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If the merger is not completed, there is no assurance as to the effect of these risks and opportunities on the future value of your shares of Company common
stock, including the risk that the market price of Company common stock may decline if the current market price of the Company common stock reflects a
market assumption that the merger will be completed. If the merger is not completed, there is no assurance that any other transaction acceptable to the
Company will be offered or that the business, operations, financial condition, earnings or prospects of the Company will not be adversely impacted. Pursuant
to the merger agreement, under certain circumstances the Company is permitted to terminate the merger agreement in order to enter into an alternative
transaction. Please see the section of this proxy statement entitled “The Merger Agreement—Termination of the Merger Agreement” beginning on page 92.
Under certain circumstances, if the merger agreement is terminated, the Company may be obligated to pay to Hydro One a termination fee. Under certain
other circumstances, if the merger agreement is terminated, Hydro One may be obligated to pay the Company a termination fee. Please see the section of this
proxy statement entitled “The Merger Agreement—Termination Fees” beginning on page 93.
Financing of the Merger
There is no financing condition to the merger. Hydro One intends to finance the aggregate cash consideration payable at the closing of the merger and related
expenses with a combination of some or all of the following:
• net proceeds of the first installment (to the extent available) and the final installment in respect of the sale in August 2017 by a direct, wholly
owned subsidiary of Hydro One of C$1,540,000,000 aggregate principal amount of 4.00% convertible unsecured subordinated debentures
(including exercise of over-allotment option) represented by installment receipts that are convertible into common shares of Hydro One;
• net proceeds of any subsequent bond or other debt offerings;
• amounts drawn under the existing C$250,000,000 operating credit facility available to Hydro One; and
• existing cash on hand and other sources available to Hydro One.
Hydro One intends to use the net proceeds of the final installment under the debenture offering described above to finance, directly or indirectly, together
with the net proceeds of the first installment under that offering to the extent available, part of the cash consideration payable for the merger and for other
expenses related to the merger.
Hydro One currently intends to fund the remainder of the cash consideration for the merger with a combination of bond or other debt financings,
denominated principally in U.S. dollars in order to provide a significant natural currency hedge, drawdowns on the operating credit facility described above
and cash on hand.
Hydro One’s overall financing plan in respect of the merger is structured and targeted to maintain Hydro One’s and the Company’s strong investment grade
status.
Interests of the Company’s Directors and Executive Officers in the Merger
Overview
In considering the proposals to be voted on at the special meeting, you should be aware that certain of the Company’s directors and executive officers have
interests in the merger that may be different from, or in addition to, your interests as a shareholder. The members of the Board were aware of and considered
these interests, among other matters, in evaluating and reaching the Board’s decision to adopt the plan of merger set forth in the merger agreement and in
resolving to recommend the Company’s shareholders vote to approve the merger agreement and the plan of merger set forth therein. As described in more
detail below, these interests include:
• at the effective time, each performance award that is outstanding immediately prior to the effective time (including any performance award with
respect to which the applicable performance period has
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ended, but which performance award has not been settled) will be cancelled and the holder thereof will then become entitled to receive, in full
satisfaction of such holder’s rights with respect thereto, a lump-sum cash payment equal to the product of (i) the performance award amount, and
(ii) the merger consideration, subject to any withholding taxes required by law to be withheld in accordance with the merger agreement; and all
accumulated dividends, if any, accrued but unpaid with respect to performance awards will, by virtue of the merger and without any action on
the part of a holder thereof, automatically become fully vested and be paid to such holder;
• at the effective time, each RSU that is outstanding immediately prior to the effective time and which by its terms would vest before the calendar
year or in the calendar year in which the effective time occurs will be cancelled and the holder thereof will then become entitled to receive, in
full satisfaction of such holder’s rights with respect thereto, a lump-sum cash payment equal to the product of (i) the number of shares of
Company common stock subject to such cancelled RSU immediately prior to the effective time and (ii) the merger consideration; and all
accumulated dividends, if any, accrued but unpaid with respect to such cancelled RSUs will, by virtue of the merger and without any action on
the part of a holder thereof, automatically become fully vested and be paid to such holder;
• at the effective time, each RSU that is outstanding immediately prior to the effective time and which by its terms would vest in any calendar year
following the calendar year in which the effective time occurs will be adjusted as necessary to provide that, at the effective time, each such RSU
will be converted into a Converted RSU, and each such Converted RSU will not be accelerated except as provided in the RSU Agreement. At the
effective time, Hydro One will assume all obligations of the Company with respect to the Company stock plans and each outstanding Converted
RSU and the RSU Agreements evidencing the grants thereof. As soon as practicable after the effective time, Hydro One will deliver to the holders
of Converted RSUs appropriate notices setting forth such holders’ rights, and the RSU Agreements evidencing the grants of such Converted
RSUs will continue in effect on the same terms and conditions (subject to the adjustments required by the merger agreement after giving effect to
the merger). The Converted RSUs will be settled in shares of common stock of Hydro One, which will not be subject to any Canadian hold period
and may be resold by the holder of the Converted RSU on the Toronto Stock Exchange without any applicable U.S. restricted period having
elapsed, or cash, as determined by Hydro One, and Hydro One will take all corporate action necessary to effectuate the foregoing.
