<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant /_/
Check the appropriate box:
/_/ Preliminary Proxy Statement /_/ Confidential, For Use of the Com-
mission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/_/ Definitive Additional Materials
/_/ Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ORANGE AND ROCKLAND UTILITIES, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/_/ No fee required
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $5 Par Value - New York Stock Exchange
- -------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
13,535,709 Shares of Common Stock
- -------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
$58.50 per share of Common Stock
- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
<PAGE>
$791,838,976.50
- -------------------------------------------------------------------------------
(5) Total fee paid:
$158,368.00
- -------------------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials:
Fee paid on June 4, 1998 by wire transfer to the U.S.
Treasury designated lockbox in Pittsburgh, Pennsylvania
/_/ Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the form or schedule and the date of
its filing.
(1) Amount previously paid:
- -------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- -------------------------------------------------------------------------------
(3) Filing Party:
- -------------------------------------------------------------------------------
(4) Date Filed:
- -------------------------------------------------------------------------------
2
<PAGE>
[LOGO]
ORANGE AND ROCKLAND One Blue Hill Plaza, Pearl River, New York 10965
July 17, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of the Common
Shareholders of Orange and Rockland Utilities, Inc. (the 'Company') to be held
in the auditorium of the Company's Operations Center, 390 West Route 59, Spring
Valley, New York, on Thursday, August 20, 1998, at 10:30 a.m., local time.
At the Special Meeting, the Company's Common Shareholders who are entitled
to vote will be asked to consider and vote upon a proposal to approve and adopt
the Agreement and Plan of Merger (the 'Merger Agreement') dated as of May 10,
1998, among the Company, Consolidated Edison, Inc., a New York corporation
('CEI'), and C Acquisition Corp., a New York corporation and a wholly-owned
subsidiary of CEI (the 'Merger Subsidiary'), providing for the merger of the
Merger Subsidiary with and into the Company (the 'Merger'), pursuant to which
the Company will be the surviving corporation in the Merger and become a
wholly-owned subsidiary of CEI and each share of the Company's Common Stock will
be converted into the right to receive $58.50 in cash. The per share
consideration of $58.50 represents a premium of 38% over the closing price of
$42.25 per share of Common Stock on May 8, 1998, the last trading day prior to
the public announcement of the execution of the Merger Agreement. The Merger
Agreement is attached to the accompanying Proxy Statement as Appendix A.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE 'FOR' APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE TERMS OF THE MERGER
AGREEMENT AND BELIEVES THAT THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO, AND
IN THE BEST INTERESTS OF, THE COMPANY AND ITS SHAREHOLDERS.
The accompanying Proxy Statement provides detailed information concerning
the proposed Merger and other additional information that you are urged to read
carefully.
The vote of every shareholder is important. Approval and adoption of the
Merger Agreement requires the affirmative vote of the holders of at least
66 2/3% of the outstanding shares of the Company's Common Stock entitled to
vote. An abstention or failure to return your signed proxy will have the same
effect as a vote against approval and adoption of the Merger Agreement. Whether
or not you plan to attend the meeting, please fill in, date, sign and return
your proxy promptly. Returning your completed proxy will not prevent you from
voting in person at the meeting.
We hope that you will be able to attend the meeting in person. If you plan
to attend, please mark the box provided on the enclosed proxy card. Proxy cards
for shareholders of record include a detachable admission ticket to the meeting.
Please detach the ticket from the proxy card and bring it with you to the
meeting.
We look forward to seeing you at your Special Meeting.
Sincerely,
/s/ Michael J. Del Giudice
Michael J. Del Giudice
Chairman of the Board of Directors
<PAGE>
ORANGE AND ROCKLAND UTILITIES, INC.
ONE BLUE HILL PLAZA
PEARL RIVER, NEW YORK 10965
------------------------------------
NOTICE OF SPECIAL MEETING OF COMMON SHAREHOLDERS
TO BE HELD ON AUGUST 20, 1998
------------------------------------
Dear Shareholders:
NOTICE IS HEREBY GIVEN that a Special Meeting of Common Shareholders (the
'Special Meeting') of Orange and Rockland Utilities, Inc. (the 'Company') will
be held at 10:30 a.m., local time, on Thursday, August 20, 1998 in the
auditorium of the Company's Operations Center, 390 West Route 59, Spring Valley,
New York, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger (the 'Merger Agreement'), dated as of May 10,
1998, among the Company, Consolidated Edison, Inc., a New York Corporation
('CEI'), and C Acquisition Corp., a New York corporation and a wholly-owned
subsidiary of CEI (the 'Merger Subsidiary'), pursuant to which the Merger
Subsidiary will merge with and into the Company (the 'Merger'), and the
Company will be the surviving corporation in the Merger and become a
wholly-owned subsidiary of CEI. Upon the effectiveness of the Merger, each
outstanding share of common stock, $5.00 par value per share, of the
Company (the 'Common Stock') will be converted into the right to receive
$58.50 in cash (the 'Merger Consideration').
2. To consider and act upon any other business as may properly come
before the Special Meeting or any adjournments thereof.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE TERMS OF THE MERGER
AGREEMENT AND BELIEVES THAT THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO, AND
IN THE BEST INTERESTS OF, THE COMPANY AND ITS SHAREHOLDERS. YOUR BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE 'FOR' APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT.
IF YOU LATER DECIDE THAT YOU WILL ATTEND THE SPECIAL MEETING OR, FOR ANY
OTHER REASON, YOU DECIDE TO REVOKE OR CHANGE YOUR PROXY, YOU MAY DO SO AT ANY
TIME BEFORE IT IS VOTED.
Holders of Common Stock of the Company of record at the close of business
on July 13, 1998 are entitled to notice of the Special Meeting or any
adjournment thereof. Only holders of Common Stock of record at the close of
business on July 13, 1998 are entitled to vote at the Special Meeting or any
adjournment thereof.
The Merger and other related matters are more fully described in the
accompanying Proxy Statement, and the appendices thereto.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY AND PROMPTLY RETURN IT, IN THE POSTAGE-PAID
RETURN ENVELOPE PROVIDED, TO THE FOLLOWING ADDRESS: ORANGE AND ROCKLAND
UTILITIES, INC., P.O. BOX 11135, NEW YORK, NEW YORK 10203-0202. IN ORDER TO
AVOID THE ADDITIONAL EXPENSE TO THE COMPANY OF FURTHER SOLICITATION, WE ASK YOUR
COOPERATION IN MAILING IN YOUR PROXY PROMPTLY.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES WITH YOUR PROXY CARD.
INSTRUCTIONS ON HOW TO RECEIVE THE MERGER CONSIDERATION WILL BE SENT TO YOU
AFTER THE MERGER AGREEMENT HAS BEEN APPROVED.
By Order of the Board of Directors,
MICHAEL J. DEL GIUDICE
Chairman of the Board of Directors
G.D. CALIENDO
Senior Vice President, General Counsel
and Secretary
July 17, 1998
<PAGE>
ORANGE AND ROCKLAND UTILITIES, INC.
ONE BLUE HILL PLAZA
PEARL RIVER, NEW YORK 10965
July 17, 1998
------------------------------------
PROXY STATEMENT FOR
SPECIAL MEETING OF COMMON SHAREHOLDERS
TO BE HELD ON AUGUST 20, 1998
------------------------------------
THIS PROXY STATEMENT IS BEING FURNISHED TO THE HOLDERS OF COMMON STOCK,
$5.00 PAR VALUE PER SHARE ('COMMON STOCK'), OF ORANGE AND ROCKLAND UTILITIES,
INC., A NEW YORK CORPORATION (THE 'COMPANY'), IN CONNECTION WITH THE
SOLICITATION OF PROXIES BY THE BOARD OF DIRECTORS OF THE COMPANY (THE 'BOARD' OR
THE 'BOARD OF DIRECTORS') FOR USE AT A SPECIAL MEETING OF THE COMMON
SHAREHOLDERS OF THE COMPANY (THE 'SPECIAL MEETING') TO BE HELD AT 10:30 A.M.,
LOCAL TIME, ON THURSDAY, AUGUST 20, 1998 IN THE AUDITORIUM OF THE COMPANY'S
OPERATIONS CENTER, 390 WEST ROUTE 59, SPRING VALLEY, NEW YORK, AND AT ANY
ADJOURNMENTS THEREOF.
The purpose of the Special Meeting is to consider and vote upon a proposal
to approve and adopt the Agreement and Plan of Merger (the 'Merger Agreement'),
dated as of May 10, 1998, among the Company, Consolidated Edison, Inc., a New
York corporation ('CEI'), and C Acquisition Corp., a New York corporation and
wholly-owned subsidiary of CEI (the 'Merger Subsidiary'), pursuant to which the
Merger Subsidiary will merge with and into the Company (the 'Merger'), and the
Company will be the surviving corporation in the Merger (the 'Surviving
Corporation') and become a wholly-owned subsidiary of CEI. Upon the
effectiveness of the Merger (the 'Effective Time'), each outstanding share of
Common Stock will be converted into the right to receive $58.50 in cash. At the
Effective Time, all of the capital stock of the Surviving Corporation will be
owned by CEI. The Merger Agreement is attached hereto as Appendix A and is
incorporated herein by reference.
This Proxy Statement is dated July 17, 1998 and is, along with the
accompanying form of proxy, first being distributed to the shareholders of the
Company on or about such date.
<PAGE>
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Proxy Statement constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. The forward-looking statements relate to
anticipated financial performance, management's plans and objectives for future
operations, business prospects, outcome of regulatory proceedings, market
conditions and other matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements in certain
circumstances. The following discussion is intended to identify statements and
certain factors that could cause future outcomes to differ materially from those
set forth in the forward-looking statements.
Forward-looking statements include the information concerning possible or
assumed future results of operations of the Company set forth under
'Summary--The Merger,' 'The Merger,' 'Opinion of the Financial Advisor' and 'The
Merger--Reasons for the Merger and the Recommendation of the Board' and other
statements in this Proxy Statement identified by words such as 'anticipate,'
'estimate,' 'expect,' 'intend,' 'believe,' and 'objective,' and include, in
particular, the statements as to (i) the anticipated business, financial
condition, earnings and prospects of the Company expected in the future, (ii)
the beliefs and the basis for those beliefs set forth under 'The Merger--Reasons
for the Merger and the Recommendation of the Board' and (iii) the estimates,
projections and forecasts analyzed by the Company's financial advisor in
connection with its opinion as set forth under 'The Merger--Opinion of the
Financial Advisor.' Readers are cautioned not to place undue reliance on such
forward-looking statements, which involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of the Company to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors may affect the Company's operations, markets, products, services and
prices. In addition to any assumptions and other factors referred to
specifically in connection with such forward-looking statements, factors that
could cause the Company's actual results to differ materially from those
contemplated in any forward-looking statement include, among others, the
following: general economic and business conditions; industry capacity; changes
in technology; changes in political, social and economic conditions; regulatory
matters; regulatory delays or conditions imposed by regulatory bodies in
approving the Merger; adverse regulatory treatment; the loss of any significant
customers; changes in business strategy or development plans; the speed and
degree to which competition enters the electric utility industry; state and
federal legislative and regulatory initiatives that increase competition, affect
cost and investment recovery and have an impact on rate structures; industrial,
commercial and residential growth in the service territory of the Company; the
weather and other natural phenomena; the timing and extent of changes in
commodity prices and interest rates; and the development of opportunities for
growth by the subsidiaries of the Company. The Company does not assume any
obligation to update such forward-looking statements to reflect actual results,
changes in assumptions or changes in other factors affecting such
forward-looking statements.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS................................................. 2
SUMMARY.................................................................................................... 7
The Company.............................................................................................. 7
CEI and the Merger Subsidiary............................................................................ 7
The Special Meeting...................................................................................... 7
The Merger............................................................................................... 8
Regulatory Matters....................................................................................... 9
Absence of Shareholders' Rights of Appraisal............................................................. 9
Market Prices and Dividends on the Company's Common Stock................................................ 9
Selected Consolidated Financial Data..................................................................... 10
THE SPECIAL MEETING........................................................................................ 11
Introduction............................................................................................. 11
Matters to be Considered................................................................................. 11
Date, Time and Place..................................................................................... 11
Record Date, Voting Rights and Vote Required............................................................. 11
Proxies, Revocability of Proxies......................................................................... 12
Absence of Shareholders' Rights of Appraisal............................................................. 12
Solicitation of Proxies and Expenses..................................................................... 12
Exchange of Certificates................................................................................. 13
THE MERGER................................................................................................. 13
Background of the Merger................................................................................. 13
Reasons for the Merger and the Recommendation of the Board............................................... 15
Opinion of the Financial Advisor......................................................................... 16
Accounting Treatment of the Merger....................................................................... 19
Certain Federal Income Tax Consequences to Shareholders.................................................. 20
REGULATORY MATTERS......................................................................................... 21
HSR Act.................................................................................................. 21
Federal Power Act........................................................................................ 21
State Regulatory Approvals............................................................................... 21
Securities and Exchange Commission Approval Pursuant to 1935 Act......................................... 21
New Jersey Industrial Site Recovery Act.................................................................. 22
General.................................................................................................. 22
CERTAIN EFFECTS OF THE MERGER.............................................................................. 22
INTERESTS OF CERTAIN PERSONS IN THE MERGER................................................................. 23
THE MERGER AGREEMENT....................................................................................... 28
General.................................................................................................. 28
Merger Consideration..................................................................................... 28
Effective Time........................................................................................... 28
Conversion of Shares..................................................................................... 28
Procedure for Payment.................................................................................... 29
Representations and Warranties........................................................................... 29
Conduct of Business Pending the Merger................................................................... 30
Directors' and Officers' Insurance and Indemnification................................................... 32
Employee Matters......................................................................................... 32
No Solicitation of Proposals............................................................................. 34
Conditions to Consummation of the Merger................................................................. 34
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Termination.............................................................................................. 34
Miscellaneous............................................................................................ 35
THE COMPANIES.............................................................................................. 36
Orange and Rockland Utilities, Inc....................................................................... 36
CEI and the Merger Subsidiary............................................................................ 36
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
OF THE COMPANY........................................................................................... 36
MARKET PRICES AND DIVIDENDS ON THE COMPANY'S COMMON STOCK.................................................. 37
Market Prices............................................................................................ 37
SELECTED FINANCIAL DATA.................................................................................... 38
Selected Consolidated Financial Data..................................................................... 38
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS................................................................... 39
OTHER MATTERS.............................................................................................. 39
DEADLINE FOR SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING................................................. 39
AVAILABLE INFORMATION...................................................................................... 39
INCORPORATION BY REFERENCE................................................................................. 39
Appendix A--Agreement and Plan of Merger among Orange and Rockland Utilities, Inc., Consolidated Edison,
Inc. and C Acquisition Corp., dated as of May 10, 1998
Appendix B--Opinion of Donaldson, Lufkin & Jenrette Securities Corporation
</TABLE>
4
<PAGE>
DEFINED TERMS INDEX
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
1935 Act............................................................................................... 21
Ad Hoc Committee....................................................................................... 14
Affected Employees..................................................................................... 33
Amended Agreement...................................................................................... 13
Antitrust Division..................................................................................... 21
Board.................................................................................................. Cover
Board of Directors..................................................................................... Cover
Cancelled Shares....................................................................................... 13, 29
Cash Severance Payment................................................................................. 24
CECONY................................................................................................. 22
CEI.................................................................................................... 7, 36
Certificates........................................................................................... 13, 29
Change in Control Agreement............................................................................ 23
Closing Date........................................................................................... 28
Code................................................................................................... 20
Common Stock........................................................................................... 7
Company................................................................................................ 7, 36
Company Material Adverse Effect........................................................................ 31
Deferral Plan.......................................................................................... 26
Deferred Compensation Plan............................................................................. 27
DEP.................................................................................................... 22
DLJ.................................................................................................... 9
DLJ Opinion............................................................................................ 16
EBIT................................................................................................... 17
EBITDA................................................................................................. 17
Effective Time......................................................................................... 8
Engagement Letter...................................................................................... 19
Excess Payments........................................................................................ 25
Exchange Act........................................................................................... 39
Excise Tax............................................................................................. 24
Executive.............................................................................................. 23
Executive Officers..................................................................................... 26
FERC................................................................................................... 8
Final Divestiture Plan................................................................................. 14
FPA.................................................................................................... 21
FTC.................................................................................................... 21
GAAP................................................................................................... 31
HSR Act................................................................................................ 21
Indemnified Liabilities................................................................................ 23, 32
Initial Termination Date............................................................................... 34
Interested Parties..................................................................................... 14
IRS.................................................................................................... 20
ISRA................................................................................................... 22
J.P. Morgan............................................................................................ 13
Letter Agreement....................................................................................... 23
LTM.................................................................................................... 17
Management............................................................................................. 13
Market Public Companies................................................................................ 18
Merger................................................................................................. 7
Merger Agreement....................................................................................... 7
Merger Consideration................................................................................... 8, 28
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Merger Subsidiary...................................................................................... 7, 36
New York Public Companies.............................................................................. 17
NJBPU.................................................................................................. 8
NYPSC.................................................................................................. 8
NYSE................................................................................................... 8
Other Executive........................................................................................ 24
Paying Agent........................................................................................... 13, 29
Performance Period..................................................................................... 25
PPUC................................................................................................... 8
Preference Stock....................................................................................... 11, 28
Preferred Stock........................................................................................ 11, 28
PSU Plan............................................................................................... 24
PSUs................................................................................................... 25
RECO................................................................................................... 22
Record Date............................................................................................ 7
Retirement Allowance................................................................................... 26
SEC.................................................................................................... 8
Selected Companies..................................................................................... 17
Selected M&A Transactions.............................................................................. 18
SERP................................................................................................... 24
Severance Agreement.................................................................................... 24
Severance Plan......................................................................................... 26, 33
Skadden Arps........................................................................................... 13
Special Meeting........................................................................................ 7
Superior Proposal...................................................................................... 34
Surviving Corporation.................................................................................. 7
TIN.................................................................................................... 20
</TABLE>
6
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
the Proxy Statement and is presented herein solely to furnish limited
introductory information regarding the proposed Merger and the parties thereto.
This Summary is not intended to be complete and is qualified in its entirety by
the more detailed information contained, or incorporated by reference, in this
Proxy Statement and the Appendices hereto, to which reference is made for a
complete statement of the matters discussed below. Shareholders are urged to
read this Proxy Statement, including the Appendices hereto, and the documents
incorporated herein by reference, in their entirety and to consider them with
care. Unless otherwise defined herein, capitalized terms used in this summary
have the respective meanings ascribed to them elsewhere in this Proxy Statement.
THE COMPANY
Orange and Rockland Utilities, Inc. (the 'Company') is a diversified
investor-owned utility located in the northwestern suburbs of New York City. The
Company and its two utility subsidiaries, Rockland Electric Company and Pike
County Light & Power Company, furnish electric service to a population of
approximately 681,000 and provide gas service to a population of approximately
482,000. The service territory of the Company and its utility subsidiaries
covers seven counties and 96 communities in New York, northern New Jersey and
northeastern Pennsylvania. The principal executive offices of the Company are
located at One Blue Hill Plaza, Pearl River, New York 10965, and its telephone
number is (914) 352-6000.
CEI AND THE MERGER SUBSIDIARY
Consolidated Edison, Inc. ('CEI') is one of the nation's largest
investor-owned energy companies. CEI provides a wide range of energy-related
products and services to its customers through its subsidiaries, the largest of
which is Consolidated Edison Company of New York, Inc., providing electricity,
gas and steam to more than three million customers in New York City and
Westchester County, New York. C Acquisition Corp. (the 'Merger Subsidiary'),
which is a wholly-owned subsidiary of CEI, is a recently organized corporation
that has not conducted any business except in conjunction with the transactions
contemplated by the Merger Agreement. The principal executive offices of CEI and
the Merger Subsidiary are located at 4 Irving Place, New York, New York 10003,
and the telephone number at that office is (212) 460-3900.
THE SPECIAL MEETING
Date, Time and Place. The Special Meeting of the Common Shareholders of
the Company will be held in the auditorium of the Company's Operations Center,
390 West Route 59, Spring Valley, New York, on Thursday, August 20, 1998, at
10:30 and at any adjournments thereof (the 'Special Meeting').
Purpose. At the Special Meeting, holders of common stock, par value $5.00
per share, of the Company (the 'Common Stock') will be asked to consider and
vote upon a proposal to approve and adopt the Agreement and Plan of Merger (the
'Merger Agreement'), dated as of May 10, 1998, among the Company, CEI and the
Merger Subsidiary, pursuant to which the Merger Subsidiary will merge with and
into the Company (the 'Merger'), and the Company will be the surviving
corporation in the Merger (the 'Surviving Corporation') and become a
wholly-owned subsidiary of CEI. See 'THE SPECIAL MEETING--Matters to be
Considered.'
Record Date, Shareholders Entitled to Vote. Holders of record of Common
Stock issued and outstanding as of the close of business on July 13, 1998 (the
'Record Date'), will be entitled to notice of, and to vote at, the Special
Meeting. On the Record Date, there were 13,519,342 shares of Common Stock issued
and outstanding and entitled to vote held by approximately 18,406 holders of
record. See 'THE SPECIAL MEETING--Record Date, Voting Rights and Vote Required.'
Quorum; Vote Required. The presence, either in person or by proxy, of the
holders of record of a majority of the shares entitled to vote at the Special
Meeting will constitute a quorum. Abstentions, votes withheld and broker
non-votes will be included in determining whether a quorum is present.
Approval and adoption of the Merger Agreement requires the affirmative vote
of the holders of at least 66 2/3% of the outstanding shares of Common Stock
entitled to vote thereon. An abstention or failure to return
7
<PAGE>
your signed proxy will have the same effect as a vote against the Merger
Agreement. See 'THE SPECIAL MEETING--Record Date, Voting Rights and Vote
Required.'
Proxies. The enclosed proxy provides that each holder of Common Stock of
the Company may specify that his or her shares of Common Stock be voted 'for',
'against' or 'abstain' from voting with respect to the approval and adoption of
the Merger Agreement. Any shareholder executing and returning a proxy has the
right to withhold authority with respect to any matter submitted to a vote of
the shareholders. If properly executed and returned in time for the Special
Meeting, the enclosed proxy will be voted in accordance with the choice
specified. Where a signed proxy is returned, but no choice is specified, the
Common Stock will be voted 'FOR' approval and adoption of the Merger Agreement.
Any shareholder who executes and returns a proxy may revoke it at any time
before it is voted at the Special Meeting. A shareholder may revoke a proxy by
(i) delivering to the Secretary of the Company at the Company's principal
offices before the Special Meeting an instrument of revocation bearing a later
date than the proxy; (ii) submitting a duly executed proxy bearing a later date
or time than the date or time of the proxy being revoked; or (iii) voting in
person at the Special Meeting. A shareholder's attendance at the Special Meeting
will not by itself revoke a proxy given by such shareholder. See 'THE SPECIAL
MEETING--Proxies, Revocability of Proxies.'
The proposal to approve and adopt the Merger Agreement is
'non-discretionary' under the rules of the New York Stock Exchange ('NYSE'),
which means that brokers holding stock on behalf of a shareholder may not vote
the stock unless they receive instructions from the shareholder.
IF A SHAREHOLDER PARTICIPATES IN A DIVIDEND REINVESTMENT AND STOCK PURCHASE
PLAN, ANY PROXY GIVEN BY SUCH SHAREHOLDER WILL ALSO GOVERN THE VOTING OF ALL
FULL SHARES OF COMMON STOCK HELD FOR THE SHAREHOLDER'S ACCOUNT UNDER SUCH PLAN,
UNLESS CONTRARY INSTRUCTIONS ARE RECEIVED.
THE MERGER
General. If the Merger Agreement is approved and adopted by the
shareholders of the Company and the other conditions to the parties' respective
obligations to consummate the Merger are satisfied, or where permissible,
waived, (i) the Merger Subsidiary will merge with and into the Company and the
separate corporate existence of the Merger Subsidiary will cease, and (ii) the
Company will be the Surviving Corporation in the Merger, and, following the
Merger, will continue its corporate existence under the laws of the State of New
York and will be a wholly-owned subsidiary of CEI. See 'THE MERGER
AGREEMENT--General.'
Merger Consideration. As a result of the Merger, each share of Common
Stock (other than (i) shares held by the Company, as treasury stock, or any of
its subsidiaries and (ii) shares owned by CEI or any of its subsidiaries), will
be converted into the right to receive $58.50 in cash, without interest (the
'Merger Consideration') upon surrender of the certificate formerly evidencing
such share of Common Stock. See 'THE MERGER AGREEMENT--Merger Consideration.'
Effective Time. The Merger will become effective at the time specified in
the certificate of merger (the 'Effective Time') that is delivered by the
Company, with the order of the New York State Public Service Commission
('NYPSC') approving the Merger attached thereto, and filed by the Department of
State of the State of New York. It is currently anticipated that such filing
will be made on the closing date under the Merger Agreement, which will take
place only after the satisfaction or waiver of all of the conditions set forth
in the Merger Agreement. Accordingly, there can be no assurance as to if or when
the Merger will be consummated.
Conditions to the Consummation of the Merger. The obligations of the
Company, CEI and the Merger Subsidiary to consummate the Merger are subject to
obtaining the affirmative vote of the holders of at least 66 2/3% of the
outstanding shares of Common Stock entitled to vote thereon and the approvals of
the NYPSC, the New Jersey Board of Public Utilities (the 'NJBPU'), the
Pennsylvania Public Utility Commission (the 'PPUC'), the Federal Energy
Regulatory Commission (the 'FERC') and the Securities and Exchange Commission
(the 'SEC'). See 'THE MERGER AGREEMENT--Conditions to Consummation of the
Merger.'
8
<PAGE>
Background. For a description of the events leading to the approval of the
Merger Agreement by the Board, see 'THE MERGER--Background of the Merger.'
Recommendation of the Board. At a meeting held on May 10, 1998, the Board,
after considering the Merger Agreement and the transactions contemplated
thereby, (i) determined that the Merger is fair to, and in the best interests
of, the Company and its shareholders, (ii) approved and adopted the Merger
Agreement and the transactions contemplated thereby, and (iii) determined to
recommend to shareholders that they vote for approval and adoption of the Merger
Agreement. See 'THE MERGER--Background of the Merger.' For a discussion of the
factors the Board considered in arriving at its determination that the Merger is
fair to, and in the best interests of, the Company and its shareholders, see
'THE MERGER--Reasons for the Merger and the Recommendation of the Board.' THE
BOARD UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S SHAREHOLDERS VOTE 'FOR' APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT.
Opinion of Financial Advisor. At the May 10, 1998 meeting of the Board at
which the Merger Agreement was approved and adopted by the Board, Donaldson,
Lufkin & Jenrette Securities Corporation ('DLJ') delivered its opinion to the
effect that, as of such date and based upon and subject to certain matters
stated therein, the Merger Consideration was fair from a financial point of view
to the holders of Common Stock. DLJ has confirmed such opinion by delivery of a
written opinion dated the date of this Proxy Statement. The full text of the
opinion of DLJ dated the date of this Proxy Statement, which sets forth the
procedures followed, the assumptions made, matters considered and limitations on
the review undertaken by DLJ is attached hereto as Appendix B and is
incorporated herein by reference. HOLDERS OF COMMON STOCK SHOULD CAREFULLY READ
THE OPINION OF DLJ IN ITS ENTIRETY. DLJ'S OPINION IS DIRECTED TO THE BOARD,
RELATES ONLY TO THE FAIRNESS OF THE MERGER CONSIDERATION FROM A FINANCIAL POINT
OF VIEW AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW
SUCH SHAREHOLDER SHOULD VOTE WITH RESPECT TO THE MERGER AGREEMENT. See 'THE
MERGER--Opinion of the Financial Advisor.'
Federal Income Tax Consequences. The receipt of cash by a shareholder
pursuant to the Merger will be a taxable transaction for federal income tax
purposes and may also be a taxable transaction under applicable local, state,
foreign and other tax laws. For a more complete description of certain federal
income tax consequences of the Merger, see 'THE MERGER--Certain Federal Income
Tax Consequences to Shareholders.'
REGULATORY MATTERS
Certain federal and state regulatory requirements must be complied with
before the Merger is consummated, including (i) the expiration or termination of
the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and (ii) obtaining the approval of the NYPSC, the
NJBPU, the PPUC, the FERC and the SEC. For a more complete description of the
federal and state regulatory requirements, see 'REGULATORY MATTERS.'
ABSENCE OF SHAREHOLDERS' RIGHTS OF APPRAISAL
Because the Common Stock of the Company is listed on the NYSE, shareholders
of the Company's Common Stock do not have appraisal rights in connection with
the Merger under applicable provisions of the New York Business Corporation Law.
MARKET PRICES AND DIVIDENDS ON THE COMPANY'S COMMON STOCK
On May 8, 1998, the last day of trading of the Common Stock prior to the
announcement of the execution of the Merger Agreement, the high, low and closing
sales prices of the Common Stock as quoted on the NYSE were $43.00, $42.25 and
$42.25, respectively.
On July 13, 1998, the most recent practicable date prior to the printing of
this Proxy Statement, the high, low and closing prices of the Common Stock as
quoted on the NYSE were $54 11/16, $54 1/4, and $54 3/8, respectively.
See 'MARKET PRICES AND DIVIDENDS ON THE COMPANY'S COMMON STOCK.'
9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company and its subsidiaries for each of the five fiscal years ended December
31, 1993 through 1997 and for the quarters ended March 31, 1998 and 1997. The
selected financial information reflects the reclassification of NORSTAR Energy
Limited Partnership as discontinued operations for the years ended December 31,
1993 through 1996 and for the quarter ended March 31, 1997 subsequent to the
original issuance of the consolidated financial statements of the Company from
which the selected financial data have been derived. The Company's financial
statements for the year ended December 31, 1993 were audited by Grant Thornton
LLP, independent public accountants, but the reclassification subsequent to the
original issuance of the financial statements was not audited by Grant Thornton
LLP. The Company's financial statements for the years ended December 31, 1994
through 1997 were audited by Arthur Andersen LLP, independent public
accountants.
The unaudited financial information for the three months ended March 31,
1997 and 1998 includes all adjustments, consisting of normal recurring accruals,
that the Company considers necessary for a fair presentation of the financial
position and results of operations for such periods.
The selected financial data set forth below do not purport to be complete
and should be read in conjunction with, and are qualified in their entirety by,
the Company's annual and quarterly reports, including the notes thereto, which
are incorporated herein by reference.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------ ------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED INCOME
STATEMENT DATA
Operating Revenue...... $ 165,081 $ 185,319 $ 648,774 $ 654,889 $ 602,310 $ 638,404 $ 645,640
Operating Income....... $ 21,482 $ 21,395 $ 76,997 $ 82,644 $ 75,569 $ 75,594 $ 82,574
Net Income:
Continuing
Operations......... $ 13,804 $ 11,514 $ 44,938 $ 48,147 $ 37,766 $ 36,593 $ 44,226
Discontinued
Operations(1)...... $ 0 $ (4,598) $ (15,432) $ (1,844) $ 807 $ 624 $ 589
Total................ $ 13,804 $ 6,916 $ 29,506 $ 46,303 $ 38,573 $ 37,217 $ 44,815
Earnings per Average
Common Share
Outstanding:
Continuing
Operations......... $ 0.97 $ 0.79 $ 3.09 $ 3.30 $ 2.54 $ 2.45 $ 3.02
Discontinued
Operations(1)...... $ 0.00 $ (0.33) $ (1.13) $ (0.13) $ 0.06 $ 0.05 $ 0.04
Total................ $ 0.97 $ 0.46 $ 1.96 $ 3.17 $ 2.60 $ 2.50 $ 3.06
Cash Dividends Declared
Per Common Share..... $ 0.645 $ 0.645 $ 2.58 $ 2.58 $ 2.57 $ 2.54 $ 2.49
SELECTED BALANCE SHEET
DATA
Total Assets........... $1,261,890 $1,252,615 $1,288,009 $1,266,132 $1,251,541 $1,230,726 $1,225,627
Total Long-Term Debt... $ 358,453 $ 359,749 $ 358,492 $ 361,215 $ 362,976 $ 383,965 $ 388,064
Common Stock Equity.... $ 377,463 $ 385,261 $ 376,319 $ 387,850 $ 379,776 $ 379,403 $ 376,044
Book Value Per Share... $ 27.92 $ 28.22 $ 27.69 $ 28.41 $ 27.82 $ 27.79 $ 27.79
</TABLE>
- ------------------
(1) Effective August 1, 1997, the accounts receivable, with certain exceptions,
and contracts with customers and related agreements of NORSTAR Energy
Limited Partnership were sold. In accordance with Accounting Principles
Board Opinion No. 30, the consolidated financial statements of the Company
at December 31, 1997 reported the results of NORSTAR Energy Limited
Partnership as 'Discontinued Operations,' and the results of all prior
periods presented herein have been restated to conform with the current
period classifications.
