INC., :
:
Defendants. :
:
- ---------------------------------------x
AMENDED COMPLAINT
-----------------
Plaintiff New York State Electric & Gas Corporation ("NYSEG") alleges,
upon knowledge as to itself and its own acts, and otherwise upon information and
belief, as follows:
NATURE OF THE ACTION
--------------------
1. This action seeks injunctive relief against the unlawful conduct of
defendant CalEnergy Company, Inc. ("CalEnergy") in connection with its plan to
acquire control of NYSEG, a New York public utility serving customers in parts
of Eastern, Central and Western New York State.
2. On July 15, 1997, CalEnergy announced that its wholly-owned
subsidiary, defendant CE Electric (NY), Inc., was launching a tender offer (the
"Tender Offer") for 6,540,670
<PAGE>
shares of NYSEG common stock. This Tender Offer was set at an amount calculated
to bring CalEnergy's holdings of NYSEG's outstanding common stock to 9.9% --
according to CalEnergy's Offer to Purchase, the maximum amount it was permitted
by law to acquire without regulatory approval. (The July 18, 1997 Offer to
Purchase and CalEnergy's Schedule 14D-1 without other exhibits is annexed hereto
as Exhibit A.) CalEnergy stated both to the press and in the Offer to Purchase
itself that the Tender Offer was its first step toward the intended acquisition
of 100% of NYSEG's outstanding common stock, and CalEnergy already in early July
began purchasing shares of NYSEG in the market in furtherance of the takeover
plan. The Tender Offer is set to expire on August 14, 1997, at which time
CalEnergy can purchase shares unless its offer is extended and it agrees to
forebear from the purchase of shares until some specified future date.
3. As alleged more fully below, in determining to embark upon
CalEnergy's plan to gain control of NYSEG and in the implementation of that
plan, CalEnergy has improperly used confidential information provided to
CalEnergy by NYSEG in the Spring of 1997 in connection with the negotiation of a
potential joint venture between NYSEG and CalEnergy. CalEnergy's improper use
of NYSEG's confidential information violates (among other things) express
contractual restrictions set forth in a confidentiality agreement entered into
by CalEnergy and NYSEG in the course of such joint venture negotiations (the
"Confidentiality Agreement", annexed hereto, with certain redactions, as Exhibit
B).
4. In addition, the Tender Offer is being made on the basis of
inadequate and misleading disclosures, in violation of Sections 14(d) and 14(e)
of the Securities Exchange Act of
-2-
<PAGE>
1934 (the "Exchange Act") and the rules and regulations thereunder. For
example, the Offer to Purchase fails to disclose that CalEnergy has significant
conflicts of interest vis-a-vis NYSEG stemming from NYSEG's 1990 forced entry
into an agreement (the "Saranac Agreement") to purchase power for 15 years
beginning in 1994 from the "Saranac Plant," an energy cogeneration facility
located in Plattsburgh, New York, which is owned by a partnership now controlled
by CalEnergy.
5. The Saranac Agreement, which NYSEG was forced to enter into by the
New York Public Service Commission ("NYPSC") in purported implementation of
federal energy policy, is extremely onerous for NYSEG. Presently, the Saranac
Agreement requires NYSEG to purchase power from Saranac at a rate of 7.3 cents
per kilowatt hour -- more than triple the current average market rate of 2 cents
per kilowatt hour. And the Saranac Agreement contains escalation clauses over
its 15-year term which could result in NYSEG paying as much as 12 cents per
kilowatt hour -- six times the current market rates. In 1997 alone, NYSEG will
have to pay approximately $145 million pursuant to the Saranac Agreement --
approximately $105 million above current market rates.
6. Yet CalEnergy nowhere discloses in its Offer to Purchase the
conflict of interest it would have (if it gains substantial control or influence
over NYSEG) due to the Saranac Agreement, or the impact this conflict of
interest may have on CalEnergy's ability to obtain the required approvals from
the regulatory agencies which must approve the acquisition of NYSEG
-3-
<PAGE>
that CalEnergy seeks. Nor does CalEnergy disclose what (if anything) would be
its plans, if it gains control or influence over NYSEG, with respect to
modifying the terms and conditions of the Saranac Agreement.
PARTIES
-------
7. Plaintiff NYSEG is a New York corporation organized in 1852, with
its principal executive offices in Ithaca, New York. NYSEG's principal business
is generating, purchasing, transmitting and distributing electricity and natural
gas. NYSEG's service territory is in the central, eastern and western parts of
the State of New York, including Binghamton, Elmira, and Ithaca. NYSEG serves
approximately 808,000 electric customers and 238,000 natural gas customers.
8. Defendant CalEnergy is a Delaware corporation with its principal
executive offices in Omaha, Nebraska. CalEnergy was incorporated in 1971 as the
California Energy Company, and changed to its present name in 1994. Until its
recent takeover of Northern Electric plc, a company engaged in the supply and
distribution of electricity in northeast England, CalEnergy was not in the
electricity distribution business. CalEnergy even today has no experience in
gas distribution.
9. Defendant CE Electric (NY), Inc. is a New York corporation and a
wholly-owned subsidiary of CalEnergy.
-4-
<PAGE>
JURISDICTION AND VENUE
----------------------
10. This action is brought to enjoin and restrain violations of
Sections 14(d) and 14(e) of the Exchange Act (15 U.S.C. Sections 78n(d) and
78n(e)) and the SEC rules and regulations promulgated thereunder, including 17
C.F.R. Section 240.14d-1, as well as CalEnergy's breaches of the
Confidentiality Agreement and of their fiduciary duties.
11. Subject matter jurisdiction over this action is conferred on this
Court by the Exchange Act (15 U.S.C. Section 78aa), 28 U.S.C. Section 1331 and
28 U.S.C. Section 1332, as well as principles of supplemental jurisdiction
under 28 U.S.C. Section 1367. The amount in controversy exceeds $75,000
exclusive of interest and costs.
12. The Confidentiality Agreement entered into by the parties (Section
12) provides for jurisdiction and venue in the Southern District of New York
over any action brought to enforce or otherwise relating to the Confidentiality
Agreement.
13. Venue is proper in the Southern District of New York pursuant to
the Exchange Act (15 U.S.C. Section 78aa), Section 12 of the Confidentiality
Agreement entered into by the parties, and 28 U.S.C. Section 1391.
BACKGROUND FACTS PERTINENT TO ALL CLAIMS
----------------------------------------
-5-
<PAGE>
14. The Saranac Plant is owned and operated by a limited partnership
of which the general partner is Saranac Energy Company, Inc. ("Saranac"), a
wholly-owned indirect subsidiary of defendant CalEnergy.
15. In 1990, NYSEG was required by the New York Public Service
Commission to enter into the Saranac Agreement. The Saranac Agreement obligates
NYSEG to purchase all of the electricity produced at the Saranac Plant for a 15
year period which began in 1994 and ends in 2009.
16. Under the formula for calculating price in the Saranac Agreement,
NYSEG is presently required to pay 7.3 cents per kilowatt hour, a rate more than
triple the current appropriate market rate of only 2 cents per kilowatt hour.
And, pursuant to the terms of the contract, the rate could eventually reach as
high as 12 cents per kilowatt hour -- more than six times current market rates.
In 1997, NYSEG will have to pay about $145 million pursuant to the Saranac
Agreement -- approximately $105 million of which represents a windfall above
current market rates for Saranac. And the total payments NYSEG will be required
to make over the life of the Saranac Agreement is now expected to exceed market
rates by $1.7 billion.
17. In early 1995, NYSEG commenced a proceeding before the Federal
Energy Regulatory Commission ("FERC") directed (inter alia) at obtaining relief
from the Saranac Agreement. To date, NYSEG has been unsuccessful in obtaining
any such relief either from FERC or from a federal appellate court asked to
review FERC's failure to act. However, as CalEnergy and
-6-
<PAGE>
Saranac well know, NYSEG intends to pursue all avenues open to it to obtain
administrative and/or judicial relief from the Saranac Agreement. Notably, in a
filing submitted in the foregoing FERC proceeding, the NYPSC itself set forth
that "[t]housands of . . . NYSEG customers are in dire economic straits due, in
part, to the effect of . . . Saranac's prices on NYSEG's rates."
18. NYSEG believes that a major source of any rate reductions that
CalEnergy may proffer if it gains control of NYSEG will stem from a proposed
restructuring of the Saranac Agreement. However, this is not disclosed in the
Offer to Purchase. Moreover, CalEnergy's apparent posture -- that it will
renegotiate the Saranac Agreement with NYSEG only if and when it succeeds in
its Tender Offer -- is unconscionable and represents a strong reason to regard
CalEnergy as an inappropriate steward of the public trust with respect to
NYSEG's business.
19. Even if CalEnergy fails in achieving its primary goal of acquiring
100% of NYSEG's common stock, as a 9.9% shareholder of NYSEG (as a result of the
Tender Offer, if successful), CalEnergy would be placed in a position where it
could attempt to exert influence over NYSEG with respect to any potential
renegotiation or restructuring of the Saranac Agreement. CalEnergy's position
as the main beneficiary of the Saranac Agreement is in patent conflict with any
position it might gain as a substantial NYSEG shareholder through the Tender
Offer.
20. NYSEG's stock price has been artificially depressed for a period
of time due in principal part to the adverse effects of the Saranac Agreement
(and another similar agreement), as
-7-
<PAGE>
well as the substantial market uncertainty generated by the NYPSC's "Opinion and
Order Regarding Competitive Opportunities for Electric Service" (Opinion No.
96-12) and various open issues between NYSEG and NYPSC. CalEnergy seeks by its
Tender Offer and takeover plan to capitalize on the artificially low price of
NYSEG stock.
CLAIMS FOR RELIEF
-----------------
COUNT I
-------
(asserted against defendant CalEnergy only)
BREACH OF CONFIDENTIALITY AGREEMENT
AND MISUSE OF CONFIDENTIAL INFORMATION
--------------------------------------
21. Plaintiff hereby repeats and realleges each and every allegation
of paragraphs 1 through 20 as if fully set forth herein.
22. In or about early 1997, an upstate New York manufacturing concern
(the "Potential Gas Customer") expressed to CalEnergy an interest in converting
to natural gas for its day-to-day operations. In or before mid-April, after
looking into the matter to the best of its ability, CalEnergy concluded that it
would be unable to develop a satisfactory solution for the Potential Gas
Customer.
23. On or about April 14, 1997, J. Douglas Divine, CalEnergy's Vice
President for Strategic Planning, contacted NYSEG in an attempt to enlist
NYSEG's help with this project. Divine explained that CalEnergy was approaching
NYSEG as a potential partner for this project
-8-
<PAGE>
(the "Gas Joint Venture") because NYSEG had success in building gas pipelines
and in obtaining local gas franchises in the Plattsburgh area.
24. Ensuing discussions between NYSEG and CalEnergy led the parties,
on or about May 6, 1997, to enter into the Confidentiality Agreement annexed
hereto (with redactions) as Exhibit B. The Confidentiality Agreement provides
(among other things) that neither party can use information furnished to it by
the other (whether before or after the Agreement's execution) "for any purpose
other than in connection with the evaluation of the [Gas Joint Venture] or
transactions associated therewith."
25. NYSEG spent considerable time on the Gas Joint Venture, and had
many contacts with CalEnergy concerning the same, in the two months following
CalEnergy's initial approach to NYSEG. During that period, NYSEG furnished a
good deal of information to CalEnergy that was, and is, protected by the
Confidentiality Agreement (the "Confidential Gas-Venture Information").
26. The Confidential Gas-Venture Information was very helpful to
CalEnergy with respect to its initial objective of coming up with a way to
satisfy the needs of the Potential Gas Customer, while at the same time
generating an attractive economic return to CalEnergy. In addition, the
Confidential Gas-Venture Information disclosed to CalEnergy important NYSEG
-9-
<PAGE>
ideas for extension of the Gas Joint Venture into potentially lucrative areas
not previously considered by CalEnergy.
27. The Confidential Gas-Venture Information led CalEnergy to
conclude, in or about early June 1997: (a) that NYSEG's gas business had
significant growth potential; (b) that NYSEG's Gas Venture ideas, if
implemented, would accord CalEnergy the flexibility to greatly curtail
operations at the Saranac Plant -- or to close the plant down altogether -- and
redeploy its assets elsewhere (adjusting the Saranac Agreement accordingly); and
(c) that, in major part because of the facts set forth in subparagraphs (a) and
(b) of this paragraph, NYSEG was a very attractive candidate for acquisition by
CalEnergy.
28. On or about June 5, in furtherance of its new-found -- but still
quite secret -- interest in a NYSEG takeover, CalEnergy cancelled an important
meeting that both CalEnergy and NYSEG were to have had on June 10 with the
Potential Gas Customer. CalEnergy's proclaimed excuse for the cancellation was
the need to have a full joint-venture agreement -- not merely a confidentiality
agreement -- in place with NYSEG before meeting with the Customer. When the
meeting had been set up only a few days earlier (on or about May 30), however,
CalEnergy had made no mention of the need for any such agreement as a meeting
pre-condition (or otherwise); indeed, there had been no prior mention whatever
by CalEnergy of any such agreement or the need for one.
-10-
<PAGE>
29. Never suspecting what was really afoot, NYSEG proceeded to draft a
Memorandum of Understanding respecting the Gas Joint Venture. NYSEG forwarded
its "MOU" draft to CalEnergy on or about June 9, but had to wait a full week
before receiving CalEnergy's "MOU" counterdraft on June 16. Although NYSEG
responded with a new "MOU" draft only two days later, on June 18, it was met
with "radio silence." About 9 days later (i.e., on or about June 27), NYSEG
made inquiry of CalEnergy about the delay; the CalEnergy spokesman assured NYSEG
that the only reason for the delay was the temporary unavailability of Divine.
30. In all likelihood, Divine had in fact been "unavailable" to work
on the Gas Venture MOU in mid-to-late June because, as Vice President for
Strategic Planning, Divine had been busily engaged at the time in the planning
of the hostile takeover CalEnergy has since launched against NYSEG. And the
Confidential Gas-Venture Information was of key importance in Divine's and
CalEnergy's formulation of that strategic move.
