-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R9Bh31ly2PpABUVwMFXexrWP0pcyPKAKE6SCyvt7sCkBnQ1RWOXprbaOTHgvSF4E MmiCmee7ylc8sbICukxAzQ== 0001036050-98-000340.txt : 19980310 0001036050-98-000340.hdr.sgml : 19980310 ACCESSION NUMBER: 0001036050-98-000340 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980309 ITEM INFORMATION: FILED AS OF DATE: 19980309 SROS: NYSE SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONECTIV INC CENTRAL INDEX KEY: 0001029590 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 510379417 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-13895 FILM NUMBER: 98560329 BUSINESS ADDRESS: STREET 1: 800 KING STREET P O BOX 231 CITY: WILMINGTON STATE: DE ZIP: 19801 BUSINESS PHONE: 3024293017 MAIL ADDRESS: STREET 1: 800 KING ST STREET 2: P O BOX 231 CITY: WILMINGTON STATE: DE ZIP: 19801 8-K/A 1 FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM 8-K/A CURRENT REPORT PURSUANT TO SECTIONS 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) March 9, 1998 ------------- CONECTIV -------------------------------------------------- (Exact Name of Registrant as Specified in Charter) Delaware I-13895 51-0377417 - ---------------------------- ------------ ------------------- (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) 800 King Street, P.O. Box 231, Wilmington, Delaware 19899 --------------------------------------------------- --------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code 302-429-3114 ------------ None ------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) Item 2. Acquisition or Disposition of Assets On August 12, 1996, Delmarva Power & Light Company (Delmarva) and Atlantic Energy, Inc. (Atlantic) announced plans to merge. Final regulatory approvals were obtained on February 27, 1998, and the merger became effective March 1, 1998. Prior to the merger, Atlantic was an investor-owned holding company which owned Atlantic City Electric Company (ACE), an electric utility, and subsidiaries engaged in nonutility businesses. ACE serves approximately 481,000 customers in a 2,700 square mile area in southern New Jersey. Atlantic's 1997 operating revenues and net income were $1,102.4 million and $74.4 million, respectively, and its total assets were $2,723.9 million as of December 31, 1997. Atlantic's assets consist principally of electric generating, transmission, and distribution plant and those assets will continue to be used in the electric business. Conectiv, a corporation formed to accomplish the merger, holds the common stock of Delmarva and ACE, and is a registered holding company under the Public Utility Holding Company Act of 1935 as of March 1, 1998. Each outstanding share of Delmarva's common stock, par value $2.25 per share, is being exchanged for one share of Conectiv's common stock, par value $0.01 per share. Each share of Atlantic's common stock, no par value per share, is being exchanged for 0.75 of one share of Conectiv's common stock and 0.125 of one share of Conectiv's Class A common stock, par value $0.01 per share. Class A common stock gives holders of Atlantic common stock a proportionately greater opportunity to share in the growth prospects of, and a proportionately greater exposure to the uncertainties associated with the electric utility business of ACE. Earnings applicable to Class A common stock will be equal to 30% of the net of (1) earnings attributable to ACE's regulated electric utility business, as the business existed on August 9, 1996, less (2) $40 million per year. Earnings applicable to Conectiv common stock will be the consolidated earnings of Conectiv less earnings applicable to Class A common stock. The merger will be accounted for under the purchase method of accounting, with Delmarva as the acquirer. The total consideration being paid to Atlantic's common stockholders (in the form of Conectiv common stock and Class A common stock), as measured by the average daily closing market price of Atlantic's common stock for the three trading days immediately preceding and the three trading days immediately following the public announcement of the merger, is $921.0 million. The consideration paid plus estimated acquisition costs and liabilities assumed in connection with the merger are expected to exceed the net book value of Atlantic's net assets by approximately $200.5 million, which will be recorded as goodwill. The actual amount of goodwill recorded will be based on Atlantic's net assets as of the merger date and, accordingly, will vary from the preceding estimate which is based on Atlantic's net assets as of December 31, 1997. The goodwill will be amortized over 40 years. 2 Item 5. Pursuant to the Merger and Reorganization of Delmarva Power & Light Company and Atlantic City Energy Company under the Conectiv holding company which was completed on March 1, 1998, the Board of Directors of the Company have been changed. The following individuals have been elected as Directors of the Company to serve until his or her successor is appointed or his or her earlier resignation or removal. DIRECTORS: Howard E. Cosgrove Director/Chairman Richard B. McGlynn Director Harold J. Raveche Director Michael G. Abercrombie Director R. Franklin Balotti Director Weston E. Nellius Director Cyrus H. Holley Director Jerrold L. Jacobs Director Sarah I. Gore Director Michael B. Emery Director Robert D. Burris Director Bernard J. Morgan Director Audrey K. Doberstein Director Kathleen MacDonnell Director The following individuals have been elected by the Directors of the Company to the offices set forth opposite their respective names. OFFICERS: Howard E. Cosgrove Chief Executive Officer Jerrold L. Jacobs Vice Chairman Meredith I. Harlacher, Jr. President and Chief Operating Officer Barbara S. Graham Senior Vice President and Chief Financial Officer Barry R. Elson Executive Vice President Thomas S. Shaw Executive Vice President Louis M. Walters Treasurer and Assistant Secretary James E. Franklin II Chief Legal Officer and Secretary James P. Lavin Controller 3 Item 7. Financial Statements and Exhibits Listed below are the financial statements, pro forma financial information and exhibits filed as a part of this report. (a) Financial statements of businesses acquired Atlantic's consolidated financial statements listed below were filed with Atlantic's Form 8-K dated March 3, 1998, and are incorporated herein by reference. Consolidated Statements of Income for the three years ended December 31, 1997 Consolidated Statements of Cash Flows for the three years ended December 31, 1997 Consolidated Balance Sheets as of December 31, 1997 and 1996 (b) Pro forma financial information The following unaudited pro forma financial information is included in this report on Form 8-K: Pro Forma Combined Conectiv Balance Sheet as of December 31, 1997 Pro Forma Combined Conectiv Statement of Income for the year ended December 31, 1997 Notes to Pro Forma Combined Conectiv Financial Statements Delmarva Power & Light Company Adjusted Consolidated Balance Sheet as of December 31, 1997 Atlantic Energy, Inc. Adjusted Consolidated Balance Sheet as of December 31, 1997 Delmarva Power & Light Company Adjusted Income Statement for the year ended December 31, 1997 Atlantic Energy, Inc. Adjusted Income Statement for the year ended December 31, 1997 Notes to Adjusted Consolidated Financial Statements Unaudited Pro Forma Combined Financial Statements The following unaudited pro forma combined financial statements combine the historical balance sheets and statements of operations of Delmarva and Atlantic to give effect to the merger discussed in Item 2 under the purchase method of accounting and the assumptions set forth in the notes thereto. The unaudited pro forma combined balance sheet as of December 31, 1997, assumes that the merger was consummated on December 31, 1997. The unaudited pro forma combined statement of income for the year ended December 31, 1997, assumes that the merger was consummated on January 1, 1997. The pro forma statement of income excludes an expected one-time charge of approximately $55 million to $60 million ($33 million to $36 million after taxes) related to the merger for an enhanced retirement offer, other employee separation costs, and other merger-related costs. In addition, a $23.6 million ($15.6 million after taxes) charge for the termination of employee benefit plans (due to the merger) recorded by Atlantic in December 1997 has been excluded from the pro forma statement of income. The pro forma financial statements also do not reflect any cost savings or other synergies anticipated as a result of the merger. The pro forma information is not necessarily indicative of the results that would have occurred in 1997, or that will occur in the future. In the opinion of management, all adjustments necessary to present pro forma financial statements have been made. 4
CONECTIV PRO FORMA COMBINED BALANCE SHEETS DECEMBER 31, 1997 (Dollars in Thousands) (Unaudited) ASSETS Delmarva Atlantic Pro Forma Conectiv As Adjusted As Adjusted Adjustments Pro Forma ----------- ----------- ------------ ----------- Utility Plant and Nonutility Property, At Cost Electric utility plant $3,008,442 $2,590,890 $ - $5,599,332 Gas utility plant 241,580 - - 241,580 Common utility plant 152,232 - - 152,232 ---------- ---------- ----------- ---------- 3,402,254 2,590,890 - 5,993,144 Less: Accumulated depreciation 1,370,726 934,235 - 2,304,961 ---------- ---------- ----------- ---------- Net utility plant in service 2,031,528 1,656,655 - 3,688,183 Construction work-in-progress 93,017 95,120 - 188,137 Leased property, net 32,258 39,730 - 71,988 Nonutility property, net 74,811 105,356 - 180,167 Goodwill, net 92,602 - 200,535 (f) 293,137 ---------- ---------- ----------- ---------- 2,324,216 1,896,861 200,535 4,421,612 ---------- ---------- ----------- ---------- Investments Investment in leveraged leases 46,375 80,448 - 126,823 Funds held by trustee 48,086 92,613 - 140,699 Other investments 9,500 42,896 - 52,396 ---------- ---------- ----------- ---------- 103,961 215,957 - 319,918 ---------- ---------- ----------- ---------- Current Assets Cash and cash equivalents 35,339 17,638 - 52,977 Accounts receivable 197,561 139,960 - 337,521 Deferred energy costs 18,017 27,424 - 45,441 Inventories, at average cost: Fuel (coal, oil, and gas) 37,425 29,242 - 66,667 Materials and supplies 40,518 35,605 - 76,123 Prepayments 11,255 3,804 - 15,059 Other - 5,959 - 5,959 ---------- ---------- ----------- ---------- 340,115 259,632 - 599,747 ---------- ---------- ----------- ---------- Deferred Charges and Other Assets Unrecovered purchased power costs - 66,264 - 66,264 Deferred recoverable income taxes 88,683 85,858 - 174,541 Unrecovered state excise taxes - 45,154 - 45,154 Deferred debt refinancing costs 18,760 30,002 - 48,762 Deferred other post employee benefit costs - 37,476 - 37,476 Other regulatory assets 31,004 24,637 - 55,641 Prepaid employee benefit costs 58,111 8,390 12,110 (g) 78,611 Unamortized debt expense 12,911 14,945 - 27,856 Other 36,944 38,708 (21,800) (i) 53,852 ---------- ---------- ----------- ---------- 246,413 351,434 (9,690) 588,157 ---------- ---------- ----------- ---------- Total Assets $3,014,705 $2,723,884 $ 190,845 $5,929,434 ========== ========== =========== ==========
The accompanying notes to the unaudited pro forma combined balance sheet and statements of income are an integral part of this statement. 5
CONECTIV PRO FORMA COMBINED BALANCE SHEETS DECEMBER 31, 1997 (Dollars in Thousands) (Unaudited) CAPITALIZATION AND LIABILITIES Delmarva Atlantic Pro Forma Conectiv As Adjusted As Adjusted Adjustments Pro Forma ----------- ----------- ----------- ----------- Capitalization Common stock $ 139,116 $ 563,460 $ (701,570) (a) $ 1,006 Class A common stock - - 66 (a) 66 Additional paid-in capital - common stock 526,812 - 936,256 (b) 1,463,068 Additional paid-in capital - Class A common stock - - 107,135 (b) 107,135 Retained earnings 300,757 221,623 (255,431) (d) 266,949 ----------- ----------- ----------- ----------- 966,685 785,083 86,456 1,838,224 Treasury shares, at cost (11,687) - 11,687 (e) - Unearned compensation (502) - 502 (k) - ----------- ----------- ----------- ----------- Total common stockholders' equity 954,496 785,083 98,645 1,838,224 Preferred stock not subject to mandatory redemption 89,703 - (89,703) (p) - Preferred stock of subsidiaries: Not subject to mandatory redemption - 30,000 89,703 (p) 119,703 Subject to mandatory redemption 70,000 93,950 - 163,950 Long-term debt 983,672 889,744 - 1,873,416 ----------- ----------- ------------ ----------- 2,097,871 1,798,777 98,645 3,995,293 ----------- ----------- ------------ ----------- Current Liabilities Short-term debt 23,254 55,675 - 78,929 Long-term debt due within one year 33,318 147,566 - 180,884 Variable rate demand bonds 71,500 - - 71,500 Accounts payable 103,607 65,369 - 168,976 Taxes accrued 10,723 6,049 (206) (k) 16,566 Interest accrued 19,902 20,116 - 40,018 Dividends declared 23,775 21,215 - 44,990 Current capital lease obligation 12,516 653 - 13,169 Deferred income taxes, net (776) 1,888 - 1,112 Other 35,819 23,995 98,500 (h)(i) 158,314 ----------- ----------- ------------ ----------- 333,638 342,526 98,294 774,458 ----------- ----------- ------------ ----------- Deferred Credits and Other Liabilities Deferred income taxes, net 492,792 439,267 (52,342) (l) 879,717 Deferred investment tax credits 39,942 44,043 - 83,985 Long-term capital lease obligations 19,877 39,077 - 58,954 Postretirement obligations - 37,476 46,248 (g) 83,724 Other 30,585 22,718 - 53,303 ----------- ----------- ------------ ----------- 583,196 582,581 (6,094) 1,159,683 ----------- ----------- ------------ ----------- Total Capitalization and Liabilities $3,014,705 $2,723,884 $ 190,845 $5,929,434 =========== =========== ============ ===========
The accompanying notes to the unaudited pro forma combined balance sheet and statements of income are an integral part of this statement. 6
CONECTIV PRO FORMA COMBINED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1997 (Dollars in Thousands, Except Per Share Amounts) (Unaudited) Delmarva Atlantic Pro Forma Conectiv As Adjusted As Adjusted Adjustments Pro Forma ----------- ------------ ----------- ----------- Operating Revenues Electric $1,092,144 $1,061,986 $ - $2,154,130 Gas 204,057 - - 204,057 Other services 127,301 40,374 - 167,675 ----------- ----------- ----------- ---------- 1,423,502 1,102,360 - 2,525,862 ----------- ----------- ----------- ---------- Operating Expenses Electric fuel and purchased energy 416,640 293,457 - 710,097 Gas purchased 153,027 - - 153,027 Other services' cost of sales 85,192 - - 85,192 Purchased electric capacity 28,470 197,386 - 225,856 Termination of employee benefit plans due to merger - 23,559 (23,559) (q) - Operation and maintenance 331,770 197,246 - 529,016 Depreciation and amortization 136,340 94,480 5,013 (j) 235,833 State excise taxes - 103,991 - 103,991 Other taxes 37,634 3,038 - 40,672 ----------- ----------- ----------- ----------- 1,189,073 913,157 (18,546) 2,083,684 ----------- ----------- ----------- ----------- Operating Income 234,429 189,203 18,546 442,178 ----------- ----------- ----------- ----------- Other Income Allowance for equity funds used during construction 1,337 815 - 2,152 Other income 28,187 14,598 - 42,785 ---------- ----------- ----------- ----------- 29,524 15,413 - 44,937 ---------- ----------- ----------- ----------- Interest Expense Interest charges 83,398 70,619 - 154,017 Allowance for borrowed funds used during construction and capitalized interest (2,996) (1,003) - (3,999) ----------- ----------- ----------- ----------- 80,402 69,616 - 150,018 ----------- ----------- ----------- ----------- Preferred Stock Dividend Requirements of Subsidiaries 5,687 10,596 4,491 (p) 20,774 ----------- ----------- ----------- ----------- Income Before Income Taxes 177,864 124,404 14,055 316,323 Income Taxes 72,155 49,999 8,246 (q) 130,400 ----------- ----------- ----------- ----------- Net Income 105,709 74,405 5,809 185,923 Dividends on Preferred Stock 4,491 - (4,491) (p) - ----------- ----------- ----------- ----------- Earnings Applicable to Common Stock: Common stock 101,218 74,405 (5,618) 170,005 Class A common stock - - 15,918 (m) 15,918 ----------- ----------- ----------- ----------- $ 101,218 $ 74,405 $ 10,300 $ 185,923 =========== =========== =========== =========== Average common shares outstanding (000): Common stock 61,122 52,280 (12,902) (n) 100,500 Class A common stock - - 6,563 (n) 6,563 Basic and diluted earnings per average share outstanding of: Common stock $ 1.66 $ 1.42 $ - $ 1.69 Class A common stock $ - $ - $ - $ 2.43 Dividends declared per share of: Common stock $ 1.54 $ 1.54 $ - $ 1.54 Class A common stock $ - $ - $ - $ 3.20
The accompanying notes to the unaudited pro forma combined balance sheet and statements of income are an integral part of this statement. 7 NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (a) Adjustments to record the estimated par value at $0.01 per share of Conectiv Common Stock and Conectiv Class A Common Stock to be issued and outstanding. The number of shares of Conectiv stock was estimated using the number of Delmarva and Atlantic Common Stock shares outstanding as of December 31, 1997. Each outstanding share of Delmarva Common Stock was converted into one share of Conectiv Common Stock and each outstanding share of Atlantic Common Stock was converted into 0.75 of one share of Conectiv Common Stock plus 0.125 of one share of Conectiv Class A Common Stock. The adjustments are summarized below.
As of December 31, 1997 ----------------------- Common Stock: - ------------- Number of Atlantic Common Stock shares outstanding 52,504,479 Conversion Ratio 0.75 ------------ Number of Common Stock shares to be issued to Atlantic Common Stockholders 39,378,359 Number of Common Stock shares to be issued to Delmarva Common Stockholders (Equal to the number of Delmarva Common Stock shares outstanding) 61,210,262 ------------ Total number of Common Stock shares to be issued 100,588,621 Par value per share $0.01 ------------ (In Thousands of Dollars) Adjusted par value of total number of Common Stock shares to be issued $1,006 Delmarva's Common Stock, as previously reported (139,116) Atlantic's Common Stock, as previously reported (563,460) ------------ Adjustment to Common Stock $(701,570) ============ Class A Common Stock: - --------------------- Number of Atlantic Common Stock shares outstanding 52,504,479 Conversion Ratio 0.125 ------------ Number of Class A Common Stock shares to be issued to Atlantic Common Stockholders 6,563,060 Par value per share $0.01 ------------ Par value (In Thousands of Dollars) $66 ============
8 (b) Adjustments to record additional paid-in-capital to reflect the following:
As of December 31, 1997 ----------------------- Additional Paid-In-Capital--Common Stock: Cancellation of the Delmarva Treasury Stock cost in excess of par value $(10,294) Adjustment to par value of Delmarva Common Stock outstanding 137,111 Consideration to be paid to Atlantic's Common Stockholders in the form of Conectiv Common Stock in excess of par value 813,439 Estimated registration and issuance costs (4,000) --------- $936,256 ========= Additional Paid-In-Capital--Class A Common Stock: Consideration to be paid to Atlantic's Common Stockholders in the form of Conectiv Class A Common Stock in excess of par value $107,135 =========
(c) The total consideration to be paid to the Atlantic Common Stockholders was measured by the average daily closing market price of Atlantic's Common Stock for the three trading days immediately preceding and following the public announcement of the Merger Agreement on August 12, 1996. Delmarva's Common Stockholders will receive one share of Conectiv Common Stock for each share of Delmarva Common Stock. Therefore, the average daily market price of Delmarva's Common Stock for the same period was used to measure the market value of Conectiv Common Stock to be paid to Atlantic's Common Stockholders. Delmarva's average market price per share was multiplied by the Atlantic conversion ratio for Conectiv Common Stock to determine the estimated market value per share of Atlantic Common Stock attributed to Conectiv Common Stock. This market value per share was multiplied by the number of Atlantic Common Stock shares outstanding at December 31, 1997 to estimate the consideration to be paid to Atlantic Common Stockholders in the form of Conectiv Common Stock. The difference between the total compensation to be paid to Atlantic's Common Stockholders and the portion attributed to Conectiv Common Stock was attributed to Conectiv Class A Common Stock. The schedules below show the calculation of the total consideration to be paid to Atlantic's Common Stockholders and the allocation of the total consideration to be paid between Conectiv Common Stock and Conectiv Class A Common Stock:
Amounts -------- Average market price per share of Atlantic Common Stock used to determine consideration to be paid $17.542 Number of Atlantic Common Stock shares outstanding as of December 31, 1997 52,504,479 ---------- Total consideration to be paid to Atlantic Common Stockholders (In Thousands of Dollars) $921,034 ==========
9
Amounts ------- Average market price per share of Delmarva Common Stock for the same period $20.667 Conversion ratio of Conectiv Common Stock for each share of Atlantic Common Stock 0.75 ---------- Estimated market value per share of Atlantic Common Stock attributed to Conectiv Common Stock $15.50025 Number of Atlantic Common Stock shares outstanding as of December 31, 1997 52,504,479 ---------- Consideration to be paid to Atlantic's Common Stockholders in the form of Conectiv Common Stock (In Thousands of Dollars) $813,833 ---------- (In Thousands of Dollars) ------------------------- Total consideration to be paid to Atlantic Common Stockholders $921,034 Portion of total consideration attributed to Conectiv Common Stock 813,833 ---------- Portion of total consideration attributed to Conectiv Class A Common Stock $107,201 ==========
(d) Adjustments to retained earnings as follows:
Amounts --------------------- (Dollars in Thousands) Eliminate retained earnings of Atlantic $(221,623) Charges to expense of $56.8 million ($33.5 million after tax) principally for nonrecurring employee separation costs related to Delmarva employees [see note (h)] (33,512) Charge to expense to eliminate unearned income [see Note (k)] (296) ---------- Total adjustment $(255,431) ==========
(e) Adjustment to reflect the cancellation of the Delmarva treasury stock as a condition of the merger. 10 (f) The schedule below shows the calculation of the cost of acquiring Atlantic and the allocation of the total acquisition cost to identifiable tangible and intangible assets and liabilities.
