<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 19, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
NORTHEAST UTILITIES
(Exact name of the registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MASSACHUSETTS 4931 04-2147929
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification number)
</TABLE>
------------------------------
174 BRUSH HILL AVENUE
WEST SPRINGFIELD, MASSACHUSETTS 01090-2010
(413) 785-5871
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------
CHERYL W. GRISE
NORTHEAST UTILITIES SERVICE COMPANY
107 SELDEN STREET
BERLIN, CT 06037
(860) 665-5000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
MICHAEL F. HALLORAN, ESQ. DAVID P. FALCK, ESQ.
Day, Berry & Howard LLP Winthrop, Stimson, Putnam & Roberts
CityPlace I One Battery Park Plaza
Hartford, Connecticut 06103-3499 New York, NY 10004-1490
(860) 275-0100 (212) 858-1000
</TABLE>
------------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement. The
issuance of securities shall occur when all other conditions to the consummation
of the merger described in the Proxy Statement/Prospectus have been satisfied or
waived.
------------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE OFFERING AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES REGISTERED PRICE PER UNIT PRICE REGISTRATION
TO BE REGISTERED (1) (2) (3)(4) FEE (2)(3)(4)
<S> <C> <C> <C> <C>
Common Shares, $5 par value (including associated
common share purchase rights) 12,217,403 $17.625 $478,514,970 $133,027.16
</TABLE>
(1) The maximum number of Northeast Utilities common shares, $5 par value, to be
registered is based on the maximum number of shares and associated common
share purchase rights to be issued in connection with the merger described
herein.
(2) Calculated pursuant to 457(c) and Rule 457(f)(1) of the Securities Act of
1933, solely for the purpose of the registration fee based on the average of
the high and low prices of Northeast Utilities common shares as reported on
the New York Stock Exchange Composite Tape on August 16, 1999.
(3) In accordance with the terms of the merger described herein, 45% of the
outstanding shares of Yankee Energy System, Inc. will be converted into the
right to receive $45 worth of Northeast Utilities common shares, and 55% of
the outstanding shares of Yankee Energy System, Inc. will be converted into
the right to receive $45 in cash. Accordingly, pursuant to Rule 457(f)(3) of
the Securities Act of 1933, the Proposed Maximum Aggregate Offering Price is
calculated to be the sum of 12,217,403 shares of Northeast Utilities at
$17.625 per share ($215,331,727.90) plus a cash payment of $263,183,233.50,
plus a payment of cash in lieu of a 0.49 fractional share representing
$8.64.
(4) Pursuant to Section 14(g) and Rule 0-11 of the Securities Exchange Act of
1934 and Rule 457(b) of the Securities Act of 1933, the amount of the
registration fee is reduced by $95,713.79, which is the amount of the fee
paid to the Securities and Exchange Commission on August 4, 1999 in
connection with the filing of preliminary proxy materials of Yankee Energy
Systems, Inc.
THIS REGISTRATION STATEMENT IS HEREBY AMENDED ON SUCH DATE OR DATES AS MAY
BE NECESSARY TO DELAY ITS EFFECTIVENESS UNTIL THE REGISTRANT WILL FILE A FURTHER
AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT WILL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT WILL BECOME EFFECTIVE ON SUCH
DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[LOGO]
599 RESEARCH PARKWAY
MERIDEN, CONNECTICUT 06450-1030
DATE: AUGUST 25, 1999
PROPOSED MERGER--YOUR VOTE IS IMPORTANT
Dear Yankee Energy System, Inc. Shareholder:
We invite you to attend a Special Meeting of Shareholders of Yankee Energy
System, Inc., which will be held at the Ramada Plaza Hotel and Conference
Center, 275 Research Parkway, Meriden, Connecticut, on Tuesday, October 12, 1999
at 10:00 a.m.
At this important meeting, we will ask you to approve an Agreement and Plan
of Merger between Yankee Energy System, Inc. ("Yankee"), and Northeast Utilities
("NU"). Under the merger agreement, Yankee will merge with and into a
wholly-owned subsidiary of NU. NU will create this wholly-owned subsidiary (to
be known as "Merger Sub") specially for this transaction. When the merger is
complete, Merger Sub will change its name to Yankee Energy System, Inc. In
effect, Yankee becomes a wholly-owned subsidiary of NU.
As a result of the merger, each share of Yankee common stock you own will
entitle you to receive one of the following:
(i) $45 in cash;
(ii) $45 worth of NU common shares; or
(iii) a combination of cash and NU common shares worth $45.
You may elect any of these options for your Yankee shares. However, your
choice is subject to the following adjustments:
- No matter how many shareholders elect to receive cash, 55% of Yankee
shares will be exchanged for cash. If shareholders owning more than 55%
of Yankee shares elect to receive cash, the amount of cash they will
receive will be reduced on a pro rata basis, with the shortfall to be
paid in NU shares.
- No matter how many shareholders elect to receive NU shares, 45% of
Yankee shares will be exchanged for NU shares. If shareholders owning
more than 45% of Yankee shares elect to receive NU shares, the number
of NU shares they will receive will be reduced on a pro rata basis,
with the shortfall to be paid in cash.
If the merger is not completed within six months after the Yankee
shareholders approve the merger agreement, the consideration you will receive in
exchange for each Yankee share you own will increase by $0.005 for each day the
merger is delayed past the end of this six-month period.
PLEASE SEE THE SECTION ENTITLED "RISK FACTORS", BEGINNING AT PAGE 14 FOR A
DISCUSSION OF POTENTIAL RISKS INVOLVED IN THE MERGER.
YOUR VOTE IS VERY IMPORTANT. Our shareholders must approve the merger
agreement before we can complete the merger. Whether or not you plan to attend
the Special Meeting, please take the time to vote by completing the enclosed
proxy card and mailing it to us. If you sign, date and mail your proxy card
without indicating how you want to vote, your proxy will be counted in favor of
the merger agreement. Only shareholders of record of Yankee on August 6, 1999
are entitled to attend the Special Meeting and vote.
<PAGE>
The accompanying proxy statement/prospectus includes answers to frequently
asked questions and a summary description of the merger (beginning on page 5),
followed by a more detailed discussion of the merger and other related matters.
THE YANKEE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS IN THE BEST
INTERESTS OF YANKEE SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO
APPROVE THE MERGER AGREEMENT AT THE SPECIAL MEETING.
WE ENCOURAGE YOU TO READ THE ENTIRE PROXY STATEMENT/PROSPECTUS CAREFULLY. IN
ADDITION, YOU MAY OBTAIN INFORMATION ABOUT THE TWO COMPANIES FROM DOCUMENTS THEY
HAVE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
Sincerely,
[LOGO]
CHARLES E. GOOLEY
President & Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE MERGER OR THE ISSUANCE OF NU SHARES, OR DETERMINED
THAT THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE OR COMPLETE. IT IS ILLEGAL FOR
ANYONE TO TELL YOU OTHERWISE.
This document is also the prospectus of NU for the shares that it will issue
in connection with the merger. NU shares are traded on the New York Stock
Exchange under the symbol "NU." On August 18, 1999, the last full trading day
for which information was available prior to printing this proxy
statement/prospectus, the closing sales price for NU shares, as reported in THE
WALL STREET JOURNAL's New York Stock Exchange Composite Transactions Report, was
$17.6875 per share.
NU has furnished all the information in this proxy statement/prospectus
concerning NU, and Yankee has furnished all the information concerning Yankee.
Proxy statement/prospectus
dated August 19, 1999.
First mailed to shareholders on or
about
August 25, 1999.
<PAGE>
[LOGO]
599 RESEARCH PARKWAY
MERIDEN, CONNECTICUT 06450-1030
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 12, 1999
DATE: AUGUST 25, 1999
To the Shareholders of Yankee Energy System, Inc:
The board of directors of Yankee Energy System, Inc. ("Yankee") is pleased
to provide you with notice of and cordially invites you to attend in person or
by proxy a Special Meeting of Shareholders which will be held at the Ramada
Plaza Hotel and Conference Center, 275 Research Parkway, Meriden, Connecticut,
on Tuesday, October 12, 1999 at 10:00 a.m. for the following purposes:
1. To consider and vote upon a proposal to approve an Agreement and Plan of
Merger, dated as of June 14, 1999, attached as Appendix A to the
accompanying proxy statement/prospectus, providing for the merger of
Yankee with and into Merger Sub, a wholly-owned subsidiary of Northeast
Utilities ("NU") that will be specially created for this transaction, as
a result of which Yankee will become a wholly-owned subsidiary of NU;
2. To transact such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.
Only Yankee shareholders at the close of business on August 6, 1999 will be
entitled to notice of and to vote at the Special Meeting or its postponements or
adjournments. Approval of the merger agreement will require the affirmative vote
of at least two-thirds of Yankee's outstanding common stock.
It is very important that your shares be represented at the Special Meeting.
Whether or not you plan to attend the Special Meeting, please take the time to
vote by completing the enclosed proxy card and mailing it to us. Failure to
secure a quorum on the date set for the Special Meeting would require an
adjournment that would cause us to incur considerable additional expense. If you
sign, date and mail your proxy card without indicating how you want to vote,
your proxy will be counted in favor of the merger agreement.
PLEASE DO NOT SEND STOCK CERTIFICATES WITH YOUR PROXY CARD.
THE YANKEE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS IN THE BEST
INTERESTS OF YANKEE SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO
APPROVE THE MERGER AGREEMENT AT THE SPECIAL MEETING.
Please sign, date and return the accompanying proxy in the enclosed
addressed envelope, which requires no postage if mailed in the United States.
You may revoke your proxy at any time before the vote is taken by delivering to
the Secretary of Yankee either a written revocation or a proxy bearing a later
date. You may also revoke your proxy orally, in person, to the Secretary of
Yankee at the Special Meeting.
If you do not vote your Yankee shares in favor of the merger, and you
deliver to Yankee before the vote is taken, a notice of intent to exercise
dissenters' rights of appraisal, you may assert these rights under Connecticut
law. If the merger is approved, you will receive a cash payment representing the
"fair value" of the shares you currently hold in lieu of the consideration
payable in the merger. A copy of the sections of Connecticut law that govern
this process is attached as Appendix C to the accompanying proxy
statement/prospectus.
By Order of the Board of Directors,
/s/ MARY J. HEALEY
Vice President, General Counsel and
Secretary
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER..................................................................... 1
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.................................................. 3
SUMMARY.................................................................................................... 5
The Companies............................................................................................ 5
The Special Meeting...................................................................................... 5
Share Ownership of Management............................................................................ 5
The Merger............................................................................................... 6
Comparative Per Share Market Price and Dividend Information.............................................. 9
NU Selected Historical Consolidated Financial Information................................................ 10
Yankee Selected Historical Consolidated Financial Information............................................ 11
NU Selected Unaudited Pro Forma Combined Condensed Financial Information................................. 11
Unaudited Comparative Per Share Data..................................................................... 12
RISK FACTORS............................................................................................... 14
Regulatory Issues........................................................................................ 14
Risks Inherent in the Utility Industry................................................................... 14
Payment of Cash Consideration............................................................................ 14
Uncertainties in Integrating the Companies............................................................... 15
Environmental Matters.................................................................................... 15
New Hampshire Restructuring.............................................................................. 15
THE COMPANIES.............................................................................................. 16
Northeast Utilities...................................................................................... 16
Merger Sub............................................................................................... 17
Yankee Energy System, Inc................................................................................ 17
THE SPECIAL MEETING........................................................................................ 18
Record Date; Voting Power; Vote Required................................................................. 18
Ownership of Voting Stock by Management.................................................................. 18
Voting of Proxies........................................................................................ 18
Revocability of Proxies.................................................................................. 19
Solicitation of Proxies.................................................................................. 19
THE MERGER................................................................................................. 20
General Description of the Merger........................................................................ 20
Background............................................................................................... 20
Yankee's Reasons for the Merger.......................................................................... 24
Opinion of the Financial Advisor to the Yankee Board..................................................... 25
Effective Time........................................................................................... 30
Certificate of Incorporation and By-Laws................................................................. 30
Directors and Officers................................................................................... 30
Accounting Treatment..................................................................................... 31
Regulatory Approvals..................................................................................... 31
Injunctions.............................................................................................. 32
Listing of the NU Common Shares on the New York Stock Exchange........................................... 32
Resale of the NU Common Shares Issued in the Merger; Yankee Affiliates................................... 33
Interests of Certain Persons in the Merger............................................................... 33
Material Federal Income Tax Consequences of the Merger................................................... 38
THE MERGER AGREEMENT....................................................................................... 43
General.................................................................................................. 43
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Corporate Governance Matters............................................................................. 43
Conversion of Shares of Yankee Common Stock.............................................................. 43
Representations and Warranties........................................................................... 47
Covenants................................................................................................ 48
Additional Agreements.................................................................................... 51
Conditions............................................................................................... 54
Termination, Amendment and Waiver........................................................................ 55
DISSENTERS' RIGHTS OF APPRAISAL OF YANKEE SHAREHOLDERS..................................................... 58
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS................................................ 61
NU UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS............................................. 63
Notes to Unaudited Pro Forma Combined Condensed Financial Statements..................................... 67
COMPARATIVE RIGHTS OF YANKEE SHAREHOLDERS AND NU SHAREHOLDERS.............................................. 69
General.................................................................................................. 69
Authorized Capital Stock................................................................................. 69
Issuance of Capital Stock................................................................................ 69
Voting Rights............................................................................................ 69
Preemptive Rights........................................................................................ 70
Dividends and Other Distributions........................................................................ 70
Trustee/Director Vacancies and Removal................................................................... 71
Meetings of Shareholders................................................................................. 71
Shareholder Action Without A Meeting..................................................................... 72
Amendment of Declaration of Trust/Certificate of Incorporation and By-laws............................... 72
Sale of Assets, Merger and Consolidation................................................................. 73
Business Combination Statute............................................................................. 74
Classification of Trustees/Directors..................................................................... 75
Limitations on Dissenters' Appraisal Rights.............................................................. 75
Liquidation Preference................................................................................... 76
Interested Party Transactions............................................................................ 76
Limitation on Trustees'/Directors' Liability............................................................. 76
Indemnification of Officers and Trustees/Directors....................................................... 77
LEGAL MATTERS.............................................................................................. 78
EXPERTS.................................................................................................... 78
INDEPENDENT PUBLIC ACCOUNTANTS............................................................................. 78
OTHER MATTERS.............................................................................................. 78
SHAREHOLDER PROPOSALS...................................................................................... 79
CERTAIN PROXY CARD MATTERS................................................................................. 79
WHERE YOU CAN FIND MORE INFORMATION........................................................................ 79
APPENDICES
APPENDIX A: Agreement and Plan of Merger, dated as of June 14, 1999
APPENDIX B: Opinion of SG Barr Devlin
APPENDIX C: Part XIII of the Connecticut Business Corporation Act
</TABLE>
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. WHAT WILL HAPPEN IN THE PROPOSED TRANSACTION?
A. Yankee Energy System, Inc. ("Yankee") will merge into Merger Sub, a
wholly-owned subsidiary of Northeast Utilities ("NU") that will be formed
solely for the purpose of completing the merger. As a result, Yankee will
become a direct subsidiary of NU.
Q. WHY HAS YANKEE DECIDED TO MERGE?
A. The board of directors believes that a combination of Yankee and NU is a more
favorable strategic alternative for Yankee than continuing as a small-sized
independent gas distribution company. The price NU will pay for Yankee
shares represents a substantial premium over what the board of directors
believes would be the likely values to shareholders of potential
alternatives other than a sale of Yankee. The terms of the merger agreement
also provide significant protection to shareholders in the event that the
closing of the merger is delayed or prevented by regulators.
Please read the more detailed description of Yankee's reasons for the merger
on pages 24 to 25.
Q. WHAT WILL YOU RECEIVE?
A. In exchange for each share of Yankee common stock you own, you will have the
right to receive:
(i) $45 in cash;
(ii) $45 worth of NU common shares; or
(iii) a combination of cash and NU common shares worth $45.
You may elect any of these options for your Yankee shares. The precise
number of NU shares to be exchanged for each Yankee share will be equal to
$45 divided by the average of the closing prices of NU's shares on the New
York Stock Exchange for a defined period prior to completion of the merger.
Please read the more detailed description of the consideration to be issued
in the merger on pages 43 to 44.
Q. WILL I RECEIVE THE SPECIFIC AMOUNTS OF CASH AND STOCK THAT I ELECT TO
RECEIVE?
A. It is uncertain at this time whether you will receive cash and stock in the
specific amounts you elect to receive. Because the merger agreement requires
that 55% of Yankee shares be exchanged for cash and 45% be exchanged for NU
shares, the amounts of cash or stock you receive (relative to what you
elected to receive) could rise or fall, depending on the number of other
shareholders who have made similar elections. For example, if shareholders
owning more than 55% of Yankee shares elect to receive cash, the amount of
cash they will receive will be reduced on a pro rata basis, with the
shortfall to be paid in NU shares.
For tax reasons that are explained on pages 44 and 45, NU might have to
increase the number of Yankee shares converted into NU shares and decrease
the number of Yankee shares converted into cash.
NU will not issue any fractional shares in the merger. Instead, you will get
cash for any fractional shares that you would otherwise receive.
Please read the more detailed description of the allocation procedures on
page 44.
Q. HOW WILL THE MERGER AFFECT MY FUTURE DIVIDENDS?
A. You will continue to receive dividends on your Yankee shares until the
closing of the merger. NU currently does not pay a dividend on its common
shares, but plans to review its dividend policy again in the fall of 1999 as
part of a comprehensive review of the company's cash flows.
Please read the more detailed description of the companies' comparative
dividend information on pages 9, 70 and 71.
1
<PAGE>
Q. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO SHAREHOLDERS?
A. The federal income tax consequences to you will depend on the form of
consideration you receive in the merger. As a Yankee shareholder, you will
recognize neither a gain nor a loss to the extent you receive solely NU
shares in the merger. In general, however, you may recognize taxable gain or
loss if you receive cash in the merger (including cash received in lieu of
fractional shares).
Please read the more detailed description of federal income tax consequences
on pages 38 to 42.
THE TAX CONSEQUENCES OF THE MERGER TO YOU WILL DEPEND ON YOUR OWN SITUATION.
YOU SHOULD CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX
CONSEQUENCES OF THE MERGER TO YOU.
Q. WHAT DO I NEED TO DO NOW?
A. After you carefully read this document, please complete, sign, date and mail
your proxy card in the enclosed return envelope as soon as possible. That
way, your Yankee shares can be represented at the Special Meeting of
Shareholders to be held at the Ramada Plaza Hotel and Conference Center, 275
Research Parkway, Meriden, Connecticut, on Tuesday, October 12, 1999 at
10:00 a.m.
If you own shares but do not have certificates for them, for example,
through participation in the Yankee 401(k) Employee Stock Ownership Plan,
the Employee Stock Purchase Plan or the Dividend Reinvestment Plan, your
proxy card covers both plan (uncertificated) shares and certificated shares
unless the registration names are different. If you have registrations in
different names, you will receive a separate proxy card for each name
registration. If a broker holds your shares as nominee, you will receive a
voter information form from your broker.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A. No. Keep your stock certificates until we send you an election form that you
can use to indicate the form of payment you would like to receive in the
merger. You will receive this form after the Special Meeting has taken
place, but at least 30 days prior to the completion of the merger. At that
time, you will be given instructions about sending in your certificates.
If you hold Yankee shares in uncertificated form, for example, through the
Yankee 401(k) Stock Ownership Plan, the Employee Stock Purchase Plan or the
Dividend Reinvestment Plan, or if a broker holds your shares as nominee, you
do not need to request that certificates be issued. After the merger is
completed, you will receive written information on the exchange of these
shares.
Q. WHO MUST APPROVE THE MERGER?
A. - Yankee's board of directors (already approved);
- NU's board of trustees (already approved);
- The board of directors of Merger Sub; and
- Two-thirds of the votes entitled to be cast by all holders of Yankee common
stock.
We must also obtain some regulatory approvals for the merger. Please read
the more detailed description of the regulatory approvals on pages 31 to 32.
Yankee and NU cannot complete the merger unless two-thirds of the votes
entitled to be cast by all holders of Yankee shares approve the merger
agreement. Your vote is very important.
THE YANKEE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" APPROVAL
OF THE MERGER AGREEMENT.
Q. DO NU SHAREHOLDERS VOTE ON THE MERGER?
A. No. Only Yankee shareholders vote on the merger.
Q. WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
2
<PAGE>
A. We are working to complete all aspects of the merger as quickly as possible.
Currently, we expect to complete the merger by late 1999 or early 2000.
Q. WHAT HAPPENS IF I DO NOT INSTRUCT A BROKER HANDLING MY SHARES ON HOW TO VOTE
ON THE MERGER OR IF I ABSTAIN FROM VOTING?
A. If a broker holds your Yankee shares as nominee, he will not be able to vote
them without instructions from you. You will receive a voter information
form from your broker.
If you mark your proxy "Abstain" or do not instruct your broker on how to
vote, this will have the effect of voting your shares AGAINST the merger
agreement.
If you hold shares through a Yankee stock plan such as the Yankee 401(k)
Stock Ownership Plan, the Employee Stock Purchase Plan or the Dividend
Reinvestment Plan, you are allowed to vote the Yankee shares allocated to
your account to approve or disapprove the merger agreement. If you fail to
vote, the plan trustee will vote your shares in the same proportions as the
plan shares that were actually voted by the other plan participants.
Q. CAN I CHANGE MY VOTE AFTER I HAVE MAILED IN MY SIGNED AND DATED PROXY CARD?
A. Yes. You may revoke your proxy in writing at any time before the vote has
been taken at the Special Meeting by delivering a written revocation to the
Secretary of Yankee. You may also revoke your proxy by delivering a proxy
bearing a later date. We will count only the most recently dated proxy at
the Special Meeting. You should send these to the attention of Thomas D.
Dorsey, Director of Investor Relations of Yankee at Yankee Energy System,
Inc., 599 Research Parkway, Meriden, Connecticut 06450-1030. Additional
proxy cards are available from the Director of Investor Relations of Yankee.
You may also attend the Special Meeting in person and revoke your proxy
orally before the vote takes place.
Q. ON WHAT OTHER MATTERS WILL I VOTE AT THE SPECIAL MEETING?
A. It is unlikely that you will be asked to vote on any other matters at the
Special Meeting, except possibly procedural items relating to the conduct of
the Special Meeting.
Q. ASSUMING I RECEIVE NU SHARES IN THE MERGER, WILL MY RIGHTS AS A SHAREHOLDER
CHANGE AS A RESULT OF THE MERGER?
A. Yes. For a summary of differences between the rights of Yankee shareholders
and the rights of NU shareholders, see pages 69 to 77 of this document.
Q. WHO CAN ADDRESS ANY ADDITIONAL QUESTIONS I HAVE?
A. Thomas D. Dorsey, Director of Investor Relations of Yankee Energy System,
Inc., 599 Research Parkway, Meriden, Connecticut 06450-1030.
Telephone: (203) 639-4643
Email: [email protected]
Q. WHERE CAN I FIND MORE INFORMATION ABOUT NU AND YANKEE?
A. Various sources described under "Where You Can Find More Information" on
pages 79 to 80 of this document provide further information.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements that are subject to risks
and uncertainties. These statements may be in this document or may be
"incorporated by reference" to other documents. These statements relate to the
financial condition, results of operations and businesses of NU and Yankee. They
may also relate to the period after the completion of the merger. You can find
many of these statements by looking for words such as "believes," "expects,"
"anticipates," "estimates" or similar expressions.
These forward-looking statements are subject to numerous assumptions, risks
and
3
<PAGE>
uncertainties. The following are some of the factors that may cause actual
results to differ from the results indicated in the forward-looking statements:
- these statements are based on preliminary information that may be
reviewed and adjusted;
- the risk of significant delay in the completion of the merger;
- the risk of unexpected consequences resulting from the merger;
- the highly competitive nature of the electric, natural gas and energy
marketing industries, including the speed and degree to which
competition enters these industries and the risk that other companies
will further expand into markets in which NU, Yankee or the combined
company operates;
- the risk that changing energy prices may affect revenues;
- the risk that government authorities may impose unfavorable terms as a
condition of the merger;
- the risk of favorable customer contracts expiring or being renewed on
less attractive terms;
- potential Year 2000 computer problems which may hinder normal business
activities or operations;
- the risks associated with abnormal weather conditions;
- the risks associated with changes in customer demographics in the
service territories of the combined company;
- the risks associated with the pursuit of new markets;
- other considerations that may be disclosed at various times in
publicly issued documents or filings of NU or Yankee;
- regulatory issues, including the recovery of NU's stranded costs and
rate reductions which may be required as part of the deregulation
process;
- economic conditions, including inflation, the value of currencies, and
changes in capital markets; and
- exposure to environmental issues and liabilities, as well as potential
changes in environmental regulations.
Do not rely unduly on the forward-looking statements that speak only for a
particular point in time. Neither NU nor Yankee is obligated to update any
of the forward-looking statements in this document.
The cautionary statements in this section expressly qualify all subsequent
forward-looking statements made by NU, Yankee or any person acting on their
behalf.
4
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION IN THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. YOU SHOULD READ
CAREFULLY THE ENTIRE PROXY STATEMENT, THE DOCUMENTS INCORPORATED BY REFERENCE
AND THE OTHER DOCUMENTS TO WHICH IT REFERS, BEFORE YOU DECIDE HOW TO VOTE. SEE
"WHERE YOU CAN FIND MORE INFORMATION" ON PAGE 79 OF THIS DOCUMENT. EACH ITEM IN
THIS SUMMARY INCLUDES A PAGE REFERENCE DIRECTING YOU TO A MORE COMPLETE
DESCRIPTION OF THAT ITEM. ("WE" AND "OUR" AS USED IN THIS DOCUMENT REFERS TO
YANKEE ENERGY SYSTEM, INC.)
THE COMPANIES
NORTHEAST UTILITIES (SEE PAGES 16 TO 17)
174 Brush Hill Avenue
West Springfield, Massachusetts
01090-2010
(413) 785-5871
Northeast Utilities ("NU") is the parent of a number of companies comprising
the NU system. The NU system business includes franchised retail electric
service in Connecticut, New Hampshire and western Massachusetts, wholesale
electric service and a variety of unregulated energy-related and
telecommunications activities, including retail and wholesale electric and gas
sales in competitive markets. The NU system serves approximately 30% of New
England's electric needs and is the 24th largest electric utility system in the
United States as measured by revenues.
YANKEE ENERGY SYSTEM, INC. (SEE PAGE 17)
599 Research Parkway
Meriden, Connecticut 06450-1030
(203) 639-4000
Yankee Energy System, Inc. ("Yankee") is a public utility holding company
incorporated in Connecticut. Its principal operating subsidiaries are Yankee Gas
Services Company ("Yankee Gas"), Yankee Energy Services Company ("YESCo") and
R.M. Services, Inc. Yankee Gas is a natural gas distribution company that
provides service to more than 185,000 customers in the Connecticut region. YESCo
provides energy-related services including the engineering, installation and
maintenance of building control systems. It also provides heating, ventilating
and air conditioning, boiler and refrigeration equipment services and
installation. R.M. Services, Inc. provides consumer collection services for
companies throughout the United States. Other Yankee subsidiaries such as Yankee
Energy Financial Services Company and NorConn Properties, Inc. support the
operations of Yankee Gas and YESCo.
MERGER SUB (SEE PAGE 17)
Merger Sub will be a wholly-owned, special purpose subsidiary of NU, which
will be formed under the laws of the State of Connecticut solely for the purpose
of completing the merger with Yankee. It will be formed once the SEC approves
its creation by NU.
THE SPECIAL MEETING (SEE PAGES 18 TO 19)
The Special Meeting of Yankee shareholders will be held at the Ramada Plaza
Hotel and Conference Center, 275 Research Parkway, Meriden, Connecticut on
October 12, 1999, at 10:00 a.m. local time.
At the Special Meeting, we will ask you to approve the merger agreement. For
the merger to proceed, at least two-thirds of the votes entitled to be cast by
all holders of Yankee common stock must approve the merger agreement.
Only the Yankee shareholders at the close of business on the record date,
August 6, 1999, will be entitled to notice of the Special Meeting and only these
shareholders may vote.
Each share of Yankee common stock carries one vote. On August 6, 1999,
10,633,666 votes were eligible to be cast at the Special Meeting.
SHARE OWNERSHIP OF MANAGEMENT (SEE PAGES 61 TO 62)
On August 6, 1999, directors and executive officers of Yankee and their
affiliates beneficially owned less than 1% of the outstanding shares of Yankee
common stock. We expect that all of
5
<PAGE>
these directors and executive officers will vote their shares FOR the approval
of the merger agreement.
THE MERGER
Under the merger agreement, Yankee will merge with and into Merger Sub, a
Connecticut corporation that NU will form as a wholly-owned subsidiary of NU
prior to completing the merger. Merger Sub will be the surviving company and
will change its name to "Yankee Energy System, Inc."
The merger agreement is attached as Appendix A to this document. We
encourage you to read it carefully. It is the legal document that governs the
merger.
CONVERSION OF YANKEE SHARES (SEE PAGES 43 TO 44)
In the merger, Yankee shareholders will have the option to elect to receive
cash, NU common shares or a combination of the two in return for their shares,
subject to limitations on the overall number of shares which may be exchanged
for cash.
Specifically, in exchange for each of their Yankee shares, Yankee
shareholders will have the right to receive (i) $45 in cash, (ii) $45 worth of
NU shares or (iii) a combination of cash and NU common shares worth $45. The
number of NU shares to be exchanged for each Yankee share will be arrived at by
dividing $45 by the average closing price of NU shares on the New York Stock
Exchange for a defined period prior to the time the merger is completed.
Under the merger agreement, 55% of Yankee shares will be exchanged for cash,
and 45% will be exchanged for NU common shares. Therefore, if Yankee
shareholders owning more than 55% of the Yankee shares elect to receive cash,
the amount of cash those shareholders will receive will be reduced on a pro rata
basis, with the shortfall to be paid in NU common shares. Similar principles
will apply if Yankee shareholders owning more than 45% of the Yankee shares
elect to receive NU common shares. In this case, the shareholders receive less
NU common shares, with the shortfall paid in cash.
If we do not complete the merger within six months of the date on which
Yankee shareholders approve the merger agreement, the value of the consideration
you will receive in exchange for each Yankee share you own will increase at a
rate of $0.005 for each day the merger is delayed past the end of this six-month
period until the termination dates specified in the merger agreement.
SURRENDER OF CERTIFICATES AND PAYMENT FOR SHARES (SEE PAGES 45 TO 46)
After the merger, you will no longer have your usual rights as a Yankee
shareholder. Your sole right in any Yankee shares you held immediately before
the merger will be to receive either an amount in cash or a number of NU common
shares (or a combination of both). We will send you letters of transmittal for
use in surrendering stock certificates and obtaining payment for surrendered
shares promptly after the merger is completed. Do not surrender any certificates
until you receive the letter of transmittal and instructions.
REASONS FOR AND BACKGROUND OF THE MERGER (SEE PAGES 20 TO 25)
You should review the factors that the Yankee board of directors considered
when deciding whether to approve the merger.
RECOMMENDATION TO SHAREHOLDERS
The Yankee board of directors has determined that the merger is in the best
interests of the Yankee shareholders and unanimously recommends that you vote to
approve the merger agreement at the Special Meeting.
FAIRNESS OPINION (SEE PAGES 25 TO 30)
In deciding to approve the merger, the Yankee board of directors considered,
among other things, the opinion of SG Barr Devlin, its financial advisor, as to
the fairness, from a financial point of view, of the consideration that Yankee
shareholders will receive. This opinion is
6
<PAGE>
attached as Appendix B to this document. We encourage you to read this opinion.
CONDITIONS TO THE MERGER (SEE PAGES 54 TO 55)
We will complete the merger only if we satisfy several conditions, including
the following:
- the Yankee shareholders approve the merger agreement;
- no legal restraints or prohibitions exist that prevent the consummation of
the merger; and
- we comply with the regulatory requirements set forth below under
"Regulatory Approvals."
REGULATORY APPROVALS (SEE PAGES 31 TO 32)
To complete the merger, we must obtain approvals from various federal and
state regulatory agencies, including the Connecticut Department of Public
Utility Control, the SEC under the Public Utility Holding Company Act of 1935,
and the Federal Trade Commission and the Department of Justice under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976.
CERTAIN COVENANTS (SEE PAGES 48 TO 51)
Yankee has agreed not to solicit or encourage any proposal from any person
to acquire Yankee or its assets, but it may respond, in certain circumstances,
to unsolicited proposals that it receives.
TERMINATION (SEE PAGES 55 TO 57)
Under certain circumstances, the parties may terminate the merger agreement
prior to completing the merger. If termination occurs because Yankee's board of
directors decides to pursue an alternative acquisition proposal, Yankee would be
required to pay NU a termination fee of $19 million, plus reimbursement of
expenses of up to $5 million. If termination occurs because NU fails to receive
approval for the merger under the Public Utility Holding Company Act of 1935, NU
would be required to pay Yankee a termination fee of $10.625 million.
ACCOUNTING TREATMENT (SEE PAGE 31)
The merger will be accounted for as an acquisition of Yankee by NU under the
purchase method of accounting in accordance with generally accepted accounting
principles.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (SEE PAGES 38 TO 42)
The U.S. federal income tax consequences of the merger to you will depend on
the form of consideration you receive in the merger.
If you receive solely NU shares for your Yankee shares, you will not
recognize any gain or loss for U.S. federal income tax purposes (except with
respect to cash received instead of fractional shares).
If you receive part cash and part NU shares, and your adjusted tax basis in
your Yankee shares is less than the sum of the amount of cash and the fair
market value (at the date of the merger) of the NU shares you receive, you will
recognize a gain. However, if your adjusted tax basis in your Yankee shares is
greater than the sum of the amount of cash and the fair market value (at the
date of the merger) of the NU shares you receive, you will not be able to
currently recognize the loss.
If you receive solely cash, you will recognize a gain or loss to the extent
of the difference between the amount of cash you receive and your adjusted tax
basis in your Yankee shares.
The consequences described above assume, as expected, that the merger will
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code. We have conditioned the merger on our receipt of a legal opinion
that this is the case.
THE TAX CONSEQUENCES OF THE MERGER TO YOU WILL DEPEND ON YOUR OWN SITUATION.
YOU SHOULD CONSULT YOUR TAX ADVISOR FOR A FULL UNDERSTANDING OF THE TAX
CONSEQUENCES OF THE MERGER TO YOU.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (SEE PAGES 33 TO 38)
When you consider the board's recommendations, you should realize that some
board members and executives will receive
7
<PAGE>
benefits or have interests that may be different from yours as a shareholder.
For example, Charles E. Gooley, current president and chief executive officer of
Yankee, will become president and chief executive officer of the surviving
company in the merger (which will be a subsidiary of NU). In addition, two of
the outside directors of Yankee will become directors of NU and three will be
appointed directors of the surviving company which will assume the operations of
Yankee.
The members of the Yankee board of directors were aware of these additional
interests and considered them when they approved the merger agreement.
DISSENTERS' RIGHTS OF SHAREHOLDERS (SEE PAGES 58 TO 60)
You have the right to demand appraisal of your Yankee shares and to receive,
instead of what NU is offering in the merger, an amount that a court decides is
the "fair value" of your Yankee shares. This amount may be more or less than the
value of what you would otherwise receive in the merger.
To exercise your dissenters' rights, you must not vote in favor of the
merger agreement and must follow the procedures required by Connecticut law.
EFFECTS OF THE MERGER ON THE RIGHTS OF YANKEE SHAREHOLDERS (SEE PAGES 69 TO 77)
If you receive NU shares in the merger, your rights as an NU shareholder
will be governed by Massachusetts law and by NU's declaration of trust. These
rights differ in certain respects from your current rights as a Yankee
shareholder, which are governed by Connecticut law and Yankee's certificate of
incorporation and by-laws.
8
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
NU shares are listed and traded on the New York Stock Exchange under the
symbol "NU." Yankee shares are listed and traded on the New York Stock Exchange
under the symbol "YES."
The following table provides trading and dividend information for NU and
Yankee shares for the periods indicated based on a calendar year. All of the
prices set forth in this section are as reported on the New York Stock Exchange
Composite Transaction Tape, based on published financial sources.
<TABLE>
<CAPTION>
YANKEE NU
--------------------------------- ---------------------------------
PRICE RANGE PRICE RANGE
DIVIDENDS -------------------- DIVIDENDS --------------------
DECLARED HIGH LOW DECLARED HIGH LOW
----------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1997
First Quarter........................................... $ 0.325 $ 23.875 $ 21.125 $ 0.25 $ 14.250 $ 7.625
Second Quarter.......................................... 0.335 25.000 20.750 0.00 9.875 7.750
Third Quarter........................................... 0.335 24.625 22.750 0.00 10.188 9.000
Fourth Quarter.......................................... 0.335 27.063 22.500 0.00 13.938 9.500
1998
First Quarter........................................... $ 0.335 $ 26.625 $ 24.125 $ 0.00 $ 14.313 $ 11.688
Second Quarter.......................................... 0.345 24.875 22.500 0.00 17.000 13.625
Third Quarter........................................... 0.345 26.250 23.250 0.00 17.063 14.375
Fourth Quarter.......................................... 0.345 31.438 26.000 0.00 17.250 15.438
1999
First Quarter........................................... $ 0.345 $ 29.375 $ 22.438 $ 0.00 $ 16.438 $ 13.750
Second Quarter.......................................... 0.355 40.438 23.000 0.00 18.313 13.563
Third Quarter to 8/18/99)............................... 0.355 40.875 39.500 0.00 19.000 17.375
</TABLE>
NU DIVIDENDS
As a result of the extended outages at Millstone and restructuring issues in
New Hampshire, NU suspended the quarterly dividend on its common shares,
beginning the second quarter of 1997. NU has begun considering whether to resume
payment of a common dividend and will likely review its dividend policy again in
the fall of 1999 as part of a comprehensive review of the company's cash flows.
Depending on such review, the company's current philosophy would be to resume
payment of a dividend at a modest level that can be increased steadily over a
number of years.
YANKEE DIVIDENDS
The merger agreement places some restrictions on the ability of Yankee and
its subsidiaries to declare or pay dividends prior to completion of the merger.
However, the merger agreement does not restrict Yankee's ability to declare and
pay its regular quarterly dividends and to increase the annualized amount of
these dividends by up to $.04 per share at the regular meeting of Yankee's board
of directors in June 2000.
The table below shows the closing prices for Yankee and NU shares on June
14, 1999, the last full trading day before the public announcement of the
proposed transactions, and on August 18, 1999, the most recent date for which
quotations were available prior to the printing of this document.
<TABLE>
<CAPTION>
YANKEE NU
--------------------------------- --------------------------------
DATE HIGH LOW CLOSE HIGH LOW CLOSE
- ----------------------------------------------------- --------- ---------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
June 14, 1999........................................ $ 33.000 $ 32.1875 $ 32.5000 $ 17.375 $ 16.875 $ 17.3125
August 18, 1999...................................... $ 40.875 $ 40.7500 $ 40.8125 $ 18.000 $ 17.500 $ 17.6875
</TABLE>
We urge you to obtain current market quotations for NU shares and Yankee
shares.
9
<PAGE>
NU SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
In the table on the following page, we provide you with selected historical
financial data of NU and its subsidiaries.
The data for each of the five fiscal years ended December 31, 1994 through
1998 have been derived from NU's audited financial statements.
The data as of and for the six months ended June 30, 1999 and June 30, 1998
have been derived from NU's unaudited financial statements. In the opinion of
management, these data include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of such periods.
Due to the effect of seasonal fluctuations and other factors on the
operations of NU, financial results for the six-month period ended June 30, 1999
are not necessarily indicative of results for the year ending December 31, 1999.
You should read the information set forth below in conjunction with the
respective audited and unaudited financial statements of NU incorporated by
reference in this document and the unaudited pro forma combined financial
statements and related notes presented elsewhere in this document. See "Where
You Can Find More Information" on page 79.
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
THOUSANDS OF DOLLARS, ---------------------------------------------------------- ---------------------
EXCEPT PER SHARE DATA 1998 1997 1996 1995 1994 1999 1998
- ----------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues................. $3,767,714 $3,834,806 $3,792,148 $3,750,560 $3,642,742 $2,081,976 $1,833,714
Net income/(loss).................. $ (146,753) $ (129,962) $ 38,929 $ 282,434 $ 286,874 $ 18,672 $ (11,676)
Basic and diluted earnings/(loss)
per common share................. $ (1.12) $ (1.01) $ 0.30 $ 2.24 $ 2.30 $ 0.14 $ (0.09)
Total assets....................... $10,387,381 $10,414,412 $10,741,748 $10,559,574 $10,584,880 $10,348,526 $9,558,420
Long-term debt..................... $3,282,138 $3,645,659 $3,613,681 $3,705,215 $3,942,005 $3,151,013 $3,364,622
Dividends per share................ $ -- $ 0.25 $ 1.38 $ 1.76 $ 1.76 $ -- $ --
Book value per share............... $ 15.63 $ 16.67 $ 18.01 $ 19.08 $ 18.47 $ 15.78 $ 16.60
</TABLE>
10
<PAGE>
YANKEE SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
In the table below, we provide you with selected historical consolidated
financial data of Yankee.
The data as of September 30, 1998 and for each year in the five-year period
ended September 30, 1998 have been derived from Yankee's audited financial
statements.
The data as of and for the nine months ended June 30, 1999 and June 30, 1998
have been derived from its unaudited financial statements. In the opinion of
management, these data include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of such periods.
Due to the effect of seasonal fluctuations and other factors on the
operations of Yankee, financial results for the nine-month period ended June 30,
1999, are not necessarily indicative of results for the year ending September
30, 1999. You should read the information set forth below in conjunction with
the respective audited and unaudited financial statements of Yankee incorporated
by reference in this document and the unaudited pro forma combined financial
statements and related notes thereto presented elsewhere in this document. See
"Where You Can Find More Information" on page 79.
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED JUNE
YEAR ENDED SEPTEMBER 30, 30,
THOUSANDS OF DOLLARS, ---------------------------------------------------------- ----------------------
EXCEPT PER SHARE DATA 1998 1997 1996 1995 1994 1999 1998
- -------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues.................... $ 314,767 $ 325,041 $ 339,940 $ 294,022 $ 317,298 $ 258,666 $ 270,115
Net income............................ $ 10,883 $ 16,957 $ 21,919 $ 12,358 $ 18,605 $ 17,188 $ 17,999
Basic earnings per average common
share............................... $ 1.04 $ 1.62 $ 2.10 $ 1.20 $ 1.81 $ 1.62 $ 1.72
Diluted earnings per average common
share............................... $ 1.04 $ 1.62 $ 2.10 $ 1.20 $ 1.81 $ 1.62 $ 1.72
Total assets.......................... $ 535,284 $ 500,364 $ 478,749 $ 479,301 $ 481,518 $ 522,581 $ 535,284
Long-term obligations................. $ 135,265 $ 139,282 $ 143,299 $ 146,966 $ 153,633 $ 184,615 $ 135,265
Dividends per share................... $ 1.36 $ 1.32 $ 1.28 $ 1.24 $ 1.19 $ 1.045 $ 1.015
Book value per share.................. $ 15.65 $ 15.85 $ 15.51 $ 14.60 $ 14.54 $ 16.29 $ 16.64
</TABLE>
NU SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
In the following table, we attempt to illustrate the financial results that
might have occurred for each of the periods specified below, if the merger had
been completed on (i) June 30, 1999 and December 31, 1998 of each respective
period, for purposes of the balance sheet items, and (ii) on January 1, 1999 and
January 1, 1998 of each respective period, for purposes of the income statement
items.
It is important to remember that this information is hypothetical, and does
not necessarily reflect the financial performance that would have actually
resulted if the merger had been completed on that date. It is also important to
remember that this information does not necessarily reflect future financial
performance if the merger actually occurs. See "NU Unaudited Pro Forma Combined
Condensed Financial Statements." The pro forma earnings per share are based on
143,283,142 average shares outstanding for the six months ended June 30, 1999
and 142,618,711 average shares outstanding for the
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<PAGE>
fiscal year ended December 31, 1998, assuming a conversion of 45% of the Yankee
shares into NU shares.
<TABLE>
<CAPTION>
FISCAL YEAR
SIX MONTHS ENDED
ENDED DECEMBER 31,
JUNE 30,1999 1998
-------------- -------------
THOUSANDS OF DOLLARS,
EXCEPT PER SHARE DATA
<S> <C> <C>
Operating revenues........................................... $ 2,255,641 $ 4,082,481
Net income/(loss)............................................ $ 17,699 $ (156,500)
Basic and diluted earnings/loss per common share............. $ 0.12 $ (1.10)
Total assets................................................. $ 11,187,263 $11,238,821
Long-term debt............................................... $ 3,578,686 $ 3,681,076
Dividends per share.......................................... $ -- $ --
Book value per share......................................... $ 15.95 $ 15.67
</TABLE>
UNAUDITED COMPARATIVE PER SHARE DATA
In the table below, we have summarized information concerning earnings, cash
dividends and book value per share for:
- Yankee and NU on a historical basis;
- for the combined company on a pro forma combined basis; and
- for Yankee on a per share equivalent pro forma basis.
We have derived the pro forma combined earnings per share from the unaudited
pro forma combined financial statements presented on pages 63 to 68 in this
document. Book value per share for the pro forma combined presentation is based
upon outstanding NU shares, adjusted to include the estimated number of NU
shares to be issued in the merger. In determining the number of NU shares to be
issued to Yankee shareholders, it was assumed that 45% of the merger
consideration would be paid in NU shares. It was also assumed that the NU price
per share was $17.875 which was the closing price on June 30, 1999.
The per share equivalent pro forma combined data for Yankee shares and the
book value per share data for the pro forma combined presentation are based on
the assumed conversion of 45% of the outstanding shares of Yankee into 2.5 NU
shares per Yankee share. We calculated the exchange ratio by dividing $45 by
$17.875, the closing price on the New York Stock Exchange Composite Transaction
Tape for NU shares on June 30, 1999. See "The Merger Agreement--Conversion of
Shares of Yankee Common Stock" on pages 43 to 46.
You should read the information set forth below in conjunction with the
respective audited and unaudited financial statements of NU and Yankee
incorporated by reference in this document and the unaudited pro forma combined
financial statements and related notes thereto presented on pages 63 to 68 in
this document. See "Where You Can Find More Information" on page 79.