Notwithstanding the foregoing, and for the purpose of clarity, it is understood by Hydro One, the Company and the surviving corporation that
the Converted RSUs will be awarded and issued under the Parent LTIP. For the avoidance of doubt, the terms and conditions applicable to such
Converted RSUs will be the same as the terms and conditions set forth in the Company stock plans and the RSU Agreements pursuant to which
such Converted RSUs were granted, notwithstanding that the Converted RSUs will be issued under the Parent LTIP;
• Converted RSU Awards will be subject to 100% accelerated vesting upon a termination of employment after the closing (other than by the
surviving corporation for “cause” or by the executive officer without “good reason”);
• pursuant to their Change of Control Agreements, executive officers (i) will be eligible to receive certain severance payments and benefits upon
certain types of terminations of employment that occur on or after the effective time and (ii) are entitled to continuation of their existing
employment and compensation terms for the three-year period following a change of control;
• effective as of the effective time, the Company will amend the Change of Control Agreements for each of the Company’s named executive
officers, namely, Scott L. Morris, Mark T. Thies, Dennis P. Vermillion, Marian M. Durkin and Karen S. Feltes to provide that each such individual
may voluntarily terminate his or her employment without “good reason” (as such term is defined in the applicable Change of Control
Agreement) upon providing the Company with notice of termination at least six (6) months prior to the individual’s date of termination, and
such voluntary termination without “good reason” shall be included as one of the events for the payment of severance payments and benefits,
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along with a voluntary termination for “good reason” and an involuntary termination without “cause” (each, a “qualifying termination”), such
that, for the avoidance of doubt, the same severance payments and benefits will be provided upon both a voluntary termination without “good
reason” and a qualifying termination; provided that the aggregate amount of severance payments and benefits to be received upon a voluntary
termination without “good reason” shall not exceed the aggregate amount of severance payments and benefits the individual would receive
upon a qualifying termination occurring at the effective time;
• all of the Company’s executive officers (other than the named executive officers), namely, Kevin J. Christie, James M. Kensok, Ryan L. Krasselt,
David J. Meyer, Kelly O. Norwood, Heather L. Rosentrater, Edward D. Schlect, Jr. and Jason R. Thackston, will be eligible to participate in the
Executive Retention Program to be established by Hydro One as of the effective time, under which the executive officer will have an opportunity
to earn a retention bonus equal to 150% of his or her base salary (at the rate in effect as of the effective time), provided such executive officer is
an active, full time employee of the Company on the next calendar day (the “Retention Date”) immediately following the day which is the third
year anniversary date of the effective time (the “CoC Agreement Termination Date”). If the executive officer’s employment terminates prior to
the Retention Date, then absent Hydro One’s good faith exercise of discretion under certain circumstances, such executive officer will not receive
any payment under the Executive Retention Program. Participation in the Executive Retention Program is subject to the executive officer’s
waiver/release, which will be effective as of the effective time, in which the executive officer acknowledges and agrees, notwithstanding any
provision of his or her Change of Control Agreement to the contrary, that his or her Change of Control Agreement will remain effective through
the CoC Agreement Termination Date and immediately thereafter terminate. If the executive officer elects (in his or her sole discretion) not to
execute such a waiver/release, such executive officer will not participate in the Executive Retention Program, and his or her Change of Control
Agreement will remain in place without the foregoing modification; and
• pursuant to their Change of Control Agreements, certain executive officers, including all of the Company’s named executive officers, are entitled
to a gross-up payment if the total amount of such executive officer’s payments and benefits that would be subject to the excise tax imposed
under Section 4999 of the Internal Revenue Code of 1986, as amended, which we refer to as the “Code” (the “Excise Tax”) exceeds 110% of the
greatest amount that could be paid to the executive officer such that the receipt of the payments and benefits would not give rise to any Excise
Tax; and with respect to an executive officer who is not eligible for a gross-up payment under his or her Change of Control Agreement, the
Company, subject to Hydro One’s prior approval, may take actions (other than providing gross-ups or any other action that would require
additional payments or costs to be incurred by the Company) to reduce the amount of any potential “excess parachute payments” for such
individual if he or she is a “disqualified individual” (each as defined in Section 280G of the Code), and acceleration of the vesting or payment of
any amounts or benefits due to an executive officer will not be considered the incurrence of an additional payment or cost by Company for
purposes of the foregoing.
The directors and executive officers of the Company also have the right to indemnification and insurance coverage that will survive the completion of the
merger. Please see the section below entitled “—Director and Officer Indemnification and Insurance” beginning on page 61 and the section of this proxy
statement entitled “The Merger Agreement—Director and Officer Indemnification and Insurance” beginning on page 88.
Payments to Executive Officers in Respect of Equity Awards
At the effective time, (i) each outstanding performance award will be cancelled in exchange for the right to receive a lump-sum cash payment equal to the
product of (A) the performance award amount, and (B) the merger consideration, subject to any required tax withholding; and all accumulated dividends, if
any, accrued but unpaid with respect to performance awards will automatically become fully vested and be paid to such holder; (ii) each
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outstanding RSU which by its terms would vest before the calendar year or in the calendar year in which the effective time occurs will be cancelled in
exchange for the right to receive a lump-sum cash payment equal to the product of (A) the number of shares of Company common stock subject to such
cancelled RSU immediately prior to the effective time and (B) the merger consideration; and all accumulated dividends, if any, accrued but unpaid with
respect to such cancelled RSUs will automatically become fully vested and be paid to such holder; and (iii) each outstanding RSU which by its terms would
vest in any calendar year following the calendar year in which the effective time occurs will be converted into a Converted RSU, and each such Converted
RSU will not be accelerated except as provided in the RSU Agreement, in each case, as described in the section entitled “The Merger Agreement—Treatment
of Equity Awards” beginning on page 76 of this proxy statement. All such Converted RSU Awards will fully vest in the event of a qualifying termination (as
described below) that occurs prior to the date on which the Converted RSU Award is scheduled to vest.
For purposes of the Converted RSU Awards, a qualifying termination means a termination other than by the surviving corporation for “cause” or by the
executive officer without “good reason,” each as defined in the Company’s Long-Term Incentive Plan, as amended and restated (the “LTIP”). The LTIP
defines “cause” as: (i) the willful and continued failure of the holder to perform substantially the holder’s duties with the Company or one of its subsidiaries
(other than any such failure resulting from incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the
holder by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or the Chief Executive
Officer believes that the holder has not substantially performed the holder’s duties; or (ii) the willful engaging by the holder in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company. The LTIP defines “good reason” as: (i) the assignment to the holder of any
duties inconsistent in any respect with the holder’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities,
or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by
the holder; (ii) any failure of the Company to comply with its standard compensation arrangements with the holder, including the failure to continue in effect
any material compensation or benefit plan (or the substantial equivalent thereof) in which the holder was participating at the time of a “change of control” (as
defined in the LTIP and which would include the merger), other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof from the holder; (iii) any purported termination of the holder’s employment or service for
“cause” by the Company that does not comply with the terms of the LTIP; or (iv) the failure of the Company to require that any successor corporation
(whether by purchase, merger, consolidation or otherwise) expressly assume and agree to be bound by the terms of the LTIP in the same manner and to the
same extent that the Company would be required to perform if no such succession had taken place.
The Company’s non-employee directors do not hold any RSUs or performance awards.