10
<PAGE>
THE SPECIAL MEETING
INTRODUCTION
The Board of Directors of the Company has unanimously approved and adopted
the Merger Agreement. The Board of Directors of the Company unanimously
recommends that the shareholders of the Company vote FOR approval and adoption
of the Merger Agreement.
MATTERS TO BE CONSIDERED
At the Special Meeting, holders of the Company's Common Stock will be asked
to consider and vote upon a proposal to approve and adopt the Merger Agreement
and the transactions contemplated thereby, including, among other things, the
merger of the Merger Subsidiary with and into the Company, with the Company as
the Surviving Corporation after the Effective Time. As a result of the Merger,
each share of Common Stock (other than (i) shares held by the Company, as
treasury stock, or any of its subsidiaries and (ii) shares owned by CEI or any
of its subsidiaries) will be converted into the right to receive the Merger
Consideration upon surrender of the certificate formerly evidencing such share
of Common Stock.
DATE, TIME AND PLACE
The Special Meeting of the Common Shareholders of the Company will be held
in the auditorium of the Company's Operations Center, 390 West Route 59, Spring
Valley, New York, on Thursday, August 20, 1998, at 10:30 a.m., local time, and
at any adjournment thereof.
RECORD DATE, VOTING RIGHTS AND VOTE REQUIRED
The Board has fixed the close of business on July 13, 1998 as the Record
Date for the determination of holders of Common Stock entitled to notice of, and
to vote at, the Special Meeting and any adjournments thereof. Accordingly,
holders of record of Common Stock issued and outstanding as of the close of
business on the Record Date will be entitled to notice of, and to vote at, the
Special Meeting. On the Record Date, there were 13,519,342 shares of Common
Stock issued and outstanding and entitled to vote held by approximately 18,406
holders of record. The Common Stock is the only outstanding class of securities
of the Company generally entitled to vote on matters presented to the
shareholders of the Company, and each share of Common Stock is entitled to one
vote on each matter to be acted upon or which may come before the Special
Meeting.
Pursuant to the terms of the Merger Agreement, all shares of the Company's
Cumulative Preferred Stock, issuable in series, par value $100.00 per share (the
'Preferred Stock'), and the Company's Cumulative Preference Stock, issuable in
series, without par value (the 'Preference Stock'), will be redeemed prior to
the Effective Time at a redemption price equal to the amount set forth in the
Restated Certificate of Incorporation of the Company, together with all
dividends accrued and unpaid to the date of such redemption. The only
outstanding series of the Company's Preference Stock, the $1.52 Convertible
Cumulative Preference Stock, Series A (the 'Series A Preference Stock'), is
redeemable at the option of the Company at a redemption price per share of
$32.50 plus accrued and unpaid dividends to the date fixed for redemption. The
Series A Preference Stock is convertible, at the option of the shareholder, into
Common Stock at the ratio of 1.47 shares of Common Stock for each share of
Series A Preference Stock, subject to adjustment in accordance with the Restated
Certificate of Incorporation of the Company.
HOLDERS OF THE SERIES A PREFERENCE STOCK WHO WISH TO RECEIVE THE MERGER
CONSIDERATION IN CONNECTION WITH THE CONSUMMATION OF THE MERGER MUST FIRST
CONVERT SUCH SERIES A PREFERENCE STOCK INTO COMMON STOCK IN ACCORDANCE WITH THE
TERMS AND PROVISIONS THEREOF BEFORE SUCH SERIES A PREFERENCE STOCK IS CALLED FOR
REDEMPTION. NEITHER THE COMPANY NOR THE BOARD MAKES ANY RECOMMENDATION TO ANY
HOLDER OF THE SERIES A PREFERENCE STOCK AS TO WHETHER TO CONVERT ANY OR ALL SUCH
SERIES A PREFERENCE STOCK.
The presence, either in person or by proxy, of the holders of record of a
majority of the shares entitled to vote at the Special Meeting will constitute a
quorum. Abstentions, votes withheld and broker non-votes (i.e., shares held by
brokers in street name that are not entitled to a vote at the Special Meeting
due to the absence of specific instructions from the beneficial owners of such
shares) will be included in determining whether a quorum is present. The
presiding officer of the Special Meeting may adjourn the meeting to another
place, date or time, without notice other than announcement of such adjournment
at the Special Meeting. However, if after the
11
<PAGE>
adjournment the Board fixes a new record date for the adjourned Special Meeting,
a notice of the adjourned Special Meeting will be given to each shareholder
entitled to vote at the meeting.
Approval and adoption of the Merger Agreement requires the affirmative vote
of at least 66 2/3% of the outstanding shares of Common Stock entitled to vote
thereon. An abstention or failure to return your signed proxy will have the same
effect as a vote against the Merger Agreement.
PROXIES, REVOCABILITY OF PROXIES
This Proxy Statement is being furnished to holders of Common Stock as of
the Record Date in connection with the solicitation of proxies by the Board for
use at the Special Meeting. If a shareholder does not return a properly executed
proxy, and does not vote at the Special Meeting, his or her shares will not be
voted, which will have the same effect as a vote against approval and adoption
of the Merger Agreement. The enclosed proxy provides that each shareholder of
the Company may specify that his or her shares of Common Stock be voted 'for',
'against' or 'abstain' from voting with respect to the approval and adoption of
the Merger Agreement. Any shareholder executing and returning a proxy has the
right to withhold authority with respect to any matter submitted to a vote of
the shareholders. If properly executed and received prior to or at the Special
Meeting, and not revoked, the enclosed proxy will be voted in accordance with
the choice specified. An abstention will have the same effect as a vote against
the Merger Agreement. Where a signed proxy is returned, but no choice is
specified, the shares of Common Stock relating to such proxy will be voted 'FOR'
approval and adoption of the Merger Agreement. SHAREHOLDERS SHOULD MARK THE
RELEVANT BOX ON THE PROXY TO INDICATE HOW THEIR SHARES OF COMMON STOCK ARE TO BE
VOTED.
It is not expected that any matter other than the approval and adoption of
the Merger Agreement will be brought before the Special Meeting; however, if
other matters properly come before the meeting (including any proposed
adjournment), the persons named as proxies will vote in accordance with their
judgment with respect to such matters.
Any shareholder who executes and returns a proxy may revoke it at any time
before it is voted at the Special Meeting. A shareholder may revoke a proxy by
(i) delivering to the Secretary of the Company at the Company's principal
offices before the Special Meeting an instrument of revocation bearing a later
date than the proxy; (ii) submitting a duly executed proxy bearing a later date
or time than the date or time of the proxy being revoked; or (iii) voting in
person at the Special Meeting. A shareholder's attendance at the Special Meeting
will not by itself revoke a proxy given by such shareholder.
IF A SHAREHOLDER PARTICIPATES IN A DIVIDEND REINVESTMENT AND STOCK PURCHASE
PLAN, ANY PROXY GIVEN BY SUCH SHAREHOLDER WILL ALSO GOVERN THE VOTING OF ALL
FULL SHARES OF COMMON STOCK HELD FOR THE SHAREHOLDER'S ACCOUNT UNDER SUCH PLAN,
UNLESS CONTRARY INSTRUCTIONS ARE RECEIVED.
SHAREHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS. A LETTER OF TRANSMITTAL WITH INSTRUCTIONS FOR THE SURRENDER OF STOCK
CERTIFICATES WILL BE MAILED TO SHAREHOLDERS SHORTLY AFTER THE EFFECTIVE TIME OF
THE MERGER.
ABSENCE OF SHAREHOLDERS' RIGHTS OF APPRAISAL
Because the Common Stock of the Company is listed on the NYSE, shareholders
of the Company's Common Stock do not have appraisal rights in connection with
the Merger under applicable provisions of the New York Business Corporation Law.
SOLICITATION OF PROXIES AND EXPENSES
This solicitation is by the Board of Directors of the Company and the
expenses of solicitation, including reimbursement for postage and clerical
expenses to brokerage houses and other custodians, nominees or fiduciaries for
forwarding documents to beneficial owners of Common Stock held in their names,
will be borne by the Company. The Company has retained Kissel-Blake Inc. to
assist with the solicitation of proxies for a fee of $15,500 plus an additional
$4.35 per required shareholder contact and reimbursement of out-of-pocket
expenses. In addition, directors, officers or employees of the Company may
solicit proxies by telephone or in person, the nominal costs of which will be
borne by the Company.
12
<PAGE>
EXCHANGE OF CERTIFICATES
Prior to the Effective Time, the Company and CEI will designate a bank or
trust company to act as paying agent (the 'Paying Agent') to effect the payment
of the Merger Consideration. As soon as practicable after the Effective Time,
the Paying Agent will mail to each holder of record of Certificates (as defined
below): (i) a letter of transmittal (which will specify that delivery will be
effected, and risk of loss and title to the Certificates will pass, only upon
actual delivery of the Certificates to the Paying Agent) and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for the
Merger Consideration. 'Certificates' mean a certificate or certificates which,
immediately prior to the Effective Time, represented outstanding shares of
Common Stock (the 'Cancelled Shares') that were cancelled and became instead the
right to receive the Merger Consideration. 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 will be entitled to receive the Merger Consideration in
exchange for each share of Common Stock formerly evidenced by such Certificate.
In the event of a transfer of ownership of Cancelled Shares which is not
registered in the transfer records of the Company, the Merger Consideration may
be given to a transferee if the Certificate representing such Cancelled Shares
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, each Certificate will be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the Merger
Consideration. No interest will be paid or will accrue on the Merger
Consideration payable to holders of Certificates.
SHAREHOLDERS SHOULD NOT FORWARD CERTIFICATES TO THE PAYING AGENT UNTIL THEY
HAVE RECEIVED TRANSMITTAL FORMS. SHAREHOLDERS SHOULD NOT RETURN CERTIFICATES
WITH THE ENCLOSED PROXY.
THE MERGER
The discussion in this Proxy Statement of the Merger and the description of
the principal terms thereof are subject to and qualified in their entirety by
reference to the Merger Agreement, a copy of which is attached as Appendix A to
this Proxy Statement and which is incorporated herein by reference. Shareholders
are urged to read the Merger Agreement in its entirety.
BACKGROUND OF THE MERGER
On March 25, 1997, the Company, the NYPSC staff and other parties entered
into an Agreement providing for the settlement of the Company's Rate and
Restructuring Plan which had been previously filed with the NYPSC. The
Agreement, which was subject to NYPSC approval, provided for a global settlement
involving generating assets, retail access, a base rate freeze and stranded cost
recovery.
The NYPSC considered the Agreement at its session on September 10, 1997. At
that session, the NYPSC expressed concerns about the terms of the Agreement and
directed the parties to resume negotiations to address those concerns. The NYPSC
also encouraged the Company to divest its generating assets as soon as possible.
Subsequently, after extensive negotiations with the NYPSC staff and other
parties to the proceeding, the Company entered into an Amended and Restated
Settlement Agreement (the 'Amended Agreement') which provided, among other
things, for the divestiture of all of the Company's generating assets. The
Amended Agreement was specifically conditioned upon approval by the Company's
Board of Directors.
At a Special Meeting of the Board held on September 24, 1997, the Board
determined that in view of the significant issues raised by divestiture from a
shareholder, customer, employee and community perspective, it needed additional
information before it could reach a decision on whether to approve the Amended
Agreement. It directed management of the Company ('Management') to retain
independent expert consultants to provide the Board with additional financial,
legal and regulatory analysis at its next meeting. J.P. Morgan & Co.
Incorporated ('J.P. Morgan') was retained to provide such financial analysis.
Skadden, Arps, Slate, Meagher & Flom LLP ('Skadden Arps') was requested to
provide legal and regulatory analysis.
At a Special Meeting of the Board held on October 22, 1997, J.P. Morgan
presented its analysis to the Board, which analysis concluded that it would be
in the best interests of the Company's shareholders for the Company to agree to
the Amended Agreement. Skadden Arps discussed the legal and regulatory
implications of
13
<PAGE>
not approving the Amended Agreement. In addition, J.P. Morgan advised the Board
of other strategic options that would be available to the Company if it sold its
generating assets.
At a Special Meeting of the Board held on October 23, 1997, the Board also
requested DLJ, the Company's primary financial advisor, to advise the Board
regarding the Amended Agreement and the Company's strategic options following
the possible sale of its generating assets. In addition, at the Special Meeting
of the Board held on October 23, 1997, the Board created a committee of five
independent directors of the Board of Directors of the Company (the 'Ad Hoc
Committee') to act as a liaison between the Company's financial advisors and the
Board of Directors in connection with the divestiture of the generating assets
and the evaluation of the Company's strategic alternatives.
At its November 6, 1997 meeting, the Board, after carefully evaluating the
information provided by DLJ (which, consistent with J.P. Morgan's conclusions,
recommended that the Company commence a sale by auction of all of the Company's
generating assets), determined to sell the generating assets and approved the
proposed Amended Agreement. DLJ discussed with the Board the current competitive
environment in the utility industry, noting that the Company faced deregulation
and regulatory risks, a consolidating industry and limited growth prospects, all
of which could erode shareholder value. In light of this, DLJ reviewed with the
Board certain strategic alternatives assuming that the generating assets were
sold, including a possible sale of the Company. After discussion, the Board
authorized Management and DLJ to explore the possibility of combining the
Company with another entity, either through a sale of the Company or some other
strategic combination, so that the Board could determine whether it would be in
the best interests of the Company and its shareholders to continue as only a
transmission and distribution company following the sale of the generating
assets.
From November 1997 through December 1997, a number of potential strategic
partners, primarily with interests in the utility industry, were contacted in
order to determine whether any of those entities would be interested in
considering either merging with or acquiring the Company. Those entities which
expressed an interest in continuing to review the possibility of such a
transaction were asked to sign confidentiality agreements with the Company. In
January 1998, after sharing certain information regarding the Company with
interested parties, the Company requested that such parties provide the Company
with non-binding indications of interest, specifying the price ranges within
which such parties believed they might be able to pursue a transaction. These
non-binding indications of interest were requested to assist the Board in
evaluating whether it would be in the best interests of the Company and its
shareholders for the Company to (a) continue as only a transmission and
distribution company following the sale of the generating assets, or (b) enter
into a business combination with another party.
On February 3 and 4, 1998, preliminary, non-binding letters of interest
were received from certain of those entities which had expressed interest in
acquiring or merging with the Company. The preliminary, non-binding letters of
interest were evaluated by Management, the Ad Hoc Committee and the Board. At a
meeting of the Board held on February 5, 1998, the Board further reviewed with
representatives of DLJ the preliminary indications of interest received. The
Board considered, among other things, the terms of each of the non-binding
proposals, including the proposed value to be received by the Company's
shareholders and the structure of a possible transaction. After discussion, the
Board determined to permit a limited number of the parties who expressed
interest (the 'Interested Parties'), including CEI, to meet with Management of
the Company and conduct due diligence.
During the period February through April 1998, the Interested Parties
performed due diligence on the Company and met with Management. During these
months, the Ad Hoc Committee and the Board had meetings with Management, DLJ and
the Company's legal counsel to discuss the ongoing due diligence and the status
of the process and to continue to consider whether it would be in the best
interests of the Company and its shareholders for the Company to (a) continue as
only a transmission and distribution company following the sale of the
generating assets, or (b) enter into a business combination with another party.
In order to assist the Board in its consideration of whether it was in the best
interests of the Company and its shareholders to continue as a transmission and
distribution company or enter into a business combination, the Board decided to
send draft merger agreements to each of the Interested Parties in April 1998. In
order to provide the Board with a clear indication of the terms that the
Interested Parties would consider in a business combination with the Company,
the Interested Parties were instructed to submit mark-ups of the merger
agreement that would indicate the terms pursuant to which such party would enter
into a business combination with the Company.
14
<PAGE>
Between May 1 and May 4, 1998, proposals were received from each of the
Interested Parties. Each proposal included a draft merger agreement, which
contained the terms of the proposed merger, and which was revised to include any
changes that would be necessary for the Interested Party to enter into a binding
agreement with the Company.
On May 4, 5, and 6, 1998, the Ad Hoc Committee, Management, DLJ and the
Company's legal counsel considered the proposals that had been received. On May
7, 1998, both the Ad Hoc Committee and the Board met to discuss and consider the
proposals that had been received. Following its deliberations, the Board
authorized Management, together with DLJ and the Company's legal counsel, to
proceed with negotiations with respect to the proposal submitted by CEI so that
the Board could determine whether it would be in the best interests of the
Company and its shareholders for the Company to (a) continue as only a
transmission and distribution company following the sale of the generating
assets, or (b) enter into a business combination with CEI.
On May 8 and 9, 1998, representatives of Management, DLJ and the Company's
legal counsel negotiated the terms of the Merger Agreement with CEI and legal
counsel for CEI.
On May 10, 1998, the Board held a special meeting to review the terms of
the transaction that had been negotiated with CEI. After presentations by the Ad
Hoc Committee, DLJ and the Company's legal counsel and full discussion and
analysis by the Board, the Board, by unanimous vote, (i) determined that it was
in the best interests of the Company and its shareholders for the Company to
enter into a business combination with CEI, (ii) determined that the terms of
the Merger were fair to, and in the best interests of, the shareholders of the
Company and (iii) authorized, approved and adopted the proposed agreement and
plan of merger and the transactions contemplated thereby and the execution and
delivery of the Merger Agreement. Later that evening, the Company, CEI and the
Merger Subsidiary executed and delivered the Merger Agreement and certain
related agreements.
REASONS FOR THE MERGER AND THE RECOMMENDATION OF THE BOARD
In determining to approve and recommend shareholders' approval and adoption
of the Merger Agreement, and in reaching its determination that the Merger is
fair to and in the best interests of the shareholders of the Company, the Board
consulted with the Ad Hoc Committee and the Company's Management and the
Company's financial advisor, DLJ. Both the Ad Hoc Committee and the Board
considered a number of factors, including, without limitation, the following:
(i) their review and analysis of the Company's business, financial
condition, earnings and prospects, as well as the competitive and changing
regulatory environment facing the Company;
(ii) their realization that the Company faced deregulation and
regulatory risks, the industry was consolidating and the Company had
limited growth prospects, all of which could erode shareholder value;
(iii) historical market prices and trading information with respect to
the Common Stock;
(iv) a review of the possible alternatives to a sale of the Company in
its entirety, including the prospects of continuing to operate the Company
or selling the assets of the Company, the value to shareholders of such
alternatives and the timing and likelihood of actually achieving additional
value from these alternatives; and the possibility that the Company's
future performance might not lead to a stock price having a higher present
value than the Merger Consideration in the foreseeable future;
(v) the Merger was approved and adopted by the Board only after
contact with a number of potential bidders over an extended period of time
in a lengthy process conducted by DLJ on behalf of the Company designed to
elicit third party proposals to acquire or merge with the Company and
enhance shareholder value;
(vi) the $58.50 per share consideration to be paid in the Merger
represents a premium for the Common Stock of approximately 38% over the
closing price of $42.25 per share of Common Stock on May 8, 1998, the last
trading day prior to the public announcement of the execution of the Merger
Agreement;
(vii) the financial presentations of DLJ, the Company's financial
advisor, and its opinion to the Board dated May 10, 1998 (which opinion has
been confirmed by delivery of a written opinion dated the date of this
Proxy Statement) as to the fairness of the Merger Consideration from a
financial point of view to the holders of Common Stock as described in
'--Opinion of the Financial Advisor;'
15
<PAGE>
(viii) the terms of the Merger Agreement, including the right of the
Board of Directors of the Company to terminate the Merger Agreement prior
to its approval by the holders of the Company's Common Stock in the
exercise of its fiduciary duty in connection with a Superior Proposal (as
defined in the Merger Agreement); and
(ix) the likelihood of consummation of the Merger, including an
assessment that CEI has the financial capability to acquire the Company for
the Merger Consideration, and of the risks associated with obtaining
necessary approvals and the possibility that the Merger may not be
consummated even if approved and adopted by shareholders. See 'THE MERGER
AGREEMENT--Conditions to Consummation of the Merger.'
The foregoing discussion of the information and factors considered by the
Board is not intended to be all-inclusive. In determining to recommend the
approval and adoption of the Merger Agreement, the Board also considered that
the Merger was in the best interests of the Company's employees, customers and
the communities that the Company serves. In view of the wide variety of factors
considered in connection with its evaluation of the proposed Merger, the Board
did not find it practicable to, and did not, quantify or otherwise attempt to
assign relative weights to the foregoing factors. Rather, the Board viewed its
position and recommendation as being based on the totality of the information
presented to and considered by it.
THE BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE
BEST INTERESTS OF, SHAREHOLDERS AND HAS APPROVED AND ADOPTED THE MERGER
AGREEMENT. THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF THE COMPANY
VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
OPINION OF THE FINANCIAL ADVISOR
DLJ has acted as financial advisor to the Company in connection with the
Merger. In its role as financial advisor to the Company, DLJ was asked by the
Company to render an opinion to the Board as to the fairness of the Merger
Consideration to the holders of Common Stock from a financial point of view. On
May 10, 1998, DLJ delivered to the Board an oral opinion (which opinion was
subsequently confirmed by delivery of a written opinion dated May 10, 1998) to
the effect that, as of such date and based upon and subject to the assumptions,
limitations and qualifications stated therein, the Merger Consideration was fair
to the holders of Common Stock from a financial point of view. DLJ has confirmed
such opinion by delivery of a written opinion dated the date of this Proxy
Statement (the 'DLJ Opinion'). In connection with the DLJ Opinion, DLJ updated
certain of the analyses performed in connection with its earlier opinion and
reviewed the assumptions on which such analyses were based.
A COPY OF THE DLJ OPINION IS ATTACHED HERETO AS APPENDIX B AND SHOULD BE
READ CAREFULLY IN ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED,
ASSUMPTIONS MADE, OTHER MATTERS CONSIDERED AND LIMITATIONS OF THE REVIEW
UNDERTAKEN BY DLJ IN ARRIVING AT SUCH OPINION.
The Board selected DLJ to act as its exclusive financial advisor in the
Merger because DLJ is an internationally recognized investment banking firm with
substantial expertise in the utility industry and in transactions similar to the
Merger and because it is familiar with the Company and its business. DLJ, as
part of its investment banking services, is regularly engaged in the valuation
of businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes.
The DLJ Opinion was prepared for the Board and is directed only to the
fairness of the Merger Consideration from a financial point of view to the
holders of Common Stock and does not constitute a recommendation to any
shareholder as to how such shareholder should vote at the Special Meeting.
DLJ was not requested to, and did not, make any recommendation as to the
form or amount of the Merger Consideration to be received by the holders of
Common Stock, which matters were determined through negotiations between the
Company and CEI. The DLJ Opinion does not address the relative merits of the
Merger and the other business strategies considered by the Board, nor does it
address the Board's decision to proceed with the Merger. No restrictions or
limitations were imposed by the Company upon DLJ with respect to the
investigations made or procedures followed by DLJ in rendering the DLJ Opinion.
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In arriving at the DLJ Opinion, DLJ reviewed the Merger Agreement and the
schedules thereto. DLJ also reviewed financial and other information that was
publicly available or furnished to it by the Company, including information
provided during discussions with Management. Included in the information
provided during discussions with Management were certain financial projections
of the Company for the period beginning January 1, 1998 and ending December 31,
2002 prepared by the Management of the Company. In addition, DLJ compared
certain financial and securities data of the Company with various other
companies whose securities are traded in public markets, reviewed the historical
stock prices and trading volumes of the Common Stock, reviewed prices and
premiums paid in certain other business combinations, and conducted such other
financial studies, analyses and investigations as DLJ deemed appropriate for
purposes of its opinion.
In rendering the DLJ Opinion, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
it from public sources, that was provided to it by the Company and its
representatives, or that it otherwise reviewed. With respect to the financial
projections supplied to it, DLJ assumed that they were reasonably prepared on
the basis reflecting the best currently available estimates and judgments of the
Management of the Company as to the future operating and financial performance
of the Company. DLJ did not assume any responsibility for making an independent
evaluation of the Company's assets or liabilities or for making any independent
verification of any of the information that it reviewed. DLJ also relied as to
certain legal matters on advice of counsel to the Company.
The DLJ Opinion is necessarily based on economic, market, financial and
other conditions as they existed on, and on the information made available to it
as of, the date of the DLJ Opinion. It should be understood that, although
subsequent developments may affect the DLJ Opinion, DLJ does not have any
obligation to update, revise or reaffirm the DLJ Opinion.
The following is a summary of the material analyses performed by DLJ in
connection with its opinion presented to the Board at its May 10, 1998 Board
meeting. Valuations for the Company were calculated on an enterprise value basis
(equity value plus net debt) and an equity value basis and converted to a per
share basis based upon $483.2 million of net debt (total debt, including
preferred stock, less cash and cash equivalents outstanding on December 31,
1997) and 13,518,690 shares of Common Stock outstanding as of February 28, 1998.
Selected Companies Analysis. DLJ compared certain financial operating and
projected financial performance information for the Company with six selected
regional publicly held electric and gas utilities. The sample of publicly held
utilities in the New York region included CEI, Long Island Lighting Co., New
York State Electric and Gas Corp., Central Hudson Gas and Electric Corp.,
Rochester Gas and Electric Corp., and Niagara Mohawk Power Corp. (the 'New York
Public Companies'). DLJ analyzed, among other things, the enterprise value
(defined as the market value of common stock plus total debt less cash, cash
equivalents and other investments) and/or equity value of each of the New York
Public Companies as of May 4, 1998 as multiples of each company's latest 12
months ('LTM') earnings before interest, taxes, depreciation and amortization
('EBITDA'), earnings before interest and taxes ('EBIT'), net income and
projected net income and 1997 book equity value.
DLJ applied average multiples (derived from the average multiples of the
New York Public Companies) of 7.1x to the Company's 1997 EBITDA, 9.9x to the
Company's 1997 EBIT, 13.9x to the Company's 1997 net income, 13.6x to the
Company's estimated 1998 net income, 13.3x to the Company's estimated 1999 net
income, and 1.5x to the Company's 1997 book equity value. This analysis produced
an implied equity reference range for the Company of approximately $32.44 to
$43.67 per share.
DLJ also compared certain financial operating and projected financial
performance information for the Company with a sample of selected publicly held
electric and gas utilities. This sample of eight public companies was chosen
among a universe of public utilities whose characteristics generally reflected
those of the Company with respect to, among other things, total revenues, credit
characteristics, number of customers, size of service territory, market
capitalization, dividend history, operating statistics, and fuel source. This
sample of publicly held utilities included Central Hudson Gas & Electric
Corporation, Central Louisiana Electric Co., Idaho Power Company, MDU Resources
Group, Inc., Sierra Pacific Resources, IES Industries Inc., SIGCORP, Inc., and
Nevada Power Company (the 'Market Public Companies' and, together with the New
York Public Companies, the 'Selected Companies'). DLJ analyzed, among other
things, the enterprise value and/or equity value of each
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Market Public Company as of May 4, 1998 as multiples of each company's latest
LTM EBITDA, EBIT, net income and projected net income and 1997 book equity
value.
DLJ applied average multiples (derived from the average multiples of the
Market Public Companies) of 7.7x to the Company's 1997 EBITDA, 11.3x to the
Company's 1997 EBIT, 15.3x to the Company's 1997 net income, 14.6x to the
Company's estimated 1998 net income, 14.2x to the Company's estimated 1999 net
income, and 1.7x to the Company's 1997 book equity value. This analysis produced
an implied equity reference range for the Company of approximately $39.26 to
$47.55 per share.
No company utilized in the Selected Companies analysis is identical to the
Company. Accordingly, an analysis of the results of the foregoing necessarily
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the Company and other factors that
could affect the public trading value of the Selected Companies to which it is
being compared. Mathematical analysis is not in itself a meaningful method of
using selected company data.
Selected Merger and Acquisition Transactions Analysis. DLJ also reviewed
certain information relating to 12 business combination transactions announced
or consummated in the utility industry: (i) Allegheny Power System Inc.'s
acquisition of DQE, Inc.; (ii) The Brooklyn Union Gas Company's merger with Long
Island Lighting Company; (iii) Duke Power Co.'s merger with PanEnergy Corp.;
(iv) TECO Energy, Inc.'s merger with Lykes Energy Inc.; (v) Enova Corporation's
merger with Pacific Enterprises; (vi) Ohio Edison Company's acquisition of
Centerior Energy Corporation; (vii) Houston Industries Incorporation's merger
with NorAm Energy Corp.; (viii) MidAmerican Energy Company's attempted
acquisition of IES Industries Inc.; (ix) Enron Corp.'s merger with Portland
General Corporation; (x) Atmos Energy Corporation's acquisition of United Cities
Gas Company; (xi) Western Resources, Inc.'s acquisition of Kansas City Power &
Light Company; and (xii) PECO Energy Company's attempted merger with
Pennsylvania Power & Light Co. (collectively, the 'Selected M&A Transactions').
DLJ reviewed enterprise values as multiples of LTM EBITDA and EBIT of the
target company for each of the transactions and reviewed the equity values of
such target companies as multiples of LTM net income and book value. DLJ applied
the average (excluding high and low) of the range of multiples from the Selected
M&A Transactions of 7.5x to the Company's 1997 EBITDA, 11.1x to the Company's
1997 EBIT, 17.6x to the Company's 1997 net income, and 2.2x to the Company's
1997 book equity value. This analysis produced an implied equity reference range
for the Company of approximately $36.45 to $60.11 per share.
No transaction utilized in the Selected M&A Transactions analysis is
identical to the Merger. Accordingly, an analysis of the results of the
foregoing necessarily involves complex considerations and judgments concerning
differences in financial and operating characteristics that could affect the
acquisition values of the companies to which they are being compared.
Mathematical analysis is not in itself a meaningful method of using selected
transaction data.
Premiums Paid Analysis. DLJ performed a premiums paid analysis based on
its review of premiums paid in selected utility merger and acquisition
transactions involving a publicly traded, utility target company. DLJ applied
average premiums (derived from the average premiums paid for all public targets
in the sample of utility merger and acquisition transactions analyzed) of
approximately 31.9% above the market price per share one trading day prior to
announcement, 33.3% above the market price per share one week prior to
announcement, and 32.8% above the market price per share one month prior to
announcement to the market price per share of the Common Stock one day, one
week, and one month prior to May 4, 1998. This analysis produced an implied
equity reference range for the Company of approximately $54.51 to $59.42 per
share.
Discounted Cash Flow Valuation Analysis. DLJ performed a discounted cash
flow analysis of the Company based upon estimates of projected financial
performance prepared by the Company's Management for fiscal years 1998 to 2002,
pro forma for the sale of the Company's generating assets. Utilizing these
projections, DLJ calculated a range of present values for the Company based upon
the discounted net present value of the sum of (i) the projected stream of
after-tax unlevered free cash flows of the Company (defined as operating cash
flow available after working capital, capital spending and tax requirements) to
the year 2002 and (ii) the projected terminal value of the Company at such year
based upon a range of multiples of the Company's projected EBIT in such year.
Applying discount rates ranging from 7.5% to 8.5% and multiples of terminal EBIT
ranging from
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10.0x to 12.0x, this analysis produced an implied equity reference range for the
Company of approximately $39.13 to $51.79 per share.
Dividend Discount Valuation Analysis. DLJ performed a dividend discount
valuation analysis based upon estimates of projected dividend payouts prepared
by the Company's Management for fiscal years 1998 to 2002. Utilizing these
projections, DLJ calculated a range of present values for the Common Stock based
upon the discounted net present value of the sum of (i) the projected stream of
Common Stock dividends per share to the year 2002 and (ii) the projected
terminal value of the Company's stock price at such year based upon a future
dividend yield of 5.2%. Applying equity discount rates ranging from 8.5% to
10.5% and terminal dividend yields ranging from 4.75% to 5.75%, this analysis
produced an implied equity reference range for the Company of approximately
$39.96 to $50.27 per share.