Cost of Acquiring Atlantic Amounts -------------------------- ---------------------- (Dollars in Thousands) Consideration to be paid to Atlantic's Common Stockholders [see Note (c)] $921,034 Add: Estimated direct costs of acquisition to be incurred by Delmarva 24,700 Less: Registration and issuance costs (4,000) ----------- Total acquisition cost $941,734 =========== Less assets acquired: Electric utility plant - net $1,791,505 Investments and nonutility property 321,313 Current assets 259,632 Deferred debits 351,434 ----------- Total assets acquired $2,723,884 =========== Add liabilities acquired: Preferred stock of subsidiaries $123,950 Long-term debt 889,744 Current liabilities 342,526 Deferred credits and other liabilities 582,581 ----------- Total liabilities acquired $1,938,801 =========== Costs incurred and liabilities assumed in connection with the merger $ 43,884 ----------- Cost in excess of net assets acquired $200,535 ===========
The fair value of the utility assets of Atlantic is their book value due to the ratemaking process. Utility assets are recognized for ratemaking purposes at their book values in determining utility revenue requirements. Accordingly, the economic substance is that fair value of the utility assets is their book value. (g) Adjustments to record additional pension prepayment ($12.1 million) and postretirement benefit liabilities ($46.3 million), assumed in the acquisition of Atlantic in accordance with Statements of Financial Accounting Standards (SFAS) Nos. 87 and 106. (h) Adjustment to record an estimated liability of $38.8 million for employee separation and relocation costs and facilities integration costs related to Atlantic's employees and facilities and an estimated liability of $56.8 million, which will be expensed, principally for employee separation costs related to Delmarva. The Unaudited Pro Forma Combined Statement of Income for the year ended December 31, 1997 does not reflect expected nonrecurring estimated expenses of $56.8 million before taxes ($33.5 million after taxes), principally for employee separation costs related to Delmarva. 11 (i) Adjustment to record the estimated direct costs of the merger of $24.7 million. These costs are included in the cost to acquire Atlantic.
As of December 31, 1997 ----------------------- (Dollars in Thousands) Other current liabilities $2,900 Deferred debits $(21,800)
(j) Adjustment to reflect the amortization of goodwill acquired over forty (40) years. (k) Adjustment to recognize a pretax expense of $0.5 million to eliminate unearned and deferred compensation costs payable under employee incentive plans at the time of the merger. The adjustment is summarized below:
As of December 31, 1997 ----------------------- (Dollars in Thousands) Decrease in retained earnings: Delmarva $(296) Accrued tax benefit: Delmarva (206) ------ Eliminate unearned and deferred compensation $502 ======
The Unaudited Pro Forma Combined Statement of Income for the year ended December 31, 1997 does not reflect the nonrecurring estimated expense of $0.5 million before taxes ($0.3 million after taxes). (l) Adjustment to record additional deferred income taxes for the following temporary differences:
(Dollars in Thousands) Temporary Deferred Differences Income Taxes ----------- ------------ Additional pension prepayment [see note (g)] 12,110 (4,238) Additional postretirement benefit liabilities [see Note (g)] 46,248 16,187 Liabilities for employee separation, relocation, and retraining costs and facilities integration cost s[see Note (h)] 95,600 36,867 Liability for a portion of DP&L direct acquisition costs that are deemed to be tax deductible [see Note (i)] 8,600 3,526 -------- Total deferred income taxes $52,342 ========
In accordance with SFAS No. 109, deferred income taxes were not recorded on goodwill for which the amortization is not deductible for tax purposes. 12 (m) Adjustment to present earnings applicable to the Class A Common Stock. The Class A Common Stock is intended to reflect the growth prospects and regulatory environment of Atlantic's regulated electric utility business. The shares of Class A Common Stock to be received by holders of Atlantic Common Stockholders represent, in aggregate, a 30% interest in any earnings of Atlantic's regulated electric utility business in excess of $40 million per year. The calculation of the pro forma earnings applicable to the Class A Common Stock for the year ended December 31, 1997 is shown below (in thousands):
Atlantic City Electric Company (ACE) and Subsidiary Income Available for Common Stockholders $80,926 Add: Termination of employee benefit plans due to merger 15,600 Less: Net Earnings of Nonutility Activities Specifically Excluded (3,466) Less: Fixed Amount of $40 Million per Year (40,000) -------- Subtotal 53,060 Percentage Applicable to Class A Common Stock 30% -------- Earnings Applicable to Class A Common Stock $15,918 ========
(n) Adjustments to decrease the weighted average number of Common Stock shares outstanding based on the conversion ratio of 0.75 to 1 of Conectiv Common Stock to be issued to holders of Atlantic Common Stock and reflect the issuance of Class A Common Stock shares to holders of Atlantic Common Stock. The number of shares of Conectiv Common Stock and Class A Common Stock estimated to be issued to holders of Atlantic Common Stock for the acquisition were deemed to be issued and outstanding for the entire period. (o) The Merger Agreement provides, subject to certain conditions, that the dividends declared and paid on the Class A Common Stock will be maintained at a level of $3.20 per share per annum from the Effective Date until the earlier of July 1, 2001 or the end of the twelfth calendar quarter following the calendar quarter in which the Effective Date occurs. Thereafter, it is the intention of Conectiv, subject to certain conditions, to pay annual dividends on the Class A Common Stock in an aggregate amount (including the amount credited to the Intergroup Interest as provided in the Conectiv Charter) equal to 90% of Conectiv Net Income Attributable to the Atlantic Utility Group. The Merger Agreement further provides that if and to the extent that the annual dividends paid on the Class A Common Stock during the Initial Period (including the aforesaid amount) shall have exceeded 100% of Conectiv Net Income Attributable to the Atlantic Utility Group during such period, the Conectiv Board may consider such fact in determining the appropriate annual dividend rate on the Class A Common Stock following the Initial Period. The pro forma Class A Common Stock dividends per share exceed the pro forma Class A Common Stock earnings per share for the year ended December 31, 1997. (p) Adjustment to reflect Delmarva's preferred stock as preferred stock of a subsidiary. 13 (q) Adjustment to eliminate nonrecurring charge for "Termination of employee benefit plans due to merger." (r) As necessary for fair presentation of the pro forma financial statements, amounts previously reported by Atlantic and Delmarva have been reclassified for consistency of presentation. The following schedules show the amounts reclassified. 14
DELMARVA POWER & LIGHT COMPANY CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 (Dollars in Thousands) (Unaudited) ASSETS Reported Reclass Adjusted Amount Adjustments Amount ----------- ----------- ----------- Utility Plant and Nonutility Property, At Cost Electric utility plant $3,010,060 $ (1,618) (1) $3,008,442 Gas utility plant 241,580 - 241,580 Common utility plant 154,791 (2,559) (1) 152,232 ----------- ----------- ---------- 3,406,431 (4,177) 3,402,254 Less: Accumulated depreciation 1,373,676 (2,950) (1) 1,370,726 ----------- ----------- ---------- Net utility plant in service 2,032,755 (1,227) 2,031,528 Construction work-in-progress 93,017 - 93,017 Leased property, net 31,031 1,227 (1) 32,258 Nonutility property, net 74,811 - 74,811 Goodwill, net 92,602 - 92,602 ----------- ----------- ---------- 2,324,216 - 2,324,216 Investments ----------- ----------- ---------- Investment in leveraged leases 46,375 - 46,375 Funds held by trustee 48,086 - 48,086 Other investments 9,500 - 9,500 ----------- ----------- ---------- 103,961 - 103,961 ----------- ----------- ---------- Current Assets Cash and cash equivalents 35,339 - 35,339 Accounts receivable 197,561 - 197,561 Deferred energy costs 18,017 - 18,017 Inventories, at average cost: Fuel (coal, oil, and gas) 37,425 - 37,425 Materials and supplies 40,518 - 40,518 Prepayments 11,255 - 11,255 Deferred income taxes, net 776 (776) (3) - ----------- ----------- ---------- 340,891 (776) 340,115 ----------- ----------- ---------- Deferred Charges and Other Assets Deferred recoverable income taxes 88,683 - 88,683 Deferred debt refinancing costs 18,760 - 18,760 Other regulatory assets - 31,004 (2) 31,004 Prepaid employee benefit costs 58,111 - 58,111 Unamortized debt expense 12,911 - 12,911 Other 67,948 (31,004) (2) 36,944 ----------- ----------- ---------- 246,413 - 246,413 ----------- ----------- ---------- Total Assets $3,015,481 $ (776) $3,014,705 =========== =========== ==========
The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. 15
DELMARVA POWER & LIGHT COMPANY CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 (Dollars in Thousands) (Unaudited) CAPITALIZATION AND LIABILITIES Reported Reclass Adjusted Amount Adjustments Amount ------------ ----------- ----------- Capitalization Common stock $ 139,116 $ - $ 139,116 Additional paid-in capital - common stock 526,812 - 526,812 Retained earnings 300,757 - 300,757 ----------- ----------- ----------- 966,685 - 966,685 Treasury shares, at cost (11,687) - (11,687) Unearned compensation (502) - (502) ----------- ----------- ----------- Total common stockholders' equity 954,496 - 954,496 Preferred stock not subject to mandatory redemption 89,703 - 89,703 Preferred stock of subsidiaries: Subject to mandatory redemption 70,000 - 70,000 Long-term debt 983,672 - 983,672 ----------- ----------- ----------- 2,097,871 - 2,097,871 ----------- ----------- ----------- Current Liabilities Short-term debt 23,254 - 23,254 Long-term debt due within one year 33,318 - 33,318 Variable rate demand bonds 71,500 - 71,500 Accounts payable 103,607 - 103,607 Taxes accrued 10,723 - 10,723 Interest accrued 19,902 - 19,902 Dividends declared 23,775 - 23,775 Current capital lease obligation 12,516 - 12,516 Deferred income taxes, net - (776) (3) (776) Other 35,819 - 35,819 ----------- ----------- ----------- 334,414 (776) 333,638 ----------- ----------- ----------- Deferred Credits and Other Liabilities Deferred income taxes, net 492,792 - 492,792 Deferred investment tax credits 39,942 - 39,942 Long-term capital lease obligations 19,877 - 19,877 Other 30,585 - 30,585 ----------- ----------- ----------- 583,196 - 583,196 ----------- ----------- ----------- Total Capitalization and Liabilities $3,015,481 $ (776) $3,014,705 =========== =========== ===========
The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. 16
ATLANTIC ENERGY, INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 (Dollars in Thousands) (Unaudited) ASSETS Reported Reclass Adjusted Amount Adjustments Amount ---------- ----------- ----------- Utility Plant and Nonutility Property, At Cost Electric utility plant in service $2,585,286 $ 5,604 (4) $2,590,890 ---------- ----------- ----------- 2,585,286 5,604 2,590,890 Less: Accumulated depreciation 934,235 - 934,235 ---------- ----------- ----------- Net electric utility plant in service 1,651,051 5,604 1,656,655 Construction work-in-progress 95,120 - 95,120 Land Held for Future Use 5,604 (5,604) (4) - Nonutility property, net 105,356 - 105,356 Leased property, net 39,730 - 39,730 ---------- ----------- ----------- 1,896,861 - 1,896,861 ---------- ----------- ----------- Investments Investment in leveraged leases 80,448 - 80,448 Funds held by trustee 81,650 10,963 (5) 92,613 Other investments 53,859 (10,963) (5) 42,896 ---------- ----------- ----------- 215,957 - 215,957 ---------- ----------- ----------- Current Assets Cash and cash equivalents 17,224 414 (6) 17,638 Accounts receivable 103,045 36,915 (7) 139,960 Unbilled revenues 36,915 (36,915) (7) - Deferred energy costs 27,424 - 27,424 Inventories, at average cost: Fuel (coal, oil, and gas) 29,242 - 29,242 Materials and supplies 20,893 14,712 (6) 35,605 Working funds 15,126 (15,126) (6) - Prepayments 3,804 - 3,804 Deferred income taxes, net - - - Other 14,349 (8,390) (8) 5,959 ---------- ----------- ----------- 268,022 (8,390) 259,632 ---------- ----------- ----------- Deferred Charges and Other Assets Unrecovered purchased power costs 66,264 - 66,264 Deferred recoverable income taxes 85,858 - 85,858 Unrecovered state excise taxes 45,154 - 45,154 Deferred debt refinancing costs 44,947 (14,945) (9) 30,002 Deferred other post employee benefit costs 37,476 - 37,476 Other regulatory assets 24,637 - 24,637 Prepaid employee benefit costs - 8,390 (8) 8,390 Unamortized debt expense - 14,945 (9) 14,945 Other 38,708 - 38,708 ---------- ----------- ----------- 343,044 8,390 351,434 ---------- ----------- ----------- Total Assets $2,723,884 $ - $2,723,884 ========== =========== ==========
The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. 17
ATLANTIC ENERGY, INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 (Dollars in Thousands) (Unaudited) CAPITALIZATION AND LIABILITIES Reported Reclass Adjusted Amount Adjustments Amount ---------- ----------- ----------- Capitalization Common stock $ 563,460 $ - $ 563,460 Retained earnings 221,623 - 221,623 ---------- ----------- ---------- 785,083 - 785,083 Unearned compensation - - - ---------- ----------- --------- Total common stockholders' equity 785,083 - 785,083 Preferred stock of subsidiaries: Not subject to mandatory redemption 30,000 - 30,000 Subject to mandatory redemption 103,950 (10,000) (10) 93,950 Long-term debt 879,744 10,000 (10) 889,744 ---------- ----------- ---------- 1,798,777 - 1,798,777 ---------- ----------- ---------- Current Liabilities Short-term debt 55,675 - 55,675 Long-term debt due within one year 147,566 - 147,566 Accounts payable 65,369 - 65,369 Taxes accrued 6,049 - 6,049 Interest accrued 20,116 - 20,116 Dividends declared 21,215 - 21,215 Current capital lease obligation 653 - 653 Deferred income taxes, net 1,888 - 1,888 Other 23,995 - 23,995 ---------- ----------- ---------- 342,526 - 342,526 ---------- ----------- ---------- Deferred Credits and Other Liabilities Deferred income taxes, net 439,267 - 439,267 Deferred investment tax credits 44,043 - 44,043 Long-term capital lease obligations 39,077 - 39,077 Postretirement obligations 37,476 - 37,476 Other 22,718 - 22,718 ---------- ----------- ---------- 582,581 - 582,581 ---------- ----------- ---------- Total Capitalization and Liabilities $2,723,884 $ - $2,723,884 ========== =========== ==========
The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. 18
DELMARVA POWER AND LIGHT COMPANY CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1997 (Dollars in Thousands, Except Per Share Amounts) (Unaudited) Reported Reclass Adjusted Amount Adjustments Amount ----------- ----------- ----------- Operating Revenues Electric $1,092,144 $ - $1,092,144 Gas 204,057 - 204,057 Other services 127,301 - 127,301 ----------- ----------- ----------- 1,423,502 - 1,423,502 ----------- ----------- ----------- Operating Expenses Electric fuel and purchased energy 416,640 - 416,640 Gas purchased 153,027 - 153,027 Other services' cost of sales 85,192 - 85,192 Purchased electric capacity 28,470 - 28,470 Operation and maintenance 331,770 - 331,770 Depreciation and amortization 136,340 - 136,340 Other taxes 37,634 - 37,634 ----------- ----------- ----------- 1,189,073 - 1,189,073 ----------- ----------- ----------- Operating Income 234,429 - 234,429 ----------- ----------- ----------- Other Income Allowance for equity funds used during construction 1,337 - 1,337 Other income 28,187 - 28,187 ----------- ----------- ----------- 29,524 - 29,524 ----------- ----------- ----------- Interest Expense Interest charges 83,398 - 83,398 Allowance for borrowed funds used during construction and capitalized interest (2,996) - (2,996) ----------- ----------- ----------- 80,402 - 80,402 Preferred Stock Dividend ----------- ----------- ----------- Requirements of Subsidiaries 5,687 - 5,687 ----------- ----------- ----------- Income Before Income Taxes 177,864 - 177,864 Income Taxes 72,155 - 72,155 ----------- ----------- ----------- Net Income 105,709 - 105,709 Dividends on Preferred Stock 4,491 - 4,491 ----------- ----------- ----------- Earnings Applicable to Common Stock $ 101,218 $ - $ 101,218 =========== =========== =========== Average shares outstanding (000): 61,122 61,122 Basic and diluted earnings per average share $ 1.66 $ - $ 1.66 Dividends declared $ 1.54 $ - $ 1.54
The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. 19
ATLANTIC ENERGY, INC. CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1997 (Dollars in Thousands, Except Per Share Amounts) (Unaudited) Reported Reclass Adjusted Amount Adjustments Amount ----------- ----------- ----------- Operating Revenues Electric $1,061,986 $ - $1,061,986 Other services 40,374 - 40,374 ----------- ----------- ----------- 1,102,360 - 1,102,360 ----------- ----------- ----------- Operating Expenses Electric fuel and purchased energy 293,457 - 293,457 Other services' cost of sales - - - Purchased electric capacity 197,386 - 197,386 Termination of employee benefit plans due to merger 23,559 - 23,559 Operation and maintenance 203,198 (5,952) (11,12) 197,246 Depreciation and amortization 83,950 10,530 (12) 94,480 State excise taxes 103,991 - 103,991 Other taxes 7,616 (4,578) (11) 3,038 ----------- ----------- ----------- 913,157 - 913,157 ----------- ----------- ----------- Operating Income 189,203 - 189,203 ----------- ----------- ----------- Other Income Allowance for equity funds used during construction 815 - 815 Other income 14,598 - 14,598 ----------- ----------- ----------- 15,413 - 15,413 ----------- ----------- ----------- Interest Expense Interest charges 70,619 - 70,619 Allowance for borrowed funds used during construction and capitalized interest (1,003) - (1,003) ----------- ----------- ----------- 69,616 - 69,616 ----------- ----------- ----------- Preferred Stock Dividend Requirements of Subsidiaries 10,596 - 10,596 ----------- ----------- ----------- Income Before Income Taxes 124,404 - 124,404 Income Taxes 49,999 - 49,999 ----------- ----------- ----------- Net Income $ 74,405 $ - $ 74,405 =========== =========== =========== Average shares outstanding (000) 52,280 - 52,280 Basic and diluted earnings per average share $ 1.42 $ - $ 1.42 Dividends declared $ 1.54 $ - $ 1.54
The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. 20 NOTES TO ADJUSTED CONSOLIDATED FINANCIAL STATEMENTS ($ in thousands) (1) Transfer capital leases, net to "Leased property, net." (2) Transfer regulatory assets from "Other" to "Other regulatory assets." (3) Transfer "Deferred income taxes, net" to current liabilities. (4) Transfer "Land held for future use" to "Electric utility plant in service." (5) Transfer $10,963 for Investment in Bond Escrow Trust from "Other investments" to "Funds held by trustee." (6) Transfer "Working funds" to "Cash" and to "Materials and supplies", as appropriate. (7) Transfer "Unbilled revenues" to "Accounts receivable." (8) Transfer prepaid pension cost to "Deferred Charges and Other Assets." (9) Transfer unamortized debt costs from "Deferred debt refinancing costs" to "Unamortized debt expense." (10) Reclassification to reflect post-balance sheet refinancings in accordance with SFAS No. 6. (11) Transfer payroll taxes from "Other taxes" to "Operation and maintenance". (12) Transfer nuclear decommissioning costs from "Operation and maintenance" to "Depreciation and amortization". 21 Exhibits - --------- Exhibit 3(a) Restated Certificate of Incorporation of Conectiv. Exhibit 3(b) Certificate of Merger of Atlantic Energy, Inc. into Conectiv, Inc. filed in Delaware. Exhibit 3(c) Section 102(a) certificate to change name from Conectiv, Inc. to Conectiv filed in Delaware. Exhibit 3(d) Certificate of Merger of Atlantic Energy, Inc. into Conectiv, Inc. filed in New Jersey. Exhibit 3(e) Certificate of Merger of DS Sub into Delmarva Power & Light Company filed in Delaware. Exhibit 3(f) By-laws of Conectiv. Exhibit 99(a) Letter to the Financial Community. 22 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Conectiv ------------ (Registrant) Date: March 6, 1998 /s/ Barbara S. Graham --------------------- Barbara S. Graham Senior Vice President and Chief Financial Officer 23 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Conectiv ------------ (Registrant) Date: March 9, 1998 /s/ Barbara S. Graham --------------------- Barbara S. Graham Senior Vice President and Chief Financial Officer 24 EX-3 2 EXHIBIT 3(a) RESTATED CERTIFICATE OF INCORPORATION OF CONECTIV Pursuant to Section 245 of the General Corporation Law of the State of Delaware Conectiv, a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. The name of the corporation is Conectiv (the "Corporation"). The Corporation was originally incorporated under the name DS, Inc., which name was changed to "Conectiv, Inc." on December 24, 1996 and to "Conectiv" on March 1, 1998. The original certificate of incorporation was filed with the Secretary of State of the State of Delaware on August 8, 1996. 2. This Restated Certificate of Incorporation restates but does not further amend the Restated Certificate of Incorporation, as heretofore amended, of the Corporation and has been adopted and approved in accordance with Section 245 of the General Corporation Law of the State of Delaware. 3. The text of the Certificate of Incorporation, as heretofore amended, is hereby restated to read in its entirety as follows: ARTICLE I. NAME The name of the Corporation is Conectiv. ARTICLE II. REGISTERED OFFICE AND AGENT The address of the registered office of the Corporation is 800 King Street, Wilmington, New Castle County, Delaware 19899, and the name of the registered agent at such office is the Corporation itself. ARTICLE III. PURPOSE The Corporation is organized for the purpose of engaging in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the "DGCL"). ARTICLE IV. CAPITAL STOCK SECTION I. AUTHORIZATION. The aggregate number of shares of stock which the Corporation shall have authority to issue is one hundred eighty million (180,000,000) shares, of which one hundred fifty million (150,000,000) shares shall be shares of a class of common stock designated as "Common Stock," having a par value of $0.01 per share (the "Company Common Stock"), ten million (10,000,000) shares shall be shares of a class of common stock designated as "Class A Common Stock", having a par value of $0.01 per share (the "Class A Common Stock"), and twenty million (20,000,000) shares shall be shares of a class of preferred stock having a par value of $.01 per share (the "Preferred Stock") and issuable in one or more series as hereinafter provided. The Company Common Stock and the Class A Common Stock shall hereinafter collectively be called "Common Stock" and either shall sometimes be called a class of Common Stock. Certain capitalized terms used in this Article IV shall have the meanings set forth in Section II.7 of this Article IV. For purposes of this Article IV, the Class A Common Stock, when issued, shall be considered issued in respect of the Atlantic Utility Group and the Company Common Stock, when issued, shall be considered issued in respect of the Residual Group, in each case upon the terms and subject to the conditions of this Article IV. 2 SECTION II. COMMON STOCK. The voting powers, preferences and relative, participating, optional or other special rights of the Common Stock, and the qualifications and restrictions thereon, shall be as follows in this Section II. 1. DIVIDENDS. Subject to any preferences and relative, participating, optional or special rights of any outstanding series of Preferred Stock and any qualifications or restrictions on the Common Stock or any class thereof created thereby, dividends may be declared and paid upon the Company Common Stock and the Class A Common Stock, upon the terms with respect to each such class, and subject to the limitations provided for below in this subsection 1, as the Board of Directors may determine. 1.1. LIMITATION ON DIVIDENDS ON COMPANY COMMON STOCK. Dividends on Company Common Stock may be declared and paid only out of the lesser of (i) the funds of the Corporation legally available therefor, and (ii) the Residual Group Available Dividend Amount. 1.2. LIMITATION ON DIVIDENDS ON CLASS A COMMON STOCK. Dividends on Class A Common Stock may be declared and paid only out of the lesser of (i) the funds of the Corporation legally available therefor, and (ii) the Atlantic Utility Group Available Dividend Amount. 1.3. DISCRIMINATION IN DIVIDENDS BETWEEN CLASSES OF COMMON STOCK. The Board of Directors, subject to the provisions of subsections 1.1 and 1.2 of this Section II, may at any time declare and pay dividends exclusively on Company Common Stock, exclusively on Class A Common Stock or on both such classes in equal or unequal amounts, notwithstanding the relative amounts of the Residual Group Available Dividend Amount and the Atlantic Utility Group Available Dividend Amount, the amount of dividends previously declared on each class, the respective voting or liquidation rights of each class or any other factor. 