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
------------------- -------------------
<S> <C> <C>
NU--HISTORICAL
Earnings per share, basic and diluted.................................... 0.14 (1.12)
Cash dividends declared per share........................................ 0.00 0.00
Book value per share at period end....................................... 15.78 15.63
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
JUNE 30, 1999 SEPTEMBER 30, 1998
------------------- -------------------
<S> <C> <C>
YANKEE--HISTORICAL
Earnings per share, basic and diluted.................................... 0.88 1.04
Cash dividends declared per share........................................ 0.70 1.36
Book value per share at period end....................................... 16.43 15.65
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
------------------- -------------------
<S> <C> <C>
COMBINATION OF NU & YANKEE--PRO FORMA
Earnings per share, basic and diluted.................................... 0.12 (1.10)
Cash dividends declared per share........................................ 0.00 0.00
Book value per share at period end....................................... 15.95 15.67
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
------------------- -------------------
<S> <C> <C>
YANKEE--PER SHARE EQUIVALENT BASED ON COMBINATION OF NU & YANKEE
Earnings per share, basic and diluted.................................... 0.30 (2.75)
Cash dividends declared per share........................................ 0.00 0.00
Book value per share at period end....................................... 39.88 39.18
</TABLE>
13
<PAGE>
RISK FACTORS
IN CONSIDERING WHETHER TO VOTE IN FAVOR OF THE MERGER AGREEMENT AND WHETHER
TO ELECT TO RECEIVE NU SHARES OR CASH FOR YOUR YANKEE SHARES, YOU SHOULD
CONSIDER ALL THE INFORMATION WE HAVE INCLUDED IN THIS PROXY STATEMENT/PROSPECTUS
AND ITS APPENDICES. YOU SHOULD ALSO CONSIDER THE INFORMATION INCLUDED IN THE
DOCUMENTS WE HAVE INCORPORATED BY REFERENCE. IN ADDITION, YOU SHOULD PAY
PARTICULAR ATTENTION TO THE FOLLOWING RISK FACTORS RELATED TO THE MERGER AND TO
NU. THESE FACTORS ARE IMPORTANT, AND WE HAVE NOT BEEN ABLE TO QUANTIFY THEIR
POTENTIAL EFFECTS ON THE COMBINED COMPANY THAT WILL RESULT FROM THE MERGER.
REGULATORY ISSUES
The consummation of the merger is conditioned upon receiving approval from
various governmental regulatory authorities. These include:
- approval of the merger by the Connecticut Department of Public Utility
Control;
- approval by the SEC under the Public Utilities Holding Company Act of
1935; and
- the expiration or termination of the applicable waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
Other regulatory filings and approvals are also necessary. Yankee and NU are
seeking to obtain all required approvals and consents.
We cannot be certain that all of the required approvals and consents will be
obtained, nor can we be certain that they will be obtained within the time frame
contemplated by the merger agreement. A delay in obtaining the required
approvals and consents will delay and possibly prevent the completion of the
merger. In addition, we may obtain the required approvals and consents, but with
restrictions on the combined company that may have a material adverse effect on
NU or Yankee. Under such circumstances, Yankee or NU could choose to terminate
the merger agreement.
For additional information on the required regulatory approvals, see "The
Merger--Regulatory Approvals" on pages 31 to 32.
RISKS INHERENT IN THE UTILITY INDUSTRY
Yankee investors who choose to receive shares in NU will still be subject to
the competitive pressures and regulatory conditions of the utility industry.
The merger will combine two companies that to a large extent share a common
regulatory environment. They are also currently affected by a number of other
similar factors, including deregulation and increased competition. The utility
industry has been undergoing dramatic structural change for several years,
resulting in increasing competitive pressures faced by electric and local gas
distribution companies. Increased competition may create greater risks to the
stability of utility earnings generally, and may in the future reduce NU's
earnings from retail electric and natural gas sales.
PAYMENT OF CASH CONSIDERATION
NU expects to finance the cash consideration to be paid to Yankee
shareholders from cash-on-hand, receipts from a debt offering by NU and proceeds
from restructuring in Connecticut, Massachusetts and New Hampshire. If NU does
not receive these proceeds in time to pay the cash consideration to the Yankee
shareholders, then it may need to obtain bridge financing from commercial banks.
Management believes that NU will have access to sufficient short-term and
long-term capital financing at reasonable rates to enable it to pay the cash
consideration. However, the terms of these
14
<PAGE>
financings may contain covenants that limit the financial and operational
flexibility of the combined company until repayment.
UNCERTAINTIES IN INTEGRATING THE COMPANIES
We expect that the merger will bring certain benefits and operating
efficiencies to the combined company. See "The Merger--Yankee's Reasons for the
Merger" on pages 24 to 25. This depends, however, on obtaining timely and
favorable regulatory approvals. It also depends on the successful integration of
the businesses of Yankee and NU. Unfortunately, we cannot assure you that this
will occur.
Management will have to dedicate substantial time and efforts to the
consolidation of operations. Any unexpected difficulties encountered in the
transition and integration process could adversely affect the levels of expenses
and operating results of the combined company. We cannot assure you that the
combined company will realize any of the benefits sought in the merger.
ENVIRONMENTAL MATTERS
Yankee's and NU's utility subsidiaries are regulated by federal, state and
local authorities with regard to air and water quality control and other
environmental matters. While we do not believe that combining the operations of
the companies will materially increase their exposure to environmental
liabilities, we cannot estimate precisely the future liabilities of the combined
company.
NEW HAMPSHIRE RESTRUCTURING
NU and its wholly-owned subsidiary, Public Service Company of New Hampshire,
have been involved in various disputes with the State of New Hampshire and the
New Hampshire Public Utilities Commission (the "NHPUC") over the past several
years regarding the implementation of restructuring in that state. On June 14,
1999, the interested parties signed a Memorandum of Understanding intended to
settle these disputes, including a number of pending regulatory and court
proceedings. A final agreement was filed with the NHPUC on August 2, 1999.
The agreement is contingent upon the enactment of securitization legislation
by the New Hampshire Legislature and other approvals required from various
federal and state regulatory agencies and financial lenders. NU anticipates that
the plan will become effective in early 2000, but if the necessary approvals are
not obtained and the agreement is not implemented as intended, this could have a
material adverse effect on NU.
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THE COMPANIES
NORTHEAST UTILITIES
174 Brush Hill Avenue
West Springfield, Massachusetts 01090-2010
(413) 785-5871
Northeast Utilities ("NU") is the parent of a number of companies comprising
the NU system and is not itself an operating company. NU is a registered holding
company under the Public Utility Holding Company Act of 1935.
The NU system furnishes franchised retail electric service in Connecticut,
New Hampshire and western Massachusetts through three wholly-owned subsidiaries
of NU:
- The Connecticut Light and Power Company;
- Public Service Company of New Hampshire; and
- Western Massachusetts Electric Company.
It also furnishes retail electric service to a limited number of customers
through another wholly-owned subsidiary, Holyoke Water Power Company. In
addition, these companies together furnish wholesale electric service to various
municipalities and other utilities. The NU system serves approximately 30% of
New England's electric needs and is the 24th largest electric utility system in
the country as measured by revenues.
NU Enterprises, Inc., a direct subsidiary of NU, is the holding company for
the NU system's unregulated businesses, including:
- Northeast Generation Company;
- Northeast Generation Services Company;
- Select Energy, Inc.;
- Select Energy Portland Pipeline, Inc.;
- HEC Inc.; and
- Mode 1 Communications, Inc.
These companies engage, either directly or through subsidiaries, in a
variety of energy-related and telecommunications activities, including retail
and wholesale electric and gas sales in competitive markets.
North Atlantic Energy Corporation is a special-purpose operating subsidiary
of NU that owns a 35.98% interest in the Seabrook nuclear generating facility in
Seabrook, New Hampshire. It sells its share of the capacity and output from the
Seabrook plant to Public Service Company of New Hampshire under two
life-of-unit, full-cost recovery contracts.
Several wholly-owned subsidiaries of NU provide support systems for the NU
system companies and, in some cases, for other New England utilities:
- Northeast Utilities Service Company provides centralized accounting,
administrative, information resources, engineering, financial, legal,
operational, planning, purchasing and other systems to the NU system
companies;
- North Atlantic Energy Service Corporation has operational
responsibility for the Seabrook nuclear plant;
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- Northeast Nuclear Energy Company acts as agent for certain NU system
companies and other New England utilities in operating the Millstone
nuclear generating facilities in Waterford, Connecticut.
Three other subsidiaries construct, acquire or lease some of the property
and facilities used by the NU system companies.
As of December 31, 1998, NU system companies had 9,077 full- and part-time
employees on their payrolls.
MERGER SUB
Merger Sub will be a wholly-owned, special-purpose subsidiary of NU. It will
be formed under the laws of the State of Connecticut once regulatory approval
from the SEC is received. It will be formed solely for the purpose of completing
the merger with Yankee Energy System, Inc.
YANKEE ENERGY SYSTEM, INC.
599 Research Parkway
Meriden, Connecticut 06450-1030
Yankee Energy System, Inc. ("Yankee") is not itself an operating company. It
is a public utility holding company incorporated in Connecticut in 1988 and is
exempt from registration under the Public Utility Holding Company Act of 1935.
Yankee is primarily engaged in the retail distribution of natural gas
through its wholly-owned subsidiary, Yankee Gas Services Company ("Yankee Gas"),
a Connecticut public service company. Yankee Gas serves approximately 185,000
residential, commercial and industrial customers in 69 cities and towns in
Connecticut.
Yankee has four additional wholly-owned operating subsidiaries which support
Yankee's core natural gas distribution business or allow Yankee to position
itself in the marketplace as a provider of a full range of energy-related
services to commercial, industrial and institutional customers:
- Yankee Energy Services Company ("YESCo") provides comprehensive
energy-related services through two principal divisions.
-- YESCo Controls provides building automation services, including
engineering, installing, and maintaining building control systems;
-- YESCo Mechanical Services provides comprehensive heating ventilation
and air-conditioning, boiler and refrigeration equipment services
and installation;
- R.M. Services, Inc., both directly and under contract with Dun and
Bradstreet Receivables Management Services, provides residential
collection services for companies throughout the United States;
- Yankee Energy Financial Services Company provides a full range of
equipment and home improvement financing services through various
programs such as the Hometown Energy Loan Program; and
- NorConn Properties, Inc. owns real estate and leases it to Yankee Gas.
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THE SPECIAL MEETING
The board of directors of Yankee is soliciting proxies in the accompanying
form for use at the Special Meeting of Yankee shareholders to be held on October
12, 1999 at 10:00 a.m. at the Ramada Plaza Hotel and Conference Center, 275
Research Parkway, Meriden, Connecticut (and at any adjournment or postponement
of that meeting).
The purpose of the Special Meeting is to vote upon the proposal to approve
the merger agreement. Under the merger agreement, Yankee will become a
subsidiary of NU and each Yankee shareholder, other than those who have
exercised dissenters' appraisal rights, will receive their share of the
consideration being paid by NU for Yankee shares.
RECORD DATE; VOTING POWER; VOTE REQUIRED
Only holders of record of Yankee shares at the close of business (5:00 p.m.)
on August 6, 1999 (the record date) will be entitled to vote at the Special
Meeting. At the close of business on the record date, 10,633,666 shares of
Yankee common stock were issued and outstanding and entitled to vote at the
Special Meeting. Each Yankee share is entitled to one vote on any matter that
may properly come before the Special Meeting. Votes may be cast at the Special
Meeting in person or by proxy. See "Voting of Proxies" below.
The presence at the Special Meeting, either in person or by proxy, of the
holders of a majority of the outstanding Yankee shares entitled to vote shall
constitute a quorum. If a quorum is not present at the Special Meeting, Yankee
management will adjourn or postpone the meeting in order to solicit additional
proxies.
The affirmative vote of the holders of at least two-thirds of the
outstanding Yankee shares is required to approve the merger agreement.
Abstentions and properly-executed broker non-votes (I.E., shares held by brokers
as nominees for shareholders who have not instructed their broker how to vote
and the broker or nominee does not have discretionary voting power on that
proposal) will be counted as present for purposes of establishing a quorum. They
will not, however, be counted for the purposes of determining whether the merger
agreement has been approved. Abstentions and properly executed broker non-votes
will therefore have the same effect as a vote against the merger agreement.
OWNERSHIP OF VOTING STOCK BY MANAGEMENT
At the close of business on August 6, 1999, Yankee's directors and executive
officers and their affiliates beneficially owned 68,382 shares of Yankee common
stock, which represents less than 1% of the shares of Yankee common stock issued
and outstanding. We expect that all directors and executive officers of Yankee
will vote their Yankee shares to approve the merger agreement.
VOTING OF PROXIES
Shares represented by properly signed and dated proxies received in time for
the Special Meeting will be voted in accordance with the instructions on the
proxy card. If your proxy is properly signed and dated but does not contain
voting instructions, your proxy will be voted for the approval of the merger
agreement. Your proxy also confers discretionary authority on the proxies to
vote on any other matter not currently known to management that may properly
come before the Special Meeting. We do not expect that any matter other than the
approval of the merger agreement will be brought before the Special Meeting. The
grant of a proxy on the enclosed proxy card does not preclude you from voting in
person.
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If you own shares but do not have certificates for them (for example through
Yankee's 401(k) Stock Ownership Plan, the Employee Stock Purchase Plan or the
Dividend Reinvestment Plan), your proxy card represents both:
(a) the number of shares of Yankee common stock certificated in your name;
and
(b) the number of full shares of Yankee common stock credited to your
account;
unless the registrations are in different names. If you have shares registered
in different names, you will receive a separate proxy card for each
registration. All these shares will be voted in accordance with the instructions
on the proxy card. If your shares are held by a broker as nominee, you will
receive a voter information form from your broker.
REVOCABILITY OF PROXIES
You may revoke a proxy at any time before it has been exercised by:
- notifying in writing the Secretary of Yankee at 599 Research Parkway,
Meriden, Connecticut 06450-1030;
- completing a later-dated proxy and returning it to the attention of
Thomas D. Dorsey, Director of Investor Relations of Yankee; or
- appearing in person and voting at the Special Meeting.
Additional proxy cards are available from the Director of Investor Relations
of Yankee.
Merely attending the Special Meeting will not by itself revoke a proxy. If
you attend the Special Meeting you may revoke your proxy and vote in person by
informing any of the persons named on the enclosed proxy card that you wish to
revoke a previously-submitted proxy.
We do not expect to adjourn the Special Meeting for a period long enough to
require setting a new record date for the Special Meeting. If an adjournment
occurs, it will have no effect on the ability of the Yankee shareholders of
record as of the record date either to exercise their voting rights or to revoke
any previously-submitted proxies.
SOLICITATION OF PROXIES
We will bear the costs of soliciting proxies from Yankee shareholders,
except for the costs associated with the printing and filing of this proxy
statement/prospectus, which NU and Yankee intend to equally share.
In addition to solicitation by mail, the directors, officers and employees
of Yankee and its subsidiaries may solicit proxies from Yankee shareholders
either by telephone or in person. These directors, officers and employees will
not receive additional compensation but may be reimbursed for out-of-pocket
expenses incurred in connection with the solicitation of proxies.
Arrangements will also be made with banks, brokers or other custodians,
nominees and fiduciaries to forward solicitation materials to the beneficial
owners of Yankee common stock held of record by these persons. Yankee will
reimburse theses parties for reasonable out-of-pocket expenses incurred in
forwarding the solicitation materials.
We have retained Chase Mellon Shareholder Services to help solicit proxies.
Chase Mellon Shareholder Services will receive a fee that we expect will not
exceed $12,500 as compensation for its basic solicitation services, plus
additional charges for any telephone solicitation services and reimbursement of
its out-of-pocket expenses. Yankee has agreed to indemnify Chase Mellon
Shareholder Services against certain liabilities arising from its engagement.
YOU SHOULD NOT SEND STOCK CERTIFICATES WITH YOUR PROXY CARDS.
NO VOTE REQUIRED FOR NU SHAREHOLDERS. Under Massachusetts law, NU
shareholders need not approve the merger agreement. Thus, no one is soliciting
proxies from NU shareholders.
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THE MERGER
THIS SECTION OF THE PROXY STATEMENT/PROSPECTUS, AS WELL AS THE NEXT SECTION
ENTITLED "THE MERGER AGREEMENT," DESCRIBE CERTAIN ASPECTS OF THE PROPOSED
MERGER. THESE SECTIONS HIGHLIGHT KEY INFORMATION ABOUT THE MERGER AND THE MERGER
AGREEMENT, BUT THEY MAY NOT INCLUDE ALL THE INFORMATION THAT YOU WOULD LIKE TO
KNOW. THE MERGER AGREEMENT IS ATTACHED AS APPENDIX A TO THIS DOCUMENT. WE URGE
YOU TO READ IT IN ITS ENTIRETY.
GENERAL DESCRIPTION OF THE MERGER
Under the merger agreement, Yankee will merge into Merger Sub, which will be
formed prior to the merger as a wholly-owned subsidiary of NU. Merger Sub will
be the surviving company, will change its name to "Yankee Energy System, Inc.",
and will continue to conduct Yankee's businesses as a direct, wholly-owned
subsidiary of NU.
Yankee shareholders (unless they have dissented) will have the right to
receive cash or NU shares in exchange for their Yankee shares. They can elect to
convert some of their Yankee shares into cash and others into NU shares.
However, this election is subject to proration and an adjustment driven by tax
considerations. Under the merger agreement, 55% of all issued and outstanding
Yankee shares will be exchanged for cash, and 45% will be exchanged for NU
shares.
The per share cash consideration amounts to $45 in cash (as may be adjusted
upwards). The per share stock consideration will be derived by dividing $45 by
the average closing price of NU shares on the New York Stock Exchange for a
defined period prior to completion of the merger. For a more thorough discussion
of how the consideration to be received by Yankee shareholders will be
calculated, see "The Merger Agreement--Conversion of Shares of Yankee Common
Stock" on pages 43 to 46.
The total value of the consideration that Yankee shareholders will receive
in the merger is approximately $478 million. NU anticipates funding the cash
portion of this figure from cash-on-hand, receipts from a debt offering and
proceeds from restructuring in Connecticut, Massachusetts and New Hampshire.
BACKGROUND
For the last several years, Yankee's board of directors regularly reviewed
strategic options for increasing shareholder value. Among the options considered
during this time were:
- remaining an independent and small-sized company primarily engaged in
the business of gas distribution in Connecticut;
- growing the company through increased emphasis on diversification into
non-regulated businesses;
- looking for a merger partner of similar size; and
- looking for a merger partner of larger size.
Prior to the third quarter of 1998, management's efforts were directed
primarily to diversification activities through the establishment of YESCo and
R.M. Services, Inc. (See page 17 for a description of these companies.)
Discussions regarding a potential combination with either of the other two local
gas distribution companies in Connecticut also took place but did not result in
serious negotiations or due diligence activities.
The previous chief executive officer of Yankee resigned in late September
1998 following discussions with the board of directors that focused on two
developments.
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1. While the R.M. Services, Inc. business was showing strong potential,
Yankee's diversification efforts through YESCo had not yielded the
earnings growth that was necessary to justify further substantial
investment by Yankee in non-regulated businesses, given Yankee's size.
2. The pace of consolidation within the gas industry had picked up.
Electric utility companies were showing increased interest in acquiring
gas utilities due to the perceived advantage of being able to offer
customers multiple energy products and services, utilizing both
electricity and natural gas, in a growing competitive environment.
After the election of Charles E. Gooley as chief executive officer, and
further discussions of these developments by the board of directors, Yankee's
financial advisors, SG Barr Devlin, who had been retained in March 1998, gave
several updates to the board of directors regarding business combination
activities in the electric and gas utility industries. These updates included
information on the significant premiums being paid by acquirors for medium- and
small-sized distribution companies.
The board of directors also continued to review the prospects for earnings
growth and total return to shareholders if Yankee were to remain independent. In
the period October 1998 through February 1999, Yankee received some expressions
of interest from other companies in exploring possible business combinations.
At a meeting on March 23, 1999, SG Barr Devlin made a presentation to the
board of directors on prospective counterparties to business combinations with
Yankee and the potential value to Yankee shareholders of a sale of the company
or a merger of equals. In this presentation, SG Barr Devlin also gave a
description of how the negotiation process would run, and the typical time frame
involved. At this meeting, the board of directors authorized management and SG
Barr Devlin to distribute a confidential information memorandum concerning
Yankee to a limited number of companies for the purpose of gauging their
interest in pursuing a business combination with Yankee. Following the execution
of confidentiality and standstill agreements, four companies received the
confidential information memorandum in early April 1999.
On April 16, 1999, the executive committee of the board of directors met via
teleconference and discussed with SG Barr Devlin and counsel to Yankee the
various forms and components of consideration to Yankee's shareholders which
might be negotiated in any business combination transaction. The discussion
centered on the pros and cons of cash and stock components of consideration,
including tax impacts, dividends, the effects of earnings accretion and dilution
and the use of contractual "collar" mechanisms.
At its regularly scheduled meeting on May 11, 1999, the board of directors
received a report from management and SG Barr Devlin as to the preliminary
indications of interest submitted by the companies that received the
confidential information memorandum. The discussion focused on the preliminary
price indications as well as proposed corporate structures, dividend policies,
potential issues in obtaining regulatory approvals and mitigation of the risk of
price declines where stock was proposed as part of the consideration. Following
this discussion, the board of directors concurred with the recommendation of
management and SG Barr Devlin that three of the companies that submitted
preliminary non-binding proposals be invited to conduct in-depth due diligence
concerning Yankee and submit a second round of proposals.
During the period from May 17 through May 22, 1999, two of the three
companies reviewed material in a data room established by Yankee and received
presentations from management concerning Yankee's business and prospects. The
third company decided not to participate further in the process. Yankee directed
its counsel to distribute a proposed form of merger agreement to the companies'
counsel. During this period, management and SG Barr Devlin also responded to
numerous supplemental data requests from the companies. The two companies made
management presentations to certain Yankee officers, and management reviewed SEC
filings and other information concerning the
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potential acquirors. Mr. Gooley also met with the chief executive officers of
both companies to discuss, among other things, opportunities for Yankee's
employees in any combined organization.
On June 4, 1999, the board of directors met in order to consider revised
proposals submitted by the two companies that participated in the due diligence
process. SG Barr Devlin reviewed and compared selected terms of the two
proposals, including, among other terms:
- the amount and form of consideration offered;
- the tax treatment to Yankee's shareholders;
- the type of contractual price protection offered as to the stock
component of one of the offers; and
- the corporate and management structures proposed.
Yankee's counsel summarized the changes proposed by both companies in
mark-ups of the draft merger agreement, which mark-ups had been sent to the
directors. The board of directors then discussed the historical stock
performance of the two companies, the ability of the companies to receive timely
regulatory approvals for the proposed combinations, and other qualitative
factors.
After this discussion, the board of directors directed management and
Yankee's financial and legal advisors to meet with one of the companies
("Company A") to ascertain whether a satisfactory merger agreement could be
negotiated between Company A and Yankee. On June 6, 1999, a conference call
between Yankee and Company A and their legal and financial advisors occurred to
discuss the principal legal and business issues. The parties met on June 7, 1999
to further discuss these issues. Three of the six members of Yankee's board of
directors participated in the conference call and meeting. On June 7, 1999, Mr.
Gooley and the chief executive officer of Company A also met to discuss the
proposed terms of employment of Mr. Gooley in the post-merger organization.
Following the June 7 meeting, a number of issues remained unresolved in the
negotiations with Company A. Chief among these issues were:
- concerns over the ability of Company A to obtain necessary regulatory
approvals on a timely basis in light of other pending and proposed
utility company acquisitions by Company A;
- terms of the merger agreement proposed by Company A which would have
exposed Yankee to the risk of termination of the transaction under
certain circumstances if regulators would not permit all of the
combinations to proceed;
- the limited downside protection afforded by the proposed terms of the
transaction in the event of a decline in Company A's stock price prior
to the closing; and
- the ability of Company A's management to complete multiple pending
transactions on a timely basis.
After discussion of these and other issues in telephone conference calls on
June 7 and June 8, 1999, the board of directors determined to explore further
the possibility of a combination with NU.
On June 9, 1999, members of the board of directors participated in a
conference call with management and Yankee's legal and financial advisors to
plan for potential negotiations with NU. SG Barr Devlin reviewed with the board
the increases NU had previously made in the price it was offering for Yankee
shares. At the time revised proposals were originally submitted, NU had offered
$43 in cash per Yankee share. NU had subsequently increased this amount to $44
per share by the time of the June 4 board meeting. On June 5, 1999, SG Barr
Devlin was notified that NU was increasing its price to $44.50 per Yankee share.
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The board of directors then established additional terms, not reflected in
NU's previous proposals, on which Yankee would be prepared to undertake
negotiations with NU. These terms included:
- the addition to the purchase price of a daily accretion factor if the
closing date does not occur within six months following the date
Yankee's shareholders approve the merger agreement;
- a termination fee payable by NU to Yankee under certain circumstances
if the merger agreement is terminated because approval of the SEC under
the Public Utility Holding Company Act of 1935 is not obtained;
- the retention in the merger agreement of a covenant proposed by Yankee
that restricts NU from undertaking additional business combination
transactions that could reasonably be expected to significantly
increase the risk of a regulatory approval required for the merger not
being received, or to materially delay completion of the merger; and
- satisfactory terms of employment for those members of Yankee's senior
management team whom NU proposed to employ in the post-merger
organization.
On June 10, 1999, counsel for Yankee communicated these issues to counsel
for NU. On June 11, 1999, Yankee and its financial and legal advisors met with
NU and its legal advisors. Five of the six members of the board of directors of
Yankee attended the meeting. NU's chief executive officer, Mr. Morris, and its
chief financial officer, Mr. Forsgren, attended part of the meeting and made a
presentation concerning NU's business and prospects and its plans for
integration of Yankee's business into NU's operations. At the conclusion of this
presentation, Yankee's representatives at the meeting met separately to discuss
the NU presentation and the outstanding issues relating to the merger agreement.
Yankee directed SG Barr Devlin to seek NU's agreement to a combination
stock-and-cash transaction, rather than an all-cash offer, with the stock
portion not being subject to any contractual "collar" provision. SG Barr Devlin
was also directed to seek a further increase in the price being offered by NU.
Following this session, the legal and financial representatives of the
parties negotiated the merger agreement. NU also presented to Mr. Gooley a
proposed draft of an employment agreement to be effective following the merger,
and the general terms of offers of employment to other members of Yankee's
senior management team were discussed. On June 12, 1999, Yankee's counsel
circulated a revised draft of the merger agreement.
On June 13, 1999, a conference telephone call was held among Yankee
officers, its legal and financial advisors and four members of the board of
directors in order to review the progress of negotiations with NU. On the same
day, further negotiations concerning the merger agreement took place between
representatives of Yankee and NU.
On June 14, 1999, the board of directors held a meeting to review and
consider the NU proposal. Prior to the commencement of the meeting, Yankee
received notification from NU that it was increasing its proposed price for
Yankee shares to $45 per share, payable in cash or NU common shares but subject
to proration if Yankee shareholders owning more than 55% of Yankee shares elect
to receive cash or if Yankee shareholders owning more than 45% of Yankee shares
elect to receive NU common shares. Mr. Gooley and Yankee's legal and financial
advisors explained the NU proposal to the board of directors. The board
discussed and analyzed the NU proposal, comparing it to other available
alternatives, including the continuing interest of Company A as evidenced by its
revised cash-and-stock offer at a 3.3% higher price than the NU offer. After
such discussion, the board of directors unanimously determined that, for the
reasons set out in the following paragraphs, it was in the best interests of
Yankee's shareholders, its employees and its customers for Yankee to enter into
a business combination with NU. The board of directors then approved the merger
agreement and authorized Yankee to enter into it. Later that day, Yankee and NU
executed and delivered the merger agreement.
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YANKEE'S REASONS FOR THE MERGER
At a meeting held on June 14, 1999, after determining that the merger is
fair to and in the best interests of Yankee's shareholders, its employees and
its customers, the Yankee board of directors unanimously approved the merger
agreement. In approving the merger agreement and in reaching its recommendation,
the Yankee board of directors consulted with and relied upon information and
reports prepared or presented by Yankee's management and Yankee's legal and
financial advisors. The following are the material factors that the Yankee board
of directors considered:
1. The board of directors' review and analysis of Yankee's business,
current and future financial condition, current earnings and earnings
prospects, as well as the competitive business environment and changing
regulatory environment facing a relatively small company such as Yankee;
2. Historical market prices of Yankee shares;
3. A review of the possible alternatives to a sale of Yankee, including:
- the prospects of continuing to operate as a small-sized independent gas
distribution company or attempting to acquire other smaller
distribution companies in the New England region;
- the value to shareholders of such alternatives and the timing and
likelihood of actually achieving additional value from these
alternatives; and
- the possibility that Yankee's future performance might lead to a share
price having a lower value than the consideration being offered in the
merger;
4. The per share consideration of $45 to be paid in the merger represents a
premium for the Yankee shares of approximately 38% over the per share
price of the Yankee shares on June 14, 1999, the last trading day before
the announcement of the merger, and a premium of approximately 79% over
the per share price for the Yankee shares on April 22, 1999, the last
trading day before the announcement of the acquisition of another
Connecticut gas distribution company began affecting Yankee's share
price;
5. The agreement of NU not to subject the portion of the merger
consideration payable in NU shares to a customary contractual "collar"
mechanism, with the result that Yankee shareholders have essentially
complete protection against any potential decrease in the trading price
of NU shares in the period between the date of the merger agreement and
the second trading day prior to the closing date;
6. The potential upward adjustment in the merger consideration by $0.005
for each day the completion of the merger is delayed past the end of the
six-month period after the date on which Yankee shareholders approve the
merger agreement;
7. The provision of a termination fee payable to Yankee under certain
circumstances if the merger agreement is terminated due to the failure of
NU to receive all necessary approvals under the Public Utility Holding
Company Act of 1935. The board of directors believes that both this
feature and the potential price adjustment provide strong protection
against the risks to Yankee shareholders of a delay in receiving, or the
non-receipt of, this approval;
8. The board of directors' assessment of NU's future prospects and business
strategy; the potential for appreciation in trading prices of NU shares
following the closing date; and the ability of Yankee shareholders to
select either cash or NU shares, subject to proration;
9. The financial presentation of SG Barr Devlin, including its opinion
dated June 14, 1999 to the board of directors as to the fairness of the
merger consideration from a financial point of view
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to the Yankee shareholders, as described below in "Opinion of the
Financial Advisor to the Yankee Board";
10. The terms of the merger agreement, including the covenant regarding
future acquisition activities of NU described above under "Background"
and the right of the board of directors under certain circumstances to
terminate the merger agreement prior to its approval by the Yankee
shareholders in the exercise of its fiduciary duty in connection with
receipt by Yankee of a proposal superior to that given by NU; and
11. The likelihood of consummation of the merger, including an assessment of
the risks associated with obtaining necessary federal and state
regulatory approvals on a timely basis compared to the board's view of
such risks in the context of Company A's proposal.
In determining to recommend the approval of the merger agreement, the board
of directors also considered that the merger, which would result in the creation
of a combined NU and Yankee system, was in the best interests of Yankee's
employees, customers and the communities that Yankee serves. Yankee's
residential, commercial, industrial and municipal customers will have the
convenience and efficiency of their electric and gas needs being supplied by a
single energy services company with reduced transaction costs incurred in
gathering and analyzing information, contacting energy suppliers, negotiating
terms of services and paying bills. The board of directors also took into
account synergy-related cost savings which are expected to be realized over the
longer term that would not be available to the separate companies absent the
merger. The board of directors believes that these factors will help the
combined company maintain competitive gas and electric rates for their
customers.
In view of the wide variety of factors considered in connection with its
evaluation of the proposed merger, the board of directors did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the foregoing factors. The board of directors viewed its position and
recommendation as being based on the totality of the information presented to
and considered by it. While the foregoing discussion of the information and
factors considered by the board of directors is not intended to be
all-inclusive, it does constitute a summary of all material information
considered by the board of directors in determining to recommend approval of the
merger agreement.
OPINION OF THE FINANCIAL ADVISOR TO THE YANKEE BOARD
On March 30, 1998, Yankee hired SG Barr Devlin to act as Yankee's financial
and strategic advisor in developing and implementing future strategic and
financial courses of action, including a potential business combination. SG Barr
Devlin delivered its written opinion to the Yankee board of directors dated June
14, 1999 that, as of the date of the opinion, the merger consideration was fair
from a financial point of view to holders of shares of Yankee common stock.
A COPY OF SG BARR DEVLIN'S OPINION IS ATTACHED AS APPENDIX B AND
INCORPORATED IN THIS DOCUMENT BY REFERENCE. YOU SHOULD READ THE ATTACHED OPINION
CAREFULLY AND IN ITS ENTIRETY.
In connection with rendering its opinion, SG Barr Devlin reviewed and relied
upon:
- the annual reports, Forms 10-K and selected other public filings of
Yankee for the three years ended September 30, 1998 and the Forms 10-Q
and related unaudited financial information for the quarterly periods
ended December 31, 1998 and March 31, 1999;
- the annual reports, Forms 10-K, and selected other public filings of NU
for the three years ended December 31, 1998 and the Form 10-Q and
related unaudited financial information for the quarterly period ended
March 31, 1999;
- certain internal information (including financial forecasts) provided
by Yankee;
- the merger agreement; and
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<PAGE>
- other materials deemed by SG Barr Devlin to be necessary or
appropriate.
SG Barr Devlin also:
- conducted discussions with members of senior management of Yankee and
NU about their businesses, regulatory environments, prospects and
strategic objectives;
- reviewed the historical market prices and trading activity for Yankee
shares and NU shares;
- compared certain financial and operational information for Yankee with
similar information for certain other companies;
- compared the proposed financial terms of the merger with similar
information from certain utility industry business combinations;
- analyzed the valuation of Yankee shares using a variety of valuation
methods; and
- performed other studies and analyses as it deemed appropriate.
SG Barr Devlin relied upon the accuracy and completeness of all financial
and other information provided to it by Yankee and NU, and upon the assurances
of management of Yankee and NU that they were not aware of any facts that would
make that information inaccurate or misleading. SG Barr Devlin also relied upon
the assurances of management of Yankee that all financial projections were
reasonably prepared and reflected the best then-available estimates and
judgments regarding future financial performance and the projected outcomes of
legal, regulatory and other contingencies. These projections and estimates do
not necessarily indicate actual values or predict future results or values,
which may be significantly more or less favorable than projected or estimated.
SG Barr Devlin was not provided with and did not undertake an independent
evaluation or appraisal of the assets or liabilities of Yankee or NU, nor did it
make any physical inspection of the properties or assets of Yankee or NU.
SG Barr Devlin assumed that the merger will be a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, and
that Yankee shareholders who exchange their shares for NU common shares will
recognize no gain or loss for federal income tax purposes as a result of the
merger. SG Barr Devlin assumed that the merger will be accounted for by the
purchase method of accounting. SG Barr Devlin's opinion is necessarily based
upon general financial, stock market and other conditions and circumstances as
they existed and could be evaluated, and the information made available to it as
of the date of the opinion.
SG Barr Devlin's opinion is directed to the Yankee board of directors and
the fairness, from a financial point of view, of the merger consideration taken
as a whole (and not to the fairness of the amount of cash consideration, the
stock consideration or the mixed consideration (where Yankee shareholders
receive a combination of cash and stock) individually, as to which SG Barr
Devlin is expressing no opinion). It does not address any other aspect of the
merger and does not constitute a recommendation to you as to how you should act
with respect to the merger. The merger consideration itself was determined by
Yankee and NU through arm's-length negotiations. Yankee did not place any
limitations upon SG Barr Devlin regarding the procedures followed or factors
considered by SG Barr Devlin in rendering its opinion.
In rendering its fairness opinion and making its presentations to the Yankee
board of directors, SG Barr Devlin performed a variety of financial and
comparative analyses and considered a variety of factors. While the material
analyses and factors are summarized below, this summary is not a complete
description. Furthermore, SG Barr Devlin did not attribute any particular weight
to any analysis or factor; rather, SG Barr Devlin made its determination on the
basis of qualitative judgments regarding the significance and relevance of each
analysis and factor. Accordingly, SG Barr Devlin believes that its analyses must
be considered as a whole, and that only considering portions of these analyses
and
26
<PAGE>
factors could create a misleading or incomplete view of the evaluation process
underlying its opinion. The results of these analyses were discussed with the
Yankee board of directors at its meeting on June 14, 1999.
STOCK TRADING HISTORY.
SG Barr Devlin reviewed the historical prices and trading activity of Yankee
shares and NU shares and compared them to:
(i) the Standard and Poor's Utility Index; and
(ii) an index of common stock prices of selected natural gas distribution
utilities (or their holding companies).
This comparison provided perspective on the current and historical stock
price performance of Yankee and NU relative to one another and to the selected
indices. SG Barr Devlin used this analysis to provide historical background
regarding the manner in which the public trading market had valued Yankee and NU
in absolute terms and relative to each other.
PUBLICLY TRADED COMPARABLE COMPANY ANALYSIS.
SG Barr Devlin compared selected financial information and ratios for Yankee
with the corresponding financial information and ratios for a group of publicly
traded natural gas distribution utilities (or their holding companies) which SG
Barr Devlin deemed to be comparable to Yankee. These comparable companies were
selected on the basis of being companies that possessed general business,
operating and financial characteristics representative of companies in the
industry in which Yankee operates. The following table lists the comparable
companies that were used.
AGL Resources, Inc.
Atmos Energy Corporation
Cascade Natural Gas Corporation
CTG Resources, Inc.
Indiana Energy, Inc.
Laclede Gas Company
New Jersey Resources Corporation
NICOR Inc.
Northwest Natural Gas Company
NUI Corporation
ONEOK, Inc.
Peoples Energy Corporation
Piedmont Natural Gas Company
Providence Energy Corporation
SEMCO Energy, Inc.
South Jersey Industries, Inc.
Washington Gas Light Company
SG Barr Devlin determined ranges of multiples for the comparable companies
based on the following financial ratios:
- common stock market value as a multiple of
-- net income for the 12-month period ended March 31, 1999;
-- projected net income for the 12-month period ended December 31,
1999;
-- projected net income for the 12-month period ended December 31,
2000;
-- book value for the period ended March 31, 1999;
- aggregate market value (defined as the sum of the common stock market
value, plus any preferred stock, debt, capitalized lease obligations
and minority interests, minus cash and cash equivalents) as a multiple
of
-- earnings before interest and taxes for the 12-month period ended
March 31, 1999; and
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<PAGE>
-- earnings before interest, taxes, depreciation and amortization for
the 12-month period ended March 31, 1999.
Applying such multiples to the corresponding data for Yankee (as reported
and also on a weather normalized basis), this analysis produced reference values
of $17.66 to $31.62 per share of Yankee common stock with a weighted average
value of $25.21.
Because of the inherent differences between the operations of Yankee and the
comparable companies, SG Barr Devlin believes that a purely quantitative
analysis is not particularly meaningful in the context of the merger. In this
instance, SG Barr Devlin believes that an appropriate use of the comparable
company analysis also involves qualitative judgments concerning differences
between the characteristics of the comparable companies and Yankee. Moreover, SG
Barr Devlin believes that the comparable company analysis by itself does not
reflect the potential incremental value to NU of a controlling interest in
Yankee.
DISCOUNTED CASH FLOW ANALYSIS.
SG Barr Devlin prepared and reviewed the results of unleveraged discounted
cash flow analyses for Yankee, assuming that Yankee performed according to the
operating and financial projections provided by its management for the period
1999 through 2003. The purpose of the discounted cash flow analysis was to
estimate a range of reference values for the stock of Yankee. To calculate these
values, Yankee's projected cash flows during each year of the projections,
together with the estimated value of Yankee at the end of 2003, were discounted
to the present using discount rates that ranged from 6.0% to 7.0%. SG Barr
Devlin estimated values at the end of 2003 for Yankee by applying the following
multiples that were derived from those of certain comparable public companies:
<TABLE>
<S> <C>
Earnings before interest and taxes............................. 10.7x--12.0x
Earnings before interest, taxes, depreciation and
amortization................................................. 7.2x-- 8.2x
Book value..................................................... 1.44x--1.88x
Net income..................................................... 13.9x--15.9x
</TABLE>
This analysis produced reference values of $23.69 to $41.06 per share of
Yankee common stock, with a weighted average value of $33.14.
COMPARABLE TRANSACTION ANALYSIS.
SG Barr Devlin reviewed certain comparable transactions involving
acquisitions of natural gas distribution utilities (or their holding companies).
These comparable transactions were selected because they were strategic
combinations of companies that possessed general business, operating and
financial characteristics representative of companies in the industry in which
Yankee operates. The comparable transactions included:
- Pennsylvania Enterprises/Southern Union Company;
- Southwest Gas Corporation/ONEOK, Inc.;
- Connecticut Energy Corporation/Energy East Corporation;
- Public Service Company of North Carolina/SCANA Corporation;
- North Carolina Natural Gas Corporation/Carolina Power & Light Company;
- Colonial Gas Company/Eastern Enterprises;
- Essex County Gas Company/Eastern Enterprises; and
- Bay State Gas Company/NIPSCO Industries, Inc.
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<PAGE>
SG Barr Devlin determined implied ranges of multiples from the comparable
transactions based on the following financial ratios:
- implied consideration to be received by the smaller company's
shareholders as a multiple of its
-- net income for the most recent 12-month period available;
-- projected net income for the current fiscal year;
-- projected net income for the next fiscal year; and
-- book value for the most recent period available;
- implied aggregate consideration (defined as the sum of the implied
consideration, plus any preferred stock, debt, capitalized lease
obligations and minority interests, minus cash and cash equivalents) to
be paid by the larger company as a multiple of the smaller company's
-- earnings before interest and taxes for the most recent 12-month
period available; and
-- earnings before interest, taxes, depreciation and amortization for
the most recent 12-month period available.
SG Barr Devlin also calculated the implied percentage premium to the smaller
company's shareholders by dividing the offer price over the one-day and
one-month unaffected stock market prices for their shares.
Applying such multiples and premiums to the corresponding data for Yankee
(as reported and also on a weather normalized basis), this analysis produced
reference values of $25.43 to $46.63 per share of Yankee common stock, with a
weighted average value of $36.53.
Because the reasons for and circumstances surrounding each of the comparable
transactions were diverse and because of the inherent differences between the
operations of Yankee and the companies in the selected transactions, SG Barr
Devlin believes that a purely quantitative analysis is not particularly
meaningful in the context of the merger. In this instance, SG Barr Devlin
believes that an appropriate use of the comparable transaction analysis also
involves qualitative judgments concerning differences between the
characteristics of these transactions and the merger that would affect the value
of Yankee.
PRO FORMA MERGER ANALYSIS.
SG Barr Devlin analyzed certain pro forma effects of the merger to Yankee
shareholders for the period 2001 through 2003. This analysis was based upon
earnings estimates for Yankee and NU from First Call Corporation as of June 11,
1999, without giving effect to possible benefits which might be realized
following the merger. For Yankee shareholders who receive NU common shares in
the merger, the analysis showed substantial improvement in earnings per share,
with a slight improvement in expected dividends per share.
SG Barr Devlin was selected as Yankee's financial advisor because SG Barr
Devlin and principals of SG Barr Devlin have significant experience in the
investment banking and electric and gas utility industries. SG Barr Devlin is a
division of SG Cowen Securities Corporation specializing in strategic and merger
advisory services to the electric and gas utility industries, the energy
industry and selected other industries. In this capacity, SG Barr Devlin and
principals of SG Barr Devlin have been involved as advisors in numerous
transactions and advisory assignments in the electric, gas and energy industries
and are constantly engaged in the valuation of businesses and securities in
these industries.
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<PAGE>
Yankee has agreed to pay SG Barr Devlin for its services related to the
merger:
- a transaction fee, based on the aggregate value to be received by
Yankee shareholders at the time of closing, which would range from
0.80% of this value (if the value were $400,000,000) to 0.72% of this
value (if the value were $500,000,000). The transaction fee is payable
in three installments:
-- one-third upon execution of the merger agreement;
-- one-third upon approval of the merger agreement by Yankee
shareholders; and
-- one-third at the time of closing, less a credit for all financial
advisory retainer fees previously paid.
Yankee has agreed to reimburse SG Barr Devlin for its out-of-pocket expenses
(including fees and expenses of legal counsel and other advisors engaged with
the consent of Yankee) and to indemnify SG Barr Devlin against certain
liabilities (including liabilities under the federal securities laws) relating
to or arising out of its engagement. SG Barr Devlin has rendered from time to
time various investment banking and other financial advisory services to Yankee
and NU for which SG Barr Devlin has earned compensation, from Yankee and NU,
with respect to such services, of approximately $360,000 and $375,000,
respectively.
EFFECTIVE TIME
The merger will become effective when the parties to the merger agreement
file a Certificate of Merger with the Secretary of the State of Connecticut in
accordance with the Connecticut Business Corporation Act, or at a later time
that NU and Yankee may specify in the Certificate of Merger.
The merger can not become effective before the date of the Special Meeting
of Yankee shareholders. If the merger agreement is approved at the Special
Meeting, the effective time will occur as promptly as possible after
satisfaction or waiver of the remaining conditions to the merger contained in
the merger agreement, including the receipt of regulatory approvals.
CERTIFICATE OF INCORPORATION AND BY-LAWS
The certificate of incorporation of Merger Sub in effect immediately prior
to the effective time will become the certificate of incorporation of the
surviving company until it is amended, except that the name of the surviving
company will be "Yankee Energy System, Inc." The by-laws of Merger Sub in effect
immediately prior to the effective time will be the by-laws of the surviving
company, until they are amended.
DIRECTORS AND OFFICERS
DIRECTORS.
After the merger becomes effective, the board of directors of the surviving
company will consist of three of the current non-employee directors of Yankee
and four other directors. All directors will be designated by NU. The chairman
of the board will also be designated by NU. These directors will hold office
until their successors are duly elected or appointed and qualified. In addition,
pursuant to the merger agreement, NU will add two members to the NU board of
trustees. These seats will be filled by two directors of Yankee, as designated
by NU and reasonably acceptable to Yankee.
OFFICERS.
Once the merger becomes effective, Charles E. Gooley will be the president
and chief executive officer of the surviving company (which will be a subsidiary
of NU). The other officers of the surviving
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<PAGE>
company will be the same individuals who hold officer positions in Yankee
immediately prior to the effective time. All officers will hold their positions
until their successors are duly elected or appointed and qualified.
