SCHEDULE 14A
(Rule 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission
[ ] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-11(c) or Rule 14a-12
ORION POWER HOLDINGS, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
N/A
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[x] Fee computed below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $.01 per share
--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
103,500,186
--------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (Set forth the amount on which the filing
fee is calculated and state how it was determined):
$26.80
--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$2,773,804,985
--------------------------------------------------------------------------------
(5) Total fee paid:
$554,761
--------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
--------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
--------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------------------
(3) Filing Party:
--------------------------------------------------------------------------------
(4) Date Filed:
--------------------------------------------------------------------------------
ORION POWER HOLDINGS, INC.
7 East Redwood Street, 10th Floor
Baltimore, Maryland 21202
_________, 2001
To Our Stockholders:
You are cordially invited to attend a special meeting of stockholders of
Orion Power Holdings, Inc. to be held on ___________, 2001 at 11:00 a.m., local
time, at the Hyatt Regency Baltimore Inner Harbor Hotel, 300 Light Street,
Baltimore, Maryland 21202.
At the special meeting you will be asked to consider and vote upon a
proposal to approve the Agreement and Plan of Merger, dated as of September 26,
2001, by and among Orion Power, Reliant Resources, Inc. and its wholly owned
subsidiary, Reliant Energy Power Generation Merger Sub, Inc. If the merger
contemplated by the merger agreement is completed, Orion Power will become a
subsidiary of Reliant Resources, and each of your shares of Orion Power common
stock will be converted into the right to receive $26.80 in cash.
Your board of directors has determined that the merger is in the best
interests of Orion Power and its stockholders. ACCORDINGLY, YOUR BOARD HAS
APPROVED THE MERGER AGREEMENT AND THE MERGER, DECLARED THEM ADVISABLE, AND
RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT AND THE MERGER
AT THE SPECIAL MEETING.
The accompanying notice of special meeting and proxy statement explain the
proposed merger and provide specific information concerning the special meeting.
We encourage you to read these materials carefully.
We cannot complete the merger unless holders of a majority of all of the
outstanding shares of Orion Power common stock vote to approve and adopt the
merger agreement and the merger. Orion Power stockholders who, in the aggregate,
own approximately 60% of the total number of outstanding shares of Orion Power
common stock entitled to vote at the special meeting have entered into
stockholder agreements with Reliant Resources in which each of those
stockholders has agreed to vote its Orion Power shares in favor of the merger.
As a result, Orion Power stockholder approval of the merger is assured.
Whether or not you plan to be present at the special meeting, please sign
and return your proxy as soon as possible in the enclosed self-addressed
envelope so that your vote will be recorded. You can also vote your shares of
Orion Power common stock through the Internet or by telephone by following the
instructions on the enclosed proxy card.
JACK A. FUSCO
Chief Executive Officer and President
This proxy statement is dated __________, 2001, and is first being mailed
to stockholders on or about _________, 2001.
PRELIMINARY COPIES
ORION POWER HOLDINGS, INC.
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON _________, 2001
----------------
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Orion
Power Holdings, Inc., a Delaware corporation, will be held on ______, 2001, at
11:00 a.m., local time, at the Hyatt Regency Baltimore Inner Harbor Hotel, 300
Light Street, Baltimore, Maryland 21202 to consider and vote upon a proposal to
approve and adopt the Agreement and Plan of Merger, dated as of September 26,
2001, by and among Orion Power, Reliant Resources, Inc., a Delaware corporation,
and Reliant Energy Power Generation Merger Sub, Inc., a Delaware corporation and
a wholly owned subsidiary of Reliant Resources, pursuant to which Reliant Energy
Power Generation Merger Sub will be merged with and into Orion Power and each
share of Orion Power common stock, par value $.01, outstanding immediately prior
to the merger (other than shares held by Orion Power, Reliant Resources or their
respective subsidiaries, which will be cancelled) will be converted into the
right to receive $26.80 in cash, without interest.
Stockholders of record at the close of business on _________, 2001 shall be
entitled to notice of, and to vote at, the special meeting and any adjournments
of the special meeting.
By Order of the Board of Directors,
W. THADDEUS MILLER
Secretary
Dated: ______, 2001
Baltimore, Maryland
IMPORTANT: TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING,
PLEASE VOTE IN ONE OF THESE WAYS:
* USE THE TOLL-FREE NUMBER shown on your proxy card;
* VISIT THE WEB SITE noted on your proxy card to vote via the Internet;
* MARK, SIGN, DATE AND PROMPTLY RETURN the enclosed proxy card in the
postage-paid envelope; OR
* VOTE IN PERSON by appearing at the special meeting and submitting a
ballot at the meeting.
SUMMARY TERM SHEET FOR THE MERGER
This summary term sheet for the merger highlights selected information from
this proxy statement regarding the merger and the merger agreement and may not
contain all of the information that is important to you as an Orion Power
stockholder. Accordingly, we encourage you to carefully read this entire
document and the documents to which we have referred you.
THE PROPOSED TRANSACTION
THE PROPOSAL (PAGE ___). You are being asked to consider and vote upon a
proposal to approve and adopt the agreement and plan of merger, or "merger
agreement," that provides for Orion Power to be acquired by Reliant
Resources.
WHAT YOU WILL RECEIVE (PAGE ___). Upon completion of the merger, you will
be entitled to receive $26.80 in cash, without interest, for each of your
shares of Orion Power common stock, unless you properly dissent. See "The
Merger Agreement--Merger Consideration."
THE ACQUIROR (PAGE ___). Reliant Resources, Inc., headquartered in Houston,
Texas, provides electricity and energy services to wholesale and retail
customers in the United States and Europe.
ORION POWER'S RECOMMENDATION TO STOCKHOLDERS (PAGE ___)
Your board of directors has determined, by a unanimous vote, that the
merger agreement and the merger are advisable and in the best interests of Orion
Power and its stockholders and has approved and adopted the merger agreement and
the merger. Your board recommends that you vote FOR approval and adoption of the
merger agreement and the merger at the special meeting.
OPINION OF GOLDMAN, SACHS & CO. (PAGE ___ AND APPENDIX B)
When it approved the merger agreement, our board received the oral opinion
of Goldman, Sachs & Co., our financial advisor, which was later confirmed in
writing that, as of the date of that opinion, and based upon and subject to the
matters and various assumptions stated in that opinion, the $26.80 per share in
cash to be received by the Orion Power stockholders pursuant to the merger
agreement was fair to our stockholders from a financial point of view.
Goldman Sachs provided its advisory services and its opinion for the
information and assistance of the Orion Power board in connection with its
consideration of the merger. Goldman Sachs' opinion is not a recommendation as
to how any Orion Power stockholder should vote at the special meeting. THE
OPINION IS ATTACHED AS APPENDIX B TO THIS PROXY STATEMENT AND YOU ARE URGED TO
READ THE OPINION IN ITS ENTIRETY.
In addition to its role as Orion Power's financial advisor, investment
funds affiliated with Goldman Sachs collectively are the largest stockholder of
Orion Power. These entities have entered into a stockholder agreement whereby
they have agreed to vote their shares in favor of the merger. Goldman, Sachs &
Co. is also the employer of three members of Orion Power's
-i-
board. See "--Interests of Certain Persons in the Merger" and "The
Merger--Interests of Certain Persons in the Merger."
THE SPECIAL MEETING
DATE, TIME AND PLACE (PAGE ___). The special meeting will be held on
__________, 2001 at 11:00 a.m., local time at The Hyatt Regency Baltimore
Inner Harbor Hotel, 300 Light Street, Baltimore, Maryland 21202.
REQUIRED VOTE (PAGE ___). Approval and adoption of the merger agreement and
the merger requires the affirmative vote of the holders of a majority of
the outstanding shares of Orion Power common stock. Orion Power
stockholders who, in the aggregate, own approximately 60% of the total
number of outstanding shares of Orion Power common stock as of the record
date for the special meeting entered into stockholder agreements with
Reliant Resources whereby each of those stockholders has agreed to vote its
shares of Orion Power common stock in favor of the merger. See "The
Stockholder Agreements." As a result, Orion Power stockholder approval of
the merger is assured.
WHO MAY VOTE (PAGE ___). You are entitled to receive notice of, and to vote
at, the special meeting if you owned shares of Orion Power common stock at
the close of business on _____________, 2001, the record date for the
special meeting. _____________ shares of Orion Power common stock were
outstanding as of the record date and are entitled to be voted at the
special meeting.
PROCEDURE FOR VOTING (PAGE ___). You may vote in any of four ways:
(1) by completing and returning the enclosed proxy card by mail;
(2) by appointing a proxy to vote your shares through the Internet as
outlined on the enclosed proxy card;
(3) by appointing a proxy to vote your shares by telephone as outlined on
the enclosed proxy card; or
(4) by appearing and voting in person by ballot at the special meeting.
You may revoke your proxy at any time before it is voted at the special
meeting by:
* filing with the Secretary of Orion Power a written, later-dated notice
of revocation;
* submitting a later-dated proxy relating to the same shares to the
Secretary of Orion Power by mail, telephone or Internet; or
* attending the special meeting and voting in person by ballot.
-ii-
THE MERGER
THE STRUCTURE (PAGE ___). Upon the terms and conditions of the merger
agreement, a wholly owned subsidiary of Reliant Resources will merge with
and into Orion Power. Orion Power will become a wholly owned subsidiary of
Reliant Resources. You will have no equity interest in Orion Power or
Reliant Resources after the merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (PAGE ___). The merger will be a
taxable transaction to you. For United States federal income tax purposes,
you will generally recognize gain or loss in the merger in an amount
determined by the difference between the cash you receive and your tax
basis in Orion Power common stock. Because determining the tax consequences
of the merger can be complicated, you should consult your own tax advisor
in order to understand fully how the merger will affect you.
REGULATORY MATTERS (PAGE ___). Under United States federal antitrust law,
the merger may not be completed until we and Reliant Resources have made
filings with the United States Federal Trade Commission and the United
States Department of Justice and the applicable waiting periods have
expired or been terminated. We and Reliant Resources filed the requisite
notification reports with the Federal Trade Commission and the Department
of Justice on October __, 2001, and the applicable waiting period will
expire at 11:59 p.m. on November __, 2001, unless such period is terminated
earlier or extended.
The merger is subject to prior approval from the Federal Energy Regulatory
Commission, or the "FERC," under Section 203 of the Federal Power Act. The
focus of this review is on the competitive consequences of the merger, as
well as the effect on rates and regulation. We and Reliant Resources
believe that the merger satisfies the standards under Section 203 of the
Federal Power Act because there will be no adverse effect on competition,
rates or regulation and that the FERC will approve the merger. We and
Reliant Resources filed our application for authorization of the merger
with the FERC on ________, 2001. The Federal Power Act does not specify a
particular time frame within which the FERC must grant or deny
authorization. The merger is also conditioned on the FERC's acceptance of
a filing made by Reliant Resources on _________, 2001, under Section 205
of the Federal Power Act regarding the market-based rate tariffs of Orion
Power's subsidiaries.
The New York Public Service Commission, or the "NYPSC," may review the
merger under Section 70 of the New York Public Service Law. However, the
NYPSC will not review the merger of a parent of a wholesale generator
subject to lightened regulation, such as our subsidiaries, unless there
could be an adverse effect on retail customers. We and Reliant Resources
believe that the NYPSC will not review the merger because there will be no
adverse effect on competition or rates. Nevertheless, we and Reliant
Resources are asking the NYPSC to either declare that it will not review
the merger or, in the alternative, approve the merger. Should the NYPSC
decide to review the merger, the NYPSC conducts its review under the
"public interest" standard, which typically explores the effect of a merger
on competition and rates. We and Reliant Resources believe that even if the
NYPSC reviews the merger, the merger satisfies all of the criteria of the
-iii-
public interest standard. We and Reliant Resources filed a petition with
the NYPSC on ________, 2001. The New York Public Service Law does not
specify a particular time frame within which the NYPSC must grant or deny
its approval or declare that it will not review the merger.
We expect to receive all necessary regulatory approvals, and close the
transaction, in the first quarter of 2002. However, we cannot offer
assurances that the merger will receive the necessary regulatory approvals
or as to the timing for the grant or denial of these approvals.
APPRAISAL RIGHTS (PAGE ___ AND APPENDIX C). Delaware law entitles the
record holders of shares of Orion Power common stock who follow the
procedures specified in Section 262 of the Delaware General Corporation
Law, or the "DGCL," to have their shares of Orion Power common stock
appraised by the Delaware Court of Chancery and to receive, in place of the
merger consideration, the "fair value" of their shares of Orion Power
common stock, as may be determined by the court. The text of Section 262 of
the DGCL, which sets forth the requirements for stockholders to demand and
perfect their appraisal rights, is attached as Appendix C to this proxy
statement.
MERGER FINANCING (PAGE ___). The merger is not conditioned upon Reliant
Resources obtaining financing. Reliant Resources expects to fund the
transaction with current cash balances, existing Reliant Resources credit
facilities and a new acquisition financing facility, which will be in place
at or prior to closing.
THE MERGER AGREEMENT (PAGE ___ AND APPENDIX A)
CLOSING OF THE MERGER (PAGE ___). Before we can complete the merger, a
number of conditions must be satisfied or waived by the applicable party.
These include:
* approval and adoption of the merger agreement and the merger by holders
of a majority of the outstanding shares of Orion Power common stock;
* expiration or early termination of applicable waiting periods under
United States federal antitrust laws and approval by the FERC and the
NYPSC;
* absence of any legal prohibitions or restraints against the merger;
* each party's material compliance with its obligations under the merger
agreement; and
* accuracy, as qualified by materiality, of each party's representations
and warranties under the merger agreement.
We expect to complete the merger as promptly as practicable after all of
the conditions to the merger have been satisfied or waived.
TERMINATION OF THE MERGER AGREEMENT (PAGE ___). The merger agreement may be
terminated and the merger may be abandoned at any time prior to the
effective time of the
-iv-
merger (notwithstanding any approval of the merger agreement by the Orion
Power stockholders) by:
* mutual written consent of Orion Power and Reliant Resources;
* either party if the merger is not completed by September 30, 2002,
which date may be extended by up to 90 days by either Orion Power or
Reliant Resources if all conditions to completion of the merger have
been satisfied (or are capable of then being satisfied) except that the
merger has not received the necessary antitrust or regulatory approvals
or legal prohibitions are in effect against the merger;
* either party if any court or governmental agency issues a final and
nonappealable order preventing the merger;
* either party if there has been a material breach by the other party of
any representation, warranty, covenant or agreement contained in the
merger agreement which would result in a failure of a condition to the
non-breaching party's obligations under the merger agreement as
described in "The Merger Agreement--Conditions to the Merger" and
which cannot be cured prior to September 30, 2002, or if, applicable,
the extended termination date;
* Orion Power after giving Reliant Resources three days prior (but
revocable) written notice of its receipt of an acquisition proposal, in
order to enter into an agreement providing for an acquisition
transaction which is a superior proposal;
* Reliant Resources if our board has withdrawn or adversely amended in
any material respect its approval or recommendation to our stockholders
of the merger or the merger agreement; and
* either party if the merger agreement was not approved and adopted by
the Orion Power stockholders by reason of the failure to obtain the
required vote at the special meeting.
TERMINATION FEE IF MERGER IS NOT COMPLETED (PAGE ___). We must pay Reliant
Resources a termination fee of:
* $90 million if we terminate the merger agreement, after giving Reliant
Resources three days prior (but revocable) written notice of our
receipt of an acquisition proposal, in order to enter into a definitive
agreement providing for an acquisition transaction that is a superior
proposal; or
* $45 million if:
(1) Reliant Resources terminates the merger agreement because our board
has withdrawn or adversely amended in any material respect its
approval or recommendation to our stockholders of the merger or the
merger agreement, or
-v-
(2) either we or Reliant Resources terminates the merger agreement
because the merger agreement was not approved and adopted by our
stockholders by reason of the failure to obtain the required vote
at the special meeting,
and Reliant Resources was not at the time of termination in material
breach of its representations, warranties, covenants and agreements
contained in the merger agreement and prior to the time of the special
meeting, an acquisition proposal by a third party had been publicly
proposed or publicly announced and not withdrawn.
We must pay Reliant Resources an additional fee of $45 million if a fee
is payable pursuant to (1) or (2) immediately above and on or prior to
the nine-month anniversary of a termination of the merger agreement
which gives rise to the obligation to pay that fee we enter into an
agreement with respect to a 50% acquisition transaction or we or our
board recommend a third party tender-offer or exchange-offer which
would result in the offeror (other than The Goldman Sachs Group, Inc.
and its affiliates) beneficially owning in excess of 50% of the
outstanding shares of Orion Power common stock. We must pay the
additional $45 million fee upon completion of that acquisition
transaction or tender offer or exchange offer.
THE STOCKHOLDER AGREEMENTS (PAGE ___)
Reliant Resources entered into separate agreements with certain affiliates
of The Goldman Sachs Group, Inc., Constellation Enterprises, Inc., certain
affiliates of Mitsubishi Corporation and Tokyo Electric Power Company
International B.V. that obligate each of them individually to vote all of its
shares in favor of approval of the merger agreement and to vote all of its
shares against any other acquisition proposal by a third party. Together, these
stockholders own approximately 60% of the total outstanding shares of Orion
Power. Each of these stockholders' obligation to vote in favor of approval of
the merger agreement and not to transfer its shares of Orion Power common stock
terminates (a) upon the mutual agreement of the parties or (b) immediately upon
the earliest of (1) the date on which the merger agreement is terminated in
accordance with its terms, (2) the effective time of the merger and (3) an
amendment to the merger agreement which has not been consented to in writing in
advance by that stockholder, other than a ministerial amendment that would not
adversely affect that stockholder or the consideration to be received under the
merger agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE ___)
When our board considered the merger and the merger agreement, the board
was aware that certain of our officers and directors have interests and
arrangements that may be different from, or in addition to, your interests as
Orion Power stockholders. Each vested and unvested Orion Power stock option,
including those held by our directors and officers, will be cancelled and
converted into the right to receive a cash payment equal to the excess, if any,
of the merger consideration over the option's exercise price, multiplied by the
number of shares subject to the option. Pursuant to change in control agreements
approved by our board, certain of our executives will receive lump-sum cash
payments and other benefits if their employment is
-vi-
terminated under specified circumstances following the merger. Additionally,
these executives are eligible to participate in a retention pool established by
Orion Power under the terms of the merger agreement and may receive retention
payments from the retention pool. Other specified benefits will be accelerated
or paid upon completion of the merger. Under the merger agreement, Reliant
Resources, Orion Power and Reliant Energy Power Generation Merger Sub, Inc., or
"Merger Sub," will indemnify directors and officers of Orion Power, among
others, after the merger. Reliant Resources will also maintain in effect
policies of directors' and officers' liability insurance. See "The Merger
Agreement--Indemnification and Insurance."
Goldman, Sachs & Co., Orion Power's financial advisor, will be paid a fee
upon completion of the merger. In addition, through affiliated entities, The
Goldman Sachs Group, Inc. is the largest stockholder of Orion Power, owning
approximately 33% of the outstanding shares of Orion Power common stock, and
Orion Power's board includes three individuals who are employees of Goldman
Sachs.
-vii-
TABLE OF CONTENTS
PAGE
The Companies .................................................................1
Orion Power Holdings, Inc. ................................................1
Reliant Resources, Inc. ...................................................3
Merger Subsidiary .........................................................4
The Special Meeting ...........................................................5
The Proposal ..............................................................5
Record Date and Voting ....................................................5
Required Vote .............................................................5
Proxies; Revocation .......................................................6
Adjournments ..............................................................7
The Merger ....................................................................8
Background of the Merger ..................................................8
Orion Power's Reasons for the Merger; Recommendation of the Orion Power
Board of Directors .....................................................10
Projections ..............................................................12
Opinion of Orion Power's Financial Advisor ...............................13
Material Federal Income Tax Consequences .................................23
Governmental and Regulatory Approvals ....................................25
Accounting Treatment .....................................................27
Interests of Certain Persons in the Merger ...............................27
Merger Financing; Source and Amount of Funds .............................30
Appraisal Rights ......... ...............................................30
The Merger Agreement .........................................................33
Structure and Effective Time .............................................33
Merger Consideration .....................................................33
Payment Procedures .......................................................34
Treatment of Orion Power Stock Options ...................................34
Treatment of Orion Power Warrants ........................................34
Directors and Officers ...................................................34
Representations and Warranties ...........................................35
Covenants; Conduct of the Business of Orion Power Prior to the Merger ....36
No Solicitation ..........................................................37
Employee Benefits ........................................................38
Agreement to Cooperate; Antitrust and Regulatory Matters .................40
Indemnification and Insurance ............................................41
Purchases of Orion Power Equity Securities ...............................42
The Orion Power Board Recommendation .....................................42
Supplemental Indenture ...................................................42
Conditions to the Merger .................................................43
Important Definitions ....................................................43
Termination ..............................................................44
Termination Fee ..........................................................46
Expenses .................................................................46
-i-
The Stockholder Agreements ...............................................47
The Rights Agreement .....................................................48
Stock Ownership of Management and Certain Stockholders of Orion Power ....49
Market Price of Orion Power Common Stock and Dividend Information ........52
Forward-Looking Statements ...............................................53
Future Stockholder Proposals .............................................54
Where You Can Find More Information ......................................54
APPENDICES
Appendix A - Agreement and Plan of Merger, dated as of September 26, 2001...A-1
Appendix B - Opinion of Goldman, Sachs & Co., dated September 26, 2001......B-1
Appendix C - Section 262 of the Delaware General Corporation Law ...........C-1
-ii-
THE COMPANIES
ORION POWER HOLDINGS, INC.
We are a fast-growing electric power generating company committed to
delivering a broad range of wholesale energy and related products and services
to independent system operators, utilities, municipalities, cooperatives and
retail aggregators. We are growing our business by strategically acquiring,
developing and modernizing non-nuclear electric generating facilities located in
critical locations across the United States and Canada. We approach our business
with financial discipline, applying a rigorous and multi-faceted approach to
valuing acquisitions and development opportunities, including the strict
application of rate of return targets on invested capital. We currently own 81
plants with an aggregate capacity of 5,926 megawatts, or "MW." We also have two
projects under construction with a total capacity of 708 MW, with announced
plans to develop additional projects with a total capacity of 4,385 MW. If we
complete our announced projects, we will have an aggregate capacity of almost
11,000 MW in operation.
Our facilities currently in operation are diversified by fuel type and
geographically. The tables below set forth the assets owned by our regional
operating companies:
Orion Power New York, L.P. Facilities Summary
---------------------------------------------
CAPACITY
ASSET (MW) FUEL TYPE LOCATION SERVED
----- ------ --------- ---------------
Hydroelectric assets ...........650 Water Central and Northern
New York State
Assets located in New York
City:
Astoria Generating Station .1,265 Natural Gas/Oil New York City--
Queens
Gowanus Generating Station ...524 Natural Gas/Oil New York City--
Brooklyn
Narrows Generating Station ...271 Natural Gas/Oil New York City--
Brooklyn
Carr Street Generating Station .102 Natural Gas/Oil East Syracuse, NY
----
Total .................2,812
-----
1
Orion Power MidWest, L.P. Facilities Summary
--------------------------------------------
CAPACITY
ASSET (MW) FUEL TYPE LOCATION SERVED
----- ------ --------- ---------------
Avon Lake Generating Station .. 739 Coal Cleveland, OH
Brunot Island Generating
Station ....................... 234 Natural Gas/Oil Pittsburgh, PA
Ceredo Generating Station ..... 500 Natural Gas Ceredo, WV
Cheswick Generating Station ... 570 Coal Pittsburgh, PA
Elrama Generating Station ..... 487 Coal Pittsburgh, PA
New Castle Generating Station . 338 Coal West Pittsburg, PA
Niles Generating Station ...... 246 Coal Youngstown, OH
----
Total ................. 3,114
-----
Total Portfolio ....... 5,926
=====
In order to provide a broad range of energy products and services and to
better manage electric and fuel commodity risk, we seek to diversify the fuel
types of our facilities as set forth in the table below:
Fuel Type Summary
-----------------
FUEL TYPE CAPACITY PERCENTAGE
--------- -------- ----------
Coal ....................................... 2,297 39%
Natural Gas/Oil (Dual fuel capability) ..... 1,918 32%
Natural Gas ................................ 668 11%
Fuel Oil ................................... 393 7%
Water ...................................... 650 11%
----- ---
Total 5,926 100%
===== ===
In addition, we manage electric and fuel commodity price risk by attempting
to sell a majority of our output forward through long-term and short-term
contracts and purchase in advance the associated fuel to match the term of those
sales. We target to sell forward approximately 60-75% of our forecasted electric
energy output in advance.
Our strategy has been to acquire and develop a portfolio of premier
non-nuclear generating facilities in the United States and Canada that provide
electricity and related products for the regions in which they are located,
while seeking to maximize value for our stockholders. We have attempted to have
a significant market share in each region in which we choose to compete, and
believe we will become a prominent power generator in each of those regions. Our
strategy includes the following key elements:
* Attract and retain talented, entrepreneurial employees;
* Acquire additional high quality generating assets;
2
* Improve the operating performance and lower the operating costs of our
assets;
* Grow through expansion at our facilities and development of new
locations;
* Build strong relationships with local wholesale customers; and
* Actively manage energy and fuel merchant market risk.
We are a Delaware corporation and were incorporated in 1998. Our executive
offices are located at 7 East Redwood Street, 10th Floor, Baltimore, Maryland
21202; telephone: (410) 230-3500.
RELIANT RESOURCES, INC.
Reliant Resources, Inc., or "Reliant Resources," is a rapidly growing
provider of electricity and energy services with a focus on the competitive
segments of the electric power industry in the United States and Europe. Reliant
Resources acquires, develops and operates electric power generation facilities
that are not subject to traditional cost-based regulation and therefore can sell
power at prices determined by the market. Reliant Resources acquired its first
power generation facilities in 1998 and has grown its aggregate net generation
capacity to 13,515 MW, as of June 30, 2001. Reliant Resources also trades and
markets power, natural gas and other energy-related commodities and provides
related risk management services. Reliant Resources' trading, marketing, and
risk management skills complement its generation positions. The combination
provides greater scale and skill associated with the management of its fuel and
power positions, sophisticated commercial insights and an understanding of the
key regions in which Reliant Resources participates, and a wider range of ways
in which Reliant Resources participates in the market and is able to meet
customer needs.
Reliant Resources intends to become a provider of retail electric services
in Texas when the market opens to retail competition in January 2002 and in
other United States markets with favorable regulatory structures and profit
opportunities thereafter. Reliant Resources will initially succeed to a
significant retail electric customer base in the Houston, Texas metropolitan
area. It intends to build its retail business elsewhere by capitalizing on the
skills and systems it is building for the competitive market in Houston.
Reliant Resources believes that the combination of Reliant Resources' high
quality portfolio of power generation assets, its sophisticated trading,
marketing and risk management operations and its anticipated retail electric
customer base in Texas provides Reliant Resources with the foundation to
successfully capitalize on the attractive growth opportunities in the
deregulating electric power markets. Reliant Resources also engages in other
businesses, specifically eBusiness, communications and venture capital, that
Reliant Resources believes provide potential opportunities for future growth.
As of June 30, 2001, Reliant Resources owned or leased electric power
generation facilities with an aggregate net generating capacity of 13,515 MW
located in five regions of the United States and in the Netherlands. Reliant
Resources also had 4,402 MW of generating capacity under construction or
construction agency agreements as of that date. Reliant
3
Resources is evaluating strategic alternatives regarding its European assets.
The following table describes Reliant Resources' facilities.
Net Generating Capacity (In MW)
-------------------------------
UNDER
REGION OPERATING CONSTRUCTION TOTAL
--------------------------------------------------------------------------
Mid-Atlantic ....... 4,262 1,316 5,578
Southwest .......... 4,045 1,687 5,732
Mid-continent ...... 1,063 154 1,217
Florida ............ 619 464 1,083
Texas(1) ........... 50 781 831
Netherlands ........ 3,476 -- 3,476
--------------------------------------------------------------------------
TOTAL .............. 13,515 4,402 17,917
-----------------
(1) Reliant Resources also has an option, which is exercisable in January
2004, to acquire Reliant Energy's 81% interest in a company owning
14,040 MW of net generating capacity in Texas.
Reliant Energy, Incorporated, an international energy delivery and energy
services company, currently owns more than 80% of Reliant Resources' outstanding
shares. The other shares were sold in an initial public offering in May 2001.
Reliant Energy currently plans to distribute the remaining shares of Reliant
Resources that it owns to its stockholders within 12 months of the time of the
initial public offering.
Reliant Resources is a Delaware corporation and was incorporated in 2000.
Reliant Resources' executive offices are located at 1111 Louisiana, Houston,
Texas 77002; telephone: (713) 207-3000.
MERGER SUBSIDIARY
Reliant Energy Power Generation Merger Sub, Inc., or "Merger Sub," is a
Delaware corporation and wholly owned subsidiary of Reliant Resources,
incorporated by Reliant Resources in 2001 solely for the purpose of merging into
Orion Power. The mailing address of Merger Sub's principal executive offices is
c/o Reliant Resources, 1111 Louisiana, Houston, Texas 77002; telephone: (713)
207-3000.
4
THE SPECIAL MEETING
THE PROPOSAL
This proxy statement is being furnished to Orion Power stockholders in
connection with the solicitation of proxies by the Orion Power board for use at
a special meeting to be held on _______, 2001, at 11:00 a.m., local time, at the
Hyatt Regency Baltimore Inner Harbor Hotel, 300 Light Street, Baltimore,
Maryland 21202. The purpose of the special meeting is for you to consider and
vote upon a proposal to adopt and approve the Agreement and Plan of Merger,
dated as of September 26, 2001, by and among Orion Power, Reliant Resources and
Merger Sub, which provides for the merger of Merger Sub with and into Orion
Power. A copy of the merger agreement is attached as Appendix A to this proxy
statement. This proxy statement and the enclosed form of proxy are first being
mailed to Orion Power stockholders on or about ___________, 2001.
RECORD DATE AND VOTING
The holders of record of Orion Power common stock as of the close of
business on the record date, which was _________, 2001, are entitled to receive
notice of, and to vote at, the special meeting. On the record date, there were
_____________ shares of Orion Power common stock outstanding.
The holders of a majority of the shares of Orion Power common stock which
are outstanding on _________, 2001, represented in person or by proxy, will
constitute a quorum for purposes of the special meeting. A quorum is necessary
to hold the special meeting. Any shares of Orion Power common stock held in
treasury by Orion Power or by any of its subsidiaries are not considered to be
outstanding for purposes of determining a quorum. In accordance with Delaware
law, abstentions and properly executed broker non-votes will be counted as
shares present and entitled to vote for the purposes of determining a quorum.
"Broker non-votes" result when, under the rules of the New York Stock Exchange,
or "NYSE," brokers are precluded from exercising their voting discretion with
respect to the approval of non-routine matters such as the merger proposal, and,
thus, absent specific instructions from the beneficial owner of those shares,
brokers are not empowered to vote the shares with respect to the approval of
those proposals.