The table below sets forth: (i) the value of outstanding unvested performance awards expected to be held by our executive officers as of August 15, 2018; and
(ii) the value of outstanding unvested RSUs expected to be held by our executive officers as of August 15, 2018. The merger agreement provides that
performance awards and RSUs to be granted to each executive officer on February 2, 2018 may not exceed the aggregate grant date fair value of the
corresponding awards made to the executive officer on February 2, 2017. However, because the number of performance awards and RSUs related to the
aggregate grant date fair value on February 2, 2018 is not determinable at this time, the table (w) assumes that, on February 2, 2018, each executive officer
receives (1) a grant of performance awards that has an aggregate grant date fair value equal to the aggregate grant date fair value of the performance awards
granted to such executive officer on February 2, 2017 and (2) a grant of RSUs that has an aggregate grant date fair value equal to the aggregate grant date fair
value of the RSUs granted to such executive officer on February 2, 2017 (with the grants set forth in clauses (1) and (2) representative of the maximum
aggregate grant date fair values permissible under the merger agreement); (x) assumes that a prorated portion of the performance awards granted on
February 2, 2018 will be cashed out upon the completion of the
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merger, and that a prorated portion of the RSUs granted on February 2, 2018 will be converted into Converted RSUs upon completion of the merger (while
the merger agreement does not require such proration and would allow for the cash-out of all performance awards granted on February 2, 2018 and for the
conversion of all unvested RSUs granted on February 2, 2018 into Converted RSUs, the Company’s historic practice would be to provide for proration under
such circumstances, and for purposes of this disclosure, it has been assumed that the Board will follow such historic practice with respect to the performance
awards and RSUs granted on February 2, 2018); (y) excludes performance awards and RSUs that were previously granted to executive officers and that are
expected to vest in the ordinary course before August 15, 2018 in accordance with the existing terms of the applicable award agreements; and (z) assumes
that two quarterly dividends, each equal to $0.3575 per share, are issued, in the ordinary course of business consistent past practice. Any awards in 2018 will
be made, subject to the merger agreement, at the discretion of the Board and are subject to the approval of the Board. The table set forth below does not
include nor attempt to forecast any grants or additional issuances of incentive equity awards following September 1, 2017, the latest practicable date before
filing of this proxy statement (other than the annual grants expected to be made on February 2, 2018, as set forth above), nor do they forecast any dividends
(other than the ordinary course quarterly dividends set forth above) or forfeitures of incentive equity awards following the date of this proxy statement.
Depending on when the closing date occurs, certain performance awards and RSUs shown in the table may vest prior to the closing date in accordance with
their terms.
The table below also sets forth, for each individual and assuming the closing date occurs on August 15, 2018 for these purposes, the total value, based on the
number of incentive equity awards determined as described in the preceding paragraph, of (i) 100% of the then-outstanding performance awards granted prior
to September 1, 2017 and the prorated portion of the performance awards expected to be granted on February 2, 2018, all of which will be cashed-out upon
completion of the merger, plus (ii) 100% of the then-outstanding RSUs granted prior to September 1, 2017 and the prorated portion of the RSUs expected to
be granted on February 2, 2018, all of which will be converted into Converted RSUs upon completion of the merger. The amounts are calculated by
(x) multiplying the number of shares subject to each award by the per share merger consideration of $53.00, and (y) determining the number of shares subject
to the performance awards based on achievement of the performance criteria at (1) target level with respect to performance awards for which the performance
period has ended as of immediately prior to the effective time and (2) target level with respect to performance awards for which the performance period has
not ended as of immediately prior to the effective time.
Company Incentive Equity Awards and Accumulated Dividends (As of August 15, 2018)
Name Performance
Awards ($)(2)(3) RSUs ($)(4)(5) Total Value ($)
Named Executive Officers(1)
Scott L. Morris $ 4,966,258 $ 885,702 $ 5,851,960
Mark T. Thies $ 1,578,558 $ 281,450 $ 1,860,008
Dennis P. Vermillion $ 1,607,849 $ 286,787 $ 1,894,636
Marian M. Durkin $ 1,233,307 $ 220,092 $ 1,453,399
Karen S. Feltes $ 1,233,307 $ 220,092 $ 1,453,399
Other Executive Officers
Kevin J. Christie $ 518,251 $ 92,519 $ 610,770
James Kensok $ 518,251 $ 92,519 $ 610,770
Ryan L. Krasselt $ 518,251 $ 92,519 $ 610,770
David Meyer $ 518,251 $ 92,519 $ 610,770
Kelly Norwood $ 518,251 $ 92,519 $ 610,770
Heather L. Rosentrater $ 518,251 $ 92,519 $ 610,770
Edward D. Schlect, Jr.$ 518,251 $ 92,519 $ 610,770
Jason Thackston $ 1,044,229 $ 186,278 $ 1,230,507
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(1) The Company’s “named executive officers” are its chief executive officer, chief financial officer and the three other most highly compensated
executive officers, as determined for purposes of the Company’s most recent proxy statement.
(2) The values set forth above are based on the presumption that the Company’s executive officers receive the following number of performance awards on
February 2, 2018: (a) Morris: 28,884; (b) Thies: 9,181; (c) Vermillion: 9,351; (d) Durkin: 7,173; (e) Feltes: 7,173; (f) Christie: 3,014; (g) Kensok:
3,014; (h) Krasselt: 3,014; (i) Meyer: 3,014; (j) Norwood: 3,014; (k) Rosentrater: 3,014; (l) Schlect: 3,014; and (m) Thackston: 6,073.
(3) The values set forth above are based on the presumption that the Board will provide for a prorated portion of the performance awards granted on
February 2, 2018 to be cashed out. If the Board instead provides for all of the performance awards granted on February 2, 2018 to be cashed out, the
values set forth above would be replaced with the following: (a) Morris: $6,000,590; (b) Thies: $1,907,328; (c) Vermillion: $1,942,718; (d) Durkin:
$1,490,170; (e) Feltes: $1,490,170; (f) Christie: $626,188; (g) Kensok: $626,188; (h) Krasselt: $626,188; (i) Meyer: $626,188; (j) Norwood: $626,188;
(k) Rosentrater: $626,188; (l) Schlect: $626,188; and (m) Thackston: $1,261,713.
(4) The values set forth above are based on the presumption that the Company’s executive officers receive the following number of RSUs on February 2,
2018: (a) Morris: 9,627; (b) Thies: 3,059; (c) Vermillion: 3,117; (d) Durkin: 2,392; (e) Feltes: 2,392; (f) Christie: 1,006; (g) Kensok: 1,006; (h) Krasselt:
1,006; (i) Meyer: 1,006; (j) Norwood: 1,006; (k) Rosentrater: 1,006; (l) Schlect: 1,006; and (m) Thackston: 2,025.
(5) The values set forth above are based on the presumption that the Board will provide for a prorated portion of the RSUs granted on February 2, 2018 to
be converted into Converted RSUs. If the Board instead provides for all of the unvested RSUs granted on February 2, 2018 to be converted into
Converted RSUs, the values set forth above would be replaced with the following: (a) Morris: $1,230,436; (b) Thies: $390,996; (c) Vermillion:
$398,411; (d) Durkin: $305,756; (e) Feltes: $305,756; (f) Christie: $128,550; (g) Kensok: $128,550; (h) Krasselt: $128,550; (i) Meyer: $128,550;
(j) Norwood: $128,550; (k) Rosentrater: $128,550; (l) Schlect: $128,550; and (m) Thackston: $258,781.
