<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
CILCORP 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.
/ / 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
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(2) Aggregate number of securities to which transaction applies:
13,610,680
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$65 per share
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(4) Proposed maximum aggregate value of transaction:
$884,694,200
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(5) Total fee paid:
$176,939
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/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
CILCORP INC.
300 HAMILTON BLVD., SUITE 300
PEORIA, IL 61602
Dear CILCORP Shareholder:
We invite you to attend a Special Meeting of Shareholders (the "Special
Meeting") of CILCORP Inc., which will be held at 10 a.m. Central Time on May 20,
1999, at CILCO Hall, 300 Liberty Street, Peoria, Illinois.
At this important meeting, you will be asked to approve an Agreement and
Plan of Merger (the "Merger Agreement") among CILCORP Inc., an Illinois
corporation, The AES Corporation, a Delaware corporation ("AES"), and Midwest
Energy, Inc., an Illinois corporation and a wholly-owned subsidiary of AES which
has been specially created for this transaction ("Midwest"). Pursuant to the
Merger Agreement, Midwest will be merged with and into CILCORP (the "Merger"),
and CILCORP will become a wholly-owned subsidiary of AES.
As a result of the Merger, you will receive $65 cash for each share of
CILCORP common stock you own. This purchase price may be adjusted upwards, up to
$68 per share, based upon the timing of certain regulatory approvals. The price
of $65 per share represents a premium of nearly 22% over the closing price of
$53 7/16 per share of CILCORP common stock on November 20, 1998, the last
trading day prior to the announcement of the Merger Agreement.
Approval by our shareholders and certain regulatory bodies is necessary
before we can complete the Merger. We expect that those conditions will be met
and the Merger will close by the end of the third quarter of 1999.
THE ACCOMPANYING PROXY STATEMENT INCLUDES A SUMMARY OF THE TERMS OF THE
MERGER AGREEMENT AND CERTAIN RELATED INFORMATION. WE ENCOURAGE YOU TO READ THIS
ENTIRE DOCUMENT CAREFULLY.
Your Board of Directors has received the opinion of its financial advisor,
Salomon Smith Barney Inc., that at the time the Board approved the Merger
Agreement and based on the factors and assumptions described in such opinion,
the price of $65 per share is fair to the holders of CILCORP common stock from a
financial point of view.
YOUR BOARD OF DIRECTORS HAS CAREFULLY REVIEWED AND CONSIDERED THE TERMS AND
CONDITIONS OF THE MERGER AGREEMENT, AND HAS DETERMINED THAT IT IS ADVISABLE AND
IN THE BEST INTERESTS OF CILCORP AND ITS SHAREHOLDERS FOR THE COMPANY TO BE
ACQUIRED BY AES PURSUANT TO THE TERMS OF THE MERGER AGREEMENT, HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT, AND RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER
AGREEMENT.
<PAGE>
It is very important that your shares be represented at the Special Meeting.
Approval of the Merger will require the affirmative vote of at least two-thirds
of CILCORP's outstanding common stock. Failure to return a properly executed
proxy card or to vote at the Special Meeting will have the same effect as a vote
against the Merger Agreement.
If you have any questions concerning the proposed transaction, please call
the CILCORP Investor Relations Department, toll free at 1-800-322-3569 (in
Illinois) or 1-800-622-5514 (outside Illinois), or, our proxy solicitors, D. F.
King & Co., Inc., toll-free at 1-800-697-6974. Please do not send in your stock
certificates with your proxy card.
Sincerely,
Robert O. Viets
President & Chief Executive Officer
April 8, 1999
<PAGE>
CILCORP INC.
300 HAMILTON BLVD., SUITE 300
PEORIA, IL 61602
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on May 20, 1999
Dear CILCORP Shareholder:
A Special Meeting of Shareholders (the "Special Meeting") of CILCORP Inc.
("CILCORP") will be held on May 20, 1999 at 10:00 AM, Central Time, in CILCO
Hall, at 300 Liberty Street, Peoria, IL 61602 for the following purposes:
1. To consider and vote upon a proposal to approve an Agreement and Plan
of Merger, dated as of November 22, 1998 (the "Merger Agreement"), attached
as Annex A to the accompanying Proxy Statement, providing for the merger
(the "Merger") of Midwest Energy, Inc. ("Midwest"), a wholly-owned
subsidiary of The AES Corporation ("AES") with CILCORP, pursuant to which
Midwest will be merged with and into CILCORP and CILCORP, as a result, will
become a subsidiary of AES. As a result of the Merger, each outstanding
share of CILCORP common stock, no par value, will be converted into the
right to receive $65 in cash, all as more fully described in the
accompanying Proxy Statement.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
Shareholders of record at the close of business on March 29, 1999 will be
entitled to notice of and to vote at the Special Meeting or at any adjournment
or postponement thereof. It is very important that your shares be represented at
the Special Meeting. Approval of the Merger Agreement will require the
affirmative vote of at least two-thirds of CILCORP's outstanding common stock.
Failure to return a properly executed proxy card or to vote at the Special
Meeting, will have the same effect as a vote against the Merger Agreement.
YOUR BOARD OF DIRECTORS HAS CAREFULLY REVIEWED AND CONSIDERED THE TERMS AND
CONDITIONS OF THE MERGER AGREEMENT, AND HAS DETERMINED THAT IT IS ADVISABLE AND
IN THE BEST INTERESTS OF CILCORP AND ITS SHAREHOLDERS FOR CILCORP TO BE ACQUIRED
BY AES PURSUANT TO THE TERMS OF THE MERGER AGREEMENT, HAS UNANIMOUSLY APPROVED
THE MERGER AGREEMENT, AND RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER
AGREEMENT.
ALL CILCORP SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL
MEETING. HOWEVER, TO ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND MAIL THE ENCLOSED PROXY AS PROMPTLY AS
POSSIBLE. A PRE-ADDRESSED ENVELOPE
<PAGE>
IS ENCLOSED FOR THAT PURPOSE. IF NO INSTRUCTIONS ARE INDICATED ON YOUR PROXY,
YOUR SHARES OF CILCORP COMMON STOCK WILL BE VOTED "FOR" APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT. EXECUTION OF A PROXY WILL NOT IN ANY WAY AFFECT A
SHAREHOLDER'S RIGHT TO ATTEND THE SPECIAL MEETING AND VOTE IN PERSON. ANY
SHAREHOLDER GIVING A PROXY HAS THE RIGHT TO REVOKE IT AT ANY TIME BEFORE IT IS
EXERCISED BY GIVING WRITTEN NOTICE TO THE SECRETARY OF CILCORP. IN ADDITION,
SHAREHOLDERS ATTENDING THE SPECIAL MEETING MAY REVOKE THEIR PROXIES AT ANY TIME
BEFORE THEY ARE EXERCISED.
Holders of CILCORP common stock have the right to dissent from the proposed
Merger and, upon compliance with the procedural requirements of the Illinois
Business Corporation Act, to receive the "fair value" of their shares if the
Merger is effected. See "The Merger--Dissenters' Rights" in the Proxy Statement.
By order of the Board of Directors,
John G. Sahn
Vice President, Secretary
and Treasurer
April 8, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER................................................... 1
PROXY STATEMENT SUMMARY.................................................................. 5
PER SHARE PRICES, DIVIDENDS AND BOOK VALUE
OF CILCORP COMMON STOCK................................................................ 11
MEETING, VOTING AND PROXIES.............................................................. 12
THE COMPANIES............................................................................ 14
THE MERGER............................................................................... 15
Background of the Merger................................................................. 15
Reasons for the Merger................................................................... 19
Recommendation of the Board of Directors................................................. 22
Opinion of CILCORP's Financial Advisor................................................... 22
Conflicts of Interest.................................................................... 28
Financing of the Merger.................................................................. 35
Dissenters' Appraisal Rights............................................................. 35
Certain United States Federal Income Tax Consequences.................................... 38
Accounting Treatment..................................................................... 39
REGULATORY MATTERS....................................................................... 39
Antitrust Considerations................................................................. 39
Federal Power Act........................................................................ 39
Public Utility Holding Company Act....................................................... 40
Illinois Public Utility Regulation....................................................... 40
Other Regulatory Matters................................................................. 41
THE MERGER AGREEMENT..................................................................... 42
The Merger............................................................................... 42
Representations and Warranties........................................................... 45
Certain Covenants........................................................................ 46
Conditions to the Merger................................................................. 53
Termination.............................................................................. 55
Termination Fees......................................................................... 56
Amendment and Waiver..................................................................... 57
PRINCIPAL SHAREHOLDERS OF CILCORP........................................................ 58
PRE-EXISTING AGREEMENTS BETWEEN CILCORP AND AES.......................................... 60
EXPERTS.................................................................................. 60
OTHER MATTERS............................................................................ 60
ADDITIONAL INFORMATION................................................................... 60
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................................... 61
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS................................ 62
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS................................................ 63
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ANNEXES
Annex A--Agreement and Plan of Merger.................................................... A-1
Annex B--Opinion of Salomon Smith Barney Inc............................................. B-1
Annex C--Illinois Business Corporation Act--Dissenters' Rights Provisions................ C-1
</TABLE>
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY IS CILCORP MERGING WITH AES? WHAT WILL HAPPEN TO CILCORP AFTER THE
MERGER?
A: CILCORP is merging with AES in order to become part of a larger, more
diversified company with significant financial resources and a greater
ability to respond to utility industry pressures such as deregulation, new
regulatory compliance costs and increasing competition for customers. AES
will acquire CILCORP through the Merger and pay CILCORP's common
shareholders $65 per share, as described below, for each share of CILCORP
common stock. CILCORP will then become a wholly-owned subsidiary of AES.
CILCORP's Board of Directors believes that the transaction is in the best
interests of its shareholders because it offers a significant premium over
both the historical trading price of CILCORP's common stock and other offers
which CILCORP has received.
Q: WHAT WILL I RECEIVE FOR MY CILCORP COMMON STOCK?
A: If the Merger is completed, CILCORP shareholders will receive $65 in cash
for each share of CILCORP common stock they hold. This purchase price is
subject to upward adjustment, up to $68 per share, based upon the timing of
AES's receipt of an order from the Securities and Exchange Commission. The
purchase price of $65 per share represents a premium of nearly 22% over the
closing price of $53 7/16 per share of CILCORP common stock on November 20,
1998, the last trading day prior to the announcement of the Merger
Agreement.
Q: WHO CAN VOTE ON THE MERGER AGREEMENT? WHAT VOTE IS REQUIRED TO APPROVE THE
MERGER AGREEMENT?
A: All CILCORP common shareholders of record at the close of business on March
29, 1999 are entitled to vote on the Merger Agreement. An affirmative vote
of at least two-thirds of the total outstanding shares of CILCORP common
stock is required to approve the Merger Agreement.
Q: WHAT DO I NEED TO DO NOW?
A: You should sign and date your signed proxy card and mail it in the enclosed
return envelope as soon as possible, so that your shares can be voted at the
Special Meeting.
<PAGE>
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: No. Your broker will not vote your shares unless you provide voting
instructions. You should contact your broker and ask what form of
instructions your broker will need from you.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before your proxy is voted at the
shareholder meeting. You can do this in one of three ways. First, you can
send a written notice stating that you would like to revoke your proxy.
Second, you can complete and submit a new proxy card. Third, you can attend
the Special Meeting and vote in person. If you have instructed a broker to
vote your shares, you must follow directions received from your broker to
change those instructions. Written notices changing or revoking your proxy
should be sent to:
CILCORP Inc.
300 Hamilton Boulevard
Suite 300
Peoria, Illinois 61602
Attention: John G. Sahn
Vice President, Secretary and Treasurer
Q: WHAT HAPPENS IF I DO NOT SEND IN MY PROXY OR IF I ABSTAIN FROM VOTING?
A: If you do not send in your proxy or you abstain from voting, it will have
the same effect as a vote against the Merger Agreement.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the Merger is completed you will receive written instructions for
exchanging your certificates of CILCORP common stock for the cash payments
you are to receive. If your shares of CILCORP common stock are currently in
uncertificated form, you do not need to request that certificates be issued.
After the Merger is completed, you will receive written information with
respect to the cash payments for such uncertificated shares.
2
<PAGE>
Q: WHAT HAPPENS TO MY FUTURE DIVIDENDS?
A: CILCORP expects to continue to pay quarterly dividends of up to $0.615 per
share on its common stock at approximately the same times as were paid
during the last year, until the closing of the Merger. This may include a
pro-rated dividend if the Merger is consummated during a quarter. However,
after the closing of the Merger, CILCORP shareholders will be entitled only
to the one time cash payment described above.
Q: WHAT WILL HAPPEN IF CILCORP'S SHAREHOLDERS DO NOT APPROVE THE MERGER
AGREEMENT?
A: If CILCORP's shareholders do not approve the Merger Agreement, management
and the Board of Directors will continue to run CILCORP as before, and may
consider other strategic alternatives. If CILCORP enters into any agreement
with another party within 12 months after the CILCORP shareholders meeting,
CILCORP must pay AES a termination fee of approximately $26,550,000.
Q: WHAT ARE THE UNITED STATES FEDERAL TAX CONSEQUENCES OF THE MERGER TO CILCORP
SHAREHOLDERS?
A: The receipt of cash in exchange for shares of CILCORP common stock pursuant
to the Merger will be taxable to CILCORP shareholders for United States
federal income tax purposes, and each shareholder will recognize gain or
loss in an amount equal to the difference, if any, between the cash received
by the shareholder and the shareholder's adjusted tax basis in his or her
shares of CILCORP common stock.
Q: WHAT REGULATORY ORDERS, APPROVALS AND FILINGS ARE NEEDED?
A: Before the Merger can be completed, CILCORP and AES must, among other
things:
- receive approval from the Federal Energy Regulatory Commission;
- receive acceptable approvals from the Illinois Commerce Commission;
and
- obtain (or waive) an order from the Securities and Exchange Commission
exempting AES from registration under the Public Utility Holding
Company Act of 1935.
Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A: We currently expect to complete the Merger by the end of the third quarter
of 1999. This is based on the assumption that shareholder approval is
received and that the required regulatory filings and approvals will be made
or obtained by the end of the first half of 1999, although there is no
assurance that all approvals will be obtained by that time. Once those
approvals have been obtained, AES will have 90 days in which to obtain
financing for the Merger. The Merger should be completed shortly after AES
has completed its financing.
3
<PAGE>
Q: WHO DO I CONTACT IF I HAVE MORE QUESTIONS?
A: If you have more questions about the Merger, you should contact:
D.F. King & Co., Inc.
77 Water Street
20(th) Floor
New York, New York 10005
Phone: (800) 697-6974
Fax: (212) 809-8839
or,
CILCORP
300 Hamilton Boulevard, Suite 300
Peoria, Illinois 61602
Phone: (309) 675-8809
Fax: (309) 675-8890
4
<PAGE>
PROXY STATEMENT SUMMARY
This summary highlights selected information from this Proxy Statement and
may not contain all of the information that is important to you. To understand
the Merger fully and for a more complete description of the legal terms of the
Merger, you should read carefully this entire document and the documents to
which we have referred you. See "Additional Information" on page 60. We have
included page references in parentheses to direct you to a more complete
description of the topics presented in this summary.
THE COMPANIES (PAGE 14)
CILCORP AND ITS SUBSIDIARIES. CILCORP is a public utility holding company
incorporated in the state of Illinois. Its principal business subsidiary and the
primary source of its revenue is Central Illinois Light Company ("CILCO").
CILCO's principal business is the generation, transmission, distribution and
sale of electric energy and the purchase, distribution, transportation and sale
of natural gas, both in central and east-central Illinois.
AES AND MIDWEST. AES, a Delaware corporation, is a global power company
committed to serving the world's needs for electricity in a socially responsible
way. AES has grown to include 90 power plants totaling approximately 27,000
megawatts and eight electricity distribution companies serving approximately 13
million people in 13 countries. Midwest, an Illinois corporation, is a
wholly-owned subsidiary of AES organized solely for the purpose of effecting the
Merger.
THE SPECIAL MEETING (PAGE 12)
PURPOSE OF SHAREHOLDERS MEETING. At the Special Meeting of Shareholders
(the "Special Meeting"), holders of record of CILCORP common stock will be asked
to approve the Merger Agreement providing for the Merger.
DATE, PLACE AND TIME; RECORD DATE. The Special Meeting of CILCORP will be
held on May 20, 1999 in CILCO Hall at 300 Liberty Street, Peoria, Illinois at
10:00 AM, Central Time. Holders of record of shares of CILCORP common stock at
the close of business on March 29, 1999 will be entitled to vote at the Special
Meeting.
VOTING RIGHTS. At the Special Meeting, CILCORP shareholders will have one
vote for each share of CILCORP common stock held of record on March 29, 1999.
VOTE REQUIRED. Approval of the Merger Agreement requires the affirmative
vote of at least two-thirds of the total outstanding shares of CILCORP common
stock entitled to vote at the Special Meeting.
5
<PAGE>
WHAT SHAREHOLDERS WILL RECEIVE IN THE MERGER (PAGE 42)
Each share of CILCORP common stock, other than shares held by shareholders
exercising dissenters' appraisal rights, will be converted into the right to
receive $65 in cash, subject to an upward adjustment, up to $68 per share, based
upon the timing of AES's receipt of an order from the Securities and Exchange
Commission (the "SEC Exemption Order" discussed under "Regulatory
Matters--Public Utility Holding Company Act").
BACKGROUND OF THE MERGER; REASONS FOR THE MERGER (PAGES 15 AND 19)
For a description of the events leading to the approval of the Merger by
CILCORP's Board of Directors and the reasons for the Merger, see "The
Merger--Background of the Merger" and "--Reasons for the Merger."
RECOMMENDATIONS OF THE BOARD OF DIRECTORS (PAGE 22)
CILCORP's Board of Directors has determined that it is advisable and in the
best interests of CILCORP and its shareholders for CILCORP to be acquired by AES
pursuant to the terms of the Merger Agreement and recommends that CILCORP
shareholders vote FOR the approval of the Merger Agreement.
OPINION OF CILCORP'S FINANCIAL ADVISOR (PAGE 22)
In deciding to approve the Merger, one of the factors the CILCORP Board of
Directors considered was an opinion from its financial advisor, Salomon Smith
Barney Inc. ("Salomon Smith Barney"), as to the fairness, from a financial point
of view, of the Merger consideration to CILCORP shareholders. This opinion is
attached as Annex B to this Proxy Statement. We urge you to read this opinion.
CONFLICTS OF INTEREST (PAGE 28)
In considering the recommendation by CILCORP's Board of Directors that
CILCORP shareholders vote in favor of the Merger, CILCORP shareholders should be
aware of the effect that the Merger will have on the executive officers and
directors of CILCORP and its subsidiary, CILCO. See "The Merger--Conflicts of
Interest."
PRINCIPAL SHAREHOLDERS (PAGE 58)
As of January 1, 1999, directors and executive officers of CILCORP and CILCO
and their affiliates beneficially owned an aggregate of 38,659 shares (less than
1%) of the
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<PAGE>
outstanding CILCORP shares. As of January 1, 1999, FMR Corp. beneficially owned
an aggregate of 903,100 shares (approximately 6.635%) of the outstanding CILCORP
shares.
FINANCING OF THE MERGER (PAGE 35)
The amount of funds required by AES to effect the Merger is approximately
$885 million. AES's obligation to consummate the Merger is conditioned on the
availability of funds sufficient to pay the Merger consideration. AES is
required to diligently pursue and use commercially reasonable efforts to arrange
financing after CILCORP has delivered to AES a certificate confirming that
certain conditions to closing have been satisfied, and AES has obtained the SEC
Exemption Order.
REGULATORY ORDERS, FILINGS AND APPROVALS (PAGE 39)
CILCORP and AES must receive the orders or approvals of certain federal and
state regulatory agencies before the Merger can be completed. At the federal
level, these include the approval of the Federal Energy Regulatory Commission
and an order by the Securities and Exchange Commission with respect to AES's
status under the Public Utility Holding Company Act of 1935. The Securities and
Exchange Commission will not be approving or disapproving the actual terms of
the Merger. No assurance can be given that the regulatory orders or approvals
required to consummate the Merger will be obtained.
TERMINATION OF THE MERGER AGREEMENT (PAGE 55)
CILCORP and AES can agree to terminate the Merger Agreement at any time by
mutual written consent. In addition, either CILCORP or AES can terminate the
Merger Agreement if:
- any governmental authority has issued or adopted a law, order, rule or
regulation which has the effect of prohibiting the Merger;
- the Merger has not been consummated on or before May 22, 2000 (provided,
that if after February 22, 2000 and prior to May 22, 2000, CILCORP has
satisfied all of its conditions to the Merger, then neither party can
terminate the agreement for 90 days);
- the shareholders of CILCORP do not approve the Merger Agreement;
- AES has not satisfied the closing condition regarding financing by the
90(th) day after all other conditions to closing have been satisfied; or
- the other party has materially breached any representation or warranty,
covenant or agreement under the Merger Agreement and has not remedied that
breach within 30 days.
7
<PAGE>
In addition, AES can terminate the Merger Agreement if:
- the CILCORP Board withdraws or modifies, in any manner adverse to AES, its
approval of the Merger Agreement or its recommendation to its shareholders
to approve the Merger Agreement;
- the CILCORP Board fails to reaffirm its approval or recommendation after
so requested by AES;
- the SEC Exemption Order has not been issued by August 22, 1999;
- the required approvals or actions of the Illinois Commerce Commission have
either not been issued or taken by November 22, 1999 or, if issued or
taken, AES reasonably believes that the order or action could be expected
to have an adverse effect on the ability of AES to obtain financing for
the Merger or on AES, CILCORP or any subsidiary of CILCORP; or
- AES does not reasonably believe at any time on or after July 22, 1999 that
the Illinois Commerce Commission approvals or actions will be obtained on
satisfactory terms by November 22, 1999.
CILCORP can terminate the Merger Agreement if:
- CILCORP's Board of Directors determines in good faith that their fiduciary
duties require them to accept an unsolicited third party proposal to
acquire CILCORP;
- after May 22, 2000, if all conditions to the closing have been satisfied
other than the issuance of the SEC Exemption Order; or
- after May 22, 1999, if the Illinois Certification (discussed under
"Regulatory Matters") has not been issued and AES has not waived such
requirement.
TERMINATION FEES (PAGE 56)
If the Merger Agreement is terminated under certain of the above
circumstances, the Merger Agreement obligates one party to pay certain fees to
the other as follows:
If either party terminates the Merger Agreement because:
- CILCORP's shareholders have not approved the Merger Agreement, and within
12 months after the shareholders meeting, CILCORP enters into an agreement
for an alternate transaction, CILCORP is required to pay AES a fee equal
to approximately $26,550,000 (the "Acquisition Termination Fee");
8
<PAGE>
- there has been a material, uncured breach in the Merger Agreement by the
other party, the breaching party must pay the terminating party a
termination fee equal to approximately $26,550,000; or
- AES has not satisfied the closing conditions requiring financing by the
90(th) day after all other conditions to the closing have been satisfied,
AES is required to pay CILCORP a termination fee equal to approximately
$68,000,000 (the "Financing Termination Fee").
If AES terminates the Merger Agreement because:
- CILCORP's Board has withdrawn its approval or recommendation, CILCORP is
required to pay AES a termination fee equal to approximately $26,550,000;
or
- AES has not received the SEC Exemption Order by August 22, 1999, AES is
required to pay CILCORP a termination fee (a "Regulatory Termination Fee")
equal to approximately $13,615,000 together with an additional
approximately $75,000 per day for each day beginning on the later of (i)
August 23, 1999 or (ii) five days after the Illinois Commerce Commission
issues an acceptable order. The total Regulatory Termination Fee cannot
exceed approximately $40,850,000.
If CILCORP terminates the Merger Agreement because:
- CILCORP's Board has agreed to a superior offer, CILCORP is required to pay
AES a termination fee equal to approximately $26,550,000; or
- AES has not received the SEC Exemption Order by May 22, 2000, AES is
required to pay CILCORP the Regulatory Termination Fee specified above.
DISSENTERS' APPRAISAL RIGHTS (PAGE 35)
CILCORP shareholders are entitled to dissenters' appraisal rights in
connection with the Merger. Any CILCORP shareholder electing to exercise
dissenters' appraisal rights must deliver to CILCORP before the shareholder vote
on the Merger is taken a written demand for payment of the "fair value" of such
holder's shares if the Merger is consummated, and must not vote to approve the
Merger Agreement.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES (PAGE 38)
The receipt of cash in exchange for CILCORP common stock pursuant to the
Merger will be a taxable transaction for United States federal income tax
purposes and may also be a taxable transaction under applicable state, local,
foreign and other tax laws. In general, for United States federal income tax
purposes, a shareholder who receives cash in exchange for CILCORP common stock
pursuant to the Merger will recognize gain
9
<PAGE>
or loss equal to the difference, if any, between the amount of cash received and
the shareholder's adjusted tax basis in the CILCORP common stock exchanged
therefor.
ACCOUNTING TREATMENT (PAGE 39)
The Merger will be treated as a "purchase" for accounting purposes.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS (PAGE 62)
CILCORP has made forward-looking statements in this document (and in
documents that are incorporated herein by reference) that are subject to certain
risks and uncertainties. Forward-looking statements include the information
concerning possible or assumed future results of operations of AES, CILCORP and
the combined company, the intended financing of the Merger and expectations
regarding receipt of regulatory approvals, as well as statements preceded by,
followed by or that include the words "believes," "expects," "anticipates,"
"intends" or similar expressions. You should understand that certain important
factors, in addition to those discussed elsewhere in this document and in the
documents that are incorporated herein by reference, could cause the course of
this proposed transaction to differ materially from that expressed in the
forward-looking statements. These factors include the risk that certain
regulatory orders or approvals may not be obtained and the risk the AES may not
be able to obtain adequate financing.
10
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PER SHARE PRICES, DIVIDENDS AND
BOOK VALUE OF CILCORP COMMON STOCK
The CILCORP common stock is traded on the New York Stock Exchange, Inc. (the
"NYSE") under the symbol "CER." The following table sets forth, for the periods
indicated, the high and low sales prices of CILCORP common stock as reported on
the NYSE Consolidated Tape, based on published financial sources, dividends
declared and book value per share.
<TABLE>
<CAPTION>
BOOK
HIGH LOW DIVIDEND VALUE
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
1996
First Quarter.................................... $ 45.125 $ 40.50 $ .615 $ 27.41
Second Quarter................................... $ 44.125 $ 40.875 $ .615 $ 27.06
Third Quarter.................................... $ 43.50 $ 39.50 $ .615 $ 27.46
Fourth Quarter................................... $ 39.625 $ 35.50 $ .615 $ 27.05
1997
First Quarter.................................... $ 39.625 $ 35.625 $ .615 $ 27.15
Second Quarter................................... $ 41.375 $ 37.50 $ .615 $ 26.96
Third Quarter.................................... $ 43.00 $ 38.8125 $ .615 $ 27.31
Fourth Quarter................................... $ 49.00 $ 40.50 $ .615 $ 25.91
1998
First Quarter.................................... $ 48.9375 $ 44.1875 $ .615 $ 25.86
Second Quarter................................... $ 50.00 $ 43.3125 $ .615 $ 25.19
Third Quarter.................................... $ 54.125 $ 45.25 $ .615 $ 26.24
Fourth Quarter................................... $ 61.5625 $ 50.375 $ .615 $ 24.65
1999
First Quarter
(through March 23, 1999)......................... $ 61.4375 $ 56.750 $ .615
</TABLE>
On November 20, 1998, the last full trading day before the public
announcement of the execution of the Merger Agreement, the closing price per
share on the NYSE Consolidated Tape of CILCORP common stock was $53 7/16.
On March 23, 1999, the closing price per share on the NYSE Consolidated Tape
of CILCORP common stock was $60.6875.
The market price of the CILCORP common stock is subject to fluctuation. As a
result, CILCORP shareholders are urged to obtain current market quotations for
CILCORP common stock.
11
<PAGE>
MEETING, VOTING AND PROXIES
PURPOSE OF SHAREHOLDERS MEETING. The purpose of the Special Meeting is to
vote upon the proposal to approve the Merger Agreement, pursuant to which
CILCORP will become a wholly-owned subsidiary of AES and each holder of shares
of CILCORP common stock, other than those holders who have exercised dissenters'
appraisal rights, will receive the Merger consideration.
THE CILCORP BOARD, BY THE UNANIMOUS VOTE OF ALL DIRECTORS, HAS APPROVED THE
MERGER AGREEMENT AND RECOMMENDS THAT THE SHAREHOLDERS OF CILCORP APPROVE THE
MERGER AGREEMENT.
DATE, PLACE AND TIME. The Special Meeting is scheduled to be held on May
20, 1999 in CILCO Hall at 300 Liberty Street, Peoria, Illinois at 10:00 AM,
Central Time. The Special Meeting may be adjourned or postponed to another date
and/or place for any proper purpose (including, without limitation, for the
purpose of soliciting additional proxies).
Only holders of record of shares of CILCORP common stock at the close of
business on March 29, 1999 (the "Record Date") will be entitled to vote at the
Special Meeting. At the close of business on the Record Date, there were
13,610,680 shares of CILCORP common stock issued and outstanding and entitled to
vote.
VOTING RIGHTS. Holders of CILCORP common stock will have one vote for each
share of CILCORP common stock they own as of the Record Date. Shareholders may
vote in person or by proxy. Execution of a proxy will not in any way affect a
shareholder's right to attend the Special Meeting and vote in person. The shares
represented by your proxy will be voted as directed therein if the proxy is duly
executed and returned prior to the meeting. You may revoke your proxy by a duly
executed later proxy, or at any time before it is exercised by written notice to
the Secretary of CILCORP received prior to the time of the meeting or orally at
the meeting. IF YOU DO NOT DIRECT HOW YOUR SHARES ARE TO BE VOTED AND YOUR PROXY
HAS NOT BEEN REVOKED, THE SHARES WILL BE VOTED FOR APPROVAL OF THE MERGER
AGREEMENT.
Shareholders of record participating in CILCORP's Investors Choice Automatic
Reinvestment and Stock Purchase Plan will receive one proxy for shares held of
record as well as shares held for that person's account under such Plan. Shares
in the account of an employee participating in the savings plans of CILCORP's
subsidiaries, CILCO or QST Enterprises Inc., will be voted in accordance with
the employee's instructions; or, if no instructions are given, pursuant to the
trust agreements pertaining to the plans.
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<PAGE>
VOTE REQUIRED. The affirmative vote of at least two-thirds of the shares of
CILCORP common stock entitled to vote is required to approve the Merger
Agreement. Because a two-thirds vote is required, your vote is important. Under
applicable Illinois law, in determining whether approval of the Merger Agreement
has received the requisite number of affirmative votes, abstentions and broker
non-votes will have the same effect as a vote against approval of the Merger
Agreement.
On the Record Date, the directors and executive officers of CILCORP and the
executive officers of CILCO, together with their affiliates, beneficially owned
as a group approximately 38,659 shares or less than 1% of the outstanding shares
of CILCORP common stock.
SOLICITATION. Proxies are being solicited by and on behalf of the CILCORP
Board of Directors. In addition to solicitation by mail, directors, officers and
regular employees of CILCORP may solicit proxies either personally, or by
telephone, e-mail or fax. Such directors, officers and employees will not be
additionally compensated, but may be reimbursed for out-of-pocket expenses
incurred in connection therewith. Arrangements have also been made with banks,
brokers or other similar agents or fiduciaries for forwarding proxy material to
their principals, the beneficial owners of the CILCORP common stock held of
record by such persons, and, in connection therewith, such firms will be
reimbursed for reasonable expenses in forwarding such materials. CILCORP has
arranged for D. F. King & Co., Inc., for an estimated fee of approximately
$20,000, to assist in the solicitation of proxies. Such solicitation may be made
by mail, telephone, e-mail, fax or in person. The expense of the solicitation of
proxies is being borne by CILCORP.
13
<PAGE>
THE COMPANIES
CILCORP AND ITS SUBSIDIARIES
CILCORP is a public utility holding company incorporated in the state of
Illinois in 1985. Its principal business subsidiary and the primary source of
its revenues is CILCO. CILCORP also has a number of other subsidiaries, held
either directly, or indirectly through its other subsidiaries. These include QST
Enterprises Inc. ("QST"), QST Environmental Inc., CILCORP Investment Management
Inc. ("CIM"), CILCORP Ventures Inc. ("CVI"), CILCO Exploration and Development
Company and CILCO Energy Corporation. CILCORP owns 100% of the common stock of
all of its subsidiaries.
CILCO was incorporated under the laws of Illinois in 1913. CILCO's principal
business is the generation, transmission, distribution and sale of electric
energy in an area of approximately 3,700 square miles in central and
east-central Illinois, and the purchase, distribution, transportation and sale
of natural gas in an area of approximately 4,500 square miles in central and
east-central Illinois. CILCO furnishes electric service to retail customers in
136 Illinois communities (including Peoria, East Peoria, Pekin, Lincoln and
Morton). At December 31, 1997, CILCO had approximately 193,000 retail electric
customers. CILCO also provides gas service to customers in 128 Illinois
communities (including Peoria, East Peoria, Pekin, Lincoln and Springfield). At
December 31, 1997, CILCO had approximately 202,000 gas customers.
QST provides, directly and through its subsidiaries, energy and
energy-related services and environmental services to a broad spectrum of retail
and wholesale customers.
CIM manages CILCORP's investment portfolio which includes equity investments
in leveraged leases and limited partnership interests in affordable housing
portfolios. CVI primarily invests in ventures in energy-related products and
services.
AES AND MIDWEST
AES, a Delaware corporation, is a global power company committed to serving
the world's needs for electricity in a socially responsible way. AES has grown
to include 90 power plants totaling approximately 27,000 megawatts and 8
electricity distribution companies serving approximately 13 million people in 13
countries. Revenues during 1997 were $1.4 billion and total assets were $8.9
billion. Midwest, which is a wholly-owned subsidiary of AES, is an Illinois
corporation organized by AES for the purpose of effecting the Merger. Midwest
has no operations and has not engaged in any significant activities other than
in connection with the Merger Agreement and the transactions contemplated
thereby. The principal executive offices of AES and Midwest are located at 1001
North 19(th) Street, Arlington, Virginia 22209, and their telephone number is
(703) 522-1315.
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<PAGE>
THE MERGER
BACKGROUND OF THE MERGER
Beginning in mid-1995, the CILCORP Board of Directors started reviewing the
potential consequences of public utility deregulation in Illinois. The Board
concluded that the emergence of "customer choice" for public utility services
(discussed in more detail under "--Reasons for the Merger") meant that small
utility companies would face competition from larger companies with greater
resources, that industry consolidation would likely continue, and that even with
increased internal growth, CILCORP would most likely be unable to achieve the
"critical mass" necessary to help assure its success in a more competitive
business environment. CILCORP therefore began reviewing various strategic
alternatives, while simultaneously pursuing internal growth strategies. The
strategic alternatives CILCORP considered involved either business combinations
or a sale of assets. However, after a review of the potential costs and
consequences, CILCORP rejected a sale of assets as a viable strategic
alternative due to the regulatory, financial and tax complexities and
disadvantages associated with such a transaction.
During 1996, CILCORP viewed QST as a vehicle for potential significant
internal growth in the areas of retail and wholesale competitive electricity and
natural gas marketing and sales, together with energy-related products and
services. In addition to these internal growth initiatives, QST actively pursued
several opportunities to acquire natural gas marketing companies. QST was not
successful in these efforts.
At the same time, CILCORP's business strategy in pursuing a strategic
business combination involved identifying and then pursuing a merger with
another power or utility company of equal or greater size. The list of companies
CILCORP considered during 1996 and 1997 numbered more than 25. Most companies
considered were domestic public utilities. However, the list of companies
considered included some U.S.-based non-utility companies, and a few foreign
energy companies. Regulatory restrictions at both the state and federal levels
applicable to a business combination greatly influenced CILCORP's direction in
this process. Although CILCORP's senior management ultimately held discussions
with several utilities and other energy companies, both inside and outside the
Midwest region, during this period, none of the discussions advanced beyond the
initial stages until late 1997.
Beginning in early-1997, CILCORP also began talking to financial and legal
advisors in connection with pursuing a strategic business combination. In
January 1997, CILCORP retained Winthrop, Stimson, Putnam & Roberts as its legal
advisors in connection with any prospective transaction. In September 1997,
CILCORP retained Salomon Smith Barney for the purpose of helping CILCORP to
identify an appropriate combination partner and to help negotiate the terms of a
combination.
15
<PAGE>
Beginning in September 1997, management of CILCORP identified several
potential combination partners. Shortly thereafter, CILCORP began to hold more
focused discussions with several potential transaction partners, primarily in a
sequential fashion and focusing, as its primary strategic goal, on the sale of
CILCORP to a larger energy company.
Over the period of December 1997 to August 1998, CILCORP held preliminary
discussions with three separate potential transaction partners. Two of these
parties signed confidentiality agreements and underwent preliminary discussions
and due diligence procedures, including a detailed review of CILCORP's
operations and finances, before making preliminary, non-binding proposals. The
first proposal was a purchase price, in cash, of $51.50 per share of CILCORP
common stock. The second proposal had a proposed value to shareholders of $52
per share of CILCORP common stock. This second proposal did not specify whether
the transaction would be all cash, or a combination of cash and equity. After
reviewing each of these proposals, CILCORP's Board of Directors concluded that
neither proposal was in the best interests of CILCORP or its shareholders, and
therefore ended discussions with each party. The third party also conducted
similar due diligence procedures after executing a confidentiality agreement,
but thereafter concluded that it had no interest in proceeding with a
transaction. No other negotiations were held or proposals received during this
period.
In May 1998, a representative of Lehman Brothers Inc., as financial advisor
to AES, contacted Mr. Robert O. Viets, President and Chief Executive Officer of
CILCORP to determine whether CILCORP would be interested in engaging in
discussions with AES about a possible transaction. On June 5, 1998, Mr. Viets
met with Mr. Tom Tribone, Executive Vice President of AES, in Chicago, to
discuss the possibility of a transaction.