1.4. SHARE DISTRIBUTIONS. Subject to subsections 1.1 and 1.2, as the case may be, of this Section II, and except as permitted by subsection 4.1 of this Section II, the Board of Directors may declare and pay dividends or distributions of shares of Common Stock (or Convertible Securities convertible into or exchangeable or exercisable for shares of Common Stock) on shares of Common Stock or shares of Preferred Stock only as follows: (A) dividends or distributions of shares of Company Common Stock (or Convertible Securities convertible into or exchangeable or exercisable for shares of Residual Common Stock) on shares of Company Common Stock or shares of Preferred Stock attributed to the Residual Group; (B) dividends or distributions of shares of Class A Common Stock (or Convertible Securities convertible into or exchangeable or exercisable for shares of 3 Class A Common Stock) on shares of Class A Common Stock or shares of Preferred Stock attributed to the Atlantic Utility Group; and (C) dividends or distributions of shares of Class A Common Stock (or Convertible Securities convertible into or exchangeable or exercisable for shares of Class A Common Stock) on shares of Company Common Stock or shares of Preferred Stock attributed to the Residual Group, but only if the sum of (1) the number of shares of Class A Common Stock to be so issued (or the number of such shares which would be issuable upon conversion, exchange or exercise of any Convertible Securities to be so issued, as the case may be), and (2) the number of shares of Class A Common Stock that are issuable upon conversion, exchange or exercise of any Convertible Securities then outstanding that are attributed in accordance with this Article IV to the Residual Group is less than or equal to the Number of Shares Issuable with Respect to the Intergroup Interest. For purposes of this subsection 1.4, any outstanding Convertible Securities that are convertible into or exchangeable or exercisable for any other Convertible Securities that are themselves convertible into or exchangeable or exercisable for Company Common Stock or Class A Common Stock (or other Convertible Securities that are so convertible, exchangeable or exercisable) shall be deemed to have been converted, exchanged or exercised in full for such Convertible Securities. 2. VOTING POWERS. Except as otherwise provided by law or by the terms of any outstanding series of Preferred Stock or any provision of the certificate of incorporation of the Corporation restricting the power to vote on a specified matter to other stockholders, the entire voting power of the stockholders of the Corporation shall be vested in the holders of Common Stock of the Corporation, who shall be entitled to vote on any matter on which the holders of stock of the Corporation shall, by law or by the provisions of the certificate of incorporation or bylaws of the Corporation, be entitled to vote, and each class of Common Stock shall vote thereon together as though one class. On each matter to be voted on by the holders of all classes of Common Stock voting together as one class, (i) each outstanding share of Company Common Stock shall have one vote, and (ii) each outstanding share of Class A Common Stock shall have one vote. The number of authorized shares of Company Common Stock or of Class A Common Stock may be increased or decreased by the affirmative vote of a majority of the outstanding shares of Common Stock voting as a single class. 3. LIQUIDATION RIGHTS. In the event of the voluntary or involuntary dissolution of the Corporation or the liquidation and winding up of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation and the full preferential amounts (including any accumulated and unpaid dividends) to which the holders of Preferred Stock are entitled (regardless of the Group to which such shares of Preferred Stock were attributed in accordance with this Article IV), unless otherwise provided in respect of a series of preferred stock by the resolution of the Board of Directors fixing the liquidation rights and preferences of such series of preferred stock, the holders of 4 the outstanding shares of Common Stock shall be entitled to receive the remaining assets of the Corporation, regardless of the Group to which such assets are attributed in accordance with this Article IV, divided among the holders of Common Stock in accordance with the per share "Liquidation Units" attributable to each class of Common Stock. Each share of Company Common Stock is hereby attributed one "Liquidation Unit" and each share of Class A Common Stock is hereby attributed one "Liquidation Unit," in the case of each such class of Common Stock subject to adjustment as determined by the Board of Directors to be appropriate to reflect any subdivision (by stock split or otherwise) or combination (by reverse stock split or otherwise) of such class of Common Stock or any dividend or other distribution of shares of such class of Common Stock to holders of shares of such class of Common Stock. None of the merger or consolidation of the Corporation into or with any other company, the merger or consolidation of any other company into or with the Corporation, or the sale, transfer or lease of all or any part of the assets of the Corporation, shall be deemed a liquidation or winding up of the Corporation, or cause the dissolution of the Corporation, for purposes of this subsection 3. 4. CONVERSION OR REDEMPTION OF COMMON STOCK. The Class A Common Stock is subject to conversion or redemption upon the terms provided below in this subsection 4. 4.1. CONVERSION OR REDEMPTION OF CLASS A COMMON STOCK. (A) In the event of the Disposition, in one transaction or a series of related transactions, by the Corporation and/or its subsidiaries of all or substantially all of the properties and assets attributed to the Atlantic Utility Group to one or more persons or entities (other than (1) the Disposition by the Corporation of its properties and assets in one transaction or a series of related transactions in connection with the dissolution or the liquidation and winding up of the Corporation and the distribution of assets to stockholders as referred to in subsection 3 of this Section II, (2) the Disposition of the properties and assets of the Atlantic Utility Group to all holders of shares of Class A Common Stock and to the Corporation or subsidiaries thereof, divided among such holders and the Corporation or subsidiaries thereof on a Pro Rata basis in accordance with the number of shares of Class A Common Stock outstanding and the Number of Shares Issuable with Respect to the Intergroup Interest, (3) to any person or entity controlled (as determined by the Board of Directors) by the Corporation or (4) pursuant to a Related Business Transaction), the Corporation shall, on or prior to the 85th Trading Day after the date of consummation of such Disposition (the "Atlantic Utility Group Disposition Date"), pay a dividend on the Class A Common Stock or redeem some or all of the Class A Common Stock or convert Class A Common Stock into Company Common Stock (or another class or series of common stock of the Corporation), all as provided by the following subparagraphs (1) and (2) of this paragraph (A) and to the extent applicable, by subsection 4.3 of this Section II, as the Board of Directors shall have selected among such alternatives: 5 (1) provided that there are funds of the Corporation legally available therefor: (a) pay to the holders of the shares of Class A Common Stock a dividend, as the Board of Directors shall have declared subject to compliance with subsection 1 of this Section II, in cash and/or in securities (other than a dividend of Common Stock) or other property having a Fair Value as of the Atlantic Utility Group Disposition Date in the aggregate equal to the product of the Outstanding Atlantic Utility Fraction as of the record date for determining holders entitled to receive such dividend multiplied by the Fair Value of the Net Proceeds of such Disposition; or (b) (i) subject to the last sentence of this paragraph (A), if such Disposition involves all (not merely substantially all) of the properties and assets attributed to the Atlantic Utility Group, redeem as of the Redemption Date provided by paragraph (C) of subsection 4.3 of this Section II, all outstanding shares of Class A Common Stock in exchange for cash and/or for securities (other than Common Stock) or other property having a Fair Value as of the Atlantic Utility Group Disposition Date in the aggregate amount equal to the product of the Outstanding Atlantic Utility Fraction as of such Redemption Date multiplied by the Fair Value of the Net Proceeds of such Disposition; or (ii) subject to the last sentence of this paragraph (A), if such Disposition involves substantially all (but not all) of the properties and assets attributed to the Atlantic Utility Group, redeem as of the Redemption Date provided by paragraph (D) of subsection 4.3 of this Section II such number of whole shares of Class A Common Stock (which may be all of such shares outstanding) as have in the aggregate an average Market Value during the period of ten consecutive Trading Days beginning on the sixteenth Trading Day immediately succeeding the Atlantic Utility Group Disposition Date closest to the product of the Outstanding Atlantic Utility Fraction as of the date such shares are selected for redemption multiplied by the Fair Value as of the Atlantic Utility Group Disposition Date of the Net Proceeds of such Disposition (but in no event more than all the shares of Class A Common Stock then outstanding), in consideration for cash and/or securities (other than Common Stock) or other property having a Fair Value in the aggregate equal to such product; or (2) declare that each outstanding share of Class A Common Stock shall be converted as of the Conversion Date provided by paragraph (E) of subsection 4.3 of this Section II into a number of fully paid and nonassessable shares of Company Common Stock (or if the Company Common Stock is not Publicly Traded at such time and shares of another class or series of common stock of the Corporation (other than Class A Common Stock) are then Publicly Traded, of such other class or series of common stock as has the largest Market Capitalization as of the close of business on the Trading Day immediately preceding the date of the notice of such conversion required by such paragraph (E)) equal to 110% of the ratio, expressed as a decimal fraction rounded to the nearest five decimal places, of the average Market Value of one share of Class A Common Stock over 6 the period of ten consecutive Trading Days beginning on the sixteenth Trading Day following the Atlantic Utility Group Disposition Date to the average Market Value of one share of Company Common Stock (or such other class or series of common stock) over the same ten Trading Day period. Notwithstanding the foregoing provisions of this paragraph (A), the Corporation shall redeem Class A Common Stock as provided by subparagraph (1)(b)(i) or (1)(b)(ii) of this paragraph (A) only if the amount to be paid in redemption of such stock is less than or equal to the sum of (i) the Atlantic Utility Group Available Dividend Amount as of the Redemption Date and (ii) the amount determined to be capital in respect of the shares to be redeemed in accordance with applicable corporation law as of the Redemption Date. (B) For purposes of this subsection 4.1: (1) as of any date, "substantially all of the properties and assets" attributed to the Atlantic Utility Group shall mean a portion of such properties and assets (x) that represents at least 80% of the Fair Value of the properties and assets attributed to the Atlantic Utility Group as of such date, or (y) from which were derived at least 80% of the aggregate revenues for the immediately preceding twelve fiscal quarterly periods of the Corporation (calculated on a pro forma basis to include revenues derived from any of such properties and assets acquired during such period) derived from the properties and assets of the Atlantic Utility Group as of such date; (2) in the case of a Disposition of the properties and assets attributed to the Atlantic Utility Group in a series of related transactions, such Disposition shall not be deemed to have been consummated until the consummation of the last of such transactions; and (3) the Board of Directors may pay any dividend or redemption price referred to in paragraph (A) of this subsection 4.1 in cash, securities (other than Common Stock) or other property, regardless of the form or nature of the proceeds of the Disposition. (C) After the payment of the dividend or the redemption price with respect to the Class A Common Stock provided for by subparagraph (1) of paragraph (A) of this subsection 4.1, the Board of Directors may declare that each share of Class A Common Stock remaining outstanding shall be converted, but only as of a Conversion Date (determined as provided by paragraph (E) of subsection 4.3 of this Section II) prior to the first anniversary of the payment of such dividend or redemption price, into a number of fully paid and nonassessable shares of Company Common Stock (or, if the Company Common Stock is not Publicly Traded at such time and shares of any other class or series of common stock of the Corporation (other than Class A Common Stock) are then Publicly Traded, of such other class or series of common stock as has the largest Market Capitalization as of the 7 close of business on the Trading Day immediately preceding the date of the notice of such conversion required by such paragraph (E)) equal to 110% of the Market Value Ratio of the Class A Common Stock to the Company Common Stock as of the fifth Trading Day prior to the date of the notice of such conversion required by such paragraph (E). (D) The Board of Directors may declare that each outstanding share of Class A Common Stock shall be converted, as of the Conversion Date provided by paragraph (E) of subsection 4.3 of this Section II, into the number of fully paid and nonassessable shares of Company Common Stock (or, if the Company Common Stock is not Publicly Traded at such time and shares of any other class or series of common stock of the Corporation (other than Class A Common Stock) are then Publicly Traded, of such other class or series of common stock as has the largest Market Capitalization as of the close of business on the Trading Day immediately preceding the date of the notice of conversion required by such paragraph (E) of subsection 4.3) equal to the applicable percentage, on the Conversion Date, set forth below of the Market Value Ratio of the Class A Common Stock to the Company Common Stock as of the fifth Trading Day prior to the date of the notice of such conversion required by such paragraph (E):
12 MONTH PERIOD PRIOR TO THE APPLICABLE ANNIVERSARY PERCENTAGE OF OF THE EFFECTIVE DATE MARKET VALUE RATIO - ---------------------- ------------------- First................................................125% Second...............................................120% Third................................................115% Fourth and Thereafter................................110%
(E) If the Corporation consummates (i) a tender offer made by the Corporation for all of the outstanding shares of Class A Common Stock at an all cash price of at least 110% of the Time-Weighted Market Price of a share of Class A Common Stock as of the Trading Day immediately preceding the date of such offer or (ii) an exchange offer by the Corporation to exchange each outstanding share of Class A Common Stock into a number of shares of Company Common Stock (or, if the Company Common Stock is not Publicly Traded at such time and shares of any other class or series of common stock of the Corporation (other than Class A Common Stock) are then Publicly Traded, of such other class or series of common stock as has the largest Market Capitalization as of the close of business on the Trading Day immediately preceding the date of such offer) equal to at least 110% of the Market Value Ratio of the Class A Common Stock to the Company Common Stock as of the Trading Day immediately preceding the date of such offer, which, in either case, is accepted by the holders of greater than 50% of the outstanding shares of Class A Common Stock, then the Board of Directors may either (x) provided that there are funds of the Corporation legally available therefor, redeem as of the Redemption Date provided by paragraph (F) of subsection 4.3 of this Section II each share of Class A Common Stock 8 remaining outstanding in exchange for cash in an amount equal to the highest cash price paid per share by the Corporation pursuant to such tender offer or to the product of the highest number of shares of Company Common Stock (or such other class or series of common stock of the Corporation) per share issued in exchange for any share of Class A Common Stock pursuant to such exchange offer and the Time-Weighted Market Price of a share of Company Common Stock (or such other class or series of common stock of the Corporation) as of the Trading Day immediately preceding the date of such exchange offer, as the case may be, or (y) declare that each share of Class A Common Stock remaining outstanding shall be converted as of the Conversion Date provided by paragraph (E) of subsection 4.3 of this Section II into a number of fully paid and nonassessable shares of Company Common Stock (or, if the Company Common Stock is not Publicly Traded at such time and shares of any other class or series of common stock of the Corporation (other than Class A Common Stock) are then Publicly Traded, of such other class or series of common stock as has the largest Market Capitalization as of the close of business on the Trading Day immediately preceding the date of the notice of such conversion required by such paragraph (E)) equal to the quotient of the highest cash price paid per share by the Corporation pursuant to such tender offer and the Time-Weighted Market Price of a share of Company Common Stock (or such other class or series of common stock of the Corporation) as of the Trading Day immediately preceding the date of the notice of such conversion required by such paragraph (E) or to the highest number of shares of Company Common Stock (or such other class or series of common stock of the Corporation) per share issued in exchange for any share of Class A Common Stock pursuant to such exchange offer, as the case may be. (F) If any person (including the Corporation) makes a tender offer to purchase shares of Company Common Stock (or, if the Company Common Stock is not Publicly Traded at such time and shares of any other class or series of common stock of the Corporation (other than Class A Common Stock) are then Publicly Traded, of such other class or series of common stock as has the largest Market Capitalization as of the close of business on the Trading Day immediately preceding the date of such offer) for cash, property or other securities, the holders of shares of Class A Common Stock will be entitled to convert each and any such share of Class A Common Stock into the number of fully paid and nonassessable shares of Company Common Stock (or such other class or series of common stock, as the case may be) equal to 100% of the Market Value Ratio of the Class A Common Stock to the Company Common Stock as of the Trading Day immediately preceding the date of such tender offer; provided, that (x) any election by such holder to make such conversion may be fully revoked by such holder with respect to any such share of Class A Common Stock by giving written notice to the Corporation prior to the consummation of such tender offer and (y) such conversion will only be effective with respect to such shares of Company Common Stock (or such other class or series of common stock of the Corporation) issuable upon such conversion which are actually accepted for purchase pursuant to such tender offer. (G) If any person (including the Corporation) consummates a tender offer for all of the outstanding shares of Company Common Stock (or, if the Company Common Stock is not Publicly Traded at such time and shares of any other class or 9 series of common stock of the Corporation (other than Class A Common Stock) are then Publicly Traded, of such other class or series of common stock as has the largest Market Capitalization as of the close of business on the Trading Day immediately preceding the date of such offer) at an all cash price that is accepted by the holders of greater than 50% of the outstanding shares of Company Common Stock (or such other class or series of common stock of the Corporation), then the Board of Directors may either (x) redeem, as of the Redemption Date provided by paragraph (F) of subsection 4.3 of this Section II, each share of Class A Common Stock outstanding in exchange for cash in an amount equal to the product of the highest cash price paid per share by such person pursuant to such tender offer and the Market Value Ratio of the Class A Common Stock to the Company Common Stock as of the fifth Trading Day prior to the date of such tender offer or (y) declare that each share of Class A Common Stock outstanding shall be converted as of the Conversion Date provided by paragraph (E) of subsection 4.3 of this Section II into a number of fully paid and nonassessable shares of Company Common Stock (or, if the Company Common Stock is not Publicly Traded at such time and shares of any other class or series of common stock of the Corporation (other than Class A Common Stock) are then Publicly Traded, of such other class or series of common stock as has the largest Market Capitalization as of the close of business on the Trading Day immediately preceding the date of the notice of such conversion required by such paragraph (E)) equal to the quotient of the highest cash price paid per share by such person pursuant to such tender offer and the Time-Weighted Market Price of a share of Company Common Stock (or such other class or series of common stock of the Corporation) as of the Trading Day immediately preceding the date of the notice of such conversion required by such paragraph (E). 4.2. TREATMENT OF CONVERTIBLE SECURITIES. After any Conversion Date or Redemption Date on which all outstanding shares of Class A Common Stock were converted or redeemed, any share of Class A Common Stock that is to be issued on conversion, exchange or exercise of any Convertible Securities shall, immediately upon such conversion, exchange or exercise and without any notice from or to, or any other action on the part of, the Corporation or its Board of Directors or the holder of such Convertible Security: (A) in the event the shares of Class A Common Stock outstanding on such Conversion Date were converted into shares of Company Common Stock (or another class or series of common stock of the Corporation) pursuant to subparagraph (A)(2) or paragraph (C), (D), (E), (F) or (G) of subsection 4.1 of this Section II, be converted into the amount of cash and/or the number of shares of the kind of capital stock and/or other securities or property of the Corporation that the number of shares of Class A Common Stock that were to be issued upon such conversion, exchange or exercise would have received had such shares been outstanding on such Conversion Date; or (B) in the event the shares of Class A Common Stock outstanding on such Redemption Date were redeemed pursuant to subparagraph (A)(1)(b) of subsection 4.1 of this Section II, be redeemed, to the extent of funds of the Corporation 10 legally available therefor, for $.01 per share in cash for each share of Class A Common Stock that otherwise would be issued upon such conversion, exchange or exercise. The provisions of the immediately preceding sentence shall not apply to the extent that other adjustments in respect of such conversion, exchange or redemption of Class A Common Stock are otherwise made pursuant to the provisions of such Convertible Securities. 