As filed with the Securities and Exchange Commission on September 21, 1998
REGISTRATION NO. 333-63237
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PHILADELPHIA SUBURBAN CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 4941 23-1702594
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification
incorporation or Classification Number)
organization) Code Number)
762 W. LANCASTER AVENUE
BRYN MAWR, PA 19010
(610) 527-8000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
ROY H. STAHL
PHILADELPHIA SUBURBAN CORPORATION
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
762 W. LANCASTER AVENUE
BRYN MAWR, PA 19010
(610) 527-8000
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copies to:
------------------
N. JEFFREY KLAUDER, ESQ. JOSEPH L. DELAFIELD, III, ESQ.
MORGAN, LEWIS & BOCKIUS LLP DRUMMOND WOODSUM & MACMAHON
2000 ONE LOGAN SQUARE 254 COMMERCIAL STREET
PHILADELPHIA, PA 19103 P.O. BOX 9781
(215) 963-5694 PORTLAND, ME 04104
(207) 772-1941
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the Merger, pursuant to the Merger Agreement described herein,
have been satisfied or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
the General Instruction G, check the following box: |_|
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
PHILADELPHIA SUBURBAN CORPORATION
762 W. LANCASTER AVENUE
BRYN MAWR, PA 19010
October 2, 1998
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders
(the "Special Meeting") of Philadelphia Suburban Corporation ("PSC") which will
be held on Monday, November 16, 1998 at 10:00 A.M. local time at the offices of
PSC at 762 Lancaster Ave, Bryn Mawr, PA 19010.
As described in the enclosed Joint Proxy Statement/Prospectus, at the
Special Meeting, shareholders will be asked to act upon the following proposals
(the "Proposals"):
1. Approval of the Amended and Restated Agreement and Plan of Merger,
dated as of August 5, 1998 (the "Merger Agreement"), by and among PSC,
Consumers Acquisition Company ("Acquisition") and Consumers Water
Company ("Consumers"), providing for the merger of Consumers with and
into Acquisition, a wholly-owned subsidiary of PSC (the "Merger").
Approval of the Merger Agreement is conditioned upon approval of the
Amendment to the Articles of Incorporation.
2. Approval of an amendment to PSC's Articles of Incorporation increasing
the authorized shares of PSC common stock, par value $.50 per share
("PSC Common Stock") from 40,000,000 to 100,000,000 (the "Amendment to
the Articles of Incorporation").
3. Approval of an amendment to PSC's 1994 Equity Compensation Plan (the
"Equity Compensation Plan") to increase from 1,900,000 to 2,900,000,
the aggregate authorized shares of the PSC Common Stock that may be
issued or transferred under the Equity Compensation Plan and to adopt
certain other amendments to the terms of the Equity Compensation Plan
necessary for the issuance of options to holders of options to purchase
Consumers Common Stock pursuant to the Merger Agreement (the "Amendment
to the Equity Compensation Plan").
Pursuant to the Merger Agreement, upon consummation of the Merger, each
share of common stock of Consumers, par value $1.00 per share ("Consumers Common
Stock") will be converted into 1.459 (the "Exchange Ratio") shares of PSC Common
Stock, unless the Exchange Ratio is adjusted as provided in the Merger
Agreement, and each share of Consumers cumulative preferred stock, par value
$100 per share ("Consumers Preferred Stock") will be converted into an amount of
PSC Common Stock equal to 3.945 times the Exchange Ratio. The Exchange Ratio may
be adjusted as follows: (i) if the product of 1.459 and the Calculation Price
(as defined in the Merger Agreement) exceeds $32, then the Exchange Ratio will
equal the number determined by dividing $32 by the Calculation Price; or (ii) if
the product of 1.459 and the Calculation Price is less than $28, then during the
three business day period commencing on the Determination Date (as defined in
the Merger Agreement), PSC shall have the option of maintaining the Exchange
Ratio at 1.459 or adjusting the Exchange Ratio to equal the number determined by
dividing $28 by the Calculation Price. If PSC elects to adjust the Exchange
Ratio, no termination will have occurred and the Merger Agreement will remain in
effect in accordance with its terms (except as the Exchange Ratio will have been
so modified). If PSC does not exercise such option, then Consumers has the
option to accept the original Exchange Ratio or to terminate the Agreement. On
September 18, 1998, the closing price of the PSC Common Stock was $27.13 and the
Calculation Price (as defined) would have been $26.16. If the Merger had been
consummated as of that date, the Exchange Ratio would have been adjusted
pursuant to the Merger Agreement, and each share of Consumers Common Stock would
have been converted into 1.223 shares of PSC Common Stock with an equivalent
market value of $33.17 and each share of Consumers Preferred Stock would have
been converted into 4.825 shares of PSC Common Stock with an equivalent market
value of $130.87; the aggregate dollar value of all PSC Common Stock to be
issued in the Merger would have been $300,272,763. The actual market value of
the PSC Common Stock to be received in the Merger may be different due to
changes in the market value of the PSC Common Stock and/or possible changes to
the Exchange Ratio.
THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS IN THE BEST
INTEREST OF PSC AND ITS SHAREHOLDERS. IN ADDITION, THE BOARD OF DIRECTORS HAS
RECEIVED THE OPINION OF ITS FINANCIAL ADVISER, SALOMON SMITH BARNEY AS OF JUNE
27, 1998 TO THE EFFECT THAT THE EXCHANGE RATIO, IS FAIR FROM A FINANCIAL POINT
OF VIEW, TO PSC. ACCORDINGLY, THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED
THE MERGER AND RECOMMENDS THAT YOU VOTE AT THE SPECIAL MEETING IN FAVOR OF THE
MERGER AGREEMENT.
Only holders of PSC Common Stock of record at the close of business on
September 18, 1998 are entitled to notice of and to vote at the Special Meeting
or any adjournments or postponements thereof.
<PAGE>
You are urged to read the enclosed Joint Proxy Statement/Prospectus,
which provides you with a description of the Merger Agreement to be voted upon
at the Special Meeting. Because of the significance of the proposed Merger to
PSC, your participation in this meeting, in person or by proxy, is especially
important. It is very important that your shares be represented at the Special
Meeting. Whether or not you plan to attend the Special Meeting, you are urged to
complete, date, sign and return the proxy card in the enclosed postage paid
envelope. Your shares will be voted at the Special Meeting in accordance with
your instructions. You can revoke the proxy at any time prior to voting and the
giving of a proxy will not affect your right to vote in the event you attend the
Special Meeting in person.
Thank you and I look forward to seeing you at the Special Meeting.
Sincerely,
____________________________________
Nicholas DeBenedictis
Chairman of the Board, President and
Chief Executive Officer
<PAGE>
CONSUMERS WATER COMPANY
THREE CANAL PLAZA
PORTLAND, MAINE 04101
October 2, 1998
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders
(the "Special Meeting") of Consumers Water Company ("Consumers") which will be
held on Monday, November 16, 1998 at 11:00 A.M. local time, at the Portland
Regency Hotel, 20 Milk Street, Portland, Maine 04101.
As described in the enclosed Joint Proxy Statement/Prospectus, at the
Special Meeting, shareholders will be asked to approve the Amended and Restated
Agreement and Plan of Merger, dated as of August 5, 1998 (the "Merger
Agreement"), by and among Philadelphia Suburban Corporation ("PSC"), Consumers
Acquisition Company ("Acquisition") and Consumers, providing for the merger of
Consumers with and into Acquisition, a wholly-owned subsidiary of PSC (the
"Merger").
Pursuant to the Merger Agreement, upon consummation of the Merger, each
share of common stock of Consumers, par value $1.00 per share ("Consumers Common
Stock") will be converted into 1.459 (the "Exchange Ratio") shares of PSC Common
Stock, unless the Exchange Ratio is adjusted as provided in the Merger
Agreement, and each share of Consumers cumulative preferred stock, par value
$100 per share ("Consumers Preferred Stock") will be converted into an amount of
PSC Common Stock equal to 3.945 times the Exchange Ratio. The Exchange Ratio may
be adjusted as follows: (i) if the product of 1.459 and the Calculation Price
(as defined in the Merger Agreement) exceeds $32, then the Exchange Ratio will
equal the number determined by dividing $32 by the Calculation Price; or (ii) if
the product of 1.459 and the Calculation Price is less than $28, then during the
three business day period commencing on the Determination Date (as defined in
the Merger Agreement), PSC shall have the option of maintaining the Exchange
Ratio at 1.459 or adjusting the Exchange Ratio to equal the number determined by
dividing $28 by the Calculation Price. If PSC elects to adjust the Exchange
Ratio, no termination will have occurred and the Merger Agreement will remain in
effect in accordance with its terms (except as the Exchange Ratio will have been
so modified). If PSC does not exercise such option, then Consumers has the
option to accept the original Exchange Ratio or to terminate the Agreement. On
September 18, 1998, the closing price of the PSC Common Stock was $27.13 and the
Calculation Price (as defined) would have been $26.16. If the Merger had been
consummated as of that date, the Exchange Ratio would have been adjusted
pursuant to the Merger Agreement, and each share of Consumers Common Stock would
have been converted into 1.223 shares of PSC Common Stock with an equivalent
market value of $33.17 and each share of Consumers Preferred Stock would have
been converted into 4.825 shares of PSC Common Stock with an equivalent market
value of $130.87; the aggregate dollar value of all PSC Common Stock to be
issued in the Merger would have been $300,272,763. The actual market value of
the PSC Common Stock to be received in the Merger may be different due to
changes in the market value of the PSC Common Stock and/or possible changes to
the Exchange Ratio.
THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS IN THE BEST
INTEREST OF CONSUMERS AND ITS SHAREHOLDERS. IN ADDITION, THE BOARD OF DIRECTORS
HAS RECEIVED THE OPINION OF ITS FINANCIAL ADVISER, SG BARR DEVLIN, AS OF AUGUST
5, 1998 TO THE EFFECT THAT THE CONSIDERATION TO BE OFFERED TO THE CONSUMERS
SHAREHOLDERS IS FAIR FROM A FINANCIAL POINT OF VIEW TO THE HOLDERS OF CONSUMERS
COMMON STOCK AND CONSUMERS PREFERRED STOCK. ACCORDINGLY, THE BOARD OF DIRECTORS
HAS UNANIMOUSLY APPROVED THE MERGER AND RECOMMENDS THAT YOU VOTE AT THE SPECIAL
MEETING IN FAVOR OF THE MERGER AGREEMENT.
Only holders of Consumers Common Stock and Consumers Preferred Stock of
record at the close of business on September 18, 1998 are entitled to notice of
and to vote at the Special Meeting or any adjournments or postponements thereof.
You are urged to read the enclosed Joint Proxy Statement/Prospectus,
which provides you with a description of the Merger Agreement to be voted upon
at the Special Meeting. Because of the significance of the proposed Merger to
Consumers, your participation in this meeting, in person or by proxy, is
especially important. It is very important that your shares be represented at
the Special Meeting. Whether or not you plan to attend the Special Meeting, you
are urged to complete, date, sign and return the proxy card in the enclosed
postage paid envelope. Your shares will be voted at the Special Meeting in
accordance with your instructions. You can revoke the proxy at any time prior to
voting and the giving of a proxy will not affect your right to vote in the event
you attend the Special Meeting in person.
Thank you and I look forward to seeing you at the Special Meeting.
Sincerely,
<PAGE>
_______________________
Peter L. Haynes
President and
Chief Executive Officer
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION
762 W. Lancaster Avenue
Bryn Mawr, PA 19010
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 16, 1998
A Special Meeting of Shareholders (the "Special Meeting") of
Philadelphia Suburban Corporation ("PSC") will be held on Monday, November 16,
1998 at 10:00 A.M. local time at PSC's offices at 762 W. Lancaster Avenue, Bryn
Mawr, PA 19010 to consider the following matters:
1. Approval of the Amended and Restated Agreement and Plan of Merger,
dated as of August 5, 1998 (the "Merger Agreement"), by and among
PSC, Consumers Acquisition Company ("Acquisition") and Consumers
Water Company ("Consumers"), providing for the merger of Consumers
with and into Acquisition, a wholly-owned subsidiary of PSC (the
"Merger"). Approval of the Merger Agreement is conditioned upon
approval of the Amendment to the Articles of Incorporation.
2. Approval of an amendment to PSC's Articles of Incorporation
increasing the authorized shares of PSC common stock, par value $.50
per share ("PSC Common Stock") from 40,000,000 to 100,000,000 (the
"Amendment to the Articles of Incorporation").
3. Approval of an amendment to PSC's 1994 Equity Compensation Plan (the
"Equity Compensation Plan") to increase from 1,900,000 to 2,900,000,
the aggregate authorized shares of the PSC Common Stock that may be
issued or transferred under the Equity Compensation Plan and to
adopt certain other amendments to the terms of the Equity
Compensation Plan necessary for the issuance of options to holders
of options to purchase Consumers Common Stock pursuant to the Merger
Agreement (the "Amendment to the Equity Compensation Plan").
4. Such other business as may properly be brought before the Special
Meeting.
The Board of Directors has fixed the close of business on September 18,
1998, as the record date for determining shareholders of PSC entitled to notice
of and to vote at the Special Meeting and at any adjournments or postponements
thereof. A list of shareholders entitled to notice of the meeting shall be
available for inspection by any shareholder, during regular business hours, for
a period of ten days prior to the meeting at the principal executive office of
PSC and at the Special Meeting.
You are cordially invited to attend the Special Meeting. Whether or not
you plan to attend the Special Meeting, you are urged to complete, date, sign
and return at your earliest convenience, in the envelope provided, the enclosed
proxy card which is being solicited on behalf of PSC's Board of Directors. The
proxy card shows the form in which your shares of PSC Common Stock are
registered. Your signature must be in the same form. Your shares will be voted
at the Special Meeting in accordance with your instructions. You can revoke the
proxy at any time prior to voting and the giving of a proxy will not affect your
right to vote in the event you attend the Special Meeting in person. We look
forward to seeing you.
By Order of the Board of Directors,
___________________________________
Patricia M. Mycek, Secretary
Bryn Mawr, Pennsylvania
October 2, 1998
<PAGE>
CONSUMERS WATER COMPANY
Three Canal Plaza
Portland, Maine 04101
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 16, 1998
A Special Meeting of Shareholders (the "Special Meeting") of Consumers
Water Company ("Consumers") will be held on Monday, November 16, 1998 at 11:00
A.M. local time, at the Portland Regency Hotel, 20 Milk Street, Portland, Maine,
04101 to consider and vote upon the following proposals:
1. Approval of the Amended and Restated Agreement and Plan of Merger,
dated as of August 5, 1998 (the "Merger Agreement"), by and among
Philadelphia Suburban Corporation ("PSC"), Consumers Acquisition
Company ("Acquisition") and Consumers, providing for the merger of
Consumers with and into Acquisition, a wholly-owned subsidiary of
PSC (the "Merger").
2. Such other business as may properly be brought before the Special
Meeting.
The Board of Directors has fixed the close of business on September 18,
1998, as the record date for determining shareholders of Consumers entitled to
notice of and to vote at the Special Meeting and at any adjournments or
postponements thereof. A list of shareholders entitled to notice of the meeting
shall be available for inspection by any shareholder, during regular business
hours, for a period of ten days prior to the meeting at the principal executive
office of Consumers and at the Special Meeting.
PURSUANT TO SECTION 909 OF THE MAINE BUSINESS CORPORATION ACT (THE
"MBCA"), EACH DISSENTING HOLDER OF CONSUMERS PREFERRED STOCK IS ENTITLED TO
PAYMENT IN CASH OF THE VALUE OF THE SHARES HELD BY SUCH PREFERRED SHAREHOLDER IF
SUCH PREFERRED SHAREHOLDER (A) FILES WITH OR MAILS TO CONSUMERS, AT OR PRIOR TO
THE SPECIAL MEETING, A WRITTEN OBJECTION TO THE PROPOSED CORPORATE ACTION, (B)
DOES NOT VOTE IN FAVOR OF THE MERGER AND (C) FILES WITH CONSUMERS A WRITTEN
DEMAND FOR PAYMENT OF THE FAIR VALUE OF HIS OR HER PREFERRED SHARES WITHIN 15
DAYS AFTER THE DATE ON WHICH THE VOTE OF SHAREHOLDERS WAS TAKEN AS REQUIRED BY
THE MBCA. ANY PREFERRED SHAREHOLDER FAILING TO COMPLY WITH THE PROVISIONS OF
(A), (B) AND (C) SHALL BE BOUND BY THE TERMS OF THE MERGER. ANY PREFERRED
SHAREHOLDER MAKING SUCH OBJECTION AND DEMAND SHALL THEREAFTER BE ENTITLED ONLY
TO RECEIVE THE FAIR VALUE OF HIS OR HER SHARES OF CONSUMERS PREFERRED STOCK, AS
PROVIDED IN SECTION 909 OF THE MBCA AND SHALL NOT BE ENTITLED TO VOTE OR TO
EXERCISE ANY OTHER RIGHTS OF A PREFERRED SHAREHOLDER. SEE "DISSENTERS' RIGHT OF
APPRAISAL".
You are cordially invited to attend the Special Meeting. Whether or not
you plan to attend the Special Meeting, you are urged to complete, date, sign
and return the enclosed proxy card in the envelope provided. The proxy card is
being solicited on behalf of Consumers Board of Directors. The proxy card shows
the form in which your shares of Consumers Common Stock and Consumers Preferred
Stock are registered. Your signature must be in the same form. Your shares will
be voted at the Special Meeting in accordance with your instructions. You can
revoke the proxy at any time prior to voting and the giving of a proxy will not
affect your right to vote in the event you attend the Special Meeting in person.
We look forward to seeing you.
By Order of the Board of Directors,
___________________________________
Brian R. Mullany, Clerk
Portland, Maine
October 2, 1998
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION
and
CONSUMERS WATER COMPANY
JOINT PROXY STATEMENT
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PHILADELPHIA SUBURBAN CORPORATION
PROSPECTUS
13,281,000 SHARES OF COMMON STOCK
This Joint Proxy Statement/Prospectus ("Joint Proxy
Statement/Prospectus") is being furnished to shareholders of Philadelphia
Suburban Corporation ("PSC") and Consumers Water Company ("Consumers") in
connection with the solicitation of proxies by the Board of Directors of PSC
from holders of PSC's outstanding shares of common stock, par value $0.50 per
share (the "PSC Common Stock"), for use at a special meeting of shareholders of
PSC (together with any adjournments or postponements thereof, the "PSC Special
Meeting") and in connection with the solicitation of proxies by the Board of
Directors of Consumers from holders of Consumers' outstanding shares of common
stock, par value $1.00 per share (the "Consumers Common Stock") and Consumers'
outstanding shares of cumulative preferred stock, series A, par value $100 per
share ("Consumers Preferred Stock"), for use at a special meeting of
shareholders of Consumers (together with any adjournments or postponements
thereof, the "Consumers Special Meeting" and, together with the PSC Special
Meeting, the "Shareholder Meetings").
This Joint Proxy Statement/Prospectus relates to the proposed merger
(the "Merger") of Consumers with and into Consumers Acquisition Company
("Acquisition"), a wholly-owned subsidiary of PSC, pursuant to the Amended and
Restated Agreement and Plan of Merger, dated as of August 5, 1998 (the "Merger
Agreement"), by and among PSC, Acquisition and Consumers.
Pursuant to the Merger Agreement, upon consummation of the Merger, each
share of common stock of Consumers, par value $1.00 per share ("Consumers Common
Stock") will be converted into 1.459 (the "Exchange Ratio") shares of PSC Common
Stock, unless the Exchange Ratio is adjusted as provided in the Merger
Agreement, and each share of Consumers cumulative preferred stock, par value
$100 per share ("Consumers Preferred Stock") will be converted into an amount of
PSC Common Stock equal to 3.945 times the Exchange Ratio. The Exchange Ratio may
be adjusted as follows: (i) if the product of 1.459 and the Calculation Price
(as defined in the Merger Agreement) exceeds $32, then the Exchange Ratio will
equal the number determined by dividing $32 by the Calculation Price; or (ii) if
the product of 1.459 and the Calculation Price is less than $28, then during the
three business day period commencing on the Determination Date (as defined in
the Merger Agreement), PSC shall have the option of maintaining the Exchange
Ratio at 1.459 or adjusting the Exchange Ratio to equal the number determined by
dividing $28 by the Calculation Price. If PSC elects to adjust the Exchange
Ratio, no termination will have occurred and the Merger Agreement will remain in
effect in accordance with its terms (except as the Exchange Ratio will have been
so modified). If PSC does not exercise such option, then Consumers has the
option to accept the original Exchange Ratio or to terminate the Agreement. On
September 18, 1998, the closing price of the PSC Common Stock was $27.13 and the
Calculation Price (as defined) would have been $26.16. If the Merger had been
consummated as of that date, the Exchange Ratio would have been adjusted
pursuant to the Merger Agreement, and each share of Consumers Common Stock would
have been converted into 1.223 shares of PSC Common Stock with an equivalent
market value of $33.17 and each share of Consumers Preferred Stock would have
been converted into 4.825 shares of PSC Common Stock with an equivalent market
value of $130.87; the aggregate dollar value of all PSC Common Stock to be
issued in the Merger would have been $300,272,763. (Pro forma information
included herein is calculated assuming an Exchange Ratio of 1.459.) The actual
market value of the PSC Common Stock to be received in the Merger may be
different due to changes in the market value of the PSC Common Stock and/or
possible changes to the Exchange Ratio.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
PSC with respect to shares of the PSC Common Stock issuable to the holders of
Consumers Common Stock and Consumers Preferred Stock (collectively, "Consumers
Shareholders") upon consummation of the Merger. All information concerning PSC
contained in this Joint Proxy Statement/Prospectus has been furnished by PSC and
all information concerning Consumers has been furnished by Consumers.
This Joint Proxy Statement/Prospectus and the accompanying forms of
proxy are first being mailed to shareholders of PSC and Consumers on or about
October 2, 1998.
--------------------
THE SECURITIES TO WHICH THIS JOINT PROXY STATEMENT/PROSPECTUS REFERS HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------------
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS SEPTEMBER __, 1998.
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS AND, IF SO GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS JOINT
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR THE
SALE OF ANY SECURITIES HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF PSC OR CONSUMERS
SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
PSC and Consumers are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file periodic reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information concerning PSC and Consumers may
be inspected and copied at the Commission's Public Reference Section, Room 1024,
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, where copies
may be obtained at prescribed rates, as well as at the following regional
offices: Northeast Regional Office, 7 World Trade Center, Suite 1300, New York,
New York 10048; and Midwest Regional Office, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. The Commission maintains a web site
(http://www.sec.gov) that contains reports, proxy and information statements,
and other information regarding PSC and Consumers. The PSC Common Stock is
listed on the New York Stock and the Philadelphia Stock Exchanges and reports,
proxy statements and other information concerning PSC may also be inspected at
the offices of the New York Stock Exchange, Inc. ("NYSE"), 20 Broad Street, New
York, New York 10005 and the Philadelphia Stock Exchange Inc., 1900 Market
Street, Philadelphia, PA 19103. The Consumers Common Stock is listed on the
Nasdaq Stock Market. Copies of reports, proxy statements and other information
concerning Consumers may also be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
PSC has filed a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with the Commission with respect to the shares of PSC Common Stock to be issued
by it in the Merger. This Joint Proxy Statement/Prospectus constitutes the
Prospectus of PSC that is filed as part of such Registration Statement. As
permitted by the rules and regulations of the Commission, this Joint Proxy
Statement/Prospectus omits certain information contained in the Registration
Statement and reference is hereby made to the Registration Statement for further
information with respect to PSC and the PSC Common Stock.
All information contained in this Joint Proxy Statement/Prospectus with
respect to PSC and Acquisition, except certain information relating to financial
information of PSC described under "The Merger--Opinion of Salomon Smith
Barney." has been supplied by PSC for inclusion herein and has not been
independently verified by Consumers. All information contained in this Joint
Proxy Statement/Prospectus with respect to Consumers, except such information
described under "The Merger--Opinion of SG Barr Devlin," has been supplied by
Consumers for inclusion herein and has not been independently verified by PSC.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission by PSC (File No.1-6659)
are incorporated in this Joint Proxy Statement/Prospectus by reference:
1. PSC's Current Report on Form 8-K filed with the Commission on
January 29, 1998.
2. PSC's Current Report on Form 8-K filed with the Commission on
February 26, 1998.
3. PSC's Annual Report on Form 10-K for the fiscal year ended December
31, 1997 filed with the Commission pursuant to Section 13(a) or
15(d) of the Exchange Act, on March 23, 1998.
iii
<PAGE>
4. PSC's Notice of 1998 Annual Meeting and Proxy Statement dated April
7, 1998 filed with the Commission pursuant to Section 14 of the
Exchange Act, on April 7, 1998.
5. PSC's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998 filed with the Commission on May 15, 1998.
6. PSC's Current Report on Form 8-K filed with the Commission on June
30, 1998.
7. PSC's Quarterly Report on Form 10-Q for the quarter ended June 30,
1998 filed with the Commission on August 13, 1998.
8. The description of PSC's Common Stock and Preferred Stock which is
contained in the "Description of Securities" included in PSC's Form
8-A filed with the Commission on March 17, 1998.
The following documents filed with the Commission by Consumers (File
No. 0-493) are incorporated in this Joint Proxy Statement/Prospectus by
reference:
1. Consumers' Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 filed with the Commission pursuant to Section
13(a) or 15(d) of the Exchange Act, on March 20, 1998.
2. Consumers' Notice of 1998 Annual Meeting and Proxy Statement dated
April 1, 1998 filed with the Commission pursuant to Section 14 of
the Exchange Act, on March 25, 1998.
3. Consumers' Quarterly Report on Form 10-Q for the quarter ended March
31, 1998 filed with the Commission on May 13, 1998.
4. Consumers' Current Report on Form 8-K filed with the Commission on
June 29, 1998.
5. Consumers' Quarterly Report on Form 10-Q for the quarter ended June
30, 1998 filed with the Commission on August 12, 1998.
All reports and other documents filed by PSC or Consumers after the
date of this Joint Proxy Statement/Prospectus pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act and prior to the date of the Special Meetings
shall be deemed to be incorporated by reference herein and to be a part hereof
from the dates of filing of such reports or documents. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for the purposes of this
Joint Proxy Statement/Prospectus to the extent that a statement contained herein
or in another document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Joint Proxy Statement/Prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS
(OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED HEREIN BY REFERENCE) ARE AVAILABLE WITHOUT CHARGE UPON REQUEST TO:
IN THE CASE OF DOCUMENTS RELATING TO PSC, PHILADELPHIA SUBURBAN CORPORATION, 762
WEST LANCASTER AVENUE, BRYN MAWR, PENNSYLVANIA 19010, ATTN: SECRETARY,
TELEPHONE: (610) 527-8000; AND IN THE CASE OF DOCUMENTS RELATING TO CONSUMERS,
CONSUMERS WATER COMPANY, THREE CANAL PLAZA, P.O. BOX 599, PORTLAND, MAINE 04112,
ATTN: SECRETARY, TELEPHONE: (207) 773-6438. IN ORDER TO ENSURE TIMELY DELIVERY
OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY NOVEMBER 2, 1998.
iv
<PAGE>
TABLE OF CONTENTS
AVAILABLE INFORMATION.......................................iii
INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE....................................iii
PROPOSAL 1 - THE MERGER AGREEMENT
SUMMARY..................................................... 2
The Companies............................................. 2
Shareholder Meetings...................................... 2
Dissenters' Rights of Appraisal........................... 3
The Merger................................................ 3
SELECTED HISTORICAL COMBINED CONDENSED FINANCIAL
INFORMATION............................................... 8
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA....... 11
MARKET PRICE AND DIVIDEND DATA.............................. 22
SHAREHOLDER MEETINGS........................................ 24
VOTING AND PROXY INFORMATION................................ 25
PSC....................................................... 25
Consumers................................................. 25
Proxies................................................... 26
THE MERGER.................................................. 28
Background to the Merger.................................. 28
PSC Reasons for the Merger; Recommendation
of PSC's Board of Directors............................. 30
Opinion of Salomon Smith Barney........................... 31
Consumers Reasons For The Merger; Recommendation
of Consumers Board of Directors......................... 36
Opinion of SG Barr Devlin................................. 38
Certain Federal Income Tax Consequences................... 43
Restrictions on Resales of Securities..................... 44
Accounting Treatment...................................... 44
Regulatory Approvals...................................... 44
THE MERGER AGREEMENT........................................ 46
DISSENTERS' RIGHTS OF APPRAISAL............................. 52
INTERESTS OF CERTAIN PERSONS IN THE MERGER.................. 55
MANAGEMENT FOLLOWING THE MERGER............................. 57
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 58
COMPARISON OF RIGHTS OF HOLDERS OF PSC AND CONSUMERS
COMMON STOCK.............................................. 60
SHAREHOLDERS' PROPOSALS..................................... 71
PROXY SOLICITATION.......................................... 71
LEGAL MATTERS............................................... 71
EXPERTS..................................................... 71
PROPOSAL 2 - AMENDMENT TO ARTICLES OF INCORPORATION......... 72
PROPOSAL 3 - AMENDMENT TO 1994 EQUITY COMPENSATION PLAN..... 74
ANNEX A: Amended and Restated Agreement and
Plan of Merger................................. A-1
ANNEX B: Form of Opinion of Salomon Smith
Barney..........................................B-1
ANNEX C: Form of Opinion of SG Barr Devlin...............C-1
ANNEX D: Dissenters Rights Provisions of the
Maine Business Corporation Act..................D-1
ANNEX E: Text of Proposed Amendment to
PSC's Articles of Incorporation.................E-1
ANNEX F: Proposed Amendment to PSC's 1994
Equity Compensation Plan........................F-1
v
<PAGE>
PROPOSAL 1
THE MERGER AGREEMENT
<PAGE>
SUMMARY
The following summary is intended only to highlight certain information
contained elsewhere in this Joint Proxy Statement/Prospectus. The summary is not
intended to be a complete statement of all material features of the Merger and
is qualified in its entirety by reference to the more detailed information
contained elsewhere in this Joint Proxy Statement/Prospectus and the annexes
attached hereto.
The Companies
PSC. PSC, a Pennsylvania corporation, was incorporated in 1968. PSC
operates almost entirely through its subsidiary Philadelphia Suburban Water
Company ("PSW"), a regulated public utility located in Pennsylvania. PSW
supplies water service to 298,700 residential, commercial industrial and public
customers. PSW's service territory covers 481 square miles, comprising a large
portion of the suburban area west and north of the City of Philadelphia. This
territory is primarily residential in nature and is completely metered for water
service, except for fire hydrant service. In addition, PSW provides water
service to approximately 6,600 customers through an operating and maintenance
contract with a municipal authority that is contiguous to its service territory.
Based on the 1990 census, PSW estimates that the total number of persons
currently served is approximately 1,000,000. Excluding the customers that were
added at the time of acquisitions in the last three years, customer accounts
have grown at an average rate of approximately 1.0% per annum for the last three
years. Including acquisitions, the customer base increased at an annual compound
growth rate of 4.9% over the last three years.
The address of PSC's executive offices is 762 W. Lancaster Avenue, Bryn
Mawr, Pennsylvania 19010 and the telephone number is (610) 527-8000.
Consumers. Consumers, a Maine corporation, was incorporated in 1926.
Consumers is a holding and management company whose principal business is the
ownership and operation of water and wastewater utility subsidiaries. Consumers
owns directly or indirectly at least 95% of the voting stock of 7 water
companies (the "Consumers Water Subsidiaries") which provide water services to
approximately 223,000 customers in five states. The Consumers Water Subsidiaries
operate 27 divisions in five states for the collection, treatment and
distribution of water for public use to residential, commercial and industrial
customers, to other water utilities for resale and for private and municipal
fire protection purposes.
The address of Consumers' executive offices is Three Canal Plaza,
Portland, Maine 04101, and the telephone number is (207) 773-6438.
Shareholder Meetings
General. At the PSC Special Meeting, to be held on Monday, November 16,
1998 at 10:00 A.M., local time, at PSC's offices at 762 W. Lancaster Avenue,
Bryn Mawr, PA, 19010, PSC shareholders will consider and vote upon three
proposals: (i) approval of an amendment to PSC's Articles of Incorporation
increasing the authorized shares of PSC Common Stock from 40,000,000 to
100,000,000 (the "Amendment to the Articles of Incorporation"); (ii) approval of
the Merger Agreement; and (iii) approval of an amendment to PSC's 1994 Equity
Compensation Plan (the "Equity Compensation Plan") to increase from 1,900,000 to
2,900,000, the aggregate authorized shares of the PSC Common Stock that may be
issued or transferred under the Equity Compensation Plan and to adopt certain
other amendments to the terms of the Equity Compensation Plan necessary for the
issuance of options to holders of options to purchase Consumers Common Stock
pursuant to the Merger Agreement (the "Amendment to the Equity Compensation
Plan"). The consummation of the Merger Agreement is conditioned upon approval of
the Amendment to the Articles of Incorporation.
2
<PAGE>
At the Consumers Special Meeting to be held on Monday, November 16,
1998, at 11:00 A.M., local time, at the Portland Regency Hotel, 20 Milk Street,
Portland, Maine 04101, the Consumers Shareholders will consider and vote upon a
proposal to approve the Merger Agreement. See "SHAREHOLDER MEETINGS."
Record Dates; Shares Entitled to Vote on the Merger. Holders of record
of shares of PSC Common Stock at the close of business on September 18, 1998
(the "PSC Record Date") and holders of record of shares of Consumers Common
Stock and Consumers Preferred Stock (collectively the "Consumers Stock") at the
close of business on September 18, 1998 (the "Consumers Record Date") will be
entitled to notice of and to vote at the respective Shareholder Meetings. At the
PSC Record Date, there were outstanding 27,658,725 shares of PSC Common Stock.
At the Consumers Record Date, there were outstanding 9,010,305 shares of
Consumers Common Stock and 10,438 shares of Consumers Preferred Stock. See
"VOTING AND PROXY INFORMATION."
Required Votes. Under Pennsylvania law, approval of each of the three
proposals, the Amendment to the Articles of Incorporation, the Amendment to the
Equity Compensation Plan and the Merger Agreement, requires the affirmative vote
of the majority of the votes cast by all shareholders of PSC Common Stock.
Under Maine law, approval of the Merger Agreement requires the
affirmative vote of the holders of at least a majority of the shares of
Consumers Common Stock and of the shares of Consumers Preferred Stock,
outstanding at the Consumers Record Date, each voting as a class, and of at
least a majority of the Consumers Common Stock and Consumers Preferred Stock
voting together as one class.
Dissenters' Rights of Appraisal
Holders of PSC Common Stock will not be entitled to dissenters' rights
of appraisal under the Pennsylvania Business Corporation Act (the "PBCA")
because PSC Common Stock is listed on the NYSE and on the Philadelphia Stock
Exchange. Holders of Consumers Common Stock will not be entitled to dissenters'
rights of appraisal under the Maine Business Corporation Act ("MBCA") because
Consumers Common Stock is listed on the Nasdaq Stock Market and the PSC Common
Stock to be received by Consumers Common Shareholders in the merger will be
listed on the NYSE. However, holders of Consumers Preferred Stock will have the
right to dissent from the Merger and, if the Merger is consummated, to receive
in cash the value of their shares of Consumers Preferred Stock, provided that
such shareholder complies with certain statutory procedures required by the
MBCA. Such shares are referred to as "Dissenting Shares." Failure to comply with
any of the statutory procedures in a timely manner may result in the loss and/or
waiver of such dissenter's rights. See "DISSENTERS' RIGHTS OF APPRAISAL."
The Merger
General. Under the terms of the Merger Agreement, Consumers will be
merged with and into Acquisition, a wholly-owned subsidiary of PSC, and
Consumers will cease to exist as a separate legal entity. At the Effective Time
(as defined below), each share of Consumers Common Stock will be converted into
1.459 shares of PSC Common Stock, unless the Exchange Ratio is adjusted as
provided in the Merger Agreement, and each share of Consumers Preferred Stock
will be converted into an amount of PSC Common Stock equal to 3.945 times the
Exchange Ratio. The Exchange Ratio may be adjusted as follows: (i) if the
product of 1.459 and the Calculation Price (as defined in the Merger Agreement)
exceeds $32, then the Exchange Ratio shall equal the number determined by
dividing $32 by the Calculation Price; or (ii) if the product of 1.459 and the
Calculation Price is less than $28, then during the three business day period
commencing on the Determination Date (as defined in the Merger Agreement), PSC
shall have the option of maintaining the Exchange Ratio at 1.459 or adjusting
the Exchange Ratio to equal the number determined by dividing $28 by the
Calculation Price. If PSC elects to adjust the Exchange Ratio, no termination
will have occurred and the Merger Agreement will remain in effect in accordance
with its terms (except as the Exchange Ratio will have been so modified). If PSC
does not exercise such option, then Consumers has the option to accept the
original Exchange Ratio or to terminate the Agreement. Cash will be paid in lieu
of fractional shares.
3
<PAGE>
On September 18, 1998, the closing price of the PSC Common Stock was
$27.13 and the Calculation Price would have been $26.16. If the Merger had been
consummated as of that date, the Exchange Ratio would have been adjusted
pursuant to the Merger Agreement, and each share of Consumers Common Stock would
have been converted into 1.223 shares of PSC Common Stock with an equivalent
market value of $33.17 and each share of Consumers Preferred Stock would have
been converted into 4.825 shares of PSC Common Stock with an equivalent market
value of $130.87; the aggregate dollar value of all PSC Common Stock to be
issued in the Merger would have been $300,272,763. (Pro forma information
included herein is calculated assuming an Exchange Ratio of 1.459.) The actual
market value of the PSC Common Stock to be received in the Merger may be
different due to changes in the market value of the PSC Common Stock and/or
possible changes to the Exchange Ratio.
THE VALUE OF THE PSC COMMON STOCK THAT HOLDERS OF CONSUMERS COMMON
STOCK AND CONSUMERS PREFERRED STOCK WILL RECEIVE IN THE MERGER IS SUBJECT TO
FLUCTUATION DUE TO CHANGES IN THE MARKET PRICE OF PSC COMMON STOCK. CONSUMERS
SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR PSC COMMON STOCK.
FOR CERTAIN RECENT STOCK PRICE DATA, SEE "MARKET PRICE AND DIVIDEND DATA."
Additionally, at the Effective Time, each outstanding option to acquire
Consumers Common Stock will be automatically converted into an option to
purchase PSC Common Stock. The stock options will be issued with the same terms
and conditions as were applicable under the Consumers stock options for the
number of shares of PSC Common Stock into which such shares would have been
converted pursuant to the Merger had such options been exercised immediately
prior to the Effective Time at a price per share equal to the exercise price of
Consumers Common Stock otherwise purchasable pursuant to such options, divided
by the Exchange Ratio. Promptly after the Merger, PSC intends to register the
shares which may be acquired upon exercise of the options on a Registration
Statement on Form S-3 or S-8 under the Securities Act.
The Merger will become effective (the "Effective Time") upon the filing
of articles of merger or other appropriate documents with the Secretary of State
of the Commonwealth of Pennsylvania and the Maine Secretary of State. The filing
of the such documents will occur immediately upon closing.
Recommendation of PSC's Board of Directors. The Board of Directors of
PSC (the "PSC Board of Directors") has approved the Merger Agreement, and
recommends that holders of PSC Common Stock vote for the proposal to approve the
Merger and the Merger Agreement. The PSC Board of Directors considered a number
of factors in reaching its decision to recommend approval of the Merger
Agreement. See "THE MERGER--PSC Reasons for the Merger and Recommendation of PSC
Board of Directors."
Opinion of Salomon Smith Barney. On June 26, 1998, Salomon Smith Barney
("Salomon Smith Barney") delivered its oral opinion, subsequently confirmed in
writing on June 27, 1998, to the PSC Board of Directors that, as of such date,
the Exchange Ratio was fair, from a financial point of view, to PSC. The full
text of the written opinion of Salomon Smith Barney, which sets forth the
assumptions made, procedures followed, matters considered and limitations on the
review undertaken by Salomon Smith Barney, is attached as Annex B to this Joint
Proxy Statement/Prospectus and should be read carefully in its entirety. See
"THE MERGER--Opinion of Salomon Smith Barney."
Recommendation of Consumers Board of Directors. The Board of Directors
of Consumers (the "Consumers Board of Directors") has approved the Merger
Agreement, and recommends that the holders of Consumers Stock vote for the
proposal to approve the Merger Agreement. The Consumers Board of Directors
considered a number of factors in reaching its decision to recommend approval of
the Merger Agreement. See "THE MERGER--Consumers' Reasons for the Merger;
Recommendation of Consumers Board of Directors."
Opinion of SG Barr Devlin. SG Barr Devlin ("SG Barr Devlin") has
delivered its written opinions to the Consumers Board of Directors, dated June
27, 1998 and August 5, 1998, to the effect that, on and as of the date of each
such opinion, and based upon assumptions made, matters considered, and limits of
the review, as set forth in the opinions, the consideration to be offered
pursuant to the terms of the Merger (the "Merger Consideration") is fair, from a
financial point of view, to the holders of Consumers Common Stock. The August 5,
1998 opinion of SG Barr Devlin
4
<PAGE>
also sets forth its opinion that the Merger Consideration is fair, from a
financial point of view, to the holders of Consumers Common Stock and Consumers
Preferred Stock. The full text of the August 5, 1998 opinion of SG Barr Devlin
which sets forth the assumptions made, matters considered and limitations on the
review undertaken, is attached as Annex C to this Joint Proxy
Statement/Prospectus and should be read carefully in its entirety. See "THE
MERGER--Opinion of SG Barr Devlin."
Conditions to the Merger. The respective obligations of PSC and
Consumers to effect the Merger are subject to various conditions, including,
among others: (i) receipt of all material permits, authorizations, consents or
approvals required by any Governmental Entity (as defined in the Merger
Agreement); (ii) the Merger Agreement shall have been approved by the requisite
number of shareholders of PSC and Consumers; (iii) no temporary restraining
order, preliminary or permanent injunction or other order prohibiting or
preventing the consummation of the Merger shall be in effect; (iv) the
Registration Statement of which this Joint Proxy Statement/Prospectus is a part
shall have become effective and shall not be the subject of a stop order or
proceedings seeking a stop order; (v) termination or expiration of the
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvement
Acts, as amended (the "HSR Act"); (vi) PSC and Consumers shall each have
completed a due diligence review of the other by September 1, 1998 without
identifying any undisclosed fact or circumstance that would have a Material
Adverse Effect (as defined in the Merger Agreement) on either PSC or Consumers
in excess of $2,000,000 in the aggregate; (vii) Consumers shall have received
from Drummond Woodsum & MacMahon a tax opinion that the Merger will be treated
as a reorganization within the meaning of Section 368(a)(1) of the Internal
Revenue Code of 1986, as amended (the "Code"); (viii) the representations and
warranties of PSC and Consumers set forth in the Merger Agreement will have been
true and correct in all material respects; (ix) performance of, or compliance
with, in all material respects, all material obligations of PSC and Consumers
required by the Merger Agreement to be performed or complied with; (x) the
receipt by each of PSC and Consumers of a legal opinion from their respective
counsel substantially in the forms attached to the Merger Agreement; and (xi)
the Merger will have met the requirements for pooling-of-interests accounting
treatment. See "THE MERGER AGREEMENT."
Regulatory Approvals. The Merger is subject to the requirements of the
HSR Act which provides that certain transactions, including the Merger, may not
be consummated until required information is submitted to the Antitrust Division
of the Department of Justice (the "Antitrust Division") and the Federal Trade
Commission (the "FTC"). PSC and Consumers filed the requisite information
effective on September 15, 1998.
The Merger must also be approved by other state and federal regulatory
agencies including (i) the Illinois Commerce Commission, (ii) the Public Utility
Commissions of Pennsylvania and Maine and (iii) the New Jersey Board of Public
Utilities. Applications to each such state regulatory agency have been filed. In
addition, PSC and Consumers have submitted an application to the Public
Utilities Commission of Ohio requesting that the commission either grant
approval of the Merger or declare that its approval is not required.
It is possible that the authorities in one or more of the foregoing
jurisdictions may seek, as conditions for granting approval, various regulatory
concessions. If any regulatory body conditions its approval upon concessions
which would be expected to have a material adverse effect on PSC or Consumers
after giving effect to the consummation of the Merger, either party can, but is
not obligated to, terminate the Merger Agreement. There can be no assurance that
the required regulatory approvals will be obtained within the time frame
contemplated by the Merger Agreement or on terms that are satisfactory to the
parties.
Certain Federal Income Tax Consequences. The Merger has been structured
to qualify as a nontaxable transaction under the Code. It is a condition to the
obligations of Consumers under the Merger Agreement that Consumers receive an
opinion from Drummond Woodsum & MacMahon (counsel to Consumers) to the effect
that for federal income tax purposes, the Merger will constitute a
reorganization within the meaning of Section 368(a)(1) of the Code and that no
gain or loss will be recognized by Consumers shareholders in connection with the
Merger. Due to the individual nature of the tax consequences of the
5
<PAGE>
Merger, it is recommended that each Consumers shareholder consult his or her own
tax adviser concerning the federal, state, local and foreign tax consequences of
the Merger. See "THE MERGER--Certain Federal Income Tax Consequences."
Anticipated Accounting Treatment. The Merger is expected to qualify as
a "pooling-of-interests" for accounting and financial reporting purposes. It is
a condition to the obligations of PSC under the Merger Agreement that the
transactions contemplated by the Merger Agreement, if consummated, will qualify
as transactions that should be accounted for in accordance with the
pooling-of-interests method of accounting under the requirements of Opinion No.
16 ("APB No. 16"), Business Combinations, of the Accounting Principles Board of
the American Institute of Certified Public Accountants, as amended by applicable
pronouncements by the Financial Accounting Standards Board. See "THE
MERGER--Accounting Treatment."
Management Following the Merger. Upon consummation of the Merger, the
Board of Directors of Acquisition shall be comprised of directors as shall be
appointed by PSC. Following the consummation of the Merger, the composition of
the PSC Board of Directors will consist of the then current members of PSC Board
of Directors and four Consumers designees, Messrs. Avenas, Menario, Palmer and
Viets. See "MANAGEMENT FOLLOWING THE MERGER."
Termination. The Merger Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval of the Merger by PSC or
Consumers' shareholders, (i) by mutual written consent of PSC and Consumers,
(ii) by either PSC or Consumers if (1) the other party has materially breached
any representation, warranty or covenant of the Merger Agreement; (2) the Merger
shall not have been consummated on or before July 1, 1999 (the "Termination
Date"), except that the Termination Date shall be automatically extended under
certain circumstances as described in the Merger Agreement; (3) a Governmental
Entity shall have issued an order, decree or ruling permanently prohibiting or
preventing the Merger and such order is final; or (4) the Consumers Board of
Directors shall have exercised its right under the Merger Agreement to accept a
Superior Proposal (as defined in the Merger Agreement), or (iii) by Consumers if
(1) the product of the Calculation Price (as defined in the Merger Agreement)
and 1.459 is less than $28; (2) PSC has not made an election to adjust the
Exchange Ratio; and (3) the Consumers Board of Directors determines during the
required time period not to accept the original Exchange Ratio and to terminate
the Merger Agreement.
Termination Fee.
Payable by PSC. The Merger Agreement obligates PSC to pay to Consumers
a termination fee equal to $1,250,000 if Consumers terminates the Merger
Agreement as a result of a material breach by PSC of a representation or
warranty of PSC or if PSC has failed to comply in material respects with any of
its covenants and agreements, or if any warranty or representation made by PSC
has become untrue in any material respect.
Payable by Consumers. The Merger Agreement obligates Consumers to pay
to PSC a termination fee of (i) $1,250,000 if PSC terminates the Merger
Agreement as a result of a material breach by Consumers of a representation or
warranty of Consumers or if Consumers has failed to comply in material respects
with any of its covenants and agreements, or if any warranty or representation
made by Consumers has become untrue in any material respect, or (ii) $9,000,000
if either PSC or Consumers terminates the Agreement as a result of (1) Consumers
accepting a Superior Proposal (as described in the Merger Agreement) or (2) the
Consumer shareholders not having approved the Merger Agreement at a time when
there was an Acquisition Proposal and if within 12 months of the Consumers
Special Meeting such transaction was consummated. See "THE MERGER AGREEMENT--No
Solicitation of Transactions."
The foregoing shall be the parties' sole and exclusive remedies for the
termination of the Merger Agreement.
Interests of Certain Persons in the Merger. Certain members of the
Consumers Board of Directors and Consumers' management may be deemed to have
certain interests in the Merger that are in addition to their interests as
Consumers shareholders, generally. These additional interests may be deemed to
arise from actions taken by
6
<PAGE>
Consumers with respect to consulting agreements and stay-on bonuses for
Consumers executive officers and the executive officers of its operating utility
subsidiaries, the application of the Consumers Executive Severance Plan (the
"Severance Plan"), the exchange of outstanding Consumers Incentive Stock Options
for options for PSC common shares as part of the Merger and PSC's agreement to
name four directors of Consumers to its Board. The Consumers Board of Directors
was aware of these interests and considered them, among other matters, in
approving the Merger Agreement, and the transactions contemplated thereby. See
"INTERESTS OF CERTAIN PERSONS IN THE MERGER."
7
<PAGE>
SELECTED HISTORICAL COMBINED CONDENSED FINANCIAL INFORMATION
The selected historical financial information of PSC and Consumers for
fiscal years 1997, 1996 and 1995 presented herein has been derived from the
audited consolidated financial statements of PSC and Consumers which are
incorporated by reference herein. The summary financial information presented
below for 1994 and 1993 have been derived from audited consolidated financial
statements previously filed with the Commission but not incorporated by
reference in this Joint Proxy Statement/Prospectus. Historical financial data as
of and for the six months ended June 30, 1998 and 1997 with respect to PSC and
Consumers have been derived from unaudited consolidated financial statements of
each company filed with the Commission, and in the opinion of PSC's and
Consumers' respective managements, present fairly the results of operations and
financial position as of and for each of the interim periods presented for their
respective companies and reflect all adjustments, including only normal
recurring adjustments. The results for such interim periods do not necessarily
indicate the results for the full fiscal year. The information shown below
should be read in conjunction with the historical consolidated financial
statements of each of PSC and Consumers, including the respective notes thereto,
which are incorporated by reference in this Joint Proxy Statement/Prospectus.
See "Incorporation of Certain Information by Reference."
8
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION
SELECTED HISTORICAL FINANCIAL DATA
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
As of or for the Six
Months Ended As of or for the
June 30, Year Ended December 31,
-------------------- ----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------------------- ----------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Earned revenues $ 71,617 $ 64,336 $136,171 $122,503 $117,044 $108,636 $101,244
Income from continuing
operations 13,239 10,334 23,188 19,778 18,030 15,638 13,835
Net income 13,239 10,334 23,188 20,743 18,400 15,638 13,835
Net income available to
common stock 13,141 10,238 22,993 20,722 18,400 15,638 13,835
Per Common Share Data: (1)
Basic income per share:
Income from continuing
operations $ 0.48 $ 0.40 $ 0.89 $ 0.79 $ 0.75 $ 0.68 $ 0.64
Net income 0.48 0.40 0.89 0.83 0.77 0.68 0.64
Diluted income per share:
Income from continuing
operations $ 0.48 $ 0.39 $ 0.88 $ 0.78 $ 0.75 $ 0.68 $ 0.64
Net income 0.48 0.39 0.88 0.82 0.77 0.68 0.64
Cash dividends paid per
common share (2) 0.325 0.304 0.622 0.593 0.570 0.550 0.535
Cash dividends declared
per common share (2) 0.163 0.304 0.785 0.593 0.570 0.550 0.535
Book value per share of
common stock 8.07 7.07 7.31 6.91 6.44 6.14 5.95
Balance Sheet Data:
Total assets $662,876 $590,694 $618,472 $582,944 $518,051 $460,062 $440,935
Capitalization:
Long-term debt, including
current portion $256,891 $234,803 $234,919 $229,962 $188,985 $153,082 $150,176
Preferred stock with
mandatory redemption -- 4,215 4,214 5,643 7,143 10,000 10,000
Stockholders' equity 225,561 186,524 194,745 180,015 156,976 143,795 135,934
-------- -------- -------- -------- -------- -------- --------
Total capitalization $482,452 $425,542 $433,878 $415,620 $353,104 $306,877 $296,110
======== ======== ======== ======== ======== ======== ========
</TABLE>
(1) All per share data has been restated to give effect to the 4-for-3 stock
split, in the form of a stock distribution, paid January 12, 1998 and the
3-for-2 stock split, in the form of a stock distribution, paid July 10, 1996.
(2) The cash dividend of $.163, paid in March 1998, was declared in December
1997.
9
<PAGE>
CONSUMERS WATER COMPANY
SELECTED HISTORICAL FINANCIAL DATA
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
As of or for the Six
Months Ended As of or for the
June 30, Year Ended December 31,
-------------------- ----------------------------------------------------
1998(1) 1997 1997 1996 1995 1994 1993
-------------------- ----------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Earned revenues $ 47,562 $ 47,149 $ 98,339 $ 93,589 $ 89,146 $ 80,397 $ 78,057
Income from continuing
operations 9,301 4,520 12,076 9,481 11,913 9,757 11,660
Net income 9,301 2,633 9,339 6,251 11,303 10,000 5,919
Net income available to
common stock 9,273 2,606 9,285 6,196 11,247 9,944 5,863
Per Common Share Data:
Basic income per share:
Income from continuing
operations $ 1.03 $ 0.51 $ 1.36 $ 1.09 $ 1.41 $ 1.19 $ 1.59
Net income 1.03 0.30 1.05 0.72 1.34 1.22 0.80
Diluted income per share:
Income from continuing
operations $ 1.03 $ 0.51 $ 1.36 $ 1.09 $ 1.41 $ 1.19 $ 1.59
Net income 1.03 0.30 1.05 0.72 1.34 1.22 0.80
Cash dividends paid per
common share 0.610 0.600 1.205 1.200 1.185 1.165 1.145
Cash dividends declared
per common share 0.610 0.600 1.210 1.200 1.190 1.170 1.150
Book value per share of
common stock 12.56 11.91 12.12 12.14 12.48 12.22 12.05
Balance Sheet Data:
Total assets $436,494 $455,120 $465,699 $455,982 $429,988 $397,535 $368,886
Capitalization:
Long-term debt, including
current portion $151,650 $172,486 $172,607 $173,562 $162,868 $132,648 $125,080
Stockholders' equity 116,585 108,933 112,071 109,421 109,423 104,215 100,247
-------- -------- -------- -------- -------- -------- --------
Total capitalization $268,235 $281,419 $284,678 $282,983 $272,291 $236,863 $225,327
======== ======== ======== ======== ======== ======== ========
</TABLE>
(1) Income data for 1998 includes the April 1998 net gain of $3,900 ($6,680
pre-tax), or $.43 per share, on the sale of Consumers' New Hampshire operations
pursuant to the State's condemnation statute.
10
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following selected unaudited pro forma combined financial data are
derived from the historical financial statements of PSC and Consumers and give
effect to the Merger as if the Merger had been completed for the periods
presented. For purposes of financial reporting, the Merger will be accounted for
under the pooling-of-interests method of accounting. Accordingly, the assets and
liabilities of PSC and Consumers will be recorded at their historical amounts.