The summary set forth above does not purport to be a complete description
of the analyses by DLJ but describes, in summary form, the material analyses
presented by DLJ to the Board on May 10, 1998 in connection with DLJ's opinion
of such date. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to partial or summary
description. Each of the analyses conducted by DLJ was carried out in order to
provide a different perspective on the Merger and add to the total mix of
information available. DLJ did not form a conclusion as to whether any
individual analysis, considered in isolation, supported or failed to support an
opinion as to fairness from a financial point of view. Rather, in reaching its
conclusion, DLJ considered the results of the analyses in light of each other
and ultimately rendered its opinion based on the results of all of the analyses
taken as a whole. DLJ did not place particular reliance or weight on any
individual analysis, but instead concluded that its analyses, taken as a whole,
supported its determination. Accordingly, notwithstanding the separate factors
summarized above, DLJ believes that its analyses must be considered as a whole
and that selecting portions of its analyses and the factors considered by it,
without considering all such factors and analyses, could create an incomplete or
misleading view of the process underlying DLJ's opinion. In addition, analyses
relating to the value of businesses or securities do not purport to be
appraisals, or to reflect the prices at which such businesses or securities can
actually be sold. The analyses performed by DLJ are not necessarily indicative
of actual past or future results or values, which may be significantly more or
less favorable than such estimates or those suggested by such analyses.
Pursuant to the terms of an engagement letter between the Company and DLJ
dated December 2, 1997 (the 'Engagement Letter'), the Company has agreed to pay
DLJ (i) a retainer fee of $250,000, (ii) an opinion fee of $500,000, (iii) a fee
of $1,250,000 upon the execution of the Merger Agreement, (iv) a fee of $750,000
upon shareholder approval and adoption of the Merger and (v) a transaction fee
equal to 0.8% of the aggregate consideration payable in the Merger, less
previously paid fees described in clauses (i) through (iv) above. In addition,
the Company also has agreed to reimburse DLJ for all out-of-pocket expenses
(including the reasonable fees and expenses of counsel) incurred by DLJ in
connection with its engagement, and to indemnify DLJ and certain related persons
against certain liabilities, including liabilities under the federal securities
laws, relating to or arising out of its rendering of services under the
Engagement Letter.
DLJ provides a full range of financial, advisory and brokerage services
and, in the ordinary course of business, DLJ and its affiliates may actively
trade the debt and equity securities of the Company and CEI for its own account
and for the account of customers and accordingly may at any time hold a long or
short position in such securities. DLJ has performed investment banking and
other services for the Company in the past, including having acted as lead
manager in underwritten public offerings of the Company's securities, and is
currently providing financial advisory services to the Company in connection
with the possible sale of the Company's generating assets, for which services
DLJ has received and will receive customary compensation.
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be accounted for as an acquisition of the Company by CEI.
As such, the Merger will be recorded using the 'purchase method of accounting
for business combinations', in accordance with Accounting Principles Board
Opinion No. 16.
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The purchase price will be compared to the fair value of the Company's net
assets acquired (fair value for rate regulated companies is generally considered
equivalent to book value) at the time the transaction is completed, with the
difference reflected as goodwill on CEI's books.
The accounting treatment will commence at the Effective Time of the Merger
when all shares of the Company's Common Stock are converted into the right to
receive the Merger Consideration and thereafter automatically canceled and
retired.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO SHAREHOLDERS
The following is a summary of certain federal income tax consequences of
the Merger to holders of Common Stock. The discussion is for general information
only and does not purport to consider all aspects of federal income taxation
that might be relevant to holders of Common Stock. The discussion is based on
current provisions of the Internal Revenue Code of 1986, as amended (the
'Code'), existing regulations promulgated thereunder and administrative and
judicial interpretations thereof, all of which are subject to change (possibly
with retroactive effect). The discussion applies only to shareholders in whose
hands shares of Common Stock are capital assets within the meaning of Section
1221 of the Code, and does not apply to Common Stock received pursuant to
compensation arrangements, Common Stock held as part of a 'straddle,' 'hedge,'
'conversion transaction,' 'synthetic security,' or other integrated investment,
or to certain types of shareholders (such as financial institutions, insurance
companies, tax-exempt organizations and broker-dealers) who may be subject to
special rules. This discussion does not discuss the federal income tax
consequences to a shareholder who, for federal income tax purposes, is a
non-resident alien individual, a foreign corporation, a foreign partnership or a
foreign estate or trust, nor does it consider the effect of any foreign, state,
local or other tax laws.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH HOLDER OF COMMON STOCK
SHOULD CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE THE TAX EFFECTS TO SUCH
SHAREHOLDER OF THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF FOREIGN,
STATE, LOCAL AND OTHER TAX LAWS.
The receipt of cash for Common Stock pursuant to the Merger will be a
taxable transaction for federal income tax purposes, and may also be a taxable
transaction under applicable foreign, state, local or other tax laws. In
general, for federal income tax purposes, a shareholder will recognize capital
gain or loss equal to the difference between the shareholder's adjusted tax
basis in the Common Stock and the amount of cash received therefor. Gain or loss
must be determined separately for each block of Common Stock held (i.e., Common
Stock acquired at the same cost in a single transaction).
Under recently enacted changes to the Code, net capital gain recognized by
individuals from the sale of property held more than 18 months will generally be
taxed at a maximum rate of 20% for federal income tax purposes (or 10% if the
capital gain would be taxed at only a 15% rate if it were treated as ordinary
income). Net capital gain recognized by individuals from the sale of property
held for more than one year but not more than 18 months is taxed at a maximum
rate of 28%. There are limitations on the deductibility of capital losses.
Payments in connection with the Merger may be subject to 'backup
withholding' at a rate of 31%, unless a shareholder of Common Stock (i) is a
corporation or comes within certain exempt categories and, when required,
demonstrates this fact or (ii) provides a correct taxpayer identification number
('TIN') (which, for an individual shareholder, is the shareholder's social
security number) to the Paying Agent, and otherwise complies with applicable
requirements of the backup withholding rules. A shareholder who does not provide
a correct TIN may be subject to penalties imposed by the Internal Revenue
Service ('IRS'). Any amount paid as backup withholding does not constitute an
additional tax and will be creditable against the shareholder's federal income
tax liability. Each shareholder should consult with his or her own tax advisor
as to his or her qualification for exemption from backup withholding and the
procedure for obtaining such exemption. SHAREHOLDERS MAY PREVENT BACKUP
WITHHOLDING BY COMPLETING A SUBSTITUTE FORM W-9 AND SUBMITTING IT TO THE PAYING
AGENT FOR THE MERGER WHEN THEY SUBMIT THEIR CERTIFICATE(S) FOLLOWING THE
EFFECTIVE TIME OF THE MERGER.
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REGULATORY MATTERS
Certain federal and state regulatory requirements must be complied with
before the Merger is consummated. The Company and CEI are not aware of any
material governmental consents or approvals that are required prior to the
parties' consummation of the Merger other than those described below. It is
presently contemplated that if any such additional governmental consents and
approvals are required, such consents and approvals will be sought. There can be
no assurance, however, that the consents or approvals described below or any
such additional consents or approvals will be obtained.
HSR ACT
The Merger is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the 'HSR Act'), and the rules
and regulations thereunder, which provide that certain acquisition transactions
may not be consummated until certain information has been furnished to the
Antitrust Division of the Department of Justice (the 'Antitrust Division') and
the Federal Trade Commission (the 'FTC') and until certain waiting periods have
been terminated or have expired. The expiration or earlier termination of the
HSR Act waiting period would not preclude the Antitrust Division or the FTC from
challenging the Merger on antitrust grounds. Neither the Company nor CEI
believes that the Merger will violate federal antitrust laws. If the Merger is
not consummated within 12 months after the expiration or earlier termination of
the initial HSR Act waiting period, the Company and CEI would be required to
submit new information to the Antitrust Division and the FTC, and a new HSR Act
waiting period would have to expire or be earlier terminated before the Merger
could be consummated. The Company and CEI intend to file their premerger
notifications shortly.
FEDERAL POWER ACT
Section 203 of the Federal Power Act (the 'FPA') provides that no public
utility may sell or otherwise dispose of its facilities subject to the
jurisdiction of the FERC or, directly or indirectly, merge or consolidate such
facilities with those of any other person or acquire any security of any other
public utility without first having obtained authorization from the FERC. The
Company qualifies as a public utility for purposes of the FPA, and both the
Company and CEI have subsidiaries that qualify as public utilities for purposes
of the FPA. The prior approval of the FERC under FPA Section 203 is required in
order to consummate the Merger.
Under Section 203 of the FPA, the FERC is directed to approve a merger if
it finds such merger 'consistent with the public interest.' In reviewing a
merger, the FERC generally evaluates: (i) whether the merger will adversely
affect competition; (ii) whether the merger will adversely affect rates; and
(iii) whether the merger will impair the effectiveness of regulation.
The Company and CEI plan to file a combined application with the FERC
requesting that the FERC approve the Merger under Section 203 of the FPA.
STATE REGULATORY APPROVALS
Pursuant to the New York Public Service Law, the approval of the NYPSC will
be required for the Merger. In addition, pursuant to the New Jersey Public
Utilities Law, the approval of the NJBPU will be required for the Merger.
Finally, pursuant to the Pennsylvania Public Utility Code, the PPUC must approve
the Merger. The Company and CEI have filed appropriate applications with the
NYPSC, the NJBPU and the PPUC.
SECURITIES AND EXCHANGE COMMISSION APPROVAL PURSUANT TO 1935 ACT
Section 9(a)(2) of the Public Utility Holding Company Act of 1935, as
amended (the '1935 Act'), provides that it is unlawful for any person to acquire
any security of any public utility company if that person owns, or by virtue of
that transaction will come to own, 5% or more of the voting securities of that
public utility company, and of any other public utility company, without the
prior approval of the SEC. As a result of the Merger, CEI, which is currently an
exempt holding company under the 1935 Act, will be deemed to acquire directly or
indirectly all of the common stock of the Company (a public utility company).
Accordingly, CEI is required to obtain SEC approval under Section 9(a)(2) of the
1935 Act to consummate the Merger. An application for approval of the Merger
will be filed by CEI at the appropriate time. Under the applicable standards of
the 1935
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Act, the SEC is directed to approve a proposed acquisition unless it finds that
(1) the acquisition would tend towards detrimental interlocking relations or a
detrimental concentration of control, (2) the consideration to be paid in
connection with the acquisition is not reasonable, (3) the acquisition would
unduly complicate the capital structure of the applicant's holding company
system or would be detrimental to the proper functioning of the applicant's
holding company system, or (4) the acquisition would violate applicable state
law. In order to approve a proposed acquisition, the SEC also must find that the
acquisition would tend towards the development of an integrated public utility
system and would otherwise conform to the 1935 Act's integration and corporate
simplification standards.
The Company is an electric and gas utility company and a holding company
within the meaning of the 1935 Act, and, pursuant to Section 3(a)(2) of the 1935
Act, is exempt from all provisions of the 1935 Act except Section 9(a)(2). CEI
is a holding company and CEI's utility subsidiary, Consolidated Edison Company
of New York, Inc. ('CECONY'), is an electric and gas utility company within the
meaning of the 1935 Act. Pursuant to Section 3(a)(1) of the 1935 Act, CEI is
currently exempt from all provisions of the 1935 Act except Section 9(a)(2).
NEW JERSEY INDUSTRIAL SITE RECOVERY ACT
The Company's subsidiary, Rockland Electric Company ('RECO'), has three
service centers in New Jersey that are 'industrial establishments' (as that term
is defined by the New Jersey Industrial Site Recovery Act ('ISRA')). ISRA
requires transferors of industrial establishments to investigate environmental
conditions at such establishments and, if necessary, conduct remediation in
accordance with New Jersey regulations. Therefore, these service centers are
subject to ISRA as a result of the Merger. Under ISRA, RECO must obtain, prior
to the Closing Date (as defined herein), certain determinations from the New
Jersey Department of Environmental Protection ('DEP') or execute certain
agreements with the DEP. For each establishment, RECO must either (i) obtain an
approved Negative Declaration or No Further Action Letter, meaning that further
investigation and/or remediation is either not required at the facility or that
remediation has been completed in accordance with New Jersey regulations; (ii)
obtain an approved Remedial Action Workplan; or (iii) obtain and execute a
Remediation Agreement with the DEP pursuant to which RECO will commit to
complying with the requirements of ISRA after the Effective Time of the Merger.
In addition to the three industrial establishments, the Company (or its
subsidiaries) owns or leases other properties in New Jersey that the Company
believes will not be classified as industrial establishments subject to ISRA. If
any of these properties is determined to be subject to ISRA, the Company or the
subsidiary that owns or operates such property will be required to comply with
ISRA, as described above.
GENERAL
Under the Merger Agreement, the Company, CEI and the Merger Subsidiary have
agreed to use their reasonable best efforts to obtain all governmental
authorizations necessary or advisable to consummate or effect the transactions
contemplated by the Merger Agreement. Various parties may seek intervention in
these proceedings to oppose the Merger or to have conditions imposed upon the
receipt of necessary approvals. While the Company, CEI and the Merger Subsidiary
believe that they will receive the requisite regulatory approvals for the
Merger, there can be no assurance as to the timing of such approvals or the
ability to obtain such approvals on satisfactory terms or otherwise. It is a
condition to the consummation of the Merger that final orders approving the
Merger be obtained from the various federal and state regulators described
above.
CERTAIN EFFECTS OF THE MERGER
At the Effective Time, (i) the Merger Subsidiary will merge with and into
the Company and the separate corporate existence of the Merger Subsidiary will
cease, (ii) the Company will be the Surviving Corporation in the Merger and will
continue its corporate existence under the laws of the State of New York, and
(iii) the Surviving Corporation will be a wholly-owned subsidiary of CEI. The
Restated Certificate of Incorporation of the Company, as in effect immediately
prior to the Effective Time, will be the certificate of incorporation of the
Surviving Corporation until thereafter amended and the By-laws of the Company,
as in effect immediately prior to the Effective Time, will be the by-laws of the
Surviving Corporation until thereafter amended. As of the
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Effective Time, each of the directors of the Company will resign and the
directors of the Merger Subsidiary at the Effective Time will, from and after
the Effective Time, be the directors of the Surviving Corporation until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the certificate of
incorporation and the by-laws of the Surviving Corporation.
As a result of the Merger, the Common Stock will no longer be publicly
traded and CEI will become the sole shareholder of the Surviving Corporation.
Following the Merger, persons who were shareholders of the Company immediately
prior to the Merger will no longer have an opportunity to continue their
interests in the Company as an ongoing corporation and therefore will not share
in its future earnings and potential growth.
Trading in the shares of Common Stock on the NYSE will cease immediately
following the Effective Time. At the Effective Time, the shares of Common Stock
will be delisted from the NYSE. Registration of the Common Stock under the
Exchange Act also will be terminated, as will the ongoing disclosure
requirements thereunder with respect to the Common Stock.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Indemnification; Directors and Officers Insurance. Pursuant to the Merger
Agreement, the Surviving Corporation will indemnify to the fullest extent
permitted by applicable law, each person who was at the date of the Merger
Agreement, or who has been at any time prior to the execution date of the Merger
Agreement, or who becomes prior to the Effective Time (x) a director or officer
or (y) an employee covered as of May 10, 1998 (to the extent of the coverage
extended as of such date) of the Company or any of the Company's subsidiaries
with respect generally to (i) all losses, expenses (including reasonable
attorney's fees and expenses), claims, damages or liabilities or amounts paid in
settlement, arising out of actions or omissions occurring at or prior to the
Effective Time that are based on or arising out of the fact that such person is
or was a director, officer or employee of the Company or any Company Subsidiary
(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 the Merger Agreement. The Surviving Corporation will also
maintain in effect for at least six years after the Effective Time policies of
directors' and officers' insurance equivalent in all material respects to those
maintained by or on behalf of the Company and its subsidiaries on the execution
date of the Merger Agreement. See 'THE MERGER AGREEMENT--Directors' and
Officers' Insurance and Indemnification'.
Certain Employment Agreements.
General. Certain executive officers and certain members of the Board may
be deemed to have interests in the Merger that are in addition to their
interests as shareholders of the Company generally. The Board was aware of these
interests and considered them, among other matters, in approving and adopting
the Merger Agreement and the transactions contemplated thereby.
Change in Control Agreements. As disclosed in the proxy statements
relating to the Annual Meetings held on April 10, 1996, April 9, 1997 and April
8, 1998, the Company is a party to agreements with each of D. Louis Peoples,
G.D. Caliendo and R. Lee Haney (each, an 'Executive' and each agreement, a
'Change in Control Agreement'), which Change in Control Agreements were entered
into in January 1996 and which remain in effect until the later of (i) three
years following a 'Change in Control' of the Company (as defined in the Change
in Control Agreements) and (ii) three years following the consummation of a
transaction, the shareholder approval of which constitutes a Change of Control.
In accordance with the terms of the Change in Control Agreements, if the
applicable Executive's employment is terminated within three years following the
event described in clause (i) or (ii) of the preceding sentence as applicable,
the Company will pay to the Executive the severance payments and will provide to
the Executive the severance benefits described below, unless the Executive's
employment is terminated (x) by the Company for Cause, (y) by the Executive
without Good Reason or (z) by reason of the Executive's death or Disability
(each term, as defined in the Change in Control Agreements).
On May 10, 1998, the Company, CEI and each of the Executives entered into
letter agreements (each, a 'Letter Agreement'), each of which Letter Agreement
provides that, for purposes of the Change in Control Agreements, (i) the
approval of the Merger Agreement by the shareholders of the Company will
constitute a
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Change in Control, (ii) at the Effective Time, the Executive will terminate his
employment with the Company and (iii) such termination will be deemed to have
been by the Executive with Good Reason. Accordingly, upon each Executive's
termination of employment at the Effective Time, each such Executive will be
entitled to receive, in lieu of any other payments due to the Executive: (1)
cash payment equal to three times the sum of (a) the higher of (i) such
Executive's annual base compensation in effect at the time of termination and
(ii) such Executive's annual base compensation in effect immediately prior to
the Change in Control and (b) the higher of (i) the average of the annual
bonuses earned or received by such Executive for the three performance years
ended prior to the date of termination and (ii) the average of the annual
bonuses awarded to such Executive for the three fiscal years ended prior to the
Change in Control, (2) a cash payment equal to a pro rata portion, through the
date of termination, of the aggregate value of all contingent incentive
compensation awards for all uncompleted periods under the incentive compensation
plans of the Company (other than the Long-Term Performance Share Unit Plan (the
'PSU Plan')), assuming the achievement of all target levels established with
respect to such awards, (3) benefits under the Officers' Supplemental Retirement
Plan of the Company (the 'SERP') commencing immediately following the date of
termination, calculated (a) without reduction on account of the Executive's age
(in the case of Mr. Peoples) and (b) in the case of Messrs. Caliendo and Haney,
as if the Executive had been credited with an additional three years of service
(resulting in an increase by 15 percentage points in the Benefit Formula
Percentage (as defined in the SERP)), (4) the continuation of employee welfare
benefits for three years following the date of termination, reduced to the
extent the Executive receives such benefits from a subsequent employer, (5) if
the Executive would have otherwise been entitled to post-retirement health care
or life insurance had he continued to be employed for three additional years,
such post-retirement health care and life insurance commencing on the later of
(a) the date that such coverage would have first become available to the
Executive and (b) the date that the benefits described in clause (4) above
terminate, (6) the reimbursement of legal fees and expenses, if any, incurred by
the Executive in disputing any issue relating to the termination of his
employment following a Change in Control, (7) the right to purchase the
Executive's Company-provided automobile pursuant to Company policy and (8) an
additional cash payment to hold the Executive harmless from the excise tax (the
'Excise Tax') imposed by Section 4999 of the Code.
Pursuant to the terms of the Change in Control Agreements and the Letter
Agreements, it is presently estimated (based upon information currently
available) that each Executive will be entitled to an aggregate lump sum cash
payment at the Effective Time approximately in the following amounts: Mr.
Peoples, $2,767,080; Mr. Caliendo, $1,478,164; and Mr. Haney, $1,503,902. After
payment of all excise and income taxes imposed on such lump sum cash payments,
each Executive will retain a net amount of approximately 35% of such lump sum
cash payments.
Severance Agreements. The Company is also a party to severance agreements
with each of Nancy M. Jakobs, Robert J. McBennett, Edward M. McKenna, Robert J.
Biederman and George Bubolo (each, an 'Other Executive' and each agreement, a
'Severance Agreement'), which Severance Agreements remain in effect until the
later of (i) two years following a 'Change in Control' of the Company (as
defined in the Severance Agreements) and (ii) two years following the
consummation of a transaction, the shareholder approval of which constitutes a
Change in Control. In accordance with the terms of the Severance Agreements, if
the applicable Other Executive's employment is terminated (x) by the Company
without Cause or (y) by the Other Executive with Good Reason (each term, as
defined in the Severance Agreements), in either case within two years following
the event described in clause (i) or (ii) of the preceding sentence, as
applicable, the Company will pay to the Other Executive the severance payments
and will provide to the Other Executive the severance benefits described below.
In connection with entering into the Merger Agreement, the Company and CEI
entered into letter agreements with each of Ms. Jakobs and Mr. McBennett
supplementing their respective Severance Agreements. Accordingly, upon Ms.
Jakobs's and Mr. McBennett's termination of employment at the Effective Time
(or, in the case of Mr. McBennett, on the later of the Effective Time and July
1, 1999) and upon the termination of Messrs. McKenna's, Biederman's and Bubolo's
employment as described in the immediately preceding paragraph, each Other
Executive will be entitled to receive: (1) cash payment equal to three times the
average annual compensation earned by the Other Executive over the five most
recently completed taxable years prior to the Change in Control, less one dollar
(the 'Cash Severance Payment'), (2) the continuation of employee welfare
benefits for two years following the date of termination, reduced to the extent
the Other Executive
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receives such benefits from a subsequent employer, (3) the reimbursement of
legal fees and expenses, if any incurred by the Other Executive in disputing any
issue relating to the enforcement of his or her rights under the Severance
Agreement and (4) in the case of Mr. McBennett, the right to purchase his
Company-provided automobile pursuant to company policy. Ms. Jakobs's Severance
Agreement further provides that her benefits under the SERP will be calculated
(a) using a Benefit Formula Percentage of at least 40% and (b) as if she has
completed at least 10 years of service thereunder. Each Severance Agreement
provides that Cash Severance Payments will be reduced to the extent payments are
made under the Severance Pay Plan (as described below). Except as described in
the following paragraph, each Severance Agreement also provides that, after
giving effect to the previous sentence, in the event any payments made to the
Other Executive are subject to the Excise Tax imposed by section 4999 of the
Code (the 'Excess Payments'), the Cash Severance Payment will be reduced to the
extent necessary so that such Excess Payments would not be subject to the Excise
Tax.
Each of Ms. Jakobs's, Mr. Bubolo's and Mr. McKenna's Severance Agreement
further provides that if a Change in Control occurs prior to (i) January 1,
2000, in the case of Ms. Jakobs, (ii) April 8, 2003, in the case of Mr. Bubolo
and (iii) May 2, 2001, in the case of Mr. McKenna, then, notwithstanding the
reduction in the Cash Severance Payment which would otherwise occur in the
circumstances described in the last sentence of the previous paragraph, Ms.
Jakobs, Mr. Bubolo and Mr. McKenna will be entitled to receive all payments due
under the Severance Agreement, unless the total of such payments, after giving
effect to the Excise Tax, is less than the amount to which he or she would have
been entitled had such Cash Severance Payment been subject to such reduction.
Pursuant to the terms of the letter agreements, upon the termination of
employment of Ms. Jakobs and Mr. McBennett at the Effective Time, Ms. Jakobs and
Mr. McBennett will be entitled to Cash Severance Payments of approximately of
$596,588 and $576,346, respectively.
Pursuant to the terms of the Severance Agreements, if the employment of
Messrs. McKenna, Biederman and Bubolo is terminated (x) by the Company without
Cause or (y) by the Other Executive with Good Reason, in either case within two
years following the later of (i) a 'Change in Control' (as defined in the
Severance Agreements) of the Company and (ii) the consummation of a transaction,
the shareholder approval of which constitutes a Change in Control, then upon
such termination, such Other Executives will be entitled to Cash Severance
Payments of approximately the following amounts: Mr. Biederman, $682,483; Mr.
McKenna $414,935; and Mr. Bubolo, $744,200.
Long-Term Performance Share Unit Plan. Under the PSU Plan, eligible
participants are granted a target number of performance share units ('PSUs') at
the start of each year, which PSUs relate to a specified performance period (the
'Performance Period'). The number of PSUs actually earned at the end of the
Performance Period is based on the Company's performance during the Performance
Period, measured relative to pre-established performance criteria. Each PSU has
a value equal to one share of Common Stock.
As soon as practicable following the close of a Performance Period, the
Company's performance is evaluated, and the number of PSUs (and associated
dividend equivalent PSUs) earned is determined for each participant. The
participant will then either be paid the cash value of the earned PSUs or such
cash value will be deferred, based on the participant's earlier election, into
deferred PSUs or into one or more investment vehicles. The cash payment value of
PSUs paid at the end of a Performance Period is based on the average price per
share of Common Stock during the quarter immediately preceding the quarter in
which payment is made.
Upon a Change in Control or Potential Change in Control during a
Performance Period, all PSUs (and associated dividend equivalent PSUs) will be
deemed earned in full as of the date of such Change in Control or Potential
Change in Control. As soon as practicable following such Change in Control or
Potential Change in Control, the Company will pay to each participant a lump sum
cash payment equal to the sum of (i) the product of (A) and (B), where (A)
equals the aggregate number of PSUs (and associated dividend equivalent PSUs)
deemed earned in full or deferred, as described above, and (B) equals the fair
market value (as defined in the PSU Plan) of a share of Common Stock as of the
date immediately preceding the Change in Control or Potential Change in Control;
and (ii) the value of amounts deferred in various investment vehicles as of the
date immediately preceding the Change in Control or Potential Change in Control.
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The execution of the Merger Agreement constituted a Potential Change in
Control under the PSU Plan. Accordingly, the Executives and Other Executives
(collectively, the 'Executive Officers') have received the following amounts:
Mr. Peoples, $710,298; Mr. Caliendo, $213,089; Mr. Haney $213,089; Ms. Jakobs,
$142,060; Mr. Biederman, $177,575; Mr. McBennett, $142,060; Mr. McKenna
$154,140; and Mr. Bubolo, $215,760.
Officers' Supplemental Retirement Plan. Under the terms of the SERP, each
participant in the SERP is eligible to receive monthly payments of certain
amounts commencing upon retirement (the 'Retirement Allowance'). Each
participant's Retirement Allowance is based upon his or her final average
compensation and years of service; participants are vested in their Retirement
Allowance after five years of service as an officer of the Company.
If, following a Change in Control or Potential Change in Control, (as
defined in the SERP), a non-vested participant's employment is terminated by the
Company without Cause or by the Executive for Good Reason (as defined in the
SERP) or the participant ceases to be an officer of the Company, such
participant becomes vested in his or her Retirement Allowance. Upon a Change in
Control or Potential Change in Control, the Company is required to fund an
irrevocable rabbi trust with sufficient amounts such that the amount in the
trust is at least equal to the present value of all benefits payable under the
SERP as of the date of the Change in Control or Potential Change in Control. The
execution of the Merger Agreement constituted a Potential Change in Control
under the SERP, but as of the date of such execution, the aggregate value of all
cash and assets held in the trust was sufficient to satisfy the requirements of
the SERP.
Eligible Employees' Compensation Deferral Plan. The Eligible Employees'
Compensation Deferral Plan (the 'Deferral Plan') provides that each participant
can elect to defer all or a portion of his or her base salary or Annual Team
Incentive Plan award and can elect, at the time of such deferral, to have the
entire balance in his or her account distributed at a later date in one lump sum
or in installments. Upon a Change in Control or a Potential Change in Control,
each participant will be paid, as soon as practicable following the month in
which such Change in Control or Potential Change in Control occurred, a lump sum
cash payment equal to the entire balance in such participant's account (valued
as of the last day of the month in which such Change in Control or Potential
Change in Control occurred). The execution of the Merger Agreement constituted a
Potential Change in Control for purposes of the Deferral Plan. Accordingly, the
following Other Executives will be paid the following approximate amounts: Mr.
McKenna $46,714; and Mr. Bubolo, $313,711.
Severance Pay Plan. The Company maintains the Severance Pay Plan (the
'Severance Plan'), which Severance Plan provides for severance payments to be
made and benefits to be provided to eligible employees following a Termination
of Employment for the Company's Convenience (as defined in the Severance Plan).
Each eligible employee is entitled to receive a defined amount of severance
payments and continued participation for a defined period in any group life,
medical and dental insurance benefit plans maintained by the Company, provided
that he or she signs a general release in favor of the Company. The amount of
such severance payments and the length of such continued coverage are determined
by the individual employee's job classification and years of service.
Upon an Involuntary Termination (as defined in the Severance Plan)
following a Change in Control of the Company (as defined in the Severance Plan),
each eligible employee is entitled to receive a defined amount of severance
payments and continued participation for a defined period in any group life,
medical and dental insurance benefit plans maintained by the Company; all cash
payments due to each eligible employee, however, will be paid in a lump sum
(without reduction for such acceleration of payment) within 30 days following
such Involuntary Termination. In addition, all pending and unpaid severance
payments due to any former employee who is currently receiving payments under
the Severance Plan will be paid in a lump sum cash payment (without reduction
for such acceleration of payment) within 30 days following such Change in
Control. Shareholder approval of the Merger will constitute a Change in Control
under the Severance Plan. Messrs. Peoples, Caliendo and Haney are not entitled
to participate in the Severance Plan, and payments made to the Other Executives
under the Severance Plan will offset any payments to which they may be entitled
under their Severance Agreements. Accordingly, upon the termination of
employment of Ms. Jakobs and Mr. McBennett at the Effective Time and of Messrs.
McKenna, Biederman and Bubolo (if upon an Involuntary Termination within two
years following the Change in Control), the Other Executives will be entitled to
severance payments approximately in the following
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amounts: Ms. Jakobs, $138,000; Mr. Biederman, $165,000; Mr. McBennett, $138,000;
Mr. McKenna $138,000; and Mr. Bubolo, $149,500.
Non-Employee Directors' Deferred Compensation Plan. Under the Company's
compensation structure for non-employee directors, adopted in February 1998 and
effective in April 1998 (the 'Compensation Program'), each non-employee director
was entitled to receive annual fees, payable in quarterly installments, of
$50,000, $25,000 of which was paid in cash and $25,000 of which was deferred.
Deferred amounts were credited to a phantom share unit account under the
Company's Non-Employee Directors Deferred Compensation Plan (the 'Deferred
Compensation Plan'). Under the Deferred Compensation Plan, directors also were
given the opportunity to defer cash retainers and fees in various investment
opportunities, including phantom share units. In February 1998, the
Post-Director Service Retainer Continuation Program (the 'Directors' Program')
was discontinued, and directors' accrued benefits under the Directors' Program
were calculated (as described in the Company's Proxy Statement for its April
1998 Annual Meeting) and converted into phantom share units, to be held under
the Deferred Compensation Plan. Under the Deferred Compensation Plan, all
amounts are paid out automatically upon a Change in Control or Potential Change
in Control of the Company (as defined in the Deferred Compensation Plan), with
phantom share units valued based on the average of the high and low sales price
of the Company's Common Stock on the day prior to the Potential Change in
Control. The execution of the Merger Agreement constituted a Potential Change in
Control under the Deferred Compensation Plan, and (a) the following directors
have received the following amounts: Mr. Baruch, $350,913; Mr. Creamer,
$691,853; Mr. Del Giudice, $204,770; Mr. Hanson, $152,193; Mr. McPherson,
$180,893; Mr. Mulcahy, $22,113; Mr. O'Grady, $365,729; and Ms. Taliaferro,
$95,223, and (b) the following former directors have received the following
amounts: Mr. Salerno, $168,189 and Mr. Vanderhoef, $327,106. From and after the
Potential Change in Control, the non-employee directors will be paid their
annual fees entirely in cash.