ACCOUNTING TREATMENT
The merger will be accounted for as an acquisition of Yankee by NU under the
purchase method of accounting in accordance with generally accepted accounting
principles. The purchase price will be allocated to utility assets and
liabilities as well as to nonutility assets and liabilities of Yankee based on
their estimated fair market values at the date of acquisition. The difference
between the purchase price, representing fair value, and the recorded amounts
will be shown as plant acquisition adjustment (for the regulated businesses) and
goodwill (for the unregulated businesses) on the consolidated balance sheet.
REGULATORY APPROVALS
The parties must comply with federal and state regulatory requirements
before they can complete the merger. Although there can be no guarantee that the
parties will obtain the requisite consents or approvals on a timely basis, or at
all, we believe that the necessary approvals can be obtained by early 2000.
CONNECTICUT DEPARTMENT OF PUBLIC UTILITY CONTROL.
The Connecticut Department of Public Utility Control has jurisdiction over
Yankee Gas, as a Connecticut public service company. Yankee Gas is a public
service company under Connecticut law because it is a gas company distributing
gas for heat or power within the public rights of way in Connecticut. NU and
Yankee intend to file an application with the Department. The application will
request approval for NU to directly control Yankee. The Department will consider
whether NU is financially, technologically and managerially suitable to control
Yankee Gas as well as the ability of Yankee Gas to continue to provide safe,
adequate and reliable service to the public through its plant, equipment, and
manner of operation were the application to be approved.
NU and Yankee believe that their application to the Department will fully
comply with the requirements of Connecticut law. They will include information
in their application intended to demonstrate this. Nonetheless, opposition to
the application is possible. The Connecticut Office of Consumer Counsel has the
statutory authority to appear in and participate in the proceeding. We expect it
to be named as a party in the Department hearings. The parties to the proceeding
will be entitled to conduct discovery. This will likely consist of
interrogatories addressed to NU and Yankee by Department staff, by the Office of
Consumer Counsel, and possibly by other intervening parties.
NU and Yankee can give no assurance that the necessary Department approvals
will be obtained in a timely manner or at all. Moreover, it is possible that the
Department approvals will include conditions that, if accepted, would result in
a material adverse effect on NU or Yankee. If so, the parties will not be
obligated to complete the merger.
PUBLIC UTILITY HOLDING COMPANY ACT.
The Public Utility Holding Company Act of 1935, as amended (the "1935 Act"),
imposes a number of restrictions on the operations of registered holding company
systems. Among these restrictions are requirements that certain securities
acquisitions and issuances, sales and acquisitions of assets or securities of
utility companies or acquisitions of interests in any other business must be
authorized by the SEC.
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<PAGE>
NU must obtain SEC approval under Section 9(a)(1) of the 1935 Act to acquire
the outstanding shares of Yankee common stock. Section 9(a)(1) requires approval
of the SEC under the standards of Section 10 of the 1935 Act before a registered
holding company such as NU can acquire, directly or indirectly, "any securities
or utility assets or any other interest in any business."
Under the applicable standards of the 1935 Act, the SEC is directed to
approve the acquisition unless it finds that:
(1) the transaction would tend toward detrimental interlocking relations or
a detrimental concentration of control;
(2) the consideration is unreasonable; or
(3) the transaction would unduly complicate the capital structure of the
resulting holding company system or otherwise be detrimental to the
public interest or the protection of investors or consumers or the proper
functioning of the holding company system.
Before approving the acquisition, the SEC must find further that the
acquisition would comply with applicable state law, tend toward the development
of an integrated public utility system, and otherwise conform to the 1935 Act's
simplification and integration standards.
The 1935 Act also limits the ability of registered holding companies to
engage in activities unrelated to their utility operations, and regulates the
purchase and sale of goods and services among holding company affiliates. The
SEC may review the question of whether the NU system can include both gas and
electric utility operations. The gas distribution business of Yankee Gas was
originally part of the NU system, and was divested by NU in 1989 in anticipation
of its acquisition of the Public Service Company of New Hampshire to avoid
possible regulatory issues, including under the 1935 Act, which could have
delayed that merger. Based on recent orders issued by the SEC under the 1935
Act, Yankee believes that post-acquisition NU will continue to satisfy the SEC's
requirements for a registered holding company system.
ANTITRUST.
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "Hart-Scott Act"), and the rules promulgated under it by the U.S. Federal
Trade Commission, we cannot complete the merger until we have notified and
furnished certain information to the Federal Trade Commission and the Antitrust
Division of the U.S. Department of Justice, and satisfied specified waiting
period requirements. NU and Yankee will file notification and report forms under
the Hart-Scott Act with the Federal Trade Commission and the Antitrust Division
of the U.S. Department of Justice. Even after the waiting period expires or is
terminated, the Federal Trade Commission and the Antitrust Division of the U.S.
Department of Justice may still challenge the merger on antitrust grounds,
either before or after the merger is completed.
OBLIGATIONS TO OBTAIN REGULATORY APPROVALS.
Under the merger agreement, both NU and Yankee have agreed to use all
commercially reasonable efforts to obtain all regulatory and governmental
approvals necessary or advisable to complete the merger.
INJUNCTIONS
NU's and Yankee's obligation to complete the merger is subject to the
condition that there is no law, regulation or injunction in effect that would
prohibit the completion of the merger.
LISTING OF THE NU COMMON SHARES ON THE NEW YORK STOCK EXCHANGE
It is a condition to the obligations of NU and Yankee to complete the merger
that the NU shares to be issued pursuant to the merger agreement be approved for
listing on the New York Stock Exchange.
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RESALE OF THE NU COMMON SHARES ISSUED IN THE MERGER; YANKEE AFFILIATES
NU shares issued to Yankee shareholders in the merger will be freely
transferable under the Securities Act of 1933, as amended (the "Securities
Act"), except for NU shares issued to any person deemed to be an "affiliate" of
Yankee (for the purposes of Rule 145 promulgated under the Securities Act) at
the time of the Special Meeting. These affiliates may not sell their NU shares
acquired in connection with the merger, except pursuant to an effective
registration statement under the Securities Act covering such NU shares, or in
compliance with Rule 145 or another applicable exemption from the registration
requirements of the Securities Act. Under the merger agreement, Yankee has
delivered to NU a letter identifying all persons who were "affiliates" of Yankee
(as that term is used in Rule 145) at the time of the letter, and all those who,
to Yankee's best knowledge, will be "affiliates" at the completion of the
merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
When you consider the recommendations of the board of directors, you should
realize that some board members and officers of Yankee have interests that may
conflict with your own interests as a shareholder. The board of directors was
aware of these interests and considered them along with other matters in
recommending that you vote to approve the merger agreement.
NU BOARD OF TRUSTEES.
NU will add two trustees to the NU board of trustees. These seats will be
filled by two of the directors of Yankee, chosen by NU and reasonably acceptable
to Yankee. These trustees will not be employees of the surviving company. See
"The Merger Agreement--Corporate Governance Matters" at page 43.
SURVIVING COMPANY DIRECTORS AND OFFICERS.
Three current non-employee directors of Yankee will be appointed directors
of the surviving company. In addition, the officers of Yankee will become the
officers of the surviving company (which will be a subsidiary of NU). See "The
Merger Agreement--Corporate Governance Matters" at page 43.
EMPLOYMENT AGREEMENTS.
NU and Yankee have entered into an employment agreement with Charles E.
Gooley. In addition, NU has agreed to offer to enter into binding employment
arrangements with J. Kingsley Fink, Mary J. Healey, Thomas J. Houde, Steven P.
Laden, James M. Sepanski and Murry K. Staples. NU will enter into these binding
employment arrangements on the closing date with those persons who have accepted
the offers. At the effective time, these employment arrangements will replace
each executive's existing agreement with Yankee.
Under the terms of Mr. Gooley's employment agreement with NU and Yankee, NU
will employ Mr. Gooley as president and chief executive officer (or in a similar
capacity) of the surviving company after the merger on terms which include the
following:
- employment for a term of at least three years;
- annual base salary not less than his Yankee salary prior to the merger;
- entitlement to participate in all employee pension, retirement and
welfare plans and programs, and any short-term and long-term incentive
compensation programs made available by NU to its senior executives;
- upon termination, entitlement to various benefits depending on the
circumstances of his termination. If the surviving company terminates
his employment without cause and he
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<PAGE>
delivers a written release of any claims against the surviving company,
NU and other related parties, Mr. Gooley will receive a severance
package which includes:
-- a cash payment equal to his then yearly salary as liquidated damages
for the surviving company's failure to continue his employment;
-- a cash payment equal to his then yearly salary as consideration for
the non-competition and non-solicitation covenants contained in his
employment agreement;
-- continued coverage under any welfare plans and programs for a
two-year period following termination;
-- any other benefits under any other applicable plans and programs of
NU; and
-- all stock options and restricted shares granted to Mr. Gooley
vesting and becoming exercisable within 36 months of his
termination.
The employment agreement also provides for the payment of certain benefits
to Mr. Gooley in the event his employment is terminated upon a "change in
control" of NU.
The proposed employment arrangements with the other named officers offer
them compensation and benefits not less than what they receive from Yankee
immediately prior to the effective time, subject to upward review to match the
standard terms for officers of NU subsidiaries generally.
CHANGE IN CONTROL AGREEMENTS.
Yankee and some of its subsidiaries have entered into Change in Control
Executive Severance Agreements with J. Kingsley Fink, Charles E. Gooley, Mary J.
Healey, Thomas J. Houde, Steven P. Laden, James M. Sepanski and Murry K.
Staples. The intent of these agreements is to assure continuity in the
management of Yankee's operations in the event of a "change in control." The
merger qualifies as a change in control under these agreements. They provide
that the executive officer is entitled to a severance payment if their
employment is terminated within two years of a change in control either:
(i) by Yankee for reasons other than for disability, death or cause; or
(ii) by the executive officer due to a material diminution in status,
position, duties or responsibilities, a reduction in total
compensation, or assignment to a location more than 50 miles from the
executive officer's current place of employment.
If their employment is terminated under these circumstances, the executive
officer's severance package includes:
- a payment which is twice the executive officer's annual base salary at
the date of the change in control; plus
- the average annual incentive compensation paid to the executive officer
in the two previous full fiscal years.
In addition, for two years, the executive officer shall be entitled to
participate in all benefit plans in which they participated before termination.
If the executive officer is age 55 or older on the date of termination, they
shall be entitled to receive service and compensation credit under Yankee's
pension plans until their normal retirement date.
ACCELERATION OF VESTING.
Under Yankee's 1996 Long-Term Incentive Compensation Plan, some officers,
executives and managerial employees of Yankee and its subsidiaries have been
awarded:
- restricted and/or unrestricted shares of Yankee common stock;
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- options to purchase shares of Yankee common stock;
- stock appreciation rights; and
- other incentive awards such as annual incentive awards and long-term
incentive awards.
When these persons exercise their stock appreciation rights, the Yankee
board of directors decides whether they receive cash, shares of Yankee common
stock or a combination of the two. When they receive annual incentive awards,
the officers themselves can choose to receive either cash or restricted shares
of Yankee common stock. Long-term incentive awards are payable in restricted and
unrestricted shares of Yankee common stock.
Unless Yankee's board of directors expressly says otherwise, upon a "change
in control" (which will be deemed to have occurred upon completion of the
merger):
(i) all restrictions and conditions applicable to any outstanding shares of
Yankee common stock awarded to these persons under the 1996 plan will be
deemed satisfied;
(ii) all options to purchase shares of Yankee common stock granted to these
persons under the plan at least six months prior to a change in control
will become exercisable; and
(iii) any stock appreciation rights granted to these persons under the 1996
plan and exercised upon or after a change in control must be paid in
cash.
Yankee's board of directors intends to allow all outstanding options to
purchase shares of Yankee common stock to become exercisable prior to the
effective time. Individuals who do not exercise their Yankee stock options prior
to the effective time will receive replacement options to acquire NU common
shares. See also "The Merger Agreement--Additional Agreements--Yankee Stock
Plans" at page 53.
Under Yankee's Annual Incentive Plan and its Executive Long-Term Incentive
Plan, restricted shares of Yankee common stock have been awarded to officers and
other employees. Unless Yankee's Organization and Compensation Committee or
another committee designated by Yankee's board of directors decides otherwise
(which is not contemplated), upon a "change in control" (which will be deemed to
have occurred upon completion of the merger), all restrictions and conditions
applicable to any outstanding shares of Yankee common stock granted under these
plans will be deemed satisfied.
The following table lists:
- the names and positions of each of the current executive officers and
directors who received options and other grants and awards under the
1996 plan, the Annual Incentive Plan and the Executive Long-Term
Incentive Plan;
- the number of options and awards received; and
- the number of those options and awards that are expected to vest upon
completion of the merger.
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TOTAL STOCK OPTIONS ISSUED/AVAILABLE TO DATE
AS OF AUGUST 6, 1999
<TABLE>
<CAPTION>
1994 STOCK OPTION AWARD 1996 STOCK OPTION AWARD 1997 STOCK OPTION AWARD
------------------------ ------------------------ ------------------------
OFFICER AND POSITION OPTIONS TOTAL OPTIONS TOTAL OPTIONS TOTAL
- -------------------------------------------- STRIKE AVAILABLE STRIKE AVAILABLE STRIKE AVAILABLE
(YANKEE UNLESS PRICE FOR PRICE FOR PRICE FOR
OTHERWISE NOTED) $21.63 EXERCISE $23.69 EXERCISE $23.72 EXERCISE
- -------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Fink, J. Kingsley V.P., Yankee Gas.......... 0 0 0 0 0 0
Gooley, Charles E. President and C.E.O...... 7,500 0 6,400 6,400 4,500 4,500
Healey, Mary J. V.P., General Counsel and
Secretary................................. 2,100 2,100 4,300 4,300 1,300 1,300
Houde, Thomas J. V.P........................ 2,500 2,500 4,100 4,100 1,200 1,200
Laden, Steven P. V.P........................ 0 0 0 0 1,900 1,900
Sepanski, James M., V.P., C.F.O. and
Treasurer................................. 0 0 0 0 1,100 1,100
Totals...................................... 4,600 4,600 14,800 14,800 10,000 10,000
<CAPTION>
1998 STOCK OPTION AWARD 1999 STOCK OPTION AWARD
------------------------ ------------------------
OFFICER AND POSITION OPTIONS TOTAL OPTIONS TOTAL TOTAL
- -------------------------------------------- STRIKE AVAILABLE STRIKE AVAILABLE TOTAL STOCK AVAILABLE
(YANKEE UNLESS PRICE FOR PRICE FOR OPTIONS FOR
OTHERWISE NOTED) $23.13 EXERCISE $29.31 EXERCISE ISSUED EXERCISE
- -------------------------------------------- ----------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Fink, J. Kingsley V.P., Yankee Gas.......... 600 600 1,700 1,700 2,300 2,300
Gooley, Charles E. President and C.E.O...... 1,500 1,500 5,200 5,200 25,100 17,600
Healey, Mary J. V.P., General Counsel and
Secretary................................. 500 500 1,000 1,000 9,200 9,200
Houde, Thomas J. V.P........................ 500 500 1,000 1,000 9,300 9,300
Laden, Steven P. V.P........................ 600 600 1,100 1,100 3,600 3,600
Sepanski, James M., V.P., C.F.O. and
Treasurer................................. 700 700 2,100 2,100 3,900 3,900
Totals...................................... 4,400 4,400 12,100 12,100 53,400 45,900
</TABLE>
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<PAGE>
Under the Non-Employee Directors' Stock Compensation Plan, each non-employee
director, upon election or re-election to the board of directors, receives an
award of 450 restricted shares of Yankee common stock. One-third of these shares
vests each year at subsequent annual meetings of shareholders. These shares are
subject to the plan's provisions on forfeiture and restrictions on dispositions
until vesting. Upon a "change in control" (which will be deemed to have occurred
upon completion of the merger), all restrictions and conditions applicable to
the shares awarded under this plan will be deemed satisfied and all the shares
not already vested will vest. The following table shows the number of
restricted, non-vested shares of Yankee common stock awarded under the plan to
non-employee directors that would vest if the merger were completed on the date
of this mailing:
<TABLE>
<CAPTION>
NON-EMPLOYEE
DIRECTOR
RESTRICTED
STOCK
---------------
RESTRICTED
STOCK TO VEST
---------------
<S> <C>
Olcott, Emery G............................................... 150
Cloud Jr., Sanford............................................ 225
Kraus, Eileen S............................................... 300
Rando, John J................................................. 450
Worthy, Patricia M............................................ 300
-----
1,425*
-----
-----
</TABLE>
- ------------------------
* As of the January 2000 annual meeting, 150 shares of restricted stock
included in each of the above totals are expected to vest for each of these
non-employee directors. Furthermore, if Mr. Olcott is re-elected at such
time, he would be awarded an additional 450 shares of restricted stock.
ACCELERATION OF FUNDING.
Under the Non-Employee Director Deferred Compensation Plan, non-employee
directors have elected to defer receipt of any fees payable to them for their
service on Yankee's board of directors. Included in these are fees payable in
the form of Yankee shares and any shares issued to them pursuant to the
Non-Employee Directors' Stock Compensation Plan. Under the terms of the deferred
compensation plan, the non-employee director can elect to have some of the
amounts that are deferred and credited to their account paid to them in the form
of shares of Yankee common stock.
Upon a "change in control" (which will be deemed to have occurred upon
completion of the merger), Yankee must pay an amount into the trust established
in connection with the deferred compensation plan. This amount must be
sufficient to pay each plan participant or their beneficiaries the benefits to
which they would be entitled under the terms of the plan at the time the change
in
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<PAGE>
control occurred. The following table lists the number of Yankee shares deferred
in the Stock Unit Accounts of the following participants in the deferred
compensation plan:
<TABLE>
<CAPTION>
NON-EMPLOYEE DIRECTOR
DEFERRED COMPENSATION
-----------------------------
NUMBER OF YANKEE SHARES
DEFERRED
IN STOCK UNIT ACCOUNT AS OF
AUGUST 6, 1999
-----------------------------
<S> <C>
Lowther, Frederick M.*........................... 3,114
Olcott, Emery G.................................. 1,166
Cloud Jr., Sanford............................... 97
Kraus, Eileen S.................................. 6,154
Rando, John J.................................... 2,588
Worthy, Patricia M............................... 2,377
</TABLE>
- ------------------------
* Mr. Lowther resigned as a director of Yankee effective September 2, 1998.
RETENTION BONUSES.
Yankee and Yankee Gas have entered into Stay Bonus Agreements with Nicholas
A. Rinaldi, Controller of Yankee and Yankee Gas, and Robert J. Bourne, Assistant
General Counsel and Assistant Secretary of Yankee and Yankee Gas. In these
agreements, the officers will receive a lump sum cash bonus equivalent to six
months' salary if they remain employees of Yankee and Yankee Gas at least until
the effective time.
INDEMNIFICATION.
From the effective time onwards, NU and the surviving company will ensure
that those individuals who were officers, directors or employees of Yankee or
any of its subsidiaries at any time before the effective time are indemnified,
defended and held harmless (to the fullest extent permitted by applicable law)
for the following:
(i) all losses, expenses (including reasonable attorneys' fees and
expenses), claims, damages, liabilities or amounts paid in settlement
(if NU provided written consent to the settlement) arising out of events
that occurred at or before the effective time and are (at least in part)
based on the fact that the individual served as a director, officer or
employee of Yankee or one of its subsidiaries; and
(ii) those losses in (i) above to the extent they are based on or pertain to
the merger transactions.
In addition, for six years after the effective time, NU will either:
(i) maintain policies of liability insurance for the benefit of those
directors and officers of Yankee or its subsidiaries who are currently
covered; or
(ii) provide tail coverage (to cover claims received after the policy
period) for those officers and directors.
In either case, the terms of the coverage will be at least as favorable as
the terms of the insurance coverage currently provided by Yankee. In any year,
however, NU will not be required to pay more than twice the annual aggregate
premiums that Yankee currently pays.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
We have set out below some of the material U.S. federal income tax
consequences of the merger to Yankee shareholders. This discussion is for
general information only. It does not purport to consider
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<PAGE>
all aspects of U.S. federal income taxation that may be relevant to you. This
discussion is based upon the provisions of the Internal Revenue Code, existing
regulations, and administrative and judicial interpretations of the Internal
Revenue Code in effect at the date of this document. Please remember that these
are subject to change, possibly with retroactive effect.
This discussion applies only to Yankee shareholders who hold their Yankee
shares as capital assets within the meaning of Section 1221 of the Internal
Revenue Code and does not apply to the following:
- shareholders who received their Yankee shares pursuant to the exercise
of employee stock options or similar securities or otherwise as
compensation;
- shareholders who hold their Yankee shares as part of a "straddle,"
"hedge," "conversion transaction," "synthetic security" or other
integrated investment;
- shareholders (including financial institutions, insurance companies,
tax-exempt organizations, dealers or traders in securities and
shareholders subject to the alternative minimum tax) who may be subject
to special rules;
- shareholders whose functional currency is not the U.S. dollar; or
- shareholders who, for U.S. federal income tax purposes, are
non-resident alien individuals, foreign corporations, foreign
partnerships, or foreign estates or trusts.
This discussion does not consider the effect of any foreign, state or local
laws or any U.S. federal laws other than those pertaining to income tax.
YOUR INDIVIDUAL CIRCUMSTANCES MAY AFFECT THE TAX CONSEQUENCES TO YOU OF THE
MERGER. THE PARTICULAR FACTS OR CIRCUMSTANCES THAT MAY AFFECT THE CONSEQUENCES
TO YOU ARE NOT DISCUSSED HERE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISORS
TO DETERMINE THE TAX EFFECT TO YOU OF THE MERGER, INCLUDING THE APPLICATION AND
EFFECT OF FOREIGN, U.S. FEDERAL, STATE, LOCAL OR OTHER TAX LAWS.
For the merger to be completed, both NU and Yankee must receive an opinion
from their respective attorneys to the effect that the merger will be treated as
a reorganization within the meaning Section 368(a) of the Internal Revenue Code.
The opinions will be based upon customary assumptions and representations of
fact, including representations of fact contained in certificates of officers of
NU, Yankee and others. No ruling has been or will be sought from the Internal
Revenue Service as to the U.S. federal income tax consequences of the merger,
and the opinions of counsel are not binding upon the Internal Revenue Service or
any court. Accordingly, there can be no assurances that the Internal Revenue
Service will not contest the conclusions expressed in the opinions or that a
court will not sustain such contest.
The following discussion assumes that the merger will qualify as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code. As discussed below, the U.S. federal income tax consequences of the merger
to you depend on the form of consideration you receive.
SHAREHOLDERS WHO RECEIVE SOLELY NU COMMON SHARES.
If you exchange your Yankee shares solely for NU shares you will not
recognize any gain or loss on that exchange, except to the extent you receive
cash in lieu of fractional shares of NU (as discussed below). The aggregate
adjusted tax basis of the NU shares you receive will equal your aggregate
adjusted tax basis in the Yankee shares surrendered (reduced by the adjusted tax
basis allocable to any fractional shares of NU received in the merger). The
holding period of the NU shares you receive in the merger will include the
holding period of the Yankee shares surrendered.
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<PAGE>
SHAREHOLDERS WHO RECEIVE CASH AND NU COMMON SHARES.
If you receive part cash and part NU shares in the merger and your adjusted
tax basis in the Yankee shares surrendered is less than the sum of the fair
market value (at the date of the merger) of the NU shares and the amount of cash
you receive, then you will recognize a gain. This recognized gain will equal the
lesser of:
(1) the sum of the amount of cash and the fair market value (at the date of
the merger) of the NU shares received, minus the adjusted tax basis of
the Yankee shares surrendered in the exchange; and
(2) the amount of cash you receive in the exchange.
However, if your adjusted tax basis in the Yankee shares surrendered is
greater than the sum of the amount of cash and the fair market value of the NU
shares received, your loss will not be currently allowed or recognized for U.S.
federal income tax purposes.
If you recognize a gain in the exchange and the exchange sufficiently
reduces your proportionate stock interest (as discussed below), the gain will be
characterized as a capital gain. If the exchange does not sufficiently reduce
your proportionate stock interest, the gain will be taxable as a dividend to the
extent of your ratable share of available earnings and profits (and the
remainder, if any, of the recognized gain will be capital gain).
Whether the exchange sufficiently reduces your proportionate stock interest
is determined in accordance with Section 302 of the Internal Revenue Code,
taking into account the stock ownership attribution rules of Section 318 of the
Internal Revenue Code. Under those rules, for the purposes of determining
whether the exchange sufficiently reduces your proportionate stock interest, you
are treated as if:
(1) all your Yankee shares were first exchanged in the merger for NU shares;
and
(2) a portion of those NU shares were then redeemed for the cash actually
received in the merger.
Your hypothetical stock interest in NU (both actual and constructive) after
hypothetical step (2) is compared to your hypothetical stock interest in NU
(both actual and constructive) after hypothetical step (1). Dividend treatment
will apply unless:
- your stock interest in NU has been completely terminated; or
- there has been a "substantially disproportionate" reduction in your
stock interest in NU (I.E., such interest after hypothetical step (2)
is less than 80% of the interest after hypothetical step (1)); or
- the exchange is not "essentially equivalent to a dividend."
The determination is based on your particular facts and circumstances.
However, the Internal Revenue Service has indicated in published rulings that a
distribution is not "essentially equivalent to a dividend" (and will therefore
result in capital gain treatment) if the distribution results in any actual
reduction in your stock interest if you are an extremely small minority
shareholder in a publicly held corporation and you exercise no control with
respect to corporate affairs.
Because the determination of whether a payment will be treated as having the
effect of the distribution of a dividend generally will depend upon your
individual facts and circumstances, you are strongly advised to consult your own
tax advisors regarding the tax treatment of cash received in the merger,
including the application of the constructive ownership rules of the Internal
Revenue Code and the effect of any transactions in NU shares or Yankee shares by
you.
40
<PAGE>
If you receive cash and NU shares in the merger, your adjusted tax basis in
the NU shares you receive will equal your adjusted tax basis in your Yankee
shares increased by any gain recognized as a result of the merger and reduced by
the amount of cash received in the merger. The holding period of the NU shares
received will include the holding period of the Yankee shares surrendered.
SHAREHOLDERS WHO RECEIVE SOLELY CASH.
The exchange of Yankee shares solely for cash generally will result in
recognition of gain or loss by you in an amount equal to the difference between
the amount of cash received and your adjusted tax basis in the Yankee shares
surrendered. The gain or loss recognized will be long-term capital gain or loss
if your holding period for the Yankee shares surrendered exceeds one year. There
are limitations on the extent to which you may deduct capital losses from
ordinary income.
If you receive only cash in exchange for all of your Yankee shares and:
- you constructively own Yankee shares before the merger; or
- you actually or constructively own NU shares after the merger (as the
result of the merger or otherwise);
some or all of the cash you receive may be taxed as a dividend. You should
consult your tax advisors to determine the amount and character of the income
recognized in connection with the merger.
CASH RECEIVED IN LIEU OF FRACTIONAL SHARES.
If you receive cash in lieu of a fractional NU share, you will be treated as
having first received the fractional NU share in the merger and then as having
received cash in exchange for that fractional share interest. Thus, you
generally will recognize gain or loss in an amount equal to the difference
between the amount of cash received in lieu of the fractional NU share and the
portion of the adjusted tax basis in the Yankee shares allocable to that
fractional interest.
SPECIAL RULES FOR SHAREHOLDERS THAT ARE CORPORATIONS.
To the extent that cash received in exchange for Yankee shares is taxable as
a dividend (as described above) to a Yankee shareholder that is a corporation
for U.S. federal income tax purposes, that shareholder will be:
(1) eligible for a dividends received deduction (subject to applicable
limitations); and
(2) subject to the "extraordinary dividend" provisions of the Internal
Revenue Code.
Under legislation recently enacted, any cash that is taxable as a dividend
to a corporate shareholder will constitute an extraordinary dividend.
Consequently, the nontaxed portion of that dividend will reduce the adjusted tax
basis of a Yankee shareholder that is a corporation in the NU shares it receives
in the merger, but not below zero, and will thereafter be taxable as capital
gain.
INCOME TAX RATES.
Capital gain recognized in the merger by individuals and certain other
non-corporate Yankee shareholders who have held their Yankee shares for more
than one year generally will be subject to a maximum U.S. federal income tax
rate of 20%. Gain or dividend income otherwise recognized by Yankee shareholders
generally will be subject to:
(1) a maximum 39.6% U.S. federal income tax rate for individuals and certain
other non-corporate shareholders; or
(2) a maximum 35% U.S. federal income tax rate for corporations.
41
<PAGE>
MATERIAL FEDERAL INCOME TAX CONSEQUENCES TO NU, YANKEE AND MERGER SUB.
Assuming the merger is treated as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code, none of NU, Yankee or Merger Sub
will recognize gain or loss as a result of the merger.
BACKUP WITHHOLDING.
Payments to Yankee shareholders in connection with the merger may be subject
to "backup withholding" at a rate of 31%, unless they:
(1) provide a correct taxpayer identification number (which, for an
individual shareholder, is the shareholder's social security number) and
any other required information to the paying agent in the merger
(described below in the next section on "The Merger Agreement"); or
(2) are a corporation or come within certain exempt categories and, when
required, demonstrate that fact and otherwise comply with applicable
requirements of the backup withholding rules.
If you do not provide a correct taxpayer identification number, you may be
subject to penalties imposed by the Internal Revenue Service. Any amount paid as
backup withholding does not constitute an additional tax and will be creditable
against your U.S. federal income tax liability. You should consult with your own
tax advisors as to your qualification for exemption from backup withholding and
the procedure for obtaining such exemption.
YOU MAY PREVENT BACKUP WITHHOLDING BY COMPLETING A SUBSTITUTE FORM W-9 AND
SUBMITTING IT TO THE PAYING AGENT FOR THE MERGER WHEN YOU SUBMIT YOUR YANKEE
SHARE CERTIFICATES.
42
<PAGE>
THE MERGER AGREEMENT
The following description of the merger agreement is only a summary. We urge
you to read the actual merger agreement, a copy of which is attached as Appendix
A to this proxy statement/ prospectus.
GENERAL
The merger agreement provides that Yankee will merge into Merger Sub. Merger
Sub will be formed prior to the merger as a wholly-owned subsidiary of NU.
Merger Sub will be the surviving company, will change its name to "Yankee Energy
System, Inc.", and will continue to conduct Yankee's businesses as a direct,
wholly-owned subsidiary of NU.
The closing of the merger will occur on the second business day after the
date upon which all conditions to the merger have been satisfied or waived, or
at such other time as Yankee and NU agree. On the date of the closing, Yankee
and NU will deliver a certificate of merger to the Secretary of the State of
Connecticut for filing. The merger will become effective upon filing this
certificate or at a later time specified in the certificate. We expect that the
closing date will occur in late 1999 or early 2000.
CORPORATE GOVERNANCE MATTERS
DIRECTORS.
After the effective time, the board of directors of the surviving company
will consist of three current non-employee directors of Yankee and four other
directors. All directors will be designated by NU. The chairman of the board
will also be designated by NU. These directors will hold office until their
successors are duly elected or appointed and qualified. In addition, NU will add
two members to its board of trustees. These seats will be filled by two
directors of Yankee, designated by NU and reasonably acceptable to Yankee.
OFFICERS.
After the effective time, Charles E. Gooley will be the president and chief
executive officer of the surviving company (which will be a subsidiary of NU).
The other officers of the surviving company will be the same individuals who
hold the officer positions of Yankee immediately prior to the effective time.
All officers will hold their positions until their successors are duly elected
or appointed and qualified.
CONVERSION OF SHARES OF YANKEE COMMON STOCK
MERGER CONSIDERATION.
At the effective time, all shares of Yankee common stock (other than those
held (i) by Yankee shareholders who have not voted in favor of the Merger and
have properly demanded dissenters' rights, (ii) by Yankee as treasury stock or
(iii) by NU) will be converted into the right to receive the merger
consideration. Yankee shareholders will have a right to elect the form of
consideration they would like to receive. They can elect to receive cash, NU
shares, or a combination of cash and NU shares. However, the proportions of cash
and NU shares they actually receive may be subject to proration or adjustment
based on tax considerations explained below.
The cash consideration amounts to $45 per share, subject to adjustment (the
"Cash Consideration"). Adjustments will be made if the closing date does not
occur within six months of the date on which Yankee shareholders approve the
merger agreement. In this case, the Cash
43
<PAGE>
Consideration will be adjusted upwards at a rate of $0.005 for each day the
merger is delayed past the end of this six-month period, up to and including the
day before the earlier of:
- the closing date; and
- the "Extended Termination Date" (which is September 14, 2000, assuming
that on April 14, 2000 all conditions to closing were fulfilled or
capable of being fulfilled, other than the condition relating to
governmental regulatory and other consents and approvals).
The per share stock consideration is a number of NU shares equal to the Cash
Consideration divided by the average of the closing prices of NU shares on the
New York Stock Exchange for a defined period before the effective time
(specifically, the 20 trading days prior to the second trading day before the
effective time).
From the effective time onwards, no Yankee shares will be outstanding. They
will all be automatically canceled and retired. Yankee shareholders will cease
to have any rights as such. The only rights attaching to their Yankee shares
will be the right to either receive the merger consideration (cash, NU shares or
a combination of the two) or dissent. If they have properly demanded dissenters'
rights, they will have those rights that are granted by Connecticut law.
OVERSUBSCRIPTION OF CASH OR STOCK.
Yankee shareholders, as a group, may submit elections to convert more than
55% of the outstanding Yankee shares into cash or more than 45% into NU shares.
If either cash or NU shares is oversubscribed, then an equitable pro rata
adjustment will be made to ensure that 55% of the outstanding Yankee shares are
converted into cash and 45% are converted into NU shares. For example, if cash
is oversubscribed, each Yankee share as to which an election was submitted to be
converted into the $45 in cash will, instead, be converted into an amount of
cash that is less than $45 and a number of NU shares to make up the difference.
Similarly, if NU shares are oversubscribed, each Yankee share as to which an
election was submitted to be converted into a certain number of NU shares will,
instead, be converted into fewer NU shares and an amount of cash to cover the
difference.
NO FRACTIONAL SHARES.
No fractional NU shares will be issued in the merger. Yankee shareholders
will receive a cash payment in lieu of fractional NU shares. This cash will come
from an exchange agent's open-market sales of the aggregate fractional NU
shares.
ADJUSTMENT TO PER SHARE NU SHARE AMOUNT.
If NU changes the number of NU shares issued and outstanding prior to the
effective time through a stock split, stock dividend, reclassification or other
similar transaction, or pays an extraordinary dividend, and in any of these
instances the record date is prior to the effective time, then the calculation
of the number of NU shares to be received in the merger will be adjusted to
reflect this transaction. If NU enters into a merger or consolidation whereby NU
shares are converted into or exchanged for the shares of another company, Yankee
shareholders entitled to receive NU shares under the merger agreement will be
entitled to receive an amount of the replacement securities (in the new merger
or consolidation) of equivalent value.
TAX ADJUSTMENT.
NU and Yankee intend the merger to be a "reorganization" within the meaning
of Section 368(a) of the Internal Revenue Code and, therefore, tax-free for
those Yankee shareholders who receive only NU shares in the transaction. Under
the Internal Revenue Code, however, the merger might not be a reorganization if,
at the closing date, the total value of the NU shares that Yankee shareholders
receive
44
<PAGE>
is less than 45% of the value of the total consideration that Yankee
shareholders (including shareholders who exercise dissenters' rights) receive in
connection with the merger. For these purposes, the total consideration received
includes not only NU shares and cash, but also any other amounts treated as
consideration in connection with the merger for purposes of the Internal Revenue
Code. To prevent this from happening, the value of the NU shares received will
be fixed at 45% of the value of the total consideration and the amount of cash
received will be fixed at 55% of the value of the total consideration.
EXCHANGE AGENT.
The surviving company will deposit with an exchange agent an amount of cash
and certificates representing the NU shares required to convert the Yankee
shares into NU shares and cash.
ELECTION PROCEDURE; EXCHANGE OF CERTIFICATES.
NU and Yankee will use their best efforts to have forms of election mailed
to record holders of Yankee shares not less than 30 days before the effective
time. They will also use their best efforts to make forms of election available
to persons who become record holders after this mailing but not later than seven
business days before the effective time. To be effective, a form of election
must be:
- properly completed, signed and submitted to NU's transfer agent and
registrar, as paying agent (the "Paying Agent");
- accompanied by the Yankee share certificates as to which the election
is being made (or an appropriate guarantee of delivery of such
certificates as provided in the merger agreement); and
- received by the Paying Agent by the election deadline, which is 5:00
p.m., New York City Time, on the second day after the effective time.
NU has the right to determine whether a Yankee shareholder has properly
completed, signed, and submitted (or revoked) a form of election and to
disregard immaterial defects in the form of election. NU may delegate this right
to the Paying Agent. Neither NU nor the Paying Agent is under any obligation to
notify any person of any defect in a form of election submitted to the Paying
Agent. The Paying Agent will also make all computations that the merger
agreement requires, and all such computations will be conclusive and binding on
Yankee shareholders. Forms of election may be revoked in writing prior to the
election deadline.
A Yankee shareholder who submits an untimely or improper form of election
will be deemed not to have made an election. In this case, Yankee can decide
whether to treat that shareholder's shares as shares that the shareholder
elected to exchange for cash or shares they elected to exchange for NU shares.
EXCHANGE AND PAYMENT PROCEDURES.
Promptly after the effective time, the Paying Agent will mail to each record
holder of a certificate or certificates representing Yankee shares that have
been converted into the right to receive the merger consideration:
- a letter of transmittal for use in submitting stock certificates to the
Paying Agent; and
- instructions explaining what the shareholders must do to effect the
surrender of the Yankee stock certificates and receive the merger
consideration to which they are entitled.
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<PAGE>
After a shareholder submits their stock certificates, a letter of
transmittal and other documents that may be required, they will have the right
to receive cash, a certificate representing NU shares, or both.
The merger consideration may be delivered to someone who is not listed in
Yankee's transfer records if they present a Yankee share certificate to the
Paying Agent along with all documents required to prove that the certificate has
been transferred to them and any applicable stock transfer taxes have been paid.
Until surrendered, each certificate (other than those representing those
shares to be canceled which are held by Yankee as treasury stock or by NU) will
be deemed at any time after the effective time to represent only the right to
receive the merger consideration upon surrender. No interest will be paid on any
cash payable to those surrendering certificates.
PAYMENTS FOLLOWING SURRENDER.
Until they have surrendered their certificates, holders of certificates who
elect to receive NU shares will not receive:
- dividends and other distributions with respect to NU shares to which
they are entitled under the merger agreement that are declared or made
with a record date after the effective time; or
- cash payment in place of fractional NU shares.
When they surrender their certificates, Yankee shareholders will receive the
cash payable in place of fractional NU shares to which they are entitled under
the merger agreement. They will also receive the dividends or other
distributions (on whole NU shares to which they are entitled) that have been
paid to NU shareholders if such distributions had a record date after the
effective time. On the appropriate payment date, these shareholders will also be
paid the amount of dividends or other distributions (on whole NU shares to which
they are entitled) with a record date after the effective time (but before
surrender) and a payment date after surrender.
DISSENTERS' SHARES.
Yankee shareholders who decide to pursue their rights to dissent under
Connecticut law will lose their right to receive the merger consideration; they
will have only those rights that are granted by applicable Connecticut law. If,
however, after the effective time, a holder withdraws or loses their right to
dissent, their Yankee shares will be treated as if they had elected to receive
the Cash Consideration. Yankee will promptly notify NU if it receives any
written demands for payment of the fair value of outstanding Yankee shares and
withdrawals of such demands. The surviving company will make all these payments.
WITHHOLDING RIGHTS.
The Merger Sub and NU are entitled to withhold from payments of
consideration to shareholders of Yankee such amounts as required to be deducted
and withheld by federal, state, local and foreign tax laws. For purposes of the
merger agreement, such withheld amounts will be treated as if they were paid to
the Yankee shareholder.
DO NOT FORWARD CERTIFICATES TO THE PAYING AGENT, NU OR YANKEE UNTIL YOU HAVE
RECEIVED A FORM OF ELECTION. DO NOT RETURN CERTIFICATES WITH THE ENCLOSED PROXY.
A FORM OF ELECTION AND COMPLETE INSTRUCTIONS FOR PROPERLY MAKING AN ELECTION TO
RECEIVE CASH, NU SHARES OR A COMBINATION OF CASH AND NU SHARES WILL BE MAILED TO
SHAREHOLDERS UNDER SEPARATE COVER BEFORE THE CLOSING DATE, WHICH IS CURRENTLY
EXPECTED TO BE IN LATE 1999 OR EARLY 2000.
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<PAGE>
REPRESENTATIONS AND WARRANTIES
In the merger agreement, Yankee and NU make representations and warranties
about themselves and their businesses.
Both parties make representations and warranties about the following:
- proper organization, good standing and qualification to do business in
various states;
- validity of their subsidiaries' stock and their ownership rights;
- capital structure;
- authority to enter into and enforceability of the merger agreement;
- compliance with organizational documents, agreements and applicable
laws;
- required third party consents and governmental approvals;
- filing of all required reports and financial statements and the
accuracy of information used in their preparation;
- absence of certain adverse changes or events;
- litigation;
- accuracy of information supplied for use in this proxy statement;
- environmental compliance and liability;
- regulation as a utility; and
- ownership of shares in the other party.
Yankee makes additional representations and warranties concerning the
following:
- tax matters;
- employee matters and the Employee Retirement Income Security Act of
1974, as amended;
- the requirement of shareholder approval;
- opinion of financial advisor;
- the non-applicability of takeover laws
- the non-triggering of rights under the Rights Agreement dated as of
November 20, 1989 between Yankee and Mellon Bank, N.A. as Rights Agent;
- insurance coverage;
- ownership of intellectual property;
- Year 2000 issues; and
- commodity derivatives and credit exposure.
NU additionally represents and warrants as to the availability of financing
to pay the consideration required by the merger agreement.
The representations and warranties made in the merger agreement will not
apply past the completion of the merger, but they form the basis of conditions
to the obligations of NU and Yankee.
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COVENANTS
MUTUAL COVENANTS.
The parties have agreed to comply with the following covenants until the
effective time or until the merger agreement is terminated, unless they are
permitted to do otherwise in the merger agreement or by the written consent of
the other party:
- they will cooperate prior to the closing date, so that Yankee
shareholders will not be adversely affected because of the timing of
record, declaration or payment dates;
- they and their subsidiaries will not amend their certificates of
incorporation, by-laws or other organizational documents, or do
anything that would reasonably be expected to prevent, materially
impede or interfere with the merger;
- they will not do anything that would be reasonably likely to affect
adversely the status of the merger as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code; in fact, each
party has agreed to use all reasonable efforts to obtain this status;
- they will confer regularly and frequently with representatives of the
other party to discuss, subject to applicable law, material operational
and business matters;
- they will promptly notify the other party of any significant changes in
their business, properties, assets, condition, results of operations or
prospects;
- they will advise the other party of any change or event that has had or
is reasonably likely to result in a material adverse effect on them;
- they will promptly provide the other party with copies of all filings
with governmental authorities in connection with the merger agreement;
- they and their subsidiaries will use commercially reasonable efforts to
obtain all necessary consents to complete the merger, promptly notify
the other party of any failure or likely failure to obtain these
consents, and, if requested by the other party, provide copies of all
the consents that have been obtained;
- they and their subsidiaries will not willfully do anything that is
reasonably likely to result in a material breach of the merger
agreement or in any of their representations and warranties being
untrue at the closing date; and
- they will take all necessary steps within their control to exempt (or
ensure the continued exemption of) the merger from any applicable
takeover law.
COVENANTS OF YANKEE.
Yankee has agreed that it and its subsidiaries will, until the effective
time or until the merger agreement is terminated (subject to certain exceptions
as stated in the schedules to the merger agreement):
- carry on their businesses in the ordinary course;
- preserve intact their business organizations, goodwill and
relationships with customers, suppliers and others having business
dealings with them;
- keep available the services of their present officers and employees as
a group (subject to prudent management of workforce needs and ongoing
programs currently in force);
- maintain their material properties and assets in as good repair and
condition as present, and maintain supplies and inventories in
quantities consistent with past practice;
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- abide by restrictions on their ability to do certain things, including
the following:
-- declare or pay any dividends or other distributions in respect of
any capital stock other than:
(A) dividends by a subsidiary to Yankee; or
(B) Yankee's quarterly dividends that do not exceed current regular
dividends (except that, Yankee may increase the annualized amount
of such dividends by up to $.04 per share at its regular board of
directors meeting in June 2000);
-- split, combine or reclassify stock or issue other securities in
substitution for its shares of capital stock;
-- redeem, repurchase or otherwise acquire any shares of capital stock
(other than those in connection with employee benefit and dividend
reinvestment plans or intercompany acquisitions of capital stock);
-- effect substantial equity and asset acquisitions and dispositions;
-- incur capital expenditures in excess of a certain amount;
-- incur or guarantee indebtedness;
-- enter into or amend employee benefit plans and other employment
arrangements;
-- change their accounting method;
-- discharge claims, liabilities or obligations;
-- enter into, amend, terminate or renew material contracts or waive,
release or assign any material rights under them; and
-- make or rescind elections relating to taxes, settle tax claims,
change their methods of reporting income or deductions for tax
purposes or change their manner of filing tax returns;
- maintain customary insurance;
- not issue, pledge, dispose of or otherwise encumber any shares or other
securities convertible into rights, warrants or options to acquire such
shares or other securities other than:
-- under outstanding stock options granted under employee benefit
plans;
-- under Yankee's dividend reinvestment plan;
-- for issuances by subsidiaries to Yankee or another subsidiary; or
-- as may be required by the Yankee Rights Agreement (mentioned above,
see "Representations and Warranties");
- not engage in any activities that would cause a change in their status
under the Public Utility Holding Company Act of 1935, as amended;
- use reasonable efforts to maintain in effect all existing governmental
permits under which they operate, except for those permits which, if
they were lost, would not have a materially adverse effect; and
- ensure that the merger will not result in the grant of any rights to
any person under any material agreement to which they are a party
(other than the third party contracts, change
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in control agreements, incentive plans, compensation plans, stock
ownership plan and retention bonus agreements disclosed in the
schedules to the merger agreement).