This information is not necessarily indicative of the financial results that
would have occurred had the Merger been consummated on the dates for which the
Merger is being given effect, or the merged companies' future financial results,
and should be read in conjunction with the historical financial statements of
PSC and Consumers.
The Merger Agreement provides that each share of Consumers Common Stock
will be converted into PSC Common Stock at a rate equal to the Exchange Ratio
and that each share of Consumers Preferred Stock will be converted into PSC
Common Stock at a rate equal to 3.945 multiplied by the Exchange Ratio. The pro
forma share and per share data included in the selected unaudited pro forma
financial data is based on an Exchange Ratio of 1.459 shares. The Exchange Ratio
may be adjusted as follows: (i) if the product of 1.459 and the Calculation
Price (as defined in the Merger Agreement) exceeds $32, then the Exchange Ratio
will equal the number determined by dividing $32 by the Calculation Price; or
(ii) if the product of $1.459 and the Calculation Price is less than $28, then
during the three business day period commencing on the Determination Date (as
defined in the Merger Agreement), PSC shall have the option of maintaining the
Exchange Ratio at 1.459 or adjusting the Exchange Ratio to equal the number
determined by dividing $28 by the Calculation Price. If PSC elects to adjust the
Exchange Ratio, no termination will have occurred and the Merger Agreement will
remain in effect in accordance with its terms (except as the Exchange Ratio will
have been so modified.) If PSC does not exercise such option, then Consumers has
the option to accept the original Exchange Ratio or to terminate the Merger
Agreement. If the Merger were consummated on September 18, 1998, the Exchange
Ratio would have been adjusted to 1.223.
11
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION
SELECTED PRO FORMA COMBINED FINANCIAL DATA
(Amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
As of or for the
Six Months Ended As of or for the
June 30, Year Ended December 31,
----------------------- ------------------------------------
1998(5) 1997 1997 1996 1995
----------------------- ------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Earned revenues $ 119,179 $ 111,485 $ 234,510 $ 216,092 $ 206,190
Income from continuing operations 22,540 14,854 35,264 29,259 29,943
Net income 22,540 12,967 32,527 26,994 29,703
Net income available to common
stock 22,442 12,871 32,332 26,973 29,703
Per Common Share Data:(1)
Basic income per share:(3)
Income from continuing operations $ 0.56 $ 0.38 $ 0.90 $ 0.78 $ 0.83
Net income 0.56 0.33 0.83 0.72 0.82
Diluted income per share:(3)
Income from continuing operations $ 0.55 $ 0.38 $ 0.89 $ 0.77 $ 0.83
Net income 0.55 0.33 0.82 0.71 0.82
Cash dividends paid per common share(2) 0.325 0.304 0.622 0.593 0.570
Cash dividends declared per
common share(2) 0.163 0.304 0.785 0.593 0.570
Book value per share
of common stock(3) 8.26 7.45 7.65 7.39 7.17
Consumers Equivalent
per Common Share Data:(4)
Income from continuing operations
Basic income per share $ 0.81 $ 0.56 $ 1.31 $ 1.13 $ 1.21
Diluted income per share 0.80 0.55 1.30 1.13 1.21
Cash dividends paid per common share 0.474 0.443 0.907 0.865 0.832
Cash dividends declared per
common share 0.237 0.443 1.145 0.865 0.832
Book value per share of common stock 12.05 10.86 11.17 10.79 10.46
Balance Sheet Data:
Total assets $1,099,370 $1,045,814 $1,084,171 $1,038,926 $ 948,039
Capitalization:
Long-term debt, including current
portion $ 408,541 $ 407,289 $ 407,526 $ 403,524 $ 351,853
Preferred stock with mandatory
redemption -- 4,215 4,214 5,643 7,143
Stockholders' equity 342,146 295,457 306,816 289,436 266,399
---------- ---------- ---------- ---------- ----------
Total capitalization $ 750,687 $ 706,961 $ 718,556 $ 689,603 $ 625,395
========== ========== ========== ========== ==========
</TABLE>
(1) All per share data has been restated to give effect to the 4-for-3 stock
split, in the form of a stock distribution, paid January 12, 1998 and the
3-for-2 stock split, in the form of a stock distribution, paid July 10, 1996.
(2) Amounts represent PSC's historical dividends per common share. The cash
dividend of $.163, paid in March 1998, was declared in December 1997.
(3) Pro forma per common share amounts are based on an Exchange Ratio of 1.459.
The Exchange Ratio is subject to adjustment, in accordance with the Merger
Agreement.
(4) The Consumers equivalent per share amounts have been calculated by
multiplying the respective pro forma combined per share amounts by 1.459, the
Exchange Ratio specified in the Merger Agreement. The Exchange Ratio may be
adjusted, in accordance with the Merger Agreement. If the Merger were
consummated on September 18, 1998,
12
<PAGE>
the Exchange Ratio would have been 1.223. Based on this Exchange Ratio, income
and book value per share data would have been higher than those presented above
and the Consumers equivalent cash dividend paid per common share would have been
$.761, $.725 and $.697 for the years ended December 31, 1997, 1996 and 1995,
respectively, and $.397 and $.372 for the six months ended June 30, 1998 and
1997, respectively.
(5) Income data for 1998 includes the April 1998 net gain of $3,900 ($6,680
pre-tax) on the sale of Consumers' New Hampshire operations pursuant to the
State's condemnation statute. On a per share basis, the net gain was $.10 of the
Pro forma combined basic and diluted income per share and $.14 of the Consumers
Equivalent basic and diluted income per share.
13
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEETS
AS OF JUNE 30, 1998
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
PSC Consumers Pro Forma Pro Forma
Historical Historical Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets
Property, plant and equipment, at cost $ 703,758 $ 484,381 $ -- $ 1,188,139
Less accumulated depreciation 128,058 93,535 -- 221,593
----------- ----------- ----------- -----------
Net property, plant and equipment 575,700 390,846 -- 966,546
Current assets:
Cash 1,192 4,071 -- 5,263
Accounts receivable, net 26,254 13,764 -- 40,018
Inventory, materials and supplies 1,947 2,031 -- 3,978
Prepayments and other current assets 1,221 4,121 -- 5,342
----------- ----------- ----------- -----------
Total current assets 30,614 23,987 -- 54,601
Regulatory assets 51,135 3,633 -- 54,768
Deferred charges and other assets, net 5,427 18,028 -- 23,455
----------- ----------- ----------- -----------
$ 662,876 $ 436,494 $ -- $ 1,099,370
=========== =========== =========== ===========
Liabilities and Stockholders' Equity
Stockholders' equity:
Cumulative preferred stock $ 3,220 $ 1,044 $ (1,044)(1) $ 3,220
Common stock 14,043 9,008 (2,407)(2) 20,644
Capital in excess of par value 157,206 80,256 3,451 (3) 240,913
Retained earnings 60,357 23,906 -- 84,263
Minority interest -- 2,371 -- 2,371
Treasury stock (9,265) -- -- (9,265)
----------- ----------- ----------- -----------
Total stockholders' equity 225,561 116,585 -- 342,146
Long-term debt, excluding current portion 254,443 151,119 -- 405,562
Current liabilities:
Loans payable and current portion of long-term
debt 8,168 12,191 -- 20,359
Accounts payable 6,641 2,884 -- 9,525
Other accrued liabilities 17,090 24,869 -- 41,959
----------- ----------- ----------- -----------
Total current liabilities 31,899 39,944 -- 71,843
Deferred credits and other liabilities:
Deferred income taxes and investment tax credits 85,547 33,752 -- 119,299
Customers' advances for construction and other 39,441 22,464 -- 61,905
----------- ----------- ----------- -----------
Total deferred credits and other liabilities 124,988 56,216 -- 181,204
Contributions in aid of construction 25,985 72,630 -- 98,615
----------- ----------- ----------- -----------
$ 662,876 $ 436,494 $ -- $ 1,099,370
=========== =========== =========== ===========
</TABLE>
See accompanying notes to Pro Forma Condensed Combined Financial Statements.
14
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1997
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
PSC Consumers Pro Forma Pro Forma
Historical Historical Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets
Property, plant and equipment, at cost $ 656,011 $ 510,930 $ -- $ 1,166,941
Less accumulated depreciation 121,528 92,787 -- 214,315
----------- ----------- ----------- -----------
Net property, plant and equipment 534,483 418,143 -- 952,626
Current assets:
Cash 680 2,694 -- 3,374
Accounts receivable, net 23,534 13,772 -- 37,306
Inventory, materials and supplies 1,847 2,068 -- 3,915
Prepayments and other current assets 1,002 6,585 -- 7,587
----------- ----------- ----------- -----------
Total current assets 27,063 25,119 -- 52,182
Regulatory assets 51,203 4,198 -- 55,401
Deferred charges and other assets, net 5,723 18,239 -- 23,962
----------- ----------- ----------- -----------
$ 618,472 $ 465,699 $ -- $ 1,084,171
=========== =========== =========== ===========
Liabilities and Stockholder's Equity
Stockholders' equity:
Cumulative preferred stock $ 3,220 $ 1,044 $ (1,044)(1) $ 3,220
Common stock 13,294 8,968 (2,396)(2) 19,866
Capital in excess of par value 128,065 79,555 3,440 (3) 211,060
Retained earnings 56,136 20,134 -- 76,270
Minority interest -- 2,370 -- 2,370
Treasury stock (5,970) -- -- (5,970)
----------- ----------- ----------- -----------
Total stockholders' equity 194,745 112,071 -- 306,816
Long-term debt, excluding current portion 232,471 171,771 -- 404,242
Current liabilities:
Loans payable and current portion of long-term
debt and preferred stock of subsidiary with
mandatory redemption requirements 17,062 19,666 -- 36,728
Accounts payable 10,259 5,177 -- 15,436
Other accrued liabilities 17,376 26,928 -- 44,304
----------- ----------- ----------- -----------
Total current liabilities 44,697 51,771 -- 96,468
Deferred credits and other liabilities:
Deferred income taxes and investment tax credits 83,129 30,740 -- 113,869
Customers' advances for construction and other 38,574 22,049 -- 60,623
----------- ----------- ----------- -----------
Total deferred credits and other liabilities 121,703 52,789 -- 174,492
Contributions in aid of construction 24,856 77,297 -- 102,153
----------- ----------- ----------- -----------
$ 618,472 $ 465,699 $ -- $ 1,084,171
=========== =========== =========== ===========
</TABLE>
See accompanying notes to Pro Forma Condensed Combined Financial Statements.
15
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(Amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
PSC Consumers Pro Forma Pro Forma
Historical Historical Adjustments Combined
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Earned revenues $71,617 $47,562 $ -- $119,179
Costs and expenses:
Operating expenses 27,688 20,563 -- 48,251
Depreciation and amortization 7,737 6,036 -- 13,773
Taxes other than income taxes 4,801 6,176 -- 10,977
------- ------- -------- --------
Total costs and expenses 40,226 32,775 -- 73,001
Operating income 31,391 14,787 -- 46,178
Interest expense 9,424 6,987 -- 16,411
Gains on sales of properties -- (6,680) -- (6,680)
Other (357) (764) -- (1,121)
------- ------- -------- --------
Income from continuing operations
before income taxes 22,324 15,244 -- 37,568
Provision for income taxes 9,085 5,943 -- 15,028
------- ------- -------- --------
Income from continuing operations $13,239 $ 9,301 $ -- $ 22,540
======= ======= ======== ========
Income per share from continuing operations:
Basic $ 0.48 $ 1.03 $ -- $ 0.56
======= ======= ======== ========
Diluted $ 0.48 $ 1.03 $ -- $ 0.55
======= ======= ======== ========
Average common shares outstanding during the period:
Basic 27,168 8,997 4,190 40,355
======= ======= ======== ========
Diluted 27,604 9,009 4,195 40,808
======= ======= ======== ========
</TABLE>
See accompanying notes to Pro Forma Condensed Combined Financial Statements.
16
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(Amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
PSC Consumers Pro Forma Pro Forma
Historical Historical Adjustments Combined
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Earned revenues $136,171 $98,339 $ -- $234,510
Costs and expenses:
Operating expenses 55,899 42,659 -- 98,558
Depreciation and amortization 14,580 11,270 -- 25,850
Taxes other than income taxes 8,893 12,452 -- 21,345
-------- ------- -------- --------
Total costs and expenses 79,372 66,381 -- 145,753
Operating income 56,799 31,958 -- 88,757
Interest expense 17,890 15,277 -- 33,167
Gains on sales of properties -- (690) -- (690)
Other (152) (1,264) -- (1,416)
-------- ------- -------- --------
Income from continuing operations
before income taxes 39,061 18,635 -- 57,696
Provision for income taxes 15,873 6,559 -- 22,432
-------- ------- -------- --------
Income from continuing operations $ 23,188 $12,076 $ -- $ 35,264
======== ======= ======== ========
Income per share from continuing operations:
Basic $ 0.89 $ 1.36 $ -- $ 0.90
======== ======= ======== ========
Diluted $ 0.88 $ 1.36 $ -- $ 0.89
======== ======= ======== ========
Average common shares outstanding during the period:
Basic 25,908 8,857 4,125 38,890
======== ======= ======== ========
Diluted 26,273 8,859 4,126 39,258
======== ======= ======== ========
</TABLE>
See accompanying notes to Pro Forma Condensed Combined Financial Statements.
17
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(Amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
PSC Consumers Pro Forma Pro Forma
Historical Historical Adjustments Combined
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Earned revenues $122,503 $93,589 $ -- $216,092
Costs and expenses:
Operating expenses 51,615 42,734 -- 94,349
Depreciation and amortization 13,333 10,128 -- 23,461
Taxes other than income taxes 8,265 11,823 -- 20,088
-------- ------- -------- --------
Total costs and expenses 73,213 64,685 -- 137,898
Operating income 49,290 28,904 -- 78,194
Interest expense 15,311 14,635 -- 29,946
Loss on sales of properties -- 342 -- 342
Other 230 (933) -- (703)
-------- ------- -------- --------
Income from continuing operations
before income taxes 33,749 14,860 -- 48,609
Provision for income taxes 13,971 5,379 -- 19,350
-------- ------- -------- --------
Income from continuing operations $ 19,778 $ 9,481 $ -- $ 29,259
======== ======= ======== ========
Income per share from continuing operations:
Basic $ 0.79 $ 1.09 $ -- $ 0.78
======== ======= ======== ========
Diluted $ 0.78 $ 1.09 $ -- $ 0.77
======== ======= ======== ========
Average common shares outstanding during the period:
Basic 24,966 8,625 4,020 37,611
======== ======= ======== ========
Diluted 25,262 8,628 4,021 37,911
======== ======= ======== ========
</TABLE>
See accompanying notes to Pro Forma Condensed Combined Financial Statements.
18
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(Amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
PSC Consumers Pro Forma Pro Forma
Historical Historical Adjustments Combined
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Earned revenues $117,044 $89,146 $ -- $206,190
Costs and expenses:
Operating expenses 51,702 40,536 -- 92,238
Depreciation and amortization 11,557 8,835 -- 20,392
Taxes other than income taxes 7,676 10,814 -- 18,490
-------- ------- -------- --------
Total costs and expenses 70,935 60,185 -- 131,120
Operating income 46,109 28,961 -- 75,070
Interest expense 14,852 13,725 -- 28,577
Gains on sales of properties -- (2,042) -- (2,042)
Other 326 (1,520) -- (1,194)
-------- ------- -------- --------
Income from continuing operations
before income taxes 30,931 18,798 -- 49,729
Provision for income taxes 12,901 6,885 -- 19,786
-------- ------- -------- --------
Income from continuing operations $ 18,030 $11,913 $ -- $ 29,943
======== ======= ======== ========
Income per share from continuing operations:
Basic $ 0.75 $ 1.41 $ -- $ 0.83
======== ======= ======== ========
Diluted $ 0.75 $ 1.41 $ -- $ 0.83
======== ======= ======== ========
Average common shares outstanding during the period:
Basic 23,803 8,385 3,910 36,098
======== ======= ======== ========
Diluted 23,916 8,388 3,912 36,216
======== ======= ======== ========
</TABLE>
See accompanying notes to Pro Forma Condensed Combined Financial Statements.
19
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Description of Transaction and Basis of Presentation
The Merger Agreement provides that each share of Consumers Common Stock
will be exchanged for 1.459 shares of PSC Common Stock and that each share of
Consumers Preferred Stock will be exchanged for 5.756 shares of PSC Common
Stock, unless the Exchange Ratio is adjusted as provided in the Merger
Agreement. The Merger, which is expected to be completed by the end of 1998,
will be accounted for under the pooling-of-interests method and, accordingly,
PSC's historical consolidated financial statements subsequent to the Merger will
be restated to include the accounts and results of Consumers. The Merger is
subject to closing conditions as described in the Merger Agreement, including
regulatory and PSC and Consumers shareholder approval.
Financial Statement Classifications
As necessary for fair presentation of the pro forma financial
statements, amounts previously reported by PSC and Consumers have been
reclassified for consistency of presentation.
Pro Forma Adjustments
(1) Redemption of Consumers Preferred Stock (in exchange for PSC Common
Stock).
(2) The table below sets forth the pro forma adjustments to Common
Stock:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------------------ ------------------------
Number of Dollars in Number of Dollars in
Shares Thousands Shares Thousands
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Conversion of Consumers Preferred Stock to PSC
Common Stock 60,080 $ 30 60,080 $ 30
Less: Redemption of outstanding Consumers
Common Stock (in exchange for PSC Common Stock) (9,008,305) (9,008) (8,967,894) (8,968)
Amount of PSC Common Stock, par value $0.50 per
share, to be issued for Consumers Common Stock 13,143,117 6,571 13,084,157 6,542
---------- -------- ---------- ----------
Pro forma adjustment to Common Stock 4,194,892 $ (2,407) 4,176,343 $ (2,396)
========== ======== ========== ==========
Historical balance of PSC Common Stock
outstanding, par value $0.50 per share 27,560,713 26,210,654
========== ==========
Historical balance of Consumers Common Stock
outstanding, par value $1.00 per share 9,008,305 8,967,894
========== ==========
</TABLE>
The number of shares to be issued at the consummation of the Merger will
be based on the actual number of shares of Consumers Common Stock and
Consumers Preferred Stock outstanding at that time and the Exchange Ratio
determined at that time.
(3) Reflects adjustment to capital in excess of par value resulting from the
exchange of Consumers Preferred Stock and Consumers Common Stock for PSC
Common Stock.
20
<PAGE>
Pro Forma Income Per Share from Continuing Operations
Pro forma income per share from continuing operations gives effect to
the exchange of Consumers Common Stock and Consumers Preferred Stock for PSC
Common Stock assuming an Exchange Ratio of 1.459. The Merger Agreement provides
that the Exchange Ratio may be adjusted in certain circumstances.
21
<PAGE>
MARKET PRICE AND DIVIDEND DATA
PSC
PSC Common Stock is traded under the symbol "PSC" on the New York Stock
Exchange and the Philadelphia Stock Exchange. It is the present intention of the
PSC Board of Directors to continue to pay regular quarterly cash dividends.
However, the declaration and payment of future dividends is at the sole
discretion of the PSC Board of Directors and the amount, if any, depends upon
the earnings, financial condition and capital needs of PSC and other factors,
including restrictions arising from state laws and regulations to which PSC and
its subsidiaries are subject. The ability of PSC's subsidiary, PSW, to pay
dividends is also subject to the restrictions arising under certain indentures
entered into by such subsidiary. In addition, the holders of PSC Series B
Preferred Shares will have a right prior to the holders of PSC Common Stock and
holders of PSC Series A Junior Participating Preferred Shares to receive any
payment of dividends.
Consumers
The Consumers Common Stock is traded under the symbol "CONW" on the
Nasdaq Stock Market. It is the present intention of the Consumers Board of
Directors to continue to pay regular quarterly cash dividends. However, the
declaration and payment of future dividends is at the sole discretion of the
Consumers Board of Directors and the amount, if any, depends upon the earnings,
financial condition and capital needs of Consumers and other factors, including
restrictions arising from state laws and regulations to which Consumers and its
subsidiaries are subject. The ability of Consumers' subsidiaries to pay
dividends is also subject to restrictions arising under certain mortgages
entered into by such subsidiaries. In addition, pursuant to the Merger
Agreement, Consumers has agreed not to declare, set aside or pay any dividends
on, or make any other distributions with respect to, any of Consumers'
outstanding capital stock, other than dividends required to be paid on the
Consumers Preferred Stock in accordance with the respective terms thereof and
regular quarterly dividends on Consumers Common Stock with usual record and
payment dates during any fiscal year, not in excess of $0.005 per quarter per
share greater than the per share dividends for the corresponding quarter in the
prior fiscal year. The holders of Consumers Preferred Stock have a right prior
to the holders of Consumers Common Stock to receive payment of dividends due on
the Consumers Preferred Stock.
The table below sets forth, for the fiscal quarters indicated, the high
and low sale prices for the PSC Common Stock and Consumers Common Stock as
reported by the New York Stock Exchange and the Nasdaq Stock Market,
respectively and the dividends paid by each of the companies.
<TABLE>
<CAPTION>
Price Per Share of Price Per Share of Dividends Paid
PSC Common Stock Dividends Paid Consumers Common Stock Per Share of
---------------- Per Share of PSC ---------------------- Consumers
High Low Common Stock High Low Common Stock
------- ------- ------------ ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1996
First Quarter................ $ 11.57 $ 10.26 $ 0.145 $ 19.00 $ 16.50 $ 0.300
Second Quarter............... 12.57 11.25 0.145 18.25 14.50 0.300
Third Quarter................ 12.94 11.63 0.152 18.75 15.50 0.300
Fourth Quarter............... 14.91 12.38 0.152 19.25 16.75 0.300
Year ended December 31, 1997
First Quarter................ 15.47 11.72 0.152 18.75 16.75 0.300
Second Quarter............... 15.10 11.44 0.152 17.75 15.13 0.300
Third Quarter................ 18.00 14.07 0.159 18.25 16.38 0.300
Fourth Quarter............... 22.18 15.10 0.159 20.75 17.00 0.305
Year ended December 31, 1998
First Quarter................ 25.75 19.56 0.1625 22.75 19.00 0.305
Second Quarter............... 22.56 18.88 0.1625 28.06 19.50 0.305
Third Quarter (through
September 18, 1998).......... 27.63 20.50 0.1700 29.00 27.13 0.305
</TABLE>
22
<PAGE>
On June 26,1998, the last full trading day prior to the announcement of
the Merger, the reported New York Stock Exchange closing price of the PSC Common
Stock was $20.88 per share. On September 18, 1998, the most recent available
date prior to the date of this Joint Proxy Statement/Prospectus, the reported
New York Stock Exchange closing price of the PSC Common Stock was $27.13 per
share.
On June 26, 1998, the last full trading day prior to the announcement
of the Merger, the reported Nasdaq Stock Market closing price of the Consumers
Common Stock was $24.25 per share. On September 18, 1998, the most recent
available date prior to the date of this Joint Proxy Statement/Prospectus, the
reported Nasdaq Stock Market closing price of the Consumers Common Stock was
$28.19 per share.
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SHAREHOLDER MEETINGS
This Joint Proxy Statement/Prospectus is being furnished to the
shareholders of PSC and Consumers in connection with the solicitation of proxies
by the PSC Board of Directors for use at the PSC Special Meeting to be held on
Monday, November 16, 1998, at 10:00 A.M., local time, at PSC's offices at 762 W.
Lancaster Avenue, Bryn Mawr, PA 19010 and at all adjournments and postponements
thereof, and by the Consumers Board of Directors for use at the Consumers
Special Meeting to be held on Monday, November 16, 1998 at 11:00 A.M., local
time, at the Portland Regency Hotel, 20 Milk Street, Portland, Maine 04101, and
at all adjournments and postponements thereof.
At the PSC Special Meeting, PSC shareholders will be asked to consider
and vote upon three proposals: (i) approval of the Amendment to the Articles of
Incorporation for an increase in the number of authorized shares of PSC Common
Stock from 40,000,000 to 100,000,000; (ii) approval of the Merger Agreement; and
(iii) approval of the Amendment to the Equity Compensation Plan, increasing from
1,900,000 to 2,900,000 the aggregate authorized shares of the PSC Common Stock
that may be issued or transferred under the Equity Compensation Plan and
adopting certain other amendments. The consummation of the Merger Agreement is
conditioned upon approval of the Amendment to the Articles of Incorporation. A
copy of each of the Amendment to the Articles of Incorporation and the Amendment
to the Equity Compensation Plan is attached as Annex E and F to this Joint Proxy
Statement/Prospectus.
At the Consumers Special Meeting, the holders of Consumers Stock will
be asked to consider and vote upon a proposal to approve the Merger Agreement.
A copy of the Merger Agreement (without the schedules thereto) is
attached as Annex A to this Joint Proxy Statement/Prospectus. Pursuant to the
Merger Agreement, upon satisfaction or waiver of certain conditions described in
the Merger Agreement, (i) Consumers will be merged with and into Acquisition, a
wholly-owned subsidiary of PSC, (ii) each outstanding share of Consumers Common
Stock will be converted into the right to receive 1.459 shares of PSC Common
Stock, subject to possible adjustment in accordance with the terms of the Merger
Agreement, (iii) each outstanding share of Consumers Preferred Stock will be
converted into the right to receive 5.756 shares of PSC Common Stock, subject to
possible adjustment in accordance with the terms of the Merger Agreement, and
(iv) Consumers will cease to exist as a separate legal entity.
A representative of KPMG Peat Marwick LLP, independent certified public
accountants of PSC, will be present at the PSC Special Meeting, and a
representative of Arthur Andersen LLP, independent auditors of Consumers, will
be present at the Consumers Special Meeting, and each will have an opportunity
to make a statement, if such representative so desires, and to respond to
appropriate questions raised at such Shareholder Meeting.
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VOTING AND PROXY INFORMATION
PSC
The PSC Board of Directors has fixed the close of business on September
18, 1998 as the PSC Record Date for determining the holders of PSC Common Stock
entitled to receive notice of and to vote at the PSC Special Meeting or any
adjournments or postponements thereof. At the close of business on the PSC
Record Date, there were 27,658,725 shares of PSC Common Stock outstanding. As of
such date, such shares of PSC Common Stock were held by approximately 14,943
shareholders of record. The presence in person or by proxy of holders of record
of shares representing a majority of the total issued and outstanding shares of
the PSC Common Stock will constitute a quorum at the PSC Special Meeting.
Under Pennsylvania law, approval of each of the three proposals, the
Amendment to the Articles of Incorporation, the Amendment to the Equity
Compensation Plan and the Merger Agreement, requires the affirmative vote of the
majority of the votes cast by all shareholders of PSC Common Stock. The holders
of PSC Common Stock are entitled to one vote on all matters properly brought
before the PSC Special Meeting for each share of PSC Common Stock held by such
persons. Votes may be cast in person at the PSC Special Meeting or by proxy.
As of the PSC Record Date, directors and executive officers of PSC and
their affiliates had the right to vote 301,545 shares of PSC Common Stock
representing in the aggregate approximately 1.1% of the outstanding shares of
PSC Common Stock as of the PSC Record Date. The directors and executive officers
of PSC who hold such shares have informed PSC that they intend to vote all such
shares in favor of the approval and adoption of the Merger Agreement.
As of June 29, 1998, Vivendi ("Vivendi") owned 3,651,866 shares of PSC
Common Stock, representing in the aggregate approximately 13.3% of the
outstanding shares of PSC Common Stock as of such date. Vivendi has informed PSC
that it intends to vote all such shares in favor of the approval and adoption of
the Merger Agreement.
Any PSC shareholder who signs and returns a proxy may revoke it at any
time before it has been voted at the Special Meeting by (i) delivering to the
Secretary of PSC written notice of its revocation, (ii) executing and delivering
to the Secretary of PSC a proxy bearing a later date or (iii) attending the PSC
Special Meeting and voting in person. Attendance at the PSC Special Meeting will
not in and of itself constitute a revocation of any proxy given to PSC. Written
notice of revocation should be sent to PSC at Philadelphia Suburban Corporation,
762 W. Lancaster Avenue, Bryn Mawr, PA 19010, Attention: Secretary. All properly
executed proxies, if received in time for voting and not revoked, will be voted
in accordance with the instructions specified, or, if no instructions are
specified, will be voted for the approval of the Proposals.
Consumers
The Consumers Board of Directors has fixed the close of business on
September 18, 1998 as the Consumers Record Date for determining the holders of
Consumers Stock entitled to receive notice of and to vote at the Consumers
Special Meeting or any adjournments or postponements thereof. At the close of
business on the Consumers Record Date, there were outstanding 9,010,305 shares
of Consumers Common Stock and 10,438 shares of Consumers Preferred Stock. As of
such date, the shares of Consumers Common Stock were held by approximately 5,791
shareholders of record and the shares of Consumers Preferred Stock were held by
approximately 101 shareholders of record. The presence in person or by proxy of
holders of record of shares representing a majority of the total outstanding
shares of the Consumers Common Stock and Consumers Preferred Stock will
constitute a quorum at the Consumers Special Meeting.
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Under Maine law and the terms of the Merger Agreement, approval of the
Merger Agreement requires the affirmative vote of the holders of at least a
majority of the shares of Consumers Common Stock and of the shares of Consumers
Preferred Stock, outstanding at the Consumers Record Date, each voting as a
class, and of at least a majority of the Consumers Common Stock and Consumers
Preferred Stock voting together as one class.
The holders of Consumers Common Stock and Consumers Preferred Stock are
each entitled to one vote on all matters properly brought before the Consumers
Special Meeting for each share of Consumers Common Stock or Consumers Preferred
Stock, as the case may be, held by such persons. Votes may be cast in person at
the Consumers Special Meeting or by proxy.
As of the Consumers Record Date, directors and executive officers of
Consumers and their affiliates had the right to vote (i) 90,176 shares of
Consumers Common Stock (representing in the aggregate approximately 1.0% of the
outstanding shares of Consumers Common Stock as of the Consumers Record Date)
and (ii) none of the shares of Consumers Preferred Stock. The directors and
executive officers of Consumers who hold such shares have informed Consumers
that they intend to vote all such shares in favor of the approval of the Merger
Agreement.
As of the Consumers Record Date, Vivendi owned 2,040,658 shares of
Consumers Common Stock, representing in the aggregate approximately 22.6% of the
outstanding shares of Consumers Common Stock as of the Consumers Record Date.
Vivendi has informed PSC that it intends to vote all such shares in favor of the
approval and adoption of the Merger Agreement.
Any Consumers shareholder who signs and returns a proxy may revoke it
at any time before it has been voted by (i) delivering to the Secretary of
Consumers written notice of its revocation, (ii) executing and delivering to the
Secretary of Consumers a proxy bearing a later date or (iii) attending the
Consumers Special Meeting and voting in person. Attendance at the Consumers
Special Meeting will not in and of itself constitute a revocation of any proxy
given to Consumers. Written notice of revocation should be sent to Consumers at
Consumers Water Company, Three Canal Plaza, P.O. Box 599, Portland, ME 04112,
Attention: Secretary. All properly executed proxies, if received in time for
voting and not revoked, will be voted in accordance with the instructions
specified, or, if no instructions are specified, will be voted for the approval
of the adoption of the Merger Agreement.
Proxies
All shares represented by properly executed proxies received prior to
or at the respective Shareholder Meetings and not revoked will be voted in
accordance with the instructions indicated in such proxies. If no instructions
are indicated on a properly executed returned proxy, such proxies will be voted
FOR approval of the proposals set forth thereon (the "Proposals"). Brokers and
nominees are precluded from exercising their voting discretion with respect to
the approval and adoption of the Proposals and thus, absent specific
instructions from the beneficial owner of such shares, are not empowered to vote
such shares ("broker non-votes") with respect to the approval and adoption of
such Proposals.
PSC
Approval of each of the three PSC Proposals (the Amendment to the
Articles of Incorporation, the Amendment to the Equity Compensation Plan and the
Merger Agreement) requires the affirmative vote of the majority of the votes
cast by all shareholders of PSC Common Stock. A properly executed proxy marked
"ABSTAIN," although counted for purposes of determining whether there is a
quorum, will not be counted for purposes of determining the aggregate number of
votes cast. Similarly, broker non-votes will also be counted for purposes of
determining whether there is a quorum, but will not be counted for purposes of
determining the aggregate number of votes cast. Accordingly, abstentions and
broker non-votes will have no effect on the approval of the Proposals.
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Consumers
Approval of the Merger Agreement requires the affirmative vote of the
holders of at least a majority of the shares of Consumers Common Stock and of
the shares of Consumers Preferred Stock, outstanding at the Consumers Record
Date, each voting as a class, and of at least a majority of the Consumers Common
Stock and Consumers Preferred Stock voting together as one class. Accordingly,
abstentions and "broker non-votes" will have the effect of a vote against the
Merger Agreement. However, shares represented by abstentions and "broker
non-votes" will be counted for purposes of determining whether there is a quorum
at the Shareholder Meeting.
Neither the management of PSC nor of Consumers, as the case may be,
knows of any business to be presented at its respective Shareholder Meeting
other than such business described in this Joint Proxy Statement/Prospectus.
Should additional business properly come before either of the Shareholder
Meetings, the persons acting as the proxies will have discretion to vote in
accordance with their own judgment on such business.
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THE MERGER
The following information insofar as it relates to matters contained in
the Merger Agreement is qualified in its entirety by reference to the Merger
Agreement, which is incorporated herein by reference and attached hereto as
Annex A. PSC and Consumers shareholders are urged to read the Merger Agreement
in its entirety. All information contained in this Joint Proxy
Statement/Prospectus with respect to Consumers, except such information
described under "Opinion of SG Barr Devlin" has been supplied by Consumers for
inclusion herein and has not been independently verified by PSC. All information
contained in this Joint Proxy Statement/Prospectus with respect to PSC, except
such information described under "Opinion of Salomon Smith Barney" has been
supplied by PSC for inclusion herein and has not been independently verified by
Consumers.
Background to the Merger
In 1996, senior management of PSC began to consider ways to sustain and
enhance the growth of PSC in the future. Mr. DeBenedictis, Chairman and Chief
Executive Officer of PSC, reviewed his thoughts with the Board of Directors of
PSC. The Board of Directors concurred and requested that management develop a
strategic vision for PSC based on the consolidations in the water industry,
regionally, state-wide and nationally.
In connection with this strategic planning, PSC's management began to
analyze possible acquisition candidates that would enable PSC to meet its growth
objectives. As part of its national strategy considerations, Consumers was a
primary focus in PSC's analysis based on various factors, including: (i)
Consumers' relative size to PSC in terms of customers and market capitalization;
(ii) the geographic proximity of Consumers operations to PSC; and (iii) the
common ownership of Consumers and PSC by Vivendi, which as of June 29, 1998
owned 13.3% of PSC and 22.7% of Consumers.
At various meetings during 1997, representatives of PSC informed
representatives of Vivendi of PSC's interest in considering a possible
combination of PSC and Consumers. No commitment to support such a combination
was forthcoming from Vivendi and in late 1997, PSC determined to approach
Consumers' management directly.
In early 1997, the Consumers Board of Directors retained Lochridge &
Company ("Lochridge") of Boston, Massachusetts to advise it on strategic options
available to increase shareholder value. In September of 1997, Lochridge offered
recommendations to Consumers in the areas of capital management, financial
structure and organizational structure to improve the value of Consumers'
business to its shareholders and on the advisability of continuing a business
strategy of growth through acquisitions. In September of 1997, Consumers
retained SG Barr Devlin (formerly Barr Devlin Associates) to advise it with
respect to an acquisition initiative received from a third party and with
respect to its own acquisition program. With the assistance of SG Barr Devlin
and its other advisors, the Consumers Board of Directors determined that the
party that had made the acquisition initiative was not willing or able to
propose a transaction which would be attractive to Consumers' shareholders and
no substantive discussions were held.
In late 1997, Mr. DeBenedictis and Mr. Haynes, President and Chief
Executive Officer of Consumers, discussed the possible conceptual benefits of a
merger of PSC and Consumers, but no basis for proceeding with further
discussions was developed. In the meantime, Mr. DeBenedictis kept the Board of
Directors of PSC advised of his view of a possible merger with Consumers as part
of the overall discussions on PSC's strategic plan. In December, 1997, with the
encouragement of the PSC Board of Directors, PSC engaged the investment banking
firm of Salomon Smith Barney to act as its exclusive financial advisor in
connection with a possible transaction with Consumers. Over the next several
months, a number of analyses of the possible impact on PSC of a transaction with
Consumers were developed.
In March 1998, Mr. DeBenedictis called the Chairman of the Board of
Consumers, Mr. Menario, to suggest that they meet to explore the benefits of a
possible merger of the two companies. Mr. Menario indicated that he would
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discuss Mr. DeBenedictis' call with the Board of Directors of Consumers at the
Board's April 1, 1998 meeting, after which he would call Mr. DeBenedictis if
there is any interest in meeting.
On April 2, Mr. Menario called Mr. DeBenedictis and together they
arranged for Mr. DeBenedictis to meet Mr. Menario. The two parties met on April
7 and 8, 1998, during which discussions both gentlemen determined that there was
sufficient commonality of interests for both companies to proceed with further
discussions. A Confidentiality Agreement was signed by PSC and Consumers
effective April 17, 1998. Salomon Smith Barney then contacted Consumers'
investment bankers SG Barr Devlin to obtain preliminary financial data on
Consumers. Following receipt of this information, there were some preliminary
discussions of the value of a possible transaction to Consumers' shareholders
between Mr. DeBenedictis and Mr. Menario.
Over the next few weeks there was an exchange of additional information
and a series of discussions between Mr. DeBenedictis and Mr. Haynes regarding
issues that would need to be resolved in order for a transaction to take place.
On April 29, 1998, a request for additional due diligence materials was made by
PSC to Consumers. On Saturday, May 2, 1998 Mr. DeBenedictis, Mr. Haynes, Mr.
Graham (Senior Vice President and Chief Financial Officer of PSC), Mr. Isacke
(Senior Vice President and Chief Financial Officer of Consumers) and
representatives of Salomon Smith Barney and SG Barr Devlin met in Boston to
conduct additional financial due diligence. As a result of their discussions,
management of both parties independently developed their lists of issues to be
resolved and the range of exchange ratios that they felt might be of sufficient
interest to their respective Boards of Directors to warrant further due
diligence and discussion.
During the next few weeks, there were various discussions narrowing
many of the issues identified by the parties. During this period, Messrs.
DeBenedictis, Haynes and Menario had informal discussions with members of their
respective Boards to keep them informed of the progress of the negotiations and
the proposed resolution of various open issues.
On May 27, 1998, the Consumers Board of Directors authorized the
formation of an ad hoc committee, to consist of directors Menario (Chairman),
Haynes, Ketchum, Newman, Palmer, Schiavi and Viets, to advise management with
respect to elements of the continuing discussions with PSC and to be in a
position to respond to a proposal or proposals, if made.
On June 15, 1998, Messrs. DeBenedictis, Haynes, Graham and Isacke and
other senior executives of PSC and Consumers, along with representatives of
Salomon Smith Barney and SG Barr Devlin met in New York to discuss the value of
a possible transaction between PSC and Consumers. Following the meeting,
management of the companies reached an understanding concerning the exchange
ratio for the proposed merger, which they agreed, subject to due diligence, to
submit to their respective Boards of Directors. The respective managements
reached agreement on the exchange ratio through arms-length negotiations. In
reaching their understanding, each management considered factors described below
under "PSC Reasons for the Merger; Recommendation of PSC's Board of Directors"
and "Consumers Reasons for the Merger; Recommendation of Consumers' Board of
Directors" and the financial analysis performed by the respective financial
advisors as summarized under "Opinion of Salomon Smith Barney" and "Opinion of
SG Barr Devlin." The managements of the two companies did not assign relative or
specific weights to any of such factors or analysis. The parties also agreed
upon a time schedule to complete the due diligence review and negotiate a
definitive merger agreement.
On June 23, 1998, certain members of Consumers senior management,
together with representatives of SG Barr Devlin and Consumers' legal advisors,
briefed the ad hoc committee with respect to the status of the discussions with
PSC and its due diligence investigation of PSC. At the ad hoc committee meeting,
the committee, management of Consumers and their advisors discussed various open
issues with respect to the discussions with PSC, including issues which the
committee and management believed represented significant impediments to any
agreement, and the options for dealing with certain of those issues.
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Because of the size of Vivendi's investment in both Consumers and PSC,
both parties believed it was important to the success of the Merger that they
request Vivendi's support for the transaction. On June 24, 1998, Mr.
DeBenedictis and Mr. Stahl (Senior Vice President and General Counsel for PSC)
met with Mr. Jobard (Chief Financial Officer of Vivendi's international water
division) and Mr. Kimmel (counsel for Vivendi) to seek Vivendi's support for the
Merger. On June 29, 1998, Vivendi provided PSC a letter indicating its intention
to vote its shares in Consumers and PSC in favor of the transaction.
On June 24, 1998 Messrs. DeBenedictis and Haynes and senior executives
of both companies along with their legal and financial advisors met to discuss
items from their due diligence review and to negotiate the detailed terms and
specific language of the Merger Agreement. Negotiations were completed at the
end of the day on June 25, 1998.
On Friday afternoon on June 26, 1998 the Board of Directors of PSC met
with Mr. DeBenedictis and senior management of PSC along with PSC's legal and
financial advisors to review the proposed Merger Agreement, and to discuss
Salomon Smith Barney's analysis of the transaction, including their opinion that
the transaction was fair from a financial point of view to PSC as set forth in
Salomon Smith Barney's fairness opinion letter. Such oral opinion was confirmed
in writing on June 27, 1998. See "Opinion of Salomon Smith Barney." After
additional reports by senior management concerning the Merger Agreement on the
exchange ratio and the other issues, the Board of Directors of PSC approved the
transaction as presented in the Merger Agreement.
On Saturday June 27, 1998, the Board of Directors of Consumers met with
Mr. Haynes and senior management of the company along with the company's legal
and financial advisors to review the proposed Merger Agreement, and to discuss
SG Barr Devlin's analysis of the transaction, including their written opinion
dated June 27, 1998 that the Exchange Ratio was fair from a financial point of
view to the shareholders of Consumers Common Stock. See "Opinion of SG Barr
Devlin." After a full discussion, the Board of Directors approved the
transaction as presented in the Merger Agreement.
On Saturday June 27, 1998, the companies executed the original Merger
Agreement, and on Monday June 29, 1998, prior to the opening of the New York
financial markets, the parties issued an announcement of their agreement.
On August 4, 1998, the parties agreed to amend and restate the Merger
Agreement dated June 27, 1998 to modify the type of capital stock of PSC being
exchanged for Consumers Preferred Stock. After discussion with its management
and its financial advisors, the PSC Board of Directors approved the amended
agreement on August 4, 1998. After discussion with its management, and upon
receiving an oral opinion as to the fairness of the consideration being paid to
Consumers Shareholders, the Consumers Board of Directors approved the amended
Merger Agreement on August 5, 1998. The parties executed the amended Merger
Agreement as of August 5, 1998.
PSC Reasons for the Merger; Recommendation of PSC's Board of Directors
PSC believes that the combination with Consumers can provide better
opportunities to achieve significant benefits for both companies' shareholders,
customers, employees and the regions that they serve than could be achieved by
the two companies separately.
The U.S. water utility industry is a highly fragmented industry, with
more than 50,000 separate water utility systems nationally and a significant
potential for consolidation; 85% of the nation's water systems serve populations
of 3,300 or less and only approximately 15% of the nation's water systems are
investor-owned water utilities. The vast majority of water systems are owned by
municipalities or other governmental entities. Many of the smaller
investor-owned and municipal systems are facing capital expenditure requirements
for water quality compliance and infrastructure rehabilitation that may put a
financial strain on their resources due to their limited customer base. As a
result, PSC believes that there will be continued opportunity for consolidation
in the water utility industry.
Since 1992, PSC, through its regulated public utility subsidiary, PSW,
has been acquiring and consolidating various municipal and small privately-owned
water systems adjacent to its service territory in Southeastern
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Pennsylvania. Beginning in 1992 through June 30, 1998, PSW has acquired 24 water
and 2 wastewater systems in Southeastern Pennsylvania. PSC's management
anticipates that the Merger will permit PSC to enter, and subsequently expand
its customer growth in, the regions served by Consumers' operations in Illinois,
Ohio, central and western Pennsylvania, New Jersey and Maine. PSC estimates
there are approximately 6,051 water systems in Illinois, 6,134 water systems in
Ohio, 2,400 water systems in Pennsylvania, 4,826 water systems in New Jersey and
800 water systems in Maine.
The size of the combined organizations, which will be the second
largest investor-owned water utility in the U.S. based on market capitalization,
is expected to allow for the achievement of cost synergies, mainly through
increased purchasing leverage in such areas as electricity, chemicals, and
equipment and by spreading overhead expenses over a larger customer base. Other
potential benefits of the Merger that may be realized include:
(i) Increased operational expertise - PSC and Consumers possess
broad and varied expertise in the management and operation of
water systems (both on a centralized and de-centralized
basis), infrastructure rehabilitation, water treatment and
water quality research. This expertise will be able to be
applied across the combined organization as a result of the
Merger;
(ii) Increased shareholder value - The Merger is projected to be
accretive to earnings, excluding the one-time acquisition
expenses, and to provide increased opportunity for growth;
(iii) Financial flexibility - The significant increase in the market
capitalization of the combined organization compared with the
companies by themselves should enhance the overall credit
quality of the combined organization and the liquidity of the
publicly-traded equity securities, thus improving PSC's
ability to fund future growth; and
(iv) Increased geographic and regulatory diversity - As a result of
the Merger, PSC will gain Consumers operations in four new
states - Illinois, Ohio, New Jersey and Maine, while also
obtaining a larger base from which to expand operations in
Pennsylvania. This expansion into these other states will
provide more geographic diversity to PSC's operations, which
should provide some increased insulation from the impacts of
adverse regional weather conditions, regional economic
fluctuations and adverse regulatory developments in any one
geographic area.
THE PSC BOARD OF DIRECTORS UNANIMOUSLY DETERMINED TO APPROVE THE MERGER
AGREEMENT, AND RECOMMENDS THAT THE PSC SHAREHOLDERS VOTE FOR THE APPROVAL OF THE
MERGER AGREEMENT.
Opinion of Salomon Smith Barney.
At the meeting of the PSC Board of Directors held on June 26, 1998,
Salomon Smith Barney delivered its oral opinion, subsequently confirmed in
writing on June 27, 1998, to the PSC Board of Directors (the "Salomon Smith
Barney Opinion") that, as of such date, the Exchange Ratio was fair, from a
financial point of view, to PSC. No limitations were imposed by the PSC 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
Salomon Smith Barney Opinion was for the use and benefit of the PSC Board of
Directors in connection with its consideration of the Merger.
The full text of the Salomon Smith Barney Opinion is set forth as Annex
B to this Joint Proxy Statement/Prospectus and sets forth the assumptions made,
procedures followed, matters considered and limitations on the review undertaken
by Salomon Smith Barney. Holders of PSC Common Stock are urged to read the
Salomon Smith Barney Opinion in its entirety. The Salomon Smith Barney Opinion
is directed only to the fairness, from a financial point of view, of the
Exchange Ratio to PSC and does not constitute a recommendation to any PSC
shareholder as to how such shareholder should vote at the Special Meeting. The
summary of the Salomon Smith
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Barney Opinion as set forth in this Joint Proxy Statement/Prospectus is
qualified in its entirety by reference to the full text of such opinion, which
is incorporated herein by reference.
The Salomon Smith Barney 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 the date thereof. The Salomon Smith
Barney Opinion does not imply any conclusion as to the price at which the PSC
Common Stock will trade following the consummation of the Merger or at any other
time in the future, which may vary depending upon, among other factors, changes
in interest rates, dividend rates, market conditions, general economic
conditions and other factors that generally influence the price of securities.
The Salomon Smith Barney Opinion does not address PSC's underlying business
decision whether or not to effect the Merger and Salomon Smith Barney expressed
no view on the effect on PSC of the Merger and related transactions, other than
as discussed herein. In arriving at its opinion, Salomon Smith Barney did not
ascribe a specific consolidated range of values to either PSC or Consumers. The
Salomon Smith Barney Opinion is directed only to the fairness, from a financial
point of view, of the Exchange Ratio to PSC, and does not constitute a
recommendation concerning how shareholders of PSC or Consumers should vote with
respect to the Merger or related transactions. Salomon Smith Barney was not
requested to and did not make any recommendations to the PSC Board of Directors
as to the form or amount of consideration to be provided in the Merger, which
was determined through arm's length negotiations between PSC and Consumers.
In connection with rendering its opinion, Salomon Smith Barney reviewed
and analyzed, among other things, the following: (i) a copy of the Merger
Agreement; (ii) certain publicly available information concerning PSC including
the Annual Reports on Form 10-K of PSC for each of the years in the three year
period ended December 31, 1997; (iii) certain internal information, primarily
financial in nature, including projections, concerning the business and
operations of PSC, furnished to Salomon Smith Barney by PSC for purposes of
Salomon Smith Barney's analysis; (iv) certain publicly available information
concerning the trading of, and the trading market for, the PSC Common Stock; (v)
certain publicly available information concerning Consumers, including the
Annual Reports on Form 10-K of Consumers for each of the years in the three year
period ended December 31, 1997; (vi) certain other information, primarily
financial in nature, including projections, concerning the business and
operations of Consumers, furnished to Salomon Smith Barney by Consumers and PSC
for purposes of Salomon Smith Barney's analysis; (vii) certain publicly
available information concerning the trading of, and the trading market for, the
Consumers Common Stock; (viii) certain publicly available information with
respect to certain other companies that Salomon Smith Barney believed to be
comparable to PSC or Consumers and the trading markets for certain of such other
companies' securities; and (ix) certain publicly available information
concerning the nature and terms of certain other transactions that Salomon Smith
Barney considered relevant to its inquiry. Salomon Smith Barney also considered
such other information, financial studies, analyses, investigations and
financial, economic and market criteria that it deemed relevant. Salomon Smith
Barney also met with certain officers and employees of PSC and Consumers to
discuss the past and current business conditions, including results of
operations, financial condition and prospects, of PSC and Consumers and the
proposed combined entity as well as other matters that it believed relevant to
its inquiry.
In its review and analysis and in arriving at its opinion, Salomon
Smith Barney assumed and relied upon the accuracy and completeness of all of the
financial and other information provided to Salomon Smith Barney or publicly
available and neither attempted independently to verify nor assumed any
responsibility for verifying any of such information and further relied upon the
assurances of management of PSC that they are not aware of any facts that would
make any of such information inaccurate or misleading. Salomon Smith Barney did
not conduct a physical inspection of any of the properties or facilities of PSC
or Consumers in connection with rendering its opinion, nor did Salomon Smith
Barney make or obtain or assume any responsibility for making or obtaining any
independent evaluations or appraisals of any of such properties or facilities,
nor was Salomon Smith Barney furnished with any such evaluations or appraisals.
With respect to the financial projections, including the forecasted amount and
timing of the strategic benefits and synergies of the Merger, Salomon Smith
Barney was advised by the managements of PSC and Consumers, and assumed, that
such projections and forecasts were reasonably prepared and reflect the best
currently available estimates and judgment of PSC's or Consumers' management, as
the case may be, as to the future financial performance of PSC or Consumers, as
the case may be. Salomon Smith Barney relied upon such projections and
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forecasts in arriving at its opinion and expressed no view with respect to such
projections and forecasts or the assumptions on which they were based. With
respect to the strategic benefits, including in particular the opportunity
expected by the management of PSC to purchase additional assets in the states
where Consumers provides services and the opportunity to increase the value of
such assets by integrating them with the combined operations of PSC and
Consumers, and the opportunity to gain operating synergies expected by the
management of PSC to result from a combination of the businesses of PSC and
Consumers, Salomon Smith Barney assumed for purposes of its opinion, based on
the advice of the management of PSC, that such strategic benefits and operating
synergies can be substantially achieved. Salomon Smith Barney also assumed that
the Merger will be consummated in a timely manner and in accordance with the
Merger Agreement. In rendering its opinion, Salomon Smith Barney noted its
understanding that the Merger will be accounted for as a pooling-of-interests in
accordance with generally accepted accounting principles as described in
Accounting Principles Board Opinion No. 16.
In connection with its opinion, Salomon Smith Barney performed certain
financial analyses, which it discussed with the PSC Board of Directors on June
26, 1998. The material portions of the analyses performed by Salomon Smith
Barney in connection with the rendering of the Salomon Smith Barney Opinion are
summarized below.
Historical Market Price Ratio Analysis. Salomon Smith Barney analyzed
the historical ratios between the market prices per share of Consumers Common
Stock and PSC Common Stock (the "Historical Exchange Ratios"). The Historical
Exchange Ratios were analyzed over the five year period between June 26, 1993
and June 26, 1998. The Historical Exchange Ratios were also analyzed for each of
the twelve month, six month and one month periods ended June 26, 1998. During
the five year period, the average Historical Exchange Ratio was 1.56. Over the
twelve month, six month and one month periods, the average Historical Exchange
Ratios were 1.03, 0.99 and 1.11, respectively. On June 26, 1998, the ratio of
the market price for Consumers Common Stock to the market price for PSC Common
Stock was 1.25.
Pro Forma Contribution Analysis. In order to determine an implied
exchange ratio based upon contribution analysis, Salomon Smith Barney analyzed
and compared the respective last twelve months ("LTM") historical and projected
contribution by PSC and Consumers to pro forma revenues, earnings before
interest, taxes, depreciation and amortization ("EBITDA"), net income, book
value and net property, plant and equipment ("PP&E"), based upon estimates from
the managements of PSC and Consumers, in the fiscal years 1998 through 2000.
These analyses indicated a range of implied exchange ratios of Consumers Common
Stock to PSC Common Stock of (i) based on LTM historical and projected revenues,
1.578 to 2.099, (ii) based on LTM historical and projected EBITDA, 1.173 to
1.591, (iii) based on LTM historical and projected net income, 1.299 to 1.486,
(iv) based on LTM historical and projected book value, 1.394 to 1.558 and (v)
based on LTM historical and projected net PP&E, 1.770 to 2.038. Based upon the
results of these analyses, Salomon Smith Barney derived a selected range of
implied exchange ratios of Consumers Common Stock to PSC Common Stock of 1.300
to 1.800.
Discounted Cash Flow Analysis. Salomon Smith Barney performed a
discounted cash flow ("DCF") analysis of Consumers for the fiscal years ended
1998 through 2002 to estimate the present value of the stand-alone unleveraged
free cash flows that Consumers would be expected to generate if Consumers
performed in accordance with certain financial forecasts. The DCF analysis for
Consumers was based upon certain discussions with the managements of PSC and
Consumers as well as upon certain financial forecasts prepared by the
managements of PSC and Consumers. Salomon Smith Barney calculated a terminal
year equity value per share for Consumers by applying a range of terminal stock
price to earnings per share ("P/E") multiples of 15.0x to 18.0x to terminal year
net income. The unlevered free cash flow amounts were then discounted to the
present using a range of discount rates from 7.00% to 8.00%, based upon an
analysis of the weighted average cost of capital ("WACC") of Consumers. Using
the financial information and forecasts provided by the managements of PSC and
Consumers, Salomon Smith Barney derived an implied equity value range for
Consumers. This analysis, which did not consider any benefits derived from
combining the businesses of PSC and Consumers, indicated an implied equity value
range per share of Consumers Common Stock of $19.57 to $25.71, an implied book
value multiple range of 1.6x to 1.9x and an implied EBITDA multiple range of
8.1x to 9.0x. Salomon Smith Barney performed a similar analysis of the terminal
year equity value per share for PSC by applying a range of terminal P/E
multiples of 17.0x to 20.0x and a range of discount rates from 7.00% to 8.00% to
terminal year net income,
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based upon PSC's WACC. Using the financial information and forecasts provided by
the management of PSC, Salomon Smith Barney derived an implied equity value
range for PSC. This analysis, which did not consider any benefits derived from
combining the businesses of PSC and Consumers, indicated an implied equity value
range per share of PSC Common Stock of $16.74 to $20.60, an implied book value
multiple range of 1.7x to 2.0x and an implied EBITDA multiple of 8.3x to 9.2x.