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THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger
Agreement. The following summary does not purport to be complete and is
qualified in its entirety by reference to the Merger Agreement, which is
attached as Appendix A to this Proxy Statement and is incorporated herein by
reference. Shareholders are urged to read the Merger Agreement in its entirety
and to consider it carefully. Capitalized terms not otherwise defined in this
Proxy Statement or in the following summary have the respective meanings set
forth in the Merger Agreement.
GENERAL
Pursuant to the Merger Agreement, if such agreement is approved and adopted
by the shareholders of the Company and the other conditions to the parties'
respective obligations to consummate the Merger are satisfied, or where
permissible, waived, the Merger Subsidiary will merge with and into the Company
in accordance with the laws of the State of New York. The Company will be the
Surviving Corporation in the Merger and will continue its corporate existence
under the laws of the State of New York, and the Surviving Corporation will be a
wholly-owned subsidiary of CEI. Following the Effective Time, the separate
corporate existence of the Merger Subsidiary will cease.
MERGER CONSIDERATION
As a result of the Merger, each share of Common Stock (other than (i)
shares held by the Company, as treasury stock, or any of its subsidiaries and
(ii) shares owned by CEI or any of its subsidiaries), will be cancelled and
converted into the right to receive $58.50 in cash, without interest, (the
'Merger Consideration') payable upon surrender of the certificate formerly
evidencing such share of Common Stock.
EFFECTIVE TIME
The Merger will become effective, and the Effective Time will occur, at the
time specified in the certificate of merger that is delivered and filed by the
Department of State of the State of New York or such later time as is specified
in such certificate. Such filing will be made on or as promptly as practicable
following the closing date under the Merger Agreement, which will take place on
the second business day after the satisfaction or waiver of all of the
conditions set forth in the Merger Agreement, or such other time as agreed by
the Company and CEI (the 'Closing Date'). There can be no assurance as to if or
when the Merger will be consummated. If the Merger has not been consummated on
or prior to November 30, 1999, the Merger Agreement may be terminated by either
the Company or CEI, unless the failure to consummate the Merger by such date is
due to (i) the failure of the party seeking to terminate the Merger Agreement to
fulfill any obligation under the Merger Agreement or (ii) the failure to obtain
final orders, or the failure of an approval to become a final order. See
'--Conditions to Consummation of the Merger;--Termination.'
CONVERSION OF SHARES
At the Effective Time, each share of Common Stock (other than shares held
by the Company as treasury stock and shares owned by CEI or any other subsidiary
of the Company or CEI) will be converted into the right to receive the Merger
Consideration upon surrender of the certificate formerly representing such share
of Common Stock. See '--Procedure for Payment.' All such shares of Common Stock,
when so converted, will no longer be outstanding and will automatically be
cancelled and retired and will cease to exist, and each holder of a certificate
representing any such shares will cease to have any rights with respect thereto,
except the right to receive the Merger Consideration therefor upon the surrender
of such certificate.
All shares of Common Stock that are held by the Company as treasury stock
and any shares of Common Stock owned by CEI or any subsidiary of the Company or
CEI will be cancelled and retired and will cease to exist and no Merger
Consideration or other consideration will be delivered in exchange therefor.
Prior to the Effective Time, all shares of the Company's Cumulative
Preferred Stock, issuable in series, par value $100.00 per share (the 'Preferred
Stock'), and the Company's Cumulative Preference Stock, issuable in series,
without par value (the 'Preference Stock'), will be redeemed at a redemption
price equal to the amount
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set forth in the Restated Certificate of Incorporation of the Company, together
with all dividends accrued and unpaid to the date of such redemption.
PROCEDURE FOR PAYMENT
Prior to the Effective Time, the Company and CEI will designate a bank or
trust company to act as paying agent (the 'Paying Agent') to effect the payment
of the Merger Consideration. From time to time at, immediately prior to or after
the Effective Time, CEI will make available to the Paying Agent immediately
available funds in amounts and at the times necessary for the payment of the
Merger Consideration upon surrender of Certificates (as hereinafter defined). As
soon as practicable after the Effective Time, the Paying Agent will mail to each
holder of record of Certificates (as defined below): (i) a letter of transmittal
(which will specify that delivery will be effected, and risk of loss and title
to the Certificates will pass, only upon actual delivery of the Certificates to
the Paying Agent) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for the Merger Consideration. 'Certificates' mean a
certificate or certificates which, immediately prior to the Effective Time,
represented outstanding shares of Common Stock (the 'Cancelled Shares') that
were cancelled and became instead the right to receive the Merger Consideration.
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 will be entitled to
receive the Merger Consideration in exchange for each share of Common Stock
formerly evidenced by such Certificate. In the event of a transfer of ownership
of Cancelled Shares which is not registered in the transfer records of the
Company, the Merger Consideration may be given to a transferee if the
Certificate representing such Cancelled Shares 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, each Certificate will be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender the Merger Consideration. No interest will be paid or will accrue on
the Merger Consideration payable to holders of Certificates.
SHAREHOLDERS SHOULD NOT FORWARD CERTIFICATES TO THE PAYING AGENT UNTIL THEY
HAVE RECEIVED TRANSMITTAL FORMS. SHAREHOLDERS SHOULD NOT RETURN CERTIFICATES
WITH THE ENCLOSED PROXY.
REPRESENTATIONS AND WARRANTIES
The Company. Pursuant to the Merger Agreement, the Company has made
representations and warranties regarding, among other things, the following: (i)
the Company's organization, existence and qualification to do business and
similar corporate matters, (ii) the Company's subsidiaries and certain equity
investments, (iii) the Company's capitalization, (iv) the Company's authority to
enter into and perform its obligations under the Merger Agreement; (v) the
absence of conflict of the Merger Agreement and the transactions contemplated
thereby with the Company's Restated Certificate of Incorporation, By-laws,
certain agreements and applicable law; (vi) certain regulatory consents and
approvals, (vii) compliance with the Company's Restated Certificate of
Incorporation, By-laws, certain agreements and applicable law, (viii) certain
filings with the SEC and the financial statements contained therein, (ix) the
Company's franchises, (x) absence of certain changes or events, (xi) litigation
involving the Company, (xii) information to be included or incorporated in this
Proxy Statement, (xiii) tax matters, (xiv) employee benefit matters, (xv) labor
and employee relations, (xvi) environmental matters, (xvii) regulation of the
Company as a utility under state and federal law, (xviii) the vote required in
connection with approval of the Merger Agreement and the transactions
contemplated thereby, (xix) non-applicability of certain state anti-takeover
statutes, (xx) the opinion of the Company's financial advisor, (xxi) the
Company's insurance policies and (xxii) the discontinued business of the
Company's wholly-owned subsidiary, NORSTAR Management, Inc. and its
subsidiaries.
CEI. Pursuant to the Merger Agreement, CEI has made representations and
warranties regarding, among other things, the following: (i) CEI's organization,
existence and qualification to do business and similar corporate matters, (ii)
CEI's authority to enter into and perform its obligations under the Merger
Agreement, (iii) the absence of conflict of the Merger Agreement and the
transactions contemplated thereby with CEI's certificate of incorporation,
by-laws, certain agreements and applicable law, (iv) certain regulatory consents
and approvals, (v) compliance with law which would affect CEI's ability to
consummate the transactions
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contemplated by the Merger Agreement, (vi) the absence of litigation which would
affect CEI's ability to consummate the transactions contemplated by the Merger
Agreement, (vii) CEI information to be included or incorporated in this Proxy
Statement, (viii) regulation of CEI and its subsidiaries as utilities under
state and federal law, (ix) no shareholder vote required to consummate the
transactions contemplated by the Merger Agreement, (x) availability of funds to
pay the Merger Consideration and (xi) no ownership by CEI of the Company's
Common Stock.
CONDUCT OF BUSINESS PENDING THE MERGER
The Merger Agreement generally provides that, except as otherwise permitted
or required therein, after the date of the Merger Agreement and prior to the
Effective Time:
(a) except for the divestiture of the Company's generation assets in
accordance with the Settlement Agreement and the Final Divestiture Plan (as
defined in the Merger Agreement), prior to the consummation of the Merger,
the Company will, and will cause its subsidiaries to, carry on their
businesses in the ordinary course substantially consistent with past
practice;
(b) the Company will not, and will not permit its Subsidiaries to: (i)
declare or pay any dividends on or make other distributions in respect of
any of their respective capital stock, other than regular quarterly
dividends on Common Stock not in excess of the dividends for the comparable
period of the prior fiscal year, (ii) split, combine or reclassify any of
their respective capital stock or issue shares of their respective capital
stock, (iii) redeem, repurchase or acquire any shares of their respective
capital stock, except that the Company will redeem its Preferred Stock and
Preference Stock, or (iv) issue, pledge, dispose of or encumber any shares
of their capital stock with certain exceptions;
(c) the Company will not amend or propose to amend its Restated
Certificate of Incorporation or by-laws or other comparable organizational
documents of any of its Subsidiaries;
(d) the Company will not, and will not permit its Subsidiaries to (i)
acquire an equity interest in, or substantial portion of the assets of, any
business or any corporation, (ii) acquire a material amount of assets other
than in the ordinary course of business consistent with past practice,
(iii) alter the corporate structures or ownership of the Company or any of
its subsidiaries or (iv) enter into a new line of business;
(e) the Company will not, and will not permit its Subsidiaries to sell
or dispose of any of their respective assets other than dispositions in the
ordinary course of business consistent with past practice and except for:
(i) the Company divesting its generation assets in accordance with the
Settlement Agreement and the Final Divestiture Plan, (ii) certain
wholly-owned Subsidiaries of the Company, divesting certain real estate at
fair market value, and (iii) the Company or its Subsidiaries making
dispositions at fair market value of less than $10 million, singularly or
in the aggregate, during any fiscal year;
(f) the Company (i) will consult with CEI with respect to significant
decisions relating to the divestiture of its generating assets and
transactions in connection therewith prior to taking any action with
respect to any such decision or entering into any such transaction and (ii)
will take into account the views of CEI with respect to such action or
transaction;
(g) the Company will use its best efforts to enter into a definitive
agreement to divest its generation assets on or prior to May 1, 1999 and
consummate such divestiture as soon as practicable after entering into such
agreement in accordance with the Final Divestiture Plan;
(h) the Company will (i) confer regularly with CEI regarding
operational matters, (ii) promptly notify CEI of any significant changes in
its business and of property sales, and the use of proceeds therefrom, in
excess of $10 million, (iii) promptly provide CEI with copies of all
filings made with governmental entities relating to the Merger, and (iv)
promptly advise CEI (A) if its representations or warranties in the Merger
Agreement become untrue, (B) if the Company fails to materially comply with
the Merger Agreement and (C) of any change or event which, individually or
in the aggregate, (x) is, or reasonably would be expected to be, materially
adverse to the business, assets, financial condition, results of operations
or prospects of the Company and its Subsidiaries taken as a whole or (y)
would prevent, or reasonably be expected to prevent,
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the Company from performing its obligations under the Merger Agreement or
prevent the consummation of the transactions contemplated by the Merger
Agreement (a 'Company Material Adverse Effect');
(i) the Company will, and will cause its subsidiaries to, use all
reasonable best efforts to obtain certain third-party consents, and will
notify CEI if it fails to obtain any such consents;
(j) the Company will not, and the Company will not permit any of its
subsidiaries to, voluntarily take any action that would or is reasonably
likely to result in a material breach of any provision of the Merger
Agreement or in any of its representations and warranties set forth therein
being untrue on and as of the Closing Date;
(k) the Company will not, and will not permit any of its subsidiaries
to, take any action that would jeopardize the status of the Company's
tax-exempt bonds;
(l) the Company (i) will obtain CEI's consent prior to making or
rescinding any material election relating to taxes and prior to settling
any material claim or controversy relating to taxes, with certain
exceptions, and (ii) will not materially alter its methods of reporting
income or deductions for federal income tax purposes, unless required by
applicable law;
(m) the Company will not, and will not permit any of its subsidiaries
to, make capital expenditures during any year in excess of 110% of the
amount budgeted for such year by the Company, except (i) as required by
law, (ii) as deemed necessary following a catastrophic event, or (iii) for
certain disclosed exceptions;
(n) the Company will not, and will not permit any of its subsidiaries
to, incur or guarantee any indebtedness with certain exceptions, such as
(i) short-term indebtedness and guarantees (for certain of the Company's
subsidiaries) in the ordinary course of business consistent with past
practice (and not aggregating more than $5 million in the case of
guarantees), (ii) other debt or other agreements not aggregating more than
$5 million, (iii) as may be necessary in connection with capital
expenditures or redemption of the Company's Preferred Stock or the
Company's Preference Stock, both as permitted by the Merger Agreement and
(iv) use of letters of credit aggregating up to $10 million to fund rabbi
trusts to pay benefits under the Company's employee benefit plans;
(o) except as may be required by applicable law and for certain
exceptions disclosed to CEI, the Company will not, and will not 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 Company Plan (as defined in the Merger Agreement), (ii)
increase the compensation of any employee of the Company or any of its
subsidiaries, except for normal promotion and compensation increases and
award grants in the ordinary course of business, (iii) enter into or amend
any agreement with respect to the termination of employment with any
employee other than, with respect only to employees who are not officers or
directors, in the ordinary course of business consistent with past
practice, or (iv) enter into or amend any collective bargaining agreement
or other labor union contract, except as required by law;
(p) the Company will not, and will not 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;
(q) the Company will not, and will not permit any of its subsidiaries
to, make any changes in their accounting methods, except as required by
law, rule, regulation or generally accepted accounting principles ('GAAP')
or except as specifically disclosed to CEI;
(r) subject to certain other restrictions set forth in the Merger
Agreement, the Company will not permit any of its subsidiaries to enter
into any material agreement or arrangement with any of their respective
affiliates on terms materially less favorable than could be obtained with
an unaffiliated third-party on an arm's length basis;
(s) subject to applicable law and with certain exceptions, the Company
will, and will cause its subsidiaries to, (i) discuss with CEI any changes
in its or its subsidiaries' rates or the services they provide or charge
and obtain CEI's approval prior to proposing or agreeing to make any
material changes with
31
<PAGE>
respect thereto and (ii) consult with CEI prior to making any filing with
governmental regulators with respect thereto;
(t) the Company will not, and will not permit any of its subsidiaries
to, except in the ordinary course of business consistent with past
practice, modify, amend, terminate, renew or fail to use reasonable
business efforts to renew any of the Company's or its subsidiaries'
material contracts or agreements, or waive, release or assign any material
rights or claims therein, with certain exceptions;
(u) the Company will, and will cause its subsidiaries to, maintain
insurance in such amounts and against such risks and losses as are
customary for a similar company in the electric and gas utility industry;
(v) the Company will, and will cause its subsidiaries to, use
reasonable efforts to maintain in effect all existing governmental permits
which are material to the operations of the Company or its subsidiaries;
and
(w) the Company will not, and will not permit any of its subsidiaries
to, satisfy any claims, liabilities or obligations material to the Company
and its subsidiaries taken as a whole, other than in the ordinary course of
business consistent with past practice or in accordance with the terms of
such obligation, if such obligation was either disclosed in filings with
the SEC filed prior to the date of the Merger Agreement or incurred in the
ordinary course.
In addition, the Merger Agreement provides that CEI will promptly advise
the Company (i) if any representation or warranty made by it contained in the
Merger Agreement becomes untrue or inaccurate, or (ii) if CEI fails, in any
material respect, to comply or satisfy any covenant, condition or agreement
under the Merger Agreement. CEI must provide the Company with copies of all
filings made by CEI or any of its subsidiaries with any governmental entity in
connection with the Merger Agreement and the transactions contemplated thereby.
Furthermore, CEI will not voluntarily take any action that would or is
reasonably likely to result in a material breach of any provision of the Merger
Agreement or in any of its representations and warranties set forth therein
being untrue on and as of the closing date of the Merger.
DIRECTORS' AND OFFICERS' INSURANCE AND INDEMNIFICATION
Pursuant to the Merger Agreement, from and after the Effective Time, the
Surviving Corporation will indemnify to the fullest extent permitted by
applicable law, each person who was at the date of the Merger Agreement, or who
has been at any time prior to the execution date of the Merger Agreement, or who
becomes prior to the Effective Time (x) a director or officer or (y) an employee
covered as the date of the Merger Agreement (to the extent of the coverage
extended as of such date) of the Company or any of the Company's subsidiaries
with respect generally to (i) all losses, expenses (including reasonable
attorney's fees and expenses), claims, damages or liabilities or amounts paid in
settlement, arising out of actions or omissions occurring at or prior to the
Effective Time that are based on or arising out of the fact that such person is
or was a director, officer or employee of the Company or any of its subsidiaries
(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. Such rights to indemnification will continue in
full force and effect for at least six years from the Effective Time. The
Surviving Corporation will also maintain in effect for at least six years after
the Effective Time policies of directors' and officers' insurance equivalent in
all material respects to those maintained by or on behalf of the Company and its
subsidiaries on May 10, 1998.
EMPLOYEE MATTERS
CEI will cause the Surviving Corporation and its subsidiaries to honor all
(i) collective bargaining agreements in effect as of the date of the Merger
Agreement, and (ii) subject to the provisions regarding employee benefit plans,
contracts, agreements and commitments (including all Company Plans) of the
Company as in effect on the date of the Merger Agreement that apply to any
current or former employee or current or former director of the Company.
However, CEI or the Surviving Corporation and its subsidiaries may exercise
their rights with respect to such contracts, agreements, collective bargaining
agreements and commitments in accordance with their terms, including, without
limitation, any right to amend, modify, suspend, revoke or terminate any such
contract, agreement, collective bargaining agreement or commitment or portion
thereof.
32
<PAGE>
Subject to applicable law and obligations under applicable collective
bargaining agreements, for a period of three years following the Effective Time,
any reductions in workforce in respect of employees of the Surviving Corporation
and its Subsidiaries will be made on a fair and equitable basis as determined by
the Surviving Corporation, without regard to whether employment was with the
Company, CEI or either company's subsidiaries, and with due consideration to
prior experience and skills. Generally, any employee whose employment is
terminated or job is eliminated during such period will be entitled to
participate in the job opportunity and employment placement programs offered by
CEI or the Surviving Corporation or any of their subsidiaries for which they are
eligible. Any workforce reductions carried out following the Effective Time by
the Surviving Corporation and its Subsidiaries will be done in accordance with
all applicable collective bargaining agreements and all laws and regulations
governing the employment relationship and termination thereof including, without
limitation, the Worker Adjustment and Retraining Notification Act and
regulations promulgated thereunder, and any comparable state or local law.
All service under any Company Plan that was recognized, accrued or credited
under such Company Plan immediately preceding the Effective Time will continue
to be recognized, accrued or credited for all relevant purposes under such
Company Plan as of and at all times following the Effective Time. Subject to
obligations under applicable law and applicable collective bargaining
agreements, all employees of the Company and its Subsidiaries who were employees
immediately prior to the Effective Time (the 'Affected Employees') will be given
credit for all service with the Company or its subsidiaries under (a) all
employee benefit plans, programs and policies, and fringe benefits of CEI or the
Surviving Corporation (if any) in which they first become participants on or
after the Effective Time, for purposes of eligibility and vesting but not for
benefit accrual purposes or eligibility for early retirement purposes under
defined benefit pension plans and not to the extent crediting such service would
result in duplication of benefits and (b) severance plans for purposes of
calculating the amount of each Affected Employee's severance benefits. To the
extent permissible under the terms thereof and required by applicable law, CEI
and the Surviving Corporation will (i) waive all limitations as to preexisting
conditions exclusions and waiting periods with respect to participation and
coverage requirements applicable to the Affected Employees under any welfare
benefit plans that such employees may be eligible to participate in after the
Closing Date, other than limitations or waiting periods that are already in
effect with respect to such employees and that have not been satisfied as of the
Closing Date under any welfare benefit plan maintained for the Affected
Employees immediately prior to the Closing Date, and (ii) provide each Affected
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 employees are eligible to
participate in after the Closing Date.
Subject to applicable law and obligations under applicable collective
bargaining agreements, CEI will cause the Surviving Corporation to maintain for
a period of at least one year after the Closing Date employee compensation,
welfare and benefit plans, programs, policies and fringe benefits that will, in
the aggregate, provide benefits to the Affected Employees that are no less
favorable than those provided to such employees before the Closing Date. CEI
will cause the Surviving Corporation to continue, for one year following the
Closing Date, the Company Severance Pay Plan (the 'Severance Plan') in full
force and effect to the same extent that such Severance Plan is in effect on the
Closing Date. In addition, the consummation of the Merger will not be treated as
a termination of employment of any Affected Employee for purposes of any Company
Plan. Finally, CEI will cause the Surviving Corporation to, as of the Closing
Date, honor and be solely responsible for certain employment, severance,
consulting and retention agreements.
Although not addressed in the Merger Agreement and subject to (a) changes
that may result from periodic reviews of the pension and benefit plans of other
employers and evolving business practices and (b) applicable law and collective
bargaining agreements, CEI and the Company currently intend that Affected
Employees who transfer from the Surviving Corporation and its subsidiaries to
CEI's utility subsidiary, CECONY, will receive credit for benefit accrual and
eligibility for early retirement purposes for service with the Company and
CECONY that is equivalent to that of Affected Employees who do not transfer,
with offsets as may be appropriate to avoid duplication of benefits.
33
<PAGE>
NO SOLICITATION OF PROPOSALS
The Merger Agreement prevents the Company from directly or indirectly
initiating, soliciting, encouraging, or taking any other action to facilitate
knowingly any inquiries or the making of any proposal which constitutes or may
be reasonably expected to lead to any business combination proposal, or engaging
in negotiations with, or providing any nonpublic information to, any third party
relating to a business combination proposal, unless prior to the receipt of
approval of the holders of the Company's Common Stock: (i) a third party submits
an unsolicited business combination proposal and the Company's Board reasonably
believes, in good faith after consultation with its financial advisors, that
such proposal may be more favorable to the Company's shareholders than the
Merger (a 'Superior Proposal'); (ii) the Company's Board determines, in good
faith after consultation with its financial advisors and outside counsel, that
failure to furnish information and participate in negotiations could reasonably
be expected to be a breach of its fiduciary duties to the Company's shareholders
under applicable law, and (iii) prior to furnishing nonpublic information or
entering into negotiations, the Company (a) promptly notifies CEI of the
identity of the third party and of the material terms of the Superior Proposal
and that it is furnishing information or entering into negotiations with the
third party and (b) enters into a customary confidentiality agreement with the
third party. The Company may furnish information to, and participate in
discussions and negotiations with the third party who proposes a business
combination that may be a Superior Proposal for twenty business days before it
must make its determination whether the proposal is more favorable to the
Company's shareholders than the Merger. The Company may terminate the Merger
Agreement to accept a Superior Proposal (in which case, the termination fee
provision described below would be applicable), but before doing so, the Company
must give CEI three business days to make its offer more favorable to the
Company's shareholders than the Superior Proposal.
CONDITIONS TO CONSUMMATION OF THE MERGER
The Merger is subject to certain customary closing conditions. The
obligations of both the Company and CEI to consummate the Merger are subject to
(i) receipt of the approval of the holders of the Company's Common Stock, (ii)
the absence of any injunction, order, law or regulation preventing consummation
of the Merger, and (iii) the approval of state utility regulators in New York,
New Jersey and Pennsylvania, the approval of the FERC, the approval of the SEC
under the 1935 Act and the filing of the requisite notification with the FTC and
the Department of Justice under the HSR Act and the expiration of the applicable
waiting period thereunder.
In addition, the obligation of the Company to consummate the Merger is
further subject to: (i) the performance in all material respects by CEI of its
obligations under the Merger Agreement, (ii) the accuracy of CEI's
representations and warranties under the Merger Agreement as of the date of such
agreement, and as of the Closing Date, except for such failures that would not
have a material adverse effect and (iii) the receipt by the Company from CEI of
a closing certificate to the effect that the conditions in (i) and (ii) were
satisfied.
Finally, the obligation of CEI to consummate the Merger is further subject
to: (i) the performance in all material respects by the Company of its
respective obligations under the Merger Agreement, (ii) the accuracy of the
Company's representations and warranties under the Merger Agreement as of the
date of such agreement, and as of the Closing Date, except for such failures
that would not have a Company Material Adverse Effect, (iii) the receipt by CEI
of a closing certificate to the effect that the conditions in (i) and (ii) were
satisfied, (iv) the absence of any change that would have a Company Material
Adverse Effect, (v) the receipt by the Company of certain third-party consents,
(vi) the receipt by CEI and the Company of the required statutory approvals,
which must have become final orders and the terms of which final orders must not
impose terms or conditions that, individually or in the aggregate, would have a
Company Material Adverse Effect or a CEI Material Adverse Effect (as defined in
the Merger Agreement), and (vii) the redemption by the Company of the Preference
Stock in accordance with the terms of such stock.
TERMINATION
The Merger Agreement may be terminated under certain circumstances,
including (i) by mutual consent of the parties, (ii) by either CEI or the
Company if the Merger is not consummated by November 30, 1999 (the 'Initial
Termination Date'), subject to an automatic extension of six months if the
requisite statutory approvals have not yet been obtained by the Initial
Termination Date but all other conditions to closing have been fulfilled
34
<PAGE>
or are capable of being fulfilled by such date, (iii) by either CEI or the
Company if the requisite approval of the Company's shareholders is not obtained
at a duly held shareholders' meeting, (iv) by a non-breaching party if there
occurs a material breach of any representation, warranty, covenant or agreement
contained in the Merger Agreement which is not cured within twenty business days
after receipt of notice thereof from the other party, or (v) by the Company,
under certain circumstances, in order to accept a Superior Proposal (subject to
the limitations and procedures described above and to payment of the termination
fee described below).
The Merger Agreement provides that the Company will pay CEI a termination
fee of $25 million if the Merger Agreement is terminated (i) upon the
termination of the Merger Agreement by the Company in order to accept a Superior
Proposal (subject to the limitations and procedures described above) or (ii)
following a termination of the Merger Agreement by either the Company or CEI as
a result of a failure of the Company's shareholders to grant their approval to
the Merger if (x) at the time of the Company's shareholders' meeting, an
acquisition proposal will have been made and (y) the Company enters into any
acquisition agreement within two and one-half years of such termination. The
Merger Agreement also provides that if the Merger Agreement is terminated
because of a party's material breach of its representations and warranties or
material failure to perform and comply with its agreements and covenants under
the Merger Agreement, then the defaulting party will pay the other party up to
$5 million for its out-of-pocket expenses incurred in connection with the
Merger. In addition, if either CEI or the Company terminates the Merger
Agreement because the Company's shareholder approval was not obtained, the
Company will pay CEI up to $5 million for its out-of-pocket expenses incurred in
connection with the Merger.
MISCELLANEOUS
Directors and Officers. One current member of the Company's Board of
Directors, selected by the Nominating Committee of CEI's Board of Directors,
will be appointed to the Board of Directors of CEI effective at the Effective
Time. In addition, at the Effective Time, CEI will cause the Surviving
Corporation to establish an advisory board, with equal numbers of members from
CEI and the Company, that will provide advice and input regarding the
implementation of the Merger and the ongoing operations of the Surviving
Corporation.
Post Merger Operations. The Surviving Corporation will maintain a
subsidiary office in Rockland County as the headquarters of the Surviving
Corporation for three years following the Merger. CEI will cause the Surviving
Corporation to provide charitable contributions within the Company's and its
utility subsidiaries' service areas at levels substantially comparable to and no
less than the levels provided by the Company for the two years before the
Effective Time.
35
<PAGE>
THE COMPANIES
ORANGE AND ROCKLAND UTILITIES, INC.
Orange and Rockland Utilities, Inc. (the 'Company') is a diversified
investor-owned utility located in the northwestern suburbs of New York City. The
Company and its two utility subsidiaries, Rockland Electric Company and Pike
County Light & Power Company, furnish electric service to a population of
approximately 681,000 and provide gas service to a population of approximately
482,000. The service territory of the company and its utility subsidiaries
covers seven counties and 96 communities in New York, northern New Jersey and
northeastern Pennsylvania. The principal executive offices of the Company are
located at One Blue Hill Plaza, Pearl River, New York 10965, and its telephone
number is (914) 352-6000.
CEI AND THE MERGER SUBSIDIARY
Consolidated Edison, Inc. ('CEI') is one of the nation's largest
investor-owned energy companies. CEI provides a wide range of energy-related
products and services to its customers through its subsidiaries, the largest of
which is Consolidated Edison Company of New York, Inc., providing electricity,
gas and steam to more than three million customers in New York City and
Westchester County, New York. C Acquisition Corp. (the 'Merger Subsidiary'),
which is a wholly-owned subsidiary of CEI, is a recently organized corporation
that has not conducted any business except in conjunction with the transactions
contemplated by the Merger Agreement. The principal executive offices of CEI and
the Merger Subsidiary are located at 4 Irving Place, New York, New York 10003,
and the telephone number at that office is (212) 460-3900.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF THE COMPANY
The following table shows, as of June 30, 1998, all of the Common Stock
owned beneficially by each person who is or was a director of the Company since
January 1, 1997. In addition, the following table shows, as of June 30, 1998,
all of the Common Stock owned beneficially by (i) the Company's chief executive
officer, Mr. Peoples, (ii) the Company's four most highly compensated executive
officers other than Mr. Peoples, who were serving as executive officers as of
the end of the last fiscal year, and (iii) an additional individual who would
have been included in clause (ii) above, but for the fact that he was not
serving as an executive officer of the Company at December 31, 1997.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
OWNED
NAME BENEFICIALLY(1)
- -------------------------------------------------------------------- ------------
<S> <C>
Ralph M. Baruch..................................................... 5,741
Robert J. Biederman, Jr............................................. 0
Larry S. Brodsky.................................................... 1
G.D. Caliendo....................................................... 208
J. Fletcher Creamer................................................. 8,697
Michael J. Del Guidice.............................................. 1,127
R. Lee Haney........................................................ 689
Jon F. Hanson....................................................... 3,020
Robert J. McBennett................................................. 252
Kenneth D. McPherson................................................ 1,000
Robert E. Mulcahy III............................................... 188
James F. O'Grady, Jr................................................ 1,000
D. Louis Peoples.................................................... 1,745
Frederic V. Salerno................................................. 1,500
Linda C. Taliaferro................................................. 524
H. Kent Vanderhoef.................................................. 2,572
20 Directors and executive officers as a group...................... 28,519
</TABLE>
(Footnotes on next page)
36
<PAGE>
(Footnotes from previous page)
- ------------------
(1) Based on the latest information furnished to the Company by the Company's
directors and executive officers. Includes shares of Common Stock owned
beneficially pursuant to the Company's Management Employees' Savings Plan
through June 30, 1998, the latest date for which such information is
available.
As of June 30, 1998, no director owned beneficially more than .064% of the
outstanding shares of Common Stock, no named executive officer owned more
than .013% of such shares and directors and executive officers as a group
owned .211% of such shares.
The Common Stock share equivalents owned by the non-employee directors under
the Deferred Compensation Plan, which were disclosed in the Company's proxy
statement relating to the Annual Meeting held on April 8, 1998, were paid
out to such individuals in June 1998. See 'INTERESTS OF CERTAIN PERSONS IN
THE MERGER--Non-Employee Directors' Deferred Compensation Plan.' These
Common Stock share equivalents represented the phantom share units held by
non-employee directors who had deferred compensation for services as a
director, or for whom such compensation had been deferred, into the phantom
share unit account under the Deferred Compensation Plan, as well as phantom
share units credited to each director's account under this plan as of
February 5, 1998 in connection with the discontinuation of the Directors'
Program. Under the Deferred Compensation Plan, the directors were entitled
to receive cash payments for their phantom share units as a result of the
execution of the Merger Agreement, which constituted a Potential Change in
Control as defined in the Deferred Compensation Plan. In addition, in
connection with the execution of the Merger Agreement, which constituted a
Potential Change of Control under the terms of the PSU Plan, all PSUs
granted to executive officers for the 1996-98, 1997-99 and 1998-2000
three-year performance periods, and with respect to one named executive
officer DSUs (deferred share units) earned as a result of PSUs earned for
the 1996 transitional performance period, were paid out in cash in May 1998.