As a result of this contact, representatives of AES, including Mr. Tribone
and Mr. Henry Aszklar, Project Director of AES, met on June 29, 1998 in New York
with Mr. Viets and Mr. William Shay, then Executive Vice President and Chief
Legal Officer of CILCORP. Thereafter, Mr. Viets advised Mr. Tribone that he
would contact Mr. Tribone after discussing the possibility of a transaction with
the CILCORP Board.
Messrs. Viets and Tribone had several telephone conversations and meetings
during the months of July and August, 1998. On July 8, 1998, CILCORP and AES
executed a confidentiality agreement. Shortly thereafter, AES, together with its
legal advisor, Skadden, Arps, Slate, Meagher & Flom LLP, and its financial
advisor began a detailed due diligence review of CILCORP's finances and
operations. During this period, other representatives of AES and CILCORP began
to exchange financial information and discuss certain preliminary structural and
scheduling matters. They also had conversations by telephone during this period
to discuss the terms of a potential transaction. The
16
<PAGE>
discussions during this time identified issues to be addressed, including
structural and operational matters and transaction terms.
Following discussions with the CILCORP Board held on July 28, 1998, Mr.
Viets contacted Mr. Tribone to inform him that CILCORP would be interested in
further discussions.
On July 29, 1998, the CILCORP Board of Directors established a Strategic
Development Committee, consisting of Mr. Viets and three independent directors,
Messrs. Willard Bunn, III, Homer J. Holland and Murray M. Yeomans, for the
purpose of helping to facilitate a possible business combination.
In August 1998, representatives of AES and CILCORP, including Messrs. Viets
and Shay, met in Chicago for the purpose of further discussing the strategic
benefits and exploring the terms of a possible transaction.
On August 31, 1998, the Strategic Development Committee held a meeting with
senior management and with CILCORP's financial and legal advisors, to discuss
the status of negotiations with AES and issues associated with a possible
transaction.
On September 17, 1998, Mr. Viets, together with Mr. Yeomans, Chairman of the
Strategic Development Committee, certain other management representatives from
CILCORP and its subsidiaries and CILCORP's financial advisor met with
representatives from AES in New York City to make a presentation by CILCORP and
its subsidiaries regarding strategic, financial and operating issues of interest
to AES.
On September 24 and 28, 1998, the Strategic Development Committee of the
CILCORP Board held meetings to receive reports on the status of CILCORP's
discussions with AES and the possibility of other strategic business
combinations.
On September 28, 1998, the CILCORP Board held a special meeting. At this
meeting, CILCORP's management reviewed the possibility of other strategic
business combinations discussed in the Strategic Development Committee meeting,
and reported on the discussions with AES. After discussion with CILCORP's
financial and legal advisors, CILCORP's Board of Directors made two decisions.
First, it directed the Strategic Development Committee and management to pursue
a transaction with AES. Second, the Board instructed management that, in the
event that a transaction with AES could not be consummated on terms in the best
interests of CILCORP and its shareholders, then it should proceed with a
"controlled sale." In such a controlled sale, CILCORP and its advisors would
solicit interest simultaneously from a number of different potential purchasers.
CILCORP's financial advisors presented the Board, at its September 28 meeting,
with a list of potential purchasers for such a controlled sale. Among other
factors, the list was chosen based upon previously expressed interest and the
perceived
17
<PAGE>
ability to consummate a transaction at a price that would be acceptable to
CILCORP. No public announcement of such a controlled sale was made and no formal
confidential information memorandum was distributed to potential purchasers.
In October 1998, Mr. Viets and Mr. Tribone verbally agreed to a non-binding
term sheet that reflected several major terms and conditions pertaining to the
acquisition by AES of 100% of the outstanding common shares of CILCORP.
The CILCORP Strategic Development Committee also continued to meet with
management and CILCORP's outside advisors to review the status of discussions
and the development of a definitive agreement with AES. Meetings were held on
October 2, 1998, October 5, 1998, October 15, 1998 and October 20, 1998.
On October 22, 1998, CILCORP received an unsolicited letter from another
regional public utility company, indicating that it was interested in exploring
the possibility of a transaction with CILCORP "with a value above $63 per
share," subject to a "closer look" at CILCORP. After consultation among
CILCORP's Board of Directors and financial advisors, CILCORP concluded that a
transaction with that public utility company would not be as desirable for
CILCORP and its shareholders as a transaction with AES and informed the public
utility company that CILCORP was not interested in pursuing strategic
discussions. CILCORP's conclusion was based upon a number of factors, including
(i) the offer price was contingent on what would likely be a lengthy due
diligence review; (ii) the public utility company in question did not appear to
possess the same degree of resources or experience as AES that would be
necessary to close such a transaction, and (iii) AES would most likely be able
to obtain the necessary regulatory approvals on a faster basis than the public
utility company.
On October 26, 1998, the CILCORP Strategic Development Committee met to
discuss the status of negotiations with AES and to consider any other possible
strategic business combinations.
On October 27, 1998, legal advisors to AES circulated a draft form of merger
agreement. Commencing in early November 1998 and continuing over a period of
approximately three weeks, CILCORP's and AES's legal and financial advisors met
and held telephone conference calls to discuss the terms of the proposed merger
agreement and issues associated with the transaction. Due diligence procedures
by AES, including discussions with representatives of CILCORP, also continued
during this period.
On November 4, 1998 and November 11, 1998, the CILCORP Strategic Development
Committee met to discuss the status of the discussions with AES.
CILCORP's and AES's legal and financial advisors continued to discuss, in
person and by telephone, the terms of the draft merger agreement until November
20, 1998 at
18
<PAGE>
which time a special meeting of the CILCORP Strategic Development Committee was
held to review a draft of the proposed merger agreement. After consultation with
its legal and financial advisors the Strategic Development Committee concluded
that the terms of the proposed merger agreement were consistent with their
mandate from the Board of Directors with respect to a transaction with AES. The
Strategic Development Committee therefore approved the form of the proposed
merger agreement for presentation before the CILCORP Board of Directors.
At a special meeting of the CILCORP Board of Directors held on November 22,
1998, the Board reviewed the draft of the proposed merger agreement, which had
been approved by the Strategic Development Committee. At that meeting, Salomon
Smith Barney delivered an oral opinion to the effect that, as of such date and
based upon and subject to certain matters, the consideration to be received from
AES was fair to CILCORP's shareholders from a financial point of view. See
"--Opinion of CILCORP's Financial Advisor." Legal advisors to CILCORP reviewed
the terms of the Merger Agreement and discussed the differences between the
final merger agreement and the definitive term sheet received in October 1998.
After receiving these reports and those of CILCORP's management, and after
having considered the other strategic growth options, including other possible
combinations, the CILCORP Board determined that the proposed transaction with
AES was advisable and in the best interests of CILCORP and its shareholders. The
CILCORP Board then approved the Merger Agreement and the transactions
contemplated thereby. Thereafter, following further negotiations, Messrs. Viets
and Tribone executed the final form of the Merger Agreement in Peoria, Illinois.
REASONS FOR THE MERGER
BACKGROUND. CILCORP is merging with AES in order to become part of a larger
and more diversified company that will allow CILCORP to respond to new pressures
and remain competitive. CILCORP's Board of Directors believes that the Merger
represents the best strategic alternative currently available and is in the best
interests of the CILCORP shareholders, customers and employees. Without the
Merger, or an equally attractive alternative, the CILCORP Board of Directors
believes that CILCORP's size and limited resources will inhibit its ability to
compete in a deregulated utility industry and will eventually cause an
unacceptable erosion of shareholder value.
As discussed above under "--Background of the Merger," prior to agreeing to
the Merger with AES, CILCORP's Board of Directors examined a variety of other
strategic alternatives. It began to examine these alternatives in response to
the growing pressures on the long-term prospects of CILCORP from both regulatory
change and competitors. These pressures include Illinois' utility deregulation
initiative, potential loss of customer
19
<PAGE>
load and increased, and in some cases unanticipated, costs of operation and
regulatory compliance.
Pursuant to the Electric Service Customer Choice and Rate Relief Law of
1997, which became effective in Illinois in December 1997, beginning in October
1999, industrial and commercial customers will be able to choose their own
retail electric power providers. Residential customers will have the same choice
sometime thereafter, ultimately leading to open choice for all Illinois
electricity customers by mid-year 2002. This deregulation will result in direct
competition for customers and will almost certainly create demand for a broader
range of services at highly competitive prices.
CILCORP is also facing increasing cost and pricing pressures associated with
a number of factors, including expiration of certain large customer contracts,
Clean Air Act compliance and Year 2000 compliance. As a result of new clean air
compliance requirements, CILCORP estimated that costs associated with reducing
its nitrogen oxides ("NOx") emissions could be as high as $59 million over the
next 5 years and that the costs associated with Year 2000 compliance for the
4(th) quarter of 1998 and the year 1999 could be as high as $22 million.
REASONS FOR CHOOSING AES. As also discussed above under "--Background of
the Merger," as a result of these factors, prior to reaching agreement with AES,
CILCORP's Board of Directors approved the initiation of a controlled sale of the
company to select purchasers. However, after evaluating AES's offer, CILCORP's
Board concluded that that the terms of the Merger Agreement were not only in the
best interest of CILCORP's shareholders, customers and employees, but were also
likely as good as or better than the terms of other offers which might be made
for CILCORP in such a controlled sale. CILCORP's Board also believed that due to
the pending changes in Illinois law which would allow individual and wholesale
customers to change their electricity suppliers, that it would be in CILCORP's
interest to be able to announce a transaction and thereby settle its position
relative to this market earlier than would be possible with a controlled sale.
The Board's conclusion was based upon a number of factors, including the opinion
of Salomon Smith Barney, the overall price and premium offered, the relative
speed with which the transaction could be consummated, and the reputation and
resources offered by AES, particularly with respect to their ability to finance
and close transactions on a timely basis. The Board's analysis, in reaching this
conclusion, is described in more detail below:
- AES's purchase price represents a significant premium.
The purchase price of $65 per share represents a premium of nearly 22% over
the closing price of CILCORP common stock on the last trading day prior to the
announcement of the Merger Agreement, and a ratio of purchase price to book
value of nearly 2.5:1. This purchase price is also substantially higher than
CILCORP's historical trading
20
<PAGE>
price and other offers which CILCORP received from other potential purchasers
during the 12 months preceding the announcement of the Merger Agreement.
- AES may be able to complete the transaction faster than other purchasers.
As an entity which is not subject to traditional utility regulation, AES may
be able to complete the Merger with fewer regulatory obstacles than most of the
other potential strategic partners considered by CILCORP. Further, AES should be
able to complete the regulatory review process faster than other parties since
it is not a "public-utility" in the state of Illinois or in the United States.
- AES has significant resources and a strong reputation.
Before deciding to merge with AES, CILCORP looked closely at AES's business
reputation, corporate culture and its past successes in completing other
transactions. CILCORP believes that AES has significant resources at its
disposal and an excellent reputation for the quality and efficiency of its
services throughout the world. AES also brings superior and varied management
experience to the transaction. In addition, AES is well known in the power
industry for successfully bringing its transactions to closure without undue
delay or complication.
- The Merger with AES will give CILCORP access to additional resources.
CILCORP's merger with AES should give CILCORP access to a corporate parent
with an excellent business and management reputation, a broader financial base
and a capital structure nearly eight times larger than CILCORP alone. CILCORP
believes that as a result of these factors, the transaction will enable CILCORP
to develop, grow and compete in ways not currently possible.
- The Merger with AES will enhance CILCORP's services and will benefit
customers and employees. Without the Merger, CILCORP's ability to compete
will be severely limited and could eventually cause the loss of
shareholder value.
In the coming era of utility deregulation and customer choice, individual
customers and entire communities will shortly be demanding a broader range of
services at reduced prices. Further, customer choice will mean that quality of
service will become a major factor in retaining existing customers and gaining
new ones. CILCORP believes that by adding AES's worldwide experience, management
skills and business systems and resources to its own local utility expertise, it
will be able to offer its individual customers and its communities better and
broader services at competitive prices, something it could not do in the absence
of the Merger. CILCORP also believes that the Merger will provide its current
employees with new and significant opportunities for career advancement and
development. CILCORP believes that these options would not be possible in most
of the other strategic alternatives considered by the CILCORP Board.
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RECOMMENDATION OF THE BOARD OF DIRECTORS
BASED ON THE FOREGOING AND OTHER CONSIDERATIONS, THE BOARD OF DIRECTORS HAS
DETERMINED THAT IT IS ADVISABLE AND IN THE BEST INTERESTS OF CILCORP AND ITS
SHAREHOLDERS FOR THE COMPANY TO BE ACQUIRED BY AES PURSUANT TO THE TERMS OF THE
MERGER AGREEMENT, HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, AND RECOMMENDS
THAT CILCORP SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
OPINION OF CILCORP'S FINANCIAL ADVISOR
At the meeting of the CILCORP Board of Directors held on November 22, 1998,
Salomon Smith Barney delivered its oral opinion, subsequently confirmed in
writing, that, as of such date, the Merger consideration was fair, from a
financial point of view, to holders of CILCORP common stock. No limitations were
imposed by the CILCORP Board of Directors upon Salomon Smith Barney with respect
to the investigation made or the procedures followed by Salomon Smith Barney in
rendering its opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF SALOMON SMITH BARNEY IS ATTACHED AS
ANNEX B TO THIS PROXY STATEMENT AND SETS FORTH THE ASSUMPTIONS MADE, PROCEDURES
FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY SALOMON
SMITH BARNEY. HOLDERS OF CILCORP COMMON STOCK ARE URGED TO READ THE SALOMON
SMITH BARNEY OPINION IN ITS ENTIRETY. THE SUMMARY OF THE SALOMON SMITH BARNEY
OPINION AS SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION, WHICH IS INCORPORATED HEREIN BY
REFERENCE.
In connection with rendering its opinion, Salomon Smith Barney reviewed,
among other things, certain publicly available information concerning CILCORP
and certain other financial information concerning CILCORP, including financial
forecasts, that were provided to Salomon Smith Barney by CILCORP. Salomon Smith
Barney discussed the past and current business operations, financial condition
and prospects of CILCORP with certain officers and employees of CILCORP. Salomon
Smith Barney also considered such other information, financial studies,
analyses, investigations and financial, economic and market criteria that it
deemed relevant.
In its review and analysis and in arriving at its opinion, Salomon Smith
Barney assumed and relied upon the accuracy and completeness of the information
reviewed by it
22
<PAGE>
for the purpose of the opinion and Salomon Smith Barney did not assume any
responsibility for independent verification of such information. With respect to
the financial forecasts of CILCORP, Salomon Smith Barney was advised by the
management of CILCORP that such forecasts had been reasonably prepared on bases
reflecting its best currently available estimates and judgments, and Salomon
Smith Barney expressed no opinion with respect to such forecasts or the
assumptions on which they were based. Salomon Smith Barney did not assume any
responsibility for any independent evaluation or appraisal of any of the assets
(including properties and facilities) or liabilities of CILCORP.
Salomon Smith Barney's opinion is necessarily based upon conditions as they
existed and could be evaluated on the date thereof and Salomon Smith Barney
assumed no responsibility to update or revise its opinion based upon
circumstances or events occurring after such date. Salomon Smith Barney's
opinion is directed only to the fairness, from a financial point of view, of the
Merger consideration to be received by the holders of CILCORP common stock and
does not address CILCORP's underlying business decision to effect the Merger,
and does not constitute a recommendation concerning how holders of CILCORP
common stock should vote with respect to the Merger Agreement or the Merger.
In connection with rendering its opinion, Salomon Smith Barney performed
certain financial analyses, which it discussed with the CILCORP Board of
Directors on November 22, 1998. The material portions of the analyses performed
by Salomon Smith Barney in connection with the rendering of its opinion are
summarized below.
DISCOUNTED CASH FLOW ANALYSIS. Salomon Smith Barney performed a discounted
cash flow analysis of CILCORP to estimate a range of values for the CILCORP
common stock. The discounted cash flow analysis for CILCORP was based upon
certain financial forecasts for each of (i) CILCORP's utility subsidiary, CILCO
and (ii) CILCORP's environmental business subsidiary which is comprised of QST
Environmental Inc., for the years ended 1998 through 2002, prepared by the
management of CILCORP. As a substitute for the cash flows generated beyond the
forecasted period (year end 2002), Salomon Smith Barney calculated a terminal
year value for CILCORP by applying (i) a range of multiples of common stock
price to earnings per share ("P/E") of 14.5x to 16.0x to terminal year net
income for CILCORP's utility segment, and then added to those values the
outstanding debt and preferred stock balances (net of cash) as of the end of the
terminal year and (ii) a range of firm value to earnings before interest, taxes,
depreciation and amortization ("EBITDA") multiples of 4.0x to 6.0x to terminal
year EBITDA for CILCORP's environmental segment. The unlevered free cash flow
amounts for the years ended 1998 to 2002, plus the terminal values, were then
discounted back to the present using a range of discount rates of 6.80% to 7.40%
for CILCORP's utility segment and 9.75% to 11.75% for CILCORP's environmental
segment, based upon an analysis of the
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weighted average cost of capital for CILCORP's utility segment and CILCORP's
environmental segment, respectively. This analysis, which included an analysis
of CILCORP's unregulated activities but did not consider any benefits to be
derived from the Merger, indicated an implied equity value range per share of
CILCORP common stock of $50.25 to $57.50.
PUBLIC MARKET VALUATION ANALYSIS. Salomon Smith Barney arrived at a range
of values for CILCORP common stock by reviewing and analyzing certain financial
information of other publicly traded companies that Salomon Smith Barney
determined to be comparable to the two business segments of CILCORP. The
companies that Salomon Smith Barney determined to be comparable to CILCORP's
utilities segment included Alliant Energy, Central Hudson G&E, Cleco, Empire
District, IPALCO, Madison Gas & Electric, Otter Tail Power and SIGCORP, and the
companies that Salomon Smith Barney determined to be comparable to CILCORP's
environmental segment included Dames & Moore, Inc., EMCON, Roy F. Weston, Inc.,
Tetra Tech, Inc., URS Corporation, and Harding Lawson Associates Group.
Using publicly available information, including the current book value per
share, historical EBITDA, and net income for the projected 1998 and 1999
periods, Salomon Smith Barney reviewed, among other things, the price to book
value per share multiples, firm value to EBITDA multiples and P/E multiples for
the for the latest 12-month period ended as of September 30, 1998 ("LTM") and
projected 1998 and 1999 periods for the companies determined to be comparable to
CILCORP's utilities segment. This analysis resulted in a range of price to book
value per share multiples for the LTM of 1.43x to 3.54x, a range of firm value
to EBITDA multiples for the LTM of 6.6x to 9.1x and a range of P/E multiples for
the LTM, projected 1998 and projected 1999 periods of 13.7x to 22.0x, 13.6x to
17.8x and 13.6x to 16.9x, respectively.
Salomon Smith Barney valued CILCORP's utility segment and CILCORP's
environmental segment individually based upon the range of multiples for the
companies determined to be comparable to CILCORP's utilities segment and
CILCORP's environmental segment. These two individual values were then added to
the value of CILCORP's unregulated activities based on financial information
provided by CILCORP'S management to derive an implied equity value per share of
CILCORP common stock of $49.50 to $57.75. Salomon Smith Barney then applied a
range of observed control premiums from the same selected merger transactions
described below to this $49.50 to $57.75 range derived in the public market
valuation analysis to derive an implied equity value per share of CILCORP common
stock of $61.75 to $75.00.
PRIVATE MARKET VALUATION ANALYSIS. Salomon Smith Barney reviewed and
analyzed certain financial, operating and stock market information relating to
selected merger and
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acquisition transactions involving utility companies announced since 1995. The
transactions used as precedents in this analysis included CalEnergy's
acquisition of MidAmerican Energy, Consolidated Edison's acquisition of Orange
and Rockland, WPS' Resources acquisition of Upper Peninsula Energy, LG&E
Energy's acquisition of KU Energy, Enron's acquisition of Portland General,
Allegheny Energy's acquisition of DQE, Wisconsin Energy's acquisition of ESELCO,
Western Resources' acquisition of Kansas City P&L, Brooklyn Union Gas'
acquisition of Long Island Lighting, WPL's acquisition of IES Industries and
Interstate Power and Union Electric's acquisition of CIPSCO. Salomon Smith
Barney reviewed, among other things, the price to book value per share
multiples, firm value to EBITDA multiples for the LTM and P/E multiples for the
LTM and projected 1 and 2 year forward periods for such precedent transactions.
This analysis resulted in a range of book value per share multiples of 1.22x to
3.39x, a range of firm value to EBITDA multiples for the LTM of 6.8x to 11.2x
and a range of P/E multiples for the LTM, and projected 1 and 2 year forward
periods of 11.8x to 24.5x, 10.1x to 19.1x, and 9.7x to 18.1x, respectively.
Salomon Smith Barney valued CILCORP's utility segment individually based upon
the range of multiples for the companies determined to be comparable to
CILCORP'S utility segment and derived an implied equity value per share of
CILCORP common stock of $53.25 to $65.25. Salomon Smith Barney also valued
CILCORP as if it were entirely an electric utility or combination electric and
gas utility based upon the range of multiples for the companies determined to be
comparable to CILCORP's utility subsidiary and using this methodology derived a
range of implied equity value per share of CILCORP common stock of $50.75 to
$61.50.
VALUATION OF OTHER UNREGULATED ACTIVITIES:
Included in the above referenced valuation methodologies is a fixed range of
values for the other unregulated activities of CILCORP which were determined as
follows:
NET PRESENT VALUE OF THE LEVERAGED LEASES. Salomon Smith Barney valued the
leveraged leases contained in CIM's portfolio by discounting the expected
after-tax cash flows of the eight lease portfolio investments at an assumed
discount rate based on the observed cost of equity for publicly traded
lease-portfolio companies in the range of 7.5% to 9.5%. All the cash flows,
including the assumed residual values, were discounted back to December 1, 1998.
The residual values of the leveraged leases were assumed to be equal to the
independent appraisals provided by CILCORP. This valuation methodology indicated
a valuation range of $95 million to $105 million.
VALUATION OF THE MCLEODUSA OPTIONS. As part of the sale of QST
Communications by QST Enterprises to McLeodUSA Telecommunications, Inc.
("McLeodUSA"), QST Enterprises received call options (the "Options") on
McLeodUSA's stock. The Options
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may be put back to McLeodUSA at any time after vesting and before five years and
one month (the "Put").
To value these Options, Salomon Smith Barney assumed: (i) 245,536 Options
granted at a strike price of $37.25, (ii) a Put price of $22.40 (which is the
equivalent of $5,500,000/245,536), (iii) a risk free rate of 5.1% and the
nonpayment of dividends by McLeodUSA, and (iv) a price of $33.75 (the price at
November 22, 1998) for the McLeodUSA stock with volatilities around 50%. Salomon
Smith Barney, further assumed: (i) a discount of 30%, since the Options are not
tradable securities and therefore worth less than its theoretical value and (ii)
to account for the situation in which McLeodUSA's inability to pay the premium
occurs simultaneously with the exercising of the Options, an arbitrary stock
price drop of 50% from the price at November 22, 1998 was chosen to represent
financial difficulty. A higher interest rate was used to discount the value of
the Options when the stock was below that level. The interest rate used was
intended to reflect McLeodUSA's current credit spread of 6.0%.
Under these assumptions, Salomon Smith Barney estimated that the Options
were worth $5,750,000 at the date of grant and worth $5,300,000 at November 22,
1998.
VALUATION OF ENERGY. CILCORP's management assumed the cost to discontinue
the operations of QST Enterprise's energy segment to be between $5 million and
$10 million.
The preparation of a fairness opinion is a complex process not susceptible
to partial analysis or summary descriptions. The summary set forth above is not
and does not purport to be a complete description of the analyses underlying
Salomon Smith Barney's opinion or its presentation to the CILCORP Board of
Directors. Salomon Smith Barney believes that its analyses and the summary set
forth above must be considered as a whole and that selecting portions of its
analyses and the factors considered by it, without considering all such analyses
and factors, could create an incomplete view of the processes underlying the
analyses set forth in its opinion. In addition, no company used in the public
market valuation analysis summarized above is identical to CILCORP or any of its
business segments and no transaction used in the private market valuation
analysis summarized above is identical to the Merger. In addition, Salomon Smith
Barney may have deemed various assumptions more or less probable than other
assumptions, so that the ranges of valuations resulting for any particular
analysis described above should not be taken to be Salomon Smith Barney's view
of the actual value of CILCORP. Accordingly, an analysis of the data described
above necessarily involves complex considerations and judgments concerning
differences in financial and operating characteristics of CILCORP or any of its
business segments and other facts that could affect the public trading value or
the acquisition value of the companies to which it is being compared.
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In performing its analyses, Salomon Smith Barney made numerous assumptions
with respect to industry performance, general business, financial, market and
economic conditions and other matters, many of which are beyond the control of
CILCORP. The analyses which Salomon Smith Barney performed are not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than suggested by such analyses. Such analyses were
prepared solely as part of Salomon Smith Barney's analysis of the fairness, from
a financial point of view, of the Merger consideration to holders of CILCORP
common stock. The analyses do not purport to be appraisals or to reflect the
prices at which a company might actually be sold or the prices at which any
securities may trade at the present time or at any time in the future. In
addition, the opinion of Salomon Smith Barney and Salomon Smith Barney's
presentation to the CILCORP Board of Directors were among the many factors taken
into consideration by the CILCORP Board of Directors in making its determination
to approve the Merger.
Pursuant to an engagement letter dated September 10, 1997, CILCORP agreed to
pay to Salomon Smith Barney: (i) a fee of $50,000 payable on execution of such
engagement letter; (ii) a monthly fee of $6,000 (after the first six months
following the execution of such engagement letter) during the term of Salomon
Smith Barney's engagement; and (iii) a fee equal to approximately 0.425% of the
aggregate consideration (as defined in the engagement letter), payable
one-quarter upon announcement of the transaction, one-quarter upon shareholder
approval, and the remainder at the closing thereof. The fee described in clause
(iii) above is payable net of any fees previously paid under clauses (i) and
(ii). CILCORP also agreed, subject to certain limitations, to reimburse Salomon
Smith Barney for all reasonable fees and disbursements of Salomon Smith Barney's
counsel and all of Salomon Smith Barney's reasonable travel and other
out-of-pocket expenses incurred in connection with its engagement, and agreed to
indemnify Salomon Smith Barney and certain related persons against various
liabilities, relating to or arising out of its engagement.
Salomon Smith Barney is an internationally recognized investment banking
firm that provides financial services in connection with a wide range of
business transactions. As part of its business, Salomon Smith Barney regularly
engages in the valuation of companies and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and other purposes. In the ordinary course of its business, Salomon Smith Barney
may actively trade the securities of CILCORP and AES for its own account and the
accounts of its customers and, accordingly, may at any time hold a long or short
position in such securities. In addition, Salomon Smith Barney and its
affiliates have rendered certain investment banking and financial advisory
services to CILCORP and AES for which Salomon Smith Barney received customary
compensation. Salomon Smith Barney and its affiliates (including Citigroup Inc.)
may have other business relationships
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with CILCORP or AES. The CILCORP Board of Directors retained Salomon Smith
Barney based on Salomon Smith Barney's expertise in the valuation of companies
as well as its substantial experience in transactions such as the Merger.
CONFLICTS OF INTEREST
In considering the recommendations of the CILCORP Board of Directors with
respect to the Merger, shareholders should be aware of the effects that the
Merger will have on certain executive officers and on members of the Boards of
Directors of CILCORP and CILCO. These effects are described below and could be
said to create conflicts of interest (I.E., interests that are different from,
or in addition to, the interest of shareholders generally) in as much as
shareholders generally do not participate in the plans and agreements which are
described.
CILCORP BOARD OF DIRECTORS. No member of the CILCORP Board of Directors has
been, or is expected to be, designated to serve as a director of AES or CILCORP
following the Merger. As of the effective date of the Merger, each director of
CILCORP will have resigned as a director and will receive no further
compensation. Each such director will receive (i) any meeting fee previously
earned but not yet paid, and (ii) the retainer fee pro rated to the date of
termination. In addition, directors who had participated in any of CILCORP's
deferred compensation plans, discussed in detail below, will receive payments of
such deferred compensation subject to the terms and conditions of each
respective plan.
DEFERRED COMPENSATION STOCK PLANS OF CILCORP AND CILCO. The deferred
compensation stock plan of CILCO and the deferred compensation stock plan of
CILCORP (collectively, the "Plans") have been available to the directors of
CILCORP and CILCO, respectively, to provide them with the opportunity to defer
the receipt of retainer fees and meeting fees. The following directors and
executive officers of CILCORP and CILCO participate in the Plans:(1) Drs. Alexis
and Brazil, Messrs. Bunn III, Holland, Peacock, Viets and Yeomans and Ms. Smith.
Under the Plans, which contain identical terms, the deferred fees are
converted into units (the "Units") of CILCORP common stock based upon the market
price of such stock on the trading date next following the date payment would
have been made to the director. Additional amounts are credited to each
director's account in an amount equal to CILCORP common stock dividends paid and
are treated as automatically reinvested in CILCORP common stock. The number of
Units held by each participant is set forth in the table of beneficial
ownership, see --"Security Ownership of Management." Any
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(1) Richard N. Ullman, a director of CILCORP who died on December 26, 1998,
was a participant in the Plans.
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member of the Board of Directors of CILCORP or CILCO whose directorship with
such board is terminated in connection with the Merger will receive a
distribution of his or her account balance. According to the Plans, the
distribution will be paid in either a lump sum or installments. It is
anticipated that, following the Merger, both Plans will be terminated.
OFFICER EMPLOYMENT AGREEMENTS. Messrs. Viets and Sahn have each entered
into an employment agreement with CILCORP and Messrs. Shay, Elliott and Vergon
have each entered into an employment agreement with CILCO (collectively, the
"Employment Agreements"). Each Employment Agreement with CILCORP may be assigned
to and assumed by CILCO prior to the Merger.
Each Employment Agreement with Messrs. Viets, Shay, Elliott and Vergon will
expire on April 28, 2001, and the Employment Agreement with Mr. Sahn will expire
on April 28, 2000. Each Employment Agreement provides for (i) the payment of
annual base salary in the current amount of $440,000 to Mr. Viets; $220,000 to
Mr. Shay; $245,000 to Mr. Elliott; $210,000 to Mr. Vergon; and $151,000 to Mr.
Sahn; and (ii) benefits consisting of insurance and the opportunity to
participate in certain retirement plans and deferred compensation, incentive
compensation and other compensation plans.
Under each Employment Agreement, severance payments will be paid to Messrs.
Viets, Shay, Elliott, Vergon and Sahn (each, an "Officer") in the event such
Officer's employment is terminated: (i) without "Cause," as defined below, by
either CILCORP or CILCO (CILCORP or CILCO, the "Employer"), or (ii) by the
Officer within 30 days following (x) a reduction in the Officer's base salary or
a material and substantial reduction in benefits or (y) a relocation of the
Officer's principal place of employment to a different city without the
Officer's consent.
The Employment Agreements define "Cause" as (i) the Officer's willful and
material breach of the Employment Agreement, other than a breach resulting from
disability, provided the Employer delivers a written demand to the Officer to
cure such breach, and a thirty-day period, in which the breach is not cured, has
passed, or (ii) the Officer's willful engaging in illegal conduct or gross
misconduct that, in either case, injures the Employer. The Employment Agreements
further provide that no action or omission shall be considered "willful," unless
it is done, or omitted to be done, by the Officer in bad faith or without
reasonable belief by the Officer that his action or omission was in the best
interests of the Employer. Any action or omission shall be presumed to be in
good faith and in the best interests of the Employer. A determination of "Cause"
shall be made, generally, by the required vote of no less than two-thirds of the
Board of Directors.
Each Employment Agreement with Messrs. Viets, Shay, Elliott and Vergon
provides for severance payments consisting of (i) the continuation of the
Officer's base salary at the rate in effect at the time of termination plus
benefits (or the cash equivalent of such
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benefits) for a three-year period, and (ii) a lump sum payment equal to the sum
of (x) the Officer's award bank balance of the EVA-Based Incentive Compensation
Plan (the "EVA Plan"),(1) and (y) the Officer's three most recent annual
incentive awards determined under the EVA Plan or a similar compensation plan.
The Employment Agreement with Mr. Sahn provides for severance payments
consisting of (i) the continuation of Mr. Sahn's base salary plus benefits (or
the cash equivalent of such benefits) for a two-year period, and (ii) a lump sum
payment equal to the sum of Mr. Sahn's award bank balance of the EVA Plan and
his two most recent annual incentive awards determined under the EVA Plan or a
similar compensation plan. Based on current compensation levels, the aggregate
severance that may be paid pursuant to the Employment Agreements to Messrs.
Viets, Shay, Vergon, Elliott and Sahn are $1,697,422, $908,600, $884,508,
$908,643 and $351,676, respectively. According to the Employment Agreements, the
payment of such severance is conditioned upon certain damage mitigation,
confidentiality, non-disclosure and non-competition provisions.
The Employment Agreements further provide that to the extent that an Officer
receiving any payment would be subject to any excise tax imposed by section 4999
of the Internal Revenue Code of 1986, as amended (the "Code"), such Officer will
be entitled to receive an additional payment in an amount equal to the amount
required to make him whole for any such excise tax.
MANAGEMENT CONTINUITY AGREEMENTS. CILCORP has entered into a Management
Continuity Agreement (the "Continuity Agreements") with the following ten
officers (the "Subsidiary Officers"): Messrs. Bowden, Bowling, Carter, Cisel,
Germeroth, Gilson, Romanowski and Sprowls, Ms. Jensen and Ms. Lockenvitz.
Each Continuity Agreement provides for the payment of severance to the
Subsidiary Officer whose employment is terminated within two years following a
"Change of Control" of CILCORP as a result of either (i) the termination of the
employment of the Subsidiary Officer by CILCORP other than for "Cause," as
defined below, death, disability (as defined in the Continuity Agreement) or
retirement, or (ii) the voluntary termination of the Subsidiary Officer with
"Good Reason," as defined below. The Merger will constitute a "Change in
Control" for purposes of the Continuity Agreements.
Each Continuity Agreement defines "Cause" as (i) the Subsidiary Officer's
willful and continued failure to perform substantially his or her duties as
determined by the CEO, provided the CEO delivers a written demand for
substantial performance to the Subsidiary Officer, or (ii) the Subsidiary
Officer's willful engaging in illegal conduct or
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(1) Effective October 1, 1998, the CILCORP Board of Directors terminated the
EVA Plan for all participants, and award balances with respect to the EVA
Plan were distributed.
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gross misconduct that the CEO believes is materially and demonstrably injurious
to CILCORP. Each Continuity Agreement further provides that no action or
omission shall be considered "willful," unless it is done, or omitted to be
done, by the Subsidiary Officer in bad faith or without reasonable belief by the
Subsidiary Officer that his or her action or omission was in the best interests
of CILCORP. The termination of a Subsidiary Officer's employment shall occur,
generally, upon the required vote of no less than three-quarters of the CILCORP
Board of Directors.
Under the Continuity Agreements "Good Reason" is defined as the Subsidiary
Officer's voluntary termination of employment upon any of the following: (i) a
reduction of the Subsidiary Officer's annual compensation or a material
reduction in his or her benefits; (ii) the requirement that the Subsidiary
Officer engage in business travel to a substantially greater extent than was
required immediately prior to the Change in Control; or (iii) a relocation of
such Subsidiary Officer's principal place of employment to a new location that
is more than 75 miles from his or her place of employment prior to the Change in
Control.
Each Continuity Agreement provides for severance payments consisting of (i)
an amount equal to (x) two times the Subsidiary Officer's annual base salary
plus bonus at 100% target, if his or her employment terminates within 12 months
following the Change in Control, or (y) the Subsidiary Officer's annual base
salary plus bonus at 100% target, if his or her employment terminates more than
12 months but fewer than 24 months following the Change in Control; (ii) an
amount equal to 18 times the monthly premium charged to a terminated Subsidiary
Officer who selects health insurance continuation coverage; and (iii) certain
years of service and compensation credits that the Subsidiary Officer would have
accrued under any retirement benefit or compensation plan maintained by CILCORP
but for such termination. Based on current compensation levels, the amount of
severance that could be paid to each Subsidiary Officer under the Continuity
Agreements, assuming a termination of employment within 12 months following a
Change in Control, is estimated to range from: (i) $282,000 to $347,000 for each
of Messrs. Bowling, Cisel, Germeroth, Gilson and Ms. Lockenvitz; and (ii)
$382,000 to $491,000 for each of Messrs. Bowden, Carter, Romanowski and Sprowls
and Ms. Jensen. At the election of the Subsidiary Officer, any such severance
payment shall be made in either a lump sum or 18 equal monthly installments.
The Continuity Agreements further provide that to the extent that a
Subsidiary Officer receiving any payment would be subject to any excise tax
imposed by section 4999 of the Code, such Subsidiary Officer will be entitled to
receive an additional payment in an amount equal to the amount required to make
such Subsidiary Officer whole for any such excise tax.
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CILCORP SHAREHOLDER RETURN INCENTIVE COMPENSATION PLAN (THE "INCENTIVE
PLAN"). The purposes of the Incentive Plan are to promote growth in the value of
CILCORP common stock, attract and retain executives of outstanding ability,
encourage teamwork among the executives, and reward performance based on the
successful achievement of pre-established corporate financial goals. The
Incentive Plan authorizes a committee appointed by the CILCORP Board of
Directors (the "Committee") to: (i) select employees of CILCORP or its
affiliates who make or influence policy decisions; (ii) grant performance shares
to the participants; and (iii) establish the performance periods and the
threshold price above which such performance shares may be exercised.
Performance shares are exercisable by participants at such times as the market
price of CILCORP common stock exceeds the threshold price. The number of
performance shares granted determines the number of shares of CILCORP common
stock that may be awarded. Any exercise of performance shares that would result
in an award in excess of the number of shares of CILCORP common stock available
under the Incentive Plan is paid as a separate cash bonus based on the market
price of the excess shares. Under the Incentive Plan, a participant's right to
any unpaid performance share award will be forfeited upon such participant's
termination of employment for any reason other than retirement, death or
disability (as defined in the Incentive Plan).