Finally, Salomon Smith Barney performed a DCF analysis of the present value per
share on June 30, 1998 of potential cost savings from combining the businesses
of PSC and Consumers. Estimates of potential cost savings were developed by PSC
management from information provided by Consumers. This analysis was performed
by applying a range of terminal P/E multiples of 15.0x to 18.0x and a range of
discount rates from 7.00% to 8.00%, based upon PSC's WACC, and indicated that
the present value per share of potential cost savings ranged from $0.91 to
$1.00. Inclusion of the present value of these potential cost savings indicated
an implied equity value range per share of Consumers Common Stock of $20.48 to
$26.71.
Based upon the results of this DCF analysis, Salomon Smith Barney
performed a relative valuation analysis to determine a range of implied exchange
ratios and trimmed exchange ratios of Consumers Common Stock to PSC Common Stock
(with the trimmed exchange ratios calculated by adding or subtracting 10% from
the corresponding mean implied exchange ratios). Salomon Smith Barney calculated
the ratio of the implied DCF equity value range per share of Consumers Common
Stock plus the present value of the potential cost savings from combining the
businesses of PSC and Consumers to the implied DCF equity value range per share
of PSC Common Stock. This analysis indicated a range of implied exchange ratios
of Consumers Common Stock to PSC Common Stock of 0.994 to 1.596 and a range of
trimmed exchange ratios of Consumers Common Stock to PSC Common Stock of 1.116
to 1.425.
Trading Valuation. Using publicly available information, Salomon Smith
Barney performed a trading valuation analysis for Consumers based on a range of
multiples of LTM, estimated 1998 and estimated 1999 net income, LTM book value,
LTM and estimated 1998 after tax cash flow ("ATCF"), LTM and estimated 1998
EBITDA and LTM earnings before interest and taxes ("EBIT") derived from a
selected group of comparable publicly traded companies. Projected earnings
estimates were based on information published by I/B/E/S, a data service that
monitors and publishes a compilation of earnings estimates produced by selected
research analysts on companies of interest to investors. This analysis indicated
an implied equity value range per share of Consumers Common Stock of $19.75 to
$23.50. Inclusion of the present value of potential cost savings from the
combination of the businesses of PSC and Consumers indicated an implied equity
value range per share of Consumers Common Stock of $20.66 to $24.50. Using
publicly available information, Salomon Smith Barney performed a trading
valuation analysis for PSC using the same range of multipliers and indicators.
This analysis indicated an implied equity value range per share of PSC Common
Stock of $13.25 to $15.75. A trading valuation for PSC using the same indicators
in which large capitalization multiples (derived from a selected group of large
capitalization comparable companies including American Water Works Company, Inc.
and United Water Resources Inc.) were substituted for industry multiples
indicated an implied equity value range per share of PSC Common stock of $14.75
to $18.25.
Based upon the results of this trading valuation analysis, Salomon
Smith Barney performed a relative valuation analysis to determine a range of
implied exchange ratios and trimmed exchange ratios (calculated as described
above) of Consumers Common Stock to PSC Common Stock. Salomon Smith Barney
calculated the ratio of the implied trading valuation equity value range per
share of Consumers Common Stock plus the present value of the potential cost
savings from combining the businesses of PSC and Consumers to the implied large
capitalization multiple trading valuation equity value range per share of PSC
Common Stock. This analysis indicated a range of implied exchange ratios of
Consumers Common Stock to PSC Common Stock of 1.132 to 1.661 and a range of
trimmed exchange ratios of Consumers Common Stock to PSC Common Stock of 1.257
to 1.536.
Control Premium Analysis. Salomon Smith Barney performed an analysis of
the implied trading valuation equity value range per share of Consumers Common
Stock plus an assumed control premium of 30%, with such assumed control premium
chosen based on Salomon Smith Barney's analysis of the average premium paid
across a wide range of electric, gas and water industry acquisition
transactions. This analysis indicated an implied equity value range per share of
Consumers Common Stock of $25.68 to $30.55. Salomon Smith Barney then performed
a relative valuation analysis to determine a range of implied exchange ratios
and trimmed exchange ratios (calculated as described
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above) of Consumers Common Stock to PSC Common Stock. Salomon Smith Barney
calculated the ratio of the implied control premium analysis equity value range
per share of Consumers Common Stock to the implied large capitalization multiple
trading valuation equity value range per share of PSC Common Stock. This
analysis indicated a range of implied exchange ratios of Consumers Common Stock
to PSC Common Stock of 1.407 to 2.071 and a range of trimmed exchange ratios of
Consumers Common Stock to PSC Common Stock of 1.565 to 1.913.
Comparable Transaction Analysis. Using publicly available information,
Salomon Smith Barney performed an analysis of selected water industry business
combination transactions (collectively, the "Consumers Comparable Transactions")
from 1989 to 1996, including GWC Corporation's acquisition of Albuquerque
Utilities Corp., American Water Works Company, Inc.'s acquisition of Avatar
Holdings Inc., City of Sante Fe's acquisition of Sangre de Cristo Water, United
Water Resources Inc.'s acquisition of GWC Corporation, American Water Works
Company, Inc.'s acquisition of Pennsylvania Gas & Water Company and NIPSCO
Industries, Inc.'s acquisition of IWC Resources Corporation. For each
transaction, Salomon Smith Barney calculated (i) the equity purchase price as a
multiple of LTM net income, LTM ATCF and LTM book value and (ii) the enterprise
value as a multiple of LTM revenues, LTM EBITDA, LTM EBIT and LTM net PP&E.
Using the financial information and forecasts provided by the managements of PSC
and Consumers, Salomon Smith Barney derived an implied equity value range for
Consumers upon application of the financial multiples from the Consumers
Comparable Transactions. This analysis indicated an implied equity value range
per share of Consumers Common Stock of $29.00 to $37.75.
Based upon the results of this comparable transaction analysis, Salomon
Smith Barney performed a relative valuation analysis to determine a range of
implied exchange ratios and trimmed exchange ratios (calculated as described
above) of Consumers Common Stock to PSC Common Stock. Salomon Smith Barney
calculated the ratio of the implied comparable transaction equity value range
per share of Consumers Common Stock to the implied large capitalization multiple
trading valuation equity value range per share of PSC Common Stock. This
analysis indicated a range of implied exchange ratios of Consumers Common Stock
to PSC Common Stock of 1.589 to 2.559 and a range of trimmed exchange ratios of
Consumers Common Stock to PSC Common Stock of 1.867 to 2.282.
No transaction utilized as a comparison in the Consumers Comparable
Transactions analysis is identical to the Merger. In evaluating the precedent
transactions, Salomon Smith Barney made judgments and assumptions with regard to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of PSC and
Consumers, such as the impact of competition on PSC and Consumers and the
industry generally, industry growth and the absence of any material adverse
change in the business conditions, including results of operations, financial
condition and prospects, of PSC, Consumers or the industry, or in the financial
markets in general.
Pro Forma Combination Analysis of the Merger. Salomon Smith Barney
analyzed certain pro forma effects of the Merger based upon the Exchange Ratio,
including the impact of the Merger on the earnings per share ("EPS") of PSC and
Consumers in fiscal years 1998 through 2002. Such analyses were based on
earnings estimates and a range of base synergy projections provided by the
management of PSC for the fiscal years ended 1998 through 2002. Salomon Smith
Barney observed that, if the Merger were treated as a pooling-of-interests for
accounting purposes, and if the estimated synergies were realized in the time
frame anticipated by management, the issuance of PSC Common Stock in the Merger
would have an accretive effect on pro forma PSC EPS in each year between 1999
and 2002 (excluding one-time integration charges of PSC).
Additional Value From Growth Platform. Salomon Smith Barney examined
PSC's previous acquisitions of smaller water systems and the incremental value
created by such acquisitions. In order to derive an indication of the
incremental value created by such acquisitions, Salomon Smith Barney analyzed
PSC's experience in local acquisitions between 1985 and June 1998, assuming the
capitalization of the target companies to be 50% equity and 50% debt. Using this
assumption, Salomon Smith Barney analyzed (i) net income based on an allowed
return on equity of 11% and (ii) terminal year equity value per share by
applying a range of terminal P/E ratios of 15.0x to 18.0x to terminal year net
income. Salomon Smith Barney then derived the incremental value created by each
previous PSC acquisition. In addition, Salomon Smith Barney noted, based on
information published by the U.S. Environmental Protection Agency,
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the availability of a significant number of potential acquisition targets in
Consumers' states of operation, including 6,051 in Illinois, 800 in Maine, 4,826
in New Jersey, 6,137 in Ohio and 2,400 in Pennsylvania, and the potential
benefits that this expanded local presence could have in respect of PSC growth
strategy.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Salomon Smith Barney considered the results of all of
its analyses as a whole and did not attribute any particular weight to any
particular analysis or factor considered by it. Furthermore, selecting any
portions of Salomon Smith Barney's analyses, without considering all analyses,
would create an incomplete view of the process underlying Salomon Smith Barney's
opinion. 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 Consumers.
In performing its analysis, 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 PSC or Consumers. 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 Exchange Ratio to PSC. The
analyses do not purport to be appraisals or to reflect the prices at which a
company or any of its businesses 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, as described above, the Salomon Smith Barney Opinion and Salomon Smith
Barney's presentation to the PSC Board of Directors were among the many factors
taken into consideration by the PSC Board of Directors in making its
determination to approve the Merger.
Pursuant to the terms of an engagement letter dated December 19, 1997,
PSC agreed to pay Salomon Smith Barney for its financial advisory and investment
banking services: (i) a retainer fee of $50,000, which was paid upon execution
of the engagement letter; (ii) a fee of $250,000, which was paid upon the
rendering of the Salomon Smith Barney Opinion; (iii) a fee of $1,300,000 (less
any fees under (i) and (ii)), payable upon consummation of the Merger; and (iv)
if, following or in connection with the termination or abandonment of the
Merger, PSC receives a termination fee or similar payment, an additional fee of
10% of any such payment (less any fees under (i) and (ii)), payable upon receipt
of any such payment by PSC. PSC also agreed to reimburse Salomon Smith Barney
for reasonable out-of-pocket expenses arising from the engagement, including
legal fees and expenses. PSC will also indemnify Salomon Smith Barney against
certain liabilities, including liabilities under the federal securities laws.
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 PSC and Consumers 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. Salomon Smith Barney and its affiliates
(including Travelers Group Inc.) may have other business relationships with PSC
and Consumers. The PSC 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.
Consumers Reasons For The Merger; Recommendation of Consumers Board of Directors
Consumers believes that the combination with PSC can provide better
opportunities to achieve significant benefits for both companies' shareholders,
customers, employees and the regions that they serve than could be achieved by
the two companies separately.
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Consumers has been aware of consolidation going on within the U.S.
water utility industry and the likely continuation of that trend as a result of
capital expenditure requirements for water quality compliance and infrastructure
rehabilitation and the opportunity for economies of scale available to larger
entities in the industry through group purchasing programs and consolidation of
financial and other functions. As a result, Consumers refocused attention on its
acquisition policy, which had resulted in the acquisition of six water systems
over the past five years. In addition, Consumers retained SG Barr Devlin in
1997, in part, to advise Consumers with respect to its ongoing acquisition
program.
Consumers has in recent years undertaken initiatives to increase
shareholder value, including implementation of recommendations from the
Lochridge Report received by Consumers in September of 1997. Consumers had
retained Lochridge to advise it on strategic options available to increase
shareholder value. Consumers' management and its Board of Directors felt,
however, that it had not been successful in its acquisition efforts aimed at
securing a combination with a water utility large enough to take full advantage
of the consolidation opportunities and associated economies of scale available
within the industry.
The merger of Consumers and PSC will allow Consumers' shareholders to
realize a significant increase in the value of their interest in Consumers
through a tax-free transaction, while allowing Consumers' shareholders to
continue to participate as investors in the water utility industry through
ownership of a stronger, combined entity better able to take advantage of future
consolidation in the industry and achieve some of the economies of scale that
Consumers had been seeking.
In addition, Consumers believes that the combined entity will provide
more opportunities for its employees, moderate future rate increases to the
Companies' customers through the realization of economies of scale and provide
continued excellent service to its customers. The combined entity will also be
in a better position to support customer growth in the regions served.
In reaching its decision to approve the Merger, the Merger Agreement,
and the transactions contemplated thereby, the Consumers Board considered a
number of factors, including:
(i) the respective businesses, operations, asset quality,
financial condition, earnings, strategic business plans,
histories of successful acquisition, competitive positions and
stock price performance of Consumers and PSC;
(ii) the strategic fit of Consumers and PSC, including the relative
sizes of the two companies and of the combined entity, the
financial strength of the combined entity, the growth
prospects of the combined entity and the geographic proximity
of the two companies' operations;
(iii) the projected capitalization and market position of the
combined entity;
(iv) the pro forma financial effects of the proposed transactions
and the enhanced prospects of the combined company as a result
of the Merger;
(v) the likely impact of the proposed Merger on the employees and
customers of Consumers and its subsidiaries, on the
communities in which Consumers presently conducts its business
and on other Consumers constituencies;
(vi) the current and prospective economic and regulatory climates
facing PSC and Consumers including the consolidation currently
underway, and further consolidation anticipated, in the water
utility industry and the need for capital improvements to
comply with ever stricter environmental regulations;
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(vii) the Exchange Ratio in the Merger from a number of valuation
perspectives as presented by SG Barr Devlin and the current
market value of the Merger to Consumers shareholders in light
of Consumers' efforts to increase shareholder value;
(viii) the June 27, 1998 and August 5, 1998 opinions of SG Barr
Devlin that the consideration to be received by Consumers
Shareholders in the Merger is fair to Consumers Shareholders
from a financial point of view;
(ix) the terms of the Merger Agreement, including the proposed
Board representation and management structure of the combined
company, and the termination provisions applicable in the
event of a significant decline in the value of the PSC Common
Stock relative to its price immediately prior to the
announcement of the Merger;
(x) the regulatory approvals required for consummation of the
Merger; and
(xi) the treatment of the Merger as a pooling-of-interest for
financial accounting purposes and as a tax free reorganization
for federal income tax purposes.
The foregoing discussion of the information and factors considered by
the Consumers Board of Directors is not intended to be exhaustive, but includes
all material factors considered by the Consumers Board. In reaching its
determination to approve and recommend the Merger, the Consumers Board of
Directors did not assign relative or specific weights to the foregoing factors,
and individual directors may have given different weights to different factors.
FOR THE REASONS DESCRIBED ABOVE, THE CONSUMERS BOARD OF DIRECTORS HAS
DETERMINED THE MERGER TO BE FAIR AND IN THE BEST INTERESTS OF CONSUMERS AND ITS
SHAREHOLDERS, CUSTOMERS AND COMMUNITIES SERVED. ACCORDINGLY, THE CONSUMERS BOARD
OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE MERGER, AND UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE 'FOR' APPROVAL OF THE MERGER AGREEMENT.
Opinion of SG Barr Devlin.
On September 22, 1997, Consumers entered into an engagement letter with
SG Barr Devlin pursuant to which SG Barr Devlin was retained to act as
Consumers' financial advisor with respect to assisting Consumers in developing
and implementing future strategic and financial courses of action including a
potential business combination. SG Barr Devlin has delivered its written
opinions to the Consumers Board of Directors, dated June 27, 1998 and August 5,
1998, to the effect that, on and as of the date of each such opinion, and based
upon assumptions made, matters considered, and limits of the review, as set
forth in the opinions, the Merger Consideration is fair, from a financial point
of view, to the holders of Consumers Common Stock. The August 5, 1998 opinion of
SG Barr Devlin also sets forth its opinion that the Merger Consideration is
fair, from a financial point of view, to the holders of Consumers Common Stock
and Consumers Preferred Stock. A copy of the August 5,1998 opinion of SG Barr
Devlin is attached to this Proxy Statement/Prospectus as Annex C and is
incorporated herein by reference.
In connection with rendering its opinions, SG Barr Devlin (i) reviewed
the Annual Reports, Forms 10-K and the related financial information for the
three-year period ended December 31, 1997, and the Form 10-Q and the related
unaudited financial information for the quarterly period ended March 31, 1998,
for Consumers; (ii) reviewed the Annual Reports, Forms 10-K and the related
financial information for the three-year period ended December 31, 1997, and the
Form 10-Q and the related unaudited financial information for the quarterly
period ended March 31, 1998, for PSC; (iii) reviewed certain other filings with
the Securities and Exchange Commission and other regulatory authorities made by
Consumers and PSC during the last three years, including proxy statements, Forms
8-K and registration statements; (iv) reviewed certain internal information,
including financial forecasts, relating to the business, earnings, capital
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expenditures, cash flow, assets and prospects of Consumers and PSC furnished to
SG Barr Devlin by Consumers and PSC; (v) conducted discussions with members of
senior management of Consumers and PSC concerning their respective businesses,
regulatory environments, prospects, strategic objectives and possible operating
and administrative synergies and other benefits which might be realized for the
benefit of the combined company following the Merger; (vi) reviewed the
historical market prices and trading activity for the Consumers Common Stock and
PSC Common Stock and compared them with those of certain publicly traded
companies which SG Barr Devlin deemed to be relevant; (vii) compared the results
of operations of Consumers and PSC with those of certain companies which SG Barr
Devlin deemed to be relevant; (viii) compared the proposed financial terms of
the Merger with the financial terms of certain business combinations which SG
Barr Devlin deemed to be relevant; (ix) analyzed the valuation of the Consumers
Common Stock, Consumers Preferred Stock and PSC Common Stock using various
valuation methodologies which SG Barr Devlin deemed to be appropriate; (x)
considered the pro forma capitalization, earnings and cash flow of the combined
company; (xi) compared the pro forma capitalization ratios, earnings per share,
dividends per share, cash flow per share and payout ratio of the combined
company with each of the corresponding current and projected values for
Consumers and PSC on a stand-alone basis; (xii) reviewed the Agreement; and
(xiii) reviewed such other studies, conducted such other analyses, considered
such other financial, economic and market criteria, performed such other
investigations and took into account such other matters as SG Barr Devlin deemed
necessary or appropriate for purposes of its opinions.
In rendering its opinions, SG Barr Devlin relied, without independent
verification, on the accuracy and completeness of all financial and other
information publicly available or otherwise furnished or made available to it by
Consumers and PSC, and have further relied upon the assurances of management of
Consumers and PSC that they were not aware of any facts that would make such
information inaccurate or misleading. With respect to the financial projections
of Consumers and PSC, SG Barr Devlin relied upon the assurances of management of
Consumers and PSC that such projections were reasonably prepared and reflected
the best currently available estimates and judgments of the management of
Consumers and PSC as to the future financial performance of Consumers and PSC,
as the case may be, and as to the projected outcomes of legal, regulatory and
other contingencies. SG Barr Devlin did not express any opinion as to what the
value of the PSC Common Stock actually will be when issued to the Consumers
Shareholders pursuant to the Merger or the price at which PSC Common Stock will
trade subsequent to the Merger. SG Barr Devlin was not provided with and did not
undertake an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of Consumers or PSC, nor did SG Barr Devlin make any
physical inspection of the properties or assets of Consumers or PSC. Consumers
did not authorize SG Barr Devlin to solicit, and it did not solicit, any
indications of interest from any third party with respect to the purchase of all
or a part of Consumers.
In arriving at its opinions, SG Barr Devlin assumed that the Merger
will be treated for federal income tax purposes as a reorganization of the type
described in Section 368(a)(1) of the Code, and the regulations thereunder, and
that Consumers Shareholders who exchange their shares solely for PSC Common
Stock will recognize no gain or loss for federal income tax purposes as a result
of the consummation of the Merger. In addition, SG Barr Devlin has assumed that
the Merger will be accounted for as a "pooling of interests" business
combination in accordance with U.S. generally accepted accounting principles. SG
Barr Devlin's opinion is necessarily based upon general financial, stock market
and other conditions and circumstances as they existed and could be evaluated,
and the information made available to it, as of the date of each opinion. SG
Barr Devlin's opinions were directed only to the Consumers Board of Directors
and the fairness from a financial point of view to the Consumers Shareholders of
the consideration to be offered pursuant to the terms of the Merger, and did not
constitute a recommendation to any holder of Consumers Common Stock or Consumers
Preferred Stock as to how such holder should vote at the Consumers Special
Meeting. Although SG Barr Devlin evaluated the fairness from a financial point
of view to the Consumers Shareholders of the consideration to be offered
pursuant to the terms of the Merger, the specific consideration to be offered
pursuant to the terms of the Merger was determined by Consumers and PSC through
arm's-length negotiations. Consumers did not place any limitations upon SG Barr
Devlin with respect to the procedures followed or factors considered by SG Barr
Devlin in rendering its opinions.
SG Barr Devlin has advised Consumers that, in its view, the preparation
of a fairness opinion involves various determinations as to the most appropriate
and relevant methods of financial analysis and the application of those
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methods to the particular circumstances, and, therefore, such an opinion is not
readily susceptible to summary description. Furthermore, in arriving at its
fairness opinions, SG Barr Devlin did not attribute any particular weight to any
analysis or factor considered by it, nor did SG Barr Devlin ascribe a specific
range of fair values to Consumers; rather, SG Barr Devlin made its determination
as to the fairness to the Consumers Shareholders of the consideration to be
offered pursuant to the terms of the Merger on the basis of qualitative
judgments as to the significance and relevance of each of the financial and
comparative analyses and factors described below. Accordingly, notwithstanding
the separate factors summarized below, SG Barr Devlin believes that its analyses
must be considered as a whole and that considering any portions of these
analyses and factors, without considering all analyses and factors, could create
a misleading or incomplete view of the evaluation process underlying its
opinions. In its analyses, SG Barr Devlin made many assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond Consumers' and PSC's control. Any estimates in
these analyses do not necessarily indicate actual values or predict future
results or values, which may be significantly more or less favorable than as set
forth therein. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses actually
may be sold.
In connection with rendering its opinions and preparing its
presentations to the Consumers Board of Directors, SG Barr Devlin performed a
variety of financial and comparative analyses and considered a variety of
factors of which the material analyses and factors are summarized below. While
this summary describes the material analyses performed and factors considered,
it does not purport to be a complete description of the analyses performed or
factors considered by SG Barr Devlin. SG Barr Devlin's opinions are based upon
its consideration of the collective results of all such analyses, together with
the other factors referred to in its opinions. In connection with its August
5,1998 opinion, SG Barr Devlin performed certain procedures to update its
analyses made for its June 27, 1998 opinion. The results of such analyses were
substantially the same as those for the June 27, 1998 opinion.
Stock Trading History. SG Barr Devlin reviewed the performance of the
per share market prices and trading volumes of Consumers Common Stock and PSC
Common Stock and compared such per share market price movements to movements in
an index created to analyze the historical performance of selected water
utilities (the "Water Index") to provide perspective on the current and
historical stock price performance of Consumers and PSC relative to one another
and the Water Index. The Water Index included American Water Works Company,
Inc., United Water Resources Inc., California Water Service Group, E'Town
Corporation, Southern California Water Company, Aquarion Company, Connecticut
Water Service, Inc., Middlesex Water Company, Southwest Water Company and SJW
Corp.
Discounted Cash Flow Analysis. SG Barr Devlin prepared and reviewed the
results of unleveraged discounted cash flow ("DCF") analyses for Consumers,
assuming that Consumers performed in accordance with the operating and financial
projections provided by its management for the fiscal years 1998 through 2000
(the "Projection Period"), as revised by SG Barr Devlin to reflect certain
adjustments it deemed appropriate. To calculate the present value, the projected
unleveraged free cash flows for each year during the Projection Period, together
with the estimated value of the business in the final year of the Projection
Period, were discounted to the present. SG Barr Devlin estimated terminal values
for Consumers by applying multiples to the projected earnings before interest,
taxes and depreciation ("EBITDA") in fiscal year 2000, projected earnings before
interest and taxes ("EBIT") in fiscal year 2000, projected net income available
for common stock ("Net Income") in fiscal year 2000, and projected book value of
common equity ("Book Value") as of fiscal year-end 2000. The multiples applied
were based on analyses of the corresponding multiples of certain public
companies comparable to Consumers. For the purposes of these analyses, the
terminal multiple ranges used were 7.5x - 9.5x with respect to EBITDA, 10.5x -
12.5x with respect to EBIT, 15.0x - 17.0x with respect to Net Income, and 1.60x
- - 1.90x with respect to Book Value. The cash flow streams and terminal values
were then discounted to present values using discount rates that ranged from
5.25% to 6.25%. This analysis produced implied values for Consumers Common Stock
of $18.63 to $25.44 per share (without giving effect to a change of control
premium), as compared to the equity value implied by the Exchange Ratio of
approximately $30.46 per share based on the closing price of PSC Common Stock on
June 26, 1998.
Comparable Transaction Analysis. SG Barr Devlin reviewed certain
proposed or completed transactions involving the acquisition of regulated water
utilities and regulated gas distribution utilities or holding companies for
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regulated water utilities and regulated gas distribution utilities (the
"Comparable Transactions"). The Comparable Transactions involved companies
possessing general business, operating and financial characteristics
representative of companies in the industry in which Consumers operates.
SG Barr Devlin calculated the implied equity consideration for each of
the Comparable Transactions as a multiple of each company's respective Net
Income for the latest 12-month period ended March 31, 1998 (the "LTM Period"),
projected Net Income for the 12-month period ended December 31, 1998 and 1999,
Book Value for the most recently available fiscal quarter ended March 31, 1998,
after-tax cash flow from operations for the LTM Period, and premium to current
equity market value. In addition, SG Barr Devlin calculated the "implied total
consideration" (defined as the sum of the implied equity consideration, plus the
liquidation value of preferred stock, the principal amount of debt, capitalized
lease obligations, and minority interests, minus cash and cash equivalents) for
each of the Comparable Transactions as a multiple of EBIT for the LTM Period and
EBITDA for the LTM Period. The Comparable Transactions included in this analysis
consisted of Essex County Gas Company/Eastern Enterprises, Bay State Gas
Company/NIPSCO Industries, Inc., IWC Resources Corporation/NIPSCO Industries,
Inc., Lykes Energy, Inc./TECO Energy, Inc., NorAm Energy Corp./Houston
Industries Incorporated, and United Cities Gas Company/Atmos Energy Corporation.
This analysis produced implied values for Consumers Common Stock of $25.49 to
$31.41 per share as compared to the equity value implied by the Exchange Ratio
of approximately $30.46 per share based on the closing price of PSC Common Stock
on June 26, 1998.
Because the reasons for and circumstances surrounding each of the
Comparable Transactions analyzed were diverse and because of the inherent
differences between the operations of Consumers and the companies in the
selected transactions, SG Barr Devlin believed that a purely quantitative
comparable transaction analysis would not be particularly meaningful in the
context of the Merger. SG Barr Devlin believed that an appropriate use of a
comparable transaction analysis in this instance would involve qualitative
judgments concerning differences between the characteristics of these
transactions and the Merger which would affect the value of Consumers.
Publicly Traded Comparable Company Analysis. Using publicly available
information, SG Barr Devlin compared selected financial information and ratios
(described below) for Consumers with the corresponding financial information and
ratios for a group of regulated water utilities (or their holding companies)
deemed by SG Barr Devlin to be comparable to Consumers (the "Comparable
Companies"). The Comparable Companies were selected on the basis of being
companies which possessed general business, operating and financial
characteristics representative of companies in the industry in which Consumers
operates. The Comparable Companies included American Water Works Company, Inc.,
United Water Resources Inc., PSC, California Water Service Group, E'Town
Corporation, Southern California Water Company, Aquarion Company, Connecticut
Water Service, Inc., Middlesex Water Company, Southwest Water Company and SJW
Corp.
In evaluating the current market value of Consumers Common Stock, SG
Barr Devlin determined ranges of multiples for selected financial ratios for the
Comparable Companies, including: (i) the market value of outstanding common
stock as a multiple of (a) Net Income for the LTM Period, (b) projected Net
Income for the 12-month period ended December 31, 1998 and 1999, (c) Book Value
for the most recently available fiscal quarter ended March 31, 1998 and (d)
after-tax cash flow from operations for the LTM Period, and (ii) the "aggregate
market value" (defined as the sum of the market value of common stock, plus the
liquidation value of preferred stock, the principal amount of debt, capitalized
lease obligations, and minority interests, minus cash and cash equivalents) as a
multiple of (a) EBIT for the LTM Period and (b) EBITDA for the LTM Period. This
analysis produced implied values for Consumers Common Stock of $18.63 to $24.80
per share (without giving effect to a change of control premium), as compared to
the equity value implied by the Exchange Ratio of approximately $30.46 per share
based on the closing price of PSC Common Stock on June 26, 1998.
Because of the inherent differences between the operations of Consumers
and the Comparable Companies, SG Barr Devlin believed that a purely quantitative
comparable company analysis would not be particularly meaningful in the context
of the Merger. SG Barr Devlin believed that an appropriate use of a comparable
company analysis in this instance would involve qualitative judgments concerning
differences between the characteristics of the Comparable
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Companies and Consumers. Moreover, SG Barr Devlin observed that comparable
company analysis does not reflect the potential incremental value to PSC of a
controlling interest in Consumers, among other factors incidental to the Merger.
Pro Forma Merger Analysis. SG Barr Devlin analyzed certain pro forma
effects to the holders of Consumers Common Stock resulting from the Merger,
based on the consideration to be offered in connection with the Merger, for the
fiscal years 1999 through 2002. This analysis was based on the respective
forecasts of the managements of Consumers and PSC, as revised by SG Barr Devlin
to reflect certain adjustments it deemed appropriate, without giving effect to
possible operating and administrative synergies. The analysis showed accretion
in earnings per share and dilution in near-term dividends per share to holders
of Consumers Common Stock and slight near-term dilution in earnings per share to
holders of PSC Common Stock.
Preferred Stock Valuation Analysis. SG Barr Devlin analyzed the value
of the consideration to be received by holders of Consumers Preferred Stock in
connection with the Merger. The valuation of the Consumers Preferred Stock is
necessarily theoretical due to the lack of a public trading market for the
Consumers Preferred Stock. In evaluating the theoretical fair market value of
Consumers Preferred Stock, SG Barr Devlin determined a range of dividend yields
for publicly traded utility preferred stock issues it deemed to be comparable. A
theoretical fair market value was then calculated by applying the dividend rate
and par value of the Consumers Preferred Stock to the range of dividend yields
of the comparable preferred stock issues. This analysis produced implied values
for Consumers Preferred Stock of $74.02 to $95.96 per share as compared to the
implied preferred value of approximately $123.03 per share determined by
multiplying 3.945 by the Exchange Ratio based on the closing price of PSC Common
Stock on August 4, 1998.
SG Barr Devlin was selected as Consumers' financial advisor because SG
Barr Devlin and principals of SG Barr Devlin have significant experience in the
investment banking and electric, gas and water utility industries. SG Barr
Devlin is a division of Societe Generale specializing in strategic and merger
advisory services to the electric, gas and water utility industries, the energy
industry and selected other industries. In this capacity, SG Barr Devlin and
principals of SG Barr Devlin have been involved as advisors in numerous
transactions and advisory assignments in the electric, gas, water and energy
industries and are constantly engaged in the valuation of businesses and
securities in those industries.
Pursuant to the terms of SG Barr Devlin's engagement, Consumers has
agreed to pay SG Barr Devlin for its services in connection with the Merger (i)
a financial advisory retainer fee of $40,000 per quarter commencing September
22, 1997, (ii) an initial financial advisory progress payment of $627,500
payable upon execution of the Agreement; (iii) a second financial advisory
progress payment estimated at $625,000 payable upon approval by the Consumers
Shareholders of the Merger; and (iv) a transaction fee based on the aggregate
consideration to be received by Consumers and the Consumers Shareholders,
ranging from 1.000% of such aggregate consideration (for a transaction with an
aggregate consideration of $200,000,000) to 0.900% of such aggregate
consideration (for a transaction with an aggregate consideration of
$300,000,000). Any financial advisory retainer fees payable during the term of
the engagement up to a total of $160,000 and all financial advisory progress
fees would be credited against any transaction fee payable to SG Barr Devlin.
The transaction fee that will be payable to SG Barr Devlin is currently
estimated to be approximately $2.5 million. Consumers has agreed to reimburse SG
Barr Devlin for its out-of-pocket expenses, including fees and expenses of legal
counsel and other advisors engaged with the consent of Consumers, and to
indemnify SG Barr Devlin against certain liabilities, including liabilities
under the federal securities laws, relating to or arising out of its engagement.
The full text of SG Barr Devlin's opinion dated as of August 5, 1998,
which sets forth assumptions made and matters considered, is attached as Annex C
to this Joint Proxy Statement/Prospectus. Shareholders of Consumers are urged to
read this opinion in its entirety. SG Barr Devlin's opinion is directed only to
the consideration received by Consumers Shareholders in the Merger and does not
constitute a recommendation to any Consumers Shareholder as to how such
shareholder should vote at the Special Meeting. The summary of
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SG Barr Devlin's opinion set forth in this Joint Proxy Statement/Prospectus is
qualified in its entirety by reference to the full text of such opinion.
Certain Federal Income Tax Consequences
The following summary discusses the material federal income tax
consequences of the Merger. The summary is based upon the Code, applicable
Treasury regulations thereunder and administrative rulings and judicial
authority as of the date hereof. All of the foregoing are subject to change,
possibly with retroactive effect, and any such change could affect the
continuing validity of the following discussion. The discussion assumes that
holders of Consumers Common Stock and Consumers Preferred Stock hold such stock
as a capital asset for federal income tax purposes. Further, the discussion does
not address the tax consequences that may be relevant to a particular
shareholder subject to special treatment under certain federal income tax laws,
such as dealers in securities, banks, insurance companies, tax-exempt
organizations, non-United States persons, shareholders who acquired Consumers
Common Stock through the exercise of options or otherwise as compensation or
through a tax-qualified retirement plan, and holders of options under Consumers
benefit plans. The discussion does not address any consequences arising under
the laws of any state, locality or foreign jurisdiction.
Neither Consumers nor PSC has requested a ruling from the Internal
Revenue Service ("IRS") regarding any of the federal income tax consequences of
the Merger. The opinions of counsel as to such federal income tax consequences
described below will not be binding on the IRS and will not preclude the IRS
from adopting a position contrary to that of the opinion.
As of the date hereof, it is intended that the Merger will constitute a
reorganization pursuant to Section 368(a) of the Code and that for federal
income tax purposes, no gain or loss will be recognized by Consumers or the
shareholders of Consumers to the extent they receive shares of PSC. The
obligation of Consumers to consummate the Merger is conditioned on the receipt
by Consumers of an opinion of Drummond Woodsum & MacMahon (i) that the Merger
will constitute a reorganization within the meaning of Section 368(a)(1) of the
Code and (ii) that shareholders of Consumers will not be subject to federal
income tax on receipt of PSC Common Stock in exchange for Consumers Common Stock
pursuant to the Merger. Such opinion will be based upon facts, representations
and assumptions set forth is such opinion and upon certificates of officers of
Consumers and PSC and representation letters of certain shareholders of
Consumers.
Assuming the Merger constitutes a reorganization under Section
368(a)(1) of the Code, no gain or loss will be recognized by holders of
Consumers Common Stock or Consumers Preferred Stock as a result of the surrender
of their Consumers Common Stock or Consumers Preferred Stock for PSC Common
Stock pursuant to the Merger (except as discussed below with respect to cash
received in lieu of fractional shares). The aggregate tax basis of the PSC
Common Stock received in the Merger (including any fractional shares of PSC
stock deemed received) will be the same as the aggregate tax basis of the
Consumers Common Stock or Consumers Preferred Stock surrendered in exchange
therefor in the Merger. The holding period of the PSC Common Stock received in
the Merger (including any fractional shares of PSC stock deemed received) will
be the same as the holding period of the Consumers Common Stock or Consumers
Preferred Stock surrendered in exchange therefor in the Merger.
If a holder of Consumers Common Stock or Consumers Preferred Stock
receives cash in lieu of a fractional share interest in PSC Common Stock in the
Merger, such fractional share interest will be treated as having been
distributed to the holder, and such cash amount will be treated as received in
redemption of the fractional share interest. Under Section 302 of the Code, if
such redemption is "not essentially equivalent to a dividend" after giving
effect to the constructive ownership rules of the Code, the holder will
generally recognize capital gain or loss equal to the cash amount received for
the fractional share interest reduced by the portion of the holder's tax basis
in the Consumers Common Stock or Consumers Preferred Stock surrendered that is
allocable to the fractional share interest in PSC Common Stock. Under these
rules, a holder of Consumers Common Stock or Consumers Preferred Stock should
ordinarily recognize capital gain or loss on the receipt of cash in lieu of a
fractional share interest in PSC Common Shares.
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THE PRECEDING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR
DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT TO THE MERGER. THUS, CONSUMERS
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS,
THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER APPLICABLE TAX
LAWS AND THE EFFECT OF ANY PROPOSED CHANGES IN TAX LAWS.
Restrictions on Resales of Securities
All shares of PSC Common Stock received by Consumers Shareholders in
the Merger will be freely transferable, except that shares of PSC Common Stock
received by persons who are deemed to be "affiliates" (as such term is defined
under the Act) of Consumers prior to the Merger may be resold by them only in
transactions permitted by the resale provisions of Rule 145 promulgated under
the Act (or Rule 144 in the case of such persons who become affiliates of PSC)
or as otherwise permitted under the Act. Persons who may be deemed to be
affiliates of PSC or Consumers generally include individuals or entities that
control, are controlled by, or are under common control with, such party and may
include certain officers and directors of such party as well as principal
shareholders of such party. The Merger Agreement requires PSC and Consumers to
use reasonable efforts to cause each of their affiliates to execute a written
agreement to the effect that such persons will not offer or sell or otherwise
dispose of any of the shares of PSC Common Stock issued to such persons in the
Merger in violation of the Act or the rules and regulations promulgated by the
Commission thereunder.
Accounting Treatment
The Merger is expected to qualify as a pooling-of-interests for
accounting and financial reporting purposes. Under this accounting method, the
assets and liabilities of Consumers will be carried forward to PSC on a
consolidated basis at their historical recorded bases. Results of operations of
PSC on a consolidated basis will include the results of Consumers for the entire
fiscal year in which the Merger occurs. The reported balance sheet amounts and
results of operations of the separate corporations for prior periods will be
combined, reclassified and conformed, as appropriate, to reflect the combined
balance sheets and statements of results of operations for Consumers and PSC. It
is a condition to the obligations of PSC under the Merger Agreement that the
transactions contemplated by the Merger Agreement, if consummated, will qualify
as a transaction to be accounted for in accordance with the pooling-of-interests
method of accounting under the requirements of APB No. 16. See "Unaudited Pro
Forma Combined Condensed Financial Statements."
Regulatory Approvals
The Merger is subject to the requirements of the HSR Act, and the rules
and regulations thereunder which provide that certain transactions may not be
consummated until required information and materials are furnished to the
Antitrust Division and the FTC, and the requisite waiting period has expired or
been terminated. PSC and Consumers filed the required information and materials
with the Antitrust Division and the FTC effective on September 15, 1998. The
Antitrust Division will be responsible for reviewing the required information
and material.
The Merger is also subject to state regulatory approval in each of the
states in which PSC and Consumers provide utility service. The Merger must be
approved by the (i) Illinois Commerce Commission, (ii) Public Utility
Commissions of each of Pennsylvania and Maine and (iii) New Jersey Board of
Public Utilities, before the Merger can be consummated. Applications to each
such state regulatory agency have been filed. In addition, PSC and Consumers
have submitted an application to the Public Utilities Commission of Ohio
requesting that it either grant approval of the Merger or declare that its
approval is not required.
The governing legal standard varies from state to state, but generally
PSC and Consumers will have to show that the Merger will not impair the ability
of the local utility company to provide adequate service at reasonable rates.
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The state Commerce Commission, Public Utility Commissions and the Board of
Public Utilities may also look at the impact of the Merger on competition and on
the employees of the local utility company.
It is possible that the authorities in one or more of the foregoing
jurisdictions may seek, as conditions for granting approval, various regulatory
concessions. If any regulatory body conditions its approval upon concessions
which, in the reasonable opinion of PSC and Consumers, would be expected to have
a material adverse effect after giving effect to the consummation of the Merger,
either party can, but is not obligated to, terminate the Merger Agreement. There
can be no assurance that the required regulatory approvals will be obtained
within the time frame contemplated by the Merger Agreement or on terms that are
satisfactory to the parties.
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THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, which is attached as Annex A to this Joint Proxy Statement/Prospectus
and is incorporated herein by reference. Such summary is qualified in its
entirety by reference to the Merger Agreement.
The Merger. The Merger Agreement provides that, following the approval
and adoption of the Merger Agreement by the shareholders of PSC and Consumers
and the satisfaction or waiver of the other conditions to the Merger, at the
Effective Time, Consumers will be merged with and into Acquisition, a
wholly-owned subsidiary of PSC, the separate existence of Consumers will
thereupon cease and Acquisition will continue as the surviving corporation (the
"Surviving Company"). As a result of the Merger and assuming an Exchange Ratio
of 1.459, PSC would issue approximately 13,146,036 shares of PSC Common Stock,
to holders of Consumers Common Stock and approximately 60,079 shares of PSC
Common Stock, to holders of Consumers Preferred Stock. Cash will be paid in lieu
of fractional shares. Holders of Consumers Preferred Stock are entitled to
dissenters' rights in connection with the Merger. See "Dissenters' Rights of
Appraisal." See "--Conditions Precedent to the Merger."
The Merger will become effective in accordance with the articles of
merger to be filed with the Secretary of State of the Commonwealth of
Pennsylvania and the Maine Secretary of State. It is anticipated that such
filing will be made immediately after Closing. The Merger Agreement obligates
PSC to obtain listing of the PSC Common Stock being issued in the Merger to
Consumers Shareholders on the New York Stock Exchange prior to the Effective
Time.
Surviving Company. At the Effective Time, each issued and outstanding
share of common stock of Acquisition shall remain issued and outstanding and
unaffected by the Merger. The Articles of Incorporation and Bylaws of
Acquisition as in effect immediately prior to the Effective Time will be the
Articles of Incorporation and Bylaws of the Surviving Company after the
Effective Time, until thereafter changed or amended as provided therein or by
applicable law.
Consideration. At the Effective Time, by virtue of the Merger and
without any action by any holder of Consumers Common Stock, each share of
Consumers Common Stock, will be converted into 1.459 shares of PSC Common Stock,
unless the Exchange Ratio is adjusted as provided in the Merger Agreement, and
each share of Consumers Preferred will be converted into an amount of PSC Common
Stock equal to 3.945 times the Exchange Ratio. The Exchange Ratio may be
adjusted as follows: (i) if the product of 1.459 and the Calculation Price (as
defined below) exceeds $32, then the Exchange Ratio shall equal the number
determined by dividing $32 by the Calculation Price; or (ii) if the product of
1.459 and the Calculation Price is less than $28, then during the three business
days commencing on the Determination Date (as defined below), PSC shall have the
option of adjusting the Exchange Ratio to equal the number determined by
dividing $28 by the Calculation Price. If PSC elects to adjust the Exchange
Ratio, no termination will have occurred and the Merger Agreement will remain in
effect in accordance with its terms (except as the Exchange Ratio will have been
so modified). If PSC does not make such election, then Consumers has the option
to terminate the Agreement. For purpose of the foregoing, capitalized terms have
the following definitions:
"Calculation Price" means the volume weighted average
(rounded to the nearest one-thousandth of a dollar) of the
trading prices of PSC Common Stock on the New York Stock
Exchange ("NYSE"), as reported by Bloomberg Financial
Markets (or such other source as the parties shall agree in
writing), for each of the ten (10) consecutive trading days
ending five (5) days before the Determination Date.
"Determination Date" means the date on which all the
conditions to Closing (other than those conditions that
cannot be satisfied until the Closing Date) set forth in the
Merger Agreement have been satisfied or waived.
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At the Effective Time, each outstanding option to purchase shares of
Consumers Common Stock issued pursuant to Consumers' stock option plan will be
assumed by PSC and will constitute an option to acquire, on the same terms and
conditions as were applicable to such Consumers stock option, the same number of
shares of PSC Common Stock into which such shares would have been converted
pursuant to the Merger had such options been exercised immediately prior to the
Effective Time at a price per share equal to the exercise price for the shares
of Consumers Common Stock otherwise purchasable pursuant to such options,
divided by the Exchange Ratio.
Based upon the capitalization of Consumers and PSC as of September 18,
1998 and an assumed Exchange Ratio of 1.459, the holders of the then outstanding
shares of Consumers Common Stock and Consumers Preferred Stock, collectively,
would own approximately 13,206,114 shares of PSC Common Stock or approximately
32.3% of the outstanding shares of PSC Common Stock as a result of the Merger
(assuming no exercise of the outstanding Consumers stock options).
Exchange of Shares. At the Effective Time, the stock transfer books of
Consumers shall be closed and there shall be no further registration of
transfers of Consumers Stock. Immediately after the Effective Time, transmittal
letters will be mailed to each holder of record of Consumers Stock to be used in
forwarding his or her certificates evidencing such shares for surrender and
exchange for certificates evidencing the shares of PSC Common Stock to which he
or she has become entitled. After receipt of such transmittal form, each holder
of certificates formerly representing Consumers Stock should surrender such
certificates to the paying agent approved by PSC, and each such holder will
receive in exchange therefor certificates evidencing the number of shares of PSC
Common Stock to which such holder is entitled. Such transmittal letters will be
accompanied by instructions specifying other details of the exchange. CONSUMERS
SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES TO THE PAYING AGENT
UNTIL THEY RECEIVE A TRANSMITTAL LETTER FOLLOWING THE EFFECTIVE TIME.
No Further Rights. From and after the Effective Time, holders of
certificates representing shares of Consumers Stock will cease to have any
rights with respect to Consumers Stock. The sole right of holders of such
certificates shall be the right to receive the number of shares of PSC Common
Stock which the holder of such certificate is entitled to receive. The holder of
such unexchanged certificate will not be entitled to receive any dividends or
other distributions declared or made after the Effective Time with respect to
PSC Common Stock until the certificate is surrendered. Subject to applicable
laws, such dividends and distributions, if any, will be accumulated and, at the
time of such surrender, all such unpaid dividends and distributions will be
paid, without interest. None of PSC, Consumers, the paying agent or any other
person will be liable to any holder of shares of Consumers Stock for any amount
delivered in good faith to a public official pursuant to any applicable
abandoned property, escheat or similar laws.
If a certificate for Consumers Stock has been lost, stolen or
destroyed, the paying agent will issue PSC Common Stock in accordance with the
Merger Agreement upon receipt of appropriate evidence as to such loss, theft or
destruction, appropriate evidence as to the ownership of such certificate by the
claimant and appropriate and customary indemnification.
For a description of the differences between the rights of the holders
of PSC Common Stock and Consumers Common Stock, see "Comparison of Rights of
Holders of PSC and Consumers Common Stock."
Governance of PSC and the Surviving Company. The Merger Agreement sets
forth certain matters related to the Board of Directors and the executive
officers of PSC and the Surviving Company, from and after the Effective Time.
See "MANAGEMENT FOLLOWING THE MERGER."
Representations and Warranties. The Merger Agreement contains certain
representations and warranties of PSC and Acquisition regarding, without
limitation, (i) due organization and good standing, (ii) authorized capital
stock, (iii) ownership of subsidiaries and other investments, (iv) corporate
authority to enter into the contemplated transaction, (v) recent reports filed
with the Commission, (vi) financial statements, (vii) compliance with applicable
laws, (viii) absence of certain material changes in PSC's business or other
material events; (ix) insurance, (x) voting
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requirements, (xi) receipt of fairness opinions, (xii) tax matters and (xiii)
regulatory matters, including utility regulations.
The Merger Agreement contains certain representations and warranties of
Consumers regarding, without limitation, (i) due organization and good standing,
(ii) authorized capital stock, (iii) ownership of subsidiaries and other
investments, (iv) corporate authority to enter into the contemplated
transaction, (v) recent reports filed with the Commission, (vi) financial
statements, (vii) absence of certain material changes in Consumers business or
other material events, (viii) compliance with applicable laws, (ix) real and
personal property, (x) employee benefit plans, (xi) insurance, (xii) Year 2000
issues, (xiii) receipt of fairness opinions, (xiv) tax matters, (xv) regulatory
matters, including utility regulations, (xvi) information suppled for use in
this Joint Proxy Statement/Prospectus and (xvii) the absence of certain
undisclosed liabilities relating to (a) contractual defaults, (b) material
changes or events, (c) litigation, (d) violations of law, (e) intellectual
property, (f) labor relations and (g) environmental matters.
Certain Covenants.
All Parties. Pursuant to the Merger Agreement, PSC and Consumers have
each agreed that prior to the Effective Time, each will, among other things, (i)
prepare and file with the SEC a preliminary proxy statement, (ii) afford each
other reasonable access to certain information in order to conduct an
examination of its business and prepare and file a Registration Statement on
Form S-4, (iii) carry on their respective businesses and engage in transactions
only in the ordinary course of business and consistent with their respective
past prudent business practices, (iv) not take any action that would result in
any of the representations and warranties set forth in the Merger Agreement
becoming untrue at the Effective Time, (v) confer with and inform the other
party regarding all material developments, transactions and proposals relating
to its financial condition, properties, business or operations, (vi) use its
best efforts to take or cause to be taken, all actions to consummate the Merger,
(vii) use its best efforts to preserve the pooling-of-interests accounting
treatment, (viii) consult each other before issuing any press release with
respect to the Merger and provide each other with an opportunity to review and
comment on such press release and (ix) make all filings and submissions under
the HSR Act, and use its best efforts to obtain all other governmental and
regulatory approvals required to consummate the Merger.
PSC. In addition to the covenants above, PSC has agreed that it will,
among other things, (i) use its best efforts to have four designees of Consumers
elected to the PSC Board, (ii) continue to provide certain employee benefits and
compensation to Consumers employees after the Merger, as specified in the Merger
Agreement, (iii) prepare and file with the Securities and Exchange Commission
and duly seek effectiveness of a Registration Statement on Form S-4 containing
this Joint Proxy Statement/Prospectus and (iv) use its best efforts to cause the
PSC Common Stock to be issued in the Merger to be listed on the NYSE.
PSC has agreed that from June 27, 1998 to the Effective Time, except
(A) as permitted or required by the Merger Agreement, and (B) as consented to by
Consumers, that it will not, among other things, (i) amend its Articles of
Incorporation or Bylaws, (ii) issue, sell, grant, pledge or otherwise encumber
any shares of its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities, in each case if any such
action could reasonably be expected to (a) delay materially the date of mailing
of the Joint Proxy Statement/Prospectus or (b) if it were to occur after such
date of mailing, require an amendment of the Joint Proxy Statement/Prospectus
and (iii) acquire any business or any corporation, partnership, joint venture,
association or other business organization or division thereof, in each case if
any such action could reasonably be expected to (a) delay materially the date of
mailing, of the Joint Proxy Statement/Prospectus or (b) if it were to occur
after such date of mailing, require an amendment of the Joint Proxy
Statement/Prospectus.
Consumers. In addition to the covenants above, Consumers has agreed
that it will, among other things, (i) consult the executive officers and
representatives of PSC concerning the management of Consumers, (ii) use its best
efforts to furnish to PSC: (a) after the end of each month, any management
financial reports (together with all accompanying documents) prepared with
respect to such month; (b) all notices from any Governmental Entity with respect
to any alleged deficiency or violation which would have a Material Adverse
Effect on the financial condition
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or operations of any subsidiary; (c) all material filings with Governmental
Entities made by any subsidiaries; (d) all material correspondence with, and any
prepared summaries of meetings with, representatives of the IRS or other taxing
authorities; (e) all material correspondence or communications with state
Governmental Entity concerning any subsidiaries; (f) all correspondence or
communications with any rating agency and (g) copies of pleadings in all
lawsuits in which the amount in controversy exceeds $25,000, (iii) deliver to
PSC a duly executed letter agreement, in form and substance acceptable to PSC
from each director of Consumers and any other person which would be an
"affiliate" of Consumers for purposes of Rule 145 under the Securities Act
regarding their Rule 145 and "pooling" obligations, (iv) terminate its Dividend
Reinvestment Plan ("DRIP") prior to Closing and (v) terminate its Long Term
Incentive Plan ("LTIP") as of the date of the Merger Agreement.
In addition to the convents above, Consumers has agreed that from June
27, 1998 to the Effective Time, except (A) as permitted or required by the
Merger Agreement or (B) as consented to by PSC, that it will not, among other
things, (i) amend its Articles of Incorporation or Bylaws, (ii) split, combine
or reclassify any of its outstanding capital stock or issue, or authorize the
issuance of, any other securities in respect of, in lieu of, or in substitution
for shares of it outstanding capital stock, (iii) issue, sell, grant, pledge or
otherwise encumber any shares of its capital stock, any other voting securities
or any securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities or to
issue shares or units under the LTIP, specifically excluding (a) the exercise of
options outstanding on the date of this Agreement or (b) the issuance of shares
or units under the DRIP, (iv) purchase, redeem or otherwise acquire any shares
of capital stock or other securities of Consumers, except for the DRIP, (v)
declare or pay any dividend or other distribution in respect of its capital
stock, except for dividends required to be paid on Consumers Preferred Stock and
regular quarterly cash dividends on Consumers Common Stock not in excess of
$.005 per quarter per share greater than the per share of dividends for the
corresponding quarter in the prior fiscal year, (vi) sell, mortgage, encumber or
otherwise dispose of any assets except in the ordinary course of business, (vii)
incur any additional indebtedness except in the ordinary course of business
under existing credit facilities or guarantee any such indebtedness of another
person, (viii) make or incur any obligations for capital expenditure in the
aggregate in excess of $25,000,000 for calendar year 1998, $26,000,000 for
calendar year 1999 or $23,000,000 for calendar year 2000, (ix) increase the
compensation or benefits of any of its employees, officers or directors or pay
any bonuses, directly or indirectly, to any such persons, other than in
accordance with past practices or in accordance with Consumers' program of
stay-on bonuses, (x) modify, amend, terminate or waive any material right or
claims other than in the ordinary course of business, (xi) acquire any business
or any corporation, partnership, joint venture, association or other business
organization or division for a purchase price of greater than $500,000, (xii)
make any tax election or settle or compromise any income tax liability and
(xiii) increase the number of directors on Consumers' Board of Directors to more
than eight.
