sv4za
As filed with the Securities
and Exchange Commission on July 16,
2010
Registration
No. 333-165640
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 4
to
Form S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
FIRSTENERGY CORP.
(Exact name of registrant as
specified in its charter)
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Ohio
(State or other jurisdiction
of
incorporation or organization)
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4911
(Primary Standard
Industrial
Classification Code Number)
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34-1843785
(I.R.S. Employer
Identification Number)
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76 South Main Street
Akron, Ohio 44308
(800) 631-8945
(Address, including
zip code, and telephone number, including area code, of
registrants principal executive offices)
Leila L. Vespoli, Esq.
Executive Vice President and General Counsel
FirstEnergy Corp.
76 South Main Street
Akron, Ohio 44308
(800) 631-8945
(Name, address,
including zip code, and telephone number, including area code,
of agent for service)
Copies To:
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Rick L. Burdick, Esq.
Lucas F. Torres, Esq.
Zachary N. Wittenberg, Esq.
Akin Gump Strauss Hauer & Feld LLP
1333 New Hampshire Avenue, N.W.
Washington, D.C. 20036
(202) 887-4000
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David M. Feinberg, Esq.
Vice President, General Counsel and Secretary
Allegheny Energy, Inc.
800 Cabin Hill Drive
Greensburg, PA 15601
(724) 837-3000
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Michael P. Rogan, Esq.
Pankaj K. Sinha, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005-2111
(202) 371-7000
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after the effectiveness of
this registration statement and the satisfaction or waiver of
all other conditions to the completion of the merger described
herein.
If the securities being registered on this form are being
offered in connection with the formation of a holding company
and there is compliance with General Instruction G, check
the following
box. o
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer
or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting company o
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(Do not check if a smaller
reporting company)
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If applicable, place an X in the box to designate the
appropriate rule provision relied upon in conducting this
transaction:
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Exchange Act
Rule 13e-4(i)
(Cross-Border Issuer Tender Offer)
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Exchange Act
Rule 14d-1(d)
(Cross-Border Third-Party Tender Offer)
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o
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment that
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933, or until the Registration
Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The
information in this preliminary joint proxy statement/prospectus
is not complete and may be changed. FirstEnergy Corp. may not
sell the securities offered by this preliminary joint proxy
statement/prospectus until the registration statement filed with
the Securities and Exchange Commission relating to these
securities is declared effective. This preliminary joint proxy
statement/prospectus is not an offer to sell these securities
nor should it be considered a solicitation of an offer to buy
these securities in any jurisdiction where the offer or sale is
not permitted.
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PRELIMINARY
COPY SUBJECT TO COMPLETION, DATED JULY 16,
2010
MERGER PROPOSED
YOUR VOTE IS VERY IMPORTANT
To the Shareholders of FirstEnergy
Corp.:
The boards of directors of FirstEnergy Corp., referred to as
FirstEnergy, and Allegheny Energy, Inc., referred to as
Allegheny Energy, have each unanimously approved an agreement
and plan of merger pursuant to which Element Merger Sub, Inc., a
wholly owned subsidiary of FirstEnergy, will merge with and into
Allegheny Energy with Allegheny Energy becoming a wholly owned
subsidiary of FirstEnergy. Upon completion of the merger,
FirstEnergy will issue to Allegheny Energy stockholders 0.667 of
a share of FirstEnergy common stock for each share of Allegheny
Energy common stock held prior to the merger. This exchange
ratio is fixed and will not be adjusted to reflect stock price
changes prior to completion of the merger. Based on the closing
price of FirstEnergy common stock on the New York Stock
Exchange, referred to as the NYSE, on February 10, 2010,
the last trading day before public announcement of the merger,
the exchange ratio represented approximately $27.65 in value for
each share of Allegheny Energy common stock. Based on the
closing price of FirstEnergy common stock on the NYSE
on ,
2010, the latest practicable trading day before the date of this
joint proxy statement/prospectus, the exchange ratio represented
approximately $ in value for each
share of Allegheny Energy common stock.
Shares of FirstEnergy common stock trade on the NYSE under the
symbol FE. We estimate that based on the number of
outstanding shares of Allegheny Energy common stock on
July 16, 2010, immediately after the effective time of
the merger, current FirstEnergy shareholders will hold shares of
FirstEnergy common stock representing approximately 73% of the
then outstanding shares of FirstEnergy common stock and former
Allegheny Energy stockholders will hold shares of FirstEnergy
common stock representing approximately 27% of the then
outstanding shares of FirstEnergy common stock.
We are asking FirstEnergy shareholders to (1) authorize and
approve the issuance of shares of FirstEnergy common stock to
the former Allegheny Energy stockholders in the merger (which we
refer to as the share issuance) and the other transactions
contemplated by the merger agreement, (2) adopt an
amendment to the FirstEnergy amended articles of incorporation
to increase the number of authorized shares of FirstEnergy
common stock, referred to as the charter amendment, and
(3) approve the adjournment of the special meeting to
another time or place, if necessary or appropriate, to solicit
additional proxies if there are insufficient votes at the time
of the special meeting to authorize and approve the share
issuance and the other transactions contemplated by the merger
agreement or adopt the charter amendment. The authorization and
approval of the share issuance and the other transactions
contemplated by the merger agreement and the adoption of the
charter amendment require the affirmative vote of the holders of
at least a majority of the outstanding shares of FirstEnergy
common stock entitled to vote on each of the proposals. The
approval of the adjournment proposal requires the affirmative
vote of the holders of a majority of the shares represented in
person or by proxy at the FirstEnergy special meeting.
The FirstEnergy board of directors unanimously approved the
merger agreement and the transactions contemplated by the merger
agreement and recommends that FirstEnergy shareholders vote FOR
the proposal to authorize and approve the share issuance and the
other transactions contemplated by the merger agreement, FOR the
proposal to adopt the charter amendment and FOR the proposal to
adjourn the FirstEnergy special meeting, if necessary or
appropriate, to solicit additional proxies.
The accompanying joint proxy statement/prospectus contains
important information about the merger, the merger agreement and
the FirstEnergy special meeting. We encourage FirstEnergy
shareholders to read this joint proxy statement/prospectus
carefully before voting, including the section entitled
Risk Factors beginning on page 32.
Your vote is very important. Whether or not
you plan to attend the FirstEnergy special meeting, please take
the time to submit your proxy by completing and mailing the
enclosed proxy card or by granting your proxy electronically
over the Internet or by telephone.
Anthony J. Alexander
President and Chief Executive
Officer
FirstEnergy Corp.
Neither the Securities and Exchange Commission, nor any state
securities commission has approved or disapproved of the merger
or the securities to be issued under this joint proxy
statement/prospectus or has passed upon the adequacy or accuracy
of the disclosure in this joint proxy statement/prospectus. Any
representation to the contrary is a criminal offense.
This joint proxy statement/prospectus is
dated ,
2010, and is first being mailed to FirstEnergy shareholders on
or
about ,
2010 and to Allegheny Energy stockholders on or
about ,
2010.
800 Cabin Hill Drive
Greensburg, Pennsylvania 15601
, 2010
MERGER PROPOSED
YOUR VOTE IS VERY IMPORTANT
Dear Stockholders:
On February 11, 2010, we announced our proposed merger with
FirstEnergy Corp. Our board of directors unanimously determined
that the merger agreement and the merger are advisable and are
fair to and in the best interests of Allegheny Energys
stockholders and has approved the merger agreement and the
merger.
This merger should significantly enhance value for our
stockholders. You will receive a meaningful premium for your
shares based on the trading price of FirstEnergy and Allegheny
Energy shares prior to the announcement of the merger and a
substantial dividend increase based on FirstEnergys
current dividend policy.
We believe the merger is in the best interests of our
stockholders and will create a strong combined company with
substantial upside. With a more diversified generation fleet
that is less dependent on coal, your investment will be less
exposed to the risk of carbon legislation or onerous
environmental regulations. The combined companys increased
size should create opportunities for efficiencies of all kinds.
Importantly, the combined company will be well positioned to
benefit from a recovery in the economy and higher power prices.
Allegheny Energy will hold a special meeting of its stockholders
at the New York Marriott Marquis Hotel, 1535 Broadway, New York,
New York, on September 14, 2010 at 11:00 a.m., local time,
to consider and vote on the proposal to approve the merger
agreement and the merger. The proposal requires the affirmative
vote of the holders of at least a majority of the outstanding
shares of Allegheny Energys common stock entitled to vote.
If the merger is completed, Allegheny Energy stockholders will
receive 0.667 of a share of FirstEnergys common stock for
each share of Allegheny Energy common stock held.
We urge you to read carefully the accompanying joint proxy
statement/prospectus which includes important information about
the merger agreement, the proposed merger and the Allegheny
Energy special meeting. For a discussion of risk factors that
you should consider in evaluating the merger, see the section
entitled Risk Factors beginning on page 32.
Your vote is important. I invite you to attend
the special meeting. Please submit your proxy or voting
instructions by telephone or on the Internet promptly by
following the instructions on your proxy/voting instruction card
so that your shares can be voted, regardless of whether you
expect to attend Allegheny Energys special meeting.
Alternatively, you may mark, date, sign and return the enclosed
proxy/voting instruction card. If you attend, you may withdraw
your proxy and vote in person.
We enthusiastically support this combination of our companies,
and I ask that you join with Allegheny Energys board of
directors and vote FOR the approval of the merger
agreement and the merger.
Paul J. Evanson
Chairman, President and Chief
Executive Officer
Allegheny Energy, Inc.
76 South Main Street
Akron, Ohio 44308
(800) 631-8945
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS
TO BE HELD ON SEPTEMBER 14, 2010
To the Shareholders of FirstEnergy
Corp.:
A special meeting of the shareholders of FirstEnergy Corp., an
Ohio corporation (FirstEnergy), will be held at the
John S. Knight Center, 77 E. Mill Street, Akron, Ohio on
September 14, 2010, at 9:30 a.m., local time, for the
following purposes:
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to consider and vote on the proposal to authorize and approve
the issuance of shares of FirstEnergy common stock pursuant to,
and the other transactions contemplated by, the Agreement and
Plan of Merger, dated as of February 10, 2010, as amended
as of June 4, 2010, by and among FirstEnergy, Element
Merger Sub, Inc., a Maryland corporation and a wholly owned
subsidiary of FirstEnergy, and Allegheny Energy, Inc., a
Maryland corporation, as it may be further amended from time to
time (a copy of the merger agreement, as amended, is attached as
Annex A to the joint proxy statement/prospectus
accompanying this notice);
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2.
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to consider and vote on the proposal to adopt the amendment to
FirstEnergys amended articles of incorporation, to
increase the number of shares of authorized common stock from
375,000,000 to 490,000,000;
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3.
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to consider and vote on the proposal to adjourn the special
meeting to another time or place, if necessary or appropriate,
to solicit additional proxies if there are insufficient votes at
the time of the special meeting to authorize and approve the
share issuance and the other transactions contemplated by the
merger agreement or adopt the charter amendment; and
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to transact any other business that may properly come before the
special meeting or any adjournment or postponement of the
special meeting by or at the direction of the board of directors
of FirstEnergy.
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Only FirstEnergy shareholders of record at the close of business
on July 16, 2010, the record date for the FirstEnergy
special meeting, are entitled to notice of, and to vote at, the
FirstEnergy special meeting and any adjournments or
postponements of the FirstEnergy special meeting.
The FirstEnergy board of directors has unanimously approved
the merger agreement and the transactions contemplated by the
merger agreement and recommends that you vote FOR the proposal
to authorize and approve the share issuance and the other
transactions contemplated by the merger agreement, FOR the
proposal to adopt the charter amendment and FOR the proposal to
adjourn the FirstEnergy special meeting, if necessary or
appropriate, to solicit additional proxies in favor of such
approvals.
YOUR VOTE IS
IMPORTANT
Whether or not you plan to attend the special meeting, please
submit a proxy as soon as possible. Please read
the joint proxy statement/prospectus accompanying this notice
and the instructions on the enclosed proxy card for more
complete information regarding the merger and the FirstEnergy
special meeting. Whether or not you plan to attend the special
meeting in person, and no matter how many shares you own, please
submit your proxy promptly by telephone or via the Internet in
accordance with the instructions on the enclosed proxy card, or
by completing, dating and returning your proxy card in the
postage-prepaid envelope provided. Voting by proxy will not
prevent you from voting in person at the special meeting. It
will, however, help to ensure a quorum and to avoid added proxy
solicitation costs.
If your shares are held in the name of a bank, broker or
other nominee, you will receive instructions from the holder
of record that you must follow for your shares to be voted.
Please follow their instructions carefully. Also, please note
that if the holder of record of your shares is a broker, bank or
other nominee and you wish to vote in person at the FirstEnergy
special meeting, you must request a legal proxy from your bank,
broker or other nominee that holds your shares, and in addition
to proof of identification, present that legal proxy identifying
you as the beneficial owner of your shares of FirstEnergy common
stock and authorizing you to vote those shares at the
FirstEnergy special meeting.
You may revoke your proxy or change your vote at any time before
the vote is taken by following the procedures set forth in the
section entitled Information Regarding the FirstEnergy
Special Meeting How to Change Your Vote
beginning on page 45 of the joint proxy
statement/prospectus that accompanies this notice.
By Order of the Board of Directors
of
FirstEnergy Corp.
Rhonda S. Ferguson
Vice President and Corporate
Secretary
Akron, Ohio
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2010
800 Cabin Hill Drive
Greensburg, Pennsylvania 15601
July ,
2010
NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS
TO BE HELD ON SEPTEMBER 14, 2010
To the Stockholders of Allegheny
Energy, Inc.:
A special meeting of the stockholders of Allegheny Energy, Inc.,
a Maryland corporation (Allegheny Energy), will be
held at the New York Marriott Marquis Hotel, 1535 Broadway,
New York, New York on September 14, 2010 at 11:00 a.m.,
local time, to consider and vote on the proposals listed below
and any other matters that may properly come before the special
meeting or any adjournment or postponement of the special
meeting:
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the proposal to approve the Agreement and Plan of Merger, dated
as of February 10, 2010, as amended as of June 4,
2010, by and among FirstEnergy Corp., an Ohio corporation,
Element Merger Sub, Inc., a Maryland corporation and a
wholly-owned subsidiary of FirstEnergy Corp., and Allegheny
Energy, as it may be further amended from time to time (a copy
of the merger agreement, as amended, is attached as Annex A
to the joint proxy statement/prospectus accompanying this
notice), and the merger described therein; and
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2.
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the proposal to adjourn the special meeting to a later date or
dates, if necessary or appropriate, to solicit additional
proxies if there are insufficient votes to approve the merger
agreement and the merger at the time of the special meeting.
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The items of business listed above are more fully described in
the joint proxy statement/prospectus that accompanies this
notice.
Only Allegheny Energy stockholders of record at the close of
business on July 16, 2010, the record date for the
Allegheny Energy special meeting, will receive this notice of,
and be entitled to vote at, the Allegheny Energy special meeting
and any adjournments or postponements of the Allegheny Energy
special meeting.
The Allegheny Energy board of directors has unanimously
determined that the merger agreement and the transactions
contemplated by the merger agreement, including the merger, are
advisable, fair to and in the best interests of Allegheny Energy
and its stockholders and recommends that Allegheny Energy
stockholders vote FOR the proposal to approve the merger
agreement and the merger and FOR the proposal to adjourn the
Allegheny Energy special meeting, if necessary or appropriate,
to solicit additional proxies in favor of such approval.
YOUR VOTE IS
IMPORTANT
Approval of the merger agreement and the merger by Allegheny
Energy stockholders is a condition to the merger and requires
the affirmative vote of holders of at least a majority of the
shares of Allegheny Energy common stock outstanding and entitled
to vote. Therefore, your vote is very important. Your failure
to vote your shares will have the same effect as a vote AGAINST
approval of the merger agreement and the merger.
Whether or not you plan to attend the special meeting, please
submit a proxy as soon as possible. Please read
the joint proxy statement/prospectus accompanying this notice
and the instructions on the enclosed proxy card for more
complete information regarding the merger and the Allegheny
Energy special meeting. Whether or not you plan to attend the
special meeting in person, and no matter how many shares you
own, please submit your proxy promptly by telephone or via the
Internet in accordance with the instructions on the enclosed
proxy card, or by completing, dating and returning your proxy
card in the envelope provided. Voting by proxy will not prevent
you from voting in person at the special meeting. It will,
however, help to ensure a quorum and to avoid added proxy
solicitation costs.
If your shares of Allegheny Energy common stock are held in
street name by your broker or other nominee, only
that holder can vote your shares of Allegheny Energy common
stock and only upon receiving your specific instructions. Please
follow the directions provided by your broker or other nominee
regarding how to instruct your broker or other nominee to vote
your shares of Allegheny Energy common stock. Please note that
if your shares are held in street name and you wish
to vote in person at the Allegheny Energy special meeting, you
must provide a legal proxy from your nominee, and you should
contact your nominee for directions on how to obtain such a
proxy.
You may revoke your proxy or change your vote at any time before
the vote is taken by following the procedures set forth in the
section entitled Information Regarding the Allegheny
Energy Special Meeting How to Change Your Vote
beginning on page 50 of the joint proxy
statement/prospectus that accompanies this notice.
By Order of the Board of Directors,
David M. Feinberg
Vice President, General Counsel
and
Secretary
ADDITIONAL
INFORMATION
This joint proxy statement/prospectus incorporates by reference
important business and financial information about FirstEnergy
and Allegheny Energy from other documents filed with the
Securities and Exchange Commission, referred to as the SEC, that
are not included or delivered with this joint proxy
statement/prospectus. Please see the section entitled
Where You Can Find More Information; Incorporation by
Reference beginning on page 184 for a more detailed
description of the information incorporated by reference in this
joint proxy statement/prospectus.
Documents incorporated by reference are available to you without
charge upon written or oral request. You can obtain copies of
any of these documents or answers to your questions about the
applicable special meeting and proposals, from Innisfree
M&A Incorporated, FirstEnergys proxy solicitor, or
D.F. King & Co., Inc., Allegheny Energys proxy
solicitor, at the following addresses and telephone numbers:
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Innisfree M&A Incorporated
501 Madison Avenue, 20th floor
New York, New York 10022
Shareholders may call toll free
(877) 687-1866
Banks and Brokers may call collect
(212) 750-5833
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D.F. King & Co., Inc.
48 Wall Street, 22nd Floor
New York, New York 10005
Stockholders may call toll free (800) 549-6650
Banks and Brokers may call collect (212) 269-5550
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You also can obtain copies of any of these documents by
requesting them in writing or by telephone from the appropriate
company at the following addresses and telephone numbers:
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FirstEnergy Corp.
Attention: Corporate Department
76 South Main Street
Akron, Ohio 44308
(800) 631-8945
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Allegheny Energy, Inc.
Attention: Investor Relations
800 Cabin Hill Drive
Greensburg, Pennsylvania 15601
(724) 838-6196
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Please note that copies of the documents provided to you will
not include exhibits, unless the exhibits are specifically
incorporated by reference in the documents or in this joint
proxy statement/prospectus.
To receive timely delivery of the requested documents in
advance of the applicable special meeting, you should make your
request no later than September 7, 2010, if you are a
FirstEnergy shareholder and September 7, 2010, if you are
an Allegheny Energy stockholder.
TABLE OF
CONTENTS
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ANNEXES
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Annex A
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Agreement and Plan of Merger
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Annex B
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Form of Proposed Amendment to Amended Articles of
Incorporation
of FirstEnergy Corp.
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Annex C
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Opinion of Morgan Stanley & Co. Incorporated
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Annex D
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Opinion of Goldman, Sachs & Co.
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Annex E
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Ohio Revised Code Section 1701.85
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iii
QUESTIONS
AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETINGS
Following are brief answers to certain questions that you may
have regarding the proposals being considered at the FirstEnergy
special meeting and the Allegheny Energy special meeting.
FirstEnergy and Allegheny Energy urge you to read carefully this
entire joint proxy statement/prospectus, including the annexes,
and the other documents to which this joint proxy
statement/prospectus refers or incorporates by reference,
because this section does not provide all the information that
might be important to you. Unless stated otherwise, all
references in this joint proxy statement/prospectus to
FirstEnergy are to FirstEnergy Corp., an Ohio corporation; all
references to the combined company are to FirstEnergy after the
completion of the merger; all references to Allegheny Energy or
the surviving entity are to Allegheny Energy, Inc., a Maryland
corporation; all references to Merger Sub are to Element Merger
Sub, Inc., a Maryland corporation and a wholly owned subsidiary
of FirstEnergy; and all references to the merger agreement are
to the Agreement and Plan of Merger, dated as of
February 10, 2010, as amended as of June 4, 2010, by
and among FirstEnergy, Merger Sub and Allegheny Energy, as it
may be further amended from time to time, a copy of which is
attached as Annex A to this joint proxy
statement/prospectus.
ABOUT THE
MERGER
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Q1:
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Why am I receiving this document?
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A1:
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FirstEnergy and Allegheny Energy have agreed to the merger of a
subsidiary of FirstEnergy into Allegheny Energy under the terms
of a merger agreement that is described in this joint proxy
statement/prospectus. We are delivering this document to you
because it serves as both a joint proxy statement of FirstEnergy
and Allegheny Energy and a prospectus of FirstEnergy that is
being used by our boards of directors to solicit the proxies of
FirstEnergy and Allegheny Energy shareholders and by FirstEnergy
in connection with its offering of FirstEnergy common stock in
the merger.
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In order to complete the merger, among other conditions,
FirstEnergy shareholders must vote to authorize and approve the
share issuance and the other transactions contemplated by the
merger agreement and to adopt the charter amendment, and
Allegheny Energy stockholders must vote to approve the merger
agreement and the merger. FirstEnergy and Allegheny Energy will
hold separate special meetings to obtain these approvals.
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This joint proxy statement/prospectus, which you should read
carefully, contains important information about the merger, the
merger agreement and the special meetings of shareholders of
FirstEnergy and Allegheny Energy.
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Q2:
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What will happen in the proposed merger?
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A2:
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In the proposed merger, a wholly owned subsidiary of FirstEnergy
will merge with and into Allegheny Energy, as a result of which
Allegheny Energy will become a wholly owned subsidiary of
FirstEnergy and will no longer be a publicly-traded company.
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Q3:
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Why are FirstEnergy and Allegheny Energy proposing the
transaction?
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A3:
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FirstEnergy and Allegheny Energy believe that the merger will
provide substantial strategic and financial benefits to each
company and their respective shareholders, customers and the
communities they serve, including:
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increased scale, scope and diversification;
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increased financial strength and flexibility;
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combined expertise in competitive markets and complementary
geography/contiguous service territories; and
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cost saving and other synergies.
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To review the reasons for the merger in greater detail, see the
sections entitled The Merger Recommendation of
the FirstEnergy Board of Directors and Its Reasons for the
Merger beginning on page 62 and The
Merger Recommendation of the Allegheny Energy Board
of Directors and Its Reasons for the Merger beginning on
page 67.
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Q4:
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Are there risks associated with the merger that I should
consider in deciding how to vote?
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A4:
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Yes. There are a number of risks related to the merger that are
discussed in this joint proxy statement/prospectus and in other
documents incorporated by reference. In evaluating the merger,
you should read carefully the detailed description of the risks
associated with the merger described in the section entitled
Risk Factors beginning on page 32 and other
information included in this joint proxy statement/prospectus
and the documents incorporated by reference in this joint proxy
statement/prospectus.
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Q5:
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What will Allegheny Energy stockholders receive if the merger
occurs?
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A5:
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Upon completion of the merger, Allegheny Energy stockholders
will receive 0.667 of a share of FirstEnergy common stock for
each share of Allegheny Energy common stock that they hold as
described in the section entitled The Merger
Agreement Merger Consideration beginning on
page 124.
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Based on the closing price of FirstEnergy common stock on the
NYSE on February 10, 2010, the last trading day before the
public announcement of the merger agreement, the merger
consideration represented $27.65 in value for each share of
Allegheny Energy common stock. Based on the closing price of
FirstEnergy common stock on the NYSE on July ,
2010, the most recent practicable trading day prior to the date
of this joint proxy statement/prospectus, the merger
consideration represented $ in
value for each share of Allegheny Energy common stock.
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The exchange ratio is fixed and will not be adjusted to reflect
stock price changes prior to completion of the merger. The
market price of FirstEnergy common stock will fluctuate prior to
the merger, and the market price of FirstEnergy common stock
when received by Allegheny Energy stockholders after the merger
is completed could be greater or less than the current market
price of FirstEnergy common stock. See the description of this
and related risks in the section entitled Risk
Factors beginning on page 32 of this joint proxy
statement/prospectus.
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As a result of the merger, we estimate that current Allegheny
Energy stockholders will own approximately 27% of the
FirstEnergy common stock outstanding following the completion of
the merger.
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Q6:
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How was the exchange ratio of FirstEnergy common stock for
Allegheny Energy common stock determined?
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A6:
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The exchange ratio was determined in negotiations between the
two companies and reflects the relative market prices of each
companys common stock during the period preceding the
companies entry into the merger agreement and other
factors that the boards of directors of each company considered
relevant.
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2
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Q7:
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What will happen to Allegheny Energy stock options,
restricted stock and other equity based awards if the merger
occurs?
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A7:
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Upon completion of the merger, each outstanding option to
purchase shares of Allegheny Energy common stock will be
converted into an option to purchase FirstEnergy common stock on
a basis intended to preserve the intrinsic value of the option
and otherwise on the terms and conditions applicable under the
option (including any accelerated vesting that may have occurred
upon approval of the merger agreement and the merger by
Allegheny Energys stockholders). Restricted stock granted
prior to the execution of the merger agreement will vest in full
upon completion of the merger to the extent it did not already
vest upon approval of the merger agreement and the merger by
Allegheny Energys stockholders, and any restricted stock
that did not vest before or upon completion of the merger will
be converted into similarly restricted FirstEnergy common stock.
Performance share awards granted before execution of the merger
agreement will vest at the target level of performance and be
paid out upon approval of the merger agreement and the merger by
Allegheny Energys stockholders; upon completion of the
merger, outstanding performance share awards granted after
execution of the merger agreement will be converted, based on
actual performance for any year ending before completion of the
merger and at the target level of performance for any later
year, into restricted stock units covering FirstEnergy common
stock the vesting of which generally will be subject to
continued employment with the combined company for the remainder
of the original performance period. For a more detailed
discussion of the treatment of Allegheny Energy equity awards,
please see the section entitled The Merger Agreement
Treatment of Allegheny Energy Options and Other Equity
Awards beginning on page 126.
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Q8:
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How will FirstEnergy shareholders be affected by the
merger?
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A8:
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Unless they exercise their right to dissent and receive the fair
cash value of their shares, after the merger, each FirstEnergy
shareholder will hold the same number of shares of FirstEnergy
common stock that the shareholder held immediately prior to the
merger. As a result of the merger, FirstEnergy shareholders
will own shares in a larger company with more assets. However,
because in connection with the merger FirstEnergy will be
issuing new shares of FirstEnergy common stock to Allegheny
Energy stockholders in exchange for their shares of Allegheny
Energy common stock, each outstanding share of FirstEnergy
common stock immediately prior to the merger will represent a
smaller percentage of the aggregate number of shares of
FirstEnergy common stock outstanding after the merger. As a
result of the merger, we estimate that current FirstEnergy
shareholders will own approximately 73% of the FirstEnergy
common stock outstanding following the completion of the merger.
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Q9:
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What are the tax consequences of the merger?
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A9:
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FirstEnergy and Allegheny Energy each expect the merger to
qualify as a reorganization pursuant to Section
368(a) of the Internal Revenue Code of 1986, as amended,
referred to as the Internal Revenue Code. Assuming the merger
is treated as a reorganization, Allegheny Energy
stockholders generally will not recognize any gain or loss for
U.S. federal income tax purposes (except with respect to cash
received in lieu of a fractional share of FirstEnergy common
stock) by reason of the merger, subject to the limitations
described in the section entitled The Merger
Material U.S. Federal Income Tax Consequences of the
Merger beginning on page 114.
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FirstEnergy shareholders (other than those that exercise
dissenters rights) generally will not recognize gain or
loss for U.S. federal income tax purposes as a result of
the merger. FirstEnergy shareholders that exercise
dissenters rights are urged to consult their tax advisors
regarding the tax treatment of any cash received upon the
exercise of dissenters rights in connection with the
merger.
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Please review carefully the section entitled The
Merger Material U.S. Federal Income Tax Consequences
of the Merger beginning on page 114 for a description of
the expected material U.S. federal income tax consequences of
the merger. The tax consequences to you will depend on your own
situation. Please consult your tax advisor for a full
understanding of the tax consequences of the merger to you.
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Q10:
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When do FirstEnergy and Allegheny Energy expect to complete
the merger?
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A10:
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FirstEnergy and Allegheny Energy are working to complete the
merger as quickly as practicable. If the shareholders of both
FirstEnergy and Allegheny Energy approve their respective
proposals related to the merger, we currently expect the merger
to be completed during the first half of 2011. However, neither
FirstEnergy nor Allegheny Energy can predict the actual date on
which the merger will be completed because it is subject to
conditions beyond each companys control, including a
number of state and federal regulatory approvals. See the
section entitled The Merger Agreement
Conditions to the Completion of the Merger beginning on
page 130.
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Q11:
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Are FirstEnergy or Allegheny Energy shareholders entitled to
appraisal or dissenters rights in connection with the
merger?
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A11:
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Under Maryland law, Allegheny Energy stockholders will not be
entitled to exercise any appraisal or dissenters rights in
connection with the merger. Under Ohio law, FirstEnergy
shareholders are entitled to exercise dissenters rights
provided they strictly follow all of the legal requirements. For
additional information relating to dissenters rights, see
the section entitled The Merger Appraisal or
Dissenters Rights beginning on page 111.
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Q12:
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What will happen to my future dividends?
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A12:
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As permitted under the merger agreement, FirstEnergy and
Allegheny Energy may continue to pay quarterly dividends prior
to completion of the merger. Under the terms of the merger
agreement, neither FirstEnergy nor Allegheny Energy may increase
their dividends without the others approval during that
time. The FirstEnergy board will continue to review the
dividend rate on a quarterly basis following the merger, taking
into account the performance and prospects of the combined
company.
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ABOUT THE
SPECIAL MEETINGS AND VOTING YOUR SHARES
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Q13:
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When and where is the special meeting of the FirstEnergy
shareholders?
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A13:
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The FirstEnergy special meeting will be held on
September 14, 2010, at 9:30 a.m., local time, at the John
S. Knight Center, 77 E. Mill Street, Akron, Ohio. For additional
information relating to the FirstEnergy special meeting, please
see the sections entitled Information Regarding the
FirstEnergy Special Meeting beginning on page 43 and
The FirstEnergy Special Meeting of Shareholders
beginning on page 180.
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Q14:
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When and where is the special meeting of the Allegheny Energy
stockholders?
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A14:
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The Allegheny Energy special meeting will be held on
September 14, 2010, at 11:00 a.m., local time, at the New
York Marriott Marquis Hotel, 1535 Broadway, New York, New York.
For additional information relating to the Allegheny Energy
special meeting, please see the sections entitled
Information Regarding the Allegheny Energy Special
Meeting beginning on page 47 and The Allegheny
Energy Special Meeting of Stockholders beginning on
page 182.
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Q15:
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Who can vote at the special meetings?
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A15:
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All FirstEnergy shareholders of record as of the close of
business on July 16, 2010, the record date for the
FirstEnergy special meeting, are entitled to receive notice of
and to vote at the FirstEnergy special meeting.
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All Allegheny Energy stockholders of record as of the close of
business on July 16, 2010, the record date for the
Allegheny Energy special meeting, are entitled to receive notice
of and to vote at the Allegheny Energy special meeting.
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Q16:
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What representation by shareholders is required to conduct
business at the special meetings?
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A16:
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For both FirstEnergy and Allegheny Energy, the presence of
holders of at least a majority of the total number of shares of
common stock issued and outstanding and entitled to vote as of
the record date for the special meeting, whether present in
person or represented by proxy, is required in order to conduct
business at the special meetings. This requirement is called a
quorum.
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Abstentions and broker
non-votes
(if any) will be considered in determining the presence of a
quorum but will not constitute votes cast. An abstention occurs
when a shareholder submits a proxy with explicit instructions to
decline to vote regarding a particular matter. Broker
non-votes
occur when a bank, broker or other nominee returns a proxy but
does not have authority to vote on a particular proposal. If
your shares are held in street name through a broker
or other nominee, you should provide your broker or other
nominee with instructions as to how to vote your shares of
FirstEnergy common stock or Allegheny Energy common stock.
Because of the required vote standard for the authorization and
approval of the share issuance and the other transactions
contemplated by the merger agreement and the adoption of the
charter amendment at the FirstEnergy special meeting and
approval of the merger agreement and the merger at the Allegheny
Energy special meeting, your failure to provide your broker or
other nominee with instructions how to vote your shares on the
applicable proposal will have the same effect as a vote cast
AGAINST the applicable proposal.
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Q17:
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How will my shares be represented at the special meeting?
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A17:
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If you are entitled to vote at the FirstEnergy or Allegheny
Energy special meeting and you hold your shares in your own
name, you can submit a proxy or vote in person by completing a
ballot at the applicable special meeting. However, FirstEnergy
and Allegheny Energy encourage you to submit a proxy before the
special meeting, even if you plan to attend the special
meeting. A proxy is a legal designation of another person to
vote your shares of common stock on your behalf. If you
properly submit your proxy by telephone, through the Internet or
by signing and returning your proxy card, the persons named in
your proxy card will vote your shares in the manner you
requested. If you sign your proxy card and return it without
indicating how you would like to vote your shares, your proxy
will be voted as the FirstEnergy or Allegheny Energy board
recommends, which is:
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For FirstEnergy shareholders:
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FOR the proposal to authorize and approve the share
issuance and the other transactions contemplated by the merger
agreement,
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FOR the proposal to adopt the charter amendment, and
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FOR the proposal to authorize adjournment of the
FirstEnergy special meeting, if necessary or appropriate, to
solicit additional proxies.
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For Allegheny Energy stockholders:
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FOR the proposal to approve the merger agreement and the
merger, and
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FOR the proposal to authorize adjournment of the
Allegheny Energy special meeting, if necessary or appropriate,
to solicit additional proxies.
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Q18:
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What vote is required to approve the proposals at the
FirstEnergy special meeting?
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A18:
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At the FirstEnergy special meeting, the authorization and
approval of the share issuance and the other transactions
contemplated by the merger agreement and the adoption of the
charter amendment require the affirmative vote of the holders of
at least a majority of the outstanding shares of FirstEnergy
common stock entitled to vote on each of the proposals. Approval
of the adjournment proposal to solicit additional proxies, if
necessary or appropriate, requires the affirmative vote of the
holders of a majority of the shares represented in person or by
proxy at the FirstEnergy special meeting. Your vote is very
important. You are encouraged to submit a proxy as soon as
possible.
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Q19:
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What vote is required to approve the proposals at the
Allegheny Energy special meeting?
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A19:
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At the Allegheny Energy special meeting, approval of the merger
agreement and the merger requires the affirmative vote of the
holders of at least a majority of the outstanding shares of
Allegheny Energy common stock entitled to vote on the proposal,
and approval of the proposal to adjourn the Allegheny Energy
special meeting, if necessary or appropriate, to solicit
additional proxies requires the affirmative vote of the holders
of a majority of the shares present in person or represented by
proxy at the Allegheny Energy special meeting and entitled to
vote on the proposal. Your vote is very important. You are
encouraged to submit a proxy as soon as possible.
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Q20:
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If my shares are held in street name by my broker
or other nominee, will my broker or other nominee automatically
vote my shares for me?
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A20:
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No. If your shares are held in the name of a bank or broker or
other nominee, you will receive separate instructions from your
bank, broker or other nominee describing how to vote your
shares. The availability of telephonic or Internet voting will
depend on the banks or brokers voting process.
Please check with your bank or broker and follow the voting
procedures your bank or broker provides.
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You should instruct your bank, broker or other nominee how to
vote your shares. Under the rules applicable to broker-dealers,
your broker does not have discretionary authority to vote your
shares on any of the proposals scheduled to be voted on at the
FirstEnergy or Allegheny Energy special meetings. If your
broker does not receive voting instructions from you regarding
these proposals, your shares will NOT be voted on those
proposals.
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Q21:
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What if I do not vote?
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A21:
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If your shares are held in your name and you do not submit your
proxy by telephone or through the Internet or return your proxy
card by mail or vote in person at your special meeting (or if
your shares are held in the name of a bank, broker or other
nominee and you do not instruct your bank, broker or other
nominee how to vote your shares), your vote will not be counted,
and it will be less likely that a quorum to conduct business at
your special meeting will be obtained.
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If you are a FirstEnergy shareholder, not submitting your proxy
(or not voting in person at the FirstEnergy special meeting, if
not submitting a proxy card) will have the same effect as a vote
cast AGAINST the proposal to authorize and approve the share
issuance and the other transactions contemplated by the merger
agreement and the proposal to adopt the charter amendment
because, in order to approve each of these proposals, a vote of
at least the majority of the outstanding shares of FirstEnergy
common stock entitled to vote on each proposal is required. A
failure to vote will have no effect on the proposal to adjourn
the FirstEnergy special meeting, if necessary or appropriate, to
solicit additional proxies.
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If you are an Allegheny Energy stockholder, not submitting your
proxy (or not voting in person at the special meeting, if not
submitting a proxy card) will have the same effect as a vote
cast AGAINST the approval of the merger agreement and the merger
because, in order to approve the merger agreement and the
merger, a vote of at least the majority of the outstanding
shares of Allegheny Energy common stock entitled to vote on the
proposal is required. A failure to vote will have no effect on
approval of the proposal to adjourn the Allegheny Energy special
meeting, if necessary or appropriate, to solicit additional
proxies.
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Q22:
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Why is FirstEnergy proposing to amend its charter?
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A22:
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FirstEnergy is proposing to amend its amended articles of
incorporation to increase the number of authorized shares of its
common stock in order to have a sufficient number of shares
available to issue to Allegheny Energy stockholders in exchange
for their shares in connection with the merger and to ensure
that an adequate supply of authorized unissued shares is
available for future general corporate needs. FirstEnergy has no
current intention to issue any shares of common stock in
addition to those issued to Allegheny Energy stockholders
pursuant to the merger agreement. FirstEnergy will not be able
to complete the merger if the charter amendment is not adopted.
If you want the merger to be completed, you should vote for the
adoption of the charter amendment to enable FirstEnergy to
complete the transactions contemplated by the merger agreement.
FirstEnergy does not intend to amend its amended articles of
incorporation unless the merger will be completed, even if
FirstEnergy shareholders approve the charter amendment proposal.
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Q23:
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What do I need to do now?
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A23:
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After you have carefully read and considered the information
contained or incorporated by reference in this joint proxy
statement/prospectus, please respond by submitting your proxy by
telephone or via the Internet in accordance with the
instructions set forth on the enclosed proxy card, or complete,
sign, date and return the proxy card in the postage-prepaid
envelope provided as soon as possible so that your shares will
be represented and voted at the FirstEnergy special meeting or
Allegheny Energy special meeting, as applicable.
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Q24:
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Can I revoke my proxy or change my vote after I have
submitted a proxy by telephone or via the Internet or mailed my
signed proxy card?
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A24:
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Yes. You may revoke your proxy or change your vote at any time
before your proxy is voted at the FirstEnergy special meeting or
the Allegheny Energy special meeting, as applicable. You can do
this in any of the three following ways:
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by sending a written notice to the vice president and corporate
secretary of FirstEnergy or the secretary of Allegheny Energy,
as applicable, in time to be received before the FirstEnergy
special meeting or the Allegheny Energy special meeting, as
applicable, stating that you would like to revoke your proxy;
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by submitting a later dated proxy by telephone or via the
Internet or by completing, signing and dating another proxy card
and returning it by mail in time to be received before the
FirstEnergy special meeting or Allegheny Energy special meeting,
in which case your later-submitted proxy will be recorded and
your earlier proxy revoked; or
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if you are a holder of record, by attending the FirstEnergy
special meeting or the Allegheny Energy special meeting and
voting in person. Simply attending the FirstEnergy special
meeting or Allegheny Energy special meeting without voting will
not revoke your proxy or change your vote, if you have
previously submitted a proxy or voted.
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If your shares of FirstEnergy common stock or Allegheny Energy
common stock are held in an account at a broker or other nominee
and you desire to change your vote, you should contact your
broker or other nominee for instructions on how to do so. If you
are a
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participant in the Allegheny Energy Employee Stock Ownership
and Savings Plan, you can revoke your proxy and/or change your
vote by delivering a written notice of revocation to the
secretary of Allegheny Energy or submitting a
later-dated
proxy by telephone, via the Internet or by mail at any time
before 9:00 a.m. Eastern Time on September 10, 2010.
See the sections entitled Information Regarding the
FirstEnergy Special Meeting How to Change Your
Vote beginning on page 45 and Information
Regarding the Allegheny Energy Special Meeting How
to Change Your Vote beginning on page 50.
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Q25:
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As a participant in the FirstEnergy Corp. Savings Plan, how
do I vote my shares held in my plan account?
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A25:
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If you are a participant in the FirstEnergy Corp. Savings Plan,
you can vote shares allocated to your plan account by
completing, signing and dating your voting instruction form and
returning it in the enclosed postage-prepaid envelope or by
submitting your voting instructions by telephone or through the
Internet as instructed on your voting instruction form. The
plan trustee will vote the shares held in your plan account in
accordance with your instructions. If you do not provide the
plan trustee with instructions by 6:00 a.m. Eastern Time on
September 13, 2010, the unvoted shares will be voted by the
plan trustee in the same proportion as the voted shares.
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Q26:
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As a participant in the Allegheny Energy Employee Stock
Ownership and Savings Plan, how do I vote my shares held in my
plan account?
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A26:
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If you are a participant in the Allegheny Energy Employee Stock
Ownership and Savings Plan, the proxy/voting instruction card
sent to you includes the number of shares of Allegheny Energy
common stock you own through the plan and will serve as a voting
instruction card to the trustee of the plan for all shares of
Allegheny Energy common stock you own through the plan. By
providing your voting instructions by telephone, via the
Internet or by mail as described in your proxy/voting
instruction card, you instruct the trustee on how to vote your
shares in the plan. To allow sufficient time for voting, you
must provide your voting instructions by 9:00 a.m. Eastern
Time on September 10, 2010. The trustee will vote your
shares held in the plan in accordance with your instructions.
If you do not provide your instructions by 9:00 a.m.
Eastern Time on September 10, 2010, your plan shares will
not be voted by the trustee.
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Q27:
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If I am an Allegheny Energy stockholder, should I send in my
stock certificates with my proxy card?
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A27:
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NO. Please DO NOT send your Allegheny Energy
stock certificates with your proxy card. If the merger is
completed, you will be sent written instructions for exchanging
your stock certificates for shares of FirstEnergy common stock
shortly after the time the merger is completed.
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Q28:
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What should I do if I receive more than one set of voting
materials for the FirstEnergy special meeting or the Allegheny
Energy special meeting?
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A28:
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You may receive more than one set of voting materials for the
FirstEnergy special meeting or the Allegheny Energy special
meeting, including multiple copies of this joint proxy
statement/prospectus and multiple proxy cards or voting
instruction cards. For example, if you hold your shares of
FirstEnergy common stock or Allegheny Energy common stock in
more than one brokerage account, you will receive a separate
voting instruction card for each brokerage account in which you
hold shares. If you are a holder of record and your shares of
FirstEnergy common stock or Allegheny Energy common stock are
registered in more than one name, you will receive more than one
proxy card. Please submit each separate proxy or voting
instruction card that you receive by following the instructions
set forth in each separate proxy or voting instruction card.
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Q29:
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What happens if I am a holder of both FirstEnergy common
stock and Allegheny Energy common stock?
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A29:
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You will receive separate mailings of this joint proxy
statement/prospectus and a separate proxy or voting instruction
card from each company. It is important that you vote your
shares with respect to each special meeting. To vote your
shares at each special meeting, you must either submit your
separate proxies (or voting instruction cards if your shares are
held in the name of a bank, broker or other nominee) by
telephone or via the Internet, if available, in accordance with
the instructions set forth in each separate proxy (or voting
instruction card) or complete, sign and date each separate proxy
or voting instruction card and mail them in the appropriate
postage-prepaid envelopes, or attend one of the special meetings
and vote in person, in which case you should submit a proxy for
the other special meeting.
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ADDITIONAL
INFORMATION
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Q30:
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How can I find more information about FirstEnergy and
Allegheny Energy?
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A30:
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You can find more information about FirstEnergy and Allegheny
Energy from various sources described in the section entitled
Where You Can Find More Information; Incorporation by
Reference beginning on page 184.
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Q31:
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Who can answer my questions?
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A31:
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If you have any questions about the merger or how to submit your
proxy, or if you need additional copies of this joint proxy
statement/prospectus, the enclosed proxy card or voting
instructions, you should contact:
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FirstEnergys Proxy Solicitor:
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Allegheny Energys Proxy Solicitor:
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Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor
New York, New York 10022
Shareholders may call toll free
(877) 687-1866
Banks and Brokers may call
collect (212) 750-5833
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D.F. King & Co., Inc.
48 Wall Street, 22nd Floor
New York, New York 10005
Stockholders may call toll free
(800) 549-6650
Banks and Brokers may call
collect (212) 269-5550
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9
SUMMARY
The following is a summary that highlights selected
information contained in this joint proxy statement/prospectus.
This summary may not contain all of the information that is
important to you. For a more complete description of the merger
agreement and the transactions contemplated by the merger
agreement, FirstEnergy and Allegheny Energy encourage you to
read carefully this entire joint proxy statement/prospectus,
including the attached annexes. In addition, FirstEnergy and
Allegheny Energy encourage you to read the information
incorporated by reference in this joint proxy
statement/prospectus, which includes important business and
financial information about FirstEnergy and Allegheny Energy
that has been filed with the SEC. You may obtain the information
incorporated by reference in this joint proxy
statement/prospectus without charge by following the
instructions in the section entitled Where You Can Find
More Information; Incorporation by Reference beginning on
page 184.
The
Companies
FirstEnergy
Corp.
FirstEnergy, an Ohio corporation formed in 1996, is a
diversified energy company headquartered in Akron, Ohio, with
total revenues in 2009 of approximately $13 billion. Its
subsidiaries and affiliates are involved in the generation,
transmission and distribution of electricity, as well as energy
management and other energy-related services. Its seven electric
utility distribution companies comprise the nations fifth
largest investor-owned electric system, based on
4.5 million customers served within 36,100 square
miles of Ohio, Pennsylvania, New Jersey and New York. Its
generation subsidiaries control more than 14,000 megawatts of
capacity. FirstEnergys common stock is listed on the NYSE
and trades under the symbol FE.
Element Merger Sub, Inc., referred to as Merger Sub, is a
Maryland corporation and a wholly owned subsidiary of
FirstEnergy that was formed for the sole purpose of effecting
the merger. If the merger is completed, Merger Sub will cease to
exist following its merger with and into Allegheny Energy.
FirstEnergys and Merger Subs principal executive
offices are located at 76 South Main Street, Akron, Ohio 44308
and their telephone number is
(800) 631-8945.
This joint proxy statement/prospectus incorporates important
business and financial information about FirstEnergy from other
documents that are not included in or delivered with this joint
proxy statement/prospectus. For a list of the documents that are
incorporated by reference, see the section entitled Where
You Can Find More Information; Incorporation by Reference
beginning on page 184.
Allegheny
Energy, Inc.
Allegheny Energy is a Maryland corporation formed in 1925, with
total revenues in 2009 of approximately $3.4 billion.
Allegheny Energy, through its subsidiaries, owns and operates
electric generation facilities and delivers electric services to
customers in Pennsylvania, West Virginia, Maryland and Virginia.
Allegheny Energy common stock is listed on the NYSE and trades
under the symbol AYE.
Allegheny Energys principal executive offices are located
at 800 Cabin Hill Drive, Greensburg, Pennsylvania 15601 and its
telephone number is
(724) 837-3000.
This joint proxy statement/prospectus incorporates important
business and financial information about Allegheny Energy from
other documents that are not included in or delivered with this
joint
10
proxy statement/prospectus. For a list of the documents that
are incorporated by reference, see the section entitled
Where You Can Find More Information; Incorporation by
Reference beginning on page 184.
The
Merger
On February 10, 2010, the boards of directors of
FirstEnergy and Allegheny Energy each unanimously approved the
merger agreement and the merger pursuant to which Merger Sub
will merge with and into Allegheny Energy with Allegheny Energy
becoming a wholly owned subsidiary of FirstEnergy. Upon
completion of the merger, FirstEnergy will issue to Allegheny
Energy stockholders 0.667 of a share of FirstEnergy common stock
for each share of Allegheny Energy common stock held prior to
the merger. This exchange ratio is fixed and will not be
adjusted to reflect stock price changes prior to completion of
the merger.
For more information regarding the merger transaction, see the
sections entitled The Merger beginning on
page 52, The Merger Agreement beginning on
page 124 and Annex A.
Recommendations
of the Boards of Directors to Shareholders
Recommendation
of FirstEnergys Board of Directors
The FirstEnergy board of directors unanimously determined that
the merger agreement and the transactions contemplated by the
merger agreement, including the merger, are advisable and in the
best interests of FirstEnergy and its shareholders and approved
the transactions contemplated by the merger agreement, including
the share issuance and the charter amendment. The FirstEnergy
board of directors recommends that FirstEnergy shareholders vote
FOR the proposal to authorize and approve the share issuance
and the other transactions contemplated by the merger agreement,
FOR the proposal to adopt the charter amendment and FOR the
proposal to adjourn the FirstEnergy special meeting, if
necessary or appropriate, to solicit additional proxies in favor
of such approvals. For more information regarding the
recommendation of the FirstEnergy board, see the section
entitled The Merger Recommendation of the
FirstEnergy Board of Directors and Its Reasons for the
Merger beginning on page 62.
Recommendation
of Allegheny Energys Board of Directors
The Allegheny Energy board of directors unanimously determined
that the merger agreement and the transactions contemplated by
the merger agreement, including the merger, are advisable, fair
to and in the best interests of Allegheny Energy and its
stockholders and has approved the merger agreement and the
merger. The Allegheny Energy board of directors recommends
that Allegheny Energy stockholders vote FOR the proposal to
approve the merger agreement and the merger and FOR the proposal
to adjourn the Allegheny Energy special meeting, if necessary or
appropriate, to solicit additional proxies in favor of such
approval. For more information regarding the recommendation
of the Allegheny Energy board, see the section entitled
The Merger Recommendation of the Allegheny
Energy Board of Directors and Its Reasons for the Merger
beginning on page 67.
Opinions
of Financial Advisors
Opinion
of FirstEnergys Financial Advisor
FirstEnergy retained Morgan Stanley & Co.
Incorporated, referred to as Morgan Stanley, to provide it with
financial advisory services and a financial opinion in
connection with the merger. FirstEnergy selected Morgan Stanley
as its financial advisor based on Morgan Stanleys
11
qualifications, expertise and reputation and its knowledge of
the business and affairs of FirstEnergy. At the meeting of the
FirstEnergy board on February 10, 2010, Morgan Stanley
rendered its oral opinion, subsequently confirmed in writing,
that as of such date and based upon and subject to the various
assumptions, considerations, qualifications and limitations set
forth in its written opinion, the exchange ratio pursuant to the
merger agreement was fair, from a financial point of view, to
FirstEnergy.
The full text of the written opinion of Morgan Stanley, dated
February 10, 2010, which discusses, among other things, the
assumptions made, procedures followed, matters considered, and
qualifications and limitations of the review undertaken by
Morgan Stanley in rendering its opinion, is attached as
Annex C to this joint proxy statement/prospectus. The
summary of the Morgan Stanley fairness opinion provided in this
joint proxy statement/prospectus is qualified in its entirety by
reference to the full text of the opinion. FirstEnergy
shareholders are urged to read the opinion carefully and in its
entirety. The Morgan Stanley opinion is directed to the
FirstEnergy board of directors and addresses only the fairness,
from a financial point of view, of the exchange ratio pursuant
to the merger agreement. The Morgan Stanley opinion does not
address any other aspect of the merger and does not constitute a
recommendation to any FirstEnergy or Allegheny Energy
shareholder as to how any such shareholder should vote with
respect to the proposed merger or any other matter. The opinion
also does not address the prices at which shares of FirstEnergy
common stock will trade following the completion of the merger
or at any other time. Pursuant to the terms of Morgan
Stanleys engagement, FirstEnergy agreed to pay Morgan
Stanley a fee of $35 million, a portion of which became
payable upon announcement of the execution of the merger
agreement, a portion of which is contingent upon FirstEnergy
shareholder and Allegheny Energy stockholder approval of the
proposals described in this joint proxy statement/prospectus and
a portion of which is contingent upon completion of the
merger.
For more information regarding the opinion of FirstEnergys
financial advisor, see the section entitled The
Merger Opinion of FirstEnergys Financial
Advisor beginning on page 78. See also Annex C
to this joint proxy statement/prospectus.
Opinion
of Allegheny Energys Financial Advisor
Allegheny Energy retained Goldman, Sachs & Co.,
referred to as Goldman Sachs, to provide it with financial
advisory services and, at Allegheny Energys request, to
render an opinion as to the fairness from a financial point of
view of the consideration to be received in connection with the
merger. Allegheny Energy selected Goldman Sachs as its financial
advisor because it is an internationally recognized investment
banking firm that has substantial experience in transactions
similar to the merger. At the meeting of the Allegheny Energy
board on February 10, 2010, Goldman Sachs delivered its
oral opinion, subsequently confirmed in writing, that, as of
February 10, 2010 and based upon and subject to the
assumptions, considerations, qualifications and limitations set
forth therein, the exchange ratio of 0.667 of a share of
FirstEnergy common stock to be paid for each share of Allegheny
Energy common stock pursuant to the merger agreement was fair
from a financial point of view to the holders of Allegheny
Energy common stock (other than FirstEnergy and its affiliates).
The full text of the written opinion of Goldman Sachs, dated
February 10, 2010, which sets forth the assumptions made,
procedures followed, matters considered, qualifications and
limitations on the review undertaken in connection with the
opinion, is attached as Annex D to this joint proxy
statement/prospectus. The summary of the Goldman Sachs opinion
provided in this joint proxy statement/prospectus is qualified
in its entirety by reference to the full text of the written
opinion. Allegheny Energy stockholders are urged to read the
opinion carefully and in its entirety. Goldman Sachs provided
its opinion for the information and assistance of the
12
board of directors of Allegheny Energy in connection with its
consideration of the merger. The Goldman Sachs opinion is not a
recommendation as to how any holder of Allegheny Energy common
stock should vote with respect to the merger or any other
matter. Pursuant to an engagement letter between Allegheny
Energy and Goldman Sachs, Allegheny Energy agreed to pay Goldman
Sachs a fee of $23 million, of which $7 million became
payable upon execution of the merger agreement on
February 10, 2010, $8 million is contingent upon
Allegheny Energy stockholder approval of the merger and
$8 million is contingent upon completion of the merger.
For more information regarding the opinion of Allegheny
Energys financial advisor, see the section entitled
The Merger Opinion of Allegheny Energys
Financial Advisor beginning on page 91 and
Annex D.
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Ownership
of FirstEnergy Common Stock After the Merger
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Based upon the number of shares of FirstEnergy and Allegheny
Energy common stock outstanding on July 16, 2010 (excluding
shares issuable upon exercise of outstanding FirstEnergy and
Allegheny Energy equity awards), we estimate that former
Allegheny Energy stockholders will own approximately 27% and
current FirstEnergy shareholders will own approximately 73% of
the then outstanding shares of FirstEnergy common stock upon
completion of the merger.
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Directors
and Executive Officers of FirstEnergy After the
Merger
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Following completion of the merger, Anthony J. Alexander will
remain chief executive officer and president of FirstEnergy, and
Paul J. Evanson, currently the chairman, president and chief
executive officer of Allegheny Energy, will become the executive
vice chairman of FirstEnergy and report to Mr. Alexander.
Effective upon completion of the merger, FirstEnergy will
increase the size of its board by two members to thirteen and
appoint two current members of the board of Allegheny Energy to
the FirstEnergy board. The headquarters of FirstEnergy will
remain in Akron, Ohio after completion of the merger.
Additional
Interests of the FirstEnergy Directors and Executive Officers in
the Merger
In considering the recommendation of the FirstEnergy board with
respect to the merger, FirstEnergy shareholders should be aware
that the executive officers and directors of FirstEnergy have
certain interests in the merger that may be different from, or
in addition to, the interests of FirstEnergy shareholders
generally. These interests include the fact that all FirstEnergy
directors and executive officers are expected to continue to
serve in the same or similar positions after completion of the
merger.
The FirstEnergy board was aware of these interests and
considered them, among other matters, in approving the merger
agreement and making its recommendation that the FirstEnergy
shareholders approve the share issuance and adopt the charter
amendment. See the sections entitled The
Merger Recommendation of the FirstEnergy Board of
Directors and Its Reasons for the Merger beginning on
page 62 and The Merger Additional
Interests of the FirstEnergy Directors and Executive Officers in
the Merger beginning on page 103.
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Additional
Interests of the Allegheny Energy Directors and Executive
Officers in the Merger
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In considering the recommendation of the Allegheny Energy board
with respect to the merger, Allegheny Energy stockholders should
be aware that the executive officers and directors of
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Allegheny Energy have certain interests in the merger that may
be different from, or in addition to, the interests of Allegheny
Energy stockholders generally. These interests include the
following:
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The merger agreement includes an agreement that two members of
the Allegheny Energy board be added to the FirstEnergy board
effective upon completion of the merger. Julia L.
Johnson and Ted J. Kleisner have been designated by
FirstEnergy, upon consultation with, and in consideration of the
views of, Allegheny Energy, to become members of the FirstEnergy
board. The other members of Allegheny Energys board will
no longer serve as directors of Allegheny Energy (and will not
serve as directors of FirstEnergy) upon completion of the merger.
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Paul J. Evanson, currently chairman, president and chief
executive officer of Allegheny Energy, will become executive
vice chairman of the combined company and report to
Mr. Alexander.
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Equity incentive compensation awards will be subject to vesting
and other special treatment in some circumstances.
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The executive officers of Allegheny Energy, other than
Mr. Evanson, are participants in Allegheny Energys
Executive Change in Control Severance Plan under which, if their
employment is terminated with good reason or without cause
within 24 months following completion of the merger (or
before the merger if the circumstances of the termination are
attributable to FirstEnergy), they will be entitled to
(1) a cash severance payment equal to either three times or
two times (depending on their level in the organization) their
base salary and target annual bonus, (2) a pro-rata annual
bonus at target for the year of termination, (3) a lump-sum
cash payment in lieu of continued medical and dental coverage
equal to $60,000 or $40,000 (depending on their level in the
organization), (4) forgiveness of any obligation to repay
earlier relocation benefits, (5) full vesting in Allegheny
Energys Supplemental Executive Retirement Plan and an
additional three or two years of service credit under that plan
(depending on their level in the organization), and (6) for
all but one of such executive officers, a
gross-up
payment for any golden parachute excise taxes for
which the executive may be liable in respect of the benefits to
be received by the executive that are contingent upon the
completion of the merger unless such amount does not exceed 110%
of the smallest amount that would be subject to that tax.
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Mr. Evansons employment agreement with Allegheny
Energy provides that if he terminates his employment following
completion of the merger for good reason, or his employment is
terminated involuntarily without cause, he will be entitled to
(1) a cash severance payment equal to the sum of his base
salary and target annual bonus, (2) a pro-rata annual bonus
at target for the year of termination, (3) continued
welfare benefits for one year (or cash payments to purchase such
benefits for such period), and (4) a lump sum payment of
the amount of supplemental pension benefit otherwise due him but
determined (in the case of a termination before the end of the
employment agreement term, June 15, 2011) as if he had
continued to serve through the end of the term.
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The merger agreement provides for the continuation of
indemnification existing in favor of the current and former
directors, officers and employees of Allegheny Energy and its
subsidiaries, with such indemnification obligations being
guaranteed by FirstEnergy. The merger agreement also contains
certain obligations related to the purchase of directors
and officers liability insurance and fiduciary liability
insurance tail policies with respect to matters existing or
occurring at or prior to the effective time of the merger for
persons who are currently covered under Allegheny Energys
existing policies.
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The Allegheny Energy board was aware of these interests and
considered them, among other matters, in approving the merger
agreement and the merger and making its recommendation that the
Allegheny Energy stockholders approve the merger agreement and
the merger. See the sections entitled The
Merger Recommendation of the Allegheny Energy Board
of Directors and Its Reasons for the Merger beginning on
page 67 and The Merger Additional
Interests of the Allegheny Energy Directors and Executive
Officers in the Merger beginning on page 104.
Treatment
of Allegheny Energy Stock Options, Restricted Stock and Other
Equity Based Compensation
Under the Allegheny Energy equity incentive compensation plans,
upon approval of the merger agreement and the merger by
Allegheny Energy stockholders, the following treatment will
apply to stock awards (other than grants of restricted or
unrestricted Allegheny Energy common stock to members of
Allegheny Energys board) that were granted before the
execution of the merger agreement and that remain outstanding
upon stockholder approval of the merger agreement and the merger:
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options to purchase Allegheny Energy common stock will become
fully vested and exercisable, and any options that are not
exercised before completion of the merger will be converted upon
completion of the merger into fully vested and exercisable
options to purchase FirstEnergy common stock on a basis intended
to preserve the intrinsic value of the option and otherwise on
the terms and conditions applicable under the options;
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restricted Allegheny Energy common stock (other than that held
by members of Allegheny Energys board) will vest in
full; and
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performance awards will be deemed earned at the target
performance level and will be settled in shares of Allegheny
Energy common stock not more than 30 days following
stockholder approval of the merger agreement and the merger.
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Restricted stock granted to Allegheny Energy directors before
execution of the merger agreement will vest in full upon
completion of the merger.
Neither stockholder approval of the merger agreement and the
merger nor completion of the merger will cause Allegheny Energy
equity incentive awards granted after execution of the merger
agreement to vest. However, any performance awards granted after
execution of the merger agreement will be deemed earned at the
target performance level for the year in which the merger is
completed and all subsequent years (for example, if the closing
occurs in 2011, actual performance will be applied in respect of
2010 and target performance will be assumed for 2011 and 2012),
and the resulting number of performance shares will be treated
as restricted stock units whose payment at the end of the
three-year performance cycle is generally subject to continued
employment during that period (subject to earlier vesting upon
retirement, disability or death in accordance with Allegheny
Energys historical performance share grant practices).
Upon completion of the merger, the performance shares will be
redenominated in FirstEnergy shares in proportion to the
exchange ratio of 0.667. Any options that are outstanding upon
completion of the merger (including those whose vesting was
accelerated as described above) will be assumed by FirstEnergy
on the same terms and conditions as applied to the assumed
option immediately prior to the merger except that the option
will cover shares of FirstEnergy common stock in a manner that
is intended to preserve, as of the closing, the intrinsic value
of the Allegheny Energy option immediately before closing.
If the holder of a stock option or performance share terminates
his or her employment for good reason or is terminated without
cause following completion of the merger (or, for certain
employees, before the merger if the circumstances of the
termination are attributable to FirstEnergy), then any
performance awards and any options (to the extent not yet then
already fully vested) will vest in full.
15
Regardless of when vested, options will remain exercisable for
their full term in the case of Paul J. Evanson, the chairman,
president and chief executive officer of Allegheny Energy, and
generally for 90 days following termination of employment
in the case of other employees (or for three years for certain
employees if they are retirement eligible).
For a more complete description of the effect of the merger on
Allegheny Energy stock-based awards, see the sections entitled
The Merger Additional Interests of the
Allegheny Energy Directors and Executive Officers in the
Merger beginning on page 104 and The Merger
Agreement Treatment of Allegheny Energy Options and
Other Equity Awards beginning on page 126.
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Listing
of Shares of FirstEnergy Common Stock; Delisting of Shares of
Allegheny Energy Common Stock
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FirstEnergy will use its reasonable best efforts to cause the
shares of FirstEnergy common stock issuable pursuant to the
merger agreement to be approved for listing on the NYSE at or
prior to the completion of the merger, subject to official
notice of issuance. Approval of the listing on the NYSE of the
shares of FirstEnergy common stock issuable pursuant to the
merger agreement is a condition to each partys obligation
to complete the merger. If the merger is completed, Allegheny
Energy common stock will be delisted from the NYSE and
deregistered under the Securities Exchange Act of 1934, as
amended, referred to as the Exchange Act.
For more information regarding the listing of the shares of
FirstEnergy common stock issuable pursuant to the merger
agreement, see the section entitled The Merger
Listing of FirstEnergy Common Stock and Delisting and
Deregistration of Allegheny Energy Common Stock beginning
on page 111.
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Appraisal
or Dissenters Rights in Connection with the
Merger
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Under Maryland law, Allegheny Energy stockholders will not be
entitled to exercise any appraisal or dissenters rights in
connection with the merger.
Under Ohio law, FirstEnergy shareholders who (1) do not
vote to authorize and approve the share issuance and the other
transactions contemplated by the merger agreement and
(2) deliver a written demand for payment of the fair cash
value of their shares of FirstEnergy common stock not later than
ten days after the FirstEnergy special meeting, shall be
entitled, if and when the merger is completed, to receive the
fair cash value of their shares of FirstEnergy common stock. The
right as a FirstEnergy shareholder to receive the fair cash
value of FirstEnergy shares of common stock, however, is
contingent upon strict compliance by the dissenting FirstEnergy
shareholder with the procedures set forth in Ohio Revised Code
Section 1701.85, a copy of which is attached to this joint
proxy statement/prospectus as Annex E. If you wish to
submit a written demand for payment of the fair cash value of
your FirstEnergy common stock, you should deliver your demand no
later than ten days after the FirstEnergy special meeting.
For more information regarding dissenters rights, see the
section entitled The Merger Appraisal or
Dissenters Rights beginning on page 111.
FirstEnergy will account for the merger under accounting
principles generally accepted in the United States, which we
refer to as GAAP, with FirstEnergy being deemed to have acquired
Allegheny Energy. This means that the assets and liabilities of
Allegheny Energy will be recorded, as of the completion of the
merger, at their fair values and added to those of FirstEnergy,
including
16
potentially an amount for goodwill to the extent the purchase
price exceeds the fair value of the identifiable net assets.
Financial statements of FirstEnergy issued after the merger will
reflect only the operations of Allegheny Energys business
after the merger and will not be restated retroactively to
reflect the historical financial position or results of
Allegheny Energy.
For more information regarding the accounting treatment of the
transaction see the section entitled The
Merger Accounting Treatment beginning on
page 114.
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Material
U.S. Federal Income Tax Consequences of the Merger
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Assuming the merger is completed as described in the merger
agreement and in this joint proxy statement/prospectus,
FirstEnergy and Allegheny Energy each expect the merger to be
treated as a reorganization under
Section 368(a) of the Internal Revenue Code. Assuming the
merger is so treated, Allegheny Energy stockholders generally
will not recognize any gain or loss for U.S. federal income
tax purposes (except with respect to cash received in lieu of a
fractional share of FirstEnergy common stock) by reason of the
merger, subject to the limitations described in the section
entitled The Merger Material U.S. Federal
Income Tax Consequences of the Merger beginning on
page 114.
FirstEnergy shareholders (other than those that exercise
dissenters rights) generally will not recognize gain or
loss for U.S. federal income tax purposes as a result of the
merger. FirstEnergy shareholders that exercise dissenters
rights are urged to consult their tax advisors regarding the tax
treatment of any cash received upon the exercise of
dissenters rights in connection with the merger.
For more information regarding the expected material
U.S. federal income tax consequences of the merger, see the
section entitled The Merger Material
U.S. Federal Income Tax Consequences of the Merger
beginning on page 114.
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Litigation
Relating to the Merger
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In connection with the merger, purported shareholders of
Allegheny Energy have filed putative shareholder class action
and/or
derivative lawsuits in Pennsylvania and Maryland state courts,
as well as in the United States District Court for the Western
District of Pennsylvania, against Allegheny Energy and its
directors and certain officers, referred to as the Allegheny
Energy defendants, and FirstEnergy and Merger Sub. In summary,
the lawsuits allege, among other things, that the Allegheny
Energy directors breached their fiduciary duties by approving
the merger agreement, and that Allegheny Energy, FirstEnergy and
Merger Sub aided and abetted in these alleged breaches of
fiduciary duty. The complaints seek, among other things, jury
trials, money damages and injunctive relief. While FirstEnergy
and Allegheny Energy believe the lawsuits are without merit and
have defended vigorously against the claims, in order to avoid
the costs associated with the litigation, the defendants have
agreed to the terms of a disclosure-based settlement of the
lawsuits.
For more information regarding the litigation related to the
merger see the sections entitled Risk
Factors Pending litigation against FirstEnergy and
Allegheny Energy could result in an injunction preventing the
completion of the merger, the payment of damages in the event
the merger is completed
and/or may
adversely affect FirstEnergys business, financial
condition or results of operations following the merger
beginning on page 42 and The Merger
Litigation Relating to the Merger beginning on
page 118.
Regulatory
Matters Relating to the Merger
To complete the merger, FirstEnergy and Allegheny Energy must
make filings with and obtain authorizations, approvals or
consents from a number of federal and state public utility,
antitrust and other regulatory authorities. The merger is
subject to requirements of the
Hart-Scott-Rodino
17
Antitrust Improvements Act of 1976, as amended, referred to as
the HSR Act, and the expiration or termination of the waiting
period (and any extension of the waiting period) applicable to
the merger under the HSR Act. The merger is also subject to the
regulatory requirements of other state and federal domestic
agencies and authorities, including the Federal Energy
Regulatory Commission, referred to as the FERC, the Maryland
Public Service Commission, referred to as the MDPSC, the
Pennsylvania Public Utility Commission, referred to as the
PAPUC, the Virginia State Corporation Commission, referred to as
the VSCC, the Public Service Commission of West Virginia,
referred to as the WVPSC, and the Federal Communications
Commission, referred to as the FCC.
For more information regarding regulatory matters relating to
the proposed merger, see the section entitled Regulatory
Matters Relating to the Merger beginning on page 120.
Overview
of the Merger Agreement
Conditions
to Completion of the Merger
A number of conditions must be satisfied or waived, before the
merger can be completed. These include, among others:
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approval by Allegheny Energy stockholders of the merger
agreement and the merger;
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authorization and approval by FirstEnergy shareholders of the
share issuance and the other transactions contemplated by the
merger agreement and the adoption of the charter amendment;
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the absence of any order issued by any court or any other legal
restraint preventing or restraining the completion of the merger;
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the effectiveness of the registration statement of which this
joint proxy statement/prospectus is a part;
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the approval for listing on the NYSE of the FirstEnergy common
stock to be issued in the merger;
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the accuracy of the representations and warranties made by
FirstEnergy and Allegheny Energy in the merger agreement, except
where the failure to be accurate does not have and would not
reasonably be expected to have a material adverse
effect;
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the performance in all material respects of each partys
obligations under the merger agreement;
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the absence of any change or event that has had or would
reasonably be expected to have a material adverse effect on
FirstEnergy or Allegheny Energy; and
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the receipt by each party of a tax opinion from such
partys legal counsel.
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For more information regarding the conditions to the completion
of the merger and a complete list of such conditions, see the
section entitled The Merger Agreement
Conditions to the Completion of the Merger beginning on
page 130.
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No
Solicitation
Neither FirstEnergy nor Allegheny Energy, nor any of their
subsidiaries or their respective officers, directors or
employees will, and each will use its reasonable best efforts
not to, directly or indirectly, take any of the following
actions:
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solicit, initiate, seek, knowingly encourage or knowingly take
any other action designed to facilitate any acquisition proposal;
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furnish any nonpublic information in connection with any
acquisition proposal;
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engage or participate in any discussions or negotiations with
any person with respect to any acquisition proposal;
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approve, endorse or recommend any acquisition proposal; or
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enter into any agreement for an acquisition transaction;
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except, FirstEnergy or Allegheny Energy may, as applicable,
prior to approval by their respective shareholders of the
proposals related to the merger, and subject to certain notice
and other requirements, furnish nonpublic information to, or
engage in discussions or negotiations with, any person in
response to an unsolicited, bona fide acquisition proposal that
the board of directors of that party determines in good faith
after consultation with its financial advisors is, or would be
reasonably likely to lead to a superior offer, under certain
circumstances.
For more information regarding the limitations on FirstEnergy
and Allegheny Energy and their boards to consider other
proposals, see the section entitled The Merger
Agreement Additional Agreements
Non-Solicitation beginning on page 141.
Termination
of the Merger Agreement
The merger agreement may be terminated at any time by mutual
written agreement of FirstEnergy and Allegheny Energy. It can
also be terminated by either FirstEnergy or Allegheny Energy
under several specific circumstances, including:
|
|
|
|
|
if the merger is not completed on or prior to April 10,
2011 (subject to possible extension);
|
|
|
|
if a final and nonappealable governmental action preventing the
merger is in effect;
|
|
|
|
if the FirstEnergy or Allegheny Energy shareholder approval is
not obtained;
|
|
|
|
if the non-terminating party has materially breached the merger
agreement and such breach is not timely cured and gives rise to
a failure to satisfy a closing condition;
|
|
|
|
if the non-terminating party has materially breached its
non-solicitation obligations under the merger agreement;
|
|
|
|
under specific circumstances if the terminating party receives
an unsolicited takeover proposal from a third party; or
|
|
|
|
if there has been a change of recommendation by the board of
directors of the other party.
|
For more information regarding the rights of FirstEnergy and
Allegheny Energy to terminate the merger agreement, see the
section entitled The Merger Agreement
Termination of the Merger Agreement beginning on
page 143.
Termination
Fee and Expense Reimbursement
Under specific circumstances, FirstEnergy or Allegheny Energy,
as applicable, may be required, subject to certain conditions,
to pay a termination fee of $350 million or
$150 million, respectively,
and/or
reimburse the other party for its transaction expenses in an
amount not to exceed $45 million.
19
For more information regarding termination fees and expense
reimbursement obligations, see the section entitled The
Merger Agreement Effect of Termination
beginning on page 144.
The
Shareholders Meetings
FirstEnergy
Special Meeting of Shareholders
The FirstEnergy special meeting will be held on
September 14, 2010, at 9:30 a.m., local time, at the John
S. Knight Center, 77 E. Mill Street, Akron, Ohio. For more
information regarding the FirstEnergy special meeting, see the
sections entitled Information Regarding the FirstEnergy
Special Meeting beginning on page 43 and The
FirstEnergy Special Meeting of Shareholders beginning on
page 180.
At the FirstEnergy special meeting, FirstEnergy shareholders
will be asked to:
|
|
|
|
|
authorize and approve the share issuance and the other
transactions contemplated by the merger agreement;
|
|
|
|
adopt the charter amendment; and
|
|
|
|
authorize the adjournment of the FirstEnergy special meeting to
a later date or dates, if necessary or appropriate, to solicit
additional proxies if there are insufficient votes to authorize
and approve the share issuance and the other transactions
contemplated by the merger agreement and/or adopt the charter
amendment at the time of the FirstEnergy special meeting.
|
Only holders of record of FirstEnergy common stock at the close
of business on July 16, 2010, the FirstEnergy special
meeting record date, are entitled to notice of, and to vote at,
the FirstEnergy special meeting and any adjournments or
postponements of the FirstEnergy special meeting. At the close
of business on that date, there
were shares
of FirstEnergy common stock outstanding and entitled to vote at
the FirstEnergy special meeting.
Authorization and approval of the share issuance and the other
transactions contemplated by the merger agreement and the
adoption of the charter amendment are conditions to the
completion of the merger. The proposals to authorize and approve
the share issuance and the other transactions contemplated by
the merger agreement and to adopt the charter amendment require
the affirmative vote of the holders of at least a majority of
the outstanding shares of FirstEnergy common stock entitled to
vote on each of the proposals. FirstEnergy is proposing to amend
its amended articles of incorporation to increase the number of
authorized shares of its common stock in order to have a
sufficient number of shares available to issue to Allegheny
Energy stockholders in exchange for their shares in connection
with the merger and to ensure that an adequate supply of
authorized unissued shares is available for future general
corporate needs. FirstEnergy has no current intention to issue
any shares of common stock in addition to those issued to
Allegheny Energy stockholders pursuant to the merger agreement.
FirstEnergy does not intend to amend its amended articles of
incorporation unless the merger is completed, even if
FirstEnergy shareholders approve the charter amendment proposal.
For more information regarding the charter amendment, see the
section entitled The FirstEnergy Special Meeting of
Shareholders Proposal #2 The
Charter Amendment beginning on page 180. The proposal
to authorize the adjournment of the FirstEnergy special meeting,
if necessary or appropriate, to solicit additional proxies if
there are not sufficient votes to authorize and approve the
share issuance and the other transactions contemplated by the
merger agreement and adopt the charter amendment at the time of
the FirstEnergy special meeting requires the affirmative vote of
the holders of a majority of the shares represented in person or
by proxy at the FirstEnergy special meeting, regardless of
whether a quorum is present.
20
At the close of business on the record date for the FirstEnergy
special meeting, FirstEnergys directors and executive
officers collectively beneficially owned
approximately shares
of FirstEnergy common stock (inclusive of shares subject to
stock options which may be exercised within 60 days
following that date), which represents
approximately % of the FirstEnergy common stock
entitled to vote at the FirstEnergy special meeting. For more
information regarding the voting and the share ownership of the
FirstEnergy board and executive officers, see the sections
entitled Information Regarding the FirstEnergy Special
Meeting Voting by FirstEnergy Directors and
Executive Officers beginning on page 46 and
Security Ownership of Certain Beneficial Owners and
Management of FirstEnergy beginning on page 174.
Allegheny
Energy Special Meeting of Stockholders
The Allegheny Energy special meeting will be held on
September 14, 2010, at 11:00 a.m., local time, at the New
York Marriott Marquis Hotel, 1535 Broadway, New York, New York.
For more information regarding the Allegheny Energy special
meeting, see the sections entitled Information Regarding
the Allegheny Energy Special Meeting beginning on
page 47 and The Allegheny Energy Special Meeting of
Stockholders beginning on page 182.
At the Allegheny Energy special meeting, Allegheny Energy
stockholders will be asked to:
|
|
|
|
|
approve the merger agreement and the merger; and
|
|
|
|
authorize the adjournment of the Allegheny Energy special
meeting to a later date or dates, if necessary or appropriate,
to solicit additional proxies if there are insufficient votes to
approve the merger agreement and the merger at the time of the
Allegheny Energy special meeting.
|
Only holders of record of Allegheny Energy common stock at the
close of business on July 16, 2010, the Allegheny Energy
special meeting record date, are entitled to notice of, and to
vote at, the Allegheny Energy special meeting and any
adjournments or postponements of the Allegheny Energy special
meeting. At the close of business on that date, there
were shares
of Allegheny Energy common stock outstanding and entitled to
vote at the Allegheny Energy special meeting.
Approval of the merger agreement and the merger by Allegheny
Energy stockholders is a condition to the completion of the
merger. The proposal to approve the merger agreement and the
merger requires the affirmative vote of holders of at least a
majority of the shares of Allegheny Energy common stock
outstanding and entitled to vote on the proposal. The proposal
to authorize the adjournment of the Allegheny Energy special
meeting, if necessary or appropriate, to solicit additional
proxies if there are not sufficient votes to approve the merger
agreement and the merger at the time of the Allegheny Energy
special meeting requires the affirmative vote of the holders of
a majority of the shares present in person or represented by
proxy at the Allegheny Energy special meeting and entitled to
vote, regardless of whether a quorum is present.
At the close of business on the record date for the Allegheny
Energy special meeting, Allegheny Energys directors and
executive officers collectively beneficially owned
approximately shares
of Allegheny Energy common stock (inclusive of shares subject to
stock options which may be exercised within 60 days
following that date), which represents
approximately % of the Allegheny
Energy common stock entitled to vote at the Allegheny Energy
special meeting. For more information regarding the voting and
the share ownership of the Allegheny Energy board and executive
officers, see the sections entitled Information Regarding
the Allegheny Energy Special Meeting Voting by
Allegheny Energy Directors and Executive Officers
beginning on page 51 and Security Ownership of
Certain Beneficial Owners and Management of Allegheny
Energy beginning on page 176.
21
Comparison
of Rights of FirstEnergy Shareholders and Allegheny Energy
Stockholders
The rights of FirstEnergy shareholders are governed by Ohio law
and the rights of Allegheny Energy stockholders are governed by
Maryland law. There are additional differences in the rights of
FirstEnergy shareholders and Allegheny Energy stockholders as a
result of the provisions of the charter and bylaws and other
corporate documents of each company.
For more information regarding the differences in shareholder
rights, see the section entitled Comparison of Rights of
FirstEnergys Shareholders and Allegheny Energys
Stockholders beginning on page 160.
22
FIRSTENERGY
SELECTED HISTORICAL FINANCIAL DATA
The selected historical consolidated financial data of
FirstEnergy for each of the years ended December 31, 2009,
2008 and 2007 and as of December 31, 2009 and 2008 have
been derived from FirstEnergys audited consolidated
financial statements and related notes contained in its Annual
Report on
Form 10-K
for the year ended December 31, 2009, which is incorporated
by reference in this joint proxy statement/prospectus. The
selected historical consolidated financial data for the years
ended December 31, 2006 and 2005 and as of
December 31, 2007, 2006 and 2005 have been derived from
FirstEnergys audited consolidated financial statements for
such years, which have not been incorporated by reference in
this joint proxy statement/prospectus. The selected historical
consolidated financial data of FirstEnergy as of and for the
three months ended March 31, 2010 and 2009 have been
derived from FirstEnergys unaudited consolidated financial
statements and related notes contained in its Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 2010,
which is incorporated by reference in this joint proxy
statement/prospectus. The information set forth below is only a
summary and is not necessarily indicative of the results of
future operations of FirstEnergy or the combined company, and
you should read the following information together with
FirstEnergys audited consolidated financial statements,
the related notes and the section entitled
Managements Discussion and Analysis of Financial
Condition and Results of Operations contained in
FirstEnergys Annual Report on
Form 10-K
for the year ended December 31, 2009, and
FirstEnergys unaudited consolidated financial statements,
the related notes and the section entitled
Managements Discussion and Analysis of Registrant
and Subsidiaries contained in FirstEnergys Quarterly
Report on Form 10-Q for the quarterly period ended
March 31, 2010, which are incorporated by reference in this
joint proxy statement/prospectus. For more information, see the
section entitled Where You Can Find More Information;
Incorporation by Reference beginning on page 184.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or For the
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended March 31,
|
|
|
As of or For the Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, except per share amounts)
|
|
|
Revenues
|
|
$
|
3,299
|
|
|
$
|
3,334
|
|
|
$
|
12,967
|
|
|
$
|
13,627
|
|
|
$
|
12,802
|
|
|
$
|
11,501
|
|
|
$
|
11,358
|
|
Income From Continuing Operations
|
|
$
|
155
|
|
|
$
|
119
|
|
|
$
|
1,006
|
|
|
$
|
1,342
|
|
|
$
|
1,309
|
|
|
$
|
1,258
|
|
|
$
|
879
|
|
Earnings Available to FirstEnergy Corp.
|
|
$
|
155
|
|
|
$
|
119
|
|
|
$
|
1,006
|
|
|
$
|
1,342
|
|
|
$
|
1,309
|
|
|
$
|
1,254
|
|
|
$
|
861
|
|
Basic Earnings per Share of Common Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.51
|
|
|
$
|
0.39
|
|
|
$
|
3.31
|
|
|
$
|
4.41
|
|
|
$
|
4.27
|
|
|
$
|
3.85
|
|
|
$
|
2.68
|
|
Earnings per basic share
|
|
$
|
0.51
|
|
|
$
|
0.39
|
|
|
$
|
3.31
|
|
|
$
|
4.41
|
|
|
$
|
4.27
|
|
|
$
|
3.84
|
|
|
$
|
2.62
|
|
Diluted Earnings per Share of Common Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.51
|
|
|
$
|
0.39
|
|
|
$
|
3.29
|
|
|
$
|
4.38
|
|
|
$
|
4.22
|
|
|
$
|
3.82
|
|
|
$
|
2.67
|
|
Earnings per diluted share
|
|
$
|
0.51
|
|
|
$
|
0.39
|
|
|
$
|
3.29
|
|
|
$
|
4.38
|
|
|
$
|
4.22
|
|
|
$
|
3.81
|
|
|
$
|
2.61
|
|
Dividends Declared per Share of Common Stock
|
|
$
|
0.55
|
|
|
$
|
0.55
|
|
|
$
|
2.20
|
|
|
$
|
2.20
|
|
|
$
|
2.05
|
|
|
$
|
1.85
|
|
|
$
|
1.705
|
|
Weighted Average Number of Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Outstanding
|
|
|
304
|
|
|
|
304
|
|
|
|
304
|
|
|
|
304
|
|
|
|
306
|
|
|
|
324
|
|
|
|
328
|
|
Weighted Average Number of Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Outstanding
|
|
|
306
|
|
|
|
306
|
|
|
|
306
|
|
|
|
307
|
|
|
|
310
|
|
|
|
327
|
|
|
|
330
|
|
Total Assets
|
|
$
|
34,078
|
|
|
$
|
33,557
|
|
|
$
|
34,304
|
|
|
$
|
33,521
|
|
|
$
|
32,311
|
|
|
$
|
31,196
|
|
|
$
|
31,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity
|
|
$
|
8,535
|
|
|
$
|
8,284
|
|
|
$
|
8,557
|
|
|
$
|
8,315
|
|
|
$
|
9,007
|
|
|
$
|
9,069
|
|
|
$
|
9,225
|
|
Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
184
|
|
Long-Term Debt and Other Long-Term Obligations
|
|
|
11,847
|
|
|
|
9,697
|
|
|
|
11,908
|
|
|
|
9,100
|
|
|
|
8,869
|
|
|
|
8,535
|
|
|
|
8,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capitalization
|
|
$
|
20,382
|
|
|
$
|
17,981
|
|
|
$
|
20,465
|
|
|
$
|
17,415
|
|
|
$
|
17,876
|
|
|
$
|
17,604
|
|
|
$
|
17,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
ALLEGHENY
ENERGY
SELECTED HISTORICAL FINANCIAL DATA
The selected historical consolidated financial data of Allegheny
Energy for each of the years ended December 31, 2009, 2008
and 2007 and as of December 31, 2009 and 2008 have been
derived from Allegheny Energys audited consolidated
financial statements and related notes contained in its Annual
Report on
Form 10-K
for the year ended December 31, 2009, which is incorporated
by reference in this joint proxy statement/prospectus. The
selected historical consolidated financial data for the years
ended December 31, 2006 and 2005 and as of
December 31, 2007, 2006 and 2005 have been derived from
Allegheny Energys audited consolidated financial
statements for such years, which have not been incorporated by
reference in this joint proxy statement/prospectus. The selected
historical consolidated financial data of Allegheny Energy for
and as of the three months ended March 31, 2010 and 2009
have been derived from Allegheny Energys unaudited
consolidated financial statements and related notes contained in
its Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 2010, which is incorporated by reference in
this joint proxy statement/prospectus. The information set forth
below is only a summary and is not necessarily indicative of the
results of future operations of Allegheny Energy or the combined
company, and you should read the following information together
with Allegheny Energys audited consolidated financial
statements, the related notes and the section entitled
Managements Discussion and Analysis of Financial
Condition and Results of Operations contained in Allegheny
Energys Annual Report on
Form 10-K
for the year ended December 31, 2009, and Allegheny
Energys unaudited consolidated financial statements, the
related notes and the section entitled Managements
Discussion and Analysis of Financial Condition and Results of
Operations contained in Allegheny Energys Quarterly
Report on Form 10-Q for the quarterly period ended
March 31, 2010 which are incorporated by reference in this
joint proxy statement/prospectus. For more information, see the
section entitled Where You Can Find More Information;
Incorporation by Reference beginning on page 184.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Year Ended December 31,
|
|
Income statement data:
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, except per share amounts)
|
|
|
Operating revenues
|
|
$
|
1,048.9
|
|
|
$
|
957.2
|
|
|
$
|
3,426.8
|
|
|
$
|
3,385.9
|
|
|
$
|
3,307.0
|
|
|
$
|
3,121.5
|
|
|
$
|
3,037.9
|
|
Operating expenses
|
|
$
|
830.4
|
|
|
$
|
667.4
|
|
|
$
|
2,507.0
|
|
|
$
|
2,576.4
|
|
|
$
|
2,489.7
|
|
|
$
|
2,389.2
|
|
|
$
|
2,501.1
|
|
Operating income
|
|
$
|
218.5
|
|
|
$
|
289.8
|
|
|
$
|
919.8
|
|
|
$
|
809.5
|
|
|
$
|
817.3
|
|
|
$
|
732.3
|
|
|
$
|
536.8
|
|
Income from continuing operations attributable to Allegheny
Energy, Inc.
|
|
$
|
88.2
|
|
|
$
|
133.9
|
|
|
$
|
392.8
|
|
|
$
|
395.4
|
|
|
$
|
412.2
|
|
|
$
|
318.7
|
|
|
$
|
75.1
|
|
Income (loss) from discontinued operations, net of tax
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.6
|
|
|
$
|
(6.1
|
)
|
Net income attributable to Allegheny Energy, Inc.
|
|
$
|
88.2
|
|
|
$
|
133.9
|
|
|
$
|
392.8
|
|
|
$
|
395.4
|
|
|
$
|
412.2
|
|
|
$
|
319.3
|
|
|
$
|
63.1
|
|
Weighted average number of diluted shares outstanding
|
|
|
170
|
|
|
|
170
|
|
|
|
170.0
|
|
|
|
170.0
|
|
|
|
169.5
|
|
|
|
168.7
|
|
|
|
158.6
|
|
Earnings per share attributable to Allegheny Energy, Inc.:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Allegheny
Energy, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Basic
|
|
$
|
0.52
|
|
|
$
|
0.79
|
|
|
$
|
2.32
|
|
|
$
|
2.35
|
|
|
$
|
2.48
|
|
|
$
|
1.94
|
|
|
$
|
0.48
|
|
-Diluted
|
|
$
|
0.52
|
|
|
$
|
0.79
|
|
|
$
|
2.31
|
|
|
$
|
2.33
|
|
|
$
|
2.43
|
|
|
$
|
1.89
|
|
|
$
|
0.47
|
|
Net income attributable to Allegheny Energy, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Basic
|
|
$
|
0.52
|
|
|
$
|
0.79
|
|
|
$
|
2.32
|
|
|
$
|
2.35
|
|
|
$
|
2.48
|
|
|
$
|
1.94
|
|
|
$
|
0.40
|
|
-Diluted
|
|
$
|
0.52
|
|
|
$
|
0.79
|
|
|
$
|
2.31
|
|
|
$
|
2.33
|
|
|
$
|
2.43
|
|
|
$
|
1.89
|
|
|
$
|
0.40
|
|
Dividends per share
|
|
$
|
0.15
|
|
|
$
|
0.15
|
|
|
$
|
0.60
|
|
|
$
|
0.60
|
|
|
$
|
0.15
|
|
|
$
|
|
|
|
$
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
Balance sheet data:
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
Property, plant and equipment, net
|
|
$
|
9,098.2
|
|
|
$
|
8,957.1
|
|
|
$
|
8,002.2
|
|
|
$
|
7,196.6
|
|
|
$
|
6,512.9
|
|
|
$
|
6,277.4
|
|
Total assets
|
|
$
|
11,700.2
|
|
|
$
|
11,589.1
|
|
|
$
|
10,811.0
|
|
|
$
|
9,906.6
|
|
|
$
|
8,552.4
|
|
|
$
|
8,558.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10.0
|
|
|
$
|
|
|
|
$
|
|
|
Long-term debt due within one year
|
|
$
|
167.0
|
|
|
$
|
140.8
|
|
|
$
|
93.9
|
|
|
$
|
95.4
|
|
|
$
|
201.2
|
|
|
$
|
477.2
|
|
Long-term debt
|
|
$
|
4,397.7
|
|
|
$
|
4,417.0
|
|
|
$
|
4,115.9
|
|
|
$
|
3,943.9
|
|
|
$
|
3,384.0
|
|
|
$
|
3,624.5
|
|
Total equity
|
|
$
|
3,226.0
|
|
|
$
|
3,128.1
|
|
|
$
|
2,855.7
|
|
|
$
|
2,548.6
|
|
|
$
|
2,115.1
|
|
|
$
|
1,741.3
|
|
25
SELECTED
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL
INFORMATION
The following selected unaudited pro forma condensed combined
consolidated statements of income data of FirstEnergy for the
three months ended March 31, 2010 and the year ended
December 31, 2009 have been prepared to give effect to the
merger as if the merger was completed on January 1, 2009.
The unaudited pro forma condensed combined consolidated balance
sheet data of FirstEnergy as of March 31, 2010 has been
prepared to give effect to the merger as if the merger was
completed on March 31, 2010.
The following selected unaudited pro forma condensed combined
consolidated financial information is not necessarily indicative
of the results that might have occurred had the merger taken
place on January 1, 2009 for income statement purposes, and
on March 31, 2010 for balance sheet purposes, and is not
intended to be a projection of future results. Future results
may vary significantly from the results reflected because of
various factors, including those discussed in the section
entitled Risk Factors beginning on page 32. The
following selected unaudited pro forma condensed combined
consolidated financial information should be read in conjunction
with the section entitled Unaudited Pro Forma Condensed
Combined Consolidated Financial Information and related
notes included in this joint proxy statement/prospectus
beginning on page 147.
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
Ended
|
|
Year Ended
|
|
|
March 31, 2010
|
|
December 31, 2009
|
|
|
(In millions, except per share data)
|
|
Pro Forma Condensed Combined Consolidated Statement of Income
Data:
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
4,348
|
|
|
$
|
16,394
|
|
Income From Continuing Operations
|
|
|
236
|
|
|
|
1,380
|
|
Net Income
|
|
|
236
|
|
|
|
1,380
|
|
Earnings Available to FirstEnergy Corp.
|
|
|
242
|
|
|
|
1,395
|
|
Basic Earnings Per Share of Common Stock
|
|
$
|
0.58
|
|
|
$
|
3.34
|
|
Diluted Earnings Per Share of Common Stock
|
|
$
|
0.58
|
|
|
$
|
3.32
|
|
|
|
|
|
|
|
|
As of
|
|
|
March 31, 2010
|
|
|
(In millions)
|
|
Pro Forma Condensed Combined Consolidated Balance Sheet
Data:
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
496
|
|
Total Assets
|
|
|
47,465
|
|
Long-Term Debt and Other Long-Term Obligations
|
|
|
16,449
|
|
Total Liabilities
|
|
|
34,736
|
|
Total Equity
|
|
|
12,729
|
|
26
UNAUDITED
COMPARATIVE PER SHARE DATA
The following table summarizes unaudited per share data for (a)
FirstEnergy and Allegheny Energy on a historical basis, (b)
FirstEnergy on a pro forma combined basis giving effect to the
merger and (c) Allegheny Energy on a pro forma equivalent basis
based on the exchange ratio of 0.667 of a share of FirstEnergy
common stock per share of Allegheny Energy common stock. It has
been assumed for purposes of the pro forma combined financial
information provided below that the merger was completed on
January 1, 2009 for earnings per share purposes, and on
March 31, 2010 for book value per share purposes. The
following information should be read in conjunction with the
section entitled Unaudited Pro Forma Condensed Combined
Consolidated Financial Information and related notes
included in this joint proxy statement/prospectus beginning on
page 147.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FirstEnergy
|
|
Allegheny Energy
|
|
|
|
|
Pro Forma
|
|
|
|
Pro Forma
|
|
|
Historical
|
|
Combined
|
|
Historical
|
|
Equivalent(1)
|
|
Three Months Ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share of Common
Stock(2)
|
|
$
|
0.51
|
|
|
$
|
0.58
|
|
|
$
|
0.52
|
|
|
$
|
0.39
|
|
Diluted Earnings Per Share of Common
Stock(2)
|
|
|
0.51
|
|
|
|
0.58
|
|
|
|
0.52
|
|
|
|
0.39
|
|
Cash Dividends Declared Per Share
|
|
|
0.55
|
|
|
|
0.55
|
|
|
|
0.15
|
|
|
|
0.37
|
|
Book Value Per Share of Common
Stock(3)
|
|
|
28.03
|
|
|
|
30.41
|
|
|
|
19.02
|
|
|
|
20.28
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share of Common
Stock(2)
|
|
$
|
3.31
|
|
|
$
|
3.34
|
|
|
$
|
2.32
|
|
|
$
|
2.23
|
|
Diluted Earnings Per Share of Common
Stock(2)
|
|
|
3.29
|
|
|
|
3.32
|
|
|
|
2.31
|
|
|
|
2.21
|
|
Cash Dividends Declared Per Share
|
|
|
2.20
|
|
|
|
2.20
|
|
|
|
0.60
|
|
|
|
1.47
|
|
|
|
|
(1) |
|
The pro forma equivalent per share amounts were calculated by
multiplying the pro forma combined per share amounts by the
exchange ratio of 0.667 of a share of FirstEnergy common stock
per share of Allegheny Energy common stock. |
|
(2) |
|
The pro forma combined consolidated statements of income for the
three months ended March 31, 2010 and the year ended
December 31, 2009 were prepared by combining
FirstEnergys historical consolidated statements of income
and Allegheny Energys historical consolidated statements
of income adjusted to give effect to pro forma events that are
(a) directly attributable to the merger, (b) factually
supportable and (c) expected to have a continuing impact on
combined results. |
|
(3) |
|
Historical book value per share is computed by dividing common
stockholders equity by the number of shares of FirstEnergy
or Allegheny Energy common stock outstanding, as applicable. Pro
forma combined book value per share is computed by dividing pro
forma common stockholders equity by the pro forma number
of shares of FirstEnergy common stock that would have been
outstanding as of March 31, 2010. |
27
COMPARATIVE
FIRSTENERGY AND ALLEGHENY ENERGY MARKET PRICE AND DIVIDEND
DATA
FirstEnergys common stock is listed on the NYSE under the
symbol FE. Allegheny Energys common stock is
listed on the NYSE under the symbol AYE.
The following table presents closing prices for shares of
FirstEnergy common stock and Allegheny Energy common stock on
February 10, 2010, the last trading day before the public
announcement of the execution of the merger agreement
and ,
2010, the latest practicable trading day before the date of this
joint proxy statement/prospectus. This table also presents the
equivalent market value per share of Allegheny Energy common
stock on February 10, 2010
and ,
2010, as determined by multiplying the closing prices of shares
of FirstEnergy common stock on those dates by the exchange ratio
of 0.667.
Although the exchange ratio is fixed, the market prices of
FirstEnergy common stock and Allegheny Energy common stock will
fluctuate before the special meetings and before the merger is
completed. The market value of the merger consideration
ultimately received by Allegheny Energy stockholders will depend
on the closing price of FirstEnergy common stock on the day such
stockholders receive their shares of FirstEnergy common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equivalent
|
|
|
|
|
|
|
Per Share of
|
|
|
|
|
|
|
Allegheny Energy
|
|
|
FirstEnergy
|
|
Allegheny Energy
|
|
Common
|
|
|
Common Stock
|
|
Common Stock
|
|
Stock
|
|
February 10, 2010
|
|
$
|
41.46
|
|
|
$
|
21.02
|
|
|
$
|
27.65
|
|
,
2010
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
The table below sets forth, for the calendar quarters indicated,
the high and low sale prices per share of FirstEnergy common
stock and Allegheny Energy common stock on the NYSE. The table
also shows the amount of cash dividends declared on FirstEnergy
common stock and Allegheny Energy common stock for the calendar
quarters indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FirstEnergy
|
|
|
Common Stock
|
|
|
|
|
|
|
Cash Dividends
|
|
|
High
|
|
Low
|
|
Declared(1)
|
|
Year Ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter (through July 15, 2010)
|
|
$
|
37.77
|
|
|
$
|
34.51
|
|
|
$
|
|
|
Second Quarter
|
|
$
|
39.96
|
|
|
$
|
33.57
|
|
|
$
|
|
|
First Quarter
|
|
$
|
47.09
|
|
|
$
|
38.31
|
|
|
$
|
0.55
|
|
Year Ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
47.77
|
|
|
$
|
41.57
|
|
|
$
|
0.55
|
|
Third Quarter
|
|
$
|
47.82
|
|
|
$
|
36.73
|
|
|
$
|
1.10
|
|
Second Quarter
|
|
$
|
43.29
|
|
|
$
|
35.26
|
|
|
$
|
|
|
First Quarter
|
|
$
|
53.63
|
|
|
$
|
35.63
|
|
|
$
|
0.55
|
|
Year Ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
66.69
|
|
|
$
|
41.20
|
|
|
$
|
0.55
|
|
Third Quarter
|
|
$
|
84.00
|
|
|
$
|
63.03
|
|
|
$
|
1.10
|
|
Second Quarter
|
|
$
|
83.49
|
|
|
$
|
69.20
|
|
|
$
|
|
|
First Quarter
|
|
$
|
78.51
|
|
|
$
|
64.44
|
|
|
$
|
0.55
|
|
Year Ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
74.98
|
|
|
$
|
63.39
|
|
|
$
|
0.55
|
|
Third Quarter
|
|
$
|
68.31
|
|
|
$
|
58.75
|
|
|
$
|
1.00
|
|
Second Quarter
|
|
$
|
72.90
|
|
|
$
|
62.56
|
|
|
$
|
|
|
First Quarter
|
|
$
|
67.11
|
|
|
$
|
57.77
|
|
|
$
|
0.50
|
|
|
|
|
(1)
|
|
Since 2008, the quarterly dividend
rate of $0.55 per share has remained unchanged. The dividend
declared in the first quarter of 2010 was paid in the second
quarter of 2010. The dividends declared in 2009 and 2008
included three quarterly payments of $0.55 per share in 2009 and
2008, respectively, and one quarterly payment of $0.55 per share
in 2010 and 2009, respectively. Dividends declared in 2007
include three quarterly payments of $0.50 per share in 2007 and
one quarterly payment of $0.55 per share in 2008.
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allegheny Energy
|
|
|
Common Stock
|
|
|
|
|
|
|
Cash Dividends
|
|
|
High
|
|
Low
|
|
Declared
|
|
Year Ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter (through July 15, 2010)
|
|
$
|
22.59
|
|
|
$
|
20.01
|
|
|
$
|
0.15
|
|
Second Quarter
|
|
$
|
23.47
|
|
|
$
|
18.97
|
|
|
$
|
0.15
|
|
First Quarter
|
|
$
|
23.99
|
|
|
$
|
20.40
|
|
|
$
|
0.15
|
|
Year Ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
27.15
|
|
|
$
|
21.84
|
|
|
$
|
0.15
|
|
Third Quarter
|
|
$
|
27.70
|
|
|
$
|
23.42
|
|
|
$
|
0.15
|
|
Second Quarter
|
|
$
|
29.85
|
|
|
$
|
22.70
|
|
|
$
|
0.15
|
|
First Quarter
|
|
$
|
35.97
|
|
|
$
|
20.32
|
|
|
$
|
0.15
|
|
Year Ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
36.61
|
|
|
$
|
23.86
|
|
|
$
|
0.15
|
|
Third Quarter
|
|
$
|
51.14
|
|
|
$
|
33.94
|
|
|
$
|
0.15
|
|
Second Quarter
|
|
$
|
55.98
|
|
|
$
|
49.38
|
|
|
$
|
0.15
|
|
First Quarter
|
|
$
|
64.75
|
|
|
$
|
45.46
|
|
|
$
|
0.15
|
|
Year Ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
65.48
|
|
|
$
|
52.37
|
|
|
$
|
0.15
|
|
Third Quarter
|
|
$
|
57.30
|
|
|
$
|
48.18
|
|
|
$
|
|
|
Second Quarter
|
|
$
|
56.13
|
|
|
$
|
48.67
|
|
|
$
|
|
|
First Quarter
|
|
$
|
50.25
|
|
|
$
|
44.28
|
|
|
$
|
|
|
The information in the preceding tables is historical only.
FirstEnergy and Allegheny Energy urge you to obtain current
market quotations for shares of FirstEnergy and Allegheny Energy
common stock before voting at your special meeting.
29
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus, including information
included or incorporated by reference in this joint proxy
statement/prospectus, may contain forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995. You can typically identify forward-looking
statements by the use of forward-looking words such as
expect, anticipate, target,
goal, project, intend,
plan, believe, budget,
should, continue, could,
forecast, may, might,
potential, strategy,
synergies, will, would,
seek, estimate, variations of such words
and similar expressions, although the absence of any such words
or expressions does not mean that a particular statement is not
a forward-looking statement. Any statements regarding the
benefits of the merger, or FirstEnergys or Allegheny
Energys future financial condition, results of operations
and business are also forward-looking statements. Without
limiting the generality of the preceding sentence, certain
statements contained in the sections entitled The
Merger Background of the Merger, The
Merger Recommendation of the FirstEnergy Board of
Directors and Its Reasons for the Merger, The
Merger Recommendation of the Allegheny Energy Board
of Directors and Its Reasons for the Merger, The
Merger Opinion of FirstEnergys Financial
Advisor and The Merger Opinion of
Allegheny Energys Financial Advisor constitute
forward-looking statements.