REQUIRED VOTE
Each share of Orion Power common stock which is outstanding on the record
date entitles the holder to one vote at the special meeting. Completion of the
merger requires the adoption and approval of the merger agreement and the merger
by the affirmative vote of the holders of a majority of the outstanding shares
of Orion Power common stock. Because the vote is based on the number of shares
of Orion Power common stock outstanding rather than on the number of votes cast,
failure to vote your shares is effectively a vote against the merger. In
addition, although treated as shares that are present and entitled to vote at
the special meeting for purposes of determining whether a quorum exists,
abstentions and properly executed broker non-votes will have the same effect as
votes against approval and adoption of the merger proposal. You may vote your
shares of Orion Power common stock in any of four ways:
5
(1) by completing and returning the enclosed proxy card by mail;
(2) by appointing a proxy to vote your shares through the Internet, as
outlined on the enclosed proxy card;
(3) by appointing a proxy to vote your shares by telephone, as outlined on
the enclosed proxy card; or
(4) by appearing and voting in person by ballot at the special meeting.
Orion Power stockholders who, in the aggregate, own approximately 60% of
the total number of shares of Orion Power common stock which are outstanding as
of the record date entered into stockholder agreements with Reliant Resources
whereby each of these stockholders has agreed to vote its shares of Orion Power
common stock in favor of the merger. See "The Stockholder Agreements." As a
result, Orion Power stockholder approval of the merger is assured.
As of the record date, our executive officers and directors other than
those affiliated with entities that have entered into stockholder agreements
owned an aggregate of ______ shares of Orion Power common stock, entitling them
to exercise approximately _____% of the voting power of Orion Power common stock
entitled to vote at the special meeting.
PROXIES; REVOCATION
If you vote your shares of Orion Power common stock by signing a proxy,
your shares will be voted at the special meeting as you indicate on your proxy
card. If no instructions are indicated on your signed proxy card, your shares of
Orion Power common stock will be voted FOR the approval and adoption of the
merger agreement and the merger. If you vote your shares of Orion Power common
stock through the Internet or by telephone, your shares will be voted at the
special meeting as instructed.
You may revoke your proxy at any time before the proxy is voted at the
special meeting. A proxy may be revoked prior to the vote at the special meeting
in any of three ways:
(1) by submitting a written revocation dated after the date of the proxy
that is being revoked to the Secretary of Orion Power at 7 East
Redwood Street, 10th Floor, Baltimore, Maryland 21202;
(2) by submitting a later-dated proxy relating to the same shares to the
Secretary of Orion Power by mail, telephone or Internet; or
(3) by attending the special meeting and voting in person by ballot.
Attendance at the special meeting will not, in itself, constitute
revocation of a previously granted proxy. If you do not hold your shares of
Orion Power common stock in your own name, you may revoke or change a previously
given proxy by following the instructions provided by the bank, broker or other
party, that is the registered owner of the shares.
6
Orion Power and Reliant Resources will share equally the costs associated
with printing and filing this proxy statement. Orion Power will pay the costs of
soliciting proxies for the special meeting. Our officers, directors and
employees may solicit proxies by telephone, mail, the Internet or in person.
However, they will not be paid for soliciting proxies. We will also request that
individuals and entities holding shares in their names, or in the names of their
nominees, that are beneficially owned by others, send proxy materials to and
obtain proxies from those beneficial owners, and will reimburse those holders
for their reasonable expenses in performing those services. We have retained
MacKenzie Partners, Inc. to assist us in the solicitation of proxies, using the
means referred to above, and will pay fees of up to $10,000, plus reimbursement
of out-of-pocket expenses.
ADJOURNMENTS
If no quorum exists (of stockholders present or represented by proxy), the
special meeting may be adjourned by the stockholders who are present or
represented by proxy. These stockholders may make this adjournment without
notice, other than announcement at the special meeting, until a quorum is
present or represented by proxy. At the adjourned meeting, if a quorum is
present or represented by proxy, the stockholders may transact any business
which might have been transacted at the original meeting. If the adjournment is
for more than 30 days, or, if after adjournment a new record date is set, we
must give notice of the adjourned meeting to each stockholder of record entitled
to vote at the meeting.
7
THE MERGER
BACKGROUND OF THE MERGER
Since our formation in March 1998, we have maintained a growth strategy
focused on acquiring and developing a portfolio of premier non-nuclear
generating facilities in the United States and Canada that provide electricity
and related products for the regions in which they are located. Our strategy
includes targeting for acquisition assets being divested by regulated utilities,
or being sold by independent power developers and unregulated owners of power
plants, as well as achieving growth through the increasing demand for
electricity, with the goal of becoming one of the ten largest power generators
in the United States, while maintaining strict financial controls.
On July 10, 2001, the chief executive of a large industry participant
contacted Jack Fusco, Chief Executive Officer and President of Orion Power, and
inquired whether Orion Power would consider a proposal to acquire Orion Power.
Mr. Fusco indicated that although Orion Power was not for sale, Orion Power, its
management and board of directors were always focused on the best way to create
stockholder value. Mr. Fusco then contacted other members of our management team
to discuss the inquiry. Shortly thereafter, our management and board met to
discuss the other company's potential interest, as well as Orion Power's
prospects and strategic direction and the future of the independent power
production industry. Management also discussed these matters with our financial
advisor, Goldman, Sachs & Co.
After considering then-current industry conditions, including an
anticipated decrease in the number of future acquisition opportunities, the
potential slowing or reversal of energy deregulation due to the California
energy crisis, the impact that a potential change in energy regulatory policy
would likely have on our growth prospects and our small size relative to our
competitors, our board decided that the initial expression of interest should be
explored. The board further determined that Orion Power stockholders would best
be served by determining whether an acquisition of Orion Power could
alternatively be developed with parties in addition to the party that had
contacted Mr. Fusco.
On July 24, 2001, we authorized our financial advisor to contact on our
behalf selected parties to ascertain whether those parties would be interested
in considering an acquisition of Orion Power. The following week, our financial
advisor contacted six parties to explore whether they might be interested in
such a transaction. We selected the group of six, with the assistance of our
financial advisor, following a review of a larger group of industry
participants, based on an assessment of each party's possible strategic
rationale for an acquisition and anticipated willingness and ability to pursue
and complete such a transaction, including regulatory considerations. Additional
parties, apparently learning of our inquiries, contacted Orion Power or our
financial advisor for information regarding a potential acquisition transaction
with us.
On July 30, 2001, our management and our financial advisor met to consider
the results of all of these initial contacts, and based upon those results, on
August 1, 2001, our financial advisor, on our behalf, sent instructions to seven
parties seeking written indications of interest with respect to an acquisition
transaction with us. On August 8, 2001, we received six preliminary non-binding
indications of interest based solely on publicly available information
8
about Orion Power. Over the next several days, four additional parties submitted
preliminary non-binding indications of interest. On August 13, 2001, our board
of directors met, with representatives of management and our financial advisor
present, to consider the preliminary indications received. The indications of
interest during this preliminary stage ranged from $25 to $33 per share. The
board determined that the values potentially realizable from the sale of Orion
Power might compare favorably to the values stockholders might realize from the
continued operation of Orion Power as an independent company, although no
definitive decision was made that Orion Power should be sold. Based upon a
review of the preliminary indications, we authorized our financial advisor to
invite four parties, including Reliant Resources, to conduct due diligence in
preparation for making final proposals. We entered into confidentiality
agreements with each of the four parties and offered each of them an opportunity
to review Orion Power's material agreements and information, as well as to meet
with our senior management and other selected senior personnel, and, in some
cases, visit some of our facilities.
On August 29, 2001, our financial advisor, on our behalf, sent final bid
instructions to the remaining interested parties and on August 30, 2001,
distributed a proposed merger agreement. Final proposals consisting of a bid
letter, signed financing commitments, if necessary, and a markup of the proposed
merger agreement were initially due on September 12, 2001. However, in light of
the terrorist attacks on September 11, 2001, we postponed the due date of the
bids until September 21, 2001.
On September 21, 2001, we received two proposals to acquire Orion Power for
cash -- Reliant Resources, at $25 per share, and the party which initially
contacted us, at $26 per share. Management, after consulting the finance
committee of the board, authorized our financial advisor to contact these two
parties on September 22, 2001, and request that they submit improved proposals
by mid-afternoon on September 23, 2001. After separate discussions between our
advisors and representatives of both parties, Reliant Resources increased its
bid to $26 per share while the other party did not revise its proposal. On
September 23, 2001, our board met, with representatives of management, our
financial advisor, our special legal counsel, Wachtell, Lipton, Rosen & Katz,
and our regulatory counsel, Kirkland & Ellis, present, to consider and discuss
in detail the terms of each proposal. After extensive discussion, the board
decided to authorize negotiations with both parties to determine whether either
proposal could be improved, in terms of both price and contract provisions.
After further discussions with our advisors and representatives of both
parties, on September 25, 2001 we received Reliant Resources' definitive offer
of $26.80 per share in cash and, from the other party, two alternative offers,
one of $26 per share in cash and the other consisting of a combination of cash
and the other company's common stock with a blended value on that date of less
than $26.80 per share. In addition, the other party's proposal remained subject
to significant negotiation of the definitive agreement and was subject to the
execution of stockholder agreements with our large stockholders that, as a
result of limitations which would remain in effect after termination of an
acquisition agreement, would have effectively precluded termination of that
acquisition agreement in order to accept a superior offer. It was a condition of
the Reliant Resources offer that our large stockholders enter into stockholder
agreements to support the Reliant Resources transaction; the terms of these
agreements were less restrictive than those proposed by the other party.
9
On September 25, 2001 our board met, with representatives of management,
our financial advisor and special counsel present, to consider these offers. Our
board reviewed the per share consideration proposed in the offers and received
analyses from our financial advisor. Our special counsel then reviewed for the
board the terms and conditions of the proposed merger agreement and stockholder
agreements that were being sought by Reliant Resources, and the terms and
conditions proposed by the other party. Our board also received our financial
advisor's oral opinion, which was later confirmed in writing, that, as of the
date of that opinion, and based upon and subject to the matters stated in the
opinion, the cash consideration to be received pursuant to the merger by the
Orion Power stockholders was fair from a financial point of view to such
stockholders. As a result of its deliberations, our board concluded that the
Reliant Resources proposal was superior to the proposals made by the other party
and authorized acceptance of the Reliant Resources proposal. See "--Orion
Power's Reasons for the Merger; Recommendation of the Orion Power Board of
Directors."
From September 25 to 26, representatives of Reliant Resources and Orion
Power finalized the terms of the merger agreement and representatives of Reliant
Resources, Orion Power and each of our large stockholders finalized the terms of
the stockholder agreements. On September 26, 2001, we and Reliant Resources
entered into the merger agreement (see "The Merger Agreement") and Reliant
Resources entered into stockholder agreements with several of our largest
stockholders (see "The Stockholder Agreements").
ORION POWER'S REASONS FOR THE MERGER; RECOMMENDATION OF THE ORION POWER BOARD OF
DIRECTORS
The Orion Power board of directors, at a special meeting held on September
25, 2001, unanimously determined that the merger and the merger agreement are in
the best interests of the Orion Power stockholders. Accordingly, the Orion Power
board recommends that you vote FOR approval and adoption of the merger and the
merger agreement at the special meeting. In the course of determining that the
merger and the merger agreement are in the best interests of the Orion Power
stockholders, the board consulted with management, as well as its financial and
legal advisors, and considered a number of factors in making its determination,
including:
(1) the board's familiarity with, and information provided by management
as to, the business, financial condition, results of operations,
current business strategy and future prospects, of Orion Power, the
nature of the markets in which we operate and our position
in such markets;
(2) management's review of the regulatory environment following
experiences with deregulation in the California market and the
resulting expected decline in opportunities to acquire power
generation assets and the impact of such a decline on our growth
strategy;
(3) management's review of regulatory developments and the environment
affecting the independent power production market structure and the
potential effect on Orion Power's earnings potential;
10
(4) management's review of the risks associated with achieving growth
targets through new project development rather than by acquisition of
existing power generation assets or companies;
(5) the scope and outcome of the process conducted to identify parties
having a potential interest and ability to acquire Orion Power and to
develop the definitive acquisition proposals described above (see
"--Background of the Merger");
(6) that the merger consideration is all cash, providing relative
certainty of value to Orion Power stockholders in the context of
recent volatility in the market price of Orion Power shares; in that
regard, the board took note of the general equity market decline since
the events of September 11, 2001;
(7) that the merger consideration of $26.80 in cash per Orion Power share
represents a premium of 40.3% over the closing price of Orion Power
common stock on September 25, 2001, the day prior to the announcement
of the transaction;
(8) that the merger consideration of $26.80 in cash per Orion Power share
represents an approximate discount of 2.0% to the offering price of
the Orion Power shares sold in the May 31, 2001 follow-on secondary
public offering;
(9) the opinion of Goldman Sachs that, as of the date of that opinion, and
based upon and subject to the matters stated in the opinion, the cash
consideration to be received pursuant to the merger by the Orion Power
stockholders was fair from a financial point of view to those
stockholders;
(10) the terms and conditions of the merger agreement and stockholder
agreements, including that the merger agreement proposed by Reliant
Resources did not include a financing condition and our management's
conclusion, based on consultation with its financial advisor and
information provided by Reliant Resources, that Reliant Resources was
reasonably capable of raising the financing that, together with its
existing cash and cash equivalents and existing credit facilities,
would be necessary to consummate the merger;
(11) the possibility that, under circumstances specified in the merger
agreement, Orion Power could conduct negotiations with a third party
and terminate the merger agreement if a superior proposal for a
business combination or acquisition of Orion Power were to be made.
The board recognized that the termination fee payable upon such
termination might discourage other parties that might otherwise have
an interest in a business combination with, or an acquisition of,
Orion Power (see "The Merger Agreement--Termination Fee");
(12) the board's conclusion that the merger with Reliant Resources offered
a higher per share value on that date and greater assurance of
consummation compared to the other definitive proposals received, and
that the other party's alternative proposals would have required
significant additional negotiations to reach an acceptable agreement
(if one could be reached at all) to address among other issues, the
greater conditionality of that party's proposals and the unacceptably
11
restrictive deal protection measures that were requested of us and our
largest stockholders;
(13) that gains arising from an all-cash transaction would be taxable to
Orion Power stockholders for United States federal income tax
purposes; and
(14) that, following consummation of the merger, the current Orion Power
stockholders, unless they reinvest their proceeds from the merger in
Reliant Resources securities, will no longer be able to participate,
directly or indirectly, in any increases or decreases in the value of
our businesses and properties.
In addition, the board was aware of the interests of certain of our
officers and directors described in "--Interests of Certain Persons in the
Merger."
The foregoing discussion addresses the material information and factors
considered by the board in its consideration of the merger, including factors
that support the merger as well as those that may weigh against it. In view of
the variety of factors and the quality and amount of information considered, the
board did not find it practicable to and did not make specific assessments of,
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determination. In addition, the board did not undertake to make
any specific determination as to whether any particular factor, or any aspect of
any particular factor, was favorable or unfavorable to its ultimate
determination. The determination to approve the merger was made after
consideration of all of the factors in the aggregate. Individual members of the
board may have given different weight to different factors.
PROJECTIONS
We do not as a matter of course make public projections as to our future
performance or earnings. However, in connection with the discussions concerning
the proposed merger, we furnished to Reliant Resources certain financial
forecasts for Orion Power prepared by our management and reviewed by our board.
The projections, which are set forth below, included forecasts of net
operating revenues, earnings before interest, taxes, depreciation and
amortization (EBITDA), income before extraordinary and non-recurring items and
diluted earnings per share (EPS) before extraordinary and non-recurring items
for Orion Power on a consolidated basis.
($ in millions, except per share data)
2002 2003 2004 2005
Revenue $1,303 $1,332 $1,604 $1,757
EBITDA 608 673 829 943
Net Income 168 193 238 283
EPS - Diluted (treating $1.52 $1.72 $2.08 $2.46
convertible debt on an
as-converted basis)
12
IMPORTANT INFORMATION ABOUT THE PROJECTIONS
We did not prepare these projections with a view to public disclosure and
we include them in this proxy statement only because we made this information
available to Reliant Resources. We did not prepare the projections with a view
to compliance with published guidelines of the Securities and Exchange
Commission, or "SEC," or the guidelines established by the American Institute of
Certified Public Accountants regarding projections or forecasts. Neither our
independent auditors nor any other independent accountants have compiled,
examined or performed any procedures with respect to the projections. The
projections represented our management's best estimates as of July 2001;
however, while presented with numeric specificity, the projections reflect
numerous assumptions made by our management with respect to industry
performance, general business, economic, market and financial conditions and
other matters, including assumed effective interest rates and effective tax
rates consistent with historical levels for Orion Power, all of which are
difficult to predict, many of which are beyond our control and none of which
were subject to approval by Reliant Resources. Accordingly, we cannot offer any
assurance that the assumptions made in preparing the projections will prove
accurate, and actual results may be materially greater or less than those
contained in the projections. Except to the extent required under the federal
securities laws, we do not intend to make publicly available any update or other
revisions to the projections to reflect circumstances existing after the date of
the preparation of the projections. See "Forward-Looking Statements."
OPINION OF ORION POWER'S FINANCIAL ADVISOR
When it approved the merger agreement, our board received the oral opinion
of Goldman, Sachs & Co. which was later confirmed in writing that, as of the
date of that opinion, and based upon and subject to the matters and various
assumptions stated in that opinion, the $26.80 per share in cash to be received
by the Orion Power stockholders pursuant to the merger agreement was fair to our
stockholders from a financial point of view.
The full text of the written opinion of Goldman Sachs, dated September 26,
2001, which sets forth assumptions made, matters considered and limitations on
the review undertaken in connection with the opinion, is attached as Appendix B
to this proxy statement. We urge you to, and you should, read the Goldman Sachs
opinion in its entirety. Goldman Sachs conducted its analysis and provided its
opinion for the information and assistance of our board in connection with its
consideration of the transactions contemplated by the merger agreement. The
Goldman Sachs opinion is not a recommendation as to how any Orion Power
stockholder should vote with respect to the approval of the merger agreement.
In connection with its opinion, Goldman Sachs reviewed, among other things:
* the agreement and plan of merger;
* our annual reports to Orion Power stockholders and annual reports on
Form 10-K for the year ended December 31, 2000;
* our registration statement on Form S-1, including the prospectus dated
November 13, 2000, relating to our initial public offering of shares
of Orion Power common stock;
13
* selected interim reports to Orion Power stockholders and our quarterly
reports on Form 10-Q;
* selected other communications from Orion Power to Orion Power
stockholders; and
* selected internal financial analyses and forecasts for Orion Power
prepared by Orion Power management.
Goldman Sachs also held discussions with Orion Power senior management
regarding their assessment of Orion Power's past and current business
operations, financial condition and future prospects of Orion Power. In
addition, Goldman Sachs:
* reviewed the reported price and trading activity for Orion Power
common stock;
* compared various financial and stock market information for Orion
Power with similar information for selected other companies that have
publicly traded securities;
* reviewed the financial terms of selected recent business combinations
in the United States electric power industry specifically and in other
industries generally; and
* performed other studies and analyses that Goldman Sachs considered
appropriate.
Goldman Sachs relied on the accuracy and completeness of all of the
financial, accounting and other information discussed with or reviewed by it and
assumed such accuracy and completeness for purposes of rendering its opinion. In
that regard, Goldman Sachs assumed, with the consent of the Orion Power board,
that the financial forecasts prepared by, or discussed with, the Orion Power
management had been reasonably prepared on a basis reflecting the best available
estimates and judgments of Orion Power as of the date of its opinion. In
addition, Goldman Sachs did not make an independent evaluation or appraisal of
Orion Power's assets and liabilities or those of any of its subsidiaries and has
not been furnished with any such evaluation or appraisal, nor did Goldman Sachs
address the merits of Orion Power's underlying decision to engage in the
transaction contemplated by the merger agreement in rendering its opinion.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its opinion to the Orion Power board.
This summary does not purport to be a complete description of the analyses
performed by Goldman Sachs. The following summary of the financial analyses
includes information presented in tabular form. In order to more fully
understand each financial analysis used by Goldman Sachs, each table must be
read together with the full text of the related part of the summary.
ANALYSIS OF RELIANT RESOURCES' OFFER
Goldman Sachs analyzed the offer price of $26.80 per share of Orion Power
common stock and compared it to the stock price for Orion Power for various
periods ending on September 25, 2001.
14
The results of this analysis are summarized as follows:
Purchase Price Per Share $26.80
Premium to Market Price (September 25, 2001) 45.3%
Premium to 52-Week High (17.8)%
Premium to 52-Week Low 64.5%
Premium to 30-Day Average 28.9%
Premium to 60-Day Average 23.9%
In addition, using estimates provided by our management, Goldman Sachs also
considered various ratios and multiples described below that were implied by the
proposed offer price of $26.80 per share of Orion Power common stock:
* equity consideration of Reliant Resources' offer (meaning the $26.80
price per share of Orion Power common stock multiplied by the number
of shares of Orion Power common stock outstanding on a fully diluted
basis);
* Orion Power's enterprise value (meaning the equity consideration of
Reliant Resources' offer plus Orion Power's indebtedness minus cash);
* enterprise value to Orion Power's historical and projected earnings
before interest, taxes, depreciation and amortization for the latest
12 months and for fiscal years 2001 and 2002, respectively;
* equity consideration to Orion Power's historical and projected net
income for the latest 12 months and for fiscal years 2001 and 2002,
respectively;
* price to 2002 estimated earnings divided by five year estimated annual
EPS growth rate, or "2002 PEG Ratio";
* enterprise value to kilowatts, or "KW," of generating capacity of
Orion Power's projects in operation; projects in operation and
projects under construction; and projects in operation, projects under
construction and projects under development, respectively; and
* price to Orion Power's book value as of June 30, 2001.
15
The results of this analysis are summarized as follows:
Equity Consideration ($mm) $2,946.5
Enterprise Value ($mm) $4,794.8
Enterprise value/EBITDA
Latest 12 months 11.7x
FY 2001E 9.3x
FY 2002E 7.9x
Equity consideration/Net income
Latest 12 months 57.5x
FY 2001E 24.7x
FY 2002E 17.5x
2002 PEG Ratio 0.7x
Enterprise value/KWs
Projects in Operation $809.1
Projects in Operation and Projects
Under Construction $578.8
Projects in Operation, Projects in
Construction and Projects Under
Development $361.4
Price to Book 1.8x
ORION POWER'S ACQUISITION HISTORY
Goldman Sachs analyzed the four principal transactions in which Orion Power
purchased generating capacity and the price paid per KW of generating capacity.
The following table summarizes this acquisition history and the date each
transaction was announced:
Sale Price
----------
Date Announced Seller ($mm) $/KW
-------------- ------ ----- -----
October 2, 2000 Columbia Electric $ 321 $321
September 28, 1999 DQE, Inc. $1,705 $652
March 3, 1999 Consolidated Edison $ 550 $296
December 3, 1998 Niagara Mohawk $ 425 $643
Weighted Average
Total: $3,001 ($/KW): $490
16
STOCK PRICE HISTORY
Goldman Sachs reviewed the historical stock price of the Orion Power common
stock from its initial public offering to September 24, 2001, both separately
and in relation to the S&P 500 and to an index comprising the following seven
power companies, which are referred to as the "power growth" companies:
Aquila, Inc. NRG Energy, Inc.
Calpine Corporation Reliant Resources, Inc.
Dynegy Inc. The AES Corporation
Mirant Corporation
Goldman Sachs also reviewed price and volume data for Orion Power common
stock, as well as the volume of shares of Orion Power common stock traded at
various price ranges.
SELECTED COMPANIES ANALYSIS
Goldman Sachs reviewed and compared selected financial information, ratios
and public market multiples relating to Orion Power to corresponding financial
information, ratios and public market multiples for the seven power growth
companies identified above. Goldman Sachs calculated and compared various
financial multiples and ratios based on the most recent publicly available
information, Wall Street estimates and I/B/E/S estimates. The multiples and
ratios for Orion Power and each of the seven selected companies were calculated
using closing share prices as of September 24, 2001. Goldman Sachs' analyses of
the selected companies compared the following to the results for Orion Power:
* estimated long-term EPS growth rate;
* projected 2002 estimated return on equity;
* total debt to total capitalization;
* announced MW target;
* price to 2002 estimated EPS;
* 2002 PEG Ratio;
* enterprise value to 2002 estimated EBITDA; and
* price to book ratio.
The results of this analysis, which include Orion Power in the high, low
and mean calculation, are summarized as follows:
17
Orion
-----
High Low Mean Power
---- --- ---- -----
Estimated long-term EPS growth
rate ................... 32% 20% 26% 24.5%
Projected 2002E
return on equity (ROE).. 23% 9% 15% 10%
Total debt to total
capitalization ......... 80.5% 10.3% 55.3% 62.4%
Announced MW target ...... 80,000 0 42,875 20,000
Price to 2002E earnings .. 13.4x 7.8x 10.3x 12.2x
2002 PEG Ratio ........... 0.7x 0.3x 0.4x 0.5x
Enterprise value to 2002E EBITDA 8.9x 4.0x 6.8x 6.4x
Price to book ratio ...... 3.0x 0.8x 2.0x 1.3x
Using publicly available information and estimates, Goldman Sachs also
compared price to earnings multiples, market value to book value ratios, and
2002 PEG Ratios for the seven selected power growth companies identified above,
as well as for selected other companies in the United States electric power
industry, classifying them into the following sub-sectors:
* the following 13 "generation focus" companies:
Allegheny Energy, Inc. PG&E Corporation
American Electric Power Company, Inc. PPL Corporation
Constellation Energy Group, Inc. PSEG Energy Holdings Inc.
Edison International TECO Energy, Inc.
Entergy Corporation UtiliCorp United Inc.
Exelon Corporation Xcel Energy Inc.
FPL Group, Inc.
* the following five "energy convergence" companies:
Dominion Resources, Inc. Enron Corp.
Duke Energy Corporation The Williams Companies, Inc.
El Paso Corporation
18
* the following 16 "integrated utilities":
ALLETE, Inc. OGE Energy Corp.
Ameren Corporation Pinnacle West Capital Corporation
Cinergy Corp. Progress Energy, Inc.
CMS Energy Corporation Reliant Energy, Incorporated
DPL Inc. SCANA Corporation
DTE Energy Company Sierra Pacific Resources
FirstEnergy Corp. Southern Energy, Inc.
Kansas City Power & Light Company TXU Corp.
* the following six "electric wires" companies:
Consolidated Edison, Inc. Northeast Utilities
DQE, Inc. NSTAR
Energy East Corporation Potomac Electric Power Company
The results of this analysis are summarized as follows:
2002 Market/ 2002
P/E Multiples Book Value PEG Ratio
------------- ------------ -----------
Mean Median Mean Median Mean Median
---- ------ ---- ------ ---- ------
Power Growth Companies 10.1x 9.7x 2.1x 2.4x 0.4x 0.4x
Generation Focus Companies 9.9x 10.3x 1.7x 1.8x 1.2x 1.0x
Energy Convergence Companies 11.8x 12.0x 2.3x 2.2x 0.9x 0.8x
Integrated Utilities 11.3x 11.3x 2.0x 2.0x 1.1x 1.1x
Electric Wires Companies 10.9x 11.3x 3.2x 2.9x 2.0x 1.9x
These multiples and ratios compare to the multiples and ratios for Orion
Power based upon the closing price per share of its common stock on September
24, 2001 and based upon the values implied by Reliant Resources' $26.80 per
share offer, as follows:
2002 Market/ 2002
P/E Multiples Book Value PEG Ratio
------------- ---------- ---------
Orion Power (as of
September 24, 2001) 12.2x 1.3x 0.5x
Values Implied by Reliant
Resources' $26.80 per share
offer 17.5x 1.8x 0.7x
HYPOTHETICAL FUTURE TRADING RANGE ANALYSIS
Assuming a range of forward price to earnings ratios, or "Forward P/E,"
ranging from 10x to 16x, and using earnings estimates provided by Orion Power
management, Goldman Sachs calculated a range of potential future stock prices
for Orion Power common stock in 2001, 2002,
19
2003 and 2004. Assuming a cost of equity ranging from 14% to 20%, Goldman Sachs
calculated the present value of these potential future stock prices.
The following tables summarize the results of the hypothetical future
trading range analysis:
Assuming Exit at End of 2004
----------------------------
14% 16% 18% 20%
----- ----- ----- -----
Forward P/E 10.0 x 16.59 15.68 14.83 14.04
12.0 x 19.91 18.82 17.80 16.85
14.0 x 23.23 21.95 20.77 19.66
16.0 x 26.55 25.09 23.73 22.47
Assuming Exit at End of 2003
----------------------------
14% 16% 18% 20%
----- ----- ----- -----
Forward P/E 10.0 x 16.01 15.40 14.82 14.27
12.0 x 19.21 18.48 17.78 17.12
14.0 x 22.41 21.55 20.74 19.97
16.0 x 25.62 24.63 23.70 22.82
Assuming Exit at End of 2002
----------------------------
14% 16% 18% 20%
----- ----- ----- -----
Forward P/E 10.0 x 15.03 14.70 14.39 14.09
12.0 x 18.03 17.64 17.27 16.91
14.0 x 21.04 20.58 20.15 19.73
16.0 x 24.04 23.52 23.03 22.55
Assuming Exit at End of 2001
----------------------------
14% 16% 18% 20%
----- ----- ----- -----
Forward P/E 10.0 x 15.00 14.94 14.87 14.81
12.0 x 18.00 17.92 17.85 17.77
14.0 x 21.00 20.91 20.82 20.73
16.0 x 24.00 23.90 23.79 23.69
SELECTED TRANSACTIONS ANALYSIS
Goldman Sachs analyzed publicly available information relating to 21
selected transactions in the United States electric and utility industry between
April 30, 1998 and February 20, 2001. Goldman Sachs' analyses of the selected
transactions compared the following to the results for Orion Power:
* multiple of offer price to next year earnings per share; and
20
* multiple of offer price to book value.
The following table summarizes the results of the selected transactions
analysis:
Offer Price to Offer Price to
Next Year EPS Book Value
-------------- ---------------
High 21.2x 3.3x
Low 10.1x 0.8x
Mean 14.9x 1.9x
Median 14.4x 1.9x
The following table summarizes the price per KW consideration paid in 36
selected power generation asset divestitures in the eastern half of the United
States from 1998 until the present:
Multiple ($/KW)
---------------
High Low Mean Median
----- --- ---- ------
Gas 1,398 408 658 549
Oil(1) 266 266 266 266
Dual Fuel 531 240 384 383
Coal 955 206 525 520
Hydro 998 643 764 651
Various 714 246 425 427
All Deals 1,398 206 551 520
(1) Only one deal consummated.
DISCOUNTED CASH FLOW ANALYSIS
Based on estimates provided by Orion Power management, Goldman Sachs
performed a discounted cash flow analysis for the years ended December 31, 2002
to 2004. Using a range of discount rates of 10% to 14% and a range of terminal
multiples of 2005 EBITDA of 6.0x to 8.0x, Goldman Sachs calculated a range of
net present values of estimated future cash flows of Orion Power as of December
31, 2001.
The following table presents the ranges of present values indicated by this
analysis:
Equity Value Per Share ($)
Terminal Forward Multiple of 2005E EBITDA
-----------------------------------------
6.0X 6.5X 7.0X 7.5X 8.0X
----- ----- ----- ----- -----
Discount 14.0% 15.06 17.80 20.54 23.28 26.02
Rate 13.0% 15.92 18.73 21.54 24.36 27.17
12.0% 16.81 19.70 22.59 25.47 28.36
11.0% 17.73 20.70 23.67 26.63 29.60
10.0% 18.69 21.74 24.79 27.84 30.88
21
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 these analyses and did not attribute
any particular weight to any factor or analysis considered by it. Rather,
Goldman Sachs made its determination on the basis of its experience and
professional judgment after considering the results of all of these analyses. No
company or transaction used in the above analyses as a comparison is directly
comparable to Orion Power or the transaction contemplated by the merger
agreement.
