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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
April 5, 1997
DQE, INC.
(Exact name of registrant as specified in its charter)
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STATE OF PENNSYLVANIA 1-10290 25-1598483
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
DQE, Inc.
Cherrington Corporate Center, Suite 100
500 Cherrington Parkway 15108-3184
Coraopolis, Pennsylvania (Zip Code)
(Address of principal executive offices)
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Registrant's telephone number, including area code: (412) 262-4700
N/A
(Former name or former address, if changed since last report)
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Items 1 - 4. Not Applicable.
Item 5. Other Events
The following information was included in a joint press
release issued by DQE, Inc., a Pennsylvania corporation, ("the Company"), and
Allegheny Power System, Inc., a Maryland Corporation ("APS") on April 7, 1997:
The Company, the parent company of Duquesne Light
Company, and APS have signed a definitive agreement to merge in a tax-free,
stock-for-stock transaction creating a company with a total market
capitalization of approximately $10.6 billion ($6.2 billion in equity and $4.4
billion in net debt and preferred stock). The merger is intended to be accounted
for as a pooling of interests.
The merger, which was unanimously approved by both companies'
boards of directors, will create a diversified energy company with two million
customers in five states and generating capacity of more than 11,000 megawatts
of electricity. The combined company will be called Allegheny Energy.
Under the terms of the transaction, Company shareholders will
receive 1.12 shares of the APS common stock for each share of Company common
stock. APS will issue approximately 86.5 million shares, valued at
approximately $2.6 billion, to shareholders of the Company in the transaction,
based upon the closing stock price on April 4, 1997 of $29.75 per share of the
APS common stock. The Company's net debt and preferred stock, as of December
31, 1996, was $1.7 billion. Shareholders of the Company will receive APS'
dividend in effect at the time of the closing of the merger. APS currently pays
an annual dividend of $1.72 per share. Following the merger, Duquesne Light
Company shall continue to be a subsidiary of the Company and its preferred
stock and debt will not be affected by the merger.
Alan J. Noia will be the Chairman and Chief Executive Officer
of Allegheny Energy and David D. Marshall will be Allegheny Energy's President
and Chief Operating Officer. The board of directors of Allegheny Energy will
consist of nine directors nominated by APS and six directors nominated by the
Company. Allegheny Energy will be headquartered near Hagerstown, Maryland with a
significant operating presence in both the Pittsburgh and Greensburg,
Pennsylvania areas.
The merger is conditioned, among other things, upon the
approvals of each company's shareholders and the necessary approvals of various
state and federal regulatory agencies, including the public utility commissions
in
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Pennsylvania and Maryland; the Securities and Exchange Commission; the Federal
Energy Regulatory Commission and the Nuclear Regulatory Commission. The
companies are hopeful that the required approvals can be obtained within 12 to
18 months.
APS provides electric service to nearly 1.4 million
customers in parts of Maryland, Ohio, Pennsylvania, Virginia and West Virginia,
an area of about 29,100 square miles with a population of nearly 3 million.
Incorporated in Maryland in 1925 with headquarters near Hagerstown, Maryland,
APS is a registered public utility holding company that derives
substantially all of its income from the operations of its electric utility
subsidiaries, Monongahela Power Company, The Potomac Edison Company, and West
Penn Power Company. APS has a wholly owned, nonutility subsidiary, AYP
Capital, which is pursuing and developing opportunities related to its core
utility business.
The preceding is qualified in its entirety by reference to the
Merger Agreement, Stock Option Agreement and Letter Agreement, which are
attached hereto as exhibits.
Item 6. Not Applicable.
Item 7. Exhibits.
2(a) Agreement and Plan of Merger dated as of April 5, 1997 among the
Company, APS and AYP Sub, Inc.
2(b) Stock Option Agreement, dated as of April 5, 1997,
between the Company and APS.
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2(c) Letter Agreement, dated as of April 5, 1997, between
the Company and APS.
(99) Press Release, dated April 7, 1997, issued by the
Company and APS.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
DQE, Inc.
By: /s/ Victor A. Roque
--------------------------
Date: April 8, 1997 Victor A. Roque
Vice President and General
Counsel
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EXHIBIT 2(a)
AGREEMENT AND PLAN OF MERGER
Among
DQE, Inc.,
Allegheny Power System, Inc.
and
AYP Sub, Inc.
Dated as of April 5, 1997
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TABLE OF CONTENTS
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RECITALS..........................................................................................1
ARTICLE I The Merger; Closing; Effective Time................................................2
1.1. Merger Sub; The Merger.............................................................2
1.2. Closing............................................................................2
1.3. Effective Time.....................................................................3
ARTICLE II Certificate of Incorporation and By-Laws
of the Surviving Corporation.......................................................3
2.1. The Certificate of Incorporation...................................................3
2.2. The Bylaws.........................................................................3
ARTICLE III Officers and Directors of the Surviving
Corporation........................................................................3
3.1. Directors..........................................................................3
3.2. Officers...........................................................................3
ARTICLE IV Effect of the Merger on Capital Stock;
Exchange of Certificates...........................................................4
4.1. Effect on Capital Stock............................................................4
(a) Merger Consideration.......................................................4
(b) Cancellation of Shares.....................................................4
(c) Merger Sub.................................................................5
4.2. Exchange of Certificates for Shares................................................5
(a) Exchange Agent.............................................................5
(b) Exchange Procedures........................................................5
(c) Distributions with Respect to
Unexchanged Shares; Voting.................................................6
(d) Transfers..................................................................7
(e) Fractional Shares..........................................................7
(f) Termination of Exchange Fund...............................................7
(g) Lost, Stolen or Destroyed
Certificates...............................................................8
(h) Affiliates.................................................................8
4.3. Dissenters' Rights.................................................................8
4.4. Adjustments to Prevent Dilution....................................................8
ARTICLE V Representations and Warranties.....................................................9
5.1. Representations and Warranties of the Company
and Parent.........................................................................9
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(a) Organization, Good Standing and
Qualification..............................................................9
(b) Capital Structure.........................................................10
(c) Corporate Authority; Approval and
Fairness..................................................................12
(d) Governmental Filings; No Violations.......................................14
(e) Reports; Financial Statements.............................................15
(f) Absence of Certain Changes................................................16
(g) Litigation and Liabilities................................................17
(h) Employee Benefits.........................................................17
(i) Compliance with Laws; Permits.............................................20
(j) Takeover Statutes.........................................................20
(k) Environmental Matters.....................................................21
(l) Accounting and Tax Matters................................................22
(m) Taxes.....................................................................23
(n) Labor Matters.............................................................25
(o) Insurance.................................................................26
(p) Intellectual Property.....................................................26
(q) Brokers and Finders.......................................................28
(r) Regulation as a Utility...................................................28
(s) Operations of Nuclear Power Plants........................................28
(t) Affiliates of the Company.................................................29
(u) Ownership of Other Party's Common
Stock.....................................................................29
ARTICLE VI Covenants.........................................................................29
6.1. Interim Operations................................................................29
6.2. Acquisition Proposals.............................................................32
6.3. Information Supplied..............................................................35
6.4. Stockholders Meetings.............................................................36
6.5. Filings; Other Actions; Notification..............................................36
6.6. Taxation and Accounting...........................................................38
6.7. Access............................................................................39
6.8. Affiliates........................................................................39
6.9. Stock Exchange Listing and De-listing.............................................41
6.10. Publicity.........................................................................41
6.11. Benefits..........................................................................41
(a) Stock Options.............................................................41
(b) Directors of Parent.......................................................43
(c) Officers of Parent........................................................43
(d) Parent Board Committees...................................................43
(e) Corporate Headquarters....................................................43
6.12. Expenses..........................................................................43
6.13. Indemnification; Directors' and
Officers' Insurance...............................................................44
6.14. Other Actions by the Company and Parent...........................................45
(a) Takeover Statute..........................................................45
(b) Dividends.................................................................46
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6.15. Parent Vote.......................................................................46
6.16. Rate Matters......................................................................46
6.17. PUHCA.............................................................................46
6.18. Pennsylvania Restructuring Legislation............................................46
6.19. Nuclear Matters...................................................................47
ARTICLE VII Conditions........................................................................47
7.1. Conditions to Each Party's Obligation to
Effect the Merger.................................................................47
(a) Stockholder Approval......................................................47
(b) NYSE Listing..............................................................48
(c) Regulatory Consents.......................................................48
(d) Litigation................................................................48
(e) S-4.......................................................................48
(f) Blue Sky Approvals........................................................49
(g) Pooling Letter............................................................49
7.2. Conditions to Obligations of Parent and
Merger Sub........................................................................49
(a) Representations and Warranties............................................49
(b) Performance of Obligations of the
Company...................................................................49
(c) Consents..................................................................49
(d) Tax Opinion...............................................................50
(e) Affiliates Letters........................................................50
(f) Comfort Letters...........................................................50
7.3. Conditions to Obligation of the Company...........................................50
(a) Representations and Warranties............................................50
(b) Performance of Obligations of Parent
and Merger Sub............................................................50
(c) Consents..................................................................51
(d) Tax Opinion...............................................................51
(e) Comfort Letters...........................................................51
ARTICLE VIII Termination.......................................................................51
8.1. Termination by Mutual Consent.....................................................51
8.2. Termination by Either Parent or the
Company...........................................................................52
8.3. Termination by the Company........................................................52
8.4. Termination by Parent.............................................................53
8.5. Effect of Termination and Abandonment.............................................53
ARTICLE IX Miscellaneous and General.........................................................56
9.1. Survival..........................................................................56
9.2. Modification or Amendment.........................................................56
9.3. Waiver of Conditions; Extension...................................................56
9.4. Counterparts......................................................................57
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9.5. GOVERNING LAW AND VENUE; WAIVER OF JURY
TRIAL.............................................................................57
9.6. Notices...........................................................................58
9.7. Entire Agreement..................................................................59
9.8. No Third Party Beneficiaries......................................................59
9.9. Obligations of Parent and of the Company..........................................59
9.10. Severability......................................................................59
9.11. Interpretation....................................................................60
9.12. Assignment........................................................................60
EXHIBITS
Exhibit
Form of Affiliates Letter A-1
Form of Pooling Affiliates Letter A-2
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SCHEDULE OF DEFINED TERMS
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Acquisition Agreement.......................................................33
Acquisition Proposal........................................................32
Acquisition Transaction.....................................................32
AEA.........................................................................14
Affiliates Letter...........................................................40
Agreement....................................................................1
Audit Date..................................................................15
Bankruptcy and Equity Exception.............................................12
Budgets.....................................................................16
Bylaws.......................................................................3
Certificate..................................................................4
Charter......................................................................3
Closing......................................................................2
Closing Date.................................................................2
Code.........................................................................1
Company......................................................................1
Company Budget..............................................................16
Company Disclosure Letter....................................................9
Company Option..............................................................10
Company Requisite Vote......................................................12
Compensation and Benefit Plans..............................................17
Confidentiality Agreement...................................................59
Constituent Corporations.....................................................1
Contracts...................................................................15
Conversion Ratio.............................................................4
Costs.......................................................................44
Current Premium.............................................................45
D&O Insurance...............................................................45
Disclosure Letter............................................................9
Effective Time...............................................................3
Environmental Law...........................................................21
ERISA.......................................................................17
ERISA Affiliate.............................................................18
ERISA Affiliate Plan........................................................18
Exchange Act................................................................14
Exchange Agent...............................................................5
Exchange Fund................................................................5
Excluded Shares..............................................................4
FERC........................................................................10
Final Order.................................................................48
GAAP........................................................................16
Governmental Consents.......................................................48
Governmental Entity.........................................................14
Hazardous Material..........................................................22
HSR Act.....................................................................14
Indemnified Parties.........................................................44
Intellectual Property Rights................................................27
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IRS.........................................................................18
Law/Laws....................................................................20
Material Acquisition Transaction............................................54
Material Adverse Effect.....................................................10
Merger.......................................................................1
Merger Consideration.........................................................4
Merger Sub...................................................................1
Nuclear Facility/Nuclear Facilities.........................................28
Nuclear Review Committee....................................................47
NYSE........................................................................41
Order.......................................................................48
Parent.......................................................................1
Parent Budget...............................................................16
Parent Common Stock..........................................................4
Parent Companies.............................................................4
Parent Disclosure Letter.....................................................9
Parent Requisite Vote.......................................................13
Parent Stock Plans..........................................................11
Parent Stockholders Meeting.................................................36
Parent Voting Debt..........................................................12
PBCL.........................................................................2
Pennsylvania Articles of Merger..............................................3
Pennsylvania Restructuring Legislation......................................47
Pension Plan................................................................18
Permits.....................................................................20
Person.......................................................................6
Pooling Affiliates Letter...................................................40
Power Act...................................................................14
Preferred Shares............................................................10
Prospectus/Proxy Statement..................................................35
PUHCA.......................................................................10
Reports.....................................................................15
Representatives.............................................................39
S-4 Registration Statement..................................................35
SEC.........................................................................10
Securities Act..............................................................14
Shares.......................................................................4
Stock Option Agreement.......................................................1
Stock Plans.................................................................10
Stockholders Meeting........................................................36
Subsidiary..................................................................10
Superior Proposal...........................................................34
Surviving Corporation........................................................2
Takeover Statute............................................................21
Tax/Taxes/Taxable...........................................................25
Tax Return..................................................................25
Termination Date............................................................52
Third-Party Intellectual Property Rights....................................27
Voting Debt.................................................................11
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter called this
"Agreement"), dated as of April 5, 1997, among DQE, Inc., a Pennsylvania
corporation (the "Company"), Allegheny Power System, Inc., a Maryland
corporation ("Parent"), and AYP Sub, Inc., a Pennsylvania corporation to be
organized as a wholly owned subsidiary of Parent ("Merger Sub," the Company and
Merger Sub sometimes being hereinafter collectively referred to as the
"Constituent Corporations.")
RECITALS
WHEREAS, Parent and the Company have determined to
engage in a strategic business combination;
WHEREAS, in furtherance thereof, the respective boards of
directors of each of Parent and the Company have approved this Agreement, which
contemplates the merger of Merger Sub with and into the Company (the "Merger")
whereby the Company will become a wholly owned subsidiary of Parent, and have
approved the Merger upon the terms and subject to the conditions set forth in
this Agreement;
WHEREAS, it is intended that, for federal income tax purposes,
the Merger shall qualify as a reorganization under the provisions of Section
368(a) of the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder (the "Code");
WHEREAS, for financial accounting purposes, it is intended
that the Merger shall be accounted for as a "pooling-of-interests;"
WHEREAS, contemporaneously with the execution and delivery of
this Agreement, as a condition and inducement to Parent's willingness to enter
into this Agreement, the Company is entering into a stock option agreement with
Parent (the "Stock Option Agreement"), pursuant to which the Company has granted
to Parent an option to purchase Shares (as defined in Section 4.1(a)) under the
terms and conditions set forth in the Stock Option Agreement; and
WHEREAS, the Company and Parent desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
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NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
The Merger; Closing; Effective Time
1.1. Merger Sub; The Merger. (a) As promptly as practicable
following the execution of this Agreement and receipt of any required
regulatory approvals, Parent shall cause Merger Sub to be incorporated under
the laws of the Commonwealth of Pennsylvania. The Articles of Incorporation and
Bylaws of Merger Sub shall be in a customary form. The authorized capital stock
of Merger Sub shall consist of 1,000 shares of common stock, $0.01 par value
per share, all of which shall be issued to Parent at a price of $1.00 per share
following the receipt of any required regulatory approvals. As promptly as
practicable following the issuance of such shares, Parent shall cause Merger
Sub to authorize, execute and deliver this Agreement and to assume its
obligations as a party hereto.
(b) Upon the terms and subject to the conditions set forth in
this Agreement, at the Effective Time (as defined in Section 1.3), Merger Sub
shall be merged with and into the Company and the separate corporate existence
of Merger Sub shall thereupon cease. The Company shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation"), and the separate corporate existence of the Company with all its
rights, privileges, immunities, powers and franchises shall continue unaffected
by the Merger, except as set forth in Article III. The Merger shall have the
effects specified in the Pennsylvania Business Corporation Law, as amended
("PBCL").
1.2. Closing. The closing of the Merger (the "Closing") shall
take place (i) at the offices of Sullivan & Cromwell, 125 Broad Street, New
York, New York at 9:00 A.M. on the fifth business day after the day on which the
last to be fulfilled or waived of the conditions set forth in Article VII (other
than those conditions that by their nature are to be satisfied at the Closing,
but subject to the fulfillment or waiver of those conditions) shall be satisfied
or waived in accordance with this Agreement or (ii) at such other place and time
and/or on such other date as the Company and Parent may agree in writing (the
"Closing Date").
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1.3. Effective Time. As soon as practicable following the
Closing, the Company and Parent will cause an Articles of Merger (the
"Pennsylvania Articles of Merger") to be executed and filed with the Department
of State of the Commonwealth of Pennsylvania as provided in Section 1927 of the
PBCL. The Merger shall become effective at the time when the Pennsylvania
Articles of Merger has been duly filed with the Department of State of the
Commonwealth of Pennsylvania (the "Effective Time").
ARTICLE II
Certificate of Incorporation and By-Laws
of the Surviving Corporation
2.1. The Certificate of Incorporation. The articles of
incorporation of the Company as in effect immediately prior to the Effective
Time shall be the articles of incorporation of the Surviving Corporation (the
"Charter"), until duly amended as provided therein or by applicable law, except
that Article V of the Charter shall be amended to read in its entirety as
follows: "The aggregate number of shares that the Corporation shall have the
authority to issue is 1,000 shares of Common Stock, par value $0.01 per share".
2.2. The Bylaws. The by-laws of Merger Sub in effect at the
Effective Time shall be the by-laws of the Surviving Corporation (the "Bylaws"),
until thereafter amended as provided therein or by applicable law.
ARTICLE III
Officers and Directors
of the Surviving Corporation
3.1. Directors. The directors of Merger Sub at the Effective
Time shall, from and after the Effective Time, be the directors of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Charter and Bylaws.
3.2. Officers. The officers of the Company at the Effective
Time shall, from and after the Effective Time, be the officers of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified
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or until their earlier death, resignation or removal in accordance with the
Charter and Bylaws.
ARTICLE IV
Effect of the Merger on Capital Stock;
Exchange of Certificates
4.1. Effect on Capital Stock. At the Effective
Time, as a result of the Merger and without any action on
the part of the holder of any capital stock of the Company:
(a) Merger Consideration. Each share of the Common Stock,
without par value, of the Company (the "Shares") issued and outstanding
immediately prior to the Effective Time (other than Shares owned by Parent,
Merger Sub or any other direct or indirect subsidiary of Parent (collectively,
the "Parent Companies") and Shares that are owned by the Company or any direct
or indirect Subsidiary of the Company, in each case not held on behalf of third
parties, and which are not Shares held by the Company's utility Subsidiary to
provide for redemption of such Subsidiary's preference shares pursuant to the
terms of such Subsidiary's 401(k) plan or to provide benefits under another
employee benefit plan of such Subsidiary (collectively, "Excluded Shares"))
shall, subject to Section 4.2(e) of this Agreement, be converted into, and
become exchangeable for 1.12 (the "Conversion Ratio") shares of Common Stock,
par value $1.25 per share, of Parent ("Parent Common Stock"), except as such
merger consideration may be adjusted pursuant to Section 4.4 (as so adjusted,
the "Merger Consideration"). At the Effective Time, all Shares shall no longer
be outstanding and shall be cancelled and retired and shall cease to exist, and
each certificate (a "Certificate") formerly representing any of such Shares
(other than Excluded Shares) shall thereafter represent only the right to
receive the Merger Consideration and the right, if any, to receive pursuant to
Section 4.2(e) cash in lieu of fractional shares into which such Shares have
been converted pursuant to this Section 4.1(a) and any distribution or dividend
pursuant to Section 4.2(c).
(b) Cancellation of Shares. Each Excluded Share shall, by
virtue of the Merger and without any action on the part of the holder thereof,
cease to be outstanding, shall be cancelled and retired without payment of any
consideration therefor and shall cease to exist.
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(c) Merger Sub. At the Effective Time, each share of Common
Stock, par value $0.01 per share, of Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into one share of
common stock of the Surviving Corporation.
4.2. Exchange of Certificates for Shares.
(a) Exchange Agent. As of the Effective Time, Parent shall
deposit, or shall cause to be deposited, with an exchange agent selected by
Parent with the consent of the Company (the "Exchange Agent"), which consent
shall not be unreasonably withheld, for the benefit of the holders of Shares,
certificates representing the shares of Parent Common Stock and, after the
Effective Time, if applicable, any cash, dividends or other distributions with
respect to the Parent Common Stock to be issued or paid pursuant to the last
sentence of Section 4.1(a) in exchange for outstanding Shares upon due surrender
of the Certificates (or affidavits of loss in lieu thereof) pursuant to the
provisions of this Article IV (such certificates for shares of Parent Common
Stock, together with the amount of any dividends or other distributions payable
with respect thereto, being hereinafter referred to as the "Exchange Fund").