MARKET PRICES AND DIVIDENDS ON THE COMPANY'S COMMON STOCK
MARKET PRICES
The Common Stock is listed on the New York Stock Exchange under the ticker
symbol 'ORU'.
On May 8, 1998, the last day of trading of the Common Stock prior to the
announcement of the execution of the Merger Agreement, the high, low and closing
sales prices of the Common Stock as quoted on the NYSE were $43.00, $42.25 and
$42.25, respectively.
The following table indicates the high and low sales prices and dividends
for the Common Stock for the first quarter of 1995 through the first quarter of
1998:
<TABLE>
<CAPTION>
DIVIDEND
HIGH LOW PAID
---- --- --------
<S> <C> <C> <C>
Year Ended December 31, 1998
2nd Quarter............................................................. $54 1/2 $40 $0.645
1st Quarter............................................................. 47 3/8 42 13/16 0.645
Year Ended December 31, 1997
4th Quarter............................................................. $48 5/8 $35 $0.645
3rd Quarter............................................................. 37 5/16 32 5/16 0.645
2nd Quarter............................................................. 35 5/8 30 1/8 0.645
1st Quarter............................................................. 36 7/8 35 3/8 0.645
Year Ended December 31, 1996
4th Quarter............................................................. $36 1/4 $341/4 $0.645
3rd Quarter............................................................. 37 34 3/4 0.645
2nd Quarter............................................................. 36 3/4 33 3/8 0.645
1st Quarter............................................................. 37 1/8 34 7/8 0.645
Year Ended December 31, 1995
4th Quarter............................................................. $37 3/8 $343/8 $0.645
3rd Quarter............................................................. 35 5/8 31 1/8 0.645
2nd Quarter............................................................. 34 3/8 30 7/8 0.64
1st Quarter............................................................. 33 3/8 31 1/4 0.64
</TABLE>
37
<PAGE>
SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company and its subsidiaries for each of the five fiscal years ended December
31, 1993 through 1997 and for the quarters ended March 31, 1998 and 1997. The
selected financial information reflects the reclassification of NORSTAR Energy
Limited Partnership as discontinued operations for the years ended December 31,
1993 through 1996 and for the quarter ended March 31, 1997 subsequent to the
original issuance of the consolidated financial statements of the Company from
which the selected financial data have been derived. The Company's financial
statements for the year ended December 31, 1993 were audited by Grant Thornton
LLP, independent public accountants, but the reclassification subsequent to the
original issuance of the financial statements was not audited by Grant Thornton
LLP. The Company's financial statements for the years ended December 31, 1994
through 1997 were audited by Arthur Andersen LLP, independent public
accountants.
The unaudited financial information for the three months ended March 31,
1997 and 1998 includes all adjustments, consisting of normal recurring accruals,
that the Company considers necessary for a fair presentation of the financial
position and results of operations for such periods.
The selected financial data set forth below do not purport to be complete
and should be read in conjunction with and are qualified in their entirety by,
the Company's annual and quarterly reports, including the notes thereto, which
are incorporated herein by reference.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------------- -------------------------------------------------
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SELECTED INCOME STATEMENT DATA
Operating Revenue............................. $ 165,081 $ 185,319 $ 648,774 $ 654,889 $ 602,310 $ 638,404
Operating Income.............................. $ 21,482 $ 21,395 $ 76,997 $ 82,644 $ 75,569 $ 75,594
Net Income:
Continuing Operations....................... $ 13,804 $ 11,514 $ 44,938 $ 48,147 $ 37,766 $ 36,593
Discontinued Operations(1) $ 0 ($ 4,598) ($ 15,432) ($ 1,844) $ 807 $ 624
Total..................................... $ 13,804 $ 6,916 $ 29,506 $ 46,303 $ 38,573 $ 37,217
Earnings per Average Common Share Outstanding:
Continuing Operations $ 0.97 $ 0.79 $ 3.09 $ 3.30 $ 2.54 $ 2.45
Discontinued Operations(1) $ 0.00 ($ 0.33) ($ 1.13) ($ 0.13) $ 0.06 $ 0.05
Total..................................... $ 0.97 $ 0.46 $ 1.96 $ 3.17 $ 2.60 $ 2.50
Cash Dividends Declared Per Common Share...... $ 0.645 $ 0.645 $ 2.58 $ 2.58 $ 2.57 $ 2.54
SELECTED BALANCE SHEET DATA
Total Assets.................................. $1,261,890 $1,252,615 $1,288,009 $1,266,132 $1,251,541 $1,230,726
Total Long-Term Debt.......................... $ 358,453 $ 359,749 $ 358,492 $ 361,215 $ 362,976 $ 383,965
Common Stock Equity........................... $ 377,463 $ 385,261 $ 376,319 $ 387,850 $ 379,776 $ 379,403
Book Value Per Share.......................... $ 27.92 $ 28.22 $ 27.69 $ 28.41 $ 27.82 $ 27.79
<CAPTION>
1993
----------
<S> <<C>
SELECTED INCOME STATEMENT DATA
Operating Revenue............................. $ 645,640
Operating Income.............................. $ 82,574
Net Income:
Continuing Operations....................... $ 44,226
Discontinued Operations(1) $ 589
Total..................................... $ 44,815
Earnings per Average Common Share Outstanding:
Continuing Operations $ 3.02
Discontinued Operations(1) $ 0.04
Total..................................... $ 3.06
Cash Dividends Declared Per Common Share...... $ 2.49
SELECTED BALANCE SHEET DATA
Total Assets.................................. $1,225,627
Total Long-Term Debt.......................... $ 388,064
Common Stock Equity........................... $ 376,044
Book Value Per Share.......................... $ 27.79
</TABLE>
- ------------------
(1) Effective August 1, 1997, the accounts receivable, with certain exceptions,
and contracts with customers and related agreements of NORSTAR Energy
Limited Partnership were sold. In accordance with Accounting Principles
Board Opinion No. 30, the consolidated financial statements of the Company
at December 31, 1997 reported the results of NORSTAR Energy Limited
Partnership as 'Discontinued Operations,' and the results of all prior
periods presented herein have been restated to conform with the current
period classifications.
38
<PAGE>
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Representatives of Arthur Andersen LLP, independent certified public
accountants, will be present at the Special Meeting, will have the opportunity
to make a statement if they desire to do so, and are expected to be available to
respond to appropriate questions.
OTHER MATTERS
The Board of Directors does not intend to bring any matters before the
Special Meeting other than approval and adoption of the Merger Agreement and
knows of no other matters which may come before the meeting. If any other
matters or motions properly come before the Special Meeting, it is the intention
of the persons named in the accompanying form of proxy to vote such proxy in
accordance with their best judgment on such matters or motions, including any
matters dealing with the conduct of the meeting.
DEADLINE FOR SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
November 6, 1998 is the date by which proposals of shareholders of the
Company intended to be presented at the 1999 Annual Meeting of Common
Shareholders of the Company must be received by the Company for inclusion in the
Company's proxy statement and form of proxy relating to that meeting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'), and, in accordance
therewith, files reports, proxy statements and other information with the SEC.
Copies of such reports, proxy statements and other information can be obtained,
at prescribed rates from the Public Reference Section of the SEC at Room 1024,
450 Fifth Street N.W., Judiciary Plaza, Washington, D.C. 20549. In addition,
such reports, proxy statements and other information can be inspected and copied
at the public reference facilities referred to above and at the Regional Offices
of the SEC as follows: the New York Regional Office, Suite 1300, 7 World Trade
Center, New York, New York 10048 and the Chicago Regional Office, Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The Common
Stock is listed on The New York Stock Exchange, Inc. Reports, proxy statements
and other information may also be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005. The SEC maintains a website
on the Internet that contains reports, proxy and information statements and
other information regarding the Company. The address of such website is
http://www.sec.gov.
INCORPORATION BY REFERENCE
This Proxy Statement incorporates certain documents by reference which are
not presented herein or delivered herewith. THESE DOCUMENTS (OTHER THAN EXHIBITS
TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED HEREIN BY
REFERENCE) ARE AVAILABLE TO ANY SHAREHOLDER ENTITLED TO VOTE AT THE SPECIAL
MEETING, WITHOUT CHARGE, ON WRITTEN OR ORAL REQUEST DIRECTED TO: ORANGE AND
ROCKLAND UTILITIES, INC., ONE BLUE HILL PLAZA, PEARL RIVER, NEW YORK 10965,
ATTN.: OFFICE OF THE TREASURER OR BY CALLING (914) 577-2512. In order to ensure
delivery of documents prior to the Special Meeting, any such request should be
made not later than August 5, 1998. Copies of documents so requested will be
sent by first class mail, postage paid.
The following documents heretofore filed with the SEC by the Company
pursuant to the Exchange Act are incorporated by reference to this Proxy
Statement:
1. The Company's 1997 Annual Report to Shareholders.
2. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
3. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998.
4. The Company's Current Report on Form 8-K dated February 6, 1998,
filed with the SEC on February 6, 1998.
39
<PAGE>
5. The Company's Current Report on Form 8-K dated March 31, 1998,
filed with the SEC on April 1, 1998.
6. The Company's Current Report on Form 8-K dated April 9, 1998, filed
with the SEC on April 9, 1998.
7. The Company's Current Report on Form 8-K dated May 12, 1998, filed
with the SEC on May 12, 1998.
8. The Company's Current Report on Form 8-K dated July 10, 1998, filed
with SEC on July 10, 1998.
9. Information contained in 'Compensation of Directors' and
'Management's Carried Interest in Company Stock' in Section 1,
'Election of Directors,' of the Company's definitive Proxy
Statement dated March 6, 1998 (the 'Annual Proxy Statement') in
connection with the 1998 Annual Meeting of Common Shareholders.
With the exception of this information, the Annual Proxy Statement
is not incorporated by reference into this Proxy Statement.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Proxy Statement and prior to
the date of the Special Meeting will be deemed to be incorporated by reference
in this Proxy Statement and to be a part hereof from the respective dates of
filing of such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein will be deemed to
be modified or superseded for purposes of this Proxy Statement to the extent
that a statement contained in any subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded will not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement.
No persons have been authorized to give any information or to make any
representations other than those contained, or incorporated by reference, in
this Proxy Statement in connection with the solicitation of proxies made hereby,
and if given or made, such information or representations must not be relied
upon as having been authorized by the Company or any other person. All
information contained in this Proxy Statement relating to the Company has been
supplied by the Company; all information contained in this Proxy Statement
relating to CEI or the Merger Subsidiary has been supplied by CEI. The delivery
of this Proxy Statement will not, under any circumstances, create an implication
that there has been no change in the affairs of the Company, CEI or the Merger
Subsidiary since the date hereof or that the information herein is correct as of
any time subsequent to the date hereof.
40
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AMONG
ORANGE AND ROCKLAND UTILITIES, INC.
CONSOLIDATED EDISON, INC.
AND
C ACQUISITION CORP.
DATED AS OF MAY 10, 1998
<PAGE>
[This page intentionally left blank]
<PAGE>
TABLE OF CONTENTS
ARTICLE I
THE MERGER
<TABLE>
<S> <C> <C>
Section 1.1 The Merger................................................................................... 1
Section 1.2 Effects of the Merger........................................................................ 1
Section 1.3 Effective Time of the Merger................................................................. 1
ARTICLE II
TREATMENT OF SHARES
Section 2.1 Effect on Capital Stock of the Company and the Merger Subsidiary............................. 1
Section 2.2 Surrender of Shares.......................................................................... 2
ARTICLE III
THE CLOSING
Section 3.1 Closing...................................................................................... 3
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 4.1 Organization and Qualification............................................................... 3
Section 4.2 Subsidiaries................................................................................. 4
Section 4.3 Capitalization............................................................................... 4
Section 4.4 Authority; Non-Contravention; Statutory Approvals; Compliance................................ 4
Section 4.5 Reports and Financial Statements............................................................. 6
Section 4.6 Absence of Certain Changes or Events......................................................... 6
Section 4.7 Litigation................................................................................... 7
Section 4.8 Proxy Statement.............................................................................. 7
Section 4.9 Tax Matters.................................................................................. 7
Section 4.10 Employee Matters; ERISA...................................................................... 8
Section 4.11 Labor and Employee Relations................................................................. 9
Section 4.12 Environmental Protection..................................................................... 10
Section 4.13 Regulation as a Utility...................................................................... 11
Section 4.14 Vote Required................................................................................ 11
Section 4.15 State Anti-Takeover Statutes................................................................. 11
Section 4.16 Opinion of Financial Advisor................................................................. 12
Section 4.17 Insurance.................................................................................... 12
Section 4.18 Discontinued Business........................................................................ 12
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CEI
Section 5.1 Organization and Qualification............................................................... 12
Section 5.2 Authority; Non-Contravention; Statutory Approvals; Compliance................................ 12
Section 5.3 Litigation................................................................................... 13
Section 5.4 Proxy Statement.............................................................................. 13
Section 5.5 Regulation as a Utility...................................................................... 13
Section 5.6 No Vote Required............................................................................. 13
Section 5.7 Financing.................................................................................... 14
Section 5.8 Ownership of Company Common Stock............................................................ 14
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
<S> <C> <C>
Section 6.1 Covenants of the Company..................................................................... 14
Section 6.2 Covenants of CEI............................................................................. 18
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Access to the Company's Information.......................................................... 18
Section 7.2 Proxy Statement.............................................................................. 19
Section 7.3 Regulatory Matters........................................................................... 19
Section 7.4 Approval of the Company Shareholders......................................................... 20
Section 7.5 Directors' and Officers' Indemnification..................................................... 20
Section 7.6 Public Announcements......................................................................... 21
Section 7.7 Standstill Agreements; Confidentiality Agreements............................................ 21
Section 7.8 Employee Agreements and Workforce Matters.................................................... 21
Section 7.9 Employee Benefit Plans....................................................................... 22
Section 7.10 No Solicitations by the Company.............................................................. 22
Section 7.11 Board of Directors; Advisory Board........................................................... 24
Section 7.12 Post-Merger Operations....................................................................... 24
Section 7.13 Expenses..................................................................................... 24
Section 7.14 Further Assurances........................................................................... 24
Section 7.15 Shareholder Litigation....................................................................... 24
ARTICLE VIII
CONDITIONS
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger................................... 25
Section 8.2 Conditions to Obligation of CEI to Effect the Merger......................................... 25
Section 8.3 Conditions to Obligation of the Company to Effect the Merger................................. 26
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination.................................................................................. 26
Section 9.2 Effect of Termination........................................................................ 27
Section 9.3 Termination Fee; Expenses.................................................................... 27
Section 9.4 Amendment.................................................................................... 28
Section 9.5 Waiver....................................................................................... 28
Section 9.6 Procedure for Termination, Amendment, Extension or Waiver.................................... 28
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Non-Survival; Effect of Representations and Warranties....................................... 28
Section 10.2 Brokers...................................................................................... 28
Section 10.3 Notices...................................................................................... 28
Section 10.4 Miscellaneous................................................................................ 29
Section 10.5 Interpretation............................................................................... 29
Section 10.6 Counterparts; Effect......................................................................... 30
Section 10.7 Parties' Interest; No Third Party Beneficiaries.............................................. 30
Section 10.8 Waiver of Jury Trial......................................................................... 30
Section 10.9 Enforcement.................................................................................. 30
</TABLE>
ii
<PAGE>
INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
TERM PAGE
- ---- ---------
<S> <C>
1935 Act.............................................................................................. 6
Acquisition Agreement................................................................................. 23, 27
Acquisition Proposal.................................................................................. 23, 27
Affected Employees.................................................................................... 22
Affiliate............................................................................................. 15
Cancelled Shares...................................................................................... 2
CEI Disclosure Schedule............................................................................... 12
CEI Required Statutory Approvals...................................................................... 13
CEI SEC Reports....................................................................................... 13
CEI Subsidiaries...................................................................................... 12
Certificates.......................................................................................... 2
Closing............................................................................................... 3
Closing Date.......................................................................................... 3
Code.................................................................................................. 8
Company Common Stock.................................................................................. 1
Company Financial Statements.......................................................................... 6
Company Meeting....................................................................................... 20
Company Plans......................................................................................... 8
Company Preference Stock.............................................................................. 4
Company Preferred Stock............................................................................... 4
Company Required Consents............................................................................. 5
Company Required Statutory Approvals.................................................................. 5
Company SEC Reports................................................................................... 6
Company Shareholders' Approval........................................................................ 11
Company Subsidiary.................................................................................... 4
Confidentiality Agreement............................................................................. 19
Control............................................................................................... 15
Discontinued Business................................................................................. 12
DLJ................................................................................................... 12
Effective Time........................................................................................ 1
Environmental Claim................................................................................... 11
Environmental Laws.................................................................................... 11
Environmental Permits................................................................................. 10
ERISA................................................................................................. 8
ERISA Affiliate....................................................................................... 8
Exchange Act.......................................................................................... 6
FERC.................................................................................................. 6
Final Divestiture Plan................................................................................ 14
Final Order........................................................................................... 25
GAAP.................................................................................................. 6
Governmental Authority................................................................................ 5
Hazardous Materials................................................................................... 11
HSR Act............................................................................................... 19
Indemnified Liabilities............................................................................... 20
Indemnified Parties................................................................................... 20
Indemnified Party..................................................................................... 20
Initial Termination Date.............................................................................. 26
Injured Party......................................................................................... 27
ISRA.................................................................................................. 20
Liens................................................................................................. 4
Material Business..................................................................................... 23
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ---------
<S> <C>
Merger................................................................................................ 1
Merger Consideration.................................................................................. 1
Merger Subsidiary..................................................................................... 1
Merger Subsidiary Common Stock........................................................................ 2
NYBCL................................................................................................. 1
NYPSC................................................................................................. 1
Paying Agent.......................................................................................... 2
PBGC.................................................................................................. 8
PCBs.................................................................................................. 11
person................................................................................................ 3
Power Act............................................................................................. 6
Proxy Statement....................................................................................... 7
Release............................................................................................... 11
Representatives....................................................................................... 18
SEC................................................................................................... 6
Securities Act........................................................................................ 6
Settlement Agreement.................................................................................. 14
Severance Plan........................................................................................ 22
Subsidiary............................................................................................ 4
Superior Proposal..................................................................................... 23
Surviving Corporation................................................................................. 1
Tax................................................................................................... 7
Termination Fee....................................................................................... 27
Title IV Company Plan................................................................................. 8
Violation............................................................................................. 5
Voting Debt........................................................................................... 4
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER (the 'Agreement'), dated as of May 10, 1998
(referred to herein as the 'date hereof'), by and among Orange and Rockland
Utilities, Inc. (the 'Company'), a New York corporation, Consolidated Edison,
Inc., a New York corporation ('CEI'), and C Acquisition Corp., a New York
corporation (the 'Merger Subsidiary').
WHEREAS, the Company and CEI have determined that it would be in their
respective best interests and in the interests of their respective shareholders
to effect the transactions contemplated by this Agreement; and
WHEREAS, in furtherance thereof, the respective Boards of Directors of the
Company, Merger Subsidiary and CEI have approved this Agreement and the merger
of Merger Subsidiary with and into the Company (the 'Merger').
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 1.3), the separate
existence of Merger Subsidiary shall cease and Merger Subsidiary shall be merged
with and into the Company in accordance with the laws of the State of New York.
The Company shall be the surviving corporation in the Merger, shall continue its
corporate existence under the laws of the State of New York, and, following the
Effective Time, the Company shall become a wholly owned subsidiary of CEI and
shall succeed to and assume all the rights and obligations of Merger Subsidiary
in accordance with the New York Business Corporation Law (the 'NYBCL'). The
effects and consequences of the Merger shall be as set forth in Section 1.2. The
surviving corporation after the Merger is sometimes referred to as the
'Surviving Corporation.'
Section 1.2 Effects of the Merger. At the Effective Time, (a) the
Restated Certificate of Incorporation of the Company in effect immediately prior
to the Effective Time shall be the certificate of incorporation of the Surviving
Corporation until thereafter amended, (b) the by-laws of the Company in effect
immediately prior to the Effective Time shall be the by-laws of the Surviving
Corporation after the Effective Time until duly amended, and (c) the Merger
shall have all the effects provided by the NYBCL. As of the Effective Time, each
of the directors of the Company shall resign and the directors of the Merger
Subsidiary at the Effective Time shall, from and after the Effective Time, be
the directors of the Surviving Corporation until their successors have been duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with the certificate of incorporation and the by-laws of
the Surviving Corporation.
Section 1.3 Effective Time of the Merger. Subject to the provisions of
this Agreement, on the Closing Date (as defined in Section 3.1), a certificate
of merger shall be executed and delivered for filing, with the order of the New
York State Public Service Commission (the 'NYPSC') approving the Merger attached
thereto, by the Company and Merger Subsidiary to the Department of State of the
State of New York pursuant to the NYBCL. The Merger shall become effective at
the time specified in the certificate of merger so delivered and filed by the
Department of State of the State of New York (the 'Effective Time').
ARTICLE II
TREATMENT OF SHARES
Section 2.1 Effect on Capital Stock of the Company and the Merger
Subsidiary. As of 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
Subsidiary:
(a) Conversion of Capital Stock of the Company. Each issued and
outstand ing share of Common Stock, $5 par value per share, of the Company
(the 'Company Common Stock'), in each case not owned directly or through a
wholly owned Subsidiary (as defined in Section 4.1) by the Company or CEI,
issued and outstanding immediately prior to the Effective Time shall be
cancelled and shall be converted into the right to receive cash in the
amount of $58.50 (the 'Merger Consideration') payable, without interest, to
the holder of such share of Company Common Stock, upon surrender, in the
manner provided in Section 2.2 hereof, of the certificate formerly
evidencing such share.
<PAGE>
(b) Cancellation of Treasury Stock and Certain Company Common
Stock. Any shares of Company Common Stock that are owned by the Company as
treasury stock or by CEI or by any wholly owned Subsidiary of the Company
or CEI shall be cancelled and retired and shall cease to exist and no
Merger Consideration or other consideration shall be delivered in exchange
therefor, and each holder of a certificate formerly representing any such
shares shall cease to have any rights with respect thereto.
(c) Redemption of Company Preferred Stock. Prior to the Effective
Time, the Board of Directors of the Company shall call for redemption all
outstanding shares of Company Preferred Stock (as defined in Section 4.3),
at a redemption price equal to the amount set forth in the Restated
Certificate of Incorporation of the Company, together with all dividends
accrued and unpaid to the date of such redemption. All shares of Company
Preferred Stock shall be redeemed so that no such shares shall be deemed to
be outstanding at the Effective Time.
(d) Redemption of Company Preference Stock. Prior to the Effective
Time, the Board of Directors of the Company shall call for redemption all
outstanding shares of Company Preference Stock (as defined in Section 4.3),
at a redemption price equal to the amount set forth in the Restated
Certificate of Incorporation of the Company, together with all dividends
accrued and unpaid to the date of such redemption. All shares of Company
Preference Stock shall be redeemed so that no such shares shall be deemed
to be outstanding at the Effective Time.
(e) Capital Stock of Merger Subsidiary. Each issued and outstanding
share of Common Stock, $0.01 par value per share, of Merger Subsidiary
('Merger Subsidiary Common Stock') (of which, as of the date hereof, 1,000
shares are issued and outstanding, each entitling the holder thereof to
vote on the approval of this Agreement and the transactions contemplated
hereby), shall be converted into one fully paid and nonassessable share of
Common Stock, $5 par value, of the Surviving Corporation.
Section 2.2 Surrender of Shares.
(a) Deposit with Paying Agent. Prior to the Effective Time, the Company
and CEI shall mutually designate a bank or trust company to act as agent (the
'Paying Agent') for the holders of shares of Company Common Stock in connection
with the Merger to receive the funds to which holders of shares of Company
Common Stock shall become entitled pursuant to Section 2.1(a). From time to time
at, immediately prior to or after the Effective Time, CEI shall make available
to the Paying Agent immediately available funds in amounts and at the times
necessary for the payment of the Merger Consideration upon surrender of
Certificates (as defined in Section 2.2(b)) in accordance with Section 2.2(b),
it being understood that any and all interest or other income earned on funds
made available to the Paying Agent pursuant to this Section 2.2(a) shall belong
to and shall be paid (at the time provided for in Section 2.2(d)) to CEI. Any
such funds deposited with the Paying Agent by CEI shall be invested by the
Paying Agent as directed by CEI.
(b) Exchange Procedure. As soon as practicable after the Effective Time,
the Paying Agent shall mail to each holder of record of a certificate or
certificates (the 'Certificates') which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the 'Cancelled Shares')
that were cancelled and became instead the right to receive the Merger
Consideration pursuant to Section 2.1: (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon actual delivery of the Certificates to the
Paying Agent) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate to the Paying Agent for cancellation (or to such other agent or
agents as may be appointed by agreement of CEI and the Company), together with a
duly executed letter of transmittal and such other documents as the Paying Agent
shall require, the holder of such Certificate shall be entitled to receive the
Merger Consideration in exchange for each share of Company Common Stock formerly
evidenced by such Certificate which such holder has the right to receive
pursuant to the provisions of this Article II. In the event of a transfer of
ownership of Cancelled Shares which is not registered in the transfer records of
the Company, the Merger Consideration may be given to a transferee if the
Certificate representing such Cancelled Shares is presented to the Paying Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence satisfactory to the Paying Agent that any applicable stock transfer
taxes have been paid. Until surrendered as contemplated by this Section 2.2,
each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such
2
<PAGE>
surrender the Merger Consideration as contemplated by this Section 2.2. No
interest shall be paid or will accrue on the Merger Consideration payable to
holders of Certificates pursuant to the provisions of this Article II.
(c) Closing of Transfer Books; Rights of Holders of Company Common
Stock. From and after the Effective Time, the stock transfer books of the
Company shall be closed and no registration of any transfer of any capital stock
of the Company shall thereafter be made on the records of the Company. If, after
the Effective Time, Certificates are presented to the Surviving Corporation,
they shall be cancelled and exchanged for the Merger Consideration, as provided
in this Section 2.2. From and after the Effective Time, the holders of shares of
Company Common Stock outstanding immediately prior to the Effective Time shall
cease to have any rights with respect to such shares of Company Common Stock,
except as otherwise provided herein or by applicable law.
(d) Termination of Paying Agent. At any time commencing one year after
the Effective Time, CEI shall be entitled to require the Paying Agent to deliver
to it any funds which had been made available to the Paying Agent and not
disbursed to holders of shares of Company Common Stock (including, without
limitation, all interest and other income received by the Paying Agent in
respect of all funds made available to it), and thereafter such holders shall be
entitled to look to CEI (subject to abandoned property, escheat and other
similar laws) only as general creditors thereof with respect to any Merger
Consideration that may be payable upon due surrender of the Certificates held by
them. Notwithstanding the foregoing, neither CEI, the Surviving Corporation nor
the Paying Agent shall be liable to any holder of a share of Company Common
Stock for any Merger Consideration delivered in respect of such share to a
public official pursuant to any abandoned property, escheat or other similar
law. If any Certificates shall not have been surrendered prior to the
thirty-first day of December in the fifth calender year after the Effective Time
(or immediately prior to such earlier date on which any payment pursuant to this
Article II would otherwise escheat to or become the property of any Governmental
Authority (as defined in Section 4.4(c))), the payment in respect of such
Certificate shall, to the extent permitted by applicable law, become the
property of CEI, free and clear of all claims or interest of any person (as
defined below) previously entitled thereto. As used in this Agreement, the term
'person' shall mean any natural person, corporation, general or limited
partnership, limited liability company, joint venture, trust, association or
entity of any kind.
ARTICLE III
THE CLOSING
Section 3.1 Closing. The closing of the Merger (the 'Closing') shall take
place at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third
Avenue, New York, New York 10022 at 10:00 A.M., local 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, or at such other time,
date and place as the Company and CEI shall mutually agree (the 'Closing Date').
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the schedule delivered by the Company on the date
hereof (the 'Company Disclosure Schedule') and making reference to the
particular subsection of this Agreement to which exception is being taken, the
Company represents and warrants to CEI as follows:
Section 4.1 Organization and Qualification. The Company and each of the
Company 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 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, leasing or operation of its assets and properties
makes such qualification necessary other than in such jurisdictions where the
failure so to qualify, individually or in the aggregate, would not have a
Company Material Adverse Effect. For purposes of this Agreement, 'Company
Material Adverse Effect' shall mean any change, effect, event, occurrence or
state of facts (i) that is, or reasonably would be expected to be, materially
adverse to the business, assets, financial condition, results of operations or
prospects of the Company and the Company Subsidiaries
3
<PAGE>
taken as a whole or (ii) that would prevent, or reasonably be expected to
prevent, the Company from performing its obligations under this Agreement or
prevent the consummation of the transactions contemplated hereby. As used in
this Agreement, (a) the term 'Subsidiary' of a person shall mean any corporation
or other entity (including partnerships and other business associations) of
which at least a majority of the voting power represented by the outstanding
capital stock or other voting securities or interests having voting power under
ordinary circumstances to elect directors or similar members of the governing
body of such corporation or entity (or, if there are no such voting interests,
50% or more of the equity interests of which) shall at the time be held,
directly or indirectly, by such person, and (b) the term 'Company Subsidiary'
shall mean a Subsidiary of the Company.
Section 4.2 Subsidiaries. Section 4.2 of the Company Disclosure Schedule
sets forth a list, as of the date hereof, of (a) all the Company Subsidiaries
and (b) all other entities in which the Company has an aggregate equity
investment in excess of $2 million. All of the issued and outstanding shares of
capital stock 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 pledges, liens, claims,
encumbrances, security interests, charges and options of any nature whatsoever
(collectively, 'Liens') and free of any other restriction (including any
restriction on the right to vote, sell or otherwise dispose of any such capital
stock) and there are no outstanding subscriptions, options, calls, contracts,
voting trusts, proxies or other commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or exchange
under any outstanding security, instrument or other agreement, obligating any
such Company 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.
Section 4.3 Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of 50,000,000 shares of Company Common Stock,
1,000,000 shares of Cumulative Preferred Stock, issuable in series, par value
$100.00 per share ('Company Preferred Stock'), and 1,500,000 shares of
Cumulative Preference Stock, issuable in series, without par value ('Company
Preference Stock'). At the close of business on April 30, 1998, (i) 13,518,779
shares of Company Common Stock were issued and outstanding, and 16,931 shares of
Company Common Stock were reserved for conversion of Company Preference Stock,
(ii) 428,443 shares of Company Preferred Stock were issued and outstand ing,
(iii) 11,518 shares of Company Preference Stock were issued and outstanding,
(iv) no bonds, debentures, notes or other indebtedness having the right to vote
(or convertible into securities having the right to vote) on any matters on
which stockholders may vote ('Voting Debt') were issued or outstanding and (v)
no shares of Company Common Stock were held by the Company in its treasury.
Since April 30, 1998, the Company has not issued any shares of Company Common
Stock or of any other class or series of capital stock or any Voting Debt, other
than shares of Company Common Stock issued upon conversion of Company Preference
Stock. As of the date hereof, all outstanding shares of Company Common Stock,
Company Preferred Stock and Company Preference Stock are validly issued, fully
paid and nonassessable and are not subject to preemptive rights. As of the
Closing Date, all outstand ing shares of Company Common Stock will be validly
issued, fully paid and nonassessable and will not be subject to preemptive
rights. As of the date hereof, there are no options, warrants, calls, rights,
commitments or agreements of any character to which the Company or any Company
Subsidiary is a party or by which it is bound obligating the Company or any
Company Subsidiary to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of capital stock or any Voting Debt securities of the
Company or any Company Subsidiary or obligating the Company or any Company
Subsidiary to grant, extend or enter into any such option, warrant, call, right,
commitment or agreement. At the Effective Time, there will be no option,
warrant, call, right, commitment or agreement obligating the Company or any
Company Subsidiary to issue, deliver or sell, or cause to be issued, delivered
or sold, any shares of capital stock or any Voting Debt of the Company or any
Company Subsidiary, or obligating the Company or any Company Subsidiary to
grant, extend or enter into any such option, warrant, call, right, commitment or
agreement.