31. Shortly after the CalEnergy reassurances to NYSEG described in
paragraph 29 above, Wesley von Schack, the Chief Executive Officer of NYSEG, was
contacted by a CalEnergy representative in an attempt to set up a meeting
between von Schack and David Sokol, the Chief Executive Officer of CalEnergy.
The CalEnergy representative did not inform von Schack of the purpose of the
meeting, and von Schack thought that the meeting with Sokol might focus upon (i)
the potential joint venture for the Gas Customer (or other possible joint
ventures); and/or (ii)
-11-
<PAGE>
potential renegotiation of the Saranac Agreement. Instead, when the meeting
took place on July 10, CalEnergy (through Sokol) finally revealed its purpose to
effect an unsolicited takeover of NYSEG.
32. The Confidential Gas-Venture Information permitted CalEnergy to
see that, with the benefit of NYSEG's input, it can have great flexibility with
respect to the Saranac facility, and that it would be highly advantageous to
CalEnergy for it to be the principal owner both of Saranac and NYSEG. The
Tender Offer and CalEnergy's plan ultimately to effect a 100% takeover of NYSEG
are directly the product of CalEnergy's misuse of such information, in violation
of the Confidentiality Agreement.
33. The Tender Offer is also directly or indirectly the product of
certain additional confidential information (the "Additional Confidential
Information"), specifically including NYSEG's long-term market forecasts of its
energy prices. This Additional Confidential Information is highly sensitive and
would greatly injure NYSEG if it were disclosed.
34. By reason of the foregoing, CalEnergy has materially breached the
Confidentiality Agreement, and the Tender Offer and CalEnergy's takeover plan
are the unlawful products of that breach and of the misuse of both the
Confidential Gas-Venture Information and the Additional Confidential
Information.
35. NYSEG has no adequate remedy at law and will suffer irreparable
injury absent the intervention of this Court.
-12-
<PAGE>
COUNT II
--------
(asserted against defendant CalEnergy only)
BREACH OF FIDUCIARY DUTY
------------------------
36. Plaintiff repeats and realleges each and every allegation of
paragraphs 1 through 35 as if fully set forth herein.
37. In the course of their discussions concerning the Gas Venture,
NYSEG and CalEnergy knowingly reposed trust and confidence in each other. In
reliance thereon, NYSEG disclosed to CalEnergy the Confidential Gas Venture
Information.
38. By reason of the relationship of trust and confidence between
NYSEG and CalEnergy, CalEnergy owed fiduciary obligations to NYSEG independent
of any contractual obligations under the Confidentiality Agreement. Those
obligations included, without limitation, an obligation not to misuse NYSEG's
Confidential Gas-Venture Information, or otherwise take action, to NYSEG's
detriment, and to deal fairly, honestly and in good faith with NYSEG. In
providing the Confidential Gas-Venture Information to CalEnergy, NYSEG assumed
CalEnergy would honor its fiduciary obligations.
39. CalEnergy has breached its fiduciary obligations to NYSEG by:
-13-
<PAGE>
(a) pursuing an acquisition of NYSEG through CE Electric (NY), Inc.
for its own gain and in complete disregard of the best interests of NYSEG;
(b) misusing NYSEG's Confidential Gas-Venture Information for
CalEnergy's own gain and to the detriment of NYSEG; and
(c) concealing CalEnergy's true intentions and plans with respect to
NYSEG.
40. Unless enjoined, CalEnergy will continue to breach its fiduciary
obligations owed to NYSEG.
41. NYSEG has no adequate remedy at law and will suffer irreparable
injury absent the intervention of this Court.
COUNT III
---------
(asserted against both defendants)
VIOLATIONS OF FEDERAL SECURITIES LAWS
-------------------------------------
42. Plaintiff repeats and realleges each and every allegation of
paragraphs 1 through 41 as if fully set forth herein.
43. As alleged in paragraphs 44 through 85 below, defendants have (i)
failed to disclose in the Offer to Purchase and Schedule 14D-1 information
required to be disclosed therein pursuant to the terms of the Schedule 14D-1
requirements and SEC rules and regulations, (ii)
-14-
<PAGE>
made materially false and misleading statements, and (iii) falsely and
misleadingly omitted to state numerous facts necessary to make statements made
by defendants not misleading.
A. DEFENDANTS' FAILURE TO DISCLOSE FACTS
CONCERNING A MATERIAL CONFLICT OF INTEREST
BETWEEN CALENERGY AND NYSEG.
44. The Offer to Purchase makes the following general statements
concerning CalEnergy's ownership of a general partnership interest in, and
operation of, the Saranac plant:
CalEnergy, through its subsidiaries, owns a general partnership
interest in and operates an environmentally advanced 240MW gas-fired
generating plant in Plattsburgh, New York, which has a long-term power
sales agreement with [NYSEG], and maintains an office in Plattsburgh.
CalEnergy. . . . has an office in upstate New York and, through its
subsidiaries, operates an environmentally advanced, 240 MW gas-fired
generating plant in Plattsburgh, which generates power sufficient to
supply 100,000 homes.
45. Contrary to, inter alia, the requirements of Schedule 14D-1 Items
10(a) and 10(f) and Section 14(e) of the Exchange Act, the Offer to Purchase
fails to disclose:
(i) the existence of a material conflict in interest between
CalEnergy and NYSEG with respect to the Saranac Agreement;
(ii) any information concerning the terms of the Saranac Agreement,
including the nature and magnitude of present and future
payments made or to be made by NYSEG to Saranac pursuant to
the Saranac Agreement, which
-15-
<PAGE>
information must be disclosed so that, among other things,
NYSEG shareholders may assess the magnitude of CalEnergy's
conflict of interest;
(iii) whether defendants have plans for dealing with CalEnergy's
conflict of interest, and, if so, what such plans are;
(iv) whether defendants have plans for how the Saranac Agreement
will be dealt with and, if so, what those plans are;
(v) the basis for the statements of CalEnergy's Chairman, David
Sokol, in a July 15, 1997 conference call with certain
securities industry personnel, that CalEnergy "anticipate[s]
the opportunity to resolve those issues [involving independent
power purchase contracts, including the Saranac Agreement]
favorably";
(vi) who will benefit from this anticipated "favorable" resolution
and what the amount of such benefit will be;
(vii) the financial benefit to CalEnergy of divesting or closing
down the Saranac plant, steps which CalEnergy's Sokol stated
on July 10, 1997 to Wesley von Schack of NYSEG that CalEnergy
planned to effect if CalEnergy acquired NYSEG;
-16-
<PAGE>
(viii) the potential impact of Mr. Sokol's admission that it is
economically feasible to divest or close down the Saranac
plant on NYSEG's legal challenges to the Saranac Agreement
(which, as alleged above, had been imposed on NYSEG over its
strenuous objections) should CalEnergy not succeed in
acquiring NYSEG;
(ix) the impact on CalEnergy's financial condition if NYSEG's legal
challenges to the Saranac Agreement are successful; and
(x) the Confidential Gas-Venture Information and the Additional
Confidential Information (which, by reason of the matters
set forth in Counts I and II above, defendants are not at
liberty to disclose, or otherwise make further use of, in
connection with the Tender Offer).
46. The Saranac Agreement is material to the business, operations and
financial condition of NYSEG. Among other things, as alleged above
(PARAPARA 14-19), under the Saranac Agreement imposed upon NYSEG, NYSEG was
required in 1996 to pay approximately $105 million per year in excess of the
market value for power produced by the Saranac Plant. This over-payment equaled
approximately 38% of NYSEG's 1996 pre-tax income and if this over-payment had
been eliminated in 1996 NYSEG could have reduced 1996 electric rates to its
customers by approximately 6.8%.
47. The undisclosed facts concerning the conflict of interest between
CalEnergy and NYSEG would be material to NYSEG shareholders in determining
whether to tender into the 9.9% Tender Offer, whether to sell into the open
market, or whether to maintain their shareholdings and neither tender nor sell
at this time. Among other things, such facts bear upon a shareholder's
-17-
<PAGE>
evaluation of the likelihood of CalEnergy securing regulatory approvals and the
integrity of CalEnergy's management.
48. Since (i) CalEnergy owns the general partnership interest in, and
operates, the Saranac Plant; (ii) executives of CalEnergy including its Chairman
David Sokol, have actively focused upon the Saranac Agreement (including having
had discussions concerning Saranac with executives of NYSEG) and (iii)
CalEnergy's Sokol made the statements during the July 15, 1997 conference call
and July 10, 1997 meeting alleged above, CalEnergy executives have knowledge of
the facts and issues concerning the material conflict of interest between
CalEnergy and NYSEG described above and similarly know that such matters were
not disclosed in the Offer to Purchase.
B. DEFENDANTS' FAILURE TO DISCLOSE MATERIAL FACTS
CONCERNING OBSTACLES TO REGULATORY APPROVALS.
----------------------------------------------
49. The Offer to Purchase states that "[t]he Subsequent Offer will be
subject to a number of conditions . . . including the receipt of all required
regulatory approvals" (p. 15) but contains only very brief, general descriptions
of the regulatory approvals that are required (see pp. 21-22). And CalEnergy
affirmatively asserts in other sections of the Offer to Purchase
o that "CalEnergy welcomes the various initiatives of the Governor's
office, the New York legislature and the New York Public Service
Commission to introduce full competition to New York's energy market"
(p. S-8),
o that CalEnergy "anticipate[s] ... working closely with the New York
Public Service Commission to provide rate reductions for all NYSEG
customers following the proposed merger" (p. 14),
-18-
<PAGE>
o that "CalEnergy fully expects that it will be able to work closely
with the New York Public Service Commission to implement rate
reductions for all [NYSEG's] customers" (p. S-8),
o that "CalEnergy welcomes the deregulation of the New York electric
market" (p. 14), and
o that "CalEnergy believes that its proposed business combination would
yield many benefits for [NYSEG's] customers and employees and the
State of New York" (p. S-8).
By these affirmative statements, CalEnergy seeks to convey the impression that
its philosophy is consistent with the philosophy of the NYPSC and will be a
positive factor in obtaining the required approvals.
50. However, CalEnergy has failed to disclose the existence of, and
the material facts concerning, significant obstacles to obtaining the required
regulatory approvals. These obstacles include:
(a) The conflict of interest which would be posed by CalEnergy's
ownership of an interest in NYSEG vis-a-vis CalEnergy's Saranac subsidiary's
interest as a general partner in, and operator of, the Saranac Plant and
CalEnergy's receipt of significant benefits from the Saranac Plant's
above-market price sales of electric power to NYSEG, as alleged in detail above;
(b) Pending litigation against CalEnergy. CalEnergy affirmatively
asserts in its Offer to Purchase that "CalEnergy is not a party to any material
pending legal proceedings" (p.
-19-
<PAGE>
S-9), a statement which is false. On June 9, 1997, just over one month before
CalEnergy launched its offer for NYSEG shares, CalEnergy was named as a
defendant in a lawsuit brought by a major California utility, Southern
California Edison Company ("SCE"), which had been forced by federal and state
regulatory rules to purchase electric energy from independently owned
geothermal electric generating facilities in which CalEnergy had interests.
SCE is suing CalEnergy (and others) for damages and seeking termination of
the contracts at issue on the grounds that, in breach of contractual
obligations to SCE, these generating facilities had routinely vented
poisonous gases into the atmosphere in order to relieve a buildup of such
gases which had caused the generators to trip, stopping the production of the
electricity being sold by the generating facilities to SCE at above-market
prices. CalEnergy is alleged in this suit to be the alter-ego of various
parties with interests in these generating facilities, to be the operator of
certain of the generating facilities and to be administering the contracts
for certain of the generating facilities. If true, the allegations by SCE
could (i) bear unfavorably on the integrity of CalEnergy's management, (ii)
adversely impact CalEnergy's ability to get regulatory approvals, and (iii)
adversely impact the financial viability of CalEnergy and its ability to
raise the almost $2 billion required to acquire 100% of NYSEG's shares since
CalEnergy may be required to pay damages to SCE and the above-market price
contracts with regard to the facilities at issue in the SCE litigation may be
terminated. NYSEG shareholders are entitled to full disclosure of the fact
of this litigation as well as the material facts bearing upon the claims made
by SCE so that NYSEG shareholders can make their own evaluation concerning
the impact of the SCE suit and the underlying facts in that suit on
-20-
<PAGE>
CalEnergy's ability to get regulatory approvals and to finance the acquisition
of 100% of NYSEG's shares.
(c) Excessive debt and leverage. Statements concerning CalEnergy's
financing plans made by CalEnergy's Sokol in a July 15, 1997 conference call
with securities industry personnel and in statements reported in local
newspapers (see articles in 7/22/97 Ithaca Journal and 7/22/97 Binghamton Press
& Sun-Bulletin) indicate that CalEnergy contemplates employing a greater degree
of financial leverage (i.e. debt vs. equity capital) than NYSEG currently does,
including employing "leverage upon leverage" whereby not only is leverage
employed at the NYSEG level, but leverage is also employed at corporate levels
above the NYSEG level which magnifies the effect of that leverage. NYSEG
shareholders are entitled to full disclosure of the particulars of CalEnergy's
plan for financing the acquisition of NYSEG's shares so they can assess the
feasibility of obtaining regulatory approval for an acquisition entailing
whatever financial structure and leverage (or leverage upon leverage) that
CalEnergy intends to propose to regulators.
51. The undisclosed material facts concerning obstacles to obtaining
the required regulatory approvals set forth above would be material to NYSEG's
shareholders in determining whether to tender into the 9.9% offer, whether to
sell into the open market or whether to maintain their shareholdings and neither
tender nor sell at this time. Among other things, these undisclosed facts bear
upon a shareholder's evaluation of the likelihood of CalEnergy securing
regulatory
-21-
<PAGE>
approvals for its desired 100% acquisition of the shares of NYSEG as to which
defendants have portrayed their 9.9% offer as the first step.