Change of Control Agreements
Each of the following 13 executive officers of the Company has entered into a Change of Control Agreement with the Company: Scott L. Morris, Mark T.
Thies, Dennis P. Vermillion, Marian M. Durkin, Karen S. Feltes, Kevin J. Christie, James Kensok, Ryan L. Krasselt, David Meyer, Kelly Norwood, Heather L.
Rosentrater, Edward D. Schlect, Jr., and Jason Thackston. In the event an executive officer who is party to a Change of Control Agreement experiences a
qualifying termination (as described below) at any time prior to the third anniversary of the effective time, the executive will be entitled to the following
payments and benefits under his or her Change of Control Agreement:
• a lump-sum payment equal to the sum of (i) an amount equal to three times (for Messrs. Morris and Thies and Mmes. Durkin and Feltes) or two
times (for all other executive officers) the sum of (A) the executive officer’s annual base salary as in effect immediately prior to the qualifying
termination, and (B) the executive officer’s “highest annual bonus” (which means the greater of (x) the highest annual bonus paid in the last
three full fiscal years prior to the change of control (annualized for partial years of employment) and (y) the bonus paid for the most recently
completed fiscal year (annualized for partial years of employment)); and (ii) an amount equal to the executive officer’s pro-rata highest annual
bonus for the termination year (prorated based upon the number of days of employment with the Company until the termination date);
• a lump-sum payment equal to the present value of the continuation, for two years after the executive officer’s termination date or such longer
period as may be provided by the terms of the appropriate plan, program or policy, of health benefits to the executive officer and/or the executive
officer’s family that are at least equal to those which would have been provided to them in accordance with the plans, programs, practices and
policies described in the Change of Control Agreement and in effect on the termination date;
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• Company payment for reasonable outplacement service expenses actually incurred by the executive officer during a limited period of time (until
no longer than the last day of the second calendar year following the calendar year in which the termination occurs); and
• to the extent not theretofore paid or provided, Company payment or provision of any other amounts or benefits required to be paid or provided
or which the executive officer is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its
affiliated companies.
The Change of Control Agreements for Messrs. Morris, Thies, Meyer, Norwood, Kensok, Thackston and Vermillion and Mmes. Durkin and Feltes provide that
if any payment or distribution by the Company to or for the benefit of the executive officer (whether paid or payable or distributed or distributable pursuant
to the terms of the Change of Control Agreement or otherwise, but determined without regard to any additional gross-up payments under the Change of
Control Agreement, if any) (a “Payment”) would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by
the executive officer with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as
the “Excise Tax”), then the executive officer will be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment
by the executive officer of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes
(and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the executive officer retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding anything to the contrary in the foregoing, if the executive
officer would be entitled to a Gross-Up Payment, but the Payments do not exceed 110% of the greatest amount (the “Reduced Amount”) that could be paid to
the executive officer such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment will be paid to the executive officer,
and the Payments, in the aggregate, will be reduced to the Reduced Amount.
The Change of Control Agreements for all other executive officers provide that if any Payment would constitute an “excess parachute payment” within the
meaning of Section 280G of the Code, the aggregate present value of the Payments under the Change of Control Agreement will be reduced (but not below
zero) to the Reduced Amount, provided that the Payments will be reduced only if the accounting firm determines that the reduction will provide the
Executive with a greater net after-tax benefit than would no reduction. Payments will be reduced on a nondiscretionary basis in such a way as to minimize the
reduction in the economic value deliverable to the executive officer, in a manner consistent with the requirements of Code Section 409A. For these executive
officers, the merger agreement provides that the Company, subject to Hydro One’s prior approval, may take actions (other than providing gross-ups or any
other action that would require additional payments or costs to be incurred by the Company) to reduce the amount of any potential “excess parachute
payments” for such individual if he or she is a “disqualified individual” (each as defined in Section 280G of the Code), and acceleration of the vesting or
payment of any amounts or benefits due to an executive officer will not be considered the incurrence of an additional payment or cost by Company for
purposes of the foregoing.
For purposes of the Change of Control Agreements, a “qualifying termination” means a termination by the Company without “cause” or by the executive
officer for “good reason.” “Cause” means (i) the willful and continued failure of the executive officer to perform substantially the executive officer’s duties
with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for
substantial performance is delivered to the executive officer by the Board or the Chief Executive Officer of the Company which specifically identifies the
manner in which the Board or Chief Executive Officer believes that the executive officer has not substantially performed the executive officer’s duties, or
(ii) the willful engaging by the executive officer in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For
purposes of this provision, no act or failure to act, on the part of the executive officer, will be considered “willful” unless it is done, or omitted to be done, by
the executive officer in bad faith or without reasonable belief that the executive officer’s action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution
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duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for
the Company shall be conclusively presumed to be done, or omitted to be done, by the executive officer in good faith and in the best interests of the
Company. The cessation of employment of the executive officer shall not be deemed to be for Cause unless and until there shall have been delivered to the
executive officer a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting
of the Board called and held for such purpose (after reasonable notice is provided to the executive officer and the executive officer is given an opportunity,
together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the executive officer is guilty of the conduct
described in clauses (i) or (ii) above, and specifying the particulars thereof in detail.
“Good reason” means a voluntary termination by the executive officer that occurs within two years following the initial existence of any one of the following
conditions arising without the consent of the executive officer: (i) a material diminution by the Company of the executive officer’s authority, duties, or
responsibilities; (ii) a material diminution in the executive officer’s annual base salary; (iii) a relocation of the offices of the Company at which the executive
officer is principally employed to a location more than 50 miles from the location of such offices immediately prior to the change of control; (iv) a material
diminution in the authority, duties, or responsibilities of the supervisor to whom the executive officer is required to report, including a requirement that the
executive officer report to a corporate officer or employee instead of reporting directly to the Board; (v) a material diminution in the budget over which the
executive officer retains authority; or (vi) any action or inaction that constitutes a material breach by the Company of the Change of Control Agreement,
including the failure of the Company to obtain from its successors the express assumption and agreement required under the Change of Control Agreement.
The executive officer must provide notice to the Company of the existence of a condition described in clauses (i) through (vi) above within 90 days of the
initial existence of the condition, upon the notice of which the Company will be provided a period of 30 days during which it may remedy the condition. If
the Company does not agree with the executive officer’s “good reason” determination, the parties first will attempt to resolve such dispute in good faith, and
if such efforts are unsuccessful, the parties will submit to binding arbitration with such arbitration to be conducted in Spokane, Washington, by the American
Arbitration Association under its National Rules for the Resolution of Employment Disputes.