4.3. NOTICE AND OTHER PROVISIONS. (A) Not later than the tenth Trading Day following the consummation of a Disposition referred to in paragraph (A) of subsection 4.1 of this Section II, the Corporation shall announce publicly by press release (1) the Net Proceeds of such Disposition, (2) the number of shares outstanding of the Class A Common Stock, (3) the number of shares of Class A Common Stock into or for which Convertible Securities are then convertible, exchangeable or exercisable and the conversion, exchange or exercise price thereof and (4) the Outstanding Atlantic Utility Fraction on the date of such notice. Not earlier than the 26th Trading Day and not later than the 30th Trading Day following the consummation of such Disposition, the Corporation shall announce publicly by press release which of the actions specified in paragraph (A) of such subsection 4.1 it has irrevocably determined to take in respect of such Disposition. (B) If the Corporation determines to pay a dividend on shares of Class A Common Stock pursuant to subparagraph (A)(1)(a) of subsection 4.1 of this Section II, the Corporation shall, not later than the 30th Trading Day following the consummation of the Disposition referred to in such subparagraph, cause notice to be given to each holder of shares of Class A Common Stock and to each holder of Convertible Securities that are convertible into or exchangeable or exercisable for shares of Class A Common Stock (unless alternate provision for such notice to the holders of such Convertible Securities is made pursuant to the terms of such Convertible Securities), setting forth (1) the record date for determining holders entitled to receive such dividend, which shall be not earlier than the 40th Trading Day and not later than the 50th Trading Day following the consummation of such Disposition, (2) the anticipated payment date of such dividend (which shall not be more than 85 Trading Days following the consummation of such Disposition), (3) the type of property to be paid as such dividend in respect of the outstanding shares of Class A Common Stock, (4) the Net Proceeds of such Disposition, (5) the Outstanding Atlantic Utility Fraction on the date of such notice, (6) the number of outstanding shares of Class A Common Stock and the number of shares of Class A Common Stock into or for which outstanding Convertible Securities are then convertible, exchangeable or exercisable and the conversion, exchange or exercise price thereof and (7) in the case of notice to be given to holders of Convertible Securities, a statement to the effect that a holder of such Convertible Securities shall be entitled to receive such dividend only if such holder properly converts, exchanges or exercises such Convertible Securities on or prior to the record date referred to in clause (1) of this sentence. Such notice shall be sent by first-class 11 mail, postage prepaid, to each such holder at such holder's address as the same appears on the transfer books of the Corporation. (C) If the Corporation determines to redeem Class A Common Stock pursuant to subparagraph (A)(1)(b)(i) of subsection 4.1 of this Section II, the Corporation shall, not earlier than the 35th Trading Day and not later than the 45th Trading Day prior to the Redemption Date, cause notice to be given to each holder of shares of Class A Common Stock, and to each holder of Convertible Securities convertible into or exchangeable or exercisable for shares of Class A Common Stock (unless alternate provision for such notice to the holders of such Convertible Securities is made pursuant to the terms of such Convertible Securities), setting forth (1) a statement that all shares of Class A Common Stock outstanding on the Redemption Date shall be redeemed, (2) the Redemption Date (which shall not be more than 85 Trading Days following the consummation of such Disposition), (3) the type of property in which the redemption price for the shares to be redeemed is to be paid, (4) the Net Proceeds of such Disposition, (5) the Outstanding Atlantic Utility Fraction on the date of such notice, (6) the place or places where certificates for shares of Class A Common Stock, properly endorsed or assigned for transfer (unless the Corporation waives such requirement), are to be surrendered for delivery of cash and/or securities or other property, (7) the number of outstanding shares of Class A Common Stock and the number of shares of Class A Common Stock into or for which such outstanding Convertible Securities are then convertible, exchangeable or exercisable and the conversion, exchange or exercise price thereof, (8) in the case of notice to be given to holders of Convertible Securities, a statement to the effect that a holder of such Convertible Securities shall be entitled to participate in such selection for redemption only if such holder properly converts, exchanges or exercises such Convertible Securities on or prior to the Redemption Date referred to in clause (2) of this sentence and a statement as to what, if anything, such holder will be entitled to receive pursuant to the terms of such Convertible Securities or, if applicable, this subsection 4 if such holder thereafter converts, exchanges or exercises such Convertible Securities and (9) a statement to the effect that, except as otherwise provided by paragraph (I) of this subsection 4.3, dividends on such shares of Class A Common Stock shall cease to be paid as of such Redemption Date. Such notice shall be sent by first-class mail, postage prepaid, to each such holder at such holder's address as the same appears on the transfer books of the Corporation. (D) If the Corporation determines to redeem Class A Common Stock pursuant to subparagraph (A)(1)(b)(ii) of subsection 4.1 of this Section II, the Corporation shall, not later than the 30th Trading Day following the consummation of the Disposition referred to in such subparagraph, cause notice to be given to each holder of shares of Class A Common Stock and to each holder of Convertible Securities that are convertible into or exchangeable or exercisable for shares of Class A Common Stock (unless alternate provision for such notice to the holders of such Convertible Securities is made pursuant to the terms of such Convertible Securities) setting forth (1) a date not earlier than the 40th Trading Day and not later than the 50th Trading Day following the consummation of the Disposition in respect of which such redemption is to be made on which shares of Class 12 A Common Stock shall be selected for redemption, (2) the anticipated Redemption Date (which shall not be more than 85 Trading Days following the consummation of such Disposition), (3) the type of property in which the redemption price for the shares to be redeemed is to be paid, (4) the Net Proceeds of such Disposition, (5) the Outstanding Atlantic Utility Fraction, (6) the number of shares of Class A Common Stock outstanding and the number of shares of Class A Common Stock into or for which outstanding Convertible Securities are then convertible, exchangeable or exercisable and the conversion, exchange or exercise price thereof, (7) in the case of notice to be given to holders of Convertible Securities, a statement to the effect that a holder of such Convertible Securities shall be eligible to participate in such selection for redemption only if such holder properly converts, exchanges or exercises such Convertible Securities on or prior to the record date referred to in clause (1) of this sentence, and a statement as to what, if anything, such holder will be entitled to receive pursuant to the terms of such Convertible Securities or, if applicable, this subsection 4 if such holder thereafter converts, exchanges or exercises such Convertible Securities and (8) a statement that the Corporation will not be required to register a transfer of any shares of Class A Common Stock for a period of 15 Trading Days next preceding the date referred to in clause (1) of this sentence. Promptly following the date referred to in clause (1) of the preceding sentence, but not earlier than 40 Trading Days nor later than 50 Trading Days following the consummation of such Disposition, the Corporation shall cause a notice to be given to each holder of record of shares of Class A Common Stock to be redeemed setting forth (1) the number of shares of Class A Common Stock held by such holder to be redeemed, (2) a statement that Class A Common Stock shall be redeemed, (3) the Redemption Date, (4) the kind and per share amount of cash and/or securities or other property to be received by such holder with respect to each share of Class A Common Stock to be redeemed, including details as to the calculation thereof, (5) the place or places where certificates for shares of Class A Common Stock, properly endorsed or assigned for transfer (unless the Corporation shall waive such requirement), are to be surrendered for delivery of such cash and/or securities or other property, (6) if applicable, a statement to the effect that the shares being redeemed may no longer be transferred on the transfer books of the Corporation after the Redemption Date and (7) a statement to the effect that, except as otherwise provided by paragraph (I) of this subsection 4.3, dividends on such shares of Class A Common Stock shall cease to be paid as of the Redemption Date. Such notices shall be sent by first-class mail, postage prepaid, to each such holder at such holder's address as the same appears on the transfer books of the Corporation. (E) If the Corporation determines to convert the Class A Common Stock into Company Common Stock (or another class or series of common stock of the Corporation) pursuant to subparagraph (A)(2) or paragraph (C), (D), (E) or (G) of subsection 4.1 of this Section II, the Corporation shall, not earlier than the 35th Trading Day and not later than the 45th Trading Day prior to the Conversion Date, cause notice to be given to each holder of shares of Class A Common Stock and to each holder of Convertible Securities that are convertible into or exchangeable or exercisable for shares of Class A Common Stock (unless alternate provision for such notice to the holders of such Convertible Securities is made pursuant to the terms of such Convertible Securities) setting forth (1) a 13 statement that all outstanding shares of Class A Common Stock shall be converted, (2) the Conversion Date (which, in the case of a conversion after a Disposition, shall not be more than 85 Trading Days following the consummation of such Disposition and, in the case of a conversion after a tender or exchange offer pursuant to paragraph (E) or (G) of subsection 4.1 of this Section II, shall not be less than 35 or more than 85 Trading Days following the consummation of such offer), (3) the per share number of shares of Class A Common Stock or another class or series of common stock of the Corporation, as the case may be, to be received with respect to each share of Class A Common Stock, including details as to the calculation thereof, (4) the place or places where certificates for shares of Class A Common Stock, properly endorsed or assigned for transfer (unless the Corporation shall waive such requirement), are to be surrendered for delivery of certificates for shares of Class A Common Stock, (5) the number of outstanding shares of Class A Common Stock and the number of shares of Class A Common Stock into or for which outstanding Convertible Securities are then convertible, exchangeable or exercisable and the conversion, exchange or exercise price thereof, (6) a statement to the effect that, except as otherwise provided by paragraph (I) of this subsection 4.3, dividends on such shares of Class A Common Stock shall cease to be paid as of such Conversion Date and (7) in the case of notice to holders of such Convertible Securities, a statement to the effect that a holder of such Convertible Securities shall be entitled to receive shares of common stock upon such conversion only if such holder properly converts, exchanges or exercises such Convertible Securities on or prior to such Conversion Date and a statement as to what, if anything, such holder will be entitled to receive pursuant to the terms of such Convertible Securities or, if applicable, this subsection 4 if such holder thereafter converts, exchanges or exercises such Convertible Securities. Such notice shall be sent by first-class mail, postage prepaid, to each such holder at such holder's address as the same appears on the transfer books of the Corporation. (F) If the Corporation determines to redeem Class A Common Stock pursuant to subparagraph (E) or (G) of subsection 4.1 of this Section II, the Corporation shall, not earlier than the 35th Trading Day and not later than the 45th Trading Day prior to the Redemption Date, cause notice to be given to each holder of shares of Class A Common Stock, and to each holder of Convertible Securities convertible into or exchangeable or exercisable for shares of Class A Common Stock (unless alternate provision for such notice to the holders of such Convertible Securities is made pursuant to the terms of such Convertible Securities), setting forth (1) a statement that all shares of Class A Common Stock outstanding on the Redemption Date shall be redeemed, (2) the Redemption Date (which shall not be less than 35 or more than 85 Trading Days following the consummation of the applicable tender or exchange offer), (3) the redemption price for the shares, (4) the place or places where certificates for shares of Class A Common Stock, properly endorsed or assigned for transfer (unless the Corporation waives such requirement), are to be surrendered for delivery of cash, (5) the number of outstanding shares of Class A Common Stock and the number of shares of Class A Common Stock into or for which such outstanding Convertible Securities are then convertible, exchangeable or exercisable and the conversion, exchange or exercise price thereof, (6) in the case of notice to be given to holders of Convertible Securities, a statement to the effect that a holder of such Convertible Securities shall be 14 entitled to participate in such selection for redemption only if such holder properly converts, exchanges or exercises such Convertible Securities on or prior to the Redemption Date referred to in clause (2) of this sentence and a statement as to what, if anything, such holder will be entitled to receive pursuant to the terms of such Convertible Securities or, if applicable, this subsection 4 if such holder thereafter converts, exchanges or exercises such Convertible Securities and (7) a statement to the effect that, except as otherwise provided by paragraph (I) of this subsection 4.3, dividends on such shares of Class A Common Stock shall cease to be paid as of such Redemption Date. Such notice shall be sent by first-class mail, postage prepaid, to each such holder at such holder's address as the same appears on the transfer books of the Corporation. (G) If less than all of the outstanding shares of Class A Common Stock are to be redeemed pursuant to subparagraph (A)(1) of subsection 4.1 of this Section II, the shares to be redeemed by the Corporation shall be selected from among the holders of shares of Class A Common Stock outstanding at the close of business on the record date for such redemption on a pro rata basis among all such holders or by lot or by such other method as may be determined by the Board of Directors to be equitable. (H) The Corporation shall not be required to issue or deliver fractional shares of any capital stock or of any other securities to any holder of Class A Common Stock upon any conversion, redemption, dividend or other distribution pursuant to this subsection 4. If more than one share of Class A Common Stock shall be held at the same time by the same holder, the Corporation may aggregate the number of shares of any capital stock that shall be issuable or any other securities or property that shall be distributable to such holder upon any conversion, redemption, dividend or other distribution (including any fractional shares). If there are fractional shares of any capital stock or of any other securities remaining to be issued or distributed to the holders of Class A Common Stock, the Corporation shall, if such fractional shares are not issued or distributed to the holder, pay cash in respect of such fractional shares in an amount equal to the Fair Value thereof on the fifth Trading Day prior to the date such payment is to be made (without interest). (I) No adjustments in respect of dividends shall be made upon the conversion or redemption of any shares of Class A Common Stock; provided, however, that if the Conversion Date or Redemption Date, as the case may be, with respect to any shares of Class A Common Stock shall be subsequent to the record date for the payment of a dividend or other distribution thereon or with respect thereto, the holders of Class A Common Stock at the close of business on such record date shall be entitled to receive the dividend or other distribution payable on or with respect to such shares on the date set for payment of such dividend or other distribution, in each case without interest, notwithstanding the subsequent conversion or redemption of such shares. (J) Before any holder of Class A Common Stock shall be entitled to receive any cash payment and/or certificates or instruments representing shares of any capital stock and/or other securities or property to be distributed to such holder with 15 respect to Class A Common Stock pursuant to this subsection 4, such holder shall surrender at such place as the Corporation shall specify certificates for Class A Common Stock, properly endorsed or assigned for transfer (unless the Corporation shall waive such requirement). The Corporation shall as soon as practicable after receipt of certificates representing shares of Class A Common Stock deliver to the person for whose account such shares were so surrendered, or to such person's nominee or nominees, the cash and/or the certificates or instruments representing the number of whole shares of the kind of capital stock and/or other securities or property to which such person shall be entitled as aforesaid, together with any payment in respect of fractional shares contemplated by paragraph (H) of this subsection 4.3, in each case without interest. If less than all of the shares of Class A Common Stock represented by any one certificate are to be redeemed or converted, the Corporation shall issue and deliver a new certificate for the shares of Class A Common Stock not redeemed. (K) From and after any applicable Conversion Date or Redemption Date, as the case may be, all rights of a holder of shares of Class A Common Stock that were converted or redeemed shall cease except for the right, upon surrender of the certificates representing such shares as required by paragraph (J) of this subsection 4.3, to receive the cash and/or the certificates or instruments representing shares of the kind of capital stock and/or other securities or property for which such shares were converted or redeemed, together with any payment in respect of fractional shares contemplated by paragraph (H) of this subsection 4.3 and rights to dividends as provided in paragraph (I) of this subsection 4.3, in each case without interest. No holder of a certificate that immediately prior to the applicable Conversion Date represented shares of Class A Common Stock shall be entitled to receive any dividend or other distribution or interest payment with respect to shares of any kind of capital stock or other security or instrument for which Class A Common Stock was converted until the surrender as required by this subsection 4 of such certificate in exchange for a certificate or certificates or instrument or instruments representing such capital stock or other security. Upon such surrender, there shall be paid to the holder the amount of any dividends or other distributions (without interest) which theretofore became payable on any class or series of capital stock of the Corporation as of a record date after the Conversion Date, but that were not paid by reason of the foregoing, with respect to the number of whole shares of the kind of capital stock represented by the certificate or certificates issued upon such surrender. From and after a Conversion Date, the Corporation shall, however, be entitled to treat the certificates for Class A Common Stock that have not yet been surrendered for conversion as evidencing the ownership of the number of whole shares of the kind or kinds of capital stock of the Corporation for which the shares of Class A Common Stock represented by such certificates shall have been converted, notwithstanding the failure to surrender such certificates. (L) The Corporation shall pay any and all documentary, stamp or similar issue or transfer taxes that may be payable in respect of the issuance or delivery of any shares of capital stock and/or other securities upon conversion or redemption of shares of Class A Common Stock pursuant to this subsection 4. The Corporation shall not, 16 however, be required to pay any tax that may be payable in respect of any transfer involved in the issuance or delivery of any shares of capital stock and/or other securities in a name other than that in which the shares of Class A Common Stock so converted or redeemed were registered, and no such issuance or delivery shall be made unless and until the person requesting such issuance or delivery has paid to the Corporation the amount of any such tax or has established to the satisfaction of the Corporation that such tax has been paid. (M) Neither the failure to mail any notice required by this subsection 4.3 to any particular holder of Class A Common Stock or of Convertible Securities nor any defect therein shall affect the sufficiency thereof with respect to any other holder of outstanding shares of Class A Common Stock or of Convertible Securities or the validity of any such conversion or redemption. (N) The Board of Directors may establish such rules and requirements to facilitate the effectuation of the transactions contemplated by this subsection 4 as the Board of Directors shall determine to be appropriate. 5. MERGERS AND CONSOLIDATIONS. In the event of a merger or consolidation to which the Corporation is a party and pursuant to which the holders of common stock of the Corporation are entitled to receive securities or other consideration or pursuant to which shares of common stock of the Corporation are converted into securities or other consideration, the holder of each outstanding share of Class A Common Stock shall be entitled to receive, or to have such share converted into, as the case may be, the securities or other consideration attributable pursuant to such merger or consolidation to the number of shares of Company Common Stock (or, if the Company Common Stock is not Publicly Traded at such time and shares of any other class or series of common stock of the Corporation (other than Class A Common Stock) are then Publicly Traded, of such other class or series of common stock as has the largest Market Capitalization as of the close of business on the Trading Day immediately preceding the date of the first public announcement of such merger or consolidation) equal to the Market Value Ratio of the Class A Common Stock to the Company Common Stock as of the Trading Day immediately preceding the date of the first public announcement of such merger or consolidation, subject to adjustment as determined by the Board of Directors to be appropriate to reflect any subdivision (by stock split or otherwise) or combination (by reverse stock split or otherwise) of either class of Common Stock or any dividend or other distribution of shares of such class of Common Stock to holders of shares of such class of Common Stock after such date and prior to the consummation of such merger or consolidation. 6. BOARD DETERMINATIONS BINDING. Subject to applicable law, any determinations made in good faith by the Board of Directors of the Corporation under any provision of this Article IV, and any determinations with respect to any Group or the rights of the holders of any class of Common Stock made pursuant to or in furtherance of this Article IV, shall be final and binding on all stockholders. 17 7. CERTAIN DEFINITIONS. As used in this Article IV, the following terms shall have the following meanings (with terms defined in the singular having comparable meaning when used in the plural and vice versa), unless the context otherwise requires. As used in this Article IV, references to the "Board of Directors" shall refer to the Board of Directors of the Corporation. As used in this subsection 7, a "contribution" or "transfer" of assets or properties from one Group to another shall refer to the re-attribution of such assets or properties from the contributing or transferring Group to the other Group and correlative phrases shall have correlative meanings. 