(b) Exchange Procedures. Promptly after the Effective Time,
the Surviving Corporation shall cause the Exchange Agent to mail to each holder
of record of Shares (other than holders of Excluded Shares) (i) a letter of
transmittal specifying that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon delivery of the Certificates (or
affidavits of loss in lieu thereof) to the Exchange Agent, such letter of
transmittal to be in such form and have such other provisions as Parent and the
Company may reasonably agree, and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for (A) certificates representing
shares of Parent Common Stock and (B) any unpaid dividends and other
distributions and cash in lieu of fractional shares. Subject to Section 4.2(h),
upon surrender of a Certificate for cancellation to the Exchange Agent together
with such letter of transmittal, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor (x) a certificate representing
that number of whole shares of Parent Common Stock that such holder is entitled
to receive pursuant to this Article IV, (y) a check in the amount (after giving
effect to any required tax withholdings) of (A) any cash in lieu of fractional
shares plus (B) any unpaid non-stock dividends and any other dividends or other
distributions
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that such holder has the right to receive pursuant to the provisions of this
Article IV, and the Certificate so surrendered shall forthwith be cancelled. No
interest will be paid or accrued on any amount payable upon due surrender of the
Certificates. In the event of a transfer of ownership of Shares that is not
registered in the transfer records of the Company, a certificate representing
the proper number of shares of Parent Common Stock, together with a check for
any cash to be paid upon due surrender of the Certificate and any other
dividends or distributions in respect thereof, may be issued and/or paid to such
a transferee if the Certificate formerly representing such Shares is presented
to the Exchange Agent, accompanied by all documents required to evidence and
effect such transfer and to evidence that any applicable stock transfer taxes
have been paid. If any certificate for shares of Parent Common Stock is to be
issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it shall be a condition of such exchange that
the Person (as defined below) requesting such exchange shall pay any transfer or
other taxes required by reason of the issuance of certificates of shares of
Parent Common Stock in a name other than that of the registered holder of the
Certificate surrendered, or shall establish to the satisfaction of Parent or
the Exchange Agent that such tax has been paid or is not applicable.
For the purposes of this Agreement, the term "Person" shall
mean any individual, corporation (including not-for-profit), general or limited
partnership, limited liability company, joint venture, estate, trust,
association, organization, Governmental Entity (as defined in Section 5.1(d)) or
other entity of any kind or nature.
(c) Distributions with Respect to Unexchanged Shares; Voting.
(i) All shares of Parent Common Stock to be issued pursuant to the Merger shall
be deemed issued and outstanding as of the Effective Time and whenever a
dividend or other distribution is declared by Parent in respect of the Parent
Common Stock, the record date for which is at or after the Effective Time, that
declaration shall include dividends or other distributions in respect of all
shares issuable pursuant to this Agreement. No dividends or other distributions
in respect of the Parent Common Stock shall be paid to any holder of any
unsurrendered Certificate until such Certificate is surrendered for exchange in
accordance with this Article IV. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be issued and/or paid
to the holder of the certificates representing whole shares of Parent Common
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Stock issued in exchange therefor, without interest, (A) at the time of such
surrender, the dividends or other distributions with a record date after the
Effective Time theretofore payable with respect to such whole shares of Parent
Common Stock and not paid and (B) at the appropriate payment date, the dividends
or other distributions payable with respect to such whole shares of Parent
Common Stock with a record date after the Effective Time but with a payment date
subsequent to surrender.
(ii) Holders of unsurrendered Certificates shall be entitled
to vote after the Effective Time at any meeting of Parent stockholders the
number of whole shares of Parent Common Stock represented by such Certificates,
regardless of whether such holders have exchanged their Certificates.
(d) Transfers. After the Effective Time, there shall be no
transfers on the stock transfer books of the Company of the Shares that were
outstanding immediately prior to the Effective Time.
(e) Fractional Shares. Notwithstanding any other provision of
this Agreement, no fractional shares of Parent Common Stock will be issued and
any holder of Shares entitled to receive a fractional share of Parent Common
Stock but for this Section 4.2(e) shall be entitled to receive a cash payment in
lieu thereof, which payment shall represent such holder's proportionate interest
in a share of Parent Common Stock based on the closing price of a share of the
Parent Common Stock, as reported in The Wall Street Journal, New York City
edition, on the trading day immediately prior to the Effective Time.
(f) Termination of Exchange Fund. Any portion of the Exchange
Fund (including the proceeds of any investments thereof and any Parent Common
Stock) that remains unclaimed by the stockholders of the Company for 180 days
after the Effective Time shall be paid to Parent. Any stockholders of the
Company who have not theretofore complied with this Article IV shall thereafter
look only to Parent for payment of their shares of Parent Common Stock and any
cash, dividends and other distributions in respect of the Parent Common Stock
payable and/or issuable pursuant to Section 4.1 and Section 4.2(c) upon due
surrender of their Certificates (or affidavits of loss in lieu thereof), in each
case, without any interest thereon. Notwithstanding the foregoing, none of
Parent, the Surviving Corporation, the Exchange Agent or any other Person shall
be liable to any former holder of Shares for any amount properly
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<PAGE> 15
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
(g) Lost, Stolen or Destroyed Certificates. In the event any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Certificate to be lost,
stolen or destroyed and, if required by Parent, the posting by such Person of a
bond in customary amount as indemnity against any claim that may be made against
it with respect to such Certificate, the Exchange Agent will issue in exchange
for such lost, stolen or destroyed Certificate the shares of Parent Common Stock
and any cash payable and any unpaid dividends or other distributions in respect
of Parent Common Stock pursuant to Section 4.2(c) upon due surrender of and
deliverable pursuant to this Agreement in respect of the Shares to which such
Certificate relates.
(h) Affiliates. Notwithstanding anything herein to the
contrary, Certificates surrendered for exchange by any "affiliate" (as
determined pursuant to Section 6.8) of the Company shall not be exchanged until
Parent has received a written agreement from such Person as provided in Section
6.8 hereof.
4.3. Dissenters' Rights. In accordance with Section 1571 of
the PBCL, no appraisal rights shall be available to holders of Shares in
connection with the Merger.
4.4. Adjustments to Prevent Dilution. In the event that Parent
changes the number of Shares or shares of Parent Common Stock or securities
convertible or exchangeable into or exercisable for Shares or shares of Parent
Common Stock issued and outstanding prior to the Effective Time as a result of a
reclassification, stock split (including a reverse split), stock dividend or
distribution, recapitalization, merger, subdivision, issuer tender or exchange
offer, or other similar transaction, the Merger Consideration shall be equitably
adjusted.
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ARTICLE V
Representations and Warranties
5.1. Representations and Warranties of the Company and Parent.
Except as set forth in the corresponding sections or subsections of the
disclosure letter, dated the date hereof, delivered by the Company to Parent or
by Parent to the Company (each a "Disclosure Letter", and the "Company
Disclosure Letter" and the "Parent Disclosure Letter", respectively), as the
case may be, the Company (except for subparagraphs (b)(ii), (b)(iii), (c)(ii),
(c)(iii), (q)(ii), (r)(iii) and (u)(ii) below and references in subparagraphs
(a) and (h)(i) below to documents made available by Parent to the Company)
hereby represents and warrants to Parent, and Parent (except for subparagraphs
(b)(i), (c)(i), (j), (q)(i), (r)(ii), (s), (t) and (u)(i) below and references
in subparagraphs (a) and (h)(i) below to documents made available by the Company
to Parent and the reference in subparagraph (h)(i) below to items to be included
in the Company Disclosure Letter), hereby represents and warrants to the
Company, that:
(a) Organization, Good Standing and Qualification. Each of it
and its Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its respective jurisdiction of organization and
has all requisite corporate or similar power and authority to own and operate
its properties and assets and to carry on its business as presently conducted
and is qualified to do business and is in good standing as a foreign corporation
in each jurisdiction where the ownership or operation of its properties or
conduct of its business requires such qualification, except where the failure
to be so qualified or in good standing, when taken together with all other such
failures, is not reasonably likely to have a Material Adverse Effect (as defined
below) on it. It has made available to Parent, in the case of the Company, and
to the Company, in the case of Parent, a complete and correct copy of its and
its Subsidiaries' certificates or articles of incorporation, as the case may be,
and by-laws, each as amended to date. Such certificates or articles of
incorporation, as the case may be, and by-laws as so made available are in full
force and effect. Section 5.1(a) of the Disclosure Letters contains a correct
and complete list of each jurisdiction where the Company, in the case of the
Company Disclosure Letter, and Parent, in the case of the Parent Disclosure
Letter, and in each case, each of its Subsidiaries is organized and qualified to
do business.
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As used in this Agreement, the term (i) "Subsidiary" means,
with respect to the Company, Parent or Merger Sub, as the case may be, any
entity whether incorporated or unincorporated, in which the Company, Parent or
Merger Sub, as the case may be, owns, directly or indirectly, at least a
majority of the outstanding voting securities or other equity interests having
the power to elect a majority of the directors, or otherwise direct the
management and policies, of such entity and (ii) "Material Adverse Effect"
means, with respect to any Person, a material adverse effect on the financial
condition, properties, operations, business or results of operations of such
Person and its Subsidiaries taken as a whole; provided, however, that any such
effect resulting from any change in law, rule, or regulation promulgated by (i)
the United States Congress, (ii) the Securities and Exchange Commission (the
"SEC") with respect to the Public Utility Holding Company Act of 1935, as
amended (the "PUHCA"), (iii) the Pennsylvania State Legislature or the
Pennsylvania Public Utilities Commission or (iv) the Federal Energy Regulatory
Commission (the "FERC"), or any interpretation of any such law, rule or
regulation, or the application of the Pennsylvania Restructuring Legislation (as
defined in Section 6.18), which affects both the Company and its Subsidiaries,
taken as a whole, and Parent and its Subsidiaries, taken as a whole, shall only
be considered when determining if a Material Adverse Effect has occurred to the
extent that such effect on one such party exceeds such effect on the other
party.
(b) Capital Structure. (i) The authorized capital stock of the
Company consists of 187,500,000 Shares, of which 79,318,011 Shares were
outstanding as of the close of business on April 3, 1997, and 4,000,000 shares
of Preferred Stock, without par value, of which no shares were outstanding as of
the close of business on April 3, 1997 (the "Preferred Shares"). All of the
outstanding Shares have been duly authorized and validly issued and are fully
paid and nonassessable. The Company has no Shares or Preferred Shares reserved
for issuance, except that, as of April 3, 1997, there were 1,584,285 Shares
reserved for issuance pursuant to the Company's Long-Term Incentive Savings
Plan, the Dividend Reinvestment and Stock Purchase Plan, the 1996 Stock Plan for
Non-Employee Directors and the Performance Incentive Program for the Company and
its Subsidiaries (the "Stock Plans"). The Company Disclosure Letter contains a
correct and complete list of each outstanding option to purchase Shares under
the Stock Plans (each a "Company Option"), including the holder, date of grant,
exercise price and number of Shares subject thereto.
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<PAGE> 18
Each of the outstanding shares of capital stock or other securities of each of
the Company's Subsidiaries is duly authorized, validly issued and is fully paid
and nonassessable and owned by a direct or indirect wholly owned subsidiary of
the Company, free and clear of any lien, pledge, security interest, claim or
other encumbrance. Except as set forth above, there are no preemptive or other
outstanding rights, options, warrants, conversion rights, stock appreciation
rights, redemption rights, repurchase rights, agreements, arrangements or
commitments which obligate the Company or any of its Subsidiaries to issue or
sell any shares of capital stock or other securities of the Company or any of
its Subsidiaries or any securities or obligations convertible or exchangeable
into or exercisable for, or giving any Person a right to subscribe for or
acquire from the Company or any of its Subsidiaries, any securities of the
Company or any of its Subsidiaries, and no securities or obligations evidencing
such rights are authorized, issued or outstanding. The Company does not have
outstanding any bonds, debentures, notes or other obligations the holders of
which have the right to vote (or are convertible into or exercisable for
securities having the right to vote) with the stockholders of the Company on any
matter ("Voting Debt").
(ii) The authorized stock of Parent consists of 260,000,000
shares of Parent Common Stock, of which 122,111,567 shares were outstanding as
of the close of business on April 3, 1997. All of the outstanding shares of
Parent Common Stock have been duly authorized and validly issued and are fully
paid and nonassessable. Parent has no Parent Common Stock reserved for issuance,
except that, as of April 3, 1997, there were 1,692,310 shares of Parent Common
Stock reserved for issuance pursuant to the Allegheny Power Employee Stock
Ownership and Savings Plan and the Allegheny Power System Performance Share Plan
(the "Parent Stock Plans"). Each of the outstanding shares of capital stock of
each of Parent's Subsidiaries is duly authorized and validly issued and is fully
paid and nonassessable and owned by a direct or indirect wholly owned subsidiary
of Parent, free and clear of any lien, pledge, security interest, claim or other
encumbrance. Except as set forth above, there are no preemptive or other
outstanding rights, options, warrants, conversion rights, stock appreciation
rights, redemption rights, repurchase rights, agreements, arrangements or
commitments which obligate Parent or any of its Subsidiaries to issue or to sell
any shares of capital stock or other securities of Parent or any of its
Subsidiaries or any securities or obligations convertible or exchangeable into
or exercisable for, or giving any Person a
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right to subscribe for or acquire from Parent or any of its Subsidiaries, any
securities of Parent or any of its Subsidiaries, and no securities or
obligations evidencing such rights are authorized, issued or outstanding. Parent
does not have outstanding any bonds, debentures, notes or other obligations the
holders of which have the right to vote (or are convertible into or exercisable
for securities having the right to vote) with the stockholders of Parent on any
matter ("Parent Voting Debt").
(iii) The authorized capital stock of Merger Sub shall consist
of 1,000 shares of Common Stock, par value $0.01 per share, all of which shall
be validly issued and outstanding at the Effective Time. At the Effective Time,
all of the issued and outstanding capital stock of Merger Sub will be owned by
Parent and there shall be (i) no other voting securities of Merger Sub, (ii) no
securities of Merger Sub convertible into or exchangeable for shares of capital
stock or voting securities of Merger Sub and (iii) no options or other rights to
acquire from Merger Sub, and no obligations of Merger Sub to issue, any capital
stock, voting securities or securities convertible into or exchangeable for
capital stock or voting securities of Merger Sub. At the Effective Time, Merger
Sub shall not have conducted any business, and shall have no, assets,
liabilities or obligations of any nature, other than those incident to its
formation and pursuant to this Agreement and the Merger and the other
transactions contemplated by this Agreement.
(c) Corporate Authority; Approval and Fairness. (i) The
Company has all requisite corporate power and authority and has taken all
corporate action necessary in order to execute, deliver and perform its
obligations under this Agreement and the Stock Option Agreement and to
consummate, subject only to approval of this Agreement by the holders of a
majority of the votes cast by Shares entitled to a vote on approval of this
Agreement (the "Company Requisite Vote"), the Merger. This Agreement and the
Stock Option Agreement have been duly executed and delivered by the Company and,
assuming the due authorization, execution and delivery hereof and thereof by the
other signatories hereto and thereto, constitute valid and binding agreements of
the Company enforceable against the Company in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles (the "Bankruptcy and Equity
Exception"). The board of directors of the Company (A) has approved this
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<PAGE> 20
Agreement and the Stock Option Agreement and the Merger and the other
transactions contemplated hereby and thereby and (B) has received the opinion of
its financial advisor Credit Suisse First Boston Corporation to the effect that,
as of the date of this Agreement, the Conversion Ratio is fair to the holders of
Shares from a financial point of view.
(ii) Parent has all requisite corporate power and authority
and each has taken all corporate action necessary in order to execute, deliver
and perform its obligations under this Agreement and to consummate, subject only
to any stockholder approval necessary to permit the issuance of Parent Common
Stock required to be issued pursuant to Article IV (the "Parent Requisite
Vote"), the Merger. This Agreement has been duly executed and delivered by
Parent and, assuming the due authorization, execution and delivery hereof by the
Company, constitutes a valid and binding agreement of Parent, enforceable
against Parent in accordance with its terms, subject to the Bankruptcy and
Equity Exception. At the Effective Time, Merger Sub shall have all requisite
corporate authority and shall have taken all corporate action necessary in order
to execute, deliver and perform its obligations under this Agreement and to
consummate the Merger. At the Effective Time, this Agreement shall have been
duly executed and delivered by Merger Sub and, assuming the due authorization,
execution and delivery hereof by the Company, shall constitute a valid and
binding agreement of Merger Sub, enforceable against Merger Sub in accordance
with its terms, subject to the Bankruptcy and Equity Exception. The Parent
Common Stock, when issued, will be validly issued, fully paid and nonassessable,
and no stockholder of Parent will have any preemptive right of subscription or
purchase in respect thereof. The Board of Directors of Parent (A) has approved
this Agreement, the Merger and the transactions contemplated hereby and (B) has
received the opinion of its financial advisors Merrill Lynch & Co. to the effect
that the consideration to be paid by Parent to the holders of the Shares in the
Merger is fair to Parent from a financial point of view.
(iii) Parent has all requisite corporate power and authority
and has taken all corporate action necessary in order to execute, deliver and
perform its obligations under the Stock Option Agreement. The Stock Option
Agreement has been duly executed and delivered by Parent, and, assuming the due
authorization, execution and delivery thereof by the Company, constitutes a
valid and binding agreement of Parent, enforceable against Parent in
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accordance with its terms, subject to the Bankruptcy and Equity Exception.
(d) Governmental Filings; No Violations. (i) Other than the
filings, notices and/or approvals (A) pursuant to Section 1.3, (B) under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act") and
the Securities Act of 1933, as amended (the "Securities Act"), (C) to comply
with state securities or "blue-sky" laws, (D) of the SEC pursuant to the PUHCA,
the FERC pursuant to the Federal Power Act, as amended (the "Power Act") and the
NRC pursuant to the Atomic Energy Act, as amended (the "AEA"), (E) of federal or
state regulatory bodies pursuant to Environmental Laws (as defined in Section
5.1(k)), and (F) of the state public utility commissions or similar state
regulatory bodies identified in the respective Disclosure Letter pursuant to
applicable state laws regulating the electric utility business, no notices,
reports or other filings are required to be made by it with, nor are any
consents, registrations, approvals, permits or authorizations required to be
obtained by it from, any governmental or regulatory authority, agency,
commission, body or other governmental entity ("Governmental Entity"), in
connection with the execution and delivery of this Agreement and the Stock
Option Agreement by it and the consummation by it of the Merger and the other
transactions contemplated hereby and thereby, except those that the failure to
make or obtain are not, individually or in the aggregate, reasonably likely to
have a Material Adverse Effect on it or prevent, materially delay or materially
impair the ability of it to consummate the transactions contemplated by this
Agreement and the Stock Option Agreement.
(ii) The execution, delivery and performance of this Agreement
and the Stock Option Agreement by it does not, and the consummation by it of the
Merger and the other transactions contemplated hereby and thereby will not,
constitute or result in (A) a breach or violation of, or a default under, its
certificate or articles of incorporation or by-laws or the comparable governing
instruments of any of its Subsidiaries, (B) subject to the receipt of all
required waivers and consents as described in Section 5.1(d)(i) or the last
sentence of this subsection, a breach or violation of, or a default under, the
acceleration of any obligations or the creation of a lien, pledge, security
interest or other encumbrance on the assets of it or any of its Subsidiaries
(with or without notice, lapse of time or both) pursuant to any agreement,
lease, contract, note, mortgage,
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indenture, arrangement or other obligation ("Contracts") binding upon it or any
of its Subsidiaries or any Law (as defined in Section 5.1(i)) or governmental or
non-governmental permit or license to which it or any of its Subsidiaries is
subject or (C) any change in the rights or obligations of any party under any of
the Contracts, except, in the case of clause (B) or (C) above, for any breach,
violation, default, acceleration, creation or change that, individually or in
the aggregate, is not reasonably likely to have a Material Adverse Effect on it
or prevent, materially delay or materially impair its ability to consummate the
transactions contemplated by this Agreement and the Stock Option Agreement. The
Company Disclosure Letter, with respect to the Company, and the Parent
Disclosure Letter, with respect to the Parent, contains a correct and complete
list of Contracts of the Company, in the case of the Company Disclosure Letter,
and of Parent, in the case of the Parent Disclosure Letter, and its respective
Subsidiaries pursuant to which consents or waivers are or may be required prior
to consummation of the transactions contemplated by this Agreement and the Stock
Option Agreement (whether or not subject to the exception set forth with respect
to clauses (B) and (C) above).
(e) Reports; Financial Statements. The filings required to be
made by it and its Subsidiaries since December 31, 1993 under the PUHCA, the
Power Act, the AEA and state law, and under regulations applicable to public
utilities, have been made with the relevant Governmental Entities, and each of
it and its Subsidiaries has complied in all material respects with such laws and
regulations, except for such failures as are not reasonably likely to have a
Material Adverse Effect on it. It has delivered to the other party each
registration statement, report, proxy statement or information statement
prepared by it or its Subsidiaries and filed with the SEC since December 31,
1996 (the "Audit Date"), including its Annual Report on Form 10-K for the year
ended December 31, 1996 in the form (including exhibits, annexes and any
amendments thereto) filed with the SEC (collectively, including any such
registration statement, report, proxy statement or information statement filed
subsequent to the date hereof, the "Reports"). As of their respective dates, the
Reports did not, and any Reports filed with the SEC subsequent to the date
hereof will not, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading. Each of the consolidated balance sheets included in or
incorporated by reference into the Reports
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(including the related notes and schedules) fairly presents, or will fairly
present, the consolidated financial position of it and its Subsidiaries as of
its date and each of the consolidated statements of income and of changes in
financial position included in or incorporated by reference into the Reports
(including any related notes and schedules) fairly presents, or will fairly
present, the results of operations, retained earnings and changes in financial
position, as the case may be, of it and its Subsidiaries for the periods set
forth therein (subject, in the case of unaudited statements, to notes and normal
year-end audit adjustments that will not be material in amount or effect), in
each case in accordance with generally accepted accounting principles ("GAAP")
consistently applied during the periods involved, except as may be noted
therein.