No Solicitation of Transactions. The Merger Agreement provides that
neither Consumers nor any of its respective officers, directors, employees,
financial advisors or agents will, directly or indirectly, solicit, initiate,
encourage (including by way of furnishing information) or take any other action
knowingly to facilitate any inquiries or proposals which constitute or may
reasonably be expected to lead to an Acquisition Proposal (as defined in the
Merger Agreement), engage in any discussions or negotiations relating thereto,
or accept any Acquisition Proposal. This prohibition does not apply, subject to
the observance of certain notice, confidentiality and other requirements, to
certain discussions and negotiations occurring prior to shareholder approval of
the Merger Agreement, which relate to Acquisition Proposals that the Consumers
Board of Directors determines (i) are reasonably capable of being completed and
(ii) are more favorable to Consumers' shareholders from a financial point of
view and from a strategic point of view than the Merger and the other
transactions contemplated by the Merger Agreement that the Consumers Board of
Directors concludes it should consider in order to fulfill its fiduciary duties
to the shareholders of Consumers.
Indemnification. The Merger Agreement provides that for a period of six
years after the Effective Time, PSC shall indemnify, defend and hold harmless
any person who served, at any time prior to the Merger, as a director or officer
of Consumers (each, an "Indemnified Party") against all losses, claims, damages,
liabilities, costs and expenses (including attorneys' fees and expenses),
judgments, fines, losses and amounts paid in settlement in connection with any
actual or threatened action, suit, claim, proceeding or investigation (each, a
"Claim") to the extent that any such Claim is based on, or arises out of: (i)
the fact that such Indemnified Person was, at any time prior to the Merger, a
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director or officer of Consumers or one of Consumers' subsidiaries or was, at
any time prior to the Merger, serving at the request of Consumers as a director,
officer, employee, or agent of another corporation, partnership, joint venture
trust or other enterprise or one of Consumers' subsidiaries; or (ii) the Merger
Agreement or any of the transactions contemplated thereby, in each case, to the
extent that any such Claim pertains to any matter or fact arising, existing or
occurring prior to or at the Effective Time, regardless of whether such Claim is
asserted or claimed prior to, at or after the Effective Time, to the full extent
permitted under the MBCA, Consumers' Articles of Incorporation or Bylaws or any
indemnification agreement in effect at the date of the Merger Agreement,
including provisions relating to advancement of expenses incurred in the defense
of any such Claim.
Certain Benefits Matters. Pursuant to the Merger Agreement, PSC shall
cause Acquisition to, (i) honor, pursuant to their terms, all employee benefit
obligations to current and former employees under the Consumers benefit plan for
at least one year after the Effective Time, provide or cause to be provided to
employees of Consumers and its subsidiaries, including former employees and
family members of employees, compensation and benefit plans that are no less
favorable than the Consumers benefit plans and (ii) honor all the obligations of
Consumers and its subsidiaries under the Severance Plan, Consumers Severance Pay
Plan, subsidiary executive severance plans, supplemental employee retirement
plan and director deferred compensation plans which have been disclosed to PSC,
in accordance with their terms, as of the date of the Merger Agreement.
Consumers, at its discretion, may establish a program of stay-on
bonuses for senior management of Consumers and its subsidiaries pursuant to
which Consumers may pay such bonuses up to a total aggregate amount of $255,000
for all such bonuses to such individuals and in such individual amounts as
determined by the Board of Directors of Consumers. In addition, Consumers, at
its discretion, may enter into consulting agreements with certain employees to
provide advice and assistance in connection with the Merger or matters that may
arise after the completion of the Merger provided that the aggregate amount paid
are payable under such consulting agreements shall not exceed $300,000.
Conditions Precedent to the Merger. The respective obligations of each
party to the Merger Agreement to effect the Merger are subject to the
fulfillment prior to or at the Effective Time of certain conditions precedent.
All Parties. The obligations of PSC and Consumers are subject to the
fulfillment of each of the following conditions prior to or at the Effective
Time, unless waived by both parties: (i) receipt of all material permits,
authorizations, consents or approvals required by any Governmental Entity; (ii)
such governmental approvals remain in effect; (iii) termination or expiration of
the applicable waiting period under the HSR Act; (iv) the Merger shall have been
approved by the requisite number of shareholders of PSC and Consumers; (v) no
temporary restraining order, preliminary or permanent injunction or order
prohibiting or preventing the consummation of the Merger shall be in effect;
(vi) the Registration Statement of which this Joint Proxy Statement/Prospectus
is a part shall have become effective and shall not be the subject of a stop
order or proceedings seeking a stop order, (vii) the representations and
warranties of PSC and Consumers set forth in the Merger Agreement will have been
true and correct in all material respects and (vii) PSC and Consumers shall each
have completed a due diligence review of the other prior to September 1, 1998
without identifying an undisclosed fact or circumstance that would have an
effect on either PSC or Consumers in excess of $2,000,000 in the aggregate.
PSC. The obligation of PSC to effect the Merger is subject to the
fulfillment of various conditions, prior to or at the Effective Time, unless
waived by PSC, including, among others, (i) Consumers shall have performed and
complied in all material respects with the obligations required to be performed
by it prior to or at the Effective Time pursuant to the Merger Agreement, (ii)
PSC shall have received legally effective releases from all participants of
Consumers' LTIP for any claims for benefits or claims arising from termination
of the LTIP, (iii) receipt by PSC of a legal opinion from Drummond Woodsum &
MacMahon substantially in the form attached to the Merger Agreement, and (iv)
the Merger will have met the requirements for pooling-of-interests accounting
treatment.
Consumers. The obligation of Consumers to effect the Merger is subject
to the fulfillment prior to or at the Effective Time, unless waived by
Consumers, of various conditions, including, among others, (i) PSC shall have
performed and complied in all material respects with the obligations required to
be performed by it prior to or at the
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Effective Time pursuant to the Merger Agreement, (ii) Consumers shall have
received from Drummond Woodsum & MacMahon a tax opinion that the Merger will be
treated as a reorganization, within the meaning of Section 368(a) of the Code
and (iii) Consumers shall have received a legal opinion from Reed Smith Shaw &
McClay, LLP, substantially in the form attached to the Merger Agreement.
Termination. The Merger Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval of the Merger by PSC or
Consumers' shareholders, (i) by mutual written consent of PSC and Consumers,
(ii) by either PSC or Consumers if (1) the other party has materially breached
any representation, warranty or covenant of the Merger Agreement, (2) the Merger
shall not have been consummated on or before July 1, 1999 (the "Termination
Date"), except that the Termination Date shall be automatically extended under
certain circumstances as described in the Merger Agreement, (3) a Governmental
Entity shall have issued an order, decree or ruling permanently prohibiting or
preventing the Merger and such order is final or (4) the Consumers Board of
Directors shall have exercised its right under the Merger Agreement to accept a
Superior Proposal (as defined in the Merger Agreement) or (iii) by Consumers if
(1) the product of the Calculation Price (as defined in the Merger Agreement)
and 1.459 is less than $28, (2) PSC has not elected to adjust the Exchange Ratio
and (3) the Consumers Board of Directors determines during the required time
period to terminate the Merger Agreement.
In the event of any termination of the Merger Agreement by either
Consumers or PSC as provided above, the Merger Agreement will become void and
there will be no liability or obligation on the part of PSC, Consumers or their
respective directors, officers or shareholders (other than under certain
specified provisions of the Merger Agreement), except to the extent that such
termination results from the material breach by a party of its representations,
warranties, covenants or agreements.
Termination Fee.
Payable by PSC. The Merger Agreement obligates PSC to pay to Consumers
a termination fee equal to $1,250,000 if Consumers terminates the Merger
Agreement due to (i) a material breach by PSC of any of its representations or
warranties contained in the Merger Agreement, (ii) PSC's failure to comply in
material respects with any of its covenants and agreements or (iii) any warranty
or representation made by PSC becoming untrue in any material respect.
Payable by Consumers. The Merger Agreement obligates Consumers to pay
to PSC a termination fee of (i) $1,250,000 if PSC terminates the Merger
Agreement due to (1) a material breach by Consumers of a representation or
warranty of Consumers, (2) Consumers failure to comply in material respects with
any of its covenants and agreements or (3) any warranty or representation made
by Consumers becoming untrue in any material respect and (ii) $9,000,000 if
either PSC or Consumers terminates the Agreement as a result of (1) Consumers
accepting a Superior Proposal (as described in the Merger Agreement) or (2) the
Consumers shareholders not having approved the Merger Agreement at a time when
there was an Acquisition Proposal and if within 12 months of the Consumers
Special Meeting such transaction was consummated. The foregoing shall be the
parties' sole and exclusive remedies for the termination of the Merger
Agreement.
Fees and Expenses. The Merger Agreement provides that each party will
pay all of its own legal, accounting and other expenses incurred in the
preparation of the Merger Agreement, and the performance of the terms and
provisions of the Merger Agreement except that (i) the expenses incurred in
connection with the report under the HSR Act and (ii) the expenses incurred in
connection with the printing, mailing and distribution of this Joint Proxy
Statement/Prospectus, shall be borne equally by PSC and Consumers.
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DISSENTERS' RIGHTS OF APPRAISAL
Under Section 908(4) of the MBCA, there is no right of dissent provided
to holders of any class or series of shares in a participating corporation in a
merger, which shares were, at the record date, either registered or traded on a
national securities exchange, or registered with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, unless the articles
of incorporation of that corporation provide that there shall be a right of
dissent or unless such holders are to receive as consideration in the merger
something other than shares (or shares plus cash in lieu of fractional shares),
of any other corporation, which shares were, at the record date, registered or
traded on a national securities exchange.
Because the Consumers Common Stock is traded on the Nasdaq Stock Market
and is registered under the Securities Exchange Act of 1934 and because holders
of Consumers Common Stock are to receive shares of PSC Common Stock (plus cash
in lieu of fractional shares) as a result of the Merger, which shares are
registered under the Securities Exchange Act and are traded on a national
securities exchange, holders of Consumers Common Stock are not entitled to
dissenter's rights under the MBCA.
However, the Consumers Preferred Stock is not traded on a national
securities exchange, nor is it registered under the Securities Exchange Act of
1934. Thus, holders of Consumers Preferred Stock are entitled to dissenter's
rights, as described below.
Under Section 908 of the MBCA, a holder of Consumers Preferred Stock,
may, by complying with Section 909 of the MBCA, dissent from the Merger and, if
the Merger is effected, be paid the fair value of his or her shares as of the
day prior to the date on which the Merger is approved by the shareholders,
excluding the effect of any appreciation or depreciation of shares in
anticipation of the Merger.
This right of dissent may be exercised as to all or less than all of a
shareholder's shares. In order to exercise this right a shareholder must comply
with three principal requirements.
First, the shareholder must file with Consumers, at or prior to the
Special Meeting, a written objection to the Merger. A vote against the Merger
does not in itself constitute the required written objection. No objection is
required, however, from any record shareholder to whom Consumers has failed to
send notice of the Special Meeting.
Second, the shareholder must not vote in favor of the Merger. The
shareholder may abstain from the vote, but unless a signed proxy card indicates
that the shareholder wishes to vote against or abstain, the shares represented
by that proxy will be voted in favor of the Merger and the shareholder will not
be permitted to exercise his or her right of dissent.
Third, the shareholder must file a written demand for payment of the
fair value of his or her shares with the corporation following the Merger within
15 days after the date of shareholder approval of the Merger Agreement. A demand
for payment may be filed either by personally delivering it to Consumers or by
mailing it by certified or registered mail to Consumers in each case at
Consumers Water Company, 3 Canal Plaza, P.O. Box 599, Portland, Maine
04112-0599. The demand must specify the name and current address of the
shareholder. Once filed a demand for payment may not be withdrawn without the
consent of Consumers. A shareholder making such a demand may not thereafter vote
or exercise any other rights of shareholder.
Any shareholder failing either to object or to make demand in the time
and manner provided in Section 909 shall have his or her shares converted into
PSC Common Stock pursuant to the Agreement. In general, any shareholder making
such objection and demand shall thereafter be entitled only to payment as
provided in Section 909 and shall have no other rights as a shareholder.
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The right of a shareholder to be paid the fair value of his or her
shares will terminate in the event that (i) the Merger is not approved or is
abandoned, (ii) the shareholder demand is withdrawn upon consent, (iii) no
judicial action for the determination of fair value shall have been filed within
the time prescribed by Maine law (iv) the shareholder fails to comply with the
statutory procedure, or (v) a court of competent jurisdiction determines that
the shareholder is not entitled to demand payment.
At the time the shareholder files his or her demand or within 20 days
thereafter the shareholder must submit the certificates representing the shares
for which such shareholder is demanding payment, for notation of the fact of
such shareholder demand. A shareholder submitting certificates for notation must
send them to Consumers Water Company, 3 Canal Plaza, P.O. Box 599, Portland,
Maine 04112-0599. Share certificates will be returned to the shareholder
promptly after notation has been made. Under the MBCA a dissenting shareholder
who fails to submit certificates for such notation within this time limit will
lose all rights as a dissenting shareholder (unless a court of competent
jurisdiction for good and sufficient cause shown shall otherwise direct).
Within the later of 25 days after the Merger is approved by the
shareholders or 10 days after the Effective Time, Acquisition shall give written
notice to each dissenting shareholder who has complied with the above procedure
that the Merger has been effected, and shall make a written offer at a specified
price to purchase the shares as to which each shareholder is dissenting. The
offer will be made at the same price per share to all dissenting shareholders of
the same class. Such notice and offer will be accompanied by a balance sheet of
Consumers as of the latest available date (and not more than 12 months prior to
the making of the offer) and a profit and loss statement of Consumers for the 12
month period ended on the date of such balance sheet.
If Acquisition and a holder of Consumers Preferred Stock agree on a
price during the 20 days after the last date for delivery of such notice,
Acquisition shall, within 90 days after the Effective Time, make payment of the
agreed amount upon surrender by the dissenting preferred shareholder of his or
her shares, and upon such payment the dissenting preferred shareholder shall
cease to have any interest in such shares. If Acquisition and any preferred
shareholder fail to agree on the fair value of the shareholder's shares during
such 20 day period, Acquisition may, within a 60 day period thereafter, bring an
action in the Superior Court in Cumberland County in the State of Maine to
determine the fair value of the shares, or a dissenting preferred shareholder
may, up to 60 days after the Effective Date, demand in writing that Acquisition
bring such an action, in which case Acquisition must do so within 30 days after
receipt of such demand, and if Acquisition fails to institute an action within
such 30 day period, any dissenting shareholder may bring a suit in the name of
Acquisition. All actions to determine fair value, whether brought by Acquisition
or a shareholder, must be filed within 6 months from the Effective Date.
All dissenting shareholders, wherever residing, who have not agreed
with Acquisition on a price for their shares shall be joined in any action to
determine fair value and must be given service of process. The value determined
by the Court will be binding on all eligible dissenting shareholders. Upon
request of Acquisition, the Court will consider and pass upon whether specified
dissenting shareholders have satisfactorily complied with all of the
requirements of Section 909, and if it finds that shareholder has not, such
shareholder will not be entitled to be paid the fair value as determined, but
will be bound by the terms of the Merger Agreement. The burden of proof is on
the shareholder to prove his or her eligibility.
The judgment fixing the fair value of the shares is to include
interest, at such rate as the Court may find to be fair and equitable, from the
date of the shareholder vote to the date of payment unless, as to any
shareholder, the Court shall determine that the shareholder's refusal to accept
the corporate offer of payment for the preferred shares was arbitrary, vexatious
or not in good faith, in which case the Court may, in its discretion, disallow
interest. The judgment will be payable only upon surrender to Acquisition of the
certificates representing such shares. Upon payment of the judgment, a
dissenting shareholder will cease to have any interest in the shares. Costs and
expenses of the proceeding, as determined by the Court, will be assessed against
Acquisition, unless a shareholder's refusal to accept Acquisition's offer of
payment for his or her shares is found to have been arbitrary, vexatious or not
in good faith, in which case the Court may assess all or a portion of such costs
against such shareholder. Costs and expenses will not include the fees and
expenses of counsel or of expert witnesses, but will include reasonable
compensation and expenses to any appraisers
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appointed by the Court. If the "fair value" of the shares, as determined by the
Court, "materially exceeds" the amount which Acquistion offered to pay therefor,
or if no such offer was made, the Court, in its discretion, may award any
shareholder who is a party to the proceeding all or part of such shareholder's
attorneys' fees or expenses and reasonable compensation and expenses to any
expert employed by such shareholder.
If a shareholder has exercised his or her right to dissent with respect
to any shares of Consumers any transferee of such shares will not acquire any
rights in Consumers other than the rights which the transferring shareholder had
with respect to such shares as a dissenting shareholder. Any new certificate
issued evidencing such transferred shares shall bear a notation reflecting the
demand made by the transferor.
A shareholder who is a minor or otherwise legally incapacitated will be
bound by the procedural limitations of Section 909 of the Act. Any such
shareholder may personally, or through a guardian or any person acting for such
shareholder as a legally authorized representative, take all actions necessary
to assert his or her right to dissent. Actions taken in respect of shares held
of record by a nominee for the benefit of another may be made only by such
nominee and not by the beneficial owner.
The foregoing summary does not purport to be a complete statement of
the provisions of Section 909 of the Act, and is qualified in its entirety by
reference to the complete text of such Section, a copy of which is attached
hereto as Annex D.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the Consumers Board of Directors and management may
be deemed to have certain interests in the Merger which are in addition to their
interests as shareholders of Consumers Common Stock and/or Consumers Preferred
Stock, generally. These additional interests may be deemed to arise from actions
taken by Consumers with respect to consulting agreements and stay-on bonuses for
Consumers executive officers and the executive officers of its operating utility
subsidiaries, the application of the Severance Plan, the exchange of outstanding
Consumers Incentive Stock Options for options for PSC common shares as part of
the Merger and PSC's agreement to name four directors of Consumers to its Board
of Directors following the Merger. The Consumers Board of Directors was aware of
these interests and considered them, among other matters, in approving the
Merger Agreement, and the transactions contemplated thereby.
Consulting Agreements. The Merger Agreement provides that Consumers
may, in its discretion, enter into consulting agreements with certain employees
to provide advice and assistance in connection with the Merger or matters that
may arise after the completion of the Merger, provided that the aggregate amount
paid or payable under such consulting agreement shall not exceed $300,000.
Consumers intends to enter into consulting agreements with Messrs. Haynes,
Schumann, Isacke and Noran providing for payments to such officers of $135,000,
$49,000, $49,000 and $32,000, respectively. In addition, Consumers intends to
enter into a consulting agreement with one additional officer of the Company.
The total amount payable under all of the consulting agreements is $297,000. See
"THE MERGER AGREEMENT -- Certain Benefits Matters."
Executive Retention Bonuses. The Merger Agreement provides that
Consumers may, at its discretion, establish a program of stay-on bonuses for
senior management of Consumers and its subsidiaries pursuant to which Consumers
may pay bonuses up to a total aggregate amount of $255,000 for all such bonuses.
The Consumers Board of Directors has agreed to provide Mr. Snellen a retention
bonus of $32,000 and to pay an additional $223,000 to officers of the Company
and its subsidiaries in additional retention bonuses. The aggregate amount of
all such bonuses is $255,000. See "THE MERGER AGREEMENT -- Certain Benefits
Matters."
Executive Severance Plan. The Severance Plan provides benefits to
members of senior management in the event that their employment with Consumers
is terminated under certain circumstances following a "change in control." Under
the Severance Plan, a "change in control" is deemed to have occurred, among
other things, upon a merger or consolidation of Consumers as a result of which
the holders of the outstanding voting shares of Consumers immediately prior to
such merger hold less than 50% of the voting power of the surviving or resulting
corporation. The Merger will result in a "change of control" under this
definition. Each of Messrs. Haynes, Schumann, Isacke, Noran and Snellen is
covered by the Severance Plan. If their employment is terminated following the
Merger in a manner giving rise to a benefit under the Severance Plan, Messrs.
Haynes, Schumann, Isacke, Noran and Snellen would be entitled to payments under
the Severance Plan of $709,500, $483,000, $471,000, $239,600 and $229,000,
respectively.
Consumers Options. The Agreement provides that at the Effective Time,
each option to acquire Consumers common shares which is then outstanding shall
cease to represent a right to acquire Consumers common shares and shall be
converted automatically into an option to purchase PSC common shares, and PSC
shall assume each such option, in accordance with the terms of the stock option
plan under which it was granted.
The following table sets forth, with respect to Messrs. Haynes,
Schumann, Isacke, Noran and Snellen, (a) the number of Consumers's Common Stock
subject to options held by such persons and (b) the number of shares of PSC
Common Stock subject to the options upon conversion of the options to purchase
Consumers's Common Stock based on the unadjusted Exchange Ratio. All options are
fully vested.
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<TABLE>
<CAPTION>
Number of Consumer Shares Number of PSC Shares
Subject to Options Subject to Options
------------------ ------------------
Option Holder Exercisable Unexercisable Exercisable Unexercisable
------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Peter L. Haynes 11,750 1,250 17,143 1,823
Paul D. Schumann 2,250 750 3,282 1,094
John F. Isacke 8,250 750 12,036 1,094
Paul F. Noran 2,750 250 4,012 364
Jerry D. Snellen 2,750 250 4,012 364
</TABLE>
Directors of PSC Following the Merger. Pursuant to the Merger
Agreement, PSC will use its best efforts to have four directors of Consumers
elected to the PSC Board of Directors immediately after the Effective Time: one
to serve until the year 1999 PSC Annual Meeting, one to serve until the year
2000 PSC Annual Meeting, and two to serve until the year 2001 PSC Annual
Meeting. See "MANAGEMENT FOLLOWING THE MERGER."
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MANAGEMENT FOLLOWING THE MERGER
Following the consummation of the Merger, the composition of the PSC
Board of Directors will consist of the then current members of the PSC Board of
Directors and four Consumers designees, Messrs. Avenas, Menario, Palmer and
Viets, to be elected as directors of PSC upon consummation of the Merger (the
"Designees"). The PSC Board of Directors is divided into three classes, each of
which have a nominal term of three years.
Certain information with respect to each Designee to the PSC Board of
Directors is set forth below:
Board Designees
Michel Avenas, 42. Mr. Avenas has served as president of Anjou
International Company, a subsidiary of and holding company for certain of the
U.S. investments of Vivendi. Assistant to the Chairman of Vivendi from 1992 to
1997, Mr. Avenas has been a member of the Consumers board of directors since
1997.
John E. Menario, 62. Mr. Menario has served as Special Assistant to the
President of Peoples Heritage Financial Group, Inc., a multi-bank holding
company, since 1996, and as its Senior Executive Vice President and Chief
Operating Officer from 1990 to 1996. Mr. Menario has been a member of the
Consumers board of directors since 1980.
John E. Palmer, Jr., 61. Mr. Palmer is the Chairman of the Board of
Down-East Concepts, Inc., a manufacturer and wholesaler of stationary and
handcrafted gifts. Mr. Palmer has been a member of the Consumers board of
directors since 1978.
Robert O. Viets, 54. Mr. Viets is the President and Chief Executive
Officer of Cilcorp, Inc., a holding company for energy services business. In
addition to serving as director of Cilcorp, Inc., Mr. Viets is also a director
of RLI Corp. and Central Illinois Light Company. Mr. Viets has been a member of
the Consumers board of directors since 1997.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the PSC Common Stock as of July 1, 1998 (including
options exercisable within 60 days) by (i) each member of the PSC Board of
Directors, (ii) each named executive officer of PSC, (iii) each of the four
Designees, (iv) all directors (including Designees) and executive officers as a
group and (v) each person known by PSC to be the beneficial owner of more than
5% of the outstanding shares of PSC Common Stock. Subject to applicable
community property and similar statutes and except as otherwise noted in the
footnotes below, each of the persons named in the table has sole voting and
dispositive power with respect to the shares beneficially owned by such person.
<TABLE>
<CAPTION>
PRE-MERGER POST-MERGER(1)
---------------------------------------------------------------- -----------------------------------
Sole Voting Shared Voting Total Total Number of
and/or Sole and/or Shared Total Number of Percent of Shares Percentage of
Investment Investment Shares Class Outstanding Outstanding
Name of Beneficial Owner Power Power(2)(3) Outstanding Outstanding(4) Common Stock
- ------------------------ ----------- ------------- --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
John H. Austin, Jr. 3,644 168 3,812 * 3,812 *
John W. Boyer, Jr. 89,224 -- 89,224 * 89,224 *
Mary C. Carroll 3,267 996 4,263 * 4,263 *
Morrison Coulter(5) 45,464 14,987(6) 60,451 * 60,451 *
Nicholas DeBenedictis 223,936 55,662(7) 279,598 * 279,598 *
G. Fred DiBona, Jr. 3,200 -- 3,200 * 3,200 *
Richard H. Glanton, Esq. 1,797 105 1,902 * 1,902 *
Michael P. Graham(5) 16,665 35,434 52,099 * 52,099 *
Alan Hirsig 3,466 -- 3,466 * 3,466 *
John F. McCaughan 7,600 -- 7,600 * 7,600 *
Richard R. Riegler 39,618 2,825 42,443 * 42,443 *
Richard L. Smoot(8) -- 1,400 1,400 * 1,400 *
Roy H. Stahl(5) 42,998 27,334 70,332 * 70,332 *
Harvey J. Wilson 14,600 -- 14,600 * 14,600 *
Michel Avenas -- -- -- -- 146 *
John E. Menario -- -- -- -- 3,688 *
John E. Palmer, Jr. -- -- -- -- 7,328 *
Robert O. Viets -- -- -- -- 2,918 *
All directors (including
Designees) and
executives officers as a
group (18 persons) 495,479(9) 138,911(10) 634,390 2.3% 648,470 1.6%
Vivendi(11) 3,651,866 -- 3,651,866 13.3% 6,629,186 16.3%
</TABLE>
- ----------------------
* Less than one percent
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(1) Assumes each share of Consumers Common Stock is converted into 1.459 shares
of PSC Common Stock.
(2) The shareholdings indicated include 1,832 shares held in the Company's
Dividend Reinvestment Program.
(3) Under the Company's Thrift Plan, participants do not have any present voting
power with respect to shares allocated to their accounts. Such shares have been
included in this column.
(4) Percentages for each person or group are based on the aggregate of the
shares of Common Stock outstanding as of July 1, 1998 (27,560,713 shares) and
all shares issuable to such person or group upon the exercise of outstanding
stock options exercisable within 60 days of that date.
(5) The shareholdings indicated do not include approximately 103,565 shares held
by trusts for the Retirement Income Plan for Philadelphia Suburban Corporation
and Subsidiaries and the Retirement Income Plan for Local 473 Employees of
Philadelphia Suburban Water Company for which Messrs. Coulter, Graham and Stahl
are trustees. Each of Messrs. Coulter, Graham and Stahl disclaims beneficial
ownership of such shares.
(6) The shareholdings indicated include 2,953 shares owned of record by Mr.
Coulter's wife. Mr. Coulter disclaims beneficial ownership as to such shares.
(7) The shareholdings indicated include 856 shares owned of record by Mr.
DeBenedictis' wife and 8,482 shares owned of record by Mr. DeBenedictis' son.
Mr. DeBenedictis disclaims beneficial ownership as to such shares.
(8) The shareholdings indicated do not include approximately 445,483 shares as
to which PNC Bank, National Association, or its affiliates have sole voting
power as trustee of the Philadelphia Suburban Corporation Thrift Plan and
Philadelphia Suburban Water Company Personal Savings Plan for Local 473
Employees. Mr. Smoot is the President and Chief Executive Officer of PNC Bank in
Philadelphia and Southern New Jersey. Mr. Smoot disclaims beneficial ownership
of such shares.
(9) The shareholdings indicated include 302,795 shares exercisable under the
1988 Stock Option Plan and the 1994 Equity Compensation Plan on or before August
31, 1998.
(10) The shareholdings indicated include 91,915 shares (i) held in joint
ownership with spouses, (ii) held as custodian for minor children or (iii) owned
by family members.
(11) Based on the Form 13D of Vivendi and Anjou International Management
Services, Inc. dated June 29, 1998. Vivendi's address is 42 Avenue de Friedland,
75380, Paris, CEDEX 08, France.
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COMPARISON OF RIGHTS OF HOLDERS OF PSC AND CONSUMERS COMMON STOCK
The statements set forth under this heading with respect to the Maine
Business Corporation Act (the "MBCA"), the Pennsylvania Business Corporation Law
("PBCL"), the Amended and Restated Articles of Incorporation of Consumers (the
"Consumers Restated Articles"), the Bylaws of Consumers (the "Consumers
Bylaws"), the PSC Charter and the PSC Bylaws, are brief summaries thereof and do
not purport to be complete. Such statements are subject to the detailed
provisions of the MBCA, the PBCL, the Consumers Restated Articles, the Consumers
Bylaws, the PSC Charter and the PSC Bylaws. See "AVAILABLE INFORMATION."
The following is a summary of certain of the material differences
between the rights of the owners of Consumers Common Stock and the rights of the
holders of PSC Common Stock.
Dividend Rights
Consumers. Under the MBCA, a corporation may pay dividends out of its
unreserved and unrestricted earned surplus, or out of its unreserved and
unrestricted net earnings for the current fiscal year and the next preceding
fiscal year, taken as single period. The term "earned surplus" is defined to
mean that portion of the surplus of a corporation equal in amount to the balance
of its net profits, income, gains and losses from the date of incorporation, or
from the latest date when a deficit was eliminated by application of its capital
surplus, after deducting subsequent distributions to shareholders and transfers
to stated capital and capital surplus. In addition, a Maine corporation may pay
dividends out of capital surplus under certain circumstances if permitted by its
articles of incorporation, or if such distribution is authorized by the
affirmative vote of the holders of at least a majority of the outstanding shares
of each class of the corporation, whether or not entitled to vote thereon. The
Consumers Restated Articles do not contain a provision permitting the payment of
dividends from capital surplus. In any event, no distribution shall be made
unless all cumulative dividends accrued on all preferred shares entitled to
preferential dividends shall have been fully paid, or if such distribution would
reduce the remaining net assets of the corporation below the aggregate
preferential amount payable in event of voluntary liquidation to the holders of
preferred shares. The Consumers Restated Articles provide that once dividends
have been paid on the Consumers Preferred Stock, holders of Consumers Common
Stock shall be entitled to dividends when and as declared by the Consumers Board
of Directors at its discretion. The Consumers Bylaws do not limit the right of
Consumers' directors to authorize the payment of dividends to shareholders.
PSC. Under the PBCL, a corporation is prohibited from making a
distribution to shareholders if, after giving effect thereto: (i) such
corporation would be unable to pay its debts as they become due in the usual
course of business; or (ii) the total assets of such corporation would be less
than the sum of its total liabilities plus the amount that would be needed, if
such corporation were then dissolved, to satisfy the rights of shareholders
having superior preferential rights upon dissolution to the shareholders
receiving such distribution. For the purpose of clause (ii), the board of
directors may base its determination on one or more of the following: the book
value, or the current value, of the corporation's assets and liabilities,
unrealized appreciation and depreciation of the corporation's assets and
liabilities or any other method that is reasonable in the circumstances.
Directors and Officers
Number and Election of Directors; Removal
Consumers. Under the MBCA, cumulative voting in the election of
directors is only permitted if expressly authorized in a corporation's articles
of incorporation. The Consumers Restated Articles do not provide for cumulative
voting in the election of directors. The Consumers Restated Articles provide
that the minimum number of directors shall be five and the maximum number 17.
The actual number of directors to serve shall, in accordance with Consumers
Bylaws, be fixed from time to time by a vote of the shareholders at an annual or
special meeting or by resolution of the directors of the corporation. Under the
MBCA, any director or the entire Consumers Board of Directors may be
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removed with or without cause, at a special meeting of shareholders called
expressly for that purpose by an affirmative vote of two-thirds of the
outstanding shares entitled to vote for directors, except under circumstances
(not applicable to Consumers) where the Board of Directors is classified or the
articles of incorporation provide for cumulative voting for directors. Pursuant
to the Consumers Bylaws, directors are required to be chosen from the holders of
any class of shares and any director ceasing to be the holder of at least one
Consumers share shall be deemed to have vacated his or her office as a director.
In addition, under the MBCA, a director may be removed from office for cause if
two-thirds of the directors then in office resolve that the individual director
should be removed from office. A Maine corporation may bring an action in any
court having equity jurisdiction to remove a director following such a vote. If
the court finds, by a preponderance of the evidence, that such director has been
guilty of fraudulent or dishonest acts, to the detriment of the corporation or
any substantial group of its shareholders, or has been guilty of gross abuse of
authority or discretion in discharge of his duties to the corporation, the Court
shall order the director removed from office.
PSC. Under the PBCL, cumulative voting is required unless otherwise
provided in the articles of the corporation. The PSC Charter provides that the
shareholders shall not be entitled to cumulate their votes for the election of
directors. The PSC Bylaws provide that the PSC Board of Directors shall consist
of such number of directors as determined from time to time by a vote of
three-quarters of the PSC Board of Directors. As of the date hereof, there are
10 directors on the PSC Board of Directors. If the Merger is consummated the
number of directors will be increased to 14 to allow four designees of Consumers
to be approved by the PSC Board of Directors. Under the PBCL, the board of
directors may be removed at any time with or without cause by the vote of
shareholders entitled to vote thereon. Furthermore, the articles of a
corporation may not prohibit the removal of directors by the shareholders for
cause. The PSC Bylaws provide that the entire PSC Board of Directors, or any
class of the PSC Board of Directors, or any director may be removed from office
by the shareholders by the vote of at least three-quarters of the votes of all
voting shareholders entitled to cast a vote thereon or, if the removal is
proposed by a vote of three-quarters of the Board of Directors, upon receiving
at least a majority of the vote of all shareholders entitled to vote thereon.
The PBCL includes a provision regarding the removal of directors only for cause
in situations where there is a classified board. Under the PBCL, the by-laws of
a corporation may provide for a classified board. The PSC Bylaws provide that
the Board shall be classified into three classes.
Fiduciary Duties of Directors
Consumers. Directors of a Maine corporation are required to exercise
their powers and discharge their duties in good faith with a view to the
interests of the corporation and of the shareholders and with that degree of
diligence, care and skill which ordinarily prudent men would exercise under
similar circumstances, in like positions. The MBCA includes a provision
specifically permitting (although not requiring) directors, in discharging their
duties, to consider the effects of any action upon employees, suppliers and
customers of the corporation, communities in which offices or other
establishments of the corporation are located, and all other pertinent factors.
PSC. Under the PBCL, directors are required to discharge their duties
in good faith and in a manner reasonably believed to be in the best interests of
the corporation. They are required to use such care, including reasonable
inquiry, skill and diligence, as a person of ordinary prudence would use under
similar circumstances. The PBCL includes a provision specifically permitting
(although not requiring) directors in discharging their duties, to consider the
effects of any action taken by them upon any or all groups affected by such
action, including shareholders, employees, suppliers, customers and creditors of
such corporation, and upon communities in which offices or other establishments
of such corporation are located. Furthermore, the PBCL also makes clear that
directors have no greater obligation to justify their activities and need not
meet any higher burden of proof in the context of a potential or proposed
acquisition of control than in any other context.
Liability of Directors
Consumers. The MBCA provides that a director of a Maine corporation shall
not be held personally liable for monetary damages for failure to discharge any
duty as a director unless the director is found not to have acted honestly or in
the reasonable belief that the action was in or not opposed to the best
interests of the corporation or its
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shareholders. None of the MBCA, the Consumers Restated Articles or Consumers
Bylaws contain provisions which limit the personal liability of officers in
certain circumstances.
PSC. Under the PBCL, a corporation may include in its bylaws a
provision, adopted by a vote of its shareholders, which eliminates the personal
liability of its directors, as such, for monetary damages for any action taken
or the failure to take any action unless (i) such directors have breached or
failed to perform their duties and (ii) the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness. A Pennsylvania
corporation is not empowered, however, to eliminate personal liability where the
responsibility or liability of a director is pursuant to any criminal statute or
is for the payment of taxes pursuant to any federal, state or local law. The PSC
Charter and the PSC Bylaws eliminate director liability to the maximum extent
permitted by the PBCL.
Indemnification of Directors and Officers
Consumers. Under the MBCA, a corporation may indemnify any person or,
if so provided in the bylaws, shall in all cases indemnify any person, who was
or is a party or is threatened to be made a party to any threatened, pending, or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that that person is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, pension or other employee
benefit plan or other enterprise, against expenses, including attorneys fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by that person in connection with such action, suit or proceeding; provided that
no indemnification may be provided for any person with respect to any matter as
to which that person shall have been finally adjudicated not to have acted
honestly or in the reasonable belief that that person's action was in or not
opposed to the best interests of the corporation or its shareholders or, in the
case of a person serving as a fiduciary of an employee benefit plan or trust, in
or not opposed to the best interests of that plan or trust, or its participants
or beneficiaries; or with respect to any criminal action or proceeding, to have
had reasonable cause to believe that that person's conduct was unlawful.
The MBCA also provides that a corporation may advance to such director,
officer, employee or agent expenses incurred by such person in defending any
action, upon receipt of an undertaking by the person to repay the amount
advanced if it is ultimately determined that such person is not entitled to
indemnification or with respect to any claim, issue or matter asserted in the
action, suit or proceeding brought by or in the right of the corporation, to be
liable to the corporation, unless the court in which that action, suit or
proceeding was brought permits indemnification. Indemnification, unless ordered
by a court or required by the bylaws, shall be made by the corporation and only
as authorized in the specific case upon a determination that indemnification is
proper in the circumstances and in the best interests of the corporation. This
determination shall be made by the Board of Directors by a majority vote of a
quorum consisting of directors who were not parties to that action, suit or
proceeding, or if such quorum is not obtainable, or even if obtainable, if a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or by the shareholders. Notwithstanding any other provisions of
the MBCA, to the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding brought against such person in such capacities, such
person shall be indemnified against expenses, including attorneys fees, actually
and reasonably incurred by that person.
The indemnification provisions of the MBCA are nonexclusive of any
other rights to which a person may be entitled, by bylaw, agreement, vote of
shareholders or disinterested directors or otherwise. The Consumers Bylaws
provide for indemnification of directors and officers to the fullest extent
permitted by law. The MBCA provides that a corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, trustee, partner,
fiduciary, employee or agent of another corporation, partnership, joint venture,
trust, pension or other employee benefit plan or other enterprise against any
liability asserted against that person and incurred by that person in any such
capacity, or arising out of that person's status as such, whether or not the
corporation would have the power to indemnify that person against such liability
under the MBCA.
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PSC. The PBCL expressly permits indemnification in connection with any
action, including a derivative action, unless a court determines that the acts
or omissions giving rise to the claim constituted willful misconduct or
recklessness. The PSC Bylaws provide for indemnification of directors and
officers of PSC for any liability incurred in connection with any proceeding,
except where such indemnification is expressly prohibited by applicable law or
the conduct constitutes willful misconduct or recklessness. PSC is not required,
however, to indemnify any director or officer in connection with a proceeding
(or portion thereof) initiated by such director or officer against PSC or any
directors, officers or employees thereof unless (i) the initiation of such
proceeding (or portion thereof) was authorized by the PSC Board of Directors or
(ii) notwithstanding the lack of such authorization, the person seeking
indemnification is successful on the merits. The PSC Bylaws further provide for
the advancement of certain expenses in accordance with the PBCL.
Annual Meetings
Consumers. Under the MBCA, if there has been a failure, for whatever
reason, to hold the annual meeting of a corporation for a period of 30 days
after the date for such meeting specified in the bylaws, or if no date has been
specified, for a period of 13 months after its last annual meeting, a substitute
annual meeting may be called by any person or persons entitled to call a special
meeting of the Shareholders.
PSC. Under the PBCL, if the annual meeting for election of directors is
not held within six months after the designated date, any shareholder may call
the meeting at any time thereafter.
Special Meetings
Consumers. Under the MBCA, a special meeting of the shareholders may be
called by the President; the Chairman of the Board; a majority of the board of
directors, the holders of not less than such percentage of the shares entitled
to vote at the meeting as may be set forth in the articles of incorporation or
bylaws, provided that if, after September 1, 1985, a corporation shall adopt a
provision in its articles of incorporation or bylaws which establishes such
percentage to be in excess of ten percent, then, upon application, the holders
of not less than ten percent of the shares entitled to vote at a meeting, the
Superior Court may order a special meeting of the shareholders of the
corporation to be called and held at a time and place, upon the notice and for
the transaction of the business, as may be designated in the order; or such
other officers or persons as may be provided in the articles of incorporation or
in the bylaws. The Consumers Bylaws provide that special meetings may be called
by the Chairman of the Board, the President, a majority of the Consumers Board,
or by the holder or holders of ten percent of the shares issued and outstanding
and entitled to vote.
PSC. Under the PBCL, special meetings of shareholders may be called by
the board of directors, by such officers or by such other persons as provided in
the bylaws, and, unless otherwise provided in the articles, by shareholders
entitled to cast at least 20% of the votes that all shareholders are entitled to
cast at a particular meeting. The shareholders of a registered corporation shall
not be entitled by statute to call a special meeting of shareholders, unless
such shareholder is an "interested shareholder" (as hereinafter defined) calling
a special meeting for the purpose of approving a "business combination" (as
hereinafter defined) with such interested shareholder. The PSC Bylaws provide
that special meetings of the shareholders may be called at any time by the
Chairman of the Board, or the President, or the PSC Board of Directors, or by
shareholders entitled to cast a majority of the votes which all shareholders are
entitled to cast at the particular meeting.
Action by Shareholders Without a Meeting
Consumers. Under the MBCA, any action required or permitted to be taken
at a meeting of the shareholders may be taken without a meeting, if written
consents setting forth the action so taken are signed by the holders of all
outstanding shares entitled to vote on such action and are filed with the clerk
of the corporation as part of the corporate records. There is no provision in
the MBCA or the Consumers Restated Articles or Consumers Bylaws which would
permit shareholder action to be taken by less than unanimous written consent.
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PSC. Under the PBCL, unless the bylaws of such corporation provide
otherwise, any corporation action may be taken without a meeting, by partial or
unanimous written consent. The PSC Bylaws expressly include a provision
requiring that corporate action may only be taken by unanimous written consent.
Shareholder's Proposals
Consumers. The MBCA does not include a provision restricting the manner
in which nominations for directors may be made by shareholders or the manner in
which business may be brought before a meeting. The Consumers Restated Articles
do not include provisions regarding procedures to be followed in the nomination
of directors nor do the Consumers Restated Articles or Consumers Bylaws include
provisions regarding the procedures to be followed in order to bring business
before a meeting properly.
PSC. The PBCL does not include a provision restricting the manner in
which nominations for directors may be made by shareholders or the manner in
which business may be brought before a meeting. The PSC Charter includes certain
provisions regarding the procedures to be followed in the nomination of
directors but neither the PSC Charter nor the PSC Bylaws include provisions
regarding the procedures to be followed in order properly to bring business
before a meeting.
Charter Amendments
Consumers. Except with respect to amendments to the articles of
incorporation to reflect a change in the registered office or the clerk of a
corporation or to reflect reductions in authorized shares resulting from
cancellations of shares, which amendments may be made by the board of directors,
all amendments to the articles of incorporation generally require the approval
of the board of directors, followed by a vote of the owners of a majority of all
outstanding shares entitled to vote thereon, unless the articles of
incorporation contain a provision prescribing a vote greater than, but in no
event less than, a majority of all outstanding shares entitled to vote.
The holders of at least ten percent of any class of shares of a Maine
corporation may propose an amendment to be submitted to the shareholders at a
special or annual meeting. In addition, the holders of the outstanding shares of
any class are entitled to vote as a class upon a proposed amendment
notwithstanding any contrary provision of the articles of incorporation, if the
amendment would increase or decrease the aggregate number of authorized shares
of such class; effect exchange or create a right of exchange of all or any part
of the shares of another class into the shares of such class; effect exchange,
reclassification or cancellation or all or part of the outstanding shares of
such class; change the designations, preferences, limitations or relative rights
of the shares of such class; change the shares of such class into the same or
different number of shares of the same or another class or classes; create a new
class of shares having rights and preferences prior and superior to the rights
of such class, or increase rights and preferences, or the authorized number or
aggregate par value, of any class having rights and preferences prior or
superior to the shares of such classes; divide the shares of such class into
series and fix and determine the designation of such series and the variations
and relative rights and preferences as between shares of such series or
authorize the board of directors to do so; or limit or deny any preemptive
rights of the shares of such class.
Article Tenth of the Consumers Restated Articles contains a provision
requiring a 95% vote of all shares of Consumers Stock entitled to vote in the
elections of directors considered for that purpose as one class, for the
adoption or authorization of certain business combinations under certain
circumstances. Article Tenth may not be amended without receiving the
affirmative vote of 95% of all outstanding Consumers voting shares considered as
one class, except for amendments recommended to the shareholders by Consumers
Board, provided that at least 80% of the directors vote in favor of such
recommendation and provided further that at least 80% of the directors are
persons who would be eligible to serve as "continuing directors" within the
meaning of Article Tenth.
PSC. Under the PBCL, an amendment to the articles of incorporation only
requires the approval of the board of directors followed by the affirmative vote
of a majority of the votes cast by all shareholders entitled to vote thereon
and, if any class or series of shares entitled to vote thereon as a class, the
affirmative vote of a majority of the votes cast in
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each such class vote. Furthermore, the PBCL provides that, unless otherwise
provided in the article, an amendment of the articles of incorporation need not
be adopted by the board of directors prior to its submission to the shareholders
for approval if it is proposed by a petition of shareholders entitled to cast at
least 10% of the votes that all shareholders are entitled to cast thereon. The
PSC Charter does not eliminate this provision.
Amendments to Bylaws
Consumers. Under the MBCA, bylaws may be adopted, amended or repealed
either by the board of directors or the holders of shares entitled to vote to
elect directors, provided however, that the directors may not, for two years
after such shareholders have amended or repealed any bylaw provision, amend or
readopt the bylaw provision thus amended or repealed by such shareholders. The
Consumers Bylaws provide that, except as otherwise required by law, the Bylaws
may be amended, added to or repealed at any annual or special meeting of the
shareholders by a vote of a majority of the shares issued and outstanding and
entitled to vote provided that notice of the proposed amendment, addition or
repeal is given in the notice of said meeting. Except for an amendment, addition
or repeal which is required by law to be made by shareholders, the bylaws may
also be amended, added to or repealed at any regular or special meeting of the
Consumers Board of Directors by a vote of a majority of the Board, provided that
notice of the proposed amendment, addition or repeal is given in the notice of
said meeting.
PSC. Under the PBCL, bylaws may be adopted, amended and repealed by the
shareholders entitled to vote thereon. This authority may be expressly vested in
the board of directors by the bylaws, subject to the power of the shareholders
to change such action, unless the subject of the amendment is solely within the
province of the shareholders. The PSC Charter provides that whenever any
corporate action is to be taken by vote of the shareholders adopting, amending
or repealing the PSC Bylaws, the action must be authorized (i) by a vote
receiving at least two-thirds of the votes which all voting shareholders are
entitled to cast thereon or (ii) if the action has been proposed by a majority
of the Board of Directors, upon receiving at least a majority of the votes which
all voting shareholders are entitled to cast thereon. The PSC Bylaws provide
further that, with respect to those subjects which are not by statute committed
expressly to the shareholders and regardless of whether the shareholders have
previously adopted or approved the by-law being amended or repealed, a by-law
may be amended or repealed by vote of a majority of the PSC Board of Directors
at any regular or special meeting of directors.
Mergers and Major Transactions.
Consumers. Under the MBCA, shareholder approval is required for the
sale, lease, exchange or other disposition of all, or substantially all, of the
property and assets of a corporation that is not made in the usual and regular
course of the business of such corporation. Under the MBCA, unless the articles
of incorporation provide otherwise, the merger or consolidation in which a Maine
corporation is a participant must be approved by the affirmative vote of the
holders of at least a majority of the outstanding shares entitled to vote
thereon of such corporation unless any class of shares of any such corporation
is entitled to vote as a class thereon and, in which event the plan of merger or
consolidation shall be approved upon receiving the affirmative vote of the
holders of at least a majority of the outstanding shares of each class of shares
entitled to vote as a class thereon and of the total outstanding shares entitled
to vote thereon. Any class of shares of any corporation which participates in a
merger shall be entitled to vote as a class, whether or not otherwise entitled
to vote, if the plan of merger or consolidation contains provision which, if
contained in a proposed amendment to the articles of incorporation, would
entitle such class of shares to vote as a class.
Under the MBCA, the articles of incorporation may contain a provision
requiring a plan of merger or consolidation to receive a vote greater than, but
in no event less than, that described in the preceding sentence. Notwithstanding
the other provisions of the MBCA, unless required by its articles of
incorporation, no vote of shareholders of a participating corporation which is
to be the surviving corporation shall be necessary to authorize a merger if the
plan of merger does not amend in any respect the articles of incorporation of
the surviving corporation and the shares of any class of stock of the surviving
corporation to be issued or delivered under the plan of merger do not exceed 15%
of the shares of the surviving corporation of the same class outstanding
immediately prior to the effective date of the merger.
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Article Tenth of the Consumers Restated Articles contains a provision
requiring the affirmative vote or consent of the holders of 95% of all shares of
stock entitled to vote in the election of directors considered for the purposes
of Article Tenth as one class, for the adoption or authorization of certain
business combinations.
The MBCA provides that a parent corporation owning at least 90% of the
outstanding shares of each class of one or more other corporations may merge one
or more such subsidiary corporations into itself without the approval by a vote
of the shareholders of either the parent or any such subsidiary corporation.
PSC. Under the PBCL, shareholder approval is required for the sale,
lease, exchange or other disposition of all, or substantially all, of the
property and assets of a corporation when not made in the usual and regular
course of the business of such corporation or for the purpose of relocating the
business of such corporation or in connection with the dissolution or
liquidation of the corporation. In cases where shareholder approval is required,
however, a merger, consolidation, sale, lease, exchange or other disposition
must be approved by a majority of the votes cast by all shareholders entitled to
vote thereon. Under the PBCL, unless required by the bylaws of a constituent
corporation, shareholder approval is not required for a plan of merger or
consolidation if: (i) the surviving or new corporation is a domestic corporation
whose articles are identical to the articles of such constituent corporation,
(ii) each share of such constituent corporation outstanding immediately prior to
the merger or consolidation will continue as or be converted into (except as
otherwise agreed to by the holder thereof) an identical share of the surviving
or new corporation, and (iii) such plan provides that the shareholders of such
constituent corporation will hold in the aggregate shares of the surviving or
new corporation having a majority of the votes entitled to be cast generally in
an election of directors. In addition, the PBCL provides that no shareholder
approval is required if, prior to the adoption of such plan, another corporation
that is a party to such plan owns 80% or more of the outstanding shares of each
class of such constituent corporation. The PSC Charter provides that certain
transactions, including the sale of assets, transactions with "interested
shareholders," dissolutions, mergers, consolidations and certain other
fundamental transactions, require the approval of at least two-thirds of the
votes which all voting shareholders are entitled to cast thereon, unless
proposed by the PSC Board of Directors, in which case only a majority of votes
cast by the shareholders entitled to vote thereon is required.
Dissenters' Rights of Appraisal
Consumers. A shareholder of a Maine corporation generally has the right
to dissent from a merger or consolidation in which the corporation is
participating or sale of all or substantially all of the assets of the
corporation, subject to specified procedural requirements. The MBCA generally
does not confer appraisal rights, however, if the corporation's stock is either
(i) registered or traded on a national securities exchange or (ii) registered
with the SEC pursuant to Section 12(g) of the Exchange Act, as is the Consumers
Common Stock. Even if a corporation's stock meets the foregoing requirements,
however, the MBCA provides that appraisal rights generally will be permitted if
shareholders of the corporation are required to accept for their stock in any
merger, consolidation or similar transaction anything other than (i) shares of
the surviving or new corporation resulting from the transaction, or such shares
plus cash in lieu of fractional shares, or (ii) shares, or shares plus cash in
lieu of fractional shares, of any other corporation unless its shares are
registered or traded on a national securities exchange or held by record of not
less than 2,000 shareholders, or any combination of the foregoing.
PSC. The PBCL provides that shareholders of a corporation have a right
of appraisal with respect to specified corporate actions, including: (i) a plan
of merger, consolidation, division (within the meaning of Section 1951 of the
PBCL), share exchange or conversion (within the meaning of Section 1961 of the
PBCL), (ii) certain other plans or amendments to its articles in which disparate
treatment is accorded to the holders of shares of the same class or series, and
(iii) a sale, lease, exchange or other disposition of all or substantially all
of the corporation's property and assets, except if such sale, lease, exchange
or other disposition is (a) made in connection with the dissolution or
liquidation of the corporation, (b) the acquiring corporation owns all of the
outstanding shares of the acquired corporation or the voting rights,
preferences, limitations or relative rights of the acquired corporation are not
altered thereby or (c) the assets sold, leased, exchanged or otherwise disposed
of are simultaneously leased back to the corporation. Under the PBCL, appraisal
rights are not provided, however, to the holders of shares of any class that are
either listed on a national
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securities exchange or held of record by more than 2,000 shareholders unless (i)
such shares are not converted solely into shares of the acquiring, surviving,
new or other corporation and cash in lieu of fractional shares, (ii) such shares
constitute a preferred or special class of stock, and the articles of such
corporation, the corporate action under consideration or the express terms of
the transaction encompassed in such corporate action do not entitle all holders
of the shares of such class to vote thereon and the transaction requires for the
adoption thereof the affirmative vote of a majority of the votes cast by all
shareholders of such class, or (iii) such shares constitute a group of a class
of series which are to receive the same special treatment in the corporate
action under consideration, and the holders of such group are not entitled to
vote as a special class in respect of such corporate action.
Anti-Takeover Provisions
Consumers. Section 910 of the MBCA generally provides shareholders of a
Maine corporation which has a class of voting shares registered or traded on a
national securities exchange or registered under the Exchange Act, such as
Consumers, with the right to demand payment for an amount equal to the fair
value of each voting share in the corporation held by the shareholder from a
person or group of persons which becomes a Section 910 "Controlling Person,"
generally defined to mean an individual, firm or entity, or group thereof (a
"Section 910 Controlling Person") having voting power over at least 25% of the
outstanding voting shares of the corporation. Such a demand must be submitted to
the Section 910 Controlling Person within 30 days after the Section 910
Controlling Person provides required notice to the shareholders of the
acquisition or transactions which resulted in such person or group becoming a
Section 910 Controlling Person. Section 910 could be interpreted to provide that
a person or group of persons could become a Section 910 Controlling Person for
purposes of such section by soliciting and acquiring revocable proxies to vote
at least 25% of the voting shares of a corporation.
Section 611-A of the MBCA generally provides that a Maine corporation
which has a class of voting stock registered or traded on a national securities
exchange or registered under the Exchange Act may not engage in any business
combination for five years following an Interested Shareholders Stock
Acquisition Date (as defined below) unless the business combination is (i)
approved by the corporation's Board of Directors prior to that Interested
Shareholders Stock Acquisition Date or (ii) approved subsequent to that
Interested Shareholders Stock Acquisition Date by the Board of Directors of the
Maine corporation and authorized by the holders of a majority of the outstanding
voting stock in the corporation not beneficially owned by that Interested
Shareholder (as defined below) or any affiliate or associate thereof or by
persons who are either directors or officers and also employees of the
corporation. An Interested Shareholder is defined to include any person, firm or
entity that is directly or indirectly the beneficial owner of 25% or more of the
outstanding voting stock of the corporation, other than by reason of a revocable
proxy given in response to a proxy solicitation conducted in accordance with the
Exchange Act which is not then reportable on a Schedule 13D under the Exchange
Act. The Interested Shareholders Stock Acquisition Date is defined to be the
date that any person, firm or entity first becomes an Interested Shareholder of
that corporation.