The analyses were prepared solely for purposes of providing an opinion to
Orion Power's board as to the fairness from a financial point of view of the
consideration to be received by the holders of shares of Orion Power common
stock in the merger. The analyses do not purport to be appraisals or necessarily
reflect the prices at which businesses or securities actually may be sold.
Analyses based on 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 on numerous factors or events beyond the control of the
parties or their respective advisors, none of Orion Power, Reliant Resources,
Goldman Sachs or any other person assumes responsibility if future results are
materially different from those forecast.
As described above, Goldman Sachs' opinion was one of a number of factors
taken into consideration by our board in making its determination to approve the
merger agreement and the merger. The foregoing summary does not purport to be a
complete description of the analyses performed by Goldman Sachs.
Goldman Sachs, as part of its investment banking business, 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. Goldman Sachs is
familiar with Orion Power, having provided certain investment banking services
to Orion Power from time to time, including having acted as co-manager in the
private placement of $400 million aggregate principal amount of Orion Power's
12.0% senior notes due 2010 in April 2000, as lead arranger and syndication
agent for Orion Power's $1.2 billion aggregate principal amount credit facility
in April 2000, as co-manager in the initial public offering of 27.5 million
shares of Orion Power common stock in November 2000, as its financial advisor in
connection with its acquisition of Columbia Electric Corp. in December 2000 and
as co-manager in the offering of 13.0 million shares of Orion Power common stock
and $200 million aggregate principal amount of Orion Power's 4.5% convertible
senior notes due 2008 in May 2001, and having acted as its financial advisor in
connection with, and having participated in certain of the negotiations leading
to, the merger agreement.
As of September 26, 2001, investment funds affiliated with Goldman Sachs
had a principal investment in Orion Power in the amount of (a) 34,450,000 shares
of Orion Power common stock plus (b) warrants to purchase an additional
6,400,400 shares of Orion Power
22
common stock, which together represent approximately 37% of Orion Power's
outstanding shares of common stock on a fully diluted basis. In connection with
the merger agreement, these investment funds entered into a stockholder
agreement with Reliant Resources pursuant to which they have agreed to vote in
favor of the transaction contemplated by the merger agreement, on the terms and
conditions set forth in the stockholder agreement. See "--Interests of Certain
Persons in the Merger." Richard A. Friedman, Douglas F. Londal and Terence M.
O'Toole, each a Managing Director of Goldman, Sachs & Co., are directors of
Orion Power.
Goldman Sachs also has provided certain investment banking services to
Reliant Resources from time to time, including having acted as co-manager in the
initial public offering of its shares of common stock in April 2001 and having
acted from time to time as a commercial paper dealer for Reliant Resources'
commercial paper program, and may provide investment banking services to Reliant
Resources in the future. Goldman Sachs also has provided certain investment
banking services from time to time to Reliant Energy, Incorporated, or "REI,"
the majority stockholder of Reliant Resources, including having acted as
co-manager in the offering of $300 million aggregate principal amount of 7.2%
trust originated preferred securities of REI Trust I, an affiliate of REI, in
February 1999, having acted as co-manager in the offering of $1.0 billion
aggregate principal amount of 2.0% zero-premium exchangeable notes of REI due
2029 in September 1999, having acted as co-manager in the offering of $300
million aggregate principal amount of 7.4% senior notes of Reliant Energy
Financing Co. II, an affiliate of REI, due 2002 in November 1999, having acted
as co-manager in the offerings of revenue refunding bonds issued by political
subdivisions of the State of Texas and unconditionally guaranteed by REI in
April 1999 ($100 million aggregate principal amount), July 1999 ($70.315 million
aggregate principal amount) and November 1999 ($100 million aggregate principal
amount) and having acted from time to time as a commercial paper dealer for
REI's commercial paper program and may provide investment banking services to
REI in the future.
Goldman Sachs provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, may from time to
time effect transactions and hold securities, including derivative securities,
of Orion Power, Reliant Resources or REI for its own account and for the
accounts of customers.
Pursuant to the terms of the letter agreement in which we engaged Goldman
Sachs to act as our financial advisor in connection with the possible sale of
all or a portion of Orion Power, Orion Power has agreed to pay Goldman Sachs a
fee in cash upon consummation of the merger of approximately $___ million. Orion
Power has also agreed to reimburse Goldman Sachs for reasonable out-of-pocket
expenses, including attorneys' fees, and to indemnify Goldman Sachs against
certain liabilities, including certain liabilities under the federal securities
laws.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of the material United States federal income tax
consequences of the merger to Orion Power stockholders. This summary is based
upon the provisions of the Internal Revenue Code of 1986, as amended, applicable
current and proposed United States Treasury Regulations, judicial authority, and
administrative rulings and practice.
23
Legislative, judicial or administrative rules and interpretations are subject to
change, possibly on a retroactive basis, at any time, and, therefore, the
following statements and conclusions could be altered or modified. It is assumed
that the shares of Orion Power common stock are held as capital assets by a
United States person (i.e., a citizen or resident of the United States or a
domestic corporation). This discussion does not address all aspects of United
States federal income taxation that may be relevant to a particular Orion Power
stockholder in light of that Orion Power stockholder's personal investment
circumstances, or those Orion Power stockholders subject to special treatment
under the United States federal income tax laws (for example, life insurance
companies, tax-exempt organizations, financial institutions, United States
expatriates, foreign corporations and nonresident alien individuals). In
addition, this discussion does not address the aspects of United States federal
income taxation that may be relevant to Orion Power stockholders who hold shares
of Orion Power common stock as part of a hedging, "straddle," conversion or
other integrated transaction, or Orion Power stockholders who acquired their
shares of Orion Power common stock through the exercise of employee stock
options or other compensation arrangements. In addition, the discussion does not
address any aspect of foreign, state or local taxation or estate and gift
taxation that may be applicable to an Orion Power stockholder.
CONSEQUENCES OF THE MERGER TO ORION POWER STOCKHOLDERS
The receipt of the merger consideration in the merger will be a taxable
transaction for United States federal income tax purposes (and also may be a
taxable transaction under applicable state, local and other income tax laws). In
general, for United States federal income tax purposes, a holder of Orion Power
common stock will recognize gain or loss equal to the difference between the
stockholder's adjusted tax basis in Orion Power common stock converted in the
merger, and the amount of cash received. Gain or loss will be calculated
separately for each block of shares converted in the merger (i.e., shares
acquired at the same cost in a single transaction). The gain or loss will be
capital gain or loss, and will be short-term gain or loss if, at the effective
time of the merger, the shares of Orion Power common stock so converted were
held for one year or less. If, at the effective time of the merger, the shares
of Orion Power common stock so converted were held for more than one year, the
gain or loss will be long-term. In the case of stockholders who are individuals,
long-term capital gain is currently eligible for reduced rates of federal income
tax. There are limitations on the deductibility of capital losses.
BACKUP WITHHOLDING TAX
Under the United States federal income tax backup withholding rules, unless
an exemption applies, Reliant Resources is required to and will withhold up to
30.5% of all payments to which an Orion Power stockholder or other payee is
entitled in the merger, unless the Orion Power stockholder or other payee
provides a tax identification number, or "TIN" (social security number, in the
case of an individual, or employer identification number, in the case of other
stockholders), and certifies under penalties of perjury that its TIN is correct,
the stockholder is not subject to backup withholding and the stockholder is a
United States person. Each Orion Power stockholder and, if applicable, each
other payee should complete and sign the substitute Form W-9 that will be part
of the letter of transmittal to be returned to the exchange agent (or other
agent) in order to provide the information and certification necessary to avoid
backup withholding, unless an applicable exemption exists and is otherwise
proved in a manner
24
satisfactory to the exchange agent (or other agent). The exemptions provide that
certain Orion Power stockholders (including, among others, corporations and
certain foreign individuals) are generally not subject to backup withholding. In
order for a foreign individual to qualify as an exempt recipient, however, he or
she must submit a signed statement (such as a Certificate of Foreign Status on
Form W-8BEN) attesting to his or her exempt status. Any amounts withheld will be
allowed as a credit against the stockholder's United States federal income tax
liability for that year.
YOU SHOULD CONSULT YOUR OWN TAX ADVISORS TO DETERMINE THE UNITED STATES
FEDERAL, STATE AND LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER TO YOU IN
VIEW OF YOUR OWN PARTICULAR CIRCUMSTANCES.
GOVERNMENTAL AND REGULATORY APPROVALS
While we believe that we will receive the regulatory approvals and
clearances for the merger that are described below in the first calendar quarter
of 2002, we cannot offer assurances that the merger will receive the necessary
regulatory approvals or as to the timing for the grant or denial of these
approvals. Under the merger agreement, we and Reliant Resources have agreed,
among other things, to take any action, make any undertaking or receive any
clearance or approval required by any governmental authority or applicable law
subject to the limitations described in "The Merger Agreement--Agreement to
Cooperate; Antitrust and Regulatory Matters."
ANTITRUST
Transactions such as the merger are reviewed by the United States
Department of Justice and the United States Federal Trade Commission to
determine whether they comply with applicable antitrust laws. Under the
provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, or "HSR Act," and the rules and regulations promulgated thereunder
applicable to the merger, the merger may not be completed until applicable
waiting period requirements have expired or been terminated. We and Reliant
Resources filed the requisite notification reports with the Department of
Justice and Federal Trade Commission on October ___, 2001. The waiting period
under the HSR Act will expire at 11:59 p.m. on November ___, 2001, unless this
period is terminated earlier or extended.
The Department of Justice and the Federal Trade Commission frequently
scrutinize the legality under the antitrust laws of transactions such as the
merger. At any time before or after the merger, the Department of Justice or the
Federal Trade Commission could take such action under the antitrust laws as it
deems necessary or desirable in the public interest, including seeking to enjoin
the merger or seeking divestiture of substantial assets of Reliant Resources or
Orion Power or their subsidiaries. Private parties and state attorneys general
may also bring an action under the antitrust laws under certain circumstances.
ENERGY REGULATION
FEDERAL ENERGY REGULATORY COMMISSION. Section 203 of the Federal Power Act
provides that no public utility may sell or otherwise dispose of its
jurisdictional facilities, directly or indirectly merge or consolidate its
facilities with those of any other person, or acquire any
25
security of any other public utility without first having obtained authorization
from the FERC. Because we and Reliant Resources have subsidiaries that are
public utilities as defined in the Federal Power Act which own "jurisdictional
facilities" under the Federal Power Act, the FERC's approval under Section 203
is required before we and Reliant Resources may complete the merger. Section 203
provides that the FERC is required to grant its approval if the merger is found
to be "consistent with the public interest."
The FERC's merger review regulations provide that, in analyzing a merger
under Section 203, it will evaluate the following criteria:
* the effect of the merger on competition in wholesale electric power
markets, utilizing an initial screening approach derived from the
Department of Justice/Federal Trade Commission Horizontal Merger
Guidelines to determine if a merger will result in an increase in an
applicant's market power;
* the effect of the merger on an applicant's FERC jurisdictional
ratepayers; and
* the effect of the merger on state and federal regulation of the
applicants.
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, wholesale rates, or regulation, it may, pursuant
to the Federal Power Act, deny approval of the merger or impose remedial
conditions intended to mitigate these effects. Based on recent FERC decisions,
we and Reliant Resources believe that the merger proposal satisfies all of the
criteria used to determine that the merger will not have any adverse competitive
effects or any adverse effects on rates or regulation. We and Reliant Resources
filed our application under Section 203 on _________, 2001. The Federal Power
Act does not specify a particular time frame within which the FERC must grant or
deny its approval. The merger is also conditioned on the FERC's acceptance of a
filing made by Reliant Resources on ________, 2001, under Section 205 of the
Federal Power Act regarding the market-based rate tariffs of Orion Power's
subsidiaries.
NEW YORK PUBLIC SERVICE COMMISSION. Section 70 of the New York Public
Service Law provides that no electric corporation may sell its stock, and no
corporation shall acquire the stock of an electric corporation, unless the NYPSC
finds such acquisition in the public interest. The NYPSC has held that Section
70 of the Public Service Law applies to the acquisition of the parents (such as
Orion Power) of electric corporations. Notwithstanding this interpretation, the
NYPSC will not review the merger of a parent of a wholesale generator subject to
lightened regulation, such as our subsidiaries, unless there could be an adverse
effect on retail customers. We and Reliant Resources believe that the NYPSC will
not review the merger because there will be no adverse effect on competition or
rates. Nevertheless, we and Reliant Resources are asking the NYPSC to either
declare that it will not review the merger or, in the alternative, approve the
merger. Should the NYPSC decide to review the merger, the NYPSC conducts its
review under the "public interest" standard, which typically explores the effect
of a merger on competition and rates. We and Reliant Resources believe that even
if the NYPSC reviews the merger, the merger satisfies all of the criteria of the
public interest standard. We and Reliant Resources filed a petition with the
NYPSC on _____________ , 2001. There is no statutory guideline requiring the
26
NYPSC to grant or deny its approval or declare that it will not review the
merger within a particular time frame.
ACCOUNTING TREATMENT
The merger will be accounted for by the use of the purchase method of
accounting, in accordance with United States GAAP. This means that Reliant
Resources will record as goodwill the excess of the purchase price of Orion
Power over the fair value of our identifiable assets, including intangible
assets and liabilities.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
GENERAL
Some of our executive officers and directors have interests in the merger
that are or may be considered different from, or in addition to, the interests
of our stockholders generally. Several of our executive officers, including an
officer who is also a director, have employment agreements under which they
become entitled to specific benefits as a result of the merger. Completion of
the merger will constitute a change in control for purposes of the employment
agreements. In addition, our executive officers may receive benefits pursuant to
the terms of the merger agreement. Our board was aware of and considered these
interests when it approved the merger agreement and the merger. We summarize
below the material interests of our directors and executive officers in the
merger.
INTERESTS IN COMMON STOCK AND STOCK OPTIONS
As of the record date, our executive officers and directors owned an
aggregate of ___ shares of Orion Power common stock, entitling them to exercise
approximately ___% of the voting power of Orion Power common stock entitled to
vote at the special meeting. In addition, a number of our directors are
affiliated with stockholders which have entered into stockholder agreements (as
described below).
Further, if the merger were completed on December 31, 2001, the aggregate
amount received by our executive officers and directors in connection with the
cash settlement of their stock options (see "The Merger Agreement--Treatment of
Orion Power Stock Options"), based on currently available information, would be
approximately: $36.0 million for all executive officers as a group and
$3.9 million for all non-employee directors of Orion Power as a group.
STOCKHOLDER AGREEMENTS
A number of Orion Power stockholders which own approximately 60% of the
total number of outstanding shares of Orion Power common stock in the aggregate
-- including investment partnerships affiliated with The Goldman Sachs Group,
Constellation Energy Group and Mitsubishi Corporation -- entered into
stockholder agreements whereby each stockholder agreed to vote its shares of
Orion Power common stock in favor of the merger. See "The Stockholder
Agreements." A number of our directors are employees of or are affiliated with
the stockholders of Orion Power which have entered into such stockholder
agreements, as follows:
27
* Three directors of Orion Power -- Richard A. Friedman, Douglas F.
Londal, and Terence M. O'Toole -- are Managing Directors of Goldman,
Sachs & Co.;
* Tsutomu Kajita, a director of Orion Power, is Executive Vice President
and Treasurer of Diamond Generating Corp., an affiliate of Mitsubishi
Corporation; and
* Edward A. Crooke, a director of Orion Power, is Vice Chairman of
Constellation Energy Group, an affiliate of Constellation Enterprises,
Inc.
See "--Opinion of Orion Power's Financial Advisor" and "Stock Ownership of
Management and Certain Stockholders of Orion Power."
INTERESTS OF THE GOLDMAN SACHS GROUP
As Orion Power's financial advisor, Goldman, Sachs & Co. will collect a fee
of $_________ upon completion of the merger. In addition, through affiliated
entities, The Goldman Sachs Group, Inc. is the largest stockholder of Orion
Power, owning approximately 33% of outstanding shares of Orion Power common
stock and warrants to purchase 6,400,400 shares of our common stock. See "Stock
Ownership of Management and Certain Stockholders of Orion Power."
RETENTION POOL
Under the terms of the merger agreement, we can provide up to $20 million
as a retention pool for the purpose of retaining the services of our key
employees, pursuant to terms determined by our Chief Executive Officer, subject
to board approval. The retention awards will be payable on the closing date of
the merger, in the case of our Chief Executive Officer, Chief Financial Officer,
Chief Legal Officer, Senior Vice President (Operations) and Senior Vice
President (Development), or within 90 days after the closing date of the merger,
in the case of other employees, or such earlier date as may be determined by
Reliant Resources, if the recipient remains an employee of Orion Power until
that time. Our employees participating in the retention pool who are
constructively terminated or terminated without cause or as a result of death or
disability prior to the date that their retention award would be payable will be
entitled to receive any retention award that would have been payable to them had
they remained employed with Orion Power.
EMPLOYMENT AGREEMENTS
We have previously entered into employment agreements with five of our
executive officers, including our named executive officers, that provide
severance benefits to the executives. The completion of the merger will
constitute a change in control under these agreements. As a consequence, these
executive officers will have "good reason" under their employment agreements to
terminate these agreements as of the effective time of the merger.
If the executive officer's employment is terminated by us without cause (as
defined in the employment agreements) or by the executive officer for good
reason (as defined in the
28
employment agreement), then we will be obligated to pay the executive officer a
cash sum equal to the aggregate of:
(1) any accrued but unpaid base salary, benefits and bonus through the
date of termination of employment;
(2) a pro rata annual bonus for the period, which can exceed 12 months,
between (a) the end of the most recent year for which a bonus has been
paid (including bonus paid as severance) and (b) the date of
termination of employment, which bonus must be at least 75% of the
executive officer's annual base salary at the time of termination of
employment; and
(3) severance pay equal to three times the sum of the executive officer's
base salary at the time of termination of employment and the average
of the executive officer's annual bonus for the two most recent fiscal
years for which a bonus has been paid (including bonus paid as
severance), but in no event will the amount used for each such year in
calculating the average bonus be less than 75% of the executive
officer's annual base salary at the time of termination of employment.
A portion of the amounts described above will be used to offset specified
unpaid indebtedness, if any, between the executive officer and Orion Power. In
addition, for three years after a termination of the executive officer's
employment as described above, the executive officer and/or his or her eligible
family members will continue to be entitled to welfare benefits, including life
insurance, medical and dental benefits, at least equal to the welfare benefits
they would have been entitled to had the executive officer's employment not been
terminated. To the extent any payments or benefits received by the executive
officer are subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code, pursuant to the terms of the employment agreement, the executive
officer will receive a payment to restore him or her to the after-tax position
that he or she would have been in had the excise tax not been imposed.
If the merger were completed on the date hereof, and the employment of each
executive officer who is a party to an employment agreement described above was
terminated by Orion Power without cause or by the executive officer for good
reason, the estimated cash severance pay to be received, based on currently
available information, would be approximately $10.5 million to $12.5 million for
all executive officers as a group.
In addition, executive officers who are a party to an employment agreement
will not be subject to the one-year post-employment noncompetition and
nonsolicitation period that otherwise applies if they terminate their employment
with us within 60 days after the effective time of the merger because the
completion of the merger will constitute "good reason" to terminate their
employment under their employment agreements. Reliant Resources has acknowledged
that our executive officers who have entered into employment agreements with us
will have "good reason" to terminate their employment under their employment
agreements as of the effective time of the merger.
29
INDEMNIFICATION AND INSURANCE
Reliant Resources, Orion Power and Merger Sub have agreed that, to the
fullest extent permitted under applicable law, they will indemnify and hold
harmless each present and former director, officer or employee of Orion Power or
any of our subsidiaries against any costs or expenses (including advancing
attorneys' fees and expenses), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement in connection with any actual or
threatened claim, action, suit, proceeding or investigation arising out of,
relating to or in connection with any action or omission occurring or alleged to
have occurred prior to or after the effective time of the merger or the merger
or the other transactions contemplated by the merger agreement or arising out of
or pertaining to the transactions contemplated by the merger agreement. Persons
eligible for indemnification are referred to in this document as the indemnified
parties. In the event of an action giving rise to indemnification, Reliant
Resources and the surviving corporation in the merger will cooperate with the
indemnified party in the defense of that action.
Reliant Resources has agreed that, for a period of six years after the
effective time of the merger, it will cause to be maintained in effect the
current policies of directors' and officers' liability insurance maintained by
Orion Power and our subsidiaries (provided that Reliant Resources may substitute
third-party policies of at least the same coverage and amounts containing terms
and conditions that are no less advantageous to the indemnified parties, and
which coverages and amounts will be no less than the coverages and amounts
provided at that time for Reliant Resources' directors and officers) with
respect to matters arising on or before the effective time of the merger.
However, after the effective time, the surviving corporation will not be
required to pay annual premiums in excess of 250% of the last annual premium
paid by Orion Power prior to September 26, 2001 for such coverage. If the
surviving corporation's annual premium exceeds that amount, the surviving
corporation will obtain a policy with as much coverage as reasonably practicable
for a cost not exceeding that amount.
MERGER FINANCING; SOURCE AND AMOUNT OF FUNDS
The merger is not conditioned upon Reliant Resources obtaining financing.
The total amount of funds necessary to pay the merger consideration, including
amounts associated with options and warrants to purchase Orion Power common
stock, and to pay fees and expenses related to the merger will be approximately
$3 billion. Reliant Resources expects to fund the cash requirements for the
transaction primarily from borrowings under a new $1.8 billion credit facility
to be arranged, with the balance to be obtained from a combination of existing
cash balances and additional borrowings under an existing $1.5 billion credit
facility. At the date of this proxy statement, Reliant Resources is engaged in
discussions with major lending institutions regarding the terms and conditions
of the proposed new credit facility.
APPRAISAL RIGHTS
Delaware law entitles the holders of record of shares of Orion Power common
stock that follow the procedures specified in Section 262 of the DGCL to have
their shares appraised by the Delaware Court of Chancery and to receive the
"fair value" of these shares as of the completion of the merger as determined by
the court instead of the merger consideration. In order to exercise these
rights, you must demand and perfect your rights in accordance with Section 262.
30
The following is a summary of the material provisions of Section 262 and is
qualified in its entirety by reference to Section 262, a complete copy of which
is attached as Appendix C to this proxy statement. You should carefully review
Section 262 as well as the information discussed below to determine your rights
to appraisal.
If you elect to exercise the right to an appraisal under Section 262, you
must do all of the following:
* file with Orion Power at its main office in Baltimore, Maryland, a
written demand for appraisal of shares of Orion Power common stock
held before the vote is taken on the merger agreement and the merger
at our special meeting, which demand must identify the Orion Power
stockholder and expressly request an appraisal. This written demand
for appraisal must be in addition to and separate from any proxy or
vote against the merger agreement because voting against or abstaining
from voting or failing to vote on the merger agreement will not
constitute a demand for appraisal within the meaning of Section 262;
* not vote in favor of, or consent in writing to, the merger agreement.
Failing to vote or abstaining from voting will satisfy this
requirement, but a vote in favor of the merger agreement, by proxy or
in person, or the return of a signed proxy card that does not specify
a vote against approval and adoption of the merger agreement, will
constitute a waiver of your right of appraisal and will nullify any
previously filed written demand for appraisal; and
* continuously hold shares of Orion Power common stock through the
completion of the merger.
All written demands for appraisal should be addressed to Orion Power
Holdings, Inc., 7 East Redwood Street, 10th Floor, Baltimore, Maryland 21202,
Attention: Chief Legal Officer, before the vote is taken on the merger agreement
at the special meeting, and should be executed by, or on behalf of, the holder
of record of the relevant shares of Orion Power common stock. This demand must
reasonably inform Orion Power of the identity of the stockholder and that the
stockholder is thereby demanding appraisal of the stockholder's shares of Orion
Power common stock.
Within ten days after the completion of the merger, the surviving
corporation of the merger will give written notice of the completion of the
merger to each Orion Power stockholder that has satisfied the requirements of
Section 262 and has not voted for or consented to the proposal to approve and
adopt the merger agreement and the merger. We refer to such a stockholder as a
"dissenting stockholder." Within 120 days after the completion of the merger,
the surviving corporation or any dissenting stockholder may file a petition in
the Delaware court demanding a determination of the fair value of the shares of
Orion Power common stock that are held by all dissenting stockholders. We advise
any dissenting stockholder desiring to file this petition to file on a timely
basis unless the dissenting stockholder receives notice that a petition has
already been filed by the surviving corporation or another dissenting
stockholder.
31
If a petition for appraisal is timely filed, the court will determine which
stockholders are entitled to appraisal rights. The court then will determine the
fair value of the shares of Orion Power common stock held by the dissenting
stockholders, exclusive of any element of value arising from the accomplishment
or expectation of the merger, but together with a fair rate of interest, if any,
to be paid on the amount determined to be fair value. In determining the fair
value, the court will take into account all relevant factors. The court may
determine the fair value to be more than, less than or equal to the
consideration that the dissenting stockholder would otherwise be entitled to
receive under the merger agreement. If a petition for appraisal is not timely
filed, then the right to an appraisal will cease. The costs of the appraisal
proceeding may be determined by the court and charged against the parties as the
court determines to be equitable under the circumstances. Upon the application
of any stockholder, the court may determine the amount of interest, if any, to
be paid upon the value of the shares of Orion Power common stock of stockholders
entitled to such interest. Upon application of a stockholder, the court may
order all or a portion of the expenses incurred by any stockholder in connection
with the appraisal proceeding, including, without limitation, reasonable
attorneys' fees and the fees and expenses of experts, to be charged pro rata
against the value of all shares of Orion Power common stock entitled to
appraisal.
From and after the completion of the merger, no dissenting stockholder will
have any rights of an Orion Power stockholder with respect to that dissenting
stockholder's shares for any purpose, except to receive payment of its fair
value and to receive payment of dividends or other distributions on that
dissenting stockholder's shares of Orion Power common stock, if any, payable to
Orion Power stockholders of record as of a date prior to the completion of the
merger. If a dissenting stockholder delivers to the surviving corporation a
written withdrawal of the demand for an appraisal within 60 days after the
completion of the merger or, if no petition for appraisal is filed within 120
days after the completion of the merger, then the right of that dissenting
stockholder to an appraisal will cease and the dissenting stockholder will be
entitled to receive only the merger consideration.
32
THE MERGER AGREEMENT
The following is a summary of the material terms of the merger agreement.
The summary is qualified in its entirety by reference to the merger agreement, a
copy of which is attached as Appendix A to this proxy statement and is
incorporated herein by reference. We encourage you to read the merger agreement
because it, and not this summary, is the legal document that governs the merger.
STRUCTURE AND EFFECTIVE TIME
The merger agreement provides for the merger of Merger Sub with and into
Orion Power upon the terms and subject to the conditions of the merger
agreement. Orion Power will survive the merger and continue to exist after the
merger as a wholly owned subsidiary of Reliant Resources.
The closing of the merger will occur on the third business day after the
satisfaction or waiver of all conditions in the merger agreement (except for
those conditions to be satisfied or waived at the closing), or on such other
date as we and Reliant Resources may agree in writing. The closing will be
delayed if and only for so long as necessary if a banking moratorium, act of
terrorism or war (whether or not declared) affecting United States banking or
financial markets generally prevents Reliant Resources (together with its
subsidiaries) from borrowing funds which (when added to the funds otherwise
available to it) would be sufficient to pay the merger consideration at the time
the closing would otherwise occur. The merger will become effective at the time
the certificate of merger is filed with the Delaware Secretary of State (or at a
later time if agreed in writing by the parties and specified in the certificate
of merger). The parties will file the certificate of merger as soon as
practicable on or, if permissible, prior to the closing date.
We cannot assure you when, or if, all the conditions to completion of the
merger will be satisfied or waived. See "--Conditions to the Merger." We intend
to complete the merger as promptly as practicable subject to receipt of Orion
Power stockholder approval and all requisite regulatory approvals. See "The
Merger--Governmental and Regulatory Approvals," "--Agreement to Cooperate;
Antitrust and Regulatory Matters" and "--Conditions to the Merger."
MERGER CONSIDERATION
The merger agreement provides that each share of Orion Power common stock
outstanding immediately prior to the effective time of the merger will be
converted at the effective time of the merger into the right to receive $26.80
in cash, without interest, from Reliant Resources. We refer to this amount
throughout this document as the "merger consideration." Each holder of a
certificate representing shares of Orion Power common stock will have no further
rights with respect to these shares, other than the right to receive the merger
consideration applicable to those shares. However, shares of Orion Power common
stock that are outstanding immediately prior to the merger held by any
dissenting stockholder who properly perfects his or her appraisal rights will
not be converted into the right to receive $26.80 in cash, but rather the
dissenting stockholder will be entitled to payment of the fair value of his or
her
33
dissenting shares in accordance with and subject to Section 262 of the DGCL. See
"The Merger--Appraisal Rights."
PAYMENT PROCEDURES
Reliant Resources will select a bank that is reasonably acceptable to us to
act as paying agent. The paying agent will make payment of the merger
consideration in exchange for certificates representing shares of Orion Power
common stock. Reliant Resources will deposit sufficient cash with the paying
agent prior to the effective time in order to permit the payment of the merger
consideration. As soon as reasonably practicable after the effective time but in
no event later than the first business day following the closing date of the
merger, the paying agent will send our stockholders of record a letter of
transmittal and instructions explaining how to send their stock certificates to
the paying agent. The paying agent will mail checks for the appropriate merger
consideration, minus any withholding taxes required by law, to our stockholders
promptly following the paying agent's receipt and processing of Orion Power
stock certificates and properly completed transmittal documents. Holders of more
than 5,000 shares of Orion Power common stock, including any shares issuable
upon exercise of warrants or options, will be entitled to elect to receive
payment of the merger consideration via wire transfer as promptly as practicable
after the effective time, but in no event later than the first business day
following the closing date.
TREATMENT OF ORION POWER STOCK OPTIONS
The merger agreement provides that, at the effective time of the merger,
each outstanding Orion Power stock option previously granted by Orion Power,
whether or not then vested or exercisable, will automatically be cancelled and
converted into an obligation to pay the holder of each cancelled Orion Power
stock option a cash payment equal to the excess, if any, of the merger
consideration over the option's exercise price multiplied by the number of
shares of Orion Power common stock subject to the cancelled Orion Power stock
option (less applicable withholding taxes).
TREATMENT OF ORION POWER WARRANTS
The merger agreement provides that, at the effective time of the merger,
each outstanding Orion Power warrant previously granted by Orion Power will
automatically be converted into an obligation to pay the holder of each
cancelled Orion Power warrant a cash payment equal to the excess, if any, of the
merger consideration over the warrant's exercise price multiplied by the number
of shares of Orion Power common stock subject to the Orion Power warrant (less
applicable withholding taxes).
DIRECTORS AND OFFICERS
The merger agreement provides that the directors and officers of Merger Sub
immediately before the effective time of the merger will be the directors and
officers of the surviving corporation after the merger.