These forward-looking statements represent FirstEnergys
and Allegheny Energys intentions, plans, expectations,
assumptions and beliefs about future events and are subject to
risks, uncertainties and other factors. Many of these factors
are outside the control of FirstEnergy and Allegheny Energy and
could cause actual results to differ materially from the results
expressed or implied by these forward-looking statements. In
addition to the risk factors described in the section entitled
Risk Factors beginning on page 32 of this joint
proxy statement/prospectus, these factors include:
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those identified and disclosed in public filings with the SEC
made by FirstEnergy and Allegheny Energy;
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obtaining FirstEnergy and Allegheny Energy shareholder approval
of the merger;
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the risk that required governmental and regulatory approvals for
the merger may not be obtained, or, if obtained, may impose
unfavorable terms, conditions or restrictions;
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litigation relating to the merger;
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satisfying the conditions to the closing of the merger;
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the length of the time necessary to complete the merger;
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successfully integrating the FirstEnergy and Allegheny Energy
businesses, and avoiding problems which may result in the
combined company not operating as effectively and efficiently as
expected;
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the possibility that the estimated synergies will not be
realized within the expected timeframe or at all;
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competition, whether new or existing;
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industrial, commercial and residential growth in the service
territory of FirstEnergy and Allegheny Energy;
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prevailing economic, market and business conditions;
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the cost and availability of capital and any restrictions
imposed by lenders or creditors;
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changes in the industry in which FirstEnergy and Allegheny
Energy operate;
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the weather and other natural phenomena, including the economic,
operational and other effects of severe weather, such as
tornadoes, hurricanes, ice, sleet, snow storms or droughts;
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conditions beyond FirstEnergys or Allegheny Energys
control such as disaster, acts of war or terrorism;
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the failure to renew, or the revocation of, any licensing or
other required permits;
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unexpected costs or unexpected liabilities, or the effects of
acquisition accounting varying from the companies
expectations or changes in accounting policies;
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the risk that the credit ratings of the combined company or its
subsidiaries may be different from what the companies expect,
which may increase borrowing costs
and/or make
it more difficult to pay or refinance its debts and require it
to borrow or divert cash flow from operations in order to
service debt payments;
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the effects on the businesses of the companies resulting from
uncertainty surrounding the merger, including with respect to
customers, employees or suppliers or the diversion of
managements time and attention;
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adverse outcomes of pending or threatened litigation or
governmental investigations unrelated to the merger;
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the effects on the companies of future regulatory or legislative
actions, including changes in environmental and other laws and
regulations to which FirstEnergy, Allegheny Energy or their
subsidiaries and facilities are subject;
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conduct of and changing circumstances related to third-party
relationships on which FirstEnergy and Allegheny Energy rely,
including the level of credit worthiness of counterparties;
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the volatility and unpredictability of stock market and credit
market conditions;
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fluctuations in interest rates;
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variations between the stated assumptions on which
forward-looking statements are based and FirstEnergys and
Allegheny Energys actual experience; and
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other economic, business,
and/or
competitive factors.
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You are cautioned not to place undue reliance on forward-looking
statements, which speak only as of the date of this joint proxy
statement/prospectus and should be read in conjunction with the
risk factors and other disclosures contained or incorporated by
reference into this joint proxy statement/prospectus. The areas
of risk and uncertainty described above, which are not
exclusive, should be considered in connection with any written
or oral forward-looking statements that may be made in this
joint proxy statement/prospectus or on, before or after the date
of this joint proxy statement/prospectus by FirstEnergy or
Allegheny Energy or anyone acting for any or both of them.
Except as required by applicable law or regulation, neither
FirstEnergy nor Allegheny Energy undertakes any obligation to
release publicly or otherwise make any revisions to any
forward-looking statements, to report events or circumstances
after the date of this joint proxy statement/prospectus or to
report the occurrence of unanticipated events.
31
RISK
FACTORS
In addition to the other information included or incorporated
by reference in this joint proxy statement/prospectus, including
the matters addressed in the section entitled Cautionary
Statement Concerning Forward-Looking Statements beginning
on page 30 you should carefully consider the following risks
before deciding how to vote.
Because
the exchange ratio is fixed and the market price of shares of
FirstEnergy common stock will fluctuate, Allegheny Energy
stockholders cannot be sure of the value of the merger
consideration they will receive.
Upon completion of the merger, each outstanding share of
Allegheny Energy common stock will be converted into the right
to receive 0.667 of a share of FirstEnergy common stock. The
number of shares of FirstEnergy common stock to be issued
pursuant to the merger agreement for each share of Allegheny
Energy common stock is fixed and will not change to reflect
changes in the market price of FirstEnergy or Allegheny Energy
common stock. The market price of FirstEnergy common stock at
the time of completion of the merger may vary significantly from
the market prices of FirstEnergy common stock on the date the
merger agreement was executed, the date of this joint proxy
statement/prospectus and the date of the special meetings.
Accordingly, at the time of the special meetings, you will not
know or be able to calculate the market value of the merger
consideration you will receive upon the completion of the merger.
In addition, the merger might not be completed until a
significant period of time has passed after the special
meetings. Because the exchange ratio will not be adjusted to
reflect any changes in the market value of FirstEnergy common
stock or Allegheny Energy common stock, the market value of the
FirstEnergy common stock issued in the merger and the Allegheny
Energy common stock surrendered in the merger may be higher or
lower than the values of those shares on earlier dates.
Stock price changes may result from a variety of factors, many
of which are beyond the control of FirstEnergy and Allegheny
Energy, including:
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market reaction to the announcement of the merger and market
assessment of the likelihood of the merger being completed;
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changes in the respective businesses, operations or prospects of
FirstEnergy or Allegheny Energy, including FirstEnergys
and Allegheny Energys ability to meet earnings estimates;
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litigation or regulatory developments affecting FirstEnergy or
Allegheny Energy or the utility industry;
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general business, market, industry or economic
conditions; and
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other factors beyond the control of FirstEnergy and Allegheny
Energy, including those described elsewhere in this Risk
Factors section and in documents incorporated by reference
in this joint proxy statement/prospectus.
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Neither FirstEnergy nor Allegheny Energy is permitted to
terminate the merger agreement solely because of changes in the
market price of either companys common stock.
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The
merger agreement contains provisions that limit
FirstEnergys and Allegheny Energys ability to pursue
alternatives to the merger, which could discourage a potential
competing acquirer of either Allegheny Energy or FirstEnergy
from making an alternative transaction proposal and, in certain
circumstances, could require FirstEnergy or Allegheny Energy to
pay to the other a termination fee of $350 million or
$150 million, respectively, as well as up to $45 million of
transaction expenses.
Under the merger agreement, FirstEnergy and Allegheny Energy are
restricted, subject to limited exceptions, from entering into
alternative transactions. Unless and until the merger agreement
is terminated, subject to specified exceptions (which are
discussed in more detail in the section entitled The
Merger Agreement beginning on page 124), both
FirstEnergy and Allegheny Energy are restricted from soliciting,
initiating, seeking, knowingly encouraging or facilitating, or
negotiating, any inquiry, proposal or offer for a competing
acquisition proposal with any person. Additionally, under the
merger agreement, in the event of a potential change by either
the FirstEnergy or the Allegheny Energy board of its
recommendation with respect to the merger-related proposals, the
company changing its recommendation must provide the other with
five business days prior notice and if requested, negotiate in
good faith an adjustment to the terms and conditions of the
merger agreement prior to changing its recommendation.
FirstEnergy and Allegheny Energy may terminate the merger
agreement and enter into an agreement with respect to a superior
proposal only if specified conditions have been satisfied,
including, compliance with the non-solicitation provisions of
the merger agreement. These provisions could discourage a third
party that may have an interest in acquiring all or a
significant part of FirstEnergy or Allegheny Energy from
considering or proposing that acquisition, even if such third
party were prepared to pay consideration with a higher per share
cash or market value than that market value proposed to be
received or realized in the merger, or might result in a
potential competing acquirer proposing to pay a lower price than
it would otherwise have proposed to pay because of the added
expense of the termination fee that may become payable in
certain circumstances. As a result of these restrictions,
neither FirstEnergy nor Allegheny Energy may be able to enter
into an agreement with respect to a more favorable alternative
transaction without incurring potentially significant liability
to the other.
Under the merger agreement, FirstEnergy or Allegheny Energy may
be required to pay to the other a termination fee of
$350 million or $150 million, respectively, if the
merger agreement is terminated under certain circumstances,
and/or
reasonably documented transaction expenses up to
$45 million. Should the merger agreement be terminated in
circumstances under which such a termination fee or expense
reimbursement is payable, the payment of this fee or
reimbursement by FirstEnergy or Allegheny Energy (or by a third
party acquiror) could have material and adverse consequences to
the financial condition and operations of the company making
such payment.
FirstEnergy
and Allegheny Energy will be subject to various uncertainties
and contractual restrictions while the merger is pending that
could adversely affect their businesses and impact the combined
companys operational and financial performance after the
merger.
Uncertainty about the effect of the merger on employees,
suppliers and customers may have an adverse effect on
FirstEnergy and Allegheny Energy. Although FirstEnergy and
Allegheny Energy intend to take steps designed to reduce any
adverse effects, these uncertainties may impair
FirstEnergys or Allegheny Energys ability to
attract, retain and motivate key personnel until the merger is
completed and for a period of time thereafter, and could cause
customers, suppliers and others that deal with FirstEnergy and
Allegheny Energy to seek to change existing business
relationships with FirstEnergy and Allegheny Energy.
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Employee retention and recruitment may be particularly
challenging prior to the completion of the merger, as employees
and prospective employees may experience uncertainty about their
future roles with the combined company. If, despite
FirstEnergys and Allegheny Energys retention and
recruiting efforts, key employees depart or fail to accept
employment with either company because of issues relating to the
uncertainty and difficulty of integration or a desire not to
remain with the combined company, FirstEnergys and
Allegheny Energys financial results could be affected.
Furthermore, FirstEnergys operational and financial
performance following the merger could be adversely affected if
it is unable to retain key employees and skilled workers of
Allegheny Energy. The loss of the services of key employees and
skilled workers and their experience and knowledge regarding
Allegheny Energys business could adversely affect
FirstEnergys future operating results and its successful
ongoing operation of the business.
The pursuit of the merger and the preparation for the
integration may place a significant burden on management and
internal resources. The diversion of management attention away
from day-to-day business concerns and any difficulties
encountered in the transition and integration process could
affect FirstEnergys and Allegheny Energys financial
results.
In addition, the merger agreement restricts either company,
without the others consent, from making certain
acquisitions and taking other specified actions until the merger
occurs or the merger agreement terminates. These restrictions
may prevent FirstEnergy or Allegheny Energy from pursuing
otherwise attractive business opportunities and making other
changes to FirstEnergys or Allegheny Energys
business prior to completion of the merger or termination of the
merger agreement. See the section entitled The Merger
Agreement Conduct of Business Pending the
Merger beginning on page 131.
Many
of the anticipated benefits of combining FirstEnergy and
Allegheny Energy may not be realized.
FirstEnergy and Allegheny Energy entered into the merger
agreement with the expectation that the merger would result in
various benefits including, among other things, synergies, cost
savings and operating efficiencies. The success of the merger
will depend, in part, on the combined companys ability to
realize these anticipated benefits and cost savings from
combining the businesses of FirstEnergy and Allegheny Energy.
However, to realize these anticipated benefits and cost savings,
FirstEnergy and Allegheny Energy must successfully combine their
businesses. If FirstEnergy and Allegheny Energy are not able to
achieve these objectives, the anticipated benefits and cost
savings of the merger may not be realized fully or at all or may
take longer to realize than expected. The pro forma financial
statements presented elsewhere in this joint proxy
statement/prospectus do not reflect potential synergies and are
not necessarily indicative of results of operations and
financial position that would have been achieved had the pro
forma events taken place on the dates indicated, or indicative
of the future consolidated results of operations or financial
position of the combined company.
FirstEnergy and Allegheny Energy have operated and, until the
completion of the merger, will continue to operate
independently. It is possible that the integration process could
take longer than anticipated and could result in the loss of
valuable employees, the disruption of each companys
ongoing businesses, processes and systems or inconsistencies in
standards, controls, procedures, practices, policies and
compensation arrangements, any of which could adversely affect
the combined companys ability to achieve the anticipated
benefits of the merger. The combined companys results of
operations could also be adversely affected by any issues
attributable to either companys operations that arise or
are based on events or actions that occur prior to the closing
of the merger. Further, the size of the merger may make
integration difficult, expensive and disruptive,
34
adversely affecting FirstEnergys revenues after the
merger. While the merger agreement provides for the
establishment of an integration committee, FirstEnergy may have
difficulty addressing possible differences in corporate cultures
and management philosophies. Integration efforts between the two
companies will also divert management attention and resources.
These integration activities could have an adverse effect on the
businesses of both FirstEnergy and Allegheny Energy during the
transition period. The integration process is subject to a
number of uncertainties, and no assurance can be given that the
anticipated benefits will be realized or, if realized, the
timing of their realization. Failure to achieve these
anticipated benefits could result in increased costs or
decreases in the amount of expected revenues and could adversely
affect FirstEnergys future business, financial condition,
operating results and prospects. In addition, FirstEnergy may
not be able to eliminate duplicative costs or realize other
efficiencies from integrating the businesses to offset part or
all of the transaction and merger-related costs incurred by
FirstEnergy and Allegheny Energy.
FirstEnergy
and Allegheny Energy may be unable to obtain in the anticipated
timeframe, or at all, the regulatory approvals required to
complete the merger or, in order to do so, FirstEnergy and
Allegheny Energy may be required to comply with material
restrictions or conditions that may negatively affect the
combined company after the merger is completed or cause them to
abandon the merger. Furthermore, FirstEnergy and Allegheny
Energy may subsequently agree to conditions without further
seeking shareholder approval, even if such conditions could have
an adverse impact on FirstEnergy, Allegheny Energy or the
combined company.
The merger is subject to review by the U.S. Department of
Justice Antitrust Division, referred to as the Antitrust
Division, and the Federal Trade Commission, referred to as the
FTC, under the HSR Act, and the expiration or termination of the
waiting period (and any extension of the waiting period)
applicable to the merger under the HSR Act is a condition to
closing the merger. The merger is also subject to the regulatory
requirements of other federal and state agencies and
authorities, including the FERC, the MDPSC, the PAPUC, the VSCC,
the WVPSC and the FCC. FirstEnergy and Allegheny Energy can
provide no assurance that all required regulatory
authorizations, approvals or consents will be obtained or that
these authorizations, approvals or consents will not contain
terms, conditions or restrictions that would be detrimental to
FirstEnergy after the completion of the merger. A substantial
delay in obtaining the required authorizations, approvals or
consents or the imposition of unfavorable terms, conditions or
restrictions contained in such authorizations, approvals or
consents could have a material adverse effect on the synergies
and other anticipated benefits of the merger, thereby impacting
the business, financial condition or results of operations of
FirstEnergy after the merger. In addition, delays or unfavorable
terms could lead FirstEnergy or Allegheny Energy to become
involved in litigation with one or more governmental entities or
third parties, or may cause FirstEnergy or Allegheny Energy to
significantly delay
and/or
abandon the merger.
The special meetings of shareholders at which the merger-related
proposals will be considered will likely take place before any
or all of the required regulatory approvals have been obtained
and before all conditions to such approvals, if any, are known.
In this event, if the merger-related proposals are approved,
FirstEnergy and Allegheny Energy may subsequently agree to
conditions without further seeking shareholder approval, even if
such conditions could have an adverse impact on FirstEnergy,
Allegheny Energy or the combined company.
Even after the statutory waiting period under the HSR Act has
expired, and even after completion of the merger, governmental
authorities could seek to block or challenge the merger as they
deem necessary or desirable in the public interest. In addition,
in some jurisdictions, a competitor, customer or other third
party could initiate a private action under the antitrust laws
challenging or seeking to enjoin the merger, before or after it
is completed. FirstEnergy or
35
Allegheny Energy may not prevail, or may incur significant
costs, in defending or settling any action under the antitrust
laws.
Any delay in completing the merger may materially adversely
affect the synergies and other benefits that FirstEnergy and
Allegheny Energy expect to achieve from the merger and the
integration of their respective businesses.
FirstEnergy
may record goodwill that could become impaired and adversely
affect its operating results.
The merger will be accounted for in accordance with GAAP. Under
accounting for business combinations, the assets and liabilities
of Allegheny Energy will be recorded, as of completion of the
merger, at their respective fair values and added to those of
FirstEnergy. The reported financial condition and results of
operations of FirstEnergy issued after completion of the merger
will reflect Allegheny Energy balances and results after
completion of the merger, but will not be restated retroactively
to reflect the historical financial position or results of
operations of Allegheny Energy for periods prior to the merger.
Following completion of the merger, the earnings of FirstEnergy
will reflect purchase accounting adjustments. See the section
entitled Unaudited Pro Forma Condensed Combined
Consolidated Financial Information beginning on
page 147.
The total purchase price will be allocated to Allegheny
Energys tangible assets and liabilities and identifiable
intangible assets based on their fair values as of the date of
completion of the merger. Any excess of the purchase price over
those fair values will be recorded as goodwill. To the extent
the value of any goodwill or intangibles becomes impaired,
FirstEnergy may be required to incur material charges relating
to such impairment. Such a potential impairment charge could
have a material impact on FirstEnergys operating results.
FirstEnergy
and Allegheny Energy will incur substantial transaction fees and
merger-related costs in connection with the
merger.
FirstEnergy and Allegheny Energy expect to incur a number of
non-recurring transaction costs associated with completing the
merger, as well as costs in combining the operations of the two
companies and achieving desired synergies. These fees and costs
will be substantial. The cumulative amount of
non-recurring
transaction costs expected to be incurred by FirstEnergy and
Allegheny Energy to complete the merger is currently estimated
to be approximately $120 million. Additional costs will be
incurred in the integration of the businesses of FirstEnergy and
Allegheny Energy. Although it is expected that the elimination
of certain duplicative costs, as well as the realization of
other efficiencies related to the integration of the two
businesses, will offset the incremental transaction and other
merger-related costs over time, FirstEnergy and Allegheny Energy
may incur such costs in excess of their expectations, and
whether or not unexpected costs arise, this net benefit may not
be achieved in the near term, or at all.
The
opinions obtained by FirstEnergy and Allegheny Energy from their
respective financial advisors do not reflect changes in
circumstances between the signing of the merger agreement and
completion of the merger.
Each of the financial advisors of FirstEnergy and Allegheny
Energy rendered opinions dated February 10, 2010, with
respect to the fairness from a financial point of view, as of
February 10, 2010, of the merger consideration to
FirstEnergy and to Allegheny Energys stockholders,
respectively. Each opinion was based on the financial, economic,
market and other conditions as in effect on, and the information
made available to the opinion giver as of, February 10,
2010. Neither of the opinions will be updated, revised or
reaffirmed as of the date of this joint proxy statement/
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prospectus, the time the merger will be completed or any other
date. The opinions do not reflect changes in circumstances of
FirstEnergy or Allegheny Energy or in the financial, economic,
market and other conditions or other factors affecting
FirstEnergy or Allegheny Energy after February 10, 2010.
For a description of the opinions that FirstEnergy and Allegheny
Energy received from their respective financial advisors, please
refer to the sections entitled The Merger
Opinion of FirstEnergys Financial Advisor beginning
on page 78 and The Merger Opinion of
Allegheny Energys Financial Advisor beginning on
page 91.
The
market price of FirstEnergy common stock after the merger may be
affected by factors different from those affecting the shares of
Allegheny Energy or FirstEnergy currently.
Upon completion of the merger, holders of Allegheny Energy
common stock will become holders of FirstEnergy common stock.
The businesses of FirstEnergy differ from those of Allegheny
Energy in important respects and, accordingly, the results of
operations of the combined company and the market price of
FirstEnergys shares of common stock following the merger
may be affected by factors different from those currently
affecting the independent results of operations of FirstEnergy
and Allegheny Energy. For a discussion of the businesses of
FirstEnergy and Allegheny Energy and of certain factors to
consider in connection with those businesses, see the documents
incorporated by reference in this joint proxy
statement/prospectus referred to in the section entitled
Where You Can Find More Information; Incorporation by
Reference beginning on page 184.
The
merger may not be accretive to earnings and may cause dilution
to FirstEnergys earnings per share, which may negatively
affect the market price of FirstEnergys common
stock.
FirstEnergy currently anticipates that the merger will be
accretive to earnings per share in the first year following the
completion of the merger. This expectation is based on
preliminary estimates which may materially change. FirstEnergy
could also encounter additional transaction and
integration-related costs, may fail to realize all of the
benefits anticipated in the merger or be subject to other
factors that affect preliminary estimates. Any of these factors
could cause dilution to FirstEnergys earnings per share or
decrease or delay the expected accretive effect of the merger
and contribute to a decrease in the price of FirstEnergys
common stock.
Current
FirstEnergy and Allegheny Energy shareholders will have a
reduced ownership and voting interest after the merger and will
exercise less influence over management.
FirstEnergy will issue approximately 115.4 million shares
of FirstEnergy common stock to Allegheny Energy stockholders in
the merger (including shares to be issued in connection with
outstanding Allegheny Energy equity awards). As a result,
current FirstEnergy shareholders and Allegheny Energy
stockholders are expected to hold approximately 73% and 27%
respectively, of FirstEnergys common stock outstanding
immediately following the completion of the merger.
FirstEnergy shareholders and Allegheny Energy stockholders
currently have the right to vote for their respective directors
and on other matters affecting the applicable company. When the
merger occurs, each Allegheny Energy stockholder that receives
shares of FirstEnergy common stock will become a shareholder of
FirstEnergy with a percentage ownership of the combined
organization that is much smaller than the stockholders
percentage ownership of Allegheny Energy. Correspondingly,
unless they exercise their right to dissent and receive the fair
cash value of their shares, each FirstEnergy shareholder will
remain a shareholder of FirstEnergy with a percentage ownership
of the combined organization that is smaller than the
shareholders percentage of FirstEnergy prior to the
merger. As a result of these reduced ownership percentages,
FirstEnergy shareholders will have less influence on the
management and policies of FirstEnergy than they now have, and
former Allegheny
37
Energy stockholders will have less influence on the management
and policies of the combined company than they now have with
respect to Allegheny Energy.
Failure
to complete the merger could negatively affect the stock prices
and the future businesses and financial results of FirstEnergy
and Allegheny Energy.
Completion of the merger is not assured and is subject to risks,
including the risks that approval of the transaction by
shareholders of FirstEnergy and Allegheny Energy or by
governmental agencies is not obtained or that certain other
closing conditions are not satisfied. If the merger is not
completed, the ongoing businesses of FirstEnergy
and/or
Allegheny Energy may be adversely affected and FirstEnergy and
Allegheny Energy will be subject to several risks, including:
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having to pay certain significant costs relating to the merger
without receiving the benefits of the merger, including in
certain circumstances a termination fee of $350 million in
the case of FirstEnergy and $150 million in the case of
Allegheny Energy and, for either FirstEnergy or Allegheny Energy
in certain circumstances, the reasonably documented transaction
expenses of the other party up to $45 million;
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the attention of management of FirstEnergy and Allegheny Energy
will have been diverted to the merger rather than each
companys own operations and pursuit of other opportunities
that could have been beneficial to that company;
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the potential loss of key personnel, particularly for Allegheny
Energy, during the pendency of the merger as employees may
experience uncertainty about their future roles with the
combined company;
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FirstEnergy and Allegheny Energy will have been subject to
certain restrictions on the conduct of their business, which may
prevent them from making certain acquisitions or dispositions or
pursuing certain business opportunities while the merger is
pending;
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resulting negative customer perception could adversely affect
the ability of FirstEnergy and Allegheny Energy to compete for,
or to win, new and renewal business in the marketplace;
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the stock price of FirstEnergy or Allegheny Energy may decline
to the extent that the current market prices reflect an
assumption by the market that the merger will be
completed; and
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having to face the continuing general competitive pressures and
risks of their businesses and the electric utility industry,
which may increase if the merger is not completed.
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Members
of the management and boards of directors of FirstEnergy and
Allegheny Energy have interests in the merger that are different
from, or in addition to, those of other FirstEnergy and
Allegheny Energy shareholders and that could have influenced
their decision to support or approve the merger.
In considering whether to approve the proposals at the special
meetings, FirstEnergy and Allegheny Energy shareholders should
recognize that some of the members of management and the boards
of directors of FirstEnergy and Allegheny Energy have interests
in the merger that differ from, or are in addition to, their
interests as shareholders of FirstEnergy and stockholders of
Allegheny Energy. For a discussion of the interests of directors
and executive officers in the merger, see the sections entitled
The Merger Additional Interests of the
FirstEnergy Directors and Executive Officers in the Merger
beginning on page 103 and The Merger
Additional Interests of the Allegheny Energy Directors and
Executive Officers in the Merger beginning on
page 104.
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FirstEnergys
indebtedness following the merger will be higher than
FirstEnergys existing indebtedness. Notwithstanding
anticipated improvements in certain key credit metrics, such as
debt-to-capitalization ratios, it may be more difficult for
FirstEnergy to pay or refinance its debts and FirstEnergy may
need to borrow or divert its cash flow from operations to
service debt payments. The additional indebtedness could limit
FirstEnergys ability to pursue other strategic
opportunities and increase its vulnerability to adverse economic
and industry conditions and may cause FirstEnergy to take other
actions that will increase the dilution of its shareholders and
former Allegheny Energy stockholders or reduce
earnings.
In connection with the merger, FirstEnergy will assume Allegheny
Energys outstanding debt. FirstEnergys total
indebtedness as of March 31, 2010 was approximately
$14.5 billion. FirstEnergys pro forma total
indebtedness as of March 31, 2010, after giving effect to
the merger, would have been approximately $19.3 billion
(including approximately $2.0 billion of currently payable
long-term debt, approximately $0.9 billion of short-term
borrowings and approximately $16.4 billion of long-term
debt and other long-term obligations). FirstEnergys debt
service obligations with respect to this increased indebtedness
could have an adverse impact on its earnings and cash flows for
as long as the indebtedness is outstanding.
FirstEnergys increased indebtedness could have important
consequences to holders of FirstEnergy common stock. For
example, it could:
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make it more difficult for FirstEnergy to pay or refinance its
debts as they become due during adverse economic and industry
conditions because any related decrease in revenues could cause
FirstEnergy to not have sufficient cash flows from operations to
make its scheduled debt payments;
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limit FirstEnergys flexibility to pursue other strategic
opportunities or react to changes in its business and the
industry in which it operates and, consequently, place
FirstEnergy at a competitive disadvantage to its competitors
with less debt;
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require a substantial portion of FirstEnergys cash flows
from operations to be used for debt service payments, thereby
reducing the availability of its cash flow to fund working
capital, capital expenditures, acquisitions, dividend payments
and other general corporate purposes;
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result in a downgrade in the rating of FirstEnergys
indebtedness, which could limit FirstEnergys ability to
borrow additional funds, increase the interest rates applicable
to FirstEnergys indebtedness or increase
FirstEnergys requirements to post additional collateral to
support outstanding contract guarantees (following the public
announcement of the execution of the merger agreement,
Standard & Poors Ratings Service lowered its
corporate credit rating on FirstEnergy to BBB- from
BBB and lowered the senior unsecured ratings of
FirstEnergy to BB+ from BBB- and lowered
ratings by one notch on FirstEnergys rated subsidiaries);
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reduce the amount of credit available to FirstEnergy and its
subsidiaries to support its hedging activities; and
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result in higher interest expense in the event of increases in
interest rates since some of FirstEnergys borrowings are,
and will continue to be, at variable rates of interest.
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Based upon current levels of operations, FirstEnergy expects to
be able to obtain sufficient cash on a consolidated basis to
make all of the principal and interest payments when such
payments are due under FirstEnergys and its current
subsidiaries existing credit facilities, indentures and
other instruments governing their outstanding indebtedness, and
under the indebtedness of Allegheny
39
Energy and its subsidiaries that may remain outstanding after
the merger, but there can be no assurance that FirstEnergy will
be able to repay or refinance such borrowings and obligations.
FirstEnergy is committed to maintaining and improving its credit
ratings. In order to maintain and improve these credit ratings,
FirstEnergy may consider it appropriate to reduce the amount of
indebtedness outstanding following the merger. This may be
accomplished in several ways, including issuing additional
shares of common stock or securities convertible into shares of
common stock, selling assets, reducing discretionary uses of
cash, or a combination of these and other measures. Issuances of
additional shares of common stock or securities convertible into
shares of common stock would have the effect of diluting the
ownership percentage that current FirstEnergy shareholders and
former Allegheny Energy stockholders hold in the combined
company and might reduce the reported earnings per share. Sales
of additional assets could reduce the earnings of the combined
company, depending on the earnings attributable to the divested
assets. The specific measures that FirstEnergy may ultimately
decide to use to maintain or improve its credit ratings and
their timing will depend upon a number of factors, including
market conditions and forecasts at the time those decisions are
made.
The
merger will combine two companies that are currently affected by
developments in the electric utility industry, including changes
in regulation. A failure to adapt to the changing regulatory
environment after the merger could adversely affect the
stability of earnings and could result in the erosion of the
combined companys revenues and profits.
Because FirstEnergy, Allegheny Energy and their respective
subsidiaries are regulated in the United States at the federal
level and in a number of states, the two companies have been and
will continue to be impacted by legislative and regulatory
developments in those jurisdictions, as will the combined
company following the merger. After the merger, FirstEnergy
and/or its
subsidiaries will be subject in the United States to extensive
federal regulation, including environmental regulation, as well
as to state and local regulation in Ohio, Pennsylvania, West
Virginia, New York, New Jersey, Maryland and Virginia. The costs
and burdens associated with complying with the increased number
of regulatory jurisdictions may have a material adverse effect
on FirstEnergy. Moreover, the likelihood that federal
and/or state
legislation or regulation with respect to carbon emissions will
be passed or implemented may adversely affect the market price
of FirstEnergys common stock, or its business, financial
condition or results of operation.
The
combined company will have a higher percentage of coal-fired
generation capacity compared to FirstEnergys current
generation mix. As a result, FirstEnergy may be exposed to
greater risk from regulations of coal and coal combustion
by-products than it faces as a stand-alone company prior to the
merger.
After the completion of the merger, the combined companys
generation fleet will have a higher percentage of coal-fired
generation capacity compared to FirstEnergys current
generation mix. As a result, FirstEnergys exposure to new
or changing legislation, regulation or other legal requirements
related to greenhouse gas or other emissions may be increased
compared to its current exposure. Approximately 52% of
FirstEnergys current generation fleet capacity is
coal-fired, with the remainder being low-emitting natural gas,
oil fired or non-emitting nuclear and pumped storage.
Approximately 78% of Allegheny Energys current generation
fleet capacity is coal-fired. After the completion of the
merger, approximately 62% of FirstEnergys fleet capacity
would be coal-fired. Historically, coal-fired generating plants
face greater exposure to the costs of complying with federal,
state and local environmental statutes, rules and regulations
relating to emissions of substances such as sulfur dioxide,
nitrogen oxide and mercury. In addition, there are currently a
40
number of federal, state and international initiatives under
consideration to, among other things, require reductions in
greenhouse gas emissions from power generation or other
facilities, and to regulate coal combustion by-products, such as
coal ash, as hazardous waste. These legal requirements and
initiatives could require substantial additional costs,
extensive mitigation efforts and, in the case of greenhouse gas
legislation, would raise uncertainty about the future viability
of fossil fuels as an energy source for new and existing
electric generation facilities. Failure to comply with any such
existing or future legal requirements may also result in the
assessment of fines and penalties. Significant resources also
may be expended to defend against allegations of violations of
any such requirements. FirstEnergy expects approximately 78% of
its generation fleet to be non-emitting or low-emitting by the
end of 2010. All of Alleghenys supercritical
coal-fired
generation assets are scrubbed, and its generation portfolio
also includes pumped storage and natural gas generation
capacity. The combined companys generation fleet
nevertheless could face greater exposure to risks relating to
the foregoing legal requirements than FirstEnergys current
fleet due to the combined companys increased percentage of
coal-fired generation facilities.
Following
the merger, Allegheny Energy stockholders will own equity
interests in a company that owns and operates nuclear generating
facilities, which can present unique risks.
FirstEnergys ownership interest in and operation of
nuclear facilities subjects it to various risks to which
Allegheny Energy is not currently subject, including the
potential harmful effects on the environment and human health
resulting from the operation of nuclear facilities and the
storage, handling and disposal of radioactive materials;
limitations on the amounts and types of insurance commercially
available to cover losses that might arise in connection with
nuclear operations; uncertainties with respect to the
technological and financial aspects of decommissioning nuclear
plants at the end of their licensed lives; and costs associated
with regulatory oversight by the Nuclear Regulatory Commission,
referred to as the NRC, including NRC imposed fines, lost
revenues as a result of any NRC ordered shutdown of FirstEnergy
nuclear facilities, or increased capital costs as a result of
increased NRC safety and security regulations. As shareholders
of FirstEnergy following the merger, Allegheny Energy
stockholders may be adversely affected by these risks.
Upon
receipt of shares of FirstEnergy common stock upon completion of
the merger, Allegheny Energy stockholders will become
shareholders in FirstEnergy, an Ohio corporation, which may
change certain rights and privileges they hold as stockholders
of Allegheny Energy, a Maryland corporation.
FirstEnergy is an Ohio corporation and is governed by the laws
of the State of Ohio and by its amended articles of
incorporation and amended code of regulations. Ohio corporation
law extends to shareholders certain rights and privileges that
may not exist under Maryland law and, conversely, does not
extend certain rights and privileges that a stockholder of a
company, such as Allegheny Energy, governed by Maryland law, may
have. For a detailed discussion of the rights of FirstEnergy
shareholders versus the rights of Allegheny Energy stockholders,
see the section entitled Comparison of Rights of
FirstEnergys Shareholders and Allegheny Energys
Stockholders beginning on page 160.
41
Pending
litigation against FirstEnergy and Allegheny Energy could result
in an injunction preventing the completion of the merger, the
payment of damages in the event the merger is completed, and/or
may adversely affect FirstEnergys business, financial
condition or results of operations following the
merger.
In connection with the merger, purported shareholders of
Allegheny Energy have filed putative shareholder class action
and/or
derivative lawsuits in Pennsylvania and Maryland state courts,
as well as in the United States District Court for the Western
District of Pennsylvania, against the Allegheny Energy
defendants, FirstEnergy and Merger Sub. In summary, the lawsuits
allege, among other things, that the Allegheny Energy directors
breached their fiduciary duties by approving the merger
agreement, and that Allegheny Energy, FirstEnergy and Merger Sub
aided and abetted in these alleged breaches of fiduciary duty.
The complaints seek, among other things, jury trials, money
damages and injunctive relief. The Maryland lawsuits were
consolidated and an amended complaint filed. The court also has
entered a stipulated order certifying a class with no opt-out
rights. All defendants moved to dismiss the amended complaint.
The Pennsylvania state court also consolidated the lawsuits
filed in that court and the defendants moved to stay the
proceeding. No response is currently due to the complaint filed
in federal court. While FirstEnergy and Allegheny Energy believe
the lawsuits are without merit and have defended vigorously
against the claims, in order to avoid the costs associated with
the litigation, the defendants have agreed to the terms of a
disclosure-based settlement of the lawsuits. As of the date of
this joint proxy statement/prospectus, however, the defendants
had yet to reach an agreement with counsel for all of the
plaintiffs concerning fee applications, and a formal stipulation
of settlement has not yet been filed with any court. If the
parties are unable to obtain final approval of the settlement,
then litigation will proceed, and the outcome of any such
litigation is inherently uncertain. If a dismissal is not
granted or a settlement is not reached, these lawsuits could
prevent or delay the completion of the merger and result in
substantial costs to FirstEnergy and Allegheny Energy. In
accordance with its bylaws, Allegheny Energy will advance
expenses to and, as necessary, indemnify all of its directors in
connection with the foregoing proceedings. All applicable
insurance policies may not provide sufficient coverage for the
claims under these lawsuits, and rights of indemnification with
respect to these lawsuits will continue whether or not the
merger is completed. The defense or settlement of any lawsuit or
claim that remains unresolved at the time the merger closes may
adversely affect FirstEnergys business, financial
condition or results of operations.
Risks
relating to FirstEnergy and Allegheny Energy
FirstEnergy and Allegheny Energy are, and will continue to be,
subject to the risks described in Part I,
Item 1A Risk Factors in
FirstEnergys Annual Report on
Form 10-K
for the year ended December 31, 2009, which was filed by
FirstEnergy on February 19, 2010 with the SEC and
Part I, Item 1A, Risk Factors of Allegheny
Energys Annual Report on
Form 10-K
for the year ended December 31, 2009, which was filed by
Allegheny Energy on March 1, 2010 with the SEC, and in each
case incorporated by reference in this joint proxy
statement/prospectus. Please see the section entitled
Where You Can Find More Information; Incorporation by
Reference beginning on page 184 for how you can
obtain information incorporated by reference in this joint proxy
statement/prospectus.
42
INFORMATION
REGARDING THE FIRSTENERGY SPECIAL MEETING
Date,
Time, Place and Purpose of the FirstEnergy Special
Meeting
The special meeting of the shareholders of FirstEnergy will be
held at the John S. Knight Center, 77 E. Mill Street,
Akron, Ohio on September 14, 2010, at 9:30 a.m., local
time. The purpose of the FirstEnergy special meeting is:
1. to consider and vote on the proposal to authorize and
approve the share issuance and the other transactions
contemplated by the merger agreement;
2. to consider and vote on the proposal to adopt the
charter amendment;
3. to consider and vote on the proposal to adjourn the
special meeting to another time or place, if necessary or
appropriate, to solicit additional proxies if there are
insufficient votes at the time of the special meeting to
authorize and approve the share issuance and the other
transactions contemplated by the merger agreement or adopt the
charter amendment; and
4. to transact any other business that may properly come
before the special meeting or any adjournment or postponement of
the special meeting by or at the direction of the board of
directors of FirstEnergy.
Recommendation
of the FirstEnergy Board of Directors
The FirstEnergy board of directors unanimously approved the
merger agreement and the transactions contemplated by the merger
agreement and recommends that you vote FOR the proposal to
authorize and approve the share issuance and the other
transactions contemplated by the merger agreement, FOR the
proposal to adopt the charter amendment and FOR the proposal to
adjourn the FirstEnergy special meeting, if necessary or
appropriate, to solicit additional proxies in favor of such
approvals. For the reasons for this recommendation, see the
section entitled The Merger Recommendation of
the FirstEnergy Board of Directors and Its Reasons for the
Merger beginning on page 62.
Who Can
Vote at the FirstEnergy Special Meeting
Only holders of record of FirstEnergy common stock at the close
of business on July 16, 2010, the FirstEnergy record date,
are entitled to notice of, and to vote at, the FirstEnergy
special meeting and any adjournments or postponements of the
FirstEnergy special meeting. At the close of business on that
date, there
were shares of
FirstEnergy common stock outstanding and entitled to vote at the
FirstEnergy special meeting, held by
approximately shareholders
of record.
Each share of FirstEnergy common stock is entitled to one vote
on each proposal to be considered at the FirstEnergy special
meeting.
Quorum;
Abstentions and Broker Non-Votes
In order to conduct business at the FirstEnergy special meeting,
the holders of at least a majority of the total number of shares
of FirstEnergy common stock issued and outstanding and entitled
to vote as of the record date for the FirstEnergy special
meeting must be present in person or represented by proxy. This
requirement is called a quorum. Proxies marked
Abstain and broker non-votes, if any, will be
treated as shares that are present for purposes of determining
the presence of a quorum. An abstention occurs when
a shareholder sends in a proxy with explicit instructions to
decline to vote regarding a particular matter. Broker
non-votes are shares held by brokers or nominees for
which voting instructions have not been received from the
beneficial owners or the persons entitled to vote those shares
and the broker or nominee does not have discretionary voting
power under rules applicable to broker-dealers.
Under rules applicable to broker-dealers, none of the proposals
to be voted on at the FirstEnergy special meeting is an item on
which brokerage firms may vote in their discretion on
43
behalf of their clients if such clients have not furnished
voting instructions within ten days of the FirstEnergy special
meeting.
Votes
Required for Approval
The authorization and approval of the share issuance and the
other transactions contemplated by the merger agreement and the
adoption of the charter amendment are conditions to the
completion of the merger.
The authorization and approval of the share issuance and the
other transactions contemplated by the merger agreement and the
adoption of the charter amendment require the affirmative vote
of the holders of at least a majority of the outstanding shares
of FirstEnergy common stock entitled to vote on each of the
proposals. Because these proposals require the affirmative vote
of the holders of at least a majority of the outstanding shares
of FirstEnergy common stock entitled to vote on each of the
proposals, a failure to vote or an abstention from voting, or a
failure of a shareholder who holds his or her shares in
street name through a broker or other nominee to
give voting instructions to such broker or other nominee, will
have the same effect as a vote cast AGAINST such proposal.
Accordingly, beneficial owners of FirstEnergy shares should
instruct their brokers or nominees how to vote.
Approval of the proposal to adjourn the FirstEnergy special
meeting, if necessary or appropriate, to solicit additional
proxies requires the affirmative vote of the holders of a
majority of the shares represented in person or by proxy at the
FirstEnergy special meeting and entitled to vote on the
proposal, regardless of whether a quorum is present. Abstentions
and broker non-votes will have the same effect as a vote cast
AGAINST approval of the proposal. A failure to submit a proxy
(or to vote in person at the FirstEnergy special meeting, if not
submitting a proxy card) will have no effect on the outcome of
any vote to adjourn the FirstEnergy special meeting.
How to
Vote Your Shares
Shares
Held in Your Own Name
If you hold your shares in your own name, you may submit a proxy
by telephone, via the Internet or by mail or vote by attending
the FirstEnergy special meeting and voting in person.
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Submitting a Proxy by Telephone: You can
submit a proxy for your shares by telephone until 9:30 a.m.
Eastern Time on September 14, 2010, by calling the
toll-free telephone number on the enclosed proxy card. Telephone
proxy submission is available 24 hours a day.
Easy-to-follow voice prompts allow you to submit a proxy for
your shares and confirm that your instructions have been
properly recorded. You will be asked to provide the control
number shown on your proxy card, which authenticates you as a
FirstEnergy shareholder.
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Submitting a Proxy via the Internet: You can
submit a proxy via the Internet until 9:30 a.m. Eastern Time on
September 14, 2010, by accessing the website listed on your
proxy card and following the instructions you will find on the
website. Internet proxy submission is available 24 hours a
day. You will be asked to provide the control number shown on
your proxy card, which authenticates you as a FirstEnergy
shareholder, and you will be given the opportunity to confirm
that your instructions have been properly recorded.
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Submitting a Proxy by Mail: If you choose to
submit a proxy by mail, simply mark the enclosed proxy card,
date and sign it, and return it in the postage paid envelope
provided.
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By casting your vote in any of the three ways listed above, you
are authorizing the individuals listed on the proxy to vote your
shares in accordance with your instructions.
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If you provide specific voting instructions, your shares will be
voted at the special meeting in accordance with your
instructions. If you hold shares in your name and sign and
return a proxy card or submit a proxy by telephone or via the
Internet without giving specific voting instructions, your
shares will be voted as follows: FOR the proposal to authorize
and approve the share issuance and the other transactions
contemplated by the merger agreement, FOR the proposal to adopt
the charter amendment and FOR the proposal to adjourn the
FirstEnergy special meeting, if necessary or appropriate, to
solicit additional proxies in favor of such approvals.
Proxies solicited may be voted only at the FirstEnergy special
meeting and any adjournment or postponement of the FirstEnergy
special meeting and will not be used for any other FirstEnergy
meeting of shareholders.
Shares
Held in Street Name
If your shares are held in the name of a bank, broker or
other nominee, you will receive instructions from the holder
of record that you must follow for your shares to be voted.
Please follow their instructions carefully. Also, please note
that if the holder of record of your shares is a broker, bank or
other nominee and you wish to vote in person at the FirstEnergy
special meeting, you must request a legal proxy from your bank,
broker or other nominee that holds your shares and, in addition
to proof of identification, present that legal proxy identifying
you as the beneficial owner of your shares of FirstEnergy common
stock and authorizing you to vote those shares at the
FirstEnergy special meeting.
How to
Change Your Vote
FirstEnergy shareholders may revoke their proxy at any time
before it is exercised by timely sending written notice to
FirstEnergys corporate secretary that they would like to
revoke their proxy, by timely delivering a properly executed,
later-dated proxy (including over the Internet or telephone) or
by voting by ballot at the FirstEnergy special meeting. Simply
attending the FirstEnergy special meeting without voting will
not revoke their proxy. However, shares held by participants in
the FirstEnergy Corp. Savings Plan may only be voted by the
plans trustee on behalf of such participants, and such
participants may not vote their shares in person at the
FirstEnergy special meeting. If you do not provide the plan
trustee instructions by 6:00 a.m. Eastern time on Monday,
September 13, 2010, unvoted shares will be voted by the
trustee in the same proportion as the voted shares.
If your shares are held in the name of a bank, broker or
other nominee, you must follow the directions you receive
from your bank, broker or other nominee in order to revoke or
change your vote.
Tabulation
of the Votes
FirstEnergy will appoint an inspector of election for the
FirstEnergy special meeting to tabulate affirmative and negative
votes and abstentions.
Solicitation
FirstEnergy will pay the cost of soliciting proxies. Directors,
officers and employees of FirstEnergy may solicit proxies on
behalf of FirstEnergy in person or by telephone, facsimile or
other means for which such person will receive no additional
compensation. FirstEnergy has engaged Innisfree M&A
Incorporated to assist it in the distribution and solicitation
of proxies. FirstEnergy has agreed to pay Innisfree M&A
Incorporated a fee of $50,000 plus payment of certain fees and
expenses for its services to solicit proxies.
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In accordance with the regulations of the SEC and the NYSE,
FirstEnergy also will reimburse brokerage firms and other
custodians, nominees and fiduciaries for their expenses incurred
in sending proxies and proxy materials to beneficial owners of
shares of FirstEnergy common stock.
Voting by
FirstEnergy Directors and Executive Officers
At the close of business on the record date for the FirstEnergy
special meeting, FirstEnergys directors and executive
officers collectively beneficially owned
approximately shares
of FirstEnergy common stock (inclusive of shares subject to
stock options which may be exercised within 60 days
following that date), which represents
approximately % of the FirstEnergy
common stock entitled to vote at the FirstEnergy special
meeting. It is expected that FirstEnergys directors and
executive officers will vote their shares FOR authorization and
approval of the share issuance and the other transactions
contemplated by the merger agreement and the adoption of the
charter amendment, although none of them has entered into any
agreement requiring them to do so. See the section entitled
Security Ownership of Certain Beneficial Owners and
Management of FirstEnergy beginning on page 174.
Adjournments
The FirstEnergy special meeting may be adjourned to another time
or place, if necessary or appropriate, to solicit additional
proxies if there are insufficient votes at the time of the
FirstEnergy special meeting to approve the share issuance or the
charter amendment. Any adjournment may be made from time to time
with the affirmative vote of a majority of the shares
represented in person or by proxy, whether or not a quorum
exists. FirstEnergy is not required to notify shareholders of
any adjournment if the time and place of the adjourned meeting
are announced at the meeting at which the adjournment is taken,
unless after the adjournment a new record date is fixed for the
adjourned meeting. At any adjourned meeting, FirstEnergy may
transact any business that it might have transacted at the
original meeting, provided that a quorum is present at such
adjourned meeting. Proxies submitted by FirstEnergy shareholders
for use at the FirstEnergy special meeting will be used at any
adjournment or postponement of the meeting. References to the
FirstEnergy special meeting in this joint proxy
statement/prospectus are to such special meeting as adjourned or
postponed.
Other
Business
At this time, FirstEnergy is unaware of any matters, other than
as set forth above, that may properly come before the
FirstEnergy special meeting. If any other matters properly come
before the FirstEnergy special meeting, the persons named in the
enclosed proxy, or their duly constituted substitutes acting at
the FirstEnergy special meeting or any adjournment or
postponement of the FirstEnergy special meeting, will be deemed
authorized to vote or otherwise act on such matters in
accordance with their judgment.
Assistance
If you need assistance in voting your shares or have questions
regarding the FirstEnergy special meeting, the share issuance
proposal or the charter amendment proposal, please contact
Innisfree M&A Incorporated toll free at
(877) 687-1866.
Banks and brokers may call collect
(212) 750-5833.
46
INFORMATION
REGARDING THE ALLEGHENY ENERGY SPECIAL MEETING
Date,
Time, Place and Purpose of the Allegheny Energy Special
Meeting
A special meeting of Allegheny Energy stockholders will be held
at the New York Marriott Marquis Hotel, 1535 Broadway, New York,
New York, on September 14, 2010, at 11:00 a.m., local time,
to consider and vote on the proposals listed below:
1. the proposal to approve the merger agreement and the
merger; and
2. the proposal to adjourn the special meeting to a later
date or dates, if necessary or appropriate, to solicit
additional proxies if there are insufficient votes to approve
the merger agreement and the merger at the time of the special
meeting.
At the Allegheny Energy special meeting, Allegheny Energy
stockholders will also be asked to consider and vote on any
other matter that may properly come before the Allegheny Energy
special meeting or any adjournment or postponement of the
Allegheny Energy special meeting. At this time, the Allegheny
Energy board of directors is unaware of any matters, other than
those set forth above, that may properly come before the
Allegheny Energy special meeting.
Recommendation
of the Allegheny Energy Board of Directors
The Allegheny Energy board of directors unanimously
determined that the merger agreement and the transactions
contemplated by the merger agreement, including the merger, are
advisable, fair to and in the best interests of Allegheny Energy
and its stockholders and recommends that Allegheny Energy
stockholders vote FOR the proposal to approve the merger
agreement and the merger and FOR the proposal to adjourn the
Allegheny Energy special meeting, if necessary or appropriate,
to solicit additional proxies in favor of such approval. For
the reasons for this recommendation, see the section entitled
The Merger Recommendation of the Allegheny
Energy Board of Directors and Its Reasons for the Merger
beginning on page 67.
Who Can
Vote at the Allegheny Energy Special Meeting
Only holders of record of Allegheny Energy common stock at the
close of business on July 16, 2010, the Allegheny Energy
special meeting record date, are entitled to notice of, and to
vote at, the Allegheny Energy special meeting and any
adjournments or postponements of the Allegheny Energy special
meeting. At the close of business on that date, there
were shares
of Allegheny Energy common stock outstanding and entitled to
vote at the Allegheny Energy special meeting.
Each share of Allegheny Energy common stock is entitled to one
vote on each proposal to be considered at the Allegheny Energy
special meeting.
Quorum;
Abstentions and Broker Non-Votes
In order to conduct business at the Allegheny Energy special
meeting (other than action to adjourn the Allegheny Energy
special meeting), the holders of at least a majority of the
total number of shares of Allegheny Energy common stock issued
and outstanding and entitled to vote as of the record date for
the Allegheny Energy special meeting, must be present in person
or represented by proxy. This requirement is called a quorum. A
quorum of stockholders is required to take action to approve the
merger agreement and the merger at the Allegheny Energy special
meeting, but not to approve any adjournment of the Allegheny
Energy special meeting. Proxies marked Abstain and
broker non-votes, if any, will be treated as shares
that are present for purposes of determining the presence of a
quorum. An abstention occurs when a stockholder
sends in a proxy with explicit
47
instructions to decline to vote regarding a particular matter.
Broker non-votes are shares held by brokers or
nominees for which voting instructions have not been received
from the beneficial owners or the persons entitled to vote those
shares and the broker or nominee does not have discretionary
voting power under rules applicable to broker-dealers.
Under rules applicable to broker-dealers, none of the proposals
to be voted on at the Allegheny Energy special meeting is an
item on which brokerage firms may vote in their discretion on
behalf of their clients if such clients have not furnished
voting instructions within ten days of the Allegheny Energy
special meeting.
Votes
Required for Approval
Approval of the merger agreement and the merger by Allegheny
Energy stockholders is a condition to the completion of the
merger.
The proposal to approve the merger agreement and the merger
requires the affirmative vote of holders of at least a majority
of the shares of Allegheny Energy common stock outstanding and
entitled to vote on the proposal. Because approval is based
on the affirmative vote of a majority of the outstanding shares
of Allegheny Energy common stock, an Allegheny Energy
stockholders failure to submit a proxy card (or to vote in
person at the Allegheny Energy special meeting, if not
submitting a proxy card) or an abstention from voting (or the
failure of an Allegheny Energy stockholder who holds his or her
shares in street name through a broker or other
nominee to give voting instructions to such broker or other
nominee), will have the same effect as a vote cast AGAINST
approval of the merger agreement and the merger. Accordingly,
beneficial owners of Allegheny Energy shares should instruct
their brokers or nominees how to vote.
The proposal to adjourn the Allegheny Energy special meeting, if
necessary or appropriate, to solicit additional proxies if there
are not sufficient votes to approve the merger agreement and the
merger at the time of the Allegheny Energy special meeting,
requires the affirmative vote of the holders of a majority of
the shares present in person or represented by proxy at the
Allegheny Energy special meeting and entitled to vote on the
proposal, regardless of whether a quorum is present. Abstentions
and broker non-votes, if any, will have the same effect as a
vote cast AGAINST approval of the proposal. A failure to submit
a proxy (or to vote in person at the Allegheny Energy special
meeting, if not submitting a proxy card) will have no effect on
the outcome of any vote to adjourn the Allegheny Energy special
meeting.
How to
Vote Your Shares
Shares
Held in Your Own Name
If you hold your shares in your own name, you may submit
a proxy by telephone, via the Internet or by mail or vote by
attending the Allegheny Energy special meeting and voting in
person.
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Submitting a Proxy by Telephone: You can
submit a proxy for your shares by telephone until 6:00
a.m. Eastern Time on September 14, 2010, by calling
the toll-free telephone number on the enclosed proxy card.
Telephone proxy submission is available 24 hours a day.
Easy-to-follow voice prompts allow you to submit a proxy for
your shares and confirm that your instructions have been
properly recorded. You will be asked to provide the control
number shown on your proxy card, which authenticates you as an
Allegheny Energy stockholder.
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Submitting a Proxy via the Internet: You can
submit a proxy via the Internet until 6:00 a.m. Eastern
Time on September 14, 2010, by accessing the website listed
on your proxy card and following the instructions you will find
on the website. Internet proxy submission is available
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24 hours a day. You will be asked to provide the control
number shown on your proxy card, which authenticates you as an
Allegheny Energy stockholder, and you will be given the
opportunity to confirm that your instructions have been properly
recorded.
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Submitting a Proxy by Mail: If you choose to
submit a proxy by mail, simply mark the enclosed proxy card,
date and sign it, and return it in the postage paid envelope
provided.
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By casting your vote in any of the three ways listed above, you
are authorizing the individuals listed on the proxy to vote your
shares in accordance with your instructions.
If you provide specific voting instructions, your shares will be
voted at the Allegheny Energy special meeting in accordance with
your instructions. If you hold shares in your name and sign
and return a proxy card or submit a proxy by telephone or via
the Internet without giving specific voting instructions, your
shares will be voted as follows: FOR the proposal to approve the
merger agreement and the merger and FOR the proposal to adjourn
the Allegheny Energy special meeting, if necessary or
appropriate, to solicit additional proxies if there are not
sufficient votes to approve the merger agreement and the merger
at the time of the Allegheny Energy special meeting.
Proxies solicited may be voted only at the Allegheny Energy
special meeting and any adjournment or postponement of the
Allegheny Energy special meeting and will not be used for any
other Allegheny Energy meeting of stockholders.
Shares
Held in Street Name
If your shares are held in the name of a bank, broker or
other nominee, you will receive instructions from the holder
of record that you must follow for your shares to be voted.
Please follow their instructions carefully. Also, please note
that if the holder of record of your shares is a broker, bank or
other nominee and you wish to vote in person at the Allegheny
Energy special meeting, you must request a legal proxy from your
bank, broker or other nominee that holds your shares and, in
addition to proof of identification, present that legal proxy
identifying you as the beneficial owner of your shares of
Allegheny Energy common stock and authorizing you to vote those
shares at the Allegheny Energy special meeting.
Allegheny
Energy Employee Stock Ownership and Savings Plan
Participants
If you are a participant in the Allegheny Energy Employee
Stock Ownership and Savings Plan, the proxy/voting
instruction card sent to you will list a total number of shares
that includes the number of shares of Allegheny Energy common
stock you own through the plan as well as any shares of
Allegheny Energy common stock you may hold in your own name.
This proxy/voting instruction card will serve as a voting
instruction card to the trustee of the plan for all shares of
Allegheny Energy common stock you own through the plan and will
provide voting instructions regarding any additional shares of
Allegheny Energy common stock you may hold in your own name. By
providing your voting instructions by telephone, via the
Internet or by mail as described in your proxy/voting
instruction card, you instruct the trustee on how to vote your
shares in the plan. To allow sufficient time for voting, you
must provide your voting instructions by
9:00 a.m. Eastern Time on September 10, 2010. The
trustee will vote your shares held in the plan in accordance
with your instructions. If you do not provide your instructions
by 9:00 a.m. Eastern Time on September 10, 2010,
your plan shares will not be voted by the trustee.
49
How to
Change Your Vote
If you hold your shares in your own name, you will have
the power to revoke your proxy
and/or
change your vote at any time before it is exercised at the
Allegheny Energy special meeting. You can do this by:
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delivering a written notice of revocation to the secretary of
Allegheny Energy, dated later than the proxy, before the vote is
taken at the Allegheny Energy special meeting;
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delivering a duly executed proxy to the secretary of Allegheny
Energy bearing a later date, before the vote is taken at the
Allegheny Energy special meeting;
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submitting a proxy on a later date by telephone or via the
Internet (only your last telephone or Internet proxy will be
counted), before 6:00 a.m. Eastern Time on
September 14, 2010; or
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attending the Allegheny Energy special meeting and voting in
person (your attendance at the Allegheny Energy special meeting,
in and of itself, will not revoke the proxy).
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Any written notice of revocation, or later dated proxy, should
be delivered to:
Secretary of
Allegheny Energy, Inc.
c/o Allegheny
Energy, Inc.
800 Cabin Hill Drive
Greensburg, Pennsylvania 15601
Alternatively, you may hand deliver a written revocation notice,
or a later dated proxy, to the secretary at the Allegheny Energy
special meeting before we begin voting.
If your shares are held in the name of a bank, broker or
other nominee, you must follow the directions you receive
from your bank, broker or other nominee in order to revoke or
change your vote.
If you are a participant in the Allegheny Energy Employee
Stock Ownership and Savings Plan, you will have the power to
revoke your proxy and/or change your vote at any time before
9:00 a.m. Eastern Time on September 10, 2010. You can do
this by delivering a written notice of revocation to the
secretary of Allegheny Energy or submitting a later-dated proxy
by telephone, via the Internet or by mail.
Tabulation
of the Votes
Allegheny Energy will appoint an inspector of election for the
Allegheny Energy special meeting to tabulate affirmative and
negative votes and abstentions.
Solicitation
This joint proxy statement/prospectus is being furnished in
connection with the solicitation of proxies from Allegheny
Energy stockholders by the Allegheny Energy board of directors
to be voted at the Allegheny Energy special meeting. Allegheny
Energy will pay for all costs incurred by it in connection with
the solicitation. In addition to solicitation by mail, the
directors, officers and employees of Allegheny Energy,
FirstEnergy and their respective subsidiaries may solicit
proxies from stockholders of Allegheny Energy in person or by
telephone, facsimile or other electronic methods without
additional compensation other than reimbursement for their
actual expenses.
Allegheny Energy has retained D.F. King & Co., Inc., a
proxy solicitation firm, to assist it in the solicitation of
proxies for the Allegheny Energy special meeting. Allegheny
Energy estimates it will pay D.F. King & Co., Inc. a
fee of $22,500 for its services. In addition, Allegheny Energy
will reimburse D.F. King & Co., Inc. for its
reasonable out-of-pocket expenses.
Arrangements also will be made with brokerage firms and other
custodians, nominees and fiduciaries for the forwarding of
solicitation material to the beneficial owners of stock held of
50
record by such persons, and Allegheny Energy will reimburse such
custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses in connection with forwarding the
materials.
Stockholders should not send stock certificates with their
proxies. A letter of transmittal and instructions for the
surrender of Allegheny Energy common stock certificates will be
mailed to Allegheny Energy stockholders shortly after completion
of the merger.
Voting by
Allegheny Energy Directors and Executive Officers
At the close of business on the record date for the Allegheny
Energy special meeting, Allegheny Energys directors and
executive officers and their affiliates collectively
beneficially owned
approximately shares
of Allegheny Energy common stock (inclusive of shares subject to
stock options which may be exercised within 60 days
following that date), which represents
approximately % of the Allegheny
Energy common stock entitled to vote at the Allegheny Energy
special meeting. It is expected that Allegheny Energys
directors and executive officers will vote their shares FOR
approval of the merger agreement and the merger, although none
of them has entered into any agreement requiring them to do so.
See the section entitled Security Ownership of Certain
Beneficial Owners and Management of Allegheny Energy
beginning on page 176.
Adjournments
The Allegheny Energy special meeting may be adjourned to a later
date or dates, if necessary or appropriate, to solicit
additional proxies if there are insufficient votes at the time
of the Allegheny Energy special meeting to approve the merger
agreement and the merger at the time of the special meeting.
Under Allegheny Energys bylaws, any adjournment may be
made from time to time by the Chairman of the Allegheny Energy
board of directors or with the affirmative vote of the holders
of a majority of the shares present in person or represented by
proxy at the Allegheny Energy special meeting and entitled to
vote on the proposal, whether or not a quorum exists. Allegheny
Energy is not required to notify stockholders of any adjournment
of 120 days or less after the original record date if the
time and place of the adjourned meeting are announced at the
meeting at which the adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned
meeting. At any adjourned meeting, Allegheny Energy may transact
any business that it might have transacted at the original
meeting, provided that a quorum is present at such adjourned
meeting. Proxies submitted by Allegheny Energy stockholders for
use at the Allegheny Energy special meeting will be used at any
adjournment or postponement of the meeting. References to the
Allegheny Energy special meeting in this joint proxy
statement/prospectus are to such special meeting as adjourned or
postponed.
Other
Business
At this time, Allegheny Energy is unaware of any matters, other
than as set forth above, that may properly come before the
Allegheny Energy special meeting. If any other matters properly
come before the Allegheny Energy special meeting, the persons
named in the enclosed proxy, or their duly constituted
substitutes acting at the Allegheny Energy special meeting or
any adjournment or postponement of the Allegheny Energy special
meeting, will be deemed authorized to vote or otherwise act on
such matters in accordance with their judgment.
Assistance
If you need assistance in voting your shares or have questions
regarding the Allegheny Energy special meeting, the proposals to
be considered at the Allegheny Energy special meeting, or the
merger, please contact D.F. King & Co., Inc. toll-free
at
(800) 549-6650
(banks and brokers call collect at
(212) 269-5550).
51
THE
MERGER
The following is a description of the material aspects of the
merger and the material terms of the merger agreement. While
FirstEnergy and Allegheny Energy believe that the following
description covers the material terms of the merger, the
description may not contain all of the information that is
important to you. FirstEnergy and Allegheny Energy encourage you
to carefully read this entire joint proxy statement/prospectus,
including the merger agreement attached as Annex A and
incorporated by reference into this section of the joint proxy
statement/prospectus, for a more complete understanding of the
merger.
General
Each of the FirstEnergy and Allegheny Energy boards of directors
has unanimously approved the merger agreement and the
transactions contemplated by it. In the merger, Merger Sub will
merge with and into Allegheny Energy with Allegheny Energy
surviving the merger as a wholly owned subsidiary of
FirstEnergy. Allegheny Energy stockholders will receive the
merger consideration described below in the section entitled
The Merger Agreement Merger
Consideration beginning on page 124.
Background
of the Merger
The management of FirstEnergy and Allegheny Energy are each
generally familiar with the business and operations of the other
company as participants in the electric utility industry.
Executives from FirstEnergy, Allegheny Energy and other electric
utility companies periodically interact with each other at
industry meetings and at other events. For example, on
June 4, 2009, Paul J. Evanson, Chief Executive Officer and
President of Allegheny Energy, and Anthony J. Alexander, Chief
Executive Officer and President of FirstEnergy, served on a
panel together at a conference sponsored by Citibank. During
2009, Mr. Evanson had general discussions with various
industry executives, including with Mr. Alexander at a
social event on August 25, 2009, and on other occasions
with other individuals, including the Chief Executive Officer of
another large publicly-traded electric utility company referred
to as Company A, regarding the industry and their businesses.
On an ongoing basis, FirstEnergy evaluates options for achieving
its long-term strategic goals and enhancing shareholder value.
For several years, the FirstEnergy board of directors and
management have been engaged in a strategic planning process
designed to position FirstEnergy to take advantage of growth
opportunities in the electric utility industry and to enhance
its position in the competitive generation market. As part of
this process, FirstEnergy management has periodically made
presentations to the FirstEnergy board regarding a variety of
possible business combinations in light of its evolving
acquisition criteria and opportunities presented by various
potential transactions. These acquisition criteria and
opportunities presented by various potential transactions have
generally included the potential for growth, an enhanced market
opportunity for generation output, and reducing
FirstEnergys exposure to environmental and commodity price
risk. During the November 2009 strategic planning process,
FirstEnergy management presented to the FirstEnergy board
strategic alternatives that included a possible combination with
Allegheny Energy. The FirstEnergy board authorized
Mr. Alexander at a time he deemed appropriate to contact
Mr. Evanson to learn if Allegheny Energy had any interest
in a possible transaction.
The senior management team and board of directors of Allegheny
Energy periodically monitor and assess developments in the
electric utility industry and are generally aware of the
business activities of other major electric utility companies,
including FirstEnergy. From time to time, Allegheny
Energys board reviews strategic opportunities in the
electric utility industry in response
52
to developments within its businesses, industry trends,
competitive conditions and changes in legislation and regulation.
At Allegheny Energys annual board strategy session in July
2009, the Allegheny Energy board reviewed key industry,
legislative and regulatory trends and their potential impacts on
the companys businesses and evaluated various options for
achieving long-term strategic goals and enhancing stockholder
value. As part of the Allegheny Energy boards strategic
planning process, this review included the consideration of
possible strategic opportunities in an effort to better position
Allegheny Energy for future growth in light of industry and
regulatory developments. Specifically, the Allegheny Energy
board discussed potentially mitigating the companys
exposure to the consequences of carbon legislation and
increasing the companys size and scale to enable it to
diversify its generation portfolio and make additional capital
investments while maintaining its financial strength.
In mid-2009, Allegheny Energy had exploratory discussions with a
large publicly-traded electric utility company to consider on a
preliminary basis a potential business combination. Shortly
thereafter, such discussions were mutually abandoned. At the
time of these discussions, the parties entered into a
confidentiality agreement, which included a standstill provision
that expired upon the announcement of the execution of the
merger agreement by Allegheny Energy and FirstEnergy.
At its regularly scheduled meetings on September 10, 2009
and October 15, 2009, the Allegheny Energy board reviewed
the companys prospects for growth and long-term goals and
discussed various strategic opportunities for the company. At
these meetings, the Allegheny Energy board discussed, but
determined not to pursue, expansion in the independent power
producer sector to enhance the companys scale and
generation portfolio.
In the weeks prior to an industry conference in the fall of
2009, the Chief Executive Officer of Company A contacted
Mr. Evanson to arrange a meeting during the conference to
discuss general industry matters, including climate change
issues. Ultimately, this meeting did not occur.
In its regularly scheduled board meeting on December 3,
2009, Mr. Evanson discussed with the Allegheny Energy board
the potential impact of carbon legislation and more stringent
environmental regulations on the company and the potential
benefits of an increased scale and scope, including improved
access to capital. At this meeting, he also discussed with the
Allegheny Energy board various strategic options for the
company, including the possibility of a business combination
transaction and the potential strategic rationale for such a
transaction. Given the mutual abandonment of business
combination discussions with another large, publicly-traded
utility company in mid-2009, Mr. Evanson described two other
companies, FirstEnergy and Company A, that could represent a
potential strategic fit for Allegheny Energy and compared for
the Allegheny Energy board the financial metrics, operational
metrics, service territories and generation assets of
FirstEnergy and Company A. Mr. Evanson noted that these two
companies appeared to be the only two companies that were
positioned to satisfy the criteria that the board had agreed
were important for a strategic transaction and that the timing
could be right to start discussions with these companies. He did
not propose that Allegheny Energy undertake a traditional
auction or approach any companies other than FirstEnergy and
Company A given both the boards desire to target a
transaction candidate that represented the best potential
long-term strategic fit, as well as its general knowledge of the
industry and the value of Allegheny Energy. The Allegheny Energy
board indicated its support for Mr. Evanson, when he deemed
it appropriate, to contact the chief executive officers of
FirstEnergy and Company A and, if these executives were
interested in exploring the possibility of a business
combination transaction, to entertain such discussions. Mr.
Evanson also discussed with the Allegheny Energy board the
intention to retain Goldman Sachs as Allegheny
53
Energys financial advisor with respect to a potential
business combination transaction. On this same day, Allegheny
Energy management contacted Skadden, Arps, Slate,
Meagher & Flom LLP, referred to as Skadden, in
connection with serving as Allegheny Energys outside legal
counsel for such a potential transaction.
On December 10, 2009, representatives of Goldman Sachs met
with members of Allegheny Energy senior management to discuss a
possible combination with FirstEnergy or Company A.
On December 14, 2009, Mr. Evanson contacted Company
As Chief Executive Officer, who at that time asked to
reschedule the meeting to discuss general industry matters that
had been previously scheduled for the fall industry conference
but had been cancelled. On December 22, 2009,
Mr. Evanson had a lunch meeting with Company As Chief
Executive Officer in Pittsburgh, Pennsylvania. At this meeting,
Company As Chief Executive Officer raised the subject of a
possible transaction between the two companies, and
Mr. Evanson indicated that he would discuss the potential
opportunity with the Allegheny Energy board. No specific terms
or proposals for a possible transaction were discussed at this
meeting.
In early December 2009, Mr. Alexander had discussions with
representatives of Morgan Stanley in New York concerning a
possible business combination with Allegheny Energy and the
timing of a contact with Mr. Evanson. During the week of
December 14, 2009, a representative of Morgan Stanley
contacted both Mr. Alexander and Mr. Evanson
suggesting a possible meeting date in late December between the
two executives, and in the conversation with Mr. Evanson
suggested that Mr. Alexander was interested in discussing a
possible business combination with Allegheny Energy. The
representative from Morgan Stanley followed up with both
Mr. Alexander and Mr. Evanson shortly thereafter and
arranged a meeting for December 29, 2009 in North Palm
Beach, Florida. At this meeting, Mr. Alexander expressed
his interest in pursuing a possible transaction between the two
companies, and Mr. Evanson indicated that he would discuss
the potential opportunity with the Allegheny Energy board. No
specific terms or proposals for a possible transaction were
discussed at this meeting.
On January 4 and 5, 2010, Mr. Evanson and other
members of Allegheny Energy senior management discussed by
telephone with representatives of Goldman Sachs and Skadden, the
possibility of a transaction with either FirstEnergy or Company
A and a process for pursuing and considering such a transaction.
Allegheny Energy senior management and its advisors discussed
their belief that since any transaction would likely involve
consideration in the form of stock, an accelerated schedule
would be advisable in order to minimize the opportunities for
premature disclosure to the market, which could result in
movement in the relative market prices of the stock of Allegheny
Energy and any counterparty to a transaction and potentially
cause discussions regarding a potential transaction to be
terminated.
On January 5, 2010, Allegheny Energys board held a
special telephonic meeting, which was attended by
representatives from Goldman Sachs. Mr. Evanson updated the
Allegheny Energy board regarding his discussions with both
Mr. Alexander and Company As Chief Executive Officer
and the interest of both companies in pursuing a potential
business combination transaction with Allegheny Energy. After a
thorough discussion, including an executive session of the
non-management directors to consider whether to pursue a
transaction, the Allegheny Energy board authorized
Mr. Evanson to approach both FirstEnergy and Company A to
propose a process in which both companies would be permitted to
conduct due diligence leading to the submission of a non-binding
indicative proposal by each for Allegheny Energys
consideration.
54
Following the meeting between Mr. Evanson and
Mr. Alexander on December 29, 2009, and before
January 6, 2010, Mr. Alexander called Mr. Smart,
Chairman of the FirstEnergy board, to inform him of his
discussion with Mr. Evanson and of the potential for a
response in early January.
On January 6, 2010, Mr. Evanson separately contacted
each of Mr. Alexander and Company As Chief Executive
Officer and preliminarily discussed Allegheny Energys
proposed process for submission of a non-binding indicative
proposal regarding a potential business combination. Both
executives indicated to Mr. Evanson that their companies
wished to engage in the proposed process.
On January 6, 2010, Mr. Evanson informed
Mr. Alexander that the Allegheny Energy board would
consider a transaction, if it was better than the stand-alone
options available to Allegheny Energy. Mr. Evanson further
informed Mr. Alexander that the Allegheny Energy board was
supportive of going forward, provided that: (1) FirstEnergy
would agree to an expeditious process in which all preliminary
due diligence, management presentations and a non-binding letter
of intent would be completed within three weeks, and if the
Allegheny Energy board desired to proceed further, that final
due diligence and all other matters would be completed to permit
the signing and announcement by February 11, 2010 (a date
that had been chosen in consideration of the desire for an
expedited process and discussed by the Allegheny Energy board in
its meeting on January 5, 2010), and (2) FirstEnergy
would agree to a process in which another potential party would
participate in parallel. Mr. Evanson had a similar
discussion on the same date with the Chief Executive Officer of
Company A. Following Mr. Evansons call to
Mr. Alexander, Mr. Alexander discussed the Allegheny
Energy response and conditions with each FirstEnergy board
member individually by phone, commencing on January 6,
2010, and received their individual concurrence with the
recommendation to proceed with further discussions.
On January 6, 2010, Morgan Stanley was retained by
FirstEnergy as its financial advisor. On January 7, 2010,
Akin Gump Strauss Hauer & Feld LLP, referred to as
Akin Gump, was officially retained as FirstEnergys legal
advisor. On January 8, 2010, PricewaterhouseCoopers LLP,
FirstEnergys independent accountant, was retained by
FirstEnergy for the potential transaction.
On January 6, 2010, Skadden retained two economic
consultants with electric utility industry expertise to assist
with competition analysis relating to a potential business
combination between Allegheny Energy and either FirstEnergy or
Company A.
FirstEnergy and Company A separately entered into
confidentiality agreements with Allegheny Energy on
January 8, 2010 and January 11, 2010, respectively.
Among other things, each confidentiality agreement contained
mutual standstill restrictions that, in accordance with and
subject to the terms of the confidentiality agreement,
prohibited either party from making an unsolicited offer to
acquire the other partys stock for a period of two years.
After the execution of these confidentiality agreements,
Allegheny Energy began to exchange confidential financial and
legal information with each of FirstEnergy and Company A.
During the week of January 11, 2010, Akin Gump retained a
consulting firm with electric utility industry expertise to
assist with the competition analysis relating to a potential
business combination between FirstEnergy and Allegheny Energy
and FirstEnergy retained a consulting firm to assist FirstEnergy
management with its analysis of potential synergies from a
merger transaction with Allegheny Energy.
On January 15, 2010, members of FirstEnergys
management and their representatives from Morgan Stanley met
with Allegheny Energys management and their
representatives from Goldman Sachs at Skaddens
Washington, D.C. offices. At this meeting, executives from
each company made presentations regarding their respective
businesses and operations. The discussions at this meeting
55
also included a timeline for the activities leading to the
announcement of a potential transaction, including due
diligence, analysis of the required regulatory approvals, the
submission of a non-binding indicative proposal and the
preparation and negotiation of a merger agreement. Allegheny
Energy had held a similar meeting with Company As
management at Skaddens Washington, D.C. offices on
January 14, 2010. After each management presentation, the
parties exchanged lists of materials that they wished to review
in connection with their due diligence investigations. In the
course of their respective management presentations,
Mr. Evanson met separately with both Mr. Alexander and
Company As Chief Executive Officer and talked through
general terms of a possible transaction. In addition,
Mr. Evanson told each executive that, although not a
requirement for a proposal and only if so desired by such
company, he would be willing to consider a role as non-executive
chairman of the board of the combined company to assist with the
integration of the companies. Mr. Alexander expressed to
Mr. Evanson an interest in having him serve in some
continuing role with the combined company. Company As
Chief Executive Officer indicated that Company A would take such
a role under advisement.
After the management presentations, representatives from
Allegheny Energy, Goldman Sachs and Skadden discussed the next
steps of the process, including matters related to due diligence
and the timetable leading to receipt of a non-binding indicative
proposal from each company.
On January 19, 2010, Allegheny Energy formally engaged
Goldman Sachs to act as its financial advisor with respect to a
possible transaction. On that same date, at Allegheny Energy
managements direction, Goldman Sachs distributed a formal
bid instruction letter to the financial advisors for each of
FirstEnergy and Company A as well as a proposed term sheet
prepared by Allegheny Energy and its advisors outlining various
financial, regulatory, deal protection, governance and other
proposed terms. The proposed term sheet did not include specific
economic terms with respect to a potential transaction and did
not request proposals with respect to continuing roles for
Allegheny Energy officers. The bid instruction letter outlined
the process for the submission of a non-binding indicative
proposal and
mark-up of
the proposed term sheet by January 28, 2010 (consistent
with the timetable and process discussed by the Allegheny Energy
board on January 5, 2010). Goldman Sachs communicated to
the parties respective financial advisors that FirstEnergy
and Company A should submit their best and final offer, with the
understanding that there would be no further bids requested from
the companies in light of Allegheny Energys desire to
proceed expeditiously and efficiently and to focus its resources
on completing a transaction with the company that presented the
best offer, to the extent the Allegheny Energy board considered
the proposal acceptable.
Also on January 19, 2010, FirstEnergy, Company A and their
respective representatives were granted access to Allegheny
Energys online dataroom to continue their due diligence
investigations. At this time, each of FirstEnergy and Company A
also granted Allegheny Energy and its representatives access to
their respective online datarooms. These datarooms contained
additional confidential due diligence materials regarding
various business, commercial, legal, regulatory and other
matters. Over the next several weeks, Allegheny Energy and its
representatives continued to exchange information, update the
datarooms and hold conference calls for due diligence purposes
with each of FirstEnergy and Company A.
At a regularly scheduled meeting of the FirstEnergy board on
January 19, 2010, FirstEnergy management briefed the
FirstEnergy board members on the strategic rationale for a
potential merger transaction, which included the increased scale
and scope of the combined company, greater diversification in
FirstEnergys energy delivery business and generation
portfolio, the acquisition of Allegheny Energys
super-critical, coal-fired generation units and the other items
listed under the section entitled
Recommendation of the FirstEnergy Board of
Directors and Its Reasons for the
56
Merger Strategic Considerations beginning on
page 63. FirstEnergy management also briefed the board on
the discussions with Allegheny Energy to date and the proposed
transaction timeline, and responded to questions from the board.
Representatives of FirstEnergys financial advisor, Morgan
Stanley, and legal advisor, Akin Gump, were present for the
portion of the meeting during which a potential transaction with
Allegheny Energy was discussed. Representatives of Morgan
Stanley presented a high-level preliminary financial analysis of
a potential merger transaction and representatives of Akin Gump
reviewed the duties and obligations of directors in the context
of significant corporate transactions such as a merger. At this
meeting, FirstEnergys board discussed the possibility of a
transaction with Allegheny Energy and authorized management to
continue due diligence and discussions with Allegheny Energy
regarding a possible merger.
During the period when FirstEnergy and Company A were developing
their proposals, Mr. Evanson had conversations from time to
time with both Mr. Alexander and Company As Chief
Executive Officer to discuss matters relating to a possible
transaction, including the status of the due diligence process
and that the Allegheny Energy board would place significant
weight on the premium represented by a transaction proposal.
On or about January 25, 2010, Mr. Alexander indicated
to Mr. Evanson that FirstEnergy was considering proposing
that Mr. Evanson serve as Executive Vice Chairman of the
combined company and report to Mr. Alexander.
Mr. Evanson was receptive to the concept of this continuing
position.
On January 27, 2010, DLA Piper LLP (US), referred to as DLA
Piper, Allegheny Energys Maryland counsel, was retained by
Allegheny Energy for the potential transaction.
On January 27, 2010, the FirstEnergy board met with members
of FirstEnergy management and representatives of Morgan Stanley
and Akin Gump for the purposes of reviewing a proposed
non-binding indicative proposal for a transaction with Allegheny
Energy. At this meeting, members of FirstEnergy management
briefed the FirstEnergy board on the strategic rationale for a
merger with Allegheny Energy, the potential financial benefits
of a merger including the potential synergies that could be
achieved, the status of discussions between FirstEnergy and
Allegheny Energy, the ongoing due diligence review of Allegheny
Energy and the regulatory approvals that would be required in
connection with a merger. Representatives of Morgan Stanley
reviewed with the FirstEnergy board its preliminary financial
analysis with respect to a potential merger transaction. The
FirstEnergy management team also reviewed with the FirstEnergy
board the proposed non-binding indicative proposal to be
submitted to Allegheny Energy, which contemplated (i) a
merger transaction with a fixed exchange ratio pursuant to which
each share of Allegheny Energy common stock would be converted
into the right to receive 0.667 of a share of FirstEnergy common
stock, (ii) a proposed corporate governance structure for
FirstEnergy after the merger, including Mr. Alexander
serving as the Chief Executive Officer and Mr. Evanson
potentially serving as Executive Vice Chairman reporting to
Mr. Alexander and that after the merger the FirstEnergy
board would be expanded from 11 to 13 members with two of the
current Allegheny Energy directors appointed to the board, and
(iii) a proposed termination fee of $175 million if
the merger agreement were terminated under certain
circumstances. The exchange ratio proposed in the non-binding
indicative proposal was determined by FirstEnergy based upon its
initial valuation of Allegheny Energy, FirstEnergys
estimate of the potential financial and strategic benefits of
the merger, the relative market prices of each companys
common stock and FirstEnergys desire to present a bid that
the Allegheny Energy board would find attractive, understanding
that Allegheny Energy was receiving a proposal from another
party. The FirstEnergy board authorized FirstEnergy management
to deliver the non-binding indicative proposal to Allegheny
Energy.
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On January 28, 2010, Allegheny Energy received each of
FirstEnergys and Company As
non-binding
indicative proposal and
mark-up of
the proposed term sheet. Company As proposal contemplated
an all stock transaction, with a proposed exchange ratio that
represented a meaningfully lower implied premium to Allegheny
Energy stockholders than the implied premium of
FirstEnergys proposal. Company As proposal
contemplated appointing three Allegheny Energy directors to the
combined companys board of directors, and did not specify
any appointments of Allegheny Energy officers.
Later that day, Mr. Alexander telephoned Mr. Evanson
to discuss the terms of FirstEnergys non-binding
indicative proposal and the potential benefits of a transaction
between FirstEnergy and Allegheny Energy.
On January 29, 2010, Goldman Sachs distributed to the
financial advisors for each of Company A and FirstEnergy a draft
merger agreement for review by their respective clients, and
asked that each be prepared to submit their comments on the
merger agreement by mid-week of the following week. In addition,
on January 29, 2010, representatives of Goldman Sachs and
Skadden had discussions with representatives of Morgan Stanley
and Akin Gump regarding various terms of FirstEnergys
non-binding indicative proposal, including the standard for
federal and state regulatory approvals, the circumstances under
which the parties would be able to terminate the merger
agreement or change their recommendation of the transaction and
the amount of the termination fee.
On January 30, 2010, after further discussions among
Allegheny Energy, Goldman Sachs and Skadden regarding timing,
Goldman Sachs contacted the financial advisors for each of
Company A and FirstEnergy and requested return of a
mark-up of
the merger agreement by February 2, 2010.
On February 1, 2010, Mr. Alexander contacted
Mr. Evanson to discuss the status of FirstEnergys bid
and to further discuss, on more substantive terms, the role
envisioned for Mr. Evanson as Executive Vice Chairman of
the combined company reporting to Mr. Alexander. This
included a discussion of the general responsibilities envisioned
for Mr. Evanson, including transitioning the Allegheny Energy
relationships in its operating regions, assistance with
integration of the companies, and talent retention and
development. On the same day, Company As Chief Executive
Officer contacted Mr. Evanson to discuss the status of
Company As bid. Company As Chief Executive Officer
offered a small increase in its proposed exchange ratio, which
still represented a meaningfully lower implied premium to
Allegheny Energy stockholders than the implied premium of
FirstEnergys proposal.
Also on February 1, 2010, prior to their return of a
mark-up of
the merger agreement, FirstEnergys outside legal counsel,
Akin Gump, informed Allegheny Energys outside legal
counsel, Skadden, of certain high level issues raised in the
initial draft of the merger agreement, including the standard
for federal and state regulatory approvals and fiduciary and
breakup fee provisions.
On February 2, 2010, Allegheny Energys board held a
special
all-day
meeting at Skaddens offices in Washington, D.C. to
discuss the proposals from each of FirstEnergy and Company A and
to determine whether to continue to explore a business
combination transaction and, if so, an appropriate course of
action for moving forward. At the meeting, the board members
received information about their duties under Maryland law and
related matters in connection with their consideration of a
potential transaction. Mr. Evanson updated the board on the
process that led to the submission of non-binding indicative
proposals from each of FirstEnergy and Company A.
Representatives from Goldman Sachs reviewed with the Allegheny
Energy board the financial terms of a potential transaction with
each of FirstEnergy and Company A (including proposed exchange
ratios, the implied premium to Allegheny Energys
stockholders and the pro forma ownership percentage of the
combined company), based on the non-binding indicative proposals
received from
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each of FirstEnergy and Company A, and presented certain
financial analyses in connection with a potential transaction
with each of FirstEnergy and Company A (including analyses with
respect to valuation metrics for each of Allegheny Energy,
FirstEnergy and Company A on a stand-alone basis and with
respect to the pro forma impact of a potential transaction
between Allegheny Energy and each of FirstEnergy and Company A).
Allegheny Energy management and its legal advisors reviewed with
the Allegheny Energy board the status of due diligence with
respect to FirstEnergy and Company A. The Allegheny Energy board
discussed significant events and challenges that Allegheny
Energy faced during the prior decade, Allegheny Energys
current valuation and growth drivers, and reviewed data for a
stand-alone scenario, and data and rationales for a possible
business combination. In this regard the board discussed certain
challenges facing the company, including weak commodity pricing,
potential climate change legislation, diversification of its
generation portfolio, issues of size and scale and access to
capital. The Allegheny Energy board also discussed the business,
operations and regulatory issues of each of FirstEnergy and
Company A and compared the implied premium offered to Allegheny
Energy stockholders in each of the proposals. The board also
considered the possible effects of a merger on other Allegheny
Energy stakeholders in particular, employees and
customers. Representatives from Skadden noted that a transaction
with FirstEnergy presented a marginally greater regulatory
approval risk than a transaction with Company A. Representatives
from Skadden reviewed and compared for the board the FirstEnergy
and Company A term sheet
mark-ups on
financial, regulatory, deal protection, governance (including
number of board seats offered on the combined company) and other
terms. Representatives from Skadden noted that neither of the
term sheet
mark-ups
were materially more favorable to Allegheny Energy than the
other on non-financial terms, but that Company A had requested a
two-week exclusivity period to perform extensive confirmatory
diligence. Representatives from Talisman International, LLC,
Allegheny Energys nuclear consultant, provided detailed
descriptions of the nuclear sites in a potential transaction.
The information provided to Allegheny Energys board
included assessments of performance and reliability of the
units, regulatory and operational risks, management oversight of
nuclear assets, capital expenditures, maintenance schedules and
NRC license extensions. Representatives of Skadden met
separately with the non-management directors in executive
session and described the consequences of a possible transaction
under Allegheny Energys executive compensation plans and
arrangements, noting that outstanding equity awards would vest
upon a change in control under, and as defined in, the Long-Term
Incentive Plan and describing the amount of change in control
payments. Representatives from Skadden indicated that
FirstEnergy had proposed a continuing role for Mr. Evanson
as Executive Vice Chairman of the combined company, reporting to
Mr. Alexander. Next steps and a timeline for consideration
of a potential transaction were discussed with the full board.
The meeting was then adjourned until the morning of
February 3, 2010.
In the evening of February 2, 2010, outside legal counsel
for each of FirstEnergy and Company A delivered their
mark-ups of
the draft merger agreement to Skadden.
On February 3, 2010, the special meeting of Allegheny
Energys board resumed. The board reviewed and requested
follow-up
information regarding certain due diligence matters, including
nuclear matters. Representatives for Skadden reviewed the
contemplated process for negotiating and finalizing a merger
agreement and the importance, during such time, of maintaining
confidentiality and in protecting against any premature leaks
regarding the negotiations. At the conclusion of the meeting,
the board expressed support for pursuing negotiations with
FirstEnergy. The Allegheny Energy boards decision in this
regard took into account the superior value of the FirstEnergy
proposal, as well as the proposed terms of the non-binding
indicative proposal, the
mark-up of
the proposed term sheet, the due diligence findings to date and
the likelihood of the completion of the transaction. Given the
boards view that the FirstEnergy proposal was, overall,
superior to
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Company As proposal taking into account these
factors, the board did not view it as worthwhile to continue a
dual track of negotiations with Company A. Furthermore, in the
interest of minimizing the risk of a premature leak regarding
merger discussions, the board authorized Allegheny Energy
management and its advisors to proceed with discussions with
FirstEnergy in an expeditious manner and to suspend, for the
time being, discussions with Company A.
On that same day, Mr. Evanson called Mr. Alexander to
inform him that the Allegheny Energy board had determined to
pursue negotiations with FirstEnergy. Mr. Evanson also
contacted Company As Chief Executive Officer to inform him
that, at such time, Allegheny Energy would not be further
pursuing Company As proposal, but that the situation was
dynamic. Company As Chief Executive Officer accepted this
information and did not give Mr. Evanson any indication that
Company A desired an opportunity to revise its proposal.
On February 3, 2010, based on matters discussed at the
Allegheny Energy board meeting, Skadden informed Akin Gump of
certain of the more significant issues presented in
FirstEnergys
mark-up of
the merger agreement that would require further negotiation
among the parties, including the standard for federal and state
regulatory approvals and fiduciary and breakup fee provisions,
and scheduled a meeting between the parties for the following
day.
On February 3, 2010, a telephonic meeting of the
FirstEnergy board of directors was convened. At the meeting,
FirstEnergys management informed the FirstEnergy board
that Allegheny Energy was proceeding with negotiations regarding
a potential merger with FirstEnergy and the proposed timeline.
The FirstEnergy board authorized management to proceed with
negotiations regarding a potential transaction with Allegheny
Energy.
On February 4, 2010, Deloitte & Touche LLP,
Allegheny Energys independent accountant was engaged to
assist Allegheny Energy in connection with a potential
transaction regarding FirstEnergy.
On February 4, 2010, representatives of FirstEnergy, Akin
Gump, Allegheny Energy and Skadden met at Skaddens offices
in Washington, D.C. to review and discuss the revised version of
the draft merger agreement. From February 5, 2010 through
February 10, 2010, FirstEnergy and Allegheny Energy and
their respective legal advisors had extensive discussions with
respect to contractual issues in the draft merger agreement,
including (i) the nature and scope of the representations
and warranties to be given by each party, (ii) the scope of
negative covenants applicable to each party during the period of
time prior to the closing of the merger, (iii) the
definition of material adverse effect, (iv) the standard
for federal and state regulatory approvals, (v) the
circumstances under which termination fees and expense
reimbursement would be payable by either party, and
(vi) the amount of the termination fee that would be
payable by each party in the event that the merger agreement was
terminated under certain circumstances.
On February 8, 2010, Mr. Evanson informed Company
As Chief Executive Officer that, in view of the status of
negotiations with another party, it was unlikely that Allegheny
Energy would be further pursuing Company As proposal.
Additionally, on February 8, 2010, Mr. Evanson spoke
with Mr. Alexander and requested clarifications relating to
the Executive Vice Chairman employment arrangement being offered
to him with the combined company, including with respect to the
term of the arrangement, the division of Mr. Evansons
time between office locations and the overall time commitment
anticipated, and asked that the arrangement be put into writing.
On that same date, Mr. Evanson received from
Mr. Alexander a draft letter outlining the general terms of
the proposed employment arrangement, including the anticipated
level of compensation, which terms were consistent with the
employment agreement later executed by Mr. Evanson and
FirstEnergy and filed as an exhibit to the registration
60
statement of which this joint proxy statement/prospectus is a
part. The terms of Mr. Evansons employment agreement
with FirstEnergy are described beginning on page 108.
On February 8, 2010, Allegheny Energys treasury group
contacted the lenders under certain credit facilities of
Allegheny Energy and its subsidiaries and secured amendments to
such agreements having the effect of delaying for 90 days
the triggering of a change in control (as defined in the credit
agreements) after execution of a merger agreement, instead of
upon signing. These lenders subsequently provided their consent
to the transaction such that the merger will not cause any
change in control, default or similar event under the credit
agreements.
On February 9, 2010, a meeting of the FirstEnergy board was
convened to review the status of the proposed merger with
Allegheny Energy. At the meeting, FirstEnergy management
reviewed certain aspects of the proposed transaction with the
board and responded to various questions from members of the
board. Representatives of Morgan Stanley made a presentation
regarding the financial aspects of the proposed merger and
informed the FirstEnergy board that on February 10, 2010
they would be prepared to deliver an oral opinion that the
proposed exchange ratio was fair from a financial point of view
to FirstEnergy. Akin Gump reviewed certain legal matters with
the FirstEnergy board, including the terms and conditions of the
draft merger agreement and the proposed charter amendment. The
board scheduled a meeting for the following day to consider the
proposed transaction.
On February 10, 2010, FirstEnergy, Allegheny Energy and
their respective legal advisors finalized a proposed merger
agreement to be executed by the parties.
On February 10, 2010, Allegheny Energys board held a
special meeting at Skaddens offices in New York City to
review and consider the proposed transaction. The meeting was
attended by members of Allegheny Energy management and
representatives of Goldman Sachs and Skadden, as well as DLA
Piper. Allegheny Energys outside legal advisors reviewed
the duties of directors under Maryland law in connection with
the consideration of the proposed transaction. Allegheny Energy
management provided the Allegheny Energy board with an update
regarding confirmatory due diligence items and discussed the
negotiations that had taken place with FirstEnergy and its legal
advisors. Representatives from Skadden described in detail the
material terms of the proposed merger agreement. Representatives
of Goldman Sachs reviewed the financial terms of the proposed
transaction and Goldman Sachs financial analyses with
respect to the proposed transaction and delivered Goldman
Sachs oral opinion, which was subsequently confirmed in
writing, that, as of February 10, 2010 and based upon and
subject to the assumptions, considerations, qualifications and
limitations set forth therein, the exchange ratio of 0.667 of a
share of FirstEnergy common stock for each share of Allegheny
Energy common stock was fair, from a financial point of view, to
Allegheny Energys stockholders (other than FirstEnergy and
its affiliates). See the section entitled
Opinion of Allegheny Energys Financial
Advisor beginning on page 91 and the opinion which is
attached as Annex D and incorporated by reference to this
section of the joint proxy statement/prospectus. Representatives
from Skadden then reviewed and discussed with the non-management
directors meeting in executive session the proposed continuing
role for Mr. Evanson with the combined company after the
merger. After further discussion, the full board of directors of
Allegheny Energy unanimously determined that the proposed merger
agreement and the merger were advisable, fair and in the best
interests of Allegheny Energy and its stockholders and
authorized Allegheny Energy management to execute the merger
agreement on the terms described to the Allegheny Energy board.
Also on February 10, 2010, a telephonic meeting of the
FirstEnergy board was convened to review and consider the
proposed transaction and the charter amendment. At the meeting,
FirstEnergy management informed the FirstEnergy board that the
merger agreement had been
61
finalized and that the Allegheny Energy board had approved the
proposed merger. Also at the meeting Morgan Stanley delivered
its oral opinion, later confirmed in writing, that as of
February 10, 2010 and based upon and subject to the various
assumptions, considerations, qualifications and limitations set
forth in the opinion, the exchange ratio pursuant to the
proposed merger agreement was fair from a financial point of
view to FirstEnergy. See the section entitled
Opinion of FirstEnergys Financial
Advisor beginning on page 78 and the opinion which is
attached as Annex C and incorporated by reference to this
section of the joint proxy statement/prospectus. The members of
the FirstEnergy board considered and discussed the information
presented at the meeting and at prior meetings regarding the
proposed merger. Following such discussions, the FirstEnergy
board, by unanimous vote, determined that the merger agreement
and the transactions contemplated by the merger agreement were
advisable and in the best interests of the FirstEnergy
shareholders and approved the merger agreement and the
transactions contemplated thereby and authorized FirstEnergy
management to execute the merger agreement.
Promptly after the meetings of the boards of directors of
FirstEnergy and Allegheny Energy, the management of FirstEnergy
and Allegheny Energy executed the merger agreement and
FirstEnergy delivered an executed letter to Mr. Evanson
which described the anticipated role that Mr. Evanson would
play as Executive Vice Chairman of FirstEnergy following the
merger reporting to Mr. Alexander. A joint press release
announcing the merger was issued on the morning of
February 11, 2010.
Recommendation
of the FirstEnergy Board of Directors and Its Reasons for the
Merger
By unanimous vote at a meeting held on February 10, 2010,
the FirstEnergy board of directors determined that the merger
agreement and the transactions contemplated by it, including the
merger and the charter amendment, are advisable and in the best
interests of FirstEnergy and its shareholders and approved the
merger agreement, the share issuance and the other transactions
contemplated by the merger agreement and the charter amendment.
The FirstEnergy board of directors recommends that
FirstEnergy shareholders vote FOR the proposal to authorize and
approve the share issuance and the other transactions
contemplated by the merger agreement and FOR the proposal to
adopt the charter amendment.
In reaching its decision to approve the merger agreement and to
recommend that FirstEnergy shareholders vote to approve the
issuance of FirstEnergy common stock to Allegheny Energy
stockholders pursuant to the merger agreement and adopt the
charter amendment, the FirstEnergy board consulted with
FirstEnergys management, legal and financial advisors, and
considered a variety of factors with respect to the merger. The
following discussion of the factors considered by the
FirstEnergy board is not exhaustive. In view of the wide variety
of factors considered by the FirstEnergy board in connection
with its evaluation of the merger, the FirstEnergy board did not
consider it practical to, nor did it attempt to, quantify, rank
or otherwise assign relative weights to the specific factors
that it considered in reaching its decision. Rather, it reviewed
the collection of factors in the aggregate. In considering the
factors described below, individual members of the FirstEnergy
board may have given different weight to different factors. The
FirstEnergy board did not reach any specific conclusion with
respect to any of the factors considered and instead conducted
an overall analysis of such factors and determined that, in the
aggregate, the potential benefits considered outweighed the
potential risks or possible negative consequences of approving
the merger agreement, the share issuance and the other
transactions contemplated by the merger agreement and the
adoption of the charter amendment. The FirstEnergy board
considered this information as a whole, and overall considered
the information and factors to be favorable to, and in support
of, its determinations and recommendations.
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Among the material information and factors considered by the
FirstEnergy board were the following:
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Strategic Considerations
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The FirstEnergy board considered a number of factors pertaining
to the strategic rationale for the merger, including the
following:
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Increased Scale and Scope;
Diversification. The merger will create a
combined company with increased scale and scope in energy
delivery, generation and transmission. In addition, the combined
company will have greater diversification and balance in its
energy delivery business and generation portfolio. This
increased scale, scope and diversification should allow for
improved service, reliability and operational flexibility with
greater potential earnings. The merger will create a larger
company with total assets of approximately $47 billion
calculated on a pro forma historical combined basis. The
combined company will be the largest U.S. diversified
electric utility by customers, and will also operate one of the
largest unregulated power generation fleets in the United
States. In the energy delivery business, the combined company
will have 10 electric distribution companies with more than six
million customers. In the generation business, the combined
company is expected to own
and/or
operate approximately 24,000 megawatts of domestic capacity in
multiple states, including approximately 11,200 MWs of
generation units that are equipped with environmental controls
to minimize air emissions, approximately 4,000 MWs of
nuclear energy and more than 2,200 megawatts of renewable
energy, including hydroelectric, contracted wind and
pumped-storage capacity. Also included in the combined fleet is
approximately 10,400 MWs of super-critical coal-fired
generation units. This diversified generation portfolio creates
a more balanced portfolio in terms of geography, fuel mix,
dispatch and load-servicing capacity. The combined company will
have over 20,000 miles of high-voltage transmission lines
connecting the Midwest and Mid-Atlantic with planned growth
underway. See the bullet point entitled Transmission
Projects below.
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Anticipated Financial Strength and
Flexibility. The increased scale and scope is
ultimately expected to strengthen the balance sheet of the
combined company. In addition, the diversification of the energy
delivery and generation portfolios of the combined company
should result in a more stable cash flow. The all-stock
transaction is expected to improve credit metrics, including the
debt-to-capitalization ratio, of the combined company.
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Combined Expertise in Competitive Markets and Complementary
Geography. The FirstEnergy board believes the
merger will combine companies with complementary areas of
expertise. The combined company is expected to be able to draw
upon the intellectual capital, technical expertise and
experience of a deeper and more diverse workforce. The combined
company should also be better able to invest in and deploy new
technologies. The FirstEnergy board considered that the combined
company will operate regulated utility businesses in seven
adjacent states, which should be beneficial in the integration
and management of the combined company.
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Synergies. The FirstEnergy board considered
that, although no assurance can be given that any particular
level of cost savings and other synergies will be achieved,
FirstEnergy management had identified estimated synergies of
approximately $180 million in the first full year of
operations following completion of the merger and approximately
$350 million in the second full year of operations
following completion of the merger,
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prior to costs to achieve and transaction costs. The
FirstEnergy board took note of the fact that the synergy numbers
were estimates, that they may change and that achieving the
synergies is subject to a number of uncertainties. See the
section entitled Risk Factors Many of the
anticipated benefits of combining FirstEnergy and Allegheny
Energy may not be realized beginning on page 34.
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Comparable Business Approach. The FirstEnergy
board considered the comparable corporate cultures and
competitive strategies of the two companies, including their
shared commitment to supporting and participating in competitive
energy markets. In addition, the FirstEnergy board considered
the common vision of the prospects for future consolidation in
the electric utility sector and the present and future effect of
deregulation on electric utility companies.
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Transmission Projects. The FirstEnergy board
considered the significant transmission projects in which
Allegheny Energy is involved, including the Potomac-Appalachian
Transmission Highline, referred to as PATH, and the
Trans-Allegheny Interstate Line, referred to as TrAIL (while
also considering the possibility that the PATH project could be
further delayed or even canceled), and that these projects
should further diversify the asset base of the company and have
the potential to contribute to earnings growth without a
dependency on commodity prices.
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Impact of the Merger on Customers and
Employees. The FirstEnergy board evaluated the
expected impact of the merger on FirstEnergys customers
and employees. Specifically, the FirstEnergy board believes that
the merger should benefit customers by enhancing operations and
strengthening reliability and provide more opportunities for
employees in a larger, more competitive company.
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Impact of the Merger on Communities. The
FirstEnergy board evaluated the expected impact of the merger on
the communities in which FirstEnergy and Allegheny Energy are
located and which they serve. In particular, the FirstEnergy
board believes the merger will benefit the communities served by
the combined company by creating a stronger combined company
better able to provide more reliable service. In addition, the
companies expect to maintain their substantial presence in the
cities and communities they serve. During the three-year period
after closing, FirstEnergy will provide community development
and charitable contributions to Allegheny Energys utility
service areas consistent with Allegheny Energys current
levels, and thereafter consistent with FirstEnergy levels of
contributions within its current utility service areas. See the
section entitled The Merger Agreement
Additional Agreements Charitable Contributions
beginning on page 139.
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Share Prices The FirstEnergy board took note of the
historic stock prices of FirstEnergy and Allegheny Energy,
including that the exchange ratio represented a 31.6% premium
over the closing price of Allegheny Energys common stock
on February 10, 2010 and a 22.3% premium over the
60-day
average closing price of Allegheny Energys common stock as
of February 10, 2010.
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Financial Considerations. The FirstEnergy
board considered the expected financial impact of the merger on
FirstEnergy in light of FirstEnergys acquisition criteria,
including that the merger is expected to be accretive to
FirstEnergys earnings in the first year following the
merger. In particular, the FirstEnergy board considered the
quantitative analysis of the merger on the combined
companys earnings per share and the financial prospects of
FirstEnergy and Allegheny Energy, including the financial
projections prepared by the management of FirstEnergy and the
financial projections prepared by the management of Allegheny
Energy. The FirstEnergy board
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also considered the historic financial condition, operating
results and businesses of FirstEnergy and Allegheny Energy,
including information with respect to their respective earnings
history.
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Opinion of Financial Advisor. The FirstEnergy
board considered the opinion of Morgan Stanley to the
FirstEnergy board that, as of February 10, 2010, and
subject to and based upon the assumptions, considerations,
qualifications and limitations discussed in such opinion, the
exchange ratio pursuant to the merger agreement was fair, from a
financial point of view, to FirstEnergy. See the section
entitled Opinion of FirstEnergys
Financial Advisor beginning on page 78 and
Annex C to this joint proxy statement/prospectus which
contains the full text of the written opinion of Morgan Stanley,
dated February 10, 2010, which discusses, among other
things, the assumptions made, procedures followed, matters
considered, and qualifications and limitations of the review
undertaken by Morgan Stanley in rendering its opinion, and is
incorporated by reference into this section of the joint proxy
statement/prospectus.