Section 4.4 Authority; Non-Contravention; Statutory Approvals; Compliance.
(a) Authority. The Company has all requisite power and authority to enter
into this Agreement and, subject to the receipt of the Company Shareholders'
Approval (as defined in Section 4.14) and the applicable Company Required
Statutory Approvals (as defined in Section 4.4(c)), to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation by the Company of
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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 validly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery hereof by the other signatories hereto, constitutes the legal, valid
and binding obligation of the Company enforceable against it in accordance with
its terms.
(b) Non-Contravention. The execution and delivery of this Agreement by
the Company does not, and the consummation of the transactions contemplated
hereby will not, in any respect, violate, conflict with or result in a breach of
any provision of, or constitute a default (with or without notice or lapse of
time or both) under, or result in the termination or modification of, or
accelerate the performance required by, or result in a right of termination,
cancellation or acceleration of any obligation, or the loss of a benefit under,
or result in the creation of any Lien upon any of the properties or assets of
the Company or any of the Company Subsidiaries (any such violation, conflict,
breach, default, right of termina tion, modification, cancellation or
acceleration, loss or creation is referred to herein as a 'Violation' with
respect to the Company and such term when used in Article V has a correlative
meaning with respect to CEI) pursuant to any provisions of (i) the certificate
of incorporation, by-laws or similar governing documents of the Company or any
of the Company Subsidiaries, (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 applicable to the Company
or any of the Company Subsidiaries or any of their respective properties or
assets (other than (x) municipal consents and franchises and (y) immaterial
consents, approvals, orders, authorizations, actions, registrations,
declarations or filings, including with respect to communications systems,
zoning, name change, occupancy and similar routine regulatory approvals) or
(iii) subject to obtaining the third-party consents set forth in Section 4.4(b)
of the Company Disclosure Schedule (the 'Company Required Consents'), any note,
bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, standstill agreement, contract, lease or other instrument,
obligation or agreement of any kind to which the Company or any of the Company
Subsidiaries is a party or by which they or any of their properties or assets
may be bound or affected (other than municipal consents or franchises), except
in the case of clause (iii) for any such Violation which, individually or in the
aggregate, would not have a Company Material Adverse Effect.
(c) Statutory Approvals. No declaration, filing, registration with,
notice to, authorization, permit, order, consent or approval (other than
immaterial consents, approvals, orders, authorizations, actions, registrations,
declarations or filings, including with respect to communications systems,
zoning, name change, occupancy and similar routine regulatory approvals) of, any
court, federal, state, local or foreign governmental, administrative, 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, except those described in Section 4.4(c)
of the Company Disclosure Schedule (the 'Company Required Statutory Approvals,'
it being understood that references in this Agreement to 'obtaining' such
Company Required Statutory Approvals shall mean making such declara tions,
filings or registrations; giving such notices; obtaining such authorizations,
permits, orders, consents or approvals; and having such waiting periods expire
as are necessary to avoid a violation of law).
(d) Compliance. Except as disclosed in the Company SEC Reports (as
defined in Section 4.5) filed prior to the date hereof, neither the Company nor
any of the Company Subsidiaries is in violation of, is, to the knowledge of the
Company, under investigation with respect to any violation of, or has been given
notice or been charged with any violation of, any law, statute, order, rule,
regulation, ordinance or judgment (including, without limitation, any applicable
Environmental Law (as defined in Section 4.12(b)(ii))) of any Governmental
Authority, except for possible violations which individually or in the aggregate
would not have a Company Material Adverse Effect. Except as disclosed in the
Company SEC Reports filed prior to the date hereof, the Company and the Company
Subsidiaries have all permits, licenses, franchises and other governmental
authorizations, consents and approvals necessary to conduct their businesses as
presently conducted which are material to the operation of the businesses of the
Company and the Company Subsidiaries (other than certain municipal consents and
franchises). The Company and each of the Company Subsidiaries is 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
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or action by a third party, could result in a default by the Company or any
Company Subsidiary under (i) their respective certificates 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 the Company or any Company Subsidiary is bound or to
which any of their respective properties or assets are subject, except in the
case of this clause (ii) for possible violations, breaches or defaults which
individually or in the aggregate would not have a Company Material Adverse
Effect. All utility rates charged by the Company and its utility Subsidiaries
have been and continue to be made pursuant to lawfully filed tariffs and
contracts.
Section 4.5 Reports and Financial Statements. (a) The filings (other than
immaterial filings) required to be made by the Company and the Company
Subsidiaries since January 1, 1993 under the Securities Act of 1933, as amended
(the 'Securities Act'); the Securities Exchange Act of 1934, as amended (the
'Exchange Act'); the Public Utility Holding Company Act of 1935, as amended (the
'1935 Act'); the Federal Power Act (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, tariffs, contracts, agreements
(oral or written) and all documents, exhibits, amendments and supplements
appertaining thereto, and complied, as of their respective dates, in all
material respects with all applicable requirements of the applicable statutes
and the rules and regulations thereunder. The Company has made available to CEI
a true and complete copy of each report, schedule, registration statement and
definitive proxy statement filed with the SEC by the Company pursuant to the
requirements of the Securities Act or Exchange Act since January 1, 1993 (the
'Company SEC Reports'). As of their respective dates, the Company SEC Reports
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The audited consolidated financial statements and unaudited interim
financial statements (including the notes thereto) of the Company included in
the Company SEC Reports (collectively, the 'Company Financial Statements') have
been prepared in accordance with United States generally accepted accounting
principles ('GAAP') as applied to a regulated utility, applied on a consistent
basis during the periods involved (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 and its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended, subject, in the case of the unaudited interim financial statements, to
normal, recurring audit adjustments. True, accurate and complete copies of the
Restated Certificate of Incorporation and by-laws of the Company, as in effect
on the date hereof, are included (or incorporated by reference) in the Company
SEC Reports.
(b) Franchises. The Company and the Company utility Subsidiaries own or
have sufficient rights and consents to use under existing franchises, easements,
leases, and license agreements all properties, rights and assets necessary for
the conduct of their business and operations as currently conducted, except
where the failure to own or have sufficient rights to such properties, rights
and assets would not have, individually or in the aggregate, a Company Material
Adverse Effect. To the knowledge of the Company, no other private corporation
can commence public utility operations in any part of the territories now served
by the Company or its wholly owned utility Subsidiaries, Rockland Electric
Company ('RECO') and Pike County Light & Power Company ('Pike'), respectively,
without obtaining a certificate of public convenience and necessity from the
applicable state utility commission.
Section 4.6 Absence of Certain Changes or Events. Except as disclosed in
the Company SEC Reports filed prior to the date hereof, since December 31, 1997,
the Company and each of the Company Subsidiaries have conducted their respective
businesses only in the ordinary course of business consistent with past practice
and there has not been, and no fact or condition exists which, individually or
in the aggregate, would have a Company Material Adverse Effect. From December
31, 1997 through the date hereof there has not been (i) any declaration, setting
aside or payment of any dividend or other distribution (whether in cash, stock
or property) with respect to any capital stock of the Company, other than (A)
regular quarterly dividends of $.645 per share on Company Common Stock and (B)
dividends payable on Company Preferred Stock and Company Preference Stock in
accordance with their terms, (ii) any split, combination or reclassification of
any capital stock of the Company or any of the Company Subsidiaries or any
issuance or the authorization of any issuance of any other securities in respect
of, in lieu of or in substitution for any capital stock of the Company or any of
the Company Subsidiaries
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or (iii) except insofar as required by a change in GAAP, any change in
accounting methods, principles or practices by the Company or any of the Company
Subsidiaries materially affecting their respective assets, liabilities or
businesses.
Section 4.7 Litigation. There (a) are no claims, suits, actions or
proceedings before any court, governmental department, commission, agency,
instrumentality or authority or any arbitrator, pending or, to the knowledge of
the Company, threatened, nor are there, to the knowledge of the Company, any
investigations or reviews by any court, governmental department, commission,
agency, instrumentality or authority or any arbitrator pending or threatened
against, relating to or affecting the Company or any of the Company Subsidiaries
which, individually or in the aggregate, would have a Company Material Adverse
Effect, (b) have not been any significant developments since December 31, 1997
with respect to any disclosed claims, suits, actions, proceedings,
investigations or reviews that, individually or in the aggregate, would have a
Company Material Adverse Effect and (c) 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 the Company Subsidiaries except for such that, individually or in the
aggregate, would not have a Company Material Adverse Effect.
Section 4.8 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 the proxy statement, in definitive form, relating to the meeting of
holders of Company Common Stock to be held in connection with the Merger (the
'Proxy Statement') will, at the date mailed to the Company shareholders and at
the time of the meeting of the holders of Company Common Stock to be held in
connection with the Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Proxy Statement will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
Section 4.9 Tax Matters.
Except as to any items that would not, individually or in the aggregate,
have a Company Material Adverse Effect:
(a) The Company and each of the Company Subsidiaries has (i) filed all
Federal, state, local and foreign income and other tax returns or reports
(including declarations of estimated tax) required to be filed by it, (ii)
paid all taxes of any nature whatsoever (together with any related
penalties and interest) (any of the foregoing being referred to herein as a
'Tax'), that are shown on such Tax returns as due and payable on or before
the date hereof, and (iii) paid all Taxes otherwise required to be paid.
(b) There are no claims or assessments pending against the Company or
any of the Company Subsidiaries for any alleged deficiency in Tax, and the
Company does not know of any threatened Tax claims or assessments against
the Company or any of the Company Subsidiaries.
(c) The Company has established adequate accruals for Taxes and for
any liability for deferred Taxes in the Company Financial Statements in
accordance with GAAP.
(d) There are no Liens for Taxes (other than for current Taxes not yet
due and payable) on the assets of the Company or any Company Subsidiary.
(e) The Federal income Tax returns of the Company, each Company
Subsidiary and any affiliated, consolidated, combined or unitary group that
includes the Company or any Company Subsidiary either have been examined
and settled with the Internal Revenue Service or closed by virtue of the
expiration of the applicable statute of limitations for all years through
1994.
(f) None of the Company or any Company Subsidiary shall be required to
include in a taxable period ending after the Effective Time an amount of
taxable income attributable to income that accrued in a prior taxable
period but was not recognized in any prior taxable period as a result of
the installment method of accounting, the completed contract method of
accounting, the long-term contract method of accounting, the cash method of
accounting or Section 481 of the Code or comparable provisions of state,
local or foreign Tax law.
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(g) From December 31, 1997 through the date hereof, there have not
been any Tax elections, any settlements or compromises of any income Tax
liability or any changes in Tax attributes.
Section 4.10 Employee Matters; ERISA.
(a) Section 4.10(a) of the Company Disclosure Schedule hereto contains a
true and complete list of each deferred compensation and each bonus or other
incentive compensa tion, stock purchase, stock option and other equity
compensation plan, program, agreement or arrangement; each severance or
termination pay, medical, surgical, hospitalization, life insurance and other
'welfare' plan, fund or program (within the meaning of Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended ('ERISA')); each
profit-sharing, stock bonus or other 'pension' plan, fund or program (within the
meaning of Section 3(2) of ERISA); each employment, retention, consulting,
termination or severance agreement; and each other employee benefit plan, fund,
program, agreement or arrangement, in each case, that is sponsored, maintained
or contributed to or required to be contributed to by the Company or by any
trade or business, whether or not incorporated (an 'ERISA Affiliate'), that
together with the Company would be deemed a 'single employer' within the meaning
of Section 4001(b) of ERISA, or to which the Company or an ERISA Affiliate is
party, whether written or oral, for the benefit of any employee or former
employee of the Company or any Company Subsidiary (the 'Company Plans').
(b) With respect to each Company Plan, the Company has heretofore delivered
or made available to CEI true and complete copies of each of the following
documents:
(i) a copy of the Company Plan and any amendments thereto;
(ii) a copy of the two most recent annual reports on Internal Revenue
Service Form 5500 and actuarial reports, if required under ERISA, and the
most recent report prepared with respect thereto in accordance with
Statement of Financial Accounting Standards No. 87;
(iii) a copy of the most recent Summary Plan Description required
under ERISA with respect thereto;
(iv) if the Company Plan is funded through a trust or any third party
funding vehicle, a copy of the trust or other funding agreement and the
latest financial statements thereof and all related agreements; and
(v) the most recent determination letter or pending determination
letter received from the Internal Revenue Service with respect to each
Company Plan intended to qualify under Section 401 of the Internal Revenue
Code of 1986, as amended (the 'Code').
(c) No liability under Title IV or Section 302 of ERISA has been incurred
by the Company or any ERISA Affiliate that has not been satisfied in full, and
no condition exists that presents a material risk to the Company or any ERISA
Affiliate of incurring any such liability, other than liability for premiums due
the Pension Benefit Guaranty Corporation ('PBGC') (which premiums have been paid
when due). No Company Plan has, to the knowledge of the Company, engaged in a
'prohibited transaction' (as defined in Section 4975 of the Code or Section 406
of ERISA), no Company Plan subject to Title IV of ERISA (a 'Title IV Company
Plan') has been terminated by the PBGC or has been the subject of a 'reportable
event' (as defined in Section 4043 of ERISA and the regulations thereunder) for
which the 30-day notice requirement has not been waived and the Company has not
received any notice of intent by PBGC to terminate any such plan.
(d) With respect to each Title IV Company Plan, the present value of
accrued benefits under such plan, based upon the actuarial assumptions used for
funding purposes in the most recent actuarial report prepared by such plan's
actuary with respect to such plan did not exceed, as of its latest valuation
date, the then current value of the assets of such plan allocable to such
accrued benefits.
(e) No Title IV Company Plan or any trust established thereunder has
incurred any 'accumulated funding deficiency' (as defined in Section 302 of
ERISA and Section 412 of the Code), whether or not waived, as of the last day of
the most recent fiscal year of each Title IV Company Plan ended prior to the
Closing Date nor has there been any application for waiver of the minimum
funding standards imposed by Section 412 of the Code. All contributions required
to be made with respect to any Company Plan on or prior to the Closing Date have
been timely made or are reflected on the balance sheet.
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(f) No Title IV Company Plan is a 'multiemployer plan', as defined in
Section 3(37) of ERISA, nor is any Title IV Company Plan a plan described in
Section 4063(a) of ERISA.
(g) Each Company Plan has been operated and administered in all material
respects in accordance with its terms and applicable law, including but not
limited to ERISA and the Code, the rules and regulations thereunder and all
applicable collective bargaining agreements and each Company Plan intended to be
'qualified' under Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service to such effect. To the
knowledge of the Company, there is no fact, condition or set of circumstances
existing that could adversely affect such favorable determination. To the
Company's knowledge, there are no investigations pending in respect of any
Company Plan by any Governmental Authority.
(h) Each Company Plan intended to be 'qualified' within the meaning of
Section 401(a) of the Code is so qualified and the trusts maintained thereunder
are exempt from taxation under Section 501(a) of the Code.
(i) No Company Plan provides medical, surgical, hospitalization, death or
similar benefits (whether or not insured) for employees or former employees (or
their beneficiaries) of the Company or any Company Subsidiary for periods
extending beyond their respective dates of retirement or other termination of
service, other than (i) coverage mandated by applicable law, (ii) death benefits
under any 'pension plan,' or (iii) benefits the full cost of which is borne by
the current or former employee (or his beneficiary).
(j) No amounts payable under the Company Plans will fail to be deductible
for federal income tax purposes by virtue of Section 280G of the Code.
(k) The consummation of the transactions contemplated by this Agreement
will not, either alone or in combination with another event, (i) entitle any
current or former employee or officer of the Company or any ERISA Affiliate to
severance pay, unemployment compensation or any other payment, or (ii)
accelerate the time of payment or vesting, or increase the amount of
compensation due any such employee or officer. Schedule 4.10(k) of the Company
Disclosure Schedule sets forth estimates prepared by the Company of the amounts
reasonably expected to be paid to participants in any Company Plan (or by which
any of their benefits may be increased or accelerated) as a result solely of (i)
the execution of this Agreement, (ii) the obtaining of the Company Shareholders'
Approval and (iii) termination or constructive termination of any officer or
director's employment with the Company or any Company Subsidiary. For purposes
of the preceding sentence, the determination of the amounts set forth in
Schedule 4.10(k) is based upon each employee's current compensation, outstanding
awards and benefits accrued (as applicable) and on such other factors as the
Company, taking into account applicable law and regulations, deems reasonable
and appropriate.
(l) There are no pending, threatened or anticipated claims by or on behalf
of any Company Plan, by any employee or beneficiary covered under any such
Company Plan, or otherwise involving any such Company Plan (other than routine
claims for benefits).
Section 4.11 Labor and Employee Relations.
(a) As of the date hereof, except as disclosed in the Company SEC Reports
filed prior to the date hereof, (i) except for the existing collective
bargaining agreement between the Company and Local Union No. 503 of the
International Brotherhood of Electrical Workers effective June 1, 1997 through
May 31, 2000, neither the Company nor any of the Company Subsidiaries is a party
to any collective bargaining agreement or other labor agreement with any union
or labor organization and (ii) to the knowledge of the Company, there is no
current union representation question involving employees of the Company or any
of the Company Subsidiaries, nor does the Company know of any activity or
proceeding of any labor organization (or representative thereof) or employee
group to organize any such employees, except to the extent such, individually or
in the aggregate, would not have a Company Material Adverse Effect.
(b) Except as disclosed in the Company SEC Reports filed prior to the date
hereof or except to the extent such, individually or in the aggregate, would not
have a Company Material Adverse Effect, (i) there is no unfair labor practice,
employment discrimination or other charge, claim, suit, action or proceeding
against the Company or any of the Company Subsidiaries pending, or to the
knowledge of the Company, threatened before any court, governmental department,
commission, agency, instrumentality or authority or any arbitrator, (ii) there
is no strike, lockout or material dispute, slowdown or work stoppage pending or,
to the knowledge of the Company,
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threatened against or involving the Company, and (iii) there is no proceeding,
claim, suit, action or governmental investigation pending or, to the knowledge
of the Company, threatened in respect of which any director, officer, employee
or agent of the Company or any of the Company Subsidiaries is or may be entitled
to claim indemnification from the Company or such Company Subsidiary pursuant to
their respective certificates of incorporation or by-laws or as provided in the
indemnification agreements listed in Section 4.11(b) of the Company Disclosure
Schedule or any other indemnification agreements.
Section 4.12 Environmental Protection.
(a) Except as set forth in the Company SEC Reports filed prior to the date
hereof:
(i) Compliance. The Company and each of the Company Subsidiaries is
in compliance with all applicable Environmental Laws except where the
failure to so comply, individually or in the aggregate, would not have a
Company Material Adverse Effect, and neither the Company nor any of the
Company Subsidiaries has received any communication (written or oral)
reasonably grounded in fact, from any person or Governmental Authority that
alleges that the Company or any of the Company Subsidiaries is not in such
compliance with applicable Environmental Laws. To the knowledge of the
Company, compliance with all applicable Environmental Laws will not require
the Company or any Company Subsidiary to incur costs, beyond those
currently budgeted for the three Company fiscal years beginning with
January 1, 1998, that, individually or in the aggregate, would have a
Company Material Adverse Effect, including, but not limited to, the costs
of pollution control equipment that are known or anticipated to be required
in the future.
(ii) Environmental Permits. (A) The Company and each of the Company
Subsidiaries has obtained or has applied for all environmental, health and
safety permits and governmental authorizations (collectively, the
'Environmental Permits') necessary for the construction of their facilities
or the conduct of their operations except where the failure to so obtain,
individually or in the aggregate, would not have a Company Material Adverse
Effect, (B) all such Environmental Permits are in good standing or, where
applicable, a renewal application has been timely filed and is pending
agency approval except where the failure of such Environmental Permits to
be in good standing or to have filed a renewal application on a timely
basis would not, individually or in the aggregate, have a Company Material
Adverse Effect, (C) the Company and the Company Subsidiaries are in
material compliance with all terms and conditions of the Environmental
Permits, except where failure to so comply, individually or in the
aggregate, would not have a Company Material Adverse Effect and (D) neither
the Company nor any of the Company Subsidiaries has been advised by any
Governmental Authority of any potential change in the terms and conditions
of the Environmental Permits either prior to or upon their renewal, except
for such potential changes as would not, individually or in the aggregate,
have a Company Material Adverse Effect.
(iii) Environmental Claims. There are no Environmental Claims (as
defined in Section 4.12(b)(i)) which would, individually or in the
aggregate, have a Company Material Adverse Effect pending or, to the
knowledge of the Company, threatened, (A) against the Company or any of the
Company Subsidiaries, (B) to the knowledge of the Company, against any
person or entity whose liability for any Environmental Claim the Company or
any of the Company Subsidiaries has or may have retained or assumed either
contractually or by operation of law, or (C) against any currently owned,
leased or managed, in whole or in part, real or personal property or
operations of the Company or any of the Company Subsidiaries or, to the
knowledge of the Company, against any formerly owned, leased or managed, in
whole or in part, real or personal property or operations of the Company or
any of the Company Subsidiaries.
(iv) Releases. The Company has no knowledge of any Releases (as
defined in Section 4.12(b)(iv)) of any Hazardous Material (as defined in
Section 4.12(b)(iii)) that would be reasonably likely to form the basis of
any Environmental Claim against the Company or any of the Company
Subsidiaries, or against any person or entity whose liability for any
Environmental Claim the Company or any of the Company Subsidiaries has or
may have retained or assumed either contractually or by operation of law
except for any Environmental Claim which, individually or in the aggregate,
would not have a Company Material Adverse Effect.
(v) Predecessors. The Company has no knowledge, with respect to any
predecessor of the Company or any of the Company Subsidiaries, of any
Environmental Claim which, individually or in the
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aggregate, would have a Company Material Adverse Effect pending or
threatened, or of any Release of Hazardous Materials that would be
reasonably likely to form the basis of any Environmental Claim which,
individually or in the aggregate, would have a Company Material Adverse
Effect.
(b) Definitions. 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
(written or oral) by any person or entity (including any Governmental
Authority), alleging potential liability (including, without limitation,
potential responsibility for or liability for enforcement, investigatory
costs, cleanup costs, governmental response costs, removal costs, remedial
costs, natural resources damages, property damages, personal injuries or
penalties) arising out of, based on or resulting from (A) the presence,
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 the Company Subsidiaries; 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 or the presence of or exposure to any electromagnetic fields.
(ii) 'Environmental Laws' means all federal, state and local laws,
rules, regulations, orders, decrees, judgments or binding agreements
issued, promulgated or entered into by or with any Governmental Authority,
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 noise levels, 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 and transformers or other
equipment that contain dielectric fluid containing polychlorinated
biphenyls ('PCBs'); (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,' 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 the Company Subsidiaries
operates.
(iv) 'Release' means any release, spill, emission, leaking, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
atmosphere, soil, surface water, groundwater or property.
Section 4.13 Regulation as a Utility. As of the date hereof, the Company,
pursuant to an order, dated March 27, 1936, of the SEC, has been exempted, from
all of the provisions of the 1935 Act, except Section 9(a)(2) thereof relating
to the acquisition of securities of other public utility companies. The Company
is regulated as a public utility in the State of New York and in no other state.
RECO is regulated as a public utility in the State of New Jersey and in no other
state. Pike is regulated as a public utility in the State of Pennsylvania and in
no other state. Except as set forth in this Section neither the Company nor any
'subsidiary company' or 'affiliate' (as each such term is defined in the 1935
Act) of the Company is subject to regulation as a public utility holding
company, public utility or public service company (or similar designation) by
the Federal government of the United States, any other state in the United
States or any foreign country.
Section 4.14 Vote Required. Provided that the NYPSC approves the Merger
prior to the Effective Time, the approval of the Merger by the holders of
two-thirds of all outstanding shares 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 the Company Subsidiaries required
to approve this Agreement, the Merger and the other transactions contemplated
hereby.
Section 4.15 State Anti-Takeover Statutes. Assuming the accuracy of the
representation of CEI set forth in Section 5.8, neither Section 912 nor Article
16 of the NYBCL nor any provision of Article Eighth of the
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Company's Restated Certificate of Incorporation is applicable to the
transactions contemplated by this Agreement. To the knowledge of the Company, no
other state anti-takeover statute is applicable to the Company's participation
in the Merger or in the other transactions contemplated hereby.
Section 4.16 Opinion of Financial Advisor. The Company has received the
opinion of Donaldson, Lufkin & Jenrette Securities Corporation ('DLJ'), dated
the date hereof, to the effect that, as of the date hereof, the Merger
Consideration is fair from a financial point of view to the holders of Company
Common Stock.
Section 4.17 Insurance. The Company and each of the Company 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 the Company Subsidiaries during such time period.
Neither the Company nor any of the Company Subsidiaries has received any notice
of cancellation or termination with respect to any insurance policy of the
Company or any of the Company Subsidiaries. The insurance policies of the
Company and each of the Company Subsidiaries are valid and enforceable policies.
Section 4.18 Discontinued Business. NORSTAR Management, Inc. and its
Subsidiaries and the business formerly conducted by them have ceased operations
(the 'Discontinued Business') and, except for liabilities reflected in the
Company Financial Statements, neither the Company nor any the Company
Subsidiary, other than NORSTAR Management, Inc. and its Subsidiaries, has any
liabilities or obligations with respect to such business and no creditor of the
Discontinued Business has any recourse against the Company or any Company
Subsidiary other than NORSTAR Management, Inc. and its Subsidiaries.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CEI
Except as set forth in the schedule delivered by CEI on the date hereof
(the 'CEI Disclosure Schedule') and making reference to the particular
subsection of this Agreement to which exception is being taken, CEI represents
and warrants to the Company as follows:
Section 5.1 Organization and Qualification. Each of CEI, Consolidated
Edison Company of New York, Inc., a New York corporation ( 'CECONY'), and the
Merger Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization,
has all requisite 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, leasing or operation of its assets and properties makes such
qualification necessary other than in such jurisdictions where the failure so to
qualify, individually or in the aggregate, would not have a CEI Material Adverse
Effect. For purposes of this Agreement, 'CEI Material Adverse Effect' shall mean
any change, effect, event, occurrence or state of facts (i) that is, or
reasonably would be expected to be, materially adverse to the business, assets,
financial condition, results of operations or prospects of CEI and its
Subsidiaries (the 'CEI Subsidiaries') taken as a whole or (ii) that would
prevent, or reasonably be expected to prevent, CEI from performing its
obligations under this Agreement or prevent the consummation of the transactions
contemplated hereby.
Section 5.2 Authority; Non-Contravention; Statutory Approvals; Compliance.
(a) Authority. Each of CEI and the Merger Subsidiary has all requisite
power and authority to enter into this Agreement and, subject to the receipt of
the applicable CEI Required Statutory Approvals (as defined in Section 5.2(c)),
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation by each of CEI and the Merger Subsidiary
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of CEI and the Merger Subsidiary. This
Agreement has been duly and validly executed and delivered by each of CEI and
the Merger Subsidiary and, assuming the due authorization, execution and
delivery hereof by the other signatories hereto, constitutes the legal, valid
and binding obligation of each of CEI and the Merger Subsidiary enforceable
against it in accordance with its terms.
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(b) Non-Contravention. The execution and delivery of this Agreement by
CEI and the Merger Subsidiary does not, and the consummation of the transactions
contemplated hereby will not, result in a Violation pursuant to any provisions
of (i) the certificate of incorporation, by-laws or similar governing documents
of CEI or the Merger Subsidiary, (ii) subject to obtaining the CEI Required
Statutory Approvals, any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any Governmental Authority
applicable to CEI or the Merger Subsidiary or any of their respective properties
or assets (other than immaterial consents, approvals, orders, authorizations,
actions, registrations, declarations or filings, including with respect to
communications systems, zoning, name change, occupancy and similar routine
regulatory approvals) or (iii) any material note, bond, mortgage, indenture,
deed of trust, license, franchise, permit, concession, standstill agreement,
contract, lease or other instrument, obligation or agreement of any kind to
which CEI or the Merger Subsidiary is a party or by which they or any of their
respective properties or assets may be bound or affected, except in the case of
clause (iii) for any such Violation which, individually or in the aggregate,
would not have a CEI Material Adverse Effect.
(c) Statutory Approvals. No declaration, filing or registration with,
notice to, authorization, permit, order, consent or approval (other than
immaterial consents, approvals, orders, authorizations, actions, registrations,
declarations or filings, including with respect to communications systems,
zoning, name change, occupancy and similar routine regulatory approvals) of, any
Governmental Authority is necessary for the execution and delivery of this
Agreement by each of CEI and the Merger Subsidiary or the consummation by each
of CEI and the Merger Subsidiary of the transactions contemplated hereby, except
those described in Section 5.2(c) of the CEI Disclosure Schedule (the 'CEI
Required Statutory Approvals,' it being understood that references in this
Agreement to 'obtaining' such CEI Required Statutory Approvals shall mean making
such declarations, filings or registrations; giving such notices; obtaining such
authorizations, permits, orders, consents or approvals; and having such waiting
periods expire as are necessary to avoid a violation of law).
(d) Compliance. Except as disclosed in CEI SEC Reports (as defined in
Section 5.3) filed prior to the date hereof, neither CEI nor the Merger
Subsidiary is in violation of, is under investigation with respect to any
violation of, or has been given notice or been charged with any violation of,
any law, statute, order, rule, regulation, ordinance or judgment (including,
without limitation, any applicable Environmental Law) of any Governmental
Authority, which would prevent CEI from consummating the transactions
contemplated by this Agreement.
Section 5.3 Litigation. Except as disclosed in each report, schedule,
registration statement and definitive proxy statement filed with the SEC by CEI
or CECONY pursuant to the requirements of the Securities Act or Exchange Act
since January 1, 1993 (as such documents have since the time of their filing
been amended, the 'CEI SEC Reports') filed prior to the date hereof, there are
no claims, suits, actions or proceedings by any court, governmental department,
commission, agency, instrumentality or authority or any arbitrator, pending or,
to the knowledge of CEI, threatened, nor are there, to the knowledge of CEI, any
investigations or reviews by any court, governmental department, commission,
agency, instrumentality or authority or any arbitrator pending or threatened
against relating to or affecting CEI or the Merger Subsidiary which, in each
case, would prevent CEI from consummating the transactions contemplated by this
Agreement.
Section 5.4 Proxy Statement. None of the information supplied or to be
supplied by or on behalf of CEI for inclusion or incorporation by reference in
the Proxy Statement will, at the date mailed to the Company shareholders and at
the time of the meeting of the holders of Company Common Stock to be held in
connection with the Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.
Section 5.5 Regulation as a Utility. As of the date hereof, neither CEI
nor any 'subsidiary company' or 'affiliate' (as each such term is defined in the
1935 Act) of CEI is subject to regulation as a public utility holding company,
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 foreign
country.
Section 5.6 No Vote Required. No vote of holders of any class or series
of the capital stock of CEI is necessary to approve this Agreement, the Merger
or the other transactions contemplated hereby.
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Section 5.7 Financing. CEI has or will have available, prior to the
Effective Time, sufficient cash in immediately available funds to pay the Merger
Consideration pursuant to Article II hereof and to consummate the Merger and the
other transactions contemplated hereby.
Section 5.8 Ownership of Company Common Stock. As of the date hereof,
neither CEI nor any of its Affiliates (excluding for such purposes officers and
directors of CEI and the CEI Subsidiaries) (i) beneficially owns (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, or (ii) is party to
any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of, in each case, shares of capital stock of the
Company.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Except as set forth in the Company Disclosure Schedule and making
references to the particular subsection of this Agreement to which exception is
being taken:
Section 6.1 Covenants of the Company. After the date hereof and prior to
the Effective Time or earlier termination of this Agreement, the Company agrees
as follows, each as to itself and to each of the Company Subsidiaries, except as
expressly contemplated or permitted in this Agreement or to the extent CEI shall
otherwise consent in writing, which decision regarding consent shall be made as
soon as reasonably practical:
(a) Ordinary Course of Business. The Company shall, and shall cause
the Company Subsidiaries to, carry on their respective businesses in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and in compliance in all material respects with all
applicable laws and regulations and use all commercially reasonable efforts
to preserve intact their respective present business organizations and
goodwill, preserve the goodwill and relationships with customers, suppliers
and others having business dealings with them and, subject to prudent
management of work force needs and ongoing programs currently in force,
keep available the services of their respective present officers and
employees, provided, however, (i) that nothing shall prohibit the Company
from divesting its generation assets in accordance with terms that are
equivalent in all material respects to the terms in the Order Adopting
Terms of Settlement with the New York State Public Service Commission,
issued and effective November 26, 1997 (the 'Settlement Agreement') and the
Final Divestiture Plan dated February 3, 1998 and the Order Authorizing the
Process For Auctioning of Generation Plant and Rejecting Joint Agreement,
issued and effective April 16, 1998 (collectively, the 'Final Divestiture
Plan') and (ii) neither the Company nor any Company Subsidiary shall enter
into any new line of business. Notwithstanding the above and
notwithstanding any other provision in Section 6.1 (other than Section
6.1(l)), the Company and any of the Company Subsidiaries may make equity
infusions into a Company Subsidiary (other than NORSTAR Management, Inc.
and its Subsidiaries) (i) to the extent required by law or a state
regulatory commission or (ii) to the extent that equity infusions into the
Company Subsidiaries do not exceed $10 million in the aggregate.