7.1. ATLANTIC UTILITY GROUP shall mean, as of any date from and after the Effective Date: (A) the interest of the Corporation on such date in Atlantic City Electric Company, a New Jersey corporation (the "Atlantic Utility Group Company"), and any successor companies, and solely those lines of business in which the Atlantic Utility Group Company was engaged as of August 9, 1996, and the assets and liabilities attributable to those lines of business, and which meet all of the criteria listed in clause (i) below, as of August 9, 1996, specifically excluding those businesses, lines of business, and products and services listed in clause (ii) below, and specifically including those businesses, lines of business and products and services listed in clause (iii) below: (i) only those businesses meeting all of the following criteria as of August 9, 1996 shall be included in the Atlantic Utility Group: (a) price regulated by the New Jersey Board of Public Utilities, including, without limitation, off-tariff agreements; (b) directly related to the supply of electricity (generation and purchase of electricity) or the delivery of electricity (transmission and distribution of electricity); and (c) a line of business for which Atlantic Utility Group Company has a franchise; (ii) specifically excluded from the Atlantic Utility Group are the following businesses, lines of business and products and services, which list is not intended to be inclusive: (a) Appliance Shield program, (b) lighting upgrade programs, (c) water heater service business, (d) thermostat sales, (e) telecommunications business and investments, (f) energy services and consulting, (g) utility services and consulting (e.g. plant services and electrical equipment O&M services), (h) Atlantic Energy International, and (i) Atlantic Energy Enterprises and its subsidiaries; (iii) specifically included in the Atlantic Utility Group is the Deepwater Operating Company. (B) all assets and liabilities of the Corporation and its subsidiaries (other than capital stock of a subsidiary) and liabilities relating to the notional obligation of the Atlantic Utility Group to the Residual Group described in clause (iii) of the definition of Company Net Income (Loss) Attributable to the Atlantic Utility Group on such date attributed by the Board of Directors to any of the Atlantic Utility Group Company or the 18 businesses thereof, whether or not such assets or liabilities are or were also assets and liabilities of the Atlantic Utility Group Company, including, without limitation, the assets and liabilities as of the Effective Date specified in the schedules filed with the records of the actions of the Board of Directors (a copy of which shall be made available to any stockholder of the Corporation upon written request therefor); (C) all properties and assets transferred to the Atlantic Utility Group from the Residual Group (other than a transaction pursuant to paragraph (D) of this subsection 7.1) after the Effective Date pursuant to transactions in the ordinary course of business of both the Residual Group and the Atlantic Utility Group or otherwise as the Board of Directors may have directed; (D) all properties and assets transferred to the Atlantic Utility Group from the Residual Group in connection with an increase in the Number of Shares Issuable with respect to the Intergroup Interest; and (E) the interest of the Corporation or any of its subsidiaries in any business or asset acquired and any liabilities assumed by the Corporation or any of its subsidiaries outside of the ordinary course of business and attributed to the Atlantic Utility Group, as determined by the Board of Directors; provided that (1) from and after the payment date of any dividend or other distribution with respect to shares of Class A Common Stock (other than a dividend or other distribution payable in shares of Class A Common Stock, with respect to which adjustment shall be made as provided in paragraph (A) of subsection 7.16, or in securities of the Corporation attributed to the Atlantic Utility Group, for which provision shall be made as set forth in clause (2) of this proviso), the Atlantic Utility Group shall no longer include an amount of assets or properties previously attributed to the Atlantic Utility Group of the same kind as so paid in such dividend or other distribution with respect of shares of Class A Common Stock as have a Fair Value on the record date for such dividend or distribution equal to the product of (a) the Fair Value on such record date of the aggregate of such dividend or distribution to holders of shares of Class A Common Stock declared multiplied by (b) a fraction the numerator of which is equal to the Intergroup Interest Fraction in effect on the record date for such dividend or distribution and the denominator of which is equal to the Outstanding Atlantic Utility Fraction in effect on the record date for such dividend or distribution, (2) if the Corporation shall pay a dividend or make some other distribution with respect to shares of Class A Common Stock payable in securities of the Corporation that are attributed to the Atlantic Utility Group for purposes of this Article IV (other than Class A Common Stock), there shall be excluded from the Atlantic Utility Group an interest in the Atlantic Utility Group equivalent to the number or amount of such securities that is equal to the product of the number or amount of securities so distributed to holders of Class A Common Stock multiplied by the fraction specified in clause 1(b) of this proviso (determined as of the record date for such distribution) (and such interest in the Atlantic Utility Group shall be attributed to the Residual Group) and, to the extent interest is or dividends are paid on the securities so 19 distributed, the Atlantic Utility Group shall no longer include a corresponding ratable amount of the kind of assets paid as such interest or dividends as would have been paid in respect of the securities equivalent to such interest in the Atlantic Utility Group deemed held by the Residual Group if the securities equivalent to such interest were outstanding (and in such eventuality such assets as are no longer included in the Atlantic Utility Group shall be attributed to the Residual Group) and (3) from and after any transfer of any assets or properties from the Atlantic Utility Group to the Residual Group, the Atlantic Utility Group shall no longer include such assets or properties so contributed or transferred. The Corporation may also, to the extent a dividend or distribution on the Class A Common Stock has been paid in Convertible Securities that are convertible into or exchangeable or exercisable for Class A Common Stock, cause such Convertible Securities as are deemed to be held by the Residual Group in accordance with the third to last sentence of subsection 7.21 of this Article IV and clause (2) of the proviso to the immediately preceding sentence to be deemed to be converted, exchanged or exercised as provided in the penultimate sentence of subsection 7.21, in which case such Convertible Securities shall no longer be deemed to be held by the Residual Group. 7.2. ATLANTIC UTILITY GROUP AVAILABLE DIVIDEND AMOUNT, on any date, shall mean either: (i)(x) the amount equal to the product of (1) the Outstanding Atlantic utility Fraction as of such date multiplied by (2) an amount equal to the fair market value of the total assets attributed to the Atlantic Utility Group less the total amount of the liabilities attributed to the Atlantic Utility Group (provided that preferred stock shall not be treated as a liability), in each case as of such date and determined on a basis consistent with that applied in determining Company Net Income (Loss) Attributable to the Atlantic Utility Group, minus (y) the aggregate par value of, or any greater amount determined to be capital in respect of, all outstanding shares of Class A Common Stock and shares of each class or series of Preferred Stock attributed to the Atlantic Utility Group, plus (z) the amount, as of such date, of amortization of goodwill during the period from the Effective Date through such date arising from the mergers (together, the "Mergers") of Atlantic Energy, Inc., a New Jersey corporation, with and into the Corporation, and of DS Sub, Inc., a Delaware corporation, with and into Delmarva Power & Light Company, a Delaware corporation, with respect to the Atlantic Utility Group (determined as set forth in clause (ii) of the definition of Company Net Income (Loss) Attributable to the Atlantic Utility Group), or (ii) in case the total amount calculated pursuant to clause (i) above is not a positive number, an amount equal to Company Net Income (Loss) Attributable to the Atlantic Utility Group (if positive) for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Notwithstanding the foregoing provisions of this subsection 7.2, and consistent with subsection 7.6 of this Article IV, at any time when there are not outstanding both (i) one or more shares of Residual Common Stock or Convertible Securities convertible into or exchangeable or exercisable for Residual Common Stock and (ii) one or more shares of Class A Common Stock or Convertible Securities convertible 20 into or exchangeable or exercisable for Class A Common Stock, the "Available Dividend Amount," on any calculation date during such time period, with respect to the Residual Common Stock or the Class A Common Stock, as the case may be (depending on which of such classes of Common Stock or Convertible Securities convertible into or exchangeable or exercisable for such class of Common Stock is outstanding), shall mean the amount available for the payment of dividends on such Common Stock in accordance with law. 7.3. COMPANY NET INCOME (LOSS) ATTRIBUTABLE TO THE ATLANTIC UTILITY GROUP, for any period through any date, shall mean (i) the net income or loss of the Atlantic Utility Group for such period (or in respect of the fiscal periods of the Corporation commencing prior to the Effective Date, the pro forma net income or loss of the Atlantic Utility Group for such period as if the Effective Date had been the first day of such period) determined in accordance with generally accepted accounting principles in effect at such time, reflecting income and expense of the Corporation attributed to the Atlantic Utility Group on a basis substantially consistent with attributions of income and expense made in the calculation of Company Net Income (Loss) Attributable to the Residual Group, including, without limitation, corporate administrative costs, net interest and other financial costs and income taxes, increased (or, in the case of a loss, reduced) by (ii) the amount of amortization of goodwill arising from the Mergers with respect to the Atlantic Utility Group to the extent but only to the extent such goodwill would otherwise decrease the Company Net Income Attributable to the Atlantic Utility Group or increase the Company Net Loss Attributable to the Atlantic Utility Group (such amount calculated for fiscal periods of the Corporation commencing prior to the Effective Date on a pro forma basis as if the Effective Date had been the first day of the relevant period), determined in accordance with generally accepted accounting principles in effect at such time applied on a basis substantially consistent with that applied in determining Company Net Income (Loss) Attributable to the Atlantic Utility Group and reduced (or, in the case of a loss, increased) by (iii) an amount equal to $40 million per fiscal year and by (iv) the amount of dividends paid in such period (or, in respect of fiscal periods of the Corporation commencing prior to the Effective Date, the pro forma amount of dividends paid in such period as if the Effective Date had been the first day of such period) with respect to shares of preferred and preference stock of Atlantic Utility Group Company. 7.4. COMPANY NET INCOME (LOSS) ATTRIBUTABLE TO THE RESIDUAL GROUP, for any period through any date, shall mean (i) the net income or loss of the Residual Group for such period (or in respect of fiscal periods of the Corporation commencing prior to the Effective Date, the pro forma net income or loss of the Residual Group for such period as if the Effective Date had been the first day of such period) determined in accordance with generally accepted accounting principles in effect at such time, reflecting income and expense of the Corporation attributed to the Residual Group on a basis substantially consistent with attributions of income and expense made in the calculation of Company Net Income (Loss) Attributable to the Atlantic Utility Group, including, without 21 limitation, corporate administrative costs, net interest and other financial costs and income taxes, reduced (or, in the case of a loss, increased) by (ii) the amount of amortization of goodwill arising from the Mergers with respect to the Atlantic Utility Group to the extent but only to the extent such goodwill results in a decrease (increase) in the Company Net Income (Loss) Attributable to the Atlantic Utility Group pursuant to clause (ii) of subsection 7.3 of this Article IV (such amount calculated for fiscal periods of the Corporation commencing prior to the Effective Date on a pro forma basis as if the Effective Date had been the first day of the relevant period), determined in accordance with generally accepted accounting principles in effect at such time applied on a basis substantially consistent with that applied in determining Company Net Income (Loss) Attributable to the Atlantic Utility Group (excluding the portion thereof, if any, already applied to reduce net income or increase net loss of the Residual Group for such period by virtue of the Intergroup Interest Fraction) and increased (or, in the case of a loss, decreased) by (iii) the amount described in clause (iii) of the definition of Company Net Income (Loss) Attributable to the Atlantic Utility Group. 7.5. CONVERSION DATE shall mean the date fixed by the Board of Directors as the effective date for the conversion of shares of Class A Common Stock into shares of Company Common Stock (or another class or series of common stock of the Corporation) as shall be set forth in the notice to holders of shares of Class A Common Stock and to holders of any Convertible Securities that are convertible into or exchangeable or exercisable for shares of Class A Common Stock required pursuant to paragraph (E) of subsection 4.3 of this Section II. 7.6. CONVERTIBLE SECURITIES at any time shall mean any securities of the Corporation or of any subsidiary thereof (other than shares of Common Stock), including warrants and options, outstanding at such time that by their terms are convertible into or exchangeable or exercisable for or evidence the right to acquire any shares of any class of Common Stock, whether convertible, exchangeable or exercisable at such time or a later time or only upon the occurrence of certain events, but in respect of antidilution provisions of such securities only upon the effectiveness thereof. 7.7. DISPOSITION shall mean a sale, transfer, assignment or other disposition (whether by merger, consolidation, sale or contribution of assets or stock or otherwise) of properties or assets (including stock, other securities and goodwill). 7.8. EFFECTIVE DATE shall mean the date on which the merger of Atlantic Energy, Inc., a New Jersey corporation, with and into the Corporation, and the merger of DS Sub, Inc., a Delaware corporation, with and into Delmarva Power & Light Company, a Delaware corporation, shall become effective. 7.9. FAIR VALUE shall mean, in the case of equity securities or debt securities of a class or series that has previously been Publicly Traded for a period of at least 15 months, the Market Value thereof (if such value, as so defined, can be determined) or, in 22 the case of an equity security or debt security that has not been Publicly Traded for at least such period, shall mean the fair value per share of stock or per other unit of such other security, on a fully distributed basis, as determined by an independent investment banking firm experienced in the valuation of securities selected in good faith by the Board of Directors, or, if no such investment banking firm is, as determined in the good faith judgment of the Board of Directors, available to make such determination, in good faith by the Board of Directors; provided, however, that in the case of property other than securities, the "Fair Value" thereof shall be determined in good faith by the Board of Directors based upon such appraisals or valuation reports of such independent experts as the Board of Directors shall in good faith determine to be appropriate in accordance with good business practice. Any such determination of Fair Value shall be described in a statement filed with the records of the actions of the Board of Directors. 7.10. GROUP shall mean, as of any date, the Residual Group or the Atlantic Utility Group, as the case may be. 7.11. INTERGROUP INTEREST FRACTION as of any date shall mean a fraction the numerator of which shall be the Number of Shares Issuable with Respect to the Intergroup Interest on such date and the denominator of which shall be the sum of (A) such Number of Shares Issuable with Respect to the Intergroup Interest and (B) the aggregate number of shares of Class A Common Stock outstanding on such date. A statement setting forth the Intergroup Interest Fraction as of the record date for any dividend or distribution on any class of Common Stock, as of the effective date of any conversion, exchange or exercise of Convertible Securities into or for shares of Class A Common Stock and as of the end of each fiscal quarter of the Corporation shall be filed by the Secretary of the Corporation in the records of the Board of Directors of the Corporation not later than ten days after such date. 7.12. MARKET CAPITALIZATION of any class or series of common stock on any date shall mean the product of (i) the Market Value of one share of such class or series of common stock on such date and (ii) the number of shares of such class or series of common stock outstanding on such date. 7.13. MARKET VALUE of a share of any class or series of capital stock of the Corporation on any day shall mean the average of the high and low reported sales prices regular way of a share of such class or series on such Trading Day or, in case no such reported sale takes place on such Trading Day, the average of the reported closing bid and asked prices regular way of a share of such class or series on such Trading Day, in either case as reported on the New York Stock Exchange Composite Tape or, if the shares of such class or series are not listed or admitted to trading on such Exchange on such Trading Day, on the principal national securities exchange in the United States on which the shares of such class or series are listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange on such Trading Day, on the NASDAQ National Market or, if the shares of such class or series are not listed or admitted to trading on any national 23 securities exchange or quoted on such National Market System on such Trading Day, the average of the closing bid and asked prices of a share of such class or series in the over-the-counter market on such Trading Day as furnished by any New York Stock Exchange member firm selected from time to time by the Corporation or, if such closing bid and asked prices are not made available by any such New York Stock Exchange member firm on such Trading Day, the Fair Value of a share of such class or series; provided that, for purposes of determining the market value of a share of any class or series of capital stock for any period, (i) the "Market Value" of a share of capital stock on any day prior to any "ex-dividend" date or any similar date occurring during such period for any dividend or distribution (other than any dividend or distribution contemplated by clause (ii)(B) of this sentence) paid or to be paid with respect to such capital stock shall be reduced by the Fair Value of the per share amount of such dividend or distribution and (ii) the "Market Value" of any share of capital stock on any day prior to (A) the effective date of any subdivision (by stock split or otherwise) or combination (by reverse stock split or otherwise) of outstanding shares of such class or series of capital stock occurring during such period or (B) any "ex-dividend" date or any similar date occurring during such period for any dividend or distribution with respect to such capital stock to be made in shares of such class or series of capital stock or Convertible Securities that are convertible, exchangeable or exercisable for such class or series of capital stock shall be appropriately adjusted, as determined by the Board of Directors, to reflect such subdivision, combination, dividend or distribution. 7.14. MARKET VALUE RATIO OF THE CLASS A COMMON STOCK TO THE COMPANY COMMON STOCK as of any date shall mean the fraction (which may be greater than 1/1), expressed as a decimal (rounded to the nearest five decimal places), of a share of Company Common Stock (or another class or series of common stock of the Corporation, if so provided by subsection 4.1 or subsection 5 of this Section II because Company Common Stock is not then Publicly Traded) to be issued in respect of a share of Class A Common Stock upon a conversion of Class A Common Stock into Company Common Stock (or another class or series of common stock of the Corporation) in accordance with subsection 4.1 of this Section II or to determine the consideration attributable to a share of Class A Common Stock in accordance with subsection 5 of this Section II, based on the ratio of the market value of a share of Class A Common Stock to the market value of a share of Company Common Stock (or such other common stock) as of such date, determined by the fraction the numerator of which shall be the sum of (A) four times the average Market Value of one share of Class A Common Stock over the period of five consecutive Trading Days ending on such date, (B) three times the average Market Value of one share of Class A Common Stock over the period of five consecutive Trading Days ending on the fifth Trading Day prior to such date, (C) two times the average Market Value of one share of Class A Common Stock over the period of five consecutive Trading Days ending on the tenth Trading Day prior to such date and (D) the average Market Value of one share of Class A Common Stock over the period of five consecutive Trading Days ending on the fifteenth Trading Day prior to such date and the denominator of which shall be the sum of (A) four times the average Market Value of one share of Company Common Stock (or such other common stock) over the period of five consecutive Trading Days ending 24 on such date, (B) three times the average Market Value of one share of Company Common Stock (or such other common stock) over the period of five consecutive Trading Days ending on the fifth Trading Day prior to such date, (C) two times the average Market Value of one share of Company Common Stock (or such other common stock) over the period of five consecutive Trading Days ending on the tenth Trading Day prior to such date and (D) the average Market Value of one share of Company Common Stock (or such other common stock) over the period of five consecutive Trading Days ending on the fifteenth Trading Day prior to such date. 7.15. NET PROCEEDS shall mean, as of any date with respect to any Disposition of any of the properties and assets attributed to the Atlantic Utility Group an amount, if any, equal to what remains of the gross proceeds of such Disposition after payment of, or reasonable provision is made as determined by the Board of Directors for, (A) any taxes payable by the Corporation (or which would have been payable but for the utilization of tax benefits attributable to the Residual Group) in respect of such Disposition or in respect of any resulting dividend or redemption pursuant to subparagraph (A)(1)(a) or (b) of subsection 4.1 of this Section II, (B) any transaction costs, including, without limitation, any legal, investment banking and accounting fees and expenses, (C) any liabilities (contingent or otherwise) of or attributed to the Atlantic Utility Group, including, without limitation, any liabilities for deferred taxes or any indemnity or guarantee obligations of the Corporation incurred in connection with the Disposition or otherwise, and any liabilities for future purchase price adjustments and any preferential amounts plus any accumulated and unpaid dividends in respect of Preferred Stock attributed to the Atlantic Utility Group and (D) a capitalized amount (as determined by the Board of Directors) of the notional obligation of the Atlantic Utility Group to the Residual Group described in clause (iii) of the definition of Company Net Income (Loss) Attributable to the Atlantic Utility Group. For purposes of this definition, any properties and assets attributed to the Atlantic Utility Group remaining after such Disposition shall constitute "reasonable provision" for such amount of taxes, costs, liabilities (contingent or otherwise) and capitalized amount as the Board of Directors determines can be expected to be supported by such properties and assets. 7.16. NUMBER OF SHARES ISSUABLE WITH RESPECT TO THE INTERGROUP INTEREST shall, as of the Effective Date, be 15,308,094.66; provided, however, that such number shall from time to time thereafter be: (A) adjusted as determined by the Board of Directors to be appropriate to reflect any subdivision (by stock split or otherwise) or combination (by reverse stock split or otherwise) of the Class A Common Stock or any dividend or other distribution of shares of Class A Common Stock to holders of shares of Class A Common Stock or any reclassification of Class A Common Stock; (B) decreased (but to not less than zero) by action of the Board of Directors by (1) the number of shares of Class A Common Stock issued or sold by the Corporation that, immediately prior to such issuance or sale, were included (as 25 determined by the Board of Directors pursuant to paragraph (C) of this subsection 7.16) in the Number of Shares Issuable with Respect to the Intergroup Interest, (2) the number of shares of Class A Common Stock issued upon conversion, exchange or exercise of Convertible Securities that, immediately prior to the issuance or sale of such Convertible Securities, were included in the Number of Shares Issuable with Respect to the Intergroup Interest, (3) the number of shares of Class A Common Stock issued by the Corporation as a dividend or other distribution (including in connection with any reclassification or exchange of shares) to holders of Company Common Stock, (4) the number of shares of Class A Common Stock issued upon the conversion, exchange or exercise of any Convertible Securities issued by the Corporation as a dividend or other distribution (including in connection with any reclassification or exchange of shares) to holders of Company Common Stock, or (5) the number (rounded, if necessary, to the nearest whole number) equal to the quotient of (a) the aggregate Fair Value as of the date of contribution of properties or assets (including cash) transferred from the Atlantic Utility Group to the Residual Group in consideration for a reduction in the Number of Shares Issuable with Respect to the Intergroup Interest divided by (b) the Market Value of one share of Class A Common Stock as of the date of such transfer; and (C) increased by (1) the number of outstanding shares of Class A Common Stock repurchased by the Corporation for consideration that is attributed as provided by subsection 7.21 to the Residual Group and (2) the number (rounded, if necessary, to the nearest whole number) equal to the quotient of (a) the Fair Value of properties or assets (including cash) theretofore attributed as provided by subsection 7.21 to the Residual Group that are contributed to the Atlantic Utility Group in consideration of an increase in the Number of Shares Issuable with Respect to the Intergroup Interest, divided by (b) the Market Value of one share of Class A Common Stock as of the date of such contribution and (3) the number of shares of Class A Common Stock into or for which Convertible Securities are deemed converted, exchanged or exercised pursuant to the penultimate sentence of the definition of "Residual Group" in subsection 7.21 of this Section II. 7.17. OUTSTANDING ATLANTIC UTILITY FRACTION, as of any date, means the fraction (which may simplify to 1/1) the numerator of which shall be the number of shares of Class A Common Stock outstanding on such date and the denominator of which shall be the sum of the number of shares of Class A Common Stock outstanding on such date and the Number of Shares Issuable with Respect to the Intergroup Interest on such date. A statement setting forth the Outstanding Atlantic Utility Fraction as of the record date for the payment of any dividend or distribution on any class of Common Stock and as of the end of each fiscal quarter of the Corporation shall be filed by the Secretary of the Corporation in the records of the actions of the Board of Directors not later than ten days after such date. 7.18. PUBLICLY TRADED with respect to any security shall mean (i) registered under Section 12 of the Securities Exchange Act of 1934, as amended (or any 26 successor provision of law), and (ii) listed for trading on the New York Stock Exchange or the American Stock Exchange (or any national securities exchange registered under Section 7 of the Securities Exchange Act of 1934, as amended (or any successor provision of law), that is the successor to either such exchange) or quoted in the National Association of Securities Dealers Automation Quotation System (or any successor system). 