Pursuant to the 1997 Award Agreements (the "Award Agreements"), the
following performance share grants were made to Messrs. Viets, Elliott, Shay and
Vergon: 190,000, 42,000, 59,000 and 59,000, respectively. Under the Award
Agreements, generally, the performance shares are exercisable at such time as
the market price of CILCORP common stock exceeds the threshold price of $36.00
per share. The Merger Agreement provides: (i) prior to the Merger, the Incentive
Plan will be amended (the "Amendment") to provide that subject to the
consummation of the Merger, all performance shares granted under the Incentive
Plan that have not been exercised as of the date of the Amendment will be
cancelled as of the closing date and (ii) effective as of the Merger, CILCORP
will pay to each participant holding such cancelled performance shares an amount
equal to the number of performance shares held multiplied by the excess of
$65.00 per share over $36.00, which, assuming that none of the performance
shares has been exercised as of the date of the Amendment, would result in the
following payments to Messrs. Viets, Elliott, Shay and Vergon: $5,510,000,
$1,218,000, $1,711,000 and $1,711,000, respectively, less the amount of all
applicable federal, state and local withholding taxes. Each payment will
extinguish all rights of each participant to receive shares of CILCORP common
stock under the Incentive Plan at or after the Merger and is equal to the amount
that each participant would realize if he were to exercise his performance
shares.
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CILCO EXECUTIVE DEFERRAL PLAN ("EDP I"). EDP I is an unsecured,
non-qualified plan whose benefits are paid in cash solely from the general
assets of CILCO.(1) Under EDP I, participants are selected by a committee
designated by the CILCO Board of Directors (the "Committee") and may include,
among other employees, any member of the Board of Directors of CILCORP or CILCO.
Each participant in EDP I may defer a portion, or in certain cases all, of such
participant's base salary and bonus or board fees, as applicable. The following
directors and executive officers of CILCO and CILCORP are participants in EDP I:
(2) Drs. Alexis and Brazil, Messrs. Bowling, Bunn III, Cisel, Gilson, Holland,
Peacock, Romanowski, Sahn, Shay, Sprowls, Vergon, Viets and Yeomans, Ms.
Lockenvitz and Ms. Smith. The account balances of each of the participants are
as follows: 4 account balances are less than $100,000; 4 account balances range
between $100,000 to $200,000; 3 account balances range between $200,000 and
$300,000; 3 account balances range between $300,000 and $400,000; and 3 account
balances range between $400,000 and $950,000
A participant whose employment is terminated without "Cause," as defined
below, within two years following a "Change in Control" of CILCORP (which
includes all outside Directors because no such Director will remain a director
following the Merger) may elect to receive a distribution of his or her EDP I
account balance (the "Account Benefits") in a lump sum or installments paid out
over a period not to exceed 240 months consisting of: (i) all compensation
deferred; (ii) interest credited at Moody's Seasoned Corporate Bond Rate; and
(iii) a "secondary account balance" consisting of an additional 5% interest
credited in excess of Moody's. The Merger will constitute a Change in Control
under EDP I. Absent a Change in Control, (i) the secondary account balance vests
in part after 7 years of plan participation and vests fully after 10 years of
plan participation; the other components of a participant's Account Benefits are
always fully vested, and (ii) the installment distribution option is available
to only those participants who have reached age 55 and have met the plan
participation requirements. At the effective time of the Merger, it is expected
that eight of the officers and directors listed in the preceding paragraph will
be under age 55.
EDP I defines "Cause" as (i) the participant's willful and continued failure
to substantially perform his or her employment duties other than a failure
resulting from a disability (as defined within EDP I), provided a written demand
for substantial performance is delivered to such participant, or (ii) the
participant's willful engaging in illegal
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(1) Section 7.14 of the Merger Agreement provides that prior to the Merger,
CILCORP will establish a rabbi trust that will be used to fund EDP I and
will transfer all the assets intended to fund EDP I to such rabbi trust.
(2) Mr. Ullman was a participant in EDP I. Upon his death, his account balance
of $226,006 was paid to his estate.
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conduct or gross misconduct that is materially and demonstrably injurious to
CILCO or any of its affiliates. EDP I further provides that no action or
omission shall be considered "willful," unless it is done, or omitted to be
done, by the participant in bad faith or without reasonable belief by the
participant that his or her action or omission was in the best interests of
CILCO or any of its affiliates. Any action or omission shall be presumed to be
in good faith and in the best interests of CILCO or any of its affiliates.
CILCO EXECUTIVE DEFERRAL PLAN II ("EDP II"). EDP II is also an unsecured,
non-qualified plan whose benefits are paid in cash solely from the general
assets of CILCO. Participants are selected by a committee designated by the
Board of Directors of CILCO and may include, among other employees, any member
of the Board of Directors of CILCORP or CILCO. Like EDP I, EDP II provides that
each participant may elect to defer a portion, or all, of his or her
compensation or board fees, as applicable.
EDP II provides that a participant whose employment is terminated for any
reason other than retirement, disability (as each term is defined in EDP II) or
death shall receive a distribution of his or her deferral account in a lump sum.
Any participant whose employment is terminated, without "Cause," within two
years following a "Change in Control" of CILCORP may elect to receive a
distribution of his or her deferral account in a lump sum or installments. The
definitions of "Cause" and "Change in Control" in EDP II, respectively, are
identical to the definitions of such terms in EDP I. EDP II, however, does not
provide for any enhanced interest payments and, accordingly, does not provide
for a secondary account balance vesting schedule. Of the directors and officers
of CILCORP and CILCO, only the following participate in this plan: Messrs.
Bowling, Peacock and Shay, Ms. Lockenvitz and Ms. Smith. Their account balances
range from $29,000 to $147,000.
THE MERGER WILL RESULT IN A "CHANGE IN CONTROL" AS SUCH TERM IS DEFINED IN
EACH OF THE PLANS DESCRIBED ABOVE.
INDEMNIFICATION AND INSURANCE. Pursuant to the Merger Agreement, CILCORP
(or AES if CILCORP is merged into AES) will indemnify each person who was at or
prior to the date of the Merger Agreement, an officer or director of CILCORP or
any of its subsidiaries, against certain losses and claims. Similarly, CILCORP
(or AES if CILCORP is merged into AES) will continue to maintain directors' and
officers' liability insurance coverage for a period of 6 years. For a more
detailed description of these benefits under the Merger Agreement, see "The
Merger Agreement--Certain Covenants--Indemnification and Insurance."
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FINANCING OF THE MERGER
The amount of funds required by AES to effect the Merger is approximately
$885 million, assuming 13,610,680 shares of CILCORP's common stock are
outstanding subject to an upward adjustment in the amount to be paid per share
of CILCORP common stock under the circumstances described under "The Merger
Agreement--The Merger; Merger Consideration." Under the terms of the Merger
Agreement, the obligation of AES to consummate the Merger is conditioned on the
availability to AES of funds sufficient to pay the Merger consideration. AES is
required to diligently pursue and use commercially reasonable efforts to arrange
financing after CILCORP delivers to AES a certificate signed by an executive
officer of CILCORP confirming that certain conditions to the closing have been
satisfied, and AES has obtained the SEC Exemption Order. If all other conditions
to the closing of the Merger have been satisfied, but AES is not able to obtain
the necessary funds to consummate the Merger, AES is required to pay CILCORP a
termination fee of approximately $68,000,000.
AES may fund the Merger consideration with a combination of (i) non-recourse
borrowings and (ii) general corporate funds available to AES from capital
reserves, working capital and other sources available to AES. If the proceeds
from the sources described above are insufficient to pay the Merger
consideration, AES is obligated to use commercially reasonable efforts to sell
AES common stock to fund the difference. However, AES is not required to arrange
financing, obtain funds or sell AES common stock under certain extraordinary
market conditions, including (i) a suspension of trading on national securities
exchanges, (ii) a banking moratorium, (iii) a limitation on the extension of
credit by banks, or (iv) a significant disruption or material adverse change in
the capital markets for securities by companies having financial characteristics
similar to AES or making it impracticable for such a company to finance a
transaction of the size and nature of the Merger on commercially reasonable
financing terms.
DISSENTERS' APPRAISAL RIGHTS
Any CILCORP shareholder who does not vote in favor of the Merger Agreement
and who gives written demand, prior to the shareholders meeting, for payment for
his or her shares if the Merger is consummated, may demand dissenters' appraisal
rights pursuant to Sections 11.65 and 11.70 of the Illinois Business Corporation
Act (the "IBCA") ("Dissenting Shareholder"). Copies of these sections are
attached as Annex C hereto.
Dissenting Shareholders may elect to receive payment in cash in an amount
equal to the estimated "fair value" of their shares of CILCORP common stock,
which will be the value of the shares immediately before the consummation of the
Merger excluding any appreciation or depreciation in anticipation of the Merger,
unless such exclusion would be
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inequitable. Pursuant to the Merger Agreement, CILCORP may not voluntarily make
any payment with respect to any demands for dissenters' appraisal rights or,
without the prior written consent of AES, offer to settle or settle any such
demands. The following is a summary of the procedural steps that must be taken
to ensure that a Dissenting Shareholder's appraisal rights are recognized. All
references to actions to be taken by CILCORP after the Certificate of Merger is
issued by the Secretary of State of the State of Illinois (the "Effective Time"
of the Merger) should be deemed to refer to AES in the event that CILCORP is
merged into AES substantially contemporaneously with Midwest's merger into
CILCORP.
A CILCORP SHAREHOLDER DESIRING TO PERFECT HIS OR HER DISSENTING RIGHTS AND
PAYMENT FOR HIS OR HER SHARES PURSUANT TO SECTIONS 11.65 AND 11.70 OF THE IBCA
MUST MAIL OR DELIVER TO CILCORP (ATTENTION: JOHN G. SAHN, VICE PRESIDENT,
SECRETARY AND TREASURER, CILCORP, 300 HAMILTON BOULEVARD, SUITE 300, PEORIA,
ILLINOIS 61602), A WRITTEN DEMAND FOR PAYMENT OF HIS OR HER SHARES BEFORE THE
VOTE ON THE MERGER AGREEMENT IS TAKEN, AND SUCH SHAREHOLDER MUST NOT VOTE IN
FAVOR OF THE MERGER AGREEMENT. THE DELIVERY OF A PROXY WITH INSTRUCTIONS TO VOTE
THE SHARES REPRESENTED THEREBY AGAINST APPROVAL OF THE MERGER AGREEMENT WILL
NOT, BY ITSELF, SATISFY THE REQUIREMENT OF A WRITTEN DEMAND.
Only a holder of record is entitled to request dissenters' appraisal rights
and payment for the shares registered in his or her name. A record owner of
shares may assert dissenters' appraisal rights as to fewer than all of the
shares recorded in such person's name only if such person dissents with respect
to all shares beneficially owned by any one person and notifies CILCORP in
writing of the name and address of each person on whose behalf the record owner
asserts dissenters' appraisal rights. The rights of a partial dissenter are
determined as if the shares as to which dissent is made and the other shares
held by such holder of record are recorded in the names of different CILCORP
shareholders. A beneficial owner of shares who is not the record owner may
assert dissenters' appraisal rights as to shares held on such person's behalf
only if the beneficial owner submits to CILCORP the record owner's written
consent to the dissent before or at the same time the beneficial owner asserts
dissenters' appraisal rights.
A demand must reasonably inform CILCORP of (i) the identity of the holder of
record of the CILCORP common stock covered by the demand, and (ii) that such
holder of record demands payment for such shares. The demand should be executed
by or for the CILCORP shareholder of record, fully and correctly, as such
shareholder's name appears
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on the CILCORP common stock certificates (or, if uncertificated, on CILCORP's
register).
A CILCORP shareholder who makes written demand for payment retains all other
rights of a shareholder until those rights are cancelled or modified at the
Effective Time by the consummation of the Merger. Within ten days after the
Effective Time, CILCORP shall send each Dissenting Shareholder who has delivered
a written demand for payment, (i) a statement setting forth the opinion of
CILCORP as to the estimated fair value of the shares of CILCORP common stock,
(ii) CILCORP's 1998 financial statements, (iii) CILCORP's latest available
interim financial statements, and (iv) a commitment to pay for the shares of the
Dissenting Shareholder the estimated fair value thereof upon transmittal to
CILCORP of the CILCORP common stock certificates or other evidence of ownership
with respect to such shares.
Upon consummation of the Merger, and given demand for payment by a
Dissenting Shareholder, CILCORP shall, upon receipt of the CILCORP common stock
certificates, or other evidence of ownership with respect to such shares, pay
the amount CILCORP estimates to be the fair value of the shares, plus accrued
interest, if any. An explanation of how the interest was calculated will be
provided by CILCORP to the Dissenting Shareholder at the time that CILCORP pays
the amount it estimates to be the fair value of the shares.
If the Dissenting Shareholder does not agree with the opinion of CILCORP as
to the estimated fair value of the shares, or the amount of interest due, he or
she shall, within thirty days from the delivery of CILCORP's statement of value,
notify CILCORP in writing of such Dissenting Shareholder's determination of the
estimated fair value and interest due relating to the shares, and demand payment
of the difference.
If within sixty days after delivery of such written notification by a
Dissenting Shareholder, CILCORP and the Dissenting Shareholder are unable to
agree as to the value of the shares, CILCORP shall either pay the difference in
value demanded by the Dissenting Shareholder, with interest, or file a petition
in the Circuit Court of Peoria County, Illinois requesting a determination of
the fair value of the shares and the interest due. All Dissenting Shareholders
who have perfected their dissenters' appraisal rights and who have not settled
with CILCORP will be made parties to this proceeding. The cost of the
proceedings may be assessed against one or more parties to the proceedings as
the court may consider equitable. Failure of CILCORP to commence an action shall
not limit or affect the right of the Dissenting Shareholder to otherwise
commence an action as permitted by law.
The foregoing is only a summary of the provisions of the IBCA and is
qualified in its entirety by reference to the text of Sections 11.65 and 11.70
of the IBCA which are set
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forth in Annex C hereto and incorporated by reference herein. ANY SHAREHOLDER OF
CILCORP WHO DESIRES TO EXERCISE HIS OR HER DISSENTERS' APPRAISAL RIGHTS SHOULD
CAREFULLY REVIEW ANNEX C AND CONSULT A LEGAL ADVISOR BEFORE ELECTING OR
ATTEMPTING TO EXERCISE SUCH RIGHTS.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain United States federal income tax
consequences to holders of CILCORP common stock, of the receipt of cash in
exchange for CILCORP common stock pursuant to the Merger. The discussion is for
general information only and is based on the provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), Treasury Department Regulations issued
pursuant thereto and published rulings and court decisions in effect as of the
date hereof, all of which are subject to change, possibly with retroactive
effect. The tax consequences to each holder of CILCORP common stock will depend
in part upon such holder's particular situation. Special tax consequences not
described herein may be applicable to certain holders of CILCORP common stock
subject to special tax treatment (including, but not limited to, financial
institutions, insurance companies, tax-exempt organizations, broker-dealers,
persons who hold such shares as a hedge against currency risk or a constructive
sale or conversion transaction, persons who are not citizens or residents of the
United States and persons who acquired their shares through the exercise of an
employee stock option or otherwise as compensation). ALL HOLDERS OF CILCORP
COMMON STOCK SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE APPLICABILITY AND EFFECT OF
THE ALTERNATIVE MINIMUM TAX AND ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX
LAWS.
The receipt of cash in exchange for CILCORP common stock pursuant to the
Merger will be a taxable transaction for United States federal income tax
purposes and may also be a taxable transaction under applicable state, local,
foreign and other tax laws.
In general, for United States federal income tax purposes, a shareholder who
receives cash in exchange for CILCORP common stock pursuant to the Merger will
recognize gain or loss equal to the difference, if any, between the amount of
cash received and the shareholder's adjusted tax basis in the CILCORP common
stock exchanged therefor. Gain or loss will be determined separately for each
block of CILCORP common stock (i.e., CILCORP common stock acquired at the same
price in a single transaction) exchanged pursuant to the Merger. Such gain or
loss will be capital gain or loss if the CILCORP common stock is a capital asset
in the hands of the shareholder at the time of the exchange and will be
long-term capital gain or loss if such CILCORP common stock
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has been held by the shareholder for more than 12 months. The net capital gain
recognized by a shareholder that is an individual upon a disposition of property
that, at the time of the Merger, has been held for more than 12 months will
generally be subject to a maximum tax rate of 20% or, in the case of property
that has been held for 12 months or less, will generally be subject to tax at
ordinary income tax rates.
ACCOUNTING TREATMENT
The Merger will be accounted for using the purchase method of accounting.
Under this method of accounting, the purchase price will be allocated to the
fair value of the net assets acquired. The excess purchase price over the fair
value of the assets acquired will be allocated to goodwill.
REGULATORY MATTERS
ANTITRUST CONSIDERATIONS
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 submitted to the Antitrust
Division of the Department of Justice (the "Antitrust Division") and the Federal
Trade Commission (the "FTC") and specified HSR Act waiting period requirements
have been satisfied. On February 5, 1999, AES and CILCORP provided their
respective premerger notification filings pursuant to the HSR Act. On February
22, 1999, the FTC informed CILCORP and AES that their request for early
termination of the HSR waiting period had been granted. The early termination of
the HSR Act waiting period does not preclude the Antitrust Division, the FTC,
state antitrust enforcement agencies or private plaintiffs from challenging the
Merger on antitrust grounds. CILCORP and AES believe that the Merger will not
violate antitrust laws. If the Merger is not consummated within 12 months after
this early termination of the HSR Act waiting period, CILCORP and AES will be
required to submit a new HSR filing to the Antitrust Division and the FTC, and a
new HSR Act waiting period will have to expire or be earlier terminated before
the Merger can be consummated.
FEDERAL POWER ACT
Section 203 of the Federal Power Act provides that no public utility shall
sell or otherwise dispose of its jurisdictional facilities 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 Federal Energy Regulatory Commission (the
"FERC"). The approval of the FERC is required in order to
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consummate the Merger. Under Section 203 of the Federal Power Act, the FERC will
approve a merger if it finds the Merger to be "consistent with the public
interest." On February 19, 1999, CILCORP and AES filed a joint application with
the FERC requesting that it approve the Merger under Section 203 of the Federal
Power Act. To date, approval has not been obtained from the FERC.
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Neither CILCORP nor AES is statutorily required to obtain any order from the
Securities and Exchange Commission (the "SEC") pursuant to the Public Utility
Holding Company Act of 1935, as amended ("PUHCA") with respect to the Merger.
However, AES is voluntarily seeking an order from the SEC under PUHCA Section
3(a)(5) (the "SEC Exemption Order"), granting it an exemption from the
provisions of PUHCA (other than Section 9(a)(2) thereof) so that AES will not be
subject to regulation as a registered holding company under PUHCA. The SEC will
not, however, approve or disapprove the terms of the Merger.
Under the applicable standards of PUHCA Section 3(a)(5), unless the SEC
finds an exemption to be detrimental to the interests of the public, investors
or consumers, the SEC shall exempt a holding company and its subsidiaries from
provisions of PUHCA (other than Section 9(a)(2) thereof) if the SEC determines
that the holding company is not and derives no material part of its income,
directly or indirectly, from one or more subsidiary companies the principal
business of which within the United States is that of a "public-utility company"
(as defined in Section 2(a)(5) of PUHCA). The Section 3(a)(5) exemption
traditionally has been available to a holding company system with significant
foreign operations, and whose U.S. utility operations do not account for a
material part of the holding company's income on a relative basis and are small
in size on an absolute basis. On March 5, 1999, AES filed an application with
the SEC for an order exempting AES from the provisions of PUHCA (other than
Section 9(a)(2) thereof) pursuant to Section 3(a)(5) of PUHCA. The SEC's
determination will be based, in part, on the specific facts of the Merger,
including the characteristics of CILCORP and AES. No assurance can be given that
the SEC will grant AES's application.
Obtaining the SEC Exemption Order is a condition to closing. Although AES
has the right to waive such condition, it is unlikely to do so unless it can
obtain a satisfactory alternative exemption to the provisions of PUHCA.
ILLINOIS PUBLIC UTILITY REGULATION
Under Illinois law, CILCO, as an electric utility, is required to file
notice with respect to the Merger with the Illinois Commerce Commission (the
"ICC"). The notice must be accompanied by certain information relating to the
Merger. Formal approval by the ICC
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of the Merger is not required for electric utilities. However, because CILCO
also provides gas utility service, the ICC has taken the position that CILCO
must obtain ICC approval of the transactions with respect to CILCO's gas
operations. Accordingly, CILCO has filed with the ICC the notice and information
required from electric utilities, and has filed a petition with the ICC
requesting approval of the proposed transactions with respect to CILCO's gas
operations. The petition was approved by the ICC on March 10, 1999. As required
by the Merger Agreement, CILCORP has also obtained a certification from the ICC
pursuant to Section 33(a) of PUHCA (the "Illinois Certification") relating to
its exemption from PUHCA for investments in foreign utility companies. CILCORP
believes that both the ICC approval and the certification satisfy the condition
to AES's performance under the Merger Agreement but has not yet received
confirmation of this from AES. See "THE MERGER AGREEMENT--CONDITIONS TO THE
MERGER."
CILCORP will also shortly seek a certification
OTHER REGULATORY MATTERS
CILCORP and AES do not believe that any other material regulatory approvals
are required or will otherwise be sought in connection with the Merger.
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THE MERGER AGREEMENT
THE FOLLOWING IS A SUMMARY OF THE MATERIAL PROVISIONS OF THE MERGER
AGREEMENT, A COPY OF WHICH IS ATTACHED AS ANNEX A TO THIS PROXY STATEMENT AND IS
INCORPORATED HEREIN BY REFERENCE. SUCH SUMMARY IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE MERGER AGREEMENT. SHAREHOLDERS ARE URGED TO READ THE MERGER
AGREEMENT IN ITS ENTIRETY FOR A MORE COMPLETE DESCRIPTION OF THE TERMS AND
CONDITIONS OF THE MERGER.
THE MERGER
THE MERGER. The Merger Agreement provides that, following the approval of
the Merger Agreement by the shareholders of CILCORP and the satisfaction or
waiver of the other conditions to the Merger, including obtaining the requisite
statutory approvals therefor, Midwest will be merged with and into CILCORP, with
CILCORP surviving the Merger (the "Surviving Corporation"), and the separate
existence of Midwest will cease. Articles of Merger will be filed with the
office of the Secretary of State of the State of Illinois, and the Merger will
then become effective on the date the Certificate of Merger is issued by such
office. The CILCORP shareholders will receive the Aggregate Merger Consideration
(as defined below under "Merger Consideration") and AES, as the holder of the
common stock of Midwest, will become the sole shareholder of CILCORP after the
Effective Time. The Merger Agreement also provides that AES may merge CILCORP
with and into AES following the Merger (the "Second Merger") which, for purposes
of the Merger Agreement, if it occurs, will be deemed to occur immediately after
the Merger.
MERGER CONSIDERATION. At the Effective Time, each issued and outstanding
share of CILCORP common stock and each associated purchase right ("CILCORP
Rights") under the Rights Agreement, dated as of October 29, 1996, between
Continental Stock Transfer and Trust Company and CILCORP (the "CILCORP Rights
Agreement") (other than any shares of CILCORP common stock (i) owned by CILCORP,
by any subsidiary of CILCORP, by AES or by any subsidiary of AES, all of which
will be cancelled without consideration and will cease to exist or (ii) held by
a CILCORP Dissenter (as defined below)) will be converted into the right to
receive $65.00 subject to adjustment (as described below), in cash, without
interest (the "Per Share Amount"), upon surrender of the certificate which
immediately prior to the Effective Time represented such share of CILCORP common
stock (the "Certificate"). The Per Share Amount will be increased to $66.00 in
the event that the SEC Exemption Order is issued after August 22, 1999 and
provided that CILCORP has delivered to AES an officer's certificate attesting to
the satisfaction or waiver of certain conditions to closing, on the later of
August 23, 1999 or the day after CILCORP delivers such officer's certificate to
AES (the "First Adjustment Period"). If the officer's certificate is delivered
after August 22, 1999 but prior to the SEC
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Exemption Order being issued, then, following the First Adjustment Period, the
Per Share Amount shall be increased from $66.00 by $0.00546448 per day for each
day until the SEC Exemption Order is issued up to a maximum Per Share Amount of
$68.00. In no event, however, shall the Per Share Amount be increased for any
period after which AES has irrevocably waived the condition that the SEC
Exemption Order be issued. Throughout this summary, the term "Aggregate
Consideration Amount" shall mean an amount equal to the product of (x) the Per
Share Amount (as adjusted) and (y) the number of shares of CILCORP common stock
outstanding on the closing date.
The Merger Agreement further provides that any shares of CILCORP common
stock which are issued and outstanding immediately prior to the Effective Time
and held by a CILCORP shareholder who has not voted in favor of the Merger and
who complies with all the provisions of the Illinois Act concerning the right of
holders of shares of capital stock to dissent from the Merger and require
appraisal of their shares (such shareholder, a "CILCORP Dissenter") will not be
converted into or represent the right to receive the Merger consideration as
described above but instead will be converted, at the Effective Time, into the
right to receive any consideration that may be determined to be due to the
CILCORP Dissenter pursuant to the Illinois Act. Shares of CILCORP common stock
outstanding immediately before the Effective Time and held by a CILCORP
Dissenter who, after the Effective Time, fails to establish his entitlement to
appraisal rights as provided in the Illinois Act or withdraws or forfeits his
right to appraisal, in either case pursuant to the Illinois Act, will be deemed
to be converted as of the Effective Time into the right to receive the Merger
consideration, without interest. Pursuant to the Merger Agreement, CILCORP may
not voluntarily make any payment with respect to any demands for appraisal or,
without the prior written consent of AES, offer to settle or settle any such
demands.
PROCEDURE FOR PAYMENT. At the Effective Time, each Certificate, other than
Certificates representing shares which will not be converted as described above,
will represent only the right to receive the Per Share Amount for each share of
CILCORP common stock represented by such Certificate. Each holder of a
Certificate will cease to have any voting or other rights with respect thereto,
except the right to receive upon the surrender of such Certificate the cash
consideration payable pursuant to the Merger Agreement, without interest. The
holder of such an unexchanged Certificate will not be entitled to receive
dividends or other distributions payable by CILCORP with a record date prior to
the Effective Time which may have been declared by CILCORP until the Certificate
is surrendered, at which time such holder shall be entitled to receive all
dividends or other distributions accrued and unpaid from the Effective Time
until the time of such surrender.
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Prior to the Effective Time, CILCORP will designate a bank or trust company
to act as agent (the "Paying Agent") in the Merger. At the Effective Time, AES
will deposit with the Paying Agent sufficient funds to pay the Aggregate Merger
Consideration to the holders of CILCORP common stock. As soon as practicable
after the Effective Time, the Paying Agent will mail to each record holder of
Certificates a letter of transmittal and instructions for use in effecting the
surrender of such Certificates for the cash consideration to be paid in exchange
for such shares, which instructions will provide that delivery will be effected,
and risk of loss and title to the Certificates will pass, only upon actual
delivery of such Certificates to the Paying Agent. Upon surrender to the Paying
Agent of a Certificate, together with such letter of transmittal duly executed
and other required documents, the holder of such Certificate will receive in
exchange cash in an amount equal to the product of the Per Share Amount
multiplied by the number of shares of CILCORP common stock represented by such
Certificate, subject to any withholding taxes. All Certificates so surrendered
will promptly be cancelled and cease to exist.
SHAREHOLDERS OF CILCORP SHOULD NOT SEND IN THEIR CILCORP COMMON STOCK
CERTIFICATES UNTIL THEY RECEIVE A TRANSMITTAL FORM.
The stock transfer books of CILCORP with respect to the CILCORP common stock
will be closed at the Effective Time of the Merger and CILCORP's shareholders of
record as of that date will be the shareholders entitled to receive cash in
exchange for their CILCORP shares. If payment of the Merger consideration is to
be made to a person other than the person in whose name the surrendered
Certificate is registered, it shall be a condition to such payment that the
Certificate so surrendered be properly endorsed or otherwise in proper form for
transfer and be accompanied by evidence satisfactory to the Paying Agent that
all taxes required by reason of such payment in a name other than the registered
holder either have been paid or are not payable.
FAILURE TO EXCHANGE. Any cash which remains undistributed to the former
shareholders of CILCORP for six months after the Effective Time will be
delivered by the Paying Agent to AES, and AES shall thereafter act as the Paying
Agent.
NO LIABILITY. Notwithstanding anything to the contrary contained in the
Merger Agreement, none of CILCORP, AES, Midwest or the Paying Agent will be
liable to any holder of shares of CILCORP common stock for any Merger
consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. Each of the Paying Agent and AES, as
applicable, will be entitled to deduct and withhold from the Merger
consideration otherwise payable to any holder of Certificates such amounts as it
is required to deduct and withhold with respect to the making of such payment
under the Code, or any provision of state, local or foreign tax law.
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TREATMENT OF CILCORP INCENTIVE PLAN OPTIONS. The Merger Agreement provides
that two business days prior to the closing date, the Incentive Plan will be
amended, subject to the consummation of the Merger, to provide that (i) all
performance shares (the "Performance Shares") that have been granted under the
Incentive Plan and that have not been exercised prior to the date of the
Amendment will be cancelled as of the closing date and (ii) at the closing,
CILCORP will pay to each holder of Performance Shares a cash payment equal to
the number of Performance Shares held immediately prior to the Amendment
multiplied by the excess of the Per Share Amount over $36.00, less the amount of
all applicable federal, state and local withholding taxes in connection with
such payment. By virtue of the foregoing treatment, all Performance Shares shall
cease to exist and all rights of such participants under the Incentive Plan to
receive either CILCORP common stock or shares of common stock of AES at or after
the Effective Time will be extinguished.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains representations and warranties from each of
the parties thereto. CILCORP has made representations and warranties regarding,
among other things, (i) its organization and qualification, the organization and
qualification of its subsidiaries and similar corporate matters; (ii) its
subsidiaries and certain equity investments; (iii) its capitalization and the
capitalization of CILCO; (iv) the indebtedness of CILCORP and its subsidiaries;
(v) the authorization, execution, delivery, performance and enforceability of
the Merger Agreement, the transactions contemplated thereby and the Second
Merger and related matters; (vi) compliance with organizational documents,
agreements and applicable laws; (vii) required third party and governmental
approvals; (viii) reports and financial statements filed with governmental
authorities and the accuracy of information contained therein; (ix) the absence
of material adverse changes and undisclosed liabilities; (x) litigation; (xi)
the accuracy of information supplied by CILCORP for use in this Proxy Statement;
(xii) tax matters; (xiii) labor and employee matters; (xiv) environmental
matters; (xv) the utility regulatory status of CILCORP and its subsidiaries;
(xvi) the CILCORP shareholder vote required to approve the Merger Agreement and
the transactions contemplated thereby; (xvii) insurance; (xviii) the opinion of
CILCORP's financial advisor; (xix) brokerage, finder's or other fees or
commissions payable in connection with the transaction; (xx) the inapplicability
of certain state anti-takeover statutes; (xxi) the amendment of the CILCORP
Rights Agreement to prevent the Merger, the other transactions contemplated by
the Merger Agreement and the Second Merger from constituting triggering events;
(xxii) Year 2000 compliance; (xxiii) title to real property and other material
assets; (xxiv) intellectual property; (xxv) transactions with affiliates; (xxvi)
discontinued businesses; (xxvii) its captive insurance business; (xxviii)
contractual obligations; and (xxix) disclosures made by CILCORP.
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AES has made representations and warranties regarding, among other things:
(i) its organization and qualification, the organization and qualification of
Midwest and similar corporate matters; (ii) the authorization, execution,
delivery, performance and enforceability of the Merger Agreement and related
matters; (iii) compliance with organizational documents, agreements and
applicable laws; (iv) required third party and governmental approvals; (v)
reports and financial statements filed with governmental authorities and the
accuracy of information contained therein; (vi) the accuracy of information
supplied by AES for use in this Proxy Statement; (vii) AES's ability to obtain
funds to pay the Aggregate Consideration Amount; (viii) the utility regulatory
status of AES and its respective subsidiaries; and (ix) AES's ability to obtain
regulatory approval of the Merger.
CERTAIN COVENANTS
CONDUCT OF CILCORP BUSINESS. Pursuant to the Merger Agreement, CILCORP has
agreed that, until the Effective Time or earlier termination of the Merger
Agreement, CILCORP will, and will cause its subsidiaries to, carry on their
businesses in the ordinary course substantially as previously conducted, and
CILCORP will not, and will not permit its subsidiaries to (unless otherwise
permitted under or contemplated by the Merger Agreement or consented to by AES):
(a) declare or pay any dividends on or make other distributions in respect
of any of their capital stock other than dividends to CILCORP or its
wholly-owned subsidiaries; dividends required to be paid on any series
of CILCO preferred or preference stock, in accordance with the
respective terms thereof; regular quarterly dividends of $.615 on
CILCORP common stock with respect to the fiscal quarters ending prior to
the Effective Time; and a special dividend on CILCORP common stock of up
to $.615 prorated based on the number of days in the quarter in which
the Effective Date occurs;
(b) split, combine or reclassify any of their capital stock or issue shares
of their respective capital stock, or redeem, repurchase or otherwise
acquire any shares of their capital stock, unless required by the terms
of any series of CILCO preferred or preference stock;
(c) issue, pledge, dispose of or otherwise encumber capital stock, rights,
warrants, options or convertible or exchangeable securities other than
issuances by a wholly-owned subsidiary of its capital stock to its
direct or indirect parent and issuances of shares of CILCORP common
stock pursuant to the exercise of CILCORP stock options outstanding on
the date of the Merger Agreement;
(d) amend or propose to amend their organizational documents;
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(e) except as specifically disclosed to AES, (i) acquire, or publicly
propose to acquire, an equity interest in or a substantial portion of,
the assets of any business or corporation, (ii) otherwise acquire or
agree to acquire a material amount of assets, other than fuel used for
the production of electricity, limestone used for its SO(2) scrubber or
natural gas for send-out or storage or (iii) alter the corporate
structure or ownership of CILCORP or any of its subsidiaries, other than
the transfer of ownership of QST Environmental Inc. from an indirect
subsidiary of CILCORP to CILCORP;
(f) except as specifically disclosed to AES, sell or dispose of any of their
respective assets other than (i) dispositions in the ordinary course of
business consistent with past practice at fair market value of less than
$2 million per transaction (not to exceed $10 million in the aggregate),
(ii) dispositions not in the ordinary course of business at fair market
value of less than $50,000 per transaction (not to exceed $1 million in
the aggregate), (iii) the stock or assets of QST Environmental Inc.
and/or its subsidiaries for a cash purchase price of at least $25
million if the sale provides for the release of CILCORP and its
subsidiaries from all liabilities arising out of the operations of QST
Environmental Inc. and imposes no liability on AES or (iv) certain
enumerated assets if the purchase price is less than $2 million
individually (not to exceed $5 million in the aggregate) and if the
price exceeds the asset's book value;
(g) rescind any material election relating to taxes, settle any material
claim or controversy relating to taxes except as specifically disclosed
to AES, materially alter CILCORP's methods of reporting income or
deductions for federal income taxes, except as specifically disclosed to
AES or unless required by law, or make any changes in CILCORP's method
of accounting for taxes as reflected on its Form 10-Q, dated as of
November 10, 1998, except as specifically disclosed to AES;
(h) make capital expenditures during any six-month fiscal period in excess
of 110% of the amount budgeted for such six-month fiscal period, except
for unplanned capital expenditures due to emergency conditions,
unanticipated catastrophic events, extreme weather and unscheduled unit
outages;
(i) incur or guarantee any indebtedness other than short-term indebtedness
in the ordinary course of business consistent with past practice,
provided that CILCORP and its subsidiaries, taken together, do not have
outstanding at any time more than $428 million in the aggregate of
indebtedness, guarantees and keep-well obligations;
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(j) except as may be required by applicable law or as specifically disclosed
to AES, enter into, adopt or amend or increase the amount or accelerate
the payment or vesting of any benefit or amount payable under any
employee benefit plan of CILCORP or its subsidiaries or increase the
compensation of any director, officer or employee of CILCORP or any of
its subsidiaries except pursuant to a binding legal commitment existing
on the date of the Merger Agreement specifically disclosed to AES;
(k) engage in any activities which would cause a change in CILCORP's, or its
subsidiaries', status under PUHCA, or that would impair the ability of
CILCORP or AES or any AES subsidiary to claim any exemption under PUHCA
or that would subject AES or any AES subsidiary to regulation under
PUHCA, other than under Section 9(a)(2) or as an exempt holding company
under PUHCA, following the Merger;
(l) make any changes in their accounting methods, except as required by law,
rule, regulation or generally accepted accounting principles applied on
a consistent basis;
(m) enter into any agreement or arrangement with any of their respective
affiliates, other than agreements or arrangements in the ordinary course
of business, negotiated on an arms-length basis, no less favorable to
CILCORP or its subsidiary than would have been obtained from an
unaffiliated third party, and with prior written notice to AES;
(n) except in the ordinary course of business consistent with past practice,
enter into new contracts, modify, amend, terminate, renew or fail to use
reasonable business efforts to renew any of CILCORP's or its
subsidiaries' material contracts, provided that the term of any new
contract or any contract modification, amendment or renewal does not
exceed 12 months, or waive, release or assign any material rights or
claims therein;
(o) enter into, modify, amend or renew any contract outside the ordinary
course of business or on a basis not consistent with past practice if
the dollar value of such new contract, or existing contract as so
amended, modified or renewed, is or would be in excess of $2 million
(not to exceed $20 million in the aggregate) or have an initial term (or
a renewal or extension term) of greater than 12 months;
(p) pay, settle or satisfy any claims, liabilities or obligations material
to CILCORP 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 prior to
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the date of the Merger Agreement or incurred in the ordinary course of
business;
(q) make any increase in staffing levels over those in effect on the date of
the Merger Agreement, except as specifically disclosed to AES;
(r) take any action that would jeopardize the status of CILCORP's tax-exempt
bonds;
(s) enter into any new line of business or make any change in their current
lines of business, except as specifically disclosed to AES;
(t) amend the CILCORP Rights Agreement or redeem the CILCORP Rights
thereunder; or
(u) buy or sell any energy futures or forward contracts or energy
transportation futures or forward contracts, or options on the
foregoing, other than for purposes of hedging contracts to buy or sell
physical energy or energy transportation, or, in transacting business
outside of the native load service territory of CILCO, enter into any
energy-related sales or purchase contracts that would create an unhedged
position of more than $100,000 for any single contract, or $1 million on
a cumulative basis.