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Strategic Alternatives. The FirstEnergy board
considered the trends and competitive developments in the
diversified electric utility industry and the range of strategic
alternatives available to FirstEnergy, including continuing to
operate as a stand-alone entity, combining some or all of its
operations with another company in a merger or joint venture
transaction, making selected asset acquisitions in different
areas of its business and making selected asset dispositions.
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Recommendation of Management. The FirstEnergy
board took into account FirstEnergy managements
recommendation in favor of the merger.
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Terms of the Merger Agreement. The FirstEnergy
board reviewed the terms of the merger agreement, including that
the exchange ratio is fixed, the restrictions on each
partys interim operations, the conditions to each
partys obligation to complete the merger, the instances in
which each party is permitted to terminate the merger agreement
and the related termination fees payable by each party in the
event of termination of the merger agreement under specified
circumstances. See the section entitled The Merger
Agreement beginning on page 124 for a detailed
discussion of the terms and conditions of the merger agreement.
The FirstEnergy board also considered the course of negotiations
of the merger agreement.
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Severance Arrangements. The FirstEnergy board
considered the severance arrangements of Allegheny Energy in
place prior to the execution of the merger agreement and the
financial impact of such arrangements and the impact on the
retention of key management of Allegheny Energy.
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Due Diligence. The FirstEnergy board
considered the scope of the due diligence investigation
conducted by management and FirstEnergys advisors and
evaluated the results thereof, including the information
contained in Allegheny Energys disclosure letter relating
to the merger agreement. The FirstEnergy board also took note of
the coverage of identified risk areas in the representations and
warranties in the merger agreement.
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Likelihood of Completion of the Merger. The
FirstEnergy board considered the likelihood that the merger will
be completed on a timely basis, including the likelihood that
the merger will receive all necessary regulatory approvals
without unacceptable conditions as well as the recent history of
proposed mergers in the electric distribution industry. The
FirstEnergy board took note of the closing condition in the
merger agreement that neither FirstEnergy nor Allegheny Energy
is required to agree to certain actions or conditions in
connection with the required statutory approvals. See the
section entitled The Merger Agreement
Conditions to the Completion of the Merger beginning on
page 130 for a description of these matters.
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Corporate Governance. The FirstEnergy board
considered the corporate governance provisions of the merger
agreement including that, upon completion of the merger, the
FirstEnergy board will be comprised of eleven legacy FirstEnergy
directors and two legacy Allegheny Energy directors and that
following completion of the merger, the headquarters of the
combined company will remain in Akron, Ohio, Mr. Anthony J.
Alexander will remain President and Chief Executive Officer of
FirstEnergy and that Mr. Paul J. Evanson, the current
Chairman, President and Chief Executive Officer of Allegheny
Energy, will serve as the Executive Vice Chairman of FirstEnergy
and report to Mr. Alexander.
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The FirstEnergy board also considered the potential risks of the
merger, including the following:
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Regulatory Approvals. The FirstEnergy board
considered the regulatory approvals required to complete the
merger and the risk that governmental authorities and third
parties may seek to impose unfavorable terms or conditions on
the required approvals or that such approvals would not be
obtained at all. The FirstEnergy board also considered the
potential length of the regulatory approval process and that the
merger agreement provides that it may not be terminated until
14 months from the date of the merger agreement, which may
be extended to 20 months under specified circumstances.
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Restrictions Under the Merger Agreement. The
FirstEnergy board considered the provisions of the merger
agreement placing restrictions on FirstEnergys operations
until completion of the merger. The FirstEnergy board also
considered the risk that, although FirstEnergy has the right
under certain limited circumstances to consider and participate
in negotiations with respect to proposals for alternative
transactions, the provisions of the merger agreement relating to
the potential payment of a termination fee of $350 million
may have the effect of discouraging such proposals. In addition,
the FirstEnergy board considered that the merger agreement
includes other customary restrictions on the ability of
FirstEnergy to solicit offers for alternative proposals or
engage in discussions regarding such proposals, subject to
exceptions, which could have the effect of discouraging such
proposals from being made or pursued. The FirstEnergy board
understood that these provisions may have the effect of
discouraging alternative proposals and may make it less likely
that the transactions related to such proposals would be
negotiated or pursued, even if potentially more favorable to the
shareholders of FirstEnergy than the merger.
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Diversion of Management. The FirstEnergy board
considered the possible diversion of management resulting from
the substantial time and effort necessary to complete the merger
and integrate the operations of FirstEnergy and Allegheny Energy
following completion of the merger.
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Integration and Achievement of Anticipated
Synergies. The FirstEnergy board evaluated the
challenges inherent in the combination of two business
enterprises of the size and scope of FirstEnergy and Allegheny
Energy, including the possibility of not achieving the
anticipated synergies and other benefits sought from the merger.
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Impact on Credit Rating and Ability to Service
Debt. The FirstEnergy board considered the
possibility that the merger could result in a lower credit
rating for the combined company and certain of its subsidiaries
from that of FirstEnergy and its subsidiaries prior to
announcing the merger and the implications of such lower credit
rating. See the section entitled Risk Factors
FirstEnergys indebtedness following the merger will be
higher than FirstEnergys existing indebtedness.
Notwithstanding improvements in certain key credit metrics, such
as debt-to-capitalization ratios, it may be more difficult for
FirstEnergy to pay or refinance its debts and FirstEnergy may
need to borrow or divert its cash flow from operations to
service debt payments.
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The additional indebtedness could limit FirstEnergys
ability to pursue other strategic opportunities and increase its
vulnerability to adverse economic and industry conditions and
may cause FirstEnergy to take other actions that will increase
the dilution of its shareholders and former Allegheny Energy
stockholders or reduce earnings beginning on page 39.
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Increased Regulation. The FirstEnergy board
considered the additional regulation to which the combined
company would be subject, including regulation by the MDPSC, the
VSCC and the WVPSC.
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Employee Matters. The FirstEnergy board
considered the impact that business uncertainty pending
completion of the merger could have on the ability to attract,
retain and motivate key personnel until the merger is completed.
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Additional Interests of Executive Officers and
Directors. The FirstEnergy board considered that
certain executive officers and directors of FirstEnergy may have
interests with respect to the merger in addition to their
interests as shareholders of FirstEnergy. See the section
entitled Additional Interests of the
FirstEnergy Directors and Executive Officers in the Merger
beginning on page 103 for further information.
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The FirstEnergy board realized that there can be no assurance
about future results, including results considered or expected
as described in the factors listed above, such as assumptions
regarding potential synergies. It should be noted that this
explanation of the reasoning of the FirstEnergy board and all
other information presented in this section is forward-looking
in nature and, therefore, should be read in light of the factors
discussed under the heading Cautionary Statement
Concerning Forward-Looking Statements beginning on
page 30.
Recommendation
of the Allegheny Energy Board of Directors and Its Reasons for
the Merger
By unanimous vote, the Allegheny Energy board of directors, at a
meeting held on February 10, 2010, determined that the
merger agreement and the transactions contemplated by the merger
agreement, including the merger, were advisable, fair to and in
the best interests of Allegheny Energy and its stockholders and
approved the merger agreement and the transactions contemplated
thereby, including the merger. The Allegheny Energy board of
directors recommends that Allegheny Energy stockholders vote FOR
the proposal to approve the merger agreement and the merger at
the Allegheny Energy special meeting and FOR the proposal to
adjourn the Allegheny Energy special meeting, if necessary or
appropriate, to solicit additional proxies in favor of such
approval.
In reaching its determination to recommend the approval of the
merger agreement and the merger, the Allegheny Energy board
consulted with management, as well as Goldman Sachs, Allegheny
Energys financial advisor, and Allegheny Energys
internal and outside legal counsel and outside consultants, and
considered various material factors, which are discussed below.
The following discussion of the information and factors
considered by the Allegheny Energy board is not intended to be
exhaustive. In view of the wide variety of factors considered in
connection with the merger, the Allegheny Energy board did not
consider it practicable to, nor did it attempt to, quantify or
otherwise assign relative weights to the specific material
factors it considered in reaching its decision. In addition,
individual members of the Allegheny Energy board may have given
different weight or priority to different factors. The Allegheny
Energy board considered this information and these factors as a
whole, and overall considered the relevant information and
factors to be favorable to, and in support of, its determination
and recommendation.
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Among the material information and factors considered by the
Allegheny Energy board were the following:
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Strategic Considerations. The Allegheny Energy
board considered a number of factors pertaining to the strategic
rationale for the merger, including the following:
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Mitigation of Impact of Environmental Legislation and
Regulation. The Allegheny Energy board considered
the current trend of increasing legislative and regulatory
initiatives with respect to coal-fired generation facilities,
including initiatives regarding carbon emissions and climate
change. The combined companys generation fleet will be
more diversified than that of Allegheny Energy as a stand-alone
company, with significant non-carbon emitting capacity and a
greater balance in terms of fuel mix. Thus, the merger is
expected to reduce Allegheny Energys exposure to the
impact of evolving environmental legislation and regulation.
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Increased Scale, Scope and
Diversification. The Allegheny Energy board
considered that the merger will create a combined company with
increased scale and scope in a variety of dimensions. The
combined company will have greater diversification of markets,
regulatory jurisdictions and generation portfolio. By extending
its operations across more states, the merger will diversify
Allegheny Energys regulatory risk by subjecting the
combined companys utility operations to the jurisdiction
of additional state regulators rather than only to the
jurisdiction of Pennsylvania, West Virginia, Maryland and
Virginia regulators.
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The combined company will create a significant presence in its
region and industry sector. The combined company will own
and/or
operate approximately 24,000 megawatts of electric generation,
of which 21,000 megawatts will be in competitive markets. This
combined companys generation portfolio will be more
diversified in terms of geography and fuel mix. The combined
company will also create a stronger portfolio of utility
businesses, with approximately 6.1 million retail electric
customers and enhanced retail marketing capability.
The increased scale and scope is ultimately expected to enhance
the financial strength and flexibility of the combined company,
which should have greater access to capital then Allegheny
Energy as a stand-alone company.
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Potential Benefit from Higher Power
Prices. Like Allegheny Energy, the combined
company will be positioned to benefit from a future recovery in
the general economy and in power prices in particular. In light
of the current downturn in the economy and the related decrease
in power prices, the Allegheny Energy board found a strategic
benefit in the ability of the combined company, like Allegheny
Energy, to gain from a rebound in power prices.
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Contiguous Service Territories. The Allegheny
Energy board considered that together, Allegheny Energy and
FirstEnergy serve a contiguous area covering parts of Ohio,
Pennsylvania, New York, New Jersey, Maryland, West Virginia, and
Virginia. The companies adjacent geographical footprints
will allow their existing businesses to complement each other
and facilitate the combined companys retail sales
strategy. Further, the combined companys geographical
footprint, when combined with Allegheny Energys
transmission assets, will allow the combined company to take
advantage of opportunities created by the continuing need for
power to be transmitted to the eastern region of the United
States as electricity demand grows in that region.
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Nuclear Generation Capability. The Allegheny
Energy board considered that the merger will allow Allegheny
Energy to benefit from the nuclear generation capability of
FirstEnergy. As a zero-carbon emissions technology,
FirstEnergys nuclear generation assets will balance
Allegheny Energys coal-fired generation assets, producing
a more diversified generation fleet with a lower carbon profile
than Allegheny Energy has as a stand-alone company. Given the
high cost and unique technical requirements associated with
developing new nuclear generation, Allegheny Energy does not
have the size or technical expertise necessary to develop or
acquire nuclear generation assets and operate them as a
stand-alone company.
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Combined Expertise. The Allegheny Energy board
considered that the merger will combine complementary areas of
expertise. The combined company is expected to be able to draw
upon the intellectual capital, technical expertise and
experience of a deeper, more diverse workforce.
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Common Regulatory Framework. The Allegheny
Energy board considered that the regulatory frameworks
applicable to the combined companys franchised service
areas are generally favorable, diversify regulatory risk as
identified above, and provide additional scale for the two
companies expertise in dealing with the complexities of
regulation and the interplay of regulation and deregulation at
state and federal levels.
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Equity Participation in Combined Company. The
Allegheny Energy board took note of the fact that the merger
consideration will be paid in FirstEnergy common stock, which
provides Allegheny Energy stockholders with the opportunity to
participate in any future earnings or growth of the combined
company and future appreciation of FirstEnergy common stock
following the merger, should they determine to retain the
FirstEnergy common stock to be received in the merger. In this
regard, the Allegheny Energy board considered the fact that
Allegheny Energy stockholders would own approximately 27% of the
combined company. The Allegheny Energy board also considered the
fact that receiving shares of FirstEnergy common stock would
provide liquidity for those Allegheny Energy stockholders who do
not desire to continue holding their shares of FirstEnergy
common stock and seek to sell their shares into the market
following the merger.
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Premium Over Market Prices. The Allegheny
Energy board considered that the exchange ratio of 0.667 of a
share of FirstEnergy common stock for each share of Allegheny
Energy common stock resulted in an implied merger consideration
as of February 8, 2010 of $27.34 per share (based in turn
on the $40.99 closing price of FirstEnergy common stock on
February 8, 2010). The exchange ratio represented a premium
over the market prices at which Allegheny Energy common stock
had previously traded, including a premium of approximately:
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38.7% over the closing price of Allegheny Energy common stock of
$21.26 per share on January 27, 2010, the trading day prior
to the date FirstEnergys non-binding indicative proposal
was received by Allegheny Energy;
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30.9% over the closing price of Allegheny Energy common stock of
$20.89 per share on February 8, 2010, the day when the
materials for the February 10, 2010 board meeting were
prepared; and
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34.8% over the average closing price of Allegheny Energy common
stock over the
30-day
trading period ended on February 8, 2010.
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During the course of the February 10, 2010 meeting, the
Allegheny Energy board was provided updated premium information
based on the February 10, 2010 closing prices.
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Premium Compared to Other Utility
Transactions. The Allegheny Energy board
considered that the premiums described above are higher than the
premiums offered in other transactions in the utility industry
announced since December 2004. For the transactions reviewed by
the Allegheny Energy board, the median premium as of the date
which was one week prior to the announcement date of the
transaction was 18.8%, with the premiums ranging from 0.2% to
26.3%, and the median premium as of the date which was one day
prior to the announcement date of the transaction was 15.2%,
with the premiums ranging from 7.0% to 25.3%.
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Dividend Increase. Although the Allegheny
Energy board recognized that dividends are declared at the
discretion of the board and that the FirstEnergy board could
change its dividend policy, assuming FirstEnergy maintains its
current dividend amount, the combined company dividend to be
received by holders of Allegheny Energy common stock at the
0.667 exchange ratio would be 145% higher than the dividend they
currently receive on their Allegheny Energy shares. The
Allegheny Energy board considered that the combined
companys future dividend rate would be supported by the
combined companys strong balance sheet and cash flows.
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Financial Considerations. The Allegheny Energy
board considered the expected financial impact of the merger on
Allegheny Energy. In particular, the Allegheny Energy board
considered the anticipated impact of the Allegheny Energy merger
on the combined companys earnings per share and the
financial prospects of Allegheny Energy and FirstEnergy,
including the financial projections prepared by the management
of Allegheny Energy and the financial projections prepared by
the management of FirstEnergy (with adjustments made by
Allegheny Energy management). The Allegheny Energy board also
considered historical trading information for shares of
Allegheny Energy common stock and FirstEnergy common stock and
the historical financial condition, operating results and
businesses of Allegheny Energy and FirstEnergy, including
information with respect to their respective earnings histories,
return on capital and cash flow as well as comparisons of
historical operational measures for Allegheny Energy and
FirstEnergy. In addition, the Allegheny Energy board considered
the stand-alone illustrative valuation of FirstEnergy under
various methodologies based on its long range plan, as adjusted
by Allegheny Energy management based on their due diligence.
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Cost Savings and Synergies. Neither the
Allegheny Energy board nor Allegheny Energy management produced
its own estimates of potential synergies from a combination with
FirstEnergy in order to reflect a conservative approach toward
the achievement of synergies, and for the same reason Allegheny
Energy agreed that Goldman Sachs should prepare its financial
analyses on a pre-synergy basis. The Allegheny Energy board,
however, considered that although no assurance can be given that
any particular level of synergies will be achieved, FirstEnergy
has estimated that the combination will generate synergies from
across generation and fuel, regulated utilities, corporate
activities and information services businesses. The companies
anticipate that upon review with state commissions, savings
attributed to regulated utility operations will be shared
between customers and shareholders over time in an equitable
manner. The Allegheny Energy board took note of the fact that
the synergy numbers were estimates prepared by FirstEnergy, that
they may change and that achieving the synergies is subject to a
number of uncertainties.
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Opinion of Goldman Sachs. The Allegheny Energy
board considered Goldman Sachs opinion to Allegheny
Energys board, dated February 10, 2010, that, as of
such date and based upon and subject to the assumptions,
considerations, qualifications and limitations set forth
therein, the exchange ratio in the proposed merger was fair,
from a financial point of view, to Allegheny Energys
stockholders (other than FirstEnergy and its affiliates). See
the section entitled Opinion of Allegheny
Energys Financial Advisor beginning on page 91
of this joint proxy statement/prospectus for a fuller
description. The full text of Goldman Sachs written
opinion, which sets forth, among other things, the assumptions
made, procedures followed, matters considered, qualifications
and limitations on the review undertaken in connection with its
opinion, is attached as Annex D and incorporated by
reference into this section of the joint proxy
statement/prospectus.
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Merger Agreement. The Allegheny Energy board
reviewed, with Allegheny Energys legal advisors, the
structure of the merger and other terms of the merger agreement.
In particular, the Allegheny Energy board considered the
following specific aspects of the merger agreement:
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that the merger is intended to qualify as a reorganization for
U.S. federal income tax purposes and the expectation that
the receipt of shares of FirstEnergy common stock will generally
not be a taxable event to Allegheny Energy stockholders for
U.S. federal income tax purposes;
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the representations and warranties made by Allegheny Energy and
FirstEnergy in the merger agreement, including the
material adverse effect standard that qualifies many
of the representations and warranties made by each party;
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the nature of the closing conditions included in the merger
agreement, as well as the likelihood of satisfaction of all
conditions to the completion of the merger;
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Allegheny Energys right to engage in negotiations with,
and provide information to, a third party that makes an
unsolicited written acquisition proposal, if Allegheny
Energys board determines in good faith, after consultation
with its outside legal and financial advisors, that such
proposal constitutes or is reasonably likely to lead to a
transaction that is more favorable, from a financial point of
view, to Allegheny Energys stockholders than the merger;
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the right of Allegheny Energys board to change its
recommendation in favor of the merger upon receipt of a superior
offer or upon the occurrence of an intervening event (as defined
in the merger agreement and discussed in the section entitled
The Merger Agreement Additional
Agreements Non-Solicitation beginning on
page 141 of this joint proxy statement/prospectus), in each
case, if failing to take such action would be reasonably likely
to be inconsistent with the exercise by the board of its duties
under applicable law;
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the circumstances under which the Allegheny Energy termination
fee is payable by Allegheny Energy to FirstEnergy and the size
of the termination fee, which was determined by negotiation
between the parties based on an analysis of precedent
transactions and the relative sizes of the companies and which
the Allegheny Energy board views as reasonable in light of the
size and benefits of the transaction and not preclusive of a
superior offer, if one were to emerge;
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the circumstances under which the FirstEnergy termination fee is
payable by FirstEnergy to Allegheny Energy and the size of the
termination fee, which was determined by
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negotiation between the parties based on an analysis of
precedent transactions and the relative sizes of the companies
and which the Allegheny Energy board views as favorable;
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the general ability of Allegheny Energy to operate its business
in the ordinary course during the period between the signing of
the merger agreement and the closing of the merger, as well as
the ability of Allegheny Energy to enter into retention
agreements or arrangements to help retain employees and
management during the period between the signing of the merger
agreement and the closing of the merger;
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the requirement that Allegheny Energy obtain stockholder
approval as a condition to completion of the merger; and
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the requirement that FirstEnergy use reasonable best efforts to
obtain required regulatory approvals and clearances to complete
the merger, subject to certain exceptions described in the
section entitled The Merger Agreement
Additional Agreements Efforts Related to Consents
and Approvals of Governmental Entities and Third Parties
beginning on page 139 of this joint proxy
statement/prospectus.
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Mr. Evansons Employment with
FirstEnergy. The Allegheny Energy board
considered the fact that FirstEnergy is expected to employ
Mr. Evanson as Executive Vice Chairman after the merger.
The Allegheny Energy board determined that the skills, talents
and experiences of Mr. Evanson would be beneficial to
FirstEnergy, and the integration of the two companies and thus
to Allegheny Energy stockholders who choose to retain their
FirstEnergy common stock received in the merger.
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Regulatory Approvals. The Allegheny Energy
board considered the belief that regulatory approvals and
clearances necessary to complete the merger are reasonably
obtainable.
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Alternatives to the Merger. The Allegheny
Energy board considered the belief that, after careful
consideration of potential alternatives to the merger, the
merger with FirstEnergy is expected to yield greater benefits to
Allegheny Energy stockholders (including the benefits discussed
above) than would the range of alternatives considered. The
potential alternatives considered included various stand-alone
strategies, including generation portfolio diversification and
business separation, and potential transactions of various types
with a range of third parties other than FirstEnergy, including
a merger with Company A, and merger of equals and acquisition
opportunities.
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Management Recommendation. The Allegheny
Energy board considered the recommendation of senior management
of Allegheny Energy that the merger is in the best interests of
Allegheny Energys stockholders based on their knowledge of
current conditions in the electricity generation, distribution
and transmission industry and markets and the likely effects of
these factors on Allegheny Energys and FirstEnergys
potential growth, productivity and strategic options.
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Due Diligence. The Allegheny Energy board
considered the scope of the due diligence investigation
conducted by management and certain of Allegheny Energys
outside advisors and evaluated the results thereof.
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Employee Matters. The Allegheny Energy board
considered that FirstEnergy has agreed to honor all Allegheny
Energy collective bargaining agreements, benefit plans and
compensation arrangements in effect before the closing in
accordance with their terms, and that for at least one year
after the closing, FirstEnergy will provide current and former
Allegheny Energy employees not covered by collective bargaining
agreements compensation and benefits that are no less favorable
in the aggregate than the compensation and benefits provided to
those
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employees immediately before the merger. While FirstEnergy is
entitled to make modifications to the compensation and benefits
of those employees, these modifications may not result in
compensation and benefits for those employees that are less
favorable in the aggregate than the compensation and benefits
that are provided to similarly situated non-union employees of
FirstEnergy not covered by collective bargaining agreements.
FirstEnergy has agreed that Allegheny Energy employees generally
will be credited with pre-closing service for benefit plan
purposes, and FirstEnergy has also agreed that severance
benefits will not be reduced during the one-year period
following closing.
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Impact of the Merger on Customers. The
Allegheny Energy board evaluated the expected impact of the
merger on Allegheny Energys customers. Specifically, the
Allegheny Energy board believes that the merger should benefit
customers by enhancing operations and improving reliability.
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Impact of the Merger on Communities. The
Allegheny Energy board considered the fact that the merger would
have a positive impact on the communities served by Allegheny
Energy based on the greater strength of the combined company as
compared to Allegheny Energy on a stand-alone basis, and the
potential for the combined company to become a more significant
benefactor of charities in the communities served by Allegheny
Energy. In addition, the companies expect to maintain their
substantial presence in the communities they serve. During the
three-year period after closing, FirstEnergy will provide
community development and charitable contributions to Allegheny
Energys utility service areas consistent with Allegheny
Energys current levels, and thereafter consistent with
FirstEnergy levels of contributions within its current utility
service areas. See the section entitled The Merger
Agreement Additional Agreements
Charitable Contributions beginning on page 139.
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Board of Directors of Combined Company. The
Allegheny Energy board considered the fact that the board of
directors of the combined company will include two members who
served as directors of Allegheny Energy prior to the completion
of the merger.
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The Allegheny Energy board also considered certain potentially
negative factors in its deliberations concerning the merger,
including but not limited to the following:
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Fixed Exchange Ratio. The Allegheny Energy
board considered the fact that because the merger consideration
is a fixed exchange ratio of shares of FirstEnergy common stock
to Allegheny Energy common stock, Allegheny Energy stockholders
could be adversely affected by a decrease in the trading price
of FirstEnergy common stock during the pendency of the merger
and the fact that the merger agreement does not provide
Allegheny Energy with a price-based termination right or other
similar protection. The Allegheny Energy board determined that
this structure was appropriate and the risk acceptable in view
of factors such as the Allegheny Energy boards review of
the relative intrinsic values and financial performance of
FirstEnergy and Allegheny Energy, as well as the opportunity
Allegheny Energy stockholders have as a result of the fixed
exchange ratio to benefit from any increase in the trading price
between the announcement and completion of the merger.
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Integration. The Allegheny Energy board
considered the risk that the potential benefits of the merger
will not be realized or will not be realized within the expected
time period and the risks and challenges associated with the
integration by FirstEnergy of Allegheny Energys
businesses, operations and workforce, which is mitigated by the
fact that FirstEnergy successfully completed two prior
integrations.
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Regulatory Approvals. The Allegheny Energy
board considered the regulatory approvals required to complete
the merger and the risk that the applicable governmental
authorities and third parties may seek to impose unfavorable
terms or conditions on the required approvals. The Allegheny
Energy board also considered the potential length of the
regulatory approval process and that the merger agreement
provides that it may not be terminated as a result of the
failure to meet these and other closing conditions until
April 10, 2011, which may be extended to a date up to
July 10, 2011 and further extended to a date up to
October 10, 2011 under specified circumstances.
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Failure to Close. The Allegheny Energy board
considered the risks and contingencies relating to the
announcement and pendency of the merger and the risks and costs
to Allegheny Energy if the closing of the merger is not timely
or if the merger does not close at all, including the impact on
Allegheny Energys relationships with employees and third
parties and the effect a public announcement of termination of
the merger agreement may have on the trading price of Allegheny
Energys common stock.
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Diversion of Focus. The risk of diverting
management focus, employee attention and resources from other
strategic opportunities and from operational matters while
working to complete the merger.
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Merger Agreement. The Allegheny Energy board
considered the risks associated with various provisions of the
merger agreement, including:
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the requirements that Allegheny Energy must pay to FirstEnergy a
termination fee of $150 million, and up to $45 million
of its reasonable transaction expenses, if the merger agreement
is terminated under certain circumstances, which might
discourage other parties potentially interested in an
acquisition of, or combination with, Allegheny Energy from
pursuing that opportunity, even if potentially more favorable to
the stockholders of Allegheny Energy than the merger. See the
section entitled The Merger Agreement Effect
of Termination beginning on page 144 of this joint
proxy statement/prospectus.
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the fact that the merger agreement includes other customary
restrictions on the ability of Allegheny Energy to solicit
offers for alternative proposals or engage in discussions
regarding such proposals, subject to exceptions, which could
have the effect of discouraging such proposals from being made
or pursued, even if potentially more favorable to the
stockholders of Allegheny Energy than the merger.
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the requirement that Allegheny Energy conduct its business in
the ordinary course prior to the completion of the merger and
subject to specified restrictions on the conduct of Allegheny
Energys business without FirstEnergys consent (not
to be unreasonably withheld, conditioned or delayed), which
might delay or prevent Allegheny Energy from undertaking certain
business opportunities that might arise pending completion of
the merger.
|
|
|
|
|
|
Risk Factors. The Allegheny Energy board
considered the risks described in the section entitled
Risk Factors beginning on page 32 of this joint
proxy statement/prospectus.
|
The Allegheny Energy board concluded that the potentially
negative factors associated with the proposed merger were
outweighed by the potential benefits that it expected the
Allegheny Energy stockholders would achieve as a result of the
merger, including the belief of the Allegheny Energy board that
the proposed merger would maximize the value of Allegheny
Energys stockholders shares and mitigate the risks
and uncertainties affecting the future prospects of Allegheny
Energy. Accordingly, the Allegheny Energy board determined that
the merger agreement and the transactions
74
contemplated thereby, including the merger, are advisable, fair
to, and in the best interests of, Allegheny Energy and its
stockholders.
In addition, the Allegheny Energy board was aware of and
considered the interests that Allegheny Energys directors
and executive officers may have with respect to the merger that
differ from, or are in addition to, their interests as
stockholders of Allegheny Energy generally, as described in the
section entitled Additional Interests of
Allegheny Energy Directors and Executive Officers in the
Merger beginning on page 104 of this joint proxy
statement/prospectus.
This explanation of Allegheny Energys reasons for the
merger and other information presented in this section is
forward-looking in nature and, therefore, should be read in
light of the factors described in the section entitled
Cautionary Statement Concerning Forward-Looking
Statements beginning on page 30 of this joint proxy
statement/prospectus.
Certain
Unaudited Prospective Financial Information Utilized by the
FirstEnergy Board of Directors and FirstEnergys Financial
Advisor
FirstEnergy
Unaudited Prospective Financial Information
FirstEnergy does not as a matter of course make public long-term
projections as to future performance due to, among other
reasons, the uncertainty, unpredictability and volatility of the
underlying assumptions and estimates. However, FirstEnergy is
including in this joint proxy statement/prospectus unaudited
prospective financial information prepared by FirstEnergy
management, which we refer to as the FirstEnergy Forecasts, for
the fiscal years 2010 through 2014 that was used in connection
with the evaluation of the merger by FirstEnergy.
The FirstEnergy Forecasts presented below were provided to the
FirstEnergy board and were furnished to and used by
FirstEnergys financial advisor, Morgan Stanley.
FirstEnergy also provided Allegheny Energy and its financial
advisor with the FirstEnergy Forecasts, which were adjusted by
Allegheny Energy as discussed in Certain
Unaudited Prospective Financial Information Utilized by the
Allegheny Energy Board of Directors and Allegheny Energys
Financial Advisor beginning on page 88. Additionally,
in connection with the discussions concerning the merger,
Allegheny Energy provided FirstEnergy and its financial advisor
with unaudited prospective financial information prepared by
Allegheny Energy management, which we refer to as the Allegheny
Energy Forecasts. The Allegheny Energy Forecasts were based on
assumptions regarding the future prices of certain commodities,
which in some cases were different from the assumptions used by
FirstEnergys management in preparing the FirstEnergy
Forecasts. As part of the evaluation of the merger by
FirstEnergy, the projected earnings per share included within
the FirstEnergy Forecasts were adjusted, which we refer to as
the FirstEnergy Adjusted Forecasts, to reflect Allegheny
Energys assumptions with respect to the commodity prices
used in the Allegheny Forecasts. The FirstEnergy Forecasts and
the FirstEnergy Adjusted Forecasts were considered by the
FirstEnergy board and used by Morgan Stanley for purposes of its
financial analyses regarding the merger. In connection with its
consideration of the FirstEnergy Forecasts, the FirstEnergy
board, in accordance with its customary practice, believed that
it was reasonable to rely on the FirstEnergy Forecasts prepared
by FirstEnergy management but did not make any formal
determination that the FirstEnergy Forecasts were accurate or
complete.
The inclusion of the FirstEnergy Forecasts and the FirstEnergy
Adjusted Forecasts in this joint proxy statement/prospectus
should not be regarded as an indication that FirstEnergy or its
board considered, or now considers, these forecasts to be a
reliable predictor of future results. You should not place undue
reliance on the unaudited financial forecasts contained in this
joint proxy statement/prospectus. Please read carefully
Important Information About the Unaudited
Prospective Financial Information beginning on
page 77.
75
The following tables present the FirstEnergy Forecasts and the
FirstEnergy Adjusted Forecasts for the fiscal years ending 2010
through 2014, as used by the FirstEnergy board for purposes of
its consideration of the merger and by Morgan Stanley for
purposes of its financial analyses regarding the merger:
FirstEnergy
Forecasts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Fiscal Year
|
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
|
(In millions, except per share amounts)
|
|
EBITDA(1)
|
|
$
|
3,817
|
|
|
$
|
3,730
|
|
|
$
|
4,111
|
|
|
$
|
4,217
|
|
|
$
|
4,285
|
|
EPS
|
|
$
|
3.60
|
|
|
$
|
4.05
|
|
|
$
|
5.04
|
|
|
$
|
5.21
|
|
|
$
|
5.40
|
|
FirstEnergy
Adjusted Forecasts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Fiscal Year
|
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
EPS
|
|
$
|
3.60
|
|
|
$
|
4.05
|
|
|
$
|
4.77
|
|
|
$
|
4.63
|
|
|
$
|
4.34
|
|
|
|
|
(1)
|
|
Excludes other income, gains or
losses on asset sales and interest and amortization from
securitized debt.
|
Allegheny
Unaudited Prospective Financial Information
As discussed above, in connection with discussions concerning
the merger, Allegheny Energy provided to FirstEnergy the
Allegheny Energy Forecasts. To further evaluate the merits of
the merger, the projected earnings per share included within the
Allegheny Energy Forecasts were adjusted based on the commodity
pricing assumptions included in the FirstEnergy Forecasts, which
we refer to as the Allegheny Energy Adjusted Forecasts. Both the
Allegheny Energy Forecasts and the Allegheny Energy Adjusted
Forecasts were considered by the FirstEnergy board and used by
Morgan Stanley for purposes of its financial analyses regarding
the merger. The Allegheny Energy Forecasts provided to
FirstEnergy are discussed under Certain
Unaudited Prospective Financial Information Utilized by the
Allegheny Energy Board of Directors and Allegheny Energys
Financial Advisor beginning on page 88.
The inclusion of the Allegheny Energy Forecasts and the
Allegheny Energy Adjusted Forecasts in this joint proxy
statement/prospectus should not be regarded as an indication
that FirstEnergy or its board considered, or now considers,
these forecasts to be a reliable predictor of future results.
You should not place undue reliance on the unaudited financial
forecasts contained in this joint proxy statement/prospectus.
Please read carefully Important Information
About the Unaudited Prospective Financial Information
beginning on page 89.
The components of the Allegheny Energy Forecasts and the
Allegheny Energy Adjusted Forecasts used by the FirstEnergy
board for purposes of its consideration of the merger and by
Morgan Stanley for purposes of its financial analyses regarding
the merger are set forth below:
Allegheny
Energy Forecasts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Fiscal Year
|
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
|
(In millions, except per share amounts)
|
|
EBITDA(1)
|
|
$
|
1,194
|
|
|
$
|
1,300
|
|
|
$
|
1,239
|
|
|
$
|
1,294
|
|
|
$
|
1,551
|
|
EPS
|
|
$
|
2.28
|
|
|
$
|
2.52
|
|
|
$
|
2.27
|
|
|
$
|
2.49
|
|
|
$
|
3.42
|
|
76
Allegheny
Energy Adjusted Forecasts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Fiscal Year
|
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
EPS
|
|
$
|
2.28
|
|
|
$
|
2.40
|
|
|
$
|
2.71
|
|
|
$
|
3.36
|
|
|
$
|
4.48
|
|
|
|
|
(1)
|
|
Excludes other income and interest
and amortization from securitized debt.
|
Important
Information about the Unaudited Prospective Financial
Information
FirstEnergy is electing to provide the unaudited prospective
financial information discussed above in this joint proxy
statement/prospectus to provide the shareholders of FirstEnergy
and the stockholders of Allegheny Energy access to certain
non-public unaudited prospective financial information that was
made available to the FirstEnergy board, the Allegheny Energy
board and FirstEnergys and Allegheny Energys
financial advisors in connection with the merger. This financial
information was considered by the FirstEnergy board for purposes
of evaluating the merger. The unaudited prospective financial
information was not prepared with a view toward public
disclosure and the inclusion of this information in this joint
proxy statement/prospectus should not be regarded as an
indication that any of FirstEnergy, Allegheny Energy or any
other recipient of this information considered, or now
considers, it to be necessarily predictive of actual future
results. None of FirstEnergy, Allegheny Energy or their
respective affiliates assumes any responsibility for the
accuracy of this information. The unaudited prospective
financial information discussed above is not being included in
this joint proxy statement/prospectus to influence FirstEnergy
shareholders or Allegheny Energy stockholders to vote in favor
of the proposals to be voted upon at the special meetings, but
because it represents unaudited prospective financial
information prepared by FirstEnergy and Allegheny Energy
that was used for purposes of the financial analyses performed
by FirstEnergys financial advisor and Allegheny
Energys financial advisor. The inclusion of the unaudited
prospective financial information in this joint proxy
statement/prospectus shall not be deemed an admission or
representation by FirstEnergy or Allegheny Energy that such
information is material.
The unaudited prospective financial information was, in general,
prepared solely for internal use and is subjective in many
respects and thus subject to interpretation. While presented
with numeric specificity, the unaudited prospective financial
information reflects numerous estimates and assumptions made by
the management of FirstEnergy involving judgments with respect
to, among other things, industry performance and competition,
future business, economic, competitive, regulatory, and
financial market conditions, commodity prices (which are
historically volatile) and matters specific to
FirstEnergys business, including future business
decisions, that may not be realized and that are inherently
subject to significant business, economic, competitive and
regulatory uncertainties and contingencies, including, among
others, the risks and uncertainties described under
Cautionary Statement Regarding Forward-Looking
Statements and Risk Factors beginning on
pages 30 and 32, respectively, or otherwise incorporated by
reference into this joint proxy statement/prospectus from
FirstEnergys and Allegheny Energys previously filed
Exchange Act reports, all of which are difficult to predict and
many of which are beyond the control of FirstEnergy
and/or
Allegheny Energy. In addition, the unaudited prospective
financial information discussed above reflects estimates and
assumptions that were made as of the date the unaudited
prospective financial information was prepared and which have
not been updated since to reflect any changes in commodity
prices or other assumptions. These estimates and assumptions do
not reflect current conditions, and no assurances can be given
that these estimates or assumptions will accurately reflect
future conditions. As a result, there can be no guarantee that
the unaudited prospective financial information will be realized
or that actual results will not be significantly higher or lower
77
than estimated. Since the unaudited prospective financial
information covers multiple years, such information by its
nature becomes less predictive with each successive year. The
combination of the FirstEnergy and Allegheny Energy unaudited
prospective financial information does not represent the results
that the combined company will achieve if the merger is
completed, nor does it represent unaudited prospective financial
information for the combined company.
The unaudited prospective financial information was not prepared
with a view toward complying with GAAP, the published guidelines
of the SEC regarding projections or the guidelines established
by the American Institute of Certified Public Accountants for
preparation and presentation of prospective financial
information. Neither FirstEnergys independent registered
public accounting firm, nor any other independent accountants,
have compiled, examined, or performed any procedures with
respect to the unaudited prospective financial information
contained in this joint proxy statement/prospectus, nor have
they expressed any opinion or any other form of assurance on
such information or its achievability, and assume no
responsibility for the unaudited prospective financial
information. The report of FirstEnergys independent
registered public accounting firm contained in
FirstEnergys Annual Report on
Form 10-K
for the year ended December 31, 2009, which is incorporated
by reference into this joint proxy statement/prospectus, relates
to FirstEnergys historical financial information. It does
not extend to the unaudited prospective financial information
and should not be read to do so. Furthermore, the unaudited
prospective financial information does not take into account any
circumstances or events occurring after the date it was
prepared. FirstEnergy has made no representation to Allegheny
Energy, in the merger agreement or otherwise, concerning this
unaudited prospective financial information.
The above unaudited prospective financial information does not
give effect to the merger. FirstEnergy shareholders and
Allegheny Energy stockholders are urged to review
FirstEnergys Annual Report on
Form 10-K
for the year ended December 31, 2009, and future SEC
filings for a description of risk factors with respect to
FirstEnergys business, its reported results of operations,
its financial condition and its capital resources. See
Cautionary Statement Concerning Forward-Looking
Statements beginning on page 30 and Where You
Can Find More Information; Incorporation by Reference
beginning on page 184.
Readers of this joint proxy statement/prospectus are cautioned
not to place undue reliance on the unaudited prospective
financial information set forth above. No representation is made
by FirstEnergy, Allegheny Energy, or any other person to any
shareholder of FirstEnergy or any stockholder of Allegheny
Energy regarding the ultimate performance of FirstEnergy
compared to the information included in the above unaudited
prospective financial information. The unaudited prospective
financial information in this joint proxy statement/prospectus
constitutes forward-looking statements and should not be
regarded as an indication that such unaudited prospective
financial information will be an accurate prediction of future
events nor construed as financial guidance.
FIRSTENERGY DOES NOT INTEND TO UPDATE OR OTHERWISE REVISE THE
ABOVE UNAUDITED PROSPECTIVE FINANCIAL INFORMATION TO REFLECT
CIRCUMSTANCES EXISTING AFTER THE DATE WHEN MADE OR TO REFLECT
THE OCCURRENCE OF FUTURE EVENTS, EVEN IN THE EVENT THAT ANY OR
ALL OF THE ASSUMPTIONS UNDERLYING SUCH UNAUDITED PROSPECTIVE
FINANCIAL INFORMATION ARE NO LONGER APPROPRIATE.
Opinion
of FirstEnergys Financial Advisor
FirstEnergy retained Morgan Stanley to provide it with financial
advisory services and a financial opinion in connection with the
transaction. FirstEnergy selected Morgan Stanley to act as
78
its financial advisor based on Morgan Stanleys
qualifications, expertise and reputation and its knowledge of
the business and affairs of FirstEnergy. At the meeting of the
FirstEnergy board of directors on February 10, 2010, Morgan
Stanley rendered its oral opinion, subsequently confirmed in
writing, that as of such date and based upon and subject to the
various assumptions, considerations, qualifications and
limitations set forth in its written opinion, the exchange ratio
pursuant to the merger agreement was fair, from a financial
point of view, to FirstEnergy.
The full text of the written opinion of Morgan Stanley, dated
February 10, 2010, which discusses, among other things, the
assumptions made, procedures followed, matters considered, and
qualifications and limitations of the review undertaken by
Morgan Stanley in rendering its opinion, is attached as
Annex C and incorporated by reference into this section of
the joint proxy statement/prospectus. The summary of the Morgan
Stanley fairness opinion provided in this joint proxy
statement/prospectus is qualified in its entirety by reference
to the full text of the opinion. FirstEnergy shareholders are
urged to read the opinion carefully and in its entirety. The
Morgan Stanley opinion is directed to the FirstEnergy board of
directors and addresses only the fairness, from a financial
point of view, of the exchange ratio pursuant to the merger
agreement. The Morgan Stanley opinion does not address any other
aspect of the merger and does not constitute a recommendation to
any FirstEnergy or Allegheny Energy shareholder as to how any
such shareholder should vote with respect to the proposed merger
or any other matter. The opinion also does not address the
prices at which shares of FirstEnergy common stock will trade
following the completion of the merger or at any other time.
For the purposes of its opinion, Morgan Stanley, among other
things:
|
|
|
|
|
reviewed certain publicly available financial statements and
other business and financial information of Allegheny Energy and
FirstEnergy, respectively;
|
|
|
|
reviewed certain internal financial statements and other
financial and operating data concerning Allegheny Energy and
FirstEnergy, respectively;
|
|
|
|
reviewed certain financial projections prepared by the
managements of Allegheny Energy and FirstEnergy, respectively;
|
|
|
|
reviewed information relating to certain strategic, financial
and operational benefits anticipated from the merger provided by
the management of FirstEnergy;
|
|
|
|
discussed the past and current operations and financial
condition and the prospects of Allegheny Energy, including
information relating to certain strategic, financial and
operational benefits anticipated from the merger, with senior
executives of Allegheny Energy;
|
|
|
|
discussed the past and current operations and financial
condition and the prospects of FirstEnergy, including
information relating to certain strategic, financial and
operational benefits anticipated from the merger, with senior
executives of FirstEnergy;
|
|
|
|
reviewed the pro forma impact of the merger on
FirstEnergys earnings per share, cash flow, consolidated
capitalization and other financial ratios and metrics;
|
|
|
|
reviewed the reported prices and trading activity for Allegheny
Energys common stock and FirstEnergys common stock;
|
|
|
|
compared the financial performance of Allegheny Energy and
FirstEnergy and the prices and trading activity of Allegheny
Energys common stock and FirstEnergys common stock
with that of certain other publicly-traded companies comparable
with Allegheny Energy and FirstEnergy, respectively, and their
securities;
|
79
|
|
|
|
|
reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
|
|
|
|
participated in discussions and negotiations among
representatives of Allegheny Energy and FirstEnergy and their
financial and legal advisors;
|
|
|
|
reviewed the merger agreement and certain related
documents; and
|
|
|
|
performed such other analyses, reviewed such other information
and considered such other factors as it deemed appropriate.
|
In arriving at its opinion, Morgan Stanley assumed and relied
upon, without independent verification, the accuracy and
completeness of the information supplied or otherwise made
available to it by Allegheny Energy and FirstEnergy, and formed
a substantial basis for the opinion. With respect to the
financial projections, including information relating to certain
strategic, financial and operational benefits anticipated from
the merger, Morgan Stanley assumed that they were reasonably
prepared by or on behalf of the managements of Allegheny Energy
and FirstEnergy, respectively, on bases reflecting the best
currently available estimates and judgments of the future
financial performance of Allegheny Energy and FirstEnergy,
respectively. Morgan Stanley relied upon, without independent
verification, the assessment by the managements of Allegheny
Energy and FirstEnergy of: (i) the strategic, financial and
operational benefits expected to result from the merger;
(ii) the timing and risks associated with the integration
of Allegheny Energy and FirstEnergy; (iii) their ability to
retain key employees of Allegheny Energy and FirstEnergy,
respectively; and (iv) the validity of, and risks
associated with, Allegheny Energys and FirstEnergys
existing and future products, services, business models and
technologies. In addition, Morgan Stanley assumed that the
merger will be consummated in accordance with the terms set
forth in the merger agreement without any waiver, amendment or
delay of any terms or conditions, including, among other things,
that the merger will be treated as a tax-free reorganization
and/or
exchange, each pursuant to the Internal Revenue Code. Morgan
Stanley assumed that in connection with the receipt of all the
necessary governmental, regulatory or other approvals and
consents required for the proposed merger, no delays,
limitations, conditions or restrictions will be imposed that
would have a material adverse effect on the contemplated
benefits expected to be derived in the proposed merger.
Morgan Stanley is not a legal, tax or regulatory advisor. Morgan
Stanley is a financial advisor only and relied upon, without
independent verification, the assessment of FirstEnergy and
Allegheny Energy and their respective legal, tax or regulatory
advisors with respect to legal, tax or regulatory matters.
Morgan Stanley expressed no opinion with respect to the fairness
of the amount or nature of the compensation to any of Allegheny
Energys officers, directors or employees, or any class of
such persons, relative to the consideration to be paid to the
holders of shares of Allegheny Energys common stock in the
transaction. Morgan Stanley did not make any independent
valuation or appraisal of the assets or liabilities of Allegheny
Energy, nor was it furnished with any such appraisals. Morgan
Stanleys opinion was necessarily based on financial,
economic, market and other conditions as in effect on, and the
information made available to it as of, February 10, 2010.
Events occurring after February 10, 2010 may affect
Morgan Stanleys opinion and the assumptions used in
preparing it, and Morgan Stanley did not assume any obligation
to update, revise or reaffirm its opinion.
The following is a summary of the material financial analyses
performed by Morgan Stanley in connection with its oral opinion
and the preparation of its written opinion, dated as of
February 10, 2010. Although each analysis was provided to
the FirstEnergy board of directors, in connection with arriving
at its opinion, Morgan Stanley considered all of its analysis as
a whole and did not attribute any particular weight to any
analysis described below. Some of these summaries include
information
80
in tabular format. In order to understand fully the financial
analyses used by Morgan Stanley, the tables must be read
together with the text of each summary. The tables alone do not
constitute a complete description of the analyses.
Historical Trading and Exchange Ratio
Analysis. Morgan Stanley reviewed the ranges of
closing prices of FirstEnergy common stock and Allegheny Energy
common stock for various periods ending on February 8,
2010. Morgan Stanley noted that for the 52-week period ending
February 8, 2010, the ranges of closing prices per share
for FirstEnergy common stock and Allegheny Energy common stock
were $35.26 to $53.63 and $20.32 to $35.03, respectively. Morgan
Stanley also calculated the average trading ratio of the price
of Allegheny Energy common stock to the price of FirstEnergy
common stock over the following periods:
|
|
|
|
|
Period Ending
|
|
Average Historical
|
February 8, 2010
|
|
Trading Ratio
|
|
February 8, 2010
|
|
|
0.510
|
x
|
6 Months Prior
|
|
|
0.537
|
x
|
1 Year Prior
|
|
|
0.580
|
x
|
2 Years Prior
|
|
|
0.613
|
x
|
3 Years Prior
|
|
|
0.678
|
x
|
Morgan Stanley also calculated the high and low trading ratios
to be 0.889x and 0.474x, respectively, over the three years
ending February 8, 2010. Morgan Stanley noted that the
merger exchange ratio of 0.667x resulted in implied
consideration of $27.34 per share of Allegheny Energy common
stock, based on the closing price of FirstEnergy common stock of
$40.99 as of February 8, 2010.
Equity Research Analysts Price
Targets. Morgan Stanley reviewed the most recent
equity research analysts per-share target prices for
Allegheny Energy common stock and FirstEnergy common stock.
These targets reflect each analysts estimate of the future
public market trading price for Allegheny Energy common stock
and FirstEnergy common stock. Target prices for Allegheny Energy
common stock ranged from $22.00 to $37.00, compared with the
implied offer value per share of $27.34 as of February 8,
2010. Target prices for FirstEnergy common stock ranged from
$38.00 to $53.00, compared with the closing price of FirstEnergy
common stock of $40.99 as of February 8, 2010.
The public market trading price targets published by equity
research analysts do not necessarily reflect current market
trading prices for Allegheny Energy common stock or FirstEnergy
common stock and these estimates are subject to uncertainties,
including the future financial performance of Allegheny Energy
and FirstEnergy and future financial market conditions.
Comparable Public Companies Analysis. Morgan
Stanley reviewed and compared certain publicly available and
internal financial information, ratios and publicly available
market multiples relating to Allegheny Energy and FirstEnergy,
respectively, to corresponding financial data for
publicly-traded utility companies that shared characteristics
with Allegheny Energy and FirstEnergy to derive an implied
valuation range for each company.
The companies included in the FirstEnergy comparable companies
analysis were:
|
|
|
|
|
Entergy Corporation;
|
|
|
|
Exelon Corporation;
|
81
|
|
|
|
|
FPL Group, Inc.; and
|
|
|
|
Public Service Enterprise Group Incorporated.
|
The companies included in the Allegheny Energy comparable
companies analysis were:
|
|
|
|
|
Public Service Enterprise Group Incorporated;
|
|
|
|
PPL Corporation; and
|
|
|
|
Edison International.
|
Morgan Stanley then reviewed both publicly available and
internal financial information for each of Allegheny Energy and
FirstEnergy to compare financial information and multiples of
market value of the companies included in the comparable
companies analysis to the following metrics for Allegheny Energy
and FirstEnergy:
|
|
|
|
|
stock price to 2010 estimated earnings per share (which is
referred to herein as EPS); and
|
|
|
|
stock price to 2011 estimated EPS.
|
The multiples and ratios for Allegheny Energy, FirstEnergy and
for each of the comparable companies were calculated using the
closing price of each companys common stock on
February 8, 2010 and were based on the most recent publicly
available information and I/B/E/S estimates for calendar years
2010 and 2011.
The following table reflects the results of this analysis, as
compared to the multiples for Allegheny Energy and FirstEnergy
based on median statistics of earnings for these companies
obtained from I/B/E/S, a data service that monitors and
publishes a compilation of earnings estimates produced by
selected research analysts on companies of interest to investors:
|
|
|
|
|
|
|
|
|
|
|
Price to EPS
|
|
|
2010E
|
|
2011E
|
|
Representative range derived from Allegheny Energy comparables
|
|
|
9.25x 11.0x
|
|
|
|
9.0x 10.25x
|
|
Allegheny Energy multiples (I/B/E/S)
|
|
|
9.3x
|
|
|
|
8.2x
|
|
Representative range derived from FirstEnergy comparables
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11.0x 12.0x
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10.0x 11.0x
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FirstEnergy multiples (I/B/E/S)
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11.4x
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10.0x
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Applying a representative range of multiples derived from the
comparable public companies analysis, Morgan Stanley calculated
a range of implied equity values per share of Allegheny Energy
common stock and FirstEnergy common stock with respect to the
following metrics based on I/B/E/S estimates and projected
financial results for each of Allegheny Energy and FirstEnergy,
taking into account the different commodity curve forecasts of
FirstEnergy and Allegheny Energy:
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stock price to 2010 estimated EPS; and
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stock price to 2011 estimated EPS.
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Based on this analysis, Morgan Stanley derived a range of
implied equity value per share of Allegheny Energy common stock
of $20.81 to $26.14 and a range of implied equity value per
share of FirstEnergy common stock of $39.38 to $44.88. Morgan
Stanley noted that based on a closing price of FirstEnergy
common stock of $40.99 as of February 8, 2010, the exchange
ratio of 0.667x resulted in implied consideration of $27.34 per
share of Allegheny Energy common stock.
82
No company utilized in the comparable public companies analysis
is identical to Allegheny Energy or FirstEnergy. Accordingly, an
analysis of the results of the foregoing necessarily involves
complex considerations and judgments concerning differences in
financial and operating characteristics of Allegheny Energy and
FirstEnergy and other factors that could affect the public
trading value of the companies to which they are being compared.
In evaluating the comparable companies, Morgan Stanley made
judgments and assumptions with regard to industry performance,
general business, economic, market and financial conditions and
other matters, many of which are beyond the control of Allegheny
Energy and FirstEnergy, such as the impact of competition on
Allegheny Energy or FirstEnergy and the industry generally,
industry growth and the absence of any adverse material change
in the financial conditions and prospects of Allegheny Energy or
FirstEnergy or the industry or in the financial markets in
general. Mathematical analysis, such as determining the mean,
median or average, is not in itself a meaningful method of using
comparable company data.
Sum-of-the-Parts
Discounted Cash Flow Analyses. Given the
different nature of the businesses in which Allegheny Energy and
FirstEnergy participate, Morgan Stanley also analyzed each
company as the sum of its constituent businesses, or as the
sum of the parts, and performed a discounted cash
flow analysis on each of its constituent businesses. A
discounted cash flow analysis is designed to provide insight
into the value of a company as a function of its future cash
flows and terminal value. Morgan Stanleys discounted cash
flow analysis was based on:
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subsidiary and consolidated financial projections provided by
the management of Allegheny Energy for the period from
January 1, 2010 through December 31, 2014 (also
referred to in this joint proxy statement/prospectus as the
Allegheny Energy forward-looking financial information); and
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subsidiary and consolidated financial projections provided by
the management of FirstEnergy for the period from
January 1, 2010 through December 31, 2014 (also
referred to in this joint proxy statement/prospectus as the
FirstEnergy forward-looking financial information).
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Unlevered free cash flows were calculated by tax-affecting
earnings before interest and taxes and adding back the aggregate
of depreciation and amortization, deferred taxes, and other
noncash expenses less the sum of capital expenditures and
investment in noncash working capital. The free cash flows and
range of terminal values were then discounted to present values
using a range of discount rates which were chosen by Morgan
Stanley based upon an analysis of market discount rates
applicable to comparable companies in the electric utility
sector.
Allegheny Energy. For the Allegheny Energy
discounted cash flow analysis, Morgan Stanley performed
discounted cash flow analysis on the following business units
with the noted assumptions and considerations.
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Regulated Utilities: For each of
Allegheny Energys regulated utility subsidiaries, West
Penn Power Company, The Potomac Edison Company and Monongahela
Power Company, Morgan Stanley calculated a range of terminal
values at the end of the projection period for each subsidiary
by applying a multiple to each subsidiarys projected 2014
earnings and then adding back the projected net debt (defined as
total debt less securitized debt and cash) in 2014. For West
Penn Power Company and The Potomac Edison Company, which are
transmission and distribution businesses, the price to earnings
multiple range used was 12.5x to 14.0x and the weighted average
cost of capital was 5.5% to 6.5%. For Monongahela Power Company,
which is a utility business with transmission, distribution and
generation operations, the price to earnings multiple range used
was 11.5x to 13.0x and the weighted average cost of capital was
5.5% to 6.5%.
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83
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Allegheny Energy Supply Company,
LLC: For Allegheny Energys unregulated
generation subsidiary, Morgan Stanley calculated a range of
terminal values at the end of the projection period by applying
a multiple of Aggregate Value (defined as equity value plus
estimated non-convertible debt, minority interest, capital lease
obligations and preferred stock less cash and cash
equivalents)/EBITDA (defined as earnings before interest, tax,
depreciation and amortization) to Allegheny Energy Supply
Company LLCs projected 2014 EBITDA. The Aggregate Value to
EBITDA multiple range used was 6.5x to 7.5x and the weighted
average cost of capital range was 8.0% to 8.5%.
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Transmission: For Allegheny
Energys transmission subsidiary, which holds Allegheny
Energys investment in the PATH and TrAIL transmission
projects, Morgan Stanley calculated a range of terminal values
at the end of the projection period for each of PATH and TrAIL
by applying a multiple to the projected 2014 earnings for each
project and then adding back the projected net debt in 2014. The
price to earnings multiple range used was 15.0x to 18.0x and the
weighted average cost of capital was 6.0% to 7.0%.
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Corporate: For unallocated
corporate-level expenses and other items, Morgan Stanley
calculated a range of terminal values at the end of the
projection period by applying a perpetual growth rate to
projected 2014 corporate free cash flow. The perpetual growth
rate range used was 0.0% to 1.0% and the weighted average cost
of capital was 7.0% to 8.0%.
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From this analysis, Morgan Stanley calculated a range of equity
values per share of Allegheny Energy common stock of $29.03 to
$36.70 on the basis of Allegheny Energys forecast of
relevant commodity curves. Applying FirstEnergys forecast
of relevant commodity curves to Allegheny Energys
projections yielded a range of equity values per share of
Allegheny Energy common stock of $39.84 to $49.38. Morgan
Stanley noted that the implied consideration to be paid for each
share of Allegheny Energy common stock was $27.34 as of
February 8, 2010.
FirstEnergy. For the FirstEnergy discounted
cash flow analysis, Morgan Stanley performed discounted cash
flow analysis on the following business units with the noted
assumptions and considerations.
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Regulated Utilities: For each of
FirstEnergys regulated utility subsidiaries, Ohio Edison
Company, The Toledo Edison Company, The Cleveland Electric
Illuminating Company, Jersey Central Power & Light
Company, Pennsylvania Electric Company, Pennsylvania Power
Company and Metropolitan Edison Company, each of which is a
transmission and distribution business, Morgan Stanley
calculated a range of terminal values at the end of the
projection period for each subsidiary by applying a multiple to
the projected 2014 earnings for each subsidiary and then adding
back the projected net debt in 2014. The price to earnings
multiple range used was 12.5x to 14.0x and the weighted average
cost of capital ranged 5.0% to 8.0%, depending on the long-term
capital structure of the utility.
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American Transmission Systems,
Incorporated: For FirstEnergys
transmission subsidiary American Transmission Systems,
Incorporated, Morgan Stanley calculated a range of terminal
values at the end of the projection period by applying a
multiple to the subsidiarys projected 2014 earnings and
then adding back the projected net debt in 2014. The price to
earnings multiple range used was 15.0x to 18.0x and the weighted
average cost of capital was 6.0% to 7.0%.
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FirstEnergy Solutions Corp.: For
FirstEnergys unregulated generation subsidiary,
FirstEnergy Solutions Corp., Morgan Stanley calculated a range
of terminal values at the end of the projection period by
applying an Aggregate Value/EBITDA multiple to FirstEnergy
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84
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Solutions Corp.s projected 2014 EBITDA. The Aggregate
Value to EBITDA multiple range used was 7.0x to 8.0x and the
weighted average cost of capital range was 8.0% to 9.0%.
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Corporate: For unallocated
corporate-level expenses and other items, Morgan Stanley
calculated a range of terminal values at the end of the
projection period by applying a perpetual growth rate to
projected 2014 corporate free cash flow. The perpetual growth
rate range used was 0.0% to 1.0% and the weighted average cost
of capital was 7.0% to 8.0%.
|
From this analysis, Morgan Stanley calculated a range of equity
values per share of FirstEnergy common stock of $47.02 to $60.81
on the basis of FirstEnergys forecast of relevant
commodity curves. Applying Allegheny Energys forecast of
relevant commodity curves to FirstEnergys projections
yielded a range of equity values per share of FirstEnergy common
stock of $39.19 to $51.64. Morgan Stanley noted that the closing
price of FirstEnergy common stock on February 8, 2010 was
$40.99.
The
sum-of-the-parts
discounted cash flow analyses do not imply the value at which
the individual Allegheny Energy or FirstEnergy businesses could
be sold. Morgan Stanley did not consider the effect of
transaction costs, including taxes that could be payable,
associated with a disposition of any of the Allegheny Energy or
FirstEnergy businesses.
Sum-of-the-Parts
Comparable Public Companies Analysis. Morgan
Stanley also used a comparable companies analysis as described
earlier to analyze each of Allegheny Energys and
FirstEnergys constituent businesses. Using management
estimates, Morgan Stanley compared certain financial measures of
selected comparable companies to those of the relevant
businesses within Allegheny Energy and FirstEnergy. Morgan
Stanley selected these comparable companies based upon its views
as to the comparability of the financial and operating
characteristics of these companies to the relevant Allegheny
Energy and FirstEnergy businesses. Morgan Stanley calculated
reference value ranges for the Allegheny Energy and FirstEnergy
businesses by applying various multiples derived from these
comparable companies to selected financial measures of the
relevant Allegheny Energy and FirstEnergy businesses based on
information provided by each companys management. Based on
this analysis, Morgan Stanley calculated per share values for
Allegheny Energy common stock ranging from $25.14 to $32.34.
Morgan Stanley noted that the implied consideration to be paid
for each share of Allegheny Energy common stock was $27.34 as of
February 8, 2010. In addition, based on this analysis,
Morgan Stanley calculated per share values for FirstEnergy
common stock ranging from $37.14 to $45.45 and noted that the
closing price of FirstEnergy common stock on February 8,
2010 was $40.99.
Analysis of Selected Precedent
Transactions. Morgan Stanley also performed an
analysis of selected precedent transactions, which attempted to
provide an implied value for Allegheny Energy by comparing it to
other companies involved in business combinations. Using
publicly available information, Morgan Stanley considered two
sets of announced or completed transactions:
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United States mergers, referred to in this joint proxy
statement/prospectus as Large U.S. All-Stock
Mergers, announced since January 1990 involving 100%
stock-for-stock
exchanges with a transaction size of at least
$1 billion; and
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Utility sector corporate acquisition transactions since January
2005, referred to in this joint proxy statement/prospectus as
Utility Acquisitions.
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Morgan Stanley compared certain financial and market statistics
of the two sets of selected precedent transactions. Based on an
assessment of the Large U.S. All-Stock Mergers, Morgan
Stanley applied a premium to unaffected market price ranging
from 20% to 40%. Based on the analysis of the Large
U.S. All-Stock Mergers, Morgan Stanley calculated a
per-share price for
85
Allegheny Energy common stock ranging from $25.07 to $29.25.
Based on an assessment of the Utility Acquisitions, Morgan
Stanley applied a premium to unaffected market price ranging
from 15% to 30% as well as a multiple to the I/B/E/S median
estimate for Allegheny Energys 2010 earnings ranging from
15.0x 18.5x. Based on the analysis of Utility
Acquisitions, Morgan Stanley calculated a per-share price for
Allegheny Energy common stock ranging from $24.02 to $41.63.
Morgan Stanley noted that the implied consideration to be paid
for each share of Allegheny Energy common stock was $27.34 as of
February 8, 2010.
No transaction utilized as a comparison in the analysis of
selected precedent transactions is identical to the merger in
business mix, timing and size. Accordingly, an analysis of the
results of the foregoing necessarily involves complex
considerations and judgments concerning differences in financial
and operating characteristics of Allegheny Energy and other
factors that would affect the value of the companies to which it
is being compared. In evaluating the precedent transactions,
Morgan Stanley made judgments and assumptions with regard to
industry performance, global business, economic, market and
financial conditions and other matters, many of which are beyond
the control of Allegheny Energy, such as the impact of
competition on Allegheny Energy and the industry generally,
industry growth and the absence of any adverse material change
in the financial conditions and prospects of Allegheny Energy or
the industry or the financial markets in general. Mathematical
analysis (such as determining the mean or median) is not, in
itself, a meaningful method of using precedent transactions data.
Premium to 52-Week High. Morgan Stanley
applied a premium of 0% to 10% to the highest closing price of
Allegheny Energy common stock during the 52-week period ending
February 8, 2010, which was $35.03. Based on this analysis,
Morgan Stanley calculated a per-share value of Allegheny Energy
common stock ranging from $35.03 to $38.53. Morgan Stanley noted
that the implied consideration to be paid for each share of
Allegheny Energy common stock was $27.34 as of February 8,
2010.
Pro Forma Transaction Analysis. Using
financial projections provided by the managements of Allegheny
Energy and FirstEnergy and publicly available I/B/E/S earnings
estimates, Morgan Stanley reviewed the pro forma impact of the
merger on FirstEnergys internal projections of EPS for the
years
2011-2013,
taking into account the different commodity curve forecasts of
FirstEnergy and Allegheny Energy, and I/B/E/S median EPS
estimates for the years
2011-2012.
For purposes of this analysis, the transaction was viewed as pro
forma for 2011 with respect to full-year consolidated financial
statements.
Using each companys forward-looking financial information
as the basis of comparison, the pro forma impact on Reported
Earnings Per Share (defined as earnings per share taking into
account all projected merger-related adjustments, including
certain purchase accounting adjustments and FirstEnergys
estimates of expected synergies) was found to be accretive to
earnings from 2011 to 2013 to FirstEnergy. Using I/B/E/S median
EPS estimates as the basis of comparison, the pro forma impact
on Reported Earnings Per Share was found to be accretive to
earnings from 2011 to 2012 to FirstEnergy.
In connection with the review of the transaction by
FirstEnergys board of directors, Morgan Stanley performed
a variety of financial and comparative analyses for purposes of
rendering its opinion. The preparation of a fairness opinion is
a complex process and is not susceptible to partial analysis or
summary description. In arriving at its opinion, Morgan Stanley
considered the results of all of its analyses as a whole and did
not attribute any particular weight to any analysis or factor
considered. Furthermore, Morgan Stanley believes that the
summary provided and the analyses described above must be
considered as a whole and that selecting any portion of the
analyses,
86
without considering all of them, would create an incomplete view
of the process underlying Morgan Stanleys analyses and
opinion. In addition, Morgan Stanley may have given various
analyses and factors more or less weight than other analyses and
factors, and may have deemed various assumptions more or less
probable than other assumptions. As a result, the ranges of
valuations resulting from any particular analysis or combination
of analyses described above should not be taken to be the view
of Morgan Stanley with respect to the actual value of
FirstEnergy common stock or Allegheny Energy common stock.
In performing its analyses, Morgan Stanley made numerous
assumptions with respect to industry performance, general
business and economic conditions and other matters, many of
which are beyond the control of FirstEnergy or Allegheny Energy.
Any estimates contained in Morgan Stanleys analyses are
not necessarily indicative of future results or actual values,
which may be significantly more or less favorable than those
suggested by the estimates. The analyses performed were
performed solely as part of Morgan Stanleys analysis of
the fairness from a financial point of view of the exchange
ratio pursuant to the merger agreement and were conducted in
connection with the delivery of Morgan Stanleys opinion
dated February 10, 2010 to the FirstEnergy board of
directors. The analyses do not purport to be appraisals or to
reflect the prices at which FirstEnergy common stock or
Allegheny Energy common stock might actually trade. The exchange
ratio under the merger agreement and other terms of the merger
agreement were determined through arms length negotiations
between FirstEnergy and Allegheny Energy and approved by the
FirstEnergy board of directors. Morgan Stanley provided advice
to FirstEnergy during these negotiations, but did not, however,
recommend any specific exchange ratio or merger consideration to
FirstEnergy, or that any specific exchange ratio or merger
consideration constituted the only appropriate exchange ratio or
merger consideration for the transaction. The opinion of Morgan
Stanley was one of a number of factors taken into consideration
by FirstEnergys board of directors in making its decision
to approve the merger agreement and the transactions
contemplated by the merger agreement. Consequently, Morgan
Stanleys analyses described above should not be viewed as
determinative of the opinion of FirstEnergys board of
directors with respect to the value of FirstEnergy or Allegheny
Energy, or the exchange ratio, or of whether the FirstEnergy
board of directors would have been willing to agree to a
different exchange ratio or merger consideration. See the
section entitled Recommendation of the
FirstEnergy Board of Directors and Its Reasons for the
Merger beginning on page 62. Morgan Stanleys
opinion was approved by a committee of Morgan Stanley investment
banking and other professionals in accordance with its customary
practice.
Morgan Stanley, as part of its investment banking businesses, is
continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other
purposes. FirstEnergy selected Morgan Stanley as its financial
advisor based upon the firms qualifications, experience
and expertise and because it is an internationally recognized
investment banking firm with substantial experience in
transactions similar to the merger. In the ordinary course of
its trading and brokerage activities, Morgan Stanley and its
affiliates may at any time hold long or short positions, trade
or otherwise effect transactions, for their own accounts or for
the accounts of customers, in the equity or debt securities or
senior loans of FirstEnergy or Allegheny Energy or any currency
or commodity related to FirstEnergy or Allegheny Energy.
Pursuant to the terms of its engagement, FirstEnergy has agreed
to pay Morgan Stanley a fee of $35 million, a portion of
which became payable upon announcement of the execution of the
merger agreement, a portion of which is contingent upon
FirstEnergy shareholder and Allegheny Energy stockholder
approval and a portion of which is contingent upon completion of
the merger. FirstEnergy has also agreed to reimburse Morgan
Stanley for its fees and expenses incurred in performing its
services. In addition, FirstEnergy has agreed to indemnify
87
Morgan Stanley and its affiliates, their respective directors,
officers, agents and employees and each person, if any,
controlling Morgan Stanley or any of its affiliates against
certain liabilities and expenses, including certain liabilities
under the federal securities laws, related to or arising out of
Morgan Stanleys engagement and any related transactions.
In the two years prior to the date of its opinion, Morgan
Stanley and its affiliates have provided financial advisory and
financing services for FirstEnergy and Allegheny Energy and have
received fees for the rendering of these services. In addition,
an affiliate of Morgan Stanley is a lender of $68 million
in principal amount in connection with the $1 billion
credit facility, dated as of September 24, 2009, of
Allegheny Energy Supply Company, LLC and a lender of
$10 million in principal amount in connection with the
$350 million credit facility, dated as of January 25,
2010, of Trans-Allegheny Interstate Line Company, the borrower
under each of which is a wholly owned subsidiary of Allegheny
Energy. Morgan Stanley also may in the future seek to provide
financial advisory or financing services to FirstEnergy and
Allegheny Energy and may receive fees for such services.
Certain
Unaudited Prospective Financial Information Utilized by the
Allegheny Energy Board of Directors and Allegheny Energys
Financial Advisor
Allegheny
Energy Unaudited Prospective Financial Information
Allegheny Energy does not as a matter of course make public
long-term projections as to future performance due to, among
other reasons, the uncertainty, unpredictability and volatility
of the underlying assumptions and estimates. However, Allegheny
Energy is including in this joint proxy statement/prospectus
unaudited prospective financial information prepared by
Allegheny Energy management for the fiscal years 2010 through
2014, which we refer to as the Allegheny Energy Forecasts, that
was used in connection with the evaluation of the merger by
Allegheny Energy.
The Allegheny Energy Forecasts presented below were provided to
the Allegheny Energy board and were furnished to and used by
Allegheny Energys financial advisor, Goldman Sachs. The
Allegheny Energy board did not formally make a determination
that the Allegheny Energy Forecasts were accurate and complete,
but rather in accordance with its customary practice, believed
that it was reasonable to rely on the Allegheny Energy Forecasts
prepared by Allegheny Energy management. Allegheny Energy also
provided FirstEnergy and its financial advisor with the
Allegheny Energy Forecasts, which were adjusted by FirstEnergy
as discussed in Certain Unaudited Prospective
Financial Information Utilized by the FirstEnergy Board of
Directors and FirstEnergys Financial Advisor
beginning on page 75.
The inclusion of the Allegheny Energy Forecasts in this joint
proxy statement/prospectus should not be regarded as an
indication that Allegheny Energy or its board considered, or now
considers, these forecasts to be a reliable predictor of future
results. You should not place undue reliance on the unaudited
financial forecasts contained in this joint proxy
statement/prospectus. Please read carefully
Important Information About the Unaudited
Prospective Financial Information beginning on
page 89.
The following table presents the Allegheny Energy Forecasts for
the fiscal years ending 2010 through 2014, as used by the
Allegheny Energy board for purposes of its consideration of the
merger and by Goldman Sachs for purposes of its financial
analyses regarding the merger:
Allegheny
Energy Forecasts
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Projected Fiscal Year
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2010
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2011
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2012
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2013
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2014
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(dollars in millions, except per share amounts)
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EBITDA
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$
|
1,377
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$
|
1,369
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$
|
1,317
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$
|
1,386
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$
|
1,653
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EPS
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$
|
2.28
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$
|
2.52
|
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$
|
2.27
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|
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$
|
2.49
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$
|
3.42
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88
FirstEnergy
Unaudited Prospective Financial Information
In connection with discussions concerning the merger,
FirstEnergy provided to Allegheny Energy the FirstEnergy
Forecasts, as discussed in Certain Unaudited
Prospective Financial Information Utilized by the FirstEnergy
Board of Directors and FirstEnergys Financial
Advisor beginning on page 75. The FirstEnergy
Forecasts were based on assumptions regarding the future prices
of certain commodities, which in some cases were different from
the assumptions used by Allegheny Energys management in
preparing the Allegheny Energy Forecasts, and certain other
operational and commercial assumptions. As part of the
evaluation of the merger, the FirstEnergy Forecasts were
adjusted by Allegheny Energy management to reflect Allegheny
Energys assumptions with respect to the future prices of
power based on available market information as of year-end 2009
obtained from published broker quotes and Allegheny
Energys view regarding certain other operational and
commercial assumptions used in the FirstEnergy Forecasts, which
adjusted assumptions Allegheny Energy management deemed
appropriate for use in a base case. Accordingly, in its
consideration of the merger, the Allegheny Energy board did not
consider the FirstEnergy Forecasts prepared by FirstEnergy and
instead relied upon the FirstEnergy Forecasts as adjusted by
Allegheny Energy management, which we refer to as the Adjusted
FirstEnergy Base Case Forecasts. Allegheny Energy management
also provided Goldman Sachs with the Adjusted FirstEnergy Base
Case Forecasts for purposes of its financial analyses.
The inclusion of the Adjusted FirstEnergy Base Case Forecasts in
this joint proxy statement/prospectus should not be regarded as
an indication that Allegheny Energy or its board considered, or
now considers, these forecasts to be a reliable predictor of
future results. You should not place undue reliance on the
unaudited financial forecasts contained in this joint proxy
statement/prospectus. Please read carefully
Important Information About the Unaudited
Prospective Financial Information beginning on
page 77.
The components of the Adjusted FirstEnergy Base Case Forecasts
used by the Allegheny Energy board for purposes of its
consideration of the merger and by Goldman Sachs for purposes of
its financial analyses, are set forth below:
Adjusted
FirstEnergy Base Case Forecasts
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Projected Fiscal Year
|
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
|
(dollars in millions, except per share amounts)
|
|
EBITDA
|
|
$
|
4,109
|
|
|
$
|
3,891
|
|
|
$
|
3,787
|
|
|
$
|
3,709
|
|
|
$
|
3,868
|
|
EPS
|
|
$
|
3.71
|
|
|
$
|
3.76
|
|
|
$
|
3.62
|
|
|
$
|
3.26
|
|
|
$
|
3.44
|
|
Important
Information about the Unaudited Prospective Financial
Information
Allegheny Energy is electing to provide the unaudited
prospective financial information discussed above in this joint
proxy statement/prospectus to provide the shareholders of
FirstEnergy and the stockholders of Allegheny Energy access to
certain non-public unaudited prospective financial information
that was made available to the FirstEnergy board, the Allegheny
Energy board and FirstEnergys and Allegheny Energys
financial advisors in connection with the merger. This financial
information was considered by the Allegheny Energy board for
purposes of evaluating the merger. The unaudited prospective
financial information was not prepared with a view toward public
disclosure, and the inclusion of this information in this joint
proxy statement/prospectus should not be regarded as an
indication that any of FirstEnergy, Allegheny Energy or any
other recipient of this information considered, or now
considers, it to be necessarily predictive of actual future
results. None of FirstEnergy, Allegheny Energy or their
respective affiliates assumes any responsibility for
89
the accuracy of this information. The unaudited prospective
financial information discussed above is not being included in
this joint proxy statement/prospectus to influence FirstEnergy
shareholders or Allegheny Energy stockholders to vote in favor
of the proposals to be voted upon at the special meetings, but
because it represents unaudited prospective financial
information prepared by FirstEnergy and Allegheny Energy that
was used for purposes of the financial analyses performed by
FirstEnergys financial advisor and Allegheny Energys
financial advisor. The inclusion of the unaudited prospective
financial information in this joint proxy statement/prospectus
shall not be deemed an admission or representation by
FirstEnergy or Allegheny Energy that such information is
material.
The unaudited prospective financial information was, in general,
prepared solely for internal use and is subjective in many
respects and thus subject to interpretation. While presented
with numeric specificity, the unaudited prospective financial
information reflects numerous estimates and assumptions made by
the management of Allegheny Energy involving judgments with
respect to, among other things, industry performance and
competition, future business, economic, competitive, regulatory
and financial market conditions, commodity prices (which are
historically volatile) and matters specific to Allegheny
Energys business, including future business decisions,
that may not be realized and that are inherently subject to
significant business, economic, competitive and regulatory
uncertainties and contingencies, including, among others, the
risks and uncertainties described under Cautionary
Statement Regarding Forward-Looking Statements and
Risk Factors beginning on pages 30 and 32,
respectively, or otherwise incorporated by reference into this
joint proxy statement/prospectus from Allegheny Energys
and FirstEnergys previously filed Exchange Act reports,
all of which are difficult to predict and many of which are
beyond the control of Allegheny Energy
and/or
FirstEnergy. In addition, the unaudited prospective financial
information discussed above reflects estimates and assumptions
that were made as of the date the unaudited prospective
financial information was prepared and which have not been
updated since to reflect any changes in commodity prices or
other assumptions. These estimates and assumptions do not
reflect current conditions, and no assurances can be given that
these estimates or assumptions will accurately reflect future
conditions. As a result, there can be no guarantee that the
unaudited prospective financial information will be realized or
that actual results will not be significantly higher or lower
than estimated. Since the unaudited prospective financial
information covers multiple years, such information by its
nature becomes less predictive with each successive year. The
combination of the FirstEnergy and Allegheny Energy unaudited
prospective financial information does not represent the results
that the combined company will achieve if the merger is
completed, nor does it represent unaudited prospective financial
information for the combined company.
The unaudited prospective financial information was not prepared
with a view toward complying with GAAP, the published guidelines
of the SEC regarding projections or the guidelines established
by the American Institute of Certified Public Accountants for
preparation and presentation of prospective financial
information. Neither Allegheny Energys independent
registered public accounting firm, nor any other independent
accountants, have compiled, examined, or performed any
procedures with respect to the unaudited prospective financial
information contained in this joint proxy statement/prospectus,
nor have they expressed any opinion or any other form of
assurance on such information or its achievability, and assume
no responsibility for the unaudited prospective financial
information. The report of Allegheny Energys independent
registered public accounting firm contained in Allegheny
Energys Annual Report on
Form 10-K
for the year ended December 31, 2009, which is incorporated
by reference into this joint proxy statement/prospectus, relates
to Allegheny Energys historical financial information. It
does not extend to the unaudited prospective financial
information and should not be read to do so. Furthermore, the
unaudited prospective financial information does not take into
account any circumstances or events occurring
90
after the date it was prepared. Allegheny Energy has made no
representation to FirstEnergy, in the merger agreement or
otherwise, concerning this unaudited prospective financial
information.
The above unaudited prospective financial information does not
give effect to the merger. FirstEnergy shareholders and
Allegheny Energy stockholders are urged to review Allegheny
Energys Annual Report on
Form 10-K
for the year ended December 31, 2009, and future SEC
filings for a description of risk factors with respect to
Allegheny Energys business, its reported results of
operations, its financial condition and its capital resources.
See Cautionary Statement Concerning Forward-Looking
Statements beginning on page 30 and Where
You Can Find More Information; Incorporation by Reference
beginning on page 184.
Readers of this joint proxy statement/prospectus are cautioned
not to place undue reliance on the unaudited prospective
financial information set forth above. No representation is made
by FirstEnergy, Allegheny Energy, or any other person to any
shareholder of FirstEnergy or any stockholder of Allegheny
Energy regarding the ultimate performance of Allegheny Energy
compared to the information included in the above unaudited
prospective financial information. The unaudited prospective
financial information in this joint proxy statement/prospectus
constitutes forward-looking statements and should not be
regarded as an indication that such unaudited prospective
financial information will be an accurate prediction of future
events nor construed as financial guidance.
ALLEGHENY ENERGY DOES NOT INTEND TO UPDATE OR OTHERWISE
REVISE THE ABOVE UNAUDITED PROSPECTIVE FINANCIAL INFORMATION TO
REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE WHEN MADE OR TO
REFLECT THE OCCURRENCE OF FUTURE EVENTS, EVEN IN THE EVENT THAT
ANY OR ALL OF THE ASSUMPTIONS UNDERLYING SUCH UNAUDITED
PROSPECTIVE FINANCIAL INFORMATION ARE NO LONGER APPROPRIATE.
Opinion
of Allegheny Energys Financial Advisor
Allegheny Energy retained Goldman Sachs to provide it with
financial advisory services and, at Allegheny Energys
request, to render an opinion as to the fairness from a
financial point of view of the consideration to be received in
connection with the merger. At the meeting of the board of
directors of Allegheny Energy on February 10, 2010, Goldman
Sachs delivered its oral opinion, subsequently confirmed in
writing, that, as of February 10, 2010 and based upon and
subject to the assumptions, considerations, qualifications and
limitations set forth therein, the exchange ratio of 0.667 of a
share of FirstEnergy common stock to be paid for each share of
Allegheny Energy common stock pursuant to the merger agreement
was fair from a financial point of view to the holders of
Allegheny Energy common stock (other than FirstEnergy and its
affiliates).
The full text of the written opinion of Goldman Sachs, dated
February 10, 2010, which sets forth the assumptions made,
procedures followed, matters considered, qualifications and
limitations on the review undertaken in connection with the
opinion, is attached as Annex D and incorporated by
reference into this section of the joint proxy
statement/prospectus. Goldman Sachs provided its opinion for the
information and assistance of the board of directors of
Allegheny Energy in connection with its consideration of the
merger. The Goldman Sachs opinion is not a recommendation as to
how any holder of Allegheny Energy common stock should vote with
respect to the merger or any other matter.
In connection with rendering the opinion described above and
performing its related financial analyses, Goldman Sachs
reviewed, among other things:
91
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annual reports to shareholders and Annual Reports on
Form 10-K
of Allegheny Energy and FirstEnergy for the five fiscal years
ended on December 31, 2008;
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certain interim reports to shareholders and Quarterly Reports on
Form 10-Q
of Allegheny Energy and FirstEnergy;
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certain publicly available research analyst reports for
Allegheny Energy and FirstEnergy;
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certain other communications from Allegheny Energy and
FirstEnergy to their respective shareholders; and
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certain internal financial analyses and forecasts for Allegheny
Energy prepared by its management, which are referred to below
as the Allegheny Energy Forecasts, and certain internal
financial analyses and forecasts for FirstEnergy prepared by its
management, as adjusted by the management of Allegheny Energy,
which are referred to below as the Adjusted FirstEnergy Base
Case Forecasts, in each case as approved for Goldman Sachs
use by Allegheny Energy.
|
Goldman Sachs also held discussions with members of the senior
managements of Allegheny Energy and FirstEnergy regarding their
assessment of the strategic rationale for, and the potential
benefits of, the merger and the past and current business
operations, financial condition, and future prospects of
Allegheny Energy and FirstEnergy. In addition, Goldman Sachs
reviewed the reported price and trading activity for the
Allegheny Energy common stock and for the FirstEnergy common
stock, compared certain financial and stock market information
for Allegheny Energy and FirstEnergy with similar information
for certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business
combinations in the utility industry and performed such other
studies and analyses, and considered such other factors, as it
considered appropriate. Allegheny Energy did not produce an
estimate of potential synergies resulting from the merger. With
the approval of Allegheny Energy, Goldman Sachs prepared its
financial analyses on a pre-synergy basis.
For purposes of rendering the opinion described above, Goldman
Sachs relied upon and assumed, without assuming any
responsibility for independent verification, the accuracy and
completeness of all of the financial, legal, regulatory, tax,
accounting and other information provided to, discussed with or
reviewed by it. Goldman Sachs assumed that the Allegheny Energy
Forecasts and the Adjusted FirstEnergy Base Case Forecasts had
been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of
Allegheny Energy. In addition, Goldman Sachs did not make an
independent evaluation or appraisal of the assets and
liabilities (including any contingent, derivative or
off-balance-sheet assets and liabilities) of Allegheny Energy or
FirstEnergy or any of their respective subsidiaries, nor was any
evaluation or appraisal of the assets or liabilities of
Allegheny Energy or FirstEnergy or any of their respective
subsidiaries furnished to Goldman Sachs. Goldman Sachs assumed
that all governmental, regulatory or other consents and
approvals necessary for the completion of the merger will be
obtained without any adverse effect on Allegheny Energy or
FirstEnergy or on the expected benefits of the merger in any way
meaningful to its analysis. Goldman Sachs also assumed that the
merger will be completed on the terms set forth in the merger
agreement, without the waiver or modification of any term or
condition the effect of which would be in any way meaningful to
its analysis. Goldman Sachs did not express any opinion as to
the impact of the merger on the solvency or viability of
Allegheny Energy or FirstEnergy or the ability of Allegheny
Energy or FirstEnergy to pay their obligations when they come
due. Goldman Sachs opinion does not address any legal,
regulatory, tax or accounting matters nor does it address the
underlying business decision of Allegheny Energy to engage in
the merger or the relative merits of the merger as compared to
any strategic alternatives that may be available to Allegheny
Energy. Goldman Sachs opinion addressed
92
only the fairness from a financial point of view to the holders
(other than FirstEnergy and its affiliates) of Allegheny Energy
common stock, as of the date of the opinion, of the exchange
ratio pursuant to the merger agreement. Goldman Sachs
opinion did not express any view on, and did not address, any
other term or aspect of the merger agreement or the merger or
any term or aspect of any other agreement or instrument
contemplated by the merger agreement or entered into or amended
in connection with the merger, including, without limitation,
the fairness of the merger to, or any consideration received in
connection therewith by, the holders of any other class of
securities, creditors or other constituencies of Allegheny
Energy. Goldman Sachs opinion did not express any view on,
and did not address the fairness of the amount or nature of any
compensation to be paid or payable to any of the officers,
directors or employees of Allegheny Energy or class of such
persons in connection with the merger, whether relative to the
exchange ratio pursuant to the merger agreement or otherwise. In
addition, Goldman Sachs did not express any opinion as to the
prices at which shares of FirstEnergy common stock will trade at
any time. Goldman Sachs opinion was necessarily based on
economic, monetary, market and other conditions, as in effect
on, and the information made available to it as of, the date of
the opinion and Goldman Sachs assumed no responsibility for
updating, revising or reaffirming its opinion based on
circumstances, developments or events occurring after the date
of its opinion. Goldman Sachs opinion was approved by a
fairness committee of Goldman Sachs.
The following is a summary of the material financial analyses
delivered by Goldman Sachs to the board of directors of
Allegheny Energy in connection with rendering the opinion
described above. The following summary does not purport to be a
complete description of the financial analyses performed by
Goldman Sachs, nor does the order of analyses described
represent the relative importance or weight given to those
analyses by Goldman Sachs. Some of the summaries of the
financial analyses include information presented in tabular
format. The tables must be read together with the full text of
each summary and are alone not a complete description of Goldman
Sachs financial analyses. Except as otherwise noted, the
following quantitative information, to the extent that it is
based on market data, is based on market data as it existed on
or before February 8, 2010 and is not necessarily
indicative of current market conditions.
For purposes of performing certain of its financial analyses,
Goldman Sachs calculated an exchange ratio of 0.510 shares
of FirstEnergy common stock per share of Allegheny Energy common
stock, which is referred to below as the market exchange
ratio, by dividing the closing price of Allegheny Energy
common stock of $20.89 on February 8, 2010 by the closing
price of FirstEnergy common stock of $40.99 on February 8,
2010. Goldman Sachs also noted that the exchange ratio of 0.667
of a share of FirstEnergy common stock per share of Allegheny
Energy common stock to be paid for each share of Allegheny
Energy common stock pursuant to the merger agreement, which is
referred to below as the merger exchange ratio,
implied a price per share for Allegheny Energy common stock of
$27.34 based on the closing prices of Allegheny Energy and
FirstEnergy on February 8, 2010.
Historical
Trading Analysis
Goldman Sachs calculated the premium implied by the merger
exchange ratio based on the closing prices per share of
Allegheny Energy common stock and FirstEnergy common stock on
February 8, 2010 and on January 27, 2010, the trading
day prior to the date FirstEnergys non-binding indicative
proposal was received by Allegheny Energy, as well as the
average premium implied by the merger exchange ratio based on
the closing prices per share of Allegheny Energy common stock
and FirstEnergy common stock during the period from
January 27, 2010 to
93
February 8, 2010 and the 30 trading day period ended on
February 8, 2010. This analysis showed the following
implied premiums and average premiums:
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Date or Period
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Implied Premium
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February 8, 2010
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30.9%
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January 27, 2010
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38.7%
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January 27, 2010 February 8, 2010
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36.8% (average)
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30 trading day period ended February 8, 2010
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34.8% (average)
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Goldman Sachs analyzed premium information relating to selected
transactions in the utilities industry announced since 2004
listed below:
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The acquisition of Aquila, Inc. by Great Plains Energy
Incorporated and Black Hills Corporation, announced on
February 7, 2007;
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The acquisition of Cinergy Corp. by Duke Energy Corporation,
announced on May 9, 2005;
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The acquisition of Constellation Energy Group Inc. by FPL Group,
Inc., announced on December 19, 2005;
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The acquisition of Constellation Energy Group, Inc. by
MidAmerican Energy Holdings Company, announced on
September 18, 2008;
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The acquisition of Duquesne Light Holdings, Inc. by a consortium
of investors led by Macquarie Infrastructure Partners, Inc. and
Diversified Utility and Energy Trusts, announced on July 5,
2006;
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The acquisition of Energy East Corp. by Iberdrola SA, announced
on June 25, 2007;
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The acquisition of KeySpan Corp. by National Grid plc, announced
on February 27, 2006;
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The acquisition of NorthWestern Corporation by
Babcock & Brown Infrastructure Ltd., announced on
April 25, 2006;
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The acquisition of Peoples Energy Corporation by WPS Resources
Corporation, announced on July 6, 2006;
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The acquisition of Public Service Enterprise Group Incorporated
by Exelon Corporation announced on December 20, 2004;
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The acquisition of Puget Energy, Inc. by a consortium of
investors led by Macquarie Infrastructure Partners, Inc., the
Canada Pension Plan Investment Board and British Columbia
Investment Management Corporation, announced on October 26,
2007; and
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The acquisition of TXU Corp. by Kohlberg Kravis
Roberts & Co. L.P. and Texas Pacific Group, Inc.,
announced on February 26, 2007.
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For each of the selected transactions, Goldman Sachs reviewed
the premium as of the date which was one day prior to the
announcement date of the selected transaction and as of the date
which was one week prior to the announcement date of the
selected transaction. Goldman Sachs compared such premiums and
found a median
one-day
transaction premium of 15.2% and a median one-week transaction
premium of 18.8%.
Goldman Sachs, utilizing its professional judgment and
experience, then selected an indicative range of premiums of the
acquisition price over the closing price on the day prior to the
announcement of the merger of 10.5% to 20.0%, reflecting the
range of premiums in the all stock transactions included among
the selected transactions listed above (the acquisition of
Public Service
94
Enterprise Group Incorporated by Exelon Corporation, announced
on December 20, 2004, the acquisition of Cinergy Corp. by
Duke Energy Corporation, announced on May 9, 2005, the
acquisition of Peoples Energy Corporation by WPS Resources
Corporation, announced on July 6, 2006, and the acquisition
of Constellation Energy Group Inc. by FPL Group, Inc., announced
on December 19, 2005). Goldman Sachs then used these
percentages to calculate a corresponding range of implied equity
values per share of Allegheny Energy common stock, which was
$23.00 to $25.00, based on the closing price of Allegheny Energy
common stock on February 8, 2010 of $20.89. Goldman Sachs
also calculated the exchange ratio implied by dividing each of
the $23.00 low end and the $25.00 high end of the range of
implied equity values of Allegheny Energy common stock by the
$40.99 closing price of FirstEnergy common stock on
February 8, 2010. This analysis indicated a range of
implied exchange ratios of 0.561 to 0.610 of a share of
FirstEnergy common stock per share of Allegheny Energy common
stock.
Selected
Companies Analysis
Goldman Sachs reviewed and compared certain financial
information, ratios and public market multiples for Allegheny
Energy and FirstEnergy to corresponding financial information,
ratios and public market multiples for the following publicly
traded companies in the utilities industry, which are
collectively referred to below as the Selected
Companies:
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Constellation Energy Group, Inc.;
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Edison International;
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Entergy Corporation;
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Exelon Corporation;
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FPL Group, Inc.;
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PPL Corporation; and
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Public Service Enterprise Group Incorporated.
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Although none of the selected companies is directly comparable
to Allegheny Energy or FirstEnergy, the companies included were
chosen because they are publicly traded companies in the
utilities industry that for the purposes of this analysis
Goldman Sachs considered to be similar to Allegheny Energy and
FirstEnergy because they had a mix of both regulated utility
operations and significant merchant power generation operations.
With respect to Allegheny Energy, FirstEnergy and the selected
companies, Goldman Sachs calculated:
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The enterprise value, referred to as EV, which is defined as the
market value of common equity plus the book value of debt, plus
minority interest, less cash, as a multiple of estimated
earnings before interest, taxes, depreciation and amortization,
referred to as EBITDA, for calendar year 2011, which is referred
to below as 2011E EV/EBITDA;
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The EV as a multiple of estimated EBITDA for calendar year 2012,
which is referred to below as 2012E EV/EBITDA;
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The price per share as a multiple of estimated earnings per
share, referred to as EPS, for calendar year 2011, which is
referred to below as 2011E P/E; and
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The price per share as a multiple of estimated EPS for calendar
year 2012, which is referred to below as 2012E P/E.
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95
The multiples and ratios for Allegheny Energy, FirstEnergy and
for each of the other selected companies, were calculated using
the closing price of each companys common stock on
February 8, 2010 and were based on the most recent publicly
available information and I/B/E/S estimates for calendar years
2011 and 2012.
This analysis indicated the following indicative multiples:
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Range*
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Median*
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Allegheny Energy
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FirstEnergy
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2011E EV/EBITDA
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4.1x 7.3x
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6.1x
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5.7x
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6.5x
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2012E EV/EBITDA
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4.1x 7.0x
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6.2x
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5.7x
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6.6x
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2011E P/E
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8.4x 10.8x
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9.7x
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8.4x
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10.0x
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2012E P/E
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9.0x 12.2x
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9.7x
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9.4x
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9.6x
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* |
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Includes Allegheny Energy and FirstEnergy. |
Based on this analysis, Goldman Sachs then selected certain
reference ranges for each of the four categories of multiples
listed in the table above utilizing its professional judgment
and experience and taking into account the ranges and medians
listed in the table above and applied those ranges to determine
indicative ranges of implied equity values of Allegheny Energy
common stock based on the Allegheny Energy Forecasts. Goldman
Sachs also selected certain reference ranges for each of the
four categories of multiples listed in the table above and
applied those ranges to determine indicative ranges of implied
equity values of FirstEnergy common stock based on the Adjusted
FirstEnergy Base Case Forecasts. This analysis indicated the
following indicative ranges of implied equity values of
Allegheny Energy and FirstEnergy common stock:
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Allegheny Energy
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FirstEnergy
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Implied Equity
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Implied Equity
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Reference
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Values of Allegheny
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Reference
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Values of
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Ranges of
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Energy Common
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Ranges of
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FirstEnergy
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Multiples
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Stock
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Multiples
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Common Stock
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2011E EV/EBITDA
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5.0x 6.0x
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$
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15.25 $23.25
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6.0x 7.0x
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$
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30.75 $43.50
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2012E EV/EBITDA
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5.0x 6.0x
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$
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13.75 $21.25
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6.0x 7.0x
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$
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28.50 $41.00
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2011E P/E
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8.0x 9.0x
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$
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20.25 $22.75
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9.5x 10.5x
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$
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35.75 $39.50
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2012E P/E
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9.0x 10.0x
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$
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20.50 $22.75
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9.0x 10.0x
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$
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32.50 $36.25
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Goldman Sachs then calculated the exchange ratio implied by
dividing the $14.50 average of the low ends of the implied
equity value of Allegheny Energy common stock specified in the
table above based on 2011E EV/EBITDA and 2012E EV/EBITDA
multiple ranges by the $42.25 average of the high ends of the
implied equity value of FirstEnergy common stock specified in
the table above based on 2011E EV/EBITDA and 2012E EV/EBITDA
multiple ranges. Goldman Sachs also calculated the exchange
ratio implied by dividing the $22.25 average of the high ends of
the implied equity value of Allegheny Energy common stock
specified in the table above based on 2011E EV/EBITDA and 2012E
EV/EBITDA multiple ranges by the $29.62 average of the low ends
of the implied equity value of FirstEnergy common stock
specified in the table above based on 2011E EV/EBITDA and 2012E
EV/EBITDA multiple ranges. This analysis indicated a range of
implied exchange ratios of 0.343 to 0.751 shares of
FirstEnergy common stock per share of Allegheny Energy common
stock.
Goldman Sachs also calculated the exchange ratio implied by
dividing the $20.38 average of the low ends of the implied
equity value of Allegheny Energy common stock specified in the
table above based on 2011E P/E and 2012E P/E multiple ranges by
the $37.88 average of the high ends of the implied equity value
of FirstEnergy common stock specified in the table above based
on
96
2011E P/E and 2012E P/E multiple ranges. Goldman Sachs also
calculated the exchange ratio implied by dividing the $22.75
average of the high ends of the implied equity value of
Allegheny Energy common stock specified in the table above based
on 2011E P/E and 2012E P/E multiple ranges by the $34.13 average
of the low ends of the implied equity value of FirstEnergy
common stock specified in the table above based on 2011E P/E and
2012E P/E multiple ranges. This analysis indicated a range of
implied exchange ratios of 0.538 to 0.667 of a share of
FirstEnergy common stock per share of Allegheny Energy common
stock.
Illustrative
Discounted Cash Flow Analyses
Goldman Sachs performed a discounted cash flow, referred to as
DCF, analysis to determine a range of illustrative implied
present values of Allegheny Energy common stock based on
projected unlevered free cash flows for Allegheny Energy on a
stand-alone
basis for the years ending on December 31, 2010 through
2014, using the Allegheny Energy Forecasts. For the purposes of
this analysis, and several other analyses described below,
Goldman Sachs took into consideration two possible scenarios.
Under the first scenario, referred to as the Base Case, federal
and/or state
regulations of emissions of carbon dioxide, referred to below as
carbon legislation, would not be adopted. Under the second
scenario, referred to as the Carbon Legislation Case, carbon
legislation would be adopted and become effective beginning in
2013 and would have the financial impact estimated by Allegheny
Energy management based on certain assumptions, including with
respect to the estimated cost of carbon. Goldman Sachs
calculated Allegheny Energys terminal EV on
December 31, 2014 by applying a range of EV/EBITDA terminal
multiples to estimated 2014 EBITDA of Allegheny Energy. Goldman
Sachs selected EV/EBITDA terminal multiples ranging from 5.0x to
6.0x in order to calculate the terminal value based upon several
factors, including an analysis of the EV/EBITDA multiples of the
Selected Companies. The results of the terminal EV calculation
were then discounted to the present value by using an
illustrative range of discount rates from 7.0% to 8.0%, and the
implied terminal equity value of Allegheny Energy was then
calculated by subtracting the year end 2009 net debt (which
Goldman Sachs calculated for the purposes of this analysis as
total debt less $527 million securitized debt less cash).
The ranges of discount rates used by Goldman Sachs in this
analysis were derived by Goldman Sachs utilizing a weighted
average cost of capital WACC analysis, based on the
capital asset pricing model and taking into account certain
financial metrics for the United States equity markets generally
and Allegheny Energy specifically, including the equity risk
premium of 6.47% and risk-free rate of 4.58% consistent with the
Ibbotson Associates long term equity premium analysis for the
period
1926-2009,
and a beta for Allegheny Energy of 1.06. Goldman Sachs then
calculated the implied present value per share of Allegheny
Energy common stock by adding the present value of the five
years of projected unlevered free cash flows ending on
December 31, 2014 to the present value of Allegheny
Energys terminal equity value. This analysis resulted in a
range of implied present values of approximately $13.50 to
$22.25 per share of Allegheny Energy common stock in the Base
Case and a range of implied present values of approximately
$12.00 to $20.50 per share of Allegheny Energy common stock in
the Carbon Legislation Case.
Goldman Sachs performed a DCF analysis to determine a range of
illustrative implied present values of FirstEnergy common stock
based on projected unlevered free cash flows for FirstEnergy on
a
stand-alone
basis for the years ending on December 31, 2010 through
2014, using the Adjusted FirstEnergy Base Case Forecasts.
Goldman Sachs calculated FirstEnergys terminal EV on
December 31, 2014 by applying a range of EV/EBITDA terminal
multiples to estimated 2014 EBITDA of FirstEnergy. Goldman Sachs
selected EV/EBITDA terminal multiples ranging from 6.0x to 7.0x
in order to calculate the terminal value based upon several
factors, including an analysis of the EV/EBITDA multiples of the
Selected Companies. The results of the terminal EV calculation
97
were then discounted to the present value by using a range of
discount rates from 6.5% to 7.5%, and the implied terminal
equity value of FirstEnergy was then calculated by subtracting
the year end 2009 net debt (which Goldman Sachs calculated
for the purposes of this analysis as total debt less cash). The
ranges of discount rates used by Goldman Sachs in this analysis
were derived by Goldman Sachs utilizing a WACC analysis, based
on the capital asset pricing model and taking into account
certain financial metrics for the United States equity markets
generally and FirstEnergy specifically, including the equity
risk premium of 6.47% and risk-free rate of 4.58% consistent
with the Ibbotson Associates long term equity premium analysis
for the period
1926-2009,
and a beta for FirstEnergy of 0.96. Goldman Sachs then
calculated the implied present value per share of FirstEnergy
common stock by adding the present value of the five years of
projected unlevered free cash flows ending on December 31,
2014 to the present value of FirstEnergys terminal equity
value. This analysis resulted in a range of implied present
values of approximately $24.50 to $37.00 per share of
FirstEnergy common stock in the Base Case and a range of implied
present values of approximately $32.25 to $44.75 per share of
FirstEnergy common stock in the Carbon Legislation Case.
Goldman Sachs also calculated the exchange ratio implied by
dividing the low end of approximately $13.50 (Base Case) and
$12.00 (Carbon Legislation Case), respectively, of the implied
value of Allegheny Energy common stock indicated by the DCF
analysis by the high end of approximately $37.00 (Base Case) and
$44.75 (Carbon Legislation Case), respectively, of the implied
value of FirstEnergy common stock indicated by the DCF analysis.
Goldman Sachs also calculated the exchange ratio implied by
dividing the high end of approximately $22.25 (Base Case) and
$20.50 (Carbon Legislation Case), respectively, of the implied
value of Allegheny Energy common stock indicated by the DCF
analysis by the low end of approximately $24.50 (Base Case) and
$32.25 (Carbon Legislation Case), respectively, of the implied
value of FirstEnergy common stock indicated by the DCF analysis.
This analysis indicated a range of implied exchange ratios of
0.365 to 0.908 in the Base Case and of 0.268 to 0.636 in the
Carbon Legislation Case.