34
REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties made by Orion
Power to Reliant Resources and Merger Sub, including representations and
warranties relating to:
* due organization, corporate power and standing, and other corporate
matters;
* our capital structure;
* our significant subsidiaries and equity interests;
* the authorization, execution, delivery and enforceability of the
merger agreement;
* conflicts under charter documents, violations of any instruments or
law and required consents, approvals and permits;
* reports and financial statements we filed with the SEC and the
accuracy of the information in those documents;
* undisclosed liabilities and circumstances having a material adverse
effect on Orion Power and declarations of dividends, and changes in
our common stock;
* litigation;
* accuracy of information we supplied for inclusion in this proxy
statement;
* violations of law;
* tax matters;
* matters relating to the Employee Retirement Income Security Act of
1974, as amended, or "ERISA," and other compliance and compensation
matters (including retirement and other employee benefit plans);
* labor matters;
* environmental matters;
* intellectual property;
* the Goldman Sachs fairness opinion;
* brokers' and finders' fees with respect to the merger;
* insurance;
* the applicability to Orion Power and its subsidiaries of utility
regulation and the Public Utility Holding Company Act of 1935;
35
* the exempt wholesale generator and qualifying facility status of our
power generation projects;
* the quantity of SO2 and NOX allowances owned by Orion Power and
its subsidiaries; and
* material non-compete agreements.
The merger agreement also contains representations and warranties made by
Reliant Resources and Merger Sub to Orion Power, including representations and
warranties relating to:
* due organization, corporate power and other corporate matters;
* conflicts under charter documents, violations of any instruments or
law, and required consents, approvals and permits;
* Merger Sub's operations;
* Reliant Resources' capital resources;
* the authorization, execution, delivery and enforceability of the
merger agreement;
* accuracy of information Reliant Resources supplied for inclusion in
this proxy statement; and
* Reliant Resources' ownership of Orion Power common stock or any other
security of Orion Power.
The representations and warranties of each of the parties to the merger
agreement will expire upon completion of the merger.
COVENANTS; CONDUCT OF THE BUSINESS OF ORION POWER PRIOR TO THE MERGER
The merger agreement provides that, from September 26, 2001 through the
effective time of the merger, we and our subsidiaries will:
* operate in the ordinary and usual course of business;
* use reasonable best efforts to preserve intact our business
organizations and goodwill, keep available the services of our present
senior officers and key employees and preserve the goodwill and
business relationships with customers and others with whom we have
business relationships;
* invest available cash balances in investments permitted under the
existing credit facilities; and
* maintain our insurance policies that are in place at the time of
execution of the merger agreement.
36
The merger agreement also includes limitations, prohibitions and other
provisions relating to Orion Power's and our subsidiaries' conduct of business
before the merger with respect to:
* amendments to our certificates of incorporation, bylaws or equivalent
organizational documents;
* changes in our capital stock and payment of dividends;
* issuance, redemption, purchase or acquisition of our capital stock,
options, warrants and convertible securities;
* incurrence of indebtedness for borrowed money or entry into "keepwell"
or similar agreements in excess of $25 million or entry into interest
rate hedging agreements;
* acquisitions, sales or dispositions of assets or businesses valued at
$25 million or more individually or $50 million or more in the
aggregate, or pledges or encumbrances of any assets or businesses;
* increases in compensation and entry into or amendment of employment,
severance, special pay or employee benefit arrangements;
* capital expenditures in excess of $1 million individually or $10
million in the aggregate;
* entry into, termination of, material amendment of or grants of waiver
or consent under material contracts for the purchase or sale of goods
or services that have a term of more than one year and that involve
payments of more than $25 million;
* tax elections or settlements or compromises of tax liabilities or
refunds;
* payment, discharge or satisfaction of claims, liabilities or
obligations in excess of $10 million in the aggregate; and
* settlement or compromise of pending or threatened litigation relating
to the merger agreement or the merger.
NO SOLICITATION
The merger agreement provides that we will not, will cause our subsidiaries
not to, and will use our commercially reasonable efforts to cause any of our
officers, directors or employees, or any attorney, accountant, investment
banker, financial advisor or other agent retained by us or any of our
subsidiaries not to, directly or indirectly, initiate, solicit or negotiate or
provide nonpublic or confidential information to facilitate, any proposal or
offer with respect to any merger, reorganization, share exchange, consolidation
or similar transaction involving us. This prohibition also applies to any
purchase of, or any offer to purchase, 20% or more of our voting
37
securities, or any assets or businesses that generated 20% or more of our annual
net revenues or net income for the one-year period ended June 30, 2001 or
constituted 20% or more of our stockholders' equity on June 30, 2001 in a single
transaction or a series of related transactions or any combination of the
foregoing. In this proxy statement and in the merger agreement we refer to a
transaction of the nature mentioned in this paragraph as an "acquisition
transaction," and a proposal relating to that type of transaction as an
"acquisition proposal," except that, for purposes of the $45 million termination
fees discussed in "--Termination Fee," all references to 20% are replaced by
50%.
We may, prior to receipt of stockholders' approval of the merger, furnish
nonpublic or confidential information to and engage in discussions and negotiate
with any person who makes an unsolicited bona fide written acquisition proposal
that our board determines, after consultation with its independent financial
advisor and legal advisor, could reasonably be expected to lead to a superior
proposal. A "superior proposal" is an acquisition proposal which our board
determines, in good faith and after consultation with its independent financial
advisor and legal advisor, is more favorable to the holders of Orion Power
common stock than the merger agreement and the merger, taking into account,
among other things, (a) the likelihood and timing of completion, (b) any
amendments to or modifications of the merger agreement that Reliant Resources
has offered or proposed at the time of determination and (c) such other factors
deemed relevant by our board. In order to provide information to a person making
a superior proposal, however, that person must enter into a confidentiality
agreement containing provisions with respect to confidentiality of substantially
the same effect as those contained in the confidentiality agreement to which
Orion Power and Reliant Resources are party.
At any time prior to the receipt of the stockholders' approval of the
merger, the board may withdraw or modify its recommendation of the merger
agreement or the merger, if the board determines in good faith (after
consultation with outside counsel and its independent financial advisor) that
its failure to do so would be inconsistent with its fiduciary obligations.
The merger agreement requires us to promptly notify Reliant Resources
orally and in writing after receipt of any acquisition proposal indicating in
reasonable detail the identity of the potential acquiror and the material terms
and conditions of the acquisition proposal. We must also notify Reliant
Resources as soon as is reasonably practicable of any material changes or
modifications in the material terms of any acquisition proposal and provide to
Reliant Resources, as soon as reasonably practicable, copies of the form of
merger agreement or acquisition agreement in connection with any acquisition
proposal negotiated with a potential acquiror.
EMPLOYEE BENEFITS
We and Reliant Resources have agreed that, for a period of not less than
two years after the merger, the compensation and employee benefits to be
provided to our current and former employees and those of our subsidiaries in
the aggregate will be substantially equivalent to the compensation and benefits
provided to those current and former employees in the aggregate prior to the
merger. Our employees' prior service to us and our affiliates will count as
prior service to Reliant Resources for all purposes under Reliant Resources'
benefit plans covering our employees to the extent the employee was entitled to
service credit under similar Orion Power plans.
38
Each of our employees will be immediately eligible to participate, without
any waiting time, in any and all benefit plans of Reliant Resources or its
affiliates to the extent such plans replace coverage under a comparable Orion
Power plan in which the employee participated immediately before the effective
time of the merger. Reliant Resources and its affiliates will waive all
pre-existing condition exclusions and actively-at-work requirements for our
employees and their covered dependents under the medical, dental, pharmaceutical
and/or vision benefit plans that provide benefits to our employees. Reliant
Resources will cause any eligible expenses incurred by our employees and their
covered dependents under our welfare plans during the plan year in which the
merger occurs to be taken into account for purposes of satisfying all
deductible, coinsurance and maximum out-of-pocket requirements of any Reliant
Resources welfare plans in which they participate during the plan year of the
merger.
Reliant Resources has acknowledged that a "change of control" within the
meaning of the Orion Power employee benefit plans, as applicable, will occur on
the effective time of the merger. In addition, Reliant Resources has
acknowledged that our executive officers who have entered into employment
agreements with us will have "good reason" under their employment agreements as
of the effective time of the merger (see "The Merger--Interests of Certain
Persons in the Merger--Employment Agreements").
For so long after the effective time of the merger as we or any of our
subsidiaries maintain a 401(k) plan, and Reliant Resources maintains a 401(k)
plan with a loan feature for similarly situated employees, Reliant Resources
will cause our 401(k) plans and/or the 401(k) plans of our subsidiaries to
retain a loan feature. As of the effective time of the merger, we will fully
vest the account balances of each participant in any 401(k) plan maintained by
us or our subsidiaries.
The merger agreement provides that if the merger occurs in 2001, we will
pay each of our employees as of the effective time of the merger and then
participating in an Orion Power bonus plan the greater of (a) the employee's
deemed bonus entitlement under such plan, as if the plan and the employee's
participation therein had continued through the end of 2001, based on actual
performance during the portion of the year prior to the merger and assuming
performance equals performance goals for the portion of the year following the
merger and (b) the employee's target award for 2001, in each case pro rated. If
the merger occurs in 2002, each of our then-current employees then participating
in one of Orion Power's bonus plans will be entitled to receive a pro rated
target bonus, pursuant to such plans. In either case, the pro rated portion of
the bonuses representing the post-merger portion of the year will be paid during
January of the calendar year following the year in which the merger occurs to
our employees who are employed by Reliant Resources or its affiliates at the end
of the year in which the merger occurs or who were previously terminated without
cause or due to death or disability. If no applicable bonus plan has been
established for 2002, the annual bonuses will be paid based on 2001 bonus plans
to participants in the 2001 bonus plans and to new employees who, based on job
title, would have been eligible to participate in the 2001 bonus plans, based on
target percentages equal to the actual (or deemed in the case of new employees)
performance for the 2001 bonus plans under the 2001 bonus plans. We may create a
2002 bonus plan that is substantially similar to the 2001 bonus plan. Any costs
associated with the merger will not be taken into account for purposes of
determining whether performance targets have been achieved.
39
Pursuant to the merger agreement, we can provide up to $20 million as a
retention pool for the purpose of retaining the services of our key employees,
pursuant to terms determined by our Chief Executive Officer, subject to board
approval. The retention awards will be payable on (a) the closing date of the
merger, in the case of our Chief Executive Officer, Chief Financial Officer,
Chief Legal Officer, Senior Vice President (Operations) and Senior Vice
President (Development), or within 90 days after the closing date of the merger,
in the case of other employees, or (b) such earlier date as may be determined by
Reliant Resources, in each case, if the recipient remains employed by us until
that time. Our employees participating in the retention pool who are
constructively terminated or terminated without cause or as a result of death or
disability prior to these dates will be entitled to receive any retention award
that would have been payable to them had they remained employed by Orion Power.
The agreements between us and Reliant Resources described above with
respect to employee benefits apply to our employees who are not covered by a
collective bargaining agreement.
AGREEMENT TO COOPERATE; ANTITRUST AND REGULATORY MATTERS
We and Reliant Resources have agreed to use reasonable best efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
complete and make effective the merger. This includes the use of reasonable best
efforts to:
* obtain all necessary or appropriate waivers, consents or approvals of
third parties required in order to preserve material contractual
relationships of Orion Power and Reliant Resources and their
respective subsidiaries;
* obtain all necessary or appropriate waivers, consents and approvals to
effect all necessary registrations, filings, and submissions; and
* lift any injunction or other legal bar to completion of the merger
(and to proceed with the completion of the merger as expeditiously as
possible), including through all possible appeals.
We and Reliant Resources have also agreed to take any act, make any undertaking
or receive any clearance or approval required by any governmental authority or
applicable law.
In addition, subject to the terms and conditions of the merger agreement,
we and Reliant Resources have agreed that we will not and we will not permit our
respective subsidiaries and affiliates to make any acquisition, develop or
construct any electric generation facility, enter into any term, tolling or
power purchase agreement or otherwise obtain control over any electric
generation facility, or take any action with any regulatory authority which
could reasonably be expected to materially delay the completion of the merger or
result in the failure to satisfy any condition to completion of the merger.
Notwithstanding the foregoing, the merger agreement provides that no
provision of the merger agreement requires us, Reliant Resources or any of our
respective subsidiaries to dispose
40
of any assets or to limit our freedom of action with respect to any assets or
businesses, whether prior to or after the effective time of the merger, or to
commit or agree to any of the foregoing, in order to obtain any consents,
approvals, permits or authorizations or to remove any impediments to the merger
relating to the HSR Act or any other law, regulation or order or to avoid the
entry of, or to effect the dissolution of, any injunction or other order in any
suit or proceeding relating thereto, other than dispositions, limitations,
commitments or agreements that may be conditioned upon the completion of the
merger and the transactions contemplated by the merger and that do not and would
not reasonably be expected to, individually or in the aggregate, have a material
adverse effect on the business, assets or financial condition of Orion Power,
Reliant Resources and our respective subsidiaries taken as a whole as
constituted after the effective time of the merger.
INDEMNIFICATION AND INSURANCE
Reliant Resources has agreed that the indemnification provisions of our
certificate of incorporation and bylaws as in effect at the effective time of
the merger will not be amended, repealed or otherwise modified for a period of
six years from the effective time of the merger in any manner that would
adversely affect the rights of individuals who at the effective time of the
merger were our directors, officers or employees.
Orion Power, Reliant Resources and Merger Sub have agreed that, to the
fullest extent permitted under applicable law, they will indemnify and hold
harmless each present and former director, officer or employee of Orion Power 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 against any costs or
expenses (including advancing attorneys' fees and expenses), judgments, fines,
losses, claims, damages, liabilities and amounts paid in settlement in
connection with any actual or threatened claim, action, suit, proceeding or
investigation arising out of, relating to or in connection with any action or
omission occurring or alleged to have occurred prior to or after the effective
time of the merger (including acts or omissions in connection with such persons
serving as an officer, director or other fiduciary in any entity if that service
was at the request or for the benefit of Orion Power) or the merger or the other
transactions contemplated by the merger agreement or arising out of or
pertaining to the transactions contemplated by the merger agreement. Persons
eligible for indemnification are referred to in this document as the indemnified
parties. In the event of an action giving rise to indemnification, Reliant
Resources and the surviving corporation will cooperate with the indemnified
party in the defense of that action.
Reliant Resources has agreed that, for a period of six years after the
effective time of the merger, it will cause to be maintained in effect the
current policies of directors' and officers' liability insurance maintained by
Orion Power and its subsidiaries (provided that Reliant Resources may substitute
third-party policies of at least the same coverage and amounts containing terms
and conditions that are no less advantageous to the indemnified parties, and
which coverages and amounts will be no less than the coverages and amounts
provided at that time for Reliant Resources' directors and officers) with
respect to matters arising on or before the effective time of the merger.
However, after the effective time, the surviving corporation will not be
required to pay annual premiums in excess of 250% of the last annual premium
paid by Orion Power prior to September 26, 2001 for such coverage. If the
surviving corporation's
41
annual premium exceeds that amount, the surviving corporation will obtain a
policy with as much coverage as reasonably practicable for a cost not exceeding
that amount.
PURCHASES OF ORION POWER EQUITY SECURITIES
In the confidentiality agreement we entered into with Reliant Resources,
Reliant Resources agreed that, unless specifically invited by us in writing
until the merger becomes effective, neither it nor its subsidiaries will acquire
or agree to acquire any rights in or beneficial ownership of any securities or
assets of Orion Power other than pursuant to the merger agreement.
THE ORION POWER BOARD RECOMMENDATION
The merger agreement provides that our board will recommend that the Orion
Power stockholders vote in favor of the approval and adoption of the merger
agreement and the merger. However, our board may withdraw or modify its
recommendation prior to stockholder approval of the merger agreement, if our
board determines in good faith, after consultation with outside counsel and its
independent financial advisor, that it is necessary to do so in order to comply
with its fiduciary obligations. Notwithstanding any such withdrawal or
modification, Orion Power is required to submit the merger agreement to a vote
at the special meeting unless the merger agreement is terminated in accordance
with its terms.
A withdrawal or adverse change in any material respect of our board's
recommendation may permit Reliant Resources to terminate the merger agreement
and may give rise to the payment of a termination fee as described in
"--Termination Fee."
Nothing contained in the merger agreement prohibits Orion Power or our
board from (a) taking and disclosing to the Orion Power stockholders a position
with respect to a tender or exchange offer by a third party as required under
federal securities law, or (b) making that disclosure to the Orion Power
stockholders as, in the good faith judgment of our board (after consultation
with outside counsel), is required under applicable law.
SUPPLEMENTAL INDENTURE
The merger agreement provides that as required by the indenture governing
the 4.50% convertible senior notes due June 1, 2008, the surviving corporation
shall execute a supplemental indenture, effective at the effective time of the
merger, by which the adjustments in the conversion provisions of the indenture
that are required to be made as a result of the merger will be made. These
adjustments provide for each of the convertible notes to be convertible from and
after the merger into the amount of cash receivable upon the completion of the
merger by a holder of the number of shares of Orion Power common stock into
which the convertible note might have been converted immediately prior to the
merger. Each $1,000 in principal amount of the convertible notes is convertible
into 29.2505 shares of our common stock -- accordingly, based upon the $26.80 in
cash per share of our common stock to be paid in the merger, in the merger each
convertible note will become convertible from and after the merger into $783.91
in cash.
42
CONDITIONS TO THE MERGER
The obligations of Orion Power, Reliant Resources and Merger Sub to
complete the merger are subject to the satisfaction of each of the conditions
described below.
(1) The merger agreement and the merger have been approved and adopted by
the holders of a majority of the outstanding shares of Orion Power
common stock;
(2) No judgment, injunction, order or decree of any court or governmental
authority of competent jurisdiction is in effect making illegal or
otherwise restraining or prohibiting the completion of the merger; and
(3) The waiting period applicable to completion of the merger under the
HSR Act has expired or been terminated and the necessary approvals and
consents of the FERC and the NYPSC have been obtained.
Unless waived by Orion Power, the obligation of Orion Power to complete the
merger is subject to the satisfaction of the following additional conditions:
(1) Reliant Resources' and Merger Sub's performance in all material
respects of all their pre-merger obligations contained in the merger
agreement;
(2) the accuracy, as qualified for materiality, of the representations and
warranties of Reliant Resources; and
(3) Orion Power's receipt of a certificate signed on behalf of Reliant
Resources by an executive officer of Reliant Resources indicating that
the conditions mentioned immediately above in items (1) and (2) have
been satisfied.
Unless waived by Reliant Resources and Merger Sub, the obligations of
Reliant Resources and Merger Sub to complete the merger are subject to the
satisfaction of the following additional conditions:
(1) Orion Power's performance in all material respects of all our
pre-merger obligations contained in the merger agreement;
(2) the accuracy, as qualified for materiality, of the representations and
warranties of Orion Power; and
(3) Reliant Resources' receipt of a certificate signed on behalf of Orion
Power by an executive officer of Orion Power indicating that the
conditions mentioned immediately above in items (1) and (2) have been
satisfied.
IMPORTANT DEFINITIONS
In the merger agreement, the phrase "material adverse effect" in reference
to us means any change or event or effect that, individually or together with
other changes, events or effects, is materially adverse to the business, assets
or financial condition of Orion Power and its
43
subsidiaries, taken as a whole. However, the phrase "material adverse effect"
specifically excludes any change, event or effect resulting from or arising out
of
(1) changes or developments in international, national, regional, state or
local wholesale or retail markets for electric power or fuel or
related products including those due to actions by competitors;
(2) changes or developments in national, regional, state or local electric
transmission or distribution systems except to the extent caused by a
material worsening of current conditions caused by acts of terrorism
or war (whether or not declared) occurring after the date of the
merger agreement which materially impair our ability to conduct our
operations except on a temporary basis;
(3) changes or developments in financial or securities markets or the
economy in general except to the extent caused by a material worsening
of current conditions caused by acts of terrorism or war (whether or
not declared) occurring after the date of the merger agreement;
(4) effects of weather or meteorological events, except to the extent
causing damage to the physical facilities of Orion Power and its
subsidiaries; or
(5) any change of law. "Change of law," under the terms of the merger
agreement, means the adoption, implementation, promulgation, repeal,
modification, reinterpretation or proposal of any law, rule,
regulation, ordinance, order, protocol, practice or measure or any
other requirement of law of or by any federal, state, county or local
government, governmental agency, court, commission, department or
regional transmission operator, independent system operator or market
administrator or similar organization or other such entity which
occurs subsequent to September 26, 2001.
TERMINATION
The merger agreement may be terminated and the merger may be abandoned at
any time prior to the effective time of the merger (notwithstanding any approval
of the merger agreement by our stockholders):
(1) by mutual written consent of Orion Power and Reliant Resources;
(2) by either Orion Power or Reliant Resources if the merger has not been
completed by September 30, 2002, which date may be extended by up to
90 days by either Orion Power or Reliant Resources provided that all
of the conditions to completion of the merger have been satisfied or
are capable of then being satisfied except that:
* any judgment injunction, order or decree prohibits or restrains
completion of the merger;
44
* the waiting period under the HSR Act has not expired or been
terminated; or
* the approval or consent of necessary governmental authorities has
not been received;
and Reliant Resources or Orion Power is still attempting to satisfy
that condition. The right to terminate the merger agreement under this
clause is not available to any party whose failure to fulfill any of
its obligations under the merger agreement has been the cause of, or
resulted in, the failure to complete the merger. The termination date
of September 30, 2002 (or, if applicable, the 90-day extension period
mentioned above) will be extended by one day for each day that the
closing is delayed due to a banking moratorium, act of terrorism or
war as described in "--Structure and Effective Time";
(3) by either Orion Power or Reliant Resources if any final order, decree,
ruling or other final action of a court or United States governmental
agency or authority of competent jurisdiction restrains or prohibits
the completion of the merger, and that judgment, injunction, order,
decree or other action has become final and nonappealable. The party
seeking to terminate must have used reasonable best efforts to prevent
entry of and to remove such order, decree, ruling or other final
action;
(4) by either Orion Power or Reliant Resources if the merger agreement has
not been approved and adopted by our stockholders by reason of the
failure to obtain the required vote at the special meeting;
(5) by either Orion Power or Reliant Resources if there has been a
material breach by the other party of any representation, warranty,
covenant or agreement contained in the merger agreement which would
result in a failure of a condition to the non-breaching party's
obligations under the merger agreement as described in "--Conditions
to the Merger" and which cannot be cured prior to September 30, 2002
or, if applicable, the extended termination date;
(6) by Orion Power, after giving Reliant Resources three days prior (but
revocable) written notice of its receipt of an acquisition proposal in
order to enter into an agreement providing for an acquisition
transaction which is a superior proposal, provided that we have
complied with the obligations listed above under "--No Solicitation"
in all material respects; or
(7) by Reliant Resources if our board has withdrawn or adversely amended
in any material respect its approval or recommendation to our
stockholders of the merger or the merger agreement.
45
TERMINATION FEE
The merger agreement obligates us to pay a fee to Reliant Resources equal
to $90 million if we terminate the merger agreement for the reasons described in
paragraph (6) of "--Termination."
Alternatively, if
(1) Reliant Resources terminates the merger agreement because our board
has withdrawn or adversely amended in any material respect its
approval or recommendation to our stockholders of the merger or the
merger agreement, or
(2) either we or Reliant Resources terminates the merger agreement because
the merger agreement has not been approved and adopted by our
stockholders by reason of the failure to obtain the required vote at
the special meeting,
and Reliant Resources was not at the time of termination in material breach of
its representations, warranties, covenants and agreements contained in the
merger agreement and prior to the time of the special meeting, an acquisition
proposal by a third party had been publicly proposed or publicly announced and
not withdrawn, then we must pay a fee of $45 million to Reliant Resources within
three business days following the termination. We must pay Reliant Resources an
additional fee of $45 million if a fee is payable pursuant to (1) or (2)
immediately above and on or prior to the nine-month anniversary of a termination
of the merger agreement which gives rise to the obligation to pay that fee we
enter into an agreement with respect to an acquisition transaction or we or our
board recommend a third party tender-offer or exchange-offer which would result
in the offeror (other than The Goldman Sachs Group, Inc. and its affiliates)
beneficially owning in excess of 50% of the outstanding shares of Orion Power
common stock. We must pay the additional $45 million fee upon completion of that
acquisition transaction or tender offer or exchange offer.
For purposes of the provisions of the merger agreement governing the $45
million termination fees, an "acquisition transaction" is any merger,
reorganization, share exchange, consolidation or similar transaction involving
Orion Power, or any purchase of, or any offer to purchase, 50% or more of Orion
Power voting securities, or any assets or businesses that generated 50% or more
of our annual net revenues or net income for the one-year period ended June 30,
2001, or constituted 50% or more of our stockholders' equity on June 30, 2001 in
a single transaction or a series of related transactions or any combination of
the foregoing.
EXPENSES
The merger agreement provides that all costs and expenses incurred in
connection with the merger agreement and the transactions contemplated thereby
will be paid by the party incurring the expenses, except that those expenses
incurred in connection with printing and filing this proxy statement will be
shared equally by Reliant Resources and Orion Power.
46
THE STOCKHOLDER AGREEMENTS
The following is a summary of the material terms of the stockholder
agreements. As an inducement to Reliant Resources to enter into the merger
agreement, on September 26, 2001, certain affiliates of The Goldman Sachs Group,
Constellation Enterprises, Inc., certain affiliates of Mitsubishi Corporation
and Tokyo Electric Power Company International B.V. entered into stockholder
agreements with Reliant Resources on substantially identical terms. As of the
record date for the special meeting, the parties collectively owned 62,563,503
shares of Orion Power common stock. These shares represented approximately 60%
of the Orion Power common stock which was outstanding on the record date for
the special meeting.
Pursuant to each stockholder agreement, the respective stockholder agreed
to vote the shares that it owns or acquires in favor of the merger agreement and
against any acquisition proposal that is inconsistent with the merger.
Accordingly, each stockholder has agreed not to transfer any of the shares of
Orion Power common stock that it owns, except that Diamond Cayman, Inc., an
affiliate of Mitsubishi Corporation, may sell, transfer, assign, convey or
otherwise dispose of 1,677,419 shares of its Orion Power common stock.
In addition, the stockholder agreement provides that each stockholder will
not, and will direct and use its commercially reasonable efforts to cause its
and its subsidiaries' officers, directors, partners and employees, and any
attorney, accountant, investment banker, financial advisor or other agent
retained by it or any of its subsidiaries not to, directly or indirectly,
initiate, solicit or negotiate or provide nonpublic or confidential information
to facilitate, any proposal or offer with respect to an acquisition transaction.
Each stockholder must notify Reliant Resources orally and in writing as soon as
reasonably practicable after receipt of any acquisition proposal directed to the
stockholder in its capacity as a stockholder. Moreover, the stockholder
agreement provides that each stockholder must immediately cease and cause to be
terminated any existing activities, discussions or negotiations by the
stockholder in its capacity as a stockholder with any person other than Reliant
Resources with respect to any acquisition proposal. Prior to the termination of
the merger agreement, no stockholder in its capacity as a stockholder may enter
into any agreement with any person providing for or designed to facilitate an
acquisition proposal.
Each stockholder's obligation to vote and not to transfer the shares will
terminate (a) upon the mutual agreement of the parties or (b) immediately upon
the earliest of (1) the date on which the merger agreement is terminated in
accordance with its terms, (2) the effective time of the merger, and (3) an
amendment to the merger agreement which has not been consented to in writing in
advance by that stockholder, other than a ministerial amendment that would not
adversely affect that stockholder or the consideration to be received under the
merger agreement.
47
THE RIGHTS AGREEMENT
On November 1, 2000, we entered into a rights agreement with LaSalle Bank
National Association (the rights agent) whereby stockholders were granted one
preferred share purchase right for each outstanding share of Orion Power common
stock. Our board adopted the rights agreement and issued the rights to protect
Orion Power stockholders from coercive or otherwise unfair takeover tactics. In
general terms, the rights plan works by imposing a significant penalty upon any
person or group, with certain exceptions, that acquires 10% or more of the
outstanding Orion Power common stock without the approval of our board.
In connection with approval of the merger agreement, our board approved an
amendment to the rights agreement, dated September 26, 2001, to allow the merger
agreement and stockholder agreements to be executed and to allow the merger to
occur without triggering any distribution or adverse event under the rights
agreement.
For those interested in the specific terms of the rights agreement, we
filed the rights agreement as Exhibit 4.3 to Amendment No. 3 to our Registration
Statement on Form S-1 with the SEC on November 13, 2000. We included the
amendment to the rights plan as Exhibit 4.1 to our Current Report on Form 8-K,
filed with the SEC on September 28, 2001.
48
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN STOCKHOLDERS OF ORION POWER
The following table sets forth information about the beneficial ownership
of our common stock as of __________, 2001 by (a) each person who is the
beneficial owner of more than five percent of the outstanding shares of our
common stock, (b) each of our directors, (c) each of our executive officers, and
(d) all of our executive officers and directors as a group. Except as otherwise
indicated, the persons or entities listed below have sole voting and investment
power with respect to all shares of common stock beneficially owned by them. For
the purposes of this table, "beneficial ownership" is determined in accordance
with Rule 13d-3 under the Securities Exchange Act of 1934, pursuant to which a
person or group of persons is deemed to have "beneficial ownership" of any
shares of common stock that such person has the right to acquire within 60 days
after the date of this proxy statement.
NUMBER OF SHARES PERCENTAGE OF
NAME BENEFICIALLY OWNED SHARES OUTSTANDING
---- ------------------ ------------------
5% STOCKHOLDERS:
Entities affiliated with The Goldman Sachs
Group, Inc. (a) 40,851,400 37.2%
Constellation Energy Group, Inc. and
affiliates (b) 17,205,900 16.5%
Mitsubishi Corporation and affiliates (c) 6,967,742 6.7%
DIRECTORS AND NAMED EXECUTIVE OFFICERS:
Jack A. Fusco (d) 516,641 (e) *
Scott B. Helm (d) 477,818 (f) *
W. Thaddeus Miller (d) 384,287 (g) *
E. Thomas Webb (d) 253,334 (h) *
Michael J. Gluckman (d) 22,003 (i) *
Frederic V. Salerno (j) 645,200 *
Edward A. Crooke (k) 17,205,900 16.5%
Richard A. Friedman (l) 40,851,400 37.2%
Tsutomu Kajita (m) 6,967,742 6.7%
Douglas F. Londal (n) 40,851,400 37.2%
Terence M. O'Toole (o) 40,851,400 37.2%
Cheryl Mills 7,315 (p) *
Vincent Tese 7,315 (q) *
All directors and executive officers as a group (13
people)(k)(l)(m)(n)(o)(p)(q)(r) 67,338,956 59.7%
*Less than one percent.
(a) Based on a Schedule 13D filed with the SEC on September 28, 2001.
Consists of 14,984,097 shares and 2,966,741 warrants beneficially
owned by GS Capital Partners II, L.P.; 5,956,795 shares and 1,179,401
warrants beneficially owned by GS Capital Partners II Offshore, L.P.;
552,685 shares and 109,428 warrants beneficially owned by GS Capital
Partners II Germany C.L.P.; 773,101 shares and 152,234 warrants
beneficially owned by Stone Street Fund 1998, L.P.; 233,322 shares and
45,945 warrants beneficially owned by Bridge Street Fund 1998, L.P.;
8,796,383 shares and 1,445,976 warrants beneficially owned by GS
Capital Partners III, L.P.; 2,418,232 shares and 397,515 warrants
beneficially
49
owned by GS Capital Partners III Offshore, L.P.; 406,086 shares and
66,753 warrants beneficially owned by GS Capital Partners III Germany
C.L.P.; 197,579 shares and 21,844 warrants beneficially owned by Stone
Street Fund 2000, L.P.; 958,771 shares and 176,181 warrants
beneficially owned by Goldman, Sachs & Co. oHG; 925,335 shares
beneficially owned by Stone Street 1998, L.L.C.; and 131,720 shares
and 14,563 warrants beneficially owned by Bridge Street Special
Opportunities Fund 2000, L.P. An affiliate of The Goldman Sachs Group,
Inc., of which Goldman, Sachs & Co. is an indirect wholly owned
subsidiary, is either the general partner, managing general partner or
investment manager of each of these entities. The Goldman Sachs Group,
Inc. and Goldman, Sachs & Co. each disclaims beneficial ownership of
the shares owned by such investment partnerships to the extent
attributable to partnership interests therein held by persons other
than The Goldman Sachs Group, Inc. and its affiliates. The address of
each of these funds is 85 Broad Street, New York, New York 10004.