7.19. REDEMPTION DATE shall mean the date fixed by the Board of Directors as the effective date for a redemption of shares of Class A Common Stock, as set forth in a notice to holders thereof required pursuant to paragraph (C), (D) or (F) of subsection 4.3 of this Section II. 7.20. RELATED BUSINESS TRANSACTION means any Disposition of all or substantially all the properties and assets attributed to the Atlantic Utility Group in a transaction or series of related transactions that result in the Corporation receiving in consideration of such properties and assets primarily equity securities (including, without limitation, capital stock, debt securities convertible into or exchangeable for equity securities or interests in a general or limited partnership or limited liability company, without regard to the voting power or other management or governance rights associated therewith) of (1) any entity which (i) acquires such properties or assets or succeeds (by merger, formation of a joint venture or otherwise) to the business conducted with such properties or assets or controls such acquiror or successor and (ii) is primarily engaged or proposes to engage primarily in one or more businesses similar or complementary to the businesses conducted by the Atlantic Utility Group prior to such Disposition, as determined by the Board of Directors. 7.21. RESIDUAL GROUP shall mean, as of any date from and as of the Effective Date: (A) the interest of the Corporation or any of its subsidiaries on such date in all of the assets, liabilities and businesses of the Corporation or any of its subsidiaries (and any successor companies), other than any assets, liabilities and businesses attributed in accordance with this Article IV to the Atlantic Utility Group; (B) a proportionate undivided interest in each and every business, asset and liability attributed to the Atlantic Utility Group equal to the Intergroup Interest Fraction as of such date; (C) all properties and assets transferred to the Residual Group from the Atlantic Utility Group (other than pursuant to paragraph (D) of this subsection 7.21) after the Effective Date pursuant to transactions in the ordinary course of business of both the Residual Group and the Atlantic Utility Group or otherwise as the Board of Directors may have directed; 27 (D) all properties and assets transferred to the Residual Group from the Atlantic Utility Group in connection with a reduction of the Number of Shares Issuable with Respect to the Intergroup Interest; (E) the interest of the Corporation or any of its subsidiaries in any business or asset acquired and any liabilities assumed by the Corporation or any of its subsidiaries outside the ordinary course of business and attributed to the Residual Group, as determined by the Board of Directors; and (F) from and after the payment date of any dividend or other distribution with respect to shares of Class A Common Stock (other than a dividend or other distribution payable in shares of Class A Common Stock, with respect to which adjustment shall be made as provided in paragraph (A) of subsection 7.16 of this Section II, or in securities of the Corporation attributed to the Atlantic Utility Group, for which provision shall be made as set forth in the third to last sentence of this definition), an amount of assets or properties previously attributed to the Atlantic Utility Group of the same kind as were paid in such dividend or other distribution with respect to shares of Class A Common Stock as have a Fair Value on the record date for such dividend or distribution equal to the product of (1) the Fair Value on such record date of the aggregate of such dividend or distribution to holders of shares of Class A Common Stock declared multiplied by (2) a fraction the numerator of which is equal to the Intergroup Interest Fraction in effect on the record date for such dividend or distribution and the denominator of which is equal to the Outstanding Atlantic Utility Fraction in effect on the record date for such dividend or distribution; provided that from and after any transfer of any assets or properties from the Residual Group to the Atlantic Utility Group, the Residual Group shall no longer include such assets or properties so transferred (other than as reflected in respect of such a transfer by the Intergroup Interest Fraction, as provided by paragraph (B) of this subsection 7.21). If the Corporation shall pay a dividend or make some other distribution with respect to shares of Class A Common Stock payable in securities of the Corporation that are attributed to the Atlantic Utility Group for purposes of this Article IV (other than Class A Common Stock), the Residual Group shall be deemed to hold an interest in the Atlantic Utility Group equivalent to the number or amount of such securities that is equal to the product of the number or amount of securities so distributed to holders of Class A Common Stock multiplied by the fraction specified in clause (2) of paragraph (F) of this subsection 7.21 (determined as of the record date for such distribution) and, to the extent interest is or dividends are paid on the securities so distributed, the Residual Group shall include, and there shall be transferred thereto out of the Atlantic Utility Group, a corresponding ratable amount of the kind of assets paid as such interest or dividends as would have been paid in respect of such securities so deemed to be held by the Residual Group if such securities were outstanding. The Corporation may also, to the extent the securities so paid as a dividend or other distribution to the holders of Class A Common Stock are Convertible Securities and at the time are convertible into or exchangeable or exercisable for shares of Class A Common Stock, treat such Convertible Securities as are so deemed to 28 be held by the Residual Group to be deemed to be converted, exchanged or exercised, and shall do so to the extent such Convertible Securities are mandatorily converted, exchanged or exercised (and to the extent the terms of such Convertible Securities require payment of consideration for such conversion, exchange or exercise, the Residual Group shall then no longer include an amount of the kind of properties or assets required to be paid as such consideration for the amount of Convertible Securities deemed converted, exchanged or exercised (and the Atlantic Utility Group shall be attributed such properties or assets)), in which case, from and after such time, the securities into or for which such Convertible Securities so deemed to be held by the Residual Group were so considered converted, exchanged or exercised shall be deemed held by the Residual Group (as provided in clause (3) of paragraph (C) of subsection 7.16 of this Section II) and such Convertible Securities shall no longer be deemed to be held by the Residual Group. A statement setting forth the election to effectuate any such deemed conversion, exchange or exercise of Convertible Securities so deemed to be held by the Residual Group and the properties or assets, if any, to be attributed to the Atlantic Utility Group in consideration of such conversion, exchange or exercise (if any) shall be filed in the records of the actions of the Board of Directors and, upon such filing, such deemed conversion, exchange or exercise shall be effectuated. 7.22. RESIDUAL GROUP AVAILABLE DIVIDEND AMOUNT, on any date, shall mean either: (i)(x) the amount equal to the fair market value of the total assets attributed to the Residual Group less the total amount of the liabilities attributed to the Residual Group (provided that preferred stock shall not be treated as a liability), in each case as of such date and determined on a basis consistent with that applied in determining Company Net Income (Loss) Attributable to the Residual Group, minus (y) the aggregate par value of, or any greater amount determined to be capital in respect of, all outstanding shares of Company Common Stock and shares of each class or series of Preferred Stock attributed to the Residual Group, minus (z) the amount, if any, as of such date, of amortization of goodwill during the period from the Effective Date through such date arising from the Mergers with respect to the Atlantic Utility Group (determined as set forth in clause (ii) of the definition of Company Net Income (Loss) Attributable to the Residual Group and, as in such clause (ii), excluding the portion thereof, if any, already applied to reduce net income or increase net loss of the Residual Group for such period by virtue of the Intergroup Interest Fraction), or (ii) in case the total amount calculated pursuant to clause (i) above is not a positive number, an amount equal to Company Net Income (Loss) Attributable to the Residual Group (if positive) for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Notwithstanding the foregoing provisions of this subsection 7.22, at any time when there are not outstanding both (i) one or more shares of Company Common Stock or Convertible Securities convertible into or exchangeable or exercisable for Company Common Stock and 29 (ii) one or more shares of Class A Common Stock or Convertible Securities convertible into or exchangeable or exercisable for Class A Common Stock, the "Available Dividend Amount," on any calculation date during such time period, with respect to the Company Common Stock or the Class A Common Stock, as the case may be (depending on which of such classes of Common Stock or Convertible Securities convertible into or exchangeable or exercisable for such class of Common Stock is outstanding), shall mean the amount available for the payment of dividends on such Common Stock in accordance with law. 7.23. TIME-WEIGHTED MARKET PRICE as of any date with respect to any class of Common Stock shall mean an amount equal to (i) the sum of (A) four times the average Market Value of one share of such class of Common Stock over the period of five consecutive Trading Days ending on such date, (B) three times the average Market Value of one share of such class of Common Stock over the period of five consecutive Trading Days ending on the fifth Trading Day prior to such date, (C) two times the average Market Value of one share of such class of Common Stock over the period of five consecutive Trading Days ending on the tenth Trading Day prior to such date and (D) the average Market Value of one share of such class of Common Stock over the period of five consecutive Trading Days ending on the fifteenth Trading Day prior to such date, divided by (ii) ten (10). 7.24. TRADING DAY shall mean each weekday other than any day on which the relevant class of common stock of the Corporation is not traded on any national securities exchange or quoted in the NASDAQ National Market or in the over-the-counter market. SECTION III. PREFERRED STOCK. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is authorized, by resolution adopted and filed in accordance with law, to fix the number of shares in each series, the designation thereof, the voting powers, preferences and relative participating, optional or other special rights thereof, and the qualifications or restrictions thereon, of each series and the variations in such voting powers and preferences and rights as between series. Any shares of any class or series of Preferred Stock purchased, exchanged, converted or otherwise acquired by the Corporation, in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock, without designation as to series, and may be reissued as part of any series of Preferred Stock created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth in this certificate of incorporation or in such resolution or resolutions. 30 ARTICLE V. BOARD OF DIRECTORS SECTION I. POWERS. The business and affairs of the Corporation shall be managed by, or under the direction of, a Board of Directors, which shall exercise all of the powers of the Corporation except as are by law or by this Certificate of Incorporation or the Bylaws of the Corporation conferred upon or reserved to the stockholders of the Corporation. SECTION II. NUMBER, TENURE AND QUALIFICATIONS OF DIRECTORS. 1. NUMBER OF DIRECTORS. The Board of Directors shall consist of no fewer than 9 and no more than 18 directors, as determined from time to time by resolution of the Board of Directors. 2. TERMS OF DIRECTORS. The directors shall be divided into three classes for the purpose of providing for staggered director terms, to be designated Class I, Class II and Class III. Each class shall consist, as nearly as possible, of one-third of the total number of directors constituting the entire Board of Directors. Class I directors shall be elected for a term expiring on the first annual meeting of stockholders following the Effective Date, Class II directors shall be elected for a term expiring on the second annual meeting of stockholders following the Effective Date, and Class III directors shall be elected for a term expiring on the third annual meeting of stockholders following the Effective Date. At each succeeding annual meeting of stockholders, successors to the class of directors whose term expires at that annual meeting shall be elected for three-year terms. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting of stockholders for the year in which his or her term expires and until his or her successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Except as otherwise required by law or in this Certificate of Incorporation, any vacancy on the Board of Directors that results from an increase in the number of directors and any other vacancy occurring in the Board of Directors shall be filled by a majority of the directors then in office, even if less than a quorum, or by the sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his or her predecessor. 3. REMOVAL OF DIRECTORS. Any director, or the entire Board of Directors, may be removed from office only for cause and only by the affirmative vote of not less than a majority of the votes entitled to be cast by the holders of all the then 31 outstanding shares of capital stock of the Corporation of any class or series entitled to vote in the election of directors generally, voting together as one class at an annual meeting or at a special meeting of the stockholders called for such purpose. 4. CLASS VOTES FOR DIRECTORS. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Certificate of Incorporation applicable thereto, as amended, and such directors so elected shall not be divided into classes pursuant to this Article V, Section II unless expressly provided by such terms. SECTION III. ADDITIONAL AUTHORITY OF BOARD. In furtherance, and not in limitation, of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the Corporation. SECTION IV. NOMINATION AND ELECTION OF DIRECTORS. Subject to the rights of holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, dissolution or winding up of the Corporation, nominations for the election of directors shall be made by a nominating committee of the Board of Directors if then constituted pursuant to the Bylaws of the Corporation, or if no nominating committee has been constituted, by the Board of Directors. In addition, any stockholder entitled to vote in the election of directors generally may nominate one or more persons for election as directors at an annual meeting of stockholders, but only if written notice of such stockholder's intent to make such nomination or nominations has been received by the Secretary of the Corporation not less than sixty nor more than ninety days prior to the first anniversary of the preceding year's annual meeting of stockholders. In the event that the date of the annual meeting of stockholders is advanced by more than thirty days or delayed by more than sixty days from such anniversary or in the case of the Corporation's first annual meeting of stockholders after the Effective Date, notice by the stockholder to be timely must be received not earlier than the ninetieth day prior to such annual meeting and not later than the close of business on the later of (a) the sixtieth day prior to such annual meeting or (b) the tenth day following the day on which notice of the date of the annual meeting was mailed or public disclosure thereof was made by the Corporation, whichever first occurs. Each such notice by a stockholder shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at a meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder or any person that directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such stockholder (an "Affiliate" of such stockholder) and each nominee and any other person or persons (naming such person or persons) relating to the nomination or nominations; (d) the class and number of shares of the Corporation which are 32 beneficially owned by such stockholder and the person to be nominated as of the date of such stockholder's notice and by any other stockholders known by such stockholder to be supporting such nominees as of the date of such stockholder's notice; (e) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission; and (f) the written consent of each nominee to serve as a director of the Corporation if so elected. The stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations thereunder, with respect to the matters set forth in this Article V, Section IV. In addition, in the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors, any stockholder entitled to vote in the election of directors generally may nominate one or more persons for election as directors at a special meeting only if written notice of such stockholder's intent to make such nomination or nominations, setting forth the information and complying with the form described in the immediately preceding paragraph, has been received by the Secretary of the Corporation not earlier than the ninetieth day prior to such special meeting and not later than the close of business on the later of (i) the sixtieth day prior to such special meeting or (ii) the tenth day following the day on which notice of the date of the special meeting was mailed or public disclosure thereof was made by the Corporation, whichever comes first. The stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Article V, Section IV. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Article V, Section IV. The presiding officer of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by this Article V, Section IV, and if he or she should so determine, the defective nomination shall be disregarded. Elections of directors shall be by written ballot. ARTICLE VI. STOCKHOLDERS SECTION I. MEETINGS OF STOCKHOLDERS; BOOKS. Meetings of the stockholders may be held within or without the State of Delaware, as the Bylaws may provide. Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such stockholders and may not be effected by a consent in writing by any such holders. Subject to the rights of holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, dissolution or winding up of the Corporation, special meetings of the 33 stockholders of the Corporation may be called only by the Chairman of the Board or by the Board of Directors pursuant to a resolution approved by a majority of the entire Board of Directors. The books of the Corporation may be kept (subject to any provision of law) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. Except as otherwise required by law or by this Certificate of Incorporation, the holders of not less than a majority in voting power of the shares entitled to vote at any meeting of stockholders, present in person or by proxy, shall constitute a quorum, and in all matters other than the election of directors the act of the holders of a majority in voting power of the shares present in person or by proxy and entitled to vote on the subject matter shall be deemed the act of the stockholders. Directors shall be elected by a plurality of the vote of the shares present in person or represented by proxy at a meeting of stockholders and entitled to vote in the election of directors. If a quorum shall fail to attend any meeting, the presiding officer may adjourn the meeting to another place, date or time. SECTION II. PROPOSALS OF STOCKHOLDERS. At any meeting of the stockholders, only such business shall be conducted as shall have been properly brought before such meeting. To be brought properly before an annual meeting of stockholders, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be received no less than sixty days nor more than ninety days prior to the first anniversary of the preceding year's annual meeting of stockholders; provided, however, that in the event that the date of the annual meeting is advanced by more than thirty days or delayed by more than sixty days from such anniversary or in the case of the Corporation's first annual meeting of stockholders after the Effective Date, notice by the stockholder, to be timely, must be received not earlier than the ninetieth day prior to such annual meeting of stockholders and not later than the close of business on the later of (a) the sixtieth day prior to such annual meeting or (b) the tenth day following the date on which notice of the date of the annual meeting was mailed or public disclosure thereof was made, whichever first occurs. Each such notice shall set forth as to each matter the stockholder proposes to bring before the annual meeting of stockholders: (a) a brief description of the business desired to be brought before the annual meeting of stockholders and the reasons for conducting such business at such meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (c) the class, series and number of shares of the Corporation which are beneficially owned by the stockholder, and (d) any material interest of the stockholder or any Affiliate of the stockholder in such business. The stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Article VI, Section II. To be properly brought before a special meeting, business must be (a) specified in the notice of 34 meeting (or any supplement thereto) given by or at the direction of the Board of Directors or (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors. No business may be brought before a special meeting by stockholders. No business shall be conducted at any meeting of the stockholders except in accordance with the procedures set forth in this Article VI, Section II. The presiding officer of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Article VI, Section II, and if he or she should so determine, any such business not properly brought before the meeting shall not be transacted. Nothing herein shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or any successor provision. SECTION III. POWER TO AMEND BYLAWS. The stockholders shall have the power and authority to amend the Bylaws of the Corporation only by the affirmative vote of 80% or more of the aggregate number of votes that the holders of the then outstanding shares of Common Stock and Preferred Stock are entitled to cast on the amendment. ARTICLE VII. AMENDMENTS The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation; provided, however, that except with respect to the designation of the rights and preferences of series of Preferred Stock pursuant to Article IV, Section III, which is delegated to the Board of Directors, and notwithstanding any other provisions of this Certificate of Incorporation or the Bylaws of the Corporation (and notwithstanding the fact that a lesser percentage or separate class vote may be specified by law, this Certificate of Incorporation or the Bylaws of the Corporation), any lawful amendment of this Certificate of Incorporation may be made by affirmative vote by at least the proportion specified below of the aggregate number of votes which the holders of the then outstanding shares of Common Stock and Preferred Stock are entitled to cast on the amendment and, if the shares of one or more classes or series are entitled under this Certificate of Incorporation or otherwise by law to vote thereon as a class, affirmative vote by the same proportion of the aggregate number of votes which the holders of the then outstanding shares of such one or more classes or series are entitled to cast on the amendment. The proportion referred to above in this Article VII shall be 80% in the case of any amendment of the provisions set forth in Section III of Article IV, Article V and Article VI of this Certificate of Incorporation and this Article VII and shall be a majority in all other cases. 