Goldman Sachs also performed a DCF analysis to determine a range
of illustrative implied present values per share of the combined
companys common stock, based on projected pro forma
unlevered free cash flows for the combined company for the years
ending on December 31, 2010 through 2014, using the
Allegheny Energy Forecasts and the Adjusted FirstEnergy Base
Case Forecasts. Goldman Sachs calculated the present value of
the projected pro forma unlevered free cash flows for the years
ending on December 31, 2010 through 2014 by using a range
of discount rates from 6.0% to 8.0%, reflecting estimates of the
WACC for the combined company. Goldman Sachs then calculated the
present value of the combined companys terminal EV on
December 31, 2014 by applying a range of EV/EBITDA
multiples of 5.5x to 7.5x to estimated 2014 EBITDA. The results
of the terminal EV calculation were then discounted to the
present value by using a range of discount rates from 6.0% to
8.0%, reflecting estimates of the WACC for the combined company,
and the implied terminal equity value of the combined company
was then calculated by subtracting the year end 2009 net
debt of Allegheny Energy (which Goldman Sachs calculated for the
purposes of this analysis as total debt less $527 million
securitized debt less cash) and the year end 2009 net debt
of FirstEnergy (which Goldman Sachs calculated for the purposes
of this analysis as total debt less cash). Goldman Sachs then
calculated the implied present value of the combined
companys common stock by adding the present value of the
five years of projected unlevered free cash flows ending on
December 31, 2014 to the present value of the combined
companys terminal equity value. The resulting implied
present values of the combined companys common stock were
then multiplied by the merger exchange ratio to arrive at a
range of implied present values of Allegheny Energy common
stock. This analysis resulted in a range of implied present
values of approximately $15.66 to $32.71 per share of Allegheny
Energy common stock in the Base Case and a range of
98
implied present values of approximately $18.98 to $36.02 per
share of Allegheny Energy common stock in the Carbon Legislation
Case.
Illustrative
Sum-of-the-Parts
Analysis
Goldman Sachs performed an illustrative
sum-of-the-parts
analysis to determine a range of implied equity values of
Allegheny Energy common stock, which was based on a hypothetical
separate valuation of Allegheny Energys Electric
Utilities, Transmission and Supply business segments and
Corporate (Other). Utilizing its professional judgment and
experience, Goldman Sachs applied (i) a range of multiples
of 11.5x to 13.0x to the estimated 2010 net income of the
Electric Utilities business segment, which range of multiples
was determined based upon several factors, including an analysis
of net income multiples of selected companies which exhibited
similar business characteristics to Allegheny Energys
Electric Utilities business segment, including with respect to
engaging primarily in the regulated utilities business, without
any significant unregulated business activities, (ii) a
range of multiples of 13.0x to 15.0x to the estimated
2014 net income of the Transmission business segment
discounted to present value using an illustrative 10% discount
rate (reflecting an estimate of the cost of equity for Allegheny
Energys Transmission business segment), which range of
multiples was determined based upon several factors, including
an analysis of net income multiples of selected companies which
exhibited similar business characteristics to Allegheny
Energys Transmission business segment, (iii) and a
range of multiples of 6.0x to 7.5x to the estimated 2012 EBITDA
of the Supply business segment, which range of multiples was
determined based upon several factors, including an analysis of
EBITDA multiples of selected companies which exhibited similar
business characteristics to Allegheny Energys Supply
business segment, including with respect to engaging purely in
the merchant power generation business, and (iv) a range of
multiples of 10.0x to 13.0x to the estimated 2010 net
income for Corporate (Other). The estimated financial data used
in the analysis was based on the Allegheny Energy Forecasts and
publicly available information. For purposes of performing this
analysis, for each of Allegheny Energys business segments,
Goldman Sachs used such business segments estimated net
income or EBITDA provided in the Allegheny Energy Forecasts, as
applicable, during a specified year. Goldman Sachs selected each
such year based on Goldman Sachs professional judgment and
experience taking into consideration, among other things,
specific circumstances of each business segment. The
sum-of-the-parts
analysis indicated the following ranges of approximate implied
equity values of Allegheny Energy common stock:
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Implied Equity
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Values of
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Allegheny Energy
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Common Stock
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Base Case
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$
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21.50 - $28.00
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Carbon Legislation Case
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$
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19.75 - $26.25
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|
Goldman Sachs also performed an illustrative
sum-of-the-parts
analysis to determine a range of implied equity values per share
of FirstEnergy common stock, which was based on a hypothetical
separate valuation of FirstEnergys Electric Utilities,
Transmission and FirstEnergy Solutions Corp. business segments
and Corporate (Other). Utilizing its professional judgment and
experience, Goldman Sachs applied (i) a range of multiples
of 12.5x to 13.5x to the estimated 2010 net income of the
Electric Utilities business segment, which range of multiples
was determined based upon several factors, including an analysis
of net income multiples of selected companies which exhibited
similar business characteristics to FirstEnergys Electric
Utilities business segment, including with respect to engaging
primarily in the regulated utilities business, without any
significant unregulated business activities, (ii) a range
of multiples of 13.0x to 14.0x to the estimated 2010 net
income of
99
the Transmission business segment, which range of multiples was
determined based upon several factors, including an analysis of
net income multiples of selected companies which exhibited
similar business characteristics to FirstEnergys
Transmission business segment, (iii) a range of multiples
of 7.0x to 9.0x to the estimated 2011 EBITDA of the FirstEnergy
Solutions Corp. business segment, which range of multiples was
determined based upon several factors, including an analysis of
EBITDA multiples of selected companies which exhibited similar
business characteristics to the FirstEnergy Solutions Corp.
business segment, including with respect to engaging purely in
the merchant power generation business, and (iv) a range of
multiples of 10.0x to 12.0x to the estimated 2010 net
income for Corporate (Other). The estimated financial data used
in the analysis was based on the Adjusted FirstEnergy Base Case
Forecasts and publicly available information. For purposes of
performing this analysis, for each of FirstEnergys
business segments, Goldman Sachs used such business
segments estimated net income or EBITDA provided in the
Adjusted FirstEnergy Base Case Forecasts, as applicable, during
a specified year. Goldman Sachs selected each such year based on
Goldman Sachs professional judgment and experience taking
into consideration, among other things, specific circumstances
of each business segment. The
sum-of-the-parts
analysis indicated the following ranges of approximate implied
equity values of FirstEnergy common stock:
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Implied Equity
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Values of
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FirstEnergy
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Common Stock
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Base Case
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$
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35.00 - $44.00
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Carbon Legislation Case
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$
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42.75 - $51.75
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|
Goldman Sachs then calculated, for the Base Case, the exchange
ratio implied by dividing the low end of approximately $21.50 of
the implied equity value of Allegheny Energy common stock by the
high end of approximately $44.00 of the implied equity value of
FirstEnergy common stock, and the exchange ratio implied by
dividing the high end of approximately $28.00 of the implied
equity value of Allegheny Energy common stock by the low end of
approximately $35.00 of the implied equity value of FirstEnergy
common stock. This analysis indicated a range of implied
exchange ratios of 0.489 to 0.800. Goldman Sachs also
calculated, for the Carbon Legislation Case, the exchange ratio
implied by dividing the low end of approximately $19.75 of the
implied equity value of Allegheny Energy common stock by the
high end of approximately $51.75 of the implied equity value of
FirstEnergy common stock, and the exchange ratio implied by
dividing the high end of approximately $26.25 of the implied
equity value of Allegheny Energy common stock by the low end of
approximately $42.75 of the implied equity value of FirstEnergy
common stock. This analysis indicated a range of implied
exchange ratios of 0.382 to 0.614 shares of FirstEnergy
common stock per share of Allegheny Energy common stock.
Contribution
Analysis
Goldman Sachs examined the implied contribution of each of
Allegheny Energy and FirstEnergy to the combined companys
pro forma EBITDA and net income for the years 2011 through 2014,
based on estimated EBITDA and net income for each company on a
stand-alone
basis for the years 2011 through 2014 derived from the Allegheny
Energy Forecasts, the Adjusted FirstEnergy Base Case Forecasts
and publicly available information, and excluding any potential
synergies resulting from the merger. This analysis indicated
that the implied contribution of Allegheny Energy to the
combined company ranged from approximately 25% to approximately
37%, with the median being approximately 27%. Goldman Sachs also
derived an implied range of
100
exchange ratios from approximately 0.604 to approximately 1.072.
The results of this analysis are presented in tabular format
below:
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FirstEnergy
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Allegheny Energy
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Contribution
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Contribution
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Implied
|
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(percentage)
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(percentage)
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Exchange Ratio
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EBITDA 2011E
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75
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%
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25
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%
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0.611
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EBITDA 2012E
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|
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75
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%
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|
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25
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%
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0.604
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EBITDA 2013E
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|
|
73
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%
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|
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27
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%
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|
|
0.649
|
|
EBITDA 2014E
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|
|
71
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%
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|
|
29
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%
|
|
|
0.742
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Net income 2011E
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|
|
73
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%
|
|
|
27
|
%
|
|
|
0.673
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Net income 2012E
|
|
|
73
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%
|
|
|
27
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%
|
|
|
0.650
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|
Net income 2013E
|
|
|
69
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%
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|
|
31
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%
|
|
|
0.817
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|
Net income 2014E
|
|
|
63
|
%
|
|
|
37
|
%
|
|
|
1.072
|
|
As part of this analysis, Goldman Sachs also calculated a median
implied exchange ratio of approximately 0.659 shares of
FirstEnergy common stock per share of Allegheny Energy common
stock derived by using the median implied contribution of
Allegheny Energy to the combined company and the median implied
contribution of FirstEnergy to the combined company based on the
above analysis.
Pro
Forma Analysis
Goldman Sachs prepared an illustrative pro forma analysis of the
potential financial impact of the merger, excluding any
potential synergies resulting from the merger, on
FirstEnergys estimated EPS for years 2010 through 2014
using the Allegheny Energy Forecasts and the Adjusted
FirstEnergy Base Case Forecasts. For each of the years 2010
through 2014, Goldman Sachs compared the estimated EPS of
FirstEnergy common stock on a
stand-alone
basis to the estimated EPS of the FirstEnergy common stock on a
pro forma basis following the merger. Based on this analysis,
and excluding any potential synergies resulting from the merger,
the proposed merger would be dilutive to FirstEnergy in years
2010 through 2012 and accretive in years 2013 and 2014.
In addition, based on the current annual dividend paid on the
Allegheny Energy common stock of $0.60 per share and the current
annual dividend paid on the FirstEnergy common stock of $2.20
per share, Goldman Sachs calculated that, based on the 0.667
merger exchange ratio, Allegheny Energy stockholders would
receive a pro forma annual dividend of approximately $1.47 per
share following the merger, representing a 145% increase
compared to the current annual dividend paid on the Allegheny
Energy common stock of $0.60 per share.
Sensitivity
Analysis
Goldman Sachs reviewed the potential impact of four hypothetical
scenarios (each of which was based on Allegheny Energy
management estimates and assumptions) on the projected value of
Allegheny Energy common stock on a
stand-alone
basis (which is referred to as the Allegheny Energy
stand-alone
sensitivity value) as compared to the potential impact of the
same hypothetical scenarios on a projected pro forma value of
0.667 of a share of FirstEnergy common stock following the
merger, excluding any potential synergies resulting from the
merger (which is referred to as the Allegheny Energy pro forma
sensitivity value), in each case, using the Allegheny Energy
Forecasts and the Adjusted FirstEnergy Base Case Forecasts. The
first scenario was an increase in market power prices of
$10/MWH. The second scenario was the Carbon Legislation Case.
The third scenario was the adoption by the Environmental
Protection Agency, which is referred to as the EPA,
101
of more stringent regulations than those currently in effect and
the corresponding costs of compliance estimated by Allegheny
Energy management. The fourth scenario analyzed the potential
combined financial impact of the second and third scenarios. For
each scenario, Goldman Sachs calculated the Allegheny Energy
stand-alone sensitivity value, which ranged from approximately
$13.50 to approximately $31.50, and the Allegheny Energy pro
forma sensitivity value, which ranged from approximately $20.00
to approximately $33.00. Goldman Sachs then noted that, for each
scenario, the Allegheny Energy pro forma sensitivity value was
higher than the Allegheny Energy
stand-alone
sensitivity value.
The preparation of a fairness opinion is a complex process and
is not necessarily susceptible to partial analysis or summary
description. Selecting portions of the analyses or of the
summary set forth above, without considering the analyses as a
whole, could create an incomplete view of the processes
underlying Goldman Sachs opinion. In arriving at its
fairness determination, Goldman Sachs considered the results of
all of its analyses and did not attribute any particular weight
to any factor or analysis considered by it. Rather, Goldman
Sachs made its determination as to fairness on the basis of its
experience and professional judgment after considering the
results of all of its analyses. No company or transaction used
in the above analyses as a comparison is directly comparable to
Allegheny Energy or FirstEnergy or the contemplated merger.
Goldman Sachs prepared these analyses for purposes of providing
its opinion to the board of directors of Allegheny Energy as to
the fairness from a financial point of view to the holders of
Allegheny Energy common stock (other than FirstEnergy and its
affiliates) of the exchange ratio pursuant to the merger
agreement. These analyses do not purport to be appraisals nor do
they necessarily reflect the prices at which businesses or
securities actually may be sold. Analyses based upon forecasts
of future results are not necessarily indicative of actual
future results, which may be significantly more or less
favorable than suggested by these analyses. Because these
analyses are inherently subject to uncertainty, being based upon
numerous factors or events beyond the control of the parties or
their respective advisors, none of Allegheny Energy,
FirstEnergy, Goldman Sachs or any other person assumes
responsibility if future results are materially different from
those forecast.
The exchange ratio was determined through arms length
negotiations between Allegheny Energy and FirstEnergy and was
approved by the board of directors of Allegheny Energy. Goldman
Sachs provided advice to Allegheny Energy during these
negotiations. Goldman Sachs did not, however, recommend any
specific exchange ratio to Allegheny Energy or its board of
directors or indicate that any specific exchange ratio
constituted the only appropriate exchange ratio for the merger.
As described above, Goldman Sachs opinion to the board of
directors of Allegheny Energy was one of many factors taken into
consideration by the board of directors of Allegheny Energy in
making its determination to engage in the merger and approve the
merger agreement. The foregoing summary does not purport to be a
complete description of the analyses performed by Goldman Sachs
in connection with the fairness opinion and is qualified in its
entirety by reference to the written opinion of Goldman Sachs
attached as Annex D and incorporated by reference to this
section of the joint proxy statement/prospectus.
Goldman Sachs and its affiliates are engaged in investment
banking and financial advisory services, commercial banking,
securities trading, investment management, principal investment,
financial planning, benefits counseling, risk management,
hedging, financing, brokerage activities and other financial and
non-financial activities and services for various persons and
entities. In the ordinary course of these activities and
services, Goldman Sachs and its affiliates may at any time make
or hold long or short positions and investments, as well as
actively trade or effect transactions,
102
in the equity, debt and other securities (or related derivative
securities) and financial instruments (including bank loans and
other obligations) of Allegheny Energy, FirstEnergy and any of
their respective affiliates or any currency or commodity that
may be involved in the transaction for their own account and for
the accounts of their customers. Goldman Sachs acted as
financial advisor to Allegheny Energy in connection with, and
participated in certain of the negotiations leading to, the
merger. In addition, Goldman Sachs has provided certain
investment banking and other financial services to Allegheny
Energy and its affiliates from time to time, including having
acted as senior co-manager with respect to a public offering of
fixed rate debt (aggregate principal amount of $215,000,000) in
October 2007, as senior co-manager with respect to a public
offering of fixed rate debt (aggregate principal amount of
$235,000,000) in June 2009, as joint-bookrunner with respect to
a public offering of Allegheny Energys 6.75% Senior
Unsecured Notes due September 2039 (aggregate principal amount
of $250,000,000) in September 2009, and as joint-bookrunner with
respect to an offering of Allegheny Energys
5.75% Senior Unsecured Notes due September 2019 (aggregate
principal amount of $350,000,000) in September 2009. During the
two-year period ending February 10, 2010, the date on which
Goldman Sachs rendered its fairness opinion, the Investment
Banking Division of Goldman Sachs received aggregate
compensation from Allegheny Energy for investment banking
services unrelated to the merger of approximately
$1 million. Goldman Sachs also has provided certain
investment banking and other financial services to FirstEnergy
and its affiliates from time to time, including having acted as
joint-lead bookrunner with respect to an offering of
FirstEnergys 7.70% Senior Unsecured Notes due January
2019 (aggregate principal amount of $300,000,000) in January
2009, as joint-bookrunner with respect to a public offering of
FirstEnergys 5.50% First Mortgage Bonds due August 2024
(aggregate principal amount of $300,000,000) in August 2009, as
joint-bookrunner with respect to an offering of
FirstEnergys 5.25% Senior Unsecured Notes due January 2022
(aggregate principal amount of $400,000,000) in December 2009,
and as a counterparty with respect to various derivative
transactions entered into by FirstEnergy from 2007 to 2009.
Goldman Sachs also may provide investment banking and other
financial services to Allegheny Energy, FirstEnergy and their
respective affiliates in the future. In connection with the
above-described services Goldman Sachs has received, and may
receive, compensation.
The board of Allegheny Energy selected Goldman Sachs as its
financial advisor because it is an internationally recognized
investment banking firm that has substantial experience in
transactions similar to the merger. Pursuant to a letter
agreement dated January 19, 2010, Allegheny Energy engaged
Goldman Sachs to act as its financial advisor in connection with
the contemplated merger. Pursuant to the terms of that
engagement letter, Allegheny Energy has agreed to pay Goldman
Sachs a fee of $23 million, of which $7 million became
payable upon execution of the definitive merger agreement on
February 10, 2010, $8 million is contingent upon
approval of the merger by holders of the requisite majority of
Allegheny Energy common stock and $8 million is contingent
upon completion of the merger. In addition, Allegheny Energy has
agreed to reimburse Goldman Sachs for its expenses, including
attorneys fees and disbursements, and to indemnify Goldman
Sachs and related persons against various liabilities, including
certain liabilities under the federal securities laws.
Additional
Interests of the FirstEnergy Directors and Executive Officers in
the Merger
In considering the recommendation of the FirstEnergy board with
respect to the merger, FirstEnergy shareholders should be aware
that the executive officers and directors of FirstEnergy have
certain interests in the merger that may be different from, or
in addition to, the interests of FirstEnergy shareholders
generally. The FirstEnergy board was aware of these interests
and considered them, among other matters, in evaluating,
negotiating and approving the merger
103
agreement and making its recommendation that the FirstEnergy
shareholders approve the share issuance and adopt the charter
amendment. These interests are described below.
Continuing
Positions with FirstEnergy
Under the terms of the merger agreement, all of the directors of
FirstEnergy immediately before the merger will continue to serve
as directors of FirstEnergy after completion of the merger.
Additionally, it is expected that each of the executive officers
of FirstEnergy before the merger will, after the completion of
the merger, continue to serve as executive officers of
FirstEnergy holding the same or similar offices as they held
with FirstEnergy immediately before the merger.
Additional
Interests of the Allegheny Energy Directors and Executive
Officers in the Merger
In considering the recommendation of the Allegheny Energy board
with respect to the merger, Allegheny Energy stockholders should
be aware that the executive officers and directors of Allegheny
Energy have certain interests in the merger that may be
different from, or in addition to, the interests of Allegheny
Energy stockholders generally. The Allegheny Energy board was
aware of these interests and considered them, among other
matters, in approving the merger agreement and the merger and
making its recommendation that the Allegheny Energy stockholders
approve the merger agreement and the merger. These interests are
described below.
Continued
FirstEnergy Board Service
The parties have agreed that two members of the Allegheny Energy
board will be added to the FirstEnergy board effective upon
completion of the merger. Julia L. Johnson and Ted J. Kleisner
have been designated to become members of the FirstEnergy board.
The other directors of Allegheny Energy will no longer serve as
directors of Allegheny Energy (and will not serve as directors
of FirstEnergy) effective upon completion of the merger and will
become eligible to receive any vested benefits, including if
applicable any deferrals under Allegheny Energys
non-employee director deferred compensation plan.
Allegheny Energys non-employee directors are compensated
through (1) quarterly stock awards, (2) an annual cash
retainer, including additional cash retainers for serving as the
presiding director and for serving on committees and as the
chair of a committee, and (3) fees for board and committee
meetings attended. FirstEnergys non-employee directors are
compensated through a combination of annual cash and
equity-based retainers, including cash retainers for:
(a) board and committee meetings attended, company office
or facility visits, industry meetings or trainings attended upon
request; (b) serving as chairperson on the corporate
governance committee, the compensation committee, the finance
committee, the nuclear committee or the audit committee,
(c) serving as a member of the audit committee, and
(d) serving as the non-executive chairman of the board of
directors. Since the compensation amounts for non-employee
directors of Allegheny Energy and FirstEnergy are different, the
aggregate annual compensation of Julia L. Johnson and Ted J.
Kleisner for serving as directors of FirstEnergy may be higher
or lower than their Allegheny Energy director compensation.
Treatment
of Stock Options and Other Equity Awards
Under the Allegheny Energy stock plans, upon approval of the
merger agreement and the merger by the Allegheny Energy
stockholders, the following treatment will apply to stock awards
(other than grants of restricted or unrestricted Allegheny
Energy common stock to members of the Allegheny Energy board of
directors) that were granted before the execution of the merger
104
agreement and that remain outstanding upon stockholder approval
of the merger agreement and the merger:
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options to purchase Allegheny Energy common stock will become
fully vested and exercisable, and any options that are not
exercised before completion of the merger will automatically
convert upon completion of the merger (as described in greater
detail below) into an option to acquire FirstEnergy common stock
on a basis intended to preserve the intrinsic value of the
option and otherwise on the terms and conditions applicable
under the option;
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restricted Allegheny Energy common stock (other than that held
by Allegheny Energy directors) will vest in full; and
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performance awards will be deemed earned at the target
performance level and will be settled in shares of Allegheny
Energy common stock not more than 30 days following
stockholder approval of the merger agreement and the merger.
|
The following table sets forth, as of June 1, 2010,
(1) the number of stock options held by each Allegheny
Energy executive officer whose vesting will accelerate upon
stockholder approval of the merger agreement and the merger and
their weighted average exercise price, (2) the number of
restricted shares whose restrictions will lapse upon stockholder
approval of the merger agreement and the merger, and
(3) the number of performance shares whose payment will be
accelerated upon stockholder approval of the merger agreement
and the merger. The Allegheny Energy directors hold no such
awards. The table also sets forth the value of those awards
assuming a value of $19.63 per share of Allegheny
Energys common stock (its closing price per share on the
NYSE on June 1, 2010). The value of such awards could
change depending on the per share value of Allegheny Energy
common stock at the time of stockholder approval of the merger
agreement.
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Weighted
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Value of
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Value of
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Average
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Value of
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Restricted
|
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Performance
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Number of
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Exercise Price
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Options at
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Shares at
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Shares at
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Shares Subject
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Per Option
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Assumed
|
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Number of
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Assumed
|
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Number of
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Assumed
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to Unvested
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Share
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Share Value
|
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Restricted
|
|
Share Value
|
|
Performance
|
|
Share Value
|
|
Total
|
|
|
Name
|
|
Options
|
|
($)
|
|
($)
|
|
Shares
|
|
($)
|
|
Shares
|
|
($)
|
|
($)
|
|
|
|
Paul J. Evanson
|
|
|
477,182
|
|
|
|
29.230
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
244,872
|
|
|
|
4,806,837
|
|
|
|
4,806,837
|
|
|
|
|
|
Curtis H. Davis
|
|
|
29,539
|
|
|
|
28.671
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
15,160
|
|
|
|
297,591
|
|
|
|
297,591
|
|
|
|
|
|
Rodney L. Dickens
|
|
|
17,953
|
|
|
|
26.100
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
4,710
|
|
|
|
92,457
|
|
|
|
92,457
|
|
|
|
|
|
Edward Dudzinski
|
|
|
21,035
|
|
|
|
28.622
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
10,602
|
|
|
|
208,117
|
|
|
|
208,117
|
|
|
|
|
|
David M. Feinberg
|
|
|
29,539
|
|
|
|
29.229
|
|
|
|
0
|
|
|
|
11,900
|
|
|
|
233,597
|
|
|
|
15,160
|
|
|
|
297,591
|
|
|
|
531,188
|
|
|
|
|
|
Eric S. Gleason
|
|
|
75,039
|
|
|
|
38.741
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
15,160
|
|
|
|
297,591
|
|
|
|
297,591
|
|
|
|
|
|
Kirk R. Oliver
|
|
|
41,519
|
|
|
|
24.091
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
18,090
|
|
|
|
355,107
|
|
|
|
355,107
|
|
|
|
|
|
William F. Wahl, III
|
|
|
9,997
|
|
|
|
29.116
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5,115
|
|
|
|
100,407
|
|
|
|
100,407
|
|
|
|
|
|
Restricted Allegheny Energy common stock granted to Allegheny
Energy directors before execution of the merger agreement will
vest in full upon completion of the merger. The following table
sets forth the number of restricted shares held by directors, as
of June 1, 2010, that will vest upon completion of the
merger. The table also sets forth the value of those awards
assuming a value of $19.63 per share of Allegheny Energys
common stock (its closing price per share on the NYSE
105
on June 1, 2010). The value of such awards could change
depending on the per share value of Allegheny Energy common
stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Restricted
|
|
|
Number of
|
|
Shares at Assumed
|
|
|
Restricted
|
|
Share Value
|
Name
|
|
Shares
|
|
($)
|
|
H. Furlong Baldwin
|
|
|
0
|
|
|
|
0
|
|
Eleanor Baum
|
|
|
1,000
|
|
|
|
19,630
|
|
Cyrus F. Freidheim, Jr.
|
|
|
0
|
|
|
|
0
|
|
Julia L. Johnson
|
|
|
0
|
|
|
|
0
|
|
Ted J. Kleisner
|
|
|
0
|
|
|
|
0
|
|
Christopher D. Pappas
|
|
|
0
|
|
|
|
0
|
|
Steven H. Rice
|
|
|
1,294
|
|
|
|
25,401
|
|
Gunnar E. Sarsten
|
|
|
1,000
|
|
|
|
19,630
|
|
Michael H. Sutton
|
|
|
0
|
|
|
|
0
|
|
Stock awards (other than the ordinary course quarterly grants of
unrestricted stock to directors) granted after execution of the
merger agreement will not vest upon either stockholder approval
of the merger agreement or completion of the merger. However,
any performance awards granted after execution of the merger
agreement will be deemed earned at the target performance level
for the year in which the merger is completed and all subsequent
years (e.g., if the closing occurs in 2011, actual
performance will be applied in respect of 2010 and target
performance will be assumed for 2011 and 2012), and the
resulting number of performance shares will be treated as
restricted Allegheny Energy common stock units whose payment at
the end of the three-year performance cycle is generally subject
to continued employment during that period (subject to earlier
vesting upon retirement, disability or death in accordance with
Allegheny Energys historical performance share grant
practices). Upon completion of the merger, each such restricted
stock unit will be redenominated in FirstEnergy shares in
proportion to the exchange ratio of 0.667.
Any options to purchase shares of Allegheny Energy common stock
that are outstanding upon completion of the merger (including
those whose vesting was accelerated as described above) will be
assumed by FirstEnergy on the same terms and conditions as
applied to the assumed stock option immediately prior to the
merger except that the option will cover shares of FirstEnergy
common stock in a manner that is intended to preserve, as of the
completion of the merger, the intrinsic value of the Allegheny
Energy option immediately before completion of the merger (such
that the number of FirstEnergy shares covered by the option will
equal the number of Allegheny Energy shares subject to the
assumed option immediately prior to the merger multiplied by the
exchange ratio, rounded down to the nearest whole share, and the
exercise price per share will equal the exercise price under the
assumed option immediately prior to the merger divided by the
exchange ratio, rounded up to the nearest whole cent).
If the holder of a stock option or performance share terminates
his or her employment for good reason or is terminated without
cause following completion of the merger (or, for Allegheny
Energy executive officers other than Mr. Evanson, before
the merger if the circumstances of the termination are
attributable to FirstEnergy), then any performance awards will
vest in full and (to the extent not yet then already fully
vested) any options will vest in full as well. Regardless of
when vested, options will remain exercisable for their full term
(in the case of Mr. Evanson) and for three years or
90 days following termination of employment for other
executive officers (depending on whether they are retirement
eligible upon termination).
106
No Allegheny Energy stock options have been granted since
execution of the merger agreement. The following table shows,
for each executive officer, the target number of Allegheny
Energy performance shares granted since the execution of the
merger agreement:
|
|
|
|
|
|
|
Number of
|
|
|
Performance
|
Name
|
|
Shares
|
|
Paul J. Evanson
|
|
|
359,436
|
|
Curtis H. Davis
|
|
|
22,808
|
|
Rodney L. Dickens
|
|
|
20,861
|
|
Edward Dudzinski
|
|
|
16,648
|
|
David M. Feinberg
|
|
|
22,808
|
|
Eric S. Gleason
|
|
|
22,808
|
|
Kirk R. Oliver
|
|
|
33,698
|
|
William F. Wahl, III
|
|
|
7,863
|
|
Severance
Arrangements
Each of the Allegheny Energy executive officers other than
Mr. Evanson participates in Allegheny Energys
Executive Change in Control Severance Plan, which provides for
certain severance benefits upon a qualifying termination of
employment (a good reason resignation by the
executive or an involuntary termination without
cause, as those terms are defined in the plan)
within 24 months following completion of the merger (or
before the merger if the circumstances of the termination are
attributable to FirstEnergy). Likewise, pursuant to his
employment agreement, Mr. Evanson is entitled to certain
severance benefits if he terminates his employment following
completion of the merger for good reason (including
without limitation his failure to become chief executive officer
or chairman of the combined company) or his employment is
involuntarily terminated without cause, as those
terms are defined in the employment agreement.
These severance benefits are described in more detail below.
Pursuant to the Executive Change in Control Severance Plan and
Mr. Evansons employment agreement, respectively, each
of the executives is prohibited for one year following
termination of employment for any reason from competing against
Allegheny Energy or its successors in certain respects and for
two years following termination for any reason from soliciting
Allegheny Energy employees.
Executive
Change in Control Severance Plan
In the event of a qualifying termination of employment, the
executive officers of Allegheny Energy other than
Mr. Evanson are entitled to the following:
|
|
|
|
|
a lump sum severance payment equal to three times (two times in
the case of Mr. Wahl) the sum of the executive
officers base salary and target bonus amount;
|
|
|
|
a bonus payment equal to the target annual bonus for the year of
termination, prorated for the number of days the executive
officer was employed during such year;
|
|
|
|
a lump-sum payment of $60,000 ($40,000 in the case of
Mr. Wahl) in lieu of continued medical and dental coverage;
|
|
|
|
forgiveness of any obligation to repay any relocation benefits
previously provided by Allegheny Energy to the executive officer;
|
107
|
|
|
|
|
full vesting in Allegheny Energys Supplemental Executive
Retirement Plan (in which only Mr. Dudzinski is presently
vested) and an additional three years of service credit under
that plan (two years in the case of Mr. Wahl); and
|
|
|
|
for executive officers other than Mr. Dickens, a
gross-up
payment for any golden parachute excise taxes for
which the executive may be liable in respect of the benefits to
be received by the executive that are contingent upon the
completion of the merger unless such amount does not exceed 110%
of the smallest amount that would be subject to that tax.
|
The following table sets forth the approximate amount of the
foregoing benefits determined as if the merger had occurred and
the executives experienced a qualifying termination of
employment as of June 1, 2010. The actual amounts payable
will vary depending on the timing of the merger and any
qualifying termination, the amount of salary and bonuses being
earned by the executive officers at that time, and various
assumptions about the golden parachute excise tax
imposed in respect of Section 280G of the Internal Revenue
Code. As a result, the actual amounts, if any, to be received by
an executive officer may differ in material respects from the
amounts set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment in
|
|
|
|
Present
|
|
|
|
|
|
|
|
|
Pro-Rata
|
|
Lieu of
|
|
Relocation
|
|
Value of
|
|
280G
|
|
|
|
|
Severance
|
|
Bonus
|
|
Continued
|
|
Payment
|
|
Additional
|
|
Gross-Up
|
|
|
|
|
Payment
|
|
Payment
|
|
Medical/
|
|
Forgiveness
|
|
SERP
|
|
Payment
|
|
|
Name
|
|
($)
|
|
($)
|
|
Dental ($)
|
|
($)
|
|
Benefits ($)*
|
|
($)
|
|
Total ($)
|
|
Curtis H. Davis
|
|
|
1,845,000
|
|
|
|
85,417
|
|
|
|
60,000
|
|
|
|
0
|
|
|
|
599,002
|
|
|
|
1,297,592
|
|
|
|
3,887,011
|
|
Rodney L. Dickens
|
|
|
1,687,500
|
|
|
|
78,125
|
|
|
|
60,000
|
|
|
|
132,276
|
|
|
|
380,651
|
|
|
|
0
|
|
|
|
2,338,552
|
|
Edward Dudzinski
|
|
|
1,522,350
|
|
|
|
70,479
|
|
|
|
60,000
|
|
|
|
0
|
|
|
|
393,384
|
|
|
|
0
|
|
|
|
2,046,213
|
|
David M. Feinberg
|
|
|
1,845,000
|
|
|
|
85,417
|
|
|
|
60,000
|
|
|
|
0
|
|
|
|
508,417
|
|
|
|
1,386,978
|
|
|
|
3,885,812
|
|
Eric S. Gleason
|
|
|
1,845,000
|
|
|
|
85,417
|
|
|
|
60,000
|
|
|
|
909
|
|
|
|
355,914
|
|
|
|
1,323,537
|
|
|
|
3,670,777
|
|
Kirk R. Oliver
|
|
|
2,756,250
|
|
|
|
164,063
|
|
|
|
60,000
|
|
|
|
31,308
|
|
|
|
697,003
|
|
|
|
2,023,043
|
|
|
|
5,731,667
|
|
William F. Wahl, III
|
|
|
686,000
|
|
|
|
40,833
|
|
|
|
40,000
|
|
|
|
0
|
|
|
|
412,119
|
|
|
|
580,325
|
|
|
|
1,759,277
|
|
|
|
|
* |
|
As of June 1, 2010, Mr. Dudzinski had a vested
Allegheny Energy Supplemental Executive Retirement Plan benefit
of $1,215,970. |
Evanson
Employment Agreement with Allegheny Energy
In the event of a qualifying termination of employment under his
employment agreement, Mr. Evanson is entitled to the
following:
|
|
|
|
|
a lump sum severance payment equal to the sum of his base salary
and target bonus amount;
|
|
|
|
a pro-rata annual bonus at target for the year of termination;
|
|
|
|
continued welfare benefits for one year (or cash payments to
purchase such benefits for such period); and
|
|
|
|
a lump sum payment of the amount of supplemental pension benefit
otherwise due him but determined (in the case of a termination
before the end of the employment agreement term, June 15,
2011) as if he had continued to serve through the end of
the term.
|
Mr. Evanson is not entitled to any
gross-up in
respect of golden parachute excise taxes.
The following table sets forth the approximate amount of the
foregoing benefits determined as if the merger had occurred and
Mr. Evanson experienced a qualifying termination of
employment as of June 1, 2010. The actual amounts payable
will vary depending on the timing of the merger and any
qualifying termination and the amount of salary and bonus being
earned by Mr. Evanson at that
108
time. As a result, the actual amounts, if any, to be received by
Mr. Evanson may differ in material respects from the
amounts set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Pro-Rata
|
|
Continued
|
|
Supplemental
|
|
|
|
|
Severance
|
|
Bonus
|
|
Welfare
|
|
Pension Benefit
|
|
|
Name
|
|
Payment ($)
|
|
Payment ($)
|
|
Benefits ($)
|
|
($)*
|
|
Total ($)
|
|
Paul J. Evanson
|
|
|
2,700,000
|
|
|
|
625,000
|
|
|
|
29,688
|
|
|
|
866,671
|
|
|
|
4,221,359
|
|
|
|
|
* |
|
Mr. Evanson is not a participant in the Allegheny Energy
Supplemental Executive Retirement Plan but, in lieu of payments
under that plan, he is entitled to a cash payment equal to
$66,667 for each month that he is employed by Allegheny Energy,
beginning June 16, 2003, through the end of the term of his
employment agreement. The amount shown in the table reflects the
incremental amount he will be credited for the period not
worked. The amount of the supplemental pension benefit already
earned by him as of June 1, 2010 is approximately
$5,533,361. |
Continuing
Employment with FirstEnergy
Certain of Allegheny Energys current executive officers
may serve as employees of FirstEnergy or the surviving entity
after the completion of the merger; however the merger agreement
does not require FirstEnergy or the surviving entity to continue
or resume the employment of any specific person. FirstEnergy has
agreed that, for at least one year following completion of the
merger, it will provide the executive officers (and all other
nonunion employees) compensation and employee benefits that are
no less favorable, in the aggregate, than the compensation and
benefits provided to them immediately before the merger
(provided that FirstEnergy at its election may modify those
benefits to the extent the modifications do not result in
compensation and benefits for the nonunion employees that are
less favorable in the aggregate than that which is then provided
to similarly situated nonunion FirstEnergy employees). However,
the rate of vacation accrual for the executive officers (and any
other Allegheny Energy employee) accruing at least five weeks of
paid vacation per year (including all of the Allegheny Energy
executive officers) will not be reduced and will not be
increased.
Mr.
Evansons Continuing Employment with
FirstEnergy
In connection with the merger, FirstEnergy and Paul J. Evanson
have entered into an employment agreement, dated as of
March 19, 2010, pursuant to which, upon completion of the
merger, Mr. Evanson will serve as executive vice chairman
of FirstEnergy reporting to and working at the discretion of
Mr. Alexander, and will also be available at either the
FirstEnergy headquarters or in Greensburg, Pennsylvania. The
agreement is to commence upon the completion of the merger and
is for a two year term. From and after the date of completion of
the merger, neither Allegheny Energy, FirstEnergy, nor
Mr. Evanson will have any rights or obligations under
Mr. Evansons existing employment agreement with
Allegheny Energy, but nothing under the new agreement alters any
of Mr. Evansons rights prior to the merger under his
existing agreement with Allegheny Energy. The specific terms of
Mr. Evansons new employment agreement were finalized
following the date FirstEnergy and Allegheny Energy entered into
the merger agreement.
Under the employment agreement, Mr. Evanson will receive an
annual base salary of $1,000,000, referred to as his base
salary, and will be eligible to receive an annual bonus under
the FirstEnergy bonus plan, with a target bonus opportunity
equal to 80% of his base salary.
In lieu of Mr. Evansons participation in the
FirstEnergy pension plan, upon termination for any reason,
Mr. Evanson will be entitled to a lump-sum cash payment in
an amount equal to $83,333 for
109
each month he is employed with FirstEnergy. Additionally, upon
termination for any reason, Mr. Evanson will be entitled to
a lump-sum cash payment in respect of certain accrued benefits
under his existing employment agreement with Allegheny Energy in
an amount equal to the sum of (i) $6,400,000, representing
the amounts owed to Mr. Evanson under his existing
Allegheny Energy employment agreement, calculated as if he was
employed by Allegheny Energy until June 15, 2011 and
(ii) an amount equal to the sum of Mr. Evansons
annual base salary plus a target bonus opportunity of 125% of
his annual base salary at Allegheny Energy on the day preceding
the completion of the merger.
Under the employment agreement, if Mr. Evanson is
terminated for Cause or resigns without Good
Reason (as such terms are defined in the employment
agreement), he will receive (i) his base salary through the
date of termination, (ii) any unpaid prior years
bonus and any deferred compensation, (iii) any expense
reimbursements and (iv) the benefit in lieu of pension and
certain accrued benefits under his existing employment agreement
with Allegheny Energy in the amounts set forth in the paragraph
immediately above. Collectively, the amounts in (i), (ii),
(iii) and (iv) are referred to as the accrued amounts.
If Mr. Evanson is terminated by FirstEnergy without Cause
or resigns for Good Reason, he will be entitled to receive
(i) the accrued amounts, (ii) the amount of his target
bonus opportunity prorated for the year of his termination,
referred to as the pro rata bonus and (iii) the following
additional amounts: (x) an amount equal to the lesser of
$1,000,000, or the total amount of base salary that would have
been payable during the period after such termination date had
he remained employed through the end of the agreement,
(y) an amount equal to the lesser of $800,000, or the total
amount of his target bonus opportunity that would have been
payable during the period after such termination date had he
remained employed through the end of the term of the agreement
and (z) an amount equal to the lesser of $1,000,000, or the
total amount of benefit in lieu of pension, as set forth above,
that would have been payable for services during the period
after such termination date, had he remained employed through
the end of the term of the agreement. Upon the death or
disability of Mr. Evanson, he or his beneficiary will
receive (i) the accrued amounts and (ii) the pro rata
bonus.
Mr. Evanson will be eligible to participate in
FirstEnergys flexible benefits plan and executive deferred
compensation plan and other programs, policies and arrangements
available to senior executives, with specified exceptions (such
as FirstEnergys Long-Term Incentive Plan).
Mr. Evanson will be entitled to executive perquisites to
the same extent as those currently available to the FirstEnergy
chief executive officer, including personal use of the
FirstEnergy aircraft. Additionally, under his employment
agreement, Mr. Evanson agreed to certain non-competition
covenants during the term of his employment with FirstEnergy and
for one year following any termination of his employment.
The above description of Mr. Evansons employment
agreement with FirstEnergy is qualified in its entirety by the
full text of the employment agreement, which is filed as
Exhibit 10.1 to this registration statement.
Indemnification
and Insurance
The merger agreement provides for the continuation of
indemnification existing in favor of the current and former
directors, officers and employees of Allegheny Energy and its
subsidiaries as provided in the organizational and governing
documents of Allegheny Energy and its subsidiaries or under
indemnification agreements between such persons and Allegheny
Energy and its subsidiaries as in effect prior to date of the
merger agreement for a period of six years after the effective
time of the merger, with such indemnification obligations being
guaranteed by FirstEnergy. The merger agreement also contains
certain obligations related to the purchase of directors
and officers
110
liability insurance and fiduciary liability insurance tail
policies with respect to matters existing or occurring at or
prior to the completion of the merger for persons who are
currently covered under Allegheny Energys existing
policies. These interests are described in detail below at
The Merger Agreement Additional
Agreements Indemnification and Insurance
beginning on page 140.
Corporate
Governance Matters
Following completion of the merger, Anthony J. Alexander will
remain chief executive officer and president of FirstEnergy, and
Paul J. Evanson, currently the chairman, president and chief
executive officer of Allegheny Energy, will become the executive
vice chairman of FirstEnergy and will report to
Mr. Alexander. Effective upon the completion of the merger,
FirstEnergy will increase the size of its board by two members
to 13 and appoint two current members of the board of Allegheny
Energy. Pursuant to the terms of the merger agreement,
Julia L. Johnson and Ted J. Kleisner have been
designated as the Allegheny Energy directors to become members
of the FirstEnergy board upon completion of the merger. If
either designated director is unwilling or unable to serve as a
director of FirstEnergy due to illness, death, resignation or
any other reason, then FirstEnergy will select a replacement
upon consultation with, and in consideration of the views of,
Allegheny Energy. The designated directors will serve on
committees of the board of directors of FirstEnergy on an
equitable basis proportionate to the size of the board of
directors of FirstEnergy. The headquarters of FirstEnergy will
remain in Akron, Ohio after completion of the merger.
Listing
of FirstEnergy Common Stock and Delisting and Deregistration of
Allegheny Energy Common Stock
FirstEnergy will use its reasonable best efforts to cause the
shares of FirstEnergy common stock issuable pursuant to the
merger agreement to be approved for listing on the NYSE at or
prior to the completion of the merger, subject to official
notice of issuance. Approval of the listing on the NYSE of the
shares of FirstEnergy common stock issuable pursuant to the
merger agreement is a condition to each partys obligation
to complete the merger. If the merger is completed, Allegheny
Energy common stock will be delisted from the NYSE and
deregistered under the Exchange Act.
Appraisal
or Dissenters Rights
Under Maryland law, Allegheny Energy stockholders will not be
entitled to exercise any appraisal or dissenters rights in
connection with the merger.
Under Ohio law, FirstEnergy shareholders are entitled to
dissenters rights in connection with the merger. However,
FirstEnergy shareholders are entitled to relief as dissenting
shareholders under Ohio Revised Code Section 1701.85 only
if they strictly comply with all of the procedural and other
requirements of Section 1701.85, a copy of which has been
attached as Annex E to this joint proxy
statement/prospectus. The following is a description of the
material terms of Ohio Revised Code Section 1701.85.
FirstEnergy shareholders who wish to perfect their rights as
dissenting shareholders in the event the merger is completed:
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must be record holders of the shares of FirstEnergy common stock
as to which the shareholders seek relief as of July 16,
2010, the date fixed for the determination of shareholders
entitled to notice of the FirstEnergy special meeting. Because
only shareholders of record on the record date may exercise
dissenters rights, any person who beneficially owns shares
that are held of record by a broker, fiduciary, nominee or other
holder and who
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desires to exercise dissenters rights must, in all cases,
instruct the record holder of the shares to satisfy all of the
requirements outlined under Ohio Revised Code
Section 1701.85;
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must not vote their shares of FirstEnergy common stock in favor
of the proposal to authorize and approve the share issuance and
the other transactions contemplated by the merger agreement.
Failing to vote (by neither returning a proxy card nor voting at
the meeting) or abstaining from voting (by marking the
appropriate box on the proxy card and not voting at the meeting)
does not waive dissenting shareholders rights;
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must deliver to FirstEnergy, not later than ten days after the
FirstEnergy special meeting, a written demand for payment of the
fair cash value of the shares as to which the dissenting
shareholder seeks relief. The written demand must state the name
of the shareholder, the shareholders address, the number
and class of shares as to which the shareholder seeks relief and
the amount claimed as the fair value for those shares.
FirstEnergy will not notify shareholders of the expiration of
this ten-day
period; and
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must, if FirstEnergy so requests, submit their share
certificates to FirstEnergy within 15 days from the date of
the sending of such request for endorsement thereon by
FirstEnergy that a demand for the cash value of such shares has
been made. Such a request is not an admission by FirstEnergy
that any dissenting shareholder is entitled to relief.
FirstEnergy will promptly return the share certificates to the
dissenting shareholders. At the option of FirstEnergy, exercised
by written notice sent to the dissenting shareholder within
twenty days after the lapse of the fifteen-day period,
dissenting shareholders who fail to deliver their certificate
upon request from FirstEnergy may have their dissenting
shareholders rights terminated, unless a court for good
cause shown otherwise directs.
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Voting against the proposal to authorize and approve the share
issuance and the other transactions contemplated by the merger
agreement will not satisfy the requirements of a written demand
for payment. Any written demand for payment should be mailed or
delivered to Vice President and Corporate Secretary, FirstEnergy
Corp., 76 South Main Street, Akron, OH
44308-1890.
Because the written demand must be delivered to FirstEnergy
within the
ten-day
period following the FirstEnergy special meeting, FirstEnergy
recommends that a dissenting shareholder use certified or
registered mail, return receipt requested, to confirm that the
shareholder has made timely delivery.
If a dissenting shareholder and FirstEnergy have not come to an
agreement on the fair cash value per share of the shares of
FirstEnergy common stock, either may, within three months after
the service of the written demand by the shareholder, file a
complaint in the Court of Common Pleas of Summit County, Ohio
for a determination of the fair cash value of the dissenting
shares. As discussed below, if neither the dissenting
shareholder nor FirstEnergy files or joins in such a complaint
within three months, the rights of such dissenting shareholder
will terminate. If the court finds that the shareholder is
entitled to be paid the fair cash value of any shares, the court
may appoint one or more appraisers to receive evidence and to
recommend a decision on the amount of the fair cash value.
The fair cash value of a share of FirstEnergy common stock to
which a dissenting shareholder is entitled under
Section 1701.85 will be determined as of the day prior to
the FirstEnergy special meeting. Fair cash value will be
computed as the amount a willing seller and willing buyer would
accept or pay if neither was compelled to sell or buy, excluding
any appreciation or depreciation in market value resulting from
the submission of the share issuance and the other transactions
contemplated by the merger agreement to the shareholders of
FirstEnergy for approval. Notwithstanding the foregoing, the
fair cash value may not exceed the amount specified in the
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shareholders written demand. The fair cash value of the
shares may be higher, the same as or lower than the market value
of the shares on the date of the merger. The court will make a
finding as to the fair cash value of a share and render judgment
against FirstEnergy for its payment with interest at such rate
and from such date as the court considers equitable. The court
will assess or apportion the costs of the proceedings as it
considers equitable.
Payment of the fair cash value must be made within 30 days
after the later of the final determination of such value or the
closing date of the merger. Such payment shall be made only upon
simultaneous surrender to FirstEnergy of the share certificates
for which such payment is made.
The rights of any dissenting shareholder will terminate if:
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the dissenting shareholder has not complied with
Section 1701.85, unless FirstEnergy, by its board of
directors, waives this failure;
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FirstEnergy abandons or is finally enjoined or prevented from
carrying out the merger, or the shareholders of FirstEnergy
rescind their authorization and approval of the share issuance
and the other transactions contemplated by the merger agreement;
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the dissenting shareholder withdraws his or her or its written
demand with the consent of FirstEnergy, by its board of
directors; or
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FirstEnergy and the dissenting shareholder have not agreed upon
the fair cash value per share of the FirstEnergy common stock
and neither has timely filed or joined in a complaint in the
Court of Common Pleas of Summit County, Ohio for a determination
of the fair cash value of the shares.
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From the time of the dissenting shareholders giving of the
demand, all other rights with respect to such FirstEnergy common
stock, including voting, dividend and distribution rights, will
be suspended until FirstEnergy purchases the shares, or the
right to receive fair cash value is otherwise terminated. If
during the suspension, any cash dividend is paid on shares of
FirstEnergy common stock, an amount equal to such dividend
which, except for the suspension, would have been payable upon
such shares of FirstEnergy common stock will be paid to the
holder of record as a credit upon the fair cash value of the
shares. Such rights will be reinstated should the right to
receive fair cash value be terminated other than by the purchase
of the shares by FirstEnergy, and all distributions which,
except for the suspension, would have been made will be made to
the holder of record of the shares at the time of termination.
Because a proxy card which is signed and returned but does not
contain voting instructions regarding the proposal to authorize
and approve the share issuance and the other transactions
contemplated by the merger agreement will be voted for such
proposal, FirstEnergy shareholders who wish to exercise
dissenters should not sign and return an unmarked
proxy card.
Restrictions
on Sales of Shares of FirstEnergy Common Stock Received in the
Merger
Shares of FirstEnergy common stock issued in the merger will not
be subject to any restrictions on transfer arising under the
Securities Act of 1933, as amended, referred to as the
Securities Act, or under the Exchange Act, except for shares of
FirstEnergy common stock issued to any Allegheny Energy
stockholder who may be deemed to be an affiliate of
FirstEnergy after the completion of the merger, such as the two
Allegheny Energy directors who will join the board of directors
of FirstEnergy effective upon completion of the merger. This
joint proxy statement/prospectus does not cover resales of
FirstEnergy common stock received by any person upon the
completion of the
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merger, and no person is authorized to make any use of this
joint proxy statement/prospectus in connection with any resale.
Accounting
Treatment
FirstEnergy will account for the merger under GAAP with
FirstEnergy being deemed to have acquired Allegheny Energy. This
means that the assets and liabilities of Allegheny Energy will
be recorded, as of the completion of the merger, at their fair
values and added to those of FirstEnergy, including potentially
an amount for goodwill to the extent the purchase price exceeds
the fair value of the identifiable net assets. Financial
statements of FirstEnergy issued after the merger will reflect
only the operations of Allegheny Energys business after
the merger and will not be restated retroactively to reflect the
historical financial position or results of operations of
Allegheny Energy.
All unaudited pro forma combined financial information contained
in this joint proxy statement/prospectus were prepared using the
acquisition method of accounting for business combinations. The
final allocation of the purchase price will be determined after
the merger is completed and after completion of an analysis to
determine the fair value of the assets and liabilities of
Allegheny Energys business. Accordingly, the final
purchase accounting adjustments may be materially different from
the unaudited pro forma adjustments. Any decrease in the fair
value of the assets or increase in the fair value of the
liabilities of Allegheny Energys business as compared to
the unaudited pro forma combined financial information included
in this joint proxy statement/prospectus will have the effect of
increasing the amount of the purchase price allocable to
goodwill, if any.
Material
U.S. Federal Income Tax Consequences of the Merger
General
The following describes the material U.S. federal income
tax consequences of the merger to Allegheny Energy stockholders
and FirstEnergy shareholders if they hold shares of Allegheny
Energy or FirstEnergy common stock, as applicable, as a capital
asset for U.S. federal income tax purposes (generally
property held for investment) and are for U.S. federal
income tax purposes:
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an individual citizen or resident of the United States;
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a corporation or other entity taxable as a corporation for
U.S. federal income tax purposes created in or organized
under the laws of the United States or any political subdivision
thereof;
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an estate the income of which is subject to U.S. federal
income tax without regard to its source; or
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a trust if a court within the United States is able to exercise
primary supervision over its administration and one or more
U.S. persons have the authority to control all of the
substantial decisions of such trust.
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This discussion is not intended to be a complete analysis and
does not address all potential tax consequences that may be
relevant to any particular Allegheny Energy stockholder or
FirstEnergy shareholder. Moreover, this discussion does not
apply to Allegheny Energy stockholders or FirstEnergy
shareholders if they are subject to special treatment under the
Internal Revenue Code including, without limitation, because
they are:
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a foreign person or entity;
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a tax-exempt organization, financial institution, mutual fund,
dealer or broker in securities or insurance company;
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a dealer or trader who marks its securities to market for
U.S. federal income tax purposes;
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a person who holds shares of Allegheny Energy or FirstEnergy
common stock as part of an integrated investment such as a
straddle, hedge, constructive sale, conversion transaction or
other risk reduction transaction;
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a person who holds shares of Allegheny Energy or FirstEnergy
common stock in an individual retirement or other tax-deferred
account;
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a person whose functional currency is not the U.S. dollar;
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an individual who received shares of Allegheny Energy or
FirstEnergy common stock, or who acquires shares of FirstEnergy
common stock, pursuant to the exercise of employee stock options
or otherwise as compensation or in connection with the
performance of services;
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except where specifically stated below, a person whose relative
stock interest in Allegheny Energy or FirstEnergy is not minimal
or who exercises control over the affairs of Allegheny Energy or
FirstEnergy;
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a partnership or other flow-through entity (including an
S corporation or a limited liability company treated as a
partnership or S corporation for U.S. federal income
tax purposes) or a person who holds an interest in such
entity; or
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a person subject to the alternative minimum tax.
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If a partnership, or other entity or arrangement treated as a
partnership for U.S. federal income tax purposes, is an
Allegheny Energy stockholder or FirstEnergy shareholder, the tax
treatment of a partner in the partnership will depend upon the
status of that partner and the activities of the partnership. A
partner in a partnership that is an Allegheny Energy stockholder
or FirstEnergy shareholder should consult its tax advisors as to
the particular U.S. federal income tax consequences
applicable to it.
This discussion also does not address the tax consequences of
the merger under foreign, state, local or other tax laws. The
following discussion is based on existing U.S. federal
income tax law, including the provisions of the Internal Revenue
Code, the Treasury Regulations thereunder, rulings of the
Internal Revenue Service, referred to as the IRS, judicial
decisions and other administrative pronouncements, all as in
effect on the date of this joint proxy statement/prospectus.
Neither FirstEnergy nor Allegheny Energy can provide any
assurance that future legislative, administrative or judicial
changes or interpretations will not affect the accuracy of the
statements or conclusions set forth below.
Any future change in the U.S. federal income tax law or
interpretation thereof could apply retroactively and could
affect the accuracy of the following discussion. In addition,
neither FirstEnergy nor Allegheny Energy can assure Allegheny
Energy stockholders or FirstEnergy shareholders that the IRS
will agree with the conclusions expressed herein.
Allegheny Energy stockholders and FirstEnergy shareholders are
strongly urged to consult their tax advisors as to the
U.S. federal income tax consequences of the merger,
including the income tax consequences arising from their own
facts and circumstances, and as to any estate, gift, state,
local or
non-U.S. tax
consequences arising out of the merger and the ownership and
disposition of shares of FirstEnergy common stock.
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Opinions
Regarding Tax Treatment to be Delivered at the Time of
Completion of the Merger
FirstEnergy and Allegheny Energy intend for the merger to
qualify as a reorganization for U.S. federal income tax
purposes. At or prior to the effective time of and as a closing
condition to the merger, FirstEnergy will have received a
written opinion from Akin Gump, and Allegheny Energy will have
received a written opinion from Skadden, both to the effect that
the merger will constitute a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code.
Neither FirstEnergy nor Allegheny Energy intends to waive this
closing condition. The opinions will each rely on assumptions,
including assumptions regarding the absence of changes in
existing facts and law and completion of the merger in the
manner contemplated by the merger agreement, and representations
and covenants made by FirstEnergy and Allegheny Energy,
including those contained in certificates of officers of
FirstEnergy and Allegheny Energy. The accuracy of those
representations, covenants and assumptions may affect the
conclusions set forth in these opinions, in which case the tax
consequences of the merger could differ substantially from those
discussed in this section. Opinions of counsel neither bind the
IRS nor preclude the IRS from adopting a contrary position and
there can be no assurance that the IRS would not seek to adopt,
or that a court would not agree with, that contrary position. No
ruling has been or will be sought from the IRS on tax
consequences of the merger.
Tax
Consequences of the Merger to Allegheny Energy
Stockholders
Subject to the assumptions, conditions, limitations and
qualifications described in the opinions filed as
Exhibits 8.1 and 8.2 to the registration statement of which
this joint proxy statement/prospectus is a part, as of the
effective date of such registration statement, it is the opinion
of Akin Gump, tax counsel for FirstEnergy, and Skadden, tax
counsel for Allegheny Energy, that the material
U.S. federal income tax consequences of the merger to
Allegheny Energy stockholders will be as follows:
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Upon the exchange of shares of Allegheny Energy common stock for
shares of FirstEnergy common stock pursuant to the merger,
Allegheny Energy stockholders will not recognize any gain or
loss (except to the extent of cash received in lieu of a
fractional share of FirstEnergy common stock, as discussed
below).
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To the extent that an Allegheny Energy stockholder receives cash
in lieu of a fractional share of FirstEnergy common stock, such
stockholder will recognize capital gain or loss with respect to
such cash payment, measured by the difference, if any, between
the amount of cash received and the portion of the Allegheny
Energy stockholders adjusted tax basis in the Allegheny
Energy common stock surrendered that is allocable to such
fractional share. The gain or loss will generally be long-term
capital gain or loss, if, as of the effective date of the
merger, the Allegheny Energy stockholders holding period
for the Allegheny Energy common stock is longer than one year.
Allegheny Energy stockholders are urged to consult their tax
advisors regarding the tax treatment of any cash received in the
merger in lieu of fractional shares of FirstEnergy common stock.
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The aggregate tax basis of any shares of FirstEnergy common
stock Allegheny Energy stockholders receive in exchange for
their shares of Allegheny Energy common stock in the merger
(before reduction for the basis in any fractional share of
FirstEnergy common stock for which they receive cash) will be
the same as the aggregate adjusted tax basis of their shares of
Allegheny Energy common stock.
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The holding period of any shares of FirstEnergy common stock
Allegheny Energy stockholders receive in the merger generally
will include the holding period of the shares of Allegheny
Energy common stock they exchanged for such shares of
FirstEnergy common stock.
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If Allegheny Energy stockholders have differing bases or holding
periods in respect of their shares of Allegheny Energy common
stock, they should consult their tax advisor prior to the
exchange with regard to identifying the bases or holding periods
of the particular shares of FirstEnergy common stock received in
the merger.
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U.S.
Information Reporting and Backup Withholding
Under U.S. federal income tax laws, FirstEnergy or the
exchange agent generally will be required to report to an
Allegheny Energy stockholder and to the IRS cash payments made
to such Allegheny Energy stockholder in lieu of the issuance of
fractional shares of FirstEnergy common stock in the merger, and
Allegheny Energy stockholders may be subject to a backup
withholding tax (currently at a rate of 28%) with respect to any
cash received in the merger in lieu of fractional shares of
FirstEnergy common stock unless they (1) are a corporation
or come within certain other exempt categories or
(2) provide a correct taxpayer identification number and,
in each case, otherwise comply with applicable requirements of
the backup withholding rules. To prevent backup withholding on
payments made to Allegheny Energy stockholders pursuant to the
merger, Allegheny Energy stockholders must provide the exchange
agent with their correct taxpayer identification number by
completing an IRS
Form W-9
or a substitute
Form W-9.
If Allegheny Energy stockholders willfully fail to provide their
correct taxpayer identification number, they may be subject to
penalties imposed by the IRS in addition to backup withholding.
Any amounts withheld under these rules are creditable against an
Allegheny Energy stockholders U.S. federal income tax
liability if such stockholder timely files proper documentation
with the IRS. Allegheny Energy stockholders are urged to consult
their tax advisors regarding the tax treatment of any cash
received in the merger in lieu of fractional shares of
FirstEnergy common stock.
Tax
Return Reporting
If any Allegheny Energy stockholders that are considered
significant holders receive shares of FirstEnergy
common stock in the merger, they each will be required
(1) to file a statement with their U.S. federal income
tax return providing certain facts pertinent to the merger,
including the tax basis in, and fair market value of, the shares
of Allegheny Energy common stock that they surrendered in the
merger and (2) to retain permanent records of these facts
relating to the merger. A significant holder for
these purposes is any Allegheny Energy stockholder who,
immediately before the merger, owned at least 5% (by vote or
value) of the total outstanding shares of Allegheny Energy
common stock.
Tax
Consequences of the Merger to FirstEnergy
Shareholders
FirstEnergy shareholders (other than those that exercise
dissenters rights) generally will not recognize gain or
loss for U.S. federal income tax purposes as a result of the
merger. FirstEnergy shareholders that exercise dissenters
rights are urged to consult their tax advisors regarding the tax
treatment of any cash received upon the exercise of
dissenters rights in connection with the merger.
The foregoing discussion is for general information purposes
only and not intended to be legal or tax advice to any
particular Allegheny Energy stockholder or FirstEnergy
shareholder. Tax matters regarding the merger are very
complicated, and the tax consequences of the merger to any
particular Allegheny Energy stockholder or FirstEnergy
shareholder will depend on that stockholders or
shareholders particular situation. Allegheny Energy
stockholders and FirstEnergy shareholders should consult their
own tax advisor to determine the specific tax consequences of
the merger, including tax return reporting requirements, the
applicability of U.S. federal, state, local and foreign tax
laws, and the effect of any proposed change in the tax laws to
them.
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Litigation
Relating to the Merger
In connection with the merger, purported shareholders of
Allegheny Energy have filed putative shareholder class action
and/or
derivative lawsuits in Pennsylvania and Maryland state courts,
as well as in the United States District Court for the Western
District of Pennsylvania, against the Allegheny Energy
defendants, FirstEnergy and Merger Sub. In summary, the lawsuits
allege, among other things, that the Allegheny Energy directors
breached their fiduciary duties by approving the merger
agreement, and that Allegheny Energy, FirstEnergy and Merger Sub
aided and abetted in these alleged breaches of fiduciary duty.
The complaints seek, among other things, jury trials, money
damages and injunctive relief. Additional details about the
actions are provided below. While FirstEnergy and Allegheny
Energy believe the lawsuits are without merit and have defended
vigorously against the claims, in order to avoid the costs
associated with the litigation, the defendants have agreed to
the terms of a disclosure-based settlement of the lawsuits. As
of the date of this joint proxy statement/prospectus, however,
the defendants had yet to reach an agreement with counsel for
all of the plaintiffs concerning fee applications, and a formal
stipulation of settlement has not yet been filed with any court.
If the parties are unable to obtain final approval of the
settlement, then litigation will proceed, and the outcome of any
such litigation is inherently uncertain. If a dismissal is not
granted or a settlement is not reached, these lawsuits could
prevent or delay the completion of the merger and result in
substantial costs to FirstEnergy and Allegheny Energy. In
accordance with its bylaws, Allegheny Energy has agreed to
advance expenses to and, as necessary, indemnify all of its
directors in connection with the foregoing proceedings. All
applicable insurance policies may not provide sufficient
coverage for the claims under these lawsuits, and rights of
indemnification with respect to these lawsuits will continue
whether or not the merger is completed. The defense or
settlement of any lawsuit or claim that remains unresolved at
the time the merger closes may adversely affect
FirstEnergys business, financial condition or results of
operations.
The
Maryland Action
Four putative class action and derivative lawsuits were filed in
the Circuit Court for Baltimore City, Maryland. One was
withdrawn. The court consolidated the three cases under the
caption Oakmont Capital Management, LLC v. Evanson, et
al., C.A.
No. 24-C-10-1301,
and appointed Lewis M. Lynn as Lead Plaintiff. Plaintiff Lynn
filed a Consolidated Amended Complaint on April 12, 2010.
On April 21, 2010, defendants filed Motions to Dismiss the
Consolidated Amended Complaint for failure to state a claim. The
court has stayed all discovery pending resolution of those
motions. The court also has entered a stipulated order
certifying a class with no opt-out rights. On May 27, 2010,
the parties reported to the court that they have agreed to the
terms of a disclosure-based settlement and requested that the
court cancel the oral argument on the motions to dismiss that
had been scheduled for June 3, 2010. On May 28, 2010,
the court removed the hearing from its calendar.
The
Pennsylvania Action
Three shareholder lawsuits were filed in the Court of Common
Pleas of Westmoreland County, Pennsylvania, raising putative
class action and derivative claims against the Allegheny Energy
directors and officers, FirstEnergy and Allegheny Energy. The
court has consolidated these actions under the caption, In re
Allegheny Energy, Inc. Shareholder Class and Derivative,
Litigation, Lead Case No. 1101 of 2010, and appointed
lead counsel. On April 5, 2010, the Allegheny Energy
defendants filed a Motion to Stay the Proceedings. Shortly
thereafter, FirstEnergy similarly filed a Motion to Stay.
Plaintiffs filed a Motion for Expedited Discovery. The court
scheduled a hearing on
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the motions for May 27, 2010. On May 21, 2010,
plaintiffs filed a Verified Consolidated Shareholder Derivative
and Class Complaint. On May 26, 2010, the parties filed a
Motion for a Continuance of the May 27 hearing, which the court
granted. On June 1, 2010, the parties reported to the court
that they have agreed to the terms of a disclosure-based
settlement.
The
District Court Action
A putative shareholder lawsuit styled as a class action was
filed in the United States District Court for the Western
District of Pennsylvania and is captioned Louisiana Municipal
Police Employees Retirement System v. Evanson, et
al., C.A.
No. 10-319
NBF. On June 1, 2010, the parties reported to the court
that they have agreed to the terms of a disclosure-based
settlement.
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REGULATORY
MATTERS RELATING TO THE MERGER
General
In order to complete the merger, FirstEnergy and Allegheny
Energy must make filings with and obtain authorizations,
approvals or consents from a number of federal and state public
utility, antitrust and other regulatory authorities. The
material federal and state filings, authorizations, approvals or
consents are described below. FirstEnergy and Allegheny Energy
are not currently aware of any material governmental filings,
authorizations, approvals or consents that are required prior to
the parties completion of the merger other than those
described below. If additional filings, authorizations,
approvals or consents are required to complete the merger,
FirstEnergy and Allegheny Energy contemplate that such filings,
authorizations, approvals or consents will be sought or made if
required by an order of a state utility commission or if
mutually agreed by the parties.
FirstEnergy and Allegheny Energy have agreed to use their
reasonable best efforts to obtain all regulatory authorizations,
approvals and consents required to complete the merger. However,
in using their reasonable best efforts to obtain these required
regulatory authorizations, approvals and consents under the
terms of the merger agreement, neither FirstEnergy nor Allegheny
Energy may be required to take certain actions (such as
divesting or holding separate assets or entering into
settlements or consent decrees) (1) as required by federal
governmental authorities if such action would reasonably be
expected to have a material adverse effect on FirstEnergy
(without giving effect to the merger) or on the combined
company, giving effect to the merger and after taking into
account actions required by state regulatory authorities; or
(2) as required by state regulatory authorities if such
action would reasonably be expected to have a material adverse
effect on Allegheny Energy or on FirstEnergy, provided that for
purposes of determining whether a potential adverse effect
resulting from a condition imposed by a state regulatory
authority would be expected to have a material adverse effect on
FirstEnergy, FirstEnergy shall be deemed to be a company the
size and scale of Allegheny Energy.
FirstEnergy and Allegheny Energy currently anticipate completing
the merger in the first half of 2011. Although FirstEnergy and
Allegheny Energy believe that they will receive the required
authorizations, approvals and consents described below to
complete the merger, there can be no assurance as to the timing
of these authorizations, approvals and consents or as to
FirstEnergys and Allegheny Energys ultimate ability
to obtain such consents or approvals (or any additional
authorizations, approvals or consents which may otherwise become
necessary) or that such authorizations, approvals consents will
be obtained on terms and subject to conditions satisfactory to
Allegheny Energy and FirstEnergy.
Hart-Scott-Rodino
Act
The merger is subject to the requirements of the HSR Act, and
the rules and regulations promulgated thereunder, which provide
that certain acquisition transactions may not be completed until
required information has been furnished to the Antitrust
Division of the DOJ and the FTC, and until certain waiting
periods have been terminated or have expired. The expiration or
earlier termination of the HSR Act waiting period would not
preclude the Antitrust Division or the FTC from challenging the
merger on antitrust grounds and seeking to preliminarily or
permanently enjoin the proposed merger. Neither FirstEnergy nor
Allegheny Energy believes that the merger will violate federal
antitrust laws, but there can be no guarantee that the Antitrust
Division or the FTC will not take a different position. If the
merger is not completed within 12 months after the
expiration or earlier termination of the applicable HSR Act
waiting period, FirstEnergy and Allegheny Energy will be
required to submit new information to the Antitrust Division and
the FTC, and a new HSR
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Act waiting period will have to expire or be earlier terminated
before the merger could be completed. The companies have made
their HSR Act filings, which started the initial 30-day HSR Act
waiting period. On June 24, 2010, FirstEnergy and Allegheny
Energy each received a Request for Additional Information and
Documentary Material, referred to as the Second Request, from
the Antitrust Division in connection with the Antitrust
Divisions HSR Act review of the merger. The issuance of
the Second Request extends the HSR Act waiting period for an
additional 30 days following substantial compliance with
the Second Request unless the waiting period is earlier
terminated.
Federal
Power Act
FirstEnergy and Allegheny Energy each have public utility
subsidiaries subject to the jurisdiction of the FERC under the
FPA. Section 203 of the FPA provides that no holding
company in a holding company system that includes a transmitting
utility or an electric utility may merge or consolidate with a
holding company system that includes a transmitting utility or
electric utility company without first having obtained
authorization from the FERC. The FERC must authorize the merger
if it finds that the transaction is consistent with the public
interest. The FERC has stated in its 1996 utility merger policy
statement that, in analyzing a merger under Section 203 of
the FPA, it will evaluate the following criteria:
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the effect of the merger on competition in wholesale electric
power markets;
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the effect of the merger on the applicants FERC
jurisdictional ratepayers; and
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the effect of the merger on state and federal regulation of the
applicants.
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In addition, in accordance with the Energy Policy Act of 2005,
the FERC also must find that the transaction will not result in
the cross-subsidization by public utility subsidiaries of other
subsidiaries or improper encumbrances or pledges of utility
assets and, if such cross-subsidization or encumbrances were to
occur, whether they are consistent with the public interest.
The FERC will review these factors to determine whether the
merger is consistent with the public interest. If the FERC finds
that the merger would adversely affect competition in wholesale
electric power markets, rates for transmission or the wholesale
sale of electric energy, or regulation, or that the merger would
result in cross-subsidies or improper encumbrances that are not
consistent with the public interest, it may, pursuant to the
FPA, impose remedial conditions intended to mitigate such
effects or it may decline to authorize the merger. In the event
the FERC chooses to impose remedial conditions, FirstEnergy and
Allegheny Energy would then review such conditions in light of
the requirements imposed under the merger agreement. Based on
FERC precedent, FirstEnergy and Allegheny Energy believe that
the merger should satisfy the FERCs merger guidelines and
that any mitigation conditions imposed by the FERC would not
have a material adverse effect of the type described by the
merger agreement that would permit either company to refuse to
accept such conditions. However, there can be no guarantee that
the FERC will agree with the parties characterization of
FERC precedent or that the FERC will not change its analytic
framework in a manner adverse to the parties. The companies and
their public utility subsidiaries filed their application under
Section 203 of the FPA on May 11, 2010. On
June 10, 2010, the FERC requested that FirstEnergy and
Allegheny Energy provide additional information regarding their
merger application. FirstEnergy and Allegheny Energy provided
the requested information on June 21, 2010. Comments on the
merger application and additional information were due
July 12, 2010. The FERC is required to rule on a completed
merger application not later than 180 days from the date on
which the completed application is filed. The FERC may, however,
for good cause, issue an order extending the time for
consideration of the merger application by an additional
180 days. If no order is issued within the statutory
deadline, then the transaction is deemed to be approved.
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State
Regulatory Approvals
The following is a brief description of state regulatory
jurisdiction over the merger and required approvals:
Pennsylvania
Public Utility Commission
Allegheny Energy and FirstEnergy (or certain of their
affiliates) are subject to the jurisdiction of the PAPUC. Under
Pennsylvania law, the PAPUC will have jurisdiction to review and
approve the merger. The PAPUC can approve a merger only if it
finds that it is necessary or proper for the service,
accommodation, convenience or safety of the public. This
requires a finding that a merger will affirmatively promote the
service, accommodation, convenience or safety of the public in
some substantial way. The PAPUC also is required to consider
whether the proposed merger, consolidation, acquisition or
disposition is likely to result in anticompetitive or
discriminatory conduct, including the unlawful exercise of
market power, which will prevent retail electricity customers in
Pennsylvania from obtaining the benefits of a properly
functioning and workable competitive retail electricity market.
Pennsylvania law requires that the PAPUC conduct a hearing to
consider these issues, and that the PAPUC impose such terms and
conditions as it finds necessary to preserve the benefits of a
properly functioning and workable competitive retail electricity
market. The companies and their public utility subsidiaries
filed their application with the PAPUC on May 14, 2010.
Pennsylvania law does not establish any time limits on the
PAPUCs review of a proposed transaction.
Public
Service Commission of West Virginia
Allegheny Energy (or certain of its affiliates) is subject to
the jurisdiction of the WVPSC. Under West Virginia law, the
WVPSC will have jurisdiction to review and approve the merger.
West Virginia law requires a showing that the terms and
conditions of a merger are reasonable, do not adversely affect
the public and that neither party to the merger is given an
undue advantage over the other. The companies and their public
utility subsidiaries filed their application with the WVPSC on
May 18, 2010. West Virginia law does not impose any time
limits on the WVPSCs review of a proposed transaction.
Maryland
Public Service Commission
Allegheny Energy (or certain of its affiliates) is subject to
the jurisdiction of the MDPSC. Under Maryland law, the MDPSC
will have jurisdiction to review the merger. Maryland law
requires the MDPSC to approve a transaction if it finds that the
transaction is consistent with the public interest,
convenience and necessity, including benefits and no harm to
consumers. In making this determination, the MDPSC is
required to consider the following 12 criteria: the potential
impact of the acquisition on rates and charges paid by customers
and on the services and conditions of operation of the public
service company; the potential impact of the acquisition on
continuing investment needs for the maintenance of utility
services, plant and related infrastructure; the proposed capital
structure that will result from the acquisition, including
allocation of earnings from the public service company; the
potential effects on employment by the public service company;
the projected allocation between shareholders and ratepayers of
any savings that are expected; issues of reliability, quality of
service and quality of customer service; the potential impact of
the acquisition on community investment; affiliate and
cross-subsidization issues; the use or pledge of utility assets
for the benefit of an affiliate; jurisdictional and
choice-of-law
issues; whether it is necessary to revise the MDPSCs ring
fencing and code of conduct regulations in light of the
acquisition; and any other issues the MDPSC considers relevant
to the assessment of the acquisition.
The companies and their public utility subsidiaries filed their
application with the MDPSC on May 27, 2010. The MDPSC is
required to issue an order no later than 180 days
(6 months) after an
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application is filed. However, the MDPSC can give itself a
45-day
extension for good cause, which it did when it issued its
initial order in the matter on June 24, 2010. If no order
is issued by the January 7, 2011 statutory deadline, then
the transaction is deemed to be approved.
Virginia
State Corporation Commission
Allegheny Energy (or certain of its affiliates) is subject to
the jurisdiction of the VSCC. Under Virginia law, the VSCC will
have jurisdiction to review and approve the merger. Virginia law
provides that, if the VSCC determines, with or without hearing,
that adequate service to the public at just and reasonable rates
will not be impaired or jeopardized by granting the prayer of
the petition, then the VSCC shall approve the transaction, with
whatever conditions the VSCC deems to be appropriate in order to
satisfy this standard. The application of the companies and
their public utility subsidiaries was deemed complete on
June 14, 2010. The VSCC is required to rule on a merger
application in 60 days, subject to up to an additional
120-day
extension. In its order issued June 25, 2010, the VSCC
extended the period for its review by 30 days; therefore,
the companies expect a decision by September 13, 2010.
Federal
Communications Commission
Under the provisions of the Communications Act of 1934, as
amended by the Telecommunications Act of 1996, an entity holding
radio licenses for private internal communications must obtain
the approval of the FCC before the transfer of control or
assignment of those licenses. Affiliates of Allegheny Energy
hold certain FCC licenses for private internal communications
and, thus, must obtain prior FCC approval to assign or transfer
control of those licenses.
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THE
MERGER AGREEMENT
The following summary describes material provisions of the
merger agreement. This summary may not include all of the
information about the merger agreement that is important to you.
This summary is subject to, and qualified in its entirety by
reference to, the merger agreement, as amended, which is
attached as Annex A and incorporated by reference into this
section of the joint proxy statement/prospectus. You are urged
to read the merger agreement carefully and in its entirety, as
it is the legal document governing the merger.
The merger agreement summary below is included in this joint
proxy statement/prospectus only to provide you with information
regarding the terms and conditions of the merger agreement. The
representations and warranties and other provisions of the
merger agreement should not be read alone, but instead should be
read only in conjunction with the information provided elsewhere
in this joint proxy statement/prospectus and in the documents
incorporated by reference in this joint proxy
statement/prospectus. See the section entitled Where You
Can Find More Information; Incorporation by Reference
beginning on page 184.
The representations, warranties and covenants contained in
the merger agreement and described in this joint proxy
statement/prospectus were made only for purposes of the merger
agreement and as of specific dates, were made solely for the
benefit of the parties to the merger agreement and may be
subject to limitations agreed upon by the contracting parties,
including being qualified by reference to confidential
disclosures, for the purposes of allocating risk between parties
to the merger agreement instead of establishing these matters as
facts, and may apply standards of materiality in a way that is
different from what may be viewed as material by you or by other
investors. The representations and warranties contained in the
merger agreement do not survive the closing of the merger.
Moreover, information concerning the subject matter of the
representations, warranties and covenants may change after the
date of the merger agreement, which subsequent information may
or may not be fully reflected in public disclosures by
FirstEnergy and Allegheny Energy.
Structure
of the Merger
Pursuant to the terms and subject to the conditions of the
merger agreement, at the effective time of the merger, Merger
Sub will merge with and into Allegheny Energy, and Allegheny
Energy will continue as the surviving entity and become a direct
wholly owned subsidiary of FirstEnergy. Allegheny Energy, as the
surviving entity of the merger, is sometimes referred to as the
surviving entity.
Effective
Time of the Merger
The merger will become effective upon the filing of the articles
of merger with the State Department of Assessments and Taxation
of Maryland, or at such later time as agreed to by the parties
and set forth in the articles of merger. The filing of the
articles of merger is expected to occur on the same date as the
closing under the merger agreement, which, unless otherwise
agreed, will occur on or before the third business day after the
satisfaction or waiver of the conditions to the merger set forth
in the merger agreement.
Merger
Consideration
Effect
on Capital Stock
At the effective time, each share of Allegheny Energy common
stock issued and outstanding immediately prior to the effective
time, including grants of restricted common stock, will be
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converted into the right to receive 0.667 of a share of
FirstEnergys common stock, which is referred to as the
merger consideration.
Adjustments
The exchange ratio will be equitably adjusted if, at any time
between the signing of the merger agreement and the effective
time of the merger, there is any change in the number or class
of the outstanding shares of capital stock of FirstEnergy or
Allegheny Energy, by reason of any reclassification,
recapitalization, stock split, combination, exchange or similar
readjustment, or stock dividend or stock distribution with a
record date during such period, provided that such action is not
taken in violation of the merger agreement.
Dividends
and Distributions
No dividends or other distributions declared or made after the
effective time of the merger on FirstEnergy common stock with a
record date after such effective time will be paid to Allegheny
Energy stockholders, until such stockholder surrenders its
Allegheny Energy shares for exchange. Likewise, no cash payment
in lieu of fractional shares will be paid to such stockholder
until it surrenders its Allegheny Energy shares.
Fractional
Shares
Fractional shares of FirstEnergy common stock will not be issued
in connection with the merger. After the effective time of the
merger, the exchange agent appointed by FirstEnergy will sell on
the NYSE the excess of the number of whole shares of FirstEnergy
common stock delivered to the exchange agent over the aggregate
number of whole shares of FirstEnergy common stock to be
distributed to the former holders of Allegheny Energy common
stock. The exchange agent will pay to each former Allegheny
Energy stockholder a portion of the sale proceeds based upon the
ratio of each stockholders fractional share interest to
the aggregate amount of fractional share interests to which all
former Allegheny Energy stockholders are entitled.
Conversion
of Shares; Exchange of Certificates
The conversion of shares of Allegheny Energy common stock into
the right to receive the merger consideration will occur
automatically at the effective time of the merger. Prior to the
effective time, FirstEnergy will appoint an exchange agent,
FirstEnergy shall cause the exchange agent to establish an
exchange fund which shall contain certificates representing the
shares of FirstEnergy common stock issuable in the merger, held
for the benefit of the holders of Allegheny Energy common stock,
restricted stock, performance shares and restricted stock units.
As soon as reasonably practicable after the effective time of
the merger, the exchange agent will exchange certificates
formerly representing shares of Allegheny Energy common stock
for merger consideration to be received in the merger pursuant
to the merger agreement.
Exchange
Procedures
After the merger is completed, the exchange agent will mail to
each Allegheny Energy stockholder a letter of transmittal and
instructions for use in surrendering shares of Allegheny Energy
common stock in exchange for FirstEnergy common stock, cash in
lieu of fractional shares, and any dividends or distributions
payable with respect to such FirstEnergy common stock. The
exchange of any book entry shares will be made in accordance
with the exchange agents customary procedures with respect
to securities presented by book entry.
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No
Further Ownership Rights in Allegheny Energy Common Stock;
Transfer Books
After the effective time of the merger, there will be no
transfers on the stock transfer books of Allegheny Energy of any
shares of Allegheny Energy common stock outstanding immediately
prior to the merger. Certificates or book entry shares of
Allegheny Energy common stock presented to the surviving entity
or the exchange agent after the effective time of the merger
will be canceled and exchanged for the merger consideration
payable in respect of such certificates or book entry shares,
any cash in lieu of fractional shares and any distributions to
which the holders are entitled pursuant to the merger agreement,
without interest.
Termination
of Exchange Fund
Any portion of the merger consideration payable pursuant to the
merger agreement and made available to the exchange agent that
remains unclaimed by holders of Allegheny Energy common stock
for 180 days after the effective time of the merger will be
returned to FirstEnergy upon demand. Thereafter, a holder of
Allegheny Energy common stock must look only to FirstEnergy for
payment of the merger consideration to which the holder is
entitled under the terms of the merger agreement.
Lost
Stock Certificates
If a certificate formerly representing shares of Allegheny
Energy common stock has been lost, stolen or destroyed, the
exchange agent will deliver the merger consideration properly
payable under the merger agreement upon receipt of an affidavit
as to that loss, theft or destruction, and, if required by
FirstEnergy, the posting of a bond in such reasonable amount as
FirstEnergy will require as indemnity.
Withholding
Taxes
Each of FirstEnergy, Merger Sub, Allegheny Energy and the
exchange agent will be entitled to deduct and withhold from the
merger consideration payable to any Allegheny Energy stockholder
the amounts it is required to deduct and withhold under the
Internal Revenue Code or any applicable state, local or foreign
tax law. Withheld amounts will be treated for all purposes of
the merger agreement as having been paid to the Allegheny Energy
stockholders to whom such amounts would otherwise have been paid.
Treatment
of Allegheny Energy Options and Other Equity Awards
Treatment
of Allegheny Energy Stock Options
Upon the completion of the merger, each option to purchase
shares of Allegheny Energy common stock that was granted under
the Allegheny Energy stock plans and that is outstanding
immediately prior to the completion of the merger will
automatically convert into an option to acquire, on the same
terms and conditions as were applicable to the Allegheny Energy
option prior to the merger (after giving effect to any
acceleration of vesting as a result of the merger), a number of
shares of FirstEnergy common stock equal to the product of
(a) the number of shares of Allegheny Energy common stock
subject to the Allegheny Energy stock option and (b) 0.667,
rounded down to the nearest whole share of FirstEnergy common
stock, at an exercise price per share of FirstEnergy common
stock equal to the quotient obtained by dividing (x) the
per share exercise price of the Allegheny Energy stock option by
(y) 0.667, rounded up to the nearest whole cent. In the
event that Section 409A or Section 421(a) of the
Internal Revenue Code applies, the
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foregoing adjustment will be made in a manner consistent with
Section 409A or Section 421(a) of the Internal Revenue
Code, as applicable.
Treatment
of Allegheny Energy Restricted Stock
Upon the completion of the merger, each award of restricted
Allegheny Energy common stock that was awarded under the
Allegheny Energy plans and is outstanding immediately prior to
the completion of the merger will automatically convert into a
right to receive a number of shares of FirstEnergy common stock
(and cash in lieu of fractional shares) equal to the product of
(a) the total number of shares of Allegheny Energy common
stock and (b) 0.667, which shares of FirstEnergy common
stock will have the same terms and conditions as were applicable
to the restricted Allegheny Energy common stock prior to the
completion of the merger (giving effect to any acceleration of
the lapse of restrictions on the Allegheny Energy common stock
resulting from the merger). However, unless the holder of the
Allegheny Energy common stock remits the amount of any required
withholding obligation, the number of shares of FirstEnergy
common stock delivered to the holder will be reduced by a number
of shares of FirstEnergy common stock with a value equal to the
amount required to be deducted and withheld by applicable law.
Treatment
of Allegheny Energy Performance Shares and Allegheny Energy
Restricted Stock Units
Upon the completion of the merger, each award of Allegheny
Energy performance shares or Allegheny Energy restricted stock
units with respect to Allegheny Energy common stock under the
Allegheny Energy plans that is outstanding immediately prior to
the completion of the merger will automatically be converted, on
the same terms and conditions as were applicable to Allegheny
Energy performance shares or Allegheny Energy restricted stock
units as the case may be (giving effect to any acceleration of
vesting resulting from the merger), into the right to receive a
number of shares of FirstEnergy common stock (and cash in lieu
of fractional shares) equal to the product of (a) the total
number of shares of Allegheny Energy common stock subject to the
award of Allegheny Energy performance shares or Allegheny Energy
restricted stock units, as the case may be, at the target level
of performance and (b) 0.667. However, unless the holder of
the award of Allegheny Energy performance shares or Allegheny
Energy restricted stock units remits the amount of any required
withholding obligation, the number of shares of FirstEnergy
common stock delivered to the holder will be reduced by a number
of shares of FirstEnergy common stock with a value equal to the
amount required to be deducted and withheld by applicable law.
See the section entitled The Merger Additional
Interests of the Allegheny Energy Directors and Executive
Officers in the Merger Treatment of Stock Options
and Other Equity Awards beginning on page 104.
Charter
and Bylaws of the Surviving Entity; Directors and Officers of
the Surviving Entity
At the effective time, each of the charter and bylaws of Merger
Sub as in effect immediately prior to the effective time will be
the charter and bylaws of Allegheny Energy until amended in
accordance with its respective provisions and applicable law.
Subject to applicable law, the directors of Merger Sub and the
officers of Allegheny Energy immediately prior to the effective
time will be the directors and officers, respectively, of the
surviving entity until their respective successors are duly
elected and qualify, or their earlier death, resignation or
removal.
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FirstEnergy
Board of Directors After the Merger
Effective upon completion of the merger, FirstEnergy will
increase the size of its board of directors by two members and
will fill those two vacancies with two of the current members of
Allegheny Energys board of directors. Pursuant to the
terms of the merger agreement, Julia L. Johnson and Ted J.
Kleisner have been designated as the Allegheny Energy directors
to become members of the FirstEnergy board upon completion of
the merger. These two directors will serve on committees of the
FirstEnergy board on an equitable basis proportionate to the
size of the FirstEnergy board of directors.
Representations
and Warranties
The merger agreement contains generally customary
representations and warranties made by each of the parties
regarding aspects of their respective businesses, financial
condition and structure, as well as other facts pertinent to the
merger. These representations and warranties were made for the
purposes, and subject to the qualifications, limitations and
exceptions, described in the introduction to the section
entitled The Merger Agreement beginning on
page 124. Each of FirstEnergy and Merger Sub, on the one
hand, and Allegheny Energy, on the other hand, has made
representations and warranties to the other in the merger
agreement with respect to the following subject matters:
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corporate existence, good standing and qualification to conduct
business;
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capitalization;
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corporate power and authorization to enter into and carry out
the obligations under the merger agreement and the
enforceability of the merger agreement;
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absence of any conflict or violation of organizational
documents, third party agreements or law or regulation as a
result of entering into and carrying out the obligations under
the merger agreement;
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governmental and regulatory approvals or consents required to
complete the merger;
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filings and reports with the SEC and other governmental entities
and related matters;
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absence of undisclosed liabilities;
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absence of a material adverse effect since January 1, 2009;
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investigations, litigation or outstanding judgments or orders;
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accuracy of the information supplied for inclusion in this joint
proxy statement/prospectus;
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compliance with laws, including possession of necessary permits;
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tax matters;
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employee benefit matters;
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employment and labor matters;
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environmental matters;
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ownership and operation of nuclear power plants;
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insurance matters;
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trading matters;
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required vote of shareholders;
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opinion of financial advisor;
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finders or brokers;
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reorganization under the Internal Revenue Code;
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regulatory proceedings;
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intellectual property;
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real property; and
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material contracts.
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Allegheny Energy has made additional representations and
warranties to FirstEnergy in the merger agreement with respect
to takeover laws and stockholders rights plans.
FirstEnergy has made additional representations and warranties
to Allegheny Energy in the merger agreement with respect to
FirstEnergys lack of ownership of Allegheny Energy common
stock.
Certain representations and warranties of FirstEnergy and
Allegheny Energy are qualified as to materiality or as to
material adverse effect, which means an event,
change, effect, development, state of facts, circumstance,
condition or occurrence that is materially adverse to the
business, condition (financial or otherwise), properties,
results of operations, liabilities, assets or operations of
either FirstEnergy and its subsidiaries or Allegheny Energy and
its subsidiaries, taken as a whole, or on the ability of the
parties to complete the merger, except that no material adverse
effect may be caused by or arise from:
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(a)
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general economic conditions
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(b)
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events affecting the economy or the electric generation,
transmission and distribution industries broadly;
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(c)
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changes in electric transmission or distribution systems,
including decreases in planned spending with respect to electric
transmission or distribution systems;
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(d)
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changes in GAAP;
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(e)
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force majeure events;
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(f)
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changes in wholesale or retail markets for electric power,
capacity or fuel;
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(g)
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any change in law or regulation;
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(h)
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the announcement of, existence of, or compliance with the merger
agreement, or the merger itself, including possible union
organizing activity;
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(i)
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any action taken at the request of the other party to the merger
agreement;
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(j)
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any legal claim or proceeding arising from allegations of breach
of fiduciary duty or other violation relating to the merger;
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(k)
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reduction of credit rating as a result of the announcement of
the merger; and
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(l)
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consummation, or not, of the sale of certain of Allegheny
Energys operations in Virginia (with respect to Allegheny
Energy only).
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However, no material adverse effect with respect to FirstEnergy
may be caused by or arise from the items listed in
(a) through (g) above only if there has been no
disproportionate effect on FirstEnergy or its subsidiaries
relative to other similarly situated participants in the utility
industry.
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Likewise, no material adverse effect with respect to Allegheny
Energy may be caused by or arise from the items listed in
(a) through (e) above only if there has been no
disproportionate effect on Allegheny Energy and its subsidiaries
relative to other similarly situated participants in the utility
industry, and no material adverse effect with respect to
Allegheny Energy may be caused by or arise from the items listed
in (f) and (g) above only if there has been no
disproportionate effect on Allegheny Energy and its subsidiaries
relative to a hypothetical participant in the utility industry
that owns similar power generation assets (with respect to fuel
type and location) or if the material adverse effect is the
result of an increase in the generally prevailing price of
Northern Appalachian coal.
Conditions
to the Completion of the Merger
The completion of the merger is subject to various conditions.
Conditions
to Each Partys Obligations
Each partys obligation to complete the merger is subject
to the satisfaction or, to the extent permitted by law, waiver
of the following conditions:
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approval by Allegheny Energy stockholders of the merger
agreement and the merger;
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authorization and approval by FirstEnergy shareholders of the
share issuance and the other transactions contemplated by the
merger agreement and the adoption of the charter amendment;
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the absence of any order issued by any court or any other legal
restraint preventing or restraining the completion of the merger;
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the effectiveness of the registration statement of which this
joint proxy statement/prospectus is a part; and
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the NYSE listing of the FirstEnergy common stock to be issued in
the merger and such other shares to be reserved for issuance in
connection with the merger, subject to official notice of
issuance.
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Additional
Conditions to FirstEnergys and Merger Subs
Obligations
The obligation of FirstEnergy and Merger Sub to complete the
merger is also subject to the satisfaction or waiver of certain
conditions, including:
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the accuracy of Allegheny Energys representations and
warranties, except in certain cases where the failure of such
representations and warranties to be so true and correct
(without giving effect to any limitation as to
materiality or material adverse effect
set forth in the merger agreement) individually or in the
aggregate has not had, and would not reasonably be expected to
have, a material adverse effect on Allegheny Energy;
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the performance in all material respects by Allegheny Energy of
its obligations under the merger agreement;
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the absence of any change or event that has had or would
reasonably be expected to have, individually or in the
aggregate, a material adverse effect on Allegheny Energy;
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the delivery by Allegheny Energy to FirstEnergy of an
officers certificate, dated the closing date of the
merger, certifying to the effect that certain closing conditions
have been satisfied;
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the receipt by FirstEnergy of a tax opinion from its legal
counsel;
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the receipt by FirstEnergy of a copy of Allegheny Energys
tax opinion from its legal counsel;
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the receipt of federal regulatory approvals without conditions
having a material adverse effect on FirstEnergy (without giving
effect to the merger) or on the combined company (after giving
effect to the merger and to any conditions imposed by state
regulatory approvals), and the receipt of state regulatory
approvals without conditions having a material adverse effect on
Allegheny Energy or FirstEnergy (assuming for this purpose that
FirstEnergy and its subsidiaries were a consolidated group of
entities of the size and scale of Allegheny Energy and its
subsidiaries, taken as a whole); and
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the receipt by Allegheny Energy of consents or approvals (in a
form reasonably satisfactory to FirstEnergy) from sufficient
lenders under certain of Allegheny Energys credit
facilities, such that the merger will not cause any change in
control, default or similar event under such facilities
(effective February 26, 2010, Allegheny Energy had received
such consents).
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Additional
Conditions to Allegheny Energys Obligations
The obligation of Allegheny Energy to complete the merger is
also subject to the satisfaction or waiver of certain
conditions, including:
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the accuracy of FirstEnergys representations and
warranties, except in certain cases where the failure of such
representations and warranties to be so true and correct
(without giving effect to any limitation as to
materiality or material adverse effect
set forth in the merger agreement) individually or in the
aggregate has not had, and would not reasonably be expected to
have, a material adverse effect on FirstEnergy;
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the performance in all material respects by FirstEnergy and
Merger Sub of their respective obligations under the merger
agreement;
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the absence of any change or event that has had or would
reasonably be expected to have, individually or in the
aggregate, a material adverse effect on FirstEnergy;
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the delivery by FirstEnergy to Allegheny Energy of an
officers certificate, dated the closing date of the
merger, certifying to the effect that certain closing conditions
have been satisfied;
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the receipt by Allegheny Energy of a tax opinion from its legal
counsel;
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the receipt by Allegheny Energy of a copy of FirstEnergys
tax opinion from its legal counsel; and
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the receipt of federal regulatory approvals without conditions
having a material adverse effect on FirstEnergy (without giving
effect to the merger) or on the combined company after giving
effect to the merger and to any conditions imposed by state
regulatory approvals, and the receipt of state regulatory
approvals without conditions having a material adverse effect on
Allegheny Energy or FirstEnergy (assuming for this purpose that
FirstEnergy and its subsidiaries were a consolidated group of
entities of the size and scale of Allegheny Energy and its
subsidiaries, taken as a whole).
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Conduct
of Business Pending the Merger
Conduct
of Allegheny Energys Business
Unless required by applicable law, with the written consent of
FirstEnergy (which consent will not be unreasonably withheld,
delayed or conditioned), or as expressly required or
contemplated by
131
the merger agreement, Allegheny Energy has agreed that it will,
and will cause its subsidiaries to, during the period from the
date of the merger agreement until the effective time of the
merger:
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conduct its business in the ordinary course of business
consistent with past practice and use reasonable best efforts to
preserve its existing business;
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subject to certain exceptions, not take, or permit any of its
subsidiaries to take, the following actions:
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amend its organizational documents;
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declare, set aside or pay dividends or make any distribution
payable in cash, stock or property in respect of any capital
stock, other than (i) the payment of quarterly dividends
not to exceed the current dividend rate and otherwise in
accordance with past dividend practice and (ii) the payment
of dividends from a subsidiary to Allegheny Energy or to another
wholly-owned subsidiary;
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split, combine or reclassify its capital stock or issue other
securities;
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adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization;
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redeem, repurchase or otherwise acquire indebtedness for
borrowed money of Allegheny Energy or its subsidiaries, other
than between Allegheny Energy and its subsidiaries or among its
subsidiaries in the ordinary course, and other than (i) at
or within 120 days of stated maturity, (ii) any
required amortization payments and mandatory prepayments, and
(iii) indebtedness under certain specified agreements;
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acquire or agree to acquire any person or assets if the amount
to be expended exceeds $5 million in any one transaction or
$25 million in the aggregate in any
12-month
period or if the acquisition is reasonably likely to materially
delay the receipt of required regulatory approvals for the
merger;
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make capital expenditures other than (i) as set forth in
the budget for 2010 or capital expenditure plan for 2011 (with
limitations on amounts with respect to environmental matters),
(ii) as required by law or government entities or as
necessary to repair damaged or destroyed facilities,
(iii) capital expenditures not in excess of
$30 million prior to December 31, 2010 or an
additional $60 million after such date (with limitations on
transmission and distribution capital expenditures) and
(iv) capital expenditures related to the TrAIL project or
the PATH project or other projects that are fully recoverable
through formula rates or that can be passed through to customers;
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sell, lease, or grant any security interest in or otherwise
dispose of or encumber in any
12-month
period more than $15 million in the aggregate of its
properties or assets, other than (i) dispositions with or
among subsidiaries, (ii) dispositions of obsolete assets or
assets being replaced, each in the ordinary course,
(iii) dispositions according to plans mandated by local or
state regulatory agencies, (iv) liens arising under
existing indentures and agreements of subsidiaries,
(v) cash collateralization of letters of credit upon a
default (under existing credit facilities) and
(vi) dispositions of accounts receivable of subsidiaries
under accounts receivable financing arrangements;
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increase the compensation or other benefits payable to, or enter
into or change any agreement, plan or policy (including
employment, change of control, severance, retention or
collective bargaining agreements) with or for the benefit of,
directors, executive officers, managers or employees, other than
(i) increases in compensation or other benefits in the
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132
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ordinary course, (ii) agreements entered into with
newly-hired, non-executive officer employees or for promotions,
in each case consistent with past practice,
(iii) employment agreements terminable on less than
30 days notice without penalty, and
(iv) severance agreements with non-executive officers in
connection with termination of employment, consistent with past
practice;
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issue equity or dispose of or encumber any other ownership
interest in Allegheny Energy or its subsidiaries, other than
upon the exercise of existing awards or the granting of new
awards in the ordinary course; however, any awards granted after
the date of the merger agreement shall not vest or accelerate as
a result of consummation of the merger but they may vest or
accelerate upon termination of employment without
cause or upon good reason termination;
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repurchase capital stock;
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create, incur or assume any indebtedness for borrowed money of
Allegheny Energy or guarantees thereof, or enter into any
keep well agreement, capital lease,
synthetic lease or conditional sale, other than
(i) in the ordinary course on terms that allow for
prepayment at any time without penalty, (ii) as otherwise
permitted under the merger agreement, (iii) refinancing of
existing debt within 120 days of stated maturity or at
lower cost of funds, or (iv) borrowings under existing
commercial paper programs or revolving credit facilities;
provided such actions in clauses (i) through
(iv) would not cause any two of Fitch Ratings, Ltd.,
Standard & Poors Ratings Service or Moodys
Investors Service, Inc. to recognize Allegheny Energys
corporate credit rating to be less than investment grade; also,
Allegheny Energy will not make any loans, advances or capital
contributions to, or investments in another person, other than
in the ordinary course or as required pursuant to an obligation
in effect as of the date of the merger agreement;
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materially change financial accounting policies or procedures,
except as required by GAAP, the SEC or applicable law;
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amend, terminate or materially violate Allegheny Energys
trading policies which restrict the level of risk Allegheny
Energy is authorized to take with respect to, among other
things, the net position resulting from all physical commodity
transactions (including the anticipated output from Allegheny
Energys generation fleet and the contracted price of
coal), exchange-traded futures and options transactions,
over-the-counter transactions and derivatives thereof and
similar transactions;
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settle any claim relating to taxes, make or change any tax
election, change any methods of tax accounting, file any amended
tax return, enter in any closing agreement affecting tax
liability or extend the application of any statute of
limitations regarding any tax assessment, other than as required
by law or if such action would not be materially adverse to
Allegheny Energy;
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settle material legal proceedings, other than payments or
settlements (i) that do not exceed $25 million
individually or $40 million in aggregate over a
12-month
period, (ii) that were due prior to the date of the merger
agreement, or (iii) in connection with certain regulatory
proceedings;
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enter into a new line of business or conduct business outside
the U.S. other than in the ordinary course;
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enter into material agreements, or materially modify existing
agreements with any governmental entities except as required by
law or in the ordinary course;
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133
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permit insurance to lapse or to not be at levels customary for
utility companies;
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change regulated rates or charges (other than pass-through
charges), standards of service or regulatory accounting, or make
any filing or agreement with respect thereto, except in
consultation with FirstEnergy;
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enter into, terminate or materially modify (i) a material
contract as disclosed in Allegheny Energys SEC filings or
the merger agreement disclosure schedules, (ii) a power
sale contract with a term of three years or longer, or
(iii) a coal purchase contract with a term of two years or
longer; provided that these restrictions apply only to the
extent permitted by law and Allegheny Energy may enter into
(x) contracts in an amount under $5 million
individually or under $25 million in the aggregate per
fiscal year, (y) contracts in respect of the TrAIL and PATH
projects or other projects the costs for which are fully
recoverable through formula rates or can be passed through to
customers, and (z) a power sale contract awarded in a
competitive procurement process (irrespective of the terms of
such contract);
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take any action which would reasonably be expected to prevent,
interfere with or delay the merger; or
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agree or commit to take any of the foregoing actions.