52. CalEnergy executives had knowledge of the conflict of interest
problem for the reasons set forth previously; CalEnergy executives had knowledge
of the SCE suit because CalEnergy is named in that suit as a defendant; and in
light of the statements made by CalEnergy's Sokol (as alleged above) it is
reasonable to infer that CalEnergy has knowledge of material information
concerning CalEnergy's plans for employing financial leverage which are not
disclosed in the Offer to Purchase.
C. DEFENDANTS' FAILURE TO DISCLOSE THE LACK OF REQUIRED REGULATORY, FINANCING
AND OPERATIONAL PLANS OR, IF SUCH PLANS EXIST, THE TERMS THEREOF
--------------------------------------------------------------------------
53. Because regulatory approvals are required for CalEnergy to acquire
NYSEG, CalEnergy will be required to submit to the federal and state regulatory
bodies involved detailed regulatory plans (including its plans to comply with
PSC Opinion 96-12 with regard to enhancing competition in the electric market),
detailed financing plans and detailed operational plans, including plans for
rate structures. However, there is no disclosure in the Offer to Purchase of
the particulars of any such regulatory, financing or operational plans. Nor is
there any disclosure in the Offer to Purchase of whether or not such plans
currently exist.
54. Information concerning the lack of required regulatory, financing,
and operational plans or, if such plans exist, the terms thereof, would be
material to NYSEG's shareholders
-22-
<PAGE>
in determining whether to tender into the 9.9% offer, whether to sell into the
open market or whether to maintain their shareholdings and neither tender nor
sell at this time. If CalEnergy does not presently have the detailed
regulatory, financing and operational plans required to be submitted in order to
obtain regulatory approvals, NYSEG shareholders should be told that fact because
it bears importantly on both the feasibility of CalEnergy actually proceeding to
obtain regulatory approvals as well as the likely timeframe for securing those
approvals. Alternatively, if such detailed regulatory, financing and
operational plans do exist, the material facts concerning such plans should be
described in the Offer to Purchase so NYSEG shareholders can evaluate for
themselves the likelihood that such plans will be accepted by the regulators who
must approve the proposed acquisition.
55. The misleading nature of the Offer to Purchase concerning
CalEnergy's regulatory, financing and operational plans (or lack thereof) is
compounded in this regard because CalEnergy's Sokol has asserted in statements
reported in local newspapers that CalEnergy contemplates a 10% reduction in
rates upon its acquisition of NYSEG (SEE articles in 7/22/97 Ithaca Journal and
7/22/97 Binghamton Press & Sun-Bulletin), statements which (if true) suggest
that CalEnergy has developed some plans of some sort and which (if false) would
evidence further public misrepresentations by CalEnergy.
56. CalEnergy is uniquely in a position to know whether it has the
required regulatory, financing and operational plans and, if so, the terms
thereof.
-23-
<PAGE>
D. DEFENDANTS' FAILURE TO DISCLOSE FULL AND COMPLETE INFORMATION REGARDING THE
TERMS AND CONDITIONS OF, AND THE FEASIBILITY OF CALENERGY PROCURING, THE
REQUIRED FINANCING FOR CALENERGY'S DESIRED ACQUISITION OF A 100% INTEREST
IN NYSEG.
57. Defendants assert that their investment bankers "have delivered to
CalEnergy fully underwritten offers to provide . . . the full amount of
financing for the Subsequent Offer" (I.E., an offer to acquire the remaining
90.1% of NYSEG's outstanding shares) "at a price up to $27.50 per Share" (Offer
to Purchase p. 2; SEE ALSO p. 14). However, defendants take the position that,
although their professed intention is to acquire 100% of the shares of NYSEG and
the initial 9.9% offer is a first step in that direction, defendants need only
disclose information with regard to their source of funds for the initial 9.9%
share purchase, which they state will be provided from CalEnergy's "cash on
hand". Offer to Purchase Section 13 p. 19. Consequently, the Offer to
Purchase provides no information with regard to the terms and conditions of the
supposed "fully underwritten offers to provide . . . the full amount of
financing" for the acquisition of 100% of NYSEG's shares or how CalEnergy
expects to be able to support debt financing of that magnitude.
58. Because defendants have portrayed their 9.9% offer as the first
step in the acquisition of 100% of the shares of NYSEG, the terms and conditions
of any financing commitments for, and the feasibility of CalEnergy actually
being able to obtain, the approximately $1.9 billion required to consummate the
purchase of 100% of the shares of NYSEG is material to NYSEG's shareholders in
determining whether to tender into the 9.9% offer, whether to sell into the open
market or whether to maintain their shareholdings and neither tender nor sell at
this time.
-24-
<PAGE>
Among other things, the terms and conditions of, and the feasibility of
CalEnergy procuring, the required financing for the acquisition of 100% of the
shares of NYSEG bears upon a shareholder's evaluation of the likelihood of
CalEnergy securing regulatory approvals and the likelihood that CalEnergy would
be able to afford to pay $27.50 per share in cash, as CalEnergy claims it is
prepared to do (Offer to Purchase pp. 2, 14, 16).
59. Furthermore, although the Offer to Purchase implies that the
Subsequent Offer for the remaining 90.1% of NYSEG shares will be for $27.50 per
share cash (pp. 2, 14, 16), CalEnergy also has crafted the Offer to Purchase so
as to create a record that it can later point to as reserving the right to pay
the consideration for the balance of NYSEG's shares in securities, rather than
cash, and/or to pay consideration with a value less than $27.50 (SEE, E.G.,
Offer to Purchase p. 15). Thus, from the perspective of a NYSEG shareholder who
must assess whether he or she wishes to promote CalEnergy's takeover plans by
tendering into CalEnergy's 9.9% offer, such shareholder must assess the
potential value and desirability of a subsequent offer in the form of CalEnergy
securities as well as the potential for a subsequent offer price of less than
$27.50 per share. Information concerning CalEnergy's financial viability and
prospects and the integrity of CalEnergy's management is material for these
purposes as well.
60. Among the matters relating to the terms and conditions of, and the
feasibility of CalEnergy procuring, financing for the approximately $1.9 billion
purchase price for 100% of
-25-
<PAGE>
NYSEG, and as to which CalEnergy provides no information in the Offer to
Purchase, are the following:
(a) Where will CalEnergy obtain the money to pay the debt service on
the new acquisition debt? CalEnergy's Sokol has made statements reported
in local newspapers that "NYSEG's rate payers will NOT pay ANY of the debt"
CalEnergy takes on to acquire 100% of the shares of NYSEG (SEE, E.G.
articles in the July 22, 1997 Ithaca Journal and the July 22,1997
Binghamton Press & Sun-Bulletin) (emphasis added), a "fact" nowhere
disclosed in the Offer to Purchase.
(b) What is the amount of the new debt which CalEnergy apparently
contemplates issuing (information nowhere disclosed in the Offer to
Purchase) and how does that amount compare to the amount of CalEnergy's
existing $953 million of long term debt?
(c) What is the anticipated debt service on this new debt
(information nowhere disclosed in the Offer to Purchase) and how will the
debt service on this new debt compare to CalEnergy's total net income from
all sources ($92 million in 1996)?
(d) Does CalEnergy actually intend to finance its acquisition of
NYSEG without relying upon dividends from NYSEG to pay off the acquisition
debt?
-26-
<PAGE>
(e) What is CalEnergy's existing bond rating (information nowhere
disclosed in the Offer to Purchase)? According to Moody's and Standard &
Poors, CalEnergy's existing bond ratings are NONinvestment grade, a fact
that is not disclosed in the Offer to Purchase.
(f) CalEnergy's Sokol stated in a July 15, 1997 conference call with
certain securities industry personnel that CalEnergy may seek to sell $500
million in equity to finance the acquisition of NYSEG and CalEnergy's Sokol
has also made statements reported in local newspapers that CalEnergy may
issue more stock to help pay for the cost of acquiring NYSEG shares (SEE
7/22/97 Binghamton Press & Sun-Bulletin article), but the Offer to Purchase
provides no information as to how CalEnergy would raise $500 million
through an equity offering or what dilutive impact such an issuance of new
CalEnergy equity would have on CalEnergy's per share earnings (once one
factors in the additional new debt service payments) and CalEnergy's per
share price.
(g) Mr. Sokol has made statements reported in local newspapers that
CalEnergy contemplates effecting a 10% reduction in NYSEG's electric rates
upon acquiring NYSEG (SEE, E.G., articles in 7/22/97 Ithaca Journal and
7/22/97 Binghamton Press & Sun-Bulletin), which (based on 1996 data) would
reduce NYSEG's revenues by approximately $155 million and reduce NYSEG's
after-tax net income by approximately $96.3 million, roughly equivalent to
the approximately $99.6 million in dividends paid to common shareholders in
1996 by NYSEG. The Offer to Purchase does not address whether, in fact,
-27-
<PAGE>
CalEnergy does plan to lower rates by 10%, and, if so, how that would
impact on the feasibility of CalEnergy's using dividend distributions from
NYSEG to pay its acquisition debt service, even if CalEnergy wished to use
distributions from NYSEG for that purpose.
(h) What will be the financial impact upon CalEnergy and its ability
to finance the acquisition of 100% of NYSEG of divesting at least portions
of its interests in certain of its current independent generating
facilities? CalEnergy states such divestitures "may be required in order
to maintain the qualifying facility status (under the Public Utility
Regulatory Policy Act of 1978)" of any remaining independent generating
facilities following CalEnergy's acquisition of more than 9.9% of NYSEG
(SEE Offer to Purchase p. 22), yet defendants disclose no information
concerning which facilities will have to be divested, what the current
profit contribution of those facilities is and what will be the magnitude
of the financial impact upon CalEnergy of making such divestitures.
(i) What are the expiration dates of CalEnergy's above-market
contracts for electricity produced by its independent generating facilities
and what are the contributions to CalEnergy's net income from such
contracts? Information in CalEnergy's Form 10-K filing for 1996 suggests
the fixed-price or other favorable price period of one of these contracts
expired in 1996, that the fixed-price or other favorable price period of
certain others of these contracts may have expiration dates as early as
August 1997 and that above-market contracts of this nature provide a
significant proportion of CalEnergy's earnings. To assess the impact on
CalEnergy's financial condition of the expiration of such
-28-
<PAGE>
contracts or the fixed-price period of such contracts, CalEnergy must
provide year-by-year information as to such expirations and their impact on
CalEnergy's earnings. In addition, as discussed more fully above in
PARA 50, CalEnergy is the subject of litigation seeking to terminate
certain of such contracts. However, none of this information is disclosed
in the Offer to Purchase.
61. CalEnergy is uniquely in a position to have knowledge or
information relating to the terms and conditions of, and the feasibility of
procuring, the potential financing for the approximately $1.9 billion purchase
price for 100% of NYSEG. CalEnergy is likewise uniquely in a position to have
knowledge of the other information omitted from the Offer to Purchase concerning
its financial position.
E. CONTRARY TO CALENERGY'S REPEATED ASSERTIONS THAT IT WELCOMES "FULL
COMPETITION" IN THE ELECTRICAL ENERGY MARKET, CALENERGY HAS
SUBSTANTIAL INTERESTS IN CONTINUED ANTICOMPETITIVE REGULATORY
PRACTICES PURSUANT TO ITS SUBSTANTIAL PURPA CONTRACTS WHICH ARE
MATERIAL TO ITS FINANCIAL CONDITION AND WHICH ARE NOT DISCLOSED
IN THE OFFER TO PURCHASE.
62. The Offer to Purchase repeatedly seeks to portray CalEnergy as
being an advocate of competition and deregulation in the electric market and
asserts that accordingly CalEnergy will be able to work closely with the NYPSC
which has launched initiatives to introduce greater competition in New York's
energy market. Thus, for example, the Offer to Purchase states:
-29-
<PAGE>
- - "CalEnergy welcomes the deregulation of the New York electric market
and views increased competition as positive and beneficial to rate
payers and the larger New York community alike. We would expect to
bring a helpful competitive focus to NYSEG's transition to such an
environment and in meeting the competitive challenges which it faces"
(p. 14);
- - "CalEnergy . . . traces its roots to the introduction of the
competitive electric generation industry within the United States and
has expanded and thrived in the competitive marketplace, both within
the U.S. and internationally" (p. 14);
- - "We anticipate . . . working closely with the New York Public Service
Commission to provide rate reductions for all NYSEG customers
following the proposed merger" (p. 14);
- - "CalEnergy welcomes the various initiatives of the Governor's office,
of the New York legislature and the New York Public Service Commission
to introduce full competition to New York's energy market. CalEnergy
fully expects that it will be able to work closely with the New York
Public Service Commission to implement rate reductions for all the
Company's customers" (p. S-8).
63. However, in truth and in fact CalEnergy has been from its
inception, and remains today, highly dependent for its profitability upon
regulatory rules which have forced utilities to enter into contracts benefiting
generating facilities owned or operated by CalEnergy or its affiliates, such as,
among others, the Saranac Agreement whereby NYSEG is significantly overcharged
for electricity. The Offer to Purchase discussion of "Certain Information
Concerning . . . CalEnergy" references only in a very general way CalEnergy's
ownership and operation of independent power production facilities (SEE Section
9 at pp. 11-12) and does not disclose (i) CalEnergy's dependence upon continued
regulation or the continuation in effect of contracts imposed by regulation to
maintain the current level of profitability of many of such facilities and (ii)
that the contracts awarded pursuant to PURPA provide a significant portion of
CalEnergy's
-30-
<PAGE>
profits. In addition, the Offer to Purchase contains only an oblique statement
that "certain partial dispositions may be required in order to maintain the
qualifying facility status (under the Public Utility Regulatory Policy Act of
1978) of certain of CalEnergy's independent generating facilities following its
acquisition of more than 9.9% of [NYSEG]" (p. 22), a statement which in no way
identifies, describes or quantifies the importance to CalEnergy of its
continuing to receive the benefit of continued regulation perpetuating its
favorable PURPA contracts.
64. Information concerning the magnitude of CalEnergy's substantial
interests in PURPA contracts would be material to NYSEG's shareholders in
determining whether to tender into the 9.9% offer, whether to sell into the open
market or whether to maintain their shareholdings and neither tender nor sell at
this time. Among other things, information on these matters bears upon the
validity of CalEnergy's efforts to portray itself as an advocate of competition
and deregulation as that may be relevant to a shareholder's evaluation of the
likelihood of CalEnergy securing regulatory approvals, and information on these
matters also bears upon the feasibility of CalEnergy financing an acquisition of
100% of the shares of NYSEG at a price of $27.50 per share in cash.