Article Tenth of the Consumers Restated Articles requires that certain
procedures be followed by any controlling person, defined as any corporation,
entity or other person which acquires a 30% voting interest in Consumers (an
"Article Tenth Controlling Person") after it gains control in connection with
any subsequent business combination which would eliminate or fundamentally
change the interests of the public shareholders not affiliated with the Article
Tenth Controlling Person. Generally, the procedures seek to assure that the
consideration received by shareholders in a subsequent business combination will
not be less than the highest price paid for any shares acquired by the Article
Tenth Controlling Person while obtaining control, and, in certain situations,
such consideration could exceed that price. The procedures also provide for a
proportionate representation on Consumers Board by directors elected by the
public shareholders not affiliated with an Article Tenth Controlling Person
prior to the Article Tenth Controlling Person's acquisition of more than ten
percent of Consumers shares (or persons recommended by such directors) (the
"Disinterested Directors"), a limitation or reduction in dividends and a
prohibition against the acquisition by the Article Tenth Controlling Person of
additional shares after it acquires a thirty percent (30%) voting interest.
Moreover, the Article Tenth Controlling Person may not receive the benefit
(except proportionately as a shareholder) of any loans, advances, guaranties,
pledges or the like provided by Consumers, or make any major change in Consumers
equity structure without unanimous approval by the Consumers Board. If the
procedures are not complied with by the Article
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Tenth Controlling Person, Article Tenth requires approval of the holders of 95%
of the voting power of Consumers shares for a subsequent business combination.
If the specified procedures are observed, customary approval of the holders of
only a majority of Consumers shares would be sufficient to authorize a business
combination. These provisions may not be amended, altered, changed or repealed
without a 95% vote of the shareholders, except in certain situations where the
change is supported by 80% of the Disinterested Directors.
PSC. The PBCL provides that a corporation is permanently prohibited
from engaging in any business combination with a person who, together with his
affiliates or associates owns (or within the preceding five-year period did own)
20% or more of the "registered" corporation's voting shares (an "interested
shareholder"), unless: (i) such business combination, or the acquisition of
shares causing such interested shareholder to become such, was approved in
advance by the board of directors of such corporation, (ii) such interested
shareholder acquires at least 80% of the voting shares of such corporation, the
consideration to be offered to shareholders in connection with such business
combination meets specified fair price standards and such business combination
is approved by the affirmative vote of the holders of shares representing at
least a majority of the votes that the holders of voting shares are entitled to
cast, excluding voting shares beneficially owned by such interested shareholder
and its affiliates and associates, (iii) such business combination is
unanimously approved by the holders of all outstanding common shares of such
corporation, (iv) within five years after the date the shareholder became an
interested shareholder, the business combination is unanimously approved by the
holders of all outstanding common shares of such corporation, (v) within five
years after the date the shareholder became an interested shareholder, the
business combination is approved by a majority of the outstanding voting shares
of such corporation (excluding shares held by such interested shareholder), (vi)
within five years after the date the shareholder became an interested
shareholder, the business combination is approved by a majority of the
shareholders and meets certain considerations set forth in the PBCL concerning
the amount of consideration. A "business combination" includes mergers,
consolidations, asset sales, share exchanges, divisions of a "registered"
corporation or any subsidiary thereof and other transactions resulting in a
disproportionate financial benefit to an interested shareholder. Unless
otherwise provided in the articles, this provision of the PBCL does not apply to
a corporation if the corporation does not have voting shares either registered
or traded on a national securities exchange or registered with the Commission.
The PSC Charter does not include its own "business combination" provision;
rather, it is governed by the provision in the PBCL.
The PBCL includes a statute which provides that, subject to certain
limited exceptions, in the event of the acquisition by any person or group of
shares of a "registered" corporation that entitles the holder thereof to a least
20% of the voting power of the voting shares of such corporation, such person or
group must give notice to all shareholders of record of such corporation that
such acquisition has occurred and any of such shareholders may demand payment of
the fair value of their shares.
The PBCL also includes a "control-share acquisition" statute. A
"control-share acquisition" is defined as an acquisition of such number of
voting shares as, when added to the voting shares already held by such acquiring
person or group, would entitle such person or group to exercise voting power for
the first time within any of the following three ranges: (i) at least 20% but
less than 33-1/3%, (ii) at least 33-1/3% but less than 50%, or (iii) more than
50%. "Control shares" also include voting shares acquired within 180 days of the
occurrence of a "control-share acquisition" or acquired with the intention of
making a "control-share acquisition." The PBCL provides further that "control
shares" of a "registered" corporation will not have voting rights unless
restored by the affirmative vote of (i) the holders of a majority of the
outstanding voting shares (not including the "control shares") of such
corporation and (ii) the holders of a majority of the voting power of the
outstanding voting shares of such corporation. In addition, under certain
circumstances, a "registered" corporation is permitted to redeem its "control
shares."
Any profit realized by a "controlling person" from the disposition of
any equity security of a "registered" corporation is recoverable by such
corporation if (i) such profit is realized by such "controlling person" within
18 months after such "controlling person" became such and (ii) the equity
security so disposed of was acquired by such "controlling person" within 24
months prior to or 18 months after such "controlling person" became such.
Subject to certain exceptions, "controlling person" includes any person or group
who (i) acquired, offered to acquire, or directly or indirectly publicly
disclosed or caused to be publicly disclosed its intention to acquire, power to
vote at least 20%
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of the voting shares of such corporation, or (ii) publicly disclosed or caused
to be publicly disclosed that it may seek to acquire control of such corporation
through any means.
Dissolution
Consumers. Under the MBCA, if the Board of Directors of a corporation
adopts a resolution recommending that the corporation be dissolved, or
shareholders owning at least 20% of all the outstanding shares of the
corporation entitled to vote on a proposed dissolution of the corporation call
upon the board of directors to submit their proposal to a vote of the
shareholders, and two-thirds of the outstanding shares of the corporation
entitled to vote thereon vote in favor of the proposed dissolution the
corporation be dissolved, unless the Articles require a greater vote or a class
of shares is entitled to vote as a class, in which event the resolution shall
require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of each class entitled to vote thereon as a class and of the
total shares entitled to vote thereon. A Maine corporation is dissolved upon the
filing of Articles of Dissolution following the filing of a Statement of Intent
to Dissolve.
A corporation may also be dissolved by the written consent of all
shareholders or upon suit by the Attorney General when it is established that
the corporation has procured its articles of incorporation through fraud or
concealment of a material fact or in any material way failed to comply with the
requirements of the MBCA, has exceeded or abused the authority conferred upon it
by law, has willfully made false statements as to material matters on its Annual
Report or has continued to engage in business after being suspended by the
Secretary of State. Maine corporations may also be dissolved by order of the
Superior Court following the filing of an action by a shareholder in which it is
established that the directors of the corporation are so divided with respect to
the management of the corporation's business and affairs that the votes required
for action by the board of directors cannot be obtained and the shareholders are
unable to terminate the division with the consequence that the corporation is
suffering or will suffer irreparable injury or the business and affairs of the
corporation can no longer be conducted to the advantage of the shareholders
generally; that shareholders are so divided that they have failed for a period
which includes at least two consecutive annual meeting dates to elect successors
to directors whose terms have expired or would have expired upon the
qualification of their successors; that shareholders are so divided with respect
to the management of the affairs and business of the corporation that the
corporation is suffering or will suffer irreparable injury or the business and
affairs of the corporation can no longer be conducted to the advantage of the
shareholders generally; the acts of the directors and those in control of the
corporation are illegal or fraudulent; the corporate assets are being misapplied
or wasted; the petitioning shareholder has a right, under provision of the
articles of incorporation to dissolution of the corporation at will or upon the
occurrence of any specified event or contingency and has made demand upon the
President and other officers of the corporation as provided in the MBCA and the
officers have failed to proceed with dissolution as required; or the corporation
is abandoning its business and has failed, within a reasonable time, to take
steps to dissolve or liquidate its affairs and distribute its assets. The
dissolution of a Maine corporation shall not take away or impair any remedy
available to or against such corporation, its directors, officers of
shareholders for any right or claim existing, or any liability incurred, prior
to such dissolution if action or other proceeding thereon is commenced within
two years after the date of such dissolution.
PSC. Under the PBCL, if the board of directors adopts a resolution
recommending the dissolution of the corporation, the shareholders must adopt the
resolution by the affirmative vote of a majority of the votes cast by all
shareholders entitled to vote thereon. The PBCL provides two different
procedures for a corporation to provide for the winding up and distribution of
the corporation's assets. The board of directors of the corporation may elect
that the dissolution shall proceed under Subchapter H or under Section 1975 of
the PBCL. Under Section 1975, the corporation must provide for the liabilities
of the corporation prior to filing the articles of dissolution the Pennsylvania
Department of State. Directors of corporations that elect to follow this
procedure are held to the standard of care that applies to all of their other
duties. Under the PBCL a corporation only continues to exist for the purpose of
settling its affairs for a period of two years. Furthermore, the court in
determining the amount of security that shall be posted by the dissolved
corporation shall consider the amount that would be reasonably likely to be
sufficient to provide compensation for claims that are unknown but that are
likely to arise or become known for a period of only two years after the
dissolution of the corporation.
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Rights Agreements
Consumers. Consumers does not have a "shareholder rights" plan.
PSC. Pursuant to a Shareholders Rights Plan (the "PSC Rights Plan"),
holders of PSC Common Stock own one right (a "Right") to purchase Series A
Junior Participating Preferred Stock ("Series A Preferred Stock") for each
outstanding share of Common Stock. Upon the occurrence of certain events, each
Right would entitle the holder to purchase from PSC one one-thousandth of a
share of Series A Preferred Stock at an exercise price of $90 per
one-thousandths of a share, subject to adjustment. The Rights are exercisable in
certain circumstances if a person or group acquires 20% or more of PSC's Common
Stock or if the holder of 20% or more of PSC's Common Stock engages in certain
transactions with PSC. In that case, each Right would be exercisable by each
holder, other than the acquiring person, to purchase shares of Common Stock of
PSC at a substantial discount from the market price. In addition, if, after the
date that a person has become the holder of 20% or more of PSC's Common Stock,
any person or group merges with PSC or engages in certain other transactions
with PSC, each Right entitles the holder, other than the acquiror, to purchase
common stock of the surviving corporation at a substantial discount from the
market price. The Rights are subject to redemption by PSC in certain
circumstances. The Rights have no voting or dividend rights and, until
exercisable, cannot trade separately from the Common Stock and have no dilutive
effect on the earnings of PSC. The PSC Rights Plan expires on March 1, 2008.
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SHAREHOLDERS' PROPOSALS
Shareholder proposals for inclusion in proxy materials for PSC's 1999
Annual Meeting of Shareholders should be addressed to the Corporate Secretary at
PSC's principal executive offices, 762 W. Lancaster Avenue, Bryn Mawr, PA 19010,
and must be received by PSC on or before December 9, 1998.
If the Merger is consummated, Consumers will not hold a 1999 Annual
Meeting of Shareholders. If the Merger is not consummated and such a meeting is
held, shareholder proposals for inclusion in proxy materials for Consumers' 1999
Annual Meeting of Shareholders must be received by Consumers on or before
December 2, 1998.
PROXY SOLICITATION
Proxies are being solicited from PSC and Consumers shareholders by and
on behalf of the respective Boards of Directors of each of PSC and Consumers.
Each of PSC and Consumers will bear their own expenses for the solicitations.
The costs of preparing and mailing this Joint Proxy Statement/Prospectus will be
equally divided between Consumers and PSC. In addition to solicitation by mail,
proxies may be solicited from PSC and Consumers shareholders by directors,
officers and regular employees of PSC and Consumers, respectively, in person, by
telecopy or by telephone. Such directors, officers and employees will not
receive any additional compensation for such services but may be reimbursed for
reasonable expenses incurred by them in forwarding the proxy soliciting
materials to the beneficial owners of PSC Common Stock and Consumers Common
Stock. Although there is no formal agreement to do so, PSC and Consumers,
respectively, will reimburse banks, brokerage firms and other custodians,
nominees and fiduciaries for the forwarding of proxy solicitation materials to
beneficial owners of PSC Common Stock and Consumers stock held of record by
such persons. Either PSC or Consumers may also retain the services of a proxy
solicitor to assist in the solicitation of proxies, in which case the party
employing the proxy solicitor would be solely responsible for such expenses.
LEGAL MATTERS
The validity of the PSC Common Stock issuable in the Merger will be
passed upon by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania. The
opinion of counsel as described under "The Merger-Certain Federal Income Tax
Consequences" is being rendered by Drummond Woodsum & MacMahon, which opinion is
subject to various assumptions and is based on current law.
EXPERTS
The consolidated financial statements of PSC as of December 31, 1997
and 1996, and for each of the years in the three year period ended December 31,
1997 have been incorporated by reference in this Joint Proxy
Statement/Prospectus and Registration Statement in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
The consolidated financial statements of Consumers at December 31,
1997, 1996 and 1995, have been incorporated by reference in this Joint Proxy
Statement/Prospectus have been audited by Arthur Andersen LLP, independent
auditors, as stated in their report, and are included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
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PROPOSAL 2:
AMENDMENT TO
ARTICLES OF INCORPORATION
TO INCREASE AUTHORIZED SHARES
Proposal
The PSC Board of Directors proposes and recommends to the shareholders
an amendment to the Articles of Incorporation of PSC increasing the number of
authorized shares of PSC Common Stock from 40,000,000 shares to 100,000,000
shares. As of June 30, 1998, there were outstanding 27,560,713 shares of PSC
Common Stock. The number of authorized shares of PSC Preferred Stock will remain
unchanged. The number of shares of PSC Preferred Stock authorized for issuance
is 1,770,819, including 100,000 shares of Series A Junior Participating
Preferred Shares (the "Series A Preferred") and 32,200 shares of Series B
Preferred Stock (the "Series B Preferred").
The text of the proposed Amendment to the PSC Articles of
Incorporation is set forth on Annex E to this Joint Proxy
Statement/Prospectus.
Purposes and Effects
The principal reason for the amendment is to provide a sufficient
number of authorized and unissued shares of PSC Common Stock to issue upon
consummation of the acquisition of Consumers. If the amendment is not adopted by
the shareholders, the Merger cannot be completed. As of June 30, 1998, there
were 27,560,713 shares of PSC Common Stock outstanding and 12,439,287 shares
authorized and unissued. Approximately 13,206,116 authorized and unissued shares
of PSC Common Stock will be required to complete the acquisition. In addition,
1,900,000 shares have been reserved for issuance under the 1994 Equity
Compensation Plan. See "Proposal 1: The Merger Agreement."
The PSC Board of Directors has also determined that additional shares
of PSC Common Stock should be authorized to provide shares available for
issuance under the 1994 Equity Compensation Plan and to provide shares available
for future stock dividends, acquisitions, public offerings and other corporate
purposes. The PSC Board of Directors has reserved 2,900,000 shares of PSC Common
Stock for issuance under the 1994 Equity Compensation Plan, as amended. The
amendment to the 1994 Equity Compensation Plan is subject to shareholder
approval at the Special Meeting. See "Proposal 3: Amendment to the Equity
Compensation Plan."
Having additional shares of authorized stock available for issuance
will give PSC greater flexibility in the event that additional shares are needed
in connection with raising additional capital, possible acquisitions, stock
distributions and stock splits and other corporate purposes. PSC has no present
plans for any such stock dividend, acquisition or offering but expects to
continue to review acquisition opportunities as they may become available. If
the recommended Amendment to Articles of Incorporation is approved, the PSC
Board of Directors will have the authority to issue the additional shares of
Common Stock or any part thereof without further action by the shareholders
except as required by applicable law or regulations. Future issuances of such
shares could dilute existing shareholders. The PSC Board of Directors believes
that the availability of the additional shares of Common Stock for the purposes
stated without delay or necessity for a special shareholders meeting would be
beneficial to PSC.
Vote Required for Approval.
Approval of the Amendment to the Articles of Incorporation requires the
affirmative vote of the majority of the votes cast by all shareholders of PSC
Common Stock. The holders of PSC Common Stock are entitled to one vote on all
matters properly brought before the PSC Special Meeting for each share of PSC
Common Stock held by such persons. Votes may be cast in person at the PSC
Special Meeting or by proxy. A properly executed proxy marked "ABSTAIN,"
although counted for purposes of determining whether there is a quorum, but will
not be counted for purposes of determining the aggregate number of votes cast.
Similarly, broker non-votes will also be counted for
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purposes of determining whether there is a quorum will not be counted for
purposes of determining the aggregate number of votes cast. Accordingly,
abstentions and broker non-votes will have no effect on the approval of the
Amendment to the Articles of Incorporation.
THE PSC BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL
OF THE AMENDMENT TO THE ARTICLES OF INCORPORATION.
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PROPOSAL 3:
APPROVAL AND ADOPTION OF
AMENDMENT 1998-1 TO PSC'S 1994
EQUITY COMPENSATION PLAN
Proposal
At the PSC Special Meeting, there will be presented to shareholders a
proposal to approve and adopt the Amendment to the Equity Compensation Plan to
increase the number of shares authorized for issuance under the Plan from
1,900,000 to 2,900,000 shares of Common Stock and to adopt certain other
amendments to the terms of the Equity Compensation Plan necessary for the
issuance of options to holders of options to purchase Consumers Common Stock
pursuant to the Merger Agreement. At its August 4, 1998 meeting, the Board of
Directors unanimously approved the proposed Amendment to the Equity Compensation
Plan, subject to shareholder approval at the PSC Special Meeting. The Amendment
to the Equity Compensation Plan will not be effective unless and until
shareholder approval is obtained.
THE TEXT OF THE PROPOSED AMENDMENT TO THE EQUITY COMPENSATION PLAN IS
SET FORTH ON ANNEX F TO THIS JOINT PROXY STATEMENT/PROSPECTUS.
Purposes and Effects
The Amendment to the Equity Compensation Plan is necessary (i) to
permit PSC to issue stock options to holders of existing options to purchase
Consumers Common Stock pursuant to the Merger Agreement, and (ii) to permit PSC
the ability to issue options, in the future, to its officers, other key
employees and non-employee directors of the Company and its subsidiaries and key
consultants to increase their interest in the Company's welfare, and to provide
a means through which the Company can attract and retain officers, other key
employees and non-employee directors and key consultants of significant
abilities. As of July 31, 1998, options to purchase 953,290 shares of Common
Stock were outstanding under the Equity Compensation Plan. As of July 31, 1998,
638,973 shares remain available for future grants.
As of July 31, 1998, options to purchase 60,000 shares of Consumers
Common Stock were outstanding under the Consumers 1993 Incentive Stock Option
Plan; of these options, none are held by persons who have been nominated to
serve as directors of PSC after the Merger, 37,000 shares are held by Consumer's
executive officers who may or may not become executive officers of PSC after the
Merger and 23,000 shares are held by Consumers' employees, including officers
who are not executive officers, who may or may not be employees of PSC after the
Merger. Pursuant to the Merger Agreement, the 60,000 outstanding options to
purchase Consumers Common Stock would be converted into 87,540 options to
purchase PSC Common Stock assuming possible adjustment in accordance with the
terms of the Merger Agreement. An increase in the number of shares available for
issuance will enable PSC to continue making awards under the Equity Compensation
Plan, including awards to employees of Consumers after the Merger, for the next
several years.
Vote Required for Approval
Approval of the Amendment to the Equity Compensation Plan requires the
affirmative vote of the majority of the votes cast by all shareholders of PSC
Common Stock. The holders of PSC Common Stock are entitled to one vote on all
matters properly brought before the PSC Special Meeting for each share of PSC
Common Stock held by such persons. Votes may be cast in person at the PSC
Special Meeting or by proxy. A properly executed proxy marked "ABSTAIN,"
although counted for purposes of determining whether there is a quorum will not
be counted for purposes of determining the aggregate number of votes cast.
Similarly, broker non-votes will also be counted for purposes of determining
whether there is a quorum, but will not be counted for purposes of determining
the aggregate number of votes cast. Accordingly, abstentions and broker
non-votes will have no effect on the approval of the Proposals.
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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF
THE AMENDMENT TO THE EQUITY COMPENSATION PLAN.
Description of the 1994 Equity Compensation Plan
The description of the Equity Compensation Plan contained herein is
qualified in its entirety by reference to the Plan document. All references to
share figures contained herein have been adjusted to reflect the 1996 3-for-2
and the 1997 4-for-3 stock splits in the form of stock distributions.
General. The purpose of the Equity Compensation Plan is to provide an
incentive, in the form of a proprietary interest in the Company, to officers,
other key employees and non-employee directors of the Company and its
subsidiaries and key consultants, to increase their interest in the Company's
welfare, and to provide a means through which the Company can attract and retain
officers, other key employees and non-employee directors and key consultants of
significant abilities. Subject to adjustment in certain circumstances as
discussed below, the Equity Compensation Plan as amended by proposed Amendment
1998-1 authorizes up to 2,900,000 shares of Common Stock for issuance pursuant
to the terms of the Equity Compensation Plan. The limit on the number of shares
of Common Stock that may be issued under the Equity Compensation Plan in
connection with grants of restricted stock is removed under the Equity
Compensation Plan. If and to the extent options granted under the Equity
Compensation Plan terminate or expire without being exercised, or if any shares
of restricted stock are forfeited, the shares subject to such grant again will
be available for purposes of the Equity Compensation Plan. The maximum number of
shares of Common Stock that may be subject to grants made under the Equity
Compensation Plan, as amended and restated, to any individual during any
calendar year is 100,000 shares.
Administration of the Plan. The Equity Compensation Plan is
administered and interpreted by a Committee of the Board (the "Committee")
consisting of not less than three persons appointed by the Board from among its
members. Under the terms of the Equity Compensation Plan, each of the members of
the Committee may be "outside directors" as defined in Section 162(m) of the
Code and may be "non-employee directors" as defined under Rule 16b-3 under the
Exchange Act. The Committee has full power and authority to administer and
interpret the Equity Compensation Plan, to make factual determinations and to
adopt or amend such rules, regulations, agreements and instruments for
implementing the Equity Compensation Plan and for conduct of its business as it
deems necessary or advisable, in its sole discretion. The Committee or the
Board, subject to the terms of the Equity Compensation Plan, in its sole
discretion, may make grants under the Equity Compensation Plan to eligible
officers and other key employees and key consultants. The Board may also ratify
or approve grants made by the Committee. Non-employee directors are eligible to
receive annual grants of 400 shares of restricted stock, subject to adjustment
as provided under the Equity Compensation Plan. Reference to the Committee in
the following paragraphs shall also mean the Board when acting under its
authority to make, approve or ratify grants under the Equity Compensation Plan.
Grants. Incentives under the Equity Compensation Plan consist of
incentive stock options, nonqualified stock options, restricted stock grants and
dividend equivalents (hereinafter collectively referred to as "Grants"). All
Grants are subject to the terms and conditions set forth in the Equity
Compensation Plan and to those other terms and conditions consistent with the
Equity Compensation Plan as the Committee deems appropriate and as are specified
in writing by the Committee to the designated individual (the "Agreement"). The
Committee must approve the form and provisions of each Agreement.
Grants in Connection with Corporate Transactions and Otherwise. The Equity
Compensation Plan, as amended by proposed Amendments 1998-1, permits the
Committee to make Grants under this Equity Compensation Plan in connection with
the acquisition, by purchase, lease, merger, consolidation or otherwise, of the
business or assets of any corporation, firm or association, including Grants to
employees thereof who become key employees of the Corporation or any of its
subsidiaries, or for other proper corporate purposes. Without limiting the
foregoing, the Committee may make a Grant to an employee of another corporation
who becomes an employee of the Corporation or any of its subsidiaries by reason
of a corporate merger, consolidation, acquisition of stock or property,
reorganization or liquidation involving the Company or any of its subsidiaries
in substitution for a stock option or restricted stock grant
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made by such corporation. The terms and conditions of the substitute grants may
vary from the terms and conditions required by the Equity Compensation Plan and
from those of the substituted stock incentives. The Committee will prescribe the
provisions of the substitute grants.
Eligibility for Participation. Officers and other key employees of the
Company and key consultants are eligible to participate in the Equity
Compensation Plan and non-employee directors are eligible to receive annual
restricted stock grants under the Equity Compensation Plan (hereinafter referred
to individually as the "Participant" and collectively as the "Participants").
The Committee or the Board may select the persons to receive Grants (the
"Grantees") from among the Participants and determine the number of shares of
Common Stock subject to a particular Grant. As of March 3, 1998, there were
approximately 120 key employees, 9 non-employee directors and no consultants
eligible to participate in the Plan.
Granting of Options. The Committee may grant options qualifying as
incentive stock options ("ISOs") within the meaning of section 422 of the Code
and/or other stock options ("NQSOs") in accordance with the terms and conditions
set forth in the Equity Compensation Plan or any combination of ISOs or NQSOs
(hereinafter referred to collectively as "Stock Options"). The Committee may
grant only NQSOs to key consultants under the Plan.
Term, Purchase Price, Exercisability and Method of Exercise. The
exercise price of Common Stock subject to an ISO or NQSO is the fair market
value of such stock on the date the Stock Option is granted, except that the
exercise price of an ISO granted to an employee who owns more than 10% of the
total combined voting power of all classes of the stock of the Company or its
subsidiaries may not be less than 110% of the fair market value of the
underlying shares of Common Stock on the date of grant. On March 2, 1998, the
fair market value of a share of Common Stock was $22.1250 per share.
The Committee determines the option exercise period for each Stock
Option; provided, however, that the exercise period for an ISO may not exceed
ten years from the date of grant and the exercise period for a NQSO may not
exceed ten years and one day from the date of grant. In addition, the exercise
period of an ISO granted to an employee who owns more than 10% of the total
voting power of all outstanding stock of the Company or its subsidiaries may not
exceed five years from the date of grant. The time when Stock Options become
exercisable is determined by the Committee, in its sole discretion, and is
specified in the Agreement. A Grantee may exercise a Stock Option by delivering
a notice of exercise to the Committee with accompanying payment of the option
price. The Grantee may pay the option price in cash, by delivering shares of
Common Stock already owned by the Grantee and having a fair market value on the
last trading day prior to the date of exercise equal to the option price or with
a combination of cash and shares. The Grantee must pay the option price and the
amount of any withholding tax due, if any, at the time of exercise. Shares of
Common Stock are not to be issued or transferred upon exercise of the Stock
Option until the option price and the withholding obligation are fully paid.
Restricted Stock Grants. The Committee may issue or transfer shares of
Common Stock under a Grant (a "Restricted Stock Grant") pursuant to the Equity
Compensation Plan to officers and other key employees. Shares of Common Stock
issued pursuant to a Restricted Stock Grant may be issued for consideration or
for no consideration, and the Committee grants to each Grantee a number of
shares of Common Stock determined in its sole discretion. The total number of
shares of Common Stock subject to Restricted Stock Grants under the Equity
Compensation Plan, as amended and restated, is not limited to any maximum. If a
Grantee's employment terminates during the period, if any, designated in the
Agreement as the period during which the transfer of the shares is restricted
(the "Restriction Period"), the Restricted Stock Grant terminates with respect
to all shares covered by the Grant as to which the restrictions on transfer have
not lapsed, and those shares of Common Stock must be immediately returned to the
Company.
In addition, non-employee directors are entitled to receive grants of
400 shares of restricted stock each year on the first of the month following the
annual meeting of shareholders. Shares granted to non-employee directors may not
be sold for six months following the date of grant.
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During the Restriction Period, a Grantee has all of the rights of a
shareholder, including the right to vote and receive dividends, except that
during the Restriction Period, a Grantee may not sell, assign, transfer, pledge
or otherwise dispose of the shares of Common Stock to which such Restriction
Period applies, except to a successor grantee in the event of the Grantee's
death. All restrictions imposed under the Restricted Stock Grant lapse upon the
expiration of the applicable Restriction Period. In addition, the Committee may
determine as to any or all Restricted Stock Grants that all restrictions will
lapse under such other circumstances as it deems equitable.
Non-Employee Director Grants. The Equity Compensation Plan provides
that as of the first day of the month following the Company's annual meeting of
shareholders, each non-employee director will receive a grant of 400 shares of
Common Stock. Such shares shall not be sold for 6 months following the date of
the grant. No other restrictions apply to such shares. Notwithstanding any other
provision of the Equity Compensation Plan, this provision may not be amended
more than once every 12 months, except for amendments necessary to conform the
Equity Compensation Plan to changes of the provisions of, or the regulations
relating to, the Code.
Dividend Equivalents. The Committee may grant dividend equivalents to
officers and other key employees either alone or in conjunction with all or any
part of any Stock Option granted under the Equity Compensation Plan. A dividend
equivalent is equal to the dividend payable on a share of Common Stock of the
Company. The Company will credit to an account maintained for the Grantee on its
books and records an amount that is generally equal to the dividend equivalents
subject to the Grant during the accumulation period designated by the Committee.
The amount of a dividend equivalent is determined by applying the
following factors: (i) the number of dividend equivalents granted, (ii) the
per-share cash dividend, or the per-share fair market value of any non-cash
dividend, paid by the Company during the applicable accumulation period and
(iii) the length of the applicable accumulation period designated by the
Committee at the time of grant.
Generally, a Grantee will receive payment of a percentage of his
dividend equivalents as specified by the Committee at the time of grant, at the
end of the performance period established by the Committee at the time of the
grant. A performance period will generally be four years, but may be as long as
eight years or as short as two years from the date of grant, depending on the
performance criteria established by the Committee at the time of the grant. A
Grantee's dividend equivalents may be subject to more than one performance
period and more than one set of performance criteria.
Generally, no payments of dividend equivalents will be made before the
end of the applicable performance period or periods or to any Grantee whose
employment terminates before the end of the applicable performance period or
periods for any reason other than retirement under the Company's or a
subsidiary's retirement plan, death or total disability, unless the Committee,
in its sole discretion, determines otherwise.
Payment of dividend equivalents, at the discretion of the Committee,
may be made solely in cash, solely in credits to be applied toward payment of an
exercisable related option or a combination of cash and such credits. A Grantee
may also defer receipt of the payment of dividend equivalents, if he elects to
do so on or before December 31 of the year preceding the beginning of the last
full year of the applicable performance period.
Section 162(m). Under Section 162(m) of the Code, the Company may be
precluded from claiming a federal income tax deduction for total remuneration in
excess of $1,000,000 paid to the chief executive officer or to any of the other
four most highly compensated officers in any one year. Total renumeration
includes amounts received upon the exercise of stock options granted under the
Equity Compensation Plan, amounts received in connection with dividend
equivalents granted under the Equity Compensation Plan and the value of shares
received when the shares of restricted stock became transferable (or such other
time when income is recognized). An exception exists, however, for "qualified
performance-based compensation." The Equity Compensation Plan is intended to
allow grants of stock options to meet the requirements of "qualified
performance-based compensation." Stock options should generally meet the
requirements of "qualified performance-based compensation," if the exercise
price is at least equal to the fair market value of the Common Stock on the date
of grant.
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Transferability. Grants are generally not transferable by the
participant, except in the event of death. However, the Plan, as amended and
restated, provides that the Committee may grant NQSOs that allow the participant
to transfer the NQSOs on such terms as the Committee deems appropriate.
Amendment and Termination of the Equity Compensation Plan. The Board
may amend or terminate the Equity Compensation Plan at any time; provided,
however, that the Board may not, without shareholder approval, make any
amendment that requires shareholder approval pursuant to Section 422 or 162(m)
of the Code. The Equity Compensation Plan will terminate on May 19, 2004 unless
terminated earlier by the Board.
Amendment and Termination of Outstanding Grants. An amendment of the
Equity Compensation Plan that occurs after a Grant is made will not result in
the amendment of the Grant unless the Grantee consents or unless the Committee
revokes a Grant, the terms of which are contrary to applicable law. The
termination of the Equity Compensation Plan will not impair the power and
authority of the Committee with respect to outstanding Grants.
Adjustment Provisions; Change of Control of the Company. If there is
any change in the number or kind of shares of Common Stock through the
declaration of stock dividends, or through a recapitalization, stock split, or
combinations or exchanges of such shares, or merger, recapitalization or
consolidation of the Company, reclassification or change in the par value or by
reason of any other extraordinary or unusual event, the number of shares of
Common Stock available for Grants and the number of such shares covered by
outstanding Grants, the price per share or the applicable market value of such
Grants or the terms and conditions applicable to dividend equivalents will be
proportionately adjusted by the Committee to reflect any increase or decrease in
the number or kind of issued shares of Common Stock.
In the event of a Change of Control of the Company, (i) all outstanding
Stock Options will become immediately exercisable, (ii) all restrictions on the
transfer of shares with respect to a Restricted Stock Grant which have not,
prior to such date, been forfeited will immediately lapse and (iii) all
outstanding dividend equivalents which have not, prior to such date, been
forfeited will become immediately payable, regardless of whether the applicable
performance period has ended. A Change of Control of the Company will be deemed
to have taken place with certain exceptions if (i) a person or group, other than
the Company, one of its affiliates or one of its employee benefit plans acquires
20% or more of the Common Stock then outstanding or (ii) during any 24-month
period, there is a change in the majority of the Board other than by approval of
the Board immediately prior to such change.
Other Plan Provisions. A Grant under the Equity Compensation Plan will
not be construed as conferring upon any Grantee a contract of employment or
service, and such Grant will not confer upon the Grantee any rights upon
termination of employment or service, other than certain limited rights as to
the exercise of a Stock Option for a designated period of time following such
termination.
Federal Income Tax Consequences. The current federal income tax
treatment of grants under the Equity Compensation Plan is generally described
below. Local and state tax authorities may also tax incentive compensation
awarded under the Equity Compensation Plan, and tax laws are subject to change.
Participants are urged to consult with their personal tax advisors concerning
the application of the general principles discussed below to their own
situations and the application of state and local tax laws.
Non-Qualified Stock Options. There are no federal income tax
consequences to Grantees or to the Company upon the grant of an NQSO under the
Equity Compensation Plan. Upon the exercise of NQSOs, Grantees will recognize
ordinary compensation income in an amount equal to the excess of the fair market
value of the shares at the time of exercise over the exercise price of the NQSO,
and the Company generally will be entitled to a corresponding federal income tax
deduction. Upon the sale of shares acquired by exercise of an NQSO, a Grantee
will have a capital gain or loss in an amount equal to the difference between
the amount realized upon the sale and the Grantee's adjusted tax basis in the
shares (the exercise price plus the amount of ordinary income recognized by the
Grantee at the time of exercise of the NQSO). The capital gain tax rate will
depend on the length of time the shares were held and other factors.
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Incentive Stock Options. Grantees will not be subject to federal income
taxation upon the grant or exercise of ISOs granted under the Equity
Compensation Plan, and the Company will not be entitled to a federal income tax
deduction by reason of such grant or exercise. However, the amount by which the
fair market value of the shares at the time of exercise exceeds the Stock Option
price (or the Grantee's other tax basis in the shares) is an item of tax
preference subject to the alternative minimum tax applicable to the person
exercising the ISO. A sale of shares acquired by exercise of an ISO that does
not occur within one year after the exercise or within two years after the grant
of the ISO generally will result in the recognition of capital gain or loss in
the amount of the difference between the amount realized on the sale and the
Stock Option price (or the Grantee's other tax basis in the shares), and the
Company will not be entitled to any tax deduction in connection therewith. The
capital gain tax rate will depend on the length of time the shares were held and
other factors.
If such sale occurs within one year from the date of exercise of the
ISO or within two years from the date of grant (a "disqualifying disposition")
and is a transaction in which a loss, if sustained, would be recognized, the
Grantee generally will recognize ordinary compensation income equal to the
lesser of (i) the excess of the fair market value of the shares on the date of
exercise over the exercise price (or the Grantee's other tax basis in the
shares), or (ii) the excess of the amount realized on the sale of the shares
over the exercise price (or the Grantee's other tax basis in the shares). In the
case of a disqualifying disposition where a loss, if sustained, would not be
recognized, the Grantee will recognize ordinary income equal to the excess of
the fair market value of the shares on the date of exercise over the Stock
Option price (or the Grantee's other tax basis in the shares). Any amount
realized on a disqualifying disposition in excess of the amount treated as
ordinary compensation income (or any loss realized) will be a capital gain (or
loss). The capital gain tax rate will depend upon the length of time the shares
were held and other factors. The Company generally will be entitled to a tax
deduction on a disqualifying disposition corresponding to the ordinary
compensation income recognized by the Grantee.
Generally, where previously acquired Common Stock is used to exercise
an outstanding ISO or NQSO, appreciation on such stock will not be recognized as
income. However, if such Common Stock was acquired pursuant to the exercise of
an ISO, a disqualifying disposition will be deemed to have occurred if such
stock is used to exercise another ISO prior to the expiration of the applicable
holding periods.
Restricted Stock. A Grantee normally will not recognize taxable income
upon the award of a Restricted Stock Grant, and the Company will not be entitled
to a deduction, until such stock is transferable by the Grantee or no longer
subject to a substantial risk of forfeiture for federal tax purposes, whichever
occurs earlier. When the Common Stock is either transferrable or is no longer
subject to a substantial risk of forfeiture, the Grantee will recognize ordinary
compensation income in an amount equal to the fair market value of the Common
Stock at that time, less any consideration paid by the Grantee for such
Restricted Stock, and the Company will be entitled to a deduction in the same
amount. A Participant may, however, elect to recognize ordinary compensation
income in the year the Restricted Stock Grant is awarded in an amount equal to
the fair market value of the Common Stock at that time, determined without
regard to the restrictions. In this event, the Company will be entitled to a
deduction in the same year, provided the Company complies with the applicable
withholding requirements for federal tax purposes. Any gain or loss recognized
by the Grantee upon subsequent disposition of the Common Stock will be capital
gain or loss. If, after making the election, any Common Stock subject to a
Restricted Stock Grant is forfeited, or if the market value declines during the
Restriction Period, the Grantee is not entitled to any tax deduction or tax
refund.
Non-Employee Directors Grants. Restricted Share Grants under the Equity
Compensation Plan to non-employee directors will generally constitute taxable
ordinary income to the director equal to the fair market value of the shares on
the date of grant and the Company will be entitled to a tax deduction in the
same amount. Any gain or loss recognized by the director upon subsequent
disposition of the shares is a capital gain or loss and a long-term capital gain
or loss if the directors have satisfied the applicable holding periods for the
shares under the Code.
Dividend Equivalents. Generally, a Grantee will not recognize any
income upon the grant of dividend equivalents and the Company will not be
entitled to a deduction, until the Grantee receives payment of the dividend
equivalent or the dividend equivalent payment is credited towards the exercise
of a related Stock Option. At the time
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the dividend equivalent is paid to the Grantee or credited towards the exercise
of a related Stock Option, the Grantee will recognize ordinary compensation
income in the amount of the payment or credit and the Company will be entitled
to a deduction in the same amount.
Section 162(m) of the Code. The Company's income tax deduction in any
of the foregoing cases may be limited by the $1,000,000 limit of Section 162(m)
of the Code if the Grant does not qualify as "qualified performance-based
compensation" under Section 162(m) of the Code.
Tax Withholding. The acceptance, exercise or surrender of a Grant will
constitute a Grantee's full consent to whatever action the Committee deems
necessary to satisfy any federal, state and local income and employment
withholding tax obligations arising under the Equity Compensation Plan. The
Company may require Grantees who exercise NQSOs or who possess shares of Common
Stock as to which the restrictions on transfer have lapsed to remit an amount
sufficient to cover the Grantee's federal, state and local withholding tax
obligations associated with the exercise of such Grants. Grantees, upon the
receipt of shares following the exercise of ISOs, are obligated to (i)
immediately notify the Company of the disposition of any or all ISO shares
within two years of the date of grant of the ISO or one year of the date of such
exercise, and (ii) remit to the Company an amount sufficient to satisfy any
withholding obligation arising from such disposition. If acceptable to the
Committee, Grantees may deliver Common Stock or cash in order to satisfy all
such withholding obligations.
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AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
DATED AS OF AUGUST 5, 1998
BY AND AMONG
PHILADELPHIA SUBURBAN CORPORATION,
CONSUMERS ACQUISITION COMPANY
AND
CONSUMERS WATER COMPANY
A - 1
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
ARTICLE 1 The Merger.......................................................................... 1
1.1 The Merger..................................................................................... 1
1.2 Closing........................................................................................ 2
1.3 Effective Time................................................................................. 2
1.4 Articles of Incorporation...................................................................... 2
1.5 By-Laws........................................................................................ 2
1.6 Directors...................................................................................... 2
1.7 Officers....................................................................................... 2
1.8 Conversion of Acquisition Shares............................................................... 3
1.9 Conversion of Consumers Common Shares and Consumers Preferred Shares........................... 3
1.9.1 Outstanding Consumers Common Shares................................................. 3
1.9.2 Treasury Shares..................................................................... 3
1.9.3 Impact of Stock Splits, etc......................................................... 3
1.9.4 Options............................................................................. 3
1.9.5 Outstanding Consumers Preferred Shares.............................................. 4
1.9.6 Dissenting Shares................................................................... 4
1.10 Exchange of Certificates and Related Matters................................................... 4
1.10.1 Paying Agent........................................................................ 4
1.10.2 Letter of Transmittal............................................................... 5
1.10.3 Exchange Procedures................................................................. 5
1.10.4 Distributions with Respect to Unexchanged Shares.................................... 6
1.10.5 No Further Ownership Rights......................................................... 6
1.10.6 No Fractional Shares................................................................ 6
1.10.7 Termination of Paying Agency........................................................ 7
1.10.8 No Liability........................................................................ 7
ARTICLE 2 Representations and Warranties of Consumers......................................... 7
2.1 Organization, Standing and Corporate Authority................................................. 7
2.2 Capital Structure.............................................................................. 7
2.3 Subsidiaries................................................................................... 8
2.4 Authority; Noncontravention.................................................................... 9
2.5 Consumers SEC Documents and Financial Statements............................................... 10
2.6 Absence of Certain Changes or Events........................................................... 11
2.7 Real and Personal Property..................................................................... 11
2.8 Employee Matters; ERISA........................................................................ 12
2.9 Taxes.......................................................................................... 16
2.10 Compliance with Applicable Laws................................................................ 17
2.11 Environmental Protection....................................................................... 17
2.12 Litigation .................................................................................... 20
2.13 Labor Relations................................................................................ 20
2.14 Intellectual Property.......................................................................... 21
</TABLE>
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<TABLE>
<S> <C> <C>
2.15 No Default..................................................................................... 21
2.16 Regulation as a Utility........................................................................ 22
2.17 Insurance...................................................................................... 22
2.18 Change in Business Relationships............................................................... 22
2.19 Voting Requirements............................................................................ 22
2.20 Brokers........................................................................................ 22
2.21 Year 2000 Problem.............................................................................. 22
2.22 Knowledge...................................................................................... 23
2.23 Disclosure..................................................................................... 23
2.24 Fairness Opinion............................................................................... 23
ARTICLE 3 Representations and Warranties of PSC and Acquisition............................... 23
3.1 Organization, Standing and Corporate Authority................................................. 23
3.2 Capital Structure.............................................................................. 23
3.3 Authority; Noncontravention.................................................................... 24
3.4 PSC SEC Documents and Financial Statements..................................................... 25
3.5 Absence of Certain Changes or Events........................................................... 26
3.6 Compliance with Applicable Laws................................................................ 26
3.7 Litigation .................................................................................... 27
3.8 Brokers........................................................................................ 27
3.9 Fairness Opinion............................................................................... 27
3.10 Taxes.......................................................................................... 27
3.11 Regulation as a Utility........................................................................ 28
3.12 Insurance .................................................................................... 28
3.13 Voting Requirements............................................................................ 29
3.14 Disclosure..................................................................................... 29
3.15 Knowledge...................................................................................... 29
ARTICLE 4 Additional Agreements................................................................. 29
4.1 Preparation of Form S-4........................................................................ 29
4.1.1 Form S-4; Proxy Statement/Prospectus................................................ 29
4.1.2 Consumers Information............................................................... 29
4.1.3 PSC Information..................................................................... 30
4.1.4 SEC Filings......................................................................... 30
4.2 Shareholders Meetings.......................................................................... 31
4.2.1 Consumers' Shareholder Meeting...................................................... 31
4.2.2 PSC's Shareholder Meeting........................................................... 31
4.3 Best Efforts................................................................................... 31
4.4 Access to Information; Confidentiality......................................................... 31
4.5 Public Announcements........................................................................... 32
4.6 Acquisition Proposals.......................................................................... 33
4.7 Superior Proposals............................................................................. 33
4.8 Filings; Other Action.......................................................................... 34
4.9 Stock Exchange Listing......................................................................... 35
4.10 Affiliates and Certain Shareholders............................................................ 35
4.11 Employee Matters............................................................................... 35
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
4.12 Representation on PSC Board.................................................................... 36
4.13 Termination of Consumers' DRIP................................................................. 36
4.14 Federal Income Tax Treatment................................................................... 36
4.15 Takeover Statute............................................................................... 36
4.16 Continuance of Existing Indemnification Rights................................................. 36
4.17 Consulting Agreements.......................................................................... 38
ARTICLE 5 Covenants Relating to Conduct of Business Prior to Merger........................... 38
5.1 Conduct of Business by Consumers............................................................... 38
5.2 Management of Consumers and its Subsidiaries................................................... 39
5.3 Conduct of Business by PSC..................................................................... 40
5.4 Other Actions.................................................................................. 40
5.5 Pooling of Interests Accounting Treatment...................................................... 40
5.6 Termination of Long Term Incentive Plan........................................................ 40
ARTICLE 6 Conditions Precedent................................................................ 41
6.1 Conditions to Each Party's Obligation to Effect the Merger..................................... 41
6.1.1 Consumers Shareholder Approval...................................................... 41
6.1.2 PSC Shareholder Approval............................................................ 41
6.1.3 Governmental and Regulatory Consents................................................ 41
6.1.4 HSR Act............................................................................. 41
6.1.5 No Injunctions or Restraints........................................................ 41
6.1.6 NYSE Listing........................................................................ 42
6.1.7 Form S-4............................................................................ 42
6.2 Conditions to Obligations of PSC and Acquisition............................................... 42
6.2.1 Representations and Warranties...................................................... 42
6.2.2 Performance of Obligations of Consumers............................................. 42
6.2.3 Opinion of Counsel.................................................................. 42
6.2.4 Satisfactory Completion of Due Diligence............................................ 42
6.2.5 Pooling-of-Interests................................................................ 42
6.2.6 Releases............................................................................ 42
6.3 Conditions to Obligations of Consumers......................................................... 42
6.3.1 Representations and Warranties...................................................... 43
6.3.2 Performance of Obligations of PSC and Acquisition................................... 43
6.3.3 Tax Opinion......................................................................... 43
6.3.4 Opinion of Counsel.................................................................. 43
6.3.5 Satisfactory Completion of Due Diligence............................................ 43
ARTICLE 7 Termination, Amendment and Waiver................................................... 43
7.1 Termination.................................................................................... 43
7.2 Effect of Termination.......................................................................... 45
7.3 Amendment...................................................................................... 45
7.4 Extension; Waiver.............................................................................. 46
7.5 Procedure for Termination, Amendment, Extension or Waiver...................................... 46
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 8 Survival of Provisions.............................................................. 46
8.1 Survival....................................................................................... 46
ARTICLE 9 Notices............................................................................. 46
9.1 Notices........................................................................................ 46
ARTICLE 10 Miscellaneous....................................................................... 48
10.1 Entire Agreement............................................................................... 48
10.2 Expenses .................................................................................... 48
10.3 Counterparts................................................................................... 48
10.4 No Third Party Beneficiary..................................................................... 48
10.5 Governing Law.................................................................................. 48
</TABLE>
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<TABLE>
<S> <C> <C>
10.6 Assignment; Binding Effect..................................................................... 49
10.7 Headings, Gender, etc.......................................................................... 49
10.8 Invalid Provisions............................................................................. 49
10.9 Material Adverse Effect........................................................................ 49
</TABLE>
EXHIBIT A -- Exchange Ratio
EXHIBIT B -- Articles of Incorporation of the Surviving Corporation
EXHIBIT C -- Form of Affiliate's Letter
EXHIBIT D -- Form of Opinion of Drummond Woodsum & MacMahon
EXHIBIT E -- Form of Opinion of Reed Smith Shaw & McClay LLP
A - 6
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AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
This Amended and Restated Agreement and Plan of Merger (the
"Agreement") is made and entered into as of August 5, 1998 by and among
PHILADELPHIA SUBURBAN CORPORATION, a Pennsylvania corporation ("PSC"), CONSUMERS
ACQUISITION COMPANY, a Pennsylvania corporation ("Acquisition"), and CONSUMERS
WATER COMPANY, a Maine corporation ("Consumers"), (each individually hereinafter
referred to as a "Party" and collectively hereinafter referred to as the
"Parties").
PREAMBLE
WHEREAS, the respective Boards of Directors of the Parties have
determined that the Merger (as defined in Section 1.1) is in the best interests
of their respective shareholders and other constituencies and have approved the
Merger, upon the terms and subject to the conditions set forth herein; and
WHEREAS, the Parties intend that, for federal income tax purposes, the
Merger will constitute a reorganization within the meaning of Section 368(a)(1)
of the Internal Revenue Code of 1986, as amended (the "Code"), and that
shareholders of Consumers will not be subject to federal income tax on the
receipt of PSC Common Shares (as defined in Section 1.9.1) in exchange for
Consumers Common Shares (as defined in Section 1.9.1) pursuant to the Merger;
and
WHEREAS, for accounting purposes, it is intended that the Merger shall
be accounted for as a "pooling-of-interests"; and
WHEREAS, the Parties desire to make certain representations,
warranties, covenants and agreements in connection with the Merger;
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth in this Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound, the Parties hereto agree as
follows:
ARTICLE 1
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement,
at the Effective Time (as is defined in Section 1.3 hereof), Consumers shall be
merged with and into Acquisition (the "Merger"), in accordance with the
provisions of the Pennsylvania Business Corporation Law of 1988, as amended (the
"Pennsylvania Code") and the separate corporate existence of Consumers shall
cease and Acquisition shall continue as the surviving corporation (the
"Surviving Corporation") with all the rights, privileges, immunities and powers,
and subject to all the duties and liabilities, of a corporation organized under
the Pennsylvania Code.
1.2 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.1, and subject to the satisfaction or waiver of the conditions set forth in
Article 6 (excluding those conditions that, by their terms, cannot be satisfied
before the Closing Date as defined in this Section 1.2), the closing of the
Merger (the "Closing") will take place at 9:00 a.m. no later than the seventh
(7th) business day following the Determination Date, as that term is defined in
Exhibit A attached hereto (the "Closing Date"). The Closing will be held at the
offices of Reed Smith Shaw & McClay LLP, 2500 One Liberty Place, 1650 Market
Street, Philadelphia, Pennsylvania 19103, unless the Parties hereto agree in
writing to another date, time or place.
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1.3 Effective Time. The Parties hereto will file with the Secretary of
State of the Commonwealth of Pennsylvania (the "Pennsylvania Secretary of
State") on the date of the Closing (or on such other date as PSC and Consumers
may agree) articles of merger or other appropriate documents, mutually
satisfactory in form and substance to PSC and Consumers and executed in
accordance with the relevant provisions of the Pennsylvania Code, and will make
all other filings or recordings required under the Pennsylvania Code in
connection with the Merger. The Merger shall become effective upon the filing of
the articles of merger with the Pennsylvania Secretary of State, or at such
later time as is specified in the articles of merger (the "Effective Time").
1.4 Articles of Incorporation. The Articles of Incorporation of
Acquisition shall be as set forth in Exhibit B, which is attached hereto and
made a part hereof, and, as so set forth shall be the Articles of Incorporation
of the Surviving Corporation until thereafter amended as provided by law.
1.5 By-Laws. The By-Laws of Acquisition, 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 By-Laws, or the Articles of
Incorporation of the Surviving Corporation.
1.6 Directors. The Board of Directors of the Surviving Corporation from
and after the Effective Time shall be comprised of such directors as shall be
appointed by PSC. Such directors shall hold office from the Effective Time until
their respective successors are duly elected or appointed and qualify in the
manner provided in the Articles of Incorporation or By-Laws of the Surviving
Corporation, or as otherwise provided by law.
1.7 Officers. The officers of the Surviving Corporation from and after
the Effective Time shall be comprised of such officers as shall be appointed by
the Surviving Corporation's Board of Directors. Such officers shall hold office
from the Effective Time until their respective successors are duly elected or
appointed and qualify in the manner provided in the Articles of Incorporation or
By-Laws of the Surviving Corporation, or as otherwise provided by law.
1.8 Conversion of Acquisition Shares. Each share of common stock of
Acquisition issued and outstanding immediately prior to the Effective Time shall
remain outstanding, unchanged by reason of the Merger, as 1,000 common shares,
without par value, of the Surviving Corporation.
1.9 Conversion of Consumers Common Shares and Consumers Preferred
Shares.
1.9.1 Outstanding Consumers Common Shares. Each share of common
stock, having a par value of $1.00 per share, of Consumers together with all
rights appurtenant thereto (the "Consumers Common Shares") issued and
outstanding immediately prior to the Effective Time (other than shares held as
treasury shares by Consumers) shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into that number of
shares of validly issued, fully paid and non-assessable common stock, having a
par value of $.50 per share, of PSC together with all rights appurtenant thereto
(the "PSC Common Shares") as determined in accordance with the exchange ratio as
outlined in Exhibit A, which is attached hereto and made a part hereof (the
"Exchange Ratio").
1.9.2 Treasury Shares. Each Consumers Common Share issued and
outstanding immediately prior to the Effective Time which is then held as a
treasury share by Consumers shall, by virtue of the Merger and without any
action on the part of Consumers, be canceled and retired and cease to exist,
without any conversion thereof.
1.9.3 Impact of Stock Splits, etc. In the event of any change in
PSC Common Shares between June 27, 1998 and the Effective Time by reason of any
stock split, stock dividend, subdivision, reclassification, recapitalization,
combination, exchange or the like, the Exchange Ratio and the calculation of all
share prices provided for in this Agreement shall be proportionately adjusted.
1.9.4 Options. At the Effective Time, each option to acquire
Consumers Common Shares which is then outstanding, whether or not exercisable,
shall cease to represent a right to acquire Consumers Common
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Shares and shall be converted automatically into an option to purchase PSC
Common Shares, and PSC shall assume each such option, in accordance with the
terms of the applicable Consumers stock option plan and stock option agreement
by which it is evidenced, except that from and after the Effective Time, (i) PSC
and the PSC Board of Directors shall be substituted for Consumers and the
Consumers Board of Directors in administering such plan, (ii) each Consumers
option assumed by PSC may be exercised solely for PSC Common Shares, (iii) the
number of PSC Common Shares subject to such Consumers options shall be equal to
the number of shares of Consumers Common Shares subject to such option
immediately prior to the Effective Time multiplied by the Exchange Ratio,
provided that any fractional shares of PSC Common Shares resulting from such
multiplication shall be rounded down to the nearest share, and (iv) the per
share exercise price under each such option shall be adjusted by dividing the
per share exercise price under each such option by the Exchange Ratio, provided
that such exercise price shall be rounded up to the nearest cent.