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Conduct
of FirstEnergys Operations
Unless required by applicable law, with the written consent of
Allegheny Energy (which consent will not be unreasonably
withheld, delayed or conditioned) in writing, or except as
expressly required or contemplated by to the merger agreement,
FirstEnergy has agreed that it will, and will cause its
subsidiaries to, during the period from the date of the merger
agreement until the effective time of the merger:
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conduct its business in the ordinary course of business
consistent with past practice and use reasonable best efforts to
preserve its existing business;
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subject to certain exceptions, not take, or permit any of its
subsidiaries to take, the following actions:
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amend its organizational documents;
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declare, set aside or pay dividends or make any distribution
payable in cash, stock or property in respect of any capital
stock, other than (i) the payment of quarterly dividends
not to exceed the current dividend rate and otherwise in
accordance with past dividend practice and (ii) the payment
of dividends from a subsidiary to FirstEnergy or to another
wholly owned subsidiary;
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split, combine or reclassify its capital stock or issue other
securities;
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adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization;
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redeem, repurchase or otherwise acquire indebtedness for
borrowed money of FirstEnergy or its subsidiaries, other than
between FirstEnergy and its subsidiaries or among its
subsidiaries in the ordinary course, and other than (i) at
or within 120 days of stated maturity, (ii) any
required amortization payments and mandatory prepayments and
(iii) indebtedness under certain specified agreements;
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acquire or agree to acquire any person or assets if (i) the
amount to be expended exceeds $350 million in any one
transaction or $700 million in the aggregate; provided that
any
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134
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acquisition would not result in a downgrade of
FirstEnergys unsecured credit rating below investment
grade or (ii) such acquisition is reasonably likely to
materially delay the receipt of required regulatory approvals
for the merger;
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sell, lease or grant any security interest in or otherwise
dispose of or encumber any material portion of its material
properties or assets, other than (i) dispositions with or
among subsidiaries, (ii) dispositions of obsolete assets or
assets being replaced, each in the ordinary course,
(iii) dispositions according to plans mandated by local or
state regulatory agencies, (iv) liens arising under
existing indentures and agreements of subsidiaries,
(v) cash collateralization of letters of credit upon a
default (under existing credit facilities), and
(vi) dispositions of accounts receivable of subsidiaries
under accounts receivable financing arrangements;
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materially increase the compensation or other benefits payable
to, or enter into or change any agreement, plan or policy
(including employment, change of control, severance, retention
or collective bargaining agreements) with or for the benefit of,
directors, executive officers, managers or employees, other than
in the ordinary course, and other than (i) agreements
entered into with newly-hired employees or for promotions, in
each case consistent with past practice, (ii) employment
agreements terminable on less than 30 days notice
without penalty, (iii) severance agreements with
non-executive officers in connection with termination of
employment, consistent with past practice, (iv) renewals of
existing severance agreements, or (v) employment or
severance agreements entered into in the ordinary course
consistent with past practice with executive officers, but only
to the extent payments under such agreements are not made solely
as a result of consummation of the merger;
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issue equity or dispose of or encumber any other ownership
interest in FirstEnergy or its subsidiaries, other than upon the
exercise of existing awards or the granting of new awards in the
ordinary course; however, any awards granted after the date of
the merger agreement shall not vest or accelerate as a result of
consummation of the merger;
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repurchase capital stock;
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create, incur or assume any indebtedness for borrowed money of
FirstEnergy or guarantees thereof, or enter into any keep
well agreement, capital lease, synthetic lease
or conditional sale, other than (i) in the ordinary course,
(ii) as otherwise permitted under the merger agreement,
(iii) refinancing of existing debt on commercially
reasonable terms, or (iv) borrowings under existing
commercial paper programs or revolving credit facilities;
provided such actions in clauses (i) through
(iv) would not cause any two of Fitch Ratings, Ltd.,
Standard & Poors Ratings Service or Moodys
Investors Service, Inc. to recognize FirstEnergys
corporate credit rating to be less than investment grade; also,
FirstEnergy will not make any loans, advances or capital
contributions to, or investments in another person, other than
in the ordinary course or as required pursuant to an obligation
in effect as of the date of the merger agreement;
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materially change financial accounting policies or procedures,
except as required by GAAP, the SEC or applicable law;
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amend, terminate or materially violate FirstEnergys
trading policies which restrict the level of risk FirstEnergy is
authorized to take with respect to, among other things, the net
position resulting from all physical commodity transactions,
exchange-traded futures and
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135
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options transactions, over-the-counter transactions and
derivatives thereof and similar transactions;
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settle any claim relating to taxes, make or change any tax
election, change any methods of tax accounting, file any amended
tax return, enter in any closing agreement affecting tax
liability or extend the application of any statute of
limitations regarding any tax assessment, other than as required
by law or if such action would not be materially adverse to
FirstEnergy;
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settle material legal proceedings, other than payments or
settlements (i) that do not exceed $30 million
individually or $70 million in aggregate over a
12-month
period, (ii) that were due prior to the date of the merger
agreement, or (iii) in connection with regulatory
proceedings;
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enter into a new line of business or conduct
non-U.S. business
other than in the ordinary course;
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permit insurance to lapse or not be at levels customary for
utility companies;
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take any action which would reasonably be expected to prevent,
interfere with or delay the merger; or
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agree or commit to take any of the foregoing actions.
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Additional
Agreements
Preparation
of Joint Proxy Statement/Prospectus and Registration
Statement
FirstEnergy and Allegheny Energy will use reasonable best
efforts to have the
Form S-4
registration statement of which this joint proxy
statement/prospectus is a part declared effective as promptly as
reasonably practicable, and will mail the joint proxy
statement/prospectus to FirstEnergy and Allegheny Energy
shareholders. FirstEnergy and Allegheny Energy will generally
consult on all matters related to the preparation and filing of
this joint proxy statement/prospectus.
Shareholders
Meetings
Each of FirstEnergy and Allegheny Energy will, as promptly as
practicable after the
Form S-4
registration statement of which this joint proxy
statement/prospectus is a part is declared effective under the
Securities Act, take all action necessary in accordance with
applicable laws and their respective organizational documents,
and duly give notice of, convene and hold a meeting of its
shareholders to consider, respectively, at the FirstEnergy
special meeting, the authorization and approval of the share
issuance and the other transactions contemplated by the merger
agreement and the adoption of the charter amendment and, at the
Allegheny Energy special meeting, the approval of the merger
agreement and the merger.
Except in the case of a permitted change of recommendation by
Allegheny Energy, Allegheny Energy will, through its board of
directors, recommend that its stockholders approve the merger
agreement and the merger and will use reasonable best efforts to
solicit from its stockholders proxies in favor of the approval
of the merger agreement and the merger and to take all other
action necessary or advisable to secure the approval of its
stockholders required by the rules of the NYSE or applicable
laws. Except in the case of a permitted change of recommendation
by FirstEnergy, FirstEnergy will, through its board of
directors, recommend that its shareholders authorize and approve
the share issuance and the other transactions contemplated by
the merger agreement and adopt the charter amendment, and will
use reasonable best efforts to solicit from its shareholders
proxies in favor of the share issuance and the other
transactions contemplated by the merger
136
agreement and the charter amendment and to take all other action
necessary or advisable to secure the approval of its
shareholders required by the rules of the NYSE or applicable
laws.
Each of FirstEnergy and Allegheny Energy will use reasonable
best efforts to hold their respective special meeting of
shareholders on the same date as the other party and as soon as
reasonably practicable after the date of the merger agreement.
Stock
Exchange Listing
FirstEnergy has agreed to use its reasonable best efforts to
cause the shares of FirstEnergy common stock issuable as merger
consideration to be listed on the NYSE prior to the effective
time of the merger, subject to official notice of issuance.
Employee
Benefit Matters
Upon and after the completion of the merger, FirstEnergy will
generally honor all Allegheny Energy benefit plans that were in
place prior to the merger in accordance with their terms as in
effect immediately prior to the completion of the merger.
However, FirstEnergy will not be prohibited from amending or
terminating any of those plans in accordance with their terms or
from terminating any Allegheny Energy employee to the extent
permitted by applicable law.
For a period of at least one year following the completion of
the merger, FirstEnergy will generally provide to each current
and former non-union Allegheny Energy employee compensation and
employee benefits that are no less favorable, in the aggregate,
than the compensation and benefits provided to those employees
immediately before the merger. However, FirstEnergy is entitled
to make modifications to the compensation and benefits of those
employees to the extent the modifications do not result in
compensation and benefits for those employees that are less
favorable in the aggregate than the compensation and benefits
that are then provided to similarly situated non-union employees
of FirstEnergy. Notwithstanding the foregoing to the contrary,
FirstEnergy will not reduce, but will not be obligated to
increase, the rate at which any Allegheny Energy employee, who
immediately prior to the merger earned at least five weeks paid
vacation per year, earns paid vacation time after completion of
the merger.
For purposes of vesting, eligibility to participate and accrual
and level of benefits under the employee benefit plans of
FirstEnergy and its subsidiaries providing benefits to any
Allegheny Energy employees after the completion of the merger,
referred to as the New Plans, each Allegheny Energy employee
will be credited for his or her years of service with Allegheny
Energy prior to the merger to the same extent as the Allegheny
Energy employee was entitled, prior to the merger, to credit for
service under any similar Allegheny Energy employee benefit plan
in which the Allegheny Energy employee participated or was
eligible to participate immediately prior to the merger.
However, the foregoing will not apply to the extent any
duplication of benefits or benefit accrual under a defined
benefit pension plan would occur. In addition, (a) each
Allegheny Energy employee will be immediately eligible to
participate, without any waiting time, in any and all New Plans
to the extent coverage under the New Plan is comparable to an
existing Allegheny Energy benefit plan, and (b) for
purposes of each New Plan providing medical, dental,
pharmaceutical or vision benefits to any Allegheny Energy
employee, all pre-existing condition exclusions and
actively-at-work requirements will be waived for the employee
and his or her covered dependents, unless the conditions would
not have been waived under the comparable plans of Allegheny
Energy or its subsidiaries in which the employee participated
immediately prior to the merger. Any eligible expenses incurred
by the employee and his or her covered dependents during the
time the employees participation in the Allegheny Energy
plan ends and the time the employees participation in the
corresponding New Plan begins will be taken into account under
the New Plan
137
for purposes of satisfying all deductible, coinsurance and
maximum out-of-pocket requirements applicable to the employee
and his or her covered dependents for the applicable plan year
as if the amounts had been paid in accordance with the New Plan.
Following the completion of the merger, FirstEnergy will
generally honor, without modification, all contracts,
agreements, collective bargaining agreements and commitments of
the parties that generally existed prior to the merger that
apply to any current or former employee or current or former
director of Allegheny Energy. However, this will not prevent
FirstEnergy from enforcing those contracts, agreements,
collective bargaining agreements and commitments in accordance
with their terms, including any reserved right to amend, modify,
suspend, revoke or terminate those contracts, agreements,
collective bargaining agreements or commitments.
For a period of at least one year following the completion of
the merger, FirstEnergy will provide severance benefits on an
individual-by-individual
basis that are no less favorable to Allegheny Energy employees
than the severance benefits provided to Allegheny Energy
employees under Allegheny Energys severance programs as of
immediately prior to the merger.
If an applicable Allegheny Energy benefit plan is terminated in
which non-union employees of Allegheny Energy participate,
FirstEnergy will (a) permit the affected non-union
employees to participate in any similar plan established by
FirstEnergy in a manner substantially similar to similarly
situated employees of FirstEnergy, recognizing that the
availability, providers or benefit levels of the plan
established by FirstEnergy may reflect differing circumstances;
(b) waive any pre-existing condition exclusions and
actively-at-work requirements with respect to the applicable
FirstEnergy plan; and (c) provide that any expenses
incurred by any affected employee or his or her covered
dependents on or before the date the merger is completed will be
taken into account for purposes of satisfying applicable
deductible, coinsurance and maximum out-of-pocket provisions
with respect to the applicable FirstEnergy plan.
FirstEnergy will (a) allow, following the completion of the
merger, Allegheny Energy employees to use the remaining amount
of accrued but unused vacation and sick leave to which those
employees were entitled immediately prior to the merger;
(b) allow the Allegheny Energy employees to participate, as
soon as practical, in all job placement, job posting, job
training, career development and educational programs of
FirstEnergy; and (c) consider Allegheny Energy employees
for positions at FirstEnergy and its subsidiaries resulting from
the merger using criteria including previous work history, job
experience and qualifications.
Section 16
Matters
Prior to the effective time of the merger, FirstEnergy and
Allegheny Energy will take all such steps as may be required to
cause any dispositions of shares of Allegheny Energy common
stock in connection with the merger by each individual who is
subject to the reporting requirements of Section 16(a) of
the Exchange Act with respect to Allegheny Energy or will become
subject to such reporting requirements with respect to
FirstEnergy, to be exempt under
Rule 16b-3
promulgated under the Exchange Act.
Certain
Tax Matters
The merger agreement is intended to constitute a plan of
reorganization within the meaning of Treasury
Regulation Section 1.368-2(g).
Each of FirstEnergy and Allegheny Energy will use their
reasonable best efforts to cause the merger to qualify as a
reorganization within the meaning of
Section 368(a) of the Internal Revenue Code and to obtain
tax opinions as set forth in the merger agreement.
138
Efforts
Related to Consents and Approvals of Governmental Entities and
Third Parties
Subject to the terms and conditions of the merger agreement,
each of FirstEnergy and Allegheny Energy will use its reasonable
best efforts to promptly take all actions necessary, proper or
advisable under applicable laws to complete the merger,
including obtaining all necessary approvals from governmental
entities, obtaining all necessary third party approvals,
defending any legal proceedings relating to the merger, and all
other actions reasonably necessary to complete the merger, but
no party will be required to pay any fee or penalty for any
consent or approval (and Allegheny Energy and its subsidiaries
will not pay more than $17.5 million without
FirstEnergys prior consent).
Subject to the terms and conditions of the merger agreement,
FirstEnergy and Allegheny Energy will as promptly as
practicable, make all relevant filings with governmental
entities, including with the FERC and any filings under the HSR
Act and will use reasonable best efforts to cooperate with each
other in determining any required consents, timely make all such
other filings, and take any actions necessary, proper or
advisable to complete the merger, including taking any action
necessary to resolve any objections. FirstEnergy and Allegheny
Energy agree to consult with each other and keep each other
appraised of any developments.
If any administrative or judicial proceeding is instituted or
threatened to challenge the merger as violating regulatory law,
FirstEnergy and Allegheny Energy will cooperate and use their
reasonable best efforts to contest and resist any such
proceeding.
In using their reasonable best efforts to obtain these required
regulatory approvals, under the terms of the merger agreement,
neither FirstEnergy nor Allegheny Energy may be required to take
certain actions (such as divesting or holding separate assets or
entering into settlements or consent decrees) (i) as
required by federal governmental authorities if such action
would reasonably be expected to have a material adverse effect
on FirstEnergy (without giving effect to the merger) or on the
combined company (giving effect to the merger and to any
conditions imposed by state regulatory approvals); or
(ii) as required by state regulatory authorities if such
action would reasonably be expected to have a material adverse
effect on Allegheny Energy or on FirstEnergy, provided that for
purposes of determining whether a potential adverse effect
resulting from a condition imposed by a state regulatory
authority would be expected to have a material adverse effect on
FirstEnergy, FirstEnergy shall be deemed to be a company the
size and scale of Allegheny Energy.
Public
Statements
Subject to certain exceptions, and except as required by
applicable law, FirstEnergy, Merger Sub and Allegheny Energy
will use reasonable best efforts to consult with each other
before issuing any press release or making any public
announcement relating to the merger.
Charitable
Contributions
During the three-year period after closing, FirstEnergy will
provide community development and charitable contributions to
Allegheny Energys utility service areas consistent with
Allegheny Energys current levels, and thereafter
consistent with FirstEnergy levels of contributions within its
utility service areas.
Integration
Committee
FirstEnergy and Allegheny Energy have created a transition team
and transition steering committee comprised of management and
senior executives from both FirstEnergy and Allegheny
139
Energy to examine various alternatives regarding the manner in
which to best integrate the businesses of FirstEnergy and
Allegheny Energy after the effective time, subject to applicable
law.
Investigation
To the extent it does not unreasonably disrupt the operations of
the other party, cause a violation of any third party agreement
or applicable law, or risk a loss of privilege, FirstEnergy and
Allegheny Energy will afford the other party and its officers,
employees and representatives reasonable access during normal
business hours, until the earlier of the effective time and the
termination of the merger agreement, to its and its
subsidiaries personnel and properties, contracts,
commitments, books and records and any documents filed or
received by it pursuant to applicable law and with such
additional accounting, financing, operating and other data and
information regarding it and its subsidiaries as the other party
may reasonably request. Consistent with applicable law,
FirstEnergy and Allegheny Energy will, and will cause their
respective subsidiaries to discuss, on a reasonable basis, with
the others representatives, material operational and
regulatory matters and the general status of their ongoing
operations for purposes related to the completion of the merger,
and furnish promptly all other information concerning their
business, properties and personnel as the other may reasonably
request in connection with the merger. Allegheny Energy will
permit FirstEnergy and its officers, employees and
representatives access to its and its subsidiaries
properties to perform environmental site assessments, subject to
certain limitations.
Indemnification
and Insurance
All rights to indemnification existing in favor of the current
or former directors, officers and employees of Allegheny Energy
and its subsidiaries as provided in the organizational and
governing documents or indemnification agreements of Allegheny
Energy and its subsidiaries, in each case as in effect as of the
effective time with respect to matters occurring prior to the
effective time of the merger, will survive the merger and will
continue in full force and effect as obligations of the
surviving entity for a period of not less than six years after
the effective time. FirstEnergy has agreed to guarantee the full
performance of these indemnification obligations by Allegheny
Energy.
For a period of six years after the effective time, FirstEnergy
will cause Allegheny Energy to maintain insurance policies for
the persons who, as of the date of the merger agreement or as of
the closing date of the merger, are covered by Allegheny
Energys existing directors and officers
liability insurance and fiduciary liability insurance with
respect to matters existing or occurring at or prior to the
effective time of the merger, provided that FirstEnergy will not
be required to pay in excess of 250% of the last annual premium
paid by Allegheny Energy for its existing coverage in the
aggregate. Alternatively, FirstEnergy may direct Allegheny
Energy to purchase tail insurance coverage, at a
cost no greater than the aggregate amount which Allegheny Energy
would be permitted to spend during the six-year period, that
provides coverage no materially less favorable than described
above.
State
Takeover Laws
FirstEnergy and Allegheny Energy have agreed that if any state
antitakeover laws become, or may purport to be, applicable to
the transactions contemplated by the merger, FirstEnergy and
Allegheny Energy will grant such approvals and take such actions
as are reasonably necessary so that the merger may be completed
as promptly as practicable and otherwise act to minimize the
effects of such laws on the merger.
140
Non-Solicitation
Neither FirstEnergy nor Allegheny Energy, nor any of their
subsidiaries or their respective officers, directors or
employees will, and each will use its reasonable best efforts
not to, directly or indirectly, take any of the following
actions:
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solicit, initiate, seek, knowingly encourage or knowingly take
any other action designed to facilitate any acquisition proposal;
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furnish any nonpublic information in connection with any
acquisition proposal;
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engage or participate in any discussions or negotiations with
any person with respect to any acquisition proposal;
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approve, endorse or recommend any acquisition proposal; or
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enter into any agreement for an acquisition transaction;
|
except, FirstEnergy or Allegheny Energy may, as applicable,
prior to shareholder approval of its respective proposals
related to the merger, and subject to certain notice and other
requirements, furnish nonpublic information to, or engage in
discussions or negotiations with, any person in response to an
unsolicited, bona fide acquisition proposal that the board of
directors of that party determines in good faith after
consultation with its financial advisors is, or would be
reasonably likely to lead to a superior offer, so long as:
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the board of directors of that party concludes in good faith
after consultation with its outside legal counsel that failure
to take such action would be reasonably likely to be
inconsistent with the exercise of the board of directors
duties under applicable law;
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any acquisition proposal does not result from an intentional or
material breach of its non-solicitation obligations;
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notice is provided to the other party within 24 hours of
receiving any acquisition proposal; and
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the company furnishes any nonpublic information provided to the
maker of the acquisition proposal only pursuant to a
confidentiality agreement on terms no less favorable to it than
the confidentiality agreement between FirstEnergy and Allegheny
Energy and furnishes the same information to the other party to
the merger agreement at substantially the same time.
|
In addition, FirstEnergy or Allegheny Energy, may, as
applicable, take and disclose to its shareholders a position
contemplated by
Rule 14d-9
and
Rule 14e-2(a)
promulgated under the Exchange Act with regard to any
acquisition proposal.
If either party receives an acquisition proposal it will
promptly keep the other party advised orally and in writing of
such proposal, including providing all documents and
correspondence related thereto.
Acquisition proposal means any bona fide offer,
inquiry, proposal or indication of interest received from a
third party relating to any acquisition transaction.
Acquisition transaction means, as applicable to
FirstEnergy or Allegheny Energy and their respective
subsidiaries, any transaction involving any merger,
consolidation, share exchange or similar transaction; any direct
or indirect acquisition of securities, tender offer, exchange
offer or other similar transaction in which a person or
Group (as defined in the Exchange Act) of persons
acquires beneficial or record ownership of securities
representing twenty percent (20%) or more of any class of equity
securities, any acquisition of any business or assets that
constitute twenty percent
141
(20%) or more of the consolidated net revenues, net income or
assets, taken as a whole, or any liquidation or dissolution.
Superior offer means an acquisition proposal to
acquire at least a majority of the outstanding equity securities
or assets of FirstEnergy or Allegheny Energy, respectively, on
terms that its respective board of directors determines, in good
faith, after consultation with its outside legal counsel and its
financial advisor, is more favorable, from a financial point of
view, to its respective shareholders than the merger and the
transactions contemplated by it (including any proposal by the
other party to amend the terms of the merger agreement which are
committed to in writing) and is reasonably likely to be
completed, taking into account, (a) all financial
considerations and financial aspects of such acquisition
proposal and the merger and the transactions contemplated by the
merger agreement, (b) all strategic considerations,
including whether such acquisition proposal is more favorable
from a long-term strategic standpoint, (c) all legal and
regulatory considerations of such acquisition proposal and the
merger and the other transactions contemplated by the merger
agreement, (d) the identity of the third party making such
acquisition proposal, (e) the conditions and likelihood of
completion of such acquisition proposal as compared to the
merger and the other transactions contemplated by the merger
agreement (taking into account any necessary regulatory
approvals), (f) whether such acquisition proposal is likely
to impose material obligations on FirstEnergy or Allegheny
Energy, as applicable (or the post-closing entity in which its
respective shareholders will hold securities) in connection with
obtaining necessary regulatory approvals, (g) whether such
acquisition proposal is subject to a financing condition and the
likelihood of such acquisition proposal being financed, and
(h) the payment of any termination fee by FirstEnergy or
Allegheny Energy, as applicable, if relevant.
Ability
to Make a Change of Recommendation
Neither FirstEnergy nor Allegheny Energy may change its
recommendation to its shareholders or fail to re-affirm its
recommendation after being requested to do so by the other
party, make any public statement inconsistent with its
recommendation or approve, adopt or recommend any acquisition
proposal, except that FirstEnergy or Allegheny Energy may change
its recommendation if:
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such party has received an acquisition proposal that its board
of directors determines, in good faith after consultation with
its financial advisors, constitutes a superior proposal;
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such partys board of directors determines, after
consultation with outside legal counsel, that failure to change
its recommendation or terminate the merger agreement would be
reasonably likely to be inconsistent with its duties under
applicable law;
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the other party was given five business days notice of the
intent to change the board recommendation, during which time the
merger agreement must be renegotiated in good faith, if so
requested, to avoid a change of recommendation; and
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the other party was given at least two hours advance written
notice of the change of recommendation or taking of such other
action.
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In addition, either FirstEnergy or Allegheny Energy may change
its recommendation to its shareholders where there has been no
acquisition proposal, if:
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such partys board of directors determines, after
consultation with outside legal counsel, that failure to change
its recommendation would be reasonably likely to be inconsistent
with its duties under applicable law;
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142
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the other party was given five business days notice of the
intent to change the board recommendation, during which time the
merger agreement must be renegotiated in good faith, if so
requested, to avoid a change of recommendation; and
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the other party was given at least two hours advance written
notice of the change of recommendation.
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Termination
of the Merger Agreement
The merger agreement may be terminated and the merger may be
abandoned, at any time before the merger is completed and
whether before or after FirstEnergy and/or Allegheny Energy
shareholder approval has been obtained, in the following
circumstances:
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by FirstEnergy and Allegheny Energys mutual written
agreement;
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by FirstEnergy or Allegheny Energy, if the merger is not
completed on or prior to the 14 month anniversary of the
signing of the merger agreement, or April 10, 2011,
referred to as the End Date, unless, prior to that date the End
Date is extended for three months by either party by written
notice to the other; and provided further that if all closing
conditions have been satisfied or are capable of being satisfied
(other than certain conditions with respect to approvals and
legal restraints), the End Date may be extended by Allegheny
Energy or FirstEnergy from time to time by written notice up to
a date not beyond an additional three months after the End Date;
provided further, if there has been an order by a governmental
authority and the End Date falls during the waiting period with
respect to such order during which the merger cannot be
consummated, then the End Date will be deemed to fall three days
after the end of that waiting period; however, if a party has
caused the failure of the merger to close by failing to comply
with the merger agreement, then that party will not have the
right to terminate the merger agreement in accordance with any
of the provisions described in this paragraph;
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by FirstEnergy or Allegheny Energy, if a governmental entity has
taken any action preventing or prohibiting the completion of the
merger and such action has become final and nonappealable and
the party seeking to terminate has used reasonable best efforts
to prevent such action;
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by FirstEnergy or Allegheny Energy, if the Allegheny Energy
stockholder approval is not obtained after the Allegheny Energy
stockholder meeting has concluded so long as, in the case of a
termination by Allegheny Energy, the failure to obtain Allegheny
Energy stockholder approval was not caused by Allegheny
Energys material breach of the merger agreement;
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by FirstEnergy or Allegheny Energy, if the FirstEnergy
shareholder approval is not obtained after the FirstEnergy
shareholder meeting has concluded so long as, in the case of a
termination by FirstEnergy, the failure to obtain FirstEnergy
shareholder approval was not caused by FirstEnergys
material breach of the merger agreement;
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by FirstEnergy or Allegheny Energy, if the other has materially
breached any representation or agreement that would result in a
failure to be satisfied of the conditions to such terminating
partys obligations to complete the merger and which cannot
be cured by the End Date, provided the terminating party has
given the other notice of such breach at least 30 days
prior to the termination;
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by FirstEnergy or Allegheny Energy, if the other has materially
breached its non-solicitation obligations;
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143
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by FirstEnergy or Allegheny Energy, before obtaining its
shareholder approval in order to enter into an agreement for a
superior offer, if it has complied with its non-solicitation
obligations described above and provided the other party with
five business days written notice of its intent to terminate the
merger agreement and the other party does not make, within five
business days of receipt of such notice, an offer that the
terminating partys board of directors determines (after
good faith negotiation with the other party), in its reasonable
good faith judgment after consultation with its financial
advisors, is more favorable, from a financial point of view, to
the shareholders of FirstEnergy or Allegheny Energy, as
applicable, than the applicable superior offer, subject to
paying of any applicable termination fee;
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|
by FirstEnergy or Allegheny Energy, if there has been a change
of recommendation by the board of directors of the other
party; or
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|
|
|
by FirstEnergy, if waivers with respect to certain debt
facilities of Allegheny Energy and certain of its subsidiaries
expire, and change in control (as defined in the debt
facilities) provisions are triggered, subject to certain
limitations (effective February 26, 2010, Allegheny Energy
had obtained consents to the merger from the lenders under such
debt facilities such that the merger will not cause any change
in control, default or similar event under these debt
facilities).
|
Effect of
Termination
Allegheny Energy has agreed to pay FirstEnergy $150 million
(and FirstEnergys reasonably documented transaction
expenses up to $45 million) if the merger agreement is
terminated:
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|
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by FirstEnergy, if Allegheny Energy materially breaches its
non-solicitation obligations;
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|
|
by FirstEnergy, upon a change of recommendation by the board of
directors of Allegheny Energy;
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|
|
|
by Allegheny Energy, if it accepts a superior offer;
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|
|
|
by FirstEnergy, if Allegheny Energy willfully breaches any
representation or agreement that would result in a failure to be
satisfied of the conditions to complete the merger, or by
FirstEnergy or Allegheny Energy if the Allegheny Energy
stockholder approval is not obtained or the merger is not
completed by the End Date and, in each case:
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|
|
|
|
prior to termination, there is a public announcement of another
acquisition proposal for Allegheny Energy; and
|
|
|
|
within 12 months of termination, Allegheny Energy signs or
consummates an acquisition transaction.
|
FirstEnergy has agreed to pay Allegheny Energy $350 million
(and reasonably documented transaction expenses up to
$45 million) if the merger agreement is terminated:
|
|
|
|
|
by Allegheny Energy, if FirstEnergy materially breaches its
non-solicitation obligations;
|
|
|
|
by Allegheny Energy, upon a change of recommendation by the
board of directors of FirstEnergy;
|
|
|
|
by FirstEnergy, if it accepts a superior offer;
|
|
|
|
by Allegheny Energy, if FirstEnergy willfully breaches any
representation or agreement that would result in a failure to be
satisfied of the conditions to complete the merger, or by
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144
|
|
|
|
|
FirstEnergy or Allegheny Energy if the FirstEnergy shareholder
approval is not obtained or the merger is not completed by the
End Date and, in each case:
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|
|
|
|
|
prior to termination, there is a public announcement of an
acquisition proposal for FirstEnergy; and
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|
|
|
within 12 months of termination, FirstEnergy signs or
consummates an acquisition transaction.
|
Allegheny Energy has agreed to reimburse FirstEnergys
reasonably documented transaction expenses (up to
$45 million) if FirstEnergy terminates the merger agreement
because the Allegheny Energy stockholder approval was not
obtained, but no termination fee is payable;
Allegheny Energy has agreed to reimburse 75% of
FirstEnergys reasonably documented transaction expenses
(up to $33.75 million) if FirstEnergy terminates the merger
agreement because waivers with respect to certain debt
facilities of Allegheny Energy and certain of its subsidiaries
expire, and change in control (as defined in the debt
facilities) provisions are triggered, subject to certain
limitations (effective February 26, 2010, Allegheny Energy
had obtained consents to the merger from the lenders under such
debt facilities such that the merger will not cause any change
in control, default or similar event under these debt
facilities); and
FirstEnergy has agreed to reimburse Allegheny Energys
reasonably documented transaction expenses (up to
$45 million), if Allegheny Energy terminates the merger
agreement because the FirstEnergy shareholder approval was not
obtained, but no termination fee was payable.
For purposes of this section Effect of Termination,
acquisition proposal, acquisition
transaction and superior offer shall have the
meanings ascribed in the section entitled
Non-Solicitation above, except that all
references to twenty percent (20%) shall be fifty percent (50%).
Change of recommendation means that the board of
FirstEnergy or Allegheny Energy, respectively:
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|
|
withholds, withdraws, qualifies or modifies its recommendation
in a manner adverse to the other;
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|
|
makes any other public statement in connection with its
shareholders or stockholders meeting or the merger
agreement or the merger inconsistent with its recommendation;
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|
approves, adopts or recommends any acquisition proposal; or
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|
|
fails to reaffirm or re-publish its recommendation within five
days of being requested by the other party to do so.
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Fees and
Expenses
All expenses incurred in connection with the merger agreement
and the transactions contemplated by it will be paid by the
party incurring such expenses, whether or not the merger is
completed, except that the HSR Act filing fees and the expenses
incurred in connection with printing, filing and mailing of the
joint proxy statement/prospectus (including applicable SEC fees)
will be borne equally by FirstEnergy and Allegheny Energy.
Amendment
and Waiver
The merger agreement may be amended by the parties at any time
before or after the Allegheny Energy stockholders approve the
merger agreement; provided, however, that after any such
approval, the parties will not make any amendment that by law
requires further approval by the
145
stockholders of Allegheny Energy without the further approval of
those stockholders. The merger agreement may not be amended
except by an instrument in writing signed on behalf of each of
the parties. Any waiver of a provision of the merger agreement
must be in writing and signed by the party against whom the
waiver is to be effective.
Third
Party Beneficiaries
The merger agreement, except for the indemnification and
insurance provisions described above, does not confer upon any
person other than the parties to the merger agreement any rights
or remedies.
Governing
Law
The merger agreement is governed by and will be construed in
accordance with (a) the laws of the State of Maryland with
respect to the merger or fiduciary duties of the board of
directors of Allegheny Energy or Merger Sub, (b) the laws
of the State of Ohio with respect to fiduciary duties of the
board of directors of FirstEnergy, and (c) the laws of the
State of New York with respect to all other matters, without
giving effect to any choice of law provision that would cause
the application of a different jurisdictions law.
Jurisdiction;
Specific Performance
Any matters related to the merger agreement or the transactions
contemplated by it must be exclusively brought in the Federal
court located in Manhattan, New York. FirstEnergy and Allegheny
Energy are entitled to seek specific performance to enforce the
terms of the merger agreement.
146
UNAUDITED
PRO FORMA CONDENSED COMBINED CONSOLIDATED
FINANCIAL INFORMATION
The Unaudited Pro Forma Condensed Combined Consolidated
Financial Statements (pro forma financial statements) have been
derived from the historical consolidated financial statements of
FirstEnergy and Allegheny Energy incorporated by reference in
this joint proxy statement/prospectus.
The Unaudited Pro Forma Condensed Combined Consolidated
Statements of Income (pro forma statements of income) for the
three months ended March 31, 2010 and the year ended
December 31, 2009 give effect to the merger as if it were
completed on January 1, 2009. The Unaudited Pro Forma
Condensed Combined Consolidated Balance Sheet (pro forma balance
sheet) as of March 31, 2010 gives effect to the merger as
if it were completed on March 31, 2010.
The historical consolidated financial information has been
adjusted in the pro forma financial statements to give effect to
pro forma events that are: (1) directly attributable to the
merger; (2) factually supportable; and (3) with
respect to the statements of income, expected to have a
continuing impact on the combined results of FirstEnergy and
Allegheny Energy.
The pro forma financial statements do not reflect any cost
savings (or associated costs to achieve such savings) from
operating efficiencies, synergies or other restructuring that
could result from the merger. Further, the pro forma financial
statements do not reflect the effect of any regulatory actions
that may impact the pro forma financial statements when the
merger is completed.
The acquisition of Allegheny Energy common stock by FirstEnergy
in the merger will be accounted for in accordance with the
acquisition method of accounting and the regulations of the SEC.
The purchase price will be determined on the basis of the fair
value on the acquisition date of the shares of FirstEnergy
common stock issued in the merger. The purchase price for the
pro forma financial statements is based on the closing price of
FirstEnergy common stock on the NYSE on July 12, 2010, of
$37.26 and the exchange of Allegheny Energys outstanding
shares of common stock for the right to receive 0.667 of a share
of FirstEnergy common stock.
Assumptions and estimates underlying the pro forma adjustments
are described in the accompanying notes, which should be read in
connection with the pro forma financial statements. Since the
pro forma financial statements have been prepared based on
preliminary estimates, the final amounts recorded at the date of
the merger may differ materially from the information presented.
These estimates are subject to change pending further review of
the assets acquired and liabilities assumed.
The pro forma financial statements have been presented for
illustrative purposes only and are not necessarily indicative of
results of operations and financial position that would have
been achieved had the pro forma events taken place on the dates
indicated, or the future consolidated results of operations or
financial position of the combined company.
The following pro forma financial statements should be read in
conjunction with:
|
|
|
|
|
the accompanying notes to the Unaudited Pro Forma Condensed
Combined Consolidated Financial Statements;
|
|
|
|
the consolidated financial statements of FirstEnergy as of and
for the year ended December 31, 2009 included in
FirstEnergys
Form 10-K,
and incorporated by reference in this joint proxy
statement/prospectus;
|
|
|
|
the unaudited consolidated interim financial statements of
FirstEnergy as of and for the three months ended March 31,
2010 included in FirstEnergys Form 10-Q, and
incorporated by reference in this joint proxy
statement/prospectus;
|
147
|
|
|
|
|
the consolidated financial statements of Allegheny Energy as of
and for the year ended December 31, 2009 included in
Allegheny Energys
Form 10-K,
and incorporated by reference in this joint proxy
statement/prospectus;
|
|
|
|
the unaudited consolidated interim financial statements of
Allegheny Energy as of and for the three months ended
March 31, 2010 included in Allegheny Energys Form
10-Q, and incorporated by reference in this joint proxy
statement/prospectus; and
|
|
|
|
the other information contained in or incorporated by reference
in this joint proxy statement/prospectus.
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FIRSTENERGY
CORP. AND ALLEGHENY ENERGY, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED CONSOLIDATED STATEMENT OF INCOME
For the Three Months Ended
March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allegheny
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
FirstEnergy
|
|
|
Energy (a)
|
|
|
Adjustments
|
|
|
Combined
|
|
|
|
(In millions, except per share amounts)
|
|
|
REVENUES
|
|
$
|
3,299
|
|
|
$
|
1,049
|
|
|
$
|
|
|
|
$
|
4,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel and purchased power
|
|
|
1,572
|
|
|
|
466
|
|
|
|
13
|
(b)
|
|
|
2,051
|
|
Other operating expenses
|
|
|
701
|
|
|
|
219
|
|
|
|
(5
|
)(c)
|
|
|
915
|
|
Provision for depreciation and amortization, net
|
|
|
405
|
|
|
|
88
|
|
|
|
4
|
(d)
|
|
|
497
|
|
General taxes
|
|
|
205
|
|
|
|
57
|
|
|
|
|
|
|
|
262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
2,883
|
|
|
|
830
|
|
|
|
12
|
|
|
|
3,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
416
|
|
|
|
219
|
|
|
|
(12
|
)
|
|
|
623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income, net
|
|
|
16
|
|
|
|
2
|
|
|
|
|
|
|
|
18
|
|
Interest expense
|
|
|
(172
|
)
|
|
|
(77
|
)
|
|
|
10
|
(e)
|
|
|
(239
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
(156
|
)
|
|
|
(75
|
)
|
|
|
10
|
|
|
|
(221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
260
|
|
|
|
144
|
|
|
|
(2
|
)
|
|
|
402
|
|
INCOME TAXES
|
|
|
111
|
|
|
|
56
|
|
|
|
(1
|
)(f)
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
|
149
|
|
|
|
88
|
|
|
|
(1
|
)
|
|
|
236
|
|
Noncontrolling interest income (loss)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS AVAILABLE TO PARENT
|
|
$
|
155
|
|
|
$
|
88
|
|
|
$
|
(1
|
)
|
|
$
|
242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE OF COMMON STOCK
|
|
$
|
0.51
|
|
|
$
|
0.52
|
|
|
|
|
|
|
$
|
0.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF BASIC SHARES OUTSTANDING
|
|
|
304
|
|
|
|
170
|
|
|
|
(56
|
)(g)
|
|
|
418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE OF COMMON STOCK
|
|
$
|
0.51
|
|
|
$
|
0.52
|
|
|
|
|
|
|
$
|
0.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF DILUTED SHARES OUTSTANDING
|
|
|
306
|
|
|
|
170
|
|
|
|
(56
|
)(g)
|
|
|
420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to the Unaudited Pro Forma Condensed
Combined Consolidated Financial Statements, which are an
integral part of these statements.
148
FIRSTENERGY
CORP. AND ALLEGHENY ENERGY, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED CONSOLIDATED STATEMENT OF INCOME
For the Year Ended
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allegheny
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
FirstEnergy
|
|
|
Energy (a)
|
|
|
Adjustments
|
|
|
Combined
|
|
|
|
(In millions, except per share amounts)
|
|
|
REVENUES
|
|
$
|
12,967
|
|
|
$
|
3,427
|
|
|
$
|
|
|
|
$
|
16,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel and purchased power
|
|
|
5,883
|
|
|
|
1,388
|
|
|
|
55
|
(b)
|
|
|
7,326
|
|
Other operating expenses
|
|
|
2,697
|
|
|
|
687
|
|
|
|
(19
|
)(c)
|
|
|
3,365
|
|
Provision for depreciation and amortization, net
|
|
|
1,755
|
|
|
|
218
|
|
|
|
16
|
(d)
|
|
|
1,989
|
|
General taxes
|
|
|
753
|
|
|
|
214
|
|
|
|
|
|
|
|
967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
11,088
|
|
|
|
2,507
|
|
|
|
52
|
|
|
|
13,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
1,879
|
|
|
|
920
|
|
|
|
(52
|
)
|
|
|
2,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income, net
|
|
|
204
|
|
|
|
7
|
|
|
|
|
|
|
|
211
|
|
Interest expense
|
|
|
(848
|
)
|
|
|
(291
|
)
|
|
|
46
|
(e)
|
|
|
(1,093
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
(644
|
)
|
|
|
(284
|
)
|
|
|
46
|
|
|
|
(882
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
1,235
|
|
|
|
636
|
|
|
|
(6
|
)
|
|
|
1,865
|
|
INCOME TAXES
|
|
|
245
|
|
|
|
242
|
|
|
|
(2
|
) (f)
|
|
|
485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
|
990
|
|
|
|
394
|
|
|
|
(4
|
)
|
|
|
1,380
|
|
Noncontrolling interest income (loss)
|
|
|
(16
|
)
|
|
|
1
|
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS AVAILABLE TO PARENT
|
|
$
|
1,006
|
|
|
$
|
393
|
|
|
$
|
(4
|
)
|
|
$
|
1,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE OF COMMON STOCK
|
|
$
|
3.31
|
|
|
$
|
2.32
|
|
|
|
|
|
|
$
|
3.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF BASIC SHARES OUTSTANDING
|
|
|
304
|
|
|
|
170
|
|
|
|
(56
|
)(g)
|
|
|
418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE OF COMMON STOCK
|
|
$
|
3.29
|
|
|
$
|
2.31
|
|
|
|
|
|
|
$
|
3.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF DILUTED SHARES OUTSTANDING
|
|
|
306
|
|
|
|
170
|
|
|
|
(56
|
)(g)
|
|
|
420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to the Unaudited Pro Forma Condensed
Combined Consolidated Financial Statements, which are an
integral part of these statements.
149
FIRSTENERGY
CORP. AND ALLEGHENY ENERGY, INC.
UNAUDITED
PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
As
of March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allegheny
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
FirstEnergy
|
|
|
Energy(a)
|
|
|
Adjustments
|
|
|
Combined
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
310
|
|
|
$
|
186
|
|
|
$
|
|
|
|
$
|
496
|
|
Receivables
|
|
|
1,395
|
|
|
|
400
|
|
|
|
|
|
|
|
1,795
|
|
Materials and supplies, at average cost
|
|
|
699
|
|
|
|
300
|
|
|
|
14
|
(h)
|
|
|
1,013
|
|
Prepaid taxes and other
|
|
|
450
|
|
|
|
393
|
|
|
|
49
|
(i)
|
|
|
892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,854
|
|
|
|
1,279
|
|
|
|
63
|
|
|
|
4,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In service, net
|
|
|
16,426
|
|
|
|
8,185
|
|
|
|
918
|
(j)
|
|
|
25,529
|
|
Construction work in progress
|
|
|
2,931
|
|
|
|
913
|
|
|
|
|
|
|
|
3,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,357
|
|
|
|
9,098
|
|
|
|
918
|
|
|
|
29,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nuclear plant decommissioning trusts
|
|
|
1,882
|
|
|
|
|
|
|
|
|
|
|
|
1,882
|
|
Investments in lease obligation bonds
|
|
|
495
|
|
|
|
|
|
|
|
|
|
|
|
495
|
|
Other
|
|
|
609
|
|
|
|
138
|
|
|
|
20
|
(h)
|
|
|
767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,986
|
|
|
|
138
|
|
|
|
20
|
|
|
|
3,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Charges and Other Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
5,575
|
|
|
|
367
|
|
|
|
284
|
(k)
|
|
|
6,226
|
|
Regulatory assets
|
|
|
2,398
|
|
|
|
724
|
|
|
|
129
|
(l)
|
|
|
3,251
|
|
Power purchase contract asset
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
148
|
|
Other
|
|
|
760
|
|
|
|
94
|
|
|
|
273
|
(i)(o)
|
|
|
1,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,881
|
|
|
|
1,185
|
|
|
|
686
|
|
|
|
10,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
34,078
|
|
|
$
|
11,700
|
|
|
$
|
1,687
|
|
|
$
|
47,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND CAPITALIZATION
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currently payable long-term debt
|
|
$
|
1,783
|
|
|
$
|
167
|
|
|
$
|
|
|
|
$
|
1,950
|
|
Short-term borrowings
|
|
|
886
|
|
|
|
|
|
|
|
|
|
|
|
886
|
|
Accounts payable
|
|
|
772
|
|
|
|
413
|
|
|
|
95
|
(m)
|
|
|
1,280
|
|
Accrued taxes and other
|
|
|
1,445
|
|
|
|
379
|
|
|
|
|
|
|
|
1,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,886
|
|
|
|
959
|
|
|
|
95
|
|
|
|
5,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stockholders equity-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
31
|
|
|
|
212
|
|
|
|
(201
|
)(n)
|
|
|
42
|
|
Other paid-in capital
|
|
|
5,432
|
|
|
|
1,974
|
|
|
|
2,268
|
(n)
|
|
|
9,674
|
|
Treasury stock
|
|
|
|
|
|
|
(2
|
)
|
|
|
2
|
(n)
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
(1,399
|
)
|
|
|
(44
|
)
|
|
|
44
|
(n)
|
|
|
(1,399
|
)
|
Retained earnings
|
|
|
4,482
|
|
|
|
1,086
|
|
|
|
(1,145
|
)(n)
|
|
|
4,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total common stockholders equity
|
|
|
8,546
|
|
|
|
3,226
|
|
|
|
968
|
|
|
|
12,740
|
|
Noncontrolling interest
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
8,535
|
|
|
|
3,226
|
|
|
|
968
|
|
|
|
12,729
|
|
Long-term debt and other long-term obligations
|
|
|
11,847
|
|
|
|
4,398
|
|
|
|
204
|
(o)
|
|
|
16,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,382
|
|
|
|
7,624
|
|
|
|
1,172
|
|
|
|
29,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deferred income taxes
|
|
|
2,602
|
|
|
|
1,537
|
|
|
|
420
|
(p)
|
|
|
4,559
|
|
Asset retirement obligations
|
|
|
1,449
|
|
|
|
56
|
|
|
|
|
|
|
|
1,505
|
|
Deferred gain on sale and leaseback transaction
|
|
|
984
|
|
|
|
|
|
|
|
|
|
|
|
984
|
|
Power purchase contract liability
|
|
|
738
|
|
|
|
110
|
|
|
|
|
|
|
|
848
|
|
Retirement benefits
|
|
|
1,527
|
|
|
|
619
|
|
|
|
|
|
|
|
2,146
|
|
Lease market valuation liability
|
|
|
251
|
|
|
|
|
|
|
|
|
|
|
|
251
|
|
Regulatory liabilities
|
|
|
|
|
|
|
469
|
|
|
|
|
|
|
|
469
|
|
Other
|
|
|
1,259
|
|
|
|
326
|
|
|
|
|
|
|
|
1,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,810
|
|
|
|
3,117
|
|
|
|
420
|
|
|
|
12,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments, Guarantees and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
34,078
|
|
|
$
|
11,700
|
|
|
$
|
1,687
|
|
|
$
|
47,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to the Unaudited Pro Forma Condensed
Combined Consolidated Financial Statements, which are an
integral part of these statements.
150
NOTES TO
THE UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
FINANCIAL STATEMENTS
|
|
Note 1.
|
Basis of
Pro Forma Presentation
|
The pro forma consolidated statements of income for the three
months ended March 31, 2010 and the year ended
December 31, 2009 give effect to the merger as if it were
completed on January 1, 2009. The pro forma consolidated
balance sheet as of March 31, 2010 gives effect to the
merger as if it were completed on March 31, 2010.
The pro forma financial statements have been derived from the
historical consolidated financial statements of FirstEnergy and
Allegheny Energy that are incorporated by reference in this
joint proxy statement/prospectus. Assumptions and estimates
underlying the pro forma adjustments are described in the
accompanying notes, which should be read in conjunction with the
pro forma financial statements. Since the pro forma financial
statements have been prepared based upon preliminary estimates,
the final amounts recorded at the date of the merger may differ
materially from the information presented. These estimates are
subject to change pending further review of the assets acquired
and liabilities assumed.
The merger is reflected in the pro forma financial statements as
being accounted for based on the guidance provided by accounting
standards for business combinations. Under the acquisition
method, the total estimated purchase price is calculated as
described in Note 2 to the unaudited pro forma financial
statements. In accordance with accounting guidance for business
combinations, the assets acquired and the liabilities assumed
have been measured at fair value. The fair value measurements
utilize estimates based on key assumptions of the merger,
including prior acquisition experience, benchmarking of similar
acquisitions and historical and current market data. The pro
forma adjustments included herein may be revised as additional
information becomes available and as additional analyses are
performed. The final purchase price allocation will be
determined after the merger is completed and the final amounts
recorded for the merger may differ materially from the
information presented.
Estimated transaction costs have been excluded from the pro
forma consolidated income statement as they reflect
non-recurring charges directly related to the merger. However,
the anticipated transaction costs are reflected in the pro forma
consolidated balance sheet, as an accrual to accounts payable
and a reduction to retained earnings.
The pro forma financial statements do not reflect any cost
savings (or associated costs to achieve such savings) from
operating efficiencies, synergies or other restructuring that
could result from the merger. Further, the pro forma financial
statements do not reflect the effect of any regulatory actions
that may impact the pro forma financial statements when the
merger is completed.
Allegheny Energys regulated operations are comprised of
electric generation, transmission and distribution operations.
These operations are subject to the rate-setting authority of
the Federal Energy Regulatory Commission, the Maryland Public
Service Commission, the Pennsylvania Public Utility Commission,
the Virginia State Corporation Commission and the West Virginia
Public Service Commission (collectively, Regulators)
and are accounted for pursuant to ASC 980, Regulated
Operations. The pro forma financial statements have been
prepared on a basis assuming that the merger will not have an
impact on the determination of utility service rates for
Allegheny Energys regulated operations. However, any
change in the rate-setting practices of the Regulators could
have a material effect on FirstEnergys financial
statements. The rate-setting and cost recovery provisions
currently in place for Allegheny Energys regulated
operations provide revenues derived
151
from costs including a return on investment of net assets and
liabilities included in rate base. Thus, the fair values of
Allegheny Energys tangible and intangible assets and
liabilities subject to these rate-setting provisions approximate
their carrying values, and the pro forma financial statements do
not reflect any adjustments related to these amounts.
Long-term debt is not a dollar-for-dollar recovery through
rates, therefore long-term debt adjustments for Allegheny
Energys regulated operations will not be directly
recovered in regulated utility service rates. Because of this
indirect cost recovery through utility service rates, the pro
forma financial statements include adjustments to reflect these
amounts at their estimated fair value.
For the purpose of measuring the estimated fair value of the
assets acquired and liabilities assumed, as reflected in the pro
forma financial statements, FirstEnergy has applied the
accounting guidance for fair value measurements fair
value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date.
|
|
Note 2.
|
Preliminary
Purchase Price
|
FirstEnergy will acquire all of the outstanding shares of
Allegheny Energys common stock for shares of FirstEnergy
common stock at the fixed exchange ratio of 0.667 of a share of
FirstEnergy common stock per share of Allegheny Energy common
stock. The purchase price for the merger is estimated as follows:
|
|
|
|
|
Allegheny Energy shares outstanding at March 31, 2010
(millions)
|
|
|
170
|
|
Estimated additional shares outstanding under Allegheny
Energys equity compensation plans granted prior to the
execution of the merger agreement that vest upon stockholder
approval of merger (millions)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
171
|
|
Exchange ratio
|
|
|
0.667
|
|
|
|
|
|
|
Number of shares of FirstEnergy to be issued (millions)
|
|
|
114
|
|
Closing price of FirstEnergy common stock on July 12, 2010
|
|
$
|
37.26
|
|
|
|
|
|
|
Total purchase price (millions)
|
|
$
|
4,253
|
|
|
|
|
|
|
The preliminary purchase price was computed using Allegheny
Energys outstanding shares at March 31, 2010, and
reflects the market value of FirstEnergys common stock to
be issued in connection with the merger based on the closing
price of FirstEnergys common stock on July 12, 2010.
The preliminary purchase price will fluctuate with the market
price of FirstEnergys common stock until it is reflected
on an actual basis when the merger is completed. An increase or
decrease of 25% in FirstEnergys common stock price would
increase or decrease the consideration transferred by
approximately $1 billion, which would be reflected as an
increase or decrease to the purchase price of Allegheny Energy.
The increase or decrease in FirstEnergys common stock
price by as much as 25% is reasonably possible based upon the
recent history of FirstEnergys common stock price.
|
|
Note 3.
|
Pro Forma
Adjustments
|
The pro forma adjustments included in the pro forma financial
statements are as follows:
Adjustments
to Pro Forma Financial Statements
(a) FirstEnergy and Allegheny Energy historical
presentation Based on the amounts reported in
the consolidated statements of income and balance sheets of
FirstEnergy and Allegheny Energy,
152
certain financial line items included in Allegheny Energys
historical presentation have been reclassified to corresponding
line items included in FirstEnergys historical
presentation. These reclassifications have no material impact on
the historical operating income, net income, earnings available
to parent, total assets, liabilities or stockholders
equity reported by FirstEnergy or Allegheny Energy.
Additionally, based on FirstEnergys review of Allegheny
Energys summary of significant accounting policies
disclosed in Allegheny Energys financial statements and
preliminary discussions with Allegheny Energy management, the
nature and amount of any adjustments to the historical financial
statements of Allegheny Energy to conform its accounting
policies to those of FirstEnergy are not expected to be
material. Upon completion of the merger, further review of
Allegheny Energys accounting policies and financial
statements may result in revisions to Allegheny Energys
policies and classifications to conform to FirstEnergy.
The allocation of the preliminary purchase price to the fair
values of assets acquired and liabilities assumed includes pro
forma adjustments for the fair value of coal contracts, emission
allowances, property, plant and equipment, goodwill, long-term
debt and deferred income taxes. The allocation of the
preliminary purchase price is as follows (in millions):
|
|
|
|
|
Current assets
|
|
$
|
1,342
|
|
Property, plant and equipment
|
|
|
10,016
|
|
Investments
|
|
|
158
|
|
Goodwill
|
|
|
651
|
|
Other noncurrent assets, excluding goodwill
|
|
|
1,220
|
|
Current liabilities
|
|
|
(959
|
)
|
Noncurrent liabilities
|
|
|
(3,573
|
)
|
Long-term debt and other long-term obligations
|
|
|
(4,602
|
)
|
|
|
|
|
|
|
|
$
|
4,253
|
|
|
|
|
|
|
Adjustments
to Pro Forma Condensed Combined Consolidated Statement of
Income
(b) Fuel and purchased power Represents
the amortization of the pro forma fair value adjustment related
to Allegheny Energys coal supply contracts ($12 million
and $49 million) and additional expense arising from the
amortization of the pro forma fair value adjustment of Allegheny
Energys emission allowances ($1 million and $6 million)
for the three months ended March 31, 2010 and the year ended
December 31, 2009, respectively.
(c) Other operating expenses The
adjustment reflects a decrease of $5 million and
$19 million for the three months ended March 31, 2010 and
the year ended December 31, 2009, respectively, in net periodic
pension and other post-retirement benefits expense resulting
from the elimination of the pension and other post-retirement
benefit amounts previously recognized in accumulated other
comprehensive loss.
(d) Provision for depreciation and amortization,
net Represents the net incremental depreciation
expense resulting from the pro forma fair value adjustment of
Allegheny Energys property, plant and equipment. The
estimate is preliminary, subject to change and could vary
materially from the actual adjustment at the time the merger is
completed. For each $100 million change in the fair value
adjustment to property, plant and equipment, FirstEnergy would
expect an annual change in depreciation expense of approximately
$2 million. The estimated useful lives of the property,
plant and equipment acquired range from 15 to 50 years.
153
(e) Interest expense Represents a
reduction in interest expense from the pro forma fair value
adjustment of Allegheny Energys third-party debt. The
final fair value determination of the debt will be based on
prevailing market interest rates at the completion of the merger
and the necessary adjustment will be amortized as a reduction
(in the case of a premium to book value) or an increase (in the
case of a discount to book value) to interest expense over the
remaining life of the individual debt issues. Amortization from
the recovery of the regulatory asset would be recognized as a
change to interest expense.
(f) Income taxes Adjustment reflects the
income tax effect of the pro forma adjustments, which was
calculated using a 38% rate, approximating statutory income tax
rates.
(g) Shares outstanding Reflects the
elimination of Allegheny Energys common stock offset by
issuance of 114 million shares of FirstEnergy common stock.
This share issuance does not consider that fractional shares
will be paid in cash. The pro forma weighted average number of
basic shares outstanding is calculated by adding
FirstEnergys weighted average number of basic shares of
common stock outstanding for the three months ended March 31,
2010 and the year ended December 31, 2009, to the number of
FirstEnergy shares expected to be issued as a result of the
merger. The pro forma weighted average number of diluted shares
outstanding is calculated by adding FirstEnergys weighted
average number of diluted shares of common stock outstanding for
the three months ended March 31, 2010 and the year ended
December 31, 2009, to the number of FirstEnergy shares
expected to be issued as a result of the merger. Options
outstanding under Allegheny Energys equity compensation
plans that are anti-dilutive have been excluded from the pro
forma diluted weighted average shares outstanding.
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Year Ended
|
|
|
Ended March 31,
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
Basic (millions):
|
|
|
|
|
|
|
|
|
FirstEnergy weighted average number of basic shares outstanding
|
|
|
304
|
|
|
|
304
|
|
Equivalent Allegheny Energy common shares after exchange
|
|
|
114
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
418
|
|
|
|
418
|
|
|
|
|
|
|
|
|
|
|
Diluted (millions):
|
|
|
|
|
|
|
|
|
FirstEnergy weighted average number of diluted shares outstanding
|
|
|
306
|
|
|
|
306
|
|
Equivalent Allegheny Energy common shares after exchange
|
|
|
114
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
420
|
|
|
|
420
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to Pro Forma Condensed Combined Consolidated Balance
Sheet
(h) Emission allowances Represents the
pro forma adjustment to reflect the fair value of Allegheny
Energys emission allowances expected to be utilized in
future years at current market prices. Emission allowances
eligible to be used in the following year have been classified
as materials and supplies inventory and emission allowances
eligible for use in subsequent years have been classified as
other investments.
(i) Coal contracts Represents the pro
forma adjustment to reflect the fair value of Allegheny
Energys coal contracts based on the current market prices
of future coal deliveries.
154
(j) Property, Plant and Equipment
Reflects an increase to record Allegheny Energys
unregulated property, plant and equipment to the estimated fair
value. The estimate is preliminary, subject to change and could
vary materially from the actual adjustment at the time the
merger is completed. For each $100 million change in the
fair value adjustment to property, plant and equipment,
FirstEnergy would expect an annual change in depreciation
expense of approximately $2 million. The estimated useful
lives of the property, plant and equipment acquired range from
15 to 50 years.
(k) Goodwill Reflects the preliminary
estimate of the excess of the purchase price paid over the fair
value of Allegheny Energys assets acquired and liabilities
assumed. The estimated purchase price of the transaction, based
on the closing price of FirstEnergy common stock on the NYSE on
July 12, 2010, and the excess purchase price over the fair
value of the assets acquired and liabilities assumed is
calculated as follows (in millions):
|
|
|
|
|
Purchase price
|
|
$
|
4,253
|
|
Less: Fair value of net assets acquired
|
|
|
3,602
|
|
Less: Allegheny Energy existing goodwill
|
|
|
367
|
|
|
|
|
|
|
Pro forma goodwill adjustment
|
|
$
|
284
|
|
|
|
|
|
|
The goodwill resulting from the merger is estimated to be
$651 million.
|
|
|
|
|
(l) Regulatory Assets Reflects the
recognition of regulatory assets by Allegheny Energys
regulated utilities to offset the fair value adjustments to
their respective debt described in Note 3 (o) below.
We estimate that future amortization of the fair value
adjustment over the next five years will offset the amortization
in Note 3 (o) below as follows:
|
|
|
|
|
|
|
Preliminary Annual
|
|
|
|
Amortization,
|
|
|
|
net of tax
|
|
|
2010
|
|
|
17
|
|
2011
|
|
|
16
|
|
2012
|
|
|
15
|
|
2013
|
|
|
7
|
|
2014
|
|
|
4
|
|
(m) Accounts payable Reflects the
accrual for estimated non-recurring transaction costs of
$95 million to be incurred after March 31, 2010.
(n) Equity The pro forma balance sheet
reflects the elimination of Allegheny Energys historical
equity balances, recognition of the new FirstEnergy common
shares issued of 114 million and adjustment to retained
earnings totaling $59 million (net of tax) for remaining
estimated non-recurring transaction costs. These transaction
costs are shown as an adjustment to retained earnings to reflect
the impact of accounting guidance applicable to business
combinations, which requires that these costs be expensed.
Estimated transaction costs have been excluded from the pro
forma income statement as they reflect non-recurring charges
directly related to the merger.
(o) Debt In connection with the merger
agreement, FirstEnergy will assume all of Allegheny
Energys outstanding debt. The pro forma adjustments
represent the fair value adjustment of Allegheny Energys
debt based on prevailing market prices at March 31, 2010
($204 million) and the removal of related unamortized debt
issuance costs from other assets ($28 million). We estimate
that future amortization of the fair value adjustment over the
next five years will be as follows:
155
|
|
|
|
|
|
|
Preliminary Annual
|
|
|
|
Amortization,
|
|
|
|
net of tax
|
|
|
2010
|
|
$
|
42
|
|
2011
|
|
|
24
|
|
2012
|
|
|
19
|
|
2013
|
|
|
7
|
|
2014
|
|
|
4
|
|
(p) Accumulated deferred income taxes
Represents the estimated deferred tax liability, based on
FirstEnergys estimated post-merger composite statutory tax
rate of 38% multiplied by the fair value adjustments recorded to
the assets acquired and liabilities assumed, excluding goodwill.
This estimated tax rate is different from FirstEnergys
effective tax rate for the three months ended March 31,
2010, which includes other tax charges or benefits, and does not
take into account any historical or possible future tax events
that may impact the combined company.
156
DESCRIPTION
OF FIRSTENERGY CAPITAL STOCK
Certain provisions of FirstEnergys amended articles of
incorporation and amended code of regulations are summarized or
referred to below. The summaries do not purport to be complete,
do not relate to or give effect to the provisions of statutory
or common law, and are qualified in their entirety by express
reference to FirstEnergys amended articles of
incorporation and amended code of regulations.
Authorized
Capital Stock
FirstEnergy is authorized by its amended articles of
incorporation to issue 375,000,000 shares of common stock,
par value $.10 per share, of
which shares
were issued and outstanding as of July 16, 2010. The common
stock currently outstanding is, and the common stock to be
issued in connection with the merger will be, fully paid and
non-assessable.
In connection with the merger, and subject to approval by
FirstEnergys shareholders, the amended articles of
incorporation will be amended such that, following the merger,
FirstEnergy will be authorized to issue 490,000,000 shares
of common stock.
FirstEnergy is also authorized by its amended articles of
incorporation to issue 5,000,000 shares of preferred stock,
par value $100 per share, of which none is currently issued and
outstanding. FirstEnergys amended articles of
incorporation gives the board of directors authority to issue
preferred stock from time to time in one or more classes or
series. Preferred stock could be issued with terms that could
delay, defer or prevent a change of control of FirstEnergy.
Dividend
Rights
Subject only to any prior rights and preferences of any shares
of FirstEnergys preferred stock that may in the future be
issued and outstanding, the holders of the common stock are
entitled to receive dividends when, as and if declared by
FirstEnergys board of directors out of legally available
funds. There can be no assurance that funds will be legally
available to pay dividends at any given time or that, if funds
are available, the board of directors will declare a dividend.
Liquidation
Rights
In the event of FirstEnergys dissolution or liquidation,
the holders of FirstEnergys common stock will be entitled
to receive, pro rata, after the prior rights of the holders of
any issued and outstanding shares of FirstEnergys
preferred stock have been satisfied, all assets that remain
available for distribution after payment in full of all of
FirstEnergys liabilities.
Voting
Rights
The holders of FirstEnergys common stock are entitled to
one vote on each matter submitted for their vote at any meeting
of FirstEnergys shareholders for each share of common
stock held as of the record date for the meeting. The holders of
FirstEnergys common stock are not entitled to cumulate
their votes for the election of directors.
At least 80% of the voting power of the outstanding shares must
approve any amendment, repeal or adoption of any provision
inconsistent with, the provisions of the amended articles of
incorporation dealing with:
|
|
|
|
|
the right of the board of directors to fix or change the terms
of unissued or treasury shares, or to authorize
FirstEnergys acquisition of its outstanding shares;
|
157
|
|
|
|
|
the absence of cumulative voting and preemptive rights; or
|
|
|
|
the requirement that at least 80% of the voting power of the
outstanding shares must approve the foregoing.
|
In addition, the approval of at least 80% of the voting power of
the outstanding shares must be obtained to amend or repeal the
provisions of the amended code of regulations dealing with:
|
|
|
|
|
the time and place of shareholders meetings, the manner in
which special meetings of shareholders are called or the way
business is conducted at such meetings;
|
|
|
|
the number, election and terms of directors, the manner of
filling vacancies on the board of directors, the removal of
directors or the manner in which directors are nominated; or
|
|
|
|
the indemnification of officers, directors, employees and others
acting on FirstEnergys behalf.
|
Amendment of the provision of the amended code of regulations
that requires the approval of 80% of the voting power of the
outstanding shares in the instances enumerated above requires
the same level of approval.
Adoption of amendments to FirstEnergys amended articles of
incorporation (other than those requiring 80% approval as
specified above), adoption of a plan of merger, consolidation or
reorganization, authorization of a sale or other disposition of
all or substantially all of the assets not made in the usual and
regular course of its business or adoption of a resolution of
dissolution, and any other matter that would otherwise require a
two-thirds approving vote, require the approval of two-thirds of
the voting power of the outstanding shares, unless the board of
directors provides otherwise, in which case these matters will
require the approval of a majority of the voting power of the
outstanding shares and the approval of a majority of the voting
power of any shares entitled to vote as a class on such
proposal. In connection with its approval of the merger
agreement and the merger and the charter amendment, as permitted
under FirstEnergys amended articles of incorporation, the
FirstEnergy board provided that the adoption of the charter
amendment by FirstEnergys shareholders shall be by the
affirmative vote of a majority of the outstanding shares of
FirstEnergy common stock.
Ohio Law
Anti-takeover Provisions
Chapter 1704 of the Ohio General Corporation Law, referred
to as the OGCL, applies to certain transactions including
mergers, consolidations, combinations or majority share
acquisitions between an Ohio corporation and an interested
shareholder. An interested shareholder is defined as
a shareholder who, directly or indirectly, exercises or directs
the exercise of 10% or more of the voting power of the
corporation in the election of directors.
Chapter 1704 restricts corporations from engaging in the
transactions described above with interested shareholders,
unless the articles of incorporation provide otherwise, for a
period of three years following the date on which the
shareholder became an interested shareholder, unless the
directors of the corporation have approved the transaction or
the interested shareholders acquisition of shares of the
corporation prior to the date the shareholder became an
interested shareholder. After the initial three-year moratorium,
Chapter 1704 prohibits such transactions absent approval by
the directors of the interested shareholders acquisition
of shares of the corporation prior to the date that the
shareholder became an interested shareholder, approval by
disinterested shareholders of the corporation, or the
transaction meeting certain statutorily defined fair price
provisions.
158
Under Section 1701.831 of the OGCL, unless the articles of
incorporation, the regulations adopted by the shareholders, or
the regulations adopted by the directors pursuant to division
(A)(1) of Section 1701.10 of the OGCL provide otherwise,
any control share acquisition of a corporation can only be made
with the prior approval of the corporations disinterested
shareholders. A control share acquisition is defined
as the acquisition, directly or indirectly, by any person of
shares of a corporation that, when added to all other shares of
that corporation in respect of which the person may exercise or
direct the exercise of voting power, would enable that person,
immediately after the acquisition, directly or indirectly, alone
or with others, to exercise levels of voting power of the
corporation in the election of directors in any of the following
ranges: at least 20% but less than 33-1/3%; at least 33-1/3% but
no more than 50%; or more than 50%.
FirstEnergy has not opted out of the application of either
Chapter 1704 or Section 1701.831.
Anti-takeover
Effects
Some of the supermajority provisions of FirstEnergys
amended articles of incorporation and amended code of
regulations and the rights or the provisions of Ohio law
described above, individually or collectively, may discourage,
deter, delay or impede a tender offer or other attempt to
acquire control of FirstEnergy even if the transaction would
result in the shareholders receiving a premium for their shares
over current market prices or if the shareholders otherwise
believe the transaction would be in their best interests.
No
Preemptive or Conversion Rights
Holders of FirstEnergys common stock have no preemptive or
conversion rights and are not subject to further calls or
assessments by FirstEnergy. There are no redemption or sinking
fund provisions applicable to FirstEnergys common stock.
Listing
Shares of FirstEnergys common stock are traded on the NYSE
under the symbol FE.
Transfer
Agent and Registrar
The Transfer Agent and Registrar for FirstEnergys common
stock is American Stock Transfer & Trust Company,
LLC.
159
COMPARISON
OF RIGHTS OF FIRSTENERGYS SHAREHOLDERS
AND ALLEGHENY ENERGYS STOCKHOLDERS
The rights of FirstEnergy shareholders are governed by
FirstEnergys amended articles of incorporation and amended
code of regulations, and the laws of the State of Ohio. The
rights of Allegheny Energy stockholders are governed by
Allegheny Energys articles of restatement and amended and
restated bylaws and the laws of the State of Maryland. As a
result of the merger, the Allegheny Energy stockholders will
become shareholders of FirstEnergy and, accordingly, their
rights will be governed by FirstEnergys amended articles
of incorporation, as amended upon the completion of the merger,
and amended code of regulations and the laws of the State of
Ohio. While the rights and privileges of Allegheny Energy
stockholders are, in many instances, comparable to those of the
shareholders of FirstEnergy, there are some differences. The
following is a summary of the material differences as of the
date of this joint proxy statement/prospectus (but assuming
adoption of the charter amendment by FirstEnergys
shareholders and effectiveness of the amendment) between the
rights of the FirstEnergy shareholders and the rights of
Allegheny Energy stockholders. These differences arise from
differences between the respective governing documents of
Allegheny Energy and FirstEnergy and differences between
Maryland and Ohio law.
The following discussion of these differences is only a
summary of the material differences and does not purport to be a
complete description of all the differences. Please consult the
OGCL, the Maryland General Corporation Law, referred to as the
MGCL, and the respective governing documents, each as amended,
restated, supplemented or otherwise modified from time to time,
of FirstEnergy and Allegheny Energy for a more complete
understanding of these differences.
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FirstEnergy
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Allegheny Energy
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Capitalization:
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Prior to the completion of the merger, FirstEnergy is authorized
to issue:
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Allegheny Energy is authorized to issue:
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375,000,000 shares of common stock.
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260,000,000 shares of common stock.
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5,000,000 shares of preferred stock, of which none
are issued and outstanding.
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No shares of preferred stock.
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Subject to shareholder adoption of the charter amendment, after
the completion of the merger FirstEnergy will be authorized to
issue:
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490,000,000 shares of common stock.
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5,000,000 shares of preferred stock.
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Voting Rights:
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Each holder of FirstEnergy common stock is entitled to
one vote per share of common stock held. FirstEnergy
shareholders do not have cumulative voting rights in the
election of directors.
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Each outstanding share of Allegheny Energy common stock
is entitled to one vote on each matter voted on at a
stockholders meeting. Elections of Allegheny Energys
directors are subject to cumulative voting. With respect to the
election of directors, each holder of common stock is entitled
to the number of votes which equals the number of shares of
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FirstEnergy
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Allegheny Energy
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common stock held multiplied by the number of directors to be
elected. Stockholders may cast all of such votes for a single
director or distribute them among the directors as may seem fit.
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Dividends:
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Holders of common stock are entitled to receive
dividends, when, as and if declared by the board of directors
out of legally available funds.
The OGCL provides that dividends may be paid in cash,
property or shares of a corporations capital stock.
The OGCL permits dividends to the extent they do not
exceed the sum of the surplus of the corporation and the
difference between (1) the reduction in surplus resulting from
the immediate recognition of the transition obligation under
Statement of Financial Accounting Standards No. 106 and (2) the
aggregate amount of the transition obligation that would have
been recognized as of the date of the declaration of the
dividend if the corporation had elected to amortize its
recognition of the transition obligation under Statement of
Financial Accounting Standard No. 106. Additionally, no
dividends shall be paid when the corporation is insolvent or
there is reasonable grounds to believe that by such payment it
would be rendered insolvent or when the payment would violate
the rights of holders of another class of outstanding shares.
Under the OGCL, when any portion of a dividend of an Ohio
corporation is paid out of capital surplus, the corporation must
notify its shareholders as to the kind of surplus out of which
it is paid.
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Under Maryland law, no dividends, redemptions, stock
repurchases or other distributions may be declared or paid if,
after giving effect to the dividend, redemption, stock
repurchase or other distribution, (1) the corporation would not
be able to pay its debts as they become due in the usual course
of business or (2) the corporations total assets would be
less than the sum of its total liabilities plus, unless the
corporations charter provides otherwise, the amount that
would be needed, if the corporation were to be dissolved at the
time of the distribution, to satisfy the preferential rights
upon dissolution of stockholders whose preferential rights are
superior to those receiving the distribution. The board of
directors may base a determination regarding the legality of the
declaration or payment of a distribution on financial statements
prepared on the basis of accounting practices and principles
that are reasonable in the circumstances or on a fair valuation
or other method that is reasonable in the circumstances.
In addition, a Maryland corporation that would be
prohibited from making a distribution because its assets would
be less than the sum of its total liabilities and preferences of
outstanding preferred stock may also make a distribution from
the net earnings of the corporation for the fiscal year in which
the distribution is made, the net earnings of the corporation
for the preceding fiscal year, or the sum of the net earnings of
the corporation for the preceding eight fiscal quarters.
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FirstEnergy
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Allegheny Energy
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Liquidation, Dissolution and
Winding-
up:
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Under the OGCL, if an Ohio corporation is voluntarily
dissolved and assets are available for distribution to
shareholders after paying or adequately providing for the
payment of all known obligations of the corporation, the
directors may distribute the remaining assets among the
shareholders according to their respective rights and interests.
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Under Maryland law, if a Maryland corporation is
voluntarily dissolved and assets are available for distribution
to stockholders, the directors or receiver may notify the
stockholders to prove their interests within a specified time at
least 60 days after the date of the notice. The notice
shall be mailed to each stockholder at his address as it appears
on the records of the corporation and published at least once a
week for three successive weeks in a newspaper of general
circulation published in the county in which the principal
office of the corporation is located. The date of the notice is
the later of the date of mailing or the date of first
publication.
After the expiration of the time specified in the notice,
the directors or receiver may distribute to each stockholder who
has proved his interest his proportionate share of the assets,
reserving the shares of those who have not proved their
interests. Thereafter, the directors or receiver may incur
reasonable expenses in locating the remaining stockholders and
securing proof of interests from them and may charge the
expenses against the funds undistributed at the time the
expenses are incurred. From time to time the directors or
receiver may distribute a proportionate share to any stockholder
who has proved his interest since the prior distribution.
No earlier than three years from the date of the original
notice, the directors or receiver may distribute all surplus
assets remaining under his control to those stockholders who
have proved their interests and are entitled to distribution.
After final distribution, the interest of any stockholder who
has not proved his interest is forever barred and foreclosed.
Any assets remaining unclaimed 60 days after the
final distribution, is presumed abandoned and is to be reported
to the abandoned property unit of the State Comptrollers
office.
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FirstEnergy
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Allegheny Energy
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The directors or receiver are released and discharged
from all further liability in the matter on payment or delivery
of all unclaimed assets to the abandoned property unit of the
State Comptrollers office.
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Number and Term of Directors:
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FirstEnergys amended code of regulations provides
that the number of directors will not be less than nine nor more
than sixteen. Each director serves for a term expiring at the
following annual meeting of shareholders and until his or her
successor shall have been elected.
The number of directors shall be fixed from time to time
by a vote of the board of directors or by a vote of the holders
of at least 80% of the voting power of FirstEnergy, voting
together as a single class. No decrease in the number of
directors may shorten the term of any incumbent director.
The OGCL requires shareholder action (via amendment of the
articles of incorporation or code of regulations) for creation
of a classified board of directors.
Currently, there are eleven directors on the FirstEnergy
board. All of these directors are elected by the holders of
common stock. Effective upon the completion of the merger, the
FirstEnergy board of directors will be expanded to thirteen
members, two of whom will be former directors of Allegheny
Energy.
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Allegheny Energys charter requires the board of
directors to consist of ten directors. Directors serve for
one-year terms until the next annual stockholders meeting
and until their successors are elected and qualify. A change in
the number of directors does not affect the term of a director.
The number of directors may be changed from time to time
by the board of directors.
The MGCL provides that a Maryland corporation with a class
of stock registered under the Exchange Act and at least three
independent directors may elect, without stockholder approval,
to be governed by a provision of the MGCL that allows the
creation of a classified board of directors. Allegheny Energy
has not elected to be governed by this provision.
Allegheny Energys board of directors currently
consists of ten directors.
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Election of Directors:
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Directors are elected at each annual shareholder meeting
at which a quorum is present by plurality vote of all votes cast
at such meeting.
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Directors are elected at each annual stockholder meeting
at which a quorum is present by a vote of the majority of votes
cast; except that in a contested election, a plurality of all
the votes cast at a stockholder meeting at which a quorum is
present shall be sufficient to elect a director. Any director
who fails to receive a majority of the votes cast in an
uncontested election must submit a resignation.
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FirstEnergy
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Allegheny Energy
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Removal of Directors:
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Any director may be removed with or without cause by a
vote of the holders of at least 80% of the voting power of
FirstEnergy, voting together as a single class.
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The MGCL provides that a majority of the voting power of
the stockholders may vote to remove a director, with or without
cause.
The MGCL provides that a Maryland corporation with a class
of stock registered under the Exchange Act and at least three
independent directors may elect, without stockholder approval,
to be governed by a provision of the MGCL that requires the
affirmative vote of stockholders entitled to cast at least
two-thirds of the votes entitled to be cast generally in the
election of directors to remove a director. Allegheny Energy has
not elected to be governed by this provision.
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Filling Director Vacancies:
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The OGCL and FirstEnergys amended code of
regulations provide that any vacancy in the board of directors,
however created, shall be filled for the unexpired term by (i) a
majority vote of the directors then in office or (ii) a majority
vote of the shareholders after a vote to increase the number of
directors at a meeting duly called for that purpose.
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The MGCL and Allegheny Energys bylaws provide that
the board of directors may fill any vacancy by a vote of a
majority of the remaining directors. The term of a director
elected by the board of directors to fill a vacancy expires at
the next annual stockholders meeting.
The MGCL provides that the stockholders may fill a vacancy
on the board of directors which results from the removal of a
director. The MGCL provides that a director elected by the
stockholders to fill a vacancy which results from the removal of
a director serves for the balance of the term of the removed
director.
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Shareholder Consents:
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Under the OGCL, shareholders of an Ohio corporation may
take action by unanimous written consent in lieu of a meeting.
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Under the MGCL and Allegheny Energys charter,
common stockholders of Allegheny Energy may take action by
unanimous consent in lieu of a meeting.
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Shareholder Proposals and Director Nominations:
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FirstEnergys amended code of regulations contains
advance notice procedures for the nomination of candidates for
election as directors and for other business to be properly
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Allegheny Energys bylaws contain advance notice
procedures for the nomination of candidates for election as
directors and for
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FirstEnergy
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Allegheny Energy
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brought before an annual meeting of shareholders.
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other business to be properly brought before an annual meeting
of stockholders.
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For business to be properly brought before an annual
meeting and nominations to be properly made before an annual
meeting by a shareholder, the shareholder must have given timely
notice thereof in writing to the secretary of FirstEnergy. To
be timely, notice must be received by the secretary, in general,
not less than 30 days nor more than 60 days prior to
the annual meeting. In the event that public announcement of the
date of the annual meeting is made less than 70 days prior
to the date of such annual meeting, notice of shareholder
proposals or director nominations must be received by the close
of business on the
10th day
following the date that such public announcement was first
made.
A shareholders notice to the secretary of business
to be brought before an annual meeting must set forth, in
general:
a
brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business
at the annual meeting;
the
name and address of the shareholder proposing such business and
of the beneficial owner, if any, on whose behalf the proposal is
made;
the
class and number of shares of FirstEnergy which are beneficially
owned by the shareholder and the beneficial owner, if any; and
any
material interest of the shareholder or the beneficial owner, if
any, in such business.
A shareholders nomination of person(s) for election
to the board of directors must set forth, in general:
the
name and address of the nominating shareholder and of the
beneficial owner, if any, on whose behalf the nomination is
made;
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Written notice of stockholder nominations for the
election of directors must be received by Allegheny
Energys secretary at Allegheny Energys principal
executive office not less than 90 days nor more than
120 days before the first anniversary of the date of
mailing of the notice for the preceding years annual
meeting; provided, however, that if the date of mailing of the
notice for the annual meeting is advanced or delayed by more
than 30 days from the first anniversary of the date of the
mailing of the notice for the preceding years annual
meeting, notice by the stockholder to be timely must be
delivered no earlier than the 120th day prior to the date
of mailing of the notice for such meeting or the later of the
90th day before the date of mailing of the notice for such
annual meeting or the 10th day following the day on which
public announcement of the date of mailing of the notice for
such meeting is first made.
For director nominations a stockholders notice to
Allegheny Energys secretary must set forth certain
information, including:
as
to each nominee, the nominees name, age, business and
residence address, class, series and number of any shares owned
beneficially by the nominee, the date such shares were acquired,
the investment intent of such acquisition and the information
required by SEC rules to be included in a proxy statement
regarding the nominee; and
the
nominees consent to serve as a director.
For any other business that the stockholder proposes to
bring before the annual meeting, a stockholders notice to
Allegheny Energys secretary must set forth the following
information:
a
description of such business;
the
reasons for proposing such business at the meeting; and
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FirstEnergy
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Allegheny Energy
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a representation that the shareholder is a holder of
record entitled to vote at the meeting and intends to appear in
person or by proxy at such meeting to make such nomination;
the class and number of shares of FirstEnergy which are
beneficially owned by the shareholder and the beneficial owner,
if any;
all
arrangements or understandings between or among the nominating
shareholder, the beneficial owner, each nominee, or any other
persons pursuant to which the nomination is to be made;
such
other information as would be required to be included in a proxy
statement filed with the SEC; and
the
signed consent of each director nominee.
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any material interest in such business of
such stockholder and of any person acting, directly or
indirectly, in concert with such stockholder in connection with
such stockholders proposal, such person referred to as a
Stockholder Associated Person, individually or in the aggregate,
including any anticipated benefit to the stockholder and the
Stockholder Associated Person.
All stockholder notices to Allegheny Energys
corporate secretary must include the following information as to
such stockholder and any Stockholder Associated Person:
the
class, series and number of all shares of stock of Allegheny
Energy which are owned by such stockholder and such Stockholder
Associated Person;
the
nominee holder for, and number of, shares owned beneficially but
not of record by such stockholder and by any such Stockholder
Associated Person;
the
name and address of such stockholder and Stockholder Associated
Person, if different, as they appear on Allegheny Energys
stock ledger; and
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the name and address of any other stockholder
supporting the nominee for election or reelection as a director
or the proposal of other business, to the extent known by the
stockholder giving notice.
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Adjournment of Shareholder Meetings:
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The OGCL and FirstEnergys amended code of
regulations provide that the holders of a majority in voting
power of FirstEnergy represented in person or by proxy at a
meeting of shareholders, whether or not a quorum be present, may
adjourn the meeting from time to time.
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Under Allegheny Energys bylaws, if a quorum is
not present at any meeting of stockholders, the chairman of the
meeting or a majority of the shares present in person or
represented by proxy and entitled to vote at such meeting has
the power to adjourn the meeting to a date not more than
120 days after the original record date without notice
other than announcement at the meeting.
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FirstEnergy
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Allegheny Energy
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Calling of Special Meeting of Shareholders:
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FirstEnergys amended code of regulations provide
that special meetings of shareholders may be called by the
Chairman or the President, by the majority of the board of
directors or by any person or persons who hold not less than 50%
of all the shares outstanding and entitled to be voted on any
proposal to be submitted at such meeting.
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Allegheny Energys bylaws provide that special
meetings of stockholders may only be called by the chairman of
the board, the board of directors or the secretary of Allegheny
Energy upon written request of stockholders entitled to cast 25%
of all the votes entitled to be cast at the meeting.
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Quorum:
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FirstEnergys amended code of regulations provide
that the presence, in person or by proxy, of the holders of a
majority of the voting power of the corporation constitutes a
quorum for such meeting, unless a greater or lesser number is
expressly provided for by any applicable preferred stock
designation.
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The presence in person or by proxy of stockholders
entitled to cast a majority of all the votes entitled to be cast
constitutes a quorum at a meeting of stockholders of Allegheny
Energy.
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Mergers, Consolidations and Other Transactions:
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Under the OGCL, a merger, consolidation or sale of all
or substantially all of the assets of a corporation must
generally be authorized by the directors, and the transaction
must be approved by the affirmative vote of the holders of
shares constituting at least two-thirds of the voting power of
the corporation or such different proportion as the articles may
provide, but not less than a majority. FirstEnergys
amended articles of incorporation provide that to the extent
applicable law permits the articles of incorporation to provide
for a lesser vote than the two- thirds vote otherwise required
by law for any action or authorization for which a shareholder
vote is required, including adoption of a plan of merger or
authorization of a sale or disposition of substantially all of
the assets of FirstEnergy, such action or authorization shall be
by such two- thirds vote unless the board of directors provides
otherwise by resolution, then such action or authorization shall
be by the affirmative vote of the holders of shares entitling
them to
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Under the MGCL, a board of directors must generally
declare a merger, consolidation, share exchange or transfer of
all or substantially all of its assets advisable and the
transaction must be approved by the affirmative vote of
stockholders entitled to cast at least two-thirds of all the
votes entitled to be cast on the matter, unless the charter
provides for a greater or lesser vote (which must be at least a
majority of the outstanding voting power). The charter of
Allegheny Energy provides for a vote of the majority of the
total number of shares issued and outstanding.
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FirstEnergy
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Allegheny Energy
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exercise a majority of the voting power of the corporation.
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Limitation of Personal Liability of Officers and Directors
and Indemnification:
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The OGCL provides that, with limited exceptions, a
director may be held liable for monetary damages for acts or
omissions as a director only if it is proven by clear and
convincing evidence that the director undertook the act or
omission with deliberate intent to cause injury to the
corporation or with reckless disregard for its best interests.
FirstEnergys amended code of regulations provides
that the corporation shall indemnify, to the full extent then
permitted by law, any person who was or is a party or is
threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative, or investigative, by reason of the fact that he
or she is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of FirstEnergy
as a director, trustee, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise. FirstEnergy shall pay, to the full extent then
required by law, expenses (including attorneys fees)
incurred by a member of the board of directors in defending any
such action, suit or proceeding as they are incurred, and may
pay such expenses incurred by any other person.
The OGCL provides that a corporation must indemnify a
director, officer, employee or agent for expenses actually and
reasonably incurred defending or settling (on the merits or
otherwise) an action, suit or proceeding (including certain
derivative suits) to the extent they have been successful on the
merits or otherwise. A corporation may indemnify such persons
for liability in such actions, suits or proceedings if the
person acted in good faith and in a matter he or she believed to
be in or not opposed to the best interest of the corporation,
and with respect to a criminal
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Allegheny Energys charter includes a provision
that limits the personal liability of a director or officer to
Allegheny Energy and its stockholders for monetary damages to
the full extent permitted by Maryland law and further provides
that any amendment or repeal of this provision will not affect
the limitation of liability accorded to any director or officer
for acts or omissions occurring prior to such amendment or
repeal.
Under Maryland law, directors and officers
liability to the corporation or its stockholders for money
damages may be expanded or limited, except that liability of a
director or officer may not be limited: (1) to the extent that
it is proved that the person actually received an improper
benefit or profit in money, property or services for the amount
of the benefit or profit in money, property or services actually
received; or (2) to the extent that a judgment or other final
adjudication adverse to the person is entered in a proceeding
based on a finding in the proceeding that the persons
action, or failure to act, was the result of active and
deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding.
Allegheny Energys bylaws obligate it to provide for
mandatory indemnification of and advancement of expenses for the
benefit of directors and officers to the full extent permitted
by Maryland law and further provide that any amendment or repeal
of these provisions will not affect the indemnification rights
accorded to any director or officer for acts or omissions
occurring prior to such amendment or repeal.
Under the MGCL, a corporation may not indemnify a director
or officer if it is established that: (i) the act or omission of
the director or officer was material to the matter
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FirstEnergy
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Allegheny Energy
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action or proceeding, had no reasonable cause to believe the
conduct was unlawful. Indemnification in these situations may be
made only if ordered by a court or authorized in each specific
case upon a determination by the majority of disinterested
directors, independent legal counsel or the shareholders that
the appropriate standard has been met. No indemnification shall
be made in respect of a claim against such person by or in the
right of the corporation if the person is judged to be liable
for negligence or misconduct in the performance of his duty to
the corporation, except by court order. Under the OGCL, a
corporation must pay expenses incurred by a director in
defending an action, suit or proceeding as they are incurred;
provided that such recipient is obligated to repay such funds if
it is proved by clear and convincing evidence that his action or
failure to act involved an act or omission undertaken with
deliberate intent to cause injury to the corporation or
undertaken with reckless disregard for the best interests of the
corporation. The corporation may pay expenses incurred by other
persons in advance of final resolution; provided that such
recipient is obligated to repay such funds if ultimately
determined not entitled to indemnification.
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giving rise to the proceeding; and (1) was committed in bad
faith or (2) was the result of active and deliberate dishonesty;
or (ii) the director or officer actually received an improper
personal benefit in money, property or services; or (iii) in the
case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was
unlawful.
Under the MGCL, a corporation may not indemnify a
director or officer who has been adjudged liable in a suit by or
in the right of the corporation or in which the director or
officer was adjudged liable to the corporation or on the basis
that a personal benefit was improperly received. A court may
order indemnification if it determines that the director is
fairly and reasonably entitled to indemnification, even though
the director did not meet the prescribed standard of conduct,
was adjudged liable to the corporation or was adjudged liable on
the basis that personal benefit was improperly received;
however, indemnification for an adverse judgment in a suit by or
in the right of the corporation, or for a judgment of liability
on the basis that personal benefit was improperly received, is
limited to expenses. Except for a proceeding brought to enforce
indemnification or where a resolution of the board of directors
or an agreement approved by the board expressly provides
otherwise, a corporation may not indemnify a director for a
proceeding brought by the director against the corporation.
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State Anti-Takeover Statutes:
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Chapter 1704 of the OGCL restricts shareholders who,
without the prior approval of the board of directors, become
holders directly or indirectly of 10% or more of the voting
power of an Ohio corporation, from certain transactions
including mergers, consolidations, combinations or majority
share acquisitions, for at least three years.
The prohibition imposed by Chapter 1704
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Under the Maryland Business Combination Act, referred to
as the MBCA, an interested stockholder is defined to include any
person (other than the corporation or its subsidiaries) who,
together with its affiliates and associates, is the beneficial
owner of shares of stock representing 10% or more of the total
voting power of a corporation or an affiliate or associate of
the corporation that was the beneficial owner, directly or
indirectly, of 10%
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FirstEnergy
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Allegheny Energy
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continues after the initial three-year period unless the
transaction is approved by the holders of at least two-thirds of
the voting power of the corporation or satisfies certain
statutorily defined fair price provisions. Chapter 1704 does not
apply to a corporation if its articles of incorporation or
regulations so provide.
Under Section 1701.831 of the OGCL, any control share
acquisition of a corporation can only be made with the prior
approval of the corporations disinterested shareholders. A
control share acquisition is defined as the
acquisition, directly or indirectly, by any person of shares of
a corporation that, when added to all other shares of that
corporation in respect of which the person may exercise or
direct the exercise of voting power, would enable that person,
immediately after the acquisition, directly or indirectly, alone
or with others, to exercise levels of voting power of the
corporation in the election of directors in any of the following
ranges: at least 20% but less than
331/3%;
at least
331/3%
but no more than 50%; or more than 50%. Section 1701.831 does
not apply to a corporation if its articles of incorporation or
regulations so provide.
FirstEnergy has not opted out of the application of either
Chapter 1704 or Section 1701.831.
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or more of the voting power of the then outstanding stock of
the corporation at any time within the two-year period
immediately prior to the date in question. The term business
combination is broadly defined to include many corporate actions
that an interested stockholder might contemplate in order to
increase his or her share ownership or reduce his or her
acquisition debt. These second tier transactions include any
merger or consolidation of the corporation involving an
interested stockholder, any disposition of assets of the
corporation to an interested stockholder, any issuance to an
interested stockholder of securities of the corporation meeting
certain threshold amounts and any reclassification of securities
of the corporation having the effect of increasing the voting
power or proportionate share ownership of an interested
stockholder.
Under the MBCA, a business combination with an
interested stockholder is subject to a five-year moratorium and,
following expiration of this moratorium, must be recommended by
the board of directors and approved by the affirmative vote of
the holders of 80% of the corporations total voting power
and two-thirds of the total voting power excluding the shares
held by the interested stockholder (in addition to any other
votes required under law or the corporations charter),
unless the transaction is approved by the board of directors
prior to the time the interested stockholder first obtained such
status or the business combination satisfies certain minimum
price, form of consideration and procedural requirements.
Allegheny Energy has opted out of the MBCA with regard to the
merger.
Maryland Control Share Acquisition Act. The
Maryland Control Share Acquisition Act, referred to as the
MCSAA, provides that, subject to certain exceptions, any
outstanding shares of a Maryland corporation acquired by a
person or group in an acquisition that causes such acquiror to
have the power to vote or direct the voting of shares in the
election of
|
170
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FirstEnergy
|
|
Allegheny Energy
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|
directors in excess of 10%,
33-1/3%
or 50% thresholds shall have only such voting power as shall be
accorded by the affirmative vote of the holders of two-thirds of
the votes of each voting group entitled to vote separately on
the proposal, excluding all interested shares (as defined
therein), at a meeting that, subject to certain exceptions, is
required to be called for that purpose upon the acquirors
request. Under the MCSAA, the corporation has a right to redeem
outstanding control shares for which stockholders have not
approved voting rights.
|
|
|
|
|
|
The Maryland statute permits the charter or bylaws of a
corporation to exclude from its application share acquisitions
occurring after the adoption of the statute. Allegheny Energy
has elected to exclude itself from the provisions of the
MCSAA.
The charter and bylaws of Allegheny Energy do not contain
super-majority voting provisions.
|
|
Appraisal Rights:
|
|
|
|
Section 1701.84 of the OGCL provides rights to seek
appraisal of the fair value of shares in certain circumstances.
Section 1701.85 of the OGCL, which is attached to this joint
proxy statement/prospectus as Annex E, sets out the steps a
shareholder must take to perfect his or her rights under the
OGCL. For a description of the dissenters rights of
FirstEnergy shareholders in connection with the merger, see the
section entitled The Merger Appraisal or
Dissenters Rights beginning on page 111.
|
|
Under the MGCL, a stockholder has the right to demand
and receive payment of the fair value of the stockholders
stock from the successor if (1) the corporation consolidates or
merges with another corporation; (2) the corporations
stock is to be acquired in a statutory share exchange; (3) the
corporation transfers its assets in a manner requiring
stockholder approval; (4) the corporation amends its charter in
a way which alters the contract rights, as expressly set forth
in the charter, of any outstanding stock and substantially
adversely affects the stockholders rights, unless the
right to do so is reserved in the charter of the corporation; or
(5) the transaction is subject to certain provisions of the
MBCA.
Maryland law provides that a stockholder may not demand
the fair value of the stockholders stock and is bound by
the terms of the transaction if, among other things, (1) the
stock is listed on a national securities
|
171
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FirstEnergy
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|
Allegheny Energy
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|
exchange on the record date for determining stockholders
entitled to vote on the matter or, in certain mergers, the date
notice is given or waived (except certain mergers where stock
held by directors and executive officers is exchanged for merger
consideration not available generally to stockholders); (2) the
stock is that of the successor in the merger, unless either (i)
the merger alters the contract rights of the stock as expressly
set forth in the charter and the charter does not reserve the
right to do so or (ii) the stock is to be changed or converted
in whole or in part in the merger into something other than
either stock in the successor or cash, scrip or other rights or
interests arising out of provisions for the treatment of
fractional shares of stock in the successor; or (3) the charter
provides that the holders of the stock are not entitled to
exercise the rights of an objecting stockholder.
|
|
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|
Allegheny Energys common stock is listed on the
NYSE and is expected to be listed on the NYSE on the record date
for the Allegheny Energy special meeting. Accordingly, holders
of Allegheny Energy common stock are not expected to be entitled
to appraisal rights in connection with the merger.
|
|
Articles of Incorporation Amendments:
|
|
|
|
Amendments to the provisions of the FirstEnergy amended
articles of incorporation dealing with (i) the right of the
board of directors to fix or change the terms of any unissued or
treasury shares of any class, or purchase or acquire capital
stock of FirstEnergy, (ii) the absence of cumulative voting and
preemptive rights, or (iii) the requirement that at least 80% of
the voting power of FirstEnergy must approve the foregoing,
require the approval of at least 80% of the voting power of
FirstEnergy, voting together as a single class.
All other provisions may be amended with the approval of
two-thirds of the voting power of
|
|
With the exception of a name change and certain other
enumerated minor changes, which do not require stockholder
approval, under the MGCL an amendment to Allegheny Energys
charter must be declared advisable by the board of directors and
approved by the affirmative vote of stockholders entitled to
cast at least two-thirds of the votes entitled to be cast on the
matter, unless the charter reduces the required vote to not less
than a majority of the outstanding voting power. Allegheny
Energys charter reduces the stockholder vote required for
approval of charter amendments to not less than a majority of
the shares of common stock outstanding.
|
172
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FirstEnergy
|
|
Allegheny Energy
|
|
|
|
|
FirstEnergy, unless the board of directors provides by
resolution for a majority vote.
|
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|
Code of Regulations/Bylaws Amendments:
|
|
|
|
Amendments to the provisions of the FirstEnergy amended
code of regulations dealing with (i) the time and place of
shareholders meetings, the manner in which special
meetings of shareholders are called or the way business is
conducted at such meetings, (ii) the number, election and terms
of directors, the manner of filling vacancies on the board of
directors, the removal of directors or the manner in which
directors are nominated, (iii) the indemnification of officers,
directors, employees and others acting on FirstEnergys
behalf, or (iv) the requirement that at least 80% of the voting
power of FirstEnergy must approve the foregoing, require the
approval of at least 80% of the voting power of FirstEnergy,
voting together as a single class.
All other provisions may be amended by a majority vote of
the shareholders.
|
|
Allegheny Energys bylaws provide that the power to
amend the bylaws is vested exclusively in the board of directors
and may be exercised by a majority of the entire board.
|
Copies of the governing documents of FirstEnergy and
Allegheny Energy are available, without charge, to any person,
including any beneficial owner to whom this joint proxy
statement/prospectus is delivered, by following the instructions
listed under the section entitled Where You Can Find More
Information; Incorporation by Reference beginning on
page 184.
173
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF
FIRSTENERGY
The following table shows shares of FirstEnergy common stock
beneficially owned as of June 30, 2010, by each director,
each named executive officer (as such term is
defined in Item 402(a)(3) of
Regulation S-K
under the Exchange Act) of FirstEnergy, and all FirstEnergy
directors and executive officers as a group, none of which are
pledged by the directors or named executive officers. Also
included in the table are all persons of whom FirstEnergy is
aware who may be deemed to be the beneficial owner of more than
five percent of shares of common stock of FirstEnergy as of
December 31, 2009. This information is based on SEC
Schedule 13G filings. Unless otherwise indicated, the
address for those listed below is
c/o FirstEnergy
Corp., 76 South Main St., Akron, Ohio 44308.
|
|
|
|
|
|
|
|
|
|
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|
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Shares
|
|
|
|
|
|
|
|
|
|
Beneficially
|
|
|
Common Stock
|
|
|
Percent of
|
|
Name
|
|
Owned(1)
|
|
|
Equivalents(2)
|
|
|
Class
|
|
|
Directors/Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul T. Addison
|
|
|
15,788
|
|
|
|
|
|
|
|
*
|
|
Anthony J. Alexander
|
|
|
579,551
|
|
|
|
447,848
|
|
|
|
*
|
|
Michael J. Anderson
|
|
|
10,138
|
|
|
|
|
|
|
|
*
|
|
Dr. Carol A. Cartwright
|
|
|
28,858
|
|
|
|
|
|
|
|
*
|
|
Mark T. Clark
|
|
|
67,896
|
|
|
|
71,683
|
|
|
|
*
|
|
William T. Cottle
|
|
|
13,567
|
|
|
|
|
|
|
|
*
|
|
Richard R.
Grigg(3)
|
|
|
103,523
|
|
|
|
105,026
|
|
|
|
*
|
|
Robert B. Heisler, Jr.
|
|
|
28,318
|
|
|
|
|
|
|
|
*
|
|
Gary R. Leidich
|
|
|
50,988
|
|
|
|
190,811
|
|
|
|
*
|
|
Richard H.
Marsh(4)
|
|
|
15,238
|
|
|
|
44,123
|
|
|
|
*
|
|
Ernest J. Novak, Jr.
|
|
|
19,789
|
|
|
|
|
|
|
|
*
|
|
Catherine A. Rein
|
|
|
35,097
|
|
|
|
|
|
|
|
*
|
|
George M. Smart
|
|
|
35,785
|
|
|
|
|
|
|
|
*
|
|
Wes M. Taylor
|
|
|
22,450
|
|
|
|
|
|
|
|
*
|
|
Leila L. Vespoli
|
|
|
66,438
|
|
|
|
86,168
|
|
|
|
*
|
|
Jesse T. Williams, Sr.
|
|
|
23,851
|
|
|
|
|
|
|
|
*
|
|
All Directors and Executive Officers as a Group (25 persons)
|
|
|
1,370,867
|
|
|
|
1,311,764
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other 5% Holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
BlackRock,
Inc.(5)
|
|
|
17,786,775
|
|
|
|
|
|
|
|
5.83
|
%
|
40 East
52nd
Street, New York, NY 10022
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Research Global Investors (a division of Capital
Research and Management
Company)(6)
|
|
|
24,710,400
|
|
|
|
|
|
|
|
8.1
|
%
|
333 South Hope Street, Los Angeles, CA 90071
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital World Investors (a division of Capital Research and
Management
Company)(7)
|
|
|
21,796,500
|
|
|
|
|
|
|
|
7.2
|
%
|
333 South Hope Street, Los Angeles, CA 90071
|
|
|
|
|
|
|
|
|
|
|
|
|
FMR LLC(8)
|
|
|
18,723,351
|
|
|
|
|
|
|
|
6.14
|
%
|
82 Devonshire Street, Boston, MA 02109
|
|
|
|
|
|
|
|
|
|
|
|
|
State Street
Corporation(9)
|
|
|
22,268,034
|
|
|
|
|
|
|
|
7.30
|
%
|
State Street Financial Center, One Lincoln Street,
|
|
|
|
|
|
|
|
|
|
|
|
|
Boston, MA 02111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Indicates less than one percent. |
|
(1) |
|
The amounts set forth in this column include (a) any shares
with respect to which the executive officer or director has a
direct or indirect pecuniary interest, and (b) vested stock
options with |
174
|
|
|
|
|
which the executive officer or director has the right to acquire
beneficial ownership within 60 days of June 30, 2010,
and are as follows for FirstEnergys directors and
executive officers: Alexander 257,100 shares;
Grigg 54,759 shares; and all directors and
executive officers as a group 340,434 shares.
Each individual or member of the group has sole voting and
investment power with respect to the shares beneficially owned. |
|
(2) |
|
The amounts set forth in this column represent unvested
performance shares and restricted stock units, both
performance-adjusted
and discretionary, as well as equivalent units held in the
Executive Deferred Compensation Plan. |
|
(3) |
|
Mr. Grigg retired on April 1, 2010. |
|
(4) |
|
Mr. Marsh retired on July 1, 2009. |
|
(5) |
|
This information is based solely on the Schedule 13G filed
by BlackRock, Inc. on January 29, 2010, reporting
beneficial ownership of 17,786,775 shares of
FirstEnergys common stock as of December 31, 2009.
BlackRock, Inc. has sole power to dispose or to direct the
disposition of 17,786,775 shares and sole power to vote or
to direct the voting of 17,786,775 shares. |
|
(6) |
|
This information is based solely on the Schedule 13G filed
by Capital Research Global Investors on February 11, 2010.
Capital Research Global Investors is deemed to be the beneficial
owner of 24,710,400 shares as a result of Capital Research
and Management Company acting as a investment adviser to various
investment companies registered under Section 8 of the
Investment Company Act of 1940. Capital Research Global
Investors has sole power to dispose or to direct the disposition
of 24,710,400 shares and sole power to vote or to direct
the voting of 18,266,900 shares. Capital Research Global
Investors disclaims beneficial ownership of these shares. |
|
(7) |
|
This information is based solely on the Schedule 13G filed
by Capital World Investors on February 11, 2010. Capital
World Investors is deemed to be the beneficial owner of
21,796,500 shares as a result of Capital Research and
Management Company acting as a investment adviser to various
investment companies registered under Section 8 of the
Investment Company Act of 1940. Capital World Investors has sole
power to dispose or to direct the disposition of
21,796,500 shares and sole power to vote or to direct the
voting of 750,000 shares. Capital World Investors disclaims
beneficial ownership of these shares. |
|
(8) |
|
This information is based solely on the Schedule 13G filed
jointly by FMR LLC and Edward C. Johnson 3d on February 16,
2010, reporting beneficial ownership of 18,723,351 shares
of FirstEnergys common stock as of December 31, 2009.
Both FMR LLC and Mr. Johnson have sole power to direct the
disposition of 18,723,351 shares and FMR LLC has sole power
to vote or to direct the voting of 1,103,419 shares. Of the
18,723,351 shares, Fidelity Management & Research
Company, a wholly-owned subsidiary of FMR LLC, was the
beneficial owner of 17,701,082 shares as a result of acting
as investment advisor to various investment companies, with the
power to direct the voting of those shares held by the Board of
Trustees of those investment companies. |
|
(9) |
|
This information is based solely on the Schedule 13G filed
by State Street Corporation on February 12, 2010, reporting
beneficial ownership of 22,268,034 shares of
FirstEnergys common stock as of December 31, 2009.
State Street Corporation has shared power to dispose or to
direct the disposition of 22,268,034 shares and shared
power to vote or to direct the voting of 22,268,034 shares.