Effective as of the effective time, the Company will amend the Change of Control Agreements for Messrs. Morris, Thies and Vermillion and Mmes. Feltes and
Durkin to provide that each such individual may voluntarily terminate his or her employment without “good reason” (as defined above) upon providing the
Company with notice of termination at least six (6) months prior to the individual’s date of termination, and such voluntary termination without “good
reason” shall be included as one of the events for the payment of severance payments and benefits, along with a qualifying termination, such that, for the
avoidance of doubt, the same severance payments and benefits will be provided upon both a voluntary termination without “good reason” and a qualifying
termination; provided that the aggregate amount of severance payments and benefits to be received upon a voluntary termination without “good reason”
shall not exceed the aggregate amount of severance payments and benefits the individual would receive upon a qualifying termination occurring at the
effective time.
Pursuant to his or her Change of Control Agreement, each executive officer is entitled to (i) a position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities at least commensurate in all material respects with the most significant of those held, exercised and
assigned at any time during the 120-day period immediately preceding the change of control, with the executive officer’s services to be performed at a
location within 50 miles of his or her existing location; (ii) an annual base salary at least equal to 12 times the highest monthly rate in effect within 12-month
period preceding the change of control, with the rate to be reviewed no more than 12 months after the last salary increase awarded to the executive officer
prior to the change of control and thereafter at least annually (and provided that the rate cannot be reduced following any increase); (iii) a target annual
bonus at least equal to the highest annual bonus paid in the last three full fiscal years prior to the change of control (annualized for partial years of
employment); (iv) incentive, savings and retirement benefit opportunities and welfare benefit plans that are, in each case, no less favorable, in the
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aggregate, than the most favorable of (A) those provided in the 120-day period immediately preceding the change of control or (B) or if more favorable, those
provided generally at any time after the change of control to other peer executives of the Company and its affiliated companies; (v) expense reimbursements,
fringe benefits and vacation benefits (A) in accordance with the most favorable plans, practices, programs and policies in effect during the 120-day period
immediately preceding the change of control, or (B) if more favorable, as in effect generally at any time after the change of control with respect to other peer
executives of the Company and its affiliated companies; and (vi) office or offices of a size and with furnishings and other appointments, and to exclusive
personal secretarial and other assistance, (A) at least equal to the most favorable of the foregoing provided at any time during the 120-day period immediately
preceding the change of control, or (B) if more favorable to the executive officer, as provided generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
Executive Retention Program
Each of Messrs. Christie, Kensok, Krasselt, Meyer, Norwood, Schlect and Thackston and Ms. Rosentrater will be eligible to participate in the Executive
Retention Program to be established by Hydro One as of the effective time, under which the executive officer will have an opportunity to earn a retention
bonus equal to 150% of his or her base salary (at the rate in effect as of the effective time), provided such executive officer is an active, full time employee of
the Company on the Retention Date. If the executive officer’s employment terminates prior to the Retention Date, then absent Hydro One’s good faith
exercise of discretion under certain circumstances, such executive officer will not receive any payment under the Executive Retention Program. Participation
in the Executive Retention Program is subject to the executive officer’s waiver/release, which will be effective as of the effective time, in which the executive
officer acknowledges and agrees, notwithstanding any provision of his or her Change of Control Agreement to the contrary, that his or her Change of Control
Agreement will remain effective through the CoC Agreement Termination Date and immediately thereafter terminate. If the executive officer elects (in his or
her sole discretion) not to execute such a waiver/release, such executive officer will not participate in the Executive Retention Program, and his or her
Change of Control Agreement will remain in place without the foregoing modification. The aggregate amount payable under the Executive Retention
Program is $3,246,600, assuming each executive officer’s receipt of his or her entire retention bonus and calculated based on each executive officer’s base
salary level as in effect as of September 1, 2017, the latest practicable date before the filing of this proxy statement.
Director and Officer Indemnification and Insurance
Pursuant to the terms of the merger agreement, the directors and officers of the Company will be entitled to certain ongoing indemnification and coverage
under directors’ and officers’ liability insurance policies following the effective time of the merger. Such indemnification and insurance coverage is further
described in the section entitled “The Merger Agreement—Director and Officer Indemnification and Insurance” beginning on page 88.
Golden Parachute Compensation
In accordance with Item 402(t) of Regulation S-K, the tables below present the estimated amounts of compensation that each named executive officer could
receive that are based on or otherwise relate to the merger. This compensation is referred to as “golden parachute” compensation by the applicable SEC
disclosure rules, and in this section we use such term to describe the merger-related compensation payable to the Company’s named executive officers. This
merger-related compensation is subject to a nonbinding advisory vote of the Company’s stockholders.
The table below entitled “Potential Change of Control Payments to Executive Officers,” along with its footnotes, shows the compensation that may be paid
or may become payable in connection with, or following, the consummation of the merger to the Company’s executive officers identified in the most recent
proxy statement with respect to the 2017 annual meeting of Company shareholders.
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Please note that the amounts indicated below are estimates based on multiple assumptions that may or may not actually occur or be accurate on the relevant
date, including the assumptions described below, and do not reflect certain compensation actions that may occur before the completion of the merger and, as
a result, the actual amounts, if any, to be received by an executive officer may differ in material respects from the amounts set forth below.
The amounts indicated below do not attempt to quantify any reduction that may be required as a result of the contingent Section 280G cut back provisions
included in the Change of Control Agreements; therefore, actual payments to the executive officers who are party to Change of Control Agreements may be
less than the amounts indicated below.