(b) Dividends. The Company shall not, and shall not permit any of
the Company Subsidiaries to: (i) declare or pay any dividends on or make
other distributions in respect of any of their respective capital stock
other than to the Company or the Company Subsidiaries and other than
regular quarterly dividends on Company Common Stock with usual record and
payment dates not, during any period of any fiscal year, in excess of the
dividends for the comparable period of the prior fiscal year, (ii) split,
combine or reclassify any of their respective capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of, or in substitution for, shares of their respective capital stock
or (iii) redeem, repurchase or otherwise acquire any shares of their
respective capital stock, other than (A) redemptions, purchases or
acquisitions required by the respective terms of any series of Company
Preferred Stock or Company Preference Stock, or (B) for the purpose of
funding employee stock ownership plans and dividend reinvestment programs
in accordance with past practice. Notwithstanding the foregoing, the
Company may redeem Company Preferred Stock pursuant to the provisions of
Section 2.1(c) and the Company may redeem Company Preference Stock pursuant
to the provisions of Section 2.1(d). The last record date of the Company on
or prior to the Effective Time which relates to a regular quarterly
dividend on Company Common Stock shall be prior to the Effective Time.
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(c) Issuance of Securities. The Company shall not, and shall not
permit any of the Company Subsidiaries to, issue, agree to issue, deliver,
sell, award, pledge, dispose of or otherwise encumber or authorize or
propose the issuance, delivery, sale, award, pledge, disposal or other
encumbrance of, any shares of their capital stock of any class or any
securities convertible into or exchangeable for, or any rights, warrants or
options to acquire, any such shares or convertible or exchangeable
securities, other than any issuances of capital stock of any Company
Subsidiary to the Company or any wholly-owned Company Subsidiary (other
than, in each case, NORSTAR Management, Inc. and its Subsidiaries).
(d) Charter Documents. The Company shall not amend or propose to
amend its Restated Certificate of Incorporation or by-laws or other
comparable organizational documents of any Company Subsidiary.
(e) No Acquisitions. The Company shall not, nor shall the Company
permit any of the Company Subsidiaries to: (i) acquire, or publicly propose
to acquire, or agree to acquire, by merger or consolidation with, or by
purchase or otherwise, an equity interest in or a substantial portion of
the assets of, any business or any corporation, partnership, association or
other business organization or division thereof, or (ii) otherwise acquire
or agree to acquire a material amount of assets, except in the case of this
clause (ii) only, in the ordinary course of business consistent with past
practice or (iii) alter (through merger, liquidation, reorganization,
restructuring or in any other fashion) the corporate structures or
ownership of the Company or any of the Company Subsidiaries.
(f) No Dispositions. Except (i) for the Company divesting its
generation assets in accordance with the terms and conditions set forth in
the Settlement Agreement and the Final Divestiture Plan, (ii) for Clove
Development Corporation, a wholly-owned subsidiary of the Company,
divesting at fair market value, its real estate, primarily located in
Sullivan County, New York, (iii) for O&R Energy Development, Inc., a
wholly-owned subsidiary of the Company, divesting at fair market value its
real estate, primarily located in Orange County, New York, and (iv) for the
Company or the Company Subsidiaries making dispositions at fair market
value of less than $10 million in sales price and indebtedness assumed by
the acquiring party and its Affiliates, singularly or in the aggregate
during any fiscal year, the Company shall not, nor shall the Company permit
any of the Company Subsidiaries to, sell or dispose of any of their
respective assets other than dispositions in the ordinary course of its
business consistent with past practice. As used in this Agreement, the term
'Affiliate,' except where otherwise defined herein, shall mean, as to any
person, any other person which directly or indirectly controls, or is under
common control with, or is controlled by, such person. As used in this
definition, 'control' (including, with its correlative meanings,
'controlled by' and 'under common control with') shall mean possession,
directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise). The
Company (i) shall consult with CEI with respect to significant decisions
relating to the divestiture of the generation assets and transactions in
connection therewith prior to taking any action with respect to any such
decision or entering into any such transaction and (ii) shall take into
account the views of CEI with respect to such action or transaction. The
Company shall use its best efforts to enter into a definitive agreement to
divest its generation assets in accordance with the Settlement Agreement
and the Final Divestiture Plan on or prior to May 1, 1999 and use its best
efforts to consummate the divestiture of its generation assets as soon as
practicable after entering into such agreement. The Company shall conduct
such divestiture on terms that are equivalent in all material respects to
the terms set forth in the Final Divestiture Plan, including divesting all
liabilities, arising out of, related to or otherwise associated with such
generation assets, including all environmental liabilities (other than
environmental liabilities relating to off-site storage or disposal of
Hazardous Materials associated with the generating assets) and all
liabilities with respect to fuel purchase contracts relating to such
generation assets. Unless ordered pursuant to law or regulation, the
Company shall not materially modify or amend, or propose to enter into any
agreement to modify or amend the Settlement Agreement or the Final
Divestiture Plan or conduct any negotiations with the NYPSC or any other
Governmental Authority in connection with any such proposed modification or
amendment. If so ordered, the Company shall consult with CEI prior to
taking or agreeing to take any such action. The Company and the Company
Subsidiaries shall not pay out, distribute, invest (except that the Company
and the Company Subsidiaries may invest in the ordinary course of business
in a manner that would not otherwise be prohibited by any of the provisions
of this Section 6.1) or otherwise make use of the proceeds resulting from
the divestiture of its generation assets except as expressly permitted by
the provisions of this Section 6.1.
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(g) Cooperation, Notification. The Company shall (i) confer on a
regular and frequent basis with one or more representatives of CEI to
discuss, subject to applicable law, material operational matters and the
general status of its ongoing operations, (ii) promptly notify CEI of any
significant changes in its business, properties, assets, condition
(financial or other), results of operations or prospects, (iii) promptly
notify CEI of property sales by the Company Subsidiaries in excess of $10
million and shall discuss with CEI use of proceeds from such sales to the
extent that such proceeds exceed $10 million, (iv) promptly advise CEI of
(A) any representation or warranty made by it contained in this Agreement
that is qualified as to materiality becoming untrue or inaccurate in any
respect or any such representation or warranty that is not so qualified
becoming untrue or inaccurate in any material respect, (B) the failure by
it to comply in any material respect with or satisfy in any material
respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement and (C) any change or event which,
individually or in the aggregate, has had or would have a Company Material
Adverse Effect (provided, however, that no such notification shall affect
the representations, warranties, covenants or agreements of the parties (or
remedies with respect thereto) or the conditions to the obligations of the
parties under this Agreement) and (v) promptly provide CEI with copies of
all filings made by the Company or any of the Company Subsidiaries with any
state or federal court, administrative agency, commission or other
Governmental Authority in connection with this Agreement and the
transactions contemplated hereby.
(h) Third-Party Consents. The Company shall, and shall cause the
Company Subsidiaries to, use all reasonable best efforts to obtain all
Company Required Consents. The Company shall promptly notify CEI of any
failure or prospective failure to obtain any such consents and, if
requested by CEI, shall provide copies of all Company Required Consents
obtained by the Company to CEI.
(i) No Breach, Etc. The Company shall not, and the Company shall not
permit any of the Company Subsidiaries to, voluntarily 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.
(j) Tax-Exempt Status. The Company shall not, and the Company shall
not permit any of the Company Subsidiaries to, take any action that would
likely jeopardize the qualification of the Company's outstanding revenue
bonds which qualify on the date hereof under Section 142(a) of the Code as
'exempt facility bonds' or as tax-exempt pollution control bonds under
Section 103(b) (4) of the Internal Revenue Code of 1954, as amended, prior
to the Tax Reform Act of 1986.
(k) Tax Matters. The Company shall not (i) make or rescind any
material express or deemed election relating to Taxes without the prior
written consent of CEI, which consent shall not be unreasonably withheld,
(ii) settle or compromise any material claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to
Taxes without the prior written consent of CEI or (iii) change in any
material respect 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 for the taxable year ending December 31, 1996,
except as may be required by applicable law.
(l) Capital Expenditures. Except (i) as required by law, or (ii) as
reasonably deemed necessary by the Company after consulting with CEI
following a catastrophic event, such as a major storm, the Company shall
not, and the Company shall not permit any of the Company Subsidiaries to,
make capital expenditures during any fiscal year in excess of 110% of the
amount budgeted for such fiscal year by the Company for capital
expenditures.
(m) Indebtedness. The Company shall not, and the Company shall not
permit any of the Company Subsidiaries to, incur or guarantee any
indebtedness (including any debt borrowed or guaranteed or otherwise
assumed including, without limitation, the issuance of debt securities or
warrants or rights to acquire debt) or enter into any 'keep well' or other
agreement to maintain any financial statement condition of another person
or entity or enter into any arrangement having the economic effect of any
of the foregoing other than (i) short-term indebtedness in the ordinary
course of business consistent with past practice (such as the issuance of
commercial paper, the use of credit facilities existing as of the date
hereof or hedging activities undertaken in order to hedge a balance sheet
asset or liability and not for speculative purposes), (ii) guarantees or
'keep well' or other agreements in favor of wholly-owned Subsidiaries
(other
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than NORSTAR Management, Inc. and its Subsidiaries) in the ordinary course
of business consistent with past practice and not aggregating more than $5
million, (iii) other indebtedness or 'keep well' or other agreements not
aggregating more than $5 million, (iv) arrangements between the Company and
the wholly-owned Company Subsidiaries (other than NORSTAR Management, Inc.
and its Subsidiaries) or among the wholly-owned Company Subsidiaries (other
than NORSTAR Management, Inc. and its Subsidiaries), (v) in connection with
the refunding of existing long-term indebtedness at maturity or at a lower
cost of funds, (vi) in connection with the redemption of Company Preferred
Stock as set forth in Section 2.1(c), (vii) in connection with the
redemption of Company Preference Stock as set forth in Section 2.1(d),
(viii) as may be necessary in connection with capital expendi tures
permitted by Section 6.1(l).
(n) Compensation, Benefits. Except as may be required by applicable
law, the Company shall not, and the Company shall not permit any of the
Company 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 Company Plan or any other employee benefit plan
or other contract, agreement, commitment, arrangement, plan, trust, fund or
policy maintained by, contributed to or entered into by the Company or any
of the Company Subsidiaries (other than any adoption or amendment to, or
change of, any Company Plan that, individually or in the aggregate, does
not result in any material expense to the Company and the Company
Subsidiaries taken as a whole); (ii) increase, or enter into any contract,
agreement, commitment or arrangement to increase in any manner, the
compensation or fringe benefits, or otherwise to extend, expand or enhance
the engagement, employment or any related rights, of any director, officer
or other employee of the Company or any of the Company Subsidiaries, except
for normal promotion and compensation (including incentive compensation)
increases and hiring and discretionary award grants in the ordinary course
of business that, in the aggregate, do not result in a material increase in
benefits or compensation expense to the Company or any of the Company
Subsidiaries; (iii) enter into or amend any employment, severance,
retention, consulting 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 only to employees who are not officers or directors, in the
ordinary course of business consistent with past practice or (iv) enter
into any collective bargaining agreement or other labor union contract or
written agreement or amend in any material manner any such agreement or
contract to which the Company or any of the Company Subsidiaries is a
party, except as required by law, in which case the Company shall consult
with CEI prior to taking any required action.
(o) 1935 Act. The Company shall not, and the Company shall not
permit any of the Company Subsidiaries to engage in any activities which
would cause a change in its status, or that of the Company Subsidiaries,
under the 1935 Act.
(p) Accounting. The Company shall not, and the Company shall not
permit any of the Company Subsidiaries to, make any changes in their
accounting methods, except as required by law, rule, regulation or GAAP.
(q) Affiliate Transactions. Subject to the other restrictions set
forth in this Section 6.1, the Company shall not permit any of the Company
Subsidiaries to, enter into any material agreement or arrangement with any
of their respective Affiliates (except wholly-owned Subsidiaries other than
NORSTAR Management, Inc. and its Subsidiaries), on terms materially less
favorable to such party than could be reasonably expected to have been
obtained with an unaffiliated third-party on an arm's length basis.
(r) Rate Matters. Subject to applicable law, the Company shall, and
shall cause the Company Subsidiaries to, (i) discuss with CEI any changes
in its or the Company Subsidiaries' rates or the services it provides or
charges (other than pass-through fuel and gas rates or charges), standards
of service or accounting from those in effect on the date hereof, and
obtain CEI's approval prior to proposing, agreeing to or making any
material changes with respect thereto and (ii) subject to the preceding
clause (i), consult with CEI prior to making any filing (or any amendment
thereto), or effecting any agreement, commitment, arrangement or consent
with governmental regulators, whether written or oral, formal or informal,
with respect thereto. The Company will consult with CEI before making any
filing to change its rates or the services it provides on file with the
FERC that would have a material adverse effect on the benefits associated
with the business combination provided for herein.
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(s) Contracts. The Company shall not, and the Company shall not
permit any of the Company Subsidiaries to, except in the ordinary course of
business consistent with past practice, modify, amend, terminate, renew or
fail to use reasonable business efforts to renew any contract or agreement
to which the Company or the Company Subsidiary is a party, which is
material to the Company and the Company Subsidiaries taken as a whole, or
waive, release or assign any material rights or claims therein.
(t) Insurance. The Company shall, and shall cause the Company
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
and employing methods of generating electric power and fuel sources similar
to those methods employed and fuels used by the Company or the Company
Subsidiaries.
(u) Permits. The Company shall, and shall cause the Company
Subsidiaries to, use reasonable efforts to maintain in effect all existing
governmental permits which are material to the operations of the Company or
the Company Subsidiaries.
(v) Discharge of Liabilities. The Company shall not, and the Company
shall not permit any of the Company Subsidiaries to, pay, discharge,
settle, compromise or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise)
material to the Company and the Company Subsidiaries taken as a whole,
other than the payment, discharge, settlement, compromise 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 SEC Reports filed prior to the date hereof,
or incurred in the ordinary course of business consistent with past
practice.
Section 6.2 Covenants of CEI. After the date hereof and prior to the
Effective Time or earlier termination of this Agreement, CEI agrees as follows,
as to itself and to each of CEI Subsidiaries, except to the extent the Company
shall otherwise consent in writing, which decision regarding consent shall be
made as soon as reasonably practical:
(a) Cooperation, Notification. CEI shall (i) promptly advise the
Company of (A) any representation or warranty made by it contained in this
Agreement that is qualified as to materiality becoming untrue or inaccurate
in any respect or any such representation or warranty that is not so
qualified becoming untrue or inaccurate in any material respect and (B) the
failure by it to comply in any material respect with or satisfy in any
material respect any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement (provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties (or remedies with respect thereto) or the
conditions to the obligations of the parties under this Agreement) and (ii)
promptly provide the Company with copies of all filings made by CEI or any
of CEI Subsidiaries with any state or federal court, administrative agency,
commission or other Governmental Authority in connection with this
Agreement and the transactions contemplated hereby.
(b) No Breach, Etc. CEI shall not and CEI shall not permit any of
the CEI Subsidiaries to, voluntarily 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.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Access to the Company's Information. Upon reasonable notice,
the Company shall, and shall cause the Company Subsidiaries to, afford to the
officers, directors, employees, accountants, counsel, investment bankers,
financial advisors and other representatives (collectively, 'Representatives')
of CEI reasonable access, during normal business hours throughout the period
prior to the Effective Time, to all of its properties, books, contracts,
commitments and records (including, but not limited to, tax returns) and, during
such period, the Company shall, and shall cause the Company Subsidiaries to,
furnish promptly to CEI and its Representatives (i)
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access to each report, schedule and other document filed or received by the
Company or any of the Company 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, the New York Department of
Environmental Conservation or any other federal or state regulatory agency or
commission and (ii) access to all information concerning the Company, the
Company Subsidiaries, and their respective directors, officers and shareholders
and such other matters as may be reasonably requested by CEI or its
Representatives in connection with any filings, applications or approvals
required or contemplated by this Agreement or for any other reason related to
the transactions contemplated by this Agreement. Subject to obtaining customary
indemnities, the parties shall promptly furnish to each other such information
as may be reasonably requested, including audited financial statements and other
financial information, and take such other action as may be reasonably necessary
and otherwise fully cooperate with each other in the preparation of any
registration statement under the Securities Act and other documents necessary in
connection with the issuance of securities (subject to Section 6.1(c) and 6.1(m)
in the case of issuances by the Company or any Company Subsidiary). Each party
shall, and shall cause its Subsidiaries and Representatives to, hold in strict
confidence all documents and information concerning the other furnished to it in
connection with the transactions contemplated by this Agreement in accordance
with the Confidentiality Agreement, dated December 17, 1997, between the Company
and CEI (the 'Confidentiality Agreement'). No review pursuant to this Section
7.1 shall have an effect for the purpose of determining the accuracy of any
representation or warranty given by any of the parties hereto to any of the
other parties hereto.
Section 7.2 Proxy Statement. The parties will prepare and file with the
SEC as soon as practicable after the date hereof the Proxy Statement. Each of
the parties hereto shall furnish all information concerning itself which is
required or customary for inclusion in the Proxy Statement. The information
provided by any party hereto for use in the Proxy Statement shall be true and
correct in all material respects without omission of any material fact which is
required to make such information not false or misleading. No representation,
covenant or agreement is made by any party hereto with respect to information
supplied by any other party for inclusion in the Proxy Statement. No filing of,
or amendment or supplement to, the Proxy Statement will be made by the Company
without providing CEI with the opportunity to review and comment thereon. If at
any time prior to the Effective Time any information relating to the Company or
CEI, or any of their respective Affiliates, officers or directors, should be
discovered by the Company or CEI which should be set forth in an amendment or
supplement to the Proxy Statement, so that the Proxy Statement would not include
any misstatement of a material fact or omit to state any material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, the party which discovers such information shall
promptly notify the other parties hereto and an appropriate amendment or
supplement describing such information shall be promptly filed with the SEC and,
to the extent required by law, disseminated to the stockholders of the Company.
Section 7.3 Regulatory Matters.
(a) HSR Filings. Each party hereto shall, as soon as practicable after
the date hereof, file or cause to be filed with the Federal Trade Commission and
the Department of Justice any notifications required to be filed by their
respective 'ultimate parent' companies under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the 'HSR Act'), and the rules and
regulations promulgated thereunder with respect to the transactions contemplated
hereby. Such parties will use their reasonable best efforts to respond on a
timely basis to any requests for additional information made by either of such
agencies.
(b) Other Regulatory Approvals. Each party hereto shall cooperate and use
its reasonable best efforts to promptly prepare and file all necessary
documentation and to effect all necessary applications, notices, petitions,
filings and other documents and use its reasonable best efforts to obtain all
necessary permits, consents, approvals and authorizations of all Governmental
Authorities necessary or advisable to obtain the Company Required Statutory
Approvals and CEI Required Statutory Approvals; provided, however, that the
Company shall not be required to take any action in connection with the
obtaining of such permits, consents, approvals and authorizations that would
have, or, insofar as reasonably can be foreseen, is likely to have, a Company
Material Adverse Effect and CEI shall not be required to take any action in
connection with the obtaining of such permits, consents, approvals and
authorizations that would have, or, insofar as reasonably can be foreseen, is
likely to have a CEI Material Adverse Effect or a Company Material Adverse
Effect.
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(c) For each facility that is potentially an 'industrial establishment' (as
that term is defined by the New Jersey Industrial Site Recovery Act ('ISRA'))
and is owned or operated by the Company or a Company Subsidiary that is subject
to ISRA as a result of this Agreement, the Company or the Company Subsidiary
that owns or operates such facility shall, prior to the Closing Date, obtain a
written determination from the New Jersey Department of Environmental Protection
that such facility is not an industrial establishment, or that such facility is
otherwise exempted or excluded from coverage under ISRA (collectively a
'non-applicability determination') and with respect to any facility for which a
non-applicability determination cannot be obtained, either (i) obtain an
approved Negative Declaration or No Further Action Letter (as such terms are
defined by ISRA); (ii) obtain an approved Remedial Action Workplan (as such term
is defined by ISRA); or (iii), if a Negative Declaration, No Further Action
Letter, or approved Remedial Action Workplan cannot be obtained prior to the
Closing Date, obtain and execute a Remediation Agreement permitting the
consummation of the transactions contemplated by this Agreement. The Company
shall provide to CEI all relevant correspondence, data and submissions to or
from the New Jersey Department of Environmental Protection.
Section 7.4 Approval of the Company Shareholders. The Company shall, as
soon as 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 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 Restated Certificate of
Incorporation and by-laws, (iii) subject to Section 7.10, recommend to its
shareholders the approval of the Merger, this Agreement and the transactions
contemplated hereby and (iv) cooperate and consult with CEI with respect to each
of the foregoing matters. Without limiting the generality of the foregoing but
subject to its rights to terminate this Agreement pursuant to Section 9.1(g),
the Company agrees that its obligations pursuant to the first sentence of this
Section 7.4 shall not be affected by the commencement, public proposal, public
disclosure or communication to the Company of any Acquisition Proposal.
Section 7.5 Directors' and Officers' Indemnification.
(a) Indemnification. To the extent, if any, not provided by an existing
right of indemnification or other agreement or policy, from and after the
Effective Time, 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, (x) an officer or director or (y) an employee covered as of the
date hereof (to the extent of the coverage extended as of the date hereof) of
any of the Company or any Company Subsidiary (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 first 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 any Company Subsidiary (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 each case, to the
extent permitted by Section 722(a) of the NYBCL. In the event of any such loss,
expense, claim, damage or liability (whether or not arising before the Effective
Time), (i) the Surviving Corporation shall pay the reasonable fees and expenses
of counsel selected by the Indemnified Parties, which counsel shall be
reasonably satisfactory to the Surviving Corporation, promptly after statements
therefor are received and otherwise advance to such Indemnified Party upon
request, reimbursement of documented expenses reasonably incurred, in either
case to the extent not prohibited by the NYBCL upon receipt of an undertaking by
or on behalf of such director or officer to repay such amounts as and to the
extent required by the NYBCL, (ii) the Surviving Corporation will cooperate in
the defense of any such matter and (iii) any determination required to be made
with respect to whether an Indemnified Party's conduct complies with the
standards set forth under the NYBCL and the certificate of incorporation or
by-laws of the Surviving Corporation shall be made by independent counsel
mutually acceptable to the Surviving Corporation and the Indemnified Party;
provided, however, that the Surviving Corporation shall not be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld) and provided further that no indemnification shall be
made if such indemnification is prohibited by the proviso to the first sentence
of Section 721 of the NYBCL. The Indemnified Parties as a group may retain only
one law firm with respect to each related matter except to the extent that such
law firm would have, in the opinion of such law firm, under
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applicable standards of professional conduct then prevailing under the laws of
the State of New York, a conflict of interest in representing any particular
Indemnified Party.
(b) Insurance. For a period of six years after the Effective Time, the
Surviving Corporation shall cause to be maintained in effect policies of
directors and officers' liability insurance equivalent to those maintained by
the Company prior to the Effective Time for the benefit of those persons who are
currently covered by such policies on terms no less favorable than the terms of
such current insurance coverage.
(c) Successors. In the event the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other person or
entity 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 or entity, then and in either such case,
proper provisions shall be made so that the successors and assigns of the
Surviving Corporation, as applicable, shall assume the obligations set forth in
this Section 7.5.
(d) Survival of Indemnification. To the fullest extent permitted by law,
from and after the Effective Time, all rights to indemnification as of the date
hereof in favor of the employees, agents, directors and officers of the Company
and the Company Subsidiaries with respect to their activities as such prior to
the Effective Time, as provided in their respective certificates of
incorporation and by-laws in effect on the date hereof, or otherwise in effect
on the date hereof, shall survive the Merger and shall continue in full force
and effect for a period of not less than six years from the Effective Time.
(e) Benefit. The provisions of this Section 7.5 are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her representatives.
Section 7.6 Public Announcements. Subject to each party's disclosure
obligations imposed by law, the Company and CEI will cooperate with each other
in the development and distribution of all news releases and other public
information disclosures with respect to this Agreement or any of the
transactions contemplated hereby and shall not issue any public announcement or
statement with respect hereto or thereto without the consent of the other party
(which consent shall not be unreasonably withheld).
Section 7.7 Standstill Agreements; Confidentiality Agreements. Except for
the Company's ability to enter into, amend, modify, waive any provision of,
enforce and terminate, if necessary, the confidentiality agreements relating to
the sale of the generation assets, (i) during the period from the date of this
Agreement through the Effective Time, the Company shall not, and shall not
permit any Company Subsidiary, to terminate, amend, modify or waive any
provision of any confidentiality or standstill agreement to which it or any
Company Subsidiary is a party and (ii) during such period, the Company shall
enforce, to the fullest extent permitted under applicable law, the provisions of
any such agreement, including by obtaining injunctions to prevent any breaches
of such agreements and to enforce specifically the terms and provisions thereof
in any court of the United States of America or of any state having
jurisdiction.
Section 7.8 Employee Agreements and Workforce Matters.
(a) Certain Employee Agreements. CEI shall cause the Surviving
Corporation and its Subsidiaries to honor all collective bargaining agreements
in effect as of the date hereof, and, subject to Section 7.9, CEI shall cause
the Surviving Corporation and its Subsidiaries to honor all contracts,
agreements and commitments (including all Company Plans) of the Company as in
effect on the date hereof that apply to any current or former employee or
current or former director of the Company; provided, however, that this
undertaking is not intended to prevent CEI or the Surviving Corporation and its
Subsidiaries from exercising their rights with respect to such contracts,
agreements, collective bargaining agreements and commitments in accordance with
their terms, including, without limitation, any right to amend, modify, suspend,
revoke or terminate any such contract, agreement, collective bargaining
agreement or commitment or portion thereof.
(b) Workforce Matters. Subject to applicable law and obligations under
applicable collective bargaining agreements, for a period of 3 years following
the Effective Time, any reductions in workforce in respect of employees of the
Surviving Corporation and its Subsidiaries shall be made on a fair and equitable
basis as determined by the Surviving Corporation, without regard to whether
employment was with the Company or the Company Subsidiaries or CEI or CEI
Subsidiaries and with due consideration to prior experience and skills, and any
employee whose employment is terminated or job is eliminated during such period
shall be entitled to
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participate on a fair and equitable basis as determined by CEI or the Surviving
Corporation in the job opportunity and employment placement programs offered by
CEI or the Surviving Corporation or any of their Subsidiaries for which they are
eligible. Any workforce reductions carried out following the Effective Time by
the Surviving Corporation and its Subsidiaries shall be done in accordance with
all applicable collective bargaining agreements and all laws and regulations
governing the employment relationship and termination thereof including, without
limitation, the Worker Adjustment and Retraining Notification Act and
regulations promulgated thereunder, and any comparable state or local law.
Section 7.9 Employee Benefit Plans.
(a) Service Credit. All service under any Company Plan that was
recognized, accrued or credited under such Company Plan immediately preceding
the Effective Time shall continue to be recognized, accrued or credited for all
relevant purposes under such Company Plan as of and at all times following the
Effective Time. Subject to obligations under applicable law and applicable
collective bargaining agreements, all employees of the Company and its
Subsidiaries who were employees immediately prior to the Effective Time (the
'Affected Employees') shall be given credit for all service with the Company or
its Subsidiaries (and service credited by the Company or such Subsidiary), to
the same extent as such service was credited for such purpose by the Company or
such Subsidiary, under (a) all employee benefit plans, programs and policies,
and fringe benefits of CEI or the Surviving Corporation (if any) in which they
first become participants on or after the Effective Time, for purposes of
eligibility and vesting but not for benefit accrual purposes or eligibility for
early retirement purposes under defined benefit pension plans and not to the
extent crediting such service would result in duplication of benefits and (b)
severance plans for purposes of calculating the amount of each Affected
Employee's severance benefits. To the extent permissible under the terms thereof
and required by applicable law, CEI and the Surviving Corporation shall (i)
waive all limitations as to preexisting conditions exclusions and waiting
periods with respect to participation and coverage requirements applicable to
the Affected Employees under any welfare benefit plans that such employees may
be eligible to participate in after the Closing Date, other than limitations or
waiting periods that are already in effect with respect to such employees and
that have not been satisfied as of the Closing Date under any welfare benefit
plan maintained for the Affected Employees immediately prior to the Closing
Date, and (ii) provide each Affected 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
employees are eligible to participate in after the Closing Date. Nothing in this
Section shall be deemed to require the employment of any Affected Employee to be
continued for any particular period of time after the Closing Date.
(b) Continuation of Benefits. Subject to applicable law and obligations
under applicable collective bargaining agreements, CEI shall cause the Surviving
Corporation to maintain for a period of at least one year after the Closing
Date, without interruption, such employee compensation, welfare and benefit
plans, programs, policies and fringe benefits as will, in the aggregate, provide
benefits to the Affected Employees that are no less favorable than those
provided pursuant to such employee compensation, welfare and benefit plans,
programs, policies and fringe benefits of the Company and its Subsidiaries, as
in effect on the Closing Date; provided, however, that CEI shall cause the
Surviving Corporation to, for one year following the Closing Date, continue the
Company Severance Pay Plan (the 'Severance Plan') in full force and effect to
the same extent that such Severance Plan is in effect on the Closing Date.
(c) Effect of the Merger. The consummation of the Merger shall not be
treated as a termination of employment of any Affected Employee for purposes of
any Company Plan.
(d) Continuation of Agreements. CEI shall cause the Surviving Corporation
to, as of the Closing Date, honor and be solely responsible for the employment,
severance, consulting and retention agreements set forth in Section 7.9 of the
Company Disclosure Schedule.
Section 7.10 No Solicitations by the Company.