(f) Absence of Certain Changes. Except as disclosed in the
Reports filed prior to the date hereof, or as expressly contemplated by this
Agreement or as expressly contemplated by the DQE, Inc. 1997 Five Year Plan, a
copy of which has been provided to, and accepted by, Parent (the "Company
Budget") or the Allegheny Power Final Operating, Cash and Capital Budget for
Year 1997 and Forecast Years 1998 through 2001, a copy of which has been
provided to, and accepted by, the Company (the "Parent Budget" and, collec-
tively with the Company Budget, the "Budgets"), since the Audit Date it and its
Subsidiaries have conducted their respective businesses only in, and have not
engaged in any material transaction other than according to, the ordinary and
usual course of such businesses and there has not been (i) any change in the
financial condition, properties, business or results of operations of it and its
Subsidiaries or any development or combination of developments affecting it of
which its management has knowledge that, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on it; (ii) any material
damage, destruction or other casualty loss with respect to any material asset or
property owned, leased or otherwise used by it or any of its Subsidiaries,
whether or not covered by insurance; (iii) any declaration, setting aside or
payment of any dividend or other distribution in respect of its capital stock,
except for dividends or other distributions on its capital stock publicly
announced prior to the date hereof and except as expressly provided for herein;
or (iv) any change by it in accounting principles or material accounting
practices or methods. Since the Audit Date, except as provided for herein or as
disclosed in the Reports filed prior to the date hereof, there has not been any
increase in the compensation payable or that could become payable by it or any
of its Subsidiaries to officers or key employees or any
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amendment of any of the Compensation and Benefit Plans (as defined in Section
5.1(h)) other than increases or amendments in the ordinary course.
(g) Litigation and Liabilities. Except as disclosed in the
Reports filed prior to the date hereof, there are no (i) civil, criminal or
administrative actions, suits, claims, hearings, investigations or proceedings
pending or, to the knowledge of its executive officers, threatened against it or
any of its Affiliates or (ii) obligations or liabilities, whether or not
accrued, contingent or otherwise and whether or not required to be disclosed,
including those relating to matters involving any Environmental Law (as defined
in Section 5.1(k)) or any other facts or circumstances of which its executive
officers have knowledge that could result in any claims against, or obligations
or liabilities of, it or any of its Affiliates, that, individually or in the
aggregate, are reasonably likely to have a Material Adverse Effect on it or
prevent or materially burden or materially impair the ability of it to
consummate the transactions contemplated by this Agreement and the Stock Option
Agreement.
(h) Employee Benefits.
(i) With the exception of documents as to which Parent is
bound by a confidentiality agreement (which pertain to arrangements which are
not, individually or in the aggregate, material), a copy of each bonus, deferred
compensation, pension, retirement, profit-sharing, thrift, savings, employee
stock ownership, stock bonus, stock purchase, restricted stock, stock option,
employment, termination, severance, compensation, medical, health or other plan,
agreement, policy or arrangement that covers employees, directors, former
employees or former directors of Parent, the Company or their respective
Subsidiaries (its "Compensation and Benefit Plans") and any trust agreement or
insurance contract forming a part of such Compensation and Benefit Plans has
been made available to the other party prior to the date hereof and each such
Compensation and Benefit Plan is listed in Section 5.1(h) of the applicable
Disclosure Letter. Any "change of control" or similar provisions in the
Compensation and Benefit Plans are specifically identified in Section 5.1(h) of
the applicable Disclosure Letter.
(ii) All Compensation and Benefit Plans are in substantial
compliance with all applicable law, including the Code and the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). Each Compensation
and Benefit
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Plan that is an "employee pension benefit plan", within the meaning of Section
3(2) of ERISA (a "Pension Plan") and that is intended to be qualified under
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service (the "IRS") for "TRA" (as defined in Rev. Proc.
93-39), or the remedial amendment period for such Pension Plan has not yet
expired, and it is not aware of any circumstances likely to result in revocation
of any such favorable determination letter. There is no pending or, to the
knowledge of its executive officers, threatened material litigation relating to
the Compensation and Benefit Plans. Neither it nor any of its Subsidiaries has
engaged in a transaction with respect to any Compensation and Benefit Plan that,
assuming the taxable period of such transaction expired as of the date hereof,
would be reasonably expected to subject it or any of its Subsidiaries to a
material tax or penalty imposed by either Section 4975 of the Code or Section
502(i) of ERISA.
(iii) As of the date hereof, no liability under Subtitle C or
D of Title IV of ERISA has been or is expected to be incurred by it or any of
its Subsidiaries with respect to any ongoing, frozen or terminated
"single-employer plan", within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by it or any of its Subsidiaries, or the
single-employer plan (an "ERISA Affiliate Plan") of any entity which is treated
as a single employer with it or any of its Subsidiaries under Section 414 of the
Code (an "ERISA Affiliate"). It and its Subsidiaries have not incurred and do
not expect to incur any withdrawal liability with respect to any "multiemployer
plan", within the meaning of Section 4001(a)(3) of ERISA, under Subtitle E of
Title IV of ERISA (including withdrawal liability as a result of actions of
ERISA Affiliates). No notice of a "reportable event", within the meaning of
Section 4043 of ERISA, for which the 30-day reporting requirement has not been
waived, has been required to be filed for any Pension Plan or ERISA Affiliate
Plan within the 12-month period ending on the date hereof or will be required to
be filed in connection with the transaction contemplated by this Agreement and
the Stock Option Agreement.
(iv) All contributions required to be made under the terms of
any Compensation and Benefit Plan as of the date hereof have been timely made.
Neither any Pension Plan nor any ERISA Affiliate Plan has an "accumulated
funding deficiency" (whether or not waived) within the meaning of Section 412 of
the Code or Section 302 of ERISA. Neither it nor its Subsidiaries has provided,
or is required to
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provide, security to any Pension Plan or to any ERISA Affiliate Plan pursuant to
Section 401(a)(29) of the Code.
(v) Under each Pension Plan which is a single-employer plan
and ERISA Affiliate Plan, as of the last day of the most recent plan year ended
prior to the date hereof for which an actuarial valuation has been completed,
the actuarially determined present value of all "benefit liabilities", within
the meaning of Section 4001(a)(16) of ERISA (as determined on the basis of the
actuarial assumptions contained in the Pension Plan's or ERISA Affiliate Plan's
most recent actuarial valuation), did not exceed the then current value of the
assets of such Pension Plan or ERISA Affiliate Plan, and there has been no
material change in the financial condition of such Pension Plan since the last
day of such most recent plan year. The potential withdrawal liability of it and
its Subsidiaries and ERISA Affiliates under each multiemployer plan to which
each such entity contributes or had an obligation to contribute, determined as
if a "complete withdrawal" (within the meaning of Section 4203 of ERISA) has
occurred as of the date hereof, would not reasonably be expected to have a
Material Adverse Effect on it.
(vi) Neither it nor its Subsidiaries have any obligations for
retiree health and life benefits under any Compensation and Benefit Plan. It or
its Subsidiaries may amend or terminate any such plan under the terms of such
plan at any time without incurring any material liability thereunder.
(vii) The consummation of the Merger and the other
transactions contemplated by this Agreement or the Stock Option Agreement would
not, directly or indirectly (including as a result of any Compensation and
Benefit Plans providing for severance as a result of termination of employment
within a specified time period following a change in control of the Company) (x)
entitle any employees of it or its Subsidiaries to severance pay, (y) accelerate
the time of payment or vesting or trigger any payment of compensation or
benefits under, increase the amount payable or trigger any other material
obligation pursuant to, any of the Compensation or Benefit Plans or (z) result
in any breach or violation of, or a default under, any of the Compensation and
Benefit Plans.
(viii) All Compensation and Benefit Plans covering current or
former non-U.S. employees or former employees of it and its Subsidiaries comply
in all material respects with applicable local law. It and its Subsidiaries
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have no material unfunded liabilities, as determined under local funding
requirements, with respect to any Pension Plan that covers such non-U.S.
employees.
(i) Compliance with Laws; Permits. Except as set forth in the
Reports filed prior to the date hereof, the businesses of each of it and its
Subsidiaries have not been, and are not being, conducted in violation of any
law, ordinance, regulation, judgment, order, decree, arbitration award, license
or permit of any Governmental Entity (each a "Law" and collectively, "Laws"),
except for violations or possible violations that, individually or in the
aggregate, are not reasonably likely to have a Material Adverse Effect on it or
prevent or materially burden or materially impair its ability to consummate the
transactions contemplated by this Agreement and the Stock Option Agreement.
Except as set forth in the Reports filed prior to the date hereof, no
investigation or review by any Governmental Entity with respect to it or any of
its Subsidiaries is pending or, to the knowledge of its executive officers,
threatened, nor has any Governmental Entity indicated an intention to conduct
the same, except for those the outcome of which are not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect on it or prevent
or materially burden or materially impair the ability of it to consummate the
transactions contemplated by this Agreement and the Stock Option Agreement. To
the knowledge of its executive officers, no material change is required in its
or any of its Subsidiaries' processes, properties or procedures in connection
with any such Laws, and it has not received any notice or communication of any
material noncompliance with any such Laws that has not been cured as of the date
hereof. Each of it and its Subsidiaries has all permits, licenses, trademarks,
service marks, franchises, variances, exemptions, orders and other governmental
authorizations, consents and approvals (collectively, "Permits") necessary to
conduct its business as presently conducted except those the absence of which
are not, individually or in the aggregate, reasonably likely to have a Material
Adverse Effect on it or prevent or materially burden or materially impair its
ability to consummate the Merger and the other transactions contemplated by this
Agreement and the Stock Option Agreement.
(j) Takeover Statutes. The Board of Directors of the Company
has taken or will take all appropriate and necessary action such that each of
PBCL Section 2551 et seq. and Article VII of the Company's charter will not have
any effect on the Merger or the transactions contemplated by this Agreement or
the Stock Option Agreement. No other
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"fair price," "moratorium," "control share acquisition" or other similar
anti-takeover statute or regulation, including, without limitation, PBCL Section
2541 et seq. (each, a "Takeover Statute") or any applicable anti-takeover
provision in the Company's articles of incorporation and by-laws is, or at the
Effective Time will be, applicable to the Company, the Shares, the Merger or the
other transactions contemplated by this Agreement or the Stock Option Agreement.
(k) Environmental Matters. Except as disclosed in the Reports
filed prior to the date hereof, and except for such matters that, individually
or in the aggregate, are not reasonably likely to have a Material Adverse Effect
on it: (i) it and its Subsidiaries have complied with all applicable
Environmental Laws; (ii) the properties currently owned or operated by it
(including soils, groundwater, surface water, buildings or other structures) are
not contaminated with any Hazardous Material; (iii) the properties formerly
owned or operated by it or any of its Subsidiaries were not contaminated with
any Hazardous Material during the period of ownership or operation by it or any
of its Subsidiaries; (iv) neither it nor its Subsidiaries are subject to
liability for any Hazardous Material disposal or contamination on any third
party property; (v) neither it nor any Subsidiary has been associated with any
release or threat of release of any Hazardous Material; (vi) neither it nor any
Subsidiary has received any notice, demand, letter, claim or request for
information alleging that it or any of its Subsidiaries may be in violation of
or liable under any Environmental Law; (vii) neither it nor any of its
Subsidiaries is subject to any orders, decrees, injunctions or other
arrangements with any Governmental Entity or is subject to any indemnity or
other agreement with any third party relating to liability under any
Environmental Law or relating to any Hazardous Material; and (viii) there are no
circumstances or conditions involving it or any of its Subsidiaries that could
reasonably be expected to result in any claims, liability, investigations, costs
or restrictions on the ownership, use, or transfer of any property of it
pursuant to any Environmental Law.
As used herein, the term "Environmental Law" shall mean any
local, state or federal statute, rule, regulation, order, consent decree,
agreement with any Governmental Entity, common law standard of conduct,
directive or ordinance pertaining to: (A) the protection of health, safety or
the indoor or outdoor environment; (B) the use, development and control of land;
(C) the conservation,
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management or use of natural resources and wildlife; (D) the protection or use
of surface water and ground water; (E) the management, manufacture, possession,
presence, use, generation, transportation, treatment, storage, disposal,
release, threatened release, abatement, removal, remediation, or handling of, or
exposure to, any Hazardous Material or waste (including, without limitation,
ash, coal residues and radioactive wastes and contaminated materials); or (F)
pollution (including any release or threat of release to air, land, surface
water and ground water); and includes without limitation, the following federal
statutes (and their implementing regulations and the analogous state statutes
and regulations): the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C. Section 9601 et seq.; the Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976,
as amended by the Hazardous and Solid Waste Amendments of 1984, 42 U.S.C.
Section 6901 et seq.; the Federal Water Pollution Control Act of 1972, as
amended by the Clean Water Act of 1977, as amended, 33 U.S.C. Section 1251 et
seq.; the Toxic Substances Control Act of 1976, as amended, 15 U.S.C. Section
2601 et seq.; the Emergency Planning and Community Right-to-Know Act of 1986, 42
U.S.C. Section 11001 et seq.; the Clean Air Act of 1966, as amended by the Clean
Air Act Amendments of 1990, 42 U.S.C. Section 7401 et seq.; the Occupational
Safety and Health Act of 1970, as amended, 29 U.S.C. Section 651 et seq.; the
Rivers and Harbors Act of 1899, as amended, 33 U.S.C. Section 401 et seq.; the
Endangered Species Act of 1973, as amended, 16 U.S.C. Section 1531 et seq.; the
Atomic Energy Act, as amended, 42 U.S.C. Section 2014 et seq.; the Occupational
Safety and Health Act of 1970, as amended, 29 U.S.C. Section 651 et seq.; and
the Safe Drinking Water Act of 1974, as amended, 42 U.S.C. Section 300(f) et
seq.
As used herein, the term "Hazardous Material" shall mean any
substance, chemical, compound, product, solid, gas, liquid, waste, by-product,
pollutant, contaminant, or material which is hazardous or toxic, and includes
without limitation, asbestos or any substance containing asbestos,
polychlorinated biphenyls, radioactive materials, petroleum (including crude oil
or any fraction thereof), and any hazardous or toxic waste, material, or
substance regulated under any Environmental Law.
(l) Accounting and Tax Matters. As of the date hereof, neither
it nor any of its Affiliates has taken or agreed to take any action, nor do its
executive officers have any knowledge of any fact or circumstance, that would
prevent Parent from accounting for the business combination
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to be effected by the Merger as a "pooling-of-interests" or prevent the Merger
and the other transactions contemplated by this Agreement from qualifying as a
"reorganization" within the meaning of Section 368(a) of the Code.
(m) Taxes. Except for such matters that, individually or in
the aggregate, will not have a Material Adverse Effect on it: (i) it and each of
its Subsidiaries (as appropriate) (x) have prepared in good faith and duly and
timely filed (taking into account any applicable extensions) all Tax Returns (as
defined below) that they were required to file (whether separately or on a
combined or consolidated basis) and all such Tax Returns are complete and
accurate in all material respects; (y) have timely paid in full all Taxes (as
defined below) they were or are required to pay and duly and timely withheld and
paid over to the appropriate recipient all Taxes that they were or are obligated
to withhold from amounts paid or owing to any employee, creditor or third party;
and (z) have not waived or agreed to waive any statute of limitations with
respect to Taxes or agreed to any extension of time with respect to the
assessment or collection of any Tax (unless such waiver or extension is not
currently effective); (ii) no audits, examinations, investigations, assessments
or proposed assessments of deficiencies, refund claims or other proceedings
relating to the Taxes of it or any of its Subsidiaries are pending or, to the
knowledge of any of its executive officers, threatened; (iii) there are not, to
the knowledge of its executive officers, unresolved actual claims concerning its
or any of its Subsidiaries' Tax liability; (iv) all Taxes due with respect to
completed and settled examinations or concluded litigation relating to it or any
of its Subsidiaries have been timely paid in full; (v) it has made available to
the other party true, correct and complete copies of all United States federal
income Tax Returns (including all consolidated Tax Returns) filed by it or any
of its Subsidiaries with respect to the taxable periods ending on or after
December 31, 1992, together with true, correct and complete copies of any audit
or other examination reports and any notices or proposed notices of deficiency
relating to such Tax Returns; (vi) neither it nor any of its Subsidiaries has
any liability with respect to accrued but unpaid Taxes (whether or not assessed
or shown as due on any Tax Return) in excess of the reserves therefor reflected
in the financial statements included in the most recently filed Reports (as
adjusted for any time elapsed since the date of such Reports in accordance with
the past customary practice of it and its Subsidiaries); (vii) no liens or other
security interests have been imposed on any of its assets or any assets of any
of its Subsidiaries in
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connection with any failure (or alleged failure) to pay any Tax; (viii) neither
it nor any of its Subsidiaries is a party to any Tax allocation or sharing
agreement, is or has been a member of an affiliated group filing a consolidated
or combined Tax Return (other than a group of which it or one of its
Subsidiaries is or was the common parent) or otherwise has any liability for
Taxes other than its Taxes or Taxes of one of its Subsidiaries; (ix) neither it
nor any of its Subsidiaries has filed a consent under Section 341(f) of the
Code; or has made or is a party to any agreement under which it is or may become
obligated to make any payments that will be nondeductible under Section 280G of
the Code (assuming it cannot be established that any such payments are
"reasonable compensation" within the meaning of Section 280G(B)(4) of the Code);
(x) it and each of its Subsidiaries has complied (and until the Effective Time
will comply) in all material respects with the provisions of the Code relating
to the payment and withholding of Taxes, including without limitation the
withholding and reporting requirements under Sections 1441 through 1464, 3401
through 3406, and 6041 and 6049 of the Code, as well as similar provisions under
any other laws; (xi) the statute of limitations for the assessment of all Taxes
has expired for all applicable Tax Returns of it and each of its Subsidiaries
for taxable years ending on or before the date three years before the date of
this Agreement; (xii) no power of attorney currently in force has been granted
by it or any of its Subsidiaries concerning any Tax matter; (xiii) no property
of it or any of its Subsidiaries is property that it or any such Subsidiary or
any party to this transaction is or will be required to treat as being owned by
another person pursuant to the provisions of Section 168(f)(8) of the Code (as
in effect prior to its amendment by the Tax Reform Act of 1986) or is tax-exempt
use property within the meaning of Section 168 of the Code; (xiv) neither it nor
any of its Subsidiaries is required to include in income any adjustment pursuant
to Section 481(a) of the Code by reason of a voluntary change in accounting
method initiated by it or any of its Subsidiaries, and to the best of the
knowledge of its executive officers, the IRS has not proposed any such
adjustment or change in accounting method; (xv) it and its Subsidiaries have or
had substantial authority (within the meaning of Section 6661 of the Code for
Tax Returns filed on or before December 31, 1990, and within the meaning of
Section 6662 of the Code for Tax Returns filed after December 31, 1990) for all
transactions that could give rise to an understatement of federal income tax
(within the meaning of Section 6661 of the Code, for Tax Returns filed on or
before December 31, 1990, and within the meaning of Section 6662 of the Code,
for Tax Returns filed
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after December 31, 1990); (xvi) as of December 31, 1995, it and its Subsidiaries
had net operating loss carryovers available to offset future income as disclosed
in the relevant Disclosure Letter; (xvii) such Disclosure Letter discloses the
amount of and year of expiration of each company's net operating loss
carryovers; (xviii) it and each of its Subsidiaries had tax credit carryovers
available to offset future tax liability as disclosed in the relevant Disclosure
Letter; (xix) such Disclosure Letter discloses the amount and year of expiration
of each company's tax credit carryovers; (xx) no election under Section 338 of
the Code (or any predecessor provision) has been made by or with respect to it
or any of its Subsidiaries or any of their respective assets or properties;
(xxi) no indebtedness of it or any of its Subsidiaries is "corporate acquisition
indebtedness" within the meaning of Section 279(b) of the Code; and (xxii)
neither it nor any of its Subsidiaries has engaged in any intercompany
transactions within the meaning of Treasury Regulations Section 1.1502-13 for
which any income or gain will remain unrecognized as of the close of the last
taxable year prior to the Effective Time.
As used in this Agreement, (i) the term "Tax" (including, with
correlative meaning, the terms "Taxes" and "Taxable") includes all federal,
state, local and foreign income, profits, franchise, gross receipts,
environmental, customs duty, capital stock, severances, stamp, payroll, sales,
employment, unemployment, disability, use, property, withholding, excise,
production, value added, occupancy and other taxes, duties or assessments of any
nature whatsoever, together with all interest, penalties and additions imposed
with respect to such amounts and any interest in respect of such penalties and
additions, and (ii) the term "Tax Return" includes all returns and reports
(including elections, declarations, disclosures, schedules, estimates and
informa tion returns) required to be supplied to a Tax authority relating to
Taxes.
(n) Labor Matters. Neither it nor any of its Subsidiaries is a
party to or otherwise bound by any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor organization, nor,
as of the date hereof, is it or any of its Subsidiaries the subject of any
material proceeding asserting that it or any of its Subsidiaries has committed
an unfair labor practice or is seeking to compel it to bargain with any labor
union or labor organization nor is there pending or, to the knowledge of its
executive officers, threatened, nor has there been for the past five years, any
labor strike, dispute, walkout, work stoppage, slow-down or lockout
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involving it or any of its Subsidiaries. It has previously made available to the
other party correct and complete copies of all labor and collective bargaining
agreements to which it or any of its Subsidiaries is party or by which any of
them are otherwise bound.
(o) Insurance. All material fire and casualty, general
liability, business interruption, product liability, and sprinkler and water
damage insurance policies maintained by it or any of its Subsidiaries are with
reputable insurance carriers, provide full and adequate coverage for all
insurable risks incident to the business of it and its Subsidiaries and their
respective properties and assets, and are in character and amount at least
equivalent to that carried by persons engaged in similar businesses and subject
to the same or similar perils or hazards, except for any such failures to
maintain insurance policies that, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect on it. Neither it nor any of
its Subsidiaries has received any notice of cancellation or termination with
respect to any material insurance policy thereof. All material insurance
policies of it and its Subsidiaries are valid and enforceable policies.
(p) Intellectual Property.