COVENANTS OF NU.
NU has agreed that it will cause Merger Sub not to do anything inconsistent
with the merger agreement. It has also agreed not to acquire any other company
or a substantial portion of its assets without the consent of the Yankee board
of directors, if doing so would be likely to endanger or delay the completion of
the merger.
NO SOLICITATION OF ALTERNATIVE PROPOSALS.
Yankee also agreed to certain restrictions concerning "Alternative
Proposals." These are defined in the merger agreement as mergers, acquisitions,
consolidations, reorganizations, share exchanges, tender offers, exchange offers
or similar transactions involving Yankee or its subsidiaries, or any third party
proposals or offers to acquire in any manner, directly or indirectly:
-- 10% of Yankee common stock;
-- any common stock of its subsidiary, Yankee Gas Services Company, or 50%
of the stock of other significant subsidiaries; or
-- a substantial portion of the assets of Yankee and its subsidiaries taken
as a whole.
Specifically, Yankee agreed that:
- neither it nor its subsidiaries will encourage, initiate, solicit or
knowingly do anything to facilitate any inquiries, proposals or offers
that constitute, or may reasonably be expected to lead to, an
Alternative Proposal from any person;
- neither it nor its subsidiaries will engage in any discussion or
negotiations concerning, or provide any non-public information or data
to make or implement an Alternative Proposal;
- it will immediately put an end to any existing solicitation,
initiation, encouragement, activity, discussions or negotiations with
any parties conducted with a view of formulating an Alternative
Proposal; and
- it will immediately notify NU if it receives any such inquiries, offers
or proposals and it will keep NU informed of their status.
Nonetheless, Yankee may take the following steps:
- at any time before the Yankee shareholders vote to approve the merger
agreement, Yankee may engage in discussions or negotiations with a
third party that seeks to initiate such discussions or negotiations,
and may furnish such third party with information concerning Yankee and
its business, properties and assets, but only if it complies with the
following requirements:
(i) the Yankee board of directors:
-- concludes in good faith that the third party has made an
Alternative Proposal that is likely to be more favorable to
Yankee shareholders than the merger and has demonstrated that it
will have adequate financing to carry out the Alternative
Proposal; and
-- concludes in good faith, based upon the advice of outside
counsel and other relevant matters, that engaging in these
discussions or negotiations with the third
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party are necessary for the Yankee board of directors to act in
a manner consistent with its fiduciary duties to shareholders
under applicable law; and
(ii) before Yankee provides information to, or enters into
discussions or negotiations with, the third party, Yankee:
-- promptly notifies NU that it intends to furnish information to,
or intends to enter into discussions or negotiations with, that
third party;
-- identifies the person or group making the Alternative Proposal
and its material terms; and
-- receives from the third party an executed confidentiality
agreement on terms not materially more favorable to the third
party than those provided in the confidentiality agreement
between NU and Yankee except that the confidentiality agreement
with the third party should not prohibit the third party from
making an unsolicited Alternative Proposal to the board of
directors of Yankee;
- Yankee may state its position to its shareholders in respect of a
tender or exchange offer in order to comply with Rule 14e-2 under the
Securities Exchange Act of 1934, as amended, (the "Exchange Act"); or
- Yankee may accept an Alternative Proposal from a third party, provided
that it first terminates the merger agreement with NU in accordance
with its terms of the merger agreement.
ADDITIONAL AGREEMENTS
In addition to the covenants above, the parties have also agreed on the
following matters:
ACCESS TO INFORMATION.
Until the effective time, upon reasonable notice and during normal business
hours, each party will provide the other side reasonable access to all of its
properties, books, contracts, commitments and records. Each will provide access:
- to the extent it is legally allowed to do so;
- to the extent this access does not constitute a waiver of the
attorney-client privilege; and
- to the extent it does not unreasonably interfere with its business and
operations.
In addition, the parties will provide to each other:
- access to each material report, schedule and other document that they
or their subsidiaries filed or received under federal or state
securities laws or filed with or sent to the SEC, the Federal Energy
Regulatory Commission, the Antitrust Division of the Department of
Justice, the Federal Trade Commission, or any other U.S. federal or
state regulatory agency or commission; and
- access to all information concerning themselves, their subsidiaries,
directors, trustees, officers and shareholders, and other matters that
the other party may reasonably request in connection with any filings,
applications, or approvals required under the merger agreement.
Each party will hold in strict confidence all information furnished to it in
connection with the merger.
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REGULATORY MATTERS.
Yankee and NU will cooperate with each other and use their best efforts to
promptly prepare and file all necessary documentation, to effect all necessary
applications, notices, petitions, filings and other documents, and to use all
commercially reasonable efforts to obtain required governmental consents by
April 14, 2000.
INDEMNIFICATION OF DIRECTORS AND OFFICERS; INSURANCE
See "The Merger--Interests of Certain Persons in the
Merger--Indemnification," at page 38.
PUBLIC ANNOUNCEMENTS.
Subject to their legal obligations to disclose information, Yankee and NU
will cooperate with each other in the development and distribution of all news
releases and other public information disclosures about the merger agreement and
the merger. In addition, they will not issue any public announcement or
statement concerning the merger without the consent (which cannot be
unreasonably withheld) of the other party.
EMPLOYEE AGREEMENTS.
Except as provided below, NU, the surviving company and its subsidiaries
will honor, without modification, all existing contracts, agreements, collective
bargaining agreements and commitments of Yankee that were entered into before
June 14, 1999, which apply to current or former employees and directors of
Yankee.
NU or the surviving company may also enforce such employment agreements in
accordance with their terms, including any reserved rights of amendment,
modification, suspension, revocation or termination. Any workforce reductions
affecting Yankee employees in the year following the merger will be done in
accordance with the merger agreement, the recommendations of the Transition
Steering Team (described below) and all applicable collective bargaining
agreements and applicable law.
TRANSITION STEERING TEAM.
Yankee and NU will set up a transition steering team made up of
representatives of Yankee and NU that will develop recommendations concerning
the future structure and operations of Yankee. The transition steering team will
be jointly chaired by the chief executive officers of Yankee and NU.
EMPLOYEE BENEFIT PLANS.
NU must, directly or indirectly, provide the following employee benefits to
the non-union individuals of Yankee or its subsidiaries, who continue to be
employees of the surviving company, NU or their respective subsidiaries:
- for the twelve months immediately after the closing date, compensation,
benefits and coverage that are no less favorable in the aggregate than
those benefits provided immediately before the closing date;
- a severance benefit package for employees that are terminated within
twelve months of the closing date that is equivalent to the severance
benefit package that would have been provided under the current Yankee
Severance Pay Plan;
- full credit for years of service with Yankee or its subsidiaries for
the purposes of eligibility, vesting, benefit accrual and determination
of the level of benefits under any employee benefit plans or
arrangements of NU or the surviving company in effect as of the closing
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date to the same extent recognized by Yankee or its subsidiaries
immediately prior to the closing date;
- waiver of all limitations as to preexisting conditions, exclusions and
waiting periods with respect to participation and coverage requirements
under any welfare benefit plan established to replace any Yankee
welfare benefit plans after the closing date, other than limitations or
waiting periods that are already in effect and that have not been
satisfied by the closing date; and
- credit for any copayments and deductibles paid prior to the closing
date in satisfying any applicable deductible or out-of pocket
requirements under any welfare plans that are participated in after the
closing date.
YANKEE STOCK PLANS.
For each Yankee plan that provides benefits to employees and directors in
the form of shares of Yankee common stock, both NU and Yankee will do everything
necessary to:
- have NU shares, rather than Yankee shares, issued or purchased in the
open market under those plans, and to make any changes in the Yankee
plans that are necessary to reflect the merger agreement and the
merger;
- obtain the approval of Yankee shareholders with respect to the Yankee
plans whenever their approval is required to comply with Rule 16b-3
promulgated under the Exchange Act, the Internal Revenue Code or any
other applicable law;
- provide a sufficient number of NU shares for delivery upon payment of
benefits, grant of awards, or exercise of options under the Yankee
plans; and
- file the registration statements and amendments that are necessary to
register the NU shares that are subject to the Yankee plans. NU will
use its best efforts to keep these registration statements effective
and current as long as benefits and grants remain payable and related
options remain outstanding. For those individuals who will be subject
to the reporting requirements under Section 16(a) of the Exchange Act
following the merger, Yankee will administer its plans in a manner that
complies with the Exchange Act.
Individuals who do not exercise their Yankee stock options prior to the
effective time will, following the effective time, have their vested options
replaced with fully exercisable options to acquire NU shares. The replacement NU
stock options will preserve the economic value of the Yankee stock options as of
the effective time.
EXPENSES.
Except for the expense of printing and filing this proxy
statement/prospectus (which Yankee and NU will share equally) and except as
described under "Termination, Amendment, and Waiver" below, Yankee and NU will
pay their own costs and expenses incurred in connection with the merger.
FURTHER ASSURANCES.
Each party and its subsidiaries will execute additional documents if
necessary, and do everything that another party may reasonably request in order
to complete the merger in accordance with the merger agreement.
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EMPLOYMENT CONTRACTS.
See "The Merger--Interests of Certain Persons in the Merger--Employment
Agreements" on pages 33 to 34.
CONVEYANCE TAXES.
The parties will cooperate in preparing and filing returns or other
documents regarding conveyance taxes or any similar taxes which will become
payable in connection with the merger. Yankee will pay, on behalf of its
shareholders, without deduction or withholding (except where required by law)
from any amounts payable to its shareholders, those taxes payable in connection
with the merger.
CONDITIONS
MUTUAL CONDITIONS.
Before either Yankee or NU will be obligated to complete the merger, the
following conditions must have been met:
- Yankee shareholders must have approved the merger agreement;
- Any waiting period applicable to the merger under the Hart-Scott Act
must have expired or been terminated;
- No laws remain in effect, and no restraints issued by a U.S. court
(federal or state) remain in effect which would prohibit completion of
the merger;
- The registration statement pertaining to the NU shares to be issued in
connection with the merger must have become effective, and no stop
order suspending its effectiveness will have been issued which remains
in effect;
- The New York Stock Exchange must have approved the NU shares to be
issued in the merger for listing;
- Yankee and NU must have obtained the necessary governmental approvals
by the effective time and all applicable waiting periods must have
expired. No governmental authority may have imposed terms or conditions
that could be expected to have a material adverse effect on either
Yankee or NU.
CONDITIONS TO OBLIGATIONS OF NU.
Before NU will be obligated to complete the merger, the following conditions
must have been met, or waived by NU:
- Yankee must have performed in all material respects the agreements and
covenants required by the merger agreement;
- The representations and warranties of Yankee in the merger agreement
must be true on the closing date, unless the representation and
warranty speaks of a specified date. In that case, the representation
and warranty must be true on the date specified. The representations
and warranties may contain inaccuracies if they would not reasonably be
expected to have a material adverse effect on Yankee;
- Yankee must have provided NU with a certificate, dated the closing date
and signed by Yankee's chief executive officer or chief financial
officer stating that the above two conditions have been satisfied;
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- Yankee may not have suffered a material adverse effect, and there is no
fact or circumstance, other than those disclosed in the schedules to
the merger agreement or in Yankee's public documents filed prior to
June 14, 1999, that is reasonably likely to have a material adverse
effect on Yankee;
- Yankee must have obtained the necessary third party consents, unless
the failure to obtain those consents would not have a material adverse
effect on Yankee;
- Each "affiliate" (as that term is used in Rule 145 under the Securities
Act) of Yankee must have signed an agreement stating that the affiliate
will not sell the NU shares that it receives in the merger, except in
accordance with Rule 145;
- Attorneys for NU must have furnished it with an opinion to the effect
that the merger will be treated as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code.
CONDITIONS TO OBLIGATIONS OF YANKEE.
Before Yankee is obligated to complete the merger, the following conditions
must have been met, or waived by Yankee:
- NU must have performed in all material respects the agreements and
covenants required by the merger agreement;
- The representations and warranties of Yankee in the merger agreement
must be true on the closing date, unless the representation and
warranty speaks for a specified date. In that case, the representation
and warranty must be true on the date specified. The representations
and warranties may contain inaccuracies if they would not reasonably be
expected to have a material adverse effect on Yankee;
- NU must have provided Yankee with a certificate, dated the closing date
and signed by NU's chief executive officer or chief financial officer
stating that the above two conditions have been satisfied;
- NU may not have suffered a material adverse effect, and there is no
fact or circumstance, other than those disclosed in the schedules to
the merger agreement or in NU's public documents filed prior to June
14, 1999, that is reasonably likely to have a material adverse effect
on NU.
- NU must have obtained the necessary third party consents, unless the
failure to obtain those consents would not have a material adverse
effect on NU.
- Attorneys for Yankee must have furnished it with an opinion to the
effect that the merger will be treated as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code.
TERMINATION, AMENDMENT AND WAIVER
TERMINATION.
The merger agreement may be terminated and the other transactions
contemplated in the merger agreement may be abandoned at any time before the
effective time, regardless of approval by the shareholders of Yankee:
- by mutual written consent of the Yankee board of directors and the NU
board of trustees;
- by either Yankee or NU, if the closing date has not occurred by April
14, 2000 (the "Initial Termination Date") so long as the party seeking
termination has not caused the delay by
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failing to fulfill its obligations under the merger agreement. However,
if certain governmental, regulatory and other consents and approvals
have not yet been obtained by the Initial Termination Date, the Initial
Termination Date shall be extended to September 14, 2000 (the "Extended
Termination Date");
- by either Yankee or NU, if the Yankee shareholders have not approved
the merger agreement at the Special Meeting or any adjournments of the
Special Meeting;
- by either Yankee or NU, if any state or federal law prohibits the
merger (this determination must be supported by the written opinion of
outside counsel) or if any state or federal court of competent
jurisdiction issues a final and nonappealable decision that permanently
prohibits the merger from being completed. Yankee or NU may not seek
termination if they have not defended the lawsuit or proceeding which
prohibits the merger;
- by Yankee, if Yankee's board of directors determines in good faith that
termination of the merger agreement is necessary for it to act in a
manner consistent with its fiduciary duties to shareholders under
applicable law by reason of an unsolicited alternative business
combination proposal meeting certain requirements. However, Yankee must
first give ten days' prior notice to NU. It must also enter into
further negotiations with NU to adjust the terms and conditions of the
merger agreement in a way which would allow Yankee to proceed with the
merger or related transactions on these adjusted terms;
- by either party, if there has been any material breach of any
representation or warranty, covenant or agreement of the other party,
and this breach has not been remedied within 20 days of receiving
written notice of the breach;
- by NU, if the Yankee board of directors:
-- withdraws or modifies in any manner materially adverse to NU its
approval or recommendation of the merger;
-- approves or recommends an Alternative Proposal; or
-- resolves to take any of these actions.
EFFECT OF TERMINATION.
Yankee and NU have agreed that, if either of them terminates the merger
agreement for any reason outlined above, the merger agreement will become null
and void, without any liability on the part of NU or Yankee or their officers,
directors or trustees. Even in this case, however, the provisions concerning
expenses, termination fees, the confidentiality agreement between the parties,
waiver of jury trial and enforcement of the merger agreement will remain in
effect.
TERMINATION FEES.
If the merger agreement is terminated because of a material breach by NU or
Yankee of their representations, warranties, agreements or covenants, they will
pay up to $5 million cash to the other party for reimbursement of all documented
out-of-pocket expenses and fees incurred by the other party. This amount is not
a limit on the right of either party to sue for additional damages in the event
of a willful breach.
Yankee will pay NU a termination fee of $19 million plus up to $5 million
for reimbursement of documented out-of-pocket expenses:
- if Yankee terminates the merger agreement because it desires to pursue
a third party Alternative Proposal, and Yankee's board of directors
determined in good faith based upon the advice of outside counsel with
respect to its fiduciary duties, that termination was
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necessary for the board of directors to act consistently with its
fiduciary duties to shareholders under applicable law;
- if NU terminates the merger agreement because the Yankee board of
directors withdrew or modified its approval or recommendation of the
merger agreement or approved or recommended an Alternative Proposal;
- if, at a time when an Alternative Proposal is pending, the merger
agreement is terminated:
(i) by NU because the Yankee shareholders' approval was not
obtained; or
(ii) by Yankee because the closing date did not occur by the Initial
Termination Date (April 14, 2000) or, if applicable, the
Extended Termination Date (September 14, 2000);
and, in the case of (i) and (ii) above, Yankee enters into a definitive
agreement with the party making the Alternative Proposal within two years
of termination of the merger agreement.
NU will pay Yankee a termination fee of $10.625 million if either:
(i) NU or Yankee terminates the merger agreement because the closing
date has not occurred by the Initial Termination Date, or (if
applicable) the Extended Termination Date, or
(ii) the Parties terminate the merger agreement by mutual written
consent,
and, on the date the merger agreement is terminated in either (i) or (ii), the
only condition to the merger which has not been satisfied or waived is the
receipt by NU of all necessary approvals under the Public Utility Holding
Company Act of 1935.
AMENDMENT.
The boards of directors and trustees of the parties may amend the merger
agreement at any time before the effective time, whether before or after the
Yankee shareholders have approved the agreement. However, they may only do so in
writing which has been signed on behalf of each of the parties, and they may
only amend the merger agreement to the extent permitted by law.
WAIVER.
At any time before the effective time, the parties may, to the extent
permitted by law:
- extend the time for the performing the obligations under the merger
agreement;
- waive any inaccuracies in the representations and warranties; and
- waive compliance with any of the agreements or conditions in the merger
agreement.
The agreement of NU or Yankee to these extensions or waivers is only valid
if it is in writing and is signed on behalf of that party.
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DISSENTERS' RIGHTS OF APPRAISAL
OF YANKEE SHAREHOLDERS
If you hold shares of Yankee common stock and do not wish to accept the
merger consideration, then Sections 33-855 through 33-872 of the Connecticut
Business Corporation Act (the "CBCA") provide you with an alternative. Under
these sections, you have a right to dissent from the merger, and can choose to
be paid the fair value of your shares of Yankee common stock once the merger is
completed, provided you follow the procedures outlined in the statute. The
complete text of these sections is included in Appendix C to this proxy
statement/prospectus.
If you wish to exercise your dissenters' rights of appraisal or to preserve
the right to do so, you should carefully review Appendix C and seek the advice
of counsel. If you do not comply with the deadlines and procedures specified in
the CBCA, you may lose your dissenters' rights of appraisal. To exercise these
rights, you must satisfy each of the following conditions:
- you must not vote in favor of the merger agreement; and
- you must deliver to the Secretary of Yankee BEFORE a vote on the merger
agreement is taken at the Special Meeting, a written notice of your
intent to demand payment of the fair value of your shares.
You must deliver the notice of intent even if you submit a proxy or vote
against the merger agreement. Merely voting against, abstaining from voting or
failing to vote in favor of approval of the merger agreement will not constitute
a notice of intent to exercise dissenters' rights of appraisal under the CBCA.
If Yankee shareholders approve the merger agreement at the Special Meeting
and you meet the requirements above, then Yankee will send to you, within ten
days of the approval of the merger agreement, a written dissenters' notice to be
used to demand payment for your shares. The dissenters' notice will:
- state where the payment demand must be sent and when and where share
certificates must be deposited;
- inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
- supply a form for demanding payment that includes the date of the first
announcement to the news media or to shareholders of the terms of the
merger agreement and require that each shareholder asserting
dissenters' rights certify whether or not they acquired beneficial
ownership of the shares before that date;
- set a date by which Yankee must receive the payment demand, which may
not be fewer than 30 nor more than 60 days after the written
dissenters' notice is delivered by Yankee; and
- be accompanied by a copy of Sections 33-855 through 33-872 of the CBCA
(the sections that discuss dissenters' rights).
Under Section 33-863(a) of the CBCA, if you receive a dissenters' notice and
wish to exercise your dissenters' rights of appraisal, you must:
- demand payment for your shares;
- certify that you acquired beneficial ownership of your shares
(generally, the right to vote or enter into an arrangement or agreement
for the purpose of voting your shares, the right to acquire shares and
the right to dispose of shares) before the date of the first
announcement
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to the news media or to the shareholders of the terms of the merger
agreement as set forth in the dissenters' notice; and
- deposit the certificate or certificates representing your shares in
accordance with the terms of the dissenters' notice.
If you are considering seeking dissenters' rights of appraisal, you should
be aware that the fair value of your shares as determined under the applicable
provisions of the CBCA could be greater than, the same as or less than the
merger consideration.
After Yankee receives a valid, timely and complete payment demand, or upon
completion of the merger, Yankee will pay to each dissenting shareholder the
amount it estimates to be the fair value of the dissenting shareholder's shares,
plus accrued interest, as provided in Section 33-865(a) of the CBCA. That
payment will be accompanied by:
- Yankee's balance sheet as of the end of a fiscal year ending not more
than 16 months before the date of payment, an income statement for that
year, a statement of changes in shareholders' equity for that year and
the latest available interim financial statements, if any;
- a statement of Yankee's estimate of the fair value of the shares;
- an explanation of how the accrued interest was calculated;
- a statement of the shareholders' right to demand payment under Section
33-860 of the CBCA; and
- a copy of Sections 33-855 through 33-872 of the CBCA.
If the merger does not take place within 60 days of the date set for
demanding payment and depositing certificates representing dissenting
shareholders' shares, Yankee will return the deposited certificates and release
any transfer restrictions that may have been imposed on uncertificated shares.
If the merger is completed after the return of the deposited shares and the
release of transfer restrictions, Yankee will send a new dissenters' notice and
repeat the payment-demand procedure.
Under Section 33-868 of the CBCA, you may send to Yankee your own estimate
of the fair value of your shares and the amount of any interest due, and demand
payment of the difference between your estimate and the amount paid, if any, by
Yankee in the following cases:
- if you believe that the amount paid by Yankee is less than the fair
value of your shares or that the interest due is incorrectly
calculated;
- if Yankee fails to make payment within 60 days of the date set in the
dissenters' notice for demanding payment (except if the payment is
withheld to holders of shares who acquired the shares after the
announcement of the merger); or
- if the merger is not completed, and Yankee does not return the
deposited certificates or release any transfer restrictions imposed on
uncertificated shares within 60 days of the date set in the dissenters'
notice for demanding payment.
If you do not demand payment of the difference between your estimate of the
fair value of your shares (plus interest) and the amount paid by Yankee within
30 days of Yankee making or offering to make that payment, you will lose your
right to demand payment of the difference.
Under Sections 33-871(a) and (b) of the CBCA, if your demand for payment of
your estimate remains unsettled, Yankee will commence a proceeding within 60
days of receipt of your demand for payment and will petition the superior court
for the judicial district where Yankee's principal office is
59
<PAGE>
located to determine the fair value of your shares and accrued interest. If
Yankee does not timely commence this proceeding, Yankee must pay you the
unsettled amount that you demanded.
If this proceeding takes place, Yankee will make all dissenting shareholders
whose demands remain unsettled (even if they are not residents of Connecticut)
parties to the proceeding, and all parties will be served with a copy of the
petition. The court may appoint appraisers who will receive evidence and
recommend a decision on the question of fair value. If the court finds that the
amount Yankee paid is less than the fair value of a dissenting shareholder's
shares, plus accrued interest, the court will order Yankee to pay the difference
to the dissenting shareholder.
The court will determine all costs of the proceeding, including the
reasonable compensation and expenses of court-appointed appraisers. Yankee
generally will pay these costs, but the court may order the dissenting
shareholders to pay some of them, in amounts the court finds equitable, if the
court finds that the shareholders acted arbitrarily, vexatiously or not in good
faith in demanding payment.
If you give notice of your intent to demand dissenters' rights for your
shares under the applicable provisions of the CBCA but fail to return the
dissenters' notice or withdraw or lose your right to demand payment, your shares
will be converted into the right to receive the Cash Consideration in the
merger. See "The Merger Agreement--Conversion of Shares of Yankee Common Stock"
on pages 43 to 46.
The foregoing is only a summary of the applicable provisions of the CBCA and
is qualified in its entirety by reference to the full text of these provisions,
which is included in Appendix C.
If you intend to object to the merger you should carefully review the text
of the applicable provisions of the CBCA and should also consult with your
attorney. THE FAILURE OF A HOLDER OF YANKEE COMMON STOCK TO FOLLOW PRECISELY THE
PROCEDURES SUMMARIZED ABOVE AND SET FORTH IN THE CBCA MAY RESULT IN A LOSS OF
DISSENTERS' RIGHTS. No further notice of the events giving rise to dissenters'
rights or any steps associated with them will be furnished to holders of Yankee
common stock, except as otherwise required by law.
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<PAGE>
SHARE OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information regarding the beneficial
ownership of shares of Yankee common stock as of August 6, 1999, by:
- each director;
- the Chief Executive Officer and each of the other four most highly
compensated executive officers of Yankee and the former Chief Executive
Officer and one former executive officer (determined as of the
completion of Yankee's last fiscal year); and
- all current executive officers and directors as a group.
<TABLE>
<CAPTION>
NAME OF NUMBER OF YANKEE SHARES
BENEFICIAL OWNER TITLE BENEFICIALLY OWNED (1)
- --------------------------------------- ----------------------------------------------- -----------------------
<S> <C> <C>
Michael E. Bielonko (2) Former President of YESCo 2,453
Sanford Cloud, Jr. Director 2,478
J. Kingsley Fink (3) Vice-President--Operations, Yankee Gas 4,488
Charles E. Gooley (4) President and C.E.O. 24,333
Eileen S. Kraus Director 3,780
Steven P. Laden (5) Vice-President 2,853
Emery G. Olcott Director 7,111
Ellen J. Quinn (6) Former Vice-President--Administration 1,687
John J. Rando Director 672
James M. Sepanski (7) Vice-President and C.F.O. 6,891
Branko Terzic Former Chairman, President and C.E.O. 5,241
Patricia M. Worthy Director 450
Current Directors and Executive 68,382
Officers As a Group (11 persons)(8)
</TABLE>
- ------------------------
(1) As of August 6, 1999, each of the directors and executive officers
identified above and all current directors and executive officers of Yankee
as a group beneficially owned less than 1% of the outstanding common stock
of Yankee. The number of shares shown includes 450 shares of restricted
stock held by Mr. Rando, 300 shares of restricted stock held by Ms. Kraus
and Ms. Worthy, 225 shares of restricted stock held by Mr. Cloud and 150
shares of restricted stock held by Mr. Olcott granted under Yankee's
Non-Employee Directors' Stock Compensation Plan, which shares had not vested
by August 6, 1999. The number of shares shown also includes 17,500 shares of
restricted stock held by Mr. Gooley, 1,100 shares of restricted stock held
by Mr. Fink, 379 shares of restricted stock held by Mr. Laden and 5,701
shares of restricted stock held by Mr. Sepanski granted under Yankee's 1991
and 1996 Long-Term Incentive Compensation Plan, which shares had not vested
by August 6, 1999. Pursuant to the terms of each plan, such individuals have
the power to vote and receive dividends with respect to such shares but do
not have dispositive power with respect to such shares until such shares are
vested.
(2) Includes 150 shares owned by Mr. Bielonko's children.
(3) Includes 120 shares issuable upon exercise of currently exercisable options.
(4) Includes 5,040 shares issuable upon exercise of currently exercisable
options.
(5) Includes 100 shares owned by Mr. Laden's spouse and 380 shares issuable upon
exercise of currently exercisable options.
(6) Ms. Quinn resigned as Vice-President, effective June 11, 1999.
(7) Includes 360 shares issuable upon exercise of currently exercisable options.
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<PAGE>
(8) Includes an aggregate of 26,498 shares of non-vested restricted stock held
by current directors and executive officers and an aggregate of 16,360
shares issuable upon exercise of options that are currently exercisable.
The above shares do not include amounts that have been credited to
participating directors' stock unit accounts under Yankee's Non-Employee
Director Deferred Compensation Plan. See table of shares in stock unit accounts
at page 38.
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<PAGE>
NU UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed balance sheet as of
June 30, 1999 and the unaudited pro forma combined condensed income statements
for the six months ended June 30, 1999 and for the year ended December 31, 1998
combine the historical information of NU and Yankee to give effect to the
merger. The merger is accounted for as an acquisition of Yankee by NU under the
purchase method of accounting. For purposes of reflecting the pro forma amounts,
the balance sheet gives effect to the merger as if it had occurred at the end of
the period and the income statements give effect to the merger as if it had
occurred at the beginning of each respective period.
NU has not completed its review of Yankee records in order to finalize its
determination of the fair value of Yankee's assets and liabilities. Therefore,
the purchase price in excess of book value has been reflected as purchase price
in excess of net assets acquired in the accompanying pro forma combined
condensed financial statements. The actual fair values will be determined based
on the financial condition of Yankee at the time of closing.
The pro forma financial data does not give effect to the synergies arising
from the merger, which are expected to occur after completion of the merger.
The pro forma financial statements should be read in conjunction with the
consolidated historical financial statements and the related notes of NU and
Yankee which are incorporated by reference. See "Where You Can Find More
Information" on page 79.
The pro forma combined condensed financial data are presented solely to
comply with Regulation S-X of the SEC. Regulation S-X permits only limited
adjustments to historical data. Accordingly, the pro forma financial data do not
purport to represent what the combined company's financial position or results
of operations would actually have been if such transactions in fact had occurred
on those dates or to project the combined company's financial position or
results of operations for any future date or period.
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<PAGE>
NU COMBINED CONDENSED BALANCE SHEET
AS OF JUNE 30, 1999
ACTUAL AND PRO FORMA
(000'S)
<TABLE>
<CAPTION>
YANKEE
NORTHEAST ENERGY PRO FORMA
UTILITIES SYSTEM, PRO FORMA GIVING EFFECT
SYSTEM INC. ADJUSTMENTS TO MERGER
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
Utility plant, net.......................................... $ 6,110,287 $375,441 $ 6,485,728
Other property and investments.............................. 891,645 13,268 904,913
Assets held for sale........................................ -- 16,160 16,160
Current assets:
$(263,673)(4)
Cash and cash equivalents................................. 220,318 5,443 263,673(6) 225,761
Accounts receivable, net.................................. 342,518 43,485 386,003
Other current assets...................................... 504,649 14,876 519,525
Regulatory assets and deferred charges...................... 2,279,109 53,908 2,000(6) 2,335,017
Purchase price in excess of net assets acquired............. 314,156(5) 314,156
----------- ----------- ----------- -------------
Total Assets................................................ $10,348,526 $522,581 $ 316,156 $ 11,187,263
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholder's equity............................... $ 2,073,662 $173,250 $ 42,483(7) $ 2,289,395
Preferred stock not subject to mandatory redemption....... 136,200 -- 136,200
Preferred stock subject to mandatory redemption........... 141,039 -- 141,039
Long-term debt............................................ 3,151,013 164,000 263,673(6) 3,578,686
----------- ----------- ----------- -------------
Total Capitalization........................................ 5,501,914 337,250 306,156 6,145,320
----------- ----------- ----------- -------------
Minority interest in consolidated subsidiaries.............. 100,000 -- 100,000
Obligations under capital leases............................ 79,628 -- 79,628
Short-term debt............................................. 258,000 2,000 260,000
Other current liabilities................................... 1,012,943 58,462 10,000(6)(8) 1,081,405
Accumulated deferred income taxes........................... 1,811,673 61,705 1,873,378
Other deferred credits...................................... 1,584,368 63,164 1,647,532
----------- ----------- ----------- -------------
Total Capitalization and Liabilities........................ $10,348,526 $522,581 $ 316,156 $ 11,187,263
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
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<PAGE>
NU COMBINED CONDENSED INCOME STATEMENT
ACTUAL AND PRO FORMA
(000'S)
<TABLE>
<CAPTION>
NORTHEAST YANKEE
UTILITIES ENERGY PRO FORMA
SYSTEM SYSTEM, INC. PRO FORMA GIVING EFFECT
(HISTORICAL) (HISTORICAL) ADJUSTMENTS TO MERGER
FOR THE TWELVE-MONTH PERIOD ENDED: (12/31/98) (9/30/98) (UNAUDITED) (UNAUDITED)
- ------------------------------------------------------------ ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Operating Revenues.......................................... $ 3,767,714 $ 314,767 $ 4,082,481
Operating expenses:
Operation--
Fuel, purchase and net interchange power/gas............ 1,296,480 168,755 1,465,235
Other................................................... 977,139 62,496 1,039,635
Maintenance................................................. 399,165 5,978 405,143
Nonrecurring charges........................................ -- 4,436 4,436
Depreciation................................................ 332,807 19,789 352,596
Amortization of excess of purchase price over net assets
acquired.................................................. $ 7,854(9) 7,854
Amortization of regulatory assets, net...................... 203,132 -- 203,132
Federal and state income taxes.............................. 82,332 8,320 90,652
Taxes other than income taxes............................... 251,932 20,431 272,363
------------ ------------ ----------- -------------
Total operating expenses.............................. 3,542,987 290,205 7,854 3,841,046
------------ ------------ ----------- -------------
Operating income/(loss)..................................... 224,727 24,562 (7,854) 241,435
Other income/(expense)
Millstone 1--unrecovered costs.............................. (143,239) -- (143,239)
Interest charges, net....................................... (269,089) (13,853) (21,294)(6)(10) (304,236)
Income taxes, net........................................... 76,393 -- 8,518(11) 84,911
Other, net.................................................. (9,105) 174 (8,931)
------------ ------------ ----------- -------------
Income/(loss) before dividends.............................. (120,313) 10,883 (20,630) (130,060)
Preferred dividends of subsidiaries......................... 26,440 -- -- 26,440
------------ ------------ ----------- -------------
Net income/(loss)........................................... $ (146,753) $ 10,883 $ (20,630) $ (156,500)
------------ ------------ ----------- -------------
------------ ------------ ----------- -------------
Earnings/(loss) earnings per common share--basic and
diluted................................................... $(1.12) $1.04 $(1.10)
------------ ------------ -------------
------------ ------------ -------------
Common shares outstanding (average)......................... 130,549,760 10,495,806 1,573,145(12) 142,618,711
------------ ------------ ----------- -------------
------------ ------------ ----------- -------------
</TABLE>
(*)Derived from audited data.
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
65
<PAGE>
NU COMBINED INCOME STATEMENT
6 MONTHS ENDED JUNE 30, 1999
ACTUAL AND PRO FORMA
(UNAUDITED)
<TABLE>
<CAPTION>
YANKEE
NORTHEAST ENERGY PRO FORMA
UTILITIES SYSTEM, PRO FORMA GIVING EFFECT
SYSTEMS INC. ADJUSTMENTS TO MERGER
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1999 (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
- ------------------------------------------------------------ ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Operating revenues.......................................... $ 2,081,976 $ 173,665 $ 2,255,641
Operating expenses:
Operation--
Fuel, purchased and net interchange power/gas........... 757,820 87,473 845,293
Other................................................... 497,304 31,294 528,598
Maintenance................................................. 193,508 3,004 196,512
Merger expense.............................................. 1,382 1,382
Depreciation................................................ 167,123 10,576 177,699
Amortization of excess of purchase price over net asset
acquired.................................................. $ 3,927(9) 3,927
Amortization of regulatory assets, net...................... 133,061 -- 133,061
Federal and state income taxes.............................. 55,547 11,512 67,059
Taxes other than income taxes............................... 131,483 11,789 143,272
------------ ----------- ----------- -------------
Total operating expenses................................ 1,935,846 157,030 3,927 2,096,803
------------ ----------- ----------- -------------
Operating income/(loss)..................................... 146,130 16,635 (3,927) 158,838
Other income/(expense):
Interest charges, net....................................... (132,969) (7,348) (10,647)(6)(10) (150,964)
Income taxes, net........................................... 20,439 -- 4,259(11) 24,698
Other, net.................................................. (3,047) 55 (2,992)
------------ ----------- ----------- -------------
Income/(expense) before dividends....................... 30,553 9,342 (10,315) 29,580
Preferred dividends of subsidiaries......................... 11,881 -- -- 11,881
------------ ----------- ----------- -------------
Net income/(loss)........................................... $ 18,672 $ 9,342 $ (10,315) $ 17,699
------------ ----------- ----------- -------------
------------ ----------- ----------- -------------
Earnings per common share--basic and diluted................ $0.14 $0.88 $0.12
------------ ----------- ----------- -------------
------------ ----------- ----------- -------------
Common shares outstanding (average)......................... 131,214,191 10,627,342 1,441,609(12) 143,283,142
------------ ----------- ----------- -------------
------------ ----------- ----------- -------------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
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<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
NOTE 1. UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The unaudited pro forma combined condensed balance sheet as of June 30, 1999
and the unaudited pro forma combined condensed income statements for the six
months ended June 30, 1999 and for the year ended December 31, 1998 combine the
historical information of NU and Yankee to give effect to the merger.
NOTE 2. ACCOUNTING METHOD
The merger is accounted for as an acquisition using the purchase method of
accounting in accordance with generally accepted accounting principles.
NOTE 3. MERGER
For purposes of reflecting the pro forma amounts, the balance sheet gives
effect to the merger as if it had occurred at the end of the period and the
income statements give effect to the merger as if it had occurred at the
beginning of each respective period.
NOTE 4. CASH CONSIDERATION
Based on the assumed amounts of $479 million to be paid upon completion of
the merger. For each share of Yankee common stock, the shareholders of Yankee
will receive consideration with an aggregate value of $45, 45% of which will be
payable in NU common shares and 55% payable in cash (which may be paid from
cash-on-hand, receipts from a debt offering by NU and proceeds from
restructuring). NU has reflected pro forma adjustments for the issuance of debt
in the event that the proceeds mentioned above are not received in time. See
Note 6.
NOTE 5. EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED
Reflects the recognition of the excess amount of the purchase price over the
net assets acquired, calculated as follows:
<TABLE>
<CAPTION>
(000'S)
-----------
<S> <C>
Purchase price, assumed value of common stock and cash consideration (based on 10,653,457
Yankee shares outstanding at June 30, 1999 at $45 per share)............................. $ 479,406
Estimated direct costs to be incurred in consummating the merger........................... 8,000
-----------
487,406
Net assets of Yankee....................................................................... (173,250)
-----------
Excess of purchase price over net assets acquired.......................................... $ 314,156
-----------
-----------
</TABLE>
NOTE 6. LONG TERM DEBT
Reflects the issuance of $264 million principal amount of 8% notes payable,
the proceeds of which may be used to fund the cash consideration paid to Yankee
shareholders.
An estimate of $2 million of debt issuance costs has also been reflected as
a pro forma adjustment related to this debt issuance.
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<PAGE>
NOTE 7. COMMON SHAREHOLDERS EQUITY
Based on the assumed amounts to be paid upon completion of the merger. For
each share of Yankee common stock, the shareholders of Yankee will receive
consideration with an aggregate value of $45, 45% of which will be payable in NU
common shares and 55% payable in cash.
Reflects the issuance of 12,068,951 NU common shares at an assumed issuance
cost of $17.875 per share, net of the elimination of Yankee common shareholders
equity.
NOTE 8. MERGER-RELATED COSTS
NU and Yankee will incur direct expenses related to the merger, including
accounting and consulting fees. The pro forma adjustments include an estimate
for NU's merger-related costs of $8 million, which is included in the excess of
purchase price over net assets acquired. Yankee expects to incur approximately
$5 million of merger-related costs, which it will expense as incurred.
NOTE 9. AMORTIZATION OF THE EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED
Represents the amortization of the excess of purchase price over net assets
acquired, which is not tax deductible, over a 40-year period.
NOTE 10. INTEREST EXPENSE, NET
Represents the interest expense related to the issuance of $264 million
principal amount of 8% notes payable and the amortization of deferred financing
costs over ten years.
NOTE 11. INCOME TAXES
Income taxes on the pro forma income statements have been based on a rate of
40%. A tax benefit has not been provided for the excess of purchase price over
net assets acquired, since it is not tax deductible.
NOTE 12. EARNINGS PER SHARE
Reflects the issuance of 12,068,951 NU common shares at an assumed issuance
cost of $17.875 at June 30, 1999 and December 31, 1998, net of the elimination
of Yankee shares outstanding.
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<PAGE>
COMPARATIVE RIGHTS OF YANKEE SHAREHOLDERS
AND NU SHAREHOLDERS
GENERAL
NU is a Massachusetts business trust subject to the provisions of the
Massachusetts General Law (the "MGL"). Yankee is a Connecticut corporation
subject to the provisions of the Connecticut Business Corporation Act (the
"CBCA").
Upon completion of the merger, shareholders of Yankee will become
shareholders of NU and their rights as shareholders of NU will be governed by
the declaration of trust of NU and the MGL. Under Massachusetts law, the
declaration of trust generally controls the operations of a Massachusetts
business trust and the MGL generally applies only where a particular issue is
not specifically addressed by the declaration of trust. The NU board of trustees
is roughly the equivalent of a board of directors and the declaration of trust
is roughly the equivalent of a company's certificate of incorporation and
by-laws combined.
The following is a comparison of certain provisions of the CBCA, the MGL,
the certificate of incorporation and by-laws of Yankee and the declaration of
trust of NU. This summary does not purport to be complete and is qualified in
its entirety by reference to the CBCA and the MGL (which may change from time to
time), Yankee's certificate of incorporation and by-laws and NU's declaration of
trust.
AUTHORIZED CAPITAL STOCK
NU. The authorized capital stock of NU consists of 225,000,000 common
shares of which 137,120,486 shares were issued and outstanding as of the date of
this proxy statement/prospectus. No NU preferred stock currently is authorized
or outstanding.
YANKEE. The authorized capital stock of Yankee consists of 20,000,000
shares of common stock of which 10,633,666 shares were issued and outstanding as
of the date of this proxy statement/prospectus. No Yankee preferred stock
currently is authorized or outstanding.
ISSUANCE OF CAPITAL STOCK
NU. Under the declaration of trust, NU may authorize and issue additional
common shares only upon the affirmative vote of a majority of the voting shares.
The voting shares consist of:
- all of the issued and outstanding NU common shares (currently the only
voting shares); and
- any preferred shares that may be issued and provide for the right to
vote.
Shares of preferred stock may be authorized and issued only upon:
- the affirmative vote of two-thirds of the NU voting shares; and
- the vote of each class of the preferred shares previously issued and
outstanding as may be required by that class of preferred shares.
YANKEE. The Yankee board of directors has the authority under the CBCA to
authorize and issue additional shares of common stock and preferred stock, upon
a finding by it that the consideration to be received for such shares is
adequate.
VOTING RIGHTS
NU. The declaration of trust provides that holders of NU common shares have
the right to vote for the election of trustees and for all other purposes. Each
NU common share entitles the holder to one vote, in person or by proxy, at each
meeting of the shareholders and on each proposition before
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<PAGE>
these meetings. Whether, and to what extent, a class of preferred shares will
have voting rights would be determined by the particular class of those
preferred shares.
YANKEE. The CBCA provides that unless otherwise stated in the certificate
of incorporation, each outstanding share, regardless of its class, is entitled
to one vote on each matter voted on at a shareholders meeting. Because Yankee's
certificate of incorporation is silent on this issue, the holder of each share
of Yankee common stock is entitled to one vote on each matter voted on at
shareholders meetings. Any new series of Yankee capital stock issued in the
future would have voting rights unless otherwise specified.
PREEMPTIVE RIGHTS
NU. When NU issues additional common shares or convertible securities, the
declaration of trust provides the shareholders with preemptive rights to
purchase shares or convertible securities in proportion to the number of common
shares they hold, within the time and on the terms fixed by the trustees. Such
preemptive rights, however, are not applicable to:
(i) the issue of common shares, or the grant of rights or options on such
shares, to trustees, directors, officers, or employees of NU or its
subsidiaries; and
(ii) the issue of common shares on the conversion of convertible securities
if these securities were offered or issued to holders of common shares
in satisfaction of their preemptive rights or were not subject to
preemptive rights.
In addition, common shares and convertible securities are not subject to
preemptive rights if they are:
(i) common shares or convertible securities offered to holders of common
shares in satisfaction of their preemptive rights and were not purchased
by these shareholders;
(ii) issued pursuant to a plan adjusting any rights to fractional shares or
fractional interests in order to prevent the issue of fractional shares
or fractional interests in these shares;
(iii) issued in connection with a merger or consolidation, or pursuant to
order of a court of competent jurisdiction unless such order otherwise
provides;
(iv) issued in a public offering or to or through underwriters who agree to
make a public offering of such common shares or convertible securities;
(v) released from such preemptive rights by the affirmative vote or written
consent of the holders of at least two-thirds of the common shares then
outstanding; or
(vi) held in NU's treasury.
YANKEE. Yankee's certificate of incorporation provides that shareholders of
Yankee common stock shall not have any preemptive rights.
DIVIDENDS AND OTHER DISTRIBUTIONS
NU. Under NU's declaration of trust, the NU board of trustees has complete
discretion in choosing whether and to what extent shareholders will receive
dividends.
YANKEE. Under the CBCA, a corporation may make distributions, including
dividends, to its shareholders subject to restriction by its certificate of
incorporation unless, after giving effect to the dividend or distribution,
either of the following would happen:
- the corporation would not be able to pay its debts as they become due
in the usual course of business; or
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<PAGE>
- the corporation's total assets would be less than:
-- the sum of its total liabilities;
plus (unless its certificate of incorporation permits otherwise)
-- the amount that would be needed, if the corporation were to be
dissolved at that time, to satisfy the preferential rights of
shareholders whose rights are superior to those shareholders
receiving the dividend or distribution.
- Since Yankee's certificate of incorporation and by-laws contain no
restrictions on dividends and distributions and no preferential shares
are outstanding, the Yankee board of directors has the discretion to
pay dividends subject to the CBCA limitations.
TRUSTEE/DIRECTOR VACANCIES AND REMOVAL
NU. Pursuant to NU's declaration of trust, a trustee shall hold office
until the next annual meeting of the shareholders, unless the trustee resigns.
The trustees are elected by a majority of the NU voting shares, and trustees may
be re-elected to the new board by the shareholders. A vacancy on the board of
trustees caused by death or resignation may be filled by a majority of trustees
in office, even if the remaining trustees constitute less than a majority of the
whole board. NU's declaration of trust is silent on the removal of trustees.
YANKEE. Under the CBCA, a director may be removed by shareholders with or
without cause unless the certificate of incorporation provides that directors
may be removed only for cause. According to the CBCA, a director may be removed
by shareholders only at a meeting called for the purpose of removing that
director, and the notice calling the meeting must state that the purpose or one
of the purposes of the meeting is removal of the director. Yankee's certificate
of incorporation provides that a director may be removed only for cause and only
by the affirmative vote of at least 80% of the voting power of the shares
entitled to vote on the matter.