State Street Bank and Trust Company, a subsidiary of State
Street Corporation, has shared power to dispose or to direct the
disposition of 17,275,612 shares and shared power to vote
or to direct the voting of 17,275,612 shares. State Street
Corporation disclaims beneficial ownership of these shares. |
175
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF
ALLEGHENY ENERGY
The following table shows shares of Allegheny Energy common
stock beneficially owned as of June 30, 2010, by each
director, each named executive officer (as such term
is defined in Item 402(a)(3) of
Regulation S-K
under the Exchange Act) of Allegheny Energy, and all directors
and executive officers as a group, none of which are pledged by
the directors or named executive officers. Also included in the
table are all persons of whom Allegheny Energy is aware who may
be deemed to be the beneficial owner of more than five percent
of shares of common stock of Allegheny Energy as of
December 31, 2009. This information is based on SEC
Schedule 13G filings. Unless otherwise indicated, the
address for those listed below is
c/o Allegheny
Energy, Inc., 800 Cabin Hill Drive, Greensburg, Pennsylvania
15601.
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially
|
|
Percent of
|
Name
|
|
Owned(1)
|
|
Class
|
|
Directors/Executive Officers:
|
|
|
|
|
|
|
|
|
H. Furlong Baldwin
|
|
|
32,345
|
|
|
|
*
|
|
Eleanor Baum
|
|
|
26,227
|
|
|
|
*
|
|
Curtis R. Davis
|
|
|
23,021
|
|
|
|
*
|
|
Paul J. Evanson
|
|
|
1,853,716
|
|
|
|
1.1
|
%
|
David M. Feinberg
|
|
|
89,597
|
|
|
|
*
|
|
Cyrus F. Freidheim, Jr.
|
|
|
32,515
|
|
|
|
*
|
|
Eric S. Gleason
|
|
|
43,021
|
|
|
|
*
|
|
Julia L. Johnson
|
|
|
24,345
|
|
|
|
*
|
|
Ted J. Kleisner
|
|
|
23,529
|
|
|
|
*
|
|
Kirk R. Oliver
|
|
|
21,760
|
|
|
|
*
|
|
Christopher D. Pappas
|
|
|
9,250
|
|
|
|
*
|
|
Steven H. Rice
|
|
|
15,177
|
|
|
|
*
|
|
Gunnar E. Sarsten
|
|
|
48,858
|
|
|
|
*
|
|
Michael H. Sutton
|
|
|
24,433
|
|
|
|
*
|
|
All Directors and Executive Officers as a Group (17 persons)
|
|
|
2,384,935
|
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
Other 5% Holders:
|
|
|
|
|
|
|
|
|
BlackRock,
Inc.(2)
|
|
|
8,889,200
|
|
|
|
5.2
|
%
|
40 East
52nd
Street, New York, NY 10022
|
|
|
|
|
|
|
|
|
Capital World
Investors(3)
|
|
|
11,000,000
|
|
|
|
6.5
|
%
|
333 South Hope Street, Los Angeles, CA 90071
|
|
|
|
|
|
|
|
|
FMR LLC(4)
|
|
|
16,120,190
|
|
|
|
9.5
|
%
|
82 Devonshire Street, Boston, MA 02109
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Indicates less than one percent. |
|
(1) |
|
Shares beneficially owned include (a) any shares with
respect to which the person has a direct or indirect pecuniary
interest and (b) shares to which the person has the right
to acquire beneficial ownership within 60 days of
June 30, 2010, and are as follows for Allegheny
Energys directors and executive officers:
Evanson 521,841 shares; Sarsten
20,000 shares; Davis 23,021 shares;
Feinberg 73,021 shares; Gleason
43,021 shares; Oliver 20,760 shares; |
176
|
|
|
|
|
and all directors and executive officers as a group
795,140 shares. Each individual or member of the group of
directors and executive officers has sole voting and investment
power with respect to the shares beneficially owned, except as
described below. |
|
|
|
Mr. Kleisner owns 1,282 shares, jointly with his spouse,
and he has shared voting and investment power with respect to
such shares. For Mr. Rice, excludes 476 shares owned
by his spouse. Mr. Rice owns 5,701 shares jointly with
his spouse, and he has shared voting and investment power with
respect to such shares. For Mr. Pappas, excludes
4,000 shares deferred until January 1, 2013.
Mr. Sarsten owns 27,858 shares jointly with his
spouse, and he has shared voting and investment power with
respect to such shares. |
|
|
|
The shares shown above exclude deferred cash compensation
credited as shares in a phantom stock fund as of June 30,
2010 for the following directors: Mr. Baldwin, 8,644;
Mr. Freidheim, 1,287; Ms. Johnson, 8,003;
Mr. Kleisner, 628; Mr. Pappas, 1,478; and
Mr. Rice, 2,572. Any distribution related to the phantom
stock fund will be paid in cash based on the market value of
Allegheny Energys common stock as of the distribution date
(or FirstEnergys common stock, as the case may be, if the
distribution follows completion of the merger). |
|
(2) |
|
This information is based solely on the Schedule 13G filed
by BlackRock, Inc. on January 29, 2010, reporting
beneficial ownership of 8,889,200 shares of Allegheny
Energys common stock as of December 31, 2009.
BlackRock, Inc. has sole power to dispose or to direct the
disposition of 8,889,200 shares and sole power to vote or
to direct the voting of 8,889,200 shares. |
|
(3) |
|
This information is based solely on the Schedule 13G/A
filed by Capital World Investors on February 11, 2010,
reporting beneficial ownership of 11,000,000 shares of
Allegheny Energys common stock as of December 31,
2009. Capital World Investors has sole power to dispose or to
direct the disposition of 11,000,000 shares and sole power
to vote or to direct the voting of 2,550,000 shares.
Capital World Investors disclaims beneficial ownership of these
shares. |
|
(4) |
|
This information is based solely on the Schedule 13G/A
filed by FMR LLC on February 16, 2010, reporting beneficial
ownership of 16,120,190 shares of Allegheny Energys
common stock as of December 31, 2009. FMR LLC has sole
power to dispose or to direct the disposition of
16,120,190 shares and sole power to vote or to direct the
voting of 535,320 shares. |
177
SHAREHOLDER
PROPOSALS AND OTHER MATTERS
FirstEnergy
2011 Annual Shareholder Meeting and Shareholder
Proposals
A shareholder who wishes to offer a proposal for inclusion in
FirstEnergys proxy statement and proxy card for the 2011
Annual Meeting must submit the proposal and any supporting
statement by December 3, 2010, to the Vice President and
Corporate Secretary, FirstEnergy Corp., 76 South Main Street,
Akron, OH
44308-1890.
Any proposal received after that date will not be eligible for
inclusion in the 2011 proxy statement and proxy card.
Under FirstEnergys amended code of regulations, and as
permitted by the rules of the SEC, certain procedures must be
followed by a shareholder for business to be brought properly
before an annual meeting of shareholders. These procedures
provide that FirstEnergy must receive the notice of intention to
introduce an item of business at an annual meeting not less than
30 nor more than 60 calendar days prior to the annual meeting.
In the event public announcement of the date of the annual
meeting is not made at least 70 calendar days prior to the date
of the meeting, notice must be received not later than the close
of business on the 10th calendar day following the day on
which the public announcement is first made. FirstEnergys
amended code of regulations is available upon written request to
the Vice President and Corporate Secretary, FirstEnergy Corp.,
76 South Main Street, Akron, OH
44308-1890.
FirstEnergys Annual Meeting of Shareholders generally is
held on the third Tuesday of May. Assuming that
FirstEnergys 2011 Annual Meeting is held on schedule,
FirstEnergy must receive any notice of intention to introduce an
item of business at that meeting no earlier than March 19, 2011
and no later than April 18, 2011. If FirstEnergy does not
receive notice as set forth above, or if FirstEnergy meets
certain other requirements of the SEC rules, the persons named
as proxies in the proxy materials relating to that meeting will
use their discretion in voting the proxies when these matters
are raised at the meeting.
Allegheny
Energy 2011 Annual Stockholder Meeting, Stockholder Proposals
and Nominations
In light of the expected timing of completion of the merger,
Allegheny Energy expects to hold its 2011 annual meeting of
stockholders only if the merger is not completed. Accordingly,
Allegheny Energy reserves the right to postpone or cancel its
2011 annual meeting.
In the event that Allegheny Energy holds a 2011 annual meeting
of stockholders, stockholder proposals intended to be presented
pursuant to
Rule 14a-8
under the Exchange Act for inclusion in Allegheny Energys
proxy statement and accompanying proxy card for the 2011 annual
meeting of stockholders must have been received by the
Secretary,
c/o Allegheny
Energy, Inc., 800 Cabin Hill Drive, Greensburg, Pennsylvania
15601, no later than November 25, 2010, and must meet the
requirements of
Rule 14a-8.
If an Allegheny Energy stockholder wants to make a proposal or a
nomination for the election of directors for consideration at
the 2011 annual meeting, but not for inclusion in the proxy
statement and accompanying proxy card for the 2011 annual
meeting, the proposal or nomination must be received by the
Secretary,
c/o Allegheny
Energy, Inc., 800 Cabin Hill Drive, Greensburg,
Pennsylvania 15601, no later than December 25, 2010 and no
earlier than November 25, 2010. Such proposals and
nominations will be considered only if advance notice has been
given and these proposals or nominations are otherwise proper
for consideration under applicable law and Allegheny
Energys charter and bylaws. Notice of such proposals and
nominations must also comply with the informational and other
requirements set forth in Allegheny Energys bylaws.
178
In addition to the above, it is also the policy of Allegheny
Energys Nominating and Governance Committee to consider
recommendations for candidates to the Allegheny Energy board of
directors from its stockholders. If interested, the name of any
recommended candidate for director, together with a brief
biographical sketch, a document indicating the candidates
willingness to serve, if elected, and evidence of the nominating
stockholders ownership of Allegheny Energy stock should be
sent to the attention of the Secretary of the Company,
c/o Allegheny
Energy, Inc., 800 Cabin Hill Drive, Greensburg, Pennsylvania
15601.
Householding
The SEC has adopted rules that permit companies and
intermediaries such as brokers to satisfy delivery requirements
for proxy statements with respect to two or more shareholders
sharing the same address by delivering a single proxy statement
addressed to those shareholders. This process, which is commonly
referred to as householding, potentially provides
extra convenience for shareholders and cost savings for
companies. FirstEnergy, Allegheny Energy and some brokers
household proxy materials, delivering a single proxy statement
to multiple shareholders sharing an address unless contrary
instructions have been received from the affected shareholders.
Once you have received notice of householding materials to your
address, householding will continue until you are notified
otherwise or until you revoke your consent.
FirstEnergy will deliver promptly upon written or oral request a
separate copy of this joint proxy statement/prospectus or other
annual disclosure documents to a shareholder at a shared address
to which a single copy of this joint proxy statement/prospectus
and other disclosure documents were sent. If you would like to
receive your own set of these documents, or would like to
receive your own set of FirstEnergys annual disclosure
documents in future years, please call Shareholder Services at
(800) 736-3402
or write to FirstEnergy Corp.,
c/o American
Stock Transfer & Trust Company, LLC,
P.O. Box 2016, New York, NY
10272-2016.
Allegheny Energy will deliver promptly upon written or oral
request a separate copy of this joint proxy statement/prospectus
or other annual disclosure documents to a stockholder at a
shared address to which a single copy of the document was sent.
If you would like to receive your own set of these documents, or
would like to receive your own set of Allegheny Energys
annual disclosure documents in future years, please call
(724) 838-6196
or write to Allegheny Energy, Inc., Attention: Investor
Relations, 800 Cabin Hill Drive, Greensburg, Pennsylvania 15601.
179
THE
FIRSTENERGY SPECIAL MEETING OF SHAREHOLDERS
PROPOSAL #1
THE SHARE ISSUANCE OF FIRSTENERGY COMMON STOCK PURSUANT TO, AND
THE OTHER TRANSACTIONS CONTEMPLATED BY, THE MERGER
AGREEMENT
For a summary and detailed information regarding this proposal,
see the information about the merger and share issuance and the
other transactions contemplated by the merger agreement
contained throughout this joint proxy statement/prospectus,
including the information set forth in the sections entitled
The Merger beginning on page 52 and The
Merger Agreement beginning on page 124.
A copy of the merger agreement, as amended, is attached to this
joint proxy statement/prospectus as Annex A.
Under the merger agreement, approval of this proposal is a
condition to the completion of the merger. If the proposal is
not approved, the merger will not be completed even if the other
proposals related to the merger are approved.
Required
Vote
The authorization and approval of the share issuance and the
other transactions contemplated by the merger agreement requires
the affirmative vote of the holders of at least a majority of
the outstanding shares of FirstEnergy common stock entitled to
vote on the proposal.
Recommendation
The FirstEnergy board of directors recommends a vote FOR the
authorization and approval of the share issuance and the other
transactions contemplated by the merger agreement.
PROPOSAL
#2 THE CHARTER AMENDMENT
FirstEnergy is proposing to increase the number of authorized
shares of common stock under its amended articles of
incorporation from 375,000,000 to 490,000,000 shares in
order to have a sufficient number of shares available for
issuance and exchange to holders of Allegheny Energy common
stock in connection with the merger and to ensure that an
adequate supply of authorized unissued shares is available for
future general corporate needs. To effect this change,
FirstEnergy must amend its amended articles of incorporation.
FirstEnergy has no current intention to issue any shares of
common stock in addition to those issued to Allegheny Energy
stockholders pursuant to the merger agreement, FirstEnergy does
not intend to amend its amended articles of incorporation unless
the merger will be completed, even if FirstEnergy shareholders
approve the charter amendment proposal.
Under the merger agreement, approval of this proposal is a
condition to the completion of the merger. If the proposal is
not approved, the merger will not be completed even if the other
proposals related to the merger are approved.
A copy of the form of proposed charter amendment is attached to
this joint proxy statement/prospectus as Annex B.
180
Required
Vote
The adoption of the charter amendment requires the affirmative
vote of the holders of at least a majority of the outstanding
shares of FirstEnergy common stock entitled to vote on the
proposal.
Recommendation
The FirstEnergy board of directors recommends a vote FOR the
proposal to adopt the charter amendment.
PROPOSAL
#3 ADJOURNMENT OF SPECIAL MEETING
The FirstEnergy special meeting may be adjourned to another time
or place, if necessary or appropriate, to solicit additional
proxies if there are insufficient votes at the time of the
FirstEnergy special meeting to authorize and approve the share
issuance and the other transactions contemplated by the merger
agreement or adopt the charter amendment.
If, at the FirstEnergy special meeting, the number of shares of
FirstEnergy common stock present or represented and voting in
favor of the share issuance and the other transactions
contemplated by the merger agreement
and/or the
charter amendment is insufficient to approve that proposal,
FirstEnergy intends to move to adjourn the FirstEnergy special
meeting in order to enable the FirstEnergy board of directors to
solicit additional proxies for authorization and approval of the
share issuance and the other transactions contemplated by the
merger agreement
and/or
adoption of the charter amendment. In that event, FirstEnergy
will ask its shareholders to vote only upon the adjournment
proposal, and not the proposals regarding the share issuance and
the other transactions contemplated by the merger agreement and
the charter amendment.
In this proposal, FirstEnergy is asking its shareholders to
authorize the holder of any proxy solicited by the FirstEnergy
board of directors to vote in favor of granting discretionary
authority to the proxy holders, and each of them individually,
to adjourn the FirstEnergy special meeting to another time and
place for the purpose of soliciting additional proxies. If the
FirstEnergy shareholders approve the adjournment proposal,
FirstEnergy could adjourn the FirstEnergy special meeting and
any adjourned session of the FirstEnergy special meeting and use
the additional time to solicit additional proxies, including the
solicitation of proxies from shareholders who have previously
voted.
Required
Vote
If the proposal to adjourn the FirstEnergy special meeting for
the purpose of soliciting additional proxies is submitted to the
FirstEnergy shareholders for approval, such approval requires
the affirmative vote of the holders of a majority of the shares
represented in person or by proxy at the FirstEnergy special
meeting and entitled to vote on the proposal, regardless of
whether there is a quorum.
Recommendation
The FirstEnergy board of directors recommends a vote FOR the
proposal to adjourn the FirstEnergy special meeting, if
necessary or appropriate, to solicit additional proxies.
181
THE
ALLEGHENY ENERGY SPECIAL MEETING OF STOCKHOLDERS
PROPOSAL
#1 APPROVAL OF THE MERGER AGREEMENT AND THE
MERGER
For a summary and detailed information regarding this proposal,
see the information about the merger agreement and the merger
throughout this joint proxy statement/prospectus, including the
information set forth in sections entitled The
Merger beginning on page 52 and The Merger
Agreement beginning on page 124. A copy of the merger
agreement, as amended, is attached as Annex A to this joint
proxy statement/prospectus.
Under the merger agreement, approval of this proposal is a
condition to the completion of the merger. If the proposal is
not approved, the merger will not be completed even if the other
proposals related to the merger are approved.
Required
Vote
Approval of the proposal requires the affirmative vote of the
holders of at least a majority of the outstanding shares of
Allegheny Energy common stock outstanding and entitled to vote
on the proposal.
Recommendation
The Allegheny Energy board of directors has unanimously
determined that the merger agreement and the transactions
contemplated by the merger agreement, including the merger, are
advisable, fair to and in the best interests of Allegheny Energy
and its stockholders and has approved the merger agreement and
the merger. The Allegheny Energy board of directors recommends
that Allegheny Energy stockholders vote FOR the proposal to
approve the merger agreement and the merger.
PROPOSAL
#2 ADJOURNMENT OF SPECIAL MEETING
The Allegheny Energy special meeting may be adjourned to another
time or place, if necessary or appropriate, to solicit
additional proxies if there are insufficient votes at the time
of the Allegheny Energy special meeting to approve the merger
agreement and the merger.
If, at the Allegheny Energy special meeting, the number of
shares of Allegheny Energy common stock present or represented
and voting in favor of the approval of the merger agreement and
the merger is insufficient to approve that proposal, Allegheny
Energy intends to move to adjourn the Allegheny Energy special
meeting in order to enable the Allegheny Energy board of
directors to solicit additional proxies for the approval of the
merger agreement and the merger. In that event, Allegheny Energy
will ask its stockholders to vote only upon the adjournment
proposal, and not the proposal regarding the merger agreement
and the merger.
In this proposal, Allegheny Energy is asking its stockholders to
authorize the holder of any proxy solicited by the Allegheny
Energy board of directors to vote in favor of granting
discretionary authority to the proxy holders, and each of them
individually, to adjourn the Allegheny Energy special meeting to
another time and place for the purpose of soliciting additional
proxies. If the Allegheny Energy stockholders approve the
adjournment proposal, Allegheny Energy could adjourn the
Allegheny Energy special meeting and any adjourned session of
the Allegheny Energy special meeting and use the additional time
to solicit additional proxies, including the solicitation of
proxies from stockholders who have previously voted.
182
Required
Vote
If the proposal to adjourn the Allegheny Energy special meeting
for the purpose of soliciting additional proxies is submitted to
the Allegheny Energy stockholders for approval, such approval
requires the affirmative vote of the holders of a majority of
the shares present in person or represented by proxy at the
Allegheny Energy special meeting and entitled to vote on the
proposal regardless of whether there is a quorum.
Recommendation
The Allegheny Energy board of directors recommends that
Allegheny Energy stockholders vote FOR the proposal to adjourn
the Allegheny Energy special meeting, if necessary or
appropriate, to solicit additional proxies in favor of approval
of the merger agreement and the merger.
183
LEGAL
MATTERS
The validity of the shares of FirstEnergy common stock to be
issued in the merger will be passed upon for FirstEnergy by
Robert P. Reffner, Esq., Vice President, Legal, of
FirstEnergys subsidiary FirstEnergy Service Company. As of
June 30, 2010, Mr. Reffner beneficially owned
approximately 27,277 shares of FirstEnergy common stock,
which includes 11,501 shares of restricted stock and
9,370 shares of unvested restricted stock units. The
description of material U.S. federal income tax consequences of
the merger will be passed upon by Akin Gump Strauss Hauer &
Feld LLP, New York, New York and by Skadden, Arps,
Slate, Meagher & Flom LLP, Washington, DC. In addition, it
is a condition to the merger that FirstEnergy and Allegheny
Energy receive opinions from Akin Gump Strauss Hauer &
Feld LLP and Skadden, Arps, Slate, Meagher & Flom LLP,
respectively, to the effect that the merger will qualify as a
reorganization within the meaning of
Section 368(a) of the Internal Revenue Code.
EXPERTS
The consolidated financial statements, financial statement
schedule and managements assessment of the effectiveness
of internal control over financial reporting (which is included
in Managements Report on Internal Control over Financial
Reporting), of FirstEnergy Corp. incorporated in this joint
proxy statement/prospectus by reference to FirstEnergys
Annual Report on
Form 10-K
for the year ended December 31, 2009 have been so
incorporated in reliance on the reports of
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, given on the authority of said firm as experts
in auditing and accounting.
The 2009 and 2008 consolidated financial statements, and the
related financial statement schedules, incorporated in this
joint proxy statement/prospectus by reference from Allegheny
Energys Annual Report on
Form 10-K
for the year ended December 31, 2009, and the effectiveness
of Allegheny Energys internal control over financial
reporting have been audited by Deloitte & Touche LLP,
an independent registered public accounting firm, as stated in
their reports, which are incorporated herein by reference. Such
consolidated financial statements and financial statement
schedules have been so incorporated in reliance upon the reports
of such firm given upon their authority as experts in accounting
and auditing.
The consolidated financial statements and financial statement
schedules of Allegheny Energy, Inc. for the year ended
December 31, 2007 incorporated in this joint proxy
statement/prospectus by reference to Allegheny Energys
Annual Report on
Form 10-K
for the year ended December 31, 2009, have been so
incorporated in reliance on the report of PricewaterhouseCoopers
LLP, an independent registered public accounting firm, given on
the authority of said firm as experts in auditing and accounting.
WHERE YOU
CAN FIND MORE INFORMATION; INCORPORATION BY REFERENCE
FirstEnergy and Allegheny Energy file annual, quarterly and
current reports, proxy statements and other information with the
SEC. You may read and copy these reports, statements or other
information filed by FirstEnergy and Allegheny Energy at the
SECs Public Reference Room at 100 F Street,
N.E., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for further information on the Public Reference Room. The SEC
filings of FirstEnergy and Allegheny Energy are also available
to the public from commercial document retrieval services and at
the website maintained by the SEC at
http://www.sec.gov.
FirstEnergy filed a registration statement on
Form S-4
to register with the SEC the shares of FirstEnergy common stock
to be issued to Allegheny Energy stockholders pursuant to the
merger. This joint proxy statement/prospectus forms a part of
that registration statement and constitutes a
184
prospectus of FirstEnergy, in addition to being a proxy
statement of FirstEnergy for its special meeting and of
Allegheny Energy for its special meeting. The registration
statement, including the attached annexes, exhibits and
schedules, contains additional relevant information about
FirstEnergy and Allegheny Energy. As allowed by SEC rules, this
joint proxy statement/prospectus does not contain all the
information FirstEnergy or Allegheny Energy shareholders can
find in the registration statement or the exhibits to the
registration statement.
The SEC allows FirstEnergy and Allegheny Energy to
incorporate by reference information into this joint
proxy statement/prospectus. This means that FirstEnergy and
Allegheny Energy can disclose important information to you by
referring you to another document filed separately with the SEC.
The information incorporated by reference is considered to be a
part of this joint proxy statement/prospectus, except for any
information that is superseded by information that is included
directly in this joint proxy statement/prospectus or
incorporated by reference subsequent to the date of this joint
proxy statement/prospectus.
This joint proxy statement/prospectus incorporates by reference
the documents listed below that FirstEnergy and Allegheny Energy
have previously filed with the SEC. They contain important
information about FirstEnergy and Allegheny Energy and the
financial condition of each company.
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|
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FirstEnergy SEC Filings
(File
No. 333-21011)
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|
Period and/or Date Filed
|
Annual Report on
Form 10-K
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|
Fiscal year ended December 31, 2009
|
Quarterly Report on Form
10-Q
|
|
Quarterly period ended March 31, 2010
|
Current Reports on
Form 8-K
|
|
Filed on January 6, 2010, February 3, 2010, February 11, 2010
(of the two current reports filed on February 11, 2010, only the
filing made under 1.01, 8.01 and 9.01 is incorporated herein by
reference), May 20, 2010 and May 21, 2010
|
|
|
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Allegheny Energy SEC Filings
(File
No. 001-267)
|
|
Period and/or Date Filed
|
Annual Report on
Form 10-K
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|
Fiscal year ended December 31, 2009
|
Quarterly Report on Form
10-Q
|
|
Quarterly period ended March 31, 2010
|
Current Reports on
Form 8-K
|
|
Filed on January 28, 2010, February 4, 2010, February 11, 2010
(two filings) (other than Item 7.01 and Exhibit 99.1 filed under
that Item), March 4, 2010, May 6, 2010, May 24, 2010
and June 9, 2010
|
Description of Allegheny Energy common stock contained in
Exhibit 99.1 to Allegheny Energys
Form 8-K
and any amendment or report filed for the purpose of updating
such description
|
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Filed on August 3, 2009
|
In addition, FirstEnergy and Allegheny Energy incorporate by
reference additional documents that they may file with or
furnish to the SEC pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act between the date of this joint proxy
statement/prospectus and the dates of the FirstEnergy special
meeting and the Allegheny Energy special meeting (other than
information furnished pursuant to Item 2.02 or
Item 7.01 of any Current Report on
Form 8-K
or exhibits filed under Item 9.01 relating to those Items,
unless expressly stated otherwise therein). These documents
include periodic reports, such as annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K.
FirstEnergy has supplied all information contained in or
incorporated by reference in this joint proxy
statement/prospectus relating to FirstEnergy and Merger Sub, and
Allegheny Energy has
185
supplied all information contained in or incorporated by
reference in this joint proxy statement/prospectus relating to
Allegheny Energy.
Documents incorporated by reference are available to you without
charge upon written or oral request. You can obtain copies of
any of these documents or answers to your questions about the
applicable special meeting and proposals by requesting them in
writing or by telephone from Innisfree M&A Incorporated,
FirstEnergys proxy solicitor, or D.F. King &
Co., Inc., Allegheny Energys proxy solicitor, at the
following addresses and telephone numbers:
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|
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Innisfree M&A Incorporated
|
|
D.F. King & Co., Inc.
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501 Madison Avenue, 20th floor
|
|
48 Wall Street, 22nd Floor
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New York, New York 10022
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New York, New York 10005
|
Shareholders may call toll free
(877) 687-1866
|
|
Stockholders may call toll free (800) 549-6650
|
Banks and Brokers may call collect
(212) 750-5833
|
|
Banks and Brokers may call collect (212) 269-5550
|
You can also obtain copies of any of these documents by
requesting them in writing or by telephone from the appropriate
company at the following addresses and telephone numbers:
|
|
|
FirstEnergy Corp.
|
|
Allegheny Energy, Inc.
|
Attention: Corporate Department
|
|
Attention: Investor Relations
|
76 South Main Street
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800 Cabin Hill Drive
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Akron, Ohio 44308
|
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Greensburg, Pennsylvania 15601
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(800)
631-8945
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(724) 838-6196
|
Please note that copies of the documents provided to you will
not include exhibits, unless the exhibits are specifically
incorporated by reference in the documents or in this joint
proxy statement/prospectus.
To receive timely delivery of the requested documents in
advance of the applicable special meeting, you should make your
request no later than September 7, 2010.
You also may obtain these documents at the SECs website,
http://www.sec.gov,
and may obtain these documents at FirstEnergys website,
www.firstenergycorp.com, under the tab
Investors and then under the heading Financial
Information and then under the item SEC
Filings, and at Allegheny Energys website,
www.alleghenyenergy.com, under the tab
Investors and then under the heading SEC
Filings.
FirstEnergy and Allegheny Energy are not incorporating the
contents of the websites of the SEC, FirstEnergy, Allegheny
Energy or any other person into this joint proxy
statement/prospectus. FirstEnergy and Allegheny Energy are
providing only the information about how to obtain documents
that are incorporated by reference in this joint proxy
statement/prospectus at these websites for your convenience.
FirstEnergy and Allegheny Energy have not authorized anyone
to give you any information or make any representation about the
merger or their companies that is different from, or in addition
to, that contained in this joint proxy statement/prospectus or
in any of the materials that are incorporated into this joint
proxy statement/prospectus. Therefore, if anyone does give you
information of this sort, you should not rely on it. If you are
in a jurisdiction where offers to exchange or sell, or
solicitations of offers to exchange or purchase, the securities
offered by this joint proxy statement/prospectus or the
solicitation of proxies is unlawful, or if you are a person to
whom it is unlawful to direct these types of activities, then
the offer presented in this joint proxy statement/prospectus
does not extend to you. The information contained in this joint
proxy statement/prospectus is accurate only as of the date of
this document unless the information specifically indicates that
another date applies.
186
ANNEX A
Conformed Copy
AGREEMENT AND PLAN OF MERGER
by and among
FIRSTENERGY CORP.,
ELEMENT MERGER SUB, INC.
and
ALLEGHENY ENERGY, INC.
Dated as of February 10, 2010
As Amended as of June 4, 2010
Table of
Contents
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Page
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Article I
THE MERGER
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Section 1.1
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The Merger
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A-1
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Section 1.2
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Closing
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A-2
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Section 1.3
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Effective Time
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A-2
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Section 1.4
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Effects of the Merger
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A-2
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Section 1.5
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Charter and Bylaws of the Surviving Corporation
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A-2
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Section 1.6
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Directors
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A-2
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Section 1.7
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Officers
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A-2
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Section 1.8
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Parent Board of Directors
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A-2
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Article II
CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES
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Section 2.1
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Effect on Stock
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A-3
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Section 2.2
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Exchange of Shares
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A-5
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Article III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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Section 3.1
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Qualification, Organization, Subsidiaries, etc.
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A-7
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Section 3.2
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Stock
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A-9
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Section 3.3
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Corporate Authority Relative to this Agreement; No Violation
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A-10
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Section 3.4
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SEC Reports, Financial Statements and Utility Reports
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A-12
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Section 3.5
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No Undisclosed Liabilities
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A-13
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Section 3.6
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Absence of Certain Changes or Events
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A-13
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Section 3.7
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Investigations; Litigation
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A-13
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Section 3.8
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Information Supplied
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A-13
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Section 3.9
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Compliance with Law; Permits
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A-14
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Section 3.10
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Tax Matters
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A-15
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Section 3.11
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Employee Benefit Plans
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A-16
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Section 3.12
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Employment and Labor Matters
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A-17
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Section 3.13
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Environmental Laws and Regulations
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A-18
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Section 3.14
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No Ownership of Nuclear Power Plants
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A-19
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Section 3.15
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Insurance
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A-19
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Section 3.16
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Trading
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A-20
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Section 3.17
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Required Vote of the Company Stockholders
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A-20
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Section 3.18
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Antitakeover Statutes; Rights Plan
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A-20
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Section 3.19
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Opinion of Financial Advisor
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A-20
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A-i
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Section 3.20
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Finders or Brokers
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A-21
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Section 3.21
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Reorganization under the Code
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A-21
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Section 3.22
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Regulatory Proceedings
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A-21
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Section 3.23
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Intellectual Property
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A-21
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Section 3.24
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Properties
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A-21
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Section 3.25
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Material Contracts
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A-22
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Section 3.26
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No Additional Representations
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|
|
A-22
|
|
|
Article IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
|
Section 4.1
|
|
Qualification; Organization, Subsidiaries, etc.
|
|
|
A-23
|
|
Section 4.2
|
|
Capital Stock
|
|
|
A-24
|
|
Section 4.3
|
|
Corporate Authority Relative to this Agreement; No Violation
|
|
|
A-26
|
|
Section 4.4
|
|
SEC Reports, Financial Statements and Utility Reports
|
|
|
A-27
|
|
Section 4.5
|
|
No Undisclosed Liabilities
|
|
|
A-28
|
|
Section 4.6
|
|
Absence of Certain Changes or Events
|
|
|
A-29
|
|
Section 4.7
|
|
Investigations; Litigation
|
|
|
A-29
|
|
Section 4.8
|
|
Information Supplied
|
|
|
A-29
|
|
Section 4.9
|
|
Compliance with Law; Permits
|
|
|
A-29
|
|
Section 4.10
|
|
Tax Matters
|
|
|
A-30
|
|
Section 4.11
|
|
Employee Benefit Plans
|
|
|
A-31
|
|
Section 4.12
|
|
Employment and Labor Matters
|
|
|
A-32
|
|
Section 4.13
|
|
Environmental Laws and Regulations
|
|
|
A-33
|
|
Section 4.14
|
|
Operations of Nuclear Power Plants
|
|
|
A-34
|
|
Section 4.15
|
|
Insurance
|
|
|
A-35
|
|
Section 4.16
|
|
Trading
|
|
|
A-35
|
|
Section 4.17
|
|
Required Vote of Parent Shareholders; Merger Sub Approval
|
|
|
A-35
|
|
Section 4.18
|
|
Lack of Ownership of Company Common Stock
|
|
|
A-35
|
|
Section 4.19
|
|
Opinion of Financial Advisor
|
|
|
A-36
|
|
Section 4.20
|
|
Finders or Brokers
|
|
|
A-36
|
|
Section 4.21
|
|
Reorganization under the Code
|
|
|
A-36
|
|
Section 4.22
|
|
Regulatory Proceedings
|
|
|
A-36
|
|
Section 4.23
|
|
Intellectual Property
|
|
|
A-36
|
|
Section 4.24
|
|
Properties
|
|
|
A-36
|
|
Section 4.25
|
|
Material Contracts
|
|
|
A-37
|
|
Section 4.26
|
|
No Additional Representations
|
|
|
A-37
|
|
|
Article V
COVENANTS AND AGREEMENTS
|
Section 5.1
|
|
Conduct of Business by the Company
|
|
|
A-38
|
|
Section 5.2
|
|
Conduct of Business by Parent
|
|
|
A-43
|
|
Section 5.3
|
|
Investigation
|
|
|
A-47
|
|
Section 5.4
|
|
Non-Solicitation by the Company
|
|
|
A-48
|
|
A-ii
|
|
|
|
|
|
|
Section 5.5
|
|
Non-Solicitation by Parent
|
|
|
A-52
|
|
Section 5.6
|
|
Filings; Other Actions
|
|
|
A-55
|
|
Section 5.7
|
|
Stock Options and Other Stock-Based Awards; Employee Matters
|
|
|
A-56
|
|
Section 5.8
|
|
Regulatory Approvals; Third-Party Consents; Reasonable Best
Efforts
|
|
|
A-60
|
|
Section 5.9
|
|
Takeover Statute
|
|
|
A-62
|
|
Section 5.10
|
|
Public Announcements
|
|
|
A-62
|
|
Section 5.11
|
|
Indemnification and Insurance
|
|
|
A-63
|
|
Section 5.12
|
|
Integration Committee
|
|
|
A-64
|
|
Section 5.13
|
|
Control of Operations
|
|
|
A-64
|
|
Section 5.14
|
|
Certain Transfer Taxes
|
|
|
A-64
|
|
Section 5.15
|
|
Section 16 Matters
|
|
|
A-64
|
|
Section 5.16
|
|
Tax Matters
|
|
|
A-65
|
|
Section 5.17
|
|
Stock Exchange Listing
|
|
|
A-65
|
|
Section 5.18
|
|
Charitable Contributions
|
|
|
A-65
|
|
|
Article VI
CONDITIONS TO THE MERGER
|
Section 6.1
|
|
Conditions to Each Partys Obligation to Effect the Merger
|
|
|
A-66
|
|
Section 6.2
|
|
Conditions to Obligation of the Company to Effect the Merger
|
|
|
A-66
|
|
Section 6.3
|
|
Conditions to Obligation of Parent to Effect the Merger
|
|
|
A-67
|
|
Section 6.4
|
|
Frustration of Closing Conditions
|
|
|
A-68
|
|
|
Article VII
TERMINATION
|
Section 7.1
|
|
Termination or Abandonment
|
|
|
A-69
|
|
Section 7.2
|
|
Effect of Termination
|
|
|
A-71
|
|
|
Article VIII
MISCELLANEOUS
|
Section 8.1
|
|
No Survival
|
|
|
A-73
|
|
Section 8.2
|
|
Expenses
|
|
|
A-73
|
|
Section 8.3
|
|
Counterparts; Effectiveness
|
|
|
A-73
|
|
Section 8.4
|
|
Governing Law
|
|
|
A-73
|
|
Section 8.5
|
|
Jurisdiction; Specific Enforcement
|
|
|
A-73
|
|
Section 8.6
|
|
WAIVER OF JURY TRIAL
|
|
|
A-74
|
|
Section 8.7
|
|
Notices
|
|
|
A-74
|
|
Section 8.8
|
|
Disclosure Schedules
|
|
|
A-75
|
|
Section 8.9
|
|
Assignment; Binding Effect
|
|
|
A-75
|
|
Section 8.10
|
|
Severability
|
|
|
A-75
|
|
Section 8.11
|
|
Entire Agreement; No Third-Party Beneficiaries
|
|
|
A-76
|
|
Section 8.12
|
|
Amendments; Waivers
|
|
|
A-76
|
|
A-iii
|
|
|
|
|
|
|
Section 8.13
|
|
Headings
|
|
|
A-76
|
|
Section 8.14
|
|
Interpretation
|
|
|
A-76
|
|
Section 8.15
|
|
Definitions
|
|
|
A-76
|
|
A-iv
Index of
Defined Terms
|
|
|
|
|
|
|
Page
|
|
|
Action
|
|
|
A-63
|
|
Adjusted Option
|
|
|
A-57
|
|
affiliates
|
|
|
A-77
|
|
Agreement
|
|
|
A-1
|
|
Applicable PSCs
|
|
|
A-11
|
|
Articles of Merger
|
|
|
A-2
|
|
Atomic Energy Act
|
|
|
A-28
|
|
business day
|
|
|
A-77
|
|
Cancelled Shares
|
|
|
A-3
|
|
Charter Amendment
|
|
|
A-26
|
|
Closing
|
|
|
A-2
|
|
Closing Date
|
|
|
A-2
|
|
Code
|
|
|
A-1
|
|
Common Shares Trust
|
|
|
A-4
|
|
Company
|
|
|
A-1
|
|
Company Acquisition Proposal
|
|
|
A-51
|
|
Company Acquisition Transaction
|
|
|
A-51
|
|
Company Approvals
|
|
|
A-11
|
|
Company Benefit Plans
|
|
|
A-17
|
|
Company Change of Recommendation
|
|
|
A-50
|
|
Company Common Stock
|
|
|
A-3
|
|
Company Disclosure Schedule
|
|
|
A-7
|
|
Company Employees
|
|
|
A-17
|
|
Company Equity Awards
|
|
|
A-10
|
|
Company Joint Venture
|
|
|
A-8
|
|
Company Material Adverse Effect
|
|
|
A-8
|
|
Company Material Contract
|
|
|
A-22
|
|
Company Organizational Documents
|
|
|
A-7
|
|
Company Performance Shares
|
|
|
A-57
|
|
Company Permits
|
|
|
A-14
|
|
Company Permitted Lien
|
|
|
A-11
|
|
Company Recommendation
|
|
|
A-10
|
|
Company RSUs
|
|
|
A-57
|
|
Company SEC Documents
|
|
|
A-12
|
|
Company Stock Option
|
|
|
A-56
|
|
Company Stock Plans
|
|
|
A-57
|
|
Company Stockholder Approval
|
|
|
A-20
|
|
Company Stockholders Meeting
|
|
|
A-56
|
|
Company Superior Offer
|
|
|
A-51
|
|
Company Tax Opinion
|
|
|
A-67
|
|
Company Tax Opinion Materials
|
|
|
A-65
|
|
Company Termination Fee
|
|
|
A-72
|
|
Company Trading Policies
|
|
|
A-20
|
|
A-v
|
|
|
|
|
Confidentiality Agreement
|
|
|
A-48
|
|
contract
|
|
|
A-22
|
|
Contract
|
|
|
A-22
|
|
control
|
|
|
A-77
|
|
Designated Directors
|
|
|
A-3
|
|
DOJ
|
|
|
A-61
|
|
Effective Time
|
|
|
A-2
|
|
End Date
|
|
|
A-69
|
|
ENEC
|
|
|
A-21
|
|
Environment
|
|
|
A-19
|
|
Environmental Law
|
|
|
A-19
|
|
ERISA
|
|
|
A-16
|
|
Excess Shares
|
|
|
A-4
|
|
Exchange Act
|
|
|
A-11
|
|
Exchange Agent
|
|
|
A-5
|
|
Exchange Fund
|
|
|
A-5
|
|
Exchange Ratio
|
|
|
A-3
|
|
FCC
|
|
|
A-11
|
|
FERC
|
|
|
A-11
|
|
FERC Approval
|
|
|
A-11
|
|
Final Order
|
|
|
A-67
|
|
Final Order Waiting Period
|
|
|
A-67
|
|
Form S-4
|
|
|
A-13
|
|
FPA
|
|
|
A-11
|
|
FTC
|
|
|
A-61
|
|
GAAP
|
|
|
A-12
|
|
Governmental Entity
|
|
|
A-11
|
|
Group
|
|
|
A-51
|
|
Hazardous Materials
|
|
|
A-19
|
|
HSR Act
|
|
|
A-11
|
|
Indemnified Party
|
|
|
A-63
|
|
Intellectual Property Rights
|
|
|
A-21
|
|
Intended Tax Treatment
|
|
|
A-65
|
|
Joint Proxy Statement
|
|
|
A-14
|
|
knowledge
|
|
|
A-77
|
|
Law
|
|
|
A-14
|
|
Laws
|
|
|
A-14
|
|
Lien
|
|
|
A-11
|
|
Merger
|
|
|
A-1
|
|
Merger Consideration
|
|
|
A-3
|
|
Merger Sub
|
|
|
A-1
|
|
MGCL
|
|
|
A-1
|
|
MPSC
|
|
|
A-11
|
|
Net Company Position
|
|
|
A-20
|
|
Net Parent Position
|
|
|
A-35
|
|
New Plans
|
|
|
A-59
|
|
A-vi
|
|
|
|
|
NRC
|
|
|
A-28
|
|
NYSE
|
|
|
A-4
|
|
Old Plans
|
|
|
A-59
|
|
Parent
|
|
|
A-1
|
|
Parent Acquisition Proposal
|
|
|
A-54
|
|
Parent Acquisition Transaction
|
|
|
A-54
|
|
Parent Approvals
|
|
|
A-26
|
|
Parent Benefit Plans
|
|
|
A-32
|
|
Parent Change of Recommendation
|
|
|
A-53
|
|
Parent Common Stock
|
|
|
A-3
|
|
Parent Disclosure Schedule
|
|
|
A-23
|
|
Parent Employees
|
|
|
A-32
|
|
Parent Equity Awards
|
|
|
A-25
|
|
Parent Joint Venture
|
|
|
A-23
|
|
Parent Material Adverse Effect
|
|
|
A-24
|
|
Parent Material Contract
|
|
|
A-37
|
|
Parent Nuclear Facilities
|
|
|
A-34
|
|
Parent Organizational Documents
|
|
|
A-23
|
|
Parent Permits
|
|
|
A-30
|
|
Parent Permitted Lien
|
|
|
A-27
|
|
Parent Preferred Stock
|
|
|
A-24
|
|
Parent Recommendation
|
|
|
A-26
|
|
Parent SEC Documents
|
|
|
A-27
|
|
Parent Shareholder Approval
|
|
|
A-35
|
|
Parent Shareholders Meeting
|
|
|
A-56
|
|
Parent Stock Conversion Price
|
|
|
A-57
|
|
Parent Stock Options
|
|
|
A-25
|
|
Parent Superior Offer
|
|
|
A-55
|
|
Parent Tax Opinion
|
|
|
A-68
|
|
Parent Tax Opinion Materials
|
|
|
A-65
|
|
Parent Termination Fee
|
|
|
A-72
|
|
Parent Trading Policies
|
|
|
A-35
|
|
person
|
|
|
A-77
|
|
PPUC
|
|
|
A-11
|
|
Proprietary Information
|
|
|
A-48
|
|
Regulatory Law
|
|
|
A-62
|
|
Representatives
|
|
|
A-48
|
|
Restraints
|
|
|
A-66
|
|
Restricted Shares
|
|
|
A-57
|
|
Sarbanes-Oxley Act
|
|
|
A-12
|
|
SDAT
|
|
|
A-2
|
|
SEC
|
|
|
A-12
|
|
Securities Act
|
|
|
A-11
|
|
Share
|
|
|
A-3
|
|
Stock Issuance
|
|
|
A-26
|
|
Subsidiaries
|
|
|
A-76
|
|
A-vii
|
|
|
|
|
Surviving Corporation
|
|
|
A-1
|
|
Takeover Laws
|
|
|
A-20
|
|
Tax Return
|
|
|
A-16
|
|
Taxes
|
|
|
A-16
|
|
Termination Date
|
|
|
A-38
|
|
Transaction Expenses
|
|
|
A-72
|
|
Transactions
|
|
|
A-1
|
|
Union
|
|
|
A-17
|
|
VSCC
|
|
|
A-11
|
|
WARN
|
|
|
A-18
|
|
WVPSC
|
|
|
A-11
|
|
A-viii
AGREEMENT AND PLAN OF MERGER, dated as of February 10, 2010
(the Agreement), by and among FirstEnergy
Corp., an Ohio corporation (Parent), Element
Merger Sub, Inc., a Maryland corporation and a direct
wholly-owned subsidiary of Parent (Merger
Sub), and Allegheny Energy, Inc., a Maryland
corporation (the Company).
W
I T N E S S E
T H:
WHEREAS, the parties intend that Merger Sub be merged with and
into the Company (the Merger), with the
Company surviving the Merger as a wholly-owned subsidiary of
Parent;
WHEREAS, the Board of Directors of the Company has
(i) determined that it is advisable and in the best
interests of the Company and its stockholders, and declared it
advisable, to enter into this Agreement and to consummate the
transactions contemplated hereby, including the Merger (the
Transactions), (ii) approved the
execution, delivery and performance of this Agreement and the
consummation of the Transactions and (iii) resolved to
recommend adoption of this Agreement and approval of the
Transactions by the stockholders of the Company;
WHEREAS, the Board of Directors of Parent has
(i) determined that it is in the best interests of Parent
and its shareholders, and declared it advisable, to enter into
this Agreement and consummate the Transactions,
(ii) approved the execution, delivery and performance of
this Agreement and the consummation of the Transactions and
(iii) resolved to recommend to its shareholders approval of
the Stock Issuance and the Charter Amendment, each of which
shall be deemed to be included, with respect to Parent, in the
defined term Transactions;
WHEREAS, Parent, as the sole stockholder of Merger Sub, has
approved this Agreement and the Transactions;
WHEREAS, for U.S. Federal income tax purposes, it is
intended that the Merger will qualify as a
reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as
amended (the Code), that this Agreement will
constitute a plan of reorganization for purposes of
Sections 354 and 361 of the Code, and that Parent, Merger
Sub and the Company will each be a party to the
reorganization within the meaning of Section 368(b)
of the Code; and
WHEREAS, Parent, Merger Sub and the Company desire to make
certain representations, warranties, covenants and agreements
specified herein in connection with the Merger and also to
prescribe certain conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements contained
herein, and intending to be legally bound hereby, Parent, Merger
Sub and the Company agree as follows:
ARTICLE I
THE
MERGER
Section 1.1 The Merger. At the
Effective Time, upon the terms and subject to the conditions set
forth in this Agreement and in accordance with the applicable
provisions of the Maryland General Corporation Law (the
MGCL), Merger Sub shall be merged with and
into the Company, whereupon the separate corporate existence of
Merger Sub shall cease, and the Company shall continue its
corporate existence under the MGCL as the surviving corporation
in the Merger (the Surviving Corporation) and
a wholly-owned subsidiary of Parent.
A-1
Section 1.2 Closing. The
closing of the Merger (the Closing) shall
take place at the offices of Skadden, Arps, Slate,
Meagher & Flom LLP, Washington, DC, at 10:00 a.m.
local time, on the third business day after the satisfaction or
waiver (to the extent permitted by applicable Law) of the
conditions set forth in Article VI (other than those
conditions that by their nature are to be satisfied by action
taken at the Closing, but subject to the satisfaction or waiver
(to the extent permitted by applicable Law) of such conditions),
or at such other place, date and time as the Company and Parent
may agree in writing (the Closing Date).
Section 1.3 Effective
Time. Subject to the provisions of this
Agreement, on the Closing Date, the Company and Merger Sub shall
file the articles of merger providing for the Merger (the
Articles of Merger) in a form mutually agreed
upon by Parent and the Company (acting reasonably), executed in
accordance with, and containing such information as is required
by, the relevant provisions of the MGCL, with the State
Department of Assessments and Taxation of Maryland (the
SDAT). The Merger shall become effective at
such time as the Articles of Merger are duly filed with and
accepted for record by the SDAT, or at such later time as is
agreed by the parties hereto and specified in the Articles of
Merger in accordance with the relevant provisions of the MGCL
(such date and time is hereinafter referred to as the
Effective Time).
Section 1.4 Effects of the
Merger. The effects of the Merger shall be as
provided in this Agreement and in the applicable provisions of
the MGCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all of the property,
rights, privileges, powers and franchises of the Company and
Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities, duties and obligations of the Company and
Merger Sub shall become the debts, liabilities, duties and
obligations of the Surviving Corporation, all as provided under
the MGCL.
Section 1.5 Charter and Bylaws of the
Surviving Corporation.
(a) At the Effective Time, the charter of Merger Sub
as in effect immediately prior to the Effective Time shall be
the charter of the Surviving Corporation until thereafter
amended in accordance with the provisions thereof and hereof and
applicable Law, in each case consistent with the obligations set
forth in Section 5.11; provided,
however, that Article Second of the articles
of incorporation of the Surviving Corporation shall be amended
in its entirety to read as follows: The name of the
corporation is Allegheny Energy, Inc.
(b) At the Effective Time, the bylaws of Merger Sub
as in effect immediately prior to the Effective Time shall be
the bylaws of the Surviving Corporation until thereafter amended
in accordance with the provisions thereof and hereof and
applicable Law, in each case consistent with the obligations set
forth in Section 5.11.
Section 1.6 Directors. Subject
to applicable Law, the directors of Merger Sub immediately prior
to the Effective Time shall be the directors of the Surviving
Corporation and shall hold office until their respective
successors are duly elected and qualify, or their earlier death,
resignation or removal.
Section 1.7 Officers. The
officers of the Company immediately prior to the Effective Time
shall be the officers of the Surviving Corporation and shall
hold office until their respective successors are duly elected
and qualify, or their earlier death, resignation or removal.
Section 1.8 Parent Board of
Directors. Prior to the Effective Time, Parent
shall take all necessary corporate action (i) to increase
the size of the Board of Directors of Parent by two members,
such that at the Effective Time the Board of Directors of Parent
shall consist of 13 members, and (ii) to fill the vacancies
on the Board of Directors of Parent created by such increase, to
appoint to the Board of Directors of Parent, effective
immediately after the Effective Time, two
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directors consisting of current members of the Company Board of
Directors (the Designated Directors), which
Designated Directors shall be designated by Parent, upon
consultation with, and consideration of the views of, the
Company, before the mailing of the Joint Proxy Statement. If
prior to the Effective Time, any Designated Director is
unwilling or unable to serve as a director of Parent as a result
of illness, death, resignation or any other reason, then, any
replacement for such person shall be selected by Parent, upon
consultation with, and consideration of the views of, the
Company, and such replacement shall constitute a Designated
Director. The Designated Directors shall serve on committees of
the Board of Directors of Parent on an equitable basis
proportionate to the size of the Board of Directors of Parent.
ARTICLE II
CONVERSION
OF SHARES; EXCHANGE OF CERTIFICATES
Section 2.1 Effect on
Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of the Company, Merger
Sub or the holders of any securities of the Company or Merger
Sub:
(a) Conversion of Company Common
Stock. Subject to Sections 2.1(b),
2.1(d) and 5.7, each issued and outstanding share
of common stock, par value $1.25 per share, of the Company
outstanding immediately prior to the Effective Time (such
shares, collectively, Company Common Stock,
and each, a Share), other than any Cancelled
Shares, shall thereupon be converted automatically into and
shall thereafter represent the right to receive 0.667 (the
Exchange Ratio) fully paid and nonassessable
shares of common stock, par value $0.10 per share
(Parent Common Stock), of Parent (the
Merger Consideration). As a result of the
Merger, at the Effective Time, each holder of Shares shall cease
to have any rights with respect thereto, except the right to
receive the Merger Consideration payable in respect of such
Shares which are issued and outstanding immediately prior to the
Effective Time, any cash in lieu of fractional shares of Parent
Common Stock payable pursuant to Section 2.1(d) and
any dividends or other distributions payable pursuant to
Section 2.2(c), all to be issued or paid, without
interest, in consideration therefor upon the surrender of such
Shares in accordance with Section 2.2(b).
(b) Cancellation of Shares. Each
Share that is owned, directly or indirectly, by Parent or Merger
Sub immediately prior to the Effective Time or held by the
Company or any Subsidiary of the Company immediately prior to
the Effective Time (in each case, other than the Restricted
Shares) (the Cancelled Shares) shall, by
virtue of the Merger and without any action on the part of the
holder thereof, be cancelled and retired and shall cease to
exist, and no consideration shall be delivered in exchange for
such cancellation and retirement.
(c) Conversion of Merger Sub Common
Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof,
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 and become one validly issued,
fully paid and nonassessable share of common stock, par value
$0.01 per share, of the Surviving Corporation and shall
constitute the only outstanding shares of stock of the Surviving
Corporation. From and after the Effective Time, all certificates
representing the common stock of Merger Sub shall be deemed for
all purposes to represent the number of shares of common stock
of the Surviving Corporation into which they were converted in
accordance with the immediately preceding sentence.
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(d) Fractional Shares.
(i) No fractional shares of Parent Common Stock shall
be issued in the Merger, but in lieu thereof each holder of
Shares otherwise entitled to a fractional share of Parent Common
Stock will be entitled to receive, from the Exchange Agent in
accordance with the provisions of this
Section 2.1(d), a cash payment in lieu of such
fractional share of Parent Common Stock representing such
holders proportionate interest, if any, in the proceeds
from the sale by the Exchange Agent (reduced by any fees of the
Exchange Agent attributable to such sale) in one or more
transactions of shares of Parent Common Stock equal to the
excess of (A) the aggregate number of shares of Parent
Common Stock to be delivered to the Exchange Agent by Parent
pursuant to Section 2.2(a) representing the Merger
Consideration over (B) the aggregate number of whole shares
of Parent Common Stock to be distributed to the holders of
Shares pursuant to Section 2.2(b) (such excess being
herein called the Excess Shares). The parties
acknowledge that payment of the cash consideration in lieu of
issuing fractional shares of Parent Common Stock was not
separately bargained-for consideration but merely represents a
mechanical rounding off for purposes of avoiding the expense and
inconvenience to Parent that would otherwise be caused by the
issuance of fractional shares of Parent Common Stock. As soon as
practicable after the Effective Time, the Exchange Agent, as
agent for the holders of Shares that would otherwise receive
fractional shares of Parent Common Stock, shall sell the Excess
Shares at the then prevailing prices on the New York Stock
Exchange (the NYSE) in the manner provided in
the following paragraph.
(ii) The sale of the Excess Shares by the Exchange
Agent, shall be executed on the NYSE through one or more member
firms of the NYSE and shall be executed in round lots to the
extent reasonably practicable. Until the net proceeds of such
sale or sales have been distributed to the holders of Shares,
the Exchange Agent shall hold such net proceeds in trust for the
holders of Shares that would otherwise receive fractional shares
of Parent Common Stock (the Common Shares
Trust). The Exchange Agent shall determine the portion
of the Common Shares Trust to which each holder of Shares shall
be entitled, if any, by multiplying the amount of the aggregate
net proceeds comprising the Common Shares Trust (after the sale
of all Excess Shares) by a fraction, the numerator of which is
the amount of the fractional shares to which such former holder
of Shares would otherwise be entitled and the denominator of
which is the aggregate amount of fractional shares to which all
former holders of Shares would otherwise be entitled.
(iii) As soon as reasonably practicable after the
determination of the amount of cash, if any, to be paid to
holders of Shares in lieu of any fractional shares of Parent
Common Stock, the Exchange Agent shall make available such
amounts to such former holders of Shares without interest,
subject to and in accordance with Section 2.2.
(e) Adjustments to the Exchange
Ratio. If at any time during the period between
the date of this Agreement and the Effective Time, the
outstanding shares of capital stock of the Company or Parent
shall have been changed into a different number of shares or a
different class by reason of any reclassification,
recapitalization, stock split (including a reverse stock split)
or combination, exchange or readjustment of shares, or any stock
dividend or stock distribution with a record date during such
period, or any other similar event, then, provided that such
event did not occur in violation of this Agreement, the Exchange
Ratio, the Merger Consideration and any other similarly
dependent items shall be equitably adjusted to reflect such
change.
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Section 2.2 Exchange of Shares.
(a) Exchange Agent. Prior to the
Effective Time, Parent shall appoint its transfer agent or such
other exchange agent reasonably acceptable to the Company (the
Exchange Agent) for the purpose of exchanging
Shares for the Merger Consideration. As of the Effective Time,
Parent shall deposit, or shall cause to be deposited, with the
Exchange Agent, in trust for the benefit of holders of the
Shares, the Restricted Shares, the Company Performance Shares
and Company RSUs, certificates representing the shares of Parent
Common Stock issuable pursuant to Section 2.1(a) (or
appropriate alternative arrangements shall be made by Parent if
uncertificated shares of Parent Common Stock will be issued).
Following the Effective Time, Parent agrees to make available to
the Exchange Agent, from time to time as needed, cash sufficient
to pay any dividends and other distributions pursuant to
Section 2.2(c). All certificates representing shares
of Parent Common Stock (including the amount of any dividends or
other distributions payable with respect thereto pursuant to
Section 2.2(c) and cash in lieu of fractional shares
of Parent Common Stock to be paid pursuant to
Section 2.1(d)) are hereinafter referred to as the
Exchange Fund.
(b) Exchange Procedures. As soon as
reasonably practicable after the Effective Time and in any event
not later than the fourth business day following the Effective
Time, Parent shall cause the Exchange Agent to mail to each
holder of record of Shares as of the Effective Time (i) a
letter of transmittal (which shall specify that delivery shall
be effected, and that risk of loss and title to the Shares shall
pass, only upon delivery of the Shares to the Exchange Agent and
which shall be in form and substance reasonably satisfactory to
Parent and the Company) and (ii) instructions for use in
effecting the surrender of the Shares in exchange for
certificates representing whole shares of Parent Common Stock
(or appropriate alternative arrangements made by Parent if
uncertificated shares of Parent Common Stock will be issued),
cash in lieu of any fractional shares of Parent Common Stock
pursuant to Section 2.1(d) and any dividends or
other distributions payable pursuant to
Section 2.2(c). Exchange of any Shares held in book
entry form shall be effected in accordance with the Exchange
Agents customary procedures with respect to securities
held in book entry form. Upon surrender of Shares for
cancellation to the Exchange Agent, together with such letter of
transmittal, duly completed and validly executed in accordance
with the instructions thereto, and such other documents as may
reasonably be required by the Exchange Agent or Parent, the
holder of such Shares shall be entitled to receive in exchange
therefor that number of whole shares of Parent Common Stock
(after taking into account all Shares surrendered by such
holder) to which such holder is entitled pursuant to
Section 2.1 (which shall be in uncertificated book
entry form unless a physical certificate is affirmatively
requested), payment by cash or check in lieu of fractional
shares of Parent Common Stock which such holder is entitled to
receive pursuant to Section 2.1(d) and any dividends
or distributions payable pursuant to Section 2.2(c),
and the Shares so surrendered shall forthwith be cancelled. If
any portion of the Merger Consideration is to be registered in
the name of a person other than the person in whose name the
applicable surrendered Share is registered, it shall be a
condition to the registration thereof that the surrendered Share
be in proper form for transfer and that the person requesting
such delivery of the Merger Consideration pay any and all
transfer and other similar Taxes required to be paid as a result
of such registration in the name of a person other than the
registered holder of such Share or establish to the satisfaction
of the Exchange Agent that such Taxes have been paid or are not
payable. Until surrendered as contemplated by this
Section 2.2(b), each Share shall be deemed at any
time after the Effective Time to represent only the right to
receive the Merger Consideration (and any amounts to be paid
pursuant to Section 2.1(d) or
Section 2.2(c)) upon such surrender. No interest
shall be paid or shall accrue on or with respect to the Merger
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Consideration or on or with respect to any amount payable
pursuant to Section 2.1(d) or
Section 2.2(c).
(c) Distributions with Respect to Unexchanged
Shares. No dividends or other distributions with
respect to shares of Parent Common Stock with a record date
after the Effective Time shall be paid to the holder of any
unsurrendered Share with respect to the shares of Parent Common
Stock represented thereby, and no cash payment in lieu of
fractional shares of Parent Common Stock shall be paid to any
such holder pursuant to Section 2.1(d), until such
Share has been surrendered in accordance with this
Article II. Subject to applicable Laws, following
surrender of any such Share, there shall be paid to the
recordholder thereof, without interest, (i) promptly after
such surrender, the number of whole shares of Parent Common
Stock issuable in exchange therefor pursuant to this
Article II, together with any cash payable in lieu
of a fractional share of Parent Common Stock to which such
holder is entitled pursuant to Section 2.1(d) and
the amount of dividends or other distributions with a record
date after the Effective Time theretofore paid with respect to
such whole shares of Parent Common Stock and (ii) at the
appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time and a
payment date subsequent to such surrender payable with respect
to such whole shares of Parent Common Stock.
(d) Withholdings. Each of Parent,
Merger Sub, the Company, the Surviving Corporation and the
Exchange Agent shall be entitled to deduct and withhold, from
any consideration payable or otherwise deliverable under this
Agreement to any holder of record of a Share immediately prior
to the Effective Time or any other person who is entitled to
receive the Merger Consideration pursuant to this
Article II, such amounts as are required to be
withheld or deducted under the Code or any provision of state,
local or foreign Tax Law with respect to the making of such
payment. To the extent that amounts are so withheld or deducted,
such withheld or deducted amounts shall be treated for all
purposes of this Agreement as having been paid to the person(s)
to whom such amounts would otherwise have been paid.
(e) No Further Ownership Rights in Company Common
Stock; Closing of Transfer Books. All shares of
Parent Common Stock issued upon the surrender for exchange of
Shares in accordance with the terms of this
Article II and any cash paid pursuant to
Section 2.1(d) or Section 2.2(c) shall
be deemed to have been issued (or paid) in full satisfaction of
all rights pertaining to the Shares. After the Effective Time,
the stock transfer books of the Company shall be closed with
respect to the Shares that were outstanding immediately prior to
the Effective Time, and there shall be no further registration
of transfers on the stock transfer books of the Surviving
Corporation of the Shares that were outstanding immediately
prior to the Effective Time. If, after the Effective Time,
Shares are presented to the Surviving Corporation or the
Exchange Agent for any reason, they shall be cancelled and
exchanged as provided in this Article II.
(f) Termination of Exchange
Fund. Any portion of the Exchange Fund (including
the proceeds of any investments thereof) that remains
undistributed to the former holders of Shares for 180 days
after the Effective Time shall be delivered to Parent upon
demand, and any holders of Shares who have not theretofore
complied with this Article II shall thereafter look
only to Parent for payment of their claim for the Merger
Consideration, any cash in lieu of fractional shares of Parent
Common Stock pursuant to Section 2.1(d) and any
dividends or distributions pursuant to
Section 2.2(c).
(g) No Liability. Notwithstanding
anything in this Agreement to the contrary, none of the Company,
Parent, Merger Sub, the Surviving Corporation, the Exchange
Agent or any other
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person shall be liable to any former holder of Shares for any
amount properly delivered to a public official pursuant to any
applicable abandoned property, escheat or similar Law.
(h) Lost Certificates. If any
certificate representing a Share 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 such reasonable amount as Parent may require as indemnity
against any claim that may be made against it with respect to
such certificate, the Exchange Agent will deliver in exchange
for such lost, stolen or destroyed certificate the applicable
Merger Consideration with respect to the Shares formerly
represented thereby, any cash in lieu of fractional Shares to
which such holders are entitled pursuant to
Section 2.1(d) and any unpaid dividends and
distributions to which such holders are entitled pursuant to
Section 2.2(c) as the case may be, deliverable in
respect thereof pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
Except as disclosed in (a) the Company SEC Documents filed
prior to the date hereof (including exhibits; provided
that any representations and warranties included in any such
exhibit shall not be deemed to qualify any representation or
warranty in this Article III), (b) the draft
Form 10-K
(dated February 9, 2010) of the Company for the year
ended December 31, 2009, a copy of which has been
previously furnished to Parent or (c) the disclosure
schedule delivered by the Company to Parent immediately prior to
the execution of this Agreement (the Company Disclosure
Schedule) (provided that (a) with respect to the
Company SEC Documents or such draft
Form 10-K:
(i) any disclosures set forth in any risk factor section,
(ii) any disclosures in any section relating to forward
looking statements and (iii) any other disclosures included
therein that are predictive, non-specific or forward-looking in
nature shall be ignored and (b) any disclosure in the
Company SEC Documents or such draft
Form 10-K
shall be deemed to qualify any representation or warranty in
this Article III only to the extent that such
disclosure is made in such a way as to make its relevance
reasonably apparent on its face (but such Company SEC Documents
or draft
Form 10-K
shall in no event qualify the representations and warranties set
forth in Section 3.1, Section 3.2 or
Section 3.3)), the Company represents and warrants
to Parent and Merger Sub as follows:
Section 3.1 Qualification, Organization,
Subsidiaries, etc.
(a) Each of the Company and its Subsidiaries is a
legal entity 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, lease and operate its properties and
assets, 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, leasing or
operation of its assets or properties or conduct of its business
requires such qualification, except where the failure to be so
organized, validly existing, qualified or in good standing, or
to have such power or authority, would not reasonably be
expected to have, individually or in the aggregate, a Company
Material Adverse Effect. The Company has made available to
Parent prior to the date of this Agreement a true and complete
copy of its charter and bylaws, each as amended through the date
hereof and which are in full force and effect (the
Company Organizational Documents) and has
made available to Parent prior to the date of this Agreement a
true and complete copy of the articles of incorporation and
bylaws or other
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equivalent organizational documents of each of its Subsidiaries,
each as amended through the date hereof.
(b) Section 3.1(b) of the Company
Disclosure Schedule lists each Subsidiary of the Company and its
jurisdiction of organization or formation and the jurisdictions
in which they are qualified to do business. All of the
outstanding shares of capital stock or other equity interests of
each Subsidiary of the Company have been validly issued and are
fully paid and nonassessable. All of the outstanding shares of
capital stock or other equity interests of each Subsidiary of
the Company are owned by the Company, by one or more
Subsidiaries of the Company or by the Company and one or more
Subsidiaries of the Company, in each case free and clear of all
Liens. Except for the capital stock and other equity interests
of its Subsidiaries, neither the Company nor any of its
Subsidiaries owns, directly or indirectly, any capital stock or
other equity interest in any other person (including through
participation in any joint venture or similar arrangement),
other than the ownership of securities primarily for investment
purposes as part of routine cash management or investments of 2%
or less in publicly traded companies, and there are no Company
Joint Ventures. Company Joint Venture means
any corporation, limited liability company, partnership, joint
venture, trust or other entity which is not a Subsidiary of the
Company and in which (i) the Company, directly or
indirectly, owns or controls any shares of any class of the
outstanding voting securities or other equity interests (other
than the ownership of securities primarily for investment
purposes as part of routine cash management or investments of 2%
or less in publicly traded companies) or (ii) the Company
or a Subsidiary of the Company is a general partner.
(c) As used in this Agreement, a Company
Material Adverse Effect means an event, change,
effect, development, state of facts, circumstance, condition or
occurrence that is materially adverse to the business, condition
(financial or otherwise), properties, results of operations,
liabilities, assets or operations of the Company and its
Subsidiaries, taken as a whole, or on the ability of the Company
to consummate the Transactions, but shall not be deemed to
include any event, change, effect, development, state of facts,
circumstance, condition or occurrence: (i) in or affecting
the economy or the financial, securities or commodities markets
in the United States or elsewhere in the world, the industry or
industries in which the Company or its Subsidiaries operate
generally or in any specific jurisdiction or geographical area
or (ii) resulting from or arising out of (A) any
changes or developments in international, national, regional,
state or local wholesale or retail markets for electric power,
capacity or fuel or related products including those due to
actions by competitors or due to changes in commodities prices
or hedging markets therefor, (B) any changes or
developments in national, regional, state or local electric
transmission or distribution systems or decreases in planned
spending with respect thereto, including any changes to projects
required under PJMs Regional Transmission Expansion Plan
or Pennsylvanias Act 129, (C) the announcement or the
existence of, or compliance with, this Agreement or the
Transactions, including possible Union organizing activity,
(D) any taking of any action at the written request of
Parent or Merger Sub, (E) any Action arising from
allegations of breach of fiduciary duty or other violation of
applicable Law relating to this Agreement or the Transactions,
(F) any adoption, implementation, promulgation, repeal,
modification, reinterpretation or proposal of any rule,
regulation, ordinance, order, protocol or any other Law
(including any Environmental Law) of or by any national,
regional, state or local Governmental Entity, independent system
operator, regional transmission organization or market
administrator, (G) any changes in GAAP or accounting
standards or interpretations thereof, (H) any
weather-related or other force majeure event or outbreak or
escalation of hostilities or acts of war or terrorism,
(I) the consummation or non-consummation of the sale of the
Companys electric distribution operations in Virginia
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to Rappahannock Electric Cooperative and Shenandoah Valley
Electric Cooperative, or (J) any reduction in the credit
rating of the Company or any of its Subsidiaries to the extent
attributable to the expected consummation of the Merger but not
to the extent attributable to a change in the Companys or,
as the case may be, such Subsidiarys business, condition
(financial or otherwise), properties, results of operations,
liabilities, assets or operations; provided,
however, that any event, change, effect, development,
state of facts, circumstance, condition or occurrence described
in each of clauses (i) and (ii) B, G or H above shall
not constitute or give rise to a Company Material Adverse Effect
only if and to the extent that such event, change, effect,
development, state of facts, circumstance, condition or
occurrence does not have a disproportionate effect on the
Company and its Subsidiaries, taken as a whole, relative to
other similarly situated participants in the utility industry;
provided further, however, that any event,
change, effect, development, state of facts, circumstance,
condition or occurrence described in clause (ii) A or F
above shall not constitute or give rise to a Company Material
Adverse Effect only if and to the extent that such event,
change, effect, development, state of facts, circumstance,
condition or occurrence (x) does not have a
disproportionate effect on the Company and its Subsidiaries,
taken as a whole, relative to a hypothetical participant in the
utility industry that owns similar power generation assets (with
respect to fuel type and location) or (y) is the result of
an increase in the generally prevailing price of Northern
Appalachian coal.
Section 3.2 Stock.
(a) The authorized stock of the Company consists of
260,000,000 shares of Company Common Stock and no shares of
preferred stock. As of February 5, 2010,
(i) 169,569,603.763 shares of Company Common Stock
were issued and outstanding, which includes all of the
Restricted Shares outstanding as of such date,
(ii) 2,851,117 shares of Company Common Stock were
reserved for issuance in respect of outstanding Company Stock
Options with a weighted average exercise price per share as of
December 31, 2009 of $27.605,
(iii) 487,742 shares of Company Common Stock were
reserved for issuance in respect of outstanding Company
Performance Shares, (iv) 86,689 shares of Company
Common Stock were reserved for issuance in respect of shares
earned but not issued under the Companys Non-Employee
Director Stock Plan and (v) no shares of Company Common
Stock were reserved for issuance in respect of outstanding
Company RSUs. All outstanding shares of Company Common Stock are
duly authorized, validly issued, fully paid and nonassessable
and were not issued in violation of any pre-emptive right,
purchase option, call, right of first refusal or any similar
right and all shares of Company Common Stock reserved for
issuance as noted in clauses (ii), (iii), (iv) and (v),
when issued in accordance with the respective terms thereof,
will be duly authorized, validly issued, fully paid and
nonassessable and not issued in violation of any pre-emptive
right, purchase option, call, right of first refusal or any
similar right. No shares of Company Common Stock are held by any
Subsidiary of the Company. Except as set forth in this
Section 3.2(a), at the close of business on the
business day immediately preceding the date of this Agreement,
no shares of stock or voting securities of, or other equity
interests in, the Company were issued, reserved for issuance or
outstanding.
(b) Except as set forth in subsection (a) above,
as of the date hereof, there are no outstanding subscriptions,
options, warrants, calls, convertible securities or other
similar rights, agreements or commitments relating to the
issuance or repurchase of capital stock or other equity
interests to which the Company or any of its Subsidiaries is a
party, or by which any of them is bound, obligating the Company
or any of its Subsidiaries to (i) issue, transfer or sell
or cause to be issued, transferred or sold, any shares of
capital stock or other equity interests of
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the Company or any Subsidiary of the Company or securities
convertible into or exchangeable for such shares or equity
interests, (ii) grant, extend or enter into any such
subscription, option, warrant, call, convertible securities or
other similar right, agreement or arrangement, (iii) redeem
or otherwise acquire any such shares of capital stock or other
equity interests or (iv) provide a material amount of funds
to, or make any material investment (in the form of a loan,
capital contribution or otherwise) in, any Subsidiary.
(c) There are outstanding no bonds, debentures, notes
or other indebtedness of the Company or any of its Subsidiaries,
the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right
to vote) with the stockholders of the Company or any of its
Subsidiaries on any matter.
(d) There are no voting trusts or other agreements or
understandings to which the Company or any of its Subsidiaries
is a party with respect to the voting or registration of, or
restricting any person from purchasing, selling, pledging or
otherwise disposing of, the capital stock or other equity
interest of the Company or any of its Subsidiaries.
(e) The Company has delivered or made available to
Parent an accurate and complete copy of the Company Stock Plans
and the forms of Company Stock Options, Restricted Shares,
Company Performance Shares and Company RSUs (collectively,
Company Equity Awards). There have been no
repricings of any Company Stock Options through amendments,
cancellation and reissuance or other means during the current or
prior two calendar years. None of the Company Stock Options was
granted with an exercise price below or deemed to be below fair
market value on the date of grant. All grants of Company Equity
Awards were validly made and properly approved by the Board of
Directors of the Company (or a duly authorized committee or
subcommittee thereof) in compliance with all applicable Laws and
properly recorded on the consolidated financial statements of
the Company in accordance with GAAP, and, where applicable, no
such grants involved any back dating, forward
dating or similar practices with respect to grants of
Company Stock Options.
(f) All outstanding shares of Company Common Stock
and all outstanding Company Stock Options have been issued and
granted in compliance with (i) all applicable Laws and
(ii) all requirements set forth in contracts applicable to
the issuance of Company Common Stock, granting of Company Stock
Options or the issuance of equity interests of any Subsidiary of
the Company.
Section 3.3 Corporate Authority Relative to
this Agreement; No Violation.
(a) The Company has requisite corporate power and
authority to enter into this Agreement, to perform its
obligations hereunder and, subject to receipt of the Company
Stockholder Approval, to consummate the Transactions. The
execution and delivery of this Agreement and the consummation of
the Transactions have been duly and validly authorized by the
Board of Directors of the Company and, except for the Company
Stockholder Approval, no other corporate proceedings on the part
of the Company are necessary to authorize the Merger or the
consummation of the Transactions. As of the date hereof, the
Board of Directors of the Company has unanimously resolved to
recommend that the Companys stockholders approve this
Agreement and the Transactions (the Company
Recommendation) and directed that such matter be
submitted for consideration of the stockholders of the Company
at the Company Stockholders Meeting, and such resolutions
have not been subsequently rescinded, modified or withdrawn in
any way. This Agreement has been duly and validly executed and
delivered by the Company and, assuming this Agreement
constitutes the legal, valid and binding agreement of Parent and
Merger Sub, constitutes the legal, valid and binding agreement
of the Company,
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enforceable against the Company in accordance with its terms,
except that (i) such enforcement may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium or
other similar Laws, now or hereafter in effect, relating to
creditors rights generally and (ii) equitable
remedies of specific performance and injunctive and other forms
of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor
may be brought.
(b) Other than in connection with or in compliance
with (i) the MGCL, (ii) the Securities Exchange Act of
1934 (the Exchange Act), (iii) the
Securities Act of 1933 (the Securities Act),
(iv) the rules and regulations of the NYSE, (v) the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the HSR
Act), (vi) the Federal Power Act, as amended (the
FPA), and the approval of the Federal Energy
Regulatory Commission (the FERC) thereunder
(the FERC Approval), (vii) to the extent
required, the rules and regulations of (1) the Maryland
Public Service Commission (the MPSC),
(2) the Pennsylvania Public Utility Commission (the
PPUC), (3) the Virginia State
Corporation Commission (the VSCC),
(4) the Public Service Commission of West Virginia (the
WVPSC and collectively with the MPSC, PPUC
and VSCC, the Applicable PSCs) and
(viii) pre-approvals of license transfers by the Federal
Communications Commission (the FCC)
(collectively, the Company Approvals), and,
subject to the accuracy of the representations and warranties of
Parent and Merger Sub in Section 4.3(b), no
authorization, consent, order, license, permit or approval of,
or registration, declaration, notice or filing with, or action
by, the United States, any state of the United States or any
foreign governmental or regulatory agency, commission, court,
panel, body, entity or authority (each, a Governmental
Entity) is necessary or required to be obtained or
made under applicable Law in connection with the execution and
delivery of this Agreement by the Company, the performance by
the Company of its obligations hereunder or the consummation of
the Transactions by the Company, except for such authorizations,
consents, approvals or filings that, if not obtained or made,
would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
(c) The execution and delivery by the Company of this
Agreement do not, and, provided the Company Approvals are
obtained, the consummation of the Transactions and compliance
with the provisions hereof will not (i) conflict with,
result in any violation of, or default (with or without notice
or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or
to the loss of a benefit under any loan, guarantee of
indebtedness or credit agreement, note, bond, mortgage,
indenture, lease, agreement, contract, instrument, permit,
concession, franchise, right or license binding upon the Company
or any of its Subsidiaries or result in the creation of any
liens, claims, mortgages, encumbrances, pledges, security
interests, equities or charges of any kind (each, a
Lien), other than any such Lien (A) for
Taxes or governmental assessments, charges or claims of payment
not yet due or delinquent, being contested in good faith or for
which adequate accruals or reserves have been established,
(B) which is a carriers, warehousemens,
mechanics, materialmens, repairmens or other
similar lien arising in the ordinary course of business,
(C) which is disclosed on the most recent consolidated
balance sheet of the Company or notes thereto or securing
liabilities reflected on such balance sheet, (D) which was
incurred in the ordinary course of business since the date of
the most recent consolidated balance sheet of the Company or
(E) which does not and would not reasonably be expected to
materially impair the continued use and operation of the assets
to which they relate as operated as of the date hereof or any
property at which the material operations of the Company or any
of its Subsidiaries are conducted as of the date hereof (each of
the foregoing (A) through (E), a Company Permitted
Lien), upon any of the properties or assets of the
Company or any of its
A-11
Subsidiaries, (ii) conflict with or result in any violation
of any provision of the articles of restatement or bylaws or
other equivalent organizational document of the Company or any
of its Subsidiaries or (iii) conflict with or violate any
applicable Laws, other than, in the case of clauses (i) and
(iii), any such violation, conflict, default, termination,
cancellation, acceleration, right, loss or Lien that would not
reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
Section 3.4 SEC Reports, Financial Statements
and Utility Reports.
(a) The Company and each of its Subsidiaries has
filed or furnished all forms, documents and reports required to
be filed or furnished by it with the Securities and Exchange
Commission (the SEC) since January 1,
2009 (the Company SEC Documents). As of their
respective dates or, if amended, as of the date of such
amendment, the Company SEC Documents complied in all material
respects with the requirements of the Securities Act, the
Exchange Act and the Sarbanes-Oxley Act, as the case may be, and
the applicable rules and regulations promulgated thereunder, and
none of the Company SEC Documents contained any untrue statement
of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading.
(b) The Company has established and maintains
disclosure controls and procedures and internal control over
financial reporting (as such terms are defined in paragraphs
(e) and (f), respectively, of
Rule 13a-15
under the Exchange Act) as required by
Rule 13a-15
under the Exchange Act. The Companys disclosure controls
and procedures are reasonably designed to ensure that all
material information required to be disclosed by the Company in
the reports that it files or furnishes under the Exchange Act is
recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the SEC, and that
all such material information is accumulated and communicated to
the Companys management as appropriate to allow timely
decisions regarding required disclosure and to make the
certifications required pursuant to Sections 302 and 906 of
the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley
Act), and all such required certifications have been
made. The Companys management has completed an assessment
of the effectiveness of the Companys internal control over
financial reporting in compliance with the requirements of
Section 404 of the Sarbanes-Oxley Act for the year ended
December 31, 2008, and such assessment concluded that such
controls were effective.
(c) The audited consolidated financial statements and
unaudited interim consolidated financial statements (including
all related notes and schedules) of the Company included in the
Company SEC Documents complied as to form in all material
respects with the rules and regulations of the SEC then in
effect, fairly present in all material respects the consolidated
financial position of the Company and its consolidated
Subsidiaries, as at the respective dates thereof, and the
consolidated results of their operations and their consolidated
cash flows for the respective periods then ended (subject, in
the case of the unaudited statements, to normal recurring
year-end audit adjustments that were not or are not expected to
be, individually or in the aggregate, materially adverse to the
Company), and were prepared in accordance with
United States generally accepted accounting principles
(GAAP) applied on a consistent basis during
the periods involved (except as may be indicated therein or in
the notes thereto).
(d) All filings (other than immaterial filings)
required to be made by the Company or any of its Subsidiaries
since January 1, 2007, with the FERC under the FPA or the
Public Utility Holding Company Act of 2005, the Department of
Energy and any applicable state
A-12
public utility commissions and under applicable state Law, as
the case may be, have been made, including all forms,
statements, reports, agreements and all documents, exhibits,
amendments and supplements appertaining thereto, including all
rates, tariffs, franchises, service agreements, and related
documents, and all such filings complied, as of their respective
dates, with all applicable requirements of applicable statutes
and the rules and regulations thereunder, except for filings the
failure of which to make or the failure of which to make in
compliance with all applicable requirements of applicable
statutes and the rules and regulations thereunder, would not
reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
(e) Neither the Company nor any of its Subsidiaries
is a party to, or has any commitment to become a party to, any
joint venture, off-balance sheet partnership or any similar
contract (including any contract or arrangement relating to any
transaction or relationship between or among the Company or any
of its Subsidiaries, on the one hand, and any unconsolidated
affiliate, including any structured finance, special purpose or
limited purpose entity or person, on the other hand, or any
off-balance-sheet arrangement (as defined in
Item 303(a) of
Regulation S-K
under the Exchange Act)), where the result, purpose or intended
effect of such contract is to avoid disclosure of any material
transaction involving, or material liabilities of, the Company
or any of its Subsidiaries or affiliates.
Section 3.5 No Undisclosed
Liabilities. Except (a) as reflected or
reserved against in the Companys most recent audited
consolidated balance sheets (or stated in the notes thereto)
included in the Company SEC Documents and (b) for
liabilities and obligations incurred since January 1, 2009
in the ordinary course of business consistent with past
practice, neither the Company nor any Subsidiary of the Company
has any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, that would be required by GAAP
to be reflected on a consolidated balance sheet of the Company
and its consolidated Subsidiaries (or in the notes thereto)
other than those which would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse
Effect.
Section 3.6 Absence of Certain Changes or
Events. Since January 1, 2009 through the
date of this Agreement, there has not been any event, change,
effect, development, state of facts, circumstance, condition or
occurrence that has had or would reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse
Effect.
Section 3.7 Investigations;
Litigation. (a) There is no investigation,
audit or review pending (or, to the knowledge of the Company,
threatened) by any Governmental Entity with
respect to the Company or any of its Subsidiaries,
(b) there are no actions, suits, inquiries, arbitrations,
investigations or proceedings pending (or, to the knowledge of
the Company, threatened) against, relating to or affecting the
Company or any of its Subsidiaries (including against or in
respect of any Company Benefit Plan), or any of their respective
properties at law or in equity before and (c) there are no
orders, judgments or decrees of, or before, any Governmental
Entity except, in the case of clauses (a) through (c), as
would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
Section 3.8 Information
Supplied. None of the information provided or to
be provided by the Company or its Subsidiaries for inclusion or
incorporation by reference in the registration statement on
Form S-4
to be filed with the SEC by Parent in connection with the
issuance of Parent Common Stock in the Merger (including any
amendments or supplements, the
Form S-4)
will, at the time the
Form S-4
is filed with the SEC, at any time it is amended or supplemented
or at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or
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omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
provided, that, with respect to projected financial
information provided by or on behalf of the Company, the Company
represents only that such information was prepared in good faith
by management of the Company on the basis of assumptions
believed by such management to be reasonable as of the time
made. None of the information provided by the Company or its
Subsidiaries for inclusion or incorporation by reference in the
proxy statement relating to the Company Stockholders
Meeting and the proxy statement relating to the Parent
Shareholders Meeting which are a part of the
Form S-4
(such proxy statements together, in each case as amended or
supplemented from time to time, the Joint Proxy
Statement) will, at the date it is first mailed to the
Companys stockholders or Parents shareholders or at
the time of the Company Stockholders Meeting or the Parent
Shareholders Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading; provided, that, with respect
to projected financial information provided by or on behalf of
the Company, the Company represents only that such information
was prepared in good faith by management of the Company on the
basis of assumptions believed by such management to be
reasonable as of the time made. The Joint Proxy Statement (other
than the portion thereof relating solely to the Parent
Shareholders Meeting) will comply as to form in all
material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations thereunder.
Notwithstanding the foregoing provisions of this
Section 3.8, no representation or warranty is made
by the Company with respect to information or statements made or
incorporated by reference in the
Form S-4
or the Joint Proxy Statement that were not supplied by or on
behalf of the Company.
Section 3.9 Compliance with Law; Permits.
(a) The Company and each of its Subsidiaries are, and
since January 1, 2007 have been, in compliance with and not
in default under or in violation of any applicable federal,
state, local or foreign law, statute, ordinance, rule,
regulation, judgment, order, injunction, decree or agency
requirement of any Governmental Entity, including common law or
the interpretation thereof (collectively,
Laws and each, a Law),
except where such non-compliance, default or violation would not
reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect. Within the past
three years, neither the Company nor any of its Subsidiaries has
received any written notice or, to the Companys knowledge,
other communication from any Governmental Entity regarding any
actual or possible violation of, or failure to comply with, any
Law, except as would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse
Effect.
(b) The Company and its Subsidiaries are in
possession of all franchises, grants, authorizations, licenses,
permits, easements, variances, exceptions, consents,
certificates, approvals, clearances, permissions, qualifications
and registrations and orders of any Governmental Entity, and all
rights under any material contract with any Governmental Entity,
necessary for the Company and its Subsidiaries to own, lease and
operate their properties and assets or to carry on their
businesses as they are now being conducted (the Company
Permits), except where the failure to have any of the
Company Permits would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse
Effect. All Company Permits are valid and in full force and
effect, except where the failure to be in full force and effect
would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect. The Company is,
and each of its Subsidiaries is, and their respective businesses
as currently conducted are, in compliance in all material
respects with the terms and requirements of such Company Permits.
A-14
(c) Notwithstanding anything contained in this
Section 3.9, no representation or warranty shall be
deemed to be made in this Section 3.9 in respect of
the matters referenced in Section 3.4, or in respect
of Tax, employee benefits, labor or environmental matters.
Section 3.10 Tax Matters.
Except as would not reasonably be expected to have, individually
or in the aggregate, a Company Material Adverse Effect:
(a) The Company and its Subsidiaries (i) have
timely filed or caused to be filed (taking into account any
extension of time within which to file) all Tax Returns required
to have been filed by the Company or any of its Subsidiaries,
and all such Tax Returns were true, correct and complete, and
all such Tax Returns filed on or before December 31, 2005
have been examined by the appropriate taxing authority or the
period for assessment of the Taxes in respect of which such Tax
Returns were required to be filed has expired; (ii) have
timely paid or caused to be paid (taking into account any
extension of time within which to pay) all Taxes shown as due on
such Tax Returns; (iii) have established adequate accruals
and reserves, in accordance with GAAP, on the financial
statements included in the Company SEC Documents for all Taxes
payable by the Company and its Subsidiaries for all taxable
periods and portions thereof through the date of such financial
statements; and (iv) have not received any written notice
of any deficiencies for any Tax of the Company or any of its
Subsidiaries from any taxing authority for which there are not
adequate accruals or reserves on the financial statements
included in the Company SEC Documents.
(b) Neither the Company nor any of its Subsidiaries
is the subject of any currently ongoing audit or other
proceeding with respect to Taxes nor has any audit or other
proceeding with respect to Taxes been proposed against any of
them in writing, and any deficiencies asserted or assessments
made as a result of any audit or other proceeding with respect
to Taxes have been paid in full, are being contested in good
faith, or adequate accruals or reserves for such deficiencies or
assessments have been established. There are no Liens for Taxes
on any of the assets of the Company or any of its Subsidiaries
other than Company Permitted Liens. No claim has ever been made
in writing by a taxing authority of a jurisdiction where the
Company or one of its Subsidiaries has not filed Tax Returns
that the Company or such Subsidiary is or may be subject to
taxation by that jurisdiction.
(c) Neither the Company nor any of its Subsidiaries
is a party to or bound by any written Tax allocation,
indemnification, sharing or similar agreement (other than an
agreement with the Company or its Subsidiaries), except for
agreements entered into in the ordinary course of business.
Neither the Company nor any of its Subsidiaries is liable under
Section 1.1502-6
of the Treasury regulations promulgated under the Code (or any
similar provision of the Tax Laws of any state, local or foreign
jurisdiction) for any Tax of any person other than the Company
and its Subsidiaries.
(d) The Company and its Subsidiaries have withheld
and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third
party; such withheld amounts were either timely paid to the
appropriate taxing authority or set aside in accounts for such
purpose. The Company and each of its Subsidiaries have reported
such withheld amounts to the appropriate taxing authority and to
each such employee, independent contractor, creditor,
stockholder or other third party, as required under Law.
A-15
(e) Neither the Company nor any of its Subsidiaries
was a distributing corporation or controlled
corporation in a transaction intended to qualify under
Section 355 of the Code within the past two years or
otherwise as part of a plan that includes the Merger.
(f) Neither the Company nor any of its Subsidiaries
has participated in any reportable transaction
within the meaning of
Section 1.6011-4
of the Treasury regulations promulgated under the Code.
(g) The Company has made available to Parent or its
legal or accounting representative copies of all
U.S. Federal and state income Tax Returns for the Company
and each of its Subsidiaries filed for all periods including and
after the period ended December 31, 2007.
(h) Neither the Company nor any of its Subsidiaries
(i) has filed any extension of time within which to file
any Tax Returns that have not been filed, except in the ordinary
course of business, (ii) has entered into any agreement or
other arrangement waiving or extending the statute of
limitations or the period of assessment or collection of any
Taxes, (iii) has granted any power of attorney that is in
force with respect to any matters relating to any Taxes,
(iv) has applied for a ruling from a taxing authority
relating to any Taxes that has not been granted or has proposed
to enter into an agreement with a taxing authority that is
pending or (v) has, since December 31, 2006, entered
into any closing agreement as described in
Section 7121 of the Code (or any similar provision of
state, local or foreign Tax Law) or been issued any private
letter rulings, technical advice memoranda or similar agreement
or rulings by any taxing authority.
(i) Neither the Company nor any of its Subsidiaries
has agreed to, requested, or is required to include any
adjustment under Section 481 of the Code (or any
corresponding provision of applicable state, local or foreign
Tax Law) by reason of a change in accounting method or otherwise.
(j) As used in this Agreement,
(i) Taxes means any and all domestic or
foreign, federal, state, local or other taxes of any kind
(together with any and all interest, penalties, additions to tax
and additional amounts imposed with respect thereto) imposed by
any Governmental Entity, including taxes on or with respect to
income, franchises, windfall or other profits, gross receipts,
occupation, property, transfer, sales, use, capital stock,
payroll, employment, unemployment, social security,
workers compensation or net worth, and taxes in the nature
of excise, withholding, ad valorem or value added, and
(ii) Tax Return means any return, report
or similar filing (including any elections, notifications,
declarations, schedules or attachments thereto, and any
amendment thereof) required to be filed with respect to Taxes,
including any information return, claim for refund, amended
return or declaration of estimated Taxes. It is agreed and
understood that no representation or warranty is made by the
Company in respect of Tax matters in any Section of this
Agreement other than Section 3.4,
Section 3.5, Section 3.11,
Section 3.21 and this Section 3.10.
Section 3.11 Employee Benefit Plans.
(a) Section 3.11(a) of the Company
Disclosure Schedule lists all material compensation or employee
benefit plans, programs, policies, agreements or other
arrangements, whether or not employee benefit plans
(within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended
(ERISA), whether or not subject to ERISA),
providing cash- or equity-based incentives, health, medical,
dental, disability, accident or life insurance benefits or
vacation, severance, retention, change in control, retirement,
pension or savings benefits, that are sponsored, maintained or
contributed to by the Company or any of its
A-16
Subsidiaries for the benefit of current or former employees or
directors of the Company or its Subsidiaries (the
Company Benefit Plans).
(b) Each Company Benefit Plan has been operated and
administered in all respects in accordance with its terms and
all applicable Laws, including ERISA and the Code. Each Company
Benefit Plan intended to be qualified within the
meaning of Section 401(a) of the Code is the subject of a
favorable determination letter from the Internal Revenue Service
as to its qualification and, to the Companys knowledge, no
event has occurred that could reasonably be expected to result
in the disqualification of such Company Benefit Plan.
(c) Other than routine claims for benefits, no
liability under Title IV of ERISA has been incurred by the
Company or any its Subsidiaries that has not been satisfied in
full when due, and no condition exists that could reasonably be
expected to result in a material liability to the Company or its
Subsidiaries under Title IV of ERISA.
(d) The consummation of the Transactions will not
(i) entitle any current or former employee or director of
the Company or any of its Subsidiaries to severance, retention
or change in control pay, unemployment compensation or any other
payment or (ii) accelerate the time of payment or vesting,
or increase the amount, of compensation due any such current or
former employee or director.
(e) There are no material pending or, to the
Companys knowledge, threatened claims against, by or on
behalf of, or any Liens filed against or with respect to, any of
the Company Benefit Plans or otherwise involving any Company
Benefit Plan.
(f) Neither the Company nor any of its Subsidiaries
is a party to any agreement, contract or arrangement that could
result, separately or in the aggregate, in the payment of any
excess parachute payments within the meaning of
Section 280G of the Code.
(g) No Company Benefit Plan provides benefits,
including death or medical benefits (whether or not insured),
with respect to current or former employees or directors of the
Company or any of its Subsidiaries beyond their retirement or
other termination of service, other than (i) coverage
mandated solely by applicable Law, (ii) death benefits or
retirement benefits under any employee pension benefit
plan (as defined in Section 3(2) of ERISA),
(iii) deferred compensation benefits accrued as liabilities
on the books of the Company or its Subsidiaries, or
(iv) benefits the full costs of which are borne by the
current or former employee or director or his or her beneficiary.
Section 3.12 Employment and Labor Matters.
(a) As of the date of this Agreement:
(i) neither the Company nor any of its Subsidiaries is a
party to or bound by any collective bargaining agreement, work
rules or other agreement with any labor union, labor
organization, employee association, or works council (each, a
Union) applicable to employees of the Company
or any of its Subsidiaries (Company
Employees), (ii) none of the Company Employees is
represented by any Union with respect to his or her employment
with the Company or any of its Subsidiaries, (iii) to the
Companys knowledge, within the past three years, no Union
has attempted to organize employees at the Company or any of its
Subsidiaries or filed a petition with the National Labor
Relations Board seeking to be certified as the bargaining
representative of any Company Employees, (iv) within the
past three years, there have been no actual or, to the
Companys knowledge, threatened (A) work stoppages,
lock-outs or strikes, (B) slowdowns, boycotts, handbilling,
picketing, walkouts, demonstrations, leafleting, sit-ins or
sick-outs by Company Employees, causing significant disruption
to the operations of a Company facility, or (C) other form
of Union
A-17
disruption at the Company or any of its Subsidiaries, and
(v) except as would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse
Effect, there is no unfair labor practice, labor dispute, or
labor arbitration proceeding pending or, to the knowledge of the
Company, threatened with respect to Company Employees.
(b) Except for such matters that would not reasonably
be expected to have, individually or in the aggregate, a Company
Material Adverse Effect: (i) the Company and its
Subsidiaries are, and within the past three years have been, in
compliance with all applicable state, federal, and local Laws
respecting labor and employment, including all Laws relating to
discrimination, disability, labor relations, unfair labor
practices, hours of work, payment of wages, employee benefits,
retirement benefits, compensation, immigration, workers
compensation, working conditions, occupational safety and
health, family and medical leave, reductions in force, plant
closings, notification of employees, and employee terminations
and (ii) neither the Company nor any of its Subsidiaries
has any liabilities under the Worker Adjustment and Retraining
Notification Act (WARN) or any state or local
Laws requiring notice with respect to such layoffs or
terminations.
(c) In the past three years, (i) no Governmental
Entity has threatened (to the knowledge of the Company) or
initiated any material complaints, charges, lawsuits,
grievances, claims, arbitrations, administrative proceedings, or
other proceeding(s) or investigation(s) with respect to the
Company or its Subsidiaries arising out of, in connection with,
or otherwise relating to any Company Employees or any Laws
governing labor or employment, and (ii) no Governmental
Entity has issued or, to the Companys knowledge,
threatened to issue any significant citation, order, judgment,
fine or decree against the Company or any of its Subsidiaries
with respect to any Company Employees or any Laws governing
labor or employment.
Section 3.13 Environmental Laws and
Regulations.
(a) Except as would not reasonably be expected to
have, individually or in the aggregate, a Company Material
Adverse Effect:
(i) there is no pending or, to the knowledge of the
Company, threatened, claim, lawsuit, or administrative
proceeding against the Company or any of its Subsidiaries, under
or pursuant to any Environmental Law, and neither the Company
nor any of its Subsidiaries has received written notice from any
person, including any Governmental Entity, alleging that the
Company has been or is in violation or potentially in violation
of any applicable Environmental Law or otherwise may be liable
under any applicable Environmental Law, which violation or
liability is unresolved;
(ii) the Company and its Subsidiaries are and, since
January 1, 2005, have been in compliance with all
applicable Environmental Laws and with all material permits,
licenses and approvals required under Environmental Laws for the
conduct of their business or the operation of their facilities;
(iii) the Company and its Subsidiaries have all
material permits, licenses and approvals required for the
operation of the businesses and the operation of their
facilities pursuant to applicable Environmental Law, all such
permits, licenses and approvals are in effect, and, to the
knowledge of the Company, there is no actual or alleged
proceeding to revoke, modify or terminate such permits, licenses
and approvals;
(iv) to the knowledge of the Company, there has been
no release of Hazardous Materials at any real property currently
or formerly owned, leased, or operated by the
A-18
Company or any Subsidiary in concentrations or under conditions
or circumstances that (A) would reasonably be expected to
result in liability to the Company or any of its Subsidiaries
under any Environmental Laws; or (B) would require
reporting, investigation, remediation, or other corrective or
response action by the Company or any Subsidiary under any
Environmental Law and that has not otherwise been addressed
through such reporting, investigation, remediation, or other
corrective or responsive action by the Company or any
Subsidiary; and
(v) the Company is not party to any order, judgment
or decree that imposes any obligations under any Environmental
Law and, to the knowledge of the Company, has not, either
expressly or by operation of Law, undertaken any such
obligations, including any obligation for corrective or remedial
action, of any other person.
(b) Notwithstanding any provision to the contrary in
this Agreement, including
Section 3.13(a)(i)-(v),
the Company makes no representation or warranty with respect to
the Companys or any of its Subsidiaries compliance
with Environmental Laws relating to federal or state new source
review or prevention of significant deterioration air permit
laws or regulations, except to the extent that the Company or a
Subsidiary has, as of the date of this Agreement, received a
written notice or been subject to a judicial or administrative
proceeding alleging non-compliance with such laws or regulations.
(c) As used in this Agreement:
(i) Environment means any ambient
air, surface water, drinking water, groundwater, land surface
(whether below or above water), subsurface strata, sediment,
plant or animal life and natural resources.
(ii) Environmental Law means any
Law or any binding agreement issued or entered by or with any
Governmental Entity relating to: (A) the protection of the
Environment, including pollution, contamination, cleanup,
preservation, protection and reclamation of the Environment;
(B) any release or threatened release of any Hazardous
Materials, including investigation, assessment, testing,
monitoring, containment, removal, remediation and cleanup of any
such release or threatened release; (C) the management of
any Hazardous Materials, including the use, labeling,
processing, disposal, storage, treatment, transport or recycling
of any Hazardous Materials; or (D) the presence of
Hazardous Materials in any building, physical structure, product
or fixture.
(iii) Hazardous Materials means
any regulated pollutant or contaminant (including any
constituent, raw material, product or by-product thereof),
petroleum, asbestos or asbestos-containing material,
polychlorinated biphenyls, lead paint, any hazardous, industrial
or solid waste, and any toxic, radioactive, infectious or
hazardous substance, material or agent.
(d) The representations and warranties set forth
herein are the Companys sole representations and
warranties relating to Environmental Law, the Environment and
Hazardous Materials.
Section 3.14 No Ownership of Nuclear Power
Plants. Neither the Company nor any of its
Subsidiaries owns, directly or indirectly, any interest in any
nuclear generation station or manages or operates any nuclear
generation station.
Section 3.15 Insurance. Section 3.15
of the Company Disclosure Schedule sets forth a true and
complete list of the material insurance policies naming the
Company or any of its Subsidiaries or any director, officer or
employee thereof as an insured or beneficiary or as a loss
payable payee
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or for which the Company or any of its Subsidiaries has paid or
is obligated to pay all or part of the premiums, as of the date
hereof. Neither the Company nor any of its Subsidiaries has
received notice of any pending or threatened cancellation or
premium increase (retroactive or otherwise) with respect
thereto, and the Company and each of its Subsidiaries is in
compliance in all material respects with all conditions
contained therein. From and after January 1, 2009, the
Company and its Subsidiaries have been continuously insured with
financially responsible insurers or have self-insured, in each
case in such amounts and against such risks as is customary for
the industries in which it and its Subsidiaries operate.
Section 3.16 Trading. The
Company has established risk parameters, limits and guidelines
in compliance with the risk management policy approved by the
Companys Board of Directors (the Company Trading
Policies) to restrict the level of risk that the
Company and its Subsidiaries are authorized to take with respect
to, among other things, the net position resulting from all
physical commodity transactions (including the anticipated
output from the Companys merchant generation fleet and the
contracted price of coal) exchange-traded futures and options
transactions, over-the-counter transactions and derivatives
thereof and similar transactions (the Net Company
Position) and monitors compliance by the Company and
its Subsidiaries with such Company Trading Policies. The Company
has provided the Company Trading Policies to Parent prior to the
date of this Agreement. At no time between September 30,
2009 and the date of this Agreement, (i) has the Net
Company Position not been within the risk parameters that are
set forth in the Company Trading Policies or (ii) has the
exposure of the Company and its Subsidiaries with respect to the
Net Company Position resulting from all such transactions been
material to the Company and its Subsidiaries taken as a whole.
From December 31, 2008 to the date of this Agreement,
neither the Company nor any of its Subsidiaries has, in
accordance with generally recognized mark to market accounting
policies, experienced an aggregate net loss in its trading and
related operations that would be material to the Company and its
Subsidiaries taken as a whole.
Section 3.17 Required Vote of the Company
Stockholders. The affirmative vote of the holders
of a majority of the outstanding Company Common Stock entitled
to vote on this Agreement and the Merger is the only vote of
holders of securities of the Company that is required to approve
this Agreement and the Merger (the Company Stockholder
Approval).
Section 3.18 Antitakeover Statutes; Rights
Plan.
(a) Subject to the accuracy of the representations
and warranties of Parent and Merger Sub in
Section 4.18, the Board of Directors of the Company
has taken all actions necessary so that, to the extent
applicable, the restrictions contained in
Section 3-602
of the MGCL applicable to a business combination (as
defined in
Section 3-601(e)
of the MGCL) will not apply to the execution, delivery or
performance of this Agreement or the consummation of the Merger
and no other Takeover Laws are applicable to the Merger, this
Agreement, or any of the Transactions. As used in this
Agreement, Takeover Laws shall mean any
moratorium, control share acquisition,
fair price, supermajority,
affiliate transactions, or business
combination statute or regulation or other similar state
antitakeover Laws and regulations.
(b) Neither the Company nor any of its Subsidiaries
has any stockholders rights plan or similar plan or
arrangement in effect.
Section 3.19 Opinion of Financial
Advisor. The Board of Directors of the Company
has received the opinion of Goldman, Sachs & Co.,
dated the date of this Agreement and customary in form, scope
and substance, to the effect that, as of such date and based
upon and subject to the factors and assumptions set forth
therein, the Merger Consideration is fair to the holders of
Company Common Stock (other than Parent and its affiliates) from
a financial point of view. The
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Company shall, promptly following receipt of said opinion in
written form, furnish an accurate and complete copy of said
opinion to Parent for informational purposes.