35 ARTICLE VIII. LIMITATION ON DIRECTOR LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS SECTION I. LIMITED LIABILITY. A person who is or was a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (a) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the DGCL, or (d) for any transaction from which the director derived an improper personal benefit. If the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of the directors of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended. The elimination and limitation of liability provided herein shall continue after a director has ceased to occupy such position as to acts or omissions occurring during such director's term or terms of office, and no amendment, repeal or modification of this Article IX shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment, repeal or modification. SECTION II. RIGHT TO INDEMNIFICATION. 1. Each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or the person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expenses, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in this Article VIII, Section II, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if authorized by the Board of Directors of the Corporation. Any indemnification under this Article VIII, Section II (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case 36 upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he or she has met the applicable standard set forth in the DGCL. Such a determination shall be made (a) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum; (b) by independent legal counsel (compensated by the Corporation) in a written opinion; (c) by the stockholders; or (d) in any other manner permitted by the DGCL. In addition to the right to indemnification conferred in this Article VIII, Section II, each of the above persons shall have the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the DGCL requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer of the Corporation (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section II or otherwise. The Corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. The right to indemnification and to an advancement of expenses conferred in this Article VIII, Section II, shall be a contract right. 2. If a claim under paragraph 1 of this Section II is not paid in full by the Corporation within 30 days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim (including attorneys' fees). It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standard of conduct which makes it permissible under the DGCL for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. In any suit brought by the claimant to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the claimant is not entitled to be indemnified, 37 or to such advancement of expenses, under this Article VIII or otherwise shall be on the Corporation. 3. The rights to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article VIII, Section II, shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of this Certificate of Incorporation, bylaw, agreement, vote of stockholders or disinterested directors, or otherwise. 4. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL. 5. The Corporation may enter into an indemnity agreement with any director, officer, employee or agent of the Corporation, or of another corporation, partnership, joint venture, trust or other enterprise, upon terms and conditions that the Board of Directors deems appropriate, as long as the provisions of the agreement are not impermissible under applicable law. 6. Any amendment or repeal of this Article VIII, Section II, shall not be retroactive in effect. 7. In case any provision in this Article VIII, Section II, shall be determined at any time to be unenforceable in any respect, the other provisions shall not in any way be affected or impaired thereby, and the affected provision shall be given the fullest possible enforcement in the circumstances, it being the intention of the Corporation to afford indemnification and advancement of expenses to the persons indemnified hereby to the fullest extent permitted by law. 8. The Corporation may, by action of the Board of Directors, authorize one or more officers to grant rights to indemnification and advancement of expenses to employees or agents of the Corporation on such terms and conditions as such officer or officers deem appropriate under the circumstances. 38 IN WITNESS WHEREOF, the undersigned has caused this Restated Certificate of Incorporation to be executed by its Senior Vice President and Chief Financial Officer this 2nd day of March, 1998. CONECTIV By /s/ B. S. Graham --------------------------------------- Name: B. S. Graham Title: Senior Vice President and Chief Financial Officer 39 EX-3 3 CERTIFICATE OF MERGER of ATLANTIC ENERGY, INC. a New Jersey Corporation, with and into CONECTIV, INC., a Delaware Corporation - ------------------------------------------------------------------------------ CONECTIV, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the name and state of incorporation of each of the constituent corporations of the merger are as follows: NAME STATE OF INCORPORATION ---- ---------------------- Atlantic Energy, Inc. New Jersey Conectiv, Inc. Delaware SECOND: That an agreement of merger among the parties to the merger has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations and their respective stockholders in accordance with the requirements of subsection (c) of Section 252 of the General Corporation Law of the State of Delaware. THIRD: That the surviving corporation shall be Conectiv, Inc., a Delaware corporation (the "Surviving Corporation"), and the name of the Surviving Corporation shall be changed to "Conectiv" pursuant hereto. FOURTH: That the certificate of incorporation and bylaws of Conectiv, Inc., a Delaware corporation, in effect immediately prior to the effective time of the merger shall be the certificate of incorporation and bylaws of the Surviving Corporation, except that, pursuant to this Certificate of Merger, ARTICLE I of the certificate of incorporation of the Surviving Corporation shall be amended to read as follows: ARTICLE I The name of the Corporation shall be Conectiv. FIFTH: That the executed agreement of merger is on file at an office of the Surviving Corporation. The office of the Surviving Corporation at which the executed agreement of merger will be on file is 800 King Street, Wilmington, Delaware, 19899. SIXTH: That a copy of the agreement of merger will be furnished by the Surviving Corporation, on request and without cost, to any stockholder of any constituent corporation. SEVENTH: That the authorized capital stock and par value of Atlantic Energy, Inc., a New Jersey corporation, is 75,000,000 shares of Common Stock without par value. EIGHTH: That the effective date and time of the merger shall be 12:01 a.m. on March 1, 1998. Dated: February 27, 1998 CONECTIV, INC. By: /s/ Barbara S. Graham --------------------- Barbara S. Graham President EX-3 4 CONECTIV, INC. ACKNOWLEDGMENT AND REQUEST pursuant to Section 102(a) of the Delaware General Corporation Law CONECTIV, INC. (the "Corporation"), a corporation duly organized under the laws of the State of Delaware, DOES HEREBY CERTIFY AND ACKNOWLEDGE that: (1) The Certificate of Merger of Atlantic Energy, Inc., a New Jersey corporation, with and into the Corporation (the "Certificate of Merger") is being filed contemporaneously herewith. The Corporation will be the surviving corporation of the merger to be effected pursuant to the Certificate of Merger. Pursuant to the Certificate of Merger, the certificate of incorporation of the Corporation will be amended to change the name of the Corporation to "Conectiv". (2) As of the effective time set forth in the Certificate of Merger, the total assets (as that term is defined in subsection (i) of Section 503 of the Delaware General Corporation Law) of the Corporation will be not less than $10,000,000. Pursuant to Section 102(a)(1) of the Delaware General Corporation Law, the Corporation hereby requests a waiver from the Division of Corporations of the Secretary of State of the State of Delaware of the requirement set forth in Section 102(a) of the Delaware General Corporation Law that the name of a corporation shall contain one of the following words "association," "company," "corporation," "club," "foundation," "fund," "incorporated," "institute," "society," "union," "syndicate," or "limited," or such other appropriate abbreviation, and that the name of the Corporation be permitted to be changed to "Conectiv". Dated: February 27, 1998 CONECTIV, INC. By: /s/ Barbara S. Graham --------------------- Barbara S. Graham President EX-3 5 CERTIFICATE OF MERGER OF ATLANTIC ENERGY, INC., a New Jersey Corporation, with and into CONECTIV, INC., a Delaware Corporation - ------------------------------------------------------------------------------ TO: Secretary of State State of New Jersey Pursuant to the pertinent provisions of Chapter 10 of the New Jersey Business Corporation Act (hereinafter referred to as the "Act"), the undersigned corporations hereby execute the following Certificate of Merger. ARTICLE I --------- Atlantic Energy, Inc. ("Atlantic"), a corporation organized and existing under the laws of the State of New Jersey, shall be merged with and into Conectiv, Inc., a corporation organized and existing under the laws of the State of Delaware and qualified to do business in the State of New Jersey, which is designated as the surviving corporation (hereinafter referred to as the "Surviving Corporation"). The name of the Surviving Corporation shall be changed to "Conectiv" in Delaware pursuant to Sections 102(a) and 252 of the Delaware General Corporation Law (the "Delaware GCL"), and shall continue to use the name "Conectiv, Inc." in New Jersey pursuant to the requirements of the Act, in particular, Section 14A:2-2 of the Act. ARTICLE II ---------- The Agreement and Plan of Merger set forth in Exhibit A hereto (the "Plan") was approved by the Board of Directors of Atlantic on August 9, 1996. The Plan was amended and restated and such amendment and restatement was approved by the Board of Directors of Atlantic on December 8, 1996 in accordance with the requirements of Sections 14A:10-1 and 14A:10-7 of the Act. The Plan was approved by the Shareholders of Atlantic on January 30, 1997. The Plan was approved by the Board of Directors of Conectiv, Inc. on August 9, 1996. The Plan was amended and restated and such amendment and restatement was approved by the Board of Directors of Conectiv, Inc. on December 8, 1996. The Plan was unanimously approved by the stockholders of Conectiv, Inc. on December 8, 1996. The Plan was amended by the Boards of Directors of Atlantic and Conectiv, Inc. by amendment dated August 12, 1997. ARTICLE III ----------- As to Atlantic, the number of shares entitled to vote was as follows:
Total Number of Total Number of Name of Corporation Total Number of Shares Shares Voting in Shares Voting - Class of Stock Entitled to Vote Favor Against ---------------- ---------------- ----- ------- Atlantic Energy, Inc. - Common Stock 52,704,052 37,843,067 1,539,886 Conectiv, Inc. - Common Stock 500 500 -
2 ARTICLE IV ---------- The merger shall take effect at 12:01 a.m. on March 1, 1998. ARTICLE V --------- Such Merger shall be in compliance with all of the applicable provisions of the Delaware GCL with respect to such Merger as well as the applicable filing and recording requirements under the Delaware GCL. ARTICLE VI ---------- The Surviving Corporation does hereby agree that it may be served with process in the State of New Jersey in any proceeding for enforcement of any obligation of Atlantic in New Jersey, as well as for enforcement of any obligation of the Surviving Corporation arising from the Merger provided for herein. The Surviving Corporation does hereby irrevocably appoint the Secretary of State of the State of New Jersey as its agent to accept service of process in any such proceeding and does hereby specify the following address without the State of New Jersey to which a copy of such process shall be mailed by the Secretary of State of the State of New Jersey: Conectiv 800 King Street Wilmington, Delaware 19801 ARTICLE VII ----------- The Surviving Corporation does hereby agree that it will promptly pay to the dissenting shareholders of Atlantic, if any, the amount, if any, to which they shall be entitled under the provisions of the Act with respect to the rights of dissenting shareholders. 3 IN WITNESS WHEREOF, each of the undersigned corporations has caused this Certificate of Merger to be executed in its name by its duly authorized officer, as of the 27th day of February, 1998. CONECTIV, INC. By:/s/ Barbara S. Graham --------------------- Barbara S. Graham President ATLANTIC ENERGY, INC. By:/s/ Jerrold L. Jacobs --------------------- Jerrold L. Jacobs Chairman and Chief Executive Officer EX-3 6 CERTIFICATE OF MERGER of DS Sub, Inc. a Delaware Corporation, with and into Delmarva Power & Light Company a Delaware and Virginia Corporation DELMARVA POWER & LIGHT COMPANY, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, and the Virginia Stock Corporation Act, DOES HEREBY CERTIFY: FIRST: That the name and state of incorporation of each of the constituent corporations of the merger are as follows: NAME STATE OF INCORPORATION ---- ---------------------- DS Sub, Inc. Delaware Delmarva Power & Light Company Delaware and Virginia SECOND: That an agreement of merger among the parties to the merger has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations and their respective stockholders in accordance with the requirements of subsection (c) of Section 251 of the General Corporation Law of the State of Delaware and the applicable provisions of the Virginia Stock Corporation Act. THIRD: That the surviving corporation shall be Delmarva Power & Light Company, a Delaware and Virginia corporation (the "Surviving Corporation"), and the name of the Surviving Corporation shall be "Delmarva Power & Light Company". FOURTH: That the certificate of incorporation and bylaws of Delmarva Power & Light Company as in effect immediately prior to the effective time of the merger shall be the certificate of incorporation and bylaws of the Surviving Corporation. FIFTH: That the executed agreement of merger is on file at an office of the Surviving Corporation. The address of the office of the Surviving Corporation at which a copy of the executed agreement of merger is on file is 800 King Street, Wilmington, Delaware, 19899. SIXTH: That a copy of the agreement of merger will be furnished by the Surviving Corporation, on request and without cost, to any stockholder of any constituent corporation. SEVENTH: That the effective date and time of the merger shall be 12:01 a.m. on March 1, 1998. Delmarva Power & Light Company By: /s/ Barbara S. Graham ------------------------- Barbara S. Graham Senior Vice President and Chief Financial Officer 2 EX-3 7 EXHIBIT 3(f) BYLAWS OF CONECTIV 1. OFFICES. 1.1 Offices. In addition to its registered office in the State of Delaware, the Corporation shall have a corporate office in Wilmington, Delaware and a significant presence in New Jersey, and such other offices, either within or without the State of Delaware, at such locations as the Board of Directors may from time to time determine or the business of the Corporation may require. 2. SEAL. 2.1 Seal. The Corporation shall have a seal, which shall have inscribed thereon its name and year of incorporation and the words, "Corporate Seal Delaware." 3. MEETINGS OF STOCKHOLDERS. 3.1 Annual Meetings. The annual meeting of stockholders of the Corporation shall be held on such date, at such time and at such place within or without the State of Delaware as shall be determined by the Board of Directors from time to time. 3.2 Special Meetings. Special meetings of the stockholders of the Corporation shall be held on such date, at such time and at such place within or without the State of Delaware as may be designated by the Chairman of the Board or by the Board of Directors pursuant to a resolution approved by a majority of the entire Board of Directors. 3.3 Notice of Meetings. (a) Notices of meetings of stockholders shall be in writing and shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which a meeting is called. No business other than that specified in the notice thereof shall be transacted at any special meeting. (b) Such notice shall either be delivered personally or mailed, postage prepaid, to each stockholder entitled to vote at such meeting not less than 10 nor more than 60 days before the date of the meeting. If mailed, the notice shall be directed to the stockholder at his or her address as it appears on the records of the Corporation. Personal delivery of any such notice to any officer of a corporation or association or to any member of a partnership shall constitute delivery of such notice to such corporation, association or partnership. (c) Notice of any meeting of stockholders need not be given to any stockholder if waived by such stockholder in writing, whether before or after such meeting is held, or if such stockholder shall sign the minutes or attend the meeting, except that if such stockholder attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened, such stockholder shall not be deemed to have waived notice of such meeting. 3.4 Adjourned Meetings. When a meeting is adjourned to another time or place, unless otherwise provided by these Bylaws, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the stockholders may transact any business which might have been transacted at the original meeting. If an adjournment is for more than 30 days, or if after an adjournment, a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting. 3.5 Quorum and Adjournment. Except as otherwise provided by law, by the Certificate of Incorporation of the Corporation or by these Bylaws, the presence, in person or by proxy, of the holders of a majority of the aggregate voting power of the stock issued and outstanding, entitled to vote thereat, shall constitute a quorum for the transaction of business at all meetings of stockholders. If such majority shall not be present or represented at any meeting of stockholders, the stockholders present, although less than a quorum, shall have the power to adjourn the meeting. 3.6 Vote Required. Except as otherwise provided by law or by the Certificate of Incorporation: (a) Directors shall be elected by a plurality of the votes present in person or represented by proxy at a meeting of stockholders and entitled to vote in the election of directors, and (b) whenever any corporate action other than the election of Directors is to be taken, it shall be authorized by a majority in voting power of the shares present in person or by proxy at a meeting of stockholders and entitled to vote on the subject matter. 3.7 Manner of Voting. At each meeting of stockholders, each stockholder having the right to vote shall be entitled to vote in person or by proxy. Proxies need not be filed with the Secretary of the Corporation until the meeting is called to order, but shall be filed before being voted. Each stockholder shall be entitled to vote each share of stock having voting power registered in his name on the books of the Corporation on the record date fixed for determination of stockholders entitled to vote at such meeting. All elections of Directors by stockholders shall be by written ballot. 3.8 Proxies. (a) At any meeting of stockholders, any stockholder may be represented and vote by proxy or proxies appointed by a written form of proxy. In the 2 event that any form of proxy shall designate two or more persons to act as proxies, a majority of such persons present at the meeting or, if only one shall be present, then that one shall have and may exercise all of the powers conferred by the form of proxy upon all of the persons so designated unless the form of proxy shall otherwise provide. (b) The Board of Directors may, in advance of any annual or special meeting of the stockholders, prescribe additional regulations concerning the manner of execution and filing of proxies and the validation of the same, which are intended to be voted at any such meeting. 3.9 Presiding Officer and Secretary. The Chairman of the Board shall act as chairman of all meetings of the stockholders. In the absence of the Chairman of the Board, the Vice Chairman of the Board or, in his or her absence, the Chief Executive Officer or, in his or her absence, the President or, in his or her absence, any Vice President designated by the Board of Directors shall act as chairman of the meeting. The Secretary of the Corporation shall act as secretary of all meetings of the stockholders, but, in the absence of the Secretary, the Assistant Secretary designated in accordance with Section 5.11(b) of these Bylaws shall act as secretary of all meetings of the stockholders, but in the absence of a designated Assistant Secretary, the chairman of the meeting may appoint any person to act as secretary of the meeting. 3.10 Procedure. At each meeting of stockholders, the chairman of the meeting shall fix and announce the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at the meeting and shall determine the order of business and all other matters of procedure. Except to the extent inconsistent with any such rules and regulations as adopted by the Board of Directors, the chairman of the meeting may establish rules, which need not be in writing, to maintain order and safety and for the conduct of the meeting. Without limiting the foregoing, he or she may: (a) restrict attendance at any time to bona fide stockholders of record and their proxies and other persons in attendance at the invitation of the chairman; (b) restrict dissemination of solicitation materials and use of audio or visual recording devices at the meeting; (c) adjourn the meeting without a vote of the stockholders, whether or not there is a quorum present; and (d) make rules governing speeches and debate, including time limits and access to microphones. The chairman of the meeting acts in his or her absolute discretion and his or her rulings are not subject to appeal. 3 4. DIRECTORS. 4.1 Powers. The Board of Directors shall exercise all of the powers of the Corporation except such as are by law, or by the Certificate of Incorporation of this Corporation or by these Bylaws conferred upon or reserved to the stockholders of any class or classes. 4.2 Resignations. Any Director may resign at any time by giving written notice to the Board of Directors or the Secretary. Such resignation shall take effect at the date of receipt of such notice or at any later time specified therein. Acceptance of such resignation shall not be necessary to make it effective. 4.3 Presiding Officer and Secretary. The Chairman of the Board shall act as chairman of all meetings of the Board of Directors. In the absence of the Chairman of the Board, the Vice Chairman of the Board, or in his absence, the Chief Executive Officer or other person designated by the Board of Directors shall act as chairman of the meeting. The Secretary of the Corporation shall act as secretary of all meetings of the Board of Directors, but, in the absence of the Secretary, the Assistant Secretary designated in accordance with Section 5.11(b) of these Bylaws shall act as secretary of all meetings of the Board of Directors, but in the absence of a designated Assistant Secretary, the chairman of the meeting may appoint any person to act as secretary of the meeting. 4.4 Annual Meetings. The Board of Directors shall meet each year immediately following the annual meeting of stockholders, at the place where such meeting of stockholders has been held, or at such other place as shall be fixed by the person presiding over the meeting of the stockholders, for the purpose of election of officers and consideration of such other business as the Board of Directors considers relevant to the management of the Corporation. 4.5 Regular Meetings. Regular meetings of the Board of Directors shall be held on such dates and at such times and places, within or without the state of Delaware, as shall from time to time be determined by the Board of Directors. In the absence of any such determination, such meetings shall be held at such times and places, within or without the State of Delaware, as shall be designated by the Chairman of the Board on not less than twelve hours notice to each Director, given verbally or in writing either personally, by telephone (including by message or recording device), by facsimile transmission, by telegram or by telex or on not less than three (3) calendar days' notice to each Director given by mail. 4.6 Special Meetings. Special meetings of the Board of Directors shall be held at the call of the Chairman of the Board at such times and places, within or without the State of Delaware, as he or she shall designate, on not less than twelve hours notice to each Director, given verbally or in writing either personally, by telephone (including by message or recording device), by facsimile transmission, by telegram or by telex or on not 4 less than three (3) calendar days' notice to each Director given by mail. Special meetings shall be called by the Secretary on like notice at the written request of a majority of the Directors then in office. 