(b) Based on a Form 4 filed with the SEC on June 11, 2001. Represents
common stock held by a wholly owned subsidiary, Constellation
Enterprises, Inc. and includes 705,900 warrants. The address of
Constellation Energy Group, Inc. is 250 W. Pratt Street, Baltimore,
Maryland 21201.
(c) Based upon information provided to Orion Power by Mitsubishi
Corporation on June 7, 2001. Includes shares beneficially owned by
affiliates of Mitsubishi Corporation. The address of Mitsubishi
Corporation is 6-3 Marunouchi 2-chome, Chiyoda-ku, Tokyo 100-8086
Japan.
(d) 7 East Redwood Street, Baltimore, Maryland 21202.
(e) Includes 496,541 shares subject to stock options that are
exercisable within 60 days of the date of this proxy statement.
(f) Includes 439,818 shares subject to stock options that are
exercisable within 60 days of the date of this proxy statement.
(g) Includes 361,487 shares subject to stock options that are
exercisable within 60 days of the date of this proxy statement.
(h) Includes 238,334 shares subject to stock options that are
exercisable within 60 days of the date of this proxy statement.
(i) Includes 19,003 shares subject to stock options that are exercisable
within 60 days of the date of this proxy statement.
(j) Includes 322,600 shares subject to stock options that are
exercisable within 60 days of the date of this proxy statement. Mr.
Salerno's address is 1095 Avenue of the Americas, New York, New York
10036.
(k) 250 W. Pratt Street, Baltimore, Maryland 21201. Mr. Crooke, who is
Vice Chairman of Constellation Energy Group, an affiliate of
Constellation Enterprises, disclaims beneficial
50
ownership of the securities owned by Constellation Energy Group and
its affiliates, except to the extent of his pecuniary interest in
those securities.
(l) 85 Broad Street, New York, New York 10004. Mr. Friedman, who is a
Managing Director of Goldman, Sachs & Co., disclaims beneficial
ownership of the securities owned by affiliates of Goldman, Sachs &
Co., except to the extent of his pecuniary interest in those
securities.
(m) 333 South Grand Avenue, Suite 3000, Los Angeles, California 90071. Mr.
Kajita, who is Executive Vice President and Treasurer of Diamond
Generating Corporation, a wholly owned subsidiary of Mitsubishi
Corporation, disclaims beneficial ownership of the securities owned by
Mitsubishi and its affiliates, except to the extent of his pecuniary
interest in those securities.
(n) 85 Broad Street, New York, New York 10004. Mr. Londal, who is a
Managing Director of Goldman, Sachs & Co., disclaims beneficial
ownership of the securities owned by affiliates of Goldman, Sachs &
Co., except to the extent of his pecuniary interest in those
securities.
(o) 85 Broad Street, New York, New York 10004. Mr. O'Toole, who is a
Managing Director of Goldman, Sachs & Co., disclaims beneficial
ownership of the securities owned by affiliates of Goldman, Sachs &
Co., except to the extent of his pecuniary interest in those
securities.
(p) Represents stock options that are exercisable within 60 days of the
date of this proxy statement.
(q) Represents stock options that are exercisable within 60 days of the
date of this proxy statement.
(r) Includes 9,321,314 shares subject to warrants and stock options that
are exercisable within 60 days of the date of this proxy statement.
51
MARKET PRICE OF ORION POWER COMMON STOCK AND DIVIDEND INFORMATION
Orion Power common stock is traded on the NYSE. Orion Power's initial
public offering took place in November 2000. The table below sets forth by
quarter, since the fourth quarter of 2000, the high and low sale prices of Orion
Power common stock on the NYSE Composite Transactions Tape, as reported in The
Wall Street Journal.
MARKET PRICES
--------------------------
HIGH LOW
-------- --------
2000
From November 14, 2000 .................. $ 24.75 $ 16.31
2001
First Quarter............................ $ 32.75 $ 19.63
Second Quarter .......................... $ 34.00 $ 21.27
Third Quarter............................ $ 26.10 $ 15.60
Fourth Quarter (through _________ 2001).. [_______] [_______]
On September 26, 2001, the last full trading day prior to the public
announcement of the merger agreement, the high and low sale prices of Orion
Power common stock as reported on the NYSE Composite Transactions Tape were
$19.24 and $18.05, respectively. On ________, 2001, the last full trading day
prior to the date of this proxy statement, the closing price of Orion Power
common stock as reported on the NYSE Composite Transactions Tape was $_________.
You are encouraged to obtain current market quotations for Orion Power
common stock.
We paid no cash dividends in 2000 or to date in 2001.
52
FORWARD-LOOKING STATEMENTS
This proxy statement includes and incorporates by reference
"forward-looking statements" (as defined in the Private Securities Litigation
Reform Act of 1995) with respect to our financial position, business strategy,
projected costs, projected savings, and plans and objectives of management.
These statements are identified by the use of forward-looking words or phrases
such as "anticipates," "intends," "expects," "plans," "believes," "estimates,"
or words or phrases of similar import. These statements are contained in the
sections entitled "Summary Term Sheet for the Merger" and "The Merger,"
including the section entitled "The Merger--Projections," and other sections of
this proxy statement. These forward-looking statements are subject to numerous
assumptions, risks, and uncertainties, and the statements looking forward beyond
2001 are subject to greater uncertainty because of the increased likelihood of
changes in underlying factors and assumptions. Actual results could differ
materially from those anticipated by the forward-looking statements.
Factors that could cause actual results to differ materially include, but
are not limited to, the following:
(1) political, legal and economic conditions and developments in the
United States;
(2) state, federal and other legislative and regulatory initiatives
affecting the electric utility industry, including rate regulation,
deregulation and restructuring initiatives;
(3) changes in the environmental and other laws and regulations to which
we are subject, or the application thereof;
(4) the extent and timing of the entry of additional competition in our
markets;
(5) the performance of projects undertaken;
(6) our ability to execute our strategy of acquiring or developing
additional power generating facilities;
(7) our ability to obtain the significant future financing our growth
strategy will likely require, whether through equity issuances or
borrowings;
(8) fluctuations in the prices for electric products and services; and
(9) financial market conditions, changes in commodity prices and interest
rates, and weather or other natural phenomena.
In addition to factors previously disclosed by us and factors identified
elsewhere herein, certain other factors could cause actual results to differ
materially from these forward-looking statements. All subsequent written and
oral forward-looking statements attributable to us, or persons acting on our
behalf, are expressly qualified in their entirety by reference to these factors.
53
Our forward-looking statements represent our judgment only on the dates
those statements are made. By making any forward-looking statements, we assume
no duty to update them to reflect new, changed, or unanticipated events or
circumstances.
FUTURE STOCKHOLDER PROPOSALS
We intend to hold an annual meeting in 2002 only if the merger is not
completed. Any Orion Power stockholder intending to submit a proposal for
inclusion in the proxy statement and form of proxy for our 2002 annual meeting
of stockholders, in the event that it is held, must submit the proposal to our
principal executive office sufficiently far in advance so that it is received by
us not later than December 31, 2001.
WHERE YOU CAN FIND MORE INFORMATION
Each of Orion Power and Reliant Resources is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended. Each company
files reports, proxy statements and other information with the SEC. You may read
and copy these reports, proxy statements and other information at the SEC's
Public Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the SEC's regional office at Suite 1400, Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661-2511. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC also maintains an Internet website, located at www.sec.gov, that contains
reports, proxy statements and other information regarding companies and
individuals that file electronically with the SEC.
You may also read reports, proxy statements and other information relating
to Orion Power and Reliant Resources at the offices of the NYSE at 20 Broad
Street, New York, New York 10005.
WE HAVE AUTHORIZED NO ONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ABOUT THE MERGER OR OUR COMPANY THAT DIFFERS FROM OR ADDS TO THE
INFORMATION CONTAINED IN THIS PROXY STATEMENT OR IN THE DOCUMENTS WE HAVE
PUBLICLY FILED WITH THE SEC. THEREFORE, IF ANYONE SHOULD GIVE YOU ANY DIFFERENT
OR ADDITIONAL INFORMATION, YOU SHOULD NOT RELY ON IT.
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT SPEAKS ONLY AS OF THE
DATE INDICATED ON THE COVER OF THIS PROXY STATEMENT UNLESS THE INFORMATION
SPECIFICALLY INDICATES THAT ANOTHER DATE APPLIES.
54
APPENDIX A
EXECUTION COPY
--------------
AGREEMENT AND PLAN OF MERGER
dated as of
September 26, 2001
by and
among
RELIANT RESOURCES, INC.
RELIANT ENERGY POWER GENERATION MERGER SUB, INC.
and
ORION POWER HOLDINGS, INC.
TABLE OF CONTENTS
PAGE
ARTICLE I
GENERAL
Section 1.01. Defined Term Index.............................................1
ARTICLE II
THE MERGER
Section 2.01. The Merger.....................................................3
Section 2.02. Closing........................................................4
Section 2.03. Effective Time.................................................4
Section 2.04. Effects of the Merger..........................................4
Section 2.05. Certificate of Incorporation and By-laws.......................4
Section 2.06. Directors......................................................4
Section 2.07. Officers.......................................................4
Section 2.08. Effect on Capital Stock........................................5
Section 2.09. Surrender and Payment..........................................6
Section 2.10. Options........................................................7
Section 2.11. Warrants.......................................................8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB
Section 3.01. Organization and Qualification.................................8
Section 3.02. Authority; Non-Contravention; Approvals........................8
Section 3.03. Interim Operations of Merger Sub...............................9
Section 3.04. Capital Resources.............................................10
Section 3.05. Proxy Statement...............................................10
Section 3.06. Ownership of Capital Stock....................................10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 4.01. Organization and Qualification................................10
Section 4.02. Capitalization................................................11
Section 4.03. Subsidiaries..................................................12
Section 4.04. Authority; Non-Contravention; Approvals.......................13
A-i
Section 4.05. Reports and Financial Statements..............................14
Section 4.06. Absence of Undisclosed Liabilities; Material Adverse Effect...15
Section 4.07. Litigation....................................................15
Section 4.08. Proxy Statement...............................................16
Section 4.09. No Violation of Law...........................................16
Section 4.10. Compliance with Agreements....................................16
Section 4.11. Taxes.........................................................16
Section 4.12. Employee Benefit Plans; ERISA.................................17
Section 4.13. Labor Controversies...........................................19
Section 4.14. Environmental Matters.........................................19
Section 4.15. Intellectual Property.........................................20
Section 4.16. Opinion of Financial Advisor..................................20
Section 4.17. Brokers and Finders...........................................20
Section 4.18. Insurance.....................................................20
Section 4.19. PUHCA; Regulation as Utility..................................21
Section 4.20. Exempt Wholesale Generator Status; No QF......................21
Section 4.21. Allowances....................................................21
Section 4.22. Non-Competes..................................................21
ARTICLE V
COVENANTS
Section 5.01. Conduct of Business Pending the Merger........................21
Section 5.02. Certain Restrictions..........................................25
Section 5.03. No Solicitation...............................................25
Section 5.04. Access to Information; Confidentiality........................26
Section 5.05. Merger Sub....................................................27
Section 5.06. Employee Benefits.............................................27
Section 5.07. Meeting of Stockholders and Proxy Statement...................29
Section 5.08. Section 16 Matters............................................30
Section 5.09. Public Announcements..........................................30
Section 5.10. Expenses and Fees.............................................30
Section 5.11. Agreement to Cooperate........................................31
Section 5.12. Directors' and Officers' Indemnification......................32
Section 5.13. Supplemental Indenture........................................34
Section 5.14. Further Assurances............................................34
Section 5.15. Control of Other Party's Business.............................34
ARTICLE VI
CONDITIONS TO THE MERGER
Section 6.01. Conditions to the Obligations of Each Party...................34
Section 6.02. Conditions to the Obligations of Parent and Merger Sub........35
Section 6.03. Conditions to the Obligations of the Company..................35
A-ii
ARTICLE VII
TERMINATION
Section 7.01. Termination...................................................36
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Effect of Termination.........................................37
Section 8.02. Non-Survival of Representations and Warranties................38
Section 8.03. Notices.......................................................38
Section 8.04. Interpretation................................................39
Section 8.05. Miscellaneous.................................................39
Section 8.06. Counterparts..................................................40
Section 8.07. Amendments; Extensions........................................40
Section 8.08. Entire Agreement..............................................40
Section 8.09. Severability..................................................41
Section 8.10. Specific Performance..........................................41
Section 8.11. No Admission..................................................41
A-iii
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER, dated as of September 26, 2001 (this
"AGREEMENT"), by and among Reliant Resources, Inc., a Delaware corporation
("PARENT"), Reliant Energy Power Generation Merger Sub, Inc., a Delaware
corporation and wholly owned subsidiary of Parent ("MERGER SUB"), and Orion
Power Holdings, Inc. a Delaware corporation (the "COMPANY").
WHEREAS, the respective Boards of Directors of Parent, Merger Sub
and the Company have approved this Agreement, and deem it advisable, and in the
best interests of their respective stockholders to consummate the merger of
Merger Sub with and into the Company on the terms and conditions set forth
herein (the "MERGER") whereby each issued and outstanding share of common stock,
par value $0.01, of the Company, together with the associated Company Rights
(the "COMPANY COMMON STOCK"), other than the Company Common Stock owned by
Parent, Merger Sub or the Company (or any of their respective direct or indirect
wholly owned subsidiaries) and other than the Appraisal Shares, shall be
converted into the right to receive an amount per share in cash as set forth in
this Agreement;
WHEREAS, concurrently with the execution and delivery hereof, the
persons and entities listed on Schedule A hereto, which in the aggregate own a
total of 62,562,903 shares of Company Common Stock, are each entering into a
Stockholder Agreement (the "STOCKHOLDER AGREEMENTS") with Parent providing for,
among other things, the voting of such shares in connection with the
transactions contemplated hereby; and
WHEREAS, the Company, Parent and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement and intending to be legally bound hereby, the parties hereto hereby
agree as follows:
ARTICLE I
GENERAL
Section 1.01. DEFINED TERM INDEX.
------------------
TERM REFERENCE
---- ---------
Acquisition Proposal................................ Section 5.03(b)
Acquisition Tender................................... Section 5.10(b)
Acquisition Transaction............................. Section 5.03(a)
Action.............................................. Section 5.12(b)
Agreement........................................... Preamble
Appraisal Shares.................................... Section 2.08(d)
Bonus Plan.......................................... Section 5.06(f)
A-1
TERM REFERENCE
---- ---------
Certificate......................................... Section 2.08(c)
Certificate of Merger............................... Section 2.03
Change of Law....................................... Section 8.04
Closing............................................. Section 2.02
Closing Date........................................ Section 2.02
Code................................................ Section 2.09(f)
Company............................................. Preamble
Company 10-Q........................................ Section 4.05
Company 401(k) Plan................................. Section 5.06(e)
Company Budgets..................................... Section 5.01
Company Common Stock................................ Recitals
Company Disclosure Schedule......................... Article IV
Company Employees................................... Section 5.06(a)
Company Financial Advisor........................... Section 4.16
Company Meeting..................................... Section 3.05
Company Option...................................... Section 2.10
Company Option Plan................................. Section 4.02(c)
Company Permits..................................... Section 4.09
Company Plans....................................... Section 4.12(a)
Company Preferred Shares............................ Section 4.02(a)
Company Required Statutory Approvals................ Section 4.04(c)
Company Rights...................................... Section 4.02(b)
Company Rights Agreement............................ Section 4.02(b)
Company SEC Reports................................. Section 4.05
Company Stockholder Approval........................ Section 4.04(a)
Confidentiality Agreement........................... Section 5.04
Contract............................................ Section 3.02(b)
Convertible Notes................................... Section 4.02(a)
Convertible Notes Indenture......................... Section 5.13
DGCL................................................ Section 2.01
Effective Time...................................... Section 2.03
Environmental Law................................... Section 4.14(b)
ERISA............................................... Section 4.12(a)
ERISA Affiliate Plan................................ Section 4.12(d)
Exchange Act........................................ Section 3.02(c)
Existing Credit Facilities.......................... Section 5.01(d)
FERC................................................ Section 3.02(c)
Fraction............................................ Section 5.06(f)
GAAP................................................ Section 4.05
Governmental Authority.............................. Section 3.02(b)
Hazardous Substance................................. Section 4.14(c)
HSR Act............................................. Section 3.02(c)
Indemnified Parties................................. Section 5.12(b)
Indemnified Party................................... Section 5.12(b)
Intellectual Property............................... Section 4.15
A-2
TERM REFERENCE
---- ---------
IRS................................................. Section 4.11
Material Adverse Effect............................. Section 4.01
May 31 Debt Prospectus.............................. Section 4.03(a)
Merger.............................................. Recitals
Merger Consideration................................ Section 2.08(c)
Merger Sub.......................................... Preamble
Multiemployer Plan.................................. Section 4.12(f)
New Plans........................................... Section 5.06(b)
NYPSC............................................... Section 3.02(c)
Old Plans........................................... Section 5.06(b)
Parent.............................................. Preamble
Parent Disclosure Schedule.......................... Article III
Parent Required Statutory Approvals................. Section 3.02(c)
Paying Agent........................................ Section 2.09(a)
PBGC................................................ Section 4.12(d)
Potential Acquiror.................................. Section 5.03(b)
Proxy Statement..................................... Section 3.05
Requirement of Law.................................. Section 8.04
Retention Bonus..................................... Section 5.06(g)
Retention Pool...................................... Section 5.06(g)
SEC................................................. Section 4.01
Section 262......................................... Section 2.08(d)
Significant Subsidiary.............................. Section 4.03
Stockholder Agreements.............................. Recitals
Superior Proposal................................... Section 5.03(b)
Surviving Corporation............................... Section 2.01
Tax Returns......................................... Section 4.11
Taxes............................................... Section 4.11
Termination Date.................................... Section 7.01(b)
Warrants............................................ Section 2.11
ARTICLE II
THE MERGER
Section 2.01. THE MERGER. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the Delaware
General Corporation Law (the "DGCL"), Merger Sub shall be merged with and into
the Company at the Effective Time. At the Effective Time, the separate corporate
existence of Merger Sub shall cease and the Company shall continue as the
surviving corporation (the "SURVIVING CORPORATION") and shall succeed to and
assume all the rights and obligations of Merger Sub in accordance with the DGCL.
A-3
Section 2.02. CLOSING. Upon the terms and subject to the conditions
set forth in this Agreement, the closing of the Merger (the "CLOSING") shall
take place at 10:00 a.m., New York time, on the third business day after the
satisfaction or (to the extent permitted by applicable law) waiver of the
conditions set forth in Article VI (other than those conditions to be satisfied
or waived at the Closing), at the offices of Wachtell, Lipton, Rosen & Katz, 51
West 52nd Street, New York, New York 10019, or at such other time, date or place
agreed to in writing by Parent and the Company; provided, however, that the
Closing shall be delayed if and only for so long as necessary if a banking
moratorium, act of terrorism or war (whether or not declared) affecting United
States banking or financial markets generally prevents Parent (together with its
subsidiaries) from borrowing funds which (when added to the funds otherwise
available to it) would be sufficient to pay the cash consideration hereunder at
the time the Closing would otherwise occur. The date on which the Closing occurs
is referred to in this Agreement as the "CLOSING DATE".
Section 2.03. EFFECTIVE TIME. Upon the terms and subject to the
conditions set forth in this Agreement, as soon as practicable on or, if
permissible, prior to the Closing Date, a certificate of merger or other
appropriate documents (in any such case, the "CERTIFICATE OF MERGER") shall be
duly prepared, executed and acknowledged by the parties in accordance with the
relevant provisions of the DGCL and filed with the Secretary of State of the
State of Delaware. The Merger shall become effective upon the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware or at
such subsequent time or date as Parent and the Company shall agree in writing
and specify in the Certificate of Merger. The time at which the Merger becomes
effective is referred to in this Agreement as the "EFFECTIVE TIME".
Section 2.04. EFFECTS OF THE MERGER. The Merger shall have the
effects set forth in Section 259 of the DGCL.
Section 2.05. CERTIFICATE OF INCORPORATION AND BY-LAWS. (a) At the
Effective Time, subject to the requirements of the provisions of Section 5.12,
the Certificate of Incorporation of the Surviving Corporation shall be amended
in its entirety to read as the Certificate of Incorporation of Merger Sub, as in
effect immediately prior to the Effective Time, until thereafter changed or
amended as provided therein or by applicable law.
(b) At the Effective Time, subject to the requirements of the
provisions of Section 5.12, the By-laws of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the By-laws of the Surviving Corporation
until thereafter changed or amended as provided therein or by applicable law.
Section 2.06. DIRECTORS. The directors of Merger Sub immediately
prior to the Effective Time shall be the directors of the Surviving Corporation
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
Section 2.07. OFFICERS. The officers of Merger Sub immediately prior
to the Effective Time shall be the officers of the Surviving Corporation until
the earlier of their resignation or removal or until their respective successors
are duly elected and qualified, as the case may be.
A-4
Section 2.08. EFFECT ON CAPITAL STOCK. At the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of capital stock of the Company, Parent or Merger Sub:
(a) CAPITAL STOCK OF MERGER SUB. Each share of common stock of
Merger Sub, par value $1.00 per share, issued and outstanding immediately
prior to the Effective Time shall be converted into and become one fully
paid and nonassessable share of common stock of the Surviving Corporation.
(b) CANCELLATION OF TREASURY STOCK AND PARENT-OWNED STOCK. Each
share of Company Common Stock that is owned by Parent, Merger Sub or the
Company (or any of their respective direct or indirect wholly owned
subsidiaries) immediately prior to the Effective Time (i) shall
automatically be cancelled and retired, (ii) shall cease to exist and (iii)
no consideration shall be delivered in exchange therefor.
(c) CONVERSION OF COMPANY COMMON STOCK. Each share of Company Common
Stock issued and outstanding immediately prior to the Effective Time (other
than shares to be cancelled in accordance with Section 2.08(b) and the
Appraisal Shares) shall be converted into the right to receive in cash,
without interest, an amount equal to $26.80 (the "MERGER CONSIDERATION").
At the Effective Time all such shares shall no longer be outstanding and
shall automatically be cancelled and shall cease to exist, and each holder
of a certificate that immediately prior to the Effective Time represented
any such shares (a "CERTIFICATE") shall cease to have any rights with
respect thereto, except the right to receive the Merger Consideration.
(d) APPRAISAL RIGHTS. Notwithstanding anything in this Agreement to
the contrary, shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time that are held by any holder who is
entitled to demand and properly demands appraisal of such shares pursuant
to, and who complies in all respects with, the provisions of Section 262 of
the DGCL ("SECTION 262") (the "APPRAISAL SHARES") shall not be converted
into the right to receive the Merger Consideration as provided in Section
2.08(c), but instead such holder shall be entitled to such rights (but only
such rights) as are granted by Section 262. At the Effective Time, all
Appraisal Shares shall no longer be outstanding and shall automatically be
cancelled and shall cease to exist, and except as otherwise provided by
applicable law, each holder of Appraisal Shares shall cease to have any
rights with respect thereto other than such rights as are granted by
Section 262. Notwithstanding the foregoing, if any such holder shall fail
to validly perfect or shall otherwise waive, withdraw or lose the right to
appraisal under Section 262 or if a court of competent jurisdiction shall
determine that such holder is not entitled to the relief provided by
Section 262, then the rights of such holder under Section 262 shall cease
and such Appraisal Shares shall be deemed to have been converted at the
Effective Time into, and shall have become, the right to receive the Merger
Consideration as provided in Section 2.08(c). The Company shall give prompt
notice to Parent of any demands for appraisal of any shares of Company
Common Stock, and Parent shall have the opportunity to participate in all
negotiations and proceedings with respect to such demands. Prior to the
Effective Time, the Company shall not,
A-5
without the prior written consent of Parent, make any payment with respect
to, or settle or offer to settle, any such demands, or agree to do any of
the foregoing.
Section 2.09. SURRENDER AND PAYMENT. (a) Prior to the Effective
Time, for the benefit of holders of Company Common Stock, Company Options and
Warrants, Parent shall designate, or shall cause to be designated (pursuant to
an agreement in form and substance reasonably acceptable to Parent and the
Company), a bank or trust company acceptable to the Company in its reasonable
discretion to act as agent for the payment of the Merger Consideration upon
surrender of Certificates and for the payment of cash in respect of Company
Options and Warrants in accordance with this Article II (the "PAYING AGENT"),
from time to time after the Effective Time. Prior to the Effective Time, Parent
shall deposit, or cause Merger Sub to deposit, with the Paying Agent (i) cash in
amounts sufficient for the payment of the Merger Consideration pursuant to
Section 2.08(c) upon surrender of Certificates, and (ii) cash payable pursuant
to Sections 2.10 and 2.11 in respect of Company Options and Warrants.
(b) EXCHANGE PROCEDURE. As soon as reasonably practicable after the
Effective Time but in no event later than the first business day following the
Closing Date, the Paying Agent shall mail to each holder of record of a
Certificate (and appropriate documentation for holders of Company Options and
Warrants) (i) a form of letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates held by such
person shall pass, only upon proper delivery of the Certificates to the Paying
Agent and shall be in customary form and have such other provisions as Parent
and the Company may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender of a Certificate for cancellation to the Paying
Agent or to such other agent or agents as may be appointed by Parent, together
with such letter of transmittal, duly completed and validly executed, and such
other documents as may reasonably be required by the Paying Agent, the holder of
such Certificate shall be entitled to receive in exchange therefor the amount of
cash into which the shares formerly represented by such Certificate shall have
been converted pursuant to Section 2.08(c), and the Certificate so surrendered
shall forthwith be cancelled. Parent's agreement with the Paying Agent shall
provide that, upon surrender of a Certificate for cancellation to the Paying
Agent or to such other agent or agents as may be appointed by Parent, any
holders of more than five thousand shares of Company Common Stock (including
shares issuable upon the exercise of Warrants and Company Options) shall be
entitled to receive payment of the Merger Consideration in respect of the shares
of Company Common Stock and an amount of cash determined pursuant to Sections
2.10 and 2.11 with respect to any Warrants and Company Options, respectively,
held by them by wire transfer of immediately available funds as promptly as
practicable after the Effective Time, but in no event later than the first
business day following the Closing Date, to the account(s) designated by such
stockholder. In the event of a transfer of ownership of Company Common Stock
that is not registered in the stock transfer books of the Company, the proper
amount of cash may be paid in exchange therefor to a person other than the
person in whose name the Certificate so surrendered is registered if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of such Certificate or establish to the satisfaction of Parent that such
tax has been paid or is not applicable. No interest shall be paid or shall
accrue on the cash payable upon surrender of any Certificate. Upon the delivery
to the Paying Agent of the appropriate documentation in respect
A-6
of Company Options and Warrants, the holder of such Company Option or Warrant
will be entitled to receive an amount of cash determined pursuant to Sections
2.10 and 2.11.
(c) STOCK TRANSFER BOOKS. At the close of business on the day on
which the Effective Time occurs, the stock transfer books of the Company shall
be closed, and there shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the shares of Company Common
Stock that were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation or
the Paying Agent for transfer or any other reason, they shall be cancelled and
exchanged as provided in this Article II.
(d) NO LIABILITY. None of Parent, Merger Sub, the Company or the
Paying Agent shall be liable to any person in respect of any cash delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law. All funds held by the Paying Agent for payment to the holders of
unsurrendered Certificates and unclaimed at the end of one year after the
Effective Time shall be returned to Parent, after which time any holder of
unsurrendered Certificates shall look as a general creditor only to Parent for
payment of such funds to which such holder may be due, subject to applicable
law.
(e) LOST CERTIFICATES. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may reasonably direct as
indemnity against any claim that may be made against it with respect to such
Certificate, the Paying Agent shall pay in respect of such lost, stolen or
destroyed Certificate the Merger Consideration.
(f) WITHHOLDING RIGHTS. Parent, the Surviving Corporation or the
Paying Agent shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of shares of Company
Common Stock, Company Options or Warrants such amounts as Parent, the Surviving
Corporation or the Paying Agent is required to deduct and withhold with respect
to the making of such payment under the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder (the "CODE"), or
any provision of state, local or foreign tax law. To the extent that amounts are
so withheld and paid over to the appropriate taxing authority by Parent, the
Surviving Corporation or the Paying Agent, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder of
the shares of Company Common Stock, Company Options or Warrants in respect of
which such deduction and withholding was made by Parent, the Surviving
Corporation or the Paying Agent.
Section 2.10. OPTIONS. At the Effective Time, each then outstanding
and unexercised option or right to purchase shares of Company Common Stock
granted under the Company Option Plan or otherwise granted by the Company (each,
a "COMPANY OPTION"), whether or not then exercisable or vested, shall be
converted into an obligation of the Company to pay, and a right of the holder
thereof to receive thereupon in full satisfaction of such Company Option, cash
in an amount in respect thereof equal to the product of (a) the excess, if any,
of the
A-7
Merger Consideration over the exercise price thereof and (b) the number of
shares of Company Common Stock subject to such Company Option.
Section 2.11. WARRANTS. At the Effective Time, each outstanding
warrant to purchase shares of Company Common Stock (the "WARRANTS") shall be
converted into an obligation of Parent to pay, and a right of the holder thereof
to receive thereupon in full satisfaction of such Warrant, cash in an amount in
respect thereof equal to the product of (a) the excess, if any, of the Merger
Consideration over the exercise price of such Warrant and (b) the number of
shares of Company Common Stock subject to such Warrant.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant to
the Company that except as set forth in the forms, reports, schedules,
registration statements and definitive proxy statements that Parent has filed
with the SEC prior to the date hereof or in the disclosure schedule dated as of
the date hereof delivered by Parent and Merger Sub to the Company (the "PARENT
DISCLOSURE SCHEDULE"), each of which exceptions applies to the section of this
Agreement corresponding to the number and subsection of the schedule on which it
appears and to those other sections of this Agreement where the applicability of
such exception is reasonably apparent:
Section 3.01. ORGANIZATION AND QUALIFICATION. Each of Parent and
Merger Sub is a corporation duly organized and validly existing under the laws
of the state of its incorporation and has the requisite corporate power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted or as contemplated herein. Merger Sub
is a wholly owned subsidiary of Parent. Attached as Exhibit A hereto is a true
and complete copy of each of the provisions of Merger Sub's Certificate of
Incorporation and By-laws (and any other constitutive documents) with respect to
indemnification and exculpation in the forms that will be effective as of the
Effective Time.