(i) It and/or each of its Subsidiaries owns, or is licensed or
otherwise possesses sufficient legally enforceable rights to use, all patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor, technology, know-how, computer software programs or applications, and
tangible or intangible proprietary information or materials that are currently
used (or, with respect to trademarks, tradenames and service marks, have been
used within the last five years) in its and its Subsidiaries' business, except
for any such failures to own, be licensed or possess that, individually or in
the aggregate, are not reasonably likely to have a Material Adverse Effect on
it.
(ii) Except as disclosed in the Reports filed prior to the
date hereof or as is not reasonably likely to have a Material Adverse Effect on
it:
(A) It is not, nor will it be as a
result of the execution and delivery of this Agreement or the
performance of its obligations hereunder, in violation of any licenses,
sublicenses and other agreements as to which it is a party and pursuant
to which it is authorized to use any third-party patents,
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trademarks, service marks, copyrights, trade names, technology,
know-how, proprietary information and computer software programs and
applications ("Third-Party Intellectual Property Rights");
(B) no claims with respect to the
patents, registered and material unregistered trademarks and service
marks, registered copyrights, trade names and any applications
therefor, technology, know-how, proprietary information and computer
software programs and applications owned or used by it or any its
Subsidiaries (the "Intellectual Property Rights"), any trade secret
material to it or its Subsidiaries, or Third Party Intellectual
Property Rights to the extent arising out of any use, reproduction or
distribution of such Third Party Intellectual Property Rights by or
through it or any of its Subsidiaries, are currently pending or, to the
knowledge of its executive officers, are threatened by any Person;
(C) it does not know of any valid
grounds for any bona fide claims (i) to the effect that the
manufacture, sale, licensing or use of any product or service as now
used, sold or licensed or proposed for use, sale or license by it or
any of its Subsidiaries infringes on any copyright, patent, trademark,
service mark, or trade secret; (ii) against the use or license for use
by it or any of its Subsidiaries, of any trademarks, trade names, trade
secrets, copyrights, patents, technology, know-how, proprietary
information or computer software programs and applications used in the
business of it or any of its Subsidiaries as currently conducted or as
proposed to be conducted; (iii) challenging the ownership, validity or
effectiveness of any of its Intellectual Property Rights or other trade
secret material to it; or (iv) challenging the license or legally
enforceable right to the use of the Third Party Intellectual Rights by
it or any of its Subsidiaries;
(D) to the knowledge of its executive
officers, none of the Intellectual Property Rights has been legally
declared invalid and all patents, registered trademarks and service
marks, and copyrights held by it are valid, enforceable and subsisting;
and
(E) to the knowledge of its executive
officers, there is no material unauthorized use,
infringement or misappropriation of any of its
Intellectual Property Rights by any third party,
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including any employee or former employee of it or any of its
Subsidiaries, and no third party has applied to register any
intellectual property which may infringe upon its Intellectual Property
Rights.
(q) Brokers and Finders. Neither it nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders' fees in connection
with the Merger or the other transactions contemplated in this Agreement or the
Stock Option Agreement except that (i) the Company has retained Credit Suisse
First Boston Corporation as its financial advisor, the arrangements with which
have been disclosed in writing to Parent prior to the date hereof and (ii)
Parent has employed Merrill Lynch & Co. as its financial advisory, the
arrangements with which have been disclosed in writing to the Company prior to
the date hereof.
(r) Regulation as a Utility.
(i) Neither it nor any "subsidiary company" or "affiliate" of
it (such terms having the meaning ascribed to such terms in the PUHCA) is
subject to regulation as a public utility or public service company (or similar
designation) by any state in the United States or any foreign country. Section
5.1(r) of its Disclosure Letter sets forth each "affiliate" and each "subsidiary
company" of it which may be deemed to be a "public utility company" or a
"holding company" within the meaning of the PUHCA.
(ii) The Company is an exempt holding company under Section
3(a)(1) of the PUHCA.
(iii) Parent is a registered holding company under the PUHCA.
(s) Operations of Nuclear Power Plants. The operations of
Beaver Valley Power Station Unit 1, Beaver Valley Power Station Unit 2, and
Perry Nuclear Power Plant Unit 1 (each, a "Nuclear Facility" and, collectively,
the "Nuclear Facilities") owned by Duquesne Light Company (together with The
Cleveland Electric Illuminating Company, Ohio Edison Company, Pennsylvania Power
Company and The Toledo Edison Company) are and have at all times been conducted
in compliance with applicable health, safety, regulatory and other legal
requirements, except for such failures to comply as are not, individually or in
the aggregate, reasonably likely to have a Material Adverse Effect on the
Company. To the knowledge of the Company, the
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Nuclear Facilities each maintain (i) emergency plans designed to respond to an
unplanned release therefrom of radioactive materials into the environment and
(ii) insurance coverages consistent with industry practice, all of which
coverages are listed in Section 5.1(s) of the Company Disclosure Letter. To the
knowledge of the Company, plans for the decommissioning of each of the Nuclear
Facilities and for the short-term storage of spent nuclear fuel conform with the
requirements of applicable law, and such plans have at all times been funded
consistently with reasonable projections for such plans.
(t) Affiliates of the Company. Section 5.1(t) of the Company
Disclosure Letter sets forth the name and every line of business conducted by
each "affiliate" of the Company as that term is defined in Section 2(a)(11) of
the PUHCA.
(u) Ownership of Other Party's Common Stock. (i) The Company
does not "beneficially own" (as such term is defined in Rule 13d-3 under the
Exchange Act) any shares of Parent Common Stock.
(ii) Parent does not "beneficially own" (as such term is
defined in Rule 13d-3 under the Exchange Act) any Shares.
ARTICLE VI
Covenants
6.1. Interim Operations. The Company and Parent each covenants
and agrees as to itself and its Subsidiaries that, after the date hereof and
until the Effective Time (unless Parent or the Company, as the case may be,
shall otherwise approve in writing and except as otherwise expressly
contemplated by this Agreement, the respective Disclosure Letter, the Stock
Option Agreement, the Company Budget or the Parent Budget, or as required by
applicable Law):
(a) the business of it and its Subsidiaries shall be conducted
in the ordinary and usual course and, to the extent consistent therewith, it and
each of its Subsidiaries shall use its best efforts to preserve its business
organization intact and maintain its existing rela tions and goodwill with
customers, suppliers, creditors, regulators, lessors, employees and business
associates;
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(b) it shall not (i) issue, sell, pledge, dispose of or
encumber any capital stock owned by it in any of its Subsidiaries; (ii) amend
its articles of incorporation, charter or by-laws; (iii) split, combine or
reclassify its outstanding shares of capital stock; (iv) declare, set aside or
pay any dividend payable in cash, stock or property in respect of any capital
stock other than dividends from its direct or indirect wholly owned Subsidiaries
and other than (A) in the case of the Company, regular quarterly cash dividends
not in excess of $0.34 per Share (which amount may, at the election of the
Company, be increased by not more than 6.5% per year, beginning in the 1997
fiscal year of the Company) and regular quarterly cash dividends on the
preferred and preference stock of its Subsidiaries and (B) in the case of
Parent, regular quarterly cash dividends not in excess of $0.43 per share of
Parent Common Stock (which amount may, at the election of Parent, be increased
by not more than 6.5% per year, beginning in the 1997 fiscal year of Parent) and
regular quarterly cash dividends on the preferred shares of subsidiaries of
Parent; or (v) repurchase, redeem or otherwise acquire (except for (A) mandatory
sinking fund obligations existing on the date hereof and (B) redemptions,
purchases, acquisitions or issuances required by the respective terms of any
Stock Plans, in the case of the Company, or Parent Stock Plans, in the case of
Parent, or any dividend reinvestment plans as in effect on the date hereof in
the ordinary course of the operation of such plans) or permit any of its
Subsidiaries to purchase or otherwise acquire, any shares of its capital stock
or any securities convertible into or exchangeable or exercisable for any shares
of its capital stock;
(c) neither it nor any of its Subsidiaries shall (i) issue,
sell, pledge, dispose of or encumber any shares of, or securities convertible
into or exchangeable or exercisable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of its capital stock of
any class or any other property or assets (other than (x) in the case of the
Company, Shares issuable pursuant to options outstanding on the date hereof
under the Stock Plans or upon conversion of the Preferred Shares and additional
options or rights to acquire Shares required by the terms of any Stock Plan as
in effect on the date hereof in the ordinary course of the operation of such
Stock Plan, (y) in the case of the Parent, shares of Parent Common Stock
issuable pursuant to options outstanding under the Parent Stock Plans and
additional options or rights to acquire Parent Shares required by the terms of
any Parent Stock Plan as in effect on the date hereof in the ordinary course of
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the operation of such Parent Stock Plan, and (z) issuances of securities in
connection with grants or awards of stock-based compensation made in accordance
with Section 6.1(d) hereof); (ii) other than in the ordinary and usual course of
business, and except for long-term indebtedness incurred in connection with the
refinancing of existing indebtedness either at its maturity or at a lower cost
of funds, transfer, lease, license, guarantee, sell, mortgage, pledge, dispose
of or encumber any other property or assets (including capital stock of any of
its Subsidiaries) or incur or modify any material indebtedness or other
liability; (iii) make any commitments for, make or authorize any capital
expenditures other than (x) capital expenditures not in excess of $25,000,000 in
the aggregate incurred in connection with the repair or replacement of
facilities destroyed or damaged due to casualty or accident (whether or not
covered by insurance), (y) as required by Law, or (z) in amounts less than
$5,000,000 individually and $15,000,000 in the aggregate; provided, however,
that if either party proposes to make any capital expenditure which requires the
written consent of the other party pursuant to this Section 6.1, such other
party shall not unreasonably withhold such consent; or (iv) make any acquisition
of, or investment in, assets or stock of any other Person or entity in excess of
$15,000,000 in the aggregate;
(d) neither it nor any of its Subsidiaries shall terminate,
establish, adopt, enter into, make any new grants or awards of stock-based
compensation or other benefits under, amend or otherwise modify any Compensation
and Benefit Plans or increase the salary, wage, bonus or other compensation of
any directors, officers or employees except (i) for grants or awards to
directors, officers and employees of it or its Subsidiaries under existing
Compensation and Benefit Plans in such amounts and on such terms as are
consistent with past practice, (ii) in the normal and usual course of business
(which shall include normal periodic performance reviews and related
compensation and benefit increases, annual reestablishment of Compensation and
Benefit Plans and the provision of individual Compensation and Benefit Plans
consistent with past practice for newly hired or appointed officers and
employees and the adoption of Compensation and Benefit Plans for employees of
new Subsidiaries in amounts and on terms consistent with past practice) or (iii)
for actions necessary to satisfy existing contractual obligations under
Compensation and Benefit Plans existing as of the date hereof;
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(e) each of the Company and Parent shall consult with the
other prior to settling or compromising, or permitting any of its Subsidiaries
to settle or compromise, any material claim or litigation, and neither it nor
any of its Subsidiaries shall, except in the ordinary and usual course of
business, modify, amend or terminate any of its material Contracts or waive,
release or assign any material rights or claims;
(f) neither it nor any of its Subsidiaries shall make any Tax
election or permit any insurance policy naming it as a beneficiary or
loss-payable payee to be cancelled or terminated except in the ordinary and
usual course of business;
(g) neither it nor any of its Subsidiaries shall take any
action or omit to take any action that would prevent the Merger from qualifying
for "pooling of interests" accounting treatment or as a "reorganization" within
the meaning of Section 368(a) of the Code or that would cause any of its
representations and warranties herein to become untrue in any material respect;
and
(h) neither it nor any of its Subsidiaries will authorize or
enter into an agreement to do any of the fore going.
6.2. Acquisition Proposals. (a) Except as contemplated by the
Company Budget or the Parent Budget and except as expressly contemplated by this
Agreement, neither the Company nor Parent shall, nor shall it permit any of its
Subsidiaries to, nor shall it authorize or permit any of its officers, directors
or employees or any investment banker, financial advisor, attorney, accountant,
agent or other representative retained by it or any of its Subsidiaries to,
directly or indirectly through another person, (i) solicit, initiate or
encourage (including by way of furnishing information), or take any other action
designed to facilitate, directly or indirectly, any inquiries or the making of
any proposal with respect to a merger, reorganization, share exchange,
consolidation or similar transaction involving, or, other than in the ordinary
course of business, any purchase of all or any significant portion of assets or
any equity securities, of the Company or Parent, as applicable, or any of its
Subsidiaries (any such proposal or offer being hereinafter referred to as an
"Acquisition Proposal" and any such transaction or purchase being hereinafter
referred to as an "Acquisition Transaction") or (ii) participate in any
discussions or negotiations relating to any Acquisition Proposal or
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Acquisition Transaction; provided, however, that if, at any time prior to the
obtaining of the Parent Requisite Vote, in the case of Parent, or the Company
Requisite Vote, in the case of the Company, the board of directors of the
Company or Parent, as applicable, determines in good faith, based on the advice
of outside counsel, that it is necessary to do so to avoid a breach of its
duties under state corporate Law applicable to the conduct of directors, the
Company or Parent, as applicable, may, in response to an Acquisition Proposal
which was not solicited by it or which did not otherwise result from a breach of
this Section 6.2(a), and subject to such party's compliance with Section 6.2(c),
(A) furnish information with respect to it and its Subsidiaries to any person
pursuant to a customary confidentiality agreement (as determined by the party
receiving such Acquisition Proposal after consultation with its outside
counsel), the benefits of the terms of which, if more favorable to the other
party to such confidentiality agreement than those in place with the other party
hereto, shall be extended to the other party hereto, and (B) participate in
negotiations regarding such Acquisition Proposal.
(b) Except as expressly permitted by this Section 6.2, neither
the board of directors of the Company or Parent, as applicable, nor any
committee thereof shall (i) withdraw or modify, or propose publicly to withdraw
or modify, in a manner adverse to the other party hereto, the approval or
recommendation by such board of directors or such committee of the Merger or the
adoption and approval of the matters to be considered at the Stockholders
Meeting (as defined in Section 6.4), in the case of the Company, and the Parent
Stockholders Meeting (as defined in Section 6.4), in the case of Parent, (ii)
approve or recommend, or propose publicly to approve or recommend, any
Acquisition Proposal other than the Merger, or (iii) cause or permit the Company
or Parent, as applicable, to enter into any letter of intent, agreement in
principle, acquisition agreement or other similar agreement or understanding
(each, an "Acquisition Agreement") related to any Acquisition Proposal.
Notwithstanding the foregoing, in the event that prior to the obtaining of the
Company Requisite Vote, in the case of the Company, or the Parent Requisite
Vote, in the case of Parent, there exists a Superior Proposal (as defined below)
and the board of directors of the Company or Parent, as applicable, determines
that there is not a substantial probability that the Company Requisite Vote or
the Parent Requisite Vote, as applicable, will be obtained due to the existence
of such Superior Proposal, the board of directors of the Company or Parent, as
applicable, may, subject to
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this and the following sentences, withdraw or modify its approval or
recommendation of the Merger or the approval of the matters to be considered at
the Stockholders Meeting, in the case of the Company, and the Parent
Stockholders Meeting, in the case of Parent, the board of directors of the
Company or Parent, as applicable, may (subject to this and the following
sentences of this Section 6.2(b)) approve or recommend such Superior Proposal or
terminate this Agreement (and, subject to Article VIII hereof, concurrently with
such termination, if it so chooses, cause the Company or Parent, as applicable,
to enter into an Acquisition Agreement with respect to such Superior Proposal),
but only if (i) the party seeking to terminate is not in material breach of any
of the terms of this Agreement, (ii) the board of directors of the party seeking
to terminate authorizes the Company or Parent, as applicable, to enter into a
binding written Acquisition Agreement concerning an Acquisition Transaction that
constitutes a Superior Proposal and the party seeking to terminate notifies the
other party in writing that it intends to enter into such an Acquisition
Agreement, attaching such Acquisition Agreement to such notice and specifying
any material terms and conditions not included in the Acquisition Agreement and
further identifying the party making the Superior Proposal, (iii) the other
party does not make, within fifteen business days of receipt of written
notification from the party seeking to terminate of such party's intention to
enter into a binding Acquisition Agreement for a Superior Proposal, an offer
that the board of directors of such party believes, in good faith after
consultation with its financial advisors, is at least as favorable, from a
financial point of view, to its stockholders as the Superior Proposal, and (iv)
the party seeking to terminate prior to such termination pays to the other party
in immediately available funds any fees required to be paid pursuant to Section
8.5. The Company and Parent each agrees (i) that it will not enter into a
binding Acquisition Agreement referred to in clause (ii) above until at least
the sixteenth business day after it has provided the notice to Parent or the
Company, as applicable, required thereby and (ii) to notify Parent or the
Company, promptly, if its intention to enter into the written Acquisition
Agreement referred to in its notification shall change at any time after giving
such notification. For purposes of this Agreement, a "Superior Proposal" means
in respect of the Company or Parent, as applicable, any proposal made by a third
party to acquire, directly or indirectly, for consideration consisting of cash
and/or securities, more than 50% of the equity securities of the Company or
Parent, as the case may be, entitled to vote generally in the election of
directors or all or
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substantially all the assets of the Company or Parent, as the case may be, and
otherwise on terms which the board of directors of such party determines in its
good faith judgment (x) (based on the written opinion of a financial advisor of
nationally recognized reputation (which opinion shall be provided to the other
party hereto)) to be more favorable from a financial point of view to its
stockholders after consideration of the Merger and the transactions contemplated
hereby and for which financing, to the extent required, is then committed, (y)
to be more favorable to such party after consideration of the Merger and the
transactions contemplated hereby after taking into account any additional
constituencies (including stockholders) and other pertinent factors permitted
under the laws of the Commonwealth of Pennsylvania or the laws of the State of
Maryland, as applicable, and (z) to constitute a transaction that is reasonably
likely to be consummated on the terms set forth, taking into account all legal,
financial, regulatory and other aspects of the proposal.
(c) In addition to the obligations of the parties set forth in
paragraphs (a) and (b) of this Section 6.2, any party that has received an
Acquisition Proposal shall immediately advise the other party hereto orally and
in writing of such Acquisition Proposal, any request for information, the
material terms and conditions of such request or Acquisition Proposal and the
identity of the Person making such request or Acquisition Proposal. Any party
that has received an Acquisition Proposal will keep the other party hereto
reasonably informed of the status and details (including amendments or proposed
amendments) of any such Acquisition Proposal.
(d) Nothing contained herein shall prohibit a party from
taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) under the Exchange Act with respect to an Acquisition Proposal by means
of a tender or exchange offer.
6.3. Information Supplied. The Company and Parent each agrees,
as to itself and its Subsidiaries, that none of the information supplied or to
be supplied by it or its Subsidiaries for inclusion or incorporation by
reference in (i) the Registration Statement on Form S-4 to be filed with the SEC
by Parent in connection with the issuance of shares of Parent Common Stock in
the Merger (including the joint proxy statement and prospectus (the
"Prospectus/Proxy Statement") constituting a part thereof) (the "S-4
Registration Statement") will, at the time the S-4 Registration Statement
becomes effective under the Securities
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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, in the light of the circumstances under which they were made, not
misleading, and (ii) the Prospectus/Proxy Statement and any amendment or
supplement thereto will, at the date of mailing to stockholders and at the times
of the Stockholders Meeting and the Parent Stockholders 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
the light of the circumstances under which they were made, not misleading.
6.4. Stockholders Meetings. The Company will take, in
accordance with applicable law and its articles of incorporation and by-laws,
all action necessary to convene a meeting of holders of Shares (the
"Stockholders Meeting") as promptly as practicable after the S-4 Registration
Statement is declared effective to consider and vote upon the approval of this
Agreement. Parent will take, in accordance with applicable law and its charter
and by-laws, all action necessary to convene a meeting of holders of Parent
Common Stock (the "Parent Stockholders Meeting") as promptly as practicable
after the S-4 Registration Statement is declared effective to consider and vote
upon the approval of the issuance of Parent Common Stock in the Merger. Subject
to obligations under applicable Law, each of the Company's and Parent's board of
directors shall recommend such approval and shall take all lawful action to
solicit such approval. Notwithstanding the foregoing, Parent may delay the
Parent Stockholders Meeting and the Company may delay the Stockholders Meeting
by action of its respective Board of Directors after written notice of such
delay to the other party if such Board of Directors shall determine that a
Person has made a Superior Proposal and there is not a reasonable probability
that the Company Requisite Vote, in the case of the Company, or the Parent
Requisite Vote, in the case of Parent, will be obtained without such delay;
provided, that such Stockholders Meeting or Parent Stockholders Meeting, as the
case may be, shall be held at the earliest time at which there is a reasonable
probability of obtaining the Company Requisite Vote or Parent Requisite Vote, as
the case may be. If a party determines to delay its stockholders meeting
pursuant to the prior sentence the other party may (but need not) delay its
stockholders meeting.
6.5. Filings; Other Actions; Notification. (a) The Company and
Parent shall promptly prepare and file with the SEC the Prospectus/Proxy
Statement, and Parent
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shall prepare and file with the SEC the S-4 Registration Statement as promptly
as practicable. The Company and Parent each shall use its reasonable efforts to
have the S-4 Registration Statement declared effective under the Securities Act
as promptly as practicable after such filing, and, unless the Parent
Stockholders Meeting or Stockholders Meeting has been delayed pursuant to
Section 6.4, promptly thereafter mail the Prospectus/Proxy Statement to the
respective stockholders of each of the Company and Parent. If the mailing is
delayed it shall be completed as promptly as is practicable after the parties
have determined to hold their respective stockholders meetings. Parent shall
also use its best efforts to obtain prior to the effective date of the S-4
Registration Statement all necessary state securities law or "blue sky" permits
and approvals required in connection with the Merger and to consummate the other
transactions contemplated by this Agreement and the Stock Option Agreement.