Section 3.20 Finders or
Brokers. Except for Goldman, Sachs &
Co. (the fees and expenses of which will, prior to the Closing,
be the responsibility of the Company), neither the Company nor
any of its Subsidiaries has employed any investment banker,
broker or finder in connection with the Transactions who might
be entitled to any fee or any commission in connection with or
upon consummation of the Merger or the Transactions. The Company
has furnished to Parent accurate and complete copies of its
agreements with Goldman, Sachs & Co.
Section 3.21 Reorganization under the
Code. Neither the Company nor any of its
Subsidiaries has taken or agreed to take any action or knows of
any fact, agreement, plan or other circumstance that will
prevent or impede, or is reasonably likely to prevent or impede,
the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code.
Section 3.22 Regulatory
Proceedings. As of the date hereof, neither the
Company nor any of its Subsidiaries all or part of whose rates
or services are regulated by a Governmental Entity (a) is a
party to any rate proceeding before a Governmental Entity with
respect to rates charged by the Company or any of its
Subsidiaries other than in the ordinary course consistent with
past practice, (b) has rates in any amounts that have been
or are being collected subject to refund, pending final
resolution of any rate proceeding pending before a Governmental
Entity or on appeal to a court (other than rates based on
estimated costs
and/or
revenues that are subject to adjustment once the actual costs
and/or
revenues become known, including the expanded net energy cost
(ENEC) clause in West Virginia) or
(c) is a party to any contract with any Governmental Entity
entered into other than in the ordinary course consistent with
past practice imposing conditions on rates or services in effect
as of the date hereof or which, to the knowledge of the Company,
are as of the date hereof scheduled to go into effect at a later
time, except in the case of clauses (a) through
(c) that would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect.
Section 3.23 Intellectual
Property. Except as would not, individually or in
the aggregate, reasonably be expected to have a Company Material
Adverse Effect, the Company and its Subsidiaries own or have a
valid right to use all patents, trademarks, trade names, service
marks, domain names, copyrights, and any applications and
registrations therefor, technology, trade secrets, know-how,
computer software and tangible and intangible proprietary
information and materials (collectively, Intellectual
Property Rights) used in connection with and
reasonably necessary for the business of the Company and its
Subsidiaries as currently conducted. To the Companys
knowledge, neither the Company nor any of its Subsidiaries has
infringed, misappropriated or violated in any material respect
any Intellectual Property Rights of any third party except where
such infringement, misappropriation or violation would not,
individually or in the aggregate, reasonably be expected to have
a Company Material Adverse Effect. To the Companys
knowledge, no third party is infringing, misappropriating or
violating any Intellectual Property Rights owned or exclusively
licensed by or to the Company or any of its Subsidiaries, except
where such infringement, misappropriation or violation would
not, individually or in the aggregate, reasonably be expected to
have a Company Material Adverse Effect.
Section 3.24 Properties. The
Company or its applicable Subsidiary has (a) good and
insurable title or (b) good and valid leasehold interest in
and to each material parcel of real property owned or leased, as
applicable, by the Company or any of its Subsidiaries, subject
to any Liens or exceptions that would not, individually or in
the aggregate, reasonably be expected to have a Company Material
Adverse Effect.
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Section 3.25 Material
Contracts. As of the date hereof, neither the
Company nor any of its Subsidiaries is a party to or bound by
any Contract that (i) is a material contract
(as such term is defined in Item 601(b)(10) of
Regulation S-K
promulgated by the SEC), (ii) would, after giving effect to
the Merger, limit or restrict the Surviving Corporation or any
of its Subsidiaries or any successor thereto, from engaging or
competing in any line of business that it currently engages in
or is a reasonable extension thereof (including with respect to
Parent after the Effective Time) or in any geographic area or
contains exclusivity or non-solicitation provisions with respect
to customers, (iii) limits or otherwise restricts the
ability of the Company or any of its Subsidiaries to pay
dividends or make distributions to its stockholders, or
(iv) provides for the operation or management of any
operating assets of the Company or its Subsidiaries by any
person other than the Company or its Subsidiaries. Each Contract
of the type described in this Section 3.25, whether
or not set forth on Section 3.25 of the Company
Disclosure Schedule and whether or not entered into on or prior
to the date hereof, is referred to herein as a Company
Material Contract. Each Company Material Contract is a
valid and binding obligation of the Company or its Subsidiary
party thereto enforceable against the Company or its Subsidiary
party thereto in accordance with its terms (except that
(i) such enforcement may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other
similar Laws, now or hereafter in effect, relating to
creditors rights generally and (ii) equitable
remedies of specific performance and injunctive and other forms
of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor
may be brought) and, to the Companys knowledge, each other
party thereto, and is in full force and effect, and each of the
Company and each of its Subsidiaries which is a party thereto
has performed in all material respects all obligations required
to be performed by it to the date hereof under each Company
Material Contract and, to the Companys knowledge, each
other party to each Company Material Contract has performed in
all material respects all obligations required to be performed
by it under such Company Material Contract, except, in each
case, as would not, individually or in the aggregate, reasonably
be expected to have a Company Material Adverse Effect. None of
the Company or any of its Subsidiaries has knowledge of, or has
received notice of, any violation of or default under (or any
condition which with the passage of time or the giving of notice
would cause such a violation of or default under) any Company
Material Contract to which it is a party or by which it or any
of its properties or assets is bound, except for violations or
defaults that would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect
or, after giving effect to the Merger, a Parent Material Adverse
Effect. Contract or
contract means any written agreement,
undertaking, contract, commitment, lease, license, permit,
franchise, concession, deed of trust, contract, note, bond,
mortgage, indenture, arrangement or other instrument or
obligation.
Section 3.26 No Additional
Representations. The Company acknowledges that
neither Parent nor Merger Sub makes any representation or
warranty as to any matter whatsoever except as expressly set
forth in this Agreement or in any certificate delivered by
Parent or Merger Sub to the Company in accordance with the terms
hereof, and specifically (but without limiting the generality of
the foregoing) that neither Parent nor Merger Sub makes any
representation or warranty with respect to (a) any
projections, estimates or budgets delivered or made available to
the Company (or any of their respective affiliates, officers,
directors, employees or Representatives) of future revenues,
results of operations (or any component thereof), cash flows or
financial condition (or any component thereof) of Parent and its
Subsidiaries or (b) the future business and operations of
Parent and its Subsidiaries in each case except as expressly set
forth in this Agreement.
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ARTICLE IV
REPRESENTATIONS
AND WARRANTIES OF PARENT AND MERGER SUB
Except as disclosed in (a) the Parent SEC Documents filed
prior to the date hereof (including exhibits; provided
that any representations and warranties included in any such
exhibit shall not be deemed to qualify any representation or
warranty in this Article IV), (b) the draft
Form 10-K
(dated February 5, 2010) of Parent for the year ended
December 31, 2009, a copy of which has been previously
furnished to the Company or (c) the disclosure schedule
delivered by Parent to the Company immediately prior to the
execution of this Agreement (the Parent Disclosure
Schedule), (provided that (a) with respect to the
Parent SEC Documents or such draft
Form 10-K:
(i) any disclosures set forth in any risk factor section,
(ii) any disclosures in any section relating to forward
looking statements and (iii) any other disclosures included
therein that are predictive, non-specific or forward-looking in
nature shall be ignored and (b) any disclosure in the
Parent SEC Documents or such draft
Form 10-K
shall be deemed to qualify any representation or warranty in
this Article IV only to the extent that such
disclosure is made in such a way as to make its relevance
reasonably apparent on its face (but such Parent SEC Documents
or draft
Form 10-K
shall in no event qualify the representations and warranties set
forth in Section 4.1, Section 4.2 or
Section 4.3)), Parent and Merger Sub represent and
warrant to the Company as follows:
Section 4.1 Qualification; Organization,
Subsidiaries, etc.
(a) Each of Parent and its Subsidiaries, including
Merger Sub, is a legal entity 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, lease 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, leasing or operation of its assets or properties or
conduct of its business requires such qualification, except
where the failure to be so organized, validly existing,
qualified or in good standing, or to have such power or
authority, would not reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse
Effect. Parent has made available to the Company prior to the
date of this Agreement a true and complete copy of its articles
of incorporation and bylaws, each as amended through the date
hereof and which are in full force and effect (the
Parent Organizational Documents) and has made
available to the Company prior to the date of this Agreement a
true and complete copy of the articles of incorporation and
bylaws or other equivalent organizational documents of each of
its Subsidiaries, including Merger Sub, each as amended through
the date hereof.
(b) Section 4.1(b) of the Parent
Disclosure Schedule lists each Subsidiary of Parent and its
jurisdiction of organization or formation and the jurisdictions
in which they are qualified to do business. All of the
outstanding shares of capital stock or other equity interests of
each Subsidiary of Parent have been validly issued and are fully
paid and nonassessable. All of the outstanding shares of capital
stock or other equity interests of each Subsidiary of Parent are
owned by Parent, by one or more Subsidiaries of Parent or by
Parent and one or more Subsidiaries of Parent, in each case free
and clear of all Liens. Except for the capital stock and other
equity interests of its Subsidiaries, neither Parent nor any of
its Subsidiaries owns, directly or indirectly, any capital stock
or other equity interest in any other person (including through
participation in any joint venture or similar arrangement),
other than the ownership of securities primarily for investment
purposes as part of routine cash management or investments of 2%
or less in publicly traded companies, and there are no Parent
Joint Ventures. Parent Joint Venture means
any corporation, limited liability company, partnership, joint
venture, trust
A-23
or other entity which is not a Subsidiary of Parent and in which
(i) Parent, directly or indirectly, owns or controls any
shares of any class of the outstanding voting securities or
other equity interests (other than the ownership of securities
primarily for investment purposes as part of routine cash
management or investments of 2% or less in publicly traded
companies) or (ii) Parent or a Subsidiary of Parent is a
general partner.
(c) As used in this Agreement, a Parent
Material Adverse Effect means an event, change,
effect, development, state of facts, circumstance, condition or
occurrence that is materially adverse to the business, condition
(financial or otherwise), properties, results of operations,
liabilities, assets or operations of Parent and its
Subsidiaries, taken as a whole, or on the ability of Parent to
consummate the Transactions but shall not be deemed to include
any event, change, effect, development, state of facts,
circumstance, condition or occurrence: (i) in or affecting
the economy or the financial, securities or commodities markets
in the United States or elsewhere in the world, the industry or
industries in which Parent or its Subsidiaries operate generally
or in any specific jurisdiction or geographical area or
(ii) resulting from or arising out of (A) any changes
or developments in international, national, regional, state or
local wholesale or retail markets for electric power, capacity
or fuel or related products, including those due to actions by
competitors or due to changes in commodities prices or hedging
markets therefor, (B) any changes or developments in
national, regional, state or local electric transmission or
distribution systems or decreases in planned spending with
respect thereto, including any changes to projects required
under PJMs Regional Transmission Expansion Plan or
Pennsylvanias Act 129, (C) the announcement or the
existence of, or compliance with, this Agreement or the
Transactions, including possible Union organizing activity,
(D) any taking of any action at the written request of the
Company, (E) any Action arising from allegations of breach
of fiduciary duty or other violation of applicable Law relating
to this Agreement or the Transactions, (F) any adoption,
implementation, promulgation, repeal, modification,
reinterpretation or proposal of any rule, regulation, ordinance,
order, protocol or any other Law (including any Environmental
Law) of or by any national, regional, state or local
Governmental Entity, independent system operator, regional
transmission organization or market administrator, (G) any
changes in GAAP or accounting standards or interpretations
thereof, (H) any weather-related or other force majeure
event or outbreak or escalation of hostilities or acts of war or
terrorism or (I) any reduction in the credit rating of
Parent or any of its Subsidiaries to the extent attributable to
the expected consummation of the Merger but not to the extent
attributable to a change in Parents or, as the case may
be, such Subsidiarys business, condition (financial or
otherwise), properties, results of operations, liabilities,
assets or operations; provided, however,
that any event, change, effect, development, state of facts,
circumstance, condition or occurrence described in each of
clauses (i) and (ii)A, B, F, G or H above shall not
constitute or give rise to a Parent Material Adverse Effect only
if and to the extent that such event, change, effect,
development, state of facts, circumstance, condition or
occurrence does not have a disproportionate effect on Parent and
its Subsidiaries, taken as a whole, relative to other similarly
situated participants in the utility industry.
Section 4.2 Capital Stock.
(a) The authorized capital stock of Parent consists
of 375,000,000 shares of Parent Common Stock and
5,000,000 shares of preferred stock, $100 par value
(Parent Preferred Stock). As of
February 5, 2010, (i) 304,835,407 shares of
Parent Common Stock were issued and outstanding, (ii) no
shares of Parent Common Stock were held in treasury,
(iii) 3,057,926 shares of Parent Common Stock were
reserved for issuance in respect of outstanding options to
acquire Parent Common Stock with a weighted average exercise
price
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per share as of December 31, 2009 of $34.74,
(iv) 2,013,803.12 shares of Parent Common Stock were
reserved for issuance in respect of settlement of any
outstanding awards of restricted share units, phantom shares,
restricted stock or similar equity awards with respect to shares
of Parent Common Stock and (v) no shares of Parent
Preferred Stock were issued or outstanding. All outstanding
shares of Parent Common Stock are duly authorized, validly
issued, fully paid and nonassessable and were not issued in
violation of any pre-emptive right, purchase option, call, right
of first refusal or any similar right and all shares of Parent
Common Stock reserved for issuance as noted in
clauses (iii) and (iv), when issued in accordance with the
respective terms thereof, will be duly authorized, validly
issued, fully paid and nonassessable and were not issued in
violation of any pre-emptive right, purchase option, call, right
of first refusal or any similar right. No shares of Parent
Common Stock are held by any Subsidiary of Parent. Except as set
forth in this Section 4.2(a), at the close of
business on the business day immediately preceding the date of
this Agreement, no shares of capital stock or voting securities
of, or other equity interests in, Parent were issued, reserved
for issuance or outstanding.
(b) Except as set forth in subsection (a) above,
as of the date hereof, there are no outstanding subscriptions,
options, warrants, calls, convertible securities or other
similar rights, agreements or commitments relating to the
issuance or repurchase of capital stock or other equity
interests to which Parent or any of its Subsidiaries is a party,
or by which any of them is bound, obligating Parent or any of
its Subsidiaries to (i) issue, transfer or sell or cause to
be issued, transferred or sold, any shares of capital stock or
other equity interests of Parent or any of its Subsidiaries or
securities convertible into or exchangeable for such shares or
equity interests, (ii) grant, extend or enter into any such
subscription, option, warrant, call, convertible securities or
other similar right, agreement or arrangement, (iii) redeem
or otherwise acquire any such shares of capital stock or other
equity interests or (iv) provide a material amount of funds
to, or make any material investment (in the form of a loan,
capital contribution or otherwise) in, any Subsidiary.
(c) There are outstanding no bonds, debentures, notes
or other indebtedness of Parent or any of its Subsidiaries, the
holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right
to vote) with the shareholders of Parent or any of its
Subsidiaries on any matter.
(d) There are no voting trusts or other agreements or
understandings to which Parent or any of its Subsidiaries is a
party with respect to the voting or registration of, or
restricting any person from purchasing, selling, pledging or
otherwise disposing of, the capital stock or other equity
interest of Parent or any of its Subsidiaries.
(e) Parent has delivered or made available to the
Company an accurate and complete copy of all employee and
director stock plans of Parent and the forms of options to
purchase shares of Parent Common Stock (Parent Stock
Options), restricted share units and phantom shares
with respect to shares of Parent Common Stock (collectively,
Parent Equity Awards). There have been no
repricings of any Parent Stock Options through amendments,
cancellation and reissuance or other means during the current or
prior two calendar years. None of the Parent Stock Options was
granted with an exercise price below or deemed to be below fair
market value on the date of grant. All grants of Parent Equity
Awards were validly made and properly approved by the Board of
Directors of Parent (or a duly authorized committee or
subcommittee thereof) in compliance with all applicable Laws and
properly recorded on the consolidated financial statements of
Parent in accordance with GAAP, and, where applicable, no
A-25
such grants involved any back dating, forward
dating or similar practices with respect to grants of
Parent Stock Options.
(f) All outstanding shares of Parent Common Stock and
all outstanding Parent Stock Options have been issued and
granted in compliance with (i) all applicable Laws and
(ii) all requirements set forth in contracts applicable to
the issuance of Parent Common Stock, granting of Parent Stock
Options or the issuance of equity interests of any Subsidiary of
Parent.
(g) As of the date of this Agreement, the authorized
capital stock of Merger Sub consists of 1,000 shares of
common stock, par value $0.01 per share, all of which are
validly issued and outstanding. All of the issued and
outstanding capital stock of Merger Sub is, and at the Effective
Time will be, owned by Parent or a direct or indirect
wholly-owned Subsidiary of Parent. Merger Sub has outstanding no
option, warrant, right or any other agreement pursuant to which
any person other than Parent may acquire any equity security of
Merger Sub. Merger Sub has not conducted any business prior to
the date hereof and has, and prior to the Effective Time will
have, no assets, liabilities or obligations of any nature other
than those incident to its formation and pursuant to this
Agreement and the Transactions.
Section 4.3 Corporate Authority Relative to
this Agreement; No Violation.
(a) Each of Parent and Merger Sub has requisite
corporate power and authority to enter into this Agreement, to
perform its obligations hereunder and, subject to receipt of the
Parent Shareholder Approval, to consummate the Transactions. The
execution and delivery of this Agreement and the consummation of
the Transactions have been duly and validly authorized by the
Boards of Directors of Parent and Merger Sub and by Parent, as
the sole stockholder of Merger Sub, and, except for the Parent
Shareholder Approval, no other corporate proceedings on the part
of Parent or Merger Sub are necessary to authorize the Merger,
the Stock Issuance or the consummation of the Transactions. The
Board of Directors of Parent has unanimously resolved to
recommend (the Parent Recommendation) that
Parents shareholders authorize and approve the issuance of
shares of Parent Common Stock in connection with the Merger (the
Stock Issuance) and the other Transactions
and adopt an amendment to Parents articles of
incorporation providing for an increase in the authorized
capital stock of Parent to 495,000,000 shares (the
Charter Amendment), and such resolutions have
not been subsequently rescinded, modified or withdrawn in any
way. This Agreement has been duly and validly executed and
delivered by Parent and Merger Sub, and, assuming this Agreement
constitutes the legal, valid and binding agreement of the
Company, this Agreement constitutes the legal, valid and binding
agreement of each of Parent and Merger Sub, enforceable against
Parent and Merger Sub in accordance with its terms, except that
(i) such enforcement may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other
similar Laws, now or hereafter in effect, relating to
creditors rights generally and (ii) equitable
remedies of specific performance and injunctive and other forms
of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor
may be brought.
(b) Other than in connection with or in compliance
with (i) the provisions of Ohio General Corporation Law,
(ii) the Exchange Act, (iii) the Securities Act,
(iv) the rules and regulations of the NYSE, (v) the
HSR Act, (vi) the FPA and the FERC Approval, (vii) to
the extent required, the rules and regulations of the Applicable
PSCs and (viii) the matters set forth on
Section 4.3(b) of the Parent Disclosure Schedule
(collectively, the Parent Approvals), no
authorization, consent, order, license, permit or approval of,
or registration, declaration, notice or filing with, or action
by, any Governmental Entity is necessary or required to be
obtained or made under applicable Law in connection with the
execution and delivery of this Agreement by
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Parent and Merger Sub, the performance by Parent and Merger Sub
of their respective obligations hereunder or the consummation of
the Transactions by Parent and Merger Sub, except for such
authorizations, consents, approvals or filings, that, if not
obtained or made, would not reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse
Effect.
(c) The execution and delivery by Parent and Merger
Sub of this Agreement do not, and, provided the Parent Approvals
are obtained, the consummation of the Transactions and
compliance with the provisions hereof will not (i) conflict
with, result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right
of termination, cancellation or acceleration of any obligation
or to the loss of a benefit under any loan, guarantee of
indebtedness or credit agreement, note, bond, mortgage,
indenture, lease, agreement, contract, instrument, permit,
concession, franchise, right or license binding upon Parent or
any of its Subsidiaries or result in the creation of any Lien,
other than any such Lien (A) for Taxes or governmental
assessments, charges or claims of payment not yet due or
delinquent, being contested in good faith or for which adequate
accruals or reserves have been established, (B) which is a
carriers, warehousemens, mechanics,
materialmens, repairmens or other similar lien
arising in the ordinary course of business, (C) which is
disclosed on the most recent consolidated balance sheet of
Parent or notes thereto or securing liabilities reflected on
such balance sheet, (D) which was incurred in the ordinary
course of business since the date of the most recent
consolidated balance sheet of the Company or (E) which does
not and would not reasonably be expected to materially impair
the continued use and operation of the assets to which they
relate as operated as of the date hereof or any property at
which the material operations of Parent or any of its
Subsidiaries are conducted as of the date hereof (each of the
foregoing (A) through (E), a Parent Permitted
Lien), upon any of the properties or assets of Parent
or any of its Subsidiaries, (ii) conflict with or result in
any violation of any provision of the articles of incorporation
or bylaws or other equivalent organizational document of Parent
or any of its Subsidiaries or (iii) conflict with or
violate any applicable Laws, other than, in the case of
clauses (i) and (iii), any such violation, conflict,
default, termination, cancellation, acceleration, right, loss or
Lien that would not reasonably be expected to have, individually
or in the aggregate, a Parent Material Adverse Effect.
Section 4.4 SEC Reports, Financial Statements
and Utility Reports.
(a) Parent has filed or furnished all forms,
documents and reports required to be filed or furnished by it
with the SEC since January 1, 2009 (the Parent SEC
Documents). As of their respective dates, or, if
amended, as of the date of such amendment, the Parent SEC
Documents complied in all material respects with the
requirements of the Securities Act, the Exchange Act and the
Sarbanes-Oxley Act, as the case may be, and the applicable rules
and regulations promulgated thereunder, and none of the Parent
SEC Documents contained any untrue statement of a material fact
or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(b) Parent has established and maintains disclosure
controls and procedures and internal control over financial
reporting (as such terms are defined in paragraphs (e) and
(f), respectively, of
Rule 13a-15
under the Exchange Act), as required by
Rule 13a-15
under the Exchange Act. Parents disclosure controls and
procedures are reasonably designed to ensure that all material
information required to be disclosed by Parent in the reports
that it files or furnishes under the Exchange Act is recorded,
processed, summarized and reported within the time periods
specified in the rules and forms of the SEC, and that all such
material information
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is accumulated and communicated to Parents management as
appropriate to allow timely decisions regarding required
disclosure and to make the certifications required pursuant to
Sections 302 and 906 of the Sarbanes-Oxley Act, and all
such required certifications have been made. Parents
management has completed an assessment of the effectiveness of
Parents internal control over financial reporting in
compliance with the requirements of Section 404 of the
Sarbanes-Oxley Act for the year ended December 31, 2008,
and such assessment concluded that such controls were effective.
(c) The audited consolidated financial statements and
unaudited interim consolidated financial statements (including
all related notes and schedules) of Parent included in the
Parent SEC Documents complied as to form in all material
respects with the rules and regulations of the SEC then in
effect, fairly present in all material respects the consolidated
financial position of Parent and its consolidated Subsidiaries,
as at the respective dates thereof, and the consolidated results
of their operations and their consolidated cash flows for the
respective periods then ended (subject, in the case of the
unaudited statements, to normal recurring year-end audit
adjustments that were not or are not expected to be,
individually or in the aggregate, materially adverse to the
Company), and were prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be
indicated therein or in the notes thereto).
(d) All filings (other than immaterial filings)
required to be made by Parent or any of its Subsidiaries since
January 1, 2007, with the FERC under the FPA or the Public
Utility Holding Company Act of 2005, the Department of Energy,
the Nuclear Regulatory Commission (the NRC)
under the Atomic Energy Act of 1954, as amended (the
Atomic Energy Act) and any applicable state
public utility commissions and under applicable state law, as
the case may be, have been made, including all forms,
statements, reports, agreements and all documents, exhibits,
amendments and supplements appertaining thereto, including all
rates, tariffs, franchises, service agreements, and related
documents, and all such filings complied, as of their respective
dates, with all applicable requirements of applicable statutes
and the rules and regulations thereunder, except for filings the
failure of which to make or the failure of which to make in
compliance with all applicable requirements of applicable
statutes and the rules and regulations thereunder, would not
reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect.
(e) Neither Parent nor any of its Subsidiaries is a
party to, or has any commitment to become a party to, any joint
venture, off-balance sheet partnership or any similar contract
(including any contract or arrangement relating to any
transaction or relationship between or among Parent or any of
its Subsidiaries, on the one hand, and any unconsolidated
affiliate, including any structured finance, special purpose or
limited purpose entity or person, on the other hand, or any
off-balance-sheet arrangement (as defined in
Item 303(a) of
Regulation S-K
under the Exchange Act)), where the result, purpose or intended
effect of such contract is to avoid disclosure of any material
transaction involving, or material liabilities of, Parent or any
of its Subsidiaries or affiliates.
Section 4.5 No Undisclosed
Liabilities. Except (a) as reflected or
reserved against in Parents most recent audited
consolidated balance sheets (or stated in the notes thereto)
included in the Parent SEC Documents and (b) for
liabilities and obligations incurred since January 1, 2009
in the ordinary course of business consistent with past
practice, and neither Parent nor any Subsidiary of Parent has
any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, that would be required by GAAP
to be reflected on a consolidated balance sheet of
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Parent and its consolidated Subsidiaries (or in the notes
thereto) other than those which would not reasonably be expected
to have, individually or in the aggregate, a Parent Material
Adverse Effect.
Section 4.6 Absence of Certain Changes or
Events. Since January 1, 2009 through the
date of this Agreement, there has not been any event, change,
effect, development, state of facts, circumstance, condition or
occurrence that has had or would reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse
Effect.
Section 4.7 Investigations;
Litigation. (a) There is no investigation,
audit or review pending (or, to the knowledge of Parent,
threatened) by any Governmental Entity with respect to Parent or
any of its Subsidiaries, (b) there are no actions, suits,
inquiries, arbitrations, investigations or proceedings pending
(or, to the knowledge of Parent, threatened) against, relating
to or affecting Parent or any of its Subsidiaries (including
against or in respect of any Parent Benefit Plan), or any of
their respective properties at law or in equity before, and
(c) there are no orders, judgments or decrees of, or
before, any Governmental Entity except, in the case of
clauses (a) through (c), as would not reasonably be
expected to have, individually or in the aggregate, a Parent
Material Adverse Effect.
Section 4.8 Information
Supplied. None of the information provided or to
be provided by Parent or its Subsidiaries for inclusion or
incorporation by reference in the
Form S-4
will, at the time the
Form S-4
is filed with the SEC, at any time it is amended or supplemented
or at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to
make the statements therein not misleading;
provided, that, with respect to projected financial
information provided by or on behalf of Parent, Parent
represents only that such information was prepared in good faith
by management of Parent on the basis of assumptions believed by
such management to be reasonable as of the time made. None of
the information provided by Parent or its Subsidiaries for
inclusion or incorporation by reference in the Joint Proxy
Statement will, at the date it is first mailed to Parents
shareholders or the Companys stockholders at the time of
the Parent Shareholders Meeting or the Company
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 light of the circumstances under which they were
made, not misleading; provided, that, with respect
to projected financial information provided by or on behalf of
Parent, Parent represents only that such information was
prepared in good faith by management of Parent on the basis of
assumptions believed by such management to be reasonable as of
the time made. The
Form S-4
and the Joint Proxy Statement (other than the portion thereof
relating solely to the Company Stockholders Meeting) and
the
Form S-4
will comply as to form in all material respects with the
requirements of the Securities Act and the Exchange Act and the
rules and regulations thereunder. Notwithstanding the foregoing
provisions of this Section 4.8, no representation or
warranty is made by Parent with respect to information or
statements made or incorporated by reference in the
Form S-4
or the Joint Proxy Statement that were not supplied by or on
behalf of Parent.
Section 4.9 Compliance with Law; Permits.
(a) Parent and each of its Subsidiaries are, and
since January 1, 2007 have been, in compliance with and not
in default under or in violation of any applicable Laws, except
where such non-compliance, default or violation would not
reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect. Within the past
three years, neither Parent nor any of its Subsidiaries has
received any written notice or, to Parents knowledge,
other communication from any Governmental Entity regarding any
actual or
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possible violation of, or failure to comply with, any Law,
except as would not reasonably be expected to have, individually
or in the aggregate, a Parent Material Adverse Effect.
(b) Parent and its Subsidiaries are in possession of
all franchises, grants, authorizations, licenses, permits,
easements, variances, exceptions, consents, certificates,
approvals, clearances, permissions, qualifications and
registrations and orders of any Governmental Entity, and all
rights under any material contract with any Governmental Entity,
necessary for Parent and its Subsidiaries to own, lease and
operate their properties and assets or to carry on their
businesses as they are now being conducted (the Parent
Permits), except where the failure to have any of the
Parent Permits would not reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse
Effect. All Parent Permits are valid and in full force and
effect, except where the failure to be in full force and effect
would not reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect. Parent is, and each
of its Subsidiaries is, and their respective businesses as
currently conducted are, in compliance in all material respects
with the terms and requirements of such Parent Permits.
(c) Notwithstanding anything contained in this
Section 4.9, no representation or warranty shall be
deemed to be made in this Section 4.9 in respect of
the matters referenced in Section 4.4, or in respect
of Tax, employee benefits, labor or environmental matters.
Section 4.10 Tax Matters.
Except as would not reasonably be expected to have, individually
or in the aggregate, a Parent Material Adverse Effect:
(a) Parent and its Subsidiaries (i) have timely
filed or caused to be filed (taking into account any extension
of time within which to file) all Tax Returns required to have
been filed by Parent or any of its Subsidiaries, and all such
Tax Returns were true, correct and complete, and all such Tax
Returns filed on or before December 31, 2005 have been
examined by the appropriate taxing authority or the period for
assessment of the Taxes in respect of which such Tax Returns
were required to be filed has expired; (ii) have timely
paid or caused to be paid (taking into account any extension of
time within which to pay) all Taxes shown as due on such Tax
Returns; (iii) have established adequate accruals and
reserves, in accordance with GAAP, on the financial statements
included in the Parent SEC Documents for all Taxes payable by
Parent and its Subsidiaries for all taxable periods and portions
thereof through the date of such financial statements; and
(iv) have not received any written notice of any
deficiencies for any Tax of Parent or any of its Subsidiaries
from any taxing authority for which there are not adequate
accruals or reserves on the financial statements included in the
Parent SEC Documents.
(b) Neither Parent nor any of its Subsidiaries is the
subject of any currently ongoing audit or other proceeding with
respect to Taxes nor has any audit or other proceeding with
respect to Taxes been proposed against any of them in writing,
and any deficiencies asserted or assessments made as a result of
any audit or other proceeding with respect to Taxes have been
paid in full, are being contested in good faith, or adequate
accruals or reserves for such deficiencies or assessments have
been established. There are no Liens for Taxes on any of the
assets of Parent or any of its Subsidiaries other than Parent
Permitted Liens. No claim has ever been made in writing by a
taxing authority of a jurisdiction where Parent or one of its
Subsidiaries has not filed Tax Returns that Parent or such
Subsidiary is or may be subject to taxation by that jurisdiction.
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(c) Neither Parent nor any of its Subsidiaries is a
party to or bound by any written Tax allocation,
indemnification, sharing or similar agreement (other than an
agreement with Parent or its Subsidiaries), except for
agreements entered into in the ordinary course of business.
Neither Parent nor any of its Subsidiaries is liable under
Section 1.1502-6
of the Treasury regulations promulgated under the Code (or any
similar provision of the Tax Laws of any state, local or foreign
jurisdiction) for any Tax of any person other than Parent and
its Subsidiaries.
(d) Parent and its Subsidiaries have withheld and
paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other third
party; such withheld amounts were either timely paid to the
appropriate taxing authority or set aside in accounts for such
purpose. Parent and each of its Subsidiaries have reported such
withheld amounts to the appropriate taxing authority and to each
such employee, independent contractor, creditor, shareholder or
other third party, as required under Law.
(e) Neither Parent nor any of its Subsidiaries was a
distributing corporation or controlled
corporation in a transaction intended to qualify under
Section 355 of the Code within the past two years or
otherwise as part of a plan that includes the Merger.
(f) Neither Parent nor any of its Subsidiaries has
participated in any reportable transaction within
the meaning of
Section 1.6011-4
of the Treasury regulations promulgated under the Code.
(g) Parent has made available to the Company or its
legal or accounting representative copies of all
U.S. Federal and state income Tax Returns for Parent and
each of its Subsidiaries filed for all periods including and
after the period ended December 31, 2007.
(h) Neither Parent nor any of its Subsidiaries
(i) has filed any extension of time within which to file
any Tax Returns that have not been filed, except in the ordinary
course of business, (ii) has entered into any agreement or
other arrangement waiving or extending the statute of
limitations or the period of assessment or collection of any
Taxes, (iii) has granted any power of attorney that is in
force with respect to any matters relating to any Taxes,
(iv) has applied for a ruling from a taxing authority
relating to any Taxes that has not been granted or has proposed
to enter into an agreement with a taxing authority that is
pending or (v) has, since December 31, 2006, entered
into any closing agreement as described in
Section 7121 of the Code (or any similar provision of
state, local or foreign Tax Law) or been issued any private
letter rulings, technical advice memoranda or similar agreement
or rulings by any taxing authority.
(i) Neither Parent nor any of its Subsidiaries has
agreed to, requested, or is required to include any adjustment
under Section 481 of the Code (or any corresponding
provision of applicable state, local or foreign Tax Law) by
reason of a change in accounting method or otherwise.
(j) It is agreed and understood that no
representation or warranty is made by Parent in respect of Tax
matters in any Section of this Agreement other than
Section 4.4, Section 4.5,
Section 4.11, Section 4.21 and this
Section 4.10.
Section 4.11 Employee Benefit Plans.
(a) Section 4.11(a) of Parent Disclosure
Schedule lists all material compensation or employee benefit
plans, programs, policies, agreements or other arrangements,
whether or not employee benefit plans (within the
meaning of Section 3(3) of ERISA, whether or not subject to
ERISA), providing cash- or equity-based incentives, health,
medical, dental, disability,
A-31
accident or life insurance benefits or vacation, severance,
retention, change in control, retirement, pension or savings
benefits, that are sponsored, maintained or contributed to by
Parent or any of its Subsidiaries for the benefit of current or
former employees or directors of Parent or its Subsidiaries (the
Parent Benefit Plans).
(b) Each Parent Benefit Plan has been operated and
administered in all respects in accordance with its terms and
all applicable Laws, including ERISA and the Code. Each Parent
Benefit Plan intended to be qualified within the
meaning of Section 401(a) of the Code is the subject of a
favorable determination letter from the Internal Revenue Service
as to its qualification and, to Parents knowledge, no
event has occurred that could reasonably be expected to result
in the disqualification of such Parent Benefit Plan.
(c) Other than routine claims for benefits, no
liability under Title IV of ERISA has been incurred by
Parent or any its Subsidiaries that has not been satisfied in
full when due, and no condition exists that could reasonably be
expected to result in a material liability to Parent or its
Subsidiaries under Title IV of ERISA.
(d) The consummation of the Transactions will not
(i) entitle any current or former employee or director of
Parent or any of its Subsidiaries to severance, retention or
change in control pay, unemployment compensation or any other
payment or (ii) accelerate the time of payment or vesting,
or increase the amount, of compensation due any such current or
former employee or director.
(e) There are no material pending or, to
Parents knowledge, threatened claims against, by or on
behalf of, or any Liens filed against or with respect to, any of
the Parent Benefit Plans or otherwise involving any Parent
Benefit Plan.
(f) Neither Parent nor any of its Subsidiaries is a
party to any agreement, contract or arrangement that could
result, separately or in the aggregate, in the payment of any
excess parachute payments within the meaning of
Section 280G of the Code.
(g) No Parent Benefit Plan provides benefits,
including death or medical benefits (whether or not insured),
with respect to current or former employees or directors of
Parent or any of its Subsidiaries beyond their retirement or
other termination of service, other than (i) coverage
mandated solely by applicable Law, (ii) death benefits or
retirement benefits under any employee pension benefit
plan (as defined in Section 3(2) of ERISA),
(iii) deferred compensation benefits accrued as liabilities
on the books of Parent or its Subsidiaries, or
(iv) benefits the full costs of which are borne by the
current or former employee or director or his or her beneficiary.
Section 4.12 Employment and Labor Matters.
(a) As of the date of this Agreement (i) neither
Parent nor any of its Subsidiaries is a party to or bound by any
collective bargaining agreement, work rules or other agreement
with any Union applicable to employees of Parent or any of its
Subsidiaries (Parent Employees),
(ii) none of the Parent Employees is represented by any
Union with respect to his or her employment with Parent or any
of its Subsidiaries, (iii) to Parents knowledge,
within the past three years, no Union has attempted to organize
employees at Parent or any of its Subsidiaries or filed a
petition with the National Labor Relations Board seeking to be
certified as the bargaining representative of any Parent
Employees, (iv) within the past three years, there have
been no actual or, to Parents knowledge, threatened
(A) work stoppages, lock-outs or strikes,
(B) slowdowns, boycotts, handbilling, picketing, walkouts,
demonstrations, leafleting, sit-ins or sick-outs by Parent
Employees causing significant disruption to the operations of a
Parent
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facility, or (C) other form of Union disruption at Parent
or any of its Subsidiaries, and (v) except as would not
reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect, there is no unfair
labor practice, labor dispute, or labor arbitration proceeding
pending or, to the knowledge of Parent, threatened with respect
to Parent Employees.
(b) Except for such matters that would not reasonably
be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect: (i) Parent and its Subsidiaries
are, and within the past three years have been, in compliance
with all applicable state, federal and local Laws respecting
labor and employment, including all Laws relating to
discrimination, disability, labor relations, unfair labor
practices, hours of work, payment of wages, employee benefits,
retirement benefits, compensation, immigration, workers
compensation, working conditions, occupational safety and
health, family and medical leave, reductions in force, plant
closings, notification of employees, and employee terminations
and (ii) neither Parent nor any of its Subsidiaries has any
liabilities under WARN or any state or local Laws requiring
notice with respect to such layoffs or terminations.
(c) In the past three years, (i) no Governmental
Entity has threatened (to the knowledge of Parent) or initiated
any material complaints, charges, lawsuits, grievances, claims,
arbitrations, administrative proceedings, or other proceeding(s)
or investigation(s) with respect to Parent or its Subsidiaries
arising out of, in connection with, or otherwise relating to any
Parent Employees or any Laws governing labor or employment, and
(ii) no Governmental Entity has issued or, to Parents
knowledge, threatened to issue any significant citation, order,
judgment, fine or decree against Parent or any of its
Subsidiaries with respect to any Parent Employees or any Laws
governing labor or employment.
Section 4.13 Environmental Laws and
Regulations.
(a) Except as would not reasonably be expected to
have, individually or in the aggregate, a Parent Material
Adverse Effect:
(i) there is no pending or, to the knowledge of
Parent, threatened, claim, lawsuit, or administrative proceeding
against Parent or any of its Subsidiaries, under or pursuant to
any Environmental Law, and neither Parent nor any of its
Subsidiaries has received written notice from any person,
including any Governmental Entity, alleging that Parent has been
or is in violation or potentially in violation of any applicable
Environmental Law or otherwise may be liable under any
applicable Environmental Law, which violation or liability is
unresolved;
(ii) Parent and its Subsidiaries are and, since
January 1, 2005, have been in compliance with all
applicable Environmental Laws and with all material permits,
licenses and approvals required under Environmental Laws for the
conduct of their business or the operation of their facilities;
(iii) Parent and its Subsidiaries have all material
permits, licenses and approvals required for the operation of
the businesses and the operation of their facilities pursuant to
applicable Environmental Law, all such permits, licenses and
approvals are in effect, and, to the knowledge of Parent, there
is no actual or alleged proceeding to revoke, modify or
terminate such permits, licenses and approvals;
(iv) to the knowledge of Parent, there has been no
release of Hazardous Materials at any real property currently or
formerly owned, leased, or operated by Parent or any Subsidiary
in concentrations or under conditions or circumstances that
(A) would
A-33
reasonably be expected to result in liability to Parent or any
of its Subsidiaries under any Environmental Laws or
(B) would require reporting, investigation, remediation, or
other corrective or response action by Parent or any Subsidiary
under any Environmental Law and that has not otherwise been
addressed through such reporting, investigation, remediation, or
other corrective or responsive action by Parent or any
Subsidiary; and
(v) Parent is not party to any order, judgment or
decree that imposes any obligations under any Environmental Law
and, to the knowledge of Parent, has not, either expressly or by
operation of Law, undertaken any such obligations, including any
obligation for corrective or remedial action, of any other
person.
(b) Notwithstanding any provision to the contrary in
this Agreement, including
Section 4.13(a)(i)-(v),
Parent makes no representation or warranty with respect to
Parents or any of its Subsidiaries compliance with
Environmental Laws relating to federal or state new source
review or prevention of significant deterioration air permit
laws or regulations, except to the extent that Parent or a
Subsidiary has, as of the date of this Agreement, received a
written notice or been subject to a judicial or administrative
proceeding alleging non-compliance with such laws or regulations.
(c) The representations and warranties set forth
herein are Parents sole representations and warranties
relating to Environmental Law, the Environment and Hazardous
Materials.
Section 4.14 Operations of Nuclear Power
Plants. The operations of the nuclear generation
stations owned, in whole or part, by Parent or its Subsidiaries
(collectively, the Parent Nuclear Facilities)
are and have been conducted in compliance with all applicable
Laws and Parent Permits, except for such failures to comply that
would not reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect. Each of the Parent
Nuclear Facilities maintains, and is in material compliance
with, emergency plans designed to respond to an unplanned
release therefrom of radioactive materials and each such plan
conforms with the requirements of applicable Laws in all
material respects. The plans for the decommissioning of each of
the Parent Nuclear Facilities and for the storage of spent
nuclear fuel generated or expected to be generated at each
Parent Nuclear Facility, in each case, conform with the
requirements of applicable Laws in all material respects, and
solely with respect to the portion of the Parent Nuclear
Facilities owned, directly or indirectly, by Parent, funded
consistent with applicable Laws. The Department of Energy has
taken possession of the spent nuclear fuel from TMI-2 pursuant
to a contract between a Subsidiary of Parent, GPU Nuclear, Inc.,
and the Department of Energy. To the knowledge of Parent, there
are no unpaid claims by the Department of Energy against Parent
or its Subsidiaries relating to the disposal of TMI-2 spent
nuclear fuel. The operations of the Parent Nuclear Facilities
are not the subject of any outstanding notices of violation, any
ongoing proceeding, heightened or additional inspections above
the NRC baseline inspection program or requests for information
from the NRC or any other agency with jurisdiction over such
facility, except for such notices, proceedings, inspections or
requests for information that, individually or in the aggregate,
have not had and would not reasonably be expected to have a
Parent Material Adverse Effect. No Parent Nuclear Facility is
listed by the NRC in the Unacceptable Performance column of the
NRC Action Matrix, as a part of NRCs Assessment of Plant
Performance. Liability insurance to the full extent required by
applicable Law for operating the Parent Nuclear Facilities
remains in full force and effect regarding such facilities,
except for failures to maintain such insurance in full force and
effect that, individually or in the aggregate, have not had and
would not reasonably be expected to have a Parent Material
Adverse Effect.
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Section 4.15 Insurance. Section 4.15
of the Parent Disclosure Schedule sets forth a true and complete
list of the material insurance policies naming Parent or any of
its Subsidiaries or any director, officer or employee thereof as
an insured or beneficiary or as a loss payable payee or for
which Parent or any of its Subsidiaries has paid or is obligated
to pay all or part of the premiums, as of the date hereof.
Neither Parent nor any of its Subsidiaries has received notice
of any pending or threatened cancellation or premium increase
(retroactive or otherwise) with respect thereto, and Parent and
each of its Subsidiaries is in compliance in all material
respects with all conditions contained therein. From and after
January 1, 2009, Parent and its Subsidiaries have been
continuously insured with financially responsible insurers or
have self-insured, in each case in such amounts and against such
risks as is customary for the industries in which it and its
Subsidiaries operate.
Section 4.16 Trading. Parent
has established risk parameters, limits and guidelines in
compliance with the risk management policy approved by
Parents Board of Directors (the Parent Trading
Policies) to restrict the level of risk that Parent
and its Subsidiaries are authorized to take with respect to,
among other things, the net position resulting from all physical
commodity transactions, exchange-traded futures and options
transactions, over-the-counter transactions and derivatives
thereof and similar transactions (the Net Parent
Position) and monitors compliance by Parent and its
Subsidiaries with such Parent Trading Policies. Parent has
provided the Parent Trading Policies to the Company prior to the
date of this Agreement. At no time between September 30,
2009 and the date of this Agreement, (i) has the Net Parent
Position not been within the risk parameters that are set forth
in the Parent Trading Policies or (ii) has the exposure of
Parent and its Subsidiaries with respect to the Net Parent
Position resulting from all such transactions been material to
Parent and its Subsidiaries taken as a whole. From
December 31, 2008 to the date of this Agreement, neither
Parent nor any of its Subsidiaries has, in accordance with
generally recognized mark to market accounting policies,
experienced an aggregate net loss in its trading and related
operations that would be material to Parent and its Subsidiaries
taken as a whole.
Section 4.17 Required Vote of Parent
Shareholders; Merger Sub Approval.
(a) The affirmative vote of holders of a majority of
the outstanding shares of Parent Common Stock is the only vote
of the holders of any class or series of Parent capital stock
necessary to (i) authorize and approve the Stock Issuance and
the other Transactions and (ii) adopt the Charter Amendment
(collectively, the Parent Shareholder
Approval), and no other vote of the holders of any
class or series of Parent capital stock is necessary to
authorize or approve this Agreement or the Transactions.
(b) The Board of Directors of Merger Sub, by written
consent duly adopted prior to the date hereof,
(i) determined that this Agreement and the Transactions are
advisable and in the best interests of Merger Sub and its
stockholder, (ii) duly approved this Agreement and the
Transactions, which approval has not been rescinded or modified
and (iii) submitted this Agreement for adoption, and the
Transactions for approval, by Parent, as the sole stockholder of
Merger Sub. Parent, as the sole stockholder of Merger Sub, has
duly adopted this Agreement and approved the Transactions.
Section 4.18 Lack of Ownership of Company
Common Stock. Neither Parent nor any of its
Subsidiaries beneficially owns directly or indirectly, any
shares of Company Common Stock or other securities convertible
into, exchangeable for or exercisable for shares of Company
Common Stock or any securities of any Subsidiary of the Company
(other than, for the avoidance of doubt, any shares of Company
Common Stock that may be held by Parent Benefit Plans), and
neither Parent nor any of its Subsidiaries has any rights to
acquire any shares of Company Common Stock except pursuant
A-35
to this Agreement. There are no voting trusts or other
agreements or understandings to which Parent or any of its
Subsidiaries is a party with respect to the voting of the
capital stock or other equity interest of the Company or any of
its Subsidiaries.
Section 4.19 Opinion of Financial
Advisor. The Board of Directors of Parent has
received the opinion of Morgan Stanley & Co.
Incorporated, dated the date of this Agreement and customary in
form, scope and substance, to the effect that, as of such date,
the Exchange Ratio is fair to Parent from a financial point of
view. Parent shall, promptly following receipt of said opinion
in written form, furnish an accurate and complete copy of said
opinion to the Company.
Section 4.20 Finders or
Brokers. Except for Morgan Stanley &
Co. Incorporated (the fees and expenses of which will be the
responsibility of Parent), neither Parent nor any of its
Subsidiaries has employed any investment banker, broker or
finder in connection with the Transactions who might be entitled
to any fee or any commission in connection with or upon
consummation of the Merger or the Transactions. Parent has
furnished to the Company accurate and complete copies of its
agreements with Morgan Stanley & Co. Incorporated.
Section 4.21 Reorganization under the
Code. Neither Parent nor any of its Subsidiaries
has taken or agreed to take any action or knows of any fact,
agreement, plan or other circumstance that will prevent or
impede, or is reasonably likely to prevent or impede, the Merger
from qualifying as a reorganization within the
meaning of Section 368(a) of the Code.
Section 4.22 Regulatory
Proceedings. As of the date hereof, neither
Parent nor any of its Subsidiaries all or part of whose rates or
services are regulated by a Governmental Entity (a) is a
party to any rate proceeding before a Governmental Entity with
respect to rates charged by Parent or any of its Subsidiaries
other than in the ordinary course consistent with past practice,
(b) has rates in any amounts that have been or are being
collected subject to refund, pending final resolution of any
rate proceeding pending before a Governmental Entity or on
appeal to a court (other than rates based on estimated costs
and/or
revenues that are subject to adjustment once the actual costs
and/or
revenues become known) or (c) is a party to any contract
with any Governmental Entity entered into other than in the
ordinary course consistent with past practice imposing
conditions on rates or services in effect as of the date hereof
or which, to the knowledge of Parent, are as of the date hereof
scheduled to go into effect at a later time, except in the case
of clauses (a) through (c) that would not,
individually or in the aggregate, reasonably be expected to have
a Parent Material Adverse Effect.
Section 4.23 Intellectual
Property. Except as would not, individually or in
the aggregate, reasonably be expected to have a Parent Material
Adverse Effect, Parent and its Subsidiaries own or have a valid
right to use all Intellectual Property Rights used in connection
with and reasonably necessary for the business of Parent and its
Subsidiaries as currently conducted. To Parents knowledge,
neither Parent nor any of its Subsidiaries has infringed,
misappropriated or violated in any material respect any
Intellectual Property Rights of any third party except where
such infringement, misappropriation or violation would not,
individually or in the aggregate, reasonably be expected to have
a Parent Material Adverse Effect. To Parents knowledge, no
third party is infringing, misappropriating or violating any
Intellectual Property Rights owned or exclusively licensed by or
to Parent or any of its Subsidiaries, except where such
infringement, misappropriation or violation would not,
individually or in the aggregate, reasonably be expected to have
a Parent Material Adverse Effect.
Section 4.24 Properties. Parent
or its applicable Subsidiary has (a) good and insurable
title or (b) good and valid leasehold interest in and to
each material parcel of real property owned or leased, as
applicable, by Parent or any of its Subsidiaries, subject to any
Liens or exceptions that
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would not, individually or in the aggregate, reasonably be
expected to have a Parent Material Adverse Effect.
Section 4.25 Material
Contracts. As of the date hereof, neither Parent
nor any of its Subsidiaries is a party to or bound by any
Contract that (i) is a material contract (as
such term is defined in Item 601(b)(10) of
Regulation S-K
promulgated by the SEC), (ii) would, after giving effect to
the Merger, limit or restrict the Surviving Corporation or any
of its Subsidiaries or any successor thereto, from engaging or
competing in any line of business that it currently engages in
or is a reasonable extension thereof (including after the
Effective Time) or in any geographic area or contains
exclusivity or non-solicitation provisions with respect to
customers, (iii) limits or otherwise restricts the ability
of Parent or any of its Subsidiaries to pay dividends or make
distributions to its stockholders, or (iv) provides for the
operation or management of any operating assets of Parent or its
Subsidiaries by any person other than Parent or its
Subsidiaries. Each Contract of the type described in this
Section 4.25, whether or not set forth on
Section 4.25 of the Parent Disclosure Schedule and
whether or not entered into on or prior to the date hereof, is
referred to herein as a Parent Material
Contract. Each Parent Material Contract is a valid and
binding obligation of the Parent or its Subsidiary party thereto
enforceable against Parent or its Subsidiary party thereto in
accordance with its terms (except that (i) such enforcement
may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar Laws, now or
hereafter in effect, relating to creditors rights
generally and (ii) equitable remedies of specific
performance and injunctive and other forms of equitable relief
may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought)
and, to Parents knowledge, each other party thereto, and
is in full force and effect, and each of Parent and each of its
Subsidiaries which is a party thereto has performed in all
material respects all obligations required to be performed by it
to the date hereof under each Parent Material Contract and, to
Parents knowledge, each other party to each Parent
Material Contract has performed in all material respects all
obligations required to be performed by it under such Parent
Material Contract, except, in each case, as would not,
individually or in the aggregate, reasonably be expected to have
a Parent Material Adverse Effect. None of Parent or any of its
Subsidiaries has knowledge of, or has received notice of, any
violation of or default under (or any condition which with the
passage of time or the giving of notice would cause such a
violation of or default under) any Parent Material Contract to
which it is a party or by which it or any of its properties or
assets is bound, except for violations or defaults that would
not, individually or in the aggregate, reasonably be expected to
have a Parent Material Adverse Effect or, after giving effect to
the Merger, a Parent Material Adverse Effect.
Section 4.26 No Additional
Representations. Parent and Merger Sub
acknowledge that the Company makes no representations or
warranties as to any matter whatsoever except as expressly set
forth in this Agreement or in any certificate delivered by the
Company to Parent or Merger Sub in accordance with the terms
hereof, and specifically (but without limiting the generality of
the foregoing) that the Company makes no representations or
warranties with respect to (a) any projections, estimates
or budgets delivered or made available to Parent or Merger Sub
(or any of their respective affiliates, officers, directors,
employees or Representatives) of future revenues, results of
operations (or any component thereof), cash flows or financial
condition (or any component thereof) of the Company and its
Subsidiaries or (b) the future business and operations of
the Company and its Subsidiaries in each case except as
expressly set forth in this Agreement.
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ARTICLE V
COVENANTS AND AGREEMENTS
Section 5.1 Conduct of Business by the
Company. From and after the date hereof and prior
to the earlier of the Effective Time or the date, if any, on
which this Agreement is earlier terminated pursuant to
Section 7.1 (the Termination
Date), and except (i) as may be required by
applicable Law, (ii) as may be agreed to in writing by
Parent (which consent shall not be unreasonably withheld,
delayed or conditioned), (iii) as may be expressly
contemplated or required by this Agreement or (iv) as set
forth in Section 5.1 of the Company Disclosure
Schedule:
(a) the Company covenants and agrees with Parent that the
business of the Company and its Subsidiaries shall be conducted
in, and that such entities shall not take any action except in,
the ordinary course of business consistent with past practice
and shall use their reasonable best efforts to preserve intact
their present business organizations, to maintain in effect all
existing Permits, subject to prudent management of workforce and
business needs, to keep available the services of their key
officers and employees, to maintain their assets and properties
in good working order and condition, ordinary wear and tear
excepted, to preserve their relationships with Governmental
Entities, customers and suppliers and others having significant
business dealings with them and to comply in all material
respects with all Laws, orders and Permits of all Governmental
Entities applicable to them; provided,
however, that no action by the Company or its
Subsidiaries with respect to matters specifically addressed by
any provision of Section 5.1(b) shall be deemed a
breach of this sentence unless such action would constitute a
breach of such other provision; and
(b) the Company agrees with Parent, on behalf of itself and
its Subsidiaries, that between the date hereof and the Effective
Time, without the prior written consent of Parent (which consent
shall not be unreasonably withheld, delayed or conditioned), the
Company:
(i) shall not adopt any amendments to its charter or bylaws
or similar applicable organizational documents, and shall not
permit any of its Subsidiaries to adopt any amendments to its
charter or bylaws or similar applicable organizational documents;
(ii) shall not, and shall not permit any of its
Subsidiaries to, declare, set aside or pay any dividends on or
make any distribution with respect to its outstanding shares of
capital stock (whether in cash, assets, stock or other
securities of the Company or its Subsidiaries), except
(1) the declaration and payment of quarterly cash dividends
with respect to the Company Common Stock not to exceed the
current dividend rate, with record dates and payment dates
consistent with the Companys past dividend practice and
(2) the declaration and payment of dividends from a
Subsidiary of the Company to the Company or to another
wholly-owned Subsidiary of the Company;
(iii) shall not, and shall not permit any of its
Subsidiaries to, split, combine, reclassify or take similar
actions with respect to any of its capital stock or issue or
authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its
capital stock, except for any such transaction in the ordinary
course by a wholly-owned Subsidiary of the Company which remains
a wholly-owned Subsidiary after consummation of such transaction
and that does not adversely affect the Company;
(iv) shall not, and shall not permit any of its
Subsidiaries to, adopt a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization, or enter into a letter
of intent or agreement in
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principle with respect thereto, other than the Merger and other
than any merger, consolidation, restructurings or
reorganizations among the Companys wholly-owned
Subsidiaries in the ordinary course and that do not adversely
affect the Company;
(v) except for transactions between (x) the Company
and its wholly-owned Subsidiaries or (y) among the
Companys wholly-owned Subsidiaries, in each case in the
ordinary course and that do not adversely affect the Company,
shall not, and shall not permit any of its Subsidiaries to,
redeem, repurchase, defease, cancel or otherwise acquire any
indebtedness for borrowed money of the Company or any of its
Subsidiaries, other than (x) at or within 120 days of
stated maturity, (y) any required amortization payments and
mandatory prepayments and (z) indebtedness for borrowed
money arising under the agreements disclosed in
Section 5.1(b)(v) of the Company Disclosure
Schedule, in each case in accordance with the terms of the
instrument governing such indebtedness as in effect on the date
hereof;
(vi) except (A) as permitted pursuant to Section
5.1(b)(vii)(A) and (B) as made in connection with any
transaction solely between (x) the Company and a
wholly-owned Subsidiary of the Company or (y) between
wholly-owned Subsidiaries of the Company, in each case in the
ordinary course and that do not adversely affect the Company,
shall not, and shall not permit any of its Subsidiaries to,
acquire or agree to acquire (whether by merger, consolidation,
purchase or otherwise) any person or assets, if (A) the
amount to be expended pursuant thereto (including the amount of
any assumed indebtedness) exceeds $5 million in any one
transaction (or series of related transactions) or
$25 million in the aggregate in any
12-month
period for all such acquisitions) or (B) any such
acquisition is reasonably likely, individually or in the
aggregate, to materially delay the satisfaction of the
conditions set forth in Section 6.2(g) or
Section 6.3(g) or prevent the satisfaction of such
conditions;
(vii) except (A) capital expenditures made in
accordance with, and not exceeding the amounts set forth in, the
Companys annual budget for 2010 and capital expenditure
plan for 2011, in each case as furnished to Parent prior to the
date of this Agreement; provided, that any amounts
included in such budget or plan with respect to environmental
matters shall be limited to amounts required by Law or that are
necessary or reasonably anticipated to be necessary to meet
compliance deadlines required by Law; and provided
further that any amounts not spent by the Company
pursuant to such budget or capital expenditure plan may be spent
by the Company on reliability/availability routine maintenance
projects with priority given to supercritical coal units,
(B) capital expenditures (1) required by Law or
Governmental Entities or (2) incurred in connection with
the repair or replacement of facilities destroyed or damaged due
to casualty or accident (whether or not covered by insurance),
(C) other capital expenditures in an aggregate amount not
to exceed (x) $30 million on or prior to
December 31, 2010 or (y) an additional
$60 million after December 31, 2010, provided
that any such capital expenditures related to transmission and
distribution made pursuant to clauses (x) or (y) shall
not exceed $10 million in the aggregate on or prior to
December 31, 2010 and an additional $10 million in the
aggregate after December 31, 2010, or (D) capital
expenditures related to the TrAIL project, the PATH project
based on its required in-service date, or other projects, in
each case that are either fully recoverable through FERC formula
rates or can be collected in retail rates of customers through
an existing pass through or tracking mechanism (or a pass
through or tracking mechanism for which there
A-39
is a pending request), shall not, and shall not permit any of
its Subsidiaries to, make any capital expenditures;
(viii) except (A) dispositions among the Company and
its wholly-owned Subsidiaries, (B) dispositions among the
Companys wholly-owned Subsidiaries, (C) dispositions
of obsolete equipment or assets or dispositions of assets being
replaced, in each case in the ordinary course of business
consistent with past practice, (D) dispositions by the
Company or its Subsidiaries of its assets in accordance with the
terms of restructuring and divestiture plans mandated by
applicable local or state regulatory agencies, (E) Liens
arising under existing first mortgage bond, pollution control
bond, solid waste disposal bond, transition bond or other
similar indentures and related securities and agreements of
operating Subsidiaries of the Company, (F) provisions under
existing credit facilities of the Company and its Subsidiaries
that provide for the cash collateralization of letters of credit
upon a default and (G) dispositions of accounts receivable
of Subsidiaries of the Company under any accounts receivable
financing, securitization, factoring or similar arrangements and
Liens associated therewith, shall not, and shall not permit any
of its Subsidiaries to, sell, lease, license, transfer, exchange
or swap, mortgage (including securitizations), subject to any
Lien or otherwise dispose in any
12-month
period of more than $15 million in the aggregate of its
properties or assets, including the capital stock of
Subsidiaries;
(ix) except as required by the terms of a Company Benefit
Plan set forth on Section 3.11(a) of the Company
Disclosure Schedule as of the date of this Agreement or by
applicable Law, shall not, and shall not permit any of its
Subsidiaries to, (A) except in the ordinary course of
business consistent with past practice, increase the
compensation or other benefits (including equity-based awards)
payable or provided to the Companys directors, executive
officers, managers or employees (other than as required by any
applicable collective bargaining agreement), (B) enter into
any employment, change of control, severance or retention
agreement with any current or future employee of the Company
(except (1) for agreements entered into with any
newly-hired, non-executive officer employees or replacements or
as a result of promotions, in each case to the extent consistent
with past practice, (2) for employment agreements
terminable on less than 30 days notice without
penalty or (3) for severance agreements entered into in the
ordinary course of business consistent with past practice with
employees who are not executive officers, in connection with
terminations of employment), (C) establish, adopt, enter
into, accelerate any rights or benefits under, or amend (other
than any amendment that is immaterial or administrative in
nature) any plan, policy, program or arrangement for the benefit
of any current or former directors, officers or employees or any
of their beneficiaries, except as permitted pursuant to
clause (B) above, or (D) enter into, accelerate any
rights or benefits under, amend or renew any collective
bargaining agreements other than as set forth on
Section 5.1(b)(ix) of the Company Disclosure
Schedule;
(x) except for transactions (x) among the Company and
its wholly-owned Subsidiaries or (y) among the
Companys wholly-owned Subsidiaries, in each case in the
ordinary course and that do not adversely affect the Company,
shall not, and shall not permit any of its Subsidiaries to,
issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any
shares of its capital stock or other ownership interest in the
Company or any of its Subsidiaries or any securities convertible
into or exchangeable for any such shares or ownership interest,
or any rights, warrants or options to acquire or with respect to
any such shares of capital stock, ownership interest or
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convertible or exchangeable securities or take any action to
cause to be exercisable any otherwise unexercisable option under
any existing stock option plan (except as otherwise provided by
the terms of this Agreement, as required by the terms of any
Company Benefit Plan, or the express terms of any unexercisable
or unexercised options outstanding on the date hereof), other
than (A) issuances of shares of Company Common Stock in
respect of any exercise of Company Stock Options and settlement
of any Company Performance Shares and Company RSUs outstanding
on the date hereof or as may be granted after the date hereof as
permitted under this Section 5.1(b), (B) the
sale of shares of Company Common Stock pursuant to the exercise
of options exercisable into, or the vesting of awards with
respect to, Company Common Stock, to purchase Company Common
Stock if necessary to effectuate an optionee direction upon
exercise or for withholding of Taxes and (C) the grant of
equity compensation awards in the ordinary course of business in
accordance with the Companys customary compensation
practices, provided that any such awards granted after
the date hereof shall be granted on terms pursuant to which such
awards shall not vest or accelerate as a result of the Merger or
the occurrence of the Closing (provided further,
however, that such awards may provide that they shall vest
and/or
accelerate upon a termination of employment without
cause or upon a good reason termination
within the meaning of the applicable award agreement or the
Companys Executive Change in Control Severance Plan
(determined without regard to whether the holder of the award is
a participant in such plan and without regard to whether a
change in control within the meaning of such plan has occurred));
(xi) except for transactions (x) among the Company and
its wholly-owned (directly or indirectly) Subsidiaries or
(y) among the Companys wholly-owned (directly or
indirectly) Subsidiaries, in each case in the ordinary course
and that do not adversely affect the Company, shall not, and
shall not permit any of its Subsidiaries to, directly or
indirectly, purchase, redeem or otherwise acquire any shares of
the capital stock of any of them or any rights or options to
acquire any such shares;
(xii) shall not, and shall not permit any of its
Subsidiaries to, (A) create, incur, assume, suffer to exist
or otherwise be liable with respect to any indebtedness for
borrowed money or guarantees thereof or enter into any
keep well or other agreement to maintain any
financial condition of another person or enter into any
arrangement having the economic effect of any of the foregoing
(including any capital leases, synthetic leases or
conditional sale or other title retention agreement) or issue or
sell any debt securities, other than (1) in the ordinary
course of business consistent with past practice on terms that
allow for prepayment at any time without penalty,
(2) indebtedness incurred by any Subsidiary of the Company
under any loan permitted by clause (B) in this
Section 5.1(b)(xii), (3) in connection with a
refinancing of existing indebtedness within 120 days of its
stated maturity or at a lower cost of funds or (4) for
borrowings under the Companys and its Subsidiaries
existing commercial paper programs or revolving credit
facilities, provided in the case of each of
clauses (1) through (4) such actions are not
reasonably likely to cause any two of Fitch Ratings, Ltd.,
Standard & Poors or Moodys Investors
Service to recognize the Companys corporate credit rating
to be less than investment grade; or (B) other than in
connection with actions permitted by
Section 5.1(b)(vi) and
Section 5.1(b)(vii), make any loans, advances or
capital contributions to, or investments in, any other person,
other than (1) in the ordinary course of business
consistent with past practice, (2) between the Company and
its wholly-owned Subsidiaries or between the Companys
wholly-owned Subsidiaries or (3) as required pursuant to
any obligation in effect as of the date of this Agreement;
A-41
(xiii) shall not, and shall not permit any of its
Subsidiaries to, materially change financial accounting policies
or procedures or any of its methods of reporting income,
deductions or other material items for financial accounting
purposes, except as required by GAAP, SEC rule or policy or
applicable Law (except for any normal purchase/normal sale
designation or designation of hedge accounting relationships for
derivatives);
(xiv) shall not amend or terminate the Company Trading
Policies, or take any action that materially violates the
Company Trading Policies or that causes the Net Company Position
to be materially outside the risk parameters set forth in the
Company Trading Policies;
(xv) except (x) as required by applicable Law or
(y) as would not reasonably be expected to be materially
adverse to the Company and its Subsidiaries taken as a whole,
shall not, and shall not permit any of its Subsidiaries to,
(A) settle or compromise any claim, action or proceeding
relating to Taxes, (B) make, change or revoke any Tax
election, except in the ordinary course of business,
(C) change any methods of Tax accounting, except as
required by GAAP, (D) file any amended Tax Return,
(E) enter into any closing agreement affecting any Tax
liability or refund or (F) extend or waive the application
of any statute of limitations regarding the assessment or
collection of any Tax (this clause (xv) being the sole
provision of this Section 5.1(b) governing Tax
matters);
(xvi) shall not, and shall not permit any of its
Subsidiaries to, pay or settle any material legal proceedings,
other than payments or settlements (A) that do not exceed
$25 million individually or $40 million in the
aggregate in any consecutive
12-month
period, (B) that have become due and payable prior to the
date hereof or (C) in connection with regulatory
proceedings before any Governmental Entities excluding the item
on Section 5.1(b)(xvi) of the Company Disclosure
Schedule; (provided that the exceptions set forth in
clauses (A), (B) and (C) shall not apply to any
proceedings arising out of or related to this Agreement or the
Transactions);
(xvii) shall not, and shall not permit any of its
Subsidiaries to, (A) enter into any new line of business or
(B) conduct any business outside the United States except
in the ordinary course of business consistent with past practice;
(xviii) shall not, and shall not permit any of its
Subsidiaries to, agree or consent to any material agreements or
material modifications of existing agreements or course of
dealings with any Governmental Entities in respect of the
operations of their businesses, except as required by Law to
renew Permits or agreements in the ordinary course of business
consistent with past practice;
(xix) shall, and shall cause its Subsidiaries, to maintain
with financially responsible insurance companies (or through
self-insurance not inconsistent with such partys past
practice), insurance in such amounts and against such risks and
losses as are customary for companies engaged in the utility
industry;
(xx) (A) to the extent permitted by applicable Law,
the Company shall, and shall cause its Subsidiaries to, on a
reasonable basis, (1) discuss with Parent any changes in
its or its Subsidiaries regulated rates or charges (other
than pass-through charges, including the ENEC or rate changes in
accordance with existing formula rates), standards of service or
regulatory accounting from those in effect on the date of this
Agreement or (2) consult with Parent prior to making any
filing (or any amendment thereto), or effecting any agreement,
commitment, arrangement or consent, whether written or oral,
formal or
A-42
informal, with respect thereto (other than filings related to
the ENEC and to implement rate changes in accordance with
existing formula rates); and (B) the Company will not make,
or permit any Subsidiary to make, any filing to change its rates
on file with the FERC or any other regulatory commission that
would, individually or in the aggregate, reasonably be expected
to have (1) a Company Material Adverse Effect or (2) a
Company Material Adverse Effect on the applicable Subsidiary
(provided that for such purposes, the Company shall be
deemed to be an entity the size and scale of such Subsidiary).
Notwithstanding the foregoing, neither the Company nor any of
its Subsidiaries shall be required to consult or have
discussions with Parent prior to (i) entering into
arrangements with customers in the ordinary course of business
consistent with past practices and (ii) taking any of the
actions described in this Section 5.1(b)(xx)
concerning pass-through charges, the ENEC, or rate changes in
accordance with existing formula rates;
(xxi) shall not, and shall not permit its Subsidiaries to,
enter into, terminate or materially modify or amend any contract
that is or would be a (x) Company Material Contract,
(y) power sale contract which has a term of three years or
longer or (z) coal purchase contract which has a term of
two years or longer; provided that (A) the foregoing
shall apply solely to the extent permitted by applicable Law,
(B) the Company and its Subsidiaries may enter into
contracts covered by this subsection (xxi) in a amount not
exceeding $5 million for any individual contract or
$25 million in the aggregate per fiscal year, (C) the
Company and its Subsidiaries may enter into contracts in respect
of the TrAIL project, PATH project or any other project that is
fully recoverable through FERC formula rates or that can be
collected in retail rates of customers through an existing pass
through or tracking mechanism (or a pass through or tracking
mechanism for which there is a pending request), (D) the
Company and its Subsidiaries may enter into any power sale
contract awarded in a competitive procurement process
irrespective of the terms of such contract, and (E) for
avoidance of doubt, this subsection (xxi) shall not apply
to those contracts which are otherwise permitted to be entered
into by the Company or its Subsidiaries pursuant to
Section 5.1(b);
(xxii) shall not, and shall not permit its Subsidiaries to,
enter into or amend any contract, or take any other action, if
such contract, amendment of a contract or action would
reasonably be expected to prevent or materially impede,
interfere with, hinder or delay the consummation of the Merger
or the Transactions; and
(xxiii) shall not, and shall not permit any of its
Subsidiaries to, agree or commit, in writing or otherwise, to
take any of the foregoing actions.
Section 5.2 Conduct of Business by
Parent. From and after the date hereof and prior
to the earlier of the Effective Time and the Termination Date,
and except (i) as may be required by applicable Law,
(ii) as may be agreed to in writing by the Company (which
consent shall not be unreasonably withheld, delayed or
conditioned), (iii) as may be expressly contemplated or
required by this Agreement or (iv) as set forth in
Section 5.2 of the Parent Disclosure Schedule:
(a) Parent covenants and agrees with the Company that the
business of Parent and its Subsidiaries shall be conducted in,
and that such entities shall not take any action except in, the
ordinary course of business consistent with past practice and
shall use their reasonable best efforts to preserve intact their
present business organizations, to maintain in effect all
existing Permits, subject to prudent management of workforce and
business needs, to keep available the services of their key
officers and employees, to maintain their assets and properties
in good working order and condition, ordinary wear and tear
excepted, to preserve their relationships
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with Governmental Entities, customers and suppliers and others
having significant business dealings with them and to comply in
all material respects with all Laws, orders and Permits of all
Governmental Entities applicable to them;
provided, however, that no action by Parent or its
Subsidiaries with respect to matters specifically addressed by
any provision of Section 5.2(b) shall be deemed a
breach of this sentence unless such action would constitute a
breach of such other provision; and
(b) Parent agrees with the Company, on behalf of itself and
its Subsidiaries, that between the date hereof and the Effective
Time, without the prior written consent of the Company (which
consent shall not be unreasonably withheld, delayed or
conditioned), Parent:
(i) shall not adopt any amendments to its articles of
incorporation or bylaws or similar applicable organizational
documents, and shall not permit any of its Subsidiaries,
including Merger Sub, to adopt any amendments to its articles of
incorporation or bylaws or similar applicable organizational
documents;
(ii) shall not, and shall not permit any of its
Subsidiaries to, declare, set aside or pay any dividends on or
make any distribution with respect to its outstanding shares of
capital stock (whether in cash, assets, stock or other
securities of Parent or its Subsidiaries), except (1) the
declaration and payment of quarterly cash dividends with respect
to Parent Common Stock not to exceed the current dividend rate,
with record dates and payment dates consistent with
Parents past dividend practice and (2) the
declaration and payment of dividends from a Subsidiary of Parent
to Parent or to another wholly-owned Subsidiary of Parent;
(iii) shall not, and shall not permit any of its
Subsidiaries to, split, combine, or reclassify or take similar
actions with respect to any of its capital stock or issue or
authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its
capital stock, except for any such transaction in the ordinary
course by a wholly-owned Subsidiary of Parent which remains a
wholly-owned Subsidiary after consummation of such transaction
and that does not adversely affect Parent;
(iv) shall not, and shall not permit any of its
Subsidiaries to, adopt a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization, or enter into a letter
of intent or agreement in principle with respect thereto, other
than the Merger and other than any merger, consolidation,
restructurings or reorganizations among Parents
wholly-owned Subsidiaries, in each case, in the ordinary course
and that do not adversely affect Parent;
(v) except for transactions between (x) Parent and its
wholly-owned Subsidiaries or (y) among Parents
wholly-owned Subsidiaries, in each case in the ordinary course
and that do not adversely affect Parent, shall not, and shall
not permit any of its Subsidiaries, to redeem, repurchase,
defease, cancel or otherwise acquire any indebtedness for
borrowed money of Parent or any of its Subsidiaries, other than
(x) at or within 120 days of stated maturity,
(y) any required amortization payments and mandatory
prepayments and (z) indebtedness for borrowed money arising
under the agreements disclosed in Section 5.2(b)(v) of
the Parent Disclosure Schedule, in each case in accordance with
the terms of the instrument governing such indebtedness as in
effect on the date hereof;
(vi) except as made in connection with any transaction
solely between (x) Parent and a wholly-owned Subsidiary of
Parent or (y) between wholly-owned Subsidiaries of Parent,
in each case in the ordinary course and that do not adversely
affect Parent, shall not, and
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shall not permit any of its Subsidiaries to, acquire or agree to
acquire (whether by merger, consolidation, purchase or
otherwise) any person or assets, if (A) the amount to be
expended pursuant thereto (including the amount of any assumed
indebtedness) exceeds $350 million in any one transaction
(or series of related transactions) or $700 million in the
aggregate for all such acquisitions; provided that any
such acquisition would not reasonably be expected, individually
or in the aggregate, to result in a downgrade of Parents
unsecured credit rating below investment grade or (B) any
such acquisition is reasonably likely, individually or in the
aggregate, to materially delay the satisfaction of the
conditions set forth in Section 6.2(g) or
Section 6.3(g) or prevent the satisfaction of such
conditions;
(vii) except for (A) dispositions among Parent and its
wholly-owned Subsidiaries, (B) dispositions among
Parents wholly-owned Subsidiaries, (C) dispositions
of obsolete equipment or assets or dispositions of assets being
replaced, in each case in the ordinary course of business
consistent with past practice, (D) dispositions by Parent
or its Subsidiaries of its assets in accordance with the terms
of restructuring and divestiture plans mandated by applicable
local or state regulatory agencies, (E) Liens arising under
existing first mortgage bond, pollution control bond, solid
waste disposal bond, transition bond or other similar indentures
and related securities and agreements of operating Subsidiaries
of Parent, (F) provisions under existing credit facilities
of Parent and its Subsidiaries that provide for the cash
collateralization of letters of credit upon a default and
(G) dispositions of accounts receivable of Subsidiaries of
Parent under any accounts receivable financing, securitization,
factoring or similar arrangements and Liens associated
therewith, shall not, and shall not permit any of its
Subsidiaries to, sell, lease, license, transfer, exchange or
swap, mortgage (including securitizations), subject to any Lien
or otherwise dispose of any material portion of its material
properties or assets, including the capital stock of
Subsidiaries;
(viii) except as required by the terms of a Parent Benefit
Plan set forth on Section 4.11(a) of the Parent
Disclosure Schedule as of the date of this Agreement, by
applicable Law or in the ordinary course of business consistent
with past practice, shall not, and shall not permit any of its
Subsidiaries to, (A) materially increase the compensation
or other benefits (including equity-based awards), payable or
provided to Parents directors, executive officers,
managers or employees (other than as required by any applicable
collective bargaining agreement), (B) enter into any
employment, change of control, severance or retention agreement
with any current or future employee of Parent (except
(1) for agreements entered into with any newly-hired
employees or replacements or as a result of promotions, in each
case to the extent consistent with past practice, (2) for
employment agreements terminable on less than 30 days
notice without penalty (3) for severance agreements entered
into in the ordinary course of business consistent with past
practice with employees who are not executive officers, in
connection with terminations of employment, (4) renewals of
existing severance agreements or (5) employment or
severance agreements entered into in the ordinary course of
business consistent with past practice with executive officers,
provided that such agreements will not result in payments
solely as a result of the consummation of the Transactions),
(C) establish, adopt, enter into, accelerate any rights or
benefits under, or amend (other than any amendment that is
immaterial or administrative in nature) any plan, policy,
program or arrangement for the benefit of any current or former
directors, officers or employees or any of their beneficiaries,
except as permitted pursuant to clause (B) above, or
(D) enter into,
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accelerate any rights or benefits under, amend or renew any
collective bargaining agreements except in the ordinary course
of business;
(ix) except for transactions (x) among Parent and its
wholly-owned (directly or indirectly) Subsidiaries or
(y) among Parents wholly-owned (directly or
indirectly) Subsidiaries, in each case in the ordinary course
and that do not adversely affect Parent, shall not, and shall
not permit any of its Subsidiaries to, issue, sell, pledge,
dispose of or encumber, or authorize the issuance, sale, pledge,
disposition or encumbrance of, any shares of its capital stock
or other ownership interest in Parent or any of its Subsidiaries
or any securities convertible into or exchangeable for any such
shares or ownership interest, or any rights, warrants or options
to acquire or with respect to any such shares of capital stock,
ownership interest or convertible or exchangeable securities or
take any action to cause to be exercisable any otherwise
unexercisable option under any existing stock option plan
(except as otherwise provided by the terms of this Agreement, as
required by the terms of any Parent Benefit Plan, or the express
terms of any unexercisable or unexercised options outstanding on
the date hereof), other than (A) issuances of shares of
Parent Common Stock in respect of any exercise of Parent Stock
Options and settlement of any restricted share units, phantom
shares, restricted stock or similar equity awards with respect
to shares of Parent Common Stock outstanding on the date hereof
or as may be granted after the date hereof as permitted under
this Section 5.2(b), (B) the sale of shares of
Parent Common Stock pursuant to the exercise of options
exercisable into, or the vesting of awards with respect to,
Parent Common Stock, to purchase Parent Common Stock if
necessary to effectuate an optionee direction upon exercise or
for withholding of Taxes and (C) the grant of equity
compensation awards in the ordinary course of business in
accordance with Parents customary compensation practices,
provided that any such awards granted after the date
hereof shall be granted on terms pursuant to which such awards
shall not vest or accelerate as a result of the Merger or the
occurrence of the Closing;
(x) except for transactions (x) among Parent and its
wholly-owned Subsidiaries or (y) among Parents
wholly-owned Subsidiaries, in each case in the ordinary course
and that do not adversely affect Parent, shall not, and shall
not permit any of its Subsidiaries to, directly or indirectly,
purchase, redeem or otherwise acquire any shares of the capital
stock of any of them or any rights or options to acquire any
such shares;
(xi) shall not, and shall not permit any of its
Subsidiaries to, (A) create, incur, assume, suffer to exist
or otherwise be liable with respect to any indebtedness for
borrowed money or guarantees thereof or enter into any
keep well or other agreement to maintain any
financial condition of another person or enter into any
arrangement having the economic effect of any of the foregoing
(including any capital leases, synthetic leases or
conditional sale or other title retention agreement) or issue or
sell any debt securities, other than (1) in the ordinary
course of business consistent with past practice,
(2) indebtedness incurred by any Subsidiary of Parent under
any loan permitted by clause (B) in this
Section 5.2(b)(xi), (3) in connection with a
refinancing of existing indebtedness on commercially reasonable
terms or (4) for borrowings under Parents and its
Subsidiaries existing commercial paper programs or
revolving credit facilities, provided in the case of each
of clauses (1) through (4) such actions are not
reasonably likely to cause any two of Fitch Ratings, Ltd.,
Standard & Poors or Moodys Investors
Service to recognize the Parents corporate credit rating
to be less than investment grade; or (B) other than in
connection with actions permitted by
Section 5.2(b)(vi) make any
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loans, advances or capital contributions to, or investments in,
any other person, other than (1) in the ordinary course of
business consistent with past practice, (2) between Parent
and its wholly-owned Subsidiaries or between Parents
wholly-owned Subsidiaries, or (3) as required pursuant to
any obligation in effect as of the date of this Agreement;
(xii) shall not, and shall not permit any of its
Subsidiaries to, materially change financial accounting policies
or procedures or any of its methods of reporting income,
deductions or other material items for financial accounting
purposes, except as required by GAAP, SEC rule or policy or
applicable Law (except for any normal purchase/normal sale
designation or designation of hedge accounting relationships for
derivatives);
(xiii) shall not amend or terminate the Parent Trading
Policies, or take any action that materially violates the Parent
Trading Policies or that causes the Net Parent Position to be
materially outside the risk parameters set forth in the Parent
Trading Policies;
(xiv) except (x) as required by applicable Law or
(y) as would not reasonably be expected to be materially
adverse to Parent and its Subsidiaries taken as a whole, shall
not, and shall not permit any of its Subsidiaries to,
(A) settle or compromise any claim, action or proceeding
relating to Taxes, (B) make, change or revoke any Tax
election, except in the ordinary course of business,
(C) change any methods of Tax accounting, except as
required by GAAP, (D) file any amended Tax Return,
(E) enter into any closing agreement affecting any Tax
liability or refund or (F) extend or waive the application
of any statute of limitations regarding the assessment or
collection of any Tax (this clause (xiv) being the sole
provision of this Section 5.2(b) governing Tax
matters);
(xv) shall not, and shall not permit any of its
Subsidiaries to, pay or settle any material legal proceedings,
other than payments or settlements (A) that do not exceed
$30 million individually or $70 million in the
aggregate in any consecutive
12-month
period, (B) that have become due and payable prior to the
date hereof or (C) in connection with regulatory
proceedings before any Governmental Entities; (provided
that the exceptions set forth in clauses (A), (B) and
(C) shall not apply to any proceedings arising out of or
related to this Agreement or the Transactions);
(xvi) shall not, and shall not permit any of its
Subsidiaries to, (A) enter into any new line of business or
(B) conduct any business outside the United States except
in the ordinary course of business consistent with past practice;
(xvii) shall, and shall cause its Subsidiaries, to maintain
with financially responsible insurance companies (or through
self-insurance not inconsistent with such partys past
practice), insurance in such amounts and against such risks and
losses as are customary for companies engaged in the utility
industry;
(xviii) shall not, and shall not permit its Subsidiaries
to, enter into or amend any contract, or take any other action,
if such contract, amendment of a contract or action would
reasonably be expected to prevent or materially impede,
interfere with, hinder or delay the consummation of the Merger
or the Transactions; and
(xix) shall not, and shall not permit any of its
Subsidiaries to, agree or commit, in writing or otherwise, to
take any of the foregoing actions.
Section 5.3 Investigation.
(a) Each of the Company and Parent shall afford the other
party and (x) the officers and employees and (y) the
accountants, consultants, legal counsel, financial advisors and
agents and
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other representatives (such persons described in this clause
(y), collectively, Representatives) of such
other party reasonable access during normal business hours,
throughout the period prior to the earlier of the Effective Time
and the Termination Date, to its and its Subsidiaries
personnel and properties, contracts, commitments, books and
records and any report, schedule or other document filed or
received by it pursuant to the requirements of applicable Laws
and with such additional accounting, financing, operating and
other data and information regarding the Company and its
Subsidiaries, as Parent may reasonably request, and Parent and
its Subsidiaries, as the Company may reasonably request, as the
case may be. Consistent with applicable Law, each of Parent and
the Company shall, and shall cause each of its respective
Subsidiaries to, (i) confer, on a reasonable basis, with
one or more representatives of the other party to discuss
material operational and regulatory matters and the general
status of its ongoing operations for purposes related to the
completion of the Transactions (including a partys
assessment of the proper accounting for such transactions, any
public disclosures that a party is required to make regarding
such transactions and reasonable access to management and
systems needed for integration planning) or the fulfillment of
its obligations under this Agreement and (ii) furnish
promptly all other information concerning its business,
properties and personnel, in each case as such other party may
reasonably request in connection with activities relating to the
completion of the Transactions or the fulfillment of its
obligations under this Agreement. The Company shall afford
Parent and its officers, employees and Representatives access to
the Companys and its Subsidiaries properties for the
purpose of performing environmental site assessments,
provided, however, that such assessments shall not
include environmental sampling or testing unless expressly
authorized by the Company. Notwithstanding the foregoing,
neither the Company nor Parent shall be required to afford the
access described in this Section 5.3 if it would
unreasonably disrupt the operations of such party or any of its
Subsidiaries, would cause a violation of any agreement to which
such party or any of its Subsidiaries is a party, would cause a
risk of a loss of privilege to such party or any of its
Subsidiaries or would constitute a violation of any applicable
Law.
(b) The parties hereto hereby agree that all information
provided to them or their respective officers, directors,
employees or Representatives in connection with this Agreement
and the consummation of the Transactions shall be deemed to be
Proprietary Information, as such term is used
in, and shall be treated in accordance with, the Confidentiality
Agreement, dated as of January 8, 2010, between the Company
and Parent (the Confidentiality Agreement).
Section 5.4 Non-Solicitation by the
Company.
(a) The Company agrees that neither it nor any Subsidiary
of the Company, nor any of their respective officers, directors
or employees, shall, and that it shall use its reasonable best
efforts to cause its and their respective Representatives not to
(and shall not authorize or permit its and their respective
Representatives to), directly or indirectly: (i) solicit,
initiate, seek or knowingly encourage (including by way of
furnishing information) or knowingly take any other action
designed to facilitate any inquiries or the making, submission
or announcement of any Company Acquisition Proposal,
(ii) furnish any nonpublic information regarding the
Company or any of its Subsidiaries to any person (other than
Parent or Merger Sub) in connection with or in response to a
Company Acquisition Proposal, (iii) engage or participate
in any discussions or negotiations with any person (other than
Parent or Merger Sub) with respect to any Company Acquisition
Proposal, (iv) approve, endorse or recommend any Company
Acquisition Proposal or (v) enter into any letter of
intent, agreement in principle or other agreement providing for
any Company Acquisition Transaction (except as contemplated by
Section 7.1(j)); provided,
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however, that this Section 5.4 shall not
prohibit (A) the Company, or the Board of Directors of the
Company, directly or indirectly through any officer, employee or
Representative, prior to the receipt of the Company Stockholder
Approval, from furnishing nonpublic information regarding the
Company or any of its Subsidiaries to, or entering into or
participating in discussions or negotiations with, any person in
response to an unsolicited, bona fide written Company
Acquisition Proposal that the Board of Directors of the Company
concludes in good faith, after consultation with its financial
advisors, constitutes or is reasonably likely to lead to a
Company Superior Offer if (1) the Board of Directors of the
Company concludes in good faith, after consultation with its
outside legal counsel, that the failure to take such action with
respect to such Company Acquisition Proposal would be reasonably
likely to be inconsistent with the exercise by the Board of
Directors of their duties under applicable Laws, (2) such
Company Acquisition Proposal did not result from a breach of
this Section 5.4(a) (other than any such breach that
is unintentional and immaterial in effect), (3) the Company
gives to Parent the notice required by
Section 5.4(b), and (4) the Company furnishes
any nonpublic information provided to the maker of the Company
Acquisition Proposal only pursuant to a confidentiality
agreement between the Company and such person on terms no less
favorable to the Company than the Confidentiality Agreement
(provided that such confidentiality agreement shall not
in any way restrict the Company from complying with its
disclosure obligations under this Agreement, including with
respect to such proposal), and such furnished information is
delivered to Parent at substantially the same time (to the
extent such information has not been previously furnished or
made available by the Company to Parent); or (B) the
Company from taking and disclosing to its stockholders a
position contemplated by
Rule 14d-9
and
Rule 14e-2(a)
promulgated under the Exchange Act with regard to any Company
Acquisition Proposal, provided, however, that
compliance with such rules shall not in any way limit or modify
the effect that any action taken pursuant to such rules has
under any other provision of this Agreement and in no event
shall the Company or the Company Board of Directors or a
committee thereof take any action that would constitute a
Company Change in Recommendation in respect of a Company
Acquisition Proposal other than in compliance with
Section 5.4(d).
(b) The Company shall promptly, and in no event later than
24 hours after its receipt of any Company Acquisition
Proposal, or any request for nonpublic information relating to
the Company or any of its Subsidiaries in connection with a
Company Acquisition Proposal, advise Parent orally and in
writing of such Company Acquisition Proposal or request,
including providing the identity of the person making or
submitting such Company Acquisition Proposal or request, and,
(x) if it is in writing, a copy of such Company Acquisition
Proposal and any related draft agreements and (y) if oral,
a reasonably detailed summary of any such Company Acquisition
Proposal or request that is made or submitted by any person
during the period between the date hereof and the Closing. The
Company shall (i) keep Parent informed in all material
respects on a prompt basis with respect to any change to the
status or material terms of any such Company Acquisition
Proposal (and in no event later than 24 hours following any
such change), (ii) provide to Parent as soon as practicable
after receipt or delivery thereof with copies of all
correspondence and other written material sent or provided to
the Company from any third party in connection with any Company
Acquisition Proposal or sent or provided by the Company to any
third party in connection with any Company Acquisition Proposal
and (iii) provide Parent with advance written notice of any
scheduled meeting of the Company Board of Directors to discuss a
Company Acquisition Proposal.
(c) Upon the execution of this Agreement, the Company
shall, and shall cause its Subsidiaries and its and their
respective officers, directors and employees, and shall use its
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reasonable best efforts to cause its and their respective
Representatives to, immediately cease and terminate any
discussions existing as of the date of this Agreement between
the Company or any of its Subsidiaries or any of their
respective officers, directors, employees or Representatives and
any person (other than Parent) that relate to any Company
Acquisition Proposal and, to the extent provided by the
applicable confidentiality agreement or similar agreement
governing such discussions, require any third party to such
discussions to return to the Company or to destroy all
confidential information of the Company and its Subsidiaries.
The Company agrees not to, and to cause its Subsidiaries not to,
waive, or otherwise release any third party from, the
confidentiality and standstill provisions of any agreement to
which the Company or any of its Subsidiaries is or may become a
party and agrees to use commercially reasonable efforts to
enforce the provisions of such agreements.
(d) Except as contemplated by this
Section 5.4(d), neither the Board of Directors of
the Company nor any committee thereof shall (i)
(A) withhold, withdraw, qualify or modify, or resolve to or
publicly propose to withhold, withdraw, qualify or modify the
Company Recommendation in a manner adverse to Parent,
(B) make any other public statement in connection with the
Company Stockholders Meeting or this Agreement or the
Transactions inconsistent with the Company Recommendation,
(C) approve, adopt or recommend any Company Acquisition
Proposal or (D) fail to reaffirm or re-publish the Company
Recommendation within five days of being requested by Parent to
do so (each such action set forth in clauses (A) through
(D) above being a Company Change of
Recommendation) or (ii) approve, adopt or
recommend, or publicly propose to approve, adopt or recommend, a
merger agreement, letter of intent, agreement in principle,
share purchase agreement, asset purchase agreement, share
exchange agreement, option agreement or other similar contract
(other than the confidentiality agreement referred to in
Section 5.4(a)) or any tender offer providing for,
with respect to, or in connection with any Company Acquisition
Proposal. Notwithstanding the foregoing, the Board of Directors
of the Company may at any time prior to receipt of the Company
Stockholder Approval, in respect of a Company Acquisition
Proposal, (i) make a Company Change of Recommendation and
(ii) terminate this Agreement pursuant to
Section 7.1(j) of this Agreement, if (and only if):
(A) a Company Acquisition Proposal is made to the Company
by a third party, and such offer is not withdrawn; (B) the
Companys Board of Directors determines in good faith after
consultation with its financial advisors that such offer
constitutes a Company Superior Offer; (C) following
consultation with outside legal counsel, the Companys
Board of Directors determines that the failure to make a Company
Change of Recommendation, or to terminate this Agreement
pursuant to Section 7.1(j) of this Agreement, would
be reasonably likely to be inconsistent with the exercise of its
duties under applicable Laws, (D) the Company Board of
Directors has provided to Parent five business days prior
written notice of its intent to effect a Company Change of
Recommendation (which notice shall include the reasonable
details regarding the cause for, and nature of, the Company
Change of Recommendation and, if requested by Parent, negotiated
in good faith with Parent during such five business day period
regarding revisions to this Agreement which would avoid such
Company Change of Recommendation; and (E) the Company Board
of Directors has provided to Parent advance written notice of
such Company Change of Recommendation at least two hours prior
thereto. The Board of Directors of the Company may not, in
respect of a Company Acquisition Proposal, make a Company Change
of Recommendation in a manner adverse to Parent except in
compliance in all respects with this Section 5.4(d).
For the avoidance of doubt, a change of the Company
Recommendation to neutral is a Company Change of
Recommendation.
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(e) Nothing in this Agreement shall prohibit or restrict
the Board of Directors of the Company, at any time prior to
receipt of the Company Stockholder Approval, in circumstances
not involving or relating to a Company Acquisition Proposal,
from effecting a Company Change of Recommendation if the Board
of Directors of the Company determines in good faith (after
consultation with outside legal counsel) that failure to take
such action would be reasonably likely to be inconsistent with
the exercise by the Board of Directors of its duties under
applicable Laws if (and only if): (A) the Company Board of
Directors has provided to Parent five business days prior
written notice of its intent to effect a Company Change of
Recommendation (which notice shall include the reasonable
details regarding the cause for, and nature of, the Company
Change of Recommendation) and, if requested by Parent,
negotiated in good faith with Parent during such five business
day period regarding revisions to this Agreement that would
avoid such Company Change of Recommendation and (B) the
Company Board of Directors has provided to Parent advance
written notice of such Company Change of Recommendation at least
two hours prior thereto.
(f) As used in this Agreement:
(i) Company Acquisition Proposal shall
mean any bona fide offer, inquiry, proposal or indication of
interest received from a third party (other than an offer,
inquiry, proposal or indication of interest by a party to this
Agreement) relating to any Company Acquisition Transaction;
(ii) Company Acquisition Transaction
shall mean any transaction or series of transactions involving:
(a) any merger, consolidation, share exchange,
recapitalization, business combination or similar transaction
involving the Company other than the Transactions; (b) any
direct or indirect acquisition of securities, tender offer,
exchange offer or other similar transaction in which a person or
Group (as defined in the Exchange Act) of
persons directly or indirectly acquires beneficial or record
ownership of securities representing twenty percent (20%) or
more of any class of equity securities of the Company;
(c) any direct or indirect acquisition of any business or
businesses or of assets that constitute or account for twenty
percent (20%) or more of the consolidated net revenues, net
income or assets of the Company and its Subsidiaries, taken as a
whole; or (d) any liquidation or dissolution of the Company
or any of its Subsidiaries; and
(iii) Company Superior Offer shall mean
a Company Acquisition Proposal to acquire at least a majority of
the outstanding equity securities or assets of the Company on
terms that the Companys Board of Directors determines, in
good faith, after consultation with its outside legal counsel
and its financial advisor, is more favorable, from a financial
point of view, to the Companys stockholders than the
Merger and the Transactions (including any proposal by Parent to
amend the terms of this Agreement which are committed to in
writing) and is reasonably likely to be consummated, taking into
account, (a) all financial considerations and financial
aspects of such Company Acquisition Proposal and the Merger and
other Transactions, (b) all strategic considerations,
including whether such Company Acquisition Proposal is more
favorable from a long-term strategic standpoint, (c) all
legal and regulatory considerations of such Company Acquisition
Proposal and the Merger and other Transactions, (d) the
identity of the third party making such Company Acquisition
Proposal, (e) the conditions and likelihood of completion
of such Company Acquisition Proposal as compared to the Merger
and other Transactions (taking into account any necessary
regulatory approvals), (f) whether such Company Acquisition
Proposal is likely to impose material obligations on the Company
(or the post-closing entity in which the Companys
stockholders will hold securities) in connection with
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obtaining necessary regulatory approvals, (g) whether such
Company Acquisition Proposal is subject to a financing condition
and the likelihood of such Company Acquisition Proposal being
financed, and (h) the payment of any Company Termination
Fee, if relevant.
Section 5.5 Non-Solicitation by Parent.
(a) Parent agrees that neither it nor any Subsidiary of
Parent, nor any of their respective officers, directors or
employees, shall, and that it shall use its reasonable best
efforts to cause its and their respective Representatives not to
(and shall not authorize or permit its and their respective
Representatives to), directly or indirectly: (i) solicit,
initiate, seek or knowingly encourage (including by way of
furnishing information) or knowingly take any other action
designed to facilitate any inquiries or the making, submission
or announcement of any Parent Acquisition Proposal,
(ii) furnish any nonpublic information regarding Parent or
any of its Subsidiaries to any person (other than the Company)
in connection with or in response to a Parent Acquisition
Proposal, (iii) engage or participate in any discussions or
negotiations with any person (other than the Company) with
respect to any Parent Acquisition Proposal, (iv) approve,
endorse or recommend any Parent Acquisition Proposal or
(v) enter into any letter of intent, agreement in principle
or other agreement providing for any Parent Acquisition
Transaction (except as contemplated by
Section 7.1(k)); provided,
however, that this Section 5.5 shall not
prohibit (A) Parent, or the Board of Directors of Parent,
directly or indirectly through any officer, employee or
Representative, prior to the receipt of the Parent Shareholder
Approval, from furnishing nonpublic information regarding Parent
or any of its Subsidiaries to, or entering into or participating
in discussions or negotiations with, any person in response to
an unsolicited, bona fide written Parent Acquisition Proposal
that the Board of Directors of Parent concludes in good faith,
after consultation with its financial advisors, constitutes or
is reasonably likely to lead to a Parent Superior Offer if
(1) the Board of Directors of Parent concludes in good
faith, after consultation with its outside legal counsel, that
the failure to take such action with respect to such Parent
Acquisition Proposal would be reasonably likely to be
inconsistent with the exercise by the Board of Directors of
their fiduciary duties under applicable Laws, (2) such
Parent Acquisition Proposal did not result from a breach of this
Section 5.5(a) (other than any such breach that is
unintentional and immaterial in effect), (3) Parent gives
to the Company the notice required by
Section 5.5(b), and (4) Parent furnishes any
nonpublic information provided to the maker of the Parent
Acquisition Proposal only pursuant to a confidentiality
agreement between Parent and such person on terms no less
favorable to Parent than the Confidentiality Agreement
(provided that such confidentiality agreement shall not
in any way restrict Parent from complying with its disclosure
obligations under this Agreement, including with respect to such
proposal), and such furnished information is delivered to the
Company at substantially the same time (to the extent such
information has not been previously furnished or made available
by Parent to the Company); or (B) Parent from taking and
disclosing to its shareholders a position contemplated by
Rule 14d-9
and
Rule 14e-2(a)
promulgated under the Exchange Act with regard to any Parent
Acquisition Proposal, provided, however, that
compliance with such rules shall not in any way limit or modify
the effect that any action taken pursuant to such rules has
under any other provision of this Agreement and in no event
shall Parent or the Parent Board of Directors or a committee
thereof take any action that would constitute a Parent Change in
Recommendation in respect of a Parent Acquisition Proposal other
than in compliance with Section 5.5(d).
(b) Parent shall promptly, and in no event later than
24 hours after its receipt of any Parent Acquisition
Proposal, or any request for nonpublic information relating to
Parent or any
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of its Subsidiaries in connection with a Parent Acquisition
Proposal, advise the Company orally and in writing of such
Parent Acquisition Proposal or request, including providing the
identity of the person making or submitting such Parent
Acquisition Proposal or request, and, (x) if it is in
writing, a copy of such Parent Acquisition Proposal and any
related draft agreements and (y) if oral, a reasonably
detailed summary of any such Parent Acquisition Proposal or
request that is made or submitted by any person during the
period between the date hereof and the Closing. Parent shall
(i) keep the Company informed in all material respects on a
prompt basis with respect to any change to the status or
material terms of any such Parent Acquisition Proposal (and in
no event later than 24 hours following any such change),
(ii) provide to the Company as soon as practicable after
receipt or delivery thereof with copies of all correspondence
and other written material sent or provided to Parent from any
third party in connection with any Parent Acquisition Proposal
or sent or provided by Parent to any third party in connection
with any Parent Acquisition Proposal and (iii) provide the
Company with advance written notice of any scheduled meeting of
the Parent Board of Directors to discuss a Parent Acquisition
Proposal.
(c) Upon the execution of this Agreement, Parent shall, and
shall cause its Subsidiaries and its and their respective
officers, directors and employees, and shall use its reasonable
best efforts to cause its and their respective Representatives
to, immediately cease and terminate any discussions existing as
of the date of this Agreement between Parent or any of its
Subsidiaries or any of their respective officers, directors,
employees or Representatives and any person (other than the
Company) that relate to any Parent Acquisition Proposal and, to
the extent provided by the applicable confidentiality agreement
or similar agreement governing such discussions, require any
third party to such discussions to return to Parent or to
destroy all confidential information of Parent and its
Subsidiaries. Parent agrees not to, and to cause its
Subsidiaries not to, waive, or otherwise release any third party
from, the confidentiality and standstill provisions of any
agreement to which Parent or any of its Subsidiaries is or may
become a party and agrees to use commercially reasonable efforts
to enforce the provisions of such agreements.
(d) Except as contemplated by this
Section 5.5(d), neither the Board of Directors of
Parent nor any committee thereof shall (i) (A) withhold,
withdraw, qualify or modify, or resolve to or publicly propose
to withhold, withdraw, qualify or modify the Parent
Recommendation in a manner adverse to the Company, (B) make
any other public statement in connection with the Parent
Shareholders Meeting or this Agreement or the Transactions
inconsistent with the Parent Recommendation, (C) approve,
adopt or recommend any Parent Acquisition Proposal or
(D) fail to reaffirm or re-publish the Parent
Recommendation within five days of being requested by the
Company to do so (each such action set forth in clauses (A)
through (D) above being a Parent Change of
Recommendation) or (ii) approve, adopt or
recommend, or publicly propose to approve, adopt or recommend, a
merger agreement, letter of intent, agreement in principle,
share purchase agreement, asset purchase agreement, share
exchange agreement, option agreement or other similar contract
(other than the confidentiality agreement referred to in
Section 5.5(a)) or any tender offer providing for,
with respect to, or in connection with any Parent Acquisition
Proposal. Notwithstanding the foregoing, the Board of Directors
of Parent may at any time prior to receipt of the Parent
Shareholder Approval, in respect of a Parent Acquisition
Proposal, make a Parent Change of Recommendation and
(ii) terminate this Agreement pursuant to
Section 7.1(k) of this Agreement, if (and only if):
(A) a Parent Acquisition Proposal is made to Parent by a
third party, and such offer is not withdrawn;
(B) Parents Board of Directors determines in good
faith after consultation with its financial advisors that such
offer constitutes a Parent Superior Offer; (C) following
consultation with
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outside legal counsel, Parents Board of Directors
determines that the failure to make a Parent Change of
Recommendation, or to terminate this Agreement pursuant to
Section 7.1(k) of this Agreement, would be
reasonably likely to be inconsistent with the exercise of its
fiduciary duties under applicable Laws, (D) the Parent
Board of Directors has provided to the Company five business
days prior written notice of its intent to effect a Parent
Change of Recommendation (which notice shall include the
reasonable details regarding the cause for, and nature of, the
Parent Change of Recommendation and, if requested by the
Company, negotiated in good faith with the Company during such
five business day period regarding revisions to this Agreement
which would avoid such Parent Change of Recommendation and
(E) the Parent Board of Directors has provided to the
Company advance written notice of such Parent Change of
Recommendation at least two hours prior thereto. The Board of
Directors of Parent may not, in respect of Parent Acquisition
Proposal, make a Parent Change of Recommendation in a manner
adverse to the Company except in compliance in all respects with
this Section 5.5(d). For the avoidance of doubt, a
change of the Parent Recommendation to neutral is a
Parent Change of Recommendation.