Notwithstanding clauses (iii) and (iv) of the preceding sentence, each Consumers
option which is an "incentive stock option" shall be adjusted as required by
Section 424 of the Code, and the regulations promulgated thereunder, so as not
to constitute a modification, extension or renewal of the option within the
meaning of Section 424(h) of the Code. Consumers and PSC agree to take all
necessary steps to effect the foregoing provisions of this Section 1.9.4. Within
thirty (30) calendar days after the Effective Time, PSC shall file a
registration statement on Form S-3 or Form S-8, as the case may be (or any
successor or other appropriate forms), with respect to the PSC Common Shares
subject to the options referred to in this Section 1.9.4 and shall use its
reasonable efforts to maintain the current status of the prospectus or
prospectuses contained therein for so long as such options remain outstanding in
the case of a Form S-8 or, in the case of a Form S-3, until the shares subject
to such options may be sold without a further holding period under Rule 144
under the Securities Act.
1.9.5 Outstanding Consumers Preferred Shares. Each share of
preferred stock, having a par value of $100 per share, of Consumers together
with all rights appurtenant thereto (the "Consumers Preferred Shares") issued
and outstanding immediately prior to the Effective Time (other than shares held
as treasury shares by Consumers) shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into that number of PSC
Common Shares as determined by multiplying the number of Consumers Preferred
Shares by the product of 3.945 times the Exchange Ratio.
1.9.6 Dissenting Shares. Each Consumers Preferred Share, the holder
of which has perfected his right to dissent under the Maine Business Corporation
Act ("MBCA") and has not effectively withdrawn or lost such right as of the
Effective Time (the "Dissenting Shares"), shall not be converted into or
represent a right to receive PSC Common Shares hereunder, and the holder thereof
shall be entitled only to such rights as are granted by the MBCA. Consumers
shall give PSC prompt notice upon receipt by Consumers of any such written
demands for payment of the fair value of such Consumers Preferred Shares and of
withdrawals of such demands and any other instruments provided pursuant to the
MBCA (any shareholder duly making such demand being hereinafter called a
"Dissenting Shareholder"). If any Dissenting Shareholder shall effectively
withdraw or lose (through failure to perfect or otherwise) his right to such
payment at any time, such holder's Consumers Preferred Shares shall be converted
into the right to receive PSC Common Shares in accordance with the applicable
provisions of this Agreement. Any payments made in respect of Dissenting Shares
shall be made by the Surviving Corporation.
1.10 Exchange of Certificates and Related Matters.
1.10.1 Paying Agent. Prior to the Closing Date, PSC shall appoint
the Paying Agent for the purpose of issuing PSC Common Shares in exchange for
certificates representing Consumers Common Shares and Consumers Preferred
Shares. PSC shall deliver certificates representing PSC Common Shares, to the
Paying Agent, for the benefit of the holders of Consumers Common Shares and
Consumers Preferred Shares when and as required for exchanges of Consumers
Common Shares and Consumers Preferred Shares, respectively, pursuant to Section
1.9.
1.10.2 Letter of Transmittal. Promptly after the Effective Time
(but in no event more than five (5) business days thereafter), PSC shall require
the Paying Agent to mail to each record holder of Certificates, as defined in
Section 1.10.3, that immediately prior to the Effective Time represented
Consumers Common Shares and Consumers Preferred Shares, respectively, which have
been converted pursuant to Section 1.9, (i) a letter of transmittal (which shall
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specify that delivery shall be effected, and risk of loss and title shall pass,
only upon proper delivery of Certificates to the Paying Agent and shall be in
such form and have such provisions as PSC reasonably may specify), and (ii)
instructions for use in surrendering such Certificates and receiving the Merger
Consideration, as defined in Section 1.10.3, to which such holder shall be
entitled therefor pursuant to Section 1.9.
1.10.3 Exchange Procedures. Upon surrender to the Paying Agent of a
Certificate representing Consumers Common Shares or Consumers Preferred Shares,
respectively, for cancellation, together with a letter of transmittal and such
other customary documents as may be required by the instructions to the letter
of transmittal (collectively, the "Certificate") and acceptance thereof by the
Paying Agent, the holder of such Certificate shall be entitled to receive in
exchange therefor (i) in connection with the surrender of Consumers Common
Shares, certificates evidencing that number of whole PSC Common Shares into
which Consumers Common Shares previously represented by such certificate are
converted in accordance with Section 1.9.1, and the cash in lieu of fractional
PSC Common Shares to which such holder is entitled pursuant to Section 1.10.6,
(ii) in connection with the surrender of Consumers Preferred Shares,
certificates evidencing that number of whole PSC Common Shares into which
Consumers Preferred Shares previously represented by such certificate are
converted in accordance with Section 1.9.5, and the cash in lieu of fractional
PSC Common Shares to which such holder is entitled pursuant to Section 1.10.6;
and (iii) any dividends or other distributions to which such holder is entitled
pursuant to Section 1.10.4 (the PSC Common Shares, dividends, distributions and
cash described in clauses (i), (ii), and (iii) of this Section 1.10.3 are
referred to collectively as the "Merger Consideration"). The Paying Agent shall
accept such Certificate upon compliance with such reasonable terms and
conditions as the Paying Agent may impose to effect an orderly exchange thereof
in accordance with normal exchange practices. If the Merger Consideration (or
any portion thereof) is to be delivered to any person other than the person in
whose name the Certificate surrendered in exchange therefor is registered on the
record books of Consumers, it shall be a condition to such exchange that the
Certificate so surrendered shall be properly endorsed or otherwise be in proper
form for transfer and that the person requesting such exchange shall pay to the
Paying Agent any transfer or other taxes required by reason of the payment of
such consideration to a person other than the registered holder of the
Certificate surrendered, or shall establish to the satisfaction of the Paying
Agent that such tax has been paid or is not applicable. After the Effective
Time, there shall be no further transfer on the records of Consumers or its
transfer agent of any Certificate representing Consumers Common Shares or
Consumers Preferred Shares, respectively, and, if any such Certificate is
presented to Consumers for transfer, it shall be canceled against delivery of
the Merger Consideration as hereinabove provided. Until surrendered as
contemplated by this Section 1.10.3, each Certificate representing Consumers
Common Shares (other than a Certificate representing Consumers Common Shares to
be canceled in accordance with Section 1.9.3) and each Certificate representing
Consumers Preferred Shares, shall be deemed at any time after the Effective Time
to represent only the right to receive upon such surrender the appropriate
Merger Consideration, without any interest thereon.
1.10.4 Distributions With Respect to Unexchanged Shares. No
dividends or other distributions with respect to PSC Common Shares with a record
date after the Effective Time shall be paid to the holder of any Certificate,
that immediately prior to the Effective Time represented Consumers Common Shares
or Consumers Preferred Shares, respectively, which has not been converted
pursuant to Section 1.9, and no other part of the Merger Consideration shall be
paid to any such holder, until the surrender for exchange of such Certificate in
accordance with this Article 1. Following surrender for exchange of any such
Certificate, there shall be paid, without interest, to the holder of
certificates evidencing whole PSC Common Shares, issued in exchange therefor,
(i) the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid (a) with respect to the number of whole PSC
Common Shares into which Consumers Common Shares represented by such Certificate
immediately prior to the Effective Time were converted pursuant to Section 1.9,
and (b) with respect to the number of whole PSC Common Shares into which
Consumers Preferred Shares represented by such Certificate immediately prior to
the Effective Time were converted pursuant to Section 1.9, at the time of such
surrender, and (ii) the amount of dividends or other distributions with a record
date after the Effective Time, but prior to such surrender, and with a payment
date subsequent to such surrender, payable with respect to such whole PSC Common
Shares at the appropriate payment date.
1.10.5 No Further Ownership Rights. The Merger Consideration paid
upon the surrender for exchange of Certificates representing Consumers Common
Shares or Consumers Preferred Shares, respectively, in
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accordance with the terms of this Article 1 shall be deemed to have been issued
and paid in full satisfaction of all rights pertaining to Consumers Common
Shares or Consumers Preferred Shares, respectively, theretofore represented by
such Certificates, subject, however, to the Surviving Corporation's obligation
(if any) to pay any dividends or make any other distributions with a record date
(i) prior to the Effective Time which may have been declared by Consumers on
such Consumers Common Shares or Consumers Preferred Shares, respectively, in
accordance with the terms of this Agreement, or (ii) prior to June 27, 1998 and
which remain unpaid at the Effective Time.
1.10.6 No Fractional Shares. No certificates or scrip representing
fractional PSC Common Shares shall be issued upon the surrender for exchange of
Certificates that immediately prior to the Effective Time represented Consumers
Common Shares which have been converted pursuant to Section 1.9, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a shareholder of PSC. Notwithstanding any other provisions of this
Agreement, each holder of Consumers Common Shares who would otherwise have been
entitled to receive a fraction of a PSC Common Share (after taking into account
all certificates delivered by such holder) shall receive, in lieu thereof, cash
(without interest) in an amount equal to such fractional part of a PSC Common
Share multiplied by the Calculation Price (as that term is defined in Exhibit
A).
1.10.7 Termination of Paying Agency. Any PSC Common Shares held by
the Paying Agent which remain undistributed to the holders of the Certificates
representing Consumers Common Shares or Consumers Preferred Shares,
respectively, after one hundred twenty (120) calendar days following the
Effective Time shall be delivered to PSC, and any holders of Consumers Common
Shares or Consumers Preferred Shares, respectively, who have not theretofore
complied with this Article 1 shall thereafter look only to PSC and only as
general creditors thereof for payment, without interest, of their claim for any
Merger Consideration and any dividends or distributions with respect to PSC
Common Shares.
1.10.8 No Liability. Neither PSC, the Surviving Corporation nor the
Paying Agent shall be liable to any person in respect of any Merger
Consideration payable with respect to Consumers Common Shares or Consumers
Preferred Shares, respectively, delivered to a public official pursuant to any
applicable abandoned property, escheat, or similar law. If any Certificates
representing Consumers Common Shares or Consumers Preferred Shares,
respectively, shall not have been surrendered prior to seven (7) years after the
Effective Time (or immediately prior to such earlier date on which any Merger
Consideration in respect of such Certificate would otherwise escheat to or
become the property of any Governmental Entity (as defined in Section 2.4)), any
such Consumers Common Shares, Consumers Preferred Shares, dividends or
distributions payable in respect of such Certificate shall, to the extent
permitted by applicable law, become the property of PSC free and clear of all
claims or interest of any person previously entitled thereto.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF CONSUMERS
Consumers hereby represents and warrants to PSC and Acquisition as
follows:
2.1 Organization, Standing and Corporate Authority. Consumers is a
corporation duly organized and validly existing under the laws of the State of
Maine and has the requisite corporate power and authority to carry on its
business as now being conducted. The nature of Consumers' business does not
require its qualification as a foreign corporation in any jurisdiction, except
for those jurisdictions in which Consumers has so qualified and except where the
failure to be so qualified would not individually or in the aggregate have a
Material Adverse Effect, as that term is defined in Section 10.9. Consumers has
delivered to PSC complete and correct copies of the Articles of Incorporation
and By-Laws, as amended to the date of this Agreement, for itself and each of
its subsidiaries.
2.2 Capital Structure. The authorized capital stock of Consumers
consists of: (i) 15,000,000 Consumers Common Shares, having a par value of $1.00
per share; (ii) 30,000 shares of preferred stock, having a par value of $100.00
per share, of which 15,925 shares have been designated as "Cumulative Preferred
Stock, Series A" and 14,075
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shares are undesignated; and (iii) 120,000 shares of preferred stock, with no
par value, of which no shares have been issued (the 150,000 shares of the
preferred stock are hereinafter referred to as "Consumers Preferred Shares"). At
the close of business on June 24, 1998, (i) 9,008,305 Consumers Common Shares
were issued and outstanding; (ii) 10,438 Consumers Preferred Shares have been
issued and are outstanding; (iii) no Consumers Common Shares were held as
treasury stock; (iv) no Consumers Common Shares were held by subsidiaries of
Consumers; (v) 925,757 Consumers Common Shares were reserved for issuance
pursuant to Consumers' (1) Dividend Reinvestment Plan ("DRIP"), (2) 401(K)
Savings Plan, (3) LTIP, as defined in Section 5.6 and (4) Stock Option Plan; and
(vi) no other shares, including but not limited to Consumers Common Shares or
Consumers Preferred Shares, were issued and outstanding. All outstanding shares
of capital stock of Consumers are duly authorized, validly issued, fully paid
and nonassessable and not subject to preemptive rights. No bonds, debentures,
notes or other indebtedness of Consumers having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which the shareholders of Consumers may vote are issued or
outstanding. Section 2.2 of the Disclosure Schedule, dated as of the date hereof
and executed by Consumers (the "Disclosure Schedule"), sets forth the name of
each participant in Consumers' Incentive Stock Option Plan and LTIP and the
number of Consumers Common Shares awarded to such participant as of the date
hereof. Except as set forth above or in Section 2.2 of the Disclosure Schedule,
Consumers does not have any outstanding option, warrant, subscription or other
right, agreement or commitment which either obligates Consumers to issue, sell
or transfer, repurchase, redeem or otherwise acquire or vote any shares of
capital stock of Consumers, or which restricts the transfer of Consumers Common
Shares.
2.3 Subsidiaries.
2.3.1 Section 2.3.1 of the Disclosure Schedule sets forth the name
of each corporation, limited liability company, general or limited partnership
or other entity that is controlled, directly or indirectly, by Consumers (a
"subsidiary") and the jurisdiction of its organization. Each such subsidiary is
a corporation or partnership duly organized and validly existing under the laws
of the jurisdiction of its organization and has the corporate or partnership
power and authority and all necessary government approvals to own, lease and
operate its properties and to carry on its business as now being conducted,
except where the failure to be so organized, existing and in good standing or to
have such power and authority or necessary governmental approvals would not
individually or in the aggregate have a Material Adverse Effect. Each subsidiary
is duly qualified or licensed and in good standing to do business in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification or licensing necessary,
except in such jurisdictions where the failure to be so duly qualified or
licensed and in good standing would not individually or in the aggregate have a
Material Adverse Effect.
2.3.2 Section 2.3.2 of the Disclosure Schedule sets forth, as to
each subsidiary of Consumers, its authorized capital structure and the number of
its issued and outstanding shares of capital stock or other ownership units.
2.3.3 Except as set forth in Section 2.3.3 of the Disclosure
Schedule, Consumers is, directly or indirectly, the record and beneficial owner
of all of the outstanding shares of capital stock or other ownership units of
each of its subsidiaries, and no capital stock or other ownership units of any
subsidiary is or may become required to be issued by reason of any options,
warrants, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
or exercisable for, shares of any capital stock or other ownership units of any
subsidiary, and there are no contracts, commitments, understandings or
arrangements by which Consumers or any of its subsidiaries is or may be bound to
issue, redeem, purchase or sell additional shares of capital stock or other
ownership units of any subsidiary or securities convertible into or exchangeable
or exercisable for any such shares or units. All of such shares and other
ownership units are validly issued, fully paid and nonassessable and, except as
set forth in Section 2.3.3 of the Disclosure Schedule, are owned by Consumers,
or by another wholly-owned subsidiary of Consumers, free and clear of all liens,
claims, encumbrances, restraints on alienation, or any other restrictions with
respect to the transferability or assignability thereof (other than restrictions
on transfer imposed by federal or state securities laws).
2.4 Authority; Noncontravention. Consumers has the requisite corporate
power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement by
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Consumers and the consummation by Consumers of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Consumers, subject, in the case of the Merger, to the approval of its
shareholders as set forth in Section 4.2. This Agreement has been duly executed
and delivered by Consumers and, assuming this Agreement has been duly executed
and delivered by PSC and Acquisition, constitutes a valid and binding obligation
of Consumers, enforceable against Consumers in accordance with its terms, except
that the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to creditor's rights generally and by general principles of equity (regardless
of whether enforceability is considered in a proceeding at law or in equity).
Except as disclosed in Section 2.4 of the Disclosure Schedule, the execution and
delivery of this Agreement do not, and the consummation of the transactions
contemplated by this Agreement and compliance with the provisions hereof will
not, (i) conflict with any of the provisions of the Articles of Incorporation or
Bylaws of Consumers or the comparable documents of any of its subsidiaries, (ii)
subject to the governmental filings and other matters referred to in the
following sentence, conflict with, result in a breach of or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a
material benefit under, or require the consent of any person under, any
indenture or other agreement, permit, concession, franchise, license or similar
instrument or undertaking to which Consumers or any of its subsidiaries is a
party or by which Consumers or any of its subsidiaries or any of their assets is
bound or affected, or (iii) subject to the governmental filings and other
matters referred to in the following sentence, contravene any law, rule or
regulation of any state or of the United States or any political subdivision
thereof or therein, or any order, writ, judgment, injunction, decree,
determination or award currently in effect, subject, in the case of clauses (ii)
and (iii), to those conflicts, breaches, defaults and similar matters, which,
individually or in the aggregate, would not have a Material Adverse Effect nor
materially and adversely affect Consumers' ability to consummate the
transactions contemplated hereby. No consent, approval or authorization of, or
declaration or filing with, or notice to, any governmental agency or regulatory
body, utility regulatory body, court, agency, commission, division, department,
public body or other authority (a "Governmental Entity") which has not been
received or made, is required by or with respect to Consumers in connection with
the execution and delivery of this Agreement by Consumers or the consummation by
it of any of the transactions contemplated hereby, except for (a) the filing of
premerger notification and report forms under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), with respect to the
Merger, (b) the filing with the Securities and Exchange Commission (the "SEC")
of a proxy statement relating to the approval by the shareholders of Consumers
and PSC of the Merger and such reports under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as may be required in connection with
this Agreement and the transactions contemplated by this Agreement, (c) the
filing of articles of merger with the Pennsylvania Secretary of State and
appropriate documents with the relevant authorities of other states in which
Consumers is qualified to do business, and (d) such other consents, approvals,
authorizations, filings or notices as are set forth in Section 2.4 of the
Disclosure Schedule.
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2.5 Consumers SEC Documents and Financial Statements.
2.5.1 Except as set forth in Section 2.5.1 of the Disclosure
Schedule, Consumers, and each of its subsidiaries that is or was required to do
so, has timely filed all required reports, schedules, forms, statements and
other documents with the SEC from January 1, 1993 through June 27, 1998 (the
"Consumers SEC Documents"). (All such documents filed by Consumers with the SEC
from June 27, 1998 until the Closing Date shall also be included in the
definition of Consumers SEC Documents.) As of their respective dates, the
Consumers SEC Documents complied with the requirements of the Securities Act of
1933, as amended (the "Securities Act"), or the Exchange Act, as the case may
be, and the rules and regulations of the SEC promulgated thereunder applicable
to such Consumers SEC Documents, and none of the Consumers SEC Documents as of
such dates contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. There have been filed as exhibits to, or incorporated by
reference in the Form 10K most recently filed by Consumers with the SEC all
contracts which, as of the date hereof, are material as described in Item
601(b)(10) of Regulation S-K. Consumers has heretofore delivered to PSC in the
form filed with the SEC, all of the Consumers SEC Documents.
2.5.2 The consolidated financial statements of Consumers included
in the Consumers SEC Documents comply in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
("GAAP") (except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as permitted by Rule 10-01 of Regulation
S-X) and fairly present, in all material respects, the consolidated financial
position of Consumers and its consolidated subsidiaries as of the dates thereof
and the consolidated results of their operations, changes in shareholders'
equity and consolidated cash flows for the periods then ended (subject, in the
case of unaudited interim financial statements, to normal recurring adjustments,
none of which is material).
2.5.3 Except as disclosed in the Consumers SEC Documents or in the
Disclosure Schedule, neither Consumers nor any of its subsidiaries has any
absolute, accrued, contingent or other liabilities or obligations due or to
become due, and there are no claims or causes of action (including but not
limited to those relating to any Consumers Benefit Plan (as defined in Section
2.8.1) formerly maintained by Consumers or any of its subsidiaries or a
Consumers ERISA Affiliate (as defined in Section 2.8.1) on or after December 31,
1997) that have been or, to the knowledge of Consumers, are reasonably likely to
be asserted against Consumers or any of its subsidiaries, except (i) as and to
the extent reflected or reserved against on the balance sheet included in
Consumers' Annual Report on Form 10-K for the year ended December 31, 1997 (the
"Consumers Base Balance Sheet"), or included in the notes to Consumers Base
Balance Sheet, (ii) for normal and recurring liabilities incurred since December
31, 1997, in the ordinary course of business consistent with past practice, or
(iii) for such other liabilities and obligations that are not in the aggregate
reasonably likely to have a Material Adverse Effect.
2.6 Absence of Certain Changes or Events. Except as disclosed in the
Consumers SEC Documents or in Section 2.6 of the Disclosure Schedule, since the
date of the Consumers Base Balance Sheet, Consumers and its subsidiaries have
conducted their business only in the ordinary course, and, except as otherwise
expressly permitted by this Agreement, there has not been (i) any change which
has had or which could have a Material Adverse Effect, (ii) any declaration,
setting aside or payment of any dividend or other distribution (whether in cash,
stock or property) with respect to any of Consumers' outstanding capital stock
(other than regular quarterly cash dividends in accordance with usual record and
payment dates and in accordance with Consumers' present dividend policy), (iii)
any split, combination or reclassification of any of its outstanding capital
stock or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of, or in substitution for shares of its
outstanding capital stock, (iv) any entry by Consumers or any of its
subsidiaries into any employment, severance, change of control, termination or
similar agreement with any officer, director or other employee, or any increase
in the compensation or severance or termination benefits payable to any
director, officer or other employee of Consumers or any of its subsidiaries
(except in the case of employees in the ordinary course of business consistent
with prior practice, or as was required under employment
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agreements in effect as of the date of the Consumers Base Balance Sheet), or (v)
any change in the method of accounting or policy used by Consumers or any of its
subsidiaries, except as permitted by GAAP.
2.7 Real and Personal Property.
2.7.1 Consumers and its subsidiaries own, or have a valid and
enforceable right to use or a valid and enforceable leasehold interest in, all
real property (including all buildings, fixtures and other improvements thereto)
used by them in the conduct of their respective businesses as such businesses
are now being conducted. Except as disclosed in the Consumers SEC Documents or
Section 2.7.1 of the Disclosure Schedule, neither Consumers' nor any of its
subsidiaries' ownership of or leasehold interest in any such property is subject
to any mortgage, pledge, lien, option, conditional sale agreement, encumbrance,
security interest, title exception or restriction or claim or charge of any kind
("encumbrances"), except for such encumbrances as are not in the aggregate
reasonably likely to have a Material Adverse Effect. All such property is in
good condition and repair and is suitable in all material respects for the
purposes for which it is now being used in the conduct of the businesses of
Consumers and its subsidiaries, except to the extent that the poor condition or
unsuitability of any such property is not in the aggregate reasonably likely to
have a Material Adverse Effect.
2.7.2 Except as otherwise disclosed in the Consumers SEC Documents
or Section 2.7.2 of the Disclosure Schedule, all personal property that is owned
by Consumers or any of its subsidiaries and used by any of them in the conduct
of their respective businesses is owned free and clear of any encumbrances,
except for such encumbrances as are not in the aggregate reasonably likely to
have a Material Adverse Effect. All property that is owned or used by Consumers
is in good working condition, subject to normal wear and tear, and is suitable
in all material respects for the purposes for which it is now being used in the
conduct of the businesses of Consumers and its subsidiaries, except to the
extent that the poor condition or unsuitability of any such property is not in
the aggregate reasonably likely to have a Material Adverse Effect.
2.8 Employee Matters; ERISA.
2.8.1 Section 2.8.1 of the Disclosure Schedule contains a true and
complete list of: (i) each employee benefit plan, program or arrangement
covering employees, former employees or directors of Consumers (or any of its
subsidiaries, including, but not limited to any "Consumers ERISA Affiliate" (any
entity required to be aggregated with Consumers pursuant to Code Section 414(b),
(c) or (m))), or any of their dependents or beneficiaries, or providing benefits
to such persons in respect of services provided to any such entity, including
but not limited to any "employee benefit plan" within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (whether or not terminated, if Consumers, or any of its subsidiaries,
including, but not limited to, any Consumers ERISA Affiliate), could have
statutory or contractual liability with respect thereto on or after the date
hereof); (ii) each management, employment, deferred compensation, severance
(including any payment, right or benefit resulting from a change in control),
bonus or other plan or contract for personal services with or covering any
current officer, key employee or director or any consulting contract with any
person who prior to entering into such contract was a director or officer of
Consumers (or any of its subsidiaries, including, but not limited to, any
Consumers ERISA Affiliate) (whether or not terminated, if Consumers (or any of
its subsidiaries, including, but not limited to, any Consumers ERISA Affiliate)
could have statutory or contractual liability with respect thereto on or after
the date hereof); and (iii) each "employee pension benefit plan" (within the
meaning of ERISA Section 3(2)) subject to Title IV of ERISA or the minimum
funding requirements of Code Section 412 maintained or contributed to by
Consumers or any Consumers ERISA Affiliate at any time during the seven (7) year
period immediately preceding the date hereof (such plans and arrangements
described in paragraphs (i), (ii) and (iii) of this Section 2.8.1 to be referred
to collectively as the "Consumers Benefit Plans"). With respect to each
Consumers Benefit Plan, Section 2.8.1 of the Disclosure Schedule contains a true
and complete list of the source or sources of benefit payments under the plan
(including, where applicable, the identity of any trust, whether or not a
grantor trust, insurance contract, custodial account, agency agreement,
Voluntary Employees Beneficiary Association ("VEBA") as that term is referred to
in Code Section 501(c)(9), or other arrangement that holds the assets of, or
serves as a funding vehicle or source of benefits for, such Consumers Benefit
Plan).
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2.8.2 Except as disclosed in Section 2.8.2 of the Disclosure Schedule,
all contributions and other payments required to have been made by Consumers (or
any of its subsidiaries, including, but not limited to, any Consumers ERISA
Affiliate) pursuant to any Consumers 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 Consumers' financial statements
reflected in the Consumers SEC Documents.
2.8.3 Except as disclosed in Section 2.8.3 of the Disclosure Schedule,
each Consumers Benefit Plan that is an "employee pension benefit plan" (within
the meaning of ERISA Section 3(2)) is "qualified" within the meaning of Code
Section 401(a), both as to form and operation, and the IRS has determined that
each such Consumers Benefit Plan is qualified as to form (as evidenced by the
issuance of a favorable determination letter), and, to the knowledge of
Consumers, no event or condition exists or has occurred that could result in the
revocation of any such IRS determination. Consumers and each Consumers ERISA
Affiliate are in compliance with, and each Consumers Benefit Plan is and has
been operated in compliance with, all applicable laws, rules and regulations
governing such plan, including without limitation ERISA and the Code. Moreover,
neither Consumers (or any of its subsidiaries, including, but not limited to,
any Consumers ERISA Affiliate) nor any other individual or entity has engaged in
any transaction with respect to any Consumers Benefit Plan as a result of which
Consumers (or any of its subsidiaries, including, but not limited to, any
Consumers ERISA Affiliate) could be subject to liability pursuant to ERISA
Section 409 or 502 or subject to an excise tax pursuant to Code Section 4975. In
addition, except as otherwise disclosed in Section 2.8.3 of the Disclosure
Schedule, no Consumers Benefit Plan that is an "employee pension benefit plan"
(within the meaning of ERISA Section 3(2)): (i) is subject to any ongoing audit,
investigation, or other administrative proceeding of the IRS, the Department of
Labor, or any other Governmental Entity; (ii) is the subject of any pending
application for administrative relief under any voluntary compliance program of
any Governmental Entity (including without limitation the IRS's Voluntary
Compliance Resolution Program, Closing Agreement Program, or Walk-in Closing
Agreement Program or the Department of Labor's Delinquent Filer Voluntary
Compliance Program), and no Consumers Benefit Plan has engaged in any act of
"self-correction" under the IRS's Administrative Policy Regarding
Self-Correction; and (iii) all filings required by ERISA and the Code as to each
Consumers Benefit Plan have been timely filed, and all required notices and
disclosures to participants in such Consumers Benefit Plans have been timely
provided.
2.8.4 Except as disclosed in Section 2.8.4 of the Disclosure Schedule,
with respect to Consumers Benefit Plans, individually and in the aggregate, no
termination or partial termination of any Consumers Benefit Plan or other event
has occurred and, to the knowledge of Consumers, there exists no condition or
set of circumstances that could subject Consumers or any Consumers ERISA
Affiliate to any liability arising under the Code, ERISA or any other applicable
law (including without limitation any liability to or under any such plan or to
the Pension Benefit Guaranty Corporation (the "PBGC")), or under any indemnity
agreement to which Consumers (or any of its subsidiaries, including, but not
limited to, any Consumers ERISA Affiliate) is a party, excluding liability for
benefit claims and funding obligations payable in the ordinary course, and
excluding liability for PBGC insurance premiums payable in the ordinary course.
2.8.5 Except as disclosed in Section 2.8.5 of the Disclosure Schedule,
no Consumers Benefit Plan that is a "welfare plan" (within the meaning of ERISA
Section 3(1)) provides benefits for any retired or former employees (other than
as required pursuant to ERISA Section 601).
2.8.6 Consumers has made available to PSC a true and correct copy of
the following items with respect to each Consumers Benefit Plan, as may be
applicable: (i) each collective bargaining agreement to which Consumers or any
Consumers ERISA Affiliate is a party or under which Consumers or any Consumers
ERISA Affiliate has obligations; (ii) the current plan document (including all
amendments adopted since the most recent restatement) and its most recently
prepared summary plan description and all summaries of material modifications
prepared since the most recent summary plan description; (iii) the IRS Form
5500, including all applicable financial statements and schedules and opinions
of independent accountants, for the three (3) most recent plan years; (iv) each
related trust agreement, insurance contract, service provider or investment
management agreement (including all amendments to each such document); (v) the
most recent IRS
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determination letter with respect to the qualified status under Code Section
401(a) of such plan and a copy of any application for an IRS determination
letter filed since the most recent IRS determination letter was issued; (vi) the
most recent actuarial reports or valuations; (vii) all personnel, payroll, and
employment manuals and policies applicable to Consumers employees; (viii) a
written description of any Consumers Benefit Plan that is not otherwise in
writing; (ix) a reasonably representative sample of notifications to affected
employees of their rights under ERISA Section 601 and Code Section 4980B; and
(x) all notices that were given by Consumers or any Consumers ERISA Affiliate to
the IRS, or the United States Department of Labor, and all notices given to
Consumers or any Consumers ERISA Affiliate by the IRS or the United States
Department of Labor, during the last four (4) calendar years.
2.8.7 Except as disclosed in Section 2.8.7 of the Disclosure
Schedule, the consummation or announcement of any transaction contemplated by
this Agreement will not (either alone or upon the occurrence of any additional
or further acts or events) result in any: (i) payment (whether of severance pay
or otherwise) becoming due from Consumers (or any of its subsidiaries,
including, but not limited to, any Consumers ERISA Affiliate) under any
applicable Consumers Benefit Plans to any officer, employee, former employee or
director thereof or to the trustee under any "rabbi trust" or similar
arrangement; (ii) benefit under any Consumers Benefit Plan being established or
becoming accelerated, vested or payable, except for a payment or benefit that
would have been payable under the same terms and conditions without regard to
the transactions contemplated by this Agreement; (iii) payment that will be
non-deductible to Consumers or subject to tax under Code Sections 280G or 4999;
or (iv) requirement that Consumers will be required to "gross up" or otherwise
compensate any individual because of the imposition of any excise tax on a
payment to such person.
2.8.8 Except as disclosed in Section 2.8.8 of the Disclosure
Schedule, each Consumers Benefit Plan that is subject to either or both of the
minimum funding requirements of ERISA Section 302 or to Title IV of ERISA, has
assets that, as of the date hereof, have a fair market value equal to or
exceeding the present value of the accrued benefit obligations thereunder on a
termination basis, as of the date hereof, based on the actuarial methods, tables
and assumptions theretofore utilized by such plan's actuary in preparing such
plan's most recently prepared actuarial valuation report, except to the extent
that applicable law would require the use of different actuarial assumptions if
such plan was to be terminated as of the date hereof. No Consumers Benefit Plan
subject to the minimum funding requirements of ERISA Section 302 and Code
Section 412 has incurred any "accumulated funding deficiency" (within the
meaning of ERISA Section 302 and Code Section 412).
2.8.9 Except as disclosed in Section 2.8.9 of the Disclosure
Schedule, no Consumers Benefit Plan is or was a "multiemployer plan" (within the
meaning of ERISA Section 4001(a) (3)), a multiple employer plan described in
Code Section 413(c), or a "multiple employer welfare arrangement" (within the
meaning of ERISA Section 3(40)); and neither Consumers nor any of its
subsidiaries (including, but not limited to, any Consumers ERISA Affiliate), has
been obligated to contribute to, or otherwise has or has had any liability with
respect to, any multiemployer plan, multiple employer plan, or multiple employer
welfare arrangement. With respect to any Consumers Benefit Plan that is listed
in Section 2.8.9 of the Disclosure Schedule as a multiemployer plan, neither
Consumers nor any of its subsidiaries (including, but not limited to, any
Consumers ERISA Affiliate) have made or incurred a "complete withdrawal" or a
"partial withdrawal," as such terms are defined in ERISA Sections 4203 and 4205,
therefrom at any time during the five (5) calendar year period immediately
preceding June 27, 1998 and the transactions contemplated by the Agreement will
not, in and of themselves, give rise to such a "complete withdrawal" or "partial
withdrawal."
2.8.10 Except as disclosed in Section 2.8.10 of the Disclosure
Schedule: (i) neither Consumers nor any subsidiary of Consumers (including, but
not limited to, any Consumers ERISA Affiliate) is subject to any legal,
contractual, equitable or other obligation to establish as of any date any
employee benefit plan of any nature, including without limitation any pension,
profit sharing, welfare, post-retirement welfare, stock option, stock or cash
award, nonqualified deferred compensation or executive compensation plan, policy
or practice; and (ii) after review of all Consumers Benefit Plan documents,
Consumers and its subsidiaries, acting alone or together, (including, but not
limited to, any Consumers ERISA Affiliate) may, without the consent of any
employee, beneficiary or dependent, employees' organization or other person,
terminate, modify or amend any Consumers Benefit Plan or any other employee
benefit plan, policy, program or practice (or its participation in any such
Consumers Benefit Plan or other employee benefit
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plan, policy, program or practice) at any time sponsored, maintained or
contributed to by Consumers (or any of its subsidiaries, including, but not
limited to, any Consumers ERISA Affiliate), effective as of any date before, on,
or after the Effective Time.
2.8.11 Except as disclosed in Section 2.8.11 of the Disclosure
Schedule: (i) no event constituting a "reportable event" (within the meaning of
ERISA Section 4043(b)) for which the thirty (30) calendar day notice requirement
has not been waived by the PBGC has occurred with respect to any Consumers
Benefit Plan, and (ii) no liability, claim, action or litigation has been made,
commenced, or threatened, by or against Consumers (or any of its subsidiaries,
including, but not limited to, any Consumers ERISA Affiliate) with respect to
any Consumers Benefit Plan (other than for benefits or PBGC premiums payable in
the ordinary course).
2.8.12 Except as disclosed in Section 2.8.12 of the Disclosure
Schedule, the operation and administration of any Consumers Benefit Plan by
Consumers (or any of its subsidiaries, including, but not limited to, any
Consumers ERISA Affiliate), and, where applicable, to the knowledge of
Consumers, by any independent third-party service provider or other such entity
providing administrative services to, or on behalf of, such Consumers Benefit
Plan, will not result in a Year 2000 Problem with a Material Adverse Effect.
2.9 Taxes. Except as disclosed in Section 2.9 of the Disclosure
Schedule and except for payments required to be made pursuant to Article 4
hereof:
2.9.1 Consumers and each of its subsidiaries has duly filed all tax
returns and reports required to be filed by it or requests for extensions to
file such returns or reports have been timely filed, granted and have not
expired. All tax returns filed by Consumers and each of its subsidiaries are
complete and accurate in all material respects. Consumers and each of its
subsidiaries has paid (or Consumers has paid on the subsidiaries' behalf) all
taxes due on such returns, and the most recent financial statements contained in
the Consumers SEC Documents and all Consumers SEC Documents filed prior to the
Closing Date reflect an adequate reserve for all taxes payable by Consumers and
its subsidiaries for all taxable periods and portions thereof accrued through
the date of such financial statements.
2.9.2 No deficiencies for any taxes have been proposed, asserted or
assessed against Consumers or any of its subsidiaries that are not adequately
reserved for, and no requests for waivers of the time to assess any such taxes
have been granted or are pending. The federal income tax returns of Consumers
and each of its subsidiaries consolidated in such returns have been examined by
and settled with the United States Internal Revenue Service, or the statute of
limitations on assessment or collection of any federal income taxes due from
Consumers or any of its subsidiaries has expired, through such taxable years as
are set forth in Section 2.9.2 of the Disclosure Schedule.
2.9.3 As used in this Agreement, "taxes" shall include all federal,
state, local and foreign income, property, premium, franchise, sales, excise,
employment, payroll, withholding and other taxes, tariffs or governmental
charges of any nature whatsoever and any interest, penalties and additions to
taxes relating thereto.
2.9.4 Neither Consumers nor any of its subsidiaries has made, or is
obligated to make, in connection with the transactions contemplated by this
Agreement or otherwise, any payments that will not be deductible because of the
application of Section 280G or Section 162(m) of the Code.
2.9.5 Neither Consumers nor any of its subsidiaries has made any
election, filed any consent or entered into any agreement with respect to taxes
that is not reflected on the federal income tax returns of Consumers and its
subsidiaries for the three (3) years ended December 31, 1996.
2.10 Compliance With Applicable Laws. Except as disclosed in Section
2.10 of the Disclosure Schedule:
2.10.1 The business of Consumers and each of its subsidiaries is
being conducted in compliance, in all material respects, with all applicable
laws, ordinances, rules and regulations, decrees and orders of any
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Governmental Entity, and all material notices, reports, documents and other
information required to be filed thereunder within the last three (3) years were
properly filed and were in compliance in all material respects with such laws.
2.10.2 Except as disclosed in the Consumers SEC Documents,
Consumers and each of its subsidiaries has all material licenses (including,
without limitation, utility licenses), permits, authorizations, franchises and
rights (collectively, "Licenses") which are necessary for it to own or lease, as
the case may be, and operate its properties and assets and to conduct its
business as now conducted. The business of Consumers and each of its
subsidiaries has been and is being conducted in compliance in all material
respects with all such Licenses. All such Licenses are in full force and effect,
and there are no material restrictions or limitations contained within the
Licenses which would prevent Consumers from operating as it does presently, and
there is no proceeding or investigation pending or, to the knowledge of
Consumers, threatened which would reasonably be expected to lead to the
revocation, amendment, failure to renew, limitation, suspension or restriction
of any such License.
2.10.3 Each subsidiary of Consumers that has been or is required to
do so has filed all forms, reports, statements and other documents required by
law to be filed by it with the applicable Governmental Entity, and such forms,
reports, statements and other documents, complied in all material respects with
the statutory and regulatory requirements applicable thereto.
2.11 Environmental Protection.
2.11.1 Except as disclosed in Section 2.11.1 of the Disclosure
Schedule or as disclosed in Consumers SEC Documents, Consumers and its
subsidiaries are and have been in material compliance with all applicable
Environmental Laws (as defined in Section 2.11.7), except where the failure to
be or to have so been in material compliance, in the aggregate, would not have a
present Material Adverse Effect. Except as disclosed in Section 2.11.1 of the
Disclosure Schedule, neither Consumers nor any of its subsidiaries has received
any written notice from any person or Governmental Entity that alleges that
Consumers or any of its subsidiaries is not or has not been in material
compliance with applicable Environmental Laws, except where the failure to be or
to have so been in material compliance, in the aggregate, would not have a
present Material Adverse Effect.
2.11.2 Except as disclosed in Section 2.11.2 of the Disclosure
Schedule or as disclosed in the Consumers SEC Documents, Consumers and each of
its subsidiaries have obtained or have applied for all material environmental,
health and safety permits and authorizations (collectively, "Environmental
Permits") necessary for the construction of their facilities and the conduct of
their operations, and all such Environmental Permits are in good standing or,
where applicable, a renewal application has been timely filed and is pending
agency approval, and Consumers and its subsidiaries are in material compliance
with all terms and conditions of all such Environmental Permits and are not
required to make any material expenditures in connection with any renewal
application pending Governmental Entity approval, except where the failure to
obtain or be in such compliance and the requirement to make such expenditures,
in the aggregate, would not have a Material Adverse Effect.
2.11.3 Except as disclosed in Section 2.11.3 of the Disclosure
Schedule or as disclosed in Consumers SEC Documents, no Environmental Claim (as
defined in Section 2.11.7) is pending or, to the knowledge of Consumers,
threatened (i) against Consumers or any of its subsidiaries, (ii) against any
person or entity whose liability for any Environmental Claim Consumers or any of
its subsidiaries has or may have retained or assumed either contractually or by
operation of law, or (iii) against any real or personal property or operations
that Consumers or any of its subsidiaries owns, leases or manages, in whole or
in part, or (iv) to the knowledge of Consumers, against any real property at
which any Hazardous Materials, as defined in Section 2.11.7, generated or used
by either Consumers or any of its subsidiaries have been stored, treated, or
disposed of, that is reasonably likely in the aggregate to have a Material
Adverse Effect.
2.11.4 Except as disclosed in Section 2.11.4 of the Disclosure
Schedule or as disclosed in the Consumers SEC Documents, to the knowledge of
Consumers, there has been no Release (as defined in Section 2.11.7) or
threatened Release of Hazardous Materials (as defined in Section 2.11.7) that
would be reasonably likely to (i) form the basis of any Environmental Claim
against Consumers or any of its subsidiaries, or against any person or entity
whose
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liability for any Environmental Claim Consumers or any of its subsidiaries has
or may have retained or assumed either contractually or by operation of law, or
(ii) cause damage to or diminution of real property or operations that Consumers
or any of its subsidiaries owns, leases, or manages, in whole or in part, except
for Releases or threatened Releases of Hazardous Materials the liability for
which would not in the aggregate have a Material Adverse Effect.
2.11.5 Except as disclosed in Section 2.11.5 of the Disclosure
Schedule, or as disclosed in the Consumers SEC Documents, to the knowledge of
Consumers, with respect to any predecessor of Consumers or any of its
subsidiaries, there is no Environmental Claim pending or threatened, or Release
of Hazardous Materials, that would be reasonably likely to form the basis of any
Environmental Claims that are reasonably likely to have, in the aggregate, a
Material Adverse Effect.
2.11.6 To the knowledge of Consumers, Consumers has disclosed to
PSC all material facts that Consumers reasonably believes are likely to require
material expenditures by Consumers or any of its subsidiaries in order to comply
with current applicable Environmental Laws arising from (i) the cost of
pollution control equipment currently required or known to be required in the
future, (ii) current investigatory, removal, remediation or response costs or
investigatory, removal, remediation or response costs known to be required in
the future, in each case, both on-site and off-site, and (iii) any other
environmental matters affecting Consumers or any of its subsidiaries.
2.11.7 As used in this Agreement:
2.11.7.1 "Environmental Claim" means any and all
administrative, regulatory or judicial actions, suits, demands, demand letters,
directives, claims, liens, investigations, proceedings or notices by any person
or entity (including without limitation any Governmental Entity) alleging
liability or potential liability (including without limitation potential
liability for enforcement costs, investigatory costs, cleanup costs, response
costs, removal costs, remedial costs, natural resources damages, property
damages, personal injuries, fines or penalties) arising out of, based on, or
resulting from (i) the presence, or Release or threatened Release, of any
Hazardous Materials at any location, whether or not owned, operated, leased or
managed by Consumers or any of its subsidiaries or joint ventures, (ii)
circumstances forming the basis of any violation, or alleged violation, of any
Environmental Laws, or (iii) any and all claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the presence, Release, or threatened Release of
any Hazardous Materials.
2.11.7.2 "Environmental Laws" means all federal, state and
local laws, rules, regulations, ordinances, or consent decrees relating to
pollution or protection of human health or the environment (including without
limitation air inside any structure, ambient air, surface water, groundwater,
land surface or subsurface strata), including without limitation laws and
regulations relating to Releases or threatened Releases of Hazardous Materials
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Materials.
2.11.7.3. "Hazardous Materials" means (i) any petroleum or
petroleum products or petroleum wastes (including crude oil or any fraction
thereof), nuclear fuel or waste or other radioactive materials, friable asbestos
or friable asbestos-containing material, urea formaldehyde foam insulation, and
transformers or other equipment that contain dielectric fluid containing
polychlorinated biphenyls, (ii) 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," "chemical
wastes", "residual wastes", "industrial wastes", or words of similar import,
under any Environmental Laws, and (iii) any other chemical, material, substance
or waste, exposure to or use, transport, treatment, storage, or disposal of
which is now prohibited, limited or regulated under any Environmental Laws in a
jurisdiction in which Consumers or any of its subsidiaries or joint ventures
operates.
2.11.7.4 "Release" means any release, spill, emission,
leaking, injection, deposit, disposal, discharge, dispersal, leaching or
migration into any air, soil, surface water, groundwater, indoor structure, or
outdoor structure.
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2.12 Litigation. Except as set forth in the Consumers SEC Documents or
Section 2.12 of the Disclosure Schedule, there is no suit, claim, action,
proceeding or investigation pending or, to the knowledge of Consumers,
threatened against or affecting Consumers or any of its subsidiaries which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect or to materially and adversely affect Consumers' ability
to consummate the transactions contemplated hereby. Neither Consumers nor any
its subsidiaries is subject to any outstanding order, writ, injunction or decree
which, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect. Except as set forth in the Consumers SEC Documents or
Section 2.12 of the Disclosure Schedule, none of Consumers' subsidiaries whose
rates or services are subject to regulation by a Governmental Entity (i) has
rates which have been or are being collected subject to refund, pending final
resolution of any proceeding pending before a Governmental Entity or on appeal
to the courts, or (ii) is a party to any proceeding before the Governmental
Entity or on appeal from orders of a Governmental Entity.
2.13 Labor Relations. Except as set forth in Section 2.13 of the
Disclosure Schedule:
2.13.1 Neither Consumers nor any of its subsidiaries is a party to
any collective bargaining agreement or other current labor agreement with any
labor union or organization, and there is no current union representation issue
involving employees of Consumers or any of its subsidiaries, nor does Consumers
or any of its subsidiaries know of any activity or proceeding of any labor
organization (or representative thereof) or employee group (or representative
thereof) to organize any such employees.
2.13.2 There is no unfair labor practice charge or grievance
arising out of a collective bargaining agreement or other grievance procedure
against Consumers or any of its subsidiaries pending or, to the knowledge of
Consumers, threatened that could reasonably be expected to have a Material
Adverse Effect.
2.13.3 There is no complaint, lawsuit or proceeding in any forum by
or on behalf of any present or former employee, any applicant for employment or
any classes of the foregoing alleging breach of any express or implied contract
of employment, any law or regulation governing employment or the termination
thereof or other discriminatory, wrongful or tortuous conduct in connection with
the employment relationship against Consumers or any of its subsidiaries pending
or, to the knowledge of Consumers, threatened that could reasonably be expected
to have a Material Adverse Effect.
2.13.4 There is no strike, dispute, slowdown, work stoppage or
lockout pending or, to the knowledge of Consumers, threatened against or
involving Consumers or any of its subsidiaries that could reasonably be expected
to have a Material Adverse Effect.
2.13.5 Consumers and each of its subsidiaries is in compliance with
all applicable laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work and occupational safety and
health, except for non-compliance that would not, individually or in the
aggregate, have a Material Adverse Effect.
2.13.6 There is no proceeding, claim, suit, action or governmental
investigation pending or, to the knowledge of Consumers, threatened with respect
to which any current or former director, officer, employee or agent of Consumers
or any of its subsidiaries is or may be entitled to claim indemnification from
Consumers or any of its subsidiaries pursuant to their respective articles or
certificates of incorporation or bylaws, as provided in any indemnification
agreement to which Consumers or any of its subsidiaries is a party, or pursuant
to applicable law that could reasonably be expected to have a Material Adverse
Effect.
2.14 Intellectual Property. Consumers and its subsidiaries possess
or have adequate rights to use all material trademarks, trade names, patents,
service marks, brand marks, brand names, computer programs, databases,
industrial designs and copyrights currently used or necessary for the operation
of their business (collectively, the "Consumers Intellectual Property"), except
where the failure to possess or have adequate rights to use such properties
would not have a Material Adverse Effect. Except as set forth in Section 2.14 of
the Disclosure Schedule, all of the Consumers Intellectual Property is owned by
Consumers or one of its subsidiaries, free and clear of any and all liens,
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claims or encumbrances, except for those liens, claims and encumbrances that
would not, individually or in the aggregate, have a Material Adverse Effect, and
neither Consumers nor any of its subsidiaries has forfeited or otherwise
relinquished any of the Consumers Intellectual Property, which forfeiture would
have a Material Adverse Effect. To the knowledge of Consumers, the use of the
Consumers Intellectual Property by Consumers or its subsidiaries does not, in
any material respect, conflict with, infringe upon, violate or interfere with or
constitute an appropriation of any right, title, interest or goodwill
(including, without limitation, any intellectual property right, trademark,
trade name, patent, service mark, brand mark, brand name, computer program,
database, industrial design, copyright or any pending application therefor) of
any other person, and neither Consumers nor any of its subsidiaries has received
notice of any claim or otherwise knows that any of the Consumers Intellectual
Property is invalid, conflicts with the asserted rights of any other person, has
not been used or enforced or has failed to be used or enforced in a manner that
would result in the abandonment, cancellation or unenforceability of any of
Consumers Intellectual Property, except for such conflicts, infringements,
violations, interferences, claims, invalidity, abandonments, cancellations or
unenforceability that would not, individually or in the aggregate, have a
Material Adverse Effect.
2.15 No Default. Neither Consumers nor any of its subsidiaries is in
default or violation (and no event has occurred which, with notice or the lapse
of time or both, would constitute a default or violation) of any term, condition
or provision of (i) its articles or certificate of incorporation or bylaws, (ii)
any note, bond, mortgage, indenture, license, agreement or other instrument or
obligation to which it is now a party or by which it or any of its properties or
assets may be bound (except for the requirement under certain of such
instruments to file supplemental indentures as a result of the transactions
contemplated hereby), or (iii) any order, writ, injunction, decree, statute,
rule or regulation applicable to it, except in the case of (ii) and (iii) for
defaults or violations which in the aggregate would not have a Material Adverse
Effect. Consumers and each of its subsidiaries have fulfilled, and have taken
all action reasonably necessary to date to enable them to fulfill when due, all
of their material obligations under all contracts, commitments and arrangements
and, to the knowledge of Consumers, no breach or default by any other party
under such contracts, commitments or arrangements has occurred or is threatened
that will or could impair the ability of Consumers or any of its subsidiaries to
enforce any of its rights thereunder in any material respect.
2.16 Regulation as a Utility. Certain subsidiaries of Consumers are
regulated as public utilities in the states of Maine, Ohio, Illinois,
Pennsylvania, and New Jersey. Except as disclosed in Section 2.16 of the
Disclosure Schedule, neither Consumers nor any "subsidiary company" or
"affiliate" (as such terms are defined in the Public Utility Holding Company Act
of 1935, as amended (the "1935 Act")) of Consumers is subject to regulation as a
public utility or public service company (or similar designation) by any other
state in the United States, by the United States or any agency or
instrumentality of the United States or by any foreign country. Consumers is not
a holding company under the 1935 Act. Except as disclosed in Section 2.16 of the
Disclosure Schedule, no assets of Consumers or any of its subsidiaries or
divisions have been disallowed in any rate making procedure before any
Governmental Entity.
2.17 Insurance. Except as disclosed in Section 2.17 of the Disclosure
Schedule, Consumers and each of its subsidiaries is, and has been continuously
since January 1, 1993, insured with financially responsible insurers in such
amounts and against such risks and losses as are disclosed in Section 2.17 of
the Disclosure Schedule. Except as disclosed in Section 2.17 of the Disclosure
Schedule, neither Consumers nor any of its subsidiaries has received any notice
of cancellation or termination with respect to any insurance policy. To the
knowledge of Consumers, there is no basis for any claim under D&O Insurance, as
defined in Section 4.16.3. All insurance policies of Consumers and its
subsidiaries are valid and enforceable policies.
2.18 Change in Business Relationships. Except as disclosed in Section
2.18 of the Disclosure Schedule, neither Consumers nor any of its subsidiaries
has knowledge of any event or circumstance that indicates that, whether on
account of the transactions contemplated by this Agreement or otherwise, any
customer, agent, representative or supplier of Consumers or any of its
subsidiaries intends to discontinue, diminish or change its relationship with
Consumers or any of its subsidiaries in any way that would be reasonably likely
to have a Material Adverse Effect.
2.19 Voting Requirements. The only votes of the holders of any class or
series of Consumers' capital stock necessary to approve this Agreement and the
transactions contemplated by this Agreement are: (i) the affirmative vote
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of the holders of a majority of the outstanding Consumers Common Shares entitled
to vote at the Consumers Special Meeting, as defined in Section 4.2.1, with
respect to the approval of the Merger; and (ii) the affirmative vote of the
holders of a majority of the outstanding Consumers Preferred Shares, if any,
entitled to vote at the Consumers Special Meeting, with respect to the approval
of the Merger.
2.20 Brokers. This Agreement does not give rise to any valid claim by
any person against Consumers or any of its subsidiaries for a finder's fee,
brokerage commission or similar payment; except for SG Barr Devlin, which
represented Consumers and whose fees and expenses shall be paid by Consumers.
2.21 Year 2000 Problem. Except as disclosed in the Consumers SEC
Documents or in Section 2.21 of the Disclosure Schedule, the Year 2000 Problem
will not result in a Material Adverse Effect. For purposes of this Agreement,
the term "Year 2000 Problem" shall mean the risk that computer applications used
by or for the benefit of Consumers or any of its subsidiaries may be unable to
recognize or perform properly certain date sensitive functions involving certain
dates prior to and any date after December 31, 1999.
2.22 Knowledge. For purposes of this Article 2, "to the knowledge of
Consumers" shall mean to the knowledge of the President and Vice Presidents of
Consumers and the Presidents of each of Consumers' subsidiaries, after
reasonable inquiry.
2.23 Disclosure. Matters disclosed in any of the Consumers SEC
Documents, in any section of the Disclosure Schedule, or in any section of this
Article 2 shall be considered disclosed for all purposes under this Article 2.