(b) The Company and Parent each shall use its best reasonable
efforts to cause to be delivered to the other party and its directors a letter
of its independent auditors, dated (i) the date on which the S-4 Registration
Statement shall become effective and (ii) the Closing Date, and addressed to the
other party and its directors, in form and substance customary for "comfort"
letters delivered by independent public accountants in connection with
registration statements similar to the S-4 Registration Statement.
(c) The Company and Parent shall cooperate with each other and
use (and shall cause their respective Subsidiaries to use) all commercially
reasonable efforts (i) to take or cause to be taken all actions, and do or cause
to be done all things, necessary, proper or advisable under this Agreement, the
Stock Option Agreement and applicable Laws to consummate and make effective the
Merger and the other transactions contemplated by this Agreement and the Stock
Option Agreement as soon as practicable (including using their respective best
efforts to prepare and file as promptly as practicable all documentation to
effect all necessary applications, notices, petitions, filings and other
documents) and (ii) to obtain as promptly as practicable all permits, consents,
approvals and authorizations (including, without limitation, the expiration or
earlier termination of any applicable waiting period under the HSR Act)
necessary or advisable to be obtained from any third party and/or any
Governmental Entity in order to consummate the Merger or any of the other trans
actions contemplated by this Agreement and the Stock Option
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Agreement. Subject to applicable Laws relating to the exchange of information,
Parent shall have the right to review and approve in advance all
characterizations of the information relating to Parent and its Subsidiaries,
and the Company shall have the right to review and approve in advance all
characterizations of the information relating to the Company and its
Subsidiaries, and each will consult with the other to the extent practicable
with respect to all such information, in each case that appears in any filing
made with, or written materials submitted to, any third party and/or any
Governmental Entity in connection with the Merger and the other transactions
contemplated by this Agreement and the Stock Option Agreement. In exercising the
foregoing right, each of the Company and Parent shall act reasonably and as
promptly as practicable.
(d) The Company and Parent each shall, upon request by the
other, furnish the other with all information concerning itself, its
Subsidiaries, directors, officers and stockholders and such other matters as may
be reasonably necessary or advisable in connection with the Prospectus/ Proxy
Statement, the S-4 Registration Statement or any other statement, filing, notice
or application made by or on behalf of Parent, the Company or any of their
respective Subsidiaries to any third party and/or any Governmental Entity in
connection with the Merger and the transactions contemplated by this Agreement
and the Stock Option Agreement.
(e) The Company and Parent each shall keep the other apprised
of the status of matters relating to completion of the transactions contemplated
hereby, including promptly furnishing the other with copies of notice or other
communications received by Parent or the Company, as the case may be, or any of
its Subsidiaries, from any third party and/or any Governmental Entity with
respect to the Merger and the other transactions contemplated by this Agreement
and the Stock Option Agreement. The Company and Parent each shall give prompt
notice to the other of any change that is reasonably likely to result in a
Material Adverse Effect on it.
6.6. Taxation and Accounting. Subject to Section 6.2, neither
Parent nor the Company shall take or cause to be taken any action, whether
before or after the Effective Time, that would disqualify the Merger as a
"pooling of interests" for accounting purposes or as a "reorganization" within
the meaning of Section 368(a) of the Code.
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6.7. Access. Upon reasonable notice, and except as may
otherwise be required by applicable Law, the Company and Parent each shall (and
shall cause its Subsidiaries to) afford the other's officers, employees,
counsel, accountants and other authorized representatives ("Representatives")
access, during normal business hours throughout the period prior to the
Effective Time, to its properties, books, contracts and records and, during such
period, each shall (and shall cause its Subsidiaries to) furnish promptly to the
other all information concerning its business, properties and personnel as may
reasonably be requested, provided that no investigation pursuant to this Section
shall affect or be deemed to modify any representation or warranty made by the
Company, Parent or Merger Sub, and provided, further, that the foregoing shall
not require the Company or Parent to permit any inspection, or to disclose any
information, that in the reasonable judgment of the Company or Parent, as the
case may be, would result in the disclosure of any trade secrets of third
parties or violate any of its obligations with respect to confidentiality to
third parties if the Company or Parent, as the case may be, shall have used
reasonable efforts to obtain the consent of such third party to such inspection
or disclosure. All requests for information made pursuant to this Section shall
be directed to an executive officer of the Company or Parent, as the case may
be, or such Person as may be designated by it. All such information shall be
governed by the terms of the Confidentiality Agreement, including without
limitation all such information disclosed in the Disclosure Letters, and the
Company and Parent, and each of their respective Subsidiaries, shall use their
respective best reasonable efforts to maintain the confidentiality of all such
information disclosed in the Disclosure Letters.
6.8. Affiliates. (a) Parent shall deliver to the Company a
list of names and addresses of those Persons who are, in the opinion of the
Parent, as of the time of the Stockholders Meeting, "affiliates" of the Company
within the meaning of Rule 145 under the Securities Act and for the purposes of
applicable interpretations regarding the pooling-of-interests method of
accounting. The Company shall provide to Parent such information and documents
as Parent shall reasonably request for purposes of preparing such list. There
shall be added to such list the names and addresses of any other Person
subsequently identified as a Person who may be deemed to be such an affiliate of
the Company; provided, however, that no such Person identified by Parent shall
be added to the list of affiliates of the Company if Parent shall receive from
the Company, on or before the date of the Stockholders Meeting, an opinion of
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counsel reasonably satisfactory to Parent to the effect that such Person is not
an affiliate. The Company shall exercise its best efforts to deliver or cause to
be delivered to Parent, prior to the date of the Stockholders Meeting, from each
affiliate of the Company identified in the foregoing list (as the same may be
supplemented as aforesaid), a letter dated as of the Closing Date substantially
in the form attached as Exhibit A-1 (the "Affiliates Letter"). Parent shall not
be required to maintain the effectiveness of the S-4 Registration Statement or
any other registration statement under the Securities Act for the purposes of
resale of Parent Common Stock by such affiliates received in the Merger and the
certificates representing Parent Common Stock received by such affiliates shall
bear a customary legend regarding applicable Securities Act restrictions and the
provisions of this Section.
(b) Prior to the date of the Stockholders Meeting, Parent
shall deliver to the Company a list of names and addresses of those Persons who
were, in the opinion of the Parent, at the time of the Stockholders Meeting,
"affiliates" of Parent for the purposes of applicable interpretations regarding
the "pooling-of-interests" method of accounting. Parent shall provide to the
Company such information and documents as the Company shall reasonably request
for purposes of reviewing such list. There shall be added to such list the names
and addresses of any other Person the Company reasonably identifies (by written
notice to Parent within ten business days after the Company's receipt of such
list) as being a Person who may be deemed to be such an affiliate of Parent;
provided, however, that no such Person identified by the Company shall be added
to the list of affiliates of Parent if the Company shall receive from Parent, on
or before the date of the Stockholders Meeting, an opinion of counsel reasonably
satisfactory to the Company to the effect that such Person is not an affiliate.
Parent shall exercise its best efforts to deliver or cause to be delivered to
the Company, prior to the date of the Stockholders Meeting, from each of such
affiliates of Parent identified in the foregoing list (as the same may be
supplemented as aforesaid), a letter dated as of the Closing Date substantially
in the form attached as Exhibit A-2 (the "Pooling Affiliates Letter").
(c) If the Merger would otherwise qualify for
"pooling-of-interests" accounting treatment, shares of Parent Common Stock
issued to affiliates of the Company in exchange for Shares shall not be
transferable until such time as financial results covering at least 30 days of
combined operations of Parent and the Company have been
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published within the meaning of Section 201.01 of the SEC's Codification of
Financial Reporting Policies, regardless of whether each such affiliate has
provided the written agreement referred to in this Section 6.8, except to the
extent permitted by, and in accordance with, SEC Accounting Series Release 135
and SEC Staff Accounting Bulletins 65 and 76. Any shares held by any such
affiliate shall not be transferable, regardless of whether such affiliate has
provided the applicable written agreement referred to in this Section 6.8, if
such transfer, either individually or in the aggregate with other transfers by
affiliates, would preclude Parent's ability to account for the business
combination to be effected by the Merger as a "pooling of interests". The
Company shall not register the transfer of any Certificate, unless such transfer
is made in compliance with the foregoing.
6.9. Stock Exchange Listing and De-listing. Parent shall use
its best efforts to cause the shares of Parent Common Stock to be issued in the
Merger to be approved for listing on the New York Stock Exchange, Inc. (the
"NYSE") subject to official notice of issuance, prior to the Closing Date. The
Company shall use its best efforts to cause the Shares to be (i) de-listed from
the NYSE, the Philadelphia Stock Exchange and the Chicago Stock Exchange and
(ii) de-registered under the Exchange Act as soon as practicable following the
Effective Time.
6.10. Publicity. The initial press release concerning this
Agreement and the transactions contemplated by this Agreement shall be a joint
press release and thereafter the Company and Parent shall consult with each
other prior to issuing any press releases or otherwise making public
announcements with respect to the Merger and the other transactions contemplated
by this Agreement and the Stock Option Agreement and prior to making any filings
with any third party and/or any Governmental Entity (including any national
securities exchange with respect thereto, except as may be required by law or by
obligations pursuant to any listing agreement with or rules of any national
securities exchange).
6.11. Benefits.
(a) Stock Options.
(i) At the Effective Time, each Company Option, whether vested
or unvested, shall be deemed to constitute an option to acquire, on the same
terms and conditions as were applicable under such Company Option, the same
number of
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shares of Parent Common Stock as the holder of such Company Option would have
been entitled to receive pursuant to the Merger had such holder exercised such
option in full immediately prior to the Effective Time (rounded down to the
nearest whole number), at a price per share (rounded up to the nearest whole
cent) equal to (y) the aggregate exercise price for the Shares otherwise
purchasable pursuant to such Company Option divided by (z) the number of full
shares of Parent Common Stock deemed purchasable pursuant to such Company Option
in accordance with the foregoing; provided, however, that in the case of any
Company Option to which Section 422 of the Code applies, the option price, the
number of shares purchasable pursuant to such option and the terms and
conditions of exercise of such option shall be determined in accordance with the
foregoing, subject to such adjustments as are necessary in order to satisfy the
requirements of Section 424(a) of the Code. At or prior to the Effective Time,
the Company shall make all necessary arrangements with respect to the Stock
Plans to permit the assumption of the unexercised Company Options by Parent
pursuant to this Section.
(ii) Effective at the Effective Time, Parent shall assume each
Company Option in accordance with the terms of the Stock Plan under which it was
issued and the stock option agreement by which it is evidenced. At or prior to
the Effective Time, Parent shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of Parent Common Stock for delivery
upon exercise of Company Options assumed by it in accordance with this Section
and, to the extent required under applicable SEC rules, take all corporate
actions necessary or appropriate to obtain shareholder approval at a
stockholders' meeting selected by Parent with respect to such Stock Plan to the
extent such approval is required to enable such Stock Plan to comply with Rule
16b-3 under the Exchange Act. As soon as practicable after the Effective Time,
Parent shall file a registration statement on Form S-3 or Form S-8, as the case
may be (or any successor form), or on another appropriate form (or shall cause
such Company Option to be deemed an option issued pursuant to a Parent Stock
Plan for which shares of Parent Common Stock have previously been registered
pursuant to an appropriate registration form), with respect to the Parent Common
Stock subject to such Company Options, and shall use its best efforts to
maintain the effectiveness of such registration statements (and maintain the
current status of the prospectus or prospectuses contained therein) for so long
as such Company Options remain outstanding.
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(b) Directors of Parent. From and after the Effective Time,
the board of directors of Parent shall consist of 15 directors. Immediately
prior to the Effective Time, the Company shall designate six of such directors,
and Parent shall designate nine of such directors, and such designated directors
shall be the directors of Parent from and after the Effective Time until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with Parent's charter and
bylaws.
(c) Officers of Parent. From and after the Effective Time, the
Chairman and Chief Executive Officer of Parent shall be Alan J. Noia and the
President and Chief Operating Officer of Parent shall be David D. Marshall. If
either such officer is unable or unwilling to serve in such office immediately
after the Effective Time, his successor shall be elected as soon as practicable
after the Effective Time by the directors of Parent designated pursuant to
Section 6.11(b). From and after the Effective Time, the individuals appointed by
such designated directors shall be the other officers of Parent, and all such
officers of Parent shall serve from and after the Effective Time until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with Parent's charter and
by-laws.
(d) Parent Board Committees. From and after the Effective
Time, four of the six directors of Parent designated by the Company pursuant to
Section 6.11(b) shall be the chairman of the following committees of the board
of directors of Parent: Nuclear Review; New Business; Finance; and Employee and
Community Relations. From and after the Effective Time, four of the nine
directors of Parent designated by Parent pursuant to Section 6.11(b) shall be
the chairman of the following committees of the board of directors of Parent:
Audit; Management Review; Nominating; and Benefits.
(e) Corporate Headquarters. From and after the Effective Time,
Parent's corporate headquarters shall remain in Maryland and substantial
operations of Parent's Subsidiaries, including the Surviving Corporation, shall
remain in the Pittsburgh, Pennsylvania area.
6.12. Expenses. Except as provided in this Section 6.12, the
Surviving Corporation shall pay all charges and expenses, including those of the
Exchange Agent, in connection with the transactions contemplated in Article IV,
and Parent shall reimburse the Surviving
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Corporation for such charges and expenses. Except as otherwise provided in
Section 8.5(b), whether or not the Merger is consummated, all costs and expenses
incurred in connection with this Agreement and the Stock Option Agreement and
the Merger and the other transactions contemplated by this Agreement and the
Stock Option Agreement shall be paid by the party incurring such expense, except
that expenses incurred in connection with the filing fee for the filings under
the HSR Act, the S-4 Registration Statement and printing and mailing the
Prospectus/Proxy Statement, the S-4 Registration Statement, and such other
expenses as may be set forth in Section 6.12 of the Parent Disclosure Letter
shall be shared equally by Parent and the Company.
6.13. Indemnification; Directors' and Officers' Insurance. (a)
From and after the Effective Time, Parent agrees that it will indemnify and hold
harmless each present and former director and officer of the Company or any of
its Subsidiaries (when acting in such capacity), determined as of the Effective
Time (the "Indemnified Parties"), against any costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims, damages or
liabilities (collectively, "Costs") incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of matters existing or occurring at
or prior to the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time, to the fullest extent that the Company or such
Subsidiary is permitted under the law of its jurisdiction of incorporation and
its articles of incorporation and bylaws in effect on the date hereof to
indemnify such Person (and Parent shall also advance expenses as incurred to the
fullest extent permitted under applicable Law, provided that the Person to whom
expenses are advanced provides an undertaking to repay such advances if it is
ultimately determined that such Person is not entitled to indemnification).
(b) Any Indemnified Party wishing to claim indemnification
under paragraph (a) of this Section 6.13, upon learning of any such claim,
action, suit, proceeding or investigation, shall promptly notify Parent thereof.
In the event of any such claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), (i) Parent or the
Surviving Corporation shall have the right to assume the defense thereof and
Parent shall not be liable to such Indemnified Parties for any legal expenses of
other counsel or any other expenses subsequently incurred by such Indemnified
Parties in connection with the defense
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thereof, (ii) the Indemnified Parties will cooperate in the defense of any such
matter and (iii) Parent shall not be liable for any settlement effected without
its prior written consent; provided, however, that Parent shall not have any
obligation hereunder to any Indemnified Party if and when a court of competent
jurisdiction shall ultimately determine, and such determination shall have
become final, that the indemnification of such Indemnified Party in the manner
contemplated hereby is prohibited by applicable Law.
(c) The Surviving Corporation shall maintain the Company's
existing officers' and directors' liability insurance ("D&O Insurance") for a
period of six years after the Effective Time so long as the annual premium
therefor is not in excess of 200% of the last annual premium paid prior to the
date hereof (the "Current Premium"); provided, however, that if the existing D&O
Insurance expires, is terminated or cancelled during such six-year period, the
Surviving Corporation will use reasonable efforts to obtain as much D&O
Insurance as can be obtained for the remainder of such period for a premium not
in excess (on an annualized basis) of 200% of the Current Premium.
(d) If the Surviving Corporation or any of its successors or
assigns (i) shall consolidate with or merge into any other corporation or entity
and shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) shall transfer all or substantially all of its
properties and assets to any individual, corporation or other entity, then and
in each such case, proper provisions shall be made so that the successors and
assigns of the Surviving Corporation shall assume all of the obligations set
forth in this Section 6.13.
(e) The provisions of this Section 6.13 are intended to be for
the benefit of, and shall be enforceable by, each of the Indemnified Parties,
their heirs and their representatives.
6.14. Other Actions by the Company and Parent.
(a) Takeover Statute. If any Takeover Statute is or may become
applicable to the Merger or the other transactions contemplated by this
Agreement or the Stock Option Agreement, each of Parent and the Company and its
board of directors shall grant such approvals and take such actions as are
necessary so that such transactions may be consummated as promptly as
practicable on the terms contemplated by this Agreement or by the Stock Option
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Agreement, as the case may be, and otherwise act to eliminate or minimize the
effects of such Takeover Statute on such transactions.
(b) Dividends. The Company shall coordinate with Parent the
declaration, setting of record dates and payment dates of dividends on Shares so
that holders of Shares do not receive dividends on both Shares and Parent Common
Stock received in the Merger in respect of any calendar quarter or fail to
receive a dividend on either Shares or Parent Common Stock received in the
Merger in respect of any calendar quarter.
6.15. Parent Vote. Parent shall vote (or consent with respect
to) or cause to be voted (or a consent to be given with respect to) any Shares
and any shares of common stock of Merger Sub beneficially owned by it or any of
its Affiliates or with respect to which it or any of its Affiliates has the
power (by agreement, proxy or otherwise) to cause to be voted (or to provide a
consent), in favor of the adoption and approval of this Agreement at any meeting
of stockholders of the Company or Merger Sub, respectively, at which this
Agreement and the Stock Option Agreement shall be submitted for adoption and
approval and at all adjournments or postponements thereof (or, if applicable, by
any action of stockholders of either the Company or Merger Sub by consent in
lieu of a meeting).
6.16. Rate Matters. Other than currently pending rate filings,
each of the Company and Parent shall, and shall cause its Subsidiaries to,
discuss with each other any changes in its or its Subsidiaries regulated rates
or charges (other than pass-through fuel rates or charges), standards of service
or accounting from those in effect on the date hereof and consult with the other
prior to making any filing (or any amendment thereto), or effecting any
agreement, commitment arrangement or consent, whether written or oral, formal
or informal, with respect thereto.
6.17. PUHCA. Neither the Company nor Parent shall, nor shall
the Company or Parent permit any of its Subsidiaries to, take any action that
would impair the ability of Parent to obtain the approvals under the PUHCA for
the transactions contemplated by this Agreement.
6.18. Pennsylvania Restructuring Legislation. The Company and
Parent each agrees that it will cause its Pennsylvania utility Subsidiary to
file in a timely manner with the Pennsylvania Public Utility Commission a
restructuring plan to implement direct access to a competitive
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market for electric generation pursuant to the Electricity Generation Customer
Choice and Competition Act, 66 Pa. Comm. Stat. Section 2801 et seq.(the
"Pennsylvania Restructuring Legislation").
6.19. Nuclear Matters. (a) At least quarterly prior to the
Effective Time, the Company shall, upon request by Parent, cause its President -
Generation Group and its Chief Nuclear Officer to attend a meeting of the Board
of Directors of Parent and provide Parent's directors with such oral and written
information concerning the Nuclear Facilities and the Company's nuclear
generation program as such directors and/or the chief financial officer of
Parent may reasonably request, including but not limited to information relating
to safety matters, regulatory matters, refueling plans, outages, planned and
pending capital expenditures and the Company's relations with co-owners of the
Nuclear Facilities.
(b) Prior to the Effective Time, Parent shall be entitled to
designate one person who shall be a director of Parent or shall be a person
expert in nuclear matters reasonably acceptable to the Company, to attend and
participate (without having any voting rights) in each meeting of the Nuclear
Review Committee of the Board of Directors of the Company (the "Nuclear Review
Committee"), and such Parent designee shall be given the same notice of meetings
and other information as is given each member of the Nuclear Review Committee.
ARTICLE VII
Conditions
7.1. 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 at or prior to the Effective Time of each of the
following conditions:
(a) Stockholder Approval. This Agreement shall have been duly
approved by holders of Shares constituting the Company Requisite Vote and by the
sole stockholder of Merger Sub in accordance with applicable law and the
certificate and by-laws of each such corporation, and the issuance of Parent
Common Stock pursuant to the Merger shall have been duly approved by the holders
of Parent Common Stock constituting the Parent Requisite Vote.
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(b) NYSE Listing. The shares of Parent Common Stock issuable
to holders of Shares pursuant to this Agreement shall have been authorized for
listing on the NYSE upon official notice of issuance.
(c) Regulatory Consents. The waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated and, other than the filing provided for in Section 1.3, all filings
required to be made prior to the Effective Time by the Company or Parent or any
of their respective Subsidiaries with, and all consents, approvals and
authorizations required to be obtained prior to the Effective Time by the
Company or Parent or any of their respective Subsidiaries from, any Governmental
Entity (collectively, "Governmental Consents") in connection with the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby shall have been made or obtained (as the case may be) and
become Final Orders (as hereinafter defined), and such Final Orders shall not,
individually or in the aggregate, contain terms or conditions that would have,
or be reasonably likely to have, a Material Adverse Effect on the Company or a
Material Adverse Effect on Parent (excluding, after the Effective Time, the
Company and its Subsidiaries). The term "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 any waiting period
prescribed by law before the transactions contemplated hereby may be consummated
has expired, and as to which all conditions to the consummation of such
transactions prescribed by law, regulation or order have been satisfied.