In addition, CILCORP has agreed that it will, and will cause its
subsidiaries to: maintain insurance with financially responsible insurance
companies in such amounts and against such risks and losses as are customary for
a similar utility company, except for certain rights to self-insure; maintain in
effect all existing governmental permits which are material to its operations;
and pursue the sale of QST Environmental Inc. on commercially favorable terms.
NO SOLICITATION. The Merger Agreement requires that CILCORP cease any
existing discussions or negotiations with respect to any Acquisition Proposal
(as defined below). In addition, the Merger Agreement prohibits CILCORP from
directly or indirectly initiating, soliciting, encouraging or taking any other
action to facilitate any inquiries or the making of any proposal which
constitutes or may reasonably be expected to lead to an Acquisition Proposal, or
engaging in negotiations with, or providing any nonpublic information to, any
third party relating to an Acquisition Proposal. Notwithstanding the foregoing
prohibition, CILCORP may, prior to receipt of the approval of the Merger by
CILCORP's shareholders, (i) in response to an unsolicited Acquisition Proposal,
furnish information with respect to CILCORP and its subsidiaries and participate
in discussions or negotiations with the person making such proposal if (a) the
CILCORP Board reasonably believes, in good faith after consultation with its
financial advisors, that such proposal (if
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to acquire 50% or more of the outstanding CILCORP common stock or all or
substantially all of the assets of CILCORP) may be more favorable to CILCORP's
shareholders than the Merger (a "Superior Proposal"), (b) the CILCORP Board
determines, in good faith after consultation with its financial advisors and
outside counsel, that failure to take such actions could reasonably be expected
to be a breach of its fiduciary duties to CILCORP's shareholders under
applicable law and (c) prior to furnishing nonpublic information or entering
into negotiations, CILCORP promptly notifies AES 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; (ii)
comply with Rule 14e-2 promulgated under the Securities and Exchange Act of 1934
with respect to a tender offer or exchange offer; and/or (iii) terminate the
Merger Agreement and, in connection therewith, withdraw or modify its
recommendation of the Merger and the Merger Agreement and/or approve or
recommend an Acquisition Proposal if, during the period prior to the CILCORP
shareholder approval of the Merger, the CILCORP Board reasonably believes in
good faith after consultation with its financial advisors and outside counsel,
that the Acquisition Proposal is a Superior Proposal and that the failure to
terminate the Merger Agreement and accept such Superior Proposal could
reasonably be expected to be a breach of its fiduciary duties under applicable
law. An Acquisition Proposal is a proposal or offer from any person to acquire a
business (a "Material Business") that constitutes 15% or more of the net
revenues, net income or assets of CILCORP and its subsidiaries taken as a whole
or 15% or more of any class of voting securities of CILCORP or any CILCORP
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 CILCORP or
any such CILCORP subsidiary, or any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
CILCORP or any such CILCORP subsidiary, other than the transactions contemplated
by the Merger Agreement.
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SHAREHOLDERS' MEETING. The Merger Agreement provides that CILCORP will, as
soon as reasonably practicable, call and hold a meeting of its shareholders for
the purpose of obtaining shareholder approval of the Merger. Subject to the
fiduciary duties of CILCORP's Board, CILCORP has agreed to recommend to its
shareholders the approval of the Merger, the Merger Agreement and the
transactions contemplated thereby.
INDEMNIFICATION AND DIRECTORS' AND OFFICERS' INSURANCE. 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 has been at any time prior to
the Merger Agreement, an officer or director of CILCORP or any of its
subsidiaries (an "Indemnified Party"), generally with respect to 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 (i) are based on or arise out
of the fact that such Indemnified Party is or was an officer or a director of
CILCORP or any of its subsidiaries or (ii) arise out of or pertain to the
transactions contemplated by the Merger Agreement. In the event of any such
loss, expense, claim, damage or liability, (i) the Surviving Corporation will
pay the reasonable fees and expenses of counsel for the Indemnified Parties
selected by the Surviving Corporation, which counsel shall be reasonably
satisfactory to the Indemnified Parties, and advance to such Indemnified Party
upon request reimbursement of documented expenses reasonably incurred, subject
to the provision of an undertaking by the Indemnified Party to reimburse the
amounts so advanced in the event of a final determination by a court that such
Indemnified Party is not entitled to such advance and (ii) the Surviving
Corporation will cooperate in the defense of any such matter. The Merger
Agreement provides that the Surviving Corporation will not be liable for the
fees and expenses of more than one law firm with respect to each related matter
unless there is a conflict of interest on any significant issue between an
Indemnified Party and any other Indemnified Party. In addition, the Merger
Agreement provides that the Surviving Corporation will not be liable for any
settlement effected without its written consent, which consent shall not be
unreasonably withheld.
The Merger Agreement provides that to the fullest extent permitted by
applicable law, from and after the Effective Time, all rights to indemnification
existing as of the date of the Merger Agreement in favor of any Indemnified
Party, as provided in their respective Articles of Incorporation and By-Laws in
effect on the date thereof, will survive the Merger and will continue in full
force and effect for a period of six years from the Effective Time. The Merger
Agreement further provides that, for a period of six years after the Effective
Time, the Surviving Corporation will cause to be maintained in effect existing
policies of directors' and officers' liability insurance maintained by CILCORP
or substitute policies with substantially similar coverage and amounts with
respect to matters
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occurring prior to the Effective Time, subject to the Surviving Corporation's
ability to maintain or obtain such insurance at commercially reasonable costs.
ACCESS TO INFORMATION AND CONFIDENTIALITY. The Merger Agreement provides
that, prior to the Effective Time, CILCORP and its subsidiaries will grant AES
and its authorized representatives reasonable access to all of their respective
properties, books, records and other information, including access to all
documents filed with or received from governmental authorities, information
relating to taxes and information that may reasonably be requested by AES in
connection with any filings, applications or approvals required or contemplated
by the Merger Agreement or for any other reason related to the transactions
contemplated by the Merger Agreement, except as may otherwise be precluded by
FERC regulations from being furnished to AES without simultaneous disclosure to
all parties on CILCORP's electronic bulletin board. CILCORP has also agreed to
furnish AES with office space and equipment at CILCORP's headquarters for the
purpose of designing a transition plan together with CILCORP. Each party will,
and will cause its subsidiaries and authorized representatives to, hold in
strict confidence all documents and information concerning the other furnished
to it in connection with the transactions contemplated by the Merger Agreement
in accordance with the terms of a confidentiality agreement entered into between
the parties.
COOPERATION; CONSENTS AND APPROVALS. Subject to the terms of the Merger
Agreement, each of the parties to the Merger Agreement has agreed (i) to use all
reasonable best efforts to obtain certain third party consents and use
commercially reasonable efforts to promptly make the required filings under the
HSR Act and to obtain all consents and approvals of governmental authorities
necessary and advisable to effect the transactions contemplated by the Merger
Agreement and, if AES determines to proceed with the Second Merger, for the
Second Merger, including, without limitation, the SEC Exemption Order and the
Illinois Certification, and will notify the other party of the receipt of or the
failure to receive such consent or approval; (ii) to promptly provide the other
party with copies of all filings made with governmental entities relating to the
Merger; and (iii) to refrain from taking any action that would result, or is
reasonably likely to result, in a material breach of the Merger Agreement.
PUBLIC ANNOUNCEMENTS. The Merger Agreement provides that, except as may be
required by law or any securities exchange, CILCORP and AES will cooperate with
each other in the development and distribution of all news releases and other
public information disclosures with respect to the Merger Agreement or any of
the transactions contemplated thereby and shall not issue any public
announcement or statement with respect thereto without the consent of the other
party.
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NOTIFICATION OF CERTAIN MATTERS. Pursuant to the Merger Agreement and
subject to other terms therein, CILCORP and AES agree to promptly notify the
other party (i) if any representation or warranty made by it contained in the
Merger Agreement becomes untrue or inaccurate, (ii) of its failure to comply in
any material respect or satisfy in any material respect any covenant, condition
or agreement under the Merger Agreement and (iii) promptly supplement or amend
their disclosure schedules with respect to any matter, condition or occurrence
arising which, if existing or occurring at the date of the Merger Agreement,
would have been required to be set forth in the disclosure schedules.
CILCORP has also agreed pursuant to the Merger Agreement to confer regularly
with AES regarding CILCORP's operations and to notify AES of any significant
change in its business, properties, conditions and results of operations, any
sale of assets in excess of $1 million and any change or event which has had or
would have a material adverse effect on CILCORP, the consummation of the
transactions contemplated by the Merger Agreement or the Second Merger. The
Merger Agreement further provides that CILCORP will discuss with AES any changes
or proposed changes in its or its subsidiaries' rates or charges (including
those with respect to fuel adjustment charges and purchased gas adjustments),
standards of service or accounting and consult with AES prior to making any
filing or effecting any agreement or arrangement with respect thereto and will
not make any filing to change its rates on file with the FERC or any applicable
state utility commission, except as may be required by applicable law or as
specifically disclosed to AES, that would have a material adverse effect on
CILCORP, the consummation of the transactions contemplated by the Merger
Agreement or the Second Merger.
CONDITIONS TO THE MERGER
The respective obligations of CILCORP, AES and Midwest to effect the Merger
are subject to the satisfaction or waiver, where legally permissible, of the
following conditions: (i) shareholder approval of the Merger Agreement shall
have been obtained by CILCORP; (ii) no judgment, decree, statute, law, rule,
regulation, order or injunction preventing consummation of the Merger shall have
been enacted, entered, promulgated or enforced by any governmental authority or
court of competent jurisdiction; (iii) statutory approvals required to
consummate the Merger shall have been obtained, each of which shall have become
final (i.e., not reversed, stayed, enjoined or set aside and as to which all
waiting periods and conditions for consummation have been satisfied) and none of
which shall impose terms or conditions which, in the aggregate, would have or,
insofar as reasonably can be foreseen, could have a material adverse effect on
CILCORP, AES, the consummation of the transactions contemplated by the Merger
Agreement or the Second Merger or which would be inconsistent with the
agreements of the parties in the Merger Agreement; and (iv) all applicable
waiting periods under the HSR Act shall have terminated or expired.
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The obligation of CILCORP to effect the Merger is further subject to the
satisfaction or waiver, where legally permissible, of the following conditions:
(i) AES and Midwest shall have performed in all material respects all agreements
and covenants required to be performed by them prior to the closing date under
the Merger Agreement; (ii) AES's representations and warranties set forth in the
Merger Agreement are true and correct in all material respects as of the date of
the Merger Agreement (except to the extent such representations and warranties
speak as of an earlier date) and as of the closing date; and (iii) CILCORP shall
have received a certificate signed by an executive officer of AES to the effect
that the conditions set forth in clauses (i) and (ii) have been satisfied.
The obligation of AES to effect the Merger is further subject to the
satisfaction or waiver, where legally permissible, of the following conditions:
(i) CILCORP shall have performed in all material respects all agreements and
covenants required to be performed by it prior to the closing date under the
Merger Agreement; (ii) CILCORP's representations and warranties set forth in the
Merger Agreement are true and correct in all material respects as of the date of
the Merger Agreement (except to the extent such representations and warranties
speak as of an earlier date) and as of the closing date; (iii) except as
specifically disclosed to AES at the time of the Merger Agreement, no material
adverse effect on CILCORP or on the consummation of the transactions
contemplated by the Merger Agreement and the Second Merger shall have occurred
and there shall exist no fact or circumstance that would or, insofar as
reasonably can be foreseen, could have such effect; (iv) CILCORP shall have
obtained all required third party consents; (v) the SEC shall have issued the
SEC Exemption Order which shall be in full force and effect on the closing date;
(vi) AES shall have proceeds available sufficient to pay the Aggregate
Consideration Amount; (vii) AES shall have received a certificate signed by an
executive officer of CILCORP to the effect that the conditions set forth in
clauses (i), (ii), (iii), (iv) and (ix) have been satisfied; (viii) AES shall
have obtained all required third party consents; (ix) no judgment, decree,
statute, law, rule, regulation, order or injunction preventing the consummation
of the Second Merger shall have been enacted, entered, promulgated or enforced
by any governmental authority or court of competent jurisdiction; (x) no event
shall have occurred or could occur that would result in the triggering of the
CILCORP Rights under the CILCORP Rights Agreement which, in the reasonable
judgment of AES, would have, or would be reasonably likely to have, a material
adverse effect on CILCORP or on consummation of the transactions contemplated by
the Merger Agreement and the Second Merger or materially change the number of
outstanding equity securities of CILCORP or result in the CILCORP Rights
becoming nonredeemable; and (xi) the ICC shall have issued the Illinois
Certification and AES shall reasonably believe that any order of, approval by,
or result of any filing, proceeding or notice with the ICC in connection with
the Merger could not be expected
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to have an adverse effect on AES's ability to obtain financing or on AES,
CILCORP or any of CILCORP's subsidiaries after the Effective Time.
TERMINATION
The Merger Agreement may be terminated at any time prior to the closing
date:
(i) by mutual written consent of CILCORP and AES;
(ii) by either CILCORP or AES, (a) if any governmental authority has issued
or adopted a law, order, rule or regulation which has the effect
(supported by written opinion of counsel) of prohibiting the Merger or
if a court of competent jurisdiction issues an order, judgment or
decree enjoining or prohibiting the Merger and such order, judgment or
decree shall have become final and nonappealable; (b) if the Merger has
not been consummated on or before May 22, 2000, provided that if after
February 22, 2000 and prior to May 22, 2000, CILCORP has delivered to
AES an officer's certificate attesting to the satisfaction or waiver of
certain conditions to the Merger, then neither CILCORP nor AES may
terminate under this provision until a period of 90 days shall have
elapsed from the receipt of such certificate, and provided that neither
CILCORP nor AES may terminate if its breach is the reason that the
Merger has not been consummated); (c) if the shareholders of CILCORP do
not approve the Merger Agreement at the shareholders' meeting or any
adjournments thereof; or (d) if AES has not satisfied the closing
condition regarding financing by the 90(th) day after all other
conditions to closing have been satisfied;
(iii) by AES, if (a) CILCORP has materially breached any representation or
warranty, covenant or agreement under the Merger Agreement and has not
remedied such breach within 30 days after the receipt of notice from
AES requesting a cure, provided that CILCORP may not expend more than
$10 million to cure any and all such breaches without the prior written
approval of AES; (b) the CILCORP Board (A) withdraws or modifies in any
manner adverse to AES its approval of the Merger Agreement and the
transactions contemplated thereby or its recommendation to its
shareholders regarding approval of the Merger Agreement, (B) fails to
reaffirm such approval or recommendation upon the request of AES, (C)
approves or recommends any Acquisition Proposal by a third party or (D)
resolves to take any of foregoing actions; (c) the SEC Exemption Order
has not been issued by August 22, 1999; or (d)(i) any required
approvals or actions of the ICC have either not been issued or taken by
November 22, 1999 or, if issued or taken, AES reasonably believes that
such order or action could be expected to have an adverse effect on
AES's ability to obtain financing for the Merger or on AES, CILCORP or
any subsidiary of
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CILCORP or (ii) AES does not reasonably believe at any time on or after
July 22, 1999 that such required approvals or actions will be obtained
on satisfactory terms by November 22, 1999;
(iv) by CILCORP, if (a) AES has materially breached certain representations,
warranties, covenants or agreements set forth in the Merger Agreement
and has not remedied such breach within 30 days after the receipt of
notice from CILCORP requesting a cure; (b) CILCORP determines, under
certain circumstances, to accept a Superior Proposal; (c) after May 22,
2000, if all conditions to the closing have been satisfied other than
the issuance of the SEC Exemption Order and CILCORP shall have
delivered to AES an officer's certificate attesting to the satisfaction
or waiver of certain conditions to the closing; or (d) after May 22,
1999, if the Illinois Certification has not been issued and AES has not
waived such requirement.
TERMINATION FEES
If the Merger Agreement is terminated under certain of the above
circumstances, the Merger Agreement obligates one party to pay certain fees to
the other as follows:
(a) if either party terminates pursuant to clause (ii)(c) above and, at or
within 12 months after the date of the shareholders' meeting, CILCORP
enters into an agreement to engage in an Alternate Transaction, CILCORP
is required to pay AES a fee equal to 3% of the Aggregate Consideration
Amount (for these purposes an Alternate Transaction is a transaction or
series of transactions pursuant to which a third party acquires more
than 50% of the outstanding shares of CILCORP or CILCO, any acquisition
or proposed acquisition of CILCORP or CILCO by merger or business
combination or any other transaction whereby a third party acquires or
would acquire all or substantially all of the assets (including stock)
of CILCORP or CILCO);
(b) if AES terminates pursuant to clause (iii)(a) or (b) or if CILCORP
terminates pursuant to clause (iv)(b) above, CILCORP is required to pay
to AES a termination fee equal to 3% of the Aggregate Consideration
Amount;
(c) if either party terminates pursuant to clause (ii)(d) above, AES is
required to pay to CILCORP a termination fee of approximately
$68,000,000 (being the product of (x) the number of shares of CILCORP
common stock outstanding on the date of the Merger Agreement and (y)
$5.00);
(d) if AES terminates pursuant to clause (iii)(c) above, AES is required to
pay CILCORP a termination fee (the "Regulatory Termination Fee") in an
amount equal to the product of (x) the number of shares of CILCORP
common stock
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outstanding on the date of the Merger Agreement and (y) $1.00, together
with an additional $0.00546448 per day for each day beginning on the
later of (i) August 23, 1999 or (ii) five days after the ICC issues an
order or takes an action that AES reasonably believes could not be
expected to have an adverse effect on AES's ability to obtain financing
for the Merger or on AES, CILCORP or any subsidiary of CILCORP (up to a
maximum of $3.00 under this clause (y)); provided that AES shall have no
obligation to pay such fee if the failure to obtain the SEC Exemption
Order has been caused by a breach of the Merger Agreement by CILCORP or
any other act or omission of CILCORP not taken at the direction of AES;
(e) if CILCORP terminates pursuant to clause (iv)(a) above, AES is required
to pay CILCORP a termination fee in an amount equal to 3% of the
Aggregate Consideration Amount; and
(f) if CILCORP terminates pursuant to clause (iv)(c) above, AES is required
to pay CILCORP the Regulatory Termination Fee.
The Merger Agreement specifically provides that, in no event, will AES be
required to pay CILCORP more than one of the specified termination fees
following a termination. In addition, the Merger Agreement provides that all
termination fees constitute liquidated damages and not a penalty, and, if one
party fails to pay any termination fee due, the defaulting party will pay the
costs and expenses in connection with any action taken to collect payment,
together with interest on the amount of any unpaid fee.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the Boards of Directors of the
parties thereto at any time before or after approval thereof by the shareholders
of CILCORP and prior to the Effective Time, but after such approval, the Merger
Agreement may not be amended to alter or change the Per Share Amount or to alter
or change any of the terms and conditions of the Merger Agreement if any of the
alterations or changes, alone or in the aggregate, would materially adversely
affect the rights of holders of CILCORP common stock, except for alterations or
changes that could otherwise be adopted by the Board of Directors of CILCORP or
AES without the further approval of shareholders of CILCORP. The parties to the
Merger Agreement may extend the time for the performance of any of the
obligations or other acts of the parties thereto, waive any inaccuracies in the
representations and warranties contained therein or in any document delivered
pursuant thereto and waive compliance with any of the agreements or conditions
contained therein to the extent permitted by applicable law.
57
<PAGE>
PRINCIPAL SHAREHOLDERS OF CILCORP
SECURITY OWNERSHIP OF OUTSIDERS. As of January 1, 1999, the following
information, regarding beneficial ownership of CILCORP's common stock, is
furnished with respect to each person or group of persons acting together who,
as of such date, is known to CILCORP to be the beneficial owner of more than 5%
of any class of CILCORP's voting securities and no independent inquiry has been
made to determine whether any shareholder is the beneficial owner of shares not
registered in the name of such shareholder or whether any shareholder is a
member of a shareholder group.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- -------------------------------------------------------- -------------------- -----------------
<S> <C> <C>
FMR Corp.
82 Devonshire Street
Boston, MA 02109........................................ 903,100(1) 6.635%
</TABLE>
- ------------------------
(1) According to schedule 13G filed February 1, 1999 by FMR Corp., FMR Corp. has
sole voting power regarding 233,900 shares of CILCORP common stock and sole
dispositive power with respect to 903,100 shares of CILCORP common stock.
SECURITY OWNERSHIP OF MANAGEMENT. The following table sets forth, as of
January 1, 1999, the beneficial ownership of CILCORP's common stock (including
ownership of stock in the CILCO Employees' Savings Plan and the QST Enterprises
Inc. Profit Sharing and Savings Plan as of December 31, 1998) by all directors
and the five most highly compensated executive officers of CILCORP and CILCO,
and all such directors and executive officers as a group. The following table
also sets forth, as of January 1, 1999, the
58
<PAGE>
number of Units held by directors participating in CILCORP's and CILCO's
Deferred Compensation Stock Plans.
<TABLE>
<CAPTION>
PERCENT OF
NAME OF BENEFICIAL OWNER(1) SHARES(2) UNITS(3) CLASS(4)
- ------------------------------------------------------- ----------- ----------- -----------------
<S> <C> <C> <C>
Marcus Alexis.......................................... 1,100 4,024 0.00008%
John R. Brazil......................................... 400 763 0.00003%
Willard Bunn III....................................... 1,200 2,514 0.00009%
Jerry D. Caulder....................................... 100 -- 0.00001%
Homer J. Holland....................................... 1,000 1,031 0.00007%
H. Safford Peacock..................................... 1,000 8,468 0.00007%
Katherine E. Smith..................................... 1,105 5,044 0.00008%
Robert O. Viets........................................ 11,322 7,970 0.00083%
Murray M. Yeomans...................................... 1,250 8,443 0.00009%
J. Mark Elliott........................................ 1,139 -- 0.00008%
William M. Shay........................................ 7,609 -- 0.00056%
Robert J. Sprowls...................................... 2,133 -- 0.00016%
James F. Vergon........................................ 6,639 -- 0.00049%
All directors and officers as a group.................. 38,659 38,256 0.00280%
</TABLE>
- ------------------------
(1) Upon his death on December 26, 1998, Mr. Ullman held 6,581 Units. In
accordance with the terms of CILCORP's and CILCO's Deferred Compensation
Stock Plans, $402,698, representing the aggregate value of Mr. Ullman's
Units, was paid to his estate.
(2) In each case, the named individual or his or her spouse has sole voting and
investment power. The directors and officers individually and as a group own
less than one percent of CILCORP's common stock.
(3) Compensation deferred under CILCORP's and CILCO's Deferred Compensation
Stock Plans is converted into units of common stock based upon the market
price of such stock on the trading date next following the date payment
would have been made to the director. Additional amounts are credited to the
director's account equal to common stock dividends paid and are treated as
automatically reinvested in CILCORP's common stock.
(4) Based upon 13,610,680 shares of CILCORP common stock outstanding on December
31, 1998.
59
<PAGE>
PRE-EXISTING AGREEMENTS BETWEEN CILCORP AND AES
Other than the Confidentiality Agreement, there were no agreements between
CILCORP and AES prior to the Merger Agreement.
EXPERTS
The consolidated financial statements and schedules of CILCORP and
subsidiaries as of December 31, 1997 and 1996, and for each of the three years
in the period ended December 31, 1997, incorporated by reference in this Proxy
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in accounting and auditing. It is expected that a representative of
Arthur Andersen LLP will be present at the Special Meeting to respond to
appropriate questions of the CILCORP shareholders and to make a statement if
such representative desires.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors is not aware
of any matters to be presented at the Special Meeting other than those described
in this Proxy Statement. If other matters should properly come before the
Special Meeting or any adjournments or postponements thereof and be voted upon,
the enclosed proxies will be deemed to confer discretionary authority on the
individuals named as proxies therein to vote the shares represented by such
proxies as to any such matters. The persons named as proxies intend to vote or
not to vote in accordance with the recommendations of the management of CILCORP.
ADDITIONAL INFORMATION
CILCORP is subject to the informational reporting 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. Such reports, proxy statements and other information are available for
inspection and copying at the public reference facilities maintained by the SEC
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the regional offices of the SEC, located at Suite 1300, 7 World Trade
Center, New York, New York 10048 and Suite 1400, Citicorp Center, 500 West
Madison Street, Chicago, Illinois 60661-2511. Copies of such materials can also
be obtained by mail from the Public Reference Section of the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. In addition, such materials may be accessed on the World Wide Web via the
SEC's EDGAR database at its website (http://www.sec.gov).
All information contained in this Proxy Statement concerning AES and Midwest
and their affiliates has been supplied by AES and has not been independently
verified by CILCORP. Except as otherwise indicated, all other information
contained in this Proxy Statement has been supplied by CILCORP.
60
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON
REQUEST FROM JOHN G. SAHN, VICE PRESIDENT, SECRETARY AND TREASURER TO CILCORP,
300 HAMILTON BOULEVARD, SUITE 300, PEORIA, ILLINOIS 61602 (TELEPHONE:
309-675-8808). TO ENSURE TIMELY DELIVERY OF DOCUMENTS PRIOR TO THE SPECIAL
MEETING, REQUESTS SHOULD BE MADE BY May 7,1999.
CILCORP hereby undertakes to provide without charge to each person,
including any beneficial owner to whom a copy of this Proxy Statement has been
delivered, upon the written or oral request of such person, a copy (without
exhibits, except those specifically incorporated by reference) of any and all of
the documents referred to below which have been or may be incorporated in this
Proxy Statement by reference. Documents so requested will be delivered by first
class mail or other equally prompt means within one business day of receipt of
such request. Requests for such documents should be directed to the person
indicated above. The following documents, previously filed with the SEC pursuant
to the Exchange Act, are hereby incorporated by reference:
1. CILCORP's Annual Report on Form 10-K for the year ended December 31,
1997;
2. CILCORP's Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31, 1998, June 30, 1998 and September 30, 1998; and
3. CILCORP's Current Reports on Form 8-K dated January 8, 1998, June 29,
1998 and December 3, 1998.
The information contained in this Proxy Statement should be read together
with the information in the documents incorporated by reference herein.
All documents filed by CILCORP pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date hereof and prior to the date of the Special
Meeting on [April 20, 1999], and any adjournment or postponement thereof shall
be deemed to be incorporated by reference herein and to be a part hereof from
the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
61
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
CILCORP has made forward-looking statements in this document (and in
documents that are incorporated by reference) that are subject to certain risks
and uncertainties. These statements are based on the beliefs and assumptions of
CILCORP's management, based on information currently available. Forward-looking
statements are not guarantees of performance.
The following statements are or may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995:
(i) Certain statements, including possible or assumed future results of
operations of CILCORP and AES contained in "The Merger--Background of
the Merger," "The Merger--Reasons for the Merger," "The
Merger--Recommendation of the Board of Directors," "The Merger--Opinion
of Financial Advisor to CILCORP," and "The Merger--Financing of the
Merger," including any forecasts, projections and descriptions of
anticipated cost savings or other synergies referred to therein, and
certain statements incorporated by reference from documents filed with
the SEC by CILCORP and AES including any statements contained herein or
therein regarding the development or possible or assumed future results
of operations of CILCORP and AES businesses, the markets for CILCORP's
and AES's services and products, anticipated capital expenditures, the
intended financing of the Merger, expectations regarding receipt of
regulatory approvals, other regulatory developments, competition or the
effects of the Merger;
(ii) any statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," "intends" or similar expressions;
and
(iii) other statements contained or incorporated by reference herein
regarding matters that are not historical facts.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Further, many of the factors that could cause the
actual results to differ materially from those expressed in the forward-looking
statements are beyond CILCORP's ability to control or predict. CILCORP
shareholders are cautioned not to place undue reliance on such statements, which
speak only as of the date thereof. Except for its ongoing obligation to disclose
material information as required by the federal securities laws, CILCORP does
not undertake any obligation to release publicly any revisions to any
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events. For those
statements, CILCORP claims the protection of the safe harbor for forward-looking
statements in the Private Securities Litigation Reform Act of 1995.
62
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Proxy Statement of our reports dated January 27, 1998,
included or incorporated by reference in CILCORP's Annual Report on Form 10-K
for the year ended December 31, 1997, and to all references to our Firm included
in this proxy statement.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 24, 1999
63
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
among
THE AES CORPORATION,
CILCORP INC.,
and
MIDWEST ENERGY, INC.
---------------------------
Dated as of November 22, 1998
---------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
ARTICLE I. THE MERGER............................................................... 1
Section 1.1 The Merger............................................................... 1
Section 1.2 Effective Time........................................................... 1
Section 1.3 Effect of the Merger..................................................... 1
Section 1.4 Subsequent Actions....................................................... 2
Section 1.5 Articles of Incorporation; By-Laws; Directors; Officers.................. 2
ARTICLE II. TREATMENT OF SHARES...................................................... 3
Section 2.1 Conversion of Securities................................................. 3
Section 2.2 Per Share Amount Adjustments............................................. 3
Section 2.3 Dissenting Shares........................................................ 4
Section 2.4 Surrender of Shares; Stock Transfer Books................................ 5
Section 2.5 CILCORP Options.......................................................... 6
ARTICLE III. THE CLOSING.............................................................. 7
Section 3.1 Closing.................................................................. 7
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF CILCORP................................ 7
Section 4.1 Organization and Qualification........................................... 7
Section 4.2 Subsidiaries............................................................. 8
Section 4.3 Capitalization........................................................... 8
Section 4.4 Authority; Non-Contravention; Statutory Approvals; Compliance............ 10
Section 4.5 Reports and Financial Statements......................................... 13
Section 4.6 Absence of Certain Changes or Events; Absence of Undisclosed
Liabilities.............................................................. 13
Section 4.7 Litigation............................................................... 14
Section 4.8 Proxy Statement.......................................................... 14
Section 4.9 Tax Matters.............................................................. 15
Section 4.10 Employee Matters; ERISA.................................................. 18
Section 4.11 Environmental Protection................................................. 22
Section 4.12 Regulation as a Utility.................................................. 26
Section 4.13 Vote Required............................................................ 26
Section 4.14 Insurance................................................................ 26
Section 4.15 Opinion of Financial Advisor............................................. 27
Section 4.16 Brokers.................................................................. 27
Section 4.17 Non-Applicability of Certain Provisions of Illinois Act.................. 27
Section 4.18 CILCORP Rights Agreement................................................. 27
Section 4.19 Year 2000 Compliance..................................................... 28
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
Section 4.20 Title to Real Property................................................... 28
Section 4.21 Assets Other than Real Property Interests................................ 28
Section 4.22 Intellectual Property.................................................... 29
Section 4.23 Transactions with Affiliates............................................. 29
Section 4.24 Discontinued Business.................................................... 30
Section 4.25 Captive Insurance Business............................................... 30
Section 4.26 Contractual Obligations.................................................. 30
Section 4.27 Disclosure............................................................... 31
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF AES AND MERGER SUB..................... 31
Section 5.1 Organization and Qualification........................................... 31
Section 5.2 Authority; Non-Contravention; Statutory Approvals........................ 31
Section 5.3 Compliance............................................................... 33
Section 5.4 Reports and Financial Statements......................................... 33
Section 5.5 Proxy Statement Information.............................................. 34
Section 5.6 Financing................................................................ 34
Section 5.7 Regulatory Status........................................................ 34
Section 5.8 Regulatory Approval...................................................... 35
CONDUCT OF BUSINESS PENDING THE MERGER; COVENANTS OF THE PARTIES.........
ARTICLE VI. 35
Section 6.1 Conduct of Business by CILCORP Pending the Merger........................ 35
Section 6.2 Covenants of AES......................................................... 42
ARTICLE VII. ADDITIONAL AGREEMENTS.................................................... 44
Section 7.1 Access to Information.................................................... 44
Section 7.2 Proxy Statement.......................................................... 45
Section 7.3 Regulatory Approvals and Other Matters................................... 46
Section 7.4 Approval of CILCORP Stockholders......................................... 47
Section 7.5 Directors' and Officers' Indemnification................................. 47
Section 7.6 Disclosure Schedules..................................................... 49
Section 7.7 Public Announcements..................................................... 49
Section 7.8 No Solicitations......................................................... 50
Section 7.9 Expenses................................................................. 52
Section 7.10 Board of Directors....................................................... 52
Section 7.11 Illinois Responsible Property Transfer Act............................... 52
Section 7.12 Signature Authority...................................................... 52
Section 7.13 Termination of Existing Tax Sharing Agreements........................... 53
Section 7.14 Deferred Compensation Plans.............................................. 53
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
ARTICLE VIII. CONDITIONS............................................................... 53
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger............... 53
Section 8.2 Conditions to Obligation of CILCORP to Effect the Merger................. 54
Section 8.3 Conditions to Obligation of AES and Merger Sub to Effect the Merger...... 54
ARTICLE IX. TERMINATION, AMENDMENT AND WAIVER........................................ 56
Section 9.1 Termination.............................................................. 56
Section 9.2 Effect of Termination.................................................... 60
Section 9.3 Termination Fees; Expenses............................................... 60
Section 9.4 Amendment................................................................ 60
Section 9.5 Waiver................................................................... 61
ARTICLE X. GENERAL PROVISIONS....................................................... 61
Section 10.1 Non-Survival; Effect of Representations and Warranties................... 61
Section 10.2 Notices.................................................................. 61
Section 10.3 Miscellaneous............................................................ 62
Section 10.4 Interpretation........................................................... 62
Section 10.5 Counterparts; Effect..................................................... 62
Section 10.6 Enforcement.............................................................. 62
Section 10.7 Parties in Interest...................................................... 63
Section 10.8 Further Assurances....................................................... 63
Section 10.9 Waiver Of Jury Trial..................................................... 63
Section 10.10 Certain Definitions...................................................... 63
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of November 22, 1998 (this
"AGREEMENT"), among The AES Corporation, a Delaware corporation ("AES"), CILCORP
Inc., an Illinois corporation ("CILCORP"), and Midwest Energy, Inc., an Illinois
corporation and wholly-owned subsidiary of AES ("MERGER SUB").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of AES and CILCORP each have
determined that the acquisition of CILCORP by AES is in the best interests of
their respective stockholders; and
WHEREAS, in furtherance thereof, the respective Boards of Directors of AES,
CILCORP and Merger Sub have approved the merger of Merger Sub with and into
CILCORP, pursuant to the terms and subject to the conditions set forth in this
Agreement (the "MERGER"); and
WHEREAS, the Board of Directors of AES has determined that it may be
desirable for AES to merge CILCORP with and into AES following but substantially
contemporaneously with the Merger (the "SECOND MERGER" which, for purposes of
this Agreement, if it occurs, shall be deemed to occur immediately after 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. At the Effective Time (as defined in Section 1.2
hereof) and upon the terms and subject to the conditions of this Agreement and
the Illinois Business Corporation Act (the "ILLINOIS ACT"), Merger Sub shall be
merged with and into CILCORP, the separate corporate existence of Merger Sub
shall cease, and CILCORP shall continue as the surviving corporation (sometimes
hereinafter referred to as the "SURVIVING CORPORATION").
Section 1.2 EFFECTIVE TIME. On the Closing Date (as defined in Section 3.1
hereof), Articles of Merger complying with the requirements of the Illinois Act
shall be executed and filed by CILCORP and Merger Sub with the Secretary of
State of the State of Illinois. The Merger shall become effective on the date on
which the Certificate of Merger is issued by the Secretary of State of the State
of Illinois (the "EFFECTIVE TIME").
Section 1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of the Illinois Act.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property,
<PAGE>
rights, privileges, powers and franchises of CILCORP and Merger Sub shall vest
in the Surviving Corporation, and all debts, liabilities and duties of CILCORP
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
Section 1.4 SUBSEQUENT ACTIONS. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of either of CILCORP or Merger Sub acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with, the
Merger or otherwise to carry out this Agreement, the officers and directors of
the Surviving Corporation shall be authorized to execute and deliver, in the
name and on behalf of either CILCORP or Merger Sub, all such deeds, bills of
sale, assignments and assurances and to take and do, in the name and on behalf
of each of such corporations or otherwise, all such other actions and things as
may be necessary or desirable to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out this Agreement.
Section 1.5 ARTICLES OF INCORPORATION; By-Laws; Directors; Officers.
Unless otherwise determined by AES prior to the Effective Time, at the
Effective Time:
(a) The Articles of Merger shall provide that the Articles of Incorporation
of Merger Sub, as in effect immediately prior to the Effective Time, shall be
the Articles of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Articles of Incorporation.
(b) The By-Laws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the By-Laws of the Surviving Corporation until
thereafter amended as provided by law, the Articles of Incorporation of the
Surviving Corporation and such By-Laws.
(c) The members of the Board of Directors of Merger Sub immediately prior to
the Effective Time shall be the members of the Board of Directors of the
Surviving Corporation, to hold office from the Effective Time until their
respective successors are duly elected or appointed and shall have qualified in
the manner provided in the Articles of Incorporation and By-Laws of the
Surviving Corporation or as otherwise provided by law.
(d) The officers of CILCORP in office immediately prior to the Effective
Time shall be the officers of the Surviving Corporation, to hold office from the
Effective Time until their respective successors are duly elected or appointed
and shall be qualified in the
A-2
<PAGE>
manner provided in the Articles of Incorporation and By-Laws of the Surviving
Corporation or as otherwise provided by law.