(a) From and after the date hereof, (i) the Company will not, and will not
authorize or permit any of its Representatives to, directly or indirectly,
solicit, initiate or encourage (including by way of furnishing information) or
take any other action to facilitate knowingly any inquiries or the making of any
proposal which constitutes or may reasonably be expected to lead to an
Acquisition Proposal (as defined herein) from any person,
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or engage in any discussion or negotiations relating thereto and (ii) neither
the Board of Directors of the Company nor any committee thereof shall (A)
withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to CEI, the approval or recommendation by such Board of Directors or
such committee of the Merger or this Agreement, (B) approve or recommend, or
propose publicly to approve or recommend, any Acquisition Proposal, or (C) cause
the Company or any Company Subsidiary to enter into any letter of intent,
agreement in principle, acquisition agreement or other similar agreement (each,
an 'Acquisition Agreement') related to any Acquisition Proposal; provided,
however, that the Company may, at any time prior to receipt of the Company
Shareholders' Approval (the 'Company Applicable Period'), (i) in response to an
Acquisition Proposal which was not solicited by it or its Representatives and
which did not otherwise result from a breach of this Section 7.10, if the Board
of Directors of the Company (x) reasonably believes in good faith, after
consultation with its financial advisors, that an Acquisition Proposal may be a
Superior Proposal (as defined herein) and (y) determines in good faith, after
consultation with its financial advisors and outside counsel, that failing to
take such action could reasonably be expected to be a breach of its fiduciary
duties to the Company's shareholders under applicable law, and subject to
providing prior written notice of its decision to take such action to CEI (the
'Company Notice') and compliance with Section 7.10(c), for a period of twenty
business days following delivery of the Company Notice, (1) furnish information
with respect to the Company and its Subsidiaries to any person making a Superior
Proposal pursuant to a customary confidentiality agreement (as determined by the
Company after consultation with outside counsel) and (2) participate in
discussions or negotiations regarding such Superior Proposal (provided, in each
case, that the Company shall be permitted to deliver only one Company Notice
with respect to each person making an Acquisition Proposal), (ii) comply with
Rule 14e-2 promulgated under the Exchange Act with regard to a tender or
exchange offer (provided that, except in connection with a termination of this
Agreement pursuant to clause (iii) of this proviso, neither the Company nor its
Board of Directors nor any committee thereof shall withdraw or modify, or
propose publicly to withdraw or modify, its position with respect to this
Agreement or the Merger or approve or recommend, or propose publicly to approve
or recommend, an Acquisition Proposal), and/or (iii) in the event that during
the Company Applicable Period the Board of Directors of the Company reasonably
believes in good faith, after consultation with financial advisors and outside
counsel, (x) that it has received an Acquisition Proposal that constitutes a
Superior Proposal and (y) that failure to terminate this Agreement and accept
such Superior Proposal could reasonably be expected to be a breach of its
fiduciary duties to the Company's shareholders under applicable law, by action
of the Board of Directors of the Company (subject to this sentence and Section
9.1(g)), terminate this Agreement (and, following the exercise of such
termination right, withdraw or modify in any adverse manner its approval or
recommendation of this Agreement or the Merger, and approve or recommend any
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving the Company or any such Company
Subsidiary, other than the transactions contemplated by this Agreement), but
only at a time that is during the Company Applicable Period and is after the
third business day following CEI's receipt of written notice advising CEI that
the Board of Directors of the Company is prepared to accept a Superior Proposal,
specifying the material terms and conditions of such Superior Proposal and
identifying the person making such Superior Proposal. The Company shall
immediately cease and terminate any existing solicitation, initiation,
encouragement, activity, discussion or negotiation with any persons conducted
heretofore by the party or its Representatives with respect to the foregoing.
(b) As used herein, (i) 'Acquisition Proposal' shall mean any inquiry,
proposal or offer from any person relating to any direct or indirect acquisition
or purchase of a business (a 'Material Business') that constitutes 15% or more
of the net revenues, net income or the assets (including equity securities) of
the Company and the Company Subsidiaries, taken as a whole, or 15% or more of
any class of voting securities of the Company or any Company Subsidiary owning,
operating or controlling a Material Business, any tender offer or exchange offer
that if consummated would result in any person beneficially owning 15% or more
of any class of voting securities of the Company or any such Company Subsidiary,
or any merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving the Company or any
such Company Subsidiary, other than the transactions contemplated by this
Agreement; provided, however, that no transaction permitted pursuant to Section
6.1(f) shall be deemed an Acquisition Proposal for any purpose and (ii) a
'Superior Proposal' shall mean any proposal made by a third party to acquire,
directly or indirectly, including pursuant to a tender offer, exchange offer,
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction, for consideration consisting of cash and/or
securities, more than
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50% of the combined voting power of the shares of Company Common Stock then
outstanding or all or substantially all the assets of the Company which the
Board of Directors of the Company determines in its good faith judgment (based
on the written advice of a financial advisor of nationally recognized
reputation) to be more favorable to the Company's shareholders (taking into
account any changes to the financial terms of this Agreement proposed by CEI in
response to such proposal and all financial and strategic considerations,
including relevant legal, financial, regulatory and other aspects of the
proposal and the third party making such proposal and the conditions and the
prospects for completion of such proposal, the strategic direction and benefits
sought by the Company and any changes to this Agreement proposed by CEI in
response to such proposal) than the Merger and the other transactions
contemplated by this Agreement.
(c) The Company shall promptly advise CEI orally and in writing of the
receipt of any Superior Proposal and of the receipt of any inquiry with respect
to or which the Company reasonably believes could lead to any Superior Proposal.
The Company shall promptly advise CEI orally and in writing of the identity of
the person making any such Superior Proposal or inquiry and of the material
terms of any such Superior Proposal and of any material changes thereto.
Section 7.11 Board of Directors; Advisory Board. The Board of Directors
of CEI will take such action as may be necessary (including increasing the size
of the Board of Directors of CEI) to appoint to the Board of Directors of CEI
after the Effective Time, effective at the Effective Time, one person selected
by the Nominating Committee of CEI, who (i) is a member of the Board of
Directors of the Company as of the date hereof, (ii) is willing to serve on the
Board of Directors of CEI and (iii) would be eligible under CEI's by-laws and
applicable resolutions of CEI's Board of Directors to be so nominated for
election to the Board of Directors of CEI at the next annual meeting of CEI
following the Effective Time. At the Effective Time, CEI shall cause the
Surviving Corporation to establish an advisory board that will consist of
approximately equal numbers of individuals designated by the Company and
designated by CEI, which advisory board will provide advice and input regarding
the implementation of the Merger and the ongoing operations of the Surviving
Corporation.
Section 7.12 Post-Merger Operations.
(a) Corporate Offices. The Surviving Corporation shall maintain a
subsidiary office at a Rockland County, New York location, as the headquarters
of the Company subsidiary for three years following the Merger.
(b) Charities. The parties agree that provision of charitable
contributions and community support in the service areas of the Company and the
Company Subsidiaries serves a number of important goals. After the Effective
Time, CEI shall cause the Surviving Corporation to provide, directly or
indirectly, charitable contributions and community support within the service
areas of the Company and each of the Company utility Subsidiaries at levels
substantially comparable to and no less than the levels of charitable
contributions and community support provided by the Company and the Company
utility Subsidiaries within their service areas within the two-year period
immediately prior to the Effective Time.
Section 7.13 Expenses. Subject to Section 9.3, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, except that each of
CEI and the Company shall bear and pay one-half of the costs and expenses
incurred for the filings of the premerger notification and report forms under
the HSR Act (including filing fees) and for expert witnesses retained for the
purpose of advising and supporting joint regulatory filings.
Section 7.14 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, including the
defending of any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated by this Agreement, including seeking to have any stay
or temporary restraining order entered by any court or other Governmental
Authority vacated or reversed.
Section 7.15 Shareholder Litigation. Each of the Company and CEI shall
give the other the reasonable opportunity to participate in the defense of any
shareholder litigation against the Company or CEI, as applicable, or any of
their respective directors relating to the transactions contemplated by this
Agreement.
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ARTICLE VIII
CONDITIONS
Section 8.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction on or prior to the Closing Date of the following
conditions, except, to the extent permitted by applicable law, that such
conditions may be waived in writing pursuant to Sections 9.5 and 9.6 by the
joint action of the parties hereto:
(a) Shareholder Approvals. The Company Shareholders' Approval shall
have been obtained.
(b) No Injunction. No temporary restraining order or preliminary or
permanent injunction or other order by any federal or state court
preventing consummation of the Merger shall have been issued and be
continuing in effect, and the Merger and the other transactions
contemplated hereby shall not have been prohibited under any applicable
federal or state law or regulation.
(c) Statutory Approvals. The Company Required Statutory Approvals
and CEI Required Statutory Approvals shall have been obtained at or prior
to the Effective Time and such approvals shall have become Final Orders (as
defined below). A 'Final Order' means action by the relevant regulatory
authority which has not been reversed, stayed, enjoined, set aside,
annulled or suspended, with respect to which any waiting period prescribed
by law before the transactions contemplated hereby may be consummated has
expired, and as to which all conditions to the consummation of such
transactions prescribed by law, regulation or order have been satisfied.
Section 8.2 Conditions to Obligation of CEI to Effect the Merger. The
obligation of CEI to effect the Merger shall be further subject to the
satisfaction, on or prior to the Closing Date, of the following conditions,
except as may be waived by CEI in writing pursuant to Sections 9.5 and 9.6:
(a) Performance of Obligations of the Company. The Company (and/or
its appropriate Subsidiaries) will have performed in all material respects
its agreements and covenants contained in or contemplated by this Agreement
which are required to be performed by it at or prior to the Effective Time.
(b) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and
correct (i) on and as of the date hereof and (ii) on and as of the Closing
Date with the same effect as though such representations and warranties had
been made on and as of the Closing Date (except for representations and
warranties that expressly speak only as of a specific date or time which
need only be true and correct as of such date or time) except in each of
cases (i) and (ii) for such failures of representations or warranties to be
true and correct (without giving effect to any materiality qualification or
standard contained in any such representations and warranties) which,
individually or in the aggregate, would not have a Company Material Adverse
Effect.
(c) Closing Certificates. CEI shall have received a certificate
signed by the chief financial officer of the Company, dated the Closing
Date, to the effect that, to the best of such officer's knowledge, the
conditions set forth in Section 8.2(a) and Section 8.2(b) have been
satisfied.
(d) Company Material Adverse Effect. No Company Material Adverse
Effect shall have occurred and there shall exist no fact or circumstance
which would have a Company Material Adverse Effect.
(e) Company Required Consents. The Company Required Consents the
failure of which to obtain would have a Company Material Adverse Effect
shall have been obtained.
(f) Statutory Approvals. The Company Required Statutory Approvals
and CEI Required Statutory Approvals shall have been obtained and shall
have become Final Orders and such Final Orders shall not impose terms or
conditions, which, individually or in the aggregate, would have (i) a
Company Material Adverse Effect or (ii) a CEI Material Adverse Effect.
(g) Redemption of Company Preference Stock. The Company shall have
redeemed all outstanding shares of Company Preference Stock in accordance
with the provisions of Section 2.1(d).
25
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Section 8.3 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be further
subject to the satisfaction, on or prior to the Closing Date, of the following
conditions, except as may be waived by the Company in writing pursuant to
Sections 9.5 and 9.6:
(a) Performance of Obligations of CEI. CEI (and/or its appropriate
Subsidiaries) will have performed in all material respects its agreements
and covenants contained in or contemplated by this Agreement which are
required to be performed by it at or prior to the Effective Time.
(b) Representations and Warranties. The representations and
warranties of CEI set forth in this Agreement shall be true and correct (i)
on and as of the date hereof and (ii) on and as of the Closing Date with
the same effect as though such representations and warranties had been made
on and as of the Closing Date (except for representations and warranties
that expressly speak only as of a specific date or time which need only be
true and correct as of such date or time) except in each of cases (i) and
(ii) for such failures of representations or warranties to be true and
correct (without giving effect to any materiality qualification or standard
contained in any such representations and warranties) which, individually
or in the aggregate, would not have a CEI Material Adverse Effect.
(c) Closing Certificates. The Company shall have received a
certificate signed by the chief financial officer of CEI, dated the Closing
Date, to the effect that, to the best of such officer's knowledge, the
conditions set forth in Section 8.3(a) and Section 8.3(b) have been
satisfied.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination. This Agreement may be terminated at any time
prior to the Closing Date, whether before or after the Company Shareholders'
Approval contemplated by this Agreement:
(a) by mutual written consent of the Company and CEI;
(b) by CEI 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 by any party hereto if any court of competent jurisdiction in
the United States or any state shall have issued an order, judgment or
decree permanently restraining, enjoining or otherwise prohibiting the
Merger, and such order, judgment or decree shall have become final and
nonappealable;
(c) by CEI or the Company, by written notice to the other party, if
the Effective Time shall not have occurred on or before November 30, 1999
(the 'Initial Termination Date'); provided, however, that the right to
terminate the Agreement under this Section 9.1(c) shall not be available to
any party whose failure to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure of the Effective Time to
occur on or before this date; and provided, further, that if on the Initial
Termination Date the conditions to the Closing set forth in Sections 8.1(c)
and/or 8.2(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 May 31, 2000;
(d) by CEI or the Company, by written notice to the other, if the
Company Shareholders' Approval shall not have been obtained at a duly held
Company Meeting, including any adjournments thereof;
(e) by CEI, by written notice to the Company, if there shall have been
any breach of any representation or warranty, or any breach of any covenant
or agreement of the Company hereunder, which breaches individually or in
the aggregate would have a Company Material Adverse Effect, and such breach
shall not have been remedied within 20 business days after receipt by the
Company of notice in writing from CEI, specifying the nature of such breach
and requesting that it be remedied or CEI shall not have received adequate
assurance of a cure of such breach within such 20 business-day period;
(f) by the Company, by written notice to CEI, if there shall have been
any breach of any representation or warranty, or any breach of any covenant
or agreement of CEI hereunder, which breaches individually or in the
aggregate would have a CEI Material Adverse Effect, and such breach shall
not have been remedied within 20 business days after receipt by CEI of
notice in writing from the Company, specifying the nature of
26
<PAGE>
such breach and requesting that it be remedied or the Company shall not
have received adequate assurance of a cure of such breach within such 20
business-day period;
(g) by the Company, in accordance with clause (iii) of the proviso to
the first sentence of Section 7.10(a); provided that, in order for the
termination of this Agreement pursuant to this paragraph (g) to be deemed
effective, the Company shall have complied with all provisions of Section
7.10, including the notice provisions therein, and with the applicable
requirements, including the payment of the Termination Fee (as defined in
Section 9.3(a)), of Section 9.3;
Section 9.2 Effect of Termination. In the event of termination of this
Agreement by either the Company or CEI pursuant to Section 9.1 there shall be no
liability on the part of either the Company or CEI or their respective officers
or directors hereunder, except that Section 7.13, Section 9.2 and Section 9.3,
the agreement contained in the next to last sentence of Section 7.1, Section
10.2 and Section 10.8 shall survive the termination.
Section 9.3 Termination Fee; Expenses.
(a) Termination Fee Payable by the Company. If this Agreement (i) is
terminated by the Company pursuant to Section 9.1(g) or (ii) is terminated by
the Company or CEI pursuant to Section 9.1(d) as a result of the Company
Shareholders' Approval not being obtained and at or prior to the Company Meeting
(or any subsequent meeting of the Company's shareholders at which it is proposed
that the Merger be approved) there shall have been an Acquisition Proposal
(whether or not conditional and whether or not such offer shall have been
rejected or shall have been withdrawn prior to the time of such termination or
of the meeting) and, solely in the case of any termination described in this
clause (ii) of this paragraph (a), within two and one-half years of such
termination the Company or any Company Subsidiary enters into any Acquisition
Agreement or consummates any Acquisition Proposal (provided, that for the
purposes of this Section 9.3(a)(ii) the terms 'Acquisition Agreement' and
'Acquisition Proposal' shall have the meanings assigned to such terms in Section
7.10 except that the references to '15%' in the definition of 'Acquisition
Proposal' in Section 7.10 shall be deemed to be references to '35%'), then, in
each case, the Company shall immediately pay to CEI by wire transfer of same day
funds a termination fee equal to $25 million in cash (the 'Termination Fee').
(b) Payment of Expenses. If this Agreement is terminated pursuant to
Section 9.1(d) or 9.1(e), then the Company shall promptly (but not later than
ten business days after receiving notice of termination) pay to CEI in cash by
wire transfer of same day funds an amount equal to all documented out-of-pocket
expenses and fees incurred by CEI (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 9.1(f), then CEI shall promptly (but not later than ten
business days after receiving notice of termination), pay to the Company in cash
by wire transfer of same day funds 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. The
Company and CEI each agree that notwithstanding any provisions in this Agreement
to the contrary, including Section 9.2, each of the Company and CEI retain their
remedies at law or in equity with respect to breaches of this Agreement and that
no termination which results from the breach by a party of any of its
representations, warranties, covenants or agreements set forth in this Agreement
shall relieve such party of any liability or damages, including any such case in
which a Termination Fee is, or any expenses of CEI or the Company in connection
with the transactions contemplated by this Agreement are, payable pursuant to
this Section 9.3 to CEI or the Company, as the case may be (the 'Injured
Party'), to the extent any such liability or damage suffered by the Injured
Party exceeds the amount of any Termination Fee and/or any expenses payable
pursuant to this Section 9.3 to the Injured Party.
(c) Expenses. The parties agree that the agreements contained in this
Section 9.3 are an integral part of the transactions contemplated by this
Agreement and constitute liquidated damages and not a penalty. Notwithstanding
anything to the contrary contained in this Section 9.3, if one party fails to
promptly pay to the other any fees or expenses due under Sections 9.3(a) or (b),
in addition to any amounts paid or payable pursuant to such sections, 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,
27
<PAGE>
together with interest on the amount of any unpaid fees or expenses at the
publicly announced prime rate of The Chase Manhattan Bank from the date such
fees or expenses were required to be paid.
Section 9.4 Amendment. This Agreement may be amended by the Boards of
Directors of the parties hereto, at any time before or after the Company
Shareholders' Approval and prior to the Effective Time, but after the Company
Shareholders' Approval, no such amendment which under applicable law would
require the further approval of the Company's shareholders shall be made without
obtaining such approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
Section 9.5 Waiver. At any time prior to the Effective Time, the parties
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) subject to the first sentence of Section 9.4, 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 only if set forth in an
instrument in writing signed on behalf of such party. The failure of any party
to this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of such rights.
Section 9.6 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 9.1, an amendment of this
Agreement pursuant to Section 9.4 or an extension or waiver pursuant to Section
9.5 shall, in order to be effective, require, in the case of the Company or CEI,
action by its Board of Directors, or a duly authorized committee of its Board of
Directors to the extent permitted by law.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Non-Survival; Effect of Representations and Warranties. No
representations or warranties in this Agreement shall survive the Effective
Time.
Section 10.2 Brokers. The Company represents and warrants that, except
for DLJ, whose fees have been disclosed to CEI 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. The Company has made available to CEI prior to the execution of
this Agreement a copy of the engagement letter of DLJ and, other than as set
forth in such engagement letter, has no understanding or agreement with DLJ
regarding any fees or expenses in connection with the Merger or the transactions
contemplated by this Agreement. CEI represents and warrants that, except for
Salomon Smith Barney, 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 CEI.
Section 10.3 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given (a) when delivered personally, (b)
when sent by reputable overnight courier service, or (c) when telecopied (which
is confirmed by copy sent within one business day by a reputable overnight
courier service) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(i) If to the Company, to
Orange and Rockland Utilities, Inc.
One Blue Hill Plaza
Pearl River, New York 10965
Attn: D. Louis Peoples
Telecopy: (914) 577-6910
Telephone: (914) 352-6000
with a copy to
28
<PAGE>
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attn: Sheldon Adler, Esq.
Telecopy: (212) 735-2000
Telephone: (212) 735-3000
and
(ii) if to CEI, to
Consolidated Edison, Inc.
4 Irving Place
New York, New York 10003
Attn: Mr. Kevin Burke
John D. McMahon, Esq.
Telecopy: (212) 677-0601
Telephone: (212) 460-1110
with a copy to
Cravath, Swaine & Moore
825 Eighth Avenue
New York, New York 10019
Attn: George W. Bilicic, Jr., Esq.
Telecopy: (212) 474-3700
Telephone: (212) 474-1000
Section 10.4 Miscellaneous. This Agreement (including the documents and
instruments referred to herein) and the Confidentiality Agreement (other than
paragraph 11 thereof relating to the parties' standstill obligations) (a)
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 (including paragraph 11 of the
Confidentiality Agreement relating to the parties' standstill obligations) other
than the agreement between the Company and CECONY with respect to the
divestiture of their respective interests in the Bowline Point Generating
Station, (b) shall not be assigned by operation of law or otherwise and (c)
shall be governed by and construed in accordance with the laws of the State of
New York applicable to contracts executed in and to be fully performed in such
State, without giving effect to its conflicts of law rules or principles. The
Company hereby waives the restrictions applicable to CEI pursuant to paragraph
11 of the Confidentiality Agreement relating to the parties' standstill
obligations provided, however that such waiver shall lapse and the provisions of
paragraph 11 of the Confidentiality Agreement will be binding on CEI if (i) this
Agreement is terminated by CEI and (ii) the Termination Fee is required to be
paid pursuant to Section 9.3(a) to CEI (subject, in such case, to payment of the
Termination Fee). If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect. Upon such determination that any term or other provisions
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible to the fullest extent permitted by
applicable law in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
Section 10.5 Interpretation. When a reference is made in this Agreement
to Sections or Exhibits, such reference shall be to a Section or Exhibit of this
Agreement, respectively, unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words 'include,' 'includes' or 'including' are used in this Agreement, they
shall be deemed to be followed by the words 'without limitation.' The words
29
<PAGE>
'hereof', 'herein' and 'hereunder' and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement.
Section 10.6 Counterparts; Effect. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement and each of which shall
only become effective when one or more counterparts have been signed by each
party and delivered to the other parties.
Section 10.7 Parties' Interest; No Third Party Beneficiaries. This
Agreement shall be binding upon and inure solely to the benefit of each party
hereto, and, except for rights of Indemnified Parties as set forth in Section
7.5, nothing in this Agreement, express or implied, is intended to confer upon
any other person any rights or remedies of any nature whatsoever under or by
reason of this Agreement.
Section 10.8 Waiver of Jury Trial. Each party to this Agreement waives,
to the fullest extent permitted by applicable law, any right it may have to a
trial by jury in respect of any action, suit or proceeding arising out of or
relating to this Agreement.
Section 10.9 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the Borough of Manhattan in the City of New York or, if such court
does not have jurisdiction, in any New York state court located in the Borough
of Manhattan in the City of New York, 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 Borough of Manhattan in the City of New York or, if such
court does not have jurisdiction, any New York state court located in the
Borough of Manhattan in the City of New York 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 court located
in the Borough of Manhattan in the City of New York or, if such court does not
have jurisdiction, any New York state court located in the Borough of Manhattan
in the City of New York.
30
<PAGE>
IN WITNESS WHEREOF, each of the Company, CEI and the Merger Subsidiary have
caused this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
ORANGE AND ROCKLAND UTILITIES, INC.
By: /s/ D. L. Peoples
----------------------------------
Denton Louis Peoples
Vice Chairman and Chief Executive
Officer
CONSOLIDATED EDISON, INC.
By: /s/ Joan S. Freilich
----------------------------------
Joan S. Freilich
Executive Vice President and Chief
Financial Officer
C ACQUISITION CORP.
By: /s/ Kevin Burke
----------------------------------
Kevin Burke
President
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<PAGE>
APPENDIX B
[LETTERHEAD OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION]
July 17, 1998
Board of Directors
Orange and Rockland Utilities, Inc.
One Blue Hill Plaza
Pearl River, NY 10965
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to the holders of common stock, $5.00 par value per share ('Company Common
Stock'), of Orange and Rockland, Inc. ('Orange and Rockland' or the 'Company')
of the consideration to be received by such holders pursuant to the terms of the
Agreement and Plan of Merger dated May 10, 1998 (the 'Agreement'), by and among
the Company, Consolidated Edison, Inc. ('Con Edison') and C Acquisition Corp.
('Merger Subsidiary'), a wholly owned subsidiary of Con Edison, pursuant to
which Merger Subsidiary will be merged (the 'Merger') with and into Orange and
Rockland.
Pursuant to the Agreement, each share of Company Common Stock will be
converted into the right to receive $58.50 per share in cash.
In arriving at our opinion, we have reviewed the Agreement dated May 10,
1998 and the schedules thereto. We also have reviewed financial and other
information that was publicly available or furnished to us by the Company
including information provided during discussions with management. Included in
the information provided during discussions with management were certain
financial projections of the Company for the period beginning January 1, 1998
and ending December 31, 2002 prepared by the management of the Company. In
addition, we have compared certain financial and securities data of the Company
with various other companies whose securities are traded in public markets,
reviewed the historical stock prices and trading volumes of the Company Common
Stock, reviewed prices and premiums paid in certain other business combinations
and conducted such other financial studies, analyses and investigations as we
deemed appropriate for purposes of this opinion.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by the Company and its
representatives, or that was otherwise reviewed by us. With respect to the
financial projections supplied to us, we have assumed that they have been
reasonably prepared on the basis reflecting the best currently available
estimates and judgments of the management of the Company as to the future
operating and financial performance of the Company. We have not assumed any
responsibility for making an independent evaluation of any assets or
<PAGE>
liabilities or for making any independent verification of any of the information
reviewed by us. We have also relied as to certain legal matters on advice of
counsel to the Company.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. Our opinion does not address the relative
merits of the Merger and the other business strategies being considered by the
Company's Board of Directors, nor does it address the Board's decision to
proceed with the Merger. Our opinion does not constitute a recommendation to any
stockholder as to how such stockholder should vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ('DLJ'), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. DLJ has performed investment
banking and other services for the Company in the past and has been compensated
for such services. In particular, DLJ acted as lead manager in the issuance of
$80.0 million of debt securities and received standard and customary
compensation for its services. In addition, DLJ also has been retained to assist
the Company in the possible sale of its power generation assets, for which
services we will receive standard and customary compensation.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Merger Consideration to be received by the holders of
Company Common Stock pursuant to the Agreement is fair to such holders from a
financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ John A. Cavalier
--------------------
John A. Cavalier
Managing Director
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Orange and Rockland Utilities, Inc. Operations Center
390 West Route 59, Spring Valley, NY 10977
-----------------------------------------------------
From New Jersey or Southern Rockland
County From Orange County
Take the Garden State Parkway-North to Take the New York State Thruway-South
the New York State Thruway-South to Exit 14B (Airmont Road). Make a
toward New York City. Or, take the right turn onto Airmont Road and
Palisades Parkway-North to Exit 9W follow to Route 59. Turn left onto
(New York State Thruway-North, toward Route 59-East. Follow Route 59-East
Albany). Follow the Thruway to Exit 14 approximately 3 miles. O&R Operations
(Spring Valley). Off the exit, make a Center is on the left side of the
right turn onto Route 59-West. Follow road.
Route 59-West approximately 2 1/4
miles. O&R Operations Center is on the
right side of the road.
[LOGO] ORANGE AND ROCKLAND
Special Meeting
of [GRAPHIC: MAP]
Common
Shareholders
August 20, 1998
10:30 a.m.
FOLD AND DETACH HERE
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
PROXY
ORANGE AND ROCKLAND UTILITIES, INC.
COMMON STOCK PROXY FOR SPECIAL MEETING, AUGUST 20, 1998
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned, revoking all previous proxies, appoints MICHAEL J. DEL
GIUDICE, D. LOUIS PEOPLES and G.D. CALIENDO, and each of them, proxies, with
power of substitution to each to vote and act at the Special Meeting of Common
Shareholders of ORANGE AND ROCKLAND UTILITIES, INC. to be held at 390 West
Route 59, Spring Valley, New York, on Thursday, August 20, 1998, at 10:30 a.m.
local time, and at any adjournments thereof, on and with respect to the Common
Stock of the undersigned, or on and with respect to which the undersigned is
entitled to vote or act, as indicated on the reverse side, and as set forth in
the notice and proxy statement dated July 17, 1998.
(Continued, and to be dated and signed on other side)
ORANGE AND ROCKLAND UTILITIES, INC.
P.O. BOX 11135
NEW YORK, N.Y. 10203-0135
<PAGE>
[LOGO] ORANGE AND ROCKLAND
ADMISSION TICKET
1998 Special Meeting of Common Shareholders
to be held at 10:30 AM on Thursday, August 20, 1998
PRESENT THIS CARD AT THE DOOR
FOLD AND DETACH HERE
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
_______
/_______/
The Board of Directors recommends a vote FOR the following proposal:
Item 1 - To approve and adopt the Agreement and Plan of Merger, dated as of
May 10, 1998, among Orange and Rockland Utilities, Inc.,
Consolidated Edison, Inc. and C Acquisition Corp. (the "Merger
Agreement").
FOR Approval and adoption
of the Merger Agreement. [ ]
AGAINST Approval and adoption
of the Merger Agreement. [ ]
ABSTAIN [ ]
Item 2 - In their discretion, the proxies are authorized to act on such other
matters as may properly come before the meeting or any adjournments
thereof.
All powers may be exercised by a majority of said proxies or said
substitutes voting or acting or, if only one votes and acts, then by
that one.
EVERY PROPERLY SIGNED PROXY WILL BE VOTED (OR NOT
VOTED) IN ACCORDANCE WITH SPECIFICATIONS MADE
ABOVE, AND WILL BE VOTED FOR THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT IF NO Change of Address and
SPECIFICATION IS INDICATED. or Comments Mark Here [ ]
I plan to attend
the Special Meeting [ ]
(NOTE: Signature should agree with
name imprinted hereon. Executors,
administrators, trustees, guardians
and attorneys should so indicate when
signing. If stock is registered in
more than one name, each joint owner
should sign.)
Dated:___________________________, 1998
Signed _________________________________
________________________________________
Votes MUST be indicated (x) in Black
or Blue ink. [ ]
Please Sign, Date and Return the Proxy Promptly Using the Enclosed Envelope.
<PAGE>
[LOGO]
ORANGE AND ROCKLAND One Blue Hill Plaza, Pearl River, New York 10965
July 17, 1998
Dear Employee:
As a participant in the Orange and Rockland Utilities, Inc. Hourly Group
Savings Plan (the 'Plan'), you have designated a portion of your contributions
to the Plan for investment in Common Stock of the Company. Such stock is held in
trust for you by Fidelity Management Trust Company, as Trustee.
You have the right to give instructions as to how you wish the Trustee to
vote your Plan shares on all matters presented to the Company's shareholders.
Accordingly, enclosed are copies of the Company's proxy material and proxy card
to be used in instructing the Trustee to vote your Plan shares at the Special
Meeting of Common Shareholders of the Company to be held on August 20, 1998. The
proxy card must be received no later than August 17, 1998.
YOU MUST SIGN AND RETURN THE ENCLOSED PROXY CARD IF YOU WISH YOUR PLAN
SHARES TO BE VOTED, REGARDLESS OF WHETHER YOU HAVE EXECUTED A PROXY RELATING TO
OTHER COMPANY SHARES OWNED BY YOU. THE PROXY CARD FOR YOUR PLAN SHARES MUST BE
RECEIVED BY AUGUST 17, 1998. IN THE EVENT YOU DO NOT RETURN THE PROXY CARD, THE
TRUSTEE WILL VOTE YOUR SHARES IN THE SAME PROPORTIONS AS THE SHARES FOR WHICH
THE TRUSTEE HAS RECEIVED INSTRUCTIONS.
I urge you to fill in, date and sign and return this proxy promptly. Your
confidential voting instructions will be seen only by the Trustee and the
Trustee's authorized agent, The Bank of New York.
Sincerely yours,
/s/ D. Louis Peoples
-----------------------
D. Louis Peoples
Vice Chairman of the
Board of Directors and
Chief Executive Officer
<PAGE>
[LOGO]
ORANGE AND ROCKLAND One Blue Hill Plaza, Pearl River, New York 10965
July 17, 1998
Dear Employee:
As a participant in the Orange and Rockland Utilities, Inc. Management
Employees' Savings Plan (the 'Plan'), you have designated a portion of your
contributions to the Plan for investment in Common Stock of the Company. Such
stock is held in trust for you by Fidelity Management Trust Company, as Trustee.
You have the right to give instructions as to how you wish the Trustee to
vote your Plan shares on all matters presented to the Company's shareholders.
Accordingly, enclosed are copies of the Company's proxy material and proxy card
to be used in instructing the Trustee to vote your Plan shares at the Special
Meeting of Common Shareholders of the Company to be held on August 20, 1998. The
proxy card must be received no later than August 17, 1998.
YOU MUST SIGN AND RETURN THE ENCLOSED PROXY CARD IF YOU WISH YOUR PLAN
SHARES TO BE VOTED, REGARDLESS OF WHETHER YOU HAVE EXECUTED A PROXY RELATING TO
OTHER COMPANY SHARES OWNED BY YOU. THE PROXY CARD FOR YOUR PLAN SHARES MUST BE
RECEIVED BY AUGUST 17, 1998. IN THE EVENT YOU DO NOT RETURN THE PROXY CARD, THE
TRUSTEE WILL VOTE YOUR SHARES IN THE SAME PROPORTIONS AS THE SHARES FOR WHICH
THE TRUSTEE HAS RECEIVED INSTRUCTIONS.
I urge you to fill in, date and sign and return this proxy promptly. Your
confidential voting instructions will be seen only by the Trustee and the
Trustee's authorized agent, The Bank of New York.
Sincerely yours,
/s/ D. Louis Peoples
----------------------
D. Louis Peoples
Vice Chairman of the
Board of Directors and
Chief Executive Officer