Section 3.02. AUTHORITY; NON-CONTRAVENTION; APPROVALS. (a) Each of
Parent and Merger Sub has full corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been approved by the Board of Directors of each of Parent and Merger Sub,
and by Parent as sole stockholder of Merger Sub, and no other corporate
proceedings on the part of either Parent or Merger Sub are necessary to
authorize the execution and delivery of this Agreement or the consummation by
each of Parent and Merger Sub of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by each of Parent and Merger Sub,
and, assuming the due authorization, execution and delivery hereof by the
Company, constitutes a valid and legally binding agreement of each of Parent and
Merger Sub, enforceable against each of Parent and Merger Sub in accordance with
its terms.
(b) The execution, delivery and performance of this Agreement by
each of Parent and Merger Sub and the consummation of the transactions
contemplated hereby do not
A-8
and will not violate, conflict with or result in a breach of any provision of,
or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or require any offer to purchase or any prepayment of any
debt or result in the creation of any lien, security interest or encumbrance
upon any of the properties or assets of Parent or any of its subsidiaries under
any of the terms, conditions or provisions of (i) the respective certificates of
incorporation or by-laws or similar organizational documents of Parent, Merger
Sub or any subsidiary of Parent, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
federal, state, local or other governmental authority or regulatory agency,
commission, department or other governmental subdivision, court, tribunal or
body, taxing authority or quasi-governmental or private body exercising any
regulatory, taxing or other governmental or quasi-governmental authority (each,
a "GOVERNMENTAL Authority") applicable to Parent, Merger Sub or any subsidiary
of Parent or any of their respective properties or assets, subject in the case
of consummation, to obtaining the Parent Required Statutory Approvals, or (iii)
any loan or credit agreement, interest rate swap, cap or collar agreement or
other agreement designed to protect against fluctuations in interest rates,
pledge agreement, security agreement, deed of trust, bond, debenture, note,
mortgage, indenture, guarantee, lease or other contract, commitment, obligation,
undertaking, concession, franchise or license (each, including all amendments
thereto, a "CONTRACT") to which Parent, Merger Sub or any subsidiary of Parent
is a party or by which Parent, Merger Sub or any subsidiary of Parent or any of
their respective properties or assets may be bound or affected, other than, in
the case of (ii) and (iii) above, such violations, conflicts, breaches,
defaults, terminations, accelerations, offers, prepayments or creations of
liens, security interests or encumbrances that would not reasonably be expected
to have a material adverse effect on Parent and its subsidiaries, taken as a
whole, or prevent or materially impede or delay the consummation of the Merger
or the other transactions contemplated hereby.
(c) Except for (i) the filings by Parent and Merger Sub required by
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
ACT"), (ii) the applicable requirements of the Securities Exchange Act of 1934,
as amended (the "EXCHANGE ACT") and the rules and regulations promulgated
thereunder, (iii) the filing and recordation of appropriate merger documents as
required by the DGCL and (iv) any filings with or approvals from (x) the Federal
Energy Regulatory Commission ("FERC"), (y) the New York State Public Service
Commission ("NYPSC") and (z) such other Governmental Authorities, if any, listed
on Schedule 3.02 (c) of the Parent Disclosure Schedule (the filings and
approvals referred to in clauses (i) through (iv) collectively referred to as
the "PARENT REQUIRED STATUTORY APPROVALS"), no declaration, filing or
registration with, or notice to, or authorization, consent or approval of, any
Governmental Authority is necessary for the execution and delivery of this
Agreement by Parent or Merger Sub or the consummation by Parent and Merger Sub
of the transactions contemplated hereby, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals which, if not made
or obtained, as the case may be, individually and in the aggregate, would not
impair in any material respect the ability of Parent or Merger Sub to perform
its obligations under this Agreement or prevent or materially impede or delay
the consummation of the Merger.
Section 3.03. INTERIM OPERATIONS OF MERGER SUB. Merger Sub was
formed solely for the purpose of engaging in the transactions contemplated
hereby and has engaged in no
A-9
business and has incurred no liabilities other than in connection with the
transactions contemplated by this Agreement.
Section 3.04. CAPITAL RESOURCES. Parent has, or will have prior to
the Closing, sufficient cash resources to pay the aggregate Merger Consideration
and to pay all amounts in respect of the Company Options and Warrants and all
associated costs and expenses.
Section 3.05. PROXY STATEMENT. The information supplied by Parent
for inclusion in any proxy statement to be sent to stockholders of the Company
in connection with a meeting of the Company's stockholders to consider and vote
upon adoption of this Agreement (the "COMPANY MEETING") (such proxy statement,
as amended or supplemented, the "PROXY STATEMENT"), on the date the Proxy
Statement (or any amendment or supplement thereto) is first mailed to
stockholders of the Company, will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading, and shall not, at the
time of the Company Meeting, omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Company Meeting which shall have become false or
misleading. Notwithstanding the foregoing, Parent and Merger Sub make no
representation or warranty with respect to any information supplied by or on
behalf of the Company which is contained in the Proxy Statement or any amendment
or supplement thereto.
Section 3.06. OWNERSHIP OF CAPITAL STOCK. As of the date hereof,
neither Parent, Merger Sub nor any of their respective "affiliates" or
"associates" (as those terms are defined under Rule 12b-2 under the Exchange
Act) beneficially owns any shares of Company Common Stock or any other security
of the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub that,
except as set forth in the Company SEC Reports filed prior to the date hereof or
in the disclosure schedule dated as of the date hereof , delivered by the
Company to Parent and Merger Sub (the "COMPANY DISCLOSURE SCHEDULE"), each of
which exceptions applies to the section of this Agreement corresponding to the
number and subsection of the schedule on which it appears and to those other
sections of this Agreement where the applicability of such exception is
reasonably apparent:
Section 4.01. ORGANIZATION AND QUALIFICATION. The Company is a
corporation duly organized and validly existing under the laws of the State of
Delaware and has the requisite corporate power and authority to own, lease and
operate its assets and properties and to carry on its business as it is now
being conducted or as contemplated herein. The Company is qualified to transact
business and, where applicable, is in good standing in each jurisdiction in
which the properties owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary, except as would not
reasonably be expected to have a Material Adverse Effect. True, accurate and
complete copies of the Company's Certificate of
A-10
Incorporation and By-laws, in each case as amended and in effect on the date
hereof, including all amendments thereto, have heretofore been filed with the
Securities and Exchange Commission (the "SEC") or delivered to Parent.
For purposes of this Agreement, the term "MATERIAL ADVERSE EFFECT"
shall mean any change or event or effect that, individually or together with
other changes, events or effects, is materially adverse to the business, assets
or financial condition of the Company and its subsidiaries, taken as a whole,
except for any such change, event or effect resulting from or arising out of (i)
changes or developments in international, national, regional, state or local
wholesale or retail markets for electric power or fuel or related products
including those due to actions by competitors, (ii) changes or developments in
national, regional, state or local electric transmission or distribution systems
except to the extent caused by a material worsening of current conditions caused
by acts of terrorism or war (whether or not declared) occurring after the date
of this Agreement which materially impair the Company's ability to conduct its
operations except on a temporary basis, (iii) changes or developments in
financial or securities markets or the economy in general except to the extent
caused by a material worsening of current conditions caused by acts of terrorism
or war (whether or not declared) occurring after the date of this Agreement,
(iv) effects of weather or meteorological events, except to the extent causing
damage to the physical facilities of the Company and its subsidiaries, or (v)
any Change of Law.
Section 4.02. CAPITALIZATION. (a) The authorized capital stock of
the Company consists of 200,000,000 shares of Company Common Stock and
10,000,000 shares of preferred stock, par value $0.01 (the "COMPANY PREFERRED
SHARES"). As of June 30, 2001, (i) 103,497,186 shares of Company Common Stock,
including in each case the associated Company Rights, and no Company Preferred
Shares, were issued and outstanding, all of which shares of Company Common Stock
were validly issued and are fully paid, nonassessable and free of preemptive
rights, (ii) no shares of Company Common Stock were held in the treasury of the
Company, (iii) 5,604,443 and 7,106,300 shares of Company Common Stock were
subject to or reserved for issuance upon exercise of Company Options and
Warrants issued and outstanding, respectively and (iv) 5,850,100 shares of
Company Common Stock were subject to or reserved for issuance upon conversion of
the outstanding 4.50% Convertible Senior Notes due June 1, 2008 (the
"CONVERTIBLE NOTES"). Since June 30, 2001 through the date hereof, (i) no shares
of capital stock of the Company have been issued, except in connection with the
exercise of Company Options or Warrants issued and outstanding on June 30, 2001
or in connection with the conversion of the Convertible Notes and (ii) no
options, warrants, securities convertible into, or commitments with respect to
the issuance of, shares of capital stock of the Company have been issued,
granted or made except Company Rights in accordance with the terms of the
Company Rights Agreement.
(b) Except for (i) the Preferred Share Purchase Rights (the "COMPANY
RIGHTS") issued pursuant to the Rights Agreement, as amended (the "COMPANY
RIGHTS AGREEMENT"), dated as of November 1, 2000, by and between the Company and
LaSalle Bank National Association, (ii) Company Options issued and outstanding,
(iii) Convertible Notes and (iv) the Warrants, as of the date hereof, there were
no outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement and also including any rights plan or other anti-takeover
agreement, obligating the
A-11
Company or any subsidiary of the Company to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock of the Company
or obligating the Company or any subsidiary of the Company to grant, extend or
enter into any such agreement or commitment. As of the date hereof, there are no
obligations, contingent or otherwise, of the Company to (i) repurchase, redeem
or otherwise acquire any shares of Company Common Stock or the capital stock or
other equity interests of any subsidiary of the Company except in connection
with the exercise of Company Options issued and outstanding or (ii) provide
material funds to, or make any material investment in (in the form of a loan,
capital contribution or otherwise), or provide any guarantee with respect to the
obligations of, any person other than a subsidiary. There are no outstanding
stock appreciation rights or similar rights of the Company or any of its
subsidiaries. There are no bonds, debentures, notes or other indebtedness of the
Company having the right to vote (or, except for the Convertible Notes,
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which stockholders of the Company may vote. There are no voting
trusts, irrevocable proxies or other agreements or understandings to which the
Company or any subsidiary of the Company is a party or is bound with respect to
the voting of any shares of Company Common Stock. The Board of Directors of the
Company has taken all action to amend the Company Rights Agreement to provide
that, for so long as this Agreement is in full force and effect, (i) none of
Parent and its subsidiaries (including Merger Sub) shall become an "acquiring
person" and no "stock acquisition date" shall occur as a result of the
execution, delivery and performance of this Agreement and the Stockholder
Agreements in accordance with their terms and the consummation of the Merger as
provided herein, (ii) no "distribution date" shall occur as a result of the
announcement of or the execution of this Agreement or the Stockholder Agreements
or the consummation of the Merger and (iii) each of Parent and Merger Sub will
not be an "acquiring person" as a result of the transactions contemplated hereby
and by the Stockholder Agreements. As used in this Section 4.02(b), the terms
"acquiring person," "distribution date" and "stock acquisition date" shall have
the meanings ascribed to such terms in the Company Rights Agreement.
(c) The Company has filed with the SEC or previously made available
to Parent complete and correct copies of the 1998 Stock Incentive Plan including
all amendments thereto (the "COMPANY OPTION PLAN"). The Company has included in
Schedule 4.02(c) of the Company Disclosure Schedule a complete and correct list
setting forth as of September 24, 2001, the number of Company Options and
Warrants outstanding, the weighted average exercise price for all such
outstanding Company Options and Warrants and the aggregate number of Company
Options and Warrants outstanding at each exercise price.
Section 4.03. SUBSIDIARIES. Each direct and indirect significant
subsidiary of the Company (each a "SIGNIFICANT SUBSIDIARY", defined as such term
is defined in Rule 1-02 of Regulation S-X of the Exchange Act) is duly
organized, validly existing and, where applicable, in good standing under the
laws of its jurisdiction of organization and has the requisite power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted and each Significant Subsidiary of the
Company is qualified to transact business, and is in good standing, in each
jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary;
except in all cases as would not reasonably be expected to have a Material
Adverse Effect. All of the outstanding shares of capital stock or other equity
interests of each Significant Subsidiary of the Company are validly issued,
fully paid, nonassessable and free of preemptive rights and
A-12
are owned directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims, except for (a) the security interests granted
pursuant to the Orion Power New York, L.P. Credit Facility, the Orion Power
MidWest, L.P. Credit Facility and the Liberty Electric Power, LLC Credit
Facility, as set forth in the Company's prospectus dated May 31, 2001 as filed
pursuant to Rule 424(b) under the Securities Act of 1933, as amended, relating
to the Company's 4.50% Convertible Senior Notes due June 1, 2008 (the "MAY 31
DEBT PROSPECTUS") and (b) such liens, encumbrances, equities or claims that
would not have a Material Adverse Effect. There are no subscriptions, options,
warrants, voting trusts, proxies or other commitments, understandings,
restrictions or arrangements to which the Company or any of its Significant
Subsidiaries is a party relating to the issuance, sale, voting or transfer of
any shares of capital stock or other equity interests of any Significant
Subsidiary of the Company, including any right of conversion or exchange under
any outstanding security, instrument or agreement. The Company has no material
investment in any entity other than its Significant Subsidiaries.
Section 4.04. AUTHORITY; NON-CONTRAVENTION; APPROVALS. (a) The
Company has full corporate power and authority to enter into this Agreement and,
subject to the approval of the stockholders of the Company as required by the
DGCL (the "COMPANY STOCKHOLDER APPROVAL"), to consummate the transactions
contemplated hereby. This Agreement has been approved by the Board of Directors
of the Company and no other corporate proceedings on the part of the Company are
necessary to authorize the execution and delivery of this Agreement or, except
for the Company Stockholder Approval, the consummation by the Company of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company, and, assuming the due authorization, execution and
delivery hereof by Parent and Merger Sub, constitutes a valid and legally
binding agreement of the Company, enforceable against the Company in accordance
with its terms.
(b) The execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated hereby do not and
will not violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in or give rise to a right of
termination, amendment, cancellation or acceleration of any obligation or the
loss of any benefit under, or require any offer to purchase or any prepayment of
any debt or result in the creation of any lien, security interest or encumbrance
upon or right of first refusal or first offer with respect to any of the
properties or assets of the Company or any of its subsidiaries under any of the
terms, conditions or provisions of (i) the respective certificates of
incorporation or by-laws or similar organizational documents of the Company or
any of its subsidiaries, (ii) any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any court or
Governmental Authority applicable to the Company or any of its subsidiaries or
any of their respective properties or assets, subject in the case of
consummation, to obtaining the Company Required Statutory Approvals and the
Company Stockholder Approval, or (iii) any Contract, Company Permit, Company
Plan, Multiemployer Plan or Intellectual Property to which the Company or any of
its subsidiaries is a party or by which the Company or any of its subsidiaries
or any of their respective properties or assets may be bound or affected, other
than, in the case of (ii) and (iii) above, such violations, conflicts, breaches,
defaults, terminations, accelerations, offers, prepayments or creations of
liens, security interests or encumbrances that would not reasonably be expected
to have a Material Adverse Effect.
A-13
Schedule 4.04(b) of the Company Disclosure Schedule sets forth a correct and
complete list of all material contracts within the meaning of Item 601 of
Regulation S-K, of the Company and its subsidiaries pursuant to which consents
or waivers are required as a result of consummation of the Merger.
(c) Except for (i) the filings by the Company required by the HSR
Act, (ii) the applicable requirements of the Exchange Act and the rules and
regulations promulgated thereunder, (iii) the filing and recordation of
appropriate merger documents as required by the DGCL and (iv) any filings with
or approvals from (x) the FERC, (y) the NYPSC and (z) the other Governmental
Authorities listed on Schedule 4.04(c) of the Company Disclosure Schedule (the
filings and approvals referred to in clauses (i) through (iv) collectively
referred to as the "COMPANY REQUIRED STATUTORY APPROVALS"), no declaration,
filing or registration with, or notice to, or authorization, consent or approval
of, any Governmental Authority is necessary for the execution and delivery of
this Agreement by the Company or the consummation by the Company of the
transactions contemplated hereby, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals which, if not made
or obtained, as the case may be, would not reasonably be expected to have a
Material Adverse Effect.
(d) The Board of Directors of the Company, at a meeting duly called
and held, adopted resolutions that are still in full force and effect as of the
date hereof, (i) approving and declaring advisable the Merger and this
Agreement, (ii) declaring that the Merger and this Agreement are in the best
interests of the Company's stockholders, (iii) recommending that the Company's
stockholders approve and adopt this Agreement, and (iv) exempting this
Agreement, the Stockholder Agreements and the transactions contemplated hereby
and thereby from the restrictions of Section 203 of the DGCL. The resolutions
referred to in the preceding sentence were approved unanimously by all
directors.
(e) The affirmative vote of the holders of a majority of the
outstanding shares of Company Common Stock is the only vote of the holders of
any class or series of capital stock of the Company necessary to approve this
Agreement, the Merger and the other transactions contemplated hereby.
Section 4.05. REPORTS AND FINANCIAL STATEMENTS. Since November 13,
2000, the Company has filed with the SEC all forms, reports, schedules,
registration statements, prospectuses and definitive proxy statements (the
"COMPANY SEC REPORTS") required to be filed by it under each of the Securities
Act of 1933, as amended, the Exchange Act and the respective rules and
regulations thereunder, all of which, as amended if applicable, complied in all
material respects as to form with all applicable requirements of the appropriate
act and the rules and regulations thereunder. As of their respective dates
(taking into account any amendments or supplements thereto filed prior to the
date hereof), the Company SEC Reports did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The audited consolidated financial
statements of the Company included in the Company's Annual Report on Form 10-K
for the year ended December 31, 2000 and the unaudited financial statements of
the Company included in the Company's Quarterly Report on Form 10-Q (the
"COMPANY 10-Q") for the period ended June 30, 2001 have been prepared in
accordance with United States generally accepted accounting
A-14
principles ("GAAP") applied on a consistent basis (except as may be indicated
therein or in the notes thereto or as may be permitted by the rules and
regulations applicable to the quarterly report on Form 10-Q) and fairly present
in all material respects the financial position of the Company and its
subsidiaries as of the dates thereof and the results of their operations and
changes in financial position for the periods reported (subject, in the case of
the unaudited financial statements, to normal year-end adjustments). Except as
disclosed in the Company SEC Reports, there are no agreements, arrangements or
understandings, or relationships or items of indebtedness, involving the Company
or any of its Significant Subsidiaries of the type which would be required to be
disclosed pursuant to Item 404(a), (b) or (c) of Regulation S-K under the
Exchange Act.
Section 4.06. ABSENCE OF UNDISCLOSED LIABILITIES; MATERIAL ADVERSE
EFFECT. (a) Except as disclosed in the unaudited financial statements included
in the Company 10-Q, neither the Company nor any of its subsidiaries has as of
the date hereof any liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of any nature, except (a) liabilities, obligations or
contingencies (i) which are accrued or reserved against in the financial
statements in the Company 10-Q or reflected in the notes thereto or (ii) which
were incurred in the ordinary course of business after June 30, 2001 and (b)
liabilities, obligations or contingencies which (i) would not reasonably be
expected to have a Material Adverse Effect, or (ii) have been discharged or paid
in full prior to the date hereof.
(b) Since June 30, 2001, except as disclosed in the Company SEC
Reports filed prior to the date of this Agreement, there has not occurred (i)
any circumstance, development or event or series of such occurrences that has
had or would reasonably be expected to have a Material Adverse Effect; (ii) any
loss or interference with the business of the Company and its subsidiaries from
fire, explosion, flood or other calamity, whether or not covered by insurance,
or from any labor dispute or action, order or decree of any Governmental
Authority which would reasonably be expected to have a Material Adverse Effect;
(iii) through the date hereof, any declaration, setting aside or payment of any
dividend, or other distribution in cash, stock or property in respect of the
capital stock of the Company, or any repurchase, redemption or other acquisition
by the Company or any of its subsidiaries of any outstanding shares of capital
stock or other securities of, or other ownership interests in, the Company; (iv)
through the date hereof, any split in the Company's capital stock, combination,
subdivision or reclassification of any of the Company's capital stock or
issuance or authorization of any issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock, except as
expressly contemplated by this Agreement; (v) through the date hereof, any
amendment of any term of any outstanding security of the Company; or (vi)
through the date hereof, any change by the Company or its subsidiaries in
financial accounting principles, practices or methods, except as required by
GAAP or by a Change of Law.
Section 4.07. LITIGATION. There are no claims, suits, actions,
proceedings, hearings, inquiries, arbitrations, mediations or similar events or
matters pending, or, to the knowledge of the Company, threatened against,
relating to or affecting the Company or any of its subsidiaries, or to the
Company's knowledge, investigations pending, before any court, Governmental
Authority or any arbitrator, that in any such case would reasonably be expected
to have a Material Adverse Effect. Neither the Company nor any of its
subsidiaries is subject to any judgment, decree, injunction, rule or order of
any Governmental Authority or any arbitrator
A-15
which prohibits the consummation of the Merger or would reasonably be expected
to have a Material Adverse Effect.
Section 4.08. PROXY STATEMENT. The Proxy Statement will not, on the
date the Proxy Statement (or any amendment or supplement thereto) is first
mailed to stockholders of the Company, 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 made therein, in the light of the
circumstances under which they are made, not misleading and will not, at the
time of the Company Meeting, omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Company Meeting which shall have become false or
misleading in any material respect. The Proxy Statement will, when filed by the
Company with the SEC, comply as to form in all material respects with the
applicable provisions of the Exchange Act and the rules and regulations
thereunder. Notwithstanding the foregoing, the Company makes no representation
or warranty with respect to information supplied by or on behalf of Parent or
Merger Sub which is contained in the Proxy Statement.
Section 4.09. NO VIOLATION OF LAW. Neither the Company nor any of
its subsidiaries is in violation of or has been given written notice of any
violation of, any law, statute, order, rule, regulation, ordinance or judgment
(including any applicable environmental law, ordinance or regulation) of any
Governmental Authority, except for violations which would not reasonably be
expected to have a Material Adverse Effect. To the knowledge of the Company, no
investigation or review relating individually to the Company or any of its
subsidiaries by any Governmental Authority is pending or threatened, other than,
in each case, those which would not reasonably be expected to have a Material
Adverse Effect. The Company and its subsidiaries have all permits, licenses,
franchises, variances, exemptions, orders and other governmental authorizations,
consents and approvals necessary to conduct their businesses as presently
conducted (collectively, the "COMPANY PERMITS"), except for permits, licenses,
franchises, variances, exemptions, orders, authorizations, consents and
approvals the absence of which would not reasonably be expected to have a
Material Adverse Effect. The Company and its subsidiaries are not in violation
of the terms of any Company Permit, except for violations which would not
reasonably be expected to have a Material Adverse Effect.
Section 4.10. COMPLIANCE WITH AGREEMENTS. The Company and each of
its subsidiaries are not in breach or violation of or in default in the
performance or observance of any term or provision of, and no event has occurred
which, with lapse of time or action by a third party, would result in a default
under, (a) the respective articles or certificates of incorporation, by-laws or
similar organizational instruments of the Company or any of its Significant
Subsidiaries or (b) any Contract to which the Company or any of its Significant
Subsidiaries is a party or by which any of them is bound or to which any of
their property is subject, other than as would not reasonably be expected to
have a Material Adverse Effect.
Section 4.11. TAXES. The Company and its subsidiaries have (i) duly
filed with the appropriate Governmental Authorities all returns, reports or
similar statements (including any attached schedules) required to be filed with
respect to any Tax, including any information return, claim for refund, amended
return or declaration of estimated Tax ("TAX RETURNS") required to be filed by
them, and such Tax Returns are true, correct and complete, and (ii) duly
A-16
paid in full any and all federal, state, local, foreign 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 taxing
authority, including taxes or other charges on or with respect to income,
franchise, windfall or other profits, gross receipts, property, sales, use,
capital stock, payroll, employment, social security, workers' compensation,
unemployment compensation, or net worth, and taxes or other charges in the
nature of excise, withholding, ad valorem or value added (collectively, "TAXES")
shown as due on such Tax Returns, except in each case where the failure to file
such Tax Returns or pay such Tax or the failure of such Tax Returns to be true,
correct or complete, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect. There are no liens for Taxes upon
any property or asset of the Company or any subsidiary thereof, except for liens
for Taxes not yet due or Taxes contested in good faith or reserved against in
accordance with GAAP or liens that would not reasonably be expected to have a
Material Adverse Effect. To the knowledge of the Company, there are not pending
or threatened in writing any audit, examination, investigation or other
proceeding in respect of Taxes or Tax matters that would reasonably be expected
to have a Material Adverse Effect, and there are no unresolved issues of law or
fact specifically set forth in writing in a notice of deficiency, proposed
deficiency or assessment from the Internal Revenue Service ("IRS") or any other
governmental taxing authority with respect to Taxes of the Company or any of its
subsidiaries, in each case, which would reasonably be expected to have a
Material Adverse Effect, except as reserved against in accordance with GAAP. All
material assessments for Taxes due with respect to any completed and settled
examinations or any concluded litigation have been fully paid. Except as would
not reasonably be expected to have a Material Adverse Effect, neither the
Company nor any of its subsidiaries has (i) been a member of an affiliated group
filing a consolidated United States federal income Tax Return (other than a
group the common parent of which was the Company) or (ii) any liability for the
Taxes of any person (other than any of the Company and its subsidiaries under
Treasury Regulations Section 1,1502-6 (or similar provision of state, local or
foreign law)) as a transferee or successor, by contract or otherwise.
Section 4.12. EMPLOYEE BENEFIT PLANS; ERISA. (a) Schedule 4.12(a) of
the Company Disclosure Schedule includes a complete list of each material
employee benefit plan, program or policy providing benefits to any current or
former employee, officer, director or independent contractor of the Company or
any of its subsidiaries or any beneficiary or dependent thereof that is
sponsored or maintained by the Company or any of its subsidiaries or to which
the Company or any of its subsidiaries contributes or is obligated to
contribute, including without limitation any employee welfare benefit plan
within the meaning of Section 3(1) of the Employee Retirement Income Security
Act of 1974, as amended, and the regulations promulgated thereunder ("ERISA"),
any employee pension benefit plan within the meaning of Section 3(2) of ERISA
(whether or not such plan is subject to ERISA) and any material bonus,
incentive, deferred compensation, vacation, stock purchase, stock option
(including the Company Option Plan), severance, employment, consulting, change
of control or fringe benefit agreement, plan, program or policy (collectively,
the "COMPANY PLANS"). The Company has no commitment or obligation to establish
or adopt any new or additional material Company Plans or to materially increase
the benefits under any existing Company Plan.
(b) With respect to each Company Plan, the Company has delivered or
made available to Parent a true, correct and complete copy of: (i) all plan
documents and trust agreements; (ii) the most recent Annual Report (Form 5500
Series) and accompanying schedule,
A-17
if any; (iii) the current summary plan description, if any; (iv) the most recent
annual financial report, if any; (v) the most recent actuarial report, if any;
and (vi) the most recent determination letter from the IRS, if any.
(c) Except as would not reasonably be expected to have a Material
Adverse Effect, the IRS has issued a favorable determination or opinion letter
with respect to each Company Plan that is intended to be qualified within the
meaning of Section 401(a) or 501(c)(9) of the Code and its related trust that
has not been revoked, and, to the knowledge of the Company, there are no
circumstances or events that have occurred that would reasonably be expected to
result in a revocation of such letter, which cannot be cured without a Material
Adverse Effect.
(d) Except as would not reasonably be expected to have a Material
Adverse Effect: (i) the Company and its subsidiaries have complied, and are now
in compliance, with all provisions of ERISA, the Code and all laws and
regulations applicable to the Company Plans and each Company Plan has been
administered in all material respects in accordance with its terms; (ii) none of
the Company and any its subsidiaries nor, to the knowledge of the Company, any
other person, including any fiduciary, has engaged in any "prohibited
transaction" (as defined in Section 4975 of the Code or Section 406 of ERISA),
which could subject any of the Company Plans or their related trusts, the
Company or any of its subsidiaries, to any tax or penalty imposed under Section
4975 of the Code or Section 502 of ERISA; (iii) no reportable event, within the
meaning of Section 4043(c) of ERISA, has occurred with respect to any Company
Plan or any plan sponsored by a trade or business, whether or not incorporated,
under common control or treated as a single employer with the Company under
Sections 414(b), (c) or (m) of the Code (an "ERISA AFFILIATE PLAN") for which
the notice requirement has not been waived; (iv) all contributions required to
be made under the terms of any Company Plan have been timely made; (v) no
Company Plan or ERISA Affiliate Plan has an "accumulated fending deficiency"
(within the meaning of Section 412 of the Code or Section 302 of ERISA), whether
or not waived; (vi) all premiums to the Pension Benefit Guaranty Corporation
("PBGC") have been timely paid in full; (vii) no liability (other than for
premiums to the PBGC) under Title IV of ERISA has been or is expected to be
incurred by the Company or with respect to an ERISA Affiliate Plan; and (viii)
there are no pending or, to the Company's knowledge, threatened claims (other
than claims for benefits in the ordinary course), lawsuits or arbitrations which
have been asserted or instituted against the Company Plans which could
reasonably be expected to result in any liability of the Company or any of its
subsidiaries to any Company Plan participant, to the PBGC, the Department of
Treasury, the Department of Labor, any Multiemployer Plan or any Company Plan.
(e) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (either alone or in
conjunction with any other event) result in, cause the accelerated vesting,
funding or delivery of, or increase the amount or value of, any material payment
or benefit to any employee, officer or director of the Company or any of its
subsidiaries.
(f) No Company Plan or ERISA Affiliate Plan is a multiemployer plan
within the meaning of Section 4001(a)(3) of ERISA (a "MULTIEMPLOYER PLAN") and
none of the
A-18
Company nor any of its subsidiaries has at any time since March 5, 1998
contributed to or been obligated to contribute to any Multiemployer Plan.
Section 4.13. LABOR CONTROVERSIES. There are no controversies
pending or, to the knowledge of the Company, threatened between the Company or
its subsidiaries and any representatives (including unions and any bargaining
unit) of any of their employees that would reasonably be expected to have a
Material Adverse Effect. To the knowledge of the Company, there are no
organizational efforts presently being made involving any of the presently
unorganized employees of the Company or its subsidiaries, except for such
organizational efforts which would not reasonably be expected to have a Material
Adverse Effect.
Section 4.14. ENVIRONMENTAL MATTERS. (a) Except as would not
reasonably be expected to have a Material Adverse Effect: (i) the Company and
its subsidiaries have conducted their respective businesses in compliance with
all applicable Environmental Laws, (ii) none of the properties owned by the
Company or any of its subsidiaries contains any Hazardous Substance as a result
of any activity of the Company or any of its subsidiaries in amounts exceeding
the levels permitted by applicable Environmental Laws, (iii) since June 30,
2001, neither the Company nor any of its subsidiaries has received any notices,
demand letters or requests for information from any federal, state, local or
foreign Governmental Authority indicating that the Company or any of its
subsidiaries may be in violation of, or liable under, any Environmental Law in
connection with the ownership or operation of its businesses, (iv) there are no
civil, criminal or administrative actions, suits, demands, claims, hearings,
investigations or proceedings pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries relating to any
violation, or alleged violation, of any Environmental Law, (v) no Hazardous
Substance has been disposed of, released or transported in violation of any
applicable Environmental Law, or in a manner giving rise to any liability under
Environmental Law, from any properties owned by the Company or any of its
subsidiaries as a result of any activity of the Company or any of its
subsidiaries during the time such properties were owned, leased or operated by
the Company or any of its subsidiaries and (vi) neither the Company, its
subsidiaries nor any of their respective properties are subject to any
liabilities or expenditures (fixed or contingent) relating to any suit,
settlement, court order, administrative order, regulatory requirement, judgment
or claim asserted or arising under any Environmental Law.