ARTICLE II
TREATMENT OF SHARES
Section 2.1 CONVERSION OF SECURITIES. At the Effective Time, by virtue of
the Merger and without any action on the part of Merger Sub, CILCORP or the
holder of any of the following securities:
(a) Each share of common stock, no par value, of CILCORP (a "SHARE"),
together with the associated purchase rights ("CILCORP RIGHTS") under the
CILCORP Rights Agreement (as defined in Section 4.18 hereof), issued and
outstanding immediately prior to the Effective Time (other than any Shares to be
canceled pursuant to Section 2.1(b) hereof and any Dissenting Shares (as defined
in Section 2.3(a) hereof) shall be canceled and extinguished and be converted
into the right to receive $65.00, subject to adjustment in accordance with
Section 2.2 hereof (the "PER SHARE AMOUNT"), in cash payable to the holder
thereof, without interest, upon surrender of the certificate representing such
Share in accordance with Section 2.4 hereof. Throughout this Agreement, the term
"SHARES" refers to the Shares together with the associated CILCORP Rights and
the term "AGGREGATE CONSIDERATION AMOUNT" shall mean an amount equal to the
product of (x) the Per Share Amount as adjusted in accordance with Section 2.2
hereof and (y) the number of Shares outstanding on the Closing Date.
(b) Each Share held in the treasury of CILCORP and each Share owned by AES
or any direct or indirect Subsidiary (as defined in Section 4.1 hereof) of AES
or of CILCORP immediately prior to the Effective Time shall be canceled and
extinguished, and no consideration shall be paid with respect thereto.
(c) Each share of common stock, no par value, of Merger Sub issued and
outstanding immediately prior to the Effective Time shall thereafter be
converted into and become one validly issued, fully paid and nonassessable share
of common stock, no par value, of the Surviving Corporation.
Section 2.2 PER SHARE AMOUNT ADJUSTMENTS. Subject to AES' right of
termination set forth in Section 9.1(c)(ii) hereof, in the event the SEC
Exemption Order (as defined in Section 8.3(e) hereof) is issued by the
Securities and Exchange Commission (the "SEC") after the date which is the
nine-month anniversary of the date hereof, and provided that CILCORP shall have
delivered to AES the CILCORP Certificate pursuant to Section 6.2(d) hereof, then
the Per Share Amount shall be increased to $66.00 on the later to occur of (i)
the day following the nine-month anniversary of the date hereof and (ii) the day
after the date on which CILCORP delivers to AES the CILCORP Certificate.
A-3
<PAGE>
Throughout this Agreement, the date on which the Per Share Amount is increased
to $66.00 pursuant to this Section 2.2 is referred to as the "FIRST ADJUSTMENT
PERIOD." If the CILCORP Certificate is delivered after the nine-month
anniversary but prior to the SEC Exemption Order being issued, then, following
the First Adjustment Period, the Per Share Amount shall be increased from $66.00
by $0.00546448 per day for each day until the SEC Exemption Order is issued up
to a maximum Per Share Amount of $68.00. Notwithstanding the above, in no event
shall the Per Share Amount be increased for any period after which AES has
irrevocably waived the condition set forth in Section 9.1(c)(ii) hereof.
Section 2.3 DISSENTING SHARES.
(a) Notwithstanding anything to the contrary contained in this Agreement, to
the extent appraisal rights are available to CILCORP stockholders pursuant to
the Illinois Act, any Shares held by a person who objects to the Merger, whose
Shares either were not entitled to vote or were not voted in favor of the Merger
and who complies with all of the provisions of the Illinois Act concerning the
rights of such person to dissent from the Merger and to require appraisal of
such person's Shares and who has not withdrawn such objection or waived such
rights prior to the Closing Date (as defined in Section 3.1 hereof) ("DISSENTING
SHARES") shall not be converted into or represent a right to receive cash
pursuant to Section 2.1 hereof, but shall become the right to receive such
consideration as may be determined to be due to the holder of such Dissenting
Shares pursuant to the Illinois Act.
(b) Notwithstanding the provisions of subsection (a) of this Section, each
Dissenting Share held by a person at the Effective Time who shall, after the
Effective Time, withdraw the demand for appraisal or lose the right of
appraisal, in either case pursuant to the Illinois Act, shall be deemed to be
converted, as of the Effective Time, into the right to receive cash as provided
in Section 2.1(a) hereof, without interest thereon, upon surrender of the
certificate or certificates representing such Shares in accordance with Section
2.4 hereof.
(c) CILCORP shall give AES (i) prompt notice of any written demands for
appraisal or payment of the fair value of any Shares, withdrawals of such
demands, and any other instruments served pursuant to the Illinois Act received
by CILCORP in respect of demands for appraisal or payment of the fair value of
any Shares and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal under the Illinois Act. CILCORP shall not
voluntarily make any payment with respect to any demands for appraisal and shall
not, except with the prior written consent of AES, settle or offer to settle any
such demands.
A-4
<PAGE>
Section 2.4 SURRENDER OF SHARES; STOCK TRANSFER BOOKS.
(a) Prior to the Effective Time, CILCORP shall designate a bank or trust
company to act as paying agent (the "PAYING AGENT") for purposes of paying the
amounts contemplated by Section 2.1 hereof. At the Effective Time, AES shall
deposit, or cause to be deposited, with the Paying Agent for the benefit of
holders of Shares, the aggregate consideration to which such holders shall be
entitled when and as required pursuant to Section 2.1 hereof.
(b) As soon as practicable after the Effective Time, AES shall cause the
Paying Agent to mail to each holder of record as of the Effective Time of a
certificate or certificates that have been converted pursuant to Section 2.1
hereof: (i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the certificates shall pass, only upon
actual delivery of the certificates to the Paying Agent) and (ii) instructions
for effecting the surrender of the certificates and receiving the aggregate
consideration to which such holder shall be entitled therefor pursuant to
Section 2.1 hereof. 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 reasonably require, the holder of such
certificate shall be entitled to receive in exchange therefor cash in an amount
equal to the Per Share Amount multiplied by the number of Shares represented by
such certificate. Until so surrendered, each such certificate (other than
certificates representing Dissenting Shares and certificates representing Shares
canceled pursuant to Section 2.1(b) hereof) shall be deemed at any time after
the Effective Time to represent solely the right to receive upon such surrender
the aggregate Per Share Amount relating thereto. No interest shall accrue or be
paid on any cash payable upon the surrender of a certificate or certificates
which immediately prior to the Effective Time represented outstanding Shares.
(c) If payment of cash in respect of canceled Shares is to be made to a
person other than the person in whose name a surrendered certificate or
instrument is registered in the transfer records of CILCORP, it shall be a
condition to such payment that the certificate or instrument so surrendered
shall be properly endorsed or shall be otherwise in proper form for transfer and
shall be accompanied by evidence satisfactory to the Paying Agent that any
transfer or other Taxes (as defined in Section 4.9 hereof) required by reason of
such payment in a name other than that of the registered holder of the
certificate or instrument either has been paid or is not payable.
(d) At the Effective Time, the stock transfer books of CILCORP shall be
closed and there shall not be any further registration of transfer of any shares
of capital stock thereafter on the records of CILCORP. If, after the Effective
Time, certificates for Shares are presented to the Surviving Corporation or AES,
they shall be canceled and exchanged for cash as provided in Section 2.1(a)
hereof and in this Section 2.4.
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(e) Promptly following the date which is six months after the Effective
Time, the Paying Agent shall deliver to AES all cash (including any interest
received with respect thereto), certificates and other documents in its
possession relating to the transactions contemplated hereby, and the Paying
Agent's duties shall terminate. Thereafter, each holder of a certificate
representing Shares (other than certificates representing Dissenting Shares and
certificates representing Shares canceled pursuant to Section 2.1(b) hereof)
shall be entitled to look to the Surviving Corporation (subject to applicable
abandoned property, escheat and similar laws) only as general creditors thereof
with respect to the aggregate Per Share Amount payable upon due surrender of
their certificates, without any interest or dividends thereon. Notwithstanding
the foregoing, neither AES, the Surviving Corporation nor the Paying Agent shall
be liable to any holder of a certificate representing Shares for the Per Share
Amount delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(f) The Per Share Amount paid in the Merger shall be net to the holder of
Shares in cash, subject to reduction only for (i) such amounts as AES or the
Paying Agent are required to withhold or deduct under the Code (as defined in
Section 4.9(e) of this Agreement) or any provision of state, local or foreign
Tax law with respect to the making of such payment, and (ii) as set forth in
Section 2.4(c) hereof, any stock transfer or other Taxes payable by reason of
such payment being made in a name other than that of the registered holder of
the certificate or instrument.
Section 2.5 CILCORP OPTIONS. Two business days prior to the Closing Date,
the CILCORP Shareholder Return Incentive Compensation Plan (the "CILCORP OPTION
PLAN") shall be amended (which such amendment shall be conditioned on the
Closing occurring) to provide (i) as to all performance shares that have been
granted under the CILCORP Option Plan and that have not been exercised prior to
the date of such amendment (the "PERFORMANCE SHARES"), that such Performance
Shares shall be cancelled as of the Closing Date and (ii) at the Closing CILCORP
shall pay to each holder of Performance Shares a cash payment equal to the
number of Performance Shares held immediately prior to such amendment multiplied
by the excess of the Per Share Amount over $36.00 less the amount of all
applicable federal, state and local withholding Taxes in connection with such
payment. CILCORP shall take all actions necessary to ensure that such payment
extinguishes all rights of such participants under the CILCORP Option Plan to
receive either Shares or shares of common stock of AES at or after the Effective
Time.
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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 10022-3897 at 10:00 A.M., New York 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 AES and CILCORP shall mutually agree (the "CLOSING
DATE").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CILCORP
CILCORP hereby represents and warrants to AES and Merger Sub as follows:
Section 4.1 ORGANIZATION AND QUALIFICATION. CILCORP and each of the
CILCORP Subsidiaries (as defined below) and, to the knowledge of CILCORP, each
of the CILCORP Joint Ventures (as defined below) is a corporation or other
entity 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 and to carry on its business as
it is now being conducted and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its business or the
ownership or leasing of its assets and properties makes such qualification
necessary, other than in such jurisdictions where the failure to so qualify and
be in good standing, when taken together with all other such failures, would not
have a material adverse effect on the business, operations, properties, assets,
condition (financial or other), prospects or the results of operations of
CILCORP and the CILCORP Subsidiaries taken as a whole or on the consummation of
the transactions contemplated by this Agreement and the Second Merger (any such
material adverse effect, a "CILCORP MATERIAL ADVERSE EFFECT"). The term
"SUBSIDIARY" of a person shall mean any corporation or other entity (including
partnerships and other business associations and joint ventures) in which such
person directly or indirectly owns 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 a majority
of the directors or similar members of the governing body, or otherwise to
direct the management and policies, of such corporation or entity and the term
"CILCORP SUBSIDIARY" shall mean a Subsidiary of CILCORP. The term "JOINT
VENTURE" of a person shall mean any corporation or other entity (including
partnerships and other business associations and joint ventures) in which such
person directly or indirectly owns an equity interest that is less than a
majority of any class of the
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outstanding voting securities or equity of any such entity, other than equity
interests held for passive investment purposes which are less than 5% of any
class of the outstanding voting securities or equity of any such entity, and the
term "CILCORP JOINT VENTURE" shall mean a Joint Venture of CILCORP.
Section 4.2 SUBSIDIARIES. Section 4.2 of the disclosure schedule delivered
by CILCORP to AES concurrent with the execution of this Agreement (the "CILCORP
DISCLOSURE SCHEDULE") sets forth a list of all the CILCORP Subsidiaries and the
CILCORP Joint Ventures, including the name of each such entity, a brief
description of the principal line or lines of business conducted by each such
entity and the interest of CILCORP and the CILCORP Subsidiaries therein. CILCORP
is a "public-utility holding company" (as defined in the Public Utility Holding
Company Act of 1935, as amended ("PUHCA")) exempt from all provisions (other
than Section 9(a)(2)) of PUHCA, pursuant to Section 3(a)(1) in accordance with
Rule 2 of PUHCA, and Central Illinois Light Company ("CILCO") is a
"public-utility company" within the meaning of Section 2(a)(5) of PUHCA. With
the exception of CILCO, no CILCORP Subsidiary or CILCORP Joint Venture is a
"holding company" or a "public-utility company" within the meaning of Sections
2(a)(7) and 2(a)(5) of PUHCA, respectively, nor, except with respect to their
relationship with CILCORP, are any of such entities an "affiliate" or a
"subsidiary company" of a holding company within the meaning of Sections
2(a)(11) and 2(a)(8) of PUHCA, respectively. Except as set forth in Section 4.2
of the CILCORP Disclosure Schedule, (i) all of the issued and outstanding shares
of capital stock of each CILCORP Subsidiary are validly issued, fully paid,
nonassessable and free of preemptive rights and to the extent owned, directly or
indirectly, by CILCORP, are owned free and clear of any liens, claims,
encumbrances, security interests, charges and options of any nature whatsoever
("LIENS"), and (ii) there are no outstanding subscriptions, options, calls,
contracts, voting trusts, proxies or other pledges, security interests, claims,
equities, charges, encumbrances, commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or exchange
under any outstanding security, instrument or other agreement, obligating
CILCORP or any CILCORP Subsidiary to issue, deliver or sell, pledge, grant a
security interest or encumber, or cause to be issued, delivered or sold, pledged
or encumbered or a security interest to be granted on, shares of capital stock
of any CILCORP Subsidiary or obligating CILCORP or any CILCORP Subsidiary to
grant, extend or enter into any such agreement or commitment.
Section 4.3 CAPITALIZATION.
(a) CILCORP. The authorized capital stock of CILCORP consists of
50,000,000 shares of common stock, no par value (the "CILCORP COMMON STOCK"),
and 4,000,000 shares of preferred stock, no par value, none of which preferred
stock is outstanding. As of the close of business on November 20, 1998, (i)
13,610,680 shares of CILCORP
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Common Stock were issued and outstanding (such number of shares is hereinafter
referred to as the "OUTSTANDING SHARES"), (ii) 125,000 shares of CILCORP Common
Stock were reserved for issuance pursuant to the CILCORP Option Plan, and (iii)
no shares of CILCORP Common Stock were held by CILCORP in its treasury or by its
wholly owned Subsidiaries. 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") are issued
or outstanding. All of the issued and outstanding shares of CILCORP Common Stock
are validly issued, fully paid, nonassessable and free of preemptive rights.
Since December 17, 1996, CILCORP has not issued any shares of capital stock of
any class of CILCORP other than issuances of shares of CILCORP Common Stock
pursuant to awards under the CILCORP Option Plan. As of the date of this
Agreement, except as set forth in Section 4.3(a) of the CILCORP Disclosure
Schedule, there are no outstanding subscriptions, options, calls, contracts,
voting trusts, proxies or other pledges, security interests, encumbrances,
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement, obligating CILCORP or any CILCORP Subsidiary to
issue, deliver or sell, pledge, grant a security interest or encumber, or cause
to be issued, delivered or sold, pledged or encumbered or a security interest to
be granted on, shares of capital stock or any Voting Debt of CILCORP or
obligating CILCORP or any CILCORP Subsidiary to grant, extend or enter into any
such agreement or commitment. Except as set forth in Section 4.3(a) of the
CILCORP Disclosure Schedule, there is no outstanding contractual commitment or
obligation of CILCORP or any CILCORP Subsidiary to make any investment (in the
form of a loan, capital contribution or otherwise) in any CILCORP Subsidiary or
in any other person.
(b) CILCO. The authorized capital stock of CILCO consists of 20,000,000
shares of common stock, no par value; 1,500,000 shares of preferred stock, par
value $100 per share ("CILCO PREFERRED STOCK"), consisting of 111,264 shares of
4.50 percent Series CILCO Preferred Stock ("4.50% SERIES PREFERRED"), 79,940
shares of 4.64 percent Series CILCO Preferred Stock ("4.64% SERIES PREFERRED"),
and 1,308,796 shares of Undesignated Series CILCO Preferred Stock ("UNDESIGNATED
SERIES PREFERRED"); 3,500,000 shares of Class A preferred stock, no par value
("CILCO CLASS A PREFERRED STOCK"), consisting of 220,000 shares of 5.85 percent
Series CILCO Class A Preferred Stock ("5.85% SERIES CLASS A PREFERRED"), 250,000
shares of Flexible Auction Rate Series CILCO Class A Preferred Stock ("FLEXIBLE
AUCTION RATE SERIES CLASS A PREFERRED"); and 3,030,000 shares of Undesignated
Series CILCO Class A Preferred Stock ("UNDESIGNATED SERIES CLASS A PREFERRED");
and 2,000,000 shares of Undesignated Series CILCO Preference Stock, no par value
("CILCO PREFERENCE STOCK"). With respect to the capital stock of CILCO, (i)
13,563,871 shares of CILCO Common Stock are issued and outstanding, all of which
are owned by CILCORP free and clear of any Liens and (ii) 111,264 shares of
4.50%
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Series Preferred, 79,940 shares of 4.64% Series Preferred, no shares of
Undesignated Series Preferred, 220,000 shares of 5.85% Class A Series Preferred,
250,000 shares of Flexible Auction Rate Series Class A Preferred, 250,000 shares
of Undesignated Series Class A Preferred and no shares of CILCO Preference Stock
are issued and outstanding. No Voting Debt is issued or outstanding. All of the
issued and outstanding shares of CILCO capital stock are validly issued, fully
paid, nonassessable and free of preemptive rights. Since the date hereof, CILCO
has not issued any shares of capital stock of any class of CILCO. As of the date
of this Agreement, except as set forth in Section 4.3(b) of the CILCORP
Disclosure Schedule, there are no outstanding subscriptions, options, calls,
contracts, voting trusts, proxies or other pledges, security interests,
encumbrances, commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement, obligating CILCORP or any CILCORP
Subsidiary to issue, deliver or sell, pledge, grant a security interest or
encumber, or cause to be issued, delivered or sold, pledged or encumbered or a
security interest to be granted on, shares of capital stock or any Voting Debt
of CILCO or obligating CILCORP or any CILCORP Subsidiary to grant, extend or
enter into any such agreement or commitment.
(c) INDEBTEDNESS. Section 4.3(c)(i) of the CILCORP Disclosure Schedule
sets forth a true and complete statement of the borrowing limit under all loan
agreements (including indentures) of CILCORP and its Subsidiaries existing on
the date hereof and Section 4.3(c)(ii) of the CILCORP Disclosure Schedule sets
forth a true and complete statement of the total indebtedness of CILCORP and its
Subsidiaries outstanding on the date hereof under such agreements.
Section 4.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE.
(a) AUTHORITY. CILCORP has all requisite power and authority to enter into
this Agreement and, subject to the receipt of the CILCORP Stockholders' Approval
(as defined in Section 4.13 hereof) and the CILCORP Required Statutory Approvals
(as defined in Section 4.4(c) hereof), to consummate the transactions
contemplated hereby and, subject to receipt of the Second Merger Statutory
Approvals (as defined in Section 4.4(c) hereof), to consummate the Second Merger
if such were to be consummated. The execution and delivery of this Agreement and
the consummation by CILCORP of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of CILCORP,
subject to obtaining the CILCORP Stockholders' Approval. This Agreement has been
duly and validly executed and delivered by CILCORP, and, assuming the due
authorization, execution and delivery hereof by the other signatories hereto,
this Agreement constitutes the valid and binding obligation of CILCORP
enforceable against it in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar
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laws affecting the enforcement of creditors' rights generally and by general
equitable principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
(b) NON-CONTRAVENTION. The execution and delivery of this Agreement by
CILCORP do not, and the consummation of the Merger and the other transactions
contemplated hereby and if such were consummated, the Second Merger, 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, security interest, charge or encumbrance upon any of the
properties or assets of CILCORP or any of the CILCORP Subsidiaries or the
imposition or administration of any other penalty or fee (any such violation,
conflict, breach, default, right of termination, modification, cancellation or
acceleration, loss, creation or imposition, is referred to herein as a
"VIOLATION" with respect to CILCORP, the CILCORP Subsidiaries and the CILCORP
Joint Ventures, and such term when used in Article V shall have a correlative
meaning with respect to AES) pursuant to any provisions of (i) the Articles of
Incorporation, By-Laws or similar governing documents of CILCORP or any of the
CILCORP Subsidiaries or the CILCORP Joint Ventures, (ii) subject to obtaining
the CILCORP Required Statutory Approvals (as defined in Section 4.4(c) hereof),
the Second Merger Statutory Approvals (as defined in Section 4.4(c) hereof) and
the receipt of the CILCORP Stockholders' Approval, any statute, law, ordinance,
rule, regulation, judgment, decree, order, injunction, writ, permit or license
of any court, federal, state, local or foreign governmental or regulatory body
(including a stock exchange or other self-regulatory body) or authority (each, a
"GOVERNMENTAL AUTHORITY") applicable to CILCORP or any of the CILCORP
Subsidiaries or the CILCORP Joint Ventures or any of their respective properties
or assets or (iii) subject to obtaining the third-party consents set forth in
Section 4.4(b)(i) of the CILCORP Disclosure Schedule for the Second Merger (the
"CILCORP SECOND MERGER REQUIRED CONSENTS"), and set forth in Section 4.4(b)(ii)
of the CILCORP Disclosure Schedule for the Merger and the other transactions
contemplated hereby (the "CILCORP REQUIRED CONSENTS"), any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, concession, contract,
lease or other instrument, obligation or agreement of any kind to which CILCORP
or any of the CILCORP Subsidiaries or the CILCORP Joint Ventures is a party or
by which it or any of its properties or assets may be bound or affected,
excluding from the foregoing clauses (ii) and (iii) such Violations which would
not, in the aggregate, have a CILCORP Material Adverse Effect.
(c) STATUTORY APPROVALS. No declaration, filing or registration with, or
notice to or authorization, consent or approval of, any Governmental Authority
is necessary for the
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execution and delivery of this Agreement by CILCORP or the consummation by
CILCORP of the Merger and the other transactions contemplated hereby, except as
described in Section 4.4(c)(i) of the CILCORP Disclosure Schedule, (the "CILCORP
REQUIRED STATUTORY APPROVALS") and except as described in Section 4.4(c)(ii) of
the CILCORP Disclosure Schedule with respect to the Second Merger (the "SECOND
MERGER STATUTORY APPROVALS"), it being understood that references in this
Agreement to "obtaining" such CILCORP Required Statutory Approvals and Second
Merger Statutory Approvals shall mean making such declarations, filings or
registrations; giving such notices; obtaining such authorizations, consents or
approvals; and having such waiting periods expire as are necessary to avoid a
violation of law.
(d) COMPLIANCE. Except as set forth in Section 4.4(d) of the CILCORP
Disclosure Schedule or in Section 4.11 hereof, or as disclosed in the CILCORP
SEC Reports (as defined in Section 4.5 hereof) filed on or prior to the date of
this Agreement, neither CILCORP nor any of the CILCORP Subsidiaries nor, to the
knowledge of CILCORP, any CILCORP Joint Venture is in violation of, is, to the
knowledge of CILCORP, under investigation with respect to any violation of, or
has been given notice of or been charged with any violation of, any law,
statute, order, rule, regulation, ordinance or judgment, permit, license,
concession or franchise (including, without limitation, any applicable
environmental law, ordinance or regulation) of any Governmental Authority,
except for violations or failures to comply with Environmental Laws (which are
the subject of Section 4.11 hereof) and except for violations which individually
or in the aggregate do not, and insofar as reasonably can be foreseen will not,
have a CILCORP Material Adverse Effect. Except as set forth in Section 4.4(d) or
4.11 of the CILCORP Disclosure Schedule, CILCORP and the CILCORP Subsidiaries
and, to the knowledge of CILCORP, the CILCORP Joint Ventures have all permits,
licenses, franchises and other governmental authorizations, consents, approvals
and exemptions necessary to conduct their businesses as presently conducted
which are material to the operation of the businesses of CILCORP and the CILCORP
Subsidiaries. Except as set forth in Section 4.4(d) of the CILCORP Disclosure
Schedule and Section 4.11 hereof, CILCORP and each of the CILCORP Subsidiaries
and, to the knowledge of CILCORP, each of the CILCORP Joint Ventures 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 or
action by a third party, could result in a default by CILCORP or any CILCORP
Subsidiary or, to the knowledge of CILCORP, any CILCORP Joint Venture under (i)
its Articles of Incorporation, By-Laws or other organizational documents 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 CILCORP or any CILCORP Subsidiary or any CILCORP Joint Venture is bound or
to which any of its property is subject, except in the case of clause (ii)
above, for violations, breaches or
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defaults which individually or in the aggregate do not, and insofar as
reasonably can be foreseen will not, have a CILCORP Material Adverse Effect.
Section 4.5 REPORTS AND FINANCIAL STATEMENTS. The filings required to be
made by CILCORP and the CILCORP Subsidiaries under the Securities Act of 1933,
as amended (the "SECURITIES ACT"), the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), PUHCA, the Federal Power Act (the "POWER ACT") and
applicable state, municipal, local and other laws, including franchise and
public utility laws and regulations, including all forms, statements, reports,
agreements (oral or written) and all documents, exhibits, amendments and
supplements appertaining thereto, have been filed with the SEC, the Federal
Energy Regulatory Commission (the "FERC") and the appropriate Illinois or other
appropriate Governmental Authorities, as the case may be, and complied, as of
their respective dates, in all material respects with all applicable
requirements of the appropriate statutes and the rules and regulations
thereunder. CILCORP has made available to AES a true and complete copy of each
report, schedule, registration statement and definitive proxy statement and all
amendments thereto filed with the SEC by CILCORP or any CILCORP Subsidiary (or
their predecessors) pursuant to the requirements of the Securities Act or
Exchange Act since January 1, 1996 (as such documents have since the time of
their filing been amended, the "CILCORP SEC REPORTS"). As of their respective
dates, the CILCORP SEC Reports did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The audited consolidated financial
statements and unaudited interim financial statements of CILCORP and CILCO
included in the CILCORP SEC Reports (COLLECTIVELY, THE "CILCORP FINANCIAL
STATEMENTS") have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis ("GAAP") (except as may be indicated
therein or in the notes thereto) and fairly present the financial position of
CILCORP and CILCO, as the case may be, as of the dates thereof and the 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 Articles of Incorporation
and By-Laws of CILCORP and CILCO, as in effect on the date of this Agreement,
are included (or incorporated by reference) in the CILCORP SEC Reports.
Section 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS; ABSENCE OF UNDISCLOSED
LIABILITIES.
(a) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in Section
4.6(a) of the CILCORP Disclosure Schedule or as disclosed in the CILCORP SEC
Reports filed prior to the date of this Agreement, since December 31, 1997,
CILCORP and each of the CILCORP Subsidiaries and, to the knowledge of CILCORP,
each of the CILCORP Joint Ventures, have conducted their business only in the
ordinary course of business consistent
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with past practice and there has not been, and no fact or condition exists which
would have or, insofar as reasonably can be foreseen, could have, a CILCORP
Material Adverse Effect.
(b) ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in Section
4.6(b) of the CILCORP Disclosure Schedule or as disclosed in the CILCORP SEC
Reports filed prior to the date of this Agreement, and except for liabilities,
obligations or contingencies which are accrued or reserved against in the
consolidated financial statements of CILCORP and CILCO or reflected in the notes
thereto for the year ended December 31, 1997, or which were incurred after
December 31, 1997 in the ordinary course of business and would not, in the
aggregate, have a CILCORP Material Adverse Effect, neither CILCORP nor any
CILCORP Subsidiary, nor, to the knowledge of CILCORP, any CILCORP Joint Venture,
has any liabilities or obligations (whether absolute, accrued, contingent or
otherwise and including, without limitation, margin loans) which are material to
CILCORP and the CILCORP Subsidiaries taken as a whole.
Section 4.7 LITIGATION. Except as set forth in Section 4.7 of the CILCORP
Disclosure Schedule or as disclosed in the CILCORP SEC Reports filed prior to
the date of this Agreement, (a) there are no claims, suits, actions or
proceedings pending before any court, Governmental Authority or any arbitrator
or, to the knowledge of CILCORP, threatened, nor are there, to the knowledge of
CILCORP, any investigations or reviews by any court, Governmental Authority or
any arbitrator pending or threatened against, relating to or affecting CILCORP
or any of the CILCORP Subsidiaries or, to the knowledge of CILCORP, the CILCORP
Joint Ventures, (b) there have not been any significant developments since
December 31, 1997 with respect to such disclosed claims, suits, actions,
proceedings, investigations or reviews and (c) there are no judgments, decrees,
injunctions, rules or orders of any Governmental Authority or any arbitrator
applicable to CILCORP or any of the CILCORP Subsidiaries or, to the knowledge of
CILCORP, applicable to any of the CILCORP Joint Ventures, which, when taken
together with any other nondisclosures described in clauses (a), (b) or (c),
could, if determined adversely to CILCORP, any CILCORP Subsidiary or any CILCORP
Joint Venture, have a CILCORP Material Adverse Effect.
Section 4.8 PROXY STATEMENT. At the dates mailed to stockholders of
CILCORP and at the time of the meeting of such stockholders to be held in
connection with the Merger and the other transactions contemplated hereby, the
Proxy Statement (as defined in Section 7.2(a) hereof), (i) will not 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 and (ii)
will comply as to form in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder, provided, however,
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CILCORP makes no representation or warranty as to any information provided by
AES pursuant to Section 5.5 hereof.
Section 4.9 TAX MATTERS. For purposes of this Agreement: (i) "TAXES"
(including, with correlative meaning, the word "TAX") shall include any and all
federal, state, county, local, foreign or other taxes, charges, imposts, rates,
fees, levies or other assessments, including, without limitation, all net
income, gross income, sales and use, ad valorem, transfer, gains, profits,
excise, franchise, real and personal property, gross receipt, capital stock,
production, business and occupation, disability, employment, payroll, license,
estimated, stamp, custom duties, severance, withholding or other taxes, fees,
assessments or charges of any kind whatsoever, together with any interest and
penalties (civil or criminal) on or additions to any such taxes and any expenses
incurred in connection with the determination, settlement or litigation of any
tax liability, (ii) "TAXING AUTHORITY" means any Governmental Authority or any
subdivision, agency, court, commission, instrumentality or official thereof or
any quasi-governmental or private body having jurisdiction over the assessment,
determination, collection, imposition or administration of any Tax (including
the Internal Revenue Service (the "IRS")) and (iii) "TAX RETURN" means any
return, report, information return, schedule, certificate, statement or other
document (including any related or supporting information) required to be filed
with or supplied to, or, where none is required to be filed with or supplied to
a Taxing Authority, the statement or other document issued by, a Taxing
Authority in connection with any Tax (including, without limitation, any
combined, consolidated or unitary returns for any group of entities that
includes CILCORP or any CILCORP Subsidiary). Except as specifically identified
in the relevant section of the CILCORP Disclosure Schedule:
(a) FILING OF TIMELY TAX RETURNS. CILCORP and each of the CILCORP
Subsidiaries have timely filed (or there has been timely filed on their behalf)
all Tax Returns required to be filed by or on behalf of each of them under
applicable law. All such Tax Returns were and are in all material respects true,
complete and correct.
(b) PAYMENT OF TAXES. CILCORP and each of the CILCORP Subsidiaries
have, within the time and in the manner prescribed by law, paid all Taxes that
are due and payable from them.
(c) TAX RESERVES. The accrual for Taxes on the most recent CILCORP
Financial Statements is in an amount at least equal to the sum of CILCORP' and
the CILCORP Subsidiaries' liability for Taxes (other than Taxes previously paid
over to the appropriate Taxing Authority) for all Tax periods (and portions
thereof) ending on or before the date of such financial statements plus their
deferred Tax liability.
(d) TAX LIENS. There are no Tax liens upon the assets, properties or
business of CILCORP or any of the CILCORP Subsidiaries except liens for Taxes
not yet due or
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being contested in good faith through appropriate proceedings and for which
adequate reserves have been established in the CILCORP Financial Statements.
(e) WITHHOLDING TAXES. CILCORP and each of the CILCORP Subsidiaries
have complied in all material respects with the provisions of the Internal
Revenue Code of 1986, as amended (the "CODE") and all other applicable laws
relating to the payment and withholding of Taxes, including, without limitation,
the withholding and reporting requirements under Code Sections 1441 through
1464, 3401 through 3406 and 6041 through 6049, as well as similar provisions
under any other laws, and have, within the time and in the manner prescribed by
law, withheld from employee wages and paid over to the proper Taxing Authorities
all amounts required.
(f) EXTENSIONS OF TIME FOR FILING TAX RETURNS. Neither CILCORP nor any
of the CILCORP Subsidiaries has requested any extension of time within which to
file any Tax Return, which Tax Return has not since been timely filed.
(g) WAIVERS OF STATUTE OF LIMITATIONS. Neither CILCORP nor any of the
CILCORP Subsidiaries has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns.
(h) EXPIRATION OF STATUTE OF LIMITATIONS. The statutes of limitations
for the assessment of all Taxes with respect to all Tax Returns of CILCORP and
the CILCORP Subsidiaries for all Tax periods have expired. Prior to the date of
this Agreement, CILCORP has provided AES with written schedules of (i) the Tax
years of CILCORP and each CILCORP Subsidiary for which any statute of limitation
with respect to any Tax has not expired and (ii) with respect to any franchise
Tax and any Tax based on net income, gross receipts or gross income, for all Tax
years of CILCORP and each CILCORP Subsidiary for which the statutes of
limitations have not yet expired, those years for which examinations have been
completed, those years for which examinations are presently being conducted, and
those years for which examinations have not yet been initiated. No deficiency
for any Taxes has been proposed, asserted or assessed against CILCORP or any of
the CILCORP Subsidiaries that has not been resolved and paid in full.
(i) AUDIT, ADMINISTRATIVE AND COURT PROCEEDINGS. No audits or other
proceedings by any Taxing Authority are presently pending, or, to the knowledge
of CILCORP or any of the CILCORP Subsidiaries, threatened, with regard to any
Taxes or Tax Returns of CILCORP or any of the CILCORP Subsidiaries.
(j) POWERS OF ATTORNEY. No power of attorney currently in force has
been granted by CILCORP or any of the CILCORP Subsidiaries concerning any Tax
matter.
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(k) TAX RULINGS. Neither CILCORP nor any of the CILCORP Subsidiaries
has received or requested a Tax Ruling or entered into a Closing Agreement with
any taxing authority that would have a continuing adverse effect after the
Closing Date. "TAX RULING," as used in this Agreement, shall mean any written
ruling of (or other written guidance from) a Taxing Authority relating to Taxes.
"CLOSING AGREEMENT," as used in this Agreement, shall mean a written and legally
binding agreement with a Taxing Authority relating to Taxes.
(l) AVAILABILITY OF TAX RETURNS. CILCORP has made available to AES
complete and accurate copies of (i) all Tax Returns for open years, and any
amendments thereto, filed by or on behalf of CILCORP or any of the CILCORP
Subsidiaries, (ii) all audit reports or written proposed adjustments (whether
formal or informal) received from any Taxing Authority relating to any Tax
Return filed by or on behalf of CILCORP or any of the CILCORP Subsidiaries and
(iii) any Tax Ruling or request for a Tax Ruling applicable to CILCORP or any of
the CILCORP Subsidiaries and Closing Agreements entered into by CILCORP or any
of the CILCORP Subsidiaries.
(m) TAX SHARING AGREEMENTS. Neither CILCORP nor any CILCORP Subsidiary
is a party to, is bound by, or has any obligation under, any agreement relating
to the allocation or sharing of Taxes or has any liability for the Taxes of any
person other than CILCORP or the CILCORP Subsidiaries, as a transferee, or
successor or otherwise (including, without limitation, any liability under
Treasury Regulation Section 1.1502-6 or any similar provision of state, local or
foreign law).
(n) CODE SECTION 341(F). Neither CILCORP nor any of the CILCORP
Subsidiaries has filed (or will file prior to the Closing) a consent pursuant to
Code Section 341(f) or has agreed to have Code Section 341(f)(2) apply to any
disposition of a subsection (f) asset (as that term is defined in Code Section
341(f)(4)) owned by CILCORP or any of the CILCORP Subsidiaries.
(o) CODE SECTION 168. No property of CILCORP or any of the CILCORP
Subsidiaries is property that CILCORP or any CILCORP Subsidiary or any party to
this transaction is or will be required to treat as being owned by another
person pursuant to the provisions of Code Section 168(f)(8) (as in effect prior
to its amendment by the Tax Reform Act of 1986) or is "tax-exempt use property"
within the meaning of Code Section 168(h).
(p) CODE SECTION 481 ADJUSTMENTS. Neither CILCORP nor any of the
CILCORP Subsidiaries is required to include in income for any Tax period ending
after the date hereof any adjustment pursuant to Code Section 481(a) by reason
of a voluntary change in accounting method of CILCORP or any of the CILCORP
Subsidiaries, nor has the IRS proposed any such adjustment or change in
accounting method.
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(q) ACQUISITION INDEBTEDNESS. No indebtedness of CILCORP or any of the
CILCORP Subsidiaries is "corporate acquisition indebtedness" within the meaning
of Code Section 279(b) or an "applicable high yield discount obligation" within
the meaning of Code Section 163(i).
(r) CONSOLIDATED TAX RETURNS. Neither CILCORP nor any of the CILCORP
Subsidiaries has ever been a member of an affiliated group of corporations
(within the meaning of Code Section 1504(a)) filing consolidated Tax Returns,
other than the affiliated group of which CILCORP is the common parent.
(s) 5% FOREIGN STOCKHOLDERS. Based on any Schedule 13D and 13G filings
with the SEC with respect to CILCORP and any other relevant information within
CILCORP's knowledge, no foreign person has owned 5% or more of the outstanding
shares of CILCORP Common Stock at any time during the five year period ending on
the Closing Date.
Section 4.10 EMPLOYEE MATTERS; ERISA.
(a) BENEFIT PLANS. Section 4.10(a) of the CILCORP Disclosure Schedule
contains a true and complete list of each employee benefit plan, practice,
program or arrangement currently sponsored, maintained or contributed to by
CILCORP or any of the CILCORP Subsidiaries for the benefit of employees, former
employees or directors and their beneficiaries in respect of services provided
to any such entity, including, but not limited to, any employee benefit plans
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), any employee pension benefit plan, program,
arrangement or agreement, any health, medical, welfare, disability, life
insurance, bonus, option, stock appreciation plan, performance stock plan,
restricted stock plan, deferred compensation plan, retiree benefits plan,
severance pay and other employee benefit or fringe benefit plan and any
employment, consulting, non-compete, severance or change in control agreement
(collectively, the "CILCORP BENEFIT PLANS"), together with, for any option,
stock appreciation plan, performance stock plan, restricted stock plan, deferred
compensation plan and supplemental retirement plan, the current amounts or
benefits granted or payable under each and reasonable details (including
exercise prices) regarding the outstanding options to purchase shares of CILCORP
Common Stock (the "CILCORP Options") or other securities which represent the
right (contingent or other) to purchase or receive shares of CILCORP Common
Stock or, following the Merger, of the common stock, no par value, of the
Surviving Corporation or of the common stock, par value $.01 per share, of AES
("AES Common Stock"). For the purposes of this Section 4.10, the term "CILCORP"
shall be deemed to include predecessors thereof.