65. The material facts concerning CalEnergy's substantial interests in
PURPA contracts are uniquely within the knowledge of CalEnergy.
-31-
<PAGE>
F. DEFENDANTS' FAILURE TO DISCLOSE THE ADVERSE
CONSEQUENCES TO NYSEG OF CALENERGY
ACQUIRING THE 9.9% STAKE IT INITIALLY SEEKS.
66. The Offer to Purchase makes no disclosure of the potential adverse
consequences to NYSEG and its shareholders other than CalEnergy of CalEnergy's
purchase of 9.9% of NYSEG's shares pursuant to the Offer to Purchase. These
material adverse consequences include:
(i) The potential for CalEnergy to utilize a 9.9% share position to
exert pressure upon NYSEG in relation to NYSEG's litigation or
negotiation efforts to modify the onerous terms of the Saranac
Agreement pursuant to which CalEnergy's Saranac subsidiary has been
profiting at the expense of NYSEG shareholders and ratepayers.
(ii) Under current law, with 9.9% of NYSEG's shares, CalEnergy will as a
practical matter be in a position to block strategic options for
enhancing shareholder value, such as a stock-for-stock pooling of
interests merger, which CalEnergy with 9.9% of NYSEG's shares could
block if even just one-tenth of 1% of the other shareholders of
NYSEG joined with CalEnergy, irrespective of how advantageous to
the shareholders of NYSEG other than CalEnergy such a
stock-for-stock pooling of interests merger might be.
(iii) The potential for CalEnergy to utilize a 9.9% share position to
exert pressure upon NYSEG in relation to other strategic options
for enhancing shareholder value as to
-32-
<PAGE>
which CalEnergy's own interests may diverge from the interests of
other NYSEG shareholders. Among other things, if NYSEG were to
pursue any kind of transaction that would require the approval
under New York law and NYSEG's Charter and By-laws of the holders
of two-thirds of the outstanding shares of common stock NYSEG, if
CalEnergy were the owner of 9.9% of the outstanding common stock of
NYSEG, NYSEG would need to obtain the approval of 74% of the shares
of common stock not owned by CalEnergy in order to pursue such
transaction.
67. The foregoing material adverse consequences of CalEnergy
purchasing 9.9% of NYSEG's shares pursuant to the Offer to Purchase would be
material to NYSEG shareholders in determining whether to tender into the 9.9%
offer, whether to sell into the open market or whether to maintain their
shareholdings and neither tender nor sell at this time.
68. Based on the facts alleged above in this Complaint, including but
not limited to the personal involvement of CalEnergy executives in discussions
relating to the Saranac Agreement and CalEnergy's professed desire to obtain
control of NYSEG, it is reasonable to infer that defendants have knowledge of
the potential material adverse consequences to shareholders of NYSEG other than
CalEnergy of CalEnergy's purchase of 9.9% of NYSEG's shares.
-33-
<PAGE>
G. CALENERGY'S REPRESENTATIONS CONCERNING CALENERGY'S
ABILITY TO OBTAIN CONTROL OF THE NYSEG BOARD THROUGH
REMOVAL OF THE BOARD BY MEANS OF A CONSENT SOLICITATION
OR PROXY CONTEST ARE MISLEADING.
69. In a conference call with certain securities industry personnel on
July 15, 1997, CalEnergy's Sokol represented that under NYSEG's charter and
by-laws "only a majority" vote by means of a consent solicitation or proxy
contest is required "to remove the [NYSEG] board" and that CalEnergy's "lawyers
don't believe" that there is anything under New York State law that would
prevent CalEnergy from doing this.
70. However, New York Business Corporation Law Section 706(c)(1)
expressly provides that "[i]n the case of a corporation having cumulative
voting" (such as NYSEG) "no director may be removed when the votes cast against
his removal would be sufficient to elect him if voted cumulatively at an
election at which the same total number of votes were cast and the entire board,
or the entire class of directors of which he is a member, were then being
elected". Thus, Mr. Sokol's statement that CalEnergy could by majority vote
through a consent solicitation or proxy contest remove NYSEG's directors and
that there is nothing in New York law which would prevent this is simply untrue.
71. The Offer to Purchase is likewise misleading in referring to the
alleged potential of CalEnergy "to take actions to remove and replace the
current Board of Directors either through a consent solicitation or through a
proxy contest" if the current board of directors of
-34-
<PAGE>
NYSEG refuses to negotiate with CalEnergy (Offer to Purchase pp. 2, 16) without
in any way referring to or discussing the consequences of BCL Section
706(c)(1).
72. The true facts concerning whether (as CalEnergy's Sokol has
expressly claimed and as the Offer to Purchase implies) CalEnergy can remove the
NYSEG board by a majority vote by means of a consent solicitation or proxy
contest would be material to NYSEG shareholders in determining whether to tender
into the 9.9% offer, whether to sell into the open market or whether to maintain
their shareholdings and neither tender nor sell at this time. Among other
things, this information would affect a shareholder's evaluation of the
likelihood that CalEnergy would in fact proceed to consummate the acquisition of
100% of the shares of NYSEG and the potential time frame for such an acquisition
were CalEnergy in fact to proceed.
73. Since CalEnergy's Sokol has by his own admission consulted counsel
concerning the issue, it is reasonable to infer that CalEnergy executives have
been made aware of New York Business Corporation Law Section 706(c)(1) and the
terms of that provision.
-35-
<PAGE>
H. DEFENDANTS' FAILURE TO DISCLOSE CALENERGY'S IMPROPER USE OF CONFIDENTIAL
INFORMATION AND THE DISCUSSIONS BETWEEN NYSEG AND CALENERGY WITH RESPECT
TO THE SARANAC AGREEMENT AND THE GAS JOINT VENTURE.
74. The Offer to Purchase is completely silent with regard to the
Saranac Agreement, discussions between NYSEG and CalEnergy with respect to
the Saranac Agreement and discussions with respect to the Gas Joint Venture,
even though disclosure of all of these matters was required pursuant to
Schedule 14D-1 Items 10(a) and 10(f) as well as Section 14(e) of the
Exchange Act.
75. The material facts concerning CalEnergy's improper use of
confidential information and the discussions between NYSEG and CalEnergy with
respect to the Saranac Agreement and the Gas Joint Venture would be material
to NYSEG shareholders in determining whether to tender into the 9.9% offer,
whether to sell into the open market, or whether to maintain their
shareholdings and neither tender nor sell at this time. Among other things,
such matters bear upon a shareholder's evaluation of the integrity of
CalEnergy's management and the likelihood of CalEnergy securing regulatory
approvals.
76. CalEnergy executives have knowledge of their improper use of
confidential information and of the discussions between NYSEG and CalEnergy
with respect to the Saranac Agreement and the Gas Joint Venture because
CalEnergy executives participated personally in such matters.
-36-
<PAGE>
I. MISREPRESENTATION OF CALENERGY'S PRE-OFFER DISCUSSIONS WITH NYSEG.
77. The Offer to Purchase presents in Section 10 (at pp. 12-15) a
misleading portrayal of the discussions between representatives of CalEnergy and
NYSEG which immediately preceded the Offer to Purchase being announced by
CalEnergy. Among the misstatements and misrepresentations made in Section 10 is
the misleading omission of the fact that at the July 10, 1997 meeting Mr. Sokol
stated that he would keep management in place and would be willing to offer Mr.
von Schack a management contract or consulting arrangement; and that Mr. Sokol
further commented that he did not intend to run the combined companies
indefinitely and that Mr. von Schack might assume that role.
78. The true facts concerning CalEnergy's pre-offer discussions with
NYSEG would be material to NYSEG shareholders in determining whether to tender
into the 9.9% offer, whether to sell on the market, or whether to maintain their
shareholdings and neither tender nor sell at this time. Among other things,
such matters bear upon a shareholder's evaluation of the integrity of
CalEnergy's management and the likelihood of CalEnergy securing regulatory
approvals.
79. CalEnergy has knowledge of the matters omitted because CalEnergy's
Sokol personally participated in the July 10, 1997 meeting referenced in the
Offer to Purchase.
-37-
<PAGE>
J. DEFENDANTS' FAILURE TO DISCLOSE THE CONSEQUENCES OF ANY IMPEDIMENTS TO
CALENERGY REINCORPORATING IN NEW YORK.
80. The Offer to Purchase states that CalEnergy intends to
reincorporate in New York (SEE Offer to Purchase pp. 14 S-8), but does not
disclose: (i) the purpose of such reincorporation in New York, or (ii) whether
the purpose of such reincorporation in New York is to evade the need for
CalEnergy to register as a public utility holding company under the Public
Utility Holding Company Act of 1935, as amended. Nor do defendants disclose the
facts concerning the steps CalEnergy must take in order to change its state of
incorporation, such as whether a vote of CalEnergy shareholders is required and,
if so, (i) whether certain CalEnergy shareholders have objected in the past to
CalEnergy's acquisition strategies as being imprudent and ill advised, and (ii)
whether Kiewit Energy Company, the beneficial holder of 31.35% of CalEnergy's
common stock, has agreed to support the efforts of CalEnergy's management to
acquire NYSEG.
81. The facts with regard to the purpose for CalEnergy's
reincorporation in New York, and the steps CalEnergy must take in order to
change its state of incorporation, would be material to NYSEG shareholders in
determining whether to tender into the 9.9% offer, whether to sell into the open
market or whether to maintain their shareholdings and neither tender nor sell at
this time. Among other things, such matters bear upon a shareholder's
evaluation of the likelihood of CalEnergy securing regulatory approvals and the
likelihood that CalEnergy will in fact be able to proceed with its planned
acquisition.
-38-
<PAGE>
82. Since CalEnergy executives have set forth in the Offer to Purchase
that CalEnergy intends to incorporate in New York, it is reasonable to infer
that they know the true purpose of such reincorporation and are familiar with
the steps CalEnergy must take in order to accomplish such change in its state of
incorporation. Further, in view of their positions with CalEnergy, it is
reasonable to infer that senior CalEnergy executives are familiar with the
positions of other shareholders of CalEnergy, including the position of Kiewit
Energy Company.
* * *
83. By reason of the foregoing, defendants have violated and, unless
enjoined, will continue to violate, Section 14(d) of the Exchange Act and the
rules and regulations promulgated thereunder.
84. Defendants' foregoing materially false and misleading statements
and omissions constitute a fraudulent, manipulative, or deceptive act or
practice, and therefore are in violation of Section 14(e) of the Exchange Act
and the rules and regulations promulgated thereunder. Such unlawful acts or
practices will continue unless enjoined.
85. NYSEG's shareholders need adequate information to decide what to
do with respect to their shares: (1) do they want to sell their shares on the
open market?; (2) do they want to tender their shares pursuant to the Tender
Offer?; or (3) do they want to continue to hold their
-39-
<PAGE>
NYSEG shares? NYSEG shareholders are unable to make an informed decision at
this time, given CalEnergy's inadequate and misleading disclosures as set forth
above.
86. NYSEG has no adequate remedy at law and will suffer irreparable
injury absent the intervention of this Court in that, among other things, NYSEG
will suffer the consequences described above at PARAPARA 66-68 if CalEnergy
acquires the 9.9% stake it initially seeks through the Tender Offer.
WHEREFORE:
I. Plaintiff demands judgment against defendant CalEnergy on Count I
as follows:
A. Preliminarily and permanently enjoining defendant CalEnergy, its
directors, officers, employees, agents, affiliates, subsidiaries, and all other
persons acting in concert with or on behalf of any of them, directly or
indirectly, from:
1. Using or disclosing confidential information received from or
concerning NYSEG for any purpose, including in connection with any effort
to acquire control of NYSEG;
2. Taking any further action to pursue the Tender Offer or any other
steps in furtherance of a takeover of NYSEG;
-40-
<PAGE>
3. Otherwise using or attempting to use any NYSEG security for the
purpose of advancing the interests of CalEnergy or any subsidiary or
affiliate thereof, including but not limited to with respect to any
interest under the Saranac Agreement;
4. Voting, in person or by proxy, any NYSEG security;
5. Exercising or attempting to exercise any influence upon the
management of NYSEG, including but not limited to with respect to the
Saranac Agreement;
6. Taking any other steps in furtherance of any plan to acquire NYSEG
or to obtain control of the Board of Directors of NYSEG.
B. Requiring CalEnergy and its affiliates and subsidiaries to divest
of any and all NYSEG securities acquired while CalEnergy was in possession of
confidential information of NYSEG.
C. Granting plaintiff NYSEG such other and further relief as this
Court may deem just and proper.
D. Granting plaintiff NYSEG its costs and disbursements of this
action, including its attorney's fees.
-41-
<PAGE>
II. Plaintiff demands judgment against defendant CalEnergy on Count II
as follows:
A. Preliminarily and permanently enjoining defendant CalEnergy, its
directors, officers, employees, agents, affiliates, subsidiaries, and all other
persons acting in concert with or on behalf of any of them, directly or
indirectly, from:
1. Using or disclosing confidential information received from or
concerning NYSEG for any purpose, including in connection with any effort
to acquire control of NYSEG;
2. Taking any further action to pursue the Tender Offer or any other
steps in furtherance of a takeover of NYSEG;
3. Otherwise using or attempting to use any NYSEG security for the
purpose of advancing the interests of CalEnergy or any subsidiary or
affiliate thereof, including but not limited to with respect to any
interest under the Saranac Agreement;
4. Voting, in person or by proxy, any NYSEG security;
5. Exercising or attempting to exercise any influence upon the
management of NYSEG, including but not limited to with respect to the
Saranac Agreement;
-42-
<PAGE>
6. Taking any other steps in furtherance of any plan to acquire NYSEG
or to obtain control of the Board of Directors of NYSEG.
B. Requiring CalEnergy and its affiliates and subsidiaries to divest
of any and all NYSEG securities acquired while CalEnergy was in possession of
confidential information of NYSEG.