For purposes of calculating the amounts indicated below, we have assumed:
• the effective time is August 15, 2018, which is the assumed date of the closing of the merger solely for purposes of this transaction-related
compensation disclosure;
• the relevant price per share of Company common stock is equal to the $53.00 merger consideration;
• each executive officer is terminated by the Company without “cause” or resigns for “good reason” (as such terms are defined in the relevant plans
and agreements), in each case, immediately following the effective time (each referred to as a “qualifying termination”);
• each executive officer will receive a grant of performance awards on February 2, 2018 that has an aggregate grant date fair value equal to the
aggregate grant date fair value of the performance awards granted to such executive officer on February 2, 2017; and a prorated portion of the
performance awards granted on February 2, 2018 will be cashed out upon completion of the merger (while the merger agreement does not require
such proration and would allow for the cash-out of all performance awards granted on February 2, 2018, the Company’s historic practice would
be to provide for proration under such circumstances, and for purposes of this disclosure, it has been assumed that the Board will follow such
historic practice with respect to the performance awards granted on February 2, 2018);
• each executive officer will receive a grant of RSUs on February 2, 2018 that has an aggregate grant date fair value equal to the aggregate grant
date fair value of the RSUs granted to such executive officer on February 2, 2017; and a prorated portion of the RSUs granted on February 2,
2018 will be converted into Converted RSUs upon completion of the merger (while the merger agreement does not require such proration and
would allow for the conversion of all unvested RSUs granted on February 2, 2018 into Converted RSUs, the Company’s historic practice would
be to provide for proration under such circumstances, and for purposes of this disclosure, it has been assumed that the Board will follow such
historic practice with respect to the RSUs granted on February 2, 2018);
• quantification of outstanding equity awards is calculated based on the outstanding equity awards held by each executive officer as of
September 1, 2017, the latest practicable date before the filing of this proxy statement, plus the additional equity awards to be granted to such
executive officer on February 2, 2018, as referenced above;
• all unvested equity awards held by each executive officer as of September 1, 2017 remain unvested immediately before the effective time
(excluding performance awards and RSUs that were previously granted to executive officers and that are expected to vest in the ordinary course
before August 15, 2018 in accordance with the existing terms of the applicable award agreements);
• each executive officer’s highest annual bonus paid in the last three full fiscal years and five-year taxable income history for purposes of the
Section 280G gross-up have been determined as of September 1, 2017, the latest practicable date before the filing of this proxy statement; and
• for purposes of the agreements and plans described below, the consummation of the merger as contemplated by the merger agreement constitutes
a “change of control” at the effective time.
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For a narrative description of the terms and conditions applicable to the payments quantified in the table below, see the sections entitled “—Payments to
Executive Officers in Respect of Equity Awards” and “—Change of Control Agreements” above.
Potential Change of Control Payments to Executive Officers
The tables below show (i) the compensation that may be paid or may become payable in connection with, or following, the consummation of the merger to
each of the Company’s named executive officers identified in the most recent proxy statement with respect to the 2017 annual meeting of Company
shareholders and (ii) the aggregate compensation that may be paid or may become payable in connection with, or following, the consummation of the merger
to the Company’s eight other executive officers.
Named Executive Officer Severance (1)
Value of
Accelerated
Equity (2)
Health
Benefits (3)
Outplacement
(4)
Section 280G
Gross-Up (5) Total (6)
Scott L. Morris,
Chairman, President & CEO $ 6,392,751 $ 5,851,960 $ 32,949 $ 25,000 $ 4,692,976 $ 16,995,636
Mark T. Thies,
Senior Vice President, CFO & Treasurer $ 2,478,889 $ 1,860,008 $ 43,760 $ 25,000 $ 1,558,549 $ 5,966,206
Dennis P. Vermillion,
Senior Vice President & ECO $ 1,502,909 $ 1,894,636 $ 43,760 $ 25,000 $ 0 $ 3,466,305
Marian M. Durkin,
Senior Vice President, General Counsel, CCO &
Corporate Secretary $ 2,143,597 $ 1,453,399 $ 32,520 $ 25,000 $ 1,280,965 $ 4,935,481
Karen S. Feltes,
Senior Vice President & CHRO $ 2,020,932 $ 1,453,399 $ 32,520 $ 25,000 $ 1,239,266 $ 4,771,117
Other Executive Officers Severance (1)
Value of
Accelerated
Equity (2)
Health
Benefits (3)
Outplacement
(4)
Section 280G
Gross-Up (5) Total
Aggregate for Eight Other Executive Officers $ 7,445,351 $ 5,505,892 $ 324,554 $ 200,000 $ 905,204 $ 14,381,001
(1)Severance. The estimated amounts listed in this column represent the aggregate value of cash severance each executive officer would be entitled to
receive under his or her Change of Control Agreement in connection with a qualifying termination at any time prior to the third anniversary of the
effective time. Specifically, the executive officer would be entitled to a lump-sum payment equal to the sum of (i) an amount (the “Base and Bonus
Severance”) equal to three times (for Messrs. Morris and Thies and Mmes. Durkin and Feltes) or two times (for Mr. Vermillion) the sum of the executive
officer’s (A) annual base salary as in effect immediately prior to the qualifying termination, and (B) “highest annual bonus” (which means the greater of
(x) the highest annual bonus paid in the last three full fiscal years prior to the effective time (annualized for partial years of employment) and (y) the
bonus paid for the most recently completed fiscal year (annualized for partial years of employment)); and (ii) an amount (the “Pro-Rata Bonus”) equal
to the executive officer’s pro-rata highest annual bonus for the termination year (prorated based upon the number of days of employment with the
Company until the termination date). Severance payments are “double-trigger” in that they would be paid to the executive officer only if such
executive officer experiences a qualifying termination at any time prior to the third anniversary of the effective time. As noted above in “—Change of
Control Agreements,” the Company will amend the Change of Control Agreements for Messrs. Morris, Thies and Vermillion and Mmes. Durkin and
Feltes to provide that each such individual
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may voluntarily terminate his or her employment without “good reason” (as defined above) upon providing the Company with notice of termination at
least six (6) months prior to the individual’s date of termination, and upon such a termination of employment without “good reason,” the individual
will receive the same severance payments and benefits as are payable upon a qualifying termination (but not to exceed the aggregate amount of
severance payments and benefits the individual would receive upon a qualifying termination occurring at the effective time). The estimated amounts
shown in this column are based on the compensation levels in effect on September 1, 2017, the latest practicable date to determine such amounts
before the filing of this proxy statement; therefore, if compensation levels are changed after such date, actual payments to an executive officer may be
different than those listed in this column. For additional information see “—Interests of the Company’s Directors and Executive Officers in the Merger
—Change of Control Agreements.”