(b) As used herein, "ENVIRONMENTAL LAW" means any federal, state,
local or foreign law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, order, judgment, decree, injunction,
requirement or agreement with any Governmental Authority relating to (x) the
protection, preservation or restoration of the environment (including air, water
vapor, surface water, groundwater, drinking water supply, surface land,
subsurface land, plant and animal life or any other natural resource), or (y)
the exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or disposal
of Hazardous Substances, in each case and as in effect at the date hereof.
(c) As used herein, "HAZARDOUS SUBSTANCE" means any substance
presently listed, defined, designated or classified as hazardous, toxic,
radioactive, or dangerous, or otherwise regulated, under any Environmental Law.
Hazardous Substance includes any substance to which exposure is regulated by any
Governmental Authority or any Environmental
A-19
Law including any toxic waste, pollutant, contaminant, hazardous substance,
toxic substance, hazardous waste, special waste, industrial substance or
petroleum or any derivative or byproduct thereof, radon, radioactive material,
asbestos, or asbestos containing material, urea formaldehyde, foam insulation or
polychlorinated biphenyls.
Section 4.15. INTELLECTUAL PROPERTY. Except as would not reasonably
be expected to have a Material Adverse Effect, (i) the Company and its
subsidiaries own, or are licensed to use, all patents, patent rights (including
patent applications and licenses), know-how, trade secrets, trademarks
(including trademark applications), trademark rights, trade names, trade name
rights, service marks, service mark rights, copyrights and other proprietary
intellectual property rights (collectively, "INTELLECTUAL PROPERTY") used in or
necessary for the conduct of the Company's business as it is currently
conducted, (ii) to the knowledge of the Company, the use of Intellectual
Property by the Company and its subsidiaries does not infringe on or otherwise
violate the rights of any third party, and is in accordance with the applicable
license pursuant to which the Company or its subsidiaries acquired the right to
use such Intellectual Property, (iii) to the knowledge of the Company, no third
party is challenging, infringing on or otherwise violating any right of the
Company or its subsidiaries in the Intellectual Property, (iv) neither the
Company nor any of its subsidiaries has received, granted, or is obligated to
grant, any license, sub-license, or assignment of any Intellectual Property, (v)
neither the Company nor any of its subsidiaries has received any notice of any
third party Intellectual Property or pending claim, order or proceeding with
respect to any material Intellectual Property used in or necessary for the
conduct of the Company's business as it is currently conducted, and (vi) to the
knowledge of the Company, no Intellectual Property is being used or enforced by
the Company in a manner that would reasonably be expected to result in the
abandonment, cancellation or unenforceability of any Intellectual Property used
in or necessary for the conduct of the Company's business as it is currently
conducted.
Section 4.16. OPINION OF FINANCIAL ADVISOR. The Company's financial
advisor, Goldman, Sachs & Co. (the "COMPANY FINANCIAL ADVISOR"), has delivered
to the Board of Directors of the Company an oral opinion, to be confirmed in
writing, to the effect that, as of the date of this Agreement, the Merger
Consideration to be received by the Company's stockholders is fair to such
holders from a financial point of view.
Section 4.17. BROKERS AND FINDERS. The Company has not entered into
any contract, arrangement or understanding with any person or firm which may
result in the obligation of the Company to pay any investment banking fees,
finder's fees, or brokerage commissions in connection with the transactions
contemplated hereby, other than fees payable to the Company Financial Advisor.
Section 4.18. INSURANCE. The Company and its subsidiaries maintain
insurance covering their respective properties, operations, personnel and
businesses which insures against such losses and risks as are adequate in
accordance with its reasonable business judgment to protect the Company, its
subsidiaries and their respective businesses. Except as would not have a
Material Adverse Effect, neither the Company nor any of its subsidiaries has
received written notice from any insurer or agent of such insurer that
substantial capital improvements or other material expenditures will have to be
made in order to continue such insurance.
A-20
Section 4.19. PUHCA; REGULATION AS UTILITY. Neither the Company nor
any of its subsidiaries is (a) subject to regulation as a "holding company" or a
"subsidiary company" of a holding company or an "affiliate" of a subsidiary or
holding company or a "public utility company" under the Public Utility Holding
Company Act of 1935, (b) subject to regulation under the Federal Power Act, as
amended, other than due to its subsidiaries' status as power marketers and
owners of certain electric transmission facilities subject to the Federal Power
Act, and its subsidiaries have all exemptions and waivers from regulation as
typically granted by FERC to power marketers or entities with market based
authority affiliated with utilities, or (c) subject to any state law or
regulation with respect to the rates or financial or organizational regulation
of electric utilities, other than due to its subsidiaries' status as "electric
corporations" under New York law subject to lightened regulation, except as
otherwise disclosed in the May 31 Debt Prospectus.
Section 4.20. EXEMPT WHOLESALE GENERATOR STATUS; NO QF. Each of the
power generation projects in which the Company or its subsidiaries has an
interest that is subject to the requirements under the Federal Power Act
discussed in Section 4.19 above meets the requirements for, and has obtained
from FERC, Exempt Wholesale Generator Status, under Section 32 of the Public
Utility Holding Company Act of 1935, as amended, and FERC's applicable
regulations relating thereto. None of the power generation projects in which the
Company or its subsidiaries has an interest is a "qualifying facility" under the
Public Utility Regulatory Policies Act of 1978, as amended, and FERC's
regulations promulgated thereunder.
Section 4.21. ALLOWANCES. Except as would not reasonably be expected
to have a Material Adverse Effect, or as set forth on Schedule 4.21 of the
Company Disclosure Schedule, the Company and its subsidiaries own the quantity
of SO2 and NOx allowances reflected in the Company's Environmental Protection
Agency tracking accounts as of August 31, 2001.
Section 4.22. NON-COMPETES. Neither the Company nor any of its
subsidiaries is party to or bound by any material non-compete agreement.
ARTICLE V
COVENANTS
Section 5.01. CONDUCT OF BUSINESS PENDING THE MERGER. Except as
otherwise contemplated by this Agreement, required by law, disclosed in Schedule
5.01 of the Company Disclosure Schedule, or, subject to such Schedule 5.01,
provided for in the Company's Annual Budgets, including the draft budget for the
calendar year 2002 (as the same may be required to be revised by the Company's
lenders) and Capital Plan, as attached to the Company Disclosure Schedule and
identified as the Company Budgets and Capital Plan (collectively, the "COMPANY
BUDGETS") or except, in the case of clause (a) and clause (i) below only, in
connection with necessary repairs due to breakdown or casualty, or other
necessary actions taken in response to a business emergency or other unforeseen
operational matters, after the date hereof and prior to the Effective Time,
without Parent's consent (which shall not be unreasonably withheld or delayed),
the Company shall, and shall cause its subsidiaries to:
A-21
(a) conduct their respective businesses in the ordinary course of
business consistent with good operating practice in the electric generating
industry taking into account the age, type and location of the assets of
the Company and its subsidiaries;
(b) not (i) amend or propose to amend their respective certificates
of incorporation or by-laws or equivalent organizational documents, (ii)
split, combine or reclassify their outstanding capital stock or (iii)
declare, set aside or pay any dividend or distribution payable in cash,
stock, property or otherwise, except for the payment of dividends or
distributions to the Company or any of its subsidiaries by a direct or
indirect subsidiary of the Company;
(c) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional shares of, or any options, warrants or
rights of any kind to acquire any shares of their capital stock of any
class or any debt or equity securities which are convertible into or
exchangeable for such capital stock, except that (i) the Company may issue
shares of capital stock of the Company (A) upon exercise of Company Options
outstanding on the date hereof or hereafter granted in accordance with the
provisions of subclause (ii) of this clause (c), (B) upon conversion of the
Convertible Notes or in accordance with the Company Rights Agreement as in
effect on the date hereof and (C) upon exercise of Warrants outstanding on
the date hereof, (ii) the Company may grant Company Options pursuant to
existing contractual obligations as set forth in Schedule 5.01 of the
Company Disclosure Schedule, and (iii) issuances, sales or dispositions of
capital stock among the Company and its subsidiaries shall be permitted;
(d) except for transactions among the Company and its subsidiaries
or as otherwise provided in Schedule 5.01 of the Company Disclosure
Schedule, not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money or enter into any "keepwell" or other
agreement to maintain the financial condition of another person or enter
into arrangements having the effect of any of the foregoing (including any
capital leases, "synthetic" leases or conditional sale or other title
retention agreements) in excess of $25 million other than (A) borrowings in
the ordinary course of business under existing credit facilities of the
Company or any of its subsidiaries as such facilities may, if permitted by
clause (ii) of this Section 5.01(d), be amended or replaced in a manner
that does not have a Material Adverse Effect (the "EXISTING CREDIT
FACILITIES") and (B) if permitted by clause (ii) of this Section 5.01(d),
borrowings to refinance existing indebtedness, (ii) incur or become
contingently liable with respect to any indebtedness (other than
indebtedness to be incurred under Liberty Electric PA, LLC's Note Purchase
Agreement with the "Institutional Lenders" dated as of July 31, 2001 as
amended to the date of this Agreement, relating to the Liberty electric
generating station) that bears interest at a fixed rate or that requires
payment of a makewhole or other premium in the event of redemption or
repayment before stated maturity or enter into any interest rate swap, cap,
collar or similar agreements, (iii) redeem, purchase, acquire or offer to
purchase or acquire any shares of its capital stock or any options,
warrants or rights to acquire any of its capital stock or any security
convertible into or exchangeable for its capital stock other than in
connection with the exercise of outstanding Company Options and Warrants
pursuant to the terms of the Company Option Plan and the relevant written
agreements evidencing the grant of Company
A-22
Options and Warrants, (iv) make any acquisition for consideration valued at
$25 million or more individually (for any single acquisition) or $50
million or more in the aggregate (for all acquisitions) of any operating
assets, securities or businesses other than acquisitions by the Company or
a subsidiary of the Company of any operating assets, securities or
businesses of a subsidiary of the Company, (v) sell or dispose of assets or
businesses having a value of $25 million or more individually or $50
million or more in the aggregate, or pledge or encumber any assets or
businesses, other than (A) pledges or encumbrances required pursuant to
Existing Credit Facilities or other permitted borrowings to the extent
replacing Existing Credit Facilities in whole or in part and in such case
only to the extent of the pledge or encumbrance required pursuant to
Existing Credit Facilities, (B) sales or dispositions of businesses or
assets by the Company or a subsidiary of the Company to a subsidiary of the
Company or as may be required by applicable law, (C) if permitted by
Section 5.01(j), sales of power and services and capacity and other current
assets or dispositions of obsolete assets or equipment, in each case, in
the ordinary course of business consistent with good operating practices in
the electric generating industry taking into account the age, type and
location of the assets of the Company and its subsidiaries, (D) if in
connection with an actual or threatened eminent domain proceeding where
fair value, in the Company's reasonable judgment, is paid for the asset or
business, or (vi) enter into any binding contract, agreement, commitment or
arrangement with respect to any of the foregoing;
(e) use reasonable best efforts to preserve intact their respective
business organizations and goodwill, keep available the services of their
respective present senior officers and key employees, and preserve the
goodwill and business relationships with customers and others having
business relationships with them;
(f) except as otherwise provided in Schedule 5.01 of the Company
Disclosure Schedule, not enter into or amend any employment, severance,
special pay arrangement with respect to termination of employment or other
similar arrangements or agreements with any directors, officers or key
employees or pay any benefit not required by any plan or arrangement in
effect on the date hereof, except pursuant to (i) the requirements of
applicable law, (ii) the ordinary course of business consistent with past
practice, (iii) the Company Plans or collective bargaining agreements in
effect on the date of this Agreement or (iv) employment agreements entered
into with a person who is hired or promoted by the Company or one of its
subsidiaries after the date hereof in the ordinary course of business based
on job performance or workplace requirements and that are consistent with
past practice and comparable in form and amount to individual compensation
or benefit plans or agreements maintained by the Company and its
subsidiaries on the date of this Agreement;
(g) not increase the base salary or other monetary compensation of
any officer or employee, except for increases in the ordinary course of
business consistent with past practice or as permitted by Section 5.06(f)
or except pursuant to previously existing contractual obligations;
(h) not adopt, enter into, amend to materially increase benefits or
obligations of or accelerate the payment or vesting of any benefit or
amount payable under any
A-23
Company Plan, except (i) in the ordinary course of business, (ii) as
required pursuant to existing contractual obligations or this Agreement or
(iii) as required by applicable law;
(i) excluding expenditures made to support projects described in the
Company Budgets to the extent permitted by Schedule 5.01 of the Company
Disclosure Schedule, (i) except to the extent permitted by item (ii) of
this Section 5.01(i), not make any expenditures (capital or otherwise) in
respect of those projects and (ii) not make any capital expenditures
(whether on those projects or otherwise) in excess of $1 million
individually or $10 million in the aggregate, or, in either case, enter
into any binding commitment or contract to make such expenditures;
(j) not enter into, terminate, grant any material waiver or consent
under or materially amend any material contract or commitment or series of
related contracts or commitments, including any contract or commitment or
series of related contracts or commitments (i) providing for sales of goods
or services by the Company or any of its subsidiaries that has a term of
more than one year and which is reasonably expected to generate more than
$25 million in revenues over its term, excluding forward sales in respect
of the calendar year 2002 to the extent permitted under the Company's two
principal subsidiaries' credit agreements in their current form or (ii)
providing for purchases of goods or services by the Company or any of its
subsidiaries that has a term of more than one year and which is reasonably
expected to involve payments of more than $25 million over its term;
(k) maintain insurance coverages as contemplated by Section 4.18 and
file and prosecute any claims thereunder relating to the business of the
Company and its subsidiaries;
(l) invest available cash balances, to the extent not otherwise
required by the terms of the Existing Credit Facilities, in investments
that would qualify as "Permitted Investments" under the terms of the
Company's Credit Agreement, dated as of July 27, 2000, with Union Bank of
California, N.A., CIBC World Markets Corp., The Bank of Novia Scotia and
various other financial institutions;
(m) not make any tax election or settle or compromise any tax
liability or refund, except as would not reasonably be expected to have a
Material Adverse Effect;
(n) not pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise) in excess of $10 million, net of any insurance benefit to
Company, in the aggregate, other than the payment, discharge or
satisfaction in the ordinary course of business consistent with past
practice of liabilities reflected or reserved against in the financial
statements contained in the Company SEC Reports or incurred in the ordinary
course of business and consistent with past practices;
(o) not settle or compromise any pending or threatened suit, action
or claim relating to this Agreement and the transactions contemplated
hereby; and
(p) not commit or agree in writing or otherwise to do any act
restricted by this Section 5.01.
A-24
Section 5.02. CERTAIN RESTRICTIONS. Each of the Company and Parent
agrees that, from and after the date hereof and prior to the Effective Time, and
except as may be agreed in writing by the other or as may be expressly permitted
pursuant to this Agreement, it shall not, and shall not permit any of its
subsidiaries or affiliates, to make any acquisition, develop or construct any
electric generation facility, enter into any term, tolling or power purchase
agreement or otherwise obtain control over any electric generation facility, or
take any action with any regulatory authority, or agree, in writing or
otherwise, to do any of the foregoing, which could reasonably be expected to
materially delay the consummation of the Merger or result in the failure to
satisfy any condition to consummation of the Merger.
Section 5.03. NO SOLICITATION. (a) After the date hereof and prior
to the Effective Time or earlier termination of this Agreement, the Company and
each of its subsidiaries shall not, and the Company shall direct and use its
commercially reasonable efforts to cause its and its subsidiaries' officers,
directors and employees and any attorney, accountant, investment banker,
financial advisor or other agent retained by it or any of its subsidiaries, not
to, directly or indirectly, initiate, solicit or negotiate or provide nonpublic
or confidential information to facilitate, any proposal or offer with respect to
any merger, reorganization, share exchange, consolidation or similar transaction
involving the Company, or any purchase (pursuant to a new issuance, tender
offer, takeover bid or otherwise) of, or offer to purchase, 20% or more of the
voting securities of the Company, or any assets or businesses that generate 20%
or more of the Company's consolidated annual net revenues or net income for the
one-year period ended June 30, 2001 or constitute 20% or more of its
stockholders' equity at that date, in a single transaction or a series of
related transactions, or any combination of the foregoing (any such transaction
being referred to herein as an "ACQUISITION TRANSACTION").
(b) Notwithstanding the provisions of paragraph (a) above or any
other provision of this Agreement, prior to the receipt of the Company
Stockholder Approval, the Company may, in response to an unsolicited bona fide
written offer or proposal with respect to a potential or proposed Acquisition
Transaction (an "ACQUISITION PROPOSAL") from a corporation, partnership, person
or other entity or group (a "POTENTIAL ACQUIROR") which the Company's Board of
Directors determines, after consultation with its independent financial advisor
and legal counsel, could reasonably be expected to lead to a Superior Proposal,
furnish confidential or nonpublic information to, and engage in discussions and
negotiate with, such Potential Acquiror; PROVIDED that no information shall be
furnished to any Potential Acquiror unless such Potential Acquiror shall have
entered into a confidentiality agreement with the Company, containing terms and
conditions, with respect to confidentiality, of substantially the same effect as
those of the Confidentiality Agreement. For purposes of this Agreement,
"SUPERIOR PROPOSAL" means an Acquisition Proposal which the Company's Board of
Directors determines, in good faith and after consultation with its independent
financial advisor and legal counsel, is more favorable to the holders of the
Company Common Stock than this Agreement and the Merger, taking into account,
among other things, (i) the likelihood and timing of consummation, (ii) any
amendments to or modifications of this Agreement that Parent has offered or
proposed at the time of determination, and (iii) such other factors deemed
relevant by the Company's Board of Directors.
(c) The Company shall as soon as is reasonably practicable notify
Parent orally and in writing after receipt of any Acquisition Proposal. Such
notice to Parent shall
A-25
indicate in reasonable detail the identity of the Potential Acquiror and the
material terms and conditions of such Acquisition Proposal, to the extent known.
The Company shall notify Parent as soon as is reasonably practicable of any
material changes or modifications in the material terms of any such Acquisition
Proposal and provide to Parent, as soon as reasonably practicable, copies of the
form of merger agreement or acquisition agreement, as the case may be, in
connection with any such Acquisition Proposal, which the Company has negotiated
with a Potential Acquiror.
(d) At any time prior to the receipt of the Company Stockholder
Approval, the Board of Directors of the Company may withdraw or modify the
recommendation by the Board of Directors of the Company of this Agreement, or
the Merger, if the Board of Directors of the Company determines in good faith
(after consultation with outside counsel and its independent financial advisor)
that its failure to do so would be inconsistent with its fiduciary obligations.
(e) Nothing contained in this Section 5.03 or any other provision of
this Agreement shall prohibit the Company or the Board of Directors of the
Company from (i) taking and disclosing to the Company's stockholders a position
with respect to a tender or exchange offer by a third party pursuant to Rule
14d-9 and 14e-2 promulgated under the Exchange Act or (ii) making such
disclosure to the Company's stockholders as, in the good faith judgment of the
Board of Directors of the Company (after consultation with outside counsel), is
required under applicable law.
(f) The Company agrees that, to the extent it has not already done
so, it will immediately cease and cause to be terminated any existing
discussions or negotiations by it or its representatives with any person other
than Parent conducted heretofore with respect to any Acquisition Proposal.
Section 5.04. ACCESS TO INFORMATION; CONFIDENTIALITY. Except for
competitively sensitive information as to which access, use and treatment is
subject to applicable law, the Company and its subsidiaries shall afford to
Parent and Merger Sub and their respective accountants, counsel, financial
advisors, lenders, potential lenders and other representatives reasonable access
during normal business hours upon reasonable notice throughout the period prior
to the Effective Time to their respective properties, books, contracts,
commitments and records and, during such period, shall furnish promptly such
information concerning its businesses, properties and personnel as Parent or
Merger Sub shall reasonably request; provided, however, such investigation shall
not unreasonably disrupt the Company's operations and shall not be deemed to
permit Parent or Merger Sub to conduct any on site environmental investigations
or examinations. All nonpublic information provided to, or obtained by, Parent
in connection with the transactions contemplated hereby shall be "Evaluation
Material" for purposes of the Confidentiality Agreement dated August 17, 2001
between Parent and the Company (the "CONFIDENTIALITY AGREEMENT"), the terms of
which shall continue in force until the Effective Time; provided that Parent,
Merger Sub and the Company may disclose such information as may be necessary in
connection with seeking the Parent Required Statutory Approvals, the Company
Required Statutory Approvals and the Company Stockholder Approval.
Notwithstanding the foregoing, the Company shall not be required to provide any
information which it reasonably believes it may not provide to Parent by reason
of applicable law, rules or
A-26
regulations, which constitutes information protected by attorney/client
privilege, or which the Company or any subsidiary is required to keep
confidential by reason of contract, agreement or understanding with third
parties if the Company has used commercially reasonable efforts to obtain the
consent of such third party to such inspection or disclosure. Except to the
extent prohibited by applicable law, the Company will consult with Parent from
time to time prior to the Effective Time regarding engineering and technical
aspects relating to the design and construction of its Astoria Repowering
Project and other material construction and development projects.
Section 5.05. MERGER SUB. Parent will take all action necessary (a)
to cause Merger Sub to perform its obligations under this Agreement and to
consummate the Merger on the terms and conditions set forth in this Agreement
and (b) to ensure that, prior to the Effective Time, Merger Sub shall not
conduct any business or make any investments other than as specifically
contemplated by this Agreement, or incur or guarantee any indebtedness.
Section 5.06. EMPLOYEE BENEFITS. (a) Parent agrees that the Company
will honor, and from and after the Effective Time, Parent and its affiliates
shall honor, all Company Plans in accordance with their terms as in effect
immediately before the Effective Time, subject to any amendment or termination
thereof that may be permitted by such terms and will honor the benefits
covenants with respect to the Company's acquisitions referenced in Schedule
5.06(a) of the Company Disclosure Schedule. For a period of not less than two
years following the Effective Time, Parent shall provide, or shall cause to be
provided, to the current and former employees of the Company and its
subsidiaries (other than Company Employees subject to a collective bargaining
agreement) (the "COMPANY EMPLOYEES") compensation and employee benefits that are
substantially equivalent, when taken together, to those provided to the Company
Employees in the aggregate immediately before the Effective Time. Subject to any
existing employment agreements, nothing in this Section 5.06 affects, or is
intended to affect, the at will employment status of the Company Employees at
any time after the Effective Time.
(b) For all purposes under the employee benefit plans of Parent and
its affiliates providing benefits to any Company Employees after the Effective
Time (the "NEW PLANS"), each Company Employee shall be credited with his or her
years of service with the Company and its affiliates 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 Plans. In addition,
and without limiting the generality of the foregoing: (i) each Company Employee
shall be immediately eligible to participate, without any waiting time, in any
and all New Plans to the extent coverage under such New Plan replaces coverage
under a comparable Company Plan in which such Company Employee participated
immediately before the Effective Time (such plans, collectively, the "OLD
PLANS"); and (ii) for purposes of each New Plan providing medical, dental,
pharmaceutical and/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,
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 employee's 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-
A-27
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.
(c) Parent hereby acknowledges that a "change of control" within the
meaning of the Company Plans, as applicable, will occur on the Effective Time.
(d) Parent hereby acknowledges that the executives listed on
Schedule 5.06(d) of the Company Disclosure Schedule shall have "Good Reason"
under their employment agreements as of the Effective Time. Accordingly, from
and after the Effective Time, such executives shall be eligible to terminate
employment and receive the severance benefits which are to be paid for a "Good
Reason" termination occurring on or immediately following the Effective Time.
(e) For so long after the Effective Time as the Company or any of
its subsidiaries maintains a 401(k) plan (all such plans, the "COMPANY 401(K)
PLAN"), and Parent maintains a 401(k) plan with a loan feature for similarly
situated employees, Parent shall cause the Company 401(k) Plan to retain the
loan feature of such plan. Effective as of the Effective Time, the Company will
fully vest the account balances of each participant in the Company 401(k) Plan
who is a Company Employee.
(f) If the Effective Time occurs in the 2001 calendar year, the
Company shall pay each Company Employee employed as of the Effective Time and
then participating in any Company Plan that is an annual bonus plan listed in
Schedule 5.06(f) of the Company Disclosure Schedule (a "BONUS PLAN") the greater
of (i) such Company Employee's deemed bonus entitlement under such plans for the
entire calendar year 2001, as if the Bonus Plan and the Company Employee's
participation in such Bonus Plan had continued through the end of 2001, based on
comparing the Company's annual performance goals for the year to the Company's
projected performance for the entire 2001 calendar year, determined by utilizing
actual performance for the period beginning on January 1, 2001 and ending as of
the end of the month immediately preceding the month in which the Effective Time
occurs (or as of the end of the month in which the Effective Time occurs, if the
Effective Time coincides with the end of the month) and assuming the Company's
performance for the remainder of the year equals the Company's monthly
performance goals for the balance of the year and (ii) such Company Employee's
target bonus award under such plans, in each case multiplied by a fraction, the
numerator of which shall equal the number of days in the calendar year in which
the Effective Time occurs through the Effective Time and the denominator of
which is 365 (the "FRACTION"). If the Effective Time occurs in the 2002 calendar
year, the Company shall pay each Company Employee employed as of the Effective
Time and then participating in a Bonus Plan a bonus equal to such Company
Employee's target bonus award multiplied by the Fraction. If the Company has not
established a Bonus Plan for 2002 as of the Effective Time, the payment in this
Section 5.06(f) described in the preceding sentence shall be made to those
participants in the Bonus Plan for 2001 and all new employees who, based on
their job title, would have been eligible to participate in the Bonus Plan for
2001 and who remain in the Company's employ as of the Effective Time and shall
be based on target bonus percentage equal to the actual (or deemed, with respect
to new employees) percentage applicable for the Bonus Plan for 2001. The Company
shall be permitted to establish a Bonus Plan for 2002, which shall be
substantially the same as the Bonus Plan for 2001. The remainder of the bonus
award (based upon the Bonus
A-28
Plan for 2001 or 2002, as the case may be), if any, for each Company Employee in
respect of the portion of the year which elapses after the Effective Time occurs
shall be paid during January of the following calendar year, to those Company
Employees who are employed with Parent or any of its affiliates at the end of
the calendar year in which the Effective Time occurs or who have been terminated
prior to such date by the Company or Parent without cause, or terminated due to
death or disability. Company performance in respect of calculations made under
the Bonus Plans and the Company Plans, to the extent applicable, for the
calendar years 2001 and 2002 shall be calculated without taking into account any
expenses or costs associated with or arising as a result of transactions
contemplated by this Agreement or any non-recurring charges that would not
reasonably be expected to have been incurred had the transactions contemplated
by this Agreement not occurred.
(g) The Company may provide up to $20 million as a retention pool
(the "RETENTION POOL") for the purpose of retaining the services of key Company
Employees. The Chief Executive Officer of the Company shall determine, subject
to approval by the Board of Directors of the Company, the size of the Retention
Pool, the Company Employees eligible to receive retention awards from the
Retention Pool (each a "RETENTION BONUS") and any criteria for payment of the
Retention Bonus, and shall determine the final allocation of payments from the
Retention Pool. Any Retention Bonus shall be intended to retain the services of
the recipient through, and shall be payable (if such recipient still remains
employed by the Company at such time) on, the Closing Date in the case of the
Company's current Chief Executive Officer, Chief Financial Officer, Chief Legal
Officer, Senior Vice President (Operations) and Senior Vice President
(Development) or the date that is 90 days after the Closing Date (or such
earlier date as may be determined by Parent) in the case of other Company
Employees, provided, that participants who are constructively terminated or
terminated without cause or as a result of death or disability prior to the date
through which services were to be provided shall, upon such termination, receive
any Retention Bonus which would be payable to them following the date through
which services were to be provided.
Section 5.07. MEETING OF STOCKHOLDERS AND PROXY STATEMENT. The
Company shall take all action necessary, in accordance with applicable law and
its certificate of incorporation and by-laws, to convene as promptly as
reasonably practicable the Company Meeting. In connection with the Company
Meeting and the transactions contemplated hereby, the Company will (i) as
promptly as practicable prepare and file with the SEC, use its best efforts to
have cleared by the SEC, and thereafter mail to its stockholders as promptly as
practicable the Proxy Statement and any amendments or supplements thereto and
all other proxy materials for such meeting, (ii) use its reasonable best efforts
(including postponing or adjourning the Company Meeting to solicit additional
proxies) to obtain the necessary approvals by its stockholders of this Agreement
and the transactions contemplated hereby and (iii) otherwise comply with all
legal requirements applicable to such meeting. The Company shall provide Parent
and its legal counsel with sufficient opportunity to review the form and
substance of the Proxy Statement (including any amendments or supplements
thereto) prior to filing such with the SEC. The Company shall provide to Parent
copies of any comments received from the SEC in connection therewith. Subject to
Section 5.03, the Proxy Statement shall contain the unqualified recommendation
of the Board of Directors of the Company that its stockholders vote in favor of
the approval and adoption of this Agreement and the Merger. Notwithstanding any
other provision of this Agreement, unless this Agreement is terminated in
accordance with the terms
A-29
hereof, the Company shall submit this Agreement to its stockholders for a vote
at the Company Meeting, whether or not the Board of Directors of the Company
withdraws, modifies or changes its recommendation regarding the foregoing
matters.
Section 5.08. SECTION 16 MATTERS. Prior to the Effective Time,
Parent and the Company shall take all such steps as may be required and
permitted to cause the transactions contemplated by this Agreement, including
any dispositions of shares of Company Common Stock (including derivative
securities with respect to shares of Company Common Stock) by each individual
who is or will be subject to the reporting requirements of Section 16(a) of the
Exchange Act with respect to the Company, to be exempt under Rule 16b-3
promulgated under the Exchange Act.
Section 5.09. PUBLIC ANNOUNCEMENTS. The initial press release by
Parent and the Company announcing the signing of this Agreement shall be a joint
press release in the form attached as Exhibit B and shall be released by Parent
and the Company. Except to the extent the immediately preceding sentence applies
and other than with respect to any public announcement made by the Company in
connection with Section 5.03, Parent and the Company will consult with each
other before issuing, and provide each other the opportunity to review and make
reasonable comment upon, any press release or making any public statement with
respect to this Agreement and the transactions contemplated hereby and, except
as may be required by applicable law or any listing agreement with the NYSE,
will not issue any such press release or make any such public statement prior to
such consultation; provided, however, that each of Parent and the Company may
issue a press release or make any public statement in response to specific
questions by the press, analysts, investors or those attending industry
conferences or financial analyst conference calls, so long as any such
statements are not inconsistent with previous press releases, public disclosures
or public statements made by Parent or the Company, as the case may be.
Section 5.10. EXPENSES AND FEES. (a) All costs and expenses incurred
in connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expenses, except that those expenses
incurred in connection with printing and filing the Proxy Statement shall be
shared equally by Parent and the Company. The Company has provided to Parent in
Schedule 5.10(a) of the Company Disclosure Schedule a good faith estimate of the
fees and expenses to be paid by the Company and its subsidiaries to all
professional advisors in connection with the Merger.