C. Granting plaintiff NYSEG such other and further relief as this
Court may deem just and proper.
D. Granting plaintiff NYSEG its costs and disbursements of this
action, including its attorney's fees.
III. Plaintiff demands judgment against defendants on Count III as
follows:
A. Ordering that defendants make appropriate disclosures to correct
the unlawful misleading disclosures and omissions heretofore made in their
public filings, and preliminarily and permanently enjoining defendants from
purchasing any NYSEG shares or making any tender offer for NYSEG shares or
taking any further action to pursue the Tender Offer or any other steps in
furtherance of a takeover of NYSEG unless and until such disclosures are made
and for an appropriate period following such disclosures to allow full
dissemination of such disclosures to the marketplace and to NYSEG shareholders.
-43-
<PAGE>
B. Granting plaintiff NYSEG such other and further relief as this
Court may deem just and proper.
C. Granting plaintiff NYSEG its costs and disbursements.
-44-
<PAGE>
Dated: New York, New York
August 5, 1997
WACHTELL, LIPTON, ROSEN & KATZ
By: /s/ Barbara Robbins
------------------------
Douglas S. Liebhafsky
(DL 6457)
Peter C. Hein
(PH 5279)
Barbara Robbins
(BR 7242)
Attorneys for Plaintiff
New York State Electric & Gas
Corporation
-45-
<PAGE>
Exhibit 43
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- --------------------------------------------
ROBERT HUNTLEY, on behalf of
himself and all other similarly
situated,
Plaintiff,
- against -
NEW YORK STATE ELECTRIC & GAS
CORP., WESLEY W. VON SCHACK, JAMES
A. CARRIGG, EVERETT A. GILMOUR,
WALTER G. RICH, JOSEPH J.
CASTIGLIA, PAUL L. GIOIA, BEN E.
LYNCH, ALISON P. CASARETT, JOHN M.
KEELER, ALLEN E. KINTIGH, ALTON G.
MARSHALL, LOIS B. DEFLEUR AND
RICHARD AURELIO,
Defendants.
- --------------------------------------------
Index No. 97/603927
FILING DATE: 7/30/97
Plaintiff designates
NEW YORK COUNTY
as the Place of Trial
The basis of the venue
is defendants place of
business
SUMMONS
Plaintiff's place of
residence is in Florida
TO THE ABOVE NAMED DEFENDANTS:
YOU ARE HEREBY SUMMONED to answer the complaint in this action and to
serve a copy of your answer, or, if the complaint is not served with this
summons, to serve a notice of appearance, on the Plaintiff's Attorneys within
20 days after the service of this summons, exclusive of the day of service
(or within 30 days after the service is complete if this summons is not
personally delivered to you within the State of New York); and in case of
your failure to appear or answer, judgment will be taken against you by
default for the relief demanded in the complaint.
Dated: New York, New York
July 30, 1997
GOODKIND LABATON RUDOFF
& SUCHAROW LLP
100 Park Avenue, 12th Floor
New York, New York 10017
Telephone: (212) 907-0700
<PAGE>
DEFENDANT'S ADDRESS:
NEW YORK STATE ELECTRIC & GAS CORP.
Route 13, Dryden Road
Ithaca, NY 14850
WESLEY W. VON SCHACK
c/o NEW YORK STATE ELECTRIC & GAS CORP.
Route 13, Dryden Road
Ithaca, NY 14850
JAMES A. CARRIGG
c/o NEW YORK STATE ELECTRIC & GAS CORP.
Route 13, Dryden Road
Ithaca, NY 14850
EVERETT A. GILMOUR
c/o NEW YORK STATE ELECTRIC & GAS CORP.
Route 13, Dryden Road
Ithaca, NY 14850
WALTER G. RICH
c/o NEW YORK STATE ELECTRIC & GAS CORP.
Route 13, Dryden Road
Ithaca, NY 14850
JOSEPH J. CASTIGLIA
c/o NEW YORK STATE ELECTRIC & GAS CORP.
Route 13, Dryden Road
Ithaca, NY 14850
PAUL L. GIOIA
c/o NEW YORK STATE ELECTRIC & GAS CORP.
Route 13, Dryden Road
Ithaca, NY 14850
BEN E. LYNCH
c/o NEW YORK STATE ELECTRIC & GAS CORP.
Route 13, Dryden Road
Ithaca, NY 14850
ALISON P. CASARETT
c/o NEW YORK STATE ELECTRIC & GAS CORP.
Route 13, Dryden Road
Ithaca, NY 14850
JOHN M. KEELER
c/o NEW YORK STATE ELECTRIC & GAS CORP.
Route 13, Dryden Road
Ithaca, NY 14850
-2-
<PAGE>
ALLEN E. KINTIGH
c/o NEW YORK STATE ELECTRIC & GAS CORP.
Route 13, Dryden Road
Ithaca, NY 14850
ALTON G. MARSHALL
c/o NEW YORK STATE ELECTRIC & GAS CORP.
Route 13, Dryden Road
Ithaca, NY 14850
LOIS B. DEFLEUR
c/o NEW YORK STATE ELECTRIC & GAS CORP.
Route 13, Dryden Road
Ithaca, NY 14850
RICHARD AURELIO
c/o NEW YORK STATE ELECTRIC & GAS CORP.
Route 13, Dryden Road
Ithaca, NY 14850
-3-
<PAGE>
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- ---------------------------------------
ROBERT HUNTLEY, on behalf of
himself and all others similarly
situated,
Plaintiff,
- - against -
NEW YORK STATE ELECTRIC & GAS
CORP., WESLEY W. VON SCHACK, JAMES
A. CARRIGG, EVERETT A. GILMOUR,
WALTER G. RICH, JOSEPH J.
CASTIGLIA, PAUL L. GIOIA, BEN E.
LYNCH, ALISON P. CASARETT, JOHN M.
KEELER, ALLEN E. KINTIGH, ALTON G.
MARSHALL, LOIS B. DEFLEUR and
RICHARD AURELIO,
Defendants.
- --------------------------------------
Index No.
CLASS ACTION
COMPLAINT
- ------------
Plaintiff, by his attorneys, alleges upon information and belief (said
information and belief being based, in part, upon the investigation conducted
by and through his undersigned counsel), except with respect to his ownership
of New York State Electric & Gas Corp. common stock and his suitability to
serve as a class representative, which are alleged upon personal knowledge,
as follows:
Parties
-------
1. Plaintiff Robert Huntley owns, and at all relevant time has
owned, common stock of defendant New York State Electric & Gas Corp. ("NYSEG"
or the "Company").
2. Defendant NYSEG is a corporation organized and existing under
and by virtue of the laws of the State of New York. Defendant NYSEG maintains
its principal offices
1
<PAGE>
at Ithaca, Dryden Road, P. O. Box 3287, Ithaca, New
York, which is in the State of New York.
3. Defendant Wesley W. von Schack ("von Schack") is the Chairman of
the Board, President and Chief Executive Officer of defendant NYSEG.
4. Defendants James A. Carrigg ("Carrigg"), Everett A. Gilmour
("Gilmour"), Walter G. Rich ("Rich"), Joseph J. Castiglia ("Castiglia"), Paul
L. Gioia ("Gioia"), Ben E. Lynch ("Lynch"), Alison P. Casarett ("Casarett"),
John M. Keeler ("Keeler"), Allen E. Kintigh ("Kintigh"), Alton G. Marshall
("Marshall"), Lois B. Defleur ("Defleur") and Richard Aurelio ("Aurelio") are
directors of defendant NYSEG.
5. The foregoing individuals, collectively referred to as the
"Defendant Directors," as directors and/or officers of NYSEG, owe fiduciary
duties to NYSEG and its shareholders.
CLASS ACTION ALLEGATIONS
------------------------
6. Plaintiff brings this action on his own behalf and as a class
action, pursuant to Section 901 of the CPLR, on behalf of all shareholders
of NYSEG (except defendants herein and any person, firm, trust, corporation
or other entity related to or affiliated with any of the defendants) or their
successors in interest, who have been
2
<PAGE>
or will be adversely affected by the conduct of defendants alleged herein.
7. This action is properly maintainable as a class action for the
following reasons:
(a) The class of shareholders for whose benefit this action is
brought is so numerous that joinder of all class members is impracticable. As
of July 11, 1997, there were over 68.5 million shares of defendant NYSEG's
common stock outstanding, believed to be owned by thousands of shareholders
of record, scattered throughout the United States and foreign countries.
(b) There are questions of law and fact which are common to
members of the class which predominate over any questions affecting any
individual members. The common questions include, inter alia, the following:
(i) Whether the defendants have engaged in a plan and
scheme to enrich and/or entrench themselves at the expense of NYSEG's public
shareholders;
(ii) Whether the Defendant Directors have breached
fiduciary duties owed by them to plaintiff and members of the class, and/or
have aided and abetted in such breach, by virtue of their participation
and/or acquiescence and by their other conduct complained of herein;
(iii) Whether the Defendant Directors have wrongfully
failed and refused to seek a purchaser of NYSEG at the highest possible price
and instead, have failed
3
<PAGE>
to give serious consideration to the cash merger proposal and/or securities
made by CalEnergy Company, Inc. ("CalEnergy") for the common stock of NYSEG;
(iv) Whether plaintiff and the other members of the class will be
irreparably damaged by the conduct and transactions complained of herein; and
(v) Whether defendants have breached or aided and abetted the
breach of the fiduciary and other common law duties owed by them to plaintiff
and the other members of the Class.
8. Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. The claims of
plaintiff are typical of the claims of the other members of the class and
plaintiff has the same interest as the other members of the class.
Accordingly, plaintiff is an adequate representative of the class and will
fairly and adequately protect the interests of the class.
9. Plaintiff anticipates that there will not be any difficulty in the
management of this litigation.
10. For the reasons stated herein, a class action is superior to other
available methods for the fair and efficient adjudication of this action.
4
<PAGE>
SUBSTANTIVE ALLEGATIONS
11. Defendant NYSEG generates, purchases, transmits and distributes
electricity and natural gas in central, eastern and western New York.
12. On July 1, 1997, it was reported that CalEnergy began acquiring NYSEG
common stock on the open market. NYSEG stock rose $0.125 from $20.875 to $21
per share.
13. Soon thereafter, on Thursday, July 10, 1997, the Chairman and Chief
Executive Officer of CalEnergy, David L. Sokol, met with defendant Wesley von
Schack to discuss the possibility of a "business combination" between NYSEG
and CalEnergy. Stock closed up $0.0625 from $21.50 to $21.5625.
14. On July 12, 1997, von Schack telephoned Mr. Sokol to inform him that the
Board of Directors met the previous day and determined that discussions of a
possible merger opportunity with CalEnergy were not a priority and could not
be conducted within the time frame outlined by Mr. Sokol at their July 10
meeting. Stock remained unchanged the next trading day, closing at $21.375.
15. On July 15, 1997, CalEnergy announced its intention to commence a cash
tender offer for at least 6,540,670 shares, or approximately 9.9%, of NYSEG
common stock at a price of $24.50 per share, a 14.6% premium from the $21.375
previous closing price.
-5-
<PAGE>
16. In a letter dated July 15, 1997, from Mr. Sokol to defendant von Schack,
CalEnergy expressed interest in commencing negotiations to enter into a
consensual merger agreement and indicated that CalEnergy would be willing to
pay $27.50 in cash for each outstanding share of NYSEG common stock, and a
premium of 31.74% above the $20.875 NYSEG unaffected closing price of June
30, 1997, the day immediately preceding the date on which CalEnergy commenced
open market purchases of NYSEG common stock. Mr. Sokol also offered to
negotiate on the basis of stock-for-stock or any other form of consideration
that NYSEG's shareholders would find preferable, Mr. Sokol further stated:
We believe that our cash merger proposal, which reflects a
substantial premium over NYSEG's current market value,
represents a full and fair price for your shareholders.
Moreover, our proposal would permit your shareholders to
realize this substantial cash value notwithstanding the
significant uncertainties facing NYSEG and its business day.
17. It is likely that CalEnergy's opening offer of $27.50 in cash is merely
a starting point for purposes of commencing merger negotiations and that
there is room for this figure to go even higher, providing an even higher
premium for NYSEG's shareholders.
18. On July 15, 1997, NYSEG stock closed at $24.5625, after having earlier
reached a fifty-two week high of $25.
-6-
<PAGE>
19. Defendants' failure to give full, prompt and serious consideration to
CalEnergy's offer of $27.50 per share in cash, after previously indicating an
interest in discussing a business combination of the two companies,
represents an attempt to aggrandize their personal and financial positions
and interests while enriching themselves at the expense of and to the
detriment of the public shareholders of the Company.
20. Defendants, acting in concert, have violated their fiduciary duties owed
to the public shareholders of NYSEG and put their personal interests ahead of
the interests of the NYSEG public shareholders abusing their control
positions as officers and directors of NYSEG all as alleged herein, and all
for the purpose of reaping high personal profits at the expense of NYSEG's
public shareholders.
21. The Defendant Directors failed to (1) undertake an adequate evaluation
of NYSEG's worth as a potential merger/acquisition candidate; (2) take
adequate steps to enhance NYSEG's value and/or attractiveness as a
merger/acquisition candidate; (3) effectively expose NYSEG to the marketplace
in an effort to create an active and open auction for NYSEG, (4) give full
and serious consideration to offers made to merge or acquire NYSEG for a
substantial premium; or (5) act independently so that the interests of public
shareholders would be protected. Instead, defendants
-7-
<PAGE>
have failed to meaningfully consider a cash value representing a significant
premium over the current trading price of NYSEG common stock in an effort to
entrench themselves and maintain their current positions, in violation of
their fiduciary duties to NYSEG's public shareholders.
22. These tactics pursued by the defendants are, and will continue to be,
wrongful, unfair and harmful to NYSEG's public shareholders, serve no
legitimate business purpose of NYSEG, and are an attempt by the defendants to
aggrandize their personal positions, interests and finances at the expense of
and to the detriment of the public stockholders of NYSEG. These maneuvers by
the defendants will deny members of the class their right to receive the
highest value for their shares of NYSEG common stock.