Named Executive Officer
Base and Bonus
Severance Pro-Rata Bonus Total
Scott L. Morris $ 5,719,926 $ 672,825 $6,392,751
Mark T. Thies $ 2,270,461 $ 208,428 $2,478,889
Dennis P. Vermillion $ 1,302,114 $ 200,795 $1,502,909
Marian M. Durkin $ 1,963,687 $ 179,910 $2,143,597
Karen S. Feltes $ 1,857,389 $ 163,543 $2,020,932
(2)Value of Accelerated Equity. The estimated amounts listed in this column represent the aggregate values in respect of each executive officer’s unvested
performance awards and RSUs and accumulated dividends as of September 1, 2017, the latest practicable date before the filing of this proxy statement,
plus the estimated equity awards to be granted on February 2, 2018, as set forth in more detail in the table below. Payments in respect of all
performance awards and in respect of RSUs granted before 2018 which by their terms would vest before the calendar year or in the calendar year in
which the effective time occurs are “single-trigger” in that they are payable immediately upon the closing date, whether or not employment is
terminated. Payments in respect of RSUs which by their terms would vest in any calendar year following the calendar year in which the effective time
occurs and are converted into Converted RSU Awards that vest in the ordinary course of business following the effective time, subject to fully
accelerated vesting upon certain qualifying terminations, are “double-trigger” in that such payments are payable prior to the normal vesting date only
in connection with the executive officer’s qualifying termination. We have assumed that a prorated portion of the performance awards granted to each
executive officer on February 2, 2018 will be cashed out, and that a prorated portion of the RSUs granted to each executive officer on February 2, 2018
will be converted into Converted RSUs upon completion of the merger. While the merger agreement does not require such proration and would allow
for the cash-out of all performance awards granted on February 2, 2018 and for the conversion of all unvested RSUs granted on February 2, 2018 into
Converted RSUs, the Company’s historic practice would be to provide for proration under such circumstances, and for purposes of this disclosure, it
has been assumed that the Board will follow such historic practice with respect to the performance awards and RSUs granted on February 2, 2018. For
additional information, please see the section entitled “The Merger Agreement—Treatment of Equity Awards.”
Named Executive Officer
Aggregate
Value of
Performance
Awards (a)
Aggregate
Value of RSUs Total
Scott L. Morris $4,966,258 $ 885,702 $5,851,960
Mark T. Thies $1,578,558 $ 281,450 $1,860,008
Dennis P. Vermillion $1,607,849 $ 286,787 $1,894,636
Marian M. Durkin $1,233,307 $ 220,092 $1,453,399
Karen S. Feltes $1,233,307 $ 220,092 $1,453,399
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Other Executive Officers
Aggregate
Value of
Performance
Awards (a)
Aggregate
Value of RSUs Total
Aggregate for Eight Other Executive Officers $4,671,985 $ 833,907 $5,505,892
(a) Assumes all applicable performance criteria are satisfied at (x) target level with respect to performance awards for which the performance period
has ended as of immediately prior to the effective time and (y) at target level with respect to performance awards for which the performance
period has not ended as of immediately prior to the effective time.
(3)Health Benefits. The estimated amounts listed in this column represent the present value of the continuation, for two years after the executive officer’s
termination date, of the health insurance benefits that each executive officer would be entitled to receive under his or her Change of Control
Agreement in connection with a qualifying termination at any time prior to the third anniversary of the effective time. Continued health insurance
benefits are “double-trigger” in that they would be paid to an executive officer only if such executive officer experiences a qualifying termination at
any time prior to the third anniversary of the effective time. The estimated amounts shown in this column are based on the health insurance benefit
levels in effect on September 1, 2017, the latest practicable date to determine such amounts before the filing of this proxy statement; therefore, if health
insurance benefit levels are changed after such date, actual payments to an executive officer may be different than those listed in this column. For
additional information see “—Interests of the Company’s Directors and Executive Officers in the Merger—Change of Control Agreements.”
(4)Outplacement. The estimated amounts listed in this column represent the amount of the executive officer’s reasonable outplacement service expenses
paid by the Company, assuming the executive officer actually utilizes outplacement services and incurs a total cost equal to $25,000. The actual
payments to an executive officer may be different than those listed in this column, depending upon the actual amount of the outplacement service
expenses. Outplacement service benefits are “double-trigger” in that they would be paid to an executive officer only if such executive officer
experiences a qualifying termination at any time prior to the third anniversary of the effective time. For additional information see “—Interests of the
Company’s Directors and Executive Officers in the Merger—Change of Control Agreements.”
(5)Section 280G Gross-Up. The amounts listed in this column represent the Gross-Up Payment paid to the executive officer (if any) pursuant to his or her
Change of Control Agreement. The Gross-Up Payment is “single-trigger” if paid absent a termination of employment and “double-trigger” if paid as
the result of a termination of employment. For additional information see “—Interests of the Company’s Directors and Executive Officers in the Merger
—Change of Control Agreements.”
The amounts listed in this column would be replaced with the following amounts, if, instead of the proration discussed above, the Board provides for
all of the performance awards and RSUs granted on February 2, 2018 to be cashed out or converted into Converted RSUs, respectively: (a) Morris:
$5,283,738; (b) Thies: $1,746,323; (c) Vermillion: $1,400,218; (d) Durkin: $1,427,681; (e) Feltes: $1,385,982; and (f) Aggregate for Eight Other
Executive Officers: $1,029,422.
(6)Total. The amounts listed in this column would be replaced with the following amounts, if, instead of the proration discussed above, the Board
provides for all of the performance awards and RSUs granted on February 2, 2018 to be cashed out or converted into Converted RSUs, respectively:
(a) Morris: $18,965,464; (b) Thies: $6,592,295; (c) Vermillion: $5,475,489*; (d) Durkin: $5,424,725; (e) Feltes: $5,260,360; and (f) Aggregate for
Eight Other Executive Officers: $15,802,980.
* If all of Mr. Vermillion’s performance awards and RSUs granted on February 2, 2018 are cashed out or converted into Converted RSUs,
respectively, his severance payments would no longer be subject to a cutback of $162,473, and instead, he would be entitled to receive the full
amount of his severance payments plus an additional Gross-Up Payment.
New Management Arrangements
As of the date of this proxy statement, none of the Company, Hydro One, US Parent or Merger Sub has entered into any employment agreements with the
Company’s executive officers in connection with the merger. Prior to or following the closing of the merger, however, certain of the Company’s executive
officers have had and may
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continue to have discussions, or may enter into agreements, with Hydro One, US Parent, Merger Sub and/or their respective affiliates regarding employment
with, or the right to purchase or participate in the equity of, the surviving corporation or one or more of its affiliates.
The Board unanimously recommends a vote “FOR” the approval of the nonbinding compensation proposal.
The vote on the nonbinding compensation proposal is a vote separate and apart from the vote to approve the merger agreement. Accordingly, you may vote
to approve the merger and vote not to approve the compensation and vice versa. This nonbinding compensation proposal relates only to already existing
contractual obligations of the Company that may result in a payment to the Company’s named executive officers in connection with, or following, the
consummation of the merger and does not relate to any new compensation or other arrangements between the Company’s named executive officers and
Hydro One or, following the merger, the surviving corporation and its subsidiaries. Because the vote is advisory in nature only, it will not be binding on the
Company or the Board. Accordingly, because the Company is contractually obligated to pay the compensation, such compensation will be paid or become
payable, subject only to the conditions applicable thereto, if the merger is consummated and regardless of the outcome of the advisory vote.