(d) Litigation. No court or Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, judgment, decree, injunction or other order (whether
temporary, preliminary or permanent) that is in effect and restrains, enjoins or
otherwise prohibits consummation of the transactions contemplated by this
Agreement (collectively, an "Order"), and no Governmental Entity shall have
instituted any proceeding seeking any such Order.
(e) S-4. The S-4 Registration Statement shall have become
effective under the Securities Act and no stop order suspending the
effectiveness of the S-4 Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or be threatened by the
SEC.
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(f) Blue Sky Approvals. Parent shall have received all state
securities and "blue sky" permits and other authorizations necessary to
consummate the transactions contemplated hereby.
(g) Pooling Letter. Parent and the Company shall have received
from Parent's independent accounting firm a letter, dated as of the Closing
Date, to the effect that the Merger will qualify for "pooling of interests"
accounting treatment, it being understood Parent's independent accounting firm
may rely upon a letter of the Company's independent accounting firm with respect
to the eligibility of the Company and its Subsidiaries for such accounting
treatment.
7.2. Conditions to Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to effect the Merger are also subject to
the satisfaction or waiver by Parent prior to the Effective Time of the
following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date (except to the extent any such
representation or warranty expressly speaks as of an earlier date), and Parent
shall have received a certificate signed on behalf of the Company by an
executive officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company
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 Parent
shall have received a certificate signed on behalf of the Company by an
executive officer of the Company to such effect.
(c) Consents. The Company shall have obtained the consent or
approval of each Person whose consent or approval shall be required in order to
consummate the transactions contemplated by this Agreement and the Stock Option
Agreement under any Contract to which the Company or any of its Subsidiaries is
a party, except those for which the failure to obtain such consent or approval,
individually or in the aggregate, is not reasonably likely to have a Material
Adverse Effect on the Company or is not reasonably likely to materially
adversely affect the ability of the Company to consummate the transactions
contemplated by this Agreement.
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(d) Tax Opinion. Parent shall have received the opinion of
Sullivan & Cromwell, counsel to Parent, dated the Closing Date, to the effect
that the Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, and that each
of Parent, Merger Sub and the Company will be a party to that reorganization
within the meaning of Section 368(b) of the Code. Such opinion may be based on,
in addition to the review of such matters of law and fact as Sullivan & Cromwell
considers appropriate, (i) representations made at the request of Sullivan &
Cromwell by Parent, the Company, stockholders of Parent or the Company, or any
combination of such persons, (ii) certificates provided at the request of
Sullivan & Cromwell by officers of Parent or the Company and other appropriate
persons and (iii) assumptions set forth in the opinion with the consent of
Parent, which consent shall not be unreasonably withheld.
(e) Affiliates Letters. Parent shall have received an
Affiliates Letter from each Person identified as an affiliate of the Company
pursuant to Section 6.8.
(f) Comfort Letters. Parent shall have received, in form and
substance reasonably satisfactory to Parent, from its independent public
accounting firm and the Company's independent public accounting firm the
"comfort" letters described in Section 6.5(b).
7.3. Conditions to Obligation of the Company. The obligation
of the Company to effect the Merger is also subject to the satisfaction or
waiver by the Company prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub set forth in this Agreement shall be true
and correct as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date (except to the extent any such
representation and warranty expressly speaks as of an earlier date), and the
Company shall have received a certificate signed on behalf of Parent by an
executive officer of Parent and Merger Sub to such effect.
(b) Performance of Obligations of Parent and Merger Sub. Each
of Parent and Merger Sub 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 the Company shall have received a certificate signed on
behalf of Parent and Merger Sub by an executive officer of Parent to such
effect.
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(c) Consents. Parent shall have obtained the consent or
approval of each Person whose consent or approval shall be required in order to
consummate the transactions contemplated by this Agreement and the Stock Option
Agreement under any Contract to which Parent or any of its Subsidiaries is a
party, except those for which failure to obtain such consents and approvals,
individually or in the aggregate, is not reasonably likely to have a Material
Adverse Effect on Parent or is not reasonably likely to materially adversely
affect the ability of Parent to consummate the transactions contemplated by this
Agreement.
(d) Tax Opinion. The Company shall have received the opinion
of LeBoeuf, Lamb, Greene & MacRae, L.L.P., counsel to the Company, dated the
Closing Date, to the effect that the Merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code, and that each of Parent, Merger Sub and the Company will be a party to
that reorganization within the meaning of Section 368(b) of the Code. Such
opinion may be based on, in addition to the review of such matters of law and
fact as such counsel considers appropriate, (i) representations made at the
request of such counsel by Parent, the Company, Merger Sub, stockholders of
Parent or the Company, or any combination of such persons, (ii) certificates
provided at the request of such counsel by officers of Parent, the Company and
Merger Sub, or any combination of such officers and (iii) assumptions set forth
in the opinion with the consent of the Company, which consent shall not be
unreasonably withheld.
(e) Comfort Letters. The Company shall have received from its
independent public accounting firm and Parent's independent public accounting
firm the "comfort" letters described in Section 6.5(b).
ARTICLE VIII
Termination
8.1. Termination by Mutual Consent. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, whether before or after the approval by stockholders of the Company and
Parent referred to in Section 7.1(a), by mutual written consent of the Company,
Parent and Merger Sub, by action of their respective boards of directors.
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8.2. Termination by Either Parent or the Company. This
Agreement may be terminated and the Merger may be abandoned at any time prior to
the Effective Time by action of the board of directors of either Parent or the
Company if (a) the Merger shall not have been consummated by October 5, 1998,
whether such date is before or after the date of approval by the stockholders of
the Company or Parent (the "Termination Date"); provided that the Termination
Date shall automatically be extended for six months if, on October 5, 1998: (i)
any of the conditions set forth in Section 7.1(c) has not been satisfied or
waived, (ii) each of the other conditions to the consummation of the Merger set
forth in Article VII has been satisfied or waived or can readily be satisfied,
and (iii) any Governmental Consent that has not yet been obtained is being
pursued diligently and in good faith, (b) any Governmental Consents shall have
been made or obtained by Final Orders which contain terms or conditions that
would cause the condition set forth in Section 7.1(c) not to be satisfied, (c)
any Order permanently restraining, enjoining or otherwise prohibiting the Merger
shall have become final and non-appealable, whether before or after the approval
by the stockholders of the Company or Parent, (d) the Company Requisite Vote
shall not have been obtained at the duly held Stockholders Meeting, including
any adjournments thereof, or (e) the Parent Requisite Vote shall not have been
obtained at the duly held Parent Stockholders Meeting, including any
adjournments thereof; provided that the right to terminate this Agreement
pursuant to clause (a), (b), (d) or (e) above shall not be available to any
party that has breached in any material respect its obligations under this
Agreement in any manner that shall have proximately contributed to the
occurrence of the failure of the Merger to be consummated.
8.3. Termination by the Company. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, whether before or after the approval by stockholders of the Company
referred to in Section 7.1(a), by action of the board of directors of the
Company:
(a) subject to and in accordance with the provisions of
Section 6.2; or
(b) if (i) the Board of Directors of Parent shall have
withdrawn or adversely modified its approval or recommendation of this Agreement
or failed to reconfirm its recommendation of this Agreement within five business
days after a written request by the Company to do so, (ii) there has been a
material breach by Parent or Merger Sub of any
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representation, warranty, covenant or agreement contained in this Agreement that
is not curable or, if curable, is not cured within 30 days after written notice
of such breach is given by the Company to the party committing such breach, or
(iii) Parent or any of the other Persons described in Section 6.2(a) as
affiliates, representatives or agents of Parent shall take any of the actions
that would be proscribed by Section 6.2 but for the exceptions therein allowing
certain actions to be taken pursuant to the proviso in Section 6.2(a) or in the
second sentence of Section 6.2(b).
8.4. Termination by Parent. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time, before
or after the approval by the stockholders of Parent referred to in Section
7.1(a), by action of the board of directors of Parent:
(a) subject to and in accordance with the provisions of
Section 6.2; or
(b) if (i) the Board of Directors of the Company shall have
withdrawn or adversely modified its approval or recommendation of this Agreement
or failed to reconfirm its recommendation of this Agreement within five business
days after a written request by Parent to do so, (ii) there has been a material
breach by the Company of any representation, warranty, covenant or agreement
contained in this Agreement that is not curable or, if curable, is not cured
within 30 days after written notice of such breach is given by Parent to the
party committing such breach, or (iii) if the Company or any of the other
Persons described in Section 6.2(a) as affiliates, representatives or agents of
the Company shall take any of the actions that would be proscribed by Section
6.2 but for the exceptions therein allowing certain actions to be taken pursuant
to the proviso in Section 6.2(a) or in the second sentence of Section 6.2(b).
8.5. Effect of Termination and Abandonment. (a) In the event
of termination of this Agreement and the abandonment of the Merger pursuant to
this Article VIII, this Agreement (other than as set forth in Section 9.1) shall
become void and of no effect with no liability of any party hereto (or any of
its directors, officers, employees, agents, legal and financial advisors or
other representatives); provided, however, except as otherwise provided herein,
no such termination shall relieve any party hereto of any liability or damages
resulting from any breach of this Agreement.
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(b) In the event that this Agreement is terminated (x) by the
Company pursuant to Section 8.3(a) (or 6.2), or (y) by Parent pursuant to
Section 8.4(b)(i) or (iii), or (z) by the Company or Parent pursuant to Section
8.2(d), then the Company: (1) shall promptly, but in no event later than two
days after the date of such termination (except in the case of a termination
pursuant to Section 8.3(a) which requires payment prior to termination), pay
Parent, in addition to any amount, not to exceed $20,000,000, paid and/or
payable by the Company to Parent pursuant to the Stock Option Agreement, a
termination fee equal to the sum of (I) the charges and expenses repaid to
Parent or Merger Sub pursuant to clause (2) of this Section 8.5(b) and (II) an
amount equal to $50,000,000 less the sum of (x) the amounts paid pursuant to
clause (I) of this Section 8.5(b)(1), and (y) the amount, not to exceed
$20,000,000, paid and/or payable by the Company to Parent pursuant to the Stock
Option Agreement; and (2) shall promptly, but in no event later than two days
after being notified of such by Parent, pay all of the charges and expenses,
including those of the Exchange Agent, incurred by Parent or Merger Sub in
connection with this Agreement and the Stock Option Agreement and the
transactions contemplated by this Agreement and the Stock Option Agreement up to
a maximum amount of $10,000,000, in each case payable by wire transfer of same
day funds. In no event shall the Company be required to pay more than
$50,000,000 pursuant to the preceding sentence. In addition, if this Agreement
is terminated (x) at a time when a termination fee is payable pursuant to the
terms of the preceding sentence or (y) at a time when the approval of the
Company's stockholders required by Section 7.1(a) shall not have been obtained
at a meeting duly convened therefor or at any adjournment or postponement
thereof and at any time within two years after such termination the Company
shall consummate a Material Acquisition Transaction (as defined below) with any
Person other than Parent or a Subsidiary of Parent, then the Company shall
simultaneously with the consummation of such Material Acquisition Transaction
pay Parent an additional termination fee of $50,000,000 payable by wire transfer
of same day funds. A "Material Acquisition Transaction" shall mean, with respect
to Parent or the Company, any Acquisition Transaction or series of related
Acquisition Transactions involving a merger or consolidation of such party or
involving forty percent or more of its voting power, equity interests or assets
(in each case directly or indirectly). The Company acknowledges that the
agreements contained in this Section 8.5(b) are an integral part of the
transactions contemplated by this Agreement and that, without these agreements,
Parent and Merger Sub would not enter into this
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Agreement; accordingly, if the Company fails to promptly pay the amount due
pursuant to this Section 8.5(b) and, in order to obtain such payment, Parent or
Merger Sub commences a suit which results in a judgment against the Company for
any of the fees set forth in this Section 8.5(b), the Company shall pay to
Parent or Merger Sub its costs and expenses (including attorneys' fees) in
connection with such suit, together with interest on the amount of such payment
at the prime rate of Citibank, N.A. in effect on the date such payment was
required to be made.
(c) In the event that this Agreement is terminated (x) by
Parent pursuant to Section 8.4(a)(or 6.2) or (y) by the Company pursuant to
Section 8.3(b)(i) or (iii), or (z) by the Company or Parent pursuant to Section
8.2(e), then Parent: (1) shall promptly, but in no event later than two days
after the date of such termination (except in the case of a termination pursuant
to Section 8.4(a) which requires payment prior to termination), pay the Company,
in addition to any amount, not to exceed $20,000,000, paid and/or payable by
Parent to the Company pursuant to the letter agreement, dated the date hereof,
between Parent and the Company, a termination fee equal to the sum of (I) the
charges and expenses repaid to the Company pursuant to clause (2) of this
Section 8.5(c) and (II) an amount equal to $50,000,000 less the sum of (x) the
amounts paid pursuant to clause (I) of this Section 8.5(c)(1), and (y) the
amount, not to exceed $20,000,000, paid and/or payable by Parent to the Company
pursuant to the letter agreement, dated the date hereof, between Parent and the
Company; and (2) shall promptly, but in no event later than two days after being
notified of such by the Company, pay all of the charges and expenses incurred by
the Company in connection with this Agreement and the Stock Option Agreement and
the transactions contemplated by this Agreement and the Stock Option Agreement
up to a maximum amount of $10,000,000, in each case payable by wire transfer of
same day funds. In no event shall Parent be required to pay more than
$50,000,000 pursuant to the preceding sentence. In addition, if this Agreement
is terminated (x) at a time when a termination fee is payable pursuant to the
terms of the preceding sentence or (y) at a time when the approval of Parent's
stockholders required by Section 7.1(a) shall not have been obtained at a
meeting duly convened therefor or at any adjournment or postponement thereof and
at any time within two years after such termination Parent shall consummate a
Material Acquisition Transaction with any Person other than the Company or a
Subsidiary of the Company, then Parent shall simultaneously with the
consummation of such Material Acquisition Transaction pay
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the Company an additional termination fee, payable by wire transfer of same day
funds, of $50,000,000. Parent acknowledges that the agreements contained in this
Section 8.5(c) are an integral part of the transactions contemplated by this
Agreement and that, without these agreements, the Company would not enter into
this Agreement; accordingly, if Parent fails to promptly pay the amount due
pursuant to this Section 8.5(c) and, in order to obtain such payment, the
Company commences a suit which results in a judgment against Parent for any of
the fees set forth in this Section 8.5(c), Parent shall pay to the Company its
costs and expenses (including attorneys' fees) in connection with such suit,
together with interest on the amount of such payment at the prime rate of
Citibank, N.A. in effect on the date such payment was required to be made.
ARTICLE IX
Miscellaneous and General
9.1. Survival. This Article IX and the agreements of the
Company, Parent and Merger Sub contained in Sections 6.6 (Taxation and
Accounting), 6.11 (Benefits), 6.12 (Expenses) and 6.13 (Indemnification;
Directors' and Officers' Insurance) shall survive the consummation of the
Merger. This Article IX, the representations contained in Section 5.1(c), the
agreements of the Company, Parent and Merger Sub contained in Section 6.12
(Expenses), Section 8.5 (Effect of Termination and Abandonment) and the
Confidentiality Agreement shall survive the termination of this Agreement. All
other representations, warranties, agreements and covenants in this Agreement
shall not survive the consummation of the Merger or the termination of this
Agreement.
9.2. Modification or Amendment. Subject to the provisions of
applicable Law, the parties hereto may modify or amend this Agreement, by
written agreement executed and delivered by duly authorized officers of the
respective parties.
9.3. Waiver of Conditions; Extension. The conditions to each
of the parties' obligations to consummate the Merger are for the sole benefit of
such party and at any time prior to the Effective Time such party may waive such
conditions in whole or in part or extend the time for the performance of any of
the obligations or other acts of the other parties hereto to the extent
permitted by applicable Law.
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9.4. Counterparts. This Agreement may be executed in any
number of counterparts, each such counter part being deemed to be an original
instrument, and all such counterparts shall together constitute the same
agreement. This Agreement shall become a binding obligation of Merger Sub upon
Merger Sub's execution of this Agreement in accordance with Section 1.1(a).
9.5. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. (a) THIS
AGREEMENT SHALL BE DEEMED TO BE MADE IN, AND IN ALL RESPECTS SHALL BE
INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF, THE
COMMONWEALTH OF PENNSYLVANIA WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES
THEREOF. The parties hereby irrevocably submit to the jurisdiction of the courts
of the Commonwealth of Pennsylvania and the Federal courts of the United States
of America located in the Commonwealth of Pennsylvania solely in respect of the
interpretation and enforcement of the provisions of this Agreement and the Stock
Option Agreement and of the documents referred to in this Agreement and the
Stock Option Agreement, and in respect of the transactions contemplated hereby
and thereby, and hereby waive, and agree not to assert, as a defense in any
action, suit or proceeding for the interpretation or enforcement hereof or of
any such document, that it is not subject thereto or that such action, suit or
proceeding may not be brought or is not maintainable in said courts or that the
venue thereof may not be appropriate or that this Agreement and the Stock Option
Agreement or any such document may not be enforced in or by such courts, and the
parties hereto irrevocably agree that all claims with respect to such action or
proceeding shall be heard and determined in such a Commonwealth of Pennsylvania
or Federal court. The parties hereby consent to and grant any such court
jurisdiction over the person of such parties and over the subject matter of such
dispute and agree that mailing of process or other papers in connection with any
such action or proceeding in the manner provided in Section 9.6, or in such
other manner as may be permitted by Law, shall be valid and sufficient service
thereof. No provision of this Agreement shall be construed to require any party
to violate or contravene any applicable Law.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY
WHICH MAY ARISE UNDER THIS AGREEMENT OR THE STOCK OPTION AGREEMENT IS LIKELY TO
INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS
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AGREEMENT OR THE STOCK OPTION AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT OR THE STOCK OPTION AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH SUCH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS BEEN INDUCED
TO ENTER INTO THIS AGREEMENT OR THE STOCK OPTION AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.5.
9.6. Notices. Any notice, request, instruction or other
document to be given hereunder by any party to the others shall be in writing
and delivered personally or sent by registered or certified mail, postage
prepaid, or by facsimile:
if to Parent or Merger Sub
Allegheny Power System, Inc.
10435 Downsville Pike
Hagerstown, Maryland 21740-1766
Attention: Thomas K. Henderson
telecopier: (301) 665-2739
(with a copy to Joseph B. Frumkin
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
telecopier: (212) 558-3588)
if to the Company
DQE, Inc.
411 Seventh Avenue
Pittsburgh, Pennsylvania 15230-1930
Attention: Victor A. Roque
telecopier: (412) 393-6266
(with copies to Douglas W. Hawes and
Steven H. Davis
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
telecopier: (212) 424-8500)
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or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
9.7. Entire Agreement. This Agreement (including any exhibits
hereto), the Company Disclosure Letter, the Parent Disclosure Letter, the Stock
Option Agreement and the Confidentiality Agreement, dated November 18, 1996,
between Parent and the Company (the "Confidentiality Agreement") constitute the
entire agreement, and supersede all other prior agreements, understandings,
representations and warranties both written and oral, among the parties with
respect to the subject matter hereof. References herein to this Agreement shall
for all purposes be deemed to include references to the Company Disclosure
Letter and Parent Disclosure Letter. EACH PARTY HERETO AGREES THAT, EXCEPT FOR
THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT, NEITHER PARENT
AND MERGER SUB NOR THE COMPANY MAKES ANY OTHER REPRESENTATIONS OR WARRANTIES,
AND EACH HEREBY DISCLAIMS ANY OTHER REPRESENTATIONS OR WARRANTIES MADE BY ITSELF
OR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, FINANCIAL AND LEGAL
ADVISORS OR OTHER REPRESENTATIVES WITH RESPECT TO THE EXECUTION AND DELIVERY OF
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, NOT WITHSTANDING THE
DELIVERY OR DISCLOSURE TO THE OTHER OR THE OTHER'S REPRESENTATIVES OF ANY
DOCUMENTATION OR OTHER INFORMATION WITH RESPECT TO ANY ONE OR MORE OF THE FORE
GOING.
9.8. No Third Party Beneficiaries. Except as provided in
Section 6.13 (Indemnification; Directors' and Officers' Insurance), this
Agreement is not intended to confer upon any Person other than the parties
hereto any rights or remedies hereunder.
9.9. Obligations of Parent and of the Company. Whenever this
Agreement requires a Subsidiary of Parent to take any action, such requirement
shall be deemed to include an undertaking on the part of Parent to cause such
Subsidiary to take such action. Whenever this Agreement requires a Subsidiary of
the Company to take any action, such requirement shall be deemed to include an
undertaking on the part of the Company to cause such Subsidiary to take such
action and, after the Effective Time, on the part of the Surviving Corporation
to cause such Subsidiary to take such action.
9.10. Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the
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validity or enforceability of the other provisions hereof. If any provision of
this Agreement, or the application thereof to any Person or any circumstance, is
invalid or unenforceable, (a) a suitable and equitable provision shall be
substituted therefor in order to carry out, so far as may be valid and
enforceable, the intent and purpose of such invalid or unenforceable provision
and (b) the remainder of this Agreement and the application of such provision to
other Persons or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability affect the
validity or enforceability of such provision, or the application thereof, in any
other jurisdiction.
9.11. Interpretation. The table of contents and headings
herein are for convenience of reference only, do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof. Where a reference in this Agreement is made to a Section or
Exhibit, such reference shall be to a Section of or Exhibit to this Agreement
unless otherwise indicated. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
9.12. Assignment. This Agreement shall not be assignable by
operation of law or otherwise; provided, however, that Parent may designate, by
written notice to the Company, another wholly-owned direct or indirect
subsidiary to be a Constituent Corporation in lieu of Merger Sub, in the event
of which all references herein to Merger Sub shall be deemed references to such
other subsidiary, except that all representations and warranties made herein
with respect to Merger Sub as of the date of this Agreement shall be deemed
representations and warranties made with respect to such other subsidiary as of
the date of such designation.