23. In contemplating, planning and/or doing the foregoing specified acts,
the defendants are not acting in good faith toward plaintiff and have
breached, and are breaching, their fiduciary duties to plaintiff.
24. Because the Defendant Directors (and those acting in concert with them)
dominate and control the business and corporate affairs of NYSEG and because
they are in possession of private corporate information concerning NYSEG's
businesses and future prospects, there exists an imbalance and disparity of
knowledge and economic power between the defendants and the public
shareholders of NYSEG
-8-
<PAGE>
which makes it inherently unfair to NYSEG's public shareholders.
25. By reason of the foregoing acts, practices and course of conduct,
the Defendant Directors have failed to use due care and diligence in the
exercise of their fiduciary obligations toward NYSEG and its public
shareholders.
26. The acts complained of here above were willful, malicious and
oppressive, in that the defendants, knew that their actions as complained of
herein, involve improper and illegal practices, violations of law and other
acts completely alien to the duties of officers and directors to carry out
corporate affairs in a just, honest and equitable manner. By reason of the
foregoing, the class is entitled to exemplary damages determined through a
proper process to maximize shareholder value.
27. As a result of the actions of the defendants, plaintiff and the
class have been and will be damaged in that they have been and will be
prevented from obtaining a price for their shares of NYSEG common stock
determined through a proper process to maximize shareholder value.
28. Unless enjoined by this Court, the Defendant Directors will
continue to breach their fiduciary duties owed to plaintiff and the class,
and will exclude the class from receiving fair value for the proportionate
share of
-9-
<PAGE>
NYSEG's valuable assets and businesses, all to the irreparable harm
of the class, as aforesaid.
29. Plaintiff has no adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
A. Declaring that this action may be maintained as a class action pursuant
to CPLR 901 et seq.;
B. Declaring that defendants' conduct is unfair, unjust and inequitable to
plaintiff end other members of the class;
C. Directing defendants to take appropriate steps to investigate all bona
fide offers and alternatives for maximizing shareholder value;
D. Requiring defendants to compensate plaintiff and the members of the
class for all losses and damages suffered and to be suffered by them as a
result of the acts and transactions complained of herein, together with
prejudgment interest from the date of the wrongs to the date of the judgment
herein;
E. Awarding plaintiff the costs and disbursements of this action, including
reasonable attorneys', accountants' and experts' fees; and
-10-
<PAGE>
F. Granting such other and further relief as may be just and proper.
Dated: New York, New York
July 30, 1997
GOODKIND LABATON RUDOFF
& SUCHAROW LLP
100 Park Avenue
New York, NY 10017-5563
(212) 907-0700
Attorneys for Plaintiff
-11-
<PAGE>
Exhibit 44
C 198--Summons with Notice, Supreme Court.
Personal or Substituted Service. 1-79
(C)1983 BY JULIUS BLUMBERG, INC., PUBLISHER
82 WHITE STREET, NEW YORK, N.Y. 10013
Supreme Court of the State of New York Index No. 97/114075
County of NEW YORK Plaintiff(s) designates
- -------------------------------------------------
JERRY KRIM, New York
County as the place of trial
The basis of the venue is
Plaintiff designates this
Plaintiff(s) county as the venue
against
WESLEY W. VON SCHACK, JAMES A. CARRIGG, ALISON P. Summons with Notice
CASARETT, JOSEPH J. CASTIGLIA, LOIS B. DEFLEUR,
EVERETT A. GILMOUR, PAUL L. GIOIA, JOHN M. Plaintiff(s) reside(s) at
KEELER, ALLEN E. KINTIGH, BEN E. LYNCH, ALTON 4623 North Carlin Road
G. MARSHAL and NEW YORK STATE ELECTRIC & GAS Arlington, VA 22203
CORPORATION.
Defendant(s) County of Arlington
- -------------------------------------------------
To the above named Defendant(s)
You are hereby summoned to answer the complaint in this action and to
serve a copy of your answer, or, if the complaint is not served with this
summons, to serve a notice of appearance, on the Plaintiff's Attorney(s) within
20 days after the service of this summons, exclusive of the day of service (or
within 30 days after the service is complete if this summons is not personally
delivered to you within the State of New York); and in case of your failure to
appear or answer, judgment will be taken against you by default for the relief
demanded herein.
Dated, August 4, 1997
Defendant's Address: All Defendants c/o:
NEW YORK STATE ELECTRIC & GAS
4500 Vestal Parkway East, Binghamton, NY 13902-3607
Notice: The nature of this action is
Securities Class Action alleging breach of
fiduciary duty
The relief sought is
Attorney(s) for Plaintiff(s)
Office and Post Office Address
HARVEY GREENFIELD, ESQ.
LAW FIRM OF HARVEY GREENFIELD
10 East 40th Street
New York, NY 10016
Upon your failure to appear, judgment will be taken against you by default
For the sum of $ with interest from 19
and the costs of this action.
<PAGE>
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- -------------------------------------------------
JERRY KRIM, INDEX NO.
Plaintiff, 97/114075
-against- CLASS ACTION
COMPLAINT
WESLEY W. VON SCHACK, JAMES A. CARRIGG,
ALISON P. CASARETT, JOSEPH J. CASTIGLIA,
LOIS B. DEFLEUR, EVERETT A. GILMOUR,
PAUL L. GIOIA, JOHN M. KEELER,
ALLEN E. KINTIGH, BEN E. LYNCH,
ALTON G. MARSHAL and NEW YORK STATE
ELECTRIC & GAS CORPORATION,
Defendants.
- -------------------------------------------------
Plaintiff, by his attorneys, alleges upon information and belief, except
for paragraph 2, which plaintiff alleges on personal knowledge, as follows:
1. Plaintiff bring this class action pursuant to Article 9 of the CPLR, on
behalf of themselves and all other stockholders of defendant New York State
Electric and Gas Corporation ("NYSEG" or the "Company") who are or will be
threatened with injury arising from defendants' actions as more fully described
herein.
2. Plaintiff Jerry Krim is and has been a stockholder of the Company at
all times relevant to the allegations herein.
3. NYSEG is a combination utility providing electric and gas services in
the eastern, western and central portions of New York State. NYSEG provides
electricity to 808,000 customers and gas to 238,000 customers in central and
eastern and western New York. NYSEG is incorporated in New York, with its
principal
<PAGE>
offices located at Ithaca-Dryden Rd., P.O. Box 3287, Ithaca, New York
14851-3287. The number of shares outstanding of NYSEG's common stock as of April
1, 1997, was 69,337,427. NYSEG's stock is traded on the New York Stock Exchange.
4. Defendant Wesley W. Von Schack ("Von Schack") is, and has been at all
relevant times, Chairman of the Board, President, Chief Executive Officer and a
director of the Company.
5. Defendants James A. Carrigg, Alison P. Casarett, Joseph J. Castiglia,
Lois B. DeFleur, Everett A. Gilmour, Paul L. Gioia, John M. Keeler, Allen E.
Kintigh, Ben E. Lynch and Alton G. Marshall are currently directors of NYSEG and
have been directors of NYSEG at all times relevant to this action.
6. The persons named in paragraphs 4-5 above shall be collectively
referred to herein as the "Individual Defendants.
7. By reason of their positions with the Company, the Individual
Defendants are in fiduciary relationships with Plaintiff and the other public
stockholders of the Company and owe to them the highest obligations of good
faith and fair dealing. The Individual Defendants, by reason of their corporate
dictatorships, stand in a fiduciary position relative to the Company's
shareholders, which fiduciary relationship, at all times relevant herein,
required the Individual Defendants to exercise their best judgment, and to act
in a prudent manner, and in the best interests of the Company's shareholders.
They were and are required to use their ability to control and manage the
Company in a fair, just and equitable manner; to act in furtherance of
2
<PAGE>
the best interests of the Company's shareholders; to refrain from abusing their
positions of control; and not to favor their own interests at the expense of the
Company's shareholders.
CLASS ACTION ALLEGATIONS
8. Plaintiff brings this action on his own behalf and as a class action,
pursuant to Article 9 of the CPLR, on behalf of all security holders of the
Company (except the defendants herein, members of their immediate families, and
any person, firm, trust, corporation or other entity related to or affiliated
with any of the defendants) and their successors in interest, who are or will be
threatened with injury arising from defendants' actions as more fully described
herein.
9. The class is so numerous that joinder of all members is impracticable.
The number and identity of the members of the class of NYSEG securities can be
ascertained from the books and records of the Company and/or its agents. The
members of the class are scattered throughout the United States.
10. There are questions of law and fact which are common to the class and
which predominate over questions affecting any individual class member. The
common questions include, inter alia, the following:
(a) whether defendants have breached their fiduciary duties by
engaging in concerted and continual action to entrench themselves in their
lucrative positions at the expense of NYSEG's public stockholders;
3
<PAGE>
(b) whether defendants are unlawfully impeding possible takeover
attempts at the expense of NYSEG's public stockholders;
(c) whether defendants have failed and will fail to negotiate in
good faith with prospective purchasers of the Company; and
(d) whether Plaintiff and the other members of the class would be
irreparably damaged were the defendants not enjoined from the conduct described
hereinbelow.
11. Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. The claims of the
Plaintiff are typical of the claims of the other members of the class and
Plaintiff has the same interests as the other members of the class. Plaintiff is
an adequate representative of the class and will fairly and adequately protect
the interests of the class.
12. The likelihood that individual members of the class will prosecute
separate individual actions is remote due to the burden and expense of
prosecuting litigation of this nature and magnitude. Plaintiff anticipates that
there will not be any difficulty in the management of this litigation.
13. For the reasons stated herein, a class action is superior to other
available methods for the fair and efficient adjudication of the controversy and
the requirements are satisfied.
4
<PAGE>
SUBSTANTIVE ALLEGATIONS
14. On July 10, 1997, David L. Sokol ("Sokol"), the Chairman and Chief
Executive Officer of CalEnergy Company, Inc. ("CalEnergy") met with Wesley W.
Von Schack, the Chairman, President and Chief Executive Officer of NYSEG to
discuss the possibility of a business combination between NYSEG and CalEnergy.
15. Subsequent to that meeting, Von Schack called Sokol to inform him that
the Board of Directors of NYSEG, at a meeting on July 11, 1997, had determined
that discussions of this opportunity were not a priority and could not be
conducted on the timely basis which Sokol had outlined in their meeting.
16. On July 15, 1997, CalEnergy stated it would launch a hostile $159
million bid for 9.9 percent of NYSEG in the first step of an effort to buy the
whole utility. CalEnergy offered to buy the stake for $24.50 per share in cash
and said it would be willing to raise the offer to $27.50 per share for all of
the stock if NYSEG agreed to a friendly bid. This cash price represents a
premium of 31.74% above the NYSEG $20-7/8 per share closing price on June 30,
1997 (the day immediately preceding the day on which CalEnergy first commenced
our open market purchases of NYSEG Common Stock). The higher offer would be
worth $1.9 billion.
17. CalEnergy stated that it made the offer after preliminary discussions
of a possible merger were not received warmly by NYSEG's board of directors.
Sokol stated it was
5
<PAGE>
prepared to launch an aggressive attack on NYSEG and would pursue a proxy fight
if necessary. He also stated that CalEnergy has $2 billion in financing
committed for the deal.
18. On July 18, 1997, CalEnergy announced that is wholly owned subsidiary
CE Electric (NY), Inc. has formally commenced a cash tender offer for 6,540,670
common shares of NYSEG at a price of $24.50 per share.
19. On July 30, 1997, NYSEG announced that the Individual Defendants have
recommended that shareholders reject CalEnergy's unsolicited tender offer to
purchase 9.9% of NYSEG's common shares for $24.50 per share in cash. The
Individual Defendants have also decided to reject CalEnergy's proposal to
commence negotiations for a transaction in which CalEnergy would acquire all of
NYSEG at $27.50 per share.
20. The Individual Defendants have also approved and amended various
'Golden Parachute' severance agreements providing for $52 million in payments to
numerous NYSEG senior executives.
21. These severance agreements provide, among other things, that select
NYSEG executives are entitled to collect their 'Golden Parachute' payments
simply by resigning following the acquisition of NYSEG by CalEnergy, if, for
example, these executives assert that their status is altered merely due to the
fact that NYSEG is no longer a public company. The 'Golden Parachutes' also
provide that this $52 million in payments have already been prefunded into an
escrow account held solely for these executives and board members.
6
<PAGE>
22. On July 30, 1997, David L. Sokol, Chairman and Chief Executive Officer
of CalEnergy, said, "Frankly it defies logic that NYSEG would summarily dismiss
our cash premium offer when, during one of the biggest bull-markets this country
has ever seen, its shareholders have suffered through a 32% decline in the price
of their NYSEG stock from July 31, 1992 to June 30, 1997 and a dividend cut in
1994. One can only conclude that the board and management of NYSEG are
attempting to preserve their own self interest given that they have not even
taken the trouble to discuss the terms of our cash merger proposal with us and
apparently don't believe that soliciting the views of their own shareholders is
important. We believe NYSEG shareholders deserve better."
23. On July 31, 1997, CalEnergy announced that it has sued NYSEG in state
court for denying the NYSEG shareholder list to CE Electric, a subsidiary of
CalEnergy and a substantial NYSEG shareholder. CE Electric requested the
shareholder list in order to facilitate communications with other shareholders
of NYSEG regarding the affairs of NYSEG, including: the tender offer commenced
by CE Electric and CalEnergy on July 18, 1997; the proposal by CalEnergy to
acquire NYSEG in a consensual merger; and the conducting of a possible consent
or proxy solicitation, if CalEnergy determines to do so.
24. The Individual Defendants have breached their fiduciary duties by
reason of the acts and transactions complained of herein, including their
refusal to negotiate the
7
<PAGE>
possible acquisition of NYSEG and to provide confidential information.
25. Plaintiff and the other members of the class have been and will be
damaged in that they have not and will not receive their fair proportion of the
value of NYSEG's assets and businesses, and have been and will be prevented from
obtaining a fair price for their shares of the Company's common stock.
26. Unless enjoined by this Court, the Individual Defendants will continue
to breach their fiduciary duties owed to plaintiff and the other members of the
class, and will entrench themselves in their corporate offices, all to the
irreparable harm of the class, as aforesaid.