(b) The Company agrees to pay to Parent (without duplication) the
fees set forth below under the following circumstances:
(i) if the Company terminates this Agreement pursuant to clause
(e) of Section 7.01, the Company shall pay Parent a fee of $90
million, such fee to be payable by wire transfer of immediately
available funds to an account specified in writing by Parent at the
time of such termination;
(ii) (x) if Parent terminates this Agreement pursuant to clause
(f) of Section 7.01, or (y) if Parent or the Company terminates this
Agreement pursuant to clause (b)(iii) of Section 7.01, and in the case
of either of subclauses (x) or (y)
A-30
hereof (A) Parent was not at the time of termination in material
breach of its representations, warranties, covenants and agreements
contained in this Agreement, and (B) after the date hereof but prior
to the time of the Company Meeting a proposal by a third party
relating to an Acquisition Transaction had been publicly proposed or
publicly announced and not withdrawn, the Company shall pay Parent a
fee of $45 million within three business days following termination by
wire transfer of immediately available funds to an account specified
in writing by Parent. In addition, if a fee shall be payable pursuant
to the first sentence of this clause (b)(ii) and on or prior to the
nine-month anniversary of a termination of this Agreement which gives
rise to the obligation to pay a fee pursuant to such first sentence,
the Company enters into an agreement with respect to an Acquisition
Transaction or the Company or its Board of Directors recommends a
third-party tender- or exchange-offer which would result in the
offeror (other than The Goldman Sachs Group, Inc. and its affiliates)
beneficially owning in excess of 50% of the outstanding shares of the
Company Common Stock (an "ACQUISITION TENDER"), the Company shall pay
Parent an additional fee of $45 million upon consummation of an
Acquisition Transaction or Acquisition Tender, by wire transfer of
immediately available funds to an account specified in writing by
Parent, such additional fee to be payable at the time such an
Acquisition Transaction or Acquisition Tender is consummated. For the
purposes of Section 5.10 (b)(ii), in the definition of Acquisition
Transaction, all references to 20% shall instead be deemed to be 50%.
Section 5.11. AGREEMENT TO COOPERATE. (a) Subject to the terms and
conditions of this Agreement and applicable law, each of Parent and the Company
shall use its reasonable best efforts to take, or cause to be taken, all action
and do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including to obtain all necessary
or appropriate waivers, consents or approvals of third parties required in order
to preserve material contractual relationships of Parent and the Company and
their respective subsidiaries, all necessary or appropriate waivers, consents
and approvals to effect all necessary registrations, filings and submissions and
to lift any injunction or other legal bar to consummation of the Merger (and, in
such case, to proceed with the consummation of the Merger as expeditiously as
possible), including through all possible appeals.
(b) In addition to and without limitation of the foregoing, each of
Parent and the Company undertakes and agrees to (i) file (and Parent agrees to
cause any person or entity that may be deemed to be the ultimate parent entity
or otherwise to control Parent to file, if such filing is required by law) as
soon as practicable, and in any event prior to ten business days after the date
hereof, a Notification and Report Form under the HSR Act with the United States
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice (and shall file as soon as practicable any form or report
required by any other Governmental Authority relating to antitrust, competition,
trade or energy regulation matters) and (ii) take any act, make any undertaking
or receive any clearance or approval required by any Governmental Authority or
applicable law. Each of Parent and the Company shall (and Parent shall cause any
such parent entity to) (i) respond as promptly as practicable to any inquiries
or requests received from any Governmental Authority for additional information
or documentation, and (ii) not
A-31
extend any waiting period under the HSR Act or enter into any agreement with any
Governmental Authority not to consummate the transactions contemplated by this
Agreement, except with the prior consent of the other parties hereto (which
shall not be unreasonably withheld or delayed). Parent shall use its reasonable
best efforts to avoid or eliminate each and every impediment under any
antitrust, competition, or trade or energy regulation law (including the Federal
Power Act, as amended, and the FERC's regulations thereunder; any applicable New
York laws, and the NYPSC regulations thereunder; the HSR Act; and, if
applicable, the Public Utility Holding Company Act of 1935, as amended, and the
regulations promulgated thereunder) that may be asserted by any Governmental
Authority with respect to the Merger so as to enable the Effective Time to occur
as soon as reasonably possible, but in any event to insure that the Effective
Time occurs no later than the Termination Date. Each party shall (i) promptly
notify the other party of any written communication to that party or its
affiliates from any Governmental Authority and, subject to applicable law,
permit the other party to review in advance any proposed written communication
to any of the foregoing; (ii) not agree to participate, or to permit its
affiliates to participate, in any substantive meeting or discussion with any
Governmental Authority in respect of any filings, investigation or inquiry
concerning this Agreement or the Merger unless it consults with the other party
in advance and, to the extent permitted by such Governmental Authority, gives
the other party the opportunity to attend and participate thereat; and (iii)
furnish the other party with copies of all correspondence, filings, and
communications (and memoranda setting forth the substance thereof) between them
and their affiliates and their respective representatives on the one hand, and
any Governmental Authority or members of their respective staffs on the other
hand, with respect to this Agreement and the Merger.
(c) Nothing in this Agreement shall require Parent, the Company or
any of their respective subsidiaries to dispose of any of its assets or to limit
its freedom of action with respect to any of its assets or businesses, whether
prior to or after the Effective Time, or to commit or agree to any of the
foregoing, in order to obtain any consents, approvals, permits or authorizations
or to remove any impediments to the Merger relating to the HSR Act or any other
law, regulation or order or to avoid the entry of, or to effect the dissolution
of, any injunction or other order in any suit or proceeding relating thereto,
other than dispositions, limitations, commitments, or agreements that in each
such case may be conditioned upon the consummation of the Merger and the
transactions contemplated hereby and that in each such case do not and would not
reasonably be expected to, individually or in the aggregate, have a material
adverse effect on the business, assets or financial condition of the Company and
its subsidiaries together with Parent and its subsidiaries taken as a whole as
constituted after the Effective Time.
Section 5.12. DIRECTORS' AND OFFICERS' INDEMNIFICATION. (a) The
indemnification provisions of the Company's Certificate of Incorporation and
By-laws as in effect at the Effective Time shall not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who at
the Effective Time were directors, officers or employees of the Company;
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. From and after the
Effective Time, Parent shall assume, be jointly and severally liable for, and
honor, guaranty and stand surety for, and shall cause the Company to
A-32
honor, in accordance with their respective terms, each of the covenants
contained in this Section 5.12, without limit as to time.
(b) Each of Parent and the Company and, from and after the Effective
Time, 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 present 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 (each,
together with such person's heirs, executors or administrators, an "INDEMNIFIED
PARTY" and collectively, the "INDEMNIFIED PARTIES") 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 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 whether before or after 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) or the Merger or the other
transactions contemplated by this Agreement or arising out of or pertaining to
the transactions contemplated by this Agreement. 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 after the Effective Time, Parent shall
cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by the Company and its subsidiaries
(provided that Parent may substitute therefor third-party policies of at least
the same coverage and amounts containing terms and conditions that are no less
advantageous to the Indemnified Parties, and which coverages and amounts shall
be no less than the coverages and amounts provided at that time for Parent's
directors and officers) with respect to matters arising on or before the
Effective Time; provided, that after the Effective Time, the Surviving
Corporation 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 (the amount
of which premium is set forth in the Company Disclosure Schedule), but in such
case shall purchase as much coverage as reasonably practicable for such amount.
(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 5.12.
(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 Certificate of Incorporation or By-laws of the Company, any
other indemnification arrangement, the DGCL or otherwise. The provisions of this
Section 5.12 shall survive the consummation of the Merger and expressly are
intended to benefit each of the Indemnified Parties.
A-33
(f) In the event Parent, the Surviving Corporation or any of their
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 Parent or the
Surviving Corporation, as the case may be, shall assume the obligations set
forth in this Section 5.12.
Section 5.13. SUPPLEMENTAL INDENTURE. The Surviving Corporation
shall execute a supplemental indenture, effective at the Effective Time, by
which there shall be made the adjustments in the conversion provisions of the
indenture relating to the Convertible Notes (the "CONVERTIBLE NOTES INDENTURE")
that are required to be made as a result of the Merger in order to provide for
each of the Convertible Notes to be convertible from and after the Merger into
the amount of cash receivable upon the consummation of the Merger by a holder of
the number of shares of Company Common Stock into which such Convertible Note
might have been converted immediately prior to the Merger, in the manner and to
the extent required by the Convertible Notes Indenture.
Section 5.14. FURTHER ASSURANCES. Each party hereby agrees to
perform any further acts and to execute and deliver any documents which may be
reasonably necessary to carry out the provisions of this Agreement.
Section 5.15. CONTROL OF OTHER PARTY'S BUSINESS. Nothing contained
in this Agreement shall give the Company, directly or indirectly, the right to
control or direct Parent's operations prior to the Effective Time. Nothing
contained in this Agreement shall give Parent, directly or indirectly, the right
to control or direct the Company's operations prior to the Effective Time. Prior
to the Effective Time, each of the Company and Parent shall exercise, consistent
with the terms and conditions of this Agreement, complete control and
supervision over their respective operations.
ARTICLE VI
CONDITIONS TO THE MERGER
Section 6.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The
respective obligations of the Company, Parent and Merger Sub to consummate the
Merger are subject to the satisfaction on or prior to the Closing Date of the
following conditions:
(a) this Agreement and the Merger shall have been approved and
adopted by the requisite vote of the stockholders of the Company;
(b) no judgment, injunction, order or decree of a court or other
Governmental Authority of competent jurisdiction shall be in effect which
has the effect of making the Merger illegal or otherwise restraining or
prohibiting the consummation of the Merger (each party agreeing to use its
best efforts, including appeals to higher courts, to have any judgment,
injunction, order or decree lifted); and
(c) (i) any waiting period applicable to consummation of the Merger
under the HSR Act shall have expired or been terminated, and (ii) all
registrations, filings,
A-34
applications, notices, consents, approvals, orders, qualifications and
waivers relating to the Merger to be obtained from the Governmental
Authorities listed in Schedule 3.02(c) of the Parent Disclosure Schedule or
Schedule 4.04(c) of the Company Disclosure Schedule and indicated therein
as being a condition to the consummation of the Merger shall have been
filed, made or obtained, as the case may be.
Section 6.02. CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER
Sub. The obligations of Parent and Merger Sub to consummate the Merger are
subject to the satisfaction of the following further conditions:
(a) the Company shall have performed in all material respects all of
its obligations hereunder required to be performed by it at or prior to the
Effective Time;
(b) the representations and warranties of the Company contained in
this Agreement (i) that are qualified as to Material Adverse Effect shall be
true and correct as of the Closing Date, except to the extent such
representations and warranties expressly relate to an earlier date (in which
case as of such earlier date), and (ii) those not so qualified shall be true and
correct as of the Closing Date, except to the extent such representations and
warranties expressly relate to an earlier date (in which case as of such earlier
date), except for failures of the representations and warranties referred to in
this clause (ii) to be true and correct as do not and would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
(provided that this Material Adverse Effect exception shall not apply to (x) the
representations and warranties contained in the first sentence of Section 4.20,
and (y) prior to the distribution of the shares of common stock of Parent to the
stockholders of Reliant Energy, Incorporated, the representations and warranties
contained in the second sentence of Section 4.20); and
(c) Parent shall have received a certificate signed on behalf of the
Company by an executive officer of the Company indicating that the conditions
provided in Sections 6.02 (a) and (b) have been satisfied.
Section 6.03. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company to consummate the Merger are subject to the
satisfaction of the following further conditions:
(a) each of Parent and Merger Sub shall have performed in all
material respects all of its obligations hereunder required to be performed by
it at or prior to the Effective Time;
(b) the representations and warranties of Parent contained in this
Agreement (i) that are qualified as to "material adverse effect" shall be true
and correct in as of the Closing Date, except to the extent such representations
and warranties expressly relate to an earlier date (in which case as of such
earlier date), and (ii) those not so qualified shall be true and correct as of
the Closing Date, except to the extent such representations and warranties
expressly relate to an earlier date (in which case as of such earlier date),
except for failures of the representations and warranties referred to in this
clause (ii) to be true and correct as do not and would not
A-35
reasonably be expected to have, individually or in the aggregate, a material
adverse effect on Parent and its subsidiaries taken as a whole; and
(c) the Company shall have received a certificate signed on behalf
of Parent by an executive officer of Parent indicating that the conditions
provided in Section 6.03 (a) and (b) have been satisfied.
ARTICLE VII
TERMINATION
Section 7.01. TERMINATION. This Agreement may be terminated and the
Merger contemplated hereby may be abandoned at any time prior to the Effective
Time (notwithstanding any approval of this Agreement by the stockholders of the
Company):
(a) by mutual written consent of the Company and Parent;
(b) by either Parent or the Company:
(i) if the Merger has not been consummated on or before
September 30, 2002 (such date, as it may be extended under clause (A)
of this paragraph, the "TERMINATION DATE"); provided, however, that
(A) each of the Company and Parent shall have the option, in its sole
discretion, to extend the Termination Date for an additional period of
time not to exceed 90 days if the condition set forth in Section 6.01
(a) has been satisfied, all other conditions to consummation of the
Merger are satisfied or capable of then being satisfied and the sole
reason that the Merger has not been consummated by such date is that
the condition set forth in Section 6.01(b) or (c) has not been
satisfied due to the failure to obtain the necessary consents and
approvals under applicable laws or a judgment, injunction, order or
decree of a court or other Governmental Authority of competent
jurisdiction shall be in effect and Parent or the Company are still
attempting to obtain such necessary consents and approvals under
applicable laws, or are contesting (x) the refusal of the relevant
Governmental Authority to give such consents or approvals or (y) the
entry of any such judgment, injunction, order or decree, in court or
through other applicable proceedings; (B) the right to terminate this
Agreement pursuant to this Section 7.01(b)(i) shall not be available
to any party whose breach of any provision of this Agreement has been
the cause of, or resulted in, the failure of the Merger to be
consummated by the Termination Date (it being agreed that the date of
September 30, 2002 (or, if applicable, the 90-day period referred to
in clause (A) hereof) shall be extended by one day for each day that
the closing is delayed pursuant to the proviso to the first sentence
of Section 2.02);
(ii) if any court of competent jurisdiction in the United States
or other United States Governmental Authority shall have issued a
final order, decree or ruling or taken any other final action
restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action is or shall
A-36
have become final and nonappealable, PROVIDED that the party seeking
to terminate this Agreement pursuant to this Section 7.01(b)(ii) shall
have used reasonable best efforts to prevent the entry of and to
remove such order, decree, ruling or final action; or
(iii) this Agreement shall not have been approved and adopted by
the Company's stockholders by reason of the failure to obtain the
required vote at a duly held meeting of stockholders (including any
adjournment thereof);
(c) by Parent if there has been a material breach by the Company of
any representation, warranty, covenant or agreement contained in this
Agreement which (x) would result in a failure of a condition set forth in
Section 6.02 (a) or (b) and (y) cannot be cured prior to the Termination
Date;
(d) by the Company if there has been a material breach by Parent or
Merger Sub of any representation, warranty, covenant or agreement contained
in this Agreement which (x) would result in a failure of a condition set
forth in Section 6.03 (a) or (b) and (y) cannot be cured prior to the
Termination Date;
(e) by the Company, after giving Parent three days prior (but
revocable) written notice of its receipt of an Acquisition Proposal, in
order to enter into a definitive agreement providing for an Acquisition
Transaction which is a Superior Proposal; provided that the Company has
complied with its obligations under Section 5.03 in all material respects;
and
(f) by Parent, if the Company's Board of Directors shall have
withdrawn or adversely amended in any material respect its approval or
recommendation of the Merger or this Agreement to the Company's
stockholders, it being understood that neither (x) disclosure of any
competing proposal that is not being recommended by the Board of Directors
of the Company nor (y) disclosure of any facts or circumstances, together
with a statement that the Board of Directors of the Company continues to
recommend approval and adoption of the Merger and this Agreement, shall be
considered to be a withdrawal or adverse amendment in any material respect
of such approval or recommendation.
The party desiring to terminate this Agreement pursuant to Section 7.01 (other
than pursuant to Section 7.01(a)) shall give notice of such termination to the
other party.
ARTICLE VIII
MISCELLANEOUS
Section 8.01. EFFECT OF TERMINATION. In the event of termination of
this Agreement by either Parent or the Company prior to the Effective Time
pursuant to the provisions of Section 7.01, this Agreement shall forthwith
become void, and there shall be no liability or further obligation on the part
of the Company, Parent, Merger Sub or their respective officers or directors
(except as set forth in Sections 5.04, 5.10, 8.01 and 8.05, all of which shall
survive the termination). Nothing in this Section 8.01 shall relieve any party
from liability for
A-37
any willful or material breach of any covenant or agreement of such party
contained in this Agreement.
Section 8.02. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. No
representations or warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 8.02
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after such time.
Section 8.03. NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally
to, or mailed by registered or certified mail (return receipt requested) if and
when received by, or sent via facsimile if and when received by, the parties at
the following addresses (or at such other address for a party as shall be
specified by like notice):
If to Parent or Merger Sub, to:
Reliant Resources, Inc.
1111 Louisiana
Houston, Texas 77002
Attention: Michael L. Jines
Facsimile: 713-207-0116
with copies to:
Baker Botts L.L.P.
One Shell Plaza
910 Louisiana
Houston, Texas 77002
Attention: Stephen A. Massad
Joe S. Poff
Facsimile: 713-229-7775
If to the Company, to:
Orion Power Holdings, Inc.
7 East Redwood Street
10th Floor
Baltimore, Maryland 21202
Attention: W. Thaddeus Miller
Facsimile: 410-468-0924
A-38
with copies to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019-6150
Attention: Daniel A. Neff
David C. Karp
Facsimile: 212-403-2000
and
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
Attention: Martin H. Neidell
Facsimile: 212-806-6006
Section 8.04. INTERPRETATION. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. In this Agreement, unless a
contrary intention appears, (i) the words "herein," "hereof" and "hereunder" and
other words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision, (ii) "knowledge" shall mean
actual knowledge of the executive officers of the Company or Parent, as the case
may be, and (iii) reference to any Article or Section means such Article or
Section hereof. "CHANGE OF LAW" shall mean the adoption, implementation,
promulgation, repeal, modification, reinterpretation or proposal of any law,
rule, regulation, ordinance, order, protocol, practice or measure or any other
Requirement of Law of or by any federal, state, county or local government,
governmental agency, court, commission, department or regional transmission
operator, independent system operator or market administrator or similar
organization or other such entity which occurs subsequent to the date hereof.
"REQUIREMENT OF LAW" shall mean any federal, state, county or local laws,
statutes, regulations, rules, codes or ordinances enacted, adopted, issued or
promulgated by any Governmental Authority or regional transmission operator,
independent system administrator or market administrator or similar
organization. The word "subsidiary" shall have the meaning assigned to that term
in Rule 1-02 of Regulation S-X of the Exchange Act. No provision of this
Agreement shall be interpreted or construed against any party hereto solely
because such party or its legal representative drafted such provision. Whenever
the words "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation."
Section 8.05. MISCELLANEOUS. This Agreement (including the documents
and instruments referred to herein) shall not be assigned by operation of law or
otherwise except that Merger Sub may assign its obligations under this Agreement
to any other wholly owned subsidiary of Parent subject to the terms of this
Agreement, but no such assignment shall relieve Merger Sub of its obligations
hereunder. The parties hereto shall be entitled to an injunction or injunctions
to prevent breaches of this Agreement and to enforce specifically the terms and
provisions of this Agreement in the Chancery Court or other Courts of the State
of Delaware, this being in addition to any other remedy to which they are
entitled at law or in equity. In addition,
A-39
each of the parties hereto (a) consents to submit itself to the personal
jurisdiction of the Chancery Court or other Courts of the State of Delaware in
the event any dispute arises out of this Agreement or the transactions
contemplated by this Agreement, (b) agrees that it will not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from any
such court, (c) agrees that it will not bring any action relating to this
Agreement or the transactions contemplated by this Agreement in any court other
than the Chancery Court or other Courts of the State of Delaware, and each of
the parties irrevocably waives the right to trial by jury, and (d) each of the
parties irrevocably consents to service of process by first class certified
mail, return receipt requested, postage prepaid, to the address at which such
party is to receive notice. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS,
INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF NEW
YORK APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH
STATE WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES OF SUCH STATE.
Section 8.06. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, and by facsimile, each of which shall be deemed to be an
original, but all of which shall constitute one and the same agreement.
Section 8.07. AMENDMENTS; EXTENSIONS. (a) This Agreement may be
amended by the parties hereto, by action taken or authorized by their respective
Boards of Directors, at any time before or after the Company Stockholder
Approval has been obtained; PROVIDED that, after the Company Stockholder
Approval has been obtained, there shall be made no amendment that by law
requires further approval by stockholders of the Company without the further
approval of such stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
(b) At any time prior to the Effective Time, the parties hereto, by
action taken or authorized by their respective Boards of Directors, may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions contained herein; provided that after the Company
Stockholder Approval has been obtained, there shall be made no waiver that by
law requires further approval by stockholders of the Company without the further
approval of such stockholders. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party. The failure or delay of any party to
this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of those rights.
Section 8.08. ENTIRE AGREEMENT. This Agreement (including the
Company Disclosure Schedule and the Parent Disclosure Schedule) and the
Confidentiality Agreement constitute the entire agreement between the parties
with respect to the subject matter hereof and supersede all prior agreements,
understandings and negotiations, both written and oral, between the parties with
respect to the subject matter of this Agreement. No representation, inducement,
promise, understanding, condition or warranty not set forth herein has been made
or relied upon by any party hereto. Neither this Agreement nor any
A-40
provision hereof is intended to confer upon any person other than the parties
hereto any rights or remedies hereunder except for the provisions of Sections
5.06(c), 5.06(d) and 5.12, which are intended for the benefit of the Company's
former and present officers, directors, employees and agents, and Article II
hereof.
Section 8.09. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or unenforceable, all other provisions of this
Agreement shall remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party.
Section 8.10. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any of the provisions of this
Agreement were not to be performed in accordance with the terms hereof and that
the parties shall be entitled to specific performance of the terms hereof in
addition to any other remedies at law or in equity.
Section 8.11. NO ADMISSION. Nothing herein shall be deemed an
admission by the Company, in any action or proceeding by or on behalf of a third
party, that such third party is not in breach or violation of, or in default in,
the performance or observance of any term or provision of any contract.
A-41
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
ORION POWER HOLDINGS, INC.
By: /s/ Jack A. Fusco
----------------------------------
Name: Jack A. Fusco
Title: Chief Executive Officer and
President
RELIANT RESOURCES, INC.
By: /s/ R. S. Letbetter
----------------------------------
Name: R. S. Letbetter
Title: Chairman, President & CEO
RELIANT ENERGY POWER GENERATION
MERGER SUB, INC.
By: /s/ R. S. Letbetter
----------------------------------
Name: R. S. Letbetter
Title: Chairman, President & CEO
A-42
APPENDIX B
OPINION OF GOLDMAN, SACHS & CO.
dated September 26, 2001
PERSONAL AND CONFIDENTIAL
-------------------------
September 26, 2001
Board of Directors
Orion Power Holdings, Inc.
7 East Redwood Street, 10th Fl.
Baltimore, MD 21202
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point
of view to the holders of the outstanding shares of Common Stock, par value
$0.01 per share (the "Shares"), of Orion Power Holdings, Inc. (the "Company") of
the $26.80 per Share in cash to be received by such holders pursuant to the
Agreement and Plan of Merger, dated as of September 26, 2001 (the "Agreement"),
among Reliant Resources, Inc. ("Buyer"), Reliant Energy Power Generation Merger
Sub, Inc., a wholly-owned subsidiary of Buyer, and the Company.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in performing financial analyses with respect to 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. We are familiar with the Company having provided certain
investment banking services to the Company from time to time, including having
acted as co-manager in the private placement of $400 million aggregate principal
amount of 12.0% senior notes of the Company due 2010 in April 2000, as lead
arranger and syndication agent for the Company's $1.2 billion aggregate
principal amount credit facility in April 2000, as co-manager in the initial
public offering of 27.5 million Shares in November 2000, as its financial
advisor in connection with its acquisition of Columbia Electric Corp. in
December 2000 and as co-manager in the offering of 13.0 million Shares and $200
million aggregate principal amount of 4.5% convertible senior notes of the
Company due 2008 in May 2001, as well as having acted as its financial advisor
in connection with, and having participated in certain of the negotiations
leading to, the Agreement. As of the date hereof, investment funds affiliated
with Goldman, Sachs & Co. have a principal investment in the Company in the
amount of (a) 34,450,000 Shares plus (b) warrants to purchase an additional
6,400,400 Shares, which together represent approximately 37% of the Company's
outstanding Shares on a fully diluted basis. Richard A.
B-1
Board of Directors
Orion Power Holdings, Inc.
September 26, 2001
Page Two
Friedman, Douglas F. Londal and Terence M. O'Toole, each a managing director of
Goldman, Sachs & Co., are directors of the Company. In connection with the
Agreement, these investment funds entered into a stockholders agreement with the
Buyer pursuant to which they have agreed to vote in favor of the transaction
contemplated by the Agreement, on the terms and conditions set forth in such
stockholders agreement. We have provided certain investment banking services to
Buyer from time to time, including having acted as co-manager in the initial
public offering of its shares of Common Stock in April 2001 and having acted
from time to time as a commercial paper dealer for Buyer's commercial paper
program, and may provide investment banking services to Buyer in the future. We
also have provided certain investment banking services from time to time to
Reliant Energy, Incorporated ("REI"), the majority stockholder of Buyer,
including having acted as co-manager in the offering of $300 million aggregate
principal amount of 7.2% Trust Originated Preferred Securities of REI Trust I,
an affiliate of REI, in February 1999, having acted as co-manager in the
offering of $1.0 billion aggregate principal amount of 2.0% Zero-premium
Exchangeable Notes of REI due 2029 in September 1999, having acted as co-manager
in the offering of $300 million aggregate principal amount of 7.4% Senior Notes
of Reliant Energy Financing Co. II, an affiliate of REI, due 2002 in November
1999, having acted as co-manager in the offerings of Revenue Refunding Bonds
issued by political subdivisions of the State of Texas and unconditionally
guaranteed by REI in April 1999 ($100 million aggregate principal amount), July
1999 ($70.315 million aggregate principal amount) and November 1999 ($100
million aggregate principal amount) and having acted from time to time as a
commercial paper dealer for REI's commercial paper program. In addition, we are
currently providing and may provide in the future investment banking services to
REI. Goldman, Sachs & Co. provides a full range of financial advisory and
securities services and, in the course of its normal trading activities, may
from time to time effect transactions and hold positions in securities,
including derivative securities, of the Company, Buyer or REI for its own
account and for the accounts of customers.
In connection with this opinion, we have reviewed, among other things,
the Agreement; the Annual Report to Stockholders and the Annual Report on Form
10-K of the Company for the year ended December 31, 2000; the Registration
Statement on Form S-1 of the Company, including the Prospectus dated November
13, 2000, relating to the Company's initial public offering of Shares; certain
interim reports to stockholders and Quarterly Reports on Form 10-Q of the
Company; certain other communications from the Company to its stockholders; and
certain internal financial analyses and forecasts for the Company prepared by
its management. We also have held discussions with members of the senior
management of the Company regarding their assessment of the past and current
business operations, financial condition and future prospects of the Company. In
addition, we have reviewed the reported price and trading activity for the
Shares, compared certain financial and stock market information for the Company
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 United States electric power industry specifically and in
other industries generally and performed such other studies and analyses as we
considered appropriate.
B-2
Board of Directors
Orion Power Holdings, Inc.
September 26, 2001
Page Three
We have relied upon the accuracy and completeness of all of the
financial, accounting and other information discussed with or reviewed by us and
have assumed such accuracy and completeness for purposes of rendering this
opinion. In that regard, we have assumed with your consent that the internal
financial forecasts prepared by or discussed with the management of the Company
have been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the Company. In addition, we have not made an
independent evaluation or appraisal of the assets and liabilities of the Company
or any of the subsidiaries and we have not been furnished with any such
evaluation or appraisal. 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 contemplated by
the Agreement and such opinion does not address the merits of the underlying
decision by the Company to engage in such transaction to constitute a
recommendation as to how any holder of Shares should vote with respect to such
transaction.
Based upon and subject to the foregoing and based upon such other
matters as we consider relevant, it is our opinion that as of the date hereof
the $26.80 per Share in cash to be received by the holders of Shares pursuant to
the Agreement is fair from a financial point of view to such holders.
Very truly yours,
B-3
APPENDIX C
DELAWARE GENERAL CORPORATION LAW
--------------------------------
TITLE 8. CORPORATIONS
---------------------
Section 262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to Sections 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
C-1
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this paragraph;
or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts described in
the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsection (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
such stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of such
stockholder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such stockholder's shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
C-2
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation
may fix, in advance, a record date that shall be not more than 10 days prior to
the date the notice is given, provided, that if the notice is given on or after
the effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days
C-3
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders
C-4
of shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
C-5
PRELIMINARY COPIES
ORION POWER HOLDINGS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints ________ and __________, and each of them, as Proxies,
each with the power to appoint his substitute, and authorizes each of them to
represent and to vote, as designated on the reverse, all the shares of Common
Stock of Orion Power Holdings, Inc. held of record by the undersigned on
__________, 2001, at the special meeting of stockholders to be held on
__________, 2001 or any adjournment thereof of no more than 30 days after the
date of the special meeting of stockholders.
(CHANGE OF ADDRESS/COMMENTS)
________________________________________
________________________________________
________________________________________
________________________________________
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICE BY MARKING THE APPROPRIATE BOX (SEE
REVERSE SIDE), BUT YOU NEED NOT MARK ANY BOX IF YOU WISH TO VOTE IN ACCORDANCE
WITH THE BOARD OF DIRECTORS' RECOMMENDATION.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
[X] PLEASE MARK YOUR VOTE AS IN THIS DO NOT PRINT
EXAMPLE USING DARK INK ONLY IN THIS AREA
________________________________________________________________
SPECIAL MEETING OF STOCKHOLDERS
OF
ORION POWER HOLDINGS, INC.
_________, 2001
PROXY VOTING INSTRUCTIONS
________________________________________________________________
DO NOT PRINT
IN THIS AREA
________________________________________________________________
YOUR CONTROL NUMBER IS - [ ]
TO VOTE BY MAIL
Please date, sign and mail your proxy card in the envelope
provided as soon as possible.
TO VOTE BY TELEPHONE (TOUCH-TONE PHONE ONLY)
[Please call toll-free 1-800-PROXIES and follow the instructions. Have your
control number and the proxy card available when you call.]
TO VOTE BY INTERNET
[Please access the web page at "www.voteproxy.com" and follow the on-screen
instructions. Have your control number when you access the web page.]
Proposal to approve and adopt the Agreement and Plan of Merger, dated as of
September 26, 2001, among Orion Power Holdings, Inc., Reliant Resources, Inc.
and a wholly owned subsidiary of Reliant Resources, pursuant to which the
subsidiary will be merged into Orion Power and each share of common stock, par
value $.01, of Orion Power outstanding immediately prior to the merger (other
than shares held by Orion Power, Reliant Resources or their respective
subsidiaries, which will be cancelled) will be converted into the right to
receive $26.80 in cash, without interest.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Date: _________, ____ 2001 Date: _________, ____ 2001
SIGNATURE _____________ SIGNATURE IF HELD JOINTLY _____________
Note: Please sign exactly as name appears herein. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such. If a corporation, partnership or other entity, please
sign in full entity name by authorized person.