60
<PAGE> 68
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the Company and Parent as of the
date hereof.
DQE, INC.
By: /s/ David D. Marshall
------------------------------------
David D. Marshall
Chairman and Chief Executive
Officer
ALLEGHENY POWER SYSTEM, INC.
By: /s/ Alan J. Noia
------------------------------------
Alan J. Noia
Chairman and Chief Executive
Officer
Accepted and Agreed as of , 199
---------------------------- ---
AYP SUB, INC.
By:
------------------------------------
Name:
Title:
61
<PAGE> 69
EXHIBIT A-1
[FORM OF AFFILIATES LETTER]
[Date]
Allegheny Power System, Inc.
10435 Downsville Pike
Hagerstown, Maryland 21740
Ladies and Gentlemen:
I have been advised that as of the date hereof, I may be
deemed to be an "affiliate" of DQE, Inc., a Pennsylvania corporation (the
"Company"), as such term (i) is defined for purposes of paragraphs (c) and (d)
of Rule 145 of the Rules and Regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"), or (ii) is used in and for purposes
of Accounting Series Releases 130 and 135, as amended, of the Commission.
Pursuant to the terms of the Agreement and Plan of Merger dated as of April 5,
1997, as it may be amended, supplemented or modified from time to time (the
"Merger Agreement"), among the Company, Allegheny Power System, Inc., a Maryland
corporation ("Parent"), and AYP Sub, Inc., a Pennsylvania corporation to be
formed as a wholly owned subsidiary of Parent ("Merger Sub"), Merger Sub will be
merged with and into the Company (the "Merger"). Capitalized terms used herein
but not defined herein shall have the meanings ascribed to such terms in the
Merger Agreement.
I further understand that the Merger will be treated for
financial accounting purposes as a "pooling of interests" in accordance with
generally accepted accounting principles and that the Staff of the Commission
has issued certain guidelines that should be followed to ensure the pooling of
the entities.
I hereby represent and warrant that, since 30 days prior to
the closing and including the date hereof, I have not sold, transferred or
otherwise disposed of any shares of Common Stock, without par value, of the
Company (the "Company Common Stock").
In consideration of the agreements contained herein, Parent's
reliance on this letter in connection with the consummation of the Merger and
for other good and
A-1-1
<PAGE> 70
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, I hereby represent, warrant and agree that (i) I will not make any
sale, transfer or other disposition of Company Common Stock prior to the earlier
of the Effective Time and the termination of the Merger Agreement, (ii) I will
not make any sale, transfer or other disposition of Common Stock, par value
$1.25 per share, of Parent (the "Parent Common Stock") received by me pursuant
to the Merger until after such time as results covering at least 30 days of
combined operations of the Company and Parent have been published by Parent, in
the form of a quarterly earnings report, an effective registration statement
filed with the Commission, a report to the Commission on Form 10-K, 10-Q or 8-K,
or any other public filing or announcement which includes such combined results
of operations, and (iii) I will not make any sale, transfer or other disposition
of any shares of Parent Common Stock received by me pursuant to the Merger in
violation of the Securities Act or the rules and regulations thereunder. I have
been advised that the issuance of the shares of Parent Common Stock pursuant to
the Merger will have been registered with the Commission under the Securities
Act on a Registration Statement on Form S-4. I have also been advised, however,
that since I may be deemed to be an affiliate of the Company at the time the
Merger is submitted for a vote of the shareholders of the Company, the Parent
Common Stock received by me may be disposed by me only (i) pursuant to an
effective registration under the Securities Act, (ii) in conformity with the
volume and other limitations of Rule 145 promulgated by the Commission under the
Securities Act, or (iii) in reliance upon an exemption from registration that is
available under the Securities Act.
I also understand that instructions will be given to Parent's
transfer agent with respect to the Parent Common Stock to be received by me
pursuant to the Merger and that there will be placed on the certificates
representing such shares of Parent Common Stock, or any substitutes therefor, a
legend stating in substance as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ISSUED IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, APPLIES AND MAY ONLY
BE SOLD OR OTHERWISE TRANSFERRED IN COMPLIANCE WITH THE
REQUIREMENTS OF RULE 145 OR PURSUANT TO A REGISTRATION
STATEMENT UNDER THAT ACT OR AN EXEMPTION FROM SUCH
REGISTRATION."
A-1-2
<PAGE> 71
It is understood and agreed that the legend set forth above
shall be removed upon surrender of certificates bearing such legend by delivery
of substitute certificates without such legend if I shall have delivered to
Parent an opinion of counsel, in form and substance reasonably satisfactory to
Parent, to the effect that (i) the sale or disposition of the shares represented
by the surrendered certificates may be effected without registration of the
offering, sale and delivery of such shares under the Securities Act, and (ii)
the shares to be so transferred may be publicly offered, sold and delivered by
the transferee thereof without compliance with the registration provisions of
the Securities Act.
I further understand and agree that Parent is under no
obligation to register the sale, transfer or other disposition of the Parent
Common Stock by me or on my behalf under the Securities Act or to take any other
action necessary in order to make compliance with an exemption form such
registration available.
Execution of this letter should not be considered an admission
on my part that I am an "affiliate" of the Company as described in the first
paragraph of this letter, or as a waiver of any rights I may have to object to
any claim that I am such an affiliate on or after the date of this letter.
This letter agreement constitutes the complete understanding
between Parent and me concerning the subject matter hereof. Any notice required
to be sent to either party hereunder shall be sent by registered or certified
mail, return receipt requested, using the addresses set forth herein or such
other address as shall be furnished in writing by the parties. This letter
agreement shall be governed by and construed and interpreted in accordance with,
the laws of the Commonwealth of Pennsylvania.
A-1-3
<PAGE> 72
If you are in agreement with the foregoing, please so indicate
by signing below and returning a copy of this letter to the undersigned, at
which time this letter shall become a binding agreement between us.
Very truly yours,
_______________________
Name:
Accepted this ____ day
of __________, 199__.
ALLEGHENY POWER SYSTEM, INC.
By:_______________________
Name:
Title:
A-1-4
<PAGE> 73
EXHIBIT A-2
[FORM OF POOLING AFFILIATES LETTER]
[Date]
DQE, Inc.
411 Seventh Avenue
Pittsburgh, Pennsylvania 15230
Gentlemen:
I have been advised that as of the date hereof, I may be
deemed to be an "affiliate" of Allegheny Power System, Inc., a Maryland
corporation ("Parent"), as such term (i) is defined for purposes of paragraphs
(c) and (d) of Rule 145 of the Rules and Regulations of the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended, or (ii) is used in and for purposes of Accounting Series Releases 130
and 135, as amended, of the Commission. Pursuant to the terms of the Agreement
and Plan of Merger, dated as of April 5, 1997, as it may be amended,
supplemented or modified from time to time, among DQE, Inc., a Pennsylvania
corporation (the "Company"), Parent, and AYP Sub, Inc., a Pennsylvania
corporation to be formed as a wholly owned subsidiary of Parent ("Merger Sub"),
Merger Sub will be merged with and into the Company (the "Merger"). Capitalized
terms used herein but not defined herein shall have the meanings ascribed to
such terms in the Merger Agreement.
I further understand that the Merger will be treated for
financial accounting purposes as a "pooling of interests" in accordance with
generally accepted accounting principles and that the Staff of the Commission
has issued certain guidelines that should be followed to ensure the pooling of
the entities.
I hereby represent and warrant that, since 30 days prior to
the closing and including the date hereof, I have not sold, transferred or
otherwise disposed of any shares of Common Stock, par value $1.25 per share, of
Parent ("Parent Common Stock").
In consideration of the agreements contained herein, the
Company's reliance on this letter in connection with the consummation of the
Merger and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, I hereby represent, warrant and
A-2-1
<PAGE> 74
agree that I will not make any sale, transfer, or other disposition of Parent
Common Stock until after such time as results covering at least 30 days of
combined operations of the Company and Parent have been published by Parent, in
the form of a quarterly earnings report, an effective registration statement
filed with the Commission, a report to the Commission on Form 10-K, 10-Q or 8-K,
or any other public filing or announcement which includes such combined results
of operations.
Execution of this letter should not be considered an admission
on my part that I am an "affiliate" of Parent as described in the first
paragraph of this letter, or as a waiver of any rights I may have to object to
any claim that I am such an affiliate on or after the date of this letter.
This letter agreement constitutes the complete understanding
between the Company and me concerning the subject matter hereof. Any notice
required to be sent to either party hereunder shall be sent by registered or
certified mail, return receipt requested, using the addresses set forth herein
or such other address as shall be furnished in writing by the parties. This
letter agreement shall be governed by and construed and interpreted in
accordance with, the laws of the Commonwealth of Pennsylvania.
A-2-2
<PAGE> 75
If you are in agreement with the foregoing, please so indicate
by signing below and returning a copy of this letter to the undersigned, at
which time this letter shall become a binding agreement between us.
Very truly yours,
------------------------
Name:
Accepted this ____th day
of ___________, 199_.
DQE, INC.
By:______________________
Name:
Title:
A-2-3
<PAGE> 1
EXHIBIT 2(b)
STOCK OPTION AGREEMENT dated April 5, 1997 (this "Agreement"),
between DQE, Inc., a Pennsylvania corporation ("Issuer"), and Allegheny Power
System, Inc., a Maryland corporation ("Grantee").
RECITALS
A. The Merger Agreement. Contemporaneously with the execution
and delivery of this Agreement and with the grant of the Option (as defined in
Section 1(a)), Grantee and Issuer have entered into an Agreement and Plan of
Merger, dated as of the date hereof (the "Merger Agreement"), pursuant to
which Grantee and Issuer intend to effect a merger of AYP Sub, Inc., a
Pennsylvania corporation to be formed as a wholly owned subsidiary of Grantee,
with and into Issuer (the "Merger").
B. The Option Agreement. As an inducement and condition to
Grantee's willingness to enter into the Merger Agreement, and in consideration
thereof, the board of directors of Issuer has approved the grant to Grantee of
the Option pursuant to this Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements set forth herein and in the Merger Agreement,
and subject to the terms and conditions of this Agreement, the parties hereto
agree as follows:
1. The Option. (a) Issuer hereby grants to Grantee an
irrevocable option (the "Option") to purchase, subject to Section 9 and the
other provisions hereof, up to 15,379,007 fully paid and nonassessable shares of
Common Stock, without par value ("Common Stock"), of Issuer at a price per share
in cash equal to $27.850 (such price, the "Initial Price" and the Initial Price,
as adjusted as hereinafter provided, the "Option Price"); provided, however,
that in no event shall the number of shares for which the Option is exercisable
exceed 19.9% of the Common Stock issued and outstanding at the time of exercise,
without giving effect to the shares of Common Stock issued or issuable under the
Option (the "Maximum Applicable Percentage"). The number of shares of Common
Stock purchasable upon exercise of the Option and the Option Price are subject
to adjustment as set forth herein.
(b) In the event that any additional shares of Common Stock
are issued or otherwise become outstanding after the date of this Agreement
(other than pursuant to this Agreement), the aggregate number of shares of
Common Stock purchasable upon exercise of the Option (inclusive of
<PAGE> 2
shares, if any, previously purchased upon exercise of the Option) shall
automatically be increased (without any further action on the part of Issuer or
Grantee being necessary) so that, after such issuance, it equals the Maximum
Applicable Percentage. Any such increase shall not affect the Option Price.
2. Exercise; Closing. (a) Conditions to Exercise. Grantee may
exercise the Option, in whole or in part, if, but only if, a Triggering Event
(as defined in Section 2(c)) shall have occurred prior to the occurrence of an
Exercise Termination Event (as defined in Section 2(b)), provided that Grantee
shall have sent the written notice of such exercise (as provided in Section
2(e)) within 180 days following the first such Triggering Event.
(b) Exercise Termination Event. The term "Exercise
Termination Event" shall mean any of the following events:
(i) The Effective Time (as defined in the Merger Agreement);
(ii) The termination of the Merger Agreement in accordance with the
provisions thereof if such termination precedes the occurrence of a
Triggering Event; or
(iii) The first anniversary of the date of termination of the
Merger Agreement if such termination follows, or occurs at the same
time as, the occurrence of a Triggering Event or, if on such
anniversary date the Option cannot be exercised by reason of any
applicable judgment, decree, order, law or regulation, thirty business
days after such impediment to exercise shall have been removed or shall
have become final and not subject to appeal, but in no event under this
clause (iii) later than April 5, 1999.
(c) Triggering Event. The term "Triggering Event" shall mean
the occurrence of any event which could cause the Merger Agreement to become
terminable (x) by Issuer pursuant to Section 8.3(a) (or 6.2) of the Merger
Agreement, or (y) by Grantee pursuant to Section 8.4(b)(i) or (iii) of the
Merger Agreement, or (z) by Issuer or Grantee pursuant to Section 8.2(d) of the
Merger Agreement.
(d) Notice of Triggering Event by Issuer. Issuer shall notify
Grantee promptly in writing of the occurrence of any Triggering Event, it being
understood that the giving of such notice by Issuer shall not be a condition to
the right of Grantee to exercise the Option.
-2-
A: 66243.6
<PAGE> 3
(e) Notice of Exercise by Grantee. If Grantee shall be
entitled to and wishes to exercise the Option in whole or in part, it shall send
to Issuer a written notice (the date of which is referred to herein as the
"Notice Date") specifying (i) the total number of shares that Grantee will
purchase pursuant to such exercise and (ii) a place and date (a "Closing Date")
not earlier than three business days nor later than 60 business days from the
Notice Date for the closing of such purchase (a "Closing"); provided, that, in
accordance with Section 9, if a filing is required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act") or prior notification to or
approval of the Pennsylvania Public Utilities Commission ("PaPUC"), the
Securities and Exchange Commission ("SEC"), the Federal Energy Regulatory
Commission ("FERC") or the Nuclear Regulatory Commission ("NRC") or any other
regulatory agency is required in connection with such purchase, Issuer or
Grantee, as the case may be, promptly shall file the required notices or
applications for approval and shall expeditiously process the same and the
period of time referred to in clause (ii) shall commence on the date on which
Grantee furnishes to Issuer a supplemental written notice setting forth the
Closing Date, which notice shall be furnished as promptly as practicable after
all required notification periods shall have expired or been terminated and all
required approvals shall have been obtained and all requisite waiting periods
shall have passed.
(f) Payment of Purchase Price. At each Closing, Grantee shall
pay to Issuer the aggregate purchase price for the shares of Common Stock
purchased pursuant to the exercise of the Option in immediately available funds
by a wire transfer to a bank account designated by Issuer; provided, that
failure or refusal of Issuer to designate such a bank account shall not preclude
Grantee from exercising the Option, as a whole or in part.
(g) Delivery of Common Stock. At such Closing, simultaneously
with the payment of the purchase price by Grantee, Issuer shall deliver to
Grantee a certificate or certificates representing the number of shares of
Common Stock purchased by Grantee and, if the Option shall be exercised in part
only, a new Option evidencing the rights of Grantee to purchase the balance of
the shares purchasable hereunder.
-3-
<PAGE> 4
(h) Restrictive Legend. Certificates for Common Stock
delivered at a Closing may be endorsed with a restrictive legend that shall
read substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of the Stock Option Agreement, dated
April 5, 1997, between the Company and Allegheny Power System, Inc., a
copy of which agreement is on file at the principal office of Issuer,
and to resale restrictions arising under the Securities Act of 1933, as
amended. A copy of the aforementioned agreement will be mailed to the
holder hereof without charge promptly after receipt by Issuer of a
written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "Securities Act"), in the above
legend shall be removed by delivery of substitute certificate(s) without such
reference if Grantee shall have delivered to Issuer a copy of a letter from the
staff of the SEC, or a written opinion of counsel, in form and substance
reasonably satisfactory to Issuer, to the effect that such legend is not
required for purposes of the Securities Act; (ii) the reference to the
provisions of this Agreement in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference; and (iii) the
legend shall be removed in its entirety if the conditions in the preceding
clauses (i) and (ii) both are satisfied. In addition, such certificates shall
bear any other legend as may be required by applicable law.
(i) Ownership of Record; Tender of Purchase Price; Expenses.
Upon the giving by Grantee to Issuer of a written notice of exercise referred to
in Section 2(e) and the tender of the applicable purchase price in immediately
available funds, Grantee shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of Issuer shall then be closed or that certificates repre-
senting such shares of Common Stock shall not have been delivered to Grantee.
Issuer shall pay all expenses, and any and all United States federal, state and
local taxes and other charges that may be payable in connection with the
preparation, issue and delivery of stock certificates under this Section 2 in
the name of Grantee or its assignee, transferee or designee.
-4-
<PAGE> 5
3. Covenants of Issuer. In addition to its other agreements
and covenants herein, Issuer agrees:
(a) Shares Reserved for Issuance. To maintain, free from
preemptive rights, sufficient authorized but unissued or treasury
shares of Common Stock so that the Option may be exercised without
additional authorization of Common Stock after giving effect to all
other options, warrants, convertible securities and other rights of
third parties to purchase shares of Common Stock from Issuer, or to
cause Issuer to issue shares of Common Stock;
(b) No Avoidance. Not to avoid or seek to avoid (whether by
charter amendment or through reorganization, consolidation, merger,
issuance of rights, dissolution or sale of assets, or by any other
voluntary act) the observance or performance of any of the covenants,
stipulations, or conditions to be observed or performed hereunder by
Issuer; and
(c) Further Assurances. Promptly to take all actions as may
from time to time be required (including, in the event that prior
approval of, notice to or registration with the PaPUC, the SEC, the
FERC or the NRC or any other regulatory authority is necessary under
any applicable federal, state or local law before the Option may be
exercised, cooperating fully with Grantee in preparing and processing
the required applications or notices) in order to permit Grantee to
exercise the Option and purchase shares of Common Stock pursuant to
such exercise.
4. Adjustments. In addition to the adjustment to the total
number of shares of Common Stock purchasable upon exercise of the Option
pursuant to Section 1(b), the total number of shares of Common Stock purchasable
upon the exercise hereof and the Option Price shall be subject to adjustment
from time to time as follows:
(a) In the event of any change in the outstanding shares of
Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges
of shares or the like, the type and number of shares of Common Stock
purchasable upon exercise hereof shall be appropriately adjusted, and
proper provision shall be made in the agreements governing any such
transaction so that Grantee shall receive upon exercise of the Option
the number and class of shares, other securities, property or cash that
Grantee would have received in respect of
-5-
<PAGE> 6
the shares of Common Stock purchasable upon exercise of the Option if
the Option had been exercised and such shares of Common Stock had been
issued to Grantee immediately prior to such event or the record date
therefor, as applicable;
(b) Issuer may make such increases in the number of shares of
Common Stock purchasable upon exercise hereof, in addition to those
required under clause (a), as shall be determined by its Board of
Directors to be advisable in order to avoid taxation so far as
practicable of any dividend of stock or stock rights or any event
treated as such for federal income tax purposes to the recipients; and
(c) Whenever the number of shares of Common Stock purchasable upon
exercise hereof is adjusted as provided in clause (a) or (b) of this
Section 4, the Option Price shall be adjusted by multiplying the Option
Price by a fraction, the numerator of which is equal to the number of
shares of Common Stock purchasable prior to the adjustment and the
denominator of which is equal to the number of shares of Common Stock
purchasable after the adjustment.
5. Registration. (a) Upon the occurrence of a Triggering Event
that occurs prior to an Exercise Termination Event, Issuer shall, at the request
of Grantee delivered in the written notice of exercise of the Option provided
for in Section 2(e), as promptly as practicable prepare, file and keep current a
shelf registration statement under the Securities Act covering any or all
shares issued and issuable pursuant to the Option and shall use its best efforts
to cause such registration statement to become effective and remain current in
order to permit the sale or other disposition of any shares of Common Stock
issued upon total or partial exercise of the Option ("Option Shares") in
accordance with any plan of disposition requested by Grantee; provided, however,
that Issuer may postpone filing a registration statement relating to a
registration request by Grantee under this Section 5 for a period of time (not
in excess of 180 days) if in its judgment such filing would require the
disclosure of material information that Issuer has a bona fide business purpose
for preserving as confidential. Issuer will use its best efforts to cause such
registration statement first to become effective and then to remain effective
for 270 days from the day such registration statement first becomes effective or
until such earlier date as all shares registered shall have been sold by
Grantee. In connection with any such registration, Issuer and Grantee shall
provide each other with
-6-
<PAGE> 7
representations, warranties, indemnities and other agreements customarily given
in connection with such registrations. If requested by Grantee in connection
with such registration, Issuer and Grantee shall become a party to any
underwriting agreement relating to the sale of such shares, but only to the
extent of obligating themselves in respect of representations, warranties,
indemnities and other agreements customarily included in such underwriting
agreements. In connection with any underwritten public offering of shares issued
upon exercise of the Option, Grantee shall use reasonable efforts to cause the
underwriters thereof to cause a broad public distribution of the shares in which
no person or group (as defined for purposes of Schedule 13D-G under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) acquires more
than one percent of the outstanding shares of Common Stock on a fully diluted
basis.
(b) In the event that Grantee so requests, the closing of the
sale or other disposition of the Common Stock or other securities pursuant to a
registration statement filed pursuant to Section 5(a) shall occur substantially
simultaneously with the exercise of the Option; provided, however, that the
provisions of this Section 5(b) shall not be construed to shorten the time
periods specified in Section 5(a).