27. Plaintiff and the other members of the class have no adequate remedy
at law.
WHEREFORE, Plaintiff prays for judgment and relief against defendants and
each of them as follows:
A. Declaring this action to be a proper class action and certifying the
Plaintiffs as class representatives;
B. Offering the Individual Defendants to carry out their fiduciary duties
to plaintiff and the other members of the class by announcing their intention
to:
1. cooperate fully with any person or entity, having a bona fide
interest in proposing any transaction which would maximize shareholder value,
including, but not limited to, a buyout or takeover of the Company;
8
<PAGE>
2. undertake an appropriate evaluation of NYSEG's worth as a
merger/acquisition candidate;
3. take all appropriate steps to enhance NYSEG's value and
attractiveness as a merger/acquisition candidate;
4. take all appropriate steps to effectively expose NYSEG to the
marketplace in an effort to create an active auction for NYSEG;
5. act independently so that the interests of NYSEG'S public
stockholders will be protected; and
6. adequately ensure that no conflicts of interest exist between
Individual Defendants' own interest and their fiduciary obligation to maximize
stockholder value or, if such conflicts exist, to ensure that all conflicts are
resolved in the best interests of NYSEG's public stockholders;
C. Ordering the Individual Defendants to carry out their fiduciary duties
to plaintiffs and the class and requiring them to respond in good faith to any
bona fide potential acquirers of NYSEG;
D. Awarding Plaintiff the costs and disbursements of this action and
reasonable attorneys' and expert's fees; and
E. Granting such other and further relief as the Court deems just and
proper.
Dated: August 4, 1997
LAW FIRM OF HARVEY GREENFIELD
10 East 40th Street,
New York, NY 10016
(212) 679-0600
9
<PAGE>
STULL, STULL & BRODY
6 East 45th Street
New York, New York 10017
(212) 687-7230
Attorneys for Plaintiff
10
<PAGE>
Exhibit 45
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF TOMPKINS
- --------------------------------------X
In the Matter of the Application of
CE ELECTRIC (NY), INC., :
Index No. 97-841
Petitioner, : RJI No. 970526M
--against-- :
VERIFIED PETITION
NEW YORK STATE ELECTRIC : Hon. Walter S. Relihan, Sr.
& GAS CORPORATION,
:
Respondent, Filed: July 31, 1997
:
For Order Pursuant to
Article 78, CPLR. :
- --------------------------------------X
PRELIMINARY STATEMENT
Petitioner CE Electric (NY), Inc. ("Petitioner"), a record holder of the
common stock of respondent New York State Electric & Gas Corporation (the
"Company"), institutes this proceeding to compel the respondent Company to
provide Petitioner, by its designated agents or attorneys, with access to
inspect and copy the respondent Company's books of account and its stock ledger
containing the name and address of each shareholder, the account number of each
such shareholder, the number of shares of common stock held by each such
shareholder, and certain related materials. Despite Petitioner's timely and
proper demand, the respondent Company has failed to provide access to such
materials.
The Respondent Company's failure to provide the stockholder list and
related materials to which Petitioner is entitled arises in the context of a
pending tender offer by Petitioner and its affiliates for shares of the Company
which is scheduled to expire at midnight on August 14, 1997 and a proposal
<PAGE>
by Petitioner and its affiliates to acquire the Company in a consensual merger.
On July 30, 1997, the respondent Company publicly recommended to its
shareholders that they not tender their shares to Petitioner and also announced
the Company's board of directors had decided to reject the proposal to commence
merger negotiations. Thus, by refusing to provide the shareholder list and
related materials to which Petitioner is entitled by law, the respondent Company
is engaging in a tactic designed to prevent Petitioner from fully and fairly
communicating with shareholders in a manner of its own choosing about why,
contrary to the Company's view, they should tender their shares and encourage
management to negotiate a merger with Petitioner and its affiliates, despite the
misinformation being disseminated by the Company with respect to those issues.
Given the August 14, 1997 expiration date of the tender offer, it is vital that
the Court direct that Petitioner be given access to the requested materials
immediately.
NATURE OF PROCEEDING
1. Petitioner brings this proceeding pursuant to Article 78 of the Civil
Practice Law and Rules ("CPLR") and the common law of the State of New York (the
"Common Law").
2. The respondent Company has failed, despite timely and proper written
demand, to permit an inspection of the Company's record of shareholders, as
required by the Common Law, entitling Petitioner to an order directing the
Company to show cause why an order shall not be granted immediately permitting
such inspection by Petitioner.
-2-
<PAGE>
PARTIES
3. Petitioner, a corporation organized under the laws of the State of New
York, is and has been at all relevant times a record holder of the common stock,
par value $6.66-2/3 per share, of the Company. Petitioner maintains an office
in Plattsburgh, New York, and has its principal executive offices at 302 South
36th Street, Suite 400, Omaha, Nebraska.
4. The Company is a corporation organized under the laws of the State of
New York, with its principal office in Tompkins County. The Company's principal
executive offices are located in Ithaca, New York. The Company also maintains
executive offices in Binghamton, New York.
PETITIONER'S RIGHT TO RELIEF
5. On July 22, 1997, Petitioner sent to the Company, via facsimile and
Federal Express, its written demand (the "Demand Letter"), demanding the right
to inspect and copy the Company's books of account and its stock ledger
containing the name and address of each shareholder, the account number of each
such shareholder, and the number of shares of common stock held by each such
shareholder, together with certain related materials (the "Shareholder
Records"). A copy of the Demand Letter is annexed hereto as Exhibit A.
6. The Demand Letter stated in part:
This demand for inspection is being made in good faith, for a lawful,
proper and valid purpose; not for any purpose inimical to the Company
or its shareholders. The purpose of this demand is to facilitate
communications with other shareholders of the Company regarding the
affairs of the Company, including the tender offer by [Petitioner]
and CalEnergy Company Inc. ("CalEnergy"), a corporate affiliate of
[Petitioner], commenced on July 18, 1997; the proposal by
-3-
<PAGE>
CalEnergy to acquire the Company in a consensual merger (the
"Proposal"); and a possible consent or proxy solicitation to remove
and replace the directors of the Company.
The inspection demanded is not for a purpose in the interest of
a business or object other than the business of the Company.
[Petitioner] has not sold or offered for sale any list of shareholders
of any corporation of any type or kind, whether or not formed under
the laws of the State of New York, or aided or abetted any person
in procuring any such record of shareholders for any such purpose.
7. In support of its demand for inspection, Petitioner sent respondent
Company an Affidavit of Proper Purpose, executed by Steven A. McArthur, Senior
Vice President and General Counsel of the Petitioner, on July 22, 1997, as an
attachment to its Demand Letter. See Exhibit A.
8. As detailed in its Demand Letter and accompanying Affidavit of Proper
Purpose, Petitioner seeks the demanded information in order to communicate with
fellow shareholders concerning the affairs of the Company. In particular,
Petitioner seeks the demanded information in order to communicate with its
fellow shareholders in a manner of its own choosing regarding, inter alia, the
tender offer by Petitioner and CalEnergy Company Inc. ("CalEnergy"), a corporate
affiliate of Petitioner, which was commenced on July 18, 1997 and which expires
at midnight on August 14, 1997 (the "Tender Offer"). Likewise, Petitioner seeks
to communicate directly and more efficiently with its fellow shareholders
concerning the proposal by CalEnergy to acquire the Company in a consensual
merger. Moreover, Petitioner is entitled to the demanded information in order to
communicate with its fellow shareholders so as to enable it to conduct a
consent solicitation or proxy contest to remove and replace the directors
-4-
<PAGE>
of the Company if it determines to do so. A copy of Petitioner's Offer to
Purchase, which expires at midnight on August 14, 1997, is annexed hereto as
Exhibit B.
9. Petitioner, in its Demand Letter, informed the Company that Petitioner
will bear the reasonable costs of obtaining and furnishing the records requested
thereby, and will promptly reimburse the Company for any such costs incurred
by the Company.
10. Petitioner is a record holder of the Company's common stock and was so
at the time Petitioner delivered its Demand Letter and accompanying Affidavit of
Proper Purpose. An affiliate of the Petitioner also holds an additional 241,000
shares of the Company's common stock.
11. Under well-established Common Law, a shareholder of a corporation
organized under the laws of the State of New York is entitled to access to
inspect and copy the corporation's books of account and its stock ledger
containing the name and address of each shareholder, the account number of each
such shareholder, the number of shares of common stock held by each such
shareholder, together with related materials such as those requested in the
Demand Letter, provided that the information is sought for a proper purpose.
12. Under New York law, courts have consistently held purposes such as
those identified by the Petitioner in its Demand Letter to be proper purposes.
13. Since July 22, 1997 when the Demand Letter was received, the
respondent Company has refused and failed to make
-5-
<PAGE>
the Shareholder Records sought in the Demand Letter available to Petitioner,
despite Petitioner's entitlement to inspect and copy such information under the
Common Law.
14. Petitioner has no adequate remedy at law.
15. No prior application has been made for the relief sought herein.
RELIEF SOUGHT
WHEREFORE, Petitioner applies for an order of this Court:
(1) compelling the respondent Company immediately to permit Petitioner to
inspect, copy and make extracts from the record of shareholders of the
respondent Company and to furnish Petitioner with the materials listed below:
(a) A complete record or list of the shareholders of the Company,
certified by the Company or its transfer agent, showing the names and
addresses of each shareholder, the account number of each such
shareholder, and the number and class of shares of stock registered in the
name of each such shareholder, as of the most recent date available;
(b) A complete record or list of the shareholders participating in
any employee benefit plan, or other comparable plan, of the Company,
certified by the Company or its transfer agent, showing the name and
address of each participating shareholder, the number and class of shares
owned by such participating shareholder, and a description of the voting
and
-6-
<PAGE>
dispositive rights of the participating shareholders and/or any
administrator or trustee of each such employee benefit plan or other
comparable plan;
(c) A magnetic computer tape list of the shareholders referred to in
paragraph (a), showing the names and addresses of each shareholder, the
account number of each such shareholder, and number and class of shares of
stock registered in the name of each such shareholder, as of the most
recent date available, such computer processing data as is necessary to
make use of such magnetic computer tape, and a printout of such magnetic
computer tape for verification purposes;
(d) A magnetic computer tape list of the participating shareholders
referred to in paragraph (b), showing the names and addresses of each
participating shareholder, the account number of such participating
shareholder, and the number and class of shares of stock owned by each
such participating shareholder, as of the most recent date available, such
computer processing data as is necessary to make use of such magnetic
computer tape, and a printout of such magnetic computer tape for
verification purposes;
(e) All daily transfer sheets showing changes in the lists of the
shareholders of the Company referred to in paragraphs (a) and (b) above,
showing changes in the names, addresses, account numbers, and numbers and
classes of shares of stock of the holders thereof,
-7-
<PAGE>
which are in or come into the possession or control of the Company or its
transfer agent, or which can reasonably be obtained from brokers, dealers,
banks, clearing agencies or voting trustees, or their nominees, from the
date of such list to such date as CalEnergy consummates or withdraws the
proposal (the "Proposal") to acquire the Company in a consensual merger
(the "Proposal Expiry Date"), which daily transfer sheets should be
provided on a weekly basis;
(f) All information in or which comes into the possession or control
of the Company or its transfer agent, or which can reasonably be obtained
from brokers, dealers, banks, clearing agencies or voting trustees, or
their nominees concerning the names, addresses and numbers and classes of
shares held by the participating brokers, dealers, banks, clearing
agencies or voting trustees named in the individual nominee names of Cede
& Co., Philadep, DLJ and any other or similar nominees;
(g) All information in or which comes into the possession or control
of the Company or its transfer agent, or which can reasonably be obtained
from brokers, dealers, banks, clearing agencies or voting trustees, or
their nominees, relating to the names of the non-objecting and acquiescing
beneficial owners of common stock in the Company ("NOBOs"), in the format
of a printout and magnetic tape in descending order
-8-
<PAGE>
balance (such information being readily available to the Company under
Rule 14b-l(c) or Rule l4b-2(c) of the Securities Exchange Act of 1934 from
Independent Election Corporation of America);
(h) A stop list or stop lists relating to any shares of stock of the
Company as of the date of the list referred to in paragraphs (a) and (b)
above;
(i) All information in or which comes into the possession or control
of the Company or its transfer agent, or which can reasonably be obtained
from brokers, dealers, banks, clearing agencies or voting trustees, or
their nominees concerning any change in the total number of shares of
Common Stock outstanding since the Company's filing of its Form l0-Q for
the period ended March 31, 1997;
(j) All information requested in paragraph (a), (b), (c), (d), (f),
(g) and (i) as of the Record Date (as the same may be determined) of any
consent or proxy solicitation of the Company's shareholders which
Petitioner or its affiliates may hereafter commence and any and all
omnibus proxies and respondent omnibus proxies as of the record date of
any such consent or proxy solicitation; and
(k) Notification of any modifications of, additions to, or deletions
from any and all records referred to in paragraphs (a) through (j) above,
as of the date of the lists referred to in paragraphs (a) and
-9-
<PAGE>
(b) above to the Proposal Expiry Date, be immediately furnished to those
designated and authorized by Petitioner in the Demand Letter, as such
modifications, additions or deletions become available to the Company or
its agents or representatives through the Proposal Expiry Date.
(2) granting Petitioner such additional and further relief as the Court
may deem just and proper, together with an award of Petitioner's costs and
attorneys' fees in this proceeding.
Dated: New York, New York
July 30, 1997
CE ELECTRIC (NY), INC.
By: /s/ Steven A. McArthur
---------------------------------
Steven A. McArthur
Senior Vice President and
General Counsel
PETITIONER
Of Counsel WHITEMAN OSTERMAN & HANNA
Michael Whiteman One Commerce Plaza
Heather D. Diddel Albany, New York 12260
D. Scott Bassinson (518) 487-7600
WILLKIE FARR & GALLAGHER
Stephen Greiner One Citicorp Center
Jeanne M. Luboja 153 East 53rd Street
New York, New York 10022
(212) 821-8000
Attorneys for Petitioner
CE Electric (NY), Inc.