Under the CBCA, unless the certificate of incorporation provides otherwise,
any vacancy in a board of directors may be filled:
(i) by the shareholders;
(ii) by the board of directors; or
(iii) if the directors remaining in office constitute fewer than a quorum of
the board, by the affirmative vote of a majority of all the directors
remaining in office.
Yankee's certificate of incorporation provides that vacancies may be filled
only by a majority vote of the directors then in office.
MEETINGS OF SHAREHOLDERS
NU. Under NU's declaration of trust, in addition to the annual meeting, a
special meeting of the shareholders may be called by the chairman of the board
of trustees, the president, the board of trustees or requested by the holders of
10% of all the NU voting shares. The holders of NU voting shares having a
majority of voting power shall constitute a quorum at any meeting of
shareholders for the transaction of business. When a quorum is present at any
shareholder meeting, the affirmative vote of the majority of the shareholders
present or represented at the meeting shall be the act of the shareholders.
YANKEE. Under the CBCA, a corporation is required to hold a special meeting
of shareholders if:
- the board of directors calls such a meeting; or
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<PAGE>
- if holders of at least 10% of all votes entitled to be cast on any
issue proposed to be considered at the special meeting make a written
demand for the meeting to the corporation's secretary describing the
purpose for the proposed special meeting.
Yankee's certificate of incorporation is consistent with the CBCA in this
regard.
Under the CBCA, unless the corporation's certificate of incorporation or the
CBCA provides otherwise (which Yankee's certificate of incorporation does not),
a majority of the votes entitled to be cast on a matter constitutes a quorum for
action on that matter. The CBCA further provides that unless the CBCA or the
certificate of incorporation requires a greater number of affirmative votes, if
a quorum exists, action on a matter, other than the election of directors, is
approved if the votes cast favoring the action exceed the votes cast opposing
the action.
An exception to the CBCA under Yankee's certificate of incorporation is that
a merger or consolidation with a significant shareholder (defined below)
requires approval by:
- the holders of 80% of the shares entitled to vote on the matter (voting
together as a single class); and
- the holders of two-thirds of the shares entitled to vote on the matter
other than the shares held by an interested shareholder (defined
below).
A "significant shareholder" is defined as a shareholder who owns, or has
owned within the immediately preceding two-year period, 5% or more of the voting
shares of Yankee. An "interested shareholder" is defined as a significant
shareholder whose participation in a transaction would result in a business
combination. A "business combination" is defined as a combination between Yankee
and any significant shareholder or affiliate of a significant shareholder
including a merger, consolidation or sale of one-third or more of Yankee's
assets.
SHAREHOLDER ACTION WITHOUT A MEETING
NU. Since NU's declaration of trust does not contain any provisions
concerning shareholder action without a meeting, no such action may be taken by
NU shareholders.
YANKEE. Under the CBCA, any action which may be taken by shareholders at
any annual or special meeting may be taken:
(i) without a meeting, by unanimous written consent of all the persons who
would be entitled to vote upon that action at a meeting (or by their
duly authorized attorneys); or
(ii) if the corporation's certificate of incorporation so provides (which
Yankee's does not), by written consent of a majority of the persons who
would be entitled to vote upon that action at a meeting.
Under Yankee's certificate of incorporation, any action which may be taken
by shareholders at a meeting may be taken by written consent of all of the
shareholders.
AMENDMENT OF DECLARATION OF TRUST/CERTIFICATE OF INCORPORATION AND BY-LAWS
NU. An amendment to the declaration of trust requires the vote of approval
of two-thirds of the trustees, and becomes effective only upon the approval, by
affirmative vote or written consent, of two-thirds of all NU voting shares. If
any preferred shares are outstanding, no amendment adversely affecting the
rights of preferred shareholders can become effective without the affirmative
vote or written consent of two-thirds of the class or classes of preferred
shares that would be affected by the proposed amendment.
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YANKEE. Under the CBCA, a corporation's certificate of incorporation may be
amended in some limited respects by the board of directors of that corporation
without shareholder action. A corporation may also amend its certificate of
incorporation in any respect by:
- recommendation of the board of directors (unless the board determines
that because of conflict of interest or other special circumstances it
should make no recommendation and communicates the basis for its
determination to the shareholders with the amendment); and
- unless the certificate of incorporation or directors require a greater
vote, by approval of:
-- a majority of the votes entitled to be cast on the amendment by each
voting group, if any, with respect to which the amendment would
create dissenters' rights; and
-- a majority of the votes cast by every other voting group entitled to
vote on the amendment.
Yankee's certificate of incorporation provides that any amendments that
result in a fundamental change of the company require, in addition to the
affirmative votes required by law, the affirmative vote of at least 80% of the
shares entitled to vote thereon. A "fundamental change" is defined in Yankee's
certificate of incorporation as one which affects the following sections of
Yankee's certificate of incorporation and by-laws:
- board of directors
- shareholder action
- business combinations
- amendments to by-laws and certificate
- governance of board and director liability.
The 80% voting approval is not required, however, for any fundamental change
if no interested shareholder (defined above) then exists or if all of the
members of the board are continuing directors. A continuing director is any
board member who is not an interested shareholder and who was a member of the
board prior to the interested shareholder becoming such, or was elected to the
board by a majority of the then continuing directors.
Under the CBCA, a corporation's board of directors may amend or repeal the
by-laws unless:
- the corporation's certificate of incorporation or the CBCA reserves
this power exclusively to the shareholders in whole or in part; or
- the shareholders, in amending or repealing a particular by-law,
expressly provided that the board of directors may not amend or repeal
that by-law.
Under Yankee's by-laws, except as otherwise provided by applicable law or by
Yankee's certificate of incorporation (which does restrict such amendments as
aforesaid), the board of directors and the shareholders shall have power to
adopt, amend or repeal Yankee's by-laws. The board of directors may take such
action only by the affirmative vote of a majority of the directors then in
office.
SALE OF ASSETS, MERGER AND CONSOLIDATION
NU. NU's declaration of trust authorizes the NU board of trustees to sell,
lease or otherwise dispose of any part or parts of the properties of NU to the
extent permitted by law. However, under Massachusetts law, for a Massachusetts
business trust to merge with another entity, its declaration of trust must
explicitly authorize such a transaction. The declaration of trust currently does
not authorize NU to merge with another entity. As such, prior to entering into
any such transaction, NU would be required to amend its declaration of trust as
set forth in the preceding section "Amendment of Declaration of
Trust/Certificate of Incorporation and By-laws."
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YANKEE. Under the CBCA, for a plan of merger or exchange to be approved,
the board of directors must adopt the plan of merger or exchange and recommend
it to the shareholders for approval, unless the board determines that, due to a
conflict of interest or other special circumstances, it should make no
recommendation and communicates the basis for its determination to the
shareholders. Under the CBCA, for corporations incorporated before January 1,
1997, including Yankee, a plan of merger must be approved by each voting group
entitled to vote separately on the plan by at least two-thirds of the voting
power of such voting group, unless the certificate of incorporation provides
otherwise.
Under Yankee's certificate of incorporation, a merger or consolidation with
a significant shareholder (defined in Yankee's certificate of incorporation as a
"business combination") requires approval by the holders of 80% of the shares
entitled to vote thereon (voting together as a single class) and by the holders
of two-thirds of the shares entitled to vote thereon other than the shares held
by an interested shareholder. A significant shareholder is defined as a
shareholder who owns or has owned within the immediately preceding two-year
period 5% or more of the voting shares of Yankee. An interested shareholder is
defined as a significant shareholder whose participation in a transaction would
result in a business combination.
BUSINESS COMBINATION STATUTE
NU. NU's declaration of trust is silent on business combinations. In
addition, no specific provision of the MGL applies to business combinations
involving a Massachusetts business trust. Thus, no such combinations directly
involving NU are currently permitted absent NU voting share approval. See "Sale
of Assets, Merger and Consolidation" above.
YANKEE. CBCA sections 33-840 through 33-845 (the "CBCA Business Combination
Statute") provide for limitations and prohibitions on certain business
combinations. Under the CBCA Business Combination Statute, a "business
combination" includes mergers, combinations, certain transfers, or issuances of
equity securities to interested shareholders and their affiliates,
liquidation/dissolution resolutions passed by those persons or reclassifications
of securities that result in the proportionate increase of ownership of
outstanding shares by those persons.
The CBCA Business Combination Statute generally requires that in addition to
any vote otherwise required by law or the certificate of incorporation, a
business combination shall first be approved by the board of directors and then
be approved by the affirmative vote of at least:
(i) the holders of 80% of the voting power of the outstanding shares of the
corporation; and
(ii) the holders of two-thirds of the voting power of the outstanding shares
of the corporation (other than shares held by the interested
shareholder and any affiliates).
The CBCA Business Combination Statute also generally prohibits a corporation
from engaging in any business combination with any interested shareholder for a
period of five years following the date that such shareholder became an
interested shareholder, unless:
(i) prior to such date the board of directors of the corporation and a
majority of non-employee directors (of which there must be at least two)
approved either the business combination or the transaction which
resulted in the shareholder becoming an interested shareholder, or
(ii) the business combination is otherwise excepted from the five-year
prohibition by applicable provisions of the CBCA.
Under the CBCA Business Combination Statute, an "interested shareholder" is
defined as the holder of 10% of the outstanding voting stock of the corporation.
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The CBCA Business Combination Statute generally applies to Yankee, although
Yankee might qualify for certain available exceptions to its application
(detailed in section 33-845 of the CBCA) depending upon the nature of the
transaction. Yankee's certificate of incorporation and by-laws do not conflict
with any of the provisions of the CBCA Business Combination Statute.
CLASSIFICATION OF TRUSTEES/DIRECTORS
NU. NU's declaration of trust does not provide for different classes of
trustees.
YANKEE. Yankee's certificate of incorporation provides that directors are
to be classified into three classes, which are to hold office in staggered
three-year terms.
LIMITATIONS ON DISSENTERS' APPRAISAL RIGHTS
NU. NU's declaration of trust does not contain any provision entitling any
dissenting NU shareholder to receive an appraisal and payment of the fair value
for such dissenting shareholder's shares. In addition, no Massachusetts statutes
applicable to Massachusetts business trusts provide for appraisal rights
comparable to the statutory appraisal rights that the MGL provides to dissenting
Massachusetts business corporation stockholders.
Until 1991, it was widely believed that there were no common law dissenters'
appraisal rights in Massachusetts. In 1991, however, the Supreme Judicial Court
of Massachusetts held that common law appraisal rights similar to those provided
in the MGL for Massachusetts business corporation stockholders were available to
dissenting minority stockholders of a Massachusetts trust company (as opposed to
a Massachusetts business trust) in connection with a reduction of capital stock
of the trust company. The Court noted that the Massachusetts trust company
statutes do provide statutory appraisal rights for stockholders of a trust
company as to mergers and consolidations, but not as to the reduction of capital
stock. In contrast, the Massachusetts business trust statutes are silent as to
appraisal rights in all circumstances.
Under present circumstances, however, it is not clear under what conditions
or with respect to what possible transactions, if any, common law appraisal
rights in Massachusetts might apply to a business trust such as NU.
YANKEE. Under the CBCA, a shareholder is entitled to dissent from and
receive the fair value of shares owned in the event of a plan of merger or share
exchange to which the corporation is a party as the corporation whose shares
will be acquired, if shareholder approval is required for the merger or the
share exchange and the shareholder is entitled to vote on the transaction. See
"Dissenters' Rights of Appraisal of Yankee Shareholders."
The CBCA also provides for appraisal rights:
(i) in the case of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course
of business if the shareholder is entitled to vote on the matter but not
including a sale pursuant to a court order or a sale for cash all of the
net proceeds of which will be distributed to shareholders within one
year of the sale;
(ii) in the case of amendments to the certificate of incorporation that
materially and adversely affect rights in respect of the dissenter's
shares; and
(iii) any corporate action taken pursuant to a shareholder vote to the extent
the certificate of incorporation, by-laws or a resolution of the board
of directors provides that shareholders are entitled to dissent and
obtain payment for their shares.
Both Yankee's certificate of incorporation and by-laws are silent on
appraisal and dissenters' rights.
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LIQUIDATION PREFERENCE
NU. NU currently has only one class of capital stock outstanding, the NU
common shares, which have no liquidation preference upon a liquidation,
dissolution or winding up of NU.
YANKEE. Yankee currently has only one class of capital stock outstanding,
the Yankee common stock, which has no liquidation preference upon a liquidation,
dissolution or winding up of Yankee.
INTERESTED PARTY TRANSACTIONS
NU. NU's declaration of trust states that no transactions involving NU and
an interested trustee or officer shall be voidable either by the trustees or the
shareholders. Liability for a trustee's breach of fiduciary duty to NU in such a
transaction is limited, subject to certain exceptions, as set forth below in
"Limitation on Trustees'/Directors' Liability."
YANKEE. The CBCA permits transactions involving a Connecticut corporation
and an interested director of that corporation so long as:
(i) the transaction is approved by an affirmative vote of a majority, but no
fewer than two, of those qualified directors (defined in the CBCA as a
director who is not interested or a director who is not an affiliate of
an interested director) on the board of directors or on a duly empowered
committee thereof who voted on the transaction after the existence and
nature of the director's conflicting interest and all facts known to the
interested director respecting the subject matter of the conflicting
interest transaction that an ordinarily prudent person would reasonably
believe to be material to a judgment about whether or not to proceed
with the transaction are known or disclosed to them;
(ii) a majority of the votes entitled to be cast by the holders of all
qualified shares (defined in the CBCA as shares that are not owned or
controlled by an interested director or an affiliate of an interested
director) were cast in favor of the transaction after the existence and
nature of the director's conflicting interest and all facts known to
the interested director respecting the subject matter of the
conflicting interest transaction that an ordinarily prudent person
would reasonably believe to be material to a judgment about whether or
not to proceed with the transaction are known or disclosed to the
holders of such shares; or
(iii) the transaction, judged according to the circumstances at the time of
commitment, is established to have been fair to the corporation.
The CBCA contains no provisions explicitly treating conflict-of-interest
transactions with respect to officers of a corporation. Other than the
provisions dealing with business combinations (as defined in Yankee's
certificate of incorporation) detailed in "Sale of Assets, Merger and
Consolidation" above, Yankee's certificate of incorporation and by-laws are
silent on interested director transactions.
LIMITATION ON TRUSTEES'/DIRECTORS' LIABILITY
NU. NU's declaration of trust limits the personal liability of trustees for
monetary damages for breach of fiduciary duty as a trustee. However, this
provision excludes any limitation on liability:
(i) for any breach of the trustee's duty of loyalty to NU or its
shareholders;
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; or
(iii) for any transaction from which the trustee derived an improper personal
benefit.
YANKEE. The CBCA allows a corporation to limit the personal liability of a
director to the corporation or its shareholders for monetary damages for breach
of duty as a director to an amount
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that is not less than the compensation received by the director for serving the
corporation during the year of the violation if such breach did not:
(i) involve a knowing and culpable violation of law by the director;
(ii) enable the director or an associate to receive an improper personal
economic gain;
(iii) show a lack of good faith and a conscious disregard for the duty of the
director to the corporation under circumstances in which the director
was aware that his or her conduct or omission created an unjustifiable
risk of serious injury to the corporation;
(iv) constitute a sustained and unexcused pattern of inattention that
amounted to an abdication of the director's duty to the corporation; or
(v) create liability for unlawful distributions.
Yankee's certificate of incorporation provides for the limitation of
directors' liability as so permitted.
INDEMNIFICATION OF OFFICERS AND TRUSTEES/DIRECTORS
NU. NU's declaration of trust provides that NU will indemnify its trustees
and officers who were or are a party to any action, suit or proceeding by reason
of the fact that he or she was a trustee or officer of NU, provided that such
officers and trustees acted in good faith and in a manner they reasonably
believed to be in the best interests of NU.
YANKEE. Under the CBCA, unless the certificate of incorporation provides
otherwise (which Yankee's does not), a corporation formed prior to January 1,
1997 shall indemnify its officers, directors, employees or agents against
liability incurred by them in connection with proceedings, if:
(i) they acted in good faith and, in the case of conduct in their official
capacity, in a manner they reasonably believed to be in the best
interests of the corporation;
(ii) in all other cases, that their conduct was at least not opposed to the
best interest of the corporation; and
(iii) with respect to criminal proceedings, had no reasonable cause to
believe that their conduct was unlawful.
A corporation may advance expenses to its officers, directors, employees or
agents prior to final adjudication, as long as they deliver to the corporation a
written affirmation of their good faith belief that they have satisfied the
required standard of conduct and undertake to repay the amounts advanced if it
is ultimately determined that they were not entitled to be indemnified.
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LEGAL MATTERS
The validity of the NU shares to be issued in the merger will be passed upon
for NU by Day, Berry & Howard LLP.
EXPERTS
The audited consolidated financial statements and schedules of NU and Yankee
incorporated by reference in this proxy statement/prospectus have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports thereto, and are included in this document in reliance upon the
authority of that firm as experts in accounting and auditing in giving said
reports.
With respect to the unaudited interim financial information of NU for the
quarters ended March 31, 1999 and 1998, and June 30, 1999 and 1998, and Yankee
for the quarters ended December 31, 1998 and 1997, March 31, 1999 and 1998, and
June 30, 1999 and 1998, Arthur Andersen LLP has applied limited procedures in
accordance with professional standards for a review of that information.
However, their separate report on that information states that they did not
audit and they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their report on that information should
be restricted in light of the limited nature of the review procedures applied.
In addition, the accountants are not subject to the liability provisions of
Section 11 of the Securities Act of 1933 for their report on the unaudited
interim financial information because that report is not a "report" or a "part"
of the registration statement prepared or certified by the accountants within
the meaning of Sections 7 and 11 of that Act.
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Arthur Andersen LLP expect to be present at the Special
Meeting and will be available to respond to appropriate questions from
shareholders in attendance. Although these representatives have stated that they
do not intend to make any statements at the Special Meeting, they will have the
opportunity to do so.
OTHER MATTERS
Pursuant to Connecticut law, the business that may be conducted at the
Special Meeting is confined to the purpose described in the Notice of Special
Meeting of Shareholders that accompanies this proxy statement/prospectus.
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SHAREHOLDER PROPOSALS
To be eligible for inclusion in the 2000 Yankee proxy statement, shareholder
proposals for the 2000 Yankee annual meeting of shareholders must be received by
Yankee at its principal office in Meriden, Connecticut, prior to August 20,
1999.
With respect to shareholder proposals for the 2000 annual meeting of
shareholders that are not sought to be included in the 2000 Yankee proxy
statement, Yankee may exercise the discretionary voting authority granted under
proxies with respect to those proposals, unless written notice of those
proposals is received by Yankee at its principal office in Meriden, Connecticut
on or before November 3, 1999.
If the merger is completed prior to the time of the Yankee annual meeting,
the annual meeting will not be held.
CERTAIN PROXY CARD MATTERS
The proxy card for a participant in the Yankee 401(k) Employee Stock
Ownership Plan, Employee Stock Purchase Plan or Dividend Reinvestment Plan
includes the number of shares registered in the participant's name.
If you participate in the Yankee 401(k) Employee Stock Ownership Plan,
Employee Stock Purchase Plan or the Dividend Reinvestment Plan, your proxy card
represents both the number of Yankee shares registered in your name and the
number of shares credited to your account, unless the registrations are in
different names. If you have shares registered in different names you will
receive a separate proxy card for each registration. If your shares are held by
a broker as nominee, you will receive a voter information form from your broker.
All these shares will be voted in accordance with the instructions on the proxy
card.
WHERE YOU CAN FIND MORE INFORMATION
Yankee and NU file annual, quarterly and current reports, proxy statements,
and other information with the SEC. Anything the companies file may be read and
copied at the following locations at the SEC:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
Room 1024, Judiciary Suite 1300 Citicorp Center
Plaza 7 World Trade Center Suite 1400
450 Fifth Street, N.W. New York, New York 10048 500 West Madison Street
Washington, DC 20549 Chicago, Illinois
60661-2511
</TABLE>
Please call the SEC at 1-800-732-0330 for further information on the public
reference rooms. Yankee's and NU's SEC filings should also be available to the
public from commercial document retrieval services and at the Internet
world-wide web site that the SEC maintains at HTTP://WWW.SEC.GOV. In addition,
materials and information concerning Yankee and NU can be inspected at the New
York Stock Exchange, 20 Broad Street, 7th Floor, New York, New York 10005, where
Yankee shares and NU shares are listed.
The SEC allows Yankee and NU to "incorporate by reference" information into
this document, which means that Yankee and NU can disclose important information
to you by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this document,
except for any information superseded by information contained directly in, or
incorporated by reference in, this document. This document incorporates by
reference the documents set forth below that were previously filed with the SEC
by Yankee (SEC File No. 0-10721) or NU (SEC File No. 001-05324). These documents
contain important information about Yankee and NU.
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REGARDING YANKEE
- Yankee's Annual Report on Form 10-K for the year ended September 30,
1998.
- Yankee's Quarterly Report on Form 10-Q for the quarterly period ended
December 31, 1998.
- Yankee's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1999.
- Yankee's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1999.
- Yankee's Current Report on Form 8-K dated June 14, 1999.
REGARDING NU
- NU's Annual Report on Form 10-K for the year ended December 31, 1998.
- NU's Quarterly Report on Form 10-Q for the quarterly period ended March
31, 1999.
- NU's Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1999.
- NU's Current Report on Form 8-K dated January 28, 1999.
- NU's Current Report on Form 8-K dated February 23, 1999.
- NU's Current Report on Form 8-K dated April 27, 1999.
- NU's Current Report on Form 8-K dated May 7, 1999.
- NU's Current Report on Form 8-K dated June 14, 1999.
- NU's Current Report on Form 8-K dated July 6, 1999.
The SEC may require Yankee and NU to file other documents pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act between the time this
document is sent and the date the Special Meeting is held. These other documents
will be deemed to be incorporated by reference in this document and to be a part
of it from the date they are filed with the SEC.
If you are a Yankee shareholder, we may have already sent you some of the
documents incorporated by reference. Nevertheless, you may obtain any of them
through us, the SEC, or the SEC's Internet world-wide web site as previously
described. Documents incorporated by reference are available from us without
charge, excluding all exhibits unless we have specifically incorporated by
reference an exhibit in this document. You may obtain documents incorporated by
reference in this document by requesting them in writing or by telephone from
the appropriate company at the following addresses:
<TABLE>
<S> <C>
YANKEE ENERGY SYSTEM, INC. NORTHEAST UTILITIES
599 RESEARCH PARKWAY SHAREHOLDERS SERVICES
MERIDEN, CT 06450-1030 PO BOX 5006
HARTFORD, CT 06102-5006
</TABLE>
If you would like to request documents from Yankee or NU, please do so
promptly in order to receive them before the Special Meeting.
Yankee has provided all information contained in or incorporated by
reference in this document with respect to Yankee. NU has provided all
information contained in or incorporated by reference in this document with
respect to NU. Neither Yankee nor NU assumes any responsibility for the accuracy
or completeness of the information provided by the other party.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS DOCUMENT TO VOTE ON THE MERGER AGREEMENT. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS
CONTAINED IN THIS DOCUMENT. THIS DOCUMENT IS DATED AUGUST 19, 1999. YOU SHOULD
NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS DOCUMENT IS ACCURATE AS OF ANY
DATE OTHER THAN THIS DATE. NEITHER THE MAILING OF THIS DOCUMENT TO SHAREHOLDERS
NOR THE COMPLETION OF THE MERGER WILL CREATE ANY IMPLICATION TO THE CONTRARY.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
YANKEE ENERGY SYSTEM, INC.
AND
NORTHEAST UTILITIES
dated as of June 14, 1999
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of June 14, 1999 (this
"Agreement"), between Yankee Energy System, Inc., a Connecticut corporation (the
"Company") and Northeast Utilities, a Massachusetts business trust ("Parent").
WHEREAS, the Company and Parent have determined to engage in a business
combination transaction on the terms stated herein;
WHEREAS, the Board of Directors of the Company and the Board of
Trustees of Parent have approved and deemed it advisable and in the best
interests of their respective shareholders to consummate the transactions
contemplated herein under which the businesses of the Company and Parent would
be combined by means of the merger of the Company with and into Merger Sub, a
Connecticut corporation to be formed by Parent prior to Closing (as defined
below) as a wholly-owned subsidiary of Parent ("Merger Sub"); and
WHEREAS, it is intended that the Merger (as defined below) shall
constitute a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
NOW THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I
THE MERGER
Section 1.01 THE MERGER. Upon the terms and subject to the
conditions of this Agreement:
At the Effective Time (as defined in Section 1.03), the Company shall
be merged with and into Merger Sub (the "Merger") in accordance with the laws of
the State of Connecticut. Merger Sub shall be the surviving corporation in the
Merger and shall continue its corporate existence under the laws of the State of
Connecticut. The effects and the consequences of the Merger shall be as set
forth in Section 1.02. Throughout this Agreement, the term "Merger Sub" shall
refer to Merger Sub prior to the Merger and the term "Surviving Corporation"
shall refer to Merger Sub in its capacity as the surviving corporation in the
Merger.
Section 1.02 EFFECTS OF THE MERGER. At the Effective Time, (i) the
certificate of incorporation of Merger Sub, as in effect immediately prior to
the Effective Time, shall be the certificate of incorporation of the Surviving
Corporation until thereafter amended as provided by law and such certificate of
incorporation, except that the name of the Surviving Corporation shall be
"Yankee Energy System, Inc.," and (ii) the by-laws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be
<PAGE>
the by-laws of the Surviving Corporation until thereafter amended as provided
by law, the certificate of incorporation of the Surviving Corporation and
such by-laws. Subject to the foregoing, the additional effects of the Merger
shall be as provided in Section 33-820 of the Connecticut Business
Corporation Act (the "CBCA").
Section 1.03 EFFECTIVE TIME OF THE MERGER. On the Closing Date (as
defined in Section 3.01), with respect to the Merger, a certificate of merger
complying with Section 33-819 of the CBCA (the "Certificate of Merger") shall be
delivered to the Secretary of the State of Connecticut for filing. The Merger
shall become effective upon the filing of the Certificate of Merger, or at such
later date and time as may be set forth in the Certificate of Merger (the
"Effective Time").
Section 1.04 DIRECTORS. The directors of Merger Sub immediately prior
to the Effective Time and those persons listed in Section 1.04(a) of the Parent
Disclosure Schedule (as defined in Section 7.06(i)) shall be the directors of
the Surviving Corporation and shall hold office from the Effective Time until
their respective successors are duly elected or appointed and qualified in the
manner provided in the certificate of incorporation and by-laws of the Surviving
Corporation, or as otherwise provided by the CBCA. In addition, in accordance
with the Declaration of Trust of Parent (the "Declaration of Trust"), the Board
of Trustees of Parent shall take such action as may be necessary to cause, at
the next regularly scheduled annual meeting of the shareholders of Parent, an
increase of at least two in the number of trustees authorized to serve as
trustees on the Board of Trustees of Parent and shall, as soon as practicable
after the Effective Time, elect as trustees, two directors of the Company
designated by the Parent and reasonably acceptable to the Company.
Section 1.05 OFFICERS. The officers of the Company immediately prior to
the Effective Time shall be the initial officers of, and shall hold the same
positions with, the Surviving Corporation and shall hold office from the
Effective Time until their respective successors are duly elected or appointed
and qualified in the manner provided in the certificate of incorporation and
by-laws of the Surviving Corporation, or as otherwise provided by the CBCA.
Section 1.06 MERGER SUB. Parent shall cause Merger Sub to be formed
prior to the Closing Date as a wholly-owned subsidiary of Parent and to fulfill
the obligations of Merger Sub provided herein.
ARTICLE II
TREATMENT OF SHARES
Section 2.01 EFFECT OF THE MERGER ON CAPITAL STOCK. At the Effective
Time, by virtue of the Merger and without any action on the part of any holder
of any capital stock of the Company or Merger Sub:
2
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(a) SHARES OF MERGER SUB STOCK. Each share of common stock, no
par value, of Merger Sub (the "Merger Sub Common Stock") that is issued and
outstanding immediately prior to the Effective Time shall remain outstanding
unchanged by reason of the Merger as one fully paid and nonassessable share of
common stock, no par value, of the Surviving Corporation.
(b) CANCELLATION OF CERTAIN COMPANY COMMON STOCK. Each share
of common stock, par value $5.00 per share, of the Company (the "Company Common
Stock") that is owned by the Company as treasury stock and all shares of Company
Common Stock that are owned by Parent shall be canceled and shall cease to
exist, and no stock of Parent or other consideration shall be delivered in
exchange therefor.
(c) CONVERSION OF COMPANY COMMON STOCK. Subject to the
provisions of this Section 2.01, each share of Company Common Stock, other than
Dissenting Shares (as defined in Section 2.01(n)) and shares canceled pursuant
to Section 2.01(b), issued and outstanding immediately prior to the Effective
Time (other than shares held as treasury shares by the Company) shall by virtue
of the Merger and without any action on the part of the holder thereof, be
converted into the right to receive (i) $45.00 in cash (as such amount may be
adjusted in accordance with Section 2.01(o) hereof, the "Cash Consideration") or
(ii) a number of validly issued, fully paid and nonassessable shares of Parent
Common Stock equal to the Exchange Ratio (as defined below) (the "Stock
Consideration") or (iii) the right to receive a combination of cash and shares
of Parent Common Stock determined in accordance with this Section (the "Mixed
Consideration"). The "Exchange Ratio" shall be equal to the Cash Consideration
divided by the Parent Share Price (as defined below). The "Parent Share Price"
shall be equal to the average of the closing prices of the shares of Parent
Common Stock on the New York Stock Exchange ("NYSE") Composite Transactions
Reporting System, as reported in The Wall Street Journal, for the 20 trading
days immediately preceding the second trading day prior to the Effective Time.
(d) CASH ELECTION. Subject to the immediately following
sentence, each record holder of shares of Company Common Stock immediately prior
to the Effective Time shall be entitled to elect to receive cash for all or any
part of such holder's shares of Company Common Stock (a "Cash Election").
Notwithstanding the foregoing and subject to Section 2.01(l), the aggregate
number of shares of Company Common Stock that may be converted into the right to
receive cash in the Merger (the "Cash Election Number") will be 55% of the total
number of shares of Company Common Stock issued and outstanding as of the close
of business on the third trading day prior to the Effective Time. Cash Elections
shall be made on a form designed for that purpose (a "Form of Election"). A
holder of record of shares of Company Common Stock who holds such shares as
nominee, trustee or in another representative capacity (a "Representative") may
submit multiple Forms of Election, provided that such Representative certifies
that each such Form of Election covers all the shares of Company Common Stock
held by such Representative for a particular beneficial owner.
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(e) CASH ELECTION SHARES. If the aggregate number of shares of
Company Common Stock covered by Cash Elections (the "Cash Election Shares")
exceeds the Cash Election Number, each Cash Election Share shall be converted
into (i) the right to receive an amount in cash, without interest, equal to the
product of (a) the Cash Consideration and (b) a fraction (the "Cash Fraction"),
the numerator of which shall be the Cash Election Number and the denominator of
which shall be the total number of Cash Election Shares, and (ii) a number of
shares of Parent Common Stock equal to the product of (a) the Exchange Ratio and
(b) a fraction equal to one minus the Cash Fraction.
(f) STOCK ELECTION. Subject to the immediately following
sentence, each record holder of shares of Company Common Stock immediately prior
to the Effective Time shall be entitled to elect to receive shares of Parent
Common Stock for all or any part of such holder's shares of Company Common Stock
(a "Stock Election"). Notwithstanding the foregoing and subject to Section
2.01(l), the aggregate number of shares of Company Common Stock that may be
converted into the right to receive shares of Parent Common Stock in the Merger
(the "Stock Election Number") shall be 45% of the total number of shares of
Company Common Stock issued and outstanding as of the close of business on the
third trading day prior to the Effective Time. Stock Elections shall be made on
a Form of Election. A Representative may submit multiple Forms of Election,
provided that such Representative certifies that each such Form of Election
covers all the shares of Company Common Stock held by such Representative for a
particular beneficial owner.
(g) STOCK ELECTION SHARES. If the aggregate number of shares
of Company Common Stock covered by Stock Elections (the "Stock Election Shares")
exceeds the Stock Election Number, each Stock Election Share shall be converted
into (i) the right to receive a number of shares of Parent Common Stock, equal
to the product of (a) the Exchange Ratio and (b) a fraction (the "Stock
Fraction"), the numerator of which shall be the Stock Election Number and the
denominator of which shall be the total number of Stock Election Shares, and
(ii) an amount in cash, without interest, equal to the product of (a) the Cash
Consideration and (b) a fraction equal to one minus the Stock Fraction.
(h) MIXED ELECTION. Subject to the immediately following
sentence, each record holder of shares of Company Common Stock immediately prior
to the Effective Time shall be entitled to elect to receive shares of Parent
Common Stock for part of such holder's shares of Company Common Stock and cash
for the remaining part of such holder's shares of Company Common Stock (the
"Mixed Election" and, collectively with Stock Election and Cash Election, the
"Election"). Mixed Elections shall be made on a Form of Election. A
Representative may submit multiple Forms of Election, provided that such
Representative certifies that each such Form of Election covers all the shares
of Company Common Stock held by such Representative for a particular beneficial
owner. With respect to each holder of Company Common Stock who makes a Mixed
Election, the shares of Company Common Stock such holder elects to be converted
into the right to
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receive Cash Consideration shall be treated as Cash Election Shares for
purposes of the provisions contained in Sections 2.01(d), (e) and (l), and
the shares such holder elects to be converted into the right to receive
shares of Parent Common Stock shall be treated as Stock Election Shares for
purposes of the provisions contained in Sections 2.01(f), (g) and (l).
(i) FORM OF ELECTION. To be effective, a Form of Election must
be properly completed, signed and submitted to Parent's transfer agent and
registrar, as paying agent (the "Paying Agent"), and accompanied by the
certificates representing the shares of Company Common Stock ("Company
Certificates") as to which the election is being made (or by an appropriate
guarantee of delivery of such Company Certificate signed by a firm that is a
member of any registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. or a bank, broker, dealer,
credit union, savings association or other entity that is a member in good
standing of the Securities Transfer Agent's Medallion Program, the New York
Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange
Medallion Program). Parent shall have the discretion, which it may delegate in
whole or in part to the Paying Agent, to determine whether Forms of Election
have been properly completed, signed and submitted or revoked and to disregard
immaterial defects in Forms of Election. The decision of Parent (or the Paying
Agent) in such matters shall be conclusive and binding. Neither Parent nor the
Paying Agent shall be under any obligation to notify any person of any defect in
a Form of Election submitted to the Paying Agent. The Paying Agent shall also
make all computations contemplated by this Section 2.01, and all such
computations shall be conclusive and binding on the holders of shares of Company
Common Stock.
(j) DEEMED NON-ELECTION. For the purposes hereof, a holder of
shares of Company Common Stock who does not submit a Form of Election that is
received by the Paying Agent prior to the Election Deadline (as defined in
Section 2.01(k)) (the "No Election Shares") shall be deemed not to have made a
Cash Election, Stock Election or Mixed Election. If Parent or the Paying Agent
shall determine that any purported Election was not properly made, the shares
subject to such improperly made Election shall be treated as No Election Shares.
No Election Shares may be treated by the Company, in its sole discretion, as
Cash Election Shares or Stock Election Shares.
(k) ELECTION DEADLINE. Parent and the Company shall each use
its best efforts to cause copies of the Form of Election to be mailed to the
record holders of Company Common Stock not less than thirty days prior to the
Effective Time and to make the Form of Election available to all persons who
become record holders of Company Common Stock subsequent to the date of such
mailing and no later than the close of business on the seventh business day
prior to the Effective Time. A Form of Election must be received by the Paying
Agent by 5:00 p.m., New York City time, on the second day after the Effective
Time, unless extended by the Company (the "Election Deadline") in order to be
effective. All elections may be revoked until the Election Deadline in writing
by the record holders submitting Forms of Election.
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(l) ADJUSTMENT PER TAX OPINION. Notwithstanding anything in
this Article II to the contrary (other than the last sentence of Section
2.01(m)), the number of shares of Company Common Stock to be converted into the
right to receive the Stock Consideration in the Merger shall be not less than
that number which would cause the ratio of (i) the closing price per share of
Parent Common Stock on the Closing Date times the aggregate number of shares of
Parent Common Stock to be issued as Stock Consideration pursuant to Section
2.01(c), to (ii) the sum of (v) the amount set forth in the preceding clause (i)
plus (w) the aggregate Cash Consideration to be issued pursuant to Section
2.01(c) plus (x) the number of Dissenting Shares times the per share fair value
of such shares determined pursuant to Section 2.01(n) of this Agreement or, if
such fair value has not been determined as of the date the calculation required
by this Section 2.01(l) is required to be made, then times the per share Cash
Consideration, plus (y) any other amounts paid by the Company (or any affiliate
thereof) to, or on behalf of, any Company shareholder in connection with the
sale, redemption or other disposition of any Company stock in connection with
the Merger for purposes of Treasury Regulation Sections 1.368-1(e) and
1.368-1T(e) plus (z) any extraordinary dividend distributed by the Company prior
to and in connection with the Merger for purposes of Treasury Regulation
Sections 1.368-1(e) and 1.368-1T(e), to be 45%. To the extent the application of
this Section 2.01(l) results in the number of shares of Company Common Stock to
be converted into the right to receive the Stock Consideration in the Merger
being increased, the number of such shares to be converted into the right to
receive the Cash Consideration will be decreased.
(m) ANTI-DILUTION PROVISIONS. In the event Parent (i) changes
(or establishes a record date for changing) the number of shares of Parent
Common Stock issued and outstanding prior to the Effective Time as a result of a
stock split, stock dividend, stock combination, recapitalization,
reclassification, reorganization or similar transaction with respect to the
outstanding Parent Common Stock or (ii) pays or makes an extraordinary dividend
or distribution in respect of Parent Common Stock (other than a distribution
referred to in clause (i) of this sentence) and, in either case, the record date
therefor shall be prior to the Effective Time, the Merger Consideration (as
defined in Section 2.02(b)) shall be proportionately adjusted. Regular quarterly
cash dividends and increases thereon shall not be considered extraordinary for
purposes of the preceding sentence. If, between the date hereof and the
Effective Time, Parent shall merge or consolidate with or into any other
corporation (a "Business Combination") and the terms thereof shall provide that
Parent Common Stock shall be converted into or exchanged for the shares of any
other corporation or entity, then provision shall be made so that shareholders
of the Company who would be entitled to receive shares of Parent Common Stock
pursuant to this Agreement shall be entitled to receive, in lieu of each share
of Parent Common Stock issuable to such shareholders as provided herein, the
same kind and amount of securities or assets as shall be distributable upon such
Business Combination with respect to one share of Parent Common Stock and
(subject to the satisfaction of the condition set forth in Section 8.03(f)) the
parties hereto shall agree on an appropriate restructuring of the transactions
contemplated herein.
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(n) DISSENTING SHARES. Each outstanding share of Company
Common Stock the holder of which has perfected his right to dissent under
applicable law and has not effectively withdrawn or lost such right as of the
Effective Time (the "Dissenting Shares") shall not be converted into or
represent a right to receive the Merger Consideration (as defined below), and
the holder thereof shall be entitled only to such rights as are granted by
applicable law; provided, however, that any Dissenting Share held by a person at
the Effective Time who shall, after the Effective Time, withdraw the demand for
payment for shares or lose the right to payment for shares, in either case
pursuant to the Business Corporation Law of the State of Connecticut, shall be
deemed to be converted into, as of the Effective Time, the right to receive cash
pursuant to Section 2.01(c) in the same manner as if such shares were Cash
Election Shares. The Company shall give Parent prompt notice upon receipt by the
Company of any such written demands for payment of the fair value of such shares
of Company Common Stock and of withdrawals of such notice and any other
instruments provided pursuant to applicable law. Any payments made in respect of
Dissenting Shares shall be made by the Surviving Corporation.
(o) ADJUSTMENT IN AMOUNT OF CASH CONSIDERATION. In the event
that the Closing Date shall not have occurred on or prior to the date that is
the six (6) month anniversary of the date on which the Company Shareholders'
Approval (as defined in Section 4.13) is obtained (the "Adjustment Date"), the
Cash Consideration shall be increased, for each day after the Adjustment Date up
to and including the day which is one day prior to the earlier of the Closing
Date or the Extended Termination Date (as defined in Section 9.01(b)), by an
amount equal to $0.005.
Section 2.02 EXCHANGE OF CERTIFICATES. (a) DEPOSIT WITH EXCHANGE AGENT.
As soon as practicable after the Effective Time, the Surviving Corporation shall
deposit with a bank or trust company mutually agreeable to Parent and the
Company (the "Exchange Agent"), pursuant to an agreement in form and substance
reasonably acceptable to Parent and the Company an amount of cash and
certificates representing shares of Parent Common Stock required to effect the
conversion of Company Common Stock into Parent Common Stock and cash in
accordance with Section 2.01(c).
(b) EXCHANGE AND PAYMENT PROCEDURES. As soon as practicable
after the Effective Time, Parent shall cause the Paying Agent to mail to each
holder of record as of the Effective Time of a certificate or certificates
representing shares of Company Common Stock (the "Certificates") that have been
converted pursuant to Section 2.01: (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon actual delivery of the Certificates to the
Paying Agent) and (ii) instructions for effecting the surrender of the
Certificates and receiving the Merger Consideration to which such holder shall
be entitled therefor pursuant to Section 2.01. Upon surrender of a Certificate
to the Paying Agent for cancellation, together with a duly executed letter of
transmittal and such other documents as the Paying Agent may require, the holder
of such Certificate shall be entitled to receive in exchange therefor (i) a
certificate representing that number of shares of Parent
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Common Stock (the "Parent Shares") into which the shares of Company Common
Stock previously represented by such Certificate are converted in accordance
with Section 2.01(c), (ii) the cash to which such holder is entitled in
accordance with Section 2.01(c), and (iii) the cash in lieu of fractional
Parent Shares to which such holder has the right to receive pursuant to
Section 2.02(d) (the shares of Parent Common Stock and cash described in
clauses (i), (ii) and (iii) above being referred to collectively as the
"Merger Consideration"). In the event the Merger Consideration is to be
delivered to any person who is not the person in whose name the Certificate
surrendered in exchange therefor is registered in the transfer records of the
Company, the Merger Consideration may be delivered to a transferee if the
Certificate is presented to the Paying Agent, accompanied by all documents
required to evidence and effect such transfer and by evidence satisfactory to
the Paying Agent that any applicable stock transfer taxes have been paid.
Until surrendered as contemplated by this Section 2.02, each Certificate
(other than a certificate representing shares of Company Common Stock to be
canceled in accordance with Section 2.01(b)) shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the Merger Consideration contemplated by this Section 2.02. No
interest will be paid or will accrue on any cash payable to holders of
Certificates pursuant to provisions of this Article II.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions declared or made after the Effective Time with
respect to Parent Shares with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect to the Parent
Shares represented thereby and no cash payment in lieu of fractional shares
shall be paid to any such holder pursuant to Section 2.02(d) until the holder of
record of such Certificate shall surrender such Certificate. Subject to the
effect of unclaimed property, escheat and other applicable laws, following
surrender of any such Certificate, there shall be paid to the record holder of
the certificates representing whole Parent Shares issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of any cash
payable in lieu of a fractional share of Parent Common Stock to which such
holder is entitled pursuant to Section 2.02(d) and the amount of dividends or
other distributions with a record date after the Effective Time theretofore paid
with respect to such whole Parent Shares and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date after
the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole Parent Shares.
(d) NO FRACTIONAL SECURITIES. In lieu of any such fractional
securities, each holder of Company Common Stock who would otherwise have been
entitled to a fraction of a share of Parent Common Stock upon surrender of
Certificates for exchange pursuant to this Article II will be paid an amount in
cash (without interest) equal to such holder's proportionate interest in the net
proceeds from the sale or sales in the open market by the Exchange Agent, on
behalf of all such holders, of the aggregate fractional shares of Parent Common
Stock issued pursuant to this Article II. As soon as practicable following the
Effective Time, the Exchange Agent shall determine the excess of (i) the number
of full shares of Parent Common Stock delivered to the Exchange Agent by
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Parent over (ii) the aggregate number of full shares of Parent Common Stock
to be distributed to holders of Company Common Stock (such excess being
herein called the "Excess Parent Common Shares"). The Exchange Agent, as
agent for the former holders of Company Common Stock, shall sell the Excess
Parent Common Shares at the prevailing prices on the New York Stock Exchange
(the "NYSE"); provided, however, that neither Parent nor any person related
to Parent within the meaning of Treasury Regulations Section 1.368-1(c)(2)
shall be permitted to acquire, directly or indirectly, any such Excess Parent
Common Shares. The sales of the Excess Parent Common Shares by the Exchange
Agent shall be executed on the NYSE through one or more member firms of the
NYSE and shall be executed in round lots to the extent practicable. Parent
shall pay all commissions, transfer taxes and other out-of-pocket transaction
costs, including the expenses and compensation of the Exchange Agent,
incurred in connection with such sale of Excess Parent Common Shares. Until
the net proceeds of such sale have been distributed to the former holders of
Company Common Stock, the Exchange Agent will hold such proceeds in trust for
such former holders. As soon as practicable after the determination of the
amount of cash to be paid to former holders of Company Common Stock in lieu
of any fractional interests, the Exchange Agent shall make available in
accordance with this Agreement such amounts to such former holders.
(e) CLOSING OF TRANSFER BOOKS. If, after the Effective Time,
Certificates are presented to the Surviving Corporation, they shall be canceled
and exchanged for certificates representing the appropriate number of Parent
Shares and the appropriate amount of cash as provided in Section 2.01 and in
this Section 2.02.
(f) TERMINATION OF EXCHANGE AGENT. Any certificates
representing Parent Shares deposited with the Exchange Agent pursuant to Section
2.02(a) and not exchanged within six months after the Effective Time pursuant to
this Section 2.02 shall be returned by the Exchange Agent to Parent, which shall
thereafter act as Exchange Agent. All funds held by the Exchange Agent for
payment to the holders of unsurrendered Certificates and unclaimed at the end of
one year from the Effective Time shall be returned to the Surviving Corporation,
after which time any holder of unsurrendered Certificates shall look as a
general creditor only to Parent for payment of such funds to which such holder
may be due, subject to applicable law.