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(b) CONTRIBUTIONS. Except as set forth in Section 4.10(a) of the
CILCORP Disclosure Schedule, all material contributions and other payments
required to be made by CILCORP or any of the CILCORP Subsidiaries to any CILCORP
Benefit Plan (or to any person pursuant to the terms thereof) have been timely
made or the amount of such payment or contribution obligation has been reflected
in the CILCORP Financial Statements. Except as set forth in Section 4.10(a) of
the CILCORP Disclosure Schedule, (i) the current value of all accrued benefits
under any CILCORP Benefit Plan does not exceed the current value of the assets
of such plan and (ii) neither CILCORP nor any entity which is or ever has been
considered as a single employer together with CILCORP or CILCO pursuant to
Section 414 of the Code contributes or has contributed, during the eight-year
period immediately prior to the date of this Agreement, to a multiemployer plan
(as defined in Section 3(37) of ERISA), or has any liability under ERISA Section
4203 or Section 4205 in respect of any such plan.
(c) QUALIFICATION; COMPLIANCE. Except as set forth in Section 4.10(c)
of the CILCORP Disclosure Schedule, each of the CILCORP Benefit Plans intended
to be "qualified" within the meaning of Section 401(a) of the Code has been
determined by the IRS to be so qualified, and no circumstances exist that are
reasonably expected by CILCORP to result in the revocation of any such
determination. CILCORP and each of the CILCORP Subsidiaries are in compliance in
all material respects with, and each CILCORP Benefit Plan is and has been
operated in all material respects in compliance with the terms thereof and all
applicable laws, rules and regulations governing such plan, including, without
limitation, ERISA and the Code. Each CILCORP Benefit Plan intended to provide
for the deferral of income, the reduction of salary or other compensation or to
afford other income Tax benefits complies in all material respects with the
requirements of the applicable provisions of the Code or other laws, rules and
regulations required to provide such income Tax benefits.
(d) LIABILITIES. With respect to the CILCORP Benefit Plans
individually and in the aggregate, there are no actions, suits, claims (other
than claims for benefits in the ordinary course) pending or, to the knowledge of
CILCORP, threatened and no event has occurred, and, there exists no condition or
set of circumstances that could subject CILCORP or any of the CILCORP
Subsidiaries to any liability arising under the Code, ERISA or any other
applicable law including, without limitation, any liability of any kind
whatsoever, whether direct or indirect, contingent, inchoate or otherwise, to
any such plan or the Pension Benefit Guaranty Corporation (the "PBGC"), or under
any indemnity agreement to which CILCORP or any of the CILCORP Subsidiaries is a
party, in each such case, which liability, individually or in the aggregate,
could reasonably be expected to have a CILCORP Material Adverse Effect.
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(e) WELFARE PLANS. Except as set forth in Section 4.10(e) of the
CILCORP Disclosure Schedule, none of the CILCORP Benefit Plans that are "welfare
plans", within the meaning of Section 3(1) of ERISA, provides for any benefits
payable to or on behalf of any employee or director after termination of
employment or service, or after retirement, as the case may be, other than
elective continuation required pursuant to Code Section 4980B or coverage which
expires at the end of the calendar month following such event. Each such plan
that is a "group health plan" (as defined in Code Section 4980B(g)) has been
operated in compliance with Code Section 4980B in all material respects at all
times.
(f) DOCUMENTS MADE AVAILABLE. CILCORP has made available to AES a true
and correct copy of each collective bargaining agreement to which CILCORP or any
of the CILCORP Subsidiaries is a party or under which CILCORP or any of the
CILCORP Subsidiaries has obligations, and with respect to each CILCORP Benefit
Plan, to the extent applicable, (i) such plan and summary plan description
(including all amendments to each such document), (ii) the most recent annual
report filed with the IRS, (iii) each related trust agreement, insurance
contract, service provider or investment management agreement (including all
amendments to each such document), (iv) the most recent determination of the IRS
with respect to the qualified status of such plan, (v) the most recent actuarial
report or valuation and (vi) all material employee communications.
(g) PAYMENTS RESULTING FROM MERGER AND OTHER SEVERANCE
PAYMENTS. Except as set forth in Section 4.10(g) of the CILCORP Disclosure
Schedule or as specifically provided for in this Agreement, (i) the announcement
or consummation of the Merger or any other transaction contemplated by this
Agreement or the Second Merger will not (either alone or upon the occurrence of
any additional or further acts or events, including, without limitation,
termination of employment) result in any (A) payment (whether of severance pay
or otherwise) becoming due from CILCORP or any of the CILCORP Subsidiaries to
any officer, employee, former employee or director thereof or to the trustee
under any "rabbi trust" or similar arrangement or (B) benefit being established
or becoming accelerated, vested or payable under any CILCORP Benefit Plan and
(ii) neither CILCORP nor any of the CILCORP Subsidiaries is a party to (A) any
management, employment, deferred compensation, severance (including any payment,
right or benefit resulting from a change in control), bonus or other contract
for personal services with any officer, director or employee, (B) any consulting
contract with any person who prior to entering into such contract was a director
or officer of CILCORP or any of the CILCORP Subsidiaries or (C) any material
plan, agreement, arrangement or understanding similar to the foregoing.
(h) LABOR AGREEMENTS. As of the date hereof, except as set forth in
Section 4.10(h) of the CILCORP Disclosure Schedule, neither CILCORP nor any of
the CILCORP Subsidiaries is a party to or bound by any collective bargaining
agreement or
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other labor agreement with any union or labor organization, or work rules or
practices agreed to with any labor organization or employee association
applicable to employees of CILCORP or any of the CILCORP Subsidiaries. To the
knowledge of CILCORP, as of the date hereof, there is no current union
representation question involving employees of CILCORP or any of the CILCORP
Subsidiaries, nor does CILCORP know of any activity or proceeding of any labor
organization (or representative thereof) or employee group to organize any such
employees. There are no written personnel policies, rules or procedures
applicable to employees of CILCORP or any of the CILCORP Subsidiaries, other
than those set forth in Section 4.10(h) of the CILCORP Disclosure Schedule, true
and correct copies of which have heretofore been delivered to AES. Except as set
forth in Section 4.10(h) of the CILCORP Disclosure Schedule, (i) there is no
grievance arising out of any collective bargaining agreement or other grievance
procedure, unfair labor practice, employment discrimination or other
investigation, charge or complaint against CILCORP or any of the CILCORP
Subsidiaries pending or, to the knowledge of CILCORP, threatened, which has or
could reasonably be expected to have a CILCORP Material Adverse Effect, (ii)
there is no strike, dispute, slowdown, work stoppage or lockout pending, or, to
the knowledge of CILCORP, threatened, against or involving CILCORP or any of the
CILCORP Subsidiaries which has or could reasonably be expected to have, a
CILCORP Material Adverse Effect and during the past five years there has not
been any such action, (iii) there is no proceeding, claim, suit, action or
governmental investigation pending or, to the knowledge of CILCORP, threatened,
in respect of which any director, officer, employee or agent of CILCORP or any
of the CILCORP Subsidiaries is or may be entitled to claim indemnification from
CILCORP pursuant to their respective Articles of Incorporation or By-Laws or as
provided in the Indemnification Agreements listed in Section 4.10(h) of the
CILCORP Disclosure Schedule. Except as set forth in Section 4.10(h) of the
CILCORP Disclosure Schedule, CILCORP and the CILCORP Subsidiaries have complied
in all material respects with all laws relating to the employment of labor,
including without limitation any provisions thereof relating to wages, hours,
collective bargaining and the payment of social security and similar Taxes, and
no person has, to the knowledge of CILCORP, asserted that CILCORP or any of the
CILCORP Subsidiaries is liable in any material amount for any arrears of wages
or any Taxes or penalties for failure to comply with any of the foregoing. Since
the enactment of the Worker Adjustment and Retraining Notification Act (the
"WARN ACT"), neither CILCORP nor any of the CILCORP Subsidiaries has
effectuated, without complying with the applicable requirements of the WARN Act,
(a) a "plant closing" (as defined in the WARN Act) affecting any site of
employment or one or more facilities or operating units within any site of
employment or facility of CILCORP or any of the CILCORP Subsidiaries; or (b) a
"mass layoff" (as defined in the WARN Act) affecting any site of employment or
facility of CILCORP or any of the CILCORP Subsidiaries; nor has CILCORP or any
of the CILCORP Subsidiaries been affected by any transaction or engaged in
layoffs or
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employment terminations sufficient in number to trigger application of any
similar state, local or foreign law or regulation without complying with the
applicable requirements of such law or regulation.
(i) PARACHUTE PAYMENTS. Section 4.10(i)(a) of the CILCORP Disclosure
Schedule sets forth (i) the name of each employee, former employee or other
person who is or was providing services to CILCORP or any of the CILCORP
Subsidiaries and who, in connection with the Merger, the other transactions
contemplated by this Agreement or the Second Merger, will receive, or will or
may become entitled to receive in the future or upon termination of such
person's employment, any payments (including, without limitation, accelerated
vesting of CILCORP Options or other equity-based awards) which could reasonably
be expected to constitute "excess parachute payments" with respect to such
person within the meaning of Section 280G of the Code ("EXCESS PARACHUTE
PAYMENTS") and (ii) a description of the arrangements that could give rise to
such Excess Parachute Payments. Section 4.10(i)(b) of the CILCORP Disclosure
Schedule sets forth the maximum sum of the aggregate change in control payments
and entitlements (including, without limitation, accelerated vesting of CILCORP
Options or other equity-based awards) which any employee, former employee, or
other person who is or was providing services to CILCORP or any of the CILCORP
Subsidiaries may be entitled to receive now or in the future (including upon
termination of such person's employment) in connection with the Merger, the
other transactions contemplated by this Agreement and the Second Merger. Section
4.10(i)(c) of the CILCORP Disclosure Schedule sets forth the maximum sum of (i)
the Tax cost associated with the loss of deductions under Section 280G with
respect to such Excess Parachute Payments and (ii) the amount of any excise
taxes that may be imposed with respect to such Excess Parachute Payments and any
gross-ups on such amounts.
(j) SECTION 162(M). Except as set forth in Section 4.10(j) of the
CILCORP Disclosure Schedule, no payments to any executive officer of CILCORP or
any of the CILCORP Subsidiaries will fail to be deductible for federal income
Tax purposes by reason of the deduction limit imposed under Section 162(m) of
the Code. Section 4.10(j) of the CILCORP Disclosure Schedule sets forth the name
of each executive officer who will receive compensation which may not be fully
deductible by reason of the application of Section 162(m), and a reasonable
estimate of the amount of such potentially nondeductible compensation.
Section 4.11 ENVIRONMENTAL PROTECTION.
(a) DEFINITIONS. As used in this Agreement:
(i) "ENVIRONMENTAL CLAIM" means any and all written
administrative, regulatory or judicial actions, suits, demands, demand letters,
directives, claims, liens, investigations, proceedings or notices of
noncompliance or violation by any person or
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entity (including any Governmental Authority) alleging potential liability
(including, without limitation, potential responsibility for or liability for
enforcement, investigatory costs, cleanup costs, spent fuel or waste disposal
costs, decommissioning costs, governmental response costs, removal costs,
remediation costs, natural resources damages, property damages, personal
injuries or civil or criminal 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 or (B) circumstances forming the basis of
any violation or alleged violation of any Environmental Law or (C) any and all
claims by any third party seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from the presence or
Release of any Hazardous Materials.
(ii) "ENVIRONMENTAL LAWS" means all applicable federal, state and
local laws, rules, regulations, ordinances, orders, directives and any binding
judicial or administrative interpretation thereof, and common law and equitable
doctrines relating to pollution, the environment (including, without limitation,
indoor or ambient air, surface water, groundwater, land surface or subsurface
strata) or protection of human health or safety as it relates to the environment
including, without limitation, those relating to Releases or threatened Releases
of Hazardous Materials, or otherwise relating to the manufacture, generation,
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; (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 or regulated under any Environmental Law.
(iv) "RELEASE" means any release, spill, emission, leaking,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the atmosphere, soil, sediments, surface water, groundwater or property.
(b) COMPLIANCE. Except as set forth in Section 4.11(b)(i) of the
CILCORP Disclosure Schedule, CILCORP and each of the CILCORP Subsidiaries and,
to the knowledge of CILCORP, the CILCORP Joint Ventures, are in compliance with
all applicable Environmental Laws except where the failure to so comply would
not have a CILCORP Material Adverse Effect, and neither CILCORP nor any of the
CILCORP Subsidiaries has received any written communication from any person or
Governmental Authority that alleges that CILCORP or any of the CILCORP
Subsidiaries or, to the
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knowledge of CILCORP, the CILCORP Joint Ventures is not in such compliance with
applicable Environmental Laws. Except as set forth in Section 4.11(b)(ii) of the
CILCORP Disclosure Schedule, to the knowledge of CILCORP, compliance with all
applicable Environmental Laws will not require CILCORP or any CILCORP Subsidiary
or, to the knowledge of CILCORP, any CILCORP Joint Venture to incur material
expenditures beyond that currently budgeted in the five CILCORP fiscal years
beginning with January 1, 1998 (as disclosed to AES prior to the date of this
Agreement), including but not limited to the costs of CILCORP and CILCORP
Subsidiary and CILCORP Joint Venture pollution control equipment required or
reasonably contemplated to be required in the future.
(c) ENVIRONMENTAL PERMITS. Except as set forth in Section 4.11(c) of
the CILCORP Disclosure Schedule, CILCORP and each of the CILCORP Subsidiaries
and, to the knowledge of CILCORP, the CILCORP Joint Ventures, have obtained or
have applied for all permits, licenses, registrations, consents, and other
governmental authorizations required under any Environmental Law ("ENVIRONMENTAL
PERMITS") necessary for the construction of its facilities or the conduct of its
operations except where the failure to so obtain would not have a CILCORP
Material Adverse Effect, and all such Environmental Permits are in good standing
or, where applicable, a renewal application has been timely filed and is pending
agency approval, and CILCORP and the CILCORP Subsidiaries and, to the knowledge
of CILCORP, the CILCORP Joint Ventures are in compliance with all terms and
conditions of all Environmental Permits necessary for the construction of its
facilities or the conduct of its operations, except where the failure to so
comply, in the aggregate, would not have a CILCORP Material Adverse Effect.
(d) ENVIRONMENTAL CLAIMS. Except as set forth in Section 4.11(d) of the
CILCORP Disclosure Schedule, there is no Environmental Claim pending (or, to the
knowledge of CILCORP, threatened) (A) against CILCORP or any of the CILCORP
Subsidiaries or, to the knowledge of CILCORP, any of the CILCORP Joint Ventures,
(B) to the knowledge of CILCORP, against any person or entity whose liability
for any Environmental Claim CILCORP, any of the CILCORP Subsidiaries or CILCORP
Joint Ventures has or may have retained or assumed either contractually or by
operation of law, or (C) against any real or personal property or operations
which CILCORP or any of the CILCORP Subsidiaries or, to the knowledge of
CILCORP, any of the CILCORP Joint Ventures owns, leases or manages, in whole or
in part, which, if adversely determined, would have, individually or in the
aggregate, a CILCORP Material Adverse Effect.
(e) RELEASES. Except as set forth in Section 4.11(e) of the CILCORP
Disclosure Schedule, CILCORP has no knowledge of any Releases of any Hazardous
Material that would be reasonably likely to form the basis of any Environmental
Claim against CILCORP or any of the CILCORP Subsidiaries or the CILCORP Joint
Ventures, or against any person or entity whose liability for any Environmental
Claim CILCORP or
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any of the CILCORP Subsidiaries or the CILCORP Joint Ventures has or may have
retained or assumed either contractually or by operation of law except for any
Environmental Claim which would not have, individually or in the aggregate, a
CILCORP Material Adverse Effect.
(f) PREDECESSORS. Except as set forth in Section 4.11(f) of the CILCORP
Disclosure Schedule, CILCORP has no knowledge, with respect to any predecessor
of CILCORP or any of the CILCORP Subsidiaries or the CILCORP Joint Ventures, of
any Environmental Claim pending or threatened, or of any Release of Hazardous
Materials that would be reasonably likely to form the basis of any Environmental
Claim, which, if determined adversely, could reasonably be expected to require
payments of $500,000 or more or which could reasonably be expected to have a
CILCORP Material Adverse Effect.
(g) DISCLOSURE. CILCORP has disclosed in writing to AES all material facts
which CILCORP reasonably believes could have a CILCORP Material Adverse Effect
arising from (i) the cost of CILCORP pollution control equipment (including,
without limitation, upgrades and other modifications to existing equipment)
currently required or reasonably contemplated to be required in the future, (ii)
current remediation costs or costs to CILCORP or any of the CILCORP Subsidiaries
for remediation reasonably contemplated to be required in the future or (iii)
any other environmental matter affecting CILCORP or any of the CILCORP
Subsidiaries.
(h) COST ESTIMATES. To CILCORP's knowledge, no environmental matter set
forth in the CILCORP SEC Reports or the CILCORP Disclosure Schedule could
reasonably be expected to exceed the cost estimates provided in the CILCORP SEC
Reports by an amount that individually or in the aggregate could reasonably be
expected to have a CILCORP Material Adverse Effect.
(i) ORDERS; ENVIRONMENTAL INDEMNIFICATION. Except as set forth in Section
4.11(i) of the CILCORP Disclosure Schedule, neither CILCORP nor any of the
CILCORP Subsidiaries nor, to the knowledge of CILCORP, any CILCORP Joint
Ventures, are or have been subject to any administrative or judicial orders
relating to Environmental Laws or Hazardous Materials, including, but not
limited to, Hazardous Materials that have been Released at locations that are
not currently owned or operated by CILCORP, the CILCORP Subsidiaries or any
CILCORP Joint Ventures, except for such orders where CILCORP or any CILCORP
Subsidiary or any CILCORP Joint Ventures completed all obligations under said
orders (and where there are no outstanding potential obligations or penalties
that could arise from said orders) more than five years prior to the date of
this Agreement. Except as set forth in Section 4.11(i) of the CILCORP Disclosure
Schedule, neither CILCORP nor any of the CILCORP Subsidiaries nor, to the
knowledge of CILCORP, any CILCORP Joint Ventures, have entered into any
agreements with any non-governmental persons requiring CILCORP, any CILCORP
Subsidiary or, to the
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knowledge of CILCORP, any CILCORP Joint Venture to indemnify, reimburse or
provide contribution to such other person for any matter related to
Environmental Laws, Hazardous Materials, or the environment, except for such
matters that have been fully resolved and where CILCORP, any CILCORP Subsidiary
or any CILCORP Joint Venture has no further monetary or non-monetary obligation.
(j) NOX EMISSIONS. Section 4.11(j) of the CILCORP Disclosure Schedule is a
true and correct description of (i) CILCORP current plan to comply with current
or reasonably anticipated requirements relating to the control of atmospheric
emissions of oxides of nitrogen (NOx), including, but not limited to, costs and
expenses related to compliance with a rule issued by the EPA, published in the
Federal Register on October 27, 1998, that requires 22 States and the District
of Columbia to submit State implementation plan revisions to prohibit specified
amounts of NOx ("NOX SIP CALL"), and compliance with state statutes, regulations
and policies promulgated or issued to implement the NOx SIP Call, and (ii)
CILCORP best judgment as to the estimated capital costs and operating costs
associated with such plan.
Section 4.12 REGULATION AS A UTILITY. CILCO is regulated as a public
utility by the FERC and in the State of Illinois and in no other state. Except
as set forth in the preceding sentence or Section 4.12 of the CILCORP Disclosure
Schedule, neither CILCORP nor any "subsidiary company" or "affiliate" (as each
such term is defined in PUHCA) of CILCORP (other than CILCO) is subject to
regulation as a public utility or public service company (or similar
designation) by the FERC or any municipality, locality, state in the United
States or any foreign country.
Section 4.13 VOTE REQUIRED. The approval of the Merger by the affirmative
vote of two-thirds of the votes entitled to be cast by holders of CILCORP Common
Stock (the "CILCORP STOCKHOLDERS' APPROVAL") is the only vote of the holders of
any class or series of the capital stock of CILCORP or any of the CILCORP
Subsidiaries required to approve this Agreement, the Merger, the other
transactions contemplated hereby and the Second Merger.
Section 4.14 INSURANCE. Except as set forth in Section 4.14 of the CILCORP
Disclosure Schedule, CILCORP and each of the CILCORP Subsidiaries is, and has
been continuously since January 1, 1996, insured with financially responsible
insurers in such amounts and against such risks and losses as are customary for
companies conducting the business as conducted by CILCORP and the CILCORP
Subsidiaries during such time period. Neither CILCORP nor any of the CILCORP
Subsidiaries is in default under or has received any notice of cancellation or
termination with respect to any material insurance policy of CILCORP or any of
the CILCORP Subsidiaries. The insurance policies of CILCORP and each of the
CILCORP Subsidiaries are valid and enforceable policies and will remain in
effect following the Merger and the Second Merger.
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Section 4.15 OPINION OF FINANCIAL ADVISOR. The Board of Directors of
CILCORP has received the opinion of Salomon Smith Barney ("SALOMON"), dated the
date of this Agreement, to the effect that, as of the date thereof, the Per
Share Amount to be received by the holders of CILCORP Common Stock in the Merger
is fair from a financial point of view to the holders of CILCORP Common Stock.
Section 4.16 BROKERS. No broker, finder or investment banker (other than
Salomon) is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of CILCORP or any CILCORP Subsidiary. CILCORP
has heretofore furnished to AES a complete and correct copy of all agreements
between CILCORP and Salomon, pursuant to which such firm would be entitled to
any payment relating to the Merger.
Section 4.17 NON-APPLICABILITY OF CERTAIN PROVISIONS OF ILLINOIS ACT. None
of the business combination provisions of Section 5/7.85 and Section 5/11.75 of
the Illinois Act or any similar provisions of the Illinois Act, the Articles of
Incorporation or By-Laws of CILCORP are applicable to the transactions
contemplated by this Agreement because such provisions do not apply by their
terms or because any required approvals of the Board of Directors of CILCORP
have been obtained.
Section 4.18 CILCORP RIGHTS AGREEMENT. Prior to the date of this
Agreement, CILCORP has delivered to AES and its counsel a true and complete copy
of the Rights Agreement, dated as of October 29, 1996, between Continental Stock
Transfer and Trust Company and CILCORP (the "CILCORP RIGHTS AGREEMENT"), in
effect as of the date hereof. As promptly as practicable on or after the date
hereof, but in no event later than the date of delivery of the CILCORP
Certificate, CILCORP will amend the CILCORP Rights Agreement, as necessary (the
"RIGHTS AMENDMENT"), (i) to prevent the Merger, the other transactions
contemplated hereby and the Second Merger from resulting in the distribution of
separate rights certificates or the occurrence of a Distribution Date (as
defined in the CILCORP Rights Agreement) or being deemed a Triggering Event (as
defined in the CILCORP Rights Agreement) and (ii) to provide that neither AES
nor any AES Subsidiary shall be deemed to be an Acquiring Person (as defined in
the CILCORP Rights Agreement) by reason of the Merger, the other transactions
contemplated by this Agreement and the Second Merger. CILCORP represents that
the Rights Amendment will be sufficient to render the Preferred Stock Purchase
Rights (the "RIGHTS") inoperative with respect to any acquisition of Shares by
AES, any AES Subsidiary or any of their affiliates pursuant to this Agreement.
CILCORP represents that as a result of the Rights Amendment, the Rights will not
be exercisable upon or at any time after the Merger or the Second Merger by
reason of the transactions contemplated hereby.
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Section 4.19 YEAR 2000 COMPLIANCE. The computer software operated by
CILCORP and its Subsidiaries which is used in the conduct of their business is
capable of providing or being adapted to provide uninterrupted millennium
functionality to record, store, process and present calendar dates falling on or
after January 1, 2000 in substantially the same manner and with the same
functionality as such software records, stores, processes and presents such
calendar dates falling on or before December 31, 1999. CILCORP reasonably
believes as of the date hereof that the remaining cost of adaptions referred to
in the foregoing sentence will not exceed $22.0 million, and all such costs have
been included in CILCORP's budget for capital expenditures set forth in Section
6.1(k) of the CILCORP Disclosure Schedule.
Section 4.20 TITLE TO REAL PROPERTY. Except as set forth in Section 4.20
of the CILCORP Disclosure Schedule or except as is not reasonably likely to
result in a CILCORP Material Adverse Effect, CILCORP and each CILCORP
Subsidiary: (i) owns and has good, valid and marketable title in fee simple to
the real property owned by such party, free and clear of Liens, except for (A)
minor imperfections of title, easements and rights of way, none of which,
individually or in the aggregate, materially detracts from the value of or
impairs the use of the affected property or impairs the operations of CILCORP or
any CILCORP Subsidiary and (B) Liens for current Taxes not yet due and payable
((A) and (B) are collectively referred to as "PERMITTED CILCORP LIENS"); (ii) is
in peaceful and undisturbed possession of the space and/or estate under each
lease under which it is a tenant, and there are no material defaults by it as
tenant thereunder; and (iii) has good and valid rights of ingress and egress to
and from all the real property owned or leased by such party from and to the
public street systems for all usual street, road and utility purposes. The
failure to hold any easements or rights of way will not have a CILCORP Material
Adverse Effect.
Section 4.21 ASSETS OTHER THAN REAL PROPERTY INTERESTS. CILCORP or a
CILCORP Subsidiary has good and valid title to all material assets reflected on
the most recent balance sheet included in the CILCORP SEC Reports (the "BALANCE
SHEET") or thereafter acquired, except those sold or otherwise disposed of for
fair value since the date of the Balance Sheet in the ordinary course of
business consistent with past practice and not in violation of this Agreement,
in each case free and clear of all mortgages, liens, security interests or
encumbrances of any kind except (i) mechanics', carriers', workmen's,
repairmen's or other like liens arising or incurred in the ordinary course of
business, liens arising under original purchase price conditional sales
contracts and equipment leases with third parties entered into in the ordinary
course of business and that may thereafter be paid without penalty, (ii)
mortgages, liens, security interests and encumbrances which secure debt that is
reflected as a liability on the Balance Sheet and the existence of which is
indicated in the notes thereto and (iii) other imperfections of title or
encumbrances, if any, which do not, individually or in the aggregate, materially
impair the continued use
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and operation of the assets to which they relate in the business of CILCORP and
each of the CILCORP Subsidiaries as presently conducted. All the material
tangible personal property of CILCORP and the CILCORP Subsidiaries has been
maintained in all material respects in accordance with the past practice of
CILCORP and the CILCORP Subsidiaries and generally accepted industry practice.
Each item of material tangible personal property of CILCORP and the CILCORP
Subsidiaries is in all material respects in good working order and is adequate
and sufficient for CILCORP' intended purposes, ordinary wear and tear excepted.
All leased personal property of CILCORP and its subsidiaries is in all material
respects in the condition required of such property by the terms of the lease
applicable thereto during the term of the lease and upon the expiration thereof.
Section 4.22 INTELLECTUAL PROPERTY. CILCORP and each of the CILCORP
Subsidiaries own, or possess licenses or other valid rights to use, all patents,
patent rights, trademarks, trademark rights, trade names, trade name rights,
copyrights, service marks, service mark rights, trade secrets, applications to
register, and registrations for, the foregoing trademarks, service marks,
know-how and other proprietary rights and information (collectively,
"INTELLECTUAL PROPERTY") necessary in connection with the business of CILCORP
and the CILCORP Subsidiaries as currently conducted, except where the failure to
possess such rights or licenses or valid rights to use would not have a CILCORP
Material Adverse Effect, and (i) the conduct of the business of CILCORP and each
of the CILCORP Subsidiaries as currently conducted does not infringe upon any
Intellectual Property of any third party except where such infringement would
not result in a CILCORP Material Adverse Effect and (ii) no person is infringing
upon any Intellectual Property of CILCORP or any CILCORP Subsidiary except where
such infringement would not result in a CILCORP Material Adverse Effect. The
execution and delivery of this Agreement and the consummation of the Merger, the
other transactions contemplated hereby and the Second Merger will not result in
the loss of, or any encumbrance on, the rights of CILCORP or any CILCORP
Subsidiary with respect to the Intellectual Property owned or used by them,
except where such loss or encumbrance would not have a CILCORP Material Adverse
Effect.
Section 4.23 TRANSACTIONS WITH AFFILIATES. Except as set forth in Section
4.23 of the CILCORP Disclosure Schedule or in the CILCORP SEC Reports, there is
no agreement, contract or other arrangement between CILCORP and any CILCORP
Subsidiary, on the one hand, and any affiliate (other than CILCORP or a CILCORP
Subsidiary), on the other hand, that will continue in effect subsequent to the
Closing Date. After the Closing Date no affiliate of CILCORP or any CILCORP
Subsidiary (other than CILCORP or any CILCORP Subsidiary) will have any material
interest in any property (real or personal, tangible or intangible) or contract
used in or pertaining to the business of CILCORP or any CILCORP Subsidiary. No
affiliate of CILCORP or any CILCORP Subsidiary (other
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than CILCORP or any CILCORP Subsidiary) has any direct or indirect ownership
interest in any person (other than the ownership of 5% or less of the stock of
any person held as a passive investment) in which CILCORP or any CILCORP
Subsidiary has any direct or indirect ownership interest or with which CILCORP
or any CILCORP Subsidiary competes or has a business relationship.
Section 4.24 DISCONTINUED BUSINESS. Section 4.24(i) of the CILCORP
Disclosure Schedule contains a true and complete list of each CILCORP Subsidiary
which has ceased operations or discontinued any business (the "DISCONTINUED
BUSINESS") since January 1, 1997. Except for liabilities, contingent or
otherwise, disclosed in Section 4.24(ii) of the CILCORP Disclosure Schedule,
neither CILCORP nor any CILCORP Subsidiary has any liabilities or obligations,
contingent or otherwise, with respect to a Discontinued Business and no creditor
of any Discontinued Business has any recourse against CILCORP or any CILCORP
Subsidiary.
Section 4.25 CAPTIVE INSURANCE BUSINESS. National Professional Casualty
Company is licensed as a pure captive insurance company within the meaning of
Section 6001 of the Vermont Insurance Laws, and has all insurance licenses,
permits and authorizations required to operate its business as currently
conducted. At no time has National Professional Casualty Company insured any
risks other than those of QST Environmental Inc. and its Subsidiaries. The loss
and loss adjustment expense reserves reflected on National Professional Casualty
Company's most recently filed statutory statement were established in accordance
with generally accepted actuarial standards consistently applied and are
adequate to meet all liabilities on insurance policies issued by National
Professional Casualty Company. CILCORP has previously delivered to AES the most
recent market conduct and financial examinations report of National Professional
Casualty Company issued by any insurance regulatory authority, and all material
deficiencies or violations in such reports have been resolved to the
satisfaction of the insurance regulatory authorities. Except as set forth in
Section 4.25 of the CILCORP Disclosure Schedule, there are no pending market
conduct examinations or inquiries by any insurance regulatory authority with
respect to National Professional Casualty Company.
Section 4.26 CONTRACTUAL OBLIGATIONS. Section 4.26 of the CILCORP
Disclosure Schedule sets forth a true and complete list of all contractual
commitments or other contractual obligations of CILCORP and the CILCORP
Subsidiaries to make investments or purchase an equity interest in, make
contributions to, or otherwise fund the operations, expenses or capital of, any
person. The execution and delivery of this Agreement by CILCORP do not, and the
consummation of the Merger and the other transactions contemplated hereby and if
such were consummated, the Second Merger, will not result in any obligation on
the part of CILCORP or any CILCORP Subsidiaries to pay money to, guarantee the
performance or obligations of, or cause AES to guarantee
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the performance or obligations of, any person, including in connection with
obtaining the CILCORP Required Consents and the CILCORP Second Merger Required
Consents, under any note, bond, mortgage, indenture or deed of trust or any
material contract, lease or other agreement of any kind to which CILCORP or any
of the CILCORP Subsidiaries or the CILCORP Joint Ventures is a party or by which
any of them or any of their respective properties or assets may be bound.
Section 4.27 DISCLOSURE. CILCORP has not failed to disclose to AES any
facts known to CILCORP or which CILCORP could reasonably be expected to know
pertaining to CILCORP, any CILCORP Subsidiary, any CILCORP Joint Venture, or its
or their business or operations that may materially and adversely affect the
business, assets, operations, or prospects of CILCORP, any CILCORP Subsidiary or
any CILCORP Joint Venture taken as a whole.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF AES AND MERGER SUB
AES and Merger Sub hereby represent and warrant to CILCORP as follows:
Section 5.1 ORGANIZATION AND QUALIFICATION. Each of AES and Merger Sub 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 and to carry on its
business as it is now being conducted and is duly qualified and in good standing
to do business in each jurisdiction in which the nature of its business or the
ownership or leasing of its assets and properties makes such qualification
necessary, other than in such jurisdictions where the failure to so qualify and
be in good standing, when taken together with all other such failures, would not
have a material adverse effect on the business, operations, properties, assets,
condition (financial or other), prospects or the results of operations of AES
and its subsidiaries taken as a whole or on the consummation of the transactions
contemplated by this Agreement (any such material adverse effect, an "AES
MATERIAL ADVERSE EFFECT").
Section 5.2 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS.
(a) AUTHORITY. AES and Merger Sub have all requisite power and authority
to enter into this Agreement and, subject to the receipt of the AES Required
Statutory Approvals (as defined in Section 5.2(c) hereof), to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation by AES and Merger Sub of the Merger and the other
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of AES and Merger Sub. This Agreement has been duly
and validly executed and delivered by AES and
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Merger Sub, and, assuming the due authorization, execution and delivery hereof
by CILCORP, this Agreement constitutes the valid and binding obligation of each
of AES and Merger Sub, enforceable against each of them in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
(b) NON-CONTRAVENTION. The execution and delivery of this Agreement by AES
and Merger Sub do not, and the consummation of the Merger and the other
transactions contemplated hereby will not, result in a Violation pursuant to any
provisions of (i) the Certificate or Articles of Incorporation, By-Laws or
similar governing documents of AES or Merger Sub, (ii) subject to obtaining the
AES Required Statutory Approvals (as defined below), any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit
or license of any Governmental Authority (as defined in Section 4.4(b) hereof)
applicable to AES or Merger Sub or any of their respective properties or assets
or (iii) subject to obtaining the third-party consents (the "AES REQUIRED
CONSENTS") set forth in Section 5.2(b) of the disclosure schedule delivered by
AES to CILCORP concurrent with the execution of this Agreement (the "AES
DISCLOSURE SCHEDULE"), any material note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which AES or Merger Sub is a
party or by which it or any of its properties or assets may be bound or
affected, excluding from the foregoing clauses (ii) and (iii) such Violations
which would not, in the aggregate, have an AES Material Adverse Effect.
(c) STATUTORY APPROVALS. Except as described in Section 5.2(c) of the AES
Disclosure Schedule, no declaration, filing or registration with, or notice to
or authorization, consent or approval of, any Governmental Authority is
necessary for the execution and delivery of this Agreement by AES and Merger Sub
or the consummation by AES and Merger Sub of the Merger and the other
transactions contemplated hereby (the "AES REQUIRED STATUTORY APPROVALS"), other
than such AES Required Statutory Approvals the failure of which to be obtained
or made would not prevent the consummation by AES of the Merger and the other
transactions contemplated hereby, it being understood that references in this
Agreement to "obtaining" such AES Required Statutory Approvals shall mean making
such declarations, filings or registrations; giving such notices; obtaining such
authorizations, consents or approvals; and having such waiting periods expire as
are necessary to avoid a violation of law.
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Section 5.3 COMPLIANCE. Except as set forth in Section 5.3 of the AES
Disclosure Schedule or as disclosed in any report, schedule, registration
statement and definitive proxy statement and all amendments thereto filed with
the SEC by AES or Merger Sub (or their predecessors) pursuant to the
requirements of the Securities Act or Exchange Act since January 1, 1996 and
prior to the date hereof (as such documents have since the time of their filing
been amended, the "AES SEC REPORTS"), true and complete copies of which have
been provided to CILCORP concurrent with the execution of this Agreement,
neither AES nor Merger Sub is in violation of, is, to the knowledge of AES,
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, ordinance or regulation) of any Governmental Authority,
except for violations which individually or in the aggregate do not, and insofar
as reasonably can be foreseen will not, have an AES Material Adverse Effect.
Except as set forth in Section 5.3 of the AES Disclosure Schedule, AES and
Merger Sub have all permits, licenses, franchises and other governmental
authorizations, consents, approvals and exemptions necessary to conduct their
businesses as presently conducted which are material to the operation of the
businesses of AES and Merger Sub, except for such permits, licenses, franchises
and other governmental authorizations, consents, approvals and exemptions the
failure of which to have would not result in an AES Material Adverse Effect.
Except as set forth in Section 5.3 of the AES Disclosure Schedule, each of AES
and Merger Sub 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 or action by a third party, could result in a default by AES or
Merger Sub under (i) its Articles of Incorporation, By-Laws or other
organizational document or (ii) any material contract, commitment, agreement,
indenture, mortgage, loan agreement, note, lease, bond, license, approval or
other instrument to which it is a party or by which AES or Merger Sub is bound
or to which any of its property is subject, except in the case of clause (ii)
above, for violations, breaches or defaults which individually or in the
aggregate do not, and insofar as reasonably can be foreseen will not, have an
AES Material Adverse Effect.