-10-
<PAGE>
VERIFICATION
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
STEVEN A. McARTHUR, being duly sworn deposes and says:
1. I am Senior Vice President and General Counsel of CE Electric (NY),
Inc., the Petitioner herein, a corporation organized under the laws of the State
of New York, which is and has been at all relevant times a record holder of the
common stock of the New York State Electric & Gas Corporation.
2. I have read the foregoing Petition and know the contents thereof.
3. The foregoing Petition is true to my knowledge, except as to matters
stated to be alleged upon information and belief; and as to these matters, I
believe them to be true.
/s/ Steven A. McArthur
---------------------------------
Sworn to before me this
30th day of July, 1997
/s/ Gary F. Giampetruzzi
- ------------------------------
Notary Public
GARY F. GIAMPETRUZZI
Notary Public, State of New York
No. 01G15052403
Qualified In New York County
Commission Expires Nov. 20, 1997
<PAGE>
Exhibit 46
NYSEG
Creating Shareholder Value
NYSEG
August 1997 shaping energy environments
<PAGE>
Agenda
- -------------------------------------------------------------------------------
// NYSEG Settlement
// Creating Shareholder Value
// Financial Objectives
NYSEG
August 1997 shaping energy environments
<PAGE>
- -------------------------------------------------------------------------------
NYSEG Settlement
- -------------------------------------------------------------------------------
<PAGE>
Settlement Plan Summary
- -------------------------------------------------------------------------------
PRICE // Total revenue concessions of $600 million
REDUCTIONS
// Forgo pre-approved price increases for 1996
and 1997
// Five-year electric and natural gas price freeze
// Five annual 5% price reductions for certain
large commercial/industrial customers
(approximately $6 million per year)
NYSEG
August 1997 shaping energy environments
<PAGE>
Settlement Plan Summary
_______________________________________________________________________________
PRICE // Potential 9% additional price
REDUCTIONS reduction from pass-back to
(CONTINUED) customers of savings from
renegotiation of two largest NUGs
and securitization
// Potential 3% reduction from
replacement of Gross Receipts Tax
with profit-based tax (1% reduction
included in the latest NYS budget)
TOTAL POTENTIAL PRICE DECREASE: 20%
NYSEG
August 1997 shaping energy environments
<PAGE>
Settlement Plan Summary
_______________________________________________________________________________
RETAIL // Full retail choice by August 1, 1999
ACCESS -Back out rate prior to auction is market
price plus:
// 4 mills for large commercial/industrial
customers
// 10 mills for residential and small
commercial customers
-Back out rates in years 3-5 are 3.23 cents,
3.47 cents, and 3.71 cents (less CTC for
above-market coal plant costs)
// Xenergy can compete within NYSEG
territory as an ESCO; other NY utility
ESCOs permitted on a reciprocal basis
NYSEG
August 1997 shaping energy environments
SECTION II
<PAGE>
Settlement Plan Summary
_______________________________________________________________________________
GENERATION // Auction of coal-fired generation by
ASSETS August 1, 1999
STRANDED COST // Full recovery of regulatory assets,
RECOVERY NUGs, NMP2 and hydro in regulated
T&D business
// Above-market coal investment
recovered through T&D business,
including full return, over no longer
than 19 years
NYSEG
August 1997 shaping energy environments
SECTION II
<PAGE>
Settlement Plan Summary
_______________________________________________________________________________
RATE DESIGN // Revenue neutral rate redesign
- Increases basic service charge
- Incremental usage at 1/2 original
price
CORPORATE // Reorganize into umbrella holding
STRUCTURE company structure
- Regulated T&D sub (Regco)
- Generating sub (Genco)
- Energy services sub (Esco)
- Other subs
NYSEG
August 1997 shaping energy environments
SECTION II
<PAGE>
Settlement Plan Summary
_______________________________________________________________________________
FINANCIAL/ // Maintains allowed ROE at 11.1%
ACCOUNTING - ROE cap of 12%; floor of 9%
ISSUES // (Genco included in ROE
calculation until auction is
completed)
// ROE cap excludes stock repurchases
// No limitation on Regco common
stock repurchases at book value
NYSEG
August 1997 shaping energy environments
SECTION II
<PAGE>
Settlement Plan Summary
- ------------------------------------------------------------------------------
FINANCIAL/ / / Ability to accelerate depreciation & amortization
ACCOUNTING
ISSUES
(CONTINUED) / / Limited deferrals
-Deferred credits can offset deferred debits
/ / Regco dividends to Holdco are limited to 100%
of earnings for common, excluding one-time items
and asset sales
NYSEG
August 1997 shaping energy environments
SECTION II
<PAGE>
Settlement Plan Summary
- ------------------------------------------------------------------------------
FINANCIAL/ / / Eliminates Section 107 diversification limitations
ACCOUNTING
ISSUES
(CONTINUED) / / Allows company to stay on SFAS 71
NYSEG
August 1997 shaping energy environments
<PAGE>
- ------------------------------------------------------------------------------
THIS IS AN IMPORTANT MILESTONE IN OUR TRANSITION TO COMPETITION. IT
REPRESENTS THE MOST AGGRESSIVE PLAN IN THE STATE FOR IMPLEMENTING CUSTOMER
CHOICE AND REINFORCES OUR COMMITMENT TO COMPETITION.
THIS PLAN MOVES THE STATE AGGRESSIVELY TOWARD COMPETITION, PROVIDES
CONSIDERABLE PRICE REDUCTIONS, AND IMPROVES ECONOMIC DEVELOPMENT POTENTIAL.
- ------------------------------------------------------------------------------
NYSEG
August 1997 shaping energy environments
SECTION II
<PAGE>
- ------------------------------------------------------------------------------
Creating Shareholder Value
- ------------------------------------------------------------------------------
<PAGE>
Creating Shareholder Value
- ------------------------------------------------------------------------------
Strategies to improve shareholder value encompass three areas:
/ / Outstanding Customer Service
/ / Competitive Prices
/ / Growth
NYSEG
August 1997 shaping energy environments
<PAGE>
Outstanding Customer Service
- -------------------------------------------------------------------------------
// In a deregulated environment, service will be a
determining competitive advantage
- 1st quartile ranking in customer satisfaction
against national and state utilities
- Lowest PSC customer complaint rate of any
energy utility in NY State
- Service Guarantee Program exceeds 99.7%
success rate
- State-of-the-art call center
- Value-added services
- Public recognition of storm restoration efforts
August 1997 NYSEG
shaping energy environments
<PAGE>
Competitive Prices
- -------------------------------------------------------------------------------
// Reduce overall electric prices
// Extend freeze on natural gas prices
// Continue flex-rate contracts -- 38% of
industrials under contract; $23 million of
incremental new load
// Reduce costs of business
// Reduce legislatively imposed costs
August 1997 NYSEG
shaping energy environments
<PAGE>
Reduce Costs of Business
- -------------------------------------------------------------------------------
// O&M expenses flat since 1993
// Capital spending cut through focus on higher required
returns
- Future anticipated spending levels of $130-$150
million per year (excluding unidentified growth
opportunities)
// Low-cost generation producer and wholesale marketer
- 1% average annual decline in fossil fuel production
costs since 1986
- 8% average annual decline in nuclear production
costs since 1988
- Record production at Kintigh, Homer City and Nine
Mile in 1996
August 1997 NYSEG
shaping energy environments
<PAGE>
Reduce Legislatively Imposed Costs
- -------------------------------------------------------------------------------
// Taxes other than FIT have been held flat for the past
two years
// Working with state and municipalities to reduce tax
burden further
// Working directly with NUGs to renegotiate
excessive burden of mandated over-market
purchases of power
// Pursuing relief from two largest NUG contracts in
US District Court
August 1997 NYSEG
shaping energy environments
<PAGE>
Growth
- -------------------------------------------------------------------------------
// Natural Gas Business
// Energy Services
// Strategic Opportunities
August 1997 NYSEG
shaping energy environments
<PAGE>
Natural Gas Business
- -------------------------------------------------------------------------------
// Best year ever in '96 and still growing, despite 40
competitors
// 10% revenue growth in 1996
// 8 new franchises in 1996 -- 9 in 1997
- Expect to maintain pace through year 2000
// Expanding capacity at Seneca Lake Gas Storage
Project by over 80%
- Improves wholesale capabilities
// Full line of unbundled and rebundled services
August 1997 NYSEG
shaping energy environments
<PAGE>
Energy Services
- -------------------------------------------------------------------------------
// XENERGY is being positioned to become one of
the "Top 5" regional full-service ESCOs operating
in the Northeast and California
- Gained 10% market share in New Hampshire
retail pilot
- Won Massachusetts High Tech's entire 40
megawatt load in retail pilot
// Earnings per share expected to improve each year
with 1999 estimated as break even
NYSEG
August 1997 shaping energy environments
<PAGE>
Strategic Opportunities
- -------------------------------------------------------------------------------
// Currently pursuing strategic opportunities to
leverage core competencies and strengthen position
in Northeast market
- e.g., Joint Venture with Central Maine Power to
offer natural gas distribution services for
customers in state of Maine not currently served
by a natural gas utility
NYSEG
August 1997 shaping energy environments
<PAGE>
- -------------------------------------------------------------------------------
Financial Objectives
- -------------------------------------------------------------------------------
<PAGE>
Financial Objectives
- -------------------------------------------------------------------------------
// Wes' DQE Track Record
// Improved earnings outlook -- Comfortable with
consensus analyst estimates of about $2.60 per share
for 1997
// Focusing on enhanced profitability in 1998 and
beyond by:
- Growing the business
- Continuing to manage costs
NYSEG
August 1997 shaping energy environments
<PAGE>
Financial Objectives
- -------------------------------------------------------------------------------
// Annual electric sales growth of about 1%
- 66 major new customers or expansions in the last
18 months
// Annual natural gas sales growth of 2% - 3%
// Keep O&M flat, as we have done over the past
several years
// Maintain annual capital spending targets of
$130-$150 million (75% of depreciation)
NYSEG
August 1997 shaping energy environments
<PAGE>
Financial Objectives
- -------------------------------------------------------------------------------
// Use excess cash to redeem high-cost securities,
increase dividend and/or buy back common stock
- Expect to have about $100 million of free cash
flow per year
// Reduced risk profile should also benefit
shareholders
NYSEG
August 1997 shaping energy environments
<PAGE>
Summary
- -------------------------------------------------------------------------------
// Well positioned to expand capabilities in the
northeast energy market
// Among the lowest natural gas prices in the Northeast
// Success in natural gas deregulation
// Gas storage capability
// Low wholesale electric prices
NYSEG
August 1997 shaping energy environments
<PAGE>
Summary
- -------------------------------------------------------------------------------
// Generation assets and contracts in three pools
// Xenergy - established energy service company
// Rate settlement agreement
// Improved prospects for earnings and cash flow
// Healthy balance sheet
NYSEG
August 1997 shaping energy environments
<PAGE>
FORWARD-LOOKING STATEMENTS
- -------------------------------------------------------------------------------
This presentation contains certain forward-looking statements. These
statements are based upon management's current expectations and are subject
to risks and uncertainties that could cause actual results to differ
materially from those projected in such statements. Whenever we use the words
"anticipate," "believe," "estimate," "expect," "project," "objective" or
similar expressions, they are intended to identify forward-looking
statements. In addition to the assumptions and other factors referred to
specifically in connection with such statements, factors that could cause
NYSEG's actual results to differ materially from those contemplated in any
forward-looking statements include, among others, regulatory developments,
the rapidly changing and increasingly competitive electric and gas utility
environment, the ability to obtain adequate and timely rate relief, cost
recovery, including the potential impact of stranded costs, legal or
administrative proceedings, business conditions, technological developments,
changes in the cost or availability of capital, labor developments, nuclear
or environmental incidents, factors affecting the utility industry in
general, such as deregulation and the unbundling of energy services, weather
conditions and changes in fuel supply or cost, and other considerations that
may be disclosed from time to time in NYSEG's publicly disseminated documents
and filings.
<PAGE>
Exhibit 47
NOT SO FAST,
CALENERGY
The Board of Directors of New York State Electric & Gas Company has unanimously
recommended that shareholders REJECT CalEnergy's 9.9% "stake-out" tender offer
as part of its hostile takeover attempt.
Here are a few of the reasons why:
1 CALENERGY HAS VIRTUALLY NO EXPERIENCE RUNNING A PUBLIC UTILITY. As a
public utility, NYSEG is entrusted to provide safe and reliable
electric and natural gas service to every home, business, school and
hospital in the communities we serve. The high marks we have gotten
from our customers since before the turn of the century show how
seriously we take our responsibility. The most CalEnergy can say for
itself is that six months ago it bought an electric company in
England. With virtually no experience operating an electric utility
and none whatsoever with the difficult task of safely distributing
natural gas, a CalEnergy takeover poses risks starkly at odds with
the public interest.
2 CALENERGY'S OPPORTUNISTIC OFFER DOES NOT REFLECT THE FULL VALUE OF
NYSEG. CalEnergy's under-valued and highly-leveraged offer is timed
to exploit New York State's current regulatory uncertainty, which
has depressed the stock price of the State's utilities. In an
attempt to pick up NYSEG on the cheap, CalEnergy has dressed up an
offer that not only caps NYSEG shareholders' potential gains at a
price barely above book value, but which also piles another $1
billion of debt on top of CalEnergy's already junk bond quality
ratings.
3 CALENERGY IS A CAUSE OF NYSEG'S HIGH RATES. CalEnergy, which likes
to bill itself as a proponent of competition, each year pockets well
over $100 million of NYSEG customers' hard-earned money from
above-market government-mandated contracts. If CalEnergy really
wants to do something about rates without jeopardizing the service
and reliability our customers have come to rely on, it should drop
its refusal to discuss any kind of cost relief for NYSEG customers.
Don't get us wrong. There are some very sharp people at CalEnergy. And we're
sure that in some way, a hostile takeover of NYSEG makes a lot of sense for
them. It just doesn't make any sense for NYSEG, its customers, employees,
shareholders or the hundreds of communities we serve.
[NYSEG LOGO]