(g) ESCHEAT. The Company shall not be liable to any person for
such shares or funds delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(h) WITHHOLDING RIGHTS. Each of the Surviving Corporation and
Parent shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of Company Common Stock such
amounts as it is required to deduct and withhold with respect to the making of
such payment under the Code, or any provision of state, local or foreign tax
law. To the extent that amounts are so withheld by the Surviving Corporation or
the Parent, as the case may be, such withheld amounts shall be treated for all
purposes of the Agreement as having been paid to the
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holder of the shares of
Company Common Stock in respect of which such deduction and withholding was made
by the Surviving Corporation or Parent, as the case may be.
ARTICLE III
THE CLOSING
Section 3.01 CLOSING. The closing of the Merger (the "Closing") shall
take place at the offices of Winthrop, Stimson, Putnam & Roberts, Stamford,
Connecticut, at 10:00 a.m., New York City time, on the second business day
immediately following the date on which the last of the conditions set forth in
Article VIII hereof is fulfilled or waived (other than conditions that by their
nature are required to be performed on the Closing Date, but subject to
satisfaction of such conditions), or at such other time and date and place as
the Company and Parent shall mutually agree (the "Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent as follows:
Section 4.01 ORGANIZATION AND QUALIFICATION. Except as set forth in
Section 4.01 of the Company Disclosure Schedule (as defined in Section
7.06(ii)), the Company and each of its subsidiaries (as defined below) is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation or organization, has all requisite
corporate power and authority, and has been duly authorized by all necessary
approvals and orders, to own, lease and operate its assets and properties to the
extent owned, leased and operated and to carry on its business as it is now
being conducted and is duly qualified and in good standing to do business in
each jurisdiction in which the nature of its business or the ownership or
leasing of its assets and properties makes such qualification necessary, other
than in such jurisdictions where the failure to be so qualified and in good
standing would not, when taken together with all other such failures, reasonably
be expected to have a material adverse effect on the business, properties,
financial condition or results of operations or prospects of the Company and its
subsidiaries taken as a whole or on the consummation of this Agreement (any such
material adverse effect being hereafter referred to as a "Company Material
Adverse Effect"). As used in this Agreement, the term "subsidiary" of a person
shall mean any corporation or other entity (including partnerships and other
business associations) of which a majority of the outstanding capital stock or
other voting securities having voting power under ordinary circumstances to
elect directors or similar members of the governing body of such corporation or
entity shall at the time be held, directly or indirectly, by such person.
Section 4.02 SUBSIDIARIES. Section 4.02 of the Company Disclosure
Schedule sets forth a description as of the date hereof, of all material
subsidiaries and
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joint ventures of the Company, including the name of each such entity, the
state or jurisdiction of its incorporation or organization, the Company's
interest therein and a brief description of the principal line or lines of
business conducted by each such entity. As of the date hereof, the Company is
an exempt holding company under the Public Utility Holding Company Act of
1935, as amended (the "1935 Act"). Except as set forth in Section 4.02 of the
Company Disclosure Schedule, all of the issued and outstanding shares of
capital stock owned by the Company of each Company subsidiary are validly
issued, fully paid, nonassessable and free of preemptive rights, and are
owned, directly or indirectly, by the Company free and clear of any liens,
claims, encumbrances, security interests, equities, charges and options of
any nature whatsoever, and there are no outstanding subscriptions, options,
calls, contracts, voting trusts, proxies, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement, obligating any such subsidiary to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of its capital stock
or obligating it to grant, extend or enter into any such agreement or
commitment, except for any of the foregoing that could not reasonably be
expected to have a Company Material Adverse Effect. As used in this
Agreement, the term "joint venture" of a person shall mean any corporation or
other entity (including partnerships and other business associations) that is
not a subsidiary of such person, in which such person or one or more of its
subsidiaries owns an equity interest, other than equity interests held for
passive investment purposes which are less than 10% of any class of the
outstanding voting securities or equity of any such entity.
Section 4.03 CAPITALIZATION. The authorized capital stock of the
Company consists of 20,000,000 shares of Company Common Stock. As of the close
of business on June 11, 1999 there were issued and outstanding 10,625,886 shares
of Company Common Stock. All of the issued and outstanding shares of the capital
stock of the Company are validly issued, fully paid, nonassessable and free of
preemptive rights. Except as set forth in Section 4.03 of the Company Disclosure
Schedule, as of the date hereof, there are no outstanding subscriptions,
options, calls, contracts, voting trusts, proxies, rights or warrants, including
any right of conversion or exchange under any outstanding security, instrument
or other agreement, obligating the Company or any of the subsidiaries of the
Company to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock of the Company, or obligating the Company
to grant, extend or enter into any such agreement or commitment.
Section 4.04 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS;
COMPLIANCE. (a) AUTHORITY. The Company has all requisite corporate power and
authority to enter into this Agreement and, subject to obtaining the Company
Shareholders' Approval (as defined in Section 4.13) and the Company Required
Statutory Approvals (as defined in Section 4.04(c)), to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation by the Company of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Company subject to obtaining the Company Shareholders' Approval. This Agreement
has been duly and
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validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by the other signatories hereto,
constitutes the valid and binding obligations of the Company enforceable
against it in accordance with their terms.
(b) NON-CONTRAVENTION. Except as set forth in Section 4.04(b)
of the Company Disclosure Schedule, the execution and delivery of this Agreement
by the Company do not, and the consummation of the transactions contemplated
hereby will not, violate, conflict with, or result in a breach of any provision
of, or constitute a default (with or without notice or lapse of time or both)
under, or result in a right of termination, cancellation, or acceleration of any
obligation under, or result in the creation of any lien, security interest,
charge or encumbrance ("Liens") upon any of the properties or assets of the
Company or any of its subsidiaries (any such violation, conflict, breach,
default, right of termination, cancellation or acceleration, loss or creation, a
"Violation" with respect to the Company (such term when used in Article V having
a correlative meaning with respect to Parent)) pursuant to any provisions of (i)
the articles of organization, by-laws or similar governing documents of the
Company, any of its subsidiaries or any of its joint ventures, (ii) subject to
obtaining the Company Required Statutory Approvals and the receipt of the
Company Shareholders' Approval, any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any Governmental
Authority (as defined in Section 4.04(c)) applicable to the Company, any of its
subsidiaries or any of its joint ventures, or any of their respective properties
or assets or (iii) subject to obtaining the third-party consents or other
approvals set forth in Section 4.04(b) of the Company Disclosure Schedule (the
"Company Required Consents") any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which the Company, any of its
subsidiaries or any of its joint ventures is a party or by which it or any of
its properties or assets may be bound or affected, excluding from the foregoing
clauses (i), (ii) and (iii) such Violations as would not reasonably be expected
to have, in the aggregate, a Company Material Adverse Effect.
(c) STATUTORY APPROVALS. Except as described in Section
4.04(c) of the Company Disclosure Schedule, no declaration, filing or
registration with, or notice to or authorization, consent or approval of, any
court, federal, state, local or foreign governmental or regulatory body
(including a stock exchange or other self-regulatory body) or authority (each, a
"Governmental Authority") is necessary for the execution and delivery of this
Agreement by the Company or the consummation by the Company of the transactions
contemplated hereby, the failure to obtain, make or give which would reasonably
be expected to have, in the aggregate, a Company Material Adverse Effect (the
"Company Required Statutory Approvals"), it being understood that references in
this Agreement to "obtaining" such Company Required Statutory Approvals shall
mean making such declarations, filings or registrations, giving such notices,
obtaining such authorizations, consents or approvals and having such waiting
periods expire, if any, as are necessary to avoid a violation of law.
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(d) COMPLIANCE. Except as set forth in Section 4.04(d) or
Section 4.11 of the Company Disclosure Schedule, or as disclosed in the Company
SEC Reports (as defined in Section 4.05) filed prior to the date hereof, neither
the Company, nor any of its subsidiaries nor (to the best of its knowledge) any
of its joint ventures is in violation of or has been given notice of any
purported violation of, any law, statute, order, rule, regulation or judgment
(including, without limitation, any applicable Environmental Law, as defined in
Section 4.11(f)(ii)) of any Governmental Authority except for violations that,
in the aggregate, are not reasonably expected to have a Material Adverse Effect.
Except as set forth in Section 4.04(d) of the Company Disclosure Schedule or in
Section 4.11 of the Company Disclosure Schedule or as disclosed in the Company
SEC Reports, the Company and its subsidiaries have all permits, licenses,
franchises and other governmental authorizations, consents and approvals
necessary to conduct their respective businesses as currently conducted in all
respects, except those which the failure to obtain would, in the aggregate, not
reasonably be expected to have a Company Material Adverse Effect. Except as set
forth in Section 4.04(d) of the Company Disclosure Schedule or as disclosed in
the Company SEC Reports, the Company and each of its subsidiaries are not in
breach or violation of or in default in the performance or observance of any
term or provision of, and no event has occurred which, with lapse of time or
action by a third party, could result in a default under, (i) its certificate of
incorporation or by-laws or (ii) any contract, commitment, agreement, indenture,
mortgage, loan agreement, note, lease, bond, license, approval or other
instrument to which it is a party or by which it is bound or to which any of its
property is subject, except for breaches, violations or defaults that, in the
aggregate, are not reasonably expected to have a Company Material Adverse
Effect.
(e) Except as set forth in Section 4.04(e) of the Company
Disclosure Schedule, there is no "non-competition" or other similar consensual
contract or agreement that restricts the ability of the Company or any of its
affiliates to conduct business in any geographic area or that would reasonably
be likely to restrict the Surviving Corporation or any of its affiliates to
conduct business in any geographic area.
Section 4.05 REPORTS AND FINANCIAL STATEMENTS. The filings required to
be made by the Company and its subsidiaries since September 30, 1996 under the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the 1935 Act, the Federal
Power Act, as amended (the "Power Act") and applicable state public utility laws
and regulations have been filed with the Securities and Exchange Commission (the
"SEC"), the Federal Energy Regulatory Commission (the "FERC") or the appropriate
state public utilities commission, as the case may be, including all forms,
statements, reports, exhibits and amendments appertaining thereto, and complied,
as of their respective dates, in all material respects with all applicable
requirements of the appropriate statute and the rules and regulations
thereunder. The Company has made available to Parent a true and complete copy of
each report, schedule, registration statement and definitive proxy statement
filed by the Company with the SEC since September 30, 1996 (as such documents
have since the time of their filing been amended, the "Company SEC
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Reports"). As of their respective dates, the Company SEC Reports did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The audited consolidated financial statements and unaudited
interim financial statements of the Company included in the Company SEC
Reports (collectively, the "Company Financial Statements") have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis ("GAAP") (except as may be indicated therein or in the notes
thereto and except with respect to unaudited statements as permitted by Form
10-Q of the SEC) and fairly present the consolidated financial position of
the Company as of the dates thereof and the consolidated results of
operations and cash flows for the periods then ended. True and complete
copies of the articles of organization and by-laws of the Company, as in
effect on the date hereof, have been made available to Parent.
Section 4.06 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed
in the Company SEC Reports filed prior to the date hereof or as set forth in
Section 4.06 of the Company Disclosure Schedule, since September 30, 1998, the
Company and each of its subsidiaries have conducted their business only in the
ordinary course of business consistent with past practice, and there has not
been, and no fact or condition exists which has or could reasonably be expected
to have, a Company Material Adverse Effect.
Section 4.07 LITIGATION. Except as disclosed in the Company SEC Reports
filed prior to the date hereof or as set forth in Section 4.07, Section 4.09 or
Section 4.11 of the Company Disclosure Schedule, (i) there are no claims, suits,
actions or proceedings, pending or threatened, nor are there any investigations
or reviews pending or threatened against, relating to or affecting the Company
or any of its subsidiaries, and (ii) there are no judgments, decrees,
injunctions, rules or orders of any court, governmental department, commission,
agency, instrumentality or authority or any arbitrator applicable to the Company
or any of its subsidiaries, except for any of the foregoing under clauses (i)
and (ii) that individually or in the aggregate would not reasonably be expected
to have a Company Material Adverse Effect.
Section 4.08 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by or on behalf of the Company for
inclusion or incorporation by reference in (i) the registration statement on
Form S-4 to be filed with the SEC in connection with the issuance of shares of
Parent Common Stock in the Merger (the "Registration Statement") will, at the
time the Registration Statement becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading and (ii) the proxy statement, in definitive form (the "Proxy
Statement"), relating to the Company Special Meeting (as defined below) shall,
at the dates mailed to shareholders and at the time of the Company Special
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are
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made, not misleading; provided that no representation or warranty is made by
the Company with respect to statements made or incorporated by reference in
the Proxy Statement based on information supplied by Parent or Merger Sub for
inclusion or incorporation by reference therein. The Registration Statement
and the Proxy Statement, insofar as they relate to the Company or any of its
subsidiaries, shall comply as to form in all material respects with the
applicable provisions of the Securities Act and the Exchange Act and the
rules and regulations thereunder.
Section 4.09 TAX MATTERS. "Taxes," as used in this Agreement, means any
federal, state, county, local or foreign taxes, charges, fees, levies or other
assessments, including, without limitation, all net income, gross income, sales
and use, ad valorem, transfer, gains, profits, excise, franchise, real and
personal property, gross receipts, capital stock, production, business and
occupation, disability, employment, payroll, license, estimated, stamp, custom
duties, severance or withholding taxes or charges imposed by any governmental
entity, and includes any interest and penalties (civil or criminal) on or
additions to any such taxes. "Tax Return," as used in this Agreement, means a
report, return or other written information required to be supplied to a
governmental entity with respect to Taxes including, where permitted or
required, combined or consolidated returns for any group of entities that
includes the Company or any of its subsidiaries, on the one hand, or Parent or
any of its subsidiaries, on the other hand.
Except as disclosed in Section 4.09 of the Company Disclosure Schedule:
(a) FILING OF TIMELY TAX RETURNS. The Company and each of its
subsidiaries have duly filed (or there has been filed on its behalf) within the
time prescribed by law all material Tax Returns required to be filed by each of
them under applicable law. All such Tax Returns were and are in all material
respects true, complete and correct.
(b) PAYMENT OF TAXES. The Company and each of its subsidiaries
have, within the time and in the manner prescribed by law, paid all material
Taxes that are currently due and payable except for those contested in good
faith and for which adequate reserves have been taken.
(c) TAX RESERVES. The Company and its subsidiaries have
established on their books and records adequate reserves for all Taxes and for
any liability for deferred income taxes in accordance with GAAP.
(d) EXTENSIONS OF TIME FOR FILING TAX RETURNS. Neither the
Company nor any of its subsidiaries have requested any extension of time within
which to file any material Tax Return, which Tax Return has not since been
filed.
(e) WAIVERS OF STATUTE OF LIMITATIONS. Neither the Company nor
any of its subsidiaries has in effect any extension, outstanding waivers or
comparable consents
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regarding the application of the statute of limitations with respect to any
material Taxes or material Tax Returns.
(f) EXPIRATION OF STATUTE OF LIMITATIONS. The federal and
state income Tax Returns of the Company and each of its subsidiaries either have
been examined and settled with the appropriate Tax authority or closed by virtue
of the expiration of the applicable statute of limitations for all years through
and including 1994, and no deficiency for any Taxes has been proposed, asserted
or assessed against the Company or any of its subsidiaries that has not been
resolved and paid in full except for those contested in good faith and for which
adequate reserves have been established.
(g) AUDIT, ADMINISTRATIVE AND COURT PROCEEDINGS. No material
audits or other administrative proceedings are presently pending or threatened
with regard to any Taxes or Tax Returns of the Company or any of its
subsidiaries and no currently pending issue has been raised in writing by any
Tax authority in connection with any Tax or Tax Return (other than those being
contested in good faith and for which adequate reserves have been established).
(h) TAX RULINGS. Neither the Company nor any of its
subsidiaries has received a Tax Ruling (as defined below) or entered into a
Closing Agreement (as defined below) with any taxing authority that would have a
continuing adverse effect after the Closing Date. "Tax Ruling," as used in this
Agreement, shall mean a written ruling of a taxing authority relating to Taxes.
"Closing Agreement," as used in this Agreement, shall mean a written and legally
binding agreement with a taxing authority relating to Taxes.
(i) AVAILABILITY OF TAX RETURNS. The Company has provided or
made available to Parent complete and accurate copies of (i) all Tax Returns,
and any amendments thereto, filed by the Company or any of its subsidiaries
covering all years ending on or after December 31, 1993, (ii) all audit reports
received from any taxing authority relating to any Tax Return filed by the
Company or any of its subsidiaries covering all years ending on or after
December 31, 1993, (iii) any Closing Agreements entered into by the Company or
any of its subsidiaries with any taxing authority since December 31, 1993 and
(iv) any Tax Ruling received by the Company or any of its subsidiaries from any
taxing authority since December 31, 1993.
(j) TAX SHARING AGREEMENTS. Neither the Company nor any of its
subsidiaries is a party to any agreement relating to allocating or sharing of
Taxes.
(k) LIABILITY FOR OTHERS. Neither the Company nor any of its
subsidiaries has any liability for any material Taxes of any person other than
the Company and its subsidiaries (i) under Treasury Regulation Section 1.1502-6
(or any similar provision of state, local or foreign law), (ii) as a transferee
or successor, (iii) by contract or (iv) otherwise.
(l) CODE SECTION 481 ADJUSTMENTS. Neither the Company nor any
of its subsidiaries is required to include in income any adjustment pursuant to
Code Section
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481(a) by reason of a voluntary change in accounting method initiated by the
Company or any of its subsidiaries for any tax year, and, to the knowledge of
the Company, the IRS has not proposed any such adjustment or change in
accounting method for any tax year for which the statute of limitations
remains open.
(m) INDEBTEDNESS. No indebtedness of the Company or any of its
subsidiaries is "corporate acquisition indebtedness" within the meaning of Code
Section 279(b).
(n) INTERCOMPANY TRANSACTIONS. Neither the Company nor any of
its subsidiaries has engaged in any intercompany transactions within the meaning
of Treasury Regulations Section 1.1502-13 for which any income or gain will
remain unrecognized as of the close of the last taxable year prior to the
Closing Date.
(o) CODE SECTION 897. To the best knowledge of the Company, no
foreign person owns or has owned beneficially more than five percent of the
total fair market value of Company Common Stock during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code.
(p) CODE SECTION 355. Neither the Company nor any of its
subsidiaries has constituted a "distributing corporation" in a distribution of
stock qualifying for tax-free treatment under Section 355 of the Code in the
past 24 month period or in a distribution which could otherwise constitute part
of a "plan" or a series of "related transactions" (within the meaning of Code
Section 355(e)).
Section 4.10 EMPLOYEE MATTERS; ERISA. (a) Each "employee benefit plan"
(as defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), bonus, severance, change in control, deferred
compensation, share option or other written agreement, plan, commitment or
arrangement relating to employment or fringe benefits for employees, former
employees, officers, trustees or directors of the Company or any of its
subsidiaries effective as of the date hereof or providing benefits as of the
date hereof to current employees, former employees, officers, trustees or
directors of the Company or pursuant to which the Company or any of its
subsidiaries has or could reasonably be expected to have any liability
(collectively, the "Company Employee Benefit Plans") is listed in Schedule
4.10(a) of the Company Disclosure Schedule, is in material compliance with
applicable law, and has been administered and operated in all material respects
in accordance with its terms. Each Company Employee Benefit Plan which is
intended to be qualified within the meaning of Section 401(a) of the Code has
received a favorable determination letter from the IRS as to such qualification
and, to the knowledge of the Company, no event has occurred and no condition
exists which could reasonably be expected to result in the revocation of, or
have any adverse effect on, any such determination.
(b) Complete and correct copies of the following documents
have been made available to Parent as of the date of this Agreement: (i) all
Company Employee Benefit Plans and any related trust agreements or insurance
contracts or funding
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agreement, (ii) the most current summary descriptions and summary of material
modifications of each Company Employee Benefit Plan subject to ERISA, (iii)
the three most recent Form 5500s and Schedules thereto for each Company
Employee Benefit Plan subject to such reporting, (iv) the most recent
determination of the IRS with respect to the qualified status of each Company
Employee Benefit Plan that is intended to qualify under Section 401(a) of the
Code, (v) the most recent accountings with respect to each Company Employee
Benefit Plan funded through a trust and (vi) the most recent actuarial report
of the qualified actuary of each Company Employee Benefit Plan with respect
to which actuarial valuations are conducted.
(c) Each Company Employee Benefit Plan subject to the
requirements of Section 601 of ERISA has been operated in material compliance
therewith. The Company has not contributed to a nonconforming group health plan
(as defined in Code Section 5000(c)) and no person under common control with the
Company within the meaning of Section 414 of the Code ("ERISA Affiliate") has
incurred a tax liability under Code Section 5000(a) that is or could reasonably
be expected to be a liability of the Company.
(d) Except as set forth in Schedule 4.10(d) of the Company
Disclosure Schedule, each Company Employee Benefit Plan covers only employees
who are employed by the Company or a subsidiary (or former employees or
beneficiaries with respect to service with the Company or a subsidiary).
(e) Except as set forth in Schedule 4.10(e) of the Company
Disclosure Schedule, neither the Company, any subsidiary, any ERISA Affiliate
nor any other corporation or organization controlled by or under common control
with any of the foregoing within the meaning of Section 4001 of ERISA has at any
time contributed to any "multiemployer plan," as that term is defined in Section
4001 of ERISA.
(f) No event has occurred, and there exists no condition or
set of circumstances in connection with any Company Employee Benefit Plan, under
which the Company or any subsidiary, directly or indirectly (through any
indemnification agreement or otherwise), could be subject to any liability under
Section 409 of ERISA, Section 502(i) of ERISA, Title IV of ERISA or Section 4975
of the Code except for instances of non-compliance which, individually or in the
aggregate, could not reasonably be expected to have a Company Material Adverse
Effect.
(g) Neither the Company nor any ERISA Affiliate has incurred
any liability to the Pension Benefit Guaranty Corporation (the "PBGC") under
Section 302(c)(ii), 4062, 4063, 4064 or 4069 of ERISA, or otherwise that has not
been satisfied in full and no event or condition exists or has existed which
could reasonably be expected to result in any such material liability. As of the
date of this Agreement, no "reportable event" within the meaning of Section 4043
of ERISA has occurred with respect to any Company Employee Benefit Plan that is
a defined benefit plan under Section 3(35) of ERISA.
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(h) Except as set forth in Schedule 4.10(h) of the Company
Disclosure Schedule, no employer securities, employer real property or other
employer property is included in the assets of any Company Employee Benefit
Plan.
(i) Except as set forth in Section 4.10(i) of the Company
Disclosure Schedule, full payment has been made of all material amounts which
the Company or any affiliate thereof was required under the terms of Company
Employee Benefit Plans to have paid as contributions to such plans on or prior
to the Effective Time (excluding any amounts not yet due) and no Company
Employee Benefit Plan which is subject to Part III of Subtitle B of Title I of
ERISA has incurred any "accumulated funding deficiency" within the meaning of
Section 302 of ERISA or Section 412 of the Code, whether or not waived.
(j) Except as set forth in Schedule 4.10(j) of the Company
Disclosure Schedule, no material amounts payable under any Company Employee
Benefit Plan or other agreement, contract, or arrangement will fail to be
deductible for federal income tax purposes by virtue of Section 280G or Section
162(m) of the Code. Except as set forth in Schedule 4.10(j), the transactions
contemplated by this Agreement will not result in accelerated vesting or
accelerated payment of benefits under any Company Employee Benefit Plan.
(k) Except as set forth in Section 4.10(k) of the Company
Disclosure Schedule, neither the Company nor any of its subsidiaries is a party
to any collective bargaining agreement or other labor agreement with any union
or labor organization. No labor organization or group of employees of the
Company or any of its subsidiaries has made a pending demand for recognition or
certification, and there are no representation or certification proceedings or
petitions seeking a representation proceeding presently pending or, to the
knowledge of the Company, threatened to be brought or filed, with the National
Labor Relations Board or any other labor relations tribunal or authority. The
Company has delivered or otherwise made available to Parent true, correct and
complete copies of the collective bargaining agreements listed in Section
4.10(k) of the Company Disclosure Schedule, together with all amendments,
modifications or supplements thereto. Except as set forth in Schedule 4.10(k) of
the Company Disclosure Schedule, there are no organizing activities, strikes,
work stoppages, slowdowns, lockouts, arbitrations or grievances, or other labor
practice charges or disputes pending or, to the knowledge of the Company,
threatened against or involving the Company or any of its subsidiaries which
could reasonably be expected to have a Company Material Adverse Effect. Each of
the Company and its subsidiaries is in compliance with all applicable laws and
collective bargaining agreements respecting employment and employment practices,
terms and conditions of employment, wages and hours and occupational safety and
health, except for non-compliances which in the aggregate could not reasonably
be expected to have a Company Material Adverse Effect.
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Section 4.11 ENVIRONMENTAL PROTECTION. Except as set forth in Section
4.11 of the Company Disclosure Schedule or in the Company SEC Reports filed
prior to the date hereof:
(a) COMPLIANCE. The Company and each of its subsidiaries are
in compliance with all applicable Environmental Laws (as defined in Section
4.11(f)(ii)) except where the failure to be in such compliance would not, in the
aggregate, reasonably be expected to have a Company Material Adverse Effect, and
neither the Company nor any of its subsidiaries has received any written
communication from any person or Governmental Authority that alleges that the
Company or any of its subsidiaries is not in compliance with applicable
Environmental Laws.
(b) ENVIRONMENTAL PERMITS. The Company and each of its
subsidiaries has obtained or has applied for all permits, consents, licenses,
variances, certificates, exemptions, orders, franchises, authorizations and
approvals necessary under any Environmental Laws (collectively, the
"Environmental Permits") for the construction of its facilities or the conduct
of its operations, and all such Environmental Permits are in good standing or,
where applicable, a renewal application has been timely filed and is pending
agency approval, and the Company and its subsidiaries are in compliance with all
terms and conditions of the Environmental Permits, except where the failure to
obtain or to be in such compliance would not, in the aggregate, reasonably be
expected to have a Company Material Adverse Effect.
(c) ENVIRONMENTAL CLAIMS. There is no Environmental Claim (as
defined in Section 4.11(f)(i)) pending (i) against the Company or any of its
subsidiaries, or (ii) against any real or personal property or operations that
the Company or any of its subsidiaries owns, leases or manages, in whole or in
part that, if adversely determined, would reasonably be expected to have, in the
aggregate, a Company Material Adverse Effect.
(d) RELEASES. Except for Releases of Hazardous Materials the
liability for which would not reasonably be expected to have, in the aggregate,
a Company Material Adverse Effect, there have been no Releases (as defined in
Section 4.11(f)(iv)) of any Hazardous Material (as defined in Section
4.11(f)(iii)) that would be reasonably likely to form the basis of any
Environmental Claim against the Company or any of its subsidiaries.
(e) PREDECESSORS. The Company has no knowledge of any
Environmental Claim pending or threatened, or of any Release of Hazardous
Materials that would be reasonably likely to form the basis of any Environmental
Claim, in each case against any person or entity (including, without limitation,
any predecessor of the Company or any of its subsidiaries) whose liability the
Company or any of its subsidiaries has or may have retained or assumed either
contractually or by operation of law, except for Releases of Hazardous Materials
the liability for which would not reasonably be expected to have, in the
aggregate, a Company Material Adverse Effect.
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(f) As used in this Agreement:
(i) "Environmental Claim" means any and all
administrative, regulatory or judicial actions, suits, demands, demand
letters, directives, claims, liens, investigations, proceedings or
notices of noncompliance or violation by any person or entity
(including any Governmental Authority) alleging potential liability
(including, without limitation, potential responsibility for or
liability for enforcement costs, investigatory costs, cleanup costs,
governmental response costs, removal costs, remedial costs,
natural-resources damages, property damages, personal injuries, fines
or penalties) arising out of, based on or resulting from (A) the
presence, or Release or threatened Release into the environment, of any
Hazardous Materials at any location, whether or not owned, operated,
leased or managed by the Company or any of their respective
subsidiaries or joint ventures; or (B) circumstances forming the basis
of any violation, or alleged violation, of any Environmental Law; or
(C) any and all claims by any third party seeking damages,
contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the presence or Release of any
Hazardous Materials.
(ii) "Environmental Laws" means all federal, state, local
laws, rules, ordinances and regulations relating to pollution, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or protection of human
health as it relates to the environment including, without limitation,
laws and regulations relating to Releases or threatened Releases of
Hazardous Materials, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of Hazardous Materials.
(iii) "Hazardous Materials" means (A) any petroleum or
petroleum products, radioactive materials, asbestos in any form that is
or could become friable, urea formaldehyde foam insulation, coal tar
residue, and transformers or other equipment that contain dielectric
fluid containing polychlorinated biphenyls ("PCBs") in regulated
concentrations; and (B) any chemicals, materials or substances which
are now defined as or included in the definition of "hazardous
substances", "hazardous wastes," "hazardous materials," "extremely
hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants," "hazardous constituents" or words of similar
import, under any Environmental Law; and (C) any other chemical,
material, substance or waste, exposure to which is now prohibited,
limited or regulated under any Environmental Law in a jurisdiction in
which the Company or any of its subsidiaries or joint ventures operates
or has stored, treated or disposed of Hazardous Materials.
(iv) "Release" means any release, spill, emission,
leaking, injection, deposit, disposal, discharge, dispersal, leaching
or migration into the atmosphere, soil, surface water, groundwater or
property.
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Section 4.12 REGULATION AS A UTILITY. Except as set forth in Section
4.12 of the Company Disclosure Schedule, neither the Company nor (in the case of
clauses (ii), (iii) and (iv)) any "associate company," "subsidiary company" or
"affiliate" (as such terms are defined in the 1935 Act) of the Company is (i)
registered, or required to be registered, under the 1935 Act, (ii) subject to
regulation as a "public utility" under the Federal Power Act, (iii) subject to
regulation as a "natural-gas company" under the Natural Gas Act, or (iv) subject
to regulation as a public utility or public service company (or similar
designation) by any state in the United States other than Connecticut or by any
foreign country.
Section 4.13 VOTE REQUIRED. The approval of the Merger by two-thirds of
the votes entitled to be cast by all holders of Company Common Stock (the
"Company Shareholders' Approval") is the only vote of the holders of any class
or series of the capital stock of the Company or any of its subsidiaries
required to approve this Agreement, the Merger and the other transactions
contemplated hereby.
Section 4.14 OPINION OF FINANCIAL ADVISOR. The Company has received the
opinion of SG Barr Devlin to the effect that, as of June 14, 1999, the Merger
Consideration is fair from a financial point of view to the holders of Company
Common Stock.
Section 4.15 OWNERSHIP OF PARENT COMMON STOCK. Except as set forth in
Section 4.15 of the Company Disclosure Schedule, the Company does not
"beneficially own" (as such term is defined for purposes of Section 13(d) of the
Exchange Act) any shares of Parent Capital Stock.
Section 4.16 TAKEOVER PROVISIONS; RIGHTS PLANS. (a) The Company has
taken (and will take) all action required to be taken by it in order to exempt
this Agreement and the transactions contemplated hereby from, and this Agreement
and the transactions contemplated hereby are exempt from (i) the requirements of
any "moratorium," "control share," "fair price" or other anti-takeover laws and
regulations (collectively, "Takeover Laws") of the State of Connecticut,
including Sections 33-841 and 33-844 of the CBCA, and (ii) the provisions of
Section 1 of Article VII of the Restated Certificate of Incorporation of the
Company.
(b) The Company has taken all action necessary so that the
entering into of this Agreement and the consummation of the transactions
contemplated hereby (including the Merger) do not and will not result in the
ability of any person to exercise any Rights under the Rights Agreement, dated
as of November 20, 1989, between the Company and Mellon Bank, N.A., as Rights
Agent, as amended (the "Company Rights Agreement") or enable or require the
Company Rights to separate from the shares of Company Common Stock to which they
are attached or to be triggered or become exercisable.
(c) No "Distribution Date" or "Triggering Event" (as such
terms are defined in the Company Rights Plan) has occurred.
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Section 4.17 INSURANCE. Except as set forth in Section 4.17(a) of the
Company Disclosure Schedule, the Company and each of its subsidiaries is, and
has been continuously since January 1, 1993, insured with financially
responsible insurers in such amounts and against such risks and losses as are
customary in all material respects for companies conducting the business as
conducted by the Company and each of its subsidiaries during such time period.
Except as set forth in Section 4.17(b) of the Company Disclosure Schedule,
neither the Company nor any of its subsidiaries has received any notice of
cancellation or termination with respect to any material insurance policy of the
Company or any of its subsidiaries. The insurance policies of the Company and
each of its subsidiaries are valid and enforceable policies in all material
respects.
Section 4.18 INTELLECTUAL PROPERTY. The Company and each of its
subsidiaries own or have adequate rights to use all material trademarks, trade
names, patents, service marks, brand marks, brand names, computer programs,
databases, industrial designs and copyrights used in the operation of their
business (collectively, the "Company Intellectual Property"). Except as set
forth in Section 4.18(a) of the Company Disclosure Schedule, all of the Company
Intellectual Property owned by the Company or any of its subsidiaries is free
and clear of any and all encumbrances, and neither the Company nor any of its
subsidiaries has forfeited or otherwise relinquished any Company Intellectual
Property which forfeiture or relinquishment could reasonably be expected to have
a Company Material Adverse Effect. To the knowledge of the Company, except as
set forth in Section 4.18(b) of the Company Disclosure Schedule, the use of the
Company Intellectual Property by the Company or any of its subsidiaries does not
infringe upon, violate or constitute a misappropriation of any right, title or
interest in any intellectual property right (including, without limitation, any
trademark, trade name, patent, service mark, brand mark, brand name, computer
program, database, industrial design or copyright) of any other person, and
neither the Company nor any of its subsidiaries has received written notice of
any claim that any of the Company Intellectual Property is invalid or infringes
the asserted rights of any other person, and, to the knowledge of the Company,
the Company Intellectual Property owned by the Company has not been used or
enforced or has failed to be used or enforced in a manner that would reasonably
be expected to result in the abandonment, cancellation or unenforceability of
any of such Company Intellectual Property, except for such conflicts,
infringements, violations, interferences, claims, invalidity, abandonments,
cancellations or unenforceability that could not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect.
Section 4.19 YEAR 2000. The computer software, hardware and firmware
(including microprocessors) operated or used by the Company or any of its
subsidiaries which is used in the conduct of their business (in both information
technology and other applications) is, or by September 30, 1999 will be, capable
of providing or being adapted (i) to allow the conduct of the business of the
Company and its subsidiaries as currently conducted and (ii) to provide
uninterrupted millennium functionality to record, store, process and present
calendar dates falling on or after January 1, 2000 in substantially the same
manner and with the same functionality as such software, hardware and firmware
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records, stores, processes and presents such calendar dates falling on or before
December 31, 1999 ("Year 2000 Compliance") other than such interruptions in
millennium functionality that could not, individually or in the aggregate,
reasonably be expected to result in a Company Material Adverse Effect; provided,
however, that the Company makes no representation or warranty with respect to
Year 2000 Compliance of any supplier, third-party vendor or governmental body,
agency or instrumentality. The Company reasonably believes as of the date hereof
that the remaining cost of adaptations referred to in the foregoing sentence
will not materially exceed the amounts reflected in the Form 10-Q filed by the
Company for the quarter ended March 31, 1999.
Section 4.20 COMMODITY DERIVATIVES AND CREDIT EXPOSURE MATTERS. Except
as set forth in Section 4.20 of the Company Disclosure Schedule, the Company and
each of its subsidiaries do not in the aggregate have (quantified on a
market-to-market basis and calculated with respect to physical and financial
positions exposure): (a) natural gas forward price exposure exceeding $1
million, (b) on-system pipeline transportation (basis) exposure exceeding $1
million or (c) off-system pipeline transportation (basis) exposure exceeding $1
million.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company as follows:
Section 5.01 ORGANIZATION AND QUALIFICATION. Except as set forth in
Section 5.01 of Parent Disclosure Schedule, Parent and each of its subsidiaries
is a Massachusetts business trust or corporation, as the case may be, duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has all requisite corporate power
and authority, and has been duly authorized by all necessary approvals and
orders, to own, lease and operate its assets and properties to the extent owned,
leased and operated and to carry on its business as it is now being conducted
and is duly qualified and in good standing to do business in each jurisdiction
in which the nature of its business or the ownership or leasing of its assets
and properties makes such qualification necessary, other than in such
jurisdictions where the failure to be so qualified and in good standing would
not, when taken together with all other such failures, reasonably be expected to
have a material adverse effect on the business, properties, financial condition,
results of operations or prospects of Parent and its subsidiaries taken as a
whole or on the consummation of this Agreement (any such material adverse effect
being hereafter referred to as a "Parent Material Adverse Effect").
Section 5.02 SUBSIDIARIES. Section 5.02 of Parent Disclosure Schedule
sets forth a description as of the date hereof of all material subsidiaries and
joint ventures of Parent, including the name of each such entity, the state or
jurisdiction of its incorporation or organization, Parent's interest therein,
and a brief description of the principal line or lines of business conducted by
each such entity. As of the date hereof,
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Parent is a registered holding company under the 1935 Act. Except as set
forth in Section 5.02 of Parent Disclosure Schedule, all of the issued and
outstanding shares of capital stock of each Parent subsidiary are validly
issued, fully paid, nonassessable and free of preemptive rights, and are
owned directly or indirectly by Parent free and clear of any liens, claims,
encumbrances, security interests, equities, charges and options of any nature
whatsoever, and there are no outstanding subscriptions, options, calls,
contracts, voting trusts, proxies, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement, obligating any such Parent subsidiary to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of its capital
stock or obligating it to grant, extend or enter into any such agreement or
commitment; except for any of the foregoing that could not reasonably be
expected to have a Parent Material Adverse Effect.
Section 5.03 CAPITALIZATION. (a) Except as set forth in Section 5.03 of
Parent Disclosure Schedule, the authorized capital stock of Parent consists of
225,000,000 shares of Parent Common Stock. As of the close of business on June
11, 1999, there were issued and outstanding 137,116,862 shares of Parent Common
Stock. All of the issued and outstanding shares of the capital stock of Parent
are, and will be, validly issued, fully paid, nonassessable and, except as set
forth in the Declaration of Trust, free of preemptive rights. Except as set
forth in Section 5.03 of Parent Disclosure Schedule, as of the date hereof,
there are no outstanding subscriptions, options, calls, contracts, voting
trusts, proxies, rights or warrants, including any right of conversion or
exchange under any outstanding security, instrument or other agreement,
obligating Parent or any of its subsidiaries to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of the capital stock of
Parent, or obligating Parent to grant, extend or enter into any such agreement
or commitment.
(b) The authorized capital stock of Merger Sub, when formed,
will consist of not less than 1,000 shares of common stock, no par value
("Merger Sub Common Stock"). Immediately prior to the Effective Time, all of the
issued and outstanding shares of Merger Sub Common Stock will be owned by
Parent.
Section 5.04 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS;
COMPLIANCE. (a) AUTHORITY. Parent has all requisite corporate power and
authority to enter into this Agreement and, subject to the applicable Parent
Required Statutory Approvals (as defined in Section 5.04(c)), to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement,
and the consummation by Parent of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Parent. This
Agreement has been duly and validly executed and delivered by Parent and,
assuming the due authorization, execution and delivery by the other signatories
hereto, constitutes a valid and binding obligation of Parent enforceable against
it in accordance with its terms.
(b) NON-CONTRAVENTION. Except as set forth in Section 5.04(b)
of Parent Disclosure Schedule, the execution and delivery of this Agreement by
Parent do not, and
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the consummation of the transactions contemplated hereby will not, result in
a Violation pursuant to any provisions of (i) the articles of incorporation,
by-laws or similar governing documents of Parent or any of its subsidiaries
or any of its joint ventures, (ii) subject to obtaining Parent Required
Statutory Approvals (as defined in Section 5.04(c)) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any Governmental Authority applicable to Parent or any
of its subsidiaries or any of its joint ventures or any of their respective
properties or assets or (iii) subject to obtaining the third-party consents
or other approvals set forth in Section 5.04(b) of Parent Disclosure Schedule
(the "Parent Required Consents"), any note, bond, mortgage, indenture, deed
of trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Parent or any of its
subsidiaries or any of its joint ventures is a party or by which it or any of
its properties or assets may be bound or affected, excluding from the
foregoing clauses (i), (ii) and (iii) such Violations as would not reasonably
be expected to have, in the aggregate, a Parent Material Adverse Effect.
(c) STATUTORY APPROVALS. Except as described in Section
5.04(c) of Parent Disclosure Schedule, no declaration, filing or registration
with, or notice to or authorization, consent or approval of, any Governmental
Authority is necessary for the execution and delivery of this Agreement by
Parent or the consummation by Parent of the transactions contemplated hereby,
the failure to obtain, make or give which would reasonably be expected to have,
in the aggregate, a Parent Material Adverse Effect (the "Parent Required
Statutory Approvals"), it being understood that references in this Agreement to
"obtaining" such Parent Required Statutory Approvals shall mean making such
declarations, filings or registrations; giving such notices; obtaining such
authorizations, consents or approvals; and having such waiting periods expire,
if any, as are necessary to avoid a violation of law.
(d) COMPLIANCE. Except as set forth in Section 5.04(d) or
Section 5.11 of Parent Disclosure Schedule, or as disclosed in Parent SEC
Reports (as defined in Section 5.05) filed prior to the date hereof, neither
Parent nor any of its subsidiaries nor (to the best of its knowledge) any of its
joint ventures is in violation of, or has been given notice of any purported
violation of, any law, statute, or order, rule, regulation or judgment
(including, without limitation, any applicable Environmental Law) of any
Governmental Authority, except for violations that, in the aggregate, are not
reasonably expected to have, a Parent Material Adverse Effect. Except as set
forth in Section 5.04(d) of Parent Disclosure Schedule or in Section 5.11 of
Parent Disclosure Schedule or as disclosed in Parent SEC Reports, Parent and its
subsidiaries and joint ventures have all permits, licenses, franchises and other
governmental authorizations, consents and approvals necessary to conduct their
respective businesses as currently conducted in all respects, except those which
the failure to obtain would, in the aggregate, not reasonably be expected to
have a Parent Material Adverse Effect. Except as set forth in Section 5.04(d) of
Parent Disclosure Schedule or as disclosed in Parent SEC Reports, Parent and
each of its subsidiaries are not in breach or violation of or in default in the
performance or observance of any term or provision of, and no event has occurred
which, with lapse of
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time or action by a third party, could result in a default under (i) its
articles of organization or by-laws or (ii) any material contract,
commitment, agreement, indenture, mortgage, loan agreement, note, lease,
bond, license, approval or other instrument to which it is a party or by
which it is bound or to which any of its property is subject; except for
breaches, violations or defaults that, in the aggregate, are not reasonably
expected to have, a Parent Material Adverse Effect.
Section 5.05 REPORTS AND FINANCIAL STATEMENTS. The filings required to
be made by Parent and its subsidiaries since January 1, 1996 under the
Securities Act, the Exchange Act, the 1935 Act, the Power Act and applicable
state public utility laws and regulations have been filed with the SEC, the FERC
or the appropriate state public utilities commission, as the case may be,
including all forms, statements, reports, exhibits and amendments appertaining
thereto, and complied, as of their respective dates, in all material respects
with all applicable requirements of the appropriate statute and the rules and
regulations thereunder. Parent has made available to the Company a true and
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by Parent or its predecessor with the SEC since January 1,
1996 (as such documents have since the time of their filing been amended,
"Parent SEC Reports"). As of their respective dates, Parent SEC Reports did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim financial
statements of Parent included in Parent SEC Reports (collectively, the "Parent
Financial Statements") have been prepared in accordance with GAAP (except as may
be indicated therein or in the notes thereto and except with respect to
unaudited statements as permitted by Form 10-Q of the SEC) and fairly present
the consolidated financial position of Parent as of the dates thereof and the
consolidated results of its operations and cash flows for the periods then
ended. A true and complete copy of the Declaration of Trust, as in effect on the
date hereof, has been made available to the Company.
Section 5.06 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed
in Parent SEC Reports filed prior to the date hereof or as set forth in Section
5.06 of Parent Disclosure Schedule, since December 31, 1998, Parent and each of
its subsidiaries have as of the date hereof conducted their businesses only in
the ordinary course of business consistent with past practice and there has not
been, and no fact or condition exists, which has or could reasonably be expected
to have, a Parent Material Adverse Effect.
Section 5.07 LITIGATION. Except as disclosed in Parent SEC Reports
filed prior to the date hereof or as set forth in Section 5.07 of Parent
Disclosure Schedule, (i) there are no claims, suits, actions or proceedings,
pending or threatened, nor are there any investigations or reviews pending or
threatened against, relating to or affecting Parent or any of its subsidiaries,
which would have a Parent Material Adverse Effect and (ii) there are no
judgments, decrees, injunctions, rules or orders of any court, governmental
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department, commission, agency, instrumentality or authority or any arbitrator
applicable to Parent or any of its subsidiaries, except for such that would not
reasonably be expected to have a Parent Material Adverse Effect.
Section 5.08 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by or on behalf of Parent for inclusion
or incorporation by reference in (i) the Registration Statement will, at the
time the Registration Statement becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading and (ii) the Proxy Statement shall, at the dates mailed to the
Company shareholders and at the time of the Company Special Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Registration
Statement and the Proxy Statement, insofar as they relate to Parent or any
Parent subsidiary, shall comply as to form in all material respects with the
applicable provisions of the Securities Act and the Exchange Act and the rules
and regulations thereunder.
Section 5.09 REGULATION AS A UTILITY. Parent is a public utility
holding company registered under, and subject to the provisions, of, the 1935
Act. Section 5.09 of the Parent Disclosure Schedule lists the subsidiaries of
Parent that are "public utility companies" within the meaning of Section 2(a)(5)
of the 1935 Act and lists the jurisdictions where each such subsidiary is
subject to regulation as a public utility company or public service company.
Except as set forth above and as set forth in Section 5.09 of the Parent
Disclosure Schedule, neither the Parent nor any "subsidiary company" or
"affiliate" (as such terms are defined in the 1935 Act) of Parent is subject to
regulation as a public utility or public service company (or similar
designation) by the Federal government of the United States, any state in the
United States or any political subdivision thereof, or any foreign country.