6. Repurchase of Option and/or Shares. (a) Repurchase;
Repurchase Price. Upon the occurrence of a Triggering Event that occurs prior to
an Exercise Termination Event, (i) at the request of Grantee, delivered in
writing within 180 days of such occurrence (or such later period as provided in
Section 7), Issuer shall, subject to Section 9, repurchase the Option from
Grantee, as a whole or in part, at a price (the "Option Repurchase Price") equal
to the number of shares of Common Stock then purchasable upon exercise of the
Option (or such lesser number of shares as may be subject to the Repurchase
Notice (as defined below)) multiplied by the amount by which the market/offer
price at the close of business on the business day prior to the date of the
Repurchase Notice exceeds the Option Price and (ii) at the request of Grantee,
delivered in writing within 180 days of such occurrence (or such later period as
provided in Section 7), Issuer shall repurchase such number of Option Shares
from Grantee as Grantee shall designate at a price (the "Option Share Repurchase
Price") equal to the number of shares designated multiplied by the Market/offer
price. The term "market/offer price" shall mean the highest of (x) the price per
share of Common Stock at which a tender or exchange offer for Common Stock has
been made, (y) the price per share of Common Stock to be paid by any third
-7-
<PAGE> 8
party pursuant to an agreement with Issuer and (z) the average closing price for
shares of Common Stock on the ten consecutive trading days on the New York Stock
Exchange immediately preceding the delivery of the Repurchase Notice. In the
event that a tender or exchange offer is made for the Common Stock or an
agreement is entered into for a merger or consolidation involving consideration
other than cash, the value of the securities or other property issuable or
deliverable in exchange for the Common Stock shall be determined by a nationally
recognized investment banking firm selected by Issuer.
(b) Method of Repurchase. Grantee may from time to time
exercise its right to require Issuer to repurchase the Option, in whole or in
part, and/or any Option Shares then owned by Grantee pursuant to this Section 6
by surrendering for such purpose to Issuer, at its principal office, a copy of
this Agreement or certificates for Option Shares, as applicable, accompanied by
a written notice or notices stating that Grantee elects to require Issuer to
repurchase this Option and/or such Option Shares in accordance with the
provisions of this Section 6 (each such notice, a "Repurchase Notice"). As
promptly as practicable, and in any event within 2 business days after the
surrender of the Option and/or certificates representing Option Shares and the
receipt of the Repurchase Notice relating thereto, Issuer shall deliver or cause
to be delivered to Grantee the Option Repurchase Price and/or the Option Share
Repurchase Price or, in either case, the portion thereof that Issuer is not then
prohibited under applicable law and regulation from so delivering. In the event
that the Repurchase Notice shall request the repurchase of the Option in part,
Issuer shall deliver with the Option Repurchase Price a new Stock Option
Agreement evidencing the right of Grantee to purchase that number of shares of
Common Stock purchasable pursuant to the Option at the time of delivery of the
Repurchase Notice minus the number of shares of Common Stock represented by that
portion of the Option then being repurchased.
(c) Effect of Statutory or Regulatory Restraints on
Repurchase. To the extent that, upon or following the delivery of a Repurchase
Notice, Issuer is prohibited under applicable law or regulation, or (subject to
Section 3(b)) any material agreements by which Issuer is bound, or as a
consequence of administrative policy, from repurchasing the Option (or portion
thereof) and/or any Option Shares subject to the Repurchase Notice (and Issuer
hereby undertakes to use all reasonable efforts to obtain all required
regulatory and legal approvals and to file any required notices as promptly as
practicable in order to accomplish such
-8-
<PAGE> 9
repurchase), Issuer shall immediately so notify Grantee in writing and
thereafter deliver or cause to be delivered, from time to time, to Grantee the
portion of the Option Repurchase Price and the Option Share Repurchase Price
that Issuer is no longer prohibited from delivering, within 2 business days
after the date on which it is no longer so prohibited; provided, however, that
upon notification by Issuer in writing of such prohibition, Grantee may within 5
days of receipt of such notification from Issuer (and notwithstanding any prior
delivery by Issuer of any portion of the Option Repurchase Price and/or the
Option Share Repurchase Price) revoke in writing its Repurchase Notice, in whole
or in part, whereupon Issuer shall promptly deliver to Grantee (i) a new Stock
Option Agreement evidencing the right of Grantee to purchase that number of
shares of Common Stock equal to the sum of (A) the number of shares of Common
Stock purchasable upon exercise of the Option at the time of delivery of the
Repurchase Notice that were not subject to such Notice plus (B) the number of
shares subject to the notice of revocation and (ii) a certificate for the Option
Shares represented by the certificate submitted with the Repurchase Notice that
are subject to the notice of revocation. Notwithstanding anything to the
contrary in this Agreement, including, without limitation, the time limitations
on the exercise of the Option, Grantee may exercise the Option for 180 days
after a notice of revocation has been timely issued pursuant to this Section
6(c).
(d) Acquisition Transactions. In addition to any other
restrictions or covenants, Issuer hereby agrees that it shall not enter or agree
to enter into any Acquisition Transaction unless the other party or parties
thereto agree to assume in writing Issuer's obligations under Section 6(a) in
the event that Issuer issues a notice of the type referred to in Section 6(c),
and, notwithstanding any notice of revocation delivered pursuant to the proviso
to Section 6(c), Grantee may require such other parties to perform Issuer's
obligations under Section 6(a) unless such party or parties are prohibited by
law or regulation from such performance.
7. Extension of Exercise Periods. The 180-day periods for
exercise of certain rights under Sections 2 and 6 shall be extended in each such
case at the request of Grantee (i) to the extent necessary to obtain all
regulatory approvals for the exercise of such rights and for the expiration of
all statutory waiting periods and (ii) to the extent necessary to avoid
liability under Section 16(b) of the Exchange Act by reason of such exercise.
-9-
<PAGE> 10
8. Assignment. Neither party hereto may assign any of its rights or
obligations under this Agreement or the Option to any other person without the
express written consent of the other party. Any attempted assignment in
contravention of the preceding sentence shall be null and void.
9. Filings; Other Actions. Each of Grantee and Issuer will use its
best efforts to make all filings with, and to obtain consents and approvals of,
all third parties and governmental authorities necessary for the consummation of
the transactions contemplated by this Agreement. To the extent that any such
consents or approvals shall be required for the issuance of Common Stock upon
exercise of the Option or for the repurchase of Option Shares, then to such
extent and only to such extent, such issuance or repurchase, as the case may be,
shall not be required until such time as such consent or approval has been
obtained. To the extent that any such consents or approvals or the termination
of the waiting period under the HSR Act shall be required for the acquisition,
ownership or exercise by Grantee of its rights pursuant to this Agreement, then
to such extent and only to such extent, such acquisition, ownership or exercise
shall not be effective until such time as such consent or approval has been
obtained or such termination has occurred.
10. Specific Performance. The parties hereto acknowledge that
damages would be an inadequate remedy for a breach of this Agreement by either
party hereto and that the obligations of the parties hereto shall be enforceable
through injunctive or other equitable relief.
11. Severability; Etc. If any term, provision, covenant, or
restriction contained in this Agreement is held by a court or a federal or state
regulatory agency of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants, and restric-
tions contained in this Agreement shall remain in full force and effect, and
shall in no way be affected, impaired, or invalidated. If for any reason such
court or regulatory agency determines that Grantee is not permitted to acquire,
or Issuer is not permitted to repurchase pursuant to Section 6 or 7, the full
number of shares of Common Stock provided in Section 1(a) hereof (as adjusted
pursuant to Section 1(b) or 4 hereof), it is the express intention of Issuer to
allow Grantee to acquire or to require Issuer to repurchase such lesser number
of shares as may be permissible, without any amendment or modification hereof.
12. Notices. All notices, requests, claims, demands, and other
communications hereunder shall be deemed
-10-
<PAGE> 11
to have been duly given (i) on the date of delivery if delivered personally, or
by telecopy or telefacsimile, upon confirmation of receipt, (ii) on the first
business day following the date of dispatch if delivered by a recognized
next-day courier service, or (iii) on the third business day following the date
of mailing if delivered by registered or certified mail, return receipt
requested, postage prepaid, in each case at the respective addresses of the
parties set forth in the Merger Agreement.
13. Counterparts. For the convenience of the parties hereto, this
Agreement may be executed in any number of separate counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement.
14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED SOLELY WITHIN SUCH
COMMONWEALTH.
15. Expenses. Except as otherwise expressly provided herein or in
the Merger Agreement, each of the parties hereto shall bear and pay all costs
and expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants, and counsel.
16. Entire Agreement, Etc. This Agreement and the Merger Agreement
constitute the entire agreement, and supersede all other prior agreements,
understandings, representations and warranties, both written and oral, between
the parties, with respect to the subject matter hereof. The terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended to confer upon any party, other
than the parties hereto, and their respective successors and permitted assigns,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided herein.
17. Limitation on Profit. (a) Notwithstanding any other provision
of this Agreement, in no event shall the Grantee's Total Profit (as hereinafter
defined) exceed $20,000,000 and, if it otherwise would exceed such amount, the
Grantee, at it sole election, shall either (a) reduce the number of shares of
Common Stock subject to this Option, (b) deliver to the Issuer for cancellation
Option Shares
-11-
<PAGE> 12
previously purchased by Grantee, (c) pay cash to the Issuer, or (d) any
combination thereof, so that Grantee's actually realized Total Profit shall not
exceed $20,000,000 after taking into account the foregoing actions.
(b) As used herein, the term "Total Profit" shall mean the
aggregate amount (before taxes) of the following: (i) (x) the amount received by
Grantee pursuant to Issuer's repurchase of the Option (or any portion thereof)
or any Option Shares pursuant to Section 6, less, in the case of any repurchase
of Option Shares, (y) the Grantee's purchase price for such Option Shares, as
the case may be, (ii) (x) the net cash amounts received by Grantee pursuant to
the sale of Option Shares (or any other securities into which such Option Shares
are converted or exchanged) to any unaffiliated party, less (y) the Grantee's
purchase price of such Option Shares, and (iii) any Notional Total Profit (as
defined below).
(c) As used herein, the term "Notional Total Profit" with
respect to any number of shares as to which Grantee may propose to exercise this
Option shall be the Total Profit determined as of the date of such proposal
assuming that this Option were exercised on such date for such number of shares
and assuming that such shares, together with all other Option Shares held by
Grantee and its affiliates as of such date, were sold for cash at the closing
market price for the Common Stock as of the close of business on the preceding
trading day (less customary brokerage commissions).
18. Captions. The Article, Section and paragraph captions herein
are for convenience of reference only, do not constitute part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions
hereof.
-12-
<PAGE> 13
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by duly authorized officers of the parties hereto as of the day and
year first hereinabove written.
DQE, INC.
By: /s/ David D. Marshall
-----------------------------
David D. Marshall
Chairman and Chief Executive
Officer
ALLEGHENY POWER SYSTEM, INC.
By: /s/ Alan J. Noia
-----------------------------
Alan J. Noia
Chairman and Chief Executive
Officer
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<PAGE> 1
EXHIBIT 2(c)
ALLEGHENY POWER SYSTEM, INC.
10435 DOWNSVILLE PIKE
HAGERSTOWN, MARYLAND 21740
April 5, 1997
DQE, Inc.
411 Seventh Avenue
Pittsburgh, Pennsylvania 15230
Ladies and Gentlemen:
With reference to the Agreement and Plan of Merger, dated as
of the date hereof, among DQE, Inc., a Pennsylvania corporation (the "Company"),
Allegheny Power System, Inc., a Maryland corporation ("Parent"), and AYP Sub,
Inc., a Pennsylvania corporation to be formed as a wholly owned subsidiary of
Parent (the "Merger Agreement"), we confirm our agreement (this "Agreement") as
follows:
1. Additional Termination Fee. In the event that the Merger
Agreement is terminated (x) by Parent pursuant to Section 8.4(a) (or 6.2) of the
Merger Agreement or (y) by the Company pursuant to Section 8.3(b)(i) or (iii) of
the Merger Agreement, or (z) by the Company or Parent pursuant to Section 8.2(e)
of the Merger Agreement, then, within two business days following the written
request of the Company, Parent shall pay to the Company by wire transfer of
immediately available funds the amount, if any, by which (1) 0.199 multiplied by
the number of shares of Common Stock, par value $1.25 per share, of Parent
("Parent Common Stock"), outstanding at the close of business on the business
day immediately prior to such termination (such date, the "Determination Date")
multiplied by the average daily closing price of Parent Common Stock on the New
York Stock Exchange (the "NYSE") on the ten NYSE trading days ending on the
Determination Date, as reported in the New York City edition of The Wall Street
Journal, exceeds (2) $719,870,422; provided that the amount payable pursuant to
this Agreement shall not exceed $20,000,000. Parent agrees that if Parent fails
to promptly pay the amount payable pursuant to this Agreement and, in order to
obtain such payment, the Company commences a suit which results in a judgment
against Parent for such payment, Parent shall pay to the Company its costs and
expenses (including attorneys'
<PAGE> 2
fees) in connection with such suit, together with interest on the amount of such
payment at the prime rate of Citibank, N.A. in effect on the date such payment
was required to be made.
2. Modification or Amendment. The parties hereto may modify or
amend this Agreement, by written agreement executed and delivered by duly
authorized officers of the respective parties.
3. Assignment. This Agreement shall not be assignable by
operation of law or otherwise, and any purported assignment of this Agreement
shall be null and void.
4. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. THIS
AGREEMENT SHALL BE DEEMED TO BE MADE IN, AND IN ALL RESPECTS SHALL BE
INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF, THE
COMMONWEALTH OF PENNSYLVANIA WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES
THEREOF.
5. Counterparts. This Agreement may be executed in any number
of counterparts, each such counterpart being deemed to be an original
instrument, and all such counterparts shall together constitute the same
agreement.
2
<PAGE> 3
If you are in agreement with the foregoing, please execute
this Agreement, whereupon this letter shall become a binding agreement between
us.
Very truly yours,
ALLEGHENY POWER SYSTEM, INC.
By: /s/ Alan J. Noia
-------------------------
Alan J. Noia
Chairman and Chief
Executive Officer
Accepted and agreed:
DQE, INC.
By: /s/ David D. Marshall
--------------------------
David D. Marshall
Chairman and Chief
Executive Officer
3
<PAGE> 1
EXHIBIT (99)
[LOGO] Allegheny Power [LOGO] DQE
Contacts for Allegheny Power: Contacts for DQE:
Media: Media:
Name: Donald L Whipp Name: Susan Fritschler
Phone: 412-838-6272 Phone: 412-393-6710
Investors: Investors:
Name: Gregory Fries Name: Beth Straka
Phone: 301-665-2713 Phone: 412-393-6265
ALLEGHENY POWER AND DQE AGREE TO $10.6 BILLION MERGER
Hagerstown,MD and Pittsburgh, PA, April 7, 1997 -- Allegheny Power
System. Inc. (NYSE: AYP) and DQE, Inc. (NYSE: DQE), parent company of Duquesne
Light Company, today announced that they have signed a definitive agreement to
merge in a tax-free, stock-for-stock transaction creating a company with a total
market capitalization of approximately $10.6 billion ($6.2 billion in equity
and $4.4 billion in net debt and preferred stock). The merger, which is
intended to be accounted for as a pooling of interests, is expected to be
accretive to earnings in the first year after the close of the merger.
The merger, which was unanimously approved by both companies' boards of
directors, creates a diversified energy company with two million customers in
five states and generating capacity of more than 11,000 megawatts of
electricity. The combined company will be called Allegheny Energy.
Under the terms of the transaction, DQE shareholders will receive 1.12
shares of Allegheny Power common stock for each share of DQE common stock.
Allegheny Power will issue approximately 86.5 million shares, valued at
approximately $2.6 billion, to shareholders of DQE in the transaction, based
upon the closing stock price on April 4, 1997 of $29.75 per Allegheny Power
share. DQE's net debt and preferred stock, as of December 31, 1996, was $1.7
billion. Shareholders of DQE will receive the Allegheny Power dividend in
effect at the time of the close of the merger. Allegheny Power currently pays
an annual dividend of $1.72 per share.
<PAGE> 2
Alan J. Noia, President and Chief Executive Officer of Allegheny
Power, said, "The rationale for this merger is simple: Together we can achieve
even greater success in the new, competitive marketplace. This merger
strategically positions Allegheny Energy as a major regional player in the
increasingly competitive electric power market. We will have a larger regional
platform from which to expand our customer base, and we will be able to offer a
wider range of energy-related products and services to our customers. In DQE,
we have found a partner who has navigated through the dramatic changes our
industry has faced in recent years and has a clear vision of the future.
especially in its aggressive and successful entry into nonutility businesses."
David D. Marshall, President and Chief Executive Officer of DQE,
said, "This merger is a natural fit Allegheny Power is a winter-peaking
operation; its low-cost, efficient operations and suburban and rural customer
mix fit well with our summer-peaking operation and urban customer base. Our
diverse mix of regulated and unregulated energy products and services
complements Allegheny Power's core businesses. In this era of competition, our
market will be defined by our customers, not just our products. We're proud to
join with a company known for its extraordinary customer service, low rates
and operating costs, and enviable financial performance. Both companies believe
in active community involvement and plan to build on that tradition in
Allegheny Energy. Clealy, Allegheny Energy should provide more value to our
customers and shareholders than either company could on a stand-alone basis."
Alan J. Noia wi11 be the Chairman and Chief Executive Officer of
Allegheny Energy and David D. Marshall will be Allegheny Energy's President and
Chief Operating Officer. The board of directors of Allegheny Energy will
consist of nine directors nominated by Allegheny Power and six directors
nominated by DQE. Allegheny Energy will be headquartered near Hagerstown,
Maryland with a significant operating presence in both the Pittsburgh and
Greensburg, Pennsylvania areas.
In addition to the compelling strategic rationale, the companies
anticipate combination-related savings of approximately $1 billion over a
10-year period. Savings are projected from the elimination of duplicate
activities, improved operating efficiencies, and lower capital costs. It is
anticipated that work force reductions would be achieved from a combination of
reduced hiring, attrition, and targeted voluntary reduction programs.
The companies noted that Allegheny Energy will continue to be operated
as an integrated electric utility holding company and that the regulated
electric utility companies will continue to exist as separate legal entities.
The merger is expected to result in rates that would be lower than they would
have been on a stand-alone basis.
<PAGE> 3
Although Allegheny Power has no nuclear generation, given that the
combined entity's nuclear exposure will be only 662 megawatts of a total
generation portfolio of over 11,000 megawatts, the companies believe that the
substantial benefits associated with the merger far outweigh any issues
associated with nuclear power. Furthermore, DQE continues to reduce its
financial exposure to nuclear power through increased depreciation. The company
anticipates that by the year 2005, DQE's invested capital in nuclear assets will
be minimal.
The merger is conditioned, among other things, upon the approvals of
each company's shareholders and the necessary approvals of various state and
federal regulatory agencies, including the public utility commissions in
Pennsylvania and Maryland; the Securities and Exchange Commission; the Federal
Energy Regulatory Commission; and the Nuclear Regulatory Commission. The
companies are hopeful that the required approvals can be obtained within 12 to
18 months.
Merrill Lynch & Co. is serving as a financial adviser and provided a
fairness opinion to Allegheny Power. Credit Suisse First Boston is serving as
financial adviser and provided a fairness opinion to DQE.
Allegheny Power provides electric service to nearly 1.4 million
customers in parts of Maryland, Ohio, Pennsylvania, Virginia, and West Virginia
- -- an area of about 29,100 square miles with a population of nearly 3 million.
Incorporated in Maryland in 1925 with headquarters near Hagerstown, MD,
Allegheny Power System, Inc. is a registered public utility holding company that
derives substantially all of its income from operations of its electric utility
subsidiaries, Monongahela Power Company, The Potomac Edison Company, and West
Penn Power Company. Allegheny Power has a wholly owned, nonutility subsidiary,
AYP Capital, which is pursuing and developing opportunities related to its core
utility business.
DQE, Inc., an electric utility holding company whose origin dates back
to 1880, has subsidiaries engaged in the production, transmission, and sale of
electric energy. Duquesne Light Company serves more than 580,000 customers in a
service territory that is approximately 800 square miles, including the city of
Pittsburgh. DQE's other subsidiaries include: Duquesne Enterprises, which makes
strategic investments beneficial to DQE's core energy business; Montauk, a
financial services company, which makes long-term investments and provides
financing to DQE's other market-driven businesses; DQE Energy Services, which
provides energy solutions for customers in domestic and international markets;
and DQEnergy Partners, which aligns DQE with strategic partners to capitalize
on opportunities in the dynamic energy services industry.
<PAGE> 4
Certain statements above constitute forward-looking statements with
respect to Allegheny Power System, Inc. and DQE, Inc. Such foward-looking
statements involve known and unknown risks, uncertainties and other factors
that may cause the actual results, performance or achievements of Allegheny
Power and DQE to be materially different from any future results, perfomance
or achievements expressed or implied by such forward-looking statements. Such
factors may affect Allegheny Power's, DQE's or the combined company's
operations, markets, products, services and prices. Such factors include, among
others, the following: general and economic and business conditions; industry
capacity; changes in technology; changes in political, social and economic
conditions, regulatory matters; integration of the operations of Allegheny
Power and DQE; regulatory conditions applicable to the combination; the loss of
any significant customers; and changes in business strategy or development
plans.
Note to Editors: Today's news release, along with other news about Allegheny
Power and DQE, is available an the Internet at http://www.alleghenypower.com and
http:/www.dqe.com.
# # #
SATELLITE UPLINK FOR ALLEGHENY POWER AND DQE B-ROLL:
Monday, April 7,1997
09:30 -10-00 AM EDT
C-Band uplink GE 2; Transponder 6
Downllink frequency: 3820
Monday, April 7.1997
01:00 - 01:30 PM EDT
C-Band uplink GE 2; Transponder 6
Downlink frequency: 3820
If you have any technical questions or problems with the satellite feed for
Allegheny Power and DQE B-Roll, please call Emy Nakase at (212) 627-5622.