Section 5.4 REPORTS AND FINANCIAL STATEMENTS. The filings required to be
made by AES and Merger Sub under the Securities Act, the Exchange Act, the
Public Utility Regulatory Policies Act of 1978 ("PURPA"), PUHCA and applicable
state, municipal, local and other laws, including all forms, statements,
reports, agreements (oral or written) and all documents, exhibits, amendments
and supplements appertaining thereto, have been filed with the SEC or the FERC,
or other appropriate Governmental Authorities, as the case may be, and complied,
as of their respective dates, in all material respects with all applicable
requirements of the appropriate statutes and the rules and regulations
thereunder. As of their respective dates, the AES SEC Reports did not contain
any untrue
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statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim financial statements of
AES included in the AES SEC Reports (collectively, the "AES FINANCIAL
STATEMENTS") have been prepared in accordance with GAAP (except as may be
indicated therein or in the notes thereto) and fairly present the financial
position of AES, as of the dates thereof and the 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 Articles of Incorporation and By-Laws of
AES, as in effect on the date of this Agreement, are included (or incorporated
by reference) in the AES SEC Reports.
Section 5.5 PROXY STATEMENT INFORMATION. None of the information supplied
in writing by AES, Merger Sub or any AES Subsidiary for inclusion in the Proxy
Statement (as defined in Section 7.2(a) hereof), at the dates mailed to
stockholders of CILCORP and at the time of the meeting of such stockholders to
be held in connection with the Merger and the other transactions contemplated
hereby, will 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 5.6 FINANCING. As of the date of this Agreement and assuming that
CILCORP delivers the CILCORP Certificate, AES believes in its reasonable good
faith judgment that it will be able to obtain the funds, through financing or
otherwise, in an amount sufficient to pay the Aggregate Consideration Amount
upon consummation of the Merger.
Section 5.7 REGULATORY STATUS.
(a) Except as set forth in Section 5.7 of the AES Disclosure Schedule, as
of the date of this Agreement, neither AES nor any "subsidiary company" or
"affiliate" (as such terms are defined in PUHCA) of AES is subject to regulation
as a public utility or public service company (or similar designation) by the
FERC or any municipality, locality or state in the United States.
(b) As soon as reasonably practicable after the date hereof, AES will not
be a "holding company" (as such term is defined in PUHCA) nor will it be a
"subsidiary company" of a "holding company" or an "affiliate" of any "public
utility company" (as such terms are defined in PUHCA), and therefore, prior
approval of the SEC pursuant to Section 9(a)(2) of PUHCA will not be required
for consummation of the Merger and the other transactions consummated hereby.
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Section 5.8 REGULATORY APPROVAL. As of the date of this Agreement, AES
believes in its reasonable good faith judgment that it will be able to obtain
the SEC Exemption Order.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER;
COVENANTS OF THE PARTIES
Section 6.1 CONDUCT OF BUSINESS BY CILCORP PENDING THE MERGER. CILCORP
covenants and agrees, as to itself and each of the CILCORP Subsidiaries, that
after the date of this Agreement and prior to the Effective Time or earlier
termination of this Agreement, except as expressly contemplated or permitted in
this Agreement, or to the extent AES shall have otherwise consented in writing,
which decision regarding consent shall be made as soon as reasonably practicable
and which consent shall not be unreasonably withheld:
(a) ORDINARY COURSE OF BUSINESS. CILCORP shall, and shall cause the
CILCORP Subsidiaries to, carry on their respective businesses in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted and use all commercially reasonable efforts to preserve intact their
present business organizations and goodwill, preserve the goodwill and
relationships with customers, suppliers and others having business dealings with
them, including regulators, and, subject to prudent management of workforce
needs and ongoing or planned programs relating to downsizing, re-engineering and
similar matters, keep available the services of their present officers and
employees to the end that their goodwill and ongoing businesses shall not be
impaired in any material respect at the Effective Time.
(b) DIVIDENDS. CILCORP shall not, nor shall CILCORP permit any of the
CILCORP Subsidiaries to, (i) declare or pay any dividends on or make other
distributions in respect of any of their capital stock other than (A) to CILCORP
or its wholly-owned Subsidiaries, (B) dividends required to be paid on any CILCO
Preferred Stock, CILCO Class A Preferred Stock or CILCO Preference Stock in
accordance with the terms thereof, (C) regular quarterly dividends of $.615 on
CILCORP Common Stock with respect to the fiscal quarters ending prior to the
Effective Date, with usual record and payment dates not in excess of the average
quarterly dividend for the four quarterly dividend payments immediately
preceding the date hereof with respect thereto, and (D) a special dividend on
CILCORP Common Stock with respect to the quarter in which the Effective Time
occurs with a record date on or prior to the Effective Time, which does not
exceed an amount equal to $.615 multiplied by a fraction, the numerator of which
is the number of days in such quarter prior to the Effective Time, and the
denominator of which is the total number of days in such fiscal quarter; (ii)
split, combine or reclassify any of
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their 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
capital stock; or (iii) redeem, repurchase or otherwise acquire any shares of
their capital stock, other than redemptions, purchases or acquisitions required
by the respective terms of any series of CILCO Preferred Stock, CILCO Class A
Preferred Stock or CILCO Preference Stock.
(c) ISSUANCE OF SECURITIES. Except as described in Section 6.1(c) of the
CILCORP Disclosure Schedule, CILCORP shall not, nor shall CILCORP permit any of
the CILCORP 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, grant of a security interest, 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
(i) issuances by a wholly owned Subsidiary of its capital stock to its direct or
indirect parent and (ii) issuances of shares of CILCORP Common Stock after the
date of this Agreement pursuant to CILCORP Options existing as of the date
hereof, as identified in Section 4.10(a) of the CILCORP Disclosure Schedule.
(d) CHARTER DOCUMENTS. CILCORP shall not, nor shall CILCORP permit any
CILCORP Subsidiary to, amend or propose to amend the Articles of Incorporation
or By-Laws of CILCORP or such comparable organizational documents of any CILCORP
Subsidiary.
(e) NO ACQUISITIONS. Except as provided in Section 6.1(aa) hereof, CILCORP
shall not, nor shall CILCORP permit any CILCORP Subsidiary 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 corporation, partnership, association
or other business organization or division thereof, (ii) otherwise acquire or
agree to acquire a material amount of assets, other than fuel used for the
production of electricity and limestone used for its SO2 scrubber, or natural
gas for send-out or storage or (iii) alter (through merger, liquidation,
reorganization, restructuring or in any other fashion) the corporate structures
or ownership of CILCORP or any of the CILCORP Subsidiaries, other than the
transfer of ownership of QST Environmental Inc. from an indirect CILCORP
Subsidiary to CILCORP.
(f) NO DISPOSITIONS. Except as disclosed in Section 6.1(f)(i) of the
CILCORP Disclosure Schedule or with respect to CILCORP or the CILCORP
Subsidiaries making dispositions in the ordinary course of business consistent
with past practice at fair market value of less than $2 million per transaction
(not to exceed $10 million in the aggregate) in sales price and indebtedness
assumed by the acquiring party and its affiliates, or making dispositions not in
the ordinary course of business at fair market value of less than $50,000 per
transaction (not to exceed $1 million in the aggregate) in sales price, CILCORP
shall
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not, nor shall CILCORP permit any of the CILCORP Subsidiaries to, sell or
dispose of any of their respective assets, provided, however, that no consent
shall be required of AES for CILCORP or any CILCORP Subsidiary to sell or
dispose of (i) the stock or assets of QST Environmental Inc. and/or its
Subsidiaries (or enter into any agreement for the sale or disposition of QST
Environmental Inc. and/or its Subsidiaries) for a cash purchase price of at
least $25 million, net of fees and expenses, if such sale or agreement includes
as a term thereof, the release of CILCORP and the CILCORP Subsidiaries of all
liabilities and obligations, contingent or otherwise, arising out of the
operations of QST Environmental Inc. and its Subsidiaries prior to the date the
sale is to be consummated, and whether or not known prior to the date of sale,
and does not impose any liability on AES or any of the AES Subsidiaries with
respect to such operations, or (ii) the assets listed in Section 6.1(f)(ii) of
the CILCORP Disclosure Schedule if the purchase price for any such asset is less
than $2,000,000 individually (not to exceed $5,000,000 in the aggregate) and if
the price to be received for such asset after taking into account fees and
expenses and on-going indemnification obligations and other post-closing
liabilities is more than book value of such asset.
(g) COOPERATION, NOTIFICATION. CILCORP shall (i) confer on a regular and
frequent basis with one or more representatives of AES to discuss, subject to
applicable law, material operational matters and the general status of CILCORP's
ongoing operations, (ii) promptly notify AES of any significant changes in its
business, properties, assets, condition (financial or other), results of
operations or prospects, (iii) promptly notify AES of any sales of assets by
CILCORP or any CILCORP Subsidiary in excess of $1 million and shall discuss with
AES use of proceeds from such sales to the extent that such proceeds exceed $1
million, (iv) promptly advise AES of (A) any representation or warranty made by
it contained in this Agreement that is qualified as to materiality becoming
untrue or inaccurate as so qualified 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 CILCORP
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 AES with copies of all
filings made by CILCORP or any CILCORP Subsidiary with any state or federal
court, administrative agency, commission or other Governmental Authority in
connection with this Agreement and the transactions contemplated hereby. AES
shall designate one or more of its Representatives (as defined in Section 7.1
hereof), by name, for purposes of this
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subsection (g), who will make themselves reasonably available by telephone,
electronic mail and in person.
(h) THIRD-PARTY CONSENTS. CILCORP shall, and shall cause the CILCORP
Subsidiaries to, use all reasonable best efforts to obtain all CILCORP Required
Consents. CILCORP shall promptly notify AES of any failure or prospective
failure to obtain any such consents and shall provide copies of all CILCORP
Required Consents obtained by CILCORP to AES.
(i) NO BREACH, ETC. CILCORP shall not, and CILCORP shall not permit any
CILCORP Subsidiary to, 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 MATTERS. CILCORP shall not, nor shall it permit any CILCORP
Subsidiary to, (i) make or rescind any material express or deemed election
relating to Taxes, (ii) except as set forth in Section 6.1(j)(ii) of the CILCORP
Disclosure Schedule, settle or compromise any material claim, action, suit,
litigation, proceeding, arbitration, investigation, audit or controversy
relating to Taxes, (iii) except as set forth in Section 6.1(j)(iii) of the
CILCORP Disclosure Schedule or as required by applicable law, 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, 1997 or (iv)
except as set forth in Section 6.1(j)(iv) of the CILCORP Disclosure Schedule,
make any change in its method of accounting for Taxes as reflected on or used in
preparing its Form 10-Q, dated as of November 10, 1998 (including any change in
the amount of its reserve for contingent Tax liabilities).
(k) CAPITAL EXPENDITURES. CILCORP shall, and CILCORP shall permit the
CILCORP Subsidiaries to, make capital expenditures during any six-month fiscal
period only up to and not in excess of 110% of the amount budgeted for such
six-month fiscal period by CILCORP for capital expenditures and then only as set
forth in Section 6.1(k) of the CILCORP Disclosure Schedule, except for unplanned
capital expenditures due to emergency conditions, unanticipated catastrophic
events, extreme weather, and unscheduled unit outages.
(l) INDEBTEDNESS. CILCORP shall not, and CILCORP shall not permit any
CILCORP Subsidiary 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
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than 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); provided however in no event shall CILCORP and the CILCORP
Subsidiaries, taken together, have outstanding at any time, $428 million in the
aggregate of indebtedness, guarantees and keep-well obligations.
(m) COMPENSATION, BENEFITS. Except as set forth in Section 6.1(m) of the
CILCORP Disclosure Schedule, as may be required by applicable law or as
contemplated by this Agreement, CILCORP shall not, nor shall CILCORP permit any
of the CILCORP Subsidiaries to, (i) enter into, adopt or amend or increase the
amount or accelerate the payment or vesting of any benefit or amount payable
under, any employee benefit plan or other contract, agreement, commitment,
arrangement, plan, trust, fund or policy maintained by, contributed to or
entered into by CILCORP or any of the CILCORP Subsidiaries (including, without
limitation, the CILCORP Benefit Plans set forth in Section 4.10(a) of the
CILCORP Disclosure Schedule) or 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,
compensation or any related rights, of any director, officer or other employee
of CILCORP or any of the CILCORP Subsidiaries, except pursuant to binding legal
commitments existing on the date of this Agreement and specifically identified
in Section 4.10(a) of the CILCORP Disclosure Schedule.
(n) PUHCA. CILCORP shall not, nor shall CILCORP permit any of the CILCORP
Subsidiaries to, except as required or contemplated by this Agreement, engage in
any activities which would cause a change in its status, or that of the CILCORP
Subsidiaries, under PUHCA, or that would impair the ability of CILCORP or AES or
any AES Subsidiary to claim any exemption under PUHCA or that would subject AES
or any AES Subsidiary to regulation under PUHCA (other than under Section
9(a)(2) or as an exempt holding company under PUHCA) following the Merger.
(o) ACCOUNTING. CILCORP shall not, and CILCORP shall not permit any
CILCORP Subsidiary to, make any changes in their accounting methods, except as
required by law, rule, regulation or GAAP.
(p) AFFILIATE TRANSACTIONS. Subject to the other restrictions set forth in
this Section 6.1, CILCORP shall not, and CILCORP shall not permit any CILCORP
Subsidiary to, enter into any agreement or arrangement with any of their
respective affiliates other than such agreements and arrangements as are entered
into in the usual, ordinary and regular course of business and which have been
negotiated on an arms-length basis and are no less favorable to CILCORP or a
CILCORP Subsidiary than CILCORP or such CILCORP Subsidiary would have obtained
from an unaffiliated third party, and provided
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that CILCORP shall have notified AES in writing prior to entering into any such
affiliate transaction.
(q) RATE MATTERS. CILCORP shall, and shall cause the CILCORP Subsidiaries
to, discuss with AES any changes and proposed changes in its or the CILCORP
Subsidiaries' rates or charges (including those with respect to fuel adjustment
charges and purchased gas adjustments), standards of service or accounting from
those in effect on the date hereof and consult with AES prior to making any
filing (or any amendment thereto), or effecting any agreement, commitment,
arrangement or consent, whether written or oral, formal or informal, with
respect thereto, and except as provided in Section 6.1(q) of the CILCORP
Disclosure Schedule, CILCORP shall not, and shall cause the CILCORP Subsidiaries
not to, make any filing to change its rates on file with the FERC or any
applicable state utility commission, except as may be required by applicable
law, that would have a CILCORP Material Adverse Effect.
(r) CONTRACTS. CILCORP shall not, and CILCORP shall not permit any CILCORP
Subsidiary to, (i) except in the ordinary course of business consistent with
past practice, enter into new contracts, modify, amend, terminate, renew or fail
to use reasonable business efforts to renew any contract or agreement to which
CILCORP or any CILCORP Subsidiary is a party, which is material to CILCORP and
the CILCORP Subsidiaries taken as a whole and provided that the term of any new
contract or any contract modification, amendment or renewal does not exceed
twelve months, or waive, release or assign any material rights or claims
therein, or (ii) enter into, modify, amend, or renew any contract or agreement
outside the ordinary course of business or on a basis not consistent with past
practice if the dollar value of such new contract or agreement, or existing
contract or agreement as so amended, modified, or renewed, is or would be in
excess of $2,000,000 (not to exceed $20,000,000 in the aggregate) or have an
initial term (or a renewal or extension term) greater than twelve months.
(s) INSURANCE. Section 6.1(s) of the CILCORP Disclosure Schedule is a true
and correct list of the specific types of losses as to which CILCORP and the
CILCORP Subsidiaries self-insure and the dollar amounts of each such type of
coverage. CILCORP shall, and shall cause each CILCORP Subsidiary 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 such methods of generating
electric power and fuel sources similar to the methods employed and fuels used
by CILCORP or the CILCORP Subsidiaries, except that CILCORP may continue to
self-insure for the type of losses and in the dollar amounts as provided in
Section 6.1(s) of the CILCORP Disclosure Schedule.
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(t) PERMITS. CILCORP shall, and shall cause each CILCORP Subsidiary to,
use reasonable best efforts to maintain in effect all existing governmental
permits which are material to the operations of CILCORP or any of the CILCORP
Subsidiaries.
(u) DISCHARGE OF LIABILITIES. CILCORP shall not, and CILCORP shall not
permit any CILCORP Subsidiary to, pay, discharge, settle, compromise or satisfy
any claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise) material to CILCORP and the CILCORP
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 CILCORP SEC Reports filed prior to the date hereof), or
incurred in the ordinary course of business consistent with past practice.
(v) STAFFING. Except as set forth in Sections 6.1(v) and 6.1(aa) of the
CILCORP Disclosure Schedule, CILCORP shall not, and shall not permit any CILCORP
Subsidiary to, make any increase in staffing levels over those in effect on the
date hereof.
(w) TAX-EXEMPT STATUS. CILCORP shall not, nor shall CILCORP permit any
CILCORP Subsidiary to, take any action that would likely jeopardize the
qualification of CILCORP's outstanding revenue bonds which qualify as of the
date hereof under Section 142(a) of the Code as "exempt facility bonds" or as
tax-exempt industrial development bonds under Section 103(b)(4) of the Internal
Revenue Code of 1954, as amended, prior to the Tax Reform Act of 1986.
(x) CILCORP CERTIFICATE. As promptly as practicable after all conditions
to Closing set forth in Section 8.1 hereof have been satisfied and the
conditions set forth in Section 8.3(a), (b), (c) and (d) have been satisfied or
waived, CILCORP shall deliver to AES the CILCORP Certificate (as defined in
Section 6.2(d) hereof).
(y) QST ENVIRONMENTAL INC.. CILCORP shall, and shall cause the CILCORP
Subsidiaries to, use commercially reasonable efforts to pursue the sale of QST
Environmental Inc. prior to the Closing on the most favorable commercial terms
available.
(z) WARN ACT. CILCORP shall (i) notify AES of all employees of CILCORP and
the CILCORP Subsidiaries who suffer an "employment loss" (as defined in the WARN
Act) during the 90 day period prior to the Closing Date and (ii) provide, or
cause the CILCORP Subsidiaries to provide, all written notices required by the
WARN Act to all employees which AES designates.
(aa) NEW LINES OF BUSINESS. CILCORP shall not, nor shall CILCORP permit
any CILCORP Subsidiary to, enter into a new line of business or make any change
in the line
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of business in which it engages as of the date of this Agreement, except that
CILCORP may establish a new wholly-owned subsidiary to take over the operation
and maintenance of a steam plant, as disclosed on Section 6.1(aa) of the CILCORP
Disclosure Schedule, but shall not in connection therewith hire any personnel,
except as disclosed in Section 6.1(aa) of the CILCORP Disclosure Schedule.
(bb) RIGHTS AGREEMENT. Except for the amendments contemplated by Section
4.18 hereof or amendments approved in writing by AES or any AES Subsidiary,
CILCORP will not, following the date hereof, amend the CILCORP Rights Agreement
in any manner. In addition, CILCORP covenants and agrees that it will not redeem
the Rights unless such redemption is consented to in writing by AES prior to
such redemption.
(cc) ILLINOIS COMMERCE COMMISSION CERTIFICATION. CILCORP shall use its
commercially reasonable efforts to obtain from the Illinois Commerce Commission
the certification addressed to the SEC pursuant to Section 33(a)(2) of PUHCA in
the form of Exhibit A hereto or in a form otherwise reasonably satisfactory to
AES (the "Illinois Certification").
(dd) HEDGING. CILCORP shall not, and shall not permit any CILCORP
Subsidiary to, buy or sell any energy futures or forward contracts or energy
transportation futures or forward contracts, or options on any of the foregoing,
other than for purposes of hedging contracts to buy or sell physical energy or
energy transportation. In addition, in transacting business outside of the
native load service territory of CILCO, CILCORP shall not, and shall not permit
any CILCORP Subsidiary to, enter into any energy-related sales or purchase
contracts that would create an unhedged position of more than $100,000 for any
single contract, or $1,000,000 on a cumulative basis.
Section 6.2 COVENANTS OF AES. AES covenants and agrees, as to itself and
each of the AES Subsidiaries, that after the date of this Agreement and prior to
the Effective Time or earlier termination of this Agreement, except as expressly
contemplated or permitted in this Agreement, or to the extent CILCORP shall have
otherwise consented in writing, which decision regarding consent shall be made
as soon as reasonably practicable and which consent shall not be unreasonably
withheld:
(a) COOPERATION, NOTIFICATION. AES shall (i) promptly advise CILCORP 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
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thereto) or the conditions to the obligations of the parties under this
Agreement) and (ii) promptly provide CILCORP with copies of all filings made by
AES or any AES Subsidiary 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. AES shall not, and AES shall not permit any AES
Subsidiary to, 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.
(c) PUHCA APPLICATION. Subject to AES' determination not to seek an
exemption under PUHCA Section 3(a)(5), as promptly as practicable following the
date hereof, AES shall file with the SEC an application (the "PUHCA
APPLICATION") pursuant to PUHCA for an exemption from the requirement that it
register as a holding company under PUHCA Section 3(a)(5). AES shall promptly
notify CILCORP upon issuance of the SEC Exemption Order (as defined in Section
8.3(e) hereof).
(d) FINANCING. AES shall diligently pursue and use commercially reasonable
efforts to arrange financing or obtain funds sufficient to pay the Aggregate
Consideration Amount in the Merger (the "FINANCING"). The Financing may consist
of (i) non-recourse borrowings and (ii) general corporate funding from the
capital reserves, working capital and other sources of AES, in each case, in
such proportions to the Aggregate Consideration Amount as AES shall determine in
its sole discretion. AES covenants and agrees that if the proceeds from the
sources specified in clauses (i) and (ii) of this Section 6.2(d) are less than
the Aggregate Consideration Amount, AES shall use commercially reasonable
efforts to sell a number of shares of AES Common Stock (the "AES COMMON STOCK
SALE") so that the aggregate proceeds from clauses (i) and (ii) of this Section
6.2(d) and the AES Common Stock Sale shall be an amount equal to the Aggregate
Consideration Amount. Notwithstanding the foregoing, AES shall have no
obligation to undertake any action to arrange financing, obtain funds or sell
AES Common Stock in the AES Common Stock Sale until CILCORP shall have delivered
to AES a certificate signed by an executive officer of CILCORP to the effect
that, to the best of such officer's knowledge as of the date of the delivery of
such certificate, the conditions set forth in Section 8.1 hereof have been
satisfied by CILCORP and the conditions set forth in Sections 8.3(a) (as of the
date of such certificate), 8.3(b) (as of the date hereof and as of the date of
such certificate), 8.3(c), 8.3(d) and 8.3(k) hereof have been satisfied by
CILCORP or waived by AES, which certificate must be delivered by CILCORP within
five business days of all such conditions being satisfied or waived, as the case
may be (the "CILCORP CERTIFICATE") and AES shall have satisfied or waived the
condition set forth in Section 8.3(e) hereof, and provided further, that in no
event shall AES be required to
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arrange financing, obtain funds or sell AES Common Stock in the AES Common Stock
Sale if there shall have occurred (or, in the case of clauses (i) through (iv)
below, been threatened) (i) any general suspension of trading in, or limitation
on prices for, securities on any national securities exchange or in the
over-the-counter market in the United States, (ii) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (iii) any limitation (whether or not mandatory) by any government,
domestic, foreign or supranational, or governmental entity on the extension of
credit by banks or other lending institutions in the United States, (iv) a
commencement of a war or armed hostilities or other national or international
calamity involving the United States, (v) any significant disruption or material
adverse change in the market for new issues of senior debt securities, credit
facilities or common or preferred equity securities (or equity-linked
securities) by a company having financial characteristics similar to those of
AES, (vi) any significant disruption or material adverse change in the financial
or capital markets in general which make it impracticable for a company having
financial characteristics similar to those of AES to finance a transaction of
the size and nature as that contemplated hereunder on commercially reasonable
financing terms or (vii) in the case of any of the foregoing existing at the
time of the proposed AES Common Stock Sale, a material acceleration or worsening
thereof; and provided, further, that in no event shall AES be required to sell
AES Common Stock in the AES Common Stock Sale if during any five trading days
following the date of delivery of the CILCORP Certificate, there shall have
occurred a decline of twenty percent or more in the average closing price of AES
Common Stock from the average closing price over the five trading days preceding
the date hereof. The sole remedy for failure to obtain the Financing shall be as
provided in Section 9.1(b)(iv) hereof, except in the case of intentional and
willful breach by AES of its obligations (as qualified herein) under this
Section 6.2(d).
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 ACCESS TO INFORMATION. Upon reasonable notice, CILCORP shall,
and shall cause the CILCORP Subsidiaries to, afford to the officers, directors,
employees, accountants, counsel, investment bankers, financial advisors and
other representatives (collectively, "REPRESENTATIVES") of AES reasonable
access, during normal business hours throughout the period prior to the
Effective Time, to all of their respective properties, books, contracts,
commitments, records, budgets, forecasts and other information (including, but
not limited to, Tax Returns) and, during such period, CILCORP shall, and shall
cause the CILCORP Subsidiaries to, furnish promptly to AES (i) access to each
report, schedule and other document filed or received by it or any of the
CILCORP Subsidiaries pursuant to the requirements of federal or state securities
laws or filed with or sent to the
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SEC, the FERC, the public utility commission of any state, the Department of
Labor, the Immigration and Naturalization Service, the Environmental Protection
Agency (state, local and federal), the IRS, the Department of Justice, the
Federal Trade Commission, or any other federal or state regulatory agency or
commission or other Governmental Authority, (ii) access to all information
concerning CILCORP, the CILCORP Subsidiaries, directors, officers and
stockholders, properties, facilities or operations owned, operated or otherwise
controlled by CILCORP, or if not so owned, operated or controlled, which
properties, facilities or operations that CILCORP may nonetheless obtain access
to through the exercise of reasonable diligence, and such other matters as may
be reasonably requested by AES 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; (iii) such
additional information relating to Taxes as AES shall from time to time
reasonably request (or, where applicable, to cooperate with AES in collecting
such information), including information relating to (a) Tax basis of the stock
of the CILCORP Subsidiaries, (b) earnings and profits, (c) material Tax
elections, (d) net operating loss carryovers and Tax credit carryovers, (e)
intercompany transactions, (f) reconciliation of book and Tax items, (g) the
rollout of any deferred Tax items and (h) ongoing audits (including copies of
any Internal Revenue Service Forms 4564 or other similar information document
requests) and (iv) office space and equipment at CILCORP's headquarters for the
purposes of designing a transition plan in conjunction with CILCORP's
Representatives. Subject to the following sentence, such information provided to
AES may be shown to AES' investment bankers and financial advisors. 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 as of July 8, 1998, between AES and
CILCORP (the "CONFIDENTIALITY AGREEMENT"). Notwithstanding the foregoing,
nothing herein shall require CILCORP to disclose system information that it is
precluded from sharing with others pursuant to FERC Orders 888 and 889 (as
amended) without simultaneous disclosure to all parties on its electronic
bulletin board.
Section 7.2 PROXY STATEMENT.
(a) As soon as reasonably practicable after the date of this Agreement,
CILCORP shall prepare and file with the SEC, and AES shall cooperate with
CILCORP in such preparation and filing, a preliminary proxy statement or
information statement relating to this Agreement and the transactions
contemplated hereby and use its commercially reasonable efforts to furnish the
information required to be included by the SEC in the Proxy Statement (as
hereinafter defined) and, after consultation with and approval of AES, to
respond promptly to any comments made by the SEC with respect to the preliminary
proxy statement and, promptly after the completion of any SEC review or
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notification from the SEC that the preliminary proxy materials will not be
subject to comment, cause a definitive proxy statement or information statement
(the "PROXY STATEMENT") to be mailed to its stockholders. Subject to the
fiduciary obligations of the Board of Directors under applicable law, CILCORP
shall include in the Proxy Statement the recommendation of the Board of
Directors of CILCORP that the stockholders of CILCORP approve and adopt this
Agreement and the transactions contemplated hereby.
(b) AES agrees that (i) it will provide CILCORP with all information
concerning AES necessary or appropriate to be included in the Proxy Statement
and (ii) at the meeting of CILCORP stockholders to be held in connection with
the Merger and the other transactions contemplated hereby, it will vote, or
cause to be voted, all of the Shares then owned by, or with respect to which
proxies are held by it or any of the AES Subsidiaries, if any, in favor of the
approval and adoption of this Agreement.
(c) CILCORP and AES shall cooperate with one another in the preparation and
filing of the Proxy Statement and shall use their reasonable best efforts to
promptly obtain and furnish the information required to be included in the Proxy
Statement and to respond promptly to any comments or requests made by the SEC
with respect to the Proxy Statement. Each party hereto shall promptly notify the
other parties of the receipt of comments of, or any requests by, the SEC with
respect to the Proxy Statement, and shall promptly supply the other parties with
copies of all correspondence between such party (or its Representatives) and the
SEC (or its staff) relating thereto. CILCORP and AES each agree to correct any
information provided by it for use in the Proxy Statement which shall have
become, or is, false or misleading.
Section 7.3 REGULATORY APPROVALS AND OTHER MATTERS.
(a) HSR FILINGS. Each party hereto shall file or cause to be filed with
the Federal Trade Commission and the Department of Justice any notifications
required to be filed 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 all commercially reasonable efforts to coordinate such filings and any
responses thereto, to make such filings promptly and to respond promptly to any
requests for additional information made by either of such agencies.
(b) OTHER APPROVALS. Each party hereto shall cooperate with the others and
use its commercially reasonable efforts to promptly prepare and file all
necessary documentation, to effect all necessary applications, notices,
petitions, filings and other documents, and to use reasonable best efforts to
obtain all necessary permits, consents, approvals and
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authorizations of all Governmental Authorities and all other persons necessary
or advisable to consummate (i) the transactions contemplated hereby, including,
without limitation, the SEC Exemption Order (as defined in Section 8.3(e)
hereof), the AES Required Statutory Approvals, the CILCORP Required Statutory
Approvals, the AES Required Consents and the CILCORP Required Consents (and any
concurrent or related rate filings, if any), and (ii) if AES determines to
proceed with the Second Merger and so notifies CILCORP, the Second Merger
Statutory Approvals and the CILCORP Second Merger Required Consents. AES and
CILCORP agree that they will consult with each other with respect to the
obtaining of all such necessary or advisable permits, consents, approvals and
authorizations of Governmental Authorities; provided, however, that it is agreed
that CILCORP shall have primary responsibility for the preparation and filing of
any applications with or notifications to applicable state regulatory
authorities for approval of the Merger. Each of AES and CILCORP shall have the
right to review and approve in advance drafts of all such necessary
applications, notices, petitions, filings and other documents made or prepared
in connection with the transactions contemplated by this Agreement, which
approval shall not be unreasonably withheld or delayed.
Section 7.4 APPROVAL OF CILCORP STOCKHOLDERS. CILCORP shall, as soon as
reasonably practicable after the date of this Agreement, (i) take all steps
necessary to duly call, give notice of, convene and hold a meeting of its
stockholders (the "CILCORP MEETING") for the purpose of securing the CILCORP
Stockholders' Approval, (ii) distribute to its stockholders the Proxy Statement
in accordance with applicable federal and state law and with its Articles of
Incorporation and By-Laws, (iii) subject to the fiduciary duties of its Board of
Directors, recommend to its stockholders the approval of the Merger, this
Agreement and the transactions contemplated hereby and (iv) cooperate and
consult with AES with respect to each of the foregoing matters. Without limiting
the generality of the foregoing, CILCORP 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 CILCORP of
any Acquisition Proposal (as defined in Section 7.8(b) hereof).
Section 7.5 DIRECTORS' AND OFFICERS' INDEMNIFICATION.
(a) INDEMNIFICATION. 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, an officer or director of CILCORP or any of the CILCORP
Subsidiaries (each an "INDEMNIFIED PARTY" and collectively, the "INDEMNIFIED
PARTIES") against all losses, expenses (including reasonable attorney's fees and
expenses), claims, damages or liabilities or, subject to the proviso of the next
succeeding sentence, amounts paid in settlement, arising out of actions or
omissions occurring at or prior to the Effective Time that are, in whole or in
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part, (x) based on or arising out of the fact that such person is or was a
director or officer of CILCORP or any CILCORP Subsidiary or (y) arising out of
or pertaining to the transactions contemplated by this Agreement (the
"INDEMNIFIED LIABILITIES"). In the event of any such loss, expense, claim,
damage or liability (whether or not arising prior to the Effective Time), (i)
the Surviving Corporation shall pay the reasonable fees and expenses of counsel
for the Indemnified Parties selected by the Surviving Corporation, which counsel
may also serve as counsel to the Surviving Corporation and which counsel shall
be reasonably satisfactory to the Indemnified Parties (whose consent shall not
be unreasonably withheld), 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 Illinois Act subject to the provision by such Indemnified
Party of an undertaking to reimburse the amounts so advanced in the event of a
final determination by a court of competent jurisdiction that such Indemnified
Party is not entitled thereto, (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 Illinois Act and the Articles of Incorporation or
By-Laws of CILCORP shall be made by independent counsel mutually acceptable to
the Surviving Corporation and the Indemnified Party (the "INDEPENDENT COUNSEL");
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). The Indemnified Parties as a group may retain only one
law firm with respect to each related matter except to the extent there is, in
the written opinion of the Independent Counsel, under applicable standards of
professional conduct, a conflict on any significant issue between positions of
such Indemnified Party and any other Indemnified Party or Indemnified Parties.
(b) INSURANCE. For a period of six years after the Effective Time, the
Surviving Corporation shall cause to be maintained in effect existing policies
of directors' and officers' liability insurance maintained by CILCORP; provided,
that the Surviving Corporation may substitute therefor policies of substantially
similar coverage and amounts containing terms that are no less advantageous with
respect to matters occurring prior to the Effective Time to the extent such
liability insurance can be maintained annually at a commercially reasonable cost
to the Surviving Corporation for annual premiums for such directors' and
officers' liability insurance, which existing premium costs are disclosed on
Section 7.5(b) of the CILCORP Disclosure Schedule; provided, further, that if
such insurance cannot be so maintained or obtained at such cost, the Surviving
Corporation shall maintain or obtain as much of such insurance for CILCORP as
can be so maintained or obtained at a commercially reasonable cost for annual
premiums for directors' and officers' liability insurance.
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(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 shall assume the obligations set forth in this Section
7.5.
(d) SURVIVAL OF INDEMNIFICATION. To the fullest extent permitted by
applicable law, from and after the Effective Time, all rights to indemnification
existing as of the date hereof in favor of any Indemnified Party, as provided in
their respective Articles of Incorporation and By-Laws in effect on the date
thereof, shall survive the Merger and shall continue in full force and effect
for a period of six years from the Effective Time.
Section 7.6 DISCLOSURE SCHEDULES. On or before the date hereof, (i) AES
has delivered to CILCORP the AES Disclosure Schedule, accompanied by a
certificate signed by an executive officer of AES stating the AES Disclosure
Schedule has been delivered pursuant to this Section 7.6 and (ii) CILCORP has
delivered to AES the CILCORP Disclosure Schedule, accompanied by a certificate
signed by an executive officer of CILCORP stating the CILCORP Disclosure
Schedule has been delivered pursuant to this Section 7.6. The AES Disclosure
Schedule and the CILCORP Disclosure Schedule are collectively referred to herein
as the "DISCLOSURE SCHEDULES." The Disclosure Schedules shall be deemed to
constitute an integral part of this Agreement and to modify the respective
representations, warranties, covenants or agreements of the parties hereto
contained herein to the extent that such representations, warranties, covenants
or agreements expressly refer to the Disclosure Schedules. Anything to the
contrary contained herein or in the Disclosure Schedules notwithstanding, any
and all statements, representations, warranties or disclosures set forth in the
Disclosure Schedules delivered on or before the date hereof shall be deemed to
have been made on and as of the date hereof. From time to time prior to the
Closing, the parties shall promptly supplement or amend the Disclosure Schedules
with respect to any matter, condition or occurrence hereafter arising which, if
existing or occurring at the date of this Agreement, would have been required to
be set forth or described in the Disclosure Schedules. No supplement or
amendment shall be deemed to cure any breach of any representation or warranty
made in this Agreement or have any effect for the purpose of determining
satisfaction of the conditions set forth in Section 8.2(b) hereof or Section
8.3(b) hereof.
Section 7.7 PUBLIC ANNOUNCEMENTS. Subject to each party's disclosure
obligations imposed by applicable law, court process or by obligations pursuant
to any listing agreement with any national securities exchange, AES and CILCORP
will cooperate with each other in the development and distribution of all news
releases and other public
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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 and which decision regarding
consent shall be made as soon as reasonably practicable).
Section 7.8 NO SOLICITATIONS.
(a) From and after the date hereof, (i) CILCORP 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 in Section 7.8(b) hereof) from any person, or
engage in any discussion or negotiations relating thereto and (ii) neither the
Board of Directors of CILCORP nor any committee thereof shall (A) withdraw or
modify, or propose publicly to withdraw or modify, in a manner adverse to AES,
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 CILCORP or any
CILCORP 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 CILCORP
may, at any time prior to receipt of CILCORP Stockholders' Approval (the
"CILCORP 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 7.8, if the Board of Directors of CILCORP
(x) reasonably believes in good faith, after consultation with its financial
advisors, that an Acquisition Proposal may be a Superior Proposal (as defined in
Section 7.8(b) hereof) 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 CILCORP's
stockholders under applicable law, and subject to providing AES with prior
written notice of its decision to take such action (the "CILCORP NOTICE") and
compliance with Section 7.8(c) hereof, (1) furnish information with respect to
CILCORP and the CILCORP Subsidiaries to any person making a Superior Proposal
pursuant to a customary confidentiality agreement and (2) participate in
discussions or negotiations regarding such Superior 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 CILCORP 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
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event that during the CILCORP Applicable Period the Board of Directors of
CILCORP reasonably believes in good faith, after consultation with its 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 CILCORP's stockholders under applicable law,
by action of the Board of Directors of CILCORP (subject to this sentence and
Section 9.1(d)(ii) hereof), 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 CILCORP or any such
CILCORP Subsidiary, other than the transactions contemplated by this Agreement),
but only at a time that is during the CILCORP Applicable Period and is after the
third business day following AES' receipt of written notice advising AES that
the Board of Directors of CILCORP 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. CILCORP shall immediately
cease and terminate any existing solicitation, initiation, encouragement,
activity, discussion or negotiation with any persons conducted heretofore by
CILCORP or its Representatives with respect to any of 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
CILCORP and the CILCORP Subsidiaries, taken as a whole, or 15% or more of any
class of voting securities of CILCORP or any CILCORP Subsidiary owning,
operating or controlling a Material Business, any tender offer or exchange offer
that it consummated would result in any person beneficially owing 15% or more of
any class of voting securities of CILCORP or any such CILCORP Subsidiary, or any
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving CILCORP or any such CILCORP
Subsidiary, other than the transactions contemplated by this Agreement;
provided, however, that no transaction permitted pursuant to Section 6.1(f)
hereof 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 50% of the combined voting power of the shares of CILCORP
Common Stock then outstanding or all or substantially all the assets of CILCORP
which the Board of Directors of CILCORP determines in its good faith judgment,
after consultation with its financial advisors and outside counsel, to be more
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favorable to CILCORP's Stockholders (taking into account any changes to the
financial terms of this Agreement proposed by AES 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 CILCORP and any changes
to this Agreement proposed by AES in response to such proposal) than the Merger
and the other transactions contemplated by this Agreement.