Section 5.10 OWNERSHIP OF THE COMPANY COMMON STOCK. Except as set forth
in Section 5.10 of Parent Disclosure Schedule, Parent does not "beneficially
own" (as such term is defined for purposes of Section 13(d) of the Exchange Act)
any shares of Company Common Stock.
Section 5.11 ENVIRONMENTAL PROTECTION. Except as would not, in the
aggregate, reasonably be expected to result in a Parent Material Adverse Effect,
and except for matters disclosed in Parent SEC Reports, (i) Parent and its
subsidiaries are in compliance with all applicable Environmental Laws and the
terms and conditions of all applicable Environmental Permits, and neither Parent
nor any of its subsidiaries has received any written notice from any
Governmental Authority that alleges that Parent or any of its subsidiaries is
not in material compliance with applicable Environmental Laws or the terms and
conditions of all such Environmental Permits, (ii) there are no Environmental
Claims pending or threatened (A) against Parent or any of its subsidiaries,
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or (B) against any person or entity whose liability for any Environmental
Claim Parent or any of its subsidiaries has or may have retained or assumed
either contractually or by operation of law and (iii) there has been no
Release of Hazardous Materials that would be reasonably likely to form the
basis of any Environmental Claim against Parent or any of its subsidiaries.
Section 5.12 FINANCING. Parent has or will have available, prior to the
Effective Time, sufficient cash in immediately available funds to pay or to
cause Merger Sub to pay all Cash Consideration required to be paid pursuant to
Article II hereof and to consummate the Merger and other transactions
contemplated hereby.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.01 COVENANTS OF THE PARTIES. After the date hereof and prior
to the Effective Time or earlier termination of this Agreement, Parent and the
Company each agree as follows, each as to itself and to each of its
subsidiaries, except as expressly contemplated or permitted in this Agreement,
or to the extent the other parties hereto shall otherwise consent in writing:
(a) ORDINARY COURSE OF BUSINESS. Except as disclosed in
Section 6.01(a) of the Company Disclosure Schedule, the Company shall, and shall
cause its subsidiaries to, carry on their respective businesses in the ordinary
course in substantially the same manner as heretofore conducted and use all
commercially reasonable efforts to (i) preserve intact their present business
organizations and goodwill and preserve the goodwill and relationships with
customers, suppliers and others having business dealings with them, (ii) subject
to prudent management of workforce needs and ongoing programs currently in
force, keep available the services of their present officers and employees as a
group, and (iii) maintain and keep material properties and assets in as good
repair and condition as at present, subject to ordinary wear and tear, and
maintain supplies and inventories in quantities consistent with past practice.
(b) DIVIDENDS. The Company shall not, nor shall it permit any
of its subsidiaries to: (i) declare or pay any dividends on or make other
distributions in respect of any capital stock other than (A) dividends by a
direct or indirect subsidiary to the Company, (B) regular quarterly dividends on
Company Common Stock that do not exceed the current regular dividends on Company
Common Stock; provided that, the Company may increase the annualized amount of
such dividends by up to $.04 per share at the Company's regular Board of
Directors' meetings in each of June 1999 and June 2000; (ii) split, combine or
reclassify any capital stock or the capital stock of any subsidiary or issue or
authorize or propose the issuance of any other securities in respect of, in lieu
of, or in substitution for, shares of capital stock or the capital stock of any
subsidiary; or (iii) redeem, repurchase or otherwise acquire any shares of
capital stock or the capital stock of any subsidiary other than (A) redemptions,
repurchases and other
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acquisitions of shares of capital stock in connection with the administration
of employee benefit and dividend reinvestment plans as in effect on the date
hereof in the ordinary course of the operation of such plans consistent with
past practice, or (B) intercompany acquisitions of capital stock. Prior to
the Closing Date, each of the parties agrees to cooperate so as not to
adversely affect the Company shareholders because of the timing of record,
declaration or payment dates.
(c) ISSUANCE OF SECURITIES. Except as set forth in Section
6.01(c) of the Company Disclosure Schedule, the Company shall not, nor shall it
permit any of its subsidiaries to, issue, agree to issue, deliver, sell, pledge,
dispose of or otherwise encumber any shares of their capital stock of any class
or any securities convertible into or exchangeable for, or any rights, warrants
or options to acquire, any such shares or convertible or exchangeable
securities, other than (i) pursuant to outstanding stock options granted under
Employee Benefit Plans, (ii) pursuant to the Company's dividend reinvestment
plan as in effect on the date hereof, (iii) in the case of subsidiaries, for
issuances of capital stock to the Company or another subsidiary, or (iv) as may
be required by the Company Rights Agreement.
(d) CHARTER DOCUMENTS; OTHER ACTIONS. Neither party shall, nor
shall any party permit any of its subsidiaries to, amend its respective articles
of organization, by-laws or regulations, or similar organic documents or to take
or fail to take any other action, which in any such case would reasonably be
expected to prevent or materially impede or interfere with the Merger (except to
the extent permitted by Section 6.02 and Article IX).
(e) ACQUISITIONS. Except as disclosed in Section 6.01(e) of
the Company Disclosure Schedule, the Company shall not, nor shall it permit any
of its subsidiaries to, acquire or agree to acquire, by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or business organization or division thereof, or
otherwise acquire or agree to acquire any material amount of assets other than
(i) in the ordinary course of business, and (ii) acquisitions having an
aggregate acquisition consideration payable by the Company of not more than
$250,000.
(f) CAPITAL EXPENDITURES. Except (i) as set forth in Section
6.01(f) of the Company Disclosure Schedule, (ii) as may be required by law, or
(iii) as reasonably deemed necessary by the Company following a catastrophic
event, the Company shall not, nor shall it permit any of its subsidiaries to,
make capital expenditures in excess of 110% of the aggregate amount budgeted by
the Company or its subsidiaries for capital expenditures as set forth in Section
6.01(f) of the Company Disclosure Schedule.
(g) NO DISPOSITIONS. Except as set forth in Section 6.01(g) of
the Company Disclosure Schedule, the Company shall not, nor shall it permit any
of its subsidiaries to, sell, lease, or otherwise dispose of, any of its
respective assets, other than
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encumbrances or dispositions in the ordinary course of business consistent
with past practice.
(h) INDEBTEDNESS. Except as set forth in Section 6.01(h) of
the Company Disclosure Schedule, the Company shall not, nor shall it permit any
of its subsidiaries to, incur or guarantee any indebtedness for borrowed money
(including any such debt guaranteed or otherwise assumed including, without
limitation, the issuance of debt securities or warrants or rights to acquire
debt) or enter into any "keep well" or other agreement to maintain any financial
statement condition of another person other than (i) short-term indebtedness and
"keep well" or similar assurances for the benefit of customers, in each case in
the ordinary course of business consistent with past practice; (ii) arrangements
between the Company and its subsidiaries or among its subsidiaries; or (iii) in
connection with the refunding of existing indebtedness at a lower cost of funds.
(i) COMPENSATION, BENEFITS. Except as set forth in Section
6.01(i) of the Company Disclosure Schedule or as may be required by applicable
law, or as expressly contemplated by this Agreement, the Company shall not, nor
shall it permit any of its subsidiaries to, (i) enter into, adopt or amend or
increase the amount or accelerate the payment or vesting of any benefit or
amount payable under any Employee Benefit Plan, or otherwise increase the
compensation or benefits of any director, officer or other employee of such
party or any of its subsidiaries, except for normal increases in compensation
and benefits in the ordinary course of business consistent with past practice
that, with respect to employees who are not officers, in the aggregate, do not
result in an increase in benefits or compensation expense to the Company or any
of its subsidiaries in excess of five percent per year, or (ii) enter into or
amend any employment, severance or special pay arrangement with respect to the
termination of employment or other similar contract, agreement or arrangement
with any director or officer or other employee other than with respect to
employees who are not officers of the Company in the ordinary course of business
consistent with current industry practice.
(j) 1935 ACT. Except as set forth in Section 6.01(j) of the
Company Disclosure Schedule, and except as required or contemplated by this
Agreement, the Company shall not, nor shall it permit any of its subsidiaries
to, engage in any activities which would cause a change in its status, or that
of its subsidiaries, under the 1935 Act.
(k) ACCOUNTING. Except as set forth in Section 6.01(k) of the
Company Disclosure Schedule, the Company shall not, nor shall it permit any of
its subsidiaries to, make any changes in their accounting methods, except as
required by law, rule, regulation or GAAP.
(l) TAX-FREE STATUS. No party shall, nor shall any party
permit any of its subsidiaries to, take any actions which would, or would be
reasonably likely to, adversely affect the status of the Merger as a
reorganization within the meaning of Section 368(a) of the Code, and each party
hereto shall use all reasonable efforts to achieve such result.
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(m) COOPERATION, NOTIFICATION. Each party shall, and shall
cause its subsidiaries to, (i) confer on a regular and frequent basis with one
or more representatives of the other party to discuss, subject to applicable
law, material operational and business matters; (ii) promptly notify the other
party of any significant changes in its business, properties, assets, condition
(financial or other), results of operations or prospects; (iii) advise the other
party of any change or event which has had or could reasonably be expected to
result in, in the case of the Company, a Company Material Adverse Effect or, in
the case of Parent, a Parent Material Adverse Effect; and (iv) promptly provide
the other party with copies of all filings made by such party or any of its
subsidiaries with any state or federal court, administrative agency, commission
or other Governmental Authority in connection with this Agreement and the
transactions contemplated hereby; provided that no party shall be required to
make any disclosure to the extent such disclosure would constitute a violation
of any applicable law or regulation.
(n) THIRD-PARTY CONSENTS. The Company shall, and shall cause
its subsidiaries to, use all commercially reasonable efforts to obtain all the
Company Required Consents. The Company shall promptly notify Parent of any
failure or prospective failure to obtain any such consents and, if requested by
Parent shall provide copies of all the Company Required Consents obtained by the
Company to Parent. Parent shall, and shall cause its subsidiaries to, use all
commercially reasonable efforts to obtain all Parent Required Consents. Parent
shall promptly notify the Company of any failure or prospective failure to
obtain any such consents and, if requested by the Company, shall provide copies
of all Parent Required Consents obtained by Parent to the Company.
(o) NO BREACH, ETC. No party shall, nor shall any party permit
any of its subsidiaries to, willfully take any action that would or is
reasonably likely to result in a material breach of any provision of this
Agreement or in any of its representations and warranties set forth in this
Agreement being untrue on and as of the Closing Date.
(p) DISCHARGE OF LIABILITIES. The Company shall not pay,
discharge or satisfy any material claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction, in the ordinary course of business
consistent with past practice (which includes the payment of final and
unappealable judgments) or in accordance with their terms, of liabilities
reflected or reserved against in, or contemplated by, the most recent
consolidated financial statements (or the notes thereto) of the Company included
in the Company's reports filed with the SEC, or incurred in the ordinary course
of business consistent with past practice.
(q) CONTRACTS. Except as set forth in Section 6.01(q) of the
Company Disclosure Schedule, the Company shall not, and shall cause its
subsidiaries not to, except in the ordinary course of business consistent with
past practice, enter into, modify, amend, terminate, renew or fail to use
reasonable business efforts to renew any material contract or agreement to which
the Company or any of its subsidiaries is a party or waive, release or assign
any material rights or claims therein.
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(r) INSURANCE. The Company shall, and shall cause its
subsidiaries to, maintain with financially responsible insurance companies
insurance in such amounts and against such risks and losses as are customary for
companies engaged in the electric and gas utility industry.
(s) PERMITS. The Company shall, and shall cause its
subsidiaries to, use reasonable efforts to maintain in effect all existing
governmental permits pursuant to which the Company or any of its subsidiaries
operate except for those permits the expiration or termination of which would
not reasonably be expected to have a Company Material Adverse Effect.
(t) TAKEOVER LAWS. Neither party shall take any action that
would cause the transactions contemplated by this Agreement to be subject to
requirements imposed by any Takeover Law, and each of them shall take all
necessary steps within its control to exempt (or ensure the continued exemption
of) the transactions contemplated by this Agreement from any applicable Takeover
Law, including Sections 33-841 and 33-844 of the CBCA.
(u) NO RIGHTS TRIGGERED. The Company shall ensure that the
entering into of this Agreement and the consummation of the transactions
contemplated hereby do not and will not result, directly or indirectly, in the
grant of any rights to any person under any material agreement (other than the
agreements disclosed in Section 6.01(u) of the Company Disclosure Schedule) to
which it or any of its subsidiaries is a party.
(v) TAXES. The Company shall not, and shall cause its
subsidiaries not to, (A) make or rescind any express or deemed material election
relating to Taxes, (B) except as set forth on Schedule 6.01(v), settle or
compromise any material claim, audit, dispute, controversy, examination,
investigation or other proceeding relating to Taxes, (C) materially change any
of its methods of reporting income or deductions for federal income Tax purposes
from those employed in the preparation of its federal income Tax Return and
state Tax Returns for the taxable year ending December 31, 1997, except as may
be required by a change in applicable law after the date hereof, or (D) file any
material Tax Return other than in a manner consistent with its federal income
Tax Return and state Tax Returns for the taxable year ending December 31, 1997.
(w) CONDUCT OF BUSINESS OF MERGER SUB. Following the
incorporation of Merger Sub as required by Section 1.06, prior to the Effective
Time, except as may be required by applicable law and subject to the other
provisions of this Agreement, Parent shall cause Merger Sub to (i) perform its
obligations under this Agreement in accordance with its terms, and (ii) not
engage directly or indirectly in any business or activities of any type or kind
and not enter into any agreements or arrangements with any person, or be subject
to or bound by any obligation or undertaking, which is inconsistent with this
Agreement.
(x) CERTAIN MERGERS. Except with the mutual consent of the
Board of Directors of the Company and the Board of Trustees of the Parent,
Parent shall not, and
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shall not permit any of its subsidiaries to, acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial portion of the
assets of or equity in, or by any other manner, any business or any
corporation, partnership, association or other business organization or
divisions thereof, or otherwise acquire or agree to acquire any assets if the
entering into of a definitive agreement relating to or the consummation of
such acquisition, merger or consolidation could reasonably be expected to (i)
impose any material delay in the obtaining of, or significantly increase the
risk of not obtaining, any authorizations, consents, orders, declarations or
approvals of any Governmental Authority necessary to consummate the Merger or
the expiration or termination of any applicable waiting period, (ii)
significantly increase the risk of any Governmental Authority entering an
order prohibiting the consummation of the Merger, (iii) significantly
increase the risk of not being able to remove any such order on appeal or
otherwise or (iv) materially delay the consummation of the Merger.
(y) RATE MATTERS. Subject to applicable law and except for
non-material filings in the ordinary course of business consistent with
regulatory orders or past practice, the Company shall consult with Parent prior
to implementing any changes in its or any of its subsidiaries' rates or charges
(other than automatic cost pass-through rate adjustment clauses), standards of
service or accounting or executing any agreement with respect thereto that is
otherwise permitted under this Agreement and the Company shall, and shall cause
each of its subsidiaries to, deliver to Parent a copy of each such filing or
agreement at least three days prior to the filing or execution thereof so that
Parent may comment thereon.
(z) GAS TRANSMISSION AND STORAGE. Except as set forth in
Section 6.01(z) of the Company Disclosure Schedule or in the ordinary course of
business, neither the Company nor any of its subsidiaries shall commence
construction of any additional gas transmission, gas delivery or gas storage
capacity or obligate itself to purchase or otherwise acquire any additional
transmission, delivery or storage facilities, or to sell or otherwise dispose
of, or to share, any such facilities owned by it.
(aa) THIRD PARTY STANDSTILL AGREEMENTS. During the period from
the date of this Agreement through the Effective Time, neither the Company nor
any of its subsidiaries shall terminate, amend, modify or waive any provision of
any confidentiality or standstill agreement to which it is a party. During such
period, the Company shall take all steps necessary to enforce, to the fullest
extent permitted under applicable law, the provisions of any such agreement;
provided that nothing in this subsection (aa) shall be deemed to affect the
Company's rights under Section 9.01(e) hereof.
Section 6.02 COVENANT OF THE COMPANY; ALTERNATIVE PROPOSALS. From and
after the date hereof, the Company agrees (a) that it and its subsidiaries will
not, and it will use its best efforts to cause its and its subsidiaries'
officers, directors, employees, agents and representatives (including, without
limitation, any investment banker, attorney or accountant retained by it or any
of its subsidiaries or any of the foregoing) not to, directly or indirectly,
encourage, initiate or solicit (including
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by way of furnishing information) or knowingly take any other action designed
to facilitate any inquiries or the making of any proposal or offer
(including, without limitation, any proposal or offer to its shareholders)
which constitutes or may reasonably be expected to lead to an Alternative
Proposal (as defined below) from any person or engage in any discussion or
negotiations concerning, or provide any non-public information or data to
make or implement an Alternative Proposal; (b) that it will immediately cease
and cause to be terminated any existing solicitation, initiation,
encouragement, activity, discussions or negotiations with any parties
conducted heretofore with a view of formulating an Alternative Proposal; and
(c) that it will immediately notify Parent orally and in writing of the
receipt of any such inquiry, offer or proposals, and that it shall keep
Parent informed orally and in writing in reasonable detail of the status of
any such inquiry, offer or proposal; provided however, that notwithstanding
any other provision hereof, the Company may at any time prior to the time the
Company shareholders shall have voted to approve this Agreement (i) engage in
discussions or negotiations with a third party who, without solicitation in
violation of the terms hereof, seeks to initiate such discussions or
negotiations and may furnish such third party information concerning the
Company and its business, properties and assets if, and only to the extent
that, (A)(x) the third party has first made an Alternative Proposal that, in
the good faith judgment of the Company's Board of Directors (after
consultation with its financial advisors), is likely to be more favorable to
the Company's shareholders than the Merger, and has demonstrated that it will
have adequate sources of financing to consummate such Alternative Proposal,
and (y) the Company Board of Directors shall conclude in good faith, based
upon the advice of outside counsel and such other matters as the Company
Board of Directors deems relevant, that such actions are necessary for the
Company Board of Directors to act in a manner consistent with its fiduciary
duties to shareholders under applicable law, and (B) prior to furnishing such
information to, or entering into discussions or negotiations with, such
person or entity, the Company (x) provides prompt written notice to Parent to
the effect that it intends to furnish information to, or intends to enter
into discussions or negotiations with, such person or entity, and of the
identity of the person or group making the Alternative Proposal and the
material terms thereof and (y) receives from such person an executed
confidentiality agreement in reasonably customary form on terms not in the
aggregate materially more favorable to such third party than the terms
contained in the Confidentiality Agreement (as defined in Section 7.01)
except that such confidentiality agreement shall not prohibit such person
from making an unsolicited Alternative Proposal to the Board of Directors of
the Company, (ii) comply with Rule 14e-2 promulgated under the Exchange Act
with regard to a tender or exchange offer and/or (iii) accept an Alternative
Proposal from a third party, provided the Company terminates this Agreement
pursuant to Section 9.01(e). "Alternative Proposal" shall mean any merger,
acquisition, consolidation, reorganization, share exchange, tender offer,
exchange offer or similar transaction involving the Company or any of the
Company's significant subsidiaries (as defined in Rule 1-02(w) of Regulation
S-X under the Exchange Act) or any proposal or offer to acquire in any
manner, directly or indirectly (x) ten percent or more of the outstanding
Company Common Stock, (y) any of the outstanding common stock of Yankee Gas
Services Company, or 50% or more of the outstanding capital stock of any
other significant
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subsidiary, or (z) all or a substantial portion of the assets of the Company
and its subsidiaries taken as a whole. Nothing herein shall prohibit a
disposition permitted by Section 6.01(g) hereof.
Section 6.03 CONTROL OF OTHER PARTY'S BUSINESS. Nothing contained in
this Agreement shall give Parent, directly or indirectly, the right to control
or direct the Company's operations prior to the Effective Time. Nothing
contained in this Agreement shall give the Company, directly or indirectly, the
right to control or direct Parent's operations prior to the Effective Time.
Prior to the Effective Time, each of the Company and Parent shall exercise,
consistent with the terms and conditions of this Agreement, complete control and
supervision over its respective operations.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.01 ACCESS TO INFORMATION. Upon reasonable notice and during
normal business hours, each party shall, and shall cause its subsidiaries to,
afford to the officers, directors, trustees, employees, agents and accountants
of the other (collectively, "Representatives") reasonable access, throughout the
period prior to the Effective Time, to all of its properties, books, contracts,
commitments and records to the extent that such party or any of its subsidiaries
is not under a legal obligation not to provide access or to the extent that such
access would not constitute a waiver of the attorney-client privilege and does
not unreasonably interfere with the business and operations of such party.
During such period, each party shall, and shall cause its subsidiaries to,
furnish promptly to the other (i) access to each material report, schedule and
other document filed or received by it or any of its subsidiaries pursuant to
the requirements of federal or state securities laws or filed with or sent to
the SEC, the FERC, the Department of Justice, the Federal Trade Commission or
any other federal or state regulatory agency or commission, and (ii) access to
all information concerning themselves, their subsidiaries, directors, trustees,
officers and shareholders and such other matters as may be reasonably requested
by the other party in connection with any filings, applications or approvals
required or contemplated by this Agreement. Each party shall, and shall cause
its subsidiaries and Representatives to, hold in strict confidence all
Evaluation Material (as defined in the Confidentiality and Standstill Agreement)
concerning the other parties furnished to it in connection with the transactions
contemplated by this Agreement in accordance with the Confidentiality and
Standstill Agreement, dated as of March 31, 1999, between the Company and
Parent, as it may be amended from time to time (the "Confidentiality
Agreement").
Section 7.02 PROXY STATEMENT AND REGISTRATION STATEMENT. (a)
PREPARATION AND FILING. The parties will prepare and file with the SEC as soon
as reasonably practicable after the date hereof the Registration Statement and
the Proxy Statement (together, the "Proxy/Registration Statement"). The parties
hereto shall each use reasonable efforts to cause the Registration Statement to
be declared effective under
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the Securities Act as promptly as practicable after such filing. Each party
hereto shall also take such action as may be reasonably required to cause the
shares of Parent Common Stock issuable in connection with the Merger to be
registered or to obtain an exemption from registration under applicable state
"blue sky" or securities laws; provided, however, that no party shall be
required to register or qualify as a foreign corporation or to take other
action which would subject it to service of process in any jurisdiction where
it will not be, following the Merger, so subject. Each of the parties hereto
shall furnish all information concerning itself which is required or
customary for inclusion in the Proxy/Registration Statement. The parties
shall use reasonable efforts to cause the shares of Parent Common Stock
issuable in the Merger to be approved for listing on the NYSE upon official
notice of issuance. The information provided by any party hereto for use in
the Proxy/Registration Statement shall be true and correct in all material
respects without omission of any material fact which is required to make such
information, in the circumstances under which it is provided, not false or
misleading. No representation, covenant or agreement is made by or on behalf
of any party hereto with respect to information supplied by any other party
for inclusion in the Proxy Statement/ Registration Statement.
(b) LETTER OF THE COMPANY'S ACCOUNTANT. Following receipt by
Arthur Andersen, LLP, the Company's independent auditor, of an appropriate
request from the Company pursuant to SAS No. 72, the Company shall use its best
efforts to cause to be delivered to Parent a letter of Arthur Andersen LLP dated
a date within two business days before the date of the Proxy/Registration
Statement, and addressed to Parent, in form and substance reasonably
satisfactory to Parent and customary in scope and substance for "cold comfort"
letters delivered by independent public accountants in connection with
registration statements similar to the Proxy/Registration Statement.
(c) LETTER OF PARENT'S ACCOUNTANT. Following receipt by Arthur
Anderson, LLP, Parent's independent auditor, of an appropriate request from
Parent pursuant to SAS No. 72, Parent shall use best efforts to cause to be
delivered to the Company a letter of Arthur Anderson, LLP, dated a date within
two business days before the date of the Proxy/Registration Statement, and
addressed to the Company, in form and substance reasonably satisfactory to the
Company and customary in scope and substance for "cold comfort" letters
delivered by independent public accountants in connection with registration
statements similar to the Proxy/Registration Statement.
Section 7.03 REGULATORY MATTERS. Each party hereto shall cooperate and
use its best efforts to promptly prepare and file all necessary documentation,
to effect all necessary applications, notices, petitions, filings and other
documents, and to use all commercially reasonable efforts to obtain no later
than the Initial Termination Date, as such date may be extended pursuant to
Section 9.01(b), all necessary permits, consents, approvals and authorizations
of all Governmental Authorities necessary to consummate the transactions
contemplated by this Agreement, including, without limitation, the Company
Required Statutory Approvals and Parent Required Statutory Approvals.
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Section 7.04 SHAREHOLDER APPROVAL. (a) THE COMPANY SHAREHOLDERS. The
Company shall, as soon as reasonably practicable after the date hereof (i) take
all steps necessary to duly call, give notice of, convene and hold a meeting of
its shareholders (the "Company Special Meeting") for the purpose of securing the
Company Shareholders' Approval, (ii) distribute to its shareholders the Proxy
Statement in accordance with applicable federal and state law and with its
Certificate of Incorporation and by-laws, (iii) subject to the fiduciary duties
of its Board of Directors, recommend to its shareholders the approval of this
Agreement and the transactions contemplated hereby and (iv) cooperate and
consult with Parent with respect to each of the foregoing matters.
Section 7.05 DIRECTORS' AND OFFICERS' INDEMNIFICATION. (a)
INDEMNIFICATION. To the extent, if any, not provided by an existing right of
indemnification or other agreement or policy, from and after the Effective Time,
Parent and the Surviving Corporation shall, to the fullest extent permitted by
applicable law, indemnify, defend and hold harmless each person who is now, or
has been at any time prior to the date hereof, or who becomes prior to the
Effective Time, an officer, director or employee of the Company or any of its
subsidiaries (each an "Indemnified Party" and collectively, the "Indemnified
Parties") against (i) all losses, expenses (including reasonable attorney's fees
and expenses), claims, damages or liabilities or, subject to the proviso of the
next succeeding sentence, amounts paid in settlement, arising out of actions or
omissions occurring at or prior to the Effective Time (and whether asserted or
claimed prior to, at or after the Effective Time) that are, in whole or in part,
based on or arising out of the fact that such person is or was a director,
officer or employee of the Company or a subsidiary of the Company (the
"Indemnified Liabilities") and (ii) all Indemnified Liabilities to the extent
they are based on or arise out of or pertain to the transactions contemplated by
this Agreement. In the event of any such loss, expense, claim, damage or
liability (whether or not arising before the Effective Time), (i) Parent shall
pay the reasonable fees and expenses of counsel selected by the Indemnified
Parties, which counsel shall be reasonably satisfactory to Parent, promptly
after statements therefor are received and otherwise advance to such Indemnified
Party upon request reimbursement of documented expenses reasonably incurred and
(ii) any determination required to be made with respect to whether an
Indemnified Party's conduct complies with the standards set forth in Section
33-756, 33-757 and 33-765 of the CBCA, and the articles of organization or
by-laws shall be made by independent counsel mutually acceptable to Parent and
the Indemnified Party; provided, however, that Parent shall not be liable for
any settlement effected without its written consent (which consent shall not be
unreasonably withheld).
(b) INSURANCE. For a period of six years after the Effective
Time, Parent shall (i) cause to be maintained in effect policies of directors'
and officers' liability insurance for the benefit of those persons who are
currently covered by such policies of the Company on terms no less favorable
than the terms of such current insurance coverage or (ii) provide tail coverage
for such persons which provides coverage for a period of six years for acts
prior to the Effective Time on terms no less favorable than the terms of such
current insurance coverage; provided, however, that Parent shall not be
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required to expend in any year an amount in excess of 200% of the annual
aggregate premiums currently paid by the Company, for such insurance; and
provided, further, that if the annual premiums of such insurance coverage
exceed such amount, Parent shall be obligated to obtain a policy with the
best coverage available, in the reasonable judgment of the Board of Trustees
of Parent, for a cost not exceeding such amount.
(c) SUCCESSORS. In the event Parent or any of its successors
or assigns (i) consolidates with or merges into any other person and shall not
be the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then, and in either such case, proper provisions shall be made so
that the successors and assigns of Parent shall assume the obligations set forth
in this Section 7.05.
(d) SURVIVAL OF INDEMNIFICATION. To the fullest extent
permitted by law, from and after the Effective Time, all rights to
indemnification as of the date hereof in favor of the employees, agents,
directors and officers of the Company, and its subsidiaries with respect to
their activities as such prior to the Effective Time, as provided in its
respective articles of organization and by-laws in effect on the date hereof, or
otherwise in effect on the date hereof, shall survive the Merger and shall
continue in full force and effect for a period of not less than six years from
the Effective Time.
(e) BENEFIT. The provisions of this Section 7.05 are intended
to be for the benefit of, and shall be enforceable by, each Indemnified Party,
his or her heirs and his or her representatives.
Section 7.06 DISCLOSURE SCHEDULES. On the date hereof, (i) Parent has
delivered to the Company a schedule (the "Parent Disclosure Schedule"),
accompanied by a certificate signed by an executive officer of Parent stating
that the Parent Disclosure Schedule is being delivered pursuant to this Section
7.06(i), and (ii) the Company has delivered to Parent a schedule (the "Company
Disclosure Schedule"), accompanied by a certificate signed by an executive
officer of the Company stating that the Company Disclosure Schedule is being
delivered pursuant to this Section 7.06(ii). The Company Disclosure Schedule and
Parent Disclosure Schedule are collectively referred to herein as the
"Disclosure Schedules." The Disclosure Schedules constitute an integral part of
this Agreement and modify the respective representations, warranties, covenants
or agreements of the parties hereto contained herein to the extent that such
representations, warranties, covenants or agreements expressly refer to the
Disclosure Schedules. Anything to the contrary contained herein or in the
Disclosure Schedules notwithstanding, any and all statements, representations,
warranties or disclosures set forth in the Disclosure Schedules shall be deemed
to have been made on and as of the date hereof.
Section 7.07 PUBLIC ANNOUNCEMENTS. Subject to each party's disclosure
obligations imposed by law or the rules of any applicable securities exchange or
Governmental Authority, the Company and Parent will cooperate with each other in
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the development and distribution of all news releases and other public
information disclosures with respect to this Agreement or any of the
transactions contemplated hereby and shall not issue any public announcement or
statement with respect hereto without the consent of the other party (which
consent shall not be unreasonably withheld).
Section 7.08 RULE 145 AFFILIATES. Within 30 days after the date of this
Agreement, the Company shall identify in a letter to Parent all persons who are,
and to such person's best knowledge who will be at the Closing Date,
"affiliates" of the Company, as such term is used in Rule 145 under the
Securities Act. The Company shall use all reasonable efforts to cause its
affiliates (including any person who may be deemed to have become an affiliate
after the date of the letter referred to in the prior sentence) to deliver to
Parent on or prior to the Closing Date a written agreement substantially in the
form attached as Exhibit 7.08 (each, an "Affiliate Agreement").
Section 7.09 CERTAIN EMPLOYEE AGREEMENTS AND ARRANGEMENTS. Subject to
Section 7.10, Parent and the Surviving Corporation and its subsidiaries shall
honor, without modification, all contracts, agreements, collective bargaining
agreements and commitments of the Company, or its subsidiaries, prior to the
date hereof which apply to any current or former employee or current or former
director of the Company, or its subsidiaries; provided, however, that the
foregoing shall not prevent Parent or the Surviving Corporation from enforcing
such contracts, agreements, collective bargaining agreements and commitments in
accordance with their terms, including, without limitation, any reserved right
to amend, modify, suspend, revoke or terminate any such contract, agreement,
collective bargaining agreement or commitment. Any workforce reductions
affecting employees of the Company carried out within the twelve-month period
following the Effective Time by Parent or the Surviving Corporation or their
respective subsidiaries shall be done in accordance with (i) the provisions of
this agreement, (ii) the recommendations of the Transition Steering Team to be
established pursuant to Section 7.16 hereof, and (iii) all applicable collective
bargaining agreements, and all laws and regulations governing the employment
relationship and termination thereof including, without limitation, the Worker
Adjustment and Retraining Notification Act and regulations promulgated
thereunder, and any comparable state or local law.
Section 7.10 EMPLOYEE BENEFIT PLANS. (a) For a period of twelve months
immediately following the Closing Date, the compensation, benefits and coverage
provided to those non-union individuals who are employees of the Company, or its
subsidiaries, and who continue to be employees of the Surviving Corporation,
Parent or their respective subsidiaries (the "Nonunion Continuing Company
Employees") pursuant to employee benefit plans or arrangements maintained by
Parent, the Surviving Corporation, or their respective subsidiaries shall be not
less favorable in the aggregate (as determined by Parent, the Surviving
Corporation, or their respective subsidiaries using reasonable assumptions and
benefit valuation methods) than those provided to each such employee immediately
prior to the Closing Date. In addition to the foregoing, Parent shall, or shall
cause the Surviving Corporation, or their respective subsidiaries, to
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pay any Nonunion Continuing Company Employee whose employment is terminated
by Parent, the Surviving Corporation, or their respective subsidiaries,
within twelve months of the Closing Date a severance benefit package
equivalent to the severance benefit package that would be provided under the
Company's Severance Pay Plan, effective November 1, 1991, as in effect on the
date hereof.
(b) Parent shall, or shall cause the Surviving Corporation to,
give the Nonunion Continuing Company Employee full credit for purposes of
eligibility, vesting, benefit accrual (including, without limitation benefit
accrual under any defined benefit pension plans) and determination of the level
of benefits under any employee benefit plans or arrangements maintained by
Parent or the Surviving Corporation in effect as of the Closing Date for such
Nonunion Continuing Company Employees' service with the Company or any
subsidiary of the Company (or any prior employer) to the same extent recognized
by the Company or such subsidiary immediately prior to the Closing Date. With
respect to any employee benefit plan or arrangement established by Parent or the
Surviving Corporation after the Closing Date (the "Post Closing Plans"), service
shall be credited in accordance with the terms of such Post Closing Plans.
(c) Parent shall, or shall cause the Surviving Corporation to,
(i) waive all limitations as to preexisting conditions, exclusions and waiting
periods with respect to participation and coverage requirements applicable to
the Nonunion Continuing Company Employees under any welfare benefit plan
established to replace any Company welfare benefit plans in which such Nonunion
Continuing Company Employees may be eligible to participate after the Closing
Date, other than limitations or waiting periods that are already in effect with
respect to such Nonunion Continuing Company Employees and that have not been
satisfied as of the Closing Date under any welfare plan maintained for the
Nonunion Continuing Company Employees immediately prior to the Closing Date and
(ii) provide each Nonunion Continuing Company Employee with credit for any
co-payments and deductibles paid prior to the Closing Date in satisfying any
applicable deductible or out-of-pocket requirements under any welfare plans that
such Nonunion Continuing Company Employees are eligible to participate in after
the Closing Date.
Section 7.11 COMPANY STOCK PLANS. With respect to each Plan that
provides for benefits in the form of Company Common Stock ("Company Stock
Plans"), the Company and Parent shall take all corporate action necessary or
appropriate to (i) provide for the issuance or purchase in the open market of
Parent Common Stock rather than Company Common Stock, pursuant thereto, and
otherwise to amend such Company Stock Plans to reflect this Agreement and the
Merger, (ii) obtain shareholder approval with respect to such Company Stock
Plans to the extent such approval is required for purposes of the Code or other
applicable law, or to enable such Company Stock Plans to comply with Rule 16b-3
promulgated under the Exchange Act, (iii) reserve for issuance under such
Company Stock Plans or otherwise provide a sufficient number of shares of Parent
Common Stock for delivery upon payment of benefits, grant of awards or exercise
of options under such Company Stock Plans and (iv) as soon as practicable after
the Effective Time, file registration statements on Form S-8 or amendments on
such forms to
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the Form S-4 Registration Statement, as the case may be (or any successor or
other appropriate forms), with respect to the shares of Parent Common Stock
subject to such Company Stock Plans to the extent such registration statement
is required under applicable law, and Parent shall use its best efforts to
maintain the effectiveness of such registration statements (and maintain the
current status of the prospectuses contained therein) for so long as such
benefits and grants remain payable and such options remain outstanding. With
respect to those individuals who subsequent to the Merger will be subject to
the reporting requirements under Section 16(a) of the Exchange Act, the
Company shall administer the Company Stock Plans, where applicable, in a
manner that complies with Rule 16b-3 promulgated under the Exchange Act.
Section 7.12 EXPENSES. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such expenses, except that those expenses incurred in
connection with printing the Proxy/Registration Statement, as well as the filing
fee relating thereto, shall be shared equally by the Company and Parent.
Section 7.13 FURTHER ASSURANCES. Each party will, and will cause its
subsidiaries to, execute such further documents and instruments and take such
further actions as may reasonably be requested by any other party in order to
consummate the Merger in accordance with the terms hereof.
Section 7.14 EMPLOYMENT CONTRACTS. Parent and Mr. Gooley have entered
into an employment agreement of even date herewith, and Parent shall, prior to
the Closing Date, offer to enter into binding employment arrangements having the
principal terms set forth in Section 7.14 of the Parent Disclosure Schedule with
the persons identified thereon and on the Closing Date shall enter into such
arrangements with those persons who have accepted such offers.
Section 7.15 TRANSITION STEERING TEAM. As soon as reasonably
practicable after the date hereof, Parent and the Company shall create a special
transition steering team, with representation from Parent and the Company, that
will develop recommendations concerning the future structure and operations of
the Company after the Effective Time, subject to applicable law. The transition
steering team will be jointly chaired by the Chief Executive Officers of Parent
and the Company and the members of the transition steering team shall be
appointed by the co-chairmen. The functions of the transition steering team
shall include (i) to direct the exchange of information and documents between
the parties and their Subsidiaries as contemplated by Section 7.01 and (ii) the
development of regulatory plans and proposals, corporate organizational and
management plans, workforce combination proposals, and such other matters as
they deem appropriate.
Section 7.16 CONVEYANCE TAXES. The Company and Parent shall cooperate
in the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any real property transfers or gains,
sales, use,
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transfer, value added, stock transfer or stamp taxes, any transfer,
recording, registration or other fees, or any similar taxes which become
payable in connection with the transaction contemplated by this Agreement
that are required or permitted to be filed on or before the Effective Time.
The Company shall pay, without deduction or withholding (except where such
deduction or withholding is required by applicable law) from any amounts
payable to the holders of any Company Common Stock, any such Taxes which
become payable in connection with the transactions contemplated by this
Agreement, on behalf of the stockholders of the Company.
ARTICLE VIII
CONDITIONS
Section 8.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction or waiver on or prior to the Closing Date of each of
the following conditions:
(a) SHAREHOLDER APPROVAL. The Company Shareholders' Approval
shall have been obtained.
(b) HSR ACT. Any waiting period (and any extension thereof)
applicable to the consummation of the Merger under the Hart-Scott-Rodino
Antitrust Improvements Act of 1978, as amended, shall have expired or been
terminated.
(c) NO INJUNCTION. No temporary restraining order or
preliminary or permanent injunction or other order by any federal or state court
preventing consummation of the Merger shall have been issued and be continuing
in effect, and the Merger and the other transactions contemplated hereby shall
not have been prohibited under any applicable federal or state law or
regulation.
(d) REGISTRATION STATEMENT. The Registration Statement shall
have become effective in accordance with the provisions of the Securities Act,
and no stop order suspending such effectiveness shall have been issued and
remain in effect.
(e) LISTING OF SHARES. The shares of Parent Common Stock
issuable in the Merger pursuant to Article II shall have been approved for
listing on the NYSE upon official notice of issuance.
(f) STATUTORY APPROVALS. The Company Required Statutory
Approvals and Parent Required Statutory Approvals shall have been obtained at or
prior to the Effective Time, such approvals shall have become Final Orders (as
defined below) and such Final Orders shall not impose terms or conditions which,
in the aggregate, could reasonably be expected to have a Company Material
Adverse Effect or a Parent Material Adverse Effect. A "Final Order" means action
by the relevant regulatory authority which
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has not been reversed, stayed, enjoined, set aside, annulled or suspended,
with respect to which any waiting period prescribed by law before the
transactions contemplated hereby may be consummated has expired, and as to
which all conditions to the consummation of such transactions prescribed by
law, regulation or order have been satisfied.
Section 8.02 CONDITIONS TO OBLIGATION OF PARENT TO EFFECT THE MERGER.
The obligation of Parent to effect the Merger shall be further subject to the
satisfaction (or waiver by Parent), on or prior to the Closing Date, of each of
the following conditions:
(a) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company
shall have performed in all material respects each of its agreements and
covenants required by this Agreement to be so performed by the Company at or
prior to the Closing.
(b) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of the Closing Date
(except for representations and warranties that expressly speak only as of a
specific date or time other than the date hereof or the Closing Date, which need
only be true and correct as of such date or time) except for such failures of
representations or warranties to be true and correct (without regard to any
materiality qualifications contained therein) which, individually and in the
aggregate, would not reasonably be expected to result in a Company Material
Adverse Effect.
(c) CLOSING CERTIFICATES. Parent shall have received a
certificate signed by the Chief Executive Officer or Chief Financial Officer of
the Company, dated the Closing Date, to the effect that, to the best of such
officer's knowledge, the conditions set forth in Section 8.02(a) and Section
8.02(b) have been satisfied.
(d) NO COMPANY MATERIAL ADVERSE EFFECT. No Company Material
Adverse Effect shall have occurred, and there shall exist no fact or
circumstance other than facts and circumstances described in Section 8.02(d) of
the Company Disclosure Schedule or the Company SEC Reports filed prior to the
date hereof which could reasonably be expected to have a Company Material
Adverse Effect.
(e) COMPANY REQUIRED CONSENTS. The Company Required Consents
the failure of which to obtain would reasonably be expected to have a Company
Material Adverse Effect shall have been obtained.
(f) AFFILIATE AGREEMENTS. Parent shall have received Affiliate
Agreements, duly executed by each "affiliate" of the Company, substantially in
the form of Exhibit 7.08, as provided in Section 7.08.
(g) TAX OPINION. Prior to the mailing of the Proxy Statement
(and to be reconfirmed at the Closing Date), Parent shall have received an
opinion from LeBoeuf, Lamb, Greene & MacRae, L.L.P. to the effect that the
Merger will be treated as a
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reorganization within the meaning of Section 368(a) of the Code. In rendering
such opinion, LeBoeuf, Lamb, Greene & MacRae, L.L.P. may receive and rely
upon representations contained in certificates of Parent, the Company and
others, in each case in form and substance reasonably acceptable to such
counsel.
Section 8.03 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger shall be further
subject to the satisfaction (or waiver by the Company), on or prior to the
Closing Date, of each of the following conditions:
(a) PERFORMANCE OF OBLIGATIONS OF PARENT. Parent shall have
performed in all material respects each of its agreements and covenants required
by this Agreement to be so performed by Parent at or prior to the Closing.
(b) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Parent set forth in this Agreement shall be true and correct on
and as of the Closing Date with the same effect as though such representations
and warranties had been made on and as of the Closing Date (except for
representations and warranties that expressly speak only as of a specific date
or time other than the date hereof or the Closing Date, which need only be true
and correct as of such date or time) except for such failures of representations
or warranties to be true and correct (without regard to any materiality
qualifications contained therein) which, individually and in the aggregate,
would not reasonably be expected to result in a Parent Material Adverse Effect.
(c) CLOSING CERTIFICATES. The Company shall have received a
certificate signed by the chief Executive Officer or Chief Financial Officer of
Parent, dated the Closing Date, to the effect that, to the best of such
officer's knowledge, the conditions set forth in Section 8.03(a) and Section
8.03(b) have been satisfied.
(d) NO PARENT MATERIAL ADVERSE EFFECT. No Parent Material
Adverse Effect shall have occurred, and there shall exist no fact or
circumstance other than facts and circumstances described in Section 8.03(d) of
the Parent Disclosure Schedule or the Parent SEC Reports filed prior to the date
hereof which could reasonably be expected to have a Parent Material Adverse
Effect.
(e) PARENT REQUIRED CONSENTS. Parent Required Consents the
failure of which to obtain would reasonably be expected to have a Parent
Material Adverse Effect shall have been obtained.
(f) TAX OPINION. Prior to the mailing of the Proxy Statement
(and to be reconfirmed at the Closing Date), the Company shall have received an
opinion from Winthrop, Stimson, Putnam & Roberts to the effect that the Merger
will be treated as a reorganization within the meaning of Section 368(a) of the
Code. In rendering such opinion, Winthrop, Stimson, Putnam & Roberts may receive
and rely upon representations contained in certificates of Parent, the Company
and others, in each case in form and substance reasonably acceptable to such
counsel.
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ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.01 TERMINATION. This Agreement may be terminated, and the
Merger and other transactions contemplated hereby may be abandoned, at any time
prior to the Effective Time, whether before or after approval by the
shareholders of the respective parties hereto contemplated by this Agreement:
(a by mutual written consent of the Board of Directors of the
Company and Board of Trustees of Parent;
(b) by Parent or the Company hereto, by written notice to the
other parties, if the Effective Time shall not have occurred on or before the
date which is ten months from the date hereof (the "Initial Termination Date");
provided, however, that the right to terminate the Agreement under this Section
9.01(b) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted directly or
indirectly in, the failure of the Effective Time to occur on or before such
date; and provided, further, that if on the Initial Termination Date the
conditions to the Closing set forth in Section 8.01(f) shall not have been
fulfilled but all other conditions to the Closing shall be fulfilled or shall be
capable of being fulfilled, then the Initial Termination Date shall be extended
to the 15th-month anniversary of the date hereof (the "Extended Termination
Date");
(c) by Parent or the Company, by written notice to the other
parties, if the Company Shareholders' Approval shall not have been obtained at a
duly held Company Special Meeting, including any adjournments thereof;
(d) by Parent or the Company, if any state or federal law,
order, rule or regulation is adopted or issued, which has the effect, as
supported by the written opinion of outside counsel for such party, of
prohibiting the Merger, or if any court of competent jurisdiction in the United
States or any State shall have issued an order, judgment or decree permanently
restraining, enjoining or otherwise prohibiting the Merger, and such order,
judgment or decree shall have become final and nonappealable; (provided that the
right to terminate this Agreement under this Section 9.01(d) shall not be
available to any party that has not defended such lawsuit or other legal
proceeding (including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Authority vacated or reversed);
(e) by the Company upon ten (10) days' prior written notice to
Parent if the Board of Directors of the Company determines in good faith, that
termination of this Agreement is necessary for the Board of Directors of the
Company to act in a manner consistent with its fiduciary duties to shareholders
under applicable law by reason of an Alternative Proposal meeting the
requirements of Section 6.02 having been made; provided that
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(A) the Board of Directors of the Company
shall determine based on advice of outside counsel with
respect to the Board of Directors' fiduciary duties that
notwithstanding a binding commitment to consummate an
agreement of the nature of this Agreement entered into in the
proper exercise of its applicable fiduciary duties, and
notwithstanding all concessions which may be offered by Parent
in negotiation entered into pursuant to clause (B) below, it
is necessary pursuant to such fiduciary duties that the
directors reconsider such commitment as a result of such
Alternative Proposal;
(B) prior to any such termination, the
Company shall, and shall cause its respective financial and
legal advisors to, give Parent a reasonable opportunity during
such ten-day period following receipt by Parent of such
written notice to make such adjustments in the terms and
conditions of this Agreement as would enable the Company to
proceed with the Merger or other transactions contemplated
hereby on such adjusted terms and negotiate in good faith with
Parent with respect to any such adjustments; and
(C) the Company's ability to terminate this
Agreement pursuant to Section 9.01(e) is conditioned upon the
payment by the Company to Parent of any amounts owed by it
pursuant to Section 9.03(b).