2.24 Fairness Opinion. Consumers has received an opinion of SG Barr
Devlin, dated June 27, 1998, that as of that date the terms of the Merger are
fair to the current shareholders of Consumers from a financial point of view.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PSC AND ACQUISITION
PSC and Acquisition hereby jointly and severally represent and warrant
to Consumers as follows:
3.1 Organization, Standing and Corporate Authority. Each of PSC and
Acquisition is a corporation duly organized and validly existing under the laws
of the Commonwealth of Pennsylvania and has the requisite corporate power and
authority to carry on its business as now being conducted. Each of PSC and
Acquisition is duly qualified or licensed to do business and is in good standing
in each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or licensing necessary except
where the failure to be so qualified would not individually or in the aggregate
have a Material Adverse Effect (as that term is defined in Section 10.9) on the
ability of PSC or Acquisition to consummate the transactions contemplated
hereby. PSC and Acquisition have delivered to Consumers complete and correct
copies of their Articles of Incorporation and By-Laws, as amended to the date of
this Agreement.
3.2 Capital Structure.
3.2.1 The authorized capital stock of PSC consists of: (i)
40,000,000 PSC Common Shares having a par value of $.50 per share; and (ii)
1,770,819 shares of preferred stock having a par value of $1.00 per share. At
the close of business on June 24, 1998, there were (i) 27,511,394 PSC Common
Shares issued and outstanding, (ii) 527,577 PSC Common Shares held as treasury
shares, (iii) 1,885,714 PSC Common Shares reserved for issuance under PSC's
long-term incentive plans, (iv) 100,000 shares of Series A Preferred Stock
reserved for issuance under PSC's Shareholder Rights Plan; (v) 32,200 shares of
Series B Preferred Stock issued and outstanding; and (vi) 1,457,200 shares
reserved for issuance under PSC's direct stock purchase and dividend
reinvestment plan. PSC has entered into an agreement, dated June 3, 1998, by and
among PSC, Philadelphia Suburban Water Company ("PSWC"), Berkshire
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Greens, Inc. ("Berkshire"), and Flying Hills Water Company ("FHWC"), a wholly
owned subsidiary of Berkshire, pursuant to which PSC has agreed to issue 42,000
PSC Common Shares (as unregistered shares with certain piggyback registration
rights) to Berkshire upon the merger of FHWC into PSWC. Except as set forth
above, at the close of business on June 24, 1998, no other shares of capital
stock or other voting securities of PSC were issued, reserved for issuance, or
outstanding. All such outstanding PSC Common Shares are, and all PSC Common
Shares which may be issued in connection with the Merger will be, when issued,
duly authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. All the outstanding shares of capital stock of each
significant subsidiary (within the meaning of Rule 1-02 of Regulation S-X) of
PSC have been validly issued and are fully paid and nonassessable and are owned
by PSC or a wholly-owned subsidiary, and are clear of all liens, claims,
encumbrances, restraints on alienation, or other restrictions with respect to
the transferability or assignability thereof (other than restrictions imposed by
federal or state securities laws). Except as set forth in this Agreement,
neither PSC nor any of its significant subsidiaries has any outstanding option,
warrant, subscription or other agreement or commitment which either obligates
PSC or any of its significant subsidiaries to issue, sell or transfer,
repurchase, redeem, otherwise acquire or vote any shares of the capital stock of
PSC or any of its significant subsidiaries, or which restricts the transfer of
PSC Common Shares.
3.2.2 As of the date hereof, the authorized capital stock of
Acquisition consists of 1,000 common shares, without par value, all of which are
issued and outstanding and owned by PSC. All such outstanding common shares are
duly authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights.
3.3 Authority; Noncontravention. Each of PSC and Acquisition has all
requisite corporate power and authority to enter into this Agreement and to
carry out its obligations hereunder. Subject to the approval of their
shareholders as set forth in Section 4.2.2, the execution and delivery of this
Agreement by PSC and Acquisition and the consummation by each of them of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of PSC and Acquisition. This Agreement has been
duly executed and delivered by PSC and Acquisition and, assuming this Agreement
has been duly executed and delivered by Consumers, constitutes a valid and
binding obligation of each of PSC and Acquisition, enforceable against each of
them in accordance with its terms, except that the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
now or hereafter in effect relating to creditor's rights generally and by
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity). Except as set forth in Section 3.3 of the
PSC Disclosure Schedule and subject to the governmental filings and other
matters referred to in the following sentence, the execution and delivery of
this Agreement do not, and the consummation of the transactions contemplated by
this Agreement and compliance with the provisions of this Agreement will not (i)
conflict with any of the provisions of the Articles of Incorporation or By-Laws
of PSC or Acquisition, (ii) conflict with, result in a breach of or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or loss of
a material benefit under, or require the consent of any person under, any
indenture, or other agreement, permit, concession, franchise, license or similar
instrument or undertaking to which PSC or any of its subsidiaries is a party or
by which PSC or any of its subsidiaries or any of their assets is bound or
affected, or (iii) contravene any law, rule or regulation of any state or of the
United States or any political subdivision thereof or therein, or any order,
writ, judgment, injunction, decree, determination or award currently in effect,
subject, in the case of clauses (ii) and (iii), to those conflicts, breaches,
defaults and similar matters, which, individually or in the aggregate, would not
materially and adversely affect PSC's ability to consummate the transactions
contemplated hereby. No consent, approval or authorization of, or declaration or
filing with, or notice to, any Governmental Entity which has not been received
or made is required by or with respect to PSC or Acquisition in connection with
the execution and delivery of this Agreement by PSC and Acquisition or the
consummation by them of any of the transactions contemplated hereby, except for
(a) the filing of premerger notification and report forms under the HSR Act with
respect to the Merger, (b) the filing with the SEC of a registration statement
on Form S-4 by PSC in connection with the issuance of PSC Common Shares in the
merger (the "Form S-4") and such reports under the Exchange Act as may be
required in connection with this Agreement and the transactions contemplated by
this Agreement, (c) the filing of articles of merger with the Pennsylvania
Secretary of State and appropriate documents with the relevant authorities of
the other states in which Consumers is qualified to do business, (d) required
filings with the Pennsylvania Public Utility Commission, and (e)
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such other consents, approvals, authorizations, filings or notices as are set
forth in Section 3.3 of the PSC Disclosure Schedule.
3.4 PSC SEC Documents and Financial Statements.
3.4.1 PSC has timely filed all required reports, schedules, forms,
statements and other documents with the SEC from January 1, 1993 through June
27, 1998 (the "PSC SEC Documents"). (All such documents filed by PSC with the
SEC from June 27, 1998 until the Closing Date shall also be included in the
definition of PSC SEC Documents.) As of their respective dates (or, with respect
to any amendment to the PSC SEC Documents, as of the date of the filing of such
amendment), the PSC SEC Documents complied with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such PSC SEC
Documents, and none of the PSC SEC Documents as of such dates contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
3.4.2 The consolidated financial statements of PSC included in the
PSC SEC Documents comply in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with GAAP (except as may be indicated
in the notes thereto or, in the case of unaudited interim financial statements,
as permitted by Rule 10-01 of Regulation S-X) and fairly present, in all
material respects, the consolidated financial position of PSC and its
consolidated subsidiaries, as of the dates thereof and the consolidated results
of their operations, changes in shareholders' equity and consolidated cash flows
for the periods then ended (subject, in the case of unaudited financial
statements, to normal recurring adjustments, none of which is material).
3.4.3 Except as disclosed in the PSC SEC Documents or in the PSC
Disclosure Schedule, neither PSC nor any of its subsidiaries has any absolute,
accrued, contingent or other liabilities or obligations due or to become due,
and there are no claims or causes of action that have been or, to the knowledge
of PSC, are reasonably likely to be asserted against PSC or any of its
subsidiaries, except (i) as and to the extent reflected or reserved against on
the balance sheet included in PSC's Annual Report on Form 10-K for the year
ended December 31, 1997 (the "PSC Base Balance Sheet"), or included in the notes
to the PSC Base Balance Sheet, (ii) for normal and recurring liabilities
incurred since December 31, 1997, in the ordinary course of business consistent
with past practice, and (iii) for such other liabilities and obligations that
are not in the aggregate reasonably likely to have a Material Adverse Effect.
3.5 Absence of Certain Changes or Events. Except as disclosed in the
PSC SEC Documents or in Section 3.5 of the PSC Disclosure Schedule, since the
date of the PSC Base Balance Sheet, PSC and its subsidiaries have conducted
their business only in the ordinary course, and there has not been (i) any
change which has had or which would have a Material Adverse Effect, (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of PSC's outstanding
capital stock (other than regular quarterly cash dividends in accordance with
PSC's present dividend policy), or (iii) any split, combination or
reclassification of any of its outstanding capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of,
or in substitution for shares of its outstanding capital stock.
3.6 Compliance With Applicable Laws. Except as disclosed in Section 3.6
of the PSC Disclosure Schedule:
3.6.1 The business of PSC and each of its significant subsidiaries
is being conducted in compliance, in all material respects, with all applicable
laws, ordinances, rules, regulations, decrees and orders of any Governmental
Entity, and all material notices, reports, documents and other information
required to be filed thereunder within the last three (3) years were properly
filed and were in compliance in all material respects with such laws.
3.6.2 Except as disclosed in the PSC SEC Documents, PSC and each of
its significant subsidiaries has all material Licenses which are necessary for
it to own or lease, as the case may be, and operate its properties and assets
and to conduct its business as now conducted. The business of PSC and each of
its significant
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subsidiaries has been and is being conducted in compliance in all material
respects with all such Licenses. All such Licenses are in full force and effect,
and there are no material restrictions or limitations contained within the
Licenses which would prevent PSC from operating as it does presently, and there
is no proceeding or investigation pending or, to the knowledge of PSC,
threatened which would reasonably be expected to lead to the revocation,
amendment, failure to renew, limitation, suspension or restriction of any such
License.
3.6.3 Each subsidiary of PSC that has been or is required to do so
has filed all forms, reports, statements and other documents required by law to
be filed by it with the Pennsylvania Public Utility Commission, and such forms,
reports, statements and other documents, complied in all material respects with
the statutory and regulatory requirements applicable thereto.
3.7 Litigation. Except as set forth in the PSC SEC Documents, there is
no suit, claim, action, proceeding or investigation pending or, to the knowledge
of PSC, threatened against or affecting PSC or any of its subsidiaries which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect or to materially and adversely affect PSC's ability to
consummate the transactions contemplated hereby. Neither PSC nor any its
subsidiaries is subject to any outstanding order, writ, injunction or decree
which, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect Except as set forth in the PSC SEC Documents or Section
3.7 of the PSC Disclosure Schedule, none of PSC or PSC's subsidiaries whose
rates or services are subject to regulation by a Governmental Entity (i) has
rates which have been or are being collected subject to refund, pending final
resolution of any proceeding pending before a Governmental Entity or an
appearance before the courts, or (ii) is a party to any proceeding before the
Governmental Entity or on appeal from any order of the Governmental Entity.
3.8 Brokers. This Agreement does not give rise to any valid claim by
any person against PSC or any of its subsidiaries for a finder's fee, brokerage
commission or similar payment, except for Salomon Smith Barney, which
represented PSC, and whose fees and expenses shall be paid by PSC.
3.9 Fairness Opinion. PSC has received an opinion of Salomon Smith
Barney, dated June 26, 1998, that as of that date the terms of the Merger are
fair to PSC from a financial point of view.
3.10 Taxes. Except as disclosed in Section 3.10 of the PSC Disclosure
Schedule and except for payments required to be made pursuant to Article 4
hereof:
3.10.1 PSC and each of its subsidiaries has duly filed all tax
returns and reports required to be filed by it or requests for extensions to
file such returns or reports have been timely filed, granted and have not
expired. All tax returns filed by PSC and each of its subsidiaries are complete
and accurate in all material respects. PSC and each of its subsidiaries has paid
(or PSC has paid on the subsidiaries' behalf) all taxes due on such returns, and
the most recent financial statements contained in the PSC SEC Documents and all
PSC SEC Documents filed prior to the Closing Date reflect an adequate reserve
for all taxes payable by PSC and its subsidiaries for all taxable periods and
portions thereof accrued through the date of such financial statements.
3.10.2 No deficiencies for any taxes have been proposed, asserted
or assessed against PSC or any of its subsidiaries that are not adequately
reserved for, and no requests for waivers of the time to assess any such taxes
have been granted or are pending. The federal income tax returns of PSC and each
of its subsidiaries consolidated in such returns have been examined by and
settled with the United States Internal Revenue Service, or the statute of
limitations on assessment or collection of any federal income taxes due from PSC
or any of its subsidiaries has expired, through such taxable years as are set
forth in Section 3.10.2 of the PSC Disclosure Schedule.
3.10.3 As used in this Agreement, "taxes" shall include all
federal, state, local and foreign income, property, premium, franchise, sales,
excise, employment, payroll, withholding and other taxes, tariffs or
governmental charges of any nature whatsoever and any interest, penalties and
additions to taxes relating thereto.
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3.10.4 Neither PSC nor any of its subsidiaries has made, or is
obligated to make, in connection with the transactions contemplated by this
Agreement or otherwise, any payments that will not be deductible because of the
application of Section 280G or Section 162(m) of the Code.
3.10.5 Neither PSC nor any of its subsidiaries has made any
election, filed any consent or entered into any agreement with respect to taxes
that is not reflected on the federal income tax returns of PSC and its
subsidiaries for the three (3) years ended December 31, 1997 (copies of which
returns have been made available to Consumers for review prior to the date of
this Agreement).
3.11 Regulation as a Utility. Certain subsidiaries of PSC are regulated
as public utilities in the Commonwealth of Pennsylvania. Except as disclosed in
Section 3.11 of the PSC Disclosure Schedule, neither PSC nor any "subsidiary
company" or "affiliate" (as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended (the "1935 Act")) of PSC is subject to
regulation as a public utility or public service company (or similar
designation) by any other state in the United States, by the United States or
any agency or instrumentality of the United States or by any foreign country.
PSC is not a holding company under the 1935 Act. Except as disclosed in Section
3.11 of the PSC Disclosure Schedule, no assets of PSC or any of its subsidiaries
or divisions have been disallowed in any rate making procedure before any
Governmental Entity.
3.12 Insurance. Except as disclosed in Section 3.12 of the PSC
Disclosure Schedule, PSC and each of its subsidiaries is, and has been
continuously since January 1, 1993, insured with financially responsible
insurers in such amounts and against such risks and losses as are customary for
companies engaged in the respective businesses conducted by PSC and its
subsidiaries during such time period. Except as disclosed in Section 3.12 of the
PSC Disclosure Schedule, neither PSC nor any of its subsidiaries has received
any notice of cancellation or termination with respect to any insurance policy.
To the knowledge of PSC, there is no basis for any claim under any PSC directors
and officers liability insurance policy. Except as disclosed in Section 3.12 of
the PSC Disclosure Schedule, to the knowledge of PSC, (i) the reserves on the
books of PSC and its subsidiaries in connection with existing claims under its
liability insurance policies are adequate to cover PSC's deductible or
self-insured retentions under such policies, and (ii) the reserves on the books
of PSC and its subsidiaries in connection with existing claims related to PSC's
discontinued operations are adequate to cover such claims. All insurance
policies of PSC and its subsidiaries are valid and enforceable policies.
3.13 Voting Requirements. The affirmative vote of the holders of a
majority of each of the outstanding PSC Common Shares entitled to vote at the
PSC Special Meeting, as defined in Section 4.2.2, with respect to the approval
of the Merger are the only votes of the holders of any class or series of PSC's
capital stock necessary to approve this Agreement and the transactions
contemplated by this Agreement. This Agreement and the Merger shall have been
approved and adopted by the sole shareholder of Acquisition.
3.14 Disclosure. Matters disclosed in any of the PSC SEC Documents, in
any section of the PSC Disclosure Schedule, or in any section of this Article 3
shall be considered disclosed for all purposes under this Article 3.
3.15 Knowledge. For purposes of this Article 3, "to the knowledge of
PSC" shall mean to the knowledge of the executive officers of PSC and each of
its subsidiaries, after reasonable inquiry.
ARTICLE 4
ADDITIONAL AGREEMENTS
4.1 Preparation of Form S-4.
4.1.1 Form S-4; Proxy Statement/Prospectus. As soon as practicable
following the date of this Agreement, Consumers and PSC shall prepare and file
with the SEC a preliminary proxy statement relating to the Consumers Special
Meeting and PSC Special Meeting, and PSC shall prepare and file with the SEC the
registration
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statement or Form S-4, in which such preliminary proxy statement will be
included as a preliminary prospectus (such proxy statement, together with the
prospectus relating to the PSC Common Shares, in each case as amended or
supplemented from time to time, is referred to herein as the "Proxy
Statement/Prospectus"). PSC shall use its best efforts to have the Form S-4
declared effective under the Securities Act as promptly as practicable after
such filing. Consumers will use its best efforts to cause the Proxy
Statement/Prospectus to be mailed to Consumers' shareholders as promptly as
practicable after the Form S-4 is declared effective under the Securities Act.
PSC shall also take any action (other than qualifying to do business in any
jurisdiction in which it is not now so qualified) required to be taken under any
applicable state securities laws in connection with the issuance of the PSC
Common Shares in the Merger. Consumers shall furnish all information concerning
Consumers and the holders of the Consumers Common Shares and Consumers Preferred
Shares, and PSC shall furnish all information concerning PSC and Acquisition, as
may be reasonably requested in connection with any such action.
4.1.2 Consumers Information. Consumers agrees that none of the
information supplied or to be supplied by Consumers specifically for inclusion
or incorporation by reference in (i) the Form S-4 will, at the time the Form S-4
is filed with the SEC, at any time it is amended or supplemented and at the time
it becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statement therein not misleading, and (ii) the Proxy
Statement/Prospectus will, at the date it is first mailed to Consumers'
shareholders and PSC's shareholders and at the time of the Consumers Special
Meeting and the PSC Special Meeting, 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. Consumers agrees that the Proxy
Statement/Prospectus will comply in all material respects with the requirements
of the Exchange Act and the rules and regulations thereunder, except with
respect to statements made or incorporated by reference therein based on
information supplied by PSC specifically for inclusion or incorporation by
reference in the Proxy Statement/Prospectus.
4.1.3 PSC Information. PSC agrees that none of the information
supplied or to be supplied by PSC specifically for inclusion or incorporation by
reference in (i) the Form S-4 will, at the time the Form S-4 is filed with the
SEC, at any time it is amended or supplemented and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and (ii) the Proxy
Statement/Prospectus will, at the date it is first mailed to PSC's shareholders
and Consumers' shareholders and at the time of the PSC Special Meeting and the
Consumers' Special Meeting, 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. PSC agrees that the Form S-4 will comply in all
material respects with the requirements of the Securities Act and the rules and
regulations promulgated thereunder, and the Proxy Statement/Prospectus will
comply in all material respects with the requirements of the Exchange Act and
the rules and regulations promulgated thereunder, except with respect to
statements made or incorporated by reference therein based on information
supplied by Consumers specifically for inclusion or incorporation by reference
therein.
4.1.4 SEC Filings. Consumers and PSC shall cooperate with each
other and provide to each other all information necessary in order to prepare
the Form S-4, the Proxy Statement/Prospectus, and the other filings
(collectively, the "SEC Transaction Filings") and shall provide promptly to the
other Party any information that such Party may obtain that could necessitate
amending any such document. Consumers and PSC will each notify the other
promptly of the receipt of any comments from the SEC or its staff or any other
appropriate government official and of any requests by the SEC or its staff or
any other appropriate government official for amendments or supplements to any
of the SEC Transaction Filings or for additional information and will supply the
other Party with copies of all correspondence between Consumers or any of its
representatives or PSC and any of its representatives, as the case may be, on
the one hand, and the SEC or its staff or any other appropriate government
official, on the other hand, with respect thereto. If at any time prior to the
Effective Time, any event shall occur that should be set forth in an amendment
of, or a supplement to, any of the SEC Transaction Filings, Consumers and PSC
agree promptly to prepare and file such amendment or supplement and to
distribute such amendment or supplement as required by applicable law,
including, in the case of an amendment or supplement to the Proxy Statement,
mailing such supplement or amendment to
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Consumers' stockholders. PSC shall not be required to maintain the effectiveness
of the Registration Statement for the purpose of resale by stockholders of
Consumers who may be affiliates of Consumers or PSC pursuant to Rule 145 under
the Securities Act. The information provided and to be provided by Consumers and
PSC for use in SEC Transaction Filings shall at all times prior to the Effective
Time be true and correct in all material respects and shall not omit to state
any material fact required to be stated therein or necessary in order to make
such information not false or misleading, and Consumers and PSC each agree to
promptly correct any such information provided by it for use in the SEC
Transaction Filings that shall have become false or misleading. The SEC
Transaction Filings, when filed with the SEC or any appropriate government
official, shall comply in all material respects with all applicable requirements
of law.
4.2 Shareholders Meetings.
4.2.1 Consumers' Shareholders Meeting. Consumers will take all
action necessary in accordance with applicable law and its Articles of
Incorporation and By-Laws to convene a meeting of its shareholders (the
"Consumers Special Meeting") to consider and vote upon the approval of the
Merger. Subject to Section 4.7, Consumers will, through its Board of Directors,
recommend to its shareholders approval of the Merger. Without limiting the
generality of the foregoing, Consumers agrees that, subject to its right to
terminate this Agreement pursuant to Section 4.7, its obligations pursuant to
the first sentence of Section 4.2 shall not be affected by (i) the commencement,
public proposal, public disclosure or communication to Consumers of any
Acquisition Proposal (as defined in Section 4.6), or (ii) the withdrawal or
modification by the Board of Directors of Consumers of its approval or
recommendation of this Agreement or the Merger. Subject to Section 4.7 hereof,
Consumers will use its best efforts to obtain the favorable vote of its
shareholders as soon as practicable after the date hereof.
4.2.2 PSC's Shareholders Meeting. PSC will take all action
necessary in accordance with applicable law and its Articles of Incorporation
and By-Laws to convene a meeting of its shareholders (the "PSC Special Meeting")
to consider and vote upon the approval of the Merger and the increase in the
authorized capital stock of PSC required by the Merger. PSC will, through its
Board of Directors, recommend to its shareholders approval of both actions. In
addition, this Agreement and the Merger shall have been approved and adopted by
the sole shareholder of Acquisition.
4.3 Best Efforts. Upon the terms and subject to the conditions and
other agreements set forth in this Agreement, each of the Parties agrees to use
its best efforts to take, or cause to be taken, all actions, and to do, or cause
to be done, and to assist and cooperate with the other Parties in doing, all
things necessary, proper or advisable to consummate and make effective, in the
most expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement.
4.4 Access to Information; Confidentiality. Upon reasonable notice,
Consumers shall, and shall cause its subsidiaries to, afford to PSC and to the
officers, employees, accountants, counsel, financial advisors and other
representatives of PSC, reasonable access during normal business hours during
the period prior to the Effective Time to all of Consumers' executive officers,
properties, books, contracts, commitments, personnel and records. Upon
reasonable notice, PSC shall, and shall cause its subsidiaries to, afford to
Consumers and to the officers, employees, accountants, counsel, financial
advisors and other representatives of Consumers, reasonable access during normal
business hours during the period prior to the Effective Time to all of PSC's
executive officers, properties, books, contracts, commitments, personnel and
records. During such period, Consumers and PSC shall furnish promptly to the
other Party a copy of each Consumers SEC Document or PSC SEC Document, as the
case may be, filed by it (including any separate subsidiary) as well as all
correspondence or written communication with any securities rating agency or any
Governmental Entity which relates to the transactions contemplated hereby or
which is otherwise material to the financial condition or operations of
Consumers and its subsidiaries taken as a whole, or to PSC and its subsidiaries
taken as a whole, as the case may be. During such period, Consumers and PSC
shall each furnish to the other Party such other financial, operating and other
data as may be reasonably required by the other Party in order to perform its
investigation regarding the representations and warranties made by the other
Party pursuant to this Agreement. Without limiting the foregoing, Consumers
shall use its best efforts to furnish to PSC: (a) after the end of each month,
any management financial reports (together with all accompanying documents)
prepared with respect to such month; (b) all notices from
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any Governmental Entity with respect to any alleged deficiency or violation
which would have a Material Adverse Effect on the financial condition or
operations of any subsidiary; (c) all material filings with Governmental
Entities made by any subsidiaries, (d) all material correspondence with, and any
prepared summaries of meetings with, representatives of the IRS or other taxing
authorities, (e) all material correspondence or communications with state
Governmental Entity concerning any subsidiaries, (f) all correspondence or
communications with any rating agency, and (g) copies of pleadings in all
lawsuits in which the amount in controversy exceeds $25,000. Notwithstanding the
foregoing, if Consumers fails to provide any document to PSC pursuant to this
Section 4.4, and PSC notifies Consumers of such failure, then Consumers shall
provide such document to PSC as soon as practicable thereafter, which shall cure
any breach of this representation and warranty in connection therewith. Except
as required by law, Consumers and PSC will hold, and will cause its respective
directors, officers, partners, employees, accountants, counsel, financial
advisors and other representatives and affiliates to hold, any nonpublic
information obtained from the other Party in confidence to the extent required
by, and in accordance with, the provisions of the Agreement dated April 17,
1998, between Consumers and PSC (the "Consumers Confidentiality Agreement") and
the Agreement dated June 15, 1998, between PSC and Consumers (the "PSC
Confidentiality Agreement").
4.5 Public Announcements. PSC and Consumers will consult with each
other before issuing, and shall provide each other with a reasonable opportunity
to review and comment upon, any press release or public statement with respect
to this Agreement or the transactions contemplated hereby, except to the extent
disclosure prior to such consultation, review and comment may be required by
applicable law, court process or obligations pursuant to any listing agreement
with any national securities exchange.
4.6 Acquisition Proposals.
4.6.1 Consumers shall not, nor shall it authorize or permit any
officer, director or employee of, or any investment banker, attorney, or other
advisor or representative of, Consumers or any of its subsidiaries to, directly
or indirectly, (i) solicit, initiate or encourage the submission of any
Acquisition Proposal (as defined below) or (ii) participate in any discussions
or negotiations regarding, or furnish to any person any information with respect
to, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal; provided, however, that if, at any time prior to receipt
of the approval of the Merger by the holders of the Consumers Common Shares (the
"Consumers Applicable Period"), the Board of Directors of Consumers determines
in good faith, after consultation with outside counsel, that it is necessary to
do so in order to comply with its fiduciary duties to Consumers' shareholders
under applicable law, Consumers may, in response to a Superior Proposal (as
defined in Section 4.7.1) which was not solicited by it or which did not
otherwise result from a breach of this Section 4.6, and subject to providing
prior written notice of its decision to take such action to PSC (the "Consumers
Notice") and compliance with Section 4.6.2 (a) furnish information with respect
to Consumers and its subsidiaries to any person making a Superior Proposal
pursuant to a customary confidentiality agreement (as determined by Consumers
after consultation with its outside counsel) and (b) participate in discussions
or negotiations regarding such Superior Proposal. For purposes of this
Agreement, "Acquisition Proposal" means 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 Consumers and its
subsidiaries, taken as a whole, or 15% or more of any class of voting securities
of Consumers or any of its subsidiaries 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 Consumers or any such subsidiary, or any merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving Consumers or any such subsidiary, other than the
transactions contemplated by this Agreement.
4.6.2 In addition to the obligations of Consumers set forth in
Section 4.6.1, Consumers shall promptly advise PSC orally and in writing of any
request for information or of any Acquisition Proposal, the material terms and
conditions of such request or Acquisition Proposal and the identity of the
person making such request or Acquisition Proposal. Consumers shall keep PSC
reasonably informed of the status and details (including amendments or proposed
amendments) of any such request or Acquisition Proposal.
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4.7 Superior Proposals.
4.7.1 Except as expressly permitted by this Section 4.7, neither
the Board of Directors of Consumers nor any committee thereof shall (i) withdraw
or modify, or propose publicly to withdraw or modify, in a manner adverse to
PSC, the approval or recommendation by such Board of Directors or such committee
of the Merger or this Agreement, (ii) approve or recommend, or propose publicly
to approve or recommend, any Acquisition Proposal, or (iii) cause Consumers 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. Notwithstanding the foregoing, in the event that during
the Consumers Applicable Period the Board of Directors of Consumers determines
in good faith that there is a substantial probability that the adoption of this
Agreement by holders of Consumers Common Stock will not be obtained due to the
existence of a Superior Proposal, the Board of Directors of Consumers may
(subject to payment of the termination fee pursuant to Section 7.2.4) terminate
this Agreement, but only at a time that is during the Consumers Applicable
Period and is after the fifth business day following PSC's receipt of written
notice advising PSC that the Board of Directors of Consumers 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;
provided, that concurrently with such termination, the Board of Directors shall
cause Consumers to enter into an Acquisition Agreement with respect to such
Superior Proposal. For purposes of this Agreement, a "Superior Proposal" means
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 Consumers Common Stock then outstanding
or all or substantially all the assets of Consumers which the Board of Directors
of Consumers determines in its good faith judgment (based on the written advice
of a financial advisor of nationally recognized reputation) to be, taking into
account all legal, financial, regulatory and other aspects of the proposal and
the third party making such proposal, (a) reasonably capable of being completed,
and (b) more favorable to Consumers' shareholders from a financial point of view
and from a strategic point of view than the Merger and the other transactions
contemplated by this Agreement.
4.7.2 Nothing contained in this Section 4.7 shall prohibit
Consumers from taking and disclosing to its shareholders a position contemplated
by Rule 14e-2(a) promulgated under the Exchange Act or from making any
disclosure to Consumers' shareholders if, in the good faith judgment of the
Board of Directors of Consumers, after consultation with outside counsel,
failure so to disclose would be inconsistent with its obligations under
applicable law; provided, however, that, subject to Section 4.7.1, neither
Consumers 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.
4.8 Filings; Other Action. As promptly as practicable, (i) Consumers
and PSC shall make all filings and submissions under the HSR Act and shall
equally contribute to the required filing fee, and (ii) Consumers and PSC shall
cooperate in all reasonable respects with each other in (a) determining if other
filings are required to be made prior to the Effective Time with, or if other
material consents, approvals, permits, notices or authorizations are required to
be obtained prior to the Effective Time from any Governmental Entity in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and (b) timely making all
such filings and timely seeking all such consents, approvals, permits, notices
or authorizations. In connection with the foregoing, Consumers will provide PSC,
and PSC will provide Consumers, with copies of correspondence, filings or
communications (or memoranda setting forth the substance thereof) between such
party or any of its representatives, on the one hand, and any Governmental
Entity or members of their respective staffs, on the other hand, with respect to
this Agreement and the transactions contemplated hereby. Each of PSC and
Consumers acknowledge that certain actions may be necessary with respect to the
foregoing in making notifications and obtaining clearances, consents, approvals,
waivers or similar third party actions which are material to the consummation of
the transactions contemplated hereby, and each of PSC and Consumers agrees to
take such action as is reasonably necessary to complete such notifications and
obtain such clearances, approvals, waivers or third party actions.
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4.9 Stock Exchange Listing. PSC shall use its best efforts to cause the
PSC Common Shares to be issued in the Merger to be approved for listing on the
NYSE subject to official notice of issuance, prior to the Closing Date.
4.10 Affiliates and Certain Shareholders. Prior to the Closing Date,
Consumers shall deliver to PSC a letter identifying all persons who it believes
to be, at the time the Merger is submitted for approval to the shareholders of
Consumers, "affiliates" of Consumers for purposes of Rule 145 under the
Securities Act. Consumers shall use its best efforts to cause each such person
to deliver to PSC on or prior to the Closing Date a written agreement in
connection with restrictions on affiliates under Rule 145, in substantially the
form attached as Exhibit C, which is attached hereto and made a part hereof. PSC
shall not be required to maintain the effectiveness of the Form S-4 or any other
registration statement under the Securities Act for the purposes of resale of
PSC Common Shares by such affiliates, and the certificates representing PSC
Common Shares received by such affiliates in the Merger shall bear a customary
legend regarding applicable Securities Act restrictions and the provisions of
this Section 4.10. Consumers shall use its best efforts to obtain from each of
the beneficial owners (within the meaning of Rule 13d-3 and Rule 13d-5 of the
Exchange Act) of five percent (5%) or more of Consumers Common Shares such
representation letters addressed to PSC and Drummond Woodsum & MacMahon as such
law firm shall require in connection with the delivery of its tax opinion
pursuant to Section 6.3.3.
4.11 Employee Matters.
4.11.1. PSC shall, or shall cause Acquisition to, for at least one
(1) year after the Effective Time, provide or cause to be provided to employees
of Consumers and its subsidiaries, including former employees and family members
of employees, compensation and benefit plans that are no less favorable than the
Consumers Benefit Plans; provided, however, that with respect to employees who
are subject to collective bargaining, all benefits shall be provided in
accordance with the applicable collective bargaining agreement. PSC shall, and
shall cause Acquisition to, honor, pursuant to their terms, all employee benefit
obligations to current and former employees under the Consumers Benefit Plans.
4.11.2 Following the Effective Time, PSC shall, and shall cause
Acquisition to honor all the obligations of Consumers and its subsidiaries under
the Severance Plan, Executive Severance Plan, Subsidiary Executive Severance
Plans, Supplemental Employee Retirement Plan and Director Deferred Compensation
Plans which have been disclosed to PSC, in accordance with their terms, as of
the date hereof.
4.11.3 Consumers may, at its discretion, establish a program of
stay-on bonuses for senior management of Consumers and its subsidiaries pursuant
to which Consumers may pay such bonuses up to a total aggregate amount of
$255,000 for all such bonuses to such individuals and in such individual amounts
as determined by the Board of Directors of Consumers.
4.12 Representation on PSC Board. The Board of Directors of PSC shall
use its best efforts to increase the authorized number of directors as of the
Effective Time so as to permit the appointment of four (4) directors of
Consumers, as mutually determined by PSC and Consumers, to serve as directors of
PSC, one to serve until the year 1999 PSC annual meeting, one to serve until the
year 2000 PSC annual meeting, and two to serve until the year 2001 PSC annual
meeting or until their respective earlier deaths, resignations or removals in
accordance with PSC's Articles of Incorporation and By-Laws. PSC shall include
the one individual who will serve until the year 1999 PSC annual meeting on the
list of nominees for directors presented by the Board of Directors of PSC and
for which said Board shall solicit proxies at the first annual meeting at which
his appointed term expires. PSC shall consider including the one individual who
will serve until the year 2000 PSC Annual Meeting and the two individuals who
will serve until the year 2001 PSC Annual Meeting on the list of nominees for
directors presented by the Board of Directors of PSC and for which said Board
shall solicit proxies at the first annual meeting at which their appointed terms
expire.
4.13 Termination of Consumers' DRIP. Consumers shall have terminated
its DRIP on or immediately before the Closing Date.
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4.14 Federal Income Tax Treatment. Consumers and PSC shall use their
reasonable best efforts to ensure that the Merger constitutes a reorganization
within the meaning of Section 368(a)(1) of the Code and that shareholders of
Consumers will not be subject to federal income tax on the receipt of PSC Common
Shares in exchange for Consumers Common Shares pursuant to the Merger.
4.15 Takeover Statute. If any state takeover statute shall become
applicable to the transactions contemplated hereby, Consumers and PSC and the
members of their respective Boards of Directors shall grant such approvals and
take such actions as are reasonably necessary so that the transactions
contemplated hereby may be consummated as promptly as practicable on the terms
contemplated hereby and otherwise act to eliminate or minimize the effects of
such statute or regulation on the transactions contemplated hereby.
4.16 Continuance of Existing Indemnification Rights
4.16.1 For six (6) years after the Effective Time, PSC shall
indemnify, defend and hold harmless any person who is now or has been at any
time prior to the date hereof, or who becomes prior to the Effective Time, a
director or officer of Consumers (an "Indemnified Person") against all losses,
claims, damages, liabilities, costs and expenses (including attorneys' fees and
expenses), judgments, fines, losses and amounts paid in settlement in connection
with any actual or threatened action, suit, claim, proceeding or investigation
(each, a "Claim") to the extent that any such Claim is based on, or arises out
of: (i) the fact that such Indemnified Person is or was a director or officer of
Consumers or one of Consumers' subsidiaries is or was serving at the request of
Consumers as a director, officer, employee, or agent of another corporation,
partnership, joint venture trust or other enterprise or one of Consumers'
subsidiaries; or (ii) the Agreement or any of the transactions contemplated
hereby, in each case, to the extent that any such Claim pertains to any matter
or fact arising, existing or occurring prior to or at the Effective Time,
regardless of whether such Claim is asserted or claimed prior to, at or after
the Effective Time, to the full extent permitted under the MBCA, Consumers'
Articles of Incorporation or By-Laws or any indemnification agreement in effect
at the date hereof, including provisions relating to advancement of expenses
incurred in the defense of any such Claim. Without limiting the generality of
the preceding sentence, in the event any Indemnified Person becomes involved in
any Claim, after the Effective Time, PSC shall periodically advance to such
Indemnified Person its reasonable legal and other expenses (including the cost
of any investigation and preparation incurred in connection therewith), subject
to the providing by such Indemnified Person of an undertaking to reimburse all
amounts so advanced in the event of a final non-appealable determination by a
court of competent jurisdiction that such Indemnified Person is not entitled
thereto.
4.16.2 PSC and Consumers agree that all rights to indemnification,
and all limitations with respect thereto, existing in favor of any Indemnified
Person, as provided in Consumers' Articles of Incorporation, or By-Laws and any
indemnification agreement in effect at the date hereof, shall survive the Merger
and shall continue in full force and effect, without any amendment thereto, for
a period of six (6) years from the Effective Time, to the extent such rights and
limitations are consistent with the MBCA; provided, however, that in the event
any Claim is asserted or made within such six (6) year period, all such rights,
liabilities and limitations in respect of any such Claim shall continue until
disposition thereof; provided further, that any determination required to be
made with respect to whether an Indemnified Person's conduct complies with the
standards set forth under the MBCA, Consumers' Articles of Incorporation, or
By-Laws or any such agreement, as the case may be, shall be made by independent
legal counsel selected by such Indemnified Person and reasonably acceptable to
PSC and provided further, that nothing in this Section 4.16 shall impair any
rights or obligations of any current or former director or officer of Consumers.
4.16.3 PSC shall, in its sole discretion, either maintain
Consumers' existing directors' and officers' liability insurance policy ("D&O
Insurance") or substitute for D&O Insurance such policies of substantially
similar coverage and amounts containing terms no less advantageous to such
former directors or officers; provided further, that if the existing D&O
Insurance expires or is canceled within six (6) years from the Effective Time,
PSC shall use its best efforts to obtain substantially similar D&O Insurance;
and provided further, that PSC shall not be required to pay an annual premium
for D&O Insurance in excess of 200% of the last annual premium paid prior to the
date hereof, but in such case shall purchase as much coverage as possible for
such amount. If PSC provides a substitute insurance policy
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for the D&O Insurance, Consumers shall use its best efforts to cause each
director and officer of Consumers to complete any application required by the
insurance company providing such insurance.
4.16.4 The provisions of this Section 4.16 are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Person, his or her
heirs and personal representatives.
4.17 Consulting Agreements Consumers may, at its discretion, enter into
consulting agreements with such employees following their termination of
employment as authorized by the Board of Directors of Consumers to provide
advice and assistance in connection with the Merger and matters that may arise
after the completion of the Merger, provided that the aggregate amount paid or
payable under such consulting agreements shall not exceed $300,000.
ARTICLE 5
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER
5.1 Conduct of Business by Consumers. Except as contemplated by this
Agreement or as set forth in Section 5.1 of the Disclosure Schedule, during the
period from June 27, 1998 to the Effective Time, Consumers has and shall, and
shall cause its subsidiaries to, act and carry on their respective businesses in
the ordinary course of business and, to the extent consistent therewith, use
best efforts to preserve intact their current business organizations, keep in
full force and effect their Licenses, keep available the services of their
current key officers, employees, agents and field representatives, and preserve
the goodwill of regulators or those engaged in material business relationships
with them. Without limiting the generality of the foregoing, during the period
from June 27, 1998 to the Effective Time, Consumers has not and shall not, and
shall not permit any of its subsidiaries to, without the prior written consent
of PSC:
5.1.1 adopt or propose any change to its Articles of Incorporation
or By-Laws;
5.1.2 (i) declare, set aside or pay any dividends on, or make any
other distributions with respect to, any of Consumers' outstanding capital stock
(other than dividends required to be paid on the Consumers Preferred Shares in
accordance with the respective terms thereof, regular quarterly dividends on
Consumers Common Shares with usual record and payment dates during any fiscal
year, not in excess of $0.005 per quarter per share greater than the per share
dividends for the corresponding quarter in the prior fiscal year), (ii) split,
combine or reclassify any of its outstanding capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of, or in
substitution for shares of its outstanding capital stock or (iii) purchase,
redeem or otherwise acquire any shares of capital stock or other securities of
Consumers, except for Consumers DRIP;
5.1.3 issue, sell, grant, pledge or otherwise encumber any shares
of its capital stock, any other voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares, voting
securities or convertible securities or to issue shares or units under the LTIP,
specifically excluding (i) the exercise of options outstanding on June 27, 1998
or (ii) the issuance of shares or units under Consumers' DRIP;
5.1.4 acquire any business or any corporation, partnership, joint
venture, association or other business organization or division for a purchase
price in any instance greater than $500,000;
5.1.5 take any action that, if taken prior to the date of this
Agreement, would have been required to be disclosed in Section 2.6 of the
Disclosure Schedule or that would otherwise cause any of the representations and
warranties contained in Article 2 not to be true and correct in all material
respects;
5.1.6 sell, mortgage or otherwise encumber or subject to any lien
or otherwise dispose of any of its properties or assets that are material to
Consumers and its subsidiaries taken as a whole, except in the ordinary course
of business;
5.1.7 (i) except for borrowings in the ordinary course of business
under existing credit facilities, incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person, other than
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indebtedness owing to or guaranties of indebtedness owing to Consumers or any
direct or indirect subsidiary of Consumers or (ii) make any loans or advances
other than routine advances in the ordinary course of business to employees;
5.1.8 make any tax election or settle or compromise any income tax
liability;
5.1.9 except in the ordinary course of business, modify, amend or
terminate, or waive, release or assign any material rights or claims under any
material agreement, license or similar instrument to which Consumers or any of
its subsidiaries is a party;
5.1.10 authorize any of, or commit or agree to take any of, the
foregoing actions; or
5.1.11 make or incur any obligations for capital expenditures for
or on behalf of Consumers or its subsidiaries in excess of $25,000,000 for
calendar year 1998, $26,000,000 for calendar year 1999, or $23,000,000 for
calendar year 2000; or
5.1.12 increase the salary or compensation or benefits of any
director, officer or employee other than in accordance with past practice, or in
accordance with a program of stay-on bonuses for employees at Consumers'
headquarters in Portland, Maine; or
5.1.13. increase the number of Directors on Consumers' Board to
more than eight (8).
5.2 Management of Consumers and its Subsidiaries. Consumers shall, from
the date of this Agreement through the Effective Time, cause its management and
that of its subsidiaries to consult on a regular basis and in good faith with
the executive officers and representatives of PSC concerning the management of
Consumers and its subsidiaries. Notwithstanding the foregoing, the business and
affairs of Consumers shall continue to be managed by Consumers' directors and
officers until the Effective Time.
5.3 Conduct of Business by PSC. Except as contemplated by this
Agreement or as set forth in Section 5.3 of the Disclosure Schedule, during the
period from June 27, 1998 to the Effective Time, PSC has and shall, and shall
cause its subsidiaries to, act and carry on their respective businesses in the
ordinary course of business and, to the extent consistent therewith, use best
efforts to preserve intact their current business organizations, keep available
the services of their current key officers and employees and preserve the
goodwill of those engaged in material business relationships with them. Without
limiting the generality of the foregoing, during the period from June 27, 1998
to the Effective Time, PSC has not and shall not and shall not permit any of its
significant subsidiaries to, without the prior written consent of Consumers:
5.3.1 adopt or propose any change to its Articles of Incorporation
or By-Laws, except as otherwise contemplated by this Agreement;
5.3.2 issue, sell, grant, pledge or otherwise encumber any shares
of its capital stock, any other voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares, voting
securities or convertible securities, in each case if any such action could
reasonably be expected to (i) delay materially the date of mailing of the Proxy
Statement/Prospectus, or (ii) if it were to occur after such date of mailing,
require an amendment of the Proxy Statement/Prospectus;
5.3.3 acquire any business or any corporation, partnership, joint
venture, association or other business organization or division thereof, in each
case if any such action could reasonably be expected to (i) delay materially the
date of mailing of the Proxy Statement/Prospectus, or (ii) if it were to occur
after such date of mailing, require an amendment of the Proxy
Statement/Prospectus; or
5.3.4 authorize any of, or commit or agree to take any of, the
foregoing actions.
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5.4 Other Actions. Consumers and PSC shall not, and shall not permit
any of their respective subsidiaries to, take any action that would, or that
could reasonably be expected to, result in (i) any of the representations and
warranties of such party set forth in this Agreement becoming untrue in any
material respect, or (ii) any of the conditions of the Merger set forth in
Article 6 not being satisfied.
5.5 Pooling of Interests Accounting Treatment. Consumers and PSC shall
use their best efforts to preserve the "pooling of interests" accounting
treatment for the Merger.
5.6 Termination of Long Term Incentive Plan. Consumers' Board of
Directors shall terminate the Consumers Senior Management Long Term Incentive
Plan ("LTIP") as of the date hereof.
ARTICLE 6
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each Party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
6.1.1 Consumers Shareholder Approval. This Agreement and the Merger
shall require: (i) the affirmative vote of the holders of a majority of the
outstanding Consumers Common Shares entitled to vote at the Consumers Special
Meeting; and (ii) the affirmative vote of the holders of a majority of the
outstanding Consumers Preferred Shares entitled to vote at the Consumers Special
Meeting (collectively "Consumers Shareholder Approval").
6.1.2 PSC Shareholder Approval. This Agreement, the Merger, and the
increase in the authorized capital stock of PSC required to consummate the
transactions contemplated by this Agreement shall have been approved and adopted
by an affirmative vote of the holders of the requisite number of shares present,
in person or by proxy, and entitled to vote on the Merger at the PSC Special
Meeting. This Agreement and the Merger shall have been approved and adopted by
the sole shareholder of Acquisition.
6.1.3 Governmental and Regulatory Consents. Consumers and PSC shall
have made all such filings, and obtained such permits, authorizations, consents,
or approvals required by any Governmental Entity to consummate the transactions
contemplated hereby; (collectively, the "Governmental Consents") and such
Governmental Consents have become Final Orders (as hereinafter defined);
provided, however, that such Governmental Consents shall impose no conditions
that, in the reasonable opinion of Consumers and PSC, would be expected to have
a Material Adverse Effect after giving effect to the consummation of the Merger.
For purposes of this Agreement, a "Final Order" shall mean action by the
relevant Governmental Entity that has not been reversed, stayed, enjoined, set
aside, annulled or suspended, with respect to which all periods for appeal or
reconsideration thereof, and any waiting period prescribed by law before the
consummation of the transactions contemplated by this Agreement has expired, and
as to which all conditions to the consummation of such transactions prescribed
by law, regulation or order have been satisfied.
6.1.4 HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or shall
have otherwise expired.
6.1.5 No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect; provided, however, that the Party
invoking this condition shall use its best efforts to have any such order or
injunction vacated.
6.1.6 NYSE Listing. The PSC Common Shares issuable to Consumers'
shareholders pursuant to this Agreement shall have been approved for listing on
the NYSE, subject to official notice of issuance.
6.1.7 Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order.
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6.2 Conditions to Obligations of PSC and Acquisition. The obligations
of PSC and Acquisition to effect the Merger are further subject to the following
conditions:
6.2.1 Representations and Warranties. The representations and
warranties of Consumers contained in this Agreement shall be true and correct in
all material respects on the date hereof and (except to the extent specifically
given as of an earlier date) on and as of the Closing Date as though made on the
Closing Date, and Consumers shall have delivered to PSC a certificate dated as
of the Closing Date signed by an executive officer to the effect set forth in
this Section 6.2.1.
6.2.2 Performance of Obligations of Consumers. Consumers shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Consumers shall
have delivered to PSC a certificate dated as of the Closing Date signed by an
executive officer to the effect set forth in this Section 6.2.2.
6.2.3 Opinion of Counsel. PSC shall have received an opinion dated
the Closing Date of Drummond Woodsum & MacMahon, counsel to Consumers, in
substantially the form attached as Exhibit D, which is attached hereto and made
a part hereof.
6.2.4 Satisfactory Completion of Due Diligence. PSC shall have
received the continuing access to the records and information concerning
Consumers and the assistance of its employees, agents and representatives
reasonably needed in order to complete PSC's due diligence review of Consumers
and shall have completed such review on or before September 1, 1998, without
identifying any facts or circumstances not previously disclosed in the Consumers
SEC Documents or Disclosure Schedule that would have a Material Adverse Effect
on Consumers in excess of $2,000,000 in the aggregate.
6.2.5 Pooling-of-Interests. The Merger shall, as of the date of the
Closing, meet the requirements for pooling-of-interests accounting treatment
under generally accepted accounted principles and under the accounting rules of
the SEC.
6.2.6 Releases Consumers shall have obtained legally effective
releases from all participants in the LTIP of any and all claims for payments or
benefits from the LTIP or arising from the termination of the LTIP.
6.3 Conditions to Obligations of Consumers. The obligation of Consumers
to effect the Merger is further subject to the following conditions:
6.3.1 Representations and Warranties. The representations and
warranties of PSC and Acquisition contained in this Agreement shall be true and
correct in all material respects on the date hereof and (except to the extent
specifically given as of an earlier date) on and as of the Closing Date as
though made on the Closing Date, and PSC and Acquisition shall have delivered to
Consumers a certificate dated as of the Closing Date, signed by an executive
officer of each of them and to the effect set forth in this Section 6.3.1.
6.3.2 Performance of Obligations of PSC and Acquisition. Each of
PSC and Acquisition shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the Closing Date, and PSC and Acquisition shall have delivered to Consumers a
certificate dated as of the Closing Date, signed by an executive officer of each
of them and to the effect set forth in this section 6.3.2
6.3.3 Tax Opinion. Consumers shall have received an opinion dated
the Closing Date of Drummond Woodsum & MacMahon, counsel to Consumers, to the
effect that for federal income tax purposes the Merger will constitute a
reorganization within the meaning of Section 368(a)(1) of the Code and that
shareholders of Consumers will not be subject to federal income tax on the
receipt of PSC Common Shares in exchange for Consumers Common Shares pursuant to
the Merger. In rendering such opinion, Drummond Woodsum & MacMahon shall be
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entitled to receive and may rely on representations contained in certificates of
PSC and Consumers and representation letters of certain shareholders of
Consumers.
6.3.4 Opinion of Counsel. Consumers shall have received an opinion
dated the Closing Date of Reed Smith Shaw & McClay LLP, counsel to PSC, in
substantially the form attached as Exhibit E, which is attached hereto and made
a part hereof.
6.3.5 Satisfactory Completion of Due Diligence. Consumers shall
have received the continuing access to the records and information concerning
PSC and the assistance of its employees, agents and representatives reasonably
needed in order to complete Consumers' due diligence review of PSC and shall
have completed such review on or before September 1, 1998, without identifying
any facts or circumstances not previously disclosed in the PSC SEC Documents or
PSC Disclosure Schedule that would have a Material Adverse Effect on PSC in
excess of $2,000,000 in the aggregate.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated and abandoned at any
time prior to the Effective Time:
7.1.1 by mutual written consent of PSC and Consumers;
7.1.2 by either PSC or Consumers:
(i) if, upon a vote at a duly held Consumers Special Meeting,
this Agreement and the Merger shall fail to receive the requisite vote for
approval and adoption by the shareholders of Consumers;
(ii) if, upon a vote at a duly held PSC Special Meeting, any
required increase in the authorized common stock of PSC and this Agreement and
the Merger shall fail to receive the requisite vote for approval and adoption by
the shareholders of PSC;
(iii) if the Merger shall not have been consummated on or
before July 1, 1999 (the "Termination Date"), unless the failure to consummate
the Merger is the result of a willful and material breach of this Agreement by
the Party seeking to terminate this Agreement; provided that the Termination
Date shall automatically be extended for up to six (6) months if, on July 1,
1999: (a) any of the conditions set forth in Section 6.1.3 has not been
satisfied or waived, (b) all of the other conditions to the consummation of the
Merger set forth in Article 6 have been satisfied or waived or can readily be
satisfied, and (c) any Governmental Consent that has not yet been obtained is
being pursued diligently and in good faith;
(iv) if any Governmental Entity shall have issued an order,
decree or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the Merger and such order, decree, ruling or other action
shall have become final and nonappealable; or
(v) if the Board of Directors of Consumers shall have
exercised its rights set forth in Section 4.7 of this Agreement; or
7.1.3 by Consumers upon a material breach of any representation or
warranty of PSC or if PSC fails to comply in any material respect with any of
its covenants or agreements, or if any representation or warranty of PSC shall
be or become untrue in any material respect, in either case such that the
conditions set forth in Sections 6.3.1 and 6.3.2 would be incapable of being
satisfied by the Closing Date, provided that a willful breach shall be deemed to
cause such conditions to be incapable of being satisfied by such date; or
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7.1.4 by PSC upon a material breach of any representation or
warranty of Consumers or if Consumers fails to comply in any material respect
with any of its covenants or agreements, or if any representation or warranty of
Consumers shall be or become untrue in any material respect, in either case such
that the conditions set forth in Sections 6.2.1 and 6.2.2 would be incapable of
being satisfied by the Closing Date, provided that a willful breach shall be
deemed to cause such conditions to be incapable of being satisfied by such date;
or
7.1.5 by Consumers, if: (i) the product of the Calculation Price
(as that term is defined in Exhibit A) and 1.459 is less than $28.000; (ii) the
Adjustment Election Period (as that term is defined in Exhibit A) has expired
and PSC has not made an Adjustment Election (as that term is defined in Exhibit
A); and (iii) the Board of Directors of Consumers determines at any time during
the three (3) business day period commencing on the expiration of the Adjustment
Election Period (the "Consumers Evaluation Period"), that it elects to exercise
its termination right pursuant to this Section 7.1.5. Consumers shall give
prompt written notice of its intention to terminate (the "Termination Notice"),
which termination shall be effective at the close of business on the final day
of the Consumers Evaluation Period (which termination may be withdrawn at any
time prior to the effectiveness of the termination).
7.2 Effect of Termination.
7.2.1 In the event of termination of this Agreement by either
Consumers or PSC as provided in Section 7.1, this Agreement shall forthwith
become void and have no effect, without any liability or obligation on the part
of PSC or Consumers, other than Section 7.2, Section 10.2, and the last sentence
of Section 4.4.
7.2.2 In the event of termination of this Agreement by PSC pursuant
to Section 7.1.4, Consumers shall pay PSC $1,250,000 in cash, as liquidated
damages, within sixty (60) calendar days of such termination, provided that PSC
shall not be in material breach of its obligations under this Agreement. Such
damages, if payable, shall be paid only once.
7.2.3 In the event of termination of this Agreement by Consumers
pursuant to Section 7.1.3, PSC shall pay Consumers $1,250,000 in cash, as
liquidated damages, within sixty (60) calendar days of such termination,
provided that Consumers shall not be in material breach of its obligations under
this Agreement. Such damages, if payable, shall be paid only once.