4.7 Quorum and Powers of a Majority. At all meetings of the Board of Directors and of each committee thereof, a majority of the members shall be necessary and sufficient to constitute a quorum for the transaction of business, and the act of a majority of the members present at any meeting at which a quorum is present shall be the act of the Board of Directors or such committee, unless by express provision of law, of the Certificate of Incorporation or these Bylaws, a different vote is required, in which case such express provision shall govern and control. In the absence of a quorum, a majority of the members present at any meeting may, without notice other than announcement at the meeting, adjourn such meeting from time to time until a quorum is present. 4.8 Waiver of Notice. Notice of any meeting of the Board of Directors, or any committee thereof, need not be given to any member if waived by him or her in writing, whether before or after such meeting is held, or if he or she shall sign the minutes or attend the meeting, except that if such Director attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened, then such Director shall not be deemed to have waived notice of such meeting. 4.9 Manner of Acting. (a) Members of the Board of Directors, or any committee thereof, may participate in any meeting of the Board of Directors or such committee by means of conference telephone or similar communications equipment by means of which all persons participating therein can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. (b) Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing, and the writings are filed with the minutes of proceedings of the Board of Directors or such committee. 4.10 Compensation. (a) The Board of Directors, by a resolution or resolutions, may fix, and from time to time change, the compensation of Directors. (b) Each Director shall be entitled to reimbursement from the Corporation for his or her reasonable expenses incurred with respect to duties as a member of the Board of Directors or any committee thereof. (c) Nothing contained in these Bylaws shall be construed to preclude any Director from serving the Corporation in any other capacity and from receiving compensation from the Corporation for service rendered to it in such other capacity. 5 4.11 Committees. The Board of Directors may designate one or more committees, each committee to consist of one or more Directors, which to the extent provided in said resolution or resolutions shall have and may exercise the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation; provided, however, that no such committee shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the General Corporation Law of Delaware (the "GCLD") to be submitted to stockholders for approval or (ii) adopting, amending, or repealing any bylaw of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting of such committee and not disqualified from voting, whether or not such member of members constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in place of such absent or disqualified director. 4.12 Committee Procedure, Limitations of Committee Powers. (a) Except as otherwise provided by these Bylaws, each committee shall adopt its own rules governing the time, place and method of holding its meetings and the conduct of its proceedings and shall meet as provided by such rules or by resolution of the Board of Directors. Unless otherwise provided by these Bylaws or any such rules or resolutions, notice of the time and place of each meeting of a committee shall be given to each member of such committee as provided in Section 4.6 of these Bylaws with respect to notices of special meetings of the Board of Directors. (b) Each committee shall keep regular minutes of its proceedings and report the same to the Board of Directors when required. (c) Any member of any committee may be removed from such committee either with or without cause, at any time, by the Board of Directors at any meeting thereof. Any vacancy in any committee shall be filled by the Board of Directors in the manner prescribed by the Certificate of Incorporation or these Bylaws for the original appointment of the members of such committee. 5. OFFICERS. 5.1 Number. (a) The officers of the Corporation shall include a Chief Executive Officer, a President, one or more Vice Presidents (including one or more Executive Vice Presidents and one or more Senior Vice Presidents if deemed appropriate by the Board of Directors), a Secretary and a Treasurer. The Board of Directors shall also elect a Chairman of the Board and may elect a Vice Chairman of the Board. The Board of Directors may also elect such other officers as the Board of Directors may from time to time deem appropriate or necessary. Except for the Chairman of the Board, the Vice Chairman of the Board and the Chief Executive Officer, none of the officers of the 6 Corporation needs to be a director of the Corporation. Any two or more offices may be held by the same person to the extent permitted by the GCLD. (b) The Board of Directors may delegate to the Chief Executive Officer or President the power to appoint one or more employees of the Corporation as divisional or departmental vice presidents and fix the duties of such appointees. However, no such divisional or departmental vice president shall be considered as an officer of the Corporation, the officers of the Corporation being limited to those officers elected by the Board of Directors. 5.2 Election of Officers, Qualification and Term. The officers of the Corporation shall be elected from time to time by the Board of Directors and, except as may otherwise be expressly provided in a contract of employment duly authorized by the Board of Directors or the Merger Agreement, shall hold office at the pleasure of the Board of Directors. 5.3 Removal. Except as otherwise expressly provided in the Merger Agreement, any officer elected by the Board of Directors may be removed, either with or without cause, by the Board of Directors at any meeting thereof, or to the extent delegated to the Chairman of the Board or the Chief Executive Officer, by the Chairman of the Board or the Chief Executive Officer. 5.4 Resignations. Any officer of the Corporation may resign at any time by giving written notice to the Board of Directors or to the Chairman of the Board or to the Chief Executive Officer. Such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 5.5 Salaries. The salaries of all officers of the Corporation shall be fixed by the Board of Directors from time to time, and no officer shall be prevented from receiving such salary by reason of the fact that he or she is also a Director of the Corporation. 5.6 The Chairman of the Board. The Chairman of the Board shall have the powers and duties customarily and usually associated with the office of the Chairman of the Board. The Chairman of the Board shall preside at meetings of the stockholders and of the Board of Directors. 5.7 Vice Chairman of the Board. The Vice Chairman of the Board shall have the powers and duties customarily and usually associated with the office of the Vice Chairman of the Board. 5.8 Chief Executive Officer. The Chief Executive Officer shall have, subject to the supervision, direction and control of the Board of Directors, the general powers and duties of supervision, direction and management of the affairs and business of 7 the Corporation usually vested in the chief executive officer of a corporation, including, without limitation, all powers necessary to direct and control the organizational and reporting relationships within the Corporation. If at any time the office of the Chairman of the Board and the Vice Chairman of the Board shall not be filled, or in the event of the temporary absence or disability of the Chairman of the Board and the Vice Chairman of the Board, the Chief Executive Officer shall have the powers and duties of the Chairman of the Board. 5.9 The President. The President shall serve as chief operating officer and shall have such other powers and perform such other duties as may be delegated to him or her from time to time by the Board of Directors or the Chief Executive Officer. 5.10 The Vice Presidents. Each Vice President shall have such powers and perform such duties as may from time to time be assigned to him or her by the Board of Directors, the Chief Executive Officer or the President. 5.11 The Secretary and the Assistant Secretary. (a) The Secretary shall attend meetings of the Board of Directors and meetings of the stockholders and record all votes and minutes of all such proceedings in a book kept for such purpose. He or she shall have all such further powers and duties as generally are incident to the position of Secretary or as may from time to time be assigned to him or her by the Board of Directors, the Chief Executive Officer or the President. (b) Each Assistant Secretary shall have such powers and perform such duties as may from time to time be assigned to him or her by the Board of Directors, the Chief Executive Officer, the President or the Secretary. In case of the absence or disability of the Secretary, the Assistant Secretary designated by the Chief Executive Officer (or, in the absence of such designation, by the Secretary) shall perform the duties and exercise the powers of the Secretary. 5.12 The Treasurer and the Assistant Treasurer. (a) The Treasurer shall have custody of the Corporation's funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit or cause to be deposited moneys or other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall also maintain adequate records of all assets, liabilities and transactions of the Corporation and shall see that adequate audits thereof are currently and regularly made. The Treasurer shall have such other powers and perform such other duties that generally are incident to the position of Treasurer or as may from time to time be assigned to him or her by the Board of Directors, the Chief Executive Officer or the President. (b) Each Assistant Treasurer shall have such powers and perform such duties as may from time to time be assigned to him or her by the Board of Directors, the Chief Executive Officer, the President or the Treasurer. In case of the absence or 8 disability of the Treasurer, the Assistant Treasurer designated by the Chief Executive Officer (or, in the absence of such designation, by the Treasurer) shall perform the duties and exercise the powers of the Treasurer. 6. STOCK 6.1 Certificates. Certificates for shares of stock of the Corporation shall be issued under the seal of the Corporation, or a facsimile thereof, and shall be numbered and shall be entered in the books of the Corporation as they are issued. Each certificate shall bear a serial number, shall exhibit the holder's name and the number of shares evidenced thereby, and shall be signed by the Chairman of the Board or a Vice Chairman, if any, or the Chief Executive Officer or the President or any Vice President, and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person or entity were such officer, transfer agent or registrar at the date of issue. 6.2 Transfers. Transfers of stock of the Corporation shall be made on the books of the Corporation only upon surrender to the Corporation of a certificate (if any) for the shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, provided such succession, assignment or transfer is not prohibited by the Certificate of Incorporation, these Bylaws, applicable law or contract. Thereupon, the Corporation shall issue a new certificate (if requested) to the person entitled thereto, cancel the old certificate (if any) and record the transaction upon its books. 6.3 Lost, Stolen or Destroyed Certificates. Any person claiming a certificate of stock to be lost, stolen or destroyed shall make an affidavit or an affirmation of that fact, and shall give the Corporation a bond of indemnity in satisfactory form and with one or more satisfactory sureties, whereupon a new certificate (if requested) may be issued of the same tenor and for the same number of shares as the one alleged to be lost, stolen or destroyed. 6.4 Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares as the person entitled to exercise the rights of a stockholder and shall not be bound to recognize any equitable or other claim to or interest in any such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by the GCLD. 6.5 Additional Powers of the Board. (a) In addition to those powers set forth in Section 4.1, the Board of Directors shall have power and authority to make all such rules and regulations as it shall deem expedient concerning the issue, transfer and 9 registration of certificates for shares of stock of the Corporation, including the use of uncertificated shares of stock subject to the provisions of the GCLD. (b) The Board of Directors may appoint and remove transfer agents and registrars of transfers, and may require all stock certificates to bear the signature of any such transfer agent and/or any such registrar of transfers. 7. MISCELLANEOUS 7.1 Place and Inspection of Books. (a) The books of the Corporation other than such books as are required by law to be kept within the State of Delaware shall be kept in such place or places either within or without the State of Delaware as the Board of Directors may from time to time determine. (b) At least ten days before each meeting of stockholders, the officer in charge of the stock ledger of the Corporation shall prepare a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. (c) The Board of Directors shall determine from time to time whether and, if allowed, when and under what conditions and regulations the accounts and books of the Corporation (except such as may be by law specifically open to inspection or as otherwise provided by these Bylaws) or any of them shall be open to the inspection of the stockholders and the stockholders' rights in respect thereof. 7.2 Voting Shares in Other Corporations. The Chief Executive Officer, the President or any other officer of the Corporation designated by the Board of Directors may vote any and all shares held by the Corporation in any other corporation. 7.3 Fiscal Year. The fiscal year of the Corporation shall be such fiscal year as the Board of Directors from time to time by resolution shall determine. 7.4 Gender/Number. As used in these Bylaws, the masculine, feminine or neuter gender, and the singular or plural number, shall each include the others whenever the context so indicates. 10 7.5 Paragraph Titles. The titles of the paragraphs have been inserted as a matter of reference only and shall not control or affect the meaning or construction of any of the terms and provisions hereof. 7.6 Amendment. These Bylaws may be altered, amended or repealed by (a) the affirmative vote of 80% or more of the aggregate number of votes that the holders of the then outstanding shares of common stock and preferred stock are entitled to cast on the amendment, or (b) by resolution adopted by the affirmative vote of not less than a majority of the Directors in office, at any annual or regular meeting of the Board of Directors or at any special meeting of the Board of Directors if notice of the proposed alteration, amendment or repeal be contained in written notice of such special meeting. Notwithstanding the foregoing, the amendment of any provision of these Bylaws requiring an affirmative vote in excess of a majority of the Directors in office shall require the affirmative vote of at least the number of directors the affirmative vote of whom is required by such provision. 7.7 Certificate of Incorporation. Notwithstanding anything to the contrary contained herein, if any provision contained in these Bylaws is inconsistent with or conflicts with a provision of the Certificate of Incorporation, such provision of these Bylaws shall be superseded by the inconsistent provision in the Certificate of Incorporation to the extent necessary to give effect to such provision in the Certificate of Incorporation. 11 EX-99 8 March 5, 1998 To Members of the Financial Community: Effective March 1, 1998, Delmarva Power & Light Company and Atlantic Energy Inc. formed Conectiv, a new kind of power company. With the receipt of SEC approval under the Public Utility Holding Company Act last week, we are now one family of companies under Conectiv. We will have a market capitalization of over $2.3 billion, and will serve over 1 million electric customers and 100,000 gas customers in Delaware, New Jersey, Maryland and Virginia. Our regional focus will extend beyond into those neighboring states in the northeast where we can capitalize on competitive opportunities for energy, HVAC services, and telecommunications and continue to provide the excellent customer care both Atlantic and Delmarva have been long noted for. We commenced trading on the New York Stock Exchange on March 2, 1998 under the ticker symbols CIV (Common Stock) and CIV A (Class A). As we begin our new company, we plan to meet with the financial community to outline Conectiv's strategic objectives and the progress we've made to date. Included below are some key areas which we plan to cover. Strategic Focus Conectiv is committed to creating shareholder value, measured in terms of top quartile total shareholder return, with a minimum 5% growth in annual earnings and an overall total return of at least 12%. We will differentiate ourselves based upon a focused, competency based strategy; a manageable level of capital investment required to produce those returns, of which almost all funds are generated internally; and a management team with the breadth and depth of experience to manage the portfolio of Conectiv business assets. Conectiv will manage its portfolio using three strategic business groups, which are led by executives with broad experience: Conectiv Energy Supply, led by Tom Shaw, Executive Vice President of Conectiv; Conectiv Energy Delivery, led by Meredith I. Harlacher, Jr., President of Conectiv, and Conectiv Enterprises, led by Barry Elson, Executive Vice President of Conectiv. Our regulated delivery and energy supply businesses generate strong cash flow, and provide more than adequate coverage of our dividend. The Enterprises business group includes five retail business lines: Conectiv Communications (telecommunications); Conectiv Services (HVAC); Conectiv Energy (retail energy); Conectiv Thermal Systems (district heating/cooling); and Conectiv Solutions (energy services). With the exception of retail energy, these businesses will have higher gross margins, slightly different measures of value than the utility industry and are expected to produce revenues of over $750 million by 2000, with a cumulative capital investment by that time of between $300 million and $400 million. 1997 Successes During the last year, we have worked in both companies to bring two organizations together, obtain the needed regulatory approvals, investing in new processes for competing in deregulating markets, while achieving significant progress in forging ahead with our strategy of bringing new products and services to serve the regional marketplace. 1997 saw significant progress attained in the Conectiv brand awareness campaign, increased market share in regional retail pilot electric and gas programs, the launch of Conectiv Communications as the only facilities-based local service alternative on the Delmarva peninsula, and dramatic revenue growth (from $33 million to $95 million on an annual basis) from Conectiv Services through the acquisition and integration of several additional regional HVAC contractors. Looking ahead, we plan to continue to make investments in these business lines, as well as the Supply and Delivery groups, with expected consolidated capital and acquisition expenditures of over $1.5 billion during the five year period. We plan to fund that growth internally, and will issue new debt securities primarily to cover scheduled redemptions during that time. 1998 will be a watershed year and contain several key events which will help mark the beginning of Conectiv. We are committed to achieving the merger synergies which have been identified. We truly expect that additional savings can be gained, and have developed a "100 day plan" to drive the staffing levels where they should be and achieve our vision of producing value for our investors. Critical to Conectiv's future success is the outcome of the restructuring proceedings now pending in New Jersey, to be followed by proceedings in Delaware and Maryland in the next few years. We plan to aggressively pursue favorable outcomes in those states so that our generation assets are free to compete in the energy markets. Continued growth of Conectiv Enterprises--our retail businesses-- is also of paramount importance during 1998 and 1999. Those businesses are in a start-up mode and we expect the pressure on earnings to subside as these businesses continue to grow. We believe that our investments in these new businesses made during 1997, funded largely by Delmarva, will pay off over the long term. 2 As we go forward as Conectiv in 1998, we plan to provide you with periodic updates on selected performance measures. Those measures are in the areas of merger synergies, electric restructuring, and growth and profitability measures in our Enterprises business group, which we believe will demonstrate the progress we are making in those critical areas. We look forward to speaking with you about Conectiv. Sincerely, /s/ Barbara S. Graham ------------------------- Barbara S. Graham Senior Vice President and Chief Financial Officer The Private Securities Litigation Reform Act of 1995 (Litigation Reform Act) provides a new safe harbor for forward looking statements to encourage such disclosures without the threat of litigation, provided those statements are identified as forward-looking and are accompanied by meaningful, cautionary statements identifying important factors that could cause the actual results to differ materially from those projected in the statement. Forward looking statements are made in this report. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. When used herein, the words "will", "anticipate", "estimate", "expect", "objective" and similar expressions are intended to identify forward-looking statements. In addition to any assumptions, and other factors referred to specifically in connection with such forward-looking statements, factors that could cause actual results to differ materially from those contemplated in any forward looking statements include, among others, the following: deregulation and the unbundling of energy supplies and services; an increasingly competitive energy marketplace; sales retention and growth; federal and state regulatory actions; operating restrictions; and credit market concerns. The Company undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors pursuant to the Litigation Reform Act should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made by the Company prior to the effective date of the Litigation Reform Act. 3
Capital and Acquisition Expenditures: 1998-2002 ($000) - ------------------------------------------------------- 5-Year 1998 1999 2000 2001 2002 Total ---- ---- ---- ---- ---- ------ Total Capital & Acquisition Expenditures* $290,346 $335,003 $301,196 $321,895 $266,095 $1,514,535 ======== ======== ======== ======== ======== ========== Energy Supply (2) $53,961 $82,660 $59,288 $96,081 $61,729 $353,719 Energy Delivery (2) $131,067 $142,207 $147,994 $136,267 $134,552 $692,087 Enterprises $97,818 $102,636 $86,414 $82,047 $62,314 $431,229 Conectiv Services $31,510 $27,740 $2,923 $1,174 $1,183 Conectiv Communications $32,770 $34,201 $38,609 $36,606 $25,091 Conectiv Solutions $7,276 $40,211 $28,278 $31,718 $36,001 Conectiv Energy $945 $484 $121 $209 $39 Conectiv Thermal (2) $25,317 $16,483 $12,340 Enertech $7,500 $7,500 $7,500 $7,500 $7,500 $37,500
Note: (1) Energy Supply and Energy Delivery include one-half of common plant expenditures. (2) Represents budgeted common equity contribution. * Excludes AFUDC 4
Conectiv Sources and Uses of Cash: 1998-2002 ($000) - ---------------------------------------------------- 5-Year 1998 1999 2000 2001 2002 Total ---- ---- ---- ---- ---- ----- Cash Requirements Capital and Acquisition Expenditures $290,346 $335,003 $301,196 $321,895 $266,095 $1,514,535 Changes in Working Capital 24,803 15,482 26,048 26,202 23,090 115,625 -------- -------- -------- -------- -------- ---------- Total Cash Required $315,149 $350,485 $327,244 $348,097 $289,185 $1,630,160 ======== ======== ======== ======== ======== ========== Internally Generated Funds $281,785 $263,120 $296,573 $334,441 $381,732 $1,557,651 External Financings 134,907 149,732 79,398 68,752 18,198 450,987 Redemption of Securities (101,543) (62,367) (48,727) (55,096) (110,745) (378,478) -------- -------- -------- -------- -------- ---------- Total Sources of Cash $315,149 $350,485 $327,244 $348,097 $289,185 $1,630,160 ======== ======== ======== ======== ======== ===========
-----END PRIVACY-ENHANCED MESSAGE-----