(f) by the Company, by written notice to Parent, if (i) there
exist material breaches of the representations and warranties of Parent made
herein as of the date hereof which breaches, individually or in the aggregate,
would or would reasonably be expected to result in a Parent Material Adverse
Effect, and such breaches shall not have been remedied within 20 days after
receipt by Parent of notice in writing from the Company, specifying the nature
of such breaches and requesting that they be remedied, or (ii) there shall have
been a material breach of any agreement or covenant of Parent hereunder, and
such breach shall not have been remedied within 20 days after receipt by Parent
of notice in writing from the Company, specifying the nature of such failure and
requesting that it be remedied; or
(g) by Parent, by written notice to the Company, if (i) there
exist material breaches of the representations and warranties of the Company
made herein as of the date hereof which breaches, individually or in the
aggregate, would or would reasonably be expected to result in a Company Material
Adverse Effect, and such breaches shall not have been remedied within 20 days
after receipt by the Company of notice in writing from Parent, specifying the
nature of such breaches and requesting that they be remedied, (ii) there shall
have been a material breach of any agreement or covenant of the Company
hereunder, and such failure to perform or comply shall not have been remedied
within 20 days after receipt by the Company of notice in writing from Parent,
specifying the nature of such failure and requesting that it be remedied; or
(iii) the Board of Directors of the Company (A) shall withdraw or modify in any
manner materially adverse to Parent its
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approval or recommendation of this Agreement or the transactions contemplated
herein, (B) shall approve or recommend an Alternative Proposal or (C) shall
resolve to take any of the actions specified in clause (A) or (B).
Section 9.02 EFFECT OF TERMINATION. In the event of a valid termination
of this Agreement by either the Company or Parent pursuant to Section 9.01, this
Agreement shall forthwith become null and void and there shall be no liability
on the part of either the Company or Parent or their respective officers,
trustees or directors hereunder, except that Section 7.12, Section 9.03, the
agreement contained in the last sentence of Section 7.01, Section 10.08 and
Section 10.09 shall survive the termination.
Section 9.03 TERMINATION FEE; EXPENSES. (a) PAYMENT OF EXPENSES
FOLLOWING TERMINATION PURSUANT TO 9.01(f) AND (g). If this Agreement is
terminated pursuant to Section 9.01(g)(i) or (ii), then the Company shall
promptly (but not later than five business days after receiving notice of
termination) pay to Parent in cash an amount equal to all documented
out-of-pocket expenses and fees incurred by Parent (including, without
limitation, fees and expenses payable to all legal, accounting, financial, and
other professionals arising out of, in connection with or related to the
transactions contemplated by this Agreement) not in excess of $5 million. If
this Agreement is terminated pursuant to Section 9.01(f), then Parent shall
promptly (but not later than five business days after receiving notice of
termination) pay to the Company in cash an amount equal to all documented
out-of-pocket expenses and fees incurred by the Company (including, without
limitation, fees and expenses payable to all legal, accounting, financial, and
other professionals arising out of, in connection with or related to the
transactions contemplated by this Agreement) not in excess of $5 million.
(b) In the event that (i) this Agreement is terminated by the
Company pursuant to Section 9.01(e) or by Parent pursuant to Section
9.01(g)(iii) or (ii) any person or group shall have made an Alternative Proposal
that has not been withdrawn and this Agreement is terminated by (A) Parent
pursuant to Section 9.01(c) or (B) by the Company pursuant to Section 9.01(b),
then the Company shall promptly (but in no event later than the date of such
termination) pay to Parent, by wire transfer of same day funds, a termination
fee of $19 million plus an amount equal to all documented out-of-pocket expenses
and fees incurred by Parent arising out of, or in connection with or related to,
the Merger and other transactions contemplated hereby, not in excess of $5
million in the aggregate; provided, however, that if this Agreement is
terminated pursuant to the provisions of clause (ii) above, then no payment of a
termination fee or expenses by the Company to Parent shall be required unless
and until a definitive agreement with respect to the applicable Alternative
Proposal is executed within two years after such termination and, in such event,
a termination fee and expenses shall be payable within five (5) business days
after the execution of such definitive agreement.
(c) In the event that this Agreement is terminated by either
Parent or the Company pursuant to Section 9.01(b) or by mutual written consent
of the Company and Parent pursuant to 9.01(a), and, on the date of such
termination, there are no remaining
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conditions (unsatisfied or not waived) to the obligations of either party to
effect the Merger except for the receipt by Parent of any Parent Required
Statutory Approval under the 1935 Act as required by, and in accordance with
the terms of, Section 8.01(f), then Parent shall pay to the Company, by wire
transfer of same day funds within five (5) business days after such
termination, a termination fee of $10.625 million.
(d) NATURE OF FEES. The parties agree that the agreements
contained in this Section 9.03 are an integral part of the Merger and the other
transactions contemplated hereby and constitute liquidated damages and not a
penalty. The parties further agree that if any party is or becomes obligated to
pay a termination fee or expenses pursuant to Sections 9.03(a), 9.03(b) or
9.03(c), the right to receive such termination fee or expenses shall be the sole
remedy of the other party with respect to the facts and circumstances giving
rise to such payment obligation. If this Agreement is terminated by a party as a
result of a willful breach of a representation, warranty, covenant or agreement
by the other party, the non-breaching party may pursue any remedies available to
it at law or in equity and shall be entitled to recover any additional amounts
thereunder. Notwithstanding anything to the contrary contained in this Section
9.03, if one party fails to promptly pay to the other any fee or expense due
under this Section 9.03, in addition to any amounts paid or payable pursuant to
Section, the defaulting party shall pay the costs and expenses (including legal
fees and expenses) in connection with any action, including the filing of any
lawsuit or other legal action, taken to collect payment, together with interest
on the amount of any unpaid fee at the publicly announced prime rate of
Citibank, N.A. from the date such fee was required to be paid.
Section 9.04 AMENDMENT. This Agreement may be amended by the Boards of
Directors and Trustees of the parties hereto, at any time before or after
approval hereof by the shareholders of the Company and prior to the Effective
Time, but after such approval only to the extent permitted by applicable law.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
Section 9.05 WAIVER. At any time prior to the Effective Time, the
Parent or the Company may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein, to the extent permitted by applicable
law. Any agreement on the part of a party hereto to any such extension or waiver
shall be valid if set forth in an instrument in writing signed on behalf of such
party. No waiver by any party of any term or condition of this Agreement, in any
one or more instances, shall be deemed to be or construed as a waiver of the
same or any other term or condition of this Agreement on any future occasion.
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ARTICLE X
GENERAL PROVISIONS
Section 10.01 NON-SURVIVAL; EFFECT OF REPRESENTATIONS AND WARRANTIES.
All representations, warranties and agreements in this Agreement shall not
survive the Merger, except as otherwise provided in this Agreement and except
for the agreements contained in this Section 10.01, in Articles I and II and in
Sections 7.05, 7.09, 7.10, 7.11, 10.07, 10.08 and 10.09.
Section 10.02 BROKERS. The Company represents and warrants that, except
for SG Barr Devlin whose fees have been disclosed to Parent prior to the date
hereof, no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the Merger or the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company. Parent represents and warrants that, except for Credit
Suisse First Boston, ,whose fees have been disclosed to the Company prior to the
date hereof, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger or
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Parent.
Section 10.03 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if (i) delivered personally, (ii)
sent by reputable overnight courier service, (iii) telecopied (which is
confirmed), or (iv) five days after being mailed by registered or certified mail
(return receipt requested) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) If to the Company, to:
Yankee Energy System, Inc.
599 Research Parkway
Meriden, Connecticut 06604-4918
Attention: Mary J. Healey, Esq.
Telephone: (203) 639-4405
Telecopy: (203) 639-4185
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with a copy to:
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004-1490
Attention: David P. Falck, Esq.
Telephone: (212) 858-1000
Telecopy: (212) 858-1500
(b) If to Parent, to:
Northeast Utilities Service Company
107 Selden Street
Berlin, Connecticut 06037
Attention: John H. Forsgren
Telephone: (860) 665-5000
Telecopy: (860) 665-3718
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
Attention: Steven H. Davis, Esq.
Telephone: (212) 424-8000
Telecopy: (212) 424-8500
Section 10.04 MISCELLANEOUS. This Agreement (including the documents
and instruments referred to herein) (i) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof
other than the Confidentiality Agreement; (ii) shall not be assigned by
operation of law or otherwise; and (iii) shall be governed by and construed in
accordance with the laws of the State of Connecticut applicable to contracts
executed in and to be fully performed in such State, without giving effect to
its conflicts of law, rules or principles.
Section 10.05 INTERPRETATION. When a reference is made in this
Agreement to Sections or Exhibits, such reference shall be to a Section or
Exhibit of this Agreement, respectively, unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include,"
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"includes" or "including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation."
Section 10.06 COUNTERPARTS; EFFECT. This Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement.
Section 10.07 PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and, except for Article II
and for rights of Indemnified Parties as set forth in Section 7.05, nothing in
this Agreement, express or implied, is intended to confer upon any other person
any rights or remedies of any nature whatsoever under or by reason of this
Agreement.
Section 10.08 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTION CONTEMPLATED HEREBY (WHETHER BASED
ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HEREBY (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
Section 10.09 ENFORCEMENT. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Connecticut or in Connecticut state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any federal court located in the State of Connecticut
or any Connecticut state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement, (b) agrees
that it will not attempt to deny such personal jurisdiction by motion or other
request for leave from any such court and (c) agrees that it will not bring any
action relating to this Agreement or any of the transactions contemplated by
this Agreement in any court other than a federal or state court sitting in the
State of Connecticut.
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IN WITNESS WHEREOF, the Company and Parent have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
date first written above.
YANKEE ENERGY SYSTEM, INC.
By: /s/ Charles E. Gooley
--------------------------------
Name: Charles E. Gooley
Title: President and Chief Executive Officer
NORTHEAST UTILITIES
By: /s/ Michael G. Morris
--------------------------------
Name: Michael G. Morris
Title: Chairman, President and
Chief Executive Officer
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Appendix B
SG BARR DEVLIN
June 14, 1999
The Board of Directors
Yankee Energy System
599 Research Parkway
Meriden, CT 06450
Dear Members of the Board:
We understand that Yankee Energy System, Inc., a Connecticut
corporation ("YES"), and Northeast Utilities, a Massachusetts business trust
("NU"), have determined to engage in a business combination transaction, the
terms and conditions of which are set forth in the Agreement and Plan of Merger,
dated as of June 14, 1999 (the "Agreement"). The Agreement provides for, among
other things, the merger of YES with and into a wholly-owned subsidiary of NU (a
Connecticut corporation to be formed by NU prior to Closing)(the "Merger"),
whereby each issued and outstanding share of common stock, par value $5.00 per
share, of YES ("YES Common Stock") (other than Dissenting Shares and shares
canceled pursuant to Section 2.01(b) of the Agreement) shall be converted into
the right to receive (i) $45.00 in cash (as such amount may be adjusted in
accordance with Section 2.01(o) of the Agreement)(the "Cash Consideration"), or
(ii) a number of validly issued, fully paid and nonassessable shares of common
stock, par value $5.00 per share, of NU ("NU Common Stock") equal to the Cash
Consideration divided by the average of the closing prices of the shares of NU
Common Stock on the New York Stock Exchange for the 20 trading days immediately
preceding the second trading day prior to the Effective Time (the "Stock
Consideration"), or (iii) the right to receive a combination of cash and shares
of NU Common Stock as determined in accordance with Section 2.01 of the
Agreement (the "Mixed Consideration"). Notwithstanding the foregoing and subject
to section 2.01(l), the aggregate number of shares of YES Common Stock that may
be converted into the right to receive cash in the Merger will be 55% of the
total number of shares of YES Common Stock issued and outstanding as of the
close of business on the third trading day prior to the Effective Time. The
terms and conditions of the Merger are set forth in more detail in the
Agreement. Capitalized terms used herein without definition have the respective
meanings assigned to such terms in the Agreement.
We have been requested by YES to render our opinion with respect to the
fairness, from a financial point of view, to holders of YES Common Stock of the
Merger Consideration to be offered in the Agreement.
In arriving at our opinion, we have, among other things:
(1) Reviewed the Annual Reports, Forms 10-K and the related
financial information for the three-year period ended
September 30, 1998 and the Forms 10-Q and the related
unaudited financial information for the quarterly periods
ended December 30, 1998 and March 31, 1999 for YES;
<PAGE>
(2) Reviewed the Annual Reports, Forms 10-K and the related
financial information for the three-year period ended December
31, 1998 and the Forms 10-Q and the related unaudited
financial information for the quarterly period ended March 31,
1999 for NU;
(3) Reviewed certain other filings with the Securities and
Exchange Commission and other regulatory authorities made by
YES and NU during the last three years, including proxy
statements, FERC Forms 1 and 2, Forms 8-K and registration
statements;
(4) Reviewed certain internal information, including financial
forecasts, relating to the business, earnings, capital
expenditures, cash flow, assets and prospects of YES furnished
to us by YES;
(5) Conducted discussions with members of senior management of YES
and NU concerning their respective businesses, regulatory
environments, prospects and strategic objectives;
(6) Reviewed the historical market prices and trading activity for
shares of YES Common Stock and NU Common Stock and compared
them with those of certain publicly traded companies which we
deemed to be relevant;
(7) Compared the results of operations of YES with those of certain
companies which we deemed to be relevant;
(8) Compared the proposed financial terms of the Merger with the
financial terms of certain utility industry business
combinations which we deemed to be relevant;
(9) Analyzed the valuation of shares of YES Common Stock using
various valuation methodologies which we deemed to be
appropriate;
(10) Compared the pro forma earnings per share and dividends per
share of NU following the Merger with the corresponding
projected values for YES on a stand-alone basis;
(11) Reviewed the Agreement; and
(12) Reviewed such other studies, conducted such other analyses,
considered such other financial, economic and market criteria,
performed such other investigations and taken into account
such other matters as we deemed necessary or appropriate for
purposes of this opinion.
In rendering our opinion, we have relied, without independent
verification, upon the accuracy and completeness of all financial and other
information publicly available or otherwise furnished or made available to us by
YES and NU and have further relied upon the assurances of management of YES and
NU that they are not aware of any facts that would make such information
inaccurate or misleading. With respect to the financial projections of YES, we
have relied upon the assurances of management of YES that such projections have
been reasonably prepared and reflect the best currently available estimates and
judgments of the management of YES as to the future financial performance of YES
and as
<PAGE>
to the projected outcomes of legal, regulatory and other contingencies.
In arriving at our opinion, we have not made or been provided with an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of YES or NU, nor have we made any physical inspection of the
properties or assets of YES or NU. We have assumed that the Merger will be a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended, and that holders of YES Common Stock who exchange their
shares solely for NU Common Stock will recognize no gain or loss for federal
income tax purposes as a result of the consummation of the Merger. We have also
assumed that the combination will be accounted for by the purchase method of
accounting. Our opinion herein is necessarily based upon financial, stock market
and other conditions and circumstances existing and disclosed to us as of the
date thereof. Although we evaluated the fairness of the Merger Consideration,
from a financial point of view, to the holders of YES Common Stock, the specific
Merger Consideration was determined by YES and NU through arm's-length
negotiations.
The SG Barr Devlin division of SG Cowen Securities Corporation ("SG
Barr Devlin") has acted as financial advisor to YES in connection with the
Merger and will receive certain fees for our services. In addition, we have in
the past rendered certain investment banking and financial advisory services to
YES for which we received customary compensation.
Our advisory services and the opinion expressed herein are for the
information of YES's Board of Directors in evaluating the Merger and are not
provided on behalf of, or intended to confer rights or remedies upon, any
stockholder of YES, NU or any person other than YES's Board of Directors. Except
for its publication in the Proxy/Registration Statement which will be
distributed to holders of YES Common Stock in connection with approval of the
Merger, our opinion may not be published or otherwise used or referred to
without our prior written consent. This opinion is not intended to be, and does
not constitute, a recommendation to any stockholder as to how such stockholder
should act with respect to the Merger. This opinion is directed to the fairness,
from a financial point of view, of the Merger Consideration taken as a whole,
and not to the fairness of the Cash Consideration, the Stock Consideration or
the Mixed Consideration, as to which we are expressing no opinion.
Based upon and subject to the foregoing, our experience as investment
bankers and other factors we deem relevant, we are of the opinion that, as of
the date hereof, the Merger Consideration to be offered pursuant to the
Agreement is fair, from a financial point of view, to the holders of YES Common
Stock.
Very truly yours,
/s/ SG Barr Devlin
SG BARR DEVLIN
<PAGE>
APPENDIX C
CONNECTICUT BUSINESS CORPORATION ACT
CHAPTER 601 - BUSINESS CORPORATIONS
PART XIII. DISSENTERS' RIGHTS
(A) RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
Section 33-855 DEFINITIONS. As used in sections 33-855 to 33-872,
inclusive:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action or the surviving or acquiring corporation by merger
or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 33-856 and who exercises that right when and in
the manner required by sections 33-860 to 33-868, inclusive.
(3) "Fair value", with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
Section 33-856 RIGHT TO DISSENT. -- (a) A shareholder is entitled to
dissent from, and obtain payment of the fair value of his shares in the event
of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party (A) if shareholder approval is required for the merger by section 33-817
or the certificate of incorporation and the shareholder is entitled to vote on
the merger or (B) if the corporation is a subsidiary that is merged with its
parent under section 33-818;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to
<PAGE>
court order or a sale for cash pursuant to a plan by which all or substantially
all of the net proceeds of the sale will be distributed to the shareholders
within one year after the date of sale;
(4) An amendment of the certificate of incorporation that materially
and adversely affects rights in respect of a dissenter's shares because it: (A)
Alters or abolishes a preferential right of the shares; (B) creates, alters or
abolishes a right in respect of redemption, including a provision respecting a
sinking fund for the redemption or repurchase, of the shares; (C) alters or
abolishes a preemptive right of the holder of the shares to acquire shares or
other securities; (D) excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights; or (E)
reduces the number of shares owned by the shareholder to a fraction of a share
if the fractional share so created is to be acquired for cash under section
33-668; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the certificate of incorporation, bylaws or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
(b) Where the right to be paid the value of shares is made available to
a shareholder by this section, such remedy shall be his exclusive remedy as
holder of such shares against the corporate transactions described in this
section, whether or not he proceeds as provided in sections 33-855 to 33-872,
inclusive.
Section 33-857 DISSENT BY NOMINEES AND BENEFICIAL OWNERS. -- (a) A
record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing
of the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if: (1) He submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and (2) he does so with
respect to all shares of which he is the beneficial shareholder or over which he
has power to direct the vote.
(B) PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
Section 33-860 NOTICE OF DISSENTERS' RIGHTS. -- (a) If proposed
corporate action creating dissenters' rights under section 33-856 is
submitted to a vote at a shareholders' meeting, the meeting notice shall
state that shareholders are or may be entitled to assert dissenters' rights
under sections 33-855 to 33-872, inclusive, and be accompanied by a copy of
said sections.
(b) If corporate action creating dissenters' rights under section
33-856 is taken without a vote of shareholders, the corporation shall notify in
writing all shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in section 33-862.
2
<PAGE>
Section 33-861 NOTICE OF INTENT TO DEMAND PAYMENT. -- (a) If proposed
corporate action creating dissenters' rights under section 33-856 is submitted
to a vote at a shareholders' meeting, a shareholder who wishes to assert
dissenters' rights (1) shall deliver to the corporation before the vote is taken
written notice of his intent to demand payment for his shares if the proposed
action is effectuated and (2) shall not vote his shares in favor of the proposed
action.
(b) A shareholder who does not satisfy the requirements of subsection
(a) of this section is not entitled to payment for his shares under sections
33-855 to 33-872, inclusive.
Section 33-862 DISSENTERS' NOTICE. -- (a) If proposed corporate action
creating dissenters' rights unDer section 33-856 is authorized at a
shareholders' meeting, the corporation shall deliver a written dissenters'
notice to all shareholders who satisfied the requirements of section 33-861.
(b) The dissenters' notice shall be sent no later than ten days after
the corporate action was taken and shall:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty nor more than sixty days after
the date the subsection (a) of this section notice is delivered; and
(5) Be accompanied by a copy of sections 33-855 to 33-872, inclusive.
Section 33-863 DUTY TO DEMAND PAYMENT. -- (a) A shareholder sent a
dissenters' notice described in section 33-862 must demand payment, certify
whether he acquired beneficial ownership of the shares before the date required
to be set forth in the dissenters' notice pursuant to subdivision (3) of
subsection (b) of said section and deposit his certificates in accordance with
the terms of the notice.
(b) The shareholder who demands payment and deposits his share
certificates under subsection (a) of this section retains all other rights of a
shareholder until these rights are cancelled or modified by the taking of the
proposed corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under sections 33-855 to 33-872,
inclusive.
Section 33-864 SHARE RESTRICTIONS. -- (a) The corporation may restrict
the transfer of uncertificated shares from the date the demand for their payment
is received until the proposed corporate action is taken or the restrictions
released under section 33-866.
3
<PAGE>
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate action.
Section 33-865 PAYMENT. -- (a) Except as provided in section 33-867, as
soon as the proposed corporatE action is taken, or upon receipt of a payment
demand, the corporation shall pay each dissenter who complied with section
33-863 the amount the corporation estimates to be the fair value of his shares,
plus accrued interest.
(b) The payment shall be accompanied by: (1) The corporation's balance
sheet as of the end of a fiscal year ending not more than sixteen months before
the date of payment, an income statement for that year, a statement of changes
in shareholders' equity for that year and the latest available interim financial
statements, if any; (2) a statement of the corporation's estimate of the fair
value of the shares; (3) an explanation of how the interest was calculated; (4)
a statement of the dissenter's right to demand payment under section 33-868; and
(5) a copy of sections 33-855 to 33-872, inclusive.
Section 33-866 FAILURE TO TAKE ACTION. -- (a) If the corporation does
not take the proposed action within sixty days after the date set for demanding
payment and depositing share certificates, the corporation shall return the
deposited certificates and release the transfer restrictions imposed on
uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 33-862 and repeat the payment demand procedure.
Section 33-867 AFTER-ACQUIRED SHARES. -- (a) A corporation may elect to
withhold payment required by section 33-865 from a dissenter unless he was the
beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated and a statement of the dissenter's right to demand payment under
section 33-868.
Section 33-868 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR
OFFER. -- (a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and demand
payment of his estimate, less any payment under section 33-865, or reject the
corporation's offer under section 33-867 and demand payment of the fair value of
his shares and interest due, if:
(1) The dissenter believes that the amount paid under section 33-865 or
offered under section 33-867 is less than the fair value of his shares or that
the interest due is incorrectly calculated;
(2) The corporation fails to make payment under section 33-865 within
sixty
4
<PAGE>
days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection (a)
of this section within thirty days after the corporation made or offered payment
for his shares.
(C) JUDICIAL APPRAISAL OF SHARES
Section 33-871 COURT ACTION. -- (a) If a demand for payment under
section 33-868 remains unsettled, tHe corporation shall commence a proceeding
within sixty days after receiving the payment demand and petition the court
to determine the fair value of the shares and accrued interest. If the
corporation does not commence the proceeding within the sixty-day period, it
shall pay each dissenter whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the superior court
for the judicial district where a corporation's principal office or, if none in
this state, its registered office is located. If the corporation is a foreign
corporation without a registered office in this state, it shall commence the
proceeding in the superior court for the judicial district where the registered
office of the domestic corporation merged with or whose shares were acquired by
the foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not residents
of this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to it. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to
judgment (1) for the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the corporation, or (2)
for the fair value, plus accrued interest, of his after-acquired shares for
which the corporation elected to withhold payment under section 33-867.
Section 33-872 COURT COSTS AND COUNSEL FEES. -- (a) The court in an
appraisal proceeding commenced unDer section 33-871 shall determine all costs of
the proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously or not in good faith in demanding
payment under section 33-868.
5
<PAGE>
(b) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable: (1)
Against the corporation and in favor of any or all dissenters if the court finds
the corporation did not substantially comply with the requirements of sections
33-860 to 33-868, inclusive; or (2) against either the corporation or a
dissenter, in favor of any other party, if the court finds that the party
against whom the fees and expenses are assessed acted arbitrarily, vexatiously
or not in good faith with respect to the rights provided by sections 33-855 to
33-872, inclusive.
(c) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
6
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 34 of the Declaration of Trust of NU provides that the Trustees,
officers, agents or any other representative elected or appointed pursuant to
any provision thereof shall not be liable for any act or default on the part of
any co-Trustee, or other officer or agent, or for having permitted any
co-Trustee, or other officer or agent to receive or retain any money or property
receivable by the Trustees under the Declaration of Trust, or for errors of
judgment in exercising or failing to exercise any of the powers or discretions
conferred upon or resting upon him, or for any loss arising out of any
investment, or for failure to sue for or to collect any moneys or property
belonging to the trust estate, or for any act or omission to act, performed or
omitted by him in good faith in the execution of the trusts created under the
Declaration of Trust. Each Trustee and every such officer, agent or
representative shall be answerable and accountable only for his own receipts and
for his own willful acts, neglects and defaults constituting a breach of trust
knowingly and intentionally committed by him in bad faith, and not for those of
any other, or of any bank, trust company, broker, attorney, auctioneer or other
person with whom or into whose hands any property forming part of the trust
estate may be deposited or come, or by whom any action relating to the trusts
created under the Declaration of Trust may be taken or omitted to be taken; nor
shall any Trustee or any such officer, agent or representative be liable or
accountable for any defect in title, or for failing to transfer to or vest in
the Trustees title to any property or effects for the time being subject to any
of the trusts of these presents, or intended or believed to be so subject, or
for failing to take out or maintain any or sufficient insurance or for liens or
encumbrances upon any such property or effects, or for lack of genuineness or
for invalidity of the shares, bonds, or other obligations or instruments forming
part of or relating to the trust estate, or for any loss, or otherwise, unless
the same shall happen through his own willful act, neglect or default
constituting a breach of trust knowingly and intentionally committed by him in
bad faith; and the Trustees and each of them and each such officer, agent or
representative shall be entitled out of the trust estate to reimbursement for
their or his reasonable expenses and outlays and to be put in funds and
exonerated and indemnified to their or his reasonable satisfaction from time to
time, against any and all loss, costs, expense and liability incurred or to be
incurred by them or him in the execution of the trusts created under the
Declaration of Trust; and no Trustee, however appointed, shall be obliged to
give any bond or surety or other security for the performance of any of his
duties in the said trusts.
In addition, and without limiting the protection afforded to them, no
Trustee, officer, agent or representative shall be liable for monetary damages
for breach of fiduciary duty as a Trustee, officer, agent or representative,
notwithstanding any provision of law imposing such liability; provided, however,
that the provisions of this paragraph shall not be deemed to eliminate or limit
any liability which such Trustee, officer, agent or representative would
otherwise have under the provisions of the declaration (1) for any breach of
such person's duty of loyalty to the association or its shareholders, (2) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, or (3) for any transaction from which such person
derived an improper personal benefit.
Article 34 of the Declaration of Trust of NU also provides that NU shall
indemnify each of its Trustees and officers against all losses, liabilities and
expenses, including amounts paid in satisfaction of judgments, in compromise or
as fines and penalties, and counsel fees, imposed upon or reasonably incurred by
such person in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, in which he may be involved or with
which he may be threatened, while in office or thereafter, by reason of his
being or having been such a Trustee or officer, except with respect to any
matters as to which such person shall have been finally adjudicated not to have
acted in good faith in the reasonable belief that his action was in the best
interests of NU. The Declaration of Trust provides, however, that as to any
matter disposed of by a compromise payment by such Trustee or officer, pursuant
to a consent decree or otherwise, no indemnification either for said
II-1
<PAGE>
payment or for any other expenses shall be provided unless a determination is
made that indemnification of the Trustee or officer is proper under the
circumstances because such Trustee or officer acted in good faith in the
reasonable belief that his action was in the best interest of the association.
Such determination shall be made (1) by the Board of Trustees by a majority vote
of a quorum consisting of Trustees who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable,
such a quorum so directs, by independent legal counsel in a written opinion, or
(3) by the shareholders.
In performing his duties, any such Trustee or officer who acts in good faith
shall be fully protected in relying upon the books of account of the association
or of another organization in which he serves as contemplated by the Declaration
of Trust, reports, opinions and advice to the association or to such other
organization by any of its officers or employees or by counsel, accountants,
appraisers or other experts or consultants selected with reasonable care or upon
other records of the association or of such other organization.
Expenses incurred by any Trustee or officer with respect to any action, suit
or proceeding as described above may be paid or advanced by the association
prior to the final disposition of such action, suit or proceeding, upon receipt
of an undertaking by or on behalf of the Trustee or officer to repay such amount
if upon final disposition thereof he shall not be entitled to indemnification.
The rights of indemnification hereby provided shall not be exclusive of or
affect any other right to which any Trustee or officer may be entitled and all
such rights shall inure to the benefit of his heirs, executors, administrators
and other legal representatives. Such other rights shall include the powers,
immunities and rights of reimbursement which would be allowable under the laws
of the Commonwealth of Massachusetts were the association a business corporation
organized under such laws.
NU also maintains an insurance policy that insures its Trustees and officers
against certain liabilities.
II-2
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith or incorporated herein by
reference:
EXHIBIT
NUMBER TITLE OF EXHIBIT
<TABLE>
<C> <S>
2 Agreement and Plan of Merger, dated as of June 14, 1999, between Yankee Energy System,
Inc. and Northeast Utilities (included as Appendix A to the Proxy Statement/Prospectus
contained in this Registration Statement).
4 Declaration of Trust of Northeast Utilities, as amended through May 24, 1988, filed as
Exhibit 3.1.1 to the Northeast Utilities Annual Report on Form 10-K for the year ended
December 31, 1997, File No. 1-5324, incorporated herein by reference.
5 Opinion of Day, Berry & Howard LLP regarding the legality of the shares being issued.
8.1 Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P. regarding certain federal tax
matters.
8.2 Opinion of Winthrop, Stimson, Putnam & Roberts regarding certain federal tax matters.
15.1 Letter of Arthur Andersen LLP to Northeast Utilities re: unaudited interim financial
information, filed as Exhibit 15 to the Northeast Utilities Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1999, File No. 1-5324, incorporated
herein by reference.
15.2 Letter of Arthur Andersen LLP to Yankee Energy System, Inc. re: unaudited interim
financial information.
23.1 Consent of Arthur Andersen LLP to Northeast Utilities.
23.2 Consent of Arthur Andersen LLP to Yankee Energy System, Inc.
23.3 Consent of SG Barr Devlin.
23.4 Consent of Day, Berry & Howard LLP (included in Exhibit 5).
23.5 Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P. (included in Exhibit 8.1).
23.6 Consent of Winthrop, Stimson, Putnam & Roberts (included in Exhibit 8.2).
24 Powers of Attorney (included on the signature page of this Form S-4 and incorporated
herein by reference).
99(a) Form of Proxy Card to be used in soliciting shareholders of Yankee Energy System, Inc.
99(b) Fairness Opinion of SG Barr Devlin (included as Appendix B to the Proxy
Statement/Prospectus contained in this Registration Statement)
</TABLE>
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities
II-3
<PAGE>
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof;
(2) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form;
(3) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof;
(4) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(5) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the town of Berlin, state of Connecticut, on
August 19, 1999.
<TABLE>
<S> <C> <C>
NORTHEAST UTILITIES
(REGISTRANT)
By /s/ MICHAEL G. MORRIS
-----------------------------------------
Michael G. Morris
Chairman of the Board,
President and Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated. The registrant and each person whose
signature appears below hereby constitute John H. Forsgren, David R. McHale,
Lisa J. Thibdaue, Jeffrey C. Miller and Jane P. Seidl, and each of them singly,
their true and lawful attorneys, with full power to each such attorney to sign
for them in their names, in the capacities indicated above or below, as the case
may be, any and all amendments to this registration statement, hereby ratifying
and confirming its or their signatures as it may be signed by said attorneys to
any and all amendments to said registration statement.
<TABLE>
<CAPTION>
DATE TITLE SIGNATURE
------------------- ---------------------------------------------------------
<C> <S> <C>
August 19, 1999 Chairman of the Board,
President and Chief /s/ MICHAEL G. MORRIS
Executive Officer and a ------------------------------
Trustee Michael G. Morris
August 19, 1999 Executive Vice President /s/ JOHN H. FORSGREN
and Chief Financial ------------------------------
Officer John H. Forsgren
August 19, 1999 Vice President and /s/ JOHN J. ROMAN
Controller ------------------------------
John J. Roman
August 19, 1999 Trustee /s/ COTTON M. CLEVELAND
------------------------------
Cotton M. Cleveland
August 19, 1999 Trustee /s/ WILLIAM F. CONWAY
------------------------------
William F. Conway
Trustee
------------------------------
E. Gail de Planque
August 19, 1999 Trustee /s/ RAYMOND L. GOLDEN
------------------------------
Raymond L. Golden
August 19, 1999 Trustee /s/ ELIZABETH T. KENNAN
------------------------------
Elizabeth T. Kennan
Trustee
------------------------------
William J. Pape II
</TABLE>
II-5
<PAGE>
NORTHEAST UTILITIES
SIGNATURES (CONT'D)
<TABLE>
<CAPTION>
DATE TITLE SIGNATURE
------------------- ---------------------------------------------------------
<C> <S> <C>
August 19, 1999 Trustee /s/ ROBERT E. PATRICELLI
------------------------------
Robert E. Patricelli
Trustee
------------------------------
John F. Swope
August 19, 1999 Trustee /s/ JOHN F. TURNER
------------------------------
John F. Turner
</TABLE>
II-6
<PAGE>
Exhibit 5
DAY, BERRY & HOWARD LLP CityPlace I
Hartford
Connecticut 06103-3499
Telephone (860) 275-0100
COUNSELLORS AT LAW Facsimile (860) 275-0343
HARTFORD, STAMFORD AND BOSTON Internet [email protected]
Michael F. Halloran August 2, 1999
(860) 275-0127
Northeast Utilities
174 Brush Hill Avenue
West Springfield, MA 01089
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as counsel to Northeast Utilities ("Northeast"), a
voluntary association organized under the laws of Massachusetts, in
connection with the proposed merger (the "Merger") whereby Yankee Energy
System, Inc. ("Yankee") will become a wholly-owned subsidiary of Northeast
pursuant to an Agreement and Plan of Merger dated as of June 14, 1999 between
Northeast and Yankee (the "Merger Agreement").
In rendering our opinion, we have reviewed Northeast's Declaration of
Trust, as amended to date, the Merger Agreement, resolutions of the Board of
Trustees of Northeast, the Registration Statement on Form S-4 of Northeast
(the "Registration Statement") relating to the Common Shares (and related
Common Share Purchase Rights) of Northeast to be issued in connection with
the Merger ("the NU Common Shares"), the minutes of various meetings of the
shareholders and Board of Trustees of Northeast to date, and have examined or
caused to be examined such other papers, documents and records, have made
such examination of law and have satisfied ourselves as to such other matters
as we deemed relevant and necessary for purposes of this opinion. In our
examination, we have assumed the genuineness of all signatures, the legal
capacity of natural persons, the authenticity of documents submitted to us as
certified or photostatic copies and the authenticity of the originals of such
latter documents. As to any facts material to this opinion which we did not
independently establish or verify, we have relied upon statements and
representations of officers and other representatives of Northeast. The
opinions set forth herein are based on the laws of the Commonwealth of
Massachusetts, and no opinion is expressed as to the laws of any other
jurisdiction.
Based upon the foregoing, we are of the opinion that at such time as (i)
the issue and sale of the NU Common Shares has been duly authorized by the
Board of Trustees, (ii) there are in effect appropriate orders of the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, and the Public Utility Holding Company Act of 1935 and of the
Connecticut Department of Public Utility Control and (iii) the NU Common
Shares have been issued upon
<PAGE>
DAY, BERRY & HOWARD LLP
Northeast Utilities
August 2, 1999
Page 2
consummation of the Merger as contemplated in the Merger Agreement, the NU
Common Shares will be validly issued, fully paid and nonassessable common
shares of Northeast.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Proxy Statement-Prospectus contained therein. In giving this
consent we do not thereby admit that we are in the category of persons whose
consent is requested under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
/s/ Day, Berry & Howard LLP
---------------------------------------
DAY, BERRY & HOWARD LLP
<PAGE>
Exhibit 8.1
[LETTERHEAD]
August 19, 1999
Northeast Utilities
174 Brush Hill Avenue
West Springfield, Massachusetts 01090
Re: Agreement and Plan of Merger By and Among Yankee Energy Systems,
Inc. ("YES") and Northeast Utilities ("NU") Dated as of June 14,
1999 (the "Merger Agreement")
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Ladies and Gentlemen:
You have requested our opinion relating to certain U.S. federal
income tax consequences arising out of the transactions described in the
Merger Agreement. Capitalized terms used but not defined in this letter have
the meaning given them in the Merger Agreement.
Our conclusions are based upon the facts set forth in the Proxy
Statement/Prospectus of YES (the "Proxy Statement/Prospectus") included in
the Registration Statement of NU on Form S-4 (the "Registration Statement")
and accompanying exhibits to be filed in connection with the Merger. We have
made no independent investigation with regard to the facts set forth in the
Proxy Statement/Prospectus and the Registration Statement. In rendering our
opinion we have assumed, with your consent, that the preceding facts are
true, complete and accurate as of the date hereof and will be true, complete
and accurate as of the Effective Time.
In rendering our opinion, we have considered the applicable
provisions of the Code, Treasury Regulations promulgated thereunder,
pertinent judicial authorities, interpretive rulings of the Internal Revenue
Service (the "Service") and such other authorities as we have considered
relevant. It should be noted that statutes, regulations, judicial decisions
and administrative interpretations are subject to change at any time and in
certain circumstances with retroactive effect.
<PAGE>
Based upon and subject to the assumptions, representations and
limitations described above, our examination of the Merger Agreement, the
facts set forth in the Proxy Statement/Prospectus and the Registration
Statement and the relevant legal authorities, it is our opinion that, subject
to the qualifications stated therein, the discussions of U.S. federal income
tax consequences set forth under the captions "QUESTIONS AND ANSWERS ABOUT
THE MERGER - Q: What are the federal income tax consequences of the merger to
shareholders", "SUMMARY - Material Federal Income Tax Consequences" and "THE
MERGER - Material Federal Income Tax Consequences of the Merger" in the Proxy
Statement/Prospectus, to the extent they constitute matters of law or legal
conclusions, are correct in all material respects.
If any fact, representation or assumption described above or
contained in the Merger Agreement, the Proxy Statement/Prospectus or
Registration Statement is not true, correct and complete, or in the event of
a change in law after the date hereof adversely affecting the conclusions
reached in this letter, our opinion shall be void and of no force or effect.
You should be aware that although this letter represents our opinion
concerning the matters specifically discussed, it is not binding on the
courts or on any administrative agency, including the Service, and a court or
agency may act or hold to the contrary. Our opinion is provided to you as a
legal opinion only, and not as a guaranty or warranty, and is limited to the
specific transactions, documents and matters described above. No opinion may
be implied or inferred beyond that which is expressly stated in this letter.
Our opinion may not be relied upon by any person or entity other
than you, and no person may be subrogated to any rights you have in
connection with our opinion. We hereby consent to the filing of this opinion
as an exhibit to the Proxy Statement and the reference to the above mentioned
opinion under "THE MERGER - Material Federal Income Tax Consequences of the
Merger." In giving such consent, we do not hereby admit that we are in the
category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended. Without our prior written consent, this
opinion may not be furnished to any other person or entity and may not be
quoted in whole or in part or otherwise referred to in (or be the basis for)
any report or document furnished to any person or entity, except in
connection with inspection of the addressee's files by internal company or
governmental examiners or auditors.
Very truly yours,
/s/ LeBoeuf, Lamb, Greene & MacRae, L.L.P.
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
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<PAGE>
Exhibit 8.2
WINTHROP, STIMSON, PUTNAM & ROBERTS
August 4, 1999
Yankee Energy System, Inc.
599 Research Parkway
Meriden, Connecticut 06604-4918
Re: Agreement and Plan of Merger between
Yankee Energy System, Inc. and
Northeast Utilities Dated June 14, 1999
----------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for Yankee Energy System, Inc., a Connecticut
corporation ("Yankee"), in connection with the proposed merger of Yankee into
Merger Sub, a Connecticut corporation ("Merger Sub"), a wholly owned subsidiary
of Northeast Utilities, a Massachusetts business trust ("NU"), with Merger Sub
surviving (the "Merger"). In connection with the Merger, NU has filed a
registration statement on Form S-4 (as amended, the "Registration Statement")
with the United States Securities and Exchange Commission (the "Commission").
All terms used but not defined herein shall have the meanings ascribed to them
in the Registration Statement.
On the basis of the foregoing and upon consideration of applicable law,
subject to the qualifications stated therein, the discussions of United States
federal income tax considerations set forth under the captions "Questions and
Answers About the Merger - Q: What are the federal income tax consequences of
the merger to shareholder?," "Summary--Material Federal Income Tax Consequences"
and "The Merger--Material Federal Income Tax Consequences of the Merger" in the
proxy statement/prospectus that forms a part of the Registration Statement,
insofar as they relate to provisions of United States federal income tax law,
are, as of the date hereof, taken as a whole, accurate in all material respects.
<PAGE>
Yankee Energy System, Inc.
August 4, 1999
This opinion is limited to the federal income tax law of the United
States and does not consider the effect of any foreign, state or local laws or
any United States federal laws other than those pertaining to the income tax.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving such consent we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Commission thereunder.
Very truly yours,
/s/ Winthrop, Stimson, Putnam & Roberts
<PAGE>
Exhibit 15.2
ARTHUR ANDERSEN
------------------------
Arthur Andersen LLP
July 29, 1999
------------------------
One Financial Plaza
Hartford CT 06103-2699
860 280 0500
To Yankee Energy System, Inc.:
We are aware that Yankee Energy System, Inc. has incorporated by reference on
its Registration Statement File No. 33-56323, its Form 10-Q for the quarter
ended June 30, 1999, which includes our report dated July 29, 1999 covering
the unaudited interim financial information contained therein. Pursuant to
Regulation C of the Securities Act of 1933, that report is not considered a
part of the registration statement prepared or certified by our firm or a
report prepared or certified by our firm within the meaning of Sections 7 and
11 of the Act.
Very truly yours,
Arthur Andersen LLP
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement on Form S-4 of our report dated
February 29, 1999 included in the Northeast Utilities Form 10-K for the year
ended December 31, 1998 and to all references to our Firm included in this
registration statement.
Hartford, Connecticut Arthur Anderson LLP
August 13, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement on Form S-4 of our report dated
November 16, 1998 included in Yankee Energy System, Inc.'s Form 10-K for the
year ended September 30, 1998 and to all references to our Firm included in
this registration statement.
Hartford, Connecticut Arthur Andersen LLP
August 13, 1999
<PAGE>
Exhibit 23.3
CONSENT OF SG BARR DEVLIN
We hereby consent to the use of our opinion in the Proxy Statement/
Prospectus of Yankee Energy System, Inc. included in this Registration
Statement of Northeast Utilities and to all references to our firm included
in or made a part of this Registration Statement. In giving such consent, we
do not thereby admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations adopted by the Securities and Exchange
Commission thereunder.
SG BARR DEVLIN
A division of SG Cowen Securities Corporation
New York, New York
August 4, 1999
<PAGE>
Exhibit 99(a)
[FORM OF PROXY CARD]
PROXY PROXY
YANKEE ENERGY SYSTEM, INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
OCTOBER 12, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Emery G. Olcott and Eileen S. Kraus, or any of
them, each with full power of substitution, proxies of the undersigned, to act
for and to vote, as and to the extent specified, all shares of common stock of
Yankee Energy System, Inc. held by the undersigned at the Special Meeting to be
held on October 12, 1999, at 10:00 a.m., local time, at the Ramada Plaza Hotel
and Conference Center, 275 Research Parkway, Meriden, Connecticut, and any
adjournment thereof upon the matters set fort hereon and upon such other
business that may properly come before the meeting or any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED, WILL BE VOTED AS AND TO THE
EXTENT SPECIFIED BY THE UNDERSIGNED. WHERE NO CHOICE IS SPECIFIED, THIS PROXY
WILL BE VOTED FOR PROPOSAL 1.
(continued on reverse side)
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FOLD AND DETACH HERE
<PAGE>
YOUR VOTE IS IMPORTANT!
YOU CAN VOTE IN ONE OF THREE WAYS:
1. Mark, sign and date your proxy card and return it promptly in the
enclosed envelope.
OR
2. Call toll free 1-800-840-1208 on a Touch Tone telephone and follow the
instructions on the reverse side. There is NO CHARGE to you for this
call.
PLEASE VOTE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL.
1. Proposal to approve the Agreement and Plan Please mark your
of Merger dated as of June 14, 1999 between vote as indicated
Yankee Energy System, Inc. and Northeast in this example
Utilities. [X]
I PLAN TO
FOR AGAINST ABSTAIN ATTEND THE SPECIAL
MEETING
/ / / / / / / /
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
The undersigned hereby also acknowledge(s) receipt of notice of said meeting and
the related proxy statement.
Dated: _________________________, 1999
Signed:_____________________________
Signed:_____________________________
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