7.2.4 In the event of termination of this Agreement by either PSC
or Consumers pursuant to Section 7.1.2(v), or in the event of termination of
this Agreement by PSC or Consumers pursuant to Section 7.1.2(i) if at the time
of the Consumers Special Meeting there was an Acquisition Proposal as defined in
Section 4.6 and within twelve (12) months after the Consumers Special Meeting a
transaction is agreed to with the person or entity that made such Acquisition
Proposal, and such transaction is subsequently consummated, Consumers shall pay
PSC $9,000,000 in cash, as a termination fee and not as a penalty, within sixty
(60) calendar days of such termination or consummation, whichever is later,
provided that PSC shall not be in material breach of its obligations under this
Agreement.
7.2.5 In the event of termination of this Agreement pursuant to
Section 7.1.5, there shall be no termination fee due or payable to either
Consumers or PSC.
7.2.6 The payments provided in Sections 7.2.2, 7.2.3 and 7.2.4
shall be the Parties' sole and exclusive remedies hereunder for the termination
of this Agreement under the circumstances in which such payments are paid
(regardless of any breach of this Agreement), and upon such delivery of such
payment to PSC or Consumers, as the case may be, no person shall have any
further claim or rights against Consumers, PSC or Acquisition under this
Agreement.
7.3 Amendment. Subject to the applicable provisions of the Pennsylvania
Code, at any time prior to the Effective Time, the Parties hereto may modify or
amend this Agreement, by written agreement executed and delivered by duly
authorized officers of the respective Parties; provided, however, that after
approval of the Merger by the shareholders of Consumers, no amendment shall be
made which reduces the Merger Consideration payable in the Merger or adversely
affects the rights of Consumers' shareholders hereunder without the approval of
such shareholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the Parties.
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7.4 Extension; Waiver. At any time prior to the Effective Time, the
Parties may (i) extend the time for the performance of any of the obligations or
other acts of the other Parties, (ii) waive any inaccuracies in the
representations and warranties of the other Parties contained in this Agreement
or in any document delivered pursuant to this Agreement, or (iii) subject to
Section 7.3, waive compliance with any of the agreements or conditions of the
other parties contained in this Agreement. Any agreement on the part of a Party
to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such Party. The failure of any Party
to this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of such rights.
7.5 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 7.1, an amendment of this
Agreement pursuant to Section 7.3 or an extension or waiver pursuant to Section
7.4 shall, in order to be effective, require in the case of PSC or Consumers,
action by its Board of Directors.
ARTICLE 8
SURVIVAL OF PROVISIONS
8.1 Survival. The representations and warranties respectively required
to be made by Consumers and PSC and Acquisition in this Agreement, or in any
certificate, respectively, delivered by Consumers or PSC and Acquisition
pursuant to Section 6.2 or Section 6.3 hereof, will terminate upon the Closing
and be of no further force or effect.
ARTICLE 9
NOTICES
9.1 Notices. Any notice or communication given pursuant to this
Agreement must be in writing and will be deemed to have been duly given if
mailed (by registered or certified mail, postage prepaid, return receipt
requested), transmitted by facsimile, or delivered by courier, as follows:
If to Consumers, to:
Consumers Water Company
Three Canal Plaza
P.O. Box 599
Portland, Maine 04112-0599
Attention: Peter L. Haynes, President and CEO
Telephone: (207) 828-5913
Facsimile: (207) 761-7903
with a copy to:
Drummond Woodsum & MacMahon
254 Commercial Street
P. O. Box 9781
Portland, Maine 04104-5081
Attention: Joseph L. Delafield, III, Esquire
Telephone: (207) 772-1941
Facsimile: (207) 772-3627
If to PSC, to:
Philadelphia Suburban Corporation
762 West Lancaster Avenue
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Bryn Mawr, Pennsylvania 19010-3489
Attention: Nicholas DeBenedictis, Chairman, President and CEO
Telephone: (610) 645-1114
Facsimile: (610) 645-1061
If to Acquisition, to:
Consumers Acquisition Company
762 W. Lancaster Avenue
Bryn Mawr, Pennsylvania 19010-3489
Attention: Nicholas DeBenedictis, Chairman and President
Telephone: (610) 645-1114
Facsimile: (610) 645-1061
with copies to:
Reed Smith Shaw & McClay LLP
2500 One Liberty Place
1650 Market Street
Philadelphia, Pennsylvania 19103
Attention: Peter J. Tucci, Esquire
Telephone: (215) 851-8130
Facsimile: (215) 851-1420
All notices and other communications required or permitted under this
Agreement that are addressed as provided in this Section 9.1 will, whether sent
by mail, facsimile or courier, be deemed given upon the first business day after
actual delivery to the Party to whom such notice or other communication is sent
(as evidenced by the return receipt or shipping invoice signed by a
representative of such Party or by facsimile confirmation). Any Party from time
to time may change its address for the purpose of notices to that Party by
giving a similar notice specifying a new address, but no such notice will be
deemed to have been given until it is actually received by the Party sought to
be charged with the contents thereof. For purposes of this Section 9.1,
"business day" shall mean a day other than Saturday, Sunday or any day on which
the principal commercial banks located in Philadelphia, Pennsylvania are
authorized or obligated to close under the laws of the Commonwealth of
Pennsylvania.
ARTICLE 10
MISCELLANEOUS
10.1 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes, except as set forth in Section 4.4 with respect to the
Confidentiality Agreement, all prior communications, agreements, understandings,
representations and warranties, whether oral or written, between the parties
hereto. There are no oral or written agreements, understandings, representations
or warranties between the parties hereto with respect to the subject hereof
other than those set forth in this Agreement.
10.2 Expenses. Consumers, PSC, and Acquisition each will pay its own
costs and expenses incident to preparing for, entering into and carrying out
this Agreement and the consummation of the transactions contemplated hereby,
except that (i) the filing fee in respect of the notification and report under
the HSR Act, and (ii) the expenses incurred in connection with the printing,
mailing and distribution of the Proxy Statement/Prospectus and the preparation
and filing of the Form S-4 shall be borne equally by Consumers and PSC.
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10.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which will
constitute one and the same instrument and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other parties.
10.4 No Third Party Beneficiary. Except as expressly provided herein,
this Agreement is not intended and may not be construed to create any rights in
any parties other than Consumers, PSC and Acquisition and their respective
successors or assigns, and it is not the intention of the parties to confer
third party beneficiary rights upon any other person.
10.5 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania (without regard
to the principles of conflicts of law).
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10.6 Assignment; Binding Effect. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties, such consent not to be
unreasonably withheld, and any such assignment that is not consented to shall be
null and void. Notwithstanding the preceding sentence, this Agreement will be
binding upon, inure to the benefit of, and be enforceable by the parties and
their respective successors and assigns including but not limited to any entity
that is a successor, by merger or otherwise, of PSC.
10.7 Headings, Gender, etc. The headings used in this Agreement have
been inserted for convenience and do not constitute matter to be construed or
interpreted in connection with this Agreement. Unless the context of this
Agreement otherwise requires, (i) words of any gender are deemed to include the
other gender; (ii) words using the singular or plural number also include the
plural or singular number, respectively; (iii) the terms "hereof," "herein,"
"hereby," "hereto," and derivative or similar words refer to this entire
Agreement; (iv) the terms "Article" or "Section" refer to the specified Article
or Section of this Agreement; (v) all references to "dollars" or "$" refer to
currency of the United States of America; (vi) the term "person" shall include
any natural person, corporation, limited liability company, general partnership,
limited partnership, trust or other entity, enterprise, authority or business
organization; and (vii) the term "or" is disjunctive but not necessarily
exclusive.
10.8 Invalid Provisions. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under any present or future law, and if the
rights or obligations of Consumers or PSC and Acquisition under this Agreement
will not be materially and adversely affected thereby, (i) such provision will
be fully severable; (ii) this Agreement will be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a part
hereof; and (iii) the remaining provisions of this Agreement will remain in full
force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom.
10.9 Material Adverse Effect. As used in this Agreement, the term
"Material Adverse Effect" means a material adverse effect on the business,
results of operations, financial condition, or prospects of either Consumers or
PSC and their subsidiaries, as the case may be, taken as a whole, provided,
however, that Material Adverse Effect shall not be deemed to include (a)
reasonable expenses incurred in connection with the transactions contemplated
hereby, and (b) actions or omissions by either Consumers or PSC, or any of their
subsidiaries, as the case may be, taken with the prior written consent of the
other Party in connection with the transactions contemplated hereby.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officers of Consumers, PSC and Acquisition effective as
of the date first written above.
PHILADELPHIA SUBURBAN CORPORATION
By: /s/ Nicholas DeBenedictis
-----------------------------------------------
Name: Nicholas DeBenedictis
Title: Chairman, President and Chief Executive Officer
CONSUMERS ACQUISITION COMPANY
By: /s/ Nicholas DeBenedictis
-----------------------------------------------
Name: Nicholas DeBenedictis
Title: Chairman and President
CONSUMERS WATER COMPANY
By: /s/ Peter L. Haynes
-----------------------------------------------
Name: Peter L. Haynes
Title: President and Chief Executive Officer
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================================================================================
EXHIBIT A
Exchange Ratio
The "Exchange Ratio" shall be 1.459. If the Exchange Ratio is adjusted pursuant
to this Exhibit A, then any references in this Agreement to the Exchange Ratio
shall thereafter refer to the Exchange Ratio as adjusted.
Notwithstanding any other provisions in this Agreement, if the product of 1.459
and the Calculation Price (as defined below) exceeds $32.000, then the Exchange
Ratio shall equal the quotient determined by dividing $32.000 by the Calculation
Price (rounded to the nearest one-thousandth of a dollar).
If the product of 1.459 and the Calculation Price is less than $28.000, then,
during the three (3) business day period commencing on the Determination Date
(the "Adjustment Election Period"), PSC shall have the option, but not the
obligation, of adjusting the Exchange Ratio (an "Adjustment Election") to equal
the quotient determined by dividing $28.000 by the Calculation Price (rounded to
the nearest one-thousandth of a dollar) by delivering written notice (the
"Adjustment Election Notice") to Consumers within the Adjustment Election Period
of its intention to so adjust the Exchange Ratio.
The Calculation Price is the volume weighted average (rounded to the nearest
one-thousandth of a dollar) of the trading prices of PSC Common Stock on the New
York Stock Exchange ("NYSE"), as reported by Bloomberg Financial Markets (or
such other source as the parties shall agree in writing), for each of the ten
(10) consecutive trading days ending five (5) days before the Determination
Date. The "Determination Date" is the date on which all the conditions to
Closing (other than those conditions that by their terms cannot be satisfied
until the Closing Date) set forth in Article 6 have been satisfied or waived.
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ANNEX B
June 27, 1998
Board of Directors
Philadelphia Suburban Corporation
762 West Lancaster Avenue
Bryn Mawr, Pennsylvania 19010-3489
Ladies and Gentlemen:
You have requested our opinion as investment bankers as to the
fairness, from a financial point of view, to Philadelphia Suburban Corporation
(the "Company") of the Exchange Ratio (as defined below) in connection with the
proposed acquisition (the "Proposed Acquisition") of Consumers Water Company
(the "Subject Company"), pursuant to the Agreement and Plan of Merger (the
"Agreement"), dated as of June 27, 1998, by and among the Subject Company, the
Company and Caribbean Acquisition Company, a wholly owned subsidiary of the
Company ("Merger Sub").
As more specifically set forth in the Agreement, and subject to the
terms and conditions thereof, the Subject Company will merge with and into
Merger Sub and each issued and outstanding share of common stock, par value
$1.00 per share, of the Subject Company (other than shares held as treasury
shares by the Subject Company) (the "Subject Company Common Stock") will be
converted into the right to receive 1.459 shares, subject to adjustment in
accordance with the terms of the Agreement, other than pursuant to delivery of
an Adjustment Election Notice (as defined in the Agreement) by the Company, (the
"Exchange Ratio"), of common stock, par value $.50 per share, of the Company
(the "Company Common Stock"). Merger sub will continue as the surviving
corporation in respect of such transaction and the surviving corporation will be
a wholly owned subsidiary of the Company. We understand that this Proposed
Acquisition will be accounted for as a pooling-of-interests in accordance with
generally accepted accounting principles as described in Accounting Principles
Board Opinion Number 16.
In connection with rendering our opinion, we have reviewed and
analyzed, among other things, the following; (i) a copy of the Agreement; (ii)
certain publicly available information concerning the Company including the
Annual Reports on Form 10-K of the Company for each of the years in the three
year period ended December 31, 1997; (iii) certain internal information,
primarily financial in nature, including projections, concerning the business
and operations of the Company, furnished to us by the Company for purposed of
our analysis; (iv) certain publicly available information concerning the trading
of, and the trading market for, the Company Common Stock; (v) certain publicly
available information concerning the Subject Company, including the Annual
Reports on Form 10-K of the subject Company for each of the years in the three
year period ended December 31, 1997; (vi) certain other information, primarily
financial in nature, including projections, concerning the business and
operations of the Subject Company, furnished to us by the Subject Company and
the Company for purposes of our analysis; (vii) certain publicly available
information concerning the trading of, and the trading market for, the Subject
Company Common Stock; (viii) certain publicly available information with respect
to certain other companies that we believe to be comparable to the Company or
the Subject Company and the trading markets for certain of such other companies'
securities; and (ix) certain publicly available information concerning the
nature and terms of certain other transactions that we consider relevant to our
inquiry. We also have considered such other information, financial studies,
analyses, investigations and financial, economic and market criteria that we
deemed relevant. We also have met with certain officers and employees of the
Company and the Subject Company to discuss the foregoing as well as other
matters that we believe relevant to our inquiry.
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In our review and analysis and in arriving at our opinion, we have
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided to us or publicly available have neither
attempted independently or verify nor assumed any responsibility for verifying
any such information and have further relied upon the assurances of management
of the Company that they are not aware of any facts that would make any of such
information inaccurate or misleading. We have not conducted a physical
inspection of any of the properties or facilities of the Company or the Subject
Company, nor have we made or obtained or assumed any responsibility for making
or obtaining any independent evaluations or appraisals of any of such properties
or facilities, nor have we been furnished with any such valuations or
appraisals. With respect to the financial projections, including the forecasted
strategic benefits and synergies of the Proposed Acquisition discussed below, we
have been advised by the managements of the Company and the Subject Company and
have assumed that they were reasonably prepared and reflect the best currently
available estimates and judgment of the management of the Company or the Subject
Company, as the case may be, as to the future financial performance of the
Company or the Subject Company, as the case may be, and we express no view with
respect to such projections or the assumptions on which they were based. With
respect to the strategic benefits, including in particular the opportunity
expected by management of the Company to purchase additional assets in the
states where the Subject Company provides service, the opportunity to increase
the value of such assets by integrating them with the combined operations, and
the opportunity to gain operating synergies expected by the management of the
Company to result from a combination of the businesses of the Company and the
Subject Company, we have assumed, based on the advice of the Company, that such
strategic benefits and operating synergies can be substantially achieved. We
also have assumed that the Proposed Acquisition will be consummated in a timely
manner and in accordance with the terms of the Agreement.
In conducting our analysis and arriving at our opinion as expressed
herein, we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following: (i)
the historical and current financial position and results of operations of the
Company and the Subject Company; (ii) the business prospects of the Company and
the Subject Company; (iii) the historical and current market for the Company
Common Stock, the Subject Company Common Stock and for the equity securities of
certain other companies that we believe to be comparable to the Company or the
Subject Company; and (iv) the nature and terms of certain other acquisition
transactions that we believe to be relevant. We have also taken into account our
assessment of general economic, market and financial conditions as well as our
experience in connection with similar transactions and securities valuation
generally. In arriving at our opinion, we have not ascribed a specific
consolidated range of values to either the Company or the Subject Company. We
have not been asked to consider, and our opinion does not address, the relative
merits of the Proposed Acquisition as compared to any alternative business
strategy that might exist for the Company. Our opinion necessarily is 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, limited to
the fairness, from a financial point of view, of the Exchange Ratio to the
Company and does not address the Company's underlying business decision to
effect the Proposed Acquisition or constitute a recommendation of the Proposed
Acquisition to the Company. Our opinion also does not constitute an opinion or
imply any conclusion as to the price at which the Company Common Stock will
trade following the announcement or consummation of the Proposed Acquisition.
As you are aware, Salomon Brothers Inc and Smith Barney Inc., together
doing business as Salomon Smith Barney (collectively with all other entities
doing business as Salomon Smith Barney, "Salomon Smith Barney"), are acting as
financial advisors to the Company in connection with the Proposed Acquisition
and will receive a fee for such services, a substantial portion of which is
contingent upon consummation of the Proposed Acquisition. In addition, in the
ordinary course of business, Salomon Smith Barney will actively trade securities
of the Company and the Subject Company for its own account and for the accounts
of customers and, accordingly, may at any time hold a long or short position in
such securities. Salomon Smith Barney and its affiliates (including Travelers
Group Inc.) may have other business relationships with the Company or the
Subject Company.
This opinion is intended solely for the benefit and use of the Company
(including the management and directors of the Company) in considering the
transaction to which it relates and may not be used for any other purpose or
reproduced, disseminated, quoted or referred to (other than in the Agreement) at
any time, in any manner or for any
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purpose, without the prior written consent of Salomon Smith Barney, except that
this opinion may be reproduced in full in, and references to this opinion and to
Salomon Smith Barney and its relationship with the Company (in each case in such
form as Salomon Smith Barney shall approve) may be included in, the proxy
statement the Company distributes to its shareholders in connection with the
Proposed Acquisition.
Based upon and subject to the foregoing, it is our opinion as
investment bankers that as of the date hereof, the Exchange Ratio is fair, from
a financial point of view, to the Company.
Very truly yours,
SALOMON SMITH BARNEY
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ANNEX C
August 5, 1998
The Board of Directors
Consumers Water Company
Three Canal Plaza
Portland, ME 04101
Dear Members of the Board:
We understand that Consumers Water Company, a Maine corporation
("Consumers"), and Philadelphia Suburban Corporation, a Pennsylvania corporation
("PSC"), have determined to engage in a strategic business combination. PSC has
formed Consumers Acquisition Company, a Pennsylvania corporation ("Acquisition")
to effect the business combination. The terms and conditions of the business
combination are set forth in the Amended and Restated Agreement and Plan of
Merger, dated as of August 5, 1998 (the "Agreement"), by and among PSC,
Acquisition and Consumers. The Agreement provides for, among other things, the
merger of Consumers with and into Acquisition (the "Merger") whereby each issued
and outstanding share of common stock, $1.00 par value per share, of Consumers
("Consumers Common Shares") will be converted into and exchanged for common
stock, $.50 par value per share, of PSC ("PSC Common Shares") at the rate of
1.459 shares of PSC Common Shares for each share of Consumers Common Share (the
"Exchange Ratio"). Prior to consummating the Merger, if the product of 1.459 and
the Calculation Price (as defined in the Agreement) exceeds $32.00, then the
Exchange Ratio shall equal the quotient determined by dividing $32.00 by the
Calculation Price. If the product of 1.459 and the Calculation Price is less
than $28.00, then PSC shall have the option of adjusting the Exchange Ratio to
equal the quotient determined by dividing $28.00 by the Calculation Price. If
PSC does not exercise its option described in the preceding sentence, then
Consumers has the option to terminate the Agreement. Each issued and outstanding
share of preferred stock, $100 par value per share, of Consumers ("Consumers
Preferred Shares") will be converted into and exchanged for PSC Common Shares as
determined by multiplying the number of Consumers Preferred Shares by the
product of 3.945 times the Exchange Ratio. As a result of the Merger, the
separate corporate existence of Consumers shall cease and Acquisition shall
continue as the surviving corporation. The terms and conditions of the Merger
are set forth in more detail in the Agreement. Capitalized terms used herein
without definition have the respective meanings assigned to such terms in the
Agreement.
We have been requested by Consumers to render our opinion with respect
to the fairness, from a financial point of view, to the holders of Consumers
Common Shares and Consumers Preferred Shares (collectively, the "Consumers
Shareholders") of the consideration to be offered to the Consumers Shareholders
pursuant to the terms of the Merger.
In arriving at our opinion, we have, among other things:
i. Reviewed the Annual Reports, Forms 10-K and the related
financial information for the three-year period ended
December 31, 1997, and the Form 10-Q and the related
unaudited financial information for the quarterly period
ended March 31, 1998, for Consumers;
ii. Reviewed the Annual Reports, Forms 10-K and the related
financial information for the three-year period ended
December 31, 1997, and the Form 10-Q and the related
unaudited financial information for the quarterly period
ended March 31, 1998, for PSC;
iii. Reviewed certain other filings with the Securities and
Exchange Commission and other regulatory authorities made
by Consumers and PSC during the last three years,
including proxy statements, Forms 8-K and registration
statements;
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iv. Reviewed certain internal information, including financial
forecasts, relating to the business, earnings, capital
expenditures, cash flow, assets and prospects of Consumers
and PSC furnished to us by Consumers and PSC;
v. Conducted discussions with members of senior management of
Consumers and PSC concerning their respective businesses,
regulatory environments, prospects, strategic objectives
and possible operating and administrative synergies and
other benefits which might be realized for the benefit of
the combined company following the Merger;
vi. Reviewed the historical market prices and trading activity
for the Consumers Common Shares and PSC Common Shares and
compared them with those of certain publicly traded
companies which we deemed to be relevant;
vii. Compared the results of operations of Consumers and PSC
with those of certain companies which we deemed to be
relevant;
viii. Compared the proposed financial terms of the Merger with
the financial terms of certain business combinations which
we deemed to be relevant;
ix. Analyzed the valuation of the Consumers Common Shares,
Consumers Preferred Shares and PSC Common Shares using
various valuation methodologies which we deemed to be
appropriate;
x. Considered the pro forma capitalization, earnings and cash
flow of the combined company;
xi. Compared the pro forma capitalization ratios, earnings per
share, dividends per share, cash flow per share and payout
ratio of the combined company with each of the
corresponding current and projected values for Consumers
and PSC on a stand-alone basis;
xii. Reviewed the Agreement; and
xiii. Reviewed such other studies, conducted such other
analyses, considered such other financial, economic and
market criteria, performed such other investigations and
taken into account such other matters as we deemed
necessary or appropriate for purposes of this opinion.
In rendering our opinion, we have relied, without independent
verification, upon the accuracy and completeness of all financial and other
information publicly available or otherwise furnished or made available to us by
Consumers and PSC and have further relied upon the assurances of management of
Consumers and PSC that they are not aware of any facts that would make such
information inaccurate or misleading. With respect to the financial projections
of Consumers and PSC, we have relied upon the assurances of management of
Consumers and PSC that such projections have been reasonably prepared and
reflect the best currently available estimates and judgments of the respective
managements of Consumers and PSC as to the future financial performance of
Consumers and PSC, as the case may be, and as to the projected outcomes of
legal, regulatory and other contingencies. In arriving at our opinion, we have
not made or been provided with an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of Consumers or PSC, nor have we
made any physical inspection of the properties or assets of Consumers or PSC. We
have assumed that the Merger will be treated for federal income tax purposes as
a reorganization of the type described in Section 368(a)(1) of the Internal
Revenue Code of 1986, as amended, and the regulations thereunder and that
Consumers Shareholders who exchange their shares solely for PSC Common Shares
will recognize no gain or loss for federal income tax purposes as a result of
the consummation of the Merger. We have also assumed that the Merger will
qualify as pooling of interests transaction for financial accounting purposes.
We understand that Vivendi, formerly Compagnie Generale des Eaux, has notified
Consumers and PSC of its intention to cause its affiliates to vote the shares
they own of each company in favor of the Merger. We also understand that Vivendi
has caused its affiliates to modify their Schedule 13-D filing to provide for
the possible acquisition of additional shares from time to time so as to
increase
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their ownership of PSC to a level not greater than 19.99% of the outstanding PSC
Common Shares. You have not authorized us to solicit, and we have not solicited,
any indications of interest from any third party with respect to the purchase of
all or a part of Consumers. Our opinion herein is necessarily based upon
financial, stock market and other conditions and circumstances existing and
disclosed to us as of the date hereof.
The SG Barr Devlin division of Societe Generale ("SG Barr Devlin") has
acted as financial advisor to Consumers in connection with the Merger and will
receive certain fees for our services.
Our advisory services and the opinion expressed herein are for the
information of the Consumers Board of Directors in evaluating the Merger and are
not provided on behalf of, or intended to confer rights or remedies upon, any
shareholder of Consumers, PSC or any person other than the Consumers Board of
Directors. Except for its publication in the Joint Proxy/Registration Statement
which will be distributed to holders of Consumers Common Shares, Consumers
Preferred Shares and PSC Common Shares in connection with approval of the
Merger, our opinion may not be published or otherwise used or referred to
without our prior written consent. This opinion is not intended to be and does
not constitute a recommendation to any shareholder as to how such shareholder
should act with respect to the Merger.
Based upon and subject to the foregoing, our experience as investment
bankers and other factors we deem relevant, we are of the opinion that, as of
the date hereof, the consideration to be offered to the Consumers Shareholders
pursuant to the terms of the Merger is fair, from a financial point of view, to
the Consumers Shareholders.
Very truly yours,
SG BARR DEVLIN
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ANNEX D
DISSENTERS' RIGHTS
ss.908. Right of shareholders to dissent
1. Except as provided in subsections 3 and 4, any shareholders of a
domestic corporation, by complying with section 909, shall have the right to
dissent from any of the following corporate actions:
A. Any plan of merger or consolidation in which the corporation
is participating; or
B. Any sale or other disposition, excluding a mortgage or other
security interest, of all or substantially all of the property
and assets of the corporation not made in the usual and regular
course of its business, including a sale in liquidation, but not
including a sale pursuant to an order of a court having
jurisdiction in the premises or a sale for cash on terms
requiring that all or substantially all of the net proceeds of
sale be distributed to the shareholders in accordance with their
respective interests within one year after the date of sale; or
C. Any other action as to which a right to dissent is expressly
given by this Act.
2. A shareholder may dissent as to less than all of the shares
registered in his name. In that event, his rights shall be determined as if the
shares as to which he has dissented and his other shares were registered in the
names of different shareholders.
3. There shall be no right of dissent in the case of shareholders of
the surviving corporation in a merger.
A. If such corporation is, on the date of filing of the articles
of merger, the owner of all the outstanding shares of the other
corporations, domestic or foreign, which are parties to the
merger, or
B. If a vote of the shareholders of such surviving corporation
was not necessary to authorize such merger.
4. There shall be no right of dissent in the case of holders of any
class or series of shares in any of the participating corporations in a merger
or consolidation, which shares were, at the record date fixed to determine the
shareholders entitled to receive notice of and to vote at the meeting of
shareholders at which the plan of merger or consolidation was to be voted on,
either:
A. Registered or traded on a national securities exchange; or
B. Registered with the Securities and Exchange Commission
pursuant to section 12(g) of the Act of Congress known as the
Securities Exchange Act of 1934, as the same has been or may
hereafter be amended, being Title 15 of the United States Code
Annotated,
unless the articles of incorporation of that corporation provide that
there shall be a right of dissent.
5. The exceptions from the right of dissent provided for in subsection
3, paragraph B and in subsection 4 shall not be applicable to the holders of a
class or series of shares of a participating corporation if, under the plan of
merger or consolidation, such holders are required to accept for their shares
anything, except:
A. Shares of the surviving or new corporation resulting from the
merger or consolidation, or such shares plus cash in lieu of
fractional shares; or
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B. Shares, or shares plus cash in lieu of fractional shares, of
any other corporation, which shares were, at the record date
fixed to determine the shareholders entitled to receive notice of
and to vote at the meeting of shareholders at which the plan of
merger or consolidation was acted upon, either:
(1) Registered or traded on a national securities exchange; or
(2) Held of record by not less than 2,000 shareholders; or
C. A combination of shares, or shares plus cash in lieu of
fractional shares, as set forth in paragraphs A and B.
ss.909. Right of dissenting shareholders to payment for shares
1. A shareholder having a right under any provision of this Act to
dissent to proposed corporate action shall, by complying with the procedure in
this section, be paid the fair value of his shares, if the corporate action to
which he dissented is effected. The fair value of shares shall be determined as
of the day prior to the date on which the vote of the shareholders, or of the
directors in case a vote of the shareholders was not necessary, was taken
approving the proposed corporate action, excluding any appreciation or
depreciation of shares in anticipation of such corporate action.
2. The shareholder, whether or not entitled to vote, shall file with
the corporation, prior to or at the meeting of shareholders at which such
proposed corporate action is submitted to a vote, a written objection to the
proposed corporate action. No such objection shall be required from any
shareholder to whom the corporation failed to send notice of such meeting in
accordance with this Act.
3. If the proposed corporate action is approved by the required vote
and the dissenting shareholder did not vote in favor thereof, the dissenting
shareholder shall file a written demand for payment of the fair value of his
shares. Such demand
A. Shall be filed with the corporation or, in the case of a
merger or consolidation, with the surviving or new corporation;
and
B. Shall be filed by personally delivering it, or by mailing it
via certified or registered mail, to such corporation at its
registered office within this State or to its principal place of
business or to the address given to the Secretary of State
pursuant to section 906, subsection 4, paragraph B; it shall be
so delivered or mailed within 15 days after the date on which the
vote of shareholders was taken, or the date on which notice of a
plan of merger of a subsidiary into a parent corporation without
vote of shareholders was mailed to shareholders of the
subsidiary; and
C. Shall specify the shareholder's current address; and
D. May not be withdrawn without the corporation's consent.
4. Any shareholder failing either to object as required by subsection 2
or to make demand in the time and manner provided in subsection 3 shall be bound
by the terms of the proposed corporate action. Any shareholder making such
objection and demand shall thereafter be entitled only to payment as in this
section provided and shall not be entitled to vote or to exercise any other
rights of a shareholder.
5. The right of a shareholder otherwise entitled to be paid for the
fair value of his shares shall cease, and his status as a shareholder shall be
restored, without prejudice to any corporate proceedings which may have been
taken during the interim,
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A. If his demand shall be withdrawn upon consent, or
B. If the proposed corporate action shall be abandoned or
rescinded, or the shareholders shall revoke the authority to
effect such action, or
C. If, in the case of a merger, on the date of the filing of the
articles of merger the surviving corporation is the owner of all
the outstanding shares of the other corporations, domestic and
foreign, that are parties to the merger, or
D. If no action for the determination of fair value by a court
shall have been filed within the time provided in this section,
or
E. If a court of competent jurisdiction shall determine that such
shareholder is not entitled to the relief provided by this
section.
6. At the time of filing his demand for payment for his shares, or
within 20 days thereafter, each shareholder demanding payment shall submit the
certificate or certificates representing his shares to the corporation or its
transfer agent for notation thereon that such demand has been made; such
certificates shall promptly be returned after entry thereon of such notation. A
shareholder's failure to do so shall, at the option of the corporation,
terminate his rights under this section, unless a court of competent
jurisdiction, for good and sufficient cause shown, shall otherwise direct. If
shares represented by a certificate on which notation has been so made shall be
transferred, each new certificate issued therefor shall bear a similar notation,
together with the name of the original dissenting holder of such shares, and a
transferee of such shares shall acquire by such transfer no rights in the
corporation other than those which the original dissenting shareholder had after
making demand for payment of the fair value thereof.
7. Within the time prescribed by this subsection, the corporation, or,
in the case of a merger or consolidation, the surviving or new corporation,
domestic or foreign, shall give written notice to each dissenting shareholder
who has made objection and demand as herein provided that the corporate action
dissented to has been effected, and shall make a written offer to each such
dissenting shareholder to pay for such shares at a specified price deemed by
such corporation to be the fair value thereof. Such offer shall be made at the
same price per share to all dissenting shareholders of the same class. The
notice and offer shall be accompanied by a balance sheet of the corporation the
shares of which the dissenting shareholder holds, as of the latest available
date and not more than 12 months prior to the making of such offer, and a profit
and loss statement of such corporation for the 12 months' period ended on the
date of such balance sheet. The offer shall be made within the later of 10 days
after the expiration of the period provided in subsection 3, paragraph B, for
making demand, or 10 days after the corporate action is effected; corporate
action shall be deemed effected on a sale of assets when the sale is
consummated, and in a merger or consolidation when the articles of merger or
consolidation are filed or upon which later effective date as is specified in
the articles of merger or consolidation as permitted by this Act.
8. If within 20 days after the date by which the corporation is
required, by the terms of subsection 7, to make a written offer to each
dissenting shareholder to pay for his shares, the fair value of such shares is
agreed upon between any dissenting shareholder and the corporation, payment
therefor shall be made within 90 days after the date on which such corporate
action was effected, upon surrender of the certificate or certificates
representing such shares. Upon payment of the agreed value the dissenting
shareholder shall cease to have any interest in such shares.
9. If within the additional 20-day period prescribed by subsection 8,
one or more dissenting shareholders and the corporation have failed to agree as
to the fair value of the shares:
A. Then the corporation may, or shall, if it receives a demand as
provided in subparagraph (1), bring an action in the Superior
Court in the county in this State where the registered office of
the corporation is located praying that the fair value of such
shares be found and determined. If, in the case of a merger or
consolidation, the surviving or new corporation is a foreign
corporation without
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a registered office in this State, such action shall be brought
in the county where the registered office of the participating
domestic corporation was last located. Such action:
(1) Shall be brought by the corporation, if it receives a written
demand for suit from any dissenting shareholder, which demand is
made within 60 days after the date on which the corporate action
was effected; and if it receives such demand for suit, the
corporation shall bring the action within 30 days after receipt
of the written demand; or,
(2) In the absence of a demand for suit, may at the corporation's
election be brought by the corporation at any time from the
expiration of the additional 20-day period prescribed by
subsection 8 until the expiration of 60 days after the date on
which the corporate action was effected;
B. If the corporation fails to institute the action within the
period specified in paragraph A, any dissenting shareholder may
thereafter bring such an action in the name of the corporation;
C. No such action may be brought, either by the corporation or by
a dissenting shareholder, more than 6 months after the date on
which the corporate action was effected;
D. In any such action, whether initiated by the corporation or by
a dissenting shareholder, all dissenting shareholders, wherever
residing, except those who have agreed with the corporation upon
the price to be paid for their shares, shall be made parties to
the proceeding as an action against their shares quasi in rem. A
copy of the complaint shall be served on each dissenting
shareholder who is a resident of this State as in other civil
actions, and shall be served by registered or certified mail, or
by personal service without the State, on each dissenting
shareholder who is a nonresident. The jurisdiction of the court
shall be plenary and exclusive;
E. The court shall determine whether each dissenting shareholder,
as to whom the corporation requests the court to make such
determination, has satisfied the requirements of this section and
is entitled to receive payment for his shares; as to any
dissenting shareholder with respect to whom the corporation makes
such a request, the burden is on the shareholder to prove that he
is entitled to receive payment. The court shall then proceed to
fix the fair value of the shares. The court may, if it so elects,
appoint one or more persons as appraisers to receive evidence and
recommend a decision on the question of fair value. The
appraisers shall have such power and authority as shall be
specified in the order of their appointment or an amendment
thereof;
F. All shareholders who are parties to the proceeding shall be
entitled to judgment against the corporation for the amount of
the fair value of their shares, except for any shareholder whom
the court shall have determined not to be entitled to receive
payment for his shares. The judgment shall be payable only upon
and concurrently with the surrender to the corporation of the
certificate or certificates representing such shares. Upon
payment of the judgment, the dissenting shareholder shall cease
to have any interest in such shares;
G. The judgment shall include an allowance for interest at such
rate as the court may find to be fair and equitable in all the
circumstances, from the date on which the vote was taken on the
proposed corporate action to the date of payment. If the court
finds that the refusal of any shareholder to accept the corporate
offer of payment for his shares was arbitrary, vexatious or not
in good faith, it may in its discretion refuse to allow interest
to him;
H. The costs and expenses of any such proceeding shall be
determined by the court and shall be assessed against the
corporation, but all or any part of such costs and expenses may
be apportioned and assessed as the court may deem equitable
against any or all of the dissenting shareholders who are parties
to the proceeding to whom the corporation shall have made an
offer to pay for the shares,
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if the court shall find that the action of such shareholders in
failing to accept such offer was arbitrary or vexatious or not in
good faith. Such expenses shall include reasonable compensation
for and reasonable expenses of the appraisers, but shall exclude
the fees and expenses of counsel for any party and shall exclude
the fees and expenses of experts employed by any party, unless
the court otherwise orders for good cause. If the fair value of
the shares as determined materially exceeds the amount which the
corporation offered to pay therefor, or if no offer was made, the
court in its discretion may award to any shareholder who is a
party to the proceeding such sum as the court may determine to be
reasonable compensation to any expert or experts employed by the
shareholder in the proceeding, and may, in its discretion, award
to any shareholder all or part of his attorney's fees and
expenses; and
I. At all times during the pendency of any such proceeding, the
court may make any and all orders which may be necessary to
protect the corporation or the dissenting shareholders, or which
are otherwise just and equitable. Such orders may include,
without limitation, orders:
(1) Requiring the corporation to pay into court, or post security
for, the amount of the judgment or its estimated amount, either
before final judgment or pending appeal;
(2) Requiring the deposit with the court of certificates
representing shares held by the dissenting shareholders;
(3) Imposing a lien on the property of the corporation to secure
the payment of the judgment, which lien may be given priority
over liens and incumbrances contracted after the vote authorizing
the corporate action from which the shareholders dissent;
(4) Staying the action pending the determination of any similar
action pending in another court having jurisdiction.
10. Shares acquired by a corporation pursuant to payment of the agreed
value therefor or to payment of the judgment entered therefor, as in this
section provided, may be held and disposed of by such corporation as in the case
of other treasury shares, except that, in the case of a merger or consolidation,
they may be held and disposed of as the plan of merger or consolidation may
otherwise provide.
11. The objection required by subsection 2 and the demand required by
subsection 3 may, in the case of a shareholder who is a minor or otherwise
legally incapacitated, be made either by such shareholder, notwithstanding his
legal incapacity, or by his guardian, or by any person acting for him as next
friend. Such shareholder shall be bound by the time limitations set forth in
this section, notwithstanding his legal incapacity.
12. Appeals shall lie from judgments in actions brought under this
section as in other civil actions in which equitable relief is sought.
13. No action by a shareholder in the right of the corporation shall
abate or be barred by the fact that the shareholder has filed a demand for
payment of the fair value of his shares pursuant to this section.
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ANNEX E
AMENDMENT TO PSC'S ARTICLES OF INCORPORATION
The Articles of Incorporation of this corporation are to be amended as follows:
1. Paragraph one of Article IV thereof is amended in its
entirety to read as follows:
The aggregate number of shares which the Corporation
shall have authority to issue is 101,770,819 shares, divided
into 100,000,000 shares of Common Stock, par value $.50 per
share, and 1,770,819 shares of Series Preferred Stock, par
value $1.00 per share. The Board of Directors shall have the
full authority permitted by law to fix by resolution full,
limited, multiple or fractional, or no voting rights, and such
designations, preferences, qualifications, privileges,
limitations, restrictions, options, conversion rights, and
other special or relative rights of any class or any series of
any class that may be desired.
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ANNEX F
AMENDMENT 1998-1 TO THE PHILADELPHIA SUBURBAN CORPORATION
1994 EQUITY COMPENSATION PLAN (THE "PLAN")
1. The first sentence of Section 4 of the Plan is amended to read as
follows:
"Subject to adjustment as provided in Section 15, the maximum aggregate
number of shares of the Common Stock of the Corporation that may be issued or
transferred under the Plan shall be 2,900,000 shares."
2. A new Section 21 is added to the Plan to read as follows:
"21. Grants in Connection with Corporate Transactions and
Otherwise. Nothing contained in this Plan shall be construed to
limit the right of the Committee to make Grants under this Plan
in connection with the acquisition, by purchase, lease, merger,
consolidation or otherwise, of the business or assets of any
corporation, firm or association, including Grants to employees
thereof who become key employees of the Corporation or any of its
subsidiaries, or for other proper corporate purposes. Without
limiting the foregoing, the Committee may make a Grant to an
employee of another corporation who becomes an employee of the
Corporation or any of its subsidiaries by reason of a corporate
merger, consolidation, acquisition of stock or property,
reorganization or liquidation involving the Company or any of its
subsidiaries in substitution for a stock option or restricted
stock grant made by such corporation. The terms and conditions of
the substitute grants may vary from the terms and conditions
required by the Plan and from those of the substituted stock
incentives. The Committee shall prescribe the provisions of the
substitute grants."
3. Amendment 1998-1 shall be effective as of August 4, 1998,
conditioned upon the approval of this Amendment 1998-1 by the Corporation's
shareholders.
F-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Sections 1741 and 1742 of the Pennsylvania Business Corporation Law of
1988, as amended (the "PBCL"), provide that a business corporation may indemnify
directors and officers against liabilities they may incur as such provided that
the particular person acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the corporation,
and, with respect to any criminal proceeding, had no reasonable cause to believe
his or her conduct was unlawful. In general, the power to indemnify under these
sections does not exist in the case of actions against a director or officer by
or in the right of the corporation if the person otherwise entitled to
indemnification shall have been adjudged to be liable to the corporation unless
it is judicially determined that, despite the adjudication of liability but in
view of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnification for specified expenses. The corporation is required
to indemnify directors and officers against expenses they may incur in defending
actions against them in such capacities if they are successful on the merits or
otherwise in the defense of such actions.
Section 1713 of the PBCL permits the shareholders to adopt a bylaw
provision relieving a director (but not an officer) of personal liability for
monetary damages except where (i) the director has breached the applicable
standard of care, and (ii) such conduct constitutes self-dealing, willful
misconduct or recklessness. The statute provides that a director may not be
relieved of liability for the payment of taxes pursuant to any federal, state or
local law or responsibility under a criminal statute. Section 4.01 of PSC's
Bylaws limits the liability of any director of PSC to the fullest extent
permitted by Section 1713 of the PBCL.
Section 1746 of the PBCL grants a corporation broad authority to indemnify
its directors, officers and other agents for liabilities and expenses incurred
in such capacity, except in circumstances where the act or failure to act giving
rise to the claim for indemnification is determined by a court to have
constituted willful misconduct or recklessness. Article VII of PSC's Bylaws
provides indemnification of directors, officers and other agents of PSC to the
extent not otherwise permitted by Section 1741 of the PBCL and pursuant to the
authority of Section 1746 of the PBCL.
Article VII of the Bylaws provides, except as expressly prohibited by law,
an unconditional right to indemnification for expenses and any liability paid or
incurred by any director or officer of PSC, or any other person designated by
the Board of Directors as an indemnified representative, in connection with any
actual or threatened claim, action, suit or proceeding (including derivative
suits) in which he or she may be involved by reason of being or having been a
director, officer, employee or agent of PSC or, at the request of PSC, of
another corporation, partnership, joint venture, trust, employee benefit plan or
other entity. The Bylaws specifically authorize indemnification against both
judgments and amounts paid in settlement of derivation suits, unlike Section
1742 of the PBCL which authorized indemnification only of expenses incurred in
defending a derivative action. Article VII of the Bylaws also allows
indemnification for punitive damages and liabilities incurred under the federal
securities laws.
Unlike the provisions of the PBCL Sections 1741 and 1742, Article VII does
not require PSC to determine the availability of indemnification by the
procedures or the standard of conduct specified in Sections 1741 and 1742 of the
PBCL. A person who has incurred an indemnifiable expense or liability has a
right to be indemnified independent of any procedures or determinations that
would otherwise be required, and that right is enforceable against PSC as long
as indemnification is not prohibited by law. To the extent indemnification is
permitted only for a portion of a liability, the Bylaw provisions require PSC to
indemnify such portion. If the indemnification provided for in Article VII is
unavailable for any reason in respect of any liability or portion thereof, the
Bylaws require PSC to make a contribution toward the liability. Indemnification
rights under the Bylaws do not depend upon the approval of any future Board of
Directors.
II-1
<PAGE>
Section 7.04 of PSC's Bylaws also authorizes PSC to further effect or
secure its indemnification obligations by entering into indemnification
agreements, maintaining insurance, creating a trust fund, granting a security
interest in the assets or property, establishing a letter of credit, or using
any other means that may be available from time to time.
The Company maintains, on behalf of its directors and officers, insurance
protection against certain liabilities arising out of the discharge of their
duties, as well as insurance covering PSC for indemnification payments made to
its directors and officers for certain liabilities. The premiums for such
insurance are paid by PSC.
Pursuant to Section 4.18 of the Merger Agreement, PSC has agreed for a
period of six years following the Effective Time of the Merger to indemnify,
defend and hold harmless any person who served, at any time prior to the Merger,
as a director or officer of Consumers against all against all Claims to the
extent that any such Claim is based on, or arises out of: (i) the fact that such
Indemnified Person was, at any time prior to the Merger, a director or officer
of Consumers or one of Consumers' subsidiaries or was, at any time prior to the
Merger, serving at the request of Consumers as a director, officer, employee, or
agent of another corporation, partnership, joint venture trust or other
enterprise or one of Consumers' subsidiaries; or (ii) the Merger Agreement or
any of the transactions contemplated thereby, in each case, to the extent that
any such Claim pertains to any matter or fact arising, existing or occurring
prior to or at the Effective Time, regardless of whether such Claim is asserted
or claimed prior to, at or after the Effective Time, to the full extent
permitted under the MBCA, Consumers' Articles of Incorporation or Consumers
Bylaws or any indemnification agreement in effect at the date hereof, including
provisions relating to advancement of expenses incurred in the defense of any
such Claim.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
The following is a list of exhibits filed as part of this Registration
Statement.
Exhibit Number
- --------------
2.1 Amended and Restated Agreement and Plan of Merger and
Reorganization dated as of August 5, 1998, by and among
Philadelphia Suburban Corporation, Consumers Acquisition
Company and Consumers Water Company (Included as Appendix A
to the Joint Proxy Statement/Prospectus).(2)
3.1 Articles of Incorporation of Registrant(2)
3.2 Bylaws of Registrant(2)
5.1 Opinion of Morgan, Lewis & Bockius LLP, regarding validity
of the shares of PSC Common Stock being registered.(1)
8.1 Opinion of Drummond Woodsum & MacMahon regarding certain
federal income tax matters.(2)
21.1 Subsidiaries of the Registrant(2)
23.1 Consent of KPMG Peat Marwick LLP(1)
23.2 Consent of Arthur Andersen LLP(1)
23.3 Consent of Morgan, Lewis & Bockius LLP (Included in the
opinion filed as Exhibit 5.1 to this Registration Statement
and incorporated herein by reference)(1)
II-2
<PAGE>
23.4 Consent of Salomon Smith Barney(1)
23.5 Consent of SG Barr Devlin(1)
24.1 Powers of Attorney (included on signature page to this
Registration Statement)(2)
99.1 Form of Proxy of PSC(2)
99.2 Form of Proxy of Consumers(1)
- -----------------
(1) Filed herewith.
(2) Incorporated by reference.
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day
II-3
<PAGE>
of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Philadelphia, Pennsylvania on September 10, 1998.
PHILADELPHIA SUBURBAN CORPORATION
By: /s/ Nicholas DeBenedictis
-----------------------------------
Nicholas DeBenedictis
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Nicholas DeBenedictis Chairman and President September 21, 1998
- ----------------------------- (Principal Executive Officer)
Nicholas DeBenedictis
* Senior Vice President -- September 21, 1998
- ----------------------------- Finance and Treasurer
Michael P. Graham (Principal Financial and
Accounting Officer)
* Director September 21, 1998
- -----------------------------
John H. Austin, Jr.
* Director September 21, 1998
- -----------------------------
G. Fred DiBona, Jr.
* Director September 21, 1998
- -----------------------------
John W. Boyer, Jr.
* Director September 21, 1998
- -----------------------------
Mary C. Carroll
* Director September 21, 1998
- -----------------------------
Alan R. Hirsig
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C> <C>
* Director September 21, 1998
- -----------------------------
Richard H. Glanton, Esq.
* Director September 21, 1998
- -----------------------------
John F. McCaughan
* Director September 21, 1998
- -----------------------------
Richard L. Smoot
* Director September 21, 1998
- -----------------------------
Harvey J. Wilson
*By: /s/ Nicholas DeBenedictis
- -----------------------------
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
5.1 Opinion of Morgan, Lewis & Bockius LLP
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Arthur Andersen LLP
23.4 Consent of Salomon Smith Barney
23.5 Consent of SG Barr Devlin
99.2 Form of Proxy of Consumers
[LETTERHEAD FOR MORGAN, LEWIS & BOCKIUS LLP]
2000 One Logan Square
Philadelphia, PA 19103-6993
215-963-5000
Fax: 215-963-5299
September 11, 1998
Philadelphia Suburban Corporation
762 Lancaster Avenue
Bryn Mawr, PA 19010
Re: Philadelphia Suburban Corporation: Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as counsel to Philadelphia Suburban Corporation, a Pennsylvania
corporation (the "Company"), in connection with the preparation of a
Registration Statement on Form S-4 (the "Registration Statement") filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act"), relating to the registration of up to 13,281,000 shares of Common
Stock, par value $.50 per share (the "Shares"), of the Company to be issued in
connection with the transactions contemplated by that certain Amended and
Restated Agreement and Plan of Merger, dated as of August 5, 1998, among the
Company, Consumers Acquisition Corporation and Consumers Water Company, attached
as Annex A to the Joint Proxy Statement/Prospectus included in the Registration
Statement (the "Merger Agreement"). In rendering the opinion set forth below, we
have reviewed (a) the Registration Statement; (b) the Company's Articles of
Incorporation and Bylaws; (c) certain records of the Company's corporate
proceedings as reflected in its minute books; (d) the Merger Agreement; and (e)
such records, documents, statutes and decisions as we have deemed relevant. In
our examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
with the original of all documents submitted to us as copies thereof.
Our opinions set forth below is limited to the Business Corporation Law of the
Commonwealth of Pennsylvania (the "BCL").
Based upon the foregoing, and assuming that the amendment to the Articles of
Incorporation of the Company described in the Registration Statement is duly and
validly approved and effected in accordance with the BCL and Articles of
Incorporation and Bylaws of the Company, we are of the opinion that the Shares
will, when issued I the manner and on the terms described in the Registration
Statement and the Merger Agreement, will be duly authorized, validly issued,
fully paid and non-assessable.
<PAGE>
Philadelphia Suburban Corporation
Page 2
September 11, 1998
We hereby consent to the use of this opinion as Exhibit 5 to the Registration
Statement and further consent to the reference to us under the caption "Legal
Matters" in the proxy statement included in the Registration Statement. In
giving such opinion, we do not thereby admit that we are acting within the
category of persons whose consent is required under Section 7 of the Act or the
rules or regulations of the Securities and Exchange Commission thereunder.
The opinion expressed herein is solely for your benefit, and may be relied upon
only by you.
Very truly yours.
/s/ Morgan, Lewis & Bockius LLP
- -------------------------------
Morgan, Lewis & Bockius LLP
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Philadelphia Suburban Corporation:
We consent to incorporation by reference in this Registration Statement on Form
S-4 of Philadelphia Suburban Corporation of our report dated January 28, 1998,
relating to the consolidated balance sheets and statements of capitalization of
Philadelphia Suburban Corporation and subsidiaries as of December 31, 1997 and
1996 and the related consolidated statements of income and cash flow for each of
the years in the three-year period ended December 31, 1997 which report is
incorporated by reference in the December 31, 1997 Annual Report on Form 10-K of
Philadelphia Suburban Corporation.
We also consent to the reference to our firm under the heading "Experts"
appearing elsewhere herein.
/s/ KPMG PEAT MARWICK LLP
Philadelphia, Pennsylvania
September 21, 1998
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in the Joint
Proxy Statement/Prospectus of Philadelphia Suburban Corporation and Consumers
Water Company which is made part of this Registration Statement (333-63237)
amended on September 21, 1998 for the registration of shares of Philadelphia
Suburban Corporation and to the incorporation by reference therein of our report
dated February 5, 1998, with respect to the consolidated financial statements of
Consumers Water Company and Subsidiaries included in its Annual Report on Form
10-K for the year ended December 31, 1997, filed with the Securities and
Exchange Commission.
/s/ ARTHUR ANDERSEN LLP
---------------------------------
Boston, MA
September 21, 1998
Exhibit 23.4
CONSENT OF SALOMON SMITH BARNEY INC.
We hereby consent to the use of our name and the name of Salomon Brothers
Inc. and Smith Barney Inc. which were merged together on September 1, 1998 and
changed their name to Salomon Smith Barney Inc., and to the description of our
opinion letter, dated the date of the JointProxy Statement/Prospectus relating
to the proposed merger of Consumers Water Company with and into Philadelphia
Suburban Corporation, and to the inclusion of such opinion letter as Appendix B
to the Joint Proxy Statement/Prospectus which Joint Proxy Statement/Prospectus
is part of Amendment No. 1 of the Registration Statement on Form S-4. By giving
such consent we do not thereby admit that we are experts with respect to any
part of such Registration Statement within the meaning of the term "expert" as
used in, or that we come within the category of persons whose consent is
required under, the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
/s/ SALOMON SMITH BARNEY
------------------------------
New York, New York
September 18, 1998
Exhibit 23.5
CONSENT OF SG BARR DEVLIN
We hereby consent to the inclusion of our opinion letter to the Board of
Directors of Consumers Water Company ("Consumers") as Annex C to the Joint Proxy
Statement/Prospectus relating to the proposed merger of Consumers into a wholly
owned subsidiary of Philadelphia Suburban Corporation contained in the Amendment
No. 1 to the Registration Statement on Form S-4 (File No. 333-63237), and to the
references to our firm and such opinion in such Joint Proxy Statement/
Prospectus. In giving such consent, we do not admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended (the "Act"), or the rules and regulations of the
Securities and Exchange Commission thereunder (the "Regulations"), nor do we
admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Act or the
Regulations.
/s/ SG BARR DEVLIN
-------------------------------
September 21, 1998
Exhibit 99.2
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
CONSUMERS WATER COMPANY
THREE CANAL PLAZA
PORTLAND, MAINE 04101
The undersigned, hereby revoking any proxy heretofore given, hereby
appoints John E. Palmer, Jr., John E. Menario and Peter L. Haynes, and each of
them severally, proxies of the undersigned, with full power of substitution, to
vote as indicated below all of the shares of common stock and shares of
Cumulative Preferred Stock, Series A, of Consumers Water Company ("Consumers")
which the undersigned would be entitled to vote if personally present, at the
Special Meeting of Shareholders to be held on November 16, 1998 and at any
adjournment or postponement thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1
1. Approval of the Amended and Restated Agreement and Plan of Merger, dated as
of August 5, 1998, by and among Philadelphia Suburban Corporation ("PSC"),
Consumers Acquisition Company ("Acquisition") and Consumers, providing for the
merger of Consumers with and into Acquisition, a wholly-owned subsidiary of PSC.
|_| FOR
|_| AGAINST
|_| ABSTAIN
DISCRETIONARY AUTHORITY IS HEREBY CONFERRED UPON THE PROXY HOLDERS WITH RESPECT
TO SUCH OTHER MATTERS AS MAY LEGALLY COME BEFORE THIS MEETING. THIS PROXY WHEN
PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED
SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" PROPOSAL 1.
Dated:
-----------------------
-------------------------------
Signature
-------------------------------
Signature if held jointly
Please sign exactly as name
appears to the left. When
shares are held by joint
tenants, both should sign. When
signing as attorney, executor,
administrator, trustee or
guardian, please give full
title as such. If a
corporation, please sign in
full corporate name by
President or other authorized
officer. If a partnership,
please sign in partnership name
by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