The approval of the nonbinding compensation proposal requires that the number of votes cast in favor of the proposal exceeds the votes cast opposing the
proposal. Assuming a quorum is present at the special meeting, abstentions, failures to vote and “broker non-votes” will have no effect on the outcome of the
nonbinding compensation proposal. This is an advisory vote only and will not be binding on the Company or the Board.
Material U.S. Federal Income Tax Consequences of the Merger
The following discussion summarizes the material U.S. federal income tax consequences of the merger to holders of Company common stock. This discussion
is based upon the Code, the U.S. Treasury Regulations promulgated thereunder and judicial and administrative rulings, all as in effect as of the date of this
proxy statement and all of which are subject to change or varying interpretation, possibly with retroactive effect. Any such changes could affect the accuracy
of the statements and conclusions set forth herein.
This discussion applies only to a holder of Company common stock that holds its shares as capital assets within the meaning of Section 1221 of the Code
(generally, property held for investment). This discussion is general in nature and does not address all aspects of U.S. federal income taxation that may be
relevant to a holder of Company common stock in light of such holder’s particular circumstances, nor does it discuss the special considerations applicable to
holders of Company common stock subject to special treatment under the U.S. federal income tax laws, such as, for example, banks or other financial
institutions, broker-dealers, mutual funds, real estate investment trusts, partnerships or other pass-through entities and their partners or members, tax-exempt
organizations, retirement or other tax-deferred accounts, insurance companies, dealers in securities or foreign currencies, traders in securities who elect mark-
to-market method of accounting, controlled foreign corporations, passive foreign investment companies, U.S. expatriates, holders who acquired their
Company common stock through the exercise of options, through a tax qualified retirement plan or otherwise as compensation, holders who hold their
Company common stock as part of a hedge, straddle, constructive sale or conversion or any other risk reduction transaction, U.S. holders (as defined below)
whose functional currency is not the U.S. dollar, holders who are subject to the U.S. alternative minimum tax, holders who exercise appraisal rights, and,
except as noted below, holders who own an equity interest, actually or constructively, in Hydro One following the merger. This discussion does not address
any tax consequences arising under any aspect of foreign, state, local, estate, gift or other tax law that may be applicable to a holder.
We intend this discussion to provide only a general summary of the material U.S. federal income tax consequences of the merger to holders of Company
common stock. We do not intend it to be a complete analysis or description of all potential U.S. federal income tax consequences of the merger. The U.S.
federal income tax laws are complex and subject to varying interpretation. We have not sought, and do not intend to seek, any ruling
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the number of shares of Company common stock held beneficially, as of August 31, 2017, by (i) each director, (ii) each of
Company named executive officers (“NEOs”), (iii) all current directors and executive officers as a group and (iv) each person who is known to the Company
to be the beneficial owner of more than 5% of the Company common stock. As of August 31, 2017, there were 64,413,108 shares of Company common stock
outstanding.
Beneficial ownership, as shown below under the heading “Shares Beneficially Owned,” has been determined in accordance with Rule 13d-3 under the
Exchange Act. Under this rule, certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to
vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire shares
(for example, upon the exercise of an option or warrant or the vesting of an equity award) within 60 days of the date as of which the information is provided.
Shares shown under the heading “Other” are not considered beneficially owned in accordance with Rule 13d-3, but are considered by the Company in
determining whether an individual has met the Company’s share ownership guidelines. In computing the percentage ownership of any person, the amount of
shares is deemed to include the amount of shares beneficially owned by such person by reason of such acquisition rights. As a result, the percentage of
outstanding shares of any person as shown in the table may not necessarily reflect the person’s actual voting power at any particular date.
To our knowledge, except as indicated in footnotes to the table, the persons named in the table have sole voting and investment power with respect to all
shares of Company common stock shown as beneficially owned by them.
Shares Beneficially
Owned Other
Name Direct Indirect
Other
Deferred
Shares(1)
RSUs
Not Yet
Vested(2) Total
Percent of
Class
Directors and NEOs
Erik J. Anderson 20,336 20,336 *
Kristianne Blake 21,636 2,519 24,155 *
Donald C. Burke 14,540 14,540 *
Marian M. Durkin 71,043 6,600 77,643 *
Karen S. Feltes 21,490 6,624 28,114 *
Rebecca A. Klein 19,225 19,225 *
Scott H. Maw 4,184 4,184 *
Scott L. Morris 183,730 164(3) 183,894 *
Marc F. Racicot 16,694 16,694 *
Heidi B. Stanley 15,381 10,248(4) 25,629 *
R. John Taylor 1,554 9,179(5) 5,496 16,229 *
Mark T. Thies 84,178 5,751(6) 8,439 98,368 *
Dennis P. Vermillion 32,884 90(3) 8,599 41,573 *
Janet D. Widmann 5,726 5,726 *
All directors and executive officers as a group, including those listed
above (22 individuals) 555,401 42,734 10,813 54,749 663,697 *
5% Beneficial Owners
BlackRock, Inc.(7) 11,075,357 11,075,357 17.3%
The Vanguard Group, Inc.(8) 6,020,939 6,020,939 9.38%
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Footnotes:
* As of August 31, 2017, the officers and directors as a group hold 1.1% of the shares outstanding. No director or executive officer owns in excess of 1%
of the shares outstanding. None of the directors or NEOs has pledged Company common stock as security.
(1) Shares deferred under the Executive Deferred Compensation Plan or under the former Non-Employee Director Stock Plan.
(2) Time-based RSUs that have been granted to the executive officers, but have not yet vested. RSUs vest in three equal annual increments, provided the
officer remains employed by the Company. If the employment of an executive officer terminates, all unvested shares are forfeited.
(3) Shares held in the ESOP.
(4) Shares held by Ms. Stanley’s spouse, Ronald Stanley, in a profit-sharing plan not administered by the Company.
(5) Shares held by Mr. Taylor in his ESOP, IRA and Profit Sharing Plan, over which he has sole voting power and sole investment power.
(6) Shares held by Mr. Thies’ spouse, Elizabeth Thies.
(7) As shown on Schedule 13G filed with the SEC on January 12, 2017, by BlackRock, Inc., a parent holding company, the beneficial owner has sole
voting power over 10,894,556 shares and sole dispositive power over 11,075,357 shares. The mailing address of the beneficial owner is 55 East 52nd
Street, New York, New York 10055.
(8) The Vanguard Group, Inc. is the holder of the Company’s ESOP accounts. As shown on Schedule 13G filed with the SEC on February 10, 2017,
Vanguard has sole voting power over 87,662 shares, shared voting power over 6,900 shares, sole dispositive power over 5,941,596 shares and shared
dispositive power over 79,343 shares. The address of the beneficial owner is 100 Vanguard Blvd., Malvern, Pennsylvania 19355.
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