(c) CILCORP shall promptly advise AES orally and in writing of the receipt
of any Acquisition Proposal or Superior Proposal and of the receipt of any
inquiry with respect to or which CILCORP reasonably believes could lead to any
Acquisition Proposal or Superior Proposal. CILCORP shall promptly advise AES
orally and in writing of the identity of the person making any such Acquisition
Proposal or Superior Proposal or inquiry and of the material terms of any such
Acquisition Proposal or Superior Proposal and of any material changes thereto.
Section 7.9 EXPENSES. All costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses.
Section 7.10 BOARD OF DIRECTORS. At or prior to the Effective Time,
CILCORP shall obtain the resignation as of the Effective Time of each director
of CILCORP and, if so requested by AES, of any director or officer of any
CILCORP Subsidiary or officer of CILCORP.
Section 7.11 ILLINOIS RESPONSIBLE PROPERTY TRANSFER ACT. If, as a result
of the transactions contemplated by this Agreement or as a result of any debt
financing undertaken by AES or an affiliate of AES or a AES Subsidiary in order
to complete the transactions contemplated by this Agreement, the requirements of
the Illinois Responsible Property Transfer Act (the "Property Transfer Act") are
triggered with respect to any of the real property owned or operated by CILCORP,
any CILCORP Subsidiary or any CILCORP Joint Venture, CILCORP shall be
responsible, at its own cost and expense, for compliance with all of the
obligations of the Property Transfer Act, including, without limitation, the
preparation of any disclosure document required to be provided to AES or any
lender.
Section 7.12 SIGNATURE AUTHORITY. Effective as of the Closing, at the
request of AES, CILCORP shall prepare and deliver to AES a list of all persons
with signature authority on the bank accounts of CILCORP and the CILCORP
Subsidiaries and all persons with authority to bind CILCORP and any CILCORP
Subsidiary to an agreement with an amount in excess of $100,000 or a term longer
than one year. CILCORP shall
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revoke such authority of any person designated by AES, effective as of the
morning of the Closing Date.
Section 7.13 TERMINATION OF EXISTING TAX SHARING AGREEMENTS. CILCORP shall
take or cause to be taken all actions necessary such that after the Closing
Date, neither CILCORP nor any CILCORP Subsidiary shall have any further rights
or liabilities under any agreement existing on or before the Closing Date which
relates to the allocation or sharing of Taxes.
Section 7.14 DEFERRED COMPENSATION PLANS. Prior to the Effective Time,
CILCORP will take all actions necessary or appropriate to establish a so-called
"rabbi trust" (in form and substance reasonably satisfactory to AES) which shall
be used to fund the CILCO Executive Deferral Plan (the "EDP I PLAN"). Upon the
establishment of the rabbi trust for the EDP I Plan, CILCORP shall transfer
ownership of the CILCORP life insurance policies that currently are intended to
fund the EDP I Plan to such trust. After the Effective Time, AES shall cause
CILCO to remain the primary obligor of and to honor, in accordance with its
terms, the EDP I Plan and the related rabbi trust. Nothing in this Section 7.14
shall require AES or CILCO to allow participants in such plan to defer
compensation income that will be earned by the participants on or after the
Effective Time.
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 or waiver on or prior to the Closing Date of the
following conditions:
(a) STOCKHOLDER APPROVALS. The CILCORP Stockholders' Approval shall have
been obtained.
(b) NO INJUNCTIONS OR RESTRAINTS. No judgment, decree, statute, law,
ordinance, rule, regulation, temporary restraining order, preliminary or
permanent injunction or other order enacted, entered, promulgated, enforced or
issued by any court of competent jurisdiction or other Governmental Authority or
other legal restraint or prohibition (collectively, "RESTRAINTS") preventing the
consummation of the Merger shall be in effect; provided, however, that each of
the parties shall have used all reasonable efforts to prevent the entry of any
such Restraints and to appeal as promptly as possible any such Restraints that
may be entered.
(c) STATUTORY APPROVALS. The AES Required Statutory Approvals and the
CILCORP Required Statutory Approvals shall have been obtained, such approvals
shall
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have become Final Orders (as defined below) and such Final Orders shall not
impose terms or conditions which, in the aggregate, would have, or insofar as
reasonably can be foreseen, could have, a AES Material Adverse Effect or a
CILCORP Material Adverse Effect, or which would be inconsistent with the
agreements of the parties contained herein. The term "Final Order" shall mean
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.
(d) HSR ACT. All applicable waiting periods under the HSR Act shall have
expired or been terminated.
Section 8.2 CONDITIONS TO OBLIGATION OF CILCORP TO EFFECT THE MERGER. The
obligation of CILCORP to effect the Merger shall be further subject to the
satisfaction or waiver, on or prior to the Closing Date, of the following
conditions:
(a) PERFORMANCE OF OBLIGATIONS OF AES. AES and Merger Sub each shall have
performed in all material respects their respective agreements and covenants
contained in or contemplated by this Agreement, which are required to be
performed by it at or prior to the Closing Date.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
AES set forth in this Agreement shall be true and correct in all material
respects (or where any statement in a representation or warranty expressly
includes a standard of materiality, such statement shall be true and correct in
all respects as so qualified) as of the date hereof (except to the extent such
representations and warranties speak as of an earlier or later date) and as of
the Closing Date as if made on and as of the Closing Date, except as otherwise
contemplated by this Agreement.
(c) CLOSING CERTIFICATES. CILCORP shall have received a certificate signed
by an executive officer of AES, 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)
hereof and Section 8.2(b) hereof have been satisfied.
Section 8.3 CONDITIONS TO OBLIGATION OF AES AND MERGER SUB TO EFFECT THE
MERGER. The obligation of AES and Merger Sub to effect the Merger shall be
further subject to the satisfaction or waiver, on or prior to the Closing Date,
of the following conditions:
(a) PERFORMANCE OF OBLIGATIONS OF CILCORP. CILCORP (and/or appropriate
CILCORP Subsidiaries) shall have performed in all material respects its
agreements and
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covenants contained in or contemplated by this Agreement which are required to
be performed by it at or prior to the Closing Date.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
CILCORP set forth in this Agreement shall be true and correct in all material
respects (or where any statement in a representation or warranty expressly
includes a standard of materiality, such statement shall be true and correct in
all respects as so qualified) as of the date hereof (except to the extent such
representations and warranties speak as of an earlier or later date) and as of
the Closing Date as if made on and as of the Closing Date, except as otherwise
contemplated by this Agreement.
(c) CILCORP MATERIAL ADVERSE EFFECT. Subject to Section 8.3(c) of the
CILCORP Disclosure Schedule, no CILCORP Material Adverse Effect shall have
occurred and there shall exist no fact or circumstance that would or, insofar as
reasonably can be foreseen, could have a CILCORP Material Adverse Effect.
(d) CILCORP REQUIRED CONSENTS. The CILCORP Required Consents shall have
been obtained.
(e) PUHCA EXEMPTION. The SEC shall have issued an order in form and
substance reasonably satisfactory to AES (the "SEC EXEMPTION ORDER") granting
AES an exemption from registration as a holding company under PUHCA pursuant to
PUHCA Section 3(a)(5), and the SEC Exemption Order shall be in full force and
effect on the Closing Date.
(f) FINANCING. AES shall have the proceeds available pursuant to the
Financing sufficient to pay the Aggregate Consideration Amount.
(g) CLOSING CERTIFICATES. AES shall have received a certificate signed by
an executive officer of CILCORP, dated the Closing Date, to the effect that, to
the best of such officer's knowledge, the conditions set forth in Sections
8.3(a), (b), (c), (d) and (k) hereof have been satisfied.
(h) AES REQUIRED CONSENTS. The AES Required Consents shall have been
obtained.
(i) NO INJUNCTIONS OR RESTRAINTS AS TO SECOND MERGER. No Restraints
preventing the consummation of the Second Merger shall be in effect; provided,
however, that each of the parties shall have used all reasonable efforts to
prevent the entry of any such Restraints and to appeal as promptly as possible
any such Restraints that may be entered.
(j) TRIGGER OF CILCORP RIGHTS. No event has occurred or could occur
pursuant to this Agreement or otherwise that would result in the triggering of
any right or entitlement of CILCORP stockholders under the CILCORP Rights
Agreement, including a "flip-in"
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or "flip-over" or similar event commonly described in such rights plans which,
in the reasonable judgment of AES, would have or be reasonably likely to result
in a CILCORP Material Adverse Effect or materially change the number of
outstanding equity securities of CILCORP, and the CILCORP Rights shall not have
become nonredeemable by the CILCORP Board of Directors.
(k) ILLINOIS COMMERCE COMMISSION. (i) The Illinois Commerce Commission
shall have issued the Illinois Certification and (ii) AES shall reasonably
believe that any order of, approval by or result of any filing, proceeding or
notice with the Illinois Commerce Commission required under the Illinois Public
Utilities Act in connection with the Merger could not be expected to have an
adverse effect on AES' ability to obtain the Financing or on AES, CILCORP or any
of the CILCORP Subsidiaries after the Effective Time (the "AES REASONABLE BELIEF
STANDARD").
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date:
(a) without payment of a termination fee by mutual written consent of
CILCORP and AES.
(b) by AES or CILCORP under any of the following circumstances:
(i) without payment of a termination fee, 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.
(ii) after the eighteen-month anniversary of the date of this Agreement
without payment of a termination fee, by written notice to the other party, if
the Merger shall not have been consummated on or before the eighteen-month
anniversary of the date of this Agreement; provided, however, that the right to
terminate the Agreement under this Section 9.1(b)(ii) 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 Merger to have been
consummated, and provided further, that if after the fifteen-month anniversary
of the date hereof and prior to the eighteen-month anniversary, CILCORP shall
have delivered to AES the CILCORP Certificate as provided in Section 6.2(d),
then neither
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AES nor CILCORP shall be entitled to terminate under this Section 9.1(b)(ii)
until a period of 90 days shall have elapsed from the receipt of the CILCORP
Certificate.
(iii) by written notice to the other party, if the CILCORP Shareholders'
Approval shall not have been obtained at the CILCORP Meeting, including any
adjournments thereof. In the event this Agreement is terminated pursuant to this
Section 9.1(b)(iii) and at or within twelve months of the date of the CILCORP
Meeting, CILCORP enters into any agreement with respect to an Alternative
Transaction (as defined below), then within ten business days after the
execution of such agreement, CILCORP shall immediately pay in cash to AES by
wire transfer of same day funds a termination fee in an amount equal to 3.0% of
the Aggregate Consideration Amount (the "ACQUISITION TERMINATION FEE"). As used
herein, "ALTERNATIVE TRANSACTION" means any of (i) a transaction or series of
transactions pursuant to which any person (or group of persons) other than AES
or the AES Subsidiaries and other than CILCORP and the CILCORP Subsidiaries (a
"THIRD PARTY") acquires or would acquire, directly or indirectly, beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) of more than 50% of
the outstanding Shares of CILCORP or CILCO, as the case may be, whether from
CILCORP or CILCO or pursuant to a tender offer or exchange offer or otherwise,
(ii) any acquisition or proposed acquisition of CILCORP or CILCO by a merger or
other business combination (including any so-called "merger of equals" and
whether or not CILCORP or CILCO is the entity surviving any such merger or
business combination) or (iii) any other transaction pursuant to which any Third
Party acquires or would acquire, directly or indirectly, all or substantially
all of the assets (including for this purpose the outstanding equity securities
of CILCORP or CILCO, and any entity surviving any merger or combination
including any of them) of CILCORP or CILCO.
(iv) by written notice to the other party after the Financing Due Date (as
defined below), if the financing condition set forth in Section 8.3(f) has not
been satisfied but all conditions to Closing have been satisfied on or prior to
such date. The "FINANCING DUE DATE" shall mean that date which is the 90th day
after all conditions to Closing set forth in Article VIII have been satisfied
other than Section 8.3(f), it being agreed that the 90 days shall not begin to
run until all such conditions have been satisfied and AES has received a
certificate signed by an executive officer of CILCORP attesting to the
satisfaction by CILCORP of the conditions in Sections 8.1 and 8.3(a), (b), (c),
(d) and (k), which certificate shall be dated no earlier than the date on which
the last of the conditions set forth in Article VIII has been satisfied. In the
event that this Agreement is terminated pursuant to this Section 9.1(b)(iv), AES
shall pay CILCORP in cash by wire transfer of same day funds within ten business
days of such termination notice a termination fee in an amount equal to the
product of (x) the Outstanding Shares and (y) $5.00 (the "FINANCING TERMINATION
FEE").
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(c) by AES under any of the following circumstances:
(i) by written notice to CILCORP, if (x) there shall have been any material
breach of any representation or warranty, or any material breach of any covenant
or agreement, of CILCORP hereunder, and such breach shall not have been remedied
within thirty days after receipt by CILCORP of notice in writing from AES,
specifying the nature of such breach and requesting that it be remedied;
provided, however that CILCORP shall not be entitled to expend more than $10
million to cure any and all such breaches without the prior written approval of
AES; or (y) the Board of Directors of CILCORP (A) shall withdraw or modify in
any manner adverse to AES its approval of this Agreement and the transactions
contemplated hereby or its recommendation to its stockholders regarding the
approval of this Agreement, (B) shall fail to reaffirm such approval or
recommendation upon the request of AES, (C) shall approve or recommend any
Acquisition Proposal or (D) shall resolve to take any of the actions specified
in clause (A), (B) or (C); provided, however, that AES and CILCORP acknowledge
and affirm that notwithstanding anything in this Section 9.1(c)(i) to the
contrary, the parties hereto intend this Agreement to be an exclusive agreement
and, accordingly, nothing in this Agreement is intended to constitute a
solicitation of an Acquisition Proposal, it being acknowledged and agreed that
any such offer or proposal would interfere with the strategic advantages and
benefits which the parties expect to derive from the Merger. In the event this
Agreement is terminated pursuant to this Section 9.1(c)(i), CILCORP shall pay
AES in cash by wire transfer of same day funds within ten business days of such
termination notice a termination fee in an amount equal to 3.0% of the Aggregate
Consideration Amount (the "CILCORP BREACH TERMINATION FEE").
(ii) by written notice to CILCORP after the nine-month anniversary of the
date hereof if the SEC Exemption Order shall not have been issued or irrevocably
waived by AES prior to the time such notice is given. In the event this
Agreement is terminated pursuant to this Section 9.1(c)(ii), then AES shall pay
CILCORP in cash by wire transfer of same day funds within ten business days of
such termination notice a termination fee in an amount equal to the product of
(x) the Outstanding Shares and (y) $1.00, together with an additional
$0.00546448 per day for each day beginning on the later of (A) the day after the
nine-month anniversary of the date hereof or (B) five days after the date of any
order, approval or result, as the case may be, contemplated by clause (ii) of
Section 8.3(k) hereof, unless AES shall have notified CILCORP within such
five-day period that the condition in clause (ii) of Section 8.3(k) hereof has
not been satisfied, until the date of termination (up to a maximum of $3.00
under this clause (y)) (the "REGULATORY TERMINATION FEE"); provided, however,
that the Regulatory Termination Fee shall not be payable to CILCORP if the
failure to obtain the SEC Exemption Order by the nine-month anniversary of the
date hereof has been caused by breach of this Agreement by CILCORP or by
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any action or omission by CILCORP after the date hereof unless taken at the
direction of AES.
(iii) without payment of a termination fee by AES or CILCORP by written
notice to CILCORP after the one-year anniversary of the date hereof if any
approvals or other actions of the Illinois Commerce Commission required under
the Illinois Public Utilities Act have either not been issued, or if issued or
taken, such order, approval or other actions shall not meet the AES Reasonable
Belief Standard set forth in clause (ii) of Section 8.3(k) hereof, provided
however that AES may terminate this Agreement (without payment of a termination
fee by AES or CILCORP) by written notice to CILCORP after the eighth-month
anniversary of the date hereof if AES does not reasonably believe that within
the above-referenced one-year period the AES Reasonable Belief Standard set
forth in the clause (ii) of Section 8.3 (k) hereof will be satisfied with
respect to such approvals or other actions.
(d) by CILCORP under any of the following circumstances:
(i) by written notice to AES, if there shall have been any material breach
of any representation or warranty contained in Sections 5.1, 5.2 and 5.5 hereof,
or any material breach of any covenant or agreement of AES hereunder, and such
breach shall not have been remedied within thirty days after receipt by AES of
notice in writing from CILCORP, specifying the nature of such breach and
requesting that it be remedied. In the event this Agreement is terminated
pursuant to this Section 9.1(d)(i), AES shall pay CILCORP in cash by wire
transfer of same day funds within ten business days of such termination notice a
termination fee in an amount equal to 3.0% of the Aggregate Consideration Amount
(the "AES BREACH TERMINATION FEE").
(ii) in accordance with clause (iii) of the proviso to the first sentence of
Section 7.8(a) hereof, by written notice to AES; provided that, in order for the
termination of this Agreement pursuant to this subparagraph (ii) to be deemed
effective, CILCORP shall have complied with all provisions of Section 7.8
hereof. In the event this Agreement is terminated pursuant to this Section
9.1(d)(ii), CILCORP shall pay AES within ten days in cash by wire transfer of
same day funds a termination fee in an amount equal to the Acquisition
Termination Fee.
(iii) by written notice to AES after the 18-month anniversary of the date
hereof, if all conditions to Closing have been satisfied, other than the
issuance of the SEC Exemption Order and CILCORP delivers to AES a certificate
signed by an executive officer of CILCORP attesting to the satisfaction by
CILCORP of the conditions in Sections 8.1 and 8.3(a), (b), (c), (d) and (k) (the
"SECTION 9.1(D) CERTIFICATE") then within 10 business days of the receipt of the
Section 9.1(d) Certificate, AES shall pay to CILCORP in cash by
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wire transfer of same day funds within ten business days of such termination
notice a termination fee in an amount equal to the Regulatory Termination Fee.
(iv) without payment of a termination fee by AES or CILCORP, upon two
business days' written notice to AES after the six-month anniversary of the date
hereof if the Illinois Certification shall not have been issued or waived by AES
prior to or within two business days after the time such notice is given.
Section 9.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either CILCORP or AES pursuant to Section 9.1, there shall be no
liability on the part of either CILCORP or AES or their respective officers or
directors hereunder, except that Section 7.8, Section 9.1, Section 9.2 and
Section 9.3, the agreement contained in the last sentence of Section 7.1 and in
Section 10.6 shall survive the termination.
Section 9.3 TERMINATION FEES; EXPENSES.
(a) EXPENSES.The parties agree that the termination fees contained in
Article IX 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 Agreement, if one party fails to
promptly pay to the other any fee or expense due under Article IX, in addition
to any amounts paid or payable pursuant to such Section, the party shall pay the
costs and expenses (including legal fees and expenses) in connection with any
action, including the filing of any lawsuit or other legal action, taken to
collect payment, together with interest on the amount of any unpaid fee at the
publicly announced prime rate of Citibank, N.A. from the date such fee was
required to be paid.
(b) LIMITATION OF FEES. Notwithstanding anything herein to the contrary,
AES shall in no event be liable or required to pay to CILCORP more than one of
(A) the Regulatory Termination Fee, (B) the Financing Termination Fee or (C) the
AES Breach Termination Fee.
Section 9.4 AMENDMENT. This Agreement may be amended by the Boards of
Directors of the parties hereto, at any time before or after approval hereof by
the stockholders of CILCORP and prior to the Effective Time, but after such
approval, no such amendment shall (a) alter or change the Per Share Amount under
Article II or (b) alter or change any of the terms and conditions of this
Agreement if any of the alterations or changes, alone or in the aggregate, would
materially adversely affect the rights of holders of CILCORP Common Stock,
except for alterations or changes that could otherwise be adopted by the Board
of Directors of CILCORP or AES, without the further approval of CILCORP
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
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Section 9.5 WAIVER. At any time prior to the Effective Time, the parties
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein, to the extent permitted by applicable law. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid if set forth in an instrument in writing signed on behalf of such party.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 NON-SURVIVAL; EFFECT OF REPRESENTATIONS AND WARRANTIES. No
representations or warranties in this Agreement shall survive the Effective
Time, except as otherwise provided in this Agreement.
Section 10.2 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 AES or Merger Sub, to:
The AES Corporation
1001 North 19th Street, 20th Floor
Arlington, Virginia 22209
Attention: General Counsel
Telephone: 703-522-1315
Facsimile: 703-528-4510
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, DC 20005
Attention: Michael P. Rogan, Esq.
Marcia R. Nirenstein,Esq.
Telephone: 202-371-7000
Facsimile: 202-393-5760
and
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(ii) if to CILCORP, to:
CILCORP Inc
300 Hamilton Boulevard, Suite 300
Peoria, Illinois 61602
Attention: John G. Sahn, Esq.
Telephone: 309-675-8822
Facsimile: 309-675-8888
with a copy to:
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004
Attention: Stephen R. Rusmisel, Esq.
Telephone: 212-858-1000
Facsimile: 212-858-1500
Section 10.3 MISCELLANEOUS. This Agreement (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 (other than the Confidentiality Agreement), (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 and except to the extent the
provisions of this Agreement (including the documents or instruments referred to
herein) are expressly governed by or derive their authority from the Illinois
Act.
Section 10.4 INTERPRETATION. When a reference is made in this Agreement to
Sections or Exhibits, such reference shall be to a Section or Exhibit of this
Agreement, respectively, unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation."
Section 10.5 COUNTERPARTS; EFFECT. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
Section 10.6 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
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that the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
of this Agreement in any court of the United States located in the State of New
York or any New York state court in the County 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 State of New York or
any New York state court in the County 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 sitting in the State of New York or a New York state court sitting
in the County of New York.
Section 10.7 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and, except for rights of
Indemnified Parties as set forth in Section 7.5, nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
Section 10.8 FURTHER ASSURANCES. Each party will execute such further
documents and instruments and take such further actions as may reasonably be
requested by any other party in order to consummate the Merger in accordance
with the terms hereof.
Section 10.9 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 10.10 CERTAIN DEFINITIONS. 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. The term "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).
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IN WITNESS WHEREOF, AES, CILCORP and Merger Sub have caused this Agreement
as of the date first written above to be signed by their respective officers
thereunto duly authorized.
<TABLE>
<S> <C> <C>
THE AES CORPORATION
By: /s/ THOMAS A. TRIBONE
---------------------------
Name: Thomas A. Tribone
Title: EXECUTIVE VICE PRESIDENT
CILCORP Inc.
By: /s/ ROBERT O. VIETS
---------------------------
Name: Robert O. Viets
Title: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
MIDWEST ENERGY, INC.
By: /s/ THOMAS A. TRIBONE
---------------------------
Name: Thomas A. Tribone
Title: EXECUTIVE VICE PRESIDENT
</TABLE>
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ANNEX B
OPINION OF SALOMON SMITH BARNEY INC.
SALOMON SMITH BARNEY
A Member of Travelers Group
November 22, 1998
Board of Directors
CILCORP, Inc.
300 Hamilton Blvd.
Suite 300
Peoria, IL 61602
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of common stock, no par value ("Company Common Stock"), of
CILCORP, Inc. (the "Company"), of the consideration to be received by such
holders in connection with the proposed merger (the "Merger") of the Company
with and into a wholly owned subsidiary ("Merger Sub") of AES Corporation
("Parent"), pursuant to an Agreement and Plan of Merger (the "Agreement"), dated
as of November 22, 1998, by and among the Company, parent and Merger Sub.
As more specifically set forth in the Agreement and subject to the terms and
conditions thereof, upon the effectiveness of the Merger, each issued and
outstanding share of the Company Common Stock (other than shares owned by
Parent, Merger Sub, the Company or any direct or indirect wholly owned
subsidiary of Parent or the Company and any shares whose holders exercise their
dissenters' rights pursuant to the Agreement and applicable law), together with
all associated purchase rights, will be converted into and represent the right
to receive cash in the amount of $65 (the "Merger Consideration"), without
interest, and the surviving corporation will be a wholly owned subsidiary of
Parent.
In connection with rendering our opinion, we have reviewed certain publicly
available information concerning the Company and certain other financial
information concerning the Company, including financial forecasts, that were
provided to us by the Company. We have discussed the past and current business
operations, financial condition and prospects
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of the Company with certain officers and employees of the Company. In connection
with our engagement we were not requested to, and did not, solicit third party
indications of interests in respect of the acquisition of all or a part of the
Company. We have also considered such other information, financial studies,
analyses, investigations and financial, economic and market criteria that we
deemed relevant.
In our review and analysis and in arriving at our opinion, we have assumed and
relied upon the accuracy and completeness of the information reviewed by us for
the purpose of this opinion and we have to assumed any responsibility for
independent verification of such information. With respect to the financial
forecasts of the Company, we have been advised by the management of the Company
that such forecasts have been reasonably prepared on bases reflecting its best
currently available estimates and judgments, and we express no opinion with
respect to such forecasts or the assumptions on which they are based. We have
not assumed any responsibility for any independent evaluation or appraisal of
any of the assets (including properties and facilities) or liabilities of the
Company.
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Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof and we assume no responsibility to update or revise
our opinion based upon circumstances or events occurring after the date hereof.
Our opinion is, in any event, directed only to the fairness, from a financial
point of view, of the Merger Consideration to be received by the holders of
Company Common Stock in connection with the Merger and does not address the
Company's underlying business decision to effect the Merger or constitute a
recommendation concerning how holders of Company Common Stock should vote with
respect to the Agreement or the Merger.
We have acted as financial advisor to the Board of Directors of the Company in
connection with the Merger and will receive a fee for our services, a portion of
which is payable upon initial delivery of this fairness opinion and the
remainder of which is contingent upon consummation of the Merger. In the
ordinary course of business, we and our affiliates may actively trade the
securities of the Company and Parent for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities. In addition, we and our affiliates have previously rendered
certain investment banking and financial advisory services to the Company and
Parent for which we have received customary compensation. We and our affiliates
(including Citigroup Inc.) may have other business relationships with the
Company or Parent in the ordinary course of their businesses.
This opinion is intended solely for the benefit and use of the Board of
Directors of the Company in considering the transaction to which it relates and
may not be used for any purpose or reproduced, disseminated, quoted or referred
to (other than in the Agreement) at any time, in any manner or for any purpose,
without the prior written consent of Salomon Smith Barney.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Merger Consideration is fair, from a financial point of view, to the
holders of Company Common Stock.
Very truly yours,
SALOMON SMITH BARNEY
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ANNEX C
ILLINOIS BUSINESS CORPORATION ACT
DISSENTERS' RIGHTS PROVISIONS
SECTION 11.65.--RIGHT TO DISSENT
Section. 11.65. Right to dissent.
(a) A shareholder of a corporation is entitled to dissent from, and obtain
payment for his or her shares in the event of any of the following corporate
actions:
(1) consummation of a plan of merger or consolidation or a plan of share
exchange to which the corporation is a party if (i) shareholder
authorization is required for the merger or consolidation or the share
exchange by Section 11.20 [805 ILCS 5/11.20] or the articles of
incorporation or (ii) the corporation is a subsidiary that is merged
with its parent or another subsidiary under Section 11.30;
(2) consummation of a sale, lease or exchange of all, or substantially all,
of the property and assets of the corporation other than in the usual
and regular course of business;
(3) an amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(i) alters or abolishes a preferential right of such shares;
(ii) alters or abolishes a right in respect of redemption, including a
provision respecting a sinking fund for the redemption or
repurchase, of such shares;
(iii) in the case of a corporation incorporated prior to January 1, 1982,
limits or eliminates cumulative voting rights with respect to such
shares; or
(4) any other corporate action taken pursuant to a shareholder vote if the
articles of incorporation, by-laws, or a resolution of the board of
directors provide that shareholders are entitled to dissent and obtain
payment for their shares in accordance with the procedures set forth in
Section 11.70 [805 ILCS 5/11.70] or as may be otherwise provided in the
articles, by-laws or resolution.
(b) A shareholder entitled to dissent and obtain payment for his or her shares
under this Section may not challenge the corporate action creating his or
her entitlement unless the action is fraudulent with respect to the
shareholder or the corporation or constitutes a breach of a fiduciary duty
owed to the shareholder.
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(c) A record owner of shares may assert dissenters' rights as to fewer than all
the shares recorded in such person's name only if such person dissents with
respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose
behalf the record owner asserts dissenters' rights. The rights of a partial
dissenter are determined as if the shares as to which dissent is made and
the other shares were recorded in the names of different shareholders. A
beneficial owner of shares who is not the record owner may assert
dissenters' rights as to shares held on such person's behalf only if the
beneficial owner submits to the corporation the record owner's written
consent to the dissent before or at the same time the beneficial owner
asserts dissenters' rights.
SECTION 11.70--PROCEDURE TO DISSENT
Section. 11.70. Procedure to Dissent.
(a) If the corporate action giving rise to the right to dissent is to be
approved at a meeting of shareholders, the notice of meeting shall inform
the shareholders of their right to dissent and the procedure to dissent. If,
prior to the meeting, the corporation furnishes to the shareholders material
information with respect to the transaction that will objectively enable a
shareholder to vote on the transaction and to determine whether or not to
exercise dissenters' rights, a shareholder may assert dissenters' rights
only if the shareholder delivers to the corporation before the vote is taken
a written demand for payment for his or her shares if the proposed action is
consummated, and the shareholder does not vote in favor of the proposed
action.
(b) If the corporate action giving rise to the right to dissent is not to be
approved at a meeting of shareholders, the notice to shareholders describing
the action taken under Section 11.30 or Section 7.10 [805 ILCS 5/11.30 or
805 ILCS 5/7.10] shall inform the shareholders of their right to dissent and
the procedure to dissent. If, prior to or concurrently with the notice, the
corporation furnishes to the shareholders material information with respect
to the transaction that will objectively enable a shareholder to determine
whether or not to exercise dissenters' rights, a shareholder may assert
dissenter's rights only if he or she delivers to the corporation within 30
days from the date of mailing the notice a written demand for payment for
his or her shares.
(c) Within 10 days after the date on which the corporate action giving rise to
the right to dissent is effective or 30 days after the shareholder delivers
to the corporation the written demand for payment, whichever is later, the
corporation shall send each shareholder who has delivered a written demand
for payment a statement setting forth the opinion of the corporation as to
the estimated fair value of the shares, the corporation's latest balance
sheet as of the end of a fiscal year ending not earlier than
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16 months before the delivery of the statement, together with the statement
of income for that year and the latest available interim financial
statements, and either a commitment to pay for the shares of the dissenting
shareholder at the estimated fair value thereof upon transmittal to the
corporation of the certificate or certificates, or other evidence of
ownership, with respect to the shares, or instructions to the dissenting
shareholder to sell his or her shares within 10 days after delivery of the
corporation's statement to the shareholder. The corporation may instruct the
shareholder to sell only if there is a public market for the shares at which
the shares may be readily sold. If the shareholder does not sell within that
10 day period after being so instructed by the corporation, for purposes of
this Section the shareholder shall be deemed to have sold his or her shares
at the average closing price of the shares, if listed on a national
exchange, or the average of the bid and asked price with respect to the
shares quoted by a principal market maker, if not listed on a national
exchange, during that 10 day period.
(d) A shareholder who makes written demand for payment under this Section
retains all other rights of a shareholder until those rights are cancelled
or modified by the consummation of the proposed corporate action. Upon
consummation of that action, the corporation shall pay to each dissenter who
transmits to the corporation the certificate or other evidence of ownership
of the shares the amount the corporation estimates to be the fair value of
the shares, plus accrued interest, accompanied by a written explanation of
how the interest was calculated.
(e) If the shareholder does not agree with the opinion of the corporation as to
the estimated fair value of the shares or the amount of interest due, the
shareholder, within 30 days from the delivery of the corporation's statement
of value, shall notify the corporation in writing of the shareholder's
estimated fair value and amount of interest due and demand payment for the
difference between the shareholder's estimate of fair value and interest due
and the amount of the payment by the corporation or the proceeds of sale by
the shareholder, whichever is applicable because of the procedure for which
the corporation opted pursuant to subsection (c).
(f) If, within 60 days from delivery to the corporation of the shareholder
notification of estimate of fair value of the shares and interest due, the
corporation and the dissenting shareholder have not agreed in writing upon
the fair value of the shares and interest due, the corporation shall either
pay the difference in value demanded by the shareholder, with interest, or
file a petition in the circuit court of the county in which either the
registered office or the principal office of the corporation is located,
requesting the court to determine the fair value of the shares and interest
due. The corporation shall make all dissenters, whether or not residents of
this State, whose demands remain unsettled parties to the proceeding as an
action against their shares
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<PAGE>
and all parties shall be served with a copy of the petition. Nonresidents
may be served by registered or certified mail or by publication as provided
by law. Failure of the corporation to commence an action pursuant to this
Section shall not limit or affect the right of the dissenting shareholders
to otherwise commence an action as permitted by law.
(g) The jurisdiction of the court in which the proceeding is commenced under
subsection (f) by a corporation is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the power
described in the order appointing them, or in any amendment to it.
(h) Each dissenter made a party to the proceeding is entitled to judgment for
the amount, if any, by which the court finds that the fair value of his or
her shares, plus interest, exceeds the amount paid by the corporation or the
proceeds of sale by the shareholder, whichever amount is applicable.
(i) The court, in a proceeding commenced under subsection (f), shall determine
all costs of the proceeding, including the reasonable compensation and
expenses of the appraisers, if any, appointed by the court under subsection
(g), but shall exclude the fees and expenses of counsel and experts for the
respective parties. If the fair value of the shares as determined by the
court materially exceeds the amount which the corporation estimated to be
the fair value of the shares or if no estimate was made in accordance with
subsection (c), then all or any part of the costs may be assessed against
the corporation. If the amount which any dissenter estimated to be the fair
value of the shares materially exceeds the fair value of the shares as
determined by the court, then all or any part of the costs may be assessed
against that dissenter. The court may also assess the fees and expenses of
counsel and experts for the respective parties, in amounts the court finds
equitable, as follows:
(1) Against the corporation and in favor of any or all dissenters if the
court finds that the corporation did not substantially comply with the
requirements of subsections (a), (b), (c), (d), or (f).
(2) Against either the corporation or a dissenter and in favor of any other
party if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this Section.
If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated and that the fees for
those services should not be assessed against the corporation, the court may
award to that counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who are benefited. Except as
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otherwise provided in this Section, the practice, procedure, judgment and costs
shall be governed by the Code of Civil Procedure [735 ILCS 5/1-101 et seq.].
(j) As used in this Section:
(1) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the consummation of the corporate action
to which the dissenter objects excluding any appreciation or
depreciation in anticipation of the corporate action, unless exclusion
would be inequitable.
(2) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by
the corporation on its principal bank loans or, if none, at a rate that
is fair and equitable under all the circumstances.
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<PAGE>
CILCORP INC.
300 HAMILTON BLVD., SUITE 300
PEORIA, ILLINOIS 61602
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints R. O. Viets and J. G. Sahn, and each of them,
attorneys and proxies with power of substitution to each, with authority to vote
all shares which the undersigned would be entitled to vote if personally present
at the 1999 Special Meeting of Shareholders of CILCORP Inc. (the "Special
Meeting") to be held May 20, 1999, or at any adjournment thereof, upon the items
set forth in the notice of meeting and proxy statement relating thereto and, in
their discretion, upon any other matter which may properly come before the
meeting. The shares represented hereby will be voted as directed on the reverse
of this card.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEM NO. 1
IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE STRONGLY
URGE YOU TO REVIEW, COMPLETE AND RETURN YOUR PROXY IN THE ENCLOSED POSTAGE PAID
ENVELOPE AS SOON AS POSSIBLE.
THE ACCOMPANYING PROXY STATEMENT INCLUDES A SUMMARY OF THE TERMS OF THE MERGER
AGREEMENT AND CERTAIN RELATED INFORMATION. WE ENCOURAGE YOU TO READ THIS
DOCUMENT CAREFULLY.
IF NOT OTHERWISE DIRECTED, THIS PROXY WILL BE VOTED FOR ITEM NO. 1
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
<PAGE>
Item No. 1--To approve and adopt the Agreement and Plan of Merger (the "Merger
Agreement") among CILCORP Inc., The AES Corporation, a Delaware corporation
("AES"), and Midwest Energy, Inc., an Illinois corporation and a wholly-owned
subsidiary of AES which has been specially created for the transactions
contemplated by the Merger Agreement ("Midwest"). Pursuant to the Merger
Agreement, Midwest will be merged with and into CILCORP (the "Merger"), and
CILCORP will become a wholly-owned subsidiary of AES.
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
/ / / / / /
</TABLE>
PLEASE DATE AND SIGN EXACTLY AS YOUR NAME APPEARS BELOW. EACH JOINT OWNER SHOULD
ALSO SIGN. ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE, CORPORATE OFFICER OR
OTHERS SIGNING IN A REPRESENTATIVE CAPACITY SHOULD GIVE THEIR FULL TITLES.
DATE: ____________________________________________________________________, 1999
________________________________________________________________________________
SIGNATURE(S)
________________________________________________________________________________
- REMOVE PROXY AT PERFORATION AND RETURN IN ENCLOSED BUSINESS REPLY
ENVELOPE. -