(e) Nothing in this Agreement shall prohibit or restrict
the Board of Directors of Parent, at any time prior to receipt
of the Parent Shareholder Approval, in circumstances not
involving or relating to a Parent Acquisition Proposal, from
effecting a Parent Change of Recommendation if the Board of
Directors of Parent determines in good faith (after consultation
with outside legal counsel) that failure to take such action
would be reasonably likely to be inconsistent with the exercise
by the Board of Directors of its fiduciary duties under
applicable Laws if (and only if): (A) the Parent Board of
Directors has provided to the Company five business days prior
written notice of its intent to effect a Parent Change of
Recommendation (which notice shall include the reasonable
details regarding the cause for, and nature of, the Parent
Change of Recommendation and, if requested by the Company,
negotiated in good faith with the Company during such five
business day period regarding revisions to this Agreement that
would avoid such Parent Change of Recommendation and
(B) the Parent Board of Directors has provided to the
Company advance written notice of such Parent Change of
Recommendation at least two hours prior thereto.
(f) As used in this Agreement:
(i) Parent Acquisition Proposal shall
mean any bona fide offer, inquiry, proposal or indication of
interest received from a third party (other than an offer,
inquiry, proposal or indication of interest by a party to this
Agreement) relating to any Parent Acquisition Transaction;
(ii) Parent Acquisition Transaction
shall mean any transaction or series of transactions involving:
(a) any merger, consolidation, share exchange,
recapitalization, business combination or similar transaction
involving Parent other than the Transactions; (b) any
direct or indirect acquisition of securities, tender offer,
exchange offer or other similar transaction in which a person or
Group (as defined in the Exchange Act) of persons
directly or indirectly acquires beneficial or record ownership
of securities representing twenty percent (20%) or more of any
class of equity securities of Parent; (c) any direct or
indirect acquisition of any business or businesses or of assets
that constitute or account for twenty percent (20%) or more of
the consolidated net revenues, net income or assets of Parent
and its Subsidiaries, taken as a whole or (d) any
liquidation or dissolution of Parent or any of its
Subsidiaries; and
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(iii) Parent Superior Offer shall mean a
Parent Acquisition Proposal to acquire at least a majority of
the outstanding equity securities or assets of Parent on terms
that Parents Board of Directors determines, in good faith,
after consultation with its outside legal counsel and its
financial advisor, is more favorable, from a financial point of
view, to Parents shareholders than the Merger and the
Transactions (including any proposal by the Company to amend the
terms of this Agreement which are committed to in writing) and
is reasonably likely to be consummated, taking into account
(a) all financial considerations and financial aspects of
such Parent Acquisition Proposal and the Merger and other
Transactions, (b) all strategic considerations, including
whether such Parent Acquisition Proposal is more favorable from
a long-term strategic standpoint, (c) all legal and
regulatory considerations of such Parent Acquisition Proposal
and the Merger and other Transactions, (d) the identity of
the third party making such Parent Acquisition Proposal,
(e) the conditions and likelihood of completion of such
Parent Acquisition Proposal as compared to the Merger and other
Transactions (taking into account any necessary regulatory
approvals), (f) whether such Parent Acquisition Proposal is
likely to impose material obligations on Parent (or the
post-closing entity in which Parents shareholders will
hold securities) in connection with obtaining necessary
regulatory approvals, (g) whether such Parent Acquisition
Proposal is subject to a financing condition and the likelihood
of such Parent Acquisition Proposal being financed, and
(h) the payment of any Parent Termination Fee, if relevant.
Section 5.6 Filings; Other Actions.
(a) As soon as reasonably practicable following the date of
this Agreement, Parent and the Company shall prepare and file
with the SEC the Joint Proxy Statement, and Parent shall prepare
and file with the SEC the
Form S-4,
in which the Joint Proxy Statement will be included as a
prospectus. Each of Parent and the Company shall use reasonable
best efforts to have the
Form S-4
declared effective under the Securities Act as promptly as
reasonably practicable after such filing and to keep the
Form S-4
effective as long as necessary to consummate the Transactions.
Parent will cause the Joint Proxy Statement to be mailed to
Parents shareholders, and the Company will cause the Joint
Proxy Statement to be mailed to the Companys stockholders,
in each case as promptly as reasonably practicable after the
Form S-4
is declared effective under the Securities Act. Parent shall
also take any action required to be taken under any applicable
state or provincial securities laws in connection with the
issuance and reservation of shares of Parent Common Stock in the
Merger and the conversion of Company Stock Options into options
for shares of Parent Common Stock, the conversion of the
Restricted Shares into shares of Parent Common Stock as set
forth in Section 5.7(a)(ii) and the conversion of
the Company Performance Shares and Company RSUs into shares of
Parent Common Stock as set forth in
Section 5.7(a)(iii), and the Company shall furnish
all information concerning the Company and the holders of
Company Common Stock as may be reasonably requested in
connection with any such action. Except for annual, quarterly
and current reports filed or furnished with the SEC under the
Exchange Act, which may be incorporated by reference therein
(but subject to Section 5.10), no filing of, or
amendment or supplement to, the
Form S-4
or the Joint Proxy Statement will be made by Parent or the
Company, as applicable, without the others prior consent
(which shall not be unreasonably withheld, delayed or
conditioned) and without providing the other the opportunity to
review and comment thereon. Parent or the Company, as
applicable, will advise the other promptly after it receives
oral or written notice of the time when the
Form S-4
has become effective or any supplement or amendment has been
filed, the issuance of any stop order, the suspension of the
qualification of the Parent Common Stock issuable in connection
with the
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Merger for offering or sale in any jurisdiction, or any oral or
written request by the SEC for amendment of the Joint Proxy
Statement or the
Form S-4
or comments thereon and responses thereto or requests by the SEC
for additional information, and will promptly provide the other
with copies of any written communication from the SEC or any
state securities commission. If at any time prior to the
Effective Time any information relating to Parent or the
Company, or any of their respective affiliates, officers or
directors, should be discovered by Parent or the Company which
should be set forth in an amendment or supplement to any of the
Form S-4
or the Joint Proxy Statement, so that any of such documents
would not include any misstatement of a material fact or omit to
state any material fact necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading, the party which discovers such information
shall promptly notify the other parties hereto and an
appropriate amendment or supplement describing such information
shall be promptly filed with the SEC and, to the extent required
by law, disseminated to the respective stockholders of Parent
and the Company.
(b) Each of the Company and Parent shall, as promptly as
practicable after the
Form S-4
is declared effective under the Securities Act, take all action
necessary in accordance with applicable Laws and the Company
Organizational Documents, in the case of the Company, and the
Parent Organizational Documents, in the case of Parent, to duly
give notice of, convene and hold a meeting of its stockholder or
shareholders, respectively, to be held as promptly as
practicable to consider, in the case of Parent, the
authorization and approval of the Stock Issuance and the other
Transactions and the adoption of the Charter Amendment (the
Parent Shareholders Meeting) and, in
the case of the Company, the adoption of this Agreement and the
approval of the Transactions including the Merger (the
Company Stockholders Meeting). Except
in the case of a Company Change of Recommendation in accordance
with the terms of this Agreement, the Company will, through its
Board of Directors, recommend that its stockholders adopt this
Agreement and will use reasonable best efforts to solicit from
its stockholders proxies in favor of the adoption of this
Agreement and to take all other action necessary or advisable to
secure the vote or consent of its stockholders required by the
rules of the NYSE or applicable Laws to obtain such approvals.
Except in the case of a Parent Change of Recommendation in
accordance with the terms of this Agreement, Parent will,
through its Board of Directors, recommend that its shareholders
authorize and approve the Stock Issuance and the other
Transactions and adopt the Charter Amendment, and will use
reasonable best efforts to solicit from its shareholders proxies
in favor of the Stock Issuance and the Charter Amendment and to
take all other action necessary or advisable to secure the vote
or consent of its shareholders required by the rules of the NYSE
or applicable Laws to obtain such approvals.
(c) Each of the Company and Parent will use reasonable best
efforts to hold the Company Stockholders Meeting and the
Parent Shareholders Meeting, respectively, on the same
date as the other party and as soon as reasonably practicable
after the date of this Agreement.
(d) The Company shall take all action necessary to comply
timely with applicable notification requirements under
applicable Law in respect of any Company Benefit Plan holding
Company Common Stock, including causing any Company Benefit Plan
administrator to issue any such notices.
Section 5.7 Stock Options and Other
Stock-Based Awards; Employee Matters.
(a) Stock Options and Other Stock-Based Awards.
(i) Each option to purchase shares of Company Common Stock
(each, a Company Stock Option) granted under
the employee and director stock plans of the Company (the
A-56
Company Stock Plans), whether vested or
unvested, that is outstanding immediately prior to the Effective
Time shall, as of the Effective Time, automatically and without
any action on the part of the holder thereof, be amended and
converted into an option to acquire, on the same terms and
conditions as were applicable under such Company Stock Option
(giving effect to any terms and conditions resulting from the
Transactions), the number of shares of Parent Common Stock
(rounded down to the nearest whole share) equal to the product
of the number of shares of Company Common Stock subject to such
Company Stock Option and the Exchange Ratio, at an exercise
price per share of Parent Common Stock (rounded up to the
nearest whole cent) equal to the quotient obtained by dividing
the aggregate exercise price for the shares of Company Common
Stock subject to such Company Stock Option by the Exchange Ratio
(each, as so adjusted, an Adjusted Option).
The adjustments provided in this Section 5.7(a)(i) with
respect to any Company Stock Option to which Section 409A
or 421(a) of the Code applies shall be and are intended to be
effected in a manner which is consistent with Section 409A
and 424(a) of the Code, respectively. As soon as practicable
following the Effective Time, Parent shall deliver to the
holders of Adjusted Options appropriate notices setting forth
such holders rights pursuant to the respective Company
Stock Plans and the agreements evidencing the grants of such
Adjusted Options, which shall provide, among other things, that
such Adjusted Options and agreements have been assumed by Parent
and shall continue in effect on the same terms and conditions
(subject to the adjustments required by this
Section 5.7(a)(i) after giving effect to the Merger
and giving effect to any terms and conditions resulting from the
Transactions).
(ii) At the Effective Time, each award of restricted
Company Common Stock granted under a Company Stock Plan that is
outstanding immediately prior to the Effective Time (the
Restricted Shares) shall, automatically and
without any action on the part of the holder thereof, be
converted into the right to receive, on the same terms and
conditions as were applicable under such Restricted Shares
(giving effect to any terms and conditions resulting from the
Transactions), a number of shares of Parent Common Stock (and
cash in lieu of fractional shares), restricted, as applicable
after giving effect to any terms and conditions resulting from
the Transactions, equal to the product of (A) the total
number of shares of Company Common Stock subject to such grant
of Restricted Shares and (B) the Exchange Ratio;
provided, that, unless the holder shall have remitted to
the Company the amount required to be withheld with respect to
the making of such payment under the Code or any provision of
state, local or foreign tax Law, such number of shares of Parent
Common Stock shall be reduced by a number of shares of Parent
Common Stock equal to the amount required to be deducted and
withheld with respect to the making of such payment under the
Code or any provision of state, local or foreign tax Law divided
by the volume weighted average per-share trading price of Parent
Common Stock on the NYSE on the five trading days trailing the
Closing Date (the Parent Stock Conversion
Price) and the Surviving Corporation shall be
responsible for timely and properly remitting any such
withholdings to the proper taxing authority.
(iii) Effective as of the Effective Time, each award of
performance shares (the Company Performance
Shares) or restricted stock units (the
Company RSUs) with respect to shares of
Company Common Stock under a Company Stock Plan that is
outstanding immediately prior to the Effective Time shall,
automatically and without any action on the part of the holder
thereof, be converted, on the same terms and conditions as were
applicable under such Company Performance Shares or Company RSUs
(giving effect to any terms and conditions resulting from the
Transactions), into the right to
A-57
receive from Parent a number of performance shares or stock
units, restricted as applicable after giving effect to any terms
and conditions resulting from the Transactions, in respect of
Parent Common Stock (and cash in lieu of fractional shares)
equal to the product of (A) the total number of shares of
Company Common Stock subject to such grant of Company
Performance Shares or Company RSUs at the target level of
performance and (B) the Exchange Ratio;
provided, that, unless the holder shall have remitted to
the Company the amount required to be withheld with respect to
the making of such payment under the Code or any provision of
state, local or foreign tax Law, such number of shares of Parent
Common Stock shall be reduced by a number of shares of Parent
Common Stock equal to the amount required to be deducted and
withheld with respect to the making of such payment under the
Code or any provision of state, local or foreign tax Law divided
by the Parent Stock Conversion Price (and the Surviving
Corporation shall be responsible for timely and properly
remitting any such withholdings to the proper taxing authority).
(iv) Prior to the Effective Time, the Company shall pass
resolutions to effect the foregoing provisions of this
Section 5.7(a).
(v) As soon as practicable following the Effective Time,
Parent shall prepare and file with the SEC a registration
statement on
Form S-8
(or another appropriate form) registering shares of Parent
Common Stock subject to issuance upon the exercise of the
Adjusted Options, and substitute restricted shares, performance
shares and stock units in respect of Parent Common Stock
issuable in accordance with subsections (ii) and
(iii) of this Section 5.7(a). The Company shall
cooperate with, and assist Parent in the preparation of, such
registration statement. Parent shall keep such registration
statement effective (and maintain the current status of the
prospectus required thereby) for so long as any Adjusted
Options, substitute restricted shares, performance shares and
stock units in respect of Parent Common Stock remain outstanding.
(b) Employee Matters.
(i) Subject to the terms of this Agreement, from and after
the Effective Time, Parent shall honor or cause the Surviving
Corporation to continue to honor all Company Benefit Plans set
forth on Section 3.11(a) of the Company Disclosure
Schedule in accordance with their terms as in effect immediately
before the Effective Time, provided, that nothing herein
shall prohibit Parent or the Surviving Corporation from amending
or terminating any such Company Benefit Plans, arrangements or
agreements in accordance with their terms as in effect
immediately prior to the Effective Time or from terminating the
employment of any Company Employee to the extent permitted by
applicable Laws. For a period of at least one year following the
Effective Time, Parent shall provide, or shall cause to be
provided, to each current and former Company Employee, other
than such employees covered by collective bargaining agreements,
compensation and employee benefits that are no less favorable,
in the aggregate, than the compensation and benefits provided to
current and former Company Employees (as the case may be)
immediately before the Effective Time; provided that Parent
shall be entitled to make modifications thereto to the extent
such modifications do not result in compensation and benefits
for the Company Employees not covered by collective bargaining
agreements that are less favorable in the aggregate than that
which is then provided to similarly situated Parent Employees
not covered by collective bargaining agreements. Notwithstanding
anything in this Agreement to the contrary, neither the
Surviving Corporation nor any of its affiliates shall reduce the
rate at which any Company Employee, who immediately prior to the
Effective Time earned at least five (5) weeks paid vacation
per year, earns paid vacation
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time after the Effective Time; provided that there shall
be no obligation to increase the rate at which such Company
Employee earns vacation to a rate greater than that in effect
for such Company Employee immediately before the Effective Time.
(ii) For purposes of vesting, eligibility to participate
and accrual and level of benefits under the employee benefit
plans of Parent and its Subsidiaries providing benefits to any
Company Employees after the Effective Time (the New
Plans), each Company Employee shall be credited for
his or her years of service with the Company and its
Subsidiaries and their respective predecessors before the
Effective Time, to the same extent as such Company Employee was
entitled, before the Effective Time, to credit for such service
under any similar Company employee benefit plan in which such
Company Employee participated or was eligible to participate
immediately prior to the Effective Time, provided,
however, that the foregoing shall not apply to the extent
that its application would result in a duplication of benefits
or to benefit accrual under a defined benefit pension plan. In
addition, and without limiting the generality of the foregoing,
(A) Parent shall cause each Company Employee to be
immediately eligible to participate, without any waiting time,
in any and all New Plans to the extent coverage under such New
Plan is comparable to a Company Benefit Plan set forth on
Section 3.11(a) of the Company Disclosure Schedule
in which such Company Employee participated immediately before
the Effective Time (such plans, collectively, the Old
Plans) and (B) for purposes of each New Plan
providing medical, dental, pharmaceutical or vision benefits to
any Company Employee, Parent shall cause all pre-existing
condition exclusions and actively-at-work requirements of such
New Plan to be waived for such employee and his or her covered
dependents, unless such conditions would not have been waived
under the comparable plans of the Company or its Subsidiaries in
which such employee participated immediately prior to the
Effective Time, and Parent shall cause any eligible expenses
incurred by such employee and his or her covered dependents
during the portion of the plan year of the Old Plan ending on
the date such employees participation in the corresponding
New Plan begins to be taken into account under such New Plan for
purposes of satisfying all deductible, coinsurance and maximum
out-of-pocket requirements applicable to such employee and his
or her covered dependents for the applicable plan year as if
such amounts had been paid in accordance with such New Plan.
(iii) Parent shall cause the Surviving Corporation and its
Subsidiaries, following the Effective Time, to honor, without
modification, all contracts, agreements, collective bargaining
agreements and commitments of the parties prior to or at the
date hereof or made herein or permitted to be entered into prior
to the Effective Time pursuant to this Agreement which apply to
any current or former employee or current or former director of
the Company; provided, however, that this
undertaking is not intended to prevent the Surviving Corporation
or its Subsidiaries from enforcing such contracts, agreements,
collective bargaining agreements and commitments in accordance
with their terms, including any reserved right to amend, modify,
suspend, revoke or terminate any such contract, agreement,
collective bargaining agreement or commitment.
(iv) Notwithstanding anything in this Agreement to the
contrary and subject to the provisions of Section
5.7(b)(i), for a period of at least one year following the
Effective Time, Parent shall provide severance benefits on an
individual-by-individual
basis that are no less favorable to Company Employees than the
severance benefits provided to such Company Employees under the
Companys severance programs as of immediately prior to the
Effective Time.
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(v) Without limiting the provisions of Section
5.7(b)(ii), if an applicable Company Benefit Plan is
terminated in which non-bargaining unit employees of the Company
or its Subsidiaries participate, Parent shall, and shall cause
each of its Subsidiaries, as applicable, to:
(A) permit such employees to participate in any similar
plan established by Parent in a manner substantially similar to
similarly situated employees of Parent and its Subsidiaries,
recognizing that the availability, providers or benefit levels
of such plan established by Parent may reflect differing
circumstances;
(B) waive any pre-existing condition exclusions and
actively-at-work requirements with respect to the applicable
plan of Parent; and
(C) provide that any expenses incurred on or before the
Effective Time by any such employee or any such employees
covered dependent shall be taken into account for purposes of
satisfying applicable deductible, coinsurance and maximum
out-of-pocket provisions with respect to the applicable plan of
Parent.
(vi) Parent shall, and shall cause each of its Subsidiaries
to:
(A) allow, after the Effective Time such employees to use
the remaining amount of accrued but unused vacation and sick
leave such employees were entitled immediately prior to the
Effective Time;
(B) allow such employees to participate, as soon as
practical, in all job placement, job posting, job training,
career development and educational programs of Parent and its
Subsidiaries; and
(C) consider such employees for positions at Parent and its
Subsidiaries resulting from the Merger using criteria including
previous work history, job experience and qualifications.
Section 5.8 Regulatory Approvals; Third-Party
Consents; Reasonable Best Efforts.
(a) Subject to the terms and conditions set forth in this
Agreement, each of the parties hereto shall use its reasonable
best efforts (subject to, and in accordance with, applicable
Law) to take promptly, or cause to be taken, all actions, and to
do promptly, or cause to be done, and to assist and cooperate
with the other parties in doing, all things necessary, proper or
advisable under applicable Laws to consummate and make effective
the Transactions, including (i) the obtaining of all
necessary actions or nonactions, waivers, consents and
approvals, including the Company Approvals and the Parent
Approvals, from Governmental Entities and the making of all
necessary registrations and filings and the taking of all steps
as may be necessary to obtain an approval or waiver from, or to
avoid an action or proceeding by, any Governmental Entity,
(ii) the obtaining of all necessary consents, approvals or
waivers from third parties, (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation
of the Transactions and (iv) the execution and delivery of
any additional instruments necessary to consummate the
Transactions; provided, however, that in no
event shall the Company or Parent or any of their respective
Subsidiaries be required to pay (and the Company and its
Subsidiaries shall not pay or agree to pay more than
$17.5 million in the aggregate without Parents prior
written consent), prior to the Effective Time, any fee, penalty
or other consideration to any third party under any contract or
agreement for any consent or approval required for the
consummation of the Transactions.
A-60
(b) Subject to the terms and conditions herein provided and
without limiting the foregoing, the Company and Parent shall
(i) as promptly as practicable, but in no event later than
10 business days after filing with the FERC an application for
the FERC Approval, make their respective filings and thereafter
make any other required submissions under the HSR Act,
(ii) use reasonable best efforts to cooperate with each
other in (A) determining whether any filings are required
to be made with, or consents, permits, authorizations, waivers
or approvals are required to be obtained from, any third parties
or other Governmental Entities in connection with the execution
and delivery of this Agreement and the consummation of the
Transactions and (B) timely making all such filings and
timely seeking all such consents, permits, authorizations or
approvals, (iii) subject to Section 5.8(d), use
reasonable best efforts to take, or cause to be taken, all other
actions and do, or cause to be done, all other things necessary,
proper or advisable to consummate and make effective the
Transactions, including taking all such further action as may be
necessary to resolve such objections, if any, as the FERC, the
United States Federal Trade Commission (the
FTC), the Antitrust Division of the United
States Department of Justice (the DOJ), the
Applicable PSCs or competition authorities of any other nation
may assert under Regulatory Law with respect to the Transactions
so as to enable the Closing to occur as soon as reasonably
possible (and in any event no later than the End Date),
including (A) proposing, negotiating, committing to and
effecting, by consent decree, hold separate order or otherwise,
the sale, divestiture or disposition of such assets or
businesses of Parent or its Subsidiaries or affiliates or of the
Company or its Subsidiaries and (B) otherwise taking or
committing to take actions that after the Closing Date would
limit Parents or its Subsidiaries (including the
Surviving Corporations) or its affiliates freedom of
action with respect to, or its or their ability to retain, one
or more of its or its Subsidiaries (including the
Surviving Corporations) businesses, product lines or
assets, in each case as may be required in order to avoid the
entry of, or to effect the dissolution of, any injunction,
temporary restraining order or other order in any suit or
proceeding which would otherwise have the effect of preventing
or materially delaying the Closing, and (iv) subject to
applicable legal limitations and the instructions of any
Governmental Entity, keep each other apprised of the status of
matters relating to the completion of the transactions
contemplated thereby, including promptly furnishing the other
with copies of notices or other communications received by the
Company or Parent, as the case may be, or any of their
respective Subsidiaries, from any third party or any
Governmental Entity with respect to such transactions. The
Company and Parent shall use their respective reasonable best
efforts to file applications for approval with the FERC and the
Applicable PSCs as promptly as practicable after the date
hereof. The Company and Parent shall permit counsel for the
other party reasonable opportunity to review in advance, and
consider in good faith the views of the other party in
connection with, any proposed written communication to any
Governmental Entity. Each of the Company and Parent agrees not
to participate in any substantive meeting or discussion, either
in person or by telephone, with any Governmental Entity in
connection with the proposed transactions unless it consults
with the other party in advance and, to the extent not
prohibited by such Governmental Entity, gives the other party
the opportunity to attend and participate.
(c) In furtherance and not in limitation of the covenants
of the parties contained in this Section 5.8, if any
administrative or judicial action or proceeding, including any
proceeding by a private party, is instituted (or threatened to
be instituted) challenging any transaction contemplated by this
Agreement as violative of any Regulatory Law, each of the
Company and Parent shall cooperate in all respects with each
other and shall use their respective reasonable best efforts to
contest and resist any such action or proceeding and to have
vacated, lifted, reversed or overturned any decree, judgment,
injunction or other order, whether temporary,
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preliminary or permanent, that is in effect and that prohibits,
prevents or restricts consummation of the Transactions.
Notwithstanding the foregoing or any other provision of this
Agreement, nothing in this Section 5.8 shall limit a
partys right to terminate this Agreement pursuant to
Section 7.1(b) or 7.1(c) so long as such
party has, prior to such termination, complied with its
obligations under this Agreement, including this
Section 5.8.
(d) Notwithstanding anything in this Agreement to the
contrary, reasonable best efforts shall not require,
any party to (i) sell, or agree to sell, hold or agree to
hold separate, or otherwise dispose or agree to dispose of any
asset, or conduct or agree to conduct its business in any
particular manner, or take any other action, as may be required
to resolve objections if any, of the FERC, the FTC, or the DOJ,
in each case if such sale, separation or disposition, agreement,
conduct or action with respect thereto would
(a) individually or in the aggregate reasonably be expected
to have a Parent Material Adverse Effect (without giving effect
to the Merger) or (b) individually or in the aggregate
(giving effect to any such actions required by the Applicable
PSCs) reasonably be expected to have a Parent Material Adverse
Effect (determined after giving effect to the Merger) or
(ii) sell, or agree to sell, hold or agree to hold
separate, or otherwise dispose or agree to dispose of any asset,
or conduct or agree to conduct its business in any particular
manner, or take any other action, as may be required to resolve
objections, if any, of the Applicable PSCs, in each case if such
sale, separation or disposition, agreement, conduct or action
with respect thereto would, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect
or a Parent Material Adverse Effect (provided that for
purposes of determining whether a potential adverse effect would
constitute a Parent Material Adverse Effect for purposes of this
clause (ii), Parent and its Subsidiaries, taken as a whole,
shall be deemed to be a consolidated group of entities of the
size and scale of the Company and its Subsidiaries, taken as a
whole). The Company and Parent will consult with each other
prior to agreeing to any merger requirements sought by any state
regulator. Nothing in this Section 5.8 shall
obligate Parent or the Company or any of their respective
Subsidiaries to take any action that is not conditioned on the
Closing.
(e) As used in this Agreement, Regulatory
Law means the Sherman Act of 1890 as amended, the
Clayton Antitrust Act of 1914 as amended, the HSR Act, the FPA,
the Atomic Energy Act, the rules and regulations of the
Applicable PSCs and all other federal, state or foreign
statutes, rules, regulations, orders, decrees, administrative
and judicial doctrines and other Laws, including any antitrust,
competition or trade regulation Laws, that are designed or
intended to (i) prohibit, restrict or regulate actions
having the purpose or effect of monopolization or restraint of
trade or lessening competition through merger or acquisition or
(ii) protect the national security or the national economy
of any nation.
Section 5.9 Takeover
Statute. If any Takeover Law may become, or may
purport to be, applicable to the Transactions, each of the
Company and Parent shall grant such approvals and take such
actions as are reasonably necessary so that the Transactions may
be consummated as promptly as practicable on the terms
contemplated hereby and otherwise act to eliminate or minimize
the effects of such statute or regulation on the Transactions.
Section 5.10 Public
Announcements. Except with respect to a Company
Change of Recommendation or Parent Change of Recommendation or
any action taken by the Company or Parent or their Boards of
Directors pursuant to, and in accordance with,
Section 5.4 or Section 5.5,
respectively, so long as this Agreement is in effect, the
parties shall use reasonable best efforts to consult with each
other before issuing any press release or making any public
announcement relating to this Agreement or the Transactions and,
except for any press release or public announcement as may be
required by applicable Law, court process or any listing
agreement with any national
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securities exchange, shall use reasonable efforts not to issue
any such press release or make any such public announcement
without consulting the other parties. Parent and the Company
agree to issue a mutually acceptable initial joint press release
announcing this Agreement.
Section 5.11 Indemnification and
Insurance.
(a) From and after the Effective Time, Parent shall cause
the Surviving Corporation to honor all rights to exculpation,
indemnification and advancement of expenses now existing in
favor of the current or former directors, officers or employees,
as the case may be, of the Company or its Subsidiaries as
provided in their respective charter or bylaws or other
organization documents or in any agreement to which the Company
or any of its Subsidiaries is a party, which rights shall
survive the Merger and shall continue in full force and effect
to the extent permitted by Law. For a period of six years from
the Effective Time, Parent shall cause the Surviving Corporation
to maintain in effect the exculpation, indemnification and
advancement of expenses provisions of the Companys and any
Company Subsidiarys charter and bylaws or similar
organization documents in effect as of the date hereof or in any
indemnification agreements of the Company or its Subsidiaries
with any of their respective directors, officers or employees in
effect immediately prior to the Effective Time, and shall not
amend, repeal or otherwise modify any such provisions in any
manner that would adversely affect the rights thereunder of any
individuals who immediately before the Effective Time were
current or former directors, officers or employees of the
Company or any of its Subsidiaries; provided,
however, that all rights to indemnification in respect of
any Action pending or asserted or any claim made within such
period shall continue until the disposition of such Action or
resolution of such claim. Parent shall assume, be jointly and
severally liable for, and honor, guaranty and stand surety for,
and shall cause the Surviving Corporation and its Subsidiaries
to honor, in accordance with their respective terms, each of the
covenants contained in this Section 5.11 without
limit as to time.
(b) From and after the Effective Time, each of Parent and
the Surviving Corporation shall, to the fullest extent permitted
under applicable Law, indemnify and hold harmless (and advance
funds in respect of each of the foregoing) each current and
former director, officer or employee of the Company or any of
its Subsidiaries and each person who served as a director,
officer, member, trustee or fiduciary of another corporation,
partnership, joint venture, trust, pension or other employee
benefit plan or enterprise if such service was at the request or
for the benefit of the Company or any of its Subsidiaries (each,
together with such persons heirs, executors or
administrators, an Indemnified Party) against
any costs or expenses (including advancing attorneys fees
and expenses in advance of the final disposition of any claim,
suit, proceeding or investigation to each Indemnified Party to
the fullest extent permitted by law), judgments, fines, losses,
claims, damages, liabilities and amounts paid in settlement
(provided that any Action may only be settled with the
prior written consent of Parent, not to be unreasonably
withheld) in connection with any actual or threatened claim,
action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative (an
Action), arising out of, relating to or in
connection with any action or omission occurring or alleged to
have occurred before or at the Effective Time (including acts or
omissions in connection with such persons serving as an officer,
director or other fiduciary in any entity if such service was at
the request or for the benefit of the Company). In the event of
any such Action, Parent and the Surviving Corporation shall
cooperate with the Indemnified Party in the defense of any such
Action.
(c) For a period of six years from the Effective Time, the
Parent shall cause to be maintained in effect the coverage
provided by the policies of directors and officers
liability
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insurance and fiduciary liability insurance in effect as of the
Closing Date maintained by the Company and its Subsidiaries with
respect to matters arising on or before the Effective Time
either through the Companys existing insurance provider or
another provider reasonably selected by Parent;
provided, however, that, after the Effective Time,
Parent shall not be required to pay annual premiums in excess of
250% of the last annual premium paid by the Company prior to the
date hereof in respect of the coverages required to be obtained
pursuant hereto, but in such case shall purchase as much
coverage as reasonably practicable for such amount;
provided further, however, that in lieu of
the foregoing insurance coverage, Parent may direct the Company
to purchase tail insurance coverage, at a cost no
greater than the aggregate amount which the Surviving
Corporation would be permitted to spend during the six-year
period provided for in this Section 5.11(c), that
provides coverage no materially less favorable than the coverage
described above.
(d) Parent shall pay all reasonable expenses, including
reasonable attorneys fees, that may be incurred by any
Indemnified Party in enforcing the indemnity and other
obligations provided in this Section 5.11.
(e) The rights of each Indemnified Party hereunder shall be
in addition to, and not in limitation of, any other rights such
Indemnified Party may have under the articles of restatement or
bylaws or other organization documents of the Company or any of
its Subsidiaries or the Surviving Corporation, any other
indemnification arrangement, the MGCL or otherwise. The
provisions of this Section 5.11 shall survive the
consummation of the Merger and expressly are intended to
benefit, and are enforceable by, each of the Indemnified Parties.
(f) In the event that the Surviving Corporation or any of
its respective successors or assigns (i) consolidates with
or merges into any other person and shall not be the continuing
or surviving corporation or entity in such consolidation or
merger or (ii) transfers all or substantially all of its
properties and assets to any person, then, and in either such
case, proper provision shall be made so that the successors and
assigns of the Surviving Corporation shall assume the
obligations set forth in this Section 5.11.
Section 5.12 Integration
Committee. Parent and the Company shall create a
transition team and transition steering committee comprised of
adequate management and senior executives, respectively, from
both Parent and the Company to examine various alternatives
regarding the manner in which to best integrate the businesses
of the Company and Parent after the Effective Time, subject to
applicable Law.
Section 5.13 Control of
Operations. Without in any way limiting any
partys rights or obligations under this Agreement, the
parties understand and agree that (i) nothing contained in
this Agreement shall give Parent, directly or indirectly, the
right to control or direct the Companys operations prior
to the Effective Time and (ii) prior to the Effective Time,
the Company shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision
over its operations.
Section 5.14 Certain Transfer
Taxes. Any liability arising out of any real
estate transfer Tax with respect to interests in real property
owned directly or indirectly by the Company or any of its
Subsidiaries immediately prior to the Merger, if applicable and
due with respect to the Merger, shall be borne by the Surviving
Corporation and expressly shall not be a direct liability of
stockholders of the Company.
Section 5.15 Section 16
Matters. Prior to the Effective Time, Parent and
the Company shall take all such steps as may be required to
cause any dispositions of Company Common Stock
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(including derivative securities with respect to Company Common
Stock) or acquisitions of Parent Common Stock (including
derivative securities with respect to Parent Common Stock)
resulting from the Transactions by each individual who is
subject to the reporting requirements of Section 16(a) of
the Exchange Act with respect to the Company or will become
subject to such reporting requirements with respect to Parent,
to be exempt under
Rule 16b-3
promulgated under the Exchange Act.
Section 5.16 Tax Matters.
(a) Each party shall cooperate with the other parties, and
use its reasonable best efforts, to cause the Merger to qualify
as a reorganization within the meaning of
Section 368(a) of the Code (the Intended Tax
Treatment), including (i) reasonably refraining
from any action that such party knows is reasonably likely to
prevent the Intended Tax Treatment, (ii) executing such
amendments to this Agreement as may be reasonably required in
order to obtain the Intended Tax Treatment (it being understood
that no party will be required to agree to any such amendment
that it determines in good faith is reasonably likely to
materially adversely affect the value of the Merger to such
party or its stockholders), and (iii) using its reasonable
best efforts to obtain the opinions referred to in
Section 6.2(e) and Section 6.3(e),
including by executing customary letters of representation.
(b) As soon as reasonably practicable after the date of
this Agreement, Parent shall deliver to the Company a copy of
the proposed form of the Parent Tax Opinion together with all
letters or certificates that form the basis therefor
(collectively, the Parent Tax Opinion
Materials). The Company shall be entitled to a
reasonable amount of time to provide Parent with written
comments on the Parent Tax Opinion Materials. Parent shall
furnish the Company with a copy of the final Parent Tax Opinion
Materials.
(c) As soon as reasonably practicable after the date of
this Agreement, the Company shall deliver to Parent a copy of
the proposed form of the Company Tax Opinion together with all
letters or certificates that form the basis therefor
(collectively, the Company Tax Opinion
Materials). Parent shall be entitled to a reasonable
amount of time to provide the Company with written comments on
the Company Tax Opinion Materials. The Company shall furnish
Parent with a copy of the final Company Tax Opinion Materials.
Section 5.17 Stock Exchange
Listing. Parent shall use its reasonable best
efforts to cause the shares of Parent Common Stock to be issued
as Merger Consideration to be listed on the NYSE, subject to
official notice of issuance, prior to the Effective Time.
Section 5.18 Charitable
Contributions. During the three-year period
immediately following the Effective Time, Parent shall provide,
directly or indirectly, community development and charitable
contributions within the service areas of the Company and each
of its Subsidiaries that are utilities at levels consistent with
the levels of community development and charitable contributions
historically provided by the Company and its Subsidiaries and
thereafter at levels consistent with those provided by Parent
and its Subsidiaries within their service areas.
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ARTICLE VI
CONDITIONS
TO THE MERGER
Section 6.1 Conditions to Each Partys
Obligation to Effect the Merger. The respective
obligations of each party to effect the Merger shall be subject
to the fulfillment (or waiver by all parties) at or prior to the
Effective Time of the following conditions:
(a) Each of the Company Stockholder Approval and Parent
Shareholder Approval shall have been obtained.
(b) No (i) temporary restraining order or preliminary
or permanent injunction or other order by any Federal or state
court of competent jurisdiction preventing consummation of the
Merger or (ii) applicable Federal or state law prohibiting
consummation of the Merger (collectively,
Restraints) shall be in effect.
(c) The
Form S-4
shall have been declared effective by the SEC under the
Securities Act and no stop order suspending the effectiveness of
the
Form S-4
shall have been issued by the SEC and no proceedings for that
purpose shall have been initiated or threatened by the SEC.
(d) The shares of Parent Common Stock to be issued in the
Merger and such other shares of Parent Common Stock to be
reserved for issuance in connection with the Merger shall have
been approved for listing on the NYSE, subject to official
notice of issuance.
Section 6.2 Conditions to Obligation of the
Company to Effect the Merger. The obligation of
the Company to effect the Merger is further subject to the
fulfillment of, or the waiver by the Company on or prior to the
Effective Time of, the following conditions:
(a) The representations and warranties of Parent and Merger
Sub set forth herein (i) with respect to
Section 4.2(a), Section 4.3(a) and
Section 4.17 shall be true and correct both when
made and at and as of the Closing Date, as if made at and as of
such time (except to the extent expressly made as of an earlier
date, in which case as of such date), in all respects (except in
the case of Section 4.2(a) for such inaccuracies as
are de minimis in the aggregate) and (ii) with respect to
all other representations and warranties shall be true and
correct both when made and at and as of the Closing Date, as if
made at and as of such time (except to the extent expressly made
as of an earlier date, in which case as of such date), except in
the case of clause (ii) where the failure of such
representations and warranties to be so true and correct
(without giving effect to any limitation as to
materiality or Parent Material Adverse
Effect set forth therein) does not have, and would not
reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect.
(b) Each of Parent and Merger Sub shall have in all
material respects performed all obligations and complied with
all covenants required by this Agreement to be performed or
complied with by it prior to the Effective Time.
(c) There shall not have occurred any event, change,
effect, development, state of facts, circumstance, condition or
occurrence that has had or would reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse
Effect.
(d) Parent shall have delivered to the Company a
certificate, dated the Effective Time and signed by its Chief
Executive Officer or Chief Financial Officer, certifying to the
effect that the conditions set forth in
Sections 6.2(a), 6.2(b) and 6.2(c)
have been satisfied.
(e) The Company shall have received from Skadden, Arps,
Slate, Meagher & Flom LLP, a written tax opinion, in
form and substance reasonably satisfactory to the Company, to
the effect
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that the Merger will qualify as a reorganization
within the meaning of Section 368(a) of the Code (the
Company Tax Opinion); it being understood
that in rendering such opinion, Skadden, Arps, Slate,
Meagher & Flom LLP shall be entitled to rely upon
customary representations provided by the relevant parties.
(f) The Company shall have received a copy of the Parent
Tax Opinion.
(g) (i) the Company Approvals and the Parent Approvals
shall have been obtained (including, in each case, the
expiration or termination of the waiting periods (and any
extensions thereof) under the HSR Act applicable to the Merger
and the Transactions) at or prior to the Effective Time, and
such approvals shall have become Final Orders, and
(ii) such Final Orders of the FERC, the FTC or the DOJ
shall not impose terms or conditions that (a) individually
or in the aggregate, would reasonably be expected to have a
Parent Material Adverse Effect (without giving effect to the
Merger) or (b) individually or in the aggregate (giving
effect to any such actions required by the Applicable PSCs)
would reasonably be expected to have a Parent Material Adverse
Effect (determined after giving effect to the Merger), and such
Final Orders of the Applicable PSCs shall not impose terms or
conditions that, individually or in the aggregate, would
reasonably be expected to have a Company Material Adverse Effect
or a Parent Material Adverse Effect (provided that for
these purposes, Parent and its Subsidiaries, taken as a whole,
shall be deemed to be a consolidated group of entities of the
size and scale of the Company and its Subsidiaries, taken as a
whole). Final Order means 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 may be consummated has expired (a Final
Order Waiting Period) and as to which all conditions
to the consummation of the Transactions prescribed by Law,
regulation or order required to be satisfied at or prior to the
Effective Time have been satisfied.
Section 6.3 Conditions to Obligation of
Parent to Effect the Merger. The obligation of
Parent and Merger Sub to effect the Merger is further subject to
the fulfillment of, or the waiver by the Company on or prior to
the Effective Time of, the following conditions:
(a) The representations and warranties of the Company set
forth herein (i) with respect to
Section 3.2(a), Section 3.3(a),
Section 3.17 and Section 3.18 shall be
true and correct both when made and at and as of the Closing
Date, as if made at and as of such time (except to the extent
expressly made as of an earlier date, in which case as of such
date), in all respects (except in the case of
Section 3.2(a) for such inaccuracies as are de
minimis in the aggregate) and (ii) with respect to all
other representations and warranties shall be true and correct
both when made and at and as of the Closing Date, as if made at
and as of such time (except to the extent expressly made as of
an earlier date, in which case as of such date), except in the
case of clause (ii) where the failure of such
representations and warranties to be so true and correct
(without giving effect to any limitation as to
materiality or Company Material Adverse
Effect set forth therein) does not have, and would not
reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
(b) The Company shall have in all material respects
performed all obligations and complied with all covenants
required by this Agreement to be performed or complied with by
it prior to the Effective Time.
(c) There shall not have occurred any event, change,
effect, development, state of facts, circumstance, condition or
occurrence that has had or would reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse
Effect.
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(d) The Company shall have delivered to Parent a
certificate, dated the Effective Time and signed by its Chief
Executive Officer or Chief Financial Officer, certifying to the
effect that the conditions set forth in
Sections 6.3(a), 6.3(b) and 6.3(c)
have been satisfied.
(e) Parent shall have received from Akin Gump Strauss
Hauer & Feld LLP, a written tax opinion, in form and
substance reasonably satisfactory to the Company, to the effect
that the Merger will qualify as a reorganization
within the meaning of Section 368(a) of the Code (the
Parent Tax Opinion); it being understood that
in rendering such opinion, Akin Gump Strauss Hauer &
Feld LLP shall be entitled to rely upon customary
representations provided by the relevant parties.
(f) Parent shall have received a copy of the Company Tax
Opinion.
(g) (i) the Company Approvals and the Parent Approvals
shall have been obtained (including, in each case, the
expiration or termination of the waiting periods (and any
extensions thereof) under the HSR Act applicable to the Merger
and the Transactions) at or prior to the Effective Time, and
such approvals shall have become Final Orders, and
(ii) such Final Orders of the FERC, the FTC or the DOJ
shall not impose terms or conditions that (a) individually
or in the aggregate, would reasonably be expected to have a
Parent Material Adverse Effect (without giving effect to the
Merger) or (b) individually or in the aggregate (giving
effect to any such actions required by the Applicable PSCs)
would reasonably be expected to have a Parent Material Adverse
Effect (determined after giving effect to the Merger), and such
Final Orders of the Applicable PSCs shall not impose terms or
conditions that, individually or in the aggregate, would
reasonably be expected to have a Company Material Adverse Effect
or a Parent Material Adverse Effect (provided that for these
purposes Parent and its Subsidiaries, taken as a whole, shall be
deemed to be a consolidated group of entities of the size and
scale of the Company and its Subsidiaries, taken as a whole).
(h) The Company shall have received, in a form reasonably
acceptable to Parent, fully executed consents, waivers or other
approvals from sufficient lenders under each of the
Companys credit facilities listed in
Section 3.3(c).1 of the Company Disclosure Schedule,
such that the Transactions will not cause, and will not have the
effect of causing, any change of control, put, call,
acceleration, default, event of default, termination event or
other similar consequence under any such facility, or in the
absence of receiving such consents, waivers or other approvals,
the Company or its Subsidiaries shall have terminated and
replaced the applicable credit facility or facilities with new
credit facilities providing an aggregate amount of available
liquidity to the Company and its Subsidiaries, taken as a whole,
comparable to the credit facilities that were terminated and on
terms and conditions not materially less favorable to the
Company and its Subsidiaries, taken as a whole, as the
terminated facilities.
Section 6.4 Frustration of Closing
Conditions. Neither the Company nor Parent may
rely, as a basis either for not consummating the Merger or
terminating this Agreement and abandoning the Merger, on the
failure of any condition set forth in Section(s) 6.1,
6.2 or 6.3, as the case may be, to be satisfied if
such failure was caused by such partys material breach of
any material provision of this Agreement or failure to use its
reasonable best efforts to consummate the Merger and the other
Transactions, as required by and subject to
Section 5.8.
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ARTICLE VII
TERMINATION
Section 7.1 Termination or
Abandonment. Notwithstanding anything in this
Agreement to the contrary, this Agreement may be terminated and
abandoned at any time prior to the Effective Time, whether
before or after any approval of the matters presented in
connection with the Merger by the stockholders of the Company:
(a) by the mutual written consent of the Company and Parent;
(b) by either Parent or the Company if the Merger shall not
have been consummated on or prior to the 14 month
anniversary of the date hereof (the End
Date), provided, however, that either
Parent or the Company may for any reason extend the End Date by
three months prior to the original End Date by written notice to
the other, and provided further if all of the
conditions to Closing shall have been satisfied or shall be then
capable of being satisfied (other than the conditions set forth
in Section 6.1(b), Section 6.2(g) and
Section 6.3(g)), the End Date may be extended by
Parent or the Company from time to time by written notice to the
other party up to a date not beyond an additional three months
after the End Date, the latest of any of which dates shall
thereafter be deemed to be the End Date; and if the End Date (as
it may be extended pursuant to this Section 7.1(b)
shall occur during any Final Order Waiting Period, the End Date
shall be extended until the third business day after the
expiration of such Final Order Waiting Period;
provided, further, that the right to terminate
this Agreement pursuant to this Section 7.1(b) shall
not be available to a party if the failure of the Closing to
occur by such date shall be due to the failure of such party to
perform or comply in all material respects with the covenants
and agreements of such party set forth in this Agreement;
(c) by either the Company or Parent if any Restraint having
any of the effects set forth in Section 6.1(b) shall
be in effect and shall have become final and
nonappealable; provided, that the party seeking to
terminate this Agreement pursuant to this
Section 7.1(c) shall have used its reasonable best
efforts to prevent the entry of and to remove such Restraint;
(d) by either the Company or Parent if the Company
Stockholders Meeting (including any adjournments or
postponements thereof) shall have concluded and the Company
Stockholder Approval contemplated by this Agreement shall not
have been obtained; provided, however, that
the right to terminate under this Section 7.1(d)
shall not be available to the Company where the failure to
obtain the Company Stockholder Approval shall have been caused
by or related to the Companys material breach of the
Agreement;
(e) by either the Company or Parent if the Parent
Shareholders Meeting (including any adjournments or
postponements thereof) shall have concluded and the Parent
Shareholder Approval contemplated by this Agreement shall not
have been obtained; provided, however, that
the right to terminate under this Section 7.1(e)
shall not be available to Parent where the failure to obtain the
Parent Shareholder Approval shall have been caused by or related
to Parents material breach of the Agreement;
(f) by the Company, if Parent shall have breached or failed
to perform in any material respect any of its representations,
warranties, covenants or other agreements contained in this
Agreement, which breach or failure to perform (i) would
result in a failure of a condition set forth in
Section 6.1 or Section 6.2 and
(ii) cannot be cured by the End Date, provided, that
the Company shall have given Parent written notice, delivered at
least 30 days prior to such termination (but no later than
the expected Closing Date), stating the Companys intention
to terminate this Agreement pursuant to this
Section 7.1(f) and the basis for such termination;
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(g) by Parent, if the Company shall have breached or failed
to perform in any material respect any of its representations,
warranties, covenants or other agreements contained in this
Agreement, which breach or failure to perform (i) would
result in a failure of a condition set forth in
Section 6.1 or Section 6.3 and
(ii) cannot be cured by the End Date, provided, that
Parent shall have given the Company written notice, delivered at
least 30 days prior to such termination (but no later than
the expected Closing Date), stating Parents intention to
terminate this Agreement pursuant to this
Section 7.1(g) and the basis for such termination;
(h) by the Company, in the event Parent or any of its
Subsidiaries or their respective Representatives or affiliates
shall have breached in any material respect any of their
respective obligations under Section 5.5;
(i) by Parent, in the event the Company or any of its
Subsidiaries or their respective Representatives or affiliates
shall have breached in any material respect any of their
respective obligations under Section 5.4;
(j) by the Company, at any time prior to obtaining the
Company Stockholder Approval, in order to enter into a written
definitive agreement for a Company Superior Offer, if the
Company has complied with its obligations under
Section 5.4(d) and the Company has provided Parent
at least five business days advance written notice of the intent
to terminate this Agreement pursuant to this
Section 7.1(j) and Parent does not make, within five
business days of receipt of the Companys written
notification of its intention to enter into a written definitive
agreement for a Company Superior Offer, an offer that the Board
of Directors of the Company determines (after good faith
negotiation with Parent), in its reasonable good faith judgment
after consultation with its financial advisors, is more
favorable, from a financial point of view, to the stockholders
of the Company as the applicable Company Superior Offer (taking
into account the factors set forth in the definition of Company
Superior Offer); provided, that any such purported
termination by the Company pursuant to this
Section 7.1(j) shall be void and of no force or
effect unless the Company pays to Parent the Company Termination
Fee in accordance with Section 7.2;
(k) by Parent, at any time prior to obtaining the Parent
Shareholder Approval, in order to enter into a written
definitive agreement for a Parent Superior Offer, if Parent has
complied with its obligations under Section 5.5(d)
and Parent has provided the Company at least five business days
advance written notice of the intent to terminate this Agreement
pursuant to this Section 7.1(k) and the Company does
not make, within five business days of receipt of Parents
written notification of its intention to enter into a written
definitive agreement for a Parent Superior Offer, an offer that
the Board of Directors of Parent determines (after good faith
negotiation with the Company), in its reasonable good faith
judgment after consultation with its financial advisors, is more
favorable, from a financial point of view, to the shareholders
of Parent as the applicable Parent Superior Offer (taking into
account the factors set forth in the definition of Parent
Superior Offer); provided, that any such purported
termination by Parent pursuant to this
Section 7.1(k) shall be void and of no force or
effect unless Parent pays to the Company the Parent Termination
Fee in accordance with Section 7.2;
(l) by the Company, if there has been a Parent Change of
Recommendation;
(m) by Parent, if there has been a Company Change of
Recommendation; and
(n) by Parent, if there is a default by the Company under
one or more of the credit agreements listed in
Section 3.3(c).1 of the Company Disclosure Schedule
due to the expiration or termination for any reason of the
waivers described in Section 3.3(c).1 of the Company
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Disclosure Schedule, provided that Parent has provided to
the Company at least 10 days advance written notice of its
intent to terminate this Agreement pursuant to this
Section 7.1(n) and; provided, further,
that the right to terminate this Agreement pursuant to this
Section 7.1(n) shall not be available to Parent
after the date that is 30 days after the date of the
expiration or termination for any reason of any of the waivers
described in Section 3.3(c).1; provided,
further, that if the Company or its Subsidiaries repays
the outstanding indebtedness under the applicable credit
facilities pursuant to which a default occurs, terminates such
credit facilities, and enters into replacement credit facilities
providing an aggregate amount of available liquidity to the
Company and its Subsidiaries, taken as a whole, comparable to
the credit facilities that were terminated and on terms and
conditions not materially less favorable to the Company and its
Subsidiaries, taken as a whole, as the terminated facility or
facilities, the right to terminate this Agreement pursuant to
this Section 7.1(n) shall not be available to Parent.
In the event of termination of this Agreement pursuant to this
Section 7.1, this Agreement shall terminate (except
for the provisions of Sections 7.2, 8.2,
8.4, 8.5 and 8.6), and there shall be no
other liability on the part of the Company or Parent to the
other except under such provisions, liability arising out of an
intentional breach of this Agreement or as provided for in the
Confidentiality Agreement, in which case the aggrieved party
shall be entitled to all rights and remedies available at law or
in equity.
Section 7.2 Effect of Termination.
(a) Parent and the Company agree that (i) if this
Agreement is terminated by (A) Parent pursuant to
Section 7.1(i) or Section 7.1(m) or
(B) the Company pursuant to Section 7.1(j); or
(ii) (A) if this Agreement is terminated by Parent pursuant
to Section 7.1(g) and the breach or other
circumstance giving rise to such termination was willful, or by
the Company or Parent pursuant to Section 7.1(b) or
Section 7.1(d), (B) prior to any such
termination, any person (other than Parent or its affiliates)
shall have made a Company Acquisition Proposal which shall have
been publicly announced or disclosed (or any person shall have
publicly announced a bona fide intention, whether or not
conditional, to make a Company Acquisition Proposal) and
(C) within 12 months after such termination of this
Agreement, the Company shall have entered into an agreement to
consummate, or shall have consummated, a Company Acquisition
Transaction, then the Company shall pay to Parent the Company
Termination Fee and reimburse Parent all of Parents
Transaction Expenses. Any Company Termination Fee shall be paid
to Parent by the Company in immediately available funds
(x) upon termination of this Agreement in the case of a
termination pursuant to clause (i)(B) above, (y) within
five business days after termination in the case of a
termination pursuant to clause (i)(A) above and (z) upon
the execution of or entrance into a definitive agreement with
respect to a Company Acquisition Transaction in the case of a
termination pursuant to clause (ii) above. Parents
Transaction Expenses shall be paid in immediately available
funds to Parent by the Company within five business days of
receipt of reasonable documentation thereof.
(b) Parent and the Company agree that (i) if this
Agreement is terminated by (A) the Company pursuant to
Section 7.1(h) or Section 7.1(l) or
(B) Parent pursuant to Section 7.1(k); or
(ii)(A) if this Agreement is terminated by the Company pursuant
to Section 7.1(f) and the breach or other
circumstance giving rise to such termination was willful, or by
the Company or Parent pursuant to Section 7.1(b) or
Section 7.1(e), (B) prior to any such
termination, any person (other than the Company or its
affiliates) shall have made a Parent Acquisition Proposal which
shall have been publicly announced or disclosed (or any person
shall have publicly announced a bona fide intention, whether or
not conditional, to make a Parent Acquisition Proposal) and
(C) within 12 months after such termination of this
Agreement, Parent shall have
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entered into an agreement to consummate, or shall have
consummated, a Parent Acquisition Transaction, then Parent shall
pay to the Company the Parent Termination Fee and reimburse the
Company all of the Companys Transaction Expenses. Any
Parent Termination Fee shall be paid to the Company by Parent in
immediately available funds (x) upon termination of this
Agreement in the case of a termination pursuant to clause (i)(B)
above, (y) within five business days after termination in
the case of a termination pursuant to clause (i)(A) above and
(z) upon the execution of or entrance into a definitive
agreement with respect to a Parent Acquisition Transaction in
the case of a termination pursuant to clause (ii) above.
The Companys Transaction Expenses shall be paid in
immediately available funds to the Company by Parent within five
business days of receipt of reasonable documentation thereof.
(c) Parent and the Company agree that if (i) this
Agreement is terminated by Parent or the Company pursuant to
Section 7.1(d) and (ii) no amount is payable by
the Company pursuant to Section 7.2(a) because
clause (ii)(B) thereof is not satisfied, then the Company shall
reimburse Parent all of Parents Transaction Expenses.
Parents Transaction Expenses shall be paid in immediately
available funds to Parent by the Company within five business
days of receipt of reasonable documentation thereof.
(d) Parent and the Company agree that if (i) this
Agreement is terminated by Parent or the Company pursuant to
Section 7.1(e) and (ii) no amount is payable by
Parent pursuant to Section 7.2(b) because clause
(ii)(B) thereof is not satisfied, then Parent shall reimburse
the Company all of the Companys Transaction Expenses. The
Companys Transaction Expenses shall be paid in immediately
available funds to the Company by Parent within five business
days of receipt of reasonable documentation thereof.
(e) Parent and the Company agree that if this Agreement is
terminated by Parent pursuant to Section 7.1(n),
then the Company shall reimburse Parent 75% of Parents
Transaction Expenses and such amount shall be paid in
immediately available funds to Parent by the Company within five
business days of receipt of reasonable documentation thereof.
(f) Solely for purposes of this Section 7.2,
Company Acquisition Transaction and
Parent Acquisition Transaction shall have the
meanings ascribed thereto in Section 5.4 and
Section 5.5, respectively, except that all
references to twenty percent (20%) shall be changed to fifty
percent (50%).
(g) As used in this Agreement, the following terms shall
have the following meanings:
(i) Company Termination Fee shall mean
$150 million.
(ii) Parent Termination Fee shall mean
$350 million.
(iii) Transaction Expenses shall mean,
with respect to a party, such partys reasonably documented
expenses in connection with this Agreement and the Transactions
in an amount not to exceed $45 million.
(h) Upon payment of either the Company Termination Fee or
the Parent Termination Fee in accordance with this
Section 7.2, the paying party shall have no further
liability to the other party or its stockholders with respect to
this Agreement or the Transactions; provided, that
nothing herein shall release any party from liability for
intentional breach or fraud. The parties acknowledge and agree
that in no event shall a party be required to pay the Company
Termination Fee or the Parent Termination Fee on more than one
occasion.
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ARTICLE VIII
MISCELLANEOUS
Section 8.1 No Survival. None
of the representations, warranties, covenants and agreements in
this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Merger, except for covenants and
agreements which contemplate performance after the Effective
Time or otherwise expressly by their terms survive the Effective
Time.
Section 8.2 Expenses. Except
as otherwise provided in Section 7.2, whether or not
the Merger is consummated, all costs and expenses incurred in
connection with the Merger, this Agreement and the Transactions
shall be paid by the party incurring or required to incur such
expenses, except that the HSR Act filing fees and expenses
incurred in connection with the printing, filing and mailing of
the Joint Proxy Statement (including applicable SEC filing fees)
shall be borne equally by Parent and the Company.
Section 8.3 Counterparts;
Effectiveness. This Agreement may be executed in
two or more counterparts (including by facsimile), each of which
shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument, and shall
become effective when one or more counterparts have been signed
by each of the parties and delivered (by telecopy or otherwise)
to the other parties.
Section 8.4 Governing
Law. This Agreement shall be governed by and
construed in accordance with (a) the Laws of the State of
Maryland with respect to matters, issues and questions relating
to the Merger or the duties of the Board of Directors of the
Company or Merger Sub, (b) the Laws of the State of Ohio
with respect to matters, issues and questions relating to the
fiduciary duties of the Board of Directors of Parent, and
(c) the Laws of the State of New York with respect to all
other matters, issues and questions, without giving effect to
any choice or conflict of law provision or rule (whether of the
State of New York or any other jurisdiction) that would cause
the application of the Laws of any jurisdiction other than the
State of New York.
Section 8.5 Jurisdiction; Specific
Enforcement. The parties agree that irreparable
damage would occur in the event that any of the provisions of
this Agreement were not performed, or were threatened to be not
performed, in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that, in addition
to any other remedy that may be available to it, including
monetary damages, each of the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this
Agreement exclusively in the Federal court located in the
Borough of Manhattan in The City of New York. The parties
further agree that no party to this Agreement shall be required
to obtain, furnish or post any bond or similar instrument in
connection with or as a condition to obtaining any remedy
referred to in this Section 8.5 and each party
waives any objection to the imposition of such relief or any
right it may have to require the obtaining, furnishing or
posting of any such bond or similar instrument. In addition,
each of the parties hereto irrevocably agrees that any legal
action or proceeding with respect to this Agreement and the
rights and obligations arising hereunder, or for recognition and
enforcement of any judgment in respect of this Agreement and the
rights and obligations arising hereunder brought by the other
party hereto or its successors or assigns, shall be brought and
determined exclusively in the Federal court located in the
Borough of Manhattan in The City of New York. Each of the
parties hereto hereby irrevocably submits with regard to any
such action or proceeding for itself and in respect of its
property, generally and unconditionally, to the personal
jurisdiction of the aforesaid court and agrees that it will not
bring any action relating to this Agreement or any of the
Transactions in any court other than the aforesaid court. Each
of the parties
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hereto hereby irrevocably waives, and agrees not to assert, by
way of motion, as a defense, counterclaim or otherwise, in any
action or proceeding with respect to this Agreement,
(a) any claim that it is not personally subject to the
jurisdiction of the above named court for any reason other than
the failure to serve in accordance with this
Section 8.5, (b) any claim that it or its
property is exempt or immune from jurisdiction of such court or
from any legal process commenced in such court (whether through
service of notice, attachment prior to judgment, attachment in
aid of execution of judgment, execution of judgment or
otherwise) and (c) to the fullest extent permitted by the
applicable Laws, any claim that (i) the suit, action or
proceeding in such court is brought in an inconvenient forum,
(ii) the venue of such suit, action or proceeding is
improper or (iii) this Agreement, or the subject matter
hereof, may not be enforced in or by such court.
Section 8.6 WAIVER OF JURY
TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS.
Section 8.7 Notices. Any
notice required to be given hereunder shall be sufficient if in
writing, and sent by facsimile transmission (provided,
that any notice received by facsimile transmission or otherwise
at the addressees location on any non-business day or any
business day after 5:00 p.m. (addressees local time)
shall be deemed to have been received at 9:00 a.m.
(addressees local time) on the next business day), by
reliable overnight delivery service (with proof of service) or
hand delivery, addressed as follows:
To Parent or Merger Sub:
FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Facsimile:
(330) 761-4101
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Attention:
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Leila L. Vespoli, Esq.
Executive Vice President and
General Counsel
Gary D. Benz
Director, Business
Development
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with copies to:
Akin Gump Strauss Hauer & Feld LLP
1333 New Hampshire Avenue. N.W.
Washington, D.C. 20036
Facsimile:
(202) 887-4288
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Attention:
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Rick L. Burdick, Esq.
Zachary N. Wittenberg, Esq.
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To the Company:
Allegheny Energy, Inc.
800 Cabin Hill Drive
Greensburg, PA 15601
Facsimile:
(724) 853-4230
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Attention:
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David Feinberg, Esq.
Vice President, General
Counsel and Secretary
Kirk R. Oliver
Senior Vice President and
Chief Financial Officer
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with copies to:
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, DC
20005-2111
Facsimile:
(202) 393-5760
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Attention:
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Michael P. Rogan, Esq.
Pankaj K. Sinha, Esq.
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or to such other address as any party shall specify by written
notice so given, and such notice shall be deemed to have been
delivered as of the date so telecommunicated or personally
delivered. Any party to this Agreement may notify any other
party of any changes to the address or any of the other details
specified in this paragraph; provided,
however, that such notification shall only be effective
on the date specified in such notice or five business days after
the notice is given, whichever is later. Rejection or other
refusal to accept or the inability to deliver because of changed
address of which no notice was given shall be deemed to be
receipt of the notice as of the date of such rejection, refusal
or inability to deliver.
Section 8.8 Disclosure
Schedules. The parties hereto agree that any
reference in a particular Section of either the Company
Disclosure Schedule or the Parent Disclosure Schedule shall be
deemed to be an exception to (or, as applicable, a disclosure
for purposes of) (i) the representations and warranties (or
covenants, as applicable) of the relevant party that are
contained in the corresponding Section of this Agreement and
(ii) any other representations and warranties of such party
that is contained in this Agreement (regardless of the absence
of an express reference or cross-reference in a particular
Section of this Agreement or a particular Section of either the
Company Disclosure Schedule or Parent Disclosure Schedule), but
only if the relevance of that reference as an exception to (or a
disclosure for purposes of) such representations and warranties
would be reasonably apparent.
Section 8.9 Assignment; Binding
Effect. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by
any of the parties hereto without the prior written consent of
the other parties, except for assignments by Merger Sub to a
wholly-owned direct or indirect Subsidiary of Parent. Subject to
the preceding sentence, this Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their
respective successors and assigns.
Section 8.10 Severability. Any
term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the
remaining terms and provisions of this Agreement in any other
jurisdiction. If any provision of this Agreement is so
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broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
Section 8.11 Entire Agreement; No Third-Party
Beneficiaries. This Agreement (including the
exhibits and schedules hereto) and the Confidentiality Agreement
constitute the entire agreement, and supersede all other prior
agreements and understandings, both written and oral, between
the parties, or any of them, with respect to the subject matter
hereof and thereof and, except for the provisions of
Section 5.11, is not intended to and shall not
confer upon any person other than the parties hereto any rights
or remedies hereunder.
Section 8.12 Amendments;
Waivers. At any time prior to the Effective Time,
any provision of this Agreement may be amended or waived if, and
only if, such amendment or waiver is in writing and signed, in
the case of an amendment, by the Company, Parent and Merger Sub
or, in the case of a waiver, by the party against whom the
waiver is to be effective; provided,
however, that after receipt of Company Stockholder
Approval, if any such amendment or waiver shall by applicable
Law or in accordance with the rules and regulations of the NYSE
require further approval of the stockholders of the Company, the
effectiveness of such amendment or waiver shall be subject to
the approval of the stockholders of the Company. Notwithstanding
the foregoing, no failure or delay by the Company or Parent in
exercising any right hereunder shall operate as a waiver thereof
nor shall any single or partial exercise thereof preclude any
other or further exercise of any other right hereunder.
Section 8.13 Headings. Headings
of the Articles and Sections of this Agreement are for
convenience of the parties only and shall be given no
substantive or interpretive effect whatsoever. The table of
contents to this Agreement is for reference purposes only and
shall not affect in any way the meaning or interpretation of
this Agreement.
Section 8.14 Interpretation. When
a reference is made in this Agreement to an Article or Section,
such reference shall be to an Article or Section of 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. The words hereof,
herein and hereunder and words of
similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this
Agreement. All terms defined in this Agreement shall have the
defined meanings when used in any certificate or other document
made or delivered pursuant thereto unless otherwise defined
therein. The definitions contained in this Agreement are
applicable to the singular as well as the plural forms of such
terms and to the masculine as well as to the feminine and neuter
genders of such term. Any agreement, instrument or statute
defined or referred to herein or in any agreement or instrument
that is referred to herein means such agreement, instrument or
statute as from time to time amended, modified or supplemented,
including (in the case of agreements or instruments) by waiver
or consent and (in the case of statutes) by succession of
comparable successor statutes and references to all attachments
thereto and instruments incorporated therein. Each of the
parties has participated in the drafting and negotiation of this
Agreement. If an ambiguity or question of intent or
interpretation arises, this Agreement must be construed as if it
is drafted by all the parties, and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of
authorship of any of the provisions of this Agreement.
Section 8.15 Definitions. References
in this Agreement to Subsidiaries of any
party shall mean any corporation, partnership, association,
trust or other form of legal entity of which (i) more than
fifty percent (50%) of the voting power of the outstanding
voting securities are on the date hereof directly or indirectly
owned by such party or (ii) such party or any Subsidiary of
such party is a general partner on the date hereof (excluding
partnerships in which such party or any Subsidiary of such party
does not have a majority of the voting interests in such
partnership). References in this Agreement
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(except as specifically otherwise defined) to
affiliates shall mean, as to any person, any
other person which, directly or indirectly, controls, or is
controlled by, or is under common control with, such person. As
used in this definition, control (including,
with its correlative meanings, controlled by and
under common control with) shall mean the
possession, directly or indirectly, of the power to direct or
cause the direction of management or policies of a person,
whether through the ownership of securities or partnership or
other ownership interests, by contract or otherwise. References
in this Agreement (except as specifically otherwise defined) to
person shall mean an individual, a
corporation, a partnership, a limited liability company, an
association, a trust or any other entity, group (as such term is
used in Section 13 of the Exchange Act) or organization,
including a Governmental Entity, and any permitted successors
and assigns of such person. As used in this Agreement,
knowledge means (i) with respect to
Parent, the actual knowledge of the persons listed in
Section 8.15 of the Parent Disclosure Schedule and
(ii) with respect to the Company, the actual knowledge of
the persons listed in Section 8.15 of the Company
Disclosure Schedule. As used in this Agreement,
business day shall mean any day other than a
Saturday, Sunday or other day on which the banks in New York are
authorized by law or executive order to be closed. References in
this Agreement to specific laws or to specific provisions of
laws shall include all rules and regulations promulgated
thereunder. Any statute defined or referred to herein or in any
agreement or instrument referred to herein shall mean such
statute as from time to time amended, modified or supplemented,
including by succession of comparable successor statutes.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the date first
above written.
FIRSTENERGY CORP.
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By:
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/s/ Anthony
J. Alexander
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Name: Anthony J. Alexander
Title: President and
Chief Executive Officer
ELEMENT MERGER SUB, INC.
Name: Mark T. Clark
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Title:
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Executive Vice President and Chief Financial Officer
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ALLEGHENY ENERGY, INC.
Name: Paul J. Evanson
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Title:
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Chairman, President and Chief Executive Officer
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ANNEX B
FORM OF
PROPOSED AMENDMENT TO
AMENDED ARTICLES OF INCORPORATION OF FIRSTENERGY
CORP.
Article IV, Section A of the Amended Articles of
Incorporation of FirstEnergy Corp. shall be deleted in its
entirety and replaced as follows:
A. Authorized Capital Stock. The
Corporation is authorized to issue 495 million shares of
capital stock, consisting of five (5) million shares of
preferred stock, with par value of $100 per share
(Preferred Stock), and 490 million shares of
common stock, with par value of $0.10 per share (Common
Stock).
B-1
ANNEX C
1585 Broadway
New York, NY 10036
February 10,
2010
Board of Directors
FirstEnergy Corp.
76 South Main Street
Akron, Ohio 44308
Members of
the Board:
We understand that Allegheny Energy, Inc. (the
Company), FirstEnergy Corp. (the Buyer)
and Element Merger Sub, Inc., a wholly owned subsidiary of the
Buyer (Merger Sub), propose to enter into an
Agreement and Plan of Merger, substantially in the form of the
draft dated February 10, 2010 (the Merger
Agreement), which provides, among other things, for the
merger (the Merger) of Merger Sub with and into the
Company. Pursuant to the Merger, the Company will become a
wholly owned subsidiary of the Buyer, and each outstanding share
of common stock, par value $1.25 per share, of the Company (the
Company Common Stock), other than shares owned
directly or indirectly by the Buyer or Merger Sub or held by the
Company or any subsidiary of the Company, will be converted into
the right to receive 0.667 shares (the Exchange
Ratio) of common stock, par value $0.10 per share, of the
Buyer (the Buyer Common Stock), subject to
adjustment in certain circumstances. The terms and conditions of
the Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio
pursuant to the Merger Agreement is fair from a financial point
of view to the Buyer.
For purposes of the opinion set forth herein, we have:
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1)
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Reviewed certain publicly available financial statements and
other business and financial information of the Company and the
Buyer, respectively;
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2)
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Reviewed certain internal financial statements and other
financial and operating data concerning the Company and the
Buyer, respectively;
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3)
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Reviewed certain financial projections prepared by the
managements of the Company and the Buyer, respectively;
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4)
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Reviewed information relating to certain strategic, financial
and operational benefits anticipated from the Merger provided by
the management of the Buyer;
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5)
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Discussed the past and current operations and financial
condition and the prospects of the Company, including
information relating to certain strategic, financial and
operational benefits anticipated from the Merger, with senior
executives of the Company;
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6)
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Discussed the past and current operations and financial
condition and the prospects of the Buyer, including information
relating to certain strategic, financial and operational
benefits anticipated from the Merger, with senior executives of
the Buyer;
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7)
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Reviewed the pro forma impact of the Merger on the Buyers
earnings per share, cash flow, consolidated capitalization and
other financial ratios and metrics;
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8)
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Reviewed the reported prices and trading activity for the
Company Common Stock and the Buyer Common Stock;
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9)
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Compared the financial performance of the Company and the Buyer
and the prices and trading activity of the Company Common Stock
and the Buyer Common Stock with that of certain other
publicly-traded companies comparable with the Company and the
Buyer, respectively, and their securities;
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10)
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Reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
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11)
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Participated in discussions and negotiations among
representatives of the Company and the Buyer and their financial
and legal advisors;
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12)
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Reviewed the Merger Agreement and certain related
documents; and
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13)
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Performed such other analyses, reviewed such other information
and considered such other factors as we have deemed appropriate.
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We have assumed and relied upon, without independent
verification, the accuracy and completeness of the information
that was publicly available or supplied or otherwise made
available to us by the Company and the Buyer, and formed a
substantial basis for this opinion. With respect to the
financial projections, including information relating to certain
strategic, financial and operational benefits anticipated from
the Merger, we have assumed that they have been reasonably
prepared by or on behalf of the managements of the Company and
the Buyer, respectively, on bases reflecting the best currently
available estimates and judgments of the future financial
performance of the Company and the Buyer, respectively. We have
relied upon, without independent verification, the assessment by
the managements of the Company and the Buyer of: (i) the
strategic, financial and operational benefits expected to result
from the Merger; (ii) the timing and risks associated with
the integration of the Company and the Buyer; (iii) their
ability to retain key employees of the Company and the Buyer,
respectively; and (iv) the validity of, and risks
associated with, the Company and the Buyers existing and
future products, services, business models and technologies. In
addition, we have assumed that the Merger will be consummated in
accordance with the terms set forth in the Merger Agreement
without any waiver, amendment or delay of any terms or
conditions, including, among other things, that the Merger will
be treated as a tax-free reorganization
and/or
exchange, each pursuant to the Internal Revenue Code of 1986, as
amended. Morgan Stanley has assumed that in connection with the
receipt of all the necessary governmental, regulatory or other
approvals and consents required for the proposed Merger, no
delays, limitations, conditions or restrictions will be imposed
that would have a material adverse effect on the contemplated
benefits expected to be derived in the proposed Merger.
We are not legal, tax or regulatory advisors. We are financial
advisors only and have relied upon, without independent
verification, the assessment of the Buyer and the Company and
their respective legal, tax or regulatory advisors with respect
to legal, tax or regulatory matters. We express no opinion with
respect to the fairness of the amount or nature of the
compensation to any of the Companys officers, directors or
employees, or any class of such persons, relative to the
consideration to be paid to the holders of shares of the Company
Common Stock in the transaction. We have not made any
independent valuation or appraisal of the assets or liabilities
of the Company, nor have we been furnished with any such
appraisals. Our opinion is necessarily based on financial,
economic, market and other conditions as in effect on, and the
information made available to us as
C-2
of, the date hereof. Events occurring after the date hereof may
affect this opinion and the assumptions used in preparing it,
and we do not assume any obligation to update, revise or
reaffirm this opinion.
We have acted as financial advisor to the Board of Directors of
the Buyer in connection with this transaction and will receive a
fee for our services, significant portions of which are payable
upon the public announcement that the Buyer and the Company have
entered into the Merger Agreement and upon approval of the
Merger by the respective shareholders of the Buyer and the
Company, and the remainder of which is payable upon the closing
of the Merger. In the two years prior to the date hereof, we
have provided financial advisory and financing services for the
Buyer and the Company and have received fees in connection with
such services. In particular, as you know, a certain affiliate
of Morgan Stanley is a lender of $68 million in principal
amount in connection with the $1 billion credit facility,
dated as of September 24, 2009, of Allegheny Energy Supply
Company, LLC and a lender of $10 million in principal
amount in connection with the $350 million credit facility,
dated as of January 25, 2010, of Trans-Allegheny Interstate
Line Company, the borrower under each of which is a wholly owned
subsidiary of the Company. Morgan Stanley may also seek to
provide such services to the Buyer and the Company in the future
and expects to receive fees for the rendering of these services.
Please note that Morgan Stanley is a global financial services
firm engaged in the securities, investment management and
individual wealth management businesses. Our securities business
is engaged in securities underwriting, trading and brokerage
activities, foreign exchange, commodities and derivatives
trading, prime brokerage, as well as providing investment
banking, financing and financial advisory services. Morgan
Stanley, its affiliates, directors and officers may at any time
invest on a principal basis or manage funds that invest, hold
long or short positions, finance positions, and may trade or
otherwise structure and effect transactions, for their own
account or the accounts of its customers, in debt or equity
securities or loans of the Buyer, the Company or any other
company, or any currency or commodity, that may be involved in
this transaction, or any related derivative instrument.
This opinion has been approved by a committee of Morgan Stanley
investment banking and other professionals in accordance with
our customary practice. This opinion is for the information of
the Board of Directors of the Buyer and may not be used for any
other purpose without our prior written consent, except that a
copy of this opinion may be included in its entirety in any
filing the Buyer is required to make with the Securities and
Exchange Commission in connection with this transaction if such
inclusion is required by applicable law. In addition, this
opinion does not in any manner address the prices at which the
Buyer Common Stock will trade at any time and Morgan Stanley
expresses no opinion or recommendation as to how the
shareholders of the Buyer and the Company should vote at the
shareholders meetings to be held in connection with the
Merger.
C-3
Based on and subject to the foregoing, we are of the opinion on
the date hereof that the Exchange Ratio pursuant to the Merger
Agreement is fair from a financial point of view to the Buyer.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
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By:
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/s/ Jeffrey
R. Holzschuh
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Jeffrey R. Holzschuh
Vice Chairman
Managing Director
C-4
ANNEX D
Goldman, Sachs & Co.
ï
85 Broad Street
ï
New York, New York 10004
Tel:
212-902-1000
PERSONAL
AND CONFIDENTIAL
February 10, 2010
Board of Directors
Allegheny Energy, Inc.
800 Cabin Hill Drive
Greensburg, PA 15601
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a
financial point of view to the holders (other than FirstEnergy
Corp. (FirstEnergy) and its affiliates) of the
outstanding shares of common stock, par value $1.25 per share
(the Shares), of Allegheny Energy, Inc. (the
Company) of the exchange ratio of 0.667 shares
of common stock, par value $0.10 per share, of FirstEnergy
(FirstEnergy Common Stock) to be paid to such
holders for each Share (the Exchange Ratio) pursuant
to the Agreement and Plan of Merger, dated as of
February 10, 2010 (the Agreement), by and among
FirstEnergy, Element Merger Sub, Inc., a direct wholly-owned
subsidiary of FirstEnergy, and the Company.
Goldman, Sachs & Co. and its affiliates are engaged in
investment banking and financial advisory services, commercial
banking, securities trading, investment management, principal
investment, financial planning, benefits counseling, risk
management, hedging, financing, brokerage activities and other
financial and non-financial activities and services for various
persons and entities. In the ordinary course of these activities
and services, Goldman, Sachs & Co. and its affiliates
may at any time make or hold long or short positions and
investments, as well as actively trade or effect transactions,
in the equity, debt and other securities (or related derivative
securities) and financial instruments (including bank loans and
other obligations) of third parties, the Company, FirstEnergy
and any of their respective affiliates or any currency or
commodity that may be involved in the transaction contemplated
by the Agreement (the Transaction) for their own
account and for the accounts of their customers. We have acted
as financial advisor to the Company in connection with, and have
participated in certain of the negotiations leading to, the
Transaction. We expect to receive fees for our services in
connection with the Transaction, significant portions of which
are contingent upon approval of the Transaction by holders of
the requisite majority of Shares and consummation of the
Transaction, and the Company has agreed to reimburse our
expenses arising, and indemnify us against certain liabilities
that may arise, out of our engagement. In addition, we have
provided certain investment banking and other financial services
to the Company and its affiliates from time to time, including
having acted as senior co-manager with respect to a public
offering of fixed rate debt (aggregate principal amount of
$215,000,000) in October 2007, as senior co-manager with respect
to a public offering of fixed rate debt (aggregate principal
amount of $235,000,000) in June 2009, as joint-bookrunner with
respect to a public offering of the Companys
6.75% Senior Unsecured Notes due September 2039 (aggregate
principal amount of $250,000,000) in September 2009, and as
joint-bookrunner with respect to an offering of the
Companys 5.75% Senior Unsecured Notes due September
2019 (aggregate principal amount of $350,000,000) in September
2009. We also have provided certain investment banking and other
financial services to FirstEnergy and its affiliates from
D-1
time to time, including having acted as joint-lead bookrunner
with respect to an offering of FirstEnergys
7.70% Senior Unsecured Notes due January 2019 (aggregate
principal amount of $300,000,000) in January 2009, as
joint-bookrunner with respect to a public offering of
FirstEnergys 5.50% First Mortgage Bonds due August 2024
(aggregate principal amount of $300,000,000) in August 2009, and
as a counterparty with respect to various derivative
transactions entered into by FirstEnergy from 2007 to 2009. We
also may provide investment banking and other financial services
to the Company, FirstEnergy and their respective affiliates in
the future. In connection with the above-described services we
have received, and may receive, compensation.
In connection with this opinion, we have reviewed, among other
things, the Agreement; annual reports to stockholders and Annual
Reports on
Form 10-K
of the Company and FirstEnergy for the five fiscal years ended
December 31, 2008; certain interim reports to stockholders
and Quarterly Reports on
Form 10-Q
of the Company and FirstEnergy; certain other communications
from the Company and FirstEnergy to their respective
stockholders; certain publicly available research analyst
reports for the Company and FirstEnergy; and certain internal
financial analyses and forecasts for the Company prepared by its
management and certain internal financial analyses and forecasts
for FirstEnergy prepared by its management, as adjusted by the
management of the Company, in each case, as approved for our use
by the Company (the Forecasts). We also have held
discussions with members of the senior managements of the
Company and FirstEnergy regarding their assessment of the
strategic rationale for, and the potential benefits of, the
Transaction and the past and current business operations,
financial condition and future prospects of the Company and
FirstEnergy. In addition, we have reviewed the reported price
and trading activity for the Shares and for the shares of
FirstEnergy Common Stock, compared certain financial and stock
market information for the Company and FirstEnergy with similar
information for certain other companies the securities of which
are publicly traded, reviewed the financial terms of certain
recent business combinations in the utility industry and
performed such other studies and analyses, and considered such
other factors, as we considered appropriate.
For purposes of rendering this opinion, we have relied upon and
assumed, without assuming any responsibility for independent
verification, the accuracy and completeness of all of the
financial, legal, regulatory, tax, accounting and other
information provided to, discussed with or reviewed by us, and
we do not assume any liability for any such information. In that
regard, we have assumed with your consent that the Forecasts
have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of
the Company. In addition, we have not made an independent
evaluation or appraisal of the assets and liabilities (including
any contingent, derivative or off-balance-sheet assets and
liabilities) of the Company or FirstEnergy or any of their
respective subsidiaries and we have not been furnished with any
such evaluation or appraisal. We have assumed that all
governmental, regulatory or other consents and approvals
necessary for the consummation of the Transaction will be
obtained without any adverse effect on the Company or
FirstEnergy or on the expected benefits of the Transaction in
any way meaningful to our analysis. We also have assumed that
the Transaction will be consummated on the terms set forth in
the Agreement, without the waiver or modification of any term or
condition the effect of which would be in any way meaningful to
our analysis. We are not expressing any opinion as to the impact
of the Transaction on the solvency or viability of the Company
or FirstEnergy or the ability of the Company or FirstEnergy to
pay its obligations when they come due. Our opinion does not
address any legal, regulatory, tax or accounting matters.
Our opinion does not address the underlying business decision of
the Company to engage in the Transaction, or the relative merits
of the Transaction as compared to any strategic alternatives
that may be available to the Company. This opinion addresses
only the fairness from a financial point of view to the holders
(other than FirstEnergy and its affiliates) of Shares, as of the
date hereof, of the Exchange Ratio pursuant to the Agreement. We
do not express any view on, and our opinion does
D-2
not address, any other term or aspect of the Agreement or
Transaction or any term or aspect of any other agreement or
instrument contemplated by the Agreement or entered into or
amended in connection with the Transaction, including, without
limitation, the fairness of the Transaction to, or any
consideration received in connection therewith by, the holders
of any other class of securities, creditors, or other
constituencies of the Company; nor as to the fairness of the
amount or nature of any compensation to be paid or payable to
any of the officers, directors or employees of the Company or
class of such persons in connection with the Transaction,
whether relative to the Exchange Ratio pursuant to the Agreement
or otherwise. We are not expressing any opinion as to the prices
at which shares of FirstEnergy Common Stock will trade at any
time. Our opinion is necessarily based on economic, monetary,
market and other conditions as in effect on, and the information
made available to us as of, the date hereof and we assume no
responsibility for updating, revising or reaffirming this
opinion based on circumstances, developments or events occurring
after the date hereof. Our advisory services and the opinion
expressed herein are provided for the information and assistance
of the Board of Directors of the Company in connection with its
consideration of the Transaction and such opinion does not
constitute a recommendation as to how any holder of Shares
should vote with respect to such Transaction or any other
matter. This opinion has been approved by a fairness committee
of Goldman, Sachs & Co.
Based upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the Exchange Ratio pursuant to the
Agreement is fair from a financial point of view to the holders
(other than FirstEnergy and its affiliates) of Shares.
Very truly
yours,
/s/ Goldman,
Sachs & Co.
D-3
ANNEX E
Section 1701.85
of the Ohio Revised Code
1701.85
Dissenting shareholders compliance with
section fair cash value of shares.
(A)(1) A shareholder of a domestic corporation is entitled to
relief as a dissenting shareholder in respect of the proposals
described in sections 1701.74, 1701.76, and 1701.84 of the
Revised Code, only in compliance with this section.
(2) If the proposal must be submitted to the shareholders
of the corporation involved, the dissenting shareholder shall be
a record holder of the shares of the corporation as to which the
dissenting shareholder seeks relief as of the date fixed for the
determination of shareholders entitled to notice of a meeting of
the shareholders at which the proposal is to be submitted, and
such shares shall not have been voted in favor of the proposal.
Not later than ten days after the date on which the vote on the
proposal was taken at the meeting of the shareholders, the
dissenting shareholder shall deliver to the corporation a
written demand for payment to the dissenting shareholder of the
fair cash value of the shares as to which the dissenting
shareholder seeks relief, which demand shall state the
dissenting shareholders address, the number and class of
such shares, and the amount claimed by the dissenting
shareholder as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under
division (C) of section 1701.84 of the Revised Code in
the case of a merger pursuant to section 1701.80 of the
Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised
Code in the case of a merger pursuant to section 1701.801
of the Revised Code shall be a record holder of the shares of
the corporation as to which the dissenting shareholder seeks
relief as of the date on which the agreement of merger was
adopted by the directors of that corporation. Within twenty days
after the dissenting shareholder has been sent the notice
provided in section 1701.80 or 1701.801 of the Revised
Code, the dissenting shareholder shall deliver to the
corporation a written demand for payment with the same
information as that provided for in division (A)(2) of this
section.
(4) In the case of a merger or consolidation, a demand
served on the constituent corporation involved constitutes
service on the surviving or the new entity, whether the demand
is served before, on, or after the effective date of the merger
or consolidation. In the case of a conversion, a demand served
on the converting corporation constitutes service on the
converted entity, whether the demand is served before, on, or
after the effective date of the conversion.
(5) If the corporation sends to the dissenting shareholder,
at the address specified in the dissenting shareholders
demand, a request for the certificates representing the shares
as to which the dissenting shareholder seeks relief, the
dissenting shareholder, within fifteen days from the date of the
sending of such request, shall deliver to the corporation the
certificates requested so that the corporation may endorse on
them a legend to the effect that demand for the fair cash value
of such shares has been made. The corporation promptly shall
return the endorsed certificates to the dissenting shareholder.
A dissenting shareholders failure to deliver the
certificates terminates the dissenting shareholders rights
as a dissenting shareholder, at the option of the corporation,
exercised by written notice sent to the dissenting shareholder
within twenty days after the lapse of the
fifteen-day
period, unless a court for good cause shown otherwise directs.
If shares represented by a certificate on which such a legend
has been endorsed are transferred, each new certificate issued
for them shall bear a similar legend, together with the name of
the original dissenting holder of the shares. Upon receiving a
demand for payment from a dissenting shareholder who is the
record holder of uncertificated securities, the corporation
shall make an appropriate notation of the demand for payment in
its shareholder records. If uncertificated shares for which
payment has been
E-1
demanded are to be transferred, any new certificate issued for
the shares shall bear the legend required for certificated
securities as provided in this paragraph. A transferee of the
shares so endorsed, or of uncertificated securities where such
notation has been made, acquires only the rights in the
corporation as the original dissenting holder of such shares had
immediately after the service of a demand for payment of the
fair cash value of the shares. A request under this paragraph by
the corporation is not an admission by the corporation that the
shareholder is entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder
have come to an agreement on the fair cash value per share of
the shares as to which the dissenting shareholder seeks relief,
the dissenting shareholder or the corporation, which in case of
a merger or consolidation may be the surviving or new entity, or
in the case of a conversion may be the converted entity, within
three months after the service of the demand by the dissenting
shareholder, may file a complaint in the court of common pleas
of the county in which the principal office of the corporation
that issued the shares is located or was located when the
proposal was adopted by the shareholders of the corporation, or,
if the proposal was not required to be submitted to the
shareholders, was approved by the directors. Other dissenting
shareholders, within that three-month period, may join as
plaintiffs or may be joined as defendants in any such
proceeding, and any two or more such proceedings may be
consolidated. The complaint shall contain a brief statement of
the facts, including the vote and the facts entitling the
dissenting shareholder to the relief demanded. No answer to a
complaint is required. Upon the filing of a complaint, the
court, on motion of the petitioner, shall enter an order fixing
a date for a hearing on the complaint and requiring that a copy
of the complaint and a notice of the filing and of the date for
hearing be given to the respondent or defendant in the manner in
which summons is required to be served or substituted service is
required to be made in other cases. On the day fixed for the
hearing on the complaint or any adjournment of it, the court
shall determine from the complaint and from evidence submitted
by either party whether the dissenting shareholder is entitled
to be paid the fair cash value of any shares and, if so, the
number and class of such shares. If the court finds that the
dissenting shareholder is so entitled, the court may appoint one
or more persons as appraisers to receive evidence and to
recommend a decision on the amount of the fair cash value. The
appraisers have power and authority specified in the order of
their appointment. The court thereupon shall make a finding as
to the fair cash value of a share and shall render judgment
against the corporation for the payment of it, with interest at
a rate and from a date as the court considers equitable. The
costs of the proceeding, including reasonable compensation to
the appraisers to be fixed by the court, shall be assessed or
apportioned as the court considers equitable. The proceeding is
a special proceeding and final orders in it may be vacated,
modified, or reversed on appeal pursuant to the Rules of
Appellate Procedure and, to the extent not in conflict with
those rules, Chapter 2505. of the Revised Code. If, during
the pendency of any proceeding instituted under this section, a
suit or proceeding is or has been instituted to enjoin or
otherwise to prevent the carrying out of the action as to which
the shareholder has dissented, the proceeding instituted under
this section shall be stayed until the final determination of
the other suit or proceeding. Unless any provision in division
(D) of this section is applicable, the fair cash value of
the shares that is agreed upon by the parties or fixed under
this section shall be paid within thirty days after the date of
final determination of such value under this division, the
effective date of the amendment to the articles, or the
consummation of the other action involved, whichever occurs
last. Upon the occurrence of the last such event, payment shall
be made immediately to a holder of uncertificated securities
entitled to payment. In the case of holders of shares
represented by certificates, payment shall be made only upon and
simultaneously with the surrender to the corporation of the
certificates representing the shares for which the payment is
made.
E-2
(C) If the proposal was required to be submitted to the
shareholders of the corporation, fair cash value as to those
shareholders shall be determined as of the day prior to the day
on which the vote by the shareholders was taken and, in the case
of a merger pursuant to section 1701.80 or 1701.801 of the
Revised Code, fair cash value as to shareholders of a
constituent subsidiary corporation shall be determined as of the
day before the adoption of the agreement of merger by the
directors of the particular subsidiary corporation. The fair
cash value of a share for the purposes of this section is the
amount that a willing seller who is under no compulsion to sell
would be willing to accept and that a willing buyer who is under
no compulsion to purchase would be willing to pay, but in no
event shall the fair cash value of a share exceed the amount
specified in the demand of the particular shareholder. In
computing fair cash value, any appreciation or depreciation in
market value resulting from the proposal submitted to the
directors or to the shareholders shall be excluded.
(D)(1) The right and obligation of a dissenting shareholder to
receive fair cash value and to sell such shares as to which the
dissenting shareholder seeks relief, and the right and
obligation of the corporation to purchase such shares and to pay
the fair cash value of them terminates if any of the following
applies:
(a) The dissenting shareholder has not complied with this
section, unless the corporation by its directors waives such
failure;
(b) The corporation abandons the action involved or is
finally enjoined or prevented from carrying it out, or the
shareholders rescind their adoption of the action involved;
(c) The dissenting shareholder withdraws the dissenting
shareholders demand, with the consent of the corporation
by its directors;
(d) The corporation and the dissenting shareholder have not
come to an agreement as to the fair cash value per share, and
neither the shareholder nor the corporation has filed or joined
in a complaint under division (B) of this section within
the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the
merger, consolidation, or conversion has become effective and
the surviving, new, or converted entity is not a corporation,
action required to be taken by the directors of the corporation
shall be taken by the partners of a surviving, new, or converted
partnership or the comparable representatives of any other
surviving, new, or converted entity.
(E) From the time of the dissenting shareholders
giving of the demand until either the termination of the rights
and obligations arising from it or the purchase of the shares by
the corporation, all other rights accruing from such shares,
including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or
distribution is paid in money upon shares of such class or any
dividend, distribution, or interest is paid in money upon any
securities issued in extinguishment of or in substitution for
such shares, an amount equal to the dividend, distribution, or
interest which, except for the suspension, would have been
payable upon such shares or securities, shall be paid to the
holder of record as a credit upon the fair cash value of the
shares. If the right to receive fair cash value is terminated
other than by the purchase of the shares by the corporation, all
rights of the holder shall be restored and all distributions
which, except for the suspension, would have been made shall be
made to the holder of record of the shares at the time of
termination.
Effective Date:
07-01-1994;
10-12-2006
E-3
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
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Item 20.
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Indemnification
of Directors and Officers
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Section 1701.13(E) of the OGCL provides that an Ohio
corporation may indemnify any person who was or is a party, or
is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he
is or was a director, officer, employee or agent of that
corporation, or is or was serving at the request of the
corporation as a director, trustee, officer, employee, member,
manager, or agent of another entity against expenses, judgments,
fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or
proceeding, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal
matter, if he had no reasonable cause to believe his conduct was
unlawful. In addition, no indemnification shall be made in
respect of a claim against such person by or in the right of the
corporation, if the person is adjudged to be liable for
negligence or misconduct in the performance of his duty to the
corporation except to the extent provided in the court order.
Indemnification may be made if ordered by a court or authorized
in each specific case by the directors of the indemnifying
corporation acting at a meeting at which, for the purpose, any
director who is a party to or threatened with any such action,
suit or proceeding may not be counted in determining the
existence of a quorum and may not vote. If, because of the
foregoing limitations, the directors are unable to act in this
regard, such determination may be made by written opinion of
independent legal counsel other than an attorney, or a firm
having associated with it an attorney, who has been retained by
or who has performed services for the corporation or any person
to be indemnified during the five years preceding the date of
determination. Alternatively, such determination may be made by
the corporations shareholders.
Section 1701.13(E) of the OGCL provides that the
indemnification thereby permitted shall not be exclusive of any
other rights that directors, officers or employees may have,
including rights under insurance purchased by the corporation.
Regulation 31 of FirstEnergys amended code of
regulations provides as follows:
The Corporation shall indemnify, to the full extent then
permitted by law, any person who was or is a party or is
threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he
is or was a member of the Board of Directors or an officer,
employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, trustee, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. The Corporation shall pay,
to the full extent then required by law, expenses, including
attorneys fees, incurred by a member of the Board of
Directors in defending any such action, suit or proceeding as
they are incurred, in advance of the final disposition thereof,
and may pay, in the same manner and to the full extent then
permitted by law, such expenses incurred by any other person.
The indemnification and payment of expenses provided hereby
shall not be exclusive of, and shall be in addition to, any
other rights granted to those seeking indemnification under any
law, the Articles of Incorporation, any agreement, vote of
shareholders or disinterested members of the Board of Directors,
or otherwise, both as to action in official capacities and as to
action in another capacity while he or she is a member of the
Board of Directors, or an officer, employee or agent of the
Corporation, and shall continue as to a person who has ceased to
be a member of the Board of Directors, trustee,
II-1
officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Regulation 32 of FirstEnergys amended code of
regulations provides as follows:
The Corporation may, to the full extent then permitted by
law and authorized by the Board of Directors, purchase and
maintain insurance or furnish similar protection, including but
not limited to trust funds, letters of credit or self-insurance,
on behalf of or for any persons described in Regulation 31
against any liability asserted against and incurred by any such
person in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to
indemnify such person against such liability. Insurance may be
purchased from or maintained with a person in which the
Corporation has a financial interest.
Directors and Officers Liability
Insurance. The Registrant maintains and pays the
premium on contracts insuring it (with certain exclusions)
against any liability to directors and officers it may incur
under the above indemnity provisions and insuring each of its
directors and officers (with certain exclusions) against
liability and expense, including legal fees, which he or she may
incur by reason of his or her relationship to it.
Indemnification Agreements. The Registrant has
entered into indemnification agreements with its directors, the
forms of which are incorporated by reference to
Exhibits 10.1 and 10.2 of FirstEnergys
Form 10-Q
for the quarter ended March 31, 2009. Each indemnification
agreement provides, among other things, that the Registrant
will, subject to the agreement terms, indemnify a director if,
by reason of the individuals status as a director, the
person incurs losses, liabilities, judgments, fines, penalties,
or amounts paid in settlement in connection with any threatened,
pending, or completed proceeding, whether of a civil, criminal,
administrative, or investigative nature. In addition, each
indemnification agreement provides for the advancement of
expenses incurred by a director, subject to certain exceptions,
in connection with proceedings covered by the indemnification
agreement. As a director and officer, Mr. Alexanders
agreement addresses indemnity in both roles.
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Item 21.
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Exhibits
and Financial Statement Schedules
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Exhibit
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Number
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Exhibit Description
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(a)
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Exhibits
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2
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.1
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Agreement and Plan of Merger, dated as of February 10,
2010, by and among FirstEnergy Corp., Element Merger Sub, Inc.
and Allegheny Energy, Inc. (incorporated by reference to
FirstEnergys
Form 8-K
filed February 11, 2010, Exhibit 2.1, File
No. 333-21011)
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2
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.2**
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Amendment No. 1 to Agreement and Plan of Merger, dated as
of June 4, 2010, by and among FirstEnergy Corp., Element
Merger Sub, Inc. and Allegheny Energy, Inc.
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3
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.1
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Amended Articles of Incorporation of FirstEnergy Corp.
(incorporated by reference to FirstEnergys
Form 10-K
filed February 19, 2010, Exhibit 3.1, File
No. 333-21011)
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3
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.2
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FirstEnergy Corp. Amended Code of Regulations. (incorporated by
reference to FirstEnergys
Form 10-K
filed February 25, 2009, Exhibit 3.1, File
No. 333-21011)
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5
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.1*
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Opinion of Robert P. Reffner, Esq., Vice President, Legal,
FirstEnergy Service Company
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8
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.1*
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Opinion re tax matters from Akin Gump Strauss Hauer &
Feld LLP
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8
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.2*
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Opinion re tax matters from Skadden, Arps, Slate,
Meagher & Flom LLP
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10
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.1**
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Employment Agreement for Paul J. Evanson to be effective upon
completion of the merger
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23
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.1*
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Consent of Robert P. Reffner, Esq. (included in
Exhibit 5.1)
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23
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.2*
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Consent of Akin Gump Strauss Hauer & Feld LLP
(included in Exhibit 8.1)
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23
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.3*
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Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 8.2)
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II-2
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Exhibit
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Number
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Exhibit Description
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23
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.4*
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Consent of PricewaterhouseCoopers LLP (as independent registered
public accounting firm for FirstEnergy)
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23
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.5*
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Consent of Deloitte & Touche LLP (as independent
registered public accounting firm for Allegheny Energy)
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23
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.6*
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Consent of PricewaterhouseCoopers LLP (as independent registered
public accounting firm for Allegheny Energy)
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24
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.1**
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Power of attorney
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99
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.1**
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Form of Proxy for holders of FirstEnergy Common Stock
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99
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.2**
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Form of Proxy for holders of Allegheny Energy Common Stock
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99
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.3*
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Consent of Morgan Stanley & Co. Incorporated
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99
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.4*
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Consent of Goldman, Sachs & Co.
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99
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.5**
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Consent of Julia L. Johnson pursuant to Rule 438
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99
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.6**
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Consent of Ted J. Kleisner pursuant to Rule 438
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Schedules have been omitted pursuant to Item 601(b)(2) of
Regulation S-K.
The Registrant will furnish the omitted schedules to the
Securities and Exchange Commission upon request by the
Commission. |
The undersigned registrant hereby undertakes as follows:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) to include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the
Calculation of Registration Fee table in the
effective registration statement; and
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-3
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933,
each filing of the Registrants annual report pursuant to
Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plans annual report pursuant to
Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(1) The undersigned Registrant hereby undertakes as
follows: that prior to any public reoffering of the securities
registered hereunder through use of a prospectus, which is a
part of this Registration Statement, by any person or party who
is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the
applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The Registrant undertakes that every prospectus:
(i) that is filed pursuant to the immediately preceding
paragraph, or (ii) that purports to meet the requirements
of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to
Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment
is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into
the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the
registration statement through the date of responding to the
request.
The undersigned Registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration
statement when it became effective.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act, the
Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in Akron, Ohio, on the
16th day
of July, 2010.
FIRSTENERGY CORP.
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By:
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/s/ Anthony
J. Alexander
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Name: Anthony J. Alexander
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Title:
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President and Chief Executive Officer
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Pursuant to the requirements of the Securities Act, this
registration statement has been signed on the
16th day
of July, 2010, by the following persons in the capacities
indicated below:
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Signature
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Title
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/s/ Anthony
J. Alexander
Anthony
J. Alexander
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President and Chief Executive Officer (principal executive
officer) and Director
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/s/ Mark
T. Clark
Mark
T. Clark
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Executive Vice President and Chief Financial Officer (principal
financial officer)
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/s/ Harvey
L. Wagner
Harvey
L. Wagner
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Vice President, Controller and Chief Accounting
Officer (principal accounting officer)
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George
M. Smart
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Chairman of the Board
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Paul
T. Addison
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Director
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Michael
J. Anderson
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Director
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Carol
A. Cartwright
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Director
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William
T. Cottle
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Director
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II-5
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Signature
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Title
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Robert
B. Heisler, Jr.
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Director
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Ernest
J. Novak, Jr.
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Director
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Catherine
A. Rein
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Director
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Wes
M. Taylor
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Director
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Jesse
T. Williams, Sr.
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Director
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*
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/s/ Anthony J.
Alexander
Attorney-in-fact
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II-6
EXHIBIT INDEX
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Exhibit
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Number
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Exhibit Description
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2
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.1
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Agreement and Plan of Merger, dated as of February 10,
2010, by and among FirstEnergy Corp., Element Merger Sub, Inc.
and Allegheny Energy, Inc. (incorporated by reference to
FirstEnergys
Form 8-K
filed February 11, 2010, Exhibit 2.1, File
No. 333-21011)
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2
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.2**
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Amendment No. 1 to Agreement and Plan of Merger, dated as
of June 4, 2010, by and among FirstEnergy Corp., Element
Merger Sub, Inc. and Allegheny Energy, Inc.
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3
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.1
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Amended Articles of Incorporation of FirstEnergy Corp.
(incorporated by reference to FirstEnergys
Form 10-K
filed February 19, 2010, Exhibit 3.1, File
No. 333-21011)
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3
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.2
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FirstEnergy Corp. Amended Code of Regulations. (incorporated by
reference to FirstEnergys
Form 10-K
filed February 25, 2009, Exhibit 3.1, File
No. 333-21011)
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5
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.1*
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Opinion of Robert P. Reffner, Esq., Vice President, Legal,
FirstEnergy Service Company
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8
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.1*
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Opinion re tax matters from Akin Gump Strauss Hauer &
Feld LLP
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8
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.2*
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Opinion re tax matters from Skadden, Arps, Slate,
Meagher & Flom LLP
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10
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.1**
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Employment Agreement for Paul J. Evanson to be effective upon
completion of the merger
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23
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.1*
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Consent of Robert P. Reffner, Esq. (included in
Exhibit 5.1)
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23
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.2*
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Consent of Akin Gump Strauss Hauer & Feld LLP
(included in Exhibit 8.1)
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23
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.3*
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Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 8.2)
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23
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.4*
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Consent of PricewaterhouseCoopers LLP (as independent registered
public accounting firm for FirstEnergy)
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23
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.5*
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Consent of Deloitte & Touche LLP (as independent
registered public accounting firm for Allegheny Energy)
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23
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.6*
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Consent of PricewaterhouseCoopers LLP (as independent registered
public accounting firm for Allegheny Energy)
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24
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.1**
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Power of attorney
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99
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.1**
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Form of Proxy for holders of FirstEnergy Common Stock
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99
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.2**
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Form of Proxy for holders of Allegheny Energy Common Stock
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99
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.3*
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Consent of Morgan Stanley & Co. Incorporated
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99
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.4*
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Consent of Goldman, Sachs & Co.
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99
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.5**
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Consent of Julia L. Johnson pursuant to Rule 438
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99
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.6**
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Consent of Ted J. Kleisner pursuant to Rule 438
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Schedules have been omitted pursuant to Item 601(b)(2) of
Regulation S-K.
The Registrant will furnish the omitted schedules to the
Securities and Exchange Commission upon request by the